CF工業控股 (CF) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the CF Industries fourth quarter 2011 results call. My name is Shantele and I will be your facilitator for today's call. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Terry Huch, Senior Director Investor Relations, and Corporate Communications. Please proceed, sir.

Thank you. Good morning, and thank you all for joining us on this conference call for CF Industries Holdings, Inc. I'm Terry Huch, the head of Investor Relations, and with me are Steve Wilson, our Chairman and Chief Executive Officer; Dennis Kelleher, our Senior Vice President and Chief Financial Officer; Bert Frost, our Senior Vice President of Sales and Marketing; and Tony Will, our Senior Vice President of Manufacturing and Distribution. CF Industries Holdings Inc. reported its fourth quarter and full-year 2011 results yesterday afternoon, as did Terra Nitrogen Company LP. On this call, we will review the CF Industries results in detail and discuss our outlook, referring to several of the slides that are posted on our website. At the end of the call, we will host a question-and-answer session.

As you review the news releases posted in the Investor Relations section of our website, at 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 forward-looking statements included in yesterday's news release and the slides accompanying this call. 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 welcome to all of you who are joining the call today. I'm sure you all saw the excellent results we published for the fourth quarter. Before we walk you through these results, I want to cover a couple of points. First, I want to recognize Terry who, as many of you already know, is in the midst of a transition to a new, bigger assignment of directing all of our natural gas and sulfur purchasing. He has done a great job leading our IR effort for the last two and a half years, and has set a high bar for his successor, who we hope to identify soon. I would also like to take a moment to reflect on what we accomplished in 2011.

For the year, we had record production, sales volume, revenue, earnings, EPS, and cash flow. In doing so, we proved that we have solidified the platform that was created by acquiring and integrating Terra Industries. We demonstrated our proficiency in operating that greatly improved platform, and I believe our focus on execution allowed us to extract every advantage from it. In 2011, we improved in key areas that already were strengths, including revenue and margin optimization, production excellence, best practice sharing, and safety. We thrive even in the toughest stretches of the year, because of what I will call robustness synergies, meaning that our expanded scale and flexibility put us in the strongest competitive position when demand was delayed, when product mix changed, and when transportation became difficult.

In 2011, we produced $3 billion of EBITDA, which is very gratifying because it equaled an internal goal the management team had discussed earlier in the year. Abundant cash flow has been allowing us to do everything we want to do, simultaneously -- improve the balance sheet, distribute cash to shareholders, and invest in the growth of the business. During 2011, we retired the last of our acquisition-related term loan. We distributed over $1 billion dollars to shareholders through share repurchases and dividends, and we allocated funds for significant capital projects for both the near and long-term.

We completed a major expansion at our Woodward, Oklahoma nitrogen facility, where we are now upgrading an additional 200,000 tons per year of ammonia to higher value UAN. We laid all of the ground work needed to start production a few months from now of a unique sulfur-enhanced phosphate product that our customers are very excited about. We approved and commenced a project to expand ammonia production at Donaldsonville, by 100,000 tons per year. We announced that we had earmarked an additional $1 billion to $1.5 billion for other capital projects within our existing nitrogen complexes in North America, and we increased the number of plants producing diesel exhaust fluid from 1 to 3, soon to be 4, and put in place the corresponding distribution infrastructure. So, we had a great year and we've positioned ourselves for a great future. Financial markets took note of that, rewarding our shareholders with total returns far in excess of market indices, and our peers, in 2011.

Our primary focus will continue to be on delivering outstanding financial results safely and responsibly, which we believe will lead to the kind of returns our owners expect. Last night, CF Industries reported fourth quarter net earnings of $439 million, or $6.66 per diluted share, on sales of $1.7 billion, all fourth quarter records. We're very proud of these results, especially considering the decline we saw in market demand and prices during November and December. This gave us a chance to show that the lag in our average prices, caused by forward-selling, does work in both directions. Despite the stiff declines in reported market prices, our average selling prices for ammonia, urea and UAN increased by 9% to 15% from the third quarter to the fourth.

But there was more to our margin management than a simple lag. As we entered the fourth quarter, our order book for the period was relatively full, with orders received when available margins were higher. Spot prices were disappointing in the second half of the quarter, but we didn't have much appetite for booking new business for most of our products at those price levels; and in any event, very little spot business was being transacted in the industry. Our confidence in the large planting of corn we expect this spring reinforced our position and made it easy to pass on some less attractive selling opportunities in both the spot and forward markets during the pricing trough which occurred in mid-December.

You can see evidence of our patience on our balance sheet. We were holding $878 million in customer advances on September 30, and that balance fell to $257 million by year end. I will talk later about the favorable implications we expect the smaller book to have in the first half of 2012. For the fourth quarter of 2011, it means that our pre-pay balance fell by more than $600 million, yet we still had operating cash flow of more than $100 million in that period. Our earnings before interest, taxes, depreciation and amortization, were $871 million, a fourth quarter record. EBITDA excluding mark-to-market adjustments was a record for any quarter, surpassing the previous mark set just six months earlier.

