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Article by DailyStocks_admin    (06-02-08 09:28 AM)

The Daily Magic Formula Stock for 06/02/2008 is Terra Industries Inc. According to the Magic Formula Investing Web Site, the ebit yield is 12% and the EBIT ROIC is 75-100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.

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Terra Industries Inc. together with its subsidiaries (“Terra”, “we”, “our”, or “us”) is a leading North American producer and marketer of nitrogen products, serving agricultural and industrial markets. In addition to manufacturing facilities at Port Neal, Iowa; Courtright, Ontario, Canada; Yazoo City, Mississippi; and Woodward, Oklahoma, we own a 75.3% interest in Terra Nitrogen Company, L.P. (“TNCLP”), which, through its subsidiary, Terra Nitrogen, Limited Partnership, operates our manufacturing facility at Verdigris, Oklahoma. We are the sole general partner and the majority limited partner of TNCLP. In addition, we own a 50% interest in Point Lisas Nitrogen Limited (“Point Lisas”), an ammonia production joint venture in the Republic of Trinidad and Tobago. We also own a 50% interest in GrowHow UK Limited, a nitrogen products production joint venture with facilities located in the United Kingdom; the GrowHow UK Limited joint venture was established in September 2007.

We are one of the largest North American producers of anhydrous ammonia (or ammonia), the basic building block of nitrogen fertilizers. We convert a significant portion of the ammonia we produce into urea ammonium nitrate solutions (UAN), ammonium nitrate (AN) and urea. Each of these products is easier for distributors and farmers to transport, store and apply to crops than ammonia. We also convert ammonia to nitric acid and dinitrogen tetroxide for use in industrial applications.

We also own two manufacturing facilities in North America that are not currently in production. The Beaumont, Texas methanol and ammonia production facilities were mothballed in December 2004 and are under contract to be sold to Eastman Chemical Company. The Donaldsonville, Louisiana ammonia plant was mothballed in the first quarter of 2005; however, we announced in February 2008 that we intend to restart the Donaldsonville ammonia plant during the third quarter of 2008.

2007 Overview

The North American nitrogen industry experienced substantial growth in 2007 earnings due to higher product prices in response to increased demand for fertilizers used as inputs for key commodities, including corn and wheat, and also due to relatively stable natural gas prices.

During 2007, we undertook two significant business transactions. We concluded the merger of our U.K. ammonia production business and operations with that of Kemira GrowHow Oyj to create a joint venture, GrowHow UK Limited, which is owned 50/50 by Terra and Kemira GrowHow Oyj. The joint venture was established in an effort to secure a sustainable, long term base for manufacturing ammonium nitrate fertilizer and process chemicals in the U.K. We also entered into a contract with Eastman Chemical Company to sell to Eastman the assets of our Beaumont, Texas facility. We expect the sale of the Beaumont, Texas assets to be concluded on or before January 1, 2009.

GrowHow Joint Venture

On September 14, 2007, we completed the formation of GrowHow UK Limited (GrowHow), a joint venture with Kemira GrowHow Oyj (Kemira). Pursuant to the Joint Venture Contribution and Shareholder Agreements with Kemira (the “GrowHow Agreements”), we contributed our subsidiary Terra Nitrogen (UK) Limited to the joint venture for a 50% interest in the joint venture, and Kemira contributed its Kemira GrowHow UK Limited subsidiary for the remaining 50% interest. The GrowHow joint venture in the United Kingdom includes the Kemira site at Ince and our Billingham and Severnside sites. Pursuant to the GrowHow Agreements with Kemira, we are eligible to receive additional consideration based on the future operating cash flows of GrowHow. We will receive a minimum additional consideration payment of £20 million, and have the right to receive up to £60 million, based on GrowHow’s operating income.

On October 9, 2007, GrowHow announced the closure of its Severnside manufacturing facilities. The closure is expected to be completed by the end of January 2008. Pursuant to the GrowHow Agreements, we are responsible for remediation costs required to prepare the Severnside site for disposal, net of sales proceeds, in excess of £1 million. We are also entitled to receive any excess sales proceeds above the cost of remediation, in excess of £1 million. We anticipate that the proceeds from sale of the Severnside land would exceed the total cost of reclamation of the site. For additional information regarding the GrowHow joint venture, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , and Note 7 of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

Sale of Beaumont Facilities

On July 18, 2007, we announced that we entered into agreements with Eastman Chemical Company (Eastman) resulting in Eastman’s agreement to purchase all the assets of our Beaumont, Texas facility. We anticipate closing the sale on or before January 1, 2009. In connection with entering into these agreements, we determined that the value of our Beaumont facility was impaired and we recorded a $39 million impairment charge for the quarter ended September 30, 2007. For additional information regarding the sale of our Beaumont facility, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , and Notes 1 and 6, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

Business Strategy and Segments

Our business is organized into two segments: nitrogen products and methanol. We also have an equity method investment in GrowHow UK Limited, a U.K. joint venture.

The principal customers for our North American nitrogen products are national agricultural retail chains, farm cooperatives, independent dealers and industrial customers. Agricultural customers generally use nitrogen products as fertilizer for crops. Industrial customers use nitrogen products to manufacture chemicals, plastics and other products such as acrylonitrile, polyurethanes, fibers, explosives and adhesives; to reduce nitrogen oxides (NOx) and other emissions from power plants; and in water treatment processes. Our facility in Yazoo City, Mississippi produces industrial grade ammonium nitrate (AN) prills (a form of dry pellet) and ammonium nitrate solution that are utilized as explosives in the mining industry as well as a raw material in the production of catalyst materials. We have a long term supply contract with one of our customers to provide industrial grade ammonium nitrate products for a majority of the Yazoo City capacity.

Agricultural customers accounted for approximately 73% and industrial customers approximately 27% of our North American nitrogen product revenue in 2007.

The methanol segment has become less significant to our business since we mothballed the Beaumont, Texas facility in December 2004. Our remaining manufacturing facility capable of producing methanol is in Woodward, Oklahoma. In 2007, the Woodward facility produced 32.5 million gallons of methanol.

GrowHow is a nitrogen manufacturing joint venture in the U.K. The joint venture was formed in 2007 with Kemira GrowHow Oyj to combine the two companies and obtain synergies in the sales, manufacturing and administrative areas. The primary products produced by GrowHow are ammonia, ammonium nitrate and fertilizer components.

