What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-24 compared with 2020-02-24 · 465 added, 447 removed, 575 unchanged (61% of the section changed)

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Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements.

For a discussion and analysis of the year ended December 31, 2017, you should read Item 7.

For a discussion and analysis of the year ended December 31, 2019 compared to December 31, 2018, you should read Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 24, 2020.

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• Overview of CF Holdings

• Our Company

• Our Commitment to a Clean Energy Economy

• Industry Factors

Items Affecting Comparability of Results

• Market Conditions and Current Developments

• Financial Executive Summary

Results of Consolidated Operations

• Items Affecting Comparability of Results

• Consolidated Results of Operations

• Operating Results by Business Segment

• Liquidity and Capital Resources

Off-Balance Sheet Arrangements

Critical Accounting Policies and Estimates

• Critical Accounting Estimates

• Recent Accounting Pronouncements

• Subsequent Event

Overview of CF Holdings

We are a leading global fertilizer and chemical company.

Our 3,000 employees operate world-class manufacturing complexes in Canada, the United Kingdom and the United States.

Our manufacturing network is among the most efficient and cost-advantaged in the world, as our facilities in Canada and the United States have access to low-cost North American natural gas.

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

Our principal nitrogen fertilizer products are anhydrous ammonia (ammonia), granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN).

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

We operate nitrogen 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 our unique capabilities to accelerate the world’s transition to clean energy.

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

Our core product is anhydrous ammonia (ammonia), which contains 82% nitrogen and 18% hydrogen.

Our nitrogen products that are upgraded from ammonia are granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN).

Our other nitrogen products include diesel exhaust fluid (DEF), urea liquor, nitric acid and aqua ammonia, which are sold primarily to our industrial customers, and compound fertilizer products (NPKs), which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium.

We serve our customers in North America through our production, storage, transportation and distribution network.

We also reach a global customer base with exports from our Donaldsonville, Louisiana, facility, the world’s largest and most flexible nitrogen complex.

Additionally, we move product to international destinations from our Verdigris, Oklahoma, facility, our Yazoo City, Mississippi, facility, and our Billingham and Ince facilities in the United Kingdom, and from a joint venture ammonia facility in the Republic of Trinidad and Tobago in which we own a 50 percent interest.

Our principal assets as of December 31, 2020 include:

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• a 50% interest in Point Lisas Nitrogen Limited (PLNL), an ammonia production joint venture located in the Republic of Trinidad and Tobago that we account for under the equity method.

Our nitrogen manufacturing facility in Verdigris, Oklahoma, is owned and operated by Terra Nitrogen, Limited Partnership (TNLP).

Prior to April 2, 2018, TNLP was a subsidiary of Terra Nitrogen Company, L.P.

(TNCLP), which was a publicly traded limited partnership of which we were the sole general partner and the majority limited partner, and in which we owned an approximate 75.3% interest.

On February 7, 2018, we announced that, in accordance with the terms of TNCLP’s First Amended and Restated Agreement of Limited Partnership (as amended by Amendment No.

1 to the First Amended and Restated Agreement of Limited Partnership, the TNCLP Agreement of Limited Partnership), Terra Nitrogen GP Inc.

(TNGP), the sole general partner of TNCLP and an indirect wholly owned subsidiary of CF Holdings, elected to exercise its right to purchase all of the 4,612,562 publicly traded common units of TNCLP (the TNCLP Public Units).

On April 2, 2018, TNGP completed its purchase of the TNCLP Public Units (the Purchase) for an aggregate cash purchase price of $388 million.

We funded the Purchase with cash on hand.

Upon completion of the Purchase, CF Holdings owned, through its subsidiaries, 100 percent of the general and limited partnership interests of TNCLP.

Our Commitment to a Clean Energy Economy

In October 2020, we announced that we are taking significant steps to support a global hydrogen and clean fuel economy, through the production of green and low-carbon ammonia.

Since ammonia is one of the most efficient ways to transport and store hydrogen and is also a fuel in its own right, we believe that the Company, as the world’s largest producer of ammonia, with an unparalleled manufacturing and distribution network and deep technical expertise, is uniquely positioned to fulfill anticipated demand for hydrogen and ammonia from green and low-carbon sources.

Our strategy is to leverage our unique capabilities to accelerate the world’s transition to clean energy.

Our approach will focus on green ammonia production, which refers to ammonia produced through a carbon-free process, and low-carbon ammonia, which relates to ammonia produced by conventional processes but with CO 2 removed through carbon capture and sequestration (CCS) and other certified carbon abatement projects.

We have announced an initial green ammonia project at our flagship Donaldsonville nitrogen complex to produce approximately 20,000 tons per year of green ammonia.

Additionally, we are developing CCS and other carbon abatement projects across our production facilities that will enable us to produce low-carbon ammonia.

Industry Factors

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Individual farmers make planting decisions based largely on prospective profitability of a harvest, while the specific varieties and amounts of fertilizer they apply depend on factors like their current liquidity, soil conditions, weather patterns, crop prices, fertilizer products used and timing of applications, expected yields and the types of crops planted.

Items Affecting Comparability of Results

Selling Prices

Gulf is a major global fertilizer pricing point due to the volume of nitrogen fertilizer that trades there.

In 2018, higher energy costs in Asia and Europe, along with continued enforcement of environmental regulations in China, resulted in lower nitrogen production in these regions.

In addition, plant outages impacted the global nitrogen supply and demand balance.

These factors collectively drove global nitrogen prices higher in the second half of 2018.

Upon entering the first quarter of 2019, our average selling prices were higher than the first quarter of 2018, driven by the continued impact of a tighter global nitrogen supply and demand balance experienced throughout late 2018.

During the first half of 2019, our average selling prices for all fertilizer products remained strong due to the limited supply of fertilizer as high water levels and flooding impacted shipping and logistics on the U.S.

inland rivers and limited access for imports.

As we entered the third quarter of 2019, the fertilizer application season extended due to the late planting, resulting in continued in-season prompt sales, which favorably impacted our third quarter selling prices.

However, as the third quarter continued, lower global energy prices resulted in higher nitrogen industry operating rates, which increased global fertilizer supply.

This factor, in conjunction with the seasonally slow third quarter period, led to weakness in selling prices as the third quarter ended, which continued throughout the fourth quarter of 2019.

In addition to low selling prices, the fourth quarter of 2019 experienced cold and wet weather, which limited fall ammonia application.

These factors collectively led to lower nitrogen prices in the fourth quarter.

The average selling price for our products for 2019 and 2018 was $235 per ton and $229 per ton, respectively.

The increase in average selling prices of 3% in 2019 from 2018 increased net sales by $62 million .

Persistent cold and wet weather across most of North America early in 2019 delayed spring planting activity and fertilizer applications.

In addition, high water levels impacted shipping and logistics on the U.S.

inland rivers and delayed certain barge shipments, which caused delays in certain customers taking delivery of fertilizer and other customers delaying purchases.

As a result, the spring application season extended into the third quarter of 2019 with some shipments that would typically occur in the second quarter being delayed into the third quarter.

Additionally, planned maintenance activity at our plants reduced production levels in the third quarter of 2019, reducing inventory availability.

In the fourth quarter, shipping activity increased and full year sales volume for 2019 was 19.5 million tons, 1% higher than the 19.3 million tons in 2018 .

Market Conditions and Current Developments

COVID-19 Pandemic

In March 2020, the World Health Organization characterized the outbreak of coronavirus disease 2019 (COVID-19) as a pandemic.

Since that time, efforts to slow the spread of COVID-19 have intensified.

A number of countries, as well as certain states and cities within the United States, have continued to enact temporary closures of businesses, to issue shelter in place or quarantine orders, and to take other restrictive measures in response to the pandemic.

Due to the use of fertilizer products in crop production to support the global food supply chain, our business operations were designated as part of the critical infrastructure by the United States and as essential businesses in the United Kingdom and Canada, with corresponding designations for those states and provinces in which we operate that issued restrictive orders.

As a result, our manufacturing complexes continued to operate during 2020 and have continued to operate through the date of this report.

Our production of ammonia, the basic building block for our products, was 10.4 million tons in 2020 compared to 10.2 million tons in 2019.

Through the date of this filing, we have continued to ship products by all modes of transportation to our customers, and we have not experienced any significant delays in marine, rail or truck transportation services due to the pandemic.

In 2020, we did not experience a meaningful impact in customer demand as a result of the COVID-19 pandemic.

Our total volume of products shipped in 2020 of 20.3 million tons was 4% higher compared to 19.5 million tons in 2019.

In response to the pandemic, we instituted safety precautions early in 2020 to protect the health and well-being of all of our employees, including the manufacturing workforce who operate our nitrogen complexes and distribution facilities.

These safety measures included installing thermal temperature checks at each of our sites for all personnel, including contractors, who arrive at our sites, adjusting schedules to support social distancing, including changes to loading and shipping procedures, maintaining a close contact log for employees, self-quarantine logs, requiring face coverings on site, restricting visitor access, and implementing enhanced cleaning protocols and travel restrictions for employees.

We also paid approximately $19 million of bonuses to our operational workforce under a special COVID-19 bonus program, which concluded in June 2020.

In addition, since mid-March 2020, the majority of our non-operational personnel at our sites who work in administrative and operational support functions have worked remotely in order to maintain social distancing following governmental guidelines.

These administrative and operational support functions have operated effectively during this period, meeting our commitments to our customers and continuing to manage our business without interruption.

We have not furloughed any employees or instituted any reductions in pay or benefits or other significant cost containment measures due to the pandemic.

We participate in a global market, which includes a global supply chain and customer base.

The long-term effects of the COVID-19 pandemic are unclear and could adversely affect our business in the future.

We have operated our business in a remote working environment and could continue to do so for an extended duration, if necessary.

However, if the pandemic were to impact a large portion of our workforce in any one location, we might need to idle that facility temporarily or transfer other employees from other network sites, which could have an impact on our business operations, profitability and cash flow.

The impact of the COVID-19 pandemic is fluid and continues to evolve.

As a result, we cannot predict the extent to which our business, results of operations, financial condition or liquidity may be impacted by the pandemic in the future.

There was strong demand for fertilizer in 2020 as we shipped 20.3 million tons of product compared to 19.5 million tons in 2019, which increased net sales by $199 million.

The increase in total sales volume was due primarily to the impact of increased supply resulting from both higher inventory levels entering 2020 and higher production in 2020.

Our sales volumes in 2020 were higher across all of our major products compared to 2019.

CF INDUSTRIES HOLDINGS, INC.

Our shipments can shift between quarters due primarily to shifts in weather patterns that impact fertilizer applications.

During the fourth quarter of 2020, granular urea sales volume was higher as domestic demand strengthened amid increasing crop prices and overall farm economics improved.

Additionally, ammonia sales volume in the fourth quarter of 2020 exceeded the fourth quarter of 2019 as a result of increased demand due to an early fall harvest and ideal weather conditions throughout the Midwestern United States.

Sales volume for our products in 2020, 2019 and 2018 is shown in the table below.

Sales Volume (tons)

2020 2019 2018

Sales Volume (tons) Net Sales Sales Volume (tons) Net Sales Sales Volume (tons) Net Sales

(tons in thousands;

dollars in millions)

Ammonia 3,767 $ 1,020 3,516 $ 1,113 3,135 $ 1,028

Granular urea 5,148 1,248 4,849 1,342 4,898 1,322

The increase in total sales volume in 2019 from 2018 was due primarily to the impact of increased supply resulting from both higher inventory levels entering 2019 and higher production in 2019.

The increase in sales volume increased net sales by $99 million in 2019 .

CF INDUSTRIES HOLDINGS, INC.

UAN 6,843 1,063 6,807 1,270 7,042 1,234

AN 2,216 455 2,109 506 2,002 460

Other 2,322 338 2,257 359 2,252 385

Total 20,296 $ 4,124 19,538 $ 4,590 19,329 $ 4,429

We expect sales volumes for our products to return to a range of 19-19.5 million product tons in 2021 due to lower year-end inventory than the year before and lower expected production due to a higher number of planned turnarounds than in 2020.

Selling Prices

The selling prices for all of our major products were lower in 2020 than 2019 as global energy prices remained low, driving higher global nitrogen operating rates and the resulting additional global supply availability.

The average selling price for our products for 2020 and 2019 was $203 per ton and $235 per ton, respectively.

The decrease in average selling prices of 14% in 2020 from 2019 decreased net sales by $665 million.

Natural Gas Prices

Natural gas is the principal raw material used to produce nitrogen fertilizers.

Natural gas is the principal raw material used to produce our nitrogen products.

We use natural gas both as a chemical feedstock and as a fuel to produce nitrogen products.

Natural gas is a significant cost component of manufactured nitrogen products, representing approximately 35% of our production costs.

Natural gas is a significant cost component of manufactured nitrogen products, representing approximately one-third of our production costs.

Most of our nitrogen fertilizer manufacturing facilities are located in the United States and Canada.

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Due to increases in natural gas production resulting from the rise in production from shale gas formations, natural gas prices in North America have declined over the last decade, but are subject to volatility.

The average daily market price at the Henry Hub, the most heavily-traded natural gas pricing point in North America, was $2.51 per MMBtu for 2019 compared to $3.12 per MMBtu for 2018 , a decrease of 20% .

Natural gas prices during 2020 were lower on average than 2019, due in part to reduced energy demand as a result of the COVID-19 pandemic, partially offset by reductions in supply.

The daily market price at the Henry Hub, the most heavily-traded natural gas pricing point in North America, fluctuated throughout 2020.

The average daily market price at the Henry Hub was $1.99 per MMBtu for 2020 compared to $2.51 per MMBtu for 2019, a decrease of 21%.

The price of natural gas decreased in the first half of 2020 and increased in the second half of 2020 with the average daily market price rising at the Henry Hub to $2.47 per MMBtu in the fourth quarter of 2020.

We also have manufacturing facilities located in the United Kingdom.

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The major natural gas trading point for the United Kingdom is the National Balancing Point (NBP).

The price of natural gas in the United Kingdom during 2020 was lower on average compared to 2019 as a result of increased availability of liquefied natural gas in the global market as well as the global economic downturn related to the COVID-19 pandemic.

The average daily market price at NBP was $3.20 per MMBtu for 2020 compared to $4.44 per MMBtu for 2019, a decrease of 28%.

The price of natural gas in the United Kingdom has declined as a result of increased production and availability of liquefied natural gas in the global market due to higher gas exports from exporting nations, including the United States.

