10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
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.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	73-1389684 (I.R.S. Employer Identification No.)
4 Parkway North, Suite 400 Deerfield, Illinois (Address of principal executive offices)	60015 (Zip Code)

Registrant's telephone number, including area code: (847) 405-2400

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    o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. x Yes    o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer x Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes    x No

At the close of business on May 3, 2017 there were 18,501,576 common units outstanding.

TERRA NITROGEN COMPANY, L.P.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations	2
	Consolidated Statements of Partners' Capital	3
	Consolidated Statements of Cash Flows	4
	Notes to Unaudited Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4.	Controls and Procedures	21
PART II—OTHER INFORMATION
Item 6.	Exhibits	21

TERRA NITROGEN COMPANY, L.P.

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS.

CONSOLIDATED BALANCE SHEETS

	(unaudited)
	March 31, 2017		December 31, 2016
	(in millions, except for units)
ASSETS
Current assets:
Cash and cash equivalents	$	41.2	$	39.5
Due from affiliates of the General Partner	21.7		4.0
Accounts receivable	0.4		0.6
Inventories	5.0		8.6
Other current assets	1.9		7.9
Total current assets	70.2		60.6
Property, plant and equipment—net	298.4		301.3
Other assets	9.8		11.4
Total assets	$	378.4	$	373.3
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses	$	19.0	$	27.8
Due to affiliates of the General Partner	3.4		4.1
Other current liabilities	0.5		—
Total current liabilities	22.9		31.9
Other liabilities	3.1		2.6
Partners' capital:
Limited partners' interests, 18,501,576 common units authorized, issued and outstanding	302.9		286.7
Limited partners' interests, 184,072 Class B common units authorized, issued and outstanding	1.9		1.8
General partner's interest	47.6		50.3
Total partners' capital	352.4		338.8
Total liabilities and partners' capital	$	378.4	$	373.3

See accompanying Notes to Unaudited Consolidated Financial Statements.

1

TERRA NITROGEN COMPANY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three months ended   March 31,
	2017		2016
	(in millions, except per unit amounts)
Net sales:
Product sales to affiliates of the General Partner	$	118.9	$	107.9
Other income from an affiliate of the General Partner	0.1		0.1
Total	119.0		108.0
Cost of goods sold:
Materials, supplies and services	65.4		57.7
Services provided by affiliates of the General Partner	7.0		7.2
Gross margin	46.6		43.1
Selling, general and administrative services provided by affiliates of the General Partner	3.9		3.9
Other general and administrative expenses	0.5		1.5
Net earnings	$	42.2	$	37.7
Allocation of net earnings:
General Partner	$	3.0	$	10.6
Class B common units	0.4		0.4
Common units	38.8		26.7
Net earnings	$	42.2	$	37.7
Net earnings per common unit	$	2.10	$	1.44

See accompanying Notes to Unaudited Consolidated Financial Statements.

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TERRA NITROGEN COMPANY, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL

(unaudited)

	Common Units			Class B Common Units			General Partner's Interest			Total Partners' Capital
	(in millions)
Partners' capital as of December 31, 2015	$	308.5		$	2.3		$	76.2		$	387.0
Net earnings	26.7			0.4			10.6			37.7
Distributions	(53.3		)	(0.9		)	(36.0		)	(90.2		)
Partners' capital as of March 31, 2016	$	281.9		$	1.8		$	50.8		$	334.5
Partners' capital as of December 31, 2016	$	286.7		$	1.8		$	50.3		$	338.8
Net earnings	38.8			0.4			3.0			42.2
Distributions	(22.6		)	(0.3		)	(5.7		)	(28.6		)
Partners' capital as of March 31, 2017	$	302.9		$	1.9		$	47.6		$	352.4

See accompanying Notes to Unaudited Consolidated Financial Statements.

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TERRA NITROGEN COMPANY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three months ended   March 31,
	2017			2016
	(in millions)
Operating Activities:
Net earnings	$	42.2		$	37.7
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	10.7			10.0
Unrealized loss on derivatives	7.9			2.3
Loss on disposal of property, plant and equipment	—			0.1
Changes in operating assets and liabilities:
Accounts receivable	0.2			(1.6		)
Inventories	3.6			6.8
Accounts payable and accrued expenses	(5.4		)	(2.4		)
Due to/from affiliates of the General Partner	(18.4		)	(6.3		)
Other assets and liabilities	0.8			(0.8		)
Net cash provided by operating activities	41.6			45.8
Investing Activities:
Additions to property, plant and equipment	(11.3		)	(13.8		)
Net cash used in investing activities	(11.3		)	(13.8		)
Financing Activities:
Partnership distributions paid	(28.6		)	(90.2		)
Net cash used in financing activities	(28.6		)	(90.2		)
Increase (decrease) in cash and cash equivalents	1.7			(58.2		)
Cash and cash equivalents at beginning of period	39.5			106.4
Cash and cash equivalents at end of period	$	41.2		$	48.2

See accompanying Notes to Unaudited Consolidated Financial Statements.

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TERRA NITROGEN COMPANY, L.P.

Notes to Unaudited Consolidated Financial Statements

1. Background and Basis of Presentation

Terra Nitrogen Company, L.P. ("TNCLP," "we," "our" or "us") is a Delaware limited partnership that produces nitrogen fertilizer products. Our principal products are anhydrous ammonia (ammonia) and urea ammonium nitrate solution (UAN), which we manufacture at our facility in Verdigris, Oklahoma.

We conduct our operations through an operating partnership, Terra Nitrogen, Limited Partnership (TNLP or the Operating Partnership, and collectively with TNCLP, the Partnership). Terra Nitrogen GP Inc. (TNGP or the General Partner), a Delaware corporation, is the general partner of both TNCLP and TNLP and owns a 0.025% general partner interest in each of TNCLP and TNLP. The General Partner is an indirect, wholly owned subsidiary of CF Industries Holdings, Inc. (CF Industries), a Delaware corporation. Ownership of TNCLP is composed of the general partner interests and the limited partner interests. The general partner interest in TNCLP is represented by 4,720 general partner units. Limited partner interests are represented by common units, which are listed for trading on the New York Stock Exchange under the symbol "TNH," and Class B common units. As of March 31, 2017, we had 18,501,576 common units and 184,072 Class B common units issued and outstanding. CF Industries through its subsidiaries owned 13,889,014 common units (representing approximately 75.1% of the total outstanding common units) and all of the Class B common units as of March 31, 2017.

We are a master limited partnership (MLP). Partnerships are generally not subject to federal income tax, although publicly traded partnerships (such as TNCLP) are treated as corporations for federal income tax purposes (and therefore are subject to federal income tax), unless at least 90% of the partnership's gross income is "qualifying income" as defined in Section 7704 of the Internal Revenue Code of 1986, as amended, and the partnership is not required to register as an investment company under the Investment Company Act of 1940. As we currently satisfy the requirements to be treated as a partnership for federal income tax purposes, no federal income taxes are paid by the Partnership.

On January 19, 2017, the Internal Revenue Service (IRS) issued final regulations on the types of income and activities that constitute or generate qualifying income of a MLP. For calendar year MLPs, the effective date of the regulations is January 1, 2018. The regulations have the effect of limiting the types of income and activities that qualify under the MLP rules, subject to certain transition provisions. The regulations define the activities that generate qualifying income from certain processing or refining and transportation activities with respect to any mineral or natural resource (including fertilizer) as activities that generate qualifying income, but the regulations reserve on specifics regarding fertilizer-related activities. However, the IRS has issued a private letter ruling to a taxpayer in the fertilizer industry unrelated to TNCLP which would indicate that each taxpayer's fertilizer manufacturing activities should produce qualifying income for purposes of determining whether 90% of the partnership's gross income is qualifying income. The entity to which this private letter ruling was issued would appear to operate a nitrogen fertilizer manufacturing business that is similar to ours. While this private letter ruling provides some insight into the manner in which the IRS analyzed fertilizer manufacturing activities at the time this ruling was issued, this private letter ruling is specific to a different entity. Thus, the IRS is not bound to follow it in respect of TNCLP, nor may we rely on it as precedent when determining whether we satisfy the MLP 90% gross income test. Any change in the federal income tax treatment of income from fertilizer-related activities as qualifying income could have a material impact on the taxation of the Partnership and could have a material adverse impact on unitholder distributions. We continue to monitor these IRS regulatory activities.

The accompanying unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements for the year ended December 31, 2016, in accordance with accounting principles generally accepted in the United States for interim financial reporting. In the opinion of management, these statements reflect all adjustments, consisting only of normal and recurring adjustments, that are necessary for the fair representation of the information for the periods presented. The unaudited interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Operating results for any period presented apply to that period only and are not necessarily indicative of results for any future period.

The preparation of the unaudited interim consolidated financial statements requires management to make use of estimates and assumptions that affect the reported amount of assets and liabilities, revenue and expenses and certain financial statement disclosures. Actual results could differ from these estimates. Significant estimates and assumptions in these unaudited interim consolidated financial statements include net realizable value of inventories, environmental remediation liabilities, environmental and litigation contingencies, useful lives of property, plant and equipment, the assumptions used in the evaluation of potential impairment of property, plant and equipment and the allowance for doubtful accounts receivable.

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TERRA NITROGEN COMPANY, L.P.

The accompanying unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related disclosures included in our 2016 Annual Report on Form 10-K filed with the SEC on February 23, 2017.

Throughout this document, the term "affiliates of the General Partner" refers to consolidated subsidiaries of CF Industries, including TNGP.

2. New Accounting Standards

Recently Adopted Pronouncement

On January 1, 2017, we adopted Accounting Standards Update (ASU) No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU No. 2015-11 changes the inventory measurement principle for entities using the first-in, first-out (FIFO) or average cost methods. For entities utilizing one of these methods, the inventory measurement principle changed from the lower of cost or market to the lower of cost and net realizable value. We follow the FIFO or average cost methods and the adoption of this ASU did not have a material effect on our consolidated financial statements.

Recently Issued Pronouncement

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments. Additionally, the costs to obtain and fulfill a contract, including assets to be recognized, are to be capitalized and such capitalized costs are to be disclosed. In July 2015, the FASB voted to defer the effective date of this ASU through the issuance of ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, to December 15, 2017 for interim and annual reporting periods beginning after that date. Accordingly, we will adopt ASU No. 2014-09, as amended, beginning in our first quarter of 2018. We are currently evaluating the impact of the adoption of this ASU on the Amendment to the General and Administrative Services and Product Offtake Agreement (the Services and Offtake Agreement), through which we sell all of our fertilizer products to affiliates of the General Partner, and the related impact on our consolidated financial statements. We are also reviewing our business processes, systems, controls, and disclosures to determine if any changes are needed to support adoption of ASU No. 2014-09.

3. Agreement of Limited Partnership

We make quarterly distributions to holders of our general partner interest and limited partner interests based on Available Cash for the quarter as defined in our agreement of limited partnership. Available Cash is defined generally as all cash receipts less all cash disbursements, less certain reserves (including reserves for future operating and capital needs) established as the General Partner determines in its reasonable discretion to be necessary or appropriate. Changes in working capital affect Available Cash as increases in the amount of cash invested in working capital items (such as increases in receivables or inventory and decreases in accounts payable) reduce Available Cash, while declines in the amount of cash invested in working capital items increase Available Cash. During the three months ended March 31, 2017 and 2016, we declared and paid partnership distributions of $28.6 million and $90.2 million, respectively.

We receive 99% of the Operating Partnership's Available Cash (as defined in the Operating Partnership's agreement of limited partnership) and 1% of the Operating Partnership's Available Cash is distributed by the Operating Partnership to the General Partner and its affiliates. Pursuant to our agreement of limited partnership, distributions of our Available Cash are made 99.975% to common and Class B common unitholders and 0.025% to the General Partner except that the General Partner is entitled, as an incentive, to a larger percentage of our distribution of Available Cash to the extent that cumulative distributions of Available Cash exceed specified target levels above the Minimum Quarterly Distributions (MQD) of $0.605 per unit. The General Partner has assigned its right to receive such incentive distributions to an affiliate of the General Partner.

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TERRA NITROGEN COMPANY, L.P.

On May 3, 2017, we announced a $0.97 cash distribution per common unit, payable on May 31, 2017 to holders of record as of May 15, 2017. In the first quarter of 2017, we exceeded the cumulative MQD amounts and will distribute Available Cash as summarized in the following table:

	Income and Distribution Allocation
	Target Limit		Target Increment		Common Units		Class B Common Units		General Partner(1)		Total
Minimum Quarterly Distributions	$	0.605	$	0.605	98.990	%	0.985	%	0.025	%	100.00	%
First Target	0.715		0.110		98.990	%	0.985	%	0.025	%	100.00	%
Second Target	0.825		0.110		85.859	%	0.985	%	13.156	%	100.00	%
Third Target	1.045		0.220		75.758	%	0.985	%	23.257	%	100.00	%
Final Target and Beyond	>1.045		—		50.505	%	0.985	%	48.510	%	100.00	%

⁽¹⁾  Reflects Minimum Quarterly Distributions and incentive distributions to the General Partner. The General Partner has assigned its right to incentive distributions to an affiliate of the General Partner.

