Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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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

*◦*Third Quarter of 2021 Compared to Third Quarter of 2020

*◦*Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 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 September 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 14—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;

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 is focusing 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 CO2 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, which is further discussed below. 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 fourth quarter 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.

In the third quarter of 2021, we signed a memorandum of understanding with Mitsui & Co., Inc. that will guide us in a joint exploration of the development of blue ammonia projects in the United States. We plan to conduct preliminary studies covering areas such as blue ammonia supply and supply chain infrastructure, CO2 transportation and storage, expected environmental impacts, and blue ammonia economics and marketing opportunities in Japan and in other countries.

Market Conditions and Current Developments

Selling Prices and Sales Volume

Our average selling price was higher in the third quarter of 2021 than in the third 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 third quarter of 2021, the average selling price for our products was $360 per ton, an increase of 101%, compared to $179 per ton in the third quarter of 2020, reflecting higher average selling prices across all our segments, which drove an increase in net sales of approximately $686 million. In the nine months ended September 30, 2021, the average selling price for our products was $296 per ton, or 45% higher compared to $204 per ton for the nine months ended September 30, 2020. This resulted in an increase in net sales of approximately $1.22 billion.

Our total sales volume was 20% lower in the third quarter of 2021 than in the third quarter of 2020 with lower sales reported in all segments. We shipped 3.8 million tons of product in the third quarter of 2021 compared to 4.7 million tons in the third quarter of 2020 due primarily to lower supply from the impact of weather-related outages and the impact of both planned and unplanned maintenance activity. During the third quarter of 2021, lower production was due primarily to a high level of plant turnaround and maintenance activity as well as downtime resulting from the impact of Hurricane Ida. The lower sales volumes also reflect the idling of certain portions of our U.K. operations in the second half of September due to the United Kingdom energy crisis, which is further discussed below. Lower sales volume drove a decrease in net sales of approximately $171 million.

CF INDUSTRIES HOLDINGS, INC.

We shipped 13.5 million tons of product in the first nine months of 2021 compared to 14.8 million tons in the first nine months of 2020, or a decline of 9%. Lower sales volume drove a decrease in net sales of approximately $309 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 nine months of 2021 as a result of severe weather conditions in the first and third quarters of 2021, which disrupted natural gas and electricity supply, respectively. Higher plant turnaround and maintenance activity also impacted the period. Due to the lower production, we procured additional granular urea in the nine months ended September 30, 2021 in order to meet customer obligations and provide additional manufacturing flexibility once production resumed. During the nine months ended September 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 18 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 but accelerated into 2021, and the severe weather conditions in the first and third quarters of 2021.

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. The following table presents the average daily market price of natural gas at the Henry Hub, the most heavily-traded natural gas pricing point in North America, and the National Balancing Point, the major trading point for natural gas in the United Kingdom:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2021		2020		2021 v. 2020				2021		2020		2021 v. 2020

Natural gas supplemental data (per MMBtu)






Average daily market price of natural gas Henry Hub (Louisiana)	$	4.27	$	1.95	$	2.32	119	%	$	3.52	$	1.82	$	1.70	93	%
Average daily market price of natural gas National Balancing Point (United Kingdom)	$	15.98	$	2.69	$	13.29	494	%	$	10.63	$	2.49	$	8.14	327	%

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 nine months of 2021 were higher than in the first nine months of 2020 due primarily to the impact of both extreme cold weather in the first quarter of 2021, including Winter Storm Uri in February 2021, and increased natural gas demand in the second and third quarters of 2021 due to the combination of the economy emerging from the COVID-19 pandemic and higher than normal temperatures.

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 September 30, 2021 was $4.27 per MMBtu compared to $1.95 per MMBtu for the three months ended September 30, 2020, an increase of 119%. For the three months ended September 30, 2021, the daily closing price at the Henry Hub reached a low of $3.54 per MMBtu on July 9, 2021 and a high of $5.93 per MMBtu on September 29, 2021. The average daily market price at the Henry Hub for the nine months ended September 30, 2021 was $3.52 per MMBtu compared to $1.82 per MMBtu for the nine months ended September 30, 2020, an increase of 93%. 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. The average daily market price of natural gas at the Henry Hub for October 2021 was $5.49 per MMBtu.

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 use. At certain of our manufacturing locations, we reduced our natural gas consumption, and, as a consequence, our plants at these locations 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 nine months ended September 30, 2021.

CF INDUSTRIES HOLDINGS, INC.

Our two nitrogen manufacturing facilities located in the United Kingdom are subject to fluctuations associated with the price of natural gas in Europe. The price of natural gas in the United Kingdom increased throughout the first nine months of 2021 and reached unprecedented high levels in the third quarter of 2021, due primarily to a tighter supply and demand balance in the global liquefied natural gas market as a result of strong demand for natural gas in anticipation of winter weather and in response to low storage levels of natural gas in both Asia and Europe. These factors have resulted in record high global prices for liquefied natural gas, raising European and U.K. market prices to compete for limited supply. Due to the high price levels for natural gas, we halted certain of our U.K. manufacturing operations in September 2021. See the discussion under “United Kingdom Energy Crisis,” below, for further information.

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 September 30, 2021 was $15.98 per MMBtu compared to $2.69 per MMBtu for the three months ended September 30, 2020, an increase of nearly 500%. For the three months ended September 30, 2021, the daily closing price at NBP reached a low of $11.14 per MMBtu on July 8, 2021 and a high of $25.41 per MMBtu on September 21, 2021. The average daily market price of natural gas at NBP for the nine months ended September 30, 2021 was $10.63 per MMBtu compared to $2.49 per MMBtu for the nine months ended September 30, 2020, an increase of 327%. The average daily market price of natural gas at NBP for October 2021 was $27.32 per MMBtu.

In the third quarter of 2021, the cost of natural gas used for production, which includes the impact of realized natural gas derivatives, increased 120% to $4.21 per MMBtu from $1.91 per MMBtu in the three months ended September 30, 2020. This increase in natural gas costs resulted in a decrease in gross margin of approximately $153 million.

In the first nine months 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 66% to $3.51 per MMBtu from $2.11 per MMBtu in the nine months ended September 30, 2020. This increase in natural gas costs resulted in a decrease in gross margin of approximately $332 million.

United Kingdom Energy Crisis

During the third quarter of 2021, the United Kingdom experienced an energy crisis that included a substantial increase in the price of natural gas. In the first half of 2021, natural gas prices had increased to levels that were considered high compared to historical prices, and prices then more than doubled within the third quarter of 2021. The average daily market price of natural gas at NBP was $3.20 per MMBtu for the full year ended December 31, 2020. During the third quarter of 2021, the average daily market price of natural gas at NBP was $15.98 per MMBtu, with a high of $25.41 per MMBtu on September 21, 2021.

On September 15, 2021, we announced the halt of operations at both our Ince and Billingham manufacturing facilities in the United Kingdom due to negative profitability driven by the high cost of natural gas. The halt of operations at our U.K. plants impacted the availability of certain products in the United Kingdom, including carbon dioxide, which is a byproduct of ammonia production. Due to the critical nature of carbon dioxide to certain industries in the United Kingdom, on September 21, 2021, we entered into an interim agreement with the U.K. government. Under the terms of the agreement, the U.K. government agreed to cover the costs to restart the ammonia plant at Billingham and to offset losses incurred from production for a 21-day period. As a result, we resumed production of ammonia at the Billingham facility in order to produce carbon dioxide for the United Kingdom. While the interim agreement was in place, we entered into carbon dioxide pricing and offtake agreements with our customers, which have an initial term through January 31, 2022. The amount of financial support that will be provided by the U.K. government for the September 2021 period of the interim agreement is not expected to be material to our results of operations. As of the filing of this report, production continues to be idled at our Ince facility.

The U.K. energy crisis necessitated an evaluation of the goodwill and long-lived assets, including definite-lived intangible assets, of our U.K. operations to determine if their fair value had declined to below their carrying value. We concluded that a decline in the fair value had occurred, and we recognized impairment charges of $495 million in the third quarter of 2021, consisting of a goodwill impairment charge of $259 million and long-lived and intangible asset impairment charges of $236 million. See “Items Affecting Comparability of Results—U.K. energy crisis impacts,” “Liquidity and Capital Resources—United Kingdom Energy Crisis,” below, Note 3—United Kingdom Energy Crisis and Impairment Charges, Note 6—Property, Plant and Equipment—Net and Note 7—Goodwill and Other Intangible Assets for further information. As of September 30, 2021, after the recognition of the $495 million of impairment charges noted above, the goodwill related to our U.K. operations was approximately $26 million and the remaining long-lived assets related to our U.K. operations was $450 million, primarily consisting of property, plant and equipment.

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The results of our U.K. operations are included in our ammonia, AN and Other segments, and account for a small portion of our consolidated gross margin. For the nine months ended September 30, 2021, our U.K. operations generated negative gross margin representing approximately 3% of our consolidated gross margin. For the year ended December 31, 2020, gross margin generated by our U.K. operations accounted for 2% of our consolidated gross margin.

Manufacturing Costs and Granular Urea Purchases

In the first nine months of 2021, we experienced lower production levels and higher manufacturing and maintenance costs. In response to the lower production levels, in the first nine months of 2021, 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, including activity that was deferred from 2020 as a result of the COVID-19 pandemic. Because of these factors and the halt of operations in the United Kingdom, we incurred higher costs for manufacturing, maintenance and repair activity for both scheduled and unscheduled downtime in the first nine months of 2021.

