##### Table of Contents



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 June 30, 2009
 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 033-43007
 TERRA NITROGEN COMPANY, L.P.
  Delaware
    
    73-1389684(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 Terra CentrePO Box 6000600 Fourth StreetSioux City, Iowa
    
    51102-6000(Address of principal executive office)
    
    (Zip Code)
 Registrants telephone number, including area code: (712) 277-1340
 þ Yes o No
 þ Yes o No
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o Yes þ No




---



##### 



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
    
    
    20Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29Part II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    32Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 TERRA NITROGEN COMPANY, L.P.
 
 CONSOLIDATED BALANCE SHEETS
  unaudited
 June 30,
    
    
    December 31,
    
    
    June 30,2009
    
    
    2008
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    95,183
    
    
    $
    154,681
    
    
    $
    161,320Demand deposits with affiliate
    
    
    3,765
    
    
    
    
    
    
    
    2,639Accounts receivable, less allowance for
doubtful accounts of $760, $0 and $0
    
    
    26,550
    
    
    
    38,053
    
    
    
    50,700Inventories, net
    
    
    29,357
    
    
    
    57,207
    
    
    
    36,960Prepaid expenses and other current assets
    
    
    4,134
    
    
    
    11,815
    
    
    
    42,505Total current assets
    
    
    158,989
    
    
    
    261,756
    
    
    
    294,124Property, plant and equipment, net
    
    
    71,410
    
    
    
    68,208
    
    
    
    70,374Other assets
    
    
    7,907
    
    
    
    11,442
    
    
    
    15,471Total assets
    
    $
    238,306
    
    
    $
    341,406
    
    
    $
    379,969LIABILITIES AND PARTNERS CAPITALCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    16,054
    
    
    $
    24,844
    
    
    $
    47,216Customer prepayments
    
    
    12,890
    
    
    
    45,067
    
    
    
    41,471Derivative hedge liabilities
    
    
    2,350
    
    
    
    43,315
    
    
    
    5,503Total current liabilities
    
    
    31,294
    
    
    
    113,226
    
    
    
    94,190Other long-term liabilities
    
    
    632
    
    
    
    871
    
    
    
    1,220Total liabilities
    
    
    31,926
    
    
    
    114,097
    
    
    
    95,410Partners capital:Limited partners interests, 18,502 Common Units
authorized and outstanding
    
    
    189,544
    
    
    
    217,894
    
    
    
    208,002Limited partners interests, 184 Class B Common
Units authorized and outstanding
    
    
    532
    
    
    
    1,024
    
    
    
    969General partners interest
    
    
    17,402
    
    
    
    39,172
    
    
    
    43,353Accumulated other comprehensive income (loss)
    
    
    (1,098
    )
    
    
    (30,781
    )
    
    
    32,235Total partners capital
    
    
    206,380
    
    
    
    227,309
    
    
    
    284,559Total liabilities and partners capital
    
    $
    238,306
    
    
    $
    341,406
    
    
    $
    379,969
   3




---



##### Table of Contents



TERRA NITROGEN COMPANY, L.P.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  (unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Product revenues
    
    $
    142,634
    
    
    $
    256,792
    
    
    $
    307,710
    
    
    $
    431,045Other
    
    
    137
    
    
    
    (121
    )
    
    
    363
    
    
    
    158Total revenues
    
    
    142,771
    
    
    
    256,671
    
    
    
    308,073
    
    
    
    431,203Costs and expenses:Cost of goods sold
    
    
    77,982
    
    
    
    121,861
    
    
    
    194,998
    
    
    
    213,832Gross profit
    
    
    64,789
    
    
    
    134,810
    
    
    
    113,075
    
    
    
    217,371Operating expenses
    
    
    4,125
    
    
    
    6,113
    
    
    
    9,402
    
    
    
    9,637Income from operations
    
    
    60,664
    
    
    
    128,697
    
    
    
    103,673
    
    
    
    207,734Interest expense
    
    
    (81
    )
    
    
    (82
    )
    
    
    (162
    )
    
    
    (163
    )Interest income
    
    
    195
    
    
    
    1,540
    
    
    
    609
    
    
    
