UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

Commission file number: 1-8520

TERRA INDUSTRIES INC.

(Exact name of registrant as specified in its charter)

Maryland		52-1145429
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
Terra Centre
P.O. Box 6000
600 Fourth Street		51102-6000
Sioux City, Iowa		(Zip Code)
(Address of principal executive offices)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No

At the close of business on November 4, 2009 the following shares of the registrant’s stock were outstanding:

Common Shares, without par value		99,825,840 shares

 

 

TABLE OF CONTENTS

Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets			3
Consolidated Statements of Operations			4
Consolidated Statements of Cash Flows			5
Consolidated Statements of Changes in Equity			7
Notes to the Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			43
Item 3. Quantitative and Qualitative Disclosures about Market Risk			54
Item 4. Controls and Procedures			54
Part II — OTHER INFORMATION
Item 1. Legal Proceedings			56
Item 1A. Risk Factors			56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			57
Item 3. Defaults upon Senior Securities			57
Item 4. Submission of Matters to a Vote of Security Holders			57
Item 5. Other Information			57
Item 6. Exhibits			58
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

TERRA INDUSTRIES INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

		September 30,				December 31,				September 30,
		2009				2008				2008
Assets
Cash and cash equivalents		$	1,000,810			$	966,700			$	680,666
Accounts receivable, less allowance for doubtful accounts of $1,378, $290 and $316			103,862				130,390				235,587
Inventories, net			110,943				197,091				175,920
Margin deposits with derivative counterparties			—				36,945				132,058
Other current assets			68,901				61,338				62,193
Current assets of discontinued operations			—				—				45,607
Total current assets			1,284,516				1,392,464				1,322,031
Property, plant and equipment, net			435,442				403,313				407,037
Equity method investments			253,386				270,915				382,606
Deferred plant turnaround costs, net			28,000				23,467				29,303
Other assets			30,034				22,858				31,965
Total assets		$	2,031,378			$	2,113,017			$	2,182,942
Liabilities
Accounts payable		$	70,909			$	99,893			$	124,138
Customer prepayments			40,882				111,592				195,039
Derivative hedge liabilities			2,382				125,925				218,652
Accrued and other current liabilities			62,172				127,770				113,042
Current liabilities of discontinued operations			—				—				2,749
Total current liabilities			176,345				465,180				653,620
Long-term debt			330,000				330,000				330,000
Deferred taxes			82,735				61,443				53,135
Pension liabilities			7,648				9,170				10,018
Other liabilities			81,786				78,553				78,779
Total liabilities			678,514				944,346				1,125,552
Preferred Shares — liquidation value of $500; $1,600 and $2,100			483				1,544				2,027
Common Stockholders’ Equity
Capital stock
Common Shares, authorized 133,500 shares; 99,826; 99,330 and 102,081 shares outstanding			152,787				152,111				154,866
Paid-in capital			584,556				579,164				625,058
Accumulated other comprehensive loss			(114,741	)			(175,529	)			(174,183	)
Retained earnings			633,999				507,299				353,590
Total common stockholders’ equity			1,256,601				1,063,045				959,331
Noncontrolling interest			95,780				104,082				96,032
Total equity			1,352,381				1,167,127				1,055,363
Total liabilities and equity		$	2,031,378			$	2,113,017			$	2,182,942

See Accompanying Notes to the Consolidated Financial Statements.

TERRA INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per-share amounts)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenues
Product revenues		$	345,779			$	788,272			$	1,216,480			$	2,198,398
Other income			1,267				1,942				3,822				9,617
Total revenues			347,046				790,214				1,220,302				2,208,015
Cost and Expenses
Cost of sales			281,621				578,310				921,268				1,532,369
Selling, general and administrative expenses			17,300				18,301				49,774				58,238
Other operating expenses			—				—				14,260				—
Equity earnings of North American affiliates			(6,106	)			(15,857	)			(10,880	)			(45,665	)
Total cost and expenses			292,815				580,754				974,422				1,544,942
Income from operations			54,231				209,460				245,880				663,073
Interest income			725				5,409				3,700				19,330
Interest expense			(6,762	)			(6,773	)			(20,247	)			(20,587	)
Income before income taxes, noncontrolling interest and equity earnings of GrowHow UK Limited			48,194				208,096				229,333				661,816
Income tax provision			(5,049	)			(63,169	)			(55,849	)			(229,742	)
Equity earnings of GrowHow UK Limited			4,945				42,091				2,457				88,986
Income from continuing operations, net of tax			48,090				187,018				175,941				521,060
Income from discontinued operations, net of tax			810				141				810				7,612
Net income before noncontrolling interest			48,900				187,159				176,751				528,672
Less: Net income attributable to the noncontrolling interest			2,972				15,748				20,354				52,369
Net income attributable to Terra Industries Inc.		$	45,928			$	171,411			$	156,397			$	476,303
Amounts attributable to Terra Industries Inc. common stockholders:
Income from continuing operations, net of tax		$	45,118			$	171,270			$	155,587			$	468,691
Income from discontinued operations, net of tax			810				141				810				7,612
Less: Inducement payment of preferred stock conversion			—				5,248				—				5,248
Less: Preferred share dividends			17				1,275				51				3,825
Net income attributable to Terra Industries Inc. common stockholders		$	45,911			$	164,888			$	156,346			$	467,230
Basic income per common share attributable to Terra Industries Inc. common stockholders:
Continuing operations		$	0.46			$	1.75			$	1.57			$	5.01
Discontinued operations			0.01				—				0.01				0.08
Basic income per common share		$	0.47			$	1.75			$	1.58			$	5.09
Diluted income per common share attributable to Terra Industries Inc. common shareholders
Continuing operations		$	0.45			$	1.64			$	1.56			$	4.47
Discontinued operations			0.01				—				0.01				0.07
Diluted income per common share		$	0.46			$	1.64			$	1.57			$	4.54
Weighted average shares outstanding:
Basic			99,465				94,259				99,305				91,821
Diluted			100,029				104,605				99,956				104,851

