10-K

FORM 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

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

For the fiscal year ended December 31, 2002

Commission file number 1-10877

OR

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

(NO FEE REQUIRED)

   For the transition period from              to             

TERRA NITROGEN COMPANY, L.P.

(Exact name of registrant as specified in its charter)

Delaware	73-1389684
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Terra Centre	51102-6000
600 Fourth Street	(Zip Code)
P.O. BOX 6000
Sioux City, Iowa	(712) 277-1340
(Address of principal executive offices)	(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each exchange on which registered
Common Units Representing Limited Partner Interests Evidenced by Depositary Receipts	New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes  ¨ No  x

The aggregate market value of the voting and non-voting common units held by non-affiliates computed by reference to the price at which the common units were last sold, or the average bid and asked price of such common units, as of the last business day of the registrant’s most recently completed second fiscal quarter was $26,866,487.70.

The number of shares outstanding of the registrant’s Partnership units, as of January 31, 2003, was 18,501,576.

TABLE OF CONTENTS

PART I
		Page
Items 1 and 2.	Business and Properties	1
Item 3.	Legal Proceedings	6
Item 4.	Submission of Matters to a Vote of Unitholders	6
PART II
Item 5.	Market for Registrant’s Units and Related Unitholder Matters	7
Item 6.	Selected Financial Data	7
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	9
Item 8.	Financial Statements and Supplementary Data	9
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	9
PART III
Item 10.	Directors and Executive Officers of the Registrant	10
Item 11.	Executive Compensation	11
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	15
Item 13.	Certain Relationships and Related Transactions	16
PART IV
Item 14.	Controls and Procedures	17
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8–K	17
Signatures		21
Certifications		22-23

TERRA NITROGEN COMPANY, L.P.

FORM 10-K

PART I

Items 1 and 2.     BUSINESS AND PROPERTIES

General

Terra Nitrogen Company, L.P. (“TNCLP”) is a Delaware limited partnership that conducts its operations through an operating partnership subsidiary, Terra Nitrogen, Limited Partnership (the “Operating Partnership”). Terra Nitrogen Corporation (“TNC” or “General Partner”), a Delaware corporation, is the general partner of both TNCLP and the Operating Partnership (collectively the “Partnership,” unless the context otherwise requires) and owns a consolidated 2.0% interest in the Partnership. TNC is an indirect, wholly-owned subsidiary of Terra Industries Inc. (“Terra” or “the company”), a Maryland corporation. Terra is an industry leader in the production and marketing of both nitrogen products and methanol. Terra is one of the largest North American producers of anhydrous ammonia and nitrogen solutions and is the largest producer of ammonia and ammonium nitrate in the United Kingdom. In addition, Terra is the largest U.S. producer of methanol.

Ownership of TNCLP is comprised of the general partner interest and the limited partner interests. The limited partner interests consist of 18,501,576 common units. Terra and its subsidiaries owned 13,889,014 common units as of December 31, 2002 and the balance are traded on the New York Stock Exchange under the symbol “TNH.” The common units are referred to herein individually as a “unit” and collectively as “units.”

Terra makes available free of charge through its website, www.terraindustries.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Terra’s internet website and the information contained or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K.

Partnership Products

The Partnership is one of the largest U.S. producers and distributors of nitrogen fertilizer products, which are used primarily by farmers to improve the yield and quality of their crops. The Partnership’s principal products include ammonia, urea and urea ammonium nitrate solution (“UAN”). The Partnership’s product sales are heavily weighted toward UAN, and all of its products are sold on a wholesale basis. Although these different nitrogen products are often interchangeable, each has its own characteristics, and customer product preferences vary according to the crop planted, soil and weather conditions, regional farming practices, relative prices and the cost and availability of appropriate storage, handling and application equipment.

The Partnership’s principal nitrogen products are described in greater detail below:

Anhydrous Ammonia.    The Partnership produces anhydrous ammonia (often referred to simply as “ammonia”), the simplest form of nitrogen fertilizer and the feedstock for the production of other nitrogen fertilizers, at its two facilities which are located in Verdigris, Oklahoma and Blytheville, Arkansas. Ammonia is produced by reacting natural gas with steam and air at high temperatures and pressures in the presence of catalysts.

Ammonia has a nitrogen content of 82% by weight and is generally the least expensive form of fertilizer per pound of nitrogen. However, because it is a gas that must be kept under pressure and refrigerated, ammonia is more costly to store, ship and apply than other nitrogen fertilizer products and must be applied during a shorter period of the growing season. Ammonia must be injected into the soil by specialized equipment, and soil conditions can limit its application.

In addition, in most areas of the world, especially in lesser-developed countries, dealers and farmers lack the equipment necessary to store, ship and apply ammonia and are required to use other forms of nitrogen fertilizer. Ammonia can be upgraded into solid or liquid fertilizers, like urea and UAN, which are easier to transport, store and apply than ammonia.

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Urea.    The Partnership produces granular urea at its Blytheville, Arkansas facility by upgrading portions of its ammonia production. Solid urea is produced by converting ammonia into urea solution that is then concentrated and either prilled or granulated. Prilled materials are the most common form of solid urea. Granular urea may command a modest price premium in certain markets because the consistency in size of the granules (relative to prills) results in a more controllable and uniform spreading pattern and better blending characteristics.

Dry urea has a nitrogen content of 46% by weight, the highest level for any solid nitrogen product. Dry urea is used both as a direct application fertilizer and as an ingredient in the dry bulk blending of mixed fertilizer grades. Urea is transported and stored in bulk or in bags and is often blended by distributors into customized fertilizers containing other nutrients. In addition, urea liquor (urea solution) is used as an animal feed supplement and in industrial applications.

UAN.    The Partnership produces UAN at its Verdigris, Oklahoma facility and at the Blytheville, Arkansas facility by upgrading portions of its ammonia production. UAN is produced by combining urea solution and ammonium nitrate solution. UAN is a liquid fertilizer and, unlike ammonia, is odorless and does not need to be refrigerated or pressurized for transportation or storage.

The nitrogen content of UAN is typically 28% to 32% by weight. As a liquid, UAN has many advantages over solid fertilizers and anhydrous ammonia. UAN may be applied more uniformly than non-liquid products and may be mixed with various crop protection products or other nutrients, permitting the farmer to apply several materials simultaneously, thus reducing energy and labor costs. In addition, UAN, unlike ammonia, may be applied from ordinary tanks and trucks and can be applied to the soil either through spraying, injecting or through irrigation systems throughout the growing season. Due to its stable nature, UAN may be used for no-till row crops where fertilizer is spread on the surface of the soil but may be subject to volatilization losses. The use of conservation tilling, which reduces erosion, has increased in the United States over the past decade. This trend, if continued, will likely increase UAN demand.

Marketing and Distribution

The Partnership sells its products primarily in the Central and Southern Plains and Cornbelt regions of the United States. The Partnership’s two facilities are located near the major crop producing and consuming areas of the United States, and the Partnership has ready access to barge, truck and rail transportation at both facilities. In addition, the Verdigris facility has an ammonia pipeline to transport product to primary markets. The Partnership’s products are marketed and distributed through an organization based in Sioux City, Iowa that provides combined services to the Partnership and to Terra. For further information on the combined organizations of the General Partner and its affiliates, see “Certain Relationships and Related Transactions.” In addition, the Partnership occasionally exports UAN through an export marketing association comprised of four domestic UAN producers.

All of the Partnership’s sales are at the wholesale level. The Partnership’s customers for fertilizer products are dealers, national farm retail chains, distributors and other fertilizer producers and traders. National farm retail chains have both distribution and application capabilities. Distributors operate as wholesalers and sell directly to dealers and national farm retail chains, which, in turn, sell directly to farmers. Many dealers maintain year-round storage capacity for inventory as well as application equipment. The majority of the Partnership’s nitrogen fertilizer sales are made to dealers. No single customer accounted for more than 10% of the Partnership’s 2002 sales.

Production and Terminal Facilities

Production Facilities.    The Partnership’s two facilities produce nitrogen fertilizer products. These facilities are located in or near the following locations and have the following production capacities:

Location	Annual Capacity in Tons
	Ammonia1	Urea	UAN-28
Blytheville, Arkansas	420,000	480,000	30,000
Verdigris, Oklahoma	1,050,000	—	2,180,000
Total	1,470,000	480,000	2,210,000
1     Measured in gross tons of ammonia produced; net tons available for sale will vary with upgrading requirements. The annual capacity contains an allowance for a planned maintenance shutdown.

2

The Partnership’s manufacturing facilities are each designed to operate continuously, except for planned shutdowns (usually biennial) for maintenance and efficiency improvements. Capacity utilization (gross tons produced divided by capacity tons at expected operating rates and on-stream factors) of the Partnership’s fertilizer manufacturing facilities was 102% in 2002, 81% in 2001 and 89% in 2000. Terra’s capacity utilization was above rated capacity in 2002 due to a deferred turnaround and a UAN production record at the Verdigris facility.

The Partnership owns all of its manufacturing facilities in fee, unless otherwise stated below. All Partnership manufacturing facilities are subject to encumbrances in favor of lenders.

The Verdigris, Oklahoma facility is made up of two ammonia plants, two nitric acid plants, two UAN plants and a port terminal. The Partnership owns the plants in fee, while the port terminal is leased from the Tulsa-Rogers County Port Authority. The leasehold interest on the port terminal is scheduled to expire in April 2004, and the Partnership has an option to renew that lease for an additional five-year term.

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

Terminal Facilities.    The Partnership owns and operates three terminals used to store and distribute UAN to customers. The Partnership owns UAN terminals near Dublin, Indiana (Henry and Wayne Counties), Blair, Nebraska (Washington County), and Pekin, Illinois (Tazewell County). In addition, the Blair, Nebraska terminal stores and distributes anhydrous ammonia.

Breakdown of Revenue by Product

The approximate revenue contributions of the Partnership’s principal products (based upon percentages of the Partnership’s consolidated revenues) for each of the last three years are as follows:

	2002		2001		2000
Ammonia	21	%	20	%	21	%
UAN	61	%	66	%	66	%
Urea	18	%	14	%	13	%
	100	%	100	%	100	%

Credit

The Partnership’s credit terms are generally 15-30 days from date of shipment, but may be extended for longer periods during certain sales seasons consistent with industry practices. The Partnership’s bad debt write-offs have been less than $1 million annually for each of the past three years.

Seasonality and Volatility

The fertilizer business is seasonal, based upon the planting, growing and harvesting cycles. Inventories must be accumulated to allow for uninterrupted customer deliveries and require significant storage capacity. This seasonality generally results in higher fertilizer prices during peak periods, with prices normally reaching their highest point in the spring, decreasing in the summer, and increasing again in the fall as depleted inventories are restored.

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

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

• Quantities of fertilizers imported to North America;

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

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

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

Nitrogen fertilizer price levels are influenced by world supply and demand for ammonia and nitrogen-based products. Long-term demand is affected by population growth and rising living standards that determine food consumption. Shorter-term demand is affected by world economic conditions and international trade decisions, such as China’s cessation of urea imports in recent years. Supply is affected by increasing worldwide capacity and the availability of nitrogen product exports from major producing regions such as the former Soviet Union, the Middle East and South America. During the mid-to-late 1990’s favorable nitrogen prices in the industry spurred capacity additions in the form of new and expanded production facilities. More recently, depressed U.S. prices and margins for nitrogen products have resulted in some curtailments or shutdowns of North American capacity. Some, but not all, of these shutdowns are expected to be permanent.

March 2003 natural gas future prices closed at over $9.00 per MMBtu in February 2003. As a result, the Partnership substantially reduced its production rates at the end of February 2003 and could make further reductions. The timing and extent to which the Partnership will resume normal production rates will depend on declines to natural gas costs from these levels and/or increases to selling prices.

Raw materials

The principal raw material used to produce manufactured nitrogen products is natural gas. The Partnership believes there is a sufficient supply of natural gas for the foreseeable future and has entered into firm contracts to minimize the risk of interruption or curtailment of natural gas supplies during the peak-demand winter season.

Terra’s natural gas procurement policy, which is also applicable to the Partnership’s gas procurement, is to fix or cap the price of a minimum of 20% to a maximum of 80% of its natural gas requirements for a rolling one-year period, and up to 50% of its natural gas requirements for the subsequent two-year period, provided that such arrangements would not result in costs greater than expected selling prices for our finished products. This policy was instituted by Terra’s board of directors in February, 2002. Departures from the policy are permitted with board approval. Prior to February, 2002, the policy permitted hedging of 25%-80% of Terra’s natural gas requirements for the following year and up to 50% of the requirements for the following two-year period. Capping natural gas prices is accomplished through various supply contracts, financial derivatives and other instruments. A significant portion of global nitrogen products production occurs at facilities with access to fixed-priced natural gas supplies. These facilities’ natural gas costs have been and could continue to be substantially lower than the Partnership’s.

