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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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Commission file number 033-43007

TERRA NITROGEN COMPANY, L.P.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (847) 405-2400

        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. ý Yes    o No

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. ý Yes    o No

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes    ý No

        At the close of business on October 31, 2013 there were 18,501,576 common units outstanding.

   

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TERRA NITROGEN COMPANY, L.P.

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

   

See accompanying Notes to the Consolidated Financial Statements (Unaudited).

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TERRA NITROGEN COMPANY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

   

See accompanying Notes to the Consolidated Financial Statements (Unaudited).

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TERRA NITROGEN COMPANY, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL

(unaudited)

   

See accompanying Notes to the Consolidated Financial Statements (Unaudited).

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TERRA NITROGEN COMPANY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

   

See accompanying Notes to the Consolidated Financial Statements (Unaudited).

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TERRA NITROGEN COMPANY, L.P.

Notes to the Consolidated Financial Statements (Unaudited)

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% general partner interest in the Partnership. The General Partner is an indirect, wholly-owned subsidiary of CF Industries Holdings, Inc. (CF Industries), a Delaware corporation. Ownership of TNCLP is comprised of 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 30, 2013, we had 18,501,576 common units and 184,072 Class B common units issued and outstanding. CF Industries 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, 2013.

        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, 2012, 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 "affiliate of the General Partner" and "affiliates of the General Partner" refer to consolidated subsidiaries of CF Industries, including TNGP.

        In our Consolidated Balance Sheet as of December 31, 2012, we have reclassified certain balances related to catalysts used in our manufacturing process which previously had been presented in "Inventories" to "Property, plant and equipment, net" to be consistent with the current year's presentation. The total amount reclassified from "Inventories" as of December 31, 2012 was $11.1 million. As a result of this reclassification, we also have reclassified certain amounts on our Consolidated Statement of Cash Flows for the nine months ended September 30, 2012, among "Depreciation and amortization" and "Inventories" in operating activities and "Additions to property,

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plant and equipment, net" in investing activities. The net reclassification between operating and investing activities during the nine months ended September 30, 2012 was $1.3 million.

2. Summary of Significant Accounting Policies

        For a complete discussion of the Partnership's significant accounting policies, refer to the notes to the audited consolidated financial statements included in our 2012 Annual Report on Form 10-K, filed with the SEC on February 27, 2013.

3. New Accounting Standards

        Following are summaries of accounting pronouncements that either were adopted recently or may become applicable to our consolidated financial statements. It should be noted that the accounting standards references provided below reflect the Financial Accounting Standards Board (FASB) Accounting Standards Codification, and related Accounting Standards Updates (ASU).

Recently Adopted Pronouncements

        In December 2011, the FASB issued a standard pertaining to disclosures about offsetting assets and liabilities (ASU No. 2011-11). This standard requires an entity to disclose information about offsetting and related arrangements, including financial instruments and derivative instruments, and the effect these arrangements have on the entity's financial position. In January 2013, the FASB issued an amendment to ASU No. 2011-11 (ASU No. 2013-01) clarifying that its scope applies to derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement or similar agreement. These standards are effective for disclosures in interim and annual reporting periods beginning on or after January 1, 2013. We adopted this standard in the first quarter of 2013 and its adoption did not have a significant impact on our consolidated financial statements.

4. Agreement of Limited Partnership

        We make quarterly distributions to holders of our General Partner interest and Limited Partner interests based on Available Cash for the quarter as defined in our agreement of limited partnership. Available Cash is defined generally as all cash receipts less all cash disbursements, less certain reserves (including reserves for future operating and capital needs) established as the General Partner determines in its reasonable discretion to be necessary or appropriate. Changes in working capital affect Available Cash as changes in the amount of cash invested in working capital items (such as increases in inventory and decreases in accounts payable) reduce Available Cash, while declines in the amount of cash invested in working capital items increase Available Cash. During the nine months ended September 30, 2013 and 2012, we paid partnership distributions of $406.8 million and $422.1 million, respectively.

        We receive 99% of the Available Cash from the Operating Partnership and 1% is distributed to its General Partner. Cash distributions from the Operating Partnership generally represent the Operating Partnership's Available Cash from operations. Our cash distributions are made 99.975% to common and Class B common unitholders and 0.025% to our General Partner except when cumulative distributions of Available Cash exceed specified target levels above the Minimum Quarterly Distributions (MQD) of $0.605 per unit. Under such circumstances, our General Partner is entitled to receive Incentive Distribution Rights.

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        On November 4, 2013, we announced a $2.02 cash distribution per common limited partnership unit, payable on November 29, 2013 to holders of record as of November 15, 2013. In the third quarter, we exceeded the cumulative MQD amounts and will distribute Available Cash as summarized in the following table:

        The General Partner is required to remit the majority of cash distributions it receives from the Partnership, in excess of its 1% Partnership equity interest, to an affiliated company.

