TERRA INDUSTRIES INC - 10-K405 - 20010320 - PART_I
PART I
Items 1 and 2. Business and properties................................................................................... 1
Item 3. Legal proceedings......................................................................................... 8
Item 4. Submission of matters to a vote of security holders....................................................... 8
Executive officers of Terra............................................................................... 8
PART II
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Item 5. Market for Terra's common equity and related stockholder matters.......................................... 10
Item 6. Selected financial data................................................................................... 10
Item 7. Management's discussion and analysis of financial condition
and results of operations................................................................................. 10
Item 7a. Quantitative and qualitative disclosures about market risk................................................ 10
Item 8. Financial statements and supplementary data............................................................... 10
Item 9. Changes in and disagreements with accountants on accounting
and financial disclosure.................................................................................. 10
PART III
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Item 10. Directors and executive officers of Terra................................................................. 11
Item 11. Executive compensation.................................................................................... 11
Item 12. Security ownership of certain beneficial owners and management............................................ 11
Item 13. Certain relationships and related transactions............................................................ 11
PART IV
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Item 14. Exhibits, financial statement schedules and reports on Form 8-K........................................... 11
Signatures.................................................................................................................. 17
Index to financial statement schedules, reports and consents................................................................ S-1
PART I
Items 1 and 2. BUSINESS AND PROPERTIES.
Terra Industries Inc., a Maryland corporation, is referred to as "Terra"
throughout this report. References to Terra also include the direct and indirect
subsidiaries of Terra Industries Inc. where required by the context.
Subsidiaries not wholly-owned by Terra include a limited partnership, Terra
Nitrogen Company, L.P., which, through its subsidiary, Terra Nitrogen, L.P.,
operates Terra's manufacturing facilities in Blytheville, Arkansas and
Verdigris, Oklahoma. Terra is the sole general partner and the majority limited
partner in Terra Nitrogen Company, L.P. Terra's principal corporate office is
located at Terra Centre, 600 Fourth Street, P.O. Box 6000, Sioux City, Iowa
51102-6000 and its telephone number is (712) 277-1340.
Business Overview
Terra is an industry leader in the production and marketing of both
nitrogen products and methanol. Terra is one of the largest producers of
anhydrous ammonia and nitrogen solutions in the United States and Canada and is
the largest producer of ammonium nitrate in the United Kingdom. In addition,
Terra is one of the largest U.S. producers and marketers of methanol.
Terra owns eight facilities that produce nitrogen products. Two of these
eight facilities also produce methanol. These facilities are located in or near
the following locations and have the following production capacities:
1. Measured in gross tons of ammonia produced; net tons available for sale
will vary with upgrading requirements.
2. Urea is sold as urea liquor from Port Neal and Woodward and as a granular
urea from Blytheville and Courtright. Production capacities for both forms
are measured in tons.
3. Measured in gallons.
4. Measured in tons.
5. Terra's Beaumont, Texas facility produced only methanol until completion of
an ammonia production loop at that facility in January 2000.
6. Ammonia capacity depends, in part, on the desired rate of methanol
production at this facility.
7. Terra's Billingham, England facility also produces merchant nitric acid;
2000 sales were 262,000 product tons.
1
Until June 30, 1999, Terra also operated retail facilities in the U.S. and
Canada for the distribution and marketing of fertilizers, crop protection
products, seed and services. Terra sold this business to Agro Distribution,
LLC, an affiliate of Cenex/Land O'Lakes Agronomy Company, on that date.
Nitrogen Products
Nitrogen is a primary nutrient essential for plant growth. Nitrogen
fertilizers must be reapplied each year in agricultural areas because of
absorption by crops and leaching from the soil. There are currently no
substitutes for nitrogen fertilizers in the cultivation of high-yield crops.
Terra is a major producer and distributor of nitrogen products, principally
fertilizers. Ammonia, urea and urea ammonium nitrate solution ("UAN") are the
principal nitrogen products produced and sold by Terra in North America. Terra
produces and sells principally ammonia and ammonium nitrate ("AN") in the U.K.
A significant portion of Terra's ammonia production is upgraded into other
nitrogen products, such as urea, UAN and AN. Other important products
manufactured by Terra in both the U.S. and U.K. include nitric acid and carbon
dioxide. These products, along with a portion of ammonia and urea sales, are
used as industrial feedstocks not tied to the agricultural market.
Although these different nitrogen products are interchangeable to some extent,
each has its own characteristics which make one product or another preferable to
the end-user. These 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.
These various nitrogen products are described in greater detail below:
Ammonia. Anhydrous ammonia (often referred to simply as "ammonia") is the
simplest form of nitrogen fertilizer and is the feedstock for the production of
most other nitrogen fertilizers, including urea, UAN and AN. Ammonia is
produced when natural gas reacts 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. Ammonia has a distinctive pungent odor and requires refrigeration or
pressurization for transportation and storage.
Urea. Urea is produced for both the animal feed and fertilizer market by
converting ammonia and carbon dioxide into liquid urea, which can be processed
into a solid, granular form. Urea has a nitrogen content of 46% by weight, the
highest level for any solid nitrogen product. Terra produces both a granulated
form of solid urea, generally for the fertilizer market, and urea liquor
(liquid) for animal feed supplements and industrial applications.
UAN. Terra produces UAN at five of its six North American fertilizer
manufacturing facilities. Terra's Verdigris, Oklahoma facility is one of the
largest UAN production facilities in North America. UAN is produced by
combining liquid urea, liquid ammonium nitrate and water. The nitrogen content
of UAN is approximately 28% to 32% by weight. UAN is a liquid fertilizer and,
unlike ammonia, is odorless and does not require refrigeration or pressurization
for transportation or storage.
UAN may be applied separately or may be mixed with various crop protection
products, permitting the application of several materials simultaneously, thus
reducing energy and labor costs and accelerating field preparation for planting.
In addition, UAN may be applied from ordinary tanks and trucks and can be
sprayed or injected into the soil, or applied through irrigation systems,
throughout the growing season. UAN is relatively expensive to transport and
store because of its high water content. Due to its stable nature, UAN may be
used for no-till row crops where fertilizer is spread on the surface of the soil
but may be subject to volatilization losses.
AN. Terra produces AN at its two facilities in the U.K. AN is produced by
combining nitric acid and ammonia into a liquid form which is then converted to
a solid. The nitrogen content of AN is 34.5% by weight.
Plants. All of Terra's North American facilities are integrated facilities for
the production of ammonia, liquid urea and UAN (except for the Beaumont, Texas
location which produces only ammonia and methanol, and the Verdigris, Oklahoma
facility, which produces only ammonia and UAN). In addition, Terra's facilities
in Blytheville, Arkansas and Courtright, Ontario produce granular urea and the
facility in Woodward, Oklahoma also produces
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methanol. Terra's two U.K. facilities are integrated facilities for the
production of ammonia, ammonium nitrate, liquid carbon dioxide and, at the
Billingham location, nitric acid.
Terra's eight 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 Terra's
fertilizer manufacturing facilities was 93% in 2000, 96% in 1999 and 102% in
1998. Terra's capacity utilization was reduced in 2000 as a result of several
plant shutdowns due to natural gas prices increasing faster than nitrogen
prices.
Terra owns all of its manufacturing facilities in fee, unless otherwise stated
below. (See "Methanol - Plants" for a description of leased facilities at the
Beaumont, Texas facility.) All Terra manufacturing facilities (including the
Beaumont facility) are subject to encumbrances in favor of lenders.
Located at the Verdigris, Oklahoma facility are two ammonia plants, two nitric
acid plants, two UAN plants and a port terminal. Terra 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 Terra has an option to renew the 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 Terra has an option to extend the lease for eleven
successive terms of five years each at the same rental rate. Terra 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 Terra has an option to extend the lease for three successive terms of
five years each at the same rental rate. Terra also has a similar, unconditional
option to purchase the urea plant for a nominal price.
In the first quarter of 2000, Terra completed a $61.7 million capital project
to add an ammonia production loop to its Beaumont, Texas facility that has added
255,000 tons of annual ammonia production capacity.
Marketing and Distribution. Terra's production facilities, combined with
significant storage capacity at over 60 locations throughout the major
fertilizer consuming regions of the U.S., position Terra to be a major supplier
of nitrogen fertilizers.
Terra's principal customers for its North American manufactured nitrogen
products are independent dealers, national retail chains, cooperatives and
industrial customers. In the U.K., revenues are split approximately evenly
between agricultural and industrial customers. Overall, industrial customers
purchased approximately 21% of Terra's nitrogen product production in each of
2000 and 1999 and approximately 23% of Terra's 1998 production.
As part of Terra's sale of its farm service centers and distribution business
to Cenex/Land O'Lakes Agronomy Company in the second quarter of 1999, Terra
entered into an agreement to supply Cenex/Land O'Lakes nitrogen fertilizer
products. Under this agreement, Cenex/Land O'Lakes will for three years purchase
from Terra approximately the quantity of product that Terra supplied to both
Terra's own distribution business and to Cenex/Land O'Lakes before the sale of
the distribution business. Terra sold approximately 12% of its North American
production to Cenex/Land O'Lakes under this supply agreement in 1999 and
approximately 13% of its North American production to Cenex/Land O'Lakes in
2000.
Under an agreement with Imperial Chemical Industries (ICI), Terra may make
payments to ICI based on the market price obtained for ammonium nitrate sales by
Terra's U.K. business. Over the term of this agreement, Terra must make a
payment for any year through 2002 in which the average ammonium nitrate price it
receives exceeds certain thresholds, subject to a maximum payment of (Pounds)58
million ($95.7 million at the time the agreement was signed). Because of these
payments, Terra will not benefit fully from the U.K. market price of ammonium
nitrate over certain thresholds during this agreement's term. Terra did not
make any payments to ICI under this agreement in 1998, 1999 or 2000.
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Methanol
Terra possesses approximately 320 million gallons of annual methanol
production capacity, representing approximately 21% of total U.S. rated methanol
production capacity (1.5 billion gallons) at the end of 2000.
Product. Methanol is a liquid petrochemical made primarily from natural gas.
It is used as a feedstock in the production of other chemical products such as
formaldehyde, acetic acid and chemicals used in the building products industry.
Another major market for methanol is as a feedstock in the production of methyl
tertiary butyl ether or MTBE, an oxygenate used as an additive in re-formulated
gasoline and as an octane enhancer in non-reformulated gasoline. The methanol
manufacturing process involves heating natural gas feedstock, mixing it with
steam and passing it over a nickel-based catalyst, which breaks it down into
carbon monoxide, carbon dioxide and water. This reformed gas is then cooled,
compressed and passed over a copper-zinc-based catalyst to produce crude
methanol. Crude methanol consists of approximately 80% methanol and 20% water.
Crude methanol is distilled to remove water and impurities in order to convert
it to high-purity chemical-grade methanol suitable for sale.
Plants. Terra's Woodward, Oklahoma facility produced approximately 38
million, 34 million and 36 million gallons of methanol in 1998, 1999 and 2000
respectively and has an annual methanol production capacity of 40 million
gallons. Terra's Beaumont, Texas facility is among the largest methanol
production plants in the U.S., with approximately 280 million gallons of annual
methanol production capacity. This plant produced 258 million, 207 million and
208 million gallons of methanol in 1998, 1999 and 2000 respectively.
Terra owns the plant and processing equipment at the Beaumont facility. The
land is leased by Terra from E.I. du Pont de Nemours and Company (DuPont) for a
nominal annual rate under a lease agreement which expires in 2090. Because the
Beaumont facility is entirely contained within an industrial complex owned and
operated by DuPont, Terra depends on DuPont for access to the facility as well
as certain essential services. Most of the finished methanol product is shipped
to customers through wharf facilities located on DuPont property. Lastly, Terra
depends on DuPont for access to the pipelines used to transport methanol and to
obtain natural gas, as well as for certain utilities, wastewater treatment
facilities and other essential services.
Marketing and Distribution; Contracts. Terra's methanol customers are
primarily large, domestic chemical or MTBE producers. Terra has a number of
long-term methanol sales contracts, the most significant of which is with
DuPont. In 2000, Terra sold over 57% of its production under such contracts.
At December 31, 2000, Terra had contracted to sell over 62% of its 2001
scheduled production at prices indexed to published sources. Most of these
sales contracts (other than the DuPont contract noted below) cover fixed volumes
and have terms of up to three years.
Under the DuPont contract, as amended, DuPont has agreed to purchase from
Terra 54 million gallons of methanol each year through 2001 (representing 19% of
the Beaumont facility's annual production capacity). The price of the methanol
delivered under this contract is generally negotiated on the basis of an
established index and the previous month's price. The DuPont contract accounted
for approximately 20% of Terra's methanol sales
Breakdown of Revenue by Product
The approximate revenue contributions of Terra's principal products (based
upon percentages of Terra's consolidated revenues) for each of the last three
years are as follows:
Terra's credit terms are generally 15-30 days in the U.S. and 30 days in the
U.K., but may be extended for longer periods during certain sales seasons
consistent with industry practices. Bad debt writeoffs associated with Terra's
nitrogen products and methanol manufacturing business 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. Nitrogen fertilizer inventories must be accumulated to permit
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.
Nitrogen fertilizer prices 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 and
imported to the U.K.;
. 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 and methanol.
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 increasing availability of
nitrogen product exports from major producing regions such as the former Soviet
Union, the Middle East and South America, where in many instances producers have
access to relatively low-cost natural gas supplies. 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 capacity in North America. Some, but not all, of these shutdowns
are expected to be permanent.
Price volatility in North American natural gas markets prompted industry-wide
curtailment of both nitrogen fertilizer and methanol production in 2000. Terra
idled its Blytheville, Arkansas plant from June through mid-August 2000 and the
Blytheville, Arkansas and Beaumont, Texas plants and parts of the Verdigris,
Oklahoma plant for the month of December 2000 due to high natural gas costs.
During 2000, Terra produced only 89% and 84% of its ammonia and methanol
capacity (respectively) because of plant shutdowns due to high natural gas costs
and low product selling prices.
While most U.S. methanol is sold pursuant to long-term contracts based on
market index pricing and fixed volumes, the spot market price of methanol can be
volatile. The industry has experienced cycles of oversupply, resulting in
depressed prices and idled capacity, followed by periods of shortage and rapidly
rising prices. At the end of 1998 and through 1999, methanol sales prices were
below the low end of their historic sales price range; however by early 2000
prices had improved to historic levels. Future demand for methanol will depend
in part on the regulatory environment with respect to reformulated gasoline. In
1999, the State of California mandated a ban on MTBE starting in 2002. If this
ban is implemented, about 5% of the current global methanol supply will need to
be curtailed or redirected. Methanol is expected to be the primary energy source
for fuel cells used in various applications. The first commercial production of
fuel cell-powered automobiles is expected in 2005. Consequently, methanol demand
could change sharply over the next several years depending on MTBE use, the
scope and rate of fuel cell implementation, and other factors.
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Raw Materials
The principal raw material used to produce manufactured nitrogen products and
methanol is natural gas. Natural gas costs in 2000 comprised about 66% of total
costs and expenses for the North American nitrogen products business, 23% of
total costs and expenses for the U.K. nitrogen products business, and 66% of
total costs and expenses associated with the methanol segment. Terra 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 hedging policy generally requires Terra 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 to gas costs, Terra's board of directors
amended the hedging policy and eliminated the minimum hedge requirement through
the end of 2001.) Capping natural gas prices is accomplished through various
supply contracts, financial derivatives and other instruments. A significant
portion of global nitrogen products and methanol 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 Terra's.
If natural gas prices rise, Terra may benefit from its use of forward-pricing
techniques. Conversely, if natural gas prices fall, Terra may incur costs above
the then-available spot market. 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
Terra uses several modes of transportation to receive materials and distribute
product to customers, including railroad cars, common carrier trucks, barges and
common carrier pipelines. Terra uses approximately 66 liquid, dry and anhydrous
ammonia fertilizer terminal storage facilities in 18 states and one Canadian
province. Terra also leases a methanol storage facility in Deer Park, Texas.
Terra transports products from this storage facility primarily by marine
vessels, rail tank cars and via pipeline to selected customers.
Railcars are the major source of transportation at Terra's North American
manufacturing facilities. Terra leases approximately 2,120 railcars. Terra also
owns 10 nitric acid railcars. In the U.K., Terra's AN production is transported
primarily by contract carrier trucks, and its ammonia production is transported
primarily by Terra-owned pipelines.
Terra transports purchased natural gas to its Woodward, Oklahoma facility via
both intrastate and interstate pipelines and to its Verdigris, Oklahoma facility
via intrastate pipeline. The intrastate pipelines serving Woodward and Verdigris
are not open-access carriers, but are nonetheless part of a widespread regional
system through which Woodward and Verdigris can receive natural gas from any
major Oklahoma source. Terra also has limited access to out-of-state natural gas
supplies for these facilities. The Beaumont, Texas facility purchases delivered
natural gas via four intrastate pipelines. The Courtright, Ontario facility
purchases natural gas at delivery points at Parkway and Dawn, Ontario, and from
there the gas is delivered to the facility by a local utility. Terra transports
purchased natural gas for both its Port Neal, Iowa and Blytheville, Arkansas
facilities via interstate, open-access pipelines. At Terra's Billingham and
Severnside, England locations, purchased natural gas is transported to the
facilities via a nationwide, open-access pipeline system.
Research and Development
Terra does not currently have any significant, ongoing research and
development efforts.
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Competition
Nitrogen products are a global commodity, and Terra's customers include
distributors and industrial end-users, dealers and other fertilizer producers.
Customers base purchasing decisions principally on the delivered price and
availability of the product. Terra competes with a number of domestic and
foreign producers, including state-owned and government-subsidized entities.
Some of Terra's principal competitors may have greater total resources and may
be less dependent on earnings from nitrogen fertilizer sales than Terra. 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 Terra's
nitrogen products. Competitive natural gas purchasing is essential to
maintaining a low-cost product position. Terra competes with other manufacturers
of nitrogen products on delivery terms and availability of products, as well as
on price.
The methanol industry, like the nitrogen products industry, is highly
competitive and such competition is based largely on price, reliability and
deliverability of this global commodity. The relative cost and availability of
natural gas and the efficiency of production facilities are important
competitive factors. Significant determinants of a methanol manufacturing
plant's competitive position are the natural gas acquisition and transportation
contracts a plant negotiates with its major suppliers. Domestic competitors for
methanol include a number of large, integrated petrochemical producers, many of
which are better capitalized than Terra.
Environmental and Other Regulatory Matters
Terra's operations are subject to various federal, state and local
environmental, safety and health laws and regulations, including laws relating
to air quality, hazardous and solid wastes and water quality. Terra's operations
in Canada are subject to various federal and provincial regulations regarding
such matters, including the Canadian Environmental Protection Act administered
by Environment Canada, and the Ontario Environmental Protection Act administered
by the Ontario Ministry of the Environment. Terra's U.K. operations are subject
to similar regulations under a variety of acts governing hazardous chemicals,
transportation and worker health and safety. Terra is also involved in the
manufacture, handling, transportation, storage and disposal of materials that
are or may be classified as hazardous or toxic by federal, state, provincial or
other regulatory agencies. Precautions are taken to reduce the likelihood of
accidents involving these materials. If such materials have been or are disposed
of at sites that are targeted for investigation and remediation by federal or
state regulatory authorities, Terra 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.
Terra has been designated as a potentially responsible party ("PRP") under
CERCLA and its state analogues with respect to various sites. Under such laws,
all PRPs may be held jointly and severally liable for the costs of investigation
and remediation of an environmentally damaged site regardless of fault or
legality of original disposal. After consideration of such factors as the number
and levels of financial responsibility of other PRPs, the existence of
contractual indemnities, the availability of defenses and the speculative nature
of the costs involved, Terra believes that its liability with respect to these
matters will not be material.
Terra retained a small number (less than 10%) of its retail locations after
the sale of its distribution business in the second quarter of 1999. Some of
these locations were the subject of environmental clean-up activities for which
Terra has retained liability. Terra does not believe that such environmental
costs and liabilities will have a material effect on its results of operations,
financial position or net cash flows.
With respect to the Verdigris facility and Blytheville facility, Freeport-
McMoRan Resource partners, Limited Partnership (a former owner and operator of
these facilities) retained liability for certain environmental matters. With
respect to the Beaumont facility, DuPont retains responsibility for certain
environmental costs and liabilities stemming from conditions or operations to
the extent such conditions or operations existed or occurred prior to the 1991
disposition by DuPont. Likewise, with respect to the Billingham and Severnside,
England facilities, the seller, ICI, indemnified Terra for pre-December 31, 1997
environmental contamination associated with the purchased assets.
7
Terra may be required to install additional air and water quality control
equipment, such as low nitrous oxide burners, scrubbers, ammonia sensors and
continuous emission monitors, at certain of its facilities in order to maintain
compliance with Clean Air Act, Clean Water Act and similar requirements. These
equipment requirements are also typically applicable to competitors as well.
Terra estimates that the cost of complying with these existing requirements in
2001 and beyond will be less than $10 million.
Terra endeavors to comply (and has incurred substantial costs in connection
with such compliance) in all material respects with applicable environmental,
safety and health regulations. Because these regulations are expected to
continue to change and generally be more restrictive than current requirements,
the costs of compliance will likely increase. Terra 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 1998-2000 are set forth in the Notes to the Consolidated
Financial Statements. Terra's revenues and assets according to geography (U.S.,
Canada and U.K.) are also set forth in the Notes to the Consolidated Financial
Statements.
Employees
Terra had 1,279 full-time employees at December 31, 2000, with only the U.K.
employees being covered by anything equivalent to a collective bargaining
agreement.
Item 3. LEGAL PROCEEDINGS.
Various legal proceedings are pending against Terra and its subsidiaries.
Terra believes that the aggregate liability resulting from these proceedings
will not be material.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No items were submitted to a vote of security holders of the Company during
the fourth quarter of 2000.
