##### Table of Contents



Washington, D.C. 20549
 FORM 10-K
    (Mark One)x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period from
    
    toCommission file number 1-8520   Terra Industries Inc.
 (Exact name of registrant as
    specified in its charter)
  Maryland(State or other jurisdiction of
    incorporation or organization)

52-1145429(I.R.S. Employer Identification No.)Terra Centre
    600 Fourth Street
    P. O. Box 6000
    Sioux City, Iowa(Address of principal executive offices)

51102-6000(Zip Code)(712) 277-1340(Registrants telephone number)   Securities registered pursuant
    to Section 12(b) of the Act:
  Name of each exchangeTitle of each class

on which registeredCommon Shares, without par value

New York Stock Exchange   Securities registered pursuant
    to section 12(g) of the Act: None
   o x
  o x
  x o
  Regulation S-K Form 10-K Form 10-K. o




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Rule 12b-2 x o o
  Rule 12b-2 o x
      Documents
    Incorporated by Reference
  120-day Form 10-K 120-day




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Forward-Looking
    Information is Subject to Risk and Uncertainty
      
    changes in financial markets,
    general economic conditions within the agricultural industry,
    competitive factors and price changes (principally, sales prices
    of nitrogen and methanol products and natural gas costs),
    changes in product mix,
    changes in the seasonality of demand patterns,
    changes in weather conditions,
    changes in environmental and other government regulation,
    changes in agricultural regulations, and
    other risks detailed in the section of this report entitled
    Risk Factors.




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##### 



Table of
    Contents
  Part IItem 1.


Business


1Item 1A.


Risk Factors


14Item 1B.


Unresolved Staff Comments


19Item 2.


Properties


19Item 3.


Legal Proceedings


21Item 4.


Submission of Matters to a Vote of Security
    Holders


21Executive Officers of Terra


22Part IIItem 5.


Market for Terras Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity Securities


24Item 6.


Selected Financial Data


27Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


29Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


46Item 8.


Financial Statements and Supplementary Data


48Item 9.


Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosures


104Item 9A.


Controls and Procedures


104Item 9B.


Other Information


108Part IIIItem 10.


Directors and Executive Officers of Terra


109Item 11.


Executive Compensation


109Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


109Item 13.


Certain Relationships and Related Transactions


111Item 14.


Principal Accountant Fees and Services


111Part IVItem 15.


Exhibits and Financial Statement Schedules


112Signatures


122Index to Financial Statement Schedules


S-1EX-10.1.5EX-10.1.6EX-12.1EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2EX-99




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Part I Item 1.   Business      2008
    Overview
    Woodward
    Expansion
    Terra
    Environmental Technologies
  ®
 1




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Joint Venture
    Operations
    Dividends and
    Stock Repurchases
    Pension
    Stability
    Sale of Beaumont
    Facilities
  Managements Discussion and Analysis of
    Financial Condition and Results of Operations Discontinued Operations Financial Statements and Supplementary Data Form 10-K.
  Business
    Strategy
     2




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Managements Discussion and Analysis of Financial
    Condition and Results of Operations Industry Segment Data Financial
    Statements and Supplementary Data Form 10-K.
  Nitrogen
    Business
  Overview
            Anhydrous
    Ammonia
   3




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Urea Ammonium
    Nitrate Solutions (UAN)
        Ammonium Nitrate
    (AN)
      tm tm
  Urea
   4




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Nitric
    Acid
    Dinitrogen
    Tetroxide
    Marketing
      Distribution
     5




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Transportation
    Nitrogen Industry
    Overview
  year-by-year, per-acre-planted
    Demand
   6




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Supply
        Outlook
           7




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2007-2008, 2008-2009 2009-2010,
    Seasonality and
    Volatility
      
    Weather patterns and field conditions (particularly during
    periods of high fertilizer consumption);
    Quantities of fertilizers imported to primary markets;
    Current and projected grain inventories and prices, which are
    heavily influenced by U.S. exports, worldwide grain
    markets, and domestic demand (food, feed, biofuel); and
    Price fluctuations in natural gas, the principal raw material
    used to produce nitrogen fertilizer.   8




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Raw
    Materials
    How Natural Gas Gets to Terras Facilities2008 Average BasisFacility

Mode of Transportation

Difference From Henry HubCourtright, Ontario

Purchased from local utility distribution company, through open
    access


0.26Donaldsonville, Louisiana

Four intrastate pipelines


Port Neal, Iowa

Interstate, open-access pipelines


(1.31
)Verdigris, Oklahoma*

Intrastate pipelines


(1.70
)Woodward, Oklahoma*

Interstate and intrastate pipelines


(1.70
)Yazoo City, Mississippi

Three interstate pipelines and one intrastate pipeline


0.04   *
    
    The intrastate pipelines serving Woodward and Verdigris are not
    open-access carriers, but are nonetheless part of a regional
    system which allows receipt from other major Oklahoma sources.
    We also have limited access to out-of-state natural gas supplies
    for these facilities.          Competition
   9




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and/or
    Credit
  15-30 days,
  Environmental and
    Other Regulatory Matters
  and/or
  and/or
 10




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clean-up clean-up and/or clean-up
   11




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Employees
    Available
    Information
       20549-0102
   (202) 777-1027
 E-mail:
  http://www.sec.gov.
  Form 10-K, Form 10-Q, Form 8-K
 12




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51102-6000
 (712) 277-1340
 13




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Item 1A.  Risk
    Factors  Form 10-K,
  A substantial portion of Terras operating expense is
    related to the cost of natural gas, and an increase in such cost
    that is either unexpected or not accompanied by increases in
    selling prices of products could result in reduced profit
    margins and lower product production.
  and/or
  Declines in the prices of our products may reduce profit
    margins.
    Our products are subject to price volatility resulting from
    periodic imbalances of supply and demand, which may cause the
    results of operations to fluctuate.
   14




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Our products are global commodities and we face intense
    competition from other producers.
    Our business is subject to risks related to weather
    conditions.
    and/or
  Our risk measurement and hedging activities might not prevent
    losses.
     15




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We are substantially dependent on our manufacturing
    facilities, and any operational disruption could result in a
    reduction of sales volumes and could cause us to incur
    substantial expenditures.
    We may be adversely affected by environmental laws or
    regulations to which we may be subject.
  and/or and/or
  and/or
  We may be required to install additional pollution control
    equipment at certain facilities in order to maintain compliance
    with applicable environmental requirements.
   16




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Government regulation and agricultural policy may reduce the
    demand for our products.
  and/or
  We are subject to risks associated with international
    operations.
    Our business may be adversely impacted by our leverage, which
    may require the use of a substantial portion of excess cash flow
    to service debt and may limit our access to additional
    capital.
    We may be unable to refinance our debt upon a change of
    control.
   17




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CFs exchange offer to purchase all of our outstanding
    common stock may be disruptive to our business and threatens to
    adversely affect the Companys operations and results.
     18




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Item 1B.  Unresolved
    Staff Comments   Item 2.   Properties        North
    America
  Annual
    Capacity1Location

Ammonia2


UAN3


AN4


Urea5


Methanol6Donaldsonville,
    Louisiana7


500,000















Port Neal, Iowa


370,000



735,000







60,000



Verdigris, Oklahoma


1,050,000



1,925,000











Woodward,
    Oklahoma8


440,000



297,500







25,000



40,000,000Yazoo City,
    Mississippi9


500,000



525,000



775,000
10


20,000



Courtright, Ontario


480,000



350,000







175,000



Total


3,340,000



3,832,500



775,000



280,000



40,000,000  1.
    Annual capacity
    includes an allowance for planned maintenance shutdowns.2.
    Measured in gross
    tons of ammonia produced; net tons available for sale will vary
    with upgrading requirements.3.
    Measured in tons of
    UAN containing 32% nitrogen by weight.4.
    Measured in tons.5.
    Urea is sold as urea
    liquor from the Port Neal, Woodward and Yazoo City facilities
    and as either granular urea or urea liquor from the Courtright
    facility. Production capacities shown are for urea sold
    in tons.6.
    Measured in gallons. 7.
    The Donaldsonville
    facilitys manufacturing capacity consists of a single
    ammonia plant. This plant was mothballed in January 2005, and
    was restarted September 2008. 8.
    Woodwards
    plant capacity depends on product mix (ammonia/methanol).9.
    The Yazoo City
    facility also produces merchant nitric acid; sales for the
    twelve months ended December 31, 2008 were 20,700 product
    tons.10.
    Terras full AN
    capacity at Yazoo City is 835,000 tons, however such production
    would limit Yazoo Citys UAN production to approximately
    450,000 tons and increase urea production to 45,000 tons. The
    plant has the ability to produce both agricultural grade AN and
    industrial grade AN (IGAN).  Donaldsonville, Louisiana.
 19




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Port Neal, Iowa.
  Verdigris, Oklahoma.
  Woodward, Oklahoma.
  Yazoo City, Mississippi.
  Courtright, Ontario, Canada.
  Joint
    Ventures
  Annual
    Capacity1Location







FertilizerAmmonia2


AN3


CompoundsInce,
    U.K.3


201,000



343,000



340,000Billingham,
    U.K.3


225,000



260,000Point Lisas, Trinidad and
    Tobago4


360,000







Total


786,000



603,000



340,000   1.
    Annual capacity
    includes an allowance for planned maintenance shutdowns.2.
    Measured in gross
    tons of ammonia produced; net tons available for sale will vary
    with upgrading requirements.3.
    Represents
    Terras 50% interest in capacity of facilities owned by
    GrowHow, a
    50/50 joint
    venture between Terra and Kemira GrowHow Oyj established in
    September 2007.4.
    Represents
    Terras 50% interest in the Point Lisas plant capacity.  Billingham, U.K. 99-year
 20




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##### Table of Contents



Ince, U.K.
  Point Lisas, Trinidad. 50/50
  Item 3.
    Legal
    Proceedings    Item 4.   Submission
    of Matters to a Vote of Security Holders   21




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Executive
    Officers of Terra    Present positions
    and offices with the CompanyName

and
    principal occupations during the past five yearsMichael L. Bennett

President and Chief Executive Officer of Terra since April 2001;
    President of Terra Nitrogen GP Inc. (TNGP) (or its predecessor),
    the General Partner of TNCLP, since June 1998; Chairman of the
    Board of TNGP (or its predecessor) since 2002. Age 55Daniel D. Greenwell

Senior Vice President and Chief Financial Officer of Terra since
    July 2007; Vice President, Controller of Terra from April 2005
    to July 2007; Director of TNGP, the General Partner of TNCLP,
    since March 2008; Vice President and Chief Financial Officer of
    TNGP since February 2008; Vice President and Chief Accounting
    Officer of TNGP from April 2006 to February 2008; Corporate
    Controller for Belden CDT Inc. from 2002 to 2005; and Chief
    Financial Officer of Zoltek Companies Inc. from 1996 to 2002.
    Age 46Joseph D. Giesler

Senior Vice President, Commercial Operations of Terra since
    December 2004; Vice President of Industrial Sales and Operations
    of Terra from December 2002 to December 2004; Global Director,
    Industrial Sales of Terra from September 2001 to December 2002;
    Vice President of TNGP, the General Partner of TNCLP, since
    April 2006. Age 50Douglas M. Stone

Senior Vice President, Sales and Marketing since September 2007;
    Vice President, Corporate Development and Strategic Planning
    from 2006 to September 2007; Director, Industrial Sales from
    2003 to 2006; Manager, Methanol and Industrial Nitrogen from
    2000 to 2003. Age 43Edward J. Dillon

Vice President and Controller of Terra since November 2008. In
    1998, he joined the General Electric Company and served in
    numerous roles including Finance Manager for the National
    Broadcasting Company in New York City, progressing to Global
    Controller for the Consumer & Industrial segment in
    Louisville, Kentucky. He joined INVISTA, a subsidiary of Koch
    Industries, Inc. (KII) in 2005 in Wichita as Director of
    Corporate Finance and in 2007, moved to KII Corporation as
    Finance Director. Age 41Joe A. Ewing

Vice President, Investor Relations and Human Resources of Terra
    since December 2004; Vice President, Human Resources of
    Mississippi Chemical Corporation from April 2003 to December
    2004; Vice President, Marketing and Distribution of Mississippi
    Chemical Corporation from 1999 to April 2003. Age 58 22




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##### Table of Contents



Present positions
    and offices with the CompanyName

and
    principal occupations during the past five yearsJohn W. Huey

Vice President, General Counsel and Corporate Secretary of Terra
    since October 2006; Vice President, General Counsel and
    Corporate Secretary of TNGP, the General Partner of TNCLP, since
    October 2006; Counsel with Shughart Thomson &
    Kilroy, P.C. from
    2005-2006;
    Attorney with Butler Manufacturing Company from 1978 to 2004,
    Vice President of Administration from 1993 to 1998, Vice
    President, General Counsel and Corporate Secretary from 1998 to
    2004. Age 61Geoffrey J. Obeney

Vice President, Information Technology of Terra since February
    of 2008. Interim CEO of Spirit Computing Ltd from November 2005
    to January 2008; CIO of SEI LLC, a
    start-up
    company from October 2004 to October 2005. Age 51Richard S. Sanders Jr.

Vice President, Manufacturing of Terra since August 2003; Vice
    President, Manufacturing of TNGP (or its predecessor), the
    General Partner of TNCLP, since October 2003; Plant Manager,
    Verdigris, Oklahoma manufacturing facility from 1995 to August
    2003. Age 51Earl B. Smith

Vice President, Business Development of Terra since March 2008;
    Registered Financial Advisor with UBS from 2006 to 2008. Various
    positions with Vulcan Materials Company from 1982 to 2005,
    serving last a Global Business Manager from 2003 to 2005.
    Age 48    23




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##### Table of Contents



Part II  Item 5.
    Market
    for Terras Common Equity and Related Stockholder Matters
    and Issuer Purchases of Equity Securities     (per-share data and stock prices)

March 31

June 30

Sept. 30

Dec. 312008Common Share Price:High

$
53.48


$
56.25


$
57.64


$
30.00Low


33.80



33.85



25.85



11.212007Common Share Price:High

$
18.93


$
25.90


$
32.25


$
51.15Low


11.08



17.01



17.69



27.13      24




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##### Table of Contents



Performance
    Graph
    
    Annual
    Return PercentageYear Ending
    December 31,Company
    Name/Index


2004



2005



2006



2007



2008Terra Industries Inc.



168.28
%



(36.94
)%



113.93
%



298.66
%



(64.71
)%S&P 500 Stock Index



10.88
%



4.91
%



15.79
%



5.49
%



(37.00
)%Industry Peer Group



64.94
%



(3.98
)%



44.53
%



167.19
%



(56.89
)    25




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##### Table of Contents



Indexed
    Annual Returns on Hypothetical $100 InvestmentYear Ending
    December 31,Company
    Name/Index


2004


2005


2006


2007


2008Terra Industries Inc.