        At September 30, 2013, the General Partner and its affiliates owned 75.3% of our outstanding units. When not more than 25% of our issued and outstanding units are held by non-affiliates of the General Partner, we, at the General Partner's sole discretion, may call, or assign to the General Partner or its affiliates, our right to acquire all such outstanding units held by non-affiliated persons. If the General Partner elects to acquire all outstanding units, we are required to give at least 30 but not more than 60 days notice of our 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 or (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.

5. Net Earnings per Common Unit

        Net earnings per common unit is based on the weighted-average number of common units outstanding during the period. The following table provides a calculation for net earnings per common unit for the three and nine months ended September 30, 2013 and 2012:

        There were no dilutive TNCLP units outstanding for the nine months ended September 30, 2013 and 2012.

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6. Inventories

        Inventories consisted of the following:

7. Derivative Financial Instruments

        Derivative financial instruments are executed on our behalf by an affiliate of the General Partner to manage the volatility in our natural gas prices. We report derivatives on our consolidated balance sheet at fair value. Changes in fair value are recognized in cost of sales in the period of change. Cash flows related to natural gas derivatives are reported in operating activities.

        The derivatives we use are primarily natural gas fixed price swaps and call options traded in the over-the-counter (OTC) markets. The derivative contract prices are based on prices at the Henry Hub in Louisiana, the most common and financially liquid location of reference for financial derivatives related to natural gas. However, we purchase natural gas for our manufacturing facility from suppliers whose prices are based primarily on the OneOK index rather than Henry Hub. This creates a location basis differential between the derivative contract price and the physical price of natural gas. Accordingly, the prices underlying the financial derivatives we use may not exactly match the prices of physical gas we consume. The contracts are traded in months forward and settlement dates are scheduled to coincide with anticipated gas purchases during those future periods.

        The gross fair values of derivatives on our balance sheet are shown below. All balance sheet amounts from derivatives arise from natural gas derivatives that are not designated as hedging instruments. For additional information on derivative fair values, see Note 8—Fair Value Measurements.

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        The effect of derivatives in our consolidated statements of operations is shown below. All amounts arise from natural gas derivatives that are not designated as hedging instruments and are recorded in cost of goods sold.

        As of September 30, 2013 and December 31, 2012, we had open derivative contracts for 11.3 million MMBtus and 9.9 million MMBtus, respectively, of natural gas. For the nine months ended September 30, 2013, we used derivatives to cover approximately 90% of our natural gas consumption.

        The counterparties to our derivatives are large financial institutions and large oil and gas companies. The derivatives are executed with several counterparties, generally under International Swaps and Derivatives Association (ISDA) agreements. The ISDA agreements are master netting arrangements commonly used for over-the-counter (OTC) derivatives that mitigate exposure to counterparty credit risk, in part, by creating contractual rights of netting and setoff, the specifics of which vary from agreement to agreement. These rights are described further below:

•

Settlement netting generally allows the parties to net, into a single net payable or receivable, ordinary settlement obligations arising under the ISDA agreement on the same day, in the same currency, for the same types of derivative instruments, and through the same pairing of offices.



•

Close-out netting rights are provided in the event of a default or other termination event (as defined in the ISDA agreements), including bankruptcy. Depending on the cause of early termination, the non-defaulting party may elect to accelerate and terminate all or some transactions outstanding under the ISDA agreement. The values of all terminated transactions and certain other payments under the ISDA agreement are netted, resulting in a single net close-out amount payable to or by the non-defaulting party. Termination values may be determined using a mark-to-market approach or based on a party's good faith estimate of its loss. If the final net close-out amount is payable by the non-defaulting party, that party's obligation to make the payment may be conditioned on factors such as the termination of all derivative transactions between the parties or payment in full of all of the defaulting party's obligations to the non-defaulting party, in each case regardless of whether arising under the ISDA agreement or otherwise.



•

Setoff rights are provided by certain of the ISDA agreements and generally allow a non-defaulting party to elect to setoff, against the final net close-out payment, other matured and contingent amounts payable between the parties under the ISDA agreement or otherwise. Typically, these setoff rights arise upon the early termination of all transactions outstanding under an ISDA agreement following a default or specified termination event.

