What changed in this filing

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Item 1. Financial Statements

2021-08-09 compared with 2021-05-06 · 209 added, 92 removed, 556 unchanged (35% of the section changed)

2 unchanged sentences

Three months ended

June 30, Six months ended

2021 2020 2021 2020

(in millions, except per share amounts)

10 unchanged sentences

Loss on debt extinguishment — — 6 —

Other non-operating—net 2 ( 3 ) 2 ( 3 )

Earnings before income taxes 402 251 595 355

12 unchanged sentences

CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended

June 30, Six months ended

2021 2020 2021 2020

(in millions)

3 unchanged sentences

Defined benefit plans—net of taxes ( 1 ) 2 — 11

9 14 24 ( 60 )

Comprehensive income 326 232 516 249

Comprehensive income attributable to noncontrolling interest 71 28 95 51

Comprehensive income (loss) attributable to common stockholders $ 166 $ ( 6 )

Comprehensive income attributable to common stockholders $ 255 $ 204 $ 421 $ 198

See accompanying Notes to Unaudited Consolidated Financial Statements.

20 unchanged sentences

Accounts payable and accrued expenses $ 545 $ 424

Income taxes payable 5 —

Customer advances 9 130

30 unchanged sentences

(in millions, except per share amounts)

Balance as of March 31, 2021 $ 2 $ ( 14 ) $ 1,333 $ 2,013 $ ( 305 ) $ 3,029 $ 2,641 $ 5,670

Net earnings — — — 246 — 246 71 317

Other comprehensive income — — — — 9 9 — 9

Retirement of treasury stock — 13 ( 2 ) ( 11 ) — — — —

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

— 1 18 — — 19 — 19

Stock-based compensation expense — — 8 — — 8 — 8

Cash dividends ($ 0.30 per share)

— — — ( 65 ) — ( 65 ) — ( 65 )

Balance as of June 30, 2021 $ 2 $ — $ 1,357 $ 2,183 $ ( 296 ) $ 3,246 $ 2,712 $ 5,958

Balance as of December 31, 2020 $ 2 $ ( 4 ) $ 1,317 $ 1,927 $ ( 320 ) $ 2,922 $ 2,681 $ 5,603

1 unchanged sentence

Other comprehensive income — — — — 24 24 — 24

Retirement of treasury stock — 13 ( 2 ) ( 11 ) — — — —

Acquisition of treasury stock under employee stock plans — ( 10 ) — — — ( 10 ) — ( 10 )

5 unchanged sentences

Distribution declared to noncontrolling interest — — — — — — ( 64 ) ( 64 )

Balance as of June 30, 2021 $ 2 $ — $ 1,357 $ 2,183 $ ( 296 ) $ 3,246 $ 2,712 $ 5,958

CONSOLIDATED STATEMENTS OF EQUITY

(Continued) (Unaudited)

Common Stockholders

Stock Treasury

Stock Paid-In

Capital Retained

Earnings Accumulated

Comprehensive

Stockholders’ Equity Noncontrolling

Interest Total

(in millions, except per share amounts)

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

Net earnings — — — 190 — 190 28 218

Other comprehensive income — — — — 14 14 — 14

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

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

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

— 2 ( 2 ) — — — — —

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

Cash dividends ($ 0.30 per share)

— — — ( 64 ) — ( 64 ) — ( 64 )

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

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

2 unchanged sentences

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

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

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

5 unchanged sentences

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

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

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

See accompanying Notes to Unaudited Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended

Six months ended

(in millions)

7 unchanged sentences

Unrealized net gain on natural gas derivatives ( 6 ) ( 12 )

Unrealized gain on embedded derivative — ( 1 )

Unrealized loss on embedded derivative 2 1

Loss on disposal of property, plant and equipment 2 9

10 unchanged sentences

Insurance proceeds for property, plant and equipment — 2

Purchase of investments held in nonqualified employee benefit trust ( 12 ) —

Proceeds from sale of investments held in nonqualified employee benefit trust 12 —

Other—net ( 1 ) —

Net cash used in investing activities ( 182 ) ( 117 )

1 unchanged sentence

Proceeds from short-term borrowings — 500

Repayments of short-term borrowings — ( 500 )

