8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 15, 2010

CF Industries Holdings, Inc.(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation) 001-32597
(Commission
File Number) 20-2697511
(I.R.S. Employer
Identification No.)

4 Parkway North, Suite 400
Deerfield, IL (Address of principal
executive offices) 60015
(Zip Code)

Registrant’s telephone number, including area code:  (847) 405-2400

 (Former name or former address if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01 Other Events.

In connection with the filing of a shelf registration statement relating to debt securities of CF Industries, Inc. that may be offered from time to time and guarantees thereof, this report is being filed (1) to provide in Exhibit 99.1 hereto consolidated financial statements of CF Industries Holdings, Inc. (“CF Holdings”) as of December 31, 2009 and 2008 and for each of the years in the three-year period ended December 31, 2009 that have been updated to include in the notes to such consolidated financial statements a new Note 34 presenting certain condensed consolidating financial information with respect to CF Holdings and its subsidiaries and versions of Note 9 and Note 36 that reflect certain events occurring after February 25, 2010, the date of the filing of CF Holdings’ Annual Report on Form 10-K for the fiscal year ended December 31, 2009; and (2) to provide in Exhibit 99.2 hereto consolidated financial statements of Terra Industries Inc. (“Terra”) as of December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009 that have been updated to include in the notes to such consolidated financial statements a new Note 28 presenting certain condensed consolidating financial information with respect to Terra and its subsidiaries and a version of Note 27 that reflects certain events occurring after February 25, 2010, the date of the filing of Terra’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

Exhibits 99.1 and 99.2 are incorporated by reference herein.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Description of Exhibit
23.1	Consent of KPMG LLP, independent registered public accounting firm of CF Industries Holdings, Inc.
23.2	Consent of Deloitte & Touche LLP, independent registered public accounting firm of Terra Industries Inc.
99.1	Audited consolidated financial statements and schedule of CF Industries Holdings, Inc. and subsidiaries as of December 31, 2009 and 2008, and for each of the years in the three-year period ended December 31, 2009
99.2	Audited consolidated financial statements of Terra Industries Inc. and subsidiaries as of December 31, 2009 and 2008, and for each of the three years in the period ended December 31, 2009
101	The following financial information from CF Industries Holdings, Inc.’s Current Report on Form 8-K for the year ended December 31, 2009, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Statements of Operations, (2) Consolidated Statements of Comprehensive Income, (3) Consolidated Balance Sheets, (4) Consolidated Statements of Cash Flows, (5) Consolidated Statements of Equity and (6) the Notes to Unaudited Consolidated Financial Statements, tagged as blocks of text*

*Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: April 15, 2010	CF INDUSTRIES HOLDINGS, INC.
	By:	/s/ Douglas C. Barnard
	Name:	Douglas C. Barnard
	Title:	Vice President, General Counsel, and Secretary

3

EXHIBIT INDEX

Exhibit No.	Description
23.1	Consent of KPMG LLP, independent registered public accounting firm of CF Industries Holdings, Inc.
23.2	Consent of Deloitte & Touche LLP, independent registered public accounting firm of Terra Industries Inc.
99.1	Audited consolidated financial statements and schedule of CF Industries Holdings, Inc. and subsidiaries as of December 31, 2009 and 2008, and for each of the years in the three-year period ended December 31, 2009
99.2	Audited consolidated financial statements of Terra Industries Inc. and subsidiaries as of December 31, 2009 and 2008, and for each of the three years in the period ended December 31, 2009
101	The following financial information from CF Industries Holdings, Inc.’s Current Report on Form 8-K for the year ended December 31, 2009, formatted in XBRL (Extensible Business Reporting Language): (1) Consolidated Statements of Operations, (2) Consolidated Statements of Comprehensive Income, (3) Consolidated Balance Sheets, (4) Consolidated Statements of Cash Flows, (5) Consolidated Statements of Equity and (6) the Notes to Unaudited Consolidated Financial Statements, tagged as blocks of text*

*Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

4

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

CF Industries Holdings, Inc.:

We consent to the incorporation by reference in the registration statements (Nos. 333-127422 and 333-158672) on Form S-8 and (No. 333-165143) on Form S-3 of CF Industries Holdings, Inc. (the Company) of our report dated February 25, 2010, except for Notes 9, 34, and 36, as to which the date is April 15, 2010, with respect to the consolidated balance sheets of CF Industries Holdings, Inc. (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2009, and our report dated February 25, 2010, with respect to the related financial statement schedule, which reports appear in this current report on Form 8-K of CF Industries Holdings, Inc.

Our report on the consolidated financial statements refers to the Company’s retrospective adoption of the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 810—Consolidation, that pertain to the standard formerly known as Statement of Financial Accounting Standards (SFAS) No. 160—Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 and the provisions of ASC Topic 260—Earnings Per Share, that pertain to the standard formerly known as FASB Staff Position No. EITF 03-6-1—Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, on January 1, 2009.

/s/ KPMG LLP

Chicago, Illinois

April 15, 2010

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-127422 and 333-158672 on Form S-8 and Registration Statement No. 333-165143 on Form S-3 of CF Industries Holdings, Inc. and subsidiaries of our report dated February 25, 2010 (April 5, 2010 as to notes 27 and 28), relating to the consolidated financial statements and financial statement schedule of Terra Industries Inc. and subsidiaries (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company’s retrospective adoption of guidance related to noncontrolling interests in consolidated financial statements effective January 1, 2009) appearing in this Current Report on Form 8-K of CF Industries Holdings, Inc. and subsidiaries dated April 15, 2010.

/s/ Deloitte & Touche LLP

Omaha, Nebraska

April 15, 2010

EX-99.1

Exhibit 99.1

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
CF Industries Holdings, Inc.:

We have audited the consolidated balance sheets of CF Industries Holdings, Inc. and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CF Industries Holdings, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 3 to the consolidated financial statements, on January 1, 2009, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 810—Consolidation, that pertain to the standard formerly known as Statement of Financial Accounting Standards (SFAS) No. 160—Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 and the provisions of ASC Topic 260—Earnings Per Share, that pertain to the standard formerly known as FSP No. EITF 03-6-1—Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities, and retrospectively applied these standards to all periods presented in the consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of CF Industries Holdings, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 25, 2010 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Chicago, Illinois

February 25, 2010, except for Notes 9, 34, and 36,
as to which the date is April 15, 2010

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended December 31,
	2009			2008			2007
	(in millions, except per share amounts)
Net sales	$	2,608.4		$	3,921.1		$	2,756.7
Cost of sales	1,769.0			2,698.4			2,086.7
Gross margin	839.4			1,222.7			670.0
Selling, general and administrative	62.9			68.0			65.2
Other operating - net	96.7			4.5			3.2
Operating earnings	679.8			1,150.2			601.6
Interest expense	1.5			1.6			1.7
Interest income	(4.5		)	(26.1		)	(24.4		)
Other non-operating - net	(12.8		)	(0.7		)	(1.6		)
Earnings before income taxes and equity in earnings (loss) of unconsolidated affiliates	695.6			1,175.4			625.9
Income tax provision	246.0			378.1			199.5
Equity in earnings (loss) of unconsolidated affiliates - net of taxes	(1.1		)	4.2			0.9
Net earnings	448.5			801.5			427.3
Less: Net earnings attributable to the noncontrolling interest	82.9			116.9			54.6
Net earnings attributable to common stockholders	$	365.6		$	684.6		$	372.7
Net earnings per share attributable to common stockholders
Basic	$	7.54		$	12.35		$	6.70
Diluted	$	7.42		$	12.13		$	6.56
Weighted average common shares outstanding
Basic	48.5			55.4			55.7
Diluted	49.2			56.4			56.8

See Accompanying Notes to Consolidated Financial Statements.

2

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Year ended December 31,
	2009		2008			2007
	(in millions)
Net earnings	$	448.5	$	801.5		$	427.3
Other comprehensive income (loss):
Foreign currency translation adjustment	7.3		(10.1		)	7.6
Unrealized gain (loss) on securities - net of taxes	23.7		(14.5		)	0.1
Defined benefit plans - net of taxes	4.3		(34.1		)	8.2
	35.3		(58.7		)	15.9
Comprehensive income	483.8		742.8			443.2
Less: Comprehensive income attributable to the noncontrolling interest	86.2		112.2			58.3
Comprehensive income attributable to common stockholders	$	397.6	$	630.6		$	384.9

See Accompanying Notes to Consolidated Financial Statements.

3

CONSOLIDATED BALANCE SHEETS

	December 31,
	2009			2008
	(in millions, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	697.1		$	625.0
Short-term investments	185.0			—
Accounts receivable	167.4			175.1
Inventories - net	207.8			588.6
Prepaid income taxes	14.7			26.3
Other	11.1			18.2
Total current assets	1,283.1			1,433.2
Property, plant and equipment - net	793.8			661.9
Goodwill	0.9			0.9
Asset retirement obligation escrow account	36.5			28.8
Investments in and advances to unconsolidated affiliates	45.6			44.8
Investments in auction rate securities	133.9			177.8
Investment in marketable equity securities	160.2			—
Other assets	40.9			40.2
Total assets	$	2,494.9		$	2,387.6
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses	$	172.5		$	207.9
Income taxes payable	—			14.1
Customer advances	159.5			347.8
Notes payable	—			4.1
Deferred income taxes	52.6			52.1
Distributions payable to noncontrolling interest	92.1			106.0
Other	3.1			86.1
Total current liabilities	479.8			818.1
Notes payable	4.7			—
Deferred income taxes	68.3			6.2
Other noncurrent liabilities	197.2			212.6
Contingencies (Note 31)
Equity:
Stockholders’ equity:
Preferred stock - $0.01par value, 50,000,000 shares authorized	—			—
Common stock - $0.01 par value, 500,000,000 shares authorized, 2009 - 48,569,985 and 2008 - 48,391,584 shares outstanding	0.5			0.5
Paid-in capital	723.5			709.4
Retained earnings	1,048.1			703.4
Accumulated other comprehensive loss	(43.2		)	(75.2		)
Total stockholders’ equity	1,728.9			1,338.1
Noncontrolling interest	16.0			12.6
Total equity	1,744.9			1,350.7
Total liabilities and equity	$	2,494.9		$	2,387.6

See Accompanying Notes to Consolidated Financial Statements.

4

CONSOLIDATED STATEMENTS OF EQUITY

	Common Stockholders
	$0.01 Par												Accumulated
	Value												Other			Total
	Common			Treasury			Paid-In			Retained			Comprehensive			Stockholders’			Noncontrolling			Total
	Stock			Stock			Capital			Earnings			Income (Loss)			Equity			Interest			Equity
	(in millions)
Balance at December 31, 2006	$	0.6		$	—		$	751.2		$	48.6		$	(33.4	)	$	767.0		$	13.6		$	780.6
Net earnings	—			—			—			372.7			—			372.7			54.6			427.3
Other comprehensive income
Foreign currency translation adjustment	—			—			—			—			3.9			3.9			3.7			7.6
Unrealized gain on securities - net of taxes	—			—			—			—			0.1			0.1			—			0.1
Defined benefit plans - net of taxes	—			—			—			—			8.2			8.2			—			8.2
Comprehensive income																384.9			58.3			443.2
Issuance of $0.01 par value common stock under employee stock plans	—			—			16.6			—			—			16.6			—			16.6
Stock-based compensation expense	—			—			9.7			—			—			9.7			—			9.7
Excess tax benefit from stock-based compensation	—			—			13.3			—			—			13.3			—			13.3
Cash dividends ($0.08 per share)	—			—			—			(4.5		)	—			(4.5		)	—			(4.5		)
Distributions declared to noncontrolling interest	—			—			—			—			—			—			(57.6		)	(57.6		)
Effect of exchange rates changes	—			—			—			—			—			—			3.0			3.0
Balance at December 31, 2007	$	0.6		$	—		$	790.8		$	416.8		$	(21.2	)	$	1,187.0		$	17.3		$	1,204.3
Net earnings	—			—			—			684.6			—			684.6			116.9			801.5
Other comprehensive income
Foreign currency translation adjustment	—			—			—			—			(5.4		)	(5.4		)	(4.7		)	(10.1		)
Unrealized (loss) on securities - net of taxes	—			—			—			—			(14.5		)	(14.5		)	—			(14.5		)
Defined benefit plans - net of taxes	—			—			—			—			(34.1		)	(34.1		)	—			(34.1		)
Comprehensive income																630.6			112.2			742.8
Issuance of $0.01 par value common stock under employee stock plans	—			—			10.1			—			—			10.1			—			10.1
Stock-based compensation expense	—			—			8.3			—			—			8.3			—			8.3
Excess tax benefit from stock-based compensation	—			—			24.3			—			—			24.3			—			24.3
Purchase of treasury stock	—			(500.2		)	—			—			—			(500.2		)	—			(500.2		)
Cancellation of treasury stock	(0.1		)	500.2			(124.1		)	(376.0		)	—			—			—			—
Cash dividends ($0.40 per share)	—			—			—			(22.0		)	—			(22.0		)	—			(22.0		)
Distributions declared to noncontrolling interest	—			—			—			—			—			—			(106.0		)	(106.0		)
Effect of exchange rates changes	—			—			—			—			—			—			(10.9		)	(10.9		)
Balance at December 31, 2008	$	0.5		$	—		$	709.4		$	703.4		$	(75.2	)	$	1,338.1		$	12.6		$	1,350.7
Net earnings	—			—			—			365.6			—			365.6			82.9			448.5
Other comprehensive income
Foreign currency translation adjustment	—			—			—			—			4.0			4.0			3.3			7.3
Unrealized gain on securities - net of taxes	—			—			—			—			23.7			23.7			—			23.7
Defined benefit plans - net of taxes	—			—			—			—			4.3			4.3			—			4.3
Comprehensive income																397.6			86.2			483.8
Acquisition of treasury stock under employee stock plans	—			(1.8		)	—			—			—			(1.8		)	—			(1.8		)
Issuance of $0.01 par value common stock under employee stock plans	—			1.8			2.9			(1.5		)	—			3.2			—			3.2
Stock-based compensation expense	—			—			6.6			—			—			6.6			—			6.6
Excess tax benefit from stock-based compensation	—			—			4.6			—			—			4.6			—			4.6
Cash dividends ($0.40 per share)	—			—			—			(19.4		)				(19.4		)	—			(19.4		)
Distributions declared to noncontrolling interest	—			—			—			—			—			—			(92.1		)	(92.1		)
Effect of exchange rates changes	—			—			—			—			—			—			9.3			9.3
Balance at December 31, 2009	$	0.5		$	—		$	723.5		$	1,048.1		$	(43.2	)	$	1,728.9		$	16.0		$	1,744.9

See Accompanying Notes to Consolidated Financial Statements.

5

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2009			2008			2007
	(in millions)
Operating Activities:
Net earnings	$	448.5		$	801.5		$	427.3
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation, depletion and amortization	101.0			100.8			84.5
Deferred income taxes	45.7			26.4			48.0
Stock compensation expense	6.6			8.3			9.7
Excess tax benefit from stock-based compensation	(4.6		)	(24.3		)	(13.3		)
Unrealized (gain) loss on derivatives	(87.5		)	63.8			(17.0		)
Inventory valuation allowance	(57.0		)	57.0			—
(Gain) on sale of marketable equity securities	(11.9		)	—			—
Loss (gain) on disposal of property, plant and equipment	0.7			(6.2		)	—
Equity in loss (earnings) of unconsolidated affiliates - net of taxes	1.1			(4.2		)	(0.9		)
Changes in:
Accounts receivable	21.3			(44.0		)	(28.5		)
Margin deposits	11.4			(11.4		)	11.7
Inventories	440.3			(416.7		)	(53.6		)
Prepaid product and expenses	—			19.6			(20.7		)
Accrued income taxes	2.2			9.8			14.0
Accounts payable and accrued expenses	(39.2		)	3.7			31.3
Product exchanges - net	0.4			4.6			(3.5		)
Customer advances - net	(188.3		)	42.0			203.1
Other - net	(8.9		)	7.9			(2.0		)
Net cash provided by operating activities	681.8			638.6			690.1
Investing Activities:
Additions to property, plant and equipment	(235.7		)	(141.8		)	(105.1		)
Proceeds from sale of property, plant and equipment	9.3			10.4			4.1
Purchases of short-term and auction rate securities	(304.9		)	(638.2		)	(1,140.5		)
Sales and maturities of short-term and auction rate securities	180.4			934.1			946.2
Purchases of marketable equity securities	(247.2		)	—			—
Sale of marketable equity securities	68.0			—			—
Return of capital from marketable equity securities	52.4			—			—
Deposit to asset retirement obligation escrow account	(7.5		)	(6.2		)	(9.4		)
Investment in unconsolidated affiliates	—			—			(26.8		)
Advances to unconsolidated affiliates	—			—			(12.8		)
Other - net	(2.5		)	1.2			1.2
Net cash provided by (used in) investing activities	(487.7		)	159.5			(343.1		)
Financing Activities:
Dividends paid on common stock	(19.4		)	(22.0		)	(4.5		)
Distributions to noncontrolling interest	(112.3		)	(52.7		)	(30.0		)
Issuances of common stock under employee stock plans	3.2			10.1			16.6
Purchase of treasury stock	—			(500.2		)	—
Excess tax benefit from stock-based compensation	4.6			24.3			13.3
Other - net	—			—			(0.3		)
Net cash used in financing activities	(123.9		)	(540.5		)	(4.9		)
Effect of exchange rate changes on cash and cash equivalents	1.9			0.9			(1.0		)
Increase in cash and cash equivalents	72.1			258.5			341.1
Cash and cash equivalents at beginning of period	625.0			366.5			25.4
Cash and cash equivalents at end of period	$	697.1		$	625.0		$	366.5

See Accompanying Notes to Consolidated Financial Statements.

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Background and Basis of Presentation

We are one of the largest manufacturers and distributors of nitrogen and phosphate fertilizer products in North America. Our operations are organized into two business segments: the nitrogen segment and the phosphate segment. Our principal products in the nitrogen segment are ammonia, urea and urea ammonium nitrate solution, or UAN. Our principal products in the phosphate segment are diammonium phosphate, or DAP, monoammonium phosphate, or MAP and potash. Our core market and distribution facilities are concentrated in the Midwestern U.S. grain-producing states. Our principal customers are cooperatives and independent fertilizer distributors.

Our principal assets include:

·the largest nitrogen fertilizer complex in North America (Donaldsonville, Louisiana);

·a 66% economic interest in the largest nitrogen fertilizer complex in Canada (which we operate in Medicine Hat, Alberta, through Canadian Fertilizers Limited (CFL), a consolidated variable interest entity);

·one of the largest integrated ammonium phosphate fertilizer complexes in the United States (Plant City, Florida);

·the most-recently constructed phosphate rock mine and associated beneficiation plant in the United States (Hardee County, Florida);

·an extensive system of terminals, warehouses and associated transportation equipment located primarily in the Midwestern United States; and

·a 50% interest in KEYTRADE AG (Keytrade), a global fertilizer trading company headquartered near Zurich, Switzerland, which we account for as an equity method investment.

All references to “CF Holdings,” “the Company,” “we,” “us” and “our” refer to CF Industries Holdings, Inc. and its subsidiaries, including CF Industries, Inc. after the reorganization transaction described below, except where the context makes clear that the reference is only to CF Holdings itself and not its subsidiaries. All references to “our pre-IPO owners” refer to the eight stockholders of CF Industries, Inc. prior to the consummation of our reorganization transaction and initial public offering (IPO) in 2005.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). Subsequent events have been evaluated through the date these financial statements were issued and filed with the Securities and Exchange Commission (SEC).

2.  Summary of Significant Accounting Policies

Consolidation

CF Holdings’ consolidated financial statements include the accounts of CF Industries, Inc., all majority-owned subsidiaries and variable interest entities in which CF Holdings or a subsidiary is the

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primary beneficiary. All intercompany transactions and balances have been eliminated. Canadian Fertilizers Limited (CFL) is a variable interest entity that is consolidated in the financial statements of CF Holdings. Refer to Note 4—Canadian Fertilizers Limited, for additional information.

Revenue Recognition

Revenue is recognized when title and risk of loss transfers to the customer, which can be at the plant gate, a distribution facility, a supplier location or a customer destination. Shipping and handling costs are included in cost of sales. We offer incentives that typically involve rebates if a customer reaches a specified level of purchases. Incentives are reported as a reduction of net sales.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less. The carrying values of cash and cash equivalents approximate fair value.

Investments

Short-term and noncurrent investments are generally accounted for as available-for-sale securities reported at fair value with changes in fair value reported in other comprehensive income unless fair value is below amortized cost (i.e., the investment is impaired) and the impairment is deemed other-than-temporary, in which case, some or all of the decline in value would be charged to earnings. The carrying values of short-term investments approximate fair values because of the short maturities and the highly liquid nature of these investments. See Note 15—Cash and Cash Equivalents, Short-Term Investments and Other Investments, for more information on investments.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at face amounts less an allowance for doubtful accounts. The allowance is an estimate based on historical collection experience, current economic and market conditions, and a review of the current status of each customer’s trade accounts receivable. A receivable is past due if payments have not been received within the agreed upon invoice terms. Account balances are charged-off against the allowance when we determine that it is probable the receivable will not be recovered.

Inventories

Inventories are stated at the lower of cost or net realizable value and are determined on a first-in, first-out or average basis. Inventory includes the cost of materials, production labor and production overhead. Inventory at our warehouses and terminals also includes distribution costs.

Investments in and Advances to Unconsolidated Affiliates

We use the equity method of accounting for investments in affiliates that we do not consolidate, but over which we exercise significant influence. Profits resulting from sales or purchases with equity method investees are eliminated until realized by the investee or investor. Losses in the value of an investment in an unconsolidated affiliate, which are other than temporary, are recognized when the current fair value of the investment is less than its carrying value. Investments in unconsolidated affiliates represents our 50% interest in KEYTRADE AG (Keytrade), a global fertilizer trading company headquartered near Zurich, Switzerland. Advances to unconsolidated affiliates are held-to-maturity debt

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securities which are reported at amortized cost. We report equity in earnings of unconsolidated affiliates net of our tax expense. Our investments in and advances to unconsolidated affiliates is included in our Other segment in Note 32—Segment Disclosures. For more information, see Note 19—Investments in and Advances to Unconsolidated Affiliates.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation, depletion and amortization are computed using the units-of-production method or the straight-line method. Depreciable lives are as follows:

	Years
Mobile and office equipment	3 to 18
Production facilities and related assets	10 to 15
Distribution facilities	10
Mining assets, phosphogypsum stacks and land improvements	20
Buildings	45

Scheduled inspections, replacements and overhauls of plant machinery and equipment at our continuous process manufacturing facilities are referred to as plant turnarounds. We account for plant turnarounds under the deferral method, as opposed to the direct expense or build-in overhaul methods, Under the deferral method, expenditures related to turnarounds are capitalized into property, plant and equipment when incurred and amortized to production costs on a straight-line basis over the period benefited, which is generally until the next scheduled turnaround in up to 5 years. If we used the direct expense method, turnaround costs would be expensed as incurred. Capitalized turnaround costs have been applied consistently in the periods presented. Internal employee costs and overhead amounts are not considered turnaround costs and are not capitalized. Turnaround costs are classified as investing activities in the consolidated statements of cash flows in the line titled, “Additions to property plant and equipment.” Further details on plant turnaround amounts can be found in Note 20—Property plant and equipment—Net.

We periodically review the depreciable lives assigned to our production facilities and related assets, as well as estimated production capacities used to develop our units-of-production (UOP) depreciation expense, and we change our estimates to reflect the results of those reviews.

Recoverability of Long-Lived Assets

Property, plant and equipment and other long-lived assets are reviewed in order to assess recoverability based on expected future undiscounted cash flows whenever events or circumstances indicate that the carrying value may not be recoverable. If the sum of the expected future net cash flows is less than the carrying value, an impairment loss is recognized. The impairment loss is measured as the amount by which the carrying value exceeds the fair value of the asset.

Goodwill

Goodwill represents the excess of the purchase price of an acquired entity over the amounts assigned to the assets acquired and liabilities assumed. Goodwill is not amortized, but is reviewed for impairment annually or more frequently if certain impairment conditions arise. After analysis, goodwill that is deemed impaired is written down to fair value.

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Leases

Leases are classified as either operating leases or capital leases. Assets acquired under capital leases are depreciated on the same basis as property, plant and equipment. Rental payments, including rent holidays, leasehold incentives, and scheduled rent increases are expensed on a straight-line basis. We do not currently have any capital leases. Leasehold improvements are amortized over the shorter of the depreciable lives of the corresponding fixed assets or the lease term including any applicable renewals.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are projected to be recovered or settled. Realization of deferred tax assets is dependent on our ability to generate sufficient taxable income of an appropriate character in future periods. A valuation allowance is established if it is determined to be more likely than not that a deferred tax asset will not be realized. Interest and penalties related to unrecognized tax benefits are reported as interest expense and non-operating—net, respectively.

Derivative Financial Instruments

Natural gas is a principal raw material used to produce nitrogen fertilizers. We use natural gas both as a chemical feedstock and as a fuel to produce ammonia, urea and UAN. In accordance with our Natural Gas Acquisition Policy, we manage the risk of changes in natural gas prices through the use of physical gas supply contracts and derivative financial instruments covering periods not exceeding three years. The derivative instruments that we currently use are swaps. These contracts reference primarily NYMEX futures contract prices, which represent fair value at any given time. The contracts are traded in months forward and settlements are scheduled to coincide with anticipated gas purchases during those future periods. We do not use derivatives for trading purposes and the Company is not a party to any leveraged derivatives.

Derivatives are recognized in the consolidated balance sheets at fair value and changes in their fair value are recognized in earnings immediately in cost of sales, unless hedge accounting is elected or the normal purchase and sale exemption applies. Currently we do not apply hedge accounting. We report fair value amounts recognized for our derivative instruments and related cash collateral on a gross basis rather than on a net basis.

Asset Retirement Obligations

Asset retirement obligations (AROs) are legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal operation of such assets. AROs are initially recognized as incurred when sufficient information exists to estimate fair value. When initially recognized, the fair value based on discounted future cash flows is recorded both as a liability and an increase in the carrying amount of the related long-lived asset. In subsequent periods, depreciation of the asset and accretion of the liability are recorded. For additional information, see Note 13—Asset Retirement Obligations.

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Stock-based Compensation

The cost of employee services received in exchange for an award of equity instruments is measured based upon the fair value of the award on the grant date. This cost is recognized over the period during which the employee is required to provide services in exchange for the award and is accrued based on the straight-line method. For additional information, see Note 29—Stock-Based Compensation.

Litigation

From time to time, we are subject to ordinary, routine legal proceedings related to the usual conduct of our business. We are also involved in proceedings regarding public utility and transportation rates, environmental matters, taxes and permits relating to the operations of our various plants and facilities. Accruals for such contingencies are recorded to the extent we conclude their occurrence is probable and the financial impact of an adverse outcome is reasonably estimable. Disclosure for specific legal contingencies is provided if the likelihood of occurrence is at least reasonably possible and the exposure is considered material to the consolidated financial statements. In making determinations of likely outcomes of litigation matters, we consider many factors. These factors include, but are not limited to, past history, scientific and other evidence, and the specifics and status of each matter. If the assessment of various factors changes, the estimates may change. Predicting the outcome of claims and litigation, and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from estimates and accruals.

Environmental

Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations are expensed. Expenditures that increase the capacity or extend the useful life of an asset, improve the safety or efficiency of the operations, or mitigate or prevent future environmental contamination are capitalized. Liabilities are recorded when it is probable that a liability has been incurred and the costs can be reasonably estimated. Environmental liabilities are not discounted.

Use of Estimates

The preparation of consolidated financial statements and accompanying notes in accordance with accounting principles generally accepted in the United States of America requires management to make use of judgments, estimates and assumptions that affect the reported amount of assets and liabilities, revenue and expenses and certain financial statement disclosures. Significant estimates in these consolidated financial statements include net realizable value of inventories, the timing and ultimate settlement costs of asset retirement obligations, environmental remediation liabilities, environmental and litigation contingencies, the cost of sales incentives, useful lives of property and identifiable intangible assets, the evaluation of impairments of property, investments, identifiable intangible assets and goodwill, income tax and valuation reserves, allowances for doubtful accounts receivable, the measurement of the fair value of investments when markets are not active, assumptions used in the determination of the funded status and annual expense of pension and postretirement employee benefit plans and the volatility and expected lives for stock compensation instruments granted to employees. Actual results could differ from these estimates.

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Foreign Currency Translation

Foreign-currency-denominated assets and liabilities are translated into U.S. dollars at exchange rates existing at the respective balance sheet dates. Translation adjustments resulting from fluctuations in exchange rates are recorded as a separate component of other comprehensive income within stockholders’ equity. Results of operations of our foreign subsidiaries are translated at the average exchange rates during the respective periods. Gains and losses resulting from foreign currency transactions, the amounts of which are not material, are included in net income.

3.New Accounting Standards

Following are summaries of accounting pronouncements that were either recently adopted or may become applicable to our consolidated financial statements. It should be noted that the accounting standards references provided below reflect the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) and related Accounting Standards Updates (ASU).

Recently Adopted Pronouncements

In June 2009, the FASB issued a standard that established the Accounting Standards Codification (ASC) generally as the sole source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. The ASC was intended to simplify user access to all authoritative GAAP by providing all the authoritative literature related to a particular topic in one place. All existing accounting standard documents have been superseded and all other accounting literature not included in the ASC is considered nonauthoritative. This standard was effective for interim and annual periods ending after September 15, 2009. As the ASC does not change or alter existing US GAAP, it did not impact our consolidated financial statements except for changing our accounting standard references. This recently adopted standard is ASU No. 2009-1.

In December 2008, the Financial Accounting Standards Board (FASB) issued a new standard which established new accounting and reporting requirements for noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. It requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest is included in consolidated net income on the face of the income statement. The standard clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this standard requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. The standard also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. We adopted this standard as of January 1, 2009 and applied it retrospectively to all periods presented. For additional information, see Note 4—Canadian Fertilizers Limited. This recently adopted standard can be found in the provisions of ASC Topic 810 that pertain to the standard formerly known as Statement of Financial Accounting Standards (SFAS) No. 160.

In December 2007, the FASB issued a new standard that pertains to business combinations which significantly changes how acquisitions are accounted for and presented in financial statements. The standard requires the acquirer to recognize the assets acquired, the liabilities assumed, contractual contingencies, and contingent consideration at their fair values as of the acquisition date. Additionally, this standard requires acquisition costs to be expensed as incurred, restructuring costs to be expensed in the period subsequent to the acquisition date, and changes in deferred tax asset valuation allowances and

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income tax uncertainties after the acquisition date to impact tax expense. The acquirer in an acquisition implemented in stages is required to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values. This standard was effective for business combinations with an acquisition date after December 31, 2008. Its adoption did not have an impact on our consolidated financial statements. This recently adopted standard can be found in the provisions of ASC Topic 805 that pertain to the standard formerly known as SFAS No. 141(R).

In April 2009, the FASB amended the business combinations standard that had been issued in 2007. This amendment pertains to assets acquired and liabilities assumed in a business combination that arise from contingencies. The amendment requires an acquirer to recognize at fair value, at the acquisition date, an asset acquired or liability assumed in a business combination that arises from a contingency if the fair value can be determined during the measurement period. If an acquisition date fair value cannot be determined during the measurement period, it must still be recognized if it is probable the asset existed or a liability had been incurred and it can be reasonably estimated. This standard also increases the disclosure requirements of the acquirer to include the nature and the financial effects of the contingencies on its financial statements. This standard was effective for assets or liabilities arising from contingencies in business combinations with an acquisition date after December 31, 2008. Its adoption did not have an impact on our consolidated financial statements. This recently adopted standard can be found in the provisions of ASC Topic 805 that pertain to the standard formerly known as SFAS No. 141(R).

In June 2008, the FASB issued a standard which provides requirements for determining whether instruments granted in share-based payment transactions are participating securities. This standard applies to the calculation of earnings per share (EPS) for share-based payment awards with rights to dividends or dividend equivalents. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and should be included in the computation of EPS pursuant to the two-class method. This standard was effective for the Company beginning January 1, 2009 with retrospective adjustment to previously reported basic and diluted earnings per share data and the number of weighted average common shares outstanding shares outstanding for 2008 and 2007. The adoption of this standard did not have a material impact on our consolidated financial statements. This recently adopted standard can be found in the provisions of ASC Topic 260 that pertain to the standard formerly known as FASB Staff Position (FSP) No. EITF 03-6-1.

In November 2008, the FASB issued a standard related to certain equity method accounting considerations. This standard applies to all investments accounted for under the equity method and clarifies the accounting for the initial measurement, impairment and changes in ownership interests for such investments. This standard was effective on a prospective basis for fiscal years beginning on or after December 15, 2008, and its adoption did not have a significant impact on our consolidated financial statements. This recently adopted standard can be found in the provisions of ASC Topic 323 that pertain to the standard formerly known as EITF Issue No. 08-6.

In April 2009, the FASB issued an accounting standard that provides requirements for (1) estimating the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly declined and (2) identifying transactions that are not orderly. Factors to consider in determining whether there has been a significant decrease in the volume and level of activity include transaction frequency and volume, substantial variation in market quotations, abnormal risk premiums or bid-ask spreads, and a significant decline in market activity and the availability of market information. If it is determined that there has been a significant decrease in the volume and level of

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market activity, then further analysis is conducted to determine if an adjustment to the observable transactions or quoted market prices may be necessary in determining the value of the asset. This standard was effective for interim and annual periods ending after June 15, 2009. This recently adopted standard can be found in the provisions of ASC Topic 820 that pertain to the standard formerly known as FSP No. FAS 157-4.

In April 2009, the FASB issued a standard that changes the requirements for recognizing other-than-temporary impairments for debt securities, modifies the presentation of other-than-temporary losses in the income statement and expands the disclosure requirements relating to impairments of debt and equity securities. This standard specifies that if a company does not have the intent or need to sell a debt security prior to recovery, the security is not considered other-than-temporarily-impaired unless there is a credit loss. If an impairment to a security is recognized because of a credit loss, a company is required to recognize the credit loss component of the impairment of the debt security in earnings and the remaining portion of the impairment loss in other comprehensive income. This standard was effective for interim and annual periods ending after June 15, 2009, and its adoption did not have a material impact on our consolidated financial statements. See Note 15—Cash and Cash Equivalents, Short-Term Investments and Other Investments. This recently adopted standard can be found in the provisions of ASC Topic 320 that pertain to the standard formerly known as FSP No. FAS 115-2 and FAS 124-2.

In December 2008, the FASB issued a standard that updates the requirements for disclosures about postretirement benefit plan assets. This standard updates the requirements for an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. It requires additional disclosures related to investment allocations and strategies, the fair value of each major category of plan assets, inputs and valuation techniques used to develop the fair value of the plan assets and any significant concentrations of risk in plan assets. We adopted this standard as of December 31, 2009. For additional information, see Note 7—Pension and Other Postretirement Benefits. This recently adopted standard can be found in the provisions of ASC Topic 715 that pertain to the standard formerly known as FSP No. 132(R)-1.

In August 2009, the FASB issued a standard that provides additional requirements for measuring a liability at fair value. When a quoted price in an active market for the identical liability is not available, a reporting entity is required to use a valuation technique that uses the quoted price for similarly traded liabilities or assets. An entity may also use a valuation technique that is consistent with the principles of the ASC Topic that deals with fair value measurement such as an income or market valuation approach. This standard is effective for the first reporting period beginning after August 27, 2009. The adoption of this standard did not have a material impact on our consolidated financial statements. This recently adopted standard is ASU No. 2009-5.

Recently Issued Pronouncements

In June 2009, the FASB issued an accounting standard that revises the rules for consolidating variable interest entities. This standard changes how a reporting entity determines when to consolidate an entity that is insufficiently capitalized or is not controlled through voting (or similar rights). The determination is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. The standard also requires a company to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. The standard is effective as of the beginning of an entity’s first annual reporting period that begins after November 15, 2009. We do not expect the adoption of this standard to have a material

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impact on our consolidated financial statements. This recently issued pronouncement is ASU No. 2009-17.

In June 2009, the FASB issued a standard that amends the requirements for transfers of financial assets. This standard removes the concept of a qualifying special-purpose entity and removes the exception from applying these rules to qualifying special purpose entities. It also changes the requirements for derecognizing financial assets and requires additional disclosures about a transferor’s continuing involvement in financial assets. This standard is effective as of the beginning of an entity’s first annual reporting period that begins after November 15, 2009. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements. This recently issued pronouncement is ASU No. 2009-16.

In October 2009, the FASB issued a standard that addresses the accounting for multiple-deliverable arrangements to enable vendors to account for revenue from products or services (deliverables) separately rather than as a combined unit. It establishes a hierarchy for determining the selling price for each deliverable. The selling price used for each deliverable should be based on vendor-specific objective evidence if available, third-party evidence if vendor- specific objective evidence is not available, or estimated selling prices. This standard also clarifies existing requirements that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant. This standard is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We have not yet determined the impact of this standard on our consolidated financial statements. This recently issued pronouncement is ASU No. 2009-13.

In January 2010, the FASB issued a standard pertaining to fair value disclosures that requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 and describe the reasons for the transfers, and to disclose separately certain additional information about purchases, sales, issuances, and settlements of Level 3 items. This standard also requires an entity to provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for Level 2 and Level 3 items. The standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for the Level 3 disclosure of activity, which is effective for fiscal years beginning after December 15, 2010. We have not yet determined the impact of this standard on our consolidated financial statements. This recently issued pronouncement is ASU No. 2010-6.

4.Canadian Fertilizers Limited

Canadian Fertilizers Limited (CFL) owns a nitrogen fertilizer complex in Medicine Hat, Alberta, Canada and supplies fertilizer products to CF Industries, Inc. and Viterra Inc. (Viterra). CF Industries, Inc. owns 49% of CFL’s voting common shares and 66% of CFL’s nonvoting preferred shares. Viterra owns 34% of the voting common stock and non-voting preferred stock of CFL. The remaining 17% of the voting common stock is owned by GROWMARK, Inc. and La Coop fédérée. CFL is a variable interest entity which we consolidate in our financial statements.

CFL’s Medicine Hat complex is the largest nitrogen fertilizer complex in Canada, with two world-scale ammonia plants, a world-scale urea plant and on-site storage facilities for both ammonia and urea. CFL’s sales revenue was $429.2 million, $710.9 million and $470.9 million, for 2009, 2008 and 2007, respectively. CFL’s assets and liabilities at December 31, 2009 were $356.6 million and $309.0 million, respectively and at December 31, 2008 were $375.2 million and $334.1 million, respectively.