    4,180Net income
    
    $
    60,778
    
    
    $
    130,155
    
    
    $
    104,120
    
    
    $
    211,751Allocation of net income:General Partner
    
    $
    22,184
    
    
    $
    54,701
    
    
    $
    37,607
    
    
    $
    62,797Class B Common Units
    
    
    593
    
    
    
    1,269
    
    
    
    1,016
    
    
    
    2,065Common Units
    
    
    38,001
    
    
    
    74,185
    
    
    
    65,497
    
    
    
    146,889Net income
    
    $
    60,778
    
    
    $
    130,155
    
    
    $
    104,120
    
    
    $
    211,751Net income per Common Unit
    
    $
    2.05
    
    
    $
    4.01
    
    
    $
    3.54
    
    
    $
    7.94
   4




---



##### Table of Contents



TERRA NITROGEN COMPANY, L.P.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  (unaudited)
 Six Months EndedJune 30,2009
    
    
    2008Operating activities:Net income
    
    $
    104,120
    
    
    $
    211,751Adjustments to reconcile net income to net cash
flows from operating activities:Depreciation and amortization
    
    
    8,574
    
    
    
    11,530Non-cash (gain) loss on derivative instruments
    
    
    287
    
    
    
    (4,201
    )Changes in operating assets and liabilities:Receivables
    
    
    11,503
    
    
    
    (1,065
    )Inventories
    
    
    27,850
    
    
    
    (17,617
    )Accounts payable and customer prepayments
    
    
    (39,964
    )
    
    
    (104,448
    )Other assets and liabilities
    
    
    (4,993
    )
    
    
    (2,803
    )Net cash flows from operating activities
    
    
    107,377
    
    
    
    93,147Investing activities:Capital expenditures and plant turnaround expenditures
    
    
    (8,378
    )
    
    
    (4,103
    )Change in demand deposits with affiliate
    
    
    (3,765
    )
    
    
    (2,639
    )Net cash flows from investing activities
    
    
    (12,143
    )
    
    
    (6,742
    )Financing activities:Partnership distributions paid
    
    
    (154,732
    )
    
    
    (171,225
    )Net cash flows from financing activities
    
    
    (154,732
    )
    
    
    (171,225
    )Decrease to cash and cash equivalents
    
    
    (59,498
    )
    
    
    (84,820
    )Cash and cash equivalents at beginning of period
    
    
    154,681
    
    
    
    246,140Cash and cash equivalents at end of period
    
    $
    95,183
    
    
    $
    161,320Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    126
    
    
    $
    127
   5




---



##### Table of Contents



TERRA NITROGEN COMPANY, L.P.
 
 CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
  (unaudited)
 AccumulatedClass B
    
    
    General
    
    
    Other
    
    
    TotalCommon
    
    
    Common
    
    
    Partners
    
    
    Comprehensive
    
    
    Partners
    
    
    Comprehensive(in thousands, except for Units)
    
    Units
    
    
    Units
    
    
    Interests
    
    
    Income (Loss)
    
    
    Capital
    
    
    IncomePartners capital at January 1, 2009
    
    $
    217,894
    
    
    $
    1,024
    
    
    $
    39,172
    
    
    $
    (30,781
    )
    
    $
    227,309Net income
    
    
    65,497
    
    
    
    1,016
    
    
    
    37,607
    
    
    
    
    
    
    
    104,120
    
    
    $
    104,120Change in fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,683
    
    
    
    29,683
    
    
    
    29,683Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    133,803Distributions
    
    
    (93,847
    )
    
    
    (1,508
    )
    
    
    (59,377
    )
    
    
    
    
    
    
    (154,732
    )Partners capital at June 30, 2009
    
    $
    189,544
    
    
    $
    532
    
    
    $
    17,402
    
    
    $
    (1,098
    )
    
    $
    206,380Limited partner units issued and
outstanding June 30, 2009:Common Units
    
    
    
    
    
    
    
    
    
    
    18,501,576Class B Common Units
    
    
    
    
    
    
    
    
    
    
    184,072Total units outstanding at June 30, 2009
    
    
    
    
    
    
    
    
    
    
    18,685,648
 AccumulatedClass B
    
    
    General
    
    
    Other
    
    
    TotalCommon
    
    
    Common
    
    
    Partners
    
    
    Comprehensive
    
    
    Partners
    
    
    Comprehensive(in thousands, except for Units)
    