$
268.28



$
169.18



$
361.93



$
1,442.90



$
509.22S&P 500 Stock Index


$
110.88



$
116.33



$
134.70



$
142.10



$
89.52Industry Peer Group


$
164.94



$
158.37



$
228.88



$
611.55



$
263.63     Company
    Purchases of Equity Securities
        Total Number ofTotal



Shares Purchased as

Maximum Number ofMonth of

Number of

Average

Part of Publicly

Shares that May Yet BeShare

Shares

Price Paid

Announced Plans or

Purchased Under thePurchases

Purchased

per Share

Programs

Plans or ProgramsMay 2008


189,150


$
39.65



189,150



12,652,567August 2008


772,180



45.91



961,330



11,880,387September 2008


1,626,355



39.69



2,587,685



10,254,032October 2008


200,000



21.90



2,787,685



10,054,032November 2008


2,605,370



17.51



5,393,055



7,448,662      26




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##### Table of Contents



Item 6.
    Selected
    Financial Data   Financial
    Statements and Supplementary Data Form 10-K.
  (in thousands, except per share
    data)

2008(1)

2007(2)

2006

2005(3)

2004(4)Income Statement Data:Revenues

$
2,891,479


$
2,342,929


$
1,819,696


$
1,935,237


$
1,295,032Gross profit


863,227



527,508



118,517



168,274



171,079Income from continuing operations


632,772



220,757



4,729



31,618



65,714Income (loss) from discontinued operations


8,269



(18,861
)


(516
)


(9,531
)


1,882Net income


641,041



201,896



4,213



22,087



67,596Preferred share dividends


(3,876
)


(5,100
)


(5,100
)


(5,134
)


(1,029
)Cash dividends declared per common share

$
0.30


$



$



$



$
Per Share Data:Earnings (loss) per sharebasic:Income from continuing operations

$
6.65


$
2.38


$



$
0.28


$
0.85Income (loss) from discontinued operations


0.09



(0.21
)


(0.01
)


(0.10
)


0.02Earnings per sharebasic

$
6.74


$
2.17


$
(0.01
)

$
0.18


$
0.87Earnings (loss) per sharediluted:Income from continuing operations

$
6.12


$
2.07


$



$
0.28


$
0.83Income (loss) from discontinued operations


0.08



(0.17
)


(0.01
)


(0.10
)


0.02Earnings per sharediluted

$
6.20


$
1.90


$
(0.01
)

$
0.18


$
0.85Balance Sheet Data:Total assets

$
2,113,017


$
1,888,327


$
1,572,713


$
1,523,625


$
1,685,508Long-term debt and capital leases

$
330,000


$
330,000


$
331,300


$
331,300


$
435,238Preferred stock

$
1,544


$
115,800


$
115,800


$
115,800


$
133,069   (1)
    The 2008 selected financial data includes (i) the effects
    of the Series A Preferred Shares inducement converting a
    total of 118,400 shares to 11,887,550 shares of Terra
    Industries common stock; (ii) the effects of instituting a
    cash dividend per common share of $0.10 per 27




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quarter starting in May 2008; (iii) and the full year
    equity earnings effect of the GrowHow joint venture of
    $95.6 million.  (2)
    The 2007 selected financial data includes (i) the effects
    of contributing our Terra Nitrogen U.K. operations into the
    GrowHow joint venture on September 14, 2007 (ii) a
    $39.0 million impairment charge for our Beaumont, Texas
    assets and (iii) a $38.8 million loss on the early
    retirement of debt associated with the debt refinancing that we
    completed during 2007.(3)
    The 2005 selected financial data includes the full year income
    statement effects of the December 21, 2004 acquisition of
    Mississippi Chemical Corporation.(4)
    The 2004 selected financial data includes the effects of the
    December 21, 2004 acquisition of Mississippi Chemical
    Corporation and the issuance of preferred shares during the 2004
    fourth quarter. 28




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Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations   Overview
  Financial Statements and
    Supplementary Data Form 10-K.
  Introduction
    
    Business Strategy
    Recent Business Environment
    Strategy Effectiveness
    Results of Operations
    Liquidity and Capital Resources
    Various Quantitative and Qualitative Disclosures  Business
    Strategy
         29




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##### Table of Contents




    Development of products and markets for upgraded products made
    from ammonia such as UAN, our primary nitrogen fertilizer
    product, and
    TerraCair®,

    a liquid product for the treatment of diesel exhaust in
    automotive applications;
    Seeking of opportunities to expand our existing asset base to
    take advantage of logistical or feedstock advantages both
    domestically and internationally;
    Management of our North American and international assets to
    realize a rate of return that meets or exceeds our cost of
    capital throughout the business cycle;
    Maintenance of our facilities to be safe, reliable and
    environmentally compliant, cultivation of relationships with
    natural customers who, due to their physical location, can
    receive our product most economically, and close management of
    the supply chain to keep storage, transportation and other costs
    at an appropriate level; and
    Continued evaluation of business opportunities in nitrogen
    markets and businesses that leverage Terras core
    competencies in chemical manufacturing, distribution and product
    application.  Recent
    Business Environment
    Demand
    Supply
    Natural Gas
    Costs
   30




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##### Table of Contents



December 31,

March 31,

June 30,

September 30,

December 31,(in $ per MMBtu)

2007

2008

2008

2008

2008$
7.81


$
10.50


$
13.22


$
7.90


$
6.09     Strategy
    Effectiveness
    
    Achieve record production, earnings and cash flows for Terra and
    our stockholders;
    Provide returns to shareholders in the form of dividends and
    stock buybacks of $186 million;
    Initiate construction on the Woodward, Oklahoma upgrade project
    that will convert merchant ammonia into higher margin upgraded
    UAN;
    Grow the environmental business through Terra Environmental
    Technologies and complete a national distribution agreement to
    supply diesel emission fluid (DEF) to a fast-growing market;
    Receive cash consideration from joint venture operations of
    $161 million;
    Finalize the sale of the Beaumont, Texas methanol facility and
    receive consideration of $47 million;
    Maintain substantially funded pension plans during the recent
    market turmoil; and
    End the year with cash balances of $967 million, which
    included customer prepayments of $112 million. 31




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Results
    of Operations
  Consolidated
    Results
      Year ended December 31,

2008-2007

2007-2006(in millions, except per share data)

2008

2007

2006

Change

Percent

Change

PercentNet sales

$
2,891.5


$
2,342.9


$
1,819.7



548.6



23
%


523.2



29
%Cost of goods sold


2,028.3



1,815.4



1,701.2



212.8



12
%


114.2



7
%Gross margin


863.2



527.5



118.5



335.7



64
%


409.0



345
%Gross margin percentage


29.9
%


22.5
%


6.5
%


7.3
%


NM



16.0
%


NMSelling, general and administrative expenses


70.7



92.0



68.4



(21.2
)


(23
)%


23.6



34
%Equity in earnings of unconsolidated affiliates


(56.2
)


(16.2
)


(17.0
)


(40.0
)


247
%


0.8



(5
)%Operating earnings


848.7



451.7



67.1



397.0



88
%


384.6



573
%Interest expense, net


(4.0
)


(11.8
)


(41.5
)


7.8



(66
)%


29.7



(71
)%Loss on early retirement of debt






(38.8
)






38.8



NM



(38.8
)


NMIncome before income taxes and minority interest


844.7



401.1



25.6



443.7



111
%


375.5



1,466
%Income tax provision


(239.9
)


(127.3
)


(9.6
)


(112.5
)


88
%


(117.7
)


1,228
%Minority interest


(67.7
)


(50.3
)


(11.3
)


(17.4
)


35
%


(39.0
)


346
%Equity earnings of unconsolidated affiliates


95.6



(2.7
)






98.3



NM



(2.7
)


NMIncome from continuing operations


632.8



220.8



4.7



412.0



187
%


216.0



NMIncome (loss) from discontinued operations, net of tax


8.3



(18.9
)


(0.5
)


27.1



(144
)%


(18.3
)


NMNet Income


641.0



201.9



4.2



439.1



218
%


197.7



NMDiluted earnings per share

$
6.20


$
1.90


$
(0.01
)Weighted average diluted shares outstanding (in thousands)


103,359



106,454



92,676  32




---



##### Table of Contents



2008

2007

2006(quantities in

Sales

Average

Sales

Average

Sales

Averagethousands of tons)

Volumes

Unit
    Price(1)

Volumes

Unit
    Price(1)

Volumes

Unit
    Price(1)Ammonia(2)


1,670


$
552



1,765


$
337



1,628


$
313UAN32% basis


3,917


$
335



4,072


$
226



3,408


$
160Urea(3)


249


$
467



247


$
333



244


$
269Ammonium
    nitrate(2)(4)


990


$
309



968


$
224



769


$
203    (1)
    After deducting $159.0 million, $137.3 million and
    $118.6 million outbound freight costs for 2008, 2007 and
    2006, respectively.(2)
    Ammonia and ammonium nitrate (AN) sales volumes and prices have
    been adjusted to exclude Terras U.K. operations for
    comparability to 2008 volumes and pricing.(3)
    Urea sales volumes and prices include granular urea and urea
    solutions data.(4)
    Ammonium nitrate sales volumes and prices include agricultural
    grade AN, industrial grade AN (IGAN) and ammonium nitrate
    solution (ANS). 33




---



##### Table of Contents



Results
    of Operations2008 Compared with 2007
      Summary of Significant Accounting Policies Financial Statements and Supplementary Data Form 10-K.
    Discontinued
    Operations
      Selling, General
    and Administrative Costs
   34




---



##### Table of Contents



Equity Earnings
    of Unconsolidated AffiliatesNorth America
    Equity Earnings
    of Unconsolidated AffiliatesGrowHow
    Minority
    Interest
    Income
    Taxes
      Income Taxes Financial Statements and
    Supplementary Data Form 10-K.
  Results
    of Operations2007 Compared with 2006
   35




---



##### Table of Contents



Selling, General
    and Administrative Costs
    Equity Earnings
    of Unconsolidated AffiliatesNorth America
    Equity Earnings
    of Unconsolidated AffiliatesGrowHow
    Interest
    Income
    Interest Expense
    and Loss on Early Retirement of Debt
    Income
    Taxes
  non-U.S. subsidiaries.
 36




---



##### Table of Contents



Liquidity
    and Capital Resources
  Summary
      Cash
    Flows
    Total cash provided by (used in):

2008


2007


2006Operating activities

$
483.1


$
747.9


$
159.3Investing activities


51.6



(94.5
)


(48.8
)Financing activities


(262.2
)


(133.6
)


(19.7
)Effect of exchange rate changes on cash


(4.0
)


(0.6
)


1.9Increase (decrease) in cash and cash equivalents

$
268.5


$
519.2


$
92.7   Operating
    Activities
      Investing
    Activities
   37




---



##### Table of Contents



Financing
    Activities
    Long-term Debt
    and Revolving Credit Facilities
  7 8 1 2
        Quantitative and
    Qualitative Disclosures about Market Risk.
   38




---



##### Table of Contents



Preferred Shares
    and Common Stock
        Share
    Repurchases
    Total Number ofTotal





Shares Purchased as


Maximum Number ofMonth of

Number of


Average


Part of Publicly


Shares that May Yet BeShare

Shares


Price Paid


Announced Plans or


Purchased Under thePurchases

Purchased


per Share


Programs


Plans or ProgramsMay 2008


189,150


$
39.65



189,150



12,652,567August 2008


772,180



45.91



961,330



11,880,387September 2008


1,626,355



39.69



2,587,685



10,254,032October 2008


200,000



21.90



2,787,685



10,054,032November 2008


2,605,370



17.51



5,393,055



7,448,662   Capital
    Expenditures
   39




---



##### Table of Contents



Off-Balance
    Sheet Transactions
      Contractual
    Obligations
    (in millions)





Payments Due InTotal

2009

2010-2011

2012-2013

ThereafterLong-term debt

$
330.0


$



$



$



$
330.0Interest expense on long-term debt


184.8



23.1



46.2



46.2



69.3Operating leases


141.1



40.0



65.9



28.4



6.8Ammonia purchase
    obligations(1)


1,470.8



147.1



294.2



294.2



735.3Natural gas and other purchase obligations


357.6



307.0



38.9



11.7



Total(2)

$
2,484.3


$
517.2


$
445.2


$
380.5


$
1,141.4   1.
    We have a contractual obligation to purchase one-half of the
    ammonia produced by Point Lisas. The purchase price is based on
    the average market price of ammonia, F.O.B. Caribbean, less a
    discount. Obligations in the above table are based on purchasing
    360,000 short tons per year at the December 2008 average price
    paid. This contract expires in October 2018.2.
    The total contractual obligations and commitments do not include
    a FIN 48 liability of $35.9 million. (See
    Note 21, Unrecognized Tax Benefit, to our
    Consolidated Financial Statements included in Item 8,
    Financial Statements and Supplemental Data, of this
    Annual Report on
    Form 10-K.) 40




---



##### Table of Contents



Pension Assets
    and Liabilities
    and/or Retirement Benefit Plans Financial Statements and Supplementary Data, Form 10-K
  Environmental,
    Health and Safety
      Minority
    Interest
   41




---



##### Table of Contents



Application
    of Critical Accounting Policies and Estimates
  Summary of Significant Accounting Policies Financial Statements and Supplemental
    Data Form 10-K
  Derivative and
    Financial Instruments
       42




---



##### Table of Contents



Revenue
    Recognition
    Inventory
    Valuation
  first-in,
  Pension Assets
    and Liabilities
    Deferred Income
    Taxes
  Accounting for Income Taxes
 43




---



##### Table of Contents



Plant Turnaround
    Costs
  and/or
  and/or and/or
  Impairment of
    Long-Lived Assets
   44




---



##### Table of Contents



Recently Issued
    Accounting Standards
  Business Combinations
  Interests in Consolidated Financial Statements
  , Disclosures
    about Derivative Instruments and Hedging Activities
  No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based
    Payment Transactions Are Participating Securities EITF 03-6-1). Earnings per Share EITF 03-6-1
  Employers Disclosures about Postretirement Benefit Plan
    Assets
 45




---



##### Table of Contents



Form 10-K
  Item 7A.
    Quantitative
    and Qualitative Disclosures About
    Market Risk   Risk
    Management and Financial Instruments
  Derivative Financial
    Instruments Financial Statements and
    Supplementary Data, Form 10-K
      Foreign Currency
    Fluctuations
    Natural Gas
    PricesNorth American Operations
   46




---



##### Table of Contents



Natural Gas
    PricesTrinidad Operation
    Nitrogen
    Prices
    Interest Rate
    Fluctuations
    Interest
    Rate Sensitivity
  (in millions)

Expected Maturity Date2009

2010

2011

2012

2013

Thereafter

Total

Fair ValueLong-Term DebtSenior Unsecured Notes
    fixed rate of 7% ($US)

$



$



$



$



$



$
330.0


$
330.0


$
241.3Short-Term BorrowingsRevolving credit facility notional amount ($US)

$



$



$



$



$



$



$



$
150.0Variable interest rate, LIBOR based






























TNLP revolving credit facility, notional amount ($US)

$



$







$



$



$



$



$
50.0Variable interest rate, LIBOR based






























  47




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data   Form 10-K
    48




---



##### Table of Contents



Report
    of Independent Registered Public Accounting Firm
          Employers Accounting
    for Defined Benefit Pension and Other Postretirement Plans
  Internal ControlIntegrated Framework
  
     49




---



##### Table of Contents



Consolidated
    Statements of Financial Position
  At December 31,(in thousands)

2008


2007AssetsCash and cash equivalents

$
966,700


$
698,238Accounts receivable, less allowance for 
    doubtful accounts of $290 and $264


130,390



171,183Inventories


197,091



129,321Margin deposits with derivative counterparties


36,945



638Other current assets


61,338



28,195Current assets of discontinued operations (Note 2)






