<PAGE>


================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001       Commission file number: 1-8520

                              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)

       Registrant's telephone number, including area code: (712) 277-1340

Securities registered pursuant to Section 12(b) of the Act:

                                                     Name of each exchange
      Title of each class                             on which registered
      -------------------                             -------------------

Common Shares, without par value                     New York Stock Exchange
                                                     Toronto Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:    None

                                 --------------

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]

     The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant, at January 31, 2002, was $111,718,194.

     The number of shares of Common Shares, without par value, outstanding as of
March 1, 2002 was 76,472,849. -

================================================================================

<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

     Proxy Statement for the Annual Meeting of Stockholders of Registrant to be
held on April 30, 2002. Certain information therein is incorporated by reference
into Part III hereof.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                     PART I
                                     ------
<S>                                                                                                             <C>
Items 1 and 2.    Business and properties.........................................................................1

Item 3.           Legal proceedings..............................................................................13

Item 4.           Submission of matters to a vote of security holders............................................13

                  Executive officers of Terra....................................................................14

                                     PART II
                                     -------

Item 5.           Market for Terra's common equity and related stockholder matters...............................15

Item 6.           Selected financial data........................................................................15

Item 7.           Management's discussion and analysis of financial condition
                  and results of operations......................................................................15

Item 7a.          Quantitative and qualitative disclosures about market risk.....................................15

Item 8.           Financial statements and supplementary data....................................................15

Item 9.           Changes in and disagreements with accountants on accounting
                  and financial disclosure.......................................................................15

                                    PART III
                                    --------

Item 10.          Directors and executive officers of Terra......................................................16

Item 11.          Executive compensation.........................................................................16

Item 12.          Security ownership of certain beneficial owners and management.................................16

Item 13.          Certain relationships and related transactions.................................................16

                                     PART IV
                                     -------

Item 14.          Exhibits, financial statement schedules and reports on Form 8-K................................16

Signatures.......................................................................................................22

Index to financial statement schedules, reports and consents....................................................S-1
</TABLE>

<PAGE>


                                     Part I
                                     ------

Items 1 and 2. Business and Properties.

     Terra Industries Inc., a Maryland corporation, is referred to as "Terra,"
"we" or "our" throughout this report. References to Terra also include the
direct and indirect subsidiaries of Terra Industries Inc. where required by the
context. Subsidiaries not wholly-owned by Terra include a limited partnership,
Terra Nitrogen Company, L.P., which, through its subsidiary, Terra Nitrogen,
L.P., operates Terra's manufacturing facilities in Blytheville, Arkansas and
Verdigris, Oklahoma. Terra is the sole general partner and the majority limited
partner in Terra Nitrogen Company, L.P. Terra's principal corporate office is
located at Terra Centre, 600 Fourth Street, P.O. Box 6000, Sioux City, Iowa
51102-6000 and its telephone number is (712) 277-1340.

Business Overview

     Terra is a leading North American and U.K. producer and marketer of
nitrogen products serving both agricultural and industrial end-use markets.
Terra is one of the largest North American producers of ammonia, the basic
building block of nitrogen fertilizers. We upgrade a significant portion of the
ammonia we produce into higher value products, which are easier for agricultural
end-users to transport, store and apply to crops than ammonia. In addition,
Terra is the largest U.S. producer of methanol. We own eight manufacturing
facilities in North America and the U.K. that produce nitrogen products, two of
which also produce methanol.

     Nitrogen is both a global and local commodity: global because it is both
produced and traded in almost all regions of the world, local because local
fertilizer customers display preferences for nitrogen in one of four basic forms
based upon local conditions. The principal forms of nitrogen fertilizer products
that are traded globally are ammonia (82% nitrogen by weight) and, to a lesser
extent, urea (46% nitrogen by weight) and ammonium nitrate (AN), (34% nitrogen
by weight). Urea ammonium nitrate (UAN) has only recently been traded in
international markets. It is less likely to be traded because it has a high cost
of transportation due to its high water content. Because transportation is a
significant component of a customer's total cost, a key to competitiveness in
the nitrogen business is to have the lowest delivered cost for the customer's
product of choice in the market a producer serves, while providing a reliable
source of supply on a continuous basis.

     The locations of Terra's North American production facilities provide it
with a competitive advantage in serving agricultural customers in the corn belt
and other major agricultural areas of the United States and Canada. Terra's U.K.
facilities are able to serve competitively the entire British agricultural
market. Terra's facilities have the following production capacities:

<TABLE>
<CAPTION>
                                                          Annual Capacity
                                   ------------------------------------------------------------------
Location                           Ammonia(1)       UAN(2)          AN(3)     Urea(4)     Methanol(5)
--------                           ----------     ---------     ---------     -------     -----------
<S>                                 <C>           <C>           <C>           <C>         <C>
Beaumont, Texas(6) .............      255,000            --            --          --     225,000,000
Blytheville, Arkansas ..........      420,000        30,000            --     480,000              --
Port Neal, Iowa ................      370,000       810,000            --      50,000              --
Verdigris, Oklahoma ............    1,050,000     2,180,000            --          --              --
Woodward, Oklahoma(6) ..........      440,000       340,000            --      25,000      40,000,000
Courtright, Ontario ............      480,000       400,000            --     175,000              --
Severnside, U.K ................      265,000            --       500,000          --              --
Billingham, U.K.(7) ............      550,000            --       500,000          --              --
                                    ---------     ---------     ---------     -------     -----------
Total ..........................    3,830,000     3,760,000     1,000,000     730,000     265,000,000
                                    =========     =========     =========     =======     ===========
</TABLE>

(1)  Measured in gross tons of ammonia produced; net tons available for sale
     will vary with upgrading requirements. Includes ammonia upgraded into other
     products.

(2)  Measured in tons of UAN containing 28% nitrogen by weight.

(3)  Measured in tons.

(4)  Urea is sold as urea liquor from our Port Neal and Woodward facilities and
     as granular urea from the Blytheville and Courtright facilities. Production
     capacities shown are for urea sold as product in tons.

(5)  Measured in gallons.

                                       1

<PAGE>


(6)  The Beaumont capacities represent the design capacity of the ammonia loop
     and revised capacity of the methanol plant following the loss of CO2
     feedstock due to shutdown of the DuPont ammonia plant. Plant capacity for
     Beaumont and Woodward is dependent on the product mix (ammonia/methanol).

(7)  The Billingham, England facility also produces merchant nitric acid; 2001
     sales were 262,084 product tons.

     The principal customers for Terra's North American nitrogen products are
national agricultural retail chains (such as ConAgra and Cargill), farm
cooperatives, independent dealers and industrial customers (such as DuPont).
Industrial customers use our products in the manufacture of chemicals and
plastics such as acrylonitrile, polyurethanes, fibers, explosives and adhesives.
Overall, agricultural customers purchased approximately 84% and industrial
customers purchased approximately 16% of Terra's North American nitrogen product
production in 2000 and 2001. In the U.K., revenues are split approximately
evenly between agricultural and industrial customers. Terra's methanol customers
are primarily large domestic chemical producers. Terra has a number of long-term
methanol sales contracts.

Competitive Strengths

Leading Market Positions

     Terra has leading market positions in all of its key products. In the U.S.,
we are the largest producer of UAN and methanol and the second largest producer
of ammonia. In the U.K., we are the largest producer of ammonia and AN. The
following table shows our market positions in our principal products:

                                     % of Total      U.S.         U.K.
                                     2001 Terra      Capacity     Capacity
Product                              Revenues(1)     Position     Position
-------                              -----------     --------     --------
Ammonia .......................         22.9%           2            1
UAN ...........................         32.7%           1            *
AN ............................          8.8%           *            1
Urea ..........................          6.6%           4            *
Methanol ......................         17.3%           1            *

(1)  Revenues from sales of carbon dioxide and nitrogen products, as well as
     industrial sales in the U.K., represented 11.7% of our total revenues for
     2001.

(2)  Based on our unit sales and based on total market consumption, including
     imports, as reported by Fertecon.

*    Terra does not compete in these markets.

Strategically Located Plants with Access to Distribution Infrastructure

     A critical element of competitiveness in the North American agricultural
market is delivered cost to customers. Terra's plants located in the main
agricultural areas of the United States provide Terra a significant freight cost
advantage over Gulf Coast producers and importers entering through Gulf Coast
ports. Four of Terra's facilities are able to provide UAN locally by truck,
which offers a competitive advantage in serving agricultural customers due to
the high cost of transporting UAN. The location of Terra's Port Neal, Iowa and
Courtright, Ontario plants, with low cost access to nearby corn belt markets,
allows these plants to be among the most efficient UAN production facilities in
North America in terms of delivered cost to end-users. Terra also has access to
an extensive distribution infrastructure that provides reliable and
cost-effective delivery of products to customers. Our ability to serve customers
within our markets is enhanced by our access to competitive multi-modal
transportation, including rail systems (BNSF, Union Pacific, Canadian National,
CSX), barge, truck and pipeline systems. In addition, we have a terminal network
in which we can store up to 500,000 tons of nitrogen products through over 60
terminals located close to our customers. This terminal network helps ensure
customers receive our products on a timely basis.