    Units
    
    
    Units
    
    
    Interests
    
    
    Income (Loss)
    
    
    Capital
    
    
    IncomePartners capital at January 1, 2008
    
    $
    221,153
    
    
    $
    573
    
    
    $
    (9,928
    )
    
    $
    (4,699
    )
    
    $
    207,099Net income
    
    
    146,889
    
    
    
    2,065
    
    
    
    62,797
    
    
    
    
    
    
    
    211,751
    
    
    $
    211,751Change in fair value of derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,934
    
    
    
    36,934
    
    
    
    36,934Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    248,685Distributions
    
    
    (160,040
    )
    
    
    (1,669
    )
    
    
    (9,516
    )
    
    
    
    
    
    
    (171,225
    )Partners capital at June 30, 2008
    
    $
    208,002
    
    
    $
    969
    
    
    $
    43,353
    
    
    $
    32,235
    
    
    $
    284,559Limited partner units issued and
outstanding June 30, 2008:Common Units
    
    
    
    
    
    
    
    
    
    
    18,501,576Class B Common Units
    
    
    
    
    
    
    
    
    
    
    184,072Total units outstanding at June 30, 2008
    
    
    
    
    
    
    
    
    
    
    18,685,648
   6




---



##### Table of Contents



TERRA NITROGEN COMPANY, L.P.
 
 Notes to Consolidated Financial Statements (Unaudited)
 1.
    
    Background and Basis of Presentation
 Disclosures about Segments of an Enterprise and Related Information
    2.
    
    New Accounting Pronouncements
 Business Combinations
  7




---



##### Table of Contents



Disclosures about Derivative Instruments and
Hedging Activities Accounting for Derivative
Instruments and Hedging Activities Derivative Financial Instrumen
  Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identify Transactions That Are Not Orderly Fair Value Measurements
 Recognition and
Presentation of Other-Than-Temporary Impairments .
 Interim Disclosures
about Fair Value of Financial Instruments Fair Value
Measurements
  8




---



##### Table of Contents



Subsequent Events
 Accounting for Transfers of Financial Assets Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities
 Amendments to FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities
 The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles The Hierarchy of Generally Accepted Accounting Principles
  9




---



##### Table of Contents



3.
    
    Agreement of Limited Partnership
    Income and Distribution AllocationClass BTarget
    
    
    Target
    
    
    Common
    
    
    Common
    
    
    GeneralLimit
    
    
    Increment
    
    
    Units
    
    
    Units
    
    
    Partner
    
    
    TotalMinimum Quarterly Distribution
    
    $
    0.605
    
    
    $
    0.605
    
    
    
    98.990
    %
    
    
    0.985
    %
    
    
    0.025
    %
    
    
    100.000
    %First Target
    
    
    0.715
    
    
    
    0.110
    
    
    
    98.990
    %
    
    
    0.985
    %
    
    
    0.025
    %
    
    
    100.000
    %Second Target
    
    
    0.825
    
    
    
    0.110
    
    
    
    85.859
    %
    
    
    0.985
    %
    
    
    13.156
    %
    
    
    100.000
    %Third Target
    
    
    1.045
    
    
    
    0.220
    
    
    
    75.758
    %
    
    
    0.985
    %
    
    
    23.257
    %
    
    
    100.000
    %Final Target and Beyond
    
    
    1.045
    
    
    
    
    
    
    
    50.505
    %
    
    
    0.985
    %
    
    
    48.510
    %
    
    
    100.000
    %
    10




---



##### Table of Contents



4.
    
    Net Income per Common Unit
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(in thousands, except per-unit amounts)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Basic income per Common Unit:Net income
    
    $
    60,778
    
    
    $
    130,155
    
    
    $
    104,120
    
    
    $
    211,751Less: Net income allocable to
Class B Common Units
    
    
    (593
    )
    
    
    (1,269
    )
    
    
    (1,016
    )
    
    
    (2,065
    )Less: Net income allocable to
General Partner
    
    
    (22,184
    )
    
    
    (54,701
    )
    
    
    (37,607
    )
    
    
    (62,797
    )Net income allocable to Common Units
    
    
    38,001
    
    
    
    74,185
    
    
    
    65,497
    
    
    
    146,889Weighted average units outstanding
    
    
    18,502
    
    
    
    18,502
    
    
    
    18,502
    
    
    
    18,502Net income per Common Unit
    
    $
    2.05
    
    
    $
    4.01
    
    
    $
    3.54
    
    
    $
    7.94
  5.
    