Natural gas costs in cost of sales, including the impact of realized natural gas derivatives, was $2.74 per MMBtu in 2019 , a 13% decrease from $3.16 per MMBtu in 2018 , which resulted in an increase in gross margin of approximately $153 million .

Other Items Affecting Comparability of Results

During the years ended December 31, 2019 and 2018 , certain items impacted our financial results.

The daily market price at NBP also fluctuated throughout 2020 as the price decreased in the first half of 2020 and increased in the second half of 2020 with the average daily market price rising at the NBP to $5.29 per MMBtu in the fourth quarter of 2020.

Natural gas costs in cost of sales, including the impact of realized natural gas derivatives, was $2.24 per MMBtu in 2020, an 18% decrease from $2.74 per MMBtu in 2019, which resulted in an increase in gross margin of approximately $195 million.

CF INDUSTRIES HOLDINGS, INC.

Financial Executive Summary

We reported net earnings attributable to common stockholders of $317 million in 2020 compared to $493 million in 2019, a decline in net earnings of 36%, or $176 million.

The decrease in net earnings was due primarily to lower selling prices as lower global energy costs drove higher global operating rates, leading to increased global nitrogen supply availability.

The impact of lower selling prices was partially offset by lower realized natural gas costs and higher sales volume, leading to a net decline in gross margin of $373 million in 2020.

Gross margin declined from $1,174 million in 2019 to $801 million in 2020.

The following describes the significant factors that impacted gross margin:

• Average selling prices declined 14% in 2020 to $203 per ton, which decreased gross margin by $665 million,

• Realized natural gas costs declined by 18% in 2020 to $2.24 per MMBtu, which increased gross margin by $195 million,

• Sales volume increased 4% to 20.3 million product tons, the highest annual sales volume for the Company.

The increase in sales volume increased gross margin by $61 million.

Additionally, net earnings were impacted by lower selling, general and administrative costs, which declined by $33 million due primarily to the impact of lower corporate project activity and travel during the COVID-19 pandemic, and a decline in our annual tax provision of $95 million, driven by lower pre-tax earnings as well as certain favorable discrete tax items, including the impact of the Terra Amended Tax Returns.

See discussion under “Items Affecting Comparability — Terra Amended Tax Returns,” below, for further information.

Diluted net earnings per share attributable to common stockholders decreased $0.76 per share, to $1.47 per share in 2020 compared to $2.23 per share in 2019.

This decrease is due primarily to lower net earnings, partially offset by a 3% reduction in diluted weighted-average common shares outstanding due to repurchases made under our share repurchase program.

On February 13, 2019, our Board of Directors (the Board) authorized the repurchase of up to $1 billion of CF Holdings common stock through December 31, 2021 (the 2019 Share Repurchase Program).

In 2019, we repurchased approximately 7.6 million shares under the 2019 Share Repurchase Program for $337 million.

In 2020, we repurchased approximately 2.6 million shares under the 2019 Share Repurchase Program for $100 million.

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

See discussion under “Liquidity and Capital Resources—Share Repurchase Programs,” below, for further information.

CF INDUSTRIES HOLDINGS, INC.

Items Affecting Comparability of Results

In addition to the impact of market conditions discussed above, certain items impacted our financial results during the years ended December 31, 2020 and 2019.

The following table and related discussion outline these items and how they impacted the comparability of our financial results during these periods.

Positive amounts in the table below are costs or expenses incurred, while negative amounts are income recognized in the periods presented.

After-Tax (1)

During the years ended December 31, 2020 and 2019, we reported net earnings attributable to common stockholders of $317 million and $493 million, respectively.

Pre-Tax After-Tax (1)

(in millions)

Unrealized net mark-to-market loss (gain) on natural gas derivatives (2)

Gain on foreign currency transactions including intercompany loans (3)

Gain on sale of Pine Bend facility (3)

Unrealized net mark-to-market (gain) loss on natural gas derivatives (2)

$ (6) $ (5) $ 14 $ 10

COVID impacts:

Special COVID-19 bonus for operational workforce (2)

Turnaround deferral (2)

Loss (gain) on foreign currency transactions, including intercompany loans (3)

Engineering cost write-off (3)

Loss on sale of surplus land (3)

Insurance proceeds (3)

(37) (28) (37) (28)

Gain on sale of Pine Bend facility (3)

— — (45) (34)

Losses on debt extinguishment — — 21 16

Income taxes:

Settlement of Terra Industries Inc.

amended tax returns (4)

Louisiana incentive tax credit (4)

Impact of U.S.

Tax Cuts and Jobs Act (5)

Terra amended tax returns—interest income and income tax benefit (5)

(26) (44) (5) (14)

PLNL withholding tax charge (6)

PLNL settlement income (6)

______________________________________________________________________________

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(3) Included in other operating—net in our consolidated statements of operations.

Included in interest income and income tax provision (benefit) in our consolidated statement of operations.

Included in income tax provision (benefit) in our consolidated statement of operations.

Included in equity in (loss) earnings of operating affiliates in our consolidated statements of operations.

CF INDUSTRIES HOLDINGS, INC.

(4) Included in income tax provision in our consolidated statements of operations.

(5) Included in interest expense, interest income and income tax provision in our consolidated statements of operations.

(6) Included in equity in earnings (loss) of operating affiliate in our consolidated statements of operations.

The following describes the significant items that impacted the comparability of our financial results in 2020 and 2019.

Descriptions of items below that refer to amounts in the table above, refer to the pre-tax amounts, except for the discussion under Income taxes .

Unrealized net mark-to-market loss (gain) on natural gas derivatives

Unrealized net mark-to-market (gain) loss on natural gas derivatives

Natural gas is the largest and most volatile single component of the manufacturing cost for nitrogen-based products.

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This can result in volatility in reported earnings due to the unrealized mark-to-market adjustments that occur from changes in the value of the derivatives, which is reflected in cost of sales in our consolidated statements of operations.

In 2019 and 2018 , we recognized an unrealized net mark-to-market loss (gain) on natural gas derivatives of $14 million and $(13) million , respectively.

Gain on foreign currency transactions including intercompany loans

In 2019 and 2018 , we recognized gains of $1 million and $5 million , respectively, from the impact of changes in foreign currency exchange rates on primarily Canadian dollar and British pound denominated intercompany loans that were not permanently invested.

In 2020 and 2019, we recognized an unrealized net mark-to-market (gain) loss on natural gas derivatives of $(6) million and $14 million, respectively.

COVID impacts

In March 2020, a short-term bonus program was initiated to compensate operational employees for continuing their critical tasks at the beginning of the COVID-19 pandemic.

The bonus program concluded in June 2020.

Approximately $19 million was paid as part of the program and was recognized in cost of sales in our consolidated statement of operations for the year ended December 31, 2020.

In addition, certain plant turnaround activities were deferred because of the COVID-19 pandemic.

As a result, we incurred $7 million of expense for the year ended December 31, 2020, which was recognized in cost of sales in our consolidated statement of operations.

CF INDUSTRIES HOLDINGS, INC.

Loss (gain) on foreign currency transactions, including intercompany loans

In 2020 and 2019, we recognized a loss (gain) of $5 million and $(1) million, respectively, which consists of foreign currency exchange rate impacts on foreign currency denominated transactions, including the impact of changes in foreign currency exchange rates on intercompany loans that were not permanently invested.

Engineering cost write-off

In June 2020, a project at one of our nitrogen complexes was cancelled and, as a result, $9 million of previously capitalized engineering costs were expensed in the year ended December 31, 2020.

The expense is reflected in other operating—net in our consolidated statement of operations.

Loss on sale of surplus land

In 2020, we recognized a loss of $2 million on the sale of surplus land, which is reflected in other operating—net in our consolidated statement of operations.

Insurance proceeds

We recognized income of $37 million in both 2020 and 2019 related to insurance claims at one of our nitrogen complexes.

The $37 million of income in 2020 consists of $35 million related to business interruption insurance proceeds and $2 million related to property insurance proceeds.

The $37 million of income in 2019 consisted of $22 million related to business interruption insurance proceeds and $15 million related to property insurance proceeds.

These proceeds are reflected in other operating—net in our consolidated statements of operations.

Gain on sale of Pine Bend facility

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The gain is reflected in other operating—net in our consolidated statement of operations.

Insurance proceeds

In 2019 and 2018 , we recognized income of $37 million and $10 million , respectively, related to insurance claims at one of our nitrogen complexes.

The $37 million of income in 2019 consists of $22 million related to business interruption insurance proceeds and $15 million related to property insurance proceeds.

The $10 million of income in 2018 is related to property insurance proceeds.

These proceeds are reflected in other operating—net in our consolidated statements of operations.

Losses on debt extinguishment

On November 13, 2019, we redeemed all of the $500 million outstanding principal amount of the 7.125% senior notes due May 2020 (the 2020 Notes), in accordance with the optional redemption provisions provided in the indenture governing the 2020 Notes.

On December 13, 2019, we redeemed $250 million principal amount, representing 50% of the $500 million outstanding principal amount, of the 3.400% senior secured notes due December 2021 (the 2021 Notes), in accordance with the optional redemption provisions provided in the indenture governing the 2021 Notes.

On November 13, 2019, we redeemed in full all of the $500 million outstanding principal amount of the 7.125% senior notes due May 2020 (the 2020 Notes), in accordance with the optional redemption provisions provided in the indenture governing the 2020 Notes.

On December 13, 2019, we redeemed $250 million principal amount, representing 50% of the $500 million outstanding principal amount immediately prior to such redemption, of the 3.400% senior secured notes due December 2021 (the 2021 Notes), in accordance with the optional redemption provisions provided in the indenture governing the 2021 Notes.

As a result of the early redemption of the 2020 Notes and the 2021 Notes, we recognized a loss on debt extinguishment of $21 million, of which $12 million related to the 2020 Notes and $9 million related to the 2021 Notes.

As more fully described under “Liquidity and Capital Resources—Settlement of Terra Amended Tax Returns,” below, during the fourth quarter of 2019, the Joint Committee on Taxation of the U.S.

Congress (the Joint Committee) approved the United States Internal Revenue Service (IRS) report and refund claim pertaining to certain amended tax returns related to Terra Industries Inc.

We acquired Terra in April 2010 and filed amended tax returns to correct the manner in which Terra reported the repatriation of foreign earnings during years back to 1999.

As a result of the approval by the Joint Committee, we recognized in the fourth quarter of 2019 interest income of $5 million ( $4 million after tax) and a reduction in income tax expense of $10 million related to the favorable settlement of certain uncertain tax positions.

We expect to receive a cash refund of approximately $57 million in the first half of 2020 related to this matter.

On December 22, 2017, the U.S.

government enacted the Tax Cuts and Jobs Act (the “Tax Act” or “Tax Reform”) which included a number of changes to U.S.

tax law that affect us.

The most significant impact of Tax Reform was the reduction of the U.S.

statutory corporate tax rate from 35% to 21%.

This change necessitated the revaluation of all of

Louisiana incentive tax credit

For 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.

Terra amended tax returns

We completed the acquisition of Terra Industries Inc.

(Terra) in April 2010.

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 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.

tax aspects of the Amended Tax Returns.

In 2017, we also made a Voluntary Disclosure Filing with the Canadian Revenue Agency (CRA) with respect to the Canadian tax aspects of this matter and paid additional Canadian taxes due.

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.

Congress (the Joint Committee).

For purposes of its review, the Joint Committee separated the IRS audit reports into two separate matters:

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

As a result of the approval by the Joint Committee, we recognized in the fourth quarter of 2019 interest income of $5 million ($4 million after tax) and a reduction in income tax

CF INDUSTRIES HOLDINGS, INC.

deferred tax balances, which resulted in an income tax benefit of $552 million that was recorded in 2017.

In addition, Tax Reform required us to pay U.S.

tax on our previously untaxed foreign earnings.

Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5% rate, and the remaining earnings are taxed at an 8% rate.

We elected to pay the transition tax in installments through 2025.

As a result, we recognized a provisional charge and liability of $57 million in 2017.

A $16 million increase to the provisional amount of the transition tax liability was recorded in 2018.

expense of $10 million related to the favorable settlement of certain uncertain tax positions.

No income tax refunds were received in 2019 related to the Amended Tax Returns.

I n 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.

In addition, the CRA settled with us the Voluntary Disclosure matter.

In 2020, as a result of these events, we recognized $26 million of interest-related income and $18 million of income tax benefit, which consisted of the following:

• additional income of $26 million ($23 million, net of tax) representing $16 million of interest income related to the U.S.

Federal income tax matter and withholding tax matter and a $10 million reversal of previously accrued interest related to the Canadian tax aspects of this matter,

• a reduction in our liabilities for unrecognized tax benefits of $12 million with a corresponding reduction in income tax expense related to the U.S.

Federal withholding tax matter, and

• additional income tax benefit of $9 million related to the U.S.

Federal income tax matter and related state amended returns.

In 2020, we received U.S.

federal income tax refunds, including interest, of $110 million relating to the Amended Tax Returns, consisting of $68 million related to the income tax matter and $42 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.

In the first quarter of 2021, we received approximately $20 million of withholding tax refunds, including interest, from the CRA, related to the Voluntary Disclosure Filing.

These amounts were previously recorded in our consolidated balance sheet as of December 31, 2020.

PLNL withholding tax charge

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

Our 50% share of PLNL’s tax charge is $16 million , which reduced our equity in earnings of operating affiliates for 2019 .

PLNL settlement income

PLNL operates an ammonia plant that relies on natural gas supplied, under a Gas Sales Contract (the NGC Contract), by The National Gas Company of Trinidad and Tobago Limited (NGC).

PLNL experienced past curtailments in the supply of natural gas, which reduced historical ammonia production at PLNL.

The NGC Contract had an initial expiration date of September 2018 and was extended on the same terms until September 2023.

Any NGC commitment to supply gas beyond 2023 will be based on new agreements.

In May 2018, the NGC and PLNL reached a settlement of an arbitration proceeding regarding PLNL’s claims for damages due to natural gas supply curtailments.

The net after-tax impact of the settlement reached between NGC and PLNL that is recognized in our consolidated statement of operations for 2018 was an increase in our equity in earnings of operating affiliates of approximately $19 million .

Financial Executive Summary

We reported net earnings attributable to common stockholders of $493 million in 2019 compared to $290 million in 2018 , an increase in net earnings of 70% , or $203 million .

Diluted net earnings per share attributable to common stockholders was $2.23 in 2019 compared to $1.24 in 2018 , an increase of 80% , or $0.99 per share.

