Terra Nitrogen Company, L.P. (TNCLP) (NYSE: TNH) today reported
net earnings of $22.8 million on net sales of
$84.6 million for the quarter ended September 30, 2017.
This compares to net earnings of $28.8 million on net sales of
$90.2 million for the 2016 third quarter. Net earnings
allocable to common units was $17.0 million ($0.92 per common
unit) and $19.2 million ($1.04 per common unit) for the 2017
and 2016 third quarters, respectively. Results for the third
quarter of 2017 included an unrealized net mark-to-market gain on
natural gas derivatives of $1.1 million compared to a loss of
$3.3 million in the third quarter of 2016. The derivative
portfolio at September 30, 2017 includes natural gas
derivatives that hedge a portion of natural gas purchases through
December 2018.
For the first nine months of 2017, TNCLP reported net earnings
of $104.5 million on net sales of $299.7 million. This compares to
net earnings of $165.2 million on net sales of $324.9 million for
the first nine months of 2016. Net earnings allocable to common
units was $83.2 million ($4.49 per common unit) and $105.6 million
($5.71 per common unit) for the first nine months of 2017 and 2016,
respectively. Results for the first nine months of 2017 included an
unrealized net mark-to-market loss on natural gas derivatives of
$9.7 million compared to an unrealized net mark-to-market gain
of $21.7 million for the first nine months of 2016.
Analysis of Results
Net sales for the third quarter of 2017 totaled
$84.6 million, compared to $90.2 million for the third
quarter of 2016, due to lower average selling prices for both
ammonia and urea ammonium nitrate (UAN) that were partially offset
by higher sales volumes for both products compared to the prior
period.
Sales volumes in the third quarter of 2017 for ammonia and UAN
increased 18 percent and 9 percent, respectively, compared to the
third quarter of 2016. UAN sales volume was higher than in the
prior year period due to increased demand for UAN. Ammonia sales
volume was higher compared to the third quarter of 2016 due to
greater merchant ammonia supply availability as less ammonia was
upgraded to UAN. Ammonia and UAN average selling prices declined in
the third quarter of 2017 compared to the third quarter of 2016 due
to greater global nitrogen supply.
Comparing the third quarter of 2017 to the third quarter of
2016, TNCLP’s:
- Ammonia sales volume increased by 18
percent and UAN sales volume increased by 9 percent;
- Ammonia average selling prices
decreased by 27 percent and UAN average selling prices decreased by
11 percent; and
- Realized natural gas cost per MMBtu
decreased by 3 percent.
Cash Distribution
Cash distributions are based on Available Cash for the quarter
and depend on TNCLP’s earnings as well as cash requirements for
working capital needs and capital and other expenditures. For the
first nine months of 2017, capital expenditures were
$18.6 million as compared to $24.8 million for the first
nine months of 2016.
For the full year 2017, TNCLP expects capital expenditures to be
in the range of $30 million to $35 million. TNCLP previously
announced that it expected to make capital expenditures for the
full year 2017 in the range of $75 million to $85 million, with
approximately $40 million of the projected capital expenditures
related to a plant turnaround scheduled to start in the third
quarter of 2017. Subsequent to that announcement, TNCLP postponed
the turnaround due to a delay in receiving certain equipment. TNCLP
anticipates the plant turnaround will occur in the third quarter of
2018 and expects it to cost approximately $40 million. The
calculation of Available Cash for the three months ended
September 30, 2017, included a reserve of approximately
two-thirds of that amount.
TNCLP reported on November 1, 2017, the declaration of a
cash distribution for the quarter ended September 30, 2017, of
$1.36 per common unit payable November 29, 2017 to holders of
record as of November 15, 2017. This compares to a cash
distribution of $1.77 per common unit for the quarter ended
September 30, 2016.
Cash distributions per common unit also vary based on increasing
amounts allocable to the General Partner when cumulative
distributions exceed targeted levels. With this distribution, TNCLP
cumulative distributions continue to exceed targeted levels.
On October 2, 2017, TNCLP sold its 50 percent interest in
Oklahoma CO2 Partnership (OKCO2), a joint venture that owns a
carbon dioxide liquefaction and purification facility at TNCLP's
Verdigris Nitrogen Complex, to the joint venture partner for $15.1
million plus certain customary closing and working capital
adjustments that are expected to be determined during the fourth
quarter of 2017. The proceeds from the sale of the interest in
OKCO2 will be included in the determination of Available Cash in
the quarter in which the customary closing and working capital
adjustments are finalized.
This release serves as a qualified notice to nominees and
brokers as provided for under Treasury Regulation Section
1.1446-4(b). Please note that 100 percent of TNCLP’s distributions
to foreign investors are attributable to income that is effectively
connected with a United States trade or business. Accordingly,
TNCLP’s distributions to foreign investors are subject to federal
income tax withholding at the highest effective tax rate.
About TNCLP
Terra Nitrogen Company, L.P. is a leading manufacturer of
nitrogen fertilizer products.
Terra Nitrogen, Limited Partnership (TNLP), owner of the
Verdigris, Oklahoma manufacturing facility and related assets, is a
subsidiary of TNCLP. Terra Nitrogen GP Inc., an indirect, wholly
owned subsidiary of CF Industries Holdings, Inc. (CF Industries),
is the General Partner of TNCLP and TNLP and exercises full control
over all of TNCLP’s and TNLP's business affairs.
