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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 1-10877
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
TERRA NITROGEN COMPANY, L.P.
(Exact name of registrant as specified in its charter)
Delaware 73-1389684
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TERRA CENTRE 51102-6000
600 FOURTH STREET (Zip Code)
P. O. Box 6000
SIOUX CITY, IOWA (712) 277-1340
(Address of principal executive offices) (Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Units Representing Limited Partner Interests New York Stock Exchange
Evidenced by Depositary Receipts
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the registrant's Common Units held by
nonaffiliates as of the close of business on January 31, 1999 was $55,800,000.
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TABLE OF CONTENTS
PART I
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Page
Items 1 and 2. Business and Properties...................................................... 1
Item 3. Legal Proceedings............................................................ 6
Item 4. Submission of Matters to a Vote of Unitholders............................... 6
PART II
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Item 5. Market for Registrant's Units and Related Unitholder Matters................. 7
Item 6. Selected Financial Data...................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 9
Item 8. Financial Statements and Supplementary Data.................................. 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................................... 14
PART III
--------
Item 10. Directors and Executive Officers of the Registrant........................... 15
Item 11. Executive Compensation....................................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 20
Item 13. Certain Relationships and Related Transactions............................... 21
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 23
Signatures..................................................................................... 26
Index to Financial Statement Schedules, Reports and Consents................................... F-1
TERRA NITROGEN COMPANY, L.P.
FORM 10-K
PART I
ITEMS 1 AND 2. Business and Properties
GENERAL
Terra Nitrogen Company, L.P. ("TNCLP") is a Delaware limited partnership that
conducts its operations through an operating partnership subsidiary, Terra
Nitrogen, Limited Partnership (the "Operating Partnership"). Terra Nitrogen
Corporation ("TNC"), a Delaware corporation, owns a combined 2.0% general
partner interest in, and serves as the general partner (the "General Partner")
of, both TNCLP and the Operating Partnership (collectively the "Partnership",
unless the context otherwise requires). TNC is an indirect, wholly owned
subsidiary of Terra Industries Inc. ("Terra"), a Maryland corporation. Terra,
through its various subsidiaries, is a leading marketer and producer of nitrogen
fertilizer, crop protection products, seed and services for agricultural, turf,
ornamental and other growers. Terra also produces nitrogen products and methanol
for industrial customers.
Ownership of TNCLP is comprised of the general partner interest and the
limited partner interests. The limited partner interests consist of 18,501,576
Common Units. Terra and its subsidiaries owned 12,779,814 Common Units as of
December 31, 1998 and the balance are traded on the New York Stock Exchange
under the symbol "TNH". The Common Units are referred to herein individually as
a "Unit" and collectively as "Units".
PARTNERSHIP PRODUCTS
The Partnership is one of the largest U.S. producers and distributors of
nitrogen fertilizer products, which are used primarily by farmers to improve the
yield and quality of their crops. The Partnership's principal products include
ammonia, urea and urea ammonium nitrate solution ("UAN"). The Partnership's
product sales are heavily weighted toward UAN, and all of its products are sold
on a wholesale basis. Although, to some extent, the various nitrogen fertilizer
products are interchangeable, each has its own distinct characteristics which
result in agronomic preferences among end users. Farmers determine which type of
nitrogen fertilizer to apply depending on the crop, soil and weather conditions,
regional farming practices and relative nitrogen fertilizer prices.
The Partnership's sales mix for each of the years 1998, 1997 and 1996 was
(based on tons sold):
1998 1997 1996
---- ---- ----
Ammonia 15% 15% 13%
Urea 15% 15% 13%
UAN 0% 70% 74%
---- ---- ----
100% 100% 100%
Ammonia. The Partnership produces ammonia, the simplest form of nitrogen
fertilizer and the feedstock for the production of most other nitrogen
fertilizers, at its two plants (the "Plants") located in Verdigris, Oklahoma
(the "Verdigris Plant") and Blytheville, Arkansas (the "Blytheville Plant").
Ammonia is produced by reacting natural gas with steam and air at high
temperatures and pressures in the presence of catalysts.
Ammonia has a nitrogen content of 82% by weight and is generally the least
expensive form of fertilizer per unit of nitrogen. However, because it is a gas
that must be kept under pressure and refrigerated, ammonia is more costly to
store, ship and apply than other nitrogen fertilizer products and must be
applied during a shorter period of the growing season. Ammonia must be injected
into the soil by specialized equipment, and soil conditions limit its
application.
In addition, in certain areas, especially in lesser developed countries,
dealers and farmers lack the equipment necessary to store, ship and apply
ammonia and are required to use other forms of nitrogen fertilizer. Ammonia can
be upgraded into solid or liquid fertilizers, like urea and UAN, which are
easier to transport, store and apply than ammonia.
1
Urea. The Partnership produces urea at the Blytheville Plant, by upgrading a
portion of its ammonia production. Solid urea is produced by converting ammonia
into liquid urea which is then dehydrated, turned into a solid and either
prilled or granulated. Prilled materials are the most common form of solid urea.
The granular form made by the Partnership may command a modest price premium in
certain markets because the consistency in size of the granules (relative to
prills) results in a more controllable spreading pattern and better blending
characteristics.
Urea has a nitrogen content of 46% by weight, the highest level for any solid
nitrogen product. Dry urea is used both as a direct application fertilizer and
as an ingredient in the dry bulk blending of mixed fertilizer grades. Urea is
transported and stored in bulk or in bags and is often blended by distributors
into customized fertilizers containing other nutrients.
UAN. The Partnership produces UAN at the Verdigris Plant and at the
Blytheville Plant by upgrading a portion of its ammonia production. UAN is
produced by combining liquid urea and ammonium nitrate in water. UAN is a liquid
fertilizer and, unlike ammonia, is odorless and does not need to be refrigerated
or pressurized for transportation or storage.
The nitrogen content of UAN is typically 28% to 32%. As a liquid, UAN has many
advantages over solid fertilizers and gaseous ammonia. UAN may be applied more
uniformly than non-liquid products and may be mixed with various crop protection
products or other nutrients, permitting the farmer to apply several materials
simultaneously rather than in separate applications, thus reducing energy and
labor costs. In addition, UAN, unlike ammonia, may be applied from ordinary
tanks and trucks and can be sprayed on, injected into the soil, or applied
through irrigation systems, throughout the growing season. Due to its stable
nature, UAN may be used for no-till row crops where fertilizer is spread on the
surface of the soil but may be subject to volatilization losses. The use of
conservation tilling, which reduces erosion, has increased in the United States
over the past decade, and the Partnership believes this trend, if continued,
should increase UAN demand.
MARKETING AND DISTRIBUTION
The Partnership sells its products primarily in the Central and Southern
Plains and Cornbelt regions of the United States. The Partnership's two Plants
are located on waterways near the major crop producing and consuming areas of
the United States, where the Partnership has ready access to barge, truck and
rail transportation at both Plants and an ammonia pipeline at the Verdigris
Plant to transport product to its primary markets. The Partnership's products
are marketed and distributed through an organization that is based out of Sioux
City, Iowa and provides combined services to the Partnership and Terra. For
further information on the combined organizations of the General Partner and its
affiliates, see "Certain Relationships and Related Transactions".
All of the Partnership's sales are at the wholesale level. The Partnership's
customers for fertilizer products are dealers, national farm retail chains,
distributors and other fertilizer producers and traders. National farm retail
chains have both distribution and application capabilities. Distributors operate
as wholesalers and sell directly to dealers and national farm retail chains,
who, in turn, sell directly to farmers. Many dealers maintain storage capacity
for year-round inventory as well as application equipment. The majority of the
Partnership's sales of nitrogen fertilizer is made to dealers. For the year
ended December 31, 1998, sales to Terra totaled $26.3 million, or 10.5% of the
Partnership's sales. For a description of the Partnership's sales to affiliates
of the General Partner, see "Certain Relationships and Related Transactions". No
other customer accounted for greater than 10% of the Partnership's 1998 sales.
The Partnership occasionally exports UAN through an export marketing
association comprised of four domestic UAN producers.
Transportation. The Partnership transports product primarily via barge and
railcar. Additionally, the Partnership uses trucks to transport smaller
quantities of product, and the Verdigris Plant distributes ammonia through a
common carrier pipeline. In addition, various supply terminals and
transportation equipment are generally available for the use and benefit of the
Partnership and affiliates of the General Partner. The Partnership has access to
significant storage capacity throughout the Midwestern U.S. through these supply
terminals and by its storing product in various retail service centers of Terra.
See "Certain Relationships and Related Transactions."
2
PRODUCTION FACILITIES
The following table illustrates the Partnership's gross production capacity
and percentage of capacity utilized.
Years Ended December 31,
------------------------
1998 1997 1996
-------- -------- --------
Capacity (000s short tons)
Ammonia 1,470 1,470 1,470
Urea 480 480 480
UAN 2,210 2,210 2,210
----- ----- -----
Total 4,160 4,160 4,160
Capacity Utilization* 104% 105% 105%
* Capacity utilization is determined by dividing the gross tons of
product produced by the tons of capacity at expected operating
rates and onstream factors.
Verdigris Plant. The Verdigris facility is located at the Port of Catoosa, in
Rogers County, Oklahoma. On the Verdigris site are the Verdigris Plant and the
Port Terminal. The Verdigris Plant is owned in fee by the Partnership, while the
Port Terminal is leased from the Tulsa-Rogers County Port Authority. The
leasehold interest is scheduled to expire on April 30, 2004, and the Partnership
has the option to renew the lease for an additional term of five years. The
Verdigris Plant consists of two ammonia plants, two nitric acid plants and two
UAN solution plants. The Verdigris Plant produces primarily ammonia and UAN
solution. In 1998, approximately 71% of its ammonia production was converted
into UAN. In addition, the Verdigris Plant also contains carbon dioxide and
argon recovery facilities. The Verdigris Plant's sale of by-product carbon
dioxide and argon reduces the cost of production of nitrogen products. The
Verdigris Plant transports its products by barge, truck, rail and pipeline. The
Partnership's assets at the Verdigris Plant are subject to an encumbrance in
favor of lenders.
