<PAGE>
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1996
OR
[ ] 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.
(Exact name of registrant as specified in its charter)
DELAWARE 73-1389684
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5100 EAST SKELLY DRIVE, SUITE 800
TULSA, OKLAHOMA 74135
(Address of principal executive office) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER:
(918) 660-0050
AT THE CLOSE OF BUSINESS ON MAY 1, 1996, THERE WERE 13,636,364 SENIOR
PREFERENCE UNITS OUTSTANDING.
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.
X YES NO
- - --- ---
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TERRA NITROGEN COMPANY, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1996 1995 1995
--------- ------------ ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 72,106 $ 71,490 $ 78,610
Accounts receivable 23,429 28,426 32,924
Inventory - finished products 18,357 12,201 22,499
Inventory - materials and supplies 10,121 9,882 11,320
Prepaid expenses 5,458 6,001 5,348
-------- -------- --------
Total current assets 129,471 128,000 150,701
Net property, plant and equipment 175,844 177,358 177,160
Distribution reserve fund 18,480 18,480 18,480
Other assets 13,256 14,285 6,107
-------- -------- --------
Total assets $337,051 $338,123 $352,448
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $ 19,431 $ 29,488 $ 21,937
Customer prepayments 25,990 15,517 19,966
Current portion of long-term debt 1,525 1,504 1,657
-------- -------- --------
Total current liabilities 46,946 46,509 43,560
Long-term debt and capital
lease obligations 3,905 4,198 40,430
Other long-term obligations 1,060 1,060 2,545
Partners' capital 285,140 286,356 265,913
-------- -------- --------
Total liabilities and partners' capital $337,051 $338,123 $352,448
======== ======== ========
</TABLE>
See accompanying notes.
<PAGE>
TERRA NITROGEN COMPANY, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues $89,304 $89,735
Other income 144 111
------- -------
Total net revenues 89,448 89,846
Cost of goods sold 35,242 43,323
------- -------
Gross profit 54,206 46,523
Operating expenses (3,035) (5,055)
------- -------
Operating income 51,171 41,468
Interest expense (126) (921)
Interest income 1,953 1,154
------- -------
Net income $52,998 $41,701
======= =======
Net income allocable to
limited partners' interest $37,198 $35,422
======= =======
Net income per limited
partnership unit $ 1.98 $ 1.88
======= =======
</TABLE>
See accompanying notes.
Prior year amounts have been reclassified to conform to current year
presentation.
<PAGE>
TERRA NITROGEN COMPANY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 52,998 $ 41,701
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,796 2,678
Amortization of deferred finance fees 9 9
Changes in operating assets and liabilities:
Receivables 4,997 (4,863)
Inventories (6,394) (3,790)
Prepaid expenses 542 (118)
Accounts payable, accrued liabilities and
customer prepayments 416 5,644
Other 1,342 2,656
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 56,706 43,917
NET CASH USED IN INVESTING ACTIVITIES:
Capital expenditures (1,603) (889)
FINANCING ACTIVITIES:
Repayment of long-term debt (272) (363)
Partnership distributions (54,215) (12,667)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (54,487) (13,030)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 616 29,998
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 71,490 48,612
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 72,106 $ 78,610
======== ========
</TABLE>
See accompanying notes.
<PAGE>
TERRA NITROGEN COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The consolidated financial statements contained herein should be read
in conjunction with the consolidated financial statements and notes thereto
contained in the Terra Nitrogen Company, L.P. ("TNCLP") Annual Report on
Form 10-K for the year ended December 31, 1995.
TNCLP and its operating partnership subsidiary, Terra Nitrogen,
Limited Partnership (the "Operating Partnership"), are referred to herein,
collectively, as the "Partnership".
The accompanying unaudited consolidated financial statements reflect
all adjustments which are, in the opinion of management, necessary for the
fair statement of the results for the periods presented. All of these
adjustments are of a normal and recurring nature. Results for the quarter
are not necessarily indicative of future financial results of the
Partnership.
Net income per limited partnership unit is computed by dividing net
income, less a 30% and 15% share allocable to the General Partner for the
three months ended March 31, 1996 and 1995, respectively, by 18,808,778
limited partner units, composed of 13,636,364 Senior Preference Units
(6,000,000 Junior Preference Units automatically became Senior Preference
Units on December 31, 1995 pursuant to the terms of the TNCLP limited
partnership agreement), and 5,172,414 Common Units. Income allocated to
limited partnership units and to the General Partner is dependent on the
Partnership's net income and the proportionate share of cash distributed to
the limited partners and the General Partner.