EXECUTIVE OFFICERS OF TERRA
The following paragraphs set forth the name, age and offices of each present
executive officer of Terra, the period during which each executive officer has
served as such and each executive officer's business experience during the past
five years:
Present positions and offices with the Company and
Name and age principal occupations during the past five years
------------ --------------------------------------------------
Michael L. Bennett (47) Executive Vice President and Chief Operating
Officer of Terra since February 1997; President and
Chief Executive Officer of Terra Nitrogen Division
since June 1998; President of Terra Distribution
Division from November 1995 to February 1997;
Senior Vice President of Terra from February 1995
to February 1997; Senior Vice President,
Distribution of Terra International from October
1994 to February 1997.
Burton M. Joyce (59) President and Chief Executive Officer of Terra
since May 1991.
Mark A. Kalafut (47) Vice President and Associate General Counsel of
Terra since April, 1997; Vice President and General
Counsel of Terra International from April, 1989 to
April, 1997.
8
William R. Loomis, Jr. (52) Chairman of the Board of Terra since May 1996
and a director thereof since February 1996;
Chief Executive Officer of the investment
banking firm Lazard LLC since November 2000;
Managing Director thereof from June 1995 to
November 2000.
Francis G. Meyer (49) Senior Vice President and Chief Financial
Officer of Terra since November 1995.
W. Mark Rosenbury (53) 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; Vice
President, Business Development and Strategic
Planning of Terra from November 1995 to
January 1998; President of Terra Nitrogen
Corporation from November 1994 to February
1996.
Wynn S. Stevenson (46) Vice President, Taxes and Corporate
Development of Terra since May 1998; Vice
President, Taxes of Terra from April 1996 to
May 1998; Director, Taxes thereof from June
1992 to April 1996.
George H. Valentine (52) Senior Vice President, General Counsel and
Corporate Secretary of Terra since November
1995.
There are no family relationships among the executive officers and directors
of Terra or arrangements or understandings between any executive officer and any
other person pursuant to which any executive officer was selected as such.
Officers of Terra are elected annually to serve until their respective
successors are elected and qualified.
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PART II
Item 5. MARKET FOR TERRA'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information with respect to the market for Terra's common equity and related
stockholder matters contained in Exhibit 13 hereto (primarily under the headings
"Quarterly Financial and Stock Market Data (Unaudited)" and "Stockholders") is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA.
Information with respect to selected financial data contained in Exhibit 13
hereto (primarily under the heading "Financial Summary") is incorporated herein
by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information with respect to management's discussion and analysis of financial
condition and results of operations contained in Exhibit 13 hereto (primarily
under the heading "Financial Review") is incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE 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" of the "Financial Review" discussion) is
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements, together with the notes thereto and the
report of independent auditors thereon, and the information set forth under the
heading "Quarterly Financial and Stock Market Data (Unaudited)" contained in
Exhibit 13 hereto are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
10
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF TERRA.
Information with respect to directors of Terra under the caption "Election
of Directors" in the Proxy Statement for the Annual Meeting of Stockholders of
Terra to be held on April 26, 2001, is incorporated herein by reference.
Information with respect to executive officers of Terra appears under the
caption "Executive Officers of Terra" in Part I hereof and is incorporated
herein by reference.
Item 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation under the caption
"Executive Compensation and Other Information" in the Proxy Statement for the
Annual Meeting of Stockholders of Terra to be held on April 26, 2001, is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership of certain beneficial owners
and management under the caption "Equity Security Ownership" in the Proxy
Statement for the Annual Meeting of Stockholders of Terra to be held on April
26, 2001, is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related transactions
under the caption "Certain Relationships and Related Transactions" in the Proxy
Statement for the Annual Meeting of Stockholders of Terra to be held on April
26, 2001, is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements and Financial Statement Schedules.
1. Consolidated Financial Statements of Terra and its subsidiaries
(incorporated herein by reference to Exhibit 13 hereof).
Consolidated Statements of Financial Position at December 31, 2000
and 1999.
Consolidated Statements of Operations for the years ended December
31, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the years ended December
31, 2000, 1999 and 1998.
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998.
Notes to the Consolidated Financial Statements.
Responsibility for Financial Statements.
Independent Auditors' Report.
Quarterly Production Data (Unaudited).
Quarterly Financial and Stock Market Data (Unaudited).
11
Volumes and Prices (Unaudited).
Stockholders.
Financial Summary.
2. Index to Financial Statement Schedules.
See Index to Financial Statement Schedules of Terra and its
subsidiaries at page S-1.
3. Other Financial Statements.
Individual financial statements of Terra's subsidiaries are omitted
because all such subsidiaries are included in the consolidated
financial statements being filed. Individual financial statements
of 50% or less owned persons accounted for on the equity method have
been omitted because such 50% or less owned persons considered in
the aggregate, as a single subsidiary, would not constitute a
significant subsidiary.
(b) Executive Compensation Plans and Arrangements.
Exhibits 10.1.1 through 10.1.23 are incorporated herein by reference.
(c) Reports on Form 8-K
Terra did not file any reports on Form 8-K in the fourth quarter of 2000.
(d) Exhibits
3.1.1 Articles of Restatement of Terra Industries filed with the State of
Maryland on September 11, 1990, filed as Exhibit 3.1 to Terra
Industries' Form 10-K for the year ended December 31, 1990, is
incorporated herein by reference.
3.1.2 Articles of Amendment of Terra Industries filed with the State of
Maryland on May 6, 1992, filed as Exhibit 3.1.2 to Terra Industries'
Form 10-K for the year ended December 31, 1992, is incorporated
herein by reference.
3.1.3 Articles Supplementary of Terra Industries filed with the State of
Maryland on October 13, 1994, filed as Exhibit 4.1.3 to Terra
Industries' Form 8-K/A dated November 3, 1994, is incorporated
herein by reference.
3.2 By-Laws of Terra Industries, as amended through August 7, 1991,
filed as Exhibit 3 to Terra Industries' Form 8-K dated September 30,
1991, is incorporated herein by reference.
4.1 Indenture dated as of October 15, 1993 among Terra Industries (as
successor by merger to Agricultural Minerals and Chemicals Inc.) and
Society National Bank, including form of Senior Note, filed as
Exhibit 99.2 to Terra Industries' Registration Statement on Form S-
3, as amended (File No. 33-52493), is incorporated herein by
reference.
4.2 Indenture dated as of June 22, 1995 between Terra Industries and
First Trust National Association, as trustee, including form of
Exchange Note, filed as Exhibit 4.1 to Terra Industries'
Registration Statement on Form S-4, as amended (File No. 33-60853),
is incorporated herein by reference.
4.3 Amended and Restated Credit Agreement (the "1998 Credit Agreement")
dated as of March 31, 1998 among Terra Capital, Inc., Terra
Nitrogen, Limited Partnership, Certain Guarantors, Certain Lenders,
Certain Issuing Banks and Citibank, N.A. without exhibits or
schedules, filed as Exhibit 4.4 to Terra Industries' Form 10-Q for
the quarter ended March 31, 1998, is incorporated herein by
reference.
12
4.4 Amendment No. 1 dated as of September 30, 1998 to the 1998 Credit
Agreement, filed as Exhibit 4.5 to Terra Industries' Form 10-Q for
the quarter ended September 30, 1998, is incorporated herein by
reference.
Other instruments defining the rights of holders of long-term debt
are not being filed because the total amount of securities
authorized under any such instrument does not exceed 10 percent of
the total assets of Terra Industries and its subsidiaries on a
consolidated basis. Terra Industries agrees to furnish a copy of
any such instrument to the Commission upon request.
4.5 Limited Waiver dated as of March 22, 1999 to the 1998 Credit
Agreement, filed as Exhibit 4.5 to Terra Industries' Form 10-Q for
the quarter ended March 31, 1999, is incorporated herein by
reference.
4.6 Amended and Restated Credit Agreement dated June 25, 1999 among
Terra Capital, Inc., Certain Guarantors, Certain Lenders, Certain
Issuing Banks, Salomon Smith Barney Inc., as Arranger, and Citibank,
N.A., as Administrative Agent (without exhibits or schedules), filed
as Exhibit 4.6 to Terra Industries' Form 10-Q for the quarter ended
June 30, 1999, is incorporated herein by reference.
4.7 Credit Agreement dated December 31, 1997 and Amended and Restated
June 25, 1999 among Terra International (Canada) Inc., Certain
Guarantors, Certain Lenders, Salomon Smith Barney Inc., as Arranger,
and Citibank, N.A., as Administrative Agent (without exhibits or
schedules), filed as Exhibit 4.7 to Terra Industries' Form 10-Q for
the quarter ended June 30, 1999, is incorporated herein by
reference.
4.8 Credit Agreement dated April 7, 2000 among Terra Capital, Inc.,
Terra Nitrogen (U.K.), Limited, Terra Nitrogen, Limited Partnership,
Terra Industries, Inc., as guarantor, Certain Lenders, Certain
Issuers and Citibank, N.A., as Administrative Agent (without
exhibits or schedules) filed as Exhibit 4.8 to Terra Industries'
Form 10-Q for the quarter ended March 31, 2000, is incorporated
herein by reference.
4.9 Credit Agreement dated December 31, 1997, and Amended and Restated
June 25, 1999 and further Amended and Restated April 7, 2000 among
Terra International (Canada), Inc., Certain Guarantors, Certain
Lenders and Citibank, N.A., as Administrative Agent (without
exhibits or schedules) filed as Exhibit 4.9 to Terra Industries'
Form 10-Q for the quarter ended March 31, 2000, is incorporated
herein by reference.
4.10 * Amendment No. 1 dated as of December 20, 2000 to the Credit
Agreement dated April 7, 2000 among Terra Capital, Inc., Terra
Nitrogen (U.K.), Limited, Terra Nitrogen, Limited Partnership, Terra
Industries, Inc., as guarantor, Certain Lenders, Certain Issuers and
Citibank, N.A., as Administrative Agent (without exhibits or
schedules).
4.11 * Amendment No. 1 dated as of December 20, 2000 to the Credit
Agreement dated December 31, 1997, and Amended and Restated June 25,
1999 and further Amended and Restated April 7, 2000 among Terra
International (Canada), Inc., Certain Guarantors, Certain Lenders
and Citibank, N.A., as Administrative Agent (without exhibits or
schedules).
10.1.1 Resolution adopted by the Personnel Committee of the Board of
Directors of Terra Industries with respect to supplemental
retirement benefits for certain senior executive officers of Terra
Industries, filed as Exhibit 10.4.2 to Terra Industries' Form 10-Q
for the fiscal quarter ended March 31, 1991, is incorporated herein
by reference.
10.1.2 1992 Stock Incentive Plan of Terra Industries filed as Exhibit
10.1.6 to Terra Industries' Form 10-K for the year ended December
31, 1992, is incorporated herein by reference.
10.1.3 Form of Restricted Stock Agreement of Terra Industries under its
1992 Stock Incentive Plan filed as Exhibit 10.1.7 to Terra
Industries' Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
13
10.1.4 Form of Incentive Stock Option Agreement of Terra Industries
under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.8
to Terra Industries' Form 10-K for the year ended December 31,
1992, is incorporated herein by reference.
10.1.5 Form of Nonqualified Stock Incentive Agreement of Terra
Industries under its 1992 Stock Incentive Plan, filed as
Exhibit 10.1.9 to Terra Industries' Form 10-K for the year
ended December 31, 1992, is incorporated herein by reference.
10.1.6 Excess Benefit Plan of Terra Industries, as amended effective
as of January 1, 1992, filed as Exhibit 10.1.13 to Terra
Industries' Form 10-K for the year ended December 31, 1992, is
incorporated herein by reference.
10.1.6.a. * Amendment to the Terra Industries Inc. Excess Benefit Plan,
dated July 26, 2000.
10.1.7 Terra Industries Inc. Supplemental Deferred Compensation Plan
effective as of December 20, 1993 filed as Exhibit 10.1.9 to
Terra Industries' Form 10-K for the year ended December 31,
1993, is incorporated herein by reference.
10.1.8 Amendment No. 1 to the Terra Industries Inc. Supplemental
Deferred Compensation Plan, filed as Exhibit 10.1.15 to Terra
Industries' Form 10-Q for the quarter ended September 30,
1995, is incorporated herein by reference.
10.1.8.a. * Amendment No. 2 to the Terra Industries Inc. Supplemental
Deferred Compensation Plan, dated July 26, 2000.
10.1.9 Revised Form of Performance Share Award of Terra Industries
under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.11
to Terra Industries' Form 10-K for the year ended December 31,
1996, is incorporated herein by reference.
10.1.10 Revised Form of Incentive Stock Option Agreement of Terra
Industries under its 1992 Stock Incentive Plan, filed as
Exhibit 10.1.12 to Terra Industries' Form 10-K for the year
ended December 31, 1996, is incorporated herein by reference.
10.1.11 Revised Form of Nonqualified Stock Option Agreement of Terra
Industries under its 1992 Stock Incentive Plan, filed as
Exhibit 10.1.13 to Terra Industries' Form 10-K for the year
ended December 31, 1996, is incorporated herein by reference.
10.1.12 1997 Stock Incentive Plan of Terra Industries, filed as
Exhibit 10.1.14 to Terra Industries' Form 10-K for the year
ended December 31, 1996, is incorporated herein by reference.
10.1.13 Form of Incentive Stock Option Agreement of Terra Industries
under its 1997 Stock Incentive Plan filed as Exhibit 10.1.13
to Terra Industries' Form 10-K for the year ended December 31,
1999, is incorporated herein by reference.
10.1.14 Form of Nonqualified Stock Option Agreement of Terra
Industries under its 1997 Stock Incentive Plan filed as
Exhibit 10.1.14 to Terra Industries' Form 10-K for the year
ended December 31, 1999, is incorporated herein by reference.
10.1.15 Form of Performance Share Award of Terra Industries under its
1997 Stock Incentive Plan, filed as Exhibit 10.1.15 to Terra
Industries' Form 10-K for the year ended December 31, 1998, is
incorporated herein by reference.
10.1.16 Executive Retention Agreement for William R. Loomis, Jr.,
filed as Exhibit 10.1.17 to Terra Industries' Form 10-K for
the year ended December 31, 1998, is incorporated herein by
reference.
10.1.17 Executive Retention Agreement for Burton M. Joyce, filed as
Exhibit 10.1.18 to Terra Industries' Form 10-K for the year
ended December 31, 1998, is incorporated herein by reference.
14
10.1.18 Form of Executive Retention Agreement for Other Executive
Officers, filed as Exhibit 10.1.19 to Terra Industries' Form
10-K for the year ended December 31, 1998, is incorporated
herein by reference.
10.1.19 * 2000 Incentive Award Program for Officers and Key Employees of
Terra Industries.
10.1.20 Form of Non-Employee Director Stock Option Agreement under the
1997 Stock Incentive Plan, filed as Exhibit 10.2.21 to Terra
Industries' Form 10-Q for the quarter ended September 30,
1999, is incorporated herein by reference.
10.1.21 Amendment No. 1 dated as of February 20, 1997 to the 1997
Stock Incentive Plan filed as Exhibit 10.1.21 to Terra
Industries' Form 10-K for the year ended December 31, 1999, is
incorporated herein by reference.
10.1.22 * Form of Performance Share Award of Terra Industries under its
1997 Stock Incentive Plan, dated February 16, 2000.
10.1.23 * Form of Non-Employee Director Performance Share Award of Terra
Industries under its 1997 Stock Incentive Plan, dated May 2,
2000.
10.2 Agreement of Limited Partnership of TNCLP (formerly known as
Agricultural Minerals Company, L.P.) dated as of December 4,
1991, filed as Exhibit 99.3 to Terra Industries' Registration
Statement on Form S-3, as amended, (File No. 33-52493), is
incorporated herein by reference.
10.3 Agreement of Limited Partnership of TNLP (formerly known as
Agricultural Minerals, Limited Partnership) dated as of
December 4, 1991, filed as Exhibit 99.4 to Terra Industries'
Registration Statement on Form S-3, as amended, (File No. 33-
52493), is incorporated herein by reference.
10.4 General and Administrative Services Agreement Regarding
Services by Terra Industries Inc., filed as Exhibit 10.11 to
Terra Industries Inc. Form 10-Q for the quarter ended March
31, 1995, is incorporated herein by reference.
10.5 General and Administrative Services Agreement Regarding
Services by Terra Nitrogen Corporation, filed as Exhibit 10.12
to Terra Industries Inc. Form 10-Q for the quarter ended March
31, 1995, is incorporated herein by reference.
10.6 Receivables Purchase Agreement dated as of August 20, 1996
among Terra Funding Corporation, Terra Capital, Inc., Certain
Financial Institutions and Bank of America National Trust and
Savings Association filed as Exhibit 10.12 to the Terra
Industries' Form 10-Q for the quarter ended September 30,
1996, is incorporated herein by reference.
10.7 Purchase and Sale Agreement dated as of August 20, 1996 among
Terra International, Inc., Terra Nitrogen, Limited
Partnership, Beaumont Methanol, Limited Partnership, Terra
Funding Corporation and Terra Capital, Inc., filed as Exhibit
10.13 to the Terra Industries' Form 10-Q for the quarter ended
September 30, 1996, is incorporated herein by reference.
10.8 Sale of Business Agreement dated November 20, 1997 between ICI
Chemicals & Polymers Limited, Imperial Chemical Industries
PLC, Terra Nitrogen (U.K.) Limited (f/k/a Terra Industries
Limited) and Terra Industries Inc. filed as Exhibit 2 to Terra
Industries' Form 8-K/A dated December 31, 1997, is
incorporated herein by reference.
10.9 Ammonium Nitrate Agreement dated December 31, 1997 between
Terra International (Canada) Inc and ICI Chemicals & Polymers
Limited filed as Exhibit 99 to Terra Industries' Form 8-K/A
dated December 31, 1997, is incorporated herein by reference.
15
10.10 ** Second Amended and Restated Agreement of Limited Partnership
of Beaumont Methanol, Limited Partnership dated March 31, 1998
by and among Terra Methanol Corporation, BMC Holdings, Inc.
and Nova Products LLC, filed as Exhibit 10.11 to Terra
Industries' Form 10-Q for the quarter ended March 31, 1998, is
incorporated herein by reference.
10.11 Amendment No. 1 dated as of September 30, 1998 to the Second
Amended and Restated Agreement of Limited Partnership of
Beaumont Methanol, Limited Partnership, filed as Exhibit 10.12
to Terra Industries' Form 10-Q for the quarter ended September
30, 1998, is incorporated herein by reference.
10.12 Asset Sale and Purchase Agreement dated as of May 3, 1999 by
and between Terra Industries Inc. and Cenex/Land O'Lakes
Agronomy Company, filed as Exhibit 10.12 to Terra Industries'
Form 8-K dated May 3, 1999, is incorporated herein by
reference.
13 * Financial Review and Consolidated Financial Statements as
contained in the Annual Report to Stockholders of Terra
Industries for the fiscal year ended December 31, 2000.
21 * Subsidiaries of Terra Industries.
24 * Powers of Attorney.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TERRA INDUSTRIES INC.
Date: March 30, 2001 By: /s/ FRANCIS G. MEYER
--------------------
Francis G. Meyer
Senior Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title
--------- -----
* Chairman of the Board
--------------------------
William R. Loomis, Jr.
/s/ Burton M. Joyce Director, President and Chief Executive Officer
--------------------------
Burton M. Joyce (Principal Executive Officer)
/s/ Francis G. Meyer Senior Vice President and Chief Financial Officer
--------------------------
Francis G. Meyer (Principal Financial Officer and
Controller/Principal Accounting Officer)
* Director
--------------------------
Edward G. Beimfohr
* Director
--------------------------
Carole L. Brookins
* Director
--------------------------
Edward M. Carson
* Director
--------------------------
Thomas H. Claiborne
* Director
--------------------------
Eric K. Diack
* Director
--------------------------
David E. Fisher
* Director
---------------------------
John R. Norton III
* Director
---------------------------
Henry R. Slack
Date: March 30, 2001 *By: /s/ GEORGE H. VALENTINE
-----------------------
George H. Valentine
Attorney-in-Fact
17
INDEX TO FINANCIAL STATEMENT SCHEDULES, REPORTS AND CONSENTS
Page
----
Report of Deloitte & Touche LLP on Financial Statement Schedules.......... S-2
Consent of Deloitte & Touche LLP.......................................... S-2
Schedule No.
-----------------
I Condensed Financial Information of Registrant.............. S-3
II Valuation and Qualifying Accounts:
Years Ended December 31, 2000, 1999 and 1998............... S-7
Financial statement schedules not included in this report have been omitted
because they are not applicable or the required information is shown in the
consolidated financial statements or the notes thereto.
S-1
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholders of Terra Industries Inc.:
We have audited the consolidated financial statements of Terra Industries
Inc. and subsidiaries as of December 31, 2000 and 1999 and for each of the three
years in the period ended December 31, 2000, and have issued our report thereon
dated January 25, 2001. Such financial statements and report are included in
the 2000 Annual Report to Stockholders of Terra Industries Inc. and are
incorporated herein by reference. Our audits also included the Financial
Statement Schedules of Terra Industries Inc. and subsidiaries listed in Item
14(a) of this Form 10-K. These Financial Statement Schedules are the
responsibility of the management of Terra Industries Inc. Our responsibility is
to express an opinion based on our audits. In our opinion, such Financial
Statement Schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 25, 2001
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
Nos. 333-32869, 33-46735, 33-46734, 33-30058 and 33-4939 of Terra Industries
Inc. and subsidiaries on Forms S-8 and Registration Statements Nos. 333-31769,
2-90808, 2-84876 and 2-84669 of Terra Industries Inc. and subsidiaries on Form
S-3 of our reports dated January 25, 2001, appearing and incorporated by
reference in the Annual Report on Form 10-K of Terra Industries Inc. and
subsidiaries for the year ended December 31, 2000.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
March 13, 2001
S-2
SCHEDULE I
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF FINANCIAL POSITION
---------------------------------------------------------------------------
(in thousands) December 31,
---------------------------------------------------------------------------
2000 1999
-------------------------
Assets
Cash and short-term investments $ --- $ 8
Other current assets 8,155 3,972
---------------------------------------------------------------------------
Total current assets 8,155 3,980
Investment in and advances to subsidiaries 1,141,732 1,115,739
Other assets 5,151 7,425
---------------------------------------------------------------------------
Total assets $1,155,038 $1,127,144
===========================================================================
Liabilities
Accrued and other liabilities $ 9,486 $ 5,209
---------------------------------------------------------------------------
Total current liabilities 9,486 5,209
Long-term debt 358,755 358,755
Deferred income taxes 150,721 78,705
Other liabilities 25,279 27,473
---------------------------------------------------------------------------
Total liabilities 544,241 470,142
---------------------------------------------------------------------------
Stockholders' Equity
Capital stock 128,283 127,890
Paid-in capital 554,750 552,903
Accumulated other comprehensive loss (48,115) (9,852)
Retained earnings (deficit) (24,121) (13,939)
---------------------------------------------------------------------------
Total stockholders' equity 610,797 657,002
---------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,155,038 $1,127,144
===========================================================================
See accompanying Notes to the Condensed Financial Statements.
