01—Abstract
Summary
Summary of the 10-K filed February 23, 2017. Cited figures are marked; the original filing is the authoritative source.
CF Industries Holdings, Inc. reported a net loss attributable to common stockholders of $277 milliona in 2016, compared with net earnings of $700 million in 2015, a decline of $977 million.
Net sales fell 14% to $3.69 billionb, driven by a 31% decline in average selling prices, which the filing attributes to excess global nitrogen supply. Gross margin fell 46% to $840 million, though the company cites offsetting benefits from a $260 million unrealized mark-to-market gain on natural gas derivatives and a 14% increase in sales volume. The results also include $716 million of pre-tax significant items, among them a $134 million impairment of the PLNL equity investment, a $167 million loss on debt extinguishment, and a $179 million in transaction costs including a $150 million termination fee paid to OCI.
The company completed its Donaldsonville, Louisiana and Port Neal, Iowa capacity expansion projects in 2016 at a total capital cost of $5.2 billionc, increasing production capacity by approximately 25%. The CHS strategic venture closed on February 1, 2016, with CHS paying $2.8 billion for a minority equity interest in CF Industries Nitrogen, LLC. Liquidity improved, with cash and cash equivalents rising to $1.16 billion and total debt of $5.78 billion, though credit ratings were cut by all three agencies in 2016 and the company expects an approximately $816 million federal tax refund in the third quarter of 2017.
The filing describes a continued lower-priced environment, with management expecting prices to rise into the 2017 spring season but expecting the lower-priced environment to persist until global supply and demand become more balanced. Risks highlighted include global oversupply, natural gas price volatility, the West Fertilizer litigation, credit rating downgrades, and the curtailment of natural gas supply to the PLNL joint venture in Trinidad.
02—Key points
Key Highlights
- Net loss attributable to common stockholders of $277 million (diluted loss of $1.19 per share) in 2016, versus net earnings of $700 million in 2015.
- Net sales declined 14% to $3.69 billion as average selling prices fell 31%, which reduced gross margin by $1.38 billion; sales volume rose 14%.
- Gross margin fell 46% to $840 million, including a $260 million unrealized mark-to-market gain on natural gas derivatives in 2016.
- Completed the Donaldsonville and Port Neal capacity expansions at a total capital cost of $5.2 billion, increasing production capacity by approximately 25%.
- CHS purchased a minority equity interest in CF Industries Nitrogen, LLC for $2.8 billion on February 1, 2016.
- Total funded debt of $5.78 billion; the company refinanced $1.0 billion of Private Senior Notes with $1.25 billion of Senior Secured Notes and cut its revolving facility from $1.5 billion to $750 million.
- Expects an approximately $800 million tax refund (estimated at $816 million in the Liquidity section) in the third quarter of 2017 from the carryback of the 2016 federal tax loss.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2016, CF Industries Holdings lost $0.08.
- Revenue$3.69B100.0%
- Cost of revenue−$2.84B77.1%
- Gross profit$843.0M22.9%
- Operating costs−$705.0M19.1%
- Operating income$138.0M3.7%
- Interest, other & tax−$415.0M11.3%
- Net income−$277.0M7.5%
Where FY2016 revenue went
$3.69B- Cost of revenue: $2.85B, 77% of revenue
- Other operating costs: $529.0M, 14% of revenue
- Operating income: $138.0M, 3.7% of revenue
- SG&A: $173.0M, 4.7% of revenue
Kept 3.7% as operating incomeOperating income $138.0M · 3.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 23, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $3.69B$4.31B | −14.5% |
| Cost of Revenue | $2.85B$2.76B | +3.0% |
| Gross Profit | $843.00M$1.55B | −45.5% |
| SG&A Expenses | $173.00M$170.00M | +1.8% |
| Operating Income | $138.00M$1.19B | −88.4% |
| Interest Expense | $303.00M$267.00M | +13.5% |
| Net Income | -$277.00M$700.00M | −139.6% |
| EPS (Basic) | $-1.19$2.97 | −140.1% |
| EPS (Diluted) | $-1.19$2.96 | −140.2% |
| Shares Outstanding (Basic) | 233.10M235.30M | −0.9% |
| Shares Outstanding (Diluted) | 233.10M236.10M | −1.3% |
05—Questions
Frequently Asked Questions
Why did CF Industries report a net loss in 2016?
The filing attributes the loss primarily to lower average selling prices resulting from excess global nitrogen supply, combined with several significant items. These include a $134 million impairment of the PLNL equity investment, a $167 million loss on debt extinguishment, $179 million of transaction costs (including a $150 million termination fee to OCI), and a $93 million foreign currency loss.
What is the outlook for nitrogen fertilizer prices?
Management expects nitrogen fertilizer prices to rise going into the 2017 spring application season due to seasonal demand. However, it expects the lower-priced environment to continue until global supply and demand become more balanced, and notes that significant new North American capacity is expected to come online in 2017.
How did the capacity expansion projects affect the company?
The Donaldsonville and Port Neal projects were completed in 2016 at a total capital cost of $5.2 billion and increased overall production capacity by approximately 25%. Depreciation on the expansion plants was $116 million in 2016, and start-up costs were $52 million.
What happened to the company's credit ratings and debt?
In October 2016, S&P cut the corporate rating to BB+ from BBB-, Moody's cut it to Baa3 from Baa2, and Fitch cut it to BB+ from BBB. Moody's further reduced its rating to Ba2 in November 2016. Total debt was $5.78 billion at year end, and the company was in compliance with its covenants.
06—Continue