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Share Name | Share Symbol | Market | Type |
---|---|---|---|
CF Industries Holdings Inc | NYSE:CF | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.22 | 0.30% | 74.09 | 75.17 | 73.41 | 74.11 | 2,360,741 | 01:00:00 |
Company Achieved Record Sales and Production Volumes
$2.0 Billion Cash on Balance Sheet
Global Nitrogen Tradeflows Transitioning, North America Pricing Affected Most
CF Industries Holdings, Inc. (NYSE: CF), the global leader in nitrogen fertilizer manufacturing and distribution, today announced results for its second quarter ended June 30, 2017.
Second Quarter Highlights
Overview of Results
CF Industries Holdings, Inc., today announced second quarter 2017 net earnings attributable to common stockholders of $3 million, or $0.01 per diluted share, and adjusted net earnings of $23 million, or $0.10 per diluted share. Second quarter 2017 EBITDA was $275 million, and adjusted EBITDA was $303 million. These results compare to second quarter 2016 net earnings attributable to common stockholders of $47 million, or $0.20 per diluted share; adjusted net earnings for the second quarter 2016 of $77 million, or $0.33 per diluted share; EBITDA of $329 million; and adjusted EBITDA of $342 million. Second quarter 2017 results include a realized loss on natural gas hedges of $4 million, compared to a realized loss on natural gas hedges of $61 million for the second quarter of 2016.
“The CF team delivered outstanding operational performance during the second quarter," said Tony Will, president and chief executive officer, CF Industries Holdings, Inc. "We ran our plants safely and at high utilization rates, sold record volumes and delivered cost efficiencies in the head office and across the manufacturing and distribution system. Our focus on execution is particularly critical during the current challenging market environment."
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(1)
See reconciliations of adjusted net earnings and adjusted net earnings per diluted share to the most directly comparable GAAP measures in the tables accompanying this release.(2)
EBITDA is defined as net earnings attributable to common stockholders plus interest expense (income)-net, income taxes, and depreciation and amortization. See reconciliations of EBITDA and adjusted EBITDA to the most directly comparable GAAP measures in the tables accompanying this release.Manufacturing Operations
CF Industries' manufacturing network operated efficiently and continued its focus on safety during the second quarter of 2017. As of June 30, 2017, CF Industries' 12-month rolling average recordable incident rate was 0.91 incidents per 200,000 work hours, well below industry averages.
Second quarter production levels were the highest in the history of the company. Gross ammonia production during the second quarter of 2017 was 2.7 million tons, 33 percent higher than in the second quarter of 2016. The CF system operated at a high utilization rate, including the new Port Neal ammonia plant, which ran at more than 115 percent of nameplate capacity in the second quarter.
During the quarter, the company successfully started up a 400,000 tons per year diesel exhaust fluid unit (urea equivalent) at the Donaldsonville Nitrogen Complex. The new plant brings additional flexibility to Donaldsonville's product mix, and allows the company to pursue additional customer demand in the growing use of nitrogen for emission control applications.
Sales Overview
Sales volumes for the quarter were significantly higher compared to the second quarter of 2016 as the company's production increased with additional production capacity at the Donaldsonville and Port Neal Nitrogen Complexes.
Net sales in the second quarter of 2017 decreased to $1,124 million from $1,134 million in the same period last year as record sales volumes were offset by lower average selling prices across most segments.
Global nitrogen prices in the second quarter were lower year-over-year due to recent worldwide capacity expansions. Prices in North America were pressured further by a high level of imports that arrived in the first quarter and unfavorable weather in March and April that delayed fertilizer purchases and applications. Additionally, CF's sales in the quarter included a higher proportion of lower-priced ammonia and urea ammonium nitrate (UAN) export sales than the prior year.
The company's average selling price for ammonia was $338 per ton in the second quarter of 2017 compared to $411 per ton in the second quarter of 2016. The average selling price for urea was $212 per ton in the second quarter of 2017 compared to $247 per ton in the second quarter of 2016, and the average selling price for UAN was $175 per ton in the second quarter of 2017 compared to $202 per ton in the second quarter of 2016.
Cost of sales per ton increased 42 percent in the second quarter of 2017 compared to the second quarter of 2016, and increased 19 percent for the first six months of 2017 compared to the first six months of 2016, due to the impact of the unrealized net mark-to-market loss on natural gas derivatives in the second quarter of 2017 compared to a gain in the same quarter of 2016, higher realized gas costs and increased depreciation and amortization. Controllable cost of sales, defined as non-gas cash costs (maintenance, labor, electricity, other raw materials, transportation and distribution, and other plant costs), which excludes the impact of natural gas, derivatives and depreciation and amortization, decreased $28 million, or 15 percent per ton,(3) in the second quarter of 2017 compared to 2016, and $45 million, or 17 percent per ton, year-to-date, as a result of the company's targeted cost reduction initiatives and increases in volume.
In the second quarter of 2017, the average cost of natural gas reflected in cost of sales for the company was $3.39 per MMBtu, which includes a realized loss of $0.04 per MMBtu on natural gas hedges totaling $4 million. This compares to the average cost of natural gas in cost of sales of $2.85 per MMBtu for the second quarter of 2016, which included a realized loss of $0.75 per MMBtu on natural gas hedges totaling $61 million. During the second quarter of 2017, the average price of natural gas at Henry Hub in North America was $3.05 per MMBtu, and the average price of natural gas at the National Balancing Point in the United Kingdom was $4.85 per MMBtu.