2. Distribution to Unitholders
The Partnership makes quarterly distributions to Unitholders and the
General Partner in an amount equal to 100% of its Available Cash (as this
and other capitalized terms are defined in the Partnership Agreement). In
addition, a Reserve Amount equal to $18.5 million has been previously
funded to support distributions of the Minimum Quarterly Distribution on
the Senior Preference Units. At March 31, 1996, the Reserve Amount remained
fully funded. During the Preference Period ending not prior to December
31, 1996, Senior Preference and Common Units participate equally in
distributions after each class of Units has received the Minimum Quarterly
Distribution of $.605 per quarter per unit subject to the General Partner's
right to receive cash distributions. The General Partner receives a
combined minimum 2% of total cash distributions and, as an incentive, the
General Partner's participation increases progressively if cash
distributions exceed specified target levels.
3. Cash and Cash Equivalents
The Partnership has a demand deposit with an affiliate that represents
excess Partnership cash deposited with Terra Capital, Inc., the parent of
the General Partner. The deposit is due on demand and bears
<PAGE>
interest based on the 30-day Eurodollar rate plus .75% (.625% commencing
March 29, 1996). The amount of the demand deposit included in cash and cash
equivalents was $69.5 million at March 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996, COMPARED WITH THE THREE MONTHS ENDED
MARCH 31, 1995
Revenues for the quarter ended March 31, 1996, were virtually
unchanged compared with the quarter ended March 31, 1995, as higher UAN
sales prices were offset by lower ammonia and urea sales volumes. UAN sales
prices increased approximately 13% over the 1995 quarter reflecting the
anticipation of a strong 1996 planting season based on anticipated
increases in corn acres planted. Ammonia volumes were down approximately
13% from the prior year quarter as cold, wet weather in the corn belt
decreased ammonia applications during 1996. Additionally, dry weather in
the wheat belt during the 1996 quarter caused urea applications to decrease
resulting in approximately 14% lower urea sales volumes in 1996 compared
with the same quarter of 1995. Ammonia sales prices also declined
approximately 15% as a result of delayed demand in the corn belt, reduced
demand for use in the manufacture of phosphate fertilizers and lower
industrial demand.
Cost of goods sold as a percentage of revenues decreased to 39% for
the 1996 quarter from 48% for the 1995 quarter reflecting the favorable
impact of the Partnership's natural gas procurement activities which
include forward pricing techniques. Cold weather during the 1996 quarter
caused spot natural gas prices to increase approximately 41% over the
quarter ended March 31, 1995; however, the Partnership's forward pricing
activities decreased its overall cost of natural gas by 39% compared with
the quarter ended March 31, 1995. During the first quarter of 1996, the
Partnership realized gains on forward pricing transactions of $12.6
million.
Operating expenses decreased $2.0 million, or 40%, compared with the
1995 quarter primarily due to severance payments made in the first quarter
of 1995 versus none in the 1996 quarter. In addition, salaries and wages,
benefits and data processing charges were lower during the 1996 quarter as
a result of synergies gained from the combination of the general and
administrative organizations of the General Partner and one of its
affiliates.
Interest expense declined $795,000 in the quarter ended March 31,
1996, compared with the 1995 quarter due to the repayment of the
Partnership's $35 million term loan during the second quarter of 1995.
Interest income increased $799,000 during the 1996 quarter due to
higher levels of cash and short term investments.
NATURAL GAS COSTS
The Partnership's natural gas procurement policy is to effectively fix
or cap the unit cost of approximately 40-80% of its natural gas
requirements for the upcoming 12 months and up to 50% for the
<PAGE>
subsequent two-year period using supply contracts, financial derivatives
and other forward pricing techniques in an attempt to gain some protection
against natural gas price increases on the spot market. Consequently, if
natural gas prices were to increase during this period, the Partnership may
benefit, but conversely, if natural gas prices were to fall, the
Partnership may incur costs above the spot market price as a result of such
policies. The Partnership has entered into firm contracts to minimize the
risk of interruption or curtailment of natural gas supplies. As of March
31, 1996, the Partnership had effectively fixed or capped the price of a
substantial portion of its natural gas requirements for 1996 and 1997.
Liquidation of these financial derivatives based on March 31, 1996, prices
would have resulted in a gain of $22.5 million.
