TERRA NITROGEN CO L P /DE - 10-Q Quarterly Report

At the close of business on June 30, 2004, 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

The condensed 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, 2003. TNCLP and its operating partnership subsidiary, Terra Nitrogen, Limited Partnership (the “Operating Partnership”), are referred to herein, collectively, as the “Partnership”.

The accompanying unaudited condensed 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.

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 $4.7 million cash distribution ($0.25 per common unit) on February 25 and May 25, 2004 and February 27, 2003.

At June 30, 2004, 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 or 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 may be restricted under the terms of Terra’s (“Terra”) bank credit agreement as described therein.

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. Terra Industries’ 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. Deviations from this policy are permitted by notification of Terra Industries’ Board of Directors. 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 2004, 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 June 30, 2004 to cover 24% of natural gas requirements for the succeeding twelve months.

Unrealized losses from forward pricing positions totaled $0.1 million as of June 30, 2004. The amount ultimately recognized by the Partnership will be dependent on published prices in effect at the time of settlement. The Partnership also had $0.2 million of realized gains on closed contracts relating to future periods that have been deferred to the respective period.

For the period ending June, 2004, recording the fair value of natural gas and fertilizer derivatives resulted in a $6.7 million decrease to current assets, a $1.6 million increase to cost of sales and a $5.1 million decrease to accumulated other comprehensive income. The decrease to current assets was to recognize the value of open natural gas and fertilizer contracts; the increase to current liabilities was to reclassify deferred gains on closed contracts.

The Partnership reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected future cash flows expected to result from the use of the asset (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on the difference between the carrying amount and the fair value of the asset.

the Impairment or Disposal of Long-Lived Assets”, we commenced a review to determine if the Blytheville facility’s carrying value was impaired. This review led management to conclude that future market conditions may not justify the ongoing investment in maintenance and replacement capital necessary to extend operations for the remainder of the facility’s established useful life. Accordingly a $40.7 million charge was recorded during the second quarter as an “Impairment of long-lived assets”. Although we resumed Blytheville’s production in October 2003, production was permanently suspended on May 27, 2004. No decision has yet been made regarding sale or demolition of the facility’s production plants. We continue to operate the facility’s storage and distribution assets as a terminal for ammonia produced at our Verdigris facility or obtained from other sources. We anticipate $1.0 to $2.0 million of spending, primarily employee severance and decommissioning costs, will be required for the permanent idling of the facility subsequent to June 30, 2004. During the 2004 second quarter we incurred $1.6 million of costs for the permanent closure of the facility.

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

We are a producer and marketer of nitrogen products for use in agricultural and industrial markets. Nitrogen is a commodity chemical whose prices are established based on global supply and demand conditions. The nitrogen products industry has cycles of oversupply, resulting in lower prices and idled capacity, followed by supply shortages, resulting in high selling prices and higher industry-wide production rates. For example, high nitrogen margins in 1995 led to capacity expansion projects globally that resulted in capacity increases that were, in the short term, substantially greater than demand growth, causing oversupply conditions that reduced nitrogen prices. Since 1998, new global capacity has been partially offset by permanent plant closings in the U.S. and Europe. In order to be viable under these market conditions, a producer must be among the low-cost producers to markets it serves and have a financial position that can sustain it during periods of oversupply.

Natural gas is the most significant raw material in the production of nitrogen products. North American natural gas costs have increased substantially since 1999. Since we compete with nitrogen products imported from regions with lower natural gas costs, the oversupply situation during most of the three years ending December 31, 2002 did not permit us to increase selling prices to levels necessary to cover the natural gas cost increases. This resulted in curtailments of North American nitrogen production by Terra and other producers. These curtailments contributed to reductions in global nitrogen product supplies, which have enabled nitrogen price increases to current levels.

