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): October 26, 2006

TERRA INDUSTRIES INC.

(Exact name of registrant as specified in its charter)

Maryland	1-8520	52-1145429
(State or other jurisdiction of incorporation)	(Commission File Number)	(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 October 26, 2006 Terra Industries Inc. issued a press release setting forth Terra Industries Inc.’s third 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 October 26, 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/ Francis G. Meyer

Francis G. Meyer

Senior Vice President and Chief Financial Officer

Date: October 26, 2006

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 third quarter results

S U M M A R Y

Q3/06 vs. Q3/05 results:

• Revenues down $21 million, or 4%.

• Cost of sales down $24 million, or 5%, mainly due to moderating North American natural gas unit costs.

• Income from operations down $3 million, or 8%.

Outlook:

• Nitrogen prices stabilized during the third quarter and should exhibit normal seasonal increases through the 2007 planting season.

• Low projected grain inventories should encourage increased planted acres of corn and wheat, which should lead to increased demand for nitrogen.

Sioux City, Iowa (Oct. 26, 2006)—Terra Industries Inc. (NYSE: TRA) announced today net income available to common shareholders of $9.1 million, or $.10 per common share, on revenues of $464.8 million for the quarter ended Sept. 30, 2006. Net income available to common shareholders for the 2005 third quarter was $9.8 million, or $.10 per share, on revenues of $485.7 million.

Terra reported operating income of $29.4 million for the 2006 third quarter, compared to operating income of $32.0 million in the 2005 third quarter.

The 2006 third quarter earnings benefited from $11.6 million of gross profits pursuant to the Beaumont facility’s methanol production contract, which is payable when methanol margins achieve specified levels. During the 2005 third quarter, that same contract resulted in a $3.3 million charge. These gains were reduced $8.2 million for third quarter 2006 repairs, start-up costs and other items associated with the June explosion at the Billingham ammonia plant.

Cash balances totaled $122.2 million at Sept. 30, 2006. During the 2006 third quarter, Terra repurchased 630,000 of its common shares for $4.4 million. Since announcing its authorization to repurchase up to 9.5 million of its outstanding common shares by June 30, 2008, Terra has repurchased 2.7 million shares.

Year-to-date 2006, Terra posted a net loss to common shareholders of $11.2 million, or $.12 per share, on revenues of $1.4 billion. Net income available to common shareholders for the comparable 2005 period was $33.4 million, or $.36 per share, on revenues of $1.4 billion.

Analysis of third quarter results

The $20.9 million decrease in revenues from the 2005 to 2006 third quarter was due to a $20.0 million decrease in ammonia, UAN and urea selling prices and a $27.6 million decrease in UAN, AN, urea and methanol sales volumes. These shortfalls were partially offset by the $14.9 million increase to gross profits earned on the Beaumont facility’s methanol production contract and higher reimbursements for freight and services.

Cost of sales for the 2006 third quarter decreased by $24.1 million, or 5 percent, over the 2005 third quarter, mainly due to lower sales volumes and lower natural gas costs that more than offset cost increases associated with the resumption of Billingham ammonia production.

During the 2006 third quarter, Terra’s manufacturing plants operated at about 87 percent of capacity, compared to about 65 and 85 percent in the 2006 first and second quarters, respectively.

Analysis of year-to-date results

The $38 million year-to-date revenue decline from 2005 to 2006 was mainly due to lower sales volumes, partially offset by higher nitrogen products selling prices. Sales volumes were affected by lower overall fertilizer consumption.

The $105 million year-to-date operating income decline from 2005 to 2006 was mainly due to $134 million of cost increases primarily related to higher natural gas and purchased product values as well as curtailed production rates. Lower sales volumes reduced year-to-date gross profits $23 million. These factors were partly offset by a $60 million increase to selling prices.

Forward natural gas position

Terra’s forward purchase contracts at Sept. 30, 2006, fixed prices for about 14 percent of its next 12 months’ natural gas needs at about $18.1 million above the published forward market prices at that date. The majority of these forward purchase contracts support nitrogen sales commitments.

CEO’s remarks

“2006 has been challenging for nitrogen producers due to high natural gas costs in the first quarter, and a period of adjustment and transition in the second quarter,” said Terra President and CEO Michael Bennett. “During the third quarter we continued to experience stabilizing conditions in nitrogen products and energy markets. As we move into the upcoming crop year, strong grain markets bode well for improved nitrogen demand. This, coupled with more favorable energy markets, should lead to improved financial and operating performance for Terra through the fourth quarter and into next year.”