*•*Due to the lower production, we procured additional granular urea in order to meet customer obligations. In the nine months ended September 30, 2021, we purchased approximately $71 million of granular urea, which we sold to customers for $68 million.

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.

CF INDUSTRIES HOLDINGS, INC.

Financial Executive Summary

We reported a net loss attributable to common stockholders of $185 million for the three months ended September 30, 2021 compared to a net loss attributable to common stockholders of $28 million for the three months ended September 30, 2020, a decrease in net earnings of $157 million. Diluted net earnings per share attributable to common stockholders decreased $0.73 per share, to a loss of $0.86 per share in the third quarter of 2021 compared to a loss of $0.13 per share in the third quarter of 2020. These decreases were due primarily to impairment charges related to our U.K. operations, partially offset by higher operating results driven by an increase in gross margin.

Impact of impairment charges

The decrease in net earnings and diluted net earnings per share in the third quarter of 2021 was due primarily to impairment charges related to our U.K. operations of $495 million, consisting of a goodwill impairment charge of $259 million and long-lived and intangible asset impairment charges of $236 million. The after-tax impact of the impairment charges to the net loss per share attributable to common stockholders and diluted net loss per share attributable to common stockholders was $403 million and $1.88, respectively. See “Market Conditions and Current Developments—United Kingdom Energy Crisis,” above, Note 3—United Kingdom Energy Crisis and Impairment Charges, Note 6—Property, Plant and Equipment—Net and Note 7—Goodwill and Other Intangible Assets, for further information.

The following table includes gross margin, operating (loss) earnings, (loss) earnings before income taxes, net (loss) earnings attributable to common stockholders and diluted net (loss) earnings per share attributable to common stockholders for the third quarter of 2021, and shows the impact of the impairment charges on each of these measures by also including the corresponding “as adjusted” measure, which excludes the before- and after-tax impacts of the impairment charges. Management utilizes these “as adjusted” measures, and believes they provide useful information to investors, for assessing period-to-period changes in our underlying operating performance, because these “as adjusted” measures exclude the non-cash impairment charges that resulted from the U.K. energy crisis, as more fully described above.


	Three months ended September 30, 2021
	As reported		Impact of impairment charges		As adjusted(1)
	(dollars in millions, except per share)
Gross margin	$	440	$	—	$	440
Operating (loss) earnings	(97)		495		398
(Loss) earnings before income taxes	(137)		495		358
Net (loss) earnings attributable to common stockholders(2)	(185)		403		218
Diluted net (loss) earnings per share attributable to common stockholders(2)	(0.86)		1.88		1.02

(1)The “as adjusted” financial measures presented above are non-GAAP financial measures that should be viewed in addition to, and not as an alternative for, our reported results calculated and presented in accordance with U.S. GAAP.

(2)The after-tax impact of impairment charges reflects the amount of income tax benefit recognized in the three months ended September 30, 2021 in accordance with guidance on accounting for income taxes in interim reporting periods.

Impact of higher gross margin

Gross margin increased by $357 million in the third quarter of 2021 to $440 million as compared to $83 million in the third 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:
	Third Quarter of 2020			Higher Average Selling Prices		Lower Volume		Higher Natural Gas Costs(1)		Unrealized MTM on natural gas derivatives		Higher Manufacturing, Maintenance, and Other Costs		Third Quarter of 2021
	(dollars in millions)











Net sales	$	847		$	686	$	(171)	$	—	$	—	$	—	$	1,362
Cost of sales	764			—		(122)		153		(12)		139		922
Gross margin	$	83		$	686	$	(49)	$	(153)	$	12	$	(139)	$	440
Gross margin percentage	9.8		%											32.3		%

(1)Higher natural gas costs include the impact, if any, of realized natural gas derivatives.

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*•*Average selling prices increased 101% to $360 per ton in the third quarter of 2021 from $179 per ton in the third quarter of 2020, which increased gross margin by $686 million,

*•*Sales volume declined by 20% to 3.8 million tons in the third quarter of 2021 from 4.7 million tons in the third quarter of 2020, which reduced gross margin by $49 million,

*•*The cost of natural gas used for production increased 120% to $4.21 per MMBtu in the third quarter of 2021 from $1.91 per MMBtu in the third quarter of 2020, which reduced gross margin by $153 million, and

We incurred higher manufacturing, maintenance and other costs, which reduced gross margin by $139 million, due primarily to higher plant turnaround and maintenance activity.

Items Affecting Comparability of Results

In addition to the impact of market conditions discussed above, certain items impacted the comparability of our financial results during the three and nine months ended September 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 September 30, 2021 and 2020, we reported a net loss attributable to common stockholders of $185 million and $28 million, respectively. During the nine months ended September 30, 2021 and 2020, we reported net earnings attributable to common stockholders of $212 million and $230 million, respectively.


	Three Months Ended September 30,								Nine Months Ended September 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)	$	(12)	$	(9)	$	—	$	—	$	(18)	$	(14)	$	(12)	$	(9)



COVID impacts:
Special COVID-19 bonus for operational workforce(1)	—		—		4		3		—		—		19		15
Turnaround deferral(1)	—		—		7		6		—		—		7		6







Asset impairments(2)	495		403		—		—		495		403		—		—


Loss (gain) on foreign currency transactions, including intercompany loans(3)	2		1		(6)		(5)		5		4		7		5
Engineering cost write-off(3)	—		—		1		1		—		—		9		7
Loss on sale of surplus land(3)	—		—		2		1		—		—		2		1
Insurance proceeds(3)	—		—		—		—		—		—		(10)		(8)
Loss on debt extinguishment	13		10		—		—		19		15		—		—




Terra amended tax returns—interest income and income tax benefit(4)	—		—		—		—		—		—		(16)		(32)

(1)Included in cost of sales in our consolidated statements of operations.

(2)The after-tax impact of asset impairment charges reflects the amount of income tax benefit recognized in the three and nine months ended September 30, 2021 in accordance with guidance on accounting for income taxes in interim reporting periods.

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

(4)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 three months ended September 30, 2021, we recognized an unrealized net mark-to-market gain of $12 million. In the nine months ended September 30, 2021 and 2020, we recognized unrealized net mark-to-market gains of $18 million and $12 million, respectively.

CF INDUSTRIES HOLDINGS, INC.

COVID impacts

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 and was recognized in cost of sales in our consolidated statements of operations for the nine months ended September 30, 2020, of which approximately $4 million was recognized in the third quarter of 2020.

In the three and nine months ended September 30, 2020, certain plant turnaround activities were deferred because of the COVID-19 pandemic. As a result, we incurred $7 million of expense, which is recognized in cost of sales in our consolidated statements of operations.

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

In the nine months ended September 30, 2021 and 2020, we recognized losses of $5 million and $7 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.

Asset impairments

As a result of the U.K. energy crisis and the events described under “Market Conditions and Current Developments—United Kingdom Energy Crisis,” above, we recognized impairment charges of $495 million in the third quarter of 2021, including a goodwill impairment charge of $259 million and long-lived and intangible asset impairment charges of $236 million. See Note 3—United Kingdom Energy Crisis and Impairment Charges, Note 6—Property, Plant and Equipment—Net and Note 7—Goodwill and Other Intangible Assets for further information.

Engineering cost write-off

In June 2020, a project at one of our nitrogen complexes was cancelled and, as a result, $9 million of previously capitalized engineering costs were expensed in the nine months ended September 30, 2020. The expense is reflected in other operating—net in our consolidated statements of operations.

Loss on sale of surplus land

In the three and nine months ended September 30, 2020, we recognized a loss of $2 million on the sale of surplus land, which is reflected in other operating—net in our consolidated statements of operations.

Insurance proceeds

In the nine months ended September 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.

On September 10, 2021, we redeemed $250 million principal amount, representing one-third of the $750 million principal amount outstanding immediately prior to such redemption, of the 3.450% senior notes due 2023 (2023 Notes), in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid on the 2023 Notes was approximately $265 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $13 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.

CF INDUSTRIES HOLDINGS, INC.

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 the amended returns 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.

