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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarter ended September 30, 2007
 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 number 1-10877
 TERRA NITROGEN COMPANY, L.P.
  Delaware
    
    73-1389684(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 Terra Centre 
PO Box 6000, 600 Fourth Street 
Sioux City, Iowa
(Address of principal executive office)
    
    51102-6000
(Zip Code)
 Registrants telephone number:
(712) 277-1340
 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.  þ Yes o No
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
 o Large accelerated filer        þ Accelerated filer o Non-accelerated filer
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).  o Yes þ No
 At the close of business on October 23, 2007 there were 18,501,576 Common Units and 184,072 Class B
Common Units outstanding.




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TABLE OF CONTENTS
 Part I  FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Operations
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Consolidated Statements of Partners Capital
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Management Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    20Part II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    21Item 1A.
    
    Risk Factors
    
    
    21Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3.
    
    Defaults upon Senior Securities
    
    
    21Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21Item 5.
    
    Other Information
    
    
    21Item 6.
    
    Exhibits
    
    
    22Exhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32
   2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 TERRA NITROGEN COMPANY, L.P.
 
 CONSOLIDATED BALANCE SHEETS
  unaudited
 September 30,
    
    
    December 31,
    
    
    September 30,2007
    
    
    2006
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    93,549
    
    
    $
    62,287
    
    
    $
    49,644Demand deposits with affiliate
    
    
    3⁄4
    
    
    
    2,457
    
    
    
    3⁄4Accounts receivable
    
    
    40,174
    
    
    
    37,676
    
    
    
    24,861Inventory
    
    
    30,487
    
    
    
    22,709
    
    
    
    25,841Prepaid expenses and other current assets
    
    
    3,747
    
    
    
    3,334
    
    
    
    2,688Total current assets
    
    
    167,957
    
    
    
    128,463
    
    
    
    103,034Property, plant and equipment, net
    
    
    72,413
    
    
    
    74,096
    
    
    
    75,748Other assets
    
    
    24,975
    
    
    
    15,655
    
    
    
    16,241Total assets
    
    $
    265,345
    
    
    $
    218,214
    
    
    $
    195,023LIABILITIES AND PARTNERS CAPITALCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    52,012
    
    
    $
    38,342
    
    
    $
    34,366Customer prepayments
    
    
    39,762
    
    
    
    35,326
    
    
    
    14,758Total current liabilities
    
    
    91,774
    
    
    
    73,668
    
    
    
    49,124Other long-term liabilities
    
    
    1,979
    
    
    
    474
    
    
    
    308Total liabilities
    
    
    93,753
    
    
    
    74,142
    
    
    
    49,432Partners capital:Limited partners interests, 18,502 Common Units
and 184 Class B Common Units authorized and
outstanding
    
    
    193,869
    
    
    
    160,795
    
    
    
    162,120General partners interest, 5 Master Limited
Partner Units authorized and outstanding
    
    
    (10,209
    )
    
    
    (10,544
    )
    
    
    (10,532
    )Accumulated other comprehensive loss
    
    
    (12,068
    )
    
    
    (6,179
    )
    
    
    (5,997
    )Total partners capital
    
    
    171,592
    
    
    
    144,072
    
    
    
    145,591Total liabilities and partners capital
    
    $
    265,345
    
    
    $
    218,214
    
    
    $
    195,023
   3




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TERRA NITROGEN COMPANY, L.P.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  (unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    133,009
    
    
    $
    91,839
    
    
    $
    438,019
    
    
    $
    306,426Other
    
    
    142
    
    
    
    175
    
    
    
    729
    
    
    
    196Total revenues
    
    
    133,151
    
    
    
    92,014
    
    
    
    438,748
    
    
    
    306,622Cost of goods sold
    
    
    86,490
    
    
    
    76,592
    
    
    
    291,371
    
    
    
    272,806Gross profit
    
    
    46,661
    
    
    
    15,422
    
    
    
    147,377
    
    
    
    33,816Operating expenses
    
    
    2,452
    
    
    
    2,226
    
    
    
    13,100
    
    
    
    6,291Operating income
    
    
    44,209
    
    
    
    13,196
    
    
    
    134,277
    
    
    
    27,525Interest expense
    
    
    (115
    )
    
    
    (110
    )
    
    
    (341
    )
    
    
    (329
    )Interest income
    
    
    1,517
    
    
    
    635
    
    
    
    4,062
    
    
    
    1,453Net income
    
    $
    45,611
    
    
    $
    13,721
    
    
    $
    137,998
    
    
    $
    28,649Net income allocable to
limited partners interest
    
    $
    45,155
    
    
    $
    13,584
    
    
    $
    136,618
    
    
    $
    28,363Net income per limited
partnership unit
    
    $
    2.42
    
    
    $
    0.73
    
    
    $
    7.31
    
    
    $
    1.52
   4




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TERRA NITROGEN COMPANY, L.P.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  (unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006Operating activities:Net income
    
    $
    137,998
    
    
    
    28,649Adjustments to reconcile net income to net cash
flows from operating activities:Depreciation and amortization
    