2,335Total current assets


1,392,464



1,029,910Property, plant and equipment, net


403,313



389,728Equity method investments


270,915



351,986Deferred plant turnaround costs, net


23,467



42,190Other assets


22,858



31,484Noncurrent assets of discontinued operations (Note 2)






43,029Total assets

$
2,113,017


$
1,888,327LiabilitiesAccounts payable

$
99,893


$
110,687Customer prepayments


111,592



299,351Derivative hedge liabilities


125,925



14,733Accrued and other current liabilities


127,770



87,922Current liabilities of discontinued operations (Note 2)






4,993Total current liabilities


465,180



517,686Long-term debt


330,000



330,000Deferred taxes


61,443



99,854Pension liabilities


9,170



9,268Other liabilities


78,553



84,876Minority interest


107,856



109,729Noncurrent liabilities of discontinued operations (Note 2)






739Total liabilities and minority interest


1,052,202



1,152,152Commitments and contingencies(Note 13)






Preferred Sharesliquidation value of 
    $1,600 and $120,000 (Note 14)


1,544



115,800Common Stockholders EquityCapital stockCommon Shares, authorized 133,500 shares;
    99,330 and 89,587 shares outstanding


152,111



142,170Paid-in capital


579,164



618,874Accumulated other comprehensive loss


(179,303
)


(45,328
)Retained earnings (accumulated deficit)


507,299



(95,341
)Total stockholders equity


1,059,271



620,375Total liabilities and stockholders equity

$
2,113,017


$
1,888,327  See accompanying Notes to the
    Consolidated Financial Statements
 50




---



##### Table of Contents



Consolidated
    Statements of Operations
  Year ended December 31,(in thousands, except per-share
    amounts)

2008


2007


2006Product revenues

$
2,880,255


$
2,335,874


$
1,816,045Other income


11,224



7,055



3,651Total Revenue


2,891,479



2,342,929



1,819,696Cost and ExpensesCost of sales


2,028,252



1,815,421



1,701,179Selling, general and administrative expense


70,736



91,971



68,391Equity in earnings of unconsolidated affiliates (Note 8)


(56,237
)


(16,209
)


(17,013
)2,042,751



1,891,183



1,752,557Income from operations


848,728



451,746



67,139Interest income


23,370



17,262



6,457Interest expense


(27,369
)


(29,100
)


(47,991
)Loss on early retirement of debt






(38,836
)


Income before income taxes and minority interest


844,729



401,072



25,605Income tax provision


(239,851
)


(127,316
)


(9,590
)Minority interest


(67,684
)


(50,281
)


(11,286
)Equity earnings of unconsolidated affiliates (Note 8)


95,578



(2,718
)


Income from continuing operations


632,772



220,757



4,729Income (loss) from discontinued operations, 
    net of tax (Note 2)


8,269



(18,861
)


(516
)Net income


641,041



201,896



4,213Inducement payment of preferred stock conversion


(5,266
)






Preferred share dividends


(3,876
)


(5,100
)


(5,100
)Income (Loss) Available to Common Stockholders

$
631,899


$
196,796


$
(887
)Earnings (loss) per sharebasic:Income from continuing operations

$
6.65


$
2.38


$
Income (loss) from discontinued operations (Note 2)


0.09



(0.21
)


(0.01
)Earnings per share

$
6.74


$
2.17


$
(0.01
)Earnings (loss) per sharediluted:Income from continuing operations

$
6.12


$
2.07


$
Income (loss) from discontinued operations (Note 2)


0.08



(0.17
)


(0.01
)Earnings per share

$
6.20


$
1.90


$
(0.01
)Weighted Average Shares Outstanding:Basic


93,827



90,575



92,676Diluted


103,359



106,454



92,676   See accompanying Notes to the
    Consolidated Financial Statements
 51




---



##### Table of Contents



Consolidated
    Statements of Cash Flows
  Year Ended December 31,(in thousands)

2008


2007


2006Operating ActivitiesNet income

$
641,041


$
201,896


$
4,213Income (loss) from discontinued operations


8,269



(18,861
)


(516
)Income from continuing operations


632,772



220,757



4,729Adjustments to reconcile income from continuing operations to
    net cash flows from operating activities:Depreciation of property, plant and equipment and amortization
    of deferred plant turnaround costs


78,854



94,784



108,069Loss on sale of property, plant and equipment


2,321







Deferred income taxes


(15,180
)


103,400



3,777Minority interest in earnings


67,684



50,281



11,286Distributions in excess of equity earnings


8,343



8,536



9,202Equity earnings of GrowHow UK Limited


(95,578
)


2,718



Non-cash loss on derivatives


39,779



1,300



933Share-based compensation


8,104



28,102



7,010Amortization of intangible and other assets


8,705



6,954



6,878Non-cash loss on early retirement of debt






4,662



Change in operating assets and liabilities:Accounts receivable


36,310



(38,180
)


16,128Inventories


(71,422
)


45,772



(14,097
)Accounts payable and customer prepayments


(197,452
)


218,081



38,173Margin deposits with derivative counterparties


(36,307
)


(601
)


7,111Other assets and liabilities, net


8,050



(12,782
)


(44,234
)Net cash flows from operating activitiescontinuing
    operations


474,983



733,784



154,965Net cash flows from operating activitiesdiscontinued
    operations


8,161



14,081



4,295Net Cash Flows from Operating Activities


483,144



747,865



159,260Investing ActivitiesCapital expenditures and plant turnaround expenditures


(89,307
)


(82,376
)


(86,137
)Changes in restricted cash










8,595Proceeds from the sale of property, plant and equipment


2,073



24



19,100Distributions received from unconsolidated affiliates


8,180



4,705



9,660Cash retained by GrowHow UK Limited






(16,788
)


Contribution settlement received from GrowHow UK Limited


27,427







Balancing consideration payment from GrowHow UK Limited


61,272







Net cash flows from investing activitiescontinued
    operations


9,645



(94,435
)


(48,782
)Net cash flows from investing activitiesdiscontinued
    operations


41,879







Net Cash Flows from Investing Activities


51,524



(94,435
)


(48,782
)Financing ActivitiesIssuance of debt






330,000



Payments under borrowing arrangements






(331,300
)


(37
)Payments for debt issuance costs






(6,444
)


Preferred share dividends paid


(3,876
)


(5,100
)


(5,100
)Inducement payment to preferred stockholders


(5,266
)






Common stock dividends paid


(28,274
)






Common stock issuances and vestings


(9,839
)


(1,424
)


363Excess tax benefits from equity compensation plans


12,122



3,317



1,255 52




---



##### Table of Contents



Consolidated
    Statements of Cash Flows (continued)
  Year Ended December 31,(in thousands)

2008


2007


2006Payments under share repurchase program


(157,500
)


(87,426
)


(18,796
)Distribution to minority interests


(69,557
)


(35,239
)


(8,861
)Changes in overdraft protection arrangements










11,443Net cash flows from financing activitiescontinued
    operations


(262,190
)


(133,616
)


(19,733
)Net cash flows from financing activitiesdiscontinued
    operations










Net Cash Flows from Financing Activities


(262,190
)


(133,616
)


(19,733
)Effect of Exchange Rate Changes on Cash


(4,016
)


(593
)


1,906Increase in Cash and Cash Equivalents


268,462



519,221



92,651Cash and Cash Equivalents at Beginning of Year


698,238



179,017



86,366Cash and Cash Equivalents at End of Year

$
966,700


$
698,238


$
179,017Supplemental cash flow information:Interest paid

$
24,256


$
23,200


$
42,150Income tax refunds received


1,455



558



Income taxes paid


200,528



22,697



1,930Supplemental schedule of non-cash investing and financing
    activities:Conversion of warrants to common stock

$
2,496


$
568


$
Conversion of preferred shares to common stock


114,256







Terra Nitrogen U.K. contributed for equity investment






213,235



Stock incentive plan










4,218Supplemental schedule of unconsolidated affiliate
    distributions received from GrowHow UK Limited:Contribution settlement and balancing consideration payments
    received


88,699







Supplemental schedule of unconsolidated affiliates
    distributions received from North America:Equity in earnings of unconsolidated affiliates

$
56,237


$
16,209


$
17,013Distributions in excess of equity earnings


8,343



8,536



9,202Distributions received from unconsolidated affiliates


8,180



4,705



9,660Total cash distributions from North American unconsolidated
    affiliates

$
72,760


$
29,450


$
35,875   See accompanying Notes to the
    Consolidated Financial Statements
 53




---



##### Table of Contents



Consolidated
    Statements of Changes in Common Stockholders
    Equity
  Accumulated





(AccumulatedOther





Deficit)Common Stock


Paid-In


Comprehensive


Unearned


Retained





Comprehensive(in thousands)

Shares


Amount


Capital


Loss


Compensation


Earnings


Total


IncomeJanuary 1, 2006


95,171


$
146,994


$
712,671


$
(70,143
)

$
(5,369
)

$
(291,250
)

$
492,903Comprehensive Income (Loss):Net income






















4,213



4,213


$
4,213Foreign currency translation adjustments














33,618











33,618



33,618Change in fair value of derivatives, net of taxes of $3,513














(6,727
)










(6,727
)


(6,727
)Pension and post-retirement benefit liabilities, net of taxes of
    $4,289














(11,850
)










(11,850
)


(11,850
)Comprehensive income





























$
19,254Adoption of SFAS 158, net of taxes of $4,650














(8,637
)










(8,637
)Preferred share dividends






















(5,100
)


(5,100
)Exercise of stock options


95



95



268















363Net vested stock


39



562



(714
)














(152
)Shares purchased and retired under share repurchase program


(2,675
)


(2,675
)


(16,121
)














(18,796
)Reclassification for adoption of SFAS 123 R










(5,369
)






5,369







Share-based compensation










3,161















3,161December 31, 2006


92,630



144,976



693,896



(63,739
)






(292,137
)


482,996Comprehensive Income (Loss):Net income






















201,896



201,896


$
201,896Foreign currency translation adjustments














(46,882
)










(46,882
)


(46,882
)Change in fair value of derivatives, net of taxes of $3,351














6,224











6,224



6,224Pension and post-retirement benefit liabilities, net of taxes of
    $8,599














15,797











15,797



15,797Transfer of U.K. pension plan to GrowHow UK Limited














43,272











43,272Comprehensive income





























$
177,035Preferred share dividends






















(5,100
)


(5,100
)Exercise of stock options


336



336



786















1,122Net vested stock


53



290



(2,836
)














(2,546
)Net conversion of warrants


568



568



(568
)














Shares purchased and retired under share repurchase program


(4,000
)


(4,000
)


(83,426
)














(87,426
)Share-based compensation










11,022















11,022December 31, 2007


89,587


$
142,170


$
618,874


$
(45,328
)

$



$
(95,341
)

$
620,375   54




---



##### Table of Contents



Consolidated
    Statements of Changes in Common Stockholders Equity
    (continued)
  AccumulatedOtherCommon Stock

Paid-In

Comprehensive

Retained



Comprehensive(in thousands)

Shares

Amount

Capital

Loss

Earnings

Total

IncomeComprehensive Income (Loss):Net income





$



$



$



$
641,041


$
641,041


$
641,041Foreign currency translation adjustments














(98,308
)






(98,308
)


(98,308
)Change in fair value of derivatives, net of taxes of ($22,157)














(34,487
)






(34,487
)


(34,487
)Pension and post-retirement benefit liabilities, net of taxes of
    ($1,947)














(1,180
)






(1,180
)


(1,180
)Comprehensive income

























$
507,066Preferred share dividends


















(3,876
)


(3,876
)Common stock dividends


















(28,274
)


(28,274
)Excess tax benefit










14,603











14,603Exercise of stock options


11



11



23











34Net vested stock


277



475



(12,897
)










(12,422
)Net conversion of warrants


2,961



2,961



(413
)










2,548Inducement of preferred stock


11,887



11,887



102,368







(5,266
)


108,989Shares purchased and retired under the share repurchase program


(5,393
)


(5,393
)


(152,107
)










(157,500
)Share-based compensation










8,713











8,713Adoption of SFAS 158 measurement to date


















(985
)


(985
)December 31, 2008


99,330


$
152,111


$
579,164


$
(179,303
)

$
507,299


$
1,059,271   See accompanying Notes to the
    Consolidated Financial Statements
 55




---



##### Table of Contents



Notes to the
    Consolidated Financial Statements
   1. Summary of
    Significant Accounting Policies
  Basis of presentation:
  Description of business:
  Foreign exchange:
  Cash and cash equivalents:
  Inventories: first-in,
  first-in,
    Property, plant and equipment:
  Plant turnaround costs: and/or
 56




---



##### Table of Contents



and/or and/or
            Equity investments: step-up
 57




---



##### Table of Contents



Intangible asset  customer relationships:
    Debt issuance costs:
  Impairment of long-lived assets:
  Discontinued
    Operations
  Derivatives and financial instruments:
 58




---



##### Table of Contents



Revenue recognition:
      Cost of sales and hedging transactions:
  Share-based compensation: Share-Based Payment, Accounting for Stock Issued to Employees Share-Based Compensation,
  Per share results:
  Estimates:
 59




---



##### Table of Contents



Recently issued accounting standards: Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements
  Disclosures
    about Derivative Instruments and Hedging Activities
  No. EITF 03-6-1, Determining Whether Instruments Granted in Share Based
    Payment Transactions Are Participating Securities EITF 03-6-1). Earnings per Share EITF 03-6-1
  Employers Disclosures about Postretirement Benefit Plan
    Assets,
 60




---



##### Table of Contents



Form 10-K
  2. Discontinued
    Operations
    Accounting for the Impairment or Disposal of
    Long-Lived Assets, asset-by-asset
  Summarized
    Financial Results of Discontinued Operations
  Year Ended December 31,(in thousands)

2008


2007


2006Operating revenue

$
18,333


$
17,137


$
17,026Operating and other expenses


(4,574
)


(48,519
)


(17,885
)Pretax income (loss) from operations of discontinued components


13,759



(31,382
)


(859
)Income tax (expense) benefit


(5,490
)


12,521



343Income (loss) from discontinued operations

$
8,269


$
(18,861
)

$
(516
)  61




---



##### Table of Contents



December 31,

December 31,(in thousands)

2008

2007Trade receivables

$


$
45Inventory





2,203Other current assets





87Current assets

$


$
2,335Property, plant and equipmentnet

$


$
42,212Other non-current assets





817Noncurrent assets

$


$
43,029Accounts payable

$


$
18Other current liabilities





4,975Current liabilities

$


$
4,993Other noncurrent liabilities




$
739Noncurrent liabilities

$


$
739   3. Earnings Per
    Share
      (in thousands, except per-share
    data)

2008


2007


2006Basic income per share computation:Income from continuing operations

$
632,772


$
220,757


$
4,729Less: Preferred share dividends


(3,876
)


(5,100
)


(5,100
)Inducement of preferred shares


(5,266
)






Income from continuing operations available to common
    stockholders


623,630



215,657



(371
)Income (loss) from discontinued operations available to common
    stockholders


8,269



(18,861
)


(516
)Income (loss) available to common stockholders

$
631,899


$
196,796


$
(887
)Weighted average shares outstanding


93,827



90,575



92,676Income per sharecontinuing operations

$
6.65


$
2.38


$
Income (loss) per sharediscontinued operations


0.09



(0.21
)