The quarterly cash distributions to the unitholders and the General Partner declared during the first three months of 2017 and 2016 are as follows:

		Common Units				Class B Common Units				General Partner		Total Distributions Declared
		Total		Per unit		Total		Per unit		Total
		(in millions, except per unit amounts)
2017
	First Quarter	$	22.6	$	1.22	$	0.3	$	1.52	$	5.7	$	28.6
2016
	First Quarter	$	53.3	$	2.88	$	0.9	$	4.78	$	36.0	$	90.2

As of March 31, 2017, the General Partner and its affiliates owned approximately 75.1% of our outstanding common units. When not more than 25% of our issued and outstanding common units are held by persons other than the General Partner and its affiliates (collectively, non-affiliated persons), as was the case at March 31, 2017, we, at the General Partner's sole discretion, may call, or assign to the General Partner or its affiliates, our right to acquire all, but not less than all, such outstanding common units held by non-affiliated persons. If the General Partner elects to acquire all outstanding common units, we are required to give at least 30 but not more than 60 days' notice of our decision to purchase the outstanding common units, and the purchase price per unit would be the greater of (1) the average of the previous 20 trading days' closing prices as of the date five days before the purchase is announced or (2) the highest price paid by the General Partner or any of its affiliates for any unit within the 90 days preceding the date the purchase is announced.

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TERRA NITROGEN COMPANY, L.P.

4. Net Earnings per Common Unit

Net earnings per common unit are based on the weighted-average number of common units outstanding during the period. The following table provides a calculation for net earnings per common unit for the three months ended March 31, 2017 and 2016:

	Three months ended   March 31,
	2017		2016
	(in millions, except per unit amounts)
Basic earnings per common unit:
Net earnings	$	42.2	$	37.7
Less: Net earnings allocable to General Partner	3.0		10.6
Less: Net earnings allocable to Class B common units	0.4		0.4
Net earnings allocable to common units	$	38.8	$	26.7
Weighted-average common units outstanding	18.5		18.5
Net earnings per common unit	$	2.10	$	1.44

There were no dilutive TNCLP units outstanding for the three months ended March 31, 2017 and 2016.

5. Inventories

Inventories consisted of the following:

	March 31, 2017		December 31, 2016
	(in millions)
Finished goods	$	3.3	$	6.8
Raw materials, spare parts and supplies	1.7		1.8
Total	$	5.0	$	8.6

6. Derivative Financial Instruments

Derivative financial instruments are executed on our behalf by an affiliate of the General Partner to reduce our exposure to changes in commodity prices for natural gas. Natural gas is the largest and most volatile component of the manufacturing cost for nitrogen-based fertilizers.

The derivatives that we use are primarily natural gas fixed price swaps and options traded in the over-the-counter (OTC) markets. The derivative contract prices are based on NYMEX future prices based on physical delivery of natural gas at the Henry Hub in Louisiana, the most common and financially liquid location of reference for derivative financial instruments related to natural gas. However, we purchase natural gas for our manufacturing facility from suppliers whose prices are based primarily on the ONEOK index (based on physical delivery of natural gas in Oklahoma, rather than at the Henry Hub). This creates a location basis differential between the derivative contract price and the price we pay for physical delivery of natural gas. Accordingly, the prices underlying the derivative financial instruments we use may not exactly match the prices of natural gas we purchase and consume. We enter into natural gas derivative contracts with respect to gas to be consumed by us in the future, and settlements of those derivative contracts are scheduled to coincide with our anticipated purchases of natural gas used to manufacture nitrogen products during those future periods. We use natural gas derivatives as an economic hedge of gas price risk, but without the application of hedge accounting.

We report derivatives on our consolidated balance sheets at fair value. Changes in fair value are recognized in cost of goods sold in the period of change. Cash flows related to natural gas derivatives are reported as operating activities.

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TERRA NITROGEN COMPANY, L.P.

The gross fair values of derivatives on our consolidated balance sheets are shown below. All balance sheet amounts from derivatives arise from natural gas derivatives that are not designated as hedging instruments. For additional information on derivative fair values, see Note 7—Fair Value Measurements.

	March 31, 2017			December 31, 2016
	(in millions)
Derivative Assets
Unrealized gains in other current assets	$	1.9		$	7.9
Unrealized gains in other assets	—			1.1
Total derivative assets	1.9			9.0
Derivative Liabilities
Unrealized losses in other current liabilities	(0.5		)	—
Unrealized losses in other liabilities	(2.0		)	(1.6		)
Total derivative liabilities	(2.5		)	(1.6		)
Net derivative (liabilities) assets	$	(0.6	)	$	7.4

The effect of derivatives in our consolidated statements of operations is shown below. All amounts arise from natural gas derivatives that are not designated as hedging instruments and are recorded in cost of goods sold.

	Three months ended   March 31,
	2017			2016
	(in millions)
Unrealized net mark-to-market losses	$	(7.9	)	$	(2.3	)
Realized net gains (losses)	0.3			(7.4		)
Net derivative losses	$	(7.6	)	$	(9.7	)

As of March 31, 2017 and December 31, 2016, we had open natural gas derivative contracts for 24.2 million MMBtus (millions of British thermal units) and 29.4 million MMBtus of natural gas, respectively. The derivative portfolio at March 31, 2017 includes natural gas derivatives that economically hedge a portion of anticipated natural gas purchases through December 2018. For the three months ended March 31, 2017, we used derivatives to cover approximately 46% of our natural gas consumption.

The counterparties to our derivative contracts are multinational commercial banks, major financial institutions and large energy companies. The derivatives are executed with several counterparties generally under International Swaps and Derivatives Association (ISDA) agreements. Most of the ISDA agreements contain credit-risk-related contingent features such as cross-default provisions and credit support thresholds that are dependent upon the credit ratings of the General Partner affiliate. In the event of certain defaults or a credit ratings downgrade of the General Partner affiliate, the counterparty may request early termination and net settlement of certain derivative trades or may require the General Partner affiliate to collateralize derivatives in a net liability position. The General Partner affiliate’s revolving credit agreement, at any time when it is secured, provides a cross collateral feature for those derivatives that are with counterparties that are party to, or affiliates of parties to, the revolving credit agreement so that no separate collateral would be required for those counterparties in connection with such derivatives. In the event the General Partner affiliate's revolving credit agreement becomes unsecured, the General Partner affiliate could be required to post separate collateral in connection with such derivatives. As of March 31, 2017 and December 31, 2016, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in a net liability position was $2.5 million and $1.6 million, respectively, which also approximates the fair value of the maximum amount of assets needed to settle the obligations if the credit-risk-related contingent features were triggered and the General Partner affiliate was unable to post collateral at the reporting dates. As of March 31, 2017 and December 31, 2016, we and the General Partner affiliate had no cash collateral on deposit for derivative contracts. The credit support documents executed in connection with certain ISDA agreements generally provide the General Partner affiliate and the counterparties the right to set off collateral against amounts owing under the ISDA agreements upon the occurrence of a default or a specified termination event.

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TERRA NITROGEN COMPANY, L.P.

The following table presents amounts relevant to offsetting our derivative assets and liabilities as of March 31, 2017 and December 31, 2016:

	Gross and net amounts presented in consolidated balance sheets(1)			Gross amounts not offset in consolidated balance sheets
				Financial instruments			Cash collateral received (pledged)		Net amount
	(in millions)
March 31, 2017
Total derivative assets	$	1.9		$	1.9		$	—	$	—
Total derivative liabilities	(2.5		)	(1.9		)	—		(0.6		)
Net derivative liabilities	$	(0.6	)	$	—		$	—	$	(0.6	)
December 31, 2016
Total derivative assets	$	9.0		$	1.6		$	—	$	7.4
Total derivative liabilities	(1.6		)	(1.6		)	—		—
Net derivative assets	$	7.4		$	—		$	—	$	7.4

_______________________________________________________________________________

⁽¹⁾  We report the fair values of our derivative assets and liabilities on a gross basis on our consolidated balance sheets. As a result, the gross amounts recognized and net amounts presented herein are the same.

7. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents assets and liabilities included in our consolidated balance sheets that are recognized at fair value on a recurring basis, and indicates the fair value hierarchy utilized to determine such fair value as of March 31, 2017 and December 31, 2016:

	March 31, 2017
	Total			Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(in millions)
Cash equivalents	$	40.1		$	40.1	$	—		$	—
Unrealized gains on natural gas derivatives	1.9			—		1.9			—
Total assets at fair value	$	42.0		$	40.1	$	1.9		$	—
Unrealized losses on natural gas derivatives	$	(2.5	)	$	—	$	(2.5	)	$	—
Total liabilities at fair value	$	(2.5	)	$	—	$	(2.5	)	$	—

	December 31, 2016
	Total			Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(in millions)
Cash equivalents	$	32.0		$	32.0	$	—		$	—
Unrealized gains on natural gas derivatives	9.0			—		9.0			—
Total assets at fair value	$	41.0		$	32.0	$	9.0		$	—
Unrealized losses on natural gas derivatives	$	(1.6	)	$	—	$	(1.6	)	$	—
Total liabilities at fair value	$	(1.6	)	$	—	$	(1.6	)	$	—

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TERRA NITROGEN COMPANY, L.P.

Cash Equivalents

As of March 31, 2017 and December 31, 2016, our cash equivalents consisted primarily of money market mutual funds that invest in U.S. treasuries and direct investments in U.S. treasuries with original maturities of three months or less.

Natural Gas Derivatives

The derivative instruments that we use are primarily natural gas fixed price swaps and options traded in the OTC markets with multi-national commercial banks, other major financial institutions and large energy companies. The derivatives are traded in months forward and settlements are scheduled to coincide with anticipated gas purchases during those future periods. These contracts settle using NYMEX futures prices and accordingly, to determine the fair value of these instruments, we use quoted market prices from NYMEX and standard pricing models with inputs derived from or corroborated by observable market data such as forward curves supplied by an industry-recognized unrelated third party. See Note 6—Derivative Financial Instruments for additional information.

Assets Measured at Fair Value on a Nonrecurring Basis

We also have assets that may be measured at fair value on a nonrecurring basis; that is, the assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. These include long-lived assets that may be written down to fair value as a result of impairment. We determined that these fair value measurements rely primarily on Partnership-specific inputs and the Partnership's assumptions about the use of the assets. Since certain of the assumptions would involve inputs that are not observable, these fair values would reside within Level 3 of the fair value hierarchy.

8. Property, Plant and Equipment—Net

Property, plant and equipment—net consisted of the following:

	March 31, 2017		December 31, 2016
	(in millions)
Land	$	1.4	$	1.4
Buildings and improvements	16.8		16.7
Machinery and equipment	565.3		562.3
Construction in progress	26.1		21.9
Property, plant and equipment	609.6		602.3
Less: Accumulated depreciation and amortization	311.2		301.0
Property, plant and equipment—net	$	298.4	$	301.3

Losses on the disposal of certain machinery and equipment were zero and $0.1 million for the three months ended March 31, 2017 and 2016, respectively, and are included in other general and administrative expenses on our consolidated statements of operations.

Plant turnarounds—Scheduled inspections, replacements and overhauls of machinery and equipment at our continuous process manufacturing facility are referred to as plant turnarounds. The expenditures related to turnarounds are capitalized in property, plant and equipment when incurred. The following is a summary of capitalized plant turnaround costs:

	Three months ended   March 31,
	2017			2016
	(in millions)
Net capitalized turnaround costs:
Beginning balance	$	26.6		$	37.8
Additions	0.6			1.2
Depreciation	(4.1		)	(3.6		)
Ending balance	$	23.1		$	35.4

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Scheduled replacements and overhauls of machinery and equipment include the dismantling, repair or replacement and installation of various components including piping, valves, motors, turbines, pumps, compressors, heat exchangers and the replacement of catalyst when a full plant shutdown occurs. Scheduled inspections are also conducted during full plant shutdowns, including required safety inspections which entail the disassembly of various components such as steam boilers, pressure vessels and other equipment requiring safety certifications. Internal employee costs and overhead are not considered turnaround costs and are not capitalized.

9. Related Party Transactions

TNCLP and TNGP have no employees. We have entered into several agreements with a subsidiary of CF Industries relating to the operation of our business and the sale of the fertilizer products produced at our Verdigris facility. We believe that each of these agreements is on terms that are fair and reasonable to us.