Forward-Looking Statements
All statements in this communication, other than those relating
to historical facts, are forward-looking statements. These
forward-looking statements are not guarantees of future performance
and are subject to a number of assumptions, risks and
uncertainties, many of which are beyond TNCLP’s control, which
could cause actual results to differ materially from such
statements. Important factors that could cause actual results to
differ materially from expectations include, among others:
- Risks related to TNCLP's reliance on
one production facility;
- The cyclical nature of TNCLP's business
and the agricultural sector;
- The global commodity nature of TNCLP's
fertilizer products, the impact of global supply and demand on
TNCLP's 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 TNCLP's products against which
it 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 TNCLP's risk measurement and hedging
activities;
- Limited access to capital;
- Acts of terrorism and regulations to
combat terrorism;
- Risks related to TNCLP's dependence on
and relationships with CF Industries;
- Deterioration of global market and
economic conditions;
- Risks related to TNCLP's partnership
structure and control of TNCLP's General Partner by CF
Industries;
- Changes in TNCLP's available cash for
distribution to its unitholders, due to, among other things,
changes in its earnings, the amount of cash generated by its
operations and the amount of cash reserves established by its
General Partner for operating, capital and other requirements;
- The conflicts of interest that may be
faced by the executive officers of TNCLP's General Partner, who
operate both TNCLP and CF Industries; and
- Tax risks to TNCLP's common unitholders
and changes in TNCLP's treatment as a partnership for U.S. or state
income tax purposes.
More detailed information about factors that may affect TNCLP’s
performance may be found in its filings with the Securities and
Exchange Commission, including its most recent periodic reports
filed on Form 10-K and Form 10-Q, which are available through CF
Industries’ website. Forward-looking statements are given only as
of the date of this release and TNCLP disclaims any obligation to
update or revise the forward-looking statements, whether as a
result of new information, future events or otherwise, except as
required by law.
Terra Nitrogen Company, L.P. news announcements are also
available on CF Industries’ website, www.cfindustries.com.
TERRA NITROGEN COMPANY, L.P. CONSOLIDATED BALANCE
SHEETS (unaudited) September
30, December 31, 2017 2016 (in
millions, except for units) ASSETS Current assets: Cash
and cash equivalents $ 60.8 $ 39.5 Due from affiliates of the
General Partner 16.3 4.0 Accounts receivable 0.4 0.6 Inventories
6.0 8.6 Prepaid expenses and other current assets 0.3 7.9
Total current assets 83.8 60.6 Property, plant and equipment—net
287.7 301.3 Other assets 10.5 11.4 Total assets $ 382.0
$ 373.3
LIABILITIES AND PARTNERS' CAPITAL Current
liabilities: Accounts payable and accrued expenses $ 23.2 $ 27.8
Due to affiliates of the General Partner 2.9 4.1 Other current
liabilities 2.2 — Total current liabilities 28.3 31.9
Other liabilities 1.2 2.6 Partners' capital: Limited partners'
interests, 18,501,576 common units authorized, issued and
outstanding 299.8 286.7 Limited partners' interests, 184,072 Class
B common units authorized, issued and outstanding 1.9 1.8 General
partner's interest 50.8 50.3 Total partners' capital 352.5
338.8 Total liabilities and partners' capital $ 382.0
$ 373.3
TERRA NITROGEN COMPANY, L.P. CONSOLIDATED
STATEMENTS OF OPERATIONS (unaudited)
Three months ended Nine months ended September
30, September 30, 2017 2016
2017 2016 (in millions, except per unit
amounts) Net sales: Product sales to affiliates of the General
Partner $ 84.5 $ 90.1 $ 299.3 $ 324.5 Other income from an
affiliate of the General Partner 0.1 0.1 0.4
0.4 Total 84.6 90.2 299.7 324.9 Cost of goods sold: Materials,
supplies and services 50.5 50.2 161.7 125.0 Services provided by
affiliates of the General Partner 6.9 7.2 20.7
21.3 Gross margin 27.2 32.8 117.3 178.6 Selling, general and
administrative services provided by affiliates of the General
Partner 4.0 4.0 11.9 11.8 Other general and administrative expenses
0.5 — 1.1 1.7 Earnings from operations 22.7
28.8 104.3 165.1 Interest income 0.1 — 0.2 0.1
Net earnings $ 22.8 $ 28.8 $ 104.5 $ 165.2
Allocation of net earnings: General Partner $ 5.6 $ 9.3 $ 20.3 $
58.0 Class B common units 0.2 0.3 1.0 1.6 Common units 17.0
19.2 83.2 105.6 Net earnings $ 22.8 $ 28.8
$ 104.5 $ 165.2 Net earnings per common unit $ 0.92
$ 1.04 $ 4.49 $ 5.71
TERRA NITROGEN
COMPANY, L.P. SUMMARIZED OPERATING INFORMATION
(unaudited) Three months ended Nine
months ended September 30, September 30,
2017 2016 2017 2016 Sales
volume (tons in thousands): Ammonia 122 103 361 306 UAN(1) 454 415
1,393 1,231 Average selling prices (dollars per ton):
Ammonia $ 216 $ 297 $ 268 $ 347 UAN(1) $ 127 $ 142 $ 145 $ 177
Cost of natural gas (dollars per MMBtu): Purchased natural
gas costs(2) $ 2.51 $ 2.61 $ 2.79 $ 2.12 Realized derivatives
loss(3) 0.13 0.11 0.04 0.54 Cost of natural
gas $ 2.64 $ 2.72 $ 2.83 $ 2.66
_________________________________________________
(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.
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Terra Nitrogen Company, L.P.Martin JarosickVice President,
Investor Relations847-405-2045mjarosick@cfindustries.com
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