CF工業控股 (CF) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2010 CF Industries results conference call. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). I would now like to turn the call over to Terry Huch, Senior Director of Investor Relations and Corporate Communications. Please proceed.

Thank you, Antoine. Good morning and thanks to everyone for joining us on this conference call for CF Industries Holdings Inc. I am Terry Huch, Senior DIrector, Investor Relations and Corporate Communications and with me are Steve Wilson, our Chairman and Chief Executive Officer and Tony Nocchiero, our Senior Vice President and Chief Financial Officer. CF Industries Holdings Inc. reported its first quarter 2010 results this morning. Terra Nitrogen an Terra Industries, which we acquired after the end of the quarter, recorded their results yesterday. On this call, we'll review the CF Industries results in detail and provide brief comments on the results of Terra and Terra Nitrogen. We'll also discuss our outlook for industry and Company performance for 2010 and field questions about the combined enterprise. If you have detailed modeling questions regarding the future consolidation of financial results, let me suggest that you address those questions to me after the call.

As you review the news releases posted on the Investor Relations section of our website, at www.cfindustries.com and as you listen to this conference call, please recognize that they contain forward-looking statements as defined by federal securities laws. All statements in the release and on this call other than those relating to historical information or current conditions are considered forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in the Safe Harbor statement included in today's's news release. Consider all forward-looking statements in light of those and other risks and uncertainties, and do not place undue reliance on any forward-looking statements. Now let me introduce Steve Wilson, our Chairman and CEO.

Thanks Terry, and thank you all for joining us today. For the first quarter of 2010, CF Industries reported a net loss of $4 million, or $0.09 per diluted share. Down from earnings of $63 million, or $1.28 per share in the same period last year. Excluding unusual items which Tony will discuss later in the call, results were generally in line with our expectations and give us no reason to change our bullish outlook for the spring season. The fact that stocking activity was light in the first quarter set us up for tighter market conditions in the second quarter which increases the value of of our industry leading storage and distribution capability. That value became evident in April as ideal planting conditions for corn emerged throughout most of the Midwest. The investment case for CF Industries starts with a significant advantage for nitrogen production in North America due to low natural gas costs relative to the world's swing producers. That advantage was visible in the quarter, and we expect it to continue to be visible in the second quarter, helped by recent weakness in the natural gas prices in North America.

The acquisition of Terra Industries which we completed on April 15 provides us with opportunities to capitalize on the North American natural gas advantage that were not possible previously. Through the acquisition, we have more than doubled our nitrogen capacity, multiplied our logistical options, gained synergy opportunities for costs, capital expenditures and working capital, enhanced our ability to serve our customers and improved our ability to invest in future growth because of our larger capital base. We remain focused on doing an excellent job of serving our customers through the spring and integrating the operations of the two companies. I'm pleased to report that we're off to a very good start in both respects, with key employees engaged in the integration process. After a month of operating the combined Company, we've confirmed the major assumptions we made before the acquisition. Terra has excellent people throughout the organization. The cultures of the two companies are clearly compatible, and the high end of our cost synergy range is achievable. We're very happy to have completed our common stock and unsecured notes offerings which were substantially over-subscribed. I'd like to welcome our new stockholders and bond holders on board. It was good to be able to meet so many of you on our road shows, and we look forward to meeting others as occasion permits.

At this point, I'll drill down on the business fundamentals for the first quarter in a little more detail. Tony will then take you through our financial results, and then I will return to discuss the outlook. During the first quarter, we typically don't see much nitrogen fertilizer going to the ground in the corn belt. Buying activity is driven by application in the Southern plains, and channel stocking across the northern Midwest. In the Southern plains, first quarter activity was slower than normal because of wet conditions and below normal wheat planting. In the heart of the corn belt, we saw continued reluctance to stock the distribution channel. As a result, our nitrogen sales volume of 1.2 million tons was 5% lower than the first quarter of last year, with all of the reduction coming in urea volume. We again exported nitrogen fertilizer from Donaldsonville in the first quarter, sending 53,000 tons of ammonia and UAN to Australia, Chile and Mexico, the ammonia export for the first that anyone here at CF Industries can remember.