Services and Offtake Agreement

Pursuant to the Services and Offtake Agreement, the Partnership sells all of its fertilizer products to affiliates of the General Partner at prices based on market prices for the Partnership's fertilizer products as defined in the Services and Offtake Agreement. Title and risk of loss transfer to affiliates of the General Partner as the product is shipped from the plant gate. The Services and Offtake Agreement was effective initially for a one-year term and is extended automatically for successive one-year terms unless terminated by one of the parties prior to renewal.

Directly Incurred Charges

Since we have no employees, we rely on employees from an affiliate of the General Partner to operate our Verdigris facility. As a result, the payroll and payroll-related expenses and benefit costs, such as health insurance and pension costs, are incurred by an affiliate of the General Partner and directly charged to us. Payroll, payroll-related expenses and other employee-related benefit costs directly charged to us for the three months ended March 31, 2017 and 2016 were $7.0 million and $7.2 million, respectively. We report these expenses as services provided by affiliates of the General Partner in cost of goods sold in our consolidated statements of operations.

Allocated Charges

CF Industries, together with its affiliates, also provides certain services to us under the Services and Offtake Agreement. These services include production planning, manufacturing management, logistics, procurement, accounting, legal, risk management, investor relations and other general and administrative functions. Allocated expenses charged to us in each of the three months ended March 31, 2017 and 2016 were $3.9 million. We report these expenses as selling, general and administrative services provided by affiliates of the General Partner in our consolidated statements of operations.

Amounts Due to/from Affiliates of the General Partner

We receive cash and make expenditures directly from our cash accounts. Because we sell our products to and receive payroll and other services from affiliates of the General Partner, the affiliates of the General Partner continue to be both debtors and creditors to us. As of March 31, 2017 and December 31, 2016, we had a net balance due from (to) affiliates of the General Partner of $18.3 million and $(0.1) million, respectively.

Spare Parts Sharing Agreement

Affiliates of CF Industries own and operate nitrogen fertilizer complexes that utilize some equipment that is similar to equipment at our Verdigris nitrogen complex. Each of the various manufacturing complexes maintains spare parts for use in its facilities. In the event that an unplanned need arises and to help minimize manufacturing downtime, we have entered into a spare parts sharing agreement with affiliates of CF Industries that permits spare parts to be shared among the manufacturing complexes from time to time. Parts that are borrowed from another complex under the agreement are either refurbished and returned to the lender or replaced.

Leases

We entered into an amended and restated lease with an affiliate of the General Partner under which the ammonia assets in our terminal in Blair, Nebraska are leased by the affiliate. The lease is effective for a five-year term ending on December 31, 2018, and the affiliate of the General Partner has options to renew for three additional five-year terms. The quarterly lease payment is $100,000, subject to an annual inflation adjustment, and additional rent will be paid equal to all costs, expenses, and obligations incurred by the affiliate of the General Partner related to the use, occupancy and operation of the terminal.

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We also have leased certain of our rail cars to an affiliate of the General Partner for quarterly rental payments of $3,600 per car. This lease was effective initially for a one-year term and is extended automatically for successive one-year terms unless terminated by either party thereto prior to renewal.

In each of the three months ended March 31, 2017 and 2016, we recognized rental income of $0.1 million. We report this income as other income from an affiliate of the General Partner in our consolidated statements of operations.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion and analysis in conjunction with Terra Nitrogen Company, L.P.'s ("TNCLP," "we," "our" or "us") annual consolidated financial statements and related notes, which are included in our 2016 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 23, 2017 (2016 Annual Report), as well as our Unaudited Consolidated Financial Statements and the related Notes thereto contained in Part I, Item 1 of this report. The section entitled "Risk Factors" contained in Item 1A of our 2016 Annual Report, and similar discussions in our other SEC filings, describe some of the important risk factors that may affect our business, financial condition, results of operations and/or liquidity. You should read and consider carefully those risks, in addition to the other information in this report and in our other filings with the SEC.

Company Overview

TNCLP is a Delaware limited partnership that produces nitrogen fertilizer products. Our principal products are anhydrous ammonia (ammonia) and urea ammonium nitrate solution (UAN), which we manufacture at our facility in Verdigris, Oklahoma.

We conduct our operations through an operating partnership, Terra Nitrogen, Limited Partnership (TNLP or the Operating Partnership, and collectively with TNCLP, the Partnership). Terra Nitrogen GP Inc. (TNGP or the General Partner), a Delaware corporation, is the general partner of both TNCLP and TNLP and owns a 0.025% general partner interest in each of TNCLP and TNLP. The General Partner is an indirect, wholly owned subsidiary of CF Industries Holdings, Inc. (CF Industries), a Delaware corporation. Throughout this document, the term "affiliates of the General Partner" refers to consolidated subsidiaries of CF Industries, including TNGP.

CF Industries, through its subsidiaries, is a global leader in the manufacturing and distribution of nitrogen products, serving both agricultural and industrial customers. CF Industries operates world-class nitrogen manufacturing complexes in the United States, Canada and the United Kingdom and distributes plant nutrients through a system of terminals, warehouses, and associated transportation equipment located primarily in the midwestern United States.

We are dependent on CF Industries for our success in a number of respects. TNCLP and TNGP have no employees. Affiliates of the General Partner provide certain services to us under the Amendment to the General and Administrative Services and Product Offtake Agreement (the Services and Offtake Agreement). Pursuant to the Services and Offtake Agreement, the Partnership sells all of its fertilizer products to affiliates of the General Partner at prices based on market prices for the Partnership's fertilizer products as defined in the Services and Offtake Agreement. Title and risk of loss transfer to affiliates of the General Partner as the product is shipped from the plant gate. Under the Services and Offtake Agreement, affiliates of the General Partner provide certain services to us, including production planning, manufacturing management, logistics, procurement, accounting, legal, risk management, investor relations and other general and administrative services. For additional information concerning CF Industries, refer to CF Industries' filings with the SEC on Form 10-K, Form 10-Q and Form 8-K, and for further information regarding our agreements with CF Industries and the General Partner, see Notes to Unaudited Consolidated Financial Statements, Note 9—Related Party Transactions.

Nitrogen Fertilizer Market Conditions

Our products are global commodities and are subject to price competition. The customers for our products make their purchasing decisions principally on the basis of delivered price and, to a lesser extent, on customer service and product quality. The selling prices of our products fluctuate in response to global market conditions and changes in supply and demand.

Over the past decade, strong demand, high capacity utilization and increasing operating margins as a result of higher global nitrogen fertilizer prices stimulated global investment in nitrogen production facilities, which resulted in an increase in global nitrogen fertilizer production capacity. As a result, global nitrogen fertilizer supply increased faster than global nitrogen fertilizer demand, creating the current global oversupply in the market, and leading to lower nitrogen fertilizer selling prices.

A significant amount of new nitrogen production capacity came on line in 2016, and additional production capacity is expected to come on line in 2017, including a significant increase in production capacity in North America. This new nitrogen production capacity includes the capacity expansion projects that were completed in 2016 by affiliates of our General Partner. The new nitrogen production capacity will further increase supply. We expect the lower priced environment to continue until global supply and demand become more balanced through a combination of continued demand growth and supply reductions as producers respond to lower realized margins by taking higher cost production facilities off line.

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The first quarter of 2017 was significantly impacted by lower selling prices. Our average selling prices for ammonia and UAN declined by 23% and 24%, respectively, during the first quarter of 2017 as compared to the first quarter of 2016, which reduced both our net sales and gross margin in the first quarter of 2017 by $36.9 million. 

Results of Operations

We reported net earnings of $42.2 million for the three months ended March 31, 2017 on net sales of $119.0 million, compared with net earnings of $37.7 million for the three months ended March 31, 2016 on net sales of $108.0 million. Net earnings per common unit for the three months ended March 31, 2017, were $2.10 compared with $1.44 for the three months ended March 31, 2016.

The following table shows our results of operations for the three months ended March 31, 2017 and 2016:

	Three months ended March 31,
	2017			2016			2017 vs. 2016
	(in millions, except as noted)
Net sales	$	119.0		$	108.0		$	11.0		10	%
Cost of goods sold	72.4			64.9			7.5			12	%
Gross margin	46.6			43.1			3.5			8	%
Gross margin percentage	39.2		%	39.9		%	(0.7		)%
Selling, general and administrative expenses	4.4			5.4			(1.0		)	(19	)%
Net earnings	$	42.2		$	37.7		$	4.5		12	%
Net earnings allocable to common units	$	38.8		$	26.7		$	12.1		45	%
Net earnings per common unit (dollars per common unit)	$	2.10		$	1.44		$	0.66		46	%
Sales volume (tons in thousands):
Ammonia	127			91			36			40	%
UAN(1)	532			362			170			47	%
Total	659			453			206			45	%
Average selling prices (dollars per ton):
Ammonia	$	286		$	373		$	(87	)	(23	)%
UAN(1)	$	154		$	203		$	(49	)	(24	)%
Cost of natural gas (dollars per MMBtu):
Purchased natural gas costs(2)	$	3.06		$	1.99		$	1.07		54	%
Realized derivatives (gain) loss(3)	(0.03		)	0.89			(0.92		)	N/M
Cost of natural gas	$	3.03		$	2.88		$	0.15		5	%
Production volume by product (tons in thousands):
Ammonia(4)	327			208			119			57	%
UAN(1)	518			325			193			59	%

_______________________________________________________________________________

N/M - Not Meaningful

⁽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.

⁽⁴⁾  Gross ammonia production, including amounts subsequently upgraded on-site into UAN.

First Quarter of 2017 Compared to the First Quarter of 2016

Our net sales for the first quarter of 2017 were $119.0 million, an increase of $11.0 million, or 10%, from the first quarter of 2016 net sales of $108.0 million. The increase was primarily due to higher UAN and ammonia sales volume in the first quarter of 2017 versus the first quarter of 2016 due to higher production in the first quarter of 2017 compared to the first quarter of 2016 as a result of an unplanned outage in one of our ammonia and UAN plants in the first quarter of 2016. Additionally, favorable spring weather conditions in the southern United States caused earlier demand for our products. The increase in volume was partially offset by lower average selling prices for both UAN and ammonia.

UAN sales volume increased by 47% in the first quarter of 2017 to 532,000 tons from 362,000 tons in the first quarter of 2016 due to favorable early spring weather conditions in the southern United States and increased production in the first quarter

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of 2017 relative to the lower production in the prior-year period as a result of the unplanned outage in the first quarter of 2016. UAN selling prices declined by 24% from $203 per ton in the first quarter of 2016 to $154 per ton in the first quarter of 2017 due to the global oversupply of nitrogen fertilizer products.

Ammonia sales volume increased by 40% from 91,000 tons in the first quarter of 2016 to 127,000 tons in the first quarter of 2017, due to favorable early spring weather conditions in the southern United States that allowed for ammonia application, as well as increased production in the first quarter of 2017 relative to the lower production in the prior-year period as a result of the unplanned outage in the first quarter of 2016. Ammonia average selling prices declined by 23% from $373 per ton in the first quarter of 2016 to $286 per ton in the first quarter of 2017 due to the global oversupply of all nitrogen fertilizer products.

The following table shows the components of cost of goods sold and the average cost of goods sold per ton for the three months ended March 31, 2017 and 2016:

	Three months ended March 31,
	2017		2016		2017 vs. 2016
	(in millions, except per ton amounts)
Realized natural gas costs	$	34.3	$	23.9	$	10.4		44	%
Unrealized mark-to-market loss on natural gas derivatives	7.9		2.3		5.6			N/M
Payroll-related expenses	7.0		7.2		(0.2		)	(3	)%
Other	23.2		31.5		(8.3		)	(26	)%
Total cost of goods sold	$	72.4	$	64.9	$	7.5		12	%
Average cost of goods sold per ton	$	110	$	143	$	(33	)	(23	)%

______________________________________________________________________________

N/M - Not Meaningful

The average cost of goods sold decreased to $110 per ton in the first quarter of 2017 from $143 per ton in the first quarter of 2016. The 23%decrease in the average cost of goods sold per ton was due primarily to higher sales volume in the first quarter of 2017 and the non-recurrence of costs incurred as a result of the unplanned outage in the first quarter of 2016 as shown in the line titled Other in the table above. These factors were partially offset by a $7.9 million unrealized net mark-to-market loss on natural gas derivatives for the first quarter of 2017, compared to a $2.3 million unrealized net mark-to-market loss for the first quarter of 2016. The derivative portfolio at March 31, 2017 includes natural gas derivatives that hedge a portion of anticipated natural gas purchases through December 2018.

Our gross margin was $46.6 million in the first quarter of 2017 compared to $43.1 million in the first quarter of 2016. Gross margin as a percentage of net sales decreased to 39.2% during the first quarter of 2017 from 39.9% during the first quarter of 2016 as a result of the impact of lower average selling prices for both UAN and ammonia and higher unrealized net mark-to-market loss on natural gas derivatives in the first quarter of 2017 compared to the first quarter of 2016, partially offset by the non-recurrence of costs incurred as a result of the unplanned outage in the first quarter of 2016.