See Accompanying Notes to the Consolidated Financial Statements.

TERRA INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

(unaudited)

		Nine Months Ended
		September 30,
		2009				2008
Operating Activities
Net income before noncontrolling interest		$	176,751			$	528,672
Income from discontinued operations, net of tax			810				7,612
Income from continuing operations, net of tax			175,941				521,060
Adjustments to reconcile income from continuing operations to net cash flows from operating activities:
Depreciation of property, plant and equipment and amortization of deferred plant turnaround costs			63,127				58,406
Loss on sale of property, plant and equipment			800				2,235
Deferred income taxes			(6,972	)			(51,772	)
Distributions in excess of equity earnings of North American affiliates			2,513				2,524
Equity earnings of GrowHow UK Limited			(2,457	)			(88,986	)
Non-cash gain on derivatives			(1,224	)			(1,610	)
Share-based compensation			13,408				10,333
Amortization of intangible and other assets			6,866				6,193
Changes in operating assets and liabilities:
Accounts receivable			28,765				(65,639	)
Inventories			88,573				(42,221	)
Accounts payable and customer prepayments			(102,062	)			(90,559	)
Margin deposits with derivative counterparties			36,945				(131,420	)
Other assets and liabilities, net			(138,152	)			67,471
Net cash flows from operating activities — continuing operations			166,071				196,015
Net cash flows from operating activities — discontinued operations			810				9,439
Net cash flows from operating activities			166,881				205,454
Investing Activities
Capital expenditures and plant turnaround expenditures			(95,679	)			(70,123	)
Proceeds from sale of property, plant and equipment			101				1,660
Distributions received from North American affiliates			11,682				7,196
Contribution settlement received from GrowHow UK Limited			—				27,427
Balancing consideration and other payments from GrowHow UK Limited			18,700				—
Net cash flows from investing activities			(65,196	)			(33,840	)
Financing Activities
Preferred share dividends paid			(51	)			(3,825	)
Inducement payment to preferred stockholders			—				(5,248	)
Common stock dividends paid			(29,912	)			(18,299	)
Common stock issuances and vestings			(7,213	)			(9,839	)
Excess tax benefits from equity compensation plans			6,304				12,122
Payments under share repurchase program			—				(107,500	)
Distributions to noncontrolling interests			(33,631	)			(56,642	)
Net cash flows from financing activities			(64,503	)			(189,231	)
Effect of exchange rate changes on cash			(3,072	)			45
Increase (decrease) to cash and cash equivalents			34,110				(17,572	)
Cash and cash equivalents at beginning of period			966,700				698,238
Cash and cash equivalents at end of period		$	1,000,810			$	680,666

Consolidated Statements of Cash Flows (continued)

		Nine Months Ended
		September 30,
		2009				2008
Supplemental cash flow information:
Interest paid		$	23,958			$	23,975
Income tax refunds received			791				206
Income taxes paid			141,895				197,239
Supplemental schedule of non-cash investing and financing activities:
Conversion of warrants to common stock		$	—			$	2,496
Supplemental schedule of distributions received from unconsolidated affiliates:
Contribution settlement payments, balancing consideration and other payments received from GrowHow UK Limited		$	18,700			$	27,427
Distributions received from North American affiliates			11,682				7,196
Equity in earnings of North American affiliates			10,880				45,665
Distributions in excess of equity earnings from North American affiliates			2,513				2,524
Total cash distributions received from unconsolidated affiliates		$	43,775			$	82,812

See Accompanying Notes to the Consolidated Financial Statements.