The current natural gas environment allows us to earn good margins by exporting and also gives us another tool to use in managing our inventory balance. With the overwhelming demand we've experienced for agricultural ammonia so far this spring, we would not expect to export ammonia again in the near future. Realized nitrogen product prices were lower than those of the first quarter of 2009 when we were still benefiting from a large book of business that had been placed during the strong pricing environment of 2008. Phosphate sales volume of 480,000 tons was 9% lower than in the first quarter of 2009. The decline was more than explained by lower exports, which in turn were due to lower product availability. We mentioned last quarter that inventories of DAP and MAP were low coming into 2010, and that continues to be the case for the industry and for our own operations.

Because domestic demand was robust during the first quarter, we sold most of our product here in the US, earning better margins than were available by exporting. Our domestic sales volume rose by 14% compared to the same period last year. Our average realized price for DAP in the quarter was $3.61 -- $361 per ton, excuse me, a 14% decrease from the average price in the same quarter last year, much higher sequentially. The average cost of natural gas at our Donaldsonville complex in the first quarter was $5.31 per MMBtu compared to $8.09 per MMBtu in the first quarter of 2009. The average cost at our Medicine Hat complex fell from $5.99 a year ago to $4.70 this year. This reflects our preference to maintain spot exposure to both product prices and natural gas costs. During the first quarter, our nitrogen production system ran at 95% of capacity, and our phosphate complex operated at 84% of capacity. We had significant scheduled maintenance during the quarter, but still produced 12% more phosphate product in the first quarter of 2009 than in the first quarter of 2009 when we ran at reduced rates because of inventory concerns. At this point, I'll turn the call over to Tony to review our first quarter financial performance in more detail.

Thanks, Steve and good morning, everyone. As Steve indicated, CF Industries had a net loss of $4 million, or $0.09 per diluted share in the first quarter compared to earnings of $63 million, or $1.28 per diluted share in the first quarter of 2009. First quarter results included business combination costs of $136 million before tax, which included the $123 million breakup fee we paid to Yara through project development costs of almost $3 million, a gain of $28 million before tax on the sale of Terra shares and unrealized mark-to-market losses on natural gas derivatives of $11 million, pretax. Nearly all the costs associated with the business combination and the Peru project are nondeductible for income tax purposes. If these two items had not occurred in 2010, the Company's annual effective tax rate for the first quarter would have been approximately 35% rather than the 49.6% income tax rate actually applied in the first quarter. Similar items affecting earnings in the first quarter of 2009 were unrealized mark-to-market gains on natural gas derivatives of $49 million pretax, phosphate inventory write-downs of $24 million, business combination cost of $16 million and Peru project development cost of $4 million. These items had a negligible impact on the 2009 reported tax rate, which was 39.4%.

In the first quarter of 2010, net sales of $502 million included nitrogen segment sales of $327 million and phosphate segment sales of $175 million, which were down 28% and 22% respectively due to lower prices compared to the first quarter of 2009. Our average price realization for ammonia was $321 per ton, down 39% from the first quarter of 2009, but up 4% sequentially. Excluding sales by Terra, our average selling price for ammonia was $365 per ton. Urea price realizations were 16% lower than the first quarter of 2009 but 13% higher sequentially. UAN price realizations were 31% lower than the first quarter of 2009, and again, 31% higher sequentially. DAP average price realizations for the first quarter were 14% lower than the first quarter of 2009, but 30% higher sequentially.

For both UAN and DAP, we told you on our last call that spot prices had increased by 20% to 40% during the fourth quarter and that we expected to see those increases reflected in the first quarter. That's exactly what happened. Gross margin was $129 million, down 21% from the year-earlier quarter. Lower gas costs were a significant factor in offsetting the impact of lower product prices compared to the year-ago period. Nitrogen segment gross margin of $97 million was 30% of sales, phosphate segment gross margin of $32 million was 18% of sales. Sales under the forward pricing program accounted for 33% of nitrogen volume compared to 42% in the year earlier quarter, and 54% of phosphate volume compared to 26% in the first quarter of 2009. Phosphate FPP volumes were higher because some customers placed forward orders with short lead times when they saw phosphate prices start to move up in December and January. By contrast, most of our phosphate FPP book ran off in the second half of 2008 as prices collapsed, leaving a relatively small amount to be delivered in the first quarter of 2009. We continue to take a measured approach to forward sales to avoid capping our margins in a favorable environment.

