What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-05-07 · 259 added, 108 removed, 467 unchanged (44% of the section changed)

2 unchanged sentences

Three months ended

June 30, Six months ended

2020 2019 2020 2019

(in millions, except per share amounts)

Net sales $ 1,204 $ 1,502 $ 2,175 $ 2,503

Cost of sales 870 1,003 1,637 1,784

Gross margin 334 499 538 719

Selling, general and administrative expenses 51 62 105 120

7 unchanged sentences

Earnings before income taxes 251 422 355 532

Income tax provision (benefit)

Income tax provision 33 102 46 94

Net earnings 218 320 309 438

Net earnings attributable to noncontrolling interest 28 37 51 65

1 unchanged sentence

Net earnings per share attributable to common stockholders:

Basic $ 0.89 $ 1.28 $ 1.20 $ 1.68

Diluted $ 0.89 $ 1.28 $ 1.20 $ 1.67

Weighted-average common shares outstanding:

Basic 214.5 221.1 215.2 222.2

Diluted 214.6 222.3 215.6 223.4

Dividends declared per common share $ 0.30 $ 0.30 $ 0.60 $ 0.60

1 unchanged sentence

CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended

June 30, Six months ended

2020 2019 2020 2019

(in millions)

Other comprehensive (loss) income:

Net earnings $ 218 $ 320 $ 309 $ 438

Other comprehensive income (loss):

Foreign currency translation adjustment—net of taxes 12 ( 8 ) ( 71 ) 24

Defined benefit plans—net of taxes 2 5 11 3

14 ( 3 ) ( 60 ) 27

Comprehensive income 232 317 249 465

Comprehensive income attributable to noncontrolling interest 28 37 51 65

Comprehensive (loss) income attributable to common stockholders

Comprehensive income attributable to common stockholders $ 204 $ 280 $ 198 $ 400

See accompanying Notes to Unaudited Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

2020 December 31, 2019

(in millions, except share

3 unchanged sentences

Accounts receivable—net 250 242

Inventories 273 351

Prepaid income taxes 20 71

3 unchanged sentences

Investment in affiliate 94 88

Goodwill 2,346 2,365

Operating lease right-of-use assets 279 280

Other assets 304 295

Total assets $ 11,950 $ 12,172

Liabilities and Equity

Current liabilities:

Short-term debt

Accounts payable and accrued expenses 389 437

13 unchanged sentences

Retained earnings 1,997 1,958

Treasury stock—at cost, 2020—2,813,869 shares and 2019—0 shares

Accumulated other comprehensive loss ( 426 ) ( 366 )

1 unchanged sentence

Noncontrolling interest 2,703 2,740

Total equity 5,576 5,637

Total liabilities and equity $ 11,950 $ 12,172

3 unchanged sentences

Common Stockholders

Stock Treasury

Stock Paid-In

Capital Retained

Earnings Accumulated

Comprehensive

Stockholders’ Equity

Noncontrolling

Stockholders’ Equity Noncontrolling

Interest Total

(in millions, except per share amounts)

Balance as of March 31, 2020 $ 2 $ ( 108 ) $ 1,313 $ 1,961 $ ( 440 ) $ 2,728 $ 2,675 $ 5,403

Net earnings — — — 190 — 190 28 218

Other comprehensive income — — — — 14 14 — 14

Retirement of treasury stock — 107 ( 17 ) ( 90 ) — — — —

Acquisition of treasury stock under employee stock plans — ( 1 ) — — — ( 1 ) — ( 1 )

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

— 2 ( 2 ) — — — — —

Stock-based compensation expense — — 6 — — 6 — 6

Cash dividends ($ 0.30 per share)

— — — ( 64 ) — ( 64 ) — ( 64 )

Balance as of June 30, 2020 $ 2 $ — $ 1,300 $ 1,997 $ ( 426 ) $ 2,873 $ 2,703 $ 5,576

Balance as of December 31, 2019 $ 2 $ — $ 1,303 $ 1,958 $ ( 366 ) $ 2,897 $ 2,740 $ 5,637

Net earnings — — — 258 — 258 51 309

Other comprehensive loss — — — — ( 60 ) ( 60 ) — ( 60 )

Purchases of treasury stock — ( 100 ) — — — ( 100 ) — ( 100 )

Retirement of treasury stock — 107 ( 17 ) ( 90 ) — — — —

Acquisition of treasury stock under employee stock plans — ( 9 ) — — — ( 9 ) — ( 9 )

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

— 2 1 — — 3 — 3

Stock-based compensation expense — — 13 — — 13 — 13

Cash dividends ($ 0.60 per share)

— — — ( 129 ) — ( 129 ) — ( 129 )

Distribution declared to noncontrolling interest — — — — — — ( 88 ) ( 88 )

Balance as of June 30, 2020 $ 2 $ — $ 1,300 $ 1,997 $ ( 426 ) $ 2,873 $ 2,703 $ 5,576

CONSOLIDATED STATEMENTS OF EQUITY

(Continued) (Unaudited)

Common Stockholders

Stock Treasury

Stock Paid-In

Capital Retained

Earnings Accumulated

Comprehensive

Stockholders’ Equity Noncontrolling

Interest Total

(in millions, except per share amounts)

Balance as of March 31, 2019 $ 2 $ ( 64 ) $ 1,311 $ 2,047 $ ( 341 ) $ 2,955 $ 2,715 $ 5,670

Net earnings — — — 283 — 283 37 320

Other comprehensive loss — — — — ( 3 ) ( 3 ) — ( 3 )

