Terra Nitrogen Co L P 10K 2008 Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


(Mark One)

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

		For the fiscal year ended December 31, 2008

OR

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

		For the transition period from to

		Commission file number033-43007

Terra Nitrogen Company, L.P.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		73-1389684 (I.R.S. Employer Identification No.)

Terra Centre 600 Fourth Street P. O. Box 6000 Sioux City, Iowa (Address of principal executive offices)		51102-6000 (Zip Code) (712) 277-1340 (Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:


		Name of each exchange
Title of each class		on which registered

Common Units Representing Limited Partner Interests Evidenced by Depositary Receipts		New York Stock Exchange

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statement incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. 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 Rule12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

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

The aggregate market value of the voting and non-voting common units held by non-affiliates computed by reference to the price at which the common units were last sold, or the average bid and asked price of such common units, as of the last business day of the registrant’s most recently completed second fiscal quarter was $598,895,050.08

The number of Common Units, without par value, outstanding as of March 5, 2009 was 18,501,576.

Forward-Looking Information is Subject to Risk and Uncertainty

Certain statements in this report may constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. As a result, these statements speak only as of the date they were made and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Words such as “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” and similar expressions are used to identify these forward-looking statements. These include, among others, statements relating to:


	•	changes in financial markets,
	•	general economic conditions within the agricultural industry,
	•	competitive factors and price changes (principally, sales prices of nitrogen products and natural gas costs),
	•	changes in product mix,
	•	changes in the seasonality of demand patterns,
	•	changes in weather conditions,
	•	changes in environmental and other government regulations,
	•	changes in agricultural regulations, and
	•	other risks detailed in the section of this report entitled “Risk Factors”.

Additional information as to these factors can be found in the sections entitled Item 1,Business, and Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in theNotesto our Consolidated Financial Statements included as part of this Annual Report onForm 10-K.

Table of Contents


Part I
	Item 1.	Business	1
	Item 1A.	Risk Factors	9
	Item 1B.	Unresolved Staff Comments	13
	Item 2.	Properties	13
	Item 3.	Legal Proceedings	13
	Item 4.	Submission of Matters to a Vote of Unitholders	13

Part II
	Item 5.	Market for Registrant’s Units, Related Unitholder Matters and Issuer Purchases of Securities	14
	Item 6.	Selected Financial Data	15
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	27
	Item 8.	Financial Statements and Supplementary Data	28
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	48
	Item 9A.	Controls and Procedures	48
	Item 9B.	Other Information	51

Part III
	Item 10.	Directors and Executive Officers of the Registrant	51
	Item 11.	Executive Compensation	55
	Item 12.	Security Ownership of Certain Beneficial Owners and Management	61
	Item 13.	Certain Relationships and Related Transactions	62
	Item 14.	Principal Accountant Fees and Services	62

Part IV
	Item 15.	Exhibits, Financial Statement Schedules and Reports on Form8-K	63
Signatures			67
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Terra Nitrogen Company, L.P.
Form 10-K

Part I

Item 1. Business

General

Terra Nitrogen Company, L.P. (TNCLP, we, our or us) is a Delaware Limited Partnership that produces and distributes nitrogen fertilizer products. Our principal products are anhydrous ammonia (or ammonia) and urea ammonium nitrate solutions (UAN), which we manufacture at our facility in Verdigris, Oklahoma.

We conduct our operations through an operating partnership, Terra Nitrogen, Limited Partnership (TNLP or the Operating Partnership, and collectively with TNCLP, the Partnership). Terra Nitrogen GP Inc. (TNGP or General Partner), a Delaware corporation, is the general partner of both TNCLP and TNLP and owns a consolidated 0.05% general partner interest in the Partnership. The General Partner is an indirect, wholly-owned subsidiary of Terra Industries Inc. (Terra), a Maryland corporation. Terra is a leading North American producer and marketer of nitrogen products, serving agricultural and industrial markets.

2008 Overview

In 2008, we delivered the best annual financial results in our history, as the excellent global nitrogen market conditions from 2007 continued through the first three quarters of 2008. The broad-based economic decline impacted the nitrogen market during the fourth quarter of 2008, causing nitrogen product demand to decline, reducing product sales prices and curtailing product shipment. Although the unprecedented global economic challenges of the fourth quarter were a sharp contrast to the positive operating environment of the first three quarters, we still delivered impressive financial results for the fourth quarter 2008.

Business Overview

We produce and distribute nitrogen products, which are used primarily by farmers to improve the yield and quality of their crops. Our product sales are heavily weighted toward UAN, and all of our products are sold on a wholesale basis. Although ammonia and UAN are often interchangeable, each has its own characteristics, and customer product preferences vary according to the crop planted, soil and weather conditions, regional farming practices, relative prices and the cost and availability of appropriate storage, handling and application equipment.

Financial information about our business is included in Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operations,and in Item 8,Financial Statements and Supplementary Data, of this Annual Report onForm 10-K.

Our Products

Overview

One of the principal forms of globally traded nitrogen fertilizer is ammonia. UAN is used principally in North America and has only recently been traded in 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 location of our sole production facility in Verdigris, Oklahoma provides us a competitive advantage in serving agricultural customers in the Central and Southern Plains and the Corn Belt regions of the U.S. We do not sell our products internationally. Our nitrogen products and 2008 product production are described in greater detail below.

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 (AN) and water. The nitrogen content of UAN ranges from 28% to 32% by weight. (Unless we state otherwise, all references to UAN assume a 32% 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 may be used for no-till row crops where fertilizer is spread on the surface of the soil.

In 2008 we produced and sold approximately 2.0 million tons of UAN.

Anhydrous 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 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 aper-pound-of-contained-nitrogen 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 2008, we produced approximately 1.2 million tons of ammonia. We sold a total of 0.3 million tons of ammonia and consumed approximately 0.9 million tons of ammonia as a raw material to manufacture our other nitrogen products.

Marketing and Distribution

We sell our products primarily in the Central and Southern Plains and Corn Belt regions of the U.S. Our sole production facility in Verdigris, Oklahoma is located near the major crop producing and consuming areas of the U.S., and has ready access to barge, truck and rail transportation. In addition, the Verdigris facility has an ammonia pipeline to transport product to primary markets. Our products are marketed and distributed by Terra based in Sioux City, Iowa, which provides services to the Partnership. For further information on the combined organizations of the General Partner and our affiliates, see Note 11,Transactions with Affiliates, of the Notes to the Consolidated Financial Statements, included in Item 8,Financial Statements and Supplementary Dataof this Annual Report onForm 10-K.

All of our sales are at the wholesale level. Our customers for fertilizer products are dealers, national farm retail chains, distributors and other fertilizer producers and traders. National farm retail chains have both distribution and application capabilities. Distributors operate as wholesalers and sell directly to dealers and national farm retail chains, which, in turn, sell directly to farmers. Many dealers maintain year-round storage capacity for inventory as well as application equipment. We sell a majority of our nitrogen fertilizer products to dealers. No single customer accounted for more than 7% of our 2008 sales.

Transportation

We use several modes of transportation to ship product to customers, including railcars, common carrier trucks, barges and common carrier pipelines. Railcars are the primary mode of transportation for shipments from our Verdigris facilities. We utilize railcars that are currently leased by Terra for all of its businesses. Terra currently leases approximately 3,048 railcars. We also use approximately 39 liquid and ammonia fertilizer terminal storage facilities in numerous states.

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 crop 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 ayear-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. Certain crops, such as soybeans and other legumes, can better absorb atmospheric nitrogen and do not require nitrogen fertilizers.

Demand

Global demand for fertilizers typically grows at predictable rates and tends 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 the 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.

Supply

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 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 North 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 the 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 fertilizer industry publication, world trade in ammonia grew from 17.0 million tons in 2000 to 20.9 million tons by 2007 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.

Outlook

As of October 2008, Fertecon forecasts that global nitrogen fertilizer demand is expected to rise by around 2% per year from 2005 to 2015, increasing by 25 million tons or close to 25% over the period. In North America, nitrogen fertilizer consumption is expected to increase from 2005 to 2015 from 14 million tons to 16 million nutrient tons, a 15% increase.

The continued growth in demand for nitrogen products has helped stabilize global ammonia capacity utilization rates, which averaged 83.5% between 2006 and 2007. 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 remain stable at 89% through 2015.

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 23.4 million tons by 2015, a total increase of 17%. This projected additional capacity excludes Chinese plants as product produced in China is not expected to be distributed in 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 projects.

World trade in ammonia is expected to increase by 1.8 million tons or 8% in the period to 2015, 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 relative gas price outlook for the U.S. would appear to support continued operating rates for 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, while corn prices, which have been volatile in recent months, stand at $3.40 per bushel as of February 20, 2009

versus $4.98 per bushel one year prior. Both of these factors influence the outlook for demand for our products.

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. In2007-2008, approximately 3.0 billion bushels of corn were used for ethanol production. According to the USDA, a 22% increase is forecast for the current2008-2009 crop year, bringing the total bushels used for ethanol to 3.7 billion. This number is projected to rise to almost 4.0 billion bushels by2009-2010, equivalent to approximately 30% of the U.S. corn crop.

Seasonality and Volatility

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

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


	•	Weather patterns and field conditions (particularly during periods of high fertilizer consumption);
	•	Quantities of fertilizers imported to primary markets;
	•	Current and projected grain inventories and prices, which are heavily influenced by U.S. exports, worldwide grain markets, and domestic demand (food, feed, and biofuel); and
	•	Price fluctuations in natural gas, the principal raw material used to produce nitrogen fertilizer.

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

Raw Materials

The principal raw material used to produce manufactured nitrogen products is natural gas. Natural gas costs in 2008 accounted for approximately 73% of our total costs and expenses. Significant increases in natural gas costs that are not hedged or recovered through increased prices to customers would have an adverse impact on our business, financial condition and results. We believe there will be a sufficient supply of natural gas for the foreseeable future and we will, as opportunities present themselves, enter into firm transportation contracts to minimize the risk of interruption or curtailment of natural gas supplies during the peak-demand winter season when weand/or our customers generally build inventories in anticipation of the peak-sales spring season. We use a combination of spot and term purchases of varied duration from a variety of suppliers to obtain natural gas.

Natural gas is delivered to our Verdigris, Oklahoma facility via an intrastate pipeline. This pipeline is not an open-access carrier, but is nonetheless part of a widespread regional system through which Verdigris can receive natural gas from any major Oklahoma source. We also have limited access toout-of-state natural gas supplies for this facility.

We use derivative instruments to hedge a portion of our natural gas purchases. Our policy is designed to hedge exposure to natural gas price fluctuations for production required for estimated forward

product sales commitments. We hedge natural gas prices through the use of supply contracts, financial derivatives and other instruments.

The settlement dates of forward-pricing contracts coincide with gas purchase dates as well as shipment periods on forward committed sales. Forward-pricing contracts are based on a specified price referenced to spot market prices or appropriate New York Mercantile Exchange (NYMEX) futures contract prices.

Competition

The markets in with we operate are highly competitive. Competition in agricultural input markets takes place largely on the basis of price, supply reliability, delivery time and quality of service. Feedstock availability to production facilities and the cost and efficiency of production, transportation and storage facilities are also important competitive factors.

Government intervention in international trade can distort the competitive environment. The relative cost and availability of natural gas are also importation competitive factors. Significant determinants of the competitive position of our plants are the natural gas acquisition and transportation contracts negotiated with our major suppliers as well as proximity to natural gas sourcesand/or end-users.

Our domestic competitors in the nitrogen fertilizer markets are primarily other independent fertilizer companies. Nitrogen fertilizers imported into the U.S. compete with domestically produced nitrogen fertilizers, including those we produce. Imports of nitrogen products represent approximately 56% of nitrogen used in North America. Some foreign competitors in countries with inexpensive sources of natural gas (whether as a result of government regulation or otherwise) can produce nitrogen fertilizers at a low cost. A substantial amount of new ammonia capacity is expected to be added abroad in the foreseeable future in countries with favored natural gas costs.

Environmental and Other Regulatory Matters

Our operations are subject to various federal, state and local environmental, health and safety laws and regulations, including laws relating to air quality, hazardous and solid wastes and water quality. Our facilities require operating permits that are subject to review by governmental agencies. We are also involved in the manufacture, handling, transportation, storage and disposal of materials that are or may be classified as hazardous or toxic by federal, state or other regulatory agencies. We take precautions to reduce the likelihood of accidents involving these materials. We may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or analogous laws for all or part of the costs of such investigation and remediation if such materials have been or are disposed of at sites that are targeted for investigation and remediation by federal or state regulatory authorities. Freeport-McMoRan Resource Partners, Limited Partnership (a former owner and operator of the Partnership’s production facilities) has retained liability for certain environmental matters originating prior to the Partnership’s acquisition of these facilities.

We may be required to install additional air and water quality control equipment, such as low nitrogen oxide (NOx) burners, scrubbers, ammonia sensors and continuous emission monitors, at our facility to comply with applicable environmental requirements, including under the Clean Air Act and Clean Water Act. These equipment requirements also typically apply to our competitors as well.

We endeavor to comply in all material respects with applicable environmental, health and safety regulations and have incurred substantial costs in connection with such compliance. Because these regulations are expected to continue to change, and generally to be more restrictive than current requirements, the costs of compliance will likely increase. We do not expect our compliance with these

regulations to have a material adverse effect on our results of operations, financial position or net cash flows. However, there can be no guarantee that new regulations will not result in material costs.

Our capital expenditures related to environmental control in 2008 were approximately $1.5 million. Environmental capital expenditures are projected to be approximately $9.5 million in the aggregate for the three years 2009, 2010 and 2011. The majority of these expenditures are for voluntary pollution prevention projects.

We believe that our policies and procedures now in effect comply with applicable environmental laws and with the permits relating to our facility in all material respects. However, in the normal course of our business, we are exposed to risks relating to possible releases of hazardous substances into the environment. Such releases could cause substantial damage or injuries. Although environmental expenditures in 2008 were not material, it is impossible to predict or quantify the impact of future environmental liabilities associated with releases of hazardous substances from our facility. Such liabilities could have a material adverse impact on our results of operations, financial position or net cash flows.

Employees

TNGP, the General Partner, is responsible for managing our business. As of December 31, 2008, the General Partner had no employees. Terra Nitrogen Corporation (TNC), a Terra subsidiary and the prior general partner had 163 employees, who, along with Terra, provide services to us under the October 2007 Amended and Restated General and Administrative Services Agreement. TNCLP had no employees as of December 31, 2008.

Available Information

TNCLP was formed as a limited partnership in Delaware in 1990 and is subject to the reporting requirements of the Securities Exchange Act of 1934 and its rules and regulations (the “Exchange Act”). The Exchange Act requires us to file reports and other information with the U.S. Securities and Exchange Commission (SEC). Copies of these reports and other information can be obtained from the SEC through the following site:

Office of Public Reference

100 F Street, NE

Room 1580

Washington, D.C.20549-0102

Phone: (800) SEC-0330

Fax:(202) 777-1027

E-mail: publicinfo@sec.gov

The SEC maintains a Web site that contains reports and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s Web site athttp://www.sec.gov.

We make available, free of charge on our Web site, our Annual Report onForm 10-K, Quarterly Reports onForm 10-Q, Current Reports onForm 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file these documents with, or furnish them to, the SEC. These documents are posted on our Web site at www.terraindustries.com.

We also make available, free of charge on our Web site, the charters of the Audit Committee and the Nominating and Corporate Governance Committee, as well as the Corporate Governance Guidelines of our Board of Directors (Board) and our Code of Ethics and Standards of Business Conduct (including any amendment to, or waiver from, a provision of the Code of Ethics and Standards of Business Conduct) adopted by our Board. These documents are posted on our Web site at www.terraindustries.com.

Copies of any of these documents will also be made available, free of charge, upon written request to:

Terra Industries Inc.