If natural gas prices rise, the Partnership may benefit from its use of forward-pricing techniques. Conversely, if natural gas prices fall, the Partnership may incur costs above the then-available spot market price. The settlement dates of forward-pricing contracts coincide with gas purchase dates. Forward-pricing contracts are based on a designated price, which price is referenced to market natural gas prices or appropriate NYMEX futures contract prices.

Transportation

The Partnership uses several modes of transportation to ship product to customers, including railroad cars, common carrier trucks, barges and common carrier pipelines. The Partnership uses approximately 60 liquid, dry and anhydrous ammonia fertilizer terminal storage facilities in numerous states. Railcars are the major source of transportation at the Partnership’s manufacturing facilities. Terra currently leases approximately 2,100 railcars. The Partnership also owns 10 nitric acid railcars. In addition, the Verdigris facility distributes ammonia through a common carrier pipeline.

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The Partnership transports purchased natural gas to its Verdigris, Oklahoma facility via an intrastate pipeline. This pipeline is not an open-access carrier, but is nonetheless part of a widespread regional system through which Verdigris can receive natural gas from any major Oklahoma source. The Partnership also has limited access to out-of-state natural gas supplies for this facility. The Partnership transports purchased natural gas for its Blytheville, Arkansas facility, which is delivered by an inter-state natural gas pipeline company.

Research and Development

The Partnership does not currently have any significant, ongoing research and development efforts.

Competition

Nitrogen products are global commodities, and the Partnership’s customers include distributors, industrial end-users, dealers and other fertilizer producers. Customers base purchasing decisions principally on the delivered price and availability of the product. The Partnership competes with a number of domestic and foreign producers, including state-owned and government-subsidized entities. Some of the Partnership’s principal competitors may have greater total resources and may be less dependent on earnings from nitrogen fertilizer sales than the Partnership. Some foreign competitors may have access to lower cost or government-subsidized natural gas supplies, particularly those with facilities in warmer climates. Natural gas comprises a significant portion of the raw materials cost of the Partnership’s nitrogen products. Competitive natural gas purchasing is essential to maintaining a low-cost product position. The Partnership competes with other manufacturers of nitrogen products on delivery terms and availability of products, as well as on price.

Environmental and Other Regulatory Matters

The Partnership’s operations are subject to various federal, state and local environmental, health and safety laws and regulations, including laws relating to air quality, hazardous and solid wastes and water quality. The Partnership is also involved in the manufacture, handling, transportation, storage and disposal of materials that are or may be classified as hazardous or toxic by federal, state or other regulatory agencies. Precautions are taken to reduce the likelihood of accidents involving these materials. If such materials have been or are disposed of at sites that are targeted for investigation and remediation by federal or state regulatory authorities, the Partnership may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) or analogous laws for all or part of the costs of such investigation and remediation.

Freeport-McMoRan Resource Partners, Limited Partnership (a former owner and operator of the Partnership’s production facilities) has retained liability for certain environmental matters originating prior to the acquisition of these facilities by the Partnership.

The Partnership may be required to install additional air and water quality control equipment, such as low NOx burners, scrubbers, ammonia sensors and continuous emission monitors, at certain of its facilities in order to maintain compliance with Clean Air Act, Clean Water Act and similar requirements. These equipment requirements are also typically applicable to competitors as well. The Partnership estimates that the cost of additional equipment to comply with these requirements in 2003 and beyond will be less than $5 million.

The Partnership endeavors to comply in all material respects with applicable environmental, health and safety regulations and has incurred substantial costs in connection with such compliance. Because these regulations are expected to continue to change and generally to be more restrictive than current requirements, the costs of compliance will likely increase. The Partnership does not expect its compliance with such regulations to have a material adverse effect on its results of operations, financial position or net cash flows.

Revenues and Assets

Terra’s revenues from external customers, measure of profit and loss and total assets for the years 2000-2002 are set forth in the Notes to the Consolidated Financial Statements. Terra’s revenues and assets according to geography are also set forth in the Notes to the Consolidated Financial Statements.

5

Employees

The Partnership does not have any employees.

The General Partner is responsible for the management of the Partnership. As of December 31, 2002, the General Partner had 308 employees. None of the General Partner’s employees that work in connection with the Partnership’s business are subject to collective bargaining agreements. The General Partner considers its labor relations to be good.

Limited Call Right

Since less than 25% of the issued and outstanding units are held by non-affiliates of the General Partner, the Partnership, at the General Partner’s sole discretion, may call, or assign to the General Partner or its affiliates its right to acquire, all such outstanding units held by non-affiliated persons. The General Partner and its affiliates owned 75.1% of the common units at December 31, 2002. If the General Partner elects to acquire all outstanding units, TNCLP is required to give at least 30 but not more than 60 days’ notice of its decisions to purchase the outstanding units. The purchase price per unit will be the greater of (1) the average of the previous 20 trading days’ closing prices as of the date five days before the purchase is announced or (2) the highest price paid by the General Partner or any of its affiliates for any unit within the 90 days preceding the date the purchase is announced.

Item 3.     LEGAL PROCEEDINGS

There is no pending or threatened litigation to the knowledge of the Partnership that would have a material adverse effect on the business or financial condition of the Partnership.

Item 4.     SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS

No items were submitted to a vote of unitholders of TNCLP during the fourth quarter of 2002.

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PART II

Item 5.     MARKET FOR REGISTRANT’S UNITS AND RELATED UNITHOLDER MATTERS

TNCLP’s common units are listed on the New York Stock Exchange. The high and low sales prices of the common units for each quarterly period for 2002 and 2001, as reported on the New York Stock Exchange Composite Price History, were as follows:

	2002				2001
Quarter	High		Low		High		Low
1st	$	7.2500	$	5.2500	$	9.5000	$	6.8750
2nd		6.7500		5.7000		9.5500		6.7000
3rd		6.0000		3.6000		8.8500		5.0000
4th		6.0000		3.2200		6.4500		5.0000

Based on information received from TNCLP’s transfer and servicing agent, the number of registered unitholders as of March 7, 2003 is 335. TNC owned 11,172,414 common units as of December 31, 2002. Terra Capital, Inc. owned 2,716,600 common units as of December 31, 2002.

The quarterly cash distributions paid to the holders of common units and the General Partner in 2002 and 2001 were as follows:

	Amount Per Common Unit		Amount Distributed to General Partner
2002
First Quarter		—		0
Second Quarter		—		0
Third Quarter	$	.20	$	38,000
Fourth Quarter	$	.20	$	38,000
2001
First Quarter	$	.22	$	82,000
Second Quarter	$	.22	$	84,000
Third Quarter		—		0
Fourth Quarter		—		0

Under TNCLP’s limited partnership agreement, cash distributions to unitholders are based on Available Cash for the quarter as defined therein. Available Cash 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. There are a number of factors which affect the amount of taxable income reported to unitholders including Partnership earnings, capital spending and cash distributions.

Item 6.     SELECTED FINANCIAL DATA

SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

The following table sets forth the Partnership’s historical financial and operating data for each of the five years ended December 31, 2002. This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes included elsewhere in this report.

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	Selected Historical Financial and Operating Data
	Year Ended December 31,
	2002			2001			2000			1999			1998
	(Dollars in Thousands, except Income per Unit and Average Realized Prices)
Income Statement Data:
Revenues	$	325,919		$	304,872		$	320,239		$	257,166		$	282,772
Other income		1,003			953			744			787			1,326
Total revenues		326,922			305,825			320,983			257,953			284,098
Cost of goods sold		310,993			304,648			288,468			256,956			235,319
Gross profit		15,929			1,177			32,515			997			48,779
Operating expenses		9,439			10,074			11,493			7,797			9,179
Operating income		6,490			(8,897	)		21,022			(6,800	)		39,600
Interest expense		(560	)		(924	)		(1,436	)		(1,947	)		(2,288	)
Interest income		250			2			623			649			1,463
Net income (loss)	$	6,180		$	(9,819	)	$	20,209		$	(8,098	)	$	38,775
Net income (loss) per limited partner unit	$	0.33		$	(0.52	)	$	1.07		$	(0.43	)	$	1.60
Partnership Distributions Paid:
Common units		7,401			8,140			4,071			—			53,469
General partner		151			166			83			—			13,326
Total partnership distributions	$	7,522		$	8,306		$	4,154		$	—		$	66,795
Distributions Paid Per Unit:
Common units	$	0.40		$	0.44		$	0.22		$	—		$	2.89
Balance Sheet Data (at period end):
Net property, plant and equipment	$	126,056		$	136,335		$	147,597		$	157,275		$	164,689
Total assets		226,024			210,417			224,034			242,424			236,077
Long-term debt and capital lease obligations, including current maturities		8,386			8,200			9,250			847			8,965
Partners’ capital		169,488			167,500			186,712			170,657			178,755
Operating Data:
Production (000’s tons):
Ammonia-net of upgrades		394			226			332			452			485
UAN		2,327			1,982			2,184			2,114			2,270
Urea		446			140			264			395			492
Total production		3,167			2,348			2,780			2,961			3,247
Sales Volume (000’s tons):
Ammonia		394			259			373			479			456
UAN		2,475			1,942			2,409			2,191			2,151
Urea		450			290			282			417			453
Total sales		3,319			2,491			3,064			3,087			3,060
Average realized prices ($/ton)
Ammonia	$	153		$	210		$	156		$	117		$	129
UAN		70			93			78			60			64
Urea		116			134			134			93			115

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

                OPERATIONS

Information with respect to management’s discussion and analysis of financial condition and results of operations contained in Exhibit 13 hereto is incorporated herein by reference.

Item 7A.     QUANTITATIVE AND QUALTITATIVE DISCLOSURES ABOUT MARKET RISK

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

Item 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Partnership together with the report thereon of Deloitte & Touche LLP, independent auditors, contained in Exhibit 13 hereto are incorporated by reference.

QUARTERLY FINANCIAL DATA (Unaudited)
Summarized quarterly financial data are as follows (in thousands, except per unit amounts):
	First Quarter		Second Quarter			Third Quarter			Fourth Quarter
2002
Revenues	$	57,400	$	104,893		$	76,164		$	88,465
Gross profit		4,334		5,695			4,569			1,331
Net income (loss)		2,236		3,025			2,010			(1,091	)
Net income per limited partnership unit		0.12		0.16			0.11			(0.06	)
2001
Revenues	$	65,632	$	101,750		$	55,751		$	82,692
Gross profit		3,757		1,870			(8,858	)		4,408
Net income (loss)		1,599		(922	)		(11,398	)		902
Net income per limited partnership unit		0.09		(0.05	)		(0.61	)		0.05

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

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

9

PART III

Item 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

TNC, in its capacity as General Partner, manages and controls the activities of TNCLP and the Operating Partnership. Unitholders do not direct or participate in the management or control of either TNCLP or the Operating Partnership. The General Partner does not intend to establish any advisory board or similar body to which the unitholders would be entitled to elect representatives.

The Partnership has no directors or executive officers. Set forth below is certain information concerning the directors and executive officers of the General Partner. The sole stockholder of the General Partner elects the directors of the General Partner. All directors hold office until their successors are duly elected and qualified or their earlier resignation or removal. All officers of the General Partner serve at the discretion of the directors.

Directors:	Age	Position with the General Partner (Position with Terra Industries Inc.)
Michael L. Bennett	49	Director, President and Chairman of the Board (President and Chief Executive Officer)
Michael A. Jackson	48	Director
Burton M. Joyce	61	Director (Vice Chairman of the Board)
Dennis B. Longmire	58	Director
Francis G. Meyer	50	Director and Vice President (Senior Vice President and Chief Financial Officer)
Theodore D. Sands	57	Director
Principal Operating Executive Officers:
Michael L. Bennett	49	Director, President and Chairman of the Board (President and Chief Executive Officer)
Mark A. Kalafut	49	Vice President, General Counsel and Corporate Secretary (Vice President, General Counsel and Corporate Secretary)
Francis G. Meyer	50	Director and Vice President (Senior Vice President and Chief Financial Officer)
W. Mark Rosenbury	55	Vice President (Senior Vice President and Chief Administrative Officer)
Steven A. Savage	58	Senior Vice President, Manufacturing (Senior Vice President, Manufacturing)
Wynn S. Stevenson	48	Vice President (Vice President, Taxes & Corporate Development)

In 2002, the Audit Committee of the Board of Directors of TNC was composed of Messrs. Longmire, Sands and Jackson. Mr. Joyce succeeded Mr. Todd on the Audit Committee after Mr. Todd left the board on December 31, 2001 and continued until his resignation on February 22, 2002. At that time, Mr. Joyce was succeeded by Mr. Jackson. Each current audit committee member is independent within the meaning of the NYSE rules. The Audit Committee has authority to review policies and practices of TNC dealing with various matters relating to the financial condition and auditing procedures of TNC, the Partnership and the Operating Partnership.