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Consolidated Results of Operations

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


	Three Months Ended September 30,											Nine Months Ended September 30,
	2021			2020			2021 v. 2020					2021			2020			2021 v. 2020
	(in millions, except per share and per MMBtu)
Net sales	$	1,362		$	847		$	515		61	%	$	3,998		$	3,022		$	976		32	%
Cost of sales	922			764			158			21	%	2,766			2,401			365			15	%
Gross margin	440			83			357			430	%	1,232			621			611			98	%
Gross margin percentage	32.3		%	9.8		%	22.5		%			30.8		%	20.5		%	10.3		%
Selling, general and administrative expenses	52			49			3			6	%	167			154			13			8	%

Goodwill impairment	259			—			259			N/M		259			—			259			N/M
Long-lived and intangible asset impairment	236			—			236			N/M		236			—			236			N/M

Other operating—net	5			(4)			9			N/M		7			8			(1)			(13)	%
Total other operating costs and expenses	552			45			507			N/M		669			162			507			313	%

Equity in earnings of operating affiliate	15			2			13			N/M		37			8			29			363	%
Operating (loss) earnings	(97)			40			(137)			N/M		600			467			133			28	%
Interest expense—net	46			48			(2)			(4)	%	140			123			17			14	%
Loss on debt extinguishment	13			—			13			N/M		19			—			19			N/M
Other non-operating—net	(19)			1			(20)			N/M		(17)			(2)			(15)			N/M
(Loss) earnings before income taxes	(137)			(9)			(128)			N/M		458			346			112			32	%
Income tax (benefit) provision	(46)			(13)			(33)			(254)	%	57			33			24			73	%

Net (loss) earnings	(91)			4			(95)			N/M		401			313			88			28	%
Less: Net earnings attributable to noncontrolling interest	94			32			62			194	%	189			83			106			128	%
Net (loss) earnings attributable to common stockholders	$	(185)		$	(28)		$	(157)		N/M		$	212		$	230		$	(18)		(8)	%
Diluted net (loss) earnings per share attributable to common stockholders	$	(0.86)		$	(0.13)		$	(0.73)		N/M		$	0.98		$	1.07		$	(0.09)		(8)	%
Diluted weighted-average common shares outstanding	214.9			213.9			1.0			—	%	216.4			215.3			1.1			1	%
Dividends declared per common share	$	0.30		$	0.30		$	—		—	%	$	0.90		$	0.90		$	—		—	%
Natural gas supplemental data (per MMBtu)


Cost of natural gas used for production in cost of sales(1)	$	4.21		$	1.91		$	2.30		120	%	$	3.51		$	2.11		$	1.40		66	%



Average daily market price of natural gas Henry Hub (Louisiana)	$	4.27		$	1.95		$	2.32		119	%	$	3.52		$	1.82		$	1.70		93	%
Average daily market price of natural gas National Balancing Point (United Kingdom)	$	15.98		$	2.69		$	13.29		494	%	$	10.63		$	2.49		$	8.14		327	%
Unrealized net mark-to-market gain on natural gas derivatives	$	(12)		$	—		$	(12)		N/M		$	(18)		$	(12)		$	(6)		(50)	%
Depreciation and amortization	$	203		$	212		$	(9)		(4)	%	$	650		$	662		$	(12)		(2)	%
Capital expenditures	$	201		$	87		$	114		131	%	$	382		$	206		$	176		85	%
Sales volume by product tons (000s)	3,784			4,743			(959)			(20)	%	13,522			14,817			(1,295)			(9)	%
Production volume by product tons (000s):
Ammonia(2)	2,186			2,468			(282)			(11)	%	6,897			7,621			(724)			(10)	%
Granular urea	987			1,149			(162)			(14)	%	3,139			3,640			(501)			(14)	%
UAN (32%)	1,311			1,572			(261)			(17)	%	4,628			4,879			(251)			(5)	%
AN	332			471			(139)			(30)	%	1,256			1,532			(276)			(18)	%

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 nine months ended September 30, 2021,

CF INDUSTRIES HOLDINGS, INC.

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.

Third Quarter of 2021 Compared to Third Quarter of 2020

Net Sales

Our total net sales increased $515 million or 61%, to $1.36 billion in the third quarter of 2021 compared to $847 million in the third quarter of 2020 due to an increase in average selling prices, partially offset by a decrease in sales volume.

Our average selling price was $360 per ton in the third quarter of 2021, or 101% higher, compared to $179 per ton in the third 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 3.8 million product tons in the third quarter of 2021 was 20% lower compared to 4.7 million product tons in the third quarter of 2020 due to lower supply from the impact of weather-related production outages and the impact of both planned and unplanned maintenance activity. During the third quarter of 2021, lower production was due primarily to a high level of plant turnaround and maintenance activity as well as downtime resulting from the impact of Hurricane Ida.

Cost of Sales

Our total cost of sales increased $158 million, or 21%, to $922 million in the third quarter of 2021 from $764 million in the third 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 $153 million, and higher manufacturing, maintenance and other costs, which increased cost of sales by $139 million. These increases were partially offset by a decline in cost of sales of $122 million due to a 20% decline in sales volume.

Cost of sales averaged $244 per ton in the third quarter of 2021, a 51% increase from $162 per ton in the third quarter of 2020. The cost of natural gas used for production, including the impact of realized derivatives, increased 120% to $4.21 per MMBtu in the third quarter of 2021 from $1.91 per MMBtu in the third quarter of 2020.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $3 million to $52 million in the third quarter of 2021 as compared to $49 million in the third quarter of 2020. The increase was due primarily to higher incentive compensation, due to strong operating performance, and higher costs associated with certain corporate initiatives.

Goodwill Impairment and Long-lived and Intangible Asset Impairment

During the third quarter of 2021, the U.K. energy crisis impacted our U.K. operations, as described above under the heading “United Kingdom Energy Crisis” in the section titled “Market Conditions and Current Developments.” This necessitated an evaluation of the long-lived and intangible assets, including goodwill, of our U.K. operations to determine if their fair value had declined to below their carrying value. Management concluded that a decline in the fair value had occurred, and we recognized impairment charges of $495 million in the third quarter of 2021, consisting of a goodwill impairment charge of $259 million and long-lived and intangible asset impairment charges of $236 million. See “Items Affecting Comparability of Results—U.K. energy crisis impacts,” above; “Liquidity and Capital Resources—United Kingdom Energy Crisis,” below; Note 3—United Kingdom Energy Crisis and Impairment Charges; Note 6—Property, Plant and Equipment—Net; and Note 7—Goodwill and Other Intangible Assets for further information.

Other Operating—Net

Other operating—net was $5 million of expense in the third quarter of 2021 compared to $4 million of income in the third quarter of 2020. The $5 million of expense in the third quarter of 2021 includes a loss on foreign currency transactions of $2 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 $4 million of income in the third quarter of 2020 was due primarily to a gain on foreign currency transactions of $6 million.

CF INDUSTRIES HOLDINGS, INC.

Equity in Earnings of Operating Affiliate

Equity in earnings of operating affiliate was $15 million in the third quarter of 2021 compared to $2 million in the third quarter of 2020. The increase in the third quarter of 2021 was due primarily to an increase in the operating results of PLNL as a result of higher ammonia selling prices partially offset by higher natural gas costs.

Interest Expense—Net

Net interest expense was $46 million in the third quarter of 2021 compared to $48 million in the third quarter of 2020. The decrease was due primarily to our redemption of $250 million principal amount of the 2023 Notes, which is more fully described under “Liquidity and Capital Resources—Senior Notes,” below.

Loss on Debt Extinguishment

On September 10, 2021, we redeemed $250 million principal amount, representing one-third of the $750 million principal amount outstanding immediately prior to such redemption, of the 2023 Notes, in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid on the 2023 Notes was approximately $265 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $13 million, primarily consisting of a premium paid on the early redemption of the notes.

Other Non-Operating—Net

Other non-operating—net was $19 million of income in the third quarter of 2021 compared to $1 million of expense in the third quarter of 2020. The $19 million of income in the third quarter of 2021 was due primarily to a gain of $20 million on the sale of European Union (EU) carbon credits that, due to Brexit, could no longer be utilized by our U.K. plants for carbon emission obligations in the United Kingdom.

Income Taxes

For the three months ended September 30, 2021, we recorded an income tax benefit of $46 million on a pre-tax loss of $137 million, or an effective tax rate of 34.3%, compared to an income tax benefit of $13 million on a pre-tax loss of $9 million, or an effective tax rate of 155.0%, for the three months ended September 30, 2020.

For the three months ended September 30, 2021, we did not record an income tax benefit related to the goodwill impairment described in Note 3—United Kingdom Energy Crisis and Impairment Charges as the impairment is non-deductible for income tax purposes. In addition, as a result of the effective settlement of the U.S. federal income tax audit for the 2012-2016 tax years, we reversed an accrual for unrecognized tax benefits and recognized a discrete income tax benefit of approximately $15 million.

Our effective tax rate is also impacted by earnings attributable to the noncontrolling interest in CFN, as our consolidated income tax (benefit) provision does not include a tax provision on the earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended September 30, 2021 of 34.3%, which is based on a pre-tax loss of $137 million, including $94 million of earnings attributable to the noncontrolling interest, would be 14.0 percentage points lower, or 20.3%, if based on pre-tax loss exclusive of the $94 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended September 30, 2020 of 155.0%, which is based on a pre-tax loss of $9 million, including $32 million of earnings attributable to the noncontrolling interest, would be 121.6 percentage points lower, or 33.4%, if based on a pre-tax loss exclusive of the $32 million of earnings attributable to the noncontrolling interest. See Note 10—Income Taxes and Note 14—Noncontrolling Interest for additional information.

Net Earnings Attributable to Noncontrolling Interest

Net earnings attributable to noncontrolling interest increased $62 million to $94 million in the third quarter of 2021 as compared to $32 million in the third 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 (Loss) Earnings Per Share Attributable to Common Stockholders

Net earnings per share attributable to common stockholders decreased $0.73 to a loss of $0.86 per diluted share in the third quarter of 2021 from a loss of $0.13 per diluted share in the third quarter of 2020. This decrease was due primarily to impairment charges related to our U.K. operations, partially offset by higher operating results driven by an increase in gross margin.

CF INDUSTRIES HOLDINGS, INC.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Net Sales

Our total net sales increased $976 million, or 32%, to $4.00 billion in the first nine months of 2021 as compared to $3.02 billion in the first nine months of 2020 due to a 45% increase in average selling prices, partially offset by a 9% decrease in sales volume.

Average selling prices were $296 per ton in the first nine months of 2021, or 45% higher compared to $204 per ton in the first nine 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 13.5 million product tons in the first nine months of 2021 was 9% lower compared to 14.8 million product tons in the first nine months of 2020 as a result of decreased supply due to lower production due primarily to a high level of plant turnaround and maintenance activity as well as downtime resulting from the impacts of Winter Storm Uri and Hurricane Ida.