The increase in net earnings of $203 million was due primarily to the following:

Gross margin increased by $257 million , or 28% , in 2019 to $1.17 billion as compared to $917 million in 2018 .

The increase in gross margin was primarily driven by a 13% decrease in natural gas costs, a 3% increase in average selling prices and a 1% increase in sales volume.

These increases were partially offset by higher costs related to maintenance activity, the impact of an unrealized net mark-to-market loss on natural gas derivatives in 2019 compared to a gain in 2018 and higher shipping and distribution costs.

Other operating—net was $73 million of income in 2019 compared to $27 million of income in 2018 , or an increase in income of $46 million .

The increase was due primarily to a $45 million gain on the sale of our Pine Bend dry bulk storage and logistics facility and $37 million of insurance proceeds related to an insurance claim at one of our nitrogen complexes.

Both of these items are more fully described above under “Items Affecting Comparability of Results.”

Equity in earnings of operating affiliate represents the results of our 50% interest in PLNL.

Equity in earnings decreased $41 million to a loss of $5 million in 2019 from $36 million of income in 2018 due to two significant events that impacted PLNL’s results.

The loss in 2019 includes a $16 million withholding tax charge and the 2018 period includes $19 million of income pertaining to a settlement over the supply of natural gas.

These events are more fully described above under “Items Affecting Comparability of Results.”

CF INDUSTRIES HOLDINGS, INC.

In 2019 , we recognized $21 million of losses on the early extinguishment of debt as we redeemed all of the $500 million outstanding principal amount of the 2020 Notes in November 2019 and $250 million principal amount of the $500 million outstanding principal amount of the 2021 Notes in December 2019.

Net interest expense decreased by $11 million to $217 million in 2019 from $228 million in 2018 .

The decrease was due to $5 million of interest income related to the settlement of the Terra amended tax returns, which is more fully described under “Liquidity and Capital Resources—Settlement of Terra Amended Tax Returns,” below.

In addition, the decrease reflects our redemption in November 2019 of all of the $500 million outstanding principal amount of the 2020 Notes and the partial redemption in December 2019 of $250 million principal amount of the 2021 Notes.

On February 13, 2019, our Board of Directors (the Board) authorized the repurchase of up to $1 billion of CF Holdings common stock through December 31, 2021 (the 2019 Share Repurchase Program).

Under the 2019 Share Repurchase Program, in 2019 , we repurchased a total of 7.6 million shares for $337 million .

In the second half of 2018, we repurchased 10.9 million shares for $500 million under the previous 2018 Share Repurchase Program.

See discussion under “Liquidity and Capital Resources—Share Repurchase Programs,” below, for further information.

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 2019.

CF INDUSTRIES HOLDINGS, INC.

Results of Consolidated Operations

Consolidated Results of Operations

The following table presents our consolidated results of operations and supplemental data:

Year ended December 31,

2020 2019 2018 (1)

(in millions, except as noted)

Net sales $ 4,124 $ 4,590 $ 4,429 $ (466) (10) % $ 161 4 %

Cost of sales (COS) 3,323 3,416 3,512 (93) (3) % (96) (3) %

Gross margin 801 1,174 917 (373) (32) % 257 28 %

Gross margin percentage 19.4 % 25.6 % 20.7 % (6.2) % 4.9 %

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Total other operating costs and expenses 189 166 187 23 14 % (21) (11) %

Equity in (loss) earnings of operating affiliates

Equity in earnings (loss) of operating affiliate 11 (5) 36 16 N/M (41) N/M

Operating earnings 623 1,003 766 (380) (38) % 237 31 %

Interest expense—net 161 217 228 (56) (26) % (11) (5) %

Loss on debt extinguishment

Loss on debt extinguishment — 21 — (21) (100) % 21 N/M

Other non-operating—net (1) (7) (9) 6 86 % 2 22 %

Earnings (loss) before income taxes

Income tax provision (benefit)

Earnings before income taxes 463 772 547 (309) (40) % 225 41 %

Income tax provision 31 126 119 (95) (75) % 7 6 %

Net earnings 432 646 428 (214) (33) % 218 51 %

Net earnings attributable to noncontrolling interests 115 153 138 (38) (25) % 15 11 %

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Natural gas costs in COS (2)

Realized derivatives (gain) loss in COS (3)

$ 2.21 $ 2.75 $ 3.15 $ (0.54) (20) % $ (0.40) (13) %

Realized derivatives loss (gain) in COS (3)

0.03 (0.01) 0.01 0.04 N/M (0.02) N/M

Cost of natural gas in COS $ 2.24 $ 2.74 $ 3.16 $ (0.50) (18) % $ (0.42) (13) %

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Average daily market price of natural gas National Balancing Point (UK) $ 3.20 $ 4.44 $ 8.07 $ (1.24) (28) % $ (3.63) (45) %

Unrealized net mark-to-market loss (gain) on natural gas derivatives

Unrealized net mark-to-market (gain) loss on natural gas derivatives $ (6) $ 14 $ (13) $ (20) N/M $ 27 N/M

Depreciation and amortization $ 892 $ 875 $ 888 $ 17 2 % $ (13) (1) %

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Production volume by product tons (000s):

10,353 10,246 9,805 107 1 % 441 4 %

Granular urea 5,001 4,941 4,837 60 1 % 104 2 %

UAN (32%) 6,677 6,768 6,903 (91) (1) % (135) (2) %

AN 2,115 2,128 1,731 (13) (1) % 397 23 %

______________________________________________________________________________

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Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K filed with the SEC on February 24, 2020.

Our net sales are derived primarily from the sale of nitrogen fertilizers and are determined by the quantities of fertilizers we sell and the selling prices we realize.

Our net sales are derived primarily from the sale of nitrogen products and are determined by the quantities of nitrogen products we sell and the selling prices we realize.

The volumes, mix and selling prices we realize are determined to a great extent by a combination of global and regional supply and demand factors.

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Sales incentives are reported as a reduction in net sales.

Our total net sales increased $161 million , or 4% , to $4.59 billion in 2019 compared to $4.43 billion in 2018 due to a 1% increase in sales volume, which increase d net sales by $99 million , and a 3% increase in average selling prices, which increase d net sales by $62 million .

Average selling prices were $235 per ton in 2019 compared to $229 per ton in 2018 , an increase of 3% , due primarily to higher average selling prices in our UAN, granular urea and AN segments, partially offset by lower average selling prices in our ammonia and Other segments.

The increase in average selling prices was driven by the impact of a tighter global nitrogen supply and demand balance.

The increase in total sales volume of 1% was due primarily to higher sales volumes in our ammonia, AN and Other segments, partially offset by lower sales volumes in our UAN and granular urea segments.

Our total net sales decreased $466 million, or 10%, to $4.12 billion in 2020 compared to $4.59 billion in 2019 due to a 14% decrease in average selling prices, which decreased net sales by $665 million, partially offset by a 4% increase in sales volume, which increased net sales by $199 million.

Average selling prices were $203 per ton in 2020 compared to $235 per ton in 2019, a decrease of 14%, due primarily to lower average selling prices across all products, primarily driven by increased global nitrogen supply availability as lower global energy costs drove higher global operating rates.

The increase in total sales volume of 4% was due to higher sales volume across all our products as greater supply availability resulting from both higher inventory levels entering 2020 and higher production in 2020.

Cost of Sales

Our cost of sales includes manufacturing costs, purchased product costs, and distribution costs.

Manufacturing costs, the most significant element of cost of sales, consist primarily of raw materials, realized and unrealized gains and losses on natural gas derivative instruments, maintenance, direct labor, depreciation and other plant overhead expenses.

Manufacturing costs, the most significant element of cost of sales, consist primarily of raw materials, realized and unrealized gains and losses on natural gas derivatives, maintenance, direct labor, depreciation and other plant overhead expenses.

Purchased product costs primarily include the cost to purchase nitrogen fertilizers to augment or replace production at our facilities.

Distribution costs include the cost of freight required to transport finished products from our plants to our distribution facilities and storage costs incurred prior to final shipment to customers.

Our cost of sales decreased $96 million , or 3% , in 2019 from 2018 .

The decrease in our cost of sales was due primarily to the impact of lower realized natural gas costs, partially offset by higher costs related to maintenance activity, higher distribution costs and an unrealized net mark-to-market loss on natural gas derivatives of $14 million in 2019 compared to an unrealized net mark-to-market gain of $13 million in 2018 .

The cost of sales per ton averaged $175 in 2019 , a 4% decrease from $182 per ton in 2018 .

Distribution costs consist of the cost of freight required to transport finished products from our plants to our distribution facilities, which are recognized in cost of sales when the product is sold to our customers, and storage costs incurred prior to final shipment to customers.

Our cost of sales decreased $93 million, or 3%, to $3.32 billion in 2020 as compared to $3.42 billion in 2019.

The decrease in our cost of sales was due primarily to the impact of lower realized natural gas costs, including the impact of realized derivatives, and lower costs related to plant maintenance activity.

We recognized an unrealized net mark-to-market gain on natural gas derivatives of $6 million in 2020 compared to an unrealized net mark-to-market loss of $14 million in 2019.

These factors were partially offset by an increase in cost of sales due to higher sales volumes, higher distribution costs, and costs related to the special COVID-19 bonus.

The special COVID-19 bonus is more fully described in the section above titled “Items Affecting Comparability of Results—COVID impacts.” The cost of sales per ton averaged $164 in 2020, a 6% decrease from $175 per ton in 2019.

Realized natural gas costs, including the impact of realized derivatives, decreased 18% to $2.24 per MMBtu in 2020 from $2.74 per MMBtu in 2019.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of corporate office expenses such as salaries and other payroll-related costs for our executive, administrative, legal, financial and marketing functions, as well as certain taxes and insurance and other professional service fees, including those for corporate initiatives.

Selling, general and administrative expenses increase d $25 million to $239 million in 2019 from $214 million in 2018 .

The increase was due primarily to costs related to certain corporate office initiatives and certain equity award modifications.

Our selling, general and administrative expenses consist primarily of corporate office expenses such as salaries and other payroll-related costs for our executive, administrative, legal, financial, IT, and sales functions, as well as certain taxes and insurance and other professional service fees, including those for corporate initiatives.

Selling, general and administrative expenses decreased $33 million, or 14%, to $206 million in 2020 from $239 million in 2019.

The decrease was due primarily to lower corporate project activity and travel as a result of the COVID-19 pandemic.

Other Operating—Net

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Other operating—net was $17 million of income in 2020 compared to $73 million of income in 2019.

The income in 2019 was due primarily to the $45 million pre-tax gain recognized on the sale of the Pine Bend facility and insurance proceeds of $37 million .

See “Items Affecting Comparability of Results—Gain on sale of Pine Bend facility and —Insurance proceeds,” above, for additional information.

The income in 2018 was due primarily to the combination of changes in legal reserves, insurance proceeds of $10 million and a gain of $6 million from the recovery of certain precious metals used in the manufacturing process.

The income in 2020 includes insurance proceeds of $37 million.

The insurance proceeds were partially offset by $9 million of expense related to the cancellation of a project, and foreign currency transaction losses of $5 million, which includes the impact of changes in foreign currency exchange rates on intercompany loans that were not permanently invested.

The income in 2019 was due

CF INDUSTRIES HOLDINGS, INC.

Equity in (Loss) Earnings of Operating Affiliates

Equity in (loss) earnings of operating affiliates primarily consists of our 50% ownership interest in PLNL.

primarily to the gain recognized on the sale of the Pine Bend facility of $45 million and insurance proceeds of $37 million, partially offset by foreign currency transaction losses.

Each of these items is more fully described in the section above titled “Items Affecting Comparability of Results.”

Equity in Earnings (Loss) of Operating Affiliate

Equity in earnings (loss) of operating affiliate consists of our 50% ownership interest in PLNL.

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

Our share of the net earnings includes the amortization of certain tangible and intangible assets identified as part of the application of purchase accounting at acquisition.

Equity in (loss) earnings of operating affiliates was $5 million of losses in 2019 compared to $36 million of earnings in 2018 .

The loss in 2019 includes approximately $16 million related to a withholding tax charge recognized by PLNL regarding a multi-year tax dispute.

Equity in earnings of operating affiliate was $11 million in 2020 compared to a loss of $5 million in 2019.

The loss in 2019 included approximately $16 million related to a withholding tax charge recognized by PLNL regarding a multi-year tax dispute.

See “Items Affecting Comparability of Results—PLNL withholding tax charge,” above, for additional information.

Earnings in 2018 includes approximately $19 million related to the net after-tax impact of a settlement reached between NGC and PLNL of an arbitration proceeding regarding PLNL’s claims for damages due to historical natural gas supply curtailments.

See “Items Affecting Comparability of Results—PLNL settlement income,” above, for additional information.

Interest Expense—Net

Our interest expense—net includes the interest expense on our long-term debt, amortization of the related fees required to execute financing agreements, annual fees pursuant to our revolving credit agreement and interest on tax liabilities.

Capitalized interest relating to the construction of major capital projects reduces interest expense as the interest is capitalized and amortized over the estimated useful lives of the facility along with all other construction costs.

Interest expense—net also includes interest income, which includes amounts earned on our cash, cash equivalents and investments.

Interest expense—net also includes interest income, which includes amounts earned on our cash, cash equivalents, and investments and any interest earned related to income tax refunds.

Net interest expense decreased by $56 million to $161 million in 2020 from $217 million in 2019.

The decrease was due primarily to our redemption of $750 million aggregate principal amount of long-term debt in the fourth quarter of 2019, which is more fully described under “Liquidity and Capital Resources—Senior Notes,” below.

In addition, the decrease reflects $26 million of income in 2020 related to the finalization of the Terra amended tax returns, which is more fully described under “Liquidity and Capital Resources—Terra Amended Tax Returns,” below.

Losses on Debt Extinguishment

On November 13, 2019, we redeemed all of the $500 million outstanding principal amount of the 2020 Notes, in accordance with the optional redemption provisions provided in the indenture governing the 2020 Notes.

On December 13, 2019, we redeemed $250 million principal amount, representing 50% of the outstanding principal amount, of the 2021 Notes, in accordance with the optional redemption provisions provided in the indenture governing the 2021 Notes.

On November 13, 2019, we redeemed in full all of the $500 million outstanding principal amount of the 2020 Notes, in accordance with the optional redemption provisions provided in the indenture governing the 2020 Notes.

