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<TYPE>10-Q
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Section 1: 10-Q (10-Q)

Document

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 September 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 ☒

217,431,811 shares of the registrant’s common stock, par value $0.01 per share, were outstanding at October 28, 2019.

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CF INDUSTRIES HOLDINGS, INC.

TABLE OF CONTENTS



PART I.	Financial Information
	Item 1.	Financial Statements (unaudited)
		Consolidated Statements of Operations	1
		Consolidated Statements of Comprehensive Income	2
		Consolidated Balance Sheets	3
		Consolidated Statements of Equity	4
		Consolidated Statements of Cash Flows	5
		Notes to Unaudited Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
	Item 4.	Controls and Procedures	55
PART II.	Other Information
	Item 1.	Legal Proceedings	56
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
	Item 6.	Exhibits	56

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CF INDUSTRIES HOLDINGS, INC.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(in millions, except per share amounts)
Net sales	$	1,038		$	1,040		$	3,541		$	3,297
Cost of sales	810			867			2,594			2,622
Gross margin	228			173			947			675
Selling, general and administrative expenses	56			53			176			163
Other operating—net	(30		)	(11		)	(63		)	(29		)
Total other operating costs and expenses	26			42			113			134
Equity in (losses) earnings of operating affiliate	(14		)	5			(6		)	30
Operating earnings	188			136			828			571
Interest expense	63			59			182			180
Interest income	(4		)	(4		)	(12		)	(9		)
Other non-operating—net	(4		)	(2		)	(7		)	(6		)
Earnings before income taxes	133			83			665			406
Income tax provision	19			12			113			73
Net earnings	114			71			552			333
Less: Net earnings attributable to noncontrolling interests	49			41			114			92
Net earnings attributable to common stockholders	$	65		$	30		$	438		$	241
Net earnings per share attributable to common stockholders:
Basic	$	0.29		$	0.13		$	1.98		$	1.03
Diluted	$	0.29		$	0.13		$	1.97		$	1.03
Weighted-average common shares outstanding:
Basic	219.0			233.5			221.2			233.8
Diluted	220.7			235.2			222.5			234.9
Dividends declared per common share	$	0.30		$	0.30		$	0.90		$	0.90

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three months ended September 30,					Nine months ended September 30,
	2019			2018		2019			2018
	(in millions)
Net earnings	$	114		$	71	$	552		$	333
Other comprehensive (loss) income:
Foreign currency translation adjustment—net of taxes	(32		)	—		(8		)	(50		)
Unrealized loss on securities—net of taxes	—			—		—			(1		)
Defined benefit plans—net of taxes	2			1		5			7
	(30		)	1		(3		)	(44		)
Comprehensive income	84			72		549			289
Less: Comprehensive income attributable to noncontrolling interests	49			41		114			92
Comprehensive income attributable to common stockholders	$	35		$	31	$	435		$	197

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS



	(Unaudited)
	September 30, 2019			December 31, 2018
	(in millions, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	1,019		$	682
Accounts receivable—net	311			235
Inventories	296			309
Prepaid income taxes	17			28
Other current assets	26			20
Total current assets	1,669			1,274
Property, plant and equipment—net	8,247			8,623
Investment in affiliate	87			93
Goodwill	2,344			2,353
Operating lease right-of-use assets	264			—
Other assets	291			318
Total assets	$	12,902		$	12,661
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses	$	459		$	545
Income taxes payable	7			5
Customer advances	184			149
Current operating lease liabilities	87			—
Current maturities of long-term debt	499			—
Other current liabilities	9			6
Total current liabilities	1,245			705
Long-term debt, net of current maturities	4,204			4,698
Deferred income taxes	1,235			1,117
Operating lease liabilities	181			—
Other liabilities	356			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—219,375,306 shares issued and 2018—233,800,903 shares issued	2			2
Paid-in capital	1,317			1,368
Retained earnings	2,109			2,463
Treasury stock—at cost, 2019—1,534,045 shares and 2018—10,982,408 shares	(74		)	(504		)
Accumulated other comprehensive loss	(374		)	(371		)
Total stockholders’ equity	2,980			2,958
Noncontrolling interest	2,701			2,773
Total equity	5,681			5,731
Total liabilities and equity	$	12,902		$	12,661

See accompanying Notes to Unaudited Consolidated Financial Statements.

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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 Loss			Total Stockholders’ Equity			Noncontrolling Interest			Total Equity
	(in millions, except per share amounts)
Balance as of June 30, 2019	$	2	$	(2	)	$	1,299		$	2,111		$	(344	)	$	3,066		$	2,752		$	5,818
Net earnings	—		—			—			65			—			65			49			114
Other comprehensive loss	—		—			—			—			(30		)	(30		)	—			(30		)
Purchases of treasury stock	—		(72		)	—			—			—			(72		)	—			(72		)
Issuance of $0.01 par value common stock under employee stock plans	—		—			11			—			—			11			—			11
Stock-based compensation expense	—		—			7			—			—			7			—			7
Cash dividends ($0.30 per share)	—		—			—			(67		)	—			(67		)	—			(67		)
Distribution declared to noncontrolling interest	—		—			—			—			—			—			(100		)	(100		)
Balance as of September 30, 2019	$	2	$	(74	)	$	1,317		$	2,109		$	(374	)	$	2,980		$	2,701		$	5,681