Increases in the unit cost of natural gas normally do not affect
the level of ammonia production. However, since the Partnership's gas
procurement includes a range of volume and costs, it may be possible to
eliminate certain higher priced increments if the purchase of that
increment would result in a negative variable cash margin on the ammonia
that would be produced from such incremental gas purchase. Under these
circumstances, production levels may be curtailed. Production rates can be
reduced by up to 10-12% of capacity, thereby reducing operating rates to
88-90% of capacity, without affecting operating efficiency.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities for the first three months
of 1996 was $56.7 million, an increase of $12.8 million over the same
period in 1995, principally due to higher net income. The Partnership's
principal needs for funds are for support of its working capital,
distributions to Partners and capital expenditures. The Partnership intends
to fund such needs from net cash provided by operating activities and, to
the extent permitted thereunder, from funds available under the Operating
Partnership's revolving credit facility. At March 31, 1996, the Operating
Partnership had $25 million of unused borrowing capacity under its
revolving credit facility. The Partnership believes that such sources of
funds will be adequate to meet the Partnership's working capital needs,
make quarterly distributions to Partners and fund the Partnership's capital
expenditures for at least the next twelve months.
Quarterly distributions to the Partners of TNCLP are based on
Available Cash for the quarter as defined in TNCLP's limited partnership
agreement. Available Cash is defined generally as all cash receipts less
all cash disbursements, adjusted for changes in certain reserves
established as the General Partner determines in its reasonable discretion
to be necessary. On April 23, 1996, the General Partner announced a
distribution of $22.2 million ($1.63 per Unit) to holders of the Senior
Preference Units of record as of May 3, 1996, payable on May 29, 1996,
based on Available Cash for the quarter ended March 31, 1996. A
distribution of $8.4 million ($1.63 per Unit) on the Common Units, and a
distribution of $13.0 million to the General Partner based on Available
Cash for the quarter ended March 31, 1996, were also declared. There were
no accumulated distribution arrearages for any Units as of March 31, 1996.
At March 31, 1996, the Reserve Amount remained fully funded. During the
first three months of 1996, the Partnership paid $54.2 million in
distributions to its Partners.
<PAGE>
CAPITAL EXPENDITURES
Capital expenditures totaled $1.6 million for the first three months
of 1996. In the remainder of 1996, the Partnership plans to spend
approximately $11 million, which includes plans for an increase in urea
production and storage capacity at the Blytheville plant.
ENVIRONMENTAL MATTERS
The Partnership is subject to federal, state and local environmental,
health and safety laws and regulations, particularly relating to air and
water quality. In the course of its ordinary operations, the Partnership
has and will generate wastes which may fall within the definition of
"hazardous substances" under federal or state laws. The Partnership's
production facilities and storage locations require ongoing operating
expenditures in order to remain in compliance with environmental
regulations. These operating costs consist largely of such items as
electrical and chemical usage, waste disposal, laboratory analysis, fees
for outside consultants and contractors, and salaries for environmental
employees.
Based on its current knowledge, the Partnership does not expect
capital expenditures relating to environmental matters to have a material
adverse effect on its results of operations, financial condition, capital
resources, liquidity or cash flow. Based on information presently
available, the Partnership does not expect that any further material
capital expenditures will be required to comply with existing environmental
regulations. Based on such regulations, the Partnership does not believe
that it will be required to make any material environmental remediation
expenditures in the foreseeable future.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
TERRA NITROGEN COMPANY, L.P.
By: TERRA NITROGEN CORPORATION
as General Partner
By: Erik L. Slockers
------------------------------
Erik L. Slockers
Vice President and Controller
(Principal Accounting Officer)
Date: May 10, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This Schedule contains summary financial information extracted from the
consolidated statement of financial position of Terra Nitrogen Company, L.P. as
of March 31, 1996 and the related consolidated statement of income for the three
months then ended.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 72,106
<SECURITIES> 0
<RECEIVABLES> 23,429
<ALLOWANCES> 0
<INVENTORY> 28,478
<CURRENT-ASSETS> 129,471
<PP&E> 262,203
<DEPRECIATION> (86,359)
<TOTAL-ASSETS> 337,051
<CURRENT-LIABILITIES> 46,946
<BONDS> 3,905
<COMMON> 0
0
0
<OTHER-SE> 285,140<F1>
<TOTAL-LIABILITY-AND-EQUITY> 337,051
<SALES> 89,304
<TOTAL-REVENUES> 89,448
<CGS> 35,242
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,035
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126
<INCOME-PRETAX> 52,998
<INCOME-TAX> 0
<INCOME-CONTINUING> 52,998
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,998
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 0
<FN>
<F1> Due to the nature of the partnership, this represents partners capital.
</FN>
</TABLE>