    Inventories, netInventories consisted of the following:
 June 30,
    
    
    December 31,
    
    
    June 30,(in thousands)
    
    2009
    
    
    2008
    
    
    2008Materials and supplies
    
    $
    9,464
    
    
    $
    10,708
    
    
    $
    9,038Finished goods
    
    
    19,893
    
    
    
    46,499
    
    
    
    27,922Total
    
    $
    29,357
    
    
    $
    57,207
    
    
    $
    36,960
   11




---



##### Table of Contents



6.
    
    Derivative Financial Instruments
 Disclosures about Derivative Instruments and
Hedging Activities Accounting for Derivative
Instruments and Hedging Activities
     12




---



##### Table of Contents



1.
    
    The item to be hedged must expose us to currency, interest or price risk;2.
    
    It must be probable that the results of the hedge position substantially offset
the effects of currency, interest or price changes on the hedged item (i.e., there is a
high correlation between the hedge position and changes in market value of the hedge
item); and3.
    
    The derivative financial instrument must be designated as a hedge of the item
at the inception of the hedge.
    13




---



##### Table of Contents



Asset Derivatives (a)June 30,
    
    
    December 31,
    
    
    June 30,Derivative Instrument
    
    Location
    
    
    2009
    
    
    2008
    
    
    2008Commodity Derivatives
    
    Other current assets
    
    $
    3,255
    
    
    $
    9,456
    
    
    $
    42,425
 Liability Derivatives (a)June 30,
    
    
    December 31,
    
    
    June 30,Derivative Instrument
    
    Location
    
    
    2009
    
    
    2008
    
    
    2008Commodity Derivatives
    
    Derivative hedge liabilities
    
    $
    (2,350
    )
    
    $
    (43,315
    )
    
    $
    (5,503
    )
 (a)
    
    Amounts are disclosed at gross fair value in accordance with SFAS 161
requirements. All of our commodity derivatives are designated as cash flow hedging
instruments under SFAS 133. See footnote 1 and 6 of our 2008 Annual Report Form 10-K for
additional information on our overall risk management strategies.     14




---



##### Table of Contents



Three Months EndedAmount of Gain (Loss)Amount of Gain (Loss)


    
    
    Location of Gain
    
    
    Reclassified from AOCI
    
    
    
    
    
    
    Amount of Gain (Loss)Recognized in OCI
    
    
    (Loss) Reclassified
    
    
    into Income
    
    
    
    
    
    

Recognized in Income (b)June 30,


    
    June 30,
    
    
    from AOCI into
    
    
    June 30,
    
    
    June 30,
    
    
    Location of Gain (Loss)
    
    
    June 30,
    
    
    June 30,2009


    
    2008
    
    
    Income (a)
    
    
    2009
    
    
    2008
    
    
    Recognized in Income (b)
    
    
    2009
    
    
    2008$
    (1,335
     )
    
    $
    37,528
    
    
    Cost of Sales
    
    $
    (10,596
    )
    
    $
    19,744
    
    
    Cost of Sales
    
    $
    (287
    )
    
    $
    4,098
 Six Months EndedAmount of Gain (Loss)Amount of Gain (Loss)
    
    
    Location of Gain
    
    
    Reclassified from AOCI
    
    
    
    
    
    
    Amount of Gain (Loss)Recognized in OCI
    
    
    (Loss) Reclassified
    
    
    into Income
    
    
    
    
    
    

Recognized in Income (b)June 30,


    
    June 30,
    
    
    from AOCI into
    
    
    June 30,
    
    
    June 30,
    
    
    Location of Gain (Loss)
    
    
    June 30,
    
    
    June 30,2009


    
    2008
    
    
    Income (a)
    
    
    2009
    
    
    2008
    
    
    Recognized in Income (b)
    
    
    2009
    
    
    2008$
    (14,622
    )
    
    $
    59,181
    
    
    Cost of Sales
    
    $
    (44,305
    )
    
    $
    22,247
    
    
    Cost of Sales
    
    $
    (287
    )
    
    $
    4,098
 (a)
    
    Effective portion of gain
(loss).(b)
    
    The amount of gain or (loss) recognized in income represents ($1.1) million and
$4.4 million related to the ineffective portion of the hedging relationships and $0.8
million and ($0.3) million related to the amount excluded from the assessment of hedge
effectiveness.   7.
    