Remaining bookings under the FPP were 1.1 million tons at the end of the quarter compared to 1.2 million tons at the same point last year. Selling, general and administrative expense in the quarter was $16 million. Other operating expenses of $139 million included the business combination expenses and the Peru development costs mentioned earlier.

At March 31, 2010, the Company's cash, cash equivalents and short-term investments totaled more than $1 billion. We also held $133 million in auction rate securities. Subsequent to the quarter, we borrowed $3.6 billion in bridge and term loans to complete the acquisition of Terra Industries. We later issued common shares and senior notes for net proceeds of $2.7 billion, which are being used to pay off the bridge loan and a portion of the term loans. When the redemption of Terra's outstanding 7.75% bonds is competed later this quarter, we will have $2.6 billion in debt consisting of $1.6 billion in senior notes and $1 billion in term loans. Our free cash flow this year will be used to reduce the outstanding amount of the term loans with a goal of reducing leverage to our targeted range of 1 to 1.5 times net debt to EBITDA.

We filed an 8-K yesterday that reported Terra net income of $47 million compared to the $30 million reported in the 2009 first quarter. Terra achieved this improved net income despite lower nitrogen selling prices due to lower feed stock costs and significantly improved sales volumes, including an increase in sales to industrial customers as the overall economy continued to recover. Now let me turn it back to Steve.

Thanks, Tony. Now I'd like to discuss our outlook for the second quarter and the remainder of 2010. While I'm not going to provide financial guidance, it would be a mistake for you to conclude that we're retracting the guidance provided by the two companies prior to the combination or that we are in any way less confident about our outlook for this year. In fact, there are at least three things that make us more confident than we were at the time of our prior forecast. First, North American natural gas prices have fallen meaningfully over the last two months. Our previous forecast assumed an average cost of $5.05 per MMBtu at Henry Hub over the course of 2010. Right now, December is the only month on the NYMEX strip for the remainder of the year with a price of $5 or more. Second, our confidence has increased that corn plantings will meet or exceed the USDA estimate of 88.8 million acres because of favorable farm level economics, excellent planting conditions across the Midwest and the incentive to plant corn in other major growing regions. And third, we have much more confidence around spring nitrogen application rates because of the blockbuster preplant anhydrous ammonia season we had in April.

Our production mix among nitrogen fertilizer products is very balanced, and good ammonia preplant application plays to our competitive advantage in corn belt storage and distribution capability. In April, we delivered more ammonia than in any other month since we became a public Company and over 70% more than the average of the previous five Aprils. Ammonia shipments for the legacy Terra operations also were greater than for any month over the same time period. We're working hard to resupply our system for side dress application and it could be a welcome challenge to restock our terminal system fully by the fall.

In addition to rebounding agricultural demand, industrial demand for nitrogen is strengthening, which was evident in Terra's first quarter volumes. While product demand is growing, downstream inventory continues to be tight. As of the end of March, fertilizer year-to-date imports of nitrogen products ranged from 13% to 46% below their five year averages. DAP and MAP inventories are also very low at both the producer and distributor levels, and we currently expect US agricultural demand for phosphate to increase by 15% this year to 4.2 million tons. US corn prices have been under scrutiny in recent weeks because of strong plantings and favorable weather. However, corn exports from the US are expected to remain strong this year as global course grain demand grows by 2.8% compared to last year.

Recent Chinese purchases of corn have the potential to increase US exports beyond previous expectations. Ethanol production in the US also is expected to rise due to the increasing renewable fuels standard and could get a further boost from an increase to the blend rate. Despite recent concerns, December corn futures prices continue to be in what we consider to be the optimal range for our business. The bottom line is that we continue to be very optimistic about demand and margin opportunities for the second quarter. Consequently, we're pleased to have a substantial amount of unpriced product that will allow us to capture those opportunities. We believe that we and our shareholders will continue to be rewarded for this approach. We also feel great about the things we can accomplish as a result of our acquisition of Terra Industries.