    
    11,976
    
    
    
    10,156Gain on disposal of property, plant and equipment
    
    
    3⁄4
    
    
    
    (1,311
    )Non-cash loss on derivative instruments
    
    
    362
    
    
    
    1,072Changes in operating assets and liabilities:Receivables
    
    
    (2,498
    )
    
    
    7,902Inventories
    
    
    (7,778
    )
    
    
    891Accounts payable, accrued liabilities and
customer prepayments
    
    
    12,116
    
    
    
    (5,104
    )Other assets and liabilities
    
    
    (259
    )
    
    
    5,638Net cash flows from operating activities
    
    
    151,917
    
    
    
    47,893Investing activities:Capital expenditures
    
    
    (5,379
    )
    
    
    (7,597
    )Plant turnaround expenditures
    
    
    (13,144
    )
    
    
    (9,390
    )Proceeds from the sale of property, plant and equipment
    
    
    3⁄4
    
    
    
    2,123Change in demand deposits with affiliate
    
    
    2,457
    
    
    
    26,505Net cash flows from investing activities
    
    
    (16,066
    )
    
    
    11,641Financing activities:Partnership distributions paid
    
    
    (104,589
    )
    
    
    (17,369
    )Repayment of long-term debt
and capital lease obligations
    
    
    3⁄4
    
    
    
    (12
    )Net cash flows used in financing activities
    
    
    (104,589
    )
    
    
    (17,381
    )Net increase in cash and cash equivalents
    
    
    31,262
    
    
    
    42,153Cash and cash equivalents at beginning of year
    
    
    62,287
    
    
    
    7,491Cash and cash equivalents at end of period
    
    $
    93,549
    
    
    $
    49,644Supplemental disclosure of cash flow information:Cash paid during the year for interest
    
    $
    64
    
    
    $
    190
   5




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TERRA NITROGEN COMPANY, L.P.
 
 CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
  (unaudited)
 AccumulatedLimited
    
    
    General
    
    
    Other
    
    
    TotalPartners
    
    
    Partners
    
    
    Comprehensive
    
    
    Partners
    
    
    Comprehensive(in thousands, except for Units)
    
    Interests
    
    
    Interests
    
    
    Income (Loss)
    
    
    Capital
    
    
    IncomePartners capital at January 1, 2007
    
    $
    160,795
    
    
    $
    (10,544
    )
    
    $
    (6,179
    )
    
    $
    144,072Net income
    
    
    136,618
    
    
    
    1,380
    
    
    
    3⁄4
    
    
    
    137,998
    
    
    $
    137,998Change in fair value of derivatives
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (5,889
    )
    
    
    (5,889
    )
    
    
    (5,889
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    132,109Distributions
    
    
    (103,544
    )
    
    
    (1,045
    )
    
    
    3⁄4
    
    
    
    (104,589
    )Partners capital at
September 30 ,2007
    
    $
    193,869
    
    
    $
    (10,209
    )
    
    $
    (12,068
    )
    
    $
    171,592Limited partner units issued and
outstanding at September 30, 2007:Common Units
    
    
    
    
    
    
    
    
    
    
    18,501,576Class B Common Units
    
    
    
    
    
    
    
    
    
    
    184,072Total units outstanding
at September 30, 2007
    
    
    
    
    
    
    
    
    
    
    18,685,648AccumulatedLimited
    
    General
    
    Other
    
    TotalPartners
    
    Partners
    
    Comprehensive
    
    Partners
    
    Comprehensive(in thousands, except for Units)
    
    Interests
    
    Interest
    
    Income (Loss)
    
    Capital
    
    IncomePartners capital at January 1, 2006
    
    $
    150,952
    
    
    $
    (10,644
    )
    
    $
    (5,949
    )
    
    $
    134,359Net income
    
    
    28,363
    
    
    
    286
    
    
    
    3⁄4
    
    
    
    28,649
    
    
    $
    28,649Change in fair value of derivatives
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (48
    )
    
    
    (48
    )
    
    
    (48
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    28,601Distributions
    
    
    (17,195
    )
    
    
    (174
    )
    
    
    3⁄4
    
    
    
    (17,369
    )Partners capital at
September 30, 2006
    
    $
    162,120
    
    
    $
    (10,532
    )
    
    $
    (5,997
    )
    
    $
    145,591Limited partner units issued and
outstanding September 30, 2006:Common Units
    
    
    
    
    
    
    
    
    
    
    18,501,576Class B Common Units
    
    
    
    
    
    
    
    
    
    
    184,072Total units outstanding
at September 30, 2006
    
    
    
    
    
    
    
    
    
    
    18,685,648
   6




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TERRA NITROGEN COMPANY, L.P.
 