Integrated Production of Value-Added Products

     Terra upgrades a significant portion of the ammonia it produces into higher
value products, such as UAN, AN and urea. In 2001, we upgraded 61% of our
ammonia production into value-added products. The demand for these value-added
products has increased largely at the expense of ammonia demand, and we expect
it will continue to do so. Agricultural customers increasingly prefer these
products because they are easier to apply and can be mixed with other crop
production products, providing significant cost and labor savings. As a result,
these products generate higher revenues and margins than ammonia. By producing
our own ammonia and upgrading it internally, we are able

                                       2

<PAGE>

to operate our ammonia units at higher utilization rates throughout the year and
reduce reliance on merchant ammonia sales. In addition, because of UAN's
relatively high transportation costs due to its high water content, there is
less competition from importers. Terra's Verdigris, Oklahoma facility is the
second largest UAN production facility in the world.

Strong Plant Operating Efficiency

     Based on a global survey of 92 ammonia plants worldwide, Terra's five
largest North American plants (including our two plants in Verdigris, Oklahoma)
ranked in the top half of their peer group for the best calendar month
performance in net efficiency during the four-year survey period ending in
December 1998. We believe that our Port Neal, Iowa and Courtright, Ontario
facilities, together representing more than 25% of our North American capacity,
are among the most efficient ammonia plants in North America in terms of natural
gas consumption per ton of ammonia produced. We believe we have some of the most
efficient UAN plants in North America, including three of the five lowest cost
plants in terms of delivered cost to end-users. In addition, we believe we are
the most efficient producer of methanol in the United States, in large part as a
result of an ammonia production loop at our Beaumont, Texas facility, which
produces ammonia as a by-product of the methanol production process. Terra's
Beaumont, Texas facility is the largest methanol facility in the U.S. Terra's
ammonia facility at Woodward, Oklahoma also uses loop technology to produce
methanol, providing us with operational flexibility and helping us to optimize
product mix at that site. The high percentage of our sales that are made under
contract also allows us to maintain high utilization rates and enhance the
efficiency of our operations.

Experienced Management Team and Employees

     Terra Industries' executive officers have an average of 20 years of
experience in the fertilizer industry. Michael Bennett, our President and Chief
Executive Officer, has been with the company for 28 years. Similarly, our more
than 1,200 employees have an average of over 18 years of service with us. The
extensive experience and stability of our employee base enable us to operate our
plants efficiently with a strong safety record when compared to our peers.

Company Strategies

Enhance Competitive Position Through Continued Efficiency Improvement

     Terra intends to continue to improve its competitive position in the
worldwide nitrogen fertilizer industry by enhancing the operating and energy
efficiency of its plants while rigorously controlling costs. We have implemented
a number of cost-saving efficiency initiatives, such as our loop production
processes at our Beaumont, Texas and Woodward, Oklahoma plants, in order to
increase the overall efficiency and volume throughput of our plants. Since 1998,
our selling, general and administrative expenses have declined by 23%. We have
upgraded and will continue to upgrade our equipment and processes through
prudent investment and personnel training.

Use Natural Gas Contracts to Protect Margins

     Natural gas costs in 2001 comprised approximately 53% of total costs and
expenses for Terra's North American nitrogen products business, 25% of total
costs and expenses for the U.K. nitrogen products business and 57% of total
costs and expenses for the methanol business. It is Terra's normal practice to
fix or cap the price of a substantial portion of its future natural gas
requirements through supply contracts, financial derivatives and other
instruments. These tools are used to lock in margins and protect against an
adverse impact on margins due to increases in natural gas costs.

Pursue New Market Opportunities

     Terra will aggressively pursue new market opportunities such as those
presented as a result of recent environmental regulations promoting the use of
ammonia to clean airborne pollutants emitted by power generating plants.
According to the McIlvaine Company, a power industry consultant, these
regulations could increase the annual demand for ammonia by up to 2 million
tons, or 11% of total 2000 U.S. capacity, by 2004. Terra is working with
selected power producers to provide the nitrogen products, storage facilities
and handling expertise they need for these purposes. Terra also sees
opportunities in pursuing the use of methanol as a fuel for fuel cell-powered
cars.

                                       3

<PAGE>

Maintain Leadership Position in Our Key Products

     Terra intends to maintain its leading market positions in its key markets
by focusing on being a reliable, low cost producer of our products to our
existing customers and by identifying new customers and end markets for its
products.

Reduce Debt

     Terra's primary financial strategy is to use a significant portion of its
cash flow from operations to reduce indebtedness.

Nitrogen Business Segment

     Terra is a leading producer and marketer of nitrogen products, principally
fertilizers. We upgrade a significant portion of the ammonia that we produce
into other nitrogen products, such as urea, AN and UAN. Ammonia, urea and UAN
are the principal nitrogen products we produce and sell in North America. Terra
produces and sells primarily ammonia and AN in the U.K. Other important products
that we manufacture in both the U.S. and U.K. include nitric acid and carbon
dioxide. These products, along with a portion of our ammonia and urea
production, are used as industrial feedstocks and are independent of the
agricultural market.

     Although these different nitrogen products are interchangeable to some
extent, each has its own characteristics which make one product or another
preferable to the end-user. Terra's plants are designed to provide the products
preferred by end-users in the regions in which they are located. These
preferences vary according to the crop planted, soil and weather conditions,
regional farming practices, relative prices, and the cost and availability of
appropriate storage, handling and application equipment. Terra's nitrogen
products are described in greater detail below.

Ammonia

     Ammonia is the simplest form of nitrogen fertilizer and is the feedstock
for the production of other nitrogen fertilizers, including urea, AN and UAN.
Ammonia is also widely used in industrial applications. Ammonia is produced when
natural gas reacts with steam and air at high temperatures and pressures in the
presence of catalysts. Ammonia has a nitrogen content of 82% by weight and is
generally the least expensive form of fertilizer per pound of nitrogen. Although
generally the cheapest source of nitrogen available to agricultural customers,
ammonia can be less desirable to end-users than UAN or urea because of the need
for specialized application equipment and the lack of application flexibility.

Urea

     Terra produces urea for both the fertilizer and animal feed markets by
converting ammonia and carbon dioxide into liquid urea, which can be further
processed into a solid, granular form. Urea is also used in industrial
applications. Granular urea has a nitrogen content of 46% by weight, the highest
level for any solid nitrogen product. Terra produces both a granulated form of
urea, generally for the fertilizer market, and urea liquor (liquid) for animal
feed supplements and industrial applications.

Ammonium Nitrate

     Terra produces AN at two facilities in the U.K. AN is produced by combining
nitric acid and ammonia into a liquid form which is then converted to a solid,
largely for fertilizer applications. The nitrogen content of AN is 34% by
weight. AN is the preferred fertilizer in the British agricultural market.

Urea Ammonium Nitrate

     UAN is a liquid fertilizer and, unlike ammonia, is odorless and does not
require refrigeration or pressurization for transportation or storage. UAN is
produced by combining liquid urea, liquid ammonium nitrate and water. The
nitrogen content of UAN is approximately 28% to 32% by weight. Because of its
high water content, UAN is relatively expensive to transport, making this
largely a regionally distributed product.

                                       4

<PAGE>

     UAN can be applied to crops directly or can be mixed with crop production
products, permitting the application of several materials simultaneously,
reducing energy and labor costs and accelerating field preparation for planting.
In addition, UAN may be applied from ordinary tanks and trucks and can be
sprayed or injected into the soil, or applied through irrigation systems,
throughout the growing season, providing significant application flexibility.
Due to its stability, UAN may be used for no-till row crops where fertilizer is
spread on the surface of the soil but may be subject to evaporation losses.

Manufacturing Facilities

     Terra's eight fertilizer manufacturing facilities are designed to operate
continuously, except for planned shutdowns (usually biennial) for maintenance
and efficiency improvements. Capacity utilization (gross tons produced divided
by capacity tons at expected operating rates and on-stream factors) of our
fertilizer manufacturing facilities was 84%, 93% and 96% in 2001, 2000 and 1999,
respectively. Our capacity utilization was reduced in 2000 and 2001, reflecting
several plant shutdowns due to natural gas prices increasing faster than
nitrogen prices.

     Terra owns all of its manufacturing facilities, unless otherwise indicated
below. (See "Methanol Business Segment--Manufacturing Facilities" for a
description of our Beaumont, Texas facility.)

     The Verdigris, Oklahoma facility is one of the largest UAN production
facilities in North America. Located at the Verdigris, Oklahoma facility are two
ammonia plants, two nitric acid plants, two UAN plants and a port terminal.
Terra owns the plants, while the port terminal is leased from the Tulsa-Rogers
County Port Authority. The leasehold interest on the port terminal is scheduled
to expire in April 2004, and Terra has an option to renew the lease for an
additional five-year term. We also have UAN upgrading capability at our
facilities in Port Neal, Iowa; Courtright, Ontario; Woodward, Oklahoma and
Blytheville, Arkansas.

     Terra believes it has some of the most efficient UAN plants in North
America, including three of the five lowest cost plants in terms of delivered
cost to end-users. The location of our Port Neal, Iowa and Courtright, Ontario
plants, with low cost access to nearby corn belt markets, allows these plants to
be among the most efficient in North America as measured by delivered cost to
the end-user. Because of UAN's relatively high transportation costs due to its
water content, there is less competition from importers. Four of our facilities
are able to provide UAN locally by truck which also offers a competitive
advantage in serving agricultural customers due to the high cost of transporting
UAN.

