CF Industries Holdings, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. You should read the following discussion and analysis in conjunction with our annual consolidated financial statements and related notes and our discussion and analysis of financial condition and results of operations, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission on February 24, 2021, as well as Item 1. Financial Statements in this Quarterly Report on Form 10-Q. All references to “CF Holdings,” “we,” “us,” “our” and “the Company” refer to CF Industries Holdings, Inc. and its subsidiaries, except where the context makes clear that the reference is only to CF Industries Holdings, Inc. itself and not its subsidiaries. All references to “CF Industries” refer to CF Industries, Inc., a 100% owned subsidiary of CF Industries Holdings, Inc. References to tons refer to short tons. Notes referenced in this discussion and analysis refer to the notes to our unaudited interim consolidated financial statements in Item 1. Financial Statements in this Quarterly Report on Form 10-Q. The following is an outline of the discussion and analysis included herein: • Overview of CF Holdings ◦ Our Company ◦ Our Commitment to a Clean Energy Economy ◦ Market Conditions and Current Developments ◦ Financial Executive Summary ◦ Items Affecting Comparability of Results • Consolidated Results of Operations ◦ Second Quarter of 2021 Compared to Second Quarter of 2020 ◦ Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 • Operating Results by Business Segment • Liquidity and Capital Resources • Critical Accounting Estimates • Forward-Looking Statements Overview of CF Holdings Our Company Our mission is to provide clean energy to feed and fuel the world sustainably. With our employees focused on safe and reliable operations, environmental stewardship, and disciplined capital and corporate management, we are on a path to decarbonize our ammonia production network – the world’s largest – to enable green and blue hydrogen and nitrogen products for energy, fertilizer, emissions abatement and other industrial activities. Our nine manufacturing complexes in the United States, Canada and the United Kingdom, an extensive storage, transportation and distribution network in North America, and logistics capabilities enabling a global reach underpin 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. Our principal assets as of June 30, 2021 include: • five U.S. nitrogen manufacturing facilities located in Donaldsonville, Louisiana (the largest nitrogen complex in the world); Port Neal, Iowa; Yazoo City, Mississippi; Verdigris, Oklahoma; and Woodward, Oklahoma. These facilities are wholly owned directly or indirectly by CF Industries Nitrogen, LLC (CFN), of which we own approximately 89% and CHS Inc. (CHS) owns the remainder. See Note 13—Noncontrolling Interest for additional information on our strategic venture with CHS; • two Canadian nitrogen manufacturing facilities located in Medicine Hat, Alberta (the largest nitrogen complex in Canada) and Courtright, Ontario; • two United Kingdom nitrogen manufacturing facilities located in Billingham and Ince; 24 Table of Contents CF INDUSTRIES HOLDINGS, INC. • an extensive system of terminals and associated transportation equipment located primarily in the Midwestern United States; and • a 50% interest in Point Lisas Nitrogen Limited (PLNL), an ammonia production joint venture located in the Republic of Trinidad and Tobago (Trinidad) that we account for under the equity method. 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 blue 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 blue sources. Our approach will focus on green ammonia production, which refers to ammonia produced through a carbon-free process, and blue 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 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 blue ammonia. In April 2021, we signed an engineering and procurement contract with thyssenkrupp to supply a 20 MW alkaline water electrolysis plant to produce green hydrogen at our Donaldsonville nitrogen complex. Construction and installation, which will be managed by us, is expected to begin in the second half of 2021 and to finish in 2023. The cost of the project is expected to fit within our annual capital expenditure budgets. We will integrate the green hydrogen generated by the electrolysis plant into existing ammonia synthesis loops to enable the production of approximately 20,000 tons per year of green ammonia. We believe that, when completed in 2023, the Donaldsonville green ammonia project will be the largest of its kind in North America. Market Conditions and Current Developments Selling Prices and Sales Volume Our average selling price was higher in the second quarter of 2021 than in the second quarter of 2020, driven by the impact of a tighter global nitrogen supply and demand balance, as a result of strong global demand as well as decreased global supply availability as higher global energy costs continued to drive lower global operating rates. In the second quarter of 2021, the average selling price for our products was $307 per ton, an increase of 37%, compared to $224 per ton in the second quarter of 2020. We reported higher average selling prices in the second quarter of 2021 as compared to the second quarter of 2020 across all our segments, which drove an increase in net sales of approximately $437 million. In the six months ended June 30, 2021, the average selling price for our products was $271 per ton, or 25% higher compared to $216 per ton for the six months ended June 30, 2020. This resulted in an increase in net sales of approximately $538 million. Our total sales volume was 4% lower in the second quarter of 2021 than in the second quarter of 2020. We shipped 5.2 million tons of product in the second quarter of 2021 compared to 5.4 million tons in last year’s second quarter due primarily to the impact of decreased supply resulting from lower production of ammonia and the resulting upgraded products. Lower sales volume drove a decrease in net sales of approximately $82 million. We shipped 9.7 million tons of product in the first six months of 2021 compared to 10.1 million tons in the first six months of 2020, or a decline of 3%. Lower sales volume drove a decrease in net sales of approximately $138 million. The decrease in total sales volume was due primarily to the impact of decreased supply resulting from lower production in our ammonia, granular urea and AN segments in the first six months of 2021 as a result of severe weather conditions in the first quarter of 2021 due to Winter Storm Uri, which disrupted natural gas supply at certain of our facilities, and higher maintenance activity. Due to the lower production, we procured additional granular urea in order to meet customer obligations and provide additional manufacturing flexibility once production resumed. During the six months ended June 30, 2021, to meet customer obligations, we purchased 201,000 tons of granular urea for $71 million, which we sold to customers for $68 million. We currently expect sales volumes for our products in 2021 will be approximately 19 million product tons as a result of the increase in maintenance activity due to maintenance deferred from 2020, activity previously planned to occur in 2022 and the severe weather conditions in the first quarter of 2021. 25 Table of Contents CF INDUSTRIES HOLDINGS, INC. Natural Gas 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 one-third of our production costs. In February 2021, the central portion of the United States experienced extreme and unprecedented cold weather due to the impact of Winter Storm Uri. Certain natural gas suppliers and natural gas pipelines 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 reduced our natural gas consumption and therefore these plants either operated at reduced rates or temporarily suspended operations. We net settled certain natural gas contracts with our suppliers and received prevailing market prices, which were in excess of our cost. As a result, we recognized a gain of $112 million, which is reflected in cost of sales in our consolidated statement of operations for the six months ended June 30, 2021. Most of our nitrogen manufacturing facilities are located in the United States and Canada. As a result, the price of natural gas in North America, which is subject to volatility, directly impacts a substantial portion of our operating expenses. Natural gas prices during the first six months of 2021 were higher than in the first six months of 2020, due primarily to the impact of extreme cold weather in the first quarter of 2021, including Winter Storm Uri in February 2021, followed by above normal temperatures in the second quarter of 2021 and increased energy demand as the economy emerged from the COVID-19 pandemic. The average daily market price at the Henry Hub, the most heavily-traded natural gas pricing point in North America, for the three months ended June 30, 2021 was $2.88 per MMBtu compared to $1.65 per MMBtu for the three months ended June 30, 2020, an increase of 75%. The average daily market price at the Henry Hub for the six months ended June 30, 2021 was $3.13 per MMBtu compared to $1.76 per MMBtu for the six months ended June 30, 2020, an increase of 78%. As a result of Winter Storm Uri, the daily closing price at the Henry Hub reached a high of $23.61 per MMBtu on February 18, 2021. 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 Balancing Point (NBP). The average daily market price of natural gas at NBP for the three months ended June 30, 2021 was $8.90 per MMBtu compared to $1.60 per MMBtu for the three months ended June 30, 2020. The price of natural gas in the United Kingdom increased in the first six months of 2021 due primarily to a tighter supply and demand balance in the global liquefied natural gas market as a result of severe cold temperatures in Asia that increased global liquefied natural gas demand and resulted in record Asian prices for liquefied natural gas, raising European market prices to compete for limited supply. The average daily market price at the NBP for the six months ended June 30, 2021 was $7.90 per MMBtu compared to $2.40 per MMBtu for the six months ended June 30, 2020, an increase of 229%. Subsequent to June 30, 2021, the average daily market price of natural gas at NBP for July 2021 was $12.37 per MMBtu. In the second quarter of 2021, the cost of natural gas used for production, which includes the impact of realized natural gas derivatives, increased 75% to $3.25 per MMBtu in the three months ended June 30, 2021 from $1.86 per MMBtu in the three months ended June 30, 2020. This increase in natural gas costs resulted in a decrease in gross margin of approximately $131 million. In the first half of 2021, the cost of natural gas used for production, which includes the impact of realized natural gas derivatives and excludes the $112 million gain that resulted from the net settlement of certain natural gas contracts with our suppliers, increased 47% to $3.24 per MMBtu in the six months ended June 30, 2021 from $2.20 per MMBtu in the six months ended June 30, 2020. This increase in natural gas costs resulted in a decrease in gross margin of approximately $179 million. Manufacturing Costs and Granular Urea Purchases In the first half of 2021, we experienced lower production levels and higher manufacturing and maintenance costs. In response to the lower production levels, we procured granular urea in order to meet customer obligations and provide additional manufacturing flexibility. The following summarizes the impact from these activities: • Certain of our plants operated at lower operating rates or temporarily suspended operations due to the lack of natural gas due to Winter Storm Uri or due to maintenance activity in 2021 that was deferred from 2020 as a result of the COVID-19 pandemic. Because of these factors, in the first half of 2021, we incurred higher costs for manufacturing, maintenance and repair activity for both scheduled and unscheduled downtime. • Due to the lower production, we procured additional granular urea in order to meet customer obligations. In the first half of 2021, we purchased approximately $71 million of granular urea, which we sold to customers for $68 million. 