filings.toolsItem 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
*◦*Third Quarter of 2022 Compared to Third Quarter of 2021
*◦*Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
*•*Operating Results by Business Segment
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Liquidity and Capital Resources
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Critical Accounting Estimates
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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 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.
Our principal assets as of September 30, 2022 include:
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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 15—Noncontrolling Interest for additional information on our strategic venture with CHS);
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two Canadian nitrogen manufacturing facilities located in Medicine Hat, Alberta (the largest nitrogen complex in Canada) and Courtright, Ontario;
*•*a United Kingdom nitrogen manufacturing facility located in Billingham;
CF INDUSTRIES HOLDINGS, INC.
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an extensive system of terminals and associated transportation equipment located primarily in the Midwestern United States; and
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a 50% interest in Point Lisas Nitrogen Limited (PLNL), an ammonia production joint venture located in the Republic of Trinidad and Tobago (Trinidad) that we account for under the equity method.
We previously operated a United Kingdom nitrogen manufacturing facility located in Ince. In June 2022, we approved and announced our proposed plan to restructure our U.K. operations, including the permanent closure of our Ince facility. In August 2022, the final restructuring plan was approved, and decommissioning activities were initiated. See “Market Conditions and Current Developments—United Kingdom Operations,” below for more information.
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 southeastern United States to produce blue ammonia. In September 2022, we acquired the land for the project. We expect to commence during the fourth quarter of 2022 a front-end engineering design (FEED) study, which typically takes nine to twelve months to complete. A final investment decision as to whether to move forward with construction of the facility is expected to occur in the second half of 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. Construction of the dehydration and compression units at the Donaldsonville complex is expected to begin in 2023, with an estimated total cost of $200 million. 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 enabling the production of blue ammonia. In October 2022, we announced that we had entered into a definitive CO2 offtake agreement with ExxonMobil to transport and permanently sequester CO2 from Donaldsonville. Start-up for the project is scheduled for early 2025. 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.
CF INDUSTRIES HOLDINGS, INC.
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. European energy markets, which have historically sourced a substantial portion of their natural gas supply from Russia, have been disrupted by Russia’s invasion of Ukraine and the subsequent reduction of Russian natural gas supply to Europe. 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. In addition, as discussed under “Market Conditions and Current Developments—United Kingdom Operations,” below, in September 2022, we temporarily idled ammonia production at our Billingham complex due to the high price of natural gas. Several European governments, including the United Kingdom, and the European Union (EU) are seeking to address energy market supply and volatility with certain proposed government programs and policy changes. The scope of these proposed programs and policy changes, and their impact on us, are unknown at the present time.
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. In addition, 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 has supported strong demand for nitrogen fertilizer in the first nine months 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 high and have also experienced significant volatility in 2022.
We expect that the recent geopolitical events, and any further government-imposed sanctions or other government actions affecting food or energy security, will continue to have an impact on the supply demand balance of nitrogen fertilizer products globally and 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 third quarter of 2022, the average selling price for our products was $527 per ton, an increase of 46%, compared to $360 per ton in the third quarter of 2021, reflecting higher average selling prices across all our segments, which drove an increase in net sales of approximately $717 million for the third quarter of 2022 compared to the third 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 nine months ended September 30, 2022, the average selling price for our products was $619 per ton, or 109% higher compared to $296 per ton in the nine months ended September 30, 2021. This resulted in an increase in net sales of approximately $4.43 billion for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.
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 our manufactured nitrogen products, representing approximately 50% of our production costs in the first nine 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 September 30, | Nine Months Ended September 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) | $ | 7.96 | $ | 4.27 | $ | 3.69 | 86 | % | $ | 6.66 | $ | 3.52 | $ | 3.14 | 89 | % | |||||||||||||||||||||||||||||||
| Average daily market price of natural gas National Balancing Point (United Kingdom) | $ | 32.54 | $ | 15.98 | $ | 16.56 | 104 | % | $ | 26.26 | $ | 10.63 | $ | 15.63 | 147 | % |
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 nine months of 2022 were higher on average than the first nine months of 2021 due to tighter supply and demand conditions within the market. Natural gas prices increased steadily through the first half of 2022 as demand growth from both power generation and liquefied natural gas (LNG) exports exceeded production increases. Late in the second quarter of 2022, prices declined as the Freeport LNG facility outage reduced natural gas demand and allowed natural gas injections to refill storage at an accelerated pace. Record high temperatures in the United States in the third quarter of 2022 and the limited substitution to coal generation due to high coal prices and available coal supply increased demand for natural gas in the electricity sector, raising natural gas prices to over $9.00 per MMBtu. Natural gas prices decreased late in the third quarter of 2022 due to increasing production, cooler temperatures and above average storage injections. For October 2022, the average daily market price of natural gas at the Henry Hub was $5.69 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 nine months ended September 30, 2021.
Our Billingham U.K. nitrogen manufacturing facility is subject to fluctuations associated with the price of natural gas in Europe. Russia’s invasion of Ukraine on February 24, 2022 disrupted European energy markets and threatened security of supply, driving natural gas prices in Europe upward to unprecedented levels. During the second quarter of 2022, the price of natural gas in the United Kingdom declined as Russian natural gas flows via pipeline to Europe generally remained steady despite the ongoing war in Ukraine. European natural gas prices began to increase late in the second quarter of 2022 after the unplanned outage of the Freeport LNG liquefaction terminal impacted global LNG supply. In the third quarter of 2022, prices continued to increase when Russian natural gas pipeline flows to Europe via the Nord Stream 1 pipeline ceased. Natural gas prices began to decrease late in the third quarter of 2022 as natural gas storage levels in continental Europe built to robust levels, although prices remained elevated compared to historical price levels. For the nine months ended September 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. For October 2022, the average daily market price of natural gas at the NBP was $11.68 per MMBtu.
In the third quarter of 2022, the cost of natural gas used for production, which includes the impact of realized natural gas derivatives, increased 98% to $8.35 per MMBtu from $4.21 per MMBtu in the third quarter of 2021. This increase in natural gas costs resulted in a decrease in gross margin of approximately $358 million. In the first nine months of 2022, the cost of natural gas used for production, which includes the impact of realized natural gas derivatives, increased 107% to $7.28 per MMBtu from $3.51 per MMBtu in the first nine months of 2021. The cost of natural gas used for production of $3.51 per MMBtu in the first nine months of 2021 does not include the $112 million gain from the net settlement of certain natural gas contracts in February 2021. This increase in natural gas costs for the first nine months of 2022 compared to the first nine months of 2021 resulted in a decrease in gross margin of approximately $981 million.
CF INDUSTRIES HOLDINGS, INC.
United Kingdom Operations
Starting in 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. The energy crisis and the geopolitical environment, as discussed above, have continued to evolve since the third quarter of 2021. As a result of these factors, management has taken certain actions relating to our U.K. operations. The table below summarizes the charges that have been recognized pertaining to our U.K. operations since the third quarter of 2021, which are further described following the table.
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2021 | December 31, 2021 | March 31, 2022 | June 30, 2022 | September 30, 2022 | Total | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| U.K. goodwill impairment | $ | 259 | $ | 26 | $ | — | $ | — | $ | — | $ | 285 | |||||||||||||||||||||||
| U.K. long-lived and intangible asset impairment | 236 | — | — | 152 | 87 | $ | 475 | ||||||||||||||||||||||||||||
| U.K. operations restructuring | — | — | — | 10 | 8 | $ | 18 | ||||||||||||||||||||||||||||
| Total | $ | 495 | $ | 26 | $ | — | $ | 162 | $ | 95 | $ | 778 |
2021 Impairment
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.
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. These evaluations in 2021 resulted in total goodwill impairment charges of $285 million, of which $259 million was recorded in the third quarter of 2021, and total long-lived and intangible asset impairment charges of $236 million, which were recorded in the third quarter of 2021. As of December 31, 2021, after the recognition of the goodwill impairment charges, no goodwill related to our U.K. operations remained.
2022 Impairment and Restructuring
First quarter 2022 — 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 long-lived asset impairment test. The results of this test indicated that no additional long-lived asset impairment existed as the undiscounted estimated future cash flows were in excess of the carrying values for each of the U.K. asset groups.
