10-Q 1 d10q.txt FORM 10-Q ================================================================================ FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 1-10877 TERRA NITROGEN COMPANY, L.P. (Exact name of registrant as specified in its charter) Delaware 73-1389684 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Terra Centre PO Box 6000, 600 Fourth Street Sioux City, Iowa 51102-6000 (Address of principal executive office) (Zip Code) Registrant's telephone number: (712) 277-1340 At the close of business on October 31, 2002, there were 18,501,576 Common Units outstanding. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes ___ No --- ================================================================================ PART I. FINANCIAL INFORMATION TERRA NITROGEN COMPANY, L.P. CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)
September 30, December 31, September 30, 2002 2001 2001 ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 14,462 $ 10 $ 10 Accounts receivable 27,090 32,311 25,170 Inventory - finished products 8,739 18,292 27,632 Inventory - materials and supplies 9,777 10,128 9,636 Prepaid expenses and other current assets 9,491 3,939 7,902 ------------------------------------------------------------------------------------------------------- Total current assets 69,559 64,680 70,350 ------------------------------------------------------------------------------------------------------- Net property, plant and equipment 127,800 136,335 139,336 Other assets 7,696 9,402 6,846 ------------------------------------------------------------------------------------------------------- Total assets $ 205,055 $ 210,417 $ 216,532 ======================================================================================================= LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Note payable to affiliates $ --- $ 14,293 $ 20,709 Accounts payable and accrued liabilities 12,721 12,720 17,906 Customer prepayments 3,946 2,388 --- Current portion of long-term debt and capital lease obligations 53 --- 1,000 ------------------------------------------------------------------------------------------------------- Total current liabilities 16,720 29,401 39,615 ------------------------------------------------------------------------------------------------------- Long-term debt 8,347 8,200 6,985 Long-term payable to affiliates 5,316 5,316 5,316 Partners' capital 174,672 167,500 164,616 ------------------------------------------------------------------------------------------------------- Total liabilities and partners' capital $ 205,055 $ 210,417 $ 216,532 ========================================================================================================
See Accompanying Notes to the Consolidated Financial Statements. 2 TERRA NITROGEN COMPANY, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit amounts) (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Revenues $ 76,001 $ 55,488 $ 237,639 $ 222,587 Other income 163 264 818 547 ----------------------------------------------------------------------------------------------------- Total revenues 76,164 55,752 238,457 223,134 Cost of goods sold 71,595 64,610 223,859 226,365 ----------------------------------------------------------------------------------------------------- Gross profit 4,569 (8,858) 14,598 (3,231) Operating expenses 2,598 2,135 7,242 6,876 ----------------------------------------------------------------------------------------------------- Operating income (loss) 1,971 (10,993) 7,356 (10,107) Interest expense (8) (405) (135) (817) Interest income 48 --- 51 203 ----------------------------------------------------------------------------------------------------- Net income (loss) $ 2,011 $ (11,398) $ 7,272 $ (10,721) ===================================================================================================== Net income (loss) allocable to limited partners' interest $ 1,971 $ (11,170) $ 7,127 $ (10,507) ===================================================================================================== Net income (loss) per limited partnership unit $ 0.11 $ (0.60) $ 0.39 $ (0.57) =====================================================================================================
See Accompanying Notes to the Consolidated Financial Statements. 3 TERRA NITROGEN COMPANY, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Nine Months Ended September 30, 2002 2001 ----------- ----------- Operating activities: Net income (loss) from operations $ 7,272 $ (10,721) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation and amortization 9,824 9,609 Changes in operating assets and liabilities: Receivables 5,221 (431) Inventories 9,904 (17,887) Prepaid expenses and other current assets (1,876) (4,785) Accounts payable, accrued liabilities and customer prepayments 1,559 (4,850) Other 1,706 4,413 ---------------------------------------------------------------------------------------------------- Net cash flows from operating activities 33,610 (24,652) Investing activities: Capital expenditures (1,289) (1,348) ---------------------------------------------------------------------------------------------------- Net cash flows from investing activities (1,289) (1,348) Financing activities: Net changes in short-term borrowings (14,293) 20,709 Issuance (repayment) of long-term debt and capital lease obligations 200 (1,265) Partnership distributions paid (3,776) (8,306) Other --- (3,069) ---------------------------------------------------------------------------------------------------- Net cash flows from financing activities (17,869) 8,069 ---------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 14,452 (17,931) Cash and cash equivalents at beginning of period 10 17,941 ---------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 14,462 $ 10 ====================================================================================================