Balance as of December 31, 2018	$	2	$	(504	)	$	1,368		$	2,463		$	(371	)	$	2,958		$	2,773		$	5,731
Net earnings	—		—			—			438			—			438			114			552
Other comprehensive loss	—		—			—			—			(3		)	(3		)	—			(3		)
Purchases of treasury stock	—		(250		)	—			—			—			(250		)	—			(250		)
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			15			—			—			17			—			17
Stock-based compensation expense	—		—			24			—			—			24			—			24
Cash dividends ($0.90 per share)	—		—			—			(200		)	—			(200		)	—			(200		)
Distribution declared to noncontrolling interest	—		—			—			—			—			—			(186		)	(186		)
Balance as of September 30, 2019	$	2	$	(74	)	$	1,317		$	2,109		$	(374	)	$	2,980		$	2,701		$	5,681

(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 June 30, 2018	$	2	$	—		$	1,349		$	2,514		$	(309	)	$	3,556		$	2,766		$	6,322
Net earnings	—		—			—			30			—			30			41			71
Other comprehensive income	—		—			—			—			1			1			—			1
Purchases of treasury stock	—		(91		)	—			—			—			(91		)	—			(91		)
Acquisition of treasury stock under employee stock plans	—		(1		)	—			—			—			(1		)	—			(1		)
Issuance of $0.01 par value common stock under employee stock plans	—		—			6			—			—			6			—			6
Stock-based compensation expense	—		—			5			—			—			5			—			5
Cash dividends ($0.30 per share)	—		—			—			(70		)	—			(70		)	—			(70		)
Distribution declared to noncontrolling interest	—		—			—			—			—			—			(80		)	(80		)
Balance as of September 30, 2018	$	2	$	(92	)	$	1,360		$	2,474		$	(308	)	$	3,436		$	2,727		$	6,163

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	—		—			—			241			—			241			92			333
Other comprehensive loss	—		—			—			—			(44		)	(44		)	—			(44		)
Purchases of treasury stock	—		(91		)	—			—			—			(91		)	—			(91		)
Acquisition of treasury stock under employee stock plans	—		(1		)	(1		)	—			—			(2		)	—			(2		)
Issuance of $0.01 par value common stock under employee stock plans	—		—			10			—			—			10			—			10
Stock-based compensation expense	—		—			16			—			—			16			—			16
Cash dividends ($0.90 per share)	—		—			—			(210		)	—			(210		)	—			(210		)
Acquisition of noncontrolling interests in TNCLP	—		—			(62		)	—			—			(62		)	(331		)	(393		)
Distribution declared to noncontrolling interests	—		—			—			—			—			—			(139		)	(139		)
Balance as of September 30, 2018	$	2	$	(92	)	$	1,360		$	2,474		$	(308	)	$	3,436		$	2,727		$	6,163

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Nine months ended September 30,
	2019			2018
	(in millions)
Operating Activities:
Net earnings	$	552		$	333
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	663			667
Deferred income taxes	116			37
Stock-based compensation expense	24			17
Unrealized net loss (gain) on natural gas derivatives	3			(11		)
Unrealized loss on embedded derivative	3			2
Gain on disposal of property, plant and equipment	(43		)	(1		)
Undistributed losses (earnings) of affiliate—net of taxes	3			(5		)
Changes in:
Accounts receivable—net	(79		)	31
Inventories	17			(3		)
Accrued and prepaid income taxes	12			13
Accounts payable and accrued expenses	(67		)	(26		)
Customer advances	35			224
Other—net	(36		)	(35		)
Net cash provided by operating activities	1,203			1,243
Investing Activities:
Additions to property, plant and equipment	(297		)	(278		)
Proceeds from sale of property, plant and equipment	71			19
Distributions received from unconsolidated affiliate	—			10
Insurance proceeds for property, plant and equipment	15			10
Other—net	—			1
Net cash used in investing activities	(211		)	(238		)
Financing Activities:
Financing fees	—			1
Dividends paid on common stock	(200		)	(210		)
Acquisition of noncontrolling interests in TNCLP	—			(388		)
Distributions to noncontrolling interests	(186		)	(139		)
Purchases of treasury stock	(280		)	(87		)
Issuances of common stock under employee stock plans	17			10
Shares withheld for taxes	(4		)	(1		)
Net cash used in financing activities	(653		)	(814		)
Effect of exchange rate changes on cash and cash equivalents	(2		)	(4		)
Increase in cash and cash equivalents	337			187
Cash and cash equivalents at beginning of period	682			835
Cash and cash equivalents at end of period	$	1,019		$	1,022

See accompanying Notes to Unaudited Consolidated Financial Statements.

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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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CF INDUSTRIES HOLDINGS, INC.

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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CF INDUSTRIES HOLDINGS, INC.

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 nine months ended September 30, 2019 and 2018:



	Ammonia		Granular Urea		UAN		AN		Other		Total
	(in millions)
Three months ended September 30, 2019
North America	$	152	$	289	$	278	$	41	$	63	$	823
Europe and other	35		38		31		95		16		215
Total revenue	$	187	$	327	$	309	$	136	$	79	$	1,038
Three months ended September 30, 2018
North America	$	148	$	292	$	214	$	45	$	61	$	760
Europe and other	44		61		56		94		25		280
Total revenue	$	192	$	353	$	270	$	139	$	86	$	1,040

Ammonia

Granular
Urea

UAN

Other

Total

(in millions)

Nine months ended September 30, 2019