The fourth quarter also provided a nice illustration of the way in which lower North American natural gas prices have raised our floor margins, making our nitrogen business very profitable, even in weak periods. In mid-December, urea prices at the US Gulf bottomed at around $350 per short ton, which we believe, based on our observations, roughly corresponds to the landed cash costs of the highest cost producers. At this theoretical floor price, our cash margin for production and sale of urea at New Orleans was above 60%. If that is as bad as it gets in a period of collapsing demand, then shares of North American nitrogen producers wouldn't seem to deserve much of a multiple discount due to industry volatility.

Although demand slackened for many of our products in the fourth quarter, there were some bright spots. We participated in a very good fall ammonia application season, which allowed us to sell 874,000 tons at an average price of $633 during the quarter. As was the case with the other products, our average price realization for ammonia compared very favorably to benchmarks, because much of it had been sold forward in prior periods. Total ammonia sales volume in the quarter was about 5% lower than last year, but the agricultural volume was about the same. Mild weather throughout the growing region allowed application to continue throughout December, and even January in some areas. Our team did a great job of delivering the product where it was needed throughout the season. Although inventory levels are low -- were low, we were able to meet our customers' needs across our system.

As helpful as the mild weather was for fertilizer application, it was just as great a boon for natural gas costs. The average daily market price at Henry Hub was $3.31 per MMBTU, which sounds high now, but was 20% lower than the average in the prior quarter. We priced a lot of the gas we consumed in the fourth quarter when we accepted forward orders prior to the beginning of the quarter, which accounts for most of the difference between the average fourth quarter Hub price and our average cost of $4.06 per MMBTU.

Our phosphate operations had a good fourth quarter, too. We exported a large share of our DAP and MAP volume during the first quarter. The rapid pace of exports continued last month, with export net backs at a premium compared to domestic sales. Our average phosphate price realizations in Q4 were up sequentially, and 18% higher year-over-year. For the year, the phosphate segment had sales of $1.1 billion, and an average price realization of $565 per ton. Both were second highest in our history, exceeded only by 2008, when we posted phosphate sales of $1.3 billion with an average price realization of $760 for DAP.

The nitrogen segment re-wrote the record book in our first full year after the Terra acquisition, achieving sales of $5 billion, and gross margin of $2.6 billion. Average nitrogen price realizations were very similar to 2008 levels, but with 51% gross margins compared to 30% in 2008, when our average gas cost was more than double what we experienced in 2011. Whereas 2008 represented a short-term spike in commodity prices, 2011 was a year of more gradual and sustainable increases afforded by strong demand, favorable supply dynamics, and much higher input costs for swing producers in Eastern Europe and China.

Before I turn the call over to Dennis for a few more comments on our financial performance, I would like to salute our entire CF Industries team. The market did provide a great opportunity in 2011, but it took a great team effort to achieve what I believe were stellar results. It was a pleasure to watch our fully integrated team execute our strategy last year. Dennis?

Thanks, Steve. For the full-year 2011, CF Industries had net earnings of $1.5 billion on sales of $6.1 billion. Fully diluted earnings per share of $21.98 included non cash mark-to-market losses on natural gas derivatives, the impairment of methanol assets in Woodward, gains on the sale of non-core assets, restructuring integration and other business combination costs, and a small amount of Peru project development costs. Together, these items reduced EPS by $0.91 for the year. EBITDA for 2011 was about $3 billion. To put that into historical context, the Company's sales didn't reach $3 billion until 2008. The items affecting earnings that I just mentioned, excluding a portion of business combination costs that was recorded in interest expense, reduced 2011 EBITDA by $83 million as shown on slide 8.

Our fourth quarter net income of $439 million, or $6.66 per share, included mark-to-market adjustments of $49.7 million before taxes, or $0.47 per share after tax. This represents the adjustment required to bring natural gas derivatives that will mature in future quarters to their fair market value based on the gas strip as of December 31. Our fully diluted EPS was a fourth quarter record, as illustrated by the red box bars on slide 5. Before mark-to-market adjustments, EPS was a record for any quarter in the Company's history, although net earnings were not. Due to our share repurchases, EPS had the added benefit of a significantly reduced share count compared to the second quarter of 2011, when we set the prior records.

Our nitrogen business performed very well in the fourth quarter. As shown on slide 6, we had nitrogen sales of $1.5 billion, up $461 million from the fourth quarter of 2010 on about the same volume. Segment gross margin of $786 million was 54% of sales, 12 percentage points higher than in the fourth quarter of 2010, due to higher prices and lower natural gas costs. Our average ammonia and urea price realizations were up 40% year-over-year, and average UAN realizations were up 72%. The nitrogen segment had sales volume of 3.3 million tons in the fourth quarter. An increase in UAN volume offset small declines in other products.