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CF Industries, Inc. operates the Medicine Hat facility pursuant to a management agreement and purchases approximately 66% of the facility’s ammonia and urea production pursuant to a product purchase agreement. Both the management agreement and the product purchase agreement can be terminated by either CF Industries, Inc. or CFL upon a twelve-month notice. Viterra has the right, but not the obligation, to purchase the remaining 34% of the facility’s ammonia and urea production under a similar product purchase agreement. To the extent that Viterra does not purchase its 34% of the facility’s production, CF Industries, Inc. is obligated to purchase any remaining amounts. However, since 1995, Viterra has purchased at least 34% of the facility’s production each year.

Under the product purchase agreements, both CF Industries, Inc. and Viterra pay the greater of operating cost or market price for purchases. The product purchase agreements also provide that CFL will distribute its net earnings to CF Industries, Inc. and Viterra annually based on their respective quantities of product purchased from CFL. The distributions to Viterra are reported as financing activities in the consolidated statements of cash flows, as we consider these payments to be similar to dividends. While general creditors of CFL do not have direct recourse to the general credit of CF Industries, Inc., the product purchase agreement does require CF Industries, Inc. to advance funds to CFL in the event that CFL is unable to meet its debts as they become due. The amount of each advance would be at least 66% of the deficiency and would be more in any year in which CF Industries, Inc. purchased more than 66% of Medicine Hat’s production. A similar obligation also exists for Viterra. CF Industries, Inc. and Viterra currently manage CFL such that each party is responsible for its share of CFL’s fixed costs and that CFL’s production volume is managed to meet the parties’ combined requirements. Based on the contractual arrangements, CF Industries, Inc. is the primary beneficiary of CFL as CF Industries, Inc. receives at least 66% of the economic risks and rewards of CFL.

In accordance with CFL’s governing agreements, CFL’s earnings are available for distribution to its members based on approval by CFL’s shareholders. Amounts reported as noncontrolling interest in the consolidated statement of operations represent Viterra’s 34% interest in the distributed and undistributed earnings of CFL. Amounts reported as noncontrolling interest on our consolidated balance sheet represent the interests of Viterra and the holders of 17% of CFL’s common shares. A reconciliation of the beginning and ending balances of distributions payable to noncontrolling interest on our consolidated balance sheet is provided below.

	Year ended December 31,
	2009			2008			2007
	(in millions)
Distributions payable balance at January 1	$	106.0		$	57.6		$	27.8
Declaration of distributions payable	92.1			106.0			57.6
Distributions to noncontrolling interest	(112.3		)	(52.7		)	(30.0		)
Effect of exchange rate changes	6.3			(4.9		)	2.2
Distributions payable balance at December 31	$	92.1		$	106.0		$	57.6

Because CFL’s functional currency is the Canadian dollar, consolidation of CFL results in a cumulative foreign currency translation adjustment, which is reported in other comprehensive income (loss).

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5.Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents assets and liabilities included in our consolidated balance sheet that are recognized at fair value on a recurring basis, and indicates the fair value hierarchy utilized to determine such fair value.

	Balance as of December 31, 2009		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash and cash equivalents	$	697.1	$	697.1	$	—	$	—
Available-for-sale short-term investments	185.0		185.0		—		—
Unrealized gains on natural gas derivatives	3.8		—		3.8		—
Asset retirement obligation escrow account	36.5		36.5		—		—
Investments in auction rate securities	133.9		—		—		133.9
Investment in marketable equity securities	160.2		160.2		—		—
Nonqualified employee benefit trust	8.6		8.6		—		—
Total assets at fair value	$	1,225.1	$	1,087.4	$	3.8	$	133.9
Unrealized losses on natural gas derivatives	$	0.9	$	—	$	0.9	$	—
Total liabilities at fair value	$	0.9	$	—	$	0.9	$	—

Following is a summary of the valuation techniques for assets and liabilities recorded in our consolidated balance sheet at fair value on a recurring basis:

·Short-term Investments—As of December 31, 2009, our short-term investments consisted of U.S. Treasury Bills with original maturities between three and six months. These investments are accounted for as available-for-sale securities. The fair value of our short-term investments is based upon the daily quoted market prices for each of our investments. See Note 15—Cash and Cash Equivalents, Short-term Investments and Other Investments for additional information.

·Natural Gas Derivatives—The derivative instruments that we currently use are natural gas swap contracts. These contracts settle using NYMEX futures (for Donaldsonville) or AECO (for Medicine Hat) price indexes, which represent fair value at any given time. The contracts are traded in months forward and settlements are scheduled to coincide with anticipated gas purchases during those future periods. Quoted market prices from NYMEX and AECO are used to determine the fair value of these instruments. See Note 27—Derivative Financial Instruments for additional information.

·Asset Retirement Obligation Escrow Account—We utilize an escrow account to meet our financial assurance requirements associated with certain asset retirement obligations in Florida. The investments in this escrow account are accounted for as available-for-sale securities. The fair value of the escrow account is based upon daily quoted prices representing the Net Asset Value (NAV) of the investments. See Note 13—Asset Retirement

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Obligations for additional information. The fair value of this account approximates its cost basis.

·Investments in Auction Rate Securities—Our investments in Auction Rate Securities consist of securities supported by student loans which originated primarily under the Federal Family Education Loan Program (FFELP), and are guaranteed by entities affiliated with governmental entities. Our auction rate securities are accounted for as noncurrent available-for-sale securities. We are unable to use significant observable (Level 1 or Level 2) inputs to value these investments. Therefore, we used a mark-to-model approach that relies on discounted cash flows, market data and inputs derived from similar instruments to arrive at the fair value of these instruments. This model takes into account, among other variables, the base interest rate, credit spreads, downgrade risks and default/recovery risk, the estimated time required to work out the disruption in the traditional auction process and its effect on liquidity, and the effects of insurance and other credit enhancements. Due to the significant number of unobservable inputs that were used to value our auction rate securities, they are classified as Level 3 for purposes of the fair value disclosure requirements. See Note 15—Cash and Cash Equivalents, Short-term Investments and Other Investments for additional information.

·Investment in Marketable Equity Securities—As of December 31, 2009, our investment in marketable equity securities consists of approximately 5.0 million shares of Terra Industries Inc. (Terra) common stock, which we acquired through open market purchases in the third quarter of 2009. These shares are classified as noncurrent available-for-sale securities. The fair value of the securities is based on daily quoted market prices. See Note 15—Cash and Cash Equivalents, Short-term Investments and Other Investments for additional information.

·Nonqualified Employee Benefit Trust—We maintain a trust associated with certain deferred compensation related to nonqualified employee benefits. The investments are accounted for as available-for-sale securities. The fair value of the trust is based on daily quoted prices representing the NAV of the investments.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

The following table provides a reconciliation of changes in our consolidated balance sheet for our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3). These assets currently consist of our investments in auction rate securities. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. It is reasonably possible that a change in the estimated fair value for instruments measured using Level 3 inputs could occur in the future.

	Investments in auction rate securities
	(in millions)
Fair value, January 1, 2009	$	177.8
Transfers into Level 3	—
Sales and redemptions	(60.2		)
Unrealized gains included in other comprehensive income	16.3
Fair value, December 31, 2009	$	133.9

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6.Net Earnings Per Share

The net earnings per share were computed as follows:

	Year ended December 31,
	2009		2008		2007
	(in millions, except per share amounts)
Earnings available to common shareholders:
Net earnings attributable to common stockholders	$	365.6	$	684.6	$	372.7
Basic earnings per common share:
Weighted average common sharesoutstanding	48.5		55.4		55.7
Net earnings attributable to common stockholders	$	7.54	$	12.35	$	6.70
Diluted earnings per common share:
Weighted average common sharesoutstanding	48.5		55.4		55.7
Dilutive common shares:
Stock options	0.7		1.0		1.1
Diluted weighted average shares outstanding	49.2		56.4		56.8
Net earnings attributable to common stockholders	$	7.42	$	12.13	$	6.56

Effective January 1, 2009, we adjusted previously reported earnings per share (EPS) data for comparative purposes upon adopting the provisions of an accounting standard issued in 2008 that applies to the calculation of EPS for share based payment awards with rights to dividends or dividend equivalents. The standard clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and are to be included in the computation of EPS pursuant to the two-class method. The adoption of this standard did not have a material impact on our consolidated financial statements.

7.Pension and Other Postretirement Benefits

CF Industries, Inc. and its Canadian subsidiary both maintain noncontributory, defined-benefit pension plans. The U.S. pension plan is a closed plan. We also provide group insurance to our retirees. Until age 65, retirees are eligible to continue to receive the same Company-subsidized medical coverage provided to active employees. When a retiree reaches age 65, medical coverage ceases.

Plan assets, benefit obligations, funded status and amounts recognized in the consolidated balance sheets for the U.S. and Canadian plans as of the measurement date of December 31 are as follows:

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	Pension Plans						Retiree Medical
	2009			2008			2009			2008
	(in millions)
Change in plan assets
Fair value of plan assets January 1	$	181.6		$	229.8		$	—		$	—
Return on plan assets	36.0			(43.4		)	—			—
Funding contributions	22.3			9.8			—			—
Benefit payments	(9.7		)	(10.2		)	—			—
Foreign currency translation	3.3			(4.4		)	—			—
Fair value of plan assets December 31	233.5			181.6			—			—
Change in benefit obligation
Benefit obligation at January 1	(247.2		)	(245.4		)	(37.2		)	(32.5		)
Service cost	(6.3		)	(6.5		)	(1.8		)	(1.6		)
Interest cost	(16.0		)	(14.3		)	(2.5		)	(2.1		)
Benefit payments	9.7			10.2			1.1			1.1
Foreign currency translation	(3.7		)	4.9			(0.2		)	0.2
Change in assumptions and other	(12.5		)	3.9			(1.8		)	(2.3		)
Benefit obligation at December 31	(276.0		)	(247.2		)	(42.4		)	(37.2		)
Funded status as of year end	$	(42.5	)	$	(65.6	)	$	(42.4	)	$	(37.2	)

In the table above, the negative return on plan assets for 2008 primarily reflects the decline in equity market conditions experienced in the second half of 2008, and the positive return on plan assets in 2009 primarily reflects the improvement in equity market conditions. The line titled “Change in assumptions and other” reflects the impact of changes in discount rates and other assumptions such as rates of retirement and mortality.

Information regarding the benefit obligation and fair value of plan assets by pension plan follows:

	U.S.			Canadian
	Plan			Plan			Consolidated
	(in millions)
December 31, 2009:
Fair value of plan assets	$	207.5		$	26.0		$	233.5
Benefit obligation	$	(245.9	)	$	(30.1	)	$	(276.0	)
Accumulated benefit obligation	$	(214.4	)	$	(24.6	)	$	(239.0	)
December 31, 2008:
Fair value of plan assets	$	163.0		$	18.6		$	181.6
Benefit obligation	$	(226.0	)	$	(21.2	)	$	(247.2	)
Accumulated benefit obligation	$	(198.3	)	$	(17.5	)	$	(215.8	)

Amounts recognized in the consolidated balance sheets consist of the following:

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	Pension Plans				Retiree Medical
	December 31,				December 31,
	2009		2008		2009		2008
	(in millions)
Accrued expenses	$	—	$	—	$	2.2	$	1.9
Other noncurrent liability	42.5		65.6		40.2		35.3
	$	42.5	$	65.6	$	42.4	$	37.2

Pre-tax amounts recognized in accumulated other comprehensive loss consist of the following:

	Pension Plans				Retiree Medical
	December 31,				December 31,
	2009		2008		2009		2008
	(in millions)
Transition obligation	$	—	$	—	$	1.0	$	1.3
Prior service cost	0.3		0.4		0.1		0.1
Net actuarial loss	71.4		79.4		7.0		6.1
	$	71.7	$	79.8	$	8.1	$	7.5

Net periodic benefit cost and other amounts recognized in accumulated other comprehensive loss included the following components:

	Pension Plans									Retiree Medical
	Year ended December 31,									Year ended December 31,
	2009			2008			2007			2009			2008			2007
	(in millions)
Service cost for benefits earnedduring the period	$	6.3		$	6.5		$	6.8		$	1.8		$	2.2		$	1.2
Interest cost on projected benefit obligation	16.0			14.3			13.5			2.5			2.1			1.8
Expected return on plan assets	(16.0		)	(16.1		)	(14.3		)	—			—			—
Amortization of transition obligation	—			—			—			0.3			0.3			0.3
Amortization of prior service cost	0.1			0.1			0.1			—			—			—
Amortization of actuarial loss	1.4			0.6			1.9			0.3			0.3			0.2
Net periodic benefit cost	7.8			5.4			8.0			4.9			4.9			3.5
Net actuarial (gain) loss	(6.6		)	54.1			(8.0		)	1.8			2.4			(2.3		)
Transition obligation	—			—			—			—			(0.1		)	—
Amortization of transition obligation	—			—			—			(0.3		)	(0.3		)	(0.3		)
Amortization of prior service cost	(0.1		)	(0.1		)	(0.1		)	—			—			—
Amortization of actuarial loss	(1.4		)	(0.6		)	(1.9		)	(0.3		)	(0.3		)	(0.2		)
Total recognized in accumulated othercomprehensive loss	(8.1		)	53.4			(10.0		)	1.2			1.7			(2.8		)
Total recognized in net periodic benefit costand accumulated other comprehensive loss	$	(0.3	)	$	58.8		$	(2.0	)	$	6.1		$	6.6		$	0.7

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The estimated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are $2.8 million and $0.1 million, respectively. The estimated net actuarial loss and transition obligation for the retiree medical plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are $0.3 million and $0.3 million, respectively.

Our pension funding policy is to contribute amounts sufficient to meet minimum legal funding requirements plus discretionary amounts that the Company may deem to be appropriate. Our aggregate pension funding contributions for 2010 are estimated to be approximately $9.6 million. Actual contributions may vary from estimated amounts depending on changes in assumptions, actual returns on plan assets, changes in regulatory requirements and funding decisions.

The expected future pension and retiree medical benefit payments are as follows:

	Pension benefit	Retiree medical
	(in millions)
2010	11.1	2.2
2011	12.0	2.4
2012	12.9	2.5
2013	13.8	2.8
2014	14.7	3.1
5 years thereafter	88.2	18.7

The following assumptions were used in determining the benefit obligations and expense:

	Pension Plans						Retiree Medical
	2009		2008		2007		2009		2008		2007
Weighted average discount rate - obligation	6.2	%	6.6	%	6.0	%	5.8	%	6.5	%	6.0	%
Weighted average discount rate - expense	6.6	%	6.0	%	5.7	%	6.5	%	6.0	%	5.7	%
Weighted average rate of increase in future compensation - expense	5.0	%	4.9	%	4.9	%	n/a		n/a		n/a
Weighted average expected long-term rate of return on assets - expense	7.0	%	7.3	%	7.2	%	n/a		n/a		n/a

The discount rates are developed for each plan using spot rates derived from a yield curve of high quality (Aa rated or better) fixed income debt securities as of the year-end measurement date to calculate discounted cash flows (the projected benefit obligation) and solving for a single equivalent discount rate that produces the same projected benefit obligation.

The expected long-term rate of return on assets is based on analyses of historical rates of return achieved by equity and non-equity investments, adjusted for estimated plan expenses and weighted by target asset allocation percentages. As of January 1, 2010, our weighted average expected long-term rate of return on assets is 7.1%.

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The health care cost trend rate used to determine the primary (U.S.) retiree medical benefit obligation at December 31, 2009 is 7.0% grading down to 6.0% in 2012 and thereafter. At December 31, 2008, the trend rate was 7.75%, grading down to 6.0% in 2012 and thereafter. A one-percentage-point change in the assumed health care cost trend rate at December 31, 2009 would have the following effects:

	One-Percentage-Point
	Increase		Decrease
Effect on:
Total of service and interest costcomponents for 2009	12	%	(10	)%
Benefit obligation at December 31, 2009	9	%	(8	)%

The objectives of the pension plans’ investment policies are to administer the assets of the plans for the benefit of the participants in compliance with all laws and regulations, and to establish an asset mix that provides for diversification and considers the risk of various different asset classes with the purpose of generating favorable investment returns. The investment policies consider circumstances such as participant demographics, time horizon to retirement and liquidity needs, and provide guidelines for asset allocation, planning horizon, general portfolio issues and investment manager evaluation criteria.

The current target asset allocation for the U.S. plan is 50% equity and 50% non-equity, which has been determined based on analysis of actual historical rates of return and plan needs and circumstances. The equity investments are tailored to exceed the growth of the benefit obligation and are a combination of U.S. and non-U.S. total stock market index mutual funds. The non-equity investments consist primarily of investments in debt securities and money market instruments that are selected based on investment quality and duration to mitigate volatility of the funded status and annual required contributions. The non-equity investments have a duration profile that is similar to the benefit obligation in order to mitigate the impact of interest rate changes on the funded status. This structure is achieved through the use of managed mutual funds.

The current target asset allocation for the Canadian plan is 60% equity and 40% non-equity. The equity investments are actively managed portfolios that diversify assets across multiple securities, economic sectors and countries. The non-equity investments are high quality actively managed portfolios that diversify assets across economic sectors, countries and maturity spectrums. This structure is achieved through the use of managed mutual funds.

The fair values of our U.S. and Canadian pension plan assets at December 31, 2009, by major asset category are as follows:

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	Balance as of December 31, 2009		Quoted Prices in Active Markets(Level 1)		Significant Other Observable Inputs(Level 2)		Significant Unobservable Inputs(Level 3)
	(in millions)
Index equity funds (1)	$	105.8	$	90.2	$	15.6	$	—
Pooled equity funds (2)	15.6		—		15.6		—
Fixed income funds (3)	110.1		99.9		10.2		—
Total assets at fair value	231.5		$	190.1	$	41.4	$	—
Cash, cash equivalents, & receivables (4)	2.0
Total assets	$	233.5

(1)This category consists of mutual funds and a common collective trust that utilize a passively managed investment approach designed to track specific equity indices.

(2)This category consists of actively managed pooled funds that invest in common stocks and other equity securities that are traded on U.S., Canadian and foreign markets.

(3)This category represents actively managed bond funds that invest in investment-grade corporate debt, various governmental debt obligations and mortgage-backed securities with varying maturities.

(4)Cash and cash equivalents are considered a Level 1 asset.

We have a defined contribution plan covering substantially all employees. Under the plan, we contribute a fixed percentage of base salary to employees’ accounts and match employee contributions up to a specified limit. We contributed $10.9 million, $6.8 million and $6.3 million to the plan in 2009, 2008 and 2007, respectively.

We have an Annual Incentive Plan. The aggregate award under the plan is based on pre-determined targets for individually weighted performance metrics involving cash flow return on average gross capital employed, controllable cash costs and the attainment of specified strategic objectives. Awards are accrued during the year and paid in the first quarter of the subsequent year. We recognized expense of $5.0 million, $9.7 million and $8.6 million for this plan in 2009, 2008 and 2007, respectively.

In addition to our qualified defined benefit pension plans, we also maintain nonqualified supplemental pension plans for highly compensated employees as defined under federal law. We also maintain a closed plan in which no current employees are eligible to participate. The amounts recognized in accrued expenses and other noncurrent liabilities in our consolidated balance sheets for these plans were $1.3 million and $6.7 million at December 31, 2009 and $0.6 million and $7.5 million at December 31, 2008, respectively. We recognized expense for these plans of $1.3 million, $1.5 million and $1.3 million in 2009, 2008 and 2007, respectively.

8.Other Operating—Net

Details of other operating costs are as follows:

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	Year ended December 31,
	2009		2008			2007
	(in millions)
Business combination costs	$	53.4	$	—		$	—
Peru project development costs	35.9		—			—
Bartow costs	2.6		9.2			4.6
Fixed asset disposals	0.7		(6.3		)	(3.0		)
Litigation costs	3.1		0.8			0.1
Other	1.0		0.8			1.5
	$	96.7	$	4.5		$	3.2

Business combination costs were associated with our proposed business combination with Terra and with responding to Agrium Inc’s proposed acquisition of CF Industries Holdings, Inc. See Note 9—Business Combination Activities and Subsequent Events for additional discussion of these activities.

Bartow costs consist of provisions for asset retirement obligations (AROs) and site maintenance costs. The AROs involve costs of closure and post-closure monitoring for the phosphogypsum stack and cooling pond, and water treatment costs. Bartow costs in 2008 included changes in estimates for the AROs. See Note 13—Asset Retirement Obligations for additional information.

Fixed asset disposals are primarily due to gains on the sale of excess land, primarily at our former corporate office in Long Grove, Illinois in 2008, and at our closed Bartow complex in 2007.

Litigation costs represent costs associated with legal actions to which we are a party. Such costs are recorded when they are considered probable and can be reasonably estimated. Recoveries are recorded when realized.

9.Business Combination Activities and Subsequent Events

During 2009, CF Holdings made several merger proposals to the Board of Directors of Terra Industries Inc. (Terra). Also during 2009, Agrium Inc. (Agrium) made several proposals to the Board of Directors of CF Holdings to acquire CF Holdings. The following summarizes these events and their impact on our financial results.

CF Holdings’ Proposals to Acquire Terra—In January 2009, CF Holdings proposed to Terra’s Board of Directors an all stock merger transaction under which shareholders of Terra would receive shares in CF Holdings. Terra’s Board rejected this initial offer. Subsequently, we made a series of modified offers to the Terra Board, including offering more favorable exchange ratios, with each offer being rejected by the Terra Board. The offers were each conditioned upon, among other things, CF Holdings entering into a merger agreement with Terra and approval by Terra’s Board and shareholders. In the third quarter of 2009, we acquired 7.0 million shares (approximately 7%) of Terra’s common shares in open market purchases, for $247.2 million. In the fourth quarter of 2009, we made a revised proposal to Terra consisting primarily of cash consideration. In making this modification, we obtained a financing commitment to fund the cash portion of the offer and incurred debt arrangement fees. This offer was also rejected by Terra’s Board in the fourth quarter. The financing commitment expired on December 31, 2009.

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Agrium’s Proposed Acquisition of CF Holdings—In February 2009, Agrium made an unsolicited offer to the CF Holdings’ Board of Directors to purchase all of the outstanding common stock of CF Holdings for a combination of Agrium stock and cash. The offer was conditioned upon, among other things, the termination of our offer to acquire Terra, the negotiation of a definitive merger agreement between Agrium and us and approval by our Board of Directors and shareholders. CF Holdings’ Board rejected this initial offer because, among other things, it significantly undervalued the Company. Subsequently, Agrium made several modifications to its offer to acquire CF Holdings, each of which were rejected by our Board because they significantly undervalued the Company. Agrium has announced that it will propose a slate of Directors for election to CF Holdings’ Board of Directors at our 2010 annual meeting of stockholders.

Impact on Results of Operations—In 2009, we incurred $53.4 million of professional fees for financial, legal and other advisors related to the proposed business combination with Terra, debt arrangement fees with regard to the cash component of our offer for Terra, and assistance in responding to Agrium’s proposed acquisition of CF Holdings. All of these costs have been recognized in the Other operating—net line of our consolidated statement of operations.

Terra declared a special dividend of $7.50 per share that was payable to shareholders on December 11, 2009. Due to the equity investment in Terra that we held at the time of the dividend, we received $52.4 million, which was recognized as a return of capital that reduced our basis in the investment. In the fourth quarter of 2009, we sold 2.0 million of our Terra shares. We received proceeds of $68.0 million and recognized an $11.9 million pre-tax gain on the sale of the stock. This gain is recognized in the Other non-operating—net line of our consolidated statement of operations.

Subsequent Events—In January 2010, we sold approximately 5.0 million shares of Terra common stock. As a result of these sales, in the first quarter of 2010 we received proceeds of $167.1 million and will report a pre-tax gain of $28.3 million on the sale of the Terra shares. On January 14, 2010 we announced that we had withdrawn our offer to acquire Terra.

On February 15, 2010, Terra and Yara International ASA (“Yara”) announced that on February 12, 2010, they had entered into an agreement and plan of merger (“Yara/Terra merger agreement”) pursuant to which Yara would acquire Terra through its wholly-owned subsidiary Yukon Merger Sub, Inc.  The Yara/Terra merger agreement contained certain termination rights and provided that upon termination of the Yara/Terra merger agreement by Terra to accept a “superior proposal” (as defined in the Yara/Terra merger agreement), Terra would owe Yara a cash termination fee of $123 million.

On March 2, 2010, we announced that we had made a proposal to acquire Terra for consideration per Terra share of $37.15 in cash and 0.0953 of a share of CF Holdings common stock (the “Per Share Consideration”).

On March 11, 2010, Agrium Inc. announced that it would no longer pursue its proposed acquisition of CF Holdings.

On March 12, 2010, Terra terminated the Yara/Terra merger agreement and entered into a definitive merger agreement with CF Holdings (the “CF/Terra merger agreement”), and we paid (on behalf of Terra) the $123 million termination fee due to Yara under the Yara/Terra merger agreement.

On April 5, 2010, we completed an initial offer to exchange each outstanding share of Terra common stock for the Per Share Consideration in which approximately 85.6% of the outstanding shares of Terra common stock (including shares subject to guarantees of delivery) were validly tendered and accepted by us for payment.  On April 9, 2010, we commenced a subsequent offering period for all remaining shares of Terra common stock that expired on April 14, 2010.

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On April 15, 2010, pursuant to the CF/Terra merger agreement, an indirect, wholly-owned subsidiary of CF Holdings merged with and into Terra and each remaining outstanding share of Terra common stock not acquired by us in the initial exchange offer and subsequent offering period was cancelled in exchange for the Per Share Consideration. In the aggregate, we issued approximately 9.5 million shares of CF Holdings common stock and paid approximately $3.7 billion in cash in exchange for shares of Terra common stock in the exchange offer and the merger.

10.Interest Expense

Details of interest expense are as follows:

	Year ended December 31,
	2009		2008		2007
	(in millions)
Notes payable	$	0.1	$	0.2	$	0.4
Fees on financing agreements	1.2		1.2		1.3
Other	0.2		0.2		—
	$	1.5	$	1.6	$	1.7

Commitment fees are included in fees on financing agreements.

11.Interest Income

Details of interest income are as follows:

	Year ended December 31,
	2009		2008		2007
	(in millions)
Interest on cash, cash equivalentsand investments	$	2.7	$	25.3	$	23.9
Finance charges and other	1.8		0.8		0.5
	$	4.5	$	26.1	$	24.4

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12.Other Non-Operating—Net

	Year ended December 31,
	2009			2008			2007
	(in millions)
Gain on sale of marketable equity securities	$	(11.9	)	$	—		$	—
Dividend income and other	(0.9		)	(0.7		)	(1.6		)
	$	(12.8	)	$	(0.7	)	$	(1.6	)

The gain on sale of marketable equity securities resulted from the sale of our holdings of 2.0 million shares of Terra common stock in December 2009. For additional information on our investment in Terra common stock, see Note 5—Fair Measurements, Note 9—Business Combination Activities and Subsequent Events, and Note 15—Cash and Cash Equivalents, Short-term Investments and Other Investments.

13.Asset Retirement Obligations

Asset retirement obligations (AROs) are legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal operation of such assets. AROs are initially recognized as incurred when sufficient information exists to estimate fair value. When initially recognized, the fair value based on future cash flows is recorded both as a liability and an increase in the carrying amount of the related long-lived asset. In subsequent periods, depreciation of the asset and accretion of the liability are recorded.

The balances of AROs and changes thereto are summarized below. AROs are reported in other noncurrent liabilities and accrued expenses in our consolidated balance sheet.

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				Mine
	Phosphogypsum			Reclamation			Other
	Stack Costs			Costs			AROs			Total
	(in millions)
Obligation at December 31, 2006	$	47.3		$	28.5		$	11.3		$	87.1
Accretion expense	3.5			2.2			0.4			6.1
Liabilities incurred	—			1.4			—			1.4
Expenditures	(5.3		)	(1.7		)	(2.6		)	(9.6		)
Change in estimate	4.8			0.7			(1.1		)	4.4
Obligation at December 31, 2007	50.3			31.1			8.0			89.4
Accretion expense	3.8			2.4			0.3			6.5
Liabilities incurred	—			2.8			—			2.8
Expenditures	(6.2		)	(1.0		)	(1.6		)	(8.8		)
Change in estimate	4.9			6.5			(0.6		)	10.8
Obligation at December 31, 2008	52.8			41.8			6.1			100.7
Accretion expense	3.9			3.2			0.4			7.5
Liabilities incurred	—			1.7			—			1.7
Expenditures	(4.4		)	(1.5		)	(0.1		)	(6.0		)
Change in estimate	(0.8		)	0.9			(0.3		)	(0.2		)
Obligation at December 31, 2009	$	51.5		$	46.1		$	6.1		$	103.7

Our phosphate operations in Florida are subject to regulations governing the construction, operation, closure and long-term maintenance of phosphogypsum stack systems and regulations concerning site reclamation for phosphate rock mines.

The liability for phosphogypsum stack system costs includes the cost of closure and post-closure monitoring for the stack at Plant City, the cooling ponds at Bartow and Plant City, plus water treatment costs at Bartow and Plant City, as described below. The actual amounts to be spent will depend on factors such as the timing of activities, refinements in scope, technological developments, cost inflation and changes in regulations. It is possible that these factors could change at any time and impact the estimates. Closure expenditures for the Bartow cooling pond and channels are estimated to occur through 2017. Closure expenditures for the Plant City stack expansion are estimated to occur in the 2033 to 2037 timeframe and closure of the Plant City cooling pond is assumed to occur in the year 2087. Additional asset retirement obligations may be incurred in the future.

The liability for mine reclamation costs is primarily for work involving the re-contouring, re-vegetation and re-establishment of wildlife habitat and hydrology of land disturbed by phosphate rock mining activities. In accordance with regulations in Florida, physical reclamation and restoration of disturbed areas is generally required to be completed within a prescribed time frame after completion of mining operations, and the timing of reconnection to surrounding lands and waterways varies based on achievement of applicable release criteria. The actual time required to complete the work may vary depending on site-specific reclamation plans and other circumstances.

The $4.8 million change in estimate in phosphogypsum stack closure costs in 2007 was primarily due to changes in prior estimates and the impact of new environmental regulations. The 2007 updated closure plan includes certain changes in the order and timing of closure activities, including additional

29

water treatment costs arising from a change in the projected amount and timing of water treatment due to new water containment regulations in Florida.

The $4.9 million change in estimate in phosphogypsum stack closure costs in 2008 relates primarily to our Bartow facility and resulted mainly from recently mandated changes in the scope and timing of the cooling pond closure due to reclassification of a nearby river by the Florida Department of Environmental Protection (FDEP) to “impaired waterbody” status, which necessitated changes to our closure plans. The $6.5 million change in estimate for mine reclamation costs in 2008 followed completion of a review of projected reclamation costs at our Hardee County phosphate rock mine due to changes in costs of earth moving and landscape development activities. In addition, we refined our estimate of the number of mined acres to be reclaimed which also increased our reclamation obligation. Of the total $10.8 million ARO change in estimate in 2008, $7.6 million was recognized as an expense and $3.2 million was recognized as an increase in fixed assets.

We have unrecorded AROs at our Donaldsonville, Louisiana nitrogen complex; at Canadian Fertilizers Limited’s Medicine Hat, Alberta nitrogen complex; and at our distribution and storage facilities, that are conditional upon cessation of operations. These AROs include certain decommissioning activities as well as the removal and disposition of certain chemicals, waste materials, structures, equipment, vessels, piping and storage tanks. Also included is reclamation of land and, in the case of Donaldsonville, reclamation of two effluent ponds. The most recent estimate of the aggregate cost of these AROs expressed in 2009 dollars is $21 million. We have not recorded a liability for these conditional AROs at December 31, 2009, because currently we do not have a reasonable basis for estimating a date or range of dates of cessation of operations at these facilities. In reaching this conclusion, we considered the historical performance of each facility and have taken into account factors such as planned maintenance, asset replacements and upgrades of plant and equipment, which if conducted as in the past, can extend the physical lives of our Donaldsonville and Medicine Hat facilities indefinitely. We also considered the possibility of changes in technology, risk of obsolescence, and availability of raw materials in arriving at our conclusion.

In the first quarters of 2007, 2008 and 2009, we made annual contributions of $9.4 million, $6.2 million and $7.5 million, respectively, to an escrow account established for the benefit of the Florida Department of Environmental Protection as a means of complying with Florida’s regulations governing financial assurance related to the closure and post-closure of phosphogypsum stacks. We expect to contribute another $3.7 million in the first quarter of 2010. Based on the predetermined funding formula as prescribed by the state of Florida and an assumed rate of return of 2% on invested funds, we estimate that over the subsequent 23 years, our contributions will average approximately $5 million per year and may range up to $10 million in the later years. The balance in the fund is estimated to peak at $210 million in 2033 and then decline over the next five decades as closure and post-closure work is completed and the funds are used to complete settlement of the AROs. No expense is recognized upon the funding of the account; therefore, contributions to the account will differ from amounts recognized as expense in our financial statements. The balance in the escrow account is reported as an asset at fair value on our consolidated balance sheets.

We also will be required to demonstrate financial assurance for reclamation and for wetland and other surface water mitigation measures in advance of any additional mining activities if and when we are able to expand our Hardee mining activities into areas not currently permitted.

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14.Income Taxes

The components of earnings before income taxes and equity in earnings (loss) of unconsolidated affiliates are as follows:

	Year ended December 31,
	2009		2008		2007
	(in millions)
Domestic	$	613.5	$	1,059.1	$	569.0
Non-U.S.	82.1		116.3		56.9
	$	695.6	$	1,175.4	$	625.9

The components of the income tax provision are as follows:

	Year ended December 31,
	2009			2008		2007
	(in millions)
Current
Federal	$	171.6		$	304.5	$	130.2
Foreign	8.6			6.3		2.6
State	20.2			40.9		18.7
	200.4			351.7		151.5
Deferred
Federal	38.4			23.6		42.1
Foreign	(0.1		)	—		0.9
State	7.3			2.8		5.2
Valuation allowance	—			—		(0.2		)
	45.6			26.4		48.0
Income tax provision	$	246.0		$	378.1	$	199.5

Differences in the expected income tax provision based on statutory rates applied to earnings before income taxes and the income tax provision reflected in the consolidated statements of operations are summarized below:

	Year ended December 31,
	2009					2008					2007
	(in millions, except percentages)
Earnings before income taxes and equity in earnings (loss) of unconsolidated affiliates	$	695.6				$	1,175.4				$	625.9
Expected tax at U.S. statutory rate	243.5			35.0	%	411.4			35.0	%	219.1			35.0	%
State income taxes, net of federal	17.8			2.6	%	28.6			2.4	%	15.5			2.5	%
Income of the noncontrolling interest	(29.0		)	(4.2	)%	(40.9		)	(3.5	)%	(19.1		)	(3.0	)%
Non-deductible items	0.8			0.1	%	(0.3		)	—		0.3			—
Tax exempt income	(0.5		)	(0.1	)%	(3.8		)	(0.3	)%	(7.6		)	(1.2	)%
U.S. manufacturing profits deduction	(9.2		)	(1.3	)%	(17.7		)	(1.5	)%	(7.4		)	(1.2	)%
Non-deductible transaction costs	10.9			1.6	%	—			—		—			—
Non-deductible capital costs	12.5			1.8	%	—			—		—			—
Valuation allowance	—			—		—			—		(0.2		)	—
Other	(0.8		)	(0.1	)%	0.8			0.1	%	(1.1		)	(0.2	)%
Income tax at effective rate	$	246.0		35.4	%	$	378.1		32.2	%	$	199.5		31.9	%

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Deferred tax assets and deferred tax liabilities are as follows:

	December 31,
	2009			2008
	(in millions)
Deferred tax assets
Net operating loss carryforward, patronage—sourced	$	99.7		$	99.7
Retirement and other employee benefits	46.1			51.6
Asset retirement obligations	22.0			22.5
Unrealized loss on hedging derivatives	—			32.3
Unrealized loss on investments	1.7			8.7
Other	16.1			17.3
	185.6			232.1
Valuation allowance	(99.7		)	(99.7		)
	85.9			132.4
Deferred tax liabilities
Depreciation and amortization	(93.4		)	(68.0		)
Deferred patronage from CFL	(59.5		)	(79.0		)
Depletable mineral properties	(45.2		)	(43.1		)
Unrealized gain on hedging derivatives	(1.1		)	—
Other	(7.6		)	(0.6		)
	(206.8		)	(190.7		)
Net deferred tax liability	(120.9		)	(58.3		)
Less amount in current liabilities	(52.6		)	(52.1		)
Noncurrent asset (liability)	$	(68.3	)	$	(6.2	)

The Company files federal, provincial, state and local income tax returns principally in the United States and Canada. In general, filed tax returns remain subject to examination by United States tax jurisdictions for years 2001 and thereafter and by Canadian tax jurisdictions for years 2005 and thereafter. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	December 31,
	2009		2008
	(in millions)
Unrecognized tax benefits:
Beginning balance	$	74.6	$	0.2
Additions for tax positions taken during an earlier year	—		0.6
Additions for tax positions taken during the current year	14.5		73.8
Ending balance	$	89.1	$	74.6

In connection with our initial public offering (IPO) in August 2005, CF Industries, Inc. (CFI) ceased to be non-exempt cooperative for income tax purposes, and we entered into a net operating loss

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agreement (NOL Agreement) with CFI’s pre-IPO owners relating to the future utilization of the pre-IPO net operating loss carryforwards (NOLs). Under the NOL Agreement, if it is finally determined that the NOLs can be utilized to offset applicable post-IPO taxable income, we will pay the pre-IPO owners amounts equal to the resulting federal and state income taxes actually saved.

In the years ended December 31, 2008 and December 31 2009, we took tax return positions utilizing a portion of the NOLs. As the result of these return positions, our unrecognized tax benefits increased by $73.2 million and $14.2 million, respectively. The amount of unrecognized tax benefits at December 31, 2009 which, if recognized, would affect our effective tax rate, is $28.2 million. The remainder of the unrecognized tax benefits, if received, will be payable to the pre-IPO owners under the NOL Agreement. We believe that it is reasonably possible that the amounts of unrecognized tax benefits related to the utilization of the NOLs may change significantly within the next twelve months, increasing due to further utilization of the remaining NOLs or decreasing due to possible review of amended income tax returns by tax jurisdictions. An estimate of the amount, or range of amounts, of the possible increases or decreases cannot be made.

At the time of our IPO we had net operating loss carryforwards of $250 million. After giving effect to the tax return positions taken during the years ended December 31, 2008 and December 31, 2009, our net operating loss carryforward is $12 million with expiration in the year 2023.

No interest expense was recognized related to tax assessments for any of the years ended December 31, 2007 through December 31, 2009.