Blytheville Plant. The Blytheville Plant is located in Mississippi County,
Arkansas, adjacent to the Mississippi River. The Blytheville Plant consists of
an ammonia plant, a granular urea plant and a UAN solution plant. In 1998,
approximately 65% of its ammonia was converted into granular urea and UAN. The
ammonia facility at the Blytheville Plant is leased from the City of Blytheville
at a nominal annual rental. The lease term is scheduled to expire on November
30, 2004, and the Partnership has the option to extend the lease for eleven
successive terms of five years each at the same rental rate. The Partnership has
the unconditional right to purchase the Plant for a nominal price at the end of
the lease term (including any renewal term). The urea facility is also leased
from the City of Blytheville. The lease is scheduled to expire on November 1,
2005, and the Partnership has the option to renew the lease for three successive
periods of five years each at a nominal annual rental. The Partnership also has
an option to purchase the property for a nominal price. The Blytheville Plant
has access to a distribution system which includes rail, truck and barge
transportation. This distribution network gives the Blytheville Plant the
flexibility to serve the Eastern U.S. fertilizer markets. The Partnership's
assets at the Blytheville Plant are subject to an encumbrance in favor of
lenders.
Terminal Facilities. The Partnership owns and operates four terminals used in
the storage and distribution of product to customers. The Dublin Terminal, a UAN
terminal owned by the Partnership in fee, is located in Henry and Wayne
Counties, Indiana. The Blair Terminal, an ammonia and UAN terminal facility in
which the Partnership holds a fee interest and a leasehold interest, is located
in Washington County, Nebraska. The Pekin Terminal, a UAN terminal in which the
Partnership holds a leasehold interest, is located in Tazewell County, Illinois.
The Shattuc Terminal, a UAN terminal owned by the Partnership in fee, is located
in Clinton County, Illinois. The leasehold portions of both the Blair Terminal
and the Pekin Terminal properties are leased from Conoco Inc. under a capital
lease. The lease is scheduled to terminate on November 30, 2000. The Partnership
has an option to purchase these properties for a nominal price at the end of the
lease term. In addition, as of December 31, 1998, the Partnership had access to
leased space in 78 terminals located in numerous states.
RAW MATERIALS
Natural gas is the primary raw material used in the production of ammonia and
is also the primary fuel used in the Partnership's ammonia production processes.
The Partnership purchases natural gas from unaffiliated sources. The purchase,
transportation and forward pricing activities of natural gas account for a large
majority of the Partnership's
3
production costs, and represented 54% of total costs and expenses during 1998. A
significant increase in the price of natural gas that is not recovered through
an increase in nitrogen fertilizer prices would have a material adverse effect
on the Partnership's profitability and cash flow. Annual gas usage in the
Partnership's Plants is approximately 56 million MMbtus (million British Thermal
Units). The Partnership has entered into firm transportation contracts to
minimize the risk of interruption or curtailment of natural gas supplies.
The Partnership's natural gas procurement policy is to effectively fix or cap
the unit cost of 40% to 80% of its natural gas requirements for the upcoming 12
months and up to 50% of its natural gas requirements for the subsequent two-year
period using supply contracts, financial derivatives and other forward pricing
techniques in an attempt to gain some protection against natural gas price
increases on the spot market. Consequently, if natural gas prices were to
increase in a future period the Partnership may benefit from these forward
pricing techniques; however, if natural gas prices were to fall, the Partnership
may incur costs above the spot market price as a result of such policies.
The settlement dates for such financial instruments are scheduled to coincide
with gas purchases during such future periods. These instruments reference
physical natural gas prices or appropriate NYMEX futures contract prices. The
contracts' physical prices are frequently based on the Henry Hub Louisiana
price, which is the most common and financially liquid location of reference for
financial derivatives related to natural gas; however, natural gas supplies for
the Partnership's two production facilities are purchased from various suppliers
at locations that are different from Henry Hub. This 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 price of physical gas. Therefore, the Partnership has entered into basis
swaps to maintain fixed prices for the location basis differential. As of
December 31, 1998, the Partnership had effectively fixed or capped the price of
a portion of its natural gas requirements for 1999 and 2000 in line with its gas
procurement policy mentioned above. Liquidation of these financial derivatives
based on December 31, 1998 market prices would have resulted in a loss of $4.9
million.
Verdigris Plant Supply. The Verdigris Plant obtains natural gas under a
transportation agreement with Oklahoma Natural Gas Company ("ONG") that will
expire in 2004. Under the provisions of the agreements, the Partnership has the
option to: (a) purchase all or part of its natural gas requirements from ONG at
prices periodically offered by ONG, (b) purchase natural gas from third parties
or (c) use any combination of (a) or (b). Except under certain limited
circumstances, all natural gas purchased by the Verdigris Plant must be
transported to the Plant on ONG's pipeline system under interruptible
transportation agreements.
Blytheville Plant Supply. The Partnership has agreements for the
transportation of natural gas to the Blytheville Plant. The primary term of the
agreements expires on May 1, 2001.
SEASONALITY AND VOLATILITY
Nitrogen fertilizer is a global commodity and generally has no proprietary
distinction. The U.S. nitrogen fertilizer business is both seasonal and volatile
due to a number of factors that affect U.S. and world supply and demand.
Approximately 60% of all nitrogen fertilizer consumed in the United States is
applied on acreage used for growing corn and wheat. Because of its dependence on
U.S. agricultural markets, the Partnership's business is seasonal to the extent
that the Partnership typically realizes higher prices and accordingly more
revenues on its products in the second quarter. The seasonality of the
Partnership's business is the result of the U.S. agricultural growing season,
which imposes the need to build inventories for the annual peak periods of
fertilizer application and generally results in higher fertilizer prices during
such peak periods. Prices for fertilizer typically peak in the spring, drop in
the summer, increase in the fall (as depleted inventories are restored) through
the spring. However in 1997 and 1998, as discussed below, nitrogen fertilizer
prices declined during the summer and continued to decline during the fall and
winter as a result of increased production capacity in the industry.
In recent years, additional UAN storage capacity has been built which allows
the Partnership's customers to purchase more product during the fall and winter
months. As a result, there may be a shift in Partnership UAN sales from the
first and second quarters of the year to the third and fourth quarters. While
the third and fourth quarter sales volume may now generally be expected to
represent a higher percentage of the annual sales volume, the second quarter
continues to be the Partnership's strongest quarter producing the highest sales
volume and earnings.
The Partnership's revenues are dependent on U.S. agricultural conditions,
which can be volatile as a result of a number of factors, the most important of
which are weather patterns and conditions (particularly during periods of high
4
fertilizer application), current and projected grain stocks and prices, grain
export prices and supports, and the U.S. government's agricultural policy. U.S.
governmental policies were designed to regulate or influence the number of acres
planted, the level of grain inventories, the mix of crops planted and crop
prices in order to mitigate price and grain inventory volatility. The enactment
of the Federal Agriculture Improvement and Reform ("FAIR") Act during 1996 ended
government acreage reduction and production control measures and allowed farmers
more flexibility in planting. As a result, additional acres were brought into
production during 1996 and this increase in acreage production, if sustained,
could have a positive impact on the fertilizer industry over the next few years.
However, during 1997 and 1998, the impact of the increase in acreage production
was more than offset by increased nitrogen fertilizer production capacity from
new plants and expansion of existing plants by competitors (see "Competition").
Nitrogen fertilizer producers experienced favorable market conditions in 1995
and 1996 which led to increased supply since 1997 through the construction of
new plants and expansion of existing facilities. Future nitrogen fertilizer
prices will depend on, among other things, to what extent increased worldwide
supply will be absorbed by increased demand or to what extent marginal
production capacity is shut down.
COMPETITION
The nitrogen fertilizer industry is highly competitive. Competition takes
place largely on the basis of price, reliability and deliverability. The
relative cost and availability of natural gas, the efficiency of production
facilities and the ability to transport finished goods to end users are
important competitive factors. The Partnership's domestic competitors include
large farm cooperatives, other independent fertilizer companies and subsidiaries
or divisions of larger energy companies. In addition, nitrogen fertilizers
imported into the United States compete with domestically produced nitrogen
fertilizers, including those of the Partnership. Some of the Partnership's
principal competitors may have greater total resources and may be less dependent
on earnings from nitrogen fertilizer sales than is the Partnership. Countries
with inexpensive sources of natural gas, particularly those in the former Soviet
Union and the Middle East, can produce nitrogen fertilizers at a low cost.
However, political instability and transportation costs can serve as deterrents
to exporting nitrogen fertilizers to the U.S. Favorable market conditions in the
mid-1990s have resulted in nitrogen fertilizer production capacity increases,
and additional capacity started up in 1998 with more expected in the next few
years. If increasing demand is insufficient to absorb new supplies generated by
these facilities, profit margins could decline further in future periods.
ENVIRONMENTAL MATTERS
The Partnership is subject to federal, state and local environmental, health
and safety laws and regulations, particularly relating to air and water quality.
In the course of its ordinary operations, the Partnership has and will generate
wastes, which may fall within the definition of "hazardous substances" under
federal or state laws. If such wastes have been disposed of at sites which are
targeted for cleanup by federal or state regulatory authorities, the Partnership
may be among those responsible under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or analogous state laws for all or
part of the costs of such cleanup.
The Partnership believes that the procedures currently in effect at all of its
facilities for the production, handling and transportation of all materials are
consistent with industry standards and in compliance with applicable
environmental, health and safety laws in all material respects. In addition, in
connection with the Asset Purchase Agreement dated February 7, 1990, between TNC
and Freeport-McMoRan Resource Partners, Limited Partnership ("FMRP"), as
amended, by which TNC purchased certain nitrogen fertilizer operations from FMRP
(the "1990 TNC Acquisition"), FMRP agreed to provide TNC a limited indemnity
(the "Freeport Indemnity") for certain environmental liabilities that are the
subject of official notice from a court or governmental agency. The Freeport
Indemnity encompasses all costs incurred in respect of all such liabilities
associated with the off-site disposal of hazardous substances or other solid
wastes generated by FMRP prior to the 1990 TNC Acquisition closing date,
February 28, 1990.