     The Blytheville, Arkansas facility consists of an ammonia plant, a granular
urea plant and a UAN plant. The ammonia plant is leased from the City of
Blytheville at a nominal annual rate. The ammonia plant lease is scheduled to
expire in November 2004, and we have an option to extend the lease for eleven
successive terms of five years each at the same rental rate. Terra has an
unconditional option to purchase the plant for a nominal price at the end of the
lease term (including any renewal term). The urea plant is also leased from the
City of Blytheville. The urea plant lease is scheduled to expire in November
2005, and we have an option to extend the lease for three successive terms of
five years each at the same rental rate. Terra also has a similar, unconditional
option to purchase the urea plant for a nominal price.

     In the first quarter of 2000, we completed a $61.6 million capital project
to add an ammonia production loop to our Beaumont, Texas facility, which has
added 255,000 tons of annual ammonia production capacity to the existing
methanol production at that site.

Marketing and Distribution

     The principal customers for Terra's North American manufactured nitrogen
products are independent dealers, national retail chains, cooperatives and
industrial customers. In the U.K., revenues are split approximately evenly
between agricultural and industrial customers. Overall, industrial customers
purchased approximately 16% of Terra's nitrogen product production in each of
2001 and 2000. At December 31, 2001, we had contracted to sell 13% of our 2002
scheduled nitrogen production at prices indexed to published sources.

     As part of the sale of our farm service centers and distribution business
to the Cenex/Land O'Lakes Agronomy Company ("Cenex/Land O'Lakes") in the second
quarter of 1999, Terra entered into an agreement to supply Cenex/Land O'Lakes
with nitrogen fertilizer products. Under this agreement, through June 2002,
Cenex/Land O'Lakes will purchase from Terra approximately the quantity of
product that we supplied to both our own distribution business and to Cenex/Land
O'Lakes before the sale of the distribution business. Terra sold

                                       5

<PAGE>


approximately 10% and 11% of its North American production to Cenex/Land O'Lakes
under this supply agreement in 2001 and 2000, respectively.

     Under an agreement with Imperial Chemical Industries ("ICI") in connection
with our acquisition of ICI's U.K. fertilizer assets, Terra may make payments to
ICI based on the market price obtained for AN sales by our U.K. business. Under
the terms of this agreement, Terra must make a payment for any year through 2002
in which the average AN price we receive exceeds certain thresholds, up to a
maximum payment of (pound)58 million in the aggregate (approximately $83.5
million). In the event Terra has suffered a material business interruption with
respect to this facility for 60 days or more in a year in which ICI would be
entitled to a payment above a certain amount, and this interruption is not
compensated by our insurance, Terra may extend to 2003 the duration of this
agreement, in which case the maximum aggregate payment will be increased to
(pound)61 million (approximately $87.8 million). Because of these payments,
Terra will not benefit fully from the U.K. market price of AN over certain
thresholds during the term of this agreement. Terra did not make any payments to
ICI under this agreement in 1999, 2000 or 2001, and we will not make any
payments in 2002.

     Terra's production facilities, combined with significant storage capacity
at over 60 locations throughout the major fertilizer consuming regions of the
U.S. and Canada, position Terra to respond competitively to demand in our
markets, a distinct advantage over imports, which face logistical challenges and
higher costs in transporting product to end-users in a timely fashion.

Methanol Business Segment

Product

     Terra is the leading U.S. producer of methanol. Methanol is used as a
feedstock in the production of other chemical products such as formaldehyde,
acetic acid and a variety of other chemical intermediates. Another major market
for methanol is as a feedstock in the production of MTBE, an oxygenate used as
an additive in reformulated gasoline and as an octane enhancer in
non-reformulated gasoline.

Manufacturing Facilities

     Terra has two U.S. facilities that produce methanol. Our Beaumont, Texas
facility is the largest methanol production plant in the U.S., with
approximately 225 million gallons of annual methanol production capacity. This
plant produced 201 million, 208 million and 204 million gallons of methanol in
1999, 2000 and 2001, respectively. The Woodward, Oklahoma facility produced
approximately 34 million, 36 million and 31 million gallons of methanol in 1999,
2000 and 2001, respectively, and has an annual methanol production capacity of
40 million gallons.

     Terra owns the plant and processing equipment at the Beaumont facility. The
land is leased from E. I. DuPont de Nemours and Company ("DuPont") for a nominal
annual rate under a lease agreement which expires in 2090. Because the Beaumont
facility is entirely contained within an industrial complex owned and operated
by DuPont, Terra depends on DuPont for access to the facility as well as certain
essential services. Most of the finished methanol product is shipped to
customers through wharf facilities located on DuPont property. Terra depends on
DuPont for access to the pipelines used to transport methanol and to obtain
natural gas, as well as for certain utilities, wastewater treatment facilities
and other essential services.

Marketing and Distribution

     Terra's methanol customers are primarily large, domestic chemical or MTBE
producers. We have a number of long-term methanol sales contracts. Terra sold
over 86% of our production under such contracts. At December 31, 2001, we had
contracted to sell over 70% of our 2002 scheduled production at prices indexed
to published sources. Most of these sales contracts cover fixed volumes and have
terms of up to three years.

                                       6

<PAGE>


Nitrogen Industry Overview

Overview

     The three major nutrients required for plant growth are phosphorous, mined
as phosphate rock, potassium, mined as potash, and nitrogen, produced from
natural gas. Phosphorus plays a key role in the photosynthesis process.
Potassium is an important regulator of plants' physiological functions.
Nitrogen, which comprised approximately 60% of worldwide fertilizer consumption
in 1999, is an essential element for most organic compounds in plants as it
promotes protein formation and is a major component of chlorophyll, which helps
to promote green healthy growth and high yields. There are no substitutes for
nitrogen fertilizers in the cultivation of high-yield crops. These three
nutrients occur naturally in the soil to a certain extent but must be replaced
as crops remove them from the soil. Nitrogen, to a greater extent than phosphate
and potash, must be reapplied each year in areas of intense agricultural usage
because of absorption by crops and its tendency to escape from the soil by
evaporation or runoff. Consequently, demand for nitrogen fertilizer tends to be
more consistent on a per acre planted basis than demand for phosphate or potash
fertilizer.

Demand

     Global demand for fertilizers typically grows at predictable rates and
tends to correspond to growth in grain production. Global fertilizer demand is
driven in the long term primarily by population growth, increases in disposable
income and associated improvements in diet. Short-term demand depends on world
economic growth rates and factors creating temporary imbalances in demand. These
factors include weather patterns, the level of world grain stocks relative to
consumption, agricultural commodity prices, energy prices, crop mix, fertilizer
application rates, farm income and temporary disruptions in fertilizer trade
from government intervention, such as changes in the buying patterns of China or
India. According to the International Fertilizer Industry Association ("IFA"),
over the last 37 years global fertilizer demand has grown 4.0% annually with
nitrogen demand growing at a faster rate of 5.4% annually. U.S. fertilizer
demand has grown 2.5% annually over the last 37 years with U.S. nitrogen demand
growing at a faster rate of 3.6% annually.

Supply

     Increased ammonia prices in 1995 led to capacity expansion projects
globally that resulted in capacity growth that was substantially greater than
demand, causing a structural imbalance in ammonia supply and demand. In
addition, foreign government support for domestic production in India, China and
the former Soviet Union, has kept uneconomic plants running, further increasing
supply.

     This new global capacity has been partially offset by permanent plant
closings in the U.S. since 1998. These U.S. plant closings represent 12.9% of
total 1998 capacity, and no new capacity is expected to come on stream in the
U.S. in the foreseeable future. The recent increase in natural gas costs in many
regions of the world has forced temporary plant closings which, in addition to
permanent plant closures, have provided support for nitrogen prices.

     Imports account for a significant portion of U.S. nitrogen product supply.
It is estimated by Fertecon that the United States imports up to one-third of
its ammonia and urea requirements. In 2000, total imports of ammonia and urea in
the United States were approximately 5.6 million tons and 4.6 million tons,
respectively. Producers from the former Soviet Union, Canada, the Middle East,
Trinidad and Venezuela are major exporters to the U.S. These export producers
are often competitive in regions of close proximity to the point of entry for
imports, primarily the Gulf Coast and East Coast of North America. Due to higher
freight costs and an underdeveloped distribution infrastructure, importers are
less competitive in serving the main corn-growing regions of the U.S., which are
more distant from these ports. Importers' advantage increases when natural gas
and ammonia prices are high, and decreases when natural gas costs and ammonia
prices are low.

Outlook

     Growth in worldwide population and a reduction in the amount of arable land
will increase the global demand for fertilizers. According to a United Nations
study, worldwide population is projected to grow by approximately 1.5 billion
from 2000 to 2020. Based on an industry study, the amount of arable land is
forecast to decrease from 0.27 hectares per capita in 1990 to 0.17 hectares per
capita in 2025.