Purchases of treasury stock — ( 118 ) — — — ( 118 ) — ( 118 )

Retirement of treasury stock — 178 ( 25 ) ( 153 ) — — — —

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

— 2 2 — — 4 — 4

Stock-based compensation expense — — 11 — — 11 — 11

Cash dividends ($ 0.30 per share)

— — — ( 66 ) — ( 66 ) — ( 66 )

Balance as of June 30, 2019 $ 2 $ ( 2 ) $ 1,299 $ 2,111 $ ( 344 ) $ 3,066 $ 2,752 $ 5,818

Balance as of December 31, 2018 $ 2 $ ( 504 ) $ 1,368 $ 2,463 $ ( 371 ) $ 2,958 $ 2,773 $ 5,731

Net earnings — — — 373 — 373 65 438

Other comprehensive income — — — — 27 27 — 27

3 unchanged sentences

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

— 2 4 — — 6 — 6

Stock-based compensation expense — — 17 — — 17 — 17

Cash dividends ($ 0.60 per share)

— — — ( 133 ) — ( 133 ) — ( 133 )

Distribution declared to noncontrolling interest — — — — — — ( 86 ) ( 86 )

Balance as of March 31, 2019

Balance as of June 30, 2019 $ 2 $ ( 2 ) $ 1,299 $ 2,111 $ ( 344 ) $ 3,066 $ 2,752 $ 5,818

See accompanying Notes to Unaudited Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended

Six months ended

(in millions)

Operating Activities:

Net earnings $ 309 $ 438

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

3 unchanged sentences

Unrealized net (gain) loss on natural gas derivatives ( 12 ) 1

Unrealized (gain) loss on embedded derivative

Loss on disposal of property, plant and equipment

Unrealized loss on embedded derivative 1 2

Loss (gain) on disposal of property, plant and equipment 9 ( 45 )

Undistributed earnings of affiliate—net of taxes ( 8 ) ( 10 )

Accounts receivable—net ( 11 ) ( 78 )

Inventories 51 21

Accrued and prepaid income taxes 190 35

1 unchanged sentence

Customer advances ( 110 ) ( 128 )

Other—net ( 25 ) 9

Net cash provided by operating activities 718 693

6 unchanged sentences

Proceeds from short-term borrowings 500 —

Repayments of short-term borrowings ( 500 ) —

Dividends paid on common stock ( 129 ) ( 133 )

3 unchanged sentences

Shares withheld for taxes ( 9 ) ( 4 )

Net cash provided by (used in) financing activities

Net cash used in financing activities ( 323 ) ( 426 )

Effect of exchange rate changes on cash and cash equivalents ( 2 ) —

Increase (decrease) in cash and cash equivalents

Increase in cash and cash equivalents 276 176

Cash and cash equivalents at beginning of period 287 682

6 unchanged sentences

We operate manufacturing complexes in the United States, Canada and the United Kingdom, which are among the most cost-advantaged, efficient and flexible in the world, and an extensive storage, transportation and distribution network in North America.

Our 3,000 employees focus on safe and reliable operations, environmental stewardship and disciplined capital and corporate management, driving our strategy to leverage and sustainably grow the world’s most advantaged nitrogen and chemicals platform to serve customers and create long-term shareholder value.

Our 3,000 employees focus on safe and reliable operations, environmental stewardship and disciplined capital and corporate management, driving our strategy to leverage and sustainably grow our nitrogen and chemicals platform to serve customers and create long-term shareholder value.

Our principal customers are cooperatives, independent fertilizer distributors, traders, wholesalers and industrial users.

12 unchanged sentences

Operating results for any period presented apply to that period only and are not necessarily indicative of results for any future period.

The accompanying unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related disclosures included in our 2019 Annual Report on Form 10-K filed with the SEC on February 24, 2020 .

The accompanying unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related disclosures included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 24, 2020.

The preparation of the unaudited interim consolidated financial statements requires us to make use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the unaudited consolidated financial statements and the reported revenues and expenses for the periods presented.

12 unchanged sentences

In December 2019, the Financial Accounting Standards Board (FASB) issued ASU No.

Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes.

2019-12—Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This ASU adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codification.

5 unchanged sentences

See Note 16—Segment Disclosures for our revenue by reportable segment, which are ammonia, granular urea, UAN, AN and Other.

The following table summarizes our revenue by product and by geography (based on destination of our shipment) for the three months ended March 31, 2020 and 2019 :

The following table summarizes our revenue by product and by geography (based on destination of our shipment) for the three and six months ended June 30, 2020 and 2019:

Ammonia Granular Urea UAN AN Other Total

(in millions)

Three months ended March 31, 2020

Three months ended June 30, 2020

North America $ 344 $ 312 $ 288 $ 51 $ 56 $ 1,051

1 unchanged sentence

Total revenue $ 364 $ 329 $ 308 $ 118 $ 85 $ 1,204

Three months ended March 31, 2019

Three months ended June 30, 2019

North America $ 443 $ 413 $ 346 $ 54 $ 68 $ 1,324

1 unchanged sentence

Total revenue $ 473 $ 433 $ 369 $ 126 $ 101 $ 1,502

As of March 31, 2020 and December 31, 2019 , we had $ 239 million and $ 119 million , respectively, in customer advances on our consolidated balance sheets.

The revenue recognized during the three months ended March 31, 2020 and 2019 that was included in our customer advances at the beginning of each respective period amounted to approximately $ 75 million and $ 85 million , respectively.