Based on its current knowledge, the Partnership does not expect any capital
expenditures relating to environmental matters to have a material adverse effect
on its results of operations, financial condition, capital resources, liquidity
or cash flow. There can be no assurance, however, that additional environmental
matters resulting in material liabilities or expenditures will not be discovered
or that, in the future, material expenditures for such matters will not be
required by changes in law.
5
EMPLOYEES
The Partnership does not have any employees, officers or directors.
The General Partner is responsible for the management of the Partnership. As
of December 31, 1998, the General Partner had 350 employees. None of the General
Partner's employees are subject to collective bargaining agreements. The General
Partner considers its labor relations to be good.
LIMITED CALL RIGHT
If at any time less than 25% of the issued and outstanding units are held by
non-affiliates of the General Partner, the Partnership may call, or assign to
the General Partner or its affiliates its right to acquire, all such outstanding
units held by non-affiliated persons. The General Partner and its affiliates
owned 69% of the Common Units at December 31, 1998. If and when the 75%
ownership threshold is met, TNCLP shall give at least 30 but not more than 60
days notice of its decision to purchase the outstanding units. The purchase
price per unit will be the greater of (1) the average of the 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.
ITEM 3. Legal Proceedings
There is no pending or threatened litigation to the knowledge of the
Partnership that would have a material adverse effect on the business or
financial condition of the Partnership.
ITEM 4. Submission of Matters to a Vote of Unitholders
Not Applicable.
6
PART II
ITEM 5. Market for Registrant's Units and Related Unitholder Matters
Prior to April 1, 1997, the SPUs of TNCLP were listed and traded on the New
York Stock Exchange under the symbol, TNH. After March 31, 1997, the Common
Units traded under the symbol TNH on the New York Stock Exchange. The high and
low sales prices of the Common Units (previously SPUs) for each quarterly period
for 1998 and 1997, as reported on the New York Stock Exchange Composite Tape,
were as follows:
1998 1997
Quarter High Low High Low
------- ---- --- ---- ---
1st $30.6250 $26.8125 $45.3750 $35.5000
2nd 31.0000 22.3125 43.8750 37.8750
3rd 21.0625 18.1250 42.3750 32.2500
4th 18.6875 9.3750 38.1875 23.2500
Based on information received from TNCLP's transfer and servicing agent, the
number of registered unitholders as of February 26, 1999 is 693. TNC owned
11,779,814 Common Units as of December 31, 1998.
The quarterly cash distributions paid to the Units and the General Partner in
1998 and 1997 were as follows:
Amount Per Amount Per Amount Distributed
Senior Preference Common to General Partner
Unit Unit
1998:
First Quarter - $1.17 $ 3,431,000
Second Quarter - - 0
Third Quarter - 1.72 9,895,000
Fourth Quarter - - 0
1997:
First Quarter $.605* $1.50 $10,476,778
Second Quarter .605* 1.02 1,835,535
Third Quarter - 2.38 26,686,249
Fourth Quarter - .29 109,543
* The distributions paid in the first and second quarters of 1997
to the holders of the SPUs represented an amount equal to the MQD for
each quarter. Nonconverting SPU holders were not entitled to
participate in cash distributions in excess of the MQD after December
31, 1996.
Cash distributions are based on Available Cash for the quarter as defined in
TNCLP's limited partnership agreement. Available Cash is defined generally as
all cash receipts less all cash disbursements, adjusted for changes in certain
reserves established as the General Partner determines in its reasonable
discretion to be necessary. There are a number of factors which affect the
amount of taxable income reported to unitholders including Partnership earnings,
capital spending and cash distributions.
ITEM 6. Selected Financial Data
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The following table sets forth the Partnership's historical financial and
operating data for each of the five years ended December 31, 1998. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes included elsewhere in this report.
7
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
----------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands, except Income per Unit and Average Realized Prices)
INCOME STATEMENT DATA:
Revenues $ 249,434 $ 333,959 $ 362,730 $ 373,325 $ 300,269
Other income 1,326 1,353 408 650 2,565
---------- ---------- ---------- ---------- ----------
Total revenues 250,760 335,312 363,138 373,975 302,834
Cost of goods sold 201,981 219,486 177,502 187,615 193,541
---------- ---------- ---------- ---------- ----------
Gross profit 48,779 115,826 185,636 186,360 109,293
Operating expenses 9,179 12,147 13,035 16,840 20,000
---------- ---------- ---------- ---------- ----------
Operating income 39,600 103,679 172,601 169,520 89,293
Interest expense (2,288) (2,201) (1,210) (1,748) (3,575)
Interest income 1,463 3,660 6,242 4,696 2,038
---------- ---------- ---------- ---------- ----------
Income before extraordinary expense $ 38,775 $ 105,138 $ 177,633 $ 172,468 $ 87,756
========== ========== ========== ========== ==========
Income before extraordinary expense
per limited partner unit $ 1.60 $ 4.17 $ 6.35 $ 6.55 $ 4.57
========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT PERIOD END):
Net property, plant and equipmen $ 164,689 $ 169,533 $ 172,771 $ 177,358 $ 179,028
Total assets 236,077 253,828 306,668 338,123 316,645
Long-term debt and capital lease
obligations, including current
maturities 8,965 10,036 4,198 5,702 42,450
Partners' capital 178,755 206,775 243,744 286,356 236,879
OPERATING DATA:
Production (000's tons): (a)
Ammonia-net of upgrades 485 487 397 427 535
UAN 2,270 2,299 2,286 2,158 1,890
Urea 492 496 447 453 424
Total production ---------- ---------- ---------- ---------- ----------
3,247 3,282 3,130 3,038 2,849
Sales Volume (000's tons): (a)
Ammonia 456 475 394 451 541
UAN 2,151 2,249 2,324 2,133 1,884
Urea 453 496 419 455 418
---------- ---------- ---------- ---------- ----------
Total sales 3,060 3,220 3,137 3,039 2,843
Average realized prices ($/ton)
Ammonia $ 129 $ 183 $ 186 $ 199 $ 174
UAN 64 79 92 93 77
Urea 115 139 179 187 147
(a) Sales volume differs from production due to the purchase and resale by the
Partnership of ammonia, UAN and Urea as well as changes in the quantities
of inventory of each of the products of the Partnership.
8
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FACTORS THAT AFFECT OPERATING PERFORMANCE
Factors that may affect the Partnership's future operating results include:
the relative balance of supply and demand for nitrogen fertilizers, the number
of planted acres, the effects general weather patterns have on timing and
duration of field work for crop planting and harvesting, the availability and
cost of natural gas, the effect of environmental legislation on demand for the
Partnership's products, the availability of financing sources to fund seasonal
working capital needs, and the potential for interruption due to accident or
natural disaster.
Although the Partnership's revenues are principally domestic, nitrogen
fertilizer is a global commodity thus the worldwide relative balance of supply
and demand for nitrogen fertilizer can impact Partnership sales. Worldwide
demand is affected by the growing population and improving economies in
developing countries. Worldwide capacity and the availability of nitrogen
product exports from major producing areas affect supply. Due to several years
of favorable economics in the industry, capacity additions in the form of new
and expanded production facilities have been undertaken. The new nitrogen
fertilizer supplies that have come on-stream have adversely impacted profit
margins until increased demand is sufficient to absorb new supplies or marginal
production capacity is shut down.
Demand for nitrogen fertilizer in the United States comes primarily from the
agricultural market. Approximately 60% of all nitrogen fertilizer is applied to
acreage for corn and wheat. The enactment of the FAIR Act in 1996 ended
government acreage reduction and production control measures and allowed farmers
more flexibility in planting. Changes in corn and wheat acreages can have a
significant effect on the demand for the Partnership's products.
Weather can have a significant effect on demand for the Partnership's
products. Weather conditions that delay or intermittently disrupt field work
during the planting season may result in fewer nitrogen applications. 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 reduce the amount of fertilizer
purchased in the future.
The Partnership's margins are also influenced by the cost of natural gas, the
primary raw material in the production of nitrogen fertilizers. In 1998,
natural gas costs accounted for approximately 54% of the Partnership's total
costs and expenses. It is the policy of the Partnership to hedge 40-80% of its
natural gas requirements for a one-year period, and up to 50% of its
requirements for the subsequent two-year period. The Partnership manages the
market price volatility of natural gas prices through the use of derivative
commodity instruments. Changes in the market value of these instruments have a
high correlation to changes in the spot price of natural gas. The fair value of
these instruments is estimated based on quoted market prices from brokers and
computations prepared by the Partnership. Annual procurement requirements for
natural gas are approximately 56 million MMbtu. The Partnership has hedged 59%
of its 1999 requirements and 15% of its 2000 requirements. Market risk is
estimated as the potential loss in fair value resulting from a hypothetical 10%
adverse change in price. As of December 31, 1998, the Partnership's market risk
exposure related to future natural gas requirements being hedged was $7.4
million based on the sensitivity analysis. This hypothetical adverse impact on
natural gas derivative instruments would be more than offset by lower costs for
natural gas purchases.
The Partnership's business is highly seasonal with the majority of sales
occurring during the second quarter in conjunction with spring planting
activity. Due to the seasonality of the business and the relatively brief
periods during which products can be used by customers, the Partnership builds
inventories during the first quarter of the year to ensure timely product
availability during the peak sales season. For its current level of sales, the
Partnership requires lines of credit to fund inventory increases and to support
customer credit terms. The Partnership believes that its credit facilities are
adequate for expected sales levels in 1999.
The Partnership is subject to federal, state, and local environmental, health,
and safety laws and regulations, particularly relating to air and water quality.