                                       7

<PAGE>


     The IFA forecasts that global fertilizer consumption will grow at a rate of
1.9% to 2.8% annually through 2004. Most of the future increase in fertilizer
demand is expected to be generated by less developed countries, particularly
countries in Southeast Asia and South America, where the agricultural industry
does not yet use fertilizer in sufficient amounts to optimize production and
where growth rates of population and gross domestic products are expected to
continue to increase.

     According to Fertecon, ammonia consumption in the U.S. will increase by
2.3% annually from 2001 to 2005, from 19.7 million tons to 21.6 million tons.
The mix of products used, however, is expected to change. UAN demand is expected
to increase more rapidly at the expense of direct ammonia application due to its
significant application flexibility and ability to be mixed with other crop
production products, which provide significant cost and labor savings. U.S. UAN
demand increased from 9.9 million tons in 1990 to 14.6 million tons in 2000, an
increase of 48%, and is forecast to increase to 16.9 million tons in 2010,
according to Fertecon .

     A significant amount of new ammonia capacity is expected to come on stream
globally from 2001 to 2005. According to Fertecon, global ammonia capacity is
forecast to increase from 178.3 million tons to 186.9 million tons during this
period, an increase of 4.8%. However, ammonia capacity in the U.S. is forecast
to decrease from 18.2 million tons to 16.8 million tons from 2001 to 2005, a
decrease of 7.9%. The continued growth in demand for nitrogen products has
helped to stabilize global ammonia utilization rates, which averaged 82% between
1997 and 2000. Global ammonia utilization rates are forecast to increase from
82% in 2000 to 86% in 2005 due to increased consumption worldwide. In the U.S.,
ammonia utilization rates are forecast to increase from 81% in 2001 to 89% in
2005.

     Due to the Clean Air Act of 1990, as amended, energy providers are required
to reduce emissions of nitrogen oxides ("NOX"). This presents a new market
opportunity for ammonia, which can be used to remove NOX from air emissions. The
McIlvaine Company estimates that the ammonia demand for this new application
could increase demand by up to 2 million tons, or 11% of total 2000 U.S.
capacity, by 2004.

Methanol Industry Overview

Overview

     Methanol is a liquid made primarily from natural gas and is used as a
feedstock in the production of formaldehyde, acetic acid, MTBE, and a variety of
other chemical intermediates which form the foundation of a large number of
secondary derivatives. Formaldehyde is used to produce urea-formaldehyde and
phenol-formaldehyde resins, which are used as wood adhesives for plywood,
particleboard, oriented strand board, medium-density fiberboard and other
engineered wood products. In addition, formaldehyde is also used in the
manufacture of elastomers, paints, foams, polyurethane and automotive products.
Acetic acid is used as a chemical intermediate to produce adhesives, paper,
paints, plastics, resins, solvents, and textiles. MTBE, an oxygenate and octane
enhancer, is used to reduce hydrocarbon and carbon monoxide emissions from motor
vehicles. Chemical intermediates are used to manufacture de-icer and windshield
fluid, antifreeze, herbicides, pesticides, and poultry feed products.

     Methanol is a typical commodity chemical and the methanol industry is
characterized by cycles of oversupply resulting in lower prices and idled
capacity, followed by periods of shortage and rapidly rising prices as demand
rises and exceeds supply until increased prices justify new plant investments or
the re-start of idled capacity. However, the expanding number of different uses
for methanol and its derivatives over the last several years has resulted in the
methanol industry becoming more complex and subject to increasingly diverse
influences on supply and demand.

Demand

     According to an industry source, global methanol demand grew by 3.6%
annually from 1997 to 2000. According to Chemical Data Inc., U.S. methanol
demand grew by 2.4% annually during the same period. In 2000, formaldehyde,
acetic acid and chemical intermediates comprised 34%, 10% and 28% of global
demand for methanol, respectively. Due to an increasing range of end uses for
methanol, demand has tended to move with the general level of economic activity
in methanol's major markets. The significant use of methanol for the production
of chemicals used in the building products industry means that building and
construction cycles are important factors in determining demand for
methanol-based chemicals.

     MTBE comprised approximately 28% of global demand for methanol in 2000.
MTBE is considered the preferred oxygenate by the refining industry and its
production has grown rapidly. MTBE production increased from 456 million gallons
in 1989 to 1,109 million gallons in 2000. Recently, the state of California
adopted regulations

                                       8

<PAGE>


that prohibit the addition of MTBE to gasoline after 2002. California's
consumption of MTBE comprises approximately 6% of U.S. demand for methanol.

Supply

     Over the past several years significant industry restructuring has taken
place with approximately 617 million gallons of North American methanol capacity
shut down in 1999, a further rationalization of 150 million gallons in 2000 and
455 million gallons through September 2001. New methanol production facilities
have generally been constructed in locations with low-cost natural gas
availability, although this advantage is offset by higher distribution costs due
to distance from major markets.

Outlook

     According to an industry source, global methanol demand and supply are
forecast to increase by 2.8% and 2.2%, respectively, on an annual basis from
2001 to 2004 with global capacity utilization rates forecast to increase from
79% to 80% during this period. In the U.S., methanol demand and capacity are
forecast to decrease by 0.6% and 4.7%, respectively, on an annual basis with
capacity utilization rates forecast to decrease from 89% to 78% during this
period. Global demand for methanol for production of formaldehyde and acetic
acid is forecast to grow 3.4% and 3.0% annually, respectively, from 2001 to
2005. A significant factor in the declining forecast for U.S. methanol demand is
the projected decrease in demand for MTBE.

     Principal alternatives to MTBE include ethanol, ETBE, an ethanol
derivative, and TAME, which, like MTBE, is produced from methanol. Ethanol,
however, has two principal disadvantages. First, it is more expensive than MTBE,
although this cost differential has been partially offset by a government
subsidy. Second, the volatility of ethanol-oxygenated gasoline exceeds the
levels permitted by the 1990 Clean Air Act Amendments, effectively limiting its
use as a year-round oxygenate. TAME, a methanol derivative, has a lower
volatility than MTBE and could, if widely used, reduce demand for MTBE, but
requires the same amount of methanol to produce.

     As described above, demand for methanol in the manufacture of MTBE is
forecast to decline in the U.S. due to regulations adopted in California.
Heightened public awareness regarding this issue has resulted in other state and
federal initiatives to rescind the federal oxygenate requirements for
reformulated gasoline or restrict or prohibit the use of MTBE in particular. For
example, California has requested that the U.S. Environmental Protection Agency
waive the federal oxygenated fuels requirements for gasoline sold in California.
Several bills have been introduced in Congress to accomplish similar goals of
curtailing or eliminating the oxygenated fuels requirements in the Clean Air
Act, or of curtailing MTBE use. In 1999, the U.S. Senate also passed a
non-binding resolution calling for a phase out of MTBE. In addition, on March
20, 2000, the EPA announced its intention to phase-out the use of MTBE under
authority of the federal Toxic Substances Control Act. The EPA also called on
Congress to restrict the use of MTBE under the Clean Air Act. Any phase-out of
or prohibition against the use of MTBE in California, in other states, or
nationally may result in a significant reduction in demand for MTBE and result
in a material loss in methanol revenues.

     However, any decrease in MTBE demand may be offset, at least in part, by an
increase in methanol demand for industrial applications and growing MTBE demand
in Europe and Asia. Methanol is also used to some extent as a direct fuel
source. The use of methanol for this purpose historically has been relatively
small and sporadic. Recently, there have been several legislative initiatives in
the U.S. relating to possible mandated use of alternative fueled or flexible
fueled vehicles in certain circumstances. Several automobile manufacturers have
developed vehicles able to operate on methanol for such purposes. It is
currently not possible to determine the extent to which these initiatives will
impact future methanol demand.

Credit

     Our credit terms are generally 15-30 days in the U.S. and 30 days in the
U.K., but may be extended for longer periods during certain sales seasons
consistent with industry practices. Bad debt writeoffs have been less than $1
million annually for each of the past three years.

Seasonality and Volatility

     The fertilizer business is seasonal, based upon the planting, growing and
harvesting cycles. Nitrogen fertilizer inventories must be accumulated to permit
uninterrupted customer deliveries, and require significant storage

                                       9

<PAGE>

capacity. This seasonality generally results in higher fertilizer prices during
peak periods, with prices normally reaching their highest point in the spring,
decreasing in the summer, and increasing again in the fall as depleted
inventories are restored.

     Nitrogen fertilizer prices can also be volatile as a result of a number of
other factors. The most important of these factors are:

     .    Weather patterns and field conditions (particularly during periods of
          high fertilizer consumption);

     .    Quantities of fertilizers imported to and exported from North America
          and imported to the U.K.;

     .    Current and projected grain inventories and prices, which are heavily
          influenced by U.S. exports and worldwide grain markets; and

     .    Price fluctuations in natural gas, the principal raw material used to
          produce nitrogen fertilizer and methanol.

     Governmental policies may directly or indirectly influence the number of
acres planted, the level of grain inventories, the mix of crops planted and crop
prices.