Attn: Investor Relations

Terra Centre

600 Fourth Street

P.O. Box 6000

Sioux City, Iowa51102-6000

Phone:(712) 277-1340


Item 1A.	Risk Factors

In addition to the other information contained in thisForm 10-K, the following risk factors should be considered carefully in evaluating the Partnership’s business. The business, financial condition, and results of operations could be materially adversely affected by any of these risks. Please note that additional risks not presently known to the Partnership or that management currently deems immaterial may also impair business and operations.

A substantial portion of our operating expense is related to the cost of natural gas, and an increase in such cost that is either unexpected or not accompanied by increases in selling prices of products could result in reduced profit margins and lower product production.

The principal raw material used to produce nitrogen products is natural gas. Natural gas costs in 2008 comprised about 73% of our total costs and expenses. A significant increase in the price of natural gas (which can be driven by, among other things, supply disruptions, cold weather and oil price spikes) that is not hedged or recovered through an increase in the price of the related nitrogen products could result in reduced profit margins and lower production. We have reduced production rates for periods of time in response to high natural gas prices and may do so again in the future. Globally, a significant number of competitors’ nitrogen production facilities have access to fixed-priced natural gas supplies. Our offshore competitors’ natural gas costs have been and likely will continue to be substantially lower than ours. Governmental or regulatory actions may also adversely affect both the supply availabilityand/or price of natural gas which could have a material adverse affect on the Partnership’s business, financial condition and results of operations.

Declines in the prices of our products may reduce profit margins.

Prices for nitrogen products are influenced by the global supply and demand for ammonia and other nitrogen-based products. Long-term demand is affected by population growth and rising living standards that determine food consumption. Short-term demand is affected by world economic conditions and international trade decisions. Supply is affected by increasing worldwide capacity and the increasing availability of nitrogen product exports from major producing regions such as the former Soviet Union, Canada, the Middle East, Trinidad and Venezuela. When the industry is oversupplied, as is common in commodity businesses, the price at which we sell our nitrogen products typically declines, which results in reduced profit margins, lower production rates and plant closures. U.S. supply is also affected by trade regulatory measures, which restrict imports into that market. Changes in those measures would likely adversely impact available supply and pricing.

Our products are subject to price volatility resulting from periodic imbalances of supply and demand, which may cause the results of operations to fluctuate.

Historically, our product prices have reflected frequent changes in supply and demand conditions. Changes in supply result from capacity additions or reductions and from changes in inventory levels. Product demand depends on demand for crop nutrients by the global agricultural industry and on the level of industrial production. Periods of high demand, high capacity utilization and increasing operating margins tend to result in new plant investment and increased production until supply exceeds demand, followed by periods of declining prices and declining capacity utilization until the cycle is repeated. In addition, markets for our products are affected by general economic conditions. As a result of periodic imbalances of supply and demand, product prices have been volatile, with frequent and significant price changes. During periods of oversupply, the price at which we sell our products may be

depressed and this could have a material adverse effect on our business, financial condition and results of operations.

Our products are global commodities and we face intense competition from other producers.

Nitrogen fertilizer products are global commodities and can be subject to intense price competition from both domestic and foreign sources. Fertilizers are global commodities, and customers, including end-users, dealers, other crop-nutrients producers and distributors, base their purchasing decisions principally on the delivered price and availability of the product. We compete with a number of U.S. and offshore producers, including state-owned and government-subsidized entities. The U.S. has trade regulatory measures in effect which are designed to address this type of unfair trade. Changes in these measures could have an adverse impact on our sales and profitability of the particular products involved. Some of our principal competitors have greater total resources and are less dependent on earnings from nitrogen fertilizer sales. In addition, a portion of global production benefits from fixed-price natural gas contracts that have been, and could continue to be, substantially lower priced than our natural gas. Our inability to compete successfully could result in the loss of customers, which could adversely affect sales and profitability.

Our business is subject to risks related to weather conditions.

Adverse weather may have a significant effect on demand for our nitrogen products. Weather conditions that delay or intermittently disrupt field work during the planting and growing season may cause agricultural customers to use less or different forms of nitrogen fertilizer, which may adversely affect demand for the forms of nitrogen fertilizer that we sell. Weather conditions following harvest may delay or eliminate opportunities to apply fertilizer in the fall. Weather can also have an adverse effect on crop yields, which lowers the income of growers and could impair their ability to pay our customers.

Weatherand/or weather forecasts can dramatically affect the price of natural gas, our main raw material. Colder than normal winters as well as warmer than normal summers increase the natural gas demand for residential use. Also, hurricanes affecting the gulf coastal states can severely impact the supply of natural gas and cause prices to rise sharply.

Our risk measurement and hedging activities might not prevent losses.

We manage commodity price risk for our businesses as a whole. Although we implemented risk measurement systems that use various methodologies to quantify the risk, these systems might not always be followed or might not always work as planned. Further, such risk measurement systems do not in themselves manage risk, and adverse changes involving volatility, adverse correlation of commodity prices and the liquidity of markets might still adversely affect earnings and cash flows, as well as the balance sheet under applicable accounting rules, even if risks have been identified. The ability to manage exposure to commodity price risk in the purchase of natural gas through the use of financial derivatives may be affected by limitations imposed by our bank agreement covenants.

In an effort to manage financial exposure related to commodity price and market fluctuations, we have entered into contracts to hedge certain risks associated with our business, its assets and operations. In these hedging activities, we have used fixed-price, forward, physical purchase and sales contracts, futures, financial swaps and option contracts traded in the over-the-counter markets or on exchanges. Nevertheless, no single hedging arrangement can adequately address all risks present in a given contract or industry. Therefore, unhedged risks will always continue to exist. We may not be able to successfully manage all credit risk and as such, future cash flows could be impacted by counterparty default.

We are substantially dependent on our Verdigris, Oklahoma manufacturing facility, and any operational disruption could result in a reduction of sales volumes and could cause us to incur substantial expenditures.

Our manufacturing operations may be subject to significant interruption if our Verdigris, Oklahoma manufacturing facility were to experience a major accident or were damaged by severe weather or other natural disaster. In addition, our operations are subject to hazards inherent in nitrogen fertilizer manufacturing. Some of those hazards may cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. We currently maintain property insurance, including business interruption insurance although there can be no assurance that we have sufficient coverage, or can in the future obtain and maintain sufficient coverage at reasonable costs.

We may be adversely affected by environmental laws or regulations to which we may be subject.

Our operations are subject to various federal, state and local environmental, safety and health laws and regulations, including laws relating to air quality, hazardous and solid wastes and water quality. Our operations are subject to comprehensive federal and state regulatory guidelines, including the federal Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Emergency Planning and Community Right-to-Know Act, Toxic Substances Control Act and their state analogs. We could incur substantial costs, including capital expenditures for equipment upgrades, operational changes, fines and penalties and third-party claims for damages, as a result of noncompliance with, violations of or liabilities under environmental laws and regulations. We are also involved in the manufacturing, handling, transportation, storage and disposal of materials that are or may be classified as hazardous or toxic by federal, state, provincial or other regulatory agencies. We may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, or analogous laws for all or part of the costs of investigationand/or remediation if such materials have been or are disposed of or released at sites that require investigationand/or remediation, and for damages to natural resources. Under some of these laws, responsible parties may be held jointly and severally liable for such costs, regardless of fault or the legality of the original disposal or release.

We may be required to install additional pollution control equipment to comply with applicable environmental requirements.

Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at ongoing operations. We may be required to install additional air and water quality control equipment, such as low emission burners, scrubbers, ammonia sensors and continuous emission monitors to comply with applicable environmental requirements. Such investments would reduce net income from future operations. Present and future environmental laws and regulations applicable to our operations, more vigorous enforcement policies and discovery of unknown conditions may require substantial expenditures and may have a material adverse effect on results of operations, financial position or net cash flows.

Government regulation and agricultural policy may reduce the demand for our products.

Existing and future government regulations and laws may reduce the demand for nitrogen products. Existing and future agriculturaland/or environmental laws and regulations may impact the amounts and locations of fertilizer application and may lead to decreases in the quantity of nitrogen fertilizer applied to crops. Any such decrease in the demand for nitrogen fertilizer products could result in lower unit sales and lower selling prices for our fertilizer products. U.S. governmental policies affecting the number of acres planted, the level of grain inventories, the mix of crops planted and crop prices could

also affect the demand for and selling prices of products. Environmental and safety regulations on the transportation of our products could also increase the cost of transportation, which would have a negative impact on our results of operations, financial position or net cash flows.

Terra and its affiliates may engage in competition with us.

The partnership agreement does not prohibit Terra and its affiliates, other than our General Partner TNGP, from owning and operating nitrogen fertilizer manufacturing plants and storage and distribution assets or engaging in businesses that otherwise compete directly or indirectly with us, which could harm our business. In addition, Terra may acquire, construct or dispose of additional assets related to our business, without any obligation to offer us the opportunity to purchase or construct any of these assets.

We are dependent on Terra and its employees for the success of our business.

We are dependent on Terra for our success in a number of respects. Terra, through its wholly-owned subsidiary TNGP, (our General Partner), manages our business operations and, together with its affiliates, provides certain other services to us, including production, manufacturing, sales, customer service, distribution, accounting, legal, risk management, investor relations and other general and administrative services. Terra and its wholly-owned subsidiaries have more debt and debt service requirements than we do. Although Terra is affected by most of the factors that affect us, its higher level of debt could put a greater risk on Terra in the event business conditions deteriorate materially. Our results of operations and financial condition might be adversely affected by financial difficulties at Terra, default by it or its subsidiaries on their debt or their bankruptcy. Information regarding Terra can be obtained in the various filings with the Securities and Exchange Commission, includingForm 10-K,Form 10-Q andForm 8-K.

We may be unable to refinance our indebtedness upon a change of control.

Under our revolving credit facility, a change of control will occur if, among other such things, an individual or group acquires more than 35% of the outstanding voting shares of Terra. Such a change of control would constitute an event of default under the credit facility. If such a change of control was to occur, the Partnership may not have the ability to replace its current revolving credit facility on terms equal to or more favorable than current terms.

CF’s exchange offer to purchase all of Terra’s outstanding common stock may be disruptive to our business and threatens to adversely affect the Partnership’s operations and results.

On February 23, 2009, CF Industries Holdings, Inc. (CF) commenced an exchange offer to purchase all of Terra’s outstanding common stock (the CF Offer). The CF Offer expires on May 15, 2009. The uncertainty regarding the outcome of the CF Offer may disrupt the Partnership’s business which could result in an adverse effect on our operating results.

We are dependent on Terra and its employees in a number of respects. Responding to the CF Offer has been, and may continue to be, a distraction for Terra’s management and employees. Terra management and employee distraction related to the CF Offer also may adversely impact our ability to optimally conduct the Partnership business and pursue our strategic objectives.


Item 1B.	Unresolved Staff Comments

None


Item 2.	Properties

Production Facility



	Annual Capacity in Tons¹
Location	Ammonia²		UAN — 32%


Verdigris, Oklahoma		1,050,000		1,925,000


	1	The annual capacity contains an allowance for a planned maintenance shutdown.

	2	Measured in gross tons of ammonia produced; net tons available for sale will vary with upgrading requirements.

The Partnership’s production facility in Verdigris, Oklahoma is located on 650 acres northeast of Tulsa, Oklahoma near the Verdigris River. It is the second largest UAN production facility in North America. The facility comprises two ammonia plants, two nitric acid plants, two UAN plants and a port terminal. The Partnership owns the plants, while the port terminal is leased from the Tulsa-Rogers County Port Authority. The Partnership’s leasehold interest on the port terminal was renewed for five years in April 2004, and the Partnership has an option to renew the lease for an additional five-year term in 2009. The Partnership’s Verdigris production facility produces all of the Partnership’s nitrogen fertilizer products. This facility’s production capacity is shown in the table above.

The Partnership’s Verdigris production facility is designed to operate continuously, except for planned shutdowns (usually biennial) for maintenance and efficiency improvements. Capacity utilization (gross tons produced divided by capacity tons at expected operating rates and on-stream factors) of the Verdigris, Oklahoma manufacturing facility was 107% in 2008, 106% in 2007 and 95% in 2006.

The Partnership owns all of its manufacturing and terminal facilities in fee, unless otherwise stated below.

Terminal Facilities

The Partnership owns and operates two terminals used to store and distribute its products to customers. The Partnership owns UAN terminals near Blair, Nebraska (Washington County) and Pekin, Illinois (Tazewell County). In addition, the Blair terminal stores and distributes ammonia.


Item 3.	Legal Proceedings

From time to time, we may be involved in claims, disputes, administrative proceedings and litigation arising in the ordinary course of business. We do not believe that the matters in which the Partnership may be currently involved, either individually or in the aggregate, will have a material adverse effect on the business, results of operations, financial position or net cash flows of the Partnership.


Item 4.	Submission of Matters to a Vote of Unitholders

No matters were submitted to a vote of unitholders of TNCLP during the fourth quarter of 2008.

Part II


Item 5.	Market for Registrant’s Units, Related Unitholder Matters and Issuer Purchases of Securities


	2008				2007
Quarter	High		Low		High		Low


1st	$	168.19	$	102.10	$	58.27	$	30.82
2nd		171.37		108.39		132.99		56.00
3rd		135.98		94.00		140.35		66.18
4th		111.17		65.20		154.12		87.49

TNCLP’s common units are traded on the New York Stock Exchange (NYSE) under the symbol “TNH.” There is no public trading market with respect to TNCLP’s Class B common units. The high and low sales prices of the common units for each quarterly period for 2008 and 2007, as reported on the NYSE Composite Price History, are shown above.

Ownership of TNCLP is composed of the General Partner interest and the Limited Partner interests. The Limited Partner interests consist of 18,501,576 Common Units and 184,072 Class B Common Units. Terra and its subsidiaries owned 13,899,014 Common Units and 184,072 Class B Common Units as of December 31, 2008. Based on information received from TNCLP’s transfer and servicing agent, the number of registered unitholders as of March 5, 2009 is 152.

Under TNCLP’s limited partnership agreement, cash distributions to unitholders are based on Available Cash for the quarter as defined therein. Available Cash is defined generally as all cash receipts less all cash disbursements, adjusted for changes in certain reserves established as the General Partner determines in its reasonable discretion to be necessary. For additional information regarding cash distributions, see the “Liquidity and Capital Resources” section of Item 7,Management’s Discussion and Analysis,of this Annual Report onForm 10-K.

The following table represents cash distributions paid to the holders of Common Units, Class B Common Units and the General Partner for the years ending December 31, 2008 and 2007:


					Class B
	Common Units				Common Units				General Partner
	Total		$ Per		Total		$ Per		Total
	($000s)		Unit		($000s)		Unit		($000s)


2008
First Quarter	$	82,332	$	4.45	$	819	$	4.45	$	861
Second Quarter		77,708		4.20		850		4.62		8,655
Third Quarter		67,158		3.63		1,149		6.24		49,519
Fourth Quarter		51,773		2.80		849		4.61		34,420

2007
First Quarter	$	17,946	$	0.97	$	179	$	0.97	$	188
Second Quarter		29,049		1.57		288		1.57		303
Third Quarter		55,505		3.00		552		3.00		581
Fourth Quarter		38,853		2.10		386		2.10		405


Item 6.	Selected Financial Data

The following table presents our selected financial data. The table should be read in conjunction with Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8,Financial Statements and Supplementary Data, of this Annual Report onForm 10-K.


	Year Ended December 31,
(in thousands, except per unit data)	2008		2007		2006		2005		2004


Income Statement Data:
Total revenues	$	903,017	$	636,308	$	425,097	$	455,522	$	419,641
Gross profit	$	432,212	$	221,622	$	53,126	$	63,192	$	55,683
Net income	$	422,385	$	205,782	$	46,192	$	55,941	$	45,871
Net income per Common Unit	$	14.90	$	10.90	$	2.45	$	2.95	$	2.43
Partnership Distributions Paid:
Limited Partner, Common Units	$	278,971	$	141,353	$	35,524	$	54,580	$	32,378
Limited Partner, Class B Common Units		3,667		1,405		353		55		—
General Partner		93,455		1,477		372		1,057		661


Total partnership distributions	$	376,093	$	144,235	$	36,249	$	55,692	$	33,039


Distributions Paid Per Common Unit:	$	15.08	$	7.64	$	1.92	$	2.95	$	1.75


Balance Sheet Data:
Total assets	$	341,406	$	413,786	$	218,214	$	191,292	$	213,953
Long-term debt and capital lease obligations, including current portion⁽¹⁾	$	—	$	—	$	—	$	12	$	8,282
Partners’ capital	$	227,309	$	207,099	$	144,072	$	134,359	$	133,984


	(1)	During the 2005 third quarter, we repaid $8.2 million of long-term debt due to Terra.


Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

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 Annual Report onForm 10-K.

Introduction

In this discussion and analysis, we explain our business in the following areas:


	•	Business Strategy
	•	Recent Business Environment
	•	Strategy Effectiveness
	•	Results of Operations
	•	Liquidity and Capital Resources


	•	Various Quantitative and Qualitative Disclosures

Business Strategy

We are a leading 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 nitrogen products 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 assets to reap the highest returns through the cycle 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.
	•	Develop higher-return product markets, such as that for UAN, our primary nitrogen fertilizer product.

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.

Demand

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 explained by current strong commodity grain prices that 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, as compared to ammonia, generally easier to ship, store and apply. 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.

Supply

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, and, as such, make up the greatest share of those imports. Most producers exporting nitrogen products into North America can afford to do so only 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 American 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. North American volatility returned in 2008, with natural gas prices rising significantly in the first and second quarters while declining dramatically in the third and fourth quarters. Based on projected net increases in natural gas supply for most of 2009, we expect moderate North American natural gas prices, enabling us to remain competitive with global producers. We also believe our geographic plant positions in Oklahoma provide us with a favorable delivered gas cost basis as compared to our Gulf Coast competitors.

The following is an average NYMEX forward natural gas price for the succeeding twelve month period noted for the respective dates:


	December 31,		March 31,		June 30,		September 30,		December 31,
(in $ per MMBtu)	2007		2008		2008		2008		2008


	$	7.81	$	10.50	$	13.22	$	7.90	$	6.09

As shown in the table above, the forward natural gas price for the succeeding twelve month periods have been volatile in 2008. The first half of 2008 experienced a 69% increase in the forward natural gas price from $7.81 per million British thermal units (MMBtu) at December 31, 2007 to $13.22 per

MMBtu at June 30, 2008. The second half of 2008 experienced a 54% decline in the forward natural gas price from $13.22 per MMBtu at June 30, 2008 to $6.9 per MMBtu on December 2008.

Strategy Effectiveness

By executing the business strategies discussed above through 2008, we were able to:


	•	Achieve strong production, earnings, cash flows and returns for TNCLP and our unitholders;
	•	Pay distributions to unitholders of $376.1 million; and
	•	End the year with cash balances of $154.7 million, which included customer prepayments of $45.1 million.

Results of Operations

Consolidated Results


	Year Ended December 31,									2008-2007						2007-2006
(in millions, except per share data)	2008			2007			2006			Change			Percent			Change			Percent


Total revenues	$	903.0		$	636.3		$	425.1			266.7			42	%		211.2			50	%
Cost of goods sold		470.8			414.6			372.0			56.2			14	%		42.6			11	%
Gross profit		432.2			221.7			53.1			210.5			95	%		168.6			318	%
Gross profit percentage		47.9	%		34.8	%		12.5	%					13.0	%		22.4	%
Operating expenses		15.7			21.2			8.6			(5.5	)		(26	%)		12.6			147	%
Income from operations		416.5			200.5			44.5			216.0			108	%		156.0			351	%
Interest income, net		5.9			5.3			1.7			0.6			11	%		3.6			213	%


Net Income	$	422.4		$	205.8		$	46.2			216.6			105	%		159.6			346	%


Net income allocable to Common Units	$	275.7		$	201.7		$	45.3		$	74.0			37	%	$	156.4			345	%
Net income per Common Unit	$	14.90		$	10.90		$	2.45		$	4.00			37	%	$	8.45			345	%

Sales Volumes and Prices


	2008				2007				2006
	Sales		Average		Sales		Average		Sales		Average
(quantities in thousands) of tons)	Volumes		Unit Price⁽¹⁾		Volumes		Unit Price⁽¹⁾		Volumes .		Unit Price⁽¹⁾


Ammonia		303	$	616		349	$	380		274	$	344
UAN (32% basis)⁽²⁾		1,980		330		2,013		224		1,828		154


	(1)	After deducting outbound freight costs.

	(2)	The nitrogen content of UAN is 32% by weight.

Results of Operations—2008 Compared with 2007

Total revenues for 2008 were $903.0 million, compared to $636.3 million for 2007. The $266.7 million, or 42% increase in revenues was due to increased ammonia and UAN prices of 62% and 47%, respectively. The increased sales prices are due to the increased demand for nitrogen products driven by high commodity grain prices.

Income from operations for 2008 was $416.5 million as compared to $200.5 million for 2007. The $216.0 million increase was primarily due to $281.8 million increase in sales prices partially offset by $57.2 million related to an increase in natural gas costs and $7.4 million of sales volume decreases. Volumes for ammonia and UAN were down 13% and 2%, respectively, in comparison to 2007 due primarily to light nitrogen demand in the fourth quarter.

For the year, natural gas costs, including the effect of hedged settled natural gas position, increased 26% from $6.84 per British thermal unit (MMBtu) in 2007 to $8.59 per MMBtu in 2008. 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, 2008 natural gas costs were $42.9 million higher than spot prices, as compared to 2007 natural gas costs that were $25.1 million higher than spot prices.

Operating expenses decreased $5.5 million, primarily as a result of lower selling, general and administrative (SGA) costs that are allocated to us from Terra. Our decreased 2008 SGA allocation was primarily related to lower share-based compensation expense, resulting from a year over year reduction of the Terra stock price.

Results of Operations—2007 Compared with 2006

Total revenues for 2007 were $636.3 million, compared to $425.1 million for 2006. The $211.2 million, or 50% increase in revenues was due to increased UAN volumes and prices of 10% and 44%, respectively, and increased ammonia volumes and prices of 27% and 10%, respectively. The increased volumes and sales prices are due to the increased demand for nitrogen products as discussed above.

Income from operations for 2007 was $200.5 million as compared to $44.5 million for 2006. The $156.0 million increase was primarily due to $136.2 million increase in sales prices and $24.9 million of sales volume increases. Natural gas prices decreased in 2007, which reduced total costs by approximately $7.4 million. Operating expenses increased $12.6 million, primarily as a result of SGA costs that are allocated to us from Terra. Our increased 2007 SGA allocation was primarily related to higher share-based compensation expenses related to improved performance and stock price increase.

LIQUIDITY AND CAPITAL RESOURCES

Our principal funding needs are to support working capital requirements, make payments for plant turnaround and capital expenditures, and quarterly distributions. Cash and cash equivalent balances at December 31, 2008 were $154.7 million, a decrease of $91.5 million from 2007.

Our cash receipts are generally received by Terra. Cash receipts, net of cash payments made by Terra, are transferred to us from Terra weekly. Because of this cash collection and distribution arrangement, Terra is a creditor to us.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for each of the past three fiscal years ($ in thousands):


Total cash provided by (used in)	2008			2007			2006


Operating activities	$	292,883		$	347,608		$	83,894
Investing activities		(8,249	)		(19,520	)		7,163
Financing activities		(376,093	)		(144,235	)		(36,261	)


Increase (decrease) in cash and cash equivalents	$	(91,459	)	$	183,853		$	54,796

Operating Activities

Net cash provided by operating activities for 2008 represented $448.5 million from operations and $155.6 million from working capital changes. The $448.5 million includes $422.4 million of net income, adjusted for non-cash expenses of $21.5 million of depreciation of plant, property and equipment and amortization of deferred plant turnaround costs, and $4.6 million of loss on derivatives.

Investing Activities

During 2008, we spent $8.0 million on capital expenditures for replacement additions to plant and equipment and $0.2 million for plant turnaround costs. The plant turnaround costs represent periodic scheduled maintenance costs and occur generally every two years.

Financing Activities

During 2008, we paid distributions of approximately $376.1 million to our unitholders. The distributions paid are based on the available cash, as defined our Agreement of Limited Partnership. SeePartnership Distributionson page 22 and Note 3,Agreement of Limited Partnership, of the Notes to the Consolidated Financial Statements, included in Item 8,Financial Statements and Supplementary Data,of this Annual Report onForm 10-K for further detail regarding distributions.

Revolving Credit Facility

We have a $50 million revolving credit facility that in 2007 was extended through January 31, 2012. We extended the credit facility (facility) in conjunction with Terra’s debt refinancing in 2007. A portion of this facility is available for swing loans and for the issuance of letters of credit. At December 31, 2008, there were no revolving credit borrowings, and there were no outstanding letters of credit. The facility requires us to maintain certain financial ratio covenants relating to minimum earnings, maximum capital expenditures and minimum liquidity. We must also adhere to certain limitations on additional indebtedness, capital expenditures, acquisitions, liens, investments, asset sales, prepayments or subordinated indebtedness, changes in lines of business, restricted payments and transactions with

affiliates, among others. Terra and its other domestic subsidiaries have guaranteed our obligations on an unsecured basis. For additional information regarding our facility, see Note 9,Revolving Bank Credit Facility,of the Notes to the Consolidated Financial Statements included in Item 8,Financial Statements and Supplementary Data,of this Annual Report onForm 10-K.

Under the facility, we may borrow an amount generally based on eligible cash balances, 85% of eligible accounts receivable and 60% of eligible finished goods inventory, less outstanding letters of credit. Our borrowings under the facility are secured by substantially all of our working capital.

In addition, if our aggregate borrowing availability falls below $10 million, we are required to have generated $25 million of operating cash flows or earnings before interest, income taxes, depreciation, amortization and other non-cash items as defined in the facility for the preceding four quarters. We are also required to maintain a minimum aggregate unused borrowing availability of $5 million at all times.

Our ability to continue to meet the covenants under the facility in the future will depend on market conditions, operating cash flows, working capital needs, receipt of customer prepayments and trade credit terms. Failure to meet these covenants, or to obtain a waiver from the lenders, would result in our default such that all outstanding amounts could become immediately due and payable and we would be unable to borrow additional amounts under the facility. Access to adequate bank facilities may be required to fund operating cash needs. Therefore, any default or termination of the facility could have a material adverse effect on our business.

On January 15, 2009, CF Industries Holdings, Inc. (CF) presented a letter to Terra’s Board of Directors proposing CF’s acquisition of Terra in an all stock transaction. The facility requires that there be no change of control related to Terra, such that no individual or group acquires more than 35% of the outstanding voting shares of Terra. Such a change of control would constitute an event of default under the facility. See Note 14,Subsequent Event, to the Notes for the Consolidated Financial Statements included in Item 8,Financial Statements and Supplementary Data, for additional information with respect to CF’s unsolicited proposal. We expect the facility to be adequate to meet our operating needs.

Debt

The General Partner is an indirect, wholly-owned subsidiary of Terra. Under the General Partner’s governing documents, neither we nor the General Partner may make any bankruptcy filing (or take similar action) without the approval of the General Partner’s independent directors.

Capital Expenditures

We had $8.0 million of capital expenditures in 2008, used primarily for replacing operating plant and equipment. Plant turnaround costs represent cash used for the periodic scheduled maintenance of our continuous process production facilities, generally every two years. We funded $0.2 million of plant turnaround costs during 2008. We expect 2009 capital expenditures to be approximately $20.0 million for operating plant and equipment and $9.0 million for turnaround costs.

We incurred $2.0 million, $0.5 million and $0.5 million of capital expenditures in 2008, 2007 and 2006, respectively, related to capital improvements to ensure compliance with environmental, health and safety regulations. We may be required to install additional air and water quality control equipment, such as low nitrous oxide burners, scrubbers, ammonia sensors and continuous emission monitors to continue to achieve compliance with the Clean Air Act and similar requirements. These equipment requirements typically apply to competitors as well. We estimate that the cost of complying with these existing requirements in 2009, 2010 and 2011 will be approximately $6.0 million. The majority of these expenditures are for voluntary pollution prevention projects.

In addition, expenditures related to environmental, health and safety regulation compliance are primarily composed of operating costs that totaled $2.0 million, $1.7 million and $1.7 million in 2008, 2007 and 2006, respectively. Because we expect environmental, health and safety regulations to continue to change and generally to be more restrictive than current requirements, the costs of compliance will likely increase. However, we do not expect that our compliance with these regulations will have a material adverse effect on our results of operations, financial position or net cash flows.

Partnership Distributions

We make quarterly distributions to our unitholders based on available cash for the quarter as defined in our Agreement of Limited Partnership. Available cash is defined generally as all cash receipts less all cash disbursements, adjusted for changes in certain reserves established as the General Partner determines in its reasonable discretion to be necessary. We paid distributions of $376.1 million, $144.2 million and $36.2 million to our unitholders in 2008, 2007 and 2006, respectively.

We receive 99% of the Available Cash from Terra Nitrogen, Limited Partnership (the Operating Partnership) and 1% is distributed to its General Partner. Cash distributions from the Operating Partnership generally represent the Operating Partnership’s Available Cash from operations. Our cash distributions are made 99.975% to Common and Class B Common Unitholders and 0.025% to our General Partner except when cumulative distributions of Available Cash exceed specified target levels above the Minimum Quarterly Distributions (MQD) of $0.605 per unit. Under such circumstances, our General Partner is entitled, as an incentive, to larger percentage interests. Pursuant to our Agreement of Limited Partnership, income allocable to the Limited Partner and General Partner is based upon the distributions of Available Cash for the year. Therefore, earnings per unit reflect an annualized allocation rate.

On February 10, 2009, the Partnership announced $2.97 per unit distribution to be paid during the 2009 first quarter. We have exceeded the cumulative MQD amounts and will distribute Available Cash as summarized in the following table:


	Income and Distribution Allocation

								Class B
	Target		Target		Common			Common			General
	Limit		Increment		Units			Units			Partner			Total


Minimum Quarterly Distribution	$	0.605		0.605		98.990	%		0.985	%		0.025	%		100	%
First Target		0.715		0.110		98.990	%		0.985	%		0.025	%		100	%
Second Target		0.825		0.110		85.859	%		0.985	%		13.156	%		100	%
Third Target		1.045		0.220		75.758	%		0.985	%		23.257	%		100	%
Final Target and Beyond		1.045		—		50.505	%		0.985	%		48.510	%		100	%

The General Partner is required to remit the majority of cash distributions it receives from the Partnership, in excess of its 1% Partnership equity interest, to an affiliated company.

General Partner Option to Effect Mandatory Redemption of Partnership Units

common units, we are required to give common unitholders at least 30 but not more than 60 days’ notice of its decision to purchase the outstanding common units. The purchase price per unit will be the greater of (1) the average of the daily closing prices per unit for the previous 20 trading days as of the date five days before a notice of such election is mailed and (2) the highest price paid by the General Partner or any of its affiliates for any common unit within the 90 days preceding the date the notice of such election is mailed. Additional purchases of common units by the General Partner may be restricted under the terms of Terra’s bank credit agreement as described therein.

Off-balance Sheet Arrangements and Contractual Obligations

We have operating leases that are off-balance sheet arrangements. Contractual obligations and commitments to make future payments were as follows at December 31, 2008:


(in millions)	Payments Due In

	Total		2009		2010-2011		2012-2013		Thereafter


Operating leases	$	62,496	$	16,183	$	26,128	$	13,701	$	6,484
Natural gas and other
purchase obligations		59,251		52,853		6,398		—		—


Total	$	121,747	$	69,036	$	32,526	$	13,701	$	6,484

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions and estimates that affect the amounts reported in our Consolidated Financial Statements and accompanying notes. Note 1,Summary of Significant Accounting Policies,of the Notes to the Consolidated Financial Statements in Item 8,Financial Statements and Supplementary Data, of thisForm 10-K describes the significant accounting policies and methods used in preparing the Consolidated Financial Statements. We consider the accounting policies described below to be our most critical accounting policies because they are impacted significantly by estimates that management makes. We based our estimates on historical experience or various assumptions that we believe to be reasonable under the circumstances, and the results form the basis for making judgments about the reported values of assets, liabilities, revenues and expenses. We have discussed the development and selection of our critical accounting estimates, and the disclosure regarding them, with the audit committee of the Board of Directors of our General Partner, and do so on a regular basis. Actual results may differ materially from these estimates.