Our net earnings were $42.2 million in the first quarter of 2017, an increase of $4.5 million, or 12%, as compared to $37.7 million in the first quarter of 2016. Net earnings increased primarily due to the higher sales volumes discussed above, which were partially offset by lower average selling prices and a larger unrealized net mark-to-market loss on natural gas derivatives.

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Liquidity and Capital Resources

Our principal funding needs and uses of cash are working capital, plant turnaround costs, capital expenditures, and quarterly distributions. Our cash and cash equivalents balance as of March 31, 2017 was $41.2 million, an increase of $1.7 million from $39.5 million as of December 31, 2016. See further discussion below under "Cash Flows." Our cash and cash equivalents consist primarily of money market mutual funds that invest in U.S. treasuries and direct investments in U.S. treasuries with original maturities of three months or less.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for the three months ended March 31, 2017 and 2016:

	Three months ended   March 31,
	2017			2016
	(in millions)
Total cash provided by (used in):
Operating activities	$	41.6		$	45.8
Investing activities	(11.3		)	(13.8		)
Financing activities	(28.6		)	(90.2		)
Increase (decrease) in cash and cash equivalents	$	1.7		$	(58.2	)

Operating Activities

Net cash provided by operating activities was $41.6 million in the first three months of 2017 compared to $45.8 million in the same period of 2016, or a decline of $4.2 million. This decrease was due primarily to a higher amount of cash invested in working capital in the first quarter of 2017 versus the first quarter of 2016, partially offset by higher earnings. The largest portion of the increase in working capital in the first quarter of 2017 as compared to the first quarter of 2016 was due to an increase in the receivables due from our General Partner as a result of higher selling prices for ammonia and UAN in the first quarter of 2017 versus the fourth quarter of 2016 and higher production of ammonia and UAN in the first quarter of 2017 due to the unplanned outage in one of our ammonia and UAN plants in the first quarter of 2016. Net earnings included depreciation and amortization expense of $10.7 million and $10.0 million during the three months ended March 31, 2017 and 2016, respectively, and unrealized net mark-to-market loss of $7.9 million and $2.3 million during the three months ended March 31, 2017, and 2016, respectively, on natural gas derivatives.

Investing Activities

Net cash used in investing activities was $11.3 million in the first three months of 2017 compared to $13.8 million in the first three months of 2016. The $2.5 million decrease in cash used in investing activities in the first three months of 2017 was due to higher capital expenditures in the first three months of 2016 due to the unplanned outage in one of our ammonia plants in the first quarter of 2016.

Financing Activities

Net cash used in financing activities was $28.6 million in the first three months of 2017 compared to $90.2 million in the first three months of 2016, and consists of distributions paid to our unitholders. The distributions paid are based on Available Cash, as defined in our agreement of limited partnership. See further discussion below under "Partnership Distributions."

Capital Expenditures

Capital expenditures totaled $11.3 million during the three months ended March 31, 2017 compared to $13.8 million during the three months ended March 31, 2016 with the decrease primarily resulting from the unplanned ammonia plant outage in the first quarter of 2016. Capital expenditures are made to sustain our asset base, to increase capacity, to improve plant efficiency and to comply with various environmental, health and safety requirements. Due to the size, scope and timing of capital projects, certain projects require more than a year to complete.

In 2017, we currently expect to make capital expenditures in the range of $25 million to $35 million. Planned maintenance, capital expenditures, and turnarounds are subject to change due to delays in regulatory approvals and/or permitting, unanticipated increases in cost, changes in scope and completion time, performance of third parties, delay in the receipt of equipment, adverse weather, defects in materials and workmanship, labor or material shortages, transportation constraints, and other unforeseen difficulties. We anticipate a planned turnaround of one-half of our Verdigris nitrogen complex

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will occur in 2018. We had previously estimated that this turnaround would occur in late 2017, but the turnaround has been delayed due to a delay in receiving certain equipment. The turnaround will result in lower ammonia and UAN production, lower sales and lower profitability during the period of the turnaround, which will reduce Available Cash for distributions to unitholders. We expect this turnaround will cost approximately $40 million, and the calculation of Available Cash for the three months ended March 31, 2017 included a reserve of approximately one-half of this amount.

General Partner

The General Partner is an indirect, wholly owned subsidiary of CF Industries. Under the General Partner's governing documents, neither we nor the General Partner may make any bankruptcy filing (or take similar action) without the approval of the General Partner's independent directors, except in specified circumstances if there are not two independent directors on the General Partner's board of directors.

Partnership Distributions

We make quarterly distributions to holders of our general partner interest and limited partner interests based on Available Cash for the quarter as defined in our agreement of limited partnership. Available Cash is defined generally as all cash receipts less all cash disbursements, less certain reserves (including reserves for future operating and capital needs) established as the General Partner determines in its reasonable discretion to be necessary or appropriate. Changes in working capital affect Available Cash, as increases in the amount of cash invested in working capital items (such as increases in receivables or inventory and decreases in accounts payable) reduce Available Cash, while declines in the amount of cash invested in working capital items increase Available Cash. During the three months ended March 31, 2017 and 2016, we declared and paid partnership distributions of $28.6 million and $90.2 million, respectively.

We receive 99% of the Operating Partnership's Available Cash (as defined in the Operating Partnership's agreement of limited partnership) and 1% of the Operating Partnership's Available Cash is distributed by the Operating Partnership to the General Partner and its affiliates. Pursuant to our agreement of limited partnership, distributions of our Available Cash are made 99.975% to common and Class B common unitholders and 0.025% to the General Partner except that the General Partner is entitled, as an incentive, to a larger percentage of our distribution of Available Cash to the extent that cumulative distributions of Available Cash exceed specified target levels above the Minimum Quarterly Distributions (MQD) of $0.605 per unit. The General Partner has assigned its right to receive such incentive distributions to an affiliate of the General Partner.

On May 3, 2017, we announced a $0.97 cash distribution per common unit, payable on May 31, 2017 to holders of record as of May 15, 2017. In the first quarter of 2017, we exceeded the cumulative MQD amounts and will distribute Available Cash as summarized in the following table:

	Income and Distribution Allocation
	Target Limit		Target Increment		Common Units		Class B Common Units		General Partner (1)		Total
Minimum Quarterly Distributions	$	0.605	$	0.605	98.990	%	0.985	%	0.025	%	100.00	%
First Target	0.715		0.110		98.990	%	0.985	%	0.025	%	100.00	%
Second Target	0.825		0.110		85.859	%	0.985	%	13.156	%	100.00	%
Third Target	1.045		0.220		75.758	%	0.985	%	23.257	%	100.00	%
Final Target and Beyond	>1.045		—		50.505	%	0.985	%	48.510	%	100.00	%

_________________________________________________________

⁽¹⁾  Reflects Minimum Quarterly Distributions and incentive distributions to the General Partner.  The General Partner has assigned its right to incentive distributions to an affiliate of the General Partner.

General Partner Option to Effect Mandatory Redemption of Partnership Units

At March 31, 2017, the General Partner and its affiliates owned approximately 75.1% of our outstanding common units. When not more than 25% of the issued and outstanding common units are held by persons other than the General Partner and its affiliates (collectively, non-affiliated persons), as was the case at March 31, 2017, we, at the General Partner's sole discretion, may call, or assign to the General Partner or its affiliates, our right to acquire all, but not less than all, such outstanding common units held by non-affiliated persons. If the General Partner elects to acquire all outstanding common units, we are required to give at least 30 but not more than 60 days' notice of our decision to purchase the outstanding common units, and the purchase price per unit would be the greater of (1) the average of the previous 20 trading days' closing prices as of the

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date five days before the purchase is announced or (2) the highest price paid by the General Partner or any of its affiliates for any unit within the 90 days preceding the date the purchase is announced.

Cash Transactions with Affiliates

We receive cash and make expenditures directly from our cash accounts. Because we sell our products to and receive payroll and other services from affiliates of the General Partner, the affiliates of the General Partner continue to be both debtors and creditors to us.

Derivatives

We purchase natural gas at market prices to meet production requirements at our manufacturing facility. Natural gas prices are volatile, and our natural gas acquisition policy allows us to establish derivative positions that are associated with anticipated natural gas requirements. The derivatives that we use are primarily natural gas fixed price swaps and options traded in the over-the-counter markets.

Natural gas derivatives involve the risk of dealing with counterparties and their ability to meet the terms of the contracts. The counterparties to our natural gas derivatives are multi-national commercial banks, major financial institutions and large energy companies. For derivatives that are in net asset positions, we are exposed to credit loss from nonperformance by the counterparties. Credit risk is controlled through the use of multiple counterparties, credit limits, credit monitoring procedures, cash collateral requirements and master netting arrangements.

Contractual Obligations, Critical Accounting Policies and Off-Balance Sheet Arrangements

As of March 31, 2017, there were no material changes to our contractual obligations, critical accounting policies or off-balance sheet arrangements relative to those disclosed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2016 Annual Report.

Internal Revenue Service Regulation Impacting Master Limited Partnerships

We are a master limited partnership (MLP). Partnerships are generally not subject to federal income tax, although publicly traded partnerships (such as TNCLP) are treated as corporations for federal income tax purposes and therefore are subject to federal income tax, unless at least 90% of the partnership's gross income is "qualifying income" as defined in Section 7704 of the Internal Revenue Code of 1986, as amended, and the partnership is not required to register as an investment company under the Investment Company Act of 1940. As we currently satisfy the requirements to be treated as a partnership for federal income tax purposes, no federal income taxes are paid by the Partnership.

On January 19, 2017, the Internal Revenue Service (IRS) issued final regulations on the types of income and activities that constitute or generate qualifying income of a MLP. For calendar year MLPs, the effective date of the regulations is January 1, 2018. The regulations have the effect of limiting the types of income and activities that qualify under the MLP rules, subject to certain transition provisions. The regulations define the activities that generate qualifying income from certain processing or refining and transportation activities with respect to any mineral or natural resource (including fertilizer) as activities that generate qualifying income, but the regulations reserve on specifics regarding fertilizer-related activities. However, the IRS has issued a private letter ruling to a taxpayer in the fertilizer industry unrelated to TNCLP which would indicate that each taxpayer's fertilizer manufacturing activities should produce qualifying income for purposes of determining whether 90% of the partnership's gross income is qualifying income. The entity to which this private letter ruling was issued would appear to operate a nitrogen fertilizer manufacturing business that is similar to ours.  While this private letter ruling provides some insight into the manner in which the IRS analyzed fertilizer manufacturing activities at the time this ruling was issued, this private letter ruling is specific to a different entity. Thus, the IRS is not bound to follow it in respect of TNCLP, nor may we rely on it as precedent when determining whether we satisfy the MLP 90% gross income test. Any change in the federal income tax treatment of income from fertilizer-related activities as qualifying income could have a material impact on the taxation of the Partnership and could have a material adverse impact on unitholder distributions. We continue to monitor these IRS regulatory activities.

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FORWARD-LOOKING STATEMENTS

From time to time, in this Quarterly Report on Form 10-Q as well as in other written reports and oral statements, we make forward-looking statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our prospects, future developments and business strategies. We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" or "would" and similar terms and phrases, including references to assumptions, to identify forward-looking statements in this document. These forward-looking statements are made based on currently available competitive, financial and economic data, our current expectations, estimates, forecasts and projections about the industries and markets in which we operate and management's beliefs and assumptions concerning future events affecting us. These statements are not guarantees of future performance and are subject to risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Therefore, our actual results may differ materially from what is expressed in or implied by any forward-looking statements. We want to caution you not to place undue reliance on any forward-looking statements. We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this document. Additionally, we do not undertake any responsibility to provide updates regarding the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this document.

Important factors that could cause actual results to differ materially from our expectations are disclosed under "Risk Factors" in Item 1A in our Annual Report on Form 10-K filed on February 23, 2017. Such factors include, among others:

• risks related to our reliance on one production facility;

• the cyclical nature of our business and the agricultural sector;

• the global commodity nature of our fertilizer products, the impact of global supply and demand on our selling prices, and the intense global competition from other fertilizer producers;

• conditions in the U.S. agricultural industry;

• the volatility of natural gas prices in North America;

• 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 our products against which we 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 our risk measurement and hedging activities;

• limited access to capital;

• acts of terrorism and regulations to combat terrorism;

• risks related to our dependence on and relationships with CF Industries;

• deterioration of global market and economic conditions;

• risks related to our partnership structure and control of the General Partner by CF Industries;

• changes in our available cash for distribution to our unitholders, due to, among other things, changes in our earnings, the amount of cash generated by our operations and the amount of cash reserves established by the General Partner for operating, capital and other requirements;

• the conflicts of interest that may be faced by the executive officers of the General Partner, who operate both us and CF Industries; and

• tax risks to our common unitholders and changes in our treatment as a partnership for U.S. or state income tax purposes.