For ammonia, the year-over-year reduction in fourth quarter industrial sales was about equal to the amount of net ammonia capacity that was consumed by the Woodward UAN expansion. Agricultural ammonia sales were flat compared to the fourth quarter of 2010, but both quarters were very good application seasons, due to strong demand and favorable weather conditions. Granular urea sales volume was slightly lower than in the fourth quarter of 2010, but our average realized sales price of $465 per short ton was a great result. That compared to $331 in the fourth quarter of last year. We sold 1.6 million tons of UAN in the fourth quarter, at an average price of $354 per ton. That represented increases of 139,000 tons and $148 per ton, compared to the fourth quarter of 2010. The volume increase essentially corresponded to the amount of quarterly production capacity we added earlier in the year.

For the full year, the nitrogen segment had a gross margin of $2.6 billion, compared to $1 billion in the prior year. 2011 marked the first time the Company has ever shipped 13 million tons of nitrogen products in a year. The phosphate business also performed well, which you can see on slide 7. We achieved a 31% gross margin on sales of $255 million. Sales volume of 439,000 tons was 38,000 tons lower than in the fourth quarter of 2010, but the combined average selling price for the phosphates was 18% higher. Exports comprised 45% of our phosphate sales in the quarter, which is a little higher than average.

We continue to have a conservative balance sheet, with ample liquidity. I know that investors have been very interested to learn more about the progress of our share repurchase program. In 2011, we spent $1 billion to repurchase common shares, which was the maximum amount allowed under the restricted payments basket in our revolving credit facility. With this report of our results for the year, the basket gets replenished, allowing us to resume the repurchases at our discretion. Many of have you asked us what our cash deployment intentions are, beyond the share repurchase and investment initiatives we announced in August of last year. To the extent we have available cash or additional forecasted cash flow, we will go through the same disciplined process that was used last summer to determine the best way to employ capital to maximize shareholder value. We are pleased, of course, to be faced with this issue only six months after announcing actions totaling $2.5 billion to $3 billion.

In 2011, we had capital expenditures of just less than $250 million. This was below our average pace of $300 million across the turn-around cycle. For 2012, we are projecting CapEx of $400 million, reflecting higher expenditures for plant turn-arounds and some spending for the Donaldsonville ammonia de-bottle necking project. The other expansion projects we announced in August should be ready for decisions in the second half of the year, but 2012 capital expenditures on these projects should be minimal.

Now with that, let me turn it back to Steve to discuss the outlook.

Thanks, Dennis. I've given many favorable outlooks in a row on our quarterly calls, and I'm happy to say that our track record over that period has been pretty good. I know there is a lot of uncertainty out there now, which has been evident in the timing of fertilizer purchases and in market volume expectations for P and K. Like others in the industry, we are somewhat cautious about demand levels for phosphate this spring, and we've acted on that sentiment by accelerating the timing of planned turn-arounds for portions of our phosphate operations in Florida.

In contrast, we expect strong demand for nitrogen in the spring. The USDA's current season average forecast for the farm price of corn is the highest ever for this time of year, and the projected stocks to use ratio at the end of this marketing year is the second lowest in 40 years. We expect farmers to plant a large number of acres to corn, quite possibly, an all-time record, and apply near optimal amounts of nitrogen fertilizer if weather conditions are right. Investors don't need to watch daily changes in the spot price of corn to forecast what kind of a spring the nitrogen industry is likely to have. We don't believe a moderate change in the current spot price of corn will change planting and fertilization intentions at all or have a meaningful impact on the growers ability to pay for crop inputs. We continue to forecast planting of 93.5 million acres of corn in 2012. Whether the actual number is a little higher or a little lower, the quantity of nitrogen fertilizer demanded should be near record levels.

We already have a good jump on nitrogen fertilization this year, with the favorable conditions for applying ammonia. In fact, it was hard to tell when the fall season ended and the spring season began this year. Extremely mild weather made it possible for growers to apply ammonia in January in many parts of the midwest, with particularly strong pull in Kansas, Missouri, Iowa, and Nebraska. We also have seen a rush to fertilize winter wheat in Texas and Oklahoma, where precipitation came late. As a result, ammonia volume and business mix should be favorable in the first quarter. Although ammonia may garner a slightly larger share of nitrogen product mix this fertilizer year, investors should not be concerned that this will be problematic for us. The spring of 2011 showed that acceptable weather -- with acceptable weather conditions, we can have very good demand for all nitrogen products in a year when more than 90 million acres of corn are planted.

Our order book on December 31 was smaller than it was a quarter ago, or a year ago. That is not a concern for us either. We believe the demand will be there and our volumes will be strong, if weather cooperates. Because purchasing decisions are late this year, we expect that some areas will experience a buying rush in the next two months, and suppliers with product available for spot sales may be rewarded.