Conference call details

Terra management will conduct a conference call to discuss these third quarter results this afternoon 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						Nine Months Ended
	September 30,						September 30,
(in thousands except per-unit amounts)	2006			2005			2006			2005
Revenues
Nitrogen products	$	442,612		$	478,118		$	1,355,574		$	1,393,503
Methanol		18,921			5,964			25,510			25,917
Other		3,248			1,612			6,135			6,279
	$	464,781		$	485,694		$	1,387,219		$	1,425,699
Costs and expenses
Cost of sales		422,523			446,908			1,337,210			1,269,238
Equity earnings		(809	)		(3,330	)		(15,830	)		(12,737	)
Selling, general and administrative		13,679			10,139			38,395			36,638
Total costs and expenses		435,393			453,717			1,359,775			1,293,139
Operating income		29,388			31,977			27,444			132,560
Interest income		2,091			2,970			5,499			6,391
Interest expense		(11,786	)		(11,829	)		(35,340	)		(41,812	)
Loss on early retirement of debt		—			—			—			(27,193	)
Gain on revaluation of warrants		—			—			—			8,860
Income (loss) before income taxes and minority interest		19,693			23,118			(2,397	)		78,806
Income tax benefit (provision)		(6,000	)		(7,704	)		2,002			(25,864	)
Minority interest		(3,352	)		(4,328	)		(7,000	)		(15,723	)
Net income (loss)		10,341			11,086			(7,395	)		37,219
Preferred stock dividends		(1,275	)		(1,275	)		(3,825	)		(3,859	)
Income (loss) available to common shareholders	$	9,066		$	9,811		$	(11,220	)	$	33,360
Income (loss) per common share
Basic	$	.10		$	.10		$	(.12	)	$	.36
Diluted	$	.10		$	.10		$	(.12	)	$	.35
Basic and diluted weighted average shares outstanding:
Basic		91,817			93,416			92,994			92,087
Diluted		93,405			95,219			92,994			106,942

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)

	September 30,
	2006		2005
Assets
Cash and short-term investments	$	122,170	$	166,704
Restricted cash		—		8,861
Accounts receivable		193,339		176,487
Inventories		160,191		144,963
Other current assets		26,158		84,792
Total current assets		501,858		581,807
Property, plant and equipment, net		722,952		764,737
Equity investments		161,455		190,805
Deferred plant turnaround costs		40,577		22,272
Other assets		33,279		25,482
Total assets	$	1,460,121	$	1,585,103
Liabilities and Stockholders’ Equity
Debt due within one year	$	4	$	77
Customer prepayments		27,949		34,081
Other current liabilities		196,704		228,281
Total current liabilities		224,657		262,439
Long-term debt and capital lease obligations		331,300		331,304
Deferred income taxes		58,922		95,655
Other liabilities		150,348		153,460
Minority interest		95,014		95,698
Total liabilities and minority interest		860,241		938,556
Series A preferred shares		115,800		115,800
Stockholders’ equity		484,080		530,747
Total liabilities and stockholders’ equity	$	1,460,121	$	1,585,103

Terra Industries Inc.
Summarized Cash Flows
(in thousands)
(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2006			2005			2006			2005
Net income (loss)	$	10,340		$	11,086		$	(7,395	)	$	37,219
Non-cash charges and credits:
Depreciation and amortization		26,163			23,438			78,859			83,569
Deferred income taxes		5,998			6,720			(2,002	)		29,553
Equity in distributed earnings		(809	)		(3,330	)		9,135			(12,737	)
Loss on early retirement of debt		—			—			—			22,543
Minority interest in earnings		3,353			4,328			7,000			15,723
Non-cash loss on derivatives		1,202			7,597			2,775			8,057
Other		3,698			3,138			11,180			2,024
Change in assets and liabilities:
Accounts receivable		9,585			(14,151	)		25,785			(28,901	)
Inventories		8,598			2,588			36,592			(1,480	)
Accounts payable and customer prepayments		10,931			72,920			(38,859	)		(92,737	)
Other assets and liabilities, net		(17,868	)		(30,576	)		(19,796	)		11,693
Net cash flows from operating activities		61,191			83,758			103,274			74,526
Purchase of property, plant and equipment		(14,149	)		(7,193	)		(40,785	)		(17,406	)
Plant turnaround costs		(9,875	)		(2,302	)		(31,987	)		(9,677	)
Return of investment in unconsolidated affiliates		—			9,500			9,660			33,125
Debt repayments		(4	)		(40	)		(34	)		(125,124	)
Distributions to minority interests		(4,244	)		(6,688	)		(4,244	)		(12,223	)
Stock issuance		—			46			363			160
Payments under share repurchase program		(4,368	)		—			(18,796	)		—
Other		8,376			(2,828	)		18,353			(10,475	)
Increase (Decrease) in cash and short-term investments		36,927			74,253			35,804			(67,094	)
Cash and short-term investments at beginning of period		85,243			92,451			86,366			233,798
Cash and short-term investments at end of period	$	122,170		$	166,704		$	122,170		$	166,704

Terra Industries Inc.
Summarized Information
(volumes in thousands)

Volumes and Prices

	Three Months Ended September 30,
	2006						2005
	Sales				Average		Sales				Average
	Volumes				Unit Price1		Volumes				Unit Price1
Ammonia (tons)		466			$	281		428			$	293
Nitrogen solutions (tons)		1,031				129		1,120				154
Urea (tons)		32				236		38				257
Ammonium nitrate (tons)		323				226		461				204
Methanol (gallons)		6,803				0.90		9,781				0.82
Natural gas costs2
North America			$	6.20					$	7.66
United Kingdom			$	6.83					$	5.65

	Nine Months Ended September 30,
	2006						2005
	Sales				Average		Sales				Average
	Volumes				Unit Price1		Volumes				Unit Price1
Ammonia (tons)		1,417			$	320		1,446			$	286
Nitrogen solutions (tons)		2,799				143		3,305				150
Urea (tons)		116				267		124				252
Ammonium nitrate (tons)		879				226		1,199				198
Methanol (gallons)		11,560				0.89		26,817				0.84
Natural gas costs2
North America			$	7.36					$	6.92
United Kingdom			$	7.52					$	5.92

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.