I'd like to wrap up this morning by articulating the strategic imperatives that will drive us to achieve our vision for the new CF Industries. Our first priority is to deliver a great spring season as measured by customer service, sales and production volumes, margin management and safety. The second thing we need to do is to execute our detailed integration plan. Through that integration process, we expect to deliver synergies of at least $135 million per year over the next 18 months. After we've done the heavy lifting on integration and synergies, there will be other opportunities to optimize the combined Company's business. Simultaneously, we will continue to pay down debt to get us to our desired capital structure. Achieving that target leverage range will then allow us to capitalize on organic growth opportunities and eventually on global strategic opportunities in fertilizer manufacturing and distribution. All along the way, we continue -- we intend to continue to engage actively with the investment community. We look forward to seeing many of you at the BMO Agricultural Conference on May 20 and the Goldman Sachs basic materials conference on June 3. With that, let's open the call to your questions. Antoine, would you please explain the Q&A procedure?

Thank you. (Operator Instructions) Your first question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed.

Hi. Good morning.

Good morning, Jeff.

Can you talk about the pace of your cost reduction program? You're looking for $135 million in synergies. Coming into the second quarter, do you think that we'll be able to see some appreciable amount of that or some ratable amount of that?

Well, we've outlined major components of our synergy targets and if I may, I'll just briefly summarize those for you. The range that we published going back to early 2009 was $105 million to $135 million in total. The biggest piece of that, SG&A, $55 million to $65 million, logistics and railcar leases, $25 million to $30 million a year, purchases and procurement, $10 million to $15 million a year, other optimization opportunities other than distribution facilities, $10 million to $15 million a year and distribution facilities optimization, $5 million to $10 million a year. The pace of that realization we've laid out in a presentation that I think is available on our website, but I'll give you a couple of mile posts here. Three months into the process we hope to be at about a $38 million annualized run rate. Six months down the road, about $67 million a year by a year from the closing, about $100 million a year and 18 months down the road, the full $135 million run rate.

Okay. And then lastly, you spoke of the weather being very good this season for American farmers, and last year was a very good weather year as well for corn. When you think through what your yield expectations are going to be like for this year, what yield expectations for corn are going to be like, do you have opinions about that?

Jeff, if I recall, last year we had adverse -- a very adverse weather pattern during the planting season, but eventually the crop got in the ground. A major factor that led to the very high yields in 2009 was the great weather that occurred in the summer. There were ideal growing conditions in the summer. This year, so far what we have seen is essentially ideal planting conditions, certainly in the month of April. We had rain here in Chicago this morning. That's certainly not a bad thing to happen once the crop is in the ground. So what will happen with respect to yields this year will, I think largely be, at least to the weather impact of that, is yet to be seen. I think expectations are high for, again, another high yield season, but until we know what weather pattern's going to develop, it's hard to predict.

Okay. Thank you very much.

Your next question comes from the line of Mark Connolly with CLSA. Please proceed.

Thank you. Steve, two questions. In past years, it hasn't been unusual to see nitrogen prices moving up when imports are moving up. Obviously in the Q1, that wasn't going to happen. Where do you think we are in terms of being at a point to reattract imports, especially given, season's sort of coming to an end and nobody really wants to hold inventory? And then my second question is with respect to that inventory, dealers don't want to hold stuff. You're well positioned to hold inventory close to customers. Does that imply an upward shift in your average inventory levels if dealers continue to not want to hold, and does that just push it back to you and raise your working capital?

Well, with respect to imports, we all know that imports were slow coming in to this country over the winter and leading right up to spring, and so other than ammonia, nitrogen products were certainly short in terms of inventory levels. And I think there was actually a lot of building stress coming with respect to urea and UAN because of the shortfall in imports. Now that we've had a very strong ammonia run, it's more likely that urea and UAN supply and demand will be in somewhat better balance, although we still think it will be tight. We're expecting a strong side dress season in UAN and ammonia, so I think that's our perspective on imports.

Okay. That's helpful.