Payments of long-term borrowings ( 255 ) —

4 unchanged sentences

Cash paid for shares withheld for taxes ( 10 ) ( 9 )

Net cash (used in) provided by financing activities ( 387 ) 242

Net cash used in financing activities ( 433 ) ( 323 )

Effect of exchange rate changes on cash and cash equivalents 3 ( 2 )

26 unchanged sentences

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

Significant estimates and assumptions are used for, but are not limited to, net realizable value of inventories, environmental remediation liabilities, environmental and litigation contingencies, the cost of customer incentives, useful lives of property and identifiable intangible assets, the assumptions used in the evaluation of potential impairments of property, investments, identifiable intangible assets and goodwill, income tax and valuation reserves, allowances for doubtful accounts receivable, the measurement of the fair values of investments for which markets are not active, assumptions used in the determination of the funded status and annual expense of defined benefit pension and other postretirement benefit plans and the assumptions used in the valuation of stock-based compensation awards granted to employees.

Significant estimates and assumptions are used for, but are not limited to, net realizable value of inventories, environmental remediation liabilities, environmental and litigation contingencies, the cost of carbon credits required to meet environmental regulations, the cost of customer incentives, useful lives of property and identifiable intangible assets, the assumptions used in the evaluation of potential impairments of property, investments, identifiable intangible assets and goodwill, income tax and valuation reserves, allowances for doubtful accounts receivable, the measurement of the fair values of investments for which markets are not active, assumptions used in the determination of the funded status and annual expense of defined benefit pension and other postretirement benefit plans and the assumptions used in the valuation of stock-based compensation awards granted to employees.

CF INDUSTRIES HOLDINGS, INC.

2 unchanged sentences

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

The following table summarizes our revenue by product and by geography (based on destination of our shipment) for the three months ended March 31, 2021 and 2020:

The following table summarizes our revenue by product and by geography (based on destination of our shipment) for the three and six months ended June 30, 2021 and 2020:

Ammonia Granular Urea UAN AN Other Total

(in millions)

Three months ended March 31, 2021

Three months ended June 30, 2021

North America $ 431 $ 433 $ 403 $ 55 $ 92 $ 1,414

1 unchanged sentence

Total revenue $ 459 $ 433 $ 434 $ 136 $ 126 $ 1,588

Three months ended March 31, 2020

Three months ended June 30, 2020

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

1 unchanged sentence

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

As of March 31, 2021 and December 31, 2020, we had $ 341 million and $ 130 million, respectively, in customer advances on our consolidated balance sheets.

The revenue recognized during the three months ended March 31, 2021 and 2020 that was included in our customer advances at the beginning of each respective period amounted to approximately $ 85 million and $ 75 million, respectively.

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

The balances of customer incentives accrued at March 31, 2021 and December 31, 2020 were not material.

Ammonia Granular Urea UAN AN Other Total

(in millions)

Six months ended June 30, 2021

North America $ 599 $ 832 $ 625 $ 96 $ 169 $ 2,321

Europe and other 66 — 41 145 63 315

Total revenue $ 665 $ 832 $ 666 $ 241 $ 232 $ 2,636

Six months ended June 30, 2020

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

Europe and other 59 23 25 137 60 304

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

As of June 30, 2021 and December 31, 2020, we had $ 9 million and $ 130 million, respectively, in customer advances on our consolidated balance sheets.

During the six months ended June 30, 2021 and 2020, substantially all of the customer advances at the beginning of each respective period were recognized as revenue.

We offer cash incentives to certain customers generally based on the volume of their purchases over the fertilizer year ending June 30.

Our cash incentives do not provide an option to the customer for additional product.

As of June 30, 2021 and December 31, 2020, we had $ 42 million and $ 24 million, respectively, of customer incentives accrued on our consolidated balance sheet.

From time to time, we will enter the marketplace to purchase product in order to satisfy obligations under contracts with our customers.

When we purchase product for this purpose, we are the principal in the transaction and recognize revenue on a gross basis.

As discussed in Note 7—Equity Method Investment, we have transactions in the normal course of business with PLNL, reflecting our obligation to purchase 50% of the ammonia produced by PLNL at current market prices.