Additionally, the company recorded an unrealized net mark-to-market loss on natural gas derivatives of $18 million in the second quarter of 2017 compared to an unrealized net mark-to-market gain on natural gas derivatives of $211 million in the second quarter of 2016. The company did not enter into any additional natural gas hedges in the second quarter of 2017.
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(3)
See reconciliation of controllable cost of sales and controllable cost of sales per ton to the most directly comparable GAAP measures in the tables accompanying this release.
Outlook
CF expects nitrogen pricing to be challenged through the remainder of 2017 and into 2018 as the global marketplace continues to adapt to the significant capacity increases of recent years.
This transition suggests global tradeflows will re-align, which is beginning to happen. Marginal producers in China are supplying less product to the global marketplace, a trend that CF expects to continue. Urea exports from China totaled 2.8 million metric tons through June, a decline of 46 percent from the same period in 2016. Published operating rates in China during the second quarter of 2017 were approximately 60 percent.
Additionally, over the last year, multiple industry participants outside of China have announced price-driven curtailments and reduced exports. These announcements, which have affected tradeflows not only in urea but also in ammonia and UAN, have occurred in Eastern Europe, Russia, South Asia and Ukraine.
North America, which will be import-dependent for the foreseeable future, is seeing changes to its tradeflows as well. Urea and UAN imports through May are down 22 percent and 10 percent respectively. These declines, while significant, are not as large as would be expected given recent North American capacity additions. In fact, due to high import levels in the first quarter, many shipments that arrived after April did not enter distribution channels. This contributed to urea barge prices in New Orleans averaging $30 per ton below international parity during the quarter and breaking through 2016 lows in June. Prices subsequently rebounded slightly in July as some of this oversupply was re-exported to other destinations. However, with North America entering what is typically its period of lowest demand and prices, new pricing lows could be reached should substantial imports arrive in the third quarter.
Longer term, global supply growth will slow. CF expects a net 6.2 million metric tons of nameplate urea capacity to start-up in 2017 and 2018. After 2018, the rate of net new capacity growth is expected to fall below the long-term annual nitrogen demand growth rate of approximately two percent, helping to tighten the global supply and demand balance going forward.
Capital Expenditures
New capital expenditures for 2017 are expected to be approximately $400 million. Additionally, as of June 30, 2017, the company had approximately $175 million in costs accrued but yet unpaid for work completed in 2016 related to the capacity expansion projects. Most of this unpaid amount is the subject of disputes between the company and certain contractors and vendors. Actual cash expenditures for 2017 will reflect any payments for these capacity expansion project amounts if or when they are made.
Liquidity
As of June 30, 2017, the company had cash and cash equivalents of $2.0 billion on the balance sheet, had no borrowings outstanding under its $750 million revolving credit facility and was in compliance with all applicable covenant requirements under its debt instruments.
In June, the company announced that it had received federal tax refunds of approximately $815 million due to the carryback of certain federal tax losses from the 2016 tax year to prior periods. These tax losses are primarily related to accelerated tax depreciation of the company’s capacity expansion projects that were placed in service in 2016. The receipt of the federal tax refunds was earlier than the previously stated expectations, which had been the third quarter of 2017. The company intends to use the proceeds to fund the payment of $800 million in debt coming due in 2018.
CHS Inc. Distribution
On July 31, 2017, the Board of Managers of CF Industries Nitrogen, LLC approved a semi-annual distribution payment to CHS Inc. of $59 million for the distribution period ended June 30, 2017. The distribution was paid on July 31, 2017.
Consolidated Results
Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 (dollars in millions, except per shareand per MMBtu amounts)
Net sales $ 1,124 $ 1,134 $ 2,161 $ 2,138 Cost of sales 952 607 1,883 1,394 Gross margin $ 172 $ 527 $ 278 $ 744 Gross margin percentage 15.3 % 46.5 % 12.9 % 34.8 % Net earnings (loss) attributable to common stockholders $ 3 $ 47 $ (20 ) $ 73 Adjusted net earnings (1) $ 23 $ 77 $ 34 $ 170 Net earnings (loss) per diluted share $ 0.01 $ 0.20 $ (0.09 ) $ 0.31 Adjusted net earnings per diluted share(1) $ 0.10 $ 0.33 $ 0.15 $ 0.72 EBITDA(1) $ 275 $ 329 $ 493 $ 536 Adjusted EBITDA(1) $ 303 $ 342 $ 575 $ 642 Tons of product sold (000s) 5,046 4,557 9,791 8,608 Supplemental data (per MMBtu): Natural gas costs in cost of sales(2) $ 3.35 $ 2.10 $ 3.50 $ 2.29 Realized derivatives loss in cost of sales(3) 0.04 0.75 0.01 0.77 Cost of natural gas in cost of sales $ 3.39 $ 2.85 $ 3.51 $ 3.06 Average daily market price of natural gas (per MMBtu): Henry Hub $ 3.05 $ 2.10 $ 3.02 $ 2.04 National Balancing Point UK $ 4.85 $ 4.50 $ 5.43 $ 4.43 Unrealized net mark-to-market loss (gain) on natural gas derivatives $ 18 $ (211 ) $ 71 $ (190 ) Depreciation and amortization $ 217 $ 181 $ 422 $ 327 Capital expenditures $ 91 $ 703 $ 185 $ 1,379 Production volume by product tons (000s): Ammonia(4) 2,656 1,991 5,164 3,994 Granular urea 1,236 808 2,238 1,627 UAN (32%) 1,722 1,771 3,539 3,289 AN 459 386 1,001 817_______________________________________________________________________________
(1)
See reconciliations of EBITDA, adjusted EBITDA, adjusted net earnings and adjusted net earnings per diluted share to the most directly comparable GAAP measures in the tables accompanying this release.(2)
Includes the cost of natural gas that is included in cost of sales during the period under the first-in, first-out inventory cost method.(3)
Includes realized gains and losses on natural gas derivatives settled during the period. Excludes unrealized mark-to-market gains and losses on natural gas derivatives.(4)
Gross ammonia production including amounts subsequently upgraded into other products.During the three and six months ended June 30, 2017 and 2016, certain significant items impacted our financial results. The following table outlines these significant items and how they impacted the comparability of our financial results during these periods. During the three months ended June 30, 2017 and 2016, we reported net earnings attributable to common stockholders of $3 million and $47 million, respectively. During the six months ended June 30, 2017 and 2016, we reported net (loss) earnings attributable to common stockholders of $(20) million and $73 million, respectively.
Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 Pre-Tax After-Tax Pre-Tax After-Tax Pre-Tax After-Tax Pre-Tax After-Tax (in millions) Depreciation and amortization(1) $ 217 $ 137 $ 181 $ 114 $ 422 $ 265 $ 327 $ 205 Unrealized net mark-to-market loss (gain) on natural gas derivatives(2) 18 11 (211 ) (132 ) 71 44 (190 ) (119 ) Transaction costs(3) — — 165 84 — — 179 96 Loss on foreign currency transactions including intercompany loans(4)(5) 1 1 38 37 1 1 83 81 Capacity expansion project expenses(4) — — 19 12 — — 35 22 Equity method investment tax contingency accrual(6) 7 7 — — 7 7 — — Financing costs related to bridge loan commitment fee(7) — — 28 18 — — 28 18 Strategic Venture with CHS: Noncontrolling interest(8) 15 15 23 23 23 23 40 40 Loss on embedded derivative(4)(9) 2 1 — — 3 2 — — Total Impact of Significant Items $ 260 $ 172 $ 243 $ 156 $ 527 $ 342 $ 502 $ 343_______________________________________________________________________________
(1)
Included primarily in cost of sales and selling, general and administrative expenses in our consolidated statements of operations.(2)
Included in cost of sales in our consolidated statements of operations.(3)
Transaction costs relate to costs of various consulting and legal services associated with the company's proposed combination with certain businesses of OCI and the company's strategic venture with CHS.(4)
Included in other operating—net in our consolidated statements of operations.(5)
Primarily relates to the unrealized foreign currency exchange rate impact on intercompany debt that has not been permanently invested.(6)
Represents an accrual on the books of Point Lisas Nitrogen Ltd. (PLNL), the company's Trinidad joint venture, for a disputed tax assessment. Amount reflects the company's 50 percent equity interest in PLNL. This is included in equity in losses of operating affiliates in our consolidated statements of operations.(7)
Included in interest expense in our consolidated statements of operations.(8)
Included in net earnings attributable to noncontrolling interests in our consolidated statements of operations.(9)
Represents the change in fair value of the embedded derivative included within the terms of the company's strategic venture with CHS.Segment Results
Ammonia Segment
CF Industries’ ammonia segment produces anhydrous ammonia (ammonia), which is the company’s most concentrated nitrogen fertilizer, containing 82 percent nitrogen. The results of the ammonia segment consist of sales of ammonia to external customers. In addition, ammonia is the “basic” nitrogen product that the company upgrades into other nitrogen fertilizers such as urea, UAN and AN.
Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 (dollars in millions,except per ton amounts)
Net sales $ 389 $ 358 $ 671 $ 625 Cost of sales 302 152 567 356 Gross margin $ 87 $ 206 $ 104 $ 269 Gross margin percentage 22.4%
57.5 % 15.5 % 43.0 % Sales volume by product tons (000s) 1,152 870 2,072 1,607 Sales volume by nutrient tons (000s)(1) 945 713 1,699 1,318 Average selling price per product ton $ 338 $ 411 $ 324 $ 389 Average selling price per nutrient ton(1) 412 502 395 474 Gross margin per product ton $ 76 $ 237 $ 50 $ 167 Gross margin per nutrient ton(1) 92 289 61 204 Adjusted gross margin(2): Gross margin $ 87 $ 206 $ 104 $ 269 Depreciation and amortization 49 19 93 40 Unrealized net mark-to-market loss (gain) on natural gas derivatives 6 (69 ) 23 (62 ) Adjusted gross margin $ 142 $ 156 $ 220 $ 247 Adjusted gross margin as a percent of net sales 36.5 % 43.6 % 32.8 % 39.5 %_______________________________________________________________________________
(1)
Nutrient tons represent the tons of nitrogen within the product tons.(2)
Adjusted gross margin and adjusted gross margin as a percent of net sales are non-GAAP financial measures. Adjusted gross margin is defined as gross margin excluding depreciation and amortization and unrealized net mark-to-market (gain) loss on natural gas derivatives. The company has presented adjusted gross margin and adjusted gross margin as a percent of net sales because management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance. A reconciliation of adjusted gross margin and adjusted gross margin as a percent of net sales to gross margin, the most directly comparable GAAP measure, is provided in the table above. See "Note Regarding Non-GAAP Financial Measures" in this release.Comparison of 2017 to 2016 second quarter periods:
Granular Urea Segment
CF Industries’ granular urea segment produces granular urea, which contains 46 percent nitrogen. Produced from ammonia and carbon dioxide, it has the highest nitrogen content of any of the company’s solid nitrogen fertilizers.
Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 (dollars in millions,except per ton amounts)
Net sales $ 259 $ 240 $ 497 $ 475 Cost of sales 235 118 448 293 Gross margin $ 24 $ 122 $ 49 $ 182 Gross margin percentage 9.3 % 50.8 % 9.9 % 38.3 % Sales volume by product tons (000s) 1,221 972 2,179 1,891 Sales volume by nutrient tons (000s)(1) 561 447 1,002 870 Average selling price per product ton $ 212 $ 247 $ 228 $ 251 Average selling price per nutrient ton(1) 462 537 496 546 Gross margin per product ton $ 20 $ 126 $ 22 $ 96 Gross margin per nutrient ton(1) 43 273 49 209 Adjusted gross margin(2): Gross margin $ 24 $ 122 $ 49 $ 182 Depreciation and amortization 67 25 120 50 Unrealized net mark-to-market loss (gain) on natural gas derivatives 5 (55 ) 19 (49 ) Adjusted gross margin $ 96 $ 92 $ 188 $ 183 Adjusted gross margin as a percent of net sales 37.1 % 38.3 % 37.8 % 38.5 %_______________________________________________________________________________
(1)
Nutrient tons represent the tons of nitrogen within the product tons.(2)
Adjusted gross margin and adjusted gross margin as a percent of net sales are non-GAAP financial measures. Adjusted gross margin is defined as gross margin excluding depreciation and amortization and unrealized net mark-to-market (gain) loss on natural gas derivatives. The company has presented adjusted gross margin and adjusted gross margin as a percent of net sales because management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance. A reconciliation of adjusted gross margin and adjusted gross margin as a percent of net sales to gross margin, the most directly comparable GAAP measure, is provided in the table above. See "Note Regarding Non-GAAP Financial Measures" in this release.Comparison of 2017 to 2016 second quarter periods:
UAN Segment
CF Industries’ UAN segment produces urea ammonium nitrate solution (UAN). UAN is a liquid fertilizer product with nitrogen content that typically ranges from 28 percent to 32 percent and is produced by combining urea and ammonium nitrate in solution.
Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 (dollars in millions,except per ton amounts)
Net sales $ 286 $ 370 $ 603 $ 679 Cost of sales 248 197 530 428 Gross margin $ 38 $ 173 $ 73 $ 251 Gross margin percentage 13.3 % 46.8 % 12.1 % 37.0 % Sales volume by product tons (000s) 1,631 1,832 3,480 3,284 Sales volume by nutrient tons (000s)(1) 516 577 1,100 1,034 Average selling price per product ton $ 175 $ 202 $ 173 $ 207 Average selling price per nutrient ton(1) 554 641 548 657 Gross margin per product ton $ 23 $ 94 $ 21 $ 76 Gross margin per nutrient ton(1) 74 300 66 243 Adjusted gross margin(2): Gross margin $ 38 $ 173 $ 73 $ 251 Depreciation and amortization 56 59 121 117 Unrealized net mark-to-market loss (gain) on natural gas derivatives 5 (65 ) 21 (59 ) Adjusted gross margin $ 99 $ 167 $ 215 $ 309 Adjusted gross margin as a percent of net sales 34.6 % 45.1 % 35.7 % 45.5 %_______________________________________________________________________________
(1)
Nutrient tons represent the tons of nitrogen within the product tons.(2)
Adjusted gross margin and adjusted gross margin as a percent of net sales are non-GAAP financial measures. Adjusted gross margin is defined as gross margin excluding depreciation and amortization and unrealized net mark-to-market (gain) loss on natural gas derivatives. The company has presented adjusted gross margin and adjusted gross margin as a percent of net sales because management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance. A reconciliation of adjusted gross margin and adjusted gross margin as a percent of net sales to gross margin, the most directly comparable GAAP measure, is provided in the table above. See "Note Regarding Non-GAAP Financial Measures" in this release.Comparison of 2017 to 2016 second quarter periods:
AN Segment
CF Industries' AN segment produces ammonium nitrate (AN). AN is used as a nitrogen fertilizer with nitrogen content between 29 percent to 35 percent, and also is used by industrial customers for commercial explosives and blasting systems. AN is produced at the company's Yazoo City, Mississippi; Billingham, United Kingdom; and Ince, United Kingdom, complexes.
Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 (dollars in millions,except per ton amounts)
Net sales $ 112 $ 90 $ 237 $ 215 Cost of sales 102 90 208 202 Gross margin $ 10 $ — $ 29 $ 13 Gross margin percentage 8.9 % — % 12.2 % 6.0 % Sales volume by product tons (000s) 539 453 1,107 1,011 Sales volume by nutrient tons (000s)(1) 183 154 374 342 Average selling price per product ton $ 208 $ 199 $ 214 $ 213 Average selling price per nutrient ton(1) 612 584 634 629 Gross margin per product ton $ 19 $ — $ 26 $ 13 Gross margin per nutrient ton(1) 55 — 78 38 Adjusted gross margin(2): Gross margin $ 10 $ — $ 29 $ 13 Depreciation and amortization 21 28 40 50 Unrealized net mark-to-market loss (gain) on natural gas derivatives 1 (9 ) 3 (8 ) Adjusted gross margin $ 32 $ 19 $ 72 $ 55 Adjusted gross margin as a percent of net sales 28.6 % 21.1 % 30.4 % 25.6 %_______________________________________________________________________________
(1)
Nutrient tons represent the tons of nitrogen within the product tons.(2)
Adjusted gross margin and adjusted gross margin as a percent of net sales are non-GAAP financial measures. Adjusted gross margin is defined as gross margin excluding depreciation and amortization and unrealized net mark-to-market (gain) loss on natural gas derivatives. The company has presented adjusted gross margin and adjusted gross margin as a percent of net sales because management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance. A reconciliation of adjusted gross margin and adjusted gross margin as a percent of net sales to gross margin, the most directly comparable GAAP measure, is provided in the table above. See "Note Regarding Non-GAAP Financial Measures" in this release.Comparison of 2017 to 2016 second quarter periods:
Other Segment
CF Industries’ Other segment includes diesel exhaust fluid (DEF), urea liquor, nitric acid and compound fertilizer products (NPKs).
Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 (dollars in millions,except per ton amounts)
Net sales $ 78 $ 76 $ 153 $ 144 Cost of sales 65 50 130 115 Gross margin $ 13 $ 26 $ 23 $ 29 Gross margin percentage 16.7 % 34.2 % 15.0 % 20.1 % Sales volume by product tons (000s) 503 430 953 815 Sales volume by nutrient tons (000s)(1) 100 84 188 157 Average selling price per product ton $ 155 $ 177 $ 161 $ 177 Average selling price per nutrient ton(1) 780 905 814 917 Gross margin per product ton $ 26 $ 60 $ 24 $ 36 Gross margin per nutrient ton(1) 130 310 122 185 Adjusted gross margin(2): Gross margin $ 13 $ 26 $ 23 $ 29 Depreciation and amortization 13 12 25 22 Unrealized net mark-to-market loss (gain) on natural gas derivatives 1 (13 ) 5 (12 ) Adjusted gross margin $ 27 $ 25 $ 53 $ 39 Adjusted gross margin as a percent of net sales 34.6 % 32.9 % 34.6 % 27.1 %_______________________________________________________________________________
(1)
Nutrient tons represent the tons of nitrogen within the product tons.(2)
Adjusted gross margin and adjusted gross margin as a percent of net sales are non-GAAP financial measures. Adjusted gross margin is defined as gross margin excluding depreciation and amortization and unrealized net mark-to-market (gain) loss on natural gas derivatives. The company has presented adjusted gross margin and adjusted gross margin as a percent of net sales because management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance. A reconciliation of adjusted gross margin and adjusted gross margin as a percent of net sales to gross margin, the most directly comparable GAAP measure, is provided in the table above. See "Note Regarding Non-GAAP Financial Measures" in this release.Comparison of 2017 to 2016 second quarter periods:
Dividend Payment
On July 25, 2017, CF Industries’ Board of Directors declared a quarterly dividend of $0.30 per common share. The dividend will be paid on August 31, 2017 to stockholders of record as of August 15, 2017.
Conference Call
CF Industries will hold a conference call to discuss its second quarter 2017 results at 9:00 a.m. ET on Thursday, August 3, 2017. This conference call will include discussion of CF Industries' business environment and outlook. Investors can access the call and find dial-in information on the Investor Relations section of the company’s website at www.cfindustries.com.
About CF Industries Holdings, Inc.
CF Industries Holdings, Inc., headquartered in Deerfield, Illinois, through its subsidiaries is a global leader in the manufacturing and distribution of nitrogen products, serving both agricultural and industrial customers. CF Industries operates world-class nitrogen manufacturing complexes in Canada, the United Kingdom and the United States, and distributes plant nutrients through a system of terminals, warehouses, and associated transportation equipment located primarily in the Midwestern United States. The company also owns a 50 percent interest in an ammonia facility in The Republic of Trinidad and Tobago. CF Industries routinely posts investor announcements and additional information on the company’s website at www.cfindustries.com and encourages those interested in the company to check there frequently.
Note Regarding Non-GAAP Financial Measures
The company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). Management believes that EBITDA, EBITDA per ton, EBITDA as a percent of net sales, adjusted EBITDA, adjusted EBITDA per ton, adjusted EBITDA as a percent of net sales, adjusted net earnings, adjusted net earnings per diluted share, controllable cost of sales, and controllable cost of sales per ton, and, on a segment basis, adjusted gross margin and adjusted gross margin as a percent of net sales, which are non-GAAP financial measures, provide additional meaningful information regarding the company's performance and financial strength. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the company's reported results prepared in accordance with GAAP. In addition, because not all companies use identical calculations, EBITDA, EBITDA per ton, EBITDA as a percent of net sales, adjusted EBITDA, adjusted EBITDA per ton, adjusted EBITDA as a percent of net sales, adjusted net earnings, adjusted net earnings per diluted share, adjusted gross margin, adjusted gross margin as a percent of net sales, controllable cost of sales and controllable cost of sales per ton, included in this release may not be comparable to similarly titled measures of other companies. Reconciliations of EBITDA, EBITDA per ton, EBITDA as a percent of net sales, adjusted EBITDA, adjusted EBITDA per ton, adjusted EBITDA as a percent of net sales, adjusted net earnings, adjusted net earnings per diluted share, controllable cost of sales, and controllable cost of sales per ton to the most directly comparable GAAP measures are provided in the tables accompanying this release under “CF Industries Holdings, Inc.-Selected Financial Information-Non-GAAP Disclosure Items.” Reconciliations of adjusted gross margin and adjusted gross margin as a percent of net sales to the most directly comparable GAAP measures are provided in the segment tables included in this release.