CFL operates as a cooperative for Canadian income tax purposes and distributes all of its earnings as patronage dividends to its customers, including CFI. For Canadian income tax purposes, CFL is permitted to deduct an amount equal to the patronage dividends it distributes to its customers, provided that certain requirements are met. As a result, CFL records no income tax provision.

15.Cash and Cash Equivalents, Short-Term Investments and Other Investments

Our cash and cash equivalents, short-term investments and other investments consist of the following:

	December 31, 2009									December 31, 2008
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value		Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in millions)
Cash	$	17.0	$	—	$	—		$	17.0	$	49.4	$	—	$	—		$	49.4
U.S. federal government obligations	658.2		—		—			658.2		562.6		—		—			562.6
Other debt securities	21.9		—		—			21.9		13.0		—		—			13.0
Total cash and cash equivalents	$	697.1	$	—	$	—		$	697.1	$	625.0	$	—	$	—		$	625.0
Short-term investments	185.0		—		—			185.0		—		—		—			—
Investment in marketable equity securities	138.8		21.4		—			160.2		—		—		—			—
Investments in auction rate securities	138.4		—		(4.5		)	133.9		198.6		—		(20.8		)	177.8
Asset retirement obligation escrow account	36.5		—		—			36.5		28.8		—		—			28.8
Nonqualified employee benefit trust	9.8		—		(1.2		)	8.6		10.5		—		(1.9		)	8.6

Under our short-term investment policy, we can invest our cash balances in several types of securities, including notes and bonds issued by governmental entities or corporations, and money market funds. Securities issued by governmental entities include those issued directly by the Federal

33

government; those issued by state, local or other governmental entities; and those guaranteed by entities affiliated with governmental entities.

Cash and Cash Equivalents

At December 31, 2009 and 2008, our cash and cash equivalents consisted primarily of U.S. Treasury Bills with original maturities of three months or less and money market mutual funds that invest in U.S. government obligations.

Short-term Investments

As of December 31, 2009, our short-term investments consisted of available-for-sale U.S. Treasury Bills with original maturities between three and six months.

Investment in Marketable Equity Securities

Our investment in marketable equity securities consisted of our investment in Terra common stock. As of December 31 2009, we held approximately 5.0 million shares of Terra common stock which were purchased in the open market during the third quarter of 2009 and are classified as noncurrent available-for-sale securities. For additional information on the Terra common stock, see Note 9—Business Combination Activities and Subsequent Event and Note 12—Other Non-Operating—Net.

Investments in Auction Rate Securities

Auction rate securities are primarily debt instruments with long-term maturities for which interest rates are expected to be reset periodically through an auction process, which typically occurs every 7 to 35 days. The auction process results in the interest rate being reset on the underlying securities until the next reset or auction date. A failed auction occurs when there are insufficient bids for the number of instruments being offered. Upon a failed auction, the then present holders of the instruments continue to hold them and each instrument carries an interest rate based upon certain predefined formulas.

In the first quarter of 2008, the traditional auction process for auction rate securities began to fail, liquidity left the market and the securities became illiquid. Auctions have continued to fail since that time. Redemptions of certain auction rate securities and sales outside of the auction process have occurred. During 2009 and 2008, $60.2 million and $69.9 million, respectively, of our securities were either sold or have been redeemed at par value. The investments in auction rate securities held at December 31, 2009 are supported by student loans that were originated primarily under the Federal Family Education Loan Program (FFELP) and are guaranteed by entities affiliated with governmental entities. However, we will not be able to access the remaining funds until such time as an auction for these securities is successful, a buyer is found outside the auction process, and/or the securities are redeemed by the issuer.

We currently intend to hold our auction rate securities until a market recovery occurs and, based on our current liquidity position, we do not believe it is likely that we will need to sell these securities prior to their recovery in value. Therefore, we expect to recover our amortized cost basis in the investments. As a result, our unrealized holding loss on these securities is classified as a temporary impairment and is reported in other comprehensive income.

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We valued these investments using a mark-to-model approach that relies on discounted cash flows, market data and inputs derived from similar instruments. This model takes into account, among other variables, the base interest rate, credit spreads, downgrade risks and default/recovery risk, the estimated time required to work out the disruption in the traditional auction process and its effect on liquidity, and the effects of insurance and other credit enhancements. In accordance with our policies, we review the underlying securities and assess the creditworthiness of these investments as part of our investment process.

As a result of the current market illiquidity and our judgment regarding the period of time that may elapse until the traditional auction process resumes or other effective market trading mechanisms develop, we have classified these investments as noncurrent assets on our consolidated balance sheets. These auction rate securities have maturities that range up to 38 years. As of December 31, 2009, the carrying values by range of maturity are as follows:

	(in millions)
10 years up to 20 years	$	14.6
20 years up to 30 years	56.8
30 years up to 40 years	62.5
	$		133.9

Asset Retirement Obligation Escrow Account

At December 31, 2009 and December 31, 2008, we utilized an escrow account to meet our financial assurance requirements associated with certain asset retirement obligations in Florida. The investments in this escrow account are accounted for as available-for-sale securities.

Nonqualified Employee Benefit Trust

At December 31, 2009 and December 31, 2008, we had a nonqualified employee benefit trust which is associated with certain deferred compensation related to nonqualified employee benefits. The investments are included in other assets on our consolidated balance sheets and are accounted for as available-for-sale securities.

For additional information on our investment in marketable equity securities, investments in auction rate securities, asset retirement obligation escrow account and nonqualified employee benefit trust, see Note 5—Fair Value Measurements.

16.Accounts Receivable

Accounts receivable consist of the following:

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	December 31,
	2009		2008
	(in millions)
Trade	$	163.3	$	170.5
Other	4.1		4.6
	$	167.4	$	175.1

Trade accounts receivable includes amounts due from related parties. For additional information, see Note 33—Related Party Transactions and Note 19—Investments in and Advances to Unconsolidated Affiliates.

17.Inventories—Net

Inventories consist of the following:

	December 31,
	2009		2008
	(in millions)
Fertilizer	$	157.3	$	583.2
Market valuation reserve	—		(57.0		)
	157.3		526.2
Raw materials, spare parts and supplies	50.5		62.4
	$	207.8	$	588.6

18.Other Current Assets and Other Current Liabilities

Other current assets consist of the following:

	December 31,
	2009		2008
	(in millions)
Margin deposits	$	0.9	$	12.2
Prepaid product and expenses	5.3		5.2
Product exchanges	1.1		0.1
Unrealized gains on natural gas derivatives	3.8		0.7
	$	11.1	$	18.2

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Margin deposits represent primarily cash collateral on deposit with counterparties related to natural gas derivative contracts. For additional information, see Note 27—Derivative Financial Instruments.

Other current liabilities consist of the following:

	December 31,
	2009		2008
	(in millions)
Unrealized losses on natural gas derivatives	$	0.9	$	85.3
Product exchanges	2.2		0.8
	$	3.1	$	86.1

19.Investments in and Advances to Unconsolidated Affiliates

We own 50% of the common shares of KEYTRADE AG (Keytrade), a global fertilizer trading company headquartered near Zurich, Switzerland. We also own certain non-voting preferred shares of Keytrade and have provided additional subordinated financing. Keytrade purchases fertilizer products from various manufacturers around the world and resells them in approximately 50 countries through a network of seven offices. Keytrade is our exclusive exporter of phosphate fertilizer products from North America and our exclusive importer of UAN products into North America. We account for our investment in Keytrade under the equity method.

Our investment in and advances to Keytrade consist of the following:

	December 31,
	2009		2008
	(in millions)
Equity investment in Keytrade	$	33.2	$	32.4
Advances to Keytrade	12.4		12.4
	$	45.6	$	44.8

In 2009, 2008 and 2007, we recognized in our consolidated statements of operations equity in earnings (loss) of Keytrade of ($1.1) million, $4.2 million and $0.9 million, respectively. These amounts are net of our U.S. deferred income taxes. At December 31, 2009, the amount of our consolidated retained earnings that represents our undistributed earnings of Keytrade is $4.1 million.

During the third quarter of 2009, we acquired Keytrade’s exclusive U.S. marketing and terminal usage rights related to certain fertilizer products for $2.5 million. These rights are recognized as intangible assets and are being amortized against our share of Keytrade’s net income over their useful lives.

In 2009, 2008 and 2007, our sales to Keytrade were $304.2 million, $452.2 and $33.1 million, respectively, or 12%, 12% and 1%, respectively, of our consolidated net sales. In 2009, 2008 and 2007, our purchases from Keytrade were $2.8 million, $227.8 million and $45.8 million, respectively.

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Our consolidated balance sheet at December 31, 2009 and 2008 includes balances in accounts receivable related to Keytrade of $12.5 million and $17.3 million, respectively.

The advances to Keytrade are subordinated notes that mature September 30, 2017 and bear interest at LIBOR plus 1.00 percent. In 2009 and 2008, we recognized interest income on advances to Keytrade of $0.2 million and $0.5 million, respectively. The carrying value of our advances to Keytrade approximates fair value.

20.Property, Plant and Equipment—Net

Property, plant and equipment—net consist of the following:

	December 31,
	2009		2008
	(in millions)
Land	$	36.5	$	31.8
Mineral properties	196.7		193.0
Manufacturing plants and equipment	2,141.7		1,987.4
Distribution facilities and other	228.3		220.8
Construction in progress	117.9		74.9
	2,721.1		2,507.9
Less: Accumulated depreciation, depletion and amortization	1,927.3		1,846.0
	$	793.8	$	661.9

Plant turnarounds—Scheduled inspections, replacements and overhauls of plant machinery and equipment at our continuous process manufacturing facilities are referred to as plant turnarounds. The expenditures related to turnarounds are capitalized into property, plant and equipment when incurred and are included in the table above in the line entitled, “Manufacturing plants and equipment.” The following is a summary of plant turnaround activity for 2009, 2008 and 2007:

	Year ended December 31,
	2009			2008			2007
	(in millions)
Net capitalized turnaround costs at beginning of the year	$	40.6		$	47.7		$	34.5
Additions	27.6			18.8			26.6
Depreciation	(12.2		)	(23.8		)	(15.8		)
Effect of exchange rate changes	1.4			(2.1		)	2.4
Net capitalized turnaround costs at end of the year	$	57.4		$	40.6		$	47.7

Scheduled replacements and overhauls of plant machinery and equipment include the dismantling, repair or replacement and installation of various components including piping, valves, motors, turbines, pumps, compressors, heat exchangers and the replacement of catalyst when a full plant

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shutdown occurs. Scheduled inspections are also conducted during full plant shutdowns, including required safety inspections which entail the disassembly of various components such as steam boilers, pressure vessels and other equipment requiring safety certifications. Capitalized turnaround costs have been applied consistently in the periods presented. Internal employee costs and overhead are not considered turnaround costs and are not capitalized.

21.Other Assets

Other assets consist of the following:

	December 31,
	2009		2008
	(in millions)
Spare parts	$	26.9	$	25.7
Nonqualified employee benefit trust	8.6		8.6
Investment in CoBank	2.7		2.7
Deferred financing agreement fees	1.0		1.4
Other	1.7		1.8
	$	40.9	$	40.2

22.Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

	December 31,
	2009		2008
	(in millions)
Accrued natural gas costs	$	51.7	$	55.3
Accounts payable	41.7		62.0
Payroll and employee related costs	21.0		24.9
Asset retirement obligations - current portion	11.1		11.2
Other	47.0		54.5
	$	172.5	$	207.9

Payroll and employee related costs include accrued salaries and wages, vacation, incentive plans and payroll taxes. Asset retirement obligations are the current portion of these obligations. Other includes accrued interest, utilities, property taxes, sales incentives and other credits, maintenance and professional services.

23.Customer Advances

Customer advances represent cash received from customers following acceptance of orders under our Forward Pricing Program (FPP). Customer advances, which typically represent a significant

39

portion of the contract’s sales value, are received shortly after the contract is executed, with any remaining amount generally being collected by the time the product is shipped, thereby reducing or eliminating accounts receivable from customers upon shipment. Revenue is recognized when title and risk of loss transfers upon shipment or delivery of the product to customers. As of December 31, 2009, we had approximately 1.4 million tons of product committed to be sold under the FPP in 2010.

24.Credit Agreement and Notes Payable

Credit Agreement

In 2005, we entered into a senior secured revolving credit agreement with JPMorgan Chase Bank, N.A. (JPMorgan Chase) acting as administrative agent for the bank group. The credit facility as amended, is scheduled to be available until July 31, 2012 and provides up to $250 million, subject to a borrowing base, for working capital and general corporate purposes, including up to $50 million for the issuance of letters of credit.

Availability under the credit facility is limited by a borrowing base equal to the value of a specified percentage of eligible receivables, plus the value of a specified percentage of eligible inventory, plus a property, plant and equipment component (capped at $75 million in the aggregate) determined based on specified percentages of eligible fixed assets (including the real property) located at the Donaldsonville, Louisiana facility and other eligible real property, if any (each subject to caps), less the amount of any reserves JPMorgan Chase deems necessary, as determined in good faith and in the exercise of reasonable business judgment, such as unrealized losses with derivative counterparties who are members of the bank group.

CF Industries, Inc. is entitled to borrow at interest rates based on (1) the Base Rate (which is the higher of (i) the rate most recently announced by JPMorgan Chase as its “prime” rate and (ii) the federal funds rate plus 1/2 of 1% per annum) plus a margin applied to either rate ranging from 0.00 percent to 0.25 percent, and (2) the applicable Eurodollar Rate (which is the London Interbank Eurodollar Rate adjusted for reserves) plus an applicable margin that ranges from 1.25 percent to 1.50 percent. Letters of credit issued under the credit facility accrue fees at the applicable Eurodollar Rate borrowing margin. The applicable margins vary depending on the average daily availability for borrowing under the credit facility during CF Industries, Inc.’s most recent calendar quarter. CF Industries, Inc. is also required to pay certain fees, including fees based on the unused portion of the credit facility and fronting fees on undrawn amounts under outstanding letters of credit, and expenses in connection with the credit facility.

The credit facility is guaranteed by CF Holdings and certain domestic subsidiaries of CF Industries, Inc. (the Loan Parties) and secured by substantially all of the personal property and assets, both tangible and intangible, of the Loan Parties, 100% of the equity interests of each Loan Party’s direct and indirect domestic subsidiaries other than immaterial subsidiaries, 65% of the equity interests of each Loan Party’s first-tier foreign subsidiaries and the real property located in Donaldsonville, Louisiana.

Optional prepayments and optional reductions of the unutilized portion of the secured credit facility are permitted at any time, subject to, among other things, reimbursement of the lenders’ redeployment costs in the case of a prepayment of Eurodollar Rate borrowings. Mandatory prepayments are required, subject to certain exceptions, in certain instances (such as upon certain asset sales, receipt of proceeds of insurance and condemnation events in excess of $5 million and issuances of debt or equity) at any time after CF Industries, Inc.’s average daily cash availability amount is less than

40

$75 million for any 10 business day period and until such time as CF Industries, Inc.’s average daily cash availability amount is equal to or exceeds $75 million for a period of 60 consecutive days.

Under the terms of the credit facility, the Loan Parties agree to covenants that apply to each of them and their respective subsidiaries and which, among other things, limit the incurrence of additional indebtedness, liens, loans and investments; limit the ability to pay dividends, and to redeem and repurchase capital stock; place limitations on prepayments, redemptions and repurchases of debt; limit entry into mergers, consolidations, acquisitions, asset dispositions and sale/leaseback transactions, transactions with affiliates and certain swap agreements; restrict changes in business and amendment of debt agreements; and place restrictions on distributions from subsidiaries, the issuance and sale of capital stock of subsidiaries, and other matters customarily restricted in secured loan agreements.

Additionally, we are required to meet a financial test on a consolidated basis consisting of a minimum ratio of earnings before interest, taxes, depreciation and amortization (EBITDA), calculated as set forth in the credit facility, minus the unfinanced portion of Capital Expenditures to Fixed Charges (each as defined in the credit facility) if average daily cash availability under the credit facility in any calendar month is less than $50 million. The Loan Parties are further restricted from making capital expenditures in excess of $120 million during any 12-month period following any month in which average daily cash availability falls below $135 million (until such time as average daily cash availability for three consecutive months thereafter is greater than or equal to $135 million).

The credit facility contains customary representations and warranties and affirmative covenants, as well as customary events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross- defaults and cross-accelerations, certain bankruptcy or insolvency events, judgment defaults, certain ERISA-related events, changes in control, and invalidity of any credit facility collateral document or guarantee.

As of December 31, 2009, there was approximately $190.8 million of available credit and no borrowings outstanding under the credit facility.

Notes Payable

From time to time, CFL receives advances from us and from CFL’s noncontrolling interest holder to finance major capital expenditures. The advances outstanding are evidenced by unsecured promissory notes due December 30, 2011 and bear interest at market rates. The amount shown as notes payable represents the advances payable to CFL’s noncontrolling interest holder. The carrying value of notes payable approximates fair value. These notes are classified in non-current liabilities on the consolidated balance sheet as of December 31, 2009.

25.Leases

We have operating leases for certain property and equipment under various noncancelable agreements, the most significant of which are rail car leases and barge tow charters for the transportation of fertilizer, and a corporate office lease. The rail car leases currently have minimum terms ranging from one to seven years and the barge charter commitments currently have terms ranging from one to three years. We also have terminal and warehouse storage agreements for our distribution system, some of which contain minimum throughput requirements. The storage agreements contain minimum terms ranging from one to three years and commonly contain automatic annual renewal provisions thereafter unless canceled by either party.

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We also have an operating lease agreement for our corporate headquarters in Deerfield, IL with a ten-year minimum term ending in 2017. The corporate office lease agreement includes leasehold incentives, rent holidays and scheduled rent increases that are recognized in expense on a straight-line basis. Our other operating lease agreements do not contain significant contingent rents, leasehold incentives, rent holidays, scheduled rent increases, concessions or unusual provisions.

Future minimum payments under noncancelable operating leases, barge charters and storage agreements at December 31, 2009 are shown below.

	Operating
	Lease Payments
	(in millions)
2010	$	29.9
2011	14.1
2012	8.8
2013	4.5
2014	3.5
Thereafter	7.7
	$	68.5

Total rent expense for cancelable and noncancelable operating leases was $37.2 million for 2009, $38.1 million for 2008 and $31.2 million for 2007.

26.Other Noncurrent Liabilities

Other noncurrent liabilities consist of the following:

	December 31,
	2009		2008
	(in millions)
Asset retirement obligations	$	103.7	$	100.7
Less: Current portion in accrued expenses	11.1		11.2
Noncurrent portion	92.6		89.5
Benefit plans and deferred compensation	93.1		111.1
Environmental and related costs	5.7		6.3
Deferred rent and other	5.8		5.7
	$	197.2	$	212.6

Asset retirement obligations are for phosphogypsum stack closure, mine reclamation and other obligations (see Note 13—Asset Retirement Obligations). Benefit plans and deferred compensation include liabilities for pensions, retiree medical benefits, and the noncurrent portion of incentive plans (see Note 7—Pension and Other Postretirement Benefits). Environmental and related costs consist of the

42

noncurrent portions of the liability for environmental items included in other operating costs (see Note 8—Other Operating—Net).

27.Derivative Financial Instruments

We use natural gas in the manufacture of nitrogen fertilizer products. We manage the risk of changes in gas prices through the use of physical gas supply contracts and derivative financial instruments covering periods not exceeding three years. We use natural gas derivative instruments primarily to lock in a substantial portion of our margin on sales under the Forward Pricing Program. Our natural gas acquisition policy also allows us to establish derivative positions that are associated with anticipated natural gas requirements, unrelated to our Forward Pricing Program.

The derivative instruments that we currently use are natural gas swap contracts. These contracts settle using either NYMEX futures or AECO price indexes, which represent fair value at any given time. The contracts are entered into with respect to gas to be consumed in the future and settlements are scheduled to coincide with anticipated gas purchases used to manufacture nitrogen products during those future periods.

We report derivatives in the consolidated balance sheets at fair value with changes in their fair value recognized immediately in earnings, unless the normal purchase and sale exemption applies. We use natural gas derivatives primarily as an economic hedge of gas price risk, but without the application of hedge accounting. Accordingly, changes in the fair value of the derivatives are recorded in cost of sales as the changes occur. Cash flows related to natural gas derivatives are reported as operating activities.

The effect of derivatives in our consolidated statements of operations is shown below. All amounts arise from natural gas derivatives that are not designated as hedging instruments, with resulting gains and losses recorded in cost of sales.

	Year ended December 31,
	2009			2008			2007
	(in millions)
Realized losses	$	(115.6	)	$	(26.7	)	$	(76.5	)
Unrealized mark-to-market gains (losses)	87.5			(63.8		)	17.0
Net derivative losses	$	(28.1	)	$	(90.5	)	$	(59.5	)

The fair values of derivatives on our consolidated balance sheets are shown below. All amounts arise from natural gas derivatives that are not designated as hedging instruments. For additional information on derivative fair values, see Note 5—Fair Value Measurement.

	December 31,
	2009			2008
	(in millions)
Unrealized gains in other current assets	$	3.8		$	0.7
Unrealized losses in other current liabilities	(0.9		)	(85.3		)
Net unrealized derivative gains (losses)	$	2.9		$	(84.6	)

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As of December 31, 2009 and December 31, 2008, we had open derivative contracts for 11.0 million MMBtus and 16.7 million MMBtus, respectively, of natural gas. For the year ended December 31, 2009, we used derivatives to cover approximately 38% of our natural gas consumption at Donaldsonville and approximately 35% of our two-thirds share of gas consumption at Medicine Hat.

Natural gas derivatives involve the risk of dealing with counterparties and their ability to meet the terms of the contracts. The counterparties to our natural gas derivatives are either large oil and gas companies or large financial institutions. Cash collateral is deposited with or received from derivative counterparties when predetermined unrealized gain or loss thresholds are exceeded.

As of December 31, 2008, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in a net liability position was $84.6 million for which we had $10.8 million of cash collateral on deposit with counterparties. This cash collateral is included within margin deposits in other current assets on our consolidated balance sheet. As of December 31, 2009, we were not in a net liability position with any derivative counterparty and, as a result, we had no cash collateral on deposit related to derivative contracts.

For derivatives that are in net asset positions, we are exposed to credit loss from nonperformance by the counterparties. As of December 31, 2009, our exposure to credit loss from nonperformance by counterparties to derivative instruments totaled $2.9 million. We control our credit risk through the use of multiple counterparties individual credit limits, monitoring procedures, cash collateral requirements and master netting arrangements.

The master netting arrangements with respect to our derivative instruments also contain credit-risk-related contingent features that require us to maintain a minimum net worth level and certain financial ratios. If we fail to meet these minimum requirements, the counterparties to derivative instruments that are in net liability positions could require daily cash settlement of unrealized losses or some other form of credit support.

28.Stockholders’ Equity

Common Stock

We have 500 million shares of common stock, $0.01 par value per share, authorized, of which 48,569,985 shares were outstanding as of December 31, 2009.

Changes in common shares issued and outstanding are as follows:

	Year ended December 31,
	2009		2008		2007
Beginning balance	48,391,584		56,245,418		55,172,101
Exercise of stock options	164,200		610,865		1,036,042
Issuance of restricted stock	19,031		25,698		50,509
Forfeiture of restricted stock	(4,830	)	(11,020	)	(13,234	)
Cancelation of treasury stock	—		(8,479,377	)	—
Ending balance	48,569,985		48,391,584		56,245,418

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Dividend Restrictions

Our ability to pay dividends on our common stock is limited under the terms of our JPMorgan Chase Bank, N.A. $250 million senior secured revolving credit facility. Pursuant to the terms of this agreement, dividends are a type of restricted payment that may be limited based on certain levels of cash availability as defined in the agreement.

Stockholder Rights Plan

We have adopted a stockholder rights plan (the plan). The existence of the rights and the rights plan is intended to deter coercive or partial offers which may not provide fair value to all stockholders and to enhance our ability to represent all of our stockholders and thereby maximize stockholder value.

Under the plan, each share of common stock has attached to it one right. Each right entitles the holder to purchase one one-thousandth of a share of a series of our preferred stock designated as Series A junior participating preferred stock at an exercise price of $90, subject to adjustment. Rights will only be exercisable under limited circumstances specified in the rights agreement when there has been a distribution of the rights and such rights are no longer redeemable by us. A distribution of the rights would occur upon the earlier of (i) 10 business days following a public announcement that any person or group has acquired beneficial ownership of 15% or more of the outstanding shares of our common stock, other than as a result of repurchases of stock by us or inadvertence by certain stockholders as set forth in the rights agreement; or (ii) 10 business days, or such later date as our board of directors may determine, after the date of the commencement of a tender offer or exchange offer that would result in any person, group or related persons acquiring beneficial ownership of 15% or more of the outstanding shares of our common stock. The rights will expire at 5:00 P.M. (New York City time) on July 21, 2015, unless such date is extended or the rights are earlier redeemed or exchanged by us.

If any person or group acquires shares representing 15% or more of the outstanding shares of our common stock, the rights will entitle a holder, other than such person, any member of such group or related person, all of whose rights will be null and void, to acquire a number of additional shares of our common stock having a market value of twice the exercise price of each right. If we are involved in a merger or other business combination transaction, each right will entitle its holder to purchase, at the right’s then-current exercise price, a number of shares of the acquiring or surviving company’s common stock having a market value at that time of twice the right’s exercise price.

The description and terms of the rights are set forth in a Rights Agreement dated as of July 21, 2005, between us and The Bank of New York, as Rights Agent.

Preferred Stock

We are authorized to issue 50 million shares of $0.01 par value preferred stock. Our amended and restated certificate of incorporation authorizes our Board of Directors, without any further stockholder action or approval, to issue these shares in one or more classes or series, and to fix the rights, preferences and privileges of the shares of each wholly unissued class or series and any of its qualifications, limitations or restrictions. In connection with our Stockholder Rights Plan, 500,000 shares of preferred stock have been designated as Series A junior participating preferred stock. No shares of preferred stock have been issued.

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Accumulated Other Comprehensive Income

Stockholders’ equity also includes accumulated other comprehensive income (loss), which consists of the following components:

	Foreign			Unrealized						Accumulated
	Currency			Gain (Loss)			Defined			Other
	Translation			on			Benefit			Comprehensive
	Adjustment			Securities			Plans			Income (Loss)
	(in millions)
Balance at December 31, 2006	$	(2.9	)	$	0.4		$	(30.9	)	$	(33.4	)
Unrealized gain	—			0.3			—			0.3
Reclassification to earnings	—			(0.2		)	3.3			3.1
Gain arising during the period	—			—			10.9			10.9
Deferred taxes and other	3.9			—			(6.0		)	(2.1		)
Balance at December 31, 2007	1.0			0.5			(22.7		)	(21.2		)
Unrealized (loss)	—			(23.1		)	—			(23.1		)
Reclassification to earnings	—			(0.5		)	2.0			1.5
(Loss) arising during the period	—			—			(57.2		)	(57.2		)
Deferred taxes and other	(5.4		)	9.1			21.1			24.8
Balance at December 31, 2008	(4.4		)	(14.0		)	(56.8		)	(75.2		)
Unrealized gain	—			38.7			—			38.7
Reclassification to earnings	—			(0.2		)	3.2			3.0
Gain arising during the period	—			—			3.9			3.9
Deferred taxes and other	4.0			(14.8		)	(2.8		)	(13.6		)
Balance at December 31, 2009	$	(0.4	)	$	9.7		$	(52.5	)	$	(43.2	)

The unrealized gain on securities in 2009 consists primarily of a reduction in the unrealized loss on our auction rate securities during the period and a net unrealized holding gain on our investment in marketable equity securities. See Note 5—Fair Value Measurements and Note 15—Cash and Cash Equivalents, Short-Term Investments and Other Investments for additional information on our investments in auction rate securities and investment in marketable equity securities. In 2008, the unrealized loss on securities relates primarily to the unrealized holding loss on our auction rate securities.

29.Stock-Based Compensation

2009 Equity and Incentive Plan

On April 21, 2009, our shareholders approved the CF Industries Holdings, Inc. 2009 Equity and Incentive Plan (Plan) which replaced the CF Industries Holdings, Inc. 2005 Equity and Incentive Plan (2005 Plan). Under the Plan, we may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards (payable in cash or stock) and other stock-based awards to our officers, employees, consultants and independent contractors (including non-employee directors). The purpose of the Plan is to provide an incentive for our employees, officers, consultants and non-employee directors that is aligned with the interests of our stockholders.

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Share Reserve and Individual Award Limits

The maximum number of shares reserved for the grant of awards under the Plan is the sum of (i) 3.9 million and (ii) the number of shares subject to outstanding awards under the 2005 Plan to the extent such awards terminate or expire without delivery of shares. For purposes of determining the number of shares of stock available for grant under the Plan, each option or stock appreciation right is counted against the reserve as one share. Each share of stock granted, other than an option or a stock appreciation right, is counted against the reserve as 1.61 shares. If any outstanding award expires for any reason or is settled in cash, any unissued shares subject to the award will again be available for issuance under the Plan. Shares tendered in payment of the exercise price of an option and shares withheld by the Company or otherwise received by the Company to satisfy tax withholding obligations are not available for future grant under the Plan. At December 31, 2009, we had 3.7 million shares available for future awards under the Plan. The Plan provides that no more than 1.0 million underlying shares may be granted to a participant in any one calendar year.

Stock Options

Under the Plan, we granted to plan participants nonqualified options to purchase shares of our common stock. The exercise price of these options is equal to the market price of our common stock on the date of grant. The contractual life of the options is ten years and one-third of the options vest on each of the first three anniversaries of the date of grant.

The fair value of each stock option award is estimated using the Black-Scholes option valuation model. Key assumptions used and resulting grant date fair values are shown in the following table.

	2009		2008		2007
Assumptions:
Weighted-average expected volatility	54%		58%		36%
Expected term of stock options	4-5 Years		5 Years		5-6 Years
Risk-free interest rate	2.3-2.9%		1.5%-3.3%		3.6%-4.6%
Weighted-average expected dividend yield	0.5%		0.3%		0.2%
Weighted-average grant date fair value per share of options granted	$	37.24	$	61.59	$	21.17

In 2009 and 2008, the expected volatility of our stock options was based on the combination of the historical volatility of our stock and implied volatilities of exchange traded options on our stock. In 2007, the expected volatility was determined by utilizing a combination of historical volatility of our stock and the stock of other companies in our industry, and implied volatilities of exchange traded options of both of these groups, since sufficient CF-specific historical data was not available.

The expected term of options is estimated based on our historical exercise experience, post vesting employment termination behavior and the contractual term.

The risk-free rate is based on the U.S. Treasury Strip yield curve in effect at the time of grant for the expected term of the options.

A summary of stock option activity under the plan at December 31, 2009 is presented below:

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			Weighted -
			Average
	Shares		Exercise Price
Outstanding at January 1, 2009	1,778,385		$	26.22
Granted	139,000		82.21
Exercised	(164,200	)	19.63
Expired	(1,823	)	125.33
Forfeited	(9,084	)	87.90
Outstanding at December 31, 2009	1,742,278		30.88
Exercisable at December 31, 2009	1,472,245		21.04

Selected amounts pertaining to stock option exercises are as follows.

	2009		2008		2007
	(in millions)
Cash received from stock option exercises	$	3.2	$	10.1	$	16.6
Actual tax benefit realized from stock option exercises	$	3.7	$	25.3	$	16.2
Pre-tax intrinsic value of stock options exercised	$	9.8	$	69.2	$	44.6

The following table summarizes information about stock options outstanding and exercisable at December 31, 2009.

	Options Outstanding						Options Exercisable
		Weighted-						Weighted-
		Average						Average
		Remaining			Aggregate			Remaining			Aggregate
		Contractual	Weighted -		Intrinsic			Contractual	Weighted -		Intrinsic
Range of		Term	Average		Value (1)			Term	Average		Value (1)
Exercise Prices	Shares	(years)	Exercise Price		(in millions)		Shares	(years)	Exercise Price		(in millions)
$14.83 - $20.00	1,323,058	5.8	$	15.85	$	99.2	1,323,058	5.8	$	15.85	$	99.2
$20.01 - $100.00	324,143	8.5	64.55		8.5		117,341	7.6	51.35		4.6
$100.01 - $125.33	95,077	8.6	125.33		—		31,846	8.6	125.33		—
	1,742,278	6.4	30.88		$	107.7	1,472,245	6.0	21.04		$	103.8

(1)The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $90.78 as of December 31, 2009, which would have been received by the option holders had all option holders exercised their options as of that date.

Restricted Stock

The fair value of a restricted stock award is equal to the numbers of shares awarded multiplied by the closing market price of our common stock on the date of grant. The restricted stock awarded to key employees vests three years from the date of grant. The restricted stock awarded to non-management members of our Board of Directors vests the earlier of one year from the date of the grant or the date of the next annual shareholder meeting. During the vesting period, the holders of the restricted stock are entitled to dividends and voting rights.

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A summary of restricted stock activity under the plan at December 31, 2009 is presented below:

			Weighted -
			Average
			Grant-Date
	Shares		Fair Value
Outstanding at January 1, 2009	145,678		$	42.13
Granted	41,376		79.53
Restrictions lapsed (vested)	(87,118	)	19.48
Forfeited	(4,830	)	76.71
Outstanding at December 31, 2009	95,106		77.38

The weighted-average grant date fair value of restricted stock granted in 2009, 2008 and 2007 was as shown below.

	2009		2008		2007
Weighted-average grant date fair value per share of restricted stock granted	$	79.53	$	121.17	$	49.21

Selected amounts pertaining to restricted stock that vested are as follows.

	2009		2008		2007
			(in millions)
Actual tax benefit realized from restricted stock vested	$	2.0	$	0.9	$	0.4
Fair value of restricted stock vested	$	7.1	$	1.7	$	1.2

Compensation Cost

Compensation cost is recorded primarily in selling, general and administrative expense. The following table summarizes stock-based compensation costs and related income tax benefits.

	Year ended December 31,
	2009			2008			2007
	(in millions)
Stock-based compensation expense	$	6.6		$	8.3		$	9.7
Income tax benefit	(2.4		)	(3.1		)	(3.6		)
Stock-based compensation expense, net of income taxes	$	4.2		$	5.2		$	6.1

Unrecognized compensation cost as of December 31, 2009 is as follows.

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	Stock		Restricted
	Options		Stock
Pre-tax unrecognized compensation cost, net of estimated forfeitures (in millions)	$	8.3	$	3.7
Weighted-average period over which expense will be recognized	2.0 years		2.0 years

An excess tax benefit is generated when the realized tax benefit from the vesting of restricted stock, or a stock option exercise, exceeds the previously recognized deferred tax asset. Excess tax benefits are required to be reported as a financing cash inflow rather than a reduction of taxes paid. The excess tax benefits in 2009 and 2008 totaled $4.6 million and $24.3 million, respectively.

30.Other Financial Statement Data

The following provides additional information relating to cash flow activities:

	Year ended December 31,
	2009		2008		2007
	(in millions)
Cash paid during the year
Interest	$	1.0	$	1.2	$	1.4
Income taxes—net of refunds	198.0		342.3		137.2

31.Contingencies

Litigation

From time to time, we are subject to ordinary, routine legal proceedings related to the usual conduct of our business, including proceedings regarding public utility and transportation rates, environmental matters, taxes and permits relating to the operations of our various plants and facilities. Based on the information available as of the date of this filing, we believe that the ultimate outcome of these matters will not have a material adverse effect on our consolidated financial position or results of operations.

Environmental

Plant City Environmental Matters

RCRA Enforcement Initiative.  In December 2004 and January 2005, the United States Environmental Protection Agency (EPA) inspected our Plant City, Florida phosphate fertilizer complex to evaluate the facility’s compliance with the Resource Conservation and Recovery Act (RCRA), the federal statute that governs the generation, transportation, treatment, storage and disposal of hazardous wastes. This inspection was undertaken as a part of a broad enforcement initiative commenced by the EPA to evaluate whether mineral processing and mining facilities, including, in particular, all wet process phosphoric acid production facilities, are in compliance with RCRA, and the extent to which such facilities’ waste management practices have impacted the environment.

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By letter dated September 27, 2005, EPA Region 4 issued to the Company a Notice of Violation (NOV) and Compliance Evaluation Inspection Report. The NOV and Compliance Evaluation Inspection Report alleged a number of violations of RCRA, including violations relating to recordkeeping, the failure to properly make hazardous waste determinations as required by RCRA, and alleged treatment of sulfuric acid waste without a permit. The most significant allegation in the NOV is that the Plant City facility’s reuse of phosphoric acid process water (which is otherwise exempt from regulation as a hazardous waste) in the production of ammoniated phosphate fertilizer, and the return of this process water to the facility’s process water recirculating system, have resulted in the disposal of hazardous waste into the system without a permit. The Compliance Evaluation Inspection Report indicates that, as a result, the entire process water system, including all pipes, ditches, cooling ponds and gypsum stacks, could be regulated as hazardous waste management units under RCRA.

Several of the Company’s competitors have received NOVs making this same allegation. This particular recycling of process water is common in the industry and, the Company believes, was authorized by the EPA in 1990. The Company also believes that this allegation is inconsistent with recent case law governing the scope of the EPA’s regulatory authority under RCRA. Nonetheless, the Company has conducted a successful pilot test to replace process water as a scrubbing medium at the ammonium phosphate fertilizer plants and maintain compliance with Plant City’s air permit. The Company has received a permit from the Florida Department of Environmental Protection that authorizes the Company to make this change for the three ammonium phosphate plants that utilize process water. Although this does not fully resolve the NOV or address all of the issues identified by the EPA and United States Department of Justice (DOJ), this does address a significant issue identified in the NOV.

The NOV indicated that the Company is liable for penalties up to the statutory maximum (for example, the statutory maximum per day of noncompliance for each violation that occurred after March 15, 2004 is $32,500 per day). Although penalties of this magnitude are rarely, if ever, imposed, the Company is at risk of incurring substantial civil penalties with respect to these allegations. The EPA has referred this matter to the DOJ for enforcement. The Company is currently in negotiations with the DOJ that have included not only the issues identified in the NOV but other operational practices of the Company and its competitors. A final settlement may include the requirement for the Company to meet specified financial tests and/or contribute cash or other qualifying assets into a trust designated to be used for the closure, long-term maintenance, and monitoring costs for our phosphogypsum stacks, as well as any costs incurred to manage the water contained in the stack systems upon closure. The Company does not know if this matter will be resolved prior to the commencement of litigation by the United States.