20

TERRA NITROGEN COMPANY, L.P.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to the impact of changes in the price of natural gas which we use in the manufacture of our nitrogen fertilizer products. Because natural gas prices are volatile, we manage the risk of changes in natural gas prices through the use of derivative financial instruments.

The derivative instruments that we use are primarily natural gas fixed price swaps and options. These contracts settle using NYMEX futures prices, which represent the basis for fair value at any given time. The derivatives are traded in months forward and settlements are scheduled to coincide with anticipated natural gas purchases during those future periods.

As of March 31, 2017 and December 31, 2016, we had open natural gas derivative contracts for 24.2 million MMBtus and 29.4 million MMBtus, respectively. A $1.00 per MMBtu increase in the forward curve prices of natural gas as of March 31, 2017, would result in a favorable change in the fair value of these derivative positions by $22.1 million, and a $1.00 per MMBtu decrease would change their fair value unfavorably by $22.1 million.

ITEM 4.    CONTROLS AND PROCEDURES.

(a)    Disclosure Controls and Procedures.    TNGP's management, with the participation of TNGP's Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, TNGP's Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective in (i) ensuring that information required to be disclosed by the Partnership in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (ii) ensuring that information required to be disclosed by the Partnership in the reports that it files or submits under the Exchange Act is accumulated and communicated to TNGP's management, including TNGP's Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b)    Internal Control Over Financial Reporting.    There have not been any changes in the Partnership's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 6.    EXHIBITS.

A list of exhibits filed with this report on Form 10-Q (or incorporated by reference to exhibits previously filed or furnished) is provided in the Exhibit Index on page 23 of this report.

21

TERRA NITROGEN COMPANY, L.P.

SIGNATURES

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 GP INC. as General Partner
Date: May 4, 2017	By:	/s/ W. ANTHONY WILL
		W. Anthony Will President and Chief Executive Officer (Principal Executive Officer)
Date: May 4, 2017	By:	/s/ DENNIS P. KELLEHER
		Dennis P. Kelleher Senior Vice President and Chief Financial Officer (Principal Financial Officer)

22

TERRA NITROGEN COMPANY, L.P.

EXHIBIT INDEX

Exhibit No.	Description
31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following financial information from Terra Nitrogen Company, L.P.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statements of Partners' Capital, (4) Consolidated Statements of Cash Flows and (5) the Notes to Unaudited Consolidated Financial Statements

23

EX-31.1

TERRA NITROGEN COMPANY, L.P.

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, W. Anthony Will, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Terra Nitrogen Company, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 4, 2017	/s/ W. ANTHONY WILL
		W. Anthony Will President and Chief Executive Officer, of Terra Nitrogen GP Inc., general partner of Terra Nitrogen Company, L.P. (Principal Executive Officer)

EX-31.2

TERRA NITROGEN COMPANY, L.P.

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dennis P. Kelleher, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Terra Nitrogen Company, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 4, 2017	/s/ DENNIS P. KELLEHER
		Dennis P. Kelleher Senior Vice President and Chief Financial Officer of Terra Nitrogen GP Inc., general partner of Terra Nitrogen Company, L.P. (Principal Financial Officer)

EX-32.1

TERRA NITROGEN COMPANY, L.P.

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Terra Nitrogen Company, L.P. (TNCLP) for the period ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, W. Anthony Will, President and Chief Executive Officer of Terra Nitrogen GP Inc., the general partner of TNCLP, hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TNCLP.

/s/ W. ANTHONY WILL
W. Anthony Will President and Chief Executive Officer of Terra Nitrogen GP Inc., general partner of Terra Nitrogen Company, L.P. (Principal Executive Officer)
Date:	May 4, 2017

EX-32.2

TERRA NITROGEN COMPANY, L.P.

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Terra Nitrogen Company, L.P. (TNCLP) for the period ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Dennis P. Kelleher, Senior Vice President and Chief Financial Officer of Terra Nitrogen GP Inc., the general partner of TNCLP, hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TNCLP.

/s/ DENNIS P. KELLEHER
Dennis P. Kelleher Senior Vice President and Chief Financial Officer of Terra Nitrogen GP Inc., general partner of Terra Nitrogen Company, L.P. (Principal Financial Officer)
Date:	May 4, 2017

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 03, 2017
Document and Entity Information
Entity Registrant Name	TERRA NITROGEN CO L P /DE
Entity Central Index Key	0000879575
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1
Entity Common Stock, Shares Outstanding		18,501,576

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 41.2	$ 39.5
Due from affiliates of the General Partner	21.7	4.0
Accounts receivable	0.4	0.6
Inventories	5.0	8.6
Other current assets	1.9	7.9
Total current assets	70.2	60.6
Property, plant and equipment—net	298.4	301.3
Other assets	9.8	11.4
Total assets	378.4	373.3
Current liabilities:
Accounts payable and accrued expenses	19.0	27.8
Due to affiliates of the General Partner	3.4	4.1
Other current liabilities	0.5	0.0
Total current liabilities	22.9	31.9
Other liabilities	3.1	2.6
Partners' capital:
General partner's interest	47.6	50.3
Total partners' capital	352.4	338.8
Total liabilities and partners' capital	378.4	373.3
Common Units
Partners' capital:
Limited partners' interests, 18,501,576 Common Units authorized, issued and outstanding; 184,072 Class B Common Units authorized, issued and outstanding	302.9	286.7
Class B Common Units
Partners' capital:
Limited partners' interests, 18,501,576 Common Units authorized, issued and outstanding; 184,072 Class B Common Units authorized, issued and outstanding	$ 1.9	$ 1.8

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares	Mar. 31, 2017	Dec. 31, 2016
Common Units
Limited Partners' interests, common units authorized	18,501,576	18,501,576
Common units issued	18,501,576	18,501,576
Common units outstanding	18,501,576	18,501,576
Class B Common Units
Limited Partners' interests, common units authorized	184,072	184,072
Common units issued	184,072	184,072
Common units outstanding	184,072	184,072

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Net sales:
Total	$ 119.0	$ 108.0
Cost of goods sold:
Materials, supplies and services	65.4	57.7
Gross margin	46.6	43.1
Other general and administrative expenses	0.5	1.5
Allocation of net earnings:
Net earnings	$ 42.2	$ 37.7
Net earnings per Common Unit (in dollars per unit)	$ 2.10	$ 1.44
Affiliate of General Partner
Net sales:
Product sales to affiliates of the General Partner	$ 118.9	$ 107.9
Other income from an affiliate of the General Partner	0.1	0.1
Cost of goods sold:
Services provided by affiliates of the General Partner	7.0	7.2
Selling, general and administrative services provided by affiliates of the General Partner	3.9	3.9
General Partner
Allocation of net earnings:
Net earnings	3.0	10.6
Common Units | Class B Common Units
Allocation of net earnings:
Net earnings	0.4	0.4
Common Units | Common Units
Allocation of net earnings:
Net earnings	$ 38.8	$ 26.7

XML

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL - USD ($) $ in Millions	Total	General Partner	Common Units Common Units	Class B Common Units Common Units
Partners' capital at Dec. 31, 2015	$ 387.0	$ 76.2	$ 308.5	$ 2.3
Increase (Decrease) in Partners' Capital
Net earnings	37.7	10.6	26.7	0.4
Distributions	(90.2)	(36.0)	(53.3)	(0.9)
Partners' capital at Mar. 31, 2016	334.5	50.8	281.9	1.8
Partners' capital at Dec. 31, 2016	338.8	50.3	286.7	1.8
Increase (Decrease) in Partners' Capital
Net earnings	42.2	3.0	38.8	0.4
Distributions	(28.6)	(5.7)	(22.6)	(0.3)
Partners' capital at Mar. 31, 2017	$ 352.4	$ 47.6	$ 302.9	$ 1.9

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Operating Activities:
Net earnings	$ 42.2	$ 37.7
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	10.7	10.0
Unrealized loss on derivatives	7.9	2.3
Loss on disposal of property, plant and equipment	0.0	0.1
Changes in operating assets and liabilities:
Accounts receivable	0.2	(1.6)
Inventories	3.6	6.8
Accounts payable and accrued expenses	(5.4)	(2.4)
Due to/from affiliates of the General Partner	(18.4)	(6.3)
Other assets and liabilities	0.8	(0.8)
Net cash provided by operating activities	41.6	45.8
Investing Activities:
Additions to property, plant and equipment	(11.3)	(13.8)
Net cash used in investing activities	(11.3)	(13.8)
Financing Activities:
Partnership distributions paid	(28.6)	(90.2)
Net cash used in financing activities	(28.6)	(90.2)
Increase (decrease) in cash and cash equivalents	1.7	(58.2)
Cash and cash equivalents at beginning of period	39.5	106.4
Cash and cash equivalents at end of period	$ 41.2	$ 48.2

XML

Background and Basis of Presentation

3 Months Ended

Mar. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Background and Basis of Presentation

Background and Basis of Presentation

Terra Nitrogen Company, L.P. ("TNCLP," "we," "our" or "us") is a Delaware limited partnership that produces nitrogen fertilizer products. Our principal products are anhydrous ammonia (ammonia) and urea ammonium nitrate solution (UAN), which we manufacture at our facility in Verdigris, Oklahoma.

We conduct our operations through an operating partnership, Terra Nitrogen, Limited Partnership (TNLP or the Operating Partnership, and collectively with TNCLP, the Partnership). Terra Nitrogen GP Inc. (TNGP or the General Partner), a Delaware corporation, is the general partner of both TNCLP and TNLP and owns a 0.025% general partner interest in each of TNCLP and TNLP. The General Partner is an indirect, wholly owned subsidiary of CF Industries Holdings, Inc. (CF Industries), a Delaware corporation. Ownership of TNCLP is composed of the general partner interests and the limited partner interests. The general partner interest in TNCLP is represented by 4,720 general partner units. Limited partner interests are represented by common units, which are listed for trading on the New York Stock Exchange under the symbol "TNH," and Class B common units. As of March 31, 2017, we had 18,501,576 common units and 184,072 Class B common units issued and outstanding. CF Industries through its subsidiaries owned 13,889,014 common units (representing approximately 75.1% of the total outstanding common units) and all of the Class B common units as of March 31, 2017.

We are a master limited partnership (MLP). Partnerships are generally not subject to federal income tax, although publicly traded partnerships (such as TNCLP) are treated as corporations for federal income tax purposes (and therefore are subject to federal income tax), unless at least 90% of the partnership's gross income is "qualifying income" as defined in Section 7704 of the Internal Revenue Code of 1986, as amended, and the partnership is not required to register as an investment company under the Investment Company Act of 1940. As we currently satisfy the requirements to be treated as a partnership for federal income tax purposes, no federal income taxes are paid by the Partnership.

On January 19, 2017, the Internal Revenue Service (IRS) issued final regulations on the types of income and activities that constitute or generate qualifying income of a MLP. For calendar year MLPs, the effective date of the regulations is January 1, 2018. The regulations have the effect of limiting the types of income and activities that qualify under the MLP rules, subject to certain transition provisions. The regulations define the activities that generate qualifying income from certain processing or refining and transportation activities with respect to any mineral or natural resource (including fertilizer) as activities that generate qualifying income, but the regulations reserve on specifics regarding fertilizer-related activities. However, the IRS has issued a private letter ruling to a taxpayer in the fertilizer industry unrelated to TNCLP which would indicate that each taxpayer's fertilizer manufacturing activities should produce qualifying income for purposes of determining whether 90% of the partnership's gross income is qualifying income. The entity to which this private letter ruling was issued would appear to operate a nitrogen fertilizer manufacturing business that is similar to ours. While this private letter ruling provides some insight into the manner in which the IRS analyzed fertilizer manufacturing activities at the time this ruling was issued, this private letter ruling is specific to a different entity. Thus, the IRS is not bound to follow it in respect of TNCLP, nor may we rely on it as precedent when determining whether we satisfy the MLP 90% gross income test. Any change in the federal income tax treatment of income from fertilizer-related activities as qualifying income could have a material impact on the taxation of the Partnership and could have a material adverse impact on unitholder distributions. We continue to monitor these IRS regulatory activities.

The accompanying unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements for the year ended December 31, 2016, in accordance with accounting principles generally accepted in the United States for interim financial reporting. In the opinion of management, these statements reflect all adjustments, consisting only of normal and recurring adjustments, that are necessary for the fair representation of the information for the periods presented. The unaudited interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Operating results for any period presented apply to that period only and are not necessarily indicative of results for any future period.

The preparation of the unaudited interim consolidated financial statements requires management to make use of estimates and assumptions that affect the reported amount of assets and liabilities, revenue and expenses and certain financial statement disclosures. Actual results could differ from these estimates. Significant estimates and assumptions in these unaudited interim consolidated financial statements include net realizable value of inventories, environmental remediation liabilities, environmental and litigation contingencies, useful lives of property, plant and equipment, the assumptions used in the evaluation of potential impairment of property, plant and equipment and the allowance for doubtful accounts receivable.