Our raw material costs continue to be a strong tail wind for us. Phosphate production costs will benefit from the recent fall in Tampa ammonia prices, which are rather loosely correlated with corn belt ammonia prices. Domestic phosphate producers also settled sulfur negotiations recently and secured a 22% decrease in the first quarter compared to the fourth quarter. And of course, the recent drop in natural gas prices will benefit our nitrogen business over time. Recent spot and front month prices for gas at Henry Hub have fallen to a range of around $2.50 per MMBTU, because of production growth and very warm weather. As a result, the US has built a storage surplus of between 600 and 700 BCF in the lower 48 states, compared to last year and the five-year average. Rig counts have been falling. But they will have to fall further to stop the growth in production. To reverse that growth, we believe well shut-ins would be required. As a result, we don't expect much strength in gas prices this year.

Our press release indicated that as of December 31, we had fixed the price of nearly two-thirds of the gas we expect to use in production in 2012. Had we known that this would be the winter that never arrived, we wouldn't have been quite so aggressive. But forecasting the weather isn't something we claim as an area of expertise. In fact, I'm not sure it is anyone's area of expertise. What I know is that we saw an opportunity to fix our cash costs of urea production below $150 per ton, which is the level at which we can earn very attractive margins.

To wrap up, we expect 2012 to be a great year. We expect a potential record planting of corn, and we believe strongly that it will translate into very good demand for nitrogen. If we experience periods of lower demand, our margins will be supported by better floor price economics than in the past, and very favorable feed stock costs. Together, these factors provide more evidence that nitrogen industry results will be characterized by higher highs, and higher lows, going forward.

With that, let's open the call to your questions. Shantele, please explain the Q&A procedures.

(Operator Instructions)

Elaine Yip, Credit Suisse.

Hello. Good morning.

Good morning, Elaine.

So a quick question on your natural gas hedges. Can you give us a sense as to perhaps what pricing might have locked in on average, and how the hedges are spread over the course of the year?

Again, I will give you a bit of perspective on our process. And I would like to put what we did in a bit of a longer-term context. First of all, we noted that we fixed about two-thirds of our gas for 2012. That means that we're roughly one-third exposed to the spot market, at this point, for 2012. And of course, we're fully exposed to future gas prices for 2013 and beyond.

What we did in the late fourth quarter really shouldn't be a surprise to the people who have been conversing with us over the last couple of years. We indicated that we hadn't had an appetite to lock in fixed gas beyond our fertilizer sales commitments, but that we might become interested if the strip got below, say, $4 if we had a three handle on it. So when that happened, around mid-December, we convened our natural gas committee. They made a recommendation for a program which we executed over a several week period, following that series of meetings. We're very comfortable with what we did. We're never going to be perfect here. I would like to remind everybody that urea is a product that recently has sold in the range of $350 to $450 a ton. It has been higher than that in the past, and to have an opportunity to fix our costs at below $150 a ton was a great opportunity.

Part of our decision process, of course, is based upon our past experiences. Bad things happen in this business. Winters get cold. And so we were protecting ourselves against adverse weather events.

From a much longer term perspective, I would like actually to remind you of how we manage our margin. We've talked a lot over the years about our forward pricing program, how we make decisions about forward prices, how long our forward commitments are, and we've had lots of discussions about the fact that our focus isn't on the absolute price, it is on the margin, and we're looking to achieve the highest possible margin on a sustained basis. Turning the coin over and looking at the gas side, our view is exactly the same; and that is that our focus is on the margin. By having our cost structure pretty well fixed, it gives us the opportunity to exploit what we hope and expect will be a firming of prices on the nitrogen side.

So over the last period of time, I think we've demonstrated really good discipline in what we do. This is the kind of process that led us to post $3 billion of EBITDA in 2011 on $6 billion of sales. So I feel really good about what we did and where we stand going forward.

Great. I mean, I guess in thinking about what costs you might have locked in for 2012, but the long-term strategy certainly makes a lot of sense, but how should we think about the hedges in place? Is it more weighted toward first half, second half, what is maybe the relative price, or what time, at what point in 4Q did you decide to put the hedges on?

We looked at this around mid-month, and were looking at the strip at that point. And in terms of the spread throughout the year, there is not much variation throughout the year.

Okay. Great. And then can you comment on your nitrogen production capability for 2012. You obviously ran at exceptionally high rates in 2011. Can that really be sustained this year? What type of turn-arounds might have you scheduled throughout the year?

Tony Will will comment on that, Elaine.

Elaine, by any measure, 2011 was a terrific year for us on the production side, as well as for the whole company. We had fewer turn-arounds in '11 than usual, and we also had less unscheduled downtime than a historically normalized year as well. And that resulted in production records across the Company. So as we look forward, into 2012, we have more turn-arounds scheduled than in '11 and an assumption that the unscheduled downtime will also return to something that may be more reflective of a normal pattern. And the result of that is that we're expecting for our production volume this year to be a bit lower than where we were in 2011.

Great. Thank you very much.

P.J. Juvekar, Citi.