Ammonia Granular

Urea UAN AN Other Total

(in millions)

Six months ended June 30, 2020

North America $ 498 $ 643 $ 518 $ 97 $ 115 $ 1,871

Europe and other 59 23 25 137 60 304

Total revenue $ 557 $ 666 $ 543 $ 234 $ 175 $ 2,175

Six months ended June 30, 2019

North America $ 603 $ 748 $ 588 $ 100 $ 127 $ 2,166

Europe and other 57 28 37 153 62 337

Total revenue $ 660 $ 776 $ 625 $ 253 $ 189 $ 2,503

As of June 30, 2020 and December 31, 2019, we had $ 8 million and $ 119 million, respectively, in customer advances on our consolidated balance sheets.

During the six months ended June 30, 2020 and 2019, substantially all of the customer advances on our consolidated balance sheet at the beginning of each respective period were recognized as revenue.

CF INDUSTRIES HOLDINGS, INC.

We offer cash incentives to certain customers that do not provide an option to the customer for additional product.

The balances of customer incentives accrued at March 31, 2020 and December 31, 2019 were not material.

The balances of customer incentives accrued at June 30, 2020 and December 31, 2019 were not material.

We have certain customer contracts with performance obligations where if the customer does not take the required amount of product specified in the contract, then the customer is required to make a payment to us, which may vary based upon the terms and conditions of the applicable contract.

As of March 31, 2020 , excluding contracts with original durations of less than one year, and based on the minimum product tonnage to be sold and current market price estimates, our remaining performance obligations under these contracts are approximately $ 1.0 billion .

As of June 30, 2020, excluding contracts with original durations of less than one year, and based on the minimum product tonnage to be sold and current market price estimates, our remaining performance obligations under these contracts are approximately $ 980 million.

We expect to recognize approximately 19 % of these performance obligations as revenue in the remainder of 2020, approximately 46 % as revenue during 2021 and 2022, and approximately 35 % as revenue during 2023 and 2024.

Subject to the terms and conditions of the applicable contracts, if these customers do not satisfy their purchase obligations under such contracts, the minimum amount that they would be required to pay to us under these contracts, in the aggregate, is approximately $ 258 million as of March 31, 2020 .

We monitor the ability of our customers to meet their purchase obligations, which could be impacted by the ongoing COVID-19 pandemic.

Other than the performance obligations described above, any performance obligations with our customers that were unfulfilled or partially filled at December 31, 2019 will be satisfied in 2020.

CF INDUSTRIES HOLDINGS, INC.

Net Earnings Per Share

1 unchanged sentence

Three months ended

June 30, Six months ended

2020 2019 2020 2019

(in millions, except per share amounts)

10 unchanged sentences

In the computation of diluted earnings per common share, potentially dilutive stock-based awards are excluded if the effect of their inclusion is anti-dilutive.

Shares for anti-dilutive stock-based awards not included in the computation of diluted earnings per common share were 2.1 million and 1.5 million for the three months ended March 31, 2020 and 2019 , respectively.

Shares for anti-dilutive stock-based awards not included in the computation of diluted earnings per common share were 4.7 million and 3.4 million in the three and six months ended June 30, 2020, respectively, and 1.5 million in each of the three and six months ended June 30, 2019.

Inventories consist of the following:

2020 December 31, 2019

(in millions)

5 unchanged sentences

Property, plant and equipment—net consists of the following:

2020 December 31, 2019

(in millions)

Land $ 70 $ 71

Machinery and equipment 12,322 12,338

2 unchanged sentences

Property, plant and equipment (1)

13,521 13,535

Accumulated depreciation and amortization 5,730 5,365

1 unchanged sentence

_______________________________________________________________________________

As of March 31, 2020 and December 31, 2019 , we had property, plant and equipment that was accrued but unpaid of approximately $ 36 million and $ 42 million , respectively.

As of March 31, 2019 and December 31, 2018 , we had property, plant and equipment that was accrued but unpaid of $ 26 million and $ 48 million , respectively.

Depreciation and amortization related to property, plant and equipment was $ 208 million and $ 183 million for the three months ended March 31, 2020 and 2019 , respectively.

(1) As of both June 30, 2020 and December 31, 2019, we had property, plant and equipment that was accrued but unpaid of approximately $ 42 million.

As of June 30, 2019 and December 31, 2018, we had property, plant and equipment that was accrued but unpaid of $ 43 million and $ 48 million, respectively.

Depreciation and amortization related to property, plant and equipment was $ 235 million and $ 443 million for the three and six months ended June 30, 2020, respectively, and $ 247 million and $ 430 million for the three and six months ended June 30, 2019, respectively.

During the first quarter of 2019, we entered into an agreement to sell our Pine Bend dry bulk storage and logistics facility in Minnesota.

In April 2019, we completed the sale, received proceeds of $ 55 million and recognized a pre-tax gain of $ 45 million.

The gain is reflected in other operating—net in our consolidated statement of operations for the three and six months ended June 30, 2019.

Plant turnarounds —Scheduled inspections, replacements and overhauls of plant machinery and equipment at our continuous process manufacturing facilities during a full plant shutdown are referred to as plant turnarounds.