 Notes to Consolidated Financial Statements (Unaudited)
  Basis of Presentation
   Derivatives and Financial Instruments
 Accounting for Derivative Instruments and Hedging Activities,
  Revenue Recognition
   7




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Cost of Sales
  Inventories
    Impairment of Long-Lived Assets
  Natural Gas Futures, Swaps, Options and Basis Swaps
   8




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Cash and Cash Equivalents
  Demand Deposits with Affiliate
  Use of Estimates in Preparation of the Financial Statements
      Incremental Distribution
    
    Percentage of Incremental Distributionper Common Unit
    
    to General PartnerLess than $0.715
    
    1%$0.715-$0.825
    
    15%$0.825-$1.045
    
    25%Greater than $1.045
    
    50%
  9




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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in
thousands, except per-unit amounts)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Basic income (loss) per limited Partnership
unit computation:Net income allocable to limited
Partners interest
    
    $
    45,155
    
    
    $
    13,584
    
    
    $
    136,618
    
    
    $
    28,363Weighted average units outstanding
    
    
    18,686
    
    
    
    18,686
    
    
    
    18,686
    
    
    
    18,686Net income per limited Partnership unit
    
    $
    2.42
    
    
    $
    0.73
    
    
    $
    7.31
    
    
    $
    1.52
   10




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September 30,
    
    
    December 31,
    
    
    September 30,(in thousands)
    
    2007
    
    
    2006
    
    
    2006Materials and supplies
    
    $
    7,737
    
    
    $
    7,925
    
    
    $
    9,625Finished goods
    
    
    22,750
    
    
    
    14,784
    
    
    
    16,216Total
    
    $
    30,487
    
    
    $
    22,709
    
    
    $
    25,841
      1.
    
    The item to be hedged must expose the Partnership to currency or price risk.2.
    
    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).3.
    
    The derivative financial instrument must be designated as a hedge of the item
at the inception of the hedge.
   11




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Other
    
    
    AccruedCurrent
    
    
    Current
    
    
    Net(in thousands)
    
    Assets
    
    
    Liabilities
    
    
    Asset (Liability)September 30, 2007
    
    $
    2,867
    
    
    $
    (14,041
    )
    
    $
    (11,174
    )December 31, 2006
    
    
    1,529
    
    
    
    (8,052
    )
    
    
    (6,523
    )September 30, 2006
    
    
    1,868
    
    
    
    (8,938
    )
    
    
    (7,070
    )
     12




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(in thousands)
    
    2007
    
    
    2006Beginning accumulated (loss)
    
    $
    (6,179
    )
    
    $
    (5,949
    )Reclassification into earnings
    
    
    13,160
    
    
    
    22,235Net change associated with current period hedging transactions
    
    
    (19,049
    )
    
    
    (22,283
    )Ending accumulated loss
    
    $
    (12,068
    )
    
    $
    (5,997
    )
      , Fair Value Measurements,
  13




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The Fair Value Option for Financial Assets and Financial
Liabilities
  14




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Introduction
    Dependence on Terra Industries
   15




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Three months ended September 30, 2007 compared with
three months ended September 30, 2006
  2007
    
    
    2006Volumes
    
    
    Unit Price
    
    
    Volumes
    
    
    Unit Price(000 tons)
    
    
    ($/ton)*
    
    
    (000 tons)
    
    
    ($/ton)*Ammonia
    
    
    57
    
    
    $
    367
    
    
    
    49
    
    
    $
    301UAN
    
    
    493
    
    
    $
    204
    
    
    
    522
    
    
    $
    125
 
 *After deducting outbound freight costs   Nine months ended September 30, 2007 compared with
nine months ended September 30, 2006
  2007
    
    
    2006Volumes
    
    
    Unit Price
    
    
    Volumes
    
    
    Unit Price(000 tons)
    
    
    ($/ton)*
    
    
    (000 tons)
    
    
    ($/ton)*Ammonia
    
    
    221
    
    
    $
    370
    
    
    
    168
    
    
    $
    367UAN
    
    
    1,698
    
    
    $
    188
    
    
    
    1,521
    
    
    $
    139
 
 *After deducting outbound freight costs    16




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Capital resources and liquidity
        17




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Incremental Distribution
    
    Percentage of Incremental Distributionper Common Unit
    
    to General PartnerLess than $0.715
    
    1%$0.715-$0.825
    
    15%$0.825-$1.045
    
    25%Greater than $1.045
    
    50%
      18




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
    19




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ITEM 4. CONTROLS AND PROCEDURES
   FORWARD LOOKING PRECAUTIONS
   20




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
    21




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ITEM 6. EXHIBITS
 (a) Exhibits:
 Exhibits
10.1
    
    Amended and Restated General and Administrative
Services Agreement Regarding
Services by Terra Industries Inc. among Terra Industries Inc., Terra
Nitrogen Corporation and Terra Nitrogen GP Inc. dated
October 23, 2007.Exhibits 31.1
    
    Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Exhibits 31.2
    
    Certification of the Vice President and Chief Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002Exhibit 32
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 SIGNATURE
  TERRA NITROGEN COMPANY, L.P.By: TERRA NITROGEN GP INC.
        as General PartnerBy:
    /s/ DANIEL D. GREENWELLDaniel D. GreenwellVice President and
Chief Accounting Officer
(Principal Financial Officer)   22