Cost of Sales

Our total cost of sales increased $365 million, or 15%, to $2.77 billion in the first nine months of 2021 as compared to $2.40 billion in the first nine 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 $332 million, higher manufacturing, maintenance and other costs, which increased cost of sales by $307 million, and higher costs for purchased products as we purchased $71 million of granular urea during the first nine months 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 nine months of 2021. In addition, there was a $220 million decline in cost of sales in the first nine months of 2021, as compared to the first nine months of 2020, due primarily to a 9% decline in sales volume.

Cost of sales averaged $205 per ton in the first nine months of 2021, a 27% increase from $162 per ton in the first nine months of 2020. The cost of natural gas used for production, including the impact of realized derivatives, increased 66% to $3.51 per MMBtu in the first nine months of 2021 from $2.11 per MMBtu in the first nine months of 2020. The cost of natural gas used for production of $3.51 per MMBtu in the first nine months 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 $13 million to $167 million in the first nine months of 2021 as compared to $154 million in the first nine months of 2020. The increase was due primarily to higher incentive compensation, due to strong operating performance, and higher costs associated with certain corporate initiatives.

Goodwill Impairment and Long-lived and Intangible Asset Impairment

During the third quarter of 2021, the U.K. energy crisis impacted our U.K. operations, as described above under the heading “United Kingdom Energy Crisis” in the section titled “Market Conditions and Current Developments.” This crisis necessitated an evaluation of the long-lived and intangible assets, including goodwill, of our U.K. operations to determine if their fair value had declined to below their carrying value. Management concluded that a decline in the fair value had occurred, and we recognized impairment charges of $495 million in the third quarter of 2021, consisting of a goodwill impairment charge of $259 million and long-lived and intangible asset impairment charges of $236 million. See “Items Affecting Comparability of Results—U.K. energy crisis impacts,” above; “Liquidity and Capital Resources—United Kingdom Energy Crisis,” below; Note 3—United Kingdom Energy Crisis and Impairment Charges; Note 6—Property, Plant and Equipment—Net; and Note 7—Goodwill and Other Intangible Assets for further information.

CF INDUSTRIES HOLDINGS, INC.

Other Operating—Net

Other operating—net was $7 million of expense in the first nine months of 2021 compared to $8 million of expense in the first nine months of 2020. The expense in the first nine months of 2021 includes a loss on foreign currency transactions of $5 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 other operating—net expense in the first nine months of 2020 includes $9 million of expense related to the cancellation of a project, which is described in the section above titled “Items Affecting Comparability of Results—Engineering cost write-off,” and foreign currency transaction losses of $7 million. 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 $37 million in the first nine months of 2021 compared to $8 million in the first nine 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 partially offset by higher natural gas costs.

Interest Expense—Net

Net interest expense increased by $17 million to $140 million in the first nine months of 2021 compared to $123 million in the first nine months of 2020. The increase is due primarily 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.

On September 10, 2021, we redeemed $250 million principal amount, representing one-third of the $750 million principal amount outstanding immediately prior to such redemption, of the 2023 Notes, in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid on the 2023 Notes was approximately $265 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $13 million, primarily consisting of a premium paid on the early redemption of the notes.

Other Non-Operating—Net

Other non-operating—net was $17 million of income in the first nine months of 2021 compared to $2 million of income in the first nine months of 2020. The $17 million of income in the first nine months of 2021 was due primarily to a gain of $20 million on the sale of EU carbon credits that, due to Brexit, could no longer be utilized by our U.K. plants for carbon emission obligations in the United Kingdom.

Income Taxes

For the nine months ended September 30, 2021, we recorded an income tax provision of $57 million on pre-tax income of $458 million, or an effective tax rate of 12.3%, compared to an income tax provision of $33 million on pre-tax income of $346 million, or an effective tax rate of 9.4%, for the nine months ended September 30, 2020.

For the nine months ended September 30, 2021, we did not record an income tax benefit related to the goodwill impairment described in Note 3—United Kingdom Energy Crisis and Impairment Charges as the impairment is non-deductible for income tax purposes. In addition, our income tax provision includes a $36 million benefit reflecting the impact of agreement on certain issues related to U.S. federal income tax audits, including a discrete income tax benefit of approximately $15 million due to the reversal of an accrual for unrecognized tax benefits as a result of the effective settlement of the U.S. federal income tax audit for the 2012-2016 tax years.

CF INDUSTRIES HOLDINGS, INC.

For the nine months ended September 30, 2020, our income tax provision includes a $25 million benefit related to the settlement of certain U.S. and foreign income tax audits, which primarily related to the settlement of the audit of the Terra amended tax returns, which is 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 nine months ended September 30, 2021 of 12.3%, which is based on pre-tax income of $458 million, including $189 million of earnings attributable to the noncontrolling interest, would be 8.7 percentage points higher, or 21.0%, if based on pre-tax income exclusive of the $189 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the nine months ended September 30, 2020 of 9.4%, which is based on pre-tax income of $346 million, including $83 million of earnings attributable to the noncontrolling interest, would be 3.0 percentage points higher, or 12.4%, if based on pre-tax income exclusive of the $83 million of earnings attributable to the noncontrolling interest. See Note 10—Income Taxes and Note 14—Noncontrolling Interest for additional information.

Net Earnings Attributable to Noncontrolling Interest

Net earnings attributable to noncontrolling interest increased 128% to $189 million in the first nine months of 2021 from $83 million in the first nine 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 decreased 8% to $0.98 per diluted share in the first nine months of 2021 from $1.07 per diluted share in the first nine months of 2020. This decrease is due primarily to impairment charges related to our U.K. operations, partially offset by higher operating results driven by an increase in gross margin.

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:
	Third Quarter of 2020			Higher Average Selling Prices		Volume		Higher Natural Gas Costs(1)		Unrealized MTM on natural gas derivatives		Higher Manufacturing, Maintenance and Other Costs		Third Quarter of 2021
	(dollars in millions)










Consolidated
Net sales	$	847		$	686	$	(171)	$	—	$	—	$	—	$	1,362
Cost of sales	764			—		(122)		153		(12)		139		922
Gross margin	$	83		$	686	$	(49)	$	(153)	$	12	$	(139)	$	440
Gross margin percentage	9.8		%											32.3		%
Ammonia
Net sales	$	165		$	197	$	(18)	$	—	$	—	$	—	$	344
Cost of sales	174			—		(14)		35		(4)		71		262
Gross margin	$	(9)		$	197	$	(4)	$	(35)	$	4	$	(71)	$	82
Gross margin percentage	(5.5)		%											23.8		%
Granular Urea
Net sales	$	249		$	194	$	(57)	$	—	$	—	$	—	$	386
Cost of sales	183			—		(39)		38		(3)		21		200
Gross margin	$	66		$	194	$	(18)	$	(38)	$	3	$	(21)	$	186
Gross margin percentage	26.5		%											48.2		%
UAN
Net sales	$	248		$	207	$	(65)	$	—	$	—	$	—	$	390
Cost of sales	237			—		(45)		35		(3)		9		233
Gross margin	$	11		$	207	$	(20)	$	(35)	$	3	$	(9)	$	157
Gross margin percentage	4.4		%											40.3		%
AN
Net sales	$	109		$	37	$	(28)	$	—	$	—	$	—	$	118
Cost of sales	96			—		(20)		28		(1)		19		122
Gross margin	$	13		$	37	$	(8)	$	(28)	$	1	$	(19)	$	(4)
Gross margin percentage	11.9		%											(3.4)		%
Other
Net sales	$	76		$	51	$	(3)	$	—	$	—	$	—	$	124
Cost of sales	74			—		(4)		17		(1)		19		105
Gross margin	$	2		$	51	$	1	$	(17)	$	1	$	(19)	$	19
Gross margin percentage	2.6		%											15.3		%

CF INDUSTRIES HOLDINGS, INC.


				Variance due to the following items:
	Nine Months Ended September 30, 2020			Higher Average Selling Prices(2)		Volume(2)		Higher Natural Gas Costs(1)		Unrealized MTM on natural gas derivatives(3)		Higher Manufacturing, Maintenance and Other Costs		Increase in Purchased Urea(4)		Gain on Net Settlement of Natural Gas Contracts		Nine Months Ended September 30, 2021
	(dollars in millions)










Consolidated
Net sales	$	3,022		$	1,224	$	(309)	$	—	$	—	$	—	$	61	$	—	$	3,998
Cost of sales	2,401			—		(220)		332		(6)		307		64		(112)		2,766
Gross margin	$	621		$	1,224	$	(89)	$	(332)	$	6	$	(307)	$	(3)	$	112	$	1,232
Gross margin percentage	20.5		%															30.8		%
Ammonia
Net sales	$	722		$	348	$	(61)	$	—	$	—	$	—	$	—	$	—	$	1,009
Cost of sales	609			—		(40)		78		(2)		142		—		(112)		675
Gross margin	$	113		$	348	$	(21)	$	(78)	$	2	$	(142)	$	—	$	112	$	334
Gross margin percentage	15.7		%															33.1		%
Granular Urea
Net sales	$	915		$	404	$	(162)	$	—	$	—	$	—	$	61	$	—	$	1,218
Cost of sales	612			—		(101)		81		(1)		50		64		—		705
Gross margin	$	303		$	404	$	(61)	$	(81)	$	1	$	(50)	$	(3)	$	—	$	513
Gross margin percentage	33.1		%															42.1		%
UAN
Net sales	$	791		$	288	$	(23)	$	—	$	—	$	—	$	—	$	—	$	1,056
Cost of sales	675			—		(20)		85		(1)		20		—		—		759
Gross margin	$	116		$	288	$	(3)	$	(85)	$	1	$	(20)	$	—	$	—	$	297
Gross margin percentage	14.7		%															28.1		%
AN
Net sales	$	343		$	83	$	(67)	$	—	$	—	$	—	$	—	$	—	$	359
Cost of sales	290			—		(51)		55		(1)		44		—		—		337
Gross margin	$	53		$	83	$	(16)	$	(55)	$	1	$	(44)	$	—	$	—	$	22
Gross margin percentage	15.5		%															6.1		%
Other
Net sales	$	251		$	101	$	4	$	—	$	—	$	—	$	—	$	—	$	356
Cost of sales	215			—		(8)		33		(1)		51		—		—		290
Gross margin	$	36		$	101	$	12	$	(33)	$	1	$	(51)	$	—	$	—	$	66
Gross margin percentage	14.3		%															18.5		%

(1)Higher natural gas costs include the impact, if any, of realized natural gas derivatives.

