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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 March 31, 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
    
    (I.R.S. Employer Identification No.)incorporation or organization)Terra CentrePO Box 6000, 600 Fourth StreetSioux City, Iowa
    
    51102-6000(Address of principal executive office)
    
    (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 April 26, 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 Statements
    
    
    3
    

Consolidated 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
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4.
    
    Controls and Procedures
    
    
    17Part II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    17Item 1A.
    
    Risk Factors
    
    
    18Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3.
    
    Defaults Upon Senior Securities
    
    
    18Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    18Item 5.

    
    Other Information
    
    
    18Item 6.
    
    Exhibits
    
    
    19Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to Section 906




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 TERRA NITROGEN COMPANY, L.P.
 
 CONSOLIDATED BALANCE SHEETS
 unaudited
 March 31,
    
    December 31,
    
    March 31,2007
    
    2006
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    99,820
    
    
    $
    62,287
    
    
    $
    47,854Demand deposits with affiliate
    
    
    3⁄4
    
    
    
    2,457
    
    
    
    3⁄4Accounts receivable
    
    
    36,009
    
    
    
    37,676
    
    
    
    14,249Inventory
    
    
    33,665
    
    
    
    22,709
    
    
    
    45,852Prepaid expenses and other current assets
    
    
    5,275
    
    
    
    3,334
    
    
    
    3,930Total current assets
    
    
    174,769
    
    
    
    128,463
    
    
    
    111,885Property, plant and equipment, net
    
    
    73,234
    
    
    
    74,096
    
    
    
    74,849Other assets
    
    
    14,408
    
    
    
    15,655
    
    
    
    9,048Total assets
    
    $
    262,411
    
    
    $
    218,214
    
    
    $
    195,782LIABILITIES AND PARTNERS CAPITALCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    38,048
    
    
    $
    38,342
    
    
    $
    24,785Customer prepayments
    
    
    56,586
    
    
    
    35,326
    
    
    
    32,986Total current liabilities
    
    
    94,634
    
    
    
    73,668
    
    
    
    57,771Other long-term liabilities
    
    
    495
    
    
    
    474
    
    
    
    140Total liabilities
    
    
    95,129
    
    
    
    74,142
    
    
    
    57,911Partners capital:Limited partners interests, 18,502 Common Units
and 184 Class B Common Units authorized and
outstanding
    
    
    177,643
    
    
    
    160,795
    
    
    
    148,539General partners interest, 5 Master Limited
Partner Units authorized and outstanding
    
    
    (10,374
    )
    
    
    (10,544
    )
    
    
    (10,668
    )Accumulated
other comprehensive gain (loss)
    
    
    13
    
    
    
    (6,179
    )
    
    
    3⁄4Total partners capital
    
    
    167,282
    
    
    
    144,072
    
    
    
    137,871Total liabilities and partners capital
    
    $
    262,411
    
    
    $
    218,214
    
    
    $
    195,782
  3




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TERRA NITROGEN COMPANY, L.P.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
 Three Months EndedMarch 31,2007
    
    2006Revenues
    
    $
    127,852
    
    
    $
    95,478Other
    
    
    305
    
    
    
    (21
    )Total revenues
    
    
    128,157
    
    
    
    95,457Cost of goods sold
    
    
    90,770
    
    
    
    96,110Gross profit (loss)
    
    
    37,387
    
    
    
    (653
    )Operating expenses
    
    
    3,178
    
    
    
    2,038Operating income (loss)
    
    
    34,209
    
    
    
    (2,691
    )Interest expense
    
    
    (112
    )
    
    
    (109
    )Interest income
    
    
    1,233
    
    
    
    363Net income (loss)
    
    $
    35,330
    
    
    $
    (2,437
    )Net income (loss) allocable to
limited partners interest
    
    $
    34,977
    
    
    $
    (2,413
    )Net income (loss) per limited
partnership unit
    
    $
    1.87
    
    
    $
    (0.13
    )
  4




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TERRA NITROGEN COMPANY, L.P.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 Three Months EndedMarch 31,2007
    
    2006Operating activities:Net income (loss)
    
    $
    35,330
    
    
    $
    (2,437
    )Adjustments to reconcile net income to net cash
flows from operating activities:Depreciation and amortization
    
    
    3,808
    
    
    
    3,135Non-cash (gain) loss on derivative instruments
    
    
    (1,633
    )
    
    
    3,081Changes in operating assets and liabilities:Receivables
    
    
    1,667
    
    
    
    17,839Inventories
    
    
    (10,956
    )
    
    
    (19,120
    )Accounts payable, accrued liabilities and
customer prepayments
    
    
    26,583
    
    
    
    6,484Other assets and liabilities
    
    
    (27
    )
    
    
    6,061Net cash flows from operating activities
    
    
    54,772
    
    
    
    15,043Investing activities:Capital expenditures
    
    
    (1,331
    )
    
    
    (1,036
    )Plant turnaround expenditures
    
    
    (53
    )
    
    
    (137
    )Change in demand deposits with affiliate
    
    
    2,457
    
    
    
    26,505Net cash flows from investing activities
    
    
    1,073
    
    
    
    25,332Financing activities:Repayment of long-term debt
and capital lease obligations
    
    
    3⁄4
    
    
    
    (12
    )Partnership distributions paid
    
    
    (18,312
    )
    
    
    3⁄4Net cash flows used in financing activities
    
    
    (18,312
    )
    
    
    (12
    )Net increase in cash and cash equivalents
    
    
    37,533
    
    
    