During the three months ended March 31, 2021, in addition to products purchased from PLNL, we recognized $ 32 million of revenue from sales of granular urea, which we purchased in order to satisfy obligations under contracts with our customers due to lower production experienced as a result of Winter Storm Uri.

For the three months ended March 31, 2020, other than products purchased from PLNL, products purchased in the marketplace in order to satisfy obligations under contracts with our customers were not material.

As discussed in Note 7—Equity Method Investment, we have transactions in the normal course of business with Point Lisas Nitrogen Limited (PLNL), reflecting our obligation to purchase 50 % of the ammonia produced by PLNL at current market prices.

During the three and six months ended June 30, 2021, in addition to products purchased from PLNL, we recognized $ 36 million and $ 68 million, respectively, of revenue from sales of granular urea, which we purchased in order to satisfy obligations under contracts with our customers due to lower production experienced as a result of Winter Storm Uri.

For the six months ended June 30, 2020, other than products purchased from PLNL, products purchased in the marketplace in order to satisfy obligations under contracts with our customers were not material.

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

As of March 31, 2021, excluding contracts with original durations of less than one year, and based on the minimum product tonnage to be sold and current market price estimates, our remaining performance obligations under these contracts are approximately $ 805 million.

We expect to recognize approximately 25 % of these performance obligations as revenue in the remainder of 2021, approximately 47 % as revenue during 2022 and 2023, approximately 25 % as revenue during 2024 and 2025, and the remainder thereafter.

Subject to the terms and conditions of the applicable contracts, if these customers do not satisfy their purchase obligations under such contracts, the minimum amount that they would be required to pay to us under these contracts, in the aggregate, is approximately $ 187 million as of March 31, 2021.

We monitor the ability of our customers to meet their purchase obligations, which could be impacted by the ongoing coronavirus disease 2019 (COVID-19) pandemic.

Other than the performance obligations described above, any performance obligations with our customers that were unfulfilled or partially filled at December 31, 2020 will be satisfied in 2021.

As of June 30, 2021, excluding contracts with original durations of less than one year, and based on the minimum product tonnage to be sold and current market price estimates, our remaining performance obligations under these contracts are approximately $ 787 million.

We expect to recognize approximately 21 % of these

CF INDUSTRIES HOLDINGS, INC.

performance obligations as revenue in the remainder of 2021, approximately 49 % as revenue during 2022 and 2023, approximately 26 % as revenue during 2024 and 2025, and the remainder thereafter.

Other than the performance obligations described above, any performance obligations with our customers that were unfulfilled or partially fulfilled at December 31, 2020 will be satisfied in 2021.

Net Earnings Per Share

1 unchanged sentence

Three months ended

June 30, Six months ended

2021 2020 2021 2020

(in millions, except per share amounts)

10 unchanged sentences

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

Shares for anti-dilutive stock-based awards not included in the computation of diluted earnings per common share were 1.2 million and 2.1 million in the three months ended March 31, 2021 and 2020, respectively.

Shares for anti-dilutive stock-based awards not included in the computation of diluted earnings per common share were 1.2 million in both the three and six months ended June 30, 2021, and 4.7 million and 3.4 million in the three and six months ended June 30, 2020, respectively.

Inventories consist of the following:

18 unchanged sentences

_______________________________________________________________________________

(1) As of March 31, 2021 and December 31, 2020, we had property, plant and equipment that was accrued but unpaid of approximately $ 33 million and $ 43 million, respectively.

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

Depreciation and amortization related to property, plant and equipment was $ 200 million and $ 208 million for the three months ended March 31, 2021 and 2020, respectively.

(1) As of June 30, 2021 and December 31, 2020, we had property, plant and equipment that was accrued but unpaid of approximately $ 76 million and $ 43 million, respectively.

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

Depreciation and amortization related to property, plant and equipment was $ 239 million and $ 439 million for the three and six months ended June 30, 2021, respectively, and $ 235 million and $ 443 million for the three and six months ended June 30, 2020, respectively.