Derivatives and Financial Instruments

We account for derivatives in accordance with Statement of Financial Accounting Standards (SFAS) No. 133,Accounting for Derivative Instruments and Hedging Activities, which requires that derivatives be reported on the balance sheet at fair value and, if the derivative is not designated as a hedging instrument, changes in fair value must be recognized in earnings in the period of change. If the derivative is designated as a hedge and to the extent such hedge is determined effective, changes in fair value are either (a) offset by the change in fair value of the hedged asset or liability (if applicable) or (b) reported as a component of accumulated other comprehensive income (loss) in the period of change, and subsequently recognized in the determination of net income in the period that the offsetting hedged transaction occurs. We may also use similar derivative instruments to fix or set floor prices for a portion of our nitrogen sales volumes.

Until our derivatives settle, we test the derivatives for ineffectiveness. This includes assessing the correlation of 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.

Inventory Valuation

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 market should not be less than net realizable value reduced by an allowance for an approximately normal profit margin. The cost of inventories is determined by using thefirst-in, first out method. We perform a monthly analysis of our inventory balances to determine if the carrying amount of inventories exceeds their 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, we reduce the carrying amount 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.

Plant Turnaround Costs

Plant turnarounds are periodically performed to extend the useful life, increase outputand/or efficiency and ensure the long-term reliability and safety of integrated plant machinery at our continuous process production facilities. The nature of a turnaround is such that it occurs on less than an annual basis and requires a multi-week shutdown of plant operations. Specific procedures performed during the turnaround include the disassembly, inspection and replacement or overhaul of plant machinery (boilers, pressure vessels, piping, heat exchangers, etc.) and rotating equipment (compressors, pumps, turbines, etc.), equipment recalibration and internal equipment efficiency assessments.

Preceding a turnaround, plants experience decreased efficiency in resource conversion to finished products. Replacement or overhaul of equipment and items such as compressors, turbines, pumps, motors, valves, piping and other parts that have an estimated useful life of at least two years, the internal assessment of production equipment, replacement of aged catalysts, and new installation/recalibration of measurement and control devices result in increased production outputand/or improved plant efficiency after the turnaround. Turnaround activities are betterments that meet at least one of the following criteria: 1) extend the equipment useful life, or 2) increase the outputand/or efficiency of the equipment. As a result, we follow the deferral method of accounting for these turnaround costs and thus they are capitalized and amortized over the period benefited, which is generally the two-year period until the next turnaround. The turnaround activities may extend the useful life of the assets since the overhaul of heat exchangers, pressure vessels, compressors, turbines, pumps, motors, etc. allow the continued use beyond the original design. If criteria for betterment or useful life extension are not met, we expense the turnaround expenditures as repair and maintenance activities in the period performed.

Revenue Recognition

We recognize revenue when persuasive evidence of a transaction exists, delivery has occurred, the price is fixed or determinable, no obligations remain and collectability is probable. We classify any discounts and trade allowances as a reduction in revenue. Gains or losses associated with settled nitrogen derivative contracts are classified as revenue. We classify amounts directly or indirectly billed to our customers for shipping and handling as revenue.

New Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141R,Business Combination, which changes how business acquisitions are accounted. SFAS 141R 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 Standard 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. SFAS 141R is effective for business combinations and adjustments to an acquired entity’s deferred tax asset and liability balances occurring after December 31, 2008. We are currently evaluating the future impacts and disclosures of SFAS 141R.

In March 2008 the FASB issued SFAS 161,Disclosures about Derivative Instruments and Hedging Activities(SFAS 161). SFAS 161 is an amendment of SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). To address concerns that the existing disclosure requirements of SFAS 133 do not provide adequate information, SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We are currently evaluating the future impacts and disclosures of SFAS 161.

The FASB has issued Draft Abstract Emerging Issues Task Force (EITF) Issue07-4, Applicationof the Two-Class Method under FASB Statement No. 128 to Master Limited Partnerships(EITF 07-4).EITF 07-4 specifies the treatment of earnings per unit calculations when incentive distribution rights exist.EITF 07-4 is effective for financial statements issued for fiscal years and interim periods within those fiscal years beginning January 1, 2009. We are currently assessing the impactEITF 07-4 may have on our financial statements.


Item 7A.	Quantitative and Qualitative Disclosures about Market Risk

Risk Management and Financial Instruments

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates. We use derivative financial instruments to manage risk in the area of changes in natural gas prices. We have no foreign currency exchange rate risk.

The General Partner’s policy is to avoid unnecessary risk and to limit, to the extent practical, risks associated with operating activities. The General Partner may not engage in activities that expose the Partnership to speculative or non-operating risks. Management is expected to limit risks to acceptable levels. The use of derivative financial instruments is consistent with the overall business objectives of the Partnership. Derivatives are used to manage operating risk within the limits established by the General Partner’s Board of Directors, and in response to identified exposures, provided they qualify as hedge activities. As such, derivative financial instruments are used to hedge firm commitments and forecasted commodity purchase transactions. The use of derivative financial instruments subjects the Partnership to some inherent risks associated with future contractual commitments, including market and operational risks, credit risk associated with counterparties, product location (basis) differentials and market liquidity. The General Partner continuously monitors the valuation of identified risks and adjusts the portfolio based on current market conditions.

Natural gas is the principal raw material used to manufacture nitrogen. Natural gas prices are volatile and the General Partner manages some of this volatility through the use of derivative commodity instruments. We have hedged approximately 31% of anticipated 2009 requirements and none of our requirements beyond December 31, 2009. The fair value of these instruments is estimated based on published referenced prices and quoted market prices from brokers. These instruments and other natural gas positions fixed natural gas prices at $35.6 million (includes $30.8 million related to accumulated other comprehensive loss) more than published prices for December 31, 2008 forward markets. Market risk is estimated as the potential loss in fair value resulting from a hypothetical price change. Changes in the market value of these derivative instruments have a high correlation to changes in the spot price of natural gas. Based on the Partnership’s derivatives outstanding at December 31, 2008 and 2007, which included swaps and basis swaps, a $1 per MMBtu increase in NYMEX pricing would increase the Partnership’s natural gas costs by approximately $3.1 million and $3.7 million, respectively change or fluctuation in our natural gas costs.


Item 8.	Financial Statements and Supplementary Data

Our management is responsible for the preparation, integrity and objectivity of the accompanying consolidated financial statements and the related financial information. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and necessarily include certain amounts that are based on estimates and informed judgments. Our management also prepared the related financial information included in this Annual Report onForm 10-K and is responsible for its accuracy and consistency with the consolidated financial statements.

The accompanying consolidated financial statements have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, who conducted its audits in accordance with the standards of the Public Company Accounting Oversight Board. The independent registered public accounting firm’s responsibility is to express an opinion as to the fairness with which such financial statements present our financial position, results of operations and cash flows in accordance with accounting principles generally accepted in the United States.

Report of Independent Registered Public Accounting Firm

To the Partners of Terra Nitrogen Company, L.P.

We have audited the accompanying consolidated balance sheets of Terra Nitrogen Company, L.P. (a Limited Partnership) (the “Partnership”) as of December 31, 2008 and 2007 and the related consolidated statements of income, partners’ capital, and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Terra Nitrogen Company, L.P. at December 31, 2008 and 2007 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Partnership’s internal control over financial reporting as of December 31, 2008 based on the criteria established inInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2009 expressed an unqualified opinion the Partnership’s internal control over financial reporting.

DELOITTE & TOUCHE LLP

Omaha, Nebraska

February 27, 2009

Consolidated Balance Sheets


	At December 31,
(In thousands)	2008			2007


Assets
Current assets:
Cash and cash equivalents	$	154,681		$	246,140
Accounts receivable		38,053			49,635
Inventories		57,207			19,343
Prepaid expenses and other current assets		11,815			4,906


Total current assets		261,756			320,024


Property, plant, and equipment, net		68,208			71,289
Other long-term assets		11,442			22,473


Total assets	$	341,406		$	413,786


Liabilities and partners’ capital
Current liabilities:
Accounts payable and accrued liabilities	$	24,844		$	41,866
Customer prepayments		45,067			154,644
Derivative hedge liabilities		43,315			7,959


Total liabilities		113,226			204,469


Other long-term liabilities		871			2,218


Total liabilities		114,097			206,687


Commitments and contingencies (Note 12)		—			—
Partners’ capital:
Limited Partners’ interests, 18,502 Common Units and 184 Class B Common Units authorized and outstanding		218,918			221,726
General partner’s interest		39,172			(9,928	)
Accumulated other comprehensive income (loss)		(30,781	)		(4,699	)


Total partners’ capital		227,309			207,099


Total liabilities and partners’ capital	$	341,406		$	413,786

See accompanying Notes to the Consolidated Financial Statements

Consolidated Statements of Operations


	Year Ended December 31,
(in thousands, except per-unit amounts)	2008			2007			2006


Revenues
Product revenues	$	902,578		$	635,510		$	424,698
Other income		439			798			399


Total Revenues		903,017			636,308			425,097


Costs and expenses:
Cost of goods sold		470,805			414,686			371,971


Gross profit		432,212			221,622			53,126
Operating expenses		15,750			21,169			8,634


Income from operations		416,462			200,453			44,492
Interest expense		(327	)		(324	)		(440	)
Interest income		6,250			5,653			2,140


Net income	$	422,385		$	205,782		$	46,192


Net income allocable to Common Units	$	275,712		$	201,670		$	45,267


Net income per Common Unit	$	14.90		$	10.90		$	2.45

See accompanying Notes to the Consolidated Financial Statements

Consolidated Statements of Partners’ Capital


	Limited									Accumulated
	Partners			Class B			General			Other			Total
	(Common			Common			Partner’s			Comprehensive			Partners’			Comprehensive
(in thousands, except for Units)	Units)			Units			Interest			Income (loss)			Capital			Income


Partners’ capital at January 1, 2006	$	151,093		$	(138	)	$	(10,647	)	$	(5,949	)	$	134,359
Net income		45,267			450			475			—			46,192		$	46,192
Change in fair value of derivatives		—			—			—			(230	)		(230	)		(230	)

Comprehensive income																$	45,962

Distributions		(35,524	)		(353	)		(372	)		—			(36,249	)


Partners’ capital at December 31, 2006		160,836			(41	)		(10,544	)		(6,179	)		144,072


Net income		201,670			2,019			2,093			—			205,782		$	205,782
Change in fair value of derivatives		—						—			1,480			1,480			1,480

Comprehensive income																$	207,262

Distributions		(141,353	)		(1,405	)		(1,477	)		—			(144,235	)


Partners’ capital at December 31, 2007		221,153			573			(9,928	)		(4,699	)					207,099


Net income		275,712			4,118			142,555			—			422,385		$	422,385
Change in fair value of derivatives		—						—			(26,082	)		(26,082	)		(26,082	)

Comprehensive income																$	396,303

Distributions		(278,971	)		(3,667	)		(93,455	)		—			(376,093	)


Partners’ capital at December 31, 2008	$	217,894		$	1,024		$	39,172		$	(30,781	)	$	227,309



Limited Partnership Common Units issued and outstanding at December 31,											2008			2007			2006


Common Units											18,501,576			18,501,576			18,501,576


Total Common Units outstanding											18,501,576			18,501,576			18,501,576

See accompanying Notes to the Consolidated Financial Statements

Consolidated Statements of Cash Flows


	Year Ended December 31,
(in thousands)	2008			2007			2006


Operating Activities
Net income	$	422,385		$	205,782		$	46,192
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation & amortization		21,504			17,668			14,392
Non-cash loss on derivative instruments		4,598			163			344
Changes in operating assets and liabilities:
Receivables		11,582			(11,959	)		(5,588	)
Inventories		(37,864	)		3,366			4,023
Accounts payable and customer prepayments		(121,462	)		130,893			20,327
Other assets and liabilities		(7,860	)		1,695			4,204


Net cash flows from operating activities		292,883			347,608			83,894


Investing Activities
Capital expenditures and plant turnaround expenditures		(8,249	)		(21,977	)		(19,683	)
Changes in demand deposits with affiliate		—			2,457			24,048
Proceeds from the sale of property, plant and equipment		—			—			2,798


Net cash flows from investing activities		(8,249	)		(19,520	)		7,163


Financing Activities
Partnership distributions paid		(376,093	)		(144,235	)		(36,249	)
Repayment of long-term debt and capital lease obligations		—			—			(12	)


Net cash flows from financing activities		(376,093	)		(144,235	)		(36,261	)


Net increase (decrease) in cash and cash equivalents		(91,459	)		183,853			54,796
Cash and cash equivalents at beginning of year		246,140			62,287			7,491


Cash and cash equivalents at end of year	$	154,681		$	246,140		$	62,287


Supplemental disclosure of cash flow information:
Cash paid during the year for interest	$	254		$	253		$	253

See accompanying Notes to the Consolidated Financial Statements

Notes to the Consolidated Financial Statements


1.	Organizational Structure and Nature of Operations

Terra Nitrogen Company, L.P. (TNCLP, we, our or us) is a Delaware Limited Partnership that owns a 99% limited partner interest as the sole limited partner in Terra Nitrogen, Limited Partnership (the “Operating Partnership”; collectively with TNCLP, the “Partnership,” unless the context otherwise requires).

Ownership of TNCLP is represented by the General Partner interest and the Limited Partner interest. The Limited Partner interest consists of 18,501,576 Common Units and 184,072 Class B Common Units. Terra Industries Inc. (Terra) and its subsidiaries owned 13,899,014 Common Units and 184,072 Class B Common Units as of December 31, 2008. The balance of Common Units is traded on the New York Stock Exchange under the symbol “TNH”.

We manufacture and sell nitrogen products, including ammonia and urea ammonium nitrate solution (UAN), which are principally used by farmers to improve the yield and quality of their crops. We sell products primarily throughout the U.S. on a wholesale basis. Our customers vary in size and are primarily related to the agriculture industry and to a lesser extent to the chemical industry.


2.	Summary of Significant Accounting Policies

Basis of Presentation—The consolidated financial statements and the accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and the rules of the U.S. Securities and Exchange Commission. They include the accounts of the Partnership. All intercompany accounts and transactions have been eliminated. Income is allocated to the General Partner and the Limited Partners in accordance with the provisions of the TNCLP Agreement of Limited Partnership that provides for allocations of income between the Limited Partners and the General Partner in the same proportion as cash distributions declared during the year.

For the years ended 2007 and 2006, we have made certain adjustments from previously issued consolidated financial statements to conform to current year presentation. The current year presentation shows “Net Income Allocable to Common Units” and “Net Income per Common Unit”. In prior period presentation, we have shown “Net Income Allocable to Limited Partners’ Interest”. We have separated the Class B Common Units from the Limited Partners’ interest as Terra owns all Class B Common Units. We therefore only present the net income allocated per Common Units within our consolidated financials. We have also adjusted our Consolidated Statements of Partners’ Capital to break out the Common Units and Class B Common Units, which does not change total partner capital from previously issued consolidated financial statements.

Cash and Cash Equivalents—We classify cash and short-term investments with an original maturity of three months or less as cash and cash equivalents. Demand deposits with affiliate are not classified in cash and cash equivalents.

Demand Deposits with Affiliate—Our cash receipts are generally received by Terra. Cash receipts, net of cash payments made by Terra, are transferred to us from Terra weekly. As a result of this cash collection and distribution arrangement, Terra is a creditor to us.