1 unchanged sentence

The following is a summary of capitalized plant turnaround costs:

Three months ended

Six months ended

(in millions)

1 unchanged sentence

Beginning balance $ 246 $ 252

Additions 14 22

Depreciation ( 52 ) ( 57 )

Effect of exchange rate changes ( 4 ) 2

5 unchanged sentences

Goodwill and Other Intangible Assets

The following table shows the carrying amount of goodwill by reportable segment as of March 31, 2020 and December 31, 2019 :

Granular Urea

The following table shows the carrying amount of goodwill by reportable segment as of June 30, 2020 and December 31, 2019:

Ammonia Granular Urea UAN AN Other Total

(in millions)

1 unchanged sentence

Effect of exchange rate changes ( 1 ) ( 1 ) — ( 15 ) ( 2 ) ( 19 )

Balance as of March 31, 2020

Balance as of June 30, 2020 $ 586 $ 827 $ 576 $ 287 $ 70 $ 2,346

All of our identifiable intangible assets have definite lives and are presented in other assets on our consolidated balance sheets at gross carrying amount, net of accumulated amortization, as follows:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Amount Accumulated

Amortization Net Gross

Amount Accumulated

Amortization Net

(in millions)

Customer relationships $ 125 $ ( 47 ) $ 78 $ 131 $ ( 45 ) $ 86

Trade names 30 ( 7 ) 23 31 ( 7 ) 24

Total intangible assets $ 155 $ ( 54 ) $ 101 $ 162 $ ( 52 ) $ 110

Our intangible assets are being amortized over a weighted-average life of approximately 20 years.

Amortization expense of our identifiable intangible assets for each of the three-month periods ended March 31, 2020 and 2019 was $ 2 million .

Amortization expense of our identifiable intangible assets was $ 2 million and $ 4 million for the three and six months ended June 30, 2020, respectively, and $ 2 million and $ 4 million for the three and six months ended June 30, 2019, respectively.

The gross carrying amount and accumulated amortization of our intangible assets are also impacted by the effect of exchange rate changes.

5 unchanged sentences

We include our share of the net earnings from this equity method investment as an element of earnings from operations because PLNL provides additional production to our operations and is integrated with our other supply chain and sales activities in the ammonia segment.

As of March 31, 2020 , the total carrying value of our equity method investment in PLNL was $ 91 million , $ 45 million more than our share of PLNL’s book value.

As of June 30, 2020, the total carrying value of our equity method investment in PLNL was $ 94 million, $ 44 million more than our share of PLNL’s book value.

The excess is attributable to the purchase accounting impact of our acquisition of the investment in PLNL and reflects the revaluation of property, plant and equipment.

2 unchanged sentences

We have transactions in the normal course of business with PLNL reflecting our obligation to purchase 50 % of the ammonia produced by PLNL at current market prices.

Our ammonia purchases from PLNL totaled $ 10 million and $ 22 million for the three months ended March 31, 2020 and 2019 , respectively.

Our ammonia purchases from PLNL totaled $ 13 million and $ 23 million for the three and six months ended June 30, 2020, respectively, and $ 12 million and $ 34 million for the three and six months ended June 30, 2019, respectively.

CF INDUSTRIES HOLDINGS, INC.

1 unchanged sentence

Our cash and cash equivalents and other investments consist of the following:

March 31, 2020

June 30, 2020

Cost Basis Unrealized

Gains Unrealized

Losses Fair Value

(in millions)

Cash $ 79 $ — $ — $ 79

Cash equivalents:

4 unchanged sentences

December 31, 2019

Cost Basis Unrealized

Gains Unrealized

Losses Fair Value

(in millions)

Cash $ 59 $ — $ — $ 59

Cash equivalents:

9 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present assets and liabilities included in our consolidated balance sheets as of March 31, 2020 and December 31, 2019 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:

March 31, 2020

Quoted Prices

The following tables present assets and liabilities included in our consolidated balance sheets as of June 30, 2020 and December 31, 2019 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:

June 30, 2020

Value Quoted Prices

(Level 1) Significant

(Level 2) Significant

(in millions)

4 unchanged sentences

December 31, 2019

Quoted Prices

Value Quoted Prices

(Level 1) Significant

(Level 2) Significant

(in millions)

4 unchanged sentences

Cash Equivalents

As of March 31, 2020 and December 31, 2019 , our cash equivalents consisted primarily of U.S.

As of June 30, 2020 and December 31, 2019, our cash equivalents consisted primarily of U.S.

and Canadian government obligations and money market mutual funds that invest in U.S.

16 unchanged sentences

This obligation is recognized on our consolidated balance sheets as an embedded derivative.

As of March 31, 2020 and December 31, 2019 , the embedded derivative liability of $ 19 million and $ 20 million , respectively, is included in other current liabilities and other liabilities on our consolidated balance sheets.

Included in other operating—net in our consolidated statements of operations for the three months ended March 31, 2020 and 2019 is a net (gain) loss of $( 1 ) million and $ 1 million , respectively.

As of June 30, 2020 and December 31, 2019, the embedded derivative liability of $ 21 million and $ 20 million, respectively, is included in other current liabilities and other liabilities on our consolidated balance sheets.

Included in other operating—net in our consolidated statements of operations for the six months ended June 30, 2020 and 2019 is a net loss of $ 1 million and $ 2 million, respectively.

The inputs into the fair value measurement include the probability of future upgrades and downgrades of our credit rating based on historical credit rating movements of other public companies and the discount rates to be applied to potential annual payments based on applicable credit spreads of other public companies at different credit rating levels.

4 unchanged sentences

The carrying amount and estimated fair value of our financial instruments are as follows:

March 31, 2020

December 31, 2019

June 30, 2020 December 31, 2019

Amount Fair Value Carrying

Amount Fair Value

(in millions)

8 unchanged sentences

Since certain of the Company’s assumptions would involve inputs that are not observable, these fair values would reside within Level 3 of the fair value hierarchy.