26 Table of Contents CF INDUSTRIES HOLDINGS, INC. COVID-19 Pandemic In March 2020, the World Health Organization characterized the outbreak of coronavirus disease 2019 (COVID-19) as a 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 by those states and provinces in which we operate. As a result, our manufacturing complexes continued to operate during 2020 and have continued to operate through the date of this report. In addition, 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. Through the date of this report, we have not experienced any meaningful impact in customer demand as a result of the pandemic. In response to the pandemic, we instituted and have continued to enforce safety precautions to protect the health and well-being of all of our employees, including the manufacturing workforce who operate our nitrogen complexes and distribution facilities. We will continue to monitor safety guidelines related to COVID-19 as issued by governmental authorities and adjust our safety protocols, as needed. Financial Executive Summary We reported net earnings attributable to common stockholders of $246 million for the three months ended June 30, 2021 compared to $190 million for the three months ended June 30, 2020, an increase in net earnings of $56 million, or 29%. The increase in net earnings was due primarily to higher average selling prices, partially offset by higher natural gas costs and higher costs related to manufacturing, maintenance and repair activity. Gross margin increased by $169 million in the second quarter of 2021 to $503 million as compared to $334 million in the second quarter of 2020. The following table and related discussion describe the significant factors that drove the increase in gross margin. Variance due to the following items: Second Quarter of 2020 Higher Average Selling Prices (1) Volume (1) Higher Natural Gas Costs (2) Higher Manufacturing, Maintenance, and Other Costs Increase in Purchased Urea (3) Second Quarter of 2021 (dollars in millions) Net sales $ 1,204 $ 437 $ (82) $ — $ — $ 29 $ 1,588 Cost of sales 870 — (52) 131 105 31 1,085 Gross margin $ 334 $ 437 $ (30) $ (131) $ (105) $ (2) $ 503 Gross margin percentage 27.7 % 31.7 % _______________________________________________________________________________ (1) Selling price and volume impact of granular urea purchased to satisfy customer commitments is reflected in the Increase in Purchased Urea column. (2) Higher natural gas costs include the impact, if any, of realized natural gas derivatives. (3) Represents the impact of the incremental tons compared to the prior year period. • Average selling prices increased 37% to $307 per ton in the second quarter of 2021 from $224 per ton in the second quarter of 2020, which increased gross margin by $437 million, • Sales volume declined by 4% to 5.2 million tons in the second quarter of 2021 from 5.4 million tons in the second quarter of 2020, which reduced gross margin by $30 million, • The cost of natural gas used for production increased 75% to $3.25 per MMBtu in the second quarter of 2021 from $1.86 per MMBtu in the second quarter of 2020, which reduced gross margin by $131 million, • We incurred higher manufacturing, maintenance and other costs, which reduced gross margin by $105 million, due primarily to higher plant turnaround, maintenance and repair activities, and • During the second quarter of 2021, to meet customer obligations, we purchased 104,000 tons of granular urea, an increase of 80,000 tons compared to the second quarter of 2020. Diluted net earnings per share attributable to common stockholders increased $0.25 per share, to $1.14 per share, in the second quarter of 2021 compared to $0.89 per share in the second quarter of 2020. This increase was due primarily to higher net earnings driven by the increase in average selling prices described above. 27 Table of Contents CF INDUSTRIES HOLDINGS, INC. Items Affecting Comparability of Results In addition to the impact of market conditions, winter storms and manufacturing and maintenance activity discussed above, certain items impacted the comparability of our financial results during the three and six months ended June 30, 2021 and 2020. The following table and related discussion outline these items and how they impacted the comparability of our financial results during these periods. During the three months ended June 30, 2021 and 2020, we reported net earnings attributable to common stockholders of $246 million and $190 million, respectively. During the six months ended June 30, 2021 and 2020, we reported net earnings attributable to common stockholders of $397 million and $258 million, respectively. Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Pre-Tax After-Tax Pre-Tax After-Tax Pre-Tax After-Tax Pre-Tax After-Tax (in millions) Unrealized net mark-to-market gain on natural gas derivatives (1) $ — $ — $ — $ — $ (6) $ (5) $ (12) $ (9) Special COVID-19 bonus for operational workforce (1) — — 15 12 — — 15 12 Loss (gain) on foreign currency transactions, including intercompany loans (2) 3 3 (5) (4) 3 3 13 10 Engineering cost write-off (2) — — 8 6 — — 8 6 Insurance proceeds (2) — — — — — — (10) (8) Loss on debt extinguishment — — — — 6 5 — — Terra amended tax returns—interest income and income tax benefit (3) — — (16) (32) — — (16) (32) ______________________________________________________________________________ (1) Included in cost of sales in our consolidated statements of operations. (2) Included in other operating—net in our consolidated statements of operations. (3) Included in interest income and income tax provision in our consolidated statements of operations. Unrealized net mark-to-market gain on natural gas derivatives Natural gas is the largest and most volatile single component of the manufacturing cost for nitrogen-based products. At certain times, we have managed the risk of changes in natural gas prices through the use of derivative financial instruments. The derivatives that we use for this purpose are primarily natural gas fixed price swaps, basis swaps and options. We use natural gas derivatives as an economic hedge of natural gas price risk, but without the application of hedge accounting. 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 are reflected in cost of sales in our consolidated statements of operations. In the six months ended June 30, 2021 and 2020, we recognized unrealized net mark-to-market gains of $6 million and $12 million, respectively. Special COVID-19 bonus for operational workforce In March 2020, a short-term bonus program was initiated to compensate operational employees for continuing their critical tasks during the COVID-19 pandemic. The bonus program concluded in June 2020. Approximately $19 million was paid as part of the program, of which approximately $15 million was recognized in cost of sales in our consolidated statement of operations for the three months ended June 30, 2020, and the remaining $4 million was recognized in the third quarter of 2020. Loss (gain) on foreign currency transactions, including intercompany loans In the six months ended June 30, 2021 and 2020, we recognized losses of $3 million and $13 million, respectively, which consist 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, $8 million of previously capitalized engineering costs were expensed in the three months ended June 30, 2020. The expense is reflected in other operating—net in our consolidated statements of operations. 28 Table of Contents CF INDUSTRIES HOLDINGS, INC. Insurance proceeds In the six months ended June 30, 2020, we recognized income of $10 million related to insurance claims at one of our nitrogen complexes, which consisted of $8 million related to business interruption proceeds and $2 million related to property insurance proceeds. These proceeds are reflected in other operating—net in our consolidated statement of operations. Loss on debt extinguishment On March 20, 2021, we redeemed in full all of the remaining $250 million outstanding principal amount of the 3.400% senior secured notes due December 2021 (the 2021 Notes) in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the redemption was $258 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million, primarily consisting of a premium paid on the early redemption of the notes. 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. See “Liquidity and Capital Resources—Terra Amended Tax Returns,” below, for additional information. 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. 29 Table of Contents CF INDUSTRIES HOLDINGS, INC. Consolidated Results of Operations The following table presents our consolidated results of operations and supplemental data: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 v. 2020 2021 2020 2021 v. 2020 (in millions, except per share and per MMBtu) Net sales $ 1,588 $ 1,204 $ 384 32 % $ 2,636 $ 2,175 $ 461 21 % Cost of sales 1,085 870 215 25 % 1,844 1,637 207 13 % Gross margin 503 334 169 51 % 792 538 254 47 % Gross margin percentage 31.7 % 27.7 % 4.0 % 30.0 % 24.7 % 5.3 % Selling, general and administrative expenses 60 51 9 18 % 115 105 10 10 % Other operating—net 4 6 (2) (33) % 2 12 (10) (83) % Total other operating costs and expenses 64 57 7 12 % 117 117 — — % Equity in earnings of operating affiliate 11 3 8 N/M 22 6 16 N/M Operating earnings 450 280 170 61 % 697 427 270 63 % Interest expense—net 46 32 14 44 % 94 75 19 25 % Loss on debt extinguishment — — — — % 6 — 6 N/M Other non-operating—net 2 (3) 5 N/M 2 (3) 5 N/M Earnings before income taxes 402 251 151 60 % 595 355 240 68 % Income tax provision 85 33 52 158 % 103 46 57 124 % Net earnings 317 218 99 45 % 492 309 183 59 % Less: Net earnings attributable to noncontrolling interest 71 28 43 154 % 95 51 44 86 % Net earnings attributable to common stockholders $ 246 $ 190 $ 56 29 % $ 397 $ 258 $ 139 54 % Diluted net earnings per share attributable to common stockholders $ 1.14 $ 0.89 $ 0.25 28 % $ 1.83 $ 1.20 $ 0.63 53 % Diluted weighted-average common shares outstanding 216.6 214.6 2.0 1 % 216.3 215.6 0.7 — % Dividends declared per common share $ 0.30 $ 0.30 $ — — % $ 0.60 $ 0.60 $ — — % Natural gas supplemental data (per MMBtu) Cost of natural gas used for production in cost of sales (1) $ 3.25 $ 1.86 $ 1.39 75 % $ 3.24 $ 2.20 $ 1.04 47 % Average daily market price of natural gas Henry Hub (Louisiana) $ 2.88 $ 1.65 $ 1.23 75 % $ 3.13 $ 1.76 $ 1.37 78 % Average daily market price of natural gas National Balancing Point (UK) $ 8.90 $ 1.60 $ 7.30 N/M $ 7.90 $ 2.40 $ 5.50 229 % Unrealized net mark-to-market gain on natural gas derivatives $ — $ — $ — — % $ (6) $ (12) $ 6 50 % Depreciation and amortization $ 243 $ 239 $ 4 2 % $ 447 $ 450 $ (3) (1) % Capital expenditures $ 110 $ 52 $ 58 112 % $ 181 $ 119 $ 62 52 % Sales