In the course of its ordinary operations, the Partnership generates wastes that
may fall within the definition of "hazardous substances" under federal or state
laws. The Partnership's production facilities and storage locations require
ongoing operating expenditures to remain in compliance with environmental
regulations. These operating costs consist largely of items related to
electrical and chemical usage, waste disposal, laboratory analysis and fees for
outside consultants and contractors.
9
The Partnership's operations may be subject to significant interruption if one
or more of its facilities were to experience a major accident or other natural
disaster. The Partnership currently maintains insurance (including business
interruption insurance) and expects that it will continue to do so in an amount
that it believes is sufficient to allow the Partnership 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 the Partnership due to adverse
changes in financial and commodity market prices and rates. The Partnership uses
derivative financial instruments to manage risk in the area of changes in
natural gas prices.
It is the general policy of the Partnership to avoid unnecessary risk and to
limit, to the extent practical, risks associated with operating activities.
Management of the Partnership may not engage in activities that expose the
Partnership 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 the Partnership. Derivatives
are used to manage operating risk within the limits established by the
Partnership's Board of Directors, and in response to identified exposures,
provided they qualify as hedge activities. As such, derivative financial
instruments are used to hedge firm commitments and forecasted commodity purchase
transactions.
RESULTS OF OPERATIONS: 1998 COMPARED WITH 1997
The Partnership's sales volumes and prices for the twelve months ended
December 31, 1998 and 1997 were as follows:
1998 1997
------------------------------------ -------------------------------------
Sales Volume Avg. Unit Price Sales Volume Avg. Unit Price
(000 tons) ($ / ton) (000 tons) ($ / ton)
---------- --------- --------- ---------
Ammonia 456 129 475 183
UAN 2,151 64 2,249 79
Urea 453 115 496 139
Revenues for the year ended December 31, 1998 declined $84.5 million, or 25%,
primarily due to lower sales prices for all products and to a lesser degree,
lower sales volumes. Nitrogen prices fell during 1998 due to lower worldwide
demand for urea, increased nitrogen production capacity and erratic weather
patterns in the Partnership's markets.
Wet weather in some Midwestern areas during the spring and drought conditions
in the Southwest led to lower demand for UAN. As a result of increased UAN
availability and lower alternate nitrogen prices, the Partnership's UAN average
unit sale price declined 19% compared with 1997. In addition, lower grain prices
caused some growers to delay post-harvest fertilizer applications, and
anticipated continued price weakness caused some fertilizer dealers to delay
filling inventories with urea and solutions.
Urea average unit sales price declined 17% in 1998 compared with 1997 due to
the continuation of a significant reduction in China's purchases in the world
markets. China had been a major purchaser of urea for import prior to 1997, but
increased production in that country led to elevated inventories and a ban on
all urea imports until the inventories are reduced. This created excess supply
in the world markets and led to significantly lower prices during 1998.
Cost of goods sold as a percentage of revenues increased to 81% for 1998 from
65% in 1997 due to lower sales prices somewhat offset by lower natural gas
costs. The Partnership's natural gas costs decreased 5% in 1998 compared with
1997. The Partnership's forward pricing activities produced $5.9 million in cost
savings compared with spot market natural gas prices during 1998 compared with
$25.6 million in cost savings in 1997.
Operating expenses decreased $3.0 million, or 25%, due to lower pension,
administrative and overhead expense allocations from TNC and Terra.
Interest expense was essentially unchanged in 1998 compared to 1997.
10
Interest income declined $2.2 million during 1998 due to lower levels of cash
and short-term investments, the result of decreased profitability.
Net income per limited partner unit is computed by dividing net income, less
an approximate 24% and 26% share allocable to the General Partner for the years
ended December 31, 1998 and 1997, respectively, by 18,501,576 limited partner
units. According to the Agreement of Limited Partnership of TNCLP, net income is
allocated to the General Partner and the Limited Partners in each taxable year
in the same proportion that Available Cash for such taxable year was distributed
to the General Partner and the Limited Partners. Distributions of Available Cash
are made 98% to the Limited Partners and 2% to the General Partner, except that
the General Partner is entitled, as an incentive, to larger percentage interests
to the extent that distributions of Available Cash exceed specified target
levels, which were not met. Available Cash for 1998 decreased $103.6 million
from 1997 due primarily to lower net income in 1998.
1997 COMPARED WITH 1996
The Partnership's sales volumes and prices for the twelve months ended
December 31, 1997 and 1996 were as follows:
1997 1996
------------------------------------ -------------------------------------
Sales Volume Avg. Unit Price Sales Volume Avg. Unit Price
(000 tons) ($ / ton) (000 tons) ($ / ton)
---------- --------- ---------- ---------
Ammonia 475 183 394 186
UAN 2,249 79 2,324 92
Urea 496 139 419 179
Revenues for the year ended December 31, 1997 declined $27.8 million, or 8%,
due to lower sales prices for all products and primarily for urea and UAN. Also
contributing to the lower revenues were lower sales volumes for UAN partially
offset by higher ammonia and urea sales volumes. Nitrogen prices fell during
1997 due to lower worldwide demand for urea, increased nitrogen production
capacity and erratic weather patterns in the Partnership's markets.
Urea sales prices declined 22% in 1997 compared with 1996 due to a significant
reduction in China's purchases in the world markets. China has been a major
purchaser of urea, but increased production in that country led to elevated
inventories and a ban on all urea imports until the inventories are reduced.
This created excess supply in the world markets and led to significantly lower
prices during 1997.
Wet weather in the South and Southwest led to lower demand for UAN. As a
result of increased UAN availability and lower alternate nitrogen prices, the
Partnership's UAN prices declined 14% compared with 1996. In addition, spring
weather conditions in the Midwest favored ammonia application over UAN
application. Contributing to favorable ammonia market conditions during 1997
were increased corn acres and greater demand for ammonia in the manufacture of
upgraded nitrogen fertilizer and industrial products.
Cost of goods sold as a percentage of revenues increased to 65% for 1997 from
49% in 1996 due to lower sales prices and higher natural gas costs. The
Partnership's natural gas costs increased 29% in 1997 compared with 1996. The
Partnership's forward pricing activities produced $25.6 million in cost savings
compared with spot market natural gas prices during 1997 compared with $37.1
million in 1996.
Operating expenses in 1997 decreased $.9 million, or 7%, due primarily to $3.4
million lower administrative and overhead expense allocations offset by $2.8
million higher freight and transportation allocations from TNC and Terra.
Interest expense increased $1 million in 1997 due to the discount on accounts
receivable sold under the accounts receivable securitization facility and to the
borrowing under the revolving credit agreement used to fund the redemption of
the Senior Preference Units.
Interest income declined $2.6 million during 1997 due to lower levels of cash
and short-term investments and the elimination of the Reserve Amount.
11
Net income per limited partner unit is computed by dividing net income, less
an approximate 26% and 33% share allocable to the General Partner for the years
ended December 31, 1997and 1996 respectively, by 18,501,576 limited partner
units for the year ended December 31, 1997 and by 18,808,778 limited partner
units for the year ended December 31, 1996.
The net income allocated to the General Partner decreased to 26% for the year
ended December 31, 1997 due to the decrease in Available Cash distributed to the
General Partner. According to the Agreement of Limited Partnership of TNCLP, net
income is allocated to the General Partner and the Limited Partners in each
taxable year in the same proportion that Available Cash for such taxable year
was distributed to the General Partner and the Limited Partners. Distributions
of Available Cash are made 98% to the Limited Partners and 2% to the General
Partner, except that the General Partner is entitled, as an incentive, to larger
percentage interests to the extent that distributions of Available Cash exceed
specified target levels, which were not met. Available Cash for 1997 decreased
$82.3 million from 1996 due primarily to lower net income in 1997 partially
offset by the elimination of the $18.5 million Reserve Amount and to an increase
in 1996 Available Cash as a result of the impact of TNCLP's participation in an
accounts receivable securitization facility.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities for 1998 was $45.2 million, a
decrease of $65.8 million from 1997, principally due to lower net income.
Working capital decreased $19.4 million primarily due to an increase of $19.8
million in inventories, the result of substantially lower than anticipated
sales, and an increase of $2.7 million in accounts receivable offset by an
increase of $15.0 million in the amounts due to affiliates and a decrease of
$30.2 million in cash.
The Partnership's principal needs for funds are to support its working capital
requirements, distributions to partners, if any, and capital expenditures. The
Partnership intends to fund such needs from net cash provided by operating
activities, and, to the extent permitted thereunder, from funds available under
the Operating Partnership's revolving credit facility. At December 31,1998, the
Operating Partnership had $18 million of unused borrowing capacity under its
revolving credit facility. The Partnership believes that such sources of funds
will be adequate to meet the Partnership's working capital needs, make quarterly
distributions to partners, if any, and fund the Partnership's capital
expenditures during 1999.
Quarterly distributions to the partners of TNCLP are based on Available Cash
for the quarter as defined in the TNCLP Agreement of Limited Partnership.
Available Cash is defined generally as all cash receipts less all cash
disbursements, adjusted for changes in certain reserves established as the
General Partner determines in its reasonable discretion to be necessary.
Distributions paid to all partners were $66.8 million in 1998 and $135.5 million
in 1997.
Distributions on the Common Units are cumulative to the extent that, for any
calendar quarter, if a distribution of at least $0.605 is not paid to the
holders of the Common Units, the amount of the shortfall (plus any arrearages
from prior quarters) will be paid out of Available Cash in subsequent quarters
before any incentive distributions are paid to the General Partner. As of
December 31, 1998, the accumulated distribution arrearage for the Common Units
was $11.2 million ($.605 per unit). The Partnership's accumulated arrearage will
likely increase by $11.2 million ($.605 per unit) as no distributions were
declared in early 1999.
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" which will be effective for fiscal years
beginning after June 15, 1999. The Partnership will adopt SFAS 133 effective
January 1, 2000. At this time, the Partnership has not determined the impact of
SFAS 133 on its results of operations, financial position, or cash flows.
YEAR 2000 ISSUE
The Year 2000 issue concerns computer programs that use only the last two
digits to identify the year in date fields. If not corrected, many of these
computer applications could fail or create erroneous results near January 1,
2000. This issue affects virtually every company.
The Partnership relies upon Terra to provide Management Information Systems
services.
12
Terra has assigned dedicated resources to address its year 2000 issues with a
Year 2000 Steering Committee providing management oversight and coordination.
The Partnership has also published Year 2000 Information and Disclosures on
Terra's website (http://www.terraindustries.com). In general, management
-------------------------------
believes the "State of Readiness" for the Partnership is such that it will be
ready for Year 2000 issues on time.
Terra's management information systems (MIS) environment has been assessed for
Year 2000 issues and some remedial actions have been identified. The cost of
remedial actions for the MIS area is not material to the Partnership. Nearly all
of these remedial actions are complete with minimal cost. Testing is
substantially complete with minimal cost. Testing is substantially complete with
the mainframe hardware systems and the associated software, with the exception
of a few software packages originally purchased from third parties that are
scheduled to be updated in 1999.
Terra recently completed an organization-wide review of all possible computing
functions, including the process control systems and instrumentation in the
manufacturing facilities. Some remedial actions have been identified in a few
areas and the cost of these remedial actions is not expected to be material to
the Partnership.
Terra is also assessing Year 2000 issues in relation to its customers,
suppliers and other constituents because the action or inaction of third parties
may materially affect the Partnership. An initial assessment of key third
parties, including utility suppliers, has been completed and some follow up is
ongoing.
Although Terra expects that there will be no significant adverse consequences
relating to its Year 2000 issues, the Partnership believes its most reasonably
likely worst case Year 2000 scenario involves the interruption of its
manufacturing facilities due to failed utility supplies or some other cause. The
Partnership has in place contingency plans to deal with such interruptions,
although restarting these facilities may be dependent on the resumption of
utilities from sole source suppliers. Other general contingency planning efforts
continue to be evaluated and refined for precautionary purposes.
Terra anticipates that it will complete all assessment, remediation, testing,
and contingency planning efforts for Year 2000 issues in the third quarter of
1999. Based on substantial completion of activities to date, the Partnership
anticipates that Year 2000 issues, including the historical and estimated costs
of remediation, will not have a material effect on its business, results of
operations or financial condition. However, the costs or consequences of
incomplete or untimely resolution of Year 2000 issues by the Partnership or
third parties could have a material adverse affect on the Partnership.
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: general
economic conditions within the agricultural industry, competitive factors and
pricing pressures (principally, sales prices of nitrogen 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.
ITEM 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Partnership together with the
report thereon of Deloitte & Touche LLP, independent auditors, appears on pages
F-2 through F-14 of this report. See Index to Financial Statements on page F-1.
13
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows (in thousands, except per
unit amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
1998
----
Revenues $ 48,916 $ 100,831 $ 33,608 $ 67,405
Gross profit 8,321 31,501 6,758 2,199
Net Income 5,801 28,166 4,672 136
Net Income per limited partnership unit 0.31 1.09 0.19* 0.01
1997
----
Revenues $ 74,179 $ 105,601 $ 77,120 $ 78,412
Gross profit 31,670 45,347 22,127 16,682
Net Income 29,792 42,937 18,719 13,690
Net Income per limited partnership unit 1.44 1.24 0.78 0.71
* The 1998 third quarter net income per unit has been restated to correct for
the allocation of income between the general partner and the limited partners to
be in accordance with the partnership agreement.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
14
PART III
ITEM 10. Directors and Executive Officers of the Registrant
TNC, in its capacity as General Partner, manages and controls the activities
of TNCLP and the Operating Partnership. Unitholders do not direct or participate
in the management or control of either TNCLP or the Operating Partnership. The
General Partner does not intend to establish any advisory board or similar body
to which the Unitholders would be entitled to elect representatives.
The Partnership has no directors or executive officers. Set forth below is
certain information concerning the directors and executive officers of the
General Partner. The sole stockholder of the General Partner elects the
directors of the General Partner. All directors hold office until their
successors are duly elected and qualified or their earlier resignation or
removal. All officers of the General Partner serve at the discretion of the
directors.
DIRECTORS: AGE POSITION WITH THE GENERAL PARTNER (POSITION WITH TERRA INDUSTRIES INC.)
Michael L. Bennett......... 45 Director, President and Chief Executive Officer (Executive Vice President and Chief Operating
Officer, Terra Industries Inc.)
Burton M. Joyce............ 57 Chairman of the Board of Directors (President and Chief Executive Officer, Terra Industries Inc.)
Dennis B. Longmire......... 54 Director
Francis G. Meyer........... 47 Director (Senior Vice President and Chief Financial Officer, Terra Industries Inc.)
Robert W. Todd............. 71 Director
PRINCIPAL OPERATING EXECUTIVE OFFICERS OF TERRA NITROGEN CORPORATION:
Michael L. Bennett......... 45 Director, President and Chief Executive Officer (Executive Vice President and Chief Operating
Officer, Terra Industries Inc.)
Burton M. Joyce............ 57 Chairman of the Board of Directors (President and Chief Executive Officer, Terra Industries Inc.)
S. Wesley Haun............. 51 Vice President--Energy
Charles J. Pero............ 50 Vice President--Human Resources
Steven A. Savage........... 54 Senior Vice President--Manufacturing
OTHER EXECUTIVE OFFICERS OF TERRA NITROGEN CORPORATION (INCLUDING OFFICES WITH TERRA INDUSTRIES INC.):
Francis G. Meyer........... 47 Director (Senior Vice President and Chief Financial Officer, Terra Industries Inc.)
Paula C. Norton............ 53 (Vice President--Corporate and Investor Relations, Terra Industries Inc.)
George H. Valentine........ 50 Vice President and General Counsel (Senior Vice President, General Counsel and Corporate
Secretary, Terra Industries Inc.)
The Audit Committee of the Board of Directors of TNC is comprised of Messrs.
Longmire and Todd. The Audit Committee has authority to review policies and
practices of TNC dealing with various matters relating to the financial
condition and auditing procedures of TNC, the Partnership and the Operating
Partnership.
Mr. Bennett has been President and Chief Executive Officer of TNC since June
1998 and a director since March 1995. He has been Executive Vice President and
Chief Operating Officer of Terra since February 1997; President of Terra
Distribution Division from November 1995 to February 1997 and Senior Vice
President of Terra from February 1995 to February 1997. He was Senior Vice
President, Distribution of Terra International from October 1994 to February
1997. He was Vice President, Northern Division thereof from January 1992 to
October 1994.
Mr. Joyce has been Chairman of the Board of Directors of TNC since June 1998.
He has been President and Chief Executive Officer of Terra since May 1991.
Mr. Longmire has been a director since April 1997. He has been Chairman of the
Board and Chief Executive Officer of Darling International, Inc. since 1994. He
was Group Vice President of Central Soya Food from 1990 to 1993.
15
Mr. Meyer has been Vice President of TNC since December 1994 and a director
since March 1995. He has been Senior Vice President and Chief Financial Officer
of Terra since November 1995. He was Vice President and Chief Financial Officer
of Terra from November 1993 to November 1995.
Mr. Todd has been a director since March 1995. He was Vice President, Chemical
Industry Services for Citibank, N.A. until retiring in June 1990.
Mr. S. Wesley Haun has been Vice President, Energy since June 1998. He served
in three positions for KN Energy Inc., Sr. Vice President, Vice President,
Strategic Business Development and Vice President, Marketing & Gas Supply, from
1988 to 1998.
Mr. Pero has been Vice President, Human Resources since February 1990. He has
been a Vice President of Terra since February 1998.
Mr. Savage has been Senior Vice President, Manufacturing since April 1995. He
was Vice President, Engineering and Plant Manager, Verdigris facility from
February 1990 to April 1995.
Ms. Norton has been Vice President, Corporate and Investor Relations of Terra
since February 1995. She was Director, Corporate Relations of Terra from January
1993 to February 1995.
Mr. Valentine has been Vice President and General Counsel of TNC since
December 1994 and Senior Vice President, General Counsel and Corporate Secretary
of Terra since November 1995. He was Vice President, General Counsel and
Corporate Secretary of Terra from November 1993 to November 1995.
None of the executive officers or directors of TNC is related by blood,
marriage or adoption to any other executive officer or director of TNC.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Partnership's executive officers, directors and greater than ten percent
beneficial owners to file initial reports of ownership and reports of changes in
beneficial ownership with the Securities and Exchange Commission ("SEC") and the
New York Stock Exchange. Executive officers and directors are required by SEC
regulations to furnish the Partnership with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms furnished to the
Partnership and written representations from the Partnership's executive
officers and directors, all of the Partnership's officers, directors and greater
than ten percent beneficial owners made all required filings.
ITEM 11. Executive Compensation
TNCLP and the Operating Partnership have no executive officers or employees.
The following table sets forth certain summary information concerning the
combined compensation of the named executive officers of TNC, including
compensation from Terra (a portion of which is allocated to the Partnership).
16
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------------------------------------------------------------------------------
Name and Other Annual
Principal Position Year Salary 1/ Bonus 2/ Compensation 3/
-------------------------------------------------------------------------------------------------
Burton M. Joyce 1998 $686,347 -- $5,863
Chairman of the Board 1997 614,539 $375,000 4,154
of Directors 1996 543,115 450,000 3,764
Michael L. Bennett 1998 339,616 -- 2,320
President and Chief Executive Officer 1997 270,346 120,063 2,120
1996 207,039 108,600 1,943
Francis G. Meyer 1998 255,655 -- 1,830
Sr. Vice President and 1997 239,115 71,224 1,830
Chief Financial Officer 1996 223,769 91,800 1,581
Steven A. Savage 1998 199,513 -- 4,609
Sr. Vice President, 1997 172,605 43,401 --
Manufacturing 1996 167,411 50,800 --
George H. Valentine 1998 231,424 -- 1,348
Vice President and 1997 209,116 82,049 2,120
General Counsel 1996 195,654 99,300 1,943
Lawrence S. Hlobik 1998 108,731 -- 2,800
Former Chairman and 1997 225,346 111,413 --
President 1996 200,385 119,900 --
================================================================================================
=======================================================================================================
Long-Term-Compensation
---------------------------------------------
Awards Payouts
-------------------------------------------------------------------------------------------------------
Restricted Securities All Other
Stock Underlying LTIP Compen-
Award(s) 4/ Options Payouts sion5/
-------------------------------------------------------------------------------------------------------
Burton M. Joyce $ 575,0006/ -- -- $30,169
Chairman of the Board -- 162,000 -- 26,424
of Directors 1,828,1257/ 60,000 -- 24,682
Michael L. Bennett 287,5006/ -- -- 14,922
President and Chief Executive Office -- 56,000 -- 11,602
365,6257/ 30,000 -- 9,022
Francis G. Meyer 287,5006/ -- -- 10,379
Sr. Vice President and -- 36,000 -- 9,478
Chief Financial Officer 365,6257/ 30,000 -- 9,084
Steven A. Savage -- -- -- 7,910
Sr. Vice President, -- 12,500 -- 6,818
Manufacturing 134,5507/ 11,300 -- 6,479
George H. Valentine 201,2506/ -- -- 9,394
Vice President and -- 36,000 -- 8,289
General Counsel 292,5007/ 28,000 -- 7,986
Lawrence S. Hlobik -- -- -- 4,581
Former Chairman and -- 40,000 -- 9,673
President 558,7507/ 30,000 -- 8,807
=======================================================================================================
1/ "Salary" includes for 1998 twenty-seven biweekly payments and for all years
- -
includes amounts deferred at the election of the named executive officer
under Terra's Employees' Savings and Investment Plan and Supplemental
Deferred Compensation Plan.
2/ "Bonus" includes, for the applicable year of service, amounts awarded under
- -
Terra's Incentive Award Program for Officers and Key Employees and includes
amounts deferred at the election of the named executive officer under
Terra's Supplemental Deferred Compensation Plan.
3/ "Other Annual Compensation" includes tax reimbursements or "gross-ups"
- -
provided to the named executive officers. While the named executive officers
enjoy certain other perquisites, such perquisites do not exceed the lesser
of $50,000 or 10% of such officer's salary and bonus.
4/ The restricted stock awards referenced in the table relate to Common Shares
- -
of Terra, not any securities of TNC or TNCLP. The number of restricted
Common Shares ("Restricted Shares") held, and the value thereof (shown in
parenthesis), at December 31, 1998 by each of the named executive officers
is: Burton M. Joyce: 100,000 ($618,750); Michael L. Bennett: 62,000
($383,625); Francis G. Meyer: 62,000 ($383,625); Steven A. Savage: 13,000
($80,438); George H. Valentine: 45,000 ($278,438) and Lawrence S. Hlobik: 0
($0). During the restricted period, a holder of Restricted Shares is
entitled to all benefits incidental to ownership of the Common Shares,
including voting the Common Shares and receiving such dividends as from time
to time may be declared by the Board of Directors of the Corporation.
5/ "All Other Compensation" includes amounts contributed, allocated or accrued
- --
for the named executive officers under Terra's Employees' Savings and
Investment Plan and Supplemental Deferred Compensation Plan.
17
6/ On December 14, 1998, Terra's Board of Directors approved, as recommended
- --
by its Personnel Committee, the grant of the following Restricted Shares
under Terra's 1997 Stock Incentive Plan: 100,000 to Mr. Joyce; 50,000 to
Mr. Bennett; 50,000 to Mr. Meyer; and 35,000 to Mr. Valentine. The closing
price per Common Share on the New York Stock Exchange ("NYSE") on the date
of award was $5.75. The restrictions lapse upon the earliest of (i) the 30
business day average closing price of the Common Shares on the NYSE is at
least $11.50 per share; (ii) a change of control of Terra (as defined in
the award); and (iii) the executive remaining employed with Terra until
December 15, 2000.
7/ On November 12, 1996, the Personnel Committee of Terra's Board of Directors
- --
approved the grant of 125,000, 25,000, 25,000, 9,200, 20,000 and 25,000
Restricted Shares under Terra's 1992 Stock Incentive Plan to each of
Messrs. Joyce, Bennett, Meyer, Savage, Valentine and Hlobik, respectively.
The closing per share price of the Common Shares on the NYSE on the date of
award was $14.625. The restrictions lapsed in December 1998 pursuant to
action by Terra's Board of Directors for all except Mr. Hlobik; provided,
however, that if the executive's employment terminates with Terra (other
than by death or disability) prior to the earlier of (i) a change of
control of Terra (as defined in the original award), (ii) the achievement
of the stock price targets set forth in such original awards or (iii) two
years from the date the restrictions lapsed, then such executive is to
reimburse Terra an amount equal to the value of the stock on the date of
vesting net of income and employment taxes withheld.
Mr. Hlobik also received a grant of 15,000 Restricted Shares as approved by
the Personnel Committee on February 19, 1996. The closing per share price
of the Common Shares on the NYSE on the first trading day following the
date of award was $12.875. All of Mr. Hlobik's outstanding Restricted
Shares were cancelled at the time of his termination of employment.
OPTION YEAR-END VALUE TABLE
The following table provides information concerning the exercise of stock
options during 1998 and the number and value of unexercised options to purchase
Terra Common Shares granted under the stock incentive plans of Terra.
===============================================================================================================
Number of Number of Securities Value of Unexercised
shares acquired Value Underlying Unexercised in-the-Money Options at
Name on exercise in Realized Options at December 31, December 31, 1998 1/
1998 1998
----------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------
Burton M. Joyce 35,000 $124,688 609,000 253,000 $403,125 $-0-
Michael L. Bennett -0- -0- 38,666 47,334 -0- -0-
Francis G. Meyer -0- -0- 45,000 36,000 6,563 -0-
Steven A. Savage -0- -0- 11,698 12,102 -0- -0-
George H. Valentine -0- -0- 30,666 33,334 -0- -0-
===============================================================================================================
1/ Based on the closing price on the New York Stock Exchange-Composite
- --
Transaction of Terra Common Shares on December 31, 1998 ($6.1875).
PENSION PLAN
The following table shows for employees retiring in 1998 the estimated
annual retirement benefit payable on a straight life annuity basis under the
Employees' Retirement Plan of Terra (the "Retirement Plan") and Terra's Excess
Benefit Plan (the "Excess Benefit Plan"), on a non-contributory basis, which
covers Burton M. Joyce and a limited number of other employees, at various
levels of accrued service and compensation.
18
================================================================================
Years of Credited Service
Remuneration
---------------------------------------------------------------
5 10 15 20 25 30
- --------------------------------------------------------------------------------
$ 150,000 $12,191 $ 24,382 $ 36,573 $ 48,765 $ 60,956 $ 73,147
250,000 20,941 41,882 62,823 83,765 104,706 125,647
500,000 42,816 85,632 128,448 171,265 214,081 256,897
750,000 64,691 129,382 194,073 258,765 323,456 388,147
1,000,000 86,566 173,132 259,698 346,265 432,831 519,397
================================================================================
"Compensation" under the Retirement Plan includes all salaries and wages paid
to a participant, including bonuses, overtime, commissions and amounts the
participant elects to defer under Terra's Employees' Savings and Investment
Plan. Covered earnings are limited by Section 401(a)(17) of the Internal Revenue
Code ("Code") to $160,000 in 1998. The above benefits are subject to the
limitations of Section 415 of the Code, which provided for a maximum annual
payment of approximately $130,000 in 1998. Under the Excess Benefit Plan,
however, Terra will supplement those benefits so that the amount the participant
will receive will be equal to the amount that would have been received under the
Retirement Plan but for such limitations. "Compensation" under the Excess
Benefit Plan also includes amounts deferred under the Supplemental Deferred
Compensation Plan. Eligible compensation for Burton M. Joyce as of the end of
the last calendar year is $1,061,347 and the estimated years of service for Mr.
Joyce is 12.
Certain executive officers of TNC and certain other employees are entitled to
the estimated annual retirement benefit under the Retirement Plan and Excess
Benefit Plan as set forth in the following table:
================================================================================
Years of Credited Service
Remuneration
---------------------------------------------------------------
5 10 15 20 25 30
- --------------------------------------------------------------------------------
$ 150,000 $10,691 $ 21,382 $ 32,073 $ 42,765 $ 53,456 $ 64,147
250,000 18,441 36,882 55,323 73,765 92,206 110,647
500,000 37,816 75,632 113,448 151,265 189,081 226,897
750,000 57,191 114,382 171,573 228,765 285,956 343,147
1,000,000 76,566 153,132 229,698 306,265 382,831 459,397
================================================================================
Eligible compensation for the following named executive officers as of the end
of the last calendar year is: Michael L. Bennett: $459,679; Francis G. Meyer:
$326,879; Steven A. Savage: $242,914 and George H. Valentine: $313,473. The
estimated years of service for each such officer is as follows: Michael L.
Bennett: 25; Francis G. Meyer: 16; Steven A. Savage: 12 and George H. Valentine:
5.
Eligible compensation for each of the named executive officers includes the
salary paid in 1998 to each of the named executive officers plus the bonus paid
in 1998 to such executive officers for service in 1997. Amounts reported in the
table entitled "Summary Compensation Table" for 1998 include the salary paid to
each of the named executive officers in 1998 plus the bonus paid to such
executive officers in 1999 for service in 1998.
19
EMPLOYEE CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The named executive officers (other than Mr. Hlobik) are parties to Executive
Retention Agreements with Terra. These agreements provide for benefits in the
event such officer's employment is terminated at any time within two years
(three years in the case of Mr. Joyce) following a change of control of Terra
(as defined in the agreements) without cause, or by such officer for good
reason. The change of control benefits include: (a) continuation of base salary
and bonus for two years (three years in the case of Mr. Joyce); (b) continuation
of medical and dental benefits for two years (three years in the case of Mr.
Joyce); (c) payment of accrued but unpaid compensation; (d) automatic vesting in
Terra's Excess Benefit Plan with an addition of two years (a maximum of eight
years in the case of Mr. Joyce), to the credited service level and the age of
the participant for purposes of computing the accrued benefits under the Excess
Benefit Plan; (e) certain outplacement services; and (f) office space and
secretarial support for one year for Mr. Joyce. Such benefits are in lieu of any
other severance benefits that may otherwise be payable. Compensation earned from
other employment shall not reduce the amounts otherwise payable by Terra. Terra
also agreed to reimburse each such officer on an after-tax basis for any excise
tax incurred as a result of the "excess parachute payment" provisions of the
Internal Revenue Code.
Board of Directors Compensation
Independent directors of TNC receive an annual retainer fee of $15,000 for
their directorship, plus a fee of $1,000 for each TNC board meeting attended and
each Audit Committee meeting attended. No other director of TNC receives any
compensation for serving as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
TNC does not have a compensation committee and executive officer compensation
decisions with respect to TNC have been made by Terra and, in the case of those
TNC executive officers who are key employees of Terra, by the Personnel
Committee of the Board of Directors of Terra. None of the members of the
Personnel Committee are employees of Terra or its subsidiaries.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The entire general partner interest in both TNCLP and the Operating
Partnership is owned by TNC and certain limited partner interests in TNCLP are
owned by TNC, 600 Fourth Street, Sioux City, Iowa 51101. All the outstanding
capital stock of TNC is owned by Terra Capital, Inc., an indirect, wholly-owned
subsidiary of Terra. The stock of TNC is pledged as security under the Credit
Agreement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 7 to the Financial Statements. Terra Capital,
Inc. also owned, as of December 31, 1998, 1,607,400 Common Units of TNCLP. Terra
and its subsidiaries are engaged in certain transactions with the Partnership
described under the caption "Certain Relationships and Related Transactions"
below.
The capital stock of Terra is owned, as of December 31, 1998, in part as
follows: 51.1% by Taurus International S.A. and 5.3% by Taurus Investments S.A.
Each of Taurus International S.A. and Taurus Investments S.A. is a company
incorporated under the laws of Luxembourg as a societe anonyme and is wholly
owned by Minorco. Minorco is a company incorporated under the laws of Luxembourg
as a societe anonyme and is an international natural resources company with
operations in gold, base metals, industrial minerals, paper and packaging and
agribusiness. Minorco's address is 9 rue Sainte Zithe, L-2763 Luxembourg City,
Grand Duchy of Luxembourg. The capital stock of Minorco is owned in part as
follows: approximately 45.6%, directly or through subsidiaries, by Anglo
American Corporation of South Africa Limited ("Anglo American"), a publicly held
mining and finance company, and approximately 22.5%, directly or through
subsidiaries, by De Beers Centenary AG ("Centenary"), a publicly held Swiss
diamond mining and investment company. Approximately 37.9% of the capital stock
of Anglo American is owned, directly or through subsidiaries, by De Beers
Consolidated Mines Limited ("De Beers"), a publicly held diamond mining and
investment company. Approximately 29.4% of the capital stock of Centenary and
approximately 33.5% of the capital stock of De Beers is owned, directly or
through subsidiaries, by Anglo American. De Beers owns approximately 10.9% of
Centenary.
Mr. Nicholas F. Oppenheimer, Deputy Chairman and a director of Anglo American,
Chairman and a director of Centenary and De Beers, and a director of Minorco,
and Mr. Henry R. Slack, a director of Terra, Chief Executive and a director of
Minorco and a director of Anglo American, have indirect partial interests in
approximately 6.3% of the outstanding shares of Minorco and approximately 8.7%
of the outstanding shares of Anglo American. Mr. Edward G. Beimfohr, Mr. David
E. Fisher and Mr. Anthony W. Lea are directors of Terra and Minorco. Mr. Fisher
is also a director
20
of Taurus International S.A. and Taurus Investments S.A. Mr. Lea is also a
director of Anglo American and Taurus Investments S.A.
Set forth below is certain information concerning the beneficial ownership, as
of December 31, 1998, of the TNCLP Common Units and the Terra Industries Common
Shares, by each person known to TNC to be a beneficial owner of more than 5% of
the TNCLP Common Units, by each director of TNC, by each of the Named Executive
Officers of TNC, and by all directors and executive officers of TNC as a group.
Number of Terra
Number of Percent of Common Shares Percent of
Name Units Class Beneficially Owned Class
---- ----- ----- ------------------ -----
Terra Nitrogen Corporation 11,172,414 60% -- --
600 Fourth Street
Sioux City, Iowa 51101
Terra Capital, Inc. 1,607,400 9% -- --
600 Fourth Street
Sioux City, Iowa 51101
Michael L. Bennett -- -- 155,311 *
Lawrence S. Hlobik -- -- -- --
Burton M. Joyce -- -- 992,558 *
Dennis B. Longmire -- -- -- --
Francis G. Meyer -- -- 176,694 *
Steven A. Savage 4,000 * 38,582 *
Robert W. Todd -- -- -- --
George H. Valentine -- -- 148,010 *
All directors and executive 4,000 * 1,558,878 2%
officers as a group (10 persons)
*Represents less than 1% of class.
1/ Each has sole voting and investment power of all the securities indicated.
- -
The number of Terra CommonShares shown also reflect the ownership of
certain restricted Common Shares subject to certain performance related
vesting conditions and Common Shares under Terra Employees' Savings and
Investment Plan as of December 31, 1998.
2/ Terra Nitrogen Corporation also owns all the general partner interests.
- -
Each of Terra Nitrogen Corporation and Terra Capital, Inc. is an indirect,
wholly owned subsidiary of Terra Industries Inc.
3/ The number of Terra Industries Common Shares shown as beneficially owned by
- -
Messrs. Bennett, Joyce, Meyer, Savage, Valentine and by all directors and
executive officers as a group, include 38,666, 609,000, 45,000, 11,698,
30,666 and 749,695 Common Shares, respectively, as to which such person or
group had the right to acquire beneficial ownership pursuant to the
exercise, on or before May 4, 1999, of employee stock options. No other
individual listed held any employee stock options that are exercisable on
or before May 4, 1999.
ITEM 13. Certain Relationships and Related Transactions
The General Partner does not receive a management fee or similar
compensation in connection with its management of the Partnership. Pursuant to
TNCLP's limited partnership agreement and the Operating Partnership's limited
partnership agreement, the General Partner receives:
(i) distributions in respect of its 2% General Partner interest on a
combined basis in TNCLP and the Operating Partnership (See "Market
for Registrant's Units and Related Unitholders Matters");
(ii) distributions in respect of its ownership of limited partner
interests of TNCLP;
(iii) incentive distributions payable to the General Partner out of TNCLP's
Available Cash (as defined) in the event quarterly distributions
exceed specified target levels; and
21
(iv) reimbursement for all direct and indirect costs and expenses incurred
on behalf of the Partnership, all general and administrative expenses
incurred by the General Partner or its affiliates for or on behalf of
the Partnership and all other expenses necessary or appropriate to
the conduct of the business of, and reasonably allocable to, the
Partnership.
Such reimbursement includes the costs of compensation and employee benefit
plans properly allocable to the Partnership. Because certain of the plans are
incentive based, the maximum amount to be reimbursed by the Partnership under
such plans cannot be determined in advance. For the years ended December 31,
1998, 1997 and 1996, the General Partner was entitled to reimbursement in the
amount of $40.0 million, $24.7 million and $25.9 million, respectively, for the
direct and indirect costs and expenses related to the business activities of the
Partnership.
TNC and Terra are parties to an agreement whereby TNC provides certain
general and administrative services for certain Terra affiliates. Certain costs
and expenses incurred by TNC for providing such services are charged (based on
cost) to such affiliates, including the Partnership. Such expenses charged to
the Partnership were $5.4 million, $7.2 million and $7.9 million for 1998, 1997
and 1996, respectively.
Under another agreement between TNC and Terra, certain management and other
services, including, advertising, accounting, legal, human resources, insurance
and risk management, safety and environmental, and corporate relations are
provided by Terra or certain of its affiliates (other than TNC) and charged to
Terra affiliates, including the Partnership, as appropriate. Expenses under this
agreement charged to the Partnership were $3.7 million, $5.0 million and $5.1
million for 1998, 1997 and 1996, respectively.
Certain supply terminals and transportation equipment are generally
available for use by the Partnership and other Terra affiliates. The costs
associated with the operation of such terminals and transportation equipment and
related freight costs incurred to ship product to the various sales points in
the distribution system are centralized. The Partnership and other Terra
affiliates are charged based on usage of such assets and freight costs incurred.
Amounts charged to the Partnership for 1998, 1997 and 1996 were $26.1 million,
$23.3 million, and $20.5 million, respectively.
The Partnership sells product to affiliates of the General Partner at
market prices and terms. During 1998, 1997 and 1996 the Partnership sold $26.3
million, $41.0 million and $41.4 million, respectively, of nitrogen fertilizer
products to affiliates of the General Partner at market prices and terms.
Accounts receivable from Terra were $9.0 million and $314,000 at December 31,
1998 and 1997, respectively.
The Partnership has demand deposit and demand note arrangements with a
Terra subsidiary to allow for excess Partnership cash to be deposited with or
funds to be borrowed from such affiliate. The balance is due on demand and bears
interest based on the Cost Rate under the Accounts Receivable Sale Agreement or
the Eurodollar rate under the Credit Agreement, whichever is higher (7.3% and
6.5% at December 31, 1998 and 1997, respectively). Interest income recorded by
the Partnership on the demand deposit was $1.6 million and $3.5 million for 1998
and 1997, respectively.
22
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this annual report:
(1) Financial Statements
(2) Financial Statement Schedules: See Index to Financial Statements on page F-
1 for financial statements and financial statement schedules filed as part
of this annual report.
(3) The exhibits listed below are filed as part of this annual report.
#3.1 Agreement of Limited Partnership of TNCLP.
3.2 Certificate of Limited Partnership of TNCLP.
4.1 Deposit Agreement among TNCLP, the Depositary and Unitholders.
#4.3 Form of Depositary Receipt for Common Units (included as Exhibit B
to the Deposit Agreement filed as Exhibit 4.1 hereto).
#4.4 Form of Transfer Application (included in Exhibit A to the Deposit
Agreement filed as Exhibit 4.1 hereto).
4.5 Certificate of Limited Partnership of the Operating Partnership.
#10.1 Agreement of Limited Partnership of the Operating Partnership.
**10.2 Master Agreement dated October 11, 1989, among ONEOK Inc., Oklahoma
Natural Gas Company, ONG Western Inc., ONG Red Oak Transmission
Company, ONG Transmission Company, Agrico Chemical Company and
Freeport-McMoRan Resource Partners, Limited Partnership.
**10.3 Lease Agreement dated October 11, 1989, among ONEOK Inc., Oklahoma
Natural Gas Company, ONG Western Inc., ONG Red Oak Transmission
Company, ONG Transmission Company, Agrico Chemical Company and
Freeport-McMoRan Resource Partners, Limited Partnership.
10.4 Gas Service Agreement dated October 11, 1989, between Oklahoma
Natural Gas Company and Agrico Chemical Company.
**10.5 Transportation Service Agreement dated as of September 1, 1988,
among ARKLA Energy Resources, Arkansas Louisiana Gas Company and
Agrico Chemical Company, as supplemented by Letter Agreements dated
September 2, 1988, and November 1, 1990, and Consent to Assignment
dated March 9, 1990.
10.6 Transportation Service Agreement effective January 1, 1990, between
MAPCO Ammonia Pipeline, Inc. and Agrico Chemical Company, and
Consent to Assignment dated January 22, 1991.
10.8 Car Service Contract dated as of March 2, 1990, between General
American Transportation Corporation and TNC, and Consent to
Assignment dated February 22, 1990.
10.9 Lease Agreement dated as of December 22, 1988, between PLM
Investment Management, Inc. and Agrico Chemical Company, and Consent
to Assignment dated February 23, 1990, and Assignment and Assumption
effective as of March 1, 1990.
10.10 Lease and Agreement dated December 1, 1964, between City of
Blytheville, Arkansas, and Continental Oil Company, as supplemented.
10.11 Lease dated November 1, 1975, between the City of Blytheville,
Arkansas, and The Williams Companies, Inc., as supplemented.
10.12 Lease dated September 6, 1977, between Tulsa-Rogers County Port
Authority and Agrico Chemical Company, as supplemented.
10.13 Lease dated February 1, 1972, between Continental Oil Company and
Agrico Chemical Company, as supplemented.
10.14 General and Administrative Services Agreement Regarding Services by
Terra Industries Inc. filed as Exhibit 10.11 to Terra Industries
Inc. Form 10-Q for the quarter ended March 31, 1995 (file no. 1-
8520), is incorporated herein by reference.
10.15 General and Administrative Services Agreement Regarding Services by
Terra Nitrogen Corporation filed as Exhibit 10.12 to Terra
Industries Inc. Form 10-Q for the quarter ended March 31, 1995 (file
no. 1-8520), is incorporated herein by reference.
10.16 Receivables and 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 Inc.
Form 10-Q for the period ended September 30, 1996 (File No. 1-8520),
is incorporated herein by reference.
23
10.17 Purchase and Sale Agreement dated as of August 20, 1996 among Terra
International, Inc., Terra Nitrogen, Limited Partnership, Beaumont
Methanol, Limited Partnership, filed as Exhibit 10.13 to the Terra
Industries Inc. Form 10-Q for the period ended September 30, 1996
(File No. 1-8520), is incorporated herein by reference.
10.18 1992 Stock Incentive Plan of Terra Industries filed as Exhibit
10.1.6 to Terra Industries' Form 10-K for the year ended December
31, 1992 (file no. 1-8520), is incorporated herein by reference.
10.19 Form of Restricted Stock Agreement of Terra Industries under its
1992 Stock Incentive Plan filed as Exhibit 10.1.7 to Terra
Industries' Form 10-K for the year ended December 31, 1992 (file no.
1-8520), is incorporated herein by reference.
10.20 Form of Incentive Stock Option Agreement of Terra Industries under
its 1992 Stock Incentive Plan, filed as Exhibit 10.1.8 to Terra
Industries' Form 10-K for the year ended December 31, 1992 (file no.
1-8520), is incorporated herein by reference.
10.21 Form of Nonqualified Stock Incentive Agreement of Terra Industries
under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.9 to
Terra Industries' Form 10-K for the year ended December 31, 1992
(file no. 1-8520), is incorporated herein by reference.
10.22 Terra Industries Inc. Supplemental Deferred Compensation Plan
effective as of December 20, 1993, filed as Exhibit 10.1.9 to Terra
Industries' Form 10-K for the year ended December 31, 1993 (file no.
1-8520), is incorporated herein by reference.
10.23 Amendment No. 1 to the Terra Industries Inc. Supplemental Deferred
Compensation Plan, filed as Exhibit 10.1.15 to Terra Industries'
Form 10-Q for the quarter ended September 30, 1995 (file no. 1-
8520), is incorporated herein by reference.
10.24 Excess Benefit Plan of Terra Industries, as amended effective as of
January 1, 1992, filed as Exhibit 10.1.13 to Terra Industries' Form
10-K for the year ended December 31, 1992 (file no. 1-8520), is
incorporated herein by reference.
10.25 Revised Form of Performance Share Award of Terra Industries under
its 1992 Stock Incentive Plan, filed as Exhibit 10.1.11 to the Terra
Industries Inc. Form 10-K for the year ended December 31, 1996 (File
No. 1-8520), is incorporated herein by reference.
10.26 Revised Form of Incentive Stock Option Agreement of Terra Industries
under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.12 to the
Terra Industries Inc. Form 10-K for the year ended December 31, 1996
(File No. 1-8520), is incorporated herein by reference.
10.27 Revised Form of Nonqualified Stock Option Agreement of Terra
Industries under its 1992 Stock Incentive Plan, filed as Exhibit
10.1.13 to the Terra Industries Inc. Form 10-K for the year ended
December 31, 1996 (File No. 1-8520), is incorporated herein by
reference.
10.28 1997 Stock Incentive Plan of Terra Industries, filed as Exhibit
10.1.14 to the Terra Industries Inc. Form 10-K for the year ended
December 31, 1996 (File No. 1-8520), is incorporated herein by
reference.
10.29 Amended Demand Deposit Agreement, dated as of August 20, 1996, among
Terra Nitrogen Limited Partnership and Terra Capital, Inc. filed as
Exhibit 10.62 to TNCLP's Form 10-K for the year ended December 31,
1996, is incorporated herein by reference.
10.30 Demand Promissory Note dated August 26, 1998 from Terra Nitrogen
L.P., as Payor, to Terra Capital Inc. filed as Exhibit 10.69 to
TNCLP's Form 10-Q for the quarter ended September 30, 1998, is
incorporated herein by reference.
10.31 Amended and Restated Credit Agreement dated March 31, 1998 (the
"1998 Credit Agreement") 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 Inc. Form 10-Q for the
quarter ended March 31, 1998 (File No. 1-8520), is incorporated
herein by reference.
10.32 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 (File No. 1-8520), is
incorporated herein by reference.
10.33 Form of Incentive Stock Option Agreement of Terra Industries under
its 1997 Stock Incentive Plan, filed as Exhibit 10.1.14 to the Terra
Industries Inc. Form 10-K for the year ended December 31, 1997 (File
No. 1-8520), is incorporated herein by reference.
10.34 Form of Nonqualified Stock Option Agreement of Terra Industries
under its 1997 Stock Incentive Plan, filed as Exhibit 10.1.15 to the
Terra Industries Inc. Form 10-K for the year ended December 31, 1997
(File No. 1-8520), is incorporated herein by reference.
24
10.35 Form of Performance Share Award of Terra Industries under its 1997
Stock Incentive Plan filed as Exhibit 10.1.15 to the Terra
Industries Inc. Form 10-K for the year ended December 31, 1998 (File
No. 1.8520), is incorporated herein by reference .
10.36 1998 Incentive Award Program for Officers and Key Employees of Terra
Industries, filed as Exhibit 10.1.16 to the Terra Industries Inc.
Form 10-Q for the quarter ended March 31, 1998 (File No. 1.8520), is
incorporated herein by reference.
10.37 Executive Retention Agreement for Burton M. Joyce filed as Exhibit
10.1.18 to the Terra Industries Inc. Form 10-K for the year ended
December 31, 1998 (File No. 1.8520), is incorporated herein by
reference.
10.38 Form of Executive Retention Agreement for Other Executive Officers
filed as Exhibit 10.1.19 to the Terra Industries Inc. Form 10-K for
the year ended December 31, 1998 (File No. 1.8520), is incorporated
herein by reference.
10.39 1999 Incentive Award Program for Officers and Key Employees of Terra
Industries filed as Exhibit 10.1.20 to the Terra Industries Inc.
Form 10-K for the year ended December 31, 1998 (File No. 1.8520), is
incorporated herein by reference.
27 Financial Data Schedule (EDGAR only).
99.1 Conversion Statement dated December 31, 1996, filed as Exhibit 99.1
to the TNCLP Form 10-Q for the quarter ended March 31, 1997, is
incorporated herein by reference.
** Confidential treatment has been granted for portions of the exhibit.
# Filed under the identical exhibit numbers in TNCLP's Form 10-K (file
No. 1-10877) for the year ended December 31, 1991 and incorporated
herein by reference.
Except as otherwise noted above, all exhibits listed above were previously
filed under the identical exhibit number in TNCLP's Registration Statement