Hello. Good morning. This is Dan Jester sitting in for P.J.

Good morning, Dan.

Good morning. I was just wondering if we could talk a little bit more about your order book. When I see your balance sheet, and customer advances down 40% year-over-year, is that sort of a good way to think about sort of how the order book stacks up compared to a typical year? And are there any specific products which might be a little bit weaker than others?

Bert?

I think how we would look at it is, every year is different, every season is different. And our order book, as Steve mentioned, trended lower into the first quarter. So with 93 million acres, or 94, whatever the estimate is, which would be a 2 to 3 million acre increase over what was planted in the spring of 2011, we're very positive what will take place, and the need for farmers to purchase nitrogen. So while the book might have been a little bit lower than normal coming into the first quarter, we're anticipating robust activity from this point forward, and we've already seen some activity during the first few weeks of February.

Okay, great. And then just one other follow-up. Can you update us a little bit on your plans for Peru? I saw a recent report that the government may have set a deadline for your projects there. So I just wanted to get an update.

Well, Dan, I really have no update. We have been sort of sitting on the sidelines waiting to see whether some road blocks got broken. They haven't been broken thus far. That particular report was not factually correct. But the substance of my response is that we haven't made any progress there.

Very helpful. Thank you.

Vincent Andrews, Morgan Stanley.

Thank you, and good morning, everyone. Congratulations, obviously, on a great quarter and an exceptional year. I was just wondering if you could clarify the terms of the credit agreement a little bit, in two ways. One, what do you now have available in terms of the amount of share repurchases for 2012, is it $500 million, is it $1 billion, at your discretion? I know it's left in the program. And two, why not renegotiate that agreement or get a new one to give yourself complete flexibility to take advantage of things like your $130 share price at some point in December, or the 10% down day on the Ukrainian gas concerns in November. And then thirdly, with the gas costs fixed now, does that give you more confidence or more comfort in maybe executing incremental or larger share repurchases than what's left in the authorization?

Hello, Vincent. This is Dennis. I will respond to your question.

I want to just sort of put my response on the context of sort of what has happened over the past several months. In August, we announced, with respect to shareholders, sort of two initiatives, one was to increase our dividend to $0.40 per share per quarter, which we've done, and that's happened, that is delivered. And in addition to that, we announced that we had authorization from our Board to repurchase shares up to $1.5 billion, and that authorization runs through the end of 2013. And we've completed two-thirds of that before 2011 had even ended. And we were able to buy those shares back at $153 a share on average, $153.50 I think, which is certainly below today's price and certainly very well below our all-time high share price, as you know.

As we think about the future, what I can say about that is what I've said in the speech itself and going forward, and that is we are going to take the same disciplined approach to looking at additional share repurchases in the future, as we have in the past. If those seem to make the most sense, in terms of delivering value to the shareholders, then we will certainly do that. As we said in the speech, with this report, our basket has been replenished and we're capable of moving forward and resuming share prices when we choose to do so, consistent with the authorization that we have.

With respect to the credit agreement, what I would say about that, going forward, is we have not amended that in the fourth quarter last year, because we really don't want to tinker with that at the margins. To the degree that we want to do something different there, and I'm not saying that we will, but to the degree that we want to do something different there, we would do something much more comprehensive than simply amending this particular part of the agreement or that particular part of the agreement. But I really don't have anything on that to say today.

Vincent, this is Steve. I will just add a couple thoughts.

One is that the basket that we have available now is bigger than we would need to complete the program that is in place. And with respect to the last part of your question, which I believe related to does our large amount of fixed price gas give us a greater ability to do share repurchases. My answer to that is that our gas hedging activity is really a tactical move designed to change our risk profile in managing our margins going forward, and it doesn't really impact our longer term view on the cash generation capability of the Company, or what we might or might not do with that cash.

Okay. And if I could just ask a follow-up, could you talk a little bit specifically about the UAN market? Prices have come down sort of precipitously in the last few weeks and there has been some chatter the trade about one of your competitors being more aggressive with selling product in the fourth quarter than it sounds like you were. And just kind of how are you thinking about your position there as we go into the spring?

Bert?

We're pleased with our position. The UAN market has been volatile, as you can see from our pricing, coming off the fourth quarter, at $354, we captured exceptional pricing. And you're correct, at the end of the fourth quarter, the pricing did come off, a reflection of several issues. You see from the import statistics, large volume on a five-year average, and even on a year-on-year average, were much higher than anticipated; and I think some areas probably on the East Coast were -- the import tanks were full. That shifted some of the import material into other markets. That coupled with delays in purchasing whether that be prepay that comes in December, generally, or retail or wholesaler delays in purchasing during that period probably pushed a few producers to become more aggressive.