Clean Air Act Investigation.  On March 19, 2007, the Company received a letter from the EPA under Section 114 of the Federal Clean Air Act requesting information and copies of records relating to compliance with New Source Review, New Source Performance Standards, and National Emission Standards for Hazardous Air Pollutants at the Plant City facility. The Company responded to this letter with the information requested, completing the document production process in late 2007. The EPA initiated this same process in relation to numerous other sulfuric acid plants and phosphoric acid plants throughout the nation, including other facilities in Florida. In some cases, the EPA filed enforcement proceedings asserting that the facilities had not complied with the Clean Air Act. To date, these enforcement proceedings have been resolved through settlements. It is not known at this time whether the EPA will initiate enforcement with respect to the Plant City facility.

EPCRA Investigation.  Pursuant to a letter from the DOJ dated July 28, 2008 that was sent to representatives of the major U.S. phosphoric acid manufacturers, including CF Industries, Inc., the DOJ

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stated that it and the EPA believe that apparent violations of Section 313 of the Emergency Planning and Community Right-to-Know Act (EPCRA), which requires annual reports to be submitted with respect to the use of certain toxic chemicals, have occurred at all of the phosphoric acid facilities operated by these manufacturers. The letter also states that the DOJ and the EPA believe that most of these facilities have violated Section 304 of EPCRA and Section 103 of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) by failing to provide required notifications relating to the release of hydrogen fluoride from these facilities. The letter did not specifically identify alleged violations at our Plant City, Florida complex or assert a claim for a specific amount of penalties. The EPA submitted an information request to the Company on February 11, 2009, as a follow-up to the July 2008 letter. The Company provided initial informational responses to the agency’s inquiry on May 14 and May 29, 2009. The EPA has not yet responded to the Company’s submittals.

As a result of the factors discussed above, we cannot estimate the potential penalties, fines or other expenditures, if any, that may result from the Plant City environmental matters, and therefore, we cannot determine if the ultimate outcome of these matters will have a material impact on the Company’s financial position, results of operations or cash flows.

Louisiana Environmental Matters

Clean Air Act—Section 185 Fee.  Our Donaldsonville Nitrogen Complex is located in a five-parish region near Baton Rouge, Louisiana that, as of 2005, was designated as being in “severe” nonattainment with respect to the national ambient air quality standard (NAAQS) for ozone (the “1-hour ozone standard”) pursuant to the Federal Clean Air Act (the Act). Section 185 of the Act requires states, in their state implementation plans, to levy a fee (Section 185 fee) on major stationary sources (such as the Donaldsonville facility) located in a severe nonattainment area that did not meet the 1-hour ozone standard by November 30, 2005. The fee was to be assessed for each calendar year (beginning in 2006) until the area achieved compliance with the ozone NAAQS.

Prior to the imposition of Section 185 fees, the EPA adopted a new ozone standard (the “8-hour ozone standard”) and rescinded the 1-hour ozone standard. The Baton Rouge area was designated as a “moderate” nonattainment area with respect to the 8-hour ozone standard. However, because Section 185 fees had never been assessed prior to the rescission of the 1-hour ozone standard (rescinded prior to the November 30, 2005 ozone attainment deadline), the EPA concluded in a 2004 rulemaking implementing the 8-hour ozone standard that the Act did not require states to assess Section 185 fees. As a result, Section 185 fees were not assessed against CF Industries, Inc. and other companies located in the Baton Rouge area.

In 2006, the D.C. Circuit Court of Appeals rejected the EPA’s position and held that Section 185 fees were controls that must be maintained and fees should have been assessed under the Act. In January 2008, the U.S. Supreme Court declined to accept the case for review, making the appellate court’s decision final.

The EPA has not yet proposed new regulations to address the Section 185 fee issue and there remains uncertainty as to the implementation of this provision, including the timing of any assessments; whether the EPA will authorize states to adopt plans to implement Section 185 by means other than the assessment of a fee; and whether major sources located in areas that would have achieved compliance with the 8-hour ozone standard, but continued to be in non-compliance with the 1-hour ozone standard, will continue to be subject to the Section 185 fee. Regardless of the approach adopted by the EPA, we expect that it is likely to be challenged by the environmental community, the states, and/or affected industries. Therefore, the costs associated with compliance with the Act cannot be determined at this

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time, and we cannot reasonably estimate the impact on the Company’s financial position, results of operations or cash flows.

Clean Air Act Information Request.  On February 26, 2009, the Company received a letter from the EPA under Section 114 of the Federal Clean Air Act requesting information and copies of records relating to compliance with New Source Review and New Source Performance Standards at the Donaldsonville facility. The Company has completed the submittal of all requested information. It is not known at this time whether the EPA will initiate enforcement with respect to the Donaldsonville facility.

Other

CERCLA/Remediation Matters.  From time to time, we receive notices from governmental agencies or third parties alleging that we are a potentially responsible party at certain cleanup sites under CERCLA or other environmental cleanup laws. In 2002 and in 2009, we were asked by the current owner of a former phosphate mine and processing facility that we allegedly operated in the late 1950s and early 1960s located in Georgetown Canyon, Idaho, to contribute to a remediation of this property. We declined to participate in the cleanup. It is our understanding that the current owner signed a Consent Judgment with the Idaho Department of Environmental Quality (IDEQ) for cleanup of the processing portion of the site and has submitted a Draft Remedial Action Plan that is under review by the IDEQ and related agencies. We anticipate that the current owner might bring a lawsuit against us seeking contribution for the cleanup costs, although we do not have sufficient information to determine whether or when such a lawsuit may be brought. We are not able to estimate at this time our potential liability, if any, with respect to the remediation of this property. Based on currently available information, we do not expect that any remedial or financial obligations we may be subject to involving this or other sites will have a material adverse effect on our business, financial condition, results of operations or cash flows.

Other Matters

Beginning in March 2009, purported shareholders of the Company commenced in the Delaware Court of Chancery a consolidated putative class action, captioned In re CF Industries Shareholder Litigation, against the Company and the members of its Board of Directors. The suit alleges, among other things, that the members of the Company’s Board of Directors breached their fiduciary duties by their actions in connection with the rejection of the unsolicited proposal by Agrium to acquire CF Holdings. The suit also asserts claims in connection with the Company’s proposed business combination with Terra, which the Company announced it had withdrawn on January 14, 2010. The suit further asserts claims relating to disclosures by the Company in connection with the Agrium proposal and the proposed combination with Terra. The action remains pending, and the parties have been engaged in the discovery process. The Company and the Board of Directors believe that this action is without merit and intend to defend their positions in this matter vigorously. Currently we cannot determine whether the ultimate outcome of this lawsuit will have a material impact on the Company’s financial position, results of operations or cash flows.

32.Segment Disclosures

We are organized and managed based on two segments, which are differentiated primarily by their products, the markets they serve and the regulatory environments in which they operate. The two segments are the nitrogen segment and the phosphate segment. The Company’s management uses gross margin to evaluate segment performance and allocate resources. Selling, general and administrative expenses, other operating and non-operating expenses, interest, and income taxes, are centrally managed

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and not included in the measurement of segment profitability reviewed by management. The accounting policies of the segments are the same as those described in Note 2—Summary of Significant Accounting Policies.

Segment data for sales, cost of sales, gross margin, depreciation, depletion and amortization, capital expenditures, and assets for 2009, 2008 and 2007 are shown in the tables below. Other assets, capital expenditures and depreciation include amounts attributable to the corporate headquarters and unallocated corporate assets.

	Nitrogen		Phosphate		Consolidated
	(in millions)
Year ended December 31, 2009
Net sales
Ammonia	$	557.3	$	—	$	557.3
Urea	787.2		—		787.2
UAN	489.5		—		489.5
DAP	—		557.7		557.7
MAP	—		121.6		121.6
Potash	—		89.8		89.8
Other	5.3		—		5.3
	1,839.3		769.1		2,608.4
Cost of sales	1,055.1		713.9		1,769.0
Gross margin	$	784.2	$	55.2	$	839.4
Year ended December 31, 2008
Net sales
Ammonia	$	604.1	$	—	$	604.1
Urea	1,208.3		—		1,208.3
UAN	772.6		—		772.6
DAP	—		1,165.0		1,165.0
MAP	—		165.0		165.0
Other	6.1		—		6.1
	2,591.1		1,330.0		3,921.1
Cost of sales	1,820.8		877.6		2,698.4
Gross margin	$	770.3	$	452.4	$	1,222.7
Year ended December 31, 2007
Net sales
Ammonia	$	556.0	$	—	$	556.0
Urea	889.0		—		889.0
UAN	591.8		—		591.8
DAP	—		579.4		579.4
MAP	—		135.4		135.4
Other	5.1		—		5.1
	2,041.9		714.8		2,756.7
Cost of sales	1,595.1		491.6		2,086.7
Gross margin	$	446.8	$	223.2	$	670.0

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	Nitrogen		Phosphate		Other		Consolidated
	(in millions)
Depreciation, depletion and amortization
Year ended December 31, 2009	$	59.0	$	39.7	$	2.3	$	101.0
Year ended December 31, 2008	57.3		40.5		3.0		100.8
Year ended December 31, 2007	50.4		31.5		2.6		84.5
Capital expenditures
Year ended December 31, 2009	$	165.2	$	70.2	$	0.3	$	235.7
Year ended December 31, 2008	74.2		66.2		1.4		141.8
Year ended December 31, 2007	61.1		39.9		4.1		105.1
Assets
December 31, 2009	$	712.7	$	564.1	$	1,218.1	$	2,494.9
December 31, 2008	758.2		764.1		865.3		2,387.6

Enterprise-wide data by geographic region is as follows:

	Year Ended December 31,
	2009		2008		2007
	(in millions)
Sales by geographic region (based on destination of shipments)
U.S.	$	2,029.7	$	3,072.3	$	2,328.1
Canada	261.9		406.5		272.3
Export	316.8		442.3		156.3
	$	2,608.4	$	3,921.1	$	2,756.7

	December 31,
	2009		2008
	(in millions)
Property, plant and equipment—net by geographic region
U.S.	$	745.2	$	624.8
Canada	48.6		37.1
Consolidated	$	793.8	$	661.9

Major customers that represent at least ten percent of our consolidated revenues are presented below:

	Year Ended December 31,
	2009		2008		2007
	(in millions)
Sales by major customer
CHS Inc.(1)	$	572.5	$	796.4	$	654.4
Gavilon LLC(2)	315.1		353.1		238.4
KEYTRADE AG(3)	304.2		452.2		33.1
GROWMARK, Inc.	233.8		377.2		288.4
Others	1,182.8		1,942.2		1,542.4
Consolidated	$	2,608.4	$	3,921.1	$	2,756.7

(1)Includes sales to Agriliance, LLC (a 50-50 joint venture between CHS Inc. (CHS) and Land O’Lakes, Inc.) prior to the September 1, 2007 transaction in which Agriliance distributed its crop nutrients business to CHS.

55

(2)Gavilon Fertilizer LLC (Gavilon) was previously ConAgra International Fertilizer Company, a wholly owned subsidiary of ConAgra Foods, Inc.

(3)The Company owns 50% of the common stock of KEYTRADE AG (Keytrade). Keytrade purchases fertilizer products from various manufacturers around the world and resells them in approximately 50 countries through a network of seven offices. We utilize Keytrade as our exclusive exporter of phosphate fertilizers from North America and importer of UAN products into North America. Profits resulting from sales or purchases with Keytrade are eliminated until realized by Keytrade or us, respectively.

33.Related Party Transactions

We have multi-year supply contracts related to purchases of fertilizer products with two of our former owners, GROWMARK, Inc. (GROWMARK) and CHS, Inc. (CHS). The chief executive officer of GROWMARK, William Davisson, and the president and chief executive officer of CHS, John D. Johnson, serve as members of our Board of Directors. As of December 31, 2009, GROWMARK was the beneficial owner of approximately 3% of our outstanding common stock.

Product Sales

CHS accounted for 22%, 20% and 24% of our consolidated net sales in 2009, 2008 and 2007, respectively. GROWMARK accounted for 9%, 10% and 10% of our consolidated net sales in 2009, 2008 and 2007, respectively. See Note 32—Segment Disclosures for additional information on sales to CHS and GROWMARK.

In addition to purchasing fertilizer from us, CHS and GROWMARK have contracts with us to store fertilizer products at certain of our warehouses. In connection with these storage arrangements we recognized approximately $0.7 million, $0.7 million and $0.8 million from CHS in 2009, 2008 and 2007, respectively, and we recognized $0.2 million, $0.4 million and $0.2 million from GROWMARK in 2009, 2008 and 2007, respectively. GROWMARK has also entered into a terminal sublease with us pursuant to which we pass through to GROWMARK the economics of our underlying terminal lease with a third party. These lease payments for 2009 were insignificant.

Accounts Receivable

Accounts receivable at December 31, 2009 and 2008 includes $12.3 million and $8.7 million, respectively, due from CHS and $6.6 million and $10.0 million, respectively, due from GROWMARK.

Supply Contracts

We have multi-year supply contracts with CHS and GROWMARK relating to purchases of fertilizer products. The term of the supply contract with CHS lasts until June 30, 2010, and in the case of GROWMARK, lasts until June 30, 2013. In both cases, the terms are extended automatically for successive one-year periods unless a termination notice is given by either party. CHS has notified us that the multi-year supply contract set to expire on June 30, 2010 will not be renewed.

Both contracts specify a sales target volume and a requirement volume for the first contract year. The requirement volume is a percentage of the sales target volume and represents the volume of fertilizer that we are obligated to sell, and the customer is obligated to purchase, during the first contract year. Thereafter, for the CHS contract, the sales target volume is subject to yearly adjustment by mutual agreement or, failing such agreement, to an amount specified by us which is not less than 95% nor more

56

than 100% of the prior year’s sales target volume. For the GROWMARK contract, the sales target volume is subject to yearly adjustment by mutual agreement or, failing such agreement, to an amount specified by us which is not more than 105% of the prior year’s sales target volume. The requirement volume for both contracts is also subject to yearly adjustment to an amount specified by the customer which is not less than 65% nor more than 100% of the then applicable sales target volume. Both contracts also contain reciprocal “meet or release” provisions pursuant to which each party must provide the other party with notice and the opportunity to match a transaction with a third party if such a transaction would impact the party’s willingness or ability to supply or purchase, as the case may be, the then applicable sales target volume. The “meet or release” provisions may not, however, reduce the requirements volume.

The prices for product sold under the supply contracts vary depending on the type of sale selected by the customer. The customer may select (i) cash sales at prices that are published in our weekly cash price list, (ii) index sales at a published index price, (iii) forward pricing sales under our Forward Pricing Program, or (iv) sales negotiated between the parties. The supply contracts also provide for performance incentives based on (i) the percentage of the sales target volume actually purchased, (ii) the timing of purchases under our Forward Pricing Program, (iii) the amount of purchases under our Forward Pricing Program and (iv) specifying a requirement volume in excess of the then applicable minimum requirement volume. The supply contract with CHS also provides for a performance incentive based on quantity discounts for overall volume.

We have agreed with CHS and GROWMARK that the prices charged for cash sales, index sales, and forward pricing sales will be the same prices we charge all of our similarly situated customers. We also agreed with CHS that the performance incentives offered to them will be equal to the highest comparable incentives offered to other requirement contract customers. We believe the performance incentives offered under the CHS supply contract are consistent with the incentives offered to similarly situated customers in our industry in transactions between unaffiliated parties.

Our supply contract with CHS also provides them with a right of first offer for the purchase of certain of our storage and terminal facilities.

Net Operating Loss Carryforwards

In connection with our initial public offering (IPO) in August 2005, CF Industries, Inc. (CFI) ceased to be a non-exempt cooperative for federal income tax purposes, and we entered into a net operating loss agreement (NOL Agreement) with CFI’s pre-IPO owners, including CHS and GROWMARK, relating to the future utilization of the pre-IPO net operating loss carryforwards (NOLs). Under the NOL Agreement, if it is finally determined that the NOLs can be utilized to offset applicable post-IPO taxable income, we will pay the pre-IPO owners amounts equal to the resulting federal and state income taxes actually saved.

Canadian Fertilizers Limited

GROWMARK owns 9% of the outstanding common stock of CFL, a Canadian variable interest entity, and elects one director to the CFL board. See Note 4—Canadian Fertilizers Limited, for additional information on CFL.

57

KEYTRADE AG

We own 50% of the common shares of KEYTRADE AG (Keytrade), a global fertilizer trading company headquartered near Zurich, Switzerland. See Note 19—Investments in and Advances to Unconsolidated Affiliates, for additional information on Keytrade.

34.Condensed Consolidating Financial Information

The following condensed consolidating financial information is presented in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered, in connection with the filing of a shelf registration statement related to debt securities of CF Industries, Inc. (“CFI”) that may be offered from time to time and full and unconditional guarantees of such debt securities by CF Industries Holdings, Inc. (“Parent”) and certain 100%-owned domestic subsidiaries of CF Industries Holdings, Inc. (the Guarantor Subsidiaries”).  The condensed consolidating financial information reflects the assumption, and our expectation, that such guarantees will be made on a joint and several basis.  The subsidiaries of Parent other than CFI and the Guarantor Subsidiaries are referred to below as “Non-Guarantor Subsidiaries.”

Presented below are condensed consolidating statements of operations and statements of cash flows for Parent, CFI, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries for each of the three years ended December 31, 2009, 2008 and 2007 and condensed consolidating balance sheets for Parent, CFI, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries as of December 31, 2009 and 2008.  The investments in subsidiaries in these consolidating financial statements are presented on the equity method.  Under this method, our investments are recorded at cost and adjusted for our ownership share of a subsidiary’s cumulative results of operations, distributions and other equity changes.  The eliminating entries reflect primarily intercompany transactions such as sales, accounts receivable and accounts payable and the elimination of equity investments and earnings of subsidiaries.  The condensed financial information presented below is not necessarily indicative of the financial position, results of operation or cash flow of Parent, CFI, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a stand-alone basis.

58

Condensed, Consolidating Statement of Operations

	Year ended December 31, 2009
							Guarantor		Non-Guarantor
	Parent			CFI			Subsidiaries		Subsidiaries			Eliminations			Consolidated
	(in millions)
Net sales	$	—		$	2,462.5		$	—	$	429.2		$	(283.3	)	$	2,608.4
Cost of sales	—			1,706.9			—		185.1			(123.0		)	1,769.0
Gross margin	—			755.6			—		244.1			(160.3		)	839.4
Selling, general and administrative	1.9			60.0			—		1.0			—			62.9
Other operating - net	53.4			43.2			—		0.1			—			96.7
Operating earnings (loss)	(55.3		)	652.4			—		243.0			(160.3		)	679.8
Interest expense	—			1.3			—		0.4			(0.2		)	1.5
Interest income	—			(2.8		)	—		(1.9		)	0.2			(4.5		)
Net (earnings) loss of wholly-owned subsidiaries	(411.7		)	(3.1		)	—		—			414.8			—
Other non-operating - net	—			(12.8		)	—		—			—			(12.8		)
Earnings before income taxes and equity inloss of unconsolidated affiliates	356.4			669.8			—		244.5			(575.1		)	695.6
Income tax provision (benefit)	(9.2		)	257.3			—		(2.1		)	—			246.0
Equity in loss of unconsolidated affiliates - net of taxes	—			(0.8		)	—		(0.3		)	—			(1.1		)
Net earnings	365.6			411.7			—		246.3			(575.1		)	448.5
Less: Net earnings attributable tothe noncontrolling interest	—			—			—		243.2			(160.3		)	82.9
Net earnings attributable to common stockholders	$	365.6		$	411.7		$	—	$	3.1		$	(414.8	)	$	365.6

59

Condensed, Consolidating Balance Sheet

	December 31, 2009
							Guarantor		Non-Guarantor
	Parent			CFI			Subsidiaries		Subsidiaries			Eliminations			Consolidated
	(in millions)
Assets
Current assets:
Cash and cash equivalents	$	—		$	663.0		$	—	$	34.1		$	—		$	697.1
Short-term investments	—			185.0			—		—			—			185.0
Accounts receivable	—			93.2			—		256.0			(181.8		)	167.4
Inventories - net	—			188.6			—		19.2			—			207.8
Prepaid income taxes	—			14.7			—		—			—			14.7
Deferred income taxes	2.2			—			—		—			(2.2		)	—
Other	—			9.5			—		1.6			—			11.1
Total current assets	2.2			1,154.0			—		310.9			(184.0		)	1,283.1
Property, plant and equipment - net	—			745.2			—		48.6			—			793.8
Goodwill	—			0.9			—		—			—			0.9
Asset retirement obligation escrow account	—			36.5			—		—			—			36.5
Investments in and advances to unconsolidated affiliates	1,672.2			90.6			—		44.5			(1,761.7		)	45.6
Investments in auction rate securities	—			133.9			—		—			—			133.9
Investment in marketable equity securities	—			160.2			—		—			—			160.2
Due from affiliates	54.5			—			—		1.0			(55.5		)	—
Other assets	—			35.1			—		5.8			—			40.9
Total assets	$	1,728.9		$	2,356.4		$	—	$	410.8		$	(2,001.2	)	$	2,494.9
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses	$	—		$	151.2		$	—	$	24.2		$	(2.9	)	$	172.5
Customer advances	—			159.5			—		—			—			159.5
Deferred income taxes	—			53.7			—		—			(1.1		)	52.6
Distributions payable to noncontrolling interest	—			—			—		271.0			(178.9		)	92.1
Other	—			3.1			—		—			—			3.1
Total current liabilities	—			367.5			—		295.2			(182.9		)	479.8
Notes payable	—			—			—		13.8			(9.1		)	4.7
Deferred income taxes	—			70.2			—		(0.9		)	(1.0		)	68.3
Due to affiliates	—			55.5			—		—			(55.5		)	—
Other noncurrent liabilities	—			191.0			—		6.3			(0.1		)	197.2
Equity:
Stockholders’ equity:
Preferred stock	—			—			—		65.3			(65.3		)	—
Common stock	0.5			—			—		0.1			(0.1		)	0.5
Paid-in capital	723.5			739.8			—		43.7			(783.5		)	723.5
Retained earnings (Accumulated deficit)	1,048.1			975.6			—		(5.1		)	(970.5		)	1,048.1
Accumulated other comprehensive income (loss)	(43.2		)	(43.2		)	—		(7.6		)	50.8			(43.2		)
Total stockholders’ equity	1,728.9			1,672.2			—		96.4			(1,768.6		)	1,728.9
Noncontrolling interest	—			—			—		—			16.0			16.0
Total equity	1,728.9			1,672.2			—		96.4			(1,752.6		)	1,744.9
Total liabilities and equity	$	1,728.9		$	2,356.4		$	—	$	410.8		$	(2,001.2	)	$	2,494.9

60

Condensed, Consolidating Statement of Cash Flows

	Year ended December 31, 2009
							Guarantor		Non-Guarantor
	Parent			CFI			Subsidiaries		Subsidiaries			Eliminations			Consolidated
	(in millions)
Operating Activities:
Net earnings	$	365.6		$	411.7		$	—	$	246.3		$	(575.1	)	$	448.5
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation, depletion and amortization	—			88.7			—		12.3			—			101.0
Deferred income taxes	(2.2		)	47.9			—		—			—			45.7
Stock compensation expense	6.6			—			—		—			—			6.6
Excess tax benefit from stock-based compensation	(4.6		)	—			—		—			—			(4.6		)
Unrealized (gain) loss on derivatives	—			(87.5		)	—		—			—			(87.5		)
Inventory valuation allowance	—			(57.0		)	—		—			—			(57.0		)
(Gain) on sale of marketable equity securities	—			(11.9		)	—		—			—			(11.9		)
Loss (gain) on disposal of property, plant and equipment	—			0.7			—		—			—			0.7
Equity in loss (earnings) of unconsolidated affiliates - net of taxes	—			0.8			—		0.3			—			1.1
Equity in loss (earnings) of consolidated affiliates - net of taxes	(411.7		)	(163.4		)	—		—			575.1			—
Due to / from affiliates - net	40.2			(40.4		)	—		0.2			—			—
Changes in:
Accounts receivable	—			(8.7		)	—		30.0			—			21.3
Margin deposits	—			10.8			—		0.6			—			11.4
Inventories	—			441.5			—		(1.2		)	—			440.3
Prepaid product and expenses	—			—			—		—			—			—
Accrued income taxes	—			2.2			—		—			—			2.2
Accounts payable and accrued expenses	—			(37.7		)	—		(1.5		)	—			(39.2		)
Product exchanges - net	—			0.4			—		—			—			0.4
Customer advances - net	—			(188.3		)	—		—			—			(188.3		)
Other - net	(1.7		)	(7.9		)	—		0.7			—			(8.9		)
Net cash provided by (used in) operating activities	(7.8		)	401.9			—		287.7			—			681.8
Investing Activities:
Additions to property, plant and equipment	—			(218.2		)	—		(17.5		)	—			(235.7		)
Proceeds from sale of property, plant and equipment	—			9.3			—		—			—			9.3
Purchases of short-term and auction rate securities	—			(304.9		)	—		—			—			(304.9		)
Sales and maturities of short-term and auction rate securities	—			180.4			—		—			—			180.4
Purchases of marketable equity securities	—			(247.2		)	—		—			—			(247.2		)
Sale of marketable equity securities	—			68.0			—		—			—			68.0
Return of capital from marketable equity securities	—			52.4			—		—			—			52.4
Deposit to asset retirement obligation escrow account	—			(7.5		)	—		—			—			(7.5		)
Other - net	—			(2.5		)	—		—			—			(2.5		)
Net cash provided by (used in) investing activities	—			(470.2		)	—		(17.5		)	—			(487.7		)
Financing Activities:
Dividends paid on common stock	(19.4		)	—			—		—			—			(19.4		)
Dividends to / from affiliates	19.4			(19.4		)	—		—			—			—
Distributions to noncontrolling interest	—			204.6			—		(316.9		)	—			(112.3		)
Issuances of common stock under employee stock plans	3.2			—			—		—			—			3.2
Excess tax benefit from stock-based compensation	4.6			—			—		—			—			4.6
Other - net	—			(0.2		)	—		0.2			—			—
Net cash provided by (used in) financing activities	7.8			185.0			—		(316.7		)	—			(123.9		)
Effect of exchange rate changes on cash and cash equivalents	—			(32.1		)	—		34.0			—			1.9
Increase (decrease) in cash and cash equivalents	—			84.6			—		(12.5		)	—			72.1
Cash and cash equivalents at beginning of period	—			578.4			—		46.6			—			625.0
Cash and cash equivalents at end of period	$	—		$	663.0		$	—	$	34.1		$	—		$	697.1

61

Condensed, Consolidating Statement of Operations

	Year ended December 31, 2008
							Guarantor		Non-Guarantor
	Parent			CFI			Subsidiaries		Subsidiaries			Eliminations			Consolidated
	(in millions)
Net sales	$	—		$	3,670.5		$	—	$	710.9		$	(460.3	)	$	3,921.1
Cost of sales	—			2,567.6			—		378.1			(247.3		)	2,698.4
Gross margin	—			1,102.9			—		332.8			(213.0		)	1,222.7
Selling, general and administrative	1.7			64.7			—		1.6			—			68.0
Other operating - net	—			4.5			—		—			—			4.5
Operating earnings (loss)	(1.7		)	1,033.7			—		331.2			(213.0		)	1,150.2
Interest expense	—			1.4			—		0.7			(0.5		)	1.6
Interest income	—			(24.9		)	—		(1.7		)	0.5			(26.1		)
Net (earnings) loss of wholly-owned subsidiaries	(685.7		)	(5.0		)	—		—			690.7			—
Other non-operating - net	—			(1.5		)	—		0.8			—			(0.7		)
Earnings before income taxes and equity in earnings of unconsolidated affiliates	684.0			1,063.7			—		331.4			(903.7		)	1,175.4
Income tax provision (benefit)	(0.6		)	378.0			—		0.7			—			378.1
Equity in earnings of unconsolidated affiliates - net of taxes	—			—			—		4.2			—			4.2
Net earnings	684.6			685.7			—		334.9			(903.7		)	801.5
Less: Net earnings attributable to the noncontrolling interest	—			—			—		329.9			(213.0		)	116.9
Net earnings attributable to common stockholders	$	684.6		$	685.7		$	—	$	5.0		$	(690.7	)	$	684.6

62

Condensed, Consolidating Balance Sheet

	December 31, 2008
							Guarantor		Non-Guarantor
	Parent			CFI			Subsidiaries		Subsidiaries			Eliminations			Consolidated
	(in millions)
Assets
Current assets:
Cash and cash equivalents	$	—		$	578.4		$	—	$	46.6		$	—		$	625.0
Accounts receivable	—			108.6			—		272.9			(206.4		)	175.1
Inventories - net	—			573.1			—		15.5			—			588.6
Prepaid income taxes	—			26.3			—		—			—			26.3
Other	—			16.3			—		1.9			—			18.2
Total current assets	—			1,302.7			—		336.9			(206.4		)	1,433.2
Property, plant and equipment - net	—			624.8			—		37.1			—			661.9
Goodwill	—			0.9			—		—			—			0.9
Asset retirement obligation escrow account	—			28.8			—		—			—			28.8
Investments in and advances to unconsolidated affiliates	1,248.1			74.7			—		44.8			(1,322.8		)	44.8
Investments in auction rate securities	—			177.8			—		—			—			177.8
Due from affiliates	90.1			—			—		1.1			(91.2		)	—
Other assets	—			34.8			—		5.4			—			40.2
Total assets	$	1,338.2		$	2,244.5		$	—	$	425.3		$	(1,620.4	)	$	2,387.6
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses	$	0.1		$	190.2		$	—	$	23.1		$	(5.5	)	$	207.9
Income taxes payable	—			14.0			—		0.1			—			14.1
Customer advances	—			347.8			—		—			—			347.8
Notes payable	—			—			—		11.9			(7.8		)	4.1
Deferred income taxes	—			52.1			—		—			—			52.1
Distributions payable to noncontrolling interest	—			—			—		299.1			(193.1		)	106.0
Other	—			86.1			—		—			—			86.1
Total current liabilities	0.1			690.2			—		334.2			(206.4		)	818.1
Deferred income taxes	—			6.5			—		(0.3		)	—			6.2
Due to affiliates	—			91.2			—		—			(91.2		)	—
Other noncurrent liabilities	—			208.5			—		4.1			—			212.6
Equity:
Stockholders’ equity:
Preferred stock	—			—			—		65.3			(65.3		)	—
Common stock	0.5			—			—		0.1			(0.1		)	0.5
Paid-in capital	709.4			739.9			—		43.5			(783.4		)	709.4
Retained earnings (Accumulated deficit)	703.4			583.4			—		(8.2		)	(575.2		)	703.4
Accumulated other comprehensive income (loss)	(75.2		)	(75.2		)	—		(13.4		)	88.6			(75.2		)
Total stockholders’ equity	1,338.1			1,248.1			—		87.3			(1,335.4		)	1,338.1
Noncontrolling interest	—			—			—		—			12.6			12.6
Total equity	1,338.1			1,248.1			—		87.3			(1,322.8		)	1,350.7
Total liabilities and equity	$	1,338.2		$	2,244.5		$	—	$	425.3		$	(1,620.4	)	$	2,387.6

63

Condensed, Consolidating Statement of Cash Flows

	Year ended December 31, 2008
							Guarantor		Non-Guarantor
	Parent			CFI			Subsidiaries		Subsidiaries			Eliminations			Consolidated
	(in millions)
Operating Activities:
Net earnings	$	684.6		$	685.7		$	—	$	334.9		$	(903.7	)	$	801.5
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation, depletion and amortization	—			85.9			—		14.9			—			100.8
Deferred income taxes	—			26.4			—		—			—			26.4
Stock compensation expense	8.3			—			—		—			—			8.3
Excess tax benefit from stock-based compensation	(24.3		)	—			—		—			—			(24.3		)
Unrealized (gain) loss on derivatives	—			63.8			—		—			—			63.8
Inventory valuation allowance	—			57.0			—		—			—			57.0
Loss (gain) on disposal of property, plant and equipment	—			(6.3		)	—		0.1			—			(6.2		)
Equity in earnings of unconsolidated affiliates - net of taxes	—			—			—		(4.2		)	—			(4.2		)
Equity in loss (earnings) of consolidated affiliates - net of taxes	(685.7		)	(218.0		)			—			903.7			—
Due to / from affiliates - net	(17.4		)	15.9					1.5			—			—
Changes in:
Accounts receivable	—			89.0			—		(129.4		)	(3.6		)	(44.0		)
Margin deposits	—			(10.8		)	—		(0.6		)	—			(11.4		)
Inventories	—			(407.9		)	—		(8.8		)	—			(416.7		)
Prepaid product and expenses	—			19.7			—		(0.1		)	—			19.6
Accrued income taxes	—			9.8			—		—			—			9.8
Accounts payable and accrued expenses	—			5.6			—		(1.9		)	—			3.7
Product exchanges - net	—			4.6			—		—			—			4.6
Customer advances - net	—			42.0			—		—			—			42.0
Other - net	—			8.3			—		(0.4		)	—			7.9
Net cash provided by (used in) operating activities	(34.5		)	470.7			—		206.0			(3.6		)	638.6
Investing Activities:
Additions to property, plant and equipment	—			(138.3		)	—		(3.5		)	—			(141.8		)
Proceeds from sale of property, plant and equipment	—			10.4			—		—			—			10.4
Purchases of short-term and auction rate securities	—			(638.2		)	—		—			—			(638.2		)
Sales and maturities of short-term and auction rate securities	—			934.1			—		—			—			934.1
Deposit to asset retirement obligation escrow account	—			(6.2		)	—		—			—			(6.2		)
Other - net	—			1.2			—		—			—			1.2
Net cash provided by (used in) investing activities	—			163.0			—		(3.5		)	—			159.5
Financing Activities:
Dividends paid on common stock	(22.0		)	—			—		—			—			(22.0		)
Dividends to / from affiliates	522.2			(522.2		)									—
Distributions to noncontrolling interest	—			111.4			—		(164.1		)	—			(52.7		)
Issuances of common stock under employee stock plans	10.1			—			—		—			—			10.1
Purchase of treasury stock	(500.2		)	—			—		—			—			(500.2		)
Excess tax benefit from stock-based compensation	24.3			—			—		—			—			24.3
Other - net	—			—			—		—			—			—
Net cash provided by (used in) financing activities	34.4			(410.8		)	—		(164.1		)	—			(540.5		)
Effect of exchange rate changes on cash and cash equivalents	—			26.6			—		(25.7		)	—			0.9
Increase (decrease) in cash and cash equivalents	(0.1		)	249.5			—		12.7			(3.6		)	258.5
Cash and cash equivalents at beginning of period	0.1			328.9			—		33.9			3.6			366.5
Cash and cash equivalents at end of period	$	—		$	578.4		$	—	$	46.6		$	—		$	625.0

64

Condensed, Consolidating Statement of Operations

	Year ended December 31, 2007
							Guarantor		Non-Guarantor
	Parent			CFI			Subsidiaries		Subsidiaries			Eliminations			Consolidated
	(in millions)
Net sales	$	—		$	2,599.1		$	—	$	470.9		$	(313.3	)	$	2,756.7
Cost of sales	—			1,986.7			—		303.8			(203.8		)	2,086.7
Gross margin	—			612.4			—		167.1			(109.5		)	670.0
Selling, general and administrative	1.8			62.7			—		0.7			—			65.2
Other operating - net	—			3.2			—		—			—			3.2
Operating earnings (loss)	(1.8		)	546.5			—		166.4			(109.5		)	601.6
Interest expense	—			1.5			—		0.9			(0.7		)	1.7
Interest income	—			(23.7		)	—		(1.4		)	0.7			(24.4		)
Net (earnings) loss of wholly-owned subsidiaries	(373.8		)	(3.2		)						377.0			—
Other non-operating - net	—			(1.6		)	—		—						(1.6		)
Earnings before income taxes and equity in earnings of unconsolidated affiliates	372.0			573.5			—		166.9			(486.5		)	625.9
Income tax provision (benefit)	(0.7		)	199.7			—		0.5			—			199.5
Equity in earnings of unconsolidated affiliates - net of taxes	—			—			—		0.9			—			0.9
Net earnings	372.7			373.8			—		167.3			(486.5		)	427.3
Less: Net earnings attributable to the noncontrolling interest	—			—			—		164.1			(109.5		)	54.6
Net earnings attributable to common stockholders	$	372.7		$	373.8		$	—	$	3.2		$	(377.0	)	$	372.7

65

Condensed, Consolidating Statement of Cash Flows

	Year ended December 31, 2007
							Guarantor		Non-Guarantor
	Parent			CFI			Subsidiaries		Subsidiaries			Eliminations			Consolidated
	(in millions)
Operating Activities:
Net earnings	$	372.7		$	373.8		$	—	$	167.3		$	(486.5	)	$	427.3
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation, depletion and amortization	—			73.7			—		10.8			—			84.5
Deferred income taxes	—			47.1			—		0.9			—			48.0
Stock compensation expense	9.7			—			—		—			—			9.7
Excess tax benefit from stock-based compensation	(13.3		)	—			—		—			—			(13.3		)
Unrealized (gain) loss on derivatives	—			(17.0		)	—		—			—			(17.0		)
Loss (gain) on disposal of property, plant and equipment	—			0.2			—		(0.2		)	—			—
Equity in earnings of unconsolidated affiliates - net of taxes	—			—			—		(0.9		)	—			(0.9		)
Equity in loss (earnings) of consolidated affiliates - net of taxes	(373.8		)	(112.7		)	—		—			486.5			—
Due to / from affiliates - net	(25.0		)	24.5			—		0.5			—			—
Changes in:
Accounts receivable	—			45.2			—		(77.3		)	3.6			(28.5		)
Margin deposits	—			2.8			—		8.9			—			11.7
Inventories	—			(61.7		)	—		8.1			—			(53.6		)
Prepaid product and expenses	—			(20.8		)	—		0.1			—			(20.7		)
Accrued income taxes	—			14.0			—		—			—			14.0
Accounts payable and accrued expenses	(0.1		)	31.8			—		(0.4		)	—			31.3
Product exchanges - net	—			(3.5		)	—		—			—			(3.5		)
Customer advances - net	—			203.1			—		—			—			203.1
Other - net	—			2.2			—		(4.2		)	—			(2.0		)
Net cash provided by (used in) operating activities	(29.8		)	602.7			—		113.6			3.6			690.1
Investing Activities:
Additions to property, plant and equipment	—			(87.7		)	—		(17.4		)	—			(105.1		)
Proceeds from sale of property, plant and equipment	—			3.9			—		0.2			—			4.1
Purchases of short-term and auction rate securities	—			(1,140.5		)	—		—			—			(1,140.5		)
Sales and maturities of short-term and auction rate securities	—			946.2			—		—			—			946.2
Deposit to asset retirement obligation escrow account	—			(9.4		)	—		—			—			(9.4		)
Investment in unconsolidated affiliates	—			—			—		(26.8		)	—			(26.8		)
Advances to unconsolidated affiliates	—			—			—		(12.8		)	—			(12.8		)
Other - net	—			1.2			—		—			—			1.2
Net cash provided by (used in) investing activities	—			(286.3		)	—		(56.8		)	—			(343.1		)
Financing Activities:
Dividends paid on common stock	(4.5		)	—			—		—			—			(4.5		)
Dividends to / from affiliates	4.5			(4.5		)									—
Distributions to noncontrolling interest	—			59.2			—		(89.2		)	—			(30.0		)
Issuances of common stock under employee stock plans	16.6			—			—		—			—			16.6
Excess tax benefit from stock-based compensation	13.3			—			—		—			—			13.3
Other - net	—			(39.5		)	—		39.2			—			(0.3		)
Net cash provided by (used in) financing activities	29.9			15.2			—		(50.0		)	—			(4.9		)
Effect of exchange rate changes on cash and cash equivalents	—			(12.0		)	—		11.0			—			(1.0		)
Increase in cash and cash equivalents	0.1			319.6			—		17.8			3.6			341.1
Cash and cash equivalents at beginning of period	—			9.3			—		16.1			—			25.4
Cash and cash equivalents at end of period	$	0.1		$	328.9		$	—	$	33.9		$	3.6		$	366.5

66

35.                          Quarterly Data—Unaudited

The following tables present the unaudited quarterly results of operations for the eight quarters ended December 31, 2009. This quarterly information has been prepared on the same basis as the consolidated financial statements and, in the opinion of management, reflects all adjustments necessary for the fair representation of the information for the periods presented. This data should be read in conjunction with the audited financial statements and related disclosures. Operating results for any quarter apply to that quarter only and are not necessarily indicative of results for any future period.