Mr. Bennett has been President of TNC since June 1998 and a director since March 1995. He has been President and Chief Executive Officer of Terra since April 2001, Executive Vice President and Chief Operating Officer of Terra from February 1997 to April 2001, President of Terra Distribution Division from November 1995 to February 1997 and Senior Vice President of Terra from February 1995 to February 1997. He was Senior Vice President, Distribution of Terra International from October 1994 to February 1997. He was Vice President, Northern Division thereof from January 1992 to October 1994.

Mr. Jackson has been a director since February 2002. He has been the CEO of Agribusiness Group, Inc. since 1979 and was in private management consulting prior to that date.

Mr. Joyce was Chairman of the Board of Directors of TNC from June 1998 to April 2002. He was President and Chief Executive Officer of Terra from May 1991 through April 2001.

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Mr. Kalafut has been Vice President and General Counsel of TNC since July 2001 and Corporate Secretary since December 1999. He has been Vice President, General Counsel and Corporate Secretary of Terra since July 2001. He was Vice President and Associate General Counsel of Terra from April 1992 to July 2001 and General Counsel of Terra International, Inc. from April 1989 to April 1992.

Mr. Longmire has been a director since April 1997. He has been Chairman of the Board and Chief Executive Officer of McCauley Bros., Inc. since September 1999; Chairman of the Board and Chief Executive Officer of Darling International, Inc. from 1994 to 1999; and Group Vice President of Central Soya Feed from 1990 to 1993.

Mr. Meyer has been Vice President of TNC since December 1994 and a director since March 1995. He has been Senior Vice President and Chief Financial Officer of Terra since November 1995. He was Vice President and Chief Financial Officer of Terra from November 1993 to November 1995.

Mr. Rosenbury has been Vice President of TNC since March 2000 and was a director from November 1994 through April 1998. He has been a Senior Vice President and Chief Administrative Officer of Terra since August 1999; Vice President, European Operations of Terra and Managing Director of Terra Nitrogen U.K. from January 1998 to August 1999; and Vice President, Business Development and Strategic Planning of Terra from November 1995 to January 1998.

Mr. Sands has been a director since July 2000. He has been the President of HAAS Capital, LLC since February 1999; and was Managing Director-Investment Banking and Coordinator-Global Metals/Mining Group of Merrill Lynch & Co. from 1978 to 1999.

Mr. Savage has been Senior Vice President, Manufacturing since April 1995. He was Vice President, Engineering and Plant Manager, Verdigris facility from February 1990 to April 1995.

None of the executive officers or directors of TNC is related by blood, marriage or adoption to any other executive officer or director of TNC.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Partnership’s executive officers, directors and greater than ten percent beneficial owners to file initial reports of ownership and reports of changes in beneficial ownership with the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange. Executive officers and directors are required by SEC regulations to furnish the Partnership with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to the Partnership and written representations from the Partnership’s executive officers and directors, all of the Partnership’s officers, directors and greater than ten percent beneficial owners made all required filings, except that Mr. Stevenson filed a Form 3 late.

Item 11.     EXECUTIVE COMPENSATION

TNCLP and the Operating Partnership have no executive officers or employees. The following table sets forth certain summary information concerning the combined compensation of the named executive officers of TNC, including compensation from Terra (a portion of which is allocated to the Partnership). These executive officers are those in office as of December 31, 2002 and are collectively referred to below as the “named executive officers.” Compensation information is provided for the years 2002, 2001 and 2000.

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SUMMARY COMPENSATION TABLE

Annual Compensation										Long-Term Compensation			All Other Compensation5/
Name and Principal Position	Year	Salary1/		Bonus2/		Other Annual Compensation3/			Restricted Stock Award(s)4/		Securities Underlying Options
Michael L. Bennett President and Chairman of the Board	2002 2001 2000	$	375,000 368,269 310,577	$	—   55,000	$	3,314 2,372 4,284		$	183,0006/ 408,8007/ 206,2508/	—   —   —	$	8,850 8,160 8,458
Mark A. Kalafut Vice President, General Counsel and Corporate Secretary	2002 2001 2000		187,692 153,983 137,395		—   13,000		2,822 2,372 4,284			54,9006/ 73,0007/ —	—   —		8,658 7,391 13,103
Francis G. Meyer Vice President	2002 2001 2000		259,108 253,007 226,539		—   23,000		2,934 2,669 4,749			73,2006/ 116,8007/ 165,0008/	—   —   —		8,851 10,669 8,446
W. Mark Rosenbury Vice President	2002 2001 2000		229,015 221,946 208,827		—   24,000		2,901 2,372 20,798	9/		73,2006/ 116,8007/ 154,6888/	—   —   —		8,831 10,137 9,571
Steven A. Savage Sr. Vice President Manufacturing	2002 2001 2000		218,615 209,846 193,173		—   18,000		3,762 3,454 5,600			64,0506/ 87,6007/ 82,5008/	—   —   —		8,817 9,584 29,748

^1/ For all years includes amounts deferred at the election of the named executive officer under Terra’s Employees’ Savings and Investment Plan and Supplemental Deferred Compensation Plan.

^2/ “Bonus” includes, for the applicable year of service, amounts awarded under Terra’s Incentive Award Program for Officers and Key Employees and includes portions thereof deferred at the election of the named executive officer under Terra’s Supplemental Deferred Compensation Plan. Bonuses earned in one year are paid in the following year. Each year shown therefore indicates the salary earned and paid in that year and any bonus earned in that year and paid in the next year.

^3/ “Other Annual Compensation” includes tax reimbursements or “gross-ups” with respect to certain perquisites provided to the named executive officers. While the named executive officers receive certain other perquisites, such perquisites do not exceed the lesser of $50,000 or 10% of such officer’s salary and bonus, except for Mr. Rosenbury as described below.

^4/ This item shows the grant date value of restricted stock awards. The number of such shares still subject to restriction and the value thereof (shown in parenthesis), at December 31, 2002 by each of the named executive officers is: Mr. Bennett: 340,000 ($520,200); Mr. Kalafut: 55,000 ($84,150); Mr. Meyer: 160,000 ($244,800); Mr. Rosenbury: 155,000 ($237,150) and Mr. Savage: 105,000 ($160,650). During the restricted period, a holder of restricted shares is entitled to all benefits incidental to ownership of Terra common stock, including voting such shares and receiving such dividends as from time to time may be declared by the Board of Directors.

^5/ “All Other Compensation” comprises amounts contributed, allocated or accrued for the named executive officers under both Terra’s Employees’ Savings and Investment Plan and Supplemental Deferred Compensation Plan. The value accrued under Terra’s Employees’ Savings and Investment Plan and the value accrued under the Supplemental Deferred Compensation Plan (shown in parenthesis) in 2002 was: Mr. Bennett $8,850 and ($0); Mr. Kalafut $8,658 and ($0); Mr. Meyer $8,851 and ($0); Mr. Rosenbury $8,831 and ($1,629); Mr. Savage $8,160 and ($0). In 2001, Mr. Bennett $8,160 and ($0); Mr. Kalafut $7,391 and ($0); Mr. Meyer $8,160 and ($2,509); Mr. Rosenbury $8,160 and ($1,977); Mr. Savage $8,160 and ($1,424). In 2000, Mr. Bennett $8,458 and ($0); Mr. Kalafut $7,749 and ($5,354); Mr. Meyer $8,446 and ($0); Mr. Rosenbury $8,429 and ($1,142); Mr. Savage $10,431 and ($19,317).

^6/ On July 30, 2002, Terra’s Board of Directors approved, as recommended by its Personnel Committee, the grant of the following restricted shares under Terra’s Stock Incentive Plan of 2002: 100,000 to Mr. Bennett; 30,000 to Mr. Kalafut; 40,000 to Mr. Meyer; 40,000 to Mr. Rosenbury; and 35,000 to Mr. Savage. The closing price per common share on the New York Stock Exchange (“NYSE”) on the date of the award was $1.83. The restrictions lapse on the earlier of (i) the business day following the third anniversary of the date of the award (i.e. July 31, 2005) or (ii) specified changes in control or ownership of Terra (as defined by the award).

^7/ On August 2, 2001, Terra’s Board of Directors approved, as recommended by its Personnel Committee, the grant of the following restricted shares under Terra’s 1997 Stock Incentive Plan: 140,000 to Mr. Bennett; 25,000 to Mr. Kalafut; 40,000 to Mr. Meyer; 40,000 to Mr. Rosenbury; and 30,000 to Mr. Savage. The closing price per common share on the New York Stock Exchange (“NYSE”) on the date of the award was $2.92. The restrictions lapse on the

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earlier of (i) the business day following the third anniversary of the date of the award (i.e., August 3, 2004) or (ii) specified changes in control or ownership of Terra (as defined in the award).

^8/ On February 16, 2000, Terra’s Board of Directors approved, as recommended by its Personnel Committee, the grant of the following restricted shares under Terra’s 1997 Stock Incentive Plan: 100,000 to Mr. Bennett; 80,000 to Mr. Meyer; 75,000 to Mr. Rosenbury, and 40,000 to Mr. Savage. The closing price per common share on the New York Stock Exchange (“NYSE”) on the date of the award was $2.0625. The restrictions lapse on the earlier of (i) the business day following the third anniversary of the date of award (i.e., February 17, 2003) or (ii) specified changes in control or ownership of Terra (as defined in the award).

^9/ “Other Annual Compensation” for Mr. Rosenbury in 2000 consists of: (i) a tax gross-up for excess U.K. taxes over hypothetical U.S. federal and state taxes — $20,029; and (ii) taxable reimbursement of expatriate living expenses while on assignment in the U.K. — $769.

Option Exercises and Year-End Value Table

The following table provides information concerning the exercise of stock options during 2002 and the number and value of unexercised options to purchase Terra common stock granted under Terra’s stock incentive plans.

Name	Number of shares acquired on exercise in 2002	Value Realized	Number of Securities Underlying Unexercised Options at December 31, 2002		Value of Unexercised in-the-Money Options at December 31, 20021/
			Exercisable	Unexercisable	Exercisable		Unexercisable
Michael L. Bennett	-0-	-0-	160,000	-0-		-0-	-0-
Mark A. Kalafut	-0-	-0-	22,700	-0-	$	6,120	-0-
Francis G. Meyer	-0-	-0-	100,000	-0-		-0-	-0-
W. Mark Rosenbury	-0-	-0-	90,000	-0-		-0-	-0-
Steven A. Savage	-0-	-0-	50,000	-0-		-0-	-0-

^1/ Based on the closing price on the New York Stock Exchange Composite Price History of Terra common stock on December 31, 2002 ($1.53).

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PENSION PLAN TABLES

The following table shows for Mr. Rosenbury and certain other employees retiring in 2002 the estimated annual retirement benefit payable on a straight life annuity basis under the Employees’ Retirement Plan (the “Retirement Plan”) and Terra’s Excess Benefit Plan (the “Excess Benefit Plan”), on a non-contributory basis, at various levels of accrued service and compensation.

Average Compensation	ANNUAL BENEFITS UPON NORMAL RETIREMENT WITH YEARS OF CREDITED SERVICE
	5		10		15		20		25		30
$150,000	$	11,942	$	23,883	$	35,825	$	47,767	$	59,708	$	71,650
$250,000	$	20,692	$	41,383	$	62,075	$	82,767	$	103,458	$	124,150
$500,000	$	42,567	$	85,133	$	127,700	$	170,267	$	212,833	$	255,400
$750,000	$	64,442	$	128,883	$	193,325	$	257,767	$	322,208	$	386,650
$1,000,000	$	86,317	$	172,633	$	258,950	$	345,267	$	431,583	$	517,900

Average Compensation (as defined under the Retirement Plan) as of December 31, 2002 for Mr. Rosenbury was $370,936. The estimated credited years of service under the retirement plan for Mr. Rosenbury was 15.

Certain other Terra executive officers and employees, including Messrs. Bennett, Kalafut, Meyer and Savage, are entitled to the estimated annual retirement benefit (payable on a straight life annuity basis) under the Retirement Plan and Excess Benefit Plan as set forth in the following table:

Average Compensation	ANNUAL BENEFITS UPON NORMAL RETIREMENT WITH YEARS OF CREDITED SERVICE
	5		10		15		20		25		30
$150,000	$	10,442	$	20,883	$	31,325	$	41,767	$	52,208	$	62,650
$250,000	$	18,192	$	36,383	$	54,575	$	72,767	$	90,958	$	109,150
$500,000	$	37,567	$	75,133	$	112,700	$	150,267	$	187,833	$	225,400
$750,000	$	56,942	$	113,883	$	170,825	$	227,767	$	284,708	$	341,650
$1,000,000	$	76,317	$	152,633	$	228,950	$	305,267	$	381,583	$	457,900

Average Compensation (as defined under the Retirement Plan) as of December 31, 2002 for Mr. Bennett was $378,964; for Mr. Kalafut $163,394; for Mr. Meyer $311,029; and for Mr. Savage $235,061. The estimated credited years of service under the Retirement Plan for each such officer was as follows: Mr. Bennett — 29; Mr. Kalafut — 13; Mr. Meyer — 20; and Mr. Savage — 15.