But again, last year, when you look at what happened on ammonia and UAN and for the spring of 2011, we had an exceptional fall, an exceptional spring on ammonia, and an exceptional summer, or spring to summer, application of UAN. We're anticipating similar movement this year, and that is the benefit of where we are at CF, with our interior tanks, and production, and our logistical capabilities, we believe we will be able to capture the market when it does come, and it has started to come. The urea prices, as you know, have moved in NOLA recently and that should, on an end basis, push UAN to a similar level.

Great. Thanks a lot. Look forward to it. I will pass it along.

Kevin McCarthy, Bank of America.

Yes, good morning. Steve, your release, you had indicated that ammonia volumes were pretty well depleted in January for yourselves, as well as, I think, some of your competitors. Can you talk about implications for volumes in the first quarter? Is it your sense that it is getting pulled forward from the second quarter into the first, as a result of the favorable weather?

Good morning, Kevin. Just I will make a general comment, and Bert will follow, if he has anything to add.

We are very pleased to have the ammonia run that we had this fall. It helped us display the strength of our system, which is a fully integrated system, from plant to basically to the truck heading off to the retailer or to the farm. And because of the length of the season, we were able to augment the volumes that were in our tanks before the season started and continued to run. And that is a credit to our supply chain people, and the coordination that exists from the plant to the supply chain, to the sales organization. Having said all of that, we have product to sell, and we will be ready to go for the spring.

Bert, if you want to add --

I think the only thing to add, what is not seen is our ability to transition between products in production, whether that be if ammonia is strong, we have the ability to go full ammonia, full UAN, or in Donaldsonville, Courtright and Medicine Hat, we have the ability, obviously, to produce urea. And so those plants that are dual or triple capability, we're moving between products as the market demands.

Okay. And then a couple of follow-ups, if I may, on natural gas. Steve, I would be interested to hear your thoughts on the outlook for gas costs over in the Ukraine at the high end of the cost curve in 2012. And then second, just as a clarification, am I correct in understanding you did not put in any additional hedges in the first quarter to date, such that you're still at a 65% hedge ratio as of today?

The answer to your last question is, we haven't had significant activity since the end of the year.

With respect to what is going on in the Ukraine, I guess my understanding is that there is no news out of the Ukraine since the rumors that came out a couple of months ago and caused a little bit of scare in the marketplace. If there was a gas deal on the horizon that was going to be put in place, it hasn't been announced. So as far as we know, those producers today are hanging in the range of $7.50 in MMBTU for the gas, and higher, in some cases.

Thank you very much.

Edlain Rodriguez, Lazard Capital Markets.

Thank you. Good morning.

Good morning, Edlain.

Just quickly, just to clarify, so now we have less forward sales, does that mean your realized prices will be much closer to spot going forward in 2012?

Well, for that portion of our business that is not already booked, we have the opportunity to capture prices at the spot level.

Okay. That's what I thought. And on natural gas, again at $2.50 right now, why not hedge more in terms of post-2012, let's say 2013 and so forth? What's keeping you from being more aggressive post-2012?

A flippant answer would be if we do that, we leave ourselves susceptible to being questioned about why we're not in the spot market when it is $1.50. (Laughter) But that is just a flippant answer. You know, we look at our gas positions on a regular basis. I would never say never. But there's a lot of gas out there. And there aren't signs of a deep freeze coming before the winter is over. So perhaps there is as much opportunity -- there is additional opportunity in front of us.

Okay. And just lastly, given everything you've seen in the market right now, and the expectation for the spring, how confident are you that prices will firm up as we get closer to the spring planting season?

Well, I don't want to make a call -- this is Bert -- on where prices will be, but you have seen from the lows of December, of $3.50 for urea, today we're at $4.30 for March and April, and expect further strength. UAN will follow behind, midwest ammonia has stayed strong, you can see that in green markets. And again, going back to demand, and the need for nitrogen, especially on the corn-on-corn acres, we believe that the farmers' incentive to apply the maximum or the ideal amount of nitrogen fertilizers will be met and we will have the inventory in place, and we do expect spot outages. As these delays have taken place, on the purchasing side, that limits the logistical capabilities of the overall market. And that's where, again, we believe our strengths lie, because of our depth strength and assets in place.

Okay. Thank you.

Mark Connelly, CLSA.

Good morning. This is Kurt Schoen in for Mark.

Good morning, Kurt.

With more DAP and MAP going to the export market over the past year, do you expect this trend to continue going forward? And secondly, where do you see the greatest phosphate growth opportunities internationally for CF?

Well, in terms of our mix of import and export, we don't have a target in mind. We look for the best net-backs we can get. I think our location in Florida, coupled with our relative size, gives us an opportunity to take advantage of pockets of demand where they develop. And in some cases, these are smaller pieces of demand than some other people are interested in taking. We're happy to take that business if it provides a good net back. But we don't have objectives here. We watch the markets daily. Our partners at KEYTRADE help us do that. And we look at our margins, not at where it goes.

With respect to future market development, Bert, you want to comment on that?