(2)Selling price and volume impact of granular urea purchased to satisfy customer commitments is reflected in the Increase in Purchased Urea column.

(3)Represents the variance in the net unrealized mark-to-market gains and losses on natural gas derivatives compared to the prior year period.

(4)Represents the impact of the incremental tons compared to the prior year period.

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 September 30,											Nine Months Ended September 30,
	2021			2020			2021 v. 2020					2021			2020			2021 v. 2020
	(dollars in millions, except per ton amounts)
Net sales	$	344		$	165		$	179		108	%	$	1,009		$	722		$	287		40	%
Cost of sales	262			174			88			51	%	675			609			66			11	%
Gross margin	$	82		$	(9)		$	91		N/M		$	334		$	113		$	221		196	%
Gross margin percentage	23.8		%	(5.5)		%	29.3		%			33.1		%	15.7		%	17.4		%
Sales volume by product tons (000s)	690			795			(105)			(13)	%	2,409			2,675			(266)			(10)	%
Sales volume by nutrient tons (000s)(1)	566			651			(85)			(13)	%	1,976			2,193			(217)			(10)	%
Average selling price per product ton	$	499		$	208		$	291		140	%	$	419		$	270		$	149		55	%
Average selling price per nutrient ton(1)	$	608		$	253		$	355		140	%	$	511		$	329		$	182		55	%
Gross margin per product ton	$	119		$	(11)		$	130		N/M		$	139		$	42		$	97		231	%
Gross margin per nutrient ton(1)	$	145		$	(14)		$	159		N/M		$	169		$	52		$	117		225	%
Depreciation and amortization	$	41		$	34		$	7		21	%	$	138		$	133		$	5		4	%
Unrealized net mark-to-market gain on natural gas derivatives	$	(4)		$	—		$	(4)		N/M		$	(6)		$	(4)		$	(2)		(50)	%

N/M—Not Meaningful

(1)Ammonia represents 82% nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.

Third Quarter of 2021 Compared to Third Quarter of 2020

Net Sales. Net sales in our ammonia segment increased by $179 million, or 108%, to $344 million in the third quarter of 2021 from $165 million in the third quarter of 2020 due primarily to a 140% increase in average selling prices, partially offset by a 13% decrease in sales volume. Average selling prices increased to $499 per ton in the third quarter of 2021 compared to $208 per ton in the third 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 and weather-related outages, including the impact of Hurricane Ida.

Cost of Sales. Cost of sales in our ammonia segment averaged $380 per ton in the third quarter of 2021, a 74% increase from $219 per ton in the third 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 per ton for purchased ammonia from our joint venture in Trinidad.

Gross Margin. Gross margin in our ammonia segment increased by $91 million to $82 million in the third quarter of 2021 from a loss of $9 million in the third quarter of 2020, and our gross margin percentage was 23.8% in the third quarter of 2021 compared to (5.5)% in the third quarter of 2020. The increase in gross margin was due primarily to a 140% increase in average selling prices, which increased gross margin by $197 million. The impact of higher average selling prices was partially offset by the impact of a $71 million net increase in manufacturing, maintenance and other costs, an increase in realized natural gas costs, which reduced gross margin by $35 million, and a 13% decrease in sales volume, which decreased gross margin by $4 million. Gross margin also includes the impact of a $4 million unrealized net mark-to-market gain on natural gas derivatives in the third quarter of 2021.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Net Sales. Net sales in our ammonia segment increased by $287 million, or 40%, to $1,009 million in the nine months ended September 30, 2021 from $722 million in the nine months ended September 30, 2020 due primarily to a 55% increase in average selling prices, partially offset by a 10% 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

CF INDUSTRIES HOLDINGS, INC.

supply availability resulting from reduced inventory and production due to plant turnaround and maintenance activity and weather-related outages, including the impact of Winter Storm Uri.

Cost of Sales. Cost of sales in our ammonia segment averaged $280 per ton in the nine months ended September 30, 2021, a 23% increase from $228 per ton in the nine months ended September 30, 2020. The increase is due primarily to higher realized natural gas costs, higher costs related to plant turnaround, maintenance and repair activity, and a higher cost per ton for purchased ammonia from our joint venture in Trinidad, partially offset by the impact of the $112 million gain on the net settlement of certain natural gas contracts 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 $221 million to $334 million in the nine months ended September 30, 2021 from $113 million in the nine months ended September 30, 2020, and our gross margin percentage was 33.1% in the nine months ended September 30, 2021 compared to 15.7% in the nine months ended September 30, 2020. The increase in gross margin was due primarily to a 55% increase in average selling prices, which increased gross margin by $348 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 $142 million net increase in manufacturing, maintenance and other costs, an increase in realized natural gas costs, which decreased gross margin by $78 million, and a 10% decrease in sales volume, which decreased gross margin by $21 million. Gross margin also includes the impact of a $6 million unrealized net mark-to-market gain on natural gas derivatives in the nine months ended September 30, 2021 compared to a $4 million gain in the nine months ended September 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 September 30,											Nine Months Ended September 30,
	2021			2020			2021 v. 2020					2021			2020			2021 v. 2020
	(dollars in millions, except per ton amounts)
Net sales	$	386		$	249		$	137		55	%	$	1,218		$	915		$	303		33	%
Cost of sales	200			183			17			9	%	705			612			93			15	%
Gross margin	$	186		$	66		$	120		182	%	$	513		$	303		$	210		69	%
Gross margin percentage	48.2		%	26.5		%	21.7		%			42.1		%	33.1		%	9.0		%
Sales volume by product tons (000s)	860			1,107			(247)			(22)	%	3,272			3,802			(530)			(14)	%
Sales volume by nutrient tons (000s)(1)	396			510			(114)			(22)	%	1,505			1,749			(244)			(14)	%
Average selling price per product ton	$	449		$	225		$	224		100	%	$	372		$	241		$	131		54	%
Average selling price per nutrient ton(1)	$	975		$	488		$	487		100	%	$	809		$	523		$	286		55	%
Gross margin per product ton	$	216		$	60		$	156		260	%	$	157		$	80		$	77		96	%
Gross margin per nutrient ton(1)	$	470		$	129		$	341		264	%	$	341		$	173		$	168		97	%
Depreciation and amortization	$	58		$	60		$	(2)		(3)	%	$	179		$	198		$	(19)		(10)	%
Unrealized net mark-to-market gain on natural gas derivatives	$	(3)		$	—		$	(3)		N/M		$	(5)		$	(4)		$	(1)		(25)	%

N/M—Not Meaningful

(1)Granular urea represents 46% nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.

Third Quarter of 2021 Compared to Third Quarter of 2020

Net Sales. Net sales in our granular urea segment increased $137 million, or 55%, to $386 million in the third quarter of 2021 from $249 million in the third quarter of 2020 due primarily to a 100% increase in average selling prices, partially offset by a 22% decrease in sales volume. Average selling prices increased to $449 per ton in the third quarter of 2021 compared to $225 per ton in the third 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 plant turnaround and maintenance activity and weather-related outages, including the impact of Hurricane Ida.

CF INDUSTRIES HOLDINGS, INC.

Cost of Sales. Cost of sales in our granular urea segment averaged $233 per ton in the third quarter of 2021, a 41% increase from $165 per ton in the third quarter of 2020, due primarily to higher realized natural gas costs and higher costs related to plant turnaround and maintenance activity.

Gross Margin. Gross margin in our granular urea segment increased by $120 million to $186 million in the third quarter of 2021 from $66 million in the third quarter of 2020, and our gross margin percentage was 48.2% in the third quarter of 2021 compared to 26.5% in the third quarter of 2020. The increase in gross margin was due primarily to a 100% increase in average selling prices, which increased gross margin by $194 million. The impact of higher average selling prices was partially offset by an increase in realized natural gas costs, which decreased gross margin by $38 million, a $21 million net increase in other manufacturing, maintenance and other costs, and a 22% decrease in sales volume, which decreased gross margin by $18 million. Gross margin also includes the impact of a $3 million unrealized net mark-to-market gain on natural gas derivatives in the third quarter of 2021.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Net Sales. Net sales in our granular urea segment increased $303 million, or 33%, to $1,218 million in the nine months ended September 30, 2021 from $915 million in the nine months ended September 30, 2020 due primarily to a 54% increase in average selling prices, partially offset by a 14% decrease in sales volume. Average selling prices increased to $372 per ton in the nine months ended September 30, 2021 compared to $241 per ton in the nine months ended September 30, 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 plant turnaround, maintenance and repair activity and the impact of Winter Storm Uri. Due to the reduced production, we purchased granular urea in the nine months ended September 30, 2021, which we sold for $68 million, to meet customer obligations.