On December 13, 2019, we redeemed $250 million principal amount, representing 50% of the $500 million outstanding principal amount immediately prior to such redemption, of the 2021 Notes, in accordance with the optional redemption provisions provided in the indenture governing the 2021 Notes.

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Our income tax provision for 2020 was $31 million on pre-tax income of $463 million, or an effective tax rate of 6.7% compared to an income tax provision of $126 million on pre-tax income of $772 million, or an effective tax rate of 16.3% in 2019.

Our effective tax rate is impacted by earnings attributable to the noncontrolling interest in CFN, and in the first quarter of 2018 by earnings attributable to the noncontrolling interests in TNCLP, as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interests.

Our effective tax rate for 2019 of 16.3%, which is based on pre-tax income of $772 million , would be 20.3% exclusive of the earnings attributable to the noncontrolling interest of $153 million .

Our effective tax rate for 2018 of 21.7% , which is based on pre-tax income of $547 million , would be 29.1% exclusive of the earnings attributable to the noncontrolling interests of $138 million .

For 2019 , our income tax provision includes 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, and an income tax benefit of $10 million related to the favorable settlement of certain uncertain tax positions related to the Terra amended tax returns, which is more fully described under “Liquidity and Capital Resources—Settlement of Terra Amended Tax Returns,” below.

Our effective tax rate for 2018 was impacted by a $16 million increase to the provisional amount recorded in 2017 for the transition tax liability as result of the enactment of the Tax Act.

For 2020, our income tax provision includes a $27 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 more fully described under “Liquidity and Capital Resources—Terra Amended Tax Returns,” below.

For 2019, our income tax provision includes 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, and an income tax benefit of $10 million related to the favorable settlement of certain uncertain tax positions related to the Terra amended tax returns.

Our effective tax rate is impacted by earnings attributable to the noncontrolling interest in 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 2020 of 6.7%, which is based on pre-tax income of $463 million, would be 2.2 percentage points higher, or 8.9%, if based on pre-tax income exclusive of the earnings attributable to the noncontrolling interest of $115 million.

Our effective tax rate for 2019 of 16.3%, which is based on pre-tax income of $772 million, would be 4.0 percentage points higher, or 20.3%, if based on pre-tax income exclusive of the earnings attributable to the noncontrolling interest of $153 million.

CF INDUSTRIES HOLDINGS, INC.

On April 2, 2018, we acquired the TNCLP Public Units.

Our effective tax rate in 2018 was impacted by a $16 million reduction to our deferred tax liability due to the change in our effective state income tax rate resulting from the implementation of legal entity structure changes related to the acquisition.

Both 2020 and 2019 were impacted by additional discrete tax items.

See Note 10—Income Taxes for additional information.

Net Earnings Attributable to Noncontrolling Interests

Net earnings attributable to noncontrolling interests includes the net earnings attributable to the approximately 11% CHS minority equity interest in CFN, a subsidiary of CF Holdings.

Prior to April 2, 2018, net earnings attributable to noncontrolling interests also included the net earnings attributable to the 24.7% interest of the publicly held common units of TNCLP.

Beginning in the second quarter of 2018, as a result of the April 2, 2018 acquisition of the TNCLP Public Units, there are no longer earnings attributable to noncontrolling interests in TNCLP.

Net earnings attributable to noncontrolling interests increased $15 million in 2019 compared to 2018 due to higher earnings from CFN driven by higher average selling prices due to the impact of a tighter global nitrogen supply and demand balance and lower realized natural gas costs, partially offset by the reduction in noncontrolling interests due to the April 2, 2018 purchase of the noncontrolling interests in TNCLP.

In 2018 , earnings attributable to noncontrolling interests in TNCLP was $8 million.

Net Earnings Attributable to Noncontrolling Interest

Net earnings attributable to noncontrolling interest includes the net earnings attributable to the approximately 11% CHS minority equity interest in CFN, a subsidiary of CF Holdings.

Net earnings attributable to noncontrolling interest decreased $38 million, or 25%, to $115 million in 2020 compared to $153 million in 2019 due to lower earnings of CFN driven by lower average selling prices due primarily to increased global nitrogen supply availability.

Diluted Net Earnings Per Share Attributable to Common Stockholders

Diluted net earnings per share attributable to common stockholders increase d $0.99 to $2.23 per share in 2019 from $1.24 per share in 2018 .

This increase is due primarily to higher gross margin primarily driven by lower realized natural gas costs, higher average selling prices due to the impact of a tighter global nitrogen supply and demand balance, higher sales volume, and a 5% reduction in diluted weighted-average common shares outstanding due to repurchases made under our share repurchase programs.

CF INDUSTRIES HOLDINGS, INC.

Net earnings per share attributable to common stockholders decreased $0.76 to $1.47 per diluted share in 2020 from $2.23 per diluted share in 2019.

This decrease is due primarily to lower net earnings, partially offset by the impact of a 3% reduction in diluted weighted-average common shares outstanding due to repurchases made under our share repurchase program.

See discussion under “Liquidity and Capital Resources—Share Repurchase Program,” below, for further information.

Operating Results by Business Segment

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The following table presents summary operating results by business segment:

Granular Urea (1)

Ammonia Granular Urea (1)

(in millions)

Year ended December 31, 2020

Net sales $ 1,020 $ 1,248 $ 1,063 $ 455 $ 338 $ 4,124

Cost of sales 850 847 949 390 287 3,323

Gross margin $ 170 $ 401 $ 114 $ 65 $ 51 $ 801

Gross margin percentage 16.7 % 32.1 % 10.7 % 14.3 % 15.1 % 19.4 %

Year ended December 31, 2019

Net sales $ 1,113 $ 1,342 $ 1,270 $ 506 $ 359 $ 4,590

Cost of sales 878 861 981 399 297 3,416

Gross margin $ 235 $ 481 $ 289 $ 107 $ 62 $ 1,174

Gross margin percentage 21.1 % 35.8 % 22.8 % 21.1 % 17.3 % 25.6 %

Year ended December 31, 2018

Net sales $ 1,028 $ 1,322 $ 1,234 $ 460 $ 385 $ 4,429

Cost of sales 867 889 1,007 414 335 3,512

Gross margin $ 161 $ 433 $ 227 $ 46 $ 50 $ 917

Gross margin percentage 15.7 % 32.8 % 18.4 % 10.0 % 13.0 % 20.7 %

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Ammonia Segment

Our ammonia segment produces anhydrous ammonia (ammonia), which is our most concentrated nitrogen fertilizer as it contains 82% nitrogen.

Our ammonia segment produces anhydrous ammonia (ammonia), which is our most concentrated nitrogen product.

Ammonia contains 82% nitrogen and 18% hydrogen.

The results of our ammonia segment consist of sales of ammonia to external customers.

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Year ended December 31,

2020 2019 2018 2020 v.

(in millions, except as noted)

Net sales $ 1,020 $ 1,113 $ 1,028 $ (93) (8) % $ 85 8 %

Cost of sales 850 878 867 (28) (3) % 11 1 %

Gross margin $ 170 $ 235 $ 161 $ (65) (28) % $ 74 46 %

Gross margin percentage 16.7 % 21.1 % 15.7 % (4.4) % 5.4 %

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Sales volume by nutrient tons (000s) (1)

3,090 2,884 2,571 206 7 % 313 12 %

Average selling price per product ton $ 271 $ 317 $ 328 $ (46) (15) % $ (11) (3) %

Average selling price per nutrient ton (1)

$ 330 $ 386 $ 400 $ (56) (15) % $ (14) (4) %

Gross margin per product ton $ 45 $ 67 $ 51 $ (22) (33) % $ 16 31 %

Gross margin per nutrient ton (1)

$ 55 $ 81 $ 63 $ (26) (32) % $ 18 29 %

Depreciation and amortization $ 176 $ 167 $ 155 $ 9 5 % $ 12 8 %

Unrealized net mark-to-market loss (gain) on natural gas derivatives

Unrealized net mark-to-market (gain) loss on natural gas derivatives $ (2) $ 4 $ (4) $ (6) N/M $ 8 N/M

_______________________________________________________________________________

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Net sales in the ammonia segment increase d by $85 million , or 8% , to $1.11 billion in 2019 from $1.03 billion in 2018 due primarily to a 12% increase in sales volume, partially offset by a 3% decrease in average selling prices.

Sales volume was higher in 2019 due to greater supply availability due to increased production.

The decrease in average selling prices was due to increased global supply as a result of higher global operating rates driven by lower global energy prices.

Net sales in our ammonia segment decreased by $93 million, or 8%, to $1.02 billion in 2020 from $1.11 billion in 2019 due primarily to a 15% decrease in average selling prices, partially offset by a 7% increase in sales volume.

Average selling prices decreased to $271 per ton in 2020 compared to $317 per ton in 2019.

The decrease in average selling prices was due to increased global nitrogen supply availability as lower global energy costs drove higher global operating rates.

Sales volume was higher in 2020 due to greater supply availability resulting from increased production and higher inventory levels entering 2020.

Cost of Sales.

Cost of sales in our ammonia segment averaged $250 per ton in 2019 , a 10% decrease from $277 per ton in 2018 due primarily to the impact of lower realized natural gas costs and lower costs associated with plant turnaround and maintenance activity, partially offset by the impact of a $4 million unrealized net mark-to-market loss on natural gas derivatives in 2019 compared to a $4 million gain in 2018 .

Cost of sales in our ammonia segment averaged $226 per ton in 2020, a 10% decrease from $250 per ton in 2019, due primarily to the impact of lower realized natural gas costs and lower costs related to plant maintenance activity, partially offset by higher distribution costs.

Gross Margin .

Gross margin in our ammonia segment increased by $74 million to $235 million in 2019 from $161 million in 2018 , and our gross margin percentage was 21.1% in 2019 compared to 15.7% in 2018 .

The increase in gross margin was due to a 12% increase in sales volume, which increased gross margin by $60 million, a decrease in realized natural gas costs, which increased gross margin by $33 million, and a $31 million decrease in other manufacturing and distribution costs.

These factors were partially offset by a 3% decrease in average selling prices, which reduced gross margin by $42 million , and the impact of a $4 million unrealized net mark-to-market loss on natural gas derivatives in 2019 compared to a $4 million gain in 2018 .

Gross margin in our ammonia segment decreased by $65 million to $170 million in 2020 from $235 million in 2019, and our gross margin percentage was 16.7% in 2020 compared to 21.1% in 2019.

The decrease in gross margin was due to a 15% decrease in average selling prices, which reduced gross margin by $170 million.

This factor was partially offset by a decrease in realized natural gas costs, which increased gross margin by $57 million, a 7% increase in sales volume, which increased gross margin by $29 million, a $13 million net decrease in other manufacturing and distribution costs, and the impact of a $2 million unrealized net mark-to-market gain on natural gas derivatives in 2020 compared to a $4 million loss in 2019.

CF INDUSTRIES HOLDINGS, INC.

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Year ended December 31,

2020 2019 2018 2020 v.

(in millions, except as noted)

Net sales $ 1,248 $ 1,342 $ 1,322 $ (94) (7) % $ 20 2 %

Cost of sales 847 861 889 (14) (2) % (28) (3) %

Gross margin $ 401 $ 481 $ 433 $ (80) (17) % $ 48 11 %

Gross margin percentage 32.1 % 35.8 % 32.8 % (3.7) % 3.0 %

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Sales volume by nutrient tons (000s) (1)

2,368 2,231 2,253 137 6 % (22) (1) %

Average selling price per product ton $ 242 $ 277 $ 270 $ (35) (13) % $ 7 3 %

Average selling price per nutrient ton (1)

$ 527 $ 602 $ 587 $ (75) (12) % $ 15 3 %

Gross margin per product ton $ 78 $ 99 $ 88 $ (21) (21) % $ 11 13 %

Gross margin per nutrient ton (1)

$ 169 $ 216 $ 192 $ (47) (22) % $ 24 13 %

Depreciation and amortization $ 270 $ 264 $ 276 $ 6 2 % $ (12) (4) %

Unrealized net mark-to-market loss (gain) on natural gas derivatives

Unrealized net mark-to-market (gain) loss on natural gas derivatives $ (2) $ 4 $ (4) $ (6) N/M $ 8 N/M

______________________________________________________________________________

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Net sales in the granular urea segment increase d $20 million , or 2% , to $1.34 billion in 2019 compared to $1.32 billion in 2018 due primarily to a 3% increase in average selling prices, partially offset by a 1% decrease in sales volume.

Average selling prices increase d to $277 per ton in 2019 compared to $270 per ton in 2018 .

The increase was due primarily to the impact of a tighter global nitrogen supply and demand balance and the impact high water levels and flooding had on the shipping and logistics on inland rivers, including limiting access to the U.S.

Gulf for imports, during the spring application season.

Net sales in our granular urea segment decreased $94 million, or 7%, to $1.25 billion in 2020 compared to $1.34 billion in 2019 due primarily to a 13% decrease in average selling prices, partially offset by a 6% increase in sales volume.

Average selling prices decreased to $242 per ton in 2020 compared to $277 per ton in 2019.

The decrease was due primarily to increased global nitrogen supply availability as lower global energy costs drove higher global operating rates.

Sales volume was higher due primarily to greater supply availability resulting from higher inventory levels entering 2020 and increased production.

In addition, North American demand strengthened in the fourth quarter of 2020 amid increasing crop prices and overall improved farm economics.

Cost of Sales.

Cost of sales in our granular urea segment averaged $178 per ton in 2019 , a 2% decrease from $182 per ton in 2018 .

The decrease was due primarily to lower realized natural gas costs, partially offset by the impact of a $4 million unrealized net mark-to-market loss on natural gas derivatives in 2019 compared to a $4 million gain in 2018 .

Cost of sales in our granular urea segment averaged $164 per ton in 2020, an 8% decrease from $178 per ton in 2019, due primarily to the impact of lower realized natural gas costs and lower costs related to plant maintenance activity.

Gross Margin .

Gross margin in our granular urea segment increased by $48 million to $481 million in 2019 from $433 million in 2018 , and our gross margin percentage was 35.8% in 2019 compared to 32.8% in 2018 .

The increase in gross margin was due to a 3% increase in average selling prices, which increased gross margin by $38 million, a decrease in realized natural gas costs, which increased gross margin by $21 million, and a $12 million decrease in other manufacturing and distribution costs.

These factors were partially offset by a 1% decrease in sales volume, which reduced gross margin by $15 million , and the impact of a $4 million unrealized net mark-to-market loss on natural gas derivatives in 2019 compared to a $4 million gain in 2018 .