S-3
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
------------------------------------------------------------------------------------------------
(in thousands, except per-share amounts) For the Year Ended December 31,
------------------------------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------
Income (Loss)
Equity in earnings (loss) of subsidiaries $ 20,232 $(52,479) $ (4,185)
Interest and other income 6 729 32
------------------------------------------------------------------------------------------------
Total income (loss) 20,238 (51,750) (4,153)
------------------------------------------------------------------------------------------------
Expenses
Selling, general and administrative expense 1,471 5,521 4,874
Interest expense 42,006 38,966 38,861
Income tax benefit (13,057) (26,139) (21,639)
------------------------------------------------------------------------------------------------
Total expenses 30,420 18,348 22,096
------------------------------------------------------------------------------------------------
Loss before extraordinary items and
discontinued operations (10,182) (70,098) (26,249)
Extraordinary loss on early retirement of debt --- (9,264) ---
Loss from discontinued operations --- (10,525) ---
------------------------------------------------------------------------------------------------
Net loss (10,182) (89,887) (26,249)
Cash dividends paid to common stockholders --- (5,283) (14,986)
Retained earnings (deficit) - beginning of year (13,941) 81,229 122,464
------------------------------------------------------------------------------------------------
Retained earnings (deficit) - end of year $(24,123) $(13,941) $ 81,229
================================================================================================
Basic Earnings (Loss) Per Share:
Income (loss) before extraordinary items $ (0.14) $ (1.14) $ (0.35)
Extraordinary loss on early retirement of debt --- (0.06) ---
------------------------------------------------------------------------------------------------
Net income (loss) $ (0.14) $ (1.20) $ (0.35)
================================================================================================
Diluted Earnings (Loss) Per Share:
Income (loss) before extraordinary items $ (0.14) $ (1.14) $ (0.35)
Extraordinary loss on early retirement of debt --- (0.06) ---
------------------------------------------------------------------------------------------------
Net income (loss) $ (0.14) $ (1.20) $ (0.35)
================================================================================================
See accompanying Notes to the Condensed Financial Statements.
S-4
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------
(in thousands) For the Year Ended December 31,
------------------------------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------
Operating Activities
Net income (loss) $ (10,182) $ (89,887) $ (26,249)
Adjustments to reconcile net income
to net cash used by operations:
Equity in earnings (loss) of subsidiaries (20,232) 52,479 4,185
Extraordinary loss on early retirement of debt --- 9,264 ---
Loss from discontinued operations --- 10,524 (17,082)
Deferred income taxes 76,326 (13,882) (5,817)
Other non-cash items 286 286 556
Change in working capital components (4,422) (18,809) (1,716)
Other --- 19,367 19,590
------------------------------------------------------------------------------------------------
Net Cash Flows From Operating Activities 41,776 (30,658) (26,533)
------------------------------------------------------------------------------------------------
Financing Activities
Dividends --- (5,283) (14,986)
Stock (repurchase) issuance - net 2,240 13 286
Advances from (to) subsidiaries - net (44,024) 29,895 32,281
------------------------------------------------------------------------------------------------
Net Cash Flows From Financing Activities (41,784) 24,625 17,581
------------------------------------------------------------------------------------------------
Decrease in Cash (8) (6,033) (8,952)
Cash and Investments at Beginning of Year 8 6,041 14,993
------------------------------------------------------------------------------------------------
Cash and Investments at End of Year $ --- $ 8 $ 6,041
================================================================================================
Interest Paid $ 41,974 $ 38,966 $ 38,862
================================================================================================
Income Taxes Received $ (16,323) $ (21,278) $ (17,244)
================================================================================================
See accompanying Notes to the Condensed Financial Statements.
S-5
TERRA INDUSTRIES INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The Condensed Financial Statements include the Registrant only and reflect the
equity method of accounting for its beneficially owned subsidiaries, Terra
Capital, Inc., Terra International, Inc., Terra Nitrogen Corporation, Beaumont
Methanol Limited Partnership and Terra Funding Corporation.
2. Long-Term Debt
Long-term debt consisted of the following at December 31:
(in thousands) 2000 1999
-------------------------------------------------------------------------------
Senior Notes, 10.5%, due 2005 $ 200,000 $ 200,000
Senior Notes, 10.75%, due 2003 158,755 158,755
-------------------------------------------------------------------------------
358,755 358,755
Less current maturities --- ---
-------------------------------------------------------------------------------
Total $ 358,755 $ 358,755
===============================================================================
In 1995, the Registrant issued $200 million unsecured 10.5% Senior Notes due in
full June 15, 2005. The 10.5% Senior Notes are redeemable at the option of the
Registrant, in whole or part, at any time on or after June 15, 2000, initially
at 105.250% of their principal amount, plus accrued interest, declining to
102.625% on or after June 15, 2001, and declining to 100% on or after June 15,
2002. The 10.5% Senior Notes Indenture contains certain restrictions, including
the issuance of additional debt, payment of dividends, issuance of capital
stock, certain transactions with affiliates, incurrence of liens, sale of
assets, and sale-leaseback transactions.
The 10.75% unsecured Senior Notes are redeemable at the option of the
Registrant, in whole or part, at any time on or after September 30, 1998,
initially at 105.375% of their principal amount, plus accrued interest,
declining to 102.688% on or after September 30, 1999, and declining to 100% on
or after September 30, 2000. The 10.75% Senior Notes Indenture contains
restrictions similar to those in the 10.5% Senior Notes Indenture.
3. Commitments and Contingencies
The Registrant is contingently liable for retiree medical benefits of employees
of coal mining operations sold on January 12, 1993. Under the purchase
agreement, the purchaser agreed to indemnify the Registrant against its
obligations under certain employee benefit plans. Due to the Coal Industry
Retiree Health Benefit Act of 1992, certain retiree medical benefits of union
coal miners have become statutorily mandated, and all companies owning 50
percent or more of any company liable for such benefits as of certain specified
dates becomes liable for such benefits if the company directly liable is unable
to pay them. As a result, if the purchaser becomes unable to pay its retiree
medical obligations assumed pursuant to the sale, the Registrant may have to pay
such amount. The Registrant has provided reserves adequate to cover the
estimated present value of these liabilities at December 31, 2000.
4. Income Taxes
The Registrant files a consolidated U.S. federal tax return. Beginning in 1995,
the Registrant adopted tax sharing agreements, under which all domestic
operating subsidiaries provide for and remit income taxes to the Registrant
based on their pretax accounting income, adjusted for permanent differences
between pretax accounting income and taxable income. The tax sharing agreements
allocate the benefits of operating losses and temporary differences between
financial reporting and tax basis income to the Registrant.
S-6
SCHEDULE II
TERRA INDUSTRIES INC.
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2000, 1999, and 1998
(in thousands)
Additions Less Write-offs,
Balance at Charged to and Transfers, Balance
Beginning Costs and Net of at End
Description of Period Expenses Recoveries of Period
Year Ended December 31, 2000:
-----------------------------
Allowance for Doubtful Accounts
Continuing operations $ 491 $ 593 $ (195) $ 889
Discontinued operations -
Included in other current assets 12,533 0 (6,174) 6,359
$13,024 $ 593 $(6,369) $ 7,248
Year Ended December 31, 1999:
----------------------------
Allowance for Doubtful Accounts
Continuing operations $ 938 $ 104 $ (551) $ 491
Discontinued operations -
Included in other current assets 14,196 4,582 (6,245) 12,533
$15,134 $ 4,686 $(6,796) $13,024
Year Ended December 31, 1998:
----------------------------
Allowance for Doubtful Accounts $13,154 $ 9,633 $(7,653) $15,134
S-7
Exhibit 4.10
FIRST AMENDMENT TO REVOLVING AND TERM CREDIT AGREEMENT
First Amendment (this "Amendment"), dated as of December 20, 2000, to
the Credit Agreement, dated as of April 7, 2000 (as amended hereby and as the
same may be further amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among Terra Capital, Inc., a Delaware corporation
("Terra Capital"), Terra Nitrogen (U.K.), Limited, a company incorporated in
England and Wales ("Terra UK") and Terra Nitrogen, Limited Partnership, a
Delaware limited partnership ("TNLP") (Terra Capital, Terra UK and TNLP each a
"Borrower" and, collectively, the "Borrowers"), Terra Industries Inc., a
Maryland corporation ("Terra Industries"), the financial institutions from time
to time party thereto as lenders (the "Lenders"), the financial institutions
from time to time party thereto as issuing banks (the "Issuers"), and Citibank,
N.A. ("Citibank"), as agent for the Lenders and the Issuers (in such capacity,
the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
make Loans to the Borrowers and to issue, and have issued, Letters of Credit for
the account of the Borrowers; and
WHEREAS, the Borrowers, Terra Industries, the Requisite Lenders and
the Administrative Agent have agreed to certain amendments to the Credit
Agreement as more specifically set forth below; and
WHEREAS, the Borrowers have requested the Requisite Lenders to consent
to permitting Terra Industries and certain of its Subsidiaries to repurchase
certain industrial revenue bonds;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and provisions hereinafter contained, the parties hereto hereby agree
as follows:
1. Defined Terms. Capitalized terms used herein and not defined
herein but defined in the Credit Agreement are used herein as defined in the
Credit Agreement.
2. Amendments to the Credit Agreement. As of the Amendment Effective
Date (as defined in Section 4 below), the Credit Agreement is hereby amended as
follows:
(a) Amendment to Section 1.1. Section 1.1 is hereby amended
by adding the following new definition of "IRB Repurchase" in the correct
alphabetical order therein:
"IRB Repurchase" means Terra Real Estate Corporation's or TI's
repurchase or repayment of the industrial revenue bonds of series 1992
issued pursuant to an agreement between Terra Real Estate Corporation,
TI and the City of Sioux City, dated April 22, 1992.
(b) Amendment to Section 7.14. Section 7.14 is hereby amended
and restated in its entirety to read as follows:
Section 7.14. Hedging Contracts. Terra Industries and its
Subsidiaries shall at all times maintain interest rate and natural gas
Hedging Contracts, on terms and with counterparties reasonably
satisfactory to the Administrative Agent and in accordance with the
hedging policy which has been and will continue to be adopted by the
Board of Directors of Terra Industries and as in effect from time to
time, to provide protection to Terra Industries and its Subsidiaries
against fluctuations in interest rates and natural gas prices.
3. Consent. Notwithstanding Section 8.5 and Section 8.12 of the
Credit Agreement or any other provision of the Loan Documents, the Lenders party
hereto, constituting the Requisite Lenders, hereby agree that TI and/or Terra
Real Estate Corporation may consummate IRB Repurchases from and after the
Amendment Effective Date (as defined in Section 4 below); provided, however,
that the aggregate dollar amount of the IRB Repurchases shall not exceed at any
time $8,000,000.
4. Conditions Precedent to the Effectiveness of this Amendment. This
Amendment shall become effective as of the date hereof on the date (the
"Amendment Effective Date") when the following conditions precedent have been
satisfied:
(a) Certain Documents. The Administrative Agent shall have
received, on or before the Amendment Effective Date, all of the following, all
of which shall be in form and substance satisfactory to the Administrative
Agent, in sufficient originally executed copies for each of the Lenders:
(i) this Amendment, executed by each Borrower, Terra
Industries, the Administrative Agent and the Lenders constituting the
Requisite Lenders;
(ii) the Acknowledgment attached hereto, executed by each
Subsidiary Guarantor; and
(iii) such additional documentation as the Administrative
Agent or the Requisite Lenders may reasonably require.
(b) Representations and Warranties. Each of the
representations and warranties made by the Borrowers or Terra Industries in or
pursuant to the Credit Agreement, as amended hereby, and the other Loan
Documents to which the Borrowers or Terra Industries is a party or by which the
Borrowers or Terra Industries is bound, shall be true and correct in all
material respects on and as of the Amendment Effective Date (other than
representations and warranties in any such Loan Document which expressly speak
as of a specific date, which shall have been true and correct in all material
respects as of such specific date).
(c) Corporate and Other Proceedings. All corporate and
other proceedings, and all documents, instruments and other legal matters in
connection with the transactions contemplated by this Amendment shall be
reasonably satisfactory in all respects in form and substance to the
Administrative Agent and the Requisite Lenders.
2
(d) No Event of Default. No Event of Default or Default
shall have occurred and be continuing on the Amendment Effective Date.
5. Representations and Warranties. On and as of the date hereof, and
as of the Amendment Effective Date, after giving effect to this Amendment, each
Borrower and Terra Industries hereby represents and warrants to the Lenders as
follows:
(a) Each of the representations and warranties contained in
Article IV of the Credit Agreement, the other Loan Documents or in any
certificate, document or financial or other statement furnished at any time
under or in connection therewith are true and correct in all material respects
on and as of the date as if made on and as of such date, except to the extent
that such representations and warranties specifically relate to a specific date,
in which case such representations and warranties shall be true and correct in
all material respects as of such specific date; provided, however, that
references therein to the "Credit Agreement" shall be deemed to include this
Amendment;
(b) No Default or Event of Default has occurred and is
continuing.
6. Continuing Effect; No Other Amendments. Except as expressly
amended hereby, all of the terms and provisions of the Credit Agreement and the
other Loan Documents are and shall remain in full force and effect. The
amendments and consents contained herein shall not constitute an amendment or a
waiver of any other provision of the Credit Agreement or the other Loan
Documents or for any other purpose except as expressly set forth herein.
7. Costs and Expenses. The Borrowers and Terra Industries agree to
pay on demand all reasonable and documented out-of-pocket costs and expenses of
the Administrative Agent in connection with the preparation, execution and
delivery of this Amendment and other instruments and documents to be delivered
pursuant hereto, including the reasonable and documented fees and out-of-pocket
expenses of counsel for the Administrative Agent with respect thereto.
8. Governing Law; Counterparts; Miscellaneous.
(a) This Amendment shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.
(b) This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, each of
which counterparts when executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
(c) Section captions used in this Amendment are for
convenience only and shall not affect the construction of this Amendment.
(d) From and after the Amendment Effective Date, all
references in the Credit Agreement to the "Agreement" shall be deemed to be
references to such Agreement as modified hereby and this Amendment and the
Credit Agreement shall be read together and construed as a single instrument.
3
IN WITNESS WHEREOF, the undersigned parties have executed this FIRST
AMENDMENT TO CREDIT AGREEMENT to be effective for all purposes as of the
Amendment Effective Date.
Borrowers
Terra Capital, Inc.
By:_____________________________________
Name: Francis G. Meyer
Title: Vice President
Terra Nitrogen (U.K.), Limited
By:_____________________________________
Name: Francis G. Meyer
Title: Director
Terra Nitrogen, Limited Partnership
By: Terra Nitrogen Corporation,
its General Partner
By:_____________________________________
Name: George H. Valentine
Title: Vice President
Guarantor
Terra Industries Inc.
By:_____________________________________
Name: Francis G. Meyer
Title: Sr. Vice President and Chief
Financial Officer
Administrative Agent
Citibank, N.A.
By:_____________________________________
Name: David Jaffe
Title: Vice President
Reference is hereby made to the Loan Documents (as defined in the
Credit Agreement) to which each of the undersigned is a party. Each of the
undersigned hereby consents to the terms of the foregoing First Amendment to
Credit Agreement and agrees that the terms thereof shall not affect in any way
its obligations and liabilities under the undersigned's Loan Documents, all of
which obligations and liabilities shall remain in full force and effect and each
of which is hereby reaffirmed.
Terra Capital, Inc.
By: __________________________
Name:
Title:
Terra Nitrogen (UK) Limited
By: __________________________
Name:
Title:
Terra Nitrogen, Limited Partnership
By: Terra Nitrogen Corporation,
its General Partner
By: __________________________
Name:
Title:
Terra International (Canada) Inc.
By: __________________________
Name:
Title:
Terra Capital Holdings, Inc.
By: __________________________
Name:
Title:
Terra Nitrogen Corporation
By: __________________________
Name:
Title:
Terra Nitrogen Company, L.P.
By: Terra Nitrogen Corporation,
its General Partner
By: __________________________
Name:
Title:
Terra International, Inc.
By: __________________________
Name:
Title:
Terra International
(Oklahoma) Inc.
By: __________________________
Name:
Title:
Port Neal Corporation
By: __________________________
Name:
Title:
Terra Methanol Corporation
By: __________________________
Name:
Title:
BMC Holdings, Inc.
By: __________________________
Name:
Title:
Beaumont Holdings Corporation
By: __________________________
Name:
Title:
Beaumont Methanol, Limited Partnership
By: Terra Methanol Corporation,
its General Partner
By: __________________________
Name:
Title:
Terra (UK) Holdings, Inc.
By: __________________________
Name:
Title:
Beaumont Ammonia, Inc.
By: __________________________
Name:
Title:
Exhibit 4.11
FIRST AMENDMENT TO TERRA CANADA CREDIT AGREEMENT
First Amendment (this "Amendment"), dated as of December 20, 2000, to
the Credit Agreement, dated as of December 31, 1997 and as most recently amended
and restated as of April 7, 2000 (as amended hereby and as the same may be
further amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Terra International (Canada) Inc., as the "Borrower",
certain Guarantors, the financial institutions from time to time party thereto
as lenders (the "Lenders"), and Citibank, N.A. ("Citibank"), as agent for the
Lenders and the Issuers (in such capacity, the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
make Loans to the Borrower; and
WHEREAS, the Borrower, the Requisite Lenders and the Administrative
Agent have agreed to certain amendments to the Credit Agreement as more
specifically set forth below; and
WHEREAS, the Borrower has requested the Requisite Lenders to consent
to permitting Terra Industries and certain of its Subsidiaries to repurchase
certain industrial revenue bonds;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and provisions hereinafter contained, the parties hereto hereby agree
as follows:
1. Defined Terms. Capitalized terms used herein and not defined
herein but defined in the Credit Agreement are used herein as defined in the
Credit Agreement.
2. Amendments to the Credit Agreement. As of the Amendment Effective
Date (as defined in Section 4 below), the Credit Agreement is hereby amended as
follows:
(a) Amendment to Section 1.1. Section 1.1 is hereby amended
by adding the following new definition of "IRB Repurchase" in the correct
alphabetical order therein:
"IRB Repurchase" means Terra Real Estate Corporation's or
TI's repurchase or repayment of the industrial revenue bonds of series
1992 issued pursuant to an agreement between Terra Real Estate
Corporation, TI and the City of Sioux City, dated April 22, 1992.
(b) Amendment to Section 7.14. Section 7.14 is hereby
amended and restated in its entirety to read as follows:
Section 7.14. Hedging Contracts. Terra Industries and its
Subsidiaries shall at all times maintain interest rate and natural gas
Hedging Contracts, on terms and with counterparties reasonably
satisfactory to the Administrative Agent and in accordance with the
hedging policy which has been and will continue to be adopted by the
Board of Directors of Terra Industries and as in effect from time to
time, to provide protection to Terra Industries and its Subsidiaries
against fluctuations in interest rates and natural gas prices.
3. Consent. Notwithstanding Section 8.5 and Section 8.12 of the
Credit Agreement or any other provision of the Loan Documents, the Lenders party
hereto, constituting the Requisite Lenders, hereby agree that TI and/or Terra
Real Estate Corporation may consummate IRB Repurchases from and after the
Amendment Effective Date (as defined in Section 4 below); provided, however,
that the aggregate dollar amount of the IRB Repurchases shall not exceed at any
time $8,000,000.
4. Conditions Precedent to the Effectiveness of this Amendment. This
Amendment shall become effective as of the date hereof on the date (the
"Amendment Effective Date") when the following conditions precedent have been
satisfied:
(a) Certain Documents. The Administrative Agent shall have
received, on or before the Amendment Effective Date, all of the following, all
of which shall be in form and substance satisfactory to the Administrative
Agent, in sufficient originally executed copies for each of the Lenders:
(i) this Amendment, executed by the Borrower, the
Guarantors, the Administrative Agent and the Lenders constituting the
Requisite Lenders; and
(ii) such additional documentation as the Administrative
Agent or the Requisite Lenders may reasonably require.
(b) Representations and Warranties. Each of the
representations and warranties made by the Obligors in or pursuant to the Credit
Agreement, as amended hereby, and the other Loan Documents to which any Obligor
is a party or by which any Obligor is bound, shall be true and correct in all
material respects on and as of the Amendment Effective Date (other than
representations and warranties in any such Loan Document which expressly speak
as of a specific date, which shall have been true and correct in all material
respects as of such specific date).
(c) Corporate and Other Proceedings. All corporate and
other proceedings, and all documents, instruments and other legal matters in
connection with the transactions contemplated by this Amendment shall be
reasonably satisfactory in all respects in form and substance to the
Administrative Agent and the Requisite Lenders.
(d) No Event of Default. No Event of Default or Default
shall have occurred and be continuing on the Amendment Effective Date.
5. Representations and Warranties. On and as of the date hereof, and
as of the Amendment Effective Date, after giving effect to this Amendment, each
of the undersigned hereby represents and warrants to the Lenders as follows:
(a) Each of the representations and warranties contained in
Article IV of the Credit Agreement, the other Loan Documents or in any
certificate, document or
2
financial or other statement furnished at any time under or in connection
therewith are true and correct in all material respects on and as of the date as
if made on and as of such date, except to the extent that such representations
and warranties specifically relate to a specific date, in which case such
representations and warranties shall be true and correct in all material
respects as of such specific date; provided, however, that references therein to
the "Credit Agreement" shall be deemed to include this Amendment;
(b) No Default or Event of Default has occurred and is
continuing.