For the three months ended March 31, 2020 , we recorded an income tax provision of $ 13 million on pre-tax income of $ 104 million , or an effective tax rate of 12.3 % , compared to an income tax benefit of $ 8 million on pre-tax income of $ 110 million , or an effective tax rate of ( 7.3 )% , for the three months ended March 31, 2019 .

For the three months ended March 31, 2020, our income tax provision includes a $ 6 million benefit related to the settlement of certain U.S.

and foreign income tax audits.

For the three months ended March 31, 2019 , our income tax benefit included an incentive tax credit from the State of Louisiana of $ 30 million , net of federal income tax, related to certain capital projects at our Donaldsonville, Louisiana complex.

For the three months ended June 30, 2020, we recorded an income tax provision of $ 33 million on pre-tax income of $ 251 million, or an effective tax rate of 13.4 %, compared to an income tax provision of $ 102 million on pre-tax income of $ 422 million, or an effective tax rate of 24.2 %, for the three months ended June 30, 2019.

For the three months ended June 30, 2020, our income tax provision includes a $ 19 million benefit related to the settlement of the audit of the Terra amended tax returns, which is further described below.

For the six months ended June 30, 2020, we recorded an income tax provision of $ 46 million on pre-tax income of $ 355 million, or an effective tax rate of 13.1 %, compared to an income tax provision of $ 94 million on pre-tax income of $ 532 million, or an effective tax rate of 17.7 %, for the six months ended June 30, 2019.

For the six months ended June 30, 2020, our income tax provision includes a $ 25 million benefit related to the settlement of certain U.S.

and foreign income tax audits, which primarily related to the settlement of the audit of the Terra amended tax returns, which is further described below.

For the six months ended June 30, 2019, our income tax provision included an incentive tax credit from the State of Louisiana of $ 30 million, net of federal income tax, related to certain capital projects at our Donaldsonville, Louisiana complex.

Our effective tax rate is also impacted by earnings attributable to the noncontrolling interest in CF Industries Nitrogen, LLC (CFN), as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interest.

Our effective tax rate for the three months ended March 31, 2020 of 12.3 % , which is based on pre-tax income of $ 104 million , would be 15.8 % exclusive of the earnings attributable to the noncontrolling interest of $ 23 million .

Our effective tax rate for the three months ended March 31, 2019 of ( 7.3 )% , which is based on pre-tax income of $ 110 million , would be 27.4 % exclusive of the earnings attributable to the noncontrolling interest of $ 28 million and the incentive tax credit of $ 30 million .

Our effective tax rate for the three months ended June 30, 2020 of 13.4 %, which is based on pre-tax income of $ 251 million, including $ 28 million attributable to the noncontrolling interest, would be 1.6 percentage points higher if based on pre-tax income exclusive of the $ 28 million attributable to the noncontrolling interest.

Our effective tax rate for the three months ended June 30, 2019 of 24.2 %, which is based on pre-tax income of $ 422 million, including $ 37 million attributable to the noncontrolling interest, would be 2.3 percentage points higher if based on pre-tax income exclusive of the $ 37 million attributable to the noncontrolling interest.

Our effective tax rate for the six months ended June 30, 2020 of 13.1 %, which is based on pre-tax income of $ 355 million, including $ 51 million attributable to the noncontrolling interest, would be 2.1 percentage points higher if based on pre-tax income exclusive of the $ 51 million attributable to the noncontrolling interest.

Our effective tax rate for the six months ended June 30, 2019 of 17.7 %, which is based on pre-tax income of $ 532 million,

CF INDUSTRIES HOLDINGS, INC.

including $ 65 million attributable to the noncontrolling interest, would be 2.4 percentage points higher if based on pre-tax income exclusive of the $ 65 million attributable to the noncontrolling interest.

See Note 13—Noncontrolling Interest for additional information.

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The Company continues to monitor and assess the impact of the CARES Act and other related governmental actions in response to the coronavirus impacts as more information becomes available.

CF INDUSTRIES HOLDINGS, INC.

Terra Amended Tax Returns

The Company completed the acquisition of Terra Industries Inc.

We completed the acquisition of Terra Industries Inc.

(Terra) in April 2010.

After the acquisition, the Company determined that the manner in which Terra reported the repatriation of cash from foreign affiliates to its U.S.

After the acquisition, we determined that the manner in which Terra reported the repatriation of cash from foreign affiliates to its U.S.

parent for U.S.

and foreign income tax purposes was not appropriate.

As a result, in 2012 the Company amended certain tax returns, including Terra’s income and withholding tax returns, back to 1999 (the Amended Tax Returns) to correct these tax returns and paid additional income and withholding taxes, and related interest and penalties.

As a result, in 2012 we amended certain tax returns, including Terra’s income and withholding tax returns, back to 1999 (the Amended Tax Returns) and paid additional income and withholding taxes, and related interest and penalties.

In early 2013, the Internal Revenue Service (IRS) commenced an examination of the U.S.

4 unchanged sentences

(i) an income tax related matter and (ii) a withholding tax matter.

In December 2019, we received notification that the Joint Committee had approved the IRS audit reports relating to the income tax related matter.

As a result, we expected to receive cash refunds in 2020.

In addition, as a result of this settlement and the finalization of carryover impacts of this audit settlement on future tax periods, we reduced our liability for unrecognized tax benefits by $ 19 million and recorded a corresponding deferred income tax liability in the first quarter of 2020.

In the second quarter of 2020, we received approximately $ 61 million of income tax refunds and approximately $ 7 million of interest related to the settlement of the income tax related matter of the Amended Tax Returns, as described above.

In the second quarter of 2020, we also received notification that the Joint Committee approved the IRS audit report relating to the withholding tax matter.

As a result, we expect to receive a tax refund of approximately $ 29 million , excluding related interest, in 2020.

In addition, in the second quarter of 2020, we expect to record a reduction in our liabilities for unrecognized tax benefits of $ 12 million , with a corresponding reduction in income tax expense.

In December 2019, we received notification that the Joint Committee had approved the IRS audit reports and related income tax refunds relating to the income tax related matter.

Therefore, we expected to receive cash refunds in 2020.

In addition, as a result of this settlement and the finalization of carryover impacts of this audit settlement on other tax periods, we reduced our liability for unrecognized tax benefits by $ 19 million and recorded a corresponding deferred income tax liability in the first quarter of 2020.

In the second quarter of 2020, we received notification that the Joint Committee approved the IRS audit report and related withholding tax refunds relating to the withholding tax matter and we received IRS Notices indicating the amount of tax and interest to be refunded and received with respect to the withholding tax matter and the income tax matter.

As a result of these events, in the second quarter of 2020, we recognized $ 16 million of interest income and $ 16 million of income tax benefit, which consisted of the following:

• additional interest income of $ 16 million ($ 13 million, net of tax) related to both the income tax matter and the withholding tax matter,

• a reduction in our liabilities for unrecognized tax benefits of $ 12 million with a corresponding reduction in income tax expense related to the withholding tax matter, and

• an additional income tax benefit of $ 7 million related to the income tax matter.

We received income tax refunds, including interest, of $ 108 million relating to these matters in the second quarter of 2020, consisting of $ 68 million related to the income tax matter and $ 40 million related to the withholding tax matter.

In July 2020, we received an additional $ 2 million related to the withholding tax matter, which finalizes these matters with the IRS.

As a result of the finalization of the income tax matter and the withholding tax matter, all U.S.

federal tax years commencing before January 1, 2012 are now closed.

CF INDUSTRIES HOLDINGS, INC.

Interest Expense

1 unchanged sentence

Three months ended

June 30, Six months ended

2020 2019 2020 2019

(in millions)

Interest on borrowings (1)

$ 47 $ 57 $ 93 $ 114

Fees on financing agreements (1)

Interest on tax liabilities (2)

Interest capitalized — ( 1 ) — ( 1 )

Total interest expense $ 49 $ 59 $ 93 $ 119

1 unchanged sentence

(1) See Note 12—Financing Agreements for additional information.

Interest on tax liabilities for the three months ended March 31, 2020 consists of a reduction in interest accrued on the reserve for unrecognized tax benefits.

CF INDUSTRIES HOLDINGS, INC.

(2) Interest on tax liabilities for the six months ended June 30, 2020 consists of a reduction in interest accrued on the reserve for unrecognized tax benefits.

Financing Agreements

8 unchanged sentences

The guarantors under the Revolving Credit Agreement are currently comprised of CF Holdings and CF Holdings’ wholly owned subsidiaries CF Industries Enterprises, LLC (CFE), CF Industries Sales, LLC (CFS), CF USA Holdings, LLC (CF USA) and CF Industries Distribution Facilities, LLC (CFIDF).

In March 2020, we borrowed $ 500 million under the Revolving Credit Agreement to ensure we maintained ample financial flexibility in light of the uncertainty in the global markets caused by the COVID-19 pandemic.

As of March 31, 2020 , we had unused borrowing capacity under the Revolving Credit Agreement of $ 250 million , as there were outstanding borrowings of $ 500 million and no outstanding letters of credit under our $ 750 million revolving credit facility.

As of June 30, 2020, we had unused borrowing capacity under the Revolving Credit Agreement of $ 750 million and no outstanding letters of credit.

There were no borrowings outstanding under the Revolving Credit Agreement as of December 31, 2019.

Maximum borrowings under the Revolving Credit Agreement during the three months ended March 31, 2020 were $ 500 million .

The weighted-average annual interest rate of borrowings under the Revolving Credit Agreement during the three months ended March 31, 2020 was 2.05 % .

There were no borrowings under the Prior Credit Agreement during the three months ended March 31, 2019 .

In April 2020, we repaid the $ 500 million of borrowings that were outstanding under the Revolving Credit Agreement as of March 31, 2020, which returned our unused borrowing capacity under the Revolving Credit Agreement to $ 750 million .

See Note 17—Subsequent Events for additional information.

Maximum borrowings under the Revolving Credit Agreement during the six months ended June 30, 2020 were $ 500 million.

The weighted-average annual interest rate of borrowings under the Revolving Credit Agreement during the six months ended June 30, 2020 was 2.05 %.

There were no borrowings under the Prior Credit Agreement during the six months ended June 30, 2019.

The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants, including financial covenants.

As of March 31, 2020 , we were in compliance with all covenants under the Revolving Credit Agreement.

As of June 30, 2020, we were in compliance with all covenants under the Revolving Credit Agreement.

Letters of Credit

In addition to the letter of credit capacity under the Revolving Credit Agreement, as described above, we have also entered into a bilateral agreement providing for up to $ 145 million of letters of credit.

As of March 31, 2020 , approximately $ 124 million of letters of credit were outstanding under this agreement.

As of June 30, 2020, approximately $ 126 million of letters of credit were outstanding under this agreement.

CF INDUSTRIES HOLDINGS, INC.

Long-term debt presented on our consolidated balance sheets as of March 31, 2020 and December 31, 2019 consisted of the following debt securities issued by CF Industries:

Effective Interest Rate

March 31, 2020

December 31, 2019

Carrying Amount (1)

Long-term debt presented on our consolidated balance sheets as of June 30, 2020 and December 31, 2019 consisted of the following debt securities issued by CF Industries:

Effective Interest Rate June 30, 2020 December 31, 2019

Principal Carrying Amount (1)

(in millions)

1 unchanged sentence

3.450 % due June 2023

3.562 % $ 750 $ 748 $ 750 $ 747

5.150 % due March 2034

5.279 % 750 740 750 740

4.950 % due June 2043

5.031 % 750 742 750 742

5.375 % due March 2044

5.465 % 750 741 750 741

Senior Secured Notes:

3.400 % due December 2021

3.782 % 250 249 250 248

4.500 % due December 2026

4.759 % 750 739 750 739

Total long-term debt $ 4,000 $ 3,959 $ 4,000 $ 3,957

1 unchanged sentence

(1) Carrying amount is net of unamortized debt discount and deferred debt issuance costs.

Total unamortized debt discount was $ 10 million as of both March 31, 2020 and December 31, 2019 , and total deferred debt issuance costs were $ 32 million and $ 33 million as of March 31, 2020 and December 31, 2019 , respectively.

Total unamortized debt discount was $ 9 million and $ 10 million as of June 30, 2020 and December 31, 2019, respectively, and total deferred debt issuance costs were $ 32 million and $ 33 million as of June 30, 2020 and December 31, 2019, respectively.

Under the indentures (including the applicable supplemental indentures) governing the senior notes due 2023, 2034, 2043 and 2044 identified in the table above (the Public Senior Notes), each series of Public Senior Notes is guaranteed by CF Holdings.

Under the indentures governing the 3.400 % senior secured notes due December 2021 (the 2021 Notes) and the 4.500 % senior secured notes due December 2026 (the 2026 Notes) identified in the table above (together, the Senior Secured Notes), each series of Senior Secured Notes is guaranteed on a senior secured basis, jointly and severally, by CF Holdings and each current and future domestic subsidiary of CF Holdings (other than CF Industries) that from time to time is a borrower, or guarantees indebtedness, under the Revolving Credit Agreement.

Under the terms of the applicable indenture, the 3.400 % senior secured notes due December 2021 (the 2021 Notes) and the 4.500 % senior secured notes due December 2026 (the 2026 Notes) identified in the table above (together, the Senior Secured Notes) are guaranteed on a senior secured basis, jointly and severally, by CF Holdings and each current and future domestic subsidiary of CF Holdings (other than CF Industries) that from time to time is a borrower, or guarantees indebtedness, under the Revolving Credit Agreement.

The subsidiary guarantors of the Senior Secured Notes currently consist of CFE, CFS, CF USA and CFIDF.

15 unchanged sentences

Declaration of distributions payable ( 88 ) ( 86 )

Balance as of March 31

Balance as of June 30 $ 2,703 $ 2,752

Distributions payable to noncontrolling interest:

2 unchanged sentences

Distributions to noncontrolling interest ( 88 ) ( 86 )

Balance as of March 31

Balance as of June 30 $ — $ —

CHS also receives deliveries pursuant to a supply agreement under which CHS has the right to purchase annually from CFN up to approximately 1.1 million tons of granular urea and 580,000 tons of UAN at market prices.

4 unchanged sentences

See Note 9—Fair Value Measurements for additional information.

On July 31, 2020, the CFN Board of Managers approved semi-annual distribution payments for the distribution period ended June 30, 2020 in accordance with CFN’s limited liability company agreement.

On July 31, 2020, CFN distributed $ 86 million to CHS for the distribution period ended June 30, 2020.

CF INDUSTRIES HOLDINGS, INC.

7 unchanged sentences

The manner, timing and amount of repurchases will be determined by our management based on the evaluation of market conditions, stock price, and other factors.

In the first quarter of 2019 , we repurchased approximately 1.5 million shares for $ 60 million , of which $ 6 million was accrued and unpaid at March 31, 2019 .

In the first quarter of 2020 , we repurchased approximately 2.6 million shares for $ 100 million .

At March 31, 2020 , we held 2,813,869 shares of treasury stock.

In the six months ended June 30, 2020, we repurchased approximately 2.6 million shares of CF Holdings common stock for $ 100 million.

No shares were repurchased in the three months ended June 30, 2020.

In the six months ended June 30, 2019, we repurchased approximately 4.2 million shares for $ 178 million, of which $ 2 million was accrued and unpaid at June 30, 2019.

In the second quarter of 2020, we retired the approximately 2.6 million shares that were repurchased during the first quarter of 2020 under the 2019 Share Repurchase Program.

The following table summarizes the share repurchases under the 2019 Share Repurchase Program.

Shares Amounts

(in millions)

4 unchanged sentences

Fourth quarter 1.9 87

Shares repurchased in 2019

Total shares repurchased in 2019 7.6 337

Shares repurchased in 2020:

First quarter 2.6 100

Shares repurchased as of March 31, 2020

Second quarter — —

Total shares repurchased in 2020 2.6 100

Shares repurchased as of June 30, 2020 10.2 $ 437

CF INDUSTRIES HOLDINGS, INC.