     Price volatility in North American natural gas markets prompted
industry-wide curtailment of both nitrogen fertilizer and methanol production in
2000. We idled our Blytheville, Arkansas plant from June through mid-August 2000
and our Blytheville, Arkansas and Beaumont, Texas plants and parts of our
Verdigris, Oklahoma plant for the month of December 2000 due to high natural gas
costs. During 2000, we produced only 89% and 84% of our ammonia and methanol
capacity, respectively, because of plant shutdowns due to high natural gas
costs. In January 2001, due to unprecedented natural gas prices of near
$10.00/MMBtu, most of our North American production was idled. By the end of
that month as natural gas prices declined, we were able to restart production.
On June 10, 2001, we once again stopped production at our Blytheville, Arkansas
plant. We reopened our Blytheville, Arkansas facility on September 28 and
resumed full production on September 30, 2001.

     While most U.S. methanol is sold pursuant to long-term contracts based on
market index pricing and fixed volumes, the spot market price of methanol can be
volatile. The industry has experienced cycles of oversupply, resulting in
depressed prices and idled capacity, followed by periods of shortages and
rapidly rising prices. From the end of 1998 through the end of 1999, methanol
sales prices were below the low end of their historic price range; however by
early 2000 prices had improved to historic levels. Future demand for methanol
will depend in part on the emerging regulatory environment with respect to
reformulated gasoline.

Raw Materials

     The principal raw material used to produce manufactured nitrogen products
and methanol is natural gas. Natural gas costs in 2001 comprised about 53% of
total costs and expenses for our North American nitrogen products business, 25%
of total costs and expenses for our U.K. nitrogen products business, and 57% of
total costs and expenses associated with our methanol business. We believe there
is a sufficient supply of natural gas for the foreseeable future and will, as
opportunities present themselves, enter into firm transportation contracts to
minimize the risk of interruption or curtailment of natural gas supplies during
the peak-demand winter season.

     Since 1999, Terra's natural gas hedging policy has required us to fix or
cap the price of 25% to 80% of our natural gas requirements for a rolling
one-year period, and up to 50% of our natural gas requirements for the
subsequent two-year period, provided that such arrangements would not result in
costs that would be greater than the expected selling prices for our finished
products. In response to extremely volatile natural gas costs during the last
six months of 2000 and uncertainties regarding the ability of finished goods
prices to recover the increases to gas costs, the Board of Directors amended the
hedging policy and eliminated the minimum hedge requirement through the end of
2001. Early in 2002, the Board revised the hedging policy to permit hedging of
20% to 80% of our natural gas requirements for the upcoming year and up to 50%
of the requirements for the following two-year period. Capping natural gas
prices is accomplished through various supply contracts, financial derivatives
and other instruments. A significant portion of global nitrogen products and
methanol production occurs at facilities with access to low fixed-priced natural
gas supplies. These facilities' natural gas costs have been and could continue
to be substantially lower than ours.

     If natural gas prices rise, we may benefit from our use of forward-pricing
techniques. Conversely, if natural gas prices fall, we may incur costs above the
then available spot market price. The settlement dates of forward-pricing

                                       10

<PAGE>

contracts coincide with gas purchase dates. Forward-pricing contracts are based
on a specified price referenced to spot market prices or appropriate NYMEX
futures contract prices.

Transportation

     Terra uses several modes of transportation to receive materials and
distribute products to customers, including railroad cars, common carrier
trucks, barges and common carrier pipelines. We use approximately 60 liquid, dry
and anhydrous ammonia fertilizer terminal storage facilities in 18 U.S. states
and one Canadian province. We also lease a methanol storage facility in Deer
Park, Texas. We transport products from this storage facility primarily by
marine vessels, rail tank cars and via pipeline to selected customers.

     Railcars are the major source of transportation at our North American
manufacturing facilities. Terra leases approximately 2,120 railcars. Terra also
owns 10 nitric acid railcars. In the U.K., Terra's AN production is transported
primarily by contract carrier trucks, and ammonia production is transported
primarily by pipelines that we own.

     Terra transports purchased natural gas to our Woodward, Oklahoma facility
via both intrastate and interstate pipelines and to Terra's Verdigris, Oklahoma
facility via intrastate pipeline. The intrastate pipelines serving Woodward and
Verdigris are not open-access carriers, but are nonetheless part of a widespread
regional system through which Woodward and Verdigris can receive natural gas
from any major Oklahoma source. Terra also has limited access to out-of-state
natural gas supplies for these facilities. Terra's Beaumont, Texas facility
sources natural gas via four intrastate pipelines. The Courtright, Ontario
facility sources natural gas at delivery points at Parkway and Dawn, Ontario and
a local utility. We transport purchased natural gas for both our Port Neal, Iowa
and Blytheville, Arkansas facilities via interstate, open-access pipelines. At
the Billingham and Severnside, England locations, purchased natural gas is
transported to the facilities via a nationwide, open-access pipeline system.

Research and Development

     We do not currently have any significant, ongoing research and development
efforts.

Competition

     The industries in which Terra operates are highly competitive. Competition
in agricultural input markets takes place largely on the basis of price,
reliability of supply, delivery time and quality of service. Feedstock
availability to production facilities and the cost and efficiency of production,
transportation and storage facilities are also important competitive factors.
Government intervention in international trade can distort the competitive
environment. The relative cost and availability of natural gas are also
important competitive factors. Significant determinants of a plant's competitive
position are the natural gas acquisition and transportation contracts that a
plant negotiates with its major suppliers as well as proximity to natural gas
sources and/or end-users.

     Terra's domestic competitors in the nitrogen fertilizer markets include
large farm cooperatives or other independent fertilizer companies. In addition,
nitrogen fertilizers imported into the United States compete with domestically
produced nitrogen fertilizers, including those produced by Terra. Countries with
inexpensive sources of natural gas (whether as a result of government regulation
or otherwise) can produce nitrogen fertilizers at a low cost. A substantial
amount of new ammonia capacity is expected to be added abroad in the foreseeable
future. However, importers face higher transportation costs, which erode their
profit margin and competitive pricing position.

     In the methanol segment, Terra competes with a number of large integrated
petrochemical producers, many of which are better capitalized than is Terra. In
addition, as the production and trade in methanol have become increasingly
globalized, a number of foreign competitors produce methanol primarily for the
export market. Many of these foreign competitors have access to favorably priced
sources of natural gas and are relatively insensitive to raw material price
fluctuations. These advantages are largely offset by high production and
transportation costs. However, because of low domestic demand in the country
which they produce, these foreign competitors aggressively pursue the U.S. and
other export markets. Two new methanol plants commenced production in 2000,
including Titan Methanol in Trinidad and NPC in Iran. Methanol prices may be
adversely affected by two additional plants - one in Equatorial Guinea, which
has recently started production, and one in Argentina, which is expected to
begin production before the end of 2002.

                                       11

<PAGE>

     Nitrogen sales are made through independent retailers, resellers, farmer
co-operatives affiliated dealer organizations and brokers. Some North American
producers are subsidiaries or divisions of energy or chemical companies while
others are owned by farmer co-operatives.

Environmental and Other Regulatory Matters

     Terra's operations are subject to various federal, state and local
environmental, health and safety laws and regulations, including laws relating
to air quality, hazardous and solid wastes and water quality. Terra's operations
in Canada are subject to various federal and provincial regulations regarding
such matters, including the Canadian Environmental Protection Act administered
by Environment Canada, and the Ontario Environmental Protection Act administered
by the Ontario Ministry of the Environment. Terra's U.K. operations are subject
to similar regulations under a variety of acts governing hazardous chemicals,
transportation and worker health and safety. We are also involved in the
manufacture, handling, transportation, storage and disposal of materials that
are or may be classified as hazardous or toxic by federal, state, provincial or
other regulatory agencies. We take precautions to reduce the likelihood of
accidents involving these materials. If such materials have been or are disposed
of at sites that are targeted for investigation and/or remediation by federal or
state regulatory agencies, Terra may be responsible under CERCLA or analogous
laws for all or part of the costs of such investigation and remediation, and
damages to natural resources.

     Terra has been designated as a potentially responsible party ("PRP") under
CERCLA and its state analogues with respect to various sites, including the
Pinal Creek Drainage Basin Site ("Pinal Site") in Globe/Miami, Arizona based on
our prior ownership and operation of copper mining and production facilities
there. Under such laws, all PRPs may be held jointly and severally liable for
the costs of investigation and/or remediation of an environmentally damaged site
regardless of fault or legality of original disposal. The Pinal Site is the
subject of on-going cleanup to address releases of acidic metal-bearing
solutions from former copper mining and production facilities in the Pinal Site,
being performed pursuant to a consent decree entered in 1997 among Inspiration
Consolidated Copper Company ("Inspiration"), our subsidiary, as a former
owner/operator and the two current owner/operators (collectively with us, the
"Group"), and the Arizona Department of Environmental Quality. The parties are
jointly and severally liable for the financing and performance of the work;
however, Inspiration is not actually participating in the cleanup because it no
longer owns assets at the Pinal Site. In a related matter, residents in the area
of the Pinal Site brought a class action lawsuit against the Group seeking
property damages and medical monitoring for potential personal injuries
allegedly related to exposure to contaminated groundwater. All claims have been
settled, although plaintiffs have reserved the right to assert individually any
personal injury claims. After consideration of such factors as the number and
levels of financial responsibility of other PRPs, including ongoing litigation
against other PRPs and historic insurance carriers, and the existence of
contractual indemnities, we believe that our liability with respect to these
matters will not be material. Existing contractual indemnities may be subject to
legal challenge, however, there can be no guarantee that they will be upheld or
sufficient to cover all costs, or that material expenditures will not be
incurred for these matters.