See Accompanying Notes to the Consolidated Financial Statements. 4 TERRA NITROGEN COMPANY, L.P. CONSOLIDATED STATEMENTS OF PARTNER'S CAPITAL
Limited General Accumulated Total Partners' Partners' Other Partners' Interests Interests Comprehensive Capital (in thousands, except for Units) Income (Loss) ----------------------------------------------------------------------------------------------------------- Partners' capital at January 1, 2002 $ 178,808 $ (10,221) $ (1,087) $167,500 Net Income 7,127 145 --- 7,272 Change in fair value of derivatives --- --- 3,676 3,676 ------- Comprehensive income --- --- --- 10,948 Distributions (3,738) (38) (3,776) ----------------------------------------------------------------------------------------------------------- Partners' capital at September 30, 2002 $ 182,197 $ (10,114) $ 2,589 $174,672 =========================================================================================================== Limited partner units issued and Outstanding at September 30, 2002 18,501,576 =========== Limited General Accumulated Total Partners' Partners' Other Partners' Interests Interest Comprehensive Capital (in thousands, except for Units) Income (Loss) ----------------------------------------------------------------------------------------------------------- Partners' capital at January 1, 2001 $ 196,571 $ (9,859) $ --- $186,712 Net loss (10,507) (214) --- (10,721) Cumulative effect of change in accounting principle for derivative financial instruments --- --- 14,200 14,200 Change in fair value of derivatives --- --- (17,269) (17,269) -------- Comprehensive loss --- --- --- (13,790) Distributions (8,140) (166) --- (8,306) ----------------------------------------------------------------------------------------------------------- Partners' capital at September 30, 2001 $ 177,924 $ (10,239) $ (3,069) $164,616 =========================================================================================================== Limited partner units issued and Outstanding at September 30, 2001 18,501,576 ===========
See Accompanying Notes to the Consolidated Financial Statements. 5 TERRA NITROGEN COMPANY, L.P. Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The consolidated financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto contained in the Terra Nitrogen Company, L.P. ("TNCLP") Annual Report on Form 10-K for the year ended December 31, 2001. TNCLP and its operating partnership subsidiary, Terra Nitrogen, Limited Partnership (the "Operating Partnership"), are referred to herein, collectively, as the "Partnership". The accompanying unaudited consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for the fair statement of the results for the periods presented. All of these adjustments are of a normal and recurring nature. Results for the quarter are not necessarily indicative of future financial results of the Partnership. Realized gains and losses from hedging activities and premiums paid for option contracts are deferred and recognized in the month in which the hedged transactions closed. Swaps, options and other derivative instruments that do not qualify for hedge accounting treatment are marked to market each accounting period. Costs associated with settlement of natural gas purchase contracts and costs for shipping and handling are included in cost of sales. Net income per limited partnership unit is computed by dividing net income, less a 2% share allocable to the General Partner for the nine months ended September 30, 2002 and 2001, respectively, by 18,501,576 limited partner units. According to the Agreement of Limited Partnership of TNCLP, net income is allocated to the General Partner and the Limited Partners in each taxable year in the same proportion as Available Cash for such taxable year was distributed to the General Partner and the Limited Partners. If there is no cash distribution, net income is allocated to the Limited Partners and the General Partner generally based on their respective ownership percentages. Distributions of Available Cash are made 98% to the Limited Partners and 2% to the General Partner, except that the General Partner is entitled, as an incentive, to larger percentage interests (up to 50%) to the extent that distributions of Available Cash exceed specified amounts. 2. Distributions to Unitholders The Partnership makes quarterly cash distributions to Unitholders and the General Partner in an amount equal to 100% of its "Available Cash" (as defined in the Partnership Agreement). The Partnership paid a $3.8 million cash distribution ($0.20 per common unit) on August 26, 2002. On October 24, 2002, the Partnership declared a $3.8 distribution ($0.20 per common unit) payable November 22, 2002 to record holders as of November 1, 2002. The Partnership paid cash distributions totaling $8.3 million ($0.44 per common unit) in the first nine months of 2001. 