Financial information about our segments and geographic areas is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , and Note 21, Industry Segment Data , of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

Nitrogen Business Segment


The principal forms of globally traded nitrogen fertilizer are ammonia and urea. Ammonium nitrate (AN) is also traded in global markets. Urea ammonium nitrate solutions (UAN) is used principally in North America and Western Europe, and has only recently been traded in other international markets. UAN’s high water content and need for transportation in tankers can cause transportation costs per unit of nitrogen to be higher than for other forms of internationally traded nitrogen products.

The locations of our North American production facilities provide us a competitive advantage in serving agricultural customers in the Corn Belt and other major agricultural areas in the United States and Canada. The GrowHow U.K. facilities are able to competitively serve the entire British agricultural market. The Point Lisas ammonia production facility in Trinidad and Tobago serves U.S. and international nitrogen markets, benefiting from access to low-cost natural gas supplies.

Ammonia, AN, urea and UAN are the principal nitrogen products we produce and sell in North America. GrowHow produces and sells primarily ammonia, AN and fertilizer compounds in the U.K. The Point Lisas production facility in Trinidad provides ammonia for sale into both the U.S. and international nitrogen markets. Other products we manufacture include nitric acid, dinitrogen tetroxide and carbon dioxide. These products, along with a portion of our ammonia, AN and urea production, are used in non-agricultural applications.

Our Terra Environmental Technologies business provides products and services to customers using nitrogen products (primarily ammonia, aqua ammonia and liquid and dry urea) to reduce NOx emissions from various sources, including power plants, and in other environmental processes such as water treatment plants.

Although the different nitrogen fertilizer products are interchangeable to some extent, each has its own characteristics which make one product or another preferable to the end-user. Our plants are designed to provide the fertilizer products preferred by end-users in the regions which they serve. These preferences vary according to the crop planted, soil and weather conditions, regional farming practices, relative prices, and the cost and availability of storage, handling and application equipment. Our nitrogen products and 2007 production are described in greater detail below.

Anhydrous Ammonia

We are the leading U.S. producer of ammonia. Ammonia is the simplest form of nitrogen fertilizer and the feedstock for the production of other nitrogen fertilizers, including urea, AN and UAN. Ammonia is also a vital raw material for many industrial applications. Ammonia is produced when natural gas reacts with steam and air at high temperatures and pressures in the presence of catalysts. Ammonia has a nitrogen content of 82% by weight and is generally the least expensive form of fertilizer on a per-pound-of-contained-ni trogen basis. Although generally the cheapest source of nitrogen available to agricultural customers, ammonia can be less desirable to end-users than urea, AN and UAN because of its need for specialized application equipment and its limited application flexibility.

In 2007, we produced approximately 2,981,000 tons of ammonia at our North American facilities and approximately 540,000 tons of ammonia at our U.K. facilities prior to establishment of GrowHow UK. We are obligated by contract with Point Lisas to purchase one-half of the ammonia produced by Point Lisas through 2018 based on market indexed prices. In 2007, we purchased approximately 337,000 tons pursuant to our contract with Point Lisas. We sold a total of 1,985,000 tons of ammonia worldwide in 2007 and consumed approximately 2,386,000 tons of ammonia as a raw material to manufacture our other nitrogen products.

Urea Ammonium Nitrate Solutions (UAN)

UAN is a liquid fertilizer and, unlike ammonia, is odorless and does not require refrigeration or pressurization for transportation or storage. UAN is produced by combining liquid urea, liquid ammonium nitrate and water. The nitrogen content of UAN ranges from 28% to 32% by weight. (Unless we state otherwise, all references to UAN assume a 28% nitrogen content.) Because of its high water content, UAN is relatively expensive to transport, making it largely a regionally distributed product.

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

We are the largest producer of UAN in North America. We produced approximately 4,131,000 tons of UAN at our North American facilities in 2007 and sold approximately 4,652,000 tons of UAN in 2007, primarily to U.S. fertilizer dealers and distributors.

Ammonium Nitrate (AN)

We are the largest manufacturer and marketer of agricultural-grade AN fertilizer in the U.S. and produce AN through our GrowHow joint venture in the U.K. AN is produced by combining nitric acid and ammonia into a liquid form which is then converted to a solid, largely for fertilizer applications. The nitrogen content of AN is 34% by weight. AN is less subject to volatilization (evaporation) losses than other nitrogen products. Due to its stability, AN is often the product of choice for pastures and “no-till” crops (that is, where the soil is not plowed prior to planting) where fertilizer is spread upon the surface and is subject to evaporation losses.

During 2007, we produced approximately 284,000 tons of merchant ammonium nitrate solution (ANS), 687,000 tons of solid AN and 537,000 tons agricultural grade AN. We produced 150,000 tons of industrial grade ammonium nitrate (IGAN), at our Yazoo City, Mississippi facility during 2007 and approximately 610,000 tons of solid AN at our U.K. facilities in 2007 prior to establishment of GrowHow UK Limited. During 2007, we sold approximately 683,000 tons of AN in the U.S. and 665,000 tons of AN in the U.K.


Urea is produced by converting ammonia and carbon dioxide into liquid urea, which can be further processed into a solid, granular form. Urea is used for fertilizer and animal feed, in industrial applications as a raw material to produce resins, and environmentally as a reagent to reduce NOx emissions. Granular urea has a nitrogen content of 46% by weight, the highest level of any solid nitrogen product. We produce both a granulated form of urea, for the industrial market, and urea liquor (liquid) for animal feed supplements and industrial applications.

In 2007, we produced approximately 921,000 tons of urea and urea liquor (liquid urea), all of it at North American plants. During this period, we sold approximately 248,000 tons of urea and urea liquor.

Nitric Acid

Nitric acid is made by oxidizing ammonia with air. The product is used as a raw material for other nitrogen products and by industrial customers to produce such products as nylon fibers, polyurethane foams and specialty fibers. In 2007, we produced approximately 2,820,000 tons of nitric acid worldwide. Approximately 259,000 of these tons were sold to industrial users and the remainder was used as a raw material for the production of our other nitrogen products.

Dinitrogen Tetroxide

Dinitrogen tetroxide (N 2 O 4 ) is the propellant oxidizer used in various satellite, rocket and missile propulsion systems. It is also used by industrial customers in the manufacturing of pharmaceuticals. Dinitrogen tetroxide is produced by cooling and condensing a slipstream of process gas from a nitric acid plant containing various oxides of nitrogen. The recovered product is filtered and its composition adjusted to meet final product specifications. We manufactured approximately 369,000 pounds of the product in 2007.