The accompanying unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related disclosures included in our 2016 Annual Report on Form 10-K filed with the SEC on February 23, 2017.

Throughout this document, the term "affiliates of the General Partner" refers to consolidated subsidiaries of CF Industries, including TNGP.

XML

New Accounting Standards

3 Months Ended

Mar. 31, 2017

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Accounting Standards

New Accounting Standards

Recently Adopted Pronouncement

On January 1, 2017, we adopted Accounting Standards Update (ASU) No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU No. 2015-11 changes the inventory measurement principle for entities using the first-in, first-out (FIFO) or average cost methods. For entities utilizing one of these methods, the inventory measurement principle changed from the lower of cost or market to the lower of cost and net realizable value. We follow the FIFO or average cost methods and the adoption of this ASU did not have a material effect on our consolidated financial statements.

Recently Issued Pronouncement

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments. Additionally, the costs to obtain and fulfill a contract, including assets to be recognized, are to be capitalized and such capitalized costs are to be disclosed. In July 2015, the FASB voted to defer the effective date of this ASU through the issuance of ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, to December 15, 2017 for interim and annual reporting periods beginning after that date. Accordingly, we will adopt ASU No. 2014-09, as amended, beginning in our first quarter of 2018. We are currently evaluating the impact of the adoption of this ASU on the Amendment to the General and Administrative Services and Product Offtake Agreement (the Services and Offtake Agreement), through which we sell all of our fertilizer products to affiliates of the General Partner, and the related impact on our consolidated financial statements. We are also reviewing our business processes, systems, controls, and disclosures to determine if any changes are needed to support adoption of ASU No. 2014-09.

XML

Agreement of Limited Partnership

3 Months Ended

Mar. 31, 2017

Partners' Capital Notes [Abstract]

Agreement of Limited Partnership

Agreement of Limited Partnership

We make quarterly distributions to holders of our general partner interest and limited partner interests based on Available Cash for the quarter as defined in our agreement of limited partnership. Available Cash is defined generally as all cash receipts less all cash disbursements, less certain reserves (including reserves for future operating and capital needs) established as the General Partner determines in its reasonable discretion to be necessary or appropriate. Changes in working capital affect Available Cash as increases in the amount of cash invested in working capital items (such as increases in receivables or inventory and decreases in accounts payable) reduce Available Cash, while declines in the amount of cash invested in working capital items increase Available Cash. During the three months ended March 31, 2017 and 2016, we declared and paid partnership distributions of $28.6 million and $90.2 million, respectively.

We receive 99% of the Operating Partnership's Available Cash (as defined in the Operating Partnership's agreement of limited partnership) and 1% of the Operating Partnership's Available Cash is distributed by the Operating Partnership to the General Partner and its affiliates. Pursuant to our agreement of limited partnership, distributions of our Available Cash are made 99.975% to common and Class B common unitholders and 0.025% to the General Partner except that the General Partner is entitled, as an incentive, to a larger percentage of our distribution of Available Cash to the extent that cumulative distributions of Available Cash exceed specified target levels above the Minimum Quarterly Distributions (MQD) of $0.605 per unit. The General Partner has assigned its right to receive such incentive distributions to an affiliate of the General Partner.

On May 3, 2017, we announced a $0.97 cash distribution per common unit, payable on May 31, 2017 to holders of record as of May 15, 2017. In the first quarter of 2017, we exceeded the cumulative MQD amounts and will distribute Available Cash as summarized in the following table:

	Income and Distribution Allocation
	Target Limit		Target Increment		Common Units		Class B Common Units		General Partner(1)		Total
Minimum Quarterly Distributions	$	0.605	$	0.605	98.990	%	0.985	%	0.025	%	100.00	%
First Target	0.715		0.110		98.990	%	0.985	%	0.025	%	100.00	%
Second Target	0.825		0.110		85.859	%	0.985	%	13.156	%	100.00	%
Third Target	1.045		0.220		75.758	%	0.985	%	23.257	%	100.00	%
Final Target and Beyond	>1.045		—		50.505	%	0.985	%	48.510	%	100.00	%

⁽¹⁾  Reflects Minimum Quarterly Distributions and incentive distributions to the General Partner. The General Partner has assigned its right to incentive distributions to an affiliate of the General Partner.

The quarterly cash distributions to the unitholders and the General Partner declared during the first three months of 2017 and 2016 are as follows:

		Common Units				Class B Common Units				General Partner		Total Distributions Declared
		Total		Per unit		Total		Per unit		Total
		(in millions, except per unit amounts)
2017
	First Quarter	$	22.6	$	1.22	$	0.3	$	1.52	$	5.7	$	28.6
2016
	First Quarter	$	53.3	$	2.88	$	0.9	$	4.78	$	36.0	$	90.2

As of March 31, 2017, the General Partner and its affiliates owned approximately 75.1% of our outstanding common units. When not more than 25% of our issued and outstanding common units are held by persons other than the General Partner and its affiliates (collectively, non-affiliated persons), as was the case at March 31, 2017, we, at the General Partner's sole discretion, may call, or assign to the General Partner or its affiliates, our right to acquire all, but not less than all, such outstanding common units held by non-affiliated persons. If the General Partner elects to acquire all outstanding common units, we are required to give at least 30 but not more than 60 days' notice of our decision to purchase the outstanding common units, and the purchase price per unit would be the greater of (1) the average of the previous 20 trading days' closing prices as of the date five days before the purchase is announced or (2) the highest price paid by the General Partner or any of its affiliates for any unit within the 90 days preceding the date the purchase is announced.

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Net Earnings per Common Unit

3 Months Ended

Mar. 31, 2017

Earnings Per Unit [Abstract]

Net Earnings per Common Unit

Net Earnings per Common Unit

Net earnings per common unit are based on the weighted-average number of common units outstanding during the period. The following table provides a calculation for net earnings per common unit for the three months ended March 31, 2017 and 2016:

	Three months ended   March 31,
	2017		2016
	(in millions, except per unit amounts)
Basic earnings per common unit:
Net earnings	$	42.2	$	37.7
Less: Net earnings allocable to General Partner	3.0		10.6
Less: Net earnings allocable to Class B common units	0.4		0.4
Net earnings allocable to common units	$	38.8	$	26.7
Weighted-average common units outstanding	18.5		18.5
Net earnings per common unit	$	2.10	$	1.44

There were no dilutive TNCLP units outstanding for the three months ended March 31, 2017 and 2016.

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Inventories

3 Months Ended

Mar. 31, 2017

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories consisted of the following:

	March 31, 2017		December 31, 2016
	(in millions)
Finished goods	$	3.3	$	6.8
Raw materials, spare parts and supplies	1.7		1.8
Total	$	5.0	$	8.6

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Derivative Financial Instruments

3 Months Ended

Mar. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Derivative financial instruments are executed on our behalf by an affiliate of the General Partner to reduce our exposure to changes in commodity prices for natural gas. Natural gas is the largest and most volatile component of the manufacturing cost for nitrogen-based fertilizers.

The derivatives that we use are primarily natural gas fixed price swaps and options traded in the over-the-counter (OTC) markets. The derivative contract prices are based on NYMEX future prices based on physical delivery of natural gas at the Henry Hub in Louisiana, the most common and financially liquid location of reference for derivative financial instruments related to natural gas. However, we purchase natural gas for our manufacturing facility from suppliers whose prices are based primarily on the ONEOK index (based on physical delivery of natural gas in Oklahoma, rather than at the Henry Hub). This creates a location basis differential between the derivative contract price and the price we pay for physical delivery of natural gas. Accordingly, the prices underlying the derivative financial instruments we use may not exactly match the prices of natural gas we purchase and consume. We enter into natural gas derivative contracts with respect to gas to be consumed by us in the future, and settlements of those derivative contracts are scheduled to coincide with our anticipated purchases of natural gas used to manufacture nitrogen products during those future periods. We use natural gas derivatives as an economic hedge of gas price risk, but without the application of hedge accounting.

We report derivatives on our consolidated balance sheets at fair value. Changes in fair value are recognized in cost of goods sold in the period of change. Cash flows related to natural gas derivatives are reported as operating activities.

The gross fair values of derivatives on our consolidated balance sheets are shown below. All balance sheet amounts from derivatives arise from natural gas derivatives that are not designated as hedging instruments. For additional information on derivative fair values, see Note 7—Fair Value Measurements.

	March 31, 2017			December 31, 2016
	(in millions)
Derivative Assets
Unrealized gains in other current assets	$	1.9		$	7.9
Unrealized gains in other assets	—			1.1
Total derivative assets	1.9			9.0
Derivative Liabilities
Unrealized losses in other current liabilities	(0.5		)	—
Unrealized losses in other liabilities	(2.0		)	(1.6		)
Total derivative liabilities	(2.5		)	(1.6		)
Net derivative (liabilities) assets	$	(0.6	)	$	7.4

The effect of derivatives in our consolidated statements of operations is shown below. All amounts arise from natural gas derivatives that are not designated as hedging instruments and are recorded in cost of goods sold.

	Three months ended   March 31,
	2017			2016
	(in millions)
Unrealized net mark-to-market losses	$	(7.9	)	$	(2.3	)
Realized net gains (losses)	0.3			(7.4		)
Net derivative losses	$	(7.6	)	$	(9.7	)

As of March 31, 2017 and December 31, 2016, we had open natural gas derivative contracts for 24.2 million MMBtus (millions of British thermal units) and 29.4 million MMBtus of natural gas, respectively. The derivative portfolio at March 31, 2017 includes natural gas derivatives that economically hedge a portion of anticipated natural gas purchases through December 2018. For the three months ended March 31, 2017, we used derivatives to cover approximately 46% of our natural gas consumption.

The counterparties to our derivative contracts are multinational commercial banks, major financial institutions and large energy companies. The derivatives are executed with several counterparties generally under International Swaps and Derivatives Association (ISDA) agreements. Most of the ISDA agreements contain credit-risk-related contingent features such as cross-default provisions and credit support thresholds that are dependent upon the credit ratings of the General Partner affiliate. In the event of certain defaults or a credit ratings downgrade of the General Partner affiliate, the counterparty may request early termination and net settlement of certain derivative trades or may require the General Partner affiliate to collateralize derivatives in a net liability position. The General Partner affiliate’s revolving credit agreement, at any time when it is secured, provides a cross collateral feature for those derivatives that are with counterparties that are party to, or affiliates of parties to, the revolving credit agreement so that no separate collateral would be required for those counterparties in connection with such derivatives. In the event the General Partner affiliate's revolving credit agreement becomes unsecured, the General Partner affiliate could be required to post separate collateral in connection with such derivatives. As of March 31, 2017 and December 31, 2016, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in a net liability position was $2.5 million and $1.6 million, respectively, which also approximates the fair value of the maximum amount of assets needed to settle the obligations if the credit-risk-related contingent features were triggered and the General Partner affiliate was unable to post collateral at the reporting dates. As of March 31, 2017 and December 31, 2016, we and the General Partner affiliate had no cash collateral on deposit for derivative contracts. The credit support documents executed in connection with certain ISDA agreements generally provide the General Partner affiliate and the counterparties the right to set off collateral against amounts owing under the ISDA agreements upon the occurrence of a default or a specified termination event.

The following table presents amounts relevant to offsetting our derivative assets and liabilities as of March 31, 2017 and December 31, 2016:

	Gross and net amounts presented in consolidated balance sheets(1)			Gross amounts not offset in consolidated balance sheets
				Financial instruments			Cash collateral received (pledged)		Net amount
	(in millions)
March 31, 2017
Total derivative assets	$	1.9		$	1.9		$	—	$	—
Total derivative liabilities	(2.5		)	(1.9		)	—		(0.6		)
Net derivative liabilities	$	(0.6	)	$	—		$	—	$	(0.6	)
December 31, 2016
Total derivative assets	$	9.0		$	1.6		$	—	$	7.4
Total derivative liabilities	(1.6		)	(1.6		)	—		—
Net derivative assets	$	7.4		$	—		$	—	$	7.4

_______________________________________________________________________________

⁽¹⁾  We report the fair values of our derivative assets and liabilities on a gross basis on our consolidated balance sheets. As a result, the gross amounts recognized and net amounts presented herein are the same.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents assets and liabilities included in our consolidated balance sheets that are recognized at fair value on a recurring basis, and indicates the fair value hierarchy utilized to determine such fair value as of March 31, 2017 and December 31, 2016:

	March 31, 2017
	Total			Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(in millions)
Cash equivalents	$	40.1		$	40.1	$	—		$	—
Unrealized gains on natural gas derivatives	1.9			—		1.9			—
Total assets at fair value	$	42.0		$	40.1	$	1.9		$	—
Unrealized losses on natural gas derivatives	$	(2.5	)	$	—	$	(2.5	)	$	—
Total liabilities at fair value	$	(2.5	)	$	—	$	(2.5	)	$	—

	December 31, 2016
	Total			Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(in millions)
Cash equivalents	$	32.0		$	32.0	$	—		$	—
Unrealized gains on natural gas derivatives	9.0			—		9.0			—
Total assets at fair value	$	41.0		$	32.0	$	9.0		$	—
Unrealized losses on natural gas derivatives	$	(1.6	)	$	—	$	(1.6	)	$	—
Total liabilities at fair value	$	(1.6	)	$	—	$	(1.6	)	$	—

Cash Equivalents

As of March 31, 2017 and December 31, 2016, our cash equivalents consisted primarily of money market mutual funds that invest in U.S. treasuries and direct investments in U.S. treasuries with original maturities of three months or less.