    Fair Value Measurements
   15




---



##### Table of Contents




    
    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.
   Quoted Market
    
    
    Significant Other
    
    
    SignificantPrices in Active
    
    
    Observable
    
    
    UnobservableMarkets
    
    
    Inputs
    
    
    Inputs(in thousands)
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsDerivative contracts
    
    $
    
    
    
    $
    3,255
    
    
    $
    Total
    
    $
    
    
    
    $
    3,255
    
    
    $
    LiabilitiesDerivative contracts
    
    $
    
    
    
    $
    (2,350
    )
    
    $
    Total
    
    $
    
    
    
    $
    (2,350
    )
    
    $
    
  16




---



##### Table of Contents



Quoted Market
    
    
    Significant Other
    
    
    SignificantPrices in Active
    
    
    Observable
    
    
    UnobservableMarkets
    
    
    Inputs
    
    
    Inputs(in thousands)
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsDerivative contracts
    
    $
    
    
    
    $
    9,456
    
    
    $
    Total
    
    $
    
    
    
    $
    9,456
    
    
    $
    LiabilitiesDerivative contracts
    
    $
    
    
    
    $
    (43,315
    )
    
    $
    Total
    
    $
    
    
    
    $
    (43,315
    )
    
    $
    
  Quoted Market
    
    
    Significant Other
    
    
    SignificantPrices in Active
    
    
    Observable
    
    
    UnobservableMarkets
    
    
    Inputs
    
    
    Inputs(in thousands)
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsDerivative contracts
    
    $
    
    
    
    $
    42,425
    
    
    $
    Total
    
    $
    
    
    
    $
    42,425
    
    
    $
    LiabilitiesDerivative contracts
    
    $
    
    
    
    $
    (5,503
    )
    
    $
    Total
    
    $
    
    
    
    $
    (5,503
    )
    
    $
    
 Fair values of 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 June 30, 2009 and 2008. The
unrealized loss on these contracts is disclosed on Note 6, Derivative Financial
Instruments,of the Notes to the Consolidated Financial Statements.
 Concentration of credit risk:
  17




---



##### Table of Contents



8.
    
    Turnaround Costs
  TurnaroundBeginning
    
    
    Costs
    
    
    Turnaround
    
    
    Ending(in thousands)
    
    Balance
    
    
    Capitalized
    
    
    Amortization
    
    
    BalancePeriods ended:June 30, 2009
    
    $
    5,255
    
    
    $
    389
    
    
    $
    (3,751
    )
    
    $
    1,893June 30, 2008
    
    $
    16,841
    
    
    $
    116
    
    
    $
    (6,693
    )
    
    $
    10,264
 9.
    
    Revolving Credit Facility
  10.
    
    Unsolicited Exchange Offer
    18




---



##### Table of Contents



19




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
   Dependence on Terra Industries
  Introduction
  
    
    Business Strategy;
    
    Recent Business Environment;
    
    Results of Operations;
    
    Liquidity and Capital Resources; and
    
    Various Quantitative and Qualitative Disclosures.
 Business Strategy
   20




---



##### Table of Contents




    
    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.
  Recent Business Environment
  Demand
    21




---



##### Table of Contents



Supply
  Natural Gas Costs
   June 30,
    
    
    September 30,
    
    
    December 31,
    
    
    March 31,
    
    
    June 30,(in $ per MMBtu)
    
    2008
    
    
    2008
    
    
    2008
    
    
    2009
    
    
    2009$
    13.22
    
    
    $
    7.90
    
    
    $
    6.09
    
    
    $
    4.69
    
    
    $
    5.09
  RESULTS OF OPERATIONS
 Consolidated Results
   22




---



##### Table of Contents



Three Months Ended
    
    
    Quarter to Date
    
    
    Six Months Ended
    
    
    Year to DateJune 30,
    
    
    2009-2008
    
    
    June 30,
    
    
    2009-2008(in millions except per unit data)
    