	Three Months Ended
	March 31		June 30		September 30			December 31			Full Year
	(in millions, except per share amounts)
2009
Net sales	$	680.6	$	991.0	$	430.1		$	506.7		$	2,608.4
Gross margin	162.3		427.0		124.0			126.1			839.4
Unrealized gains (losses) on derivatives (1)	48.6		34.3		1.9			2.7			87.5
Net earnings attributable to common stockholders	62.7		213.0		38.5			51.4			365.6
Net earnings per share attributable to common stockholders
Basic	1.29		4.40		0.79			1.06			7.54
Diluted	1.28		4.33		0.78			1.04			7.42
2008
Net sales	$	667.3	$	1,161.0	$	1,020.8		$	1,072.0		$	3,921.1
Gross margin	271.2		469.9		120.9			360.7		(2)	1,222.7
Unrealized gains (losses) on derivatives (1)	69.6		83.2		(251.0		)	34.4			(63.8		)
Net earnings attributable to common stockholders	158.8		288.6		47.1			190.1		(2)	684.6
Net earnings per share attributable to common stockholders
Basic	2.82		5.11		0.83			3.63			12.35
Diluted	2.76		5.01		0.82			3.59			12.13

(1)Amounts represents pre-tax unrealized gains (losses) on derivatives included in gross margin. See Note 27—Derivative Financial Instruments, for additional information.

(2)In the fourth quarter of 2008, gross margin and net earnings included a write-down of phosphate and potash inventories totaling $57.0 million ($37.1 million net of taxes) (see Note 17—Inventories—Net).

36.          Subsequent Events

In January 2010, CF Holdings sold 5.0 million shares of Terra common stock. As a result of these sales, in the first quarter of 2010 we received proceeds of $167.1 million and will report a pre-tax gain of $28.3 million on the sale of the Terra shares.

For further discussion on subsequent events see Note 9 — Business Combination Activities and Subsequent Events.

67

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
CF Industries Holdings, Inc.:

Under date of February 25, 2010, except for Notes 9, 34, and 36, as to which the date is April 15, 2010, we reported on the consolidated balance sheets of CF Industries Holdings, Inc. and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2009, which are included in this current report on Form 8-K.  In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule. This financial statement schedule (Schedule II—Valuation and Qualifying Accounts) is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule 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.

/s/ KPMG LLP

Chicago, Illinois

February 25, 2010

68

CF INDUSTRIES HOLDINGS, INC.

Schedule II—Valuation and Qualifying Accounts

	Beginning Balance		Charged to Costs and Expenses		Charge to Other Accounts		Deductions		Description	Ending Balance
Accounts receivable (in millions)
Allowance for bad debts accounts
Year ended December 31, 2009	$	0.3	$	—	$	—	$	—		$	0.3
Year ended December 31, 2008	$	0.3	$	—	$	—	$	—		$	0.3
Year ended December 31, 2007	$	0.3	$	—	$	—	$	—		$	0.3

See Accompanying Report of Independent Registered Public Accounting Firm.

69

EX-99.2

Exhibit 99.2

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our management is responsible for the preparation, integrity and objectivity of the accompanying consolidated financial statements and the related financial information. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and necessarily include certain amounts that are based on estimates and informed judgments. Our management also prepared the related financial information included in this Annual Report on Form 10-K and is responsible for its accuracy and consistency with the consolidated financial statements.

The accompanying consolidated financial statements have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, who conducted its audits in accordance with the standards of the Public Company Accounting Oversight Board. The independent registered public accounting firm’s responsibility is to express an opinion as to the fairness with which such financial statements present our financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Terra Industries Inc.:

We have audited the accompanying consolidated statements of financial position of Terra Industries Inc. and subsidiaries (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations, statements of changes in common stockholders’ equity, and statements of cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15 of the Company’s annual report on Form 10-K for the year ended December 31, 2009. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Terra Industries Inc. and subsidiaries at December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, 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.

As discussed in Note 1 to the consolidated financial statements, the accompanying financial statements have been retrospectively adjusted for the adoption of consolidation guidance issued by the Financial Accounting Standards Board related to noncontrolling interests in consolidated financial statements effective January 1, 2009.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2010, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Omaha, Nebraska

February 25, 2010 (April 5, 2010 as to notes 27 and 28)

Consolidated Statements of Financial Position

	At December 31,
(in thousands)	2009			2008
Assets
Cash and cash equivalents	$	501,310		$	966,700
Accounts receivable, less allowance for doubtful accounts of $1,403 and $290	100,216			130,390
Inventories, net	137,073			197,091
Margin deposits with derivative counterparties	—			36,945
Other current assets	87,703			61,338
Total current assets	826,302			1,392,464
Property, plant and equipment, net	456,702			403,313
Equity method investments	258,860			270,915
Deferred plant turnaround costs, net	25,011			23,467
Other assets	32,868			22,858
Total assets	$	1,599,743		$	2,113,017
Liabilities
Accounts payable	$	87,898		$	99,893
Customer prepayments	39,238			111,592
Derivative hedge liabilities	281			125,925
Accrued and other current liabilities	78,792			127,770
Total current liabilities	206,209			465,180
Long-term debt	602,434			330,000
Deferred taxes	76,819			61,443
Pension liabilities	27,521			9,170
Other liabilities	101,126			78,553
Total liabilities	1,014,109			944,346
Commitments and contingencies (Note 13)	—			—
Preferred Shares—liquidation value of $500 and $1,600	483			1,544
Common Stockholders’ Equity
Capital stock
Common Shares, authorized 133,500 shares; 99,841 and 99,330 shares outstanding	152,802			152,111
Paid-in capital	446,078			579,164
Accumulated other comprehensive loss	(120,362		)	(175,529		)
Retained earnings	12,219			507,299
Total common stockholders’ equity	490,737			1,063,045
Noncontrolling interest	94,414			104,082
Total equity	585,151			1,167,127
Total liabilities and equity	$	1,599,743		$	2,113,017

See accompanying Notes to the Consolidated Financial Statements

2

Consolidated Statements of Operations

	Year ended December 31,
(in thousands, except per-share amounts)	2009			2008			2007
Product revenues	$	1,576,528		$	2,880,255		$	2,335,874
Other income	4,904			11,224			7,055
Total Revenue	1,581,432			2,891,479			2,342,929
Cost and Expenses
Cost of sales	1,195,176			2,028,252			1,815,421
Selling, general and administrative expenses	67,137			70,736			91,971
Other operating expenses	18,000			—			—
Equity in earnings of North American affiliates	(17,702		)	(56,237		)	(16,209		)
	1,262,611			2,042,751			1,891,183
Income from operations	318,821			848,728			451,746
Interest income	4,136			23,370			17,262
Interest expense	(31,860		)	(27,369		)	(29,100		)
Loss on early retirement of debt	(53,476		)	—			(38,836		)
Income before income taxes, noncontrolling interest and equity earnings (loss) of GrowHow UK Limited	237,621			844,729			401,072
Income tax provision	(74,299		)	(239,851		)	(127,316		)
Equity earnings (loss) of GrowHow UK Limited	14,177			95,578			(2,718		)
Income from continuing operations, net of tax	177,499			700,456			271,038
Income (loss) from discontinued operations, net of tax	1,118			8,269			(18,861		)
Net income	178,617			708,725			252,177
Less: Net income attributable to the noncontrolling interest	25,984			67,684			50,281
Net income attributable to Terra Industries Inc.	$	152,633		$	641,041		$	201,896
Amounts attributable to Terra Industries Inc. common stockholders:
Income from continuing operations, net of tax	$	151,515		$	632,772		$	220,757
Income (loss) from discontinued operations, net of tax	1,118			8,269			(18,861		)
Less: Inducement payment of preferred stock conversion	—			5,266			—
Less: Preferred share dividends	56			3,876			5,100
Net income attributable to Terra Industries Inc. common stockholders	$	152,577		$	631,899		$	196,796
Basic income per common share attributable to Terra Industries Inc. common stockholders:
Continuing operations	$	1.53		$	6.65		$	2.38
Discontinued operations	0.01			0.09			(0.21		)
Earnings per share	$	1.54		$	6.74		$	2.17
Diluted income per common share attributable to Terra Industries Inc. common stockholders:
Continuing operations	$	1.52		$	6.12		$	2.07
Discontinued operations	0.01			0.08			(0.17		)
Earnings per share	$	1.53		$	6.20		$	1.90
Weighted Average Shares Outstanding:
Basic	99,386			93,827			90,575
Diluted	99,992			103,359			106,454

See accompanying Notes to the Consolidated Financial Statements

3

Consolidated Statements of Cash Flows

	Year ended December 31,
(in thousands)	2009			2008			2007
Operating Activities
Net income	$	178,617		$	708,725		$	252,177
Income (loss) from discontinued operations, net of tax	1,118			8,269			(18,861		)
Income from continuing operations, net of tax	177,499			700,456			271,038
Adjustments to reconcile income from continuing operations to net cash flows from operating activities:
Depreciation of property, plant and equipment and amortization of deferred plant turnaround costs	84,840			78,854			94,784
Loss on sale of property, plant and equipment	827			2,321			—
Deferred income taxes	(18,236		)	(15,180		)	103,400
Distributions in excess of equity earnings of North American affiliates	4,074			8,343			8,536
Equity (earnings) loss of GrowHow UK Limited	(14,177		)	(95,578		)	2,718
Non-cash loss on derivatives	675			39,779			1,300
Share-based compensation	16,174			8,104			28,102
Amortization of intangible and other assets	9,719			8,705			6,954
Non-cash loss on early retirement of debt	4,546			—			4,662
Change in operating assets and liabilities:
Accounts receivable	27,874			36,310			(38,180		)
Inventories	65,036			(71,422		)	45,772
Accounts payable and customer prepayments	(87,584		)	(197,452		)	218,081
Margin deposits with derivative counterparties	36,945			(36,307		)	(601		)
Derivative hedge liabilities	(125,644		)	111,192			(7,858		)
Other assets and liabilities, net	20,435			(103,142		)	(4,924		)
Net cash flows from operating activities – continuing operations	203,003			474,983			733,784
Net cash flows from operating activities – discontinued operations	1,118			8,161			14,081
Net Cash Flows from Operating Activities	204,121			483,144			747,865
Investing Activities
Capital expenditures and plant turnaround expenditures	(133,934		)	(89,307		)	(82,376		)
Proceeds from the sale of property, plant and equipment	188			2,073			24
Distributions received from North American affiliates	14,049			8,180			4,705
Cash retained by GrowHow UK Limited	—			—			(16,788		)
Contribution settlement received from GrowHow UK Limited	—			27,427			—
Balancing consideration and other payments from GrowHow UK Limited	21,205			61,272			—
Net cash flows from investing activities – continued operations	(98,492		)	9,645			(94,435		)
Net cash flows from investing activities – discontinued operations	5,356			41,879			—
Net Cash Flows from Investing Activities	(93,136		)	51,524			(94,435		)
Financing Activities
Issuance of debt	589,788			—			330,000
Payments under borrowing arrangements	(317,475		)	—			(331,300		)
Payments for debt issuance costs	(14,360		)	—			(6,444		)
Preferred share dividends paid	(56		)	(3,876		)	(5,100		)
Inducement payment to preferred stockholders	—			(5,266		)	—
Common stock dividends paid	(788,588		)	(28,274		)	—
Common stock issuances and vestings	(6,642		)	(9,839		)	(1,424		)
Excess tax benefits from equity compensation plans	6,304			12,122			3,317
Payments under share repurchase program	—			(157,500		)	(87,426		)
Distribution to noncontrolling interests	(41,149		)	(69,557		)	(35,239		)
Net Cash Flows from Financing Activities	(572,178		)	(262,190		)	(133,616		)
Effect of Exchange Rate Changes on Cash	(4,197		)	(4,016		)	(593		)
(Decrease) Increase in Cash and Cash Equivalents	(465,390		)	268,462			519,221
Cash and Cash Equivalents at Beginning of Year	966,700			698,238			179,017
Cash and Cash Equivalents at End of Year	$	501,310		$	966,700		$	698,238
Supplemental cash flow information:
Interest paid	$	29,625		$	24,256		$	23,200
Income tax refunds received	3,774			1,455			558
Income taxes paid	146,048			200,528			22,697
Supplemental schedule of non-cash investing and financing activities:
Conversion of warrants to common stock	$	—		$	2,496		$	568
Conversion of preferred shares to common stock	1,061			114,256			—
Terra Nitrogen U.K. contributed for equity investment	—			—			213,235
Supplemental schedule of unconsolidated affiliates distributions:
Distributions received from North American affiliates	$	35,825		$	72,760		$	29,450
Contribution settlement payments, balancing consideration and other payments received from GrowHow UK Limited	21,205			88,699			—
Total Cash Received from Unconsolidated Affiliates	$	57,030		$	161,459		$	29,450

See accompanying Notes to the Consolidated Financial Statements

4

Statements of Changes in Common Stockholders’ Equity

									Accumulated						(Accumulated
									Other						Deficit)
	Common Stock					Paid-In			Comprehensive			Noncontrolling			Retained						Comprehensive
(in thousands)	Shares		Amount			Capital			Loss			Interest			Earnings			Total			Income
January 1, 2007	92,630		$	144,976		$	693,896		$	(63,739	)	$	94,687		$	(292,137	)	$	577,683
Comprehensive Income:
Net income	—		—			—			—			50,281			201,896			252,177			$	252,177
Foreign currency translation adjustments	—		—			—			(46,882		)	—			—			(46,882		)	(46,882		)
Change in fair value of derivatives, net of taxes of $3,351	—		—			—			7,372			(1,148		)	—			6,224			6,224
Pension and post-retirement benefit liabilities, net of taxes of $8,599	—		—			—			15,797			—			—			15,797			15,797
Transfer of U.K. pension plan to GrowHow UK Limited	—		—			—			43,272			—			—			43,272
Comprehensive income																					227,316
Comprehensive income attributable to noncontrolling interest																					(49,133		)
Comprehensive income attributable to Terra Industries Inc.																					$	178,183
Distributions to noncontrolling interest	—		—			—			—			(35,239		)	—			(35,239		)
Preferred share dividends	—		—			—			—			—			(5,100		)	(5,100		)
Exercise of stock options	336		336			786			—			—			—			1,122
Net vested stock	53		290			(2,836		)	—			—			—			(2,546		)
Net conversion of warrants	568		568			(568		)	—			—			—			—
Shares purchased and retired under share repurchase program	(4,000	)	(4,000		)	(83,426		)	—			—			—			(87,426		)
Share-based compensation	—		—			11,022			—			—			—			11,022
December 31, 2007	89,587		$	142,170		$	618,874		$	(44,180	)	$	108,581		$	(95,341	)	$	730,104
January 1, 2008	89,587		$	142,170		$	618,874		$	(44,180	)	$	108,581		$	(95,341	)	$	730,104
Comprehensive Income:
Net income	—		—			—			—			67,684			641,041			708,725			$	708,725
Foreign currency translation adjustments	—		—			—			(98,308		)	—			—			(98,308		)	(98,308		)
Change in fair value of derivatives, net of taxes of ($22,157)	—		—			—			(31,861		)	(2,626		)	—			(34,487		)	(34,487		)
Pension and post-retirement benefit liabilities, net of taxes of ($1,947)	—		—			—			(1,180		)	—			—			(1,180		)	(1,180		)
Comprehensive income																					574,750
Comprehensive income attributable to noncontrolling interest																					(65,058		)
Comprehensive income attributable to Terra Industries Inc.																					$	509,692
Distribution to noncontrolling interest	—		—			—			—			(69,557		)	—			(69,557		)
Preferred share dividends	—		—			—			—			—			(3,876		)	(3,876		)
Common stock dividends	—		—			—			—			—			(28,274		)	(28,274		)
Excess tax benefit	—		—			14,603			—			—			—			14,603
Exercise of stock options	11		11			23			—			—			—			34
Net vested stock	277		475			(12,897		)	—			—			—			(12,422		)
Net conversion of warrants	2,961		2,961			(413		)	—			—			—			2,548
Inducement of preferred stock	11,887		11,887			102,368			—			—			(5,266		)	108,989
Shares purchased and retired under the share repurchase program	(5,393	)	(5,393		)	(152,107		)	—			—			—			(157,500		)
Share-based compensation	—		—			8,713			—			—			—			8,713
Adoption of SFAS 158 measurement to date	—		—			—			—			—			(985		)	(985		)
December 31, 2008	99,330		$	152,111		$	579,164		$	(175,529	)	$	104,082		$	507,299		$	1,167,127
January 1, 2009	99,330		$	152,111		$	579,164		$	(175,529	)	$	104,082		$	507,299		$	1,167,127
Comprehensive Income:
Net income	—		—			—			—			25,984			152,633			178,617			$	178,617
Foreign currency translation adjustments	—		—			—			25,211			—			—			25,211			25,211
Change in fair value of derivatives, net of taxes of $28,403	—		—			—			39,746			5,497			—			45,243			45,243
Pension and post-retirement benefit liabilities, net of taxes of ($6,710)	—		—			—			(9,790		)	—			—			(9,790		)	(9,790		)
Comprehensive income																					239,281
Comprehensive income attributable to noncontrolling interest																					(31,481		)
Comprehensive income attributable to Terra Industries Inc.																					$	207,800
Distributions to noncontrolling interest	—		—			—			—			(41,149		)	—			(41,149		)
Preferred share dividends	—		—			—			—			—			(56		)	(56		)
Common stock dividends	—		—			(140,664		)	—			—			(647,924		)	(788,588		)
Excess tax benefit	—		—			6,304			—			—			—			6,304
Net vested stock	401		581			(7,223		)	—			—			—			(6,642		)
Inducement of preferred stock	110		110			951			—			—			—			1,061
Share-based compensation	—		—			7,546			—			—			—			7,546
Other	—		—			—			—			—			267			267
December 31, 2009	99,841		$	152,802		$	446,078		$	(120,362	)	$	94,414		$	12,219		$	585,151

See accompanying Notes to the Consolidated Financial Statements

5

Notes to the Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Basis of presentation: The Consolidated Financial Statements include the accounts of Terra Industries Inc. and all majority owned subsidiaries (Terra, we, our, or us). All intercompany accounts and transactions have been eliminated. Noncontrolling interest in earnings and ownership has been recorded for the percentage of limited partnership common units not owned by us for each respective period presented.

Description of business: We produce nitrogen products for agricultural dealers and industrial users, and methanol for industrial users.

Foreign exchange: Results of operations for the foreign subsidiaries are translated using average currency exchange rates during the period; assets and liabilities are translated using period-end rates. Resulting translation adjustments are recorded as foreign currency translation adjustments in accumulated other comprehensive income (loss) in common stockholders’ equity.

Cash and cash equivalents: Cash and cash equivalents consist of all cash balances and all highly liquid investments purchased with an original maturity of three months or less. Our cash equivalents included $280.5 million invested in money market mutual funds. There are no withdrawal restrictions on any of these funds. The remaining cash equivalents were invested in obligations of highly-rated financial institutions with an average weighted maturity of approximately 43 days.

Inventories: Production costs include the cost of direct labor and materials, depreciation and amortization, and overhead costs related to manufacturing activities. We allocate fixed production overhead costs based on the normal capacity of our production facilities and unallocated overhead costs are recognized as expense in the period incurred. We determine the cost of inventories using the first-in, first-out method.

Inventories are stated at the lower of cost or market. Market is defined as current replacement cost, except that market should not exceed the net realizable value and should not be less than net realizable value reduced by an allowance for an approximately normal profit margin. We perform a monthly analysis of our inventory balances to determine if the carrying amount of inventories exceeds our net realizable value. Our determination of estimated net realizable value is based on customer orders, market trends and historical pricing. If the carrying amount exceeds the estimated net realizable value, the carrying amount is reduced to the estimated net realizable value.

We estimate a reserve for obsolescence and excess of our materials and supplies inventory. Inventory is stated net of the reserve.

Property, plant and equipment: Expenditures for plant and equipment additions, replacements and major improvements are capitalized. Related depreciation is charged to expense on a straight-line basis over estimated useful lives ranging from 15 to 22 years for buildings and 2 to 18 years for plants and equipment. Equipment under capital leases is recorded in property with the corresponding obligations in long-term debt. The amount capitalized is the present value at the beginning of the lease term of the aggregate future minimum lease payments. Maintenance and repair costs are expensed as incurred.

Plant turnaround costs: Plant turnarounds are periodically performed to extend the useful life, increase output and/or efficiency and ensure the long-term reliability and safety of integrated plant machinery at our continuous process production facilities. The nature of a turnaround is such that it occurs on less than an annual basis and requires a multi-week shutdown of plant operations. Specific procedures performed during the turnaround include the disassembly, inspection and replacement or overhaul of plant machinery (boilers, pressure vessels, piping, heat exchangers, etc.) and rotating equipment (compressors, pumps, turbines, etc.), equipment recalibration and internal equipment efficiency assessments.

Preceding a turnaround, plants experience decreased efficiency in resource conversion to finished products. Replacement or overhaul of equipment and items such as compressors, turbines, pumps, motors, valves, piping and other parts that have an estimated useful life of at least two years, the internal assessment of production equipment, replacement of aged catalysts, and new installation/recalibration of measurement and control devices result in increased production output and/or improved plant efficiency after the turnaround. Turnaround activities are betterments that meet at least one of the following criteria: 1) extend the equipment useful life, or 2) increase the output and/or efficiency of the equipment. As a result, we follow the deferral method of accounting for these turnaround costs and thus they are capitalized and amortized over the period benefited, which is generally the two-year period until the next turnaround. Turnaround activities may extend the useful life of the assets since the overhaul of heat exchangers, pressure vessels, compressors, turbines, pumps, motors, etc. allow the continued use beyond the original design. If criteria for betterment or useful life extension are not met, we expense the turnaround expenditures as repair and maintenance activities in the period performed.

6

In addition, state and certain other regulatory agencies require a scheduled biennial safety inspection of plant components, such as steam boilers and registered pressure vessels and piping, which can only be performed during the period of shut down. A full shutdown and dismantling of components of the plant is generally mandatory to facilitate the inspection and certification. We defer costs associated with regulatory safety inspection mandates that are incurred during the turnaround. These costs are amortized over the period benefited, which is generally the two-year period until the next turnaround.

During a turnaround event, there will also be routine repairs and maintenance activities performed for normal operating purposes. The routine repairs and maintenance costs are expensed as incurred. We do not classify routine repair and maintenance activities as part of the turnaround cost capitalization since they are not considered asset betterments.

The installation of major equipment items can occur at any time, but frequently occurs during scheduled plant outages, such as a turnaround. During a plant turnaround, expenditures for replacing major equipment items are capitalized as separate fixed assets.

We classify capitalized turnaround costs as an investing activity under the caption “Capital expenditures and plant turnaround expenditures” in the Statement of Cash Flows, since this cash outflow relates to expenditures related to productive assets. Repair, maintenance costs, and gas costs are expensed as incurred and are included in the operating cash flow.

There are three acceptable methods of accounting for turnaround costs: 1) direct expensing method, 2) built-in overhaul method and 3) deferral method. We utilize the deferral method and recognize turnaround expense over the period benefited since these expenditures are asset betterments. If the direct expense method was utilized, all turnaround expenditures would be recognized in the statement of operations as a period cost when incurred and reflected in cash flows from operating activities in the statement of cash flows.

Equity investments: Equity investments are carried at original cost adjusted for the proportionate share of the investees’ income, losses and distributions. We have a basis difference between carrying value and the affiliates’ book value primarily due to the step-up in basis for fixed asset values, which is being depreciated over a period of 12 to 15 years. We assess the carrying value of our equity investments when an indicator of a loss in value is present and record a loss in value of the investment when the assessment indicates that an other-than-temporary decline in the investment exists.

We classify our equity in earnings of unconsolidated affiliates for our North America and Trinidad equity investments as a component of income from operations because these investments provide additional nitrogen capacity and are integrated with our supply chain and sales activities in our nitrogen segment. We classify our equity earnings of unconsolidated affiliates for our U.K. equity investment as a component of net income, but not income from operations, because this investment does not provide additional nitrogen capacity nor is it integrated with any sales, supply chain or administrative activities.

Intangible asset—customer relationships: Our customer relationships have a finite useful life and are amortized using the straight-line method over the estimated useful life of five years. We monitor our intangible asset and record an impairment loss on the intangible asset when circumstances indicate that the carrying amount is not recoverable and that the carrying amount exceeds its fair value.

The customer relationships were recorded at $9.4 million in connection with the acquisition of Mississippi Chemical Corporation in December 2004. During 2009, 2008 and 2007, we recorded $1.9 million of amortization expense each year. The customer relationships are fully amortized as of December 31, 2009.

Debt issuance costs: Costs associated with the issuance are included in other noncurrent assets and are amortized over the term of the related debt using the straight-line method. Debt issuance discounts are netted against the related debt and are amortized over the term of the related debt using the effective interest method.

Impairment of long-lived assets: We review and evaluate our long-lived assets for impairment when events and changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying value of the asset. Future cash flows include estimates of production levels, pricing of our products, costs of natural gas and capital expenditures. If the assets are impaired, a calculation of fair value is performed; if the fair value is less than the carrying value of the assets, the assets are reduced to their fair value.

On September 28, 2007, Eastman Chemical Company exercised its option to purchase our Beaumont, Texas assets, including the methanol and ammonia production facilities. In connection with entering into this agreement, we determined that the value of our Beaumont property was impaired. We recorded a $39.0 million impairment charge for the quarter ended September 30, 2007. We closed the sale on December 31, 2008. For additional information regarding the sale of our Beaumont facility, see Note 2, Discontinued Operations, of the Notes to the Consolidated Financial Statements.

7

Noncontrolling interests: On January 1, 2009 we adopted the provisions of the Financial Accounting Standards Board (FASB) Statement on Consolidations topic of the FASB Accounting Standards Codification (Codification), which clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated statements of operations. The Consolidations topic also requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and noncontrolling interest on the face of the consolidated statement of operations. The Consolidations topic further requires a reconciliation of the beginning and the end of the period of the carrying amount of total equity (net assets), equity (net assets) attributable to the parent, and equity (net assets) attributable to the noncontrolling interest.

Upon adoption, we included our noncontrolling interest as a separate column within our consolidated statements of changes in common stockholders’ equity, which reconciles the noncontrolling interest beginning balance to ending balance by separately breaking out the net income attributable to the noncontrolling interest, distributions to noncontrolling interest, and other comprehensive income (loss) items attributable to noncontrolling interest. As the Company was required to retrospectively adopt, the statement of financial position for the year ended December 31, 2008 and consolidated statements of operations, cash flows, and changes in common stockholders’ equity have been revised to reflect the reclassification of the noncontrolling interest. See Note 19, Comprehensive Income, of the Notes to the Consolidated Financial Statements.

Derivatives and financial instruments: We enter into derivative financial instruments, including swaps, basis swaps, purchased put and call options and sold call options, to manage the effect of changes in natural gas costs and the prices of our nitrogen products. We report the fair value of the derivatives on our balance sheet. If the derivative is not designated as a hedging instrument, changes in fair value are recognized in earnings in the period of change. If the derivative is designated as a hedge, and to the extent such hedge is determined to be effective, changes in fair value are either (a) offset by the change in fair value of the hedged asset or liability or (b) reported as a component of accumulated other comprehensive income (loss) in the period of change, and subsequently recognized in our statement of operations in the period the offsetting hedged transaction occurs. If an instrument or the hedged item is settled early, we evaluate whether the hedged forecasted transaction is still probable of occurring when determining whether to reclass any gains or losses immediately in cost of sales or wait until the forecasted transaction occurs.

Until our derivatives settle, we test the derivatives for ineffectiveness. This includes assessing the correlation of NYMEX pricing, which is commonly used as an index in natural gas derivatives, to the natural gas pipelines’ pricing at our manufacturing facilities. This assessment requires management judgment to determine the statistically- and industry-appropriate analysis of prior operating relationships between the NYMEX prices and the natural gas pipelines’ prices at our facilities.

To the extent possible, we base our market value calculations on third party data. Due to multiple types of settlement methods available, not all settlement methods for future period trades are available from third party sources. In the event that a derivative is measured for fair value based on a settlement method that is not readily available, we estimate the fair value based on forward pricing information for similar types of settlement methods.

Revenue recognition: Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, no obligations remain and collectability is probable.

Revenues are primarily comprised of sales of our products, including any realized hedging gains or losses related to nitrogen product derivatives, and are reduced by estimated discounts and trade allowances. We classify amounts directly or indirectly billed to our customers for shipping and handling as revenue.

Profit sharing revenue pertaining to a contractual agreement with the Methanex Corporation is recognized when the estimated margin on an annualized basis is probable. For the year ending December 31, 2009, we did not recognize any profit sharing revenue, compared to $12.0 million of profit sharing revenue for the year ending December 31, 2008. We include the profit sharing revenue under this contract within our discontinued operations.

Cost of sales and hedging transactions: Costs of sales are primarily related to manufacturing and purchased costs related to our products, including any realized hedging gains or losses related to natural gas derivatives. We classify amounts directly or indirectly billed for shipping and handling of products to our customers or our terminals as cost of sales.

Share-based compensation: We account for our stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation, using the modified prospective method, which requires companies to record stock compensation expense for all non-vested and new awards beginning as of January 1, 2006. Under ASC Topic 718, we measure and record compensation expense for our nonvested share awards based on their fair value of our common stock at the date of grant. Compensation expense is recognized for

8

nonvested stock awards on a straight-line basis over the vesting period. Our phantom shares, however, are liability awards as they settle in cash; therefore, we measure and record compensation expense for these awards based on their fair value at the end of each reporting period until their vesting date. This may cause fluctuations in earnings that do not exist under the accounting requirements for our nonvested shares. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. We have thus recorded stock-based compensation expense net of estimated forfeitures. Cash flows resulting from the tax benefits due to tax deductions in excess of the compensation cost recognized for those awards (excess tax benefits) are classified as financing cash flows. See Note 16, Share-Based Compensation, of the Notes to the Consolidated Financial Statements.

Per share results: Basic earnings per share data are based on the weighted-average number of common shares outstanding during the period. Diluted earnings per share data are based on the weighted-average number of common shares outstanding and the effect of all dilutive potential common shares including convertible preferred shares, common stock options, nonvested stock and common stock warrants.

Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The significant areas requiring the use of management’s estimates relate to assumptions used to calculate pension and other post-retirement benefits costs, future cash flows from long-lived assets, estimates of market for lower of cost or market analysis and the useful lives utilized for depreciation, amortization and accretion calculations. Actual results could differ from those estimates.

Recently issued accounting standards: In June 2009, the FASB issued new guidance on Generally Accepted Accounting Principles (GAAP) relating to the Codification. This guidance establishes the Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force (EITF) Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. This guidance was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption did not have an impact on our consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued new guidance on business combinations, which was effective for us for business combinations with the acquisition date on or after January 1, 2009. This guidance requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this guidance will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets, and tax benefits. The adoption did not have an impact on our consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued new guidance on noncontrolling interests, which we adopted on January 1, 2009. This guidance amends the accounting for and disclosure of the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance clarifies the definition and classification of a noncontrolling interest, revises the presentation of noncontrolling interests in the consolidated income statement, establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that does not result in deconsolidation, and requires that a parent recognize a gain or loss in net income (loss) when a subsidiary is deconsolidated. This guidance also required expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the noncontrolling owners of a subsidiary. The required changes in presentation have been reflected in the consolidated balance sheets, statements of operations and statements of cash flows and in the notes to the consolidated financial statements, where applicable.

In March 2008, the FASB issued new guidance on derivatives and hedging, which requires entities to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted, and how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows. We adopted this guidance on January 1, 2009 and these disclosures are included in Note 5 herein.

9

In June 2008, the FASB issued new guidance on earnings per share. The FASB decided that unvested share-based payout awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. We adopted this guidance on January 1, 2009 and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.

In December 2008, the FASB issued new guidance on compensation, which amends previous guidance to require more detailed disclosures about employers’ pension plan assets. New disclosures will include more information on investment strategies, major categories of plan assets, concentrations of risk within the plan assets and valuation techniques used to measure the fair value of plan assets. This new guidance required new disclosures only, and did not impact our consolidated financial position, results of operations or cash flows. We have included these additional disclosures in Note 17 herein.

In April 2009, the FASB issued guidance on fair value measurements and disclosures, which provides additional guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market activity. This also provides additional guidance on circumstances that may indicate that a transaction is not orderly and requires additional disclosures. We adopted this guidance on April 1, 2009, and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.

In April 2009, the FASB issued new guidance relating to investments, which amends the other-than-temporary recognition guidance for debt securities and requires additional interim and annual disclosures of other-than-temporary impairments on debt and equity securities. Pursuant to the new guidance, an other-than-temporary impairment has occurred if a company does not expect to recover the entire amortized cost basis of the security. In this situation, if the company does not intend to sell the impaired security, and it is not more likely than not it will be required to sell the security before the recovery of its amortized cost basis, the amount of the other-than-temporary impairment recognized in earnings is limited to the portion attributed to the credit loss. The remaining portion of the other-than-temporary impairment is then recorded in other comprehensive income. We adopted this guidance on April 1, 2009 and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.

In April 2009, the FASB issued new guidance relating to interim disclosures about the fair value of financial instruments. This guidance required disclosures about fair value of all financial instruments for interim reporting periods. This guidance relates to fair value disclosures for any financial instruments that are not currently reflected in a company’s balance sheet at fair value. Prior to the effective date of this guidance, fair values for these assets and liabilities were only disclosed once a year. This guidance will now require these disclosures to be made on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. We adopted this guidance on April 1, 2009 and included the additional interim disclosure information in our quarterly SEC filings.

In June 2009, the FASB issued new guidance on subsequent events. This guidance provides authoritative accounting literature and disclosure requirements for material events occurring subsequent to the balance sheet date and prior to the issuance of the financial statements. This guidance is effective for us for the periods ended on and after June 30, 2009. The adoption did not have an impact on our consolidated financial position, results of operations or cash flows. We have reviewed and disclosed all material subsequent events in Note 27 herein.

In June 2009, the FASB issued new guidance on transfers and servicing, an amendment of previous authoritative guidance. The most significant amendments resulting from this guidance consist of the removal of the concept of a qualifying special-purpose entity (SPE) from previous authoritative guidance, and the elimination of the exception for qualifying SPEs from the consolidation guidance regarding variable interest entities. This guidance is effective for us January 1, 2010 and we are currently assessing the impact this guidance will have on our financial statements.

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for transfers of financial assets. This guidance affects the overall consolidation analysis and requires enhanced disclosures on involvement with variable interest entities. This guidance is effective for us January 1, 2010 and we are currently assessing the impact this guidance will have on our financial statements.

In September 2009, the FASB issued amendments to the accounting and disclosure for revenue recognition. This guidance will change the accounting for revenue recognition for arrangements with multiple deliverables and will enable entities to separately account for individual deliverables for many more revenue arrangements. This guidance eliminates the requirement that all undelivered elements must have objective and reliable evidence of fair value before a company can recognize the portion of the overall arrangement fee that is attributable to items that already have been delivered. As a result, the new guidance may allow some companies to recognize revenue on transactions that involve multiple deliverables earlier than under current requirements. This guidance is effective for us January 1, 2011 and we are currently assessing the impact this guidance will have on our financial statements.

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In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Improving Disclosures about Fair Value Measurements. The Update provides amendments to FASB ASC 820-10 that require entities to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. In addition the Update requires entities to present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). The disclosures related to Level 1 and Level 2 fair value measurements are effective for us in 2010 and the disclosures related to Level 3 fair value measurements are effective for us in 2011. The Update requires new disclosures only, and will have no impact on our consolidated financial position, results of operations or cash flows.

2. Discontinued Operations

On December 31, 2008, pursuant to a 2007 agreement, we sold our Beaumont, Texas assets, including the methanol and ammonia production facilities, to Eastman Chemical Company (Eastman). Consideration received, including cash and a Promissory Note from Eastman of $5.2 million plus interest, approximated this facility’s carrying value. In connection with the sale of the Beaumont facility that was finalized in 2008, we received $5.4 million from Eastman and recognized $1.1 million of net income from discontinued operations, net of tax.

Pursuant to the requirements of the Property, Plant and Equipment topic of the Codification, we classified and accounted for the Beaumont assets and liabilities as held for sale in the statements of financial position and the results of operations on a net of tax basis in the statement of operations. The Property, Plant and Equipment topic of the Codification requires that assets held for sale are valued on an asset-by-asset basis at the lower of carrying amount or fair value less costs to sell. In applying those provisions, we considered cash flow analyses, and offers related to those assets. In accordance with the provisions of the Property, Plant and Equipment topic of the Codification, assets held for sale are not depreciated. In fiscal 2007, we recorded an impairment charge of $39.0 million related to the Beaumont facility.