6 3. Financing Arrangements The Partnership has an arrangement for demand deposits and notes with an affiliate to allow for excess Partnership cash to be deposited with or funds to be borrowed from Terra Capital, Inc., the parent of the General Partner. At September 30, 2002, $14.5 million was deposited with Terra Capital, Inc. The amount of the demand note was $20.7 million at September 30, 2001 and bore interest at the rate earned by Terra Capital on its short-term investments. 4. Natural gas costs Natural gas is the principal raw material used in the Partnership's production of nitrogen products. Natural gas prices are volatile and we manage this volatility through the use of derivative commodity instruments. The Partnership's normal policy is to hedge 20-80% of its natural gas requirements for the upcoming 12 months and up to 50% of the requirements for the following 24-month period, provided that such arrangements would not result in costs greater than expected selling prices for our finished products. The financial derivatives are traded in months forward and settlement dates are scheduled to coincide with gas purchases during those future periods. These contracts reference physical natural gas prices or approximate NYMEX futures contract prices. Contract prices are frequently based on prices at the most common and financially liquid location of reference for financial derivatives related to natural gas. However, natural gas supplies for our facilities are purchased for each plant at locations other than reference points, which often creates a location basis differential between the contract price and the physical price of natural gas. Accordingly, use of financial derivatives may not exactly offset the change in the price of physical gas. The Partnership has entered into forward pricing positions for a portion of its natural gas requirements for the remainder of 2002 and part of 2003, consistent with its policy. As a result of its policies, the Partnership has reduced the potential adverse financial impact of natural gas increases during the forward pricing period, but conversely, if natural gas prices were to fall, the Partnership will incur higher costs. Contracts were in place at September 30, 2002 to cover 10% of natural gas requirements for the succeeding twelve months. Unrealized gains from forward pricing positions totaled $1.6 million as of September 30, 2002. The amount ultimately recognized by the Partnership will be dependent on published prices in effect at the time of settlement. The Partnership also had $1.0 million of realized gains on closed North America contracts relating to future periods that have been deferred to the respective period. On September 30, 2002, the fair value of the derivatives resulted in a $1.5 million increase to current assets and a $1.0 million reduction to current liabilities. The increase to current assets was to recognize the value of open natural gas contracts; the reduction to current liabilities was to reclassify deferred gains on closed contracts relating to future periods. 7 5. Idled facilities On June 7, 2001, the Partnership reported it would suspend production of ammonia and urea at its Blytheville, Arkansas plant due to its inability to generate positive cash flow under existing price and cost conditions. The restart of production at that facility began on October 1, 2001. 6. Recently Issued Accounting Standards In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations". This standard requires the Partnership to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and is effective for our fiscal year 2003. The adoption of this standard is not expected to have a material effect on the Partnerships' financial position or results of operations. In June, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This standard requires the Partnership to recognize a liability for a cost associated with an exit or disposal activity when the liability is incurred rather than recognition of the liability at the date of a commitment to an exit plan and is effective for exit or disposal activities that are initiated after December 31, 2002. 8 Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America for interim reporting purposes. The preparation of these financial statements requires us to make estimates and judgments that affect the amount of assets, liabilities, revenues and expenses at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. Our critical accounting policies are described below. Impairments of long-lived assets - We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of these items. Our cash flow estimates are based on historical results adjusted to reflect our best estimate of future market and operating conditions. The net carrying value of assets not recoverable is reduced to fair value. Our estimates of fair value represent our best estimate based on industry trends and reference to market rates and transactions. Revenue recognition - Revenue is recognized when title to finished product passes to the customer. Revenue is recognized as the net amount to be received after deducting estimated amounts for discounts and trade allowances. Revenue includes amounts paid by customers for shipping and handling. Inventory valuation - Inventories are stated at the lower of cost or estimated net realizable value. The average cost of inventories is determined using the first-in, first-out method. The nitrogen and methanol industries are characterized by rapid change in both demand and pricing. Rapid declines in demand could result in temporary or permanent curtailment of production, while rapid declines in price could result in a lower of cost or market adjustment. 9 Three months ended September 30, 2002 compared with three months ended September 30, 2001 Volumes and prices for the three-month periods ended September 30, 2002 and 2001 follow:
