01—Abstract
Summary
Summary of the 10-K filed February 25, 2011. Cited figures are marked; the original filing is the authoritative source.
CF Industries Holdings, Inc. reported 2010 net sales of $3,965.0 milliona, up from $2,608.4 million in 2009, and net earnings attributable to common stockholders of $349.2 million, down from $365.6 million.
The increase in sales was driven primarily by the April 2010 acquisition of Terra Industries Inc., which contributed $1,377.5 millionb of net sales from April 5 through December 31, 2010. Gross margin rose to $1,179.5 million from $839.4 million, while diluted earnings per share fell to $5.34 from $7.42 as the share count increased with the 9.5 million shares issued for Terra and the 12.9 million shares sold in the April 2010 public offering. The Terra acquisition, for a total purchase price of $4.6 billion, was funded with a $1.75 billion senior secured bridge loan, a term loan of approximately $1.9 billion, $1.6 billion of senior notes, and equity.
Long-term debt rose to $1,954.1 millionc at year-end 2010 from $0 in 2009, and cash and cash equivalents were $797.7 million. The company operates two segments. The nitrogen segment generated net sales of $3,187.5 million and a gross margin of $1,026.7 million, with a gross margin percentage of 32.2% in 2010 versus 42.6% in 2009.
The phosphate segment generated net sales of $777.5 milliond and a gross margin of $152.8 million, with a gross margin percentage of 19.7%. Results in 2010 included $150.4 million of business combination and Peru project costs, $85.9 million of accelerated amortization of debt issuance costs, and a $17.0 million loss on early retirement of Terra's 2019 notes.
Cash flow from operations was $1,194.4 million, up from $681.8 million in 2009. The company also reported exposure to Florida environmental matters, including the Plant City consent decree, and a pending nitric acid consent decree.
02—Key points
Key Highlights
- Net sales rose 52% to $3,965.0 million in 2010, driven mainly by the $1,377.5 million of net sales contributed by Terra since April 5, 2010.
- Net earnings attributable to common stockholders declined to $349.2 million from $365.6 million, with diluted EPS of $5.34 versus $7.42, reflecting higher share count and $219.8 million of net interest expense.
- Gross margin increased 40.5% to $1,179.5 million, with the nitrogen segment contributing $1,026.7 million (32.2% margin) and the phosphate segment $152.8 million (19.7% margin).
- Total debt increased to $1,959.0 million at December 31, 2010 from $4.7 million a year earlier, following financing for the $4.6 billion Terra acquisition.
- Cash flow from operations increased to $1,194.4 million from $681.8 million, and cash and cash equivalents ended the year at $797.7 million.
- Customer advances of $431.5 million at year-end 2010, up from $159.5 million, reflect forward sales under the Forward Pricing Program.
- Environmental exposure includes the Plant City RCRA consent decree, a Clean Air Act Notice of Violation at Plant City, and a nitric acid consent decree executed February 11, 2011 that is not yet final.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, CF Industries Holdings kept $0.09.
- Revenue$3.96B100.0%
- Cost of revenue−$2.79B70.3%
- Gross profit$1.18B29.7%
- Operating costs−$283.8M7.2%
- Operating income$895.7M22.6%
- Interest, other & tax−$546.5M13.8%
- Net income$349.2M8.8%
Where FY2010 revenue went
$3.96B- Cost of revenue: $2.79B, 70% of revenue
- Interest, other & tax: $546.5M, 14% of revenue
- Net income: $349.2M, 8.8% of revenue
- SG&A: $106.1M, 2.7% of revenue
- Other operating costs: $177.7M, 4.5% of revenue
Kept 8.8% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 25, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $3.96B$2.61B | +52.0% |
| Cost of Revenue | $2.79B$1.77B | +57.5% |
| Gross Profit | $1.18B$839.40M | +40.5% |
| SG&A Expenses | $106.10M$62.90M | +68.7% |
| Operating Income | $895.70M$679.80M | +31.8% |
| Interest Expense | $221.30M$1.50M | +14653.3% |
| Net Income | $349.20M$365.60M | −4.5% |
| EPS (Basic) | $5.40$7.54 | −28.4% |
| EPS (Diluted) | $5.34$7.42 | −28.0% |
| Shares Outstanding (Basic) | 64.70M48.50M | +33.4% |
| Shares Outstanding (Diluted) | 65.40M49.20M | +32.9% |
05—Questions
Frequently Asked Questions
How did the Terra Industries acquisition affect CF Industries' 2010 results?
Terra was acquired in April 2010 for a total purchase price of $4.6 billion, paid in cash and shares. Terra contributed $1,377.5 million of net sales and $184.4 million of net earnings attributable to Terra Industries from April 5 to December 31, 2010, and added $358.3 million to nitrogen segment gross margin. The acquisition also drove higher depreciation, amortization, restructuring costs of $21.6 million, and a $19.4 million inventory revaluation charge.
Why did diluted earnings per share fall even though net sales rose?
Diluted EPS declined to $5.34 from $7.42 primarily because diluted weighted average shares rose to 65.4 million from 49.2 million. The increase came from the 9.5 million shares issued for Terra and the 12.9 million shares sold in the April 2010 public offering. Net earnings attributable to common stockholders also decreased slightly, to $349.2 million from $365.6 million.
How much debt did CF Industries take on in 2010, and what are its key terms?
Total debt was $1,959.0 million at December 31, 2010. It consisted of a senior secured term loan of $346.0 million, $1.6 billion of senior notes (6.875% due 2018 and 7.125% due 2020, $800 million each), and $13.0 million of Terra's 7% notes due 2017. The company also had a $500 million senior secured revolving credit facility, of which $482.9 million was available at year-end. Net interest expense was $219.8 million in 2010.
What are the main risks the filing identifies for the business?
The filing highlights the volatile cost of natural gas, which comprised approximately 45% of nitrogen fertilizer cost of sales in 2010, and the cyclical, globally commodity nature of fertilizer pricing. It also cites customer concentration, with the top ten customers representing approximately 50% of net sales, dependence on a limited number of key facilities such as Donaldsonville, which represents approximately 40% of ammonia production capacity, and environmental and permitting risks in Florida.
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