“Compensation” under the Retirement Plan includes the total salary and wages paid to a participant, including bonuses, overtime, commissions and elective contributions made by Terra on behalf of the participant pursuant to Internal Revenue Code (the “Code”) sections 401(k) or 125. Covered earnings are limited by Section 401(a)(17) of the Code to $200,000 in 2002. The above benefits are subject to the limitations of Section 415 of the Code, which provides for a maximum annual payment of approximately $160,000 in 2002. Under the Excess Benefit Plan, however, Terra will supplement those benefits so that the amount the participant will receive will be equal to the amount that would have been received under the Retirement Plan but for such limitations. “Compensation” under the Excess Benefit Plan also includes amounts deferred under the Supplemental Deferred Compensation Plan.

Employee Contracts, Termination of Employment and Change in Control Arrangements

Terra’s chief executive officer and each of the other named executive officers are party with Terra to an executive retention agreement. Each such agreement provides the executive with certain benefits if his employment is terminated under specified conditions. To receive benefits, the executive must be terminated within two years of a change of control (as defined in the agreement) of Terra. In addition, such termination must be made either by Terra or a successor entity without cause, or by the executive for good reason.

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Benefits under the executive retention agreements include (a) continuation of base salary and bonus for two years; (b) continuation of medical and dental benefits for two years; (c) payment of accrued but unpaid compensation; (d) automatic vesting in Terra’s Excess Benefit Plan with an addition of two years to the credited service level and the age of the participant for purposes of computing the accrued benefits under the Excess Benefit Plan; and (e) certain outplacement services. Such benefits are in lieu of any other severance benefits that may otherwise be payable. Compensation earned from other employment shall not reduce the amounts otherwise payable by Terra. Terra also agreed to reimburse each such officer on an after-tax basis for any excise tax incurred as a result of the “excess parachute payment” provisions of the Internal Revenue Code.

Board of Directors Compensation

Independent directors of TNC receive an annual retainer fee of $20,000 for their directorship, plus a fee of $1,000 for each TNC Board meeting attended and each Audit Committee meeting attended. No other director of TNC receives any compensation for serving as a director.

Compensation Committee Interlocks and Insider Participation

TNC does not have a compensation committee. The Personnel Committee of the Board of Directors of Terra has made executive officer compensation decisions with respect to those TNC executive officers who are also key employees of Terra. The Personnel Committee of Terra is composed of the directors named as signatories to the “Report on Executive Compensation” as set forth in Terra’s proxy statement. No director has any direct or indirect material interest in or relationship with TNC other than stockholdings as discussed above and as related to his or her position as a director, except as described under the caption “Certain Relationships and Related Transactions.” During 2002, no officer or other employee of TNC served on the board of directors of any other entity, where any officer or director of such entity also served on TNC’s Board. None of the members of such Personnel Committee are employees of Terra or its subsidiaries.

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

STOCKHOLDER MATTERS

TNC owns the entire general partner interest in both TNCLP and the Operating Partnership. TNC’s principal executive offices are located at 600 Fourth Street, Sioux City, Iowa 51101. Terra Capital, Inc. owns all the outstanding capital stock of TNC, and is an indirect, wholly-owned subsidiary of Terra. The stock of TNC is pledged as security under the Credit Agreement. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 7 to the Financial Statements. Terra Capital, Inc. owned, as of December 31, 2002, 2,716,600 common units of TNCLP. Terra and its subsidiaries are engaged in certain transactions with the Partnership described under the caption “Certain Relationships and Related Transactions” below.

The capital stock of Terra is owned 48.8% by Taurus International S.A (“Taurus”) as of December 31, 2002. Taurus is a company incorporated under the laws of Luxembourg as a société anonyme and is wholly-owned by Anglo American plc (“Anglo American”), a company incorporated under the laws of England and Wales as a public limited company. Anglo American, with its subsidiaries, joint ventures and associates, is a global leader in the mining and natural resource sectors. It has significant and focused interests in gold, platinum, diamonds, coal, base and ferrous metals, industrial minerals and forest products.

The following table shows the ownership of TNCLP common units and Terra common stock as of December 31, 2002 by (a) each person known to TNC to be a beneficial owner of more than 5% of the TNCLP common units (based on information reported to the SEC by or on behalf of such persons); (b) each director of TNC; (c) each of the named executive officers of TNC; and (d) by all directors and executive officers of TNC as a group.

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Name	Number of Units	Percent of Class		Number of Terra Common Shares Beneficially Owned1/	Percent of Class
Terra Nitrogen Corporation2/ 600 Fourth Street Sioux City, Iowa 51101	11,172,414	60.4	%	—	—
Terra Capital, Inc. 600 Fourth Street Sioux City, Iowa 51101	2,716,600	14.7	%	—	—
Michael L. Bennett	—	—		681,8533/	*
Michael A. Jackson	—	—		—	—
Burton M. Joyce	—	—		974,9013/	1.3	%
Mark A. Kalafut	—	—		105,3783/	*
Dennis B. Longmire	—	—		—	—
Francis G. Meyer	—	—		370,5753/	*
W. Mark Rosenbury	2,500	*		421,7293/	*
Theodore D. Sands	13,500	*		—	*
Steven A. Savage	4,000	*		177,2173/	*
All directors and executive officers as a group (11 persons)	20,000	*		3,320,8943/	4.3	%

* Represents less than 1% of class.

^1/ Each person has sole voting and investment power of all the securities indicated. The shares of Terra common stock shown include ownership of restricted common stock, which is subject to certain performance-related vesting conditions, and shares held under Terra’s Employees’ Savings and Investment Plan, in each case as of December 31, 2002.

^2/ Terra Nitrogen Corporation also owns the entire general partner interests in the Partnership. Each of Terra Nitrogen Corporation and Terra Capital, Inc. is an indirect, wholly-owned subsidiary of Terra Industries Inc.

^3/ The shares of Terra common stock shown include shares subject to employee stock options that can be exercised on or before May 6, 2003. Upon such exercise, the option holder(s) would acquire beneficial ownership of shares as follows: Mr. Bennett (246,000); Mr. Joyce (665,000); Mr. Kalafut (22,700); Mr. Meyer (100,000); Mr. Rosenbury (90,000); and Mr. Savage (50,000); and two unnamed executive officers (45,800); and all directors and executive officers as a group (1,406,500).

Equity Plan Compensation Table

The Partnership maintains no separate equity compensation plans. All benefits are paid through Terra’s equity compensation plans. See Item 12, Equity Plan Compensation Table, contained in Terra’s proxy statement.

Item 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to certain relationships and related transactions contained in Footnote 4 to Exhibit 13 hereto is incorporated herein by reference.

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PART IV

Item 14.     CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation within 90 days of the filing date of this report, that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the previously mentioned evaluation.

Item 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Financial Statements and Financial Statement Schedules

1. Consolidated Financial Statements of Terra Nitrogen Company, L.P. (incorporated herein by reference to Exhibit 13 hereof.)

Consolidated Balance Sheets at December 31, 2002 and 2001.

Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000.

Consolidated Statements of Partners’ Capital for the years ended December 31, 2002, 2001 and 2000.

Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000.

Notes to the Consolidated Financial Statements.

Independent Auditors’ Report

(b) Executive Compensation Plans and Other Arrangements

Exhibits 10.14 through 10.26 and 10.29 through 10.35 are incorporated herein by reference.

(c) Reports on Form 8-K

None.

(d) Exhibit

3.1 Agreement of Limited Partnership of TNCLP, filed as Exhibit 3.1 to the TNCLP Form 10-K (file No. 1-10877) for the year ended December 31, 1991, is incorporated herein by reference.

3.2 Certificate of Limited Partnership of TNCLP, filed as Exhibit 3.2 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference.

4.1 Deposit Agreement among TNCLP, the Depositary and Unitholders, filed as Exhibit 4.1 to the TNCLP Form 10-K (file No. 1-10877) for the year ended December 31, 1991, is incorporated herein by reference.

4.2 Form of Depositary Receipt for Common Units (included as Exhibit B to the Deposit Agreement filed as Exhibit 4.1 hereto), filed as Exhibit 4.3 to the TNCLP Form 10-K (file No. 1-10877) for the year ended December 31, 1991, is incorporated herein by reference.

4.3 Form of Transfer Application (included in Exhibit A to the Deposit Agreement filed as Exhibit 4.1 hereto), filed as Exhibit 4.4 to the TNCLP Form 10-K (file No. 1-10877) for the year ended December 31, 1991, is incorporated herein by reference.

4.4 Certificate of Limited Partnership of the Operating Partnership, filed as Exhibit 4.5 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference.

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4.5* Intercompany Promissory Note dated October 10, 2001, between Terra Nitrogen, Limited Partnership and Terra Capital, Inc.

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

10.1 Agreement of Limited Partnership of the Operating Partnership, filed as Exhibit 10.1 to the TNCLP Form 10-K (file No. 1-10877) for the year ended December 31, 1991, is incorporated herein by reference.

10.2** Master Agreement dated October 11, 1989, among ONEOK Inc., Oklahoma Natural Gas Company, ONG Western Inc., ONG Red Oak Transmission Company, ONG Transmission Company, Agrico Chemical Company and Freeport-McMoRan Resource Partners, Limited Partnership.

10.3** Lease Agreement dated October 11, 1989, among ONEOK Inc., Oklahoma Natural Gas Company, ONG Western Inc., ONG Red Oak Transmission Company, ONG Transmission Company, Agrico Chemical Company and Freeport-McMoRan Resource Partners, Limited Partnership.

10.4 Gas Service Agreement dated October 11, 1989, between Oklahoma Natural Gas Company and Agrico Chemical Company, filed as Exhibit 10.4 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference.

10.5** Transportation Service Agreement dated as of September 1, 1988, among Reliant Energy Gas Transmission Company and Agrico Chemical Company, as supplemented by Letter Agreements dated September 2, 1988, and November 1, 1990, and Consent to Assignment dated March 9, 1990.

10.6 Transportation Service Agreement effective January 1, 1990, between MAPCO Ammonia Pipeline, Inc. and Agrico Chemical Company, and Consent to Assignment dated January 22, 1991, filed as Exhibit 10.6 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference.

10.7 Car Service Contract dated as of March 2, 1990, between General American Transportation Corporation and TNC, and Consent to Assignment dated February 22, 1990, filed as Exhibit 10.8 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference.

10.8 Lease Agreement dated as of December 22, 1988, between PLM Investment Management, Inc. and Agrico Chemical Company, and Consent to Assignment dated February 23, 1990, and Assignment and Assumption effective as of March 1, 1990, filed as Exhibit 10.9 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference.

10.9 Lease and Agreement dated December 1, 1964, between City of Blytheville, Arkansas, and Continental Oil Company, as supplemented, filed as Exhibit 10.10 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference.

10.10 Lease dated November 1, 1975, between the City of Blytheville, Arkansas, and The Williams Companies, Inc., as supplemented, filed as Exhibit 10.11 to the TNCLP Form 10-K (file No. 1-10877) for the year ended December 31, 1991, is incorporated herein by reference.

10.11 Lease dated September 6, 1977, between Tulsa-Rogers County Port Authority and Agrico Chemical Company, as supplemented, filed as Exhibit 10.12 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference.

10.12 General and Administrative Services Agreement Regarding Services by Terra Industries Inc. filed as Exhibit 10.11 to Terra Industries Inc. Form 10-Q for the quarter ended March 31, 1995 (file no. 1-8520), is incorporated herein by reference.

10.13 General and Administrative Services Agreement Regarding Services by Terra Nitrogen Corporation filed as Exhibit 10.12 to Terra Industries Inc. Form 10-Q for the quarter ended March 31, 1995 (file no. 1-8520), is incorporated herein by reference.

10.14 1992 Stock Incentive Plan of Terra Industries filed as Exhibit 10.1.6 to Terra Industries’ Form 10-K for the year ended December 31, 1992 (file no. 1-8520), is incorporated herein by reference.

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10.15 Form of Restricted Stock Agreement of Terra Industries under its 1992 Stock Incentive Plan filed as Exhibit 10.1.7 to Terra Industries’ Form 10-K for the year ended December 31, 1992 (file no. 1-8520), is incorporated herein by reference.

10.16 Form of Incentive Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.8 to Terra Industries’ Form 10-K for the year ended December 31, 1992 (file no. 1-8520), is incorporated herein by reference.

10.17 Form of Nonqualified Stock Incentive Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.9 to Terra Industries’ Form 10-K for the year ended December 31, 1992 (file no. 1-8520), is incorporated herein by reference.