2002 2001 Volumes Unit price volumes unit price (000 tons) ($/ton) (000 tons) ($/ton) ---------- ----------- ----------- ---------- Ammonia 83 $ 138 36 $ 175 UAN 594 70 510 75 Urea 100 122 28 110
Revenues for the quarter ended September 30, 2002 increased $20.5 million, or 37%, compared with the same quarter in 2001 as the result of higher volumes for all Partnership products, partly offset by lower sales prices. Selling prices declined from last year as the result of increased global nitrogen supplies. Third quarter gross profits increased $13.4 million from 2001. Higher 2002 sales volumes contributed about $750,000 to gross profits. The remainder of the gross profit improvement represented lower product costs partly offset by reduced selling prices. Third quarter 2002 product costs were lower due to lower natural gas costs during the 2002 second and third quarters. Third quarter natural gas costs declined from $3.55/MMBtu in 2001 to $2.96/MMBtu in 2002 (net of forward pricing gains or losses.) In addition, a considerable amount of 2001 third quarter product costs represented products manufactured during the 2001 second quarter when gas costs average $5.25/MMBtu; in contrast, during 2002 there was substantially less second quarter carryover inventory and most sales were sourced from current production. As a result of forward price contracts, third quarter 2002 natural gas costs for the Partnership were $2.3 million lower than spot prices. Operating expenses increased $463,000 in 2002 from 2001 due to higher administrative and overhead expense allocations from the General Partner. Net interest income was $445,000 higher in 2002 than the 2001 third quarter due to lower borrowing levels. 10 Nine months ended September 30, 2002 compared with Nine months ended September 30, 2001 Volumes and prices for the nine-month periods ended September 30, 2002 and 2001 follow:
2002 2001 Volumes Unit Price Volumes Unit Price (000 tons) ($/ton) (000 tons) ($/ton) ---------- ------------- ----------- ----------- Ammonia 287 $ 147 145 $ 256 UAN 1,839 69 1,323 104 Urea 342 113 171 152
Revenues for the nine months ended September 30, 2002 increased $15.1 million, or 7%, compared with the same period in 2001. Sales prices were lower as the result of increased supplies of nitrogen fertilizer in contrast to 2001 when high natural gas costs resulted in industry-wide production curtailments. A substantial portion of the revenue shortfall from lower sales prices was offset by higher 2002 volumes as compared to the first nine months of last year. Sales volumes in 2001 were depressed due to lower production rates, reduced demand in response to high prices and increased competition from imports. Gross profits during the 2002 first nine months increased $17.8 million from 2001. The increase in gross profits was primarily related to lower natural gas costs and higher sales volumes, offset in part by reduced sales prices. Natural gas unit costs, net of forward pricing gains and losses decreased to $2.89/MMBtu during the 2002 first nine months compared to $5.19/MMBtu during the same 2001 period. Lower natural gas costs also reduced the need to curtail production rates until nitrogen prices rose to levels covering the higher gas costs as was the case in 2001. Natural gas costs in the 2002 first nine months were $3.7 million lower than spot prices as the result of forward price contracts. Operating expenses increased $366,000 in 2002 from 2001 due to higher administrative and overhead expense allocations from the General Partner. Net interest income was $530,000 higher than the 2001 nine months due to lower borrowing levels and higher cash balances. Capital resources and liquidity Net cash generated from operating activities for the first nine months of 2002 was $33.6 million composed of $17.1 million of cash provided from operating activities and $16.5 million of declines to working capital balances. The decline in working capital consisted of a seasonal decrease in inventory accounts receivable and an increase in customer prepayments. Capital expenditures of $1.3 million during the first nine months of 2002 were primarily to fund replacement and stay-in-business additions to plant and equipment. The Partnership expects 2002 capital expenditures to approximate $3 million to fund replacement and stay-in-business additions to plant and equipment. 