CF(US:CF)2021-11-04 16:00PART I. Financial Information Item 1. Financial Statements The company reported a Q3 2021 net loss of $185 million due to a $495 million impairment, despite strong sales growth and cash flow Consolidated Statements of Operations Q3 2021 net loss of $185 million was driven by $495 million impairment charges, despite increased net sales Consolidated Statements of Operations Highlights (in millions, except per share data) | Financial Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,362 | $847 | $3,998 | $3,022 | | Gross margin | $440 | $83 | $1,232 | $621 | | Goodwill impairment | $259 | $— | $259 | $— | | Long-lived and intangible asset impairment | $236 | $— | $236 | $— | | Operating (loss) earnings | $(97) | $40 | $600 | $467 | | Net (loss) earnings attributable to common stockholders | $(185) | $(28) | $212 | $230 | | Diluted (loss) earnings per share | $(0.86) | $(0.13) | $0.98 | $1.07 | Consolidated Balance Sheets Total assets decreased to $11.77 billion by September 30, 2021, with stable stockholders' equity Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total current assets | $1,814 | $1,367 | | Cash and cash equivalents | $757 | $683 | | Total assets | $11,766 | $12,023 | | Total current liabilities | $1,015 | $906 | | Long-term debt, net of current maturities | $3,465 | $3,712 | | Total liabilities | $6,152 | $6,420 | | Total stockholders' equity | $2,938 | $2,922 | Consolidated Statements of Cash Flows Net cash from operations significantly increased to $1.39 billion for the nine months ended September 30, 2021 Consolidated Cash Flow Highlights (Nine Months Ended Sep 30, in millions) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,393 | $941 | | Net cash used in investing activities | $(383) | $(201) | | Net cash used in financing activities | $(936) | $(473) | | Increase in cash and cash equivalents | $74 | $266 | | Cash and cash equivalents at end of period | $757 | $553 | Notes to Unaudited Consolidated Financial Statements The notes detail significant events, including a $495 million impairment charge in Q3 2021 due to the UK energy crisis, debt reduction, and a new $1.5 billion share repurchase program - The company recognized impairment charges of $495 million in Q3 2021, consisting of a $259 million goodwill impairment and $236 million in long-lived and intangible asset impairments, due to the UK energy crisis and a substantial increase in natural gas prices37350 - Due to Winter Storm Uri in February 2021, the company net settled certain natural gas contracts, resulting in a recognized gain of $112 million, which was included in cost of sales100413 - The company redeemed $250 million of its 3.400% senior secured notes in March 2021 and $250 million of its 3.450% senior notes in September 2021, resulting in a total loss on debt extinguishment of $19 million for the nine-month period9495 - Subsequent to the quarter end, on November 3, 2021, the Board authorized a new share repurchase program for up to $1.5 billion of common stock, effective from January 1, 2022, through December 31, 2024122435 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes increased net sales and gross margin to higher selling prices, despite lower volumes and a $495 million UK impairment charge, while pursuing a clean energy strategy and maintaining strong liquidity Overview of CF Holdings CF Holdings, a leading nitrogen producer, saw Q3 2021 average selling prices increase by 101% year-over-year, despite a 20% decrease in sales volume and a $495 million impairment from the UK energy crisis - The company is advancing its clean energy strategy by developing green and blue ammonia projects, including a 20,000-ton-per-year green ammonia project at its Donaldsonville complex, expected to be North America's largest of its kind upon completion in 2023128441 Q3 2021 vs Q3 2020 Performance Drivers | Metric | Q3 2021 | Q3 2020 | Change | | :--- | :--- | :--- | :--- | | Average Selling Price/ton | $360 | $179 | +101% | | Sales Volume (million tons) | 3.8 | 4.7 | -20% | | Henry Hub Natural Gas Price/MMBtu | $4.27 | $1.95 | +119% | | NBP (UK) Natural Gas Price/MMBtu | $15.98 | $2.69 | +494% | - The UK energy crisis led to the halt of operations at the Ince and Billingham facilities in September 2021, resulting in a $495 million impairment charge ($259 million goodwill, $236 million long-lived assets)144457 Consolidated Results of Operations Q3 2021 net sales rose 61% to $1.36 billion, but a net loss of $185 million was recorded due to a $495 million UK impairment charge, while nine-month net sales grew 32% to $4.00 billion Q3 2021 vs Q3 2020 Results (in millions) | Metric | Q3 2021 | Q3 2020 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,362 | $847 | +61% | | Gross Margin | $440 | $83 | +430% | | Operating (Loss) Earnings | $(97) | $40 | N/M | | Net (Loss) Attributable to Common Stockholders | $(185) | $(28) | N/M | Nine Months 2021 vs 2020 Results (in millions) | Metric | Nine Months 2021 | Nine Months 2020 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $3,998 | $3,022 | +32% | | Gross Margin | $1,232 | $621 | +98% | | Operating Earnings | $600 | $467 | +28% | | Net Earnings Attributable to Common Stockholders | $212 | $230 | -8% | Operating Results by Business Segment In Q3 2021, all segments experienced significantly higher selling prices, leading to substantial gross margin increases in Ammonia, Granular Urea, and UAN, but the AN segment recorded a gross margin loss due to soaring UK natural gas costs and production halts Q3 2021 Gross Margin by Segment | Segment | Gross Margin (in millions) | Gross Margin % | | :--- | :--- | :--- | | Ammonia | $82 | 23.8% | | Granular Urea | $186 | 48.2% | | UAN | $157 | 40.3% | | AN | $(4) | (3.4)% | | Other | $19 | 15.3% | | Consolidated | $440 | 32.3% | - The Ammonia segment's gross margin turned positive to $82 million from a loss of $9 million in Q3 2020, driven by a 140% increase in average selling prices209 - The AN segment's gross margin fell to a loss of $4 million from a $13 million profit in Q3 2020, primarily due to a 71% increase in cost of sales per ton driven by UK natural gas prices and production halts236 Liquidity and Capital Resources The company's liquidity remains robust with cash increasing to $757 million and $1.39 billion in operating cash flow for the first nine months of 2021, supporting debt reduction and shareholder returns - Net cash provided by operating activities increased by $452 million to $1,393 million for the first nine months of 2021 compared to the same period in 2020, mainly due to higher net earnings276589 - During the first nine months of 2021, the company used $518 million to redeem long-term debt and $50 million to repurchase common stock278591 - As of September 30, 2021, the company had $757 million in cash and cash equivalents and $750 million in unused borrowing capacity under its Revolving Credit Agreement249562 Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from commodity prices, particularly natural gas, and uses derivatives to hedge price risk, while fixed-rate debt mitigates interest rate exposure - A $1.00 per MMBtu change in the price of natural gas would alter the cost to produce a ton of ammonia by approximately $33295608 - As of September 30, 2021, the company had open natural gas derivative contracts for 20.7 million MMBtus covering periods through March 2022296609 - The company's $3.50 billion in senior notes have fixed interest rates, minimizing exposure to interest rate fluctuations on its long-term debt297610 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report300613 - There were no changes in the company's internal control over financial reporting during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls301614 PART II. Other Information Legal Proceedings The company is involved in litigation related to the 2013 West Fertilizer Co. explosion, with remaining claims totaling approximately $37 million, which are expected to be fully indemnified by insurance - The company continues to face legal proceedings from the 2013 West Fertilizer Co. explosion, with remaining claims totaling approximately $37 million302615 - Management expects any potential loss from the West Fertilizer Co. litigation to be fully covered by insurance and does not anticipate a material adverse effect on the company's financial condition302615 Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, the company repurchased 1,098,900 shares at an average price of $46.84, with approximately $513.4 million remaining under the 2019 Share Repurchase Program Share Repurchases for Q3 2021 | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | July 2021 | 6,558 | $52.40 | — | | August 2021 | 23,363 | $47.07 | — | | September 2021 | 1,068,979 | $46.80 | 1,067,879 | | Total | 1,098,900 | $46.84 | 1,067,879 | - At the end of Q3 2021, approximately $513.4 million remained authorized for repurchase under the 2019 Share Repurchase Program, which expires on December 31, 2021305618 Exhibits This section provides a list of exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and financial data formatted in Inline XBRL - The report includes required certifications from the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002307309