Natural Gas Derivatives

The derivative instruments that we use are primarily natural gas fixed price swaps and options traded in the OTC markets with multi-national commercial banks, other major financial institutions and large energy companies. The derivatives are traded in months forward and settlements are scheduled to coincide with anticipated gas purchases during those future periods. These contracts settle using NYMEX futures prices and accordingly, to determine the fair value of these instruments, we use quoted market prices from NYMEX and standard pricing models with inputs derived from or corroborated by observable market data such as forward curves supplied by an industry-recognized unrelated third party. See Note 6—Derivative Financial Instruments for additional information.

Assets Measured at Fair Value on a Nonrecurring Basis

We also have assets that may be measured at fair value on a nonrecurring basis; that is, the assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. These include long-lived assets that may be written down to fair value as a result of impairment. We determined that these fair value measurements rely primarily on Partnership-specific inputs and the Partnership's assumptions about the use of the assets. Since certain of the assumptions would involve inputs that are not observable, these fair values would reside within Level 3 of the fair value hierarchy.

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Property, Plant and Equipment, net

3 Months Ended

Mar. 31, 2017

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment, Net

Property, Plant and Equipment—Net

Property, plant and equipment—net consisted of the following:

	March 31, 2017		December 31, 2016
	(in millions)
Land	$	1.4	$	1.4
Buildings and improvements	16.8		16.7
Machinery and equipment	565.3		562.3
Construction in progress	26.1		21.9
Property, plant and equipment	609.6		602.3
Less: Accumulated depreciation and amortization	311.2		301.0
Property, plant and equipment—net	$	298.4	$	301.3

Losses on the disposal of certain machinery and equipment were zero and $0.1 million for the three months ended March 31, 2017 and 2016, respectively, and are included in other general and administrative expenses on our consolidated statements of operations.

Plant turnarounds—Scheduled inspections, replacements and overhauls of machinery and equipment at our continuous process manufacturing facility are referred to as plant turnarounds. The expenditures related to turnarounds are capitalized in property, plant and equipment when incurred. The following is a summary of capitalized plant turnaround costs:

	Three months ended   March 31,
	2017			2016
	(in millions)
Net capitalized turnaround costs:
Beginning balance	$	26.6		$	37.8
Additions	0.6			1.2
Depreciation	(4.1		)	(3.6		)
Ending balance	$	23.1		$	35.4

Scheduled replacements and overhauls of machinery and equipment include the dismantling, repair or replacement and installation of various components including piping, valves, motors, turbines, pumps, compressors, heat exchangers and the replacement of catalyst when a full plant shutdown occurs. Scheduled inspections are also conducted during full plant shutdowns, including required safety inspections which entail the disassembly of various components such as steam boilers, pressure vessels and other equipment requiring safety certifications. Internal employee costs and overhead are not considered turnaround costs and are not capitalized.

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Related Party Transactions

3 Months Ended

Mar. 31, 2017

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

TNCLP and TNGP have no employees. We have entered into several agreements with a subsidiary of CF Industries relating to the operation of our business and the sale of the fertilizer products produced at our Verdigris facility. We believe that each of these agreements is on terms that are fair and reasonable to us.

Services and Offtake Agreement

Pursuant to the Services and Offtake Agreement, the Partnership sells all of its fertilizer products to affiliates of the General Partner at prices based on market prices for the Partnership's fertilizer products as defined in the Services and Offtake Agreement. Title and risk of loss transfer to affiliates of the General Partner as the product is shipped from the plant gate. The Services and Offtake Agreement was effective initially for a one-year term and is extended automatically for successive one-year terms unless terminated by one of the parties prior to renewal.

Directly Incurred Charges

Since we have no employees, we rely on employees from an affiliate of the General Partner to operate our Verdigris facility. As a result, the payroll and payroll-related expenses and benefit costs, such as health insurance and pension costs, are incurred by an affiliate of the General Partner and directly charged to us. Payroll, payroll-related expenses and other employee-related benefit costs directly charged to us for the three months ended March 31, 2017 and 2016 were $7.0 million and $7.2 million, respectively. We report these expenses as services provided by affiliates of the General Partner in cost of goods sold in our consolidated statements of operations.

Allocated Charges

CF Industries, together with its affiliates, also provides certain services to us under the Services and Offtake Agreement. These services include production planning, manufacturing management, logistics, procurement, accounting, legal, risk management, investor relations and other general and administrative functions. Allocated expenses charged to us in each of the three months ended March 31, 2017 and 2016 were $3.9 million. We report these expenses as selling, general and administrative services provided by affiliates of the General Partner in our consolidated statements of operations.

Amounts Due to/from Affiliates of the General Partner

We receive cash and make expenditures directly from our cash accounts. Because we sell our products to and receive payroll and other services from affiliates of the General Partner, the affiliates of the General Partner continue to be both debtors and creditors to us. As of March 31, 2017 and December 31, 2016, we had a net balance due from (to) affiliates of the General Partner of $18.3 million and $(0.1) million, respectively.

Spare Parts Sharing Agreement

Affiliates of CF Industries own and operate nitrogen fertilizer complexes that utilize some equipment that is similar to equipment at our Verdigris nitrogen complex. Each of the various manufacturing complexes maintains spare parts for use in its facilities. In the event that an unplanned need arises and to help minimize manufacturing downtime, we have entered into a spare parts sharing agreement with affiliates of CF Industries that permits spare parts to be shared among the manufacturing complexes from time to time. Parts that are borrowed from another complex under the agreement are either refurbished and returned to the lender or replaced.

Leases

We entered into an amended and restated lease with an affiliate of the General Partner under which the ammonia assets in our terminal in Blair, Nebraska are leased by the affiliate. The lease is effective for a five-year term ending on December 31, 2018, and the affiliate of the General Partner has options to renew for three additional five-year terms. The quarterly lease payment is $100,000, subject to an annual inflation adjustment, and additional rent will be paid equal to all costs, expenses, and obligations incurred by the affiliate of the General Partner related to the use, occupancy and operation of the terminal.

We also have leased certain of our rail cars to an affiliate of the General Partner for quarterly rental payments of $3,600 per car. This lease was effective initially for a one-year term and is extended automatically for successive one-year terms unless terminated by either party thereto prior to renewal.

In each of the three months ended March 31, 2017 and 2016, we recognized rental income of $0.1 million. We report this income as other income from an affiliate of the General Partner in our consolidated statements of operations.

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Agreement of Limited Partnership (Tables)

3 Months Ended

Mar. 31, 2017

Partners' Capital Notes [Abstract]

Summary of available cash distribution

In the first quarter of 2017, we exceeded the cumulative MQD amounts and will distribute Available Cash as summarized in the following table:

	Income and Distribution Allocation
	Target Limit		Target Increment		Common Units		Class B Common Units		General Partner(1)		Total
Minimum Quarterly Distributions	$	0.605	$	0.605	98.990	%	0.985	%	0.025	%	100.00	%
First Target	0.715		0.110		98.990	%	0.985	%	0.025	%	100.00	%
Second Target	0.825		0.110		85.859	%	0.985	%	13.156	%	100.00	%
Third Target	1.045		0.220		75.758	%	0.985	%	23.257	%	100.00	%
Final Target and Beyond	>1.045		—		50.505	%	0.985	%	48.510	%	100.00	%

Schedule of Quarterly Cash Distributions Made to Members or Limited Partners

		Common Units				Class B Common Units				General Partner		Total Distributions Declared
		Total		Per unit		Total		Per unit		Total
		(in millions, except per unit amounts)
2017
	First Quarter	$	22.6	$	1.22	$	0.3	$	1.52	$	5.7	$	28.6
2016
	First Quarter	$	53.3	$	2.88	$	0.9	$	4.78	$	36.0	$	90.2

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Net Earnings per Common Unit (Tables)

3 Months Ended

Mar. 31, 2017

Earnings Per Unit [Abstract]

Schedule of calculation for net earnings per common unit

The following table provides a calculation for net earnings per common unit for the three months ended March 31, 2017 and 2016:

	Three months ended   March 31,
	2017		2016
	(in millions, except per unit amounts)
Basic earnings per common unit:
Net earnings	$	42.2	$	37.7
Less: Net earnings allocable to General Partner	3.0		10.6
Less: Net earnings allocable to Class B common units	0.4		0.4
Net earnings allocable to common units	$	38.8	$	26.7
Weighted-average common units outstanding	18.5		18.5
Net earnings per common unit	$	2.10	$	1.44

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Inventories (Tables)

3 Months Ended

Mar. 31, 2017

Inventory Disclosure [Abstract]

Schedule of inventories

Inventories consisted of the following:

	March 31, 2017		December 31, 2016
	(in millions)
Finished goods	$	3.3	$	6.8
Raw materials, spare parts and supplies	1.7		1.8
Total	$	5.0	$	8.6

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Derivative Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of the gross fair values of derivatives on balance sheet

For additional information on derivative fair values, see Note 7—Fair Value Measurements.

	March 31, 2017			December 31, 2016
	(in millions)
Derivative Assets
Unrealized gains in other current assets	$	1.9		$	7.9
Unrealized gains in other assets	—			1.1
Total derivative assets	1.9			9.0
Derivative Liabilities
Unrealized losses in other current liabilities	(0.5		)	—
Unrealized losses in other liabilities	(2.0		)	(1.6		)
Total derivative liabilities	(2.5		)	(1.6		)
Net derivative (liabilities) assets	$	(0.6	)	$	7.4

Schedule of effects of derivatives in consolidated statements of operations

The effect of derivatives in our consolidated statements of operations is shown below. All amounts arise from natural gas derivatives that are not designated as hedging instruments and are recorded in cost of goods sold.

	Three months ended   March 31,
	2017			2016
	(in millions)
Unrealized net mark-to-market losses	$	(7.9	)	$	(2.3	)
Realized net gains (losses)	0.3			(7.4		)
Net derivative losses	$	(7.6	)	$	(9.7	)

Schedule of offsetting of derivative assets and liabilities

The following table presents amounts relevant to offsetting our derivative assets and liabilities as of March 31, 2017 and December 31, 2016:

	Gross and net amounts presented in consolidated balance sheets(1)			Gross amounts not offset in consolidated balance sheets
				Financial instruments			Cash collateral received (pledged)		Net amount
	(in millions)
March 31, 2017
Total derivative assets	$	1.9		$	1.9		$	—	$	—
Total derivative liabilities	(2.5		)	(1.9		)	—		(0.6		)
Net derivative liabilities	$	(0.6	)	$	—		$	—	$	(0.6	)
December 31, 2016
Total derivative assets	$	9.0		$	1.6		$	—	$	7.4
Total derivative liabilities	(1.6		)	(1.6		)	—		—
Net derivative assets	$	7.4		$	—		$	—	$	7.4

_______________________________________________________________________________

⁽¹⁾  We report the fair values of our derivative assets and liabilities on a gross basis on our consolidated balance sheets. As a result, the gross amounts recognized and net amounts presented herein are the same.