Gross margin in our granular urea segment decreased by $80 million to $401 million in 2020 from $481 million in 2019, and our gross margin percentage was 32.1% in 2020 compared to 35.8% in 2019.

The decrease in gross margin was due to a 13% decrease in average selling prices, which decreased gross margin by $166 million.

This factor was partially offset by a decrease in realized natural gas costs, which increased gross margin by $40 million, a $23 million net decrease in other manufacturing and distribution costs, a 6% increase in sales volume, which increased gross margin by $17 million, and the impact of a $2 million unrealized net mark-to-market gain on natural gas derivatives in 2020 compared to a $4 million loss in 2019.

CF INDUSTRIES HOLDINGS, INC.

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Year ended December 31,

2020 2019 2018 2020 v.

(in millions, except as noted)

Net sales $ 1,063 $ 1,270 $ 1,234 $ (207) (16) % $ 36 3 %

Cost of sales 949 981 1,007 (32) (3) % (26) (3) %

Gross margin $ 114 $ 289 $ 227 $ (175) (61) % $ 62 27 %

Gross margin percentage 10.7 % 22.8 % 18.4 % (12.1) % 4.4 %

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Sales volume by nutrient tons (000s) (1)

2,155 2,144 2,225 11 1 % (81) (4) %

Average selling price per product ton $ 155 $ 187 $ 175 $ (32) (17) % $ 12 7 %

Average selling price per nutrient ton (1)

$ 493 $ 592 $ 555 $ (99) (17) % $ 37 7 %

Gross margin per product ton $ 17 $ 42 $ 32 $ (25) (60) % $ 10 31 %

Gross margin per nutrient ton (1)

$ 53 $ 135 $ 102 $ (82) (61) % $ 33 32 %

Depreciation and amortization $ 256 $ 251 $ 270 $ 5 2 % $ (19) (7) %

Unrealized net mark-to-market loss (gain) on natural gas derivatives

Unrealized net mark-to-market (gain) loss on natural gas derivatives $ (2) $ 4 $ (4) $ (6) N/M $ 8 N/M

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Net sales in the UAN segment increase d $36 million , or 3% , to $1.27 billion in 2019 compared to $1.23 billion in 2018 due primarily to a 7% increase in average selling prices, partially offset by a 3% decrease in sales volume.

Average selling prices increase d to $187 per ton in 2019 compared to $175 per ton in 2018 , due primarily to the impact of a tighter global nitrogen supply and demand balance, the impact high water levels and flooding had on the shipping and logistics on inland rivers and an extended spring application season.

The decrease in sales volume was due primarily to lower production due to higher granular urea production throughout most of 2019 and the impact of lower exports to Europe.

In April 2019, the European Commission (the Commission) published a regulation imposing provisional anti-dumping duties on imports to the European Union of UAN manufactured in Russia, the Republic of Trinidad and Tobago and the United States.

The regulation included a rate of 22.6% for the provisional anti-dumping duty applicable to imports of UAN manufactured in the United States.

In July 2019, the Commission announced its intention to impose definitive anti-dumping measures in the form of fixed duty rates.

For imports of UAN manufactured in the United States, the fixed duty rate is €29.48 per metric ton (or €26.74 per ton).

On October 8, 2019, the Commission confirmed this duty in a regulation imposing definitive measures, which became effective beginning October 9, 2019 for an initial five-year period, after which the measures may be renewed by the Commission.

Net sales in our UAN segment decreased $207 million, or 16%, to $1.06 billion in 2020 compared to $1.27 billion in 2019 due primarily to a 17% decrease in average selling prices, partially offset by a 1% increase in sales volume.

Average selling prices decreased to $155 per ton in 2020 compared to $187 per ton in 2019 due primarily to increased global nitrogen supply availability as lower global energy costs drove higher global operating rates and increased imports into the United States as trade flows adjusted in response to the European Union anti-dumping duties.

Sales volume in our UAN segment was approximately 6.8 million tons in both 2020 and 2019.

Cost of Sales.

Cost of sales in our UAN segment averaged $145 per ton in 2019 , a 1% increase from $143 per ton in 2018 .

The increase was due primarily to higher costs related to maintenance activity, higher shipping and distribution costs due to the mix of transportation modes and the impact of a $4 million unrealized net mark-to-market loss on natural gas derivatives in 2019 compared to a $4 million gain in 2018 , mostly offset by lower realized natural gas costs.

Cost of sales in our UAN segment averaged $138 per ton in 2020, a 5% decrease from $145 per ton in 2019, due primarily to the impact of lower realized natural gas costs.

Gross Margin.

Gross margin in our UAN Segment increased by $62 million to $289 million in 2019 from $227 million in 2018 , and our gross margin percentage was 22.8% in 2019 compared to 18.4% in 2018 .

The increase in gross margin was due to a 7% increase in average selling prices, which increased gross margin by $76 million, and a decrease in realized natural gas costs, which increased gross margin by $29 million.

These factors were partially offset by a $24 million increase in other manufacturing and distribution costs and a 3% decrease in sales volume, which reduced gross margin by

Gross margin in our UAN segment decreased by $175 million to $114 million in 2020 from $289 million in 2019, and our gross margin percentage was 10.7% in 2020 compared to 22.8% in 2019.

The decrease in gross margin was due to a 17% decrease in average selling prices, which decreased gross margin by $222 million, and a $27 million net increase in other manufacturing and distribution costs.

These factors were partially offset by a decrease in realized natural gas costs, which increased gross margin by $58 million, a 1% increase in sales volume, which increased gross margin by $10 million, and the impact of a $2 million unrealized net mark-to-market gain on natural gas derivatives in 2020 compared to a $4 million loss in 2019.

CF INDUSTRIES HOLDINGS, INC.

$11 million , and the impact of a $4 million unrealized net mark-to-market loss on natural gas derivatives in 2019 compared to a $4 million gain in 2018 .

Our AN segment produces ammonium nitrate (AN).

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Year ended December 31,

2020 2019 2018 2020 v.

(in millions, except as noted)

Net sales $ 455 $ 506 $ 460 $ (51) (10) % $ 46 10 %

Cost of sales 390 399 414 (9) (2) % (15) (4) %

Gross margin $ 65 $ 107 $ 46 $ (42) (39) % $ 61 133 %

Gross margin percentage 14.3 % 21.1 % 10.0 % (6.8) % 11.1 %

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Sales volume by nutrient tons (000s) (1)

747 708 676 39 6 % 32 5 %

Average selling price per product ton $ 205 $ 240 $ 230 $ (35) (15) % $ 10 4 %

Average selling price per nutrient ton (1)

$ 609 $ 715 $ 680 $ (106) (15) % $ 35 5 %

Gross margin per product ton $ 29 $ 51 $ 23 $ (22) (43) % $ 28 122 %

Gross margin per nutrient ton (1)

$ 87 $ 151 $ 68 $ (64) (42) % $ 83 122 %

Depreciation and amortization $ 100 $ 88 $ 85 $ 12 14 % $ 3 4 %

Unrealized net mark-to-market loss on natural gas derivatives

Unrealized net mark-to-market loss on natural gas derivatives $ — $ 1 $ — $ (1) (100) % $ 1 N/M

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N/M—Not Meaningful

(1) AN represents between 29% and 35% of nitrogen content.

Nutrient tons represent the tons of nitrogen within the product tons.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Net sales in our AN segment increase d $46 million , or 10% , to $506 million in 2019 from $460 million in 2018 due primarily to a 5% increase in sales volume and a 4% increase in average selling prices.

Sales volume increase d due primarily to higher sales in North America as a result of strong demand.

Average selling prices increase d to $240 per ton in 2019 compared to $230 per ton in 2018 due primarily to the impact of a tighter global nitrogen supply and demand balance.

Net sales in our AN segment decreased $51 million, or 10%, to $455 million in 2020 from $506 million in 2019 due primarily to a 15% decrease in average selling prices, partially offset by a 5% increase in sales volume.

Average selling prices decreased to $205 per ton in 2020 compared to $240 per ton in 2019 due primarily to increased global nitrogen supply availability as lower global energy costs drove higher global operating rates.

Sales volume increased due primarily to greater supply availability as a result of higher inventory levels entering 2020.

Cost of Sales.

Cost of sales in our AN segment averaged $189 per ton in 2019 , a 9% decrease from $207 per ton in 2018 .

The decrease was due primarily to lower realized natural gas costs, partially offset by higher costs for turnaround and maintenance activity and the cost to purchase ammonia for upgrading to AN when certain ammonia plants were in turnaround.

Cost of sales in our AN segment averaged $176 per ton in 2020, a 7% decrease from $189 per ton in 2019, due primarily to the impact of lower realized natural gas costs and lower costs related to plant maintenance activity.

Gross Margin .

Gross margin in our AN segment increased by $61 million to $107 million in 2019 from $46 million in 2018 , and our gross margin percentage was 21.1% in 2019 compared to 10.0% in 2018 .

The increase in gross margin was due to a decrease in realized natural gas costs, which increased gross margin by $50 million, a 4% increase in average selling prices, which increased gross margin by $34 million, and a 5% increase in sales volume, which increased gross margin by $12 million .

These factors were partially offset by a $35 million increase in other manufacturing and distribution costs.

Gross margin in our AN segment decreased by $42 million to $65 million in 2020 from $107 million in 2019, and our gross margin percentage was 14.3% in 2020 compared to 21.1% in 2019.

The decrease in gross margin was due to a 15% decrease in average selling prices, which decreased gross margin by $77 million.

This factor was partially offset by a decrease in realized natural gas costs, which increased gross margin by $26 million, and a 5% increase in sales volume, which increased gross margin by $4 million, a $4 million net decrease in other manufacturing and distribution costs, and the impact of a $1 million unrealized net mark-to-market loss on natural gas derivatives in 2019.

CF INDUSTRIES HOLDINGS, INC.

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• Urea liquor is a liquid product that we sell in concentrations of 40%, 50% and 70% urea as a chemical intermediate.

Nitric acid is a nitrogen-based industrial product.

• Nitric acid is a nitrogen-based mineral acid that is used in the production of nitrate-based fertilizers, nylon precursors and other specialty chemicals.

• Compound fertilizer products (NPKs) are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium.

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Year ended December 31,

2020 2019 2018 2020 v.

(in millions, except as noted)

Net sales $ 338 $ 359 $ 385 $ (21) (6) % $ (26) (7) %

Cost of sales 287 297 335 (10) (3) % (38) (11) %

Gross margin $ 51 $ 62 $ 50 $ (11) (18) % $ 12 24 %

Gross margin percentage 15.1 % 17.3 % 13.0 % (2.2) % 4.3 %

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Sales volume by nutrient tons (000s) (1)

457 444 439 13 3 % 5 1 %

Average selling price per product ton $ 146 $ 159 $ 171 $ (13) (8) % $ (12) (7) %

Average selling price per nutrient ton (1)

$ 740 $ 809 $ 877 $ (69) (9) % $ (68) (8) %

Gross margin per product ton $ 22 $ 27 $ 22 $ (5) (19) % $ 5 23 %

Gross margin per nutrient ton (1)

$ 112 $ 140 $ 114 $ (28) (20) % $ 26 23 %

Depreciation and amortization $ 68 $ 72 $ 67 $ (4) (6) % $ 5 7 %

Unrealized net mark-to-market loss (gain) on natural gas derivatives

Unrealized net mark-to-market loss (gain) on natural gas derivatives $ — $ 1 $ (1) $ (1) (100) % $ 2 N/M

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Net sales in our Other segment decrease d $26 million , or 7% , to $359 million in 2019 from $385 million in 2018 due to a 7% decrease in average selling prices.

The decrease in average selling prices is due primarily to the mix of products sold and increased global supply as a result of higher global operating rates driven by lower global energy prices.

Net sales in our Other segment decreased $21 million, or 6%, to $338 million in 2020 from $359 million in 2019 due to an 8% decrease in average selling prices, partially offset by a 3% increase in sales volume.

Average selling prices decreased to $146 per ton in 2020 compared to $159 per ton in 2019.

The decrease in average selling prices was due primarily to increased global nitrogen supply availability as lower global energy costs drove higher global operating rates.

The increase in sales volume was due primarily to higher DEF and NPK sales volumes, partially offset by lower nitric acid sales volume.

Cost of Sales.

Cost of sales in our Other segment averaged $132 per ton in 2019 , an 11% decrease from $149 per ton in 2018 , due primarily to lower realized natural gas costs and lower costs associated with plant turnaround and maintenance activity.

Cost of sales in our Other segment averaged $124 per ton in 2020, a 6% decrease from $132 per ton in 2019, due primarily to the impact of lower realized natural gas costs.

Gross Margin .

Gross margin in our Other segment increased by $12 million to $62 million in 2019 from $50 million in 2018 , and our gross margin percentage was 17.3% in 2019 compared to 13.0% in 2018 .

The increase in gross margin was due to a decrease in realized natural gas costs, which increased gross margin by $20 million, a $10 million decrease in other manufacturing and distribution costs, and a shift in the mix of products sold within the segment which increased gross margin by $5 million.

These factors were partially offset by a 7% decrease in average selling prices, which reduced gross margin by $21 million , and the impact of a $1 million unrealized net mark-to-market loss on natural gas derivatives in 2019 compared to a $1 million gain in 2018 .

Gross margin in our Other segment decreased by $11 million to $51 million in 2020 from $62 million in 2019, and our gross margin percentage was 15.1% in 2020 compared to 17.3% in 2019.

The decrease in gross margin was due to an 8% decrease in average selling prices, which reduced gross margin by $30 million.

This factor was partially offset by a decrease in realized natural gas costs, which increased gross margin by $14 million, a $3 million net decrease in other manufacturing and distribution costs, a 3% increase in sales volume including a shift in the mix of products sold within the segment, which increased gross margin by $1 million, and the impact of a $1 million unrealized net mark-to-market loss on natural gas derivatives in 2019.

CF INDUSTRIES HOLDINGS, INC.

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We may also from time to time access the capital markets or engage in borrowings under our revolving credit agreement.

We generated net cash from operating activities in 2019 of $1.51 billion .

The primary uses of our cash in 2019 were for the following items:

On December 13, 2019, we redeemed $250 million principal amount, representing 50% of the outstanding principal amount, of the 3.400% senior secured notes due 2021 (the 2021 Notes), in accordance with the optional redemption provisions provided in the indenture governing the 2021 Notes.

The total amount paid for the redemption of the 2020 Notes and the partial redemption of the 2021 Notes was $769 million .

See discussion under “Debt,” below, for further information.

