01—Abstract
Summary
Summary of the 10-K filed February 26, 2015. Cited figures are marked; the original filing is the authoritative source.
CF Industries Holdings, Inc. reported net earnings of $1.4 billion for 2014, compared to $1.5 billiona in 2013, a decline of $74.3 million or 5% in net earnings attributable to common stockholders.
Diluted earnings per share rose to $27.08b from $24.74, helped by share repurchases of 7.7 million shares for $1.9 billion. Results were significantly affected by the March 2014 sale of the phosphate business to Mosaic for approximately $1.4 billion in cash, which produced a pre-tax gain of $750.1 million. Excluding that gain, the Nitrogen Product Segments saw gross margin fall by $676.9 million, or 28%, driven by lower average selling prices, higher natural gas costs and mark-to-market losses on natural gas derivatives.
Net sales declined $731.5 millionc, or 13%, to $4.7 billion, and gross margin fell 29% to $1.8 billion. Net cash provided by operating activities was $1.4 billion. Capital expenditures rose to $1.8 billion, primarily for the Donaldsonville, Louisiana and Port Neal, Iowa capacity expansion projects, whose estimated total cost increased to approximately $4.2 billion from $3.8 billion, with start-ups scheduled from the third quarter of 2015 through 2016.
Total debt rose to $4.6 billiond following $1.5 billion of senior notes issued in March 2014, and cash and cash equivalents were $2.0 billion at year end. The company reorganized its reporting into five segments (ammonia, granular urea, UAN, other and phosphate).
It disclosed a West, Texas fertilizer facility explosion litigation in which it has been named as a defendant, and it expects 2015 capital expenditures of approximately $2.0 billion to $2.5 billion. Shareholders should weigh the earnings decline in the core nitrogen business against the one-time phosphate gain and the large, cost-overrun-exposed expansion program.
02—Key points
Key Highlights
- Net earnings attributable to common stockholders were $1.39 billion in 2014, down $74.3 million or 5% from $1.46 billion in 2013, while diluted EPS rose 9% to $27.08 due to share repurchases.
- Gain of $750.1 million pre-tax ($462.8 million after tax) on the March 2014 sale of the phosphate business to Mosaic for approximately $1.4 billion in cash.
- Net sales fell 13% to $4.7 billion and gross margin fell 29% to $1.8 billion; Nitrogen Product Segments gross margin declined $676.9 million, or 28%.
- Average Nitrogen Product Segments selling prices declined 4%, reducing gross margin by $358.9 million, and higher natural gas costs reduced gross margin by $122.3 million.
- Repurchased 7.7 million shares for $1.9 billion in 2014, representing 14% of prior year-end outstanding shares.
- Capacity expansion projects at Donaldsonville and Port Neal now estimated at approximately $4.2 billion, up from $3.8 billion, with 2015 spending expected at $1.5 billion to $2.0 billion.
- Total indebtedness reached $4.6 billion, including $1.5 billion of senior notes issued in March 2014; $995.1 million was available under the revolving credit facility.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, CF Industries Holdings kept $0.29.
- Revenue$4.74B100.0%
- Cost of revenue−$2.96B62.5%
- Gross profit$1.78B37.5%
- Operating costs$588.0M12.4%
- Operating income$2.37B49.9%
- Interest, other & tax−$976.0M20.6%
- Net income$1.39B29.3%
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 26, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $4.74B$5.47B | −13.4% |
| Cost of Revenue | $2.96B$2.95B | +0.4% |
| Gross Profit | $1.78B$2.52B | −29.5% |
| SG&A Expenses | $152.00M$166.00M | −8.4% |
| Operating Income | $2.37B$2.41B | −1.9% |
| Interest Expense | $238.00M$152.20M | +56.4% |
| Net Income | $1.39B$1.46B | −5.1% |
| EPS (Basic) | $5.43$4.97 | +9.3% |
| EPS (Diluted) | $5.42$4.95 | +9.5% |
| Shares Outstanding (Basic) | 255.90M294.40M | −13.1% |
| Shares Outstanding (Diluted) | 256.70M296.00M | −13.3% |
05—Questions
Frequently Asked Questions
Why did net earnings decline in 2014 even though the company sold a business for a large gain?
The $750.1 million pre-tax gain on the phosphate sale partly offset a decline in the Nitrogen Product Segments. Gross margin for those segments fell $676.9 million, mainly due to lower average selling prices, higher natural gas costs, and $79.5 million of unrealized mark-to-market losses on natural gas derivatives. Net earnings attributable to common stockholders fell $74.3 million, or 5%, to $1.39 billion.
How did share repurchases affect per-share results?
The company repurchased 7.7 million shares for $1.9 billion, or an average of $250 per share, representing 14% of prior year-end outstanding shares. Diluted EPS increased 9% to $27.08 from $24.74 because the lower average share count offset the decline in net earnings.
What are the main risks and costs associated with the capacity expansion projects?
The Donaldsonville and Port Neal projects have an estimated total cost of approximately $4.2 billion, up just under 10% from the original $3.8 billion, and $2.0 billion was invested through December 31, 2014. The filing notes that higher material content and labor costs at Port Neal drove the increase. Start-ups are expected from the third quarter of 2015 for urea at Donaldsonville through mid-to-third quarter 2016 at Port Neal, and the company may face schedule, budget and third-party performance risks.
How much debt does the company carry and how is it financed?
Total debt was $4.6 billion at December 31, 2014, consisting primarily of unsecured senior notes maturing from 2018 to 2044. The company issued $1.5 billion of senior notes in March 2014 and had $995.1 million available under its $1.0 billion revolving credit facility. The company expects to finance expansion spending through cash, operating cash flow and borrowings.
What legal and environmental exposures does the filing disclose?
The company has been named as a defendant in lawsuits from the April 2013 West, Texas fertilizer facility explosion, which killed 15 people and injured approximately 200, and management believes it has strong defenses. It also disclosed an EPA Clean Air Act Notice of Violation tied to the former Plant City, Florida facility, for which it cannot estimate potential penalties, and environmental capital expenditures of approximately $48.0 million in 2014 with about $46.0 million expected in 2015.
06—Continue