Cost of Sales. Cost of sales in our granular urea segment averaged $215 per ton in the nine months ended September 30, 2021, a 34% increase from $161 per ton in the nine months ended September 30, 2020, due primarily to higher realized natural gas costs and higher costs related to plant turnaround, maintenance and repair activity due primarily to Winter Storm Uri. In addition, we purchased $71 million of granular urea in the nine months ended September 30, 2021 to meet customer obligations.

Gross Margin. Gross margin in our granular urea segment increased by $210 million to $513 million in the nine months ended September 30, 2021 from $303 million in the nine months ended September 30, 2020, and our gross margin percentage was 42.1% in the nine months ended September 30, 2021 compared to 33.1% in the nine months ended September 30, 2020. The increase in gross margin was due to a 54% increase in average selling prices, which increased gross margin by $404 million. The impact of higher average selling prices was partially offset by higher realized natural gas costs, which decreased gross margin by $81 million, a 14% decrease in sales volume, which decreased gross margin by $61 million, and a $50 million net increase in manufacturing, maintenance and other costs. In addition, we have experienced lower production throughout 2021. As a result, in the nine months ended September 30, 2021, we 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 2.8 percentage points. Gross margin also includes the impact of a $5 million unrealized net mark-to-market gain on natural gas derivatives in the nine months ended September 30, 2021 compared to a $4 million gain in the nine months ended September 30, 2020.

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 September 30,											Nine Months Ended September 30,
	2021			2020			2021 v. 2020					2021			2020			2021 v. 2020
	(dollars in millions, except per ton amounts)
Net sales	$	390		$	248		$	142		57	%	$	1,056		$	791		$	265		34	%
Cost of sales	233			237			(4)			(2)	%	759			675			84			12	%
Gross margin	$	157		$	11		$	146		N/M		$	297		$	116		$	181		156	%
Gross margin percentage	40.3		%	4.4		%	35.9		%			28.1		%	14.7		%	13.4		%
Sales volume by product tons (000s)	1,283			1,725			(442)			(26)	%	4,746			4,955			(209)			(4)	%
Sales volume by nutrient tons (000s)(1)	405			545			(140)			(26)	%	1,493			1,561			(68)			(4)	%
Average selling price per product ton	$	304		$	144		$	160		111	%	$	223		$	160		$	63		39	%
Average selling price per nutrient ton(1)	$	963		$	455		$	508		112	%	$	707		$	507		$	200		39	%
Gross margin per product ton	$	122		$	6		$	116		N/M		$	63		$	23		$	40		174	%
Gross margin per nutrient ton(1)	$	388		$	20		$	368		N/M		$	199		$	74		$	125		169	%
Depreciation and amortization	$	56		$	69		$	(13)		(19)	%	$	188		$	186		$	2		1	%
Unrealized net mark-to-market gain on natural gas derivatives	$	(3)		$	—		$	(3)		N/M		$	(5)		$	(4)		$	(1)		(25)	%

N/M—Not Meaningful

(1)UAN represents between 28% and 32% of nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.

Third Quarter of 2021 Compared to Third Quarter of 2020

Net Sales. Net sales in our UAN segment increased $142 million, or 57%, to $390 million in the third quarter of 2021 from $248 million in the third quarter of 2020 due primarily to a 111% increase in average selling prices, partially offset by a 26% decrease in sales volume. Average selling prices increased to $304 per ton in the third quarter of 2021 compared to $144 per ton in the third 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 from reduced production due to plant turnaround and maintenance activity and the impact of weather-related outages.

Cost of Sales. Cost of sales in our UAN segment averaged $182 per ton in the third quarter of 2021, a 32% increase from $138 per ton in the third quarter of 2020, due primarily to the impact of higher realized natural gas costs and higher costs related to plant turnaround and maintenance activity.

Gross Margin. Gross margin in our UAN segment increased by $146 million to $157 million in the third quarter of 2021 from $11 million in the third quarter of 2020, and our gross margin percentage was 40.3% in the third quarter of 2021 compared to 4.4% in the third quarter of 2020. The increase in gross margin was due to a 111% increase in average selling prices, which increased gross margin by $207 million. The impact of higher average selling prices was partially offset by higher realized natural gas costs, which decreased gross margin by $35 million, a 26% decrease in sales volume, which decreased gross margin by $20 million, and a $9 million net increase in manufacturing, maintenance and other costs. Gross margin includes the impact of a $3 million unrealized net mark-to-market gain on natural gas derivatives in the third quarter of 2021.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Net Sales. Net sales in our UAN segment increased $265 million, or 34%, to $1,056 million in the nine months ended September 30, 2021 from $791 million in the nine months ended September 30, 2020 due primarily to a 39% increase in average selling prices, partially offset by a 4% decrease in sales volume. Average selling prices increased to $223 per ton in the nine months ended September 30, 2021 compared to $160 per ton in the nine months ended September 30, 2020, due primarily to the impact of a tighter global nitrogen supply and demand balance. The decrease in sales volume was due to lower supply

CF INDUSTRIES HOLDINGS, INC.

availability from reduced production due to plant turnaround and maintenance activity and the impact of weather-related outages.

Cost of Sales. Cost of sales in our UAN segment averaged $160 per ton in the nine months ended September 30, 2021, a 17% increase from $137 per ton in the nine months ended September 30, 2020. The increase was due primarily to the impact of higher realized natural gas costs and higher costs related to plant turnaround, maintenance and repair activity.

Gross Margin. Gross margin in our UAN segment increased by $181 million to $297 million in the nine months ended September 30, 2021 from $116 million in the nine months ended September 30, 2020, and our gross margin percentage was 28.1% in the nine months ended September 30, 2021 compared to 14.7% in the nine months ended September 30, 2020. The increase in gross margin was due to a 39% increase in average selling prices, which increased gross margin by $288 million. The impact of higher average selling prices was partially offset by higher realized natural gas costs, which decreased gross margin by $85 million, a $20 million net increase in manufacturing, maintenance and other costs, and a 4% decrease in sales volume, which decreased gross margin by $3 million. Gross margin also includes the impact of a $5 million unrealized net mark-to-market gain on natural gas derivatives in the nine months ended September 30, 2021 compared to a $4 million gain in the nine months ended September 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 announced the initiation of antidumping and countervailing duty investigations on July 21, 2021. On August 13, the ITC announced its unanimous preliminary affirmative determination, finding that there is a reasonable indication that the U.S. UAN industry is materially injured by reason of imports of UAN from Russia and Trinidad. As a result, Commerce is proceeding with its investigations of whether and to what extent these imports are dumped and unfairly subsidized. Commerce is due to announce the preliminary countervailing duty determinations on November 30. Commerce’s preliminary antidumping determinations are currently due on December 8, but may be postponed. We expect that Commerce will issue final determinations in 2022. If any of Commerce’s final determinations are affirmative, the ITC would make a final determination as to whether the unfairly traded imports materially injure or threaten material injury to the U.S. UAN industry. If the ITC makes affirmative final determinations, then Commerce can impose duties equal to the level of dumping and unfair subsidies it finds. 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.

CF INDUSTRIES HOLDINGS, INC.

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 September 30,											Nine Months Ended September 30,
	2021			2020			2021 v. 2020					2021			2020			2021 v. 2020
	(dollars in millions, except per ton amounts)
Net sales	$	118		$	109		$	9		8	%	$	359		$	343		$	16		5	%
Cost of sales	122			96			26			27	%	337			290			47			16	%
Gross margin	$	(4)		$	13		$	(17)		N/M		$	22		$	53		$	(31)		(58)	%
Gross margin percentage	(3.4)		%	11.9		%	(15.3)		%			6.1		%	15.5		%	(9.4)		%
Sales volume by product tons (000s)	407			548			(141)			(26)	%	1,346			1,671			(325)			(19)	%
Sales volume by nutrient tons (000s)(1)	137			185			(48)			(26)	%	455			564			(109)			(19)	%
Average selling price per product ton	$	290		$	199		$	91		46	%	$	267		$	205		$	62		30	%
Average selling price per nutrient ton(1)	$	861		$	589		$	272		46	%	$	789		$	608		$	181		30	%
Gross margin per product ton	$	(10)		$	24		$	(34)		N/M		$	16		$	32		$	(16)		(50)	%
Gross margin per nutrient ton(1)	$	(29)		$	70		$	(99)		N/M		$	48		$	94		$	(46)		(49)	%
Depreciation and amortization	$	20		$	25		$	(5)		(20)	%	$	61		$	76		$	(15)		(20)	%
Unrealized net mark-to-market gain on natural gas derivatives	$	(1)		$	—		$	(1)		N/M		$	(1)		$	—		$	(1)		N/M

N/M—Not Meaningful

(1)AN represents between 29% and 35% of nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.

Third Quarter of 2021 Compared to Third Quarter of 2020

On September 15, 2021, we announced the halt of operations at both our Ince and Billingham manufacturing facilities in the United Kingdom due to negative profitability driven by the high cost of natural gas. See the discussion under “Market Conditions and Current Developments—United Kingdom Energy Crisis,” above, for further information.