In 2019 , we repurchased approximately 7.6 million shares of CF Holdings common stock for $337 million .

See discussion under “Share Repurchase Programs,” below, for further information.

Capital expenditures were $404 million in 2019 , dividends paid to common stockholders were $265 million and distributions to the noncontrolling interest were $186 million .

At December 31, 2019 , we were in compliance with all applicable covenant requirements under our revolving credit agreement, senior notes and senior secured notes.

There were no borrowings outstanding under our revolving credit agreement as of December 31, 2019 or December 31, 2018 , or during 2019 or 2018 .

See discussion under “Debt,” below, for further information.

Our cash and cash equivalents balance was $287 million at December 31, 2019 , a decrease of $395 million from $682 million at December 31, 2018 .

Total long-term debt was $3,957 million as of December 31, 2019 , a decrease of $741 million from $4,698 million at December 31, 2018 .

Our cash from operations could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic.

In March 2020, as the impact of the COVID-19 pandemic unfolded in many locations around the world, credit markets began to function less efficiently, causing concern about liquidity in credit markets generally.

In response to this and out of an abundance of caution, we borrowed $500 million under our $750 million revolving credit agreement to ensure we maintained ample financial flexibility in light of the uncertainty in the global markets, including the financial credit markets.

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.

Our cash and cash equivalents balance was $683 million at December 31, 2020, an increase of $396 million from $287 million at December 31, 2019.

At December 31, 2020, we were in compliance with all applicable covenant requirements under our revolving credit agreement, senior notes and senior secured notes, and unused borrowing capacity under our revolving credit agreement was $750 million.

On February 17, 2021, we announced that our wholly owned subsidiary CF Industries elected to redeem in full the entire outstanding $250 million principal amount of 3.400% Senior Secured Notes due December 2021 (the 2021 Notes) on March 20, 2021, in accordance with the optional redemption provisions provided in the indenture governing the 2021 Notes.

Based on market interest rates on February 12, 2021, we estimate that the total amount for the redemption of the 2021 Notes will be approximately $258 million, including accrued interest.

Cash Equivalents

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and those guaranteed by entities affiliated with governmental entities.

Share Repurchase Programs

On August 1, 2018, the Board authorized the repurchase of up to $500 million of CF Holdings common stock through June 30, 2020 (the 2018 Share Repurchase Program).

In 2018, we completed the 2018 Share Repurchase Program with the repurchase of 10.9 million shares for $500 million , of which $33 million was accrued as of December 31, 2018 and paid in January 2019.

In February 2019, we retired all 10.9 million shares that were repurchased under the 2018 Share Repurchase Program.

Share Repurchase Program

On February 13, 2019, the Board authorized the repurchase of up to $1 billion of CF Holdings common stock through December 31, 2021 (the 2019 Share Repurchase Program).

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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.

During the year ended December 31, 2019 , we repurchased approximately 7.6 million shares of CF Holdings common stock for $337 million .

In June and December of 2019, we retired approximately 4.2 million and 3.4 million shares, respectively, that were repurchased under the 2019 Share Repurchase Program.

During the year ended December 31, 2019, we repurchased approximately 7.6 million shares of CF Holdings common stock under the 2019 Share Repurchase Program for $337 million.

In June and December of 2019, we retired approximately 4.2 million and 3.4 million shares, respectively, that were repurchased under the 2019 Share Repurchase Program in 2019.

During 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 and retired those shares in the second quarter of 2020.

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

At December 31, 2020, we held 102,843 shares of treasury stock.

CF INDUSTRIES HOLDINGS, INC.

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

Shares Amounts

(in millions)

Shares repurchased in 2019:

First quarter 1.5 $ 60

Second quarter 2.7 118

Third quarter 1.5 72

Fourth quarter 1.9 87

Shares repurchased as of December 31, 2019 7.6 337

Shares repurchased in 2020:

First quarter 2.6 100

Shares repurchased as of December 31, 2020

Capital Spending

We make capital expenditures to sustain our asset base, increase our capacity, improve plant efficiency and comply with various environmental, health and safety requirements.

Capital expenditures were $404 million in 2019 compared to $422 million in 2018 .

Capital expenditures in 2020 are estimated to be in the range of $400 to $450 million.

Planned capital expenditures are subject to change due to delays in regulatory approvals or permitting, unanticipated increases in cost, changes in scope and completion time, performance of third parties, delay in the receipt of equipment, adverse weather, defects in materials and workmanship, labor or material shortages, transportation constraints, acceleration or delays in the timing of the work and other unforeseen difficulties.

Capital expenditures totaled $309 million in 2020 compared to $404 million in 2019.

The decrease in capital expenditures in 2020 was due primarily to actions take to defer certain non-essential capital project activity as a result of the COVID-19 pandemic.

Capital expenditures in 2021 are estimated to be in the range of $450 million, which reflects a return to a normal spending level and includes expenditures for our initial green ammonia project at our Donaldsonville complex.

Planned capital expenditures are generally subject to change due to delays in regulatory approvals or permitting, unanticipated increases in cost, changes in scope and completion time, performance of third parties, delays in the receipt of equipment, adverse weather, defects in materials and workmanship, labor or material shortages, transportation constraints, acceleration or delays in the timing of the work and other unforeseen difficulties.

All of these factors may also be influenced or exacerbated by the direct or indirect impacts of the COVID-19 pandemic.

Government Policies

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Other factors that drive the ethanol market include the prices of ethanol, gasoline and corn.

Lower gasoline prices and fewer aggregate miles, driven by increased automobile fuel efficiency, may put pressure on ethanol prices that could result in reduced profitability and lower production for the ethanol industry, which could impact the demand for corn and nitrogen fertilizer and therefore could impact our liquidity.

Settlement of Terra Amended Tax Returns

The Company completed the acquisition of 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.

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.

In early 2013, the IRS commenced an examination of the U.S.

tax aspects of the Amended Tax Returns.

In 2017, the Company also made a Voluntary Disclosure Filing with the Canadian Revenue Agency (CRA) with respect to the Canadian tax aspects of this matter and paid additional Canadian taxes due.

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.

For purposes of its review, the Joint Committee separated the IRS audit reports into two separate matters:

(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 expect to receive a cash refund in the first half of 2020 of approximately $57 million , including interest.

As a result of the approval by the Joint Committee, the Company recognized in the fourth quarter of 2019 interest income of $5 million ( $4 million , net of tax) and a reduction in income tax expense of $10 million as a result of the favorable settlement of certain uncertain tax positions.

The Joint Committee has not yet approved the IRS audit report relating to the withholding tax matter.

If this approval is received, we expect to receive an additional tax refund of approximately $29 million, excluding related interest, and record a reduction in income tax expense of approximately $12 million.

The Company previously recorded a tax receivable of CAD $27 million (or $21 million) related to the Canadian tax aspects of this matter, which continues to be under review by the CRA.

Lower gasoline prices and fewer aggregate miles, driven by increased automobile fuel efficiency or the continued expansion of electric vehicles, may put pressure on ethanol prices that could result in reduced profitability and lower production for the ethanol industry.

This could impact the demand for corn and nitrogen fertilizer and, therefore, could impact our liquidity.

CF INDUSTRIES HOLDINGS, INC.

As a result of the Joint Committee approval of the Amended Tax Returns, the IRS has now completed their examination of the Company’s U.S.

income tax returns, including all U.S.

predecessor company returns, through 2011.

Terra Amended Tax Returns

In 2020, we received income tax refunds, including interest, of $110 million relating to the settlement of IRS audits of amended tax returns that we had filed in 2012 related to prior tax years.

See discussion under “Items Affecting Comparability—Terra Amended Tax Returns,” above, for further information.

Repatriation of Foreign Earnings and Income Taxes

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As of December 31, 2020, approximately $122 million of our consolidated cash and cash equivalents balance of $683 million was held by our Canadian and United Kingdom subsidiaries.

Historically, the cash balance held by the Canadian subsidiaries represented accumulated earnings of our foreign operations that were not considered to be permanently reinvested.

As of December 31, 2019 , as a result of the amounts accrued in the transition tax liability recorded in 2017 and 2018 as a result of the Tax Act, we would not expect any additional cash tax cost to repatriate the Canadian and United Kingdom cash balances if we were to repatriate this cash in the future, other than foreign withholding tax.

Historically, and for the current year, the cash balance held by the Canadian subsidiaries represented accumulated earnings of our foreign operations that were not considered to be permanently reinvested.

As of December 31, 2020, we would not expect any additional cash tax cost to repatriate the Canadian and United Kingdom cash balances if we were to repatriate this cash in the future, other than foreign withholding tax.

Net Operating Loss and Capital Loss Carryforwards

As of December 31, 2018, we had net operating loss and capital loss carryforwards (collectively, the Tax Loss Carryforwards) of $271 million.

These Tax Loss Carryforwards are available to reduce taxable income and thereby, reduce cash taxes in the United States and other tax jurisdictions in which they can be applied.

As a result of the effective usage of certain of these Tax Loss Carryforwards to offset current cash taxes payable, there are no U.S.

These Tax Loss Carryforwards were available to reduce taxable income and thereby, reduce cash taxes in the United States and other tax jurisdictions in which they could be applied.

As a result of the effective usage of certain of these Tax Loss Carryforwards to offset current cash taxes payable, there were no U.S.

Federal Tax Loss Carryforwards remaining as of December 31, 2019.

As a result, we expect an increase in cash taxes in 2020, before taking into account income tax refunds related to the settlement of the Terra Amended Tax Returns.

As a result, we paid income taxes of approximately $111 million in 2020, net of income tax refunds of approximately $90 million primarily related to the Terra Amended Tax Returns, which are more fully described above under “Items Affecting Comparability—Terra Amended Tax Returns.”

Revolving Credit Agreement

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Borrowings under the Revolving Credit Agreement may be used for working capital, capital expenditures, acquisitions, share repurchases and other general corporate purposes.

CF Industries, the lead borrower under the Revolving Credit Agreement, may designate as additional borrowers one or more of its wholly owned subsidiaries that are organized in the United States or any state thereof, or the District of Columbia, England and Wales or any other jurisdiction as mutually agreed to by all of the lenders party to the Revolving Credit Agreement, the administrative agent under the Revolving Credit Agreement and CF Industries.

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

dollars, Canadian dollars, euro and British pounds, and bear interest at a per annum rate equal to an applicable eurocurrency rate or base rate plus, in either case, a specified margin, and the borrowers 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.

dollars, Canadian dollars, euros and British pounds, and bear interest at a per annum rate equal to an applicable eurocurrency rate or base rate plus, in either case, a specified margin.

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.

CF INDUSTRIES HOLDINGS, INC.

CF Industries is the lead borrower under the Revolving Credit Agreement.

The borrowers and guarantors under the Revolving Credit Agreement, which are currently comprised of CF Holdings, CF Industries 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), are referred to together herein as the Loan Parties.

Subject to specified exceptions, the Revolving Credit Agreement requires that each direct or indirect domestic subsidiary of CF Holdings that guarantees debt for borrowed money of any Loan Party in excess of $150 million become a guarantor under the Revolving Credit Agreement.

Subject to specified

CF INDUSTRIES HOLDINGS, INC.

exceptions, the Revolving Credit Agreement requires that each direct or indirect domestic subsidiary of CF Holdings that guarantees debt for borrowed money of any Loan Party in excess of $150 million become a guarantor under the Revolving Credit Agreement.

Subject to specified exceptions, the Revolving Credit Agreement requires a grant of a first priority security interest in substantially all of the assets of the Loan Parties, including a pledge by CF USA of its equity interests in CFN and mortgages over certain material fee-owned domestic real properties, to secure the obligations of the Loan Parties thereunder.

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The financial covenants applicable to CF Holdings and its subsidiaries in the Revolving Credit Agreement:

require that the interest coverage ratio (as defined in the Revolving Credit Agreement) be not less than 2.75:1.00 as of the last day of each fiscal quarter and

require that the total net leverage ratio (as defined in the Revolving Credit Agreement) be not greater than 3.75:1.00 (the Maximum Total Net Leverage Ratio) as of the last day of each fiscal quarter, provided that, if any borrower or subsidiary consummates a material acquisition during any fiscal quarter, CF Industries may elect to increase the Maximum Total Net Leverage Ratio to 4.25:1.00 for the period of four consecutive fiscal quarters commencing with such fiscal quarter (and no further such election may be made unless and until the Maximum Total Net Leverage Ratio is less than or equal to 3.75:1.00 as of the end of two consecutive fiscal quarters after the end of such period).

(i) require that the interest coverage ratio (as defined in the Revolving Credit Agreement) be not less than 2.75:1.00 as of the last day of each fiscal quarter and

(ii) require that the total net leverage ratio (as defined in the Revolving Credit Agreement) be not greater than 3.75:1.00 (the Maximum Total Net Leverage Ratio) as of the last day of each fiscal quarter, provided that, if any borrower or subsidiary consummates a material acquisition during any fiscal quarter, CF Industries may elect to increase the Maximum Total Net Leverage Ratio to 4.25:1.00 for the period of four consecutive fiscal quarters commencing with such fiscal quarter (and no further such election may be made unless and until the Maximum Total Net Leverage Ratio is less than or equal to 3.75:1.00 as of the end of two consecutive fiscal quarters after the end of such period).

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

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Upon the occurrence and during the continuance of an event of default under the Revolving Credit Agreement and after any applicable cure period, subject to specified exceptions, the administrative agent may, and at the request of the requisite lenders is required to, accelerate the loans under the Revolving Credit Agreement or terminate the lenders’ commitments under the Revolving Credit Agreement.

As of December 31, 2019 , we had excess borrowing capacity under the Revolving Credit Agreement of $750 million and no outstanding letters of credit.

In addition, there were no borrowings outstanding under the Revolving Credit Agreement as of December 31, 2019 or during 2019, and there were no borrowings outstanding under the Prior Credit Agreement as of December 31, 2018 or during 2019 or 2018 .

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, including the financial credit markets, caused by the COVID-19 pandemic.

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, which returned our unused borrowing capacity under the Revolving Credit Agreement to $750 million.

As of December 31, 2020, we had unused borrowing capacity under the Revolving Credit Agreement of $750 million and no outstanding letters of credit.

In addition, there were no borrowings outstanding under the Revolving Credit Agreement as of December 31, 2020 or 2019.

Maximum borrowings under the Revolving Credit Agreement during 2020 were $500 million.

CF INDUSTRIES HOLDINGS, INC.

weighted-average annual interest rate of borrowings under the Revolving Credit Agreement during 2020 was 2.05%.