TERRA INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(in thousands)

										Accumulated
										Other
		Common				Paid-In				Comprehensive				Noncontrolling				Retained								Comprehensive
		Stock				Capital				Loss				Interest				Earnings				Total				Income
Balance at January 1, 2009		$	152,111			$	579,164			$	(175,529	)		$	104,082			$	507,299			$	1,167,127
Comprehensive income (loss):
Net income			—				—				—				20,354				156,397				176,751			$	176,751
Foreign currency translation adjustment			—				—				24,491				—				—				24,491				24,491
Change in fair value of derivatives, net of taxes of $25,987			—				—				36,297				4,975				—				41,272				41,272
Comprehensive income before noncontrolling interest			—				—				—				—				—								242,514
Comprehensive income attributable to noncontrolling interest			—				—				—				—				—				—				(25,329	)
Comprehensive income attributable to Terra Industries Inc.																										$	217,185
Distributions to noncontrolling interest			—				—				—				(33,631	)			—				(33,631	)
Preferred share dividends			—				—				—				—				(51	)			(51	)
Preferred share conversion			110				951				—				—				—				1,061
Common stock dividends			—				—				—				—				(29,912	)			(29,912	)
Excess tax benefit			—				6,304				—				—				—				6,304
Net vested stock			566				(7,779	)			—				—				—				(7,213	)
Share-based compensation			—				5,916				—				—				—				5,916
Other			—				—				—				—				266				266
Balance September 30, 2009		$	152,787			$	584,556			$	(114,741	)		$	95,780			$	633,999			$	1,352,381

										Accumulated								(Accumulated
										Other								Deficit)
		Common				Paid-In				Comprehensive				Noncontrolling				Retained								Comprehensive
		Stock				Capital				Loss				Interest				Earnings				Total				Income
Balance at January 1, 2008		$	142,170			$	618,874			$	(44,180	)		$	108,581			$	(95,341	)		$	730,104
Comprehensive income (loss):
Net income			—				—				—				52,369				476,303				528,672			$	528,672
Foreign currency translation adjustment			—				—				(30,356	)			—				—				(30,356	)			(30,356	)
Change in fair value of derivatives, net of taxes of $69,651			—				—				(99,647	)			(8,276	)			—				(107,923	)			(107,923	)
Comprehensive income before noncontrolling interest																											390,393
Comprehensive income attributable to noncontrolling interest																											(44,093	)
Comprehensive income attributable to Terra Industries Inc.																										$	346,300
Distributions to noncontrolling interest			—				—				—				(56,642	)			—				(56,642	)
Preferred share dividends			—				—				—				—				(3,825	)			(3,825	)
Inducement of preferred stock			11,837				101,936				—				—				(5,248	)			108,525
Common stock dividends			—				—				—				—				(18,299	)			(18,299	)
Shares purchased and retired under the share repurchase program			(2,588	)			(104,912	)			—				—				—				(107,500	)
Exercise of stock options			11				23				—				—				—				34
Net vested stock			475				(12,897	)			—				—				—				(12,422	)
Net conversion of warrants			2,961				(413	)			—				—				—				2,548
Share-based compensation			—				7,844				—				—				—				7,844
Excess tax benefit			—				14,603				—				—				—				14,603
Balance September 30, 2008		$	154,866			$	625,058			$	(174,183	)		$	96,032			$	353,590			$	1,055,363

See Accompanying Notes to the Consolidated Financial Statements.

TERRA INDUSTRIES INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Background and Basis of Presentation

Terra Industries Inc. together with its subsidiaries (Terra, we, our, or us) is a leading North American producer and marketer of nitrogen products made from natural gas. We also operate production assets in Trinidad, and the United Kingdom, through joint venture agreements. Our six North American and our international production locations, along with a robust distribution capability, provide us with the ability to effectively serve key agricultural, industrial and environmental markets. Our principal products are anhydrous ammonia (ammonia), ammonium nitrate solutions (UAN), ammonium nitrate (AN), and urea. Our principal customers are national agricultural retail chains, farm cooperatives, independent dealers and industrial customers. We operate in one principal industry segment—Nitrogen Products, which is based upon the guidance provided in the Segment Reporting topic of the Financial Accounting Standards Board (FASB) Accounting Standard Codification (Codification). As a wholesale nitrogen producer, we do not report industry segments in a separate disclosure because our only reportable industry segment is nitrogen.

The accompanying unaudited consolidated financial statements and notes thereto have been prepared in accordance with the requirements of the U.S. Securities and Exchange Commission (SEC) for interim reporting. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2008, included in our 2008 Annual Report on Form 10-K (Items 6, 7 and 8 of our 2008 Annual Report on Form 10-K have been updated by the Current Report on Form 8-K filed with the SEC on September 30, 2009).

