01—Abstract
Summary
Summary of the 10-K filed February 26, 2009. Cited figures are marked; the original filing is the authoritative source.
CF Industries Holdings, Inc. reported a sharply higher 2008 as record fertilizer prices lifted results.
Net sales rose to $3.9 billiona from $2.8 billion in 2007, and net earnings reached $684.6 million, or $12.15 per diluted share, versus $372.7 million ($6.57) in 2007. Gross margin increased $552.7 million to $1,222.7 million, driven by higher nitrogen and phosphate selling prices, partially offset by higher raw material and natural gas costs, a $63.8 million pre-tax unrealized mark-to-market loss on natural gas derivatives, and a $57.0 million inventory write-down in the phosphate segment. Sales volume fell 11% to 7.9 million tons as weather and weaker demand hurt the fourth quarter, when prices weakened sharply.
Balance sheet and capital allocation changed notably during the year. Cash and cash equivalents rose to $625.0 millionb, operating cash flow was $638.6 million, and the company repurchased 8.5 million shares for approximately $500 million under a program authorized in October 2008. The company also holds $177.8 million of auction rate securities that became illiquid in 2008 and are classified as noncurrent.
Customer advances under the forward pricing program totaled $347.8 millionc at year-end, and the company's $250 million credit facility had no borrowings outstanding. The filing also discloses two major pending items as of the filing date. CF proposed to acquire Terra Industries at a fixed exchange ratio of 0.4235 CF shares per Terra share, and Terra's board rejected the proposal.
On February 25, 2009, Agrium Inc. proposed to acquire all of CF's outstanding common stock in a cash-and-stock transaction, and CF's board said it would evaluate the proposal. Environmental matters at the Plant City, Florida complex, including an EPA referral to the Department of Justice, remain unresolved.
02—Key points
Key Highlights
- Net sales increased 42% to $3.9 billion in 2008, reflecting higher average nitrogen and phosphate selling prices despite an 11% decline in sales volume to 7.9 million tons.
- Net earnings rose to $684.6 million ($12.15 diluted EPS) from $372.7 million ($6.57) in 2007.
- Gross margin increased $552.7 million to $1,222.7 million, including a $63.8 million pre-tax unrealized mark-to-market loss on natural gas derivatives and a $57.0 million phosphate and potash inventory write-down.
- Repurchased and retired 8.5 million shares for approximately $500 million at an average price of $58.96 in the fourth quarter of 2008.
- Cash and cash equivalents were $625.0 million at year-end, against $347.8 million of customer advances; $177.8 million of auction rate securities are illiquid and classified as noncurrent.
- Quarterly dividend was raised to $0.10 per share from $0.02, totaling $0.40 annually in the expected run rate.
- Subsequent events include CF's proposed exchange offer for Terra Industries, which Terra rejected, and Agrium Inc.'s February 25, 2009 cash-and-stock proposal to acquire all of CF's common stock.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, CF Industries Holdings kept $0.17.
- Revenue$3.92B100.0%
- Cost of revenue−$2.70B68.8%
- Gross profit$1.22B31.2%
- Operating costs−$72.5M1.8%
- Operating income$1.15B29.3%
- Interest, other & tax−$465.6M11.9%
- Net income$684.6M17.5%
Where FY2008 revenue went
$3.92B- Cost of revenue: $2.70B, 69% of revenue
- Net income: $684.6M, 17% of revenue
- SG&A: $68.0M, 1.7% of revenue
- Interest, other & tax: $465.6M, 12% of revenue
Kept 17% as net incomeSG&A $68.0M · 1.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 26, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $3.92B$2.76B | +42.2% |
| Cost of Revenue | $2.70B$2.09B | +29.3% |
| Gross Profit | $1.22B$670.00M | +82.5% |
| SG&A Expenses | $68.00M$65.20M | +4.3% |
| Operating Income | $1.15B$601.60M | +91.2% |
| Interest Expense | $1.60M$1.70M | −5.9% |
| Net Income | $684.60M$372.70M | +83.7% |
| EPS (Basic) | $12.35$6.70 | +84.3% |
| EPS (Diluted) | $12.13$6.56 | +84.9% |
| Shares Outstanding (Basic) | 55.40M55.70M | −0.5% |
| Shares Outstanding (Diluted) | 56.40M56.80M | −0.7% |
05—Questions
Frequently Asked Questions
What drove the large increase in 2008 earnings?
Net sales rose $1.1 billion to $3.9 billion on higher average nitrogen and phosphate selling prices, with phosphate average selling prices more than doubling. Gross margin rose $552.7 million, partly offset by higher sulfur, ammonia and natural gas costs and the unrealized derivative loss and inventory write-down.
How much cash does the company have and how is it being used?
Cash and cash equivalents were $625.0 million at December 31, 2008, up from $366.5 million. Operating cash flow was $638.6 million, and the company used about $500 million for the fourth-quarter share repurchase. Cash used in financing activities totaled $540.5 million, and the $250 million credit facility was undrawn.
What risks does the filing highlight regarding the auction rate securities?
The company holds $177.8 million of auction rate securities, carried at fair value after a $20.8 million pre-tax unrealized holding loss against $198.6 million of par value. Auctions have failed since February 2008, so the securities are classified as Level 3 and noncurrent. The company states it intends to hold them until liquidity returns.
What is the status of the pending acquisition proposals?
CF proposed to acquire Terra Industries at 0.4235 CF shares per Terra share and commenced an exchange offer on February 23, 2009, after Terra's board rejected the proposal. On February 25, 2009, Agrium Inc. proposed to acquire all of CF's outstanding common stock, and CF's board said it would evaluate the proposal and respond in due course.
What environmental exposure does the company disclose?
The EPA issued a Notice of Violation in 2005 alleging RCRA violations at the Plant City, Florida complex, and referred the matter to the Department of Justice. The statutory maximum penalty is $32,500 per day per violation, and the company says it is at risk of substantial civil penalties. The company also cannot estimate penalties related to the Plant City matters and a July 2008 DOJ letter on EPCRA and CERCLA reporting.
06—Continue