(0.01
)Net income (loss) per share

$
6.74


$
2.17


$
(0.01
) 62




---



##### Table of Contents



(in thousands, except per-share
    data)

2008


2007


2006Diluted income (loss) per share computation:Income from continuing operations available to common
    stockholders

$
623,630


$
215,657


$
(371
)Add: Preferred share dividends


3,876



5,100



Inducement of preferred shares


5,266







Income (loss) available to common stockholders and assumed
    conversions

$
632,772


$
220,757


$
(371
)Weighted average shares outstanding


93,827



90,575



92,676Add incremental shares from assumed conversions:Preferred Shares


8,090



12,048



Nonvested stock


619



823



Common stock options


1



111



Common stock warrants


822



2,897



Dilutive potential common shares


103,359



106,454



92,676Income per sharecontinuing operations

$
6.12


$
2.07


$
Income (loss) per sharediscontinued operations


0.08



(0.17
)


(0.01
)Net income (loss) per share

$
6.20


$
1.90


$
(0.01
)       Common Stockholders
    Equity,
  
    11,887,550 shares of Terra common stock; and
    A cash premium of approximately $5.3 million     63




---



##### Table of Contents



4.
    Inventories
    (in thousands)

2008

2007Raw materials

$
17,805


$
17,765Supplies


33,825



35,909Finished goods


145,461



75,647Total

$
197,091


$
129,321   5. Derivative
    Financial Instruments
        1.
    The item to be hedged must expose us to currency, interest or
    price risk;2.
    It must be probable that the results of the hedge position
    substantially offset the effects of currency, interest or price
    changes on the hedged item (i.e., there is a high correlation
    between the hedge position and changes in market value of the
    hedge item); and3.
    The derivative financial instrument must be designated as a
    hedge of the item at the inception of the hedge.   64




---



##### Table of Contents



Other


OtherCurrent


Current


Deferred


Net Asset(in thousands)

Assets


Liabilities


Taxes


(Liability)December 31, 2008

$
25,773


$
(125,925
)

$
25,181


$
(74,971
)December 31, 2007


4,798



(14,733
)


3,022



(6,913
)            65




---



##### Table of Contents



Years Ended December 31,2008


2007(in thousands)

Gross


Net of tax


Gross


Net of taxBeginning accumulated loss

$
(8,635
)

$
(5,612
)

$
(18,210
)

$
(11,836
)Reclassification into earnings


172,521



105,002



53,665



34,882Net increase (decrease) in market value


(229,165
)


(139,489
)


(44,090
)


(28,658
)Ending accumulated loss

$
(65,279
)

$
(40,099
)

$
(8,635
)

$
(5,612
)     6.
    Fair Value
    Measurements, Financial Instruments and Concentrations of
    Credit Risk  Fair Value
    Measurements No. 157-2, Effective Date of FASB Statement No. 157,
      
    Level 1inputs to the valuation methodology are
    unadjusted quoted prices for identical assets or liabilities in
    active markets.
    Level 2inputs to the valuation methodology include
    quoted prices for similar assets and liabilities in active
    markets, and inputs that are observable for the asset or
    liability, either directly or indirectly, for substantially the
    full term of the financial instrument. 66




---



##### Table of Contents




    Level 3inputs to the valuation methodology are
    unobservable and significant to the fair value measurement.      Quoted Market


Significant Other


SignificantPrices in


Observable


UnobservableActive Markets


Inputs


Inputs(in thousands)

(Level 1)


(Level 2)


(Level 3)AssetsDerivative contracts

$



$
25,773


$
Total

$



$
25,773


$
LiabilitiesDerivative contracts

$



$
(125,925
)

$
Total

$



$
(125,925
)

$
     2008


2007Carrying


Fair


Carrying


Fair(in millions)

Amount


Value


Amount


ValueFinancial AssetsCash and cash equivalents

$
966.7


$
966.7


$
698.2


$
698.2Margin deposits with derivative counterparties


36.9



36.9



0.6



0.6Financial liabilitiesLong-term debt


330.0



241.3



330.0



325.1Preferred shares


1.5



2.7



115.8



580.9     
    Cash and receivables: The carrying amounts approximate
    fair value because of the short maturity of those instruments.
    Long-term debt: The fair value of our long-term debt is
    estimated by discounting expected cash flows at the rates
    currently offered for debt of the same remaining maturities.
    Preferred shares: Preferred shares are valued on the
    basis of market quotes, when available and management estimates
    based on comparisons with similar instruments that are publicly
    traded.  Concentration of Credit Risk:
 67




---



##### Table of Contents



Financial Instruments:
  7. Property,
    Plant and Equipment, Net
    (in thousands)

2008


2007Land

$
8,416


$
8,561Buildings and improvements


57,352



54,083Plant and equipment


862,057



860,652Construction in progress


46,383



7,734974,208



931,030Less accumulated depreciation and amortization


(570,895
)


(541,302
)Total

$
403,313


$
389,728     8. Equity
    Investments
  Trinidad and
    United States
  2 2
    (in thousands)

2008

2007

2006Condensed income statement information:Net sales

$
380,540


$
151,723


$
171,906Net income

$
123,019


$
38,411


$
44,751Terras equity in earnings
    of unconsolidated affiliates

$
56,237


$
16,209


$
17,013   68




---



##### Table of Contents



(in thousands)

2008

2007Condensed balance sheet information:Current assets

$
50,582


$
45,110Long-lived assets


173,631



191,394Total assets

$
224,213


$
236,504Current liabilities

$
20,212


$
25,905Long-term liabilities


19,380



9,511Equity


184,621



201,088Total liabilities and equity

$
224,213


$
236,504   step-up
      United
    Kingdom
     69




---



##### Table of Contents



(in thousands)

2008


2007Condensed income statement information:Net sales

$
1,111,272


$
233,103Net income

$
191,781


$
4,253Terras equity in earnings (losses)
    of unconsolidated affiliates

$
95,578


$
(2,718
)Condensed balance sheet information:Current assets

$
212,992


$
281,021Long-lived assets


239,589



269,116Total assets

$
452,581


$
550,137Current liabilities

$
86,471


$
190,371Long-term liabilities


132,754



174,405Equity


233,356



185,361Total liabilities and equity

$
452,581


$
550,137       9. Revolving
    Credit Facility and Long-Term Debt
    (in thousands)

2008

2007Unsecured Senior Notes, 7.0%
    due 2017

$
330,000


$
330,000Less current maturities






Total long-term debt
    and and capital lease obligations

$
330,000


$
330,000  70




---



##### Table of Contents



Guarantor Subsidiaries,
           71




---



##### Table of Contents



10. Turnaround
    Costs
    Turnaround



CurrencyBeginning

Costs

Turnaround

Translation

Ending(in thousands)

Balance

Capitalized

Amortization

Adjustments

BalanceYear ended:December 31, 2008

$
42,190


$
10,125


$
(27,017
)

$
(1,831
)

$
23,467   11. Accrued and
    Other Current Liabilities
    (in thousands)

2008

2007Income taxes payable

$
63,999


$
15,620Payroll and benefit costs


27,104



24,471Accrued interest


9,748



9,755Current accrued phantom shares


4,341



10,074Other


22,578



28,002Total

$
127,770


$
87,922   12. Other
    Liabilities
    (in thousands)

2008

2007Unrecognized tax benefit (See Note 21)

$
35,949


$
33,560Long-term medical and
    closed facilities reserve


23,887



24,368Accrued phantom shares


2,430



9,231Long-term deferred revenue


10,488



10,885Other


5,799



6,832Total

$
78,553


$
84,876  72




---



##### Table of Contents



13. Commitments
    and Contingencies
      (in thousands)2009

$
40,0062010


38,1842011


27,7172012


22,7292013


5,7032014 and thereafter


6,785Net minimum lease payments

$
141,124       (in thousands)2009

$
454,1312010


171,2892011


161,7622012


158,4572013


147,3532014 and thereafter


735,300Total obligations

$
1,828,292      73




---



##### Table of Contents



Accounting for
    Conditional Asset Retirement Obligations
   74




---



##### Table of Contents



14. Preferred
    Shares
    2008

2007Number

Carrying

Number

Carrying(in thousands)

of shares

Value

of shares

ValueSeries A Preferred Shares
    (120,000 shares authorized,
    $1,000 per share liquidation value)


1,600


$
1,544



120,000


$
115,800       
    11,887,550 shares of Terra common stock; and
    A cash premium of approximately $5.3 million.    15. Common
    Stockholders Equity
     75




---



##### Table of Contents



(in thousands)

2008


2007January 1 warrants outstanding


3,288



4,000Exercised


3,288



712December 31 warrants outstanding






3,288       WeightedNumber of

Average Price

Total Cost(in thousands, except average

Shares

of Shares

of Sharesprice of shares repurchased)

Repurchased

Repurchased

RepurchasedMay 2008


189


$
39.65


$
7,500August 2008


772



45.91



35,448September 2008


1,626



39.69



64,552October 2008


200



21.90



4,379November 2008


2,606



17.51



45,6215,393


$
29.20


$
157,500   Preferred
    Shares
  16. Share-Based
    Compensation
     76




---



##### Table of Contents



Share-Based Payment
    Year Ended December 31,(in thousands)

2008


2007


2006Compensation cost charged to SG&A expense

$
8,104


$
31,452


$
7,010Total compensation cost charged to income

$
8,104


$
31,452


$
7,010Income tax benefit

$
2,836


$
11,008


$
2,454   Stock
    Options
      WeightedAverageExercise(options in thousands)

Number


PriceOutstandingbeginning of period


11


$
3.17Exercised


(11
)


3.17Outstandingend of period





$
  77




---



##### Table of Contents



Nonvested Stock
    Shares and Phantom Share Awards
        WeightedAverageGrant-Date(in thousands, except fair values)

Shares


Fair ValueOutstanding at January 1, 2008


1,292


$
11.57Granted


126



46.57Vested


(516
)


10.18Terminated


(5
)


34.69Outstanding at December 31, 2008


897


$
14.49       17. Retirement
    Benefit Plans
   78




---



##### Table of Contents



Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans
      (in thousands)

2008


2007


2006Service cost

$
3,665


$
3,113


$
2,991Interest cost


23,239



17,648



24,926Adjustment for measurement date change


(5,380
)






Expected return on plan assets


(18,804
)


(18,063
)


(24,224
)Amortization of prior service cost


(37
)


(36
)


(36
)Amortization of actuarial loss


646



1,871



5,636Termination charge










492Pension expense

$
3,329


$
4,533


$
9,785    79




---



##### Table of Contents



(in thousands)

U.S.

Canada

TotalChange in Projected Benefit Obligation Present ValueProjected benefit obligationbeginning of year

$
253,446


$
52,171


$
305,617Service cost


2,134



1,531



3,665Interest cost


19,808



3,431



23,239Actuarial gain


(4,118
)


(4,501
)


(8,619
)Foreign currency exchange rate changes






(10,131
)


(10,131
)Benefits paid


(19,435
)


(2,331
)


(21,766
)Projected benefit obligationend of year


251,835



40,170



292,005Change in Plan AssetsFair value plan assetsbeginning of year


250,319



56,000



306,319Actual return on plan assets


12,137



(3,395
)


8,742Foreign currency exchange rate changes






(10,634
)


(10,634
)Employer contribution


688



1,902



2,590Benefits paid


(19,435
)


(2,331
)


(21,766
)Fair value plan assetsend of year


243,709



41,542



285,251Funded Status


(8,126
)


1,372



(6,754
)Unrecognized net actuarial loss


18,394



9,147



27,541Unrecognized prior service cost


(236
)






(236
)Prepaid benefit cost

$
10,032


$
10,519


$
20,551  80




---



##### Table of Contents



(in thousands)

U.S.

Canada

TotalChange in Projected Benefit Obligation Present ValueProjected benefit obligationbeginning of year

$
260,597


$
44,040


$
304,637Service cost


1,809



1,304



3,113Interest cost


15,159



2,489



17,648Actuarial (gain) loss


(9,169
)


(2,644
)


(11,813
)Foreign currency exchange rate changes






8,171



8,171Benefits paid


(14,950
)


(1,189
)


(16,139
)Projected benefit obligationend of year


253,446



52,171



305,617Change in Plan AssetsFair value plan assetsbeginning of year


191,463



35,940



227,403Actual return on plan assets


25,347



2,614



27,961Foreign currency exchange rate changes






7,824



7,824Employer contribution


48,459



10,811



59,270Benefits paid


(14,950
)


(1,189
)


(16,139
)Fair value plan assetsend of year


250,319



56,000



306,319Funded Status


(3,127
)


3,829



702Unrecognized net actuarial loss


14,933



9,265



24,198Unrecognized prior service cost


(282
)






(282
)Prepaid benefit cost

$
11,524


$
13,094


$
24,618     (in thousands)

2008

2007Accrued (prepaid) benefit cost

$
(20,551
)

$
(24,617
)Accumulated other comprehensive loss


17,179



15,638Deferred tax asset


10,126



8,277Funding subsequent to valuation






Amount recognized


6,754



(702
)Pension liability


3,275



10,653Less: current portion


(859
)


(683
)Pension liabilities

$
9,170


$
9,268      81




---



##### Table of Contents



2008

2007

2006Weighted average discount rate


6.7%


6.3%


5.5%Long-term per annum compensation increase


4.1%


3.6%


3.3%Long-term return on plan assets


6.6%


5.4%


7.6%         2008


2007Asset AllocationEquities


11.3%



23.4%Bonds


81.7%



23.9%Cash equivalents


7.0%



52.7%100.0%



100.0%     (in thousands)

PaymentsEstimated Future Benefit Payments2009

$
18,5052010


19,2262011


19,9182012


20,7132013


21,5772014-2018


119,760  82




---



##### Table of Contents



(in thousands)Net actuarial loss

$
27,442Net prior service cost (credit)


(236
)Net transition obligation (asset)


$
27,206     (in thousands)Amortization of net transition obligation

$
Amortization of prior service cost


(38
)Amortization of net losses


912$
874     18.
    Post-Retirement Benefits
   83




---



##### Table of Contents



(in thousands)

2008

2007Change in Benefit ObligationProjected benefit obligationbeginning of year

$
5,235


$
5,464Service cost


17



12Interest cost


397



311Participants contributions


194



181Actuarial loss


183



5Foreign currency exchange rate changes


(198
)


159Benefits paid


(1,126
)


(897
)Projected benefit obligationend of year


4,702



5,235Change in Plan AssetsFair value plan assetsbeginning of year






Employer contribution


932



716Participants contributions


194



181Benefits paid


(1,126
)


(897
)Fair value plan assetsend of year






Funded Status


(4,702
)


(5,235
)Unrecognized net actuarial gain


1,645



1,583Unrecognized prior service cost


605



692Employer contribution






179Accrued benefit cost

$
(2,452
)

$
(2,781
)     (in thousands)

2008

2007

2006Service cost

$
17


$
12


$
11Interest cost


397



311



228Adjustment for measurement date change


(65
)






Amortization of prior service cost


69



69



77Amortization of actuarial gain


96



89



Post-retirement medical benefit expense

$
514


$
481


$
316      84




---



##### Table of Contents



(in thousands)

Payments2009

$
4822010


4792011


5122012


5482013


5402014-2017


2,783       (in thousands)Net actuarial loss

$
1,645Net prior service cost


605Net transition obligation


$
2,250     (in thousands)Amortization of net transition obligation

$
Amortization of prior service cost


69Amortization of net losses


102$
171   19. Accumulated
    Other Comprehensive Income (Loss)
   85




---



##### Table of Contents



Foreign





Pension andCurrency





Post-retirementTranslation


Fair Value of


Benefit(in thousands)