Terra’s significant accounting policies are described in the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2008. Management is responsible for the unaudited consolidated financial statements included in this document. The consolidated financial statements included in this document are unaudited; however, they contain all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of Terra’s financial position, results of operations and cash flows for the periods presented.

Because of the seasonal nature of our operations and effects of weather-related conditions in several of its marketing areas, results of any interim reporting period should not be considered as indicative of results for future quarters or the full year.

2. New Accounting Pronouncements

We adopted the provisions of the FASB Statement on Generally Accepted Accounting Principles (GAAP) relating to the Codification on July 1, 2009. This Statement establishes the Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force (EITF) Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. The adoption did not have an impact on our consolidated financial position, results of operations or cash flows.

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

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

We adopted the provisions of the FASB Statement on disclosures relating to Derivatives and Hedging on January 1, 2009. This Statement requires entities to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted, and how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and cash flows. These disclosures are included in Note 6 herein.

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

We adopted the provisions of the FASB Staff Position (FSP) relating to Fair Value Measurements and Disclosures, as of April 1, 2009. This FSP provides additional guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market activity. The FSP also provides additional guidance on circumstances that may indicate that a transaction is not orderly and requires additional disclosures. The adoption did not have an impact on our consolidated financial position, results of operations or cash flows.

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

We adopted the provisions of a FSP on Financial Instruments, as of April 1, 2009. This FSP required disclosures about fair value of all financial instruments for interim reporting periods. This FSP relates to fair value disclosures for any financial instruments that are not currently reflected in a company’s balance sheet at fair value. Prior to the effective date of this FSP, fair values for these assets and liabilities were only disclosed once a year. This FSP will now require these disclosures to be made on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. We have included the additional disclosure information in Note 7 herein.

In June 2009, the FASB issued a Statement on Subsequent Events. This Statement provides authoritative accounting literature and disclosure requirements for material events occurring subsequent to the balance sheet date and prior to the issuance of the financial statements. This Statement is effective for us for the periods ended on and after June 30, 2009. We have evaluated subsequent events through November 6, 2009, which is the date of our Form 10-Q filing. The adoption did not have an impact on our consolidated financial position, results of operations or cash flows. We have included a subsequent events disclosure in Note 19 herein.

In December 2008, the FASB issued an FSP on Compensation, which amends previous guidance to require more detailed disclosures about employers’ pension plan assets. New disclosures will include more information on investment strategies, major categories of plan assets, concentrations of risk within plan assets and valuation techniques used to measure the fair value of plan assets. This new standard requires new disclosures only, and will have no impact on our consolidated financial position, results of operations or cash flows. These new disclosures will be required for us beginning in our Form 10-K for the 2009 fiscal year.

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

In June 2009, the FASB issued a Statement which amends the previous Consolidations guidance regarding variable interest entities and addresses the effects of eliminating the qualifying special-purpose entity concept from the guidance on Transfers and Servicing. This Statement responds to concerns about the application of certain key provisions of the previous guidance on Consolidations regarding variable interest entities, including concerns over the transparency of enterprises’ involvement with variable interest entities. This Statement is effective for us January 1, 2010 and we are currently assessing the impact this Statement will have on our financial statements.

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

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

On January 15, 2009, CF Industries Holdings, Inc. (CF) presented a letter to our Board of Directors proposing CF’s acquisition of Terra in an all-stock transaction. Terra’s Board of Directors rejected the proposal on the grounds that it was not in the best interests of Terra or its stockholders and substantially undervalued the Company. CF subsequently announced that it remained committed to the proposal, and on February 3, 2009, announced that it would nominate three director candidates to Terra’s Board and commence an exchange offer for all of Terra’s outstanding common shares.

On February 23, 2009, CF announced that it had commenced an unsolicited exchange offer to acquire all of the outstanding common shares of Terra at a fixed exchange ratio of 0.4235 of a CF common share for each Terra common share. In response, Terra’s Board of Directors announced on February 23, 2009, that it would review and consider CF’s exchange offer and make a formal recommendation to stockholders within ten business days, and further advised Terra’s stockholders to take no action pending the review of the proposed exchange offer by Terra’s Board. On March 3, 2009, Terra’s Board of Directors unanimously concluded that CF’s offer did not present a compelling case to create additional value for the stockholders of either Terra or CF, substantially undervalues Terra on both an absolute basis and relative to CF and is not in the best interests of Terra and its stockholders.