Safe Harbor Statement
All statements in this communication by CF Industries Holdings, Inc. (together with its subsidiaries, the “Company”), other than those relating to historical facts, are forward-looking statements. Forward-looking statements can generally be identified by their use of terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” or “would” and similar terms and phrases, including references to assumptions. Forward-looking statements are not guarantees of future performance and are subject to a number of assumptions, risks and uncertainties, many of which are beyond the Company’s control, which could cause actual results to differ materially from such statements. These statements may include, but are not limited to, statements about strategic plans and statements about future financial and operating results.
Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among others, the cyclical nature of the Company’s business and the agricultural sector; the global commodity nature of the Company’s fertilizer products, the impact of global supply and demand on the Company’s selling prices, and the intense global competition from other fertilizer producers; conditions in the U.S. and European agricultural industry; the volatility of natural gas prices in North America and Europe; difficulties in securing the supply and delivery of raw materials, increases in their costs or delays or interruptions in their delivery; reliance on third party providers of transportation services and equipment; the significant risks and hazards involved in producing and handling the Company’s products against which the Company may not be fully insured; the Company’s ability to manage its indebtedness; operating and financial restrictions imposed on the Company by the agreements governing the Company's senior secured indebtedness; risks associated with the Company’s incurrence of additional indebtedness; the Company's ability to maintain compliance with covenants under the agreements governing its indebtedness; downgrades of the Company’s credit ratings; risks associated with cyber security; weather conditions; risks associated with the Company’s ability to utilize its tax net operating losses and other tax assets, including the risk that the use of such tax benefits is limited by an “ownership change” (as defined under the Internal Revenue Code and related Internal Revenue Service pronouncements); risks associated with changes in tax laws and disagreements with taxing authorities; risks associated with expansions of the Company’s business, including unanticipated adverse consequences and the significant resources that could be required; potential liabilities and expenditures related to environmental, health and safety laws and regulations and permitting requirements; future regulatory restrictions and requirements related to greenhouse gas emissions; the seasonality of the fertilizer business; the impact of changing market conditions on the Company’s forward sales programs; risks involving derivatives and the effectiveness of the Company’s risk measurement and hedging activities; the Company’s reliance on a limited number of key facilities; risks associated with the operation or management of the strategic venture with CHS Inc. (the "CHS Strategic Venture"), risks and uncertainties relating to the market prices of the fertilizer products that are the subject of the supply agreement with CHS Inc. over the life of the supply agreement, and the risk that any challenges related to the CHS Strategic Venture will harm the Company's other business relationships; risks associated with the Company’s Point Lisas Nitrogen Limited joint venture; acts of terrorism and regulations to combat terrorism; risks associated with international operations; and deterioration of global market and economic conditions.
More detailed information about factors that may affect the Company’s performance and could cause actual results to differ materially from those in any forward-looking statements may be found in CF Industries Holdings, Inc.’s filings with the Securities and Exchange Commission, including CF Industries Holdings, Inc.’s most recent annual and quarterly reports on Form 10-K and Form 10-Q, which are available in the Investor Relations section of the Company’s web site. Forward-looking statements are given only as of the date of this communication and the Company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
CF INDUSTRIES HOLDINGS, INC.
SELECTED FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 (in millions, except per share amounts) Net sales $ 1,124 $ 1,134 $ 2,161 $ 2,138 Cost of sales 952 607 1,883 1,394 Gross margin 172 527 278 744 Selling, general and administrative expenses 49 52 95 97 Transaction costs — 165 — 179 Other operating—net 10 63 16 124 Total other operating costs and expenses 59 280 111 400 Equity in losses of operating affiliates (6 ) (9 ) (3 ) (9 ) Operating earnings 107 238 164 335 Interest expense 80 61 160 99 Interest income (2 ) (1 ) (3 ) (2 ) Other non-operating—net — — — (2 ) Earnings before income taxes 29 178 7 240 Income tax provision (benefit) 5 95 (8 ) 110 Net earnings 24 83 15 130 Less: Net earnings attributable to noncontrolling interests 21 36 35 57 Net earnings (loss) attributable to common stockholders $ 3 $ 47 $ (20 ) $ 73 Net earnings (loss) per share attributable to common stockholders: Basic $ 0.01 $ 0.20 $ (0.09 ) $ 0.31 Diluted $ 0.01 $ 0.20 $ (0.09 ) $ 0.31 Weighted-average common shares outstanding: Basic 233.5 233.3 233.2 233.2 Diluted 233.7 233.5 233.2 233.5CF INDUSTRIES HOLDINGS, INC.
SELECTED FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)June 30,
2017
December 31,
2016
(in millions) Assets Current assets: Cash and cash equivalents $ 2,001 $ 1,164 Restricted cash 4 5 Accounts receivable—net 282 236 Inventories 325 339 Prepaid income taxes 34 841 Other current assets 29 70 Total current assets 2,675 2,655 Property, plant and equipment—net 9,441 9,652 Investments in affiliates 120 139 Goodwill 2,360 2,345 Other assets 340 340 Total assets $ 14,936 $ 15,131 Liabilities and Equity Current liabilities: Accounts payable and accrued expenses $ 616 $ 638 Income taxes payable — 1 Customer advances 5 42 Current portion of long-term debt 797 — Other current liabilities 23 5 Total current liabilities 1,441 686 Long-term debt 4,986 5,778 Deferred income taxes 1,632 1,630 Other liabilities 487 545 Equity: Stockholders' equity 3,270 3,348 Noncontrolling interests 3,120 3,144 Total equity 6,390 6,492 Total liabilities and equity $ 14,936 $ 15,131CF INDUSTRIES HOLDINGS, INC.