10.18 Terra Industries Inc. Supplemental Deferred Compensation Plan effective as of December 20, 1993, filed as Exhibit 10.1.9 to Terra Industries’ Form 10-K for the year ended December 31, 1993 (file no. 1-8520), is incorporated herein by reference.

10.19 Amendment No. 1 to the Terra Industries Inc. Supplemental Deferred Compensation Plan, filed as Exhibit 10.1.15 to Terra Industries’ Form 10-Q for the quarter ended September 30, 1995 (file no. 1-8520), is incorporated herein by reference.

10.20 Amendment No. 2 to the Terra Industries Inc. Supplemental Deferred Compensation Plan, filed as Exhibit 10.1.8.a to the Terra Industries Inc. Form 10-K for the year ended December 31, 2000 (File No. 1-8520), is incorporated herein by reference.

10.21 Excess Benefit Plan of Terra Industries, as amended effective as of January 1, 1992, filed as Exhibit 10.1.13 to Terra Industries’ Form 10-K for the year ended December 31, 1992 (file no. 1-8520), is incorporated herein by reference.

10.22 Amendment to the Terra Industries Excess Benefit Plan, dated July 26, 2000, filed as Exhibit 10.1.6.a to the Terra Industries Inc. Form 10-K for the year ended December 31, 2000 (File No. 1-8520), is incorporated herein by reference.

10.23 Revised Form of Performance Share Award of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.11 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1996 (File No. 1-8520), is incorporated herein by reference.

10.24 Revised Form of Incentive Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.12 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1996 (File No. 1-8520), is incorporated herein by reference.

10.25 Revised Form of Nonqualified Stock Option Agreement of Terra Industries under its 1992 Stock Incentive Plan, filed as Exhibit 10.1.13 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1996 (File No. 1-8520), is incorporated herein by reference.

10.26 1997 Stock Incentive Plan of Terra Industries, filed as Exhibit 10.1.14 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1996 (File No. 1-8520), is incorporated herein by reference.

10.27 Amended Demand Deposit Agreement, dated as of August 20, 1996, between Terra Nitrogen Limited Partnership and Terra Capital, Inc. filed as Exhibit 10.62 to TNCLP’s Form 10-K for the year ended December 31, 1996, is incorporated herein by reference.

10.28 Demand Promissory Note dated August 26, 1998 from Terra Nitrogen L.P., as Payor, to Terra Capital Inc. filed as Exhibit 10.69 to TNCLP’s Form 10-Q for the quarter ended September 30, 1998, is incorporated herein by reference.

10.29 Form of Incentive Stock Option Agreement of Terra Industries under its 1997 Stock Incentive Plan, filed as Exhibit 10.1.13 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1999 (File No. 1-8520), is incorporated herein by reference.

10.30 Form of Nonqualified Stock Option Agreement of Terra Industries under its 1997 Stock Incentive Plan, filed as Exhibit 10.1.14 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1999 (File No. 1-8520), is incorporated herein by reference.

19

10.31 Form of Performance Share Award of Terra Industries under its 1997 Stock Incentive Plan filed as Exhibit 10.1.15 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1998 (File No. 1.8520), is incorporated herein by reference.

10.32 Retirement and Consulting Agreement for Burton M. Joyce dated April 26, 2001 filed as Exhibit 10.1.16 of Terra Industries Inc. Form 10-K for the year ended December 31, 2001, is incorporated herein by reference.

10.33 Form of Executive Retention Agreement for Other Executive Officers filed as Exhibit 10.1.19 to the Terra Industries Inc. Form 10-K for the year ended December 31, 1998 (File No. 1.8520), is incorporated herein by reference.

10.34 2002 Incentive Award Program for Officers and Key Employees of Terra Industries filed as Exhibit 10.1.18 to the Terra Industries Inc. Form 10-K for the year ended December 31, 2001, is incorporated herein by reference.

10.35 Form of Performance Share Award of Terra Industries under its 1997 Stock Incentive Plan, dated February 16, 2000, filed as Exhibit 10.1.22 to the Terra Industries Inc. Form 10-K for the year ended December 31, 2000 (File No. 1-8520), is incorporated herein by reference.

10.36 Form of Non-Employee Director Performance Share Award of Terra Industries under its 1997 Stock Incentive Plan, dated May 2, 2000, filed as Exhibit 10.1.23 to the Terra Industries Inc. Form 10-K for the year ended December 31, 2000 (File No. 1-8520), is incorporated herein by reference.

13* Financial Review and Consolidated Financial Statements as contained in the Annual Report to Stockholders of Terra Nitrogen for the fiscal year ended December 31, 2002.

99.1 Conversion Statement dated December 31, 1996, filed as Exhibit 99.1 to the TNCLP Form 10-Q for the quarter ended March 31, 1997, is incorporated herein by reference.

99.2* Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

** Confidential treatment has been granted for portions of the exhibit.

20

SIGNATURES

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

Terra Nitrogen Company, L.P.
By:	Terra Nitrogen Corporation,
	as General Partner

By:	/s/    Francis G. Meyer
	Francis G. Meyer Vice President (Principal Financial Officer)

Dated: March 12, 2003

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant as of March 12, 2003 and in the capacities indicated.

Signature	Title
/s/    Michael L. Bennett (Michael L. Bennett)	Director, President and Chairman of the Board of Terra Nitrogen Corporation
/s/    Michael A. Jackson (Michael A. Jackson)	Director of Terra Nitrogen Corporation
/s/    Burton M. Joyce (Burton M. Joyce)	Director of Terra Nitrogen Corporation
/s/    Dennis B. Longmire (Dennis B. Longmire)	Director of Terra Nitrogen Corporation
/s/    Francis G. Meyer (Francis G. Meyer)	Director and Vice President of Terra Nitrogen Corporation
/s/    Theodore D. Sands (Theodore D. Sands)	Director of Terra Nitrogen Corporation

21

CERTIFICATIONS

I, Michael L. Bennett, President and Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Terra Nitrogen Company, L.P.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:    March 12, 2003

/s/    Michael L. Bennett

Michael L. Bennett

President and Chief Executive Officer

22

I, Francis G. Meyer, Senior Vice President and Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of Terra Nitrogen Company, L.P.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:    March 12, 2003

/s/    Francis G. Meyer

Francis G. Meyer

Senior Vice President and Chief Financial Officer

23

EX-13

CONFIDENTIAL

1

Exhibit 13

Independent Auditors’ Report

To the Partners

Terra Nitrogen Company, L.P.

We have audited the accompanying consolidated balance sheets of Terra Nitrogen Company, L.P. (a limited partnership) as of December 31, 2002 and 2001 and the related consolidated statements of operations, partners’ capital, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 Nitrogen Company, L.P. at December 31, 2002 and 2001 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Omaha, Nebraska

January 30, 2003, except for Note 10,

as to which the date is February 28, 2003.

CONFIDENTIAL

2

Terra Nitrogen Company, L.P.

Consolidated Balance Sheets

	At December 31,
	2002			2001
	(in thousands)
Assets
Current assets:
Cash	$	10		$	10
Demand deposit with affiliate		35,728			—
Cash and cash equivalents		35,738			10
Receivables:
Trade		26,042			31,358
Other		718			953
Inventory:
Finished products		10,411			18,292
Materials and supplies		9,692			10,128
Prepaid insurance and other current assets		6,659			3,939
Total current assets		89,260			64,680
Property, plant, and equipment, net		126,056			136,335
Other assets		10,708			9,402
Total assets	$	226,024		$	210,417
Liabilities and partners’ capital
Current liabilities:
Note payable to affiliate	$	—		$	14,293
Accounts payable		18,115			9,662
Accrued liabilities		3,405			3,058
Customer prepayments		21,314			2,388
Current portion of long-term debt and capital lease obligations		53			—
Total current liabilities		42,887			29,401
Long-term debt and capital lease obligations		8,333			8,200
Long-term payable to affiliate		5,316			5,316
Partners’ capital:
Limited partners’ interests—common unitholders		177,463			178,808
General Partners’ interest		(10,248	)		(10,221	)
Accumulated other comprehensive income (loss)		2,273			(1,087	)
Total partners’ capital		169,488			167,500
Total liabilities and partners’ capital	$	226,024		$	210,417

See accompanying Notes to the Consolidated Financial Statements

CONFIDENTIAL

3

Terra Nitrogen Company, L.P.

Consolidated Statements of Operations

	Year ended December 31,
	2002			2001			2000
	(in thousands, except per-unit amounts)
Revenues
Net sales	$	325,919		$	304,872		$	320,239
Other income, net		1,003			953			744
		326,922			305,825			320,983
Cost of goods sold		310,993			304,648			288,468
Gross profit		15,929			1,177			32,515
Operating expenses		9,439			10,074			11,493
Income (loss) from operations		6,490			(8,897	)		21,022
Interest expense		(560	)		(924	)		(1,436	)
Interest income		250			2			623
Net income (loss)	$	6,180		$	(9,819	)	$	20,209
Net income (loss) allocable to limited partners’ interest	$	6,056		$	(9,623	)	$	19,805
Net income (loss) per limited partnership unit	$	0.33		$	(0.52	)	$	1.07

See accompanying Notes to the Consolidated Financial Statements

CONFIDENTIAL

4

Terra Nitrogen Company, L.P.

Consolidated Statements of Partners’ Capital

	Limited Partners’ Interests			General Partners’ Interests			Accumulated Other Comprehensive Income (Loss)			Total Partners’ Capital
	(in thousands, except for Units)
Partners’ capital at January 1, 2000		180,837			(10,180	)		—			170,657
Net Income		19,805			404			—			20,209
Distributions		(4,071	)		(83	)		—			(4,154	)
Partners’ capital at December 31, 2000		196,571			(9,859	)		—			186,712
Net loss		(9,623	)		(196	)		—			(9,819	)
Cumulative effect of change in accounting for derivative financial instruments		—			—			14,200			—
Change in fair value of derivatives		—			—			(15,287	)		(1,087	)
Comprehensive loss		—			—						(10,906	)
Distributions		(8,140	)		(166	)		—			(8,306	)
Partners’ capital at December 31, 2001		178,808			(10,221	)		(1,087	)		167,500
Net income		6,056			124			—			6,180
Change in fair value of derivatives		—			—			3,360			3,360
Comprehensive loss		—			—			—			9,540
Distributions		(7,401	)		(151	)		—			(7,552	)
Partners’ capital at December 31, 2002	$	177,463		$	(10,248	)	$	2,273		$	169,488
Limited partner units issued and outstanding at December 31, 2002								18,501,576

See accompanying Notes to the Consolidated Financial Statements

CONFIDENTIAL

5

Terra Nitrogen Company, L.P.

Consolidated Statements of Cash Flows

	Year ended December 31,
	2002			2001			2000
	(in thousands)
Operating Activities
Net income (loss)	$	6,180		$	(9,819	)	$	20,209
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation		13,107			12,867			12,706
Changes in operating assets and liabilities:
Receivables		5,551			(7,572	)		5,107
Inventory		8,317			(9,039	)		19,731
Prepaid insurance and other current assets		(322	)		(1,876	)		(1,534	)
Accounts payable		8,453			(3,238	)		(3,196	)
Accrued liabilities and customer prepayments		20,235			(4,443	)		(51	)
Change in other assets		(2,388	)		1,857			3,336
Net cash flows from operating activities		59,133			(21,263	)		56,308
Investing Activities
Capital expenditures		(1,523	)		(1,985	)		(3,028	)
Other		—			380			—
Net cash flows from investing activities		(1,523	)		(1,605	)		(3,028	)
Financing Activities
Net changes in short-term borrowings		(14,293	)		14,293			(39,601	)
Proceeds from issuance of long-term debt		—			—			10,000
Repayment of long-term debt and capital lease obligations		(37	)		(1,050	)		(1,597	)
Partnership distributions paid		(7,552	)		(8,306	)		(4,154	)
Net cash flows from financing activities		(21,882	)		4,937			(35,352	)
Net increase (decrease) in cash and cash equivalents		35,728			(17,931	)		17,928
Cash and Cash Equivalents at Beginning of Year		10			17,941			13
Cash and Cash Equivalents at End of Year	$	35,738		$	10		$	17,941
Supplemental disclosure of cash flows information
Cash paid during the year for interest	$	560		$	924		$	1,436
Supplemental schedule of non-cash investing and financing activities
Capital lease obligations	$	223		$	—		$	—

See accompanying Notes to the Consolidated Financial Statements

CONFIDENTIAL

6

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

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America for reporting purposes. The preparation of these financial statements requires us to make estimates and judgments that affect the amount of assets, liabilities, revenues and expenses at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that reflect significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. Our critical accounting policies are described below.

Impairments of long-lived assets — We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of these items. Our cash flow estimates are based on historical results adjusted to reflect our best estimate of future market and operating conditions. The net carrying value of assets not recoverable is reduced to fair value. Our estimates of fair value represent our best estimate based on industry trends and reference to market rates and transactions.