6. Affirmation of Guaranties. Each of the undersigned hereby agrees
that the terms of this Amendment shall not affect in any way its obligations and
liabilities under the undersigned's Loan Documents, including, without
limitation, the Guaranty, all of which obligations and liabilities shall remain
in full force and effect and each of which is hereby reaffirmed.
7. Continuing Effect; No Other Amendments. Except as expressly
amended hereby, all of the terms and provisions of the Credit Agreement and the
other Loan Documents are and shall remain in full force and effect. The
amendments and consents contained herein shall not constitute an amendment or a
waiver of any other provision of the Credit Agreement or the other Loan
Documents or for any other purpose except as expressly set forth herein.
8. Costs and Expenses. The Borrower and Terra Industries agree to
pay on demand all reasonable and documented out-of-pocket costs and expenses of
the Administrative Agent in connection with the preparation, execution and
delivery of this Amendment and other instruments and documents to be delivered
pursuant hereto, including the reasonable and documented fees and out-of-pocket
expenses of counsel for the Administrative Agent with respect thereto.
9. Governing Law; Counterparts; Miscellaneous.
(a) This Amendment shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.
(b) This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, each of
which counterparts when executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.
(c) Section captions used in this Amendment are for
convenience only and shall not affect the construction of this Amendment.
(d) From and after the Amendment Effective Date, all
references in the Credit Agreement to the "Agreement" shall be deemed to be
references to such Agreement as modified hereby and this Amendment and the
Credit Agreement shall be read together and construed as a single instrument.
3
IN WITNESS WHEREOF, the undersigned parties have executed this FIRST
AMENDMENT TO CREDIT AGREEMENT to be effective for all purposes as of the
Amendment Effective Date.
Borrower
Terra International (Canada), Inc.
By: _______________________________________
Name: Francis G. Meyer
Title: Vice President
Guarantors
Terra Industries Inc.
By: _______________________________________
Name: Francis G. Meyer
Title: Sr. Vice President and Chief
Financial Officer
Terra Capital Holdings, Inc.
By: _______________________________________
Name: Francis G. Meyer
Title: Vice President
Terra Capital, Inc.
By: _______________________________________
Name: Francis G. Meyer
Title: Vice President
Terra Nitrogen Corporation
By: _______________________________________
Name: George H. Valentine
Title: Vice President
Terra International, Inc.
By: _______________________________________
Name: Francis G. Meyer
Title: Senior Vice President
Terra Methanol Corporation
By: _______________________________________
Name: Francis G. Meyer
Title: Vice President
BMC Holdings, Inc.
By: _______________________________________
Name: Francis G. Meyer
Title: Vice President
Beaumont Holdings Corporation
By: _______________________________________
Name: George H. Valentine
Title: Vice President
Terra Nitrogen (U.K.), Limited
By: _______________________________________
Name: Francis G. Meyer
Title: Director
Terra Nitrogen, Limited Partnership
By: Terra Nitrogen Corporation,
its General Partner
By: _______________________________________
Name: George H. Valentine
Title: Vice President
Beaumont Methanol, Limited Partnership
By: Terra Methanol Corporation,
its General Partner
By: _______________________________________
Name: Francis G. Meyer
Title: Vice President
Beaumont Ammonia, Inc.
By: _______________________________________
Name: George H. Valentine
Title: Vice President
Port Neal Corporation
By: _______________________________________
Name: George H. Valentine
Title: Vice President
Terra International (Oklahoma) Inc.
By: _______________________________________
Name: Francis G. Meyer
Title: Vice President
Terra (U.K.) Holdings, Inc.
By: _______________________________________
Name: George H. Valentine
Title: Vice President
Administrative Agent
Citibank, N.A.
By: _______________________________________
Name: David Jaffe
Title: Vice President
AMENDMENT TO THE
TERRA INDUSTRIES INC.
EXCESS BENEFIT PLAN
Terra Industries Inc. desires to amend its Excess Benefit Plan as restated
as of January 1, 1992 (the "Plan"), all on the terms and conditions herein.
Accordingly, the Plan shall be amended by adding the following new Section 9
reading in its entirety as follows:
"Section 9. Legal Fees or Expenses. The Company shall reimburse the
Participant for any legal fees and expenses reasonably incurred in
connection with the enforcement of Participant's rights under this Excess
Benefit Plan; provided that the Company shall not be required to reimburse
for such fees or expenses unless the resolution of any enforcement action
taken by the Participant is substantially in favor of the Participant,
whether by adjudication, settlement or otherwise."
Except as provided herein or in the accompanying resolutions of the
Personnel Committee of the Terra Industries Inc. Board of Directors, the Plan
shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by
its duly authorized officer as of the 26/th/ day of July, 2000.
TERRA INDUSTRIES INC.
By /s/ George H. Valentine
--------------------------
Its Senior Vice President
--------------------------
Exhibit 10.1.8.a.
AMENDMENT NO. 2 TO THE
TERRA INDUSTRIES INC.
SUPPLEMENTAL DEFERRED
COMPENSATION PLAN
Terra Industries Inc. desires to amend its Supplemental Deferred
Compensation Plan as amended as of May 1, 1995 (the "Plan"), all on the terms
and conditions herein. Accordingly, the Plan is hereby amended as follows:
(a) Article VI of the Plan shall be amended by adding the following new
section 6.06 therein reading in its entirety as follows:
"6.06 Early Distribution. The Participant may elect, before or after
Participant's Retirement or Termination of Service, to receive a
distribution with respect to the value of part or all of the vested portion
of the Participant's Bookkeeping Account. Any such distribution shall be
equal to the value of the portion of the Participant's Bookkeeping Account
elected, less a forfeiture penalty of 20% of that value, and the amount
distributed shall be in full satisfaction of the Participant's rights with
respect to the portion of the account so elected."
(b) Article X of the Plan shall be amended by adding the following new
section 10.05 therein reading in its entirety as follows:
"10.05. Legal Fees or Expenses. The Company shall reimburse the
Participant for any legal fees and expenses reasonably incurred in
connection with the enforcement of Participant's rights under this Plan;
provided that the Company shall not be required to reimburse for such fees
or expenses unless the resolution of any enforcement action taken by the
Participant is substantially in favor of the Participant, whether by
adjudication, settlement or otherwise."
(c) Except as herein provided, the Plan shall remain unchanged and in full
force and effect.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by
its duly authorized officer as of the 26/th/ day of July , 2000.
------ ----
TERRA INDUSTRIES INC.
By /s/ George H. Valentine
-----------------------------
Its Senior Vice President
-----------------------------
Exhibit 10.1.19
TERRA INDUSTRIES INC.
INCENTIVE AWARD PROGRAM FOR
OFFICERS & KEY EMPLOYEES
2000
I. Purpose of the Plan
The purpose of this Incentive Award Program is to motivate and reward
officers and key employees of the Company toward achievement of planned
annual goals and improved results.
II. Eligibility in the Plan
Participation in this Incentive Award Program is limited to officers and
key employees of Terra Industries Inc. and subsidiaries whose efforts are
expected to contribute significantly to the success and accomplishment of
the Company's planned goals.
III. Special Provisions and Considerations
Terra's incentive plan year coincides with the Company's fiscal year. The
Chief Executive Officer will establish corporate financial goals, which are
approved by the Board of Directors, which will be used to establish the
2000 incentive pool. Each officer and key employee participating in this
plan will be assigned a target incentive expressed as a percentage of year-
end base salary.
The Chief Executive Officer, Chief Operating Officer or appropriate Senior
Officer, is responsible for approving each plan participant's individual
goals as soon as practicable in 2000 (See Section IV below). The
importance of each goal is reflected in the weight assigned to it; each
participant's goals will sum to one hundred percent (100%). These
individual goals will be used in determining the participant's final
incentive payment. Each plan participant must periodically report on
his/her goal achievement to the Chief Executive Officer.
IV. Funding the Officers and Key Employees Incentive Award Program
The 2000 Plan divides the incentive awards between a portion based upon
Company financial performance and a portion based upon individual
performance on personal goals (up to 34% of each participant's target
bonus). However, awards for achieving individual performance goals may not
be paid if the Personnel Committee of the Board of Directors and the Chief
Executive Officer determine that the Company's financial performance does
not justify such awards.
The funding for the Company's financial performance portion of the
incentive award pool is based on Terra Industries Inc.'s actual 2000 net
income. The budgeted 2000 net loss, which is based on forecasts of nitrogen
products and methanol selling prices and natural gas costs, is substantial
and does not justify an award. Consequently, the Company `s financial
performance portion of the pool starts to fund at fifty percent (50%) when
the Company's actual 2000 net income is $0 and increases by one percent
(1%) for each additional $1 million of net income. Any funding for actual
2000 net income which is more than $150 million is at the discretion of
the Personnel Committee of the Board of Directors and the Chief Executive
Officer.
Each participant will develop up to five goals that will be used as the
measurement in determining payments under the personal goals section.
These goals should be reviewed and approved by the appropriate Senior
Officer and the Chief Executive Officer. Accordingly, a participant could
earn the portion of his or her bonus based on achieving personal goals even
if there is no funding of the Company performance portion of the pool.
However, funding of the individual performance awards pool is at the
discretion of the Personnel Committee of the Board of Directors and the
Chief Executive Officer.
V. Basis of the Incentive Award
The starting point in determining each participant's incentive award is the
evaluation of the individual goals. The participant's individual raw award
is calculated by taking each participant's year-end salary, times his/her
targeted incentive percentage and then times his/her individual goal
achievement.
-2-
The sum of all participants' adjusted raw awards creates an adjusted raw
pool. This adjusted raw pool is compared with the sum of the plan
participant's year-end salary, times their targeted percentage award (or a
portion of his/her index used to calculate this pool) which is then
adjusted by the Company's financial performance to form the incentive pool.
This adjusted raw pool is adjusted up or down to match the incentive pool.
All participant incentives are paid from the incentive pool.
The Chief Executive Officer has the discretion to adjust any individual's
participation up or down to reflect unusual or unplanned events or to
reflect the degree of difficulty of the goals. He may adjust amounts
between plan participants and may add amounts from any discretionary part
of the pool. The Chief Executive Officer may also choose to award less
than the full amount of the pool or add as much as 20% to the pool.
VI. Review, Revision and Modification of the Goals
Under normal business conditions, the Company goals or individual
objectives will not be altered or revised once established for the year.
Unexpected and unforeseen developments during the course of the year may
prompt re-examination of an officer's or key employee's established goals.
It is the responsibility of each officer and key employee to note the
conditions of change which would prompt such a review and take timely
action. Such action would include review with the Chief Executive Officer
for the need for revision of an established goal as soon as possible after
the detected change. All changes are subject to final approval of the
Chief Executive Officer.
VII. Payment of Award
The incentive award will be paid to each officer and key employee by check
as soon as possible after the close of the fiscal year and after approval
of the Chief Executive Officer's recommendations by the Personnel Committee
of the Board of Directors.
To be eligible for full payment, the officer or key employee must have been
in the employ of Terra Industries Inc. or one of its subsidiaries as of
January 1 of the incentive plan year and must be actively employed by the
Company on the date the incentive award is paid.
-3-
VIII. Special Provision
A newly elected officer or key employee will participate in this
incentive program in proportion to the number of full months worked as an
officer or key employee during the incentive program year.
A participant who retires, becomes permanently disabled or dies shall
cease to participate in this program as of the end of the month
coincident with retirement, disability or death. The proportionate
incentive award will be paid as soon as possible after the close of the
fiscal year. While it is the intent of the Company to make awards under
this plan and to continue the plan from year to year, it reserves the
right to amend or terminate the plan entirely at its discretion.
-4-
Exhibit 10.1.22
PERFORMANCE SHARE AWARD
Date of Award: February 16, 2000
Number of Shares Awarded: ________
Dear ___________:
We are pleased to inform you that as a key employee of Terra Industries
Inc. (the "Corporation") or a Subsidiary thereof, you have been awarded, under
the 1997 Stock Incentive Plan (the "Plan"), the number of Common Shares of the
Corporation set forth above, subject to certain restrictions, terms and
conditions set forth in this letter and in the Plan. The restricted Common
Shares issued to you are referred to in this letter as the "Performance Shares."
1. From the date hereof until the restrictions on the Performance Shares
terminate (the "Restriction Period"), the Performance Shares shall not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed; provided,
however, that any of the Performance Shares may be exchanged for any other
Common Shares that are similarly restricted.
2. The Restriction Period shall terminate at the following times:
a. The Restriction Period shall terminate with respect to one hundred
percent (100%) all of the Performance Shares on the day any one of the following
occurs within three (3) years of the Date of Award: (i) any person or group of
persons acting in concert (other than Anglo American plc, and its affiliates or
a group consisting solely of such persons (the "Anglo American Affiliates"))
acquires beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission promulgated under the Securities Exchange Act
of 1934) of the outstanding securities (the "Voting Shares") of the Corporation
in an amount having, or convertible into securities having, 25% or more of the
ordinary voting power for the election of directors of the Corporation, provided
that this 25% beneficial ownership trigger shall apply only when the Anglo
American Affiliates no longer own 50% or more of the Voting Shares; (ii) during
a period of not more than 24 months, a majority of the Board of Directors of the
Corporation ceases to consist of the existing membership or successors nominated
by the existing membership or their similar successors; (iii) all or
substantially all of the individuals and entities who were the beneficial owners
of the Corporation's outstanding securities entitled to vote do not own more
than 60% of such securities in substantially the same proportions following a
shareholder approved reorganization, merger, or consolidation; or (iv)
shareholder approval of either (A) a complete
1
liquidation or dissolution of the Corporation or (B) a sale or other disposition
of all or substantially all of the assets of the Corporation, or a transaction
having a similar effect.
b. The Restriction Period shall terminate with respect to one hundred
percent (100%) of the Performance Shares on the business day following the third
anniversary of the Date of Award.
c. Notwithstanding the foregoing, if you are or become a "covered
employee" within the meaning of Section 162(m) of the Internal Revenue Code, the
Restriction Period for any portion of the shares whose vesting would result in a
loss of deduction to the Corporation shall continue until the date on which the
Performance Shares can be freed of restriction without resulting in the loss of
deduction or the date of your retirement or termination without cause. For these
purposes "cause" shall have the same meaning as set forth in your 1998 Executive
Retention Agreement and "retirement" shall be determined in accordance
established policy of the Corporation.
The Corporation shall retain possession of the Performance Shares until the
later to occur of the termination of the Restriction Period and the termination
of the security interest described in Section 6 of this letter.
3. If your employment with the Corporation and all Subsidiaries terminates
during the term of this agreement, all Performance Shares subject to the
Restriction Period shall automatically be forfeited by you and reconveyed to the
Corporation, except as follows:
a. If your employment terminates by reason of death, the Performance
Shares shall continue to be eligible for vesting pursuant to Section 2 for a
period of one year from the date of death (provided that such vesting must
occur, if at all, on or before the third anniversary hereof).
b. If your employment terminates by reason of Total Disability, the
Performance Shares shall continue to be eligible for vesting pursuant to Section
2 (provided that such vesting must occur, if at all, on or before the third
anniversary hereof).
c. In cases of special circumstances the Personnel Committee may, in its
sole discretion when it finds that a waiver would be in the best interests of
the Corporation, extend the period for vesting or terminate the Restriction
Period with respect to all or a portion of your Performance Shares.
4. This award shall not be effective unless you sign a copy of this letter and
deliver it to the Corporate Secretary of the Corporation, Terra Centre, 600
Fourth Street, Sioux City, Iowa 51101, before 4:30 p.m. central time on February
28, 2000. If the Corporate Secretary does not have your properly executed copy
of this letter before such time, then, anything in this letter to the contrary
notwithstanding, this award shall terminate and be of no effect. Your signing
and delivering a copy of this letter shall evidence your acceptance of the
Performance Shares upon the terms and conditions of this Award. Attached is a
copy of your Stock Certificate and Stock Power. Your execution of the stock
power will permit the Corporation to enforce the security interest described in
Section 6 of this letter or reconvey the Performance Shares to the Corporation
in the event the Award is forfeited.
2
5. Except as set forth in this letter, upon the issuance of the Performance
Shares you shall have all of the rights of a stockholder, including the right to
vote the Performance Shares and the right to receive dividends thereon. The
certificates for any Performance Shares shall bear an appropriate legend
reciting the terms, conditions and restrictions applicable thereto, and shall be
subject to appropriate stop-transfer orders. The Corporation shall issue your
Performance Shares promptly after the Corporation's Corporate Secretary receives
the documents set forth in Section 4, the Performance Shares have been listed
(or authorized for listing upon official notice of issuance) upon each stock
exchange upon which the Common Shares of the Corporation are listed and there
has been compliance with such laws and regulations as the Corporation may deem
applicable. The Corporation agrees to use its best efforts to effect such
listing and compliance.
6. You hereby agree to pay to the Corporation, or otherwise make arrangements
satisfactory to the Corporation regarding payment of, any federal, state or
local taxes required or authorized by law to be withheld with respect to the
award of the Performance Shares or the termination of the Restriction Period
(the "Withholding Taxes"). The Corporation shall have, to the extent permitted
by law, the right to deduct from any payment of any kind otherwise due to the
Employee, any Withholding Taxes and to condition the delivery of the Performance
Shares after the termination of the Restriction Period on the payment to the
Corporation of the Withholding Taxes. You hereby grant to the Corporation a
security interest in the Performance Shares to secure the reconveyance of the
Performance Shares to the Corporation upon any forfeiture and to ensure adequate
provision for the Withholding Taxes. The Corporation shall release its security
interest in respect of any Performance Shares on which (i) the Restriction
Period has terminated and (ii) all Withholding Taxes have been paid. In lieu of
the payment of such amounts in cash, you may pay all or a portion of the
Withholding Taxes by (a) the delivery of Common Shares not subject to any
Restriction Period or (b) having the Corporation withhold a portion of the
Common Shares otherwise to be delivered upon vesting of the Performance Shares.
7. The Corporation may, in its sole discretion, at any time or from time to
time, in lieu of the delivery of all or any portion of your Performance Shares,
pay to you cash equal to the Fair Market Value (as defined in the 1997 Stock
Incentive Plan) of such shares on the day the Restriction Period terminates.
8. If any distribution is made to the holders of Performance Shares other than
a cash dividend and new, different, or additional shares or other securities of
the Corporation or of another company are received by the holders of the
Performance Shares, or if any recapitalization or reclassification, split-up or
consolidation of the Performance Shares shall be effected, or, if in connection
with a merger or consolidation of the Corporation or a sale by the Corporation
of all or a part of its assets, the Performance Shares are exchanged for a
different number or class of shares of stock or other securities of the
Corporation or for shares of stock or other securities of any other company,
then any such other securities shall be subject to similar restrictions as the
Performance Shares, and the number and class of Performance Shares, and the
restrictions, terms and other conditions applicable to any such other securities
shall be equitably determined by the Committee.
3
9. Nothing in this Agreement shall confer upon the Employee any right to
continue in the employ of the Corporation or a Subsidiary, or affect the right
of the Corporation or of any Subsidiary to terminate the employment of the
Employee, with or without cause.
These Performance Shares are awarded pursuant to the Plan and are subject
to its terms. Capitalized terms used in this letter have the same meanings as
defined in the Plan. A copy of the Plan is being furnished to you with this
letter and also is available on request from the Corporate Secretary of the
Corporation.
Very truly yours,
TERRA INDUSTRIES INC.
By: ________________________________________
President and Chief Executive Officer
By: ________________________________________
Senior Vice President, General Counsel
and Corporate Secretary
I hereby agree to the terms and conditions set forth above and acknowledge
receipt of the 1997 Stock Incentive Plan and the Prospectus covering shares
issued under that Plan.
Signature of Employee
4
Exhibit 10.1.23
PERFORMANCE SHARE GRANT
Date of Grant: May 2, 2000
Number of Shares Awarded: ________
Dear ___________:
We are pleased to inform you that as a non-employee director of Terra
Industries Inc. (the "Corporation"), you have been granted, under the 1997 Stock
Incentive Plan (the "Plan"), the number of Common Shares of the Corporation set
forth above, subject to certain restrictions, terms and conditions set forth in
this letter and in the Plan. The restricted Common Shares issued to you are
referred to in this letter as the "Performance Shares."
1. From the date hereof until the restrictions on the Performance Shares
terminate (the "Restriction Period"), the Performance Shares shall not be sold,
exchanged, transferred, pledged, hypothecated or otherwise disposed; provided,
however, that any of the Performance Shares may be exchanged for any other
Common Shares that are similarly restricted.
2. The Restriction Period shall terminate at the following times:
a. The Restriction Period shall terminate with respect to one hundred
percent (100%) all of the Performance Shares on the day any one of the following
occurs within two (2) years of the Date of Award: (i) any person or group of
persons acting in concert (other than Anglo American plc, and its affiliates or
a group consisting solely of such persons (the "Anglo American Affiliates"))
acquires beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission promulgated under the Securities Exchange Act
of 1934) of the outstanding securities (the "Voting Shares") of the Corporation
in an amount having, or convertible into securities having, 25% or more of the
ordinary voting power for the election of directors of the Corporation, provided
that this 25% beneficial ownership trigger shall apply only when the Anglo
American Affiliates no longer own 50% or more of the Voting Shares; (ii) during
a period of not more than 24 months, a majority of the Board of Directors of the
Corporation ceases to consist of the existing membership or successors nominated
by the existing membership or their similar successors; (iii) all or
substantially all of the individuals and entities who were the beneficial owners
of the Corporation's outstanding securities entitled to vote do not own more
than 60% of such securities in substantially the same proportions following a
shareholder approved reorganization, merger, or consolidation; or (iv)
shareholder approval of either (A) a complete liquidation or dissolution of the
Corporation or
(B) a sale or other disposition of all or substantially all of the assets of the
Corporation, or a transaction having a similar effect.
b. The Restriction Period shall terminate with respect to one hundred
percent (100%) of the Performance Shares on the business day following the
second anniversary of the Date of Award.
The Corporation shall retain possession of the Performance Shares until the
later to occur of the termination of the Restriction Period and the termination
of the security interest described in Section 6 of this letter.