Nitrogen is both a global and local commodity: global because it is produced and traded in almost all regions of the world and local because fertilizer customers display preferences for nitrogen in one of its four basic forms based upon local conditions. Because transportation is a significant component of a customer’s total product cost, a key to our competitiveness in the nitrogen business is proximity to the end user, which allows us to have the lowest delivered cost for the customer’s product of choice. In addition, we must continuously provide a reliable source of the preferred nitrogen product.

Our nitrogen customers are broadly segregated into two groups: (1) North American customers, including those receiving shipments of imported product from the Point Lisas facility, and (2) U.K. customers, including export sales to continental Europe and Australia.

The principal customers for our North American manufactured nitrogen products fall into two broad categories—agricultural fertilizer customers and industrial customers. The agriculture customers consist of independent dealers, national retail chains, and cooperatives. These agricultural customers, in turn, sell product to dealers, farmers and other users. Industrial customers use nitrogen products as a feedstock for a variety of chemical processes, in the manufacture of pulp, paper, and fibers and to control NOx emissions from power plants. Nearly all of our industrial customers are end-users. Our agricultural and industrial customers are located primarily in the Gulf, Midwestern plains and southern regions of the U.S. where our facilities are located. It is our objective to ship as much of our North American production as possible directly from our manufacturing facilities to our customers.


Our Donaldsonville terminal has ready access to rail, truck and ammonia pipeline transportation and provides us with economical access to oceangoing vessel and barge transportation for imports of nitrogen products. The terminal includes two ammonia storage tanks, each with a capacity of 30,000 tons, and can receive ocean-going vessels carrying 50,000 tons or more of ammonia. During 2007, the terminal received and shipped approximately 566,000 and 623,000 tons of ammonia, respectively. In 2006, we expanded the terminal’s capabilities by constructing a new UAN solution tank with a 50,000-ton capacity. During 2007, we received and shipped 511,000 and 528,000 tons of UAN, respectively.

In July 2005 we sold our terminal assets in Blytheville, Arkansas to a subsidiary of Kinder Morgan Energy Partners, consisting of storage and supporting infrastructure for 40,000 tons of ammonia, 9,500 tons of UAN and 40,000 tons of urea. In conjunction with this sale of assets, we have entered into a long-term agreement to exclusively lease from Kinder Morgan certain of these terminal assets. This arrangement will maintain our distribution capabilities in the Blytheville, Arkansas region.

We own a 50% interest in the Houston Ammonia Terminal, located on the Houston Ship Channel near Pasadena, Texas. This terminal has two 15,000 ton ammonia storage tanks which provide ammonia to industrial customers in the area via a pipeline system capable of shipping approximately 1,000 tons per day. The terminal can also receive ocean-going vessels.


We use several modes of transportation to distribute products to customers, including rail cars, common carrier trucks, barges and common carrier pipelines. Railcars are the major mode of transportation at our North American manufacturing facilities. At December 31, 2007, we had 2,872 railcars under lease. We own ten nitric acid railcars. In addition, we operate a common carrier that specializes in transporting all forms of nitrogen. The GrowHow joint venture AN production is transported primarily by contract carrier trucks, and ammonia is transported primarily by pipelines owned by GrowHow.

We transport purchased natural gas to our Woodward, Oklahoma facility via both intrastate and interstate pipelines and to our Verdigris, Oklahoma facility via intrastate pipeline. The intrastate pipelines serving Woodward and Verdigris are not open-access carriers, but are nonetheless part of a widespread regional system through which Woodward and Verdigris can receive natural gas from any major Oklahoma source. We also have limited access to out-of-state natural gas supplies for these facilities. Our Beaumont, Texas facility sources natural gas via four intrastate pipelines. We transport purchased natural gas for our Port Neal, Iowa facility via interstate, open-access pipelines. Our Donaldsonville, Louisiana facility sources purchased natural gas from two intrastate pipelines. Our Yazoo City facility is served by three interstate pipelines and one intrastate pipeline. We transport purchased natural gas through the local utility distribution company, through open access, at our Courtright, Ontario, Canada facility. At the GrowHow joint venture locations, purchased natural gas is transported to the facilities via a nationwide, open-access pipeline system.

FMCL Limited Liability Company, our 50/50 ammonia shipping joint venture with KNC Trinidad Limited, leases a vessel for transportation of ammonia, primarily between the Point Lisas facility in Trinidad and the United States. Use of this vessel is shared between the joint venture partners.

Nitrogen Industry Overview

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

The major nitrogen consuming crops in North America are corn and wheat and in the United Kingdom, wheat. Certain crops, such as soybeans and other legumes, can better absorb atmospheric nitrogen and do not require nitrogen fertilizers.


Global demand for fertilizers generally grows at predictable rates that tend to correspond to growth in grain production. Global fertilizer demand is driven in the long term primarily by population growth, increases in disposable income and associated improvements in diet. Short-term demand depends on world economic growth rates and factors creating temporary imbalances in supply and demand. These factors include weather patterns, the level of world grain stocks relative to consumption, agricultural commodity prices, energy prices, crop mix, fertilizer application rates, farm income and temporary disruptions in fertilizer trade from government intervention, such as changes in the buying patterns of China or India. Grain consumption has historically grown at approximately 1.2% per year. According to IFA, International Fertilizer Industry Association, over the last 45 years global fertilizer demand has grown 3.7% annually and global nitrogen fertilizer demand has grown at a faster rate of 4.8% annually. During that period, North American nitrogen fertilizer demand has grown 3.3% annually.


Over the past seven years, global ammonia capacity has remained relatively flat, growing at an average of approximately 2% per annum. This result was attributable principally to the combination of new project capacity being offset by permanent plant closings in the U.S. and in Europe. As global operating rates and prices have risen, so have plans for new capacity.

This anticipated new global capacity will come primarily from advantaged natural gas regions of the world, such as the Middle East and Africa. This expansion of capacity could be limited, however, by high capital and construction costs, lower nitrogen prices and increasing natural gas prices. Russia has increased domestic gas prices as well as prices paid by their export customers. This has increased production costs for new and existing plants in the former Soviet Union and Europe.