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Schedule of assets and liabilities that are recognized at fair value on a recurring basis

The following table presents assets and liabilities included in our consolidated balance sheets that are recognized at fair value on a recurring basis, and indicates the fair value hierarchy utilized to determine such fair value as of March 31, 2017 and December 31, 2016:

	March 31, 2017
	Total			Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(in millions)
Cash equivalents	$	40.1		$	40.1	$	—		$	—
Unrealized gains on natural gas derivatives	1.9			—		1.9			—
Total assets at fair value	$	42.0		$	40.1	$	1.9		$	—
Unrealized losses on natural gas derivatives	$	(2.5	)	$	—	$	(2.5	)	$	—
Total liabilities at fair value	$	(2.5	)	$	—	$	(2.5	)	$	—

	December 31, 2016
	Total			Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(in millions)
Cash equivalents	$	32.0		$	32.0	$	—		$	—
Unrealized gains on natural gas derivatives	9.0			—		9.0			—
Total assets at fair value	$	41.0		$	32.0	$	9.0		$	—
Unrealized losses on natural gas derivatives	$	(1.6	)	$	—	$	(1.6	)	$	—
Total liabilities at fair value	$	(1.6	)	$	—	$	(1.6	)	$	—

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Property, Plant and Equipment, net (Tables)

3 Months Ended

Mar. 31, 2017

Property, Plant and Equipment [Abstract]

Schedule of property, plant and equipment, net

Property, plant and equipment—net consisted of the following:

	March 31, 2017		December 31, 2016
	(in millions)
Land	$	1.4	$	1.4
Buildings and improvements	16.8		16.7
Machinery and equipment	565.3		562.3
Construction in progress	26.1		21.9
Property, plant and equipment	609.6		602.3
Less: Accumulated depreciation and amortization	311.2		301.0
Property, plant and equipment—net	$	298.4	$	301.3

Summary of plant turnaround activity

The following is a summary of capitalized plant turnaround costs:

	Three months ended   March 31,
	2017			2016
	(in millions)
Net capitalized turnaround costs:
Beginning balance	$	26.6		$	37.8
Additions	0.6			1.2
Depreciation	(4.1		)	(3.6		)
Ending balance	$	23.1		$	35.4

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Background and Basis of Presentation (Details) - shares	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Common units and interest in the partnership
General Partners' Capital Account, Units Issued	4,720
Common Units
Common units and interest in the partnership
Common units issued	18,501,576	18,501,576
Class B Common Units
Common units and interest in the partnership
Common units issued	184,072	184,072
CF Industries | Common Units
Common units and interest in the partnership
Common units owned through subsidiaries	13,889,014
Percentage of outstanding units owned through subsidiaries	75.10%
General Partner
Common units and interest in the partnership
Ownership interest in the partnership (as a percent)	0.025%

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Agreement of Limited Partnership (Details) $ / shares in Units, $ in Millions		3 Months Ended
	May 03, 2017 $ / shares	Mar. 31, 2017 USD ($) $ / shares $ / Unit shares	Mar. 31, 2016 USD ($) $ / shares
Agreement of limited partnership
General Partners' Capital Account, Units Issued | shares		4,720
Document Period End Date		Mar. 31, 2017
Declared partnership distributions | $		$ 28.6	$ 90.2
Distribution Made to Limited and General Partners, Distributions Declared, Total | $		28.6	90.2
Cash partnership distributions paid | $		$ 208.5	207.3
Available cash received from operating partnership (as a percent)		99.00%
Number of average trading days' closing prices used to determine the purchase price of outstanding units of non-affiliates		20 days
Number of days before the purchase announcement is made, as a basis for determining the purchase price of outstanding units of non-affiliates		5 days
Minimum
Agreement of limited partnership
Percentage of ownership of non-affiliates of the General Partner allowing majority owner to acquire outstanding units held by non-affiliated persons		25.00%
Notice period for making decision to purchase the outstanding units		30 days
Maximum
Agreement of limited partnership
Notice period for making decision to purchase the outstanding units		60 days
Minimum Quarterly Distributions
Agreement of limited partnership
Target Limit		0.605
Target Increment		0.605
Income and distribution allocation (as a percent)		100.00%
First Target
Agreement of limited partnership
Target Limit		0.715
Target Increment		0.110
Income and distribution allocation (as a percent)		100.00%
Second Target
Agreement of limited partnership
Target Limit		0.825
Target Increment		0.110
Income and distribution allocation (as a percent)		100.00%
Third Target
Agreement of limited partnership
Target Limit		1.045
Target Increment		0.220
Income and distribution allocation (as a percent)		100.00%
Final Target and Beyond
Agreement of limited partnership
Income and distribution allocation (as a percent)		100.00%
Final Target and Beyond | Minimum
Agreement of limited partnership
Target Limit		1.045
Common and Class B Common Units
Agreement of limited partnership
Cash distribution made, excluding when cumulative distribution is specified, (as a percent)		99.975%
Common Units
Agreement of limited partnership
Declared partnership distributions | $		$ 22.6	$ 53.3
Cash distribution declared per common limited partnership unit (in dollars per unit) | $ / shares		$ 1.22	$ 2.88
Common Units | Minimum Quarterly Distributions
Agreement of limited partnership
Income and distribution allocation (as a percent)		98.99%
Common Units | First Target
Agreement of limited partnership
Income and distribution allocation (as a percent)		98.99%
Common Units | Second Target
Agreement of limited partnership
Income and distribution allocation (as a percent)		85.859%
Common Units | Third Target
Agreement of limited partnership
Income and distribution allocation (as a percent)		75.758%
Common Units | Final Target and Beyond
Agreement of limited partnership
Income and distribution allocation (as a percent)		50.505%
Class B Common Units
Agreement of limited partnership
Declared partnership distributions | $		$ 0.3	$ 0.9
Cash distribution declared per common limited partnership unit (in dollars per unit) | $ / shares		$ 1.52	$ 4.78
Class B Common Units | Minimum Quarterly Distributions
Agreement of limited partnership
Income and distribution allocation (as a percent)		0.985%
Class B Common Units | First Target
Agreement of limited partnership
Income and distribution allocation (as a percent)		0.985%
Class B Common Units | Second Target
Agreement of limited partnership
Income and distribution allocation (as a percent)		0.985%
Class B Common Units | Third Target
Agreement of limited partnership
Income and distribution allocation (as a percent)		0.985%
Class B Common Units | Final Target and Beyond
Agreement of limited partnership
Income and distribution allocation (as a percent)		0.985%
General Partner
Agreement of limited partnership
Declared partnership distributions | $		$ 5.7	$ 36.0
Available cash distributed from operating partnership to General Partner (as a percent)		1.00%
Cash distribution made, excluding when cumulative distribution is specified, (as a percent)		0.025%
Percentage of outstanding units owned by the General Partner and its affiliates		75.10%
Period within which highest price is paid for any unit preceding the date the purchase is announced used to determine the purchase price of outstanding units of non-affiliates		90 days
General Partner | Minimum Quarterly Distributions
Agreement of limited partnership
Income and distribution allocation (as a percent)		0.025%
General Partner | First Target
Agreement of limited partnership
Income and distribution allocation (as a percent)		0.025%
General Partner | Second Target
Agreement of limited partnership
Income and distribution allocation (as a percent)		13.156%
General Partner | Third Target
Agreement of limited partnership
Income and distribution allocation (as a percent)		23.257%
General Partner | Final Target and Beyond
Agreement of limited partnership
Income and distribution allocation (as a percent)		48.51%
Subsequent Event
Agreement of limited partnership
Cash distribution declared per common limited partnership unit (in dollars per unit) | $ / shares	$ 0.97

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Net Earnings per Common Unit (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Net earnings per limited partner common unit
Net earnings	$ 42.2	$ 37.7
Weighted-average common units outstanding	18,500,000	18,500,000
Net earnings per Common Unit (in dollars per unit)	$ 2.10	$ 1.44
Dilutive TNCLP units outstanding	0	0
General Partner
Net earnings per limited partner common unit
Net earnings	$ 3.0	$ 10.6
Less: Net earnings allocable to General Partner	3.0	10.6
Common Units | Class B Common Units
Net earnings per limited partner common unit
Net earnings	0.4	0.4
Net earnings allocated	0.4	0.4
Common Units | Common Units
Net earnings per limited partner common unit
Net earnings	38.8	26.7
Net earnings allocated	$ 38.8	$ 26.7

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Inventories (Details) - USD ($) $ in Millions	Mar. 31, 2017	Dec. 31, 2016
Inventory Disclosure [Abstract]
Finished goods	$ 3.3	$ 6.8
Raw materials, spare parts and supplies	1.7	1.8
Total	$ 5.0	$ 8.6

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Derivative Financial Instruments (Details) MMBTU in Millions	3 Months Ended
	Mar. 31, 2017 USD ($) MMBTU	Mar. 31, 2016 USD ($)	Dec. 31, 2016 USD ($) MMBTU
Derivative financial instruments
Unrealized net mark-to-market losses	$ (7,900,000)	$ (2,300,000)
Open derivative contracts for natural gas (in MMBtus) | MMBTU	24.2		29.4
Percentage of natural gas consumption covered by derivatives	46.00%
Aggregate fair value of the derivative instruments with credit-risk-related contingent features in net liability position	$ 2,500,000		$ 1,600,000
Cash Collateral for Borrowed Securities	0		0
Total derivative assets
Gross and net amounts presented in consolidated balance sheet	1,900,000		9,000,000
Gross amounts not offset in consolidated balance sheet
Financial instruments	1,900,000		1,600,000
Cash collateral received	0		0
Net amount	0		7,400,000
Total derivative liabilities
Gross and net amounts presented in consolidated balance sheet	(2,500,000)		(1,600,000)
Gross amounts not offset in consolidated balance sheet
Financial instruments	(1,900,000)		(1,600,000)
Cash collateral pledged	0		0
Net amount	(600,000)		0
Net assets (liabilities)
Gross and net amounts presented in consolidated balance sheet	(600,000)		7,400,000
Natural gas derivatives not designated as hedging instruments
Derivative financial instruments
Unrealized gains in other current assets	1,900,000		7,900,000
Unrealized gains in other assets	0		1,100,000
Total derivative assets	1,900,000		9,000,000
Unrealized losses in other current liabilities	(500,000)		0
Unrealized losses in other liabilities	(2,000,000)		(1,600,000)
Total derivative liabilities	2,500,000		1,600,000
Net derivative (liabilities) assets	(600,000)		$ 7,400,000
Unrealized net mark-to-market losses	(7,900,000)	(2,300,000)
Realized net gains (losses)	300,000	(7,400,000)
Net derivative losses	$ (7,600,000)	$ (9,700,000)

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Fair Value Measurements (Details) - Recurring basis - USD ($) $ in Millions	Mar. 31, 2017	Dec. 31, 2016
Quoted Market Prices in Active Markets (Level 1)
Fair value measurements
Unrealized gains on natural gas derivatives	$ 0.0
Total assets at fair value	40.1	$ 32.0
Significant Other Observable Inputs (Level 2)
Fair value measurements
Cash Equivalents, at Fair Value	0.0
Unrealized gains on natural gas derivatives	1.9	9.0
Total assets at fair value	1.9	9.0
Unrealized losses on natural gas derivatives	(2.5)	(1.6)
Total liabilities at fair value	(2.5)	(1.6)
Total
Fair value measurements
Cash Equivalents, at Fair Value	40.1	32.0
Unrealized gains on natural gas derivatives	1.9	9.0
Total assets at fair value	42.0	41.0
Unrealized losses on natural gas derivatives	(2.5)	(1.6)
Total liabilities at fair value	(2.5)	(1.6)
Total | Quoted Market Prices in Active Markets (Level 1)
Fair value measurements
Cash Equivalents, at Fair Value	$ 40.1	$ 32.0

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Property, Plant and Equipment, net (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Property, plant and equipment, net
Document Period End Date	Mar. 31, 2017
Gross property, plant and equipment	$ 609.6		$ 602.3
Less: Accumulated depreciation and amortization	311.2		301.0
Net property, plant and equipment	298.4		301.3
Loss on disposal of property, plant and equipment	0.0	$ 0.1
Net capitalized turnaround costs:
Beginning balance	26.6	37.8
Additions	0.6	1.2
Depreciation	(4.1)	(3.6)
Ending balance	23.1	$ 35.4
Land
Property, plant and equipment, net
Gross property, plant and equipment	1.4		1.4
Buildings and improvements
Property, plant and equipment, net
Gross property, plant and equipment	16.8		16.7
Machinery and equipment
Property, plant and equipment, net
Gross property, plant and equipment	565.3		562.3
Construction in progress
Property, plant and equipment, net
Gross property, plant and equipment	$ 26.1		$ 21.9

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Related Party Transactions (Details)	3 Months Ended
	Mar. 31, 2017 USD ($) Term $ / Car	Mar. 31, 2016 USD ($)	Dec. 31, 2016 USD ($)
Related party transactions
Document Period End Date	Mar. 31, 2017
Affiliate of General Partner
Related party transactions
Payroll, payroll-related expenses and other employee related benefits	$ 7,000,000	$ 7,200,000
Due From (To) Affiliates, Net	$ 18,300,000		$ (100,000)
Services and Offtake Agreement | Affiliate of General Partner
Related party transactions
Extended term of agreement	1 year
Services and Offtake Agreement | CF Industries
Related party transactions
Allocated expenses	$ 3,900,000	3,900,000
Lease Agreements | Affiliate of General Partner
Related party transactions
Rental income received	$ 100,000	$ 100,000
Lease Agreements | Affiliate of General Partner | Ammonia assets
Related party transactions
Term of agreement	5 years
Related Party Transaction Number of Extensions Possible in Agreement Term | Term	3
Base quarterly rent of leased asset	$ 100,000
Lease Agreements | Affiliate of General Partner | Rail cars
Related party transactions
Extended term of agreement	1 year
Term of agreement	1 year
Quarterly rent per leased asset (in dollars per car) | $ / Car	3,600