volume by product tons (000s) 5,174 5,386 (212) (4) % 9,738 10,074 (336) (3) % Production volume by product tons (000s): Ammonia (2) 2,232 2,483 (251) (10) % 4,711 5,153 (442) (9) % Granular urea 968 1,206 (238) (20) % 2,152 2,491 (339) (14) % UAN (32%) 1,628 1,708 (80) (5) % 3,317 3,307 10 — % AN 449 546 (97) (18) % 924 1,061 (137) (13) % ___________________________________________________________________________ N/M—Not Meaningful (1) Includes the cost of natural gas used for production and related transportation that is included in cost of sales during the period under the first-in, first-out inventory cost method. Includes realized gains and losses on natural gas derivatives settled during the period. Excludes unrealized mark-to-market gains and losses on natural gas derivatives. For the six months ended June 30, 2021, excludes the $112 million gain on net settlement of certain natural gas contracts with our suppliers due to Winter Storm Uri in February 2021. (2) Gross ammonia production, including amounts subsequently upgraded on-site into granular urea, UAN, or AN. 30 Table of Contents CF INDUSTRIES HOLDINGS, INC. Second Quarter of 2021 Compared to Second Quarter of 2020 Net Sales Our total net sales increased $384 million, or 32%, to $1.59 billion in the second quarter of 2021 compared to $1.20 billion in the second quarter of 2020 due to an increase in average selling prices, partially offset by a decrease in sales volume. Average selling prices increased by 37% due to strong market conditions, which was partially offset by a 4% decline in sales volume. The increase in net sales also reflects the sale of 104,000 tons of granular urea that we purchased during the second quarter of 2021 to meet customer obligations, an increase of 80,000 tons compared to the second quarter of 2020. Our average selling price was $307 per ton in the second quarter of 2021, or 37% higher, compared to $224 per ton in the second quarter of 2020 due to higher average selling prices across all of our segments, primarily driven by the impact of a tighter global nitrogen supply and demand balance, as a result of strong global demand as well as decreased global supply availability as higher global energy costs continued to drive lower global operating rates. Our total sales volume of 5.2 million product tons in the second quarter of 2021 was 4% lower compared to 5.4 million tons in the second quarter of 2020 as lower sales volume in our granular urea, ammonia and AN segments was offset by higher sales volume in our UAN and Other segments. Sales volume was lower as a result of lower production due to reduced plant operating rates as a result of higher plant turnaround and maintenance activity in 2021. Cost of Sales Our total cost of sales increased $215 million, or 25%, to $1.09 billion in the second quarter of 2021 from $870 million in the second quarter of 2020. The increase in our cost of sales was due primarily to higher costs for natural gas, which increased cost of sales by $131 million, and higher manufacturing, maintenance and other costs, which increased cost of sales by $105 million. These increases were partially offset by a decline in cost of sales of $52 million due primarily to a 4% decline in sales volume. The increase in cost of sales also reflects the purchase of 104,000 tons of granular urea to meet customer obligations, an increase of 80,000 tons compared to the second quarter of 2020. Cost of sales averaged $210 per ton in the second quarter of 2021, a 30% increase from $162 per ton in the second quarter of 2020. The cost of natural gas used for production, including the impact of realized derivatives, increased 75% to $3.25 per MMBtu in the second quarter of 2021 from $1.86 per MMBtu in the second quarter of 2020. Selling, General and Administrative Expenses Selling, general and administrative expenses increased $9 million to $60 million in the second quarter of 2021 as compared to $51 million in the second quarter of 2020. The increase was due primarily to higher incentive compensation due to strong operating performance. Other Operating—Net Other operating—net was $4 million of expense in the second quarter of 2021 compared to $6 million of expense in the second quarter of 2020. The $4 million of expense in the second quarter of 2021 was due primarily to the loss on foreign currency transactions of $3 million, 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. The $6 million of expense in the second quarter of 2020 was due primarily to $8 million of expense related to the cancellation of a project, which is more fully described in the section above titled “Items Affecting Comparability of Results—Engineering cost write-off,” partially offset by a gain on foreign currency transactions of $5 million. Equity in Earnings of Operating Affiliate Equity in earnings of operating affiliate was $11 million in the second quarter of 2021 compared to $3 million in the second quarter of 2020. The increase in the second quarter of 2021 was due primarily to an increase in the operating results of PLNL as a result of higher ammonia selling prices. Interest Expense—Net Net interest expense was $46 million in the second quarter of 2021 compared to $32 million in the second quarter of 2020. The second quarter of 2020 included $16 million of interest income 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. 31 Table of Contents CF INDUSTRIES HOLDINGS, INC. Income Taxes 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 more fully described under “Liquidity and Capital Resources—Terra Amended Tax Returns,” below. Our effective tax rate is also 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 the three months ended June 30, 2021 of 21.2%, which is based on pre-tax income of $402 million, including $71 million of earnings attributable to the noncontrolling interest, would be 4.6 percentage points higher, or 25.8%, if based on pre-tax income exclusive of the $71 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended June 30, 2020 of 13.4%, which is based on pre-tax income of $251 million, including $28 million attributable to the noncontrolling interest, would be 1.6 percentage points higher, or 15.0%, if based on pre-tax income exclusive of the $28 million attributable to the noncontrolling interest. See Note 9—Income Taxes and Note 13—Noncontrolling Interest for additional information. Net Earnings Attributable to Noncontrolling Interest Net earnings attributable to noncontrolling interest increased $43 million to $71 million in the second quarter of 2021 as compared to $28 million in the second quarter of 2020 due to higher earnings of CFN driven by higher average selling prices due primarily to a tighter global nitrogen supply and demand balance, as a result of strong global demand as well as decreased global supply availability as higher global energy costs continued to drive lower global operating rates. Diluted Net Earnings Per Share Attributable to Common Stockholders Net earnings per share attributable to common stockholders increased $0.25 to $1.14 per diluted share in the second quarter of 2021 from $0.89 per diluted share in the second quarter of 2020. This increase was due primarily to higher net earnings, driven by the increase in average selling prices described above. Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Net Sales Our total net sales increased $461 million, or 21%, to $2.64 billion in the first six months of 2021 as compared to $2.18 billion in the first six months of 2020 due to a 25% increase in average selling prices, partially offset by a 3% decrease in sales volume. The increase in net sales also reflects the sale of 201,000 tons of granular urea that we purchased during the first half of 2021 to meet customer obligations, an increase of 177,000 tons compared to the first half of 2020. Average selling prices were $271 per ton in the first six months of 2021, or 25% higher compared to $216 per ton in the first six months of 2020 due to higher average selling prices across all of our segments, primarily driven by the impact of a tighter global nitrogen supply and demand balance, as a result of strong global demand as well as decreased global supply availability as higher global energy costs continued to drive lower global operating rates. Our total sales volume of 9.7 million product tons in the first six months of 2021 was 3% lower compared to 10.1 million product tons in the first six months of 2020 as a result of lower production due to the temporary idling of certain plants due to Winter Storm Uri and reduced plant operating rates as a result of higher plant turnaround, maintenance and repair activities in 2021. Cost of Sales Our total cost of sales increased $207 million, or 13%, to $1.84 billion in the first six months of 2021 as compared to $1.64 billion in the first six months of 2020. The increase in our cost of sales was due primarily to higher costs for natural gas, including the impact of realized derivatives, which increased cost of sales by $179 million, higher manufacturing, maintenance and other costs, which increased cost of sales by $168 million, and higher costs for purchased products as we purchased $71 million of granular urea during the first half of 2021 to meet customer obligations. These increases were partially offset by the $112 million gain we recognized from the net settlement of certain natural gas contracts with our suppliers in February 2021 due to Winter Storm Uri as described above under the heading “Natural Gas” in the section titled “Market Conditions and Current Developments.” The $112 million gain on the net settlement of certain natural gas contracts in February 2021 is reflected in, and had the effect of reducing, our cost of sales in the first six months of 32 Table of Contents CF INDUSTRIES HOLDINGS, INC. 2021. In addition, there was a $98 million decline in cost of sales in the first six months of 2021, as compared to the first six months of 2020, due primarily to a 3% decline in sales volume. Cost of sales averaged $189 per ton in the first six months of 2021, a 17% increase from $161 per ton in the first six months of 2020. The cost of natural gas used for production, including the impact of realized derivatives, increased 47% to $3.24 per MMBtu in the first six months of 2021 from $2.20 per MMBtu in the first six months of 2020. The cost of natural gas used for production of $3.24 per MMBtu in the first half of 2021 does not include the $112 million gain from the net settlement of certain natural gas contracts in February 2021. Selling, General and Administrative Expenses Selling, general and administrative expenses increased $10 million to $115 million in the first six months of 2021 as compared to $105 million in the first six months of 2020. The increase was due primarily to higher incentive compensation due to strong operating performance. Other Operating—Net Other operating—net was $2 million of expense in the first six months of 2021 compared to $12 million of expense in the first six months of 2020. The expense in the first six months of 2020 includes $8 million of expense related to the cancellation of a project, which is more fully described in the section above titled “Items Affecting Comparability of Results—Engineering cost write-off,” and foreign currency transaction losses of $13 million, due to the impact of changes in foreign currency exchange rates on intercompany loans that were not permanently invested. These factors were partially offset by insurance proceeds of $10 million. See “Items Affecting Comparability of Results—Insurance proceeds,” above, for additional information. Equity in Earnings of Operating Affiliate Equity in earnings of operating affiliate was $22 million in the first six months of 2021 compared to $6 million in the first six months of 2020. The increase was due primarily to an increase in the operating results of PLNL as a result of higher ammonia selling prices. Interest Expense—Net Net interest expense increased by $19 million to $94 million in the first six months of 2021 compared to $75 million in the first six months of 2020. The increase is due to $16 million of interest 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. Loss on Debt Extinguishment On March 20, 2021, we redeemed in full all of the remaining $250 million outstanding principal amount of the 2021 Notes in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the redemption was $258 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million, primarily consisting of a premium paid on the early redemption of the notes. Income Taxes 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 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 more fully described under “Liquidity and Capital Resources—Terra Amended Tax Returns,” below. Our effective tax rate is also 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 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, or 20.7%, if based on pre-tax 33 Table of Contents CF INDUSTRIES HOLDINGS, INC. 