     Terra retained a small number (less than 10%) of its retail locations after
the sale of its distribution business in the second quarter of 1999. Some of
these locations are now, or are expected in the future to be, the subject of
environmental clean-up activities for which we have retained liability. We do
not believe that such environmental costs and liabilities will have a material
effect on our results of operations, financial position or net cash flows.

     With respect to our Verdigris and Blytheville facilities, Freeport-McMoRan
Resource Partners, Limited Partnership (a former owner and operator of these
facilities) retained liability for certain environmental matters. With respect
to our Beaumont facility, DuPont retains responsibility for certain
environmental costs and liabilities stemming from conditions or operations to
the extent such conditions or operations existed or occurred prior to our
purchase of the facility in 1991. Likewise, with respect to our Billingham and
Severnside, England facilities the seller, ICI, indemnified us, subject to
certain conditions, for pre-December 31, 1997 environmental contamination
associated with the purchased assets. Known conditions are not expected to
result in material expenditures but discovery of unknown conditions or the
failure of prior owners and operators and indemnitors to meet their obligations
could require significant expenditures.

     Terra may be required to install additional air and water quality control
equipment, such as low NOX burners, scrubbers, ammonia sensors and continuous
emission monitors, at certain facilities in order to maintain compliance with
applicable environmental requirements. We estimate that the cost of additional
equipment to comply with these requirements in 2002 and the next two years will
be less than $10 million.

     Terra endeavors to comply in all material respects with applicable
environmental, health and safety regulations and has incurred substantial costs
in connection with such compliance. Because these regulations are expected to

                                       12

<PAGE>

continue to change and generally be more restrictive than current requirements,
the costs of compliance will likely increase. We do not expect our compliance
with such regulations to have a material adverse effect on our results of
operations, financial position or net cash flows. However, there can be no
guarantee that new regulations will not result in material costs.

Revenues and Assets

     Terra's revenues from external customers, measure of profit and loss and
total assets for the years 1999-2001 are set forth in the Notes to the
Consolidated Financial Statements. Terra's revenues and assets according to
geography (U.S., Canada and U.K.) are also set forth in the Notes to the
Consolidated Financial Statements.

Employees

     We had 1,248 full-time employees at December 31, 2001, with approximately
470 U.K. employees being covered by the equivalent of a collective bargaining
agreement.

Item 3. LEGAL MATTERS

     On July 13, 2001, a British court found Terra Nitrogen (UK) Limited liable
for damages associated with recalls of beverages containing carbon dioxide
tainted with benzene, plus interest and attorney fees. In addition, there are
three similar cases awaiting trial and certain other beverage manufacturers have
indicated their intention to file claims for unspecified amounts. We estimate
that total claims against Terra from these lawsuits may be (pound)10 million, or
approximately $14 million. We have established reserves in this amount to cover
estimated losses.

     Terra has appealed the British court's decision. In addition, we believe we
have recourse for these claims against both our insurer and the previous owner
of our U.K. operations. (Our insurer had previously paid, without recourse, two
recall cost settlements on our behalf, plus a court judgment rendered against
us. Nonetheless, the insurer reserved its right to deny coverage in whole or in
part for adverse judgments in the remaining cases.) We will vigorously pursue
our rights against these parties, but there will be no income recognition for
those rights until settlements are finalized.

     We are involved in various other legal actions and claims, including
environmental matters, arising from the normal course of business. While it is
not feasible to predict with certainty the final outcome of these proceedings,
we do not believe that these matters, or the U.K. benzene claims, will have a
material adverse effect on our results of operations, financial position or net
cash flows.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     No items were submitted to a vote of security holders of Terra during the
fourth quarter of 2001.

                                       13

<PAGE>

                           EXECUTIVE OFFICERS OF TERRA

     The following paragraphs set forth the name, age and offices of each
present executive officer of Terra, the period during which each executive
officer has served as such and each executive officer's business experience
during the past five years:

<TABLE>
<CAPTION>
                               Present positions and offices with the Company
      Name and age          and principal occupations during the past five years
      ------------          ----------------------------------------------------
<S>                         <C>
Michael L. Bennett (48)     President and Chief Executive Officer of Terra since April
                            2001; Executive Vice President and Chief Operating Officer
                            of Terra from February 1997 to April 2001; President and
                            Chief Executive Officer of Terra Nitrogen Division since
                            June 1998; President of Terra Distribution Division from
                            November 1995 to February 1997; Senior Vice President of
                            Terra from February 1995 to February 1997; Senior Vice
                            President, Distribution of Terra International from October
                            1994 to February 1997.

Mark A. Kalafut (48)        Vice President, General Counsel and Corporate Secretary of
                            Terra since June 2001; Vice President and Associate General
                            Counsel of Terra from April 1997 through June 2001; Vice
                            President and General Counsel of Terra International from
                            April, 1989 to April, 1997.

Francis G. Meyer (50)       Senior Vice President and Chief Financial Officer of Terra
                            since November 1995.

W. Mark Rosenbury (54)      Senior Vice President and Chief Administrative Officer of
                            Terra since August 1999; Vice President, European Operations
                            of Terra and Managing Director of Terra Nitrogen U.K. from
                            January 1998 to August 1999; Vice President, Business
                            Development and Strategic Planning of Terra from November
                            1995 to January 1998; President of Terra Nitrogen
                            Corporation from November 1994 to February 1996.

Wynn S. Stevenson (47)      Vice President, Taxes and Corporate Development of Terra
                            since May 1998; Vice President, Taxes of Terra from April
                            1996 to May 1998; Director, Taxes thereof from June 1992 to
                            April 1996.
</TABLE>

     There are no family relationships among the executive officers and
directors of Terra or arrangements or understandings between any executive
officer and any other person pursuant to which any executive officer was
selected as such. Officers of Terra are elected annually to serve until their
respective successors are elected and qualified.

                                       14

<PAGE>

                                     PART II
                                     -------

Item 5. MARKET FOR TERRA'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     Information with respect to the market for Terra's common equity and
related stockholder matters contained in Exhibit 13 hereto (primarily under the
headings "Quarterly Financial and Stock Market Data (Unaudited)" and
"Stockholders") is incorporated herein by reference.

Item 6. SELECTED FINANCIAL DATA.

     Information with respect to selected financial data contained in Exhibit 13
hereto (primarily under the heading "Financial Summary") is incorporated herein
by reference.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

     Information with respect to management's discussion and analysis of
financial condition and results of operations contained in Exhibit 13 hereto
(primarily under the heading "Financial Review") is incorporated herein by
reference.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Information with respect to quantitative and qualitative disclosures about
market risk contained in Exhibit 13 hereto (primarily under the subheading "Risk
Management and Financial Instruments" of the "Financial Review" discussion) is
incorporated herein by reference.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The consolidated financial statements, together with the notes thereto and
the report of independent auditors thereon, and the information set forth under
the heading "Quarterly Financial and Stock Market Data (Unaudited)" contained in
Exhibit 13 hereto are incorporated herein by reference.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

     There has been no change in accountants, nor has there been any matter of
accounting principles or practices or financial disclosure, which in either case
is required to be reported pursuant to this Item 9.

                                       15

<PAGE>

                                    PART III
                                    --------

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF TERRA.

     Information with respect to directors of Terra under the caption "Election
of Directors" in the Proxy Statement for the Annual Meeting of Stockholders of
Terra to be held on April 30, 2002, is incorporated herein by reference.
Information with respect to executive officers of Terra appears under the
caption "Executive Officers of Terra" in Part I hereof and is incorporated
herein by reference.

Item 11. EXECUTIVE COMPENSATION.

     Information with respect to executive compensation under the caption
"Executive Compensation and Other Information" in the Proxy Statement for the
Annual Meeting of Stockholders of Terra to be held on April 30, 2002, is
incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     Information with respect to security ownership of certain beneficial owners
and management under the caption "Equity Security Ownership" in the Proxy
Statement for the Annual Meeting of Stockholders of Terra to be held on April
30, 2002, is incorporated herein by reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Information with respect to certain relationships and related transactions
under the caption "Certain Relationships and Related Transactions" in the Proxy
Statement for the Annual Meeting of Stockholders of Terra to be held on April
30, 2002, is incorporated herein by reference.

                                     PART IV
                                     -------

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)  Financial Statements and Financial Statement Schedules.

     1.   Consolidated Financial Statements of Terra and its subsidiaries
          (incorporated herein by reference to Exhibit 13 hereof).

               Consolidated Statements of Financial Position at December 31,
               2001 and 2000.

               Consolidated Statements of Operations for the years ended
               December 31, 2001, 2000 and 1999.

               Consolidated Statements of Cash Flows for the years ended
               December 31, 2001, 2000 and 1999.

               Consolidated Statements of Changes in Stockholders' Equity for
               the years ended December 31, 2001, 2000 and 1999.

               Notes to the Consolidated Financial Statements.

               Responsibility for Financial Statements.