Revenue recognition — Revenue is recognized when title to finished product passes to the customer. Revenue is recognized as the net amount to be received after deducting estimated amounts for discounts and trade allowances. Revenue includes amounts paid by customers for shipping and handling.

Inventory valuation — Inventories are stated at the lower of cost or estimated net realizable value. The average cost of inventories is determined using the first-in, first-out method. The nitrogen and methanol industries are characterized by rapid change in both demand and pricing. Rapid declines in demand could result in temporary or permanent production curtailment, while rapid price declines could result in a lower of cost or market adjustment.

Derivatives and Financial Instruments — The Partnership accounts for derivatives in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133 “Accounting for Derivative Instruments and Hedging Activities”. SFAS 133 requires the recognition of derivatives in the balance sheet and the measurement of these instruments at fair value. Changes in fair value of derivatives are recorded in earnings unless the normal purchase or sale exception or hedge accounting is elected.

The General Partner enters into derivative instruments including future contacts, swap agreements, and purchased options to fix prices for a portion of natural gas production requirements. The General Partner has designated, documented and assessed accounting hedge relationships, which mostly resulted in cash flow hedges that require the Partnership to record the derivative assets or liabilities at their fair value on its balance sheet with an offset in other comprehensive income. Hedge ineffectiveness is recorded in earnings. Amounts are removed from other comprehensive income as the underlying transactions occur and realized gains or losses are recorded.

Factors That Affect Operating Performance

Factors that may affect the Partnership’s operating results include: the relative balance of supply and demand for nitrogen fertilizers, the availability and cost of natural gas, the number of planted acres — which is affected by both worldwide demand and government policies, the types of crops planted, the effects general weather patterns have on the timing and duration of fieldwork for crop planting and harvesting, the effect of environmental legislation on supply and demand for the Partnership’s products, the availability of financing sources to fund seasonal working capital needs and the potential for interruption to operations due to accidents or natural disasters.

The principal raw material used to produce nitrogen products is natural gas. Natural gas costs in 2002 accounted for about 54% of total costs and expenses for the Partnership. A significant increase in the price of natural gas that is not

CONFIDENTIAL

7

covered by forward pricing arrangements or recovered through an increase in the price of related nitrogen products would have an adverse effect on the Partnership’s business, financial condition and results. During parts of 2000 and 2001, spikes in North American natural gas markets prompted industry-wide nitrogen production curtailments. We produced only 89% and 81% of our total nitrogen capacity in 2000 and 2001, respectively, because of plant shutdowns and production curtailments related to high natural gas costs and to balance inventory levels to demand. A portion of global nitrogen products is manufactured at facilities with access to fixed-price natural gas supplies that have been, and could continue to be, priced substantially lower than the Partnership’s natural gas.

March 2003 natural gas future prices closed at over $9.00 per MMBtu in February 2003. As a result, the Partnership substantially reduced its production rates at the end of February 2003 and could make further reductions. The timing and extent to which the Partnership will resume normal production rates will depend on declines to natural gas costs from these levels and/or increases to selling prices.

The Partnership enters into forward pricing arrangements for natural gas so long as such arrangements would not result in costs that would be greater than expected selling prices for finished products manufactured by the Partnership. Terra Industries’ natural gas forward pricing policy (which is applicable to TNCLP) has been to fix or cap the price of between 20% and 80% of its natural gas requirements for a one-year period and up to 50% of its natural gas requirements for the subsequent two-year period through supply contracts, financial derivatives and other instruments. Deviations from this policy are permitted by notification of Terra Industries’ Board of Directors. The Partnership’s December 31, 2002 forward positions covered 12% of its expected 2003 natural gas requirements.

Prices for nitrogen products are influenced by the world supply and demand balance for ammonia and other nitrogen-based products. Long-term demand is affected by population growth and rising living standards that influences food consumption. Short-term demand is affected by world economic conditions and international trade decisions. For example, 2001 demand was also reduced, in part, due to relatively high nitrogen prices and low grain prices. Supply is affected by increasing worldwide capacity and the availability of nitrogen product exports from major producing regions such as the former Soviet Union, the Middle East and South America.

Weather can significantly affect demand for the Partnership’s products. Weather conditions that delay or intermittently disrupt fieldwork during the planting season may cause agricultural customers to use forms of nitrogen fertilizer that are more or less favorable to the Partnership’s sales. Weather conditions following harvest may delay or eliminate opportunities to apply fertilizer in the fall. Weather can also have an adverse effect on crop yields, which lowers the income of growers and could impair their ability to pay for crop inputs purchased from Terra’s dealer customers. Conversely, low crop yields often increase the planted areas in the subsequent growing season, which, in turn, increases the demand for nitrogen fertilizer.

The Partnership’s business is highly seasonal, with the majority of its products used during the second quarter in conjunction with spring planting. Due to the business’ seasonality and the relatively brief periods during which products can be used by customers, the Partnership and its customers generally build inventories during the second half of the year to ensure product availability during the peak sales season. For its current level of sales, the Partnership requires lines of credit to fund inventory increases and to support customer credit terms. The Partnership believes that its credit facilities are adequate for expected sales levels in 2003.

The Partnership’s operations may be subject to significant interruption if one or more of its facilities were to experience a major accident or natural disaster. The Partnership currently maintains insurance, including business interruption insurance, which it believes is sufficient to allow the Partnership to cover major damage to any of its facilities.

Risk Management and Financial Instruments

Market risk represents the risk of loss that may impact the financial position, results of operations or cash flows of the Partnership due to adverse changes in financial and commodity market prices and rates. The Partnership uses derivative financial instruments to manage risk in the area of changes in natural gas prices. The Partnership has no foreign currency exchange rate risk and all debt carries variable interest rates and approximates fair value.

CONFIDENTIAL

8

The General Partner’s policy is to avoid unnecessary risk and to limit, to the extent practical, risks associated with operating activities. The General Manager may not engage in activities that expose the Partnership to speculative or non-operating risks. Management is expected to limit risks to acceptable levels. The use of derivative financial instruments is consistent with the overall business objectives of the Partnership. Derivatives are used to manage operating risk within the limits established by the General Partner’s Board of Directors, and in response to identified exposures, provided they qualify as hedge activities. As such, derivative financial instruments are used to hedge firm commitments and forecasted commodity purchase transactions.

Natural gas is the principal raw material used to manufacture nitrogen. Natural gas prices are volatile and the General Partner manages some of this volatility through the use of derivative commodity instruments. Terra Industries’ hedging policy (which is applicable to TNCLP) is described under the previous heading, “Factors that Affect Operating Performance”. The Partnership has hedged 12% of expected 2003 requirements and none of its requirements beyond December 31, 2003. The fair value of these instruments is estimated based on published referenced prices and quoted market prices from brokers. These instruments fixed natural gas prices $1.3 million lower than published prices for December 31, 2002 forward markets. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse price change. As of December 31, 2002, the Partnership’s market risk exposure related to future hedged natural gas requirement was $0.9 million based on a sensitivity analysis. Changes in the market value of these derivative instruments have a high correlation to changes in the spot price of natural gas. This hypothetical adverse impact on natural gas derivative instruments would be more than offset by lower costs for natural gas purchases.

March 2003 natural gas future prices closed at over $9.00 per MMBtu in February 2003. As a result, the Partnership substantially reduced its production rates at the end of February 2003 and could make further reductions. The timing and extent to which the Partnership will resume normal production rates will depend on declines to natural gas costs from these levels and/or increases to selling prices.

Results of operations: 2002 compared with 2001

The Partnership’s sales volumes and prices for 2002 and 2001 follow (quantities in thousands of tons):

	2002			2001
	Sales Volume	Avg. Unit Price*		Sales Volume	Avg. Unit Price*
Ammonia	394	$	153	259	$	210
UAN	2,475		70	1,942		93
Urea	450		116	290		134

* After deducting outbound freight costs

Revenues for 2002 increased $21.1 million, or 7%, as higher selling volumes were partially offset by substantially lower selling prices. Selling prices were lower as the result of increased supplies of nitrogen fertilizer in contrast to 2001 when high natural gas costs resulted in industry-wide production curtailments. The revenue shortfall from lower prices was more than offset by higher 2002 volumes as compared to last year. Sales volumes in 2001 were depressed due to lower production rates, reduced demand in response to high prices and increased competition from imports. In 2002, less volatile natural gas costs resulted in more normal production rates and demand increased to pre-2001 levels in response to lower nitrogen prices and higher grain prices.

Gross profits during 2002 totaled $15.9 million compared to $1.2 million for 2001. The increase in gross profits was primarily related to lower natural gas costs and higher sales volumes, offset in part by reduced selling prices. Natural gas unit costs declined $64.5 million in 2002 reflecting unit costs that, including $7.1 million of gains on forward pricing contracts, averaged $3.12 per Million British thermal units (“MMBtu”) during 2002 compared to $4.29/MMBtu in 2001.

Operating expenses of $9.4 million declined $0.6 million, or 6%, as the result of reduced headcount and lower spending for administrative activities.

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9

Net interest expense of $0.3 million was $0.6 million lower than in 2001 due to lower borrowing levels and higher cash balances.

Results of operations: 2001 compared with 2000

The Partnership’s sales volumes and prices for 2001 and 2000 follow (quantities in thousands of tons):

	2001			2000
	Sales Volume	Avg. Unit Price*		Sales Volume	Avg. Unit Price*
Ammonia	259	$	210	373	$	156
UAN	1,942		93	2,409		78
Urea	290		134	282		134

* After deducting outbound freight costs

Revenues for 2001 decreased $15.2 million, or 5%, as higher selling prices were offset by substantially lower sales volumes. Selling price increases were realized primarily during the first half of 2001 as the result of lower nitrogen supplies caused by industry-wide production curtailments in response to unprecedented increases to natural gas costs. Sales volumes declined primarily as the result of lower production rates in response to higher gas costs, fewer planted acres of corn, wheat and other crops and reduced application rates because of low grain prices and high fertilizer costs.

Gross profits during 2001 totaled $1.2 million compared to $32.5 million for 2000. Higher selling prices were more than offset by $46.4 million of natural gas cost increases. Natural gas costs, including $7.5 million of losses on forward pricing contracts, averaged $4.29/MMBtu during 2001 compared to $3.13/MMBtu in 2000. In addition to higher gas costs, lower sales volumes reduced 2001 gross profits $26.5 million from the prior year.

Operating expenses of $10.1 million declined $1.4 million, or 12%, as the result of reduced headcount and lower spending for administrative activities.

Net interest expense of $0.9 million was comparable to 2000 levels.

Liquidity and capital resources

Net cash provided by operating activities for 2002 was $59.1 million compared to 2001 cash used in operations of $21.3 million, an increase of $80.4 million principally due to decreases to working capital balances and higher net income. The decline in working capital consisted of reductions to inventory and accounts receivable and an increase in customer prepayments. The inventory decline resulted from 2002 sales demand that was greater than production rates and the accounts receivable reduction reflects earlier fall fill demand by dealers than during the 2001 second half. The increase in customer prepayments reflects stronger 2002 demand for such arrangements than the prior year. We expect customer prepayments will be substantially utilized during the first half of 2003.

Capital expenditures of $1.5 million during 2002 were used primarily to fund replacement and stay-in-business additions to plant and equipment. The Partnership expects 2003 capital expenditures to approximate $5.0 million to fund replacement and stay-in-business additions to plant and equipment.

Contractual obligations and commitments to make future payments were as follows at December 31, 2002:

	Payments Due In
	Less than One Year		Two to Three Years		Four to Five Years		Thereafter
	(in thousands)
Long-term debt	$	66	$	132	$	10	$	—
Operating leases		7,842		12,313		6,278		715
Total	$	7,908	$	12,445	$	6,288	$	715

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The Partnership, along with Terra Industries Inc. (“Terra”), Terra Capital, Inc. and other affiliates, has an asset-based financing agreement for up to $175 million of borrowings. The financing agreement provides for the Partnership to borrow amounts generally up to 85% of eligible receivables plus 60% of eligible finished goods inventory. At December 31, 2002, the Partnership had unused borrowing availability of approximately $21.5 million. The financing agreement, which expires June 2005, bears interest at floating rates (4.15% at December 31, 2002) and is secured by substantially all of the Partnerships’ working capital. The agreement also requires the Partnership and its affiliates to 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. In addition, if Terra’s combined borrowing availability declines below $60 million, Terra is required to have achieved $60 million of earnings before interest, income taxes, depreciation, amortization and other non-cash items (as defined in the credit facility) during the most recent four quarters. Failure to meet these covenants would require the Partnership to incur additional cost to replace the Terra bank facilities or could result in termination of the facilities.