11 The Partnership paid a $3.8 million cash distribution ($0.20 per common unit) on August 26, 2002. On October 24, 2002, the Partnership declared a $3.8 distribution ($0.20 per common unit) payable November 22, 2002 to record holders as of November 1, 2002. The Partnership paid cash distributions totaling $8.3 million ($0.44 per common unit) in the first nine months of 2001. The Partnership, along with Terra Industries Inc. ("Terra"), Terra Capital, Inc. and other affiliates, has an asset-based financing agreement that expires in June 2005. The financing agreement provides for the Partnership to borrow amounts generally up to 85% of eligible receivables plus 60% of eligible inventory. At September 30, 2002, the Partnership had unused borrowing availability of approximately $24 million. The financing agreement, which expires June 2005, bears interest at floating rates and is secured by substantially all of the Partnerships' working capital. The agreement also requires the Partnership and its affiliates to adhere to certain limitations on additional debt, capital expenditures, acquisitions, liens, asset sales, investments, prepayments of subordinated indebtedness, changes in lines of business and transactions with affiliates. In June, 2002 the credit facility was amended to remove Terra's required minimum level of earnings before interest, income taxes, depreciation, amortization and other non-cash items ("EBITDA") as long as borrowing availability is $60 million or more. If Terra's borrowing availability falls below $60 million after December 31, 2002, Terra will be required to have achieved minimum EBITDA of $60 million during the most recent four quarters. Prior to December 31, 2002, a reduced EBITDA requirement is in effect, which is $50 million for the four quarters ending September 30, 2002. If necessary, the Partnership believes that it could replace its existing credit lines on terms and conditions not materially different than its current arrangement through Terra. The Partnership's principal needs for funds are for support of its working capital and capital expenditures. The Partnership intends to fund its needs primarily from net cash provided by operating activities, and, to the extent required, from funds borrowed from others, including borrowings from Terra Capital, Inc., the parent of the General Partner. The Partnership believes that such sources of funds will be adequate to meet the Partnership's working capital needs and fund the Partnership's capital expenditures for at least the next 12 months. Limited Call Right At December 31, 2001, the General Partner and its affiliates owned 75.1% of the Partnership's outstanding units. When less than 25% of the issued and outstanding units are held by non-affiliates of the General Partner, the Partnership, at the General Partner's sole discretion, may call, or assign to the General Partner or its affiliates, its right to acquire all such outstanding units held by non-affiliated persons. If the General Partner elects to acquire all outstanding units, the Partnership is required to give at least 30 but not more than 60 days' notice of its decision to purchase the outstanding units. The purchase price per unit will 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 and 2) the highest price paid by the General Partner of any of its affiliates for any unit within the 90 days preceding the date the purchase is announced. Additional purchases of common units by the General Partner are restricted under the terms of Terra's bank credit agreement as described therein. 12 FORWARD LOOKING PRECAUTIONS Information contained in this report, other than historical information, may be considered forward looking. Forward looking information reflects Management's current views of future events and financial performance that involve a number of risks and uncertainties. The factors that could cause actual results to differ materially include, but are not limited to the following: Changes in the financial markets, general economic conditions within the agricultural industry, competitive factors and price changes (principally, sales prices of nitrogen products and natural gas costs), changes in product mix, changes in the seasonality of demand patterns, changes in weather conditions, changes in agricultural regulations, and other risks detailed in the Partnership's Securities and Exchange Commission filings, in particular the "Factors that Affect Operating Results" section of its most recent Form 10-K. ITEM 4. CONTROLS AND PROCEDURES Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation within 90 days of the filing date of this report, that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the previously mentioned evaluation. 13 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K: None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TERRA NITROGEN COMPANY, L.P. By: TERRA NITROGEN CORPORATION as General Partner By: /s/ Francis G. Meyer ------------------------------ Francis G. Meyer Vice President (Principal Accounting Officer) Date: November 1, 2002 14 CERTIFICATIONS I, Michael L. Bennett, President and Chief Executive Officer, 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 quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 15 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 1, 2002 /s/ MICHAEL L. BENNETT ------------------------------------- Michael L. Bennett President and Chief Executive Officer I, Francis G. Meyer, Senior Vice President and Chief Financial Officer, 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 quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 16 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 1, 2002 /s/ FRANCIS G. MEYER ------------------------------------------------- Francis G. Meyer Senior Vice President and Chief Financial Officer 17