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

1 unchanged sentence

The following is a summary of capitalized plant turnaround costs:

Three months ended

Six months ended

(in millions)

10 unchanged sentences

Goodwill and Other Intangible Assets

The following table shows the carrying amount of goodwill by reportable segment as of March 31, 2021 and December 31, 2020:

The following table shows the carrying amount of goodwill by reportable segment as of June 30, 2021 and December 31, 2020:

Ammonia Granular Urea UAN AN Other Total

2 unchanged sentences

Effect of exchange rate changes 1 — — 2 1 4

Balance as of March 31, 2021 $ 588 $ 828 $ 576 $ 312 $ 73 $ 2,377

Balance as of June 30, 2021 $ 588 $ 828 $ 576 $ 312 $ 74 $ 2,378

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Amount Accumulated

7 unchanged sentences

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

Amortization expense of our identifiable intangible assets for each of the three-month periods ended March 31, 2021 and 2020 was $ 2 million.

Amortization expense of our identifiable intangible assets was $ 2 million and $ 4 million for the three and six months ended June 30, 2021, respectively, and $ 2 million and $ 4 million for the three and six months ended June 30, 2020, respectively.

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

4 unchanged sentences

Equity Method Investment

We have a 50 % ownership interest in Point Lisas Nitrogen Limited (PLNL), which operates an ammonia production facility in the Republic of Trinidad and Tobago.

We have a 50 % ownership interest in PLNL, which operates an ammonia production facility in the Republic of Trinidad and Tobago.

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

As of March 31, 2021, the total carrying value of our equity method investment in PLNL was $ 91 million, $ 41 million more than our share of PLNL’s book value.

As of June 30, 2021, the total carrying value of our equity method investment in PLNL was $ 82 million, $ 40 million more than our share of PLNL’s book value.

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

2 unchanged sentences

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

Our ammonia purchases from PLNL totaled $ 26 million and $ 10 million for the three months ended March 31, 2021 and 2020, respectively.

Our ammonia purchases from PLNL totaled $ 37 million and $ 63 million for the three and six months ended June 30, 2021, respectively, and $ 13 million and $ 23 million for the three and six months ended June 30, 2020, respectively.

Fair Value Measurements

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

March 31, 2021

June 30, 2021

Cost Basis Unrealized

26 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present assets and liabilities included in our consolidated balance sheets as of March 31, 2021 and December 31, 2020 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:

March 31, 2021

The following tables present assets and liabilities included in our consolidated balance sheets as of June 30, 2021 and December 31, 2020 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:

June 30, 2021

Value Quoted Prices

4 unchanged sentences

Nonqualified employee benefit trusts 20 20 — —

Derivative assets 1 — 1 —

Derivative liabilities ( 1 ) — ( 1 ) —

Embedded derivative liability ( 20 ) — ( 20 ) —

10 unchanged sentences

Cash Equivalents

As of March 31, 2021 and December 31, 2020, our cash equivalents consisted primarily of U.S.

As of June 30, 2021 and December 31, 2020, our cash equivalents consisted primarily of U.S.

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

6 unchanged sentences

Derivative Instruments

The derivative instruments that we may use are primarily natural gas fixed price swaps, basis swaps and options traded in the over-the-counter markets with multi-national commercial banks, other major financial institutions or large energy companies.

The derivative instruments that we use are primarily natural gas fixed price swaps, basis swaps and options traded in the over-the-counter markets with multi-national commercial banks, other major financial institutions or large energy companies.

The natural gas derivative contracts represent anticipated natural gas needs for future periods and settlements are scheduled to coincide with anticipated natural gas purchases during those future periods.

9 unchanged sentences

This obligation is recognized on our consolidated balance sheets as an embedded derivative and is included within other current liabilities and other liabilities.

As of both March 31, 2021 and December 31, 2020, the embedded derivative liability was $ 18 million.

Included in other operating—net in our consolidated statement of operations for the three months ended March 31, 2020 is a net gain of $ 1 million.

As of June 30, 2021 and December 31, 2020, the embedded derivative liability was $ 20 million and $ 18 million, respectively.

Included in other operating—net in our consolidated statement of operations for the six months ended June 30, 2021 and 2020 is a net loss of $ 2 million and $ 1 million, respectively.