Receivables—Account receivables and other receivable balances are reported at outstanding principal amounts, net of an allowance for doubtful accounts. Management evaluates the collectability of receivable account balances to determine the allowance, if any. Management considers the other party’s

credit risk and financial condition, as well as current and projected economic and market conditions in determination of an allowance amount. As of December 31, 2008 and 2007, we have determined that an allowance against our receivables was not necessary.

Inventories—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. The cost of inventories is determined using thefirst-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 their 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 reliable value. Primarily due to market price declines, we recorded an inventory valuation charge to cost of sales of $3.8 million for the fourth quarter 2008.

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

Property, Plant and Equipment—Expenditures for plant and equipment additions, replacements, and major improvements are capitalized. Related depreciation is charged to expense on a straight-line basis over estimated useful lives ranging from 15 to 22 years for the buildings and 3 to 18 years for plants and equipment. Maintenance and repair costs, other than plant turnaround and catalyst replacement, are expensed as incurred.

Plant Turnaround Costs—Plant turnarounds are periodically performed to extend the useful life, increase outputand/or efficiency and ensure the long-term reliability and safety of integrated plant machinery at our continuous process production facilities. The nature of a turnaround is such that it occurs on less than an annual basis and requires a multi-week shutdown of plant operations. Specific procedures performed during the turnaround include the disassembly, inspection and replacement or overhaul of plant machinery (boilers, pressure vessels, piping, heat exchangers, etc.) and rotating equipment (compressors, pumps, turbines, etc.), equipment recalibration and internal equipment efficiency assessments.

continued use beyond the original design. If criteria for betterment or useful life extension are not met, we expense the turnaround expenditures as repair and maintenance activities in the period performed.

In addition, state and certain other regulatory agencies require a scheduled biennial safety inspection of plant components, such as steam boilers and registered pressure vessels and piping, which can only be performed during the period of shut down. A full shutdown and dismantling of components of the plant is generally mandatory to facilitate the inspection and certification. We defer costs associated with regulatory safety inspection mandates that are incurred during the turnaround. These costs are amortized over the period benefited, which is generally the two-year period until the next turnaround.

During a turnaround event, there will also be routine repairs and maintenance activities performed for normal operating purposes. The routine repairs and maintenance costs are expensed as incurred. We do not classify routine repair and maintenance activities as part of the turnaround costs capitalization since they are not considered betterments.

The installation of major equipment items can occur at any time, but frequently occur during scheduled plant outages, such as a turnaround. During a plant turnaround, expenditures for replacing major equipment items are capitalized as separate fixed assets.

TNCLP classifies capitalized turnaround costs as an investing activity under the caption “Capital expenditures and plant turnaround expenditures” in the Statement of Cash Flows, since this cash outflow relates to expenditures related to productive assets. Repair and maintenance costs are expensed as incurred and are included in the operating cash flow.

There are three acceptable methods of accounting for turnaround costs: 1) direct expensing method, 2) built-in overhaul method and 3) deferral method. Terra utilizes the deferral method and recognizes turnaround expense over the period benefited since these expenditures are asset betterments. If the direct expense method was utilized, all turnaround expenditures would be recognized in the income statement as a period cost when incurred and reflected in cash flows from operating activities in the statement of cash flows.

Impairment of Long-Lived Assets—We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future cash flows expected to result from the use of the asset (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on the difference between the carrying amount and the fair value of the asset.

Derivatives and Financial Instruments—We account for derivatives in accordance with Statement of Financial Accounting Standards (SFAS) No. 133,Accounting for Derivative Instruments and Hedging Activities, which requires that derivatives be reported on the balance sheet at fair value and, if the derivative is not designated as a hedging instrument, changes in fair value must be recognized in earnings in the period of change. If the derivative is designated as a hedge and to the extent such hedge is determined effective, changes in fair value are either (a) offset by the change in fair value of the hedged asset or liability (if applicable) or (b) reported as a component of accumulated other comprehensive income (loss) in the period of change, and subsequently recognized in the determination of net income in the period that the offsetting hedged transaction occurs.

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.

Terra Industries Inc. and its subsidiaries (Terra) enter into derivative instruments with counterparties for our operations. When Terra enters into a derivative instrument for our operations, we simultaneously enter into a derivative instrument with Terra as the counterparty. The terms of the derivative instruments between Terra and us are identical to the terms of the derivative instruments between Terra and Terra’s counterparty. The types of derivative instruments entered into include futures contracts, swap agreements, put and call options to cap or fix prices for a portion of our natural gas production requirements. Terra may also enter into similar derivative instruments to fix or set floor prices for a portion of our nitrogen sales volumes.

Revenue Recognition—Revenue is recognized when persuasive evidence of a transaction exists, delivery has occurred, the price is fixed or determinable, and no obligations remain and collectability is probable. We classify any discounts and trade allowances as a reduction in revenue. Gains or losses associated with settled nitrogen derivative contracts are classified as revenue. We classify amounts directly or indirectly billed to our customers for shipping and handling as revenue.

Cost of Sales—The cost of manufacturing fertilizer products is recorded when the fertilizer products are sold and revenue is recognized. We classify shipping and handling costs incurred as cost of sales. Premiums paid for option contracts are deferred and recognized in cost of sales in the month to which the related derivative transactions are settled. Realized gains and losses on derivatives activities are recognized in cost of sales.

Income Taxes—We are not subject to income taxes. The income tax liability of the individual partners is not reflected in our consolidated financial statements.

Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

New Accounting Pronouncements—In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141R,Business Combination,which changes how business acquisitions are accounted. SFAS 141R 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 Standard 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. SFAS 141R is effective for business combinations and adjustments to an acquired entity’s deferred tax

asset and liability balances occurring after December 31, 2008. We are currently evaluating the future impacts and disclosures of SFAS 141R.

In March 2008 the FASB issued SFAS 161,Disclosures about Derivative Instruments and Hedging Activities(SFAS 161). SFAS 161 is an amendment of SFAS 133,Accounting for Derivative Instruments and Hedging Activities(SFAS 133). To address concerns that the existing disclosure requirements of SFAS 133 do not provide adequate information, this Statement requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. This statement shall be effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We are currently evaluating the future impacts and disclosures of SFAS 161.

The FASB has issued Draft Abstract Emerging Issues Task Force (EITF) Issue07-4,Application of the Two-Class Method under FASB Statement No. 128 to Master Limited Partnerships(EITF 07-4). EITF 07- 4 specifies the treatment of earnings per unit calculations when incentive distribution rights exist. The issue shall be effective for financial statements issued for fiscal years and interim periods within those fiscal years beginning January 1, 2009. We are currently assessing the impactEITF 07-4 may have on our financial statements.


3.	Agreement of Limited Partnership

We make quarterly distributions to our partners based on available cash for the quarter as defined in our Agreement of Limited Partnership. Available Cash is defined generally as all cash receipts less all cash disbursements, adjusted for changes in certain reserves established as the General Partner determines in its reasonable discretion to be necessary. We paid distributions of $376.1 million, $144.2 million and $36.2 million to our partners in 2008, 2007 and 2006, respectively.

On February 10, 2009, the Partnership announced a $2.97 per unit distribution to be paid during the 2009 first quarter. We have exceeded the cumulative MQD amounts and will distribute Available Cash as summarized in the following table:


	Income and Distribution Allocation
								Class B
	Target		Target		Common			Common			General
	Limit		Increment		Units			Units			Partner			Total


Minimum Quarterly Distribution	$	0.605		0.605		98.990	%		0.985	%		0.025	%		100	%
First Target		0.715		0.110		98.990	%		0.985	%		0.025	%		100	%
Second Target		0.825		0.110		85.859	%		0.985	%		13.156	%		100	%
Third Target		1.045		0.220		75.758	%		0.985	%		23.257	%		100	%
Final Target and Beyond		1.045		—		50.505	%		0.985	%		48.510	%		100	%

The General Partner is required to remit the majority of cash distributions it receives from the Partnership, in excess of its 1% Partnership equity interest, to an affiliated company.

The quarterly cash distributions paid to the Unitholders and the General Partner in 2008 and 2007 follow:


					Class B
	Common Units				Common Units				General Partner

	Total		$Per		Total		$Per		Total
	($000s)		Unit		($000s)		Unit		($000s)


2008
First Quarter	$	82,332	$	4.45	$	819	$	4.45	$	861
Second Quarter		77,708		4.20		850		4.62		8,655
Third Quarter		67,158		3.63		1,149		6.24		49,519
Fourth Quarter		51,773		2.80		849		4.61		34,420
2007
First Quarter	$	17,946	$	0.97	$	179	$	0.97	$	188
Second Quarter		29,049		1.57		288		1.57		303
Third Quarter		55,505		3.00		552		3.00		581
Fourth Quarter		38,853		2.10		386		2.10		405

At December 31, 2008, the General Partner and its affiliates owned 75.3% of our outstanding common units. When less than 25% of the issued and outstanding common units are held by non-affiliates of the General Partner, as was the case at December 31, 2008, we, at the General Partnerships’ sole discretion may call, or assign to the General Partner or its affiliates the right to acquire all outstanding common units held by non-affiliated persons. If the General Partner elects to acquire all outstanding common units, we are required to give common unitholders at least 30 but not more than 60 days’ notice of its decision to purchase the outstanding common units. The purchase price per unit will be the greater of (1) the average of the daily closing prices per unit for the previous 20 trading days as of the date five days before a notice of such election is mailed and (2) the highest price paid by the General Partner or any of its affiliates for any common unit within the 90 days preceding the date the notice of such election is mailed. Additional purchases of common units by the General Partner may be restricted under the terms of Terra’s bank credit agreement as described therein.


4.	Net Income per Limited Partner Common Unit

Basic income per unit data is based on the weighted-average number of Partnership Units outstanding during the period. Diluted income per unit data is based on the weighted-average number of Partnership Units outstanding and the effect of all dilutive potential common units.

The following table provides a reconciliation between basic and diluted income per unit for the years ended December 31, 2008, 2007 and 2006:


	Year Ended December 31,

(in thousands, except per-share amounts)	2008		2007		2006


Basic income per Common Unit computation:
Net income allocable to Common Units	$	275,712	$	201,670	$	45,267
Weighted average units outstanding		18,502		18,502		18,502


Net income per Common Unit	$	14.90	$	10.90	$	2.45

There were no dilutive Partnership units outstanding for the year ended December 31, 2008, 2007 and 2006.


5.	Inventories

Inventories consisted of the following:


	December 31,

(in thousands)	2008		2007


Materials and supplies	$	10,708	$	8,231
Finished goods		46,499		11,112


Total	$	57,207	$	19,343


6.	Derivative Financial Instruments

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.

Terra enters into derivative instruments with counterparties for our operations. When Terra enters into a derivative instrument for our operations, we simultaneously enter into a derivative instrument with Terra as the counterparty. The terms of the derivative instruments between us and Terra are identical to the terms of the derivative instruments between Terra and Terra’s counterparty. The credit rating of counterparties may be modified through guarantees, letters of credit or other credit enhancement vehicles.

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


	•	The item to be hedged must expose us to currency or price risk.

	•	It must be probable that the results of the hedge position substantially offset the effects of currency 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).

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

We purchase natural gas at market prices to meet production requirements at our manufacturing facility. Natural gas market prices are volatile and we effectively hedge a portion of our natural gas production requirements and inventory through the use of futures contracts, swaps and options. These contracts reference physical natural gas prices or approximate NYMEX futures contract prices. Contract physical prices are frequently based on prices at the Henry Hub in Louisiana, the most common and financially liquid location of reference for financial derivatives related to natural gas. However, we purchase natural gas for our manufacturing facility 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 changes 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 futures contracts require maintenance of cash balances generally 10% to 20% of the contract value and option contracts require initial premium payments ranging from 2% to 5% of contract value. Basis swap contracts require payments to or from the Partnership for the amount, if any, that monthly published gas prices from the source specified in the contract differ from the prices of a NYMEX natural gas futures during a specified period. There are no initial cash requirements related to the swap and basis swap agreements.

The following summarizes the position of open natural gas derivative contracts at December 31, 2008 and December 31, 2007:


	Other		Other
	Current		Current			Net
(in thousands)	Assets		Liabilities			Asset Liability


December 31, 2008	$	9,456	$	(43,315	)	$	(33,859	)
December 31, 2007	$	3,101	$	(7,959	)	$	(4,858	)

Certain derivatives outstanding at December 31, 2008 and 2007, which settled during January 2009 and January 2008, respectively, are included in the position of open natural gas derivatives in the table above. The January 2009 derivatives settled for an approximate $14.5 million loss compared to the January 2008 derivatives which settled for an approximate $3.2 million loss. All open derivatives at December 31, 2008 will settle during the next twelve months.

At December 31, 2008 and 2007, we determined that a portion of certain derivative contracts were ineffective for accounting purposes and, as a result, recorded a $1.4 million and $0.2 million charge to cost of sales, respectively. At December 31, 2008, we excluded a portion of the loss on certain derivative contracts from the effectiveness assessment and, as a result, recorded a $3.2 million charge to cost of sales.

The effective portion of gains and losses on settlement of these contracts that qualify for hedge treatment are carried as accumulated other comprehensive income (loss) and are 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 risks and rewards 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.

The activity related to accumulated other comprehensive loss for the twelve-month periods ended December 31, 2008 and 2007 is:


(in thousands)	2008			2007


Beginning accumulated loss	$	(4,699	)	$	(6,179	)
Reclassification into earnings		47,371			24,952
Net change associated with current period hedging transactions		(73,453	)		(23,472	)


Ending accumulated loss	$	(30,781	)	$	(4,699	)

Approximately $30.8 million of the accumulated other comprehensive loss at December 31, 2008 will be reclassified into earnings during the next year.

At times, we also use forward derivative instruments to fix or set floor prices for a portion of our nitrogen sales volumes. At December 31, 2008, we did not have any open contracts covering nitrogen solutions. 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. There were no recognized gains or losses related to these derivative instruments for the year ending December 31, 2008, as compared to losses of $2.6 million and $0.6 million for the years ending December 31, 2007 and 2006, respectively.


7.	Fair Value Measurements, Other Financial Information and Concentration of Credit Risk

On January 1, 2008, we adopted SFAS No. 157,Fair Value Measurements(SFAS 157), which, among other things, requires enhanced disclosures of assets and liabilities measured and reported at fair value. In February 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff PositionNo. 157- 2,Effective Date of FASB Statement No. 157,which delayed for one year the applicability of SFAS 157’s fair-value measurements to certain nonfinancial assets and liabilities. We adopted SFAS 157 in 2008, except as it applies to those nonfinancial assets and liabilities affected by one-year delay. The adoption of SFAS 157 required additional disclosures as noted below.

SFAS 157 establishes a 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 their 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 observable and significant to the fair value measurement.

We evaluated our assets and liabilities to determine which items should be disclosed according to SFAS 157. We currently measure our derivative contracts on a recurring basis at fair value. The inputs included in the fair value measurement of our derivative contracts use adjusted quoted prices from an active market which are classified at level 2 as significant other observable input in the disclosure hierarchy framework as defined by SFAS 157.

The following table summarizes the valuation of our assets and liabilities in accordance with SFAS 157 fair value hierarchy levels as of December 31, 2008:


	Quoted Market		Significant Other			Significant
	Prices in Active		of Derivative			Unobservable
	Markets		Inputs			Inputs
(in thousands)	(Level 1)		(Level 2)			(Level 3)


Assets
Derivative contracts	$	—	$	9,456		$	—


Total	$	—	$	9,456		$	—


Liabilities
Derivative contracts	$	—	$	(43,315	)	$	—


Total	$	—	$	(43,315	)	$	—

Fair values of financial instruments: We use the following methods and assumptions in estimating our fair value disclosures for financial instruments:


	•	*Cash and cash equivalents —*The carrying amounts approximate fair value due to the short maturity of these instruments.

	•	*Demand deposits with affiliate —*The carrying amounts approximate fair value due to the short maturity of these instruments.