Imports, most of which are produced at facilities with access to fixed-price natural gas supplies, account for a significant portion of U.S. nitrogen product supply. Imported products’ natural gas costs have been and could continue to be substantially lower than the delivered cost of natural gas to our facilities. Offshore producers are most competitive in regions close to the point of entry for imports, including the Gulf Coast and East Coast of North America. Importers are less competitive in serving the main corn-growing regions of the U.S. This is due to limited distribution infrastructure and high freight costs to ship products from the ports to end-use markets.

Our sales volumes are primarily dependent upon the operating rates for our plants. We may purchase product from other manufacturers or importers for resale, but gross margins on those volumes would rarely be significant. The profitability and cash flows from our operations are affected by our ability to manage our costs and expenses (other than natural gas), most of which do not materially change for different levels of production or sales. Other factors affecting our operating results include the level of planted acres, transportation costs, weather conditions (particularly during the planting season), grain prices and other variables described in Items 1 and 2 in the “Business and Properties” section of the Partnership’s most recent Form 10-K filing with the Securities and Exchange Commission.

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 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 reflect significant judgments and uncertainties, and potentially result in materially different amounts being reported under different assumptions and conditions. Our critical accounting policies are described below.

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 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.

Inventories are stated at the lower of cost and estimated net realizable value. The average cost of inventories is determined using the first-in, first-out method. The nitrogen industry is characterized by rapid change in both demand and pricing. Rapid declines in demand could result in temporary or permanent production curtailment, while rapid price declines could result in a lower of cost and market adjustment.

The Partnership accounts for derivatives in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS 133 requires the recognition of derivatives in the balance sheet and the measurement of these instruments at fair value. Changes in fair value of derivatives are recorded in earnings unless the normal purchase or sale exception or hedge accounting is elected.

The General Partner enters into derivative instruments including future contracts, swap agreements, and purchased options to cap or fix prices for a portion of natural gas production and fertilizer requirements. The General Partner has designated, documented and assessed accounting hedge relationships, which mostly resulted in cash flow hedges that require the Partnership to

record the derivative assets or liabilities at their fair value on its balance sheet with an offset in other comprehensive income. Amounts are removed from other comprehensive income as the underlying transactions occur and realized gains or losses are recorded.

The Partnership is dependent on Terra in a number of respects. The Partnership’s bank facilities are, as noted in “Liquidity and Capital Resources”, dependent on Terra’s results and financial condition. Terra provides all of the Partnership’s management services and operates all of its facilities through its wholly-owned subsidiary TNC, the Partnership’s general partner. Terra and its wholly-owned subsidiaries, including TNC, have more debt and debt service requirements than the Partnership. Although Terra is affected by most of the factors that affect the Partnership, its higher level of debt could put a greater risk on Terra in the event business conditions deteriorate materially. The Partnership’s results of operations and financial condition might be materially adversely affected by financial difficulties at Terra, default by it or its subsidiaries on their debt or their bankruptcy. For additional information concerning Terra, refer to Terra’s filings with the Securities and Exchange Commission on Form 10-K, Forms 10-Q and current reports on Form 8-K.

Three months ended June 30, 2004 compared with three months ended June 30, 2003

Volumes and prices for the three-month periods ended June 30, 2004 and 2003 follow:

Revenues for the quarter ended June 30, 2004 increased $10.9 million, or 9.2%, compared with the same quarter in 2003 primarily as the result of higher sales prices for all Partnership products. Sales prices were higher as the result of lower nitrogen supplies caused by increased demand and lower industry-wide production rates than in prior years.

Second quarter gross profits were $17.1 million and increased $18.8 million from 2003. Contributing factors for the gross profit increase include higher 2004 sales prices ($13.8 million), lower cost of inventory carried over from the first quarter of 2004 due to lower gas costs and higher production levels ($3.4 million), and lower production costs ($1.6 million). These factors were partially offset by higher natural gas costs. Second quarter natural gas costs increased almost 2%, or $1.0 million, from $5.37/MMBtu in 2003 to $5.45/MMBtu in 2004 (net of forward pricing gains or losses.) As a result of forward price contracts, second quarter 2004 natural gas costs for the Partnership were $2.9 million lower than spot prices.

