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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

          (Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d)

Of the Securities Exchange Act of 1934

For Quarter Ended December 31, 2002

OR

[ ] Transition Report Pursuant to Section 13 or 15(d)

Of the Securities Exchange Act of 1934

For Quarter Ended December 31, 2002

Commission File Number 001-12217

MISSISSIPPI CHEMICAL CORPORATION

Organized in the State of Mississippi

Tax Identification No. 64-0292638

P. O. Box 388, Yazoo City, Mississippi 39194

Telephone No. 662+746-4131

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

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

               The number of shares outstanding of each of the issuer's classes of common stock, as of January 31, 2003.

MISSISSIPPI CHEMICAL CORPORATION

AND SUBSIDIARIES

INDEX

MISSISSIPPI CHEMICAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

MISSISSIPPI CHEMICAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

MISSISSIPPI CHEMICAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Continued)

The accompanying notes are an integral part of these consolidated financial statements.

MISSISSIPPI CHEMICAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

DECEMBER 31, 2002

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

MISSISSIPPI CHEMICAL CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

MISSISSIPPI CHEMICAL CORPORATION

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements have been prepared by us without audit, and include Mississippi Chemical Corporation and its subsidiaries. In our opinion, the financial statements reflect all adjustments necessary to present fairly our results of operations for the three-month and the six-month periods ended December 31, 2002 and 2001, our financial position at December 31, 2002 and June 30, 2002, our consolidated statements of shareholders' equity for the six months ended December 31, 2002 and the year ended June 30, 2002, and our cash flows for the six months ended December 31, 2002 and 2001. In our opinion, these adjustments are of a normal recurring nature which are necessary for a fair presentation of our financial position and results of operations for the interim periods. We have reclassified certain prior-year information to conform with the current year's presentation.

Certain notes and other information have been condensed or omitted in our interim financial statements presented in this quarterly report on Form 10-Q. Therefore, these financial statements should be read in conjunction with our 2002 Annual Report on Form 10-K and our consolidated financial statements and notes thereto included in our June 30, 2002, audited financial statements.

Our business is seasonal; therefore, the results of operations for the periods ended December 31, 2002, are not necessarily indicative of the operating results for the full fiscal year.

On November 15, 2002, we amended and restated our $200.0 million secured revolving credit facility with Harris Trust and Savings Bank and a syndicate of ten commercial banks to extend the facility's maturity from November 25, 2002, to November 10, 2003, reduce the commitment to $165.0 million, and provide for other amendments that are less favorable to us (the "Amended Harris Facility"). On January 2, 2003, the commitment was automatically reduced to $163.5 million in accordance with the Amended Harris Facility due to the sale of a non-core asset. Since the maturity date of the Amended Harris Facility is within twelve months of the date of this report, the borrowings under the facility are reflected as a current liability on our balance sheet. The provisions of the Amended Harris Facility generally described below are more particularly described in the amended and restated credit agreement (the "Credit Agreement") filed as an exhibit to our September 30, 2002 Form 10-Q.

The Amended Harris Facility consists of "A Loans" and "B Loans" (collectively, the "Loans"). The B Loans constitute a continuation of the $105 million principal amount of B Loans outstanding as of November 15, 2002. Loans which are not B Loans are A Loans. The Loans and the commitments of the lenders under the Amended Harris Facility are subject to mandatory prepayments and mandatory commitment reductions as described below. The Loans bear interest at rates equal to the sum of (i) the greater of (a) the Prime Rate or (b) the Federal Funds Rate plus 1/2%, plus (ii) an "Applicable Margin." The Applicable Margin is 5% on the first $105 million outstanding under the Amended Harris Facility and 1% on all amounts outstanding in excess of $105 million; provided, that once the amount of mandatory prepayments and commitment reductions on the Amended Harris Facility equals or exceeds $52.5 million, the Applicable Margin will reduce to 3%.

We incurred approximately $4.0 million in costs and fees to close the Amended Harris Facility. We are obligated to pay a facility fee equal to 0.5% per annum of the commitment ($825,000) payable quarterly in arrears (see Note 7).

Our weighted average interest rate under the Amended Harris Facility was 7.7% for the quarter and 8.2% at December 31, 2002. We had letters of credit outstanding as of December 31, 2002, in the amount of $500,000 that lowered our borrowing availability and borrowings outstanding in the amount of approximately $142.4 million. Based on our borrowing base calculation under the Amended Harris Facility, we had additional borrowing capacity of approximately $22.1 million as of December 31, 2002, and approximately $18.8 million as of February 7, 2003.