Adjustment


Derivatives


Liabilities


TotalBalance January 1, 2006

$
(9,100
)

$
(5,109
)

$
(55,934
)

$
(70,143
)Change in foreign currency translation adjustment


33,618











33,618Reclassification to earnings






31,693







31,693Change in fair value of derivatives






(38,420
)






(38,420
)Change in pension and post-retirement benefit liabilities










(11,850
)


(11,850
)Adoption of SFAS 158










(8,637
)


(8,637
)Balance December 31, 2006


24,518



(11,836
)


(76,421
)


(63,739
)Change in foreign currency translation adjustment


(46,882
)










(46,882
)Reclassification to earnings






34,882







34,882Change in fair value of derivatives






(28,658
)






(28,658
)Change in pension and post-retirement benefit liabilities










15,797



15,797Transfer of U.K. pension plan to GrowHow UK Limited










43,272



43,272Balance December 31, 2007


(22,364
)


(5,612
)


(17,352
)


(45,328
)Change in foreign currency translation adjustment


(98,308
)










(98,308
)Reclassification to earnings






105,002







105,002Change in fair value of derivatives






(139,489
)






(139,489
)Change in pension and post-retirement benefit liabilities










(1,180
)


(1,180
)Balance December 31, 2008

$
(120,672
)

$
(40,099
)

$
(18,532
)

$
(179,303
)  86




---



##### Table of Contents



20. Income
    Taxes
    (in thousands)

2008

2007

2006Current:Federal

$
210,635


$
3,892


$
1,020International


24,678



6,056



4,351State


19,718



13,968



442255,031



23,916



5,813Deferred:Federal


(11,974
)


87,209



6,417International


3,246



14,653



(2,710
)State


(6,452
)


1,538



70(15,180
)


103,400



3,777Total income tax provision

$
239,851


$
127,316


$
9,590     (in thousands)

2008

2007

2006Income before income taxes:Domestic

$
687,718


$
270,857


$
7,429International


184,905



77,216



6,890872,623



348,073



14,319Statutory income tax expense:Domestic


270,541



108,071



2,775International


29,392



24,699



2,841299,933



132,770



5,616Effects of international restructuring


(33,299
)






State and federal tax credits


(19,510
)






Domestic production activity deduction


(13,275
)






Reduction to foreign tax rates


(507
)


(4,043
)


Foreign exchange gain










3,553Valuation allowance


414



4,178



(367
)Foreign tax credit






(6,765
)


Other


6,095



1,176



788Income tax expense

$
239,851


$
127,316


$
9,590  87




---



##### Table of Contents



(in thousands)

2008

2007Current deferred tax assetAccrued liabilities

$
6,428


$
2,736Inventory valuation


760



354Unsettled derivative losses






3,223Net current deferred tax asset


7,188



6,313Non-current deferred tax liabilityDepreciation


(94,467
)


(125,183
)Investments in partnership


(1,195
)


(7,301
)Investment in affiliates


(2,578
)


(43,596
)Intangible asset


(732
)


(1,480
)Unfunded employee benefits


(5,723
)


13,992Discontinued business costs


8,664



8,920Deferred revenueslong-term


4,079



NOL, capital loss and tax credit carryforwards


32,633



74,283Valuation allowance


(32,154
)


(31,740
)Accumulated other comprehensive income


36,203



12,097Other, net


(6,173
)


154Net noncurrent deferred tax liability


(61,443
)


(99,854
)Net deferred tax liability

$
(54,255
)

$
(93,541
)       21. Unrecognized
    Tax Benefit
  Accounting for Uncertainty to Income Taxes
 88




---



##### Table of Contents



(in thousands)

TotalUnrecognized tax benefits at January 1, 2008

$
33,560Gross increases (decreases)tax positions in prior periods


Gross increases (decreases)tax positions in current period


Decreases relating to settlements with tax authorities


Decreases from the lapse of applicable statue of limitations


Unrecognized tax benefits at December 31, 2008

$
33,560Accrued interest and penalties


2,389Total FIN 48 liability

$
35,949   Equity Investments
      22. Industry
    Segment Data
      Revenues

Long-lived AssetsYear Ended December 31,

December 31,(in thousands)

2008

2007

2006

2008(1)

2007(1)

2006United States

$
2,785,269


$
1,954,060


$
1,380,968


$
523,968


$
572,329


$
663,994Canada


106,210



69,760



63,902



196,585



286,088



49,637United
    Kingdom(1)






319,109



374,826











238,577$
2,891,479


$
2,342,929


$
1,819,696


$
720,553


$
858,417


$
952,208   (1)
    On September 14, 2007, we completed the formation of
    GrowHow UK Limited (GrowHow), a joint venture between Terra and
    Kemira GrowHow Oyj. Pursuant to the joint venture 89




---



##### Table of Contents



agreement, we contributed our United Kingdom subsidiary Terra
    Nitrogen (UK) Limited to the joint venture for a 50% interest.
    Subsequent to the formation, we have accounted for our
    investment in GrowHow as an equity method investment and it is
    included in our Canadian long-lived assets for the years 2008
    and 2007.  23. Minority
    interest
          24. Guarantor
    Subsidiaries
    Revolving Credit
    Facility and Long-Term Debt
   90




---



##### Table of Contents



Discontinued Operations,
  Condensed
    Consolidating Statement of Financial Position at
    December 31, 2008:
  Guarantor

Non-GuarantorParent

TCAPI

Subsidiaries

Subsidiaries

Eliminations

ConsolidatedAssetsCash and cash equivalents

$



$
331,714


$
284,658


$
350,328


$



$
966,700Accounts receivable, net


9



74



73,358



56,949







130,390Inventories










111,295



85,796







197,091Margin deposits with derivative counterparties






36,945















36,945Other current assets


23,807



10,440



13,596



13,495







61,338Current assets held for salediscontinued operations






















Total current assets


23,816



379,173



482,907



506,568







1,392,464Property, plant and equipment, net






6,037



288,449



108,827







403,313Equity method investments










10,117



260,798







270,915Deferred plant turnaround costs, intangible and other assets


2,230



7,156



21,146



15,793







46,325Investments in and advances to (from) affiliates


1,248,834



95,285



3,106,388



588,172



(5,038,679
)


Noncurrent assets held for salediscontinued operations






















Total Assets

$
1,274,880


$
487,651


$
3,909,007


$
1,480,158


$
(5,038,679
)

$
2,113,017LiabilitiesAccounts payable

$
205


$
62


$
70,473


$
29,153


$



$
99,893Customer prepayments










58,922



52,670







111,592Derivative hedge liabilities


35,254



7,476



39,880



43,315







125,925Accrued and other liabilities


51,861



8,947



42,261



24,701







127,770Current liabilities held for salediscontinued operations






















Total current liabilities


87,320



16,485



211,536



149,839







465,180Long-term debt






330,000















330,000Deferred income taxes


51,770











9,673







61,443Pension and other liabilities


74,975







10,983



1,765







87,723Minority interest






21,042



86,814











107,856Noncurrent liabilities held for salediscontinued operations






















Total liabilities and minority interest


214,065



367,527



309,333



161,277







1,052,202 91




---



##### Table of Contents



Condensed
    Consolidating Statement of Financial Position at
    December 31, 2008: (continued)
  Guarantor

Non-GuarantorParent

TCAPI

Subsidiaries

Subsidiaries

Eliminations

ConsolidatedPreferred stockliquidation value of $1,600


1,544



















1,544Common Stockholders Equity Common stock


152,111







73



83,332



(83,405
)


152,111Paid in capital


579,164



150,218



2,201,646



963,435



(3,315,299
)


579,164Accumulated other comprehensive income (loss)


(179,303
)










(170,574
)


170,574



(179,303
)Retained earnings (accumulated deficit)


507,299



(30,094
)


1,397,955



442,688



(1,810,549
)


507,299Total stockholders equity


1,059,271



120,124



3,599,674



1,318,881



(5,038,679
)


1,059,271Total liabilities and stockholders equity

$
1,274,880


$
487,651


$
3,909,007


$
1,480,158


$
(5,038,679
)

$
2,113,017  92




---



##### Table of Contents



Condensed
    Consolidating Statement of Operations for the Year Ended
    December 31, 2008:
  Guarantor

Non-GuarantorParent

TCAPI

Subsidiaries

Subsidiaries

Eliminations

ConsolidatedRevenuesProduct revenues

$



$



$
1,709,509


$
1,170,746


$



$
2,880,255Other income










8,064



3,160







11,224Total revenues










1,717,573



1,173,906







2,891,479Cost and ExpenseCost of sales






333



1,368,161



659,758







2,028,252Selling, general and administrative expenses


2,776



(11,595
)


47,326



32,229







70,736Equity (earnings) loss of unconsolidated affiliates










(58,923
)


2,686







(56,237
)Total cost and expenses


2,776



(11,262
)


1,356,564



694,673







2,042,751Income (loss) from operations


(2,776
)


11,262



361,009



479,233







848,728Interest income






13,044



777



9,549







23,370Interest expense


(1,860
)


(24,840
)


8,012



(8,681
)






(27,369
)Loss on debt






















Foreign currency gain (loss)






















Income (loss) before taxes and minority interest


(4,636
)


(534
)


369,798



480,101







844,729Income tax benefit (provision)


1,368



(104,556
)


(109,165
)


(27,498
)






(239,851
)Minority interest






(13,063
)


(54,621
)










(67,684
)Equity (earnings) loss of unconsolidated affiliates


644,309



762,462







95,578



(1,406,771
)


95,578Income from continuing operationsnet of tax


641,041



644,309



206,012



548,181



(1,406,771
)


632,772Income from discontinued operationsnet of tax










8,269











8,269Net Income (Loss)

$
641,041


$
644,309


$
214,281


$
548,181


$
(1,406,771
)

$
641,041  93




---



##### Table of Contents



Condensed
    Consolidating Statement of Cash Flows for the Year Ended
    December 31, 2008:
  Guarantor

Non-GuarantorParent

TCAPI

Subsidiaries

Subsidiaries

Eliminations

ConsolidatedOperating ActivitiesNet income (loss)

$
641,041


$
644,309


$
214,281


$
548,181


$
(1,406,771
)

$
641,041Income from discontinued operations










8,269











8,269Income (loss) from continuing operations


641,041



644,309



206,012



548,181



(1,406,771
)


632,772Adjustments to reconcile income (loss) from continuing
    operations to net cash flows from operating activities:Depreciation and amortization










43,657



35,197







78,854Loss on sale of property, plant and equipment










1,146



1,175







2,321Deferred income taxes


(15,180
)


















(15,180
)Minority interest in earnings






(362
)


68,046











67,684Distributions in excess of (less than) equity earnings


(644,309
)


(762,462
)


5,657



2,686



1,406,771



8,343Equity earningsGrowHow UK Limited














(95,578
)






(95,578
)Non-cash loss on derivatives


39,779



















39,779Share-based compensation


8,104



















8,104Amortization of intangible and other assets










5,284



3,421







8,705Change in operating assets and liabilitiescontinuing
    operations


(142,756
)


(44,363
)


(22,187
)


(51,515
)






(260,821
)Net cash flows from operating activitiescontinuing
    operations


(113,321
)


(162,878
)


307,615



443,567







474,983Net cash flows from operating activitiesdiscontinued
    operations










8,161











8,161Net Cash Flows from Operating Activities


(113,321
)


(162,878
)


315,776



443,567







483,144Investing ActivitiesCapital expenditures and plant turnaround expenditures










(77,109
)


(12,198
)






(89,307
)Proceeds from the sale of property, plant and equipment










1,666



407







2,073Distributions received from unconsolidated affiliate










8,180











8,180Contribution settlement received from GrowHow UK Limited














27,427







27,427Balancing consideration payment from GrowHow UK Limited














61,272







61,272Net cash flows from investing activitiescontinuingoperations










(67,263
)


76,908







9,645 94




---



##### Table of Contents



Condensed
    Consolidating Statement of Cash Flows for the Year Ended
    December 31, 2008: (continued)
  Guarantor

Non-GuarantorParent

TCAPI

Subsidiaries

Subsidiaries

Eliminations

ConsolidatedNet cash flows from investing activitiesdiscontinued
    operations










41,879











41,879Net Cash Flows from Investing Activities










(25,384
)


76,908







51,524Financing ActivitiesPreferred share dividends paid


(3,876
)


















(3,876
)Preferred share inducement


(5,266
)


















(5,266
)Common stock dividends paid


(28,274
)


















(28,274
)Common stock issuances and vestings


(9,839
)


















(9,839
)Change in investments and advances from (to) affiliates


305,954



438,735



(203,322
)


(1,072,883
)


531,516



Excess tax benefits from equity compensation plans


12,122



















12,122Payments under share repurchase program


(157,500
)


















(157,500
)Distributions to minority interests










(69,557
)










(69,557
)Net cash flows from financing activitiescontinuing
    operations


113,321



438,735



(272,879
)


(1,072,883
)


531,516



(262,190
)Net cash flows from financing activitiesdiscontinued
    operations






















Net Cash Flows from Financing Activities


113,321



438,735



(272,879
)


(1,072,883
)


531,516



(262,190
)Effect of Foreign Exchange Rate on Cash














(4,016
)






(4,016
)Increase (Decrease) in Cash and Cash Equivalents






275,857



17,513



(556,424
)


531,516



268,462Cash and Cash Equivalents at Beginning of Year






55,857



267,145



906,752



(531,516
)


698,238Cash and Cash Equivalents at End of Year

$



$
331,714


$
284,658


$
350,328


$



$
966,700  95




---



##### Table of Contents



Condensed
    Consolidating Statement of Financial Position at
    December 31, 2007:
  Guarantor

Non-GuarantorParent

TCAPI

Subsidiaries

Subsidiaries

Eliminations

ConsolidatedAssetsCash and cash equivalents

$



$
55,857


$
267,145


$
906,752


$
(531,516
)

$
698,238Accounts receivable, net


1



2



98,469



72,711







171,183Inventories










95,781



32,104



1,436



129,321Margin deposits with derivative counterparties






638















638Other current assets


10,614







11,127



6,454







28,195Current assets held for salediscontinued operations










2,335











2,335Total current assets


10,615



56,497



474,857



1,018,021



(530,080
)


1,029,910Property, plant and equipment, net










264,198



125,530







389,728Equity method investments










10,488



341,498







351,986Deferred plant turnaround costs, intangible and other assets


6,732



8,333



18,984



45,174



(5,549
)


73,674Investments in and advances to (from) affiliates


910,478



365,762



1,848,352



57,752



(3,182,344
)


Noncurrent assets held forsalediscontinued operations










43,029











43,029Total Assets

$
927,825


$
430,592


$
2,659,908


$
1,587,975


$
(3,717,973
)