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, or 15.2%, if based on pre-tax income exclusive of the $51 million attributable to the noncontrolling interest. See Note 9—Income Taxes and Note 13—Noncontrolling Interest for additional information. Net Earnings Attributable to Noncontrolling Interest Net earnings attributable to noncontrolling interest increased 86% to $95 million in the first six months of 2021 from $51 million in the first six months of 2020 due to higher earnings of CFN driven by higher average selling prices due primarily to a tighter global nitrogen supply and demand balance as higher global energy costs drove lower global operating rates. Diluted Net Earnings Per Share Attributable to Common Stockholders Net earnings per share attributable to common stockholders increased 53% to $1.83 per diluted share in the first six months of 2021 from $1.20 per diluted share in the first six months of 2020. This increase is due primarily to the increase in net earnings, driven by higher average selling prices, as described above. 34 Table of Contents CF INDUSTRIES HOLDINGS, INC. Operating Results by Business Segment Our reportable segments consist of ammonia, granular urea, UAN, AN and Other. These segments are differentiated by products. Our management uses gross margin to evaluate segment performance and allocate resources. Total other operating costs and expenses (consisting of selling, general and administrative expenses and other operating—net) and non-operating expenses (interest and income taxes), are centrally managed and are not included in the measurement of segment profitability reviewed by management. The following tables present summary operating results by business segment and the major drivers of the variance in net sales, cost of sales and gross margin: Variance due to the following items: Second Quarter of 2020 Higher Average Selling Prices (1) Volume (1) Higher Natural Gas Costs (2) Unrealized MTM on natural gas derivatives Higher Manufacturing, Maintenance and Other Costs Increase in Purchased Urea (3) Second Quarter of 2021 (dollars in millions) Consolidated Net sales $ 1,204 $ 437 $ (82) $ — $ — $ — $ 29 $ 1,588 Cost of sales 870 — (52) 131 — 105 31 1,085 Gross margin $ 334 $ 437 $ (30) $ (131) $ — $ (105) $ (2) $ 503 Gross margin percentage 27.7 % 31.7 % Ammonia Net sales $ 364 $ 121 $ (26) $ — $ — $ — $ — $ 459 Cost of sales 262 — (13) 38 — 46 — 333 Gross margin $ 102 $ 121 $ (13) $ (38) $ — $ (46) $ — $ 126 Gross margin percentage 28.0 % 27.5 % Granular Urea Net sales $ 329 $ 144 $ (69) $ — $ — $ — $ 29 $ 433 Cost of sales 205 — (40) 27 — 18 31 241 Gross margin $ 124 $ 144 $ (29) $ (27) $ — $ (18) $ (2) $ 192 Gross margin percentage 37.7 % 44.3 % UAN Net sales $ 308 $ 104 $ 22 $ — $ — $ — $ — $ 434 Cost of sales 245 — 13 36 1 1 — 296 Gross margin $ 63 $ 104 $ 9 $ (36) $ (1) $ (1) $ — $ 138 Gross margin percentage 20.5 % 31.8 % AN Net sales $ 118 $ 34 $ (16) $ — $ — $ — $ — $ 136 Cost of sales 91 — (11) 19 (1) 22 — 120 Gross margin $ 27 $ 34 $ (5) $ (19) $ 1 $ (22) $ — $ 16 Gross margin percentage 22.9 % 11.8 % Other Net sales $ 85 $ 34 $ 7 $ — $ — $ — $ — $ 126 Cost of sales 67 — (1) 11 — 18 — 95 Gross margin $ 18 $ 34 $ 8 $ (11) $ — $ (18) $ — $ 31 Gross margin percentage 21.2 % 24.6 % 35 Table of Contents CF INDUSTRIES HOLDINGS, INC. Variance due to the following items: Six Months Ended June 30, 2020 Higher Average Selling Prices (1) Volume (1) Higher Natural Gas Costs (2) Unrealized MTM on natural gas derivatives Higher Manufacturing, Maintenance and Other Costs Increase in Purchased Urea (3) Gain on Net Settlement of Natural Gas Contracts Six Months Ended June 30, 2021 (dollars in millions) Consolidated Net sales $ 2,175 $ 538 $ (138) $ — $ — $ — $ 61 $ — $ 2,636 Cost of sales 1,637 — (98) 179 6 168 64 (112) 1,844 Gross margin $ 538 $ 538 $ (40) $ (179) $ (6) $ (168) $ (3) $ 112 $ 792 Gross margin percentage 24.7 % 30.0 % Ammonia Net sales $ 557 $ 151 $ (43) $ — $ — $ — $ — $ — $ 665 Cost of sales 435 — (26) 43 2 71 — (112) 413 Gross margin $ 122 $ 151 $ (17) $ (43) $ (2) $ (71) $ — $ 112 $ 252 Gross margin percentage 21.9 % 37.9 % Granular Urea Net sales $ 666 $ 210 $ (105) $ — $ — $ — $ 61 $ — $ 832 Cost of sales 429 — (62) 43 2 29 64 — 505 Gross margin $ 237 $ 210 $ (43) $ (43) $ (2) $ (29) $ (3) $ — $ 327 Gross margin percentage 35.6 % 39.3 % UAN Net sales $ 543 $ 81 $ 42 $ — $ — $ — $ — $ — $ 666 Cost of sales 438 — 25 50 2 11 — — 526 Gross margin $ 105 $ 81 $ 17 $ (50) $ (2) $ (11) $ — $ — $ 140 Gross margin percentage 19.3 % 21.0 % AN Net sales $ 234 $ 46 $ (39) $ — $ — $ — $ — $ — $ 241 Cost of sales 194 — (31) 27 — 25 — — 215 Gross margin $ 40 $ 46 $ (8) $ (27) $ — $ (25) $ — $ — $ 26 Gross margin percentage 17.1 % 10.8 % Other Net sales $ 175 $ 50 $ 7 $ — $ — $ — $ — $ — $ 232 Cost of sales 141 — (4) 16 — 32 — — 185 Gross margin $ 34 $ 50 $ 11 $ (16) $ — $ (32) $ — $ — $ 47 Gross margin percentage 19.4 % 20.3 % _______________________________________________________________________________ (1) Selling price and volume impact of granular urea purchased to satisfy customer commitments is reflected in the Increase in Purchased Urea column. (2) Higher natural gas costs include the impact, if any, of realized natural gas derivatives. (3) Represents the impact of the incremental tons compared to the prior year period. 36 Table of Contents CF INDUSTRIES HOLDINGS, INC. Ammonia Segment 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. In addition, ammonia is the base nitrogen product that we upgrade into other nitrogen products such as granular urea, UAN and AN. We produce ammonia at all of our nitrogen manufacturing complexes. The following table presents summary operating data for our ammonia segment: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 v. 2020 2021 2020 2021 v. 2020 (dollars in millions, except per ton amounts) Net sales $ 459 $ 364 $ 95 26 % $ 665 $ 557 $ 108 19 % Cost of sales 333 262 71 27 % 413 435 (22) (5) % Gross margin $ 126 $ 102 $ 24 24 % $ 252 $ 122 $ 130 107 % Gross margin percentage 27.5 % 28.0 % (0.5) % 37.9 % 21.9 % 16.0 % Sales volume by product tons (000s) 1,036 1,118 (82) (7) % 1,719 1,880 (161) (9) % Sales volume by nutrient tons (000s) (1) 850 917 (67) (7) % 1,410 1,542 (132) (9) % Average selling price per product ton $ 443 $ 326 $ 117 36 % $ 387 $ 296 $ 91 31 % Average selling price per nutrient ton (1) $ 540 $ 397 $ 143 36 % $ 472 $ 361 $ 111 31 % Gross margin per product ton $ 122 $ 91 $ 31 34 % $ 147 $ 65 $ 82 126 % Gross margin per nutrient ton (1) $ 148 $ 111 $ 37 33 % $ 179 $ 79 $ 100 127 % Depreciation and amortization $ 61 $ 60 $ 1 2 % $ 97 $ 99 $ (2) (2) % Unrealized net mark-to-market gain on natural gas derivatives $ — $ — $ — — % $ (2) $ (4) $ 2 50 % _______________________________________________________________________________ (1) Ammonia represents 82% nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons. Second Quarter of 2021 Compared to Second Quarter of 2020 Net Sales. Net sales in our ammonia segment increased by $95 million, or 26%, to $459 million in the second quarter of 2021 from $364 million in the second quarter of 2020 due primarily to a 36% increase in average selling prices, partially offset by a 7% decrease in sales volume. Average selling prices increased to $443 per ton in the second quarter of 2021 compared to $326 per ton in the second quarter of 2020 due primarily to the impact of a tighter global nitrogen supply and demand balance. Sales volume was lower due primarily to lower supply availability resulting from reduced production, due to higher plant turnaround and maintenance activity in 2021. Cost of Sales. Cost of sales in our ammonia segment averaged $321 per ton in the second quarter of 2021, a 37% increase from $235 per ton in the second quarter of 2020. The increase is due primarily to higher realized natural gas costs, higher costs related to plant turnaround and maintenance activity, and a higher cost for purchased ammonia from our joint venture in Trinidad. Gross Margin . Gross margin in our ammonia segment increased by $24 million to $126 million in the second quarter of 2021 from $102 million in the second quarter of 2020, and our gross margin percentage was 27.5% in the second quarter of 2021 compared to 28.0% in the second quarter of 2020 . The increase in gross margin was due primarily to a 36% increase in average selling prices, which increased gross margin by $121 million. This factor was partially offset by the impact of a $46 million net increase in manufacturing, maintenance and other costs , an increase in realized natural gas costs, which reduced gross margin by $38 million, and a 7% decrease in sales volume, which decreased gross margin by $13 million. Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Net Sales. Net sales in our ammonia segment increased by $108 million, or 19%, to $665 million in the six months ended June 30, 2021 from $557 million in the six months ended June 30, 2020 due primarily to a 31% increase in average selling prices, partially offset by a 9% decrease in sales volume. The increase in average selling prices was due primarily to the impact of a tighter global nitrogen supply and demand balance. Sales volume was lower due primarily to lower supply 37 Table of Contents CF INDUSTRIES HOLDINGS, INC. availability resulting from reduced production due to higher plant turnaround and maintenance activity, including the impact of Winter Storm Uri. Cost of Sales. Cost of sales in our ammonia segment averaged $240 per ton in the six months ended June 30, 2021, a 4% increase from $231 per ton in the six months ended June 30, 2020. The increase is due primarily to higher realized natural gas costs, a higher cost for purchased ammonia from our joint venture in Trinidad, and higher maintenance and repair activity, partially offset by the impact of the $112 million gain on the net settlement of certain natural gas contracts with our suppliers in February 2021. See “Market Conditions and Current Developments” above, for additional information on the operational impact of Winter Storm Uri. Gross Margin . Gross margin in our ammonia segment increased by $130 million to $252 million in the six months ended June 30, 2021 from $122 million in the six months ended June 30, 2020, and our gross margin percentage was 37.9% in the six months ended June 30, 2021 compared to 21.9% in the six months ended June 30, 2020. The increase in gross margin was due primarily to a 31% increase in average selling prices, which increased gross margin by $151 million, and the $112 million gain on the net settlement of certain natural gas contracts in February 2021. These factors were partially offset by a $71 million net increase in manufacturing, maintenance and other costs, an increase in realized natural gas costs, which decreased gross margin by $43 million, a 9% decrease in sales volume, which decreased gross margin by $17 million, and the impact of a $2 million unrealized net mark-to-market gain on natural gas derivatives in the six months ended June 30, 2021 compared to a $4 million gain in the six months ended June 30, 2020. Granular Urea Segment Our granular urea segment produces granular urea, which contains 46% nitrogen. Produced from ammonia and carbon dioxide, it has the highest nitrogen content of any of our solid nitrogen fertilizers. Granular urea is produced at our Donaldsonville, Louisiana; Medicine Hat, Alberta; and Port Neal, Iowa, nitrogen complexes. The following table presents summary operating data for our granular urea segment: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 v. 2020 2021 2020 2021 v. 2020 (dollars in millions, except per ton amounts) Net sales $ 433 $ 329 $ 104 32 % $ 832 $ 666 $ 166 25 % Cost of sales 241 205 36 18 % 505 429 76 18 % Gross margin $ 192 $ 124 $ 68 55 % $ 327 $ 237 $ 90 38 % Gross margin percentage 44.3 % 37.7 % 6.6 % 39.3 % 35.6 % 3.7 % Sales volume by product tons (000s) 1,092 1,314 (222) (17) % 2,412 2,695 (283) (11) % Sales volume by nutrient tons (000s) (1) 502 604 (102) (17) % 1,109 1,239 (130) (10) % Average selling price per product ton $ 397 $ 250 $ 147 59 % $ 345 $ 247 $ 98 40 % Average selling price per nutrient ton (1) $ 863 $ 545 $ 318 58 % $ 750 $ 538 $ 212 39 % Gross margin per product ton $ 176 $ 94 $ 82 87 % $ 136 $ 88 $ 48 55 % Gross margin per nutrient ton (1) $ 382 $ 205 $ 177 86 % $ 295 $ 191 $ 104 54 % Depreciation and amortization $ 55 $ 66 $ (11) (17) % $ 121 $ 138 $ (17) (12) % Unrealized net mark-to-market gain on natural gas derivatives $ — $ — $ — — % $ (2) $ (4) $ 2 50 % _______________________________________________________________________________ (1) Granular urea represents 46% nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons. Second Quarter of 2021 Compared to Second Quarter of 2020 Net Sales. Net sales in our granular urea segment increased $104 million, or 32%, to $433 million in the second quarter of 2021 from $329 million in the second quarter of 2020 due primarily to a 59% increase in average selling prices, partially offset by a 17% decrease in sales volume. Average selling prices increased to $397 per ton in the second quarter of 2021 compared to $250 per ton in the second quarter of 2020 due primarily to a tighter global nitrogen supply and demand balance. Sales volume was lower due primarily to lower supply availability resulting from reduced production due to the impact of maintenance and repair activity. Due to the reduced production, we purchased additional granular urea, which we sold for $36 million, to meet customer obligations. 38 Table of Contents CF INDUSTRIES HOLDINGS, INC. Cost of Sales. Cost of sales in our granular urea segment averaged $221 per ton in the second quarter of 2021, a 42% increase from $156 per ton in the second quarter of 2020, due primarily to higher realized natural gas costs and higher costs related to maintenance and repair activity. In addition, we purchased $38 million of granular urea in the second quarter of 2021 to meet customer obligations. Gross Margin . Gross margin in our granular urea segment increased by $68 million to $192 million in the second quarter of 2021 from $124 million in the second quarter of 2020, and our gross margin percentage was 44.3% in the second quarter of 2021 compared to 37.7% in the second quarter of 2020. The increase in gross margin was due primarily to a 59% increase in average selling prices, which increased gross margin by $144 million. This factor was partially offset by a 17% decrease in sales volume, which decreased gross margin by $29 million, the impact of an increase in realized natural gas costs, which decreased gross margin by $27 million, and an $18 million net increase in other manufacturing and distribution costs. In addition, we experienced lower production during the second quarter of 2021 and purchased 104,000 tons of granular urea to meet customer obligations, which had the impact of reducing our gross margin percentage in our granular urea segment by 4.6 percentage points. Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Net Sales. Net sales in our granular urea segment increased $166 million, or 25%, to $832 million in the six months ended June 30, 2021 from $666 million in the six months ended June 30, 2020 due primarily to a 40% increase in average selling prices, partially offset by an 11% decrease in sales volume. Average selling prices increased to $345 per ton in the six months ended June 30, 2021 compared to $247 per ton in the six months ended June 30, 2020 due primarily to a tighter global nitrogen supply and demand balance. Sales volume was lower due primarily to lower supply availability resulting from reduced production due to the impact of Winter Storm Uri and maintenance and repair activity. Due to the reduced production, we purchased granular urea, which we sold for $68 million, to meet customer obligations. Cost of Sales. Cost of sales in our granular urea segment averaged $209 per ton in the six months ended June 30, 2021, a 31% increase from $159 per ton in the six months ended June 30, 2020, due primarily to higher realized natural gas costs and higher costs related to maintenance and repair activity due primarily to Winter Storm Uri. In addition, we purchased $71 million of granular urea to meet customer obligations. Gross Margin . Gross margin in our granular urea segment increased by $90 million to $327 million in the six months ended June 30, 2021 from $237 million in the six months ended June 30, 2020, and our gross margin percentage was 39.3% in the six months ended June 30, 2021 compared to 35.6% in the six months ended June 30, 2020. The increase in gross margin was due to a 40% increase in average selling prices, which increased gross margin by $210 million. This factor was partially offset by an 11% decrease in sales volume, which decreased gross margin by $43 million, higher realized natural gas costs, which decreased gross margin by $43 million, a $29 million net increase in manufacturing, maintenance and other costs, and the impact of a $2 million unrealized net mark-to-market gain on natural gas derivatives in the six months ended June 30, 2021 compared to a $4 million gain in the six months ended June 30, 2020. In addition, we experienced lower production during the six months ended June 30, 2021 and purchased 201,000 tons of granular urea to meet customer obligations, which had the impact of reducing our gross margin percentage in our granular urea segment by 3.9 percentage points. 39 Table of Contents CF INDUSTRIES HOLDINGS, INC. UAN Segment Our UAN segment produces urea ammonium nitrate solution (UAN). UAN, a liquid fertilizer product with a nitrogen content that typically ranges from 28% to 32%, is produced by combining urea and ammonium nitrate. UAN is produced at our nitrogen complexes in Courtright, Ontario; Donaldsonville, Louisiana; Port Neal, Iowa; Verdigris, Oklahoma; Woodward, Oklahoma; and Yazoo City, Mississippi. The following table presents summary operating data for our UAN segment: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 v. 2020 2021 2020 2021 v. 2020 (dollars in millions, except per ton amounts) Net sales $ 434 $ 308 $ 126 41 % $ 666 $ 543 $ 123 23 % Cost of sales 296 245 51 21 % 526 438 88 20 % Gross margin $ 138 $ 63 $ 75 119 % $ 140 $ 105 $ 35 33 % Gross margin percentage 31.8 % 20.5 % 11.3 % 21.0 % 19.3 % 1.7 % Sales volume by product tons (000s) 1,949 1,840 109 6 % 3,463 3,230 233 7 % Sales volume by nutrient tons (000s) (1) 612 580 32 6 % 1,088 1,016 72 7 % Average selling price per product ton $ 223 $ 167 $ 56 34 % $ 192 $ 168 $ 24 14 % Average selling price per nutrient ton (1) $ 709 $ 531 $ 178 34 % $ 612 $ 534 $ 78 15 % Gross margin per product ton $ 71 $ 34 $ 37 109 % $ 40 $ 33 $ 7 21 % Gross margin per nutrient ton (1) $ 225 $ 109 $ 116 106 % $ 129 $ 103 $ 26 25 % Depreciation and amortization $ 76 $ 65 $ 11 17 % $ 132 $ 117 $ 15 13 % Unrealized net mark-to-market gain on natural gas derivatives $ — $ (1) $ 1 100 % $ (2) $ (4) $ 2 50 % _______________________________________________________________________________ (1) UAN represents between 28% and 32% of nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons. Second Quarter of 2021 Compared to Second Quarter of 2020 Net Sales. Net sales in our UAN segment increased $126 million, or 41%, to $434 million in the second quarter of 2021 from $308 million in the second quarter of 2020 due primarily to a 34% increase in average selling prices and a 6% increase in sales volume. Average selling prices increased to $223 per ton in the second quarter of 2021 compared to $167 per ton in the second quarter of 2020 due primarily to a tighter global nitrogen supply and demand balance. Sales volume was higher due primarily to higher demand resulting in a drawdown of our inventory. Cost of Sales. Cost of sales in our UAN segment averaged $152 per ton in the second quarter of 2021, a 14% increase from $133 per ton in the second quarter of 2020, due primarily to the impact of higher realized natural gas costs and higher costs related to maintenance and repair activity. Gross Margin . Gross margin in our UAN segment increased by $75 million to $138 million in the second quarter of 2021 from $63 million in the second quarter of 2020, and our gross margin percentage was 31.8% in the second quarter of 2021 compared to 20.5% in the second quarter of 2020. The increase in gross margin was due to a 34% increase in average selling prices, which increased gross margin by $104 million, and a 6% increase in sales volume, which increased gross margin by $9 million. These factors were partially offset by higher realized natural gas costs, which decreased gross margin by $36 million, a $1 million net increase in manufacturing, maintenance and other costs, and the impact of a $1 million unrealized net mark-to-market gain on natural gas derivatives in the second quarter of 2020 . Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Net Sales. Net sales in our UAN segment increased $123 million, or 23%, to $666 million in the six months ended June 30, 2021 from $543 million in the six months ended June 30, 2020 due primarily to a 14% increase in average selling prices and a 7% increase in sales volume. Average selling prices increased to $192 per ton in the six months ended June 30, 2021 compared to $168 per ton in the six months ended June 30, 2020, due primarily to a tighter global nitrogen supply and demand balance. The increase in sales volume was due to higher demand resulting in a drawdown of our inventory. Cost of Sales. Cost of sales in our UAN segment averaged $152 per ton in the six months ended June 30, 2021, a 13% increase from $135 per ton in the six months ended June 30, 2020. The increase was due primarily to the impact of higher realized natural gas costs and higher costs related to maintenance and repair activity. 