	•	*Financial instruments —*Fair values for the Partnership’s natural gas swaps and options are based on contract prices in effect at December 31, 2008 and 2007. The unrealized loss on these contracts is disclosed in Note 6.

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 is minimized due to a large customer base and our geographic dispersion.


8.	Turnaround Costs

The following represents a summary of the deferred plant turnaround costs for the twelve months ended December 31, 2008:


			Turnaround
	Beginning		Costs		Turnaround			Ending
	Balance		Capitalized		Amortization			Balance


Period ended:
December 31, 2008	$	16,841	$	294	$	(11,880	)	$	5,255


9.	Revolving Bank Credit Facility

In the first quarter of 2007, we amended the $50.0 million revolving credit facility to extend the expiration date to January 31, 2012. The revolving credit facility bears interest at a variable rate plus a margin (London Interbank Offer Rate (LIBOR) plus 175 basis points, or 2.19% at December 31, 2008). Under the credit facility, we may borrow an amount generally based on eligible cash balances, 85% of eligible accounts receivable and 60% of eligible finished goods inventory, less outstanding letters of credit. Our borrowings under the credit facility are secured by substantially all of our working capital. The agreement also requires us to adhere to certain limitations on additional debt, capital expenditures, acquisitions, liens, asset sales, investments, prepayments of subordinated indebtedness, changes in lines of business and transactions with affiliates. At December 31, 2008, we had $50.0 million of borrowing availability as there were no outstanding borrowings or letters of credit under the facility.


10.	Property, Plant and Equipment

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


(in thousands)	2008			2007


Assets owned:
Land	$	1,597		$	1,699
Building and improvements		6,632			6,550
Plant and equipment		224,023			227,066
Construction in progress		6,609			1,724


		238,861			237,039
Less accumulated depreciation and amortization		(170,653	)		(165,750	)


Total	$	68,208		$	71,289


11.	Transactions with Affiliates

Under the provisions of the TNCLP Agreement of Limited Partnership, TNGP or Terra, TNGP’s parent company, is paid for all direct and indirect expenses or payments it makes on behalf of the Partnership. Terra is also reimbursed for the portion of TNGP’s or its affiliates’ administrative and overhead expenses and all other expenses necessary or appropriate to the conduct of our business and are reasonably allocable to us. Since we have no employees, some employee benefits, such as health insurance and pension, are allocated between TNCLP and other Terra affiliates based on direct payroll. Management believes such costs would not be materially different if we were obtaining these benefits on a stand-alone basis. For the years ended December 31, 2008, 2007 and 2006, payroll and payroll-related expenses of $14.9 million, $15.5 million and $15.5 million, respectively, were charged to us.

Certain services including sales, customer service and distribution are provided by Terra Nitrogen Corporation (TNC), an affiliate of Terra, to us. The portion of these expenses allocated to the General Partner is charged to us. Expense allocations are based on revenue. Since it is not practical to estimate the cost to duplicate the selling support functions on a stand-alone basis, management has not attempted to estimate the amount of such expenses if we were obtaining these services on a stand-alone

basis. Allocated expenses under this Agreement to us were $4.4 million, $5.9 million and $3.1 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Certain services including accounting, legal, risk management, investor relations and certain employee benefits and other employee-related expenses are provided by Terra to the General Partner. The portion of these expenses allocated to the General Partner that relate to its activities as General Partner is charged to us. Expense allocations are based on individual cost causative factors (such as headcount or sales volume) or on a general allocation formula based equally on sales volumes, headcount and asset values. Since it is not practicable to estimate the cost to duplicate the general and administrative support functions on a stand-alone basis, management has not attempted to estimate the amount of such expenses if we were obtaining these services on a stand-alone basis. Allocated expenses under this agreement charged to us were $11.3 million, $15.3 million and $5.3 million for the years ended December 31, 2008, 2007 and 2006, respectively.

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

The General Partner has no employees. The prior General Partner’s employees are members of the Terra Industries Inc. Employees’ Retirement Plan (the “Terra Retirement Plan”), a noncontributory defined benefit pension plan. The accumulated benefits and plan assets of the Terra Retirement Plan are not determined separately for the prior General Partner’s employees. The General Partner recorded pension costs of $0.9 million, $1.8 million and $2.2 million ($0.6 million, $1.2 million and $1.6 million of which was charged to the Partnership) in 2008, 2007 and 2006, respectively, as its allocated share of the total periodic pension cost for the Terra Retirement Plan. Benefits are based on years of service and average final compensation.

Terra maintains a qualified savings plan that allows employees to contribute a percentage of their total compensation up to a maximum defined by the plan. Each employee’s contribution, up to a specified maximum, may be matched by the General Partner based on a specified percentage of employee contributions. Employee contributions vest immediately, while the General Partner’s contributions vest over five years. Expenses associated with the General Partner’s contribution to the Terra qualified savings plan charged to us for the years ended December 31, 2008, 2007 and 2006 were $0.5 million, $0.4 million, and $0.4 million, respectively.

Cash balances are transferred to us from Terra weekly. At December 31, 2008 and 2007, we had a payable balance to Terra of $0.1 million and $3.2 million, respectively.


12.	Commitments and Contingencies

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


(in thousands)



2009	$	16,183
2010		14,801
2011		11,327
2012		8,961
2013		4,740
2014 and thereafter		6,484


Net minimum lease payments	$	62,496

Included above is the lease of the Port Terminal at the Verdigris facility. The leasehold interest is scheduled to expire on April 30, 2009, and we have the option to renew the lease for an additional term of five years.

Rent expense under non-cancelable operating leases amounted to approximately $6.2 million, $6.0 million and $5.5 million for the years ended December 31, 2008, 2007 and 2006, respectively.

As of December 31, 2008, we had commitments of approximately $59.3 million related to firm gas commitments, open purchase orders and contractual pipeline fees. The natural gas commitments are based on a firm amount of natural gas at the December 31, 2008 natural gas price. These natural gas commitments are priced at the beginning of the month of the scheduled activity. We have the option to receive and use the natural gas in our manufacturing operations or we can sell the committed natural gas at current market prices, which may be different than the price that we pay for the natural gas.

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


13.	Quarterly Financial Data (Unaudited)

Summarized quarterly financial data are as follows (in thousands, except per unit amounts):


	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter


2008
Total Revenues	$	174,532	$	256,671	$	246,585	$	225,229
Gross profit		82,561		134,810		108,299		106,542
Net income		81,596		130,155		106,200		104,434
Net income per Common Unit		3.93		4.01		3.41		3.55
2007
Total Revenues	$	128,157	$	177,440	$	133,151	$	197,560
Gross profit		37,387		63,329		46,661		74,245
Net income		35,330		57,057		45,611		67,784
Net income per Common Unit		1.87		3.02		2.42		3.59


14.	Subsequent Event

On January 15, 2009, CF Industries Holdings, Inc. (CF) presented a letter to Terra’s Board of Directors proposing CF’s acquisition of Terra in an all-stock transaction. Terra’s Board rejected this proposal on the grounds that it was not in the best interest of Terra or its stockholders and substantially undervalued the Company. CF Industries subsequently announced that they remained committed to the proposal, and on February 3, 2009, announced that they 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 CF shares 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 shareholders within ten business days, and further advised Terra’s shareholders to take no action pending the review of the proposed exchange offer by Terra’s Board.


Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.


Item 9A.	Controls and Procedures

(a) Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. The Disclosure Committee meets on a quarterly basis and more often if necessary.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined inRules 13a-15(e) and15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.

(b) Changes in Internal Control over Financial Reporting

There were no changes in internal control over financial reporting (as such term is defined inRules 13a-15(f) and 15(a)-15(f) under the Exchange Act) during the fiscal fourth quarter ended December 31, 2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. There were no material weaknesses identified in the review and evaluation, and therefore no corrective actions were taken.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal control over financial reporting and include in this Annual Report onForm 10-K a report on management’s assessment of the effectiveness our internal control over financial reporting. See “Management’s Report on Internal Control over Financial Reporting” below. Deloitte & Touche LLP’s attestation report on the effectiveness of our internal control over financial reporting is included in Item 8,Financial Statements and Supplementary Data, of this Annual Report onForm 10-K.

(d) Certifications

The certifications of our Chief Executive Officer and our Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibits No. 31.1 and No. 31.2, respectively, to this Annual Report onForm 10-K.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined inRule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed under the supervision of our principal executive officer and principal financial officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that:

(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets;

(2) Provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2008, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework.Based on its assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2008. During its assessment, management did not identify any material weaknesses in our internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

To the Partners of Terra Nitrogen Company, L.P.:

We have audited the internal control over financial reporting of Terra Nitrogen Company, L.P. (a limited partnership) (the “Partnership”) as of December 31, 2008, based on the criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established inInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2008 of the Partnership and our report dated February 27, 2009 expressed an unqualified opinion on those financial statements.

DELOITTE & TOUCHE LLP

Omaha, Nebraska

February 27, 2009


Item 9B.	Other Information

There was no information required to be disclosed in a Current Report onForm 8-K during the fourth quarter of the fiscal year covered by this Annual Report onForm 10-K that was not reported.

Part III


Item 10.	Directors and Executive Officers of the Registrant

The General Partner acts as the manager of TNCLP and the Operating Partnership. Unitholders do not direct or participate in the management or control of either TNCLP or the Operating Partnership. The General Partner does not intend to establish an advisory board or similar body to which the unitholders would be entitled to elect representatives.

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

The board’s independence determination described below under the headings “Audit Committee” and “Nominating and Corporate Governance Committee” and “Corporate Governance Matters” was based on information provided by the General Partner’s directors and discussions among the General Partner’s officers and directors. The Nominating and Corporate Governance Committee reviews and designates director-nominees in accordance with the policies and principles of its charter and the Corporate Governance Guidelines.

Directors



Coleman L. Bailey		Mr. Bailey has been a director of TNGP (or its predecessor TNC) since July 2005. He was Chairman of the Board of Mississippi Chemical Corporation from 1988 to 2004 and Chief Executive Officer of Mississippi Chemical Corporation in 2004. Age 58.

Michael L. Bennett		Mr. Bennett has been President of TNGP (or its predecessor TNC) since June 1998, and Chairman of the Board since April 2002, and a director since March 1995. He has been President and Chief Executive Officer of Terra since April 2001, and served as Executive Vice President and Chief Operating Officer of Terra from February 1997 to April 2001. Age 55.

Daniel D. Greenwell		Mr. Greenwell has been a director of TNGP since March 2008. He has been Senior Vice President and Chief Financial Officer of Terra since July 2007; Vice President, Controller from April 2005 to July 2007; Corporate Controller for Belden CDT Inc. from 2002 to 2005; and Chief Financial Officer of Zoltek Companies Inc. from 1996 to 2002. Age 46



Michael A. Jackson		Mr. Jackson has been a director of TNGP (or its predecessor TNC) since February 2002. He was the President and Chief Executive Officer of Agri Business Group, Inc. from 1979 through October 2005; and has been the President and Chief Executive Officer of ABG, Inc., an Adayana company from November 2005 to the present. He was promoted to the position of President and Chief Executive Officer of Adayana, Inc. in April 2008. Age 54.

Dennis B. Longmire		Dr. Longmire has been a director of TNGP (or its predecessor TNC) since April 1997. He has been Chief Executive Officer of McCauley Bros., Inc. since September 1999. Age 64.

Francis G. Meyer		Mr. Meyer had been Vice President of TNGP (or its predecessor TNC) since December 1994 until his retirement as an officer in April 2008, and a director since March 1995. He was Senior Vice President and Chief Financial Officer of Terra until August 2007, and Executive Vice President from August 2007 until his retirement in April 2008. Mr. Meyer retired from Terra effective April 2008. Age 56.

Theodore D. Sands		Mr. Sands has been a director of TNGP (or its predecessor TNC) since July 2000. He has been the President of HAAS Capital, LLC since February 1999. Mr. Sands is also a director of Arch Coal, Inc. Age 63.

Several directors also serve on the boards of directors of other companies subject to the reporting requirements of the U.S. federal securities laws. Mr. Bennett is a director of Terra Industries Inc. and Alliant Energy; Dr. Longmire is a director of McCauley Bros., Inc.; and Mr. Sands is a director of Arch Coal Inc.

Principal Operating Executive Officers



Michael L. Bennett		Mr. Bennett has been President of TNGP (or its predecessor TNC) since June 1998, and Chairman of the Board since April 2002, and a director since March 1995. He has been President and Chief Executive Officer of Terra since April 2001, and served as Executive Vice President and Chief Operating Officer of Terra from February 1997 to April 2001. Age 55.

Joseph D. Giesler		Mr. Giesler has been Vice President of TNGP since April 2006. He has been Senior Vice President, Commercial Operations of Terra since December 2004; and served as Vice President of Industrial Sales and Operations of Terra from December 2002 to December 2004; Global Director, Industrial Sales of Terra from September 2001 to December 2002; and Director of Marketing for Terra from June 2000 to August 2001. Age 50.



Daniel D. Greenwell		Mr. Greenwell has been a director of TNGP since March 28, 2008, was elected Vice President and Chief Financial Officer of TNGP in February 2008, and served as Vice President and Chief Accounting Officer of TNGP from April 2006 to February 2008. He has been Senior Vice President and Chief Financial Officer of Terra since August 1, 2007; and served as Vice President, Controller of Terra from April 2005 to August 2007; Corporate Controller for Belden CDT Inc. from 2002 to 2005; and Chief Financial Officer for Zoltek Companies Inc. from 1996 to 2002. Age 46.

John W. Huey		Mr. Huey has been Vice President, General Counsel and Corporate Secretary of TNGP since October 2006. He was an attorney with Shughart, Thomson & Kilroy from 2005 to September 2006 and an attorney with Butler Manufacturing Company from 1978-2004, serving most recently as Vice President and General Counsel from 1998 to 2004. Age 61.

Richard S. Sanders Jr.		Mr. Sanders has been Vice President, Manufacturing of TNGP (or its predecessor TNC) since October 2003. He has been Vice President, Manufacturing of Terra since July 2003 and Plant Manager, Verdigris facility from 1995 to 2003. Age 51.

Except for any employment described above with Terra, of which TNGP is an indirect, wholly-owned subsidiary, no occupation carried on by any director or executive officer of TNGP during the past five years was carried on with any corporation or organization that is a parent, subsidiary or other affiliate of TNGP. There are no family relationships among any of the directors and any executive officer of TNGP, nor is there any arrangement or understanding between any director, executive officer and any other person pursuant to which that director or executive officer was selected as a director or executive officer of TNGP, as the case may be.

Meetings of the Board

The Board of Directors held four regular meetings in 2008. Each director attended 100% of the total meetings of the board and board committees of which he was a member.

Audit Committee

In 2008, the Audit Committee of the Board of Directors of TNGP met four times and is currently composed of Messrs. Longmire (Chairman), Sands, Jackson and Bailey. Each audit committee member is a non-employee director and meets the independence requirements as set forth in the NYSE listing standards. The Audit Committee has authority to review policies and practices of TNGP dealing with various matters relating to the financial condition and auditing procedures of TNGP, the Partnership and the Operating Partnership. The Board of Directors has further determined that Mr. Longmire meets the requirements to be named “audit committee financial expert” as the term has been defined by the SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002. The Audit Committee Charter was adopted by the General Partner’s Board of Directors on September 1, 2005, and is reviewed annually by the Audit Committee. A copy of the charter can be viewed on Terra’s Web site at www.terraindustries.com by selecting “Investors,” then “Terra Nitrogen Company, L.P.,” and “Governance” from the drop down list on our home page. The charter is also available in print to

unitholders upon request. All such requests should be made in accordance with directions contained in the Investor Relations section of this Report.