On March 9, 2009, CF sent a letter to Terra’s Board of Directors stating CF would be prepared to enter into a negotiated merger agreement with Terra on the basis of an exchange ratio based on $27.50 for each Terra common share, with an exchange ratio of not less than 0.4129 of a CF common share and not more than 0.4539 of a CF common share. On March 11, 2009, Terra’s Board of Directors unanimously concluded that CF’s proposal continues to run counter to Terra’s strategic objectives, substantially undervalues Terra both absolutely and relative to CF, and would deliver less value to Terra’s stockholders than would owning Terra on a stand-alone basis.

On March 23, 2009, CF sent a letter to Terra’s Board of Directors stating CF would be prepared to enter into a negotiated merger agreement with Terra on the basis of an exchange ratio based on $30.50 for each Terra common share, with an exchange ratio of not less than 0.4129 of a CF common share and not more than 0.4539 of a CF common share, the same collar as CF’s proposal of March 9, 2009. On March 24, 2009, Terra’s Board of Directors unanimously concluded CF’s proposal continues to run counter to Terra’s strategic objectives, substantially undervalues Terra both absolutely and relative to CF and would deliver less value to Terra’s stockholders than would owning Terra on a stand-alone basis.

On August 5, 2009, CF sent a letter to Terra’s Board of Directors reaffirming CF’s intent to pursue a business combination with Terra and stating that CF would be prepared to enter into a negotiated merger agreement with Terra on the basis of a fixed exchange ratio of 0.465 of a CF common share for each Terra common share, and the return of at least $1 billion of cash to stockholders of the combined company and the distribution to only CF’s stockholders prior to the merger of certain contingent future shares. On August 25, 2009, Terra’s Board of Directors unanimously concluded that CF’s proposal continues to run counter to Terra’s strategic objectives, substantially undervalues Terra both absolutely and relative to CF and would deliver less value to Terra’s stockholders than would owning Terra on a stand-alone basis.

On August 31, 2009, CF announced that its unsolicited exchange offer to acquire all of the outstanding common shares of Terra had expired and would not be extended. No Terra common shares were purchased by CF pursuant to the exchange offer.

On September 9, 2009, CF delivered a notice to Terra resubmitting CF’s slate of three nominees for election to Terra’s Board at Terra’s 2009 annual meeting of stockholders.

On September 28, 2009, CF announced that it had acquired 6,985,048 common shares, or approximately 7%, of Terra in the open market at a cost of approximately $247 million. CF also announced that it had sent a merger agreement to Terra, which included a fixed exchange ratio of 0.465 of a CF common share for each Terra common share (such exchange ratio to be adjusted upon the declaration by Terra of its proposed $7.50 per common share special cash dividend) and the distribution to only CF’s stockholders prior to the merger of certain contingent future shares. On September 30, 2009, Terra’s Board of Directors unanimously concluded that CF’s proposal continues to run counter to Terra’s strategic objectives, substantially undervalues Terra both absolutely and relative to CF and would deliver less value to Terra’s stockholders than would owning Terra on a stand-alone basis.

On November 1, 2009, CF sent a letter to Terra’s Board of Directors reaffirming CF’s intent to pursue a business combination with Terra and stating that CF would be prepared to enter into a negotiated merger agreement with Terra to acquire Terra for $32.00 in cash (reduced by the $7.50 per share special dividend declared by Terra) and 0.1034 of a CF common share for each Terra common share. On November 3, 2009, Terra’s Board of Directors unanimously concluded that CF’s proposal is inadequate, opportunistic and not in the best interests of Terra and its stockholders.

For the three month period ended September 30, 2009, Terra did not incur any additional defense costs related to CF’s unsolicited business proposals. For the nine month period ended September 30, 2009, Terra incurred defense costs of $14.3 million related to CF’s unsolicited business proposals.

4. Income Per Share

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

The following table provides a reconciliation between basic and diluted income per share attributable to Terra Industries Inc. for the three and nine month periods ended September 30, 2009 and 2008:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands, except per share amounts)		2009				2008				2009				2008
Basic income per common share attributable to Terra Industries Inc.:
Income from continuing operations		$	45,118			$	171,270			$	155,587			$	468,691
Less: Preferred share dividends			(17	)			(1,275	)			(51	)			(3,825	)
Inducement of preferred shares			—				(5,248	)			—				(5,248	)
Income from continuing operations available to common stockholders			45,101				164,747				155,536				459,618
Income from discontinued operations available to common stockholders			810				141				810				7,612
Income available to common stockholders		$	45,911			$	164,888			$	156,346			$	467,230
Weighted average shares outstanding			99,465				94,259				99,305				91,821
Income per share — continuing operations		$	0.46			$	1.75			$	1.57			$	5.01
Income per share — discontinued operations			0.01				—				0.01				0.08
Net income per share		$	0.47			$	1.75			$	1.58			$	5.09
Diluted income per common share attributable to Terra Industries Inc.:
Income from continuing operations available to common stockholders		$	45,101			$	164,747			$	155,536			$	459,618
Add: Preferred share dividends			17				1,275				51				3,825
Inducement of preferred shares			—				5,248				—				5,248
Income available to common stockholders and assumed conversions		$	45,118			$	171,270			$	155,587			$	468,691
Weighted average shares outstanding			99,465				94,259				99,305				91,821
Add incremental shares from assumed conversions:
Preferred shares			143				8,188				155				10,752
Non vested stock			421				566				496				581
Common stock warrants			—				1,592				—				1,696
Common stock options			—				—				—				1
Dilutive potential common shares			100,029				104,605				99,956				104,851
Income per share — continuing operations		$	0.45			$	1.64			$	1.56			$	4.47
Income per share — discontinued operations			0.01				—				0.01				0.07
Net income per share		$	0.46			$	1.64			$	1.57			$	4.54