The A Loans are secured by a first priority lien on our inventory, accounts receivable, spare parts, and substantially all remaining assets which are not Principal Properties (as defined below in this paragraph) (collectively, the "Non-Principal Properties"). The B Loans are secured by (a) a first priority lien on our four domestic operating facilities and related real estate, the equity of the subsidiaries that own such facilities, and similar after-acquired properties and securities (collectively, the "Principal Properties") to the extent permitted by the Indenture governing our Senior Notes (see the heading "Liquidity and Capital Resources - Financing Activities - The Senior Notes," in Part 1, Item 2 of this report) and (b) a second priority lien on the Non-Principal Properties. The Loans are guaranteed by all of our domestic subsidiaries and a foreign subsidiary, Mississippi Chemical Holdings, Inc. ("MCHI"). MCHI indirectly owns our equity interest in Farmland MissChem Limited ("Far mland MissChem"). For information regarding the tax effect of this foreign subsidiary guarantee, see the discussion in Part I, Item 2, of this Form 10-Q under the headings "Critical Accounting Policies - Deferred Taxes," and "Results of Operations - Six Months Ended December 31, 2002 Compared to the Six Months Ended December 31, 2001 - Income Tax Benefit."

The Amended Harris Facility provides for maximum borrowings up to the lesser of: $163.5 million (the "Loan Limit"), or the "Borrowing Base" that is equal to (a) the sum of (i) 85% of eligible accounts receivable, (ii) 65% of eligible inventory (subject to a $45 million limit), (iii) 50% of eligible spare parts, plus 75% of the appraised orderly liquidation value of Non-Principal Properties not included in items (a)(i)-(iii) above (subject to a combined $15 million limit), and (iv) $105 million (subject to reduction for mandatory prepayments); minus (b) $12.5 million through March 31, 2003, and $15 million thereafter (the "Block Amount"). To borrow the Loan Limit, the Borrowing Base (including the Block Amount) must equal or exceed $163.5 million. If the Borrowing Base is less than the Loan Limit, the Loans shall not exceed the Borrowing Base. The Amended Harris Facility also permits up to $20 million of letters of credit, which lower borrowing availability.

The Amended Harris Facility (a) requires us to generate certain minimum levels of EBITDA (as defined in the Credit Agreement), (b) limits our capital expenditures, (c) prohibits the repurchase of our outstanding shares and the payment of dividends, (d) obligates us to actively and continuously market our equity interest in Farmland MissChem, (e) provides for certain commitment reductions equal to 50% of our Excess Cash Flow (as defined in the Credit Agreement), (f) provides for mandatory prepayments and commitment reductions from all or part of the net proceeds of certain liquidity events such as asset dispositions, tax refunds, and equity issues, (g) permits the voluntary prepayment of the Loans at any time without penalty, and (h) contains representations, warranties, other affirmative and negative covenants, and events of default that are customary for revolving credit facilities of this type. We were in compliance with all covenants as of December 31, 2002, and as of the date of this filing.

Natural gas prices remain volatile and high compared to historical levels. If these prices continue at their current high levels or increase without corresponding increases in the market prices for our products, our increased natural gas costs will continue to have a material adverse effect on our liquidity and results of operations. Based on our projected natural gas and product prices as of the date of this filing, we believe that there is a reasonable probability that we will not be in compliance with our EBITDA covenant under the Amended Harris Facility for the quarter ended March 31, 2003. If we are not in compliance, then we must obtain a waiver from the Harris Bank syndicate. If we cannot obtain a waiver, or if the terms of a waiver restrict our ability to borrow funds under the Amended Harris Facility, our liquidity will be materially adversely affected. Given our projected natural gas and product prices as of the date of this filing, we believe that we will have sufficient av ailability under the Amended Harris Facility for the remainder of fiscal 2003 to continue operating our business as currently conducted. However, due to the volatility in the markets that affect our business, there can be no assurance that we will have such availability.

The number of weighted average common shares outstanding, net of treasury shares, used in our diluted earnings per share computations for the three months ended December 31, 2002 and 2001 were 26,175,000 and 26,132,000, respectively. The number of weighted average common shares outstanding, net of treasury shares, used in our diluted earnings per share computations for the six months ended December 31, 2002 and 2001 were 26,172,000 and 26,132,000, respectively. Options outstanding at December 31, 2002 and 2001, were not included in our computations of diluted loss per share as a result of incurring a net loss in each of the three-month and six-month periods, which renders the options anti-dilutive.