Summarized Financial Results of Discontinued Operations

	Year Ended December 31,
(in thousands)	2009			2008			2007
Operating revenue	$	1,848		$	18,333		$	17,137
Operating and other expenses	—			(4,574		)	(48,519		)
Pretax income (loss) from operations of discontinued components	1,848			13,759			(31,382		)
Income tax (expense) benefit	(730		)	(5,490		)	12,521
Income (loss) from discontinued operations	$	1,118		$	8,269		$	(18,861	)

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As of December 31, 2009 and 2008, we did not have any assets or liabilities held for sale related to discontinued operations due to the sale of the Beaumont, Texas facility on December 31, 2008.

3. Earnings Per Share

Basic income per share data is based on the weighted-average number of common shares outstanding during the period. Diluted income per share data is based on the weighted average number of common shares outstanding and the effect of all dilutive potential common shares including stock options, nonvested stock, convertible preferred shares and common stock warrants. Nonvested stock carries dividend and voting rights, but is not involved in the weighted average number of common shares outstanding used to compute basic income per share.

The following table provides a reconciliation between basic and diluted income per share for the years ended December 31, 2009, 2008 and 2007.

(in thousands, except per-share data)	2009			2008			2007
Basic income per common share attributed to Terra Industries Inc. common stockholders:
Income from continuing operations attributable to Terra Industries Inc.	$	151,515		$	632,772		$	220,757
Less: Preferred share dividends	(56		)	(3,876		)	(5,100		)
Inducement of preferred shares	—			(5,266		)	—
Income from continuing operations available to common stockholders	151,459			623,630			215,657
Income (loss) from discontinued operations available to common stockholders	1,118			8,269			(18,861		)
Income available to common stockholders	$	152,577		$	631,899		$	196,796
Weighted average shares outstanding	99,386			93,827			90,575
Income per share – continuing operations	$	1.53		$	6.65		$	2.38
Income (loss) per share – discontinued operations	0.01			0.09			(0.21		)
Net income per share	$	1.54		$	6.74		$	2.17
Diluted income per common share attributed to Terra Industries Inc. common shareholders:
Income from continuing operations available to common stockholders	$	151,459		$	623,630		$	215,657
Add: Preferred share dividends	56			3,876			5,100
Inducement of preferred shares	—			5,266			—
Income available to common stockholders and assumed conversions	$	151,515		$	632,772		$	220,757
Weighted average shares outstanding	99,386			93,827			90,575
Add incremental shares from assumed conversions:
Preferred Shares	128			8,090			12,048
Nonvested stock	478			619			823
Common stock options	—			1			111
Common stock warrants	—			822			2,897
Dilutive potential common shares	99,992			103,359			106,454
Income per share – continuing operations	$	1.52		$	6.12		$	2.07
Income (loss) per share – discontinued operations	0.01			0.08			(0.17		)
Net income per share	$	1.53		$	6.20		$	1.90

In 2008, we commenced individual offers (the inducement offer) to pay a cash premium to holders of our 4.25 percent Cumulative Convertible Perpetual Series A Preferred Shares (Series A Preferred Shares) who elected to convert their Series A Preferred Shares into shares of Terra common stock, see Note 15, Common Stockholders’ Equity, of the Notes to the Consolidated Financial Statements. A total of 118,400 shares, or 99 percent, of the outstanding shares of Series A Preferred Shares were surrendered and converted as part of the inducement offer. The former holders of the Series A Preferred Shares received 11,887,550 shares of Terra common stock and a cash premium of approximately $5.3 million.

When convertible preferred stock is converted pursuant to an inducement offer, the excess of the fair value of the consideration transferred in the transaction to the holders of the convertible preferred stock over the fair value of the securities issuable pursuant to the original conversion terms should be subtracted from net income to arrive at net income available to common stockholders in the calculation of earnings per share. As such, the inducement payments and offering costs paid in connection with the inducement offer resulted in a reduction of net income available to common stockholders.

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For purposes of our computation of diluted net income per share for the year ended December 31, 2008, the portion of our Series A Preferred Shares that was converted was considered separately from the portion of Series A Preferred Shares that was not converted. The inducement payment was attributed to the portion of the Series A Preferred Shares that was converted. As a result, conversion of the portion of the Series A Preferred Shares that was converted into 11,887,550 weighted average common shares outstanding for the year ended December 31, 2008 was also not assumed because the resulting impact on the calculation of diluted net income per common share would have been anti-dilutive. The portion of our Series A Preferred Shares that was not converted was also not assumed because the resulting impact on the calculation of diluted net income per common share would have been anti-dilutive.

4. Inventories

Inventories consisted of the following at December 31:

(in thousands)	2009		2008
Raw materials	$	19,757	$	17,805
Supplies	37,770		33,825
Finished goods	79,546		145,461
Total	$	137,073	$	197,091

5. Derivative Financial Instruments

We enter into derivative financial instruments, including swaps, basis swaps, purchased put and call options and sold call options, to manage the effect of changes in natural gas costs and the price of our nitrogen products. We report the fair value of the derivatives on our balance sheet. If the derivative is not designated as a hedging instrument, changes in fair value are recognized in earnings in the period of change. If the derivative is designated as a cash flow hedge, and to the extent such hedge is determined to be effective, changes in fair value are reported as a component of accumulated other comprehensive income (loss) in the period of change, and subsequently recognized in our statement of operations in the period the offsetting hedged transaction occurs. If an instrument or the hedged item is settled early, we evaluate whether the hedged forecasted transaction is still probable of occurring when determining whether to reclassify any gains or losses immediately in cost of sales or wait until the forecasted transaction occurs.

Until our derivatives settle, we test derivatives for ineffectiveness. This includes assessing the correlation of New York Mercantile Exchange (NYMEX) pricing, which is commonly used as an index in natural gas derivatives, to the natural gas pipelines’ pricing at our manufacturing facilities. This assessment requires management judgment to determine the statistically and industry appropriate analysis of prior operating relationships between the NYMEX prices and the natural gas pipelines’ prices at our facilities.

To the extent possible, we base our market value calculations on third party data. Due to multiple types of settlement methods available, not all settlement methods for future period trades are available from third party sources. In the event that a derivative is measured for fair value based on a settlement method that is not readily available, we estimate the fair value based on forward pricing information for similar types of settlement methods.

We manage risk using derivative financial instruments for changes in natural gas supply prices and changes in nitrogen prices. Derivative financial instruments have credit risk and market risk.

To manage credit risk, we enter into derivative transactions only with counter-parties who are currently rated as BBB or better or equivalent as recognized by a national rating agency. We will not enter into transactions with a counter-party if the additional transaction will result in credit exposure exceeding $20 million. The credit rating of counter-parties may be modified through guarantees, letters of credit or other credit enhancement vehicles. As of December 31, 2009, we did not have any credit risk related contingent features that would require us to settle the derivative instruments or to post collateral upon the occurrence of a credit event.

We classify a derivative financial instrument as a hedge if all of the following conditions are met:

1.The item to be hedged must expose us to currency, interest or price risk;

2.It must be probable that the results of the hedge position substantially offset the effects of currency, interest or price changes on the hedged item (i.e., there is a high correlation between the hedge position and changes in market value of the hedge item); and

3.The derivative financial instrument must be designated as a hedge of the item at the inception of the hedge.

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Natural gas supplies to meet production requirements at our North American production facilities are purchased at market prices. Natural gas market prices are volatile and we effectively fix prices for a portion of our natural gas production requirements and inventory through the use of futures contracts, swaps and options. The North American contracts reference physical natural gas prices or appropriate NYMEX futures contract prices. Contract physical prices for North America are frequently based on prices at the Henry Hub in Louisiana, the most common and financially liquid location of reference for financial derivatives related to natural gas. However, natural gas supplies for Terra’s North American production facilities are purchased at locations other than Henry Hub, which often creates a location basis differential between the contract price and the physical price of natural gas. Accordingly, the use of financial derivatives may not exactly offset the change in the price of physical gas. Natural gas derivatives are designated as cash flow hedges, provided that the derivatives meet the conditions discussed above. The contracts are traded in months forward and settlement dates are scheduled to coincide with gas purchases during that future period.

A swap is a contract between us and a third party to exchange cash based on a designated price. Option contracts give the holder the right to either own or sell a futures or swap contract. The futures contracts require maintenance of cash balances generally 10 percent to 20 percent of the contract value and option contracts require initial premium payments ranging from 2 percent to 5 percent of contract value. Basis swap contracts require payments to or from us for the amount, if any, that monthly published gas prices from the source specified in the contract differ from prices of NYMEX natural gas futures during a specified period. There are no initial cash requirements related to the swap and basis swap agreements.

We may use a collar structure where we will enter into a swap, sell a call at a higher price and buy a put. The collar structure allows for greater participation in a decrease to natural gas prices and protects against moderate price increases. However, the collar exposes us to large price increases.

As of December 31, 2009 and 2008, we had open derivative contracts of 15.6 million MMBtus and 17.9 million MMBtus, respectively, of natural gas.

The following summarizes the gross fair market value of all derivative instruments and their location in our Consolidated Balance Sheet are shown by those in an asset or liability position and are categorized as commodity derivatives.

Asset Derivatives (a)

Derivative Instrument	Location	December 31,2009		December 31,2008
Commodity Derivatives	Other current assets	$	9,076	$	25,773

Liability Derivatives (a)

Derivative Instrument	Location	December 31,2009			December 31,2008
Commodity Derivatives	Derivative hedge liabilities	$	(281	)	$	(125,925	)

(a) Amounts are disclosed at gross fair value as required by the Derivative and Hedging topic of the FASB Accounting Standards Codification. All of our commodity derivatives are designated as cash flow hedging instruments. The deferred taxes related to these commodity derivatives for the periods ended December 31, 2009 and 2008 were $(3.2) million and $25.2 million, respectively.

Certain derivatives outstanding at December 31, 2009 and 2008, which settled during January 2010 and January 2009, respectively, are included in the position of open natural gas derivatives in the table above. The January 2010 derivatives settled for an approximate $3.4 million gain compared to the January 2009 derivatives which settled for an approximate $39.4 million loss. All open derivatives at December 31, 2009 will settle during the next 12 months.

We are required to maintain certain margin deposits on account with derivative counterparties. At December 31, 2009, we had no margin deposits with derivative counterparties, which are reported as “Margin deposits with derivative counterparties” on the Consolidated Statements of Financial Position. At December 31, 2008, we had margin deposits with derivative counterparties of $36.9 million.

At December 31, 2009 and 2008, we determined that a portion of certain derivative contracts were ineffective for accounting purposes and, as a result, recorded a $0.7 million and $3.0 million charge to cost of sales, respectively.

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Certain derivative contracts were entered into to mitigate the risk of changes in prices of natural gas purchases associated with fixed-priced sales orders from customers. Due to a significant decline in fertilizer demand during late 2008, we decided to temporarily halt production at our Donaldsonville, Louisiana and Woodward, Oklahoma facilities. In 2008, we recorded a charge of $16.5 million to cost of sales representing the fair value carried in accumulated other comprehensive income (loss) of related derivative contracts because we no longer anticipate purchasing the natural gas due to the production curtailments. Additionally in 2008, we recorded a charge of $16.0 million to cost of sales representing a portion of fair value carried in accumulated other comprehensive income (loss) for those contracts that we determined would not result in production costs that would support reasonably profitable operations.

The effective portion of gains and losses on derivative contracts that qualify for hedge treatment are carried as accumulated other comprehensive income (loss) and credited or charged to cost of sales in the month in which the hedged transaction settles. Gains and losses on the contracts that do not qualify for hedge treatment are credited or charged to cost of sales based on the positions fair value. The risk and reward of outstanding natural gas positions are directly related to increases or decreases in natural gas prices in relation to the underlying NYMEX natural gas contract prices.

The following table presents the effect of our commodity derivative instruments on the Consolidated Statement of Operations for the year ended December 31, 2009 and 2008.

Year Ended December 31,

					Location of Gain	Amount of Gain (Loss)							Amount of Gain (Loss)
Amount of Gain (Loss)					(Loss) Reclassified	Reclassified from AOCI							Recognized in
Recognized in OCI					from AOCI into	into Income						Location of Gain (Loss)	Income(b)
2009		2008			Income(a)	2009			2008			Recognized in Income(b)	2009			2008
$	8,367	$	(65,279	)	Cost of Sales	$	(112,119	)	$	(172,521	)	Cost of Sales	$	(675	)	$	(7,332	)

(a)	Effective portion of gain (loss)
(b)	The amount of gain or (loss) recognized in the income represents $(0.7) million and $(3.0) million related to the ineffective portion of the hedging relationships and $0.0 million and $(4.3) million related to the amount excluded from the assessment of hedge effectiveness.

At times, we also use forward derivative instruments to fix or set floor prices for a portion of our nitrogen sales volumes. At December 31, 2009, we had 9,000 tons of open nitrogen solution sold swap contracts, offset by 9,000 tons of purchased swap contracts. Outstanding nitrogen solution contracts do not qualify for hedge treatment due to inadequate trading history to demonstrate effectiveness. Consequently, these contracts are marked-to-market and unrealized gains or losses are reflected in revenue in the statement of operations. For the years ending December 31, 2009, 2008 and 2007, we recognized losses of $0.3 million, $0.0 million and $2.6 million, respectively.

6. Fair Value Measurements, Financial Instruments and Concentrations of Credit Risk

The Fair Value Measurements and Disclosures topic of the Codification establishes a three level hierarchal disclosure framework that prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of asset or liability and its characteristics. Assets and liabilities with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

The three levels are defined as follows:

Level 1—inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2—inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement.

We evaluated our assets and liabilities to determine which items should be disclosed according to the Fair Value Measurements and Disclosures topic of the Codification. We currently measure our money market funds and derivative contracts on a recurring basis at fair value. The fair value of our money market fund investments was determined based on quoted prices in active markets for identical

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assets. The inputs included in the fair value measurement of our derivative contracts use adjusted quoted prices from an active market, which are classified as level 2 as a significant other observable input in the disclosure hierarch framework as defined by the Fair Value Measurements and Disclosures topic of the FASB Accounting Standard Codification. Our gas derivative contracts, which are classified as a level 2 input, are comprised of swaps, basis swaps and options. The valuation techniques for these contacts are observable market data for inputs, including prices quoted on the NYMEX, prices quoted in spot markets and commonly referenced industry publications and prices quoted by market makers. There have been no changes in valuation techniques during the year ended December 31, 2009.

The following table summarizes the valuation of Terra’s assets and liabilities in accordance with the Fair Value Measurements and Disclosures topic of the Codification fair value hierarchy levels as of December 31, 2009:

(in thousands)	Quoted MarketPrices in ActiveMarkets(Level 1)		Significant OtherObservableInputs(Level 2)			SignificantUnobservableInputs(Level 3)
Assets
Money market funds	$	280,470	$	—		$	—
Derivative contracts	—		9,076			—
Total	$	280,470	$	9,076		$	—
Liabilities
Derivative contracts	$	—	$	(281	)	$	—
Total	$	—	$	(281	)	$	—

The following table summarizes the valuation of Terra’s assets and liabilities in accordance with the Fair Value Measurements and Disclosures topic of the Codification fair value hierarchy levels as of December 31, 2008:

(in thousands)	Quoted MarketPrices in ActiveMarkets(Level 1)		Significant OtherObservableInputs(Level 2)			SignificantUnobservableInputs(Level 3)
Assets
Money market funds	$	755,501	$	—		$	—
Derivative contracts	—		25,773			—
Total	$	755,501	$	25,773		$	—
Liabilities
Derivative contracts	$	—	$	(125,925	)	$	—
Total	$	—	$	(125,925	)	$	—

The following table represents the carrying amounts and estimated fair values of Terra’s financial instruments at December 31, 2009 and 2008.

	2009				2008
(in millions)	CarryingAmount		FairValue		CarryingAmount		FairValue
Financial Assets
Cash and cash equivalents	$	501.3	$	501.3	$	966.7	$	966.7
Margin deposits with derivative counterparties	—		—		36.9		36.9
Financial liabilities
Long-term debt	602.4		652.6		330.0		241.3
Preferred shares	0.5		1.6		1.5		2.7

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

·Cash and receivables: The carrying amounts approximate fair value because of the short maturity of those instruments.

·Long-term debt: The fair value of our long-term debt is estimated by discounting expected cash flows at the rates currently offered for debt of the same remaining maturities.

·Preferred shares: Preferred shares are valued on the basis of market quotes, when available and management estimates based on comparisons with similar instruments that are publicly traded.

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Concentration of Credit Risk: We are subject to credit risk through trade receivables and short-term investments. Although a substantial portion of our debtors’ ability to pay depends upon the agribusiness economic sector, credit risk with respect to trade receivables generally is minimized due to its geographic dispersion. Short-term cash investments are placed in short duration corporate and government debt securities funds with well-capitalized, high quality financial institutions.

Financial Instruments: At December 31, 2009, we had letters of credit outstanding totaling $8.0 million, guaranteeing various insurance and financing activities.

7. Property, Plant and Equipment, Net

Property, plant and equipment, net consisted of the following at December 31:

(in thousands)	2009			2008
Land	$	8,444		$	8,416
Buildings and improvements	60,985			57,352
Plant and equipment	948,441			862,057
Construction in progress	78,274			46,383
	1,096,144			974,208
Less accumulated depreciation and amortization	(639,442		)	(570,895		)
Total	$	456,702		$	403,313

Depreciation expense for property, plant and equipment for the years ending December 31, 2009, 2008 and 2007 was $60.6 million, $51.8 million and $70.6 million, respectively.

8. Equity Investments

North America

Our investments in North American companies that are accounted for on the equity method of accounting consist of the following: (1) 50 percent ownership interest in Point Lisas Nitrogen Limited (PLNL), which operates an ammonia production plant in Trinidad, (2) 50 percent interest in an ammonia storage joint venture located in Houston, Texas and (3) 50 percent interest in a joint venture in Oklahoma CO2, located in Verdigris, Oklahoma, which produces CO2 at our Verdigris nitrogen plant. These investments were $113.9 million and $131.6 million at December 31, 2009 and 2008, respectively. We include the net earnings of these investments as equity in earnings of North American affiliates as an element of income from operations because the investees’ operations provide additional capacity to our operations.

The combined results of operations and financial position of our North American equity method investments are summarized below:

(in thousands)	2009		2008		2007
Condensed income statement information:
Net sales	$	168,234	$	380,540	$	151,723
Net income	$	48,554	$	123,019	$	38,411
Terra’s equity in earnings of North American affiliates	$	17,702	$	56,237	$	16,209

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(in thousands)	2009		2008
Condensed balance sheet information:
Current assets	$	52,701	$	50,582
Long-lived assets	156,825		173,631
Total assets	$	209,526	$	224,213
Current liabilities	$	23,041	$	20,212
Long-term liabilities	19,083		19,380
Equity	167,402		184,621
Total liabilities and equity	$	209,526	$	224,213

The carrying value of these investments at December 31, 2009 was $30.2 million more than our share of the affiliates’ book value. The excess is attributable primarily to the step-up in basis for fixed asset values, which is being depreciated over a period of approximately 15 years. Our equity in earnings of unconsolidated subsidiaries is different than our ownership interest in income reported by the unconsolidated subsidiaries due to deferred profits on intergroup transactions and amortization of basis differences.

We have transactions in the normal course of business with PLNL, whereby we are obliged to purchase 50 percent of the ammonia produced by PLNL at current market prices. During the year ended December 31, 2009, we purchased approximately $79.1 million of ammonia from PLNL. During the year ended December 31, 2008, we purchased approximately $182.4 million of ammonia from PLNL.

The total cash distributions from our North American equity method investments were $35.8 million, $72.8 million, and $29.5 million at December 31, 2009, 2008 and 2007, respectively.

United Kingdom

On September 14, 2007, we completed the formation of GrowHow UK Limited (GrowHow), a joint venture between Terra and Kemira GrowHow Oyj (Kemira). Pursuant to the joint venture agreement, we contributed our United Kingdom subsidiary Terra Nitrogen (UK) Limited to the joint venture for a 50 percent interest. Subsequent to the formation, we have accounted for our investment in GrowHow as a non-operating equity method investment. We do not include the net earnings of this investment as an element of income from operations since the investees’ operations do not provide additional capacity to us, nor are its operations integrated with our supply chain in North America. The GrowHow joint venture includes the Kemira site at Ince and our former Teeside and Severnside sites.

In conjunction with the formation of GrowHow, we commenced the closure of our Severnside, U.K. facility. Pursuant to the agreement with Kemira, we are responsible for the remediation costs required to prepare the Severnside site for disposal. During 2009, Severnside underwent remediation and we incurred $8.7 million in relation to the remediation costs. We estimate a remaining $2-3 million in remediation cost to be incurred in 2010. Upon the disposition of Severnside, Terra is entitled to receive the net sales proceeds. We anticipate the proceeds related to the sale of the Severnside land will exceed the total cost of reclamation of the site.

The Joint Venture Contribution Agreement specifies that we are entitled to receive balancing consideration payments up to £60 million based on GrowHow’s operating results for fiscal 2008 to 2010. Pursuant to agreements with Kemira, we received minimum balancing consideration and other payments totaling £13.7 million ($21.2 million) and £38.0 million ($61.3 million) during the year ended December 31, 2009 and 2008, respectively. We also received $27.4 million from GrowHow during 2008 for the refund of working capital contributions in excess of amounts specified in the Joint Venture Contribution Agreement. The carrying value of this equity method investment was $144.9 million and $139.3 million at December 31, 2009 and 2008, respectively.

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The financial position of our equity method investment in GrowHow at December 31, 2009 and 2008 and the results of operations for the year ended December 31, 2009, 2008 and 2007 are summarized below.

(in thousands)	2009		2008		2007
Condensed income statement information:
Net sales	$	494,202	$	1,111,272	$	233,103
Net income	$	38,691	$	191,781	$	4,253
Terra’s equity in earnings (losses) of GrowHow	$	14,177	$	95,578	$	(2,718	)

(in thousands)	2009		2008
Condensed balance sheet information:
Current assets	$	206,225	$	212,992
Long-lived assets	288,101		239,589
Total assets	$	494,326	$	452,581
Current liabilities	$	82,877	$	86,471
Long-term liabilities	186,257		132,754
Equity	225,192		233,356
Total liabilities and equity	$	494,326	$	452,581

The carrying value of these investments at December 31, 2009 and 2008, was $32.3 million and $22.7 million, respectively, more than our share of GrowHow’s book value. The excess is attributable to basis differences for fixed asset values, which is being depreciated over a period of 12 years, and the balancing consideration payment from GrowHow as previously discussed. Our equity in earnings of GrowHow is different than our ownership interest in GrowHow’s net income due to the amortization of basis differences.

9. Revolving Credit Facility and Long-Term Debt

Long-term debt and capital lease obligations consisted of the following at December 31:

(in thousands)	2009			2008
Unsecured Senior Notes, 7.0% due 2017	$	12,525		$	330,000
Unsecured Senior Notes, 7.75% due 2019	600,000			—
	612,525			330,000
Less net unamortized debt discount	(10,091		)	—
Less current maturities	—			—
Total long-term debt	$	602,434		$	330,000

In October 2009, we issued $600 million of 7.75 percent Unsecured Senior Notes due in 2019 (2019 Notes) in order to fund the special cash dividend and refinance our Senior Unsecured Notes due in 2017 (2017 Notes). The notes are unconditionally guaranteed by Terra and certain of its U.S. subsidiaries, see Note 24, Guarantor Subsidiaries, of the Notes to the Consolidated Financial Statements. These notes and guarantees are unsecured and will rank equal in right of payment with any existing and future senior obligations of such guarantors.

The Indenture governing the 2019 Notes contains covenants that limit, among other things, our ability to: incur additional debt, pay dividends on common stock of Terra or repurchase shares of such common stock, make certain investments, sell assets, enter into transactions with affiliates, limit dividends or other payments by our restricted subsidiaries, enter into sale and leaseback transactions, engage in other businesses, sell all or substantially all of our assets or merge with or into other companies, and reduce our insurance coverage.

Upon a Change of Control (as defined in the Indenture), such as the proposed merger pursuant to the Agreement and Plan of Merger by and among Yara International ASA, Yukon Merger Sub, Inc. and Terra, dated as of February 12, 2010 (see Note 27, Subsequent Events, of the Notes to the Consolidated Financial Statements), we are obligated to repurchase the 2019 Notes at a cash price equal to 101 percent of the aggregate principal amount outstanding at that time, plus accrued interest as of the date of purchase. The Indenture governing the 2019 Notes contains events of default and remedies customary for a financing of this type.

On September 24, 2009, we commenced a cash tender offer for any and all of the 2017 Notes. On October 27, 2009, we announced completion of the tender offer and received tenders from holders of approximately $317.5 aggregate principal amount of the 2017 Notes, representing approximately 96.2 percent of the outstanding notes. As of December 31, 2009, the outstanding debt balance related to the 2017 Notes is $12.5 million. We recorded a $53.5 million pre-tax loss ($32.4 million, net of tax) on the early retirement of debt which consisted of $48.8 million for the early call premium, $4.5 million of unamortized issuance costs, and $0.2 million in related expenses for the tender of the 2017 Notes. There are no covenants on the remaining 2017 Notes.

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We have revolving credit facilities totaling $200 million that expire January 31, 2012. The revolving facilities are secured by substantially all of our working capital. Borrowing availability is generally based on 100 percent of eligible cash balances, 85 percent of eligible accounts receivable, approximately 60 percent of eligible finished goods inventory and is reduced by outstanding letters of credit. These facilities include $50 million only available for the use of Terra Nitrogen Company L.P. (TNCLP), one of our consolidated subsidiaries. Borrowings under the revolving facilities will bear interest at a floating rate plus an applicable margin, which can be either a base rate, or, at our option, a London Interbank Offered Rate (LIBOR). At December 31, 2009, the LIBOR rate was 0.24 percent. The base rate is the highest of (1) Citibank, N.A.’s base rate (2) the federal funds effective rate, plus one-half percent (0.50 percent) per annum and (3) the base three month certificate of deposit rate, plus one-half percent (0.50 percent) per annum, plus an applicable margin in each case. LIBOR loans will bear interest at LIBOR plus an applicable margin. The applicable margins for base rate loans and LIBOR loans are 2.00 percent and 3.00 percent, respectively, at December 31, 2009. The facilities require an initial three-quarter percent (0.75 percent) commitment fee on the difference between committed amounts and amounts actually borrowed.

At December 31, 2009, we had no outstanding revolving credit borrowings and $8.0 million in outstanding letters of credit. The $8.0 million in outstanding letters of credit reduced our borrowing availability to $192.0 million at December 31, 2009. The credit facilities require that we adhere to certain limitations on additional debt, capital expenditures, acquisitions, liens, asset sales, investments, prepayments of subordinated indebtedness, changes in lines of business and transactions with affiliates. If our borrowing availability falls below $60 million, we are required to have achieved minimum operating cash flows or earnings before interest, income taxes, depreciation, amortization and other non-cash items of $60 million during the most recent four quarters.

The facilities also require that there be no change of control related to Terra, such that no individual or group acquires more than 35 percent of the outstanding voting shares of Terra. Such a change of control, such as the proposed merger pursuant to the Agreement and Plan of Merger by and among Yara International ASA, Yukon Merger Sub, Inc. and Terra, dated as of February 12, 2010 (see Note 27, Subsequent Events, of the Notes to the Consolidated Financial Statements), would constitute an event of default under the facilities.

10. Turnaround Costs

The following represents a summary of the deferred plant turnaround costs for the year ended December 31, 2009 and 2008:

(in thousands)	BeginningBalance		TurnaroundCostsCapitalized		TurnaroundAmortization			CurrencyTranslationAdjustments			EndingBalance
Year ended:
December 31, 2009	$	23,467	$	25,427	$	(24,267	)	$	384		$	25,011
December 31, 2008	$	42,190	$	10,125	$	(27,017	)	$	(1,831	)	$	23,467

11.   Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following at December 31:

(in thousands)	2009		2008
Payroll and benefit costs	$	18,913	$	27,104
Accrued CF defense costs	14,730		—
Income taxes payable	9,441		63,999
Accrued interest	8,898		9,748
Accrued property taxes	3,554		3,291
Current accrued phantom shares	3,449		4,341
Accrued consulting	1,972		1,390
Deferred revenue	1,530		3,346
Unrecognized tax benefit (see Note 21)	1,506		—
Other	14,799		14,551
Total	$	78,792	$	127,770

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12. Other Liabilities

Other liabilities consisted of the following at December 31:

(In thousands)	2009		2008
Unrecognized tax benefit (See Note 21)	$	60,904	$	35,949
Long-term medical and closed facilities reserve	21,483		23,887
Long-term deferred revenue	9,178		10,488
Accrued phantom shares	2,355		2,430
Other	7,206		5,799
Total	$	101,126	$	78,553

13. Commitments and Contingencies

We are committed to various non-cancelable operating leases for equipment, railcars and production, office and storage facilities expiring on various dates through 2017.

Total minimum rental payments are as follows:

(in thousands)
2010	$	43,273
2011	39,185
2012	31,058
2013	21,200
2014	11,741
2015 and thereafter	10,600
Net minimum lease payments	$	157,057

Total rental expense under all leases, including short-term cancelable operating leases, was $24.2 million, $23.5 million and $23.1 million for the years ended December 31, 2009, 2008 and 2007, respectively.

We have entered into various contractual agreements that create an obligation into the future. These agreements expire on various dates through 2018 and are as follows:

(in thousands)
2010	$	378,961
2011	126,987
2012	125,188
2013	118,317
2014	111,643
2015 and thereafter	410,400
Total obligations	$	1,271,496

Included above are purchase agreements for various services and products relating to operations. These commitments include open purchase orders, inventory purchase commitments and firm utility and natural gas commitments. Our minimum commitments for natural gas purchases which are floating-rate contracts are calculated using the prevailing NYMEX forward prices at December 31, 2009.

We have a contractual agreement to purchase one-half of the ammonia produced by PLNL, our joint venture ammonia plant located in Trinidad. The purchase price is based on the average market price of ammonia, F.O.B. Caribbean, less a discount. The agreement is in place until October of 2018. Assuming purchases of 360,000 short tons per year at the three year average price paid, the annual purchase obligation would be $102.6 million.

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We are liable for retiree medical benefits of employees of coal mining operations sold in 1993, under the Coal Industry Retiree Health Benefit Act of 1992, which mandated liability for certain retiree medical benefits for union coal miners. We have provided reserves adequate to cover the estimated present-value of these liabilities at December 31, 2009. Our long-term medical and closed facilities reserve at December 31, 2009, includes $21.5 million for expected future payments for the coal operation’s retirees and other former employees. We may recover a portion of these payments through our rights in bankruptcy against Harman Coal Company (a former coal subsidiary), and subject to damages received by Harman Coal Company through its on-going litigation with Massey Energy Company. No provision for such recoveries has been made in our financial statements.

The Asset Retirement and Environmental Obligations topic of the Codification requires recognition of a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. We have certain facilities that contain asbestos insulation around certain piping and heated surfaces. The asbestos insulation is in adequate condition to prevent leakage and can remain in place as long as the facility is operated or remains assembled. We plan to maintain the facilities in an adequate condition to prevent leakage through our standard repair and maintenance activities. We have not recorded a liability relating to the asbestos insulation, as management believes that it is not possible to reasonably estimate a settlement date for asbestos insulation removal because the facilities have an indeterminate life.

We are involved in various legal actions and claims, including environmental matters, arising from the normal course of business. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the results of our operations, financial position or net cash flows.

14. Preferred Shares

The components of preferred shares outstanding at December 31:

	2009			2008
(in thousands)	Numberof shares	CarryingValue		Numberof shares	CarryingValue
Series A Preferred Shares (120,000 shares authorized, $1,000 per share liquidation value)	500	$	483	1,600	$	1,544

We have 500 shares of Series A Preferred Shares with a liquidation value of $1,000 per share outstanding at December 31, 2009 and 1,600 shares with a liquidation value of $1,000 per share at December 31, 2008. Cumulative dividends of $10.625 per share are payable quarterly. The Series A Preferred Shares are not redeemable, but are convertible into our common stock at the option of the holder for a conversion price of $9.96 per common share. The Series A Preferred Shares may automatically be converted to common shares after December 20, 2009 if the closing price for our common shares exceeds 140 percent of the conversion price for any twenty days within a consecutive thirty day period prior to such conversion. Upon the occurrence of a fundamental change to our capital structure, including a change of control, merger, or sale of Terra, such as the proposed merger pursuant to the Agreement and Plan of Merger by and among Yara International ASA, Yukon Merger Sub, Inc. and Terra, dated as of February 12, 2010 (see Note 27, Subsequent Events, of the Notes to the Consolidated Financial Statements), holders of the Series A Preferred Shares may require us to purchase any or all of their shares at a price equal to their liquidation value plus any accumulated, but unpaid, dividends. We also have the right, under certain conditions, to require holders of the Series A Preferred Shares to exchange their shares for convertible subordinated debentures with similar terms. The merger agreement with Yara International ASA and Yukon Merger Sub, Inc. requires Terra to convert all outstanding Series A Preferred Shares into common stock prior to the closing of the proposed merger. On February 24, 2010, we announced that all outstanding Series A Preferred Shares will convert to shares of common stock on March 15, 2010.

In 2008, we commenced offers (the inducement offers) to pay a cash premium to holders of the Series A Preferred Shares who elected to convert their Series A Preferred Shares into shares of Terra common stock. At total of 118,400 shares, or 99 percent of the outstanding shares of Series A Preferred Shares were surrendered and converted as part of the inducement offers. In the aggregate, the former holders of the Series A Preferred Shares received 11,887,550 shares of Terra Industries common stock and a cash premium of approximately $5.3 million.

The $5.3 million represents the difference between the fair value of all securities and other consideration transferred in the transaction to the preferred stockholders and the fair value of securities issuable pursuant to the original conversion terms of the Series A Preferred Shares less the costs related to the inducement offer.

In 2009, a total of 1,100 shares of the outstanding Series A Preferred Shares were surrendered and converted into 110,442 shares of Terra Industries common stock and no cash premium was paid.

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15. Common Stockholders’ Equity

Terra allocates $1.00 per share upon the issuance of Common Shares to the Common Share capital account. The Common Shares have no par value. At December 31, 2009, 0.8 million common shares were reserved for issuance upon award of restricted shares.

In 2009, Terra’s Board of Directors declared and paid the following dividends:

Date of Declaration	Date of Record	Date of Payment	Declared and PaidPer Common Share
February 10, 2009	March 18, 2009	April 7, 2009	$	0.10
April 21, 2009	May 20, 2009	June 9, 2009	0.10
July 23, 2009	August 20, 2009	September 10, 2009	0.10
October 22, 2009	November 23, 2009	December 11, 2009	0.10
October 29, 2009	November 23, 2009	December 11, 2009	7.50
			$	7.90

In 2008, Terra’s Board of Directors declared and paid the following dividends:

Date of Declaration	Date of Record	Date of Payment	Declared and PaidPer Common Share
May 8, 2008	May 28, 2008	June 13, 2008	$	0.10
July 24, 2008	August 25, 2008	September 12, 2008	0.10
October 23, 2008	November 24, 2008	December 12, 2008	0.10
			$	0.30

Future dividends are necessarily dependent upon future earnings, capital requirements, general financial condition, general business conditions, approval from our Board of Directors and other factors. Pursuant to the terms of the Yara Merger Agreement, Terra is restricted from paying dividends on shares of our common stock other than the regular dividend for the fourth quarter of 2009, which was declared by the Board of Directors on February 18, 2010 to holders of record as of March 17, 2010 and is payable on April 7, 2010, and for the first quarter of 2010.

On October 29, 2009, Terra’s Board of Directors declared a special cash dividend of $7.50 per share to holders of record on November 23, 2009 and paid on December 11, 2009. In connection with our special cash dividend, we recorded a charge of $608.0 million to retained earnings equal to the retained earnings balance at the date of the dividend declaration with the excess of $140.7 million charged to additional paid-in capital.

In connection with the Mississippi Chemical Corporation (MCC) acquisition, we issued warrants to purchase 4.0 million of our common shares at $5.48 per share. These warrants were valued at $21.1 million at the MCC closing. During 2005, shareholders approved the issuance of the underlying shares and the warrant value was reclassified to common stockholders’ equity. During 2008, all of these warrants were exercised and were redeemed for common shares.

On May 6, 2008, the Board of Directors adopted a resolution for the repurchase of 12,841,717 shares, representing 14 percent of our then outstanding common stock. The stock buyback program commenced on May 7, 2008 and has been and will be conducted on the open market, in private transactions or otherwise at such times prior to June 30, 2010, and at such prices we determine appropriate. Purchases may be commenced or suspended at any time without notice. As of December 31, 2009, there were 7,448,662 shares available to be purchased under the plan. There were no share repurchases during the year ending December 31, 2009.

16. Share-Based Compensation

We sponsor two share-based compensation plans, the Terra Industries Inc. Stock Incentive Plan of 2002 (2002 Plan) and the Terra Industries Inc. 2007 Omnibus Incentive Compensation Plan (2007 Plan). The Terra Industries Inc. 1997 Stock Incentive Plan expired and the remaining awards were exercised in 2008. As of December 31, 2009 there were approximately 7,000,000 shares authorized in the 2002 and 2007 Plans. Of the total authorized shares, approximately 875,000 and 3,047,000 shares are available in the 2002 Plan and the 2007 Plan, respectively. The 2002 Plan has 383,900 shares reserved and the 2007 Plan has 376,500 shares reserved.

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On February 12, 2010, the Compensation Committee of our Board of Directors approved an adjustment to the total number of shares available under the 2007 Plan to account for our special cash dividend of $7.50 per common share that was paid on December 11, 2009.

Awards granted under the plans may consist of incentive stock options (ISOs) or non-qualified stock options (NQSOs), stock appreciation rights (SARs), nonvested stock awards or other share-based awards (i.e. performance shares), with the exception that non-employee directors may not be granted SARs and only employees of Terra may be granted ISOs.

The Compensation Committee of our Board of Directors administers the plans and determines the exercise price, exercise period, vesting period and all other terms of the grant. All share-based awards to directors, officers and employees expire ten years after the date of the grant. ISOs and NQSOs, which are not exercised after vesting, expire ten years after the date of the award. The vesting period for nonvested stock is determined at the grant date of the award; the vesting period is usually three years. The vesting date for other share-based awards is also set at the time of the award but can vary in length; there is usually no expiration date for other share-based awards.

On February 12, 2010, the Compensation Committee of our Board of Directors approved an adjustment to the number of outstanding, nonvested stock shares with performance conditions and to the number of outstanding phantom share awards as of December 11, 2009 in order to preserve the value of such awards following a special cash dividend of $7.50 per common share that was paid on December 11, 2009.