Net Sales. Net sales in our AN segment increased $9 million, or 8%, to $118 million in the third quarter of 2021 from $109 million in the third quarter of 2020 due primarily to a 46% increase in average selling prices, partially offset by a 26% decrease in sales volume. Average selling prices increased to $290 per ton in the third quarter of 2021 compared to $199 per ton in the third quarter of 2020 due primarily to the impact of a tighter global nitrogen supply and demand balance. Sales volume declined due to lower supply availability resulting from reduced production due primarily to plant turnaround and maintenance activity.

Cost of Sales. Cost of sales in our AN segment averaged $300 per ton in the third quarter of 2021, a 71% increase from $175 per ton in the third 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. 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 $15.98 per MMBtu in the third quarter of 2021 from $2.69 per MMBtu in the third quarter of 2020. See the discussion under “Market Conditions and Current Developments—Natural Gas,” above, for further information.

Gross Margin. Gross margin in our AN segment decreased $17 million to a loss of $4 million in the third quarter of 2021 from $13 million in the third quarter of 2020, and our gross margin percentage was (3.4)% in the third quarter of 2021 compared to 11.9% in the third quarter of 2020. The decrease in gross margin was due to an increase in realized natural gas costs, which decreased gross margin by $28 million, a net increase of $19 million in manufacturing, maintenance and other costs, and a 26% decrease in sales volume, which decreased gross margin by $8 million. These factors were partially offset by a 46% increase in average selling prices, which increased gross margin by $37 million. Gross margin also includes the impact of a $1 million unrealized net mark-to-market gain on natural gas derivatives in the third quarter of 2021.

CF INDUSTRIES HOLDINGS, INC.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Net Sales. Net sales in our AN segment increased $16 million, or 5%, to $359 million in the nine months ended September 30, 2021 from $343 million in the nine months ended September 30, 2020 due primarily to a 30% increase in average selling prices, partially offset by a 19% decrease in sales volume. Average selling prices increased to $267 per ton in the nine months ended September 30, 2021 compared to $205 per ton in the nine months ended September 30, 2020 due primarily to the impact of a tighter global nitrogen supply and demand balance. The decrease in sales volume was due primarily to lower supply availability as a result of reduced production due to plant turnaround and maintenance activity.

Cost of Sales. Cost of sales in our AN segment averaged $251 per ton in the nine months ended September 30, 2021, a 45% increase from $173 per ton in the nine months ended September 30, 2020. The increase was due primarily to higher realized natural gas costs and higher costs related to plant turnaround and maintenance activity.

Gross Margin. Gross margin in our AN segment decreased by $31 million, or 58%, to $22 million in the nine months ended September 30, 2021 from $53 million in the nine months ended September 30, 2020, and our gross margin percentage was 6.1% in the nine months ended September 30, 2021 compared to 15.5% in the nine months ended September 30, 2020. The decrease in gross margin was due to an increase in realized natural gas costs, which decreased gross margin by $55 million, a net increase of $44 million in manufacturing, maintenance and other costs, and a 19% decrease in sales volume, which decreased gross margin by $16 million. These factors were partially offset by a 30% increase in average selling prices, which increased gross margin by $83 million. Gross margin includes the impact of a $1 million unrealized net mark-to-market gain on natural gas derivatives in the nine months ended September 30, 2021.

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 September 30,											Nine Months Ended September 30,
	2021			2020			2021 v. 2020					2021			2020			2021 v. 2020
	(dollars in millions, except per ton amounts)
Net sales	$	124		$	76		$	48		63	%	$	356		$	251		$	105		42	%
Cost of sales	105			74			31			42	%	290			215			75			35	%
Gross margin	$	19		$	2		$	17		N/M		$	66		$	36		$	30		83	%
Gross margin percentage	15.3		%	2.6		%	12.7		%			18.5		%	14.3		%	4.2		%
Sales volume by product tons (000s)	544			568			(24)			(4)	%	1,749			1,714			35			2	%
Sales volume by nutrient tons (000s)(1)	106			111			(5)			(5)	%	347			339			8			2	%
Average selling price per product ton	$	228		$	134		$	94		70	%	$	204		$	146		$	58		40	%
Average selling price per nutrient ton(1)	$	1,170		$	685		$	485		71	%	$	1,026		$	740		$	286		39	%
Gross margin per product ton	$	35		$	4		$	31		N/M		$	38		$	21		$	17		81	%
Gross margin per nutrient ton(1)	$	179		$	18		$	161		N/M		$	190		$	106		$	84		79	%
Depreciation and amortization	$	22		$	18		$	4		22	%	$	67		$	52		$	15		29	%
Unrealized net mark-to-market gain on natural gas derivatives	$	(1)		$	—		$	(1)		N/M		$	(1)		$	—		$	(1)		N/M

N/M—Not Meaningful

(1)Nutrient tons represent the tons of nitrogen within the product tons.

CF INDUSTRIES HOLDINGS, INC.

Third Quarter of 2021 Compared to Third Quarter of 2020

Net Sales. Net sales in our Other segment increased by $48 million, or 63%, to $124 million in the third quarter of 2021 from $76 million in the third quarter of 2020 due primarily to a 70% increase in average selling prices, partially offset by a 4% 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. The decrease in sales volume was due primarily to lower urea liquor and NPK sales, partially offset by higher DEF sales.

Cost of Sales. Cost of sales in our Other segment averaged $193 per ton in the third quarter of 2021, a 48% increase from $130 per ton in the third quarter of 2020, due primarily to higher realized natural gas costs and higher costs related to plant turnaround and maintenance activity.

Gross Margin. Gross margin in our Other segment increased by $17 million to $19 million in the third quarter of 2021 from $2 million in the third quarter of 2020, and our gross margin percentage was 15.3% in the third quarter of 2021 compared to 2.6% in the third quarter of 2020. The increase in gross margin was due to a 70% increase in average selling prices, which increased gross margin by $51 million and an increase of $1 million due to product mix. These factors were partially offset by a $19 million net increase in manufacturing, maintenance and other costs and an increase in realized natural gas costs, which decreased gross margin by $17 million. Gross margin also includes the impact of a $1 million unrealized net mark-to-market gain on natural gas derivatives in the third quarter of 2021.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Net Sales. Net sales in our Other segment increased by $105 million, or 42%, to $356 million in the nine months ended September 30, 2021 from $251 million in the nine months ended September 30, 2020 due primarily to a 40% increase in average selling prices and a 2% increase in sales volume. The increase in average selling prices was due primarily to the impact of a tighter global nitrogen supply and demand balance. The increase in sales volume was due primarily to higher DEF sales volumes, partially offset by lower NPK sales volumes.

Cost of Sales. Cost of sales in our Other segment averaged $166 per ton in the nine months ended September 30, 2021, a 33% increase from $125 per ton in the nine months ended September 30, 2020 due primarily to higher realized natural gas costs and higher costs related to plant turnaround and maintenance activity.

Gross Margin. Gross margin in our Other segment increased by $30 million, or 83%, to $66 million in the nine months ended September 30, 2021 from $36 million in the nine months ended September 30, 2020, and our gross margin percentage was 18.5% in the nine months ended September 30, 2021 compared to 14.3% in the nine months ended September 30, 2020. The increase in gross margin was due to a 40% increase in average selling prices, which increased gross margin by $101 million, and a 2% increase in sales volume, which increased gross margin by $12 million. These factors were partially offset by a $51 million net increase in manufacturing, maintenance and other costs and an increase in realized natural gas costs, which decreased gross margin by $33 million. Gross margin also includes the impact of a $1 million unrealized net mark-to-market gain on natural gas derivatives in the nine months ended September 30, 2021.

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. On September 10, 2021, we redeemed $250 million principal amount, representing one-third of the $750 million principal amount outstanding immediately prior to such redemption, of the 2023 Notes, in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. See the discussion under “Debt,” below, for further information.

As of September 30, 2021, our cash and cash equivalents balance was $757 million, an increase of $74 million from $683 million at December 31, 2020. At September 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.

United Kingdom Energy Crisis

As a result of the U.K. energy crisis and the events described above, we recognized impairment charges of $495 million in the third quarter of 2021, consisting of a goodwill impairment charge of $259 million and long-lived and intangible asset impairment charges of $236 million. See Note 3—United Kingdom Energy Crisis and Impairment Charges, Note 6—Property, Plant and Equipment—Net and Note 7—Goodwill and Other Intangible Assets for additional information. As of September 30, 2021, after the recognition of the $495 million of impairment charges, the goodwill related to our U.K. operations was approximately $26 million and the remaining long-lived assets related to our U.K. operations were approximately $450 million, primarily consisting of property, plant and equipment. Management continues to assess the volatile market conditions in the United Kingdom that are impacting our U.K. operations.

The factors that could lead to the resolution of the U.K. energy crisis, and the timing of any such resolution, are unknown to us. Production continues to be idled at our Ince facility, while the Billingham facility is currently operating due to the carbon dioxide agreements described above. There remains significant uncertainty regarding future plans for these sites pending greater clarity as to the future cost of natural gas and electricity, selling prices for the products we produce in the United Kingdom and U.K. government policy. Persistence of the current levels of energy costs and product prices facing our U.K. operations could lead to the continued idling or shutting down of our U.K. facilities. This could result in, among other things, additional funding to support the cash needs of the U.K. operations and recognition of further losses or further impairment charges related to our U.K. operations. Each of these actions could have a material adverse impact on our results of operations and cash flows.