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        Most of the ISDA agreements contain credit risk related contingent features with sliding-scale credit support thresholds that are dependent upon credit ratings assigned to certain debt of the General Partner affiliate by certain credit rating agencies. Downgrades in the credit ratings would cause the applicable threshold levels to decrease and improvements in those ratings could cause the threshold levels to increase. If our net liability positions exceed the threshold amounts, the counterparties could require cash collateral, some other form of credit support or daily cash settlement of unrealized losses. As of September 30, 2013 and December 31, 2012, the aggregate fair values of the derivative instruments with credit-risk-related contingent features in a net liability position were $1.5 million and $0.8 million, respectively, which also approximates the fair value of the maximum amount of additional collateral that would need to be posted or assets needed to settle the obligations if the credit-risk-related contingent features were triggered at the reporting dates. At both September 30, 2013 and December 31, 2012, we had no cash collateral on deposit for derivative contracts. The credit support documents executed in connection with ISDA agreements generally provide the right to setoff collateral against amounts owing under the ISDA agreements upon the occurrence of a default or a specified termination event.

        The following table presents amounts relevant to offsetting of our derivative assets and liabilities as of September 30, 2013 and December 31, 2012.

        Our exposure to credit loss from nonperformance by counterparties was insignificant as of September 30, 2013 and December 31, 2012. We do not believe the contractually allowed netting, close-out netting or set-off of amounts owed to, or due from, the ISDA agreement counterparties would have a material effect on our financial position.

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8. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

        The following table presents assets and liabilities included in our Consolidated Balance Sheets that are recognized at fair value on a recurring basis, and indicates the fair value hierarchy utilized to determine such fair value as of September 30, 2013 and December 31, 2012.

 

        Following is a summary of the valuation methodologies for assets and liabilities recorded in our Consolidated Balance Sheets at fair value on a recurring basis:

Cash and Cash Equivalents

        As of September 30, 2013 and December 31, 2012, our cash and cash equivalents consisted primarily of U.S. Treasury Bills with original maturities of three months or less and money market mutual funds that invest in U.S. government obligations.

Natural Gas Derivatives

        The derivative instruments that we use are primarily natural gas call options and fixed price swaps traded in the over-the-counter markets with either large oil and gas companies or large financial institutions. The derivatives are traded in months forward and settlements are scheduled to coincide with anticipated gas purchases during those future periods. These contracts settle using NYMEX futures prices and accordingly, to determine the fair value of these instruments, we use quoted market prices from NYMEX and standard pricing models with inputs derived from or corroborated by

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observable market data such as forward curves supplied by an industry recognized unrelated third party. See Note 7—Derivative Financial Instruments for additional information.

9. Property, Plant and Equipment, net

        Property, plant and equipment, net consisted of the following:

        Plant turnarounds—Scheduled inspections, replacements and overhauls of plant machinery and equipment at our continuous process manufacturing facility are referred to as plant turnarounds. The expenditures related to turnarounds are capitalized when incurred. The following is a summary of plant turnaround activity for the nine months ended September 30, 2013 and 2012.

        Scheduled replacements and overhauls of plant and equipment include the dismantling, repair or replacement and installation of various components including piping, valves, motors, turbines, pumps, compressors, heat exchangers and the replacement of catalyst when a full plant shutdown occurs. Scheduled inspections are also conducted during full plant shutdowns, including required safety inspections which entail the disassembly of various components such as steam boilers, pressure vessels and other equipment requiring safety certifications. Internal employee costs and overhead are not considered turnaround costs and are not capitalized.

10. Related Party Transactions

        TNCLP and TNGP have no employees. We have entered into several agreements with a subsidiary of CF Industries relating to the operation of our business and the sale of the fertilizer products produced at our Verdigris facility. We believe that each of these agreements is on terms that are fair and reasonable to us.

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General Administrative Services and Product Offtake Agreement

        Pursuant to the Amendment to the General and Administrative Services and Product Offtake Agreement (the Services and Offtake Agreement), the Partnership sells all of its fertilizer products to an affiliate of the General Partner at prices based on market prices for the Partnership's fertilizer products as defined in the Services and Offtake Agreement. Title and risk of loss transfer to an affiliate of the General Partner as the product is shipped from the plant gate. The Services and Offtake Agreement is effective for annual terms starting as of January 1st and will be extended automatically for successive one-year terms unless terminated by one of the parties prior to renewal.

Directly Incurred Charges

        Since we have no employees, we rely on employees from an affiliate of the General Partner to operate our Verdigris facility. As a result, the payroll, payroll-related expenses and benefits, such as health insurance and pension, incurred by an affiliate of the General Partner, are directly charged to us. Payroll, payroll-related expenses and other employee related benefits directly charged to us for the three and nine months ended September 30, 2013 were $7.3 million and $19.0 million, respectively, and for the three and nine months ended September 30, 2012 were $5.5 million and $16.1 million, respectively. We report these expenses as services provided by the General Partner and Affiliates in cost of goods sold.

Allocated Charges

        CF Industries, together with its affiliates, also provides certain services to us under the Services and Offtake Agreement. These services include production planning, manufacturing management, logistics, accounting, legal, risk management, investor relations and other general and administrative functions. Allocated expenses charged to us for the three and nine months ended September 30, 2013 were $3.9 million and $11.4 million, respectively, and for the three and nine months ended September 30, 2012 were $3.8 million and $11.3 million, respectively. We report these expenses as selling, general and administrative services provided by the affiliates of the General Partner.

Demand Deposits with and Amounts Due to/from Affiliates of the General Partner

        Prior to January 1, 2013, our cash was collected and our expenditures were made by an affiliate of the General Partner. Cash receipts, net of cash payments made on our behalf were transferred to us weekly. Because of this cash collection and disbursement arrangement, an affiliate of the General Partner was both a debtor and creditor to us. At December 31, 2012, we had a demand deposit balance with CF Industries of $5.4 million.

        Effective January 1, 2013, we receive cash and make expenditures directly from our cash accounts. Because we sell our products to and receive payroll and other related services from affiliates of the General Partner, the affiliates of the General Partner continue to be both a debtor and creditor to us. At September 30, 2013, we had a net balance due from affiliates of the General Partner of $14.6 million.

Spare Parts Sharing Agreement

        Affiliates of CF Industries own and operate nitrogen fertilizer complexes that utilize some equipment that is similar to equipment at our Verdigris Nitrogen Complex. Each of the various manufacturing complexes maintain spare parts for use in their facilities. In the event that an unplanned need arises and to help prevent manufacturing downtime, we have entered into a spare parts sharing agreement that permits spare parts to be shared among the manufacturing complexes from time to

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time. Parts that are borrowed from another complex under the agreement are either refurbished and returned to the lender or replaced.

Leases

        Effective January 1, 2011, we leased our two terminals (one located near Blair, Nebraska, and the other located near Pekin, Illinois) to an affiliate of the General Partner for a base quarterly rent of $109,000 and additional rent equal to all costs, expenses, and obligations incurred by such affiliate of the General Partner related to the use, occupancy and operation of the facilities. The Pekin terminal stored UAN and the Blair terminal stores both ammonia and UAN. The UAN storage tanks at both Pekin and Blair were taken out of service during 2011. This lease expired on December 31, 2012.

        Effective January 1, 2013, we entered into an amended and restated lease with an affiliate of the General Partner under which the ammonia assets at our Blair terminal are leased by the affiliate. The lease is effective for a five-year term starting on January 1, 2013, and an affiliate of the General Partner has three options to renew for additional five-year terms. The quarterly lease payment is $100,000, subject to an annual inflation adjustment, and additional rent will be paid equal to all costs, expenses, and obligations incurred by the affiliate of the General Partner related to the use, occupancy and operation of the facilities.

        Since January 1, 2011, we have leased certain of our rail cars to an affiliate of the General Partner for quarterly market-based rental payments of $3,600 per car. This lease also was effective initially for a one-year term and is extended automatically for successive one-year terms unless terminated by either party thereto prior to renewal.

        We received rental income for the three and nine months ended September 30, 2013 and 2012 of $0.1 million and $0.5 million, respectively.

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

Overview

        You should read the following discussion and analysis in conjunction with Terra Nitrogen Company, L.P.'s (TNCLP, we, our or us) annual consolidated financial statements and related notes, which are included in our 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 27, 2013, as well as our Unaudited Consolidated Financial Statements and the related Notes thereto contained in Part I, Item 1 of this report.

        The section entitled "Risk Factors" contained in Part I, Item 1A of our Annual Report on Form 10-K filed with the SEC on February 27, 2013, and similar discussions in our other SEC filings, describe some of the important risk factors that may affect our business, financial condition, results of operations and/or liquidity. You should read and consider carefully those risks, in addition to the other information in this report and in our other filings with the SEC.

        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% general partner interest in the Partnership. The General Partner is an indirect, wholly-owned subsidiary of CF Industries Holdings, Inc. (CF Industries), a Delaware corporation.

        CF Industries, through its subsidiaries, is a global leader in nitrogen and phosphate fertilizer manufacturing and distribution, serving both agricultural and industrial customers. CF Industries operates world-class nitrogen fertilizer manufacturing complexes in the central United States and Canada; conducts phosphate mining and manufacturing operations in Central Florida; and distributes fertilizer products through a system of terminals, warehouses, and associated transportation equipment located primarily in the Midwestern United States.

        Throughout this document, the terms "affiliate of the General Partner" and "affiliates of the General Partner" refer to consolidated subsidiaries of CF Industries, including TNGP.

Dependence on CF Industries

        We are dependent on CF Industries for our success in a number of respects. An affiliate of CF Industries is obligated to take all of the production from our Verdigris manufacturing facility and affiliates of CF Industries provide certain services to us, including production planning, manufacturing management, logistics, accounting, legal, risk management, investor relations and other general and administrative services. For additional information concerning CF Industries, refer to CF Industries Holdings' filings with the SEC on Form 10-K, Form 10-Q and current reports on Form 8-K, and for further information regarding transactions with CF Industries, please refer to Notes to the Consolidated Financial Statements, Note 10—Related Party Transactions.

Introduction

        In this discussion and analysis, we explain our business in the following areas:

•

Company Overview;



•

Results of Operations; and



•

Liquidity and Capital Resources

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Company Overview

        TNCLP 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.

        TNCLP and TNGP have no employees. An affiliate of the General Partner provides certain services to us under the Amendment to the General and Administrative Services and Product Offtake Agreement (the Services and Offtake Agreement). Pursuant to the Services and Offtake Agreement, the Partnership sells all of its fertilizer products to an affiliate of the General Partner at prices based on market prices for the Partnership's fertilizer products as defined in the Services and Offtake Agreement. Title and risk of loss transfer to an affiliate of the General Partner as the product is shipped from the plant gate. For further information regarding our agreements with the General Partner, see Notes to the Consolidated Financial Statements, Note 10—Related Party Transactions.

Results of Operations

Consolidated Results

        We reported net earnings for the three months ended September 30, 2013, of $72.7 million on net sales of $128.4 million, compared with net earnings for the three months ended September 30, 2012, of $131.8 million on net sales of $181.1 million. Net earnings per common unit for the three months ended September 30, 2013, were $2.52 compared with $4.00 for the three months ended September 30, 2012. During the third quarter of 2013, we completed a scheduled turnaround of approximately one-half of the Verdigris complex and completed the installation of certain major capital equipment during the turnaround. A turnaround involves a full plant shut-down to conduct scheduled inspections and complete certain replacements and overhauls of the plant's machinery and equipment. The turnaround lasted 44 days and resulted in a significant reduction in the volume of fertilizer that was produced and sold during the quarter. The major capital projects that were installed during the turnaround include upgrades to the distributed control systems and an electrical system.

        We reported net earnings for the nine months ended September 30, 2013, of $388.8 million on net sales of $567.9 million, compared with net earnings for the nine months ended September 30, 2012, of $410.8 million on net sales of $573.6 million. Net earnings per common unit for the nine months ended September 30, 2013, were $12.04 compared with $12.45 for the nine months ended September 30, 2012.

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        The following table shows the results of operations for the three and nine months ended September 30, 2013 and 2012:

Third Quarter of 2013 Compared to the Third Quarter of 2012

        Our net sales for the third quarter of 2013 were $128.4 million, a decrease of $52.7 million, or 29%, from the third quarter of 2012 net sales of $181.1 million, due to turnaround activities which reduced our production and resulting sales, and due to a decrease in average selling prices. Ammonia prices decreased 8% from an average of $518 per ton in the three months ended September 30, 2012, to $479 per ton in the three months ended September 30, 2013, and UAN prices decreased 6% from an average of $270 per ton in the three months ended September 30, 2012 to $253 per ton in the three months ended September 30, 2013. The decreases in ammonia and UAN fertilizer prices in the third quarter of 2013 were due primarily to weakness in global demand in conjunction with higher international supply of nitrogen fertilizers resulting in higher producer inventory levels compared to the prior year period. Ammonia selling prices also declined due to lower spring application as a result of the delayed spring planting activities.

        Ammonia volume decreased from 89,000 tons in the third quarter of 2012 to 56,000 tons in the third quarter of 2013, while UAN volume decreased from 497,000 tons to 400,000 tons. The decreases in volumes were due primarily to lower production resulting from the turnaround that was completed during the quarter.

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        The following table shows the components of cost of goods sold and the average cost of goods sold per ton for the three months ended September 30, 2013 and 2012:

        The average cost of goods sold per ton increased to $113 per ton in the third quarter of 2013 from $77 per ton in the third quarter of 2012. As shown in the preceding table, the 47% increase in the average cost of goods sold per ton was due primarily to the effect of unrealized mark-to-market gains and losses on natural gas derivatives, higher realized natural gas prices and higher production costs resulting from maintenance activities. Realized natural gas costs increased 10% from $3.28 per MMBtu in the third quarter of 2012 to $3.62 per MMBtu in the third quarter of 2013 due to strong market demand for natural gas. We recorded a $0.9 million unrealized mark-to-market loss for the third quarter of 2013, compared to $7.1 million unrealized mark-to-market gain on natural gas derivatives for the third quarter of 2012. The cost of services provided by affiliates of the General Partner which are recorded in cost of sales increased to $7.3 million in the 3rd quarter of 2013 from $5.5 million in the 3rd quarter of 2012 due primarily to the increased employee costs related to the turnaround.

        Our gross margin was $76.8 million in the third quarter of 2013 compared to $136.0 million in the third quarter of 2012. Gross margin decreased compared to the prior year quarter due primarily to lower sales volumes as production declined due to the turnaround activities, and higher production costs. Cost of goods sold increased due to the combination of higher natural gas prices and higher maintenance costs, plus the impact of unrealized mark-to-market losses in the three months ended September 30, 2013 versus gains in the prior year period. Gross margin as a percent of net sales decreased to 59.8% during the third quarter of 2013 from 75.1% during the third quarter of 2012.

        Selling, general and administrative expenses were $4.1 million in the third quarter of 2013 compared to $4.2 million in the third quarter of 2012.

        Our net earnings were $72.7 million in the third quarter of 2013, a decrease of $59.1 million, or 45%, as compared to $131.8 million in the third quarter of 2012. Net earnings decreased primarily due to the lower gross margin.

Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012

        Our net sales for the nine months ended September 30, 2013, were $567.9 million, a decrease of $5.7 million, or 1%, from net sales of $573.6 million for the nine months ended September 30, 2012. The decrease was due to lower sales volumes, partially offset by higher average selling prices. Ammonia prices increased 20% from an average of $504 per ton in the nine months ended September 30, 2012 to $603 per ton in the nine months ended September 30, 2013, while UAN prices increased 5% from an average of $285 per ton in the nine months ended September 30, 2012, to $300 per ton in the nine months ended September 30, 2013. The increases in fertilizer prices were due primarily to strong global demand during the first half of the year reflecting a large number of planted acres of corn in 2013 and higher demand for fertilizer in wheat growing regions.

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        Ammonia volume decreased from 273,000 tons in the first nine months of 2012 to 225,000 tons in the first nine months of 2013, while UAN volume decreased from 1,524,000 tons to 1,435,000 tons. The decreases in volumes were due primarily to lower production resulting from the plant turnaround that was completed during the third quarter of 2013.

        The following table shows the components of cost of goods sold and the average cost of goods sold per ton for the nine months ended September 30, 2013 and 2012:

        The average cost of goods sold per ton increased to $100 per ton in the first nine months of 2013 from $83 per ton in the first nine months of 2012. As shown in the preceding table, the 21% increase in the average cost of goods sold per ton was primarily due to the effect of unrealized mark-to-market gains and losses on natural gas derivatives, higher realized natural gas prices and higher production costs resulting from maintenance activities. Realized natural gas costs increased 11% from $3.24 per MMBtu in the first nine months of 2012 to $3.59 per MMBtu in the first nine months of 2013. We recorded a $0.1 million unrealized mark-to-market loss for the first nine months of 2013, compared to $9.6 million unrealized mark-to-market gain on natural gas derivatives for the first nine months of 2012.

        Our gross margin was $402.4 million in the first nine months of 2013 compared to $424.0 million in the first nine months of 2012. Gross margin as a percent of net sales decreased to 70.9% during the first nine months of 2013 from 73.9% during the first nine months of 2012 due to the combination of higher production costs and the impact of the mark-to-market gains on natural gas derivatives in the first nine months of 2012.

        Selling, general and administrative expenses were $13.6 million in the first nine months of 2013 compared to $13.2 million in the first nine months of 2012.

        Our net earnings were $388.8 million in the first nine months of 2013, a decrease of $22.0 million, or 5%, as compared to $410.8 million in the first nine months of 2012. Net earnings decreased primarily due to lower gross margin.

Liquidity and Capital Resources

        Our principal funding needs and uses of cash are working capital, plant turnaround costs, capital expenditures, and quarterly distributions. Our cash and cash equivalents balance at September 30, 2013, was $70.5 million, a decrease of $78.9 million from the balance of $149.4 million at December 31, 2012.

        Prior to January 1, 2013, our cash was collected and our expenditures were made by an affiliate of the General Partner. Cash receipts, net of cash payments made on our behalf were transferred to us weekly. Because of this cash collection and disbursement arrangement, an affiliate of the General Partner was both a debtor and creditor to us.

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        Effective January 1, 2013, we receive cash and make expenditures directly from our cash accounts. Because we sell our product to and receive payroll and other related services from affiliates of the General Partner, the affiliates of the General Partner continue to be both a debtor and creditor to us.

        We completed a turnaround of an ammonia plant and a UAN plant at our Verdigris complex during the third quarter of 2013. This reduced our Available Cash for distributions to unitholders. See the section below titled Capital Expenditures and Third Quarter of 2013 Turnaround for further information.

Cash Flows

        The following table summarizes our cash flows from operating, investing and financing activities for the nine months ended September 30, 2013 and 2012:

Operating Activities

        Net cash provided by operating activities was $400.0 million for the first nine months of 2013 compared to $423.3 million for the same period of 2012. The $23.3 million decrease in cash provided by operating activities in the first nine months of 2013 was due primarily to the $22.0 million decrease in net earnings. Net earnings included noncash depreciation and amortization expense of $13.0 million and $16.5 million during the nine months ended September 30, 2013 and 2012, respectively, and an unrealized mark-to-market loss (gain) on derivatives of $0.7 million and ($9.6) million, respectively.

Investing Activities

        Net cash used in investing activities was $72.1 million for the first nine months of 2013 compared to $20.9 million in the first nine months of 2012. The $51.2 million increase in cash used in investing activities in 2013 was due primarily to higher capital expenditures due to certain large capital projects and the plant turnaround. Additions to property, plant and equipment were $77.5 million and $29.5 million during the nine months ended September 30, 2013 and 2012, respectively.

Financing Activities

        Net cash used in financing activities was $406.8 million for the first nine months of 2013 compared to $422.1 million in the first nine months of 2012, and consists of distributions paid to our unitholders. The distributions paid are based on "Available Cash," as defined in our agreement of limited partnership. For additional information, see Notes to the Consolidated Financial Statements, Note 4—Agreement of Limited Partnership.

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Capital Expenditures and Third Quarter of 2013 Turnaround

        Capital expenditures totaled $84.1 million and $29.5 million during the nine months ended September 30, 2013 and 2012, respectively. Capital expenditures for 2013 increased due to spending on several large projects along with the plant turnaround that occurred in the third quarter of 2013. We expect to make capital expenditures of approximately $100 million in 2013, including the turnaround.

        The 2013 capital program includes sustaining expenditures plus certain projects such as new ammonia and UAN storage tanks, a rail yard expansion, an upgrade to a plant distribution control system, and a complex-wide electrical system upgrade. These major projects began in 2012 and are expected to be completed in 2013 and 2014. The third quarter plant turnaround resulted in lower production and sales during the quarter, which reduced Available Cash for distributions to unitholders.

        Planned capital expenditures and turnarounds are subject to change due to delays in regulatory approvals and/or permitting, unanticipated increases in cost, changes in scope and completion time, performance of third parties, adverse weather, defects in materials and workmanship, labor or material shortages, transportation constraints, and other unforeseen difficulties. Capital expenditures reduce the Available Cash for unit holder distributions.

General Partner

        The General Partner is an indirect, wholly-owned subsidiary of CF Industries. Under the General Partner's governing documents, neither we nor the General Partner may make any bankruptcy filing (or take similar action) without the approval of the General Partner's independent directors.

Partnership Distributions

        We make quarterly distributions to holders of our General Partner interest and Limited Partner interests based on Available Cash for the quarter as defined in our agreement of limited partnership. Available Cash is defined generally as all cash receipts less all cash disbursements, less certain reserves (including reserves for future operating and capital needs) established as the General Partner determines in its reasonable discretion to be necessary or appropriate. Changes in working capital impact Available Cash as changes in the amount of cash invested in working capital items (such as increases in inventory and decreases in accounts payable) reduce Available Cash, while declines in the amount of cash invested in working capital items increase Available Cash. During the nine months ended September 30, 2013 and 2012, we paid partnership distributions of $406.8 million and $422.1 million, respectively.

        We receive 99% of the Available Cash from the Operating Partnership and 1% is distributed to its General Partner. Cash distributions from the Operating Partnership generally represent the Operating Partnership's Available Cash from operations. Our cash distributions are made 99.975% to common and Class B common unitholders and 0.025% to our General Partner except when cumulative distributions of Available Cash exceed specified target levels above the Minimum Quarterly Distributions (MQD) of $0.605 per unit. Under such circumstances, our General Partner is entitled to receive Incentive Distribution Rights.

        On November 4, 2013, we announced a $2.02 cash distribution per common limited partnership unit, payable on November 29, 2013 to holders of record as of November 15, 2013. In the third quarter,

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we exceeded the cumulative MQD amounts and will distribute Available Cash as summarized in the following table:

        The General Partner is required to remit the majority of cash distributions it receives from the Partnership, in excess of its 1% Partnership equity interest, to an affiliated company.

General Partner Option to Effect Mandatory Redemption of Partnership Units

        At September 30, 2013, the General Partner and its affiliates owned 75.3% of our outstanding units. When not more than 25% of the issued and outstanding units are held by non-affiliates of the General Partner, as was the case at September 30, 2013, we, at the General Partner's sole discretion, may call, or assign to the General Partner or its affiliates, our right to acquire all such outstanding units held by non-affiliated persons. If the General Partner elects to acquire all outstanding units, we are required to give at least 30 but not more than 60 days notice of our 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 or (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.

Cash Transactions with Affiliates

        Effective January 1, 2013, we receive cash and make expenditures directly from our cash accounts. Because we sell our product to and receive payroll and other related services from affiliates of the General Partner, the affiliates of the General Partner continue to be both a debtor and creditor to us.

Derivatives

        We purchase natural gas at market prices to meet production requirements at our manufacturing facility. Natural gas prices are volatile, and our natural gas acquisition policy allows us to establish derivative positions that are associated with anticipated natural gas requirements. The natural gas derivatives that we use are primarily natural gas call options and fixed price natural gas swaps.

        Natural gas derivatives involve the risk of dealing with counterparties and their ability to meet the terms of the contracts. The counterparties to our natural gas derivatives are either large oil and gas companies or large financial institutions. For derivatives that are in net asset positions, we are exposed to credit loss from nonperformance by the counterparties. Credit risk is controlled through the use of multiple counterparties, individual credit limits, monitoring procedures, cash collateral requirements and master netting arrangements.

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Contractual Obligations

        At September 30, 2013, there were no material changes to the Partnership's contractual obligations, critical accounting policies or off-balance sheet arrangements presented in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2012.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to the impact of changes in the price of natural gas which we use in the manufacture of our nitrogen fertilizer products. Because natural gas prices are volatile, we manage the risk of changes in natural gas prices through the use of derivative financial instruments.

        The derivative instruments that we use are primarily natural gas fixed price swaps and call options. These contracts settle using NYMEX futures prices, which represent the basis for fair value at any given time. The derivatives are traded in months forward and settlements are scheduled to coincide with anticipated natural gas purchases during those future periods.

        As of September 30, 2013 and December 31, 2012, we had open derivative contracts for 11.3 million MMBtus and 9.9 million MMBtus, respectively, of natural gas. A $1.00 per MMBtu increase in the forward curve prices of natural gas at September 30, 2013, would result in a favorable change in the fair value of these derivative positions of $7.9 million, and a $1.00 per MMBtu decrease would change their fair value unfavorably by $7.9 million.

ITEM 4.    CONTROLS AND PROCEDURES

        (a)    Disclosure Controls and Procedures.    TNGP's management, with the participation of TNGP's Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, TNGP's Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective in (i) recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Partnership in the reports that it files or submits under the Exchange Act and (ii) ensuring that information required to be disclosed by the Partnership in the reports that it files or submits under the Exchange Act is accumulated and communicated to TNGP's management, including TNGP's Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

        (b)    Internal Control Over Financial Reporting.    There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

FORWARD-LOOKING STATEMENTS

        From time to time, in this Quarterly Report on Form 10-Q as well as in other written reports and oral statements, we make forward-looking statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our future prospects, developments and business strategies. We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict,"

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"project," and similar terms and phrases, including references to assumptions, to identify forward-looking statements in this Form 10-Q. These forward-looking statements are made based on currently available competitive, financial and economic data, our current expectations, estimates, forecasts and projections about the industries and markets in which we operate and management's beliefs and assumptions concerning future events affecting us. These statements are not guarantees of future performance and are subject to risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Therefore, our actual results may differ materially from what is expressed in or implied by any forward-looking statements. We caution you not to place undue reliance on any forward-looking statements. We do not undertake any responsibility to release publicly any revisions to these forward- looking statements to take into account events or circumstances that occur after the date of this document. Additionally, we do not undertake any responsibility to provide updates regarding the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this report.

        Important factors that could cause actual results to differ materially from our expectations are disclosed under "Risk Factors" in Item 1A in our Form 10-K, filed with the SEC on February 27, 2013. Such factors include, among others:

•

risks related to our reliance on one production facility;



•

the cyclical nature of our business;



•

the global commodity nature of our fertilizer products, the impact of global supply and demand on our 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;



•

reliance on third party transportation providers;



•

weather conditions;



•

potential liabilities and expenditures related to environmental and health and safety laws and regulations;



•

future regulatory restrictions and requirements related to greenhouse gas emissions or other environmental requirements;



•

risks associated with cyber security;



•

our inability to predict seasonal demand for our products accurately;



•

risks involving derivatives and the effectiveness of our risk measurement and hedging activities;



•

limited access to capital;



•

acts of terrorism and regulations to combat terrorism;



•

risks related to our dependence on and relationships with CF Industries;



•

deterioration of global market and economic conditions;



•

control of our General Partner by CF Industries;



•

the conflicts of interest that may be faced by the executive officers of our General Partner, who operate both us and CF Industries; and



•

changes in our treatment as a partnership for U.S. or state income tax purposes.

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PART II. OTHER INFORMATION

ITEM 6.    EXHIBITS

(a)   Exhibits:

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SIGNATURES

        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.

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