On June 26, 2003, we suspended production at our Blytheville facility due to expectations that the facility would not cover its cash costs because of continuing high natural gas costs and the seasonal decline in nitrogen fertilizer demand and prices. In response to this action and as required by Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” a $40.7 million charge was recorded during the 2003 second quarter. On May 26, 2004 the Blytheville production facility permanently ceased production, although the site will continue to be used as a terminal for sales of ammonia produced at the Partnership’s Verdigris, Oklahoma facility or obtained from other sources. During the 2004 second quarter we incurred $1.6 million of costs for the permanent closure of the facility.

Operating expenses of $2.7 million in 2004 increased $.2 million, or 8%, from 2003 as the result of higher spending for administrative activities. Net interest income in 2004 was $0.1 million favorable to the 2003 second quarter due to higher cash balances and lower short-term borrowings.

Volumes and prices for the six-month periods ended June 30, 2004 and 2003 follow:

Revenues for the six months ended June 30, 2004 increased $48.2 million, or 25.5%, compared with the same period in 2003. Sales prices were higher as the result of lower nitrogen fertilizer supplies caused by high natural gas costs that resulted in industry-wide production curtailments.

Gross profits during the 2004 first six months increased $37.8 million from 2003. Higher 2004 sales priced contributed about $33 million to gross profits. First half natural gas costs decreased almost $2 million over the 2003 first half as unit costs, net of forward pricing games and losses decreased to $5.30/MMBtu during the 2004 first half compared to $5.38/MMBtu during the same 2003 period. Natural gas costs in the 2004 first half were $6.1 million lower than spot prices as the result of forward price contracts. The 2004 first half gross profits also benefited $1.7 million from improved ammonia and UAN solution volumes than during the 2003 first half.

required by Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” a $40.7 million charge was recorded during the 2003 second quarter. On May 26, 2004 the Blytheville production facility permanently ceased production, although the site will continue to be used as a terminal for sales of ammonia produced at the Partnership’s Verdigris, Oklahoma facility or obtained from other sources. We incurred $1.6 million of costs related to the permanent closure of the facility during the 2004 second quarter.

Operating expenses of $4.8 million in 2004 increased $0.3 million, or 8%, from 2003 as the result of higher spending for administrative activities. Net interest income was $0.3 million higher than the 2003 first half due to higher cash balances and lower short-term borrowing during the first half of 2004.

Net cash from operating activities for the first half of 2004 was a use of $1.0 million composed of $31.3 million of cash from operating activities and $32.3 million of decreases to working capital balances. The primary decrease in working capital consisted of a seasonal reduction in customer prepayments.

Capital expenditures of $.7 million during the first half of 2004 were primarily to fund replacement and stay-in-business additions to plant and equipment. The Partnership expects 2004 capital expenditures to approximate $4.0 million to fund replacement and stay-in-business additions to plant and equipment.

The Partnership’s principal funding needs are to support its working capital and capital expenditures. The Partnership intends to fund its needs primarily from cash provided by operating activities and, to the extent required, from funds borrowed under the joint revolving bank credit facility (described below) or from Terra Capital, Inc., the parent of the General Partner.

Terra, Terra Capital, Inc., the Partnership and certain other Terra affiliates have a $175 million joint revolving bank credit facility that expires in June 2005. Under the credit facility, the Partnership may borrow an amount generally based on eligible cash balances, 85% of eligible accounts receivable and 60% of eligible finished goods inventory, less outstanding letters of credit. The Partnership’s borrowings under the credit facility are secured by substantially all of its working capital. At June 30, 2004, the Partnership had no outstanding borrowings or letters of credit, resulting in availability of approximately $56.9 million under the facility. Management expects the facility to be adequate to meet the Partnership’s operating cash needs.

