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Section 1: 10-Q (10-Q)

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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
10-Q
(Mark One)
 
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from                               to                              
Commission file number 001-32597
CF INDUSTRIES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
 
 
 
20-2697511
(State or other jurisdiction of
incorporation or organization)
 
 
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
 
 
 
4 Parkway North, Suite 400
 
 
 
 
60015
Deerfield,
Illinois
 
 
 
 
 (Zip Code)
 (Address of principal executive offices)
 
 
 
 
 
(847) 405-2400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
common stock, par value $0.01 per share
 
CF
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No
218,325,839 shares of the registrant’s common stock, par value $0.01 per share, were outstanding at July 29, 2019.
 


Table of Contents
CF INDUSTRIES HOLDINGS, INC.



TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents
CF INDUSTRIES HOLDINGS, INC.



PART I—FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three months ended 
 June 30,
 
Six months ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
 
(in millions, except per share amounts)
Net sales
$
1,502

 
$
1,300

 
$
2,503

 
$
2,257

Cost of sales
1,003

 
988

 
1,784

 
1,755

Gross margin
499

 
312

 
719

 
502

Selling, general and administrative expenses
62

 
53

 
120

 
110

Other operating—net
(37
)
 
3

 
(33
)
 
(18
)
Total other operating costs and expenses
25

 
56

 
87

 
92

Equity in earnings of operating affiliate
1

 
18

 
8

 
25

Operating earnings
475

 
274

 
640

 
435

Interest expense
59

 
61

 
119

 
121

Interest income
(4
)
 
(2
)
 
(8
)
 
(5
)
Other non-operating—net
(2
)
 
(3
)
 
(3
)
 
(4
)
Earnings before income taxes
422

 
218

 
532

 
323

Income tax provision
102

 
44

 
94

 
61

Net earnings
320

 
174

 
438

 
262

Less: Net earnings attributable to noncontrolling interests
37

 
26

 
65

 
51

Net earnings attributable to common stockholders
$
283

 
$
148

 
$
373

 
$
211

Net earnings per share attributable to common stockholders:
 

 
 

 
 

 
 

Basic
$
1.28

 
$
0.63

 
$
1.68

 
$
0.90

Diluted
$
1.28

 
$
0.63

 
$
1.67

 
$
0.90

Weighted-average common shares outstanding:
 
 
 
 
 

 
 

Basic
221.1

 
234.0

 
222.2

 
233.9

Diluted
222.3

 
234.9

 
223.4

 
234.8

Dividends declared per common share
$
0.30

 
$
0.30

 
$
0.60

 
$
0.60


See accompanying Notes to Unaudited Consolidated Financial Statements.


1

Table of Contents
CF INDUSTRIES HOLDINGS, INC.



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Three months ended 
 June 30,
 
Six months ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
 
(in millions)
Net earnings
$
320

 
$
174

 
$
438

 
$
262

Other comprehensive (loss) income:
 

 
 

 
 

 
 

Foreign currency translation adjustment—net of taxes
(8
)
 
(67
)
 
24

 
(50
)
Unrealized loss on securities—net of taxes

 
(1
)
 

 
(1
)
Defined benefit plans—net of taxes
5

 
7

 
3

 
6

 
(3
)
 
(61
)
 
27

 
(45
)
Comprehensive income
317

 
113

 
465

 
217

Less: Comprehensive income attributable to noncontrolling interests
37

 
26

 
65

 
51

Comprehensive income attributable to common stockholders
$
280

 
$
87

 
$
400

 
$
166

See accompanying Notes to Unaudited Consolidated Financial Statements.


2

Table of Contents
CF INDUSTRIES HOLDINGS, INC.



CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
 
 
June 30,
2019
 
December 31,
2018
 
(in millions, except share
and per share amounts)
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
858

 
$
682

Accounts receivable—net
313

 
235

Inventories
290

 
309

Prepaid income taxes
1

 
28

Other current assets
26

 
20

Total current assets
1,488

 
1,274

Property, plant and equipment—net
8,336

 
8,623

Investment in affiliate
101

 
93

Goodwill
2,353

 
2,353

Operating lease right-of-use assets
281

 

Other assets
304

 
318

Total assets
$
12,863

 
$
12,661

Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued expenses
$
416

 
$
545

Income taxes payable
13

 
5

Customer advances
21

 
149

Current operating lease liabilities
89

 

Current maturities of long-term debt
498

 

Other current liabilities
5

 
6

Total current liabilities
1,042

 
705

Long-term debt, net of current maturities
4,203

 
4,698

Deferred income taxes
1,207

 
1,117

Operating lease liabilities
197

 

Other liabilities
396

 
410

Equity:
 

 
 

Stockholders’ equity:
 

 
 