5. Inventories, net

Inventories consisted of the following:

		September 30,				December 31,				September 30,
(in thousands)		2009				2008				2008
Raw materials		$	54,215			$	17,805			$	18,269
Supplies			36,736				33,825				33,570
Finished goods			19,992				145,461				124,081
Total		$	110,943			$	197,091			$	175,920

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

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

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

6. Derivative Financial Instruments

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

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

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

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

To manage credit risk, we enter into derivative transactions only with counter-parties who are currently rated as BBB or better or equivalent as recognized by a national rating agency. We will not enter into transactions with a counter-party if the additional transaction will result in credit exposure exceeding $20 million. The credit rating of counter-parties may be modified through guarantees, letters of credit or other credit enhancement vehicles. As of September 30, 2009, we did not have any credit risk related contingent features that would require us to settle the derivative instruments or to post collateral upon the occurrence of a credit event.

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

1.

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

2.

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

3.

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

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

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

As of September 30, 2009 and 2008, we had open derivative contracts of 14.7 million MMBtus and 42.4 million MMBtus, respectively, of natural gas.

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

Asset Derivatives(a)
						September 30,				December 31,				September 30,
Derivative Instrument		Location				2009				2008				2008
Commodity Derivatives		Other current assets				$	8,869			$	25,773			$	30,685
Liability Derivatives(a)
						September 30,				December 31,				September 30,
Derivative Instrument		Location				2009				2008				2008
Commodity Derivatives		Derivative hedge liabilities				$	(2,382	)		$	(125,925	)		$	( 218,652	)

(a)		Amounts are disclosed at gross fair value as required by the Derivative and Hedging topic of the FASB Accounting Standards Codification. All of our commodity derivatives are designated as cash flow hedging instruments. See Notes 1 and 5 to our audited consolidated financial statements included on our 2008 Annual Report on Form 10-K for additional information on our overall risk management strategies. The deferred taxes related to these commodity derivatives for the periods ended September 30, 2009, December 31, 2008 and September 30, 2008 were $(0.8) million, $25.2 million and $72.7 million, respectively.

Certain derivatives outstanding at September 30, 2009 and 2008, which settled during October 2009 and October 2008, respectively, are included in the position of open natural gas derivatives in the table above. The October 2009 derivatives settled for an approximate $0.5 million gain compared to the October 2008 derivatives which settled for an approximate $42.2 million loss. Substantially all material open derivatives at September 30, 2009 will settle during the next twelve months.

We are required to maintain certain margin deposits on account with derivative counterparties. At September 30, 2009, we had no margin deposits with derivative counterparties, which are reported as “Margin deposits with derivative counterparties” on the Consolidated Statements of Financial Position. At December 31, 2008 and September 30, 2008, we had margin deposits with derivative counterparties of $36.9 million and $132.1 million, respectively.

At September 30, 2009 and 2008, we determined that a portion of certain derivative contracts were ineffective for accounting purposes and, as a result, recorded a $1.5 million charge and $3.6 million charge to cost of sales, respectively. At September 30, 2009 and 2008, we excluded a portion of the loss on certain derivative contracts from the effectiveness assessment and, as a result, recorded a $2.7 million credit and a $5.2 million credit, respectively, to cost of sales.

The effective portion of gains and losses on derivative contracts that qualify for hedge treatment are carried as accumulated other comprehensive income (loss) (AOCI) and credited or charged to cost of sales in the month in which the hedged transaction settles. Gains and losses on the contracts that do not qualify for hedge treatment are credited or charged to cost of sales based on the positions’ fair value. The risk and reward of outstanding natural gas positions are directly related to increases or decreases in natural gas prices in relation to the underlying NYMEX natural gas contract prices. All of our commodity derivatives are designated as cash flow hedging instruments. See Notes 1 and 5 to our audited consolidated financial statements included in our 2008 Annual Report on Form 10-K for additional information on our overall risk management strategies.

The following table presents the effect of our commodity derivative instruments on the Consolidated Statement of Operations for the three and nine months ended September 30, 2009 and 2008.

Three Months Ended
										Amount of Gain (Loss)
Amount of Gain (Loss)								Location of Gain		Reclassified from AOCI												Amount of Gain (Loss)
Recognized in OCI								(Loss) Reclassified		into Income												Recognized in Income (b)
Sept 30,				Sept 30,				from AOCI into		Sept 30,				Sept 30,				Location of Gain (Loss)				Sept 30,				Sept 30,
2009				2008				Income (a)		2009				2008				Recognized in Income (b)				2009				2008
$	(2,959	)		$	(226,284	)		Cost of Sales		$	(9,501	)		$	(27,055	)		Cost of Sales				$	1,224			$	1,608
Nine Months Ended
										Amount of Gain (Loss)
Amount of Gain								(Loss) Location of Gain		Reclassified from AOCI												Amount of Gain (Loss)
Recognized in OCI								(Loss) Reclassified		into Income												Recognized in Income (b)
Sept 30,				Sept 30,				from AOCI into		Sept 30,				Sept 30,				Location of Gain (Loss)				Sept 30,				Sept 30,
2009				2008				Income (a)		2009				2008				Recognized in Income (b)				2009				2008
$	(40,268	)		$	(194,585	)		Cost of Sales		$	(107,527	)		$	17,011			Cost of Sales				$	1,224			$	1,608

(a)		Effective portion of gain (loss)
(b)		The amount of gain or (loss) recognized in income represents $(1.5) million and $(3.6) million related to the ineffective portion of the hedging relationships and $2.7 million and $5.2 million related to the amount excluded from the assessment of hedge effectiveness.

Approximately $2.0 million of the net accumulated gain at September 30, 2009 will be reclassified into earnings during the next twelve months as compared to $186.2 million of the net accumulated loss at September 30, 2008.

At times, we also use forward derivative instruments, such as nitrogen solution contracts, to fix or set floor prices for a portion of our nitrogen sales volumes. At September 30, 2009, we had open nitrogen solution contracts. When outstanding, the nitrogen solution contracts do not qualify for hedge treatment due to inadequate trading history to demonstrate effectiveness. Consequently, these contracts are marked-to-market and unrealized gains or losses are reflected in revenue in the statement of operations. For both the three and nine month periods ending September 30, 2009, we recognized an unrealized loss of less than $0.1 million on nitrogen forward derivative instruments. For the three and nine month periods ending September 30, 2008, there were no gains or losses on nitrogen forward derivative instruments.

7. Fair Value Measurements

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

The three levels are defined as follows:

	•		Level 1 — inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
	•		Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	•		Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

We evaluated our assets and liabilities to determine which items should be disclosed according to the Fair Value Measurements and Disclosures topic of the FASB Accounting Standards Codification. We currently measure our money market funds and derivative contracts on a recurring basis at fair value. The fair value of our money market fund investments was determined based on quoted prices in active markets for identical assets. The inputs included in the fair value measurement of our derivative contracts use adjusted quoted prices from an active market, which are classified as level 2 as a significant other observable input in the disclosure hierarchy framework as defined by the Fair Value Measurements and Disclosures topic of the FASB Accounting Standards Codification. Our gas derivative contracts, which are classified as a level 2 input, are comprised of swaps, basis swaps and options. The valuation techniques for these contracts are observable market data for inputs, including prices quoted on the NYMEX, prices quoted in spot markets and commonly referenced industry publications and prices quoted by market makers. There have been no changes in valuation techniques during the quarter ended September 30, 2009.

The following table summarizes the valuation of Terra’s assets and liabilities in accordance with the Fair Value Measurements and Disclosures topic of the Codification fair value hierarchy levels as of September 30, 2009:

		Quoted Market				Significant Other				Significant
		Prices in Active				Observable				Unobservable
		Markets				Inputs				Inputs
(in thousands)		(Level 1)				(Level 2)				(Level 3)
Assets
Money market funds		$	785,482			$	—			$	—
Derivative contracts			—				8,869				—
Total		$	785,482			$	8,869			$	—
Liabilities
Derivative contracts		$	—			$	(2,382	)		$	—
Total		$	—			$	(2,382	)		$	—

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

		Quoted Market				Significant Other				Significant
		Prices in Active				Observable				Unobservable
		Markets				Inputs				Inputs
(in thousands)		(Level 1)				(Level 2)				(Level 3)
Assets
Money market funds		$	755,501			$				$	—
Derivative contracts			—				25,773				—
Total		$	755,501			$	25,773			$	—
Liabilities
Derivative contracts		$	—			$	(125,925	)		$	—
Total		$	—			$	(125,925	)		$	—

