Terra Nitrogen Company, L.P. Reports Third Quarter 2017 Results
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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