    2009
    
    
    2008
    
    
    Change
    
    
    Percent
    
    
    2009
    
    
    2008
    
    
    Change
    
    
    PercentNet sales
    
    $
    142.8
    
    
    $
    256.7
    
    
    $
    (113.9
    )
    
    
    -44
    %
    
    $
    308.1
    
    
    $
    431.2
    
    
    $
    (123.1
    )
    
    
    -29
    %Cost of goods sold
    
    
    78.0
    
    
    
    121.9
    
    
    
    (43.9
    )
    
    
    -36
    %
    
    
    195.0
    
    
    
    213.8
    
    
    
    (18.8
    )
    
    
    -9
    %Gross margin
    
    
    64.8
    
    
    
    134.8
    
    
    
    (70.0
    )
    
    
    -52
    %
    
    
    113.1
    
    
    
    217.4
    
    
    
    (104.3
    )
    
    
    -48
    %Gross margin percentage
    
    
    45.4
    %
    
    
    52.5
    %
    
    
    -7.1
    %
    
    
    -14
    %
    
    
    36.7
    %
    
    
    50.4
    %
    
    
    -13.7
    %
    
    
    -27
    %Selling, general and
administrative expenses
    
    
    4.1
    
    
    
    6.1
    
    
    
    (2.0
    )
    
    
    -33
    %
    
    
    9.4
    
    
    
    9.6
    
    
    
    (0.2
    )
    
    
    -2
    %Operating earnings
    
    
    60.7
    
    
    
    128.7
    
    
    
    (68.0
    )
    
    
    -53
    %
    
    
    103.7
    
    
    
    207.8
    
    
    
    (104.1
    )
    
    
    -50
    %Interest income, net
    
    
    0.1
    
    
    
    1.5
    
    
    
    (1.4
    )
    
    
    -93
    %
    
    
    0.4
    
    
    
    4.0
    
    
    
    (3.6
    )
    
    
    -90
    %Net income
    
    $
    60.8
    
    
    $
    130.2
    
    
    $
    (69.4
    )
    
    
    -53
    %
    
    $
    104.1
    
    
    $
    211.8
    
    
    $
    (107.7
    )
    
    
    -51
    %Net income allocable to
Common Units
    
    $
    38.0
    
    
    $
    74.2
    
    
    $
    (36.2
    )
    
    
    -49
    %
    
    $
    65.5
    
    
    $
    146.9
    
    
    $
    (81.4
    )
    
    
    -55
    %Net income per Common Unit
    
    $
    2.05
    
    
    $
    4.01
    
    
    
    (1.96
    )
    
    
    -49
    %
    
    $
    3.54
    
    
    $
    7.94
    
    
    $
    (4.40
    )
    
    
    -55
    %
 Sales Volumes and Prices
  2009
    
    
    2008Volumes
    
    
    Unit Price
    
    
    Volumes
    
    
    Unit Price(000 tons)
    
    

($/ton) 2
    
    
    (000 tons)
    
    

($/ton) 2Ammonia
    
    
    82
    
    
    $
    444
    
    
    
    116
    
    
    $
    555UAN 1
    
    
    412
    
    
    $
    226
    
    
    
    521
    
    
    $
    336Natural gas cost 3
    
    
    
    
    
    $
    4.26
    
    
    
    
    
    
    $
    7.59
 1.
    
    The nitrogen content of UAN is 32% by weight.2.
    
    After deducting $13.0 million and $16.9 million outbound freight costs for the second
quarter of 2009 and 2008, respectively.3.
    
    Excluding the impact of
hedge costs, natural gas cost was $3.05 per MMBtu for the 2009 second
quarter.  2009
    
    
    2008Volumes
    
    
    Unit Price
    
    
    Volumes
    
    
    Unit Price(000 tons)
    
    

($/ton) 2
    
    
    (000 tons)
    
    

($/ton) 2Ammonia
    
    
    187
    
    
    $
    440
    
    
    
    154
    
    
    $
    546UAN 1
    
    
    778
    
    
    $
    255
    
    
    
    1,023
    
    
    $
    309Natural gas cost 3
    
    
    
    
    
    $
    5.68
    
    
    
    
    
    
    $
    7.37
 1.
    