Nominating and Corporate Governance Committee

In 2008, the Nominating and Corporate Governance Committee of the Board of Directors of TNGP met two times and is currently composed of Messrs. Sands (Chairman), Longmire, Jackson and Bailey. Each of these committee members is a non-employee director and meets the independence requirements as set forth in the NYSE listing standards. The purpose of the Nominating and Corporate Governance Committee is to assist the Board in fulfilling its responsibilities to unitholders by shaping the corporate governance of the Partnership and enhancing the quality and independence of the nominees to the Board. The Nominating and Corporate Governance Committee Charter was adopted by the General Partner’s Board of Directors on September 1, 2005, and is reviewed annually by the Nominating and Corporate Governance Committee. A copy can be viewed on Terra’s Web site at www.terraindustries.com by selecting “Investors,” then “Terra Nitrogen Company, L.P.,” and “Governance” from the drop down list on our home page. The charter is also available in print to unitholders upon request as described in the Investor Relations section of this Report.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Partnership’s executive officers, directors and greater than 10% beneficial owners to file initial reports of ownership and reports of changes in beneficial ownership with the Securities and Exchange Commission (SEC). TNCLP and the Operating Partnership have no executive officers, directors, or employees. Therefore, the executive officers and directors of TNGP are required by SEC regulations to furnish the Partnership with copies of reports of ownership and changes in ownership of our common units they file. Based solely on a review of the copies of such forms furnished to the Partnership and written representations from TNGP’s executive officers and directors, all of the Partnership’s officers, directors and greater than 10% beneficial owners made all required filings during and with respect to 2008 in a timely manner, except Messrs. Bailey, Jackson, Longmire and Sands. Each of these directors filed a late report on Form 4 to correct our inadvertent failure to report the crediting of phantom equity units to their accounts under our director phantom equity unit plan for outside directors earned and resulting from a single cash distribution from the Partnership for the third quarter of 2008.

Corporate Governance Matters

TNGP has adopted Corporate Governance Guidelines and a Code of Business Conduct and Ethics, which meet the requirements of the NYSE and apply to TNGP’s directors, executive officers (including its principal executive officer and principal financial officer) and other employees. A copy of each can be viewed on Terra’s web site at www.terraindustries.com by selecting “Investors,” then “Terra Nitrogen Company, L.P.,” and “Governance” from the drop list on our home page. A copy of each is also available in print upon request by following the directions contained in the Investor Relations section of this Report.

The Board of Directors of TNGP has affirmatively determined that Messrs. Bailey, Jackson, Longmire and Sands each meet the criteria for independence required by the NYSE listing standards. Following its evaluation, the board concluded that none of these directors were involved in any transaction, relationship or arrangement not otherwise disclosed that would impair his independence.

During 2008, in accordance with the Corporate Governance Guidelines, non-management directors met at regularly scheduled executive sessions of the board without management and the independent directors met in executive session. The executive sessions are held at board meetings and the non-management directors choose one of the non-management directors to lead the discussion and preside at each such meeting.

Communication

Interested parties who wish to report questionable business practices may do so by calling Terra’s toll free, anonymous hotline at 1-866-551-8010 (in the U.S. and Canada) or at011-44-866-551-8010 (in the U.K.). Interested parties who wish to communicate a message to the board, the non-management directors, or any committee may do so by contacting Dr. Dennis B. Longmire, Chairman of the Audit Committee, Terra Nitrogen GP Inc., 600 Fourth Street, Sioux City, IA 51101. Such communications can also be made by calling(712) 277-1340 or bye-mail at boardethics@terraindustries.com.


Item 11.	Executive Compensation

Compensation Discussion and Analysis

We do not have any executive officers or employees. Instead, we are managed by our General Partner, Terra Nitrogen GP Inc. (TNGP), the executive officers of which are employees of Terra Industries Inc. or its subsidiaries (Terra). Terra owns approximately 75% of the outstanding common units representing our limited partnership interests and Terra is also the 100% owner of TNGP. The executive officers of TNGP are provided compensation and benefits directly from Terra, although a portion of Terra’s expenses for the executive officers’ compensation is allocated to us pursuant to the Amended and Restated General and Administrative Services Agreement Regarding Services by Terra Industries Inc. The compensation committee of the Board of Directors of Terra is responsible for the compensation decisions relating to the executive officers of TNGP. The Board of Directors of TNGP does not have a compensation committee and does not make any decisions with respect to the compensation of TNGP’s executive officers. For more discussion regarding the compensation provided to the executive officers of TNGP by Terra, see the Schedule 14A definitive proxy statement of Terra Industries Inc. which will be filed with the Securities and Exchange Commission (SEC) when available.

Since neither TNCLP nor TNGP provides any compensation directly to TNGP’s executive officers and neither has any involvement in determining their compensation, we have concluded that a discussion of the compensation awarded to, earned by and paid to TNGP’s named executive officers, as required pursuant to Item 402(b) ofRegulation S-K, would not be meaningful. Therefore, our Compensation Discussion and Analysis does not resemble that of most public companies. Instead, we think it is more meaningful to describe the arrangement pursuant to which we receive services from Terra and reimburse Terra for a portion of the compensation costs it incurs with respect to TNGP’s executive officers and other employees who provide services to us.

Since we have no executive officers or employees, all employment-related functions, including manufacturing, production, sales, customer service, distribution, accounting, legal, risk management and investor relations are provided to us by employees of Terra or other affiliates of Terra.

All production and manufacturing services are provided to us by employees of Terra Nitrogen Corporation (TNC), which is also a wholly owned subsidiary of Terra. The compensation costs and employee benefits of these employees are charged to us. Neither TNCLP nor TNGP makes any compensation decisions related to these employees. In addition, TNGP records pension costs for certain

of these employees who participate in the Terra Industries Inc. Employees’ Retirement Plan, a defined benefit pension plan. For certain of these employees who participate in the qualified savings plan maintained by Terra, TNGP also makes matching contributions with such matching contributions vesting immediately, and additional non-elective contributions for such employees who were hired on or after July 1, 2003, with such additional contributions vesting over a period of five years provided that the employees remain employed with TNC or Terra during that period.

All sales, customer service and distribution functions are provided to us by employees of certain affiliates of Terra. Terra allocates a portion of the compensation expenses for these employees to TNGP, which is then charged to us. The expense allocations are based on the portion of the total North American revenue of Terra and its affiliates that is allocable to TNCLP.

Terra provides certain services to TNGP, including accounting, legal, risk management and investor relations. Expenses for these services, as well as for related employee benefits and other employee-related expenses, are allocated to TNGP. These expenses are allocated to us based on a formula involving three factors: (1) the percentage of employees that perform services for us compared to the total number of Terra’s employees, (2) the percentage of our revenue as compared to the total North American revenue of Terra and (3) the percentage of our net book value as compared to the total net book value of Terra.

Further discussion of the allocation of compensation and benefit expenses to TNCLP and TNGP can be found in Note 11,Transactions with Affiliates, of the Notes to the Consolidated Financial Statements, included in Item 8,Financial Statements and Supplementary Data,of this Annual Report onForm 10-K.

Compensation Committee Report

TNCLP has no directors or executive officers and the Board of Directors of the General Partner serves as TNCLP’s governing body. TNGP does not have a compensation committee, therefore its full Board of Directors reviewed and discussed the Compensation Discussion and Analysis with TNGP’s management. Based on such review and discussions, it recommended that the Compensation Discussion and Analysis be included in TNCLP’s Annual Report onForm 10-K.

Respectfully submitted,

Michael L. Bennett, Chairman
Coleman L. Bailey
Daniel D. Greenwell
Michael A. Jackson
Dennis B. Longmire
Francis G. Meyer
Theodore D. Sands

Summary Compensation Table

Pursuant to the SEC’s executive compensation disclosure rules, a required table may be omitted if there has been no compensation awarded to, earned by or paid to any named executive officer that is required to be reported in that table. Therefore, we have not included a Summary Compensation Table or any other table regarding compensation paid to named executive officers, because we have no employees, and, as such, no compensation was paid by either TNGP or us during 2008.

Director Compensation

TNCLP has no directors. The following table summarizes the compensation of each non-employee director of the TNGP Board of Directors (the “TNGP Board”) for the fiscal year ended December 31, 2008.


	Fees Earned
	or Paid in		Stock Awards
Name	Cash ($)⁽¹⁾		($)⁽²⁾		Total


Bailey, C.	$	38,975	$	310,472	$	349,447
Jackson, M.	$	44,175	$	306,152	$	350,327
Longmire, D.	$	53,550	$	315,398	$	368,948
Meyer, F.(3)	$	17,800	$	—	$	17,800
Sands, T.	$	46,675	$	306,152	$	352,827


(1)		For information about the nature of fees earned during the fiscal year, see the narrative accompanying this table.

(2)		This column represents the compensation cost recognized for financial reporting purposes under FAS 123R with respect to TNCLP phantom units held by each director rather than the amount paid to or realized by the director. The phantom unit awards will settle in cash based upon the 20 day average market price of TNCLP stock on the date of vesting. Pursuant to FAS 123R the compensation expense was calculated based upon the outstanding units under the Pre-2008 Phantom Unit Program and the Post-2007 Phantom Unit Program multiplied by the 20 day average market price of TNCLP as of December 31, 2008. For purposes of this calculation, we assumed that (i) no phantom units would be forfeited, (ii) the price of the phantom units was $95.34, the 20 day average as of December 31, 2008. Outstanding units included (a) 2040 phantom units held by Mr. Bailey, 2086 phantom units held by Mr. Longmire and 2000 phantom units held by each of Messrs. Jackson and Sands, all of which were granted prior to 2008, (b) an annual grant of 853 phantom units made to each director in 2008, (c) 363 phantom units received by Mr. Bailey in connection with quarterly cash distributions in 2008, (d) 369 phantom units received by Mr. Longmire in connection with quarterly cash distributions in 2008 and (e) 358 phantom units received by each of Messrs. Jackson and Sands in connection with quarterly cash distributions in 2008.

(3)		Mr. Meyer was an employee of Terra until his retirement on April 4, 2008 and did not receive cash compensation for his service as a director of TNGP until his employment with Terra ended. In addition, Mr. Meyer was not entitled to a grant of phantom units for his services as a director of TNGP in 2008 because he was an employee of Terra at the time the grant of the phantom units was made.

Director Fees Paid in Cash

2008 Director Cash Compensation

In 2008, each non-employee director of TNGP received an annual retainer of $30,000 (paid quarterly) and board and committee meeting fees of $1,400 per meeting attended. Mr. Longmire received an additional annual cash retainer of $10,000 (paid quarterly) for serving as Chairman of the Audit

Committee. Mr. Sands received an additional annual cash retainer of $2,500 (paid quarterly) for serving as Chairman of the Nominating and Corporate Governance Committee. Mr. Bennett and Mr. Greenwell serve on the TNGP Board and are employees of Terra, and therefore receive no additional compensation for serving on the TNGP Board. Mr. Meyer was both a director of TNGP and an employee of Terra until his retirement on April 4, 2008, and as such did not receive any additional compensation for serving on the TNGP Board until his employment with Terra ended.

In 2009, the directors of TNGP will receive the same levels of cash compensation that they received in 2008.

Director Phantom Unit Awards

Non-employee directors of TNGP receive compensation in the form of TNCLP phantom units. A phantom unit entitles the holder to a cash payment equal to the value of a TNCLP common unit. In addition, each phantom unit entitles the holder to additional phantom units when quarterly cash distributions are made to TNCLP common unit holders.

Pre-2008 Phantom Unit Program

In 2005, the TNGP Board adopted a phantom unit program (the “Pre-2008 Phantom Unit Program”) pursuant to which each non-employee director of TNGP was entitled to an annual grant of 1,250 TNCLP phantom units for three years. During 2007, each director received a grant of 1,250 phantom units, and each director other than Mr. Bailey received 394 additional phantom units in respect of quarterly distributions. Mr. Bailey received 353 additional phantom units in respect of quarterly distributions.

All phantom unit awards granted pursuant to the Pre-2008 Phantom Unit Program were vested as of the date of grant and constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Internal Revenue Code (Section 409A). Section 409A imposes strict rules that significantly limit the ability to receive payment of deferred compensation. The timing of payment of the phantom units must satisfy the requirements under Section 409A.

The phantom units under the Pre-2008 Phantom Unit Program are generally required to be held until the date of a director’s departure from the TNGP Board. Upon departure, the phantom unit value is paid out in cash based on the average closing price of TNCLP common units for the 20-trading-day period immediately following departure. However, in the event of a sale of TNCLP (including by merger or other corporate transaction) or a sale of substantially all of TNCLP’s assets, the value of the phantom units will be paid in a lump sum upon consummation of the transaction.

In order to allow the TNGP directors to take advantage of a special transition rule under Section 409A that was scheduled to expire on December 31, 2007, (and was later extended to December 31, 2008), the TNGP directors were offered a one-time opportunity to elect to convert a portion of their phantom units into cash that would be paid to them on January 15, 2008. Each director was required to make an election by December 10, 2007, and was required to continue to hold at least 2,000 phantom units following the election, which the Board established as a minimum ownership guide also at its October 22, 2007 meeting. The amount each director received in exchange for the phantom units converted into cash was equal to the product of the number of phantom units the director elected to convert into cash and the closing price of one TNCLP common unit on the date that such director made the election.

The following table sets forth the number of phantom units that each non-employee director elected to cash out, the value received on January 15, 2008 and the number of phantom units that each director held as of the date of this report.


			Amount
	Number of Phantom		Realized ($)		Number of Phantom
Name	Units Cashed Out		January 15, 2008		Units Currently Held⁽¹⁾


Bailey, C.		2,282	$	286,045		3,390
Meyer, F.		—	$	—		1,038
Jackson, M.		2,368	$	293,604		3,344
Longmire, D.		2,282	$	245,774		3,443
Sands, T.		2,368	$	272,389		3,344


(1)		Includes a grant of 1,013 phantom units that was made to each non-employee director of TNGP on January 15, 2009, pursuant to the Post-2007 Phantom Unit Program, which is described below.

Post-2007 Phantom Unit Program

On October 22, 2007, the TNGP Board adopted a new phantom unit program (the “Post-2007 Phantom Unit Program”) that provides for an annual grant of phantom units to non-employee directors of TNGP, beginning in 2008 and for each year thereafter, until the Post-2007 Phantom Unit Program is modified by the TNGP Board. Pursuant to the Post-2007 Phantom Unit Program, in January of each year, each non-employee director will receive an award with respect to a number of phantom units determined by dividing $106,000 by the average month-end closing price of TNCLP common units for the six-month period preceding the date of grant.

Each phantom unit granted under the Post-2007 Phantom Unit Program is unvested on the date of grant and will only vest if the director continues to serve on the TNGP Board until the first anniversary of the grant date, at which time the phantom units automatically vest. Upon vesting of phantom units granted under the Post-2007 Phantom Unit Program, the director will be entitled to a cash payment in respect of such phantom units and any additional phantom units received in connection with quarterly distributions to TNCLP common unit holders following the date of grant. The amount paid with respect to each such phantom unit will be equal to the average closing price of common units for the 20-trading-day period immediately preceding the vesting date.

The first grant of 853 phantom units under the Post-2007 Phantom Unit Program was made on January 15, 2008 to each of the non-employee directors of TNGP. These phantom units vested on January 15, 2009 and a cash payment in the amount of $95,998 was made to each of Messrs. Bailey, Jackson, Longmire and Sands on that date. The amount received by each director also included vested quarterly cash distributions on the 2008 annual award received by each director for the four quarters of 2008 (107.08 units). Mr. Meyer did not receive a grant of phantom units under the Post-2007 Phantom Unit Program in 2008 because he was both a director of TNGP and an employee of Terra at the time that the grant was made in January 2008. A grant of 1,013 phantom units was made to each of Messrs. Bailey, Jackson, Longmire, Meyer and Sands on January 15, 2009 pursuant to the Post-2007 Phantom Unit Program.

Other Director Compensation

TNGP reimburses all directors for reasonable travel and other necessary business expenses incurred in the performance of their services for TNGP and TNCLP. Non-employee directors do not receive any additional payments or perquisites.