Under the credit facility, Terra and its subsidiaries, including the Partnership, are subject to covenants which impose 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 addition, if Terra’s aggregate borrowing availability falls below $60 million, Terra is required to have generated $60 million of operating cash flows or earnings before interest, income taxes, depreciation, amortization and other non-cash items (as

defined in the credit facility) for the preceding four quarters. For the 12 months ended June 30, 2004, Terra’s operating cash flows (as defined in the credit facility) were $202.6 million. Terra is also required to maintain a minimum aggregate unused borrowing availability of $30 million at all times. At June 30, 2004, Terra’s borrowing availability under the facility was $144 million.

Terra’s ability to continue to meet the covenants under the credit facility in the future will depend on market conditions, operating cash flows, working capital needs, receipt of customer prepayments and trade credit terms. Terra’s failure to meet these covenants, or to obtain a waiver from the lenders, would result in a default by all of the borrowers under the credit facility, including the Partnership, such that all amounts outstanding to the Partnership could become immediately due and payable and the Partnership would be unable to borrow additional amounts under the credit facility. Because access to adequate bank facilities is critical to funding the Partnership’s operating cash needs and the General Partner’s purchase of financial derivatives to manage the Partnership’s exposure to natural gas commodity price risk, any default or termination of the joint revolving bank credit facility could have a material adverse effect on the Partnership.

Terra currently anticipates that it will be able to meet its covenants through 2004. Nevertheless, if there were to be any adverse changes in the factors discussed above, there can be no assurance that this would be the case.

Quarterly distributions to TNCLP’s partners are based on Available Cash for the quarter as defined in the TNCLP Agreement of Limited Partnership. Available Cash is defined generally as all cash receipts less all cash disbursements, adjusted for changes in certain reserves established as the General Partner determines in its reasonable discretion to be necessary. Distributions paid to the partners in the first six months of 2004 and 2003 were $9.4 and $4.7 million, respectively.

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 to the extent that distributions of Available Cash exceed specified levels.

The Partnership anticipates that approximately $4.1 million in pension funding will be required in 2004 of which $1.2 million was paid during the first half.

The Partnership’s operations are significantly affected by the price of natural gas. It employs derivative commodity instruments related to a portion of its natural gas requirements (primarily futures, swaps and options) for the purpose of managing exposure to commodity price risk in the purchase of natural gas. Changes in the market value of these derivative instruments have a high correlation to changes in the spot price of natural gas. For more information about how the Partnership manages specific risk exposures, refer to its most recent Annual Report on Form 10-K (which is on file with the Securities and Exchange Commission), Item 7A “Quantitative and Qualitative Disclosures about Market Risk” and Note 13 – Derivative Financial Instruments contained in Item 8.

The volume of natural gas hedged varies from time to time based on management’s judgment of market conditions, particularly natural gas prices and prices for nitrogen products and methanol. Contracts were in place at June 30, 2004 to cover 24.1% of its natural gas requirements for the succeeding twelve months (see Note 4). The General Partner’s ability to manage the Partnership’s exposure to commodity price risk in the purchase of natural gas through the use of financial derivatives may be affected by limitations imposed by Terra’s bank agreement covenants.

Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by 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 were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

Form 8-K dated April 29, 2004 furnishing under Item 12 Terra Nitrogen’s first quarter 2004 earnings

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)


Delaware		73-1389684
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Terra Centre PO Box 6000, 600 Fourth Street Sioux City, Iowa		51102-6000
(Address of principal executive office)		(Zip Code)


	June 30, 2004			December 31, 2003			June 30, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	28,475		$	39,596		$	10
Accounts receivable		30,661			36,612			30,519
Inventory – finished products		8,839			12,516			18,537
Inventory – materials and supplies		6,981			6,848			5,983
Prepaid insurance and other current assets		4,033			6,344			2,282

Total current assets		78,989			101,916			57,331

Property, plant and equipment, net		81,295			84,691			95,495
Other assets		7,515			9,631			5,144