I think it goes back to your comment on KEYTRADE, and the partnership that we have there that is very strong, and the relationships that are in place around the world. We're on the phone or visiting the major markets on a regular basis, that being South America, specifically Brazil. We did move some tons into India. You saw that in the fourth quarter. And then other opportunities as they come up, whatever continent, wherever that may be. We do have, as mentioned earlier, the new product coming online in 2012, the sulfur MAP. We're excited about that, and have a high level of demand or anticipation for that product, when it is available.

Great. And with India's reduction of their subsidy, or their planned reduction, how do you view that affecting that market for DAP and MAP?

Well, it is interesting, because the statistics are out, and obviously we're watching India because it is such a big weight on the phosphate, the world phosphate market. And with the decrease, projecting a 20% decrease in DAP, but you have a consummate corresponding increase in the NPK, so the nutrients -- and I don't have that on an exact level -- were pulled. But we are watching the subsidy level, and if that can have an impact on demand, but the need there is stark. The need is for yields, and yields will only be achieved through NPK. And each of us in our respective areas, obviously we're focused a little more on nitrogen, but phosphate is important, and our colleagues that do phosphate and potash, we believe that India will have to, whether it is through subsidies or market-based mechanisms, have an increasing demand and requirement for nutrients.

Thank you very much.

Thank you.

Lindsay Drucker Mann, Goldman Sachs.

Good morning, everyone.

Good morning, Lindsay.

I just wanted to follow up on Vincent's question on your buyback capability. So is it fair to say that without changing the revolving credit line that you guys would be capped again at $1 billion dollars of repurchases again this year?

What I would say is that if you look at the -- we've replenished the basket, we have authorization to do $500 million, Lindsay, for the balance of the authorization period ended 2013. We are in a position where we, if we wanted to, or it made sense to do so, we're in a position to complete the authorization, if we have to, in 2012.

So I guess there are two pieces. It is whether or not you would put out another authorization to buy back more stock, and whether your revolving, whether the credit agreement would limit -- it doesn't necessarily matter what you authorize, if your credit agreement prevents you from actually pulling the trigger on those repurchases. So how do we think about -- the authorization part is straightforward. How do we think about how your credit agreement might cap you from further share repurchases this year, unless it is pre authorized -- or unless it is amended?

Lindsay, I'm going to reiterate Dennis's earlier comment and then add to it. As we go forward, assume that we continue to generate cash the way we have been generating cash and the way we expect to generate cash, we're going to be faced with this wonderful question again about what to do with the cash. And we will go through the same kind of process that we went through before, in terms of coming to conclusions about deployment of cash. And at those points, at that point or those points in time, when we want to take actions, we will do whatever is necessary in our own infrastructure to enable ourselves to do that.

Okay. Maybe moving on to market dynamics. So we have seen some nice pickup in urea and yet some continued stagnation at depressed levels for UAN. Can you help us understand what -- whether there is demand substitution and where it might be between urea and solution? And then also, how much swing production capability that you guys have, not between UAN and ammonia, but whether there is any between UAN and urea, and how much that exists in the broader industry?

Regarding product substitution, that is a constant question. And the farmer preference for what product he will apply on what crop. And there is obviously the four R's that we market and adhere to, which are pushed by the fertilizer institute. But in certain areas, and specific on the top dress of urea, which is where we saw movement during January and February, it was both. But it was definitely favored towards UAN. UAN is a great product. You can apply it with your chemicals. You have different variable rates. And so we're seeing growth in that, and you can see that in the statistics, with the growth in consumption of UAN along with the acreage growth. But that is more tied to corn, and corn being a heavy user of nitrogen.

We talk a lot about there in the industry, and we still see consistent ammonia consumption in a range, and urea and UAN, also. So I don't, although I don't see much again with your inner range of value of N, I don't see a lot of substitution taking place, and what we will see, what we anticipate seeing, is a recovery of UAN rather than trading at a discount to urea, it will trade at parity or even at an increase. Regarding the other issue of -- Tony, why don't you take the production?

Excuse me. Lindsay, on the production side, primarily at Donaldsonville, we've got flexibility to move back and forth between more granulation of urea and cutting back on UAN, and that is an analysis that we look at in terms of margin per unit of nitrogen, on an ongoing and continuous basis, that can dial up and dial back on the fly as we go. And we've been running max urea granulation for quite a while now, and you know, we will continue to do so.

As you think about the -- when you talk about the 93, 94 million acres of corn, and some places are even looking for 95, how do you think about the end -- what the end demand, demand for UAN solutions should be in the first half of the year, relative to the supply that we're already providing in the US, plus the new low cost -- the new imports from Trinidad that we're seeing having an impact on the market? I guess I'm just wondering, it seems like demand is going to be good but if supply is kind of crowding out the high cost producers why don't we have hope that UAN start to improve from depressed levels?