               Independent Auditors' Report.

               Quarterly Production Data (Unaudited).

               Quarterly Financial and Stock Market Data (Unaudited).

               Volumes and Prices (Unaudited).

               Stockholders.

               Financial Summary.

                                       16

<PAGE>

     2.   Index to Financial Statement Schedules.

          See Index to Financial Statement Schedules of Terra and its
          subsidiaries at page S-1.

     3.   Other Financial Statements.

          Individual financial statements of Terra's subsidiaries are omitted
          because all such subsidiaries are included in the consolidated
          financial statements being filed. Individual financial statements of
          50% or less owned persons accounted for on the equity method have been
          omitted because such 50% or less owned persons considered in the
          aggregate, as a single subsidiary, would not constitute a significant
          subsidiary.

(b)  Executive Compensation Plans and Arrangements.

     Exhibits 10.1.1 through 10.1.22 are incorporated herein by reference.

(c)  Reports on Form 8-K

     Form 8-K dated October 10, 2001, announcing completion of a new $175.0
     million revolving credit facility and issuance of $200.0 million of 12 7/8%
     Senior Secured Notes due in 2008.

(d)  Exhibit
<TABLE>
<S>          <C>
3.1.1        Articles of Restatement of Terra Industries filed with the State of
             Maryland on September 11, 1990, filed as Exhibit 3.1 to Terra
             Industries' Form 10-K for the year ended December 31, 1990, is
             incorporated herein by reference.

3.1.2        Articles of Amendment of Terra Industries filed with the State of
             Maryland on May 6, 1992, filed as Exhibit 3.1.2 to Terra Industries'
             Form 10-K for the year ended December 31, 1992, is incorporated herein
             by reference.

3.1.3        Articles Supplementary of Terra Industries filed with the State of
             Maryland on October 13, 1994, filed as Exhibit 4.1.3 to Terra
             Industries' Form 8-K/A dated November 3, 1994, is incorporated herein
             by reference.

3.2          By-Laws of Terra Industries, as amended through August 7, 1991, filed
             as Exhibit 3 to Terra Industries' Form 8-K dated September 30, 1991,
             is incorporated herein by reference.

3.3          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.

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

3.5          Certificate of Incorporation of Beaumont Holdings Corporation filed as
             Exhibit 3.i.(c) 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 BMC Holdings Inc. filed as Exhibit
             3.i.(d) to Terra Capital, Inc.'s Registration Statement filed on Form
             S-4 on November 13, 2001, is incorporated herein by reference.

3.7          Certificate of Incorporation of Port Neal Corporation filed as Exhibit
             3.i.(e) to Terra Capital, Inc.'s Registration Statement filed on Form
             S-4 on November 13, 2001, is incorporated herein by reference.

3.8          Certificate of Incorporation of Terra (UK) Holdings Inc. filed as
             Exhibit 3.i.(f) to Terra Capital, Inc.'s Registration Statement filed
             on Form S-4 on November 13, 2001, is incorporated herein by reference.
</TABLE>

                                           17

<PAGE>

<TABLE>
<S>          <C>
3.9          Certificate of Incorporation of Terra Capital Holdings, Inc. filed as
             Exhibit 3.i.(g) to Terra Capital, Inc.'s Registration Statement filed
             on Form S-4 on November 13, 2001, is incorporated herein by reference.

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

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

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

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

3.14         Certificate of Incorporation of Terra Real Estate Corporation filed as
             Exhibit 3.i.(o) to Terra Capital, Inc.'s Registration Statement filed
             on Form S-4 on November 13, 2001, is incorporated herein by reference.

3.15         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.

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

3.17         By-Laws of Beaumont Holdings Corporation filed as Exhibit 3.ii.(c) to
             Terra Capital, Inc.'s Registration Statement filed on Form S-4 on
             November 13, 2001, is incorporated herein by reference.

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

3.19         By-Laws of Port Neal Corporation filed as Exhibit 3.ii.(e) to Terra
             Capital, Inc.'s Registration Statement filed on Form S-4 on November
             13, 2001, is incorporated herein by reference.

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

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

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

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

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

3.25         By-Laws of Terra Nitrogen Corporation filed as Exhibit 3.ii.(l) to
             Terra Capital, Inc.'s Registration Statement filed on Form S-4 on
             November 13, 2001, is incorporated herein by reference.
</TABLE>

                                       18

<PAGE>

<TABLE>
<S>          <C>
3.26         By-Laws of Terra Real Estate Corporation filed as Exhibit 3.ii.(m) to
             Terra Capital, Inc.'s Registration Statement filed on Form S-4 on
             November 13, 2001, is incorporated herein by reference.

4.1          Indenture dated as of June 22, 1995 between Terra Industries and First
             Trust National Association, as trustee, including form of Exchange
             Note, filed as Exhibit 4.1 to Terra Industries' Registration Statement
             on Form S-4, as amended (File No. 33-60853), is incorporated herein by
             reference.

4.2          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'
             Form 8-K dated October 10, 2001, is incorporated herein by reference.

4.3          Amended and Restated Credit Agreement dated as of October 10, 2001
             among Terra Capital, Inc., Terra Nitrogen (U.K.) Limited, and Terra
             Nitrogen, Limited Partnership, certain guarantors, certain lenders,
             certain issuing banks and Citicorp USA, Inc., filed as Exhibit 4.2 to
             Terra Industries' Form 8-K dated October 10, 2001, is incorporated
             herein by reference.

10.1.1       Resolution adopted by the Personnel Committee of the Board of
             Directors of Terra Industries with respect to supplemental retirement
             benefits for certain senior executive officers of Terra Industries,
             filed as Exhibit 10.4.2 to Terra Industries' Form 10-Q for the fiscal
             quarter ended March 31, 1991, is incorporated herein by reference.

10.1.2       1992 Stock Incentive Plan of Terra Industries filed as Exhibit 10.1.6
             to Terra Industries' Form 10-K for the year ended December 31, 1992,
             is incorporated herein by reference.

10.1.3       Form of Restricted Stock Agreement of Terra Industries under its 1992
             Stock Incentive Plan filed as Exhibit 10.1.7 to Terra Industries' Form
             10-K for the year ended December 31, 1992, is incorporated herein by
             reference.

10.1.4       Form of Incentive Stock Option Agreement of Terra Industries under its
             1992 Stock Incentive Plan, filed as Exhibit 10.1.8 to Terra
             Industries' Form 10-K for the year ended December 31, 1992, is
             incorporated herein by reference.

10.1.5       Form of Nonqualified Stock Incentive Agreement of Terra Industries
             under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.9 to Terra
             Industries' Form 10-K for the year ended December 31, 1992, is
             incorporated herein by reference.

10.1.6       Excess Benefit Plan of Terra Industries, as amended effective as of
             January 1, 1992, filed as Exhibit 10.1.13 to Terra Industries' Form
             10-K for the year ended December 31, 1992, is incorporated herein by
             reference.

10.1.6.a.    Amendment to the Terra Industries Inc. Excess Benefit Plan, dated July
             26, 2000, filed as Exhibit 10.1.6.a to Terra Industries' Form 10-K for
             the year ended December 31, 2000, as incorporated herein by reference.

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

10.1.8       Amendment No. 1 to the Terra Industries Inc. Supplemental Deferred
             Compensation Plan, filed as Exhibit 10.1.15 to Terra Industries' Form
             10-Q for the quarter ended September 30, 1995, is incorporated herein
             by reference.

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

10.1.9       Revised Form of Performance Share Award of Terra Industries under its
             1992 Stock Incentive Plan, filed as Exhibit 10.1.11 to Terra
             Industries' Form 10-K for the year ended December 31, 1996, is
             incorporated herein by reference.

10.1.10      Revised Form of Incentive Stock Option Agreement of Terra Industries
             under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.12 to Terra
             Industries' Form 10-K for the year ended December 31, 1996, is
             incorporated herein by reference.
</TABLE>

                                       19

<PAGE>

<TABLE>
<S>          <C>
10.1.11      Revised Form of Nonqualified Stock Option Agreement of Terra
             Industries under its 1992 Stock Incentive Plan, filed as Exhibit
             10.1.13 to Terra Industries' Form 10-K for the year ended December 31,
             1996, is incorporated herein by reference.

10.1.12      1997 Stock Incentive Plan of Terra Industries, filed as Exhibit
             10.1.14 to Terra Industries' Form 10-K for the year ended December 31,
             1996, is incorporated herein by reference.

10.1.13      Form of Incentive Stock Option Agreement of Terra Industries under its
             1997 Stock Incentive Plan filed as Exhibit 10.1.13 to Terra
             Industries' Form 10-K for the year ended December 31, 1999, is
             incorporated herein by reference.

10.1.14      Form of Nonqualified Stock Option Agreement of Terra Industries under
             its 1997 Stock Incentive Plan filed as Exhibit 10.1.14 to Terra
             Industries' Form 10-K for the year ended December 31, 1999, is
             incorporated herein by reference.

10.1.15      Form of Performance Share Award of Terra Industries under its 1997
             Stock Incentive Plan, filed as Exhibit 10.1.15 to Terra Industries'
             Form 10-K for the year ended December 31, 1998, is incorporated herein
             by reference.