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

3 unchanged sentences

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Amount Fair Value Carrying

11 unchanged sentences

CF INDUSTRIES HOLDINGS, INC.

For the three months ended March 31, 2021, we recorded an income tax provision of $ 18 million on pre-tax income of $ 193 million or an effective tax rate of 9.3 %, compared to an income tax provision of $ 13 million on pre-tax income of $ 104 million, or an effective tax rate of 12.3 %, for the three months ended March 31, 2020.

For the three months ended March 31, 2021, our income tax provision includes a $ 22 million benefit reflecting the impact of agreement on certain issues related to U.S.

For the three months ended June 30, 2021, we recorded an income tax provision of $ 85 million on pre-tax income of $ 402 million, or an effective tax rate of 21.2 %, compared to an income tax provision of $ 33 million on pre-tax income of $ 251 million, or an effective tax rate of 13.4 %, for the three months ended June 30, 2020.

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

For the six months ended June 30, 2021, we recorded an income tax provision of $ 103 million on pre-tax income of $ 595 million, or an effective tax rate of 17.4 %, compared to an income tax provision of $ 46 million on pre-tax income of $ 355 million, or an effective tax rate of 13.1 %, for the six months ended June 30, 2020.

For the six months ended June 30, 2021, our income tax provision includes a $ 22 million benefit reflecting the impact of agreement on certain issues related to U.S.

federal income tax audits.

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

and foreign income tax audits.

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

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

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

Our effective tax rate for the three months ended March 31, 2021 of 9.3 %, which is based on pre-tax income of $ 193 million, including $ 24 million attributable to the noncontrolling interest, would be 1.3 percentage points higher if based on pre-tax income exclusive of the $ 24 million attributable to the noncontrolling interest.

Our effective tax rate for the three months ended March 31, 2020 of 12.3 %, which is based on pre-tax income of $ 104 million, including $ 23 million attributable to the noncontrolling interest, would be 3.5 percentage points higher if based on pre-tax income exclusive of the $ 23 million attributable to the noncontrolling interest.

Our effective tax rate for the three months ended June 30, 2021 of 21.2 %, which is based on pre-tax income of $ 402 million, including $ 71 million attributable to the noncontrolling interest, would be 4.6 percentage points higher if based on pre-tax income exclusive of the $ 71 million attributable to the noncontrolling interest.

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

Our effective tax rate for the six months ended June 30, 2021 of 17.4 %, which is based on pre-tax income of $ 595 million, including $ 95 million attributable to the noncontrolling interest, would be 3.3 percentage points higher if based on pre-tax income exclusive of the $ 95 million attributable to the noncontrolling interest.

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

See Note 13—Noncontrolling Interest for additional information.

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

tax aspects of the Amended Tax Returns.

In the second quarter of 2020, we received IRS notices indicating the amount of tax and interest to be refunded and received with respect to the income tax and withholding tax returns.

As a result, we recognized $ 16 million of interest income ($ 13 million, net of tax) and $ 19 million of additional income tax benefit.

In addition, in the second quarter of 2020, we received U.S.

Federal income tax refunds, including interest, of $ 108 million relating to these matters.

In July 2020, we received an additional $ 2 million, which finalized these matters with the IRS.

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

In late 2020, the CRA settled with us the voluntary disclosure matter, and, in the first quarter of 2021, we received approximately $ 20 million of withholding tax refunds, including interest, from the CRA.

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

CF INDUSTRIES HOLDINGS, INC.

Interest Expense

1 unchanged sentence

Three months ended

June 30, Six months ended

2021 2020 2021 2020

(in millions)

Interest on borrowings (1)

$ 44 $ 47 $ 90 $ 93

Fees on financing agreements (1)

3 unchanged sentences

(1) See Note 11—Financing Agreements for additional information.

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

CF INDUSTRIES HOLDINGS, INC.

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

Financing Agreements

8 unchanged sentences

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

As of March 31, 2021, we had unused borrowing capacity under the Revolving Credit Agreement of $ 750 million and no outstanding letters of credit.

There were no borrowings outstanding under the Revolving Credit Agreement as of March 31, 2021 or December 31, 2020, or during the three months ended March 31, 2021.

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

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

As of June 30, 2021, we had unused borrowing capacity under the Revolving Credit Agreement of $ 750 million and no outstanding letters of credit.

There were no borrowings outstanding under the Revolving Credit Agreement as of June 30, 2021 or December 31, 2020, or during the six months ended June 30, 2021.

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

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

Borrowings under the Revolving Credit Agreement as of March 31, 2020 were repaid in full in April 2020.

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

As of March 31, 2021, we were in compliance with all covenants under the Revolving Credit Agreement.

As of June 30, 2021, we were in compliance with all covenants under the Revolving Credit Agreement.

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 up to $ 250 million of letters of credit.

As of March 31, 2021, approximately $ 220 million of letters of credit were outstanding under this agreement.

Long-term debt presented on our consolidated balance sheets as of March 31, 2021 and December 31, 2020 consisted of the following debt securities issued by CF Industries:

Effective Interest Rate March 31, 2021 December 31, 2020

As of June 30, 2021, approximately $ 222 million of letters of credit were outstanding under this agreement.

CF INDUSTRIES HOLDINGS, INC.

Long-term debt presented on our consolidated balance sheets as of June 30, 2021 and December 31, 2020 consisted of the following debt securities issued by CF Industries:

Effective Interest Rate June 30, 2021 December 31, 2020

Principal Carrying Amount (1)

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

Total unamortized debt discount was $ 9 million as of both March 31, 2021 and December 31, 2020, and total deferred debt issuance costs were $ 28 million and $ 30 million as of March 31, 2021 and December 31, 2020, respectively.

CF INDUSTRIES HOLDINGS, INC.

Total unamortized debt discount was $ 9 million as of both June 30, 2021 and December 31, 2020, and total deferred debt issuance costs were $ 28 million and $ 30 million as of June 30, 2021 and December 31, 2020, respectively.

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

5 unchanged sentences

Interest on the Public Senior Notes and the 2026 Notes is payable semiannually, and the Public Senior Notes and the 2026 Notes are redeemable at our option, in whole at any time or in part from time to time, at specified make-whole redemption prices.

See Note 17—Subsequent Event for additional information regarding the 3.450% senior notes due June 2023.

CF INDUSTRIES HOLDINGS, INC.

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.

We 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 products.

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

The derivatives that we may use to reduce our exposure to changes in prices for natural gas are primarily natural gas fixed price swaps, basis swaps and options traded in the over-the-counter markets.

The derivatives that we use to reduce our exposure to changes in prices for natural gas are primarily natural gas fixed price swaps, basis swaps and options traded in the over-the-counter markets.

These natural gas derivatives settle using primarily a NYMEX futures price index, which represents the basis for fair value at any given time.

2 unchanged sentences

As a result, changes in fair value of these contracts are recognized in earnings.

As of March 31, 2021, we had natural gas derivative contracts covering certain periods through March 2022.

As of March 31, 2021, our open natural gas derivative contracts consisted of natural gas basis swaps for 0.5 million MMBtus.

As of June 30, 2021, we had natural gas derivative contracts covering certain periods through March 2022.

As of June 30, 2021, our open natural gas derivative contracts consisted of natural gas basis swaps for 6.8 million MMBtus.

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

For the three months ended March 31, 2021, we used derivatives to cover approximately 26 % of our natural gas consumption.

For the six months ended June 30, 2021, we used derivatives to cover approximately 13 % of our natural gas consumption.

The effect of derivatives in our consolidated statements of operations is shown in the table below.

Gain (loss) recognized in income

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

Location 2021 2020 2021 2020

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Net derivative gains (losses) $ — $ — $ 115 $ ( 4 )

CF INDUSTRIES HOLDINGS, INC.

Gain on net settlement of natural gas derivatives due to Winter Storm Uri

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We no longer qualified for the NPNS derivative scope exception for the natural gas that was net settled with our suppliers due to the impact of Winter Storm Uri.

As a result, we recognized a gain of $ 112 million from the net settlement of the natural gas contracts, which is reflected in cost of sales in our consolidated statement of operations for the three months ended March 31, 2021.

As a result, we recognized a gain of $ 112 million from the net settlement of these natural gas contracts, which is reflected in cost of sales in our consolidated statement of operations for the six months ended June 30, 2021.

CF INDUSTRIES HOLDINGS, INC.

The fair values of derivatives on our consolidated balance sheets are shown below.

As of March 31, 2021 and December 31, 2020, none of our derivative instruments were designated as hedging instruments.

As of June 30, 2021 and December 31, 2020, none of our derivative instruments were designated as hedging instruments.

See Note 8—Fair Value Measurements for additional information on derivative fair values.

Asset Derivatives Liability Derivatives

Balance Sheet Location March 31, 2021 December 31, 2020 Balance Sheet Location March 31, 2021 December 31, 2020

Balance Sheet Location June 30, 2021 December 31, 2020 Balance Sheet Location June 30,

2021 December 31, 2020

(in millions) (in millions)

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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 March 31, 2021 and December 31, 2020, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in net liability positions was zero and $ 6 million, respectively, which also approximates the fair value of the maximum amount of additional collateral that may need to be posted or assets that may be needed to settle the obligations if the credit-risk-related contingent features were triggered at the reporting dates.

As of March 31, 2021 and December 31, 2020, we had no cash collateral on deposit with counterparties for derivative contracts.

As of June 30, 2021 and December 31, 2020, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in net liability positions was zero and $ 6 million, respectively, which also approximates the fair value of the maximum amount of additional collateral that may need to be posted or assets that may be needed to settle the obligations if the credit-risk-related contingent features were triggered at the reporting dates.

As of June 30, 2021 and December 31, 2020, 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.

The following table presents amounts relevant to offsetting of our derivative assets and liabilities as of December 31, 2020:

The following table presents amounts relevant to offsetting of our derivative assets and liabilities as of June 30, 2021 and December 31, 2020:

Amounts presented in consolidated

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(in millions)

June 30, 2021

Total derivative assets $ 1 $ — $ — $ 1

Total derivative liabilities ( 1 ) — — ( 1 )

Net derivative liabilities $ — $ — $ — $ —

December 31, 2020

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We do not believe the contractually allowed netting, close-out netting or setoff of amounts owed to, or due from, the counterparties to our ISDA agreements would have a material effect on our financial position.

CF INDUSTRIES HOLDINGS, INC.

Noncontrolling Interest

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Declaration of distributions payable ( 64 ) ( 88 )

Balance as of March 31 $ 2,641 $ 2,675

Balance as of June 30 $ 2,712 $ 2,703

Distributions payable to noncontrolling interest:

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Distributions to noncontrolling interest ( 64 ) ( 88 )

Balance as of March 31 $ — $ —

Balance as of June 30 $ — $ —

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

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See Note 8—Fair Value Measurements for additional information.

On July 30, 2021, the CFN Board of Managers approved semi-annual distribution payments for the distribution period ended June 30, 2021 in accordance with CFN’s limited liability company agreement.

On July 30, 2021, CFN distributed $ 130 million to CHS for the distribution period ended June 30, 2021.

CF INDUSTRIES HOLDINGS, INC.

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No shares have been repurchased since the first quarter of 2020 under the 2019 Share Repurchase Program.

At March 31, 2021, we held 340,446 shares of treasury stock.

At June 30, 2021, we held 5,284 shares of treasury stock.

Accumulated Other Comprehensive Loss

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

Gain arising during the period — — 1 1

Reclassification to earnings (1)

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

Balance as of March 31, 2020 $ ( 271 ) $ 5 $ ( 174 ) $ ( 440 )

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

Balance as of December 31, 2020 $ ( 144 ) $ 4 $ ( 180 ) $ ( 320 )

Loss arising during the period — — ( 3 ) ( 3 )

Reclassification to earnings (1)

Effect of exchange rate changes and deferred taxes 24 — ( 2 ) 22

Balance as of March 31, 2021 $ ( 130 ) $ 4 $ ( 179 ) $ ( 305 )

Balance as of June 30, 2021 $ ( 120 ) $ 4 $ ( 180 ) $ ( 296 )

____________________________________________________________________________

(1) Reclassifications out of accumulated other comprehensive loss to earnings during the three months ended March 31, 2021 and 2020 were not material.

(1) Reclassifications out of accumulated other comprehensive loss to earnings during the three and six months ended June 30, 2021 and 2020 were not material.

Contingencies

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

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

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

The next group of cases is expected to be set for trial after the Court resumes scheduling civil jury trials currently on hold because of the COVID-19 pandemic.

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

Nearly all of the cases, including all wrongful death and personal injury claims, have been resolved pursuant to confidential settlements that have been or we expect will be fully funded by insurance.

The remaining subrogation and statutory indemnification claims total approximately $ 37 million, before prejudgment interest, and are in various stages of discovery and pre-trial proceedings.

The remaining claims are expected to be set for trial in 2022.

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

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

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litigation could negatively affect our results in the period of recognition.

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

However, based upon currently available information, we expect any potential loss to be fully indemnified by insurance and do not believe that this litigation will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Other Litigation

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In 2015, we and several other parties received a notice that the U.S.

Department of the Interior and other trustees intend to undertake a natural resource damage assessment for 17 former phosphate mines in southeast Idaho, one of which is the former Georgetown Canyon mine.

Department of the Interior and other trustees intended to undertake a natural resource damage assessment for 18 former phosphate mines and three former processing facilities in southeast Idaho, which includes the Georgetown Canyon former mine and processing facility.

In June 2021, we received another notice from the U.S.

Department of the Interior that the natural resource damage trustees were commencing a ‘subsequent’ phase of the natural resource damage assessment, but no further details were provided with respect to said assessment.

Because the former mine site is still in the remedial investigation and feasibility study stage, we are not able to estimate at this time our potential liability, if any, with respect to the cleanup of the site or a possible claim for natural resource damages.

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Goodwill by segment is presented in Note 6—Goodwill and Other Intangible Assets.

Segment data for sales, cost of sales and gross margin for the three months ended March 31, 2021 and 2020 are presented in the tables below.

Segment data for sales, cost of sales and gross margin for the three and six months ended June 30, 2021 and 2020 are presented in the tables below.

Ammonia Granular Urea (1)

(in millions)

Three months ended June 30, 2021

Net sales $ 459 $ 433 $ 434 $ 136 $ 126 $ 1,588

Cost of sales 333 241 296 120 95 1,085

Gross margin $ 126 $ 192 $ 138 $ 16 $ 31 503

Total other operating costs and expenses 64

Equity in earnings of operating affiliate 11

Operating earnings $ 450

Three months ended June 30, 2020

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

Cost of sales 262 205 245 91 67 870

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

Total other operating costs and expenses 57

Equity in earnings of operating affiliate 3

Operating earnings $ 280

Granular Urea (1)

(in millions)

Three months ended March 31, 2021

Six months ended June 30, 2021

Net sales $ 665 $ 832 $ 666 $ 241 $ 232 $ 2,636

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Operating earnings $ 697

Three months ended March 31, 2020

Six months ended June 30, 2020

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

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_______________________________________________________________________________

(1) Cost of sales and gross margin for the ammonia segment in the three months ended March 31, 2021, include the $ 112 million gain on the net settlement of certain natural gas contracts with our suppliers.

See Note 12—Derivative Financial Instruments for additional information.

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

(2) Cost of sales and gross margin for the ammonia segment in the six months ended June 30, 2021, include the $ 112 million gain on the net settlement of certain natural gas contracts with our suppliers.

See Note 12—Derivative Financial Instruments for additional information.

CF INDUSTRIES HOLDINGS, INC.

Subsequent Event

On August 9, 2021, we announced that CF Industries has elected to redeem on September 10, 2021, $ 250 million principal amount, representing one-third of the currently outstanding $ 750 million principal amount, of the 3.450 % senior notes due 2023 (2023 Notes), in accordance with the optional redemption provisions provided in the indenture governing the 2023 Notes.

We estimate, based on market interest rates on August 2, 2021, the total amount for the partial redemption of the 2023 Notes will be approximately $ 265 million, including accrued interest.

The partial redemption of the 2023 Notes will be funded with cash on hand.

See Note 11—Financing Agreements for additional information.

CF INDUSTRIES HOLDINGS, INC.

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

What changed 10-Q

Item 1. Financial Statements