Terra Industries, Inc. - Company Profile, Information, Business Description, History, Background Information on Terra Industries, Inc.

600 Fourth Street
Sioux City, Iowa 51101

History of Terra Industries, Inc.

Terra Industries, Inc., is one of the nation's largest producers and marketers of nitrogen fertilizer, crop protection products, seed, and services for farmers, dealers, and professional growers. Terra supplies dealers and growers with more than 5,000 different products, as well as feed ingredients and application services. The company also produces and markets nitrogen products and methanol for the industrial sector.

"Anything we're not the largest in, we probably have a goal to get there in the near future," Terra President Burton Joyce told David Hendee of the Omaha World Herald on May 3, 1995. Indeed, that year the company ranked as North America's third-largest producer of anhydrous ammonia and the largest manufacturer of nitrogen solutions--both fertilizer products especially useful in corn farming. Terra also boasted the market's largest company-owned farm service center network, with more than 350 locations; second place as a supplier of crop production inputs to North American growers and dealers; a leading position in methanol production; and a well-respected profile in the development of environmentally friendly dry flowable technology for crop protection products.

Terra's activity falls into three main lines of business. The distribution segment sells crop inputs--fertilizers, crop protection products, and seed services&mdashø agricultural, turf, ornamental, and other growers, and to dealers. Terra's nitrogen production facilities, marketed under the Terra Nitrogen name, convert natural gas, air, and water into nitrogen fertilizer, animal feed, and industrial products in the form of anhydrous ammonia, nitrogen solutions, urea, and other ammonia derivatives. Finally, Terra's methanol production line is growing rapidly to supply fuel companies with products to meet increasing demand for cleaner-burning fuels.

The company's roots go back to 1964, when Terra Chemicals International, Inc., broke ground for a large nitrogen fertilizer manufacturing complex at Port Neal, Iowa. Shortly thereafter, Terra began selling fertilizers and crop protection products through Grand Forks Seed Company and other established outlets in Iowa and Wisconsin.

The young company moved quickly to expand its product line and sales territory. By 1967, the Port Neal site was producing sizable amounts of nitrogen-based fertilizer, and within a decade, the company entered into a joint venture with W. R. Grace and Gulf Oil Chemical Co. to obtain an interest in another fertilizer plant in Woodward, Oklahoma. (Terra eventually became the sole owner of that facility in 1988.)

With the 1977 acquisition of Memphis-based Riverside Chemical Company, Terra greatly expanded both its capacity and its geographical reach. The addition of Riverside's 45 farm service centers to Terra's fold made it one of the nation's largest independent producers and distributors of fertilizer, agricultural chemicals, and seed.

In 1981 Terra became a wholly owned subsidiary of Plateau Holdings, an umbrella company for mining and natural resources, to begin a decade of vastly accelerated growth and diversification. Plateau, which was jointly owned by Minerals and Resources Corporation Limited (Minorco Inc., U.S.A.) and Hudson Bay Mining and Smelting Co., Ltd. (HBMS), created a new company, Inspiration Resources Corp., as a holding company for Terra and several other natural resources ventures.

Within two years, a reorganization realigned the corporate chips, making HBMS and Trend International Ltd. (TIL) wholly owned subsidiaries of Inspiration. In 1984 Inspiration traded shares of TIL and Trend Exploration Ltd. (TEL)--formerly one of its wholly owned subsidiaries--with Danville Resources, Inc., which, in turn, exchanged its shares of TIL and TEL for shares in Madison Resources, Inc. Thus, Terra's parent, Inspiration, ended up holding a 73 percent interest in Madison, including its wholly owned subsidiaries, TIL And TEL. Despite this session of "musical shares" and the diversification of Inspiration into everything from copper mining to ammonia production, the Terra subsidiary continued to focus primarily on agricultural markets.

A series of strategic acquisitions, paired with renewed emphasis on aggressive distribution channels, propelled new growth for Terra in the mid 1980s. The company began operating a dry and liquid flowable crop protection formulation facility in Blytheville, Arkansas in 1984. In 1985 Terra acquired the agricultural products division of Sohio Chemical Company, augmenting its direct sales contact with farm customers through the division's 118 retail farm service centers across Michigan, Ohio, Indiana, Illinois, Missouri, and Kansas. That year, the company also changed its name to Terra International, Inc., in anticipation of broader markets.