The following table summarizes the valuation of Terra’s assets and liabilities in accordance with the Fair Value Measurements and Disclosures topic of the Codification fair value hierarchy levels of September 30, 2008:

		Quoted Market				Significant Other				Significant
		Prices in Active				Observable				Unobservable
		Markets				Inputs				Inputs
(in thousands)		(Level 1)				(Level 2)				(Level 3)
Assets
Money market funds		$	491,534			$	—			$	—
Derivative contracts			—				30,685				—
Total		$	491,534			$	30,685			$	—
Liabilities
Derivative contracts		$	—			$	(218,652	)		$	—
Total		$	—			$	(218,652	)		$	—

The following table represents the carrying amounts and estimated fair values of Terra’s financial instruments as of September 30, 2009 and 2008.

		September 30,								September 30,
		2009								2008
		Carrying				Fair				Carrying				Fair
(in millions)		Amount				Value				Amount				Value
Financial Assets
Cash and cash equivalents		$	1,000,810			$	1,000,810			$	680,666			$	680,666
Financial Liabilities
Long-term debt			330,000				346,088				330,000				324,225
Preferred shares			483				1,680				2,027				5,983

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

	•		Cash and receivables: The carrying amounts approximate fair value because of the short maturity of those instruments.
	•		Long-term debt: The fair value of our long-term debt is estimated by discounting expected cash flows at the rates currently offered for debt of the same remaining maturities.
	•		Preferred shares: Preferred shares are valued on the basis of market quotes, when available, and management estimates based on comparisons with similar instruments that are publicly traded.

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

Financial Instruments: At September 30, 2009, we had letters of credit outstanding totaling $8.0 million, which guarantees various insurance and financing activities.

8. Preferred Shares

The components of preferred shares outstanding at September 30, 2009 and 2008:

		2009								2008
		Number				Carrying				Number				Carrying
(in thousands)		of shares				Value				of shares				Value
Series A Preferred Shares (120,000 shares authorized, $1,000 per share liquidation value)			500			$	483				2,100			$	2,027

We had 500 shares of cumulative convertible perpetual Series A Preferred Shares with a liquidation value of $1,000 per share outstanding at September 30, 2009 and 2,100 shares with a liquidation value of $1,000 per share at September 30, 2008. Cumulative dividends of $10.625 per share are payable quarterly. The Series A Preferred Shares are not redeemable, but are convertible into our common stock at the option of the holder for a conversion price of $9.96 per common share. The Series A shares may automatically be converted to common shares after December 20, 2009 if the closing price for our common shares exceeds 140% of the conversion price for twenty days within a consecutive thirty day period prior to such conversion. Upon the occurrence of a fundamental change to our capital structure, including a change of control, merger, or sale of Terra, holders of the Series A Preferred Shares may require us to purchase any or all of their shares at a price equal to their liquidation value plus any accumulated, but unpaid, dividends. We also have the right, under certain conditions, to require holders of the Series A Preferred Shares to exchange their shares for convertible subordinated debentures with similar terms.

In the second half of 2008, we commenced offers (the inducement offers) to pay a cash premium to holders of the Series A Preferred Shares who elected to convert their Series A Preferred Shares into shares of Terra common stock. A total of 118,400 shares or 99% of the outstanding shares of Series A Preferred Shares were surrendered and converted as part of the inducement offers. The former holders of the Series A Preferred Shares received, in the aggregate, the following:

	•		11,887,550 shares of Terra Industries common stock; and
	•		A cash premium of approximately $5.3 million

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

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

9. Turnaround Costs

The following represents a summary of the deferred plant turnaround costs for the nine months ended September 30, 2009 and 2008:

						Turnaround								Currency
		Beginning				Costs				Turnaround				Translation				Ending
(in thousands)		Balance				Capitalized				Amortization				Adjustments				Balance
Period ended:
September 30, 2009		$	23,467			$	22,710			$	(18,496	)		$	319			$	28,000
September 30, 2008			42,190				9,290				(21,529	)			(648	)			29,303

Accrued and other current liabilities consisted of the following:

		September 30,				December 31,				September 30,
(in thousands)		2009				2008				2008
Payroll and benefit costs		$	15,138			$	27,104			$	21,517
Accrued CF defense costs			12,854				—				—
Deferred tax liability — current			5,630				—				6,413
Accrued property taxes			4,202				3,291				3,947
Accrued interest			3,972				9,748				3,970
Current accrued phantom shares			3,368				4,341				6,731
Deferred revenue			1,998				3,346				1,499
Accrued product on exchange			—				—				27,580
Income taxes payable			—				63,999				21,202
Other			15,010				15,941				20,183
		$	62,172			$	127,770			$	113,042