With respect to inventory levels in our own system, we manage our whole system to meet what we believe our customer's expectations are. With respect to ammonia, there really isn't any choice. If we want to be in the ammonia business, we need to store the ammonia in our system and our system is a great system. The benefit of that system was definitely on display in the month of April. Other products we'll manage our inventory levels consistent with a balance between what we see our customer demand to be and our operating desires at the plant level. We look for a balance there.

Okay. Thank you, Steve.

Your next question comes from the line of David Silver with Banc of America-Merrill Lynch. Please proceed.

Yes, hi. Thank you.

Good morning, David.

Good morning, good morning. I have a number of questions I'd like to just touch on. First thing, I'd like to go back to your first priority when you are articulating your strategy. Your first point was to deliver a great spring season. And my question kind of relates to your comments in the release about your positioning to serve the ammonia market. So if you look at the newsletter prices for corn belt ammonia, they've actually spiked up about $50 or even $75 in the last couple of weeks. So in the middle of May, I noted your comment in the release about restocking. Should we assume that you're in position to capture some of that later season premium priced business? Is that part of your comment about delivering a great spring season?

David, I guess the short answer is yes, we certainly have capacity -- on price capacity available. We keep our fingers crossed every year and hope for this kind of ammonia season. We are very well equipped to do this. So we went into the spring with a fairly light forward book, and this is a time where that becomes advantageous for us.

Okay, very good. And then I also wanted to ask your comment on a couple of issues in the international nitrogen market. So recently, the Ukraine nitrogen industry signed a new or entered a new pricing arrangement with their key gas supplier, Gazprom. And I'm just wondering if internally your folks have looked at that agreement and have determined what the effect on the competitiveness of the Ukrainian industry might be and their ability to export here. And then also your comments about what you expect export-wise to come out of China, once the higher tariff levels are reduced.

David, it's Tony. Let me talk about the Ukraine, and then Steve can comment on China. We are generally in agreement with the price for Ukraine that Fertecon had been using of around 670 per million Btus. That price to the fertilizer producers in the Ukraine was subsidized by the Ukrainian natural gas company, using inventories that they had built up in previous periods. I would say that while we think we know where this is going, it's not a completely transparent situation. What we think's going to happen is as a result of lower delivered prices from the Russians, the Ukrainians will follow through with the pledge to the IMF to start backing off on subsidies to fertilizer producers. So the net position after the subsidy is taken off and you substitute the cheaper Russian gas is still probably going to be an increase in the average price coming out of the Ukraine to something like $7 or so. So we think on balance, it's about the same situation net to possibly slightly higher, which of course decreases the competitiveness of Ukrainian production coming into the international markets.

With respect to China, it's always difficult to have visibility into what goes on there, but we do know that the export tax is coming down. We also know or we believe that there have been some producers in China who have been building inventory in anticipation of the day when the tax comes down. It's logical to think that that product, if it is exported, will be directed, really in the Asian market, Pakistan, India. India has a substantial amount of demand that needs to be fulfilled. In terms of how much might be exported, we really don't have any insight into the quantities that might be loaded and shipped out of China.

Okay. And then one question about logistics. I'm reading in a variety of publications about effects or potential effects to shipping in the US gulf as it relates to the oil spill. So from the perspective of your Donaldsonville facility or your overall import and distribution network, what could you tell us about your view on how this oil spill issue might affect CF's operations?

Well, first of all, there's been no impact to this point, and we don't know whether there will be any impact. So I don't have any ability to predict what might happen with the shipping in the gulf. But having said that, should there be an impact, that would have really no effect on our ability to supply nitrogen to our customers because of our vast network of production points and our distribution and logistics system and frankly, our North American focus. If I look at that possibility, it would have an impact on phosphate because of the normal process of shipping DAP across the gulf, up the river and it could impact sulfur deliveries, but we really don't know and we've got lots of -- we do have transportation options. Rail is always an option, although the railroads are tough to deal with.

Okay. Last question about Peru. If I'm reading from your release here, you said any significant future investment regarding Peru depends upon improvements to the capital and operating cost projections and certainty of pipeline delivery of gas to the plant. But improvements to capital and operating cost projections, should I just take that to mean that nothing is imminent unless there are some changes in the overall -- in your overall assumptions about the project as they stand today?