3. If your service on the Board of Directors of the Corporation terminates
during the term of this agreement, all Performance Shares subject to the
Restriction Period shall automatically be forfeited by you and reconveyed to the
Corporation, except as follows:
a. If your service terminates by reason of death, the Performance Shares
shall continue to be eligible for vesting pursuant to Section 2 for a period of
one year from the date of death (provided that such vesting must occur, if at
all, on or before the second anniversary hereof).
b. If your service terminates by reason of Total Disability or retirement,
with the permission of the Personnel Committee, the Performance Shares shall
continue to be eligible for vesting pursuant to Section 2 (provided that such
vesting must occur, if at all, on or before the second anniversary hereof).
c. In cases of special circumstances the Personnel Committee may, in its
sole discretion when it finds that a waiver would be in the best interests of
the Corporation, extend the period for vesting or terminate the Restriction
Period with respect to all or a portion of your Performance Shares.
4. This award shall not be effective unless you sign a copy of this letter and
deliver it to the Corporate Secretary of the Corporation, Terra Centre, 600
Fourth Street, Sioux City, Iowa 51101, on or before May 25, 2000. If the
Corporate Secretary does not have your properly executed copy of this letter
before such time, then, anything in this letter to the contrary notwithstanding,
this award shall terminate and be of no effect. Your signing and delivering a
copy of this letter shall evidence your acceptance of the Performance Shares
upon the terms and conditions of this Award. Attached is a copy of your Stock
Certificate and Stock Power. Your execution of the stock power will permit the
Corporation to enforce the security interest described in Section 6 of this
letter or reconvey the Performance Shares to the Corporation in the event the
Award is forfeited.
5. Except as set forth in this letter, upon the issuance of the Performance
Shares you shall have all of the rights of a stockholder, including the right to
vote the Performance Shares and the right to receive dividends thereon. The
certificates for any Performance Shares shall bear an appropriate legend
reciting the terms, conditions and restrictions applicable thereto, and shall be
subject to appropriate stop-transfer orders. The Corporation shall issue your
Performance Shares promptly after the Corporation's Corporate Secretary receives
the documents set forth in Section 4, the
2
Performance Shares have been listed (or authorized for listing upon official
notice of issuance) upon each stock exchange upon which the Common Shares of the
Corporation are listed and there has been compliance with such laws and
regulations as the Corporation may deem applicable. The Corporation agrees to
use its best efforts to effect such listing and compliance.
6. You hereby agree to pay to the Corporation, or otherwise make arrangements
satisfactory to the Corporation regarding payment of, any federal, state or
local taxes required or authorized by law to be withheld with respect to the
award of the Performance Shares or the termination of the Restriction Period
(the "Withholding Taxes"). The Corporation shall have, to the extent permitted
by law, the right to deduct from any payment of any kind otherwise due to the
Employee, any Withholding Taxes and to condition the delivery of the Performance
Shares after the termination of the Restriction Period on the payment to the
Corporation of the Withholding Taxes. You hereby grant to the Corporation a
security interest in the Performance Shares to secure the reconveyance of the
Performance Shares to the Corporation upon any forfeiture and to ensure adequate
provision for the Withholding Taxes. The Corporation shall release its security
interest in respect of any Performance Shares on which (i) the Restriction
Period has terminated and (ii) all Withholding Taxes have been paid. In lieu of
the payment of such amounts in cash, you may pay all or a portion of the
Withholding Taxes by (a) the delivery of Common Shares not subject to any
Restriction Period or (b) having the Corporation withhold a portion of the
Common Shares otherwise to be delivered upon vesting of the Performance Shares.
7. The Corporation may, in its sole discretion, at any time or from time to
time, in lieu of the delivery of all or any portion of your Performance Shares,
pay to you cash equal to the Fair Market Value (as defined in the 1997 Stock
Incentive Plan) of such shares on the day the Restriction Period terminates.
8. If any distribution is made to the holders of Performance Shares other than
a cash dividend and new, different, or additional shares or other securities of
the Corporation or of another company are received by the holders of the
Performance Shares, or if any recapitalization or reclassification, split-up or
consolidation of the Performance Shares shall be effected, or, if in connection
with a merger or consolidation of the Corporation or a sale by the Corporation
of all or a part of its assets, the Performance Shares are exchanged for a
different number or class of shares of stock or other securities of the
Corporation or for shares of stock or other securities of any other company,
then any such other securities shall be subject to similar restrictions as the
Performance Shares, and the number and class of Performance Shares, and the
restrictions, terms and other conditions applicable to any such other securities
shall be equitably determined by the Personnel Committee.
9. Nothing in this Agreement shall confer upon the non-employee Director any
right to continue in the service of the Board of Directors of the Corporation,
or affect the right of the Board of Directors of the Corporation to terminate
the service of such Director, with or without cause.
3
These Performance Shares are awarded pursuant to the Plan and are subject
to its terms. Capitalized terms used in this letter have the same meanings as
defined in the Plan. A copy of the Plan is being furnished to you with this
letter and also is available on request from the Corporate Secretary of the
Corporation.
Very truly yours,
TERRA INDUSTRIES INC.
By: _______________________________________
President and Chief Executive Officer
By: _______________________________________
Senior Vice President, General Counsel
and Corporate Secretary
I hereby agree to the terms and conditions set forth above and acknowledge
receipt of the 1997 Stock Incentive Plan and the Prospectus covering shares
issued under that Plan.
Signature of non-employee Director
4
Exhibit 13
TERRA INDUSTRIES INC.
2000 ANNUAL REPORT
FINANCIAL SECTION
TABLE OF CONTENTS
Financial Review
Consolidated Statements of Financial Position
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders'
Equity
Notes to the Consolidated Financial Statements
Responsibility for Financial Statements
Independent Auditors' Report
Quarterly Production Data
Quarterly Financial and Stock Market Data
Volumes and Prices
Stockholders
Financial Summary
Directors and Management
Investor Information
FINANCIAL REVIEW
OVERVIEW OF CONSOLIDATED RESULTS
Terra Industries Inc. (Terra) reported net losses of $10 million in 2000, $90
million in 1999 and $26 million in 1998 with a loss per share of $ 0.14, $1.20
and $0.35, respectively. Revenues from continuing operations totaled $1,001
million in 2000, $774 million in 1999 and $846 million in 1998.
During 1999, Terra sold its Distribution business segment which generated a 1999
loss of $10.5 million ($0.14 per share) compared to the segment's net income of
$17.1 million ($0.23 per share) for 1998. In addition, 1999 net income was
reduced $9.3 million ($0.12 per share) due to the write-off of deferred
financing fees in connection with the early retirement of debt.
The net loss from continuing operations was $10.2 million in 2000, $70.1 million
in 1999 and $43.3 million in 1998. Fluctuations in the net loss from continuing
operations from 1998 through 2000 are primarily related to changes in the
selling prices of nitrogen products and methanol manufactured by Terra and
changes in the cost of natural gas, Terra's primary raw material.
FINANCIAL COMPARABILITY
On June 30, 1999 Terra sold its Distribution business segment as of March 31,
1999 for net proceeds of $335.1 million as discussed further at Note 2 to the
Consolidated Financial Statements. Sale proceeds were used primarily to repay
seasonal debt and redeem outstanding minority preferred limited interest in a
partnership that operates Terra's methanol plant located at Beaumont, Texas. The
Consolidated Financial Statements for prior years contain certain
reclassifications to reflect the historical assets and operations of the
Distribution business segment as discontinued operations.
FACTORS THAT AFFECT OPERATING RESULTS
Factors that may affect Terra's future operating results include: changes in
financial markets, the relative balance of supply and demand for nitrogen
fertilizers, industrial nitrogen and methanol, the availability and cost of
natural gas, the number of planted acres - which is affected by both worldwide
demand and governmental policies - the types of crops planted, the effects
general weather patterns have on the timing and duration of field work for crop
planting and harvesting, the effect of environmental legislation on supply and
demand for Terra's products, the availability of financing sources to fund
seasonal working capital needs, and the potential for interruption to operations
due to accident or natural disaster.
The principal raw material used to produce nitrogen products and methanol is
natural gas. Natural gas costs in 2000 comprised about 66% of total costs and
expenses for the North American nitrogen products business, 23% of total costs
and expenses for the U.K. nitrogen products business and 66% of total costs and
expenses for the Methanol segment. Terra enters into forward pricing
arrangements for some of its natural gas requirements provided that such
arrangements would not result in costs that would be greater than expected
selling prices for Terra's finished products. Under those conditions, Terra's
normal natural gas forward pricing policy is to effectively fix or cap the price
of between 25% 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 supply contracts, financial derivatives and other instruments. 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 to natural gas costs, Terra amended its normal policy and
eliminated the minimum hedge requirement through the end of 2001. As a result,
December 31, 2000 forward positions declined to approximately 17% of Terra's
2001 natural gas requirements. The significant increase to natural gas costs has
also resulted in periodic production curtailments until natural gas, nitrogen or
methanol prices change to levels allowing Terra to realize incremental cash
flows by restarting the curtailed production. A portion of global nitrogen
products and methanol production is at facilities with access to fixed-price
natural gas supplies. These facilities' natural gas costs have been and could
continue to be substantially lower than Terra's.
1
Prices for nitrogen products are influenced by the world supply and demand
balance for ammonia and other nitrogen-based products. Long-term demand is
affected by population growth and rising living standards that determine food
consumption. Short-term demand is affected by world economic conditions and
international trade decisions. 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.
Since mid-1999, in response to depressed nitrogen prices and the effects of
increasing North American natural gas costs on product margins, there have been
curtailments and permanent shutdowns of marginal capacity in North America and
Western Europe, which has reduced nitrogen supplies in those areas.
Methanol is used as a raw material in the production of formaldehyde, methyl
tertiary butyl ether (MTBE), acetic acid and numerous other chemical
derivatives. The price of methanol is highly influenced by the supply and demand
in each of these markets, in particular MTBE, an oxygenate used in reformulated
gasoline and an octane enhancer used in non-reformulated gasoline. Initiatives
to ban or reduce the use of MTBE as a fuel additive, such as currently underway
in California, could significantly affect demand for methanol. Recent reductions
to methanol production in North America as the result of increasing natural gas
costs has resulted in higher methanol prices, but those price increases have not
always covered the higher cash costs of production.
Weather can have a significant effect on demand for Terra's products. Weather
conditions that delay or intermittently disrupt field work during the planting
and growing season may shift demand from or to forms of nitrogen fertilizer that
are more or less favorable to Terra. Similar conditions following harvest may
delay or eliminate opportunities to apply fertilizer in the fall. Weather can
also have an adverse effect on crop yields, which lowers the income of growers
and could impair their ability to pay for crop inputs purchased from Terra's
dealer customers. Conversely, low crop yields often increases the planted acres
in the subsequent season which, in turn, increases the demand for nitrogen
fertilizer.
Terra's nitrogen business segment is seasonal with the majority of its products
used during the second quarter in conjunction with spring planting activity.
Due to the seasonality of the business and the relatively brief periods during
which products can be used by customers, Terra and/or its customers generally
build inventories during the second half of the year in order to ensure timely
product availability during the peak sales season. For its current level of
sales, Terra requires lines of credit to fund inventory increases and to support
customer credit terms. Terra believes that its credit facilities are adequate
for expected production levels in 2001.
Terra's manufacturing operations may be subject to significant interruption if
one or more of its facilities were to experience a major accident or were
damaged by severe weather or other natural disaster. Terra currently maintains
insurance, including business interruption insurance, and expects that it will
continue to do so in an amount which it believes is sufficient to allow Terra to
withstand major damage to any of its facilities.
RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
Market risk represents the risk of loss that may impact the financial position,
results of operations or cash flows of Terra due to adverse changes in financial
and commodity market prices and rates. Terra uses derivative financial
instruments to manage risk in the areas of (a) foreign currency fluctuations,
(b) changes in natural gas prices and (c) changes in interest rates. See Note 12
to the Consolidated Financial Statements for additional information on the use
of derivative financial instruments.
It is the general policy of Terra to avoid unnecessary risk and to limit, to the
extent practical, risks associated with operating activities. Management of
Terra may not engage in activities that expose Terra to speculative or non-
operating risks. Management is expected to limit risks to acceptable levels.
The use of derivative financial instruments is consistent with the overall
business objectives of Terra. Derivatives are used to manage operating risk
within the limits established by Terra's Board of Directors, and in response to
identified exposures, provided they qualify as hedge activities. As such,
derivative financial instruments are used to manage exposure to interest rate
fluctuations, to hedge specific assets and liabilities denominated in foreign
currency, to hedge firm commitments and forecasted natural gas purchase
transactions, and to protect against foreign exchange rate movements between
different currencies that impact revenue and earnings expressed in U.S. dollars.
2
Foreign Currency Fluctuations
It is the policy of Terra to manage risk associated with foreign currency
fluctuations by entering into exchange forward and option contracts covering
specific currency obligations or net foreign currency operating requirements.
Such hedging is limited to the amounts and duration of the specific obligations
being hedged and, in the case of operating requirements, no more than 75% of the
forecast requirements. The primary currencies to which Terra is exposed are the
Canadian dollar and the British pound. At December 31, 2000, Terra had no
forward positions in any foreign currency.
Natural Gas Prices - North American Operations
Terra's normal policy is to hedge 25-80% of its natural gas requirements for the
upcoming 12 months and up to 50% of its requirements for the following 24 month
period provided that such arrangements would not result in costs that would be
greater than 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 to gas costs, Terra amended its policy and eliminated the minimum
hedge requirement through the end of 2001. Natural gas is the principal raw
material used to manufacture nitrogen and methanol. Natural gas prices are
volatile and Terra manages this volatility through the use of derivative
commodity instruments. Annual North American procurement requirements for
natural gas are approximately 134 million MMBtu. Terra has hedged 10% of its
2001 North American requirements and none of its requirements beyond December
31, 2001. The fair value of these instruments is estimated based on quoted
market prices from brokers, realized gains or losses and computations prepared
by Terra. These instruments were at prices $32.1 million lower than published
prices for December 31, 2000, forward markets. Market risk is estimated as the
potential loss in fair value resulting from a hypothetical 10 percent adverse
change in price. As of December 31, 2000 Terra's market risk exposure related
to future natural gas requirements being hedged was $4.3 million based on a
sensitivity analysis. Changes in the market value of these derivative
instruments have a high correlation to changes in the spot price of natural gas.
This hypothetical adverse impact on natural gas derivative instruments would be
more than offset by lower costs for natural gas purchases.
Natural Gas Prices - United Kingdom Operations
To meet natural gas production requirements at Terra's United Kingdom production
facilities, Terra generally enters into one- or two-year gas supply contracts
with fixed prices for 25-80% of total volume requirements. Annual procurement
requirements for U.K. natural gas are approximately 26 million MMBtu. As of
December 31, 2000, Terra had fixed-price contracts for 49% of its 2001 U.K.
natural gas requirements and 12% of its 2002 natural gas requirements. Terra's
U.K. fixed-price contracts for 2001 and 2002 natural gas were at prices $18.4
million and $2.9 million, respectively, lower than published prices for December
31, 2000 forward markets. Terra does not use derivative commodity instruments
for its United Kingdom natural gas needs.
Interest Rate Fluctuations
It is the policy of Terra to limit the extent of uncapped, variable rate debt to
no more than 50% of its total outstanding debt. Terra manages interest rate risk
to reduce the potential volatility of earnings that may arise from changes in
interest rates. The table below provides information about Terra's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including debt obligations and interest rate swaps.
For debt obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates. For interest rate
swaps, the table presents notional amounts and weighted average interest rates
by expected maturity dates. Notional amounts are used to calculate contractual
payments to be exchanged under the contract.
3
Interest Rate Sensitivity
(in millions) Expected Maturity Date
------------------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total Fair Value
------ ------ ------ ------ ------ ---------- ------ ----------
Long-Term Debt
Senior Notes, fixed rate ($US) $ - $ - $ - $ - $200.0 $ - $200.0 $208.5
Average interest rate 10.50% 10.50% 10.50% 10.50% 10.50%
Senior Notes, fixed rate ($US) - - 158.8 - - - 158.8 159.3
Average interest rate 10.75% 10.75% 10.75%
Bank Term Notes, LIBOR based ($US) --- --- 59.4 - - - 59.4 59.4
Average interest rate 9.89% 9.89% 9.89%
Asset Based Term Facility, LIBOR based ($US) 5.0 3.8 37.5 - - - 46.3 46.3
Average interest rate 10.64% 10.64% 10.64%
IDR Bonds, various rates ($US) 0.4 0.4 0.4 0.4 0.6 5.6 7.8 8.5
Average interest rate 6.77% 6.78% 6.78% 6.77% 6.76% 6.55%
Other Debt, various rates ($US) 0.1 0.2 0.7 0.1 - - 1.1 1.1
Average interest rate 4.78% 4.20% 3.11% 8.0%
------------------------------------------------------------------------------
Total Long-Term Debt $ 5.5 $ 4.4 $256.8 $ 0.5 $200.6 $ 5.6 $473.4 $483.1
==============================================================================
Short-Term Borrowings
Revolving credit facility, notional amount ($US) $115.6 $115.6 $115.6 $ - $ -
Variable interest rate: LIBOR based 9.31% 9.31% 9.31%
Interest Rate Swap
Variable to fixed, notional amount ($US) $100.0 $100.0 $100.0 $ (1.1)
Average pay rate 6.05% 6.05% 6.05%
Average receive rate LIBOR LIBOR LIBOR
------------------------------------------------------------------------------
RESULTS OF CONTINUING OPERATIONS - 2000 COMPARED WITH 1999
Consolidated Results
Terra reported a 2000 net loss from continuing operations of $10.2 million on
revenues of $1,001 million compared with a loss of $70.1 million on revenues of
$774 million in 1999. Basic and diluted loss per share for 2000 was $0.14
compared with $0.94 for 1999. Lower industry supplies for both nitrogen and
methanol products resulted in higher product prices and was the principal factor
causing the reduced net loss for 2000.
Terra classifies its operations into two business segments: Nitrogen Products
and Methanol. The Nitrogen Products segment represents the sale of nitrogen
products including that produced at Terra's ammonia manufacturing and upgrading
facilities. The Methanol segment represents wholesale sales of methanol
including that produced at Terra's two methanol manufacturing facilities.
Total revenues and operating income (loss) by segment for the years ended
December 31, 2000 and 1999 follow:
(in thousands) 2000 1999
-------------------------------------------------------------------------------
REVENUES:
Nitrogen Products $ 855,107 $ 686,767
Methanol 136,781 85,178
Other revenue 9,270 2,364
-------------------------------------------------------------------------------
$ 1,001,158 $ 774,309
===============================================================================
OPERATING INCOME (LOSS):
Nitrogen Products $ 28,639 $ (43,909)
Methanol 12,395 (15,210)
Other expense - net 1,773 (3,923)
-------------------------------------------------------------------------------
$ 42,807 $ (63,042)
===============================================================================
4
Nitrogen Products
Volumes and prices for 2000 and 1999 follow:
Volumes and Prices
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
Sales Average Sales Average
(quantities in thousands of tons) Volumes Unit Price Volumes Unit Price
--------------------------------------------------------------------------------
Ammonia 1,418 $162 1,417 $122
Nitrogen solutions 3,990 79 3,682 62
Urea 474 136 563 99
Ammonium nitrate 1,000 118 833 113
--------------------------------------------------------------------------------
Nitrogen products revenues increased by $168.3 million to $855.1 million for
2000 in comparison with 1999 primarily as a result of higher prices for all
products. Ammonia, nitrogen solutions, urea and ammonium nitrate prices
increased by 33%, 27%, 37% and 4%, respectively, causing a $144.3 million
increase to revenues. Higher prices for ammonia, nitrogen solution and urea were
due to lower North American nitrogen supplies as a result of reduced industry-
wide production levels since mid-1999. The closure of nitrogen production
facilities that directly competed with Terra plants was the primary reason for
the increase to 2000 sales volumes of nitrogen solutions and ammonium nitrate.
The nitrogen products segment reported operating income of $28.6 million and an
operating loss of $43.9 million for 2000 and 1999, respectively. The $72.5
million improvement was primarily related to $148.6 million realized in 2000 as
the result of higher prices, partly offset by a $82.9 million increase to
natural gas costs. Natural gas costs, net of forward pricing gains or losses,
increased to $3.02/MMBtu in 2000 from $2.32/MMBtu last year. Natural gas cost
increases were mitigated by forward pricing contracts that reduced 2000 costs by
$76.9 million. Higher sales volumes, reduced freight costs and lower maintenance
spending contributed approximately $7.0 million to 2000 operating income.
Methanol
Methanol revenues were $136.8 million compared with $85.2 million for the years
ended December 31, 2000 and 1999, respectively. Average methanol sales prices
increased to $0.53 per gallon in 2000 from $0.35 per gallon in 1999 primarily as
the result of reduced production rates and permanent closure of marginal North
American production facilities in response to high natural gas costs and
increased offshore competition. Methanol sales volumes increased by 5% to 257
million gallons for 2000 compared with 1999 primarily as the result of a two
month shutdown at the Beaumont plant during the 1999 first quarter.
The methanol segment reported operating income of $12.4 million for 2000
compared to an operating loss of $15.2 million for 1999. The improved operating
results were primarily due to higher methanol prices which contributed $47.6
million to 2000 revenues. Natural gas costs, net of forward pricing gains or
losses, increased to $3.06/MMBtu in 2000 from $2.32/MMBtu during 1999 and
increased total 2000 costs by $20.1 million. Natural gas costs for the methanol
segment were $17.2 million lower than spot purchase prices as the result of
forward pricing contracts.
Other Expense - Net
Terra had $1.8 million of other operating income in 2000 compared to $3.9
million of other operating expenses in 1999. The 1999 expenses included
allocations of $3.5 million in administrative expenses to discontinued
Distribution operations sold during the 1999 first half.
Insurance Settlement Costs
During 2000, Terra incurred $6.0 million of legal and other professional fees in
connection with a lawsuit to recover costs from the 1994 explosion at Terra's
Port Neal facility. These expenses were related to the insurance recovery gain
reported in Terra's 1997 financial statements and, consequently, have been
excluded from the determination of 2000 operating income.