SELECTED FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 (in millions) Operating Activities: Net earnings $ 24 $ 83 $ 15 $ 130 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 217 181 422 327 Deferred income taxes 8 839 (8 ) 875 Stock-based compensation expense 4 5 8 9 Unrealized net loss (gain) on natural gas and foreign currency derivatives 18 (207 ) 71 (189 ) Unrealized loss on embedded derivative 2 — 3 — Loss on disposal of property, plant and equipment — 1 1 4 Undistributed losses of affiliates—net of taxes 11 5 6 1 Changes in: Accounts receivable—net (26 ) 20 (35 ) 24 Inventories 25 65 10 81 Accrued and prepaid income taxes 811 (650 ) 806 (673 ) Accounts payable and accrued expenses (17 ) (61 ) (12 ) (67 ) Customer advances (179 ) (214 ) (37 ) (149 ) Other—net (67 ) 33 (63 ) 73 Net cash provided by operating activities 831 100 1,187 446 Investing Activities: Additions to property, plant and equipment (91 ) (703 ) (185 ) (1,379 ) Proceeds from sale of property, plant and equipment 4 — 12 2 Distributions received from unconsolidated affiliates 6 — 6 — Proceeds from sale of auction rate securities 9 — 9 — Withdrawals from restricted cash funds — 5 1 16 Other—net — 2 — 3 Net cash used in investing activities (72 ) (696 ) (157 ) (1,358 ) Financing Activities: Proceeds from short-term borrowings — — — 150 Payments of short-term borrowings — — — (150 ) Financing fees — (5 ) — (5 ) Dividends paid on common stock (70 ) (70 ) (140 ) (140 ) Issuance of noncontrolling interest in CFN — — — 2,800 Distributions to noncontrolling interests (5 ) (7 ) (59 ) (20 ) Net cash (used in) provided by financing activities (75 ) (82 ) (199 ) 2,635 Effect of exchange rate changes on cash and cash equivalents 5 (3 ) 6 (1 ) Increase (decrease) in cash and cash equivalents 689 (681 ) 837 1,722 Cash and cash equivalents at beginning of period 1,312 2,689 1,164 286 Cash and cash equivalents at end of period $ 2,001 $ 2,008 $ 2,001 $ 2,008CF INDUSTRIES HOLDINGS, INC.SELECTED FINANCIAL INFORMATIONNON-GAAP DISCLOSURE ITEMS
Reconciliation of net earnings (loss), net earnings (loss) per ton and net earnings (loss) as a percent of net sales (GAAP measures) to EBITDA, EBITDA per ton, EBITDA as a percent of net sales, adjusted EBITDA, adjusted EBITDA per ton and adjusted EBITDA as a percent of net sales (non-GAAP measures), as applicable:
EBITDA is defined as net earnings (loss) attributable to common stockholders plus interest expense (income)—net, income taxes, and depreciation and amortization. Other adjustments include the elimination of loan fee amortization that is included in both interest and amortization, and the portion of depreciation that is included in noncontrolling interests. The company has presented EBITDA, EBITDA per ton and EBITDA as a percent of net sales because management uses these measures to track performance and believes that they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the industry.
Adjusted EBITDA is defined as EBITDA adjusted with the selected items included in EBITDA as summarized in the table below. The company has presented adjusted EBITDA, adjusted EBITDA per ton and adjusted EBITDA as a percent of net sales because management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance.
Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 (in millions) Net earnings (loss) attributable to common stockholders $ 3 $ 47 $ (20 ) $ 73 Interest expense (income)—net 78 60 157 97 Income tax provision (benefit) 5 95 (8 ) 110 Depreciation and amortization 217 181 422 327 Less: other adjustments (28 ) (54 ) (58 ) (71 ) EBITDA 275 329 493 536 Unrealized net mark-to-market loss (gain) on natural gas derivatives 18 (211 ) 71 (190 ) Transaction costs(1) — 165 — 179 Loss on foreign currency transactions including intercompany loans(2) 1 38 1 83 Capacity expansion project expenses — 19 — 35 Equity method investment tax contingency accrual(3) 7 — 7 — Loss on embedded derivative(4) 2 — 3 — Loss (gain) on foreign currency derivatives — 2 — (1 ) Total adjustments 28 13 82 106 Adjusted EBITDA $ 303 $ 342 $ 575 $ 642 Net sales $ 1,124 $ 1,134 $ 2,161 $ 2,138 Tons of product sold (000s) 5,046 4,557 9,791 8,608 Net earnings (loss) as a percent of net sales 0.3 % 4.1 % (0.9 )% 3.4 % Net earnings (loss) per ton $ 0.59 $ 10.31 $ (2.04 ) $ 8.48 EBITDA as a percent of net sales 24.5 % 29.0 % 22.8 % 25.1 % EBITDA per ton $ 54.50 $ 72.20 $ 50.35 $ 62.27 Adjusted EBITDA as a percent of net sales 27.0 % 30.2 % 26.6 % 30.0 % Adjusted EBITDA per ton $ 60.05 $ 75.05 $ 58.73 $ 74.58_______________________________________________________________________________
(1)
Transaction costs relate to costs of various consulting and legal services associated with the company's proposed combination with certain businesses of OCI and the company's strategic venture with CHS.(2)
Loss on foreign currency transactions including intercompany loans primarily relates to the unrealized foreign currency exchange rate impact on intercompany debt that has not been permanently invested.(3)
Represents an accrual on the books of Point Lisas Nitrogen Ltd. (PLNL), the company's Trinidad joint venture, for a disputed tax assessment. Amount reflects the company's 50 percent equity interest in PLNL. This is included in equity in losses of operating affiliates in our consolidated statements of operations.(4)
Represents the change in fair value of the embedded derivative included within the terms of the company's strategic venture with CHS.Reconciliation of net earnings (loss) attributable to common stockholders and net earnings (loss) per diluted share attributable to common stockholders (GAAP measures) to adjusted net earnings and adjusted net earnings per diluted share (non-GAAP measures), as applicable:
Adjusted net earnings is defined as net earnings (loss) attributable to common stockholders adjusted with the impacts of the selected items included in net earnings (loss) as summarized in the table below. The company has presented adjusted net earnings and adjusted net earnings per diluted share because management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance.
Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 (in millions) Net earnings (loss) attributable to common stockholders $ 3 $ 47 $ (20 ) $ 73 Unrealized net mark-to-market loss (gain) on natural gas derivatives 18 (211 ) 71 (190 ) Transaction costs(1) — 165 — 179 Loss on foreign currency transactions including intercompany loans(2) 1 38 1 83 Capacity expansion project expenses — 19 — 35 Equity method investment tax contingency accrual(3) 7 — 7 — Loss on embedded derivative(4) 2 — 3 — Loss (gain) on foreign currency derivatives — 2 — (1 ) Financing costs related to bridge loan commitment fee(5) — 28 — 28 Income tax adjustments(6) (8 ) (11 ) (28 ) (37 ) Total adjustments 20 30 54 97 Adjusted net earnings $ 23 $ 77 $ 34 $ 170 Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 Net earnings (loss) per diluted share attributable to common stockholders $ 0.01 $ 0.20 $ (0.09 ) $ 0.31 Unrealized net mark-to-market loss (gain) on natural gas derivatives 0.08 (0.90 ) 0.30 (0.81 ) Transaction costs(1) — 0.71 — 0.76 Loss on foreign currency transactions including intercompany loans(2) 0.01 0.16 0.01 0.35 Capacity expansion project expenses — 0.08 — 0.15 Equity method investment tax contingency accrual(3) 0.03 — 0.03 — Loss on embedded derivative(4) 0.01 — 0.01 — Loss on foreign currency derivatives — 0.01 — — Financing costs related to bridge loan commitment fee(5) — 0.12 — 0.12 Income tax adjustments(6) (0.04 ) (0.05 ) (0.11 ) (0.16 ) Total adjustments 0.09 0.13 0.24 0.41 Adjusted net earnings per diluted share $ 0.10 $ 0.33 $ 0.15 $ 0.72_______________________________________________________________________________
(1)
Transaction costs relate to costs of various consulting and legal services associated with the company's proposed combination with certain businesses of OCI and the company's strategic venture with CHS.(2)
Loss on foreign currency transactions including intercompany loans primarily relates to the unrealized foreign currency exchange rate impact on intercompany debt that has not been permanently invested.(3)
Represents an accrual on the books of Point Lisas Nitrogen Ltd. (PLNL), the company's Trinidad joint venture, for a disputed tax assessment. Amount reflects the company's 50 percent equity interest in PLNL. This is included in equity in losses of operating affiliates in our consolidated statements of operations.(4)
Represents the change in fair value of the embedded derivative included within the terms of the company's strategic venture with CHS.(5)
Not included in the calculation of EBITDA.(6)
Represents the adjustment to the GAAP basis tax provision reflecting the tax impact of the other non-GAAP adjustments.CF INDUSTRIES HOLDINGS, INC.SELECTED FINANCIAL INFORMATIONNON-GAAP DISCLOSURE ITEMS
Reconciliation of cost of sales and cost of sales per ton (GAAP measures) to controllable cost of sales and controllable cost of sales per ton (non-GAAP measures), as applicable:
Controllable cost of sales is defined as cost of sales adjusted for natural gas costs, realized and unrealized losses (gains) on natural gas derivatives, and depreciation and amortization. The company has presented controllable cost of sales and controllable cost of sales per ton because management uses these measures, and believes they are useful to investors, as supplemental financial measures in the comparison of year-over-year performance.
Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 (in millions) Cost of sales $ 952 $ 607 $ 1,883 $ 1,394 Natural gas costs(1) 309 170 615 346 Realized net losses on natural gas derivatives(2) 4 61 3 117 Unrealized net mark-to-market loss (gain) on natural gas derivatives 18 (211 ) 71 (190 ) Depreciation and amortization 205 143 398 280 Total adjustments 536 163 1,087 553 Controllable cost of sales $ 416 $ 444 $ 796 $ 841 Tons of product sold (000s) 5,046 4,557 9,791 8,608 Cost of sales per ton $ 188.66 $ 133.20 $ 192.32 $ 161.94 Increase in cost of sales per ton 42 % 19 % Controllable cost of sales per ton $ 82.44 $ 97.43 $ 81.30 $ 97.70 Decrease in controllable cost of sales per ton (15 )% (17 )%_______________________________________________________________________________
(1)
Includes the cost of natural gas that is included in cost of sales during the period under the first-in, first-out inventory cost method.(2)
Includes realized gains and losses on natural gas derivatives settled during the period. Excludes unrealized mark-to-market gains and losses on natural gas derivatives.
View source version on businesswire.com: http://www.businesswire.com/news/home/20170802006433/en/
CF Industries Holdings, Inc.MediaChris CloseDirector, Corporate Communications847-405-2542cclose@cfindustries.comorInvestorsMartin JarosickVice President, Investor Relations847-405-2045mjarosick@cfindustries.com
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