I think that's a very good conclusion, David.

Okay. Thanks very much. Appreciate it.

Your next question comes from the line of Don Carson with UBS. Please proceed.

Yes, thank you. Couple questions, Steve. Dealers do seem quite reluctant to hang on to material. How do you see the post season playing out in terms of where prices might trough and how soon dealers will begin to restocking for the fall? And just on the upcoming side dress season, I'm seeing that there's some additional cargoes coming in from (inaudible) on ammonia. What impact, if any, you think that might have on pricing for the side dress season?

Well, taking the second question first, I think it's a little late for cargoes coming in to make it into the market for this side dress season. And to the extent they are ammonia cargoes arrive at the gulf, they've got to find a way to get into the Midwest and into the system. We have the largest network of terminals. Others have terminals, but there aren't very many of us who have those terminals. With respect to your first question on the fill season, we expect there to be low inventory levels coming out of this spring and on a relative basis to other years, we would expect a pretty good ratable demand for restocking coming out of this season because of the low ending stocks that we think are going to be the situation.

So are you saying then, just to clarify, that you think dealers will actually buy early rather than later?

We don't know when they're going to buy. We just know that they need the product.

And then a follow-up question again on side dressing. What do you think the balance will be between ammonia and UAN here because while it's raining, it's still relatively dry, which would play against ammonia. And we haven't seen much of an impact from the new Trinidad ammonia plant. What's your view as to what impact that material may eventually have on the US UAN market?

Okay. With respect to the mix on side dress, I think all other things being equal, including field conditions, farmers who use ammonia will use ammonia because they get bigger bang for the buck, and UAN would be the second choice. I'm sorry, Don, what was your second question?.

Was the impact of the new UAN capacity in Trinidad, it frankly hasn't had much of an impact on pricing thus far, and how do you see that going forward?

Well, I think what's unfolded is pretty much what we expected when we first learned about this and that is that the capacity will find its way to its natural market, and we'll back out whatever supply was being sent to those sources previously, and we all know where the high cost supply is these days. It's in eastern Europe and places like that. So I think the market has adjusted to that or is certainly well into the process of adjusting to it.

Just one follow-up on the phosphate side. You've been able to take advantage of higher prices in the US and higher prices in non-Indian markets. How sustainable do you see the -- some of these higher non-Indian export market opportunities as we go forward? We're seeing lower sales into Brazil and Pakistan now. What's your outlook for the export DAP market?

Well, we think there's demand yet to come. We don't have a lot of visibility going out too far but I think certainly into the summer, we see reasonably good opportunities. I like the flexibility that we have in our own business to manage the domestic import/export mix. I think we've been pretty effective at doing that and we have no particular preference. We're looking for the best business we can find.

Thank you.

Your next question comes from the line of Edlain Rodriguez with Broadpoint Gleacher. Please proceed.

Good morning, guys.

Good morning, Edlain,.

A quick question. Can you talk about your strategy on natural gas hedging? With prices where they are right now, what's your view going forward? Or is there any benefit in locking in prices, or do you still think prices will continue to come down?

Edlain, this is Tony. As we've said before, when we buy gas, it is typically related to a forward sale. We've also mentioned in previous calls that because we like the opportunity to potentially capitalize on expanding margins due to flat to weak gas prices and stronger pricing for our products, we stayed short into that market. As Steve pointed out on the earnings call, a forward NYMEX curve so far is validating our view for the gas for the rest of the year, and we'll probably continue this current program and this current path, because we think it's the optimal one in terms of optimizing margin, which is what we focus on. With respect to locking in anything separate from an FPP sale, we do have that authority. We typically in the past have not used it extensively, locking in extra gas to the extent of seven to ten days of consumption. If gas popped up on the forward curve at $3.50 or $3 ,we would probably get the committee together and have a serious discussion about it, because it's something we would want to look at. So we can be pretty flexible about that but basically, we're going to continue the same approach to gas and the pricing and the margin management that we've had for the last several quarters.