Our reportable operating segments, nitrogen, phosphate and potash, are strategic business units that offer different products. They are managed separately because each business unit requires different technology and marketing strategies. Our nitrogen segment produces anhydrous ammonia, ammonium nitrate, urea, nitrogen solutions and nitric acid. However, on December 19, 2002, we announced plans to close our urea facility located in Donaldsonville, Louisiana. Urea production ended on January 31, 2003 (see Note 8). We distribute these products to fertilizer dealers, distributors, and industrial users. Our phosphate segment produces diammonium phosphate fertilizer (commonly referred to as "DAP"). The majority of our DAP is marketed to agricultural users in international markets through a separate export association. Our potash segment mines and produces agricultural and industrial potash products that are sold to fertilizer dealers, distributors, and industrial accounts, primarily fo r use in the southern and western regions of the United States, and into export markets. Below is our segment information for the three-month and six-month periods ended December 31, 2002 and 2001. The Other caption includes corporate and consolidating eliminations.

Comprehensive income is the total of net income (loss) and all other non-owner changes in equity. The components of comprehensive income that relate to us are net income or loss and unrealized gains or losses on our natural gas derivative transactions, and, as permitted under the provisions of SFAS No. 130, "Reporting Comprehensive Income," are presented in the Consolidated Statements of Shareholders' Equity. These derivative transactions may consist of futures contracts, options, swaps, or similar derivative instruments related to the price of natural gas. The changes in the components of accumulated other comprehensive income during the six months ended December 31, 2002, are included below.

In August 2002, we received a $14.9 million refund of federal taxes pursuant the Job Creation and Workforce Assistance Act of 2002.

As of December 31, 2002, our prepaid expenses and other current assets had increased approximately $9.8 million from June 30, 2002. This increase was primarily related to increased financing fees in connection with the Amended Harris Facility, the prepayment for natural gas (our primary raw material), and increased net unrealized gains associated with our natural gas hedging activities at December 31, 2002, as more particularly described in Note 5 - Accumulated Other Comprehensive Income of these Notes to Consolidated Financial Statements. We also had increased insurance premiums that we pre-pay and amortize over the year. Our insurance costs for fiscal 2003 increased approximately 68% from fiscal 2002.

On December 19, 2002, we announced plans to close our urea facility located in Donaldsonville, Louisiana, due to continued negative operating results from unfavorable natural gas prices and market conditions. While we continue to evaluate alternative uses for the assets impacted by this decision, we have concluded that the long-lived assets associated with the prilling section of the urea plant will be idled indefinitely. The prilled urea assets are determined to be impaired and will not contribute to our ongoing operations. The long-lived assets associated with our total urea operation had a book value of approximately $23.3 million as of December 31, 2002. The value of the impaired prilled urea assets was approximately $12.4 million at the end of the quarter. This amount was written off and recorded as a component of operating expenses during our quarter ended December 31, 2002. Urea production ended on January 31, 2003. Approximately 40 employees are impacted by this chang e in production and are being provided severance benefits based upon their years of service. Total severance cost is estimated to be approximately $1.0 million. Severance cost accrued as of December 31, 2002, was approximately $192,000, and the remaining severance cost will be accrued during our third fiscal quarter in accordance with SFAS No. 146.

At December 31, 2002, we had a stock option plan for certain officers and key employees, as well as a stock option plan for non-employee directors. These plans are described more fully in Note 9 - Stock Options in our Notes to Consolidated Financial Statements appearing in Item 8 of our most recent Annual Report on Form 10-K, which is on file with the Securities and Exchange Commission. Prior to July 1, 2002, we had applied the recognition and measurement provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees". Under these provisions, we were not required to record any stock based compensation expense.

Effective July 1, 2002, we adopted the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation," prospectively to all new awards granted on or after July 1, 2002. Awards under the plans vest over periods ranging from six months to six years.

The following table illustrates the effect on net loss and loss per share if the fair value method had been applied to outstanding and unvested awards in each period:

For the six-month period ended December 31, 2002, our income tax benefit was $1.7 million, as compared to an income tax benefit of $13.4 million for the six-month period ended December 31, 2001. This income tax benefit is primarily the result of our net losses, partially offset by U.S. tax expense on cumulative foreign earnings triggered by the guarantee of our debt under the Amended Harris Facility by one of our foreign subsidiaries.