10.1.16*     Retirement and Consulting Agreement for Burton M. Joyce, dated April
             26, 2001.

10.1.17      Form of Executive Retention Agreement for Other Executive Officers,
             filed as Exhibit 10.1.19 to Terra Industries' Form 10-K for the year
             ended December 31, 1998, is incorporated herein by reference.

10.1.18*     2002 Incentive Award Program for Officers and Key Employees of Terra
             Industries.

10.1.19      Form of Non-Employee Director Stock Option Agreement under the 1997
             Stock Incentive Plan, filed as Exhibit 10.2.21 to Terra Industries'
             Form 10-Q for the quarter ended September 30, 1999, is incorporated
             herein by reference.

10.1.20      Amendment No. 1 dated as of February 20, 1997 to the 1997 Stock
             Incentive Plan filed as Exhibit 10.1.21 to Terra Industries' Form 10-K
             for the year ended December 31, 1999, is incorporated herein by
             reference.

10.1.21      Form of Performance Share Award of Terra Industries under
             its 1997 Stock Incentive Plan, dated February 16, 2000,
             filed as Exhibit 10.1.22 of the Terra Industries; Form
             10-K for the year ended December 31, 2000, is incorporated
             herein by reference.

10.1.22      Form of Non-Employee Director Performance Share Award of
             Terra Industries under its 1997 Stock Incentive Plan,
             dated May 2, 2000, filed as Exhibit 10.1.23 to the Terra
             Industries' Form 10-K for the year ended December 31,
             2000, is incorporated herein by reference.

10.2         Agreement of Limited Partnership of TNCLP (formerly known as
             Agricultural Minerals Company, L.P.) dated as of December 4, 1991,
             filed as Exhibit 99.3 to Terra Industries' Registration Statement on
             Form S-3, as amended, (File No. 33-52493), is incorporated herein by
             reference.

10.3         Agreement of Limited Partnership of TNLP (formerly known
             as Agricultural Minerals, Limited Partnership) dated as of
             December 4, 1991, filed as Exhibit 99.4 to Terra
             Industries' Registration Statement on Form S-3, as
             amended, (File No. 33-52493), is incorporated herein by
             reference.

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

10.5         General and Administrative Services Agreement Regarding
             Services by Terra Nitrogen Corporation, filed as Exhibit
             10.12 to Terra Industries Inc. Form 10-Q for the quarter
             ended March 31, 1995, is incorporated herein by reference.

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

                                       20

<PAGE>

<TABLE>
<S>          <C>
10.7         Ammonium Nitrate Agreement dated December 31, 1997 between
             Terra International (Canada) Inc and ICI Chemicals &
             Polymers Limited filed as Exhibit 99 to Terra Industries'
             Form 8-K/A dated December 31, 1997, is incorporated herein
             by reference.

10.8 **      Second Amended and Restated Agreement of Limited Partnership of
             Beaumont Methanol, Limited Partnership dated March 31, 1998 by and
             among Terra Methanol Corporation, BMC Holdings, Inc. and Nova Products
             LLC, filed as Exhibit 10.11 to Terra Industries' Form 10-Q for the
             quarter ended March 31, 1998, is incorporated herein by reference.

10.9         Amendment No. 1 dated as of September 30, 1998 to the
             Second Amended and Restated Agreement of Limited
             Partnership of Beaumont Methanol, Limited Partnership,
             filed as Exhibit 10.12 to Terra Industries' Form 10-Q for
             the quarter ended September 30, 1998, is incorporated
             herein by reference.

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

13 *         Financial Review and Consolidated Financial Statements
             as contained in the Annual Report to Stockholders of Terra
             Industries for the fiscal year ended December 31, 2001.

21 *         Subsidiaries of Terra Industries.

24 *         Powers of Attorney.
</TABLE>

--------------------------------------------------------------------------------

*    Filed herewith.

**   Confidential treatment requested.

                                       21

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                               TERRA INDUSTRIES INC.


Date:  March 13, 2002     By:  /s/ FRANCIS G. MEYER
                               -------------------------------------------------
                               Francis G. Meyer
                               Senior Vice President and Chief Financial Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature                               Title
---------                               -----
<S>                                  <C>
*                                    Chairman of the Board
----------------------------------
Henry R. Slack


/s/ Michael L. Bennett               Director, President and Chief Executive Officer
----------------------------------   (Principal Executive Officer)
Michael L. Bennett


/s/ Francis G. Meyer                 Senior Vice President and Chief Financial Officer
----------------------------------   (Principal Financial Officer and Controller/Principal Accounting Officer)
Francis G. Meyer


*                                    Director
----------------------------------
Edward G. Beimfohr


*                                    Director
----------------------------------
Edward M. Carson


*                                    Director
----------------------------------
Thomas H. Claiborne


*                                    Director
----------------------------------
Eric K. Diack


*                                    Director
----------------------------------
David E. Fisher


*                                    Director
----------------------------------
Martha O. Hesse


*                                    Director, Vice Chairman of the Board
----------------------------------
Burton M. Joyce


*                                    Director
----------------------------------
William R. Loomis, Jr.


*                                    Director
----------------------------------
John R. Norton III
</TABLE>


Date: March 13, 2002                                    *By: /s/ MARK A. KALAFUT
                                                             -------------------
                                                             Mark A. Kalafut
                                                             Attorney-in-Fact

                                       22

<PAGE>

          INDEX TO FINANCIAL STATEMENT SCHEDULES, REPORTS AND CONSENTS
          ------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                          <C>
Report of Deloitte & Touche LLP on Financial Statement Schedules.............S-2

Consent of Deloitte & Touche LLP.............................................S-2

Schedule No.
------------

   I        Condensed Financial Information of Registrant, is included in
            the Terra Industries Annual Report, Footnote 21, Column 1,
            "Parent."

   II       Valuation and Qualifying Accounts:
            Years Ended December 31, 2001, 2000 and 1999.....................S-3
</TABLE>

Financial statement schedules not included in this report have been omitted
because they are not applicable or the required information is shown in the
consolidated financial statements or the notes thereto.

                                      S-1

<PAGE>

                         INDEPENDENT AUDITORS' REPORT ON
                         -------------------------------
                          FINANCIAL STATEMENT SCHEDULE
                          ----------------------------

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF TERRA INDUSTRIES INC.:

     We have audited the consolidated financial statements of Terra Industries
Inc. and subsidiaries as of December 31, 2001 and 2000 and for each of the three
years in the period ended December 31, 2001, and have issued our report thereon
dated January 31, 2002. Such financial statements and report are included in the
2001 Annual Report to Stockholders of Terra Industries Inc. and are incorporated
herein by reference. Our audits also included the financial statement schedule
of Terra Industries Inc. and subsidiaries listed in Item 14(a) of this Form
10-K. This financial statement schedule is the responsibility of the management
of Terra Industries Inc. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP

Omaha, Nebraska
January 31, 2002

                          INDEPENDENT AUDITORS' CONSENT
                          -----------------------------

     We consent to the incorporation by reference in Registration Statements
Nos. 333-32869, 33-46735, 33-46734 and 33-30058 of Terra Industries Inc. and
subsidiaries on Forms S-8 and Registration Statements Nos. 2-90808, 2-84876 and
2-84669 of Terra Industries Inc. and subsidiaries on Form S-3 of our reports
dated January 31, 2002, appearing in and incorporated by reference in the Annual
Report on Form 10-K of Terra Industries Inc. and subsidiaries for the year ended
December 31, 2001.

DELOITTE & TOUCHE LLP

Omaha, Nebraska
March 13, 2002

                                      S-2

<PAGE>

                                                                     SCHEDULE II

                              TERRA INDUSTRIES INC.

                        VALUATION AND QUALIFYING ACCOUNTS
                  Years Ended December 31, 2001, 2000, and 1999
                  ---------------------------------------------
                                 (in thousands)

<TABLE>
<CAPTION>
                                                       Additions    Less Write-offs,
                                          Balance at   Charged to     and Transfers,     Balance
                                          Beginning    Costs and             Net of       at End
Description                               of Period     Expenses         Recoveries    of Period
<S>                                        <C>          <C>             <C>             <C>
Year Ended December 31, 2001:
-----------------------------

Allowance for Doubtful Accounts

       Continuing operations               $   889      $     7         $     40        $   936

       Discontinued operations -
     Included in other assets                6,359            0           (2,040)         4,319
                                          -----------------------------------------------------
                                           $ 7,248      $     7         $ (2,000)       $ 5,255
Year Ended December 31, 2000:
-----------------------------

Allowance for Doubtful Accounts

       Continuing operations               $   491      $   593         $   (195)       $   889

       Discontinued operations -
     Included in other current assets       12,533            0           (6,174)         6,359
                                          -----------------------------------------------------
                                           $13,024      $   593         $ (6,369)       $ 7,248
Year Ended December 31, 1999:
-----------------------------

Allowance for Doubtful Accounts
       Continuing operations               $   938      $   104         $   (551)       $   491

       Discontinued operations -
     Included in other current assets       14,196        4,582           (6,245)        12,533
                                          -----------------------------------------------------
                                           $15,134      $ 4,686         $ (6,796)       $13,024
</TABLE>

                                      S-3