40 Table of Contents CF INDUSTRIES HOLDINGS, INC. Gross Margin . Gross margin in our UAN segment increased by $35 million to $140 million in the six months ended June 30, 2021 from $105 million in the six months ended June 30, 2020, and our gross margin percentage was 21.0% in the six months ended June 30, 2021 compared to 19.3% in the six months ended June 30, 2020. The increase in gross margin was due to a 14% increase in average selling prices, which increased gross margin by $81 million, and a 7% increase in sales volume, which increased gross margin by $17 million. These factors were partially offset by higher realized natural gas costs, which decreased gross margin by $50 million, an $11 million net increase in manufacturing, maintenance and other costs, and the impact of a $2 million unrealized net mark-to-market gain on natural gas derivatives in the six months ended June 30, 2021 compared to a $4 million gain in the six months ended June 30, 2020. Antidumping and Countervailing Duty Investigations On June 30, 2021, we filed petitions with the U.S. Department of Commerce (Commerce) and the U.S. International Trade Commission (ITC) requesting the initiation of antidumping and countervailing duty investigations on imports of UAN from Russia and Trinidad. We requested the investigations due to the harm we believe the domestic UAN industry has experienced from dumped and unfairly subsidized imports from these two countries. The ITC instituted preliminary phase injury investigations on July 1, 2021 and Commerce initiated antidumping and countervailing duty investigations on July 20, 2021. The ITC is scheduled to take a preliminary vote on August 13, 2021 on whether there is a reasonable indication that the U.S. UAN industry is materially injured or threatened with material injury by reason of imports of UAN from Russia and Trinidad. If the ITC preliminary determination is negative, the ITC and Commerce investigations will be terminated and no antidumping or countervailing duties will be imposed on imports of UAN from Russia or Trinidad. If the ITC preliminary determination is affirmative, Commerce will proceed with its preliminary and final determinations on whether and to what extent these imports are dumped and unfairly subsidized. If any of Commerce’s final determinations are affirmative, the ITC will make a final determination as to whether the unfairly traded imports materially injure or threaten material injury to the domestic UAN industry. If the ITC makes affirmative final determinations, then Commerce can impose duties equal to the level of dumping and unfair subsidies it has found. At this time, we cannot predict the outcome of the proceedings, including whether antidumping or countervailing duties will be imposed on imports from either country, or the rate of any such duties. AN Segment Our AN segment produces ammonium nitrate (AN). AN, which has a nitrogen content between 29% and 35%, is produced by combining anhydrous ammonia and nitric acid. AN is used as nitrogen fertilizer and is also used by industrial customers for commercial explosives and blasting systems. AN is produced at our nitrogen complexes in Yazoo City, Mississippi and Ince and Billingham, United Kingdom. The following table presents summary operating data for our AN segment: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 v. 2020 2021 2020 2021 v. 2020 (dollars in millions, except per ton amounts) Net sales $ 136 $ 118 $ 18 15 % $ 241 $ 234 $ 7 3 % Cost of sales 120 91 29 32 % 215 194 21 11 % Gross margin $ 16 $ 27 $ (11) (41) % $ 26 $ 40 $ (14) (35) % Gross margin percentage 11.8 % 22.9 % (11.1) % 10.8 % 17.1 % (6.3) % Sales volume by product tons (000s) 501 576 (75) (13) % 939 1,123 (184) (16) % Sales volume by nutrient tons (000s) (1) 171 195 (24) (12) % 318 379 (61) (16) % Average selling price per product ton $ 271 $ 205 $ 66 32 % $ 257 $ 208 $ 49 24 % Average selling price per nutrient ton (1) $ 795 $ 605 $ 190 31 % $ 758 $ 617 $ 141 23 % Gross margin per product ton $ 32 $ 47 $ (15) (32) % $ 28 $ 36 $ (8) (22) % Gross margin per nutrient ton (1) $ 94 $ 138 $ (44) (32) % $ 82 $ 106 $ (24) (23) % Depreciation and amortization $ 22 $ 25 $ (3) (12) % $ 41 $ 51 $ (10) (20) % Unrealized net mark-to-market loss on natural gas derivatives $ — $ 1 $ (1) (100) % $ — $ — $ — — % _______________________________________________________________________________ (1) AN represents between 29% and 35% of nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons. 41 Table of Contents CF INDUSTRIES HOLDINGS, INC. Second Quarter of 2021 Compared to Second Quarter of 2020 Net Sales. Net sales in our AN segment increased $18 million, or 15%, to $136 million in the second quarter of 2021 from $118 million in the second quarter of 2020 due primarily to a 32% increase in average selling prices, partially offset by a 13% decrease in sales volume. Average selling prices increased to $271 per ton in the second quarter of 2021 compared to $205 per ton in the second quarter of 2020 due primarily to a tighter global nitrogen supply and demand balance. Sales volume declined due primarily to lower supply availability resulting from reduced production, due to plant turnaround activity. Cost of Sales. Cost of sales in our AN segment averaged $239 per ton in the second quarter of 2021, a 51% increase from $158 per ton in the second quarter of 2020. The increase was due primarily to higher realized natural gas costs and higher costs related to plant turnaround activity. Natural gas costs increased in both the United States and the United Kingdom in 2021 due to increased energy demand as both economies emerged from the COVID-19 pandemic. For example, as measured by the average daily market price of natural gas at the NBP, the major natural gas trading point for the United Kingdom, natural gas prices increased to $8.90 per MMBtu in the second quarter of 2021 from $1.60 per MMBtu in the second quarter of 2020. Gross Margin . Gross margin in our AN segment decreased $11 million, or 41%, to $16 million in the second quarter of 2021 from $27 million in the second quarter of 2020, and our gross margin percentage was 11.8% in the second quarter of 2021 compared to 22.9% in the second quarter of 2020. The decrease in gross margin was due to a net increase of $22 million in manufacturing, maintenance and other costs, an increase in realized natural gas costs, which decreased gross margin by $19 million, and a 13% decrease in sales volume, which decreased gross margin by $5 million. These factors were partially offset by a 32% increase in average selling prices, which increased gross margin by $34 million, and the impact of a $1 million unrealized net mark-to-market loss on natural gas derivatives in the second quarter of 2020. Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Net Sales. Net sales in our AN segment increased $7 million, or 3%, to $241 million in the six months ended June 30, 2021 from $234 million in the six months ended June 30, 2020 due primarily to a 24% increase in average selling prices, partially offset by a 16% decrease in sales volume. Average selling prices increased to $257 per ton in the six months ended June 30, 2021 compared to $208 per ton in the six months ended June 30, 2020 due primarily to a tighter global nitrogen supply and demand balance. The decrease in sales volume was due to lower supply availability as a result of reduced production. Cost of Sales. Cost of sales in our AN segment averaged $229 per ton in the six months ended June 30, 2021, a 33% increase from $172 per ton in the six months ended June 30, 2020. The increase was due primarily to higher realized natural gas costs and higher costs related to plant maintenance activity. Gross Margin . Gross margin in our AN segment decreased by $14 million, or 35%, to $26 million in the six months ended June 30, 2021 from $40 million in the six months ended June 30, 2020, and our gross margin percentage was 10.8% in the six months ended June 30, 2021 compared to 17.1% in the six months ended June 30, 2020. The decrease in gross margin was due to an increase in realized natural gas costs, which decreased gross margin by $27 million, a net increase of $25 million in manufacturing, maintenance and other costs, and a 16% decrease in sales volume, which decreased gross margin by $8 million. These factors were partially offset by a 24% increase in average selling prices, which increased gross margin by $46 million. 42 Table of Contents CF INDUSTRIES HOLDINGS, INC. Other Segment Our Other segment primarily includes the following products: • Diesel exhaust fluid (DEF) is an aqueous urea solution typically made with 32.5% or 50% high-purity urea and the remainder deionized water. • 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 mineral acid that is used in the production of nitrate-based fertilizers, nylon precursors and other specialty chemicals. • Compound fertilizer products (NPKs) are granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium. The following table presents summary operating data for our Other segment: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 v. 2020 2021 2020 2021 v. 2020 (dollars in millions, except per ton amounts) Net sales $ 126 $ 85 $ 41 48 % $ 232 $ 175 $ 57 33 % Cost of sales 95 67 28 42 % 185 141 44 31 % Gross margin $ 31 $ 18 $ 13 72 % $ 47 $ 34 $ 13 38 % Gross margin percentage 24.6 % 21.2 % 3.4 % 20.3 % 19.4 % 0.9 % Sales volume by product tons (000s) 596 538 58 11 % 1,205 1,146 59 5 % Sales volume by nutrient tons (000s) (1) 119 108 11 10 % 241 228 13 6 % Average selling price per product ton $ 211 $ 158 $ 53 34 % $ 193 $ 153 $ 40 26 % Average selling price per nutrient ton (1) $ 1,059 $ 787 $ 272 35 % $ 963 $ 768 $ 195 25 % Gross margin per product ton $ 52 $ 33 $ 19 58 % $ 39 $ 30 $ 9 30 % Gross margin per nutrient ton (1) $ 261 $ 167 $ 94 56 % $ 195 $ 149 $ 46 31 % Depreciation and amortization $ 23 $ 17 $ 6 35 % $ 45 $ 34 $ 11 32 % Unrealized net mark-to-market (gain) loss on natural gas derivatives $ — $ — $ — — % $ — $ — $ — — % _______________________________________________________________________________ (1) Nutrient tons represent the tons of nitrogen within the product tons. Second Quarter of 2021 Compared to Second Quarter of 2020 Net Sales. Net sales in our Other segment increased by $41 million, or 48%, to $126 million in the second quarter of 2021 from $85 million in the second quarter of 2020 due primarily to a 34% increase in average selling prices and an 11% increase in sales volume. The increase in average selling prices was due primarily to a tighter global nitrogen supply and demand balance. The increase in sales volume was due primarily to higher DEF and nitric acid sales volumes, partially offset by lower NPK sales volume. Cost of Sales. Cost of sales in our Other segment averaged $159 per ton in the second quarter of 2021, a 27% increase from $125 per ton in the second quarter of 2020, due primarily to higher realized natural gas costs and higher costs related to plant maintenance activity. Gross Margin . Gross margin in our Other segment increased by $13 million, or 72%, to $31 million in the second quarter of 2021 from $18 million in the second quarter of 2020, and our gross margin percentage was 24.6% in the second quarter of 2021 compared to 21.2% in the second quarter of 2020. The increase in gross margin was due to a 34% increase in average selling prices, which increased gross margin by $34 million, and an 11% increase in sales volume, which increased gross margin by $8 million. These factors were partially offset by an $18 million net increase in manufacturing, maintenance and other costs, and an increase in realized natural gas costs, which decreased gross margin by $11 million. Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Net Sales. Net sales in our Other segment increased by $57 million, or 33%, to $232 million in the six months ended June 30, 2021 from $175 million in the six months ended June 30, 2020 due primarily to a 26% increase in average selling prices and a 5% increase in sales volume. The increase in average selling prices was due primarily to a tighter global nitrogen 43 Table of Contents CF INDUSTRIES HOLDINGS, INC. supply and demand balance. The increase in sales volume was due primarily to higher DEF and nitric acid sales volumes, partially offset by lower NPK volume. Cost of Sales. Cost of sales in our Other segment averaged $154 per ton in the six months ended June 30, 2021, a 25% increase from $123 per ton in the six months ended June 30, 2020 due primarily to higher costs related to plant maintenance activity and higher realized natural gas costs. Gross Margin . Gross margin in our Other segment increased by $13 million, or 38%, to $47 million in the six months ended June 30, 2021 from $34 million in the six months ended June 30, 2020, and our gross margin percentage was 20.3% in the six months ended June 30, 2021 compared to 19.4% in the six months ended June 30, 2020. The increase in gross margin was due to a 26% increase in average selling prices, which increased gross margin by $50 million, and a 5% increase in sales volume, which increased gross margin by $11 million. These factors were partially offset by a $32 million net increase in manufacturing, maintenance and other costs and an increase in realized natural gas costs, which decreased gross margin by $16 million. 44 Table of Contents CF INDUSTRIES HOLDINGS, INC. Liquidity and Capital Resources Our primary uses of cash are generally for operating costs, working capital, capital expenditures, debt service, investments, taxes, share repurchases and dividends. Our working capital requirements are affected by several factors, including demand for our products, selling prices, raw material costs, freight costs and seasonal factors inherent in the business. In addition, we may from time to time seek to retire or purchase our outstanding debt through cash purchases, in open market or privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. Generally, our primary source of cash is cash from operations, which includes cash generated by customer advances. We may also from time to time access the capital markets or engage in borrowings under our credit agreement. On March 20, 2021, we redeemed in full all of the remaining $250 million outstanding principal amount of the 2021 Notes, in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the redemption was $258 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million in the six months ended June 30, 2021, primarily consisting of a premium paid on the early redemption of the notes. On August 9, 2021, we announced that our wholly owned subsidiary 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 (the 2023 Notes), in accordance with the optional redemption provisions provided in the indenture governing the 2023 Notes. See discussion under “Debt,” below, for further information. As of June 30, 2021, our cash and cash equivalents balance was $777 million, an increase of $94 million from $683 million at December 31, 2020. At June 30, 2021, 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. Cash Equivalents Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less. Under our short-term investment policy, we may invest our cash balances, either directly or through mutual funds, in several types of investment-grade securities, including notes and bonds issued by governmental entities or corporations. Securities issued by governmental entities include those issued directly by the U.S. and Canadian federal governments; those issued by state, local or other governmental entities; and those guaranteed by entities affiliated with governmental entities. 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 totaled $181 million in the first six months of 2021 compared to $119 million in the first six months of 2020. We currently anticipate that capital expenditures for the full year of 2021 will be in the range of $500 million, which includes expenditures for our green ammonia project at our Donaldsonville manufacturing complex and reflects higher capital spending due to maintenance deferred from 2020 as well as activity that was previously planned to occur in 2022. 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. 45 Table of Contents CF INDUSTRIES HOLDINGS, INC. Debt Revolving Credit Agreement We have a senior secured revolving credit agreement (the Revolving Credit Agreement), which provides for a revolving credit facility of up to $750 million with a maturity of December 5, 2024. The Revolving Credit Agreement includes a letter of credit sub-limit of $125 million. Borrowings under the Revolving Credit Agreement may be used for working capital, capital expenditures, acquisitions, share repurchases and other general corporate purposes. Borrowings under the Revolving Credit Agreement may be denominated in U.S. dollars, Canadian dollars, euros and British pounds, and bear interest at a per annum rate equal to 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 is the lead borrower under the Revolving Credit Agreement. The guarantors under the Revolving Credit Agreement are currently comprised of CF Holdings and CF Holdings’ wholly owned subsidiaries CF Industries Enterprises, LLC (CFE), CF Industries Sales, LLC (CFS), CF USA Holdings, LLC (CF USA) and CF Industries Distribution Facilities, LLC (CFIDF). In March 2020, we borrowed $500 million under the Revolving Credit Agreement to ensure we maintained ample financial flexibility in light of the uncertainty in the global markets, 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 that were outstanding under the Revolving Credit Agreement as of March 31, 2020, which returned our unused borrowing capacity under the Revolving Credit Agreement to $750 million. 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 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 June 30, 2021, approximately $222 million of letters of credit were outstanding under this agreement. 46 Table of Contents CF INDUSTRIES HOLDINGS, INC. Senior Notes 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) Principal Carrying Amount (1) (in millions) Public Senior Notes: 3.450% due June 2023 3.562% $ 750 $ 748 $ 750 $ 748 5.150% due March 2034 5.279% 750 741 750 741 4.950% due June 2043 5.031% 750 742 750 742 5.375% due March 2044 5.465% 750 741 750 741 Senior Secured Notes: 3.400% due December 2021 3.782% — — 250 249 4.500% due December 2026 4.759% 750 741 750 740 Total long-term debt $ 3,750 $ 3,713 $ 4,000 $ 3,961 Less: Current maturities of long-term debt — — 250 249 Long-term debt, net of current maturities $ 3,750 $ 3,713 $ 3,750 $ 3,712 _______________________________________________________________________________ (1) Carrying amount is net of unamortized debt discount and deferred debt issuance costs. 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. Public Senior Notes Under the indentures (including the applicable supplemental indentures) governing our 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. Interest on the Public Senior Notes is payable semiannually, and the Public Senior Notes are redeemable at our option, in whole at any time or in part from time to time, at specified make-whole redemption prices. 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 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. Senior Secured Notes On March 20, 2021, we redeemed in full all of the remaining $250 million outstanding principal amount of the 2021 Notes in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the redemption was $258 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million in the six months ended June 30, 2021, primarily consisting of a premium paid on the early redemption of the notes. Under the terms of the indenture governing the 4.500% senior secured notes due 2026 (the 2026 Notes), the 2026 Notes are guaranteed on a senior secured basis, jointly and severally, by CF Holdings and each current and future domestic subsidiary of CF Holdings (other than CF Industries) that from time to time is a borrower, or guarantees indebtedness, under the Revolving Credit Agreement. The subsidiary guarantors of the 2026 Notes currently consist of CFE, CFS, CF USA and CFIDF. Subject to certain exceptions, the obligations under the 2026 Notes and each guarantor’s related guarantee are secured by a first priority security interest in substantially all of the assets of CF Industries, CF Holdings and the subsidiary guarantors, including a pledge by CF USA of its equity interests in CFN and mortgages over certain material fee-owned domestic real properties (the Collateral). The obligations under the Revolving Credit Agreement, together with certain letter of credit, cash management, hedging and similar obligations and future pari passu secured indebtedness, are secured by the Collateral on a pari passu basis with the 2026 Notes. The liens on the Collateral securing the obligations under the 2026 Notes and the related 47 Table of Contents CF INDUSTRIES HOLDINGS, INC. guarantees will be automatically released and the covenant under the indenture limiting dispositions of Collateral will no longer apply if CF Holdings has an investment grade corporate rating, with a stable or better outlook, from two of three selected ratings agencies and there is no default or event of default under the indenture. Interest on the 2026 Notes is payable semiannually, 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. 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). Repurchases under the 2019 Share Repurchase Program may be made from time to time in the open market, through privately negotiated transactions, block transactions or otherwise. 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. Since the 2019 Share Repurchase Program was announced in February 2019, we have repurchased approximately 10.2 million shares for $437 million, including 2.6 million shares repurchased during the first quarter of 2020 for $100 million. No shares have been repurchased since the first quarter of 2020 under the 2019 Share Repurchase Program. Forward Sales and Customer Advances 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. 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. Any cash payments received in advance from customers in connection with forward sales contracts are reflected on our consolidated balance sheets as a current liability until control transfers and revenue is recognized. 