$
1,888,327LiabilitiesAccounts payable

$
128


$



$
66,945


$
43,614


$



$
110,687Customer prepayments










125,036



174,315







299,351Derivative hedge liabilities


5,456







1,318



7,959







14,733Accrued and other liabilities


20,259



9,169



44,190



14,304







87,922Current liabilities held for salediscontinued operations










4,993











4,993Total current liabilities


25,843



9,169



242,482



240,192







517,686Long-term debt






330,000















330,000Deferred income taxes


86,157











10,113



3,584



99,854Pension and other liabilities


79,650







11,628



2,866







94,144Minority interest






21,404



88,325











109,729Noncurrent liabilities held forsalediscontinued operations










739











739Total liabilities and minority interest


191,650



360,573



343,174



253,171



3,584



1,152,152Preferred stockliquidation Value of $120,000


115,800



















115,800Common Stockholders Equity Common stock


142,170







73



32,458



(32,531
)


142,170Paid in capital


618,874



150,218



1,910,748



1,133,745



(3,194,711
)


618,874Accumulated other comprehensive income (loss)


(45,328
)










281,850



(281,850
)


(45,328
)Retained earnings (accumulated deficit)


(95,341
)


(80,199
)


405,913



(113,249
)


(212,465
)


(95,341
)Total stockholders equity


620,375



70,019



2,316,734



1,334,804



(3,721,557
)


620,375Total liabilities and stockholders equity

$
927,825


$
430,592


$
2,659,908


$
1,587,975


$
(3,717,973
)

$
1,888,327  96




---



##### Table of Contents



Condensed
    Consolidating Statement of Operations for the Year Ended
    December 31, 2007:
  Guarantor

Non-GuarantorParent

TCAPI

Subsidiaries

Subsidiaries

Eliminations

ConsolidatedRevenuesProduct revenues

$



$



$
1,181,736


$
1,154,138


$



$
2,335,874Other income










5,104



1,951







7,055Total revenues










1,186,840



1,156,089







2,342,929Cost and ExpenseCost of sales


900



345



982,627



831,548



1



1,815,421Selling, general and administrative expenses


2,179



(10,611
)


32,439



67,962



2



91,971Equity earnings of unconsolidated affiliates










(16,209
)










(16,209
)Total cost and expenses


3,079



(10,266
)


998,857



899,510



3



1,891,183Income (loss) from operations


(3,079
)


10,266



187,983



256,579



(3
)


451,746Interest income






6,093



5,077



6,092







17,262Interest expense


(1,860
)


(26,909
)


(6
)


(325
)






(29,100
)Loss on debt






(38,836
)














(38,836
)Foreign currency gain (loss)






(1,886
)


8



1,878







Income (loss) before tax and minority interests


(4,939
)


(51,272
)


193,062



264,224



(3
)


401,072Income tax benefit (provision)


1,790



(37,582
)


(70,815
)


(20,709
)






(127,316
)Minority interest






(9,704
)


(40,577
)










(50,281
)Equity (earnings) loss of unconsolidated affiliates


205,045



303,602







(2,718
)


(508,647
)


(2,718
)Income from continuing operationsnet of tax


201,896



205,044



81,670



240,797



(580,650
)


220,757Income from discontinued operationsnet of tax










(18,861
)










(18,861
)Net Income (Loss)

$
201,896


$
205,044


$
62,809


$
240,797


$
(508,650
)

$
201,896  97




---



##### Table of Contents



Condensed
    Consolidating Statement of Cash Flows for the Year Ended
    December 31, 2007:
  Guarantor


Non-GuarantorParent


TCAPI


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedOperating ActivitiesNet income (loss)

$
201,896


$
205,044


$
62,809


$
240,796


$
(508,649
)

$
201,896Loss from discontinued operations










(18,861
)










(18,861
)Income (loss) from continuing operations


201,896



205,044



81,670



240,796



(508,649
)


220,757Adjustments to reconcile income (loss) from continuing
    operations to net cash flows from operating activities:Depreciation and amortization










40,407



54,377







94,784Deferred income taxes


90,879







12,521











103,400Minority interest in earnings






2,903



47,378











50,281Distributions in excess of (less than) equity earnings


(205,045
)


(303,602
)


8,536



379,935



128,712



8,536Equity earningsGrowHowUK Limited














2,718







2,718Non-cash loss on derivatives


1,300



















1,300Share-based compensation


28,103















(1
)


28,102Amortization of intangible and other assets










3,713



3,240



1



6,954Non-cash loss on early retirement of debt






4,662















4,662Change in operating assets and liabilitiescontinuing
    operations


(83,235
)


4,952



77,745



460,091



(247,263
)


212,290Net cash flows from operating activitiescontinuing
    operations


33,898



(86,041
)


271,970



1,141,157



(627,200
)


733,784Net cash flows from operating activitiesdiscontinued
    operations










14,081











14,081Net Cash Flows from Operating Activities


33,898



(86,041
)


286,051



1,141,157



(627,200
)


747,865Investing ActivitiesCapital expenditures and plant turnaround expenditures










(18,676
)


(63,699
)


(1
)


(82,376
)Cash retained by GrowHow UK Limited














(16,788
)






(16,788
)Proceeds from the sale of property, plant and equipment










24











24Distributions received from unconsolidated affiliate










4,705











4,705Net cash flows from investing activitiescontinuingoperations










(13,947
)


(80,487
)


(1
)


(94,435
)Net Cash Flows from Investing Activities










(13,947
)


(80,487
)


(1
)


(94,435
)Financing Activities 98




---



##### Table of Contents



Condensed
    Consolidating Statement of Cash Flows for the Year Ended
    December 31, 2007: (continued)
  Guarantor


Non-GuarantorParent


TCAPI


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedIssuance of debt






330,000















330,000Payments under borrowing arrangements






(331,300
)


(1
)






1



(331,300
)Payments for debt issuance costs






(6,444
)














(6,444
)Preferred share dividends paid


(5,100
)


















(5,100
)Common stock issuances and vestings


(1,424
)


















(1,424
)Change in investments and advances from (to) affiliates


56,734



48,906



30,281



(231,607
)


95,686



Excess tax benefits from equity compensation plans


3,317



















3,317Payments under share repurchase program


(87,426
)


















(87,426
)Distributions to minority interests










(35,239
)










(35,239
)Net cash flows from financing activitiescontinuing
    operations


(33,899
)


41,162



(4,959
)


(231,607
)


95,687



(133,616
)Net Cash Flows from Financing Activities


(33,899
)


41,162



(4,959
)


(231,607
)


95,687



(133,616
)Effect of Foreign Exchange Rate Changes on Cash














(593
)






(593
)Increase (Decrease) in Cash and Cash Equivalents


(1
)


(44,879
)


267,145



828,470



(531,514
)


519,221Cash and Cash Equivalents at Beginning of Year


1



100,736







78,282



(2
)


179,017Cash and Cash Equivalents at End of Year

$



$
55,857


$
267,145


$
906,752


$
(531,516
)

$
698,238  99




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##### Table of Contents



Condensed
    Consolidating Statement of Operations for the Year Ended
    December 31, 2006:
  Guarantor


Non-GuarantorParent


TCAPI


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedRevenuesProduct revenues

$



$



$
846,785


$
969,261


$
(1
)

$
1,816,045Other income










1,438



2,213







3,651Total revenues










848,223



971,474



(1
)


1,819,696Cost and ExpenseCost of sales










851,309



901,940



(52,070
)


1,701,179Selling, general and administrative expenses


2,358



(8,142
)


5,557



16,549



52,069



68,391Equity (earnings) loss of Unconsolidated affiliates


29,853



(184,740
)


(91,993
)


(46,002
)


275,869



(17,013
)Total cost and expenses


32,211



(192,882
)


764,873



872,487



275,868



1,752,557Income (loss) from operations


(32,211
)


192,882



83,350



98,987



(275,869
)


67,139Interest income






(167
)


7,004



(1,267
)


887



6,457Interest expense


(1,860
)


(42,320
)


(8
)


1,610



(5,413
)


(47,991
)Income (loss) before income taxes and minority interest


(34,071
)


150,395



90,346



99,330



(280,395
)


25,605Income tax benefit (provision)


(7,607
)






(343
)


(1,642
)


2



(9,590
)Minority interest






(2,178
)


(9,108
)










(11,286
)Income from continuing operationsnet of tax


(41,678
)


148,217



80,895



97,688



(280,393
)


4,729Income from discontinued operationsnet of tax










(516
)










(516
)Net Income (Loss)

$
(41,678
)

$
148,217


$
80,379


$
97,688


$
(280,393
)

$
4,213  100




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##### Table of Contents



Condensed
    Consolidating Statement of Cash Flows for the Year Ended
    December 31, 2006:
  Guarantor


Non-GuarantorParent


TCAPI


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedOperating ActivitiesNet income (loss)

$
(41,678
)

$
148,217


$
80,379


$
97,688


$
(280,393
)

$
4,213Loss from discontinued operations










(516
)










(516
)Income (loss) from continuing operations


(41,678
)


148,217



80,895



97,688



(280,393
)


4,729Adjustments to reconcile income (loss) from continuing
    operations to net cash flows from operating activities:Depreciation and amortization










43,907



34,968



29,194



108,069Deferred income taxes














3,777







3,777Minority interest in earnings






452



10,838







(4
)


11,286Distributions in excess of (less than) equity earnings


(29,853
)


184,740



91,993



46,002



(283,680
)


9,202Non-cash loss on derivatives










589



344







933Share-based compensation


7,010



















7,010Amortization of intangible and other assets






2,928



1,882



186



1,882



6,878Change in operating assets and liabilitiescontinuing
    operations


33,137



(73,758
)


(38,808
)


31,657



50,853



3,081Net cash flows from operating activitiescontinuing
    operations


(31,384
)


262,579



191,296



214,622



(482,148
)


154,965Net cash flows from operating activitiesdiscontinued
    operations










4,295











4,295Net Cash Flows from Operating Activities


(31,384
)


262,579



195,591



214,622



(482,148
)


159,260Investing ActivitiesCapital expenditures and plant turnaround expenditures










(42,870
)


(43,267
)






(86,137
)Changes in restricted cash










8,595











8,595Proceeds from the sale of property, plant and equipment










16,400



2,700







19,100Distributions received from unconsolidated affiliate














9,660







9,660Net cash flows from investing activitiescontinuing
    operations










(17,875
)


(30,907
)






(48,782
)Net Cash Flows from Investing Activities










(17,875
)


(30,907
)






(48,782
)Financing ActivitiesPayments under borrowing arrangements










(25
)


(12
)






(37
)Preferred share dividends paid


(5,100
)


















(5,100
)Common stock issuances and vestings


363



















363Change in investments and advances from (to) affiliates


53,652



(173,351
)


(236,202
)


(126,256
)


482,157



 101




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##### Table of Contents



Condensed
    Consolidating Statement of Cash Flows for the Year Ended
    December 31, 2006: (continued)
  Guarantor


Non-GuarantorParent


TCAPI


Subsidiaries


Subsidiaries


Eliminations


ConsolidatedExcess tax benefits from equity compensation plans


1,255



















1,255Payments under share repurchase program


(18,786
)














(10
)


(18,796
)Changes in overdraft protection arrangements














11,443







11,443Distributions to minority interests










(8,861
)










(8,861
)Net cash flows from financing activitiescontinuing
    operations


31,384



(173,351
)


(245,088
)


(114,825
)


482,147



(19,733
)Net Cash Flows from Financing Activities


31,384



(173,351
)


(245,088
)


(114,825
)


482,147



(19,733
)Effect of Foreign Exchange Rate on Cash














1,906







1,906Increase (Decrease) in Cash and Cash Equivalents






89,228



(67,372
)


70,796



(1
)


92,651Cash and Cash Equivalents at Beginning of Year


1



11,508



67,372



7,486



(1
)


86,366Cash and Cash Equivalents at End of Year

$
1


$
100,736


$



$
78,282


$
(2
)

$
179,017  102




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##### Table of Contents



25. Quarterly
    Financial Data (Unaudited)
  (in thousands, except per-share
    data)

March 31

June 30

Sept. 30

Dec. 312008Revenues

$
574,704


$
843,097


$
790,214


$
683,464Gross profit


167,715



296,027



211,904



187,581Income from continuing operations


101,305



196,116



171,270



164,081Income from discontinued operations


152



7,319



141



657Net income


101,457



203,435



171,411



164,738Per Share:Earnings per sharebasic:Income from continuing operations

$
1.11


$
2.14


$
1.75


$
1.65Income from discontinued operations






0.08







0.01Earnings per sharebasic

$
1.11


$
2.22


$
1.75


$
1.66Earnings per sharediluted:Income from continuing operations

$
0.97


$
1.87


$
1.64


$
1.64Income from discontinued operations






0.07







0.01Earnings per sharediluted

$
0.97


$
1.94


$
1.64


$
1.652007 Revenues

$
500,924


$
692,535


$
580,476


$
568,994Gross profit


78,660



160,182



138,613



150,053Income from continuing operations


8,743



72,103



70,451



69,460Income (loss) from discontinued operations


(1,533
)


(1,448
)


(16,071
)


191Net income


7,210



70,655



54,380



69,651Per Share:Earnings (loss) per sharebasic:Income from continuing operations

$
0.08


$
0.77


$
0.77


$
0.76Income (loss) from discontinued operations


(0.02
)


(0.01
)


(0.18
)


Earnings per sharebasic

$
0.06


$
0.76


$
0.59


$
0.76Earnings (loss) per sharediluted:Income from continuing operations

$
0.08


$
0.67


$
0.66


$
0.66Income (loss) from discontinued operations


(0.02
)


(0.01
)


(0.15
)


0.01Earnings per sharediluted

$
0.06


$
0.66


$
0.51


$
0.67  103




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##### Table of Contents



26. Subsequent
    Event
  CF
    Industries Proposal
      Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls and Procedures  (a) Disclosure
    Controls and Procedures
    Rules 13a-15(e) 15d-15(e)
  (b) Changes
    in Internal Control over Financial Reporting
  Rules 13a-15(f)
 104




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##### Table of Contents



(c)
    Managements Report on Internal Control over Financial
    Reporting
  Form 10-K Financial Statements and Supplementary Data, Form 10-K.
  (d) Certifications
  Form 10-K.
  Managements
    Annual Report on Internal Control over Financial
    Reporting
  Rule 13a-15(f) 15a-15(f)
  (1)
  (2)
  (3)
    Internal ControlIntegrated Framework
 105




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##### Table of Contents



Report
    of Independent Registered Public Accounting Firm
    Internal ControlIntegrated Framework Managements Annual Report on Internal Control Over
    Financial Reporting.
        Internal ControlIntegrated Framework
 106




---



##### Table of Contents



107




---



##### Table of Contents



Item 9B.
    Other Information  Form 8-K Form 10-K
 108




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##### Table of Contents



Part III  Item 10.
    Directors,
    Executive Officers and Corporate Governance       Item 11.
    Executive
    Compensation     Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters     Share-Based Compensation Financial Statements and Supplementary Data Form 10-K.
 109




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##### Table of Contents



Equity
    Compensation Plan Information(a)

(b)

(c)Number of securities
    to be

Weighted-average

Number of securities
    remaining available forissued upon exercise
    of

exercise price of

future issuance
    under equity compensationoutstanding options,
    warrants

outstanding
    options,

plans (excluding
    securities reflected in columnPlan
    category

and
    rights

warrants
    and rights

(a))Equity compensation plans approved by security holders

-0-

-0-

3,999,834Equity compensation plans not approved by security holders

-0-

-0-

-0-Total

-0-

$-0-

3,999,834
  110




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##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions     Item 14.
    Principal
    Accountant Fees and Services   Principal
    Accountant Audit Fees and Services Fees
    Audit
    Committee Pre-Approval Policies and Procedures
   111