Imports account for a significant portion of U.S. nitrogen product supply. Producers from the former Soviet Union, Canada, the Middle East, Trinidad and Venezuela are major exporters to the U.S. These export producers are often competitive in regions close to the point of entry for imports, primarily the Gulf coast and east coast of North America. Due to higher freight costs and limited distribution infrastructure, importers are less competitive in serving the main corn-growing regions of the U.S., which are more distant from these ports. According to Fertecon, a leading industry publication, world trade in ammonia grew from 15.4 million tons in 2000 to 19.3 million tons by 2006 due to the exceptional increase in gas prices in the U.S. and Europe during this period and the consequent closure of U.S. capacity.


Fertecon forecasts that global nitrogen fertilizer demand is expected to rise by around 2% per year from 2005 to 2015, increasing by 21 million tons or close to 22% over the period. In North America, nitrogen fertilizer consumption is expected to increase from 2005 to 2015 from 14 million tons to 16 million tons, a 15% increase.

The continued growth in demand for nitrogen products has helped stabilize global ammonia capacity utilization rates, which averaged 85% between 2005 and 2006. According to Fertecon, global ammonia utilization rates are forecasted to remain in the low-80’s through 2015. North American ammonia utilization rates are forecast to decrease from 82% in 2006 to 78% by 2015 due in part to projected long-term growth in worldwide capacity and in imports.

To help meet the growing global demand for fertilizers, especially in high growth areas like China and India, new ammonia capacity is expected to come on stream globally in the next nine years. According to Fertecon, global ammonia capacity is forecast to increase by 22.9 million tons by 2015, a total increase of 7.5%. This projected capacity increase excludes Chinese plants as any new volumes in China are not expected to reach global markets. There are a number of new capacity projects expected or underway in gas advantaged regions; however, increased construction costs and changes in market dynamics have delayed a number of such projects.

World trade in ammonia is expected to increase by 1.8 million tons or 8% in the period to 2010, according to Fertecon, representing more modest growth than seen from 2000 to 2005. Fertecon projects that higher gas costs for Russian and Ukrainian exporters and the lower-than-previous gas price outlook for the U.S. would appear to support continued operating rates at the remaining U.S. ammonia capacity, limiting the near-term growth in ammonia imports.

Global grain inventories are currently at levels significantly below the ten-year average, and current corn prices have increased significantly to $4.37 per bushel as of January 3, 2008 versus $3.40 per bushel one year prior. Both of these factors influence and improve the outlook for demand.

The emergence of ethanol as an alternative energy source has the potential to drive incremental fertilizer demand. Corn, the primary feedstock for U.S. ethanol production, represents approximately 40% of fertilizer demand in North America. New ethanol capacity is increasing demand for corn and, according to Fertecon, is expected to contribute to a forecasted 21 million hectare increase in planted corn area in the world by 2030. The amount of corn used in the U.S. for ethanol production has more than doubled in the last five years. In 2006-2007, approximately 2.1 billion bushels of corn were used for ethanol production. According to the USDA, a 51% increase is forecast for the current 2007-2008 crop year, bringing the total bushels used for ethanol to 3.2 billion. This number is projected to rise to over 4 billion bushels by 2008-2009, equivalent to 30% of the U.S. corn crop.

The 1990 Amendments to the Clean Air Act increasingly require companies that combust fossil fuels to reduce their emissions. Reduction of oxides of both nitrogen and sulfur are accomplished with Selective Catalytic Reduction (SCR) and wet scrubbing technologies. Environmental control devices using ammonia or ammonia based compounds, across a broad range of applications from coal based generation to diesel engines, are very effective in meeting emissions targets. We believe these new and emerging markets may increase North American demand for ammonia by up to 1,000,000 tons by 2010.

Methanol Business Segment

Our methanol business segment has become less significant since we mothballed our principal methanol production facility at Beaumont, Texas in December 2004. The facility remained closed throughout 2005, 2006 and 2007 and remains closed to date. Our remaining manufacturing facility capable of producing methanol is in Woodward, Oklahoma.


Corporate Director. Mr. Janson retired from AMEC Inc. (an engineering and environmental services firm) in 2002; served as Chairman & Chief Executive Officer of AMEC Inc. and director of AMEC plc from 2000 to 2002; and President and Chief Executive Officer of Agra Inc. (an engineering and environmental services firm which was sold to AMEC in 2000) from 1999 to 2000. Mr. Janson also serves as a director of TK Corporation, serving on the Audit and Compensation Committees, and as a director of Tembec Industries, Inc., serving on the Corporate Governance and HR Committee, and as Chairman of both the Environment, Health and Safety Committee as well as the Committee for Strategic Purposes.

Mr. Bennett, who has been employed by the company for 34 years, has served as President and Chief Executive Officer of Terra since April 2001; and Executive Vice President and Chief Operating Officer from February 1997 to April 2001. Mr. Bennett has served as a Director of Alliant Energy Resources since 2003, is a member of its Capital Approval, Compensation and Personnel, and Executive Committees, and is Chairman of the Nominating and Governance Committee and the Lead Independent Director.

Private Investor. Mr. Kroner served as Chief Financial Officer and Chief Investment Officer for Endurance Specialty Holdings Ltd., from December 2001 to December 2005; and Managing Director of Fox Paine & Company from January 2000 to December 2001. Mr. Kroner also serves as a director of United America Indemnity, Ltd., and is a member of the Audit Committee.

Private Investor. Ms. Hesse was President and Chief Executive Officer of Hesse Gas Company (an energy investment company) from 1990 to 2003. She served as Chairman of the U.S. Federal Energy Regulatory Commission from 1986 to 1989, and previously served as assistant secretary for Management and Administration for the U.S. Department of Energy as well as Senior Vice President of First Chicago Corporation. Ms. Hesse serves as Chairman of the boards of Enbridge Energy Company, Inc., Enbridge Energy Partners, Enbridge Energy Management and is a member of the Audit, and Finance and Risk Committees of each.

Mr. Slack has served as Chairman of the Terra Board of Directors since April 2001. He also serves as a director of E. Oppenheimer and Son International Limited; has served as Chairman of First Africa Group since 2006; and was Chairman of Task (USA) Inc. (a private investment firm) from September 1999 to June 2002.