Okay. That's good. And one quick question on phosphate. Where do you see sulfur prices going after the second quarter? And are you having any trouble in terms of sulfur availability? Does that impact your phosphate production at all?

Well, we have not had a sulfur availability issue. It hasn't affected our production. The guys involved in procuring our sulfur have had some tense moments when we've worked very closely with our suppliers to make sure that we get the quantities that we have under contract. And this has been the time when relationships built over many years pay off for us. So we haven't had any supply issues. With respect to the sulfur pricing situation going forward, it feels a bit like we're at a point of stability going forward. But this has been a commodity with surprisingly high volatility and pricing for the last few years, and so I hesitate to predict a price.

Okay. Thank you.

Your next question comes from the line of Horace Heineken with Thomas Weisel Partners. Please proceed.

Yes, good morning. Two questions. I'm wondering whether you could comment on your capital expenditure levels going forward? I can clearly see what CF has been spending and also Terra has been spending. I'm wondering whether if there are plans to discontinue the combined rate going forward or there's opportunity to lower the total CapEx of the combined entity.

This is Tony. This is a topic that came up obviously quite frequently during the road show for the equity and debt offerings, and what we told everybody then is that the target for the next couple of years for CapEx for the combined Company is $205 million as we continue to focus on paying down our term debt and moving into the targeted net debt to EBITDA ratio of 1 to 1.5. So we're going to run at that rate. If you look at CapEx for the combined companies in the first quarter, it was about $58 million. We think we're in a zone where we can manage the to that number for the year.

Okay. That's helpful. Also, could you confirm one housekeeping item?. You mentioned that the business combination charge of $136 million was pretax and the project development, [2.7], was also pretax. Are those effectively also after tax numbers?

Well, they're after tax numbers in the sense that they are not deductible in our income tax calculation. The reason we tried to indicate what the tax rate would have been without those items is to give you some tools to make a decision on how you wanted to handle them and looking at our adjusted income.

Thank you. That's all for me.

Your next question comes from the line of Chris Dumas with ECMI Research. Please proceed.

Thanks. Are there any assets you obtained from the Terra combination you were thinking of reviewing in the short-term? I'm thinking about the UK joint venture with Yara in particular, given what's going on over there.

Chris, we've acquired a significant mix of assets. The main nitrogen plants are critical to our core business. The UK business has been a good cash generator. At this point, we've come to no conclusions about anything. Everything is in our portfolio, and we're glad to have it.

Great. Thanks very much.

Your next question comes from the line of Michael Picken with Cleveland Research. Please proceed.

Good morning. Just a few questions for you regarding the movement in the international nitrogen markets. It seems like we've had some issues with everybody, some of the global producers returning to capacity and maybe weakness in demand in some other markets. How do you see this sort of playing out? Do you see that urea prices and maybe even ammonia and UAN moving down further, or do you think we've started now to see a little bit of stabilization? And then my second part of the question is if the dealers are reluctant to take product, is it possible that we don't see maybe as many imports as the amount of global product that's out there implied and we might end up with maybe a little better than expected pricing because somebody ultimately has to take the product in order to bring it into the US? Any thoughts on either of those would be helpful.

Trying to predict prices is extremely difficult. We've seen some weakness in urea and UAN prices, whether they found a floor and are about to come up again is not clear at this point. We certainly see opportunity in North America for substantial demand, and that could lead to increasing prices. With respect to the whole global nitrogen situation, I'd just say from a 50,000-foot level, the nitrogen economics are working as they're supposed to work. There's weakness in European demand. Product didn't move there to the extent that it might have otherwise. The natural production that was headed there was a production that had to ease off, eastern Europe and so forth. So it's a global industry, and world prices are determined globally. However, there can be regional dislocations and we see that, for example, in the ammonia market, corn belt ammonia has its own set of economics. One of the reasons we like that business so much.

This concludes the question-and-answer session of today's conference call. I will now turn the presentation back over to Mr. Terry Huch.

I'd just like to thank everybody for participating today and invite both members of the investment community and the media to follow up with me if you have further questions. Thank you.

Thank you for your participation in today's conference call. This concludes the presentation. You may now disconnect. Good day.