Preferred stock—$0.01 par value, 50,000,000 shares authorized

 

Common stock—$0.01 par value, 500,000,000 shares authorized, 2019—218,961,651 shares issued and 2018—233,800,903 shares issued
2

 
2

Paid-in capital
1,299

 
1,368

Retained earnings
2,111

 
2,463

Treasury stock—at cost, 2019—42,608 shares and 2018—10,982,408 shares
(2
)
 
(504
)
Accumulated other comprehensive loss
(344
)
 
(371
)
Total stockholders’ equity
3,066

 
2,958

Noncontrolling interest
2,752

 
2,773

Total equity
5,818

 
5,731

Total liabilities and equity
$
12,863

 
$
12,661

See accompanying Notes to Unaudited Consolidated Financial Statements.

3

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CF INDUSTRIES HOLDINGS, INC.



CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
 
Common Stockholders
 
 
 
 
 
$0.01 Par
Value
Common
Stock
 
Treasury
Stock
 
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’ Equity
 
Noncontrolling
Interest
 
Total
Equity
 
(in millions, except per share amounts)
Balance as of March 31, 2019
$
2

 
$
(64
)
 
$
1,311

 
$
2,047

 
$
(341
)
 
$
2,955

 
$
2,715

 
$
5,670

Net earnings

 

 

 
283

 

 
283

 
37

 
320

Other comprehensive loss

 

 

 

 
(3
)
 
(3
)
 

 
(3
)
Purchases of treasury stock

 
(118
)
 

 

 

 
(118
)
 

 
(118
)
Retirement of treasury stock

 
178

 
(25
)
 
(153
)
 

 

 

 

Issuance of $0.01 par value common stock under employee stock plans

 
2

 
2

 

 

 
4

 

 
4

Stock-based compensation expense

 

 
11

 

 

 
11

 

 
11

Cash dividends ($0.30 per share)

 

 

 
(66
)
 

 
(66
)
 

 
(66
)
Balance as of June 30, 2019
$
2

 
$
(2
)
 
$
1,299

 
$
2,111

 
$
(344
)
 
$
3,066

 
$
2,752

 
$
5,818

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
$
2

 
$
(504
)
 
$
1,368

 
$
2,463

 
$
(371
)
 
$
2,958

 
$
2,773

 
$
5,731

Net earnings

 

 

 
373

 

 
373

 
65

 
438

Other comprehensive income

 

 

 

 
27

 
27

 

 
27

Purchases of treasury stock

 
(178
)
 

 

 

 
(178
)
 

 
(178
)
Retirement of treasury stock

 
682

 
(90
)
 
(592
)
 

 

 

 

Acquisition of treasury stock under employee stock plans

 
(4
)
 

 

 

 
(4
)
 

 
(4
)
Issuance of $0.01 par value common stock under employee stock plans

 
2

 
4

 

 

 
6

 

 
6

Stock-based compensation expense

 

 
17

 

 

 
17

 

 
17

Cash dividends ($0.60 per share)

 

 

 
(133
)
 

 
(133
)
 

 
(133
)
Distribution declared to noncontrolling interest

 

 

 

 

 

 
(86
)
 
(86
)
Balance as of June 30, 2019
$
2

 
$
(2
)
 
$
1,299

 
$
2,111

 
$
(344
)
 
$
3,066

 
$
2,752

 
$
5,818

(Continued)





CONSOLIDATED STATEMENTS OF EQUITY
(Continued) (Unaudited)
 
Common Stockholders
 
 
 
 
 
$0.01 Par
Value
Common
Stock
 
Treasury
Stock
 
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders’ Equity
 
Noncontrolling
Interests
 
Total
Equity
 
(in millions, except per share amounts)
Balance as of March 31, 2018
$
2

 
$
(1
)
 
$
1,405

 
$
2,436

 
$
(248
)
 
$
3,594

 
$
3,071

 
$
6,665

Net earnings

 

 

 
148

 

 
148

 
26

 
174

Other comprehensive loss

 

 

 

 
(61
)
 
(61
)
 

 
(61
)
Acquisition of treasury stock under employee stock plans

 
1

 
(1
)
 

 

 

 

 

Issuance of $0.01 par value common stock under employee stock plans

 

 
2

 

 

 
2

 

 
2

Stock-based compensation expense

 

 
5

 

 

 
5

 

 
5

Cash dividends ($0.30 per share)

 

 

 
(70
)
 

 
(70
)
 

 
(70
)
Acquisition of noncontrolling interests in TNCLP

 

 
(62
)
 

 

 
(62
)
 
(331
)
 
(393
)
Balance as of June 30, 2018
$
2

 
$

 
$
1,349


$
2,514

 
$
(309
)
 