CF INDUSTRIES HOLDINGS, INC.

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 $382 million in the first nine months of 2021 compared to $206 million in the first nine 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, but accelerated into 2021. 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.

Debt

Revolving Credit Agreement

We have a senior unsecured 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, and CF Holdings is the sole guarantor, under the Revolving Credit Agreement.

As of September 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 September 30, 2021 or December 31, 2020, or during the nine months ended September 30, 2021.

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. During the nine months ended September 30, 2020, maximum borrowings under the Revolving Credit Agreement were $500 million and the weighted-average annual interest rate of borrowings during the nine months ended September 30, 2020 was 2.05%.

The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants, including financial covenants. As of September 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 September 30, 2021, approximately $229 million of letters of credit were outstanding under this agreement.

CF INDUSTRIES HOLDINGS, INC.

Senior Notes

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


	Effective Interest Rate		September 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%		$	500		$	499		$	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			742			750			741
Senior Secured Notes:
3.400% due December 2021	3.782%		—			—			250			249
4.500% due December 2026(2)	4.759%		750			741			750			740
Total long-term debt			$	3,500		$	3,465		$	4,000		$	3,961
Less: Current maturities of long-term debt			—			—			250			249
Long-term debt, net of current maturities			$	3,500		$	3,465		$	3,750		$	3,712

(1)Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discount was $8 million and $9 million as of September 30, 2021 and December 31, 2020, respectively, and total deferred debt issuance costs were $27 million and $30 million as of September 30, 2021 and December 31, 2020, respectively.

(2)Effective August 23, 2021, these notes are no longer secured, in accordance with the terms of the applicable indenture.

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 September 10, 2021, we redeemed $250 million principal amount, representing one-third of the $750 million principal amount outstanding immediately prior to such redemption, of the 2023 Notes, in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total amount paid for the redemption of the $250 million principal amount of the 2023 Notes, which was funded with cash on hand, was approximately $265 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $13 million in the third quarter of 2021, primarily consisting of a premium paid on the early redemption of the notes.

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 first quarter of 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 by CF Holdings. Until August 23, 2021, the 2026 Notes were guaranteed by certain subsidiaries of CF Industries. The requirement for subsidiary guarantees of the 2026 Notes was eliminated, and all subsidiary guarantees were automatically released, as a result of an investment grade rating event under the terms of the indenture governing the 2026 Notes on August 23, 2021. Prior to the investment grade rating event, subject to certain exceptions, the obligations under the 2026 Notes and related guarantees were secured by a first priority security interest in collateral consisting of substantially all of the assets of CF Industries, CF Holdings and the subsidiary guarantors. As a result of the investment grade rating event, the liens on the collateral securing the obligations under the 2026 Notes and related guarantees were

CF INDUSTRIES HOLDINGS, INC.

automatically released on August 23, 2021, and the indenture covenant that had limited dispositions of assets constituting collateral no longer applies.

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 Programs

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). Since the 2019 Share Repurchase Program was announced in February 2019, we have repurchased approximately 11.3 million shares for $487 million, consisting of:

1.1 million shares repurchased during the third quarter of 2021 for $50 million,
2.6 million shares repurchased during the first quarter of 2020 for $100 million, and
7.6 million shares repurchased during 2019 for $337 million.

On November 3, 2021, the Board authorized the repurchase of up to $1.5 billion of CF Holdings common stock from January 1, 2022 through December 31, 2024 (the 2021 Share Repurchase Program).

Repurchases under our share repurchase programs 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.

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 September 30, 2021 and December 31, 2020, we had $375 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 September 30, 2021, our open natural gas derivative contracts consisted of natural gas basis swaps and options for 20.7 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.

CF INDUSTRIES HOLDINGS, INC.

Defined Benefit Pension Plans

We contributed $33 million to our pension plans during the nine months ended September 30, 2021. Over the remainder of 2021, we expect to contribute an additional $6 million to our pension plans, or a total of approximately $39 million for the full year 2021. In addition, we currently expect our U.K. subsidiary to contribute a total of approximately $91 million to our U.K. plans in the four-year period ending in 2025, as agreed with the plans’ trustees.

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. The estimate of the partnership distribution earned by CHS, but not yet declared, for the third quarter of 2021 is approximately $94 million.

Cash Flows

Operating Activities

Net cash provided by operating activities during the first nine months of 2021 was $1,393 million, an increase of $452 million compared to $941 million in the first nine months of 2020. The increase in cash flow from operations was due primarily to higher net earnings, partially offset by unfavorable changes in net working capital. Net earnings for the first nine months of 2021 was $401 million as compared to $313 million for the first nine months of 2020. Additionally, the first nine months of 2021 includes non-cash pre-tax impairment charges of $495 million that reduced net earnings, as described above under “United Kingdom Energy Crisis.” The increase in net earnings was due primarily to higher average selling prices and a $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. During the first nine months of 2021, net changes in working capital reduced cash flow from operations by $53 million, while in the first nine months of 2020 net changes in working capital contributed $69 million to cash flow from operations. The decreased cash flow from working capital changes was primarily driven by cash taxes paid, inventories and accounts receivable, partially offset by an increase in customer advances.

Investing Activities

Net cash used in investing activities was $383 million in the first nine months of 2021 as compared to $201 million in the first nine months of 2020. During the first nine months of 2021, capital expenditures totaled $382 million compared to $206 million in the first nine months of 2020.

Financing Activities

Net cash used in financing activities was $936 million in the first nine months of 2021 compared to $473 million in the first nine months of 2020. In the first nine months of 2021, we paid $518 million in connection with the redemption of the 2021 Notes and the partial redemption of the 2023 Notes. In the first nine months of 2021, we spent $50 million to repurchase shares of common stock compared to $100 million in the first nine months of 2020. Dividends paid on common stock was $195 million in the first nine months of 2021 compared to $193 million in the first nine months of 2020. Distributions to noncontrolling interest totaled $194 million in the first nine months of 2021 as compared to $174 million in the first nine months of 2020.

Terra 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.

CF INDUSTRIES HOLDINGS, INC.

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.

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.

As a result of the new GHG regulations and the establishment of the UK ETS, our remaining European Union emissions credits are no longer applicable for us in the United Kingdom, and we will need separate U.K. emissions credits to offset emissions that are in excess of the number of free allowances allocated to us. Accordingly, in the third quarter of 2021, we sold our remaining EU emissions credits for approximately $20 million and recognized a corresponding gain, which is included in other non-operating—net in our consolidated statements of operations, as the credits were earned by us in prior years due to approved emission abatement actions that we had taken and, therefore, did not have a recognized cost associated with them. We subsequently purchased approximately 321,000 of U.K. carbon credits, which can be used to satisfy future carbon credit obligations in the United Kingdom, for approximately $19 million.

We may need to procure additional U.K. carbon credits in the future. The U.K. emissions trading market is not a liquid market with numerous observable transactions. Given the recent development of the 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.

CF INDUSTRIES HOLDINGS, INC.

Critical Accounting Estimates

Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. U.S. GAAP requires that we select policies and make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates. We base our estimates on historical experience, technological assessment, opinions of appropriate outside experts, and the most recent information available to us. Actual results may differ from these estimates. Changes in estimates that may have a material impact on our results are discussed in the context of the underlying financial statements to which they relate. The following discussion presents information about our critical accounting estimates related to the recoverability of long-lived assets and goodwill.

Recoverability of Long-Lived Assets and Goodwill

We review the carrying values of our property, plant and equipment and other long-lived assets, including our finite-lived intangible assets, and goodwill in accordance with U.S. GAAP in order to assess recoverability. Factors that we must estimate when performing impairment tests include production and sales volumes, selling prices, raw material costs, operating rates, operating expenses, inflation, discount rates, exchange rates, tax rates and capital spending. Significant judgment is involved in estimating each of these factors, which include inherent uncertainties. The factors we use are consistent with those used in our internal planning process. The recoverability of the values associated with our goodwill and long-lived assets is dependent upon future operating performance of the specific businesses to which they are attributed. Certain of the operating assumptions are particularly sensitive to the cyclical nature of the fertilizer business. Adverse changes in demand for our products, increases in supply and the availability and costs of key raw materials could significantly affect the results of our review.

The recoverability and impairment tests of long-lived assets are required only when conditions exist that indicate the carrying value may not be recoverable. For goodwill, impairment tests are required at least annually, or more frequently if events or circumstances indicate that it may be impaired.

During the third quarter of 2021, the U.K. energy crisis necessitated an evaluation of the goodwill and long-lived assets, including definite-lived intangible assets, of our U.K. operations to determine if their fair value had declined to below their carrying value. We performed the impairment evaluations on the U.K. ammonia, U.K. AN and U.K. Other asset groups’ long-lived assets, including definite-lived intangible assets, and the U.K. ammonia, U.K. AN and U.K. Other reporting units’ goodwill as of September 30, 2021. Based on these analyses, we concluded that a decline in the fair value had occurred and we recognized impairment charges of $495 million in the third quarter of 2021, consisting of a goodwill impairment charge of $259 million and long-lived and intangible asset impairment charges of $236 million.

See Note 3—United Kingdom Energy Crisis and Impairment Charges, Note 6—Property, Plant and Equipment—Net and Note 7—Goodwill and Other Intangible Assets for additional information regarding the long-lived asset and goodwill impairment analyses, including the methodologies and assumptions used in estimating the fair values of our reporting units.

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.

CF INDUSTRIES HOLDINGS, INC.

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