Private Investor. Mr. McGlone served as President, Chief Executive Officer and Director of Copperweld Corp. from February 2004 to October 2005; President, Chief Operating Officer, and Director of Copperweld from October 2002 to February 2004; and Vice President Copperweld from July 2001 to October 2002. He served as Vice President, Corporate Officer of Armco Inc./AK Steel, from 1996 to March 2001.

Private Investor. Mr. Fisher also serves as a director of Falcon Oil & Gas Ltd. and is Chairman of its Audit Committee and member of its Compensation Committee.

Mr. Fraser is President of Sackett Partners Incorporated. Previously, Mr. Fraser was an investment banker: a General Partner of Lazard Frères & Co. and most recently a Managing Director and Group Executive of Chase Manhattan Bank, now JP Morgan Chase, where he led the global oil and gas group. Mr. Fraser also serves as a board member of Smith International, Inc., an oilfield service company, and Forest Oil Corporation, an independent oil and gas company. He serves as Chairman of the Audit Committees of both Smith and Forest Oil.



As you read this management’s discussion and analysis of financial condition and results of operations, you should refer to our Consolidated Financial Statements and related Notes included in Item 8, Financial Statements and Supplementary Data , of this report.


In this discussion and analysis, we will explain our general financial condition and results of operations including:

• factors which affect our business,
• our earnings and costs in the periods presented,
• changes in earnings and costs between periods,
• sources of earnings,
• impact of these factors on our overall financial condition,
• expected future expenditures for capital projects, and
• expected sources of cash for future capital expenditures.

We have organized our discussion and analysis as follows:

• First, we discuss our strategy.
• We then describe the business environment in which we operate including factors that affect our operating results.
• We highlight significant events that are important to understanding our results of operations and financial condition.
• We then review our results of operations beginning with an overview of our total company results, followed by a more detailed review of those results by operating segment.
• We review our financial condition addressing our sources and uses of cash, security ratings, capital resources, capital requirements, commitments, and off-balance sheet arrangements.
• Finally, we discuss our critical accounting policies and recently issued accounting standards. The critical accounting policies are those that are most important to both the portrayal of our financial condition and results of operations and require management’s most difficult, subjective or complex judgment.

Business Strategies

We are a leading North American producer and marketer of wholesale nitrogen products, serving agricultural and industrial markets. The nitrogen products industry has periods of oversupply during industry downturns that lead to capacity shutdowns at the least cost-effective plants. These shutdowns are followed by supply shortages, which result in higher selling prices and higher industry-wide production rates during industry upturns. The higher selling prices encourage capacity additions until we again start to see an oversupply, and the cycle repeats itself.

To succeed in this business, a producer must have the financial strength to weather industry downturns and the ability to serve its markets cost-effectively during every phase of the cycle. A nitrogen producer will also benefit from having one or more business segments that operate in non-agricultural markets to balance the cyclicality of those markets.

We base our business strategies on these concepts. In practice, this means we:

• Manage our North American and U.K. assets to reap the highest returns through the cycle. We accomplish this by maintaining our facilities to be safe and reliable, cultivating relationships with natural customers who due to their physical location can receive our product most economically, and closely managing the supply chain to keep storage, transportation and other costs down.
• Continuously look for opportunities to expand outside our current geography with gas-advantaged projects. While North American gas markets are at less of a disadvantage than they were a few years ago, we still believe it is prudent to diversify our natural gas sourcing so that a greater share of our total needs is sourced outside of North America.
• Develop higher-return North American product markets, such as that for UAN, our primary nitrogen fertilizer product and TerraCair, our diesel exhaust treatment product.
• Commit resources to building our industrial and environmental businesses.

In every case, we invest our capital judiciously to realize a return above the cost of capital over the industry cycle.

Recent Business Environment

The following factors are the key drivers of our profitability: nitrogen products selling prices, as determined primarily by the global nitrogen demand/supply balance; and natural gas costs, particularly in North American markets.


Nitrogen products demand is driven by a growing global population, its desire for a higher-protein diet and to a lesser degree, by the rise of corn-consuming biofuels in North America. Nitrogen products can sometimes substitute for one another. For example, in today’s market environment a farmer who would ordinarily prefer ammonia because of its economics might be willing to accept another nitrogen product when soil conditions prohibit ammonia application or when ammonia is not available. This is because currently, very strong commodity grain prices are making yields realized at harvest—rather than dollars spent on inputs per acre of crop—the grower’s primary concern. While upgraded products contain less nitrogen by weight, they are generally easier to ship, store and apply than ammonia. A grower in these circumstances appreciates the greater application flexibility of upgraded products since it gives him a larger window of opportunity to get nitrogen on his crops and encourage a higher yield. In today’s market environment, upgraded products, and UAN in particular, are realizing significant premiums over ammonia as a nitrogen source. This should remain the case for as long as commodity grain prices hold strong.


Imports are a major factor in the nitrogen products supply picture, as they account for over half of the total North American nitrogen supply, with the levels varying among the various products. Products containing the highest percentage of nitrogen by weight are the most economical to ship, so make up the greatest share of those imports. Most producers exporting nitrogen products into North America can afford to do so because they are manufacturing product with cheaper gas than that which is available to North American producers. European and Commonwealth of Independent States (“CIS”) producers have their own variable gas cost dynamics and we do not expect these producers will be able to consistently export nitrogen products at lower costs than North America producers.

Natural Gas Costs

North American natural gas markets have been volatile for a number of years. From 2000 to 2005, European and CIS countries had lower natural gas costs than North America. During the industry downturn of those years, North American producers—having the highest cost basis—were the marginal producers, and many North American producers shut down capacity or went out of business altogether. In 2006 and 2007, North American natural gas prices moderated and became less volatile as liquefied natural gas (“LNG”) imports and other factors helped to stabilize supply. With gas markets leveling across the globe, our natural gas cost disadvantage has been significantly reduced, and we retain our advantage of close proximity to our markets.

There continues to be gas-advantaged regions in the world, and we expect them to continue to export nitrogen products. We will manage our North American and UK assets to be competitive.