We account for our stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation, using the modified prospective method, which requires companies to record stock compensation expense for all non-vested and new awards beginning as of January 1, 2006. Under ASC Topic 718, we measure and record compensation expense for our nonvested share awards based on their fair value of our common stock at the date of grant. Compensation expense is recognized for nonvested stock awards on a straight-line basis over the vesting period. Our phantom shares, however, are liability awards as they settle in cash; therefore, we measure and record compensation expense for these awards based on their fair value at the end of each reporting period until their vesting date. This may cause fluctuations in earnings that do not exist under the accounting requirements for our nonvested shares. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. We have thus recorded stock-based compensation expense net of estimated forfeitures. Cash flows resulting from the tax benefits due to tax deductions in excess of the compensation cost recognized for those awards (excess tax benefits) are classified as financing cash flows. Compensation cost charged against income and the total income tax benefit recognized for share-based compensation arrangements is included below:

	Year ended December 31,
(in thousands)	2009		2008		2007
Compensation cost charged to SG&A expense	$	16,174	$	8,104	$	31,452
Total compensation cost charged to income	$	16,174	$	8,104	$	31,452
Income tax benefit	$	6,389	$	2,836	$	11,008

Nonvested Stock Shares and Phantom Share Awards

We currently have outstanding nonvested shares and phantom share awards with both service conditions and performance conditions. Nonvested stock shares and phantom share awards with service and performance conditions usually “cliff vest” in three years from the grant date. This means that the performance conditions of the nonvested shares and phantom share awards are based on a calculated return on capital over a three-year period. For awards with performance conditions, the grants will be forfeited if the performance conditions are not achieved.

We recognize compensation expense for nonvested stock share awards over the vesting periods based on fair value, which is equal to the market price of our stock on the date of grant. During 2009, 2008 and 2007, we recorded compensation expense of $9.6 million, $9.9 million and $11.0 million, respectively. We recognize compensation expense for the phantom share awards over the vesting periods based on fair value, which is equal to the market price of our stock at each reporting period date. The phantom share awards settle in cash. During 2009 we recognized a stock compensation expense of $6.6 million related to phantom stock. We recorded a stock compensation benefit of $1.8 million in 2008, compared to a $20.4 million stock compensation expense in 2007. The year-over-year fluctuations in phantom stock expense are a direct result of our stock performance since we mark these awards to market each reporting period. Compensation costs for nonvested stock shares and phantom share awards are reduced for estimated forfeitures and then amortized to expense using the straight-line method. For awards with performance conditions, we estimate the expected number of awards to vest at the time of the award grant. We record the compensation expense for the awards with performance conditions ratably over the requisite service period related to the performance condition, taking into consideration any changes to the expected shares to vest as such matters arise.

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A summary of the status of our nonvested share awards as of December 31, 2009, and changes during the year then ended, is:

(in thousands, except fair values)	Shares		Weighted AverageGrant-DateFair Value
Outstanding at January 1, 2009	897		$	14.49
Granted	274		25.87
Vested	(624	)	14.25
Terminated	—		—
Outstanding at December 31, 2009	547		$	27.66

The fair value of the nonvested shares and phantom shares that vested during 2009 was $19.9 million and $6.8 million, respectively. The fair value of the nonvested shares and phantom shares that vested during 2008 was $38.1 million and $5.1 million, respectively.

At December 31, 2009, the total unrecognized compensation cost related to all nonvested share awards was $7.1 million. That cost is expected to be recognized over a weighted-average period of 1.3 years.

17. Retirement Benefit Plans

We maintain defined benefit pension plans that cover certain salaried and hourly employees. Benefits are based on a pay formula. In 2008, we adopted the measurement date provisions of the Compensation for Retirement Benefits topic of the Codification and converted to a December 31 measurement date. We had previously used a September 30 measurement date in 2007. This adoption resulted in a $1.0 million decrease in retained earnings related to the additional pension expense for the period from October 1, 2007 through December 31, 2007.

The defined benefit plans’ assets consist principally of equity securities and corporate and government debt securities. We also have certain non-qualified pension plans covering executives, which are unfunded. We accrue pension costs based upon actuarial information we obtain for each plan and fund these costs in accordance with statutory requirements.

The components of net periodic pension expense are:

(in thousands)	2009			2008			2007
Service cost	$	2,754		$	3,665		$	3,113
Interest cost	19,339			23,239			17,648
Adjustment for measurement date change	—			(5,380		)	—
Expected return on plan assets	(19,125		)	(18,804		)	(18,063		)
Amortization of prior service cost	(38		)	(37		)	(36		)
Amortization of actuarial loss	963			646			1,871
Pension expense	$	3,893		$	3,329		$	4,533

We have defined benefit plans in the U.S. and Canada. During 2007, we contributed our Terra Nitrogen (UK) subsidiary into a joint venture. The joint venture assumed the pension liabilities associated with Terra Nitrogen (UK). We administer our plans to comply with the applicable laws in each country.

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The following table reconciles, by geographic location, the plans’ funded status to amounts included in the Consolidated Statements of Financial Position at December 31, 2009:

(in thousands)	U.S.			Canada			Total
Change in Projected Benefit Obligation Present Value
Projected benefit obligation—beginning of year	$	251,835		$	40,170		$	292,005
Service cost	1,725			1,029			2,754
Interest cost	16,440			2,899			19,339
Actuarial gain	24,706			(738		)	23,968
Foreign currency exchange rate changes	—			6,751			6,751
Benefits paid	(15,861		)	(1,509		)	(17,370		)
Projected benefit obligation—end of year	278,845			48,602			327,447
Change in Plan Assets
Fair value plan assets—beginning of year	243,709			41,542			285,251
Actual return on plan assets	22,146			5,931			28,077
Foreign currency exchange rate changes	—			7,351			7,351
Employer contribution	706			1,686			2,392
Benefits paid	(15,861		)	(1,509		)	(17,370		)
Fair value plan assets—end of year	250,700			55,001			305,701
Funded Status	(28,145		)	6,399			(21,746		)
Unrecognized net actuarial loss	37,236			5,341			42,577
Unrecognized prior service cost	(199		)	—			(199		)
Prepaid benefit cost	$	8,892		$	11,740		$	20,632

The following table reconciles, by geographic location, the plans’ funded status to amounts included in the Consolidated Statements of Financial Position at December 31, 2008:

(in thousands)	U.S.			Canada			Total
Change in Projected Benefit Obligation Present Value
Projected benefit obligation—beginning of year	$	253,446		$	52,171		$	305,617
Service cost	2,134			1,531			3,665
Interest cost	19,808			3,431			23,239
Actuarial gain	(4,118		)	(4,501		)	(8,619		)
Foreign currency exchange rate changes	—			(10,131		)	(10,131		)
Benefits paid	(19,435		)	(2,331		)	(21,766		)
Projected benefit obligation—end of year	251,835			40,170			292,005
Change in Plan Assets
Fair value plan assets—beginning of year	250,319			56,000			306,319
Actual return on plan assets	12,137			(3,395		)	8,742
Foreign currency exchange rate changes	—			(10,634		)	(10,634		)
Employer contribution	688			1,902			2,590
Benefits paid	(19,435		)	(2,331		)	(21,766		)
Fair value plan assets—end of year	243,709			41,542			285,251
Funded Status	(8,126		)	1,372			(6,754		)
Unrecognized net actuarial loss	18,394			9,147			27,541
Unrecognized prior service cost	(236		)	—			(236		)
Prepaid benefit cost	$	10,032		$	10,519		$	20,551

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The amounts recognized in the Consolidated Statement of Financial Position for the plans described above are as follows:

(in thousands)	2009			2008
Accrued (prepaid) benefit cost	$	(20,632	)	$	(20,551	)
Accumulated other comprehensive loss	26,093			17,179
Deferred tax asset	16,285			10,126
Funding subsequent to valuation	—			—
Amount recognized (net)	21,746			6,754
Pension asset	6,481			3,275
Less: current portion	(706		)	(859		)
Pension liabilities (gross)	$	27,521		$	9,170

The accumulated benefit obligation for our pension plans was $315.5 million and $282.1 million at December 31, 2009 and 2008, respectively. The projected benefit obligation for our pension plans was $327.4 million and $292.0 million at December 31, 2009 and 2008, respectively. Pension plan assets were $21.7 million less than the projected benefit obligation at December 31, 2009 and were $6.8 million less than the projected benefit obligation at December 31, 2008.

We have two pension plans in the United States—Terra Industries Inc. Employees’ Retirement Plan (Employee’s Retirement Plan) and Terra Industries Inc. Excess Benefit Plan (Excess Benefit Plan). Our Employees Retirement Plan is not fully funded and has a $17.4 million liability balance. Our Excess Benefit Plan is not funded and has a $10.8 liability balance.

The assumptions used to determine the actuarial present value of benefit obligations and pension expense during each of the years ended December 31 were as follows:

	2009		2008		2007
Weighted average discount rate	5.9	%	6.7	%	6.3	%
Long-term per annum compensation increase	3.5	%	4.1	%	3.6	%
Long-term return on plan assets	6.2	%	6.6	%	5.4	%

We employ a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and our corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed income investments. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of the underlying investments. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews.

We select a long-term rate of return of each of our plans individually. We consult with our two actuaries, as well as each of the fund’s money managers. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. While historical returns are taken into consideration, current market trends such as inflation and current equity and fixed income returns are also taken into consideration.

The percentage of the Fair Market Value of the total plan assets for each major asset category of the plan’s assets is as follows:

	2009		2008
Asset Allocation
Equities	12.3	%	11.3	%
Bonds	81.1	%	81.7	%
Cash and cash equivalents	6.6	%	7.0	%
	100.0	%	100.0	%

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Fair Value Measurements

The pension plan assets are valued at fair value. The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the requirements of ASC 715, Compensation—Retirement Benefits.

Cash and cash equivalents — These investments consist of U.S. dollars and foreign currencies and other securities with maturities generally less than one year. Cash Equivalents that are readily liquid and redeemable at par are classified as Level 1 investments. Cash Equivalents consisting of currency forwards, Treasuries, and other securities are classified as Level 2 investments.

Corporate, state, mortgage, and municipal debt securities — Corporate, State, Mortgage, and Municipal debt securities consist of fixed income securities issued by U.S. and non-U.S. corporations, U.S. states and municipalities. These assets are valued using data provided by independent pricing sources. These securities are classified as Level 2 investments.

Common collective trusts — Common collective trusts are comprised of shares or units in commingled funds that are not publicly traded. The underlying assets in these funds (equity securities, fixed income securities, and commodity-related securities) are publicly traded on exchanges and price quotes for the assets held by these funds are readily available. Holdings of common collective trusts are classified as Level 2 investments.

Registered investment companies — Registered Investment Companies are mutual funds, unit trusts, and other commingled funds registered with the Securities and Exchange Commission. Mutual fund and unit trust shares are traded actively on public exchanges. The share prices for mutual funds and unit trusts are published at the close of each business day. These assets are classified as Level 1 investments.

Common and preferred stock — This investment category consists of common and preferred stock issued by U.S. and non-U.S. corporations. Common and preferred shares are traded actively on exchanges and price quotes for these shares are readily available. These securities are classified as Level 1 investments.

Government securities — Government Securities consist of bills, notes, bonds, and other fixed income securities issued directly by the U.S. Treasury, government-sponsored enterprises, or treasuries of non-U.S. governments. These assets are valued using data provided by independent pricing sources. These securities are classified as Level 2 investments.

Options, futures, and swaps — Exchange-traded options and futures are traded actively on exchanges and price quotes for these assets are readily available. These securities are classified as Level 1 investments. Swaps are traded over the counter and are valued using data from independent pricing sources and are classified as Level 2 investments.

As of December 31, 2009, the pension plan assets measured at fair value on a recurring basis were as follows:

(in thousands)	Quoted Prices in ActiveMarkets for IdenticalAssetsLevel 1			Significant OtherObservable InputsLevel 2		SignificantUnobservableInputsLevel 3		Total
Cash and cash equivalents	$	7,396		$	12,652	$	—	$	20,048
Corporate debt instruments	—			170,396		—		170,396
Exchange-traded mutual funds	77,467			—		—		77,467
Collective mutual funds	—			88		—		88
Corporate and preferred stock	—			562		—		562
U.S. government securities	—			6,985		—		6,985
Non-U.S. government securities	—			7,729		—		7,729
State and municipal securities	—			12,949		—		12,949
Mortgage obligations	—			5,496		—		5,496
Options, futures and swaps	(265		)	4,246		—		3,981
Totals	$	84,598		$	221,103	$	—	$	305,701

During the 2008 first quarter, we fully funded our Employees Retirement Plan and our Canadian Pension Plan. As a result, we changed our plan asset allocation to 25 percent and 75 percent for equities and bonds, respectively. The expected benefits to be paid from the pension plan are as follows:

28

(in thousands)	Payments
Estimated Future Benefit Payments
2010	$	19,085
2011	19,705
2012	20,551
2013	21,287
2014	22,139
2015-2019	122,189

The amounts in accumulated other comprehensive loss that have not yet been recognized as components of pension expense at December 31, 2009, and the expected amortization of these amounts as components of net periodic benefit cost for the year ended December 31, 2010 are:

Components of accumulated other comprehensive loss:

(in thousands)
Net actuarial loss	$	42,577
Net prior service cost (credit)	(199		)
Net transition obligation (asset)	—
	$	42,378

Expected amortization during 2010:

(in thousands)
Amortization of net transition obligation	$	—
Amortization of prior service cost	(40		)
Amortization of net losses	928
	$	888

We also sponsor defined contribution savings plans covering most full-time employees. Contributions made by participating employees are matched based on a specified percentage of employee contributions. The cost of our contributions to these plans totaled $5.0 million in 2009, $4.1 million in 2008 and $5.4 million in 2007.

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18. Post-Retirement Benefits

We provide health care benefits for certain North American employees who retired on or before January 1, 2002. Participant contributions and co-payments are subject to escalation. The plan pays a stated percentage of most medical expenses reduced for any deductible and payments made by government programs. The plan is unfunded.

The following table indicates the components of the post-retirement medical benefits obligation included in our Consolidated Statements of Financial Position at December 31:

(in thousands)	2009			2008
Change in Benefit Obligation
Projected benefit obligation—beginning of year	$	4,702		$	5,235
Service cost	11			17
Interest cost	309			397
Participants’ contributions	149			194
Actuarial loss	1,592			183
Foreign currency exchange rate changes	135			(198		)
Benefits paid	(1,063		)	(1,126		)
Projected benefit obligation—end of year	5,835			4,702
Change in Plan Assets
Fair value plan assets—beginning of year	—			—
Employer contribution	914			932
Participants’ contributions	149			194
Benefits paid	(1,063		)	(1,126		)
Fair value plan assets—end of year	—			—
Funded Status	(5,835		)	(4,702		)
Unrecognized net actuarial loss	3,140			1,645
Unrecognized prior service cost	536			605
Employer contribution	—			—
Accrued benefit cost	$	(2,158	)	$	(2,452	)

Net periodic post-retirement medical benefit expense consisted of the following components:

(in thousands)	2009		2008			2007
Service cost	$	11	$	17		$	12
Interest cost	309		397			311
Adjustment for measurement date change	—		(65		)	—
Amortization of prior service cost	69		69			69
Amortization of actuarial gain	103		96			89
Post-retirement medical benefit expense	$	492	$	514		$	481

The projected benefit obligation (PBO) and accumulated benefit obligation (ABO) at December 31, 2009 was $5.8 million. The PBO and ABO at December 31, 2008 was $4.7 million.

We limit our future obligation for post-retirement medical benefits by capping at 5 percent the annual rate of increase in the cost of claims we assume under the plan. The weighted average discount rate used in determining the accumulated post-retirement medical benefit obligation was 5.5 percent in 2009, 6.7 percent in 2008 and 6.3 percent in 2007. The assumed annual health care cost trend rate was 5.0 percent in 2009, 2008 and 2007. The impact on the benefit obligation of a 1 percent increase in the assumed health care cost trend rate would be approximately $0.6 million while a 1 percent decline in the rate would decrease the benefit obligation by approximately $0.6 million.

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. The Act introduced a prescription drug benefit under Medicare Part D and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The subsidy is based on approximately 28 percent of an individual beneficiary’s annual prescription drug costs between $250 and $5,000.

30

Future benefit payments expected to be paid for post-retirement medical benefits are as follows:

Estimated future benefit payments

(in thousands)	Payments
2010	$	571
2011	611
2012	647
2013	656
2014	675
2015-2019	3,321

The amounts in accumulated other comprehensive loss that have not yet been recognized as components of retiree medical expense at December 31, 2009, and the expected amortization of these amounts as components of net periodic benefit cost for the year ended December 31, 2010 are:

Components of accumulated other comprehensive loss:

(in thousands)
Net actuarial loss	$	3,140
Net prior service cost	536
Net transition obligation	—
	$	3,676

Expected amortization during 2010:

(in thousands)
Amortization of net transition obligation	$	—
Amortization of prior service cost	69
Amortization of net losses	224
	$	293

19. Comprehensive Income

Comprehensive income attributable to Terra Industries Inc. and its components, net of tax, were as follows:

	Year Ended December 31,
(in thousands)	2009			2008			2007
Net income	$	178,617		$	708,725		$	252,177
Changes in cumulative foreign currency translation adjustment	25,211			(98,308		)	(46,882		)
Changes in market value of derivative financial instruments classified as cash flow hedges, net of tax	45,243			(34,487		)	6,224
Changes in pension and post-retirement benefit liabilities, net of tax	(9,790		)	(1,180		)	15,797
Comprehensive income	239,281			574,750			227,316
Comprehensive income attributable to noncontrolling interest	(31,481		)	(65,058		)	(49,133		)
Comprehensive income attributable to Terra Industries Inc.	$	207,800		$	509,692		$	178,183

The following table reconciles equity attributable to noncontrolling interest:

	Year Ended December 31,
(in thousands)	2009			2008			2007
Noncontrolling interest, January 1	$	104,082		$	108,581		$	94,687
Net income attributable to noncontrolling interest	25,984			67,684			50,281
Distributions to noncontrolling interests	(41,149		)	(69,557		)	(35,239		)
Changes in market value of derivative financial instruments classified as cash flow hedges, net of tax, attributable to the noncontrolling interest	5,497			(2,626		)	(1,148		)
Noncontrolling interest, December 31	$	94,414		$	104,082		$	108,581

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20.   Income Taxes

Components of the income tax provision applicable to continuing operations are as follows:

(in thousands)	2009			2008			2007
Current:
Federal	$	73,537		$	210,635		$	3,892
International	10,739			24,678			6,056
State	8,259			19,718			13,968
	92,535			255,031			23,916
Deferred:
Federal	(14,213		)	(11,974		)	87,209
International	(3,832		)	3,246			14,653
State	(191		)	(6,452		)	1,538
	(18,236		)	(15,180		)	103,400
Total income tax provision	$	74,299		$	239,851		$	127,316

The following table reconciles the income tax provision per the Consolidated Statements of Operations to the federal statutory provision:

(in thousands)	2009			2008			2007
Income before income taxes:
Domestic	$	273,408		$	687,718		$	270,857
International	(47,594		)	184,905			77,216
	225,814			872,623			348,073
Statutory income tax expense:
Domestic	107,732			270,541			108,071
International	(12,911		)	29,392			24,699
	94,821			299,933			132,770
Nontaxable foreign earnings	(52,432		)	(33,299		)	—
Repatriation of foreign earnings	42,778			—			—
State and federal tax credits	(9,707		)	(19,510		)	—
Domestic production activity deduction	(5,348		)	(13,275		)	—
Change in statutory tax rates	2,215			(507		)	(4,043		)
Valuation allowance	6,518			414			4,178
Foreign tax credit	—			—			(6,765		)
Other	(4,546		)	6,095			1,176
Income tax expense	$	74,299		$	239,851		$	127,316

The tax effect of net operating loss (NOL), tax credit carryforwards and significant temporary differences between reported and taxable earnings that gave rise to net deferred tax assets (liabilities) were as follows:

(in thousands)	2009			2008
Current deferred tax asset
Accrued liabilities	$	15,715		$	6,428
Inventory valuation	1,419			760
Unsettled derivative losses	1,973			—
Net current deferred tax asset	19,107			7,188
Non-current deferred tax liability Depreciation	(90,464		)	(94,467		)
Investments in partnership	(2,755		)	(1,195		)
Investment in affiliates	(2,278		)	(2,578		)
Intangible asset	—			(732		)
Unfunded employee benefits	(4,755		)	(5,723		)
Discontinued business costs	7,819			8,664
Deferred revenues—long-term	3,566			4,079
NOL, capital loss and tax credit carryforwards	38,703			32,633
Valuation allowance	(38,672		)	(32,154		)
Accumulated other comprehensive income	14,510			36,203
Other, net	(2,493		)	(6,173		)
Net noncurrent deferred tax liability	(76,819		)	(61,443		)
Net deferred tax liability	$	(57,712	)	$	(54,255	)

32

We have NOLs at December 31, 2009 which were generated in 1996 and is subject to limitation. This NOL, if unused, will begin to expire in 2011. Also during 2009, Terra began recording NOLs generated in Luxembourg which are not anticipated to be utilized. The Company has NOLs in Canada which will be utilized by way of carry-back. A full valuation allowance has been established against any NOL credit carryforward that is more likely than not that we will not be able to utilize. United States income taxes have not been provided on the remaining amount of the undistributed earnings of international subsidiaries and affiliated corporate joint ventures. Those earnings are considered to be indefinitely reinvested. Upon distribution of those earnings in the form of dividends or otherwise, Terra may be subject to both U.S. income taxes (subject to adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries.

21. Unrecognized Tax Benefit

We adopted the provision of ASC 740, Income Taxes (previously referred to as FASB Interpretation No. 48, Accounting for Uncertainty to Income Taxes (FIN 48)), on January 1, 2007. Under ASC 740, tax benefits are recorded only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in our tax returns that do not meet these recognition and measurement standards.

The following table summarizes the activity related to our unrecognized tax benefits, interest and penalties:

(in thousands)	2009			2008		2007
Unrecognized tax benefits at January 1	$	33,560		$	33,560	$	33,560
Gross increases (decreases) — tax positions in prior periods	27,415			—		—
Gross increases (decreases) — tax positions in current period	898			—		—
Decreases relating to settlements with tax authorities	—			—		—
Decreases from the lapse of applicable statue of limitations	(6,712		)	—		—
Unrecognized tax benefits at December 31	$	55,161		$	33,560	$	33,560
Accrued interest and penalties	7,249			2,389		—
Total ASC 740 liability	$	62,410		$	35,949	$	33,560

The primary jurisdictions in which we or one of our subsidiaries files income tax returns are the United States including state and local jurisdictions and Canada. U.S. tax authorities have completed their federal income tax examinations for all years prior to 1998. With respect to state and local jurisdictions inside the United States, with limited exceptions, Terra and its subsidiaries are no longer subject to income tax audits for years before 2002. For Canada, income tax returns remain subject to examination by tax authorities for calendar years beginning in 2001. Although the outcome of tax audits is always uncertain, we believe that adequate amounts of tax, including interest and penalties, have been provided for any adjustments that are expected to result from those years.

The adoption of ASC 740 had no impact on our financial statements other than the reclassification of the unrecognized tax benefit. Other liabilities include a ASC 740 liability of $60.9 million and other current liability of $1.5 million, including accrued interest, at December 31, 2009. During the next twelve months we expect to settle an issue with Revenue Canada and have, therefore, classified $1.5 million as current. If recognized, $49.9 million of the ASC 740 liability would have an impact on the effective tax rate.

When applicable, we recognize accrued interest and penalties related to unrecognized tax benefits in income taxes on the statement of operations. Interest and penalties were recognized at December 31, 2009 in the amount of $5.9 million.

22. Industry Segment Data

We operate in one principal industry segment—Nitrogen Products. The Nitrogen Products business produces and distributes ammonia, urea, UAN, ammonium nitrate and other nitrogen products to agricultural and industrial (including environmental) users.

We allocate revenues to countries based on the location to which the product was shipped. The following summarizes geographic information about Terra:

	Revenues						Long-lived Assets
(in thousands)	Year Ended2009		December 31,2008		2007		2009		December 31,2008(1)		2007(1)
United States	$	1,522,126	$	2,785,269	$	1,954,060	$	571,446	$	523,968	$	572,329
Canada	59,306		106,210		69,760		201,995		196,585		286,088
United Kingdom(1)	—		—		319,109		—		—		—
	$	1,581,432	$	2,891,479	$	2,342,929	$	773,441	$	720,553	$	858,417

(1) On September 14, 2007, we completed the formation of GrowHow UK Limited (GrowHow), a joint venture between Terra and Kemira GrowHow Oyj. Pursuant to the joint venture agreement, we contributed our United Kingdom subsidiary Terra Nitrogen (UK) Limited to the joint venture for a 50 percent interest. Subsequent to the formation, we have accounted for our investment in GrowHow as an equity method investment and it is included in our Canadian long-lived assets.

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23. Noncontrolling interest

We own an aggregate 75.3 percent of TNCLP through general and limited partnership interests. Outside investors own 24.7 percent of the limited partnership interests. TNCLP has its manufacturing facility in Verdigris, Oklahoma and is a major U.S. producer of nitrogen fertilizer products. For financial reporting purposes, the assets, liabilities and earnings of the partnership are consolidated into our financial statements. The outside investors limited partnership interest in the partnership has been recorded as noncontrolling interest on our consolidated financial statements. The noncontrolling interest represents the noncontrolling unitholders’ interest in the equity of TNCLP. At December 31, 2009 and 2008, we reported noncontrolling interest in the statement of financial position of $94.4 million and $104.1 million, respectively. For the years 2009, 2008 and 2007, we recorded noncontrolling unitholders’ interest in the statement of operations of $26.0 million, $67.7 million and $50.3 million, respectively.

TNCLP makes cash distributions to the General and Limited Partners based upon formulas defined within the Agreement of Limited Partnership. Available Cash for distribution is defined generally as all cash receipts less all cash disbursements, adjusted for changes in certain reserves established as the General Partner determines in its reasonable discretion to be necessary. Cash distributions to the Limited Partner and General Partner vary depending on when the cumulative distributions exceed the Minimum Quarterly Distribution (MQD) target levels set forth in the Agreement of Limited Partnership.

During 2009 the cumulative shortfall of the MQD was satisfied which entitled us to increased income allocations as provided for in the Agreement of Limited Partnership. The increased income allocation attributed to our General Partner interest was $10.6 million for 2009.

24. Guarantor Subsidiaries

Terra Industries Inc, excluding all majority owned subsidiaries (Parent), files a consolidated United States federal income tax return. Beginning in 1995, the Parent adopted the tax sharing agreements, under which all domestic operating subsidiaries provide for and remit income taxes to the Parent based on their pretax accounting income, adjusted for permanent differences between pretax accounting income and taxable income. The tax sharing agreements allocated the benefits of operating losses and temporary differences between financial reporting and tax basis income to the Parent.

Condensed consolidating financial information regarding the Parent, Terra Capital, Inc. (TCAPI), the Guarantor Subsidiaries and subsidiaries of the Parent that are not guarantors of the Senior Unsecured Notes (see Note 9, Revolving Credit Facility and Long-Term Debt, of the Notes to the Consolidated Financial Statements) for December 31, 2009, 2008 and 2007 are presented below for purposes of complying with the reporting requirements of the Guarantor Subsidiaries. The guarantees of the Guarantor Subsidiaries are full and unconditional. The Guarantor Subsidiaries guarantees are joint and several with the Parent.

Guarantor subsidiaries include:  subsidiaries that own the Woodward, Oklahoma; Port Neal, Iowa; Yazoo City, Mississippi; and Beaumont, Texas plants; Terra Environmental Technologies; Terra Global Holding Company Inc., Terra Investment Fund LLC, Terra Investment Fund II LLC, Terra (U.K.) Holdings Inc., and the corporate headquarters facility in Sioux City, Iowa. All guarantor subsidiaries are wholly owned by the Parent. All other company facilities are owned by non-guarantor subsidiaries. In 2008, we declared the Beaumont, Texas facility as a discontinued operation and classified the facility as held for sale. In December 2008, the Beaumont, Texas facility was sold, see Note 2, Discontinued Operations, of the Notes to the Consolidated Financial Statements.

34

Condensed Consolidating Statement of Financial Position at December 31, 2009:

	Parent			TCAPI		GuarantorSubsidiaries		Non-GuarantorSubsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—		$	74,541	$	180,140	$	246,629		$	—		$	501,310
Accounts receivable, net	—			—		59,120		41,096			—			100,216
Inventories, net	—			—		86,291		50,782			—			137,073
Other current assets	52,850			532		14,756		19,565			—			87,703
Total current assets	52,850			75,073		340,307		358,072			—			826,302
Property, plant and equipment, net	—			6,037		322,062		128,603			—			456,702
Equity method investments	—			—		9,462		249,398			—			258,860
Other current assets	—			15,588		21,434		20,857			—			57,879
Investments in and advances to (from) affiliates	643,853			849,707		2,975,069		533,631			(5,002,260		)	—
Total Assets	$	696,703		$	946,405	$	3,668,334	$	1,290,561		$	(5,002,260	)	$	1,599,743
Liabilities
Accounts payable	$	277		$	—	$	60,042	$	27,579		$	—		$	87,898
Customer prepayments	—			—		14,857		24,381			—			39,238
Derivative hedge liabilities	130			—		85		66			—			281
Accrued and other current liabilities	21,860			8,375		32,370		16,187			—			78,792
Total current liabilities	22,267			8,375		107,354		68,213			—			206,209
Long-term debt	—			602,434		—		—			—			602,434
Deferred taxes	70,564			—		—		6,255			—			76,819
Pension and other liabilities	112,652			—		10,187		5,808			—			128,647
Total liabilities	205,483			610,809		117,541		80,276			—			1,014,109
Preferred Shares	483			—		—		—			—			483
Common Stockholders’ Equity
Common stock	152,802			—		73		92,262			(92,335		)	152,802
Paid in capital	446,078			150,218		1,892,773		699,191			(2,742,182		)	446,078
Accumulated other comprehensive loss	(120,362		)	—		—		(88,563		)	88,563			(120,362		)
Retained earnings	12,219			166,929		1,581,982		507,395			(2,256,306		)	12,219
Total common stockholders’ equity	490,737			317,147		3,474,828		1,210,285			(5,002,260		)	490,737
Noncontrolling interest	—			18,449		75,965		—			—			94,414
Total equity	490,737			335,596		3,550,793		1,210,285			(5,002,260		)	585,151
Total liabilities and equity	$	696,703		$	946,405	$	3,668,334	$	1,290,561		$	(5,002,260	)	$	1,599,743

35

Condensed Consolidating Statement of Operations for the Year Ended December 31, 2009:

	Parent			TCAPI			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Revenues
Product revenues	$	—		$	—		$	908,089		$	668,439		$	—		$	1,576,528
Other income	—			—			3,544			1,360			—			4,904
Total revenues	—			—			911,633			669,799			—			1,581,432
Cost and Expense
Cost of sales	—			333			699,811			495,032			—			1,195,176
Selling, general and administrative expenses	2,726			(8,309		)	41,979			30,741			—			67,137
Other operating expenses	18,000			—			—			—			—			18,000
Equity earnings of North American affiliates	—			—			(1,219		)	(16,483		)	—			(17,702		)
Total cost and expenses	20,726			(7,976		)	740,571			509,290			—			1,262,611
Income (loss) from operations	(20,726		)	7,976			171,062			160,509			—			318,821
Interest income	157			1,970			996			1,013			—			4,136
Interest expense	(1,860		)	(29,667		)	103,626			(103,959		)	—			(31,860		)
Loss on early retirement of debt	—			(53,476		)	—			—			—			(53,476		)
Income (loss) before income taxes, noncontrolling interest and equity earnings	(22,429		)	(73,197		)	275,684			57,563			—			237,621
Income tax benefit (provision)	5,039			(10,374		)	(61,931		)	(7,033		)	—			(74,299		)
Equity earnings of unconsolidated affiliates	170,023			285,609			—			14,177			(455,632		)	14,177
Income from continuing operations, net of tax	152,633			202,038			213,753			64,707			(455,632		)	177,499
Income from discontinued operations, net of tax	—			—			1,118			—			—			1,118
Net income	152,633			202,038			214,871			64,707			(455,632		)	178,617
Less: Net income attributable to the noncontrolling interest	—			5,015			20,969			—			—			25,984
Net Income attributable to Terra Industries Inc.	$	152,633		$	197,023		$	193,902		$	64,707		$	(455,632	)	$	152,633

36

Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2009:

	Parent			TCAPI			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Operating Activities
Net income	$	152,633		$	202,038		$	214,871		$	64,707		$	(455,632	)	$	178,617
Income from discontinued operations, net of tax	—			—			1,118			—			—			1,118
Income from continuing operations, net of tax	152,633			202,038			213,753			64,707			(455,632		)	177,499
Adjustments to reconcile income from continuing operations to net cash flows from operating activities:
Depreciation and amortization	—			—			55,976			28,864			—			84,840
Loss on sale of property, plant and equipment	—			—			767			60			—			827
Deferred income taxes	(18,236		)	—			—			—			—			(18,236		)
Distributions in excess of (less than) equity earnings	(170,023		)	(285,609		)	186			3,888			455,632			4,074
Equity earnings of GrowHow UK Limited	—			—			—			(14,177		)	—			(14,177		)
Non-cash loss on derivatives	675			—			—			—			—			675
Share-based compensation	16,174			—			—			—			—			16,174
Amortization of intangible and other assets	—			121			7,410			2,188			—			9,719
Non-cash loss on early retirement of debt	—			4,546			—			—			—			4,546
Change in operating assets and liabilities — continuing operations	28,981			41,260			(72,981		)	(60,198		)	—			(62,938		)
Net cash flows from operating activities — continuing operations	10,204			(37,644		)	205,111			25,332			—			203,003
Net cash flows from operating activities — discontinued operations	—			—			1,118			—			—			1,118
Net Cash Flows from Operating Activities	10,204			(37,644		)	206,229			25,332			—			204,121
Investing Activities
Capital expenditures and plant turnaround expenditures	—			—			(92,991		)	(40,943		)	—			(133,934		)
Proceeds from the sale of property, plant and equipment	—			—			102			86			—			188
Distributions received from North American affiliates	—			—			470			13,579			—			14,049
Balancing consideration and other payments received from GrowHow UK Limited	—			—			—			21,205			—			21,205
Net cash flows from investing activities — continuing operations	—			—			(92,419		)	(6,073		)	—			(98,492		)
Net cash flows from investing activities — discontinued operations	—			—			5,356			—			—			5,356
Net Cash Flows from Investing Activities	—			—			(87,063		)	(6,073		)	—			(93,136		)
Financing Activities
Issuance of debt	—			589,788			—			—			—			589,788
Payments under borrowing arrangements	—			(317,475		)	—			—			—			(317,475		)
Payments for debt issuance costs	—			(14,360		)	—			—			—			(14,360		)
Preferred share dividends paid	(56		)	—			—			—			—			(56		)
Common stock dividends paid	(788,588		)	—			—			—			—			(788,588		)
Common stock issuances and vestings	(6,642		)	—			—			—			—			(6,642		)
Change in investments and advances from (to) affiliates	778,778			(469,767		)	(190,250		)	(118,761		)	—			—
Excess tax benefits from equity compensation plans	6,304			—			—			—			—			6,304
Distributions to noncontrolling interests	—			(7,715		)	(33,434		)	—			—			(41,149		)
Net Cash Flows from Financing Activities	(10,204		)	(219,529		)	(223,684		)	(118,761		)	—			(572,178		)
Effect of Foreign Exchange Rate on Cash	—			—			—			(4,197		)	—			(4,197		)
Decrease in Cash and Cash Equivalents	—			(257,173		)	(104,518		)	(103,699		)	—			(465,390		)
Cash and Cash Equivalents at Beginning of Year	—			331,714			284,658			350,328			—			966,700
Cash and Cash Equivalents at End of Year	$	—		$	74,541		$	180,140		$	246,629		$	—		$	501,310

37

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

	Parent			TCAPI			GuarantorSubsidiaries		Non-GuarantorSubsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—		$	331,714		$	284,658	$	350,328		$	—		$	966,700
Accounts receivable, net	9			74			73,358		56,949			—			130,390
Inventories, net	—			—			111,295		85,796			—			197,091
Margin deposits with derivative counterparties	—			36,945			—		—			—			36,945
Other current assets	23,807			10,440			13,596		13,495			—			61,338
Total current assets	23,816			379,173			482,907		506,568			—			1,392,464
Property, plant and equipment, net	—			6,037			288,449		108,827			—			403,313
Equity method investments	—			—			10,117		260,798			—			270,915
Other current assets	2,230			7,156			21,146		15,793			—			46,325
Investments in and advances to (from) affiliates	1,252,608			94,542			3,103,357		588,172			(5,038,679		)	—
Total Assets	$	1,278,654		$	486,908		$	3,905,976	$	1,480,158		$	(5,038,679	)	$	2,113,017
Liabilities
Accounts payable	$	205		$	62		$	70,473	$	29,153		$	—		$	99,893
Customer prepayments	—			—			58,922		52,670			—			111,592
Derivative hedge liabilities	35,254			7,476			39,880		43,315			—			125,925
Accrued and other current liabilities	51,861			8,947			42,261		24,701			—			127,770
Total current liabilities	87,320			16,485			211,536		149,839			—			465,180
Long-term debt	—			330,000			—		—			—			330,000
Deferred taxes	51,770			—			—		9,673			—			61,443
Pension and other liabilities	74,975			—			10,983		1,765			—			87,723
Total liabilities	214,065			346,485			222,519		161,277			—			944,346
Preferred Shares	1,544			—			—		—			—			1,544
Common Stockholders’ Equity
Common stock	152,111			—			73		83,332			(83,405		)	152,111
Paid in capital	579,164			150,218			2,201,646		963,435			(3,315,299		)	579,164
Accumulated other comprehensive loss	(175,529		)	—			—		(170,574		)	170,574			(175,529		)
Retained earnings (accumulated deficit)	507,299			(30,094		)	1,397,955		442,688			(1,810,549		)	507,299
Total common stockholders’ equity	1,063,045			120,124			3,599,674		1,318,881			(5,038,679		)	1,063,045
Noncontrolling interest	—			20,299			83,783		—			—			104,082
Total equity	1,063,045			140,423			3,683,457		1,318,881			(5,038,679		)	1,167,127
Total liabilities and equity	$	1,278,654		$	486,908		$	3,905,976	$	1,480,158		$	(5,038,679	)	$	2,113,017

38

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

	Parent			TCAPI			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Revenues
Product revenues	$	—		$	—		$	1,709,509		$	1,170,746		$	—		$	2,880,255
Other income	—			—			8,064			3,160			—			11,224
Total revenues	—			—			1,717,573			1,173,906			—			2,891,479
Cost and Expense
Cost of sales	—			333			1,368,161			659,758			—			2,028,252
Selling, general and administrative expenses	2,776			(11,595		)	47,326			32,229			—			70,736
Equity (earnings) loss of North American affiliates	—			—			(58,923		)	2,686			—			(56,237		)
Total cost and expenses	2,776			(11,262		)	1,356,564			694,673			—			2,042,751
Income (loss) from operations	(2,776		)	11,262			361,009			479,233			—			848,728
Interest income	—			13,044			777			9,549			—			23,370
Interest expense	(1,860		)	(24,840		)	8,012			(8,681		)	—			(27,369		)
Income (loss) before income taxes and noncontrolling interest	(4,636		)	(534		)	369,798			480,101			—			844,729
Income tax benefit (provision)	1,368			(104,556		)	(109,165		)	(27,498		)	—			(239,851		)
Equity earnings of unconsolidated affiliates	644,309			762,462			—			95,578			(1,406,771		)	95,578
Income from continuing operations — net of tax	641,041			657,372			260,633			548,181			(1,406,771		)	700,456
Income from discontinued operations — net of tax	—			—			8,269			—			—			8,269
Net income	641,041			657,372			268,902			548,181			(1,406,771		)	708,725
Less: Net income attributable to the noncontrolling interest	—			13,063			54,621			—			—			67,684
Net Income attributable to Terra Industries Inc.	$	641,041		$	644,309		$	214,281		$	548,181		$	(1,406,771	)	$	641,041

39

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

	Parent			TCAPI			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Operating Activities
Net income	$	641,041		$	657,372		$	268,902		$	548,181		$	(1,406,771	)	$	708,725
Income from discontinued operations	—			—			8,269			—			—			8,269
Income from continuing operations	641,041			657,372			260,633			548,181			(1,406,771		)	700,456
Adjustments to reconcile income (loss) from continuing operations to net cash flows from operating activities:
Depreciation and amortization	—			—			43,657			35,197			—			78,854
Loss on sale of property, plant and equipment	—			—			1,146			1,175			—			2,321
Deferred income taxes	(15,180		)	—			—			—			—			(15,180		)
Distributions in excess of (less than) equity earnings	(644,309		)	(762,462		)	5,657			2,686			1,406,771			8,343
Equity earnings — GrowHow UK Limited	—			—			—			(95,578		)	—			(95,578		)
Non-cash loss on derivatives	39,779			—			—			—			—			39,779
Share-based compensation	8,104			—			—			—			—			8,104
Amortization of intangible and other assets	—			—			5,284			3,421			—			8,705
Change in operating assets and liabilities — continuing operations	(142,756		)	(57,788		)	(8,762		)	(51,515		)	—			(260,821		)
Net cash flows from operating activities — continuing operations	(113,321		)	(162,878		)	307,615			443,567			—			474,983
Net cash flows from operating activities — discontinued operations	—			—			8,161			—			—			8,161
Net Cash Flows from Operating Activities	(113,321		)	(162,878		)	315,776			443,567			—			483,144
Investing Activities
Capital expenditures and plant turnaround expenditures	—			—			(77,109		)	(12,198		)	—			(89,307		)
Proceeds from the sale of property, plant and equipment	—			—			1,666			407			—			2,073
Distributions received from unconsolidated affiliate	—			—			8,180			—			—			8,180
Contribution settlement received from GrowHow UK Limited	—			—			—			27,427			—			27,427
Balancing consideration payment from GrowHow UK Limited	—			—			—			61,272			—			61,272
Net cash flows from investing activities — continuing operations	—			—			(67,263		)	76,908			—			9,645
Net cash flows from investing activities — discontinued operations	—			—			41,879			—			—			41,879
Net Cash Flows from Investing Activities	—			—			(25,384		)	76,908			—			51,524
Financing Activities
Preferred share dividends paid	(3,876		)	—			—			—			—			(3,876		)
Preferred share inducement	(5,266		)	—			—			—			—			(5,266		)
Common stock dividends paid	(28,274		)	—			—			—			—			(28,274		)
Common stock issuances and vestings	(9,839		)	—			—			—			—			(9,839		)
Change in investments and advances from (to) affiliates	305,954			438,735			(203,322		)	(1,072,883		)	531,516			—
Excess tax benefits from equity compensation plans	12,122			—			—			—			—			12,122
Payments under share repurchase program	(157,500		)	—			—			—			—			(157,500		)
Distributions to noncontrolling interests	—			—			(69,557		)	—			—			(69,557		)
Net cash flows from financing activities — continuing operations	113,321			438,735			(272,879		)	(1,072,883		)	531,516			(262,190		)
Net cash flows from financing activities — discontinued operations	—			—			—			—			—			—
Net Cash Flows from Financing Activities	113,321			438,735			(272,879		)	(1,072,883		)	531,516			(262,190		)
Effect of Foreign Exchange Rate on Cash	—			—			—			(4,016		)	—			(4,016		)
Increase (Decrease) in Cash and Cash Equivalents	—			275,857			17,513			(556,424		)	531,516			268,462
Cash and Cash Equivalents at Beginning of Year	—			55,857			267,145			906,752			(531,516		)	698,238
Cash and Cash Equivalents at End of Year	$	—		$	331,714		$	284,658		$	350,328		$	—		$	966,700

40

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

	Parent			TCAPI			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Revenues
Product revenues	$	—		$	—		$	1,181,736		$	1,154,138		$	—		$	2,335,874
Other income	—			—			5,104			1,951			—			7,055
Total revenues	—			—			1,186,840			1,156,089			—			2,342,929
Cost and Expense
Cost of sales	900			345			982,627			831,548			1			1,815,421
Selling, general and administrative expenses	2,179			(10,611		)	32,439			67,962			2			91,971
Equity earnings of North American affiliates	—			—			(16,209		)	—			—			(16,209		)
Total cost and expenses	3,079			(10,266		)	998,857			899,510			3			1,891,183
Income (loss) from operations	(3,079		)	10,266			187,983			256,579			(3		)	451,746
Interest income	—			6,093			5,077			6,092			—			17,262
Interest expense	(1,860		)	(26,909		)	(6		)	(325		)	—			(29,100		)
Loss on early retirement of debt	—			(38,836		)	—			—			—			(38,836		)
Foreign currency gain (loss)	—			(1,886		)	8			1,878			—			—
Income (loss) before income taxes and noncontrolling interest	(4,939		)	(51,272		)	193,062			264,224			(3		)	401,072
Income tax benefit (provision)	1,790			(37,582		)	(70,815		)	(20,709		)	—			(127,316		)
Equity (earnings) loss of unconsolidated affiliates	205,045			303,602			—			(2,718		)	(508,647		)	(2,718		)
Income from continuing operations — net of tax	201,896			214,748			122,247			240,797			(580,650		)	271,038
Income from discontinued operations — net of tax	—			—			(18,861		)	—			—			(18,861		)
Net income	201,896			214,748			103,386			240,797			(580,650		)	252,177
Less: Net income attributable to the noncontrolling interest	—			9,704			40,577			—			—			50,281
Net income attributable to Terra Industries Inc.	$	201,896		$	205,044		$	62,809		$	240,797		$	(508,650	)	$	201,896

41

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

	Parent			TCAPI			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Operating Activities
Net income	$	201,896		$	214,748		$	103,386		$	240,797		$	(508,650	)	$	252,177
Loss from discontinued operations	—			—			(18,861		)	—			—			(18,861		)
Income from continuing operations	201,896			214,748			122,247			240,797			(508,650		)	271,038
Adjustments to reconcile income (loss) from continuing operations to net cash flows from operating activities:
Depreciation and amortization	—			—			40,407			54,377			—			94,784
Deferred income taxes	90,879			—			12,521			—			—			103,400
Distributions in excess of (less than) equity earnings	(205,045		)	(303,602		)	8,536			379,935			128,712			8,536
Equity earnings — GrowHow UK Limited	—			—			—			2,718			—			2,718
Non-cash loss on derivatives	1,300			—			—			—			—			1,300
Share-based compensation	28,103			—			—			—			(1		)	28,102
Amortization of intangible and other assets	—			—			3,713			3,240			1			6,954
Non-cash loss on early retirement of debt	—			4,662			—			—			—			4,662
Change in operating assets and liabilities — continuing operations	(83,235		)	(1,849		)	84,546			460,090			(247,262		)	212,290
Net cash flows from operating activities — continuing operations	33,898			(86,041		)	271,970			1,141,157			(627,200		)	733,784
Net cash flows from operating activities — discontinued operations	—			—			14,081			—			—			14,081
Net Cash Flows from Operating Activities	33,898			(86,041		)	286,051			1,141,157			(627,200		)	747,865
Investing Activities
Capital expenditures and plant turnaround expenditures	—			—			(18,676		)	(63,699		)	(1		)	(82,376		)
Cash retained by GrowHow UK Limited	—			—			—			(16,788		)	—			(16,788		)
Proceeds from the sale of property, plant and equipment	—			—			24			—			—			24
Distributions received from unconsolidated affiliate	—			—			4,705			—			—			4,705
Net Cash Flows from Investing Activities	—			—			(13,947		)	(80,487		)	(1		)	(94,435		)
Financing Activities
Issuance of debt	—			330,000			—			—			—			330,000
Payments under borrowing arrangements	—			(331,300		)	(1		)	—			1			(331,300		)
Payments for debt issuance costs	—			(6,444		)	—			—			—			(6,444		)
Preferred share dividends paid	(5,100		)	—			—			—			—			(5,100		)
Common stock issuances and vestings	(1,424		)	—			—			—			—			(1,424		)
Change in investments and advances from (to) affiliates	56,734			48,906			30,281			(231,607		)	95,686			—
Excess tax benefits from equity compensation plans	3,317			—			—			—			—			3,317
Payments under share repurchase program	(87,426		)	—			—			—			—			(87,426		)
Distributions to noncontrolling interests	—			—			(35,239		)	—			—			(35,239		)
Net Cash Flows from Financing Activities	(33,899		)	41,162			(4,959		)	(231,607		)	95,687			(133,616		)
Effect of Foreign Exchange Rate Changes on Cash	—			—			—			(593		)	—			(593		)
Increase (Decrease) in Cash and Cash Equivalents	(1		)	(44,879		)	267,145			828,470			(531,514		)	519,221
Cash and Cash Equivalents at Beginning of Year	1			100,736			—			78,282			(2		)	179,017
Cash and Cash Equivalents at End of Year	$	—		$	55,857		$	267,145		$	906,752		$	(531,516	)	$	698,238

42

25.   Quarterly Financial Data (Unaudited)

(in thousands, except per-share data)	March 31		June 30		Sept. 30		Dec. 31
2009
Revenues	$	419,753	$	453,503	$	347,046	$	361,130
Cost of sales	342,957		296,690		281,621		273,908
Gross profit	$	76,796	$	156,813	$	65,425	$	87,222
Amounts attributable to Terra Industries Inc.:
Income (loss) from continuing operations, net of tax	$	29,995	$	80,474	$	45,118	$	(4,072	)
Income from discontinued operations, net of tax	—		—		810		308
Net income (loss) attributable to Terra Industries Inc.	$	29,995	$	80,474	$	45,928	$	(3,764	)
Net income	$	37,903	$	89,948	$	48,900	$	1,866
Less: Net income attributable to noncontrolling interest	7,908		9,474		2,972		5,630
Net income (loss) attributable to Terra Industries Inc.	$	29,995	$	80,474	$	45,928	$	(3,764	)
Per Share Data:
Basic income (loss) per common share attributable to Terra Industries Inc.:
Continuing operations	$	0.30	$	0.81	$	0.46	$	(0.04	)
Discontinued operations	—		—		0.01		—
Basic income (loss) per common share	$	0.30	$	0.81	$	0.47	$	(0.04	)
Diluted income (loss) per common share attributable to Terra Industries Inc.:
Continuing operations	$	0.30	$	0.81	$	0.45	$	(0.04	)
Discontinued operations	—		—		0.01		—
Diluted income (loss) per common share	$	0.30	$	0.81	$	0.46	$	(0.04	)
2008
Revenues	$	574,704	$	843,097	$	790,214	$	683,464
Cost of sales	406,989		547,070		578,310		495,883
Gross profit	$	167,715	$	296,027	$	211,904	$	187,581
Amounts attributable to Terra Industries Inc.:
Income from continuing operations, net of tax	$	101,305	$	196,116	$	171,270	$	164,081
Income from discontinued operations, net of tax	152		7,319		141		657
Net income attributable to Terra Industries Inc.	$	101,457	$	203,435	$	171,411	$	164,738
Net income	$	119,583	$	221,930	$	187,159	$	180,053
Less: Net income attributable to noncontrolling interest	18,126		18,495		15,748		15,315
Net income attributable to Terra Industries Inc.	$	101,457	$	203,435	$	171,411	$	164,738
Per Share Data:
Basic income per common share attributable to Terra Industries Inc.:
Continuing operations	$	1.11	$	2.14	$	1.75	$	1.65
Discontinued operations	—		0.08		—		0.01
Basic income per common share	$	1.11	$	2.22	$	1.75	$	1.66
Diluted income per common share attributable to Terra Industries Inc.:
Continuing operations	$	0.97	$	1.87	$	1.64	$	1.64
Discontinued operations	—		0.07		—		0.01
Diluted income per common share	$	0.97	$	1.94	$	1.64	$	1.65

26.  Unsolicited Proposals for a Business Combination by CF Industries Holdings, Inc.

During 2009, CF Industries Holdings, Inc. made a number of unsolicited business proposals to acquire Terra. Each such proposal was examined by the Board of Directors of Terra and each such proposal was unanimously rejected by the Board of Directors of Terra.

On January 14, 2010, CF announced that it had withdrawn its proposal to acquire Terra, was no longer pursuing the acquisition and had sold all of its Terra common stock. On March 2, 2010, CF made an unsolicited proposal to acquire Terra. For details regarding CF’s March 2, 2010 proposal and CF’s subsequent acquisition of Terra, see Note 27, Subsequent Events.

For the year ending December 31, 2009, Terra incurred defense costs of $18.0 million related to CF’s unsolicited business proposals.

43

27.   Subsequent Events

On February 12, 2010, Terra entered into an Agreement and Plan of Merger (the “Yara Merger Agreement”) with Yara International ASA (“Yara”) and Yukon Merger Sub, Inc. (“Merger Sub”), an indirect, wholly owned subsidiary of Yara.  The Yara Merger Agreement contained certain termination rights and provided that upon termination of the Yara Merger Agreement by Terra to accept a “Superior Proposal” (as defined in the Yara Merger Agreement) Terra would owe Yara a cash termination fee of $123 million.

On March 2, 2010, CF Industries Holdings, Inc. (“CF”) sent a letter to the Board of Directors of Terra (the “Board”) setting forth an unsolicited proposal to acquire Terra for consideration consisting of $37.15 in cash and 0.0953 of a share of CF common stock per share of Terra common stock (the “CF Proposal”).  On March 10, 2010, the Board notified Yara that it had determined that the CF Proposal was a Superior Proposal and of Terra’s intent to terminate the Yara Merger Agreement following the termination of the five business day match period provided for in the Yara Merger Agreement.  On March 11, 2010, Yara notified Terra that it did not intend to make a proposal that would be at least as favorable to the stockholders of Terra as the CF Proposal and was waiving its right to exercise the five business day match right.

On March 12, 2010, Terra notified Yara and CF that the Board has elected to terminate the Yara Merger Agreement.  CF paid (on behalf of Terra) to Yara the termination fee due under the Yara Merger Agreement, which terminated in accordance with its terms.  Concurrently with the termination of the Yara Merger Agreement, Terra entered into an Agreement and Plan of Merger (the “CF Merger Agreement”) with CF and Composite Merger Corporation (“CF Merger Sub”), an indirect, wholly owned subsidiary of CF.  CF Merger Sub subsequently amended its existing offer to exchange each outstanding share of Terra common stock for the same consideration as set forth in the CF Proposal (the “Offer”) to reflect the terms of the CF Merger Agreement.

On March 15, 2010, Terra converted all of its outstanding 4.25% Series A Cumulative Convertible Perpetual Preferred Shares, without par value, pursuant to the terms and conditions applicable to such series.

On March 29, 2010, the Board declared a dividend of $0.10 per common share, payable April 22, 2010, to holders of records as of April 1, 2010.

On April 5, 2010, CF announced that the Offer expired at 12:00 midnight, New York City time, on April 2, 2010.  As of such expiration time, 85,757,343 shares of Terra common stock were validly tendered and not withdrawn, representing approximately 85.6% of the outstanding shares of Terra common stock.  All such shares were accepted for payment.  Also on April 5, 2010, CF commenced a “subsequent offering period”, as permitted under the CF Merger Agreement.

On April 5, 2010, Terra Capital, Inc. terminated the commitments under the $150,000,000 Amended and Restated Revolving Credit Agreement (the “Credit Agreement”), dated as of December 21, 2004, among Mississippi Chemical Corporation, Terra Nitrogen (U.K.), Limited, Terra, Terra Capital Holdings, Inc., the lenders party thereto, the issuers party thereto and Citicorp USA, Inc., as administrative agent and collateral agent.  In connection with the termination of the commitments under the Credit Agreement, Morgan Stanley Bank, N.A. issued a back-up letter of credit with a face amount equal to $17.1 million to Citibank, N.A., as the issuer of the Existing LCs (as defined below).  At April 5, 2010, there were no borrowings and $17.1 million in outstanding letters of credit (the “Existing LCs”) under the Credit Agreement.

28. Guarantor Subsidiaries under CF Holdings New Structure

Pursuant to the CF Merger Agreement, CF through a wholly-owned subsidiary, acquired 100% of the equity interests of Terra Industries Inc., and Terra Industries Inc. became an indirect wholly-owned subsidiary of CF.  The following condensed consolidating financial information is presented in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered, in connection with the expected filing of a shelf registration statement (the “Registration Statement”) relating to debt securities of CF subsidiary CF Industries, Inc. (“CFI”) that may be offered from time to time and full and unconditional guarantees of such debt securities  (collectively, the “Guarantees”) by CF and certain 100%-owned domestic subsidiaries of CF Holdings, Inc., including Terra Industries Inc. and certain of Terra Industries Inc.’s 100%-owned domestic subsidiaries.  The subsidiaries of Terra Industries Inc. that are registering Guarantees on the Registration Statement are referred to below as “Guarantor Subsidiaries,” and the other subsidiaries of Terra Industries Inc. are referred to below as “Non-Guarantor Subsidiaries.”  The condensed consolidating financial information reflects the assumption, and the expectation, that the Guarantees will be made on a joint and several basis.

44

Presented below are condensed consolidating statements of operations and statements of cash flows for Terra Industries Inc., the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries for each of the three years ended December 31, 2009, 2008 and 2007 and condensed consolidating balance sheets for Terra Industries Inc., the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries as of December 31, 2009 and 2008.  The investments in subsidiaries in these consolidating financial statements are presented on the equity method.  Under this method, our investments are recorded at cost and adjusted for our ownership share of a subsidiary’s cumulative results of operations, distributions and other equity changes.  The eliminating entries reflect primarily intercompany transactions such as sales, accounts receivable and accounts payable and the elimination of equity investments and earnings of subsidiaries.  The condensed financial information presented below is not necessarily indicative of the financial position, results of operation or cash flow of Terra Industries Inc., the Guarantor Subsidiaries or the Non-Guarantor Subsidiaries on a stand-alone basis.

Condensed Consolidating Statement of Financial Position at December 31, 2009:

	Terra Industries Inc.			GuarantorSubsidiaries		Non-GuarantorSubsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—		$	79,063	$	422,247		$	—		$	501,310
Accounts receivable, net	—			59,130		41,086			—			100,216
Inventories, net	—			86,291		50,782			—			137,073
Other current assets	52,850			15,288		19,565			—			87,703
Total current assets	52,850			239,772		533,680			—			826,302
Property, plant and equipment, net	—			274,084		182,618			—			456,702
Equity method investments	—			9,462		249,398			—			258,860
Other current assets	—			37,023		20,856			—			57,879
Investments in and advances to (from) affiliates	643,853			3,774,981		593,395			(5,012,229		)	—
Total Assets	$	696,703		$	4,335,322	$	1,579,947		$	(5,012,229	)	$	1,599,743
Liabilities
Accounts payable	$	277		$	56,984	$	30,637		$	—		$	87,898
Customer prepayments	—			14,857		24,381			—			39,238
Derivative hedge liabilities	130			85		66			—			281
Accrued and other current liabilities	21,860			38,772		18,160			—			78,792
Total current liabilities	22,267			110,698		73,244			—			206,209
Long-term debt	—			602,434		—			—			602,434
Deferred taxes	70,564			—		6,255			—			76,819
Pension and other liabilities	112,652			10,187		5,808			—			128,647
Total liabilities	205,483			723,319		85,307			—			1,014,109
Preferred Shares	483			—		—			—			483
Common Stockholders’ Equity
Common stock	152,802			73		92,262			(92,335		)	152,802
Paid in capital	446,078			1,864,108		878,074			(2,742,182		)	446,078
Accumulated other comprehensive loss	(120,362		)	—		(88,563		)	88,563			(120,362		)
Retained earnings	12,219			1,653,408		612,867			(2,266,275		)	12,219
Total common stockholders’ equity	490,737			3,517,589		1,494,640			(5,012,229		)	490,737
Noncontrolling interest	—			94,414		—			—			94,414
Total equity	490,737			3,612,003		1,494,640			(5,012,229		)	585,151
Total liabilities and equity	$	696,703		$	4,335,322	$	1,579,947		$	(5,012,229	)	$	1,599,743

45

Condensed Consolidating Statement of Operations for the Year Ended December 31, 2009:

	Terra Industries Inc.			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Revenues
Product revenues	$	—		$	908,089		$	668,439		$	—		$	1,576,528
Other income	—			3,544			1,360			—			4,904
Total revenues	—			911,633			669,799			—			1,581,432
Cost and Expense
Cost of sales	—			700,143			495,033			—			1,195,176
Selling, general and administrative expenses	2,726			33,669			30,742			—			67,137
Other operating expenses	18,000			—			—			—			18,000
Equity earnings of North American affiliates	—			(1,219		)	(16,483		)	—			(17,702		)
Total cost and expenses	20,726			732,593			509,292			—			1,262,611
Income (loss) from operations	(20,726		)	179,040			160,507			—			318,821
Interest income	157			1,995			1,984			—			4,136
Interest expense	(1,860		)	(29,674		)	(326		)	—			(31,860		)
Loss on early retirement of debt	—			(53,476		)	—			—			(53,476		)
Income (loss) before income taxes, noncontrolling interest and equity earnings	(22,429		)	97,885			162,165			—			237,621
Income tax benefit (provision)	5,039			(72,305		)	(7,033		)	—			(74,299		)
Equity earnings of unconsolidated affiliates	170,023			285,609			14,177			(455,632		)	14,177
Income from continuing operations, net of tax	152,633			311,189			169,309			(455,632		)	177,499
Income from discontinued operations, net of tax	—			1,118			—			—			1,118
Net income	152,633			312,307			169,309			(455,632		)	178,617
Less: Net income attributable to the noncontrolling interest	—			25,984			—			—			25,984
Net Income attributable to Terra Industries Inc.	$	152,633		$	286,323		$	169,309		$	(455,632	)	$	152,633

46

Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2009:

	Terra Industries Inc.			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Operating Activities
Net income	$	152,633		$	312,307		$	169,309		$	(455,632	)	$	178,617
Income from discontinued operations, net of tax	—			1,118			—			—			1,118
Income from continuing operations, net of tax	152,633			311,189			169,309			(455,632		)	177,499
Adjustments to reconcile income from continuing operations to net cash flows from operating activities:
Depreciation and amortization	—			55,976			28,864			—			84,840
Loss on sale of property, plant and equipment	—			767			60			—			827
Deferred income taxes	(18,236		)	—			—			—			(18,236		)
Distributions in excess of (less than) equity earnings	(170,023		)	(285,423		)	3,888			455,632			4,074
Equity earnings of GrowHow UK Limited	—			—			(14,177		)	—			(14,177		)
Non-cash loss on derivatives	675			—			—			—			675
Share-based compensation	16,174			—			—			—			16,174
Amortization of intangible and other assets	—			7,531			2,188			—			9,719
Non-cash loss on early retirement of debt	—			4,546			—			—			4,546
Change in operating assets and liabilities — continuing operations	28,981			(23,988		)	(67,931		)	—			(62,938		)
Net cash flows from operating activities — continuing operations	10,204			70,598			122,201			—			203,003
Net cash flows from operating activities — discontinued operations	—			1,118			—			—			1,118
Net Cash Flows from Operating Activities	10,204			71,716			122,201			—			204,121
Investing Activities
Capital expenditures and plant turnaround expenditures	—			(51,942		)	(81,992		)	—			(133,934		)
Proceeds from the sale of property, plant and equipment	—			102			86			—			188
Distributions received from North American affiliates	—			470			13,579			—			14,049
Balancing consideration and other payments received from GrowHow UK Limited	—			—			21,205			—			21,205
Net cash flows from investing activities — continuing operations	—			(51,370		)	(47,122		)	—			(98,492		)
Net cash flows from investing activities — discontinued operations	—			5,356			—			—			5,356
Net Cash Flows from Investing Activities	—			(46,014		)	(47,122		)	—			(93,136		)
Financing Activities
Issuance of debt	—			589,788			—			—			589,788
Payments under borrowing arrangements	—			317,475			—			—			(317,475		)
Payments for debt issuance costs	—			(14,360		)	—			—			(14,360		)
Preferred share dividends paid	(56		)	—			—			—			(56		)
Common stock dividends paid	(788,588		)	—			—			—			(788,588		)
Common stock issuances and vestings	(6,642		)	—			—			—			(6,642		)
Change in investments and advances from (to) affiliates	778,778			(545,426		)	(233,352		)	—			—
Excess tax benefits from equity compensation plans	6,304			—			—			—			6,304
Distributions to noncontrolling interests	—			(41,149		)	—			—			(41,149		)
Net Cash Flows from Financing Activities	(10,204		)	(328,622		)	(233,352		)	—			(572,178		)
Effect of Foreign Exchange Rate on Cash	—			—			(4,197		)	—			(4,197		)
Decrease in Cash and Cash Equivalents	—			(302,920		)	(162,470		)	—			(465,390		)
Cash and Cash Equivalents at Beginning of Year	—			381,983			584,717			—			966,700
Cash and Cash Equivalents at End of Year	$	—		$	79,063		$	422,247		$	—		$	501,310

47

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

	Terra Industries Inc.			GuarantorSubsidiaries		Non-GuarantorSubsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	—		$	381,983	$	584,717		$	—		$	966,700
Accounts receivable, net	9			73,432		56,949			—			130,390
Inventories, net	—			111,295		85,796			—			197,091
Margin deposits with derivative counterparties	—			36,945		—			—			36,945
Other current assets	23,807			24,036		13,495			—			61,338
Total current assets	23,816			627,691		740,957			—			1,392,464
Property, plant and equipment, net	—			281,522		121,791			—			403,313
Equity method investments	—			10,117		260,798			—			270,915
Other current assets	2,230			28,302		15,793			—			46,325
Investments in and advances to (from) affiliates	1,252,608			3,205,548		580,618			(5,038,774		)	—
Total Assets	$	1,278,654		$	4,153,180	$	1,719,957		$	(5,038,774	)	$	2,113,017
Liabilities
Accounts payable	$	205		$	57,762	$	41,926		$	—		$	99,893
Customer prepayments	—			58,922		52,670			—			111,592
Derivative hedge liabilities	35,254			47,356		43,315			—			125,925
Accrued and other current liabilities	51,861			51,208		24,701			—			127,770
Total current liabilities	87,320			215,248		162,612			—			465,180
Long-term debt	—			330,000		—			—			330,000
Deferred taxes	51,770			—		9,673			—			61,443
Pension and other liabilities	74,975			10,983		1,765			—			87,723
Total liabilities	214,065			556,231		174,050			—			944,346
Preferred Shares	1,544			—		—			—			1,544
Common Stockholders’ Equity
Common stock	152,111			73		83,332			(83,405		)	152,111
Paid in capital	579,164			2,125,709		1,189,591			(3,315,300		)	579,164
Accumulated other comprehensive loss	(175,529		)	—		(170,574		)	170,574			(175,529		)
Retained earnings (accumulated deficit)	507,299			1,367,085		443,558			(1,810,643		)	507,299
Total common stockholders’ equity	1,063,045			3,492,867		1,545,907			(5,038,774		)	1,063,045
Noncontrolling interest	—			104,082		—			—			104,082
Total equity	1,063,045			3,596,949		1,545,907			(5,038,774		)	1,167,127
Total liabilities and equity	$	1,278,654		$	4,153,180	$	1,719,957		$	(5,038,774	)	$	2,113,017

48

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

	Terra Industries Inc.			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Revenues
Product revenues	$	—		$	1,709,509		$	1,170,746		$	—		$	2,880,255
Other income	—			8,064			3,160			—			11,224
Total revenues	—			1,717,573			1,173,906			—			2,891,479
Cost and Expense
Cost of sales	—			1,368,494			659,758			—			2,028,252
Selling, general and administrative expenses	2,776			35,731			32,229			—			70,736
Equity (earnings) loss of North American affiliates	—			(58,923		)	2,686			—			(56,237		)
Total cost and expenses	2,776			1,345,302			694,673			—			2,042,751
Income (loss) from operations	(2,776		)	372,271			479,233			—			848,728
Interest income	—			13,044			10,326			—			23,370
Interest expense	(1,860		)	(24,846		)	(663		)	—			(27,369		)
Income (loss) before income taxes and noncontrolling interest	(4,636		)	360,469			488,896			—			844,729
Income tax benefit (provision)	1,368			(213,721		)	(27,498		)	—			(239,851		)
Equity earnings of unconsolidated affiliates	644,309			762,462			95,578			(1,406,771		)	95,578
Income from continuing operations — net of tax	641,041			909,210			556,976			(1,406,771		)	700,456
Income from discontinued operations — net of tax	—			8,269			—			—			8,269
Net income	641,041			917,479			556,976			(1,406,771		)	708,725
Less: Net income attributable to the noncontrolling interest	—			67,684			—			—			67,684
Net Income attributable to Terra Industries Inc.	$	641,041		$	849,795		$	556,976		$	(1,406,771	)	$	641,041

49

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

	Terra Industries Inc.			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Operating Activities
Net income	$	641,041		$	917,479		$	556,976		$	(1,406,771	)	$	708,725
Income from discontinued operations	—			8,269			—			—			8,269
Income from continuing operations	641,041			909,210			556,976			(1,406,771		)	700,456
Adjustments to reconcile income (loss) from continuing operations to net cash flows from operating activities:
Depreciation and amortization	—			43,657			35,197			—			78,854
Loss on sale of property, plant and equipment	—			1,146			1,175			—			2,321
Deferred income taxes	(15,180		)	—			—			—			(15,180		)
Distributions in excess of (less than) equity earnings	(644,309		)	(756,805		)	2,686			1,406,771			8,343
Equity earnings — GrowHow UK Limited	—			—			(95,578		)	—			(95,578		)
Non-cash loss on derivatives	39,779			—			—			—			39,779
Share-based compensation	8,104			—			—			—			8,104
Amortization of intangible and other assets	—			5,284			3,421			—			8,705
Change in operating assets and liabilities — continuing operations	(142,756		)	(79,324		)	(38,741		)	—			(260,821		)
Net cash flows from operating activities — continuing operations	(113,321		)	123,168			465,136			—			474,983
Net cash flows from operating activities — discontinued operations	—			8,161			—			—			8,161
Net Cash Flows from Operating Activities	(113,321		)	131,329			465,136			—			483,144
Investing Activities
Capital expenditures and plant turnaround expenditures	—			(64,144		)	(25,163		)	—			(89,307		)
Proceeds from the sale of property, plant and equipment	—			1,666			407			—			2,073
Distributions received from unconsolidated affiliate	—			8,180			—			—			8,180
Contribution settlement received from GrowHow UK Limited	—			—			27,427			—			27,427
Balancing consideration payment from GrowHow UK Limited	—			—			61,272			—			61,272
Net cash flows from investing activities — continuing operations	—			(54,928		)	63,943			—			9,645
Net cash flows from investing activities — discontinued operations	—			41,879			—			—			41,879
Net Cash Flows from Investing Activities	—			(12,419		)	63,943			—			51,524
Financing Activities
Preferred share dividends paid	(3,876		)	—			—			—			(3,876		)
Preferred share inducement	(5,266		)	—			—			—			(5,266		)
Common stock dividends paid	(28,274		)	—			—			—			(28,274		)
Common stock issuances and vestings	(9,839		)	—			—			—			(9,839		)
Change in investments and advances from (to) affiliates	305,954			9,628			(847,098		)	531,516			—
Excess tax benefits from equity compensation plans	12,122			—			—			—			12,122
Payments under share repurchase program	(157,500		)	—			—			—			(157,500		)
Distributions to noncontrolling interests	—			(69,557		)	—			—			(69,557		)
Net cash flows from financing activities — continuing operations	113,321			(59,929		)	(847,098		)	531,516			(262,190		)
Net cash flows from financing activities — discontinued operations	—			—			—			—			—
Net Cash Flows from Financing Activities	113,321			(59,929		)	(847,098		)	531,516			(262,190		)
Effect of Foreign Exchange Rate on Cash	—			—			(4,016		)	—			(4,016		)
Increase (Decrease) in Cash and Cash Equivalents	—			58,981			(322,035		)	531,516			268,462
Cash and Cash Equivalents at Beginning of Year	—			323,002			906,752			(531,516		)	698,238
Cash and Cash Equivalents at End of Year	$	—		$	381,983		$	584,717		$	—		$	966,700

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

	Terra Industries Inc.			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Revenues
Product revenues	$	—		$	1,181,736		$	1,154,138		$	—		$	2,335,874
Other income	—			5,104			1,951			—			7,055
Total revenues	—			1,186,840			1,156,089			—			2,342,929
Cost and Expense
Cost of sales	900			982,972			831,548			1			1,815,421
Selling, general and administrative expenses	2,179			21,828			67,962			2			91,971
Equity earnings of North American affiliates	—			(16,209		)	—			—			(16,209		)
Total cost and expenses	3,079			988,591			899,510			3			1,891,183
Income (loss) from operations	(3,079		)	198,249			256,579			(3		)	451,746
Interest income	—			11,170			6,092			—			17,262
Interest expense	(1,860		)	(26,915		)	(325		)	—			(29,100		)
Loss on early retirement of debt	—			(38,836		)	—			—			(38,836		)
Foreign currency gain (loss)	—			(1,878		)	1,878			—			—
Income (loss) before income taxes and noncontrolling interest	(4,939		)	141,790			264,224			(3		)	401,072
Income tax benefit (provision)	1,790			(108,397		)	(20,709		)	—			(127,316		)
Equity (earnings) loss of unconsolidated affiliates	205,045			303,602			(2,718		)	(508,647		)	(2,718		)
Income from continuing operations — net of tax	201,896			336,995			240,797			(580,650		)	271,038
Income from discontinued operations — net of tax	—			(18,861		)	—			—			(18,861		)
Net income	201,896			318,134			240,797			(580,650		)	252,177
Less: Net income attributable to the noncontrolling interest	—			50,281			—			—			50,281
Net income attributable to Terra Industries Inc.	$	201,896		$	267,853		$	240,797		$	(508,650	)	$	201,896

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

	Terra Industries Inc.			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			Eliminations			Consolidated
Operating Activities
Net income	$	201,896		$	318,134		$	240,797		$	(508,650	)	$	252,177
Loss from discontinued operations	—			(18,861		)	—			—			(18,861		)
Income from continuing operations	201,896			336,995			240,797			(508,650		)	271,038
Adjustments to reconcile income (loss) from continuing operations to net cash flows from operating activities:
Depreciation and amortization	—			40,407			54,377			—			94,784
Deferred income taxes	90,879			12,521			—			—			103,400
Distributions in excess of (less than) equity earnings	(205,045		)	(295,066		)	379,935			128,712			8,536
Equity earnings — GrowHow UK Limited	—			—			2,718			—			2,718
Non-cash loss on derivatives	1,300			—			—			—			1,300
Share-based compensation	28,103			—			—			(1		)	28,102
Amortization of intangible and other assets	—			3,713			3,240			1			6,954
Non-cash loss on early retirement of debt	—			4,662			—			—			4,662
Change in operating assets and liabilities — continuing operations	(83,235		)	82,697			460,090			(247,262		)	212,290
Net cash flows from operating activities — continuing operations	33,898			185,929			1,141,157			(627,200		)	733,784
Net cash flows from operating activities — discontinued operations	—			14,081			—			—			14,081
Net Cash Flows from Operating Activities	33,898			200,010			1,141,157			(627,200		)	747,865
Investing Activities
Capital expenditures and plant turnaround expenditures	—			(18,676		)	(63,699		)	(1		)	(82,376		)
Cash retained by GrowHow UK Limited	—			—			(16,788		)	—			(16,788		)
Proceeds from the sale of property, plant and equipment	—			24			—			—			24
Distributions received from unconsolidated affiliate	—			4,705			—			—			4,705
Net Cash Flows from Investing Activities	—			(13,947		)	(80,487		)	(1		)	(94,435		)
Financing Activities
Issuance of debt	—			330,000			—			—			330,000
Payments under borrowing arrangements	—			(331,301		)	—			1			(331,300		)
Payments for debt issuance costs	—			(6,444		)	—			—			(6,444		)
Preferred share dividends paid	(5,100		)	—			—			—			(5,100		)
Common stock issuances and vestings	(1,424		)	—			—			—			(1,424		)
Change in investments and advances from (to) affiliates	56,734			79,187			(231,607		)	95,686			—
Excess tax benefits from equity compensation plans	3,317			—			—			—			3,317
Payments under share repurchase program	(87,426		)	—			—			—			(87,426		)
Distributions to noncontrolling interests	—			(35,239		)	—			—			(35,239		)
Net Cash Flows from Financing Activities	(33,899		)	36,203			(231,607		)	95,687			(133,616		)
Effect of Foreign Exchange Rate Changes on Cash	—			—			(593		)	—			(593		)
Increase (Decrease) in Cash and Cash Equivalents	(1		)	222,266			828,470			(531,514		)	519,221
Cash and Cash Equivalents at Beginning of Year	1			100,736			78,282			(2		)	179,017
Cash and Cash Equivalents at End of Year	$	—		$	323,002		$	906,752		$	(531,516	)	$	698,238

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