Second quarter 2022 — In 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, including the permanent closure of our Ince facility and optimization of the remaining manufacturing operations at the Billingham facility. As a result, in the second quarter of 2022, we recorded total charges of $162 million as follows:
- asset impairment charges of $152 million, which are included in the U.K. long-lived and intangible asset impairment line item in our consolidated statement of operations, 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
CF INDUSTRIES HOLDINGS, INC.
- a charge for post-employment benefits of $10 million, which is included in the U.K. operations restructuring line item in our consolidated statements of operations, related to contractual and statutory obligations due to employees whose employment would be terminated in the proposed plan.
As a result of the proposed restructuring of our U.K. operations, we concluded that an additional impairment test was triggered in the second quarter of 2022 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.
Third quarter 2022 — In the third quarter of 2022, the United Kingdom continued to experience extremely high and volatile natural gas prices. Russian natural gas pipeline flows to Europe via the Nord Stream 1 pipeline ceased, causing the United Kingdom to experience unprecedented natural gas prices. In addition, the European Union announced a desire to cap the price that Europe would pay Russia for natural gas deliveries, further contributing to the uncertainty in European energy markets. Given these factors and the lack of a corresponding increase in global nitrogen product market prices, in September 2022, we temporarily idled ammonia production at our Billingham complex. As a result, we concluded that an additional impairment test was triggered for the asset groups that comprise the continuing U.K. operations, which resulted in asset impairment charges of $87 million, primarily related to property, plant and equipment and definite-lived intangible assets, which are included in the U.K. long-lived and intangible asset impairment line item in our consolidated statement of operations.
In August 2022, the final restructuring plan for our U.K. operations was approved, and decommissioning activities were initiated. As a result, in the third quarter of 2022, we incurred additional charges related to our U.K. restructuring of $8 million, primarily related to one-time termination benefits, which are included in the U.K. operations restructuring line item in our consolidated statement of operations.
The following table summarizes the total impact of these factors for the three and nine months ending September 30, 2022 and 2021.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 v. 2021 | 2022 | 2021 | 2022 v. 2021 | ||||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| U.K. goodwill impairment | $ | — | $ | 259 | $ | (259) | (100) | % | $ | — | $ | 259 | $ | (259) | (100) | % | |||||||||||||||||||||||||||||||
| U.K. long-lived and intangible asset impairment | 87 | 236 | (149) | (63) | % | 239 | 236 | 3 | 1 | % | |||||||||||||||||||||||||||||||||||||
| U.K. operations restructuring | 8 | — | 8 | N/M | 18 | — | 18 | N/M | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 95 | $ | 495 | $ | (400) | (81) | % | $ | 257 | $ | 495 | $ | (238) | (48) | % |
N/M—Not Meaningful
We are working with customers, vendors, regulators and others to finalize closure plans of our Ince complex, and we expect substantially all of these restructuring activities will be completed within the next twelve months.
The results of our U.K. operations are included in our Ammonia, AN and Other segments, and account for a small portion of our consolidated gross margin. For the nine months ended September 30, 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 $438 million for the three months ended September 30, 2022 compared to a net loss attributable to common stockholders of $185 million for the three months ended September 30, 2021, an increase in net earnings of $623 million. The loss of $185 million in the three months ended September 30, 2021, was due primarily to impairment charges related to our U.K. operations of $495 million that are more fully described above under “Market Conditions and Current Developments—United Kingdom Operations.” The three months ended September 30, 2022 also includes impairment and restructuring charges of $95 million pertaining to our U.K. operations. The increase in net earnings for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 reflects an increase of $476 million in gross margin to $916 million for the three months ended September 30, 2022. The increase in gross margin was due primarily to higher average selling prices and higher sales volumes, partially offset by higher natural gas prices. Diluted net earnings per share attributable to common stockholders increased $3.04 per share, to $2.18 per share, in the third quarter of 2022 compared to a loss of $0.86 per share in the third quarter of 2021.
CF INDUSTRIES HOLDINGS, INC.
Average selling prices increased 46% to $527 per ton in the third quarter of 2022 from $360 per ton in the third quarter of 2021, which increased gross margin by $717 million. Our total sales volume of 4.4 million product tons in the third quarter of 2022 was 16% higher compared to 3.8 million product tons in the third quarter of 2021, which increased gross margin by $165 million. The impact of higher average selling prices and higher sales volume was partially offset by an increase in natural gas costs. The cost of natural gas used for production increased 98% to $8.35 per MMBtu in the third quarter of 2022 from $4.21 per MMBtu in the third quarter of 2021, which reduced gross margin by $358 million.
Partially offsetting the increase in gross margin was an increase in the income tax provision due primarily to increased profitability.
Items Affecting Comparability of Results
For the three months ended September 30, 2022, we reported net earnings attributable to common stockholders of $438 million compared to a net loss attributable to common stockholders of $185 million for the three months ended September 30, 2021. For the nine months ended September 30, 2022 and 2021, we reported net earnings attributable to common stockholders of $2.49 billion and $212 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 nine months ended September 30, 2022 and 2021. The following table and related discussion outline these items that impacted the comparability of our financial results for these periods. The descriptions of items below that refer to amounts in the table refer to the pre-tax amounts unless otherwise noted.
| Three Months Ended September 30, | Nine Months Ended September 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 loss (gain) on natural gas derivatives(1) | $ | 11 | $ | 7 | $ | (12) | $ | (9) | $ | (39) | $ | (31) | $ | (18) | $ | (14) | |||||||||||||||||||
| Loss on foreign currency transactions, including intercompany loans(2) | 27 | 21 | 2 | 1 | 38 | 29 | 5 | 4 | |||||||||||||||||||||||||||
| U.K. operations: | |||||||||||||||||||||||||||||||||||
| U.K. goodwill impairment(3) | — | — | 259 | 219 | — | — | 259 | 219 | |||||||||||||||||||||||||||
| U.K. long-lived and intangible asset impairment(3) | 87 | 66 | 236 | 184 | 239 | 181 | 236 | 184 | |||||||||||||||||||||||||||
| U.K. operations restructuring | 8 | 6 | — | — | 18 | 13 | — | — | |||||||||||||||||||||||||||
| Pension settlement loss(4) | 24 | 18 | — | — | 24 | 18 | — | — | |||||||||||||||||||||||||||
| Canada Revenue Agency Competent Authority Matter and Transfer pricing positions: | |||||||||||||||||||||||||||||||||||
| Interest expense | 6 | 6 | — | — | 234 | 232 | — | — | |||||||||||||||||||||||||||
| Interest income | (3) | (2) | — | — | (41) | (31) | — | — | |||||||||||||||||||||||||||
| Income tax provision(5) | — | 2 | — | — | — | 54 | — | — | |||||||||||||||||||||||||||
| Loss on debt extinguishment | — | — | 13 | 10 | 8 | 6 | 19 | 15 | |||||||||||||||||||||||||||
(1)Included in cost of sales in our consolidated statements of operations.
(2)Included in other operating—net in our consolidated statements of operations.
(3)The after-tax impact of goodwill impairment and long-lived and intangible asset impairment charges reflects the amount of income tax benefit recognized in accordance with guidance on accounting for income taxes in interim reporting periods.
(4)Included in other non-operating—net in our consolidated statements of operations.
(5)For the three months ended September 30, 2022, the after-tax income tax provision amount of $2 million reflects the $3 million of income tax provision referenced below under “Transfer pricing positions,” net of $1 million of income tax provision that is reflected in the after-tax interest income amount shown in this table. For the nine months ended September 30, 2022, the after-tax income tax provision amount of $54 million reflects an income tax provision of $62 million, consisting of the $78 million income tax provision referenced below under “Canada Revenue Agency Competent Authority Matter” and the $16 million of income tax benefit referenced below under “Transfer pricing positions,” net of $8 million of income tax provision that is reflected in the after-tax interest expense and interest income amounts shown in this table.
CF INDUSTRIES HOLDINGS, INC.
Unrealized net mark-to-market (loss) gain on natural gas derivatives
Natural gas is the largest and most volatile single component of the manufacturing cost for our nitrogen-based products. At certain times, we have managed the risk of changes in natural gas prices through the use of derivative financial instruments. The derivatives that we use for this purpose are primarily natural gas fixed price swaps, basis swaps and options. We use natural gas derivatives as an economic hedge of natural gas price risk, but without the application of hedge accounting. This can result in volatility in reported earnings due to the unrealized mark-to-market adjustments that occur from changes in the value of the derivatives, which are reflected in cost of sales in our consolidated statements of operations. In the three months ended September 30, 2022 and 2021, we recognized an unrealized net mark-to-market loss of $11 million and a gain of $12 million, respectively. In the nine months ended September 30, 2022 and 2021, we recognized unrealized net mark-to-market gains of $39 million and $18 million, respectively.
Loss on foreign currency transactions, including intercompany loans
In the three months ended September 30, 2022 and 2021, we recognized losses on foreign currency transactions of $27 million and $2 million, respectively. In the nine months ended September 30, 2022 and 2021, we recognized losses on foreign currency transactions of $38 million and $5 million, respectively. Loss on foreign currency transactions 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
In the three and nine months ended September 30, 2022, we recognized total charges related to our U.K. operations of $95 million and $257 million, respectively, consisting primarily of asset impairment charges related to property, plant and equipment at our Billingham and Ince facilities and definite-lived intangible assets. See “Market Conditions and Current Developments—United Kingdom Operations,” above, for further discussion.
In the third quarter of 2021, we recognized impairment charges of $495 million, including a goodwill impairment charge of $259 million and long-lived and intangible asset impairment charges of $236 million. See Note 5—United Kingdom Operations Restructuring and Impairment Charges, Note 6—Property, Plant and Equipment—Net and Note 7—Goodwill and Other Intangible Assets for further information.
Pension settlement loss
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 assumed 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 remeasured the plan's projected benefit obligation and plan assets, and we recognized a non-cash pre-tax pension settlement loss of $24 million, reflecting the unamortized net unrecognized postretirement benefit costs related to the settled obligations, with a corresponding offset to accumulated other comprehensive loss.
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 is 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. In the third quarter of 2022, $81 million of this tax liability and $66 million of related interest was assessed and paid. As a result, the letters
CF INDUSTRIES HOLDINGS, INC.
of credit we had posted in lieu of paying the additional tax liability assessed by the Notices of Reassessment were cancelled. We expect the remaining tax liability and related interest will be assessed and paid in the fourth quarter of 2022. Due primarily to the availability of additional foreign tax credits to offset in part the increased Canadian tax referenced above, the Company will then file amended tax returns in the United States to request a refund of tax overpaid.
In the nine months ended September 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 $103 million, primarily reflecting the impact of estimated interest payable to Canada.
Of the $78 million of income tax provision and $103 million of net interest expense recognized in the nine months ended September 30, 2022, a reduction of $1 million of net interest expense was recognized in the three months ended September 30, 2022.
Transfer pricing positions
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, we recorded the following in the nine months ended September 30, 2022:
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liabilities for unrecognized tax benefits of $314 million with a corresponding income tax provision, and accrued interest of $123 million related to the liabilities for unrecognized tax benefits, and
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noncurrent income tax receivables of $359 million with a corresponding income tax benefit, and accrued interest income of $33 million related to the noncurrent income tax receivables.
In the nine months ended September 30, 2022, the impact of these evaluations of transfer pricing positions on our consolidated statement of operations, including $29 million of net deferred income tax provision for other transfer pricing tax effects, was $16 million of income tax benefit and $90 million of net interest expense before tax ($98 million after tax).
Of the $16 million of income tax benefit and $90 million of net interest expense recognized in the nine months ended September 30, 2022, $3 million of income tax provision and $4 million of net interest expense ($5 million after tax) was recognized in the three months ended September 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 $500 million principal amount of the 2023 Notes prior to their scheduled maturity.
On September 10, 2021, we redeemed $250 million principal amount, representing one-third of the $750 million principal amount outstanding immediately prior to such redemption, of the 2023 Notes, in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid on the 2023 Notes was approximately $265 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $13 million in the third quarter of 2021, consisting primarily of a premium paid on the redemption of the $250 million principal amount 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 $250 million principal amount 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 v. 2021 | 2022 | 2021 | 2022 v. 2021 | ||||||||||||||||||||||||||||||||||||||||||
| (in millions, except per share and per MMBtu) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 2,321 | $ | 1,362 | $ | 959 | 70 | % | $ | 8,578 | $ | 3,998 | $ | 4,580 | 115 | % | |||||||||||||||||||||||||||||||
| Cost of sales | 1,405 | 922 | 483 | 52 | % | 3,973 | 2,766 | 1,207 | 44 | % | |||||||||||||||||||||||||||||||||||||
| Gross margin | 916 | 440 | 476 | 108 | % | 4,605 | 1,232 | 3,373 | 274 | % | |||||||||||||||||||||||||||||||||||||
| Gross margin percentage | 39.5 | % | 32.3 | % | 7.2 | % | 53.7 | % | 30.8 | % | 22.9 | % | |||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 66 | 52 | 14 | 27 | % | 203 | 167 | 36 | 22 | % | |||||||||||||||||||||||||||||||||||||
| U.K. goodwill impairment | — | 259 | (259) | (100) | % | — | 259 | (259) | (100) | % | |||||||||||||||||||||||||||||||||||||
| U.K. long-lived and intangible asset impairment | 87 | 236 | (149) | (63) | % | 239 | 236 | 3 | 1 | % | |||||||||||||||||||||||||||||||||||||
| U.K. operations restructuring | 8 | — | 8 | N/M | 18 | — | 18 | N/M | |||||||||||||||||||||||||||||||||||||||
| Other operating—net | 25 | 5 | 20 | 400 | % | 33 | 7 | 26 | 371 | % | |||||||||||||||||||||||||||||||||||||
| Total other operating costs and expenses | 186 | 552 | (366) | (66) | % | 493 | 669 | (176) | (26) | % | |||||||||||||||||||||||||||||||||||||
| Equity in earnings of operating affiliate | 20 | 15 | 5 | 33 | % | 74 | 37 | 37 | 100 | % | |||||||||||||||||||||||||||||||||||||
| Operating earnings (loss) | 750 | (97) | 847 | N/M | 4,186 | 600 | 3,586 | N/M | |||||||||||||||||||||||||||||||||||||||
| Interest expense—net | 34 | 46 | (12) | (26) | % | 313 | 140 | 173 | 124 | % | |||||||||||||||||||||||||||||||||||||
| Loss on debt extinguishment | — | 13 | (13) | (100) | % | 8 | 19 | (11) | (58) | % | |||||||||||||||||||||||||||||||||||||
| Other non-operating—net | 23 | (19) | 42 | N/M | 24 | (17) | 41 | N/M | |||||||||||||||||||||||||||||||||||||||
| Earnings (loss) before income taxes | 693 | (137) | 830 | N/M | 3,841 | 458 | 3,383 | N/M | |||||||||||||||||||||||||||||||||||||||
| Income tax provision (benefit) | 155 | (46) | 201 | N/M | 913 | 57 | 856 | N/M | |||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | 538 | (91) | 629 | N/M | 2,928 | 401 | 2,527 | N/M | |||||||||||||||||||||||||||||||||||||||
| Less: Net earnings attributable to noncontrolling interest | 100 | 94 | 6 | 6 | % | 442 | 189 | 253 | 134 | % | |||||||||||||||||||||||||||||||||||||
| Net earnings (loss) attributable to common stockholders | $ | 438 | $ | (185) | $ | 623 | N/M | $ | 2,486 | $ | 212 | $ | 2,274 | N/M | |||||||||||||||||||||||||||||||||
| Diluted net earnings (loss) per share attributable to common stockholders | $ | 2.18 | $ | (0.86) | $ | 3.04 | N/M | $ | 12.04 | $ | 0.98 | $ | 11.06 | N/M | |||||||||||||||||||||||||||||||||
| Diluted weighted-average common shares outstanding | 200.9 | 214.9 | (14.0) | (7) | % | 206.5 | 216.4 | (9.9) | (5) | % | |||||||||||||||||||||||||||||||||||||
| Dividends declared per common share | $ | 0.40 | $ | 0.30 | $ | 0.10 | 33 | % | $ | 1.10 | $ | 0.90 | $ | 0.20 | 22 | % | |||||||||||||||||||||||||||||||
| Natural gas supplemental data (per MMBtu) | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of natural gas used for production in cost of sales(1) | $ | 8.35 | $ | 4.21 | $ | 4.14 | 98 | % | $ | 7.28 | $ | 3.51 | $ | 3.77 | 107 | % | |||||||||||||||||||||||||||||||
| Average daily market price of natural gas Henry Hub (Louisiana) | $ | 7.96 | $ | 4.27 | $ | 3.69 | 86 | % | $ | 6.66 | $ | 3.52 | $ | 3.14 | 89 | % | |||||||||||||||||||||||||||||||
| Average daily market price of natural gas National Balancing Point (United Kingdom) | $ | 32.54 | $ | 15.98 | $ | 16.56 | 104 | % | $ | 26.26 | $ | 10.63 | $ | 15.63 | 147 | % | |||||||||||||||||||||||||||||||
| Unrealized net mark-to-market loss (gain) on natural gas derivatives | $ | 11 | $ | (12) | $ | 23 | N/M | $ | (39) | $ | (18) | $ | (21) | (117) | % | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 221 | $ | 203 | $ | 18 | 9 | % | $ | 652 | $ | 650 | $ | 2 | — | % | |||||||||||||||||||||||||||||||
| Capital expenditures | $ | 190 | $ | 201 | $ | (11) | (5) | % | $ | 319 | $ | 382 | $ | (63) | (16) | % | |||||||||||||||||||||||||||||||
| Sales volume by product tons (000s) | 4,408 | 3,784 | 624 | 16 | % | 13,867 | 13,522 | 345 | 3 | % | |||||||||||||||||||||||||||||||||||||
| Production volume by product tons (000s): | |||||||||||||||||||||||||||||||||||||||||||||||
| Ammonia(2) | 2,283 | 2,186 | 97 | 4 | % | 7,366 | 6,897 | 469 | 7 | % | |||||||||||||||||||||||||||||||||||||
| Granular urea | 1,187 | 987 | 200 | 20 | % | 3,418 | 3,139 | 279 | 9 | % | |||||||||||||||||||||||||||||||||||||
| UAN (32%) | 1,381 | 1,311 | 70 | 5 | % | 4,879 | 4,628 | 251 | 5 | % | |||||||||||||||||||||||||||||||||||||
| AN | 358 | 332 | 26 | 8 | % | 1,162 | 1,256 | (94) | (7) | % |
N/M—Not Meaningful
CF INDUSTRIES HOLDINGS, INC.
(1)Includes the cost of natural gas used for production and related transportation that is included in cost of sales during the period under the first-in, first-out inventory cost method. Includes realized gains and losses on natural gas derivatives settled during the period. Excludes unrealized mark-to-market gains and losses on natural gas derivatives. For the nine months ended September 30, 2021, 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.
Third Quarter of 2022 Compared to Third Quarter of 2021
Net Sales
Our total net sales increased $959 million or 70%, to $2.32 billion in the third quarter of 2022 compared to $1.36 billion in the third quarter of 2021 due to an increase in average selling prices and an increase in sales volume.
Our average selling price was $527 per ton in the third quarter of 2022, or 46% higher, compared to $360 per ton in the third 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 4.4 million product tons in the third quarter of 2022 was 16% higher compared to 3.8 million product tons in the third quarter of 2021, as higher sales volume in our Granular Urea and UAN segments was partially offset by lower sales volume in our Other, Ammonia and AN segments.
Cost of Sales
Our total cost of sales increased $483 million, or 52%, to $1.41 billion in the third quarter of 2022 from $922 million in the third 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 $358 million, and an increase in sales volume of 16% that increased cost of sales by $77 million.
Cost of sales also includes the impact of a $11 million unrealized net mark-to-market loss on natural gas derivatives in the third quarter of 2022 compared to a $12 million gain in the third quarter of 2021.
Cost of sales averaged $319 per ton in the third quarter of 2022, a 31% increase from $244 per ton in the third quarter of 2021. The cost of natural gas used for production, including the impact of realized derivatives, increased 98% to $8.35 per MMBtu in the third quarter of 2022 from $4.21 per MMBtu in the third quarter of 2021.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $14 million to $66 million in the third quarter of 2022 as compared to $52 million in the third quarter of 2021. The increase was due primarily to higher costs associated with corporate initiatives, including costs related to the development of a new enterprise resource planning system (ERP) for our North American operations and higher incentive compensation costs.
U.K. Operations
In the three months ended September 30, 2022, we recognized total charges related to our U.K. operations of $95 million, consisting of $87 million of asset impairment charges primarily related to property, plant and equipment at our Billingham facility and definite-lived intangible assets and $8 million of restructuring charges primarily related to one-time termination benefits. In the three months ended September 30, 2021, we recognized total charges related to our U.K. operations of $495 million, consisting of goodwill impairment of $259 million and long-lived and intangible asset impairment charges of $236 million.
See “Market Conditions and Current Developments—United Kingdom Operations,” above; Note 5—United Kingdom Operations Restructuring and Impairment Charges; Note 6—Property, Plant and Equipment—Net; and Note 7—Goodwill and Other Intangible Assets for further information.
Other Operating—Net
Other operating—net was $25 million of expense in the third quarter of 2022 compared to $5 million of expense in the third quarter of 2021. The $25 million of expense in the third quarter of 2022 includes a loss on foreign currency transactions of $27 million, which consists of foreign currency exchange rate impacts on foreign currency denominated transactions, including the impact of changes in foreign currency exchange rates on intercompany loans that were not permanently invested.
CF INDUSTRIES HOLDINGS, INC.
Equity in Earnings of Operating Affiliate
Equity in earnings of operating affiliate was $20 million in the third quarter of 2022 compared to $15 million in the third quarter of 2021. The increase in the third 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 $34 million in the third quarter of 2022 compared to $46 million in the third quarter of 2021. The net decrease of $12 million was due primarily to higher interest income on investments and lower interest expense on borrowings due to the redemption of $500 million principal amount of the 2023 Notes in April 2022 prior to their scheduled maturity.
Loss on Debt Extinguishment
On September 10, 2021, we redeemed $250 million principal amount, representing one-third of the $750 million principal amount outstanding immediately prior to such redemption, of the 2023 Notes, in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid on the 2023 Notes was approximately $265 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $13 million, consisting primarily of a premium paid on the redemption of the $250 million principal amount of the 2023 Notes prior to their scheduled maturity.
Other Non-Operating—Net
Other non-operating—net was $23 million of expense in the third quarter of 2022 compared to $19 million of income in the third quarter of 2021. The $23 million of expense in the third quarter of 2022 was due primarily to a pension settlement loss of $24 million related to the purchase of a non-participating group annuity contract to settle retiree obligations under our primary U.S. defined benefit pension plan, which is more fully described under “Items Affecting Comparability of Results—Pension settlement loss,” above. The $19 million of income in the third quarter of 2021 was due primarily to a gain of $20 million on the sale of EU carbon credits that, due to the exit of the United Kingdom from the EU (Brexit), could no longer be utilized by our U.K. plants for carbon emission obligations in the United Kingdom.
Income Taxes
For the three months ended September 30, 2022, we recorded an income tax provision of $155 million on pre-tax income of $693 million, or an effective tax rate of 22.3%, compared to an income tax benefit of $46 million on a pre-tax loss of $137 million, or an effective tax rate of 34.3%, for the three months ended September 30, 2021.
For the three months ended September 30, 2022, our income tax provision includes $18 million of income tax expense to record a valuation allowance in the United Kingdom due to the uncertainty surrounding the realization of the deferred tax assets as a result of the impairment described in Note 5—United Kingdom Operations Restructuring and Impairment Charges.
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 September 30, 2022 of 22.3%, which is based on pre-tax income of $693 million, including $100 million of earnings attributable to the noncontrolling interest, would be 3.7 percentage points higher, or 26.0%, if based on pre-tax income exclusive of the $100 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended September 30, 2021 of 34.3%, which is based on a pre-tax loss of $137 million, including $94 million of earnings attributable to the noncontrolling interest, would be 14.0 percentage points lower, or 20.3%, if based on pre-tax income exclusive of the $94 million of earnings attributable to the noncontrolling interest. See Note 10—Income Taxes and Note 15—Noncontrolling Interest for additional information.
Net Earnings Attributable to Noncontrolling Interest
Net earnings attributable to noncontrolling interest increased $6 million to $100 million in the third quarter of 2022 as compared to $94 million in the third quarter of 2021 due to higher earnings of CFN driven by higher average selling prices as described above under “Net Sales.”
Diluted Net Earnings (Loss) Per Share Attributable to Common Stockholders
Net earnings per share attributable to common stockholders increased $3.04 to $2.18 per diluted share in the third quarter of 2022 from a net loss of $0.86 per diluted share in the third quarter of 2021. This increase was due primarily to an increase in
CF INDUSTRIES HOLDINGS, INC.
gross margin, driven by higher average selling prices and higher sales volume, and a decrease in charges related to our U.K. operations. These increases were partially offset by higher natural gas costs and an increase in the income tax provision due primarily to increased profitability. Additionally, net earnings per diluted share increased due to a 7% reduction in the diluted weighted-average common shares outstanding, which declined from 214.9 million shares for the three months ended September 30, 2021 to 200.9 million shares for the three months ended September 30, 2022, due primarily to repurchases of common shares under our share repurchase programs.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Net Sales
Our total net sales increased $4.58 billion, or 115%, to $8.58 billion in the first nine months of 2022 as compared to $4.00 billion in the first nine months of 2021 due primarily to an increase in average selling prices and an increase in sales volume.
Average selling prices were $619 per ton in the first nine months of 2022, or 109% higher compared to $296 per ton in the first nine 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 13.9 million product tons in the first nine months of 2022 was 3% higher compared to 13.5 million product tons in the first nine months of 2021 as a result of higher sales volume in our UAN and Granular Urea segments partially offset by lower sales volume in our Other, AN and Ammonia segments.
Cost of Sales
Our total cost of sales increased approximately $1.21 billion, or 44%, to $3.97 billion in the first nine months of 2022 as compared to $2.77 billion in the first nine 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 $981 million, and higher costs for ammonia purchased from PLNL, our joint venture in Trinidad. In addition, in the first nine months of 2021, cost of sales includes a gain of $112 million on the net settlement of certain natural gas contracts with our suppliers as a result of Winter Storm Uri.
Cost of sales also includes the impact of a $39 million unrealized net mark-to-market gain on natural gas derivatives in the first nine months of 2022 compared to a $18 million gain in the first nine months of 2021.
Cost of sales averaged $287 per ton in the first nine months of 2022, a 40% increase from $205 per ton in the first nine months of 2021. The cost of natural gas used for production, including the impact of realized derivatives, increased 107% to $7.28 per MMBtu in the first nine months of 2022 from $3.51 per MMBtu in the first nine months of 2021. The cost of natural gas used for production of $3.51 per MMBtu in the first nine months of 2021 does not include the $112 million gain from the net settlement of certain natural gas contracts in February 2021.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $36 million to $203 million in the first nine months of 2022 as compared to $167 million in the first nine months of 2021. The increase was due primarily to higher costs associated with certain corporate initiatives, including costs related to the development of a new enterprise resource planning system (ERP) for our North American operations and higher incentive compensation costs.
U.K. Operations
In the nine months ended September 30, 2022, we recognized total charges related to our U.K. operations of $257 million, consisting of $239 million of asset impairment charges primarily related to property, plant and equipment at our Billingham and Ince facilities and definite-lived intangible assets and $18 million of restructuring charges primarily related to post-employment benefits related to contractual and statutory obligations and one-time termination benefits. In the nine months ended September 30, 2021, we recognized total charges related to our U.K. operations of $495 million, consisting of goodwill impairment of $259 million and long-lived and intangible asset impairment charges of $236 million.
See “Market Conditions and Current Developments—United Kingdom Operations,” above; Note 5—United Kingdom Operations Restructuring and Impairment Charges; Note 6—Property, Plant and Equipment—Net; and Note 7—Goodwill and Other Intangible Assets for further information.
CF INDUSTRIES HOLDINGS, INC.
Other Operating—Net
Other operating—net was $33 million of expense in the first nine months of 2022 compared to $7 million of expense in the first nine months of 2021. The $33 million of expense in the first nine months of 2022 includes a loss on foreign currency transactions of $38 million, which consists of foreign currency exchange rate impacts on foreign currency denominated transactions, including the impact of changes in foreign currency exchange rates on intercompany loans that were not permanently invested.
Equity in Earnings of Operating Affiliate
Equity in earnings of operating affiliate was $74 million in the first nine months of 2022 compared to $37 million in the first nine 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 $173 million to $313 million in the first nine months of 2022 compared to $140 million in the first nine months of 2021. The increase was due primarily to $193 million of net interest expense recorded in the first nine 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 positions,” above. This increase was partially offset by a $15 million decrease in interest on borrowings due to the redemption of senior notes in April 2022, September 2021 and March 2021.
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 $500 million principal amount of the 2023 Notes prior to their scheduled maturity.
On September 10, 2021, we redeemed $250 million principal amount, representing one-third of the $750 million principal amount outstanding immediately prior to such redemption, of the 2023 Notes, in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid on the 2023 Notes was approximately $265 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $13 million, consisting primarily of a premium paid on the redemption of the $250 million principal amount 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 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, consisting primarily of the premium paid on the redemption of the $250 million principal amount of the 2021 Notes prior to their scheduled maturity.
Other Non-Operating—Net
Other non-operating—net was $24 million of expense in the first nine months of 2022 compared to $17 million of income in the first nine months of 2021. The $24 million of expense in the first nine months of 2022 was due primarily to a pension settlement loss of $24 million related to the purchase of a non-participating group annuity contract to settle retiree obligations under our primary U.S. defined benefit pension plan, which is more fully described under “Items Affecting Comparability of Results—Pension settlement loss,” above. The $17 million of income in the first nine months of 2021 was due primarily to a gain of $20 million on the sale of EU carbon credits that, due to Brexit, could no longer be utilized by our U.K. plants for carbon emission obligations in the United Kingdom.
Income Taxes
For the nine months ended September 30, 2022, we recorded an income tax provision of $913 million on pre-tax income of $3.84 billion, or an effective tax rate of 23.8%, compared to an income tax provision of $57 million on pre-tax income of $458 million, or an effective tax rate of 12.3%, for the nine months ended September 30, 2021.
For the nine months ended September 30, 2022, our income tax provision includes $18 million of income tax expense to record a valuation allowance in the United Kingdom, $22 million of income tax benefit for the excess tax benefit related to
CF INDUSTRIES HOLDINGS, INC.
certain share-based compensation activity and $78 million of income tax provision related to the Canada Revenue Agency Competent Authority Matter, which is further described above under “Items Affecting Comparability of Results.”
For the nine months ended September 30, 2021, we did not record an income tax benefit related to the goodwill impairment described in Note 5—United Kingdom Operations Restructuring and Impairment Charges, above, as the impairment is non-deductible for income tax purposes. In addition, our income tax provision includes a $36 million benefit reflecting the impact of agreement on certain issues related to U.S. federal income tax audits.
Our effective tax rate is also impacted by earnings attributable to the noncontrolling interest in CFN, as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interest. Our effective tax rate for the nine months ended September 30, 2022 of 23.8%, which is based on pre-tax income of $3.84 billion, including $442 million of earnings attributable to the noncontrolling interest, would be 3.1 percentage points higher, or 26.9%, if based on pre-tax income exclusive of the $442 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the nine months ended September 30, 2021 of 12.3%, which is based on pre-tax income of $458 million, including $189 million of earnings attributable to the noncontrolling interest, would be 8.7 percentage points higher, or 21.0%, if based on pre-tax income exclusive of the $189 million of earnings attributable to the noncontrolling interest. See Note 10—Income Taxes and Note 15—Noncontrolling Interest for additional information.
Net Earnings Attributable to Noncontrolling Interest
Net earnings attributable to noncontrolling interest increased 134% to $442 million in the first nine months of 2022 from $189 million in the first nine 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 $11.06 per diluted share to $12.04 per diluted share in the first nine months of 2022 from $0.98 per diluted share in the first nine months of 2021. This increase is due primarily to an increase in gross margin, driven by higher average selling prices and higher sales volume, and a decrease in charges related to our U.K. operations. These factors that increased net earnings were partially offset by higher natural gas costs, 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 5% reduction in the diluted weighted-average common shares outstanding, which declined from 216.4 million shares for the nine months ended September 30, 2021 to 206.5 million shares for the nine months ended September 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 September 30, 2022 | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 531 | $ | 689 | $ | 736 | $ | 180 | $ | 185 | $ | 2,321 | |||||||||||||||||||||||
| Cost of sales | 353 | 394 | 414 | 136 | 108 | 1,405 | |||||||||||||||||||||||||||||
| Gross margin | $ | 178 | $ | 295 | $ | 322 | $ | 44 | $ | 77 | $ | 916 | |||||||||||||||||||||||
| Gross margin percentage | 33.5 | % | 42.8 | % | 43.8 | % | 24.4 | % | 41.6 | % | 39.5 | % | |||||||||||||||||||||||
| Three months ended September 30, 2021 | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 344 | $ | 386 | $ | 390 | $ | 118 | $ | 124 | $ | 1,362 | |||||||||||||||||||||||
| Cost of sales | 262 | 200 | 233 | 122 | 105 | 922 | |||||||||||||||||||||||||||||
| Gross margin | $ | 82 | $ | 186 | $ | 157 | $ | (4) | $ | 19 | $ | 440 | |||||||||||||||||||||||
| Gross margin percentage | 23.8 | % | 48.2 | % | 40.3 | % | (3.4) | % | 15.3 | % | 32.3 | % | |||||||||||||||||||||||
| Nine months ended September 30, 2022 | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 2,286 | $ | 2,287 | $ | 2,727 | $ | 656 | $ | 622 | $ | 8,578 | |||||||||||||||||||||||
| Cost of sales | 1,075 | 1,024 | 1,102 | 458 | 314 | 3,973 | |||||||||||||||||||||||||||||
| Gross margin | $ | 1,211 | $ | 1,263 | $ | 1,625 | $ | 198 | $ | 308 | $ | 4,605 | |||||||||||||||||||||||
| Gross margin percentage | 53.0 | % | 55.2 | % | 59.6 | % | 30.2 | % | 49.5 | % | 53.7 | % | |||||||||||||||||||||||
| Nine months ended September 30, 2021 | |||||||||||||||||||||||||||||||||||
| Net sales | $ | 1,009 | $ | 1,218 | $ | 1,056 | $ | 359 | $ | 356 | $ | 3,998 | |||||||||||||||||||||||
| Cost of sales | 675 | 705 | 759 | 337 | 290 | 2,766 | |||||||||||||||||||||||||||||
| Gross margin | $ | 334 | $ | 513 | $ | 297 | $ | 22 | $ | 66 | $ | 1,232 | |||||||||||||||||||||||
| Gross margin percentage | 33.1 | % | 42.1 | % | 28.1 | % | 6.1 | % | 18.5 | % | 30.8 | % |
(1)Cost of sales and gross margin for the Ammonia segment in the nine months ended September 30, 2021 include a $112 million gain on the net settlement of certain natural gas contracts with our suppliers. See Note 14—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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 v. 2021 | 2022 | 2021 | 2022 v. 2021 | ||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions, except per ton amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 531 | $ | 344 | $ | 187 | 54 | % | $ | 2,286 | $ | 1,009 | $ | 1,277 | 127 | % | |||||||||||||||||||||||||||||||
| Cost of sales | 353 | 262 | 91 | 35 | % | 1,075 | 675 | 400 | 59 | % | |||||||||||||||||||||||||||||||||||||
| Gross margin | $ | 178 | $ | 82 | $ | 96 | 117 | % | $ | 1,211 | $ | 334 | $ | 877 | 263 | % | |||||||||||||||||||||||||||||||
| Gross margin percentage | 33.5 | % | 23.8 | % | 9.7 | % | 53.0 | % | 33.1 | % | 19.9 | % | |||||||||||||||||||||||||||||||||||
| Sales volume by product tons (000s) | 643 | 690 | (47) | (7) | % | 2,405 | 2,409 | (4) | — | % | |||||||||||||||||||||||||||||||||||||
| Sales volume by nutrient tons (000s)(1) | 528 | 566 | (38) | (7) | % | 1,973 | 1,976 | (3) | — | % | |||||||||||||||||||||||||||||||||||||
| Average selling price per product ton | $ | 826 | $ | 499 | $ | 327 | 66 | % | $ | 951 | $ | 419 | $ | 532 | 127 | % | |||||||||||||||||||||||||||||||
| Average selling price per nutrient ton(1) | $ | 1,006 | $ | 608 | $ | 398 | 65 | % | $ | 1,159 | $ | 511 | $ | 648 | 127 | % | |||||||||||||||||||||||||||||||
| Gross margin per product ton | $ | 277 | $ | 119 | $ | 158 | 133 | % | $ | 504 | $ | 139 | $ | 365 | 263 | % | |||||||||||||||||||||||||||||||
| Gross margin per nutrient ton(1) | $ | 337 | $ | 145 | $ | 192 | 132 | % | $ | 614 | $ | 169 | $ | 445 | 263 | % | |||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 35 | $ | 41 | $ | (6) | (15) | % | $ | 119 | $ | 138 | $ | (19) | (14) | % | |||||||||||||||||||||||||||||||
| Unrealized net mark-to-market loss (gain) on natural gas derivatives | $ | 4 | $ | (4) | $ | 8 | N/M | $ | (6) | $ | (6) | $ | — | — | % | ||||||||||||||||||||||||||||||||
N/M—Not Meaningful
(1)Ammonia represents 82% nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.
In September 2022, due to the unprecedented high price of natural gas in the United Kingdom, we temporarily idled ammonia production at our Billingham, U.K. complex. The Billingham complex has continued to produce upgraded products, including AN, by utilizing ammonia on hand and ammonia that has been imported from our Donaldsonville, Louisiana complex.
Third Quarter of 2022 Compared to Third Quarter of 2021
Net Sales. Net sales in our Ammonia segment increased by $187 million, or 54%, to $531 million in the third quarter of 2022 from $344 million in the third quarter of 2021 due primarily to a 66% increase in average selling prices, partially offset by a 7% decrease in sales volume. Average selling prices increased to $826 per ton in the third quarter of 2022 compared to $499 per ton in the third 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 lower supply availability from inventory and net production.
Cost of Sales. Cost of sales in our Ammonia segment averaged $549 per ton in the third quarter of 2022, a 44% increase from $380 per ton in the third quarter of 2021. The increase was due primarily to higher realized natural gas costs and a higher cost per ton for purchased ammonia from PLNL, our joint venture in Trinidad.
Gross Margin. Gross margin in our Ammonia segment increased by $96 million to $178 million in the third quarter of 2022 from $82 million in the third quarter of 2021, and our gross margin percentage was 33.5% in the third quarter of 2022 compared to 23.8% in the third quarter of 2021. The increase in gross margin was due primarily to a 66% increase in average selling prices, which increased gross margin by $214 million. The impact of the increase in average selling prices was partially offset by an increase in realized natural gas costs, which reduced gross margin by $91 million, a 7% decrease in sales volume, which reduced gross margin by $10 million, and a $9 million net increase in manufacturing, maintenance and other costs. Gross margin also includes the impact of a $4 million unrealized net mark-to-market loss on natural gas derivatives in the third quarter of 2022 compared to a $4 million gain in the third quarter of 2021.
CF INDUSTRIES HOLDINGS, INC.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Net Sales. Net sales in our Ammonia segment increased by $1.28 billion, or 127%, to $2.29 billion in the nine months ended September 30, 2022 from $1.01 billion in the nine months ended September 30, 2021 due primarily to a 127% increase in average selling prices. 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.”
Cost of Sales. Cost of sales in our Ammonia segment averaged $447 per ton in the nine months ended September 30, 2022, a 60% increase from $280 per ton in the nine months ended September 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.
Gross Margin. Gross margin in our Ammonia segment increased by $877 million to $1.21 billion in the nine months ended September 30, 2022 from $334 million in the nine months ended September 30, 2021, and our gross margin percentage was 53.0% in the nine months ended September 30, 2022 compared to 33.1% in the nine months ended September 30, 2021. The increase in gross margin was due primarily to a 127% increase in average selling prices, which increased gross margin by $1.29 billion, and favorable location product mix, which increased gross margin by $12 million. These increases were partially offset by an increase in realized natural gas costs, which decreased gross margin by $241 million, and a net increase in manufacturing, maintenance and other costs, which decreased gross margin by $71 million. In addition, the impact of the $112 million gain on the net settlement of certain natural gas contracts is included in the nine months ended September 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 v. 2021 | 2022 | 2021 | 2022 v. 2021 | ||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions, except per ton amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 689 | $ | 386 | $ | 303 | 78 | % | $ | 2,287 | $ | 1,218 | $ | 1,069 | 88 | % | |||||||||||||||||||||||||||||||
| Cost of sales | 394 | 200 | 194 | 97 | % | 1,024 | 705 | 319 | 45 | % | |||||||||||||||||||||||||||||||||||||
| Gross margin | $ | 295 | $ | 186 | $ | 109 | 59 | % | $ | 1,263 | $ | 513 | $ | 750 | 146 | % | |||||||||||||||||||||||||||||||
| Gross margin percentage | 42.8 | % | 48.2 | % | (5.4) | % | 55.2 | % | 42.1 | % | 13.1 | % | |||||||||||||||||||||||||||||||||||
| Sales volume by product tons (000s) | 1,262 | 860 | 402 | 47 | % | 3,539 | 3,272 | 267 | 8 | % | |||||||||||||||||||||||||||||||||||||
| Sales volume by nutrient tons (000s)(1) | 580 | 396 | 184 | 46 | % | 1,628 | 1,505 | 123 | 8 | % | |||||||||||||||||||||||||||||||||||||
| Average selling price per product ton | $ | 546 | $ | 449 | $ | 97 | 22 | % | $ | 646 | $ | 372 | $ | 274 | 74 | % | |||||||||||||||||||||||||||||||
| Average selling price per nutrient ton(1) | $ | 1,188 | $ | 975 | $ | 213 | 22 | % | $ | 1,405 | $ | 809 | $ | 596 | 74 | % | |||||||||||||||||||||||||||||||
| Gross margin per product ton | $ | 234 | $ | 216 | $ | 18 | 8 | % | $ | 357 | $ | 157 | $ | 200 | 127 | % | |||||||||||||||||||||||||||||||
| Gross margin per nutrient ton(1) | $ | 509 | $ | 470 | $ | 39 | 8 | % | $ | 776 | $ | 341 | $ | 435 | 128 | % | |||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 79 | $ | 58 | $ | 21 | 36 | % | $ | 213 | $ | 179 | $ | 34 | 19 | % | |||||||||||||||||||||||||||||||
| Unrealized net mark-to-market loss (gain) on natural gas derivatives | $ | 4 | $ | (3) | $ | 7 | N/M | $ | (4) | $ | (5) | $ | 1 | 20 | % | ||||||||||||||||||||||||||||||||
N/M—Not Meaningful
(1)Granular urea represents 46% nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.
Third Quarter of 2022 Compared to Third Quarter of 2021
Net Sales. Net sales in our Granular Urea segment increased $303 million, or 78%, to $689 million in the third quarter of 2022 from $386 million in the third quarter of 2021 due primarily to a 47% increase in sales volume and a 22% increase in average selling prices. Sales volume was higher due primarily to higher supply availability resulting from higher production. Average selling prices increased to $546 per ton in the third quarter of 2022 compared to $449 per ton in the third quarter of
CF INDUSTRIES HOLDINGS, INC.
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 Granular Urea segment averaged $312 per ton in the third quarter of 2022, a 34% increase from $233 per ton in the third quarter of 2021, due primarily to higher realized natural gas costs.
Gross Margin. Gross margin in our Granular Urea segment increased by $109 million to $295 million in the third quarter of 2022 from $186 million in the third quarter of 2021, and our gross margin percentage was 42.8% in the third quarter of 2022 compared to 48.2% in the third quarter of 2021. The increase in gross margin was due primarily to a 22% increase in average selling prices, which increased gross margin by $120 million, a 47% increase in sales volume, which increased gross margin by $95 million, and a $3 million net decrease in manufacturing, maintenance and other costs. These factors were partially offset by an increase in realized natural gas costs, which reduced gross margin by $96 million. Gross margin also includes the impact of a $4 million unrealized net mark-to-market loss on natural gas derivatives in the third quarter of 2022 compared to a $3 million gain in the third quarter of 2021.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Net Sales. Net sales in our Granular Urea segment increased $1.07 billion, or 88%, to $2.29 billion in the nine months ended September 30, 2022 from $1.22 billion in the nine months ended September 30, 2021 due primarily to a 74% increase in average selling prices and an 8% increase in sales volume. Average selling prices increased to $646 per ton in the nine months ended September 30, 2022 compared to $372 per ton in the nine months ended September 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 higher due primarily to higher supply availability resulting from higher production.
Cost of Sales. Cost of sales in our Granular Urea segment averaged $289 per ton in the nine months ended September 30, 2022, a 34% increase from $215 per ton in the nine months ended September 30, 2021, due primarily to higher realized natural gas costs.
Gross Margin. Gross margin in our Granular Urea segment increased by $750 million to $1.26 billion in the nine months ended September 30, 2022 from $513 million in the nine months ended September 30, 2021, and our gross margin percentage was 55.2% in the nine months ended September 30, 2022 compared to 42.1% in the nine months ended September 30, 2021. The increase in gross margin was due primarily to a 74% increase in average selling prices, which increased gross margin by $917 million, an 8% increase in sales volume, which increased gross margin by $112 million, and a $42 million net decrease in manufacturing, maintenance and other costs. These factors were partially offset by higher realized natural gas costs, which decreased gross margin by $236 million. Gross margin also includes the impact of a $4 million unrealized net mark-to-market gain on natural gas derivatives in the nine months ended September 30, 2022 compared to a $5 million gain in the nine months ended September 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 v. 2021 | 2022 | 2021 | 2022 v. 2021 | ||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions, except per ton amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 736 | $ | 390 | $ | 346 | 89 | % | $ | 2,727 | $ | 1,056 | $ | 1,671 | 158 | % | |||||||||||||||||||||||||||||||
| Cost of sales | 414 | 233 | 181 | 78 | % | 1,102 | 759 | 343 | 45 | % | |||||||||||||||||||||||||||||||||||||
| Gross margin | $ | 322 | $ | 157 | $ | 165 | 105 | % | $ | 1,625 | $ | 297 | $ | 1,328 | 447 | % | |||||||||||||||||||||||||||||||
| Gross margin percentage | 43.8 | % | 40.3 | % | 3.5 | % | 59.6 | % | 28.1 | % | 31.5 | % | |||||||||||||||||||||||||||||||||||
| Sales volume by product tons (000s) | 1,644 | 1,283 | 361 | 28 | % | 5,098 | 4,746 | 352 | 7 | % | |||||||||||||||||||||||||||||||||||||
| Sales volume by nutrient tons (000s)(1) | 519 | 405 | 114 | 28 | % | 1,610 | 1,493 | 117 | 8 | % | |||||||||||||||||||||||||||||||||||||
| Average selling price per product ton | $ | 448 | $ | 304 | $ | 144 | 47 | % | $ | 535 | $ | 223 | $ | 312 | 140 | % | |||||||||||||||||||||||||||||||
| Average selling price per nutrient ton(1) | $ | 1,418 | $ | 963 | $ | 455 | 47 | % | $ | 1,694 | $ | 707 | $ | 987 | 140 | % | |||||||||||||||||||||||||||||||
| Gross margin per product ton | $ | 196 | $ | 122 | $ | 74 | 61 | % | $ | 319 | $ | 63 | $ | 256 | 406 | % | |||||||||||||||||||||||||||||||
| Gross margin per nutrient ton(1) | $ | 620 | $ | 388 | $ | 232 | 60 | % | $ | 1,009 | $ | 199 | $ | 810 | 407 | % | |||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 73 | $ | 56 | $ | 17 | 30 | % | $ | 208 | $ | 188 | $ | 20 | 11 | % | |||||||||||||||||||||||||||||||
| Unrealized net mark-to-market loss (gain) on natural gas derivatives | $ | 4 | $ | (3) | $ | 7 | N/M | $ | (4) | $ | (5) | $ | 1 | 20 | % | ||||||||||||||||||||||||||||||||
N/M—Not Meaningful
(1)UAN represents between 28% and 32% of nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.