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##### Table of Contents



Part IV Item 15.
    Exhibits and Financial Statement Schedules  (a)  Documents
    Filed as a Part of this Report
  1.
    Consolidated Financial Statements of Terra and its subsidiaries
    are included in Item 8 herein.  Consolidated Statements of Financial Position at
    December 31, 2008 and 2007Consolidated Statements of Operations for the years ended
    December 31, 2008, 2007 and 2006Consolidated Statements of Cash Flows for the years ended
    December 31, 2008, 2007 and 2006Consolidated Statements of Changes in Stockholders Equity
    for the years ended December 31, 2008, 2007 and 2006Notes to the Consolidated Financial StatementsReport of Independent Registered Accounting Firm   2.
    Index to Financial Statement Schedules, Reports and Consents  See Index to Financial Statement Schedules of Terra and its
    subsidiaries at
    page S-1   3.
    Other Financial Statements  Individual financial statements of the Companys 50% owned
    joint venture in Trinidad, Point Lisas Nitrogen Limited (PLNL),
    accounted for on the equity method, have been included because
    the equity investment constituted a significant subsidiary in
    2006. The PLNL financial statements are audited for the year
    ended December 31, 2006 and unaudited for the years ended
    December 31, 2008 and 2007. Other 50% owned joint
    ventures accounted for on the equity basis considered in the
    aggregate would not constitute a significant subsidiary.
    Therefore, those financial statements have been omitted.   (b) Exhibits
  2
.1

Stock Purchase Agreement dated as of August 6, 2004 among Terra
    Industries Inc., MissChem Acquisition Inc. and Mississippi
    Chemical Corporation, filed as Exhibit 99.2 to Terra Industries
    Inc.s Form 8-K dated August 9, 2004, is incorporated
    herein by reference.3
.1

Articles of Restatement of Terra Industries Inc. filed with the
    State Department of Assessments and Taxation of Maryland on
    August 3, 2005, restating the Charter of Terra Industries Inc.,
    filed as Exhibit 3.3 to Terra Industries Inc.s Form 8-K
    dated August 3, 2005, are incorporated herein by reference.3
.2

Amended and Restated By-Laws of Terra Industries Inc., effective
    as of August 3, 2005, filed as Exhibit 3.4 to Terra Industries
    Inc.s Form 8-K, dated August 3, 2005, are incorporated
    herein by reference. 112




---



##### Table of Contents



3
.3

A Certificate of Correction to correct errors and omissions to
    the August 3, 2005 Articles of Restatement for Terra Industries
    Inc., as filed with the State Department of Assessments and
    Taxation of Maryland on April 30, 2008, was included as Exhibit
    99.1 to Terra Industries Inc.s Form 8-K dated May 5, 2008,
    and is incorporated herein by reference.3
.4

Certificate of Incorporation of Terra Capital, Inc. filed as
    Exhibit 3.i.(a) to Terra Capital, Inc.s Registration
    Statement filed on Form S-4 on November 13, 2001, is
    incorporated herein by reference.3
.5

By-Laws of Terra Capital, Inc. filed as Exhibit 3.ii.(a) to
    Terra Capital, Inc.s Registration Statement filed on Form
    S-4 on November 13, 2001, is incorporated herein by reference.3
.6

Certificate of Incorporation of Terra Nitrogen GP Inc., filed as
    Exhibit 3.2 to Terra Nitrogen Company, L.P.s Form 8-K
    dated September 7, 2005, is incorporated herein by reference.3
.7

By-Laws of Terra Nitrogen GP Inc., filed as Exhibit 3.3 to Terra
    Nitrogen Company, L.P.s Form 8-K dated September 7, 2005,
    are incorporated herein by reference.4
.1

Indenture dated as of October 10, 2001 among Terra Capital,
    Inc., certain guarantors and U.S. Bank National Association, as
    trustee, including the form of note, filed as Exhibit 4.1 to
    Terra Industries Inc.s Form 8-K dated October 10,
    2001, is incorporated herein by reference.4
.2

Amendment No. 1 to the Amended and Restated Credit Agreement
    dated January 26, 2005, among Terra Capital, Inc., Mississippi
    Chemical Corporation and Terra Nitrogen (U.K.) Limited
    (collectively, Borrowers), Terra Industries Inc., Terra Capital
    Holdings, Inc., the financial institutions from time to time
    party thereto as issuing banks (Issuers) and Citicorp USA Inc.,
    as administrative agent and collateral agent for Lenders and
    Issuers, filed as Exhibit 4.3 to Terra Industries Inc.s
    Form 10-Q for the fiscal quarter ended September 30, 2005, is
    incorporated herein by reference.4
.3

Amendment No. 2 to the Amended and Restated Credit Agreement
    dated July 29, 2005, among Terra Capital, Inc., Terra
    Mississippi Holdings Corp. (f/k/a Mississippi Chemical
    Corporation) and Terra Nitrogen (U.K.) Limited (collectively,
    Borrowers), Terra Industries Inc., Terra Capital Holdings, Inc.,
    the Lenders party hereto and Citicorp USA Inc. as administrative
    agent and collateral agent for the Lenders and Issuers, filed as
    Exhibit 4.4 to Terra Industries Inc.s Form 10-Q for the
    fiscal quarter ended September 30, 2005, is incorporated herein
    by reference.4
.4

Amendment No. 3 to the Amended and Restated Credit Agreement
    dated October 30, 2006, among Terra Capital, Inc., Terra
    Mississippi Holdings Corp. (f/k/a/ Mississippi Chemical
    Corporation) and Terra Nitrogen (U.K.) Limited (collectively,
    Borrowers), Terra Industries Inc., Terra Capital Holdings, Inc.,
    the Lenders party hereto and Citicorp USA Inc. as administrative
    agent and collateral agent for the Lenders and Issuers, filed as
    Exhibit 4.1 to Terra Industries Inc.s Form 10-Q for the
    fiscal quarter ended September 30, 2006, is incorporated herein
    by reference. 113




---



##### Table of Contents



4
.5

Amendment No. 4 to the Amended and Restated Credit Agreement
    dated February 2, 2007, among Terra Capital, Inc., Terra
    Mississippi Holdings Corp. (f/k/a Mississippi Chemical
    Corporation) and Terra Nitrogen (U.K.) Limited (collectively,
    Borrowers). Terra Industries Inc., Terra Capital Holdings, Inc.,
    the Lenders party hereto and Citicorp USA Inc. as administrative
    agent and collateral agent for the Lenders and Issuers, filed as
    Exhibit 4.5 to Terra Industries Inc.s Form 10-K for the
    year ended 2007, is incorporated by reference.4
.6

Amendment No. 5 to the Amended and Restated Credit Agreement
    dated July 11, 2007, among Terra Capital, Inc., Terra
    Mississippi Holdings Corp. (f/k/a Mississippi Chemical
    Corporation) and Terra Nitrogen (U.K.) Limited (collectively,
    Borrowers), Terra Industries Inc., Terra Capital Holdings, Inc.,
    the Lenders party hereto and Citicorp USA Inc. as administrative
    agent and collateral agent for the Lenders and Issuers, filed as
    Exhibit 4.6 to Terra Industries Inc.s Form 10-K for the
    year ended 2007, is incorporated by reference.4
.7

Amendment No. 6 to the Amended and Restated Credit Agreement
    dated August 28, 2007, among Terra Capital, Inc., Terra
    Mississippi Holdings Corp. (f/k/a Mississippi Chemical
    Corporation) and Terra Nitrogen (U.K.) Limited (collectively,
    Borrowers), Terra Industries Inc., Terra Capital Holdings, Inc.,
    the Lenders party hereto and Citicorp USA Inc. as administrative
    agent and collateral agent for the Lenders and Issuers, filed as
    Exhibit 4.7 to Terra Industries Inc.s Form 10-K for the
    year ended 2007, is incorporated by reference.4
.8

Amendment No. 1 to the Credit Agreement dated July 29, 2005
    among Terra Nitrogen, Limited Partnership (Borrower), Terra
    Nitrogen Company, L.P., the Lenders party hereto and Citicorp
    USA Inc. as administrative agent and collateral agent for the
    Lenders and Issuers, filed as Exhibit 4.5 to Terra Industries
    Inc.s Form 10-Q for the quarter ended September 30, 2005,
    is incorporated herein by reference.4
.9

Amendment No. 2 to the Credit Agreement dated February 2, 2007,
    among Terra Nitrogen, Limited Partnership (Borrower), Terra
    Nitrogen Company, L.P., the Lenders party hereto, and Citicorp
    USA, Inc. as administrative agent and collateral agent for the
    Lenders and Issuers, filed as Exhibit 4.8 to Terra Nitrogen
    Company, L.P.s Form 10-K for the year ended December 31,
    2007.4
.10

Indenture dated May 21, 2003 between the Company, the guarantors
    party hereto, and U.S. National Bank Association as Trustee,
    with respect to the
    111/2%
    Second Priority Senior Secured Notes due 2010 (including the
    form of
    111/2%
    Second Priority Senior Secured Notes), previously filed as
    Exhibit 4.i to Amendment No. 1 to the Registrants
    Registration Statement of Form S-4 filed on June 12, 2003 and
    incorporated by reference herein, filed as Exhibit 4.6 to Terra
    Industries Inc.s Form 10-Q for the quarter ended June 30,
    2003, is incorporated herein by reference. 114




---



##### Table of Contents



4
.11

Articles Supplementary of Terra Industries Inc. relating to the
    Retirement of the Companys Trust Shares, filed as Exhibit
    3.1 to Terra Industries Inc.s Form 8-K dated August 3,
    2005, are incorporated herein by reference.4
.12

Articles Supplementary of Terra Industries Inc. relating to the
    Reclassification of the Companys Series B Cumulative
    Redeemable Preferred Shares, filed as Exhibit 3.2 to Terra
    Industries Inc.s Form 8-K August 3, 2005, are incorporated
    herein by reference.4
.13

Registration Rights Agreement dated as of October 7, 2004, among
    Terra and Citigroup Global Markets Inc., as Representative of
    the Initial Purchasers, filed as Exhibit 4.6 to Terras
    Form S-3 dated January 4, 2005, is incorporated herein by
    reference.4
.14

Registration Rights Agreement, dated as of August 6, 2004, among
    Terra Industries Inc., Taurus Investments S.A. and the other
    shareholders named therein, filed as Exhibit 99.1 to
    Terras Form 8-K dated August 16, 2004, is incorporated
    herein by reference.4
.15

Registration Rights Agreement, dated as of December 16, 2004,
    among Terra Industries Inc. and the initial purchasers named
    therein, filed as Exhibit 4.7 to Terras Form S-3/A filed
    February 9, 2005, is incorporated by reference.4
.16

Registration Rights Agreement, dated as of December 21, 2004,
    among Terra Industries Inc., Värde Investment Partners,
    L.P., Perry Principals Investments LLC, Citigroup Financial
    Products, Inc., filed as Exhibit 4.7 to Terras Form S-3
    dated March 17, 2005, is incorporated herein by reference.4
.17

Registration Rights Agreement, dated as of February 2, 2007, by
    and among Terra Capital, Inc., the guarantors named therein and
    Citigroup Global Markets Inc., relating to the 7% Senior
    Notes due 2017, filed as Exhibit 10.1 to Terra Industries
    Inc.s Form 8-K dated February 6, 2007, is incorporated
    herein by reference.4
.18

Form of Indenture relating to the 4.25% Convertible
    Subordinated Debentures, filed as Exhibit 4.7 to Terras
    Form S-3 dated January 4, 2005, is incorporated herein by
    reference.4
.19

Purchase Agreement, dated October 7, 2004, among Terra
    Industries Inc. and the initial purchasers named therein
    relating to the sale of Terras 4.25% Series A Cumulative
    Convertible Perpetual Preferred Shares, filed as Exhibit 1 to
    Terras Form S-3 dated January 4, 2005, is incorporated by
    reference.4
.20

Purchase Agreement, dated as of January 25, 2007, by and among
    Terra Capital, Inc., the guarantors named therein and Citigroup
    Global Markets Inc., relating to the 7% Senior Notes due
    2017, filed as Exhibit 10.1 to Terra Industries Inc.s Form
    8-K dated January 30, 2007, is incorporated herein by reference. 115




---



##### Table of Contents



4
.21

$150,000,000 Amended and Restated Credit Agreement dated as of
    December 21, 2004, among Terra Capital, Inc., Terra Nitrogen
    (U.K.) Limited, Mississippi Chemical Corporation, as Borrowers;
    Terra Industries Inc. and Terra Capital Holdings, Inc., as
    Guarantors; and the Lenders and Issuers Party thereto; and
    Citicorp USA, Inc., as Administrative Agent and Collateral
    Agent, Citigroup Global Markets Inc. as Lead Arranger and Sole
    Book Runner, filed as Exhibit 4.18 to Terra Industries
    Inc.s Form 10-K for the fiscal year ended December 31,
    2004, is incorporated herein by reference.4
.22

$50,000,000 Credit Agreement dated as of December 21, 2004 among
    Terra Nitrogen, Limited Partnership, as Borrower; Terra Nitrogen
    Company, L.P., as a Guarantor; and the Lenders and Issuers Party
    thereto; and Citicorp USA, Inc., as Administrative Agent and
    Collateral Agent; and Citigroup Global Markets Inc., as Lead
    Arranger and Sole Book Runner, filed as Exhibit 4.19 to Terra
    Industries Inc.s Form 10-K for the fiscal year ended
    December 31, 2004, is incorporated herein by reference.4
.23

Third Supplement to Indenture, dated as of January 29, 2007, by
    and among Terra Capital, Inc., the guarantors named therein and
    U.S. Bank National Association, as trustee, with respect to the
    127/8% Senior
    Secured Notes due 2008, filed as Exhibit 4.1 to Terra Industries
    Inc.s Form 8-K dated January 30, 2007, is
    incorporated herein by reference.4
.24

Third Supplement to Indenture, dated as of January 29, 2007, by
    and among Terra Capital, Inc., the guarantors named therein and
    U.S. Bank National Association, as trustee, with respect to the
    11
    1/2%
    Second Priority Senior Secured Notes due 2010, filed as Exhibit
    4.2 to Terra Industries Inc.s Form 8-K dated January
    30, 2007, is incorporated herein by reference.4
.25

Indenture, dated February 2, 2007, by and among Terra Capital,
    Inc., Terra Industries Inc., the guarantors named therein and
    U.S. Bank National Association, as trustee, relating to the
    7% Senior Notes due 2017, filed as Exhibit 4.1 to Terra
    Industries Inc.s Form 8-K dated February 6, 2007, is
    incorporated herein by reference.4
.26

First Supplemental Indenture, dated January 9, 2008, by and
    among Terra Capital, Inc., Terra Industries Inc., Terra
    Environmental Technologies, Inc., the existing guarantors named
    therein and U.S. Bank National Association, as trustee filed as
    Exhibit 4.1 to Terra Industries Inc.s Form 8-K dated
    January 10, 2008, is incorporated herein by reference.10
.1.1

Excess Benefit Plan of Terra Industries Inc., as amended and
    restated effective as of January 1, 2008, was included as
    Exhibit 10.1 to Terra Industries Inc.s Form 10-Q filed
    with the Securities and Exchange Commission on April 29, 2008,
    and is incorporated herein by reference.10
.1.2