Compensation Committee Interlocks and Insider Participation

TNGP does not have a compensation committee. The Compensation Committee of the Board of Directors of Terra has made executive officer compensation decisions with respect to those TNGP executive officers who are also key employees of Terra. The Compensation Committee of Terra is composed of the directors named as signatories to the “Report on Executive Compensation” as set forth in Terra’s 2009 proxy statement. No such director has any direct or indirect material interest in or relationship with TNGP other than stockholdings as discussed in Item 12,Security Ownership of Certain Beneficial Owners and Management, and as related to his or her position as a director, except as described under the caption “Certain Relationships and Related Transactions.” During 2008, no officer of TNGP (or its predecessor) served on the Board of Directors of any other entity, where any officer or director of such other entity also served on TNGP’s (or its predecessor) Board or Terra’s Compensation Committee. None of the members of Terra’s Compensation Committee are employees of Terra or its subsidiaries.


Item 12.	Security Ownership of Certain Beneficial Owners and Management

TNGP owns the entire general partner interest in both TNCLP and the Operating Partnership. TNGP’s principal executive offices are located at 600 Fourth Street, Sioux City, Iowa 51101. Terra Capital, Inc. owns all the outstanding capital stock of TNGP, and is an indirect, wholly-owned subsidiary of Terra. The TNGP stock is pledged as security under the Partnership’s Credit Agreement. See Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 9,Revolving Bank Credit Facility, of the Notes to the Consolidated Financial Statements, included in Item 8,Financial Statements and Supplementary Data, of this Annual Report onForm 10-K. Terra Capital, Inc. and Terra Nitrogen Corporation owned, as of December 31, 2008, 2,716,600 and 11,172,414 common units of TNCLP, respectively. Terra and its subsidiaries are engaged in certain transactions with the Partnership described under the caption “Certain Relationships and Related Transactions” below.

The following table shows the ownership of TNCLP common units and Terra common stock as of December 31, 2008 by (a) each person known to TNGP to be a beneficial owner of more than 5% of the TNCLP common units (based on information reported to the SEC by or on behalf of such persons) (b) each director of TNGP and (c) each executive officer of TNGP. Unless otherwise stated below, the address of each of the following persons is 600 Fourth Street, Sioux City, Iowa 51101.


	Number of TNCLP					Number of Terra
	Units Beneficially		Percent of			Common Shares		Percent
Name	Owned		Class			Beneficially Owned¹		of Class

Terra Nitrogen Corporation^2,3		11,172,414		60.4	%		—		—
Terra Nitrogen GP Inc.⁴		—		—			—		—
Terra Capital, Inc.		2,716,600		14.7	%		—		—
Coleman L. Bailey		—		—			—		—
Michael L. Bennett		—		—			407,415		*
Daniel D. Greenwell		—		—			54,709		*
Michael A. Jackson		—		—			1,680		*
Dennis B. Longmire		—		—			—		—
Francis G. Meyer		—		—			134,240		*
Theodore D. Sands		—		—			—		—
Joseph D. Giesler		—		—			83,691		*
John W. Huey		—		—			34,366		*
Richard S. Sanders, Jr.		—		—			78,507		*
All directors as a group (10 persons)		—		—			794,608		*


*		Represents less than 1% of class.

1.		Each person has sole voting and investment power of all the securities indicated. The shares of Terra common stock shown include ownership of restricted common stock, which is subject to certain performance-related vesting conditions, and shares held under Terra’s Employees’ Savings and Investment Plan, in each case as of December 31, 2008.

2.		Each of Terra Nitrogen Corporation and Terra Capital, Inc. is an indirect, wholly-owned subsidiary of Terra Industries Inc.

3.		Terra Nitrogen Corporation also owns 184,072 Class B Common Units.

4.		Terra Nitrogen GP Inc., the General Partner, owns the entire general partner interests in the Partnership.

Equity Compensation Plan Information

The Partnership maintains no separate equity compensation plans. All benefits are paid through Terra’s equity compensation plans, all of which are described in Terra’s filings with the SEC.


Item 13.	Certain Relationships and Related Transactions

Information with respect to certain relationships and related transactions is contained in Note 11,Transactions with Affiliates, of the Notes to the Consolidated Financial Statements, included in Item 8,Financial Statements and Supplementary Data, and is incorporated herein by reference. Information with respect to director independence is set forth in Item 10,Directors and Executive Officers of the Registrant, and is incorporated herein by reference


Item 14.	Principal Accountant Fees and Services

Principal Accountant Audit Fees and Services Fees

The following table describes fees for professional audit services rendered by Deloitte & Touche LLP, the Partnership’s principal accountant, for the audit of the Partnership’s annual financial statements for the years ended December 31, 2008 and December 31, 2007 and fees billed for other services rendered by Deloitte & Touche LLP during those periods.


Type of Fee	2008		2007


Audit Fees⁽¹⁾	$	277,500	$	276,500
Audit Related Fees		—		—


Total Audit and Audit Related Fees		277,500		276,500


Tax Fees		—		—
All Other Fees		—		—


Total Fees	$	277,500	$	276,500


(1)		Audit Fees include the aggregate fees paid by the Partnership during the fiscal year indicated for professional services rendered by Deloitte & Touche LLP for the audit of the Partnership’s annual financial statements and review of financial statements included in the Partnership’sForms 10-Qs.

Audit Committee Pre-Approval of Policies and Procedures

Pursuant to its charter, the Audit Committee is responsible for reviewing and approving, in advance, any audit and any permissible non-audit engagement or relationship between TNGP and its independent auditors. Deloitte & Touche LLP’s engagement to conduct the audit of the Partnership’s financial statements included herein was approved by the Audit Committee on February 4, 2008. Additionally, each permissible non-audit engagement or service performed by Deloitte & Touche LLP is required to be reviewed and approved in advance by the Audit Committee, as provided in its charter.

Part IV


Item 15.	Exhibits, Financial Statement Schedules and Reports onForm 8-K


(A)	Financial Statements and Financial Statement Schedules


	1.	Consolidated Financial Statements of Terra Nitrogen Company, L.P. is included in Item 8 herein.

Consolidated Balance Sheets at December 31, 2008 and 2007.

Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006.

Consolidated Statements of Partners’ Capital for the years ended December 31, 2008, 2007 and 2006.

Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006.

Notes to the Consolidated Financial Statements.

Report of Independent Registered Accounting Firm


	2.	Index to Financial Statement Schedules, Reports and Consents


(B)	Exhibits


3	.1	First Amended and Restated Agreement of Limited Partnership of Terra Nitrogen Company, L.P., dated September 1, 2005, filed as Exhibit 3.1 to TNCLP’s Form 8-K filed on September 7, 2005, is incorporated herein by reference.
3	.2	Certificate of Incorporation of Terra Nitrogen GP Inc., filed as Exhibit 3.2 to TNCLP’s Form 8-K filed on September 7, 2005, is incorporated herein by reference.
3	.3	Bylaws of Terra Nitrogen GP Inc. dated September 1, 2005, filed as Exhibit 3.3 to TNCLP’s Form 8-K filed on September 7, 2005, are incorporated herein by reference.
3	.4	Certificate of Incorporation of Terra Nitrogen GP Holdings Inc., filed as Exhibit 3.29 to the Terra Industries Inc. Form 10-K for the year ended December 31, 2005, is incorporated herein by reference.
3	.5	By-Laws of Terra Nitrogen GP Holdings Inc., filed as Exhibit 3.30 to the Terra Industries inc. Form 10-K for the year ended December 31, 2005, is incorporated herein by reference.
3	.6	Certificate of Amendment to Certificate of Limited Partnership of TNCLP dated September 1, 2005, filed as Exhibit 3.5 to the Terra Industries Inc. Form 10-Q for the quarterly period ended September 30, 2005, is incorporated herein by reference.
4	.1	Deposit Agreement among TNCLP, the Depositary and Unitholders, filed as Exhibit 4.1 to the TNCLP Form 10-K for the year ended December 31, 1991, is incorporated herein by reference.


4	.2	Form of Depositary Receipt for Common Units (included as Exhibit B to the Deposit Agreement filed as Exhibit 4.1 hereto), filed as Exhibit 4.3 to the TNCLP Form 10-K for the year ended December 31, 1991, is incorporated herein by reference.
4	.3	Form of Transfer Application (included in Exhibit A to the Deposit Agreement filed as Exhibit 4.1 hereto), filed as Exhibit 4.4 to the TNCLP Form 10-K for the year ended December 31, 1991, is incorporated herein by reference.
4	.4	Intercompany Promissory Note dated October 10, 2001, between Terra Nitrogen, Limited Partnership and Terra Capital, In., filed as Exhibit 4.5 to the TNCLP Form 10-K for the year ended December 31, 2001, is incorporated herein by reference.
4	.5	$50,000,000 Credit Agreement dated as of December 21, 2004 amoung Terra Nitrogen, Limited Partnership, as Borrower; Terra Nitrogen Company, L.P., as Guarantor; and the Lenders and Issuers Party thereto; and Citicorp USA, Inc., as Administrative Agent and Collateral Agent; and Citigroup Global Markets Inc., as Lead Arranger and Sole Book Runner filed as Exhibit 4.19 to the Terra Industries Inc. Form 10-K for the year ended December 31, 2004, is incorporated herein by reference.
4	.6	Certificate of Amendment to Certificate of Limited Partnership of Terra Nitrogen, Limited Partnership, dated September 1, 2005, filed as Exhibit 3.6 to the Terra Industries Inc. Form 10-Q for the quarterly period ended September 30, 2005, is incorporated herein by reference.
4	.7	Amendment No. 1 to the Credit Agreement dated July 29, 2005, among Terra Nitrogen, Limited Partnership (Borrower), Terra Nitrogen Company, L.P., the Lenders party hereto, and Citicorp USA, Inc. as administrative agent and collateral agent for the Lenders and Issuers, filed as Exhibit 4.5 to the Terra Industries Inc. Form 10-Q for the quarterly period ended September 30, 2005, is incorporated herein by reference.
4	.8	Amendment No. 2 to the Credit Agreement dated February 2, 2007, among Terra Nitrogen Limited Partnership (Borrower), Terra Nitrogen Company, L.P., the Lenders party hereto, and Citicorp USA, Inc. as administrative agent and collateral agent for the Lenders and Issuers, filed as Exhibit 4.8 to the NCLP Form 10-K for the year ended December 31, 2007, is incorporated herein by reference.
10	.1	Transportation Service Agreement effective January 1, 1990, between MAPCO Ammonia Pipeline, Inc. and Agrico Chemical Company, and Consent to Assignment dated January 22, 1991, filed as Exhibit 10.6 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference.
10	.2	Lease Agreement dated as of December 22, 1988, between PLM Investment Management, Inc. and Agrico Chemical Company, and Consent to Assignment dated February 23, 1990, and Assignment and Assumption effective as of March 1, 1990, filed as Exhibit 10.9 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference.


10	.3	Lease and Agreement dated December 1, 1964, between City of Blytheville, Arkansas, and Continental Oil Company, as supplemented, filed as Exhibit 10.10 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference.
10	.4	Lease dated November 1, 1975, between the City of Blytheville, Arkansas, and The Williams Companies, Inc., as supplemented, filed as Exhibit 10.11 to the TNCLP Form 10-K for the year ended December 31, 1991, is incorporated herein by reference.
10	.5	Amendment to Leases dated June 30, 2005, between the City of Blytheville and Terra Nitrogen, Limited Partnership, filed as Exhibit 10.10 to the TNCLP Form 10-K for the year ended December 31, 2007, is incorporated herein by reference.
10	.6	Lease dated September 6, 1977, between Tulsa-Rogers County Port Authority and Agrico Chemical Company, as supplemented, filed as Exhibit 10.12 to the TNCLP Registration Statement No. 33-43007, dated September 27, 1991, is incorporated herein by reference.
10	.7	General and Administrative Services Agreement regarding Services by Terra Industries Inc. filed as Exhibit 10.11 to Terra Industries Inc. Form 10-Q for the quarter ended March 31, 1995, is incorporated herein by reference.
10	.8	General and Administrative Services Agreement regarding Services by Terra Nitrogen Corporation filed as Exhibit 10.12 to Terra Industries Inc. Form 10-Q for the quarter ended March 31, 1995, is incorporated herein by reference.
10	.9	Amended Demand Deposit Agreement dated as of August 20, 1996, between Terra Nitrogen Limited Partnership and Terra Capital, Inc. filed as Exhibit 10.62 to TNCLP’s Form 10-K for the year ended December 31, 1996, is incorporated herein by reference.
10	.10	Form of Phantom Unit Award of Terra Nitrogen Company, L.P., filed as Exhibit 10.41 of the TNCLP Form 10-Q for the quarter ended June 30, 2005, is incorporated herein by reference.
10	.11	Form of Terra Nitrogen GP Inc. (TNGP) Non-Employee Director Phantom Unit Agreement approved by the TNGP Board of Directors, dated October 22, 2007, filed as Exhibit 10.17 to the TNCLP Form 10-K for the year ended December 31, 2007, is incorporated herein by reference.
10	.12	Reorganization Agreement, by and among Terra Nitrogen Company, L.P., Terra Nitrogen, Limited Partnership and Terra Nitrogen Corporation dated September 1, 2005, filed as Exhibit 10.1 to TNCLP’s Form 8-K filed on September 7, 2005, is incorporated herein by reference.
10	.13	Conveyance, Assignment and Assumption Agreement, by and between Terra Nitrogen Corporation and Terra Nitrogen GP Inc., dated September 1, 2005, filed as Exhibit 10.2 to TNCLP’s Form 8-K filed on September 7, 2005, is incorporated herein by reference.


10	.14	First Amended and Restated Agreement of Limited Partnership of Terra Nitrogen, Limited Partnership, dated September 1, 2005, filed as Exhibit 10.3 to TNCLP’s Form 8-K filed on September 7, 2005, is incorporated herein by reference.
10	.15	Amendment to General and Administrative Services Agreement regarding Services by Terra Nitrogen Corporation, dated September 1, 2005, filed as Exhibit 10.5 to TNCLP’s Form 8-K filed on September 7, 2005, is incorporated herein by reference.
10	.16	First Amendment to General and Administrative Services Agreement Regarding Services by Terra Industries Inc., dated September 1, 2005, filed as Exhibit 10.4 to TNCLP’s Form 8-K filed on September 7, 2005, is incorporated herein by reference.
10	.17	Amended and Restated General and Administrative Services Agreement by and between Terra Industries Inc., Terra Nitrogen Corporation, and Terra Nitrogen GP Inc., dated October 23, 2007, filed as Exhibit 10.1 to TNCLP’s Form 10-Q filed on October 29, 2007, is incorporated herein by reference.
31	.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31	.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	.1*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32	.2*	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*		Filed herewith.

Signatures

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

TERRA NITROGEN COMPANY, L.P.


	By:	Terra Nitrogen GP Inc., as General Partner

Date: March 5, 2009	By:	/s/ DANIEL D. GREENWELL Daniel D. Greenwell Vice President and Chief Financial Officer (Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant as of March 5, 2009 and in the capacities indicated.


Signature				Title


/s/ MICHAEL L. BENNETT (Michael L. Bennett)				Director, President and Chairman of the Board of Terra Nitrogen GP Inc. (Principal Executive Officer)

/s/ COLEMAN L. BAILEY (Coleman L. Bailey)				Director of Terra Nitrogen GP Inc.

/s/ DANIEL D. GREENWELL (Daniel D. Greenwell)				Director, Vice President and Chief Financial Officer of Terra Nitrogen GP Inc. (Principal Financial Officer)

/s/ MICHAEL A. JACKSON (Michael A. Jackson)				Director of Terra Nitrogen GP Inc.

/s/ DENNIS B. LONGMIRE (Dennis B. Longmire)				Director of Terra Nitrogen GP Inc.

/s/ FRANCIS G. MEYER (Francis G. Meyer)				Director of Terra Nitrogen GP Inc.

/s/ THEODORE D. SANDS (Theodore D. Sands)				Director of Terra Nitrogen GP Inc.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Avg

Terra Nitrogen Co L P Inactive 10-K2008 FY Annual report

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