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. While customer advances are generally a significant source of liquidity, the level of forward sales contracts is affected by many factors including current market conditions, our customers’ outlook of future market fundamentals and seasonality. During periods of declining prices, customers tend to delay purchasing fertilizer in anticipation that prices in the future will be lower than the current prices. If the level of sales under our forward sales programs were to decrease in the future, our cash received from customer advances would likely decrease and our accounts receivable balances would likely increase. Additionally, borrowing under the Revolving Credit Agreement could become necessary. Due to the volatility inherent in our business and changing customer expectations, we cannot estimate the amount of future forward sales activity. Under our forward sales programs, a customer may delay delivery of an order due to weather conditions or other factors. These delays generally subject the customer to potential charges for storage or may be grounds for termination of the contract by us. 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. Derivative Financial Instruments 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. Volatility in reported quarterly earnings can result from the unrealized mark-to-market adjustments in the value of the derivatives. 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, our open natural gas derivative contracts consisted of natural gas fixed price swaps and basis swaps for 34.1 million MMBtus. Defined Benefit Pension Plans We contributed $14 million to our pension plans during the six months ended June 30, 2021. Over the remainder of 2021, we expect to contribute an additional $26 million to our pension plans, or a total of approximately $40 million for the full year 2021. 48 Table of Contents CF INDUSTRIES HOLDINGS, INC. Distribution to Noncontrolling Interest in CFN 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. Cash Flows Operating Activities Net cash provided by operating activities during the first six months of 2021 was $706 million, a decrease of $12 million compared to $718 million in the first six months of 2020. The decrease in cash flow from operations was due primarily to unfavorable changes in net working capital, partially offset by higher net earnings. During the first six months of 2021, net changes in working capital reduced cash flow from operations by $182 million, while in the first six months of 2020 net changes in working capital contributed $77 million to cash flow from operations. The decreased cash flow from working capital changes was primarily driven by accounts receivable and customer advances. The increase in net earnings was due primarily to higher average selling prices and the $112 million gain on the net settlement of certain natural gas contracts with our suppliers in February 2021, partially offset by higher costs related to manufacturing, maintenance and repair activity. Investing Activities Net cash used in investing activities was $182 million in the first six months of 2021 as compared to $117 million in the first six months of 2020. During the first six months of 2021, capital expenditures totaled $181 million compared to $119 million in the first six months of 2020. Financing Activities Net cash used in financing activities was $433 million in the first six months of 2021 compared to $323 million in the first six months of 2020. In the first six months of 2021, no shares of common stock were repurchased compared to $100 million in the first six months of 2020. Dividends paid on common stock was $130 million in the first six months of 2021 compared to $129 million in the first six months of 2020. Distributions to noncontrolling interest totaled $64 million in the first six months of 2021 as compared to $88 million in the first six months of 2020. 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 of these events, 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. Canada Revenue Agency Notices of Reassessment In 2016, the Canada Revenue Agency (CRA) issued Notices of Reassessment for tax years 2006 through 2009 to one of our Canadian affiliates asserting a disallowance of certain patronage allocations. We filed notices of objection with respect to these reassessments with the CRA and posted letters of credit, which serve as security until the matter is resolved. In 2018, the matter was accepted for consideration under the bilateral settlement provisions of the US-Canada Tax Treaty (the Treaty) by the United States and Canadian competent authorities. In the second quarter of 2021, the Company entered the matter into a binding arbitration process under the terms of the Treaty. The arbitration decision will be issued no later than the first quarter of 2022. 49 Table of Contents CF INDUSTRIES HOLDINGS, INC. If we accept the arbitration decision, the associated letters of credit would be cancelled and we may owe additional tax and interest to one taxing jurisdiction, which would likely be due in the second quarter of 2022. Simultaneously, pursuant to the arbitration determination, the Company would file amended tax returns for the relevant tax years with the second taxing jurisdiction to recover taxes overpaid and would receive interest on the overpayment. The payment of tax and interest, and the subsequent receipt of tax and interest refunds, each of which could be material, will likely occur in different reporting periods. Due to uncertainty about the ultimate outcome of this matter, we are not able to predict the amount of tax and interest that we may ultimately pay to, or subsequently receive from, the taxing authorities. Regulation of Greenhouse Gases Our U.K manufacturing plants are subject to greenhouse gas (GHG) regulations in the United Kingdom. After the United Kingdom’s exit from the European Union, the U.K. government instituted new GHG regulations in 2021, including establishing the U.K. Emission Trading Scheme (UK ETS). The UK ETS replaces the European Union Emissions Trading System for U.K. companies. In conjunction with these changes, the U.K. GHG regulations established a lower emission cap than applied to us under the European GHG regulations. Under the new U.K. requirements, we are required to obtain and surrender emission allowances equivalent to our annual greenhouse gas emissions, although we anticipate that we will be allocated a certain number of free allowances. Our remaining European Union emissions credits are not applicable in the United Kingdom, and separate U.K. emissions credits will need to be procured to offset emissions that are in excess of the number of free allowances allocated to us. We have recognized the estimated cost to procure the necessary U.K. credits based on our understanding of the program requirements and using market observable transactions. Given the recent development of the U.K. emissions trading market and the limited number of participants, changes in the price of credits could occur as the market is subject to change based on market participants and liquidity. It is unclear if the UK ETS will be linked with other emission trading programs from other countries. The U.K. government can also change the emission cap or allowances of the GHG regulations, which could also impact the cost of compliance with this program. Critical Accounting Estimates There were no changes to our significant accounting estimates during the first six months of 2021. 50 Table of Contents CF INDUSTRIES HOLDINGS, INC. FORWARD-LOOKING STATEMENTS From time to time, in this Quarterly Report on Form 10-Q as well as in other written reports and oral statements, we make forward-looking statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our prospects, future developments and business strategies. We have used the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” or “would” and similar terms and phrases, including references to assumptions, to identify forward-looking statements in this document. These forward-looking statements are made based on currently available competitive, financial and economic data, our current expectations, estimates, forecasts and projections about the industries and markets in which we operate and management’s beliefs and assumptions concerning future events affecting us. These statements are not guarantees of future performance and are subject to risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Therefore, our actual results may differ materially from what is expressed in or implied by any forward-looking statements. We want to caution you not to place undue reliance on any forward-looking statements. We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this document. Additionally, we do not undertake any responsibility to provide updates regarding the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this document. Important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk Factors” in Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 24, 2021. Such factors include, among others: • the cyclical nature of our business and the impact of global supply and demand on our selling prices; • the global commodity nature of our nitrogen products, the conditions in the international market for nitrogen products, and the intense global competition from other producers; • conditions in the United States, Europe and other agricultural areas; • the volatility of natural gas prices in North America and Europe; • weather conditions; • the seasonality of the fertilizer business; • the impact of changing market conditions on our forward sales programs; • difficulties in securing the supply and delivery of raw materials, increases in their costs or delays or interruptions in their delivery; • reliance on third party providers of transportation services and equipment; • risks associated with cyber security; • our reliance on a limited number of key facilities; • acts of terrorism and regulations to combat terrorism; • risks associated with international operations; • the significant risks and hazards involved in producing and handling our products against which we may not be fully insured; • our ability to manage our indebtedness and any additional indebtedness that may be incurred; • our ability to maintain compliance with covenants under our revolving credit agreement and the agreements governing our indebtedness; • downgrades of our credit ratings; • risks associated with changes in tax laws and disagreements with taxing authorities; • risks involving derivatives and the effectiveness of our risk measurement and hedging activities; • potential liabilities and expenditures related to environmental, health and safety laws and regulations and permitting requirements; • regulatory restrictions and requirements related to greenhouse gas emissions; • the development and growth of the market for green and blue (low-carbon) ammonia and the risks and uncertainties relating to the development and implementation of our green and blue (low-carbon) ammonia projects; • risks associated with expansions of our business, including unanticipated adverse consequences and the significant resources that could be required; • risks associated with the operation or management of the CHS strategic venture, risks and uncertainties relating to the market prices of the fertilizer products that are the subject of our supply agreement with CHS over the life of the supply agreement, and the risk that any challenges related to the CHS strategic venture will harm our other business relationships; and • the impact of the novel coronavirus disease 2019 (COVID-19) pandemic, including measures taken by governmental authorities to slow the spread of the virus, on our business and operations. 51 Table of Contents CF INDUSTRIES HOLDINGS, INC.