Under the Amended Harris Facility, our wholly owned subsidiary, MCHI, provided a guarantee of the debt. MCHI indirectly owns our 50% joint venture interest in Farmland MissChem, which operates an anhydrous ammonia facility in Point Lisas, Trinidad. Under U.S. tax laws, this guarantee resulted in a deemed non-cash distribution to us of earnings from MCHI (and effectively our portion of the earnings from Farmland MissChem). As of December 31, 2002, these cumulative earnings approximated $36.0 million. No U.S. taxes are currently payable on these earnings due to significant book and tax accounting differences, primarily with respect to depreciation. We have recorded non-current deferred tax liabilities on these earnings of approximately $13.8 million. While the guarantee remains in place, we expect to record U.S. tax expenses on future earnings from MCHI and Farmland MissChem.

In addition to the U.S. tax expense resulting from the debt guarantee, we are providing tax benefits based on an estimated annual effective tax rate of approximately 35%. This rate reflects our anticipation of establishing valuation allowances for all deferred state tax assets generated during the year.

Effective July 1, 2002, we adopted SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting and reporting for obligations associated with the retirement of tangible, long-lived assets and the associated asset retirement costs. As of December 31, 2002, estimated closure costs of approximately $12.8 million have been accrued to close our West and East phosphogypsum disposal facilities at our Pascagoula, Mississippi, facility. We are currently in the process of closing our West Facility and will discontinue the use of this storage facility during the second half of fiscal 2003. Concurrently, the East Facility that was completed in 1998 will be in full operation. During the six-month period ended December 31, 2002, we recorded an asset and a liability in the amount of $4.2 million as the estimated asset retirement obligation for the East Facility in accordance with SFAS No. 143. The asset recorded will be depreciated over its estimated useful l ife. The liability will be accreted based on the effective interest method and the useful life of the facility. As required by SFAS No. 143, we will make periodic assessments as to the reasonableness of our closure cost estimates. Accordingly, adjustments will be made to the estimated costs of closure as needed. The respective asset and liability balance will be adjusted on our consolidated balance sheet, which will correspondingly increase or decrease the amounts expensed in future periods.

As of December 31, 2002, estimated closure costs of approximately $2.4 million have been accrued to close our potash mining facilities. Of this amount, approximately $2.3 million is attributable to our Eddy Potash, Inc. ("Eddy Potash") facility that was idled in 1997. We estimate that we have fully accrued closure costs for Eddy Potash. Our remaining potash facilities have estimated useful lives spanning several decades. Our current estimates of closure costs for these facilities are not material to our operations at this time. We will continue to evaluate our estimates and make adjustments accordingly.

Our 50-50 joint venture, Farmland MissChem, owns and operates a 2,040 short-ton-per-day anhydrous ammonia plant located near Point Lisas, The Republic of Trinidad and Tobago. Farmland MissChem's financial statements are summarized as follows:

Summarized balance sheet information:

Summarized statement of income information:

On December 30, 2002, we entered into an agreement with our joint venture partner, Farmland Industries, Inc. to jointly market and sell our respective interests in Farmland MissChem. We subsequently determined that the interests of our stakeholders would be better served by withdrawing from that process and marketing our interests separately, which we announced in a press release on February 6, 2003.

Payment obligations under our 7.25% Senior Notes, due November 15, 2017, issued pursuant to that certain indenture, dated as of November 25, 1997, are fully and unconditionally guaranteed on a joint and several basis by Mississippi Nitrogen, Inc., and MissChem Nitrogen, L.L.C. (the "Guarantor Subsidiaries"), our wholly owned direct subsidiary and our wholly owned indirect subsidiary, respectively. Condensed consolidating financial information regarding the parent company, Guarantor Subsidiaries and non-guarantor subsidiaries for December 31, 2002 and 2001 is presented below for purposes of complying with the reporting requirements of the Guarantor Subsidiaries.

CONDENSED CONSOLIDATING STATEMENT OF INCOME

CONDENSED CONSOLIDATING STATEMENT OF INCOME

CONDENSED CONSOLIDATING BALANCE SHEET

CONDENSED CONSOLIDATING BALANCE SHEET

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS