What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-06 · 157 added, 117 removed, 609 unchanged (31% of the section changed)

2 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

6 unchanged sentences

Total other operating costs and expenses 45 26 162 113

Equity in earnings of operating affiliate 3 1 6 8

Equity in earnings (losses) of operating affiliate 2 ( 14 ) 8 ( 6 )

Operating earnings 40 188 467 828

2 unchanged sentences

Other non-operating—net 1 ( 4 ) ( 2 ) ( 7 )

Earnings before income taxes 251 422 355 532

Income tax provision 33 102 46 94

(Loss) earnings before income taxes ( 9 ) 133 346 665

Income tax (benefit) provision ( 13 ) 19 33 113

Net earnings 4 114 313 552

Net earnings attributable to noncontrolling interest 32 49 83 114

Net earnings attributable to common stockholders $ 190 $ 283 $ 258 $ 373

Net earnings per share attributable to common stockholders:

Net (loss) earnings attributable to common stockholders $ ( 28 ) $ 65 $ 230 $ 438

Net (loss) earnings per share attributable to common stockholders:

Basic $ ( 0.13 ) $ 0.29 $ 1.07 $ 1.98

8 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

11 unchanged sentences

CONSOLIDATED BALANCE SHEETS

2020 December 31, 2019

September 30, 2020 December 31, 2019

(in millions, except share

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Retained earnings 1,905 1,958

Treasury stock—at cost, 2020— 27,392 shares and 2019— 0 shares

Accumulated other comprehensive loss ( 388 ) ( 366 )

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(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

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

Net (loss) earnings — — — ( 28 ) — ( 28 ) 32 4

Other comprehensive income — — — — 38 38 — 38

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

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

4 unchanged sentences

— — — ( 64 ) — ( 64 ) — ( 64 )

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

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

Balance as of September 30, 2020 $ 2 $ ( 1 ) $ 1,308 $ 1,905 $ ( 388 ) $ 2,826 $ 2,649 $ 5,475

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

9 unchanged sentences

— — — ( 193 ) — ( 193 ) — ( 193 )

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

Distributions declared to noncontrolling interest — — — — — — ( 174 ) ( 174 )

Balance as of September 30, 2020 $ 2 $ ( 1 ) $ 1,308 $ 1,905 $ ( 388 ) $ 2,826 $ 2,649 $ 5,475

CONSOLIDATED STATEMENTS OF EQUITY

9 unchanged sentences

(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

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

Net earnings — — — 65 — 65 49 114

1 unchanged sentence

Purchases of treasury stock — ( 72 ) — — — ( 72 ) — ( 72 )

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

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

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— — — ( 67 ) — ( 67 ) — ( 67 )

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

Distribution declared to noncontrolling interest — — — — — — ( 100 ) ( 100 )

Balance as of September 30, 2019 $ 2 $ ( 74 ) $ 1,317 $ 2,109 $ ( 374 ) $ 2,980 $ 2,701 $ 5,681

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

Net earnings — — — 438 — 438 114 552

Other comprehensive income — — — — 27 27 — 27

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

Purchases of treasury stock — ( 250 ) — — — ( 250 ) — ( 250 )

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— — — ( 200 ) — ( 200 ) — ( 200 )

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

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

Distributions declared to noncontrolling interest — — — — — — ( 186 ) ( 186 )

Balance as of September 30, 2019 $ 2 $ ( 74 ) $ 1,317 $ 2,109 $ ( 374 ) $ 2,980 $ 2,701 $ 5,681

See accompanying Notes to Unaudited Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended

Nine months ended

September 30,

(in millions)

8 unchanged sentences

Loss (gain) on disposal of property, plant and equipment 14 ( 43 )

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

Undistributed (earnings) losses of affiliate—net of taxes ( 2 ) 3

Accounts receivable—net 7 ( 79 )

8 unchanged sentences

Proceeds from sale of property, plant and equipment 2 71

Distribution received from unconsolidated affiliate 1 —

Insurance proceeds for property, plant and equipment 2 15

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Background and Basis of Presentation

We are a leading global manufacturer and distributor of nitrogen products for fertilizer, emissions abatement and other industrial applications.

We are a leading global manufacturer of hydrogen and nitrogen products for clean energy, emissions abatement, fertilizer, and other industrial applications.

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 our 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 hydrogen and nitrogen platform to serve customers and create long-term shareholder value.

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

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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 and six months ended June 30, 2020 and 2019:

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

Ammonia Granular Urea UAN AN Other Total

(in millions)

Three months ended June 30, 2020

Three months ended September 30, 2020

North America $ 116 $ 222 $ 221 $ 41 $ 56 $ 656

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Total revenue $ 165 $ 249 $ 248 $ 109 $ 76 $ 847

Three months ended June 30, 2019

Three months ended September 30, 2019

North America $ 152 $ 289 $ 278 $ 41 $ 63 $ 823

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Total revenue $ 187 $ 327 $ 309 $ 136 $ 79 $ 1,038

Ammonia Granular

Urea UAN AN Other Total

Ammonia Granular Urea UAN AN Other Total

(in millions)

Six months ended June 30, 2020

Nine months ended September 30, 2020

North America $ 614 $ 865 $ 739 $ 138 $ 171 $ 2,527

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Total revenue $ 722 $ 915 $ 791 $ 343 $ 251 $ 3,022

Six months ended June 30, 2019

Nine months ended September 30, 2019

North America $ 755 $ 1,037 $ 866 $ 141 $ 190 $ 2,989

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Total revenue $ 847 $ 1,103 $ 934 $ 389 $ 268 $ 3,541

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.

As of September 30, 2020 and December 31, 2019, we had $ 143 million and $ 119 million, respectively, in customer advances on our consolidated balance sheets.

During the nine months ended September 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 June 30, 2020 and December 31, 2019 were not material.

The balances of customer incentives accrued at September 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 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.

As of September 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 $ 892 million.

We expect to recognize approximately 13 % of these performance obligations as revenue in the remainder of 2020, approximately 49 % as revenue during 2021 and 2022, and approximately 38 % 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 $ 230 million as of June 30, 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.

Net Earnings Per Share

Net earnings per share were computed as follows:

We monitor the ability of our customers to meet their purchase obligations, which could be impacted by the ongoing coronavirus disease 2019 (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 were satisfied in 2020.

Net (Loss) Earnings Per Share

Net (loss) earnings per share were computed as follows:

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

(in millions, except per share amounts)

Net earnings attributable to common stockholders $ 190 $ 283 $ 258 $ 373

Basic earnings per common share:

Net (loss) earnings attributable to common stockholders $ ( 28 ) $ 65 $ 230 $ 438

Basic (loss) earnings per common share:

Weighted-average common shares outstanding 213.9 219.0 215.0 221.2

Net earnings attributable to common stockholders $ 0.89 $ 1.28 $ 1.20 $ 1.68

Diluted earnings per common share:

Net (loss) earnings attributable to common stockholders $ ( 0.13 ) $ 0.29 $ 1.07 $ 1.98

Diluted (loss) earnings per common share:

Weighted-average common shares outstanding 213.9 219.0 215.0 221.2

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Diluted weighted-average shares outstanding 213.9 220.7 215.3 222.5

Net earnings attributable to common stockholders $ 0.89 $ 1.28 $ 1.20 $ 1.67

Net (loss) earnings attributable to common stockholders $ ( 0.13 ) $ 0.29 $ 1.07 $ 1.97

Diluted earnings per share is calculated using weighted-average common shares outstanding, including the dilutive effect of stock-based awards as determined under the treasury stock method.

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 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.

Shares for anti-dilutive stock-based awards not included in the computation of diluted earnings per common share were 3.1 million and 3.3 million in the three and nine months ended September 30, 2020, respectively, and 1.4 million and 1.5 million in the three and nine months ended September 30, 2019, respectively.

Inventories consist of the following:

2020 December 31, 2019

September 30, 2020 December 31, 2019

(in millions)

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

2020 December 31, 2019

September 30, 2020 December 31, 2019

(in millions)

8 unchanged sentences

_______________________________________________________________________________

(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.

(1) As of September 30, 2020 and December 31, 2019, we had property, plant and equipment that was accrued but unpaid of approximately $ 73 million and $ 42 million, respectively.

As of September 30, 2019 and December 31, 2018, we had property, plant and equipment that was accrued but unpaid of $ 61 million and $ 48 million, respectively.

Depreciation and amortization related to property, plant and equipment was $ 207 million and $ 650 million for the three and nine months ended September 30, 2020, respectively, and $ 218 million and $ 648 million for the three and nine months ended September 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.

The gain is reflected in other operating—net in our consolidated statement of operations for the nine months ended September 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.

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The following is a summary of capitalized plant turnaround costs:

Six months ended

Nine months ended

September 30,

(in millions)

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Goodwill and Other Intangible Assets

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

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

Ammonia Granular Urea UAN AN Other Total

2 unchanged sentences

Effect of exchange rate changes ( 1 ) — — ( 6 ) ( 1 ) ( 8 )

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

Balance as of September 30, 2020 $ 586 $ 828 $ 576 $ 296 $ 71 $ 2,357

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:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Amount Accumulated

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

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.

Amortization expense of our identifiable intangible assets was $ 2 million and $ 6 million for the three and nine months ended September 30, 2020, respectively, and $ 2 million and $ 6 million for the three and nine months ended September 30, 2019, respectively.

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

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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 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.

As of September 30, 2020, the total carrying value of our equity method investment in PLNL was $ 86 million, $ 43 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.

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Our equity in earnings of PLNL is different from our ownership interest in income reported by PLNL due to amortization of this basis difference.

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 $ 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.

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 $ 14 million and $ 37 million for the three and nine months ended September 30, 2020, respectively, and $ 12 million and $ 46 million for the three and nine months ended September 30, 2019, respectively.

The Trinidadian tax authority (the Board of Inland Revenue) issued a proposed tax assessment against PLNL with respect to tax years 2011 and 2012 in the amount of approximately $ 12 million.

The proposed assessment asserted that PLNL should have withheld tax at a higher rate on dividends paid to its Trinidadian owners.

The Board of Inland Revenue also would have assessed statutory interest and penalties on the amount of tax owed when a final assessment was issued for the tax years 2011 and 2012.

As we own a 50 % interest in PLNL, our effective share of any assessment that is determined to be a liability of PLNL would be 50 %, which would be reflected as a reduction in our equity in earnings of PLNL.

During the third quarter of 2019, the Trinidadian government offered a tax amnesty period that provided taxpayers the opportunity to pay any prior year tax obligations and avoid accumulated interest or penalties.

During the tax amnesty period, PLNL evaluated the proposed assessment, including considering the outcome of certain recent legal cases involving other taxpayers.

As a result of this evaluation, in the third quarter of 2019, PLNL paid withholding tax to the Board of Inland Revenue under the amnesty program for tax years back to 2011, and recognized a charge for $ 32 million.

Our 50 % share of PLNL’s tax charge is $ 16 million, which reduced our equity in earnings of operating affiliate for the three and nine months ended September 30, 2019.

Fair Value Measurements

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

June 30, 2020

September 30, 2020

Cost Basis Unrealized

24 unchanged sentences

and those guaranteed by entities affiliated with governmental entities.

CF INDUSTRIES HOLDINGS, INC.

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 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

The following tables present assets and liabilities included in our consolidated balance sheets as of September 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:

September 30, 2020

Value Quoted Prices

5 unchanged sentences

Embedded derivative liability ( 22 ) — ( 22 ) —

CF INDUSTRIES HOLDINGS, INC.

December 31, 2019

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Cash Equivalents

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

As of September 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.

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To determine the fair value of these instruments, we use quoted market prices from NYMEX and standard pricing models with inputs derived from or corroborated by observable market data such as forward curves supplied by an industry-recognized independent third party.

CF INDUSTRIES HOLDINGS, INC.

Embedded Derivative Liability

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

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.

As of September 30, 2020 and December 31, 2019, the embedded derivative liability of $ 22 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 nine months ended September 30, 2020 and 2019 is a net loss of $ 2 million and $ 3 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.

1 unchanged sentence

See Note 13—Noncontrolling Interest for additional information regarding our strategic venture with CHS.

CF INDUSTRIES HOLDINGS, INC.

Financial Instruments

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Amount Fair Value Carrying

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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 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.

CF INDUSTRIES HOLDINGS, INC.

For the three months ended September 30, 2020, we recorded an income tax benefit of $ 13 million on a pre-tax loss of $ 9 million, or an effective tax rate of 155.0 %, compared to an income tax provision of $ 19 million on pre-tax income of $ 133 million, or an effective tax rate of 14.6 %, for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, we recorded an income tax provision of $ 33 million on pre-tax income of $ 346 million or an effective tax rate of 9.4 %, compared to an income tax provision of $ 113 million on pre-tax income of $ 665 million, or an effective tax rate of 17.1 %, for the nine months ended September 30, 2019.

For the nine months ended September 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.

For the nine months ended September 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 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.

Our effective tax rate for the three months ended September 30, 2020 of 155.0 %, which is based on a pre-tax loss of $ 9 million, including $ 32 million of earnings attributable to the noncontrolling interest, would be 121.6 percentage points lower if based on pre-tax loss exclusive of the $ 32 million of earnings attributable to the noncontrolling interest.

Our effective tax rate for the three months ended September 30, 2019 of 14.6 %, which is based on pre-tax income of $ 133 million, including $ 49 million attributable to the noncontrolling interest, would be 8.5 percentage points higher if based on pre-tax income exclusive of the $ 49 million attributable to the noncontrolling interest.

Our effective tax rate for the nine months ended September 30, 2020 of 9.4 %, which is based on pre-tax income of $ 346 million, including $ 83 million attributable to the noncontrolling interest, would be 3.0 percentage points higher if based on pre-tax income exclusive of the $ 83 million attributable to the noncontrolling interest.

Our effective tax rate for the nine months ended September 30, 2019 of 17.1 %, which is based on pre-tax income of $ 665 million, including $ 114 million attributable to the noncontrolling interest, would be 3.5 percentage points higher if based on pre-tax income exclusive of the $ 114 million attributable to the noncontrolling interest.

See Note 13—Noncontrolling Interest for additional information.

During the third quarter of 2020, as a result of an intercompany transaction with a foreign affiliate, we recognized a capital loss, which we will carry forward, and for which we recorded a deferred tax asset of approximately $ 90 million.

However, as the foreign affiliate has operations that do not normally generate capital gains and no practical plans to do so in the future, we established a full valuation allowance of approximately $ 90 million against the deferred tax asset.

As a result, there was no net impact on our income tax provision.

In March 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).

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tax aspects of the Amended Tax Returns.

CF INDUSTRIES HOLDINGS, INC.

In early 2019, the IRS completed its examination of the Amended Tax Returns and submitted its audit reports and related refund claims to the Joint Committee on Taxation of the U.S.

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(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 and related income tax refunds relating to the income tax related matter.

In late 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.

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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.

In the third quarter of 2020, we received an additional $ 2 million related to the withholding tax matter, which finalized 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.

Canada Revenue Agency Notices of Reassessment

In 2016, the Canada Revenue Agency (CRA) issued Notices of Reassessment for tax years 2006 through 2009 to one of our Canadian affiliates asserting a disallowance of certain patronage allocations.

The tax assessments totaled CAD $ 174 million (or approximately $ 131 million), including provincial taxes but excluding any interest or penalties.

We filed a Notice of Objection with respect to the Notices of Reassessment with the CRA and we have posted a CAD $ 98 million bond (or approximately $ 74 million) in lieu of paying the additional tax liability assessed.

In 2017, we made a request with United States Competent Authority (USCA) to include the Company’s dispute with CRA for consideration under the bilateral settlement provisions of the US-Canada Tax Treaty (the Treaty).

We also filed a companion request with Canadian Competent Authority (CASD) since this matter ultimately involves the allocation of profits and deductions between Canada and the United States.

In 2018, the matter was accepted for consideration under the bilateral settlement provisions of the Treaty by both countries.

Under the Treaty, USCA and CASD have two years from the commencement of discussions to reach a settlement or the matter can be referred to binding arbitration under the provisions of the Treaty.

This period has been extended to expire in December 2020, and it could be further extended if agreed upon by both parties.

The Company does not expect that resolution of this matter will result in a material net tax liability, because the Company would be entitled to an offsetting U.S.

foreign tax credit for any incremental Canadian tax paid.

Upon resolution of this matter, interest would be assessed based upon the amount of tax due.

Similarly, the Company would be entitled to receive interest on the offsetting reduction in tax due to the foreign tax credit.

Due to uncertainty in how each taxing authority would apply their interest calculation rules, we are not able to predict the net amount of interest that we would pay to or receive from the taxing authorities.

CF INDUSTRIES HOLDINGS, INC.

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Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

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

(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.

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

Financing Agreements

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Borrowings under the Revolving Credit Agreement may be denominated in U.S.

dollars, Canadian dollars, euros and British pounds, and bear interest at a per annum rate equal to, at our option, an applicable eurocurrency rate or base rate plus, in either case, a specified margin, and we are required to pay an undrawn commitment fee on the undrawn portion of the commitments under the Revolving Credit Agreement and customary letter of credit fees.

We are required to pay an undrawn commitment fee on the undrawn portion of the commitments under the Revolving Credit Agreement and customary letter of credit fees.

The specified margin and the amount of the commitment fee depend on CF Holdings’ credit rating at the time.

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).

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

As of September 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.

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, which we repaid in April 2020.

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.

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

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

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

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

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

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

As of September 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 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

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

Effective Interest Rate September 30, 2020 December 31, 2019

Principal Carrying Amount (1)

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

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.

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

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Declaration of distributions payable ( 174 ) ( 186 )

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

Balance as of September 30 $ 2,649 $ 2,701

Distributions payable to noncontrolling interest:

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Distributions to noncontrolling interest ( 174 ) ( 186 )

Balance as of June 30 $ — $ —

Balance as of September 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.

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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.

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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 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.

In the nine months ended September 30, 2019, we repurchased approximately 5.7 million shares under the 2019 Share Repurchase Program for $ 250 million, of which $ 2 million was accrued and unpaid at September 30, 2019.

In the first quarter of 2020, we repurchased approximately 2.6 million shares of CF Holdings common stock under the 2019 Share Repurchase Program for $ 100 million, which we retired in the second quarter of 2020.

No shares were repurchased under the 2019 Share Repurchase Program in the second or third quarter of 2020.

At September 30, 2020, we held 27,392 shares of treasury stock.

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

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First quarter 2.6 100

Second quarter — —

Total shares repurchased in 2020 2.6 100

Shares repurchased as of June 30, 2020 10.2 $ 437

Shares repurchased as of September 30, 2020

CF INDUSTRIES HOLDINGS, INC.

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Effect of exchange rate changes and deferred taxes ( 8 ) — 1 ( 7 )

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

Balance as of September 30, 2019 $ ( 258 ) $ 5 $ ( 121 ) $ ( 374 )

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

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Effect of exchange rate changes and deferred taxes ( 30 ) — 2 ( 28 )

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

Balance as of September 30, 2020 $ ( 218 ) $ 5 $ ( 175 ) $ ( 388 )

____________________________________________________________________________

(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.

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

Contingencies

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Environmental

Florida Environmental Matter

On March 17, 2014, we completed the sale of our phosphate mining and manufacturing business, which was located in Florida, to The Mosaic Company (Mosaic).

Pursuant to the terms of the definitive agreement executed in October 2013, Mosaic assumed the following environmental matter and we agreed to indemnify Mosaic with respect to losses arising out of the matter below, subject to a maximum indemnification cap and the other terms of the definitive agreement.

Clean Air Act Notice of Violation

We received a Notice of Violation (NOV) from the EPA by letter dated June 16, 2010, alleging that we violated the Prevention of Significant Deterioration (PSD) Clean Air Act regulations relating to certain projects undertaken at the former Plant City, Florida facility’s sulfuric acid plants.

This NOV further alleges that the actions that are the basis for the alleged PSD violations also resulted in violations of Title V air operating permit regulations.

Finally, the NOV alleges that we failed to comply with certain compliance dates established by hazardous air pollutant regulations for phosphoric acid manufacturing plants and phosphate fertilizer production plants.

We had several meetings with the EPA with respect to this matter prior to our sale of the phosphate mining and manufacturing business in March 2014.

We and Mosaic have separately had continued discussions with the EPA subsequent to our sale of the phosphate mining and manufacturing business with respect to this matter.

We reached a settlement with the EPA and the United States Department of Justice to resolve the Plant City Clean Air Act matter, and executed a final stipulation of settlement that was approved by the United States District Court for the Middle District of Florida on August 5, 2020.

The settlement required us to pay a civil penalty of $ 550,000 to the United States, but did not include any required injunctive relief or other corrective actions.

Other Environmental Matters

From time to time, we receive notices from governmental agencies or third parties alleging that we are a potentially responsible party at certain cleanup sites under the Comprehensive Environmental Response, Compensation, and Liability Act or other environmental cleanup laws.

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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 and six months ended June 30, 2020 and 2019 are presented in the tables below.

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

Ammonia Granular Urea (1)

(in millions)

Three months ended June 30, 2020

Three months ended September 30, 2020

Net sales $ 165 $ 249 $ 248 $ 109 $ 76 $ 847

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Operating earnings $ 40

Three months ended June 30, 2019

Three months ended September 30, 2019

Net sales $ 187 $ 327 $ 309 $ 136 $ 79 $ 1,038

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Total other operating costs and expenses 26

Equity in earnings of operating affiliate 1

Equity in losses of operating affiliate ( 14 )

Operating earnings $ 188

Ammonia Granular

Ammonia Granular Urea (1)

(in millions)

Six months ended June 30, 2020

Nine months ended September 30, 2020

Net sales $ 722 $ 915 $ 791 $ 343 $ 251 $ 3,022

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Operating earnings $ 467

Six months ended June 30, 2019

Nine months ended September 30, 2019

Net sales $ 847 $ 1,103 $ 934 $ 389 $ 268 $ 3,541

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Total other operating costs and expenses 113

Equity in earnings of operating affiliate 8

Equity in losses of operating affiliate ( 6 )

Operating earnings $ 828

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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