Strategy Effectiveness

By executing the business strategies discussed above throughout 2007, we were able to:

• Achieve record production, earnings, cash flows and returns for Terra and our stockholders.
• Refinance long-term debt of $330 million for 10 years with a fixed interest rate of 7.0%, saving us approximately $18 million per year
• Finalize plans to sell our Beaumont facility, consisting primarily of methanol production assets, focusing us more completely on our core business of nitrogen production.
• Contribute our U.K. assets to a joint venture that we believe will result in higher returns in that mature market.
• Fully fund our pension plans.
• Repurchase 6.7 million common shares as part of our share repurchase program.
• End the year with cash balances of $698 million, which included customer prepayments of $299 million

These concepts continue to influence our decisions, as we have announced since reporting 2007 results that we plan to restart in the 2008 third quarter our Donaldsonville ammonia plant, which has been idle since 2004, and that we are evaluating projects to increase upgrading capacity at several of our North American facilities.

Results of Operations

Consolidated Results

We reported 2007 net income of $201.9 million on revenues of $2.4 billion compared with a 2006 net income of $4.2 million on revenues of $1.8 billion. The increase in net income and revenue is due to higher sales volumes and prices. The 2007 net income includes a $38.8 million early retirement of debt charge and a $39.0 million impairment charge. Diluted income per share for 2007 was $1.90 compared with a loss of $(0.01) for 2006.

In September 2007, we contributed our U.K. operations into GrowHow UK Limited, a joint venture with Kemira GrowHow Oyj. We account for this joint venture as an equity method investment and the fourth quarter results of the historic U.K. operations are not included as a component of operating income.

Results of Operations—2007 Compared with 2006


Nitrogen product revenues increased by $499.4 million to $2.3 billion for 2007 compared to $1.8 billion for 2006. The increase was primarily due to increased nitrogen prices and increased sales volumes for ammonia, UAN and ammonium nitrate. Demand for nitrogen products increased due to higher production of key commodities, including corn and wheat, in response to higher prices.

Nitrogen product operating income increased by $384.1 million to $447.4 million for 2007, compared to $63.3 million for 2006. The increase in operating income was primarily due to a $285.3 million increase in sales prices, a $75.3 million increase in sales volumes and lower natural gas unit costs.

Natural gas unit costs, net of forward pricing gains and losses, were $6.68 per million British thermal units (“MMBtu”) during 2007 compared to $7.14 per MMBtu during 2006. We enter into forward sales commitments by utilizing forward pricing and prepayment programs with customers. We use derivative instruments to hedge a portion of our natural gas requirements. The use of these derivative instruments is designed to hedge exposure to natural gas price fluctuations for production required for forward sales estimates. As a result of forward price contracts, 2007 natural gas costs for the nitrogen products segment were $53.7 million higher than spot prices, as compared to 2006 natural gas costs which were $50.3 million higher than spot prices.


Methanol revenues were $55.3 million and $35.0 million for the years ended December 31, 2007 and 2006, respectively. The 2007 and 2006 revenues included $12.0 million of cash margin revenue under the Methanex contract. Methanol sales in 2007 and 2006 were 36.8 million and 18.6 million gallons, respectively. The increased sales volumes were primarily due to operating the Woodward, Oklahoma methanol facility at 92% of operating capacity during 2007. During 2006, we operated the facility at 46% of operating capacity in response to the high natural gas prices during the first half.

The methanol segment had a 2007 operating loss of $23.4 million compared to 2006 operating income of $5.0 million. In connection with entering into the Beaumont facility sales agreement with Eastman Chemical Company, our methanol segment loss included a $39.0 million impairment charge.

Other Operating Activities—Net

We had $3.8 million of charges from other operating activities in 2007 compared to $1.9 million in 2006. The increase in expense relates primarily to administrative fees for general corporate activities not allocable to any particular business segment.

Selling, General and Administrative Costs

Selling, general and administrative costs increased $36.7 million primarily due to higher share-based compensation expense due to the increases in our financial performance and stock price during 2007.

Equity Earnings of Unconsolidated Affiliates—GrowHow

We recorded a loss of $2.7 million from our U.K. joint venture during 2007. The equity earnings are classified as non operating and excluded from income from operation as the investees’ operations do not provide additional capacity nor are its operations integrated with our North American supply chain.

Included in the loss is approximately $13 million related to severance and other charges from the announced closure of the Severnside production facility and administrative operations.

Interest Income

Our interest income increased by $10.8 million in 2007 as compared to 2006. The increase is due to higher levels of cash throughout 2007.

Interest Expense and Loss on Early Retirement of Debt

Our interest expense decreased $18.9 million in 2007 to $29.1 million as compared to $48.0 million in 2006. The decrease in interest expense is due to the debt refinancing that we completed in February 2007. As a result of the debt refinancing, we recorded a $38.8 million charge for the early retirement of our bonds due in 2008 and 2010.

Income Taxes

Our income tax expense in 2007 and 2006 was $114.8 million and $9.2 million, respectively. The 2007 effective tax rate was 36%, compared to 69% in 2006. The 2006 effective tax rate differed from the statutory rate due primarily to the effect of currency fluctuations and disallowed interest expense on intercompany loans to non-U.S subsidiaries.


Consolidated Results
We reported net income of $101.5 million for the 2008 first quarter compared with 2007 first quarter net income of $7.2 million. The 2007 net income includes a $38.7 million ($24.3 million, net of taxes) charge for the early retirement of debt. The net income increase is primarily due to higher sales prices as a result of increased demand for nitrogen products, specifically in the agricultural markets.

Revenues for the quarter ended March 31, 2008 increased $73.8 million, or 15%, compared with the same 2007 quarter primarily due to higher sales prices for all nitrogen products, specifically UAN, partially offset by lower sales volumes. The price increase is due to improved demand for nitrogen products. The 2007 first quarter revenues included $89.9 million from the UK. The UK operations were contributed into the GrowHow UK Limited joint venture during the 2007 third quarter.
Operating income for the 2008 first quarter was $168.3 million which was $101.1 million more than the $67.2 million income in the 2007 first quarter. Higher first quarter sales prices contributed $173.5 million to the 2008 first quarter operating income. This increase was partially offset by increased costs of $82.5 million, primarily as a result of higher gas costs and increased costs relating to purchased product for resale. Increased equity earnings contributed $7.7 million to operating income. Decreased selling, general and administrative (SGA) costs contributed $4.4 million to operating income in the 2008 first quarter as compared to the 2007 first quarter. The SGA cost decreases are due to reduced share-based compensation costs of $3.2 million and reduced costs relating to the UK operations of $2.2 million; offset by higher professional services fees of $1.0 million.
Discontinued Operations
We have reported our Beaumont, Texas operations as discontinued operations for the periods ending March 31, 2008 and 2007. The Beaumont operations were included in our methanol segment in prior periods. In connection with reporting discontinued operations, we have determined that our methanol segment no longer meets the requirements of a reporting segment.

Minority Interest
Minority interest represents third-party interests in the earnings of the publicly held common units of Terra Nitrogen Company, L.P. (TNCLP). The 2008 and 2007 amounts are directly related to TNCLP earnings and losses. During the first quarter of 2008, the cumulative shortfall of the Minimum Quarterly Distribution was satisfied which entitled us to increased income allocations as provided for in the TNCLP Partnership Agreement. The current quarter minority interest balance reflects the impact of these adjusted income allocations.
Income Taxes
Income taxes for the first quarter 2008 were recorded based on the estimated effective tax rate for the individual jurisdictions in which we operate. The estimated annual effective tax rates were 37.0% and 36.5% in the quarters ended March 31, 2008 and 2007, respectively.

Cash and cash equivalents, which included $282.4 million related to customer prepayments, totaled $817.2 million at March 31, 2008. Our primary uses of cash are to fund our working capital requirements, make payments on our debt and other obligations and fund plant turnarounds and capital expenditures. The principal sources of these cash outlays are cash flow from operations, cash on hand and, to the extent necessary, borrowings under available bank facilities.
Net cash provided by continuing operations in the first three months of 2008 was $98.5 million and net cash provided by discontinuing operations was $11.0 million. Cash from continuing operations was composed of $170.6 million of cash provided from operating activities, offset by $72.1 million to fund seasonal working capital requirements. The primary working capital needs were to fund $85.1 million of inventories offset by $17.0 million of customer prepayments. The increase in inventories was due to a wet spring which delayed planting, and thus delayed delivery of product.
During the first three months, we funded plant and equipment purchases of $6.5 million primarily for replacement or sustaining capital needs. Plant turnaround costs represent cash used for the periodic scheduled major maintenance of our continuous process production facilities that is performed at each plant, generally every two years. We funded $0.6 million of plant turnaround costs in the first three months of 2008. We received $27.9 million from GrowHow UK Limited for our contribution settlement from the joint venture.
In April 2006, the Board of Directors authorized us to repurchase a maximum of 10%, or 9,516,817 shares, of our then outstanding common stock on the open market, in private transactions or otherwise. We did not repurchase any shares in the first quarter of 2008. As of March 31, 2008, we have repurchased a total of 6,675,100 shares, which results in 2,841,717 shares that we are authorized to repurchase by June 30, 2008.
We paid dividends on the outstanding preferred stock of $1.3 million for the three-month periods ending March 31, 2008 and 2007.
Distributions paid to the minority TNCLP common unit holders in the first three months of 2008 and 2007 were $20.5 million and $4.5 million, respectively. TNCLP distributions are based on “Available Cash” as defined in the Partnership Agreement.
In February 2007, Terra Capital, Inc., (“TCAPI”) a subsidiary of Terra Industries Inc., issued $330 million of 7.0% Senior Notes due 2017 to refinance our Senior Secured Notes due in 2008 and 2010. The notes are unconditionally guaranteed by Terra Industries Inc. and its U.S. subsidiaries. These notes and guarantees are unsecured and will rank equal in right of payment with any future senior obligations of such guarantors.
In conjunction with the bond refinancing, we amended the $200 million revolving credit facility to extend the expiration date to January 31, 2012. Borrowing availability under the credit facility is generally based on 100% eligible cash balances, 85% of eligible accounts receivable and 60% of eligible inventory, less outstanding letters of credit. These facilities include $50 million only available for the use of TNCLP, one of our consolidated subsidiaries. At March 31, 2008, there were no outstanding revolving credit borrowings and there were $10.3 million in outstanding letters of credit, resulting in remaining borrowing availability of approximately $189.7 million under the facilities. We are required to maintain a combined minimum unused borrowing availability of $30 million. The credit facility also requires that we adhere to certain limitations on additional debt, capital expenditures, acquisitions, liens, asset sales, investments, prepayments of subordinated indebtedness, changes in lines of business and transactions with affiliates. In addition, if our borrowing availability falls below a combined $60 million, we are required to have generated $60 million of operating cash flows, or earnings before interest, income taxes, depreciation, amortization and other non-cash items (as defined in the credit facility) for the preceding four quarters.

Our ability to meet credit facility covenants will depend on future market conditions, operating cash flows, working capital needs, receipt of customer prepayments and trade credit terms. Failure to meet these covenants could result in additional costs and fees to amend the credit facility or could result in termination of the facility. Based on current market conditions for our finished products and natural gas, we anticipate that we will be able to meet our covenants through 2008. If there were to be any adverse changes in the factors discussed above, we may need a waiver of our credit facility covenants, of which, there is no assurance that we would receive such waivers.
There were no material changes outside of the ordinary course of business to our contractual obligations or off-balance sheet arrangements presented in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Annual Report on Form 10-K for the period ended December 31, 2007.


Joe Ewing

Okay, thank you very much Cady and welcome to everyone to Terra's first quarter results conference call. This morning we issued a news release announcing that for the 2008 first quarter. Terra achieved net income of $100 million or $0.97 per diluted share.

At the end of the news release is our Safe Harbor statement. It describes the limitations of forward-looking statements and any other items that are not historical facts included in the news release. Please note that those same limitations apply to any forward-looking statements we may make during this call.

With me today are Mike Bennett, Terra’s President and CEO, and Dan Greenwell, Senior Vice President and CFO.

I will speak now regarding recent and upcoming investor relations activities. Since our last earnings call we've participated in the three equity conferences, a leverage finance conference and a bond conference. We have several things coming up. Our annual reception for the New York area financial community on May 5th and May 6th. Also a tour of five western and southern cities in late May and conferences later in May and June hosted by Credit Suisse, Merrill Lynch and RBC Capital Markets.

We also continue to host visitors to Sioux City to meet with our management and to tour our Port Neal manufacturing facility. If anyone listening today is interested making this trip, we'd be happy to have you. Please call Kim Mathers or me to make those arrangements.

Now I will turn the call over to Mike Bennett so he can give us his perspective on the first quarter and the outlook for Terra and the industry in the upcoming months. Mike?

Mike Bennett

All right, thanks Joe, good afternoon everybody. Terra kicked off 2008 with an excellent first quarter in terms of revenues, net income and cash generation. Despite steadily increasing natural gas prices, nitrogen prices progressed upward over the quarter, resulting in strong margins for our products.

Our overall North American sales volumes were off slightly from last year’s first quarter reflecting poor wet weather we experienced in March, in much of the corn-belt versus a last March, which was more conducive to early planning and fertilizer applications.

Our production facilities ran well as we expected, and unlike last year we realized a normal operating quarter from our Trinidad production. We realized solid contribution from our GrowHow UK joint venture and are pleased with the progress that business is making towards achieving expected cost synergies.

Looking ahead to the second quarter and balance of the year, the Midwest planning season is of to a slower start than last year. As of last Friday only 4% of this year’s current crop had been planted. This week while we had experienced some normal rain showers in areas of the corn-belt, the general weather patterns have improved and more farmers are getting into the field.

This late start could compress the ammonia application season in some areas and we believe it moved some ammonia demand over to UAN. Generally late planning springs are not unusual. We've been through a few of these before, and growers are able to get a lot of corn in the ground in a relatively short period of time.

We would expect the next three weeks to be extremely busy as that planning takes place and we expect this season to have a fairly long tail on it, as supplemental nitrogen applications occur well into June.

Corn prices have remained very strong and provide a powerful incentive for growers. We believe the prospect of realizing planted corn acres either above or below the 86 million acre forecast by USDA will depend to a great degree on the weather's effect on planting progress.

One somewhat unusual development in the marketplace is that we have seen strong early interest in UAN for off-season fill and ammonia for fall application. This reflects the tight supply-demand balance for corn that is expected to carry into 2009, as well as the likely strong demand environment for nitrogen in the next crop year.

Global nitrogen supplies continue to look well balanced and the recent imposition of higher fertilizer export tariffs by China should reduce trade of supplies for the next five months.

Natural gas prices have continued to creep higher than most market observers expected. Certainly, high natural gas prices in other parts of the world, driven in part by record crude oil prices have had an impact on this market. It remains to be seen how these markets will respond to fundamentals as the year progresses, and we will continue to be disciplined in our approach to secure margins on forward sales with corresponding gas hedge positions.

We are nearly complete evaluating capital projects that can enhance our future earnings performance through further upgrade of our existing ammonia capacity, and expect to reach a decision on one of these projects in the very near future. Our preparation to restart the Donaldsonville plant remains on track for the third quarter and also it should be noted that our environmental technologies business is on track for good growth and improved earnings this year and is laying a very solid foundation preferred a growth in 2009.

That's concludes my prepared remarks. At this time I'll turn the call over to Dan Greenwell for his comments. Dan?

Dan Greenwell

Thank you, Mike and good afternoon to everyone. Mike has highlighted the solid first quarter results and strong margin for nitrogen products. I would like to first round out our discussions of the top line with a few comments about the product selling prices and natural gas costs. Then I’ll follow with additional comments about our operating results and the joint venture operations in Trinidad and the United Kingdom and our planned restart with the Donaldsonville ammonia plant.

Net income available to common shareholders was approximately $100 million during the quarter or $0.97 compared to last years $6 million or $0.06 per share. Results in the first quarter of 2007 included a charge for the debt refinancing of $38.7 million or $0.26 per share.

Nitrogen revenues increased by $74 million in the first quarter of 2008, as compared to last year. The 2007 revenues included our United Kingdom operations which generated $90 million of first quarter revenues with an operating loss of approximately $1 million.

First quarter 2008, North American revenues increased by a $163.7 million. Approximately $155 million of this increase resulted from price improvements. During the first quarter selling prices on our primary product UAN increased from those we've achieved during the prior year. The average price for 32% UAN was $285 per ton in the 2008 first quarter compared with $185 per ton in the 2007 first quarter, an increase of 54%. As Mike mentioned, with the late start to the 2008 planting season we do expect strong demand for UAN throughout this planting season.

You may have noted that we classified the Beaumont results and balances as discontinued operations. The Beaumont facility is under contract to be sold with an expected closing to occur on or before January 2009. We are carrying the Beaumont assets on our books at an estimated realizable value upon sale. We filed an 8-K on April 8 that provides historically amounts on a restated basis.

North American natural gas cost increased by approximately $0.81 per MMBtu or $26 million during the first quarter of 2008 as compared to the prior year. We continue to purchase gas as we take orders for products that will ship in the future.

The year-over-year decrease to first quarter selling, general and administrative expenses included approximately $3.5 million due to the annual incentive accruals and share-based compensation. The primary decrease results from the variable accounting treatment for the Phantom share program. The share price utilized in the market 2008 analysis was $35.53 compared to $47.76 at December of 2007.

The 2007 first quarter included approximately $2.2 million of costs associated with the United Kingdom. The United Kingdom's operating results are now classified as equity earnings. Our United Kingdom joint venture of integration activities progressed well during the first quarter.

At the end of January 2008 the joint venture Severnside plant ceased operations and it is now closed. Additionally, Terra's former administrative offices have been closed and all services and core systems are now consolidated at the GrowHow head quarters. Sales prices and volume increases in the UK were partially offset by the higher gas cost.

As part of the joint venture contribution agreement Terra was entitled to working capital true of adjustment and we received $28 million from the joint venture in the first quarter of 2008. The joint venture anticipates additional synergy cost of approximately $9 million throughout 2008. There were no significant integration or synergy charges in the first quarter.

As Mike mentioned we are currently undertaking turnaround in startup activities for a Donaldsonville ammonia facility. We plan to restart the plant in the third quarter of 2008. The aggregate cost of the startup activities will approximate between $10 million to $13 million, approximately half will be catalyst costs. Production from this facility will replace product that has previously been purchased in the international markets.

Terra's effective tax rate was 37% for the quarter. Terra expected federal cash tax payers starting the second quarter of 2008. We estimate our 2008 effective rate will be between 37% to 38%.

Our cash balances, which included almost $282 million in customer prepayment, totaled $817 million. This cash is invested in high quality money fund.

We also received 20 million from our Trinidad, another North American joint venture operation, during the first quarter. Additionally, as I mentioned earlier, we received $28 million from the UK as a settlement for working capital contributions upon formation of the JV.

We spent approximately $7 million for normal maintenance capital turnarounds during the first quarter of 2008, and we estimate that our 2008 sustained capital expenditures and turnaround cost will total between $60 million to $65 million.

At this time, I would like to turn the call back to Mike Bennett.

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