Terra Industries Inc. Supplemental Deferred Compensation Plan
    effective as of December 20, 1993 filed as Exhibit 10.1.9 to
    Terra Industries Inc.s Form 10-K for the year ended
    December 31, 1993, is incorporated herein by reference. 116




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10
.1.3

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 June 30, 1995,
    is incorporated herein by reference.10
.1.4

Amendment No. 2 to the Terra Industries Inc. Supplemental
    Deferred Compensation Plan, dated July 26, 2000, filed as
    Exhibit 10.1.8.a to the Terra Industries Inc.s Form 10-K
    for the year ended December 31, 2000, is incorporated herein by
    reference.10
.1.5*

Amendment No. 3 to the Terra Industries Inc. Supplemental
    Deferred Compensation Plan, dated March 29, 2002.10
.1.6*

Amendment No. 4 to the Terra Industries Inc. Supplemental
    Deferred Compensation Plan, dated December 29, 2004.10
.1.7

Terra Industries Inc. Stock Incentive Plan of 2002, filed as
    Exhibit 10.1.18 to Terra Industries Inc.s Form 10-K for
    the year ended December 31, 2001, is incorporated herein by
    reference.10
.1.8

Form of Restricted Stock Award to Non-Employee Directors under
    the Terra Industries Inc. Stock Incentive Plan of 2002, filed as
    Exhibit 10.1.23 to Terra Industries Inc.s Form 10-K for
    the year ended December 31, 2002, is incorporated herein by
    reference.10
.1.9

Form of Restricted Stock Award to Officers and Other Key
    Employees under Terra Industries Inc. Stock Incentive Plan of
    2002, filed as Exhibit 10.1.24 to Terra Industries Inc.s
    Form 10-K for the year ended December 31, 2002, is incorporated
    herein by reference.10
.1.10

Revised Form of Restricted Stock Award of Terra Industries Inc.
    under its Stock Incentive Plan of 2002, filed as Exhibit 10.9 to
    Terra Industries Inc.s Form 10-Q for the fiscal quarter
    ended September 30, 2005, is incorporated herein by reference.10
.1.11

Form of Long-Term Incentive Award for Time and Performance Based
    Shares of Terra Industries Inc. under its Stock Incentive Plan
    of 2002, filed as Exhibit 10.10 to Terra Industries Inc.s
    10-Q for the fiscal quarter ended September 30, 2005, is
    incorporated herein by reference.10
.1.12

Form of Long-Term Incentive Award for Phantom Time and
    Performance Based Shares of Terra Industries Inc. under its
    Stock Incentive Plan of 2002, filed as Exhibit 10.11 to Terra
    Industries Inc.s Form 10-Q for the fiscal quarter ended
    September 30, 2005, is incorporated herein by reference.10
.1.13

Form of Long-Term Incentive Award for Performance Shares of
    Terra Industries Inc. under its Stock Incentive Plan of 2002
    filed as Exhibit 10.1.23 to Terra Industries Inc.s Form
    10-K for the year ended 2005, is incorporated by reference. 117




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10
.1.14

Form of Long-Term Incentive Award for Phantom Performance Shares
    of Terra Industries Inc. under its Stock Incentive Plan of 2002
    filed as Exhibit 10.1.24 to Terra Industries Inc.s Form
    10-K for the year ended 2005, is incorporated by reference.10
.1.15

Form of Indemnity Agreement of Terra Industries Inc., filed as
    Exhibit 10.1 to Terra Industries Inc.s Form 8-K dated July
    7, 2006, is incorporated by reference.10
.1.16

Form of Unrestricted Annual Share Award to Non-Employee
    Directors under the Terra Industries Inc. Stock Incentive Plan
    of 2002, filed as Exhibit 99.1 to Terra Industries Inc.s
    Form 8-K dated August 10, 2006, is incorporated herein by
    reference.10
.1.17

Employment Severance Agreement between Terra Industries Inc. and
    Michael L. Bennett dated October 5, 2006, filed as Exhibit 10.1
    to Terra Industries Inc.s Form 8-K dated October 5, 2006,
    is incorporated herein by reference.10
.1.18

Form of Employment Severance Agreement for Section 16(b)
    Executive Officers, filed as Exhibit 10.2 to Terra Industries
    Inc.s Form 8-K dated October 5, 2006, is incorporated
    herein by reference.10
.1.19

Amendment to Employment Severance Agreement between Terra
    Industries Inc. and Mark A. Kalafut dated October 6, 2006, filed
    as Exhibit 10.1 to Terra Industries Inc.s Form 8-K dated
    October 6, 2006 is incorporated herein by reference.10
.1.20

2007 Omnibus Incentive Compensation Plan, adopted by the board
    of directors of Terra Industries Inc. (Terra) and subsequently
    approved by its stockholders at the annual meeting of Terra on
    May 8, 2007, reported on Terras Form 8-K filed May 10,
    2007 and attached as Appendix A to Terras Proxy Statement
    on Schedule 14A filed with the Securities and Exchange
    Commission on March 15, 2007, is incorporated herein by
    reference.10
.1.21

Amendment Number One to Employment Severance Agreement, filed as
    Exhibit 10.1.31 to Terra Industries Inc.s Form 10-K for
    the year ended 2007, is incorporated by reference.10
.1.22

Amendment to Restricted Share Agreement, filed as Exhibit
    10.1.32 to Terra Industries Inc.s Form 10-K for the year
    ended 2007, is incorporated by reference.10
.1.23

Amendment to Performance Share Award Agreement, filed as Exhibit
    10.1.33 to Terra Industries Inc.s Form 10-K for the year
    ended 2007, is incorporated by reference..10
.1.24

Amendment to Terra Long Term Incentive Award dated October 23,
    2007, for former Terra, now GrowHow UK Limited joint venture
    employees, filed as Exhibit 10.1.34 to Terra Industries
    Inc.s Form 10-K for the year ended 2007, is incorporated
    by reference.10
.1.25

Form of Phantom Performance Share Award agreement of February
    2008, filed as Exhibit 10.1 to Terra Industries Inc.s Form
    10-Q dated July 25, 2008, is incorporated herein by reference. 118




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10
.1.26

Form of Performance Share Award agreement as of February 2008,
    filed as Exhibit 10.2 to Terra Industries Inc.s Form 10-Q
    dated July 25, 2008, is incorporated herein by reference.10
.2

First Amended and Restated Agreement of Limited Partnership of
    Terra Nitrogen, Limited Partnership dated September 1, 2005,
    filed as Exhibit 10.3 to Terra Nitrogen Company, L.P.s
    Form 8-K dated September 7, 2005, is incorporated herein by
    reference.10
.3

General and Administrative Services Agreement regarding Services
    by Terra Industries Inc. filed as Exhibit 10.11 to Terra
    Industries Inc. Form 10-Q for the quarter ended March 31, 1995,
    is incorporated herein by reference.10
.4

Amendment No. 1 to the General and Administrative Service
    Agreement regarding Services by Terra Industries Inc. dated
    September 1, 2005, filed as Exhibit 10.4 to the Terra Nitrogen
    Company, L.P.s Form 8-K dated September 7, 2005, is
    incorporated herein by reference.10
.5

Amendment No. 1 to the General and Administrative Services
    Agreement regarding Services by Terra Nitrogen Corporation dated
    September 1, 2005, filed as Exhibit 10.5 to Terra Nitrogen
    Company, L.P.s Form 8-K dated September 7, 2005, is
    incorporated herein by reference.10
.6

Amended and Restated General and Administrative Services
    Agreement between Terra Industries Inc., Terra Nitrogen
    Corporation, and Terra Nitrogen GP Inc., dated October 23, 2007,
    filed as Exhibit 10.1 to Terra Nitrogen Company, L.P.s
    Form 10-Q filed on October 29, 2007, is incorporated herein by
    reference.10
.7

Reorganization Agreement among Terra Nitrogen Company, L.P.,
    Terra Nitrogen, Limited Partnership and Terra Nitrogen
    Corporation dated September 1, 2005, filed as Exhibit 10.1 to
    Terra Nitrogen Company, L.P.s Form 8-K dated September 7,
    2005, is incorporated herein by reference.10
.8

Conveyance, Assignment and Assumption Agreement by and between
    Terra Nitrogen Corporation and Terra Nitrogen GP Inc. dated
    September 1, 2005, filed as Exhibit 10.2 to Terra Nitrogen
    Company, L.P.s Form 8-K dated September 7, 2005, is
    incorporated herein by reference.10
.9

Sale of Business Agreement dated November 20, 1997 between
    ICI Chemicals & Polymers Limited, Imperial Chemical
    Industries PLC, Terra Nitrogen (U.K.) Limited (f/k/a Terra
    Industries Limited) and Terra Industries Inc. filed as
    Exhibit 2 to Terra Industries Inc.s Form 8-K/A dated
    December 31, 1997, is incorporated herein by reference.10
.10

Ammonium Nitrate Agreement dated December 31, 1997 between Terra
    International (Canada) Inc and ICI Chemicals & Polymers
    Limited filed as Exhibit 99 to Terra Industries Inc.s Form
    8-K/A dated December 31, 1997, is incorporated herein by
    reference.10
.11

Asset Sale and Purchase Agreement dated as of May 3, 1999 by and
    between Terra Industries Inc. and Cenex/Land OLakes
    Agronomy Company, filed as Exhibit 10.12 to Terra
    Industries Form 8-K dated May 3, 1999, is incorporated
    herein by reference. 119




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10
.12

Asset Purchase and Methanol Exclusivity Agreement among Terra
    Industries Inc., BMC Holdings Inc., and Methanex Methanol
    Company dated December 15, 2003, filed as Exhibit 10.9 to
    Terra Industries Form 10-K for the year ended December 31,
    2003, is incorporated herein by reference.10
.12.1

Services Agreement among Terra Industries Inc., BMC Holdings
    Inc., and Methanex Methanol Company dated December 15, 2003
    included as Schedule E to Exhibit 10.2 herein, filed as Exhibit
    10.9.1 to Terra Industries Inc.s Form
    10-K for the
    year ended December 31, 2003, is incorporated herein by
    reference.10
.13

First Amendment to Asset Purchase and Methanol Exclusivity
    Agreement dated February 20, 2004, filed as Exhibit 10.10 to
    Terra Industries Inc.s Form 10-K for the year ended
    December 31, 2003, is incorporated herein by reference.10
.14

Warrant Agreement dated December 21, 2004 among Terra Industries
    Inc., Perry Principals Investments LLC, Citigroup Financial
    Products Inc. and Värde Investment Partners, L.P., filed as
    Exhibit 10.11 to Terra Industries Inc.s Form 10-K for the
    year ended December 31, 2004, is incorporated herein by
    reference.10
.15

Ammonium Nitrate Supply Agreement between Terra Mississippi
    Nitrogen, Inc. and Orica USA Inc. dated July 21, 2005, filed as
    Exhibit 10.7 to Terra Industries Inc.s Form 10-Q for the
    fiscal quarter ended September 30, 2005, is incorporated herein
    by reference.10
.16

Conversion Agreement by and between Terra Mississippi Nitrogen,
    Inc. and Orica USA Inc. dated July 21, 2005, filed as exhibit
    10.8 to Terra Industries Inc. Form 10-Q for the fiscal quarter
    ended September 30, 2005, is incorporated herein by reference.10
.17

Option Agreement, dated as of July 18, 2007, by and between
    Terra Industries Inc. and Eastman Chemical Company, filed as
    Exhibit 10.1 to Terra Industries Inc.s Form 8-K dated July
    23, 2007, is incorporated herein by reference.10
.18

Joint Venture Contribution Agreement, dated September 14, 2007,
    by and among GrowHow UK Limited, Terra International (Canada),
    Inc., Kemira GrowHow Oyj and Terra Industries Inc., filed as
    Exhibit 10.1 to Terra Industries Inc.s Form 10-Q dated
    October 29, 2007, is incorporated herein for reference.10
.19

Shareholders Agreement, dated September 14, 2007, by and
    among Kemira GrowHow Oyj, Terra International (Canada), Inc.,
    Terra Industries Inc and GrowHow UK Limited filed as Exhibit
    10.2 to Terra Industries Inc.s Form 10-Q dated
    October 29, 2007, is incorporated herein for reference.10
.20

Consulting and Non-Competition Agreement between Terra
    Industries Inc. and Francis G. Meyer dated April 1, 2008, filed
    as Exhibit 10.1 to Terra Industries Inc.s Form 8-K dated
    April 1, 2008, is incorporated herein by reference.12
.1*

Ratio of Earnings to Financial Charges21
.1*

Subsidiaries of Terra Industries Inc. 120




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23
.1*

Consent of Deloitte & Touche LLP31
.1*

Certification of Chief Executive Officer pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.31
.2*

Certification of Chief Financial Officer pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.32
.1*

Certification of Chief Executive Officer pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.32
.2*

Certification of Chief Financial Officer pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.99*


Financial Statements for Point Lisas Nitrogen Limited for the
    years ended December 31, 2008, 2007 and 2006.    *
    
    Filed herewith.  
    
    Confidential treatment has been requested for portions of this
    document.   121




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##### Table of Contents



Signatures    TERRA INDUSTRIES INC.
 Date: February 27, 2009

By:

/s/  DANIEL
    D. GREENWELLDaniel
    D. GreenwellSenior Vice President and Chief Financial
    Officer     Signature

Title/s/  HENRY
    R. SLACKHenry
    R. Slack

Chairman of the Board/s/  MICHAEL
    L. BENNETTMichael
    L. Bennett

Director, President and Chief Executive Officer(Principal Executive Officer)/s/  DANIEL
    D. GREENWELLDaniel
    D. Greenwell

Senior Vice President and Chief Financial Officer
    (Principal Financial Officer and Principal
    Accounting Officer)/s/  DAVID
    E. FISHERDavid
    E. Fisher

Director/s/  DOD
    A. FRASERDod
    A. Fraser

Director/s/  MARTHA
    O. HESSEMartha
    O. Hesse

Director/s/  PETER
    S. JANSONPeter
    S. Janson

Director/s/  JAMES
    R. KRONERJames
    R. Kroner

Director/s/  DENNIS
    MCGLONEDennis
    McGlone

Director    122




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Index to
    Financial Statement Schedules  Schedule No.I  Condensed Financial Information of Registrant, is
    included in Item 8 herein, Footnote 24, Column 1,
    Parent.II  Valuation and Qualifying Accounts:
    Years Ended December 31, 2008, 2007 and 2006

S-2    S-1




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##### Table of Contents



Schedule II
   Terra Industries
    Inc.
 Valuation
    and Qualifying Accounts
 Years
    Ended December 31, 2008, 2007, and 2006
 (in
    thousands)
  Less Write-Additions

offs, andBalance at

Charged to

Transfers,

BalanceBeginning of

Costs and

Net of

at EndDescription

Period

Expenses

Recoveries

of PeriodYear Ended December 31, 2008:Allowance for doubtful accounts

$
264


$
8


$
18


$
290Allowance for deferred tax assets

$
31,740


$



$
414


$
32,154Year Ended December 31, 2007:Allowance for doubtful accounts

$
332


$
15


$
(83
)

$
264Allowance for deferred tax assets

$
61,361


$
3,939


$
(33,560
)

$
31,740Year Ended December 31, 2006:Allowance for doubtful accounts

$
234


$
486


$
(388
)

$
332Allowance for deferred tax assets

$
61,728


$



$
(367
)

$
61,361  S-2




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