    The nitrogen content of UAN is 32% by weight.2.
    
    After deducting $25.4 million and $29.8 million outbound freight costs for the first half of
2009 and 2008, respectively.3.
    
    Excluding the impact of
hedge costs, natural gas cost was $3.31 per MMBtu for the 2009 first
half.  23




---



##### Table of Contents



RESULTS OF OPERATIONS  QUARTER ENDED JUNE 30, 2009 COMPARED WITH
QUARTER ENDED JUNE 30, 2008
    Selling, General and Administrative Costs
  Interest Income
   24




---



##### Table of Contents



RESULTS OF OPERATIONS  SIX MONTHS ENDED JUNE 30, 2009 COMPARED WITH
SIX MONTHS ENDED JUNE 30, 2008
    Selling, General and Administrative Costs
  Interest Income
  CAPITAL RESOURCES AND LIQUIDITY
    25




---



##### Table of Contents



Cash Flows
  Total cash provided by (used in)
    
    2009
    
    
    2008Operating activities
    
    $
    107.4
    
    
    $
    93.1Investing activities
    
    
    (12.2
    )
    
    
    (6.7
    )Financing activities
    
    
    (154.7
    )
    
    
    (171.2
    )Increase (decrease) in cash and
cash equivalents
    
    $
    (59.5
    )
    
    $
    (84.8
    )
 Operating Activities
  Investing Activities
  Financing Activities
 Agreement of Limited Partnership
 Revolving Credit Facility
 Revolving Bank Credit Facility Financial Statements and Supplementary Data
  26




---



##### Table of Contents



Unsolicited Exchange Offer by CF Industries Holdings, Inc.
  Debt
  Partnership Distributions
   27




---



##### Table of Contents



Income and Distribution AllocationClass BTarget
    
    
    Target
    
    
    Common
    
    
    Common
    
    
    GeneralLimit
    
    
    Increment
    
    
    Units
    
    
    Units
    
    
    Partner
    
    
    TotalMinimum Quarterly Distribution
    
    $
    0.605
    
    
    $
    0.605
    
    
    
    98.990
    %
    
    
    0.985
    %
    
    
    0.025
    %
    
    
    100.000
    %First Target
    
    
    0.715
    
    
    
    0.110
    
    
    
    98.990
    %
    
    
    0.985
    %
    
    
    0.025
    %
    
    
    100.000
    %Second Target
    
    
    0.825
    
    
    
    0.110
    
    
    
    85.859
    %
    
    
    0.985
    %
    
    
    13.156
    %
    
    
    100.000
    %Third Target
    
    
    1.045
    
    
    
    0.220
    
    
    
    75.758
    %
    
    
    0.985
    %
    
    
    23.257
    %
    
    
    100.000
    %Final Target and Beyond
    
    
    1.045
    
    
    
    
    
    
    
    50.505
    %
    
    
    0.985
    %
    
    
    48.510
    %
    
    
    100.000
    %
  General Partner Option to Effect Mandatory Redemption of Partnership Units
    28




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
 ITEM 4. CONTROLS AND PROCEDURES
    29




---



##### Table of Contents



FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
   
    
    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 entitled Risk Factors in our 2008 Annual Report on
Form 10-K.
 Business Managements Discussion and Analysis of Financial Condition and
Results of Operations Notes to our Consolidated Financial Statements
  30




---



##### Table of Contents



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
   31




---



##### Table of Contents



ITEM 6. EXHIBITS
 (a) Exhibits:
 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 Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32.1
    
    Certification of the Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002Exhibit 32.2
    
    Certification of the Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
  32




---



##### Table of Contents



SIGNATURE
  TERRA NITROGEN COMPANY, L.P.By:
    
    TERRA NITROGEN GP INC.as General PartnerBy:
    
    /s/ DANIEL D. GREENWELL

Daniel D. GreenwellVice President andChief Financial Officer(Principal Financial Officer andPrincipal Accounting Officer)
   33




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    DescriptionExhibits 31.1
    
    Certification of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002Exhibits 31.2
    
    Certification of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32.1
    
    Certification of the Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002Exhibit 32.2
    
    Certification of the Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
  34