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 that 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 (SEC) on February 24, 2022, as well as Item 1. Financial Statements in Part I of 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 to CF Industries Holdings, Inc. only 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 Part I of this Quarterly Report on Form 10-Q. The following is an outline of the discussion and analysis included herein:

Overview of CF Holdings

*◦*Our Company

*◦*Our Commitment to a Clean Energy Economy

*•*Market Conditions and Current Developments

*•*Financial Executive Summary

*•*Items Affecting Comparability of Results

Consolidated Results of Operations

*◦*Second Quarter of 2022 Compared to Second Quarter of 2021

*◦*Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

*•*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 June 30, 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;

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*•*two United Kingdom nitrogen manufacturing facilities located in Billingham and Ince (see “Market Conditions and Current Developments—United Kingdom Operations, Proposed Restructuring and Impairment Charges,” below for information regarding the proposed restructuring of our U.K. operations that was announced in June 2022);

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

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 July 2022, we and Mitsui & Co., Ltd. signed a joint development agreement for the companies’ proposed plans for an export-oriented greenfield ammonia production facility in the United States to produce blue ammonia. The companies expect to commence during the second half of 2022 a front-end engineering design (FEED) study, which typically takes nine to twelve months from the start date to complete. A final investment decision as to whether to move forward with construction of the facility is expected to occur in 2023. Construction and commissioning of a new world-scale capacity ammonia plant typically takes approximately four years from the time construction begins.

We have also announced steps to produce blue ammonia from our existing ammonia production network, including a project to construct a CO2 dehydration and compression facility at our Donaldsonville complex to enable the transport and sequestration of the ammonia process byproduct. Engineering activities and procurement of major equipment for the facility are in progress, and modification of the site’s existing equipment to allow integration with existing operations has begun. Once the units are in service and sequestration is initiated, we expect that the Donaldsonville complex will have the capacity to dehydrate and compress up to 2 million tons per year of CO2 and will be able to produce up to 1.7 million tons of blue ammonia per year. Construction of the dehydration and compression units at the Donaldsonville complex is expected to begin in 2023 and to be completed in 2024, with an estimated total cost of $200 million. In addition, we are currently in advanced discussions with several parties regarding transportation and sequestration of CO2 from Donaldsonville. Under current regulations, the project 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.

Market Conditions and Current Developments

Geopolitical Environment

Russia’s invasion of Ukraine in February 2022, and the resulting war between Russia and Ukraine, has disrupted global markets for certain commodities, including natural gas, nitrogen fertilizers and certain commodity grains, leading to production curtailments, export reductions and logistical complications involving these commodities. Additionally, energy, financial and transportation sanctions have been announced by U.S., Canadian, European and other governments in response to the war. Market participants are adjusting trade flows and manufacturers are adjusting production levels in response to these factors. Continued market disruption is expected given the uncertainty of the situation. As of the date of this filing, nitrogen fertilizers have been explicitly exempted from sanctions by the United States and certain other governments.

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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 substantial portion of its natural gas supply, Russia’s invasion of Ukraine has disrupted European energy markets and threatened security of natural gas supply into that region. This has led to further increases in natural gas prices and natural gas price volatility, which in turn have led to disruptions in manufacturing and distribution activities at other nitrogen manufacturers and suppliers in our industry, resulting in changes in nitrogen product trade flows and reductions in global fertilizer supply.

The geopolitical developments relating to the war in Ukraine have also led to some supply chain disruptions for Russian producers of fertilizer, contributing to reduced global nitrogen fertilizer supply. Prior to the invasion, Russia in recent years had been a significant supplier of nitrogen fertilizer products to North America and Europe and a leading exporter of nitrogen fertilizer products globally. Russia and Ukraine have been 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 reduced commodity grain supply from Russia and Ukraine, causing increased prices for grains globally. The increase in commodity grain prices in turn created conditions for greater demand for nitrogen fertilizer in the first half of 2022.

These events have further contributed to an already tight global supply demand balance for nitrogen fertilizers. These factors are causing changes in global trade flows as both manufacturers and customers react to the changing market dynamics. As a result, global nitrogen fertilizer prices have remained higher than recent historical levels and have experienced significant volatility in 2022.

We expect that the recent geopolitical events, and any further government-imposed sanctions or other government responses affecting food or energy security, 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. In general, the prevailing global prices for nitrogen products must be at a level to incent the high cost marginal producer to produce product at a breakeven or above price, or else they would cease production and leave a portion of global demand unsatisfied.

In the second quarter of 2022, the average selling price for our products was $701 per ton, an increase of 128%, compared to $307 per ton in the second quarter of 2021, reflecting higher average selling prices across all our segments, which drove an increase in net sales of approximately $1.88 billion for the second quarter of 2022 compared to the second 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. In the six months ended June 30, 2022, the average selling price for our products was $661 per ton, or 144% higher compared to $271 per ton in the six months ended June 30, 2021. This resulted in an increase in net sales of approximately $3.72 billion for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. As the second quarter of 2022 ended, average selling prices began to show seasonal weakness that typically occurs at the end of the fertilizer application period after the spring planting season in the Northern hemisphere.

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 six months 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:

CF INDUSTRIES HOLDINGS, INC.


	Three Months Ended June 30,								Six Months Ended June 30,
	2022		2021		2022 v. 2021				2022		2021		2022 v. 2021

Natural gas supplemental data (per MMBtu)






Average daily market price of natural gas Henry Hub (Louisiana)	$	7.40	$	2.88	$	4.52	157	%	$	6.01	$	3.13	$	2.88	92	%
Average daily market price of natural gas National Balancing Point (United Kingdom)	$	16.00	$	8.90	$	7.10	80	%	$	23.06	$	7.90	$	15.16	192	%

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 six months of 2022 were higher on average than the first six months of 2021 due to tight supply and demand conditions within the market. During the first half of 2022, growth in demand for North American natural gas both for domestic use and for liquefied natural gas (LNG) exports outpaced production growth. As a result, North American gas withdrawals from storage were larger than normal, leading to end-of-June 2022 storage levels below both end-of-June 2021 storage levels and five-year average storage levels. North American prices began to decrease from their mid-June 2022 highs after the Freeport LNG liquefaction terminal along the Texas Gulf Coast experienced an unplanned outage, reducing the capacity for North American LNG exports by approximately 15%. Partially offsetting the impact of this event on North American natural gas prices was strong natural gas demand for power generation, as much of the United States experienced a warmer-than-average start to summer and substitution to coal generation was limited due to high coal prices and available coal supply.

The average daily market price at the Henry Hub for the three months ended June 30, 2022 was $7.40 per MMBtu compared to $2.88 per MMBtu for the three months ended June 30, 2021, an increase of 157%. The average daily market price at the Henry Hub for the six months ended June 30, 2022 was $6.01 per MMBtu compared to $3.13 per MMBtu for the six months ended June 30, 2021, an increase of 92%. The average daily market price of natural gas at the Henry Hub for the first four weeks of July 2022 was $6.94 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 six months ended June 30, 2021.

Our 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 declined during the second quarter of 2022 compared to the record high prices seen during the first quarter of 2022. Elevated natural gas prices in Europe continued to support increased European LNG imports. Although the Russian invasion of Ukraine in late February 2022 disrupted European energy markets and threatened security of supply, Russian natural gas flows via pipeline to Europe remained steady for much of the second quarter. European natural gas prices began to increase in mid-June 2022 after the unplanned outage of the Freeport LNG liquefaction terminal, which reduced the number of LNG cargoes available to meet global demand. At the same time, Russian natural gas pipeline flows to Europe began to decrease, further reducing natural gas supply in Europe. The NBP was partially protected from some of the higher prices registered in mainland Europe, as the U.K. is not as reliant on Russian pipeline flows and benefited from reduced domestic industrial demand and availability of LNG import capacity.

The average daily market price of natural gas at the NBP for the three months ended June 30, 2022 was $16.00 per MMBtu compared to $8.90 per MMBtu for the three months ended June 30, 2021, an increase of 80%. The average daily market price of natural gas at the NBP for the six months ended June 30, 2022 was $23.06 per MMBtu compared to $7.90 per MMBtu for the six months ended June 30, 2021, an increase of 192%. For the six months ended June 30, 2022, the daily closing price at the NBP reached a low of $1.23 per MMBtu on June 10, 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 the first four weeks of July 2022 was $25.94 per MMBtu.

In the second quarter of 2022, the cost of natural gas used for production, which includes the impact of realized natural gas derivatives, increased 117% to $7.05 per MMBtu from $3.25 per MMBtu in the second quarter of 2021. This increase in natural gas costs resulted in a decrease in gross margin of approximately $352 million. In the first half of 2022, the cost of natural gas used for production, which includes the impact of realized natural gas derivatives, increased 110% to $6.79 per MMBtu from $3.24 per MMBtu in the first half of 2021. The cost of natural gas used for production of $3.24 per MMBtu in the

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first half of 2021 does not include the $112 million gain from the net settlement of certain natural gas contracts in February 2021. This increase in natural gas costs resulted in a decrease in gross margin of approximately $623 million.

United Kingdom Operations, Proposed Restructuring and Impairment Charges

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.

The U.K. energy crisis necessitated evaluations in the third and fourth quarters of 2021 of the long-lived assets, including definite-lived intangible assets, and goodwill of our U.K. operations to determine if their fair value had declined to below their carrying value. The evaluations resulted in total goodwill impairment charges of $285 million, and total long-lived and intangible asset impairment charges of $236 million, in 2021. As of December 31, 2021, after the recognition of the goodwill impairment charges, no goodwill related to our U.K. operations remained.

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 this 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.

During the second quarter of 2022, the long-term outlook deteriorated for nitrogen producers in regions that rely on LNG imports to satisfy natural gas demand. As further described above, natural gas represents a substantial portion of the cost to produce nitrogen products. Natural gas forward prices suggested that nitrogen facilities in the United Kingdom and mainland Europe would be the world’s high-cost marginal producers for the foreseeable future, presenting a constant challenge to the sustainability of our U.K. operations.

In June 2022, due in large part to the nitrogen industry conditions described above, we approved and announced our proposed plan to restructure our U.K. operations. This plan includes permanently closing the Ince facility and optimizing the remaining manufacturing operations at the Billingham facility. As a result, in the three months ended June 30, 2022, we recorded total charges of $162 million, as follows:

asset impairment charges of $152 million consisting of the following:

◦an impairment charge of $135 million related to property, plant and equipment at the Ince facility that has been classified as held for abandonment, including a liability of approximately $9 million for the costs of certain asset retirement activities at the site;

◦an intangible asset impairment charge of $8 million related to trade names; and

◦a charge of $9 million related to the write-down of spare parts and certain raw materials at the Ince facility;

and

a charge for post-employment benefits of $10 million related to contractual and statutory obligations due to employees whose employment would be terminated in the proposed plan.

These amounts are included in the U.K. operations restructuring line item in our consolidated statements of operations for the three and six months ended June 30, 2022. We are working with customers, vendors, regulators and others to finalize closure plans, and we expect substantially all of the restructuring activities will be completed within the next twelve months.

As a result of the proposed restructuring of our U.K. operations, we concluded that an additional impairment test was triggered for the asset groups that comprise the continuing U.K. operations, consisting of U.K. Ammonia, U.K. AN and U.K. Other. The results of this long-lived asset impairment test indicated that no additional asset impairment should be recorded as the undiscounted estimated future cash flows for the continuing U.K. operations were in excess of the carrying values for each of the U.K. asset groups.

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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 six months ended June 30, 2022, gross margin generated by our U.K. operations represented approximately 3% 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.

Financial Executive Summary

We reported net earnings attributable to common stockholders of $1.17 billion for the three months ended June 30, 2022 compared to $246 million for the three months ended June 30, 2021, an increase in net earnings of 374%, or $919 million. Diluted net earnings per share attributable to common stockholders increased $4.44 per share, to $5.58 per share, in the second quarter of 2022 compared to $1.14 per share in the second quarter of 2021. These increases were due primarily to an increase of $1.49 billion in gross margin to $1.99 billion for the three months ended June 30, 2022, which was driven by higher average selling prices, partially offset by higher natural gas prices. Partially offsetting the increase in gross margin was the U.K. operations restructuring charge, an increase in the income tax provision due primarily to increased profitability, and an increase in net earnings attributable to noncontrolling interest. See “Items Affecting Comparability of Results,” below, for further information on the U.K. operations restructuring charge.

Average selling prices increased 128% to $701 per ton in the second quarter of 2022 from $307 per ton in the second quarter of 2021, which increased gross margin by $1.88 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 117% to $7.05 per MMBtu in the second quarter of 2022 from $3.25 per MMBtu in the second quarter of 2021, which reduced gross margin by $352 million.

Items Affecting Comparability of Results

For the three months ended June 30, 2022 and 2021, we reported net earnings attributable to common stockholders of $1.17 billion and $246 million, respectively. For the six months ended June 30, 2022 and 2021, we reported net earnings attributable to common stockholders of $2.05 billion and $397 million, respectively. In addition to the impact of market conditions discussed above, certain items impacted the comparability of our financial results for the three and six months ended June 30, 2022 and 2021. The following table and related discussion outline these items that impacted the comparability of our financial results for these periods.


	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
	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)	$	(17)	$	(13)	$	—	$	—	$	(50)	$	(38)	$	(6)	$	(5)










Loss on foreign currency transactions, including intercompany loans(2)	5		3		3		3		11		8		3		3





U.K. operations restructuring	162		123		—		—		162		123		—		—

Canada Revenue Agency Competent Authority Matter and Transfer pricing reserves:
Interest expense	30		30		—		—		228		226		—		—
Interest income	(2)		(1)		—		—		(38)		(29)		—		—
Income tax (benefit) provision(3)	—		(20)		—		—		—		52		—		—

Loss on debt extinguishment	8		6		—		—		8		6		6		5

(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)For the three months ended June 30, 2022, the after-tax income tax benefit amount of $20 million reflects an income tax benefit of $19 million, consisting of the $2 million income tax provision referenced below under “Canada Revenue Agency Competent Authority Matter” and the $21 million of income tax benefit referenced below under “Transfer pricing reserves,” net of $1 million of income tax provision that is reflected in the after-tax interest income amount shown in this table. For the six months ended June 30, 2022, the after-tax income tax provision amount of $52 million reflects an income tax provision of $59 million, consisting of the $78 million income tax provision referenced below under “Canada Revenue Agency Competent Authority Matter” and the $19 million of income tax benefit referenced below under “Transfer pricing reserves,” net of $7 million of income tax provision that is reflected in the after-tax interest expense and interest income amounts shown in this table.

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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 June 30, 2022, we recognized an unrealized net mark-to-market gain of $17 million. In the six months ended June 30, 2022 and 2021, we recognized unrealized net mark-to-market gains of $50 million and $6 million, respectively.

Loss on foreign currency transactions, including intercompany loans

In the six months ended June 30, 2022 and 2021, we recognized losses of $11 million and $3 million, respectively, which consists of foreign currency exchange rate impacts on foreign currency denominated transactions, including the impact of changes in foreign currency exchange rates on intercompany loans that were not permanently invested.

U.K. operations restructuring

In the three months ended June 30, 2022, we recognized total charges of $162 million consisting of $152 million of asset impairment charges primarily related to property, plant and equipment at our Ince, U.K. facility and $10 million of post-employment benefits related to contractual and statutory obligations. See “Market Conditions and Current Developments—United Kingdom Operations, Proposed Restructuring and Impairment Charges,” above, for further discussion.

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 $129 million, based on current estimates. We currently expect this resulting Canadian tax liability, plus interest of approximately $103 million, will be assessed in the second half of 2022 and that payment of those amounts, aggregating to approximately $232 million, based on current estimates, will be due in the second half 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 six months ended June 30, 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 $78 million, reflecting the net impact of $129 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 $104 million, primarily reflecting the impact of estimated interest payable to Canada.

Of the $78 million of income tax provision and $104 million of net interest expense recognized in the six months ended June 30, 2022, $2 million of income tax provision and $5 million of net interest expense was recognized in the three months ended June 30, 2022.

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Transfer pricing reserves

As a result of the outcome of the arbitration decision discussed above, we also evaluated our transfer pricing positions between Canada and the United States for open years 2012 and after. Based on this evaluation and our evaluation during the three months ended June 30, 2022, we recorded the following in the six months ended June 30, 2022:

liabilities for unrecognized tax benefits of $314 million with a corresponding income tax provision, and accrued interest of $116 million related to the liabilities for unrecognized tax benefits, and
noncurrent income tax receivables of $359 million with a corresponding income tax benefit, and accrued interest income of $30 million related to the noncurrent income tax receivables.

In the six months ended June 30, 2022, the impact of these evaluations of transfer pricing positions on our consolidated statement of operations, including $26 million of net deferred income tax provision for other transfer pricing tax effects, was $19 million of income tax benefit and $86 million of net interest expense before tax ($93 million after tax).

Of the $19 million of income tax benefit and $86 million of net interest expense recognized in the six months ended June 30, 2022, $21 million of income tax benefit and $23 million of net interest expense ($24 million after tax) was recognized in the three months ended June 30, 2022.

Loss on debt extinguishment

On April 21, 2022, we redeemed in full all of the $500 million outstanding principal amount of the 3.450% senior notes due June 2023 (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 $513 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $8 million, consisting primarily of the premium paid on the redemption of the 2023 Notes prior to their scheduled maturity.

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 June 30,											Six Months Ended June 30,
	2022			2021			2022 v. 2021					2022			2021			2022 v. 2021
	(in millions, except per share and per MMBtu)
Net sales	$	3,389		$	1,588		$	1,801		113	%	$	6,257		$	2,636		$	3,621		137	%
Cost of sales	1,398			1,085			313			29	%	2,568			1,844			724			39	%
Gross margin	1,991			503			1,488			296	%	3,689			792			2,897			366	%
Gross margin percentage	58.7		%	31.7		%	27.0		%			59.0		%	30.0		%	29.0		%
Selling, general and administrative expenses	73			60			13			22	%	137			115			22			19	%




U.K. operations restructuring	162			—			162			N/M		162			—			162			N/M
Other operating—net	6			4			2			50	%	8			2			6			300	%
Total other operating costs and expenses	241			64			177			277	%	307			117			190			162	%

Equity in earnings of operating affiliate	28			11			17			155	%	54			22			32			145	%
Operating earnings	1,778			450			1,328			295	%	3,436			697			2,739			393	%
Interest expense—net	74			46			28			61	%	279			94			185			197	%
Loss on debt extinguishment	8			—			8			N/M		8			6			2			33	%
Other non-operating—net	—			2			(2)			(100)	%	1			2			(1)			(50)	%
Earnings before income taxes	1,696			402			1,294			322	%	3,148			595			2,553			429	%
Income tax provision	357			85			272			320	%	758			103			655			N/M

Net earnings	1,339			317			1,022			322	%	2,390			492			1,898			386	%
Less: Net earnings attributable to noncontrolling interest	174			71			103			145	%	342			95			247			260	%
Net earnings attributable to common stockholders	$	1,165		$	246		$	919		374	%	$	2,048		$	397		$	1,651		416	%
Diluted net earnings per share attributable to common stockholders	$	5.58		$	1.14		$	4.44		389	%	$	9.78		$	1.83		$	7.95		434	%
Diluted weighted-average common shares outstanding	208.9			216.6			(7.7)			(4)	%	209.4			216.3			(6.9)			(3)	%
Dividends declared per common share	$	0.40		$	0.30		$	0.10		33	%	$	0.70		$	0.60		$	0.10		17	%
Natural gas supplemental data (per MMBtu)


Cost of natural gas used for production in cost of sales(1)	$	7.05		$	3.25		$	3.80		117	%	$	6.79		$	3.24		$	3.55		110	%



Average daily market price of natural gas Henry Hub (Louisiana)	$	7.40		$	2.88		$	4.52		157	%	$	6.01		$	3.13		$	2.88		92	%
Average daily market price of natural gas National Balancing Point (United Kingdom)	$	16.00		$	8.90		$	7.10		80	%	$	23.06		$	7.90		$	15.16		192	%
Unrealized net mark-to-market gain on natural gas derivatives	$	(17)		$	—		$	(17)		N/M		$	(50)		$	(6)		$	(44)		N/M
Depreciation and amortization	$	223		$	243		$	(20)		(8)	%	$	431		$	447		$	(16)		(4)	%
Capital expenditures	$	66		$	110		$	(44)		(40)	%	$	129		$	181		$	(52)		(29)	%
Sales volume by product tons (000s)	4,835			5,174			(339)			(7)	%	9,459			9,738			(279)			(3)	%
Production volume by product tons (000s):
Ammonia(2)	2,470			2,232			238			11	%	5,083			4,711			372			8	%
Granular urea	1,157			968			189			20	%	2,231			2,152			79			4	%
UAN (32%)	1,633			1,628			5			—	%	3,498			3,317			181			5	%
AN	399			449			(50)			(11)	%	804			924			(120)			(13)	%

N/M—Not Meaningful

(1)Includes the cost of natural gas used for production and related transportation that is included in cost of sales during the period under the first-in, first-out inventory cost method. Includes realized gains and losses on natural gas derivatives settled during the period.

CF INDUSTRIES HOLDINGS, INC.

Excludes unrealized mark-to-market gains and losses on natural gas derivatives. For the six months ended June 30, 2021, excludes the $112 million gain on net settlement of certain natural gas contracts with our suppliers due to Winter Storm Uri.

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

Second Quarter of 2022 Compared to Second Quarter of 2021

Net Sales

Our total net sales increased $1.80 billion or 113%, to $3.39 billion in the second quarter of 2022 compared to $1.59 billion in the second quarter of 2021 due primarily to an increase in average selling prices partially offset by a decrease in sales volume.

Our average selling price was $701 per ton in the second quarter of 2022, or 128% higher, compared to $307 per ton in the second 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 4.8 million product tons in the second quarter of 2022 was 7% lower compared to 5.2 million product tons in the second quarter of 2021, as lower sales volume in our UAN, AN and Other segments was partially offset by higher sales volume in our Granular Urea segment.

Cost of Sales

Our total cost of sales increased $313 million, or 29%, to $1.40 billion in the second quarter of 2022 from $1.09 billion in the second 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 $352 million, and higher costs for ammonia purchased from PLNL, our joint venture in Trinidad, partially offset by a decline in sales volume of 7% that decreased cost of sales by $84 million.

Cost of sales also includes the impact of a $17 million unrealized net mark-to-market gain on natural gas derivatives in the second quarter of 2022.

Cost of sales averaged $289 per ton in the second quarter of 2022, a 38% increase from $210 per ton in the second quarter of 2021. The cost of natural gas used for production, including the impact of realized derivatives, increased 117% to $7.05 per MMBtu in the second quarter of 2022 from $3.25 per MMBtu in the second quarter of 2021.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $13 million to $73 million in the second quarter of 2022 as compared to $60 million in the second quarter of 2021. The increase was due primarily to higher costs associated with corporate initiatives, including costs related to the development of an enterprise resource planning system that we will be implementing for our North American operations.

U.K. Operations Restructuring

In the three months ended June 30, 2022, we recognized total charges of $162 million, consisting of $152 million of asset impairment charges primarily related to property, plant and equipment at our Ince, U.K. facility and $10 million of post-employment benefits related to contractual and statutory obligations. See “Market Conditions and Current Developments—United Kingdom Operations, Proposed Restructuring and Impairment Charges,” above, for further discussion.

Equity in Earnings of Operating Affiliate

Equity in earnings of operating affiliate was $28 million in the second quarter of 2022 compared to $11 million in the second quarter of 2021. The increase in the second 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 $74 million in the second quarter of 2022 compared to $46 million in the second quarter of 2021. The net increase of $28 million was due primarily to net interest expense of $37 million recorded in the second 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. This increase was partially offset by a $6 million decrease in interest on borrowings due to the redemption of senior

CF INDUSTRIES HOLDINGS, INC.

notes in April 2022.

Loss on Debt Extinguishment

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 $513 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $8 million, consisting primarily of the premium paid on the redemption of the 2023 Notes prior to their scheduled maturity.

Income Taxes

For the three months ended June 30, 2022, we recorded an income tax provision of $357 million on pre-tax income of $1.70 billion, or an effective tax rate of 21.1%, compared to an income tax provision of $85 million on pre-tax income of $402 million, or an effective tax rate of 21.2%, for the three months ended June 30, 2021.

Our effective tax rate is impacted by earnings attributable to the noncontrolling interest in CFN, as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended June 30, 2022 of 21.1%, which is based on pre-tax income of $1.70 billion, including $174 million of earnings attributable to the noncontrolling interest, would be 2.4 percentage points higher, or 23.5%, if based on pre-tax income exclusive of the $174 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended June 30, 2021 of 21.2%, which is based on pre-tax income of $402 million, including $71 million of earnings attributable to the noncontrolling interest, would be 4.6 percentage points higher, or 25.8%, if based on pre-tax income exclusive of the $71 million of earnings attributable to the noncontrolling interest. 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 $103 million to $174 million in the second quarter of 2022 as compared to $71 million in the second 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 $4.44 to $5.58 per diluted share in the second quarter of 2022 from $1.14 per diluted share in the second quarter of 2021. This increase was due primarily to an increase in gross margin, driven by higher average selling prices, partially offset by an increase in natural gas costs, the U.K. operations restructuring charge, an increase in the income tax provision due primarily to increased profitability, and an increase in net earnings attributable to noncontrolling interest. Additionally, net earnings per diluted share increased due to a 4% reduction in the diluted weighted-average common shares outstanding, which declined from 216.6 million shares for the three months ended June 30, 2021 to 208.9 million shares for the three months ended June 30, 2022, due primarily to repurchases of common shares under our share repurchase programs.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Net Sales

Our total net sales increased $3.62 billion, or 137%, to $6.26 billion in the first six months of 2022 as compared to $2.64 billion in the first six months of 2021 due to an increase in average selling prices, partially offset by a decrease in sales volume.

Average selling prices were $661 per ton in the first six months of 2022, or 144% higher compared to $271 per ton in the first six months 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 9.5 million product tons in the first six months of 2022 was 3% lower compared to 9.7 million product tons in the first six months of 2021 as a result of lower sales volume in our Granular Urea, Other and AN segments partially offset by higher sales volume in our Ammonia segment.

CF INDUSTRIES HOLDINGS, INC.

Cost of Sales

Our total cost of sales increased $724 million, or 39%, to $2.57 billion in the first six months of 2022 as compared to $1.84 billion in the first six months of 2021. 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 $623 million and higher costs for ammonia purchased from PLNL, our joint venture in Trinidad. In addition, in the first six months 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. Partially offsetting these increases in cost of sales was a 3% decline in sales volume in the first six months of 2022 compared to the first six months of 2021, which reduced cost of sales by $117 million.

Cost of sales also includes the impact of a $50 million unrealized net mark-to-market gain on natural gas derivatives in the first six months of 2022 compared to a $6 million gain in the first six months of 2021.

Cost of sales averaged $271 per ton in the first six months of 2022, a 43% increase from $189 per ton in the first six months of 2021. The cost of natural gas used for production, including the impact of realized derivatives, increased 110% to $6.79 per MMBtu in the first six months of 2022 from $3.24 per MMBtu in the first six months of 2021. The cost of natural gas used for production of $3.24 per MMBtu in the first six 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 $22 million to $137 million in the first six months of 2022 as compared to $115 million in the first six months of 2021. The increase was due primarily to higher costs associated with certain corporate initiatives, including costs related to the development of an enterprise resource planning system that we will be implementing for our North American operations.

U.K. Operations Restructuring

In the six months ended June 30, 2022, we recognized total charges of $162 million, consisting of $152 million of asset impairment charges primarily related to property, plant and equipment at our Ince, U.K. facility and $10 million of post-employment benefits related to contractual and statutory obligations. See “Market Conditions and Current Developments—United Kingdom Operations, Proposed Restructuring and Impairment Charges,” above, for further discussion.

Equity in Earnings of Operating Affiliate

Equity in earnings of operating affiliate was $54 million in the first six months of 2022 compared to $22 million in the first six months of 2021. 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 $185 million to $279 million in the first six months of 2022 compared to $94 million in the first six months of 2021. The increase was due primarily to $199 million of net interest expense recorded in the first six months 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. This increase was partially offset by a $10 million decrease in interest on borrowings due to the redemption of senior notes in April 2022 and March 2021.

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.

CF INDUSTRIES HOLDINGS, INC.

Income Taxes

For the six months ended June 30, 2022, we recorded an income tax provision of $758 million on pre-tax income of $3.15 billion, or an effective tax rate of 24.1%, compared to an income tax provision of $103 million on pre-tax income of $595 million, or an effective tax rate of 17.4%, for the six months ended June 30, 2021.

For the six months ended June 30, 2022, our income tax provision includes $78 million of tax expense related to the Canada Revenue Agency Competent Authority Matter, which is further described above under “Items Affecting Comparability of Results.” Additionally, for the six months ended June 30, 2022, we recognized a $22 million income tax benefit for the excess tax benefit related to certain share-based compensation activity.

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

Our effective tax rate is also impacted by earnings attributable to the noncontrolling interest in CFN, as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interest. Our effective tax rate for the six months ended June 30, 2022 of 24.1%, which is based on pre-tax income of $3.15 billion, including $342 million of earnings attributable to the noncontrolling interest, would be 2.9 percentage points higher, or 27.0%, if based on pre-tax income exclusive of the $342 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the six months ended June 30, 2021 of 17.4%, which is based on pre-tax income of $595 million, including $95 million of earnings attributable to the noncontrolling interest, would be 3.3 percentage points higher, or 20.7%, if based on pre-tax income exclusive of the $95 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 260% to $342 million in the first six months of 2022 from $95 million in the first six months of 2021 due to higher earnings of CFN driven by higher average selling prices due primarily to a tighter global nitrogen supply and demand balance as higher global energy costs drove lower global operating rates.

Diluted Net Earnings Per Share Attributable to Common Stockholders

Net earnings per share attributable to common stockholders increased 434% to $9.78 per diluted share in the first six months of 2022 from $1.83 per diluted share in the first six months of 2021. This increase is due primarily to an increase in gross margin, driven by higher average selling prices, partially offset by increases in natural gas costs, the U.K. operations restructuring charge, an increase in the income tax provision due primarily to increased profitability, 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 216.3 million shares for the six months ended June 30, 2021 to 209.4 million shares for the six months ended June 30, 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 June 30, 2022
Net sales	$	1,115		$	833		$	976		$	253		$	212		$	3,389
Cost of sales	442			360			343			151			102			1,398
Gross margin	$	673		$	473		$	633		$	102		$	110		$	1,991
Gross margin percentage	60.4		%	56.8		%	64.9		%	40.3		%	51.9		%	58.7		%
Three months ended June 30, 2021
Net sales	$	459		$	433		$	434		$	136		$	126		$	1,588
Cost of sales	333			241			296			120			95			1,085
Gross margin	$	126		$	192		$	138		$	16		$	31		$	503
Gross margin percentage	27.5		%	44.3		%	31.8		%	11.8		%	24.6		%	31.7		%
Six months ended June 30, 2022
Net sales	$	1,755		$	1,598		$	1,991		$	476		$	437		$	6,257
Cost of sales	722			630			688			322			206			2,568
Gross margin	$	1,033		$	968		$	1,303		$	154		$	231		$	3,689
Gross margin percentage	58.9		%	60.6		%	65.4		%	32.4		%	52.9		%	59.0		%
Six months ended June 30, 2021
Net sales	$	665		$	832		$	666		$	241		$	232		$	2,636
Cost of sales	413			505			526			215			185			1,844
Gross margin	$	252		$	327		$	140		$	26		$	47		$	792
Gross margin percentage	37.9		%	39.3		%	21.0		%	10.8		%	20.3		%	30.0		%

(1)Cost of sales and gross margin for the Ammonia segment in the six months ended June 30, 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 June 30,											Six Months Ended June 30,
	2022			2021			2022 v. 2021					2022			2021			2022 v. 2021
	(dollars in millions, except per ton amounts)
Net sales	$	1,115		$	459		$	656		143	%	$	1,755		$	665		$	1,090		164	%
Cost of sales	442			333			109			33	%	722			413			309			75	%
Gross margin	$	673		$	126		$	547		434	%	$	1,033		$	252		$	781		310	%
Gross margin percentage	60.4		%	27.5		%	32.9		%			58.9		%	37.9		%	21.0		%
Sales volume by product tons (000s)	1,035			1,036			(1)			—	%	1,762			1,719			43			3	%
Sales volume by nutrient tons (000s)(1)	849			850			(1)			—	%	1,445			1,410			35			2	%
Average selling price per product ton	$	1,077		$	443		$	634		143	%	$	996		$	387		$	609		157	%
Average selling price per nutrient ton(1)	$	1,313		$	540		$	773		143	%	$	1,215		$	472		$	743		157	%
Gross margin per product ton	$	650		$	122		$	528		433	%	$	586		$	147		$	439		299	%
Gross margin per nutrient ton(1)	$	793		$	148		$	645		436	%	$	715		$	179		$	536		299	%
Depreciation and amortization	$	50		$	61		$	(11)		(18)	%	$	84		$	97		$	(13)		(13)	%
Unrealized net mark-to-market gain on natural gas derivatives	$	(2)		$	—		$	(2)		N/M		$	(10)		$	(2)		$	(8)		(400)	%

N/M—Not Meaningful

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

Second Quarter of 2022 Compared to Second Quarter of 2021

Net Sales. Net sales in our Ammonia segment increased by $656 million, or 143%, to $1.12 billion in the second quarter of 2022 from $459 million in the second quarter of 2021 due primarily to a 143% increase in average selling prices. Average selling prices increased to $1,077 per ton in the second quarter of 2022 compared to $443 per ton in the second quarter of 2021 due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.”

Cost of Sales. Cost of sales in our Ammonia segment averaged $427 per ton in the second quarter of 2022, a 33% increase from $321 per ton in the second quarter of 2021. The increase was due primarily to higher realized natural gas costs, and a higher cost per ton for purchased ammonia from our joint venture in Trinidad, partially offset by lower manufacturing and maintenance costs.

Gross Margin. Gross margin in our Ammonia segment increased by $547 million to $673 million in the second quarter of 2022 from $126 million in the second quarter of 2021, and our gross margin percentage was 60.4% in the second quarter of 2022 compared to 27.5% in the second quarter of 2021. The increase in gross margin was due primarily to a 143% increase in average selling prices, which increased gross margin by $662 million, a $35 million net decrease in manufacturing, maintenance and other costs, and an increase in gross margin of $5 million due primarily to favorable location product mix. These increases were offset by an increase in realized natural gas costs, which reduced gross margin by $98 million, and higher purchased product costs, which reduced gross margin by $59 million. Gross margin also includes the impact of a $2 million unrealized net mark-to-market gain on natural gas derivatives in the second quarter of 2022.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Net Sales. Net sales in our Ammonia segment increased by $1.09 billion, or 164%, to $1.76 billion in the six months ended June 30, 2022 from $665 million in the six months ended June 30, 2021 due primarily to a 157% increase in average selling prices and a 3% 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, reflecting in part the geopolitical factors described above under “Market

CF INDUSTRIES HOLDINGS, INC.

Conditions and Current Developments—Geopolitical Environment.” Sales volume was higher due primarily to higher supply availability resulting from higher production.

Cost of Sales. Cost of sales in our Ammonia segment averaged $410 per ton in the six months ended June 30, 2022, a 71% increase from $240 per ton in the six months ended June 30, 2021. The increase is due primarily to higher realized natural gas costs, a higher cost per ton for purchased ammonia from our joint venture in Trinidad, and 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—Natural Gas” above, for additional information on the operational impact of Winter Storm Uri. These increases in cost of sales were partially offset by lower manufacturing and maintenance costs.

Gross Margin. Gross margin in our Ammonia segment increased by $781 million to $1.03 billion in the six months ended June 30, 2022 from $252 million in the six months ended June 30, 2021, and our gross margin percentage was 58.9% in the six months ended June 30, 2022 compared to 37.9% in the six months ended June 30, 2021. The increase in gross margin was due primarily to a 157% increase in average selling prices, which increased gross margin by $1.08 billion, a $48 million net decrease in manufacturing, maintenance and other costs, and a 3% increase in sales volume, which increased gross margin by $22 million. These increases were partially offset by an increase in realized natural gas costs, which decreased gross margin by $150 million, and higher purchased product costs, which reduced gross margin by $110 million. In addition, the impact of the $112 million gain on the net settlement of certain natural gas contracts is included in the six months ended June 30, 2021. Gross margin also includes the impact of a $10 million unrealized net mark-to-market gain on natural gas derivatives in the six months ended June 30, 2022 compared to a $2 million gain in the six months ended June 30, 2021.

Granular Urea Segment

Our Granular Urea segment produces granular urea, which contains 46% nitrogen. Produced from ammonia and carbon dioxide, it has the highest nitrogen content of any of our solid nitrogen fertilizers. Granular urea is produced at our Donaldsonville, Louisiana; Medicine Hat, Alberta; and Port Neal, Iowa, nitrogen complexes.

The following table presents summary operating data for our Granular Urea segment:


	Three Months Ended June 30,											Six Months Ended June 30,
	2022			2021			2022 v. 2021					2022			2021			2022 v. 2021
	(dollars in millions, except per ton amounts)
Net sales	$	833		$	433		$	400		92	%	$	1,598		$	832		$	766		92	%
Cost of sales	360			241			119			49	%	630			505			125			25	%
Gross margin	$	473		$	192		$	281		146	%	$	968		$	327		$	641		196	%
Gross margin percentage	56.8		%	44.3		%	12.5		%			60.6		%	39.3		%	21.3		%
Sales volume by product tons (000s)	1,181			1,092			89			8	%	2,277			2,412			(135)			(6)	%
Sales volume by nutrient tons (000s)(1)	544			502			42			8	%	1,048			1,109			(61)			(6)	%
Average selling price per product ton	$	705		$	397		$	308		78	%	$	702		$	345		$	357		103	%
Average selling price per nutrient ton(1)	$	1,531		$	863		$	668		77	%	$	1,525		$	750		$	775		103	%
Gross margin per product ton	$	401		$	176		$	225		128	%	$	425		$	136		$	289		213	%
Gross margin per nutrient ton(1)	$	869		$	382		$	487		127	%	$	924		$	295		$	629		213	%
Depreciation and amortization	$	70		$	55		$	15		27	%	$	134		$	121		$	13		11	%
Unrealized net mark-to-market gain on natural gas derivatives	$	(1)		$	—		$	(1)		N/M		$	(8)		$	(2)		$	(6)		(300)	%

N/M—Not Meaningful

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

Second Quarter of 2022 Compared to Second Quarter of 2021

Net Sales. Net sales in our Granular Urea segment increased $400 million, or 92%, to $833 million in the second quarter of 2022 from $433 million in the second quarter of 2021 due primarily to a 78% increase in average selling prices and an 8% increase in sales volume. Average selling prices increased to $705 per ton in the second quarter of 2022 compared to $397 per ton in the second quarter of 2021 due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.” Sales volume was higher due primarily to higher supply availability resulting from higher production.

CF INDUSTRIES HOLDINGS, INC.

Cost of Sales. Cost of sales in our Granular Urea segment averaged $304 per ton in the second quarter of 2022, a 38% increase from $221 per ton in the second quarter of 2021, due primarily to higher realized natural gas costs.

Gross Margin. Gross margin in our Granular Urea segment increased by $281 million to $473 million in the second quarter of 2022 from $192 million in the second quarter of 2021, and our gross margin percentage was 56.8% in the second quarter of 2022 compared to 44.3% in the second quarter of 2021. The increase in gross margin was due primarily to a 78% increase in average selling prices, which increased gross margin by $363 million, and an 8% increase in sales volume, which increased gross margin by $31 million. These factors were partially offset by an increase in realized natural gas costs, which reduced gross margin by $92 million, and a $22 million net increase in manufacturing, maintenance and other costs. Gross margin also includes the impact of a $1 million unrealized net mark-to-market gain on natural gas derivatives in the second quarter of 2022.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Net Sales. Net sales in our Granular Urea segment increased $766 million, or 92%, to $1.60 billion in the six months ended June 30, 2022 from $832 million in the six months ended June 30, 2021 due primarily to a 103% increase in average selling prices, partially offset by a 6% decrease in sales volume. Average selling prices increased to $702 per ton in the six months ended June 30, 2022 compared to $345 per ton in the six months ended June 30, 2021 due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.” Sales volume was lower due primarily to lower purchases of granular urea partially offset by higher production in the first half of 2022 compared to the first half of 2021.

Cost of Sales. Cost of sales in our Granular Urea segment averaged $277 per ton in the six months ended June 30, 2022, a 33% increase from $209 per ton in the six months ended June 30, 2021, due primarily to higher realized natural gas costs.

Gross Margin. Gross margin in our Granular Urea segment increased by $641 million to $968 million in the six months ended June 30, 2022 from $327 million in the six months ended June 30, 2021, and our gross margin percentage was 60.6% in the six months ended June 30, 2022 compared to 39.3% in the six months ended June 30, 2021. The increase in gross margin was due to a 103% increase in average selling prices, which increased gross margin by $797 million. Gross margin was also impacted by higher realized natural gas costs, which decreased gross margin by $140 million, a $39 million net increase in manufacturing, maintenance and other costs, and an increase in urea production as compared to urea purchased for resale in 2021 from winter storm outages, which increased gross margin by $17 million. Gross margin also includes the impact of an $8 million unrealized net mark-to-market gain on natural gas derivatives in the six months ended June 30, 2022 compared to a $2 million gain in the six months ended June 30, 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 June 30,											Six Months Ended June 30,
	2022			2021			2022 v. 2021					2022			2021			2022 v. 2021
	(dollars in millions, except per ton amounts)
Net sales	$	976		$	434		$	542		125	%	$	1,991		$	666		$	1,325		199	%
Cost of sales	343			296			47			16	%	688			526			162			31	%
Gross margin	$	633		$	138		$	495		359	%	$	1,303		$	140		$	1,163		N/M
Gross margin percentage	64.9		%	31.8		%	33.1		%			65.4		%	21.0		%	44.4		%
Sales volume by product tons (000s)	1,626			1,949			(323)			(17)	%	3,454			3,463			(9)			—	%
Sales volume by nutrient tons (000s)(1)	515			612			(97)			(16)	%	1,091			1,088			3			—	%
Average selling price per product ton	$	600		$	223		$	377		169	%	$	576		$	192		$	384		200	%
Average selling price per nutrient ton(1)	$	1,895		$	709		$	1,186		167	%	$	1,825		$	612		$	1,213		198	%
Gross margin per product ton	$	389		$	71		$	318		448	%	$	377		$	40		$	337		N/M
Gross margin per nutrient ton(1)	$	1,229		$	225		$	1,004		446	%	$	1,194		$	129		$	1,065		N/M
Depreciation and amortization	$	65		$	76		$	(11)		(14)	%	$	135		$	132		$	3		2	%
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.

Second Quarter of 2022 Compared to Second Quarter of 2021

Net Sales. Net sales in our UAN segment increased $542 million, or 125%, to $976 million in the second quarter of 2022 from $434 million in the second quarter of 2021 due to a 169% increase in average selling prices partially offset by a 17% decrease in sales volume. Average selling prices increased to $600 per ton in the second quarter of 2022 compared to $223 per ton in the second quarter of 2021 due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.” Sales volume was lower due primarily to delayed crop planting and fertilizer application driven by unfavorable weather conditions.

Cost of Sales. Cost of sales in our UAN segment averaged $211 per ton in the second quarter of 2022, a 39% increase from $152 per ton in the second quarter of 2021, due primarily to the impact of higher realized natural gas costs and higher freight 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 $495 million to $633 million in the second quarter of 2022 from $138 million in the second quarter of 2021, and our gross margin percentage was 64.9% in the second quarter of 2022 compared to 31.8% in the second quarter of 2021. The increase in gross margin was due primarily to a 169% increase in average selling prices, which increased gross margin by $616 million. The impact of higher average selling prices was partially offset by an increase in realized natural gas costs, which reduced gross margin by $65 million, a 17% decrease in sales volume, which decreased gross margin by $34 million, and a $22 million net increase in manufacturing, maintenance and other costs.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Net Sales. Net sales in our UAN segment increased $1.33 billion, or 199%, to $1.99 billion in the six months ended June 30, 2022 from $666 million in the six months ended June 30, 2021 due primarily to a 200% increase in average selling prices. Average selling prices increased to $576 per ton in the six months ended June 30, 2022 compared to $192 per ton in the six months ended June 30, 2021, due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.”

CF INDUSTRIES HOLDINGS, INC.

Cost of Sales. Cost of sales in our UAN segment averaged $199 per ton in the six months ended June 30, 2022, a 31% increase from $152 per ton in the six months ended June 30, 2021. The increase was due primarily to the impact of higher realized natural gas costs and higher freight 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 $1.16 billion to $1.30 billion in the six months ended June 30, 2022 from $140 million in the six months ended June 30, 2021, and our gross margin percentage was 65.4% in the six months ended June 30, 2022 compared to 21.0% in the six months ended June 30, 2021. The increase in gross margin was due to a 200% increase in average selling prices, which increased gross margin by $1.35 billion. The impact of higher average selling prices was partially offset by higher realized natural gas costs, which decreased gross margin by $130 million, a $43 million net increase in manufacturing, maintenance and other costs, and a nominal decrease in sales volume, which decreased gross margin by $22 million. Gross margin also includes the impact of an $8 million unrealized net mark-to-market gain on natural gas derivatives in the six months ended June 30, 2022 compared to a $2 million gain in the six months ended June 30, 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. Preliminary affirmative determinations were announced by the ITC on August 13, 2021 and by Commerce on November 30, 2021 and January 27, 2022.

On June 21, 2022, Commerce announced final affirmative determinations finding that imports from Russia are dumped (i.e., sold at less than fair value) at rates ranging from 8.16% to 122.93% and unfairly subsidized at rates ranging from 6.27% to 9.66%. In addition, Commerce found that imports from Trinidad are dumped at a rate of 111.71% and unfairly subsidized at a rate of 1.83%.

On July 18, 2022, the ITC announced that it had determined that such unfairly traded imports from Russia and Trinidad did not materially injure or threaten material injury to the domestic UAN industry. Typically, as a result of such determinations, cash deposits collected on such imports would be refunded and no duties would be imposed.

On July 19, 2022, we requested that Commerce proceed to issue a countervailing duty order on UAN imports from Russia, notwithstanding the negative injury determination. CF has not made a similar request with respect to an antidumping duty order on UAN from Russia, or any duty order on UAN from Trinidad. At this time, we cannot predict the outcome of the proceeding, including whether final countervailing duties will be imposed on UAN imports from Russia. In addition, the deadlines for appealing the agencies’ final determinations have not yet elapsed.

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 June 30,											Six Months Ended June 30,
	2022			2021			2022 v. 2021					2022			2021			2022 v. 2021
	(dollars in millions, except per ton amounts)
Net sales	$	253		$	136		$	117		86	%	$	476		$	241		$	235		98	%
Cost of sales	151			120			31			26	%	322			215			107			50	%
Gross margin	$	102		$	16		$	86		N/M		$	154		$	26		$	128		492	%
Gross margin percentage	40.3		%	11.8		%	28.5		%			32.4		%	10.8		%	21.6		%
Sales volume by product tons (000s)	436			501			(65)			(13)	%	864			939			(75)			(8)	%
Sales volume by nutrient tons (000s)(1)	149			171			(22)			(13)	%	295			318			(23)			(7)	%
Average selling price per product ton	$	580		$	271		$	309		114	%	$	551		$	257		$	294		114	%
Average selling price per nutrient ton(1)	$	1,698		$	795		$	903		114	%	$	1,614		$	758		$	856		113	%
Gross margin per product ton	$	234		$	32		$	202		N/M		$	178		$	28		$	150		N/M
Gross margin per nutrient ton(1)	$	685		$	94		$	591		N/M		$	522		$	82		$	440		N/M
Depreciation and amortization	$	17		$	22		$	(5)		(23)	%	$	34		$	41		$	(7)		(17)	%
Unrealized net mark-to-market gain on natural gas derivatives	$	(11)		$	—		$	(11)		N/M		$	(17)		$	—		$	(17)		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.

Second Quarter of 2022 Compared to Second 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. In June 2022, we approved and announced our proposed plan to restructure our U.K. operations, which includes the permanent closure of our Ince facility. See the discussion under “Market Conditions and Current Developments—United Kingdom Operations, Proposed Restructuring and Impairment Charges,” above, for further information.

Net Sales. Net sales in our AN segment increased $117 million, or 86%, to $253 million in the second quarter of 2022 from $136 million in the second quarter of 2021 due to a 114% increase in average selling prices, partially offset by a 13% decrease in sales volume. Average selling prices increased to $580 per ton in the second quarter of 2022 compared to $271 per ton in the second quarter of 2021 due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.” Sales volume declined due primarily to lower supply availability as a result of idled operations at our Ince facility.

Cost of Sales. Cost of sales in our AN segment averaged $346 per ton in the second quarter of 2022, a 45% increase from $239 per ton in the second 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 second quarter of 2022. As measured by the average daily market price at the Henry Hub, natural gas prices in the United States increased to $7.40 per MMBtu in the second quarter of 2022 from $2.88 per MMBtu in the second quarter of 2021. In the United Kingdom, the average daily market price of natural gas at the NBP increased to $16.00 per MMBtu in the second quarter of 2022 from $8.90 per MMBtu in the second 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 $86 million to $102 million in the second quarter of 2022 from $16 million in the second quarter of 2021, and our gross margin percentage was 40.3% in the second quarter of 2022

CF INDUSTRIES HOLDINGS, INC.

compared to 11.8% in the second quarter of 2021. The increase in gross margin was due primarily to a 114% increase in average selling prices, which increased gross margin by $137 million, a net decrease of $5 million in manufacturing, maintenance and other costs, and an increase in gross margin of $2 million due primarily to favorable location product mix. These increases were partially offset by an increase in realized natural gas costs, which reduced gross margin by $69 million. Gross margin also includes the impact of an $11 million unrealized net mark-to-market gain on natural gas derivatives in the second quarter of 2022.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Net Sales. Net sales in our AN segment increased $235 million, or 98%, to $476 million in the six months ended June 30, 2022 from $241 million in the six months ended June 30, 2021 due primarily to a 114% increase in average selling prices, partially offset by a 8% decrease in sales volume. Average selling prices increased to $551 per ton in the six months ended June 30, 2022 compared to $257 per ton in the six months ended June 30, 2021 due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.” The decrease in sales volume was due primarily to lower supply availability as a result of idled operations at our Ince facility.

Cost of Sales. Cost of sales in our AN segment averaged $373 per ton in the six months ended June 30, 2022, a 63% increase from $229 per ton in the six months ended June 30, 2021. The increase was due primarily to higher realized natural gas costs.

Gross Margin. Gross margin in our AN segment increased by $128 million, or 492%, to $154 million in the six months ended June 30, 2022 from $26 million in the six months ended June 30, 2021, and our gross margin percentage was 32.4% in the six months ended June 30, 2022 compared to 10.8% in the six months ended June 30, 2021. The increase in gross margin was primarily due to a 114% increase in average selling prices, which increased gross margin by $259 million, and an increase in gross margin of $5 million due primarily to favorable location product mix. The impact of these increases was partially offset by an increase in realized natural gas costs, which decreased gross margin by $146 million, and a net increase of $7 million in manufacturing, maintenance and other costs. Gross margin also includes the impact of a $17 million unrealized net mark-to-market gain on natural gas derivatives in the six months ended June 30, 2022.

CF INDUSTRIES HOLDINGS, INC.

Other Segment

Our Other segment primarily includes the following products:

Diesel exhaust fluid (DEF) is an aqueous urea solution typically made with 32.5% or 50% high-purity urea and the remainder deionized water.
Urea liquor is a liquid product that we sell in concentrations of 40%, 50% and 70% urea as a chemical intermediate.
Nitric acid is a nitrogen-based mineral acid that is used in the production of nitrate-based fertilizers, nylon precursors and other specialty chemicals.
Compound fertilizer products (NPKs) are granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium.

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


	Three Months Ended June 30,											Six Months Ended June 30,
	2022			2021			2022 v. 2021					2022			2021			2022 v. 2021
	(dollars in millions, except per ton amounts)
Net sales	$	212		$	126		$	86		68	%	$	437		$	232		$	205		88	%
Cost of sales	102			95			7			7	%	206			185			21			11	%
Gross margin	$	110		$	31		$	79		255	%	$	231		$	47		$	184		391	%
Gross margin percentage	51.9		%	24.6		%	27.3		%			52.9		%	20.3		%	32.6		%
Sales volume by product tons (000s)	557			596			(39)			(7)	%	1,102			1,205			(103)			(9)	%
Sales volume by nutrient tons (000s)(1)	110			119			(9)			(8)	%	214			241			(27)			(11)	%
Average selling price per product ton	$	381		$	211		$	170		81	%	$	397		$	193		$	204		106	%
Average selling price per nutrient ton(1)	$	1,927		$	1,059		$	868		82	%	$	2,042		$	963		$	1,079		112	%
Gross margin per product ton	$	197		$	52		$	145		279	%	$	210		$	39		$	171		438	%
Gross margin per nutrient ton(1)	$	1,000		$	261		$	739		283	%	$	1,079		$	195		$	884		453	%
Depreciation and amortization	$	17		$	23		$	(6)		(26)	%	$	36		$	45		$	(9)		(20)	%
Unrealized net mark-to-market gain on natural gas derivatives	$	(3)		$	—		$	(3)		N/M		$	(7)		$	—		$	(7)		N/M

N/M—Not Meaningful

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

Second Quarter of 2022 Compared to Second Quarter of 2021

In June 2022, we approved and announced our proposed plan to restructure our U.K. operations, which includes the permanent closure of our Ince facility. We produce NPKs only at our Ince facility, and closure of this facility would result in our discontinuation of this product. Total sales of NPK products were $15 million in the first six months of 2022 and $47 million in the year ended December 31, 2021. See the discussion under “Market Conditions and Current Developments—United Kingdom Operations, Proposed Restructuring and Impairment Charges,” above, for further information.

Net Sales. Net sales in our Other segment increased by $86 million, or 68%, to $212 million in the second quarter of 2022 from $126 million in the second quarter of 2021 due to an 81% increase in average selling prices, partially offset by a 7% 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, reflecting in part the geopolitical factors 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 second quarter of 2022, as operations at our Ince manufacturing plant have been idled, and lower urea liquor sales volumes, partially offset by higher DEF sales volumes.

Cost of Sales. Cost of sales in our Other segment averaged $184 per ton in the second quarter of 2022, a 16% increase from $159 per ton in the second quarter of 2021, due primarily to higher realized natural gas costs.

Gross Margin. Gross margin in our Other segment increased by $79 million to $110 million in the second quarter of 2022 from $31 million in the second quarter of 2021, and our gross margin percentage was 51.9% in the second quarter of 2022 compared to 24.6% in the second quarter of 2021. The increase in gross margin was due to an 81% increase in average selling prices, which increased gross margin by $101 million, an increase of $2 million due to favorable product mix and a net decrease of $1 million in manufacturing, maintenance and other costs. These increases were partially offset by an increase in realized

CF INDUSTRIES HOLDINGS, INC.

natural gas costs, which reduced gross margin by $28 million. Gross margin also includes the impact of a $3 million unrealized net mark-to-market gain on natural gas derivatives in the second quarter of 2022.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Net Sales. Net sales in our Other segment increased by $205 million, or 88%, to $437 million in the six months ended June 30, 2022 from $232 million in the six months ended June 30, 2021 due primarily to a 106% increase in average selling prices partially offset by a 9% decrease in sales volume. The increase in average selling prices was due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.” The decrease in sales volume was due primarily to lower NPK sales volumes, as operations at our Ince manufacturing plant have been idled, and lower urea liquor sales volumes, partially offset by higher DEF sales volumes.

Cost of Sales. Cost of sales in our Other segment averaged $187 per ton in the six months ended June 30, 2022, a 21% increase from $154 per ton in the six months ended June 30, 2021, due primarily to higher realized natural gas costs.

Gross Margin. Gross margin in our Other segment increased by $184 million, or 391%, to $231 million in the six months ended June 30, 2022 from $47 million in the six months ended June 30, 2021, and our gross margin percentage was 52.9% in the six months ended June 30, 2022 compared to 20.3% in the six months ended June 30, 2021. The increase in gross margin was due to a 106% increase in average selling prices, which increased gross margin by $233 million, and a net decrease of $1 million in manufacturing, maintenance and other costs. These increases were partially offset by an increase in realized natural gas costs, which decreased gross margin by $57 million. Gross margin also includes the impact of a $7 million unrealized net mark-to-market gain on natural gas derivatives in the six months ended June 30, 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 June 30, 2022, our cash and cash equivalents balance was $2.37 billion, an increase of $742 million from $1.63 billion at December 31, 2021. At June 30, 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 April 27, 2022, the Board declared a quarterly dividend of $0.40 per common share, representing a 33% increase from the quarterly dividend of $0.30 per common share that was declared and paid in the first quarter of 2022. The dividend was 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 six months ended June 30, 2022, we repurchased approximately 6.6 million shares under the 2021 Share Repurchase Program for $590 million, of which $14 million was accrued and unpaid as of June 30, 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 $129 million in the first six months of 2022 compared to $181 million in the first six 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 $232 million, based on current estimates, which we expect will be due in the second half 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. All such amounts have been reflected in our consolidated financial statements.

United Kingdom Operations, Proposed Restructuring and Impairment Charges

As discussed under “Market Conditions and Current Developments—United Kingdom Operations, Proposed Restructuring and Impairment Charges,” 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. 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.

In June 2022, we approved and announced our proposed plan to restructure our U.K. operations. This plan includes permanently closing the Ince facility and optimizing the remaining manufacturing operations at the Billingham facility. As a result, we recognized total charges of $162 million, consisting of asset impairment charges of $152 million primarily related to property, plant and equipment at the Ince facility and post-employment benefits of $10 million related to contractual and statutory obligations, which are included in the U.K operations restructuring line item in our consolidated statements of operations for the three and six months ended June 30, 2022.

There remains uncertainty regarding future closure activities and obligations for the Ince facility. This could result in, among other things, additional funding to support the cash needs of our continuing U.K. operations and recognition of further losses, or additional exit or closure costs related to our U.K. operations. Any of these future events 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 June 30, 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 June 30, 2022 or December 31, 2021, or during the six months ended June 30, 2022.

The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants, including financial covenants. As of June 30, 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 $350 million of letters of credit, reflecting an increase of $100 million in May 2022. As of June 30, 2022, approximately $275 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 June 30, 2022 and December 31, 2021 consisted of the following debt securities issued by CF Industries:


	Effective Interest Rate		June 30, 2022						December 31, 2021
		Principal			Carrying Amount(1)			Principal			Carrying Amount(1)
			(in millions)
Public Senior Notes:


3.450% due June 2023	3.665%		$	—		$	—		$	500		$	499
5.150% due March 2034	5.293%		750			741			750			741
4.950% due June 2043	5.040%		750			741			750			742
5.375% due March 2044	5.478%		750			740			750			741
Senior Secured Notes:

4.500% due December 2026(2)	4.783%		750			742			750			742
Total long-term debt			$	3,000		$	2,964		$	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 June 30, 2022 and December 31, 2021, and total deferred debt issuance costs were $28 million and $27 million as of June 30, 2022 and December 31, 2021, 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 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.

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.

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

CF INDUSTRIES HOLDINGS, INC.

connection with forward sales contracts are reflected on our consolidated balance sheets as a current liability until control transfers and revenue is recognized. As of June 30, 2022 and December 31, 2021, we had $72 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 June 30, 2022, our open natural gas derivative contracts consisted of natural gas fixed price swaps and basis swaps for 11.2 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 $14 million to our pension plans in the six months ended June 30, 2022. Over the remainder of 2022, we expect to contribute approximately $13 million to our pension plans, which would result in our making a total of approximately $27 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 $61 million) to our U.K. plans in the three-year period from 2023 to 2025, as agreed with the plans’ trustees.

On July 15, 2022, we entered into an agreement with an insurance company to purchase a non-participating group annuity contract and transfer approximately $375 million of our primary U.S. defined benefit pension plan’s projected benefit obligation, subject to customary closing conditions. The transaction closed on July 22, 2022 and was funded with plan assets. Under the transaction, the insurance company will assume responsibility for pension benefits and annuity administration for approximately 4,000 retirees or their beneficiaries. As a result of this transaction, in the third quarter of 2022, we will remeasure the plan's projected benefit obligation and plan assets and we expect to recognize a non-cash pre-tax pension settlement loss of approximately $25 million, based on current interest rates, reflecting the unamortized net unrecognized postretirement benefit costs related to the settled obligations, with a corresponding offset to accumulated other comprehensive loss.

Distribution to Noncontrolling Interest in CFN

On January 31, 2022, CFN distributed $247 million to CHS for the distribution period ended December 31, 2021. On July 31, 2022, the CFN Board of Managers approved semi-annual distribution payments for the distribution period ended June 30, 2022 in accordance with CFN’s limited liability company agreement. On August 1, 2022, CFN distributed $371 million to CHS for the distribution period ended June 30, 2022.

CF INDUSTRIES HOLDINGS, INC.

Cash Flows

Net cash provided by operating activities during the first six months of 2022 was $2.28 billion, an increase of $1.57 billion compared to $706 million in the first six 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 six months of 2022 was $2.39 billion as compared to $492 million for the first six months of 2021, an increase of $1.90 billion. 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 U.K. operations restructuring charge, an increase in the income tax provision, and an increase in net earnings attributable to noncontrolling interest. During the first six months of 2022, net changes in working capital reduced cash flow from operations by $731 million, while in the first six months of 2021 net changes in working capital reduced cash flow from operations by $182 million. 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 $121 million in the first six months of 2022 as compared to $182 million in the first six months of 2021. Capital expenditures totaled $129 million during the first six months of 2022 compared to $181 million in the first six months of 2021.

Net cash used in financing activities was $1.40 billion in the first six months of 2022 compared to $433 million in the first six months of 2021. The increase was due primarily to share repurchases in the first six months of 2022, an increase in payments for long-term borrowings, and higher distributions to noncontrolling interest. In the first six months of 2022, we paid $577 million for share repurchases including $1 million related to shares repurchased in late 2021 that were paid for in 2022. In addition, we paid $507 million in connection with the redemption of the 2023 Notes in the first six months of 2022 compared to $255 million for the redemption of the 2021 Notes in the first six months of 2021. In the first six months of 2022, distributions to noncontrolling interest were $247 million compared to $64 million in the first six months of 2021. These increases in financing cash outflows were partially offset by higher proceeds from issuances of common stock under employee stock plans of $101 million in the first six months of 2022 compared to $26 million in the first six months of 2021.

Critical Accounting Estimates

During the first six 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. You should not 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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