As markets for base metals took a beating in the early 1980s, Terra's parent felt the heat. Inspiration suffered consecutive losses of $83 million in 1983 and $101 million in 1984, for example, largely due to sagging copper prices (which adversely affected the company's Consolidated Copper Corp. and Hudson Bay Mining & Smelting Co. Ltd. subsidiaries). A 1985 company report noted that Inspiration was attempting to lessen its dependence on copper by increasing its interests in oil, gas, agricultural, and chemical businesses. This trend spelled good news for Terra, which would benefit from the parent's search for "inspiration" in agribusiness. In a 1986 speech to shareholders, Reuben F. Richards, Inspiration's chairman, said that the corporation's prospects for profitability hinged greatly on the ability of Inspiration Copper to secure substantial labor cost reductions and a strong performance by Terra International's agricultural business.

By the early 1990s, with the base metals market still weighing down on Inspiration's recovery, the company focused its efforts on agribusiness, beginning to divest or discontinue other operations in areas such as mining and base metal refining. In 1990 the company wrote off its equity investment in western Gold Exploration and Mining Co. Limited Partnership (Westgold). That year, Inspiration also discontinued its coal operations. Such divestment continued in August 1991, when Inspiration sold its base metals business, principally its wholly owned subsidiary Hudson Bay Mining and Smelting Co. Ltd., and related metals marketing and trading operations to Minorco (U.S.A.). Within a year, the parent company also sold certain leased rail assets and, by 1992, had discontinued the leasing and construction materials businesses as well as equity interests in a copper alloy producer, an undeveloped beryllium mine property, and its gold mining affiliate.

These changes were accompanied by organizational shifts as well. In August 1991, Inspiration named W. Mark Rosenbury as vice-president and chief financial officer of the newly reconstituted company, with its new emphasis on fertilizer and other agribusiness units operated by Terra International, Inc. Terra's ascent was not complete until Inspiration moved its corporate offices from New York to Sioux City, Terra's headquarters, and, finally, until IRC's shareholders approved a name change for the parent company to Terra Industries Inc. in May 1992. The new name recognized Terra's focus on agribusiness with the sale/discontinuance of its natural resources and other businesses. "We have transformed ourselves from a metal and mining company to one of the nation's leading producers and marketers of fertilizers, crop chemicals and seed. Terra, the Latin world for 'land,' has been known and respected for over 25 years in the agricultural community," president and CEO Burton M. Joyce said at the annual meeting in May 1992. Essentially, the parent company had developed along the lines of its most successful subsidiary.

In 1992 Terra decided to diversify into methanol production, announcing plans on December 1 to begin production of the chemical at its Woodward, Oklahoma, nitrogen fertilizer manufacturing facility. Scheduled for completion in the first quarter of 1994, the $15.5 million project was designed for a capacity of 400 tons of methanol per day, a relatively small production quantity by industry standards. Still, the company focused not on volume but on efficiency, devising a production process by which methanol and ammonia could be processed simultaneously, using synergy to save energy. "Terra will be one of the smallest methanol producers, but likely one of the most efficient," Joyce said, according to PR Newswire. By diversifying into methanol, while increasing its storage capacity, Terra hoped to reduce the impact of fertilizer market seasonality on its profits, Joyce said.

Terra also moved toward market stability through sheer volume, effecting a virtual explosion of growth in its nitrogen fertilizer business in 1993. With that year's acquisition of ICI Canada's Lambton Works facility near Sarnia, Ontario, Terra increased its nitrogen fertilizer capacity by 50 percent, making it the fourth-largest nitrogen solutions producer and the fifth-largest anhydrous ammonia producer in North America. The ICI acquisition also included interests in 32 farm service centers, or "Agromarts," in Ontario, New Brunswick, and Nova Scotia.

Terra continued to expand its geographical reach with the 1993 acquisition of the business and most of the assets of Asgrow Florida Company (AFC), a subsidiary of the Upjohn Company and a distributor of fertilizer, crop protection products, and seed to the vegetable and ornamental markets in Florida. Initially operating under the Terra Asgrow Florida name, the combined organization resulted in a broader range of products and services for Florida vegetable, citrus, ornamental, and other growers. For Terra, it marked yet another new frontier; in 1993 the company announced plans to broaden its agrichemical operations into the Southwest and Far West as well.

Such explosive growth in fertilizers was, unfortunately, interrupted by a tragic fertilizer explosion at Terra's Port Neal plant in Iowa in December 1994. The accident took the lives of four employees, injured 19 people, unleashed a cloud of potentially dangerous ammonia gas that caused the evacuation of a nearby town, and rendered the 325,000-ton-a-year plant inoperable for nearly one year.

Terra's Port Neal explosion created shock waves on various fronts, including trading floors. While personnel tried to assess the damage and the cause of the explosion--and whether the plant would reopen--Terra stock plunged, while Terra's main competitors, Cominco Fertilizers Ltd. of Calgary and Chicago-based Vogoro Corp. saw their shares jump in brisk trading.