Accumulated Other Comprehensive Income (Loss)

Changes to accumulated other comprehensive income (loss) are as follows:

Adjustment Unrealized

Derivatives Defined

Plans Accumulated

Comprehensive

2 unchanged sentences

Balance as of December 31, 2018 $ ( 250 ) $ 5 $ ( 126 ) $ ( 371 )

Gain arising during the period — — 5 5

Reclassification to earnings (1)

— — ( 1 ) ( 1 )

Effect of exchange rate changes and deferred taxes 24 — ( 1 ) 23

Balance as of March 31, 2019

Balance as of June 30, 2019 $ ( 226 ) $ 5 $ ( 123 ) $ ( 344 )

Balance as of December 31, 2019 $ ( 188 ) $ 5 $ ( 183 ) $ ( 366 )

Gain arising during the period — — 1 1

Reclassification to earnings (1)

Effect of exchange rate changes and deferred taxes ( 71 ) — 7 ( 64 )

Balance as of March 31, 2020

Balance as of June 30, 2020 $ ( 259 ) $ 5 $ ( 172 ) $ ( 426 )

____________________________________________________________________________

Reclassifications out of accumulated other comprehensive income (loss) to earnings during the three months ended March 31, 2020 and 2019 were not material.

CF INDUSTRIES HOLDINGS, INC.

(1) Reclassifications out of accumulated other comprehensive income (loss) to earnings during the three and six months ended June 30, 2020 and 2019 were not material.

Contingencies

11 unchanged sentences

The Court granted in part and denied in part the CF Entities’ Motions for Summary Judgment in August 2015.

Over two hundred cases have been resolved pursuant to confidential settlements that have been or we expect will be fully funded by insurance.

Over three hundred cases have been resolved pursuant to confidential settlements that have been or we expect will be fully funded by insurance.

The remaining cases are in various stages of discovery and pre-trial proceedings.

The next group of cases is expected to be reset for trial later this year.

The next group of cases is expected to be set for trial in 2021.

We believe we have strong legal and factual defenses and intend to continue defending the CF Entities vigorously in the pending lawsuits.

The Company cannot provide a range of reasonably possible loss due to the lack of damages discovery for many of the remaining claims and the uncertain nature of this litigation, including uncertainties around the potential allocation of responsibility by a jury to other defendants or responsible third parties.

The Company cannot provide a range of reasonably possible loss due to the uncertain nature of this litigation, including uncertainties around the potential allocation of responsibility by a jury to other defendants or responsible third parties.

The recognition of a potential loss in the future in the West Fertilizer Co.

1 unchanged sentence

However, based upon currently available information, including available insurance coverage, we do not believe that this litigation will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

CF INDUSTRIES HOLDINGS, INC.

Other Litigation

20 unchanged sentences

Goodwill by segment is presented in Note 7—Goodwill and Other Intangible Assets.

Segment data for sales, cost of sales and gross margin for the three months ended March 31, 2020 and 2019 are presented in the tables below.

Segment data for sales, cost of sales and gross margin for the three and six months ended June 30, 2020 and 2019 are presented in the tables below.

Ammonia Granular Urea (1)

(in millions)

Three months ended March 31, 2020

Three months ended June 30, 2020

Net sales $ 364 $ 329 $ 308 $ 118 $ 85 $ 1,204

Cost of sales 262 205 245 91 67 870

Gross margin $ 102 $ 124 $ 63 $ 27 $ 18 334

Total other operating costs and expenses 57

1 unchanged sentence

Operating earnings $ 280

Three months ended March 31, 2019

Three months ended June 30, 2019

Net sales $ 473 $ 433 $ 369 $ 126 $ 101 $ 1,502

Cost of sales 300 251 277 94 81 1,003

Gross margin $ 173 $ 182 $ 92 $ 32 $ 20 499

Total other operating costs and expenses 25

1 unchanged sentence

Operating earnings $ 475

Ammonia Granular

(in millions)

Six months ended June 30, 2020

Net sales $ 557 $ 666 $ 543 $ 234 $ 175 $ 2,175

Cost of sales 435 429 438 194 141 1,637

Gross margin $ 122 $ 237 $ 105 $ 40 $ 34 538

Total other operating costs and expenses 117

Equity in earnings of operating affiliate 6

Operating earnings $ 427

Six months ended June 30, 2019

Net sales $ 660 $ 776 $ 625 $ 253 $ 189 $ 2,503

Cost of sales 466 479 472 208 159 1,784

Gross margin $ 194 $ 297 $ 153 $ 45 $ 30 719

Total other operating costs and expenses 87

Equity in earnings of operating affiliate 8

Operating earnings $ 640

_______________________________________________________________________________

(1) The cost of the products that are upgraded into other products is transferred at cost into the upgraded product results.

Subsequent Events

In April 2020, due to confidence in the functioning of the credit markets and strong nitrogen fertilizer business conditions, we repaid the $ 500 million of borrowings that were outstanding under the Revolving Credit Agreement as of March 31, 2020.

See Note 12—Financing Agreements for additional information.

In the second quarter of 2020, we received income tax refunds of $ 68 million , including interest, related to the income tax matter of the Terra Amended Tax Returns.

In addition, we received notification that the Joint Committee approved the IRS audit report relating to the withholding tax matter of the Terra Amended Tax Returns.

See Note 10—Income Taxes for additional information.

CF INDUSTRIES HOLDINGS, INC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements