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, 2021, filed with the Securities and Exchange Commission on February 24, 2022, 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, and references to tonnes refer to metric 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

*•*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 nitrogen 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 March 31, 2022 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;

  • an extensive system of terminals and associated transportation equipment located primarily in the Midwestern United States; and

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

Our Commitment to a Clean Energy Economy

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 includes green ammonia production, which refers to ammonia produced through a carbon-free process, and blue ammonia production, which relates to ammonia produced by conventional processes but with CO2 removed through carbon capture and sequestration (CCS) and other certified carbon abatement projects.

In October 2020, we announced an initial green ammonia project at our Donaldsonville complex. 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 complex. Construction and installation, which is being managed by us, began in the fourth quarter of 2021 and is expected to finish in 2023, with an estimated total cost of approximately $100 million. 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., Ltd. (Mitsui) that is guiding us in a joint exploration of the development of blue ammonia projects in the United States. On May 3, 2022, we and Mitsui announced our intention to jointly develop a greenfield ammonia production facility to produce blue ammonia in the United States. We anticipate that a front-end engineering design (FEED) study will commence shortly with a final investment decision on constructing the blue ammonia production facility expected in 2023.

We have also announced steps to produce blue ammonia from our existing ammonia production network. In the fourth quarter of 2021, our Board of Directors (the Board) authorized projects within our existing network that we believe will enable the permanent sequestration of up to 2.5 million tons of carbon emissions each year and the annual production of approximately 2 million tons of blue ammonia, which is equivalent to 1.25 million tons of net-zero carbon ammonia, starting in 2024. The projects will involve constructing units at our Donaldsonville and Yazoo City complexes that dehydrate and compress CO2, a process essential for CO2 transport via pipeline to sequestration sites. Management expects that, once the units are in service and sequestration is initiated, we could sequester up to 2.5 million tons of CO2 per year (2 million tons at Donaldsonville and 500,000 tons at Yazoo City). Under current regulations, the projects would be expected to qualify for tax credits under Section 45Q of the Internal Revenue Code, which provides a credit per tonne of CO2 sequestered.

Construction of the units at the Donaldsonville complex is expected to begin in 2022 and to be completed in 2024, with an estimated total cost of $200 million. The Yazoo City project will be timed to coincide with CO2 transport pipeline construction. Once started, the Yazoo City project is expected to be completed in three years with an estimated total cost of $85 million. In addition, we are currently in advanced discussions with several parties regarding transportation and sequestration of CO2 from Donaldsonville.

Market Conditions and Current Developments

Geopolitical Environment

Russia’s invasion of Ukraine in February 2022, and the resulting war between Russia and Ukraine, has led to disruptions in the global markets for certain crop commodities, natural gas and nitrogen fertilizer. In recent weeks, we have seen effects in particular from export reductions from the region; energy, financial and transportation sanctions by U.S., Canadian, European and other governments; and shipping and logistical complications.

As further described below, natural gas is the principal raw material used to produce our nitrogen products. Natural gas is also a globally traded commodity that experiences price fluctuations based on supply demand balances and has been impacted by the recent geopolitical events. As a result of Europe’s dependence on Russia for a portion of its natural gas supply, Russia’s invasion of Ukraine disrupted European energy markets and threatened security of natural gas supply. This led to further increases in natural gas prices and natural gas price volatility, which in turn led to disruptions in manufacturing and distribution activities at other nitrogen manufacturers and suppliers in our industry and to reductions in global fertilizer supply.

CF INDUSTRIES HOLDINGS, INC.

These geopolitical developments have also led to supply chain disruptions for Russian producers of fertilizer. Prior to the invasion, Russia had been the largest exporter of nitrogen fertilizer globally, and in recent years had been a significant supplier of nitrogen fertilizer to North America and Europe. Russia and Ukraine are large exporters of commodity grains such as wheat, corn and soybeans. The direct and indirect impacts of the war in Ukraine, and the related uncertainty, have resulted in an expectation that commodity grain supply from this region will be reduced, causing increased prices for grains globally. The increase in commodity grain prices has in turn driven a greater demand for nitrogen fertilizer.

These events have further contributed to an already tight global supply demand balance for nitrogen fertilizers and even led to shortages of certain products in some international locations. These factors are causing changes in global trade flows as both manufacturers and customers react to the changing market dynamics. As a result, nitrogen fertilizer prices have significantly increased since the start of 2022.

We expect that the recent geopolitical events, including any further government-imposed sanctions, will have an impact on the future supply demand balance and future selling prices for our nitrogen fertilizer products, but the scope and duration of these impacts are unknown at the present time.

Nitrogen Selling Prices

Our nitrogen products are globally traded commodities with selling prices that fluctuate in response to global market conditions, changes in supply and demand, and other cost factors including domestic and local conditions. Intense global competition—reflected in import volumes and prices—strongly influences delivered prices for nitrogen fertilizers around the world, including in the United States. In general, the prevailing global prices for nitrogen products must be high enough in order for the marginal producers in the world with the highest input costs to at least break even over the long term, or else they would cease production and leave a portion of global demand unsatisfied.

In the first quarter of 2022, the average selling price for our products was $620 per ton, an increase of 170%, compared to $230 per ton in the first quarter of 2021, reflecting higher average selling prices across all our segments, which primarily drove the increase in net sales of approximately $1.82 billion, as sales volume in tons in the first quarter of 2022 was essentially unchanged compared to the first quarter of 2021. The increase in our average selling price was caused by a tighter global nitrogen supply and demand balance resulting from strong global demand as well as a decrease in global supply availability as higher global energy costs continued to drive lower global operating rates, and exacerbated by the geopolitical environment described above.

Natural Gas

Natural gas is the principal raw material used to produce our nitrogen products. Natural gas is both a chemical feedstock and a fuel used to produce nitrogen products. Natural gas is a significant cost component of manufactured nitrogen products, representing approximately 50% of our production costs in the first quarter of 2022 and 40% of our production costs in 2021. 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 (NBP), the major trading point for natural gas in the United Kingdom:

Three Months Ended March 31,
202220212022 v. 2021
Natural gas supplemental data (per MMBtu)
Average daily market price of natural gas Henry Hub (Louisiana)$4.60$3.38$1.2236%
Average daily market price of natural gas National Balancing Point (United Kingdom)$30.20$6.90$23.30338%

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 directly impacts a substantial portion of our operating expenses. North American natural gas prices during the first three months of 2022 were higher on average than the first three months of 2021 due to tight supply and demand conditions within the market. After a warm start to the winter season at the end of 2021, colder temperatures in the first quarter of 2022 drove higher heating demand. North American supply failed to keep pace and did not sustain production levels achieved in late 2021, due to well freeze-offs and continued producer capital discipline hindering growth. As a result, North American gas withdrawals from storage during the first quarter of 2022 were larger than normal, leading to end-of-quarter levels below both last year and the five-year average. In addition, record high global gas prices and newly commissioned liquefaction facilities in North America led to record liquefied natural gas (LNG) exports from the United States throughout the first quarter of 2022.

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The average daily market price at the Henry Hub for the three months ended March 31, 2022 was $4.60 per MMBtu compared to $3.38 per MMBtu for the three months ended March 31, 2021, an increase of 36%. The average daily market price of natural gas at the Henry Hub for April 2022 was $6.48 per MMBtu.

In the first quarter of 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 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 three months ended March 31, 2021.

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 continued to reach record high prices during the first quarter of 2022. Europe began the year with record low storage levels, but a large increase in LNG import vessels along with milder weather started to ease concerns. However, Russia’s invasion of Ukraine on February 24, 2022 disrupted European energy markets and threatened security of supply, driving natural gas prices in Europe upward to unprecedented levels, further exacerbating an energy crisis that has been impacting our U.K. operations, as further discussed below. Prices subsequently declined in March as Russian supply of natural gas continued to flow, albeit with the possibility of total supply disruption still a concern.

The average daily market price of natural gas at the NBP for the three months ended March 31, 2022 was $30.20 per MMBtu compared to $6.90 per MMBtu for the three months ended March 31, 2021, an increase of 338%. For the three months ended March 31, 2022, the daily closing price at NBP reached a low of $15.37 per MMBtu on January 3, 2022 and a high of $67.08 per MMBtu on March 8, 2022. The average daily market price of natural gas at the NBP for April 2022 was $21.75 per MMBtu.

In the first quarter of 2022, the cost of natural gas used for production, which includes the impact of realized natural gas derivatives, increased 101% to $6.48 per MMBtu from $3.22 per MMBtu in the three months ended March 31, 2021. This increase in natural gas costs resulted in a decrease in gross margin of approximately $271 million.

United Kingdom Energy Crisis

During the third quarter of 2021, the United Kingdom began experiencing an energy crisis that included a substantial increase in the price of natural gas, which impacted our U.K. operations. 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. 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. Shortly thereafter, our Billingham facility resumed operations. As of the filing of this report, production continues at our Billingham facility and continues to be idled at our Ince facility.

During the first quarter of 2022, we concluded that the continued impacts of the U.K. energy crisis, including higher natural gas prices due in part to the geopolitical environment described above, triggered an additional impairment test. The results of our interim long-lived asset impairment test indicated that no long-lived asset impairment should be recorded as the undiscounted estimated future cash flows were in excess of the carrying values for each of the U.K. asset groups.

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 three months ended March 31, 2022, gross margin generated by our U.K. operations represented approximately 2% of our consolidated gross margin. For the year ended December 31, 2021, our U.K. operations generated negative gross margin representing approximately 1% of our consolidated gross margin.

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Financial Executive Summary

We reported net earnings attributable to common stockholders of $883 million for the three months ended March 31, 2022 compared to $151 million for the three months ended March 31, 2021, an increase in net earnings of 485%, or $732 million. Diluted net earnings per share attributable to common stockholders increased $3.51 per share, to $4.21 per share, in the first quarter of 2022 compared to $0.70 per share in the first quarter of 2021. These increases were due primarily to an increase in gross margin driven by higher average selling prices, partially offset by higher natural gas prices, and an increase in interest expense and income tax provision related to the Canada Revenue Agency Competent Authority Matter, discussed below under “Items Affecting Comparability of Results.”

Gross margin increased by $1.41 billion in the first quarter of 2022 to $1.70 billion as compared to $289 million in the first quarter of 2021. Average selling prices increased 170% to $620 per ton in the first quarter of 2022 from $230 per ton in the first quarter of 2021, which increased gross margin by $1.83 billion. The impact of higher average selling prices was partially offset by an increase in natural gas costs. The cost of natural gas used for production increased 101% to $6.48 per MMBtu in the first quarter of 2022 from $3.22 per MMBtu in the first quarter of 2021, which reduced gross margin by $271 million. In the first quarter of 2021, we recognized a gain of $112 million as a result of the net settlement of certain natural gas contracts with our suppliers as a result of Winter Storm Uri.

Items Affecting Comparability of Results

For the three months ended March 31, 2022 and 2021, we reported net earnings attributable to common stockholders of $883 million and $151 million, respectively. In addition to the impact of market conditions discussed above, certain items impacted the comparability of our financial results for the three months ended March 31, 2022 and 2021. The following table and related discussion outline these items and how they impacted the comparability of our financial results for these periods.

Three Months Ended March 31,
20222021
Pre-TaxAfter-TaxPre-TaxAfter-Tax
(in millions)
Unrealized net mark-to-market gain on natural gas derivatives(1)$(33)$(25)$(6)$(5)
Loss on foreign currency transactions, including intercompany loans(2)65——
Canada Revenue Agency Competent Authority Matter and Transfer pricing reserves:
Interest expense198196——
Interest income(36)(28)
Income tax provision(3)—72——
Loss on debt extinguishment——65

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

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

(3)The after-tax income tax provision amount of $72 million for the three months ended March 31, 2022 reflects an income tax provision of $78 million, consisting of the $76 million income tax provision referenced below under “Canada Revenue Agency Competent Authority Matter” and the $2 million income tax provision referenced below under “Transfer pricing reserves,” net of $6 million of income tax provision that is reflected in the after-tax interest expense and interest income amounts shown in this table for the three months ended March 31, 2022.

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 March 31, 2022 and 2021, we recognized unrealized net mark-to-market gains of $33 million and $6 million, respectively.

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Loss on foreign currency transactions, including intercompany loans

In the three months ended March 31, 2022, we recognized a loss of $6 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.

Canada Revenue Agency Competent Authority Matter

In 2016, the Canada Revenue Agency (CRA) and Alberta Tax and Revenue Administration (Alberta TRA) issued Notices of Reassessment for tax years 2006 through 2009 to one of our Canadian affiliates asserting a disallowance of certain patronage deductions. We filed Notices of Objection with respect to the Notices of Reassessment with the CRA and Alberta TRA and posted letters of credit in lieu of paying the additional tax liability assessed. The letters of credit serve as security until the matter is resolved. In 2018, the matter, including the related transfer pricing topic regarding the allocation of profits between Canada and the United States, was accepted for consideration under the bilateral settlement provisions of the U.S.-Canada tax treaty (the Treaty) by the United States and Canadian competent authorities, and included tax years 2006 through 2011. In the second quarter of 2021, the Company submitted the transfer pricing aspect of the matter into the arbitration process under the terms of the Treaty.

In February 2022, we were informed that a decision was reached by the arbitration panel for tax years 2006 through 2011. In March 2022, we received further details of the results of the arbitration proceedings and the settlement provisions between the United States and Canadian competent authorities, and we accepted the decision of the arbitration panel. Under the terms of the arbitration decision, additional income for tax years 2006 through 2011 will be subject to tax in Canada, resulting in our having additional Canadian tax liability for those tax years of approximately $127 million, based on current estimates. We expect this resulting Canadian tax liability, plus interest of approximately $98 million, will be assessed in the second quarter of 2022 and that payment of those amounts, aggregating to approximately $225 million, based on current estimates, will be due in the third quarter of 2022. The letters of credit we had posted in lieu of paying the additional tax liability assessed by the Notices of Reassessment will be cancelled upon payment of the additional tax and interest to Canada. Due primarily to the availability of additional foreign tax credits to offset in part the increased Canadian tax referenced above, the Company will file amended tax returns in the United States to request a refund of tax overpaid.

In the three months ended March 31, 2022, as a result of the impact of these events on our Canadian and U.S. federal and state income taxes, we recognized an income tax provision of $76 million, reflecting the net impact of $127 million of accrued income taxes payable to Canada for tax years 2006 to 2011, partially offset by net income tax receivables of approximately $51 million in the United States, and we accrued net interest of $99 million, primarily reflecting the impact of estimated interest payable to Canada.

Transfer pricing reserves

As a result of the outcome of the arbitration decision discussed above, we have also evaluated our transfer pricing positions between Canada and the United States for open years 2012 and after. Based on this evaluation, for the three months ended March 31, 2022, we recorded the following:

  • liabilities for unrecognized tax benefits of $319 million with a corresponding income tax provision, and accrued interest of $91 million related to the liabilities for unrecognized tax benefits, and

  • noncurrent income tax receivables of $329 million with a corresponding income tax benefit, and accrued interest income of $28 million related to the noncurrent income tax receivables.

In the three months ended March 31, 2022, the impact of this evaluation of transfer pricing positions on our consolidated statement of operations, including a $12 million deferred income tax provision for other transfer pricing tax effects, was a $2 million income tax provision and $63 million of net interest expense before tax ($69 million after tax).

Loss on debt extinguishment

On March 20, 2021, we redeemed in full all of the $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 in connection with the redemption of the 2021 Notes was $258 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million, consisting primarily of the premium paid on the redemption of the 2021 Notes prior to their scheduled maturity.

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Consolidated Results of Operations

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

Three Months Ended March 31,
202220212022 v. 2021
(in millions, except per share and per MMBtu)
Net sales$2,868$1,048$1,820174%
Cost of sales1,17075941154%
Gross margin1,6982891,409488%
Gross margin percentage59.2%27.6%31.6%
Selling, general and administrative expenses6455916%
Other operating—net2(2)4N/M
Total other operating costs and expenses66531325%
Equity in earnings of operating affiliate261115136%
Operating earnings1,6582471,411N/M
Interest expense—net20548157327%
Loss on debt extinguishment—6(6)(100)%
Other non-operating—net1—1N/M
Earnings before income taxes1,4521931,259N/M
Income tax provision40118383N/M
Net earnings1,051175876N/M
Less: Net earnings attributable to noncontrolling interest16824144N/M
Net earnings attributable to common stockholders$883$151$732485%
Diluted net earnings per share attributable to common stockholders$4.21$0.70$3.51N/M
Diluted weighted-average common shares outstanding209.9216.0(6.1)(3)%
Dividends declared per common share$0.30$0.30$——%
Natural gas supplemental data (per MMBtu)
Cost of natural gas used for production in cost of sales(1)$6.48$3.22$3.26101%
Average daily market price of natural gas Henry Hub (Louisiana)$4.60$3.38$1.2236%
Average daily market price of natural gas National Balancing Point (United Kingdom)$30.20$6.90$23.30338%
Unrealized net mark-to-market gain on natural gas derivatives$(33)$(6)$(27)(450)%
Depreciation and amortization$208$204$42%
Capital expenditures$63$71$(8)(11)%
Sales volume by product tons (000s)4,6244,564601%
Production volume by product tons (000s):
Ammonia(2)2,6132,4791345%
Granular urea1,0741,184(110)(9)%
UAN (32%)1,8651,68917610%
AN405475(70)(15)%

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 three months ended March 31, 2021, excludes the $112 million gain on net settlement of certain natural gas contracts with our suppliers due to Winter Storm Uri.

(2)Gross ammonia production, including amounts subsequently upgraded on-site into granular urea, UAN, or AN.

CF INDUSTRIES HOLDINGS, INC.

First Quarter of 2022 Compared to First Quarter of 2021

Net Sales

Our total net sales increased $1.82 billion or 174%, to $2.87 billion in the first quarter of 2022 compared to $1.05 billion in the first quarter of 2021 due primarily to an increase in average selling prices.

Our average selling price was $620 per ton in the first quarter of 2022, or 170% higher, compared to $230 per ton in the first quarter of 2021 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 and geopolitical events drove lower global operating rates. See “Market Conditions and Current Developments—Geopolitical Environment,” above, for further discussion.

Our total sales volume of 4.6 million product tons in the first quarter of 2022 was essentially unchanged compared to the first quarter of 2021, as higher sales volume in our UAN and Ammonia segments was offset by lower sales volume in our Granular Urea, Other and AN segments.

Cost of Sales

Our total cost of sales increased $411 million, or 54%, to $1.17 billion in the first quarter of 2022 from $759 million in the first quarter of 2021. The increase in our cost of sales was due primarily to higher costs for natural gas, which increased cost of sales by $271 million and higher costs for ammonia purchased from our joint venture in Trinidad. In addition, in the first quarter of 2021, we recognized a gain of $112 million, which is included in cost of sales, as a result of the net settlement of certain natural gas contracts with our suppliers as a result of Winter Storm Uri.

Cost of sales also includes the impact of a $33 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2022 compared to a $6 million gain in the first quarter of 2021.

Cost of sales averaged $253 per ton in the first quarter of 2022, a 51% increase from $167 per ton in the first quarter of 2021. The cost of natural gas used for production, including the impact of realized derivatives, increased 101% to $6.48 per MMBtu in the first quarter of 2022 from $3.22 per MMBtu in the first quarter of 2021. The cost of natural gas used for production of $3.22 per MMBtu in the first quarter of 2021 does not include the $112 million gain from the net settlement of certain natural gas contracts discussed above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $9 million to $64 million in the first quarter of 2022 as compared to $55 million in the first quarter of 2021. The increase was due primarily to higher costs associated with corporate initiatives.

Equity in Earnings of Operating Affiliate

Equity in earnings of operating affiliate was $26 million in the first quarter of 2022 compared to $11 million in the first quarter of 2021. The increase in the first quarter of 2022 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 $205 million in the first quarter of 2022 compared to $48 million in the first quarter of 2021. The increase of $157 million was due primarily to $162 million of net interest expense recorded in the first quarter of 2022 related to income tax matters, which are more fully described under “Items Affecting Comparability of Results—Canada Revenue Agency Competent Authority Matter” and “Items Affecting Comparability of Results—Transfer pricing reserves,” above.

Loss on Debt Extinguishment

On March 20, 2021, we redeemed in full all of the $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 in connection with the redemption of the 2021 Notes was $258 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million, consisting primarily of the premium paid on the redemption of the 2021 Notes prior to their scheduled maturity.

CF INDUSTRIES HOLDINGS, INC.

Income Taxes

For the three months ended March 31, 2022, we recorded an income tax provision of $401 million on pre-tax income of $1.45 billion, or an effective tax rate of 27.6%, compared to an income tax provision of $18 million on pre-tax income of $193 million, or an effective tax rate of 9.3%, for the three months ended March 31, 2021.

For the three months ended March 31, 2022, our income tax provision includes $78 million of tax expense related to the Canada Revenue Agency Competent Authority Matter and certain transfer pricing reserves recorded in the period, which are further described above under “Items Affecting Comparability of Results.” Additionally, for the three months ended March 31, 2022, we recognized a $20 million income tax benefit for the excess tax benefit related to certain share-based compensation activity.

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

Our effective tax rate is also impacted by earnings attributable to the noncontrolling interest in CFN, as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended March 31, 2022 of 27.6%, which is based on pre-tax income of $1.45 billion, including $168 million of earnings attributable to the noncontrolling interest, would be 3.7 percentage points higher, or 31.3%, if based on pre-tax income exclusive of the $168 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended March 31, 2021 of 9.3%, which is based on pre-tax income of $193 million, including $24 million of earnings attributable to the noncontrolling interest, would be 1.3 percentage points higher, or 10.6%, if based on pre-tax income exclusive of the $24 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 $144 million to $168 million in the first quarter of 2022 as compared to $24 million in the first quarter of 2021 due to higher earnings of CFN driven by higher average selling prices as described above under “Net Sales.”

Diluted Net Earnings Per Share Attributable to Common Stockholders

Net earnings per share attributable to common stockholders increased $3.51 to $4.21 per diluted share in the first quarter of 2022 from $0.70 per diluted share in the first quarter of 2021. This increase was due primarily to an increase in gross margin, driven by higher average selling prices, partially offset by increases in natural gas costs. The increase in gross margin was partially offset by increases in interest expense and income tax provision, which are described above, and an increase in net earnings attributable to noncontrolling interest. Additionally, net earnings per diluted share increased due to a 3% reduction in the diluted weighted-average common shares outstanding, which declined from 216.0 million shares at March 31, 2021 to 209.9 million shares at March 31, 2022, due primarily to repurchases of common shares under our share repurchase programs.

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 primarily of selling, general and administrative expenses and other operating—net) and non-operating expenses (consisting primarily of 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:

Ammonia**(1)**Granular Urea**(2)**UAN**(2)**AN**(2)**Other**(2)**Consolidated
(in millions)
Three months ended March 31, 2022
Net sales$640$765$1,015$223$225$2,868
Cost of sales2802703451711041,170
Gross margin$360$495$670$52$1211,698
Gross margin percentage56.3%64.7%66.0%23.3%53.8%59.2%
Three months ended March 31, 2021
Net sales$206$399$232$105$106$1,048
Cost of sales802642309590759
Gross margin$126$135$2$10$16289
Gross margin percentage61.2%33.8%0.9%9.5%15.1%27.6%

(1)Cost of sales and gross margin for the ammonia segment in the three months ended March 31, 2021 include a $112 million gain on the net settlement of certain natural gas contracts with our suppliers. See Note 13—Derivative Financial Instruments for additional information.

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

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 March 31,
202220212022 v. 2021
(dollars in millions, except per ton amounts)
Net sales$640$206$434211%
Cost of sales28080200250%
Gross margin$360$126$234186%
Gross margin percentage56.3%61.2%(4.9)%
Sales volume by product tons (000s)727683446%
Sales volume by nutrient tons (000s)(1)596560366%
Average selling price per product ton$880$302$578191%
Average selling price per nutrient ton(1)$1,074$368$706192%
Gross margin per product ton$495$184$311169%
Gross margin per nutrient ton(1)$604$225$379168%
Depreciation and amortization$34$36$(2)(6)%
Unrealized net mark-to-market gain on natural gas derivatives$(8)$(2)$(6)(300)%

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

First Quarter of 2022 Compared to First Quarter of 2021

Net Sales. Net sales in our Ammonia segment increased by $434 million, or 211%, to $640 million in the first quarter of 2022 from $206 million in the first quarter of 2021 due primarily to a 191% increase in average selling prices and a 6% increase in sales volume. Average selling prices increased to $880 per ton in the first quarter of 2022 compared to $302 per ton in the first quarter of 2021 due primarily to the impact of a tighter global nitrogen supply and demand balance, in part due to the geopolitical factors as described above under “Market Conditions and Current Developments—Geopolitical Environment.” Sales volume was higher due primarily to higher supply availability due to increased production.

Cost of Sales. Cost of sales in our Ammonia segment averaged $385 per ton in the first quarter of 2022, a 226% increase from $118 per ton in the first quarter of 2021. The increase was due primarily to the impact of the $112 million gain on the net settlement of certain natural gas contracts in February 2021, which is more fully described under “Market Conditions and Current Developments” above, and higher realized natural gas costs and higher costs for ammonia purchased from our joint venture in Trinidad. The $112 million gain on the net settlement of certain natural gas contracts reduced cost of sales in the first quarter of 2021 by $164 per ton, and represents 189 percentage points of the 226% increase in cost of sales per ton.

Gross Margin. Gross margin in our Ammonia segment increased by $234 million to $360 million in the first quarter of 2022 from $126 million in the first quarter of 2021, and our gross margin percentage was 56.3% in the first quarter of 2022 compared to 61.2% in the first quarter of 2021. The increase in gross margin was due primarily to a 191% increase in average selling prices, which increased gross margin by $413 million, and a 6% increase in sales volume, which increased gross margin by $17 million. These factors were partially offset by an increase in realized natural gas costs, which reduced gross margin by $52 million, and a $38 million net increase in manufacturing, maintenance and other costs, driven by higher purchased product costs. In addition, the first quarter of 2021 includes the impact of the $112 million gain on the net settlement of certain natural gas contracts. Gross margin also includes the impact of an $8 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2022 compared to a $2 million gain in the first quarter of 2021.

CF INDUSTRIES HOLDINGS, INC.

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 March 31,
202220212022 v. 2021
(dollars in millions, except per ton amounts)
Net sales$765$399$36692%
Cost of sales27026462%
Gross margin$495$135$360267%
Gross margin percentage64.7%33.8%30.9%
Sales volume by product tons (000s)1,0961,320(224)(17)%
Sales volume by nutrient tons (000s)(1)504607(103)(17)%
Average selling price per product ton$698$302$396131%
Average selling price per nutrient ton(1)$1,518$657$861131%
Gross margin per product ton$452$102$350343%
Gross margin per nutrient ton(1)$982$222$760342%
Depreciation and amortization$64$66$(2)(3)%
Unrealized net mark-to-market gain on natural gas derivatives$(7)$(2)$(5)(250)%

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

First Quarter of 2022 Compared to First Quarter of 2021

Net Sales. Net sales in our Granular Urea segment increased $366 million, or 92%, to $765 million in the first quarter of 2022 from $399 million in the first quarter of 2021 due primarily to a 131% increase in average selling prices, partially offset by a 17% decrease in sales volume. Average selling prices increased to $698 per ton in the first quarter of 2022 compared to $302 per ton in the first quarter of 2021 due primarily to the impact of a tighter global nitrogen supply and demand balance, in part due to the geopolitical factors as described above under “Market Conditions and Current Developments—Geopolitical Environment.” Sales volume was lower due primarily to lower supply availability resulting from lower production.

Cost of Sales. Cost of sales in our Granular Urea segment averaged $246 per ton in the first quarter of 2022, a 23% increase from $200 per ton in the first quarter of 2021, due primarily to higher realized natural gas costs.

Gross Margin. Gross margin in our Granular Urea segment increased by $360 million to $495 million in the first quarter of 2022 from $135 million in the first quarter of 2021, and our gross margin percentage was 64.7% in the first quarter of 2022 compared to 33.8% in the first quarter of 2021. The increase in gross margin was due primarily to a 131% increase in average selling prices, which increased gross margin by $426 million, and a $3 million net decrease in manufacturing, maintenance and other costs. These factors were partially offset by an increase in realized natural gas costs, which reduced gross margin by $48 million, and a 17% decrease in sales volume, which decreased gross margin by $26 million. Gross margin also includes the impact of a $7 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2022 compared to a $2 million gain in the first quarter of 2021.

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 March 31,
202220212022 v. 2021
(dollars in millions, except per ton amounts)
Net sales$1,015$232$783338%
Cost of sales34523011550%
Gross margin$670$2$668N/M
Gross margin percentage66.0%0.9%65.1%
Sales volume by product tons (000s)1,8281,51431421%
Sales volume by nutrient tons (000s)(1)57647610021%
Average selling price per product ton$555$153$402263%
Average selling price per nutrient ton(1)$1,762$487$1,275262%
Gross margin per product ton$367$1$366N/M
Gross margin per nutrient ton(1)$1,163$4$1,159N/M
Depreciation and amortization$70$56$1425%
Unrealized net mark-to-market gain on natural gas derivatives$(8)$(2)$(6)(300)%

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.

First Quarter of 2022 Compared to First Quarter of 2021

Net Sales. Net sales in our UAN segment increased $783 million, or 338%, to $1.02 billion in the first quarter of 2022 from $232 million in the first quarter of 2021 due to a 263% increase in average selling prices and a 21% increase in sales volume. Average selling prices increased to $555 per ton in the first quarter of 2022 compared to $153 per ton in the first quarter of 2021 due primarily to the impact of a tighter global nitrogen supply and demand balance, in part due to the geopolitical factors as described above under “Market Conditions and Current Developments—Geopolitical Environment.” Sales volume was higher due primarily to higher supply availability resulting from an increase in production.

Cost of Sales. Cost of sales in our UAN segment averaged $188 per ton in the first quarter of 2022, a 24% increase from $152 per ton in the first quarter of 2021, due primarily to the impact of higher realized natural gas costs and higher freight and distribution costs to ship UAN to meet demand on both the east and west coasts of the United States.

Gross Margin. Gross margin in our UAN segment increased by $668 million to $670 million in the first quarter of 2022 from $2 million in the first quarter of 2021, and our gross margin percentage was 66.0% in the first quarter of 2022 compared to 0.9% in the first quarter of 2021. The increase in gross margin was due primarily to a 263% increase in average selling prices, which increased gross margin by $736 million, and a 21% increase in sales volume, which increased gross margin by $12 million. These factors were partially offset by an increase in realized natural gas costs, which reduced gross margin by $65 million, and a $21 million net increase in manufacturing, maintenance and other costs. Gross margin also includes the impact of an $8 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2022 compared to a $2 million gain in the first quarter of 2021.

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. On August 13, 2021, the ITC made an affirmative preliminary determination 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.

CF INDUSTRIES HOLDINGS, INC.

On November 30, 2021, Commerce announced preliminary countervailing duty determinations finding that UAN imports from Russia are unfairly subsidized at rates ranging from 9.66% to 9.84% and UAN imports from Trinidad are unfairly subsidized at a rate of 1.83%, and imposed preliminary cash deposit requirements on those imports.

On January 27, 2022, Commerce announced preliminary antidumping duty determinations finding that Russian UAN imports are dumped (i.e. sold at less than fair value) into the U.S. market at rates ranging from 9.15% to 127.19%, and that Trinidadian UAN imports are dumped at a rate of 63.08%, and imposed preliminary cash deposit requirements on those imports. Commerce issued a correction to its Trinidad finding on March 8, 2022, finding that Trinidadian UAN imports are dumped at a rate of 111.64% and modified the cash deposit requirements.

Commerce is scheduled to issue final antidumping and countervailing duty determinations later in 2022 and, if any of Commerce’s final determinations are affirmative, the ITC will make final determinations 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 will 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 final antidumping or countervailing duties will be imposed on imports from either Russia or Trinidad, or the rate of any such duties.

AN Segment

Our AN segment produces ammonium nitrate (AN). AN, which has a nitrogen content between 29% and 35%, is produced by combining anhydrous ammonia and nitric acid. AN is used as nitrogen fertilizer and is also used by industrial customers for commercial explosives and blasting systems. AN is produced at our nitrogen complexes in Yazoo City, Mississippi and Ince and Billingham, United Kingdom.

The following table presents summary operating data for our AN segment:

Three Months Ended March 31,
202220212022 v. 2021
(dollars in millions, except per ton amounts)
Net sales$223$105$118112%
Cost of sales171957680%
Gross margin$52$10$42420%
Gross margin percentage23.3%9.5%13.8%
Sales volume by product tons (000s)428438(10)(2)%
Sales volume by nutrient tons (000s)(1)146147(1)(1)%
Average selling price per product ton$521$240$281117%
Average selling price per nutrient ton(1)$1,527$714$813114%
Gross margin per product ton$121$23$98426%
Gross margin per nutrient ton(1)$356$68$288424%
Depreciation and amortization$17$19$(2)(11)%
Unrealized net mark-to-market gain on natural gas derivatives$(6)$—$(6)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.

First Quarter of 2022 Compared to First Quarter of 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. Shortly thereafter, we restarted production at our Billingham facility; however, production continues to be idled at our Ince facility. See the discussion under “Market Conditions and Current Developments—United Kingdom Energy Crisis,” above, for further information.

CF INDUSTRIES HOLDINGS, INC.

Net Sales. Net sales in our AN segment increased $118 million, or 112%, to $223 million in the first quarter of 2022 from $105 million in the first quarter of 2021 due to a 117% increase in average selling prices, partially offset by a 2% decrease in sales volume. Average selling prices increased to $521 per ton in the first quarter of 2022 compared to $240 per ton in the first quarter of 2021 due primarily to the impact of a tighter global nitrogen supply and demand balance, in part due to the geopolitical factors as described above under “Market Conditions and Current Developments—Geopolitical Environment.” Sales volume declined due primarily to lower supply availability resulting from lower production.

Cost of Sales. Cost of sales in our AN segment averaged $400 per ton in the first quarter of 2022, an 84% increase from $217 per ton in the first quarter of 2021. The increase was due primarily to higher realized natural gas costs. Natural gas costs increased in both the United States and the United Kingdom in the first quarter of 2022. As measured by the average daily market price at the Henry Hub, natural gas prices in the United States increased to $4.60 per MMBtu in the first quarter of 2022 from $3.38 per MMBtu in the first quarter of 2021. In the United Kingdom, the average daily market price of natural gas at the NBP increased to $30.20 per MMBtu in the first quarter of 2022 from $6.90 per MMBtu in the first quarter of 2021. See the discussion under “Market Conditions and Current Developments—Natural Gas,” above, for further information.

Gross Margin. Gross margin in our AN segment increased $42 million to $52 million in the first quarter of 2022 from $10 million in the first quarter of 2021, and our gross margin percentage was 23.3% in the first quarter of 2022 compared to 9.5% in the first quarter of 2021. The increase in gross margin was due primarily to a 117% increase in average selling prices, which increased gross margin by $122 million, and an increase of $3 million due to product mix. This increase was partially offset by an increase in realized natural gas costs, which reduced gross margin by $77 million, and a net increase of $12 million in manufacturing, maintenance and other costs. Gross margin also includes the impact of a $6 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2022.

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 March 31,
202220212022 v. 2021
(dollars in millions, except per ton amounts)
Net sales$225$106$119112%
Cost of sales104901416%
Gross margin$121$16$105N/M
Gross margin percentage53.8%15.1%38.7%
Sales volume by product tons (000s)545609(64)(11)%
Sales volume by nutrient tons (000s)(1)104122(18)(15)%
Average selling price per product ton$413$174$239137%
Average selling price per nutrient ton(1)$2,163$869$1,294149%
Gross margin per product ton$222$26$196N/M
Gross margin per nutrient ton(1)$1,163$131$1,032N/M
Depreciation and amortization$19$22$(3)(14)%
Unrealized net mark-to-market gain on natural gas derivatives$(4)$—$(4)N/M

N/M—Not Meaningful

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

CF INDUSTRIES HOLDINGS, INC.

First Quarter of 2022 Compared to First Quarter of 2021

Net Sales. Net sales in our Other segment increased by $119 million, or 112%, to $225 million in the first quarter of 2022 from $106 million in the first quarter of 2021 due to a 137% increase in average selling prices, partially offset by an 11% 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, in part due to the geopolitical factors as described above under “Market Conditions and Current Developments—Geopolitical Environment.” The decrease in sales volume was due primarily to lower NPK sales volumes in the first quarter of 2022, as our Ince manufacturing plant continues to be idled, and lower urea liquor sales volumes.

Cost of Sales. Cost of sales in our Other segment averaged $191 per ton in the first quarter of 2022, a 29% increase from $148 per ton in the first quarter of 2021, due primarily to higher realized natural gas costs.

Gross Margin. Gross margin in our Other segment increased by $105 million to $121 million in the first quarter of 2022 from $16 million in the first quarter of 2021, and our gross margin percentage was 53.8% in the first quarter of 2022 compared to 15.1% in the first quarter of 2021. The increase in gross margin was due to a 137% increase in average selling prices, which increased gross margin by $132 million. The increase in average selling prices was partially offset by an increase in realized natural gas costs, which reduced gross margin by $29 million, and an 11% decrease in sales volume, which decreased gross margin by $2 million. Gross margin also includes the impact of a $4 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2022.

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 revolving credit agreement.

As of March 31, 2022, our cash and cash equivalents balance was $2.62 billion, an increase of $989 million from $1.63 billion at December 31, 2021. At March 31, 2022, we were in compliance with all applicable covenant requirements under our revolving credit agreement and senior notes, and unused borrowing capacity under our revolving credit agreement was $750 million.

On March 21, 2022, we announced that our wholly owned subsidiary CF Industries, Inc. elected to redeem in full the $500 million outstanding principal amount of its 3.450% senior notes due June 2023 (the 2023 Notes) on April 21, 2022, in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. See the discussion under “Debt,” below, for further information.

On April 27, 2022, the Board declared a quarterly dividend of $0.40 per common share, representing an increase from the quarterly dividend of $0.30 per common share that was declared and paid in the first quarter of 2022. The dividend will be paid on May 31, 2022 to stockholders of record as of May 16, 2022.

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.

Share Repurchase Program

On November 3, 2021, the Board authorized the repurchase of up to $1.5 billion of CF Holdings common stock through December 31, 2024 (the 2021 Share Repurchase Program). Repurchases under the 2021 Share Repurchase Program may be made from time to time in the open market, through privately negotiated transactions, through 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. In the three months ended March 31, 2022, we repurchased approximately 1.3 million shares under the 2021 Share Repurchase Program for $100 million, of which $3 million was accrued and unpaid as of March 31, 2022.

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 $63 million in the first three months of 2022 compared to $71 million in the first three months of 2021.

We currently anticipate that capital expenditures for the full year of 2022 will be in the range of $500 to $550 million, which includes capital expenditures at our Donaldsonville complex related to green and blue ammonia projects. 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.

CF INDUSTRIES HOLDINGS, INC.

Canada Revenue Agency Competent Authority Matter

In connection with the matter described above under “Items Affecting Comparability of Results—Canada Revenue Agency Competent Authority Matter,” we expect Canadian tax authorities will assess additional tax and interest for tax years 2006 to 2011 of approximately $225 million, based on current estimates, which we expect will be due in the third quarter of 2022, and the Company will file amended tax returns with U.S. federal and state tax authorities for the relevant tax years, as a result of which we expect to receive net refunds of approximately $50 million, including tax and interest, in the next twelve months.

United Kingdom Energy Crisis

As discussed under “Market Conditions and Current Developments—United Kingdom Energy Crisis,” above, during the third quarter of 2021, the United Kingdom began experiencing an energy crisis that included a substantial increase in the price of natural gas, which impacted our U.K. operations. Management continues to assess these volatile market conditions in the United Kingdom. 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. 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, which 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 our U.K. operations and recognition of further losses or further asset 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.

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. CF Industries is the lead borrower, and CF Holdings is the sole guarantor, under the Revolving Credit Agreement.

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.

As of March 31, 2022, we had unused borrowing capacity under the Revolving Credit Agreement of $750 million and no outstanding letters of credit. There were no borrowings outstanding under the Revolving Credit Agreement as of March 31, 2022 or December 31, 2021, or during the three months ended March 31, 2022.

The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants, including financial covenants. As of March 31, 2022, we were in compliance with all covenants under the Revolving Credit Agreement.

Letters of Credit

In addition to the letters of credit that may be issued under the Revolving Credit Agreement, as described above, we have also entered into a bilateral agreement with capacity to issue up to $250 million of letters of credit. As of March 31, 2022, approximately $197 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 March 31, 2022 and December 31, 2021 consisted of the following debt securities issued by CF Industries:

Effective Interest RateMarch 31, 2022December 31, 2021
PrincipalCarrying Amount**(1)**PrincipalCarrying Amount**(1)**
(in millions)
Public Senior Notes:
3.450% due June 2023(2)3.665%$500$499$500$499
5.150% due March 20345.293%750741750741
4.950% due June 20435.040%750741750742
5.375% due March 20445.478%750740750741
Senior Secured Notes:
4.500% due December 2026(3)4.783%750741750742
Total long-term debt$3,500$3,462$3,500$3,465
Less: Current maturities of long-term debt500499——
Long-term debt, net of current maturities$3,000$2,963$3,500$3,465

(1)Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discount was $8 million as of both March 31, 2022 and December 31, 2021, and total deferred debt issuance costs were $30 million and $27 million as of March 31, 2022 and December 31, 2021, respectively.

(2)These notes were redeemed in full on April 21, 2022.

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

Public Senior Notes

On March 21, 2022, we announced that CF Industries elected to redeem in full all of the $500 million outstanding principal amount of the 2023 Notes on April 21, 2022, in accordance with the optional redemption provisions in the indenture governing the 2023 Notes.

On April 21, 2022, we redeemed in full all of the $500 million outstanding principal amount of the 2023 Notes in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid in connection with the redemption of the 2023 Notes was approximately $513 million, including accrued interest. As a result, we will recognize a loss on debt extinguishment of approximately $8 million in the second quarter of 2022.

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

Senior Secured Notes

Under the terms of the indenture governing the 4.500% senior secured notes due 2026 (the 2026 Notes), the 2026 Notes are guaranteed 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 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.

CF INDUSTRIES HOLDINGS, INC.

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 March 31, 2022 and December 31, 2021, we had $598 million and $700 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 March 31, 2022, our open natural gas derivative contracts consisted of natural gas fixed price swaps and basis swaps for 2.9 million MMBtus. As of December 31, 2021, our open natural gas derivative contracts consisted of natural gas fixed price swaps, basis swaps and options for 60.0 million MMBtus.

Defined Benefit Pension Plans

We contributed $7 million to our pension plans in the three months ended March 31, 2022. Over the remainder of 2022, we expect to contribute approximately $21 million to our pension plans, which would result in our making a total of approximately $28 million of contributions to our pension plans for the full year 2022. In addition, we expect to contribute a total of approximately £50 million (or $66 million) to our U.K. plans in the three-year period from 2023 to 2025, as agreed with the plans’ trustees.

Distribution to Noncontrolling Interest in CFN

On January 31, 2022, the CFN Board of Managers approved semi-annual distribution payments for the distribution period ended December 31, 2021 in accordance with CFN’s limited liability company agreement. On January 31, 2022, CFN distributed $247 million to CHS for the distribution period ended December 31, 2021. The estimate of the partnership distribution earned by CHS, but not yet declared, for the first quarter of 2022 is approximately $190 million.

CF INDUSTRIES HOLDINGS, INC.

Cash Flows

Net cash provided by operating activities during the first three months of 2022 was $1.39 billion, an increase of $813 million compared to $578 million in the first three months of 2021. The increase in cash flow from operations was due primarily to higher net earnings, partially offset by changes in net working capital. Net earnings for the first three months of 2022 was $1.05 billion as compared to $175 million for the first three months of 2021. The increase in net earnings was due primarily to an increase in gross margin, driven by higher average selling prices, partially offset by increases in natural gas costs. The increase in gross margin was partially offset by an increase in interest expense and income tax provision, and an increase in net earnings attributable to noncontrolling interest. During the first three months of 2022, net changes in working capital contributed $110 million to cash flow from operations, while in the first three months of 2021 net changes in working capital contributed $230 million to cash flow from operations. The decreased cash flow from working capital changes was primarily attributable to customer advances and accounts receivable, partially offset by accrued and prepaid income taxes.

Net cash used in investing activities was $62 million in the first three months of 2022 as compared to $71 million in the first three months of 2021. Capital expenditures totaled $63 million during the first three months of 2022 compared to $71 million in the first three months of 2021.

Net cash used in financing activities was $339 million in the first three months of 2022 compared to $387 million in the first three months of 2021. In the first three months of 2021, we paid $255 million in connection with the redemption of the 2021 Notes. In the first three months of 2022, we spent $98 million to repurchase shares of common stock, which included $1 million related to shares repurchased in late 2021 that were paid for in 2022. In the first three months of 2022, we repurchased approximately 1.3 million shares for $100 million, of which $3 million was accrued and unpaid as of March 31, 2022. Distributions to noncontrolling interest totaled $247 million in the first three months of 2022 as compared to $64 million in the first three months of 2021. Proceeds from issuances of common stock under employee stock plans were $97 million in the first three months of 2022 compared to $7 million in the first three months of 2021.

Critical Accounting Estimates

During the first three months of 2022, there were no material changes to our critical accounting estimates as described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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, 2021, filed with the SEC on February 24, 2022. 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, including the influence of governmental policies and technological developments on the demand for agricultural products;

  • the volatility of natural gas prices in North America and the United Kingdom;

  • weather conditions and the impact of severe adverse weather events;

  • 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;

  • our reliance on a limited number of key facilities;

  • risks associated with cyber security;

  • 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 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 on our business and operations.

CF INDUSTRIES HOLDINGS, INC.

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