Total assets	$	167,799		$	196,238		$	157,970

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Short-term payable to affiliates	$	—		$	—		$	7,040
Accounts payable and accrued liabilities		9,656			8,661			27,266
Customer prepayments		1,031			41,251			328
Pension liabilities due to affiliate		2,931			4,116			5,316
Current portion of long-term debt and capital lease obligations		61			58			56

Total current liabilities		13,679			54,086			40,006

Long-term debt due to affiliates		8,200			8,200			8,200
Capital lease obligations		44			75			104
Other long-term liabilities		1,600			1,600			1,500

Total liabilities		23,523			63,961			49,810

Partners’ capital:
Limited partners’ interests – common unitholders		155,090			138,274			122,025
General partner’s interest		(10,704	)		(11,047	)		(11,379	)
Accumulated other comprehensive income (loss)		(110	)		5,050			(2,486	)

Total partners’ capital		144,276			132,277			108,160

Total liabilities and partners’ capital	$	167,799		$	196,238		$	157,970


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Revenues	$	128,714		$	117,977		$	236,927		$	188,832
Other income		299			172			370			254

Total revenues		129,013			118,149			237,297			189,086
Cost of goods sold		111,935			119,890			206,243			195,851

Gross profit (loss)		17,078			(1,741	)		31,054			(6,765	)
Operating expenses		2,662			2,476			4,835			4,495
Impairment of long-lived assets		—			40,655			—			40,655

Operating income (loss)		14,416			(44,872	)		26,219			(51,915	)
Interest expense		(2	)		(3	)		(4	)		(6	)
Interest income		183			59			384			72

Net income (loss)	$	14,597		$	(44,816	)	$	26,599		$	(51,849	)

Net income (loss) allocable to limited partners’ interest	$	14,305		$	(43,920	)	$	26,067		$	(50,812	)

Net income (loss) per limited partnership unit	$	.77		$	(2.37	)	$	1.41		$	(2.75	)


	Six Months Ended June 30,
	2004			2003
Operating activities:
Net income (loss) from operations	$	26,599		$	(51,849	)
Adjustments to reconcile net income to net cash flows from operating activities:
Impairment of long-lived assets		—			40,655
Depreciation		4,678			6,620
Changes in operating assets and liabilities:
Receivables		5,950			(3,759	)
Inventories		3,543			(8,612	)
Prepaid insurance and other current assets		2,313			4,377
Accounts payable, accrued liabilities and customer prepayments		(44,383	)		(20,003	)
Other		311			1,449

Net cash flows from operating activities		(989	)		(31,122	)
Investing activities:
Capital expenditures		(661	)		(6,903	)
Financing activities:
Net changes in short-term borrowings		—			7,040
Repayment of long-term debt and capital lease obligations		(31	)		(23	)
Partnership distributions paid		(9,440	)		(4,720	)

Net cash flows from financing activities		(9,471	)		2,297

Net decrease in cash and cash equivalents		(11,121	)		(35,728	)
Cash and cash equivalents at beginning of period		39,596			35,738

Cash and cash equivalents at end of period	$	28,475		$	10


	Limited Partners’ Interests			General Partner’s Interests			Accumulated Other Comprehensive Income (Loss)			Total Partners’ Capital
Partners’ capital at January 1, 2004	$	138,274		$	(11,047	)	$	5,050		$	132,277
Net income		26,067			532			—			26,599
Change in fair value of derivatives		—			—			(5,160	)		(5,160	)

Comprehensive income		—			—			—			21,439
Distributions		(9,251	)		(189	)		—			(9,440	)

Partners’ capital at June 30, 2004	$	155,090		$	(10,704	)	$	(110	)	$	144,276


Limited partner units issued and outstanding at June 30, 2004		18,501,576


	2004			2003
	Volumes (000 tons)	Unit Price ($/ton)*		Volumes (000 tons)	Unit Price ($/ton)*
Ammonia	117	$	263	82	$	253
UAN	590		122	638		102
Urea	90		180	135		171



Exhibits 31.1		Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibits 31.2		Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002