March 2003 natural gas future prices closed at over $9.00 per MMBtu in February 2003. As a result, the Partnership substantially reduced its production rates at the end of February 2003 and could make further reductions. The timing and extent to which the Partnership will resume normal production rates will depend on declines to natural gas costs from these levels and/or increases to selling prices. Failure to resume normal production rates would adversely affect results of operations and net cash flows from operating activities and could affect Terra’s ability to meet the covenants of its bank facilities.

The Partnership’s principal funding needs are to support its working capital and capital expenditures. The Partnership intends to fund its needs primarily from net cash provided by operating activities, and, to the extent required, from funds borrowed from others, including borrowings from Terra Capital, Inc., the parent of the General Partner. The Partnership believes that such sources of funds will be adequate to meet the Partnership’s working capital needs and fund the Partnership’s capital expenditures for at least the next 12 months.

Expenditures related to environmental, health and safety regulation compliance are primarily composed of operating costs that totaled $3.1 million, $3.6 million and $3.8 million in 2002, 2001 and 2000, respectively. Because environmental, health and safety regulations are expected to continue to change and generally to be more restrictive than current requirements, the costs of compliance will likely increase. The Partnership does not expect its compliance with such regulations will have a material adverse effect on its results of operations, financial position or net cash flows.

In addition, the Partnership incurred $808,000, $91,000 and $290,000 of capital expenditures in 2002, 2001 and 2000, respectively, related to capital improvements to ensure compliance with environmental, health and safety regulations. The Partnership may be required to install additional air and water quality control equipment, such as low nitrous oxide burners, scrubbers, ammonia sensors and continuous emission monitors to continue to achieve compliance with Clean Air Act and similar requirements. These equipment requirements typically apply to competitors as well. The Partnership estimates that the cost of complying with these existing requirements in 2003 and beyond will be less than $10 million.

At December 31, 2002, the Partnership had a $35.7 million demand deposit with Terra Capital, Inc. and earned interest at 1.34%, the rate received by Terra Capital on its co-mingled cash investments. At December 31, 2001, the amount of the demand notes was $14.3 million and the notes bore interest at 5.4% the rate paid by Terra Capital on its short-term borrowings.

Quarterly distributions to TNCLP’s partners are based on Available Cash for the quarter as defined in the TNCLP Agreement of Limited Partnership. Available Cash 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. Distributions paid to the partners in 2002, 2001 and 2000 were $7.6 million, $8.3 million and $4.2 million, respectively.

Distributions of Available Cash are made 98% to the Limited Partners and 2% to the General Partner, except that the General Partner is entitled, as an incentive, to larger percentage interests to the extent that distributions of Available

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Cash exceed specified levels. The specified levels are increased by the amount quarterly distributions to holders of Common Units are less than $0.605 per unit. As of December 31, 2002, the cumulative shortfall on quarterly distributions to holders of Common Units that must be paid before the General Partner receives an incentive payment was $169.3 million, or $9.15 per unit.

Long-term payable to affiliates of $5.3 million at December 31, 2002, represents amounts due from the Partnership to Terra for a historic share of Terra’s long-term pension liabilities. The payable is non-interest bearing and will be repaid when Terra is required to fund its related liabilities. The Partnership anticipates that approximately $1.2 million in funding will be required in 2003.

Recently Issued Accounting Standards

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement No. 143, “Accounting for Asset Retirement Obligations”. This standard requires the Partnership to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and is effective for our fiscal year 2003. The adoption of this standard is not expected to have a material effect on the Partnerships’ financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This standard requires that the Partnership recognize a liability for a cost associated with an exit or disposal activity when the liability is incurred rather than recognize the liability at the date of a commitment to an exit plan and is effective for exit or disposal activities that are initiated after December 31, 2002.

General Partner Option to Effect Mandatory Redemption of Partnership Units

At December 31, 2002, the General Partner and its affiliates owned 75.1% of the Partnership’s outstanding units. When less than 25% of the issued and outstanding units are held by non-affiliates of the General Partner, the Partnership, at the General Partner’s sole discretion, may call, or assign to the General Partner or its affiliates its right to acquire, all such outstanding units held by non-affiliated persons. If the General Partner elects to acquire all outstanding units, the Partnership is required to give at least 30 but not more than 60 days’ notice of its decision to purchase the outstanding units. The purchase price per unit will be the greater of (1) the average of the previous 20 trading days’ closing prices as of the date five days before the purchase is announced and (2) the highest price paid by the General Partner or any of its affiliates for any unit within the 90 days preceding the date the purchase is announced.

Forward-Looking Precautions

Information contained in this report, other than historical information, may be considered forward-looking. Forward-looking information reflects Management’s current views of future events and financial performance that involve a number of risks and uncertainties. The factors that could cause actual results to differ materially include, but are not limited to, the following: changes in the financial markets, general economic conditions within the agricultural industry, competitive factors and price changes (principally, nitrogen products selling prices and natural gas costs), changes in product mix, changes in the seasonality of demand patterns, changes in weather conditions, changes in agricultural regulations, and other risks detailed in the “Factors that Affect Operating Results” section of this discussion.

Notes to Consolidated Financial Statements

1.    Organization

Terra Nitrogen Company, L.P. (“TNCLP”) is a Delaware limited partnership that owns a 99% limited partner interest as the sole limited partner in Terra Nitrogen, Limited Partnership (the “Operating Partnership”; collectively with TNCLP, the “Partnership,” unless the context otherwise requires). Terra Nitrogen Corporation (“TNC”), the General Partner, exercises full control over all business affairs of the Partnership. TNC owns, as General Partner, a consolidated 2.0% interest in both the Partnership and Operating Partnership.

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TNC is an indirect wholly-owned subsidiary of Terra Industries Inc. (“Terra”), a Maryland corporation. Terra is an industry leader in the production and marketing of nitrogen products and methanol. Terra is one of the largest producers of anhydrous ammonia and nitrogen solutions in the United States and Canada, and is also the largest producer of ammonium nitrate in the United Kingdom. In addition, Terra is one of the largest U.S. producers and marketers of methanol.

Ownership of TNCLP is represented by the General Partner interest and the limited partner interests. The limited partner interests consist of 18,501,576 Common Units. Terra and its subsidiaries owned 13,889,014 Common Units as of December 31, 2002, and the balance are traded on the New York Stock Exchange under the symbol “TNH”.

The Partnership primarily evaluates performance and determines the allocation of resources on an entity-wide basis.

2.    Significant Accounting Policies

Description of Business — The Partnership manufactures and sells fertilizer products, including ammonia, urea and urea ammonium nitrate solution (“UAN”), which are principally used by farmers to improve the yield and quality of their crops. The Partnership sells products primarily throughout the United States on a wholesale basis. The Partnership’s customers vary in size and are primarily related to the agriculture industry and to a lesser extent to the chemical industry. Credit is extended based on an evaluation of the customer’s financial condition, and collateral generally is not required.

Basis of Presentation — The consolidated financial statements reflect the combined assets, liabilities and operations of the Partnership and the Operating Partnership. All significant intercompany accounts and transactions have been eliminated. Income is allocated to the General Partner and the Limited Partners in accordance with the provisions of the TNCLP Agreement of Limited Partnership that provides for allocations of income between the Limited Partners and the General Partner in the same proportion as cash distributions declared during the year.

Cash and Cash Equivalents — The Partnership considers cash, short-term investments and demand deposits with affiliates with an original maturity of three months or less to be cash and cash equivalents.

Financing Arrangements — The Partnership has an arrangement for demand deposits and notes with an affiliate to allow for excess Partnership cash to be deposited with, or funds to be borrowed from, Terra Capital Inc., the parent of the General Partner. At December 31, 2002, $35.7 million was deposited with Terra Capital, Inc. and earned interest at 1.34%, the rate received by Terra Capital on its commingled cash investments. At December 31, 2001, the amount of the demand notes was $14.3 million, and the notes bore interest at 5.4%, the rate paid by Terra Capital on its short-term borrowings.

Inventories — Inventories are stated at the lower of average cost and estimated net realizable value. The cost of inventories is determined using the first-in, first-out method.

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 3 to 22 years. Maintenance, other than plant turnaround and catalyst replacement, and repair costs are expensed as incurred. 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.

Plant Turnaround Costs — Costs related to the periodic scheduled major maintenance of continuous process production facilities (plant turnarounds) are deferred and charged to product costs on a straight-line basis during the period until the next scheduled turnaround, generally over two years. Included in other non-current assets at December 31, 2002 and 2001 is $5.2 million and $7.2 million, respectively, of unamortized plant turnaround costs.

Amortization expense of $5.1 million, $6.5 million and $6.8 million was recorded for the years ended December 31, 2002, 2001 and 2000, respectively.

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Impairment of Long-Lived Assets — In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Partnership reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future cash flows expected to result from the use of the asset (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on the difference between the carrying amount and the fair value of the asset. To date, no such impairment has occurred.

Accrued Liabilities — Accrued liabilities at December 31, 2001 included $0.3 million of deferred gains on closed natural gas contracts relating to future periods.

Derivatives and Financial Instruments – The Partnership accounts for derivatives in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”. SFAS 133 requires the recognition of derivatives in the balance sheet and the measurement of these instruments at fair value. Changes in fair value of derivatives are recorded in earnings unless the normal purchase or sale exception or hedge accounting is elected.

The General Partner enters into derivative instruments including future contacts, swap agreements, and purchased options to fix prices for a portion of future natural gas production requirements. The General Partner has designated, documented and assessed accounting hedge relationships, which mostly resulted in cash flow hedges that require the Partnership to record the derivative assets or liabilities at their fair value on its balance sheet with an offset in other comprehensive income (“OCI”). Hedge ineffectiveness is recorded in earnings. Amounts are removed from other comprehensive income as the underlying transactions occur and realized gains or losses are recorded.

Revenue Recognition — Revenue is recognized when title to finished product passes to the customer. Revenue is recognized as the net amount to be received after deducting estimated amounts for discounts and trade allowances. Amounts paid by customers for shipping and handling are included in revenues.

Cost of Sales and Hedging Transactions — Realized gains and losses from hedging activities and premiums paid for option contracts are deferred and recognized in the month to which the hedged transactions relate (see Note 8 — Derivative Financial Instruments). Costs associated with settlement of natural gas purchase contracts and costs for shipping and handling are included in cost of sales.

Income Taxes — The Partnership is not subject to income taxes and the income tax liability of the individual partners is not reflected in the consolidated financial statements of the Partnership. The reported amount of net assets of the Partnership exceeded the tax basis of the net assets by approximately $118.2 million and $118.7 million at December 31, 2002 and 2001, respectively.

Reclassifications — Certain reclassifications have been made to prior year’s financial statements to conform with current year presentation.

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 revenue and expenses during the reporting period. Actual results could differ from these estimates.

Per-unit Results and Allocations — Net income per limited partner unit is computed by dividing net income, less an approximate 2% share allocable to the General Partner for the years ended December 31, 2002, 2001 and 2000, respectively, by 18,501,576 limited partner units. According to the Agreement of Limited Partnership of TNCLP, net income is allocated to the General Partner and the Limited Partners in each taxable year in the same proportion that Available Cash for such taxable year was distributed to the General Partner and the Limited Partners.

Recently Issued Accounting Standards — In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. This standard requires us to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and is effective for our fiscal year

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2003. The adoption of this standard is not expected to have a material effect on the Partnerships’ financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This standard requires that the Partnership recognize a liability for a cost associated with an exit or disposal activity when the liability is incurred rather than recognize the liability at the date of a commitment to an exit plan and is effective for exit or disposal activities that are initiated after December 31, 2002.

3.    Agreement of Limited Partnership

The Partnership makes quarterly cash distributions to Unitholders and the General Partner in an amount equal to 100% of Available Cash, as defined. The General Partner receives a combined minimum 2% of total cash distributions and, as an incentive, the General Partner’s participation increases if cumulative cash distributions exceed specified target levels.

The quarterly cash distributions paid to the Unitholders and the General Partner in 2002 and 2001 follow:

	Common Units		General Partner
	Total ($000s)	$ Per Unit	Total ($000s)
2002
First Quarter	—	—	—
Second Quarter	—	—	—
Third Quarter	3,738	.20	38
Fourth Quarter	3,738	.20	38
2001
First Quarter	4,070	.22	82
Second Quarter	4,070	.22	84
Third Quarter	—	—	—
Fourth Quarter	—	—	—

If at any time less than 25% of the issued and outstanding units are held by non-affiliates of the General Partner, the Partnership, at the General Partner’s sole discretion, may call, or assign to the General Partner or its affiliates its right to acquire, all such outstanding units held by non-affiliated persons. The General Partner and its affiliates owned 75.1% of the Common Units at December 31, 2002. If the General Partner elects to acquire all outstanding units, TNCLP is required to give at least 30 but not more than 60 days notice of its decision to purchase the outstanding units. The purchase price per unit will be the greater of (1) the average of the previous 20 trading days’ closing prices as of the date five days before the purchase is announced and (2) the highest price paid by the General Partner or any of its affiliates for any unit within the 90 days preceding the date the purchase is announced.