There were no borrowings under the Prior Credit Agreement or the Revolving Credit Agreement during 2019.

Letters of Credit

In addition to the letters of credit that may be issued under the Revolving Credit Agreement, as described above, we have also entered into a bilateral agreement with capacity to issue letters of credit up to $145 million (reflecting an increase of $20 million in January 2019).

In addition to the letters of credit that may be issued under the Revolving Credit Agreement, as described above, we have also entered into a bilateral agreement with capacity to issue letters of credit up to $250 million (reflecting an increase of $105 million in December 2020).

As of December 31, 2020, approximately $125 million of letters of credit were outstanding under this agreement.

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

Effective Interest Rate

December 31, 2019

December 31, 2018

Principal Outstanding

Carrying Amount (1)

Principal Outstanding

Carrying Amount (1)

Effective Interest Rate December 31, 2020 December 31, 2019

Principal Outstanding Carrying Amount (1)

(in millions)

Public Senior Notes:

7.125% due May 2020

3.450% due June 2023 3.562% $ 750 $ 748 $ 750 $ 747

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Total long-term debt $ 4,000 $ 3,961 $ 4,000 $ 3,957

Current maturities of long-term debt 250 249 — —

Long-term debt, net of current maturities $ 3,750 $ 3,712 $ 4,000 $ 3,957

_______________________________________________________________________________

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As a result, we recognized a loss on debt extinguishment of $9 million, primarily consisting of premiums paid for the early retirement of debt for the 2021 Notes.

On February 17, 2021, we announced that CF Industries elected to redeem in full the entire outstanding $250 million principal amount of the 2021 Notes on March 20, 2021, in accordance with the optional redemption provisions provided in the indenture governing the 2021 Notes.

Interest on the Senior Secured Notes is payable semiannually, and the Senior Secured Notes are redeemable at our option, in whole at any time or in part from time to time, at specified make-whole redemption prices.

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Under each of the indentures governing the Senior Secured Notes, specified changes of control involving CF Holdings or CF Industries, when accompanied by a ratings downgrade, as defined with respect to the applicable series of Senior Secured Notes, constitute change of control repurchase events.

Upon the occurrence of a change of control repurchase event with respect to the 2021 Notes or the 2026 Notes, as applicable, unless CF Industries has exercised its option to redeem such Senior Secured Notes, CF Industries will be required to offer to repurchase them at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

Upon the occurrence of a change of control repurchase event with respect

CF INDUSTRIES HOLDINGS, INC.

to the 2021 Notes or the 2026 Notes, as applicable, unless CF Industries has exercised its option to redeem such Senior Secured Notes, CF Industries will be required to offer to repurchase them at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

The indentures governing the Senior Secured Notes contain covenants that limit, among other things, the ability of CF Holdings and its subsidiaries, including CF Industries, to incur liens on certain assets to secure debt, to engage in sale and leaseback transactions, to sell or transfer Collateral, to merge or consolidate with other entities and to sell, lease or transfer all or substantially all of the assets of CF Holdings and its subsidiaries to another entity.

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We offer our customers the opportunity to purchase products from us on a forward basis at prices and on delivery dates we propose.

Therefore, our reported fertilizer selling prices and margins may differ from market spot prices and margins available at the time of shipment.

Therefore, our reported nitrogen fertilizer selling prices and margins may differ from market spot prices and margins available at the time of shipment.

Customer advances, which typically represent a portion of the contract’s value, are received shortly after the contract is executed, with any remaining unpaid amount generally being collected by the time control transfers to the customer, thereby reducing or eliminating the accounts receivable related to such sales.

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Such a delay in scheduled shipment or termination of a forward sales contract due to a customer’s inability or unwillingness to perform may negatively impact our reported sales.

Natural Gas Prices

Natural gas is the principal raw material used to produce nitrogen fertilizers.

We use natural gas both as a chemical feedstock and as a fuel to produce ammonia, granular urea, UAN, AN and other nitrogen products.

Expenditures on natural gas represent a significant portion of our production costs.

For example, natural gas costs, including realized gains and losses, comprised approximately 35% of our total production costs in 2019 .

As a result, natural gas prices have a significant impact on our operating expenses and can thus affect our liquidity.

Because most of our nitrogen fertilizer manufacturing facilities are located in the United States and Canada, the price of natural gas in North America directly impacts a substantial portion of our operating expenses.

Natural gas is the principal raw material used to produce nitrogen products.

We use natural gas both as a chemical feedstock and as a fuel to produce ammonia, granular urea, UAN, AN and other products.

Expenditures on natural gas are a significant portion of our production costs, representing approximately one-third of our total production costs in 2020.

As a result of these factors, natural gas prices have a significant impact on our operating expenses and can thus affect our liquidity.

We enter into agreements for a portion of our future natural gas supply and related transportation.

As of December 31, 2020, our natural gas purchase agreements have terms that range from one to five years and a total minimum commitment of approximately $430 million, and our natural gas transportation agreements have terms that range from one to ten years and a total minimum commitment of approximately $180 million.

Our minimum commitments to purchase and transport natural gas are based on prevailing market-based forward prices excluding reductions for plant maintenance and turnaround activities.

CF INDUSTRIES HOLDINGS, INC.

Because most of our nitrogen manufacturing facilities are located in the United States and Canada, the price of natural gas in North America directly impacts a substantial portion of our operating expenses.

Due to increases in natural gas production resulting from the rise in production from shale gas formations, natural gas prices in North America have declined in the last decade, but are subject to volatility.

During 2019 , the daily closing price at the Henry Hub, the most heavily-traded natural gas pricing point in North America, reached a low of $1.82 per MMBtu on three consecutive days in December 2019 and a high of $4.12 per MMBtu on March 5, 2019 .

During the three-year period ended December 31, 2019 , the daily closing price at the Henry Hub reached a low of $1.82 per MMBtu on three consecutive days in December 2019 and a high of $6.88 per MMBtu on January 4, 2018 .

During 2020, the daily closing price at the Henry Hub, the most heavily-traded natural gas pricing point in North America, reached a low of $1.34 per MMBtu on September 22, 2020 and three consecutive days in October and a high of $3.08 per MMBtu on October 27, 2020.

During the three-year period ended December 31, 2020, the daily closing price at the Henry Hub reached a low of $1.34 per MMBtu on September 22, 2020 and three consecutive days in October 2020 and a high of $6.88 per MMBtu on January 4, 2018.

We also have manufacturing facilities located in the United Kingdom.

These facilities are subject to fluctuations associated with the price of natural gas in Europe.

The major natural gas trading point for the United Kingdom is the National

CF INDUSTRIES HOLDINGS, INC.

Balancing Point (NBP).

During 2019 , the daily closing price at NBP reached a low of $2.36 per MMBtu on September 4, 2019 and a high of $7.91 per MMBtu on January 17, 2019 .

During the three-year period ended December 31, 2019 , the daily closing price at NBP reached a low of $2.36 per MMBtu on September 4, 2019 , and a high of $31.74 per MMBtu on March 2, 2018 .

Natural gas costs in our cost of sales, including the impact of realized natural gas derivatives, decreased 13% per MMBtu in 2019 from 2018 .

The major natural gas trading point for the United Kingdom is the National Balancing Point (NBP).

During 2020, the daily closing price at NBP reached a low of $1.04 per MMBtu on May 22, 2020 and a high of $7.71 per MMBtu on December 30, 2020.

During the three-year period ended December 31, 2020, the daily closing price at NBP reached a low of $1.04 per MMBtu on May 22, 2020, and a high of $31.74 per MMBtu on March 2, 2018.

Natural gas costs in our cost of sales, including the impact of realized natural gas derivatives, decreased 18% to $2.24 per MMBtu in 2020 from $2.74 per MMBtu in 2019.

Derivative Financial Instruments

We may use derivative financial instruments to reduce our exposure to changes in prices for natural gas that will be purchased in the future.

Natural gas is the largest and most volatile component of our manufacturing cost for nitrogen-based fertilizers.

Natural gas is the largest and most volatile component of our manufacturing cost for our nitrogen products.

From time to time, we may also use derivative financial instruments to reduce our exposure to changes in foreign currency exchange rates.

Volatility in reported quarterly earnings can result from the unrealized mark-to-market adjustments in the value of the derivatives.

In 2019 and 2018 , we recognized an unrealized net mark-to-market loss (gain) on natural gas derivatives of $14 million and $(13) million , respectively, which is reflected in cost of sales in our consolidated statements of operations.

In 2020 and 2019, we recognized an unrealized net mark-to-market (gain) loss on natural gas derivatives of $(6) million and $14 million, respectively, which is reflected in cost of sales in our consolidated statements of operations.

Derivatives expose us to counterparties and the risks associated with their ability to meet the terms of the contracts.

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In the event the Revolving Credit Agreement becomes unsecured, separate collateral could be required in connection with such derivatives.

As of December 31, 2019 and 2018 , the aggregate fair value of the derivative instruments with credit-risk-related contingent features in net liability positions was $12 million and zero , respectively, which also approximates the fair value of the maximum amount of additional collateral that would need to be posted or assets needed to settle the obligations if the credit-risk-related contingent features were triggered at the reporting dates.

As of December 31, 2019 , our open natural gas derivative contracts consisted of natural gas fixed price swaps, basis swaps and options for 41.1 million MMBtus.

As of December 31, 2018 , we had open natural gas derivative contracts for 6.6 million MMBtus of natural gas basis swaps.

As of December 31, 2020 and 2019, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in net liability positions was $6 million and $12 million, respectively, which also approximates the fair value of the maximum amount of additional collateral that would need to be posted or assets needed to settle the obligations if the credit-risk-related contingent features were triggered at the reporting dates.

As of December 31, 2020, our open natural gas derivative contracts consisted of natural gas fixed price swaps and basis swaps for 34.1 million MMBtus.

As of December 31, 2019, contracts consisted of natural gas fixed price swaps, basis swaps and options for 41.1 million MMBtus.

At both December 31, 2020 and 2019, we had no cash collateral on deposit with counterparties for derivative contracts.

The credit support documents executed in connection with certain of our ISDA agreements generally provide us and our counterparties the right to set off collateral against amounts owing under the ISDA agreements upon the occurrence of a default or a specified termination event.

CF INDUSTRIES HOLDINGS, INC.

Embedded Derivative Liability

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These payments will continue on a yearly basis until the earlier of the date that our credit rating is upgraded to or above certain levels by two of three specified credit rating agencies or February 1, 2026.

This obligation is recognized on our consolidated balance sheet as an embedded derivative and its value is included in other liabilities.

As of December 31, 2020 and 2019, the embedded derivative liability was $18 million and $20 million, respectively.

See Note 9—Fair Value Measurements for additional information.

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We expect to contribute approximately $33 million to our pension plans in 2021.

CF INDUSTRIES HOLDINGS, INC.

In addition, we expect to contribute a total of approximately $66 million to our U.K.

plans in the three-year period ending 2024, as agreed with the plans’ trustees.

Distributions on Noncontrolling Interest in CFN

The CFN Board of Managers approved semi-annual distribution payments for the years ended December 31, 2020, 2019 and 2018, in accordance with CFN’s limited liability company agreement, as follows:

Approved and paid

Distribution Period

Distribution Amount

Approved and paid Distribution Period Distribution Amount

(in millions)

First quarter of 2020

Six months ended December 31, 2019

Third quarter of 2019

Six months ended June 30, 2019

First quarter of 2019

Six months ended December 31, 2018

Third quarter of 2018

Six months ended June 30, 2018

First quarter of 2018

Six months ended December 31, 2017

Third quarter of 2017

Six months ended June 30, 2017

First quarter of 2021 Six months ended December 31, 2020 $ 64

Third quarter of 2020 Six months ended June 30, 2020 86

First quarter of 2020 Six months ended December 31, 2019 88

Third quarter of 2019 Six months ended June 30, 2019 100

First quarter of 2019 Six months ended December 31, 2018 86

Third quarter of 2018 Six months ended June 30, 2018 79

Operating Activities

Net cash provided by operating activities in 2019 was $1,505 million as compared to $1,497 million in 2018 , an increase of $8 million .

The increase was due primarily to an increase in cash earnings generated by the business, partially offset by changes in working capital.

The increase in cash earnings is due primarily to the increase in net earnings of $218 million to $646 million in 2019 from $428 million in 2018 .

The increase in net earnings was due primarily to lower realized natural gas costs, higher average selling prices and higher sales volume.

The amounts of cash used to fund working capital changed between 2019 and 2018.

Cash used for working capital purposes increased in 2019 as $112 million of cash was used primarily to fund an increase in inventory and accounts receivable, and to fund a decrease in accounts payable, accrued liabilities and customer advances.

In 2018, $127 million of cash was provided due to lower working capital levels such as declines in accounts receivable and increases in customer advances, accounts payable and accrued liabilities.

In addition, we contributed $61 million to our pension plans in 2019 compared to $39 million in 2018 , an increase of $22 million.

Net cash provided by operating activities in 2020 was $1,231 million as compared to $1,505 million in 2019, a decrease of $274 million.

The decrease in cash flow from operations was due primarily to lower net earnings and higher cash taxes paid, partially offset by favorable changes in net working capital.

Cash paid for taxes, net of refunds, was $111 million in 2020, compared to a net refund of $41 million in 2019.

In 2020, we received income tax refunds, including interest, of $110 million related to the finalization of amended U.S.

tax returns, which is further described above under Terra Amended Tax Returns.

During 2020, net changes in working capital contributed $12 million to cash flow from operations, while in 2019 net changes in working capital reduced cash flow from operations by $112 million.

The increased cash flow from working capital changes was primarily driven by inventories and accounts payable and accrued expenses.

Investing Activities

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During 2020, capital expenditures totaled $309 million compared to $404 million in 2019.

The decrease in capital expenditures in 2020 was due primarily to actions taken to defer certain non-essential capital project activity as a result of the COVID-19 pandemic.

Net cash used in investing activities in 2019 included proceeds of $55 million related to the sale of our Pine Bend facility and $15 million related to property insurance proceeds received.

Net cash used in investing activities in 2018 included $10 million related to property insurance proceeds received.

Financing Activities

Net cash used in financing activities was $542 million in 2020 compared to $1,583 million in 2019.

The decline in cash used in financing activities was due to cash used to redeem certain senior notes in 2019 and higher share repurchase activity in 2019.

In 2019, we paid $769 million in connection with the redemption of the 2020 Notes and the partial redemption of the 2021 Notes.

