Background and Basis of Presentation

9 Months Ended

Sep. 30, 2011

Background and Basis of Presentation

Background and Basis of Presentation

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 solutions (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 consolidated 0.05 percent general partner interest in the Partnership. The General Partner is an indirect, wholly-owned subsidiary of Terra Industries Inc., a Maryland corporation (Terra), which is an indirect, wholly-owned subsidiary of CF Industries Holdings, Inc. (CF Industries Holdings), a Delaware corporation. Ownership of TNCLP is represented by the General Partner interests and the limited partner interests. Limited partner interests consist of common units which are listed for trading on the New York Stock Exchange under the symbol "TNH" and Class B common units. As of September 31, 2011, we had 18,501,576 common units and 184,072 Class B common units issued and outstanding. CF Industries Holdings through its subsidiaries owned 13,889,014 common units (representing approximately 75% of the total outstanding common units) and all of the Class B common units as of September 30, 2011.

        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, 2010, 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 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 in these consolidated financial statements include net realizable value of inventories, environmental remediation liabilities, environmental and litigation contingencies, useful lives of property, plant and equipment, and the evaluation of impairments of property, plant and equipment.

        Throughout this document, the terms "General Partner Affiliates," "Affiliates of the General Partner" or similar terms refer to consolidated subsidiaries of CF Industries, Inc. (CF Industries), a wholly-owned subsidiary of CF Industries Holdings, including TNGP. For periods prior to the acquisition of Terra by CF Industries in April 2010, the terms refer solely to an affiliate or affiliates of Terra.

        In our 2010 Consolidated Statement of Cash Flows, we have reclassified $3.8 million of the "Due to affiliate" in cash provided by operating activities to "Changes in demand deposits with General Partner Affiliates" in investing activities in order to be consistent with the current year's presentation.