$
3,556

 
$
2,766

 
$
6,322

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
$
2

 
$

 
$
1,397

 
$
2,443

 
$
(263
)
 
$
3,579

 
$
3,105

 
$
6,684

Adoption of ASU No. 2014-09

 

 

 
(1
)
 

 
(1
)
 

 
(1
)
Adoption of ASU No. 2016-01

 

 

 
1

 
(1
)
 

 

 

Net earnings

 

 

 
211

 

 
211

 
51

 
262

Other comprehensive loss

 

 

 

 
(45
)
 
(45
)
 

 
(45
)
Acquisition of treasury stock under employee stock plans

 

 
(1
)
 

 

 
(1
)
 

 
(1
)
Issuance of $0.01 par value common stock under employee stock plans

 

 
4

 

 

 
4

 

 
4

Stock-based compensation expense

 

 
11

 

 

 
11

 

 
11

Cash dividends ($0.60 per share)

 

 

 
(140
)
 

 
(140
)
 

 
(140
)
Acquisition of noncontrolling interests in TNCLP

 

 
(62
)
 

 

 
(62
)
 
(331
)
 
(393
)
Distribution declared to noncontrolling interest

 

 

 

 

 

 
(59
)
 
(59
)
Balance as of June 30, 2018
$
2

 
$

 
$
1,349

 
$
2,514

 
$
(309
)
 
$
3,556

 
$
2,766

 
$
6,322


See accompanying Notes to Unaudited Consolidated Financial Statements.


4

Table of Contents
CF INDUSTRIES HOLDINGS, INC.



CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six months ended 
 June 30,
 
2019
 
2018
 
(in millions)
Operating Activities:
 

 
 

Net earnings
$
438

 
$
262

Adjustments to reconcile net earnings to net cash provided by operating activities:
 

 
 

Depreciation and amortization
440

 
434

Deferred income taxes
85

 
2

Stock-based compensation expense
17

 
11

Unrealized net loss (gain) on natural gas derivatives
1

 
(8
)
Unrealized loss on embedded derivative
2

 
1

Gain on disposal of property, plant and equipment
(45
)
 

Undistributed earnings of affiliate—net of taxes
(10
)
 
(3
)
Changes in:
 

 
 

Accounts receivable—net
(78
)
 
(34
)
Inventories
21

 
21

Accrued and prepaid income taxes
35

 
52

Accounts payable and accrued expenses
(94
)
 
(46
)
Customer advances
(128
)
 
(68
)
Other—net
9

 
(26
)
Net cash provided by operating activities
693

 
598

Investing Activities:
 

 
 

Additions to property, plant and equipment
(154
)
 
(145
)
Proceeds from sale of property, plant and equipment
63

 
16

Distributions received from unconsolidated affiliate

 
10

Other—net

 
1

Net cash used in investing activities
(91
)
 
(118
)
Financing Activities:
 

 
 

Financing fees

 
1

Dividends paid on common stock
(133
)
 
(140
)
Acquisition of noncontrolling interests in TNCLP

 
(388
)
Distributions to noncontrolling interests
(86
)
 
(59
)
Purchases of treasury stock
(209
)
 

Issuances of common stock under employee stock plans
6

 
4

Shares withheld for taxes
(4
)
 
(1
)
Net cash used in financing activities
(426
)
 
(583
)
Effect of exchange rate changes on cash and cash equivalents

 
(4
)
Increase (decrease) in cash and cash equivalents
176

 
(107
)
Cash and cash equivalents at beginning of period
682

 
835

Cash and cash equivalents at end of period
$
858

 
$
728

See accompanying Notes to Unaudited Consolidated Financial Statements.

5

Table of Contents
CF INDUSTRIES HOLDINGS, INC.



