Terra Nitrogen Company, L.P. Reports Third Quarter 2016 Results

Terra Nitrogen Company, L.P. (TNCLP) (NYSE: TNH) today reported net earnings of $28.8 million on net sales of $90.2 million for the quarter ended September 30, 2016. This compares to net earnings of $69.4 million on net sales of $150.2 million for the 2015 third quarter. Net earnings allocable to common units was $19.2 million ($1.04 per common unit) and $41.2 million ($2.23 per common unit) for the 2016 and 2015 third quarters, respectively. Results for the third quarter of 2016 included an unrealized net mark-to-market loss on natural gas derivatives of $3.3 million compared to a loss of $17.0 million in the third quarter of 2015. The derivative portfolio at September 30, 2016 includes natural gas derivatives that hedge a portion of natural gas purchases through 2018.

For the first nine months of 2016, TNCLP reported net earnings of $165.2 million on net sales of $324.9 million. This compares to net earnings of $227.7 million on net sales of $430.4 million for the first nine months of 2015. Net earnings allocable to common units was $105.6 million ($5.71 per common unit) and $140.0 million ($7.57 per common unit) for the first nine months of 2016 and 2015, respectively. Results for the first nine months of 2016 included an unrealized net mark-to-market gain on natural gas derivatives of $21.7 million compared to an unrealized net mark-to-market loss of $10.5 million for the first nine months of 2015.

Analysis of Results

Net sales for the third quarter of 2016 totaled $90.2 million, compared to $150.2 million for the third quarter of 2015, as lower average realized selling prices for ammonia and UAN, decreased sales volumes of UAN and higher natural gas costs were partially offset by increased sales volumes of ammonia. Ammonia and UAN average selling prices were lower in the third quarter of 2016 due to greater nitrogen supply driven by global capacity additions, lower manufacturing and ocean freight costs, delays in customer purchases, and softer global ammonia demand from industrial users including phosphate fertilizer production. UAN sales volume decreased 24 percent and ammonia sales volume increased 37 percent in the third quarter of 2016 compared to the third quarter of 2015. The decrease in UAN sales volumes was due primarily to delays in customer purchases of our products resulting from oversupplied global nitrogen market conditions. The increase in ammonia sales volume was due to favorable demand for ammonia compared to UAN.

Comparing the third quarter of 2016 to 2015, TNCLP's:

  • Ammonia average selling prices decreased by 35 percent and UAN average selling prices decreased by 33 percent;
  • Ammonia sales volume increased by 37 percent and UAN sales volume decreased by 24 percent; and
  • Realized natural gas cost per MMBtu increased by 4 percent.

Cash Distribution

Cash distributions depend on TNCLP's earnings as well as cash requirements for working capital needs and capital expenditures. For the first nine months of 2016, capital expenditures were $24.8 million as compared to $81.9 million in 2015, with the decrease primarily due to the large plant turnaround activities in 2015 that did not recur in 2016. For the full year 2016, TNCLP is expected to have capital expenditures in the range of $35 million to $40 million.

TNCLP reported on November 2, 2016, the declaration of a cash distribution for the quarter ended September 30, 2016, of $1.77 per common unit payable November 30, 2016 to holders of record as of November 15, 2016. This compares to a cash distribution of $2.81 per common unit for the quarter ended September 30, 2015.

Cash distributions per common unit also vary based on increasing amounts allocable to the General Partner when cumulative distributions exceed targeted levels. With this distribution, TNCLP cumulative distributions continue to exceed targeted levels.

This release serves as a qualified notice to nominees and brokers as provided for under Treasury Regulation Section 1.1446-4(b). Please note that 100 percent of the Partnership's distributions to foreign investors are attributable to income that is effectively connected with a United States trade or business. Accordingly, the Partnership's distributions to foreign investors are subject to federal income tax withholding at the highest effective tax rate.

About TNCLP

Terra Nitrogen Company, L.P. is a leading manufacturer of nitrogen fertilizer products.

TNCLP is the sole limited partner of Terra Nitrogen, Limited Partnership (TNLP), owner of the Verdigris, Oklahoma manufacturing facility and related assets. Terra Nitrogen GP Inc., an indirect, wholly owned subsidiary of CF Industries Holdings, Inc., is the General Partner of TNCLP and exercises full control over all of TNCLP's business affairs.