5
Interest Expense - Net
Net interest expense was $47.6 million in 2000 compared with $44.7 million in
1999. The increase to net interest expense is primarily related to 1999
interest income of $6.3 million realized in connection with the sale of the
Distribution business segment.
Minority Interest
Minority interest represents interest in the earnings of the publicly held
common units of Terra Nitrogen Company, L.P. (TNCLP) and a third-party's limited
partnership interest in Beaumont Methanol, Limited Partnership (BMLP). Minority
interest charges totaled $5.4 million in 2000 and $8.3 million in 1999.
Minority interest charges (credits) relating to TNCLP totaled $5.4 million in
2000 and $(1.1) million in 1999. The increased 2000 charge is directly related
to higher TNCLP earnings as the result of increasing nitrogen prices. Minority
interest charges for the limited partnership interest in BMLP was $9.4 million
in 1999. The Corporation redeemed the third-party's BMLP interests on June 30,
1999 and thereby eliminated subsequent charges to earnings related to the BMLP
partnership interest.
Income Taxes
Income tax expense was recorded at an effective rate of 37.1% for 2000 compared
with 39.6% for 1999 which were reflective of statutory rates in effect for Terra
during both periods.
RESULTS OF CONTINUING OPERATIONS - 1999 COMPARED WITH 1998
Consolidated Results
Terra reported a 1999 net loss from continuing operations of $70.1 million on
revenues of $774 million compared with a net loss of $43.3 million on revenues
of $846 million in 1998. Basic and diluted loss per share for 1999 was $0.94
compared with $0.58 for 1998. Worldwide overcapacity in both nitrogen and
methanol markets lowered prices and margins for these products which
substantially accounts for the decline in 1999 earnings.
Total revenues and operating income (loss) by segment for the years ended
December 31, 1999 and 1998 follow:
(in thousands) 1999 1998
-----------------------------------------------------------------
REVENUES:
Nitrogen Products $686,767 $751,597
Methanol 85,178 96,547
Other - net of intercompany eliminations 2,364 (2,593)
-----------------------------------------------------------------
$774,309 $845,551
=================================================================
OPERATING INCOME (LOSS):
Nitrogen Products $(43,909) $ 39,329
Methanol (15,210) (7,891)
Other expense - net (3,923) (21,224)
-----------------------------------------------------------------
$(63,042) $ 10,214
=================================================================
6
Nitrogen Products
Volumes and prices for 1999 and 1998 follow:
Volumes and Prices
--------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------
Sales Average Sales Average
(quantities in thousands of tons) Volumes Unit Price Volumes Unit Price
--------------------------------------------------------------------------------
Ammonia 1,417 $ 122 1,349 $ 143
Nitrogen solutions 3,682 62 3,548 66
Urea 563 99 631 118
Ammonium nitrate 833 113 809 134
--------------------------------------------------------------------------------
Nitrogen products revenues declined by $64.8 million to $686.8 million for 1999
in comparison with 1998 primarily as a result of lower prices for all products.
Ammonia, nitrogen solutions, urea and ammonium nitrate prices declined by 15%,
7%, 16% and 16%, respectively, causing a $71.5 million reduction to revenues.
Excess worldwide production capacity created excess nitrogen supplies and caused
prices to fall. Ammonia and nitrogen solutions 1999 sales volumes increased
from the prior year as the result of increased demand during the 1999 second
half in response to the permanent shutdown of competitor facilities in Terra's
market area and increased customer confidence that nitrogen prices had
established a floor going into the 2000 planting season.
The nitrogen products segment reported operating income (loss) of $(43.9)
million and $39.3 million for 1999 and 1998, respectively. Operating income
declined by $71.5 million for 1999 as the result of lower prices. In addition,
natural gas costs increased by 8% from 1998 which reduced 1999 operating income
by $21.1 million from the prior year. These factors were partially offset by
lower operating expenses which declined by 3% in comparison with 1998 and higher
sales volumes. Terra's use of financial derivatives to forward price a portion
of its natural gas needs resulted in cost savings of $5.2 million compared with
1999 spot prices.
Methanol
Methanol revenues were $85 million compared with $97 million for the years ended
December 31, 1999 and 1998, respectively. Average methanol sales prices were
$0.35 per gallon and $0.34 per gallon for 1999 and 1998, respectively. Methanol
sales volumes declined by 14% to 245 million gallons for 1999 compared with 1998
primarily as the result of a two month shutdown at the Beaumont plant during the
1999 first quarter in response to market prices that were less than the cash
cost of production.
The methanol segment reported an operating loss of $15.2 million for 1999 and
$7.9 million for 1998. The increased operating loss was primarily a result of
higher natural gas costs which increased 17% and reduced 1999 operating results
by $8.5 million. The increase in natural gas costs is after giving effect to
Terra's use of forward pricing instruments to fix natural gas costs which
resulted in $1.2 million of savings when compared to spot prices.
Other Expense - Net
Terra had $3.9 million of other operating expenses in 1999 compared to $21.2
million in 1998. These expenses include allocations of shared service expenses
to discontinued Distribution operations sold during the 1999 first half of $3.5
million and $13.8 million in 1999 and 1998, respectively. Other expenses also
included $6.1 million in 1998 for vesting of restricted stock grants and
professional fees related to efforts to sell Terra's outstanding common stock.
Interest Expense - Net
Net interest expense was $44.7 million in 1999 compared with $50.8 million in
1998. The decline to net interest expense is primarily related to interest
income of $6.3 million realized in connection with the sale of the Distribution
business segment.
7
Minority Interest
Minority interest represents interest in the earnings of the publicly held
common units of Terra Nitrogen Company, L.P. (TNCLP) and a third-party's limited
partnership interest in Beaumont Methanol, Limited Partnership (BMLP). Minority
interest charges totaled $8.3 million in 1999 and $27.5 million in 1998.
Minority interest charges for the limited partnership interest in BMLP was $9.4
million in 1999 and $17.9 million in 1998. The Corporation redeemed the third-
party's BMLP interests on June 30, 1999 and thereby eliminated subsequent
charges to earnings related to the BMLP partnership interest.
Minority interest charges relating to TNCLP totaled $(1.1) million in 1999 and
$9.6 million in 1998. The reduced 1999 charge is directly related to lower TNCLP
earnings as the result of declining nitrogen prices.
Income Taxes
Income tax expense was recorded at an effective rate of 39.6% for 1999 compared
with 36.4% in 1998 which were reflective of statutory rates in effect for Terra
during both periods.
LIQUIDITY AND CAPITAL RESOURCES
Terra's primary uses of funds will be to fund its working capital requirements,
make payments on its indebtedness and other obligations and make capital
expenditures. The principal sources of funds will be cash flow from operations
and borrowings under available bank facilities.
Cash provided from 2000 operations was $132.8 million, comprised of $110.0
million of cash provided from operating activities and $22.8 million from
reductions in working capital balances. Cash provided from operating activities
was $69.4 million higher than 1999 primarily as the result of the increase to
2000 operating income. Cash from working capital reductions was primarily due to
a $28.4 million reduction to inventory balances as a result of curtailed
production rates at Terra's North American facilities. In response to high
natural gas costs, Terra curtailed its North American production rates of urea,
ammonia, methanol and UAN solutions during the 2000 second half by 39%, 15%, 12%
and 4%, respectively. Some of the curtailments continued into 2001 until natural
gas costs declined to levels that permitted resumption of production.
Terra had available a $116 million revolving credit facility for working capital
needs at December 31, 2000. As of December 31, 2000, nothing was outstanding
under this facility, but $21 million was used to support outstanding letters of
credit covering recorded liabilities. Borrowing availability under the credit
facility is generally based on 85% of eligible accounts receivable and 65% of
eligible inventory and is expected to be adequate to meet the operating cash
needs of Terra. The credit facility also requires Terra to adhere to certain
limitations on additional debt, capital expenditures, acquisitions, liens, asset
sales, investments, prepayments of subordinated indebtedness, changes in lines
of business and transactions with affiliates. In addition Terra is required to
maintain minimum levels of earnings before interest, income taxes, depreciation
and amortization (as defined in the credit facility) computed on a quarterly
basis. Failure to meet these covenants would require Terra to incur additional
costs to amend the bank facilities or could result in termination of the
facilities.
Management expects that natural gas costs will decline, and/or nitrogen and
methanol prices will increase, from December 31, 2000 to levels that will enable
Terra to maintain the 2001 minimum earnings levels required by the credit
facility.
During 2000, Terra funded plant and equipment purchases of $12.2 million
primarily for replacement or stay-in-business capital needs. During 1999, Terra
funded capital expenditures of $51.9 million which included $31.7 million to
complete construction of a $61.7 million ammonia production loop at the
Beaumont, Texas methanol plant that was placed in operation during the 2000
first quarter. Terra expects 2001 plant and equipment purchases to approximate
$35 million consisting primarily of the expenditures for routine replacement of
equipment at manufacturing facilities.
8
On December 17, 1997, Terra announced that it was resuming purchases of common
units of TNCLP on the open market and through privately negotiated transactions.
Under an existing authorization of the Board of Directors, Terra may acquire up
to five million common units. Terra acquired 316,500, 609,200 and 632,500 common
units during 2000, 1999 and 1998, respectively. Terra purchased 183,500
additional common units on January 2, 2001 which was the maximum allowed under
the current covenants of Terra's bank credit agreements.
During 2000, Terra distributed $1.1 million to the minority TNCLP common
unitholders. TNCLP distributions are based on "Available Cash" (as defined in
the Partnership Agreement) with no distributions made during 1999 and $17.2
million paid to minority TNCLP common unitholders during 1998. In 1999, Terra
distributed a preferred return of $9.4 million to BMLP's minority partner, and
paid a dividend of $0.07 per Common Share which totaled $5.3 million. Terra
redeemed the BMLP minority interest on June 30, 1999 and thereby eliminated
future cash requirements to fund payments to the BMLP minority partner. On
August 3, 1999, the Board of Directors suspended Terra's payment of a regular
quarterly dividend on common stock.
On June 30, 1999 Terra sold its Distribution business segment to Cenex/Land
O'Lakes Agronomy Company for $485 million. Sales proceeds, net of increases to
Distribution working capital balances and capital expenditures since December
31, 1998, other operating cash items and selling costs, contributed $335.1
million to 1999 cash flows. Net sales proceeds were used to redeem the
outstanding minority interest in BMLP for $225 million, fund termination of the
accounts receivable securitization program and repay outstanding borrowings
under Terra's revolving credit facility.
Cash balances at December 31, 2000 were $101.4 million, all of which is
unrestricted.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133, as amended by SFAS No. 137
and SFAS No 138, requires that all derivative instruments be recorded in the
balance sheet at fair value. Changes in the fair value of derivatives are
recorded in earnings or other comprehensive income, based on whether the
instrument is designated as part of a hedge transaction and, if so, the type of
hedge transaction. On January 1, 2001, Terra adopted this statement which
resulted in a $23.3 million increase in current assets to recognize the value of
open natural gas contracts, a $9.2 million reduction in current liabilities to
reclassify deferred gains on closed contracts relating to future periods, a $1.1
million increase in long-term debt related to interest rate hedges and a $31.4
million increase to stockholders' equity as a reduction in accumulated other
comprehensive losses. Management does not expect the adoption of SFAS 133 to
have a material impact on Terra's results of operations or cash flows.
PENDING CHANGE OF CONTROL
Anglo American plc, through a wholly-owned subsidiary, owns 49.5% of Terra's
outstanding shares. Anglo American has announced its intention to dispose of
its interest in Terra with the timing based on market and other considerations.
FORWARD-LOOKING PRECAUTIONS
Information contained in this report, other than historical information, may be
considered forward-looking. Forward-looking information reflects Management's
current views of future events and financial performance that involve a number
of risks and uncertainties. The factors that could cause actual results to
differ materially include, but are not limited to, the following: changes in
financial markets, general economic conditions within the agricultural industry,
competitive factors and price changes (principally, sales prices of nitrogen and
methanol products and natural gas costs), changes in product mix, changes in the
seasonality of demand patterns, changes in weather conditions, changes in
agricultural regulations, and other risks detailed in the "Factors that Affect
Operating Results" section of this discussion.
9
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
========================================================================================
At December 31,
----------------------------------------------------------------------------------------
(in thousands) 2000 1999
----------------------------------------------------------------------------------------
Assets
Cash and short-term investments $ 101,425 $ 9,790
Accounts receivable, less allowance for doubtful
accounts of $889 and $491 107,299 102,776
Inventories 101,526 133,634
Other current assets 17,448 47,482
---------------------------------------------------------------------------------------
Total current assets 327,698 293,682
---------------------------------------------------------------------------------------
Property, plant and equipment, net 902,801 997,801
Excess of cost over net assets of acquired businesses 231,372 253,162
Other assets 50,681 56,800
---------------------------------------------------------------------------------------
Total assets $1,512,552 $1,601,445
=======================================================================================
Liabilities
Debt due within one year $ 5,546 $ 17,152
Accounts payable 62,820 88,413
Accrued and other liabilities 60,324 35,158
---------------------------------------------------------------------------------------
Total current liabilities 128,690 140,723
---------------------------------------------------------------------------------------
Long-term debt 467,808 469,309
Deferred income taxes 156,475 163,733
Other liabilities 43,508 67,409
Minority interest 105,274 103,269
Commitments and contingencies (Note 11)
---------------------------------------------------------------------------------------
Total liabilities 901,755 944,443
---------------------------------------------------------------------------------------
Stockholders' Equity
Capital stock
Common Shares, authorized 133,500 shares;
75,885 and 75,309 shares outstanding 128,283 127,890
Paid-in capital 554,750 552,903
Accumulated other comprehensive loss (48,115) (9,852)
Retained deficit (24,121) (13,939)
---------------------------------------------------------------------------------------
Total stockholders' equity 610,797 657,002
---------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,512,552 $1,601,445
=======================================================================================
See accompanying Notes to the Consolidated Financial Statements.
10
CONSOLIDATED STATEMENTS OF OPERATIONS
===============================================================================================================
Year ended December 31,
---------------------------------------------------------------------------------------------------------------
(in thousands, except per-share amounts) 2000 1999 1998
---------------------------------------------------------------------------------------------------------------
Revenues
Net sales $ 991,600 $ 765,858 $840,509
Other income, net 9,558 8,451 5,042
---------------------------------------------------------------------------------------------------------------
1,001,158 774,309 845,551
---------------------------------------------------------------------------------------------------------------
Cost and Expenses
Cost of sales 909,861 781,927 772,369
Selling, general and administrative expense 48,490 55,424 62,968
---------------------------------------------------------------------------------------------------------------
958,351 837,351 835,337
---------------------------------------------------------------------------------------------------------------
Income (loss) from operations 42,807 (63,042) 10,214
Insurance settlement costs (5,968) --- ---
Interest income 3,869 8,361 326
Interest expense (51,511) (53,076) (51,122)
Minority interest (5,379) (8,341) (27,510)
---------------------------------------------------------------------------------------------------------------
Loss from continuing operations before income taxes (16,182) (116,098) (68,092)
Income tax benefit (6,000) (46,000) (24,761)
---------------------------------------------------------------------------------------------------------------
Loss from continuing operations (10,182) (70,098) (43,331)
Loss from discontinued operations:
Income (loss) from operations, net of income taxes --- (5,800) 17,082
Loss on disposition, net of income taxes --- (4,724) ---
Extraordinary loss on early retirement of debt, net of income taxes --- (9,265) ---
---------------------------------------------------------------------------------------------------------------
Net Loss $ (10,182) $ (89,887) $(26,249)
===============================================================================================================
Basic and Diluted Earnings (Loss) Per Share:
Continuing operations $ (0.14) $ (0.94) $ (0.58)
Discontinued operations --- (0.14) 0.23
Extraordinary loss on early retirement of debt --- (0.12) ---
---------------------------------------------------------------------------------------------------------------
Net Loss Per Share $ (0.14) $ (1.20) $ (0.35)
===============================================================================================================
See accompanying Notes to the Consolidated Financial Statements.
11
CONSOLIDATED STATEMENTS OF CASH FLOWS
=================================================================================================
Year ended December 31,
--------------------------------------------------------------------------------------------------
(in thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------------
Operating Activities
Net loss $(10,182) $ (89,887) $(26,249)
Adjustments to reconcile net loss
to net cash flows from operating activities:
(Income) loss from discontinued operations --- 10,524 (17,082)
Extraordinary loss on early retirement of debt --- 9,265 ---
Depreciation and amortization 114,901 101,588 101,053
Deferred income taxes 1,881 2,805 11,319
Minority interest in earnings 5,379 8,341 27,510
Other non-cash items --- --- (2,197)
Change in current assets and liabilities, excluding
working capital purchased:
Accounts receivable (7,644) (5,663) (22,937)
Account receivable securitization --- (136,000) (14,000)
Inventories 28,388 11,454 (37,460)
Other current assets 13,981 1,329 4,044
Accounts payable (22,978) (9,669) (32,017)
Accrued and other liabilities 11,078 (62,520) (6,368)
Other (1,975) 4,573 7,299
-------------------------------------------------------------------------------------------------
Net Cash Flows From Operating Activities 132,829 (153,860) (7,085)
-------------------------------------------------------------------------------------------------
Investing Activities
Purchase of property, plant and equipment (12,219) (51,899) (55,327)
Discontinued operations --- 335,129 96,766
Other (4,962) (4,531) 3,371
-------------------------------------------------------------------------------------------------
Net Cash Flows From Investing Activities (17,181) 278,699 44,810
-------------------------------------------------------------------------------------------------
Financing Activities
Net short-term borrowings (repayments) (6,000) 6,000 ---
Principal payments on long-term debt (7,107) (16,569) (9,538)
Stock issuance - net 7 13 286
Distributions to minority interests (1,119) (9,429) (35,052)
Repurchase of TNCLP common units (2,414) (5,994) (16,523)
Deferred financing costs (6,697) --- ---
Redemption of minority interest in subsidiary --- (225,000) ---
Dividends --- (5,281) (14,986)
-------------------------------------------------------------------------------------------------
Net Cash Flows From Financing Activities (23,330) (256,260) (75,813)
-------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash (683) (432) (331)
-------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Short-Term Investments 91,635 (131,853) (38,419)
Cash and Short-Term Investments at Beginning of Year 9,790 141,643 180,062
-------------------------------------------------------------------------------------------------
Cash and Short-Term Investments at End of Year $101,425 $ 9,790 $141,643
=================================================================================================
Interest Paid $ 50,851 $ 55,379 $ 61,907
=================================================================================================
Income Taxes Received $(14,058) $ (20,285) $ (7,085)
=================================================================================================
See accompanying Notes to the Consolidated Financial Statements.
12
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
=============================================================================================================================
Accumulated
Other Retained
Comprehensive Capital Stock Paid-In Comprehensive Earnings
---------------------------
(in thousands) Income (Loss) Shares Amount Capital Loss (Deficit) Total
-----------------------------------------------------------------------------------------------------------------------------
January 1, 1998 74,977 $ 127,581 $ 548,772 $ (8,488) $ 122,464 $ 790,329
-----------------------------------------------------------------------------------------------------------------------------
Comprehensive Income
Net loss $ (26,249) --- --- --- (26,249) (26,249)
Foreign currency
translation adjustments (5,669) --- --- --- (5,669) --- (5,669)
---------
Total $ (31,918)
=========
Exercise of stock options, net 43 43 243 --- --- 286
Stock Incentive Plan 445 263 3,878 --- --- 4,141
Dividends --- --- --- --- (14,986) (14,986)
-----------------------------------------------------------------------------------------------------------------------------
December 31, 1998 75,465 $ 127,887 $ 552,893 $(14,157) $ 81,229 $ 747,852
-----------------------------------------------------------------------------------------------------------------------------
Comprehensive Income
Net loss $ (89,887) --- --- --- --- (89,887) (89,887)
Foreign currency
translation adjustments 4,305 --- --- --- 4,305 --- 4,305
---------
Total $ (85,582)
=========
Exercise of stock options, net 3 3 10 --- --- 13
Stock Incentive Plan (159) --- --- --- --- ---
Dividends --- --- --- --- (5,281) (5,281)
-----------------------------------------------------------------------------------------------------------------------------
December 31, 1999 75,309 $ 127,890 $ 552,903 $ (9,852) $(13,939) $ 657,002
-----------------------------------------------------------------------------------------------------------------------------
Comprehensive Income
Net loss $ (10,182) --- --- --- --- (10,182) (10,182)
Foreign currency
translation adjustments (38,263) --- --- --- (38,263) --- (38,263)
---------
Total $ (48,445)
=========
Exercise of stock options, net 5 5 2 --- --- 7
Stock Incentive Plan 571 388 1,845 --- --- 2,233
-----------------------------------------------------------------------------------------------------------------------------
December 31, 2000 75,885 $ 128,283 $ 554,750 $(48,115) $(24,121) $ 610,797
=============================================================================================================================
See accompanying Notes to the Consolidated Financial Statements.
13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of presentation:
The Consolidated Financial Statements include the accounts of Terra Industries
Inc. and all majority owned subsidiaries (Terra). All significant intercompany
accounts and transactions have been eliminated.
Description of business:
Terra produces nitrogen products for agricultural dealers and industrial users,
and methanol for industrial users.
Foreign exchange:
Results of operations for the foreign subsidiaries are translated using average
currency exchange rates during the period; assets and liabilities are translated
using current rates. Resulting translation adjustments are recorded as foreign
currency translation adjustments in accumulated other comprehensive income in
stockholders' equity. These translation adjustments are the only component of
accumulated other comprehensive income.
Cash and short-term investments:
Terra considers short-term investments with an original maturity of three months
or less to be cash equivalents which are reflected at their approximate fair
value.
Inventories:
Inventories are stated at the lower of average cost or estimated net realizable
value. The cost of average inventories is determined using the first-in, first-
out method.
Property, plant and equipment:
Expenditures for plant and equipment additions, replacements and major
improvements are capitalized. Related depreciation is charged to expense on a
straight-line basis over estimated useful lives ranging from 15 to 20 years for
buildings and 3 to 18 years for plant and equipment. Maintenance and repair
costs are expensed as incurred.
Plant turnaround costs:
Costs related to the periodic scheduled major maintenance of continuous process
production facilities (plant turnarounds) are deferred and charged to product
costs on a straight-line basis during the period until the next scheduled
turnaround, generally two years.
Excess of costs over net assets of acquired businesses:
Terra amortizes costs in excess of fair value of net assets of businesses
acquired using the straight-line method over periods ranging from 15 to 18
years. Management periodically evaluates the recoverability of this asset
through an assessment of expected cash flows from future operations.
Revenue recognition:
Revenue is recognized when title to finished product passes to the customer.
Revenue is recognized as the net amount to be received after deducting estimated
amounts for discounts and trade allowances.
Cost of sales and hedging transactions:
Realized gains and losses from hedging activities and premiums paid for option
contracts are deferred and recognized in the month to which the hedged
transactions relate (see Note 12 - Derivative Financial Instruments). Costs
associated with settlement of natural gas purchase contracts are included in
cost of sales.
Stock-based compensation:
Terra recognizes compensation costs for stock-based employee compensation plans
based on the difference, if any, between the quoted market price of the stock at
date of grant and the amount an employee pays to acquire the stock.
14
Estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications:
Certain reclassifications have been made to prior years' financial statements to
conform with current year presentation.
Per-share results:
Basic earnings per share data are based on the weighted-average number of Common
Shares outstanding during the period. Diluted earnings per share data are based
on the weighted-average number of Common Shares outstanding and the effect of
all dilutive potential common shares including stock options, restricted shares
and contingent shares.
Recently issued accounting standards:
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133, as amended by SFAS No. 137
and SFAS No. 138, requires that all derivative instruments be recorded in the
balance sheet at fair value. Changes in the fair value of derivatives are
recorded in earnings or other comprehensive income, based on whether the
instrument is designated as part of a hedge transaction and, if so, the type of
hedge transaction. On January 1, 2001, Terra adopted this statement which
resulted in a $23.3 million increase in current assets to recognize the value of
open natural gas contracts, a $9.2 million reduction in current liabilities to
reclassify deferred gains on closed contracts relating to future periods, a $1.1
million increase in long-term debt related to interest rate hedges and a $31.4
million increase to stockholders' equity as a reduction in accumulated other
comprehensive losses. Management does not expect the adoption of SFAS 133 to
have a material impact on Terra's results of operations or cash flows.
2. Discontinued Operations
On June 30, 1999, Terra sold its Distribution business segment to Cenex/Land
O'Lakes Agronomy Company ("Buyer") for $335.1 million, net of seasonal working
capital increases from December 31, 1998, and closing costs. In the sales
transaction, the Buyer acquired all rights to the Distribution business'
earnings from April 1, 1999 forward. Included in the sale were Terra's
approximately 400 retail farm service centers in the U.S. and Canada, and its
50% ownership position in the Omnium chemical formulation plants.
The accompanying consolidated statements of operations, financial position and
cash flows have been restated for prior periods to segregate results of
operations and net assets associated with the discontinued Distribution business
segment.
The Buyer and Terra have also entered into a three-year nitrogen fertilizer
supply agreement through which the Buyer will purchase approximately the
quantity that Terra's Nitrogen Products segment supplied to both the
Distribution business and the Buyer.
15
3. Earnings Per Share
The following table provides a reconciliation between Basic and Diluted Loss Per
Share.
(in thousands, except per-share data) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share computation:
Loss from continuing operations $ (10,182) $ (70,098) $ (43,331)
Earnings (loss) from discontinued operations --- (10,524) 17,082
-------------------------------------------------------------------------------------------------------------------------
Loss available before extraordinary item (10,182) (80,622) (26,249)
Extraordinary loss on debt retirement --- (9,265) ---
-------------------------------------------------------------------------------------------------------------------------
Loss available to common shareholders $ (10,182) $ (89,887) $ (26,249)
=========================================================================================================================
Basic and diluted weighted average shares outstanding 74,707 74,703 73,954
=========================================================================================================================
Loss per share from continuing operations $ (0.14) $ (0.94) $ (0.58)
Earnings (loss) per share from discontinued operations --- (0.14) 0.23
-------------------------------------------------------------------------------------------------------------------------
Loss per share before extraordinary item (0.14) (1.08) (0.35)
Extraordinary loss per share --- (0.12) ---
-------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share $ (0.14) $ (1.20) $ (0.35)
=========================================================================================================================
4. Inventories
Inventories consisted of the following at December 31:
(in thousands) 2000 1999
-------------------------------------------------------------------------------------------------------------------------
Raw materials $ 24,085 $ 37,437
Supplies 20,918 20,335
Finished goods 56,523 75,862
-------------------------------------------------------------------------------------------------------------------------
Total $ 101,526 $ 133,634
=========================================================================================================================
5. Other Current Assets
Other current assets consisted of the following at December 31:
(in thousands) 2000 1999
-------------------------------------------------------------------------------------------------------------------------
Deferred tax asset - current $ --- $ 5,238
Income taxes recoverable --- 10,278
Accounts receivable of discontinued operations,
less allowance for doubtful accounts of $6,358 and $12,533 1,240 6,238
Other current assets 16,208 25,728
-------------------------------------------------------------------------------------------------------------------------
Total $ 17,448 $ 47,482
=========================================================================================================================
6. Property, Plant and Equipment, Net
Property, plant and equipment, net consisted of the following at December 31:
(in thousands) 2000 1999
-------------------------------------------------------------------------------------------------------------------------
Land and buildings $ 69,136 $ 53,875
Plant and equipment 1,216,066 1,170,541
Construction in progress 11,378 98,406
-------------------------------------------------------------------------------------------------------------------------
1,296,580 1,322,822
Less accumulated depreciation and amortization (393,779) (325,021)
-------------------------------------------------------------------------------------------------------------------------
Total $ 902,801 $ 997,801
=========================================================================================================================
16
7. Insurance Settlement Costs
During 2000, Terra incurred $6.0 million of legal and other professional fees in
connection with a lawsuit to recover losses related to a 1994 explosion at
Terra's Port Neal facility. These costs were related to an insurance recovery
gain reported in Terra's 1997 financial statements which was excluded from the
determination of operating income.
8. Debt Due Within One Year
Debt due within one year consisted of the following at December 31:
(in thousands) 2000 1999
-------------------------------------------------------------------------------
Short-term borrowings $ --- $ 6,000
Current maturities of long-term debt 5,546 11,152
-------------------------------------------------------------------------------
Total $ 5,546 $ 17,152
===============================================================================
Weighted average short-term borrowings $ 536 $ 10,699
===============================================================================
Weighted average interest rate 10.75% 10.00%
===============================================================================
In April 2000, Terra entered into a $175 million revolving credit facility,
which expires in January 2003 and replaced a $62 million revolving credit
facility. Borrowings available under the facility are reduced by the amount of
the Bank Term Notes (described in Note10), currently $59.4 million, and further
limited based on consolidated working capital levels and outstanding letters of
credit issued under the facility. At December 31, 2000, there were $21.3 million
of outstanding letters of credit under the facility for recorded liabilities.
Interest on borrowings is charged at current market rates. A commitment fee is
charged on the unused portion of the facility under the credit agreement,
currently 0.5 percent. The credit agreement is secured by substantially all
assets.
The agreement requires Terra to adhere to certain limitations on additional
debt, capital expenditures, acquisitions, liens, asset sales, investments,
prepayments of subordinated indebtedness, changes in lines of business and
transactions with affiliates. In addition, Terra is required to maintain minimum
levels of earnings before interest, income taxes, depreciation and amortization
(as defined in the credit agreement) computed on a quarterly basis.
9. Accrued and Other Liabilities
Accrued and other liabilities consisted of the following at December 31:
(in thousands) 2000 1999
------------------------------------------------------------------------------
Customer deposits $ 5,82 $ 10,346
Payroll and benefit costs 12,359 3,220
Deferred natural gas hedging gain 9,207 3
Income taxes - state -- 1,360
Other 32,937 20,229
------------------------------------------------------------------------------
Total $ 60,32 $ 35,158
==============================================================================
17
10. Long-Term Debt
Long-term debt consisted of the following at December 31:
(in thousands) 2000 1999
------------------------------------------------------------------------------------------------------
Senior Notes, 10.5%, due 2005 $200,000 $200,000
Senior Notes, 10.75%, due 2003 158,755 158,755
Bank Term Notes, due 2003 59,375 109,375
Asset based Term Facility, due 2003 46,250 ---
Industrial Development Revenue Bonds bearing interest at an
average 6.85% with increasing payments from 2000 to 2011 7,820 8,130
Other 1,154 4,201
------------------------------------------------------------------------------------------------------
473,354 480,461
Less current maturities 5,546 11,152
------------------------------------------------------------------------------------------------------
Total $467,808 $469,309
======================================================================================================
Scheduled principal payments for each of the five years 2001 through 2005 are
$5.5 million, $4.4 million, $256.8 million, $0.5 million and $200.6 million,
respectively.
The 10.5% unsecured Senior Notes are redeemable at the option of Terra, in whole
or part, at any time 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% unsecured 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.
The 10.75% unsecured Senior Notes are redeemable at par at the option of Terra,
in whole or part. The 10.75% Senior Notes Indenture contains restrictions
similar to those in the 10.5% Senior Notes Indenture.
The Bank Term Notes are secured by substantially all assets of Terra Canada, a
beneficially owned subsidiary of Terra. The Notes are due in full on January 2,
2003. The Notes bear interest at a rate based on current market rates, 9.89% at
December 31, 2000. The Notes include covenants similar to the credit agreement
described in Note 8 - Debt Due Within One Year.
The Asset Based Term Facility is secured by substantially all assets. The
facility requires quarterly payments of $1.25 million through September 2002,
with the balance due at maturity. The facility bears interest at a rate based on
current market rates, currently 10.64%. The facility has covenants similar to
those described in Note 8 - Debt Due Within One Year.
The Industrial Development Revenue Bonds due in 2011 are secured by a letter of
credit guaranteed by Terra and, along with certain other long-term debt due in
2003, by Terra's headquarters building located in Sioux City, Iowa.
11. Commitments and Contingencies
Terra and its subsidiaries are committed to various non-cancelable operating
leases for equipment, railcars and production, office and storage facilities
expiring on various dates through 2017. Total minimum rental payments are as
follows:
(in thousands)
--------------------------------------------------------------------------------
2001 $15,445
2002 11,514
2003 9,838
2004 7,041
2005 and thereafter 16,396
--------------------------------------------------------------------------------
Total $60,234
================================================================================
18
Total rental expense for continuing operations under all leases, including
short-term cancelable operating leases, was approximately $18.0 million, $20.6
million and $20.8 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
Terra is liable for retiree medical benefits of employees of coal mining
operations sold in 1993, under the Coal Industry Retiree Health Benefit Act of
1992, which mandated certain retiree medical benefits for union coal miners.
Terra has provided reserves adequate to cover the estimated present value of
these liabilities at December 31, 2000.
Four lawsuits by U.K. soft drink producers and distributors have been filed
against Terra and other defendants seeking in excess of (Pounds)13.3 million in
damages, plus costs and interest. The lawsuits seek to recover damages following
a product recall the plaintiffs initiated in reaction to trace amounts of
benzene allegedly found in carbon dioxide used as an ingredient in the recalled
products. Terra produced the carbon dioxide at one of its U.K. plants. A fifth
lawsuit seeking (Pounds)12.5 million and a sixth lawsuit seeking (Pounds)0.6
million in damages were settled by Terra's insurer in January 2000 and February
2001, respectively, with Terra making no contribution toward the settlements. In
addition to the filed lawsuits, certain other soft drink producers have
indicated their intention to file claims in unspecified amounts. Terra has
denied liability for these lawsuits and claims and intends to vigorously defend
its position. Terra believes it has insurance coverage for any damages. Its
insurer is paying Terra's defense costs in all cases, has funded the January
2000 and February 2001 settlements, and has extended full coverage in the single
case now before the court (wherein damages of (Pounds)9 million are sought), but
currently continues to reserve the right to deny coverage in whole or in part
for any adverse judgments in the remaining cases. While it is not feasible to
predict with certainty the final outcome of these proceedings, management does
not believe this matter will have a material adverse effect on Terra's results
of operations, financial position or net cash flows.
Terra is involved in various legal actions and claims, including environmental
matters, arising from the normal course of business. It is the opinion of
management that the ultimate resolution of these matters will not have a
material adverse effect on the results of operations, financial position or net
cash flows of Terra.
Terra will be required to make a payment for each year through 2002 if average
ammonium nitrate prices exceed certain thresholds during any year, subject to
maximum payments of (Pounds)58 ($95.7 million USD at the time of signing) over
the term of the agreement. As a result of making any such payments, Terra will
not benefit fully from the U.K. price of ammonium nitrate of certain thresholds
during the term of this agreement. No payments were due under this agreement in
1998, 1999 or 2000.
12. Derivative Financial Instruments
Terra manages risk using derivative financial instruments for (a) changes in
natural gas supply prices and (b) interest rate fluctuations and (c) currency.
Derivative financial instruments have credit risk and market risk.
To manage credit risk, Terra enters into derivative transactions only with
counter-parties who are currently rated BBB or better or equivalent as
recognized by a national rating agency. Terra will not enter into transactions
with a counter-party if the additional transaction will result in credit
exposure exceeding $20 million. The credit rating of counter-parties may be
modified through guarantees, letters of credit or other credit enhancement
vehicles.
Terra classifies a derivative financial instrument as a hedge if all of the
following conditions are met:
1. The item to be hedged must expose Terra to currency, interest or price
risk.
2. It must be probable that the results of the hedge position substantially
offset the effects of currency, interest or price changes on the hedged
item (e.g., there is a high correlation between the hedge position and
changes in market value of the hedge item).
3. The derivative financial instrument must be designated as a hedge of the
item at the inception of the hedge.
A change in the market value of a derivative financial instrument is recognized
as a gain or loss in the period of the change unless the instrument meets the
criteria to qualify as a hedge. If the hedge criteria are met, the accounting
for the derivative financial instrument is related to the accounting for the
hedged item so that changes in the market value of the derivative financial
instrument are recognized in income when the effects of related changes in the
currency rate, interest rate or price of the hedged item are recognized.
19
A change in the market value of a derivative financial instrument that is a
hedge of a firm commitment is included in the measurement of the transaction
that satisfies the commitment. Terra accounts for a change in the market value
of a derivative financial instrument that hedges an anticipated transaction in
the measurement of the subsequent transaction. If a derivative financial
instrument that has been accounted for as a hedge is closed before the date of
the anticipated transaction, Terra carries forward the accumulated change in
value of the contract and includes it in the measurement of the related
transaction.
Natural Gas Prices - United Kingdom Operations - To meet natural gas production
requirements at the Terra's United Kingdom production facilities, Terra enters
into one- or two-year term gas supply contracts with fixed prices for generally
25-80% of total volume requirements. As of December 31, 2000, Terra had fixed-
price contracts for 49% of its 2001 United Kingdom natural gas requirements and
12% of its 2002 United Kingdom natural gas requirements. Terra does not use
derivative financial instruments for its United Kingdom natural gas needs.
Natural Gas Prices - North American Operations - Natural gas supplies to meet
production requirements at Terra's production facilities are purchased at market
prices. Natural gas market prices are volatile and Terra effectively fixes
prices for a portion of its natural gas production requirements and inventory
through the use of futures contracts, swaps and options. These contracts
reference physical natural gas prices or appropriate NYMEX futures contract
prices. Contract physical prices are frequently based on prices at the Henry Hub
in Louisiana, the most common and financially liquid location of reference for
financial derivatives related to natural gas. However, natural gas supplies for
Terra's six production facilities are purchased for each plant at locations
other than Henry Hub, which often creates a location basis differential between
the contract price and the physical price of natural gas. Accordingly, the use
of financial derivatives may not exactly offset the change in the price of
physical gas. The contracts are traded in months forward and settlement dates
are scheduled to coincide with gas purchases during that future period.
A swap is a contract between Terra and a third party to exchange cash based on a
designated price. Option contracts give the holder the right to either own or
sell a futures or swap contract. The futures contracts require maintenance of
cash balances generally 10% to 20% of the contract value and option contracts
require initial premium payments ranging from 2% to 5% of contract value. Basis
swap contracts require payments to or from Terra for the amount, if any, that
monthly published gas prices from the source specified in the contract differ
from prices of NYMEX natural gas futures during a specified period. There are no
initial cash requirements related to the swap and basis swap agreements.
The following summarizes open natural gas contracts at December 31, 2000 and
1999:
Annual consolidated production requirements are approximately 160 million MMBtu.
Contracts and firm purchase commitments were in place at December 31, 2000 to
cover approximately 17.5% of 2001 natural gas requirements.
Gains and losses on settlement of these contracts and premium payments on option
contracts are credited or charged to cost of sales in the month in which the
hedged transaction closes. The risk and reward of outstanding natural gas
positions are directly related to increases or decreases in natural gas prices
in relation to the underlying NYMEX natural gas contract prices. Realized gains
on closed contracts relating to future periods as of December 31, 2000 were $10
million. Cash flows related to natural gas hedging are reported as cash flows
from operating activities.
During 2000, 1999 and 1998, natural gas hedging activities reduced Terra's North
American natural gas costs by approximately $76.8 million, $6.4 million and
$15.4 million, respectively, compared with spot prices.
20
Interest Rate Fluctuations -Terra has entered into interest rate swap agreements
to fix the interest rate on $100 million of its floating rate obligations at an
average base rate of approximately 6.05% per annum. The interest rate swap
agreements are designated as hedges. The agreements expire December 31, 2002.
The differential paid or received on interest rate swap agreements is recognized
as an adjustment to interest expense. Cash flows for the interest rate swap
agreements are classified as cash flows from operations.
The following table presents the carrying amounts and estimated fair values of
Terra's derivative financial instruments at December 31, 2000 and 1999. SFAS
107, "Disclosures about Fair Value of Financial Instruments" defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
2000 1999
-------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(in millions) Amount Value Amount Value
-------------------------------------------------------------------------------
Natural gas $ 10.0 $ 32.5 $ 0.6 $ 5.7
Interest rate --- (1.1) --- 2.4
===============================================================================
The following methods and assumptions were used to estimate the fair value of
each class of derivative financial instrument:
Natural gas futures, swaps, options and basis swaps: Estimated based on quoted
market prices from brokers, and computations prepared by Terra.
Interest rate swap agreements: Estimated based on quotes from the market makers
of these instruments.
13. Financial Instruments and Concentrations of Credit Risk
The following table presents the carrying amounts and estimated fair values of
Terra's financial instruments at December 31, 2000 and 1999. SFAS 107 defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties.
2000 1999
------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(in millions) Amount Value Amount Value
------------------------------------------------------------------------------
Financial Assets
Cash and short-term investments $101.4 $101.4 $ 9.8 $ 9.8
Receivables 107.3 107.3 102.7 102.7
Equity and other investments 1.9 1.9 1.8 1.8
Other assets 5.1 4.6 7.1 7.1
Financial Liabilities
Short-term borrowings --- --- 6.0 6.0
Long-term debt 473.4 483.1 480.4 474.6
==============================================================================
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and receivables: The carrying amounts approximate fair value because of the
short maturity of those instruments.
Equity and other investments: Investments in untraded companies are valued on
the basis of management's estimates and, when available, comparisons with
similar companies whose shares are publicly traded.
Other assets: The amounts reported relate to notes receivable obtained from sale
of previous operating assets. The fair value is estimated based on current
interest rates and repayment terms of the individual notes.
Short-term borrowings and long-term debt: The fair value of Terra's short-term
borrowings and long-term debt is estimated based on the quoted market price of
these or similar issues or by discounting expected cash flows at the rates
currently offered to Terra for debt of the same remaining maturities.
21
Concentration of Credit Risk - Terra is subject to credit risk through trade
receivables and short-term investments. Although a substantial portion of its
debtors' ability to pay is dependent upon the agribusiness economic sector,
credit risk with respect to trade receivables generally is minimized due to its
geographic dispersion. Short-term cash investments are placed in short duration
corporate and government debt securities funds with well capitalized, high
quality financial institutions. By policy, Terra limits the amount of credit
exposure in any one type of investment instrument.
Financial Instruments - At December 31, 2000, Terra had letters of credit
outstanding totaling $21.3 million, guaranteeing various insurance and financing
activities.
14. Stockholders' Equity
Terra allocates $1.00 per share upon the issuance of Common Shares to the Common
Share capital account. At December 31, 2000, 1.1 million Common Shares were
reserved for issuance upon award of restricted shares and exercise of employee
stock options.
Terra has authorized 16,500,000 Trust Shares for issuance. There were no Trust
Shares outstanding at December 31, 2000.
15. Stock-Based Compensation
Terra accounts for its stock-based compensation under the provisions of
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees", which utilizes the intrinsic value method. Compensation cost related
to stock-based compensation was $1.7 million, $0.9 million and $4.2 million for
the years ended December 31, 2000, 1999 and 1998, respectively.
Terra's 1997 Stock Incentive Plan authorized granting directors and key
employees awards in the form of options, rights, performance units or restricted
stock. The aggregate number of Common Shares that may be subject to awards under
the plan may not exceed 3.8 million shares. There were no outstanding rights or
performance units at December 31, 2000. Options generally may not be exercised
prior to one year or more than ten years from the date of grant. Stock options
and restricted shares vest over specified periods, or in some cases upon the
attainment, prior to a termination date, of pre-established market price
objectives for Terra's Common Shares. The restricted shares are entitled to
normal voting rights and earn dividends as declared during the performance
periods. At December 31, 2000, 1.1 million Common Shares were available for
grant under the 1997 Plan.