In 2020, we spent $100 million to repurchase shares of common stock compared to $370 million in 2019, which included approximately $33 million related to shares repurchased in late 2018 that were paid for in 2019.

Dividends paid on common stock in 2020 and 2019 were $258 million and $265 million, respectively.

The decrease in dividends was due to lower shares outstanding as a result of shares repurchased under our share repurchase programs in 2018 and 2019.

In 2019 , we spent $370 million to repurchase shares of common stock, which included approximately $33 million related to shares repurchased in late 2018 that were paid for in 2019 .

In 2019 and 2018 , we distributed $186 million and $139 million , respectively, to the noncontrolling interests.

Net cash used in financing activities in 2018 included $388 million related to our acquisition of all of the outstanding publicly traded common units of TNCLP.

In addition, we repurchased 10.9 million shares for $500 million under the 2018 Share Repurchase Program in the second half of 2018, of which $33 million was accrued and unpaid as of December 31, 2018.

CF INDUSTRIES HOLDINGS, INC.

Contractual Obligations

The following is a summary of our contractual obligations as of December 31, 2019 :

(in millions)

Long-term debt (1)

Interest payments on long-term debt (1)

Other Obligations

Operating leases

Equipment purchases and plant improvements

Transportation (2)

Purchase obligations (3)(4)

Contributions to pension plans (5)

Total (6)(7)(8)

_______________________________________________________________________________

Based on debt balances before discounts, offering expenses and interest rates as of December 31, 2019 .

Interest payments also include undrawn commitment fees for our revolving credit facility and fees on letters of credit.

Includes anticipated expenditures under certain contracts to transport finished product to and from our facilities.

The majority of these arrangements allow for reductions in usage based on our actual operating rates.

Amounts set forth in this table are based on projected normal operating rates and contracted or current spot prices, where applicable, as of December 31, 2019 and actual operating rates and prices may differ.

Includes minimum commitments to purchase and transport natural gas based on prevailing market-based forward prices as of December 31, 2019 excluding reductions for plant maintenance and turnaround activities.

Purchase obligations do not include any amounts related to our natural gas derivatives.

See Note 15—Derivative Financial Instruments for additional information.

Includes a commitment to purchase ammonia from PLNL at market-based prices under an agreement that expires in September 2020.

The purchase commitment is $53 million based on market prices as of December 31, 2019 .

This agreement includes automatic consecutive one-year renewals, unless otherwise terminated by either party in advance.

Assuming the agreement is not terminated by either party and based on market prices as of December 31, 2019 , the annual commitment would be $71 million.

Represents, for 2020, the contributions we expect to make to our North America and U.K.

pension plans and, for 2021 through 2024, contributions to our U.K.

plans as agreed with the plans’ trustees.

Our pension funding policy is to contribute amounts sufficient to meet minimum legal funding requirements plus discretionary amounts that we may deem to be appropriate.

Excludes $137 million of unrecognized tax benefits, due to the uncertainty in the timing of potential tax payments, and the remaining transition tax liability of $42 million resulting from the enactment of the Tax Act.

See Note 10—Income Taxes for additional information.

Excludes $8 million of environmental remediation liabilities due to the uncertainty in the timing of payments.

Excludes $5 million annual payments to CHS related to our embedded derivative due to uncertainty of future credit ratings, as this is only applicable until the earlier of the date that our credit rating is upgraded to or above certain levels by two of three specified credit rating agencies or February 1, 2026.

See Note 9—Fair Value Measurements or Note 17—Noncontrolling Interests for additional information.

Distributions to noncontrolling interest totaled $174 million in 2020 as compared to $186 million in 2019.

CF INDUSTRIES HOLDINGS, INC.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

See “Recent Accounting Pronouncements,” below, for a discussion of our January 1, 2019 adoption of Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842).

Critical Accounting Policies and Estimates

Critical Accounting Estimates

Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based upon our consolidated financial statements, which have been prepared in accordance with U.S.

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Changes in estimates that may have a material impact on our results are discussed in the context of the underlying financial statements to which they relate.

The following discussion presents information about our most critical accounting policies and estimates.

The following discussion presents information about our most critical accounting estimates.

We recognize expenses, assets and liabilities for income taxes based on estimates of amounts that ultimately will be determined to be taxable or deductible in tax returns filed in various jurisdictions.

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Significant judgment is applied in evaluating the need for and the magnitude of appropriate valuation allowances against deferred tax assets.

Interest and penalties related to unrecognized tax benefits are reported as interest expense and income tax expense, respectively.

Historically, a deferred income tax liability was recorded for income taxes that would result from the repatriation of the portion of the investment in our non-U.S.

subsidiaries and joint venture that were considered to not be permanently reinvested.

No deferred income tax liability was recorded for the remainder of our investment in non-U.S.

subsidiaries and joint venture, which we believed to be permanently reinvested.

In light of changes made by the Tax Act, the Company continues to evaluate whether it will continue to treat foreign subsidiary earnings as being permanently reinvested.

As a large commercial enterprise with international operations, our income tax expense and our effective tax rate may change from period to period due to many factors.

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However, there are instances where reaching a common understanding is not possible or practical.

As of December 31, 2019 , we have recorded a reserve for unrecognized tax benefits, including penalties and interest, of $137 million , which includes certain potential tax exposures involving cross border transactions.

We recognize the effect of income tax positions only if sustaining those positions is more likely than not.

Tax positions that meet the more likely than not recognition threshold but are not highly certain are measured based on the largest amount of benefit that is greater than 50% likely of being realized upon settlement with the taxing authority.

As of December 31, 2020, we have recorded a reserve for unrecognized tax benefits, including penalties and interest, of $85 million.

This amount represents our best estimate of the potential amounts due based on our interpretations of the rules and the facts and circumstances of the transactions.

Differences in

CF INDUSTRIES HOLDINGS, INC.

interpretation of the tax laws, including agreements between governments surrounding our cross border transactions, can result in differences in taxes paid which may be higher or lower than our estimates.

Differences in interpretation of the tax laws can result in differences in taxes paid which may be higher or lower than our estimates.

Recoverability of Long-Lived Assets, Goodwill and Investments in Unconsolidated Subsidiaries

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GAAP in order to assess recoverability.

Factors that we must estimate when performing impairment tests include sales volume, selling prices, raw material costs, operating rates, operating expenses, inflation, discount rates, exchange rates, tax rates and capital spending.

Factors that we must estimate when performing impairment tests include production and sales volumes, selling prices, raw material costs, operating rates, operating expenses, inflation, discount rates, exchange rates, tax rates and capital spending.

Significant judgment is involved in estimating each of these factors, which include inherent uncertainties.

The factors we use are consistent with those used in our internal planning process.

The recoverability of the values associated with our goodwill, long-lived assets and investments in unconsolidated affiliates is dependent upon future operating performance of the specific businesses to which they are attributed.

The recoverability of the values associated with our goodwill, long-lived assets and investments in unconsolidated affiliates is dependent upon future operating performance of

CF INDUSTRIES HOLDINGS, INC.

the specific businesses to which they are attributed.

Certain of the operating assumptions are particularly sensitive to the cyclical nature of the fertilizer business.

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For goodwill, impairment tests are required at least annually, or more frequently if events or circumstances indicate that it may be impaired.

Our investments in unconsolidated affiliates are reviewed for impairment whenever events or circumstances indicate that the carrying value may not be recoverable.

When circumstances indicate that the fair value of our investment in any such affiliate is less than its carrying value, and the reduction in value is other than temporary, the reduction in value is recognized immediately in earnings.

PLNL is our joint venture investment in the Republic of Trinidad and Tobago and operates an ammonia plant that relies on natural gas supplied, under the NGC Contract, by NGC.

Our investment in an unconsolidated affiliate is reviewed for impairment whenever events or circumstances indicate that its carrying value may not be recoverable.

PLNL is our joint venture investment in the Republic of Trinidad and Tobago and operates an ammonia plant that relies on natural gas supplied, under a Gas Sales Contract (the NGC Contract), by the National Gas Company of Trinidad and Tobago Limited (NGC).

The joint venture is accounted for under the equity method.

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If NGC does not make sufficient quantities of natural gas available to PLNL at prices that permit profitable operations, PLNL may cease operating its facility and we would write off the remaining investment in PLNL.

In 2016 and 2015, we recognized impairment charges of $134 million and $62 million, respectively, related to PLNL as part of our impairment assessments of our equity method investment in PLNL.

The carrying value of our equity method investment in PLNL at December 31, 2020 is $80 million.

Government held a referendum on the U.K.’s membership in the European Union (EU) in June 2016, which resulted in the electorate voting in favor of the U.K.

exit from the EU (Brexit).

On January 31, 2020, the United Kingdom left the EU.

While the United Kingdom will no longer be a member of the EU, it will still be subject to EU rules and remain a member of the Customs Union for a period of time as it negotiates the rules to be applied to future trading, taxes, and other relationships.

We operate two nitrogen manufacturing facilities in the United Kingdom, which utilize foreign-sourced materials and equipment, and which also export products in addition to serving customers in the United Kingdom.

Brexit, including its indirect effects, could impact us in the future.

For example, the cost and availability of natural gas or other raw materials or equipment that we purchase and the demand or selling prices for the nitrogen products that we sell, could be impacted by additions, deletions or changes to tariffs, duties, trade restrictions or other factors.

Brexit could lead to changes in trade flows, trading relationships, the movement of production to alternative locations, or the curtailment of certain production at certain sites.

Brexit could also impact foreign exchange rates or U.K.

interest rates, which could impact our operations or the valuation of our assets and liabilities.

Since the U.K.

referendum in June 2016, the United Kingdom has experienced increases in the volatility of foreign exchange rates, which impacted our operations.

As a result of the uncertainty of Brexit, including its indirect effects, changes in the future profitability, asset utilization, or business valuation of our U.K.

operations could negatively impact us and may result in an impairment of our long-lived assets or goodwill.

As of December 31, 2019 , long-lived assets, including property, plant and equipment and intangible assets, related to the United Kingdom was $708 million , and goodwill, primarily included in our AN segment, was $275 million .

We evaluate goodwill for impairment in the fourth quarter at the reporting unit level.

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We use an income-based valuation method, determining the present value of future cash flows, to estimate the fair value of a reporting unit.

If the fair value of a reporting unit exceeds its positive carrying amount, goodwill of

CF INDUSTRIES HOLDINGS, INC.

the reporting unit is considered not impaired, and no further testing is necessary.

If the fair value of a reporting unit exceeds its positive carrying amount, goodwill of the reporting unit is considered not impaired, and no further testing is necessary.

If the fair value of the reporting unit is less than its carrying amount, goodwill impairment would be recognized equal to the amount of the carrying value in excess of the reporting unit’s fair value, limited to the total amount of goodwill allocated to the reporting unit.

We identified no goodwill impairment in 2020, 2019 or 2018.

As of December 31, 2019 and 2018 , the carrying value of our goodwill was $2.37 billion and $2.35 billion , respectively.

As of December 31, 2020 and 2019, the carrying value of our goodwill was $2.37 billion.

Intangible assets identified in connection with our 2010 acquisition of Terra consist of customer relationships, which are being amortized over a period of 18 years.

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The 3.4% weighted-average EROA used to calculate pension expense in 2020 for our United Kingdom plans is based on expected long-term performance of underlying investments.

The EROA for both North America and United Kingdom plans are adjusted for expenses and diversification bonuses.

For our United Kingdom plans, the 3.0% RPI used to calculate our PBO and the 3.3% RPI used to calculate 2019 pension expense are developed using the Bank of England implied retail price inflation curve, which is based on the difference between yields on fixed interest government bonds and index-linked government bonds.

The EROA for both North America and United Kingdom plans are adjusted for expenses and diversification bonuses, if applicable.

For our United Kingdom plans, the 3.0% RPI used to calculate our PBO and the 3.0% RPI used to calculate 2020 pension

CF INDUSTRIES HOLDINGS, INC.

expense are developed using the Bank of England implied retail price inflation curve, which is based on the difference between yields on fixed interest government bonds and index-linked government bonds.

For North America qualified pension plans, our PBO was $884 million as of December 31, 2020, which was $38 million higher than pension plan assets.

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North America Plans

Increase/(Decrease) in

December 31, 2019 PBO

2019 Pension Expense

Increase/(Decrease) in Increase/(Decrease) in

December 31, 2020 PBO 2020 Pension Expense

Assumption +50 bps -50 bps +50 bps -50 bps

(in millions)

Discount Rate $ (52) $ 58 $ (2) $ 2

EROA N/A N/A (4) 4

United Kingdom Plans

Increase/(Decrease) in

December 31, 2019 PBO

2019 Pension Expense

Increase/(Decrease) in Increase/(Decrease) in

December 31, 2020 PBO 2020 Pension Expense

Assumption +50 bps -50 bps +50 bps -50 bps

(in millions)

Discount Rate $ (49) $ 53 $ — $ —

EROA N/A N/A (2) —

RPI 28 (30) 2 (2)

See Note 11—Pension and Other Postretirement Benefits for further discussion of our pension plans.

CF INDUSTRIES HOLDINGS, INC.

Recent Accounting Pronouncements

See Note 3—New Accounting Standards for a discussion of recent accounting pronouncements, including our January 1, 2019 adoption of ASU No.

2016-02, Leases (Topic 842), which requires lessees to recognize the rights and obligations resulting from virtually all leases (other than leases that meet the definition of a short-term lease) on their balance sheets as right-of-use assets with corresponding lease liabilities.

See Note 3—New Accounting Standards for a discussion of recent accounting pronouncements.

Subsequent Event

In February 2021, the central portion of the United States experienced extreme and unprecedented cold weather.

Certain natural gas suppliers declared force majeure events due to natural gas well freeze offs or frozen equipment.

This occurred at the same time as large increases in natural gas demand were occurring due to the cold temperatures.

Due to these unprecedented factors, several states declared a state of emergency and natural gas was redirected for residential usage.

At certain of our manufacturing locations, we were asked to reduce our natural gas consumption and therefore these plants either operated at reduced rates or temporarily suspended operations.

We returned excess natural gas to our suppliers and received prevailing market prices, which were in excess of our cost.

During this period of time, we have experienced lower production, but have procured product in order to meet customer obligations.

Higher maintenance and repair activity may be necessary as the plants are restarted.

At the present time, we do not know the net positive or negative impact of these events on our operations;

however, we do not expect it to result in a material impact to our business.

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-K

Item 7. Management’s Discussion and Analysis