8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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): February 9, 2006

TERRA INDUSTRIES INC.

(Exact name of registrant as specified in its charter)

Maryland
(State or other jurisdiction of incorporation) 1-8520
(Commission File Number) 52-1145429
(IRS Employer Identification No.)

Terra Centre
600 Fourth Street, P.O. Box 6000
Sioux City, Iowa 51102-6000
(712) 277-1340
(Address of Principal Executive Offices, including Zip Code)
(Registrant’s Telephone Number, Including Area Code)

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):

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

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

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

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

TABLE OF CONTENTS

Press Release

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

     On February 9, 2006 Terra Industries Inc. issued a press release setting forth Terra Industries Inc.’s fourth quarter 2006 earnings. A copy of the press release is furnished herewith as Exhibit 99.1.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(c) Exhibits

99.1 Press Release issued February 9, 2006 reporting third quarter results.

SIGNATURES

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

	TERRA INDUSTRIES INC.
	/s/ Mark A. Kalafut
	Mark A. Kalafut
Date: February 9, 2006	Vice President, General Counsel and Corporate Secretary

EX-99.1

Exhibit 99.1

	Terra Industries Inc.
	600 Fourth Street
	P.O. Box 6000
	Sioux City, IA 51102-6000
	Telephone: (712) 277-1340
	Fax: (712) 277-7383
	www.terraindustries.com

NEWS

For immediate release	Contact: Joe A. Ewing
	(712) 277-7305
	jewing@terraindustries.com

Terra Industries Inc. reports fourth quarter and full-year results

Sioux City, Iowa (February 9, 2006)—Terra Industries Inc. (NYSE: TRA) announced today a net loss to common shares of $16.4 million, or $.17 per common share, on revenues of $513.4 million for the quarter ended Dec. 31, 2005. Net income available to common shareholders for the 2004 fourth quarter, excluding $27.9 million of income tax benefits discussed below and an $11.1 million loss on the early retirement of debt, was $3.3 million, or $ .04 per share, on revenues of $354.6 million.

Terra reported an operating loss of $18.9 million for the 2005 fourth quarter, compared to operating income of $24.6 million in the 2004 fourth quarter.

The 2005 fourth quarter operating loss was due to higher North American and U.K. natural gas costs and other effects of hurricanes Katrina and Rita, partially offset by higher nitrogen products selling prices and the contributions from acquired Mississippi Chemical operations.

For 2005, Terra posted income available to common shareholders of $17.0 million, or $.18 per share, on revenues of $1.9 billion. Net income in 2005 was reduced by $16.1 million, or $.17 per share, for a $27.2 million loss on early retirement of debt offset by an $8.9 million gain on revaluation of warrants. Net income available to common shareholders for 2004, excluding $27.9 million of income tax benefits discussed below and an $11.1 million loss on the early retirement of debt, was $45.8 million, or $ .60 per share, on revenues of $1.5 billion.

The 2004 fourth quarter and full year results included $27.9 million of income tax benefits related to final settlement of a plant valuation dispute with Revenue Canada.

S U M M A R Y

2005 vs. 2004 results:

• Revenues up $430 million.

• Selling prices for nitrogen solutions up 26 percent.

• Cost of sales up 34 percent.

• North American natural gas unit cost up 39 percent; U.K. unit cost up 36 percent.

• Income from operations down $21 million.

First quarter expectations:

• Financial results will depend primarily on natural gas costs.

Analysis of fourth quarter results

The $159 million increase in revenues from the 2004 to 2005 fourth quarter was due mainly to product sales by acquired Mississippi Chemical operations and higher selling prices, offset by lower methanol sales volumes related to Terra’s 2004 mothballing of its Beaumont, Texas facility. Terra realized average selling prices for ammonia, nitrogen solutions, ammonium nitrate, urea and methanol that were 26, 26, 17, 31 and 20 percent higher, respectively, in the 2005 fourth quarter than in the 2004 fourth quarter.

Cost of sales for the 2005 fourth quarter was $215 million, or 68 percent, higher than in 2004, primarily because of higher North American and United Kingdom unit natural gas costs and higher overall sales

volumes. Terra’s forward purchase contracts increased its 2005 fourth quarter natural gas costs by $5.5 million.

Selling, general and administrative expense for the 2005 fourth quarter was $4.2 million lower than for the 2004 fourth quarter. The decrease was due to additional 2004 fourth quarter costs for incentive pay and Sarbanes-Oxley compliance efforts.

Analysis of full-year results

The $430 million increase in revenues from 2004 to 2005 was generally caused by the same factors as the year-over-year fourth quarter increase in revenues. Terra realized average selling prices for ammonia, nitrogen solutions, ammonium nitrate, urea and methanol that were 14, 26, 13, 34 and 22 percent higher, respectively, in 2005 than in 2004.

Cost of sales for 2005 was $452 million, or 34 percent, higher than in 2004 because of higher North American and United Kingdom unit natural gas costs and higher overall sales volumes. Terra’s forward purchase contracts increased its 2005 natural gas costs by $0.7 million.

The $27.2 million 2005 loss on early retirement of debt related to prepayments of the $125 million term loan assumed with the Mississippi Chemical acquisition. The $8.9 million gain on revaluation of warrants represents the decline in the estimated fair value of outstanding warrants in 2005 until May, when shareholders authorized the common shares that would be issued upon exercise of the warrants.

Forward natural gas and liquidity

Terra’s forward purchase contracts and related basis swaps at Dec. 31, 2005, fixed prices for about 16 percent of its next 12 months’ natural gas needs at about $7.4 million above the published forward market prices at that date.

Cash balances at December 31, 2005 of $86 million are expected to be adequate to fund 2006 operating needs. Cash balances declined $147 million from December 31, 2004 primarily due to lower customer prepayments at the end of 2005 and, as the result of higher selling prices, increased accounts receivable balances.

CEO’s remarks

“Last year’s hurricanes led to extremely high and volatile natural gas prices, which negatively affected our fourth quarter financial results,” said Terra President and CEO Michael L. Bennett. “However, recent market developments have been positive. North American natural gas prices are moderating due to the dramatic improvement in supply/demand fundamentals, and both cash and future corn prices have increased. The relationship between natural gas prices and nitrogen prices has now returned to pre-hurricane levels. We have also largely satisfied the sales orders that we accepted prior to the natural gas price spike last fall.

“One of the bright spots of 2005 for Terra was the smooth integration of the Mississippi Chemical operations we purchased in December 2004. This acquisition provides Terra with a larger scale, more diverse natural gas sourcing and valuable terminal assets. The Trinidad operation contributed about $19 million to Terra’s 2005 operating income.

“We expect reduced demand for nitrogen this spring, but believe that this reduction has been offset by North American production curtailments in excess of increased imports over the past five months,” Bennett continued. “There may be additional short-term domestic industry production curtailments in the first quarter, but we expect the supply/demand balance for nitrogen products to be favorable.

“The cost of natural gas in the U.K remains high, which will adversely affect Terra U.K.’s 2006 first quarter results, but those costs should moderate in the second quarter.

“In 2006, we also expect continued significant growth in Terra Environmental Technologies, a Terra division with 2005 sales of $29.4 million that provides products and services to customers using nitrogen products to reduce nitrogen oxides (NOx) and other emissions,” Bennett concluded.

Conference call details

Terra management will conduct a conference call to discuss these fourth quarter results on Feb. 9, 2006, beginning at 3:00 ET. A live webcast of the conference call will be available from Terra’s website at www.terraindustries.com, and will be archived for playback for three months.

About Terra

Terra Industries Inc., with 2005 revenues of $1.9 billion, is a leading international producer of nitrogen products.

Forward-looking statements

This news release may contain forward-looking statements, which involve inherent risks and uncertainties. Statements that are not historical facts, including statements about Terra Industries Inc.’s beliefs, plans or expectations, are forward-looking statements. These statements are based on current plans, estimates and expectations. Actual results may differ materially from those projected in such forward-looking statements and therefore you should not place undue reliance on them. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements is set forth in Terra Industries Inc.’s most recent report on Form 10-K and Terra Industries Inc.’s other documents on file with the Securities and Exchange Commission. Terra Industries Inc. undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

# # #

Note: Terra Industries’ news announcements are also available on its website, www.terraindustries.com.

(Tables follow.)

Terra Industries Inc.

Summarized Results of Operations
(unaudited)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
(in thousands except per-unit amounts)	2005			2004			2005			2004
Revenues
Nitrogen products	$	507,451		$	314,043		$	1,905,505		$	1,320,142
Methanol		5,430			40,050			31,347			186,823
Other, net of intercompany eliminations		484			553			2,213			2,145
	$	513,365		$	354,646		$	1,939,065		$	1,509,110
Costs and expenses
Cost of sales		530,998			315,933			1,800,236			1,348,077
Equity earnings		(8,678	)		—			(21,415	)		—
Selling, general and administrative		9,910			14,126			46,548			44,190
Recovery of product claim costs		—			—			—			(17,903	)
Income (loss) from operations		(18,865	)		24,587			113,696			134,746
Interest income		1,696			1,544			8,086			3,307
Interest expense		(11,666	)		(12,747	)		(53,478	)		(53,134	)
Loss on early retirement of debt		—			(11,116	)		(27,193	)		(11,116	)
Gain on revaluation of warrants		—			—			8,860			—
Income (loss) before income taxes and minority interest		(28,835	)		2,268			49,971			73,803
Income tax provision		11,647			25,837			(14,217	)		5,000
Minority interest		2,056			(3,057	)		(13,667	)		(11,207	)
Net income (loss)		(15,132	)		25,048			22,087			67,596
Preferred stock dividends		(1,274	)		(1,029	)		(5,133	)		(1,029	)
Income (loss) available to common shareholders	$	(16,406	)	$	24,019		$	16,954		$	66,567
Income (loss) per common share
Basic	$	(0.17	)	$	0.31		$	0.18		$	0.87
Diluted	$	(0.17	)	$	0.28		$	0.18		$	0.85
Basic and diluted weighted average shares outstanding:
Basic		93,870			77,940			92,537			76,478
Diluted		93,870			88,471			94,935			79,859

Because of the seasonal nature and effects of weather-related conditions in several of Terra’s marketing areas, results of operations for any single reporting period should not be considered indicative of results for a full year.

Terra Industries Inc.

Summarized Financial Position
(in thousands)
(unaudited)

	December 31,
	2005		2004
Assets
Cash and short-term investments	$	86,366	$	233,798
Restricted cash		8,595		—
Accounts receivable		206,407		150,271
Inventories		190,314		148,808
Other current assets		58,193		58,106
Total current assets		549,875		590,983
Property, plant and equipment, net		733,536		797,978
Equity investments		183,884		215,939
Deferred plant turnaround costs		27,447		33,897
Other assets		26,259		46,711
Total assets	$	1,521,001	$	1,685,508
Liabilities and Stockholders’ Equity
Debt due within one year	$	38	$	167
Customer prepayments		52,913		115,347
Other current liabilities		210,542		224,419
Total current liabilities		263,493		339,933
Long-term debt and capital lease obligations		331,300		435,238
Deferred income taxes		63,691		58,224
Other liabilities		161,556		167,442
Minority interest		92,258		92,197
Total liabilities and minority interest		912,298		1,093,034
Series A preferred shares		115,800		133,069
Stockholders’ equity		492,903		459,405
Total liabilities and stockholders’ equity	$	1,521,001	$	1,685,508

Terra Industries Inc.

Summarized Cash Flows
(in thousands)
(unaudited)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2005			2004			2005			2004
Income (loss) from operations	$	(15,132	)	$	25,048		$	22,087		$	67,596
Non-cash charges and credits:
Depreciation and amortization		26,773			26,468			110,342			102,230
Deferred income taxes		(16,015	)		(26,149	)		13,538			(2,236	)
Equity earnings in excess of profit distributions		(2,956	)		—			(6,941	)		—
Loss on early retirement of debt		—			—			22,543			—
Recovery of product claim costs		—			—			—			(12,874	)
Other		(4,438	)		7,555			13,538			15,705
Change in assets and liabilities:
Accounts receivable		(30,950	)		21,210			(59,851	)		27,647
Inventories		(37,991	)		(12,285	)		(39,471	)		(11,352	)
Accounts payable and customer prepayments		25,001			105,470			(67,736	)		48,394
Other assets and liabilities, net		(17,858	)		(22,543	)		1,663			(22,637	)
Net cash flows from operating activities		(73,566	)		124,774			9,712			212,473
Purchase of property, plant and equipment		(13,414	)		(10,336	)		(30,820	)		(18,472	)
Plant turnaround costs		(12,654	)		(13,889	)		(22,331	)		(28,878	)
Acquisitions, net of cash acquired		—			(54,168	)		—			(54,168	)
Return of investment in unconsolidated affiliates		7,528			—			31,901			—
Debt repayments		(43	)		(70,737	)		(125,167	)		(70,854	)
Distributions to minority interests		(1,384	)		(2,306	)		(13,607	)		(8,072	)
Issuance of preferred stock		—			115,800			—			115,800
Stock issuance		13			127			160			447
Other		13,182			(2,059	)		2,720			(1,812	)
Increase (Decrease) in cash and short-term investments		(80,338	)		87,206			(147,432	)		146,464
Cash and short-term investments at beginning of period		166,704			146,592			233,798			87,334
Cash and short-term investments at end of period	$	86,366		$	233,798		$	86,366		$	233,798

Terra Industries Inc.

Summarized Information
(in thousands)

Volumes and Prices

	Three Months Ended December 31,
	2005				2004
	Sales		Average		Sales		Average
	Volumes		Unit Price1		Volumes		Unit Price1
Ammonia (tons)		452	$	357		307	$	283
Nitrogen solutions (tons)		1,063		154		938		122
Urea (tons)		27		313		46		239
Ammonium nitrate (tons)		382		216		222		184
Methanol (gallons)		4,739		0.85		51,734		0.71
Natural gas costs2
North America	$11.13				$5.85
United Kingdom	$7.66				$5.72

	Twelve Months Ended December 31,
	2005				2004
	Sales		Average		Sales		Average
	Volumes		Unit Price1		Volumes		Unit Price1
Ammonia (tons)		1,898	$	303		1,391	$	266
Nitrogen solutions (tons)		4,368		151		3,869		120
Urea (tons)		151		262		376		195
Ammonium nitrate (tons)		1,581		202		988		178
Methanol (gallons)		31,556		0.84		206,754		0.69
Natural gas costs2
North America	$7.83				$5.62
United Kingdom	$6.28				$4.62

1	After deducting outbound freight costs
2	Per MMBtu. Includes all transportation and other logistical costs and any gains or losses on financial derivatives related to natural gas purchases.

Because of the seasonal nature and effects of weather-related conditions in several of its marketing areas, results of operations for any single reporting period should not be considered indicative of results for a full year.