4.    Related Party Transactions

The Partnership has no employees. Pursuant to the provisions of the TNCLP Agreement of Limited Partnership, TNC, as General Partner, is paid for all direct and indirect expenses or payments it makes on behalf of the Partnership and for that portion of TNC’s or its affiliates’ administrative and overhead expenses and all other expenses necessary or appropriate to the conduct of the Partnership’s business and reasonably allocable to the Partnership. TNC charges TNCLP for all costs and expenses directly related to TNCLP operations, such as direct labor and raw materials. Some employee benefits, such as health insurance and pension, are covered under plans that include TNC and its affiliates. Employee benefit costs are allocated between TNCLP and other affiliates on the basis of direct payroll. Management believes such costs would not be materially different if the Partnership were

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obtaining these benefits on a stand-alone basis. For the years ended December 31, 2002, 2001 and 2000, expenses charged to the Partnership by TNC amounted to $39.3 million, $34.0 million and $33.3 million, respectively, including $19.8 million, $17.2 million and $17.8 million, respectively, for payroll and payroll-related expenses including pension costs.

Certain services including accounting, legal, risk management, investor relations and certain employee benefit and other employee-related expenses are provided by Terra to TNC. The portion of these expenses allocated to TNC that relate to TNC’s activities as General Partner are charged to the Partnership. Expense allocations are based on individual cost causative factors (such as headcount or sales volume) or on a general allocation formula based equally on sales volumes, headcount and asset values. Since it is not practicable to estimate the cost to duplicate the general and administrative support functions on a stand-alone basis, management has not attempted to estimate the amount of such expenses if the Partnership were obtaining these services on a stand-alone basis. Allocated expenses under this agreement charged to the Partnership were $6.1 million, $6.7 million and $8.4 million for the years ended December 31, 2002, 2001 and 2000, respectively.

Certain supply terminals and transportation equipment are generally available for use by the Partnership and other Terra affiliates. The costs associated with the operation of such terminals and transportation equipment and related freight costs incurred to ship product to the various sales points in the distribution system are centralized. The Partnership or Terra is charged based on the actual usage of such assets and freight costs incurred.

TNC’s employees are members of the Terra Industries Inc. Employees’ Retirement Plan (the Terra Retirement Plan), a noncontributory defined benefit pension plan. The accumulated benefits and plan assets of the Terra Retirement Plan are not determined separately for TNC employees. TNC recorded pension costs of $0.6 million, $0.4 million and $0.4 million ($0.4 million, $0.3 million and $0.3 million of which was charged to the Partnership) in 2002, 2001 and 2000, respectively, as its allocated share of the total periodic pension cost for the Terra Retirement Plan. Benefits are based on years of service and average final compensation.

Long-term payable to affiliate of $5.3 million at December 31, 2002, represents amounts due from the Partnership to Terra for a historic share of Terra’s long-term pension liabilities. The payable is non-interest bearing and will be repaid when Terra is required to fund its related liabilities. The Partnership anticipates that approximately $1.2 million in funding will be required in 2003. Subsequent repayments are subject to the investment performance of pension funds, changes in actuarial experience and federal funding requirements.

Terra maintains a qualified savings plan that allows employees who meet specified service requirements to contribute a percentage of their total compensation, up to a maximum defined by the plan. Each employee’s contribution, up to a specified maximum, may be matched by TNC based on a specified percentage of employee contributions. Employee contributions vest immediately, while Terra’s contributions vest over five years. Expenses associated with TNC’s contribution to the Terra qualified savings plan charged to the Partnership for the years ended December 31, 2002, 2001 and 2000 were $556,000, $532,000 and $567,000, respectively.

The Partnership has an arrangement for demand deposits and notes with an affiliate to allow for excess Partnership cash to be deposited with or funds to be borrowed from Terra Capital Inc., the parent of the General Partner. At December 31, 2002, $35.7 million was deposited with Terra Capital, Inc. and earned interest at 1.34%, the rate received by Terra Capital on its commingled cash investments. At December 31, 2001, the amount of the demand notes was $14.3 million, and the notes bore interest at 5.4%, the rate paid by Terra Capital on its short-term borrowings.

Interest expense paid to the affiliate was $551,000, $924,000 and $1.4 million for the years ended December 31, 2002, 2001 and 2000, respectively. Interest income received from the affiliate was $249,000, $2,000 and $623,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

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5.    Property, Plant and Equipment

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

	2002			2001
	(in thousands)
Assets owned:
Land	$	3,270		$	3,270
Building and improvements		3,026			2,566
Plant and equipment		281,833			280,668
Capital lease assets		223			—
Terminal and transportation equipment		7,845			6,865
		296,197			293,369
Less accumulated depreciation and amortization		(170,141	)		(157,034	)
Total	$	126,056		$	136,335

6.    Long-Term Debt and Capital Lease Obligations

Long-term debt consisted of the following at December 31,

	2002		2001
	(in thousands)
Capitalized lease obligations	$	186	$	—
Long-term debt due to affiliate		8,200		8,200
		8,386		8,200
Less current maturities		53		—
Total	$	8,333	$	8,200

The Partnership, along with Terra Industries Inc., Terra Capital, Inc. and other affiliates, has an asset-based financing agreement for up to $175 million of borrowings. The financing agreement provides for the Partnership to borrow amounts generally up to 85% of eligible receivables plus 60% of eligible finished goods inventory. At December 31, 2002, the Partnership had unused borrowing availability of approximately $21.5 million. The financing agreement, which expires June 2005, bears interest at floating rates (4.15% at December 31, 2002) and is secured by substantially all of the Partnerships’ working capital. The agreement also requires the Partnership and its affiliates to 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. In addition, if Terra’s combined borrowing availability declines below $60 million, Terra is required to have achieved $60 million of earnings before interest, income taxes, depreciation, amortization and other non-cash items (as defined in the credit facility) during the most recent four quarters. If necessary, the Partnership believes that it could replace its existing credit lines on terms and conditions not materially different from its current arrangement through Terra.

The long-term debt due to affiliate is secured by the fixed and intangible assets of the Partnership and requires no periodic or scheduled repayments.

7.    Commitments and Contingencies

The Operating Partnership is committed to various non-cancelable operating leases for land, buildings and equipment. Total minimum rental payments follow:

	(in thousands)
2003	$	7,842
2004		7,105
2005		5,208
2006		3,409
2007		2,869
2008 and thereafter		715
Net minimum lease payments		27,148

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Included above is the lease of the Port Terminal at the Verdigris facility. The leasehold interest is scheduled to expire on April 30, 2004, and the Partnership has the option to renew the lease for an additional term of five years.

Rent expense under non-cancelable operating leases amounted to approximately $6.9 million, $7.1 million and $8.2 million for the years ended December 31, 2002, 2001 and 2000, respectively.

Following is a summary of future minimum payments under capital leases, together with the present value of the net minimum payments as of December 31, 2002:

	(in thousands)
2003	$	66
2004		66
2005		66
2006		10
Total minimum lease payments		208
Less amount representing interest		22
Total present value of minimum payments		186
Less current portion of such obligations		53
Long-term lease obligation at 6.75% interest rate	$	133

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

8.    Derivative Financial Instruments

The Partnership records hedging gains and losses related to natural gas supply requirements based on a pooled resources concept with Terra. Under the pool concept, hedging gains and losses are allocated to each manufacturing plant based on gas usage for such plant.

The Partnership is subject to risks undertaken by Terra in its policy of using derivative financial instruments to manage the risk associated with changes in natural gas supply prices. Derivative financial instruments have credit risk and market risk. To manage credit risk, Terra enters into derivative transactions only with counter-parties who are currently rated BBB or better as recognized by a national rating agency. Terra will not enter into a transaction 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.

Market risk related to derivative financial instruments should be substantially offset by changes in the valuation of the underlying item being hedged.

The Partnership classifies a derivative financial instrument as a hedge if all of the following conditions are met:

1. The item to be hedged must expose the enterprise to price risk.

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

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

SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” requires that all derivative instruments, whether designated in hedging relationships or not, be recorded in the balance sheet at fair value. If the derivative is designated as a fair value hedge, the change in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of the changes in fair value of the derivative are recorded in other comprehensive income (OCI) and are recognized in the income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.

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The Partnership has designated its natural gas derivative instruments as cash flow hedges. The effective portion of the cash flow hedge is deferred in OCI until the natural gas it relates to is purchased and used in production; it is then reclassified from OCI to earnings.

Natural gas supplies to meet production requirements at the Operating Partnership’s production facilities are purchased at market prices. Natural gas market prices are volatile and the Partnership effectively fixes prices for a portion of its natural gas production requirements and inventory through the use of futures contracts, swap agreements and purchased options. These contracts reference physical natural gas prices or appropriate NYMEX futures contract prices. Contract physical prices 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 the Partnership’s two production facilities are purchased for each plant 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. 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 with 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% to 20% of the contract value and option contracts require initial premium payments ranging from 2% to 5% of contract value. Basis swap contracts require payments to or from the Partnership 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 is no initial cash requirements related to the swap and basis swap agreement.

The following summarizes open natural gas contracts allocated to the Partnership at December 31, 2002 and 2001:

	2002			2001
	Contract MMBtu	Unrealized Gain (Loss)		Contract MMBtu	Unrealized Gain (Loss)
	(in thousands)
Swaps	2,210	$	1,344	6,044	$	(1,054	)
Options	935		—	—		—
	3,145	$	1,344	6,044	$	(1,054	)

The Partnership’s annual procurement requirements are approximately 55 million MMBtu’s of natural gas. The Partnership had in place at December 31, 2002, forward contracts and firm purchase commitments to cover 12% of 2003 natural gas requirements. Gains and losses on settlement of these contracts and premium payments on option contracts are credited or charged to cost of sales in the month to which the hedged transaction relates. The risks and rewards of outstanding natural gas positions are directly related to increases and decreases in natural gas prices in relation to the underlying NYMEX natural gas contract prices. Realized gains were $0.9 million on closed contracts relating to future periods as of December 31, 2002. Cash flows related to natural gas hedging are reported as cash flows from operating activities.

Compared with spot prices, natural gas hedging activities reduced the Partnership’s 2002 natural gas costs by $7.1 million, increased 2001 natural gas costs by $7.5 million and reduced 2000 natural gas costs by $31.4 million.

The estimated fair value of the natural gas futures, swaps, options and basis swaps were based on published referenced prices and quoted market prices from brokers.

On January 1, 2001, the Partnership adopted SFAS 133 which resulted in a cumulative $9.9 million increase to current assets, a $4.3 million reduction to current liabilities, and a $14.2 million increase to accumulated OCI, which reflected the effective portion of the derivatives designated as cash flow hedges. The increase to current assets was to recognize the value of open natural gas contracts and the reduction to current liabilities was to reclassify deferred gains on closed contracts relating to future periods.

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On December 31 the fair value of derivatives resulted in following increases (decreases) to reflect the effective portion of the derivatives designated as cash flow hedges:

	2002		2001
	(in thousands)
Current assets	$	3,377	$	(1,054	)
Current liabilities		33		(33	)
Accumulated other comprehensive loss		3,360		(1,087	)

9.    Other Financial Information and Concentrations of Credit Risk

Fair values of financial instruments — The following methods and assumptions were used by the Partnership in estimating its fair value disclosures for financial instruments:

Cash and cash equivalents — The carrying amounts reported in the balance sheet for cash and cash equivalents approximate their fair values.

Long-term debt — The carrying amounts of the Partnership’s borrowings under long-term debt agreements approximate fair value.

Financial instruments — Fair values for the Partnership’s natural gas swaps and options are based on contract prices in effect at December 31, 2002 and December 31, 2001. The unrealized gain (loss) on these contracts is disclosed in Note 8.

Concentration of credit risk — The Partnership is subject to credit risk through trade receivables and short-term investments. Although a substantial portion of its debtors ability to pay is dependent upon the agribusiness economic sector, credit risk with respect to trade receivables is minimized due to a large customer base and its geographic dispersion.

Short-term cash investments, held as a demand deposit with an affiliate, may be placed with well-capitalized, high quality financial institutions and in short duration corporate and government debt securities funds or utilized for other corporate purposes.

10.    Subsequent event — Volatile Natural Gas Costs

In February 2003, the Partnership significantly reduced its production rates when March 2003 North American natural gas futures prices closed at over $9.00 per MMBtu. Production will be resumed when natural gas cost declines and/or selling prices increases result in positive cash flow from the additional production.

EX-99.2

Exhibit 99.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Terra Nitrogen Company, L.P. (the “Company”) on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Executive Officer and Chief Financial Officer of the Company hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002 that based on their best knowledge: 1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.

/s/ MICHAEL L. BENNETT

Michael L. Bennett, Chief Executive Officer

/s/ FRANCIS G. MEYER

Francis G. Meyer, Chief Financial Officer