A summary of Terra's stock-based compensation activity related to stock options
for the years ended December 31 follows:
(options in thousands)
--------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
--------------------- ------------------ --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
--------------------------------------------------------------------------------------------------------------------------
Outstanding - beginning of year 3,015 $ 6.76 2,151 $10.35 2,428 $10.47
Granted --- --- 1,522 3.32 35 8.47
Expired/terminated 754 11.71 655 10.45 269 11.75
Exercised 5 1.43 3 4.11 43 6.69
--------------------------------------------------------------------------------------------------------------------------
Outstanding - end of year 2,256 $ 5.16 3,015 $ 6.76 2,151 $10.35
==========================================================================================================================
22
The following table summarizes information about stock options outstanding and
exercisable at December 31, 2000:
(options in thousands)
---------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
---------------------------------------------------------------------------------------------------
$ 1.00 $ 3.99 1,518 8.87 years $ 3.35 520 $ 3.34
4.00 7.99 305 2.12 5.06 306 5.06
8.00 14.99 433 5.11 11.58 432 11.58
---------------------------------------------------------------------------------------------------
Total 2,256 7.20 $ 5.16 1,258 $ 6.59
===================================================================================================
There were 1,464,000 and 1,312,000 options exercisable at December 31, 1999 and
1998, respectively.
The weighted average fair value of options granted was $1.54 per option for 1999
and $2.83 per option for 1998. The fair value of options granted was estimated
at the date of grant using a Black-Scholes option pricing model with the
following assumptions:
There were 699,000 restricted shares granted during 2000 with a weighted average
fair value of $2.14 per share. There were no restricted shares granted during
1999 and 610,000 restricted shares granted during 1998 with a weighted average
fair value of $5.75 per share.
The restricted shares granted in 1998 became fully vested in 2000.
The pro forma impact on net loss and diluted loss per share of accounting for
stock-based compensation using the fair value method required by SFAS 123,
"Accounting for Stock-Based Compensation" follows:
(in thousands, except per-share data) 2000 1999 1998
--------------------------------------------------------------------------------
Net loss
As reported $(10,182) $(89,887) $(26,249)
Pro forma (11,123) (90,754) (28,270)
Diluted loss per share
As reported $ (0.14) $ (1.20) $ (0.35)
Pro forma (0.15) (1.20) (0.38)
================================================================================
The pro forma impact takes into account only stock-based compensation grants
since January 1, 1995 and is likely to increase in future years as additional
awards are granted and amortized ratably over the vesting period.
16. Retirement Benefit Plans
Terra and its subsidiaries maintain pension plans that cover substantially all
salaried and hourly employees. Benefits are based on a pay formula for the
salaried plans and a flat benefit formula for the hourly plans. The plans'
assets consist principally of equity securities and corporate and government
debt securities. Terra and its subsidiaries also have certain non-qualified
pension plans covering executives, which are unfunded. Terra accrues pension
costs based upon annual independent actuarial valuations for each plan and funds
these costs in accordance with statutory requirements. The components of net
periodic pension expense, including $10.6 million of 1999 curtailment benefits
which were included in discontinued operations, follow:
23
(in thousands) 2000 1999 1998
--------------------------------------------------------------------------------
Service cost $ 6,856 $ 9,185 $ 8,319
Interest cost 11,614 11,325 9,689
Expected return on plan assets (14,361) (13,243) (13,523)
Amortization of prior service cost 37 42 79
Amortization of actuarial (gain) loss 1 1,471 (64)
Amortization of net asset (314) (306) (307)
Curtailment benefit --- (10,556) ---
--------------------------------------------------------------------------------
Pension expense (credit) $ 3,833 $ (2,082) $ 4,193
================================================================================
The following table reconciles the plans' funded status to amounts included in
the Consolidated Statements of Financial Position at December 31:
(in thousands) 2000 1999
--------------------------------------------------------------------------------
Change in Benefit Obligation
Benefit Obligation-beginning of year $170,879 $173,925
Service cost 6,856 9,185
Interest cost 11,614 11,325
Participants' contributions 850 435
Curtailment gain --- (9,381)
Actuarial (gain) loss 2,410 (9,753)
Foreign currency exchange rate changes (6,074) (842)
Benefits paid (7,833) (4,015)
--------------------------------------------------------------------------------
Benefit Obligation-end of year 178,702 170,879
--------------------------------------------------------------------------------
Change in Plan Assets
Fair value plan assets-beginning of year 168,133 147,565
Actual return on plan assets 20,892 21,526
Foreign currency exchange rate changes (6,522) (705)
Employer contribution 1,127 3,370
Participants' contributions 1,222 391
Benefits paid (7,833) (4,014)
--------------------------------------------------------------------------------
Fair value plan assets-end of year 177,019 168,133
--------------------------------------------------------------------------------
Funded status (1,683) (2,745)
Unrecognized net actuarial (gain) loss (3,391) 715
Unrecognized prior service cost 200 232
Unrecognized net transition asset (678) (985)
--------------------------------------------------------------------------------
Accrued benefit cost $ (5,552) $ (2,783)
================================================================================
The non-qualified pension plans are unfunded and have an Accumulated Benefit
Obligation of $4.8 million at December 31, 2000 which is included in other
liabilities.
The assumptions used to determine the actuarial present value of benefit
obligations and pension expense during each of the years in the three-year
period ended December 31, 2000 were as follows:
2000 1999 1998
--------------------------------------------------------------------------------
Weighted average discount rate 6.9% 7.1% 6.7%
Long-term per annum compensation increase 4.3% 4.1% 4.2%
Long-term return on plan assets 8.8% 8.9% 8.9%
================================================================================
Terra also sponsors a qualified savings plan covering most full-time North
American employees. Contributions made by participating employees are matched
based on a specified percentage of employee contributions up to 6% of the
employees' pay base. The cost of Terra's matching contribution to the savings
plan totaled $1.4 million in 2000, $2.9 million in 1999 and $4.9 million in
1998.
24
17. Post-Retirement Benefits
Terra also provides health care benefits for eligible retired employees.
Participants generally become eligible after reaching retirement age with ten
years of service. The plan pays a stated percentage of most medical expenses
reduced for any deductible and payments made by government programs. The plan is
unfunded. Employees hired prior to January 1, 1990 are eligible to participate
in the plan if they elect to on or before January 1, 2002. Participant
contributions and co-payments are subject to escalation.
The following table indicates the components of the post-retirement medical
benefits obligation included in Terra's Consolidated Statements of Financial
Position at December 31:
(in thousands) 2000 1999
------------------------------------------------------------------------------
Change in Benefit Obligation
Benefit Obligation-beginning of year $ 3,247 $ 4,372
Service cost 21 85
Interest cost 220 295
Participants' contributions 314 235
Actuarial (gain) loss 885 (916)
Foreign currency exchange rate changes (11) 27
Curtailment gain --- (18)
Benefits paid (882) (833)
------------------------------------------------------------------------------
Benefit Obligation-end of year 3,794 3,247
------------------------------------------------------------------------------
Change in Plan Assets
Fair value plan assets-beginning of year --- ---
Employer contribution 568 599
Participants' contributions 314 234
Benefits paid (882) (833)
------------------------------------------------------------------------------
Fair value plan assets-end of year --- ---
------------------------------------------------------------------------------
Funded status (3,794) (3,247)
Unrecognized net actuarial gain (569) (2,101)
Unrecognized prior service cost (170) (446)
------------------------------------------------------------------------------
Accrued benefit cost $(4,533) $(5,794)
==============================================================================
Net periodic post-retirement medical benefit income consisted of the following
components:
(in thousands) 2000 1999 1998
--------------------------------------------------------------------------
Service cost $ 21 $ 85 $ 118
Interest cost 220 295 372
Amortization of prior service cost (270) (525) (236)
Amortization of actuarial gain (657) (429) (403)
Effect of curtailment benefit --- (9) ---
--------------------------------------------------------------------------
Post-retirement medical benefit income $(686) $(583) $(149)
==========================================================================
Terra limits its future obligation for post-retirement medical benefits by
capping at 5% the annual rate of increase in the cost of claims it assumes under
the plan. The weighted average discount rate used in determining the accumulated
post-retirement medical benefit obligation was 7.5% in 2000, 7.5% in 1999, and
7.00% in 1998. The assumed annual health care cost trend rate was 5.0% in 2000
and is assumed to remain at that level thereafter. A 1% increase in the assumed
health care cost trend rate would increase total service and interest cost by
$3,000 while a 1% decline would decrease cost by $27,000. The impact on the
benefit obligation of a 1% increase in the assumed health care cost trend rate
would be $42,000 while a 1% decline in the rate would decrease the benefit
obligation by $41,000.
25
18. Income Taxes
Components of the income tax provision (benefit) applicable to continuing
operations are as follows:
(in thousands) 2000 1999 1998
--------------------------------------------------------------------------------
Current:
Federal $(21,451) $ (18,659) $(35,106)
Foreign 215 --- 981
State (1,592) (2,355) (1,955)
--------------------------------------------------------------------------------
(22,828) (21,014) (36,080)
--------------------------------------------------------------------------------
Deferred:
Federal 9,612 (20,843) 8,586
Foreign 6,842 (2,940) 2,464
State 374 (1,203) 269
--------------------------------------------------------------------------------
16,828 (24,986) 11,319
--------------------------------------------------------------------------------
Total income tax benefit $ (6,000) $ (46,000) $(24,761)
================================================================================
The following table reconciles the income tax provision (benefit) per the
Consolidated Statements of Operations to the federal statutory provision:
(in thousands) 2000 1999 1998
--------------------------------------------------------------------------------
Loss from continuing operations before taxes:
Domestic $(36,782) $(102,707) $(78,508)
Foreign 20,600 (13,391) 10,416
--------------------------------------------------------------------------------
$(16,182) $(116,098) $(68,092)
================================================================================
Statutory income tax provision (benefit):
Domestic $(12,874) $ (35,947) $(27,844)
Foreign 7,107 (4,306) 4,100
--------------------------------------------------------------------------------
(5,767) (40,253) (23,744)
Purchased Canadian tax benefit (1,750) 215 (4,344)
Non-deductible expenses, primarily goodwill 6,152 6,125 6,884
State and local income taxes (1,126) (2,688) (700)
Benefit of loss carryforwards --- --- (442)
Other (3,509) (9,399) (2,415)
--------------------------------------------------------------------------------
Income tax benefit $ (6,000) $ (46,000) $(24,761)
================================================================================
26
The tax effect of net operating loss (NOL) and tax credit carryforwards and
significant temporary differences between reported and taxable earnings that
gave rise to net deferred tax (liabilities) assets were as follows:
(in thousands) 2000 1999
---------------------------------------------------------------------------
Current deferred tax asset (liability)
Accrued liabilities $ (4,962) $ 4,832
Inventory valuation 652 406
---------------------------------------------------------------------------
Net current deferred tax asset (liability) (4,310) 5,238
---------------------------------------------------------------------------
Non-current deferred tax liability
Depreciation (187,369) $(182,556)
Investments in partnership (26,460) (25,994)
U.S. international tax allowance (9,682) (11,432)
U.K. intercompany interest (3,815) ---
Unfunded employee benefits 12,106 10,826
Discontinued business costs 7,538 18,846
Valuation allowance (21,276) (4,825)
NOL, capital loss and tax credit carryforwards 84,464 32,073
Other (11,981) 9,254
---------------------------------------------------------------------------
Net noncurrent deferred tax liability (156,475) (153,808)
---------------------------------------------------------------------------
Net deferred tax liability $(160,785) $(148,570)
===========================================================================
During 1996, after receiving a favorable ruling from Revenue Canada, Terra
refreshed its tax basis in plant and equipment at its Canadian subsidiary by
entering into a transaction with a Canadian subsidiary of Anglo American, plc,
resulting in a deferred tax asset for Terra. The valuation of this tax basis has
been challenged by Revenue Canada in 2000.
The deferred tax asset related to NOLs includes $21.3 million which the
Company's management believes likely will not be realized. Therefore, a
valuation allowance of $21.3 million has been provided by the Company. The
Company will continue to assess the recoverablility for these NOLs and to the
extent it is determined that such valuation allowance is no longer required the
tax benefit of these NOLs will be recognized at such time.Components of income
tax provision (benefit) included in net income other than from continuing
operations are as follows:
(in thousands) 2000 1999 1998
------------------------------------------------------------------------------
Current:
Federal $ --- $(10,655) $9,761
State --- (3,070) ---
------------------------------------------------------------------------------
$ --- $(13,725) $9,761
19. Industry Segment Data
Terra operates in two principal industry segments - Nitrogen Products and
Methanol. The Nitrogen Products business produces and distributes ammonia, urea,
nitrogen solutions and ammonium nitrate to agricultural and industrial users.
The Methanol business manufactures and distributes methanol, which is
principally used as a raw material in the production of a variety of chemical
derivatives and in the production of methyl tertiary butyl ether (MTBE), an
oxygenate and an octane enhancer for gasoline. Management evaluates performance
based on operating earnings of each segment. Terra does not allocate interest,
income taxes or infrequent items to the business segments. Included in Other are
general corporate activities not attributable to a specific industry segment.
The following summarizes additional information about Terra's industry segments:
In accordance with the TNCLP limited partnership agreement, quarterly
distributions to unitholders and TNC are made in an amount equal to 100% of its
available cash, as defined in the partnership agreement. The General Partner
receives a combined minimum 2% of total cash distributions, and as an incentive,
the general partner's participation increases if cash distributions exceed
specified target levels.
28
If at any time less than 25% of the issued and outstanding units are held by
non-affiliates of the general partner, TNCLP may call, or assign to the general
partner or its affiliates, its right to acquire all such outstanding units held
by non-affiliated persons with at least 30 but not more than 60 days notice of
its decision to purchase the outstanding units. The purchase price per unit will
be the greater of (1) the average of any previous twenty trading days' closing
prices as of the date five days before the purchase is announced or (2) the
highest price paid by the general partner or any of its affiliates for any unit
within the 90 days preceding the date the purchase is announced. Terra owned
74.1% of the Common Units at December 31, 2000. Subsequent to December 31, 2000,
the percentage owned by Terra increased to 75.1%.
Beaumont Methanol, Limited Partnership (BMLP)
Terra repurchased the limited interest in BMLP on June 30, 1999 for $225 million
with proceeds from sale of the Distribution business. The limited BMLP interest
had received a first priority return from BMLP approximating an annual rate of
LIBOR plus 3.17% on its $225 million investment.
The publicly held TNCLP Common Units and the BMLP limited interest are reflected
in the financial statements as minority interest.
21. Pending Change of Control
Anglo American plc, through a wholly-owned subsidiary, owns 49.5% of Terra's
outstanding shares. Anglo American has made public its intention to dispose of
its interest in Terra with the timing based on market and other conditions.
29
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of Terra Industries Inc. and
its subsidiaries have been prepared in conformity with accounting principles
generally accepted in the United States of America appropriate in the
circumstances. The integrity and objectivity of data in these financial
statements and supplemental data, including estimates and judgments related to
matters not concluded by year end, are the responsibility of management.
Terra has a system of internal accounting controls that provides management with
reasonable assurance that transactions are recorded and executed in accordance
with its authorizations, that assets are properly safeguarded and accounted for,
and that financial records are maintained to permit preparation of financial
statements in accordance with generally accepted accounting principles. This
system includes written policies and procedures, an organizational structure
that segregates duties, and a comprehensive program of periodic audits by the
internal auditors. Terra also has instituted policies and guidelines that
require employees to maintain the highest level of ethical standards.
The Audit Committee of the Board of Directors is responsible for the review and
oversight of the financial statements and reporting practices used, as well as
the internal audit function. The Audit Committee meets periodically with
management, internal auditors and the independent accountants. The independent
accountants and internal auditors have access to the Audit Committee and,
without management present, have the opportunity to discuss the adequacy of
internal accounting controls and to review the quality of financial reporting.
The Consolidated Financial Statements contained in this Annual Report have been
audited by our independent accountants. Their audits included a review of
internal accounting controls to establish a basis for reliance thereon in
determining the nature, extent and timing of audit tests applied in their audits
of the Consolidated Financial Statements.
Burton M. Joyce Francis G. Meyer
President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
30
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Terra Industries Inc:
We have audited the accompanying consolidated statements of financial position
of Terra Industries Inc. and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of operations, cash flows and changes in
stockholders' equity for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of Terra's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Terra Industries Inc. and
subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America.
QUARTERLY FINANCIAL AND STOCK MARKET DATA (unaudited)
(certain items have been reclassified from prior period reporting)
---------------------------------------------------------------------------------------------------
(in thousands, except
per-share data and stock prices) March 31, June 30, Sept. 30, Dec. 31,
---------------------------------------------------------------------------------------------------
2000
Total revenues $222,207 $268,683 $251,640 $258,628
Operating income (loss) (16,874) 14,636 26,378 18,667
Net income (loss) (19,615) (832) 6,196 4,069
Per Share:
Basic and diluted earnings (loss) per share $ (0.26) $ (0.01) $ 0.08 0.05
Common Share Price:
High $ 3.88 $ 2.88 $ 2.25 $ 2.81
Low 1.94 1.06 1.06 1.75
1999
Total revenues $185,667 $226,257 $173,478 $188,907
Operating loss (22,244) (4,098) (17,860) (18,840)
Loss from continuing operations (23,402) (9,135) (16,907) (20,654)
Loss before extraordinary item (29,202) (13,858) (16,907) (20,654)
Net loss (29,202) (21,153) (16,907) (22,625)
Per Share:
Loss from continuing operations $ (0.32) $ (0.12) $ (0.23) (0.27)
Loss before extraordinary item (0.39) (0.19) (0.23) (0.27)
Net loss (0.39) (0.29) (0.23) (0.30)
Dividends 0.05 0.02 --- ---
Common Share Price:
High $ 7.50 $ 5.38 $ 4.06 $ 2.50
Low 4.44 3.38 1.63 .94
===================================================================================================
Terra's Common Shares are traded principally on the New York Stock Exchange. At
December 31, 2000, 76 million Common Shares were outstanding and held by 3,820
stockholders.
TERRA INDUSTRIES INC.
MAJORITY AND PARTIALLY OWNED SUBSIDIARIES
December 31, 2000
Percentage Percentage
Name of Company Held by TRA Held by Sub Jurisdiction
--------------- ----------- ----------- ------------
I. Inspiration Coal Inc. 100 Delaware
II. Inspiration Consolidated Copper Company 100 Maine
which owns
----------
A. Inspiration Development Company 100 Delaware
III. Inspiration Gold Incorporated 100 Delaware
IV. Terra Capital Holdings, Inc. 100 Delaware
which owns
----------
A. Terra Capital, Inc. 100 Delaware
which owns
----------
1. Terra Methanol Corporation 100 Delaware
2. Terra International, Inc. 100 Delaware
which owns
----------
a. Terra International (Oklahoma) Inc. 100 Delaware
b. Terra Real Estate Corporation 100 Iowa
c. Terra Real Estate Development Corporation 100 Iowa
d. Terra Express, Inc. 100 Delaware
e. Terra International (Canada) Inc. 100 Ontario, Canada
which owns
----------
1. Terra Nitrogen (U.K.) Limited 100 England
f. Port Neal Corporation 100 Delaware
3. BMC Holdings, Inc. 100 Delaware
which owns
----------
a. Beaumont Holdings Corporation 100 Delaware
b. Beaumont Methanol, Limited Partnership/1/ 100 Delaware
which owns
----------
1. Terra (U.K.) Holdings Inc. 100 Delaware
which owns
----------
a. Beaumont Ammonia Inc. 100 Delaware
/1/ Terra Methanol Corporation is 1% General Partner and Limited Partner
interests are owned by TMC, BMCH and Beaumont Holdings Corp.
1
TERRA INDUSTRIES INC.
MAJORITY AND PARTIALLY OWNED SUBSIDIARIES
December 31, 2000
Percentage Percentage
Name of Company Held by TRA Held by Sub Jurisdiction
--------------- ----------- ----------- ------------
4. Terra Nitrogen Corporation 100 Delaware
which owns
----------
a. Terra Nitrogen Company, L.P./2/ 74 Delaware
which owns
----------
1. Terra Nitrogen, Limited Partnership/3/ 100 Delaware
a. Oklahoma Co\2\ Partnership 50 Oklahoma
/2/ Terra Nitrogen Corporation's interest includes 1.0101% as General
Partner and some of TNCLP is owned directly by Terra Capital, Inc.
/3/ Terra Nitrogen Corporation is 1% General Partner.
2
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
EDWARD G. BEIMFOHR
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 28th day of February , 2001.
------ ----------
/s/ Edward G. Beimfohr
-----------------------------------------
EDWARD G. BEIMFOHR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
CAROLE L. BROOKINS
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 28th day of February , 2001.
------ ----------
/s/ Carole L. Brookins
------------------------------------------
CAROLE L. BROOKINS
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
EDWARD M. CARSON
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 28th day of February , 2001.
------ ----------
/s/ Edward M. Carson
-----------------------------------------
EDWARD M. CARSON
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
THOMAS H. CLAIBORNE
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 28th day of February , 2001.
------ ----------
/s/ Thomas H. Claiborne
------------------------------------------
THOMAS H. CLAIBORNE
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
ERIC K. DIACK
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 28th day of February , 2001.
------ ----------
/s/ Eric K. Diack
----------------------------------------
ERIC K. DIACK
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
DAVID E. FISHER
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 2nd day of March , 2001.
----- -------
/s/ David E. Fisher
------------------------------------------
DAVID E. FISHER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
JOHN R. NORTON III
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 27th day of February , 2001.
------ ----------
/s/ John R. Norton III
------------------------------------------
JOHN R. NORTON III
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
HENRY R. SLACK
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 27th day of February , 2001.
------ ----------
/s/ Henry R. Slack
----------------------------------------
HENRY R. SLACK
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That I,
WILLIAM R. LOOMIS, JR.
hereby constitute and appoint George H. Valentine, Francis G. Meyer and Burton
M. Joyce, or each of them, with full power of substitution and resubstitution,
my true and lawful attorney, for me and in my name, place and stead, to sign my
name as a director of Terra Industries Inc. (the "Company") to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and any
amendments or supplements thereto, and to file said Annual Report and any
amendment or supplement thereto, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended.
I hereby ratify and confirm all that said attorneys, or each of them, or
his substitute or substitutes, have done or shall lawfully do by virtue of this
Power of Attorney.
WITNESS my hand this 28th day of February , 2001.
------ ----------
/s/ William R. Loomis, Jr.
-------------------------------------------
WILLIAM R. LOOMIS, JR.
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