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.   Background and Basis of Presentation
We are a leading global fertilizer and chemical company. Our 3,000 employees operate world-class manufacturing complexes in Canada, the United Kingdom and the United States. Our principal customers are cooperatives, independent fertilizer distributors, traders, wholesalers, farmers and industrial users. Our principal nitrogen fertilizer products are ammonia, granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN). Our other nitrogen products include diesel exhaust fluid (DEF), urea liquor, nitric acid and aqua ammonia, which are sold primarily to our industrial customers, and compound fertilizer products (NPKs), which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus, and potassium. We serve our customers in North America through our production, storage, transportation and distribution network. We also reach a global customer base with exports from our Donaldsonville, Louisiana, plant, the world’s largest and most flexible nitrogen complex. Additionally, we move product to international destinations from our Verdigris, Oklahoma, facility, our Yazoo City, Mississippi, facility, our Billingham and Ince facilities in the United Kingdom, and from a joint venture ammonia facility in the Republic of Trinidad and Tobago in which we own a 50 percent interest.
All references to “CF Holdings,” “the Company,” “we,” “us” and “our” refer to CF Industries Holdings, Inc. and its subsidiaries, except where the context makes clear that the reference is only to CF Industries Holdings, Inc. itself and not its subsidiaries. All references to “CF Industries” refer to CF Industries, Inc., a 100% owned subsidiary of CF Industries Holdings, Inc.
The accompanying unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements for the year ended December 31, 2018, in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting. In the opinion of management, these statements reflect all adjustments, consisting only of normal and recurring adjustments, that are necessary for the fair representation of the information for the periods presented. The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Operating results for any period presented apply to that period only and are not necessarily indicative of results for any future period.
The accompanying unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related disclosures included in our 2018 Annual Report on Form 10-K filed with the SEC on February 22, 2019. The preparation of the unaudited interim consolidated financial statements requires us to make use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the unaudited consolidated financial statements and the reported revenues and expenses for the periods presented. Significant estimates and assumptions are used for, but are not limited to, net realizable value of inventories, environmental remediation liabilities, environmental and litigation contingencies, the cost of customer incentives, useful lives of property and identifiable intangible assets, the assumptions used in the evaluation of potential impairments of property, investments, identifiable intangible assets and goodwill, income tax and valuation reserves, allowances for doubtful accounts receivable, the measurement of the fair values of investments for which markets are not active, assumptions used in the determination of the funded status and annual expense of defined benefit pension and other postretirement benefit plans and the assumptions used in the valuation of stock-based compensation awards granted to employees.


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2.   New Accounting Standards
Recently Adopted Pronouncements
On January 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which supersedes the lease accounting requirements in ASC Topic 840, Leases. This ASU requires lessees to recognize the rights and obligations resulting from virtually all leases (other than leases that meet the definition of a short-term lease) on their balance sheets as right-of-use assets with corresponding lease liabilities. Extensive quantitative and qualitative disclosures, including significant judgments made by management, are required to provide greater insight into the extent of income and expense recognized and expected to be recognized from existing contracts. We elected the optional transition method provided under ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides the option to adopt ASU No. 2016-02 as of the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The cumulative effect adjustment we recognized in the opening balance of retained earnings as of January 1, 2019 was not material. In addition, we elected the package of practical expedients permitted under the transition guidance within ASU No. 2016-02, which allows us to carry forward the historical lease determination, lease classification, and assessment of initial direct costs. See Note 13—Leases for additional information.
On January 1, 2019, we adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships in order to better portray the economic results of an entity’s risk management activities in its financial statements. The adoption of this ASU had no effect on our consolidated financial statements.
Recently Issued Pronouncements
In August 2018, the Financial Accounting Standards Board issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This ASU does not affect the accounting for the service element of a hosting arrangement that is a service contract. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2019 and can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted. We plan to adopt this ASU prospectively. We do not expect that our adoption of this ASU on January 1, 2020 will have a material impact on our consolidated financial statements. However, this guidance could have an effect on future financial results if significant new software involving a cloud computing agreement is implemented. In this case, a certain portion of the implementation costs could be deferred and expensed over the term of the cloud computing arrangement.

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3.   Revenue Recognition
We track our revenue by product and by geography. See Note 17—Segment Disclosures for our revenue by reportable segment, which are ammonia, granular urea, UAN, AN and Other. The following table summarizes our revenue by product and by geography (based on destination of our shipment) for the three and six months ended June 30, 2019 and 2018:
 
Ammonia
 
Granular
Urea
 
UAN
 
AN
 
Other
 
Total
 
(in millions)
Three months ended June 30, 2019
 

 
 

 
 

 
 
 
 

 
 

North America
$
443

 
$
413

 
$
346

 
$
54

 
$
68

 
$
1,324

Europe and other
30

 
20

 
23

 
72

 
33

 
178

Total revenue
$
473

 
$
433

 
$
369

 
$
126

 
$
101

 
$
1,502

Three months ended June 30, 2018
 
 
 
 
 
 
 
 
 

 
 

North America
$
349

 
$
345

 
$
290

 
$
49

 
$
64

 
$
1,097

Europe and other
25

 
15

 
49

 
75

 
39

 
203

Total revenue
$
374

 
$
360

 
$
339

 
$
124

 
$
103

 
$
1,300



 
Ammonia
 
Granular
Urea
 
UAN
 
AN
 
Other
 
Total
 
(in millions)
Six months ended June 30, 2019
 

 
 

 
 

 
 
 
 

 
 

North America
$
603

 
$
748

 
$
588

 
$
100

 
$
127

 
$
2,166

Europe and other
57

 
28

 
37

 
153

 
62

 
337

Total revenue
$
660

 
$
776

 
$
625

 
$
253

 
$
189