Tremors from the explosion also shook up investigators and regulatory boards. In January 1995, the Iowa Occupational Safety and Health Administration (IOSHA) filed an affidavit alleging that Terra had hindered inspections of the blast, whereupon Terra filed a court motion disputing the state's charges. By May, the dispute had escalated, with Terra denying IOSHA's allegations that the company hindered inspections and contesting the $460,000 fine that the state agency proposed. Into 1995, the dispute fueled other, related disputes in the media, including the extent of federal regulation and oversight in an era when Congress displayed an anti-regulatory mood. In 1990 Congress had created a five-member, independent Chemical Safety and Hazard Investigation Board as part of the Clean Air Act amendments. By 1995, the new panel--which would have investigated cases similar to Terra's--hadn't yet been sworn in; the Office of Management and Budget made moves to block the panel and transfer its intended responsibilities to the existing U.S. Environmental Protection Agency and OSHA. Thus, the Terra explosion highlighted not only ambiguities regarding that company's safety policies, but those of the federal government as well.

Despite the legal and financial setbacks of the Port Neal explosion, Terra enjoyed a year of solid growth in 1994, reporting a net income of $56.6 million, or 78 cents a share, for the year, compared with net income of $22.8 million for 1993. Despite a $7 million charge in the fourth quarter to cover uninsured costs from the explosion, the company said business interruption insurance and property damage insurance would enable it to rebuild the facility.

Moreover, Terra continued to grow through strategic acquisitions, shooting to the top echelon of North American nitrogen product and methanol production with its 1994 acquisition of Agricultural Minerals and Chemicals Inc. (AMCI). The combination of both companies' production facilities resulted in an annual production capacity of 2.7 million tons of ammonia, of which 1.6 million tons were upgraded into 3.0 million tons of nitrogen solutions, and over 700,000 tons of urea. The combined methanol production capacity of the company reached 320 million gallons a year. To help finance the AMCI acquisition, Terra successfully issued 9.7 million common shares, raising $113 million and immediately adding to earnings per share. "Geographically, these businesses fit well, and operationally we'll realize synergies that will benefit both sides of the business combination," Joyce announced in an October 1994 company news release.

Positioning itself for still wider markets, in June 1994 Terra announced that it had signed a letter of intent to acquire a one-third interest in Royster-Clark, Inc., a farm service distribution network located on the East Coast. The terms of the agreement provided Terra with the option of increasing its ownership position to majority holder within five years. In a June 1994 news release, Joyce said that the new alliance afforded Terra Products growth potential in new markets, such as the East Coast--particularly the Carolinas--where Royster-Clark had a strong presence.

These new markets laid a fertile groundwork for Terra's continued growth into the 21st century. Moreover, the methanol market, which the company had entered in 1992, showed particular promise as requirements of the Clean Air Act caused gasoline producers to build inventories of methanol for use in formulating methyl-tertiary-butyl-ether (MTBE), a clean burning fuel additive, in anticipation of increased demand.

Through clearly stated growth strategies, Terra stood ready to meet the challenges of the dynamic fertilizer industry. The company would increase revenues by exploiting the resources of the newly acquired AMCI; by serving new markets in turf, nursery and vegetation management; and by acquiring additional farm service centers across broader geographical regions. The company also planned to save costs by increasing production of higher margin products, including expanded urea production, Riverside brand chemicals, and Terra brand seed. With a longer-term goal of establishing a Terra farm center, or an affiliated dealer, in each of the major agricultural counties in North America, Terra had broad fields to sow, and just the right materials to do the sowing.

Principal Subsidiaries: Hudson Holding Corporation; Hudson Bay Gold Inc.; Inspiration Coal Inc.; Inspiration Coal Development Company; Inspiration Gold Incorporated; Terra International, Inc.; El Rancho Rock & Sand, Inc.; Inspiration Consolidated Copper Company.

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Further Reference

Beeman, Perry, "Bumpy Ride for Terra Probe," Des Moines Register, January 22, 1995, p. G1.Hendee, David, "Terra to Expand through Global Sales," Omaha World Herald, May 3, 1995.------, "Iowa Says Terra Isn't Cooperating; Firm Denies Slowing Probe of Plant," Omaha World Herald, January 7, 1995, p. 1.Jordan, Carol L., "Profit Prospects Hinge in Agri, Copper Businesses: Inspiration," American Metal Market, May 16, 1986, Vol. 94, p. 5.Munford, Christopher, "Inspiration to Cut Costs, Staff; Consolidation Under Way after Sizable 2d-Quarter Loss," American Metal Market, August 16, 1991, Vol. 99, No. 157, p. 2.

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