Forward-Looking Statements

All statements in this communication, other than those relating to historical facts, are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to a number of assumptions, risks and uncertainties, many of which are beyond TNCLP's control, which could cause actual results to differ materially from such statements. Important factors that could cause actual results to differ materially from expectations include, among others:
  • Risks related to TNCLP's reliance on one production facility;
  • The cyclical nature of TNCLP's business and the agricultural sector;
  • The volatility of natural gas prices in North America;
  • The global commodity nature of TNCLP's fertilizer products, the impact of global supply and demand on TNCLP's selling prices, and the intense global competition from other fertilizer producers;
  • Conditions in the U.S. agricultural industry;
  • Difficulties in securing the supply and delivery of raw materials, increases in their costs or delays or interruptions in their delivery;
  • Reliance on third party providers of transportation services and equipment;
  • The significant risks and hazards involved in producing and handling TNCLP's products against which it may not be fully insured;
  • Risks associated with cyber security;
  • Weather conditions;
  • Potential liabilities and expenditures related to environmental, health and safety laws and regulations, and permitting requirements;
  • Future regulatory restrictions and requirements related to greenhouse gas emissions;
  • The seasonality of the fertilizer business;
  • Risks involving derivatives and the effectiveness of TNCLP's risk measurement and hedging activities;
  • Limited access to capital;
  • Acts of terrorism and regulations to combat terrorism;
  • Risks related to TNCLP's dependence on and relationships with CF Industries;
  • Deterioration of global market and economic conditions;
  • Risks related to TNCLP's partnership structure and control of TNCLP's General Partner by CF Industries;
  • Changes in TNCLP's available cash for distribution to its unitholders, due to, among other things, changes in its earnings, the amount of cash generated by its operations and the amount of cash reserves established by its General Partner for operating, capital and other requirements;
  • The conflicts of interest that may be faced by the executive officers of TNCLP's General Partner, who operate both TNCLP and CF Industries; and
  • Tax risks to TNCLP's common unitholders and changes in TNCLP's treatment as a partnership for U.S. or state income tax purposes.

More detailed information about factors that may affect TNCLP's performance may be found in its filings with the Securities and Exchange Commission, including its most recent periodic reports filed on Form 10-K and Form 10-Q, which are available through CF Industries' website. Forward-looking statements are given only as of the date of this release and TNCLP disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Terra Nitrogen Company, L.P. news announcements are also available on CF Industries' website, www.cfindustries.com .

   
TERRA NITROGEN COMPANY, L.P.
CONSOLIDATED BALANCE SHEETS
 
(unaudited)
September 30, December 31,
2016 2015
(in millions, except for units)
ASSETS
Current assets:
Cash and cash equivalents $ 48.7 $ 106.4
Due from affiliates of the General Partner 6.0 10.4
Accounts receivable 0.5 0.8
Inventories 10.1 10.7
Prepaid expenses and other current assets 0.7  
Total current assets 66.0 128.3
Property, plant and equipment, net 300.9 307.0
Other assets 10.8   8.4
Total assets $ 377.7   $ 443.7
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses $ 24.3 $ 23.5
Due to affiliates of the General Partner 1.7 4.5
Other current liabilities 3.6   15.9
Total current liabilities 29.6   43.9
Other liabilities 4.4 12.8
Partners' capital:
Limited partners' interests, 18,501,576 Common Units authorized, issued and outstanding 285.1 308.5
Limited partners' interests, 184,072 Class B Common Units authorized, issued and outstanding 1.9 2.3
General partner's interest 56.7   76.2
Total partners' capital 343.7   387.0
Total liabilities and partners' capital $ 377.7   $ 443.7
   
TERRA NITROGEN COMPANY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
Three months ended Nine months ended
September 30, September 30,
2016   2015 2016   2015
(in millions, except per unit amounts)
Net sales:
Product sales to affiliates of the General Partner $ 90.1 $ 149.8 $ 324.5 $ 429.3
Other income from an affiliate of the General Partner 0.1 0.1 0.4 0.4
Other income   0.3     0.7
Total 90.2 150.2 324.9 430.4
Cost of goods sold:
Materials, supplies and services 50.2 69.5 125.0 166.9
Services provided by affiliates of the General Partner 7.2   6.6   21.3   20.7
Gross margin 32.8 74.1 178.6 242.8
Selling, general and administrative services provided by affiliates of the General Partner 4.0 3.9 11.8 11.8
Other general and administrative expenses   0.8   1.7   3.3
Earnings from operations 28.8 69.4 165.1 227.7
Interest income     0.1  
Net earnings $ 28.8   $ 69.4   $ 165.2   $ 227.7
Allocation of net earnings:
General Partner $ 9.3 $ 27.5 $ 58.0 $ 85.5
Class B Common Units 0.3 0.7 1.6 2.2
Common Units 19.2   41.2   105.6   140.0
Net earnings $ 28.8   $ 69.4   $ 165.2   $ 227.7
Net earnings per Common Unit $ 1.04   $ 2.23   $ 5.71   $ 7.57
   
TERRA NITROGEN COMPANY, L.P.
SUMMARIZED OPERATING INFORMATION
 
Three months ended Nine months ended
September 30, September 30,
2016   2015 2016   2015
Sales volume (tons in thousands)
Ammonia 103 75 306 296
UAN (1) 415 544 1,231 1,207
 
Average selling prices (per ton)
Ammonia $ 297 $ 459 $ 347 $ 492
UAN (1) 142 211 177 234
 
Cost of natural gas (per MMBtu):
Purchased natural gas costs (2) $ 2.61 $ 2.57 $ 2.12 $ 2.61
Realized derivatives loss (3) 0.11   0.05   0.54   0.21
Cost of natural gas $ 2.72 $ 2.62 $ 2.66 $ 2.82

_________________________________________________
(1)   The nitrogen content of UAN is 32% by weight.
(2) Represents the cost of natural gas purchased during the period for use in production.
(3) Represents realized gains and losses on natural gas derivatives settled during the period. Excludes unrealized mark-to-market gains and losses on natural gas derivatives.

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