01—Abstract
Summary
Summary of the 10-K filed February 25, 2010. Cited figures are marked; the original filing is the authoritative source.
CF Industries Holdings, Inc. reported a sharp decline in 2009 earnings as fertilizer selling prices fell from the record levels of 2008.
Net sales decreased 33% to $2.6 billiona ($2,608.4 million) from $3.9 billion, and gross margin fell $383.3 million to $839.4 million. Net earnings attributable to common stockholders were $365.6 million, or $7.42 per diluted share, compared with $684.6 million, or $12.13 per diluted share, in 2008. Results were shaped by a $87.5 million pre-tax unrealized mark-to-market gain on natural gas derivatives, $53.4 million of business combination costs tied to the proposed Terra Industries merger and Agrium's unsolicited acquisition proposal, and $35.9 million of Peru project development costs.
The nitrogen segment was the stronger performer, with gross margin rising $13.9 million to $784.2 millionb, while the phosphate segment's gross margin collapsed $397.2 million to $55.2 million on lower average selling prices. Year-end 2009 liquidity was solid, with cash and cash equivalents of $697.1 million, short-term investments of $185.0 million, and $133.9 million of illiquid auction rate securities. Customer advances under the Forward Pricing Program fell to $159.5 million from $347.8 million.
The filing also notes that CHS, one of three major customers accounting for about 43%c of 2009 net sales, has said it will not renew its supply contract expiring June 30, 2010. Risk items highlighted in the filing include an EPA RCRA enforcement matter at the Plant City, Florida complex with potential civil penalties, ongoing negotiations with the Department of Justice, and a pending shareholder class action in Delaware related to the Agrium and Terra proposals. The company stated it cannot estimate the potential penalties from the Plant City environmental matters.
02—Key points
Key Highlights
- Net sales fell 33% to $2.6 billion in 2009 from $3.9 billion in 2008, reflecting lower average nitrogen and phosphate selling prices.
- Net earnings attributable to common stockholders were $365.6 million ($7.42 diluted EPS) versus $684.6 million ($12.13 diluted EPS) in 2008.
- Gross margin decreased $383.3 million to $839.4 million; phosphate gross margin fell to $55.2 million from $452.4 million, while nitrogen gross margin rose slightly to $784.2 million.
- 2009 results included $53.4 million of business combination costs (Terra and Agrium), $35.9 million of Peru project development costs, and an $87.5 million pre-tax unrealized mark-to-market gain on natural gas derivatives.
- Year-end cash and cash equivalents were $697.1 million, with short-term investments of $185.0 million and $133.9 million of illiquid auction rate securities.
- CHS Inc., representing 22% of 2009 net sales, notified the company that its supply contract expiring June 30, 2010 will not be renewed.
- Plant City, Florida faces an EPA RCRA enforcement matter with potential penalties; the company is negotiating with the Department of Justice and cannot estimate the potential penalties.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, CF Industries Holdings kept $0.14.
- Revenue$2.61B100.0%
- Cost of revenue−$1.77B67.8%
- Gross profit$839.4M32.2%
- Operating costs−$159.6M6.1%
- Operating income$679.8M26.1%
- Interest, other & tax−$314.2M12.0%
- Net income$365.6M14.0%
Where FY2009 revenue went
$2.61B- Cost of revenue: $1.77B, 68% of revenue
- Net income: $365.6M, 14% of revenue
- Interest, other & tax: $314.2M, 12% of revenue
- SG&A: $62.9M, 2.4% of revenue
- Other operating costs: $96.7M, 3.7% of revenue
Kept 14% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 25, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $2.61B$3.92B | −33.5% |
| Cost of Revenue | $1.77B$2.70B | −34.4% |
| Gross Profit | $839.40M$1.22B | −31.3% |
| SG&A Expenses | $62.90M$68.00M | −7.5% |
| Operating Income | $679.80M$1.15B | −40.9% |
| Interest Expense | $1.50M$1.60M | −6.2% |
| Net Income | $365.60M$684.60M | −46.6% |
| EPS (Basic) | $7.54$12.35 | −38.9% |
| EPS (Diluted) | $7.42$12.13 | −38.8% |
| Shares Outstanding (Basic) | 48.50M55.40M | −12.5% |
| Shares Outstanding (Diluted) | 49.20M56.40M | −12.8% |
05—Questions
Frequently Asked Questions
Why did CF Industries' earnings decline so much in 2009?
Net sales fell 33% to $2.6 billion because average nitrogen and phosphate selling prices dropped from record 2008 levels, and phosphate gross margin fell by $397.2 million to $55.2 million. Net earnings attributable to common stockholders declined to $365.6 million from $684.6 million. The filing also notes the 2008 results included a $57.0 million inventory valuation charge, while 2009 included $53.4 million of business combination costs.
How strong is the company's liquidity position?
At December 31, 2009, the company had $697.1 million of cash and cash equivalents and $185.0 million of short-term investments, plus $190.8 million of available credit under its $250 million revolving facility. Operating cash flow was $681.8 million. Customer advances under the Forward Pricing Program fell to $159.5 million from $347.8 million, and $133.9 million of auction rate securities remain illiquid.
What customer concentration risks does the company face?
Three customers, CHS Inc., GROWMARK, Inc., and Gavilon Fertilizer LLC, accounted for approximately 43% of 2009 net sales. CHS has informed the company that its multi-year supply contract expiring June 30, 2010 will not be renewed. The filing states that a loss of any of these customers could have a material adverse effect on results.
What are the main legal and environmental risks disclosed?
The company received a Notice of Violation from the EPA regarding RCRA compliance at its Plant City, Florida complex, and the matter has been referred to the Department of Justice. The company is negotiating a possible settlement that may require financial tests or a trust for phosphogypsum stack closure costs. A shareholder class action in the Delaware Court of Chancery, related to the Agrium and Terra proposals, is pending, and the company believes it is without merit.
06—Continue