    40,363Cash and cash equivalents at beginning of year
    
    
    62,287
    
    
    
    7,491Cash and cash equivalents at end of period
    
    $
    99,820
    
    
    $
    47,854Supplemental disclosure of cash flow information:Cash paid during the year for interest
    
    $
    63
    
    
    $
    63
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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
    
    
    34,977
    
    
    
    353
    
    
    
    3⁄4
    
    
    
    35,330
    
    
    $
    35,330Change in fair value of derivatives
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    6,192
    
    
    
    6,192
    
    
    
    6,192Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    41,522Distributions
    
    
    (18,129
    )
    
    
    (183
    )
    
    
    3⁄4
    
    
    
    (18,312
    )Partners capital at March 31 ,2007
    
    $
    177,643
    
    
    $
    (10,374
    )
    
    $
    13
    
    
    $
    167,282Limited partner units issued and
outstanding at March 31, 2007:Common Units
    
    
    
    
    
    
    
    
    
    
    18,501,576Class B Common Units
    
    
    
    
    
    
    
    
    
    
    184,072Total units outstanding at March 31, 2007
    
    
    
    
    
    
    
    
    
    
    18,685,648
 AccumulatedLimited
    
    
    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 loss
    
    
    (2,413
    )
    
    
    (24
    )
    
    
    3⁄4
    
    
    
    (2,437
    )
    
    $
    (2,437
    )Change in fair value of derivatives
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    5,949
    
    
    
    5,949
    
    
    
    5,949Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,512Partners
capital at March 31, 2006
    
    $
    148,539
    
    
    $
    (10,668
    )
    
    $
    3⁄4
    
    
    $
    137,871Limited partner units issued and
outstanding March 31, 2006:Common Units
    
    
    
    
    
    
    
    
    
    
    18,501,576Class B Common Units
    
    
    
    
    
    
    
    
    
    
    184,072Total units outstanding at March 31, 2006
    
    
    
    
    
    
    
    
    
    
    18,685,648
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TERRA NITROGEN COMPANY, L.P.
 
 Notes to Consolidated Financial Statements (Unaudited)
 1.
    
    Financial Statement Presentation
 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
  Cash and Cash Equivalents
  8




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Demand Deposits with Affiliate
  Use of Estimates in Preparation of the Financial Statements
  2.
    
    Agreement of Limited Partnership
    3.
    
    Net Income per Limited Partnership Unit
   9




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Three Months EndedMarch 31,(in thousands, except per-share amounts)
    
    2007
    
    2006Basic income (loss) per limited Partnership
unit computation:Net income (loss) allocable to limited
Partners interest
    
    $
    34,977
    
    
    $
    (2,413
    )Weighted average units outstanding
    
    
    18,686
    
    
    
    18,686Net income (loss) per limited Partnership unit
    
    $
    1.87
    
    
    $
    (0.13
    )
  4.
    
    Inventories
  March 31,
    
    December 31,
    
    March 31,(in thousands)
    
    2007
    
    2006
    
    2006Materials and supplies
    
    $
    8,820
    
    
    $
    7,925
    
    
    $
    7,905Finished goods
    
    
    24,845
    
    
    
    14,784
    
    
    
    37,947Total
    
    $
    33,665
    
    
    $
    22,709
    
    
    $
    45,852
  5.
    
    Derivative Financial Instruments
    10




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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.
    Other
    
    
    AccruedCurrent
    
    
    Current
    

    Net(in thousands)
    
    Assets
    
    
    Liabilities
    
    Asset (Liability)March 31, 2007
    
    $
    4,052
    
    
    $
    (2,434
    )
    
    $
    1,618December 31, 2006
    
    
    1,529
    
    
    
    (8,052
    )
    
    
    (6,523
    )March 31, 2006
    
    
    2,601
    
    
    
    (5,997
    )
    
    
    (3,396
    )
   11




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(in thousands)
    
    2007
    
    2006Beginning accumulated (loss)
    
    $
    (6,179
    )
    
    $
    (5,949
    )Reclassification into earnings
    
    
    36
    
    
    
    20,268Net change associated with current period hedging transactions
    
    
    6,156
    
    
    
    (14,319
    )Ending accumulated gain (loss)
    
    $
    13
    
    
    $
    3⁄4
   6.
    
    Revolving Credit Facility
  12




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7.
    
    New Accounting Pronouncements
 , Fair Value Measurements,
 The Fair Value Option for Financial Assets and Financial
Liabilities
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Introduction
 13




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Dependence on Terra Industries
  14




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Three months ended March 31, 2007 compared with
three months ended March 31, 2006
  2007
    
    2006Volumes
    
    Unit Price
    
    Volumes
    
    Unit Price(000 tons)
    
    ($/ton)*
    
    (000 tons)
    
    ($/ton)*Ammonia
    
    
    69
    
    
    $
    356
    
    
    
    51
    
    
    $
    411UAN
    
    
    574
    
    
    $
    159
    
    
    
    427
    
    
    $
    153
 
 *
    
    After deducting outbound freight costs    Capital resources and liquidity
     15




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK


16




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ITEM 4. CONTROLS AND PROCEDURES






FORWARD LOOKING PRECAUTIONS







PART II. OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS


17




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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




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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
    
    Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 *
    
    filed
herewith SIGNATURE
  TERRA NITROGEN COMPANY, L.P.By:
    
    TERRA NITROGEN GP INC.
as General PartnerBy:
    
    /s/ Francis G. Meyer

Francis G. MeyerVice President(Principal Accounting Officer)
  19