When you look at the world market on a capacity basis, strict capacity basis, UAN is adequately supplied. However, you do have to move that product on a timely basis, at the moment of consumption. And UAN is consumed in a narrow, a book ended, three-month range of time. And it is not that those capacities nor those quantities are available at all periods. And so yes, there has been a higher level of imports. And yes, the market has traded at a discount. But at let's say 13 million, 14 million tons of demand for UAN, over, again a 3 to 4 month period, we think we're in a very nice position to capture the demand as well as the price appreciation, and/or the price that is available in the market.

Michael Piken, Cleveland.

Hello. Good morning. Congratulations on a good quarter. Just wanted to delve into that phosphate business a little bit more. You indicated you might move up some of your downtime. And I just wanted to get a sense for how much production you're planning on cutting and if your expectation is that demand in the US for phosphate is going to be flat or down slightly this year.

Tony, you want to talk about our physical activities?

You bet. Michael, so we looked at the current market conditions and our upcoming maintenance requirements; and based on where margins are currently versus expectations about what may develop in the future, we decided to move some of our turn-around activities into Q1 that were originally planned for later in the year. And so this has the effect basically of moving production out of Q1 that we will realize then in the back half of the year. And the net result of that was that our reduction in Q1 production is roughly in line with what other North American producers have announced.

On a percentage basis, you mean?

Yes.

Okay. Great. And then in terms of kind of where you see the demand for phosphate, I mean in the US and globally in 2012, I mean do you see global phosphate demand being sort of flat with last year, or do you think it is going to be up slightly? Or what are sort of your expectations in the US and globally for phosphate demand?

I think -- this is Bert.

We're in an interesting time. Normally, the November through January period is slow. And per Tony's point, we anticipated that in the reflection of the market, did what we did. But we see a positive market going forward.

Some of the other destination markets on the international side were long or have been longer with inventories. That being Brazil; and then the India discussion of when they go to negotiation with the major suppliers, we will be watching that. But the US had a good fall application window, and I think there is adequate supply in the United States. But we're also seeing, as consummate with the other products, we're seeing a positive market for phosphates going forward, and anticipate a rebound in the international activity, probably later in the first but into the second quarter.

Okay. Great. And then last question, sort of is just in terms of your expectations for Chinese exports this year, for both urea and for phosphates. Thanks.

I think in general, we see continuation of essentially the same program as last year. I think our expectation is maybe a little less urea exported than last year. With respect to phosphates, Bert?

I would say the same. I would think the four-month window and the tax structure that is in place, that is obviously an evolving and changing dynamics of the market, but it has been very positive to the North American phosphate producers who participate in the international markets.

Charles Neivert, Dalman Rose.

Good morning, guys. Quick question. Maybe you can help me reconcile this. You said we had a pretty decent fall on nitrogen application, the major nutrients going down. We've had an extended winter, or lack of a winter, which has allowed more product to go down. And now -- but you are still telling me that come the spring, we're going to run into a problem because, or potentially a problem, because they're trying to squeeze a lot on late -- but we've laid down a lot already. Does that really negate that possibility, or at least reduce it substantially? I mean, I know there is still substantial product to go down, but we've already put down probably more than we usually do at this point in time. So do you think that squeeze that typically comes, or might come in the spring, can happen again?

We have to define what we're putting down. The spring season for wheat normally takes place in late January and into February. And so that might have been pulled forward a couple of weeks, but that is normal inactivity in the Oklahoma -- let's say in the Kansas, Oklahoma, Texas region. What we mentioned earlier regarding ammonia, and to the upper midwest, was abnormal in January. But when you consider that there are 4.6 to 5 million tons of direct application of ammonia applied per year, and in a narrow window of January, how much went down in those markets, more than normal. But still, we need a lot of nitrogen for the corn and other products. And I think as a person focused on agriculture, we're pleased with that, because that allows the producer farmers to anticipate and time their planting, which as you know in the last couple of years, has been extended due to weather delays. So this is probably ideal for the United States.

Yes, I guess the question is, looking forward, how much still has to go down? Is that pretty much within the realm of normalcy? Obviously, weather is always the issue when you go to put it down, but we're not looking for any excessively large amount that has to get placed down where we might run into a weather issue that might close that down a little bit. So we're in a normal range for delivery, and if the weather is even reasonably cooperative, we should be able to get that down. Is that a reasonable assessment?

They're adding 3 million more acres, conservatively, and you're adding acres in, I would consider, marginal areas that are going to need nitrogen. And so you have to add in the caveats and the additional points that still, a lot of product needs to go down. So I'm not -- I don't have an exact number for you. And when we report our Q1, you will see the ammonia movement. But it is still very positive.

That's agreed. We are going to have a big year. Just a matter if there is enough of a squeeze to create the pop in pricing that might be in the market expectation currently. Okay. Thanks very much.

Thank you, Charlie.

At this time, I would like to turn the call back over to Mr. Terry Huch for closing remarks. Please proceed, sir.

We would like to thank everyone who participated in the call today; and if you need more information about our results, I would invite you to contact me. Thank you.

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