Third Quarter of 2022 Compared to Third Quarter of 2021
Net Sales. Net sales in our UAN segment increased $346 million, or 89%, to $736 million in the third quarter of 2022 from $390 million in the third quarter of 2021 due to a 47% increase in average selling prices and a 28% increase in sales volume. Average selling prices increased to $448 per ton in the third quarter of 2022 compared to $304 per ton in the third 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 greater supply availability as a result of higher production, as well as a delay in fertilizer application from the second quarter of 2022 into the third quarter of 2022 due to delayed crop planting as a result of unfavorable weather conditions.
Cost of Sales. Cost of sales in our UAN segment averaged $252 per ton in the third quarter of 2022, a 38% increase from $182 per ton in the third quarter of 2021, due primarily to the impact of higher realized natural gas costs and higher freight costs due primarily to an increase in exports.
Gross Margin. Gross margin in our UAN segment increased by $165 million to $322 million in the third quarter of 2022 from $157 million in the third quarter of 2021, and our gross margin percentage was 43.8% in the third quarter of 2022 compared to 40.3% in the third quarter of 2021. The increase in gross margin was due primarily to a 47% increase in average selling prices, which increased gross margin by $235 million, and a 28% increase in sales volume, which increased gross margin by $61 million. These increases were partially offset by an increase in realized natural gas costs, which reduced gross margin by $90 million, and a net increase in manufacturing, maintenance and other costs, which reduced gross margin by $34 million. Gross margin also includes the impact of a $4 million unrealized net mark-to-market loss on natural gas derivatives in the third quarter of 2022 compared to a $3 million gain in the third quarter of 2021.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Net Sales. Net sales in our UAN segment increased $1.67 billion, or 158%, to $2.73 billion in the nine months ended September 30, 2022 from $1.06 billion in the nine months ended September 30, 2021 due primarily to a 140% increase in average selling prices and a 7% increase in sales volume. Average selling prices increased to $535 per ton in the nine months
CF INDUSTRIES HOLDINGS, INC.
ended September 30, 2022 compared to $223 per ton in the nine months ended September 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 higher due primarily to increased production.
Cost of Sales. Cost of sales in our UAN segment averaged $216 per ton in the nine months ended September 30, 2022, a 35% increase from $160 per ton in the nine months ended September 30, 2021. The increase was due primarily to the impact of higher realized natural gas costs and higher freight costs due primarily to an increase in exports.
Gross Margin. Gross margin in our UAN segment increased by $1.33 billion to $1.63 billion in the nine months ended September 30, 2022 from $297 million in the nine months ended September 30, 2021, and our gross margin percentage was 59.6% in the nine months ended September 30, 2022 compared to 28.1% in the nine months ended September 30, 2021. The increase in gross margin was due primarily to a 140% increase in average selling prices, which increased gross margin by $1.59 billion, and a 7% increase in sales volume, which increased gross margin by $39 million. These increases were partially offset by higher realized natural gas costs, which decreased gross margin by $220 million, and a $77 million net increase in manufacturing, maintenance and other costs. Gross margin also includes the impact of a net $4 million unrealized net mark-to-market gain on natural gas derivatives in the nine months ended September 30, 2022 compared to a $5 million gain in the nine months ended September 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.
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. The Commerce Department rejected that request on August 5, 2022. CF did not make a similar request with respect to an antidumping duty order on UAN from Russia, or any duty order on UAN from Trinidad.
The ITC published a notice of its negative determination on August 10, 2022, resulting in the termination of the Antidumping and Countervailing Duties (AD/CVD) investigations. Accordingly, AD/CVD cash deposits collected on imports during the pendency of the investigations are being refunded, and no further duties will be imposed.
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 Billingham, United Kingdom.
The following table presents summary operating data for our AN segment:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 v. 2021 | 2022 | 2021 | 2022 v. 2021 | ||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions, except per ton amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 180 | $ | 118 | $ | 62 | 53 | % | $ | 656 | $ | 359 | $ | 297 | 83 | % | |||||||||||||||||||||||||||||||
| Cost of sales | 136 | 122 | 14 | 11 | % | 458 | 337 | 121 | 36 | % | |||||||||||||||||||||||||||||||||||||
| Gross margin | $ | 44 | $ | (4) | $ | 48 | N/M | $ | 198 | $ | 22 | $ | 176 | N/M | |||||||||||||||||||||||||||||||||
| Gross margin percentage | 24.4 | % | (3.4) | % | 27.8 | % | 30.2 | % | 6.1 | % | 24.1 | % | |||||||||||||||||||||||||||||||||||
| Sales volume by product tons (000s) | 363 | 407 | (44) | (11) | % | 1,227 | 1,346 | (119) | (9) | % | |||||||||||||||||||||||||||||||||||||
| Sales volume by nutrient tons (000s)(1) | 124 | 137 | (13) | (9) | % | 419 | 455 | (36) | (8) | % | |||||||||||||||||||||||||||||||||||||
| Average selling price per product ton | $ | 496 | $ | 290 | $ | 206 | 71 | % | $ | 535 | $ | 267 | $ | 268 | 100 | % | |||||||||||||||||||||||||||||||
| Average selling price per nutrient ton(1) | $ | 1,452 | $ | 861 | $ | 591 | 69 | % | $ | 1,566 | $ | 789 | $ | 777 | 98 | % | |||||||||||||||||||||||||||||||
| Gross margin per product ton | $ | 121 | $ | (10) | $ | 131 | N/M | $ | 161 | $ | 16 | $ | 145 | N/M | |||||||||||||||||||||||||||||||||
| Gross margin per nutrient ton(1) | $ | 355 | $ | (29) | $ | 384 | N/M | $ | 473 | $ | 48 | $ | 425 | N/M | |||||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 14 | $ | 20 | $ | (6) | (30) | % | $ | 48 | $ | 61 | $ | (13) | (21) | % | |||||||||||||||||||||||||||||||
| Unrealized net mark-to-market gain on natural gas derivatives | $ | (1) | $ | (1) | $ | — | — | % | $ | (18) | $ | (1) | $ | (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.
Third Quarter of 2022 Compared to 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, we restarted production at our Billingham facility. In June 2022, we approved and announced our proposed plan to restructure our U.K. operations, including the permanent closure of our Ince facility. In August 2022, the final restructuring plan was approved, and decommissioning activities were initiated. See the discussion under “Market Conditions and Current Developments—United Kingdom Operations,” above, for further information.
Net Sales. Net sales in our AN segment increased $62 million, or 53%, to $180 million in the third quarter of 2022 from $118 million in the third quarter of 2021 due to a 71% increase in average selling prices, partially offset by a 11% decrease in sales volume. Average selling prices increased to $496 per ton in the third quarter of 2022 compared to $290 per ton in the third 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 our Ince facility closure.
Cost of Sales. Cost of sales in our AN segment averaged $375 per ton in the third quarter of 2022, a 25% increase from $300 per ton in the third quarter of 2021. The increase was due primarily to higher realized natural gas costs.
Gross Margin. Gross margin in our AN segment increased $48 million to $44 million in the third quarter of 2022 from a loss of $4 million in the third quarter of 2021, and our gross margin percentage was 24.4% in the third quarter of 2022 compared to (3.4)% in the third quarter of 2021. The increase in gross margin was due primarily to a 71% increase in average selling prices, which increased gross margin by $77 million, favorable location product mix, which increased gross margin by $18 million, and a net decrease of $8 million in manufacturing, maintenance and other costs. These factors that increased gross margin were partially offset by an increase in realized natural gas costs, which reduced gross margin by $55 million.
CF INDUSTRIES HOLDINGS, INC.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Net Sales. Net sales in our AN segment increased $297 million, or 83%, to $656 million in the nine months ended September 30, 2022 from $359 million in the nine months ended September 30, 2021 due primarily to a 100% increase in average selling prices, partially offset by a 9% decrease in sales volume. Average selling prices increased to $535 per ton in the nine months ended September 30, 2022 compared to $267 per ton in the nine months ended September 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 our Ince facility closure.
Cost of Sales. Cost of sales in our AN segment averaged $374 per ton in the nine months ended September 30, 2022, a 49% increase from $251 per ton in the nine months ended September 30, 2021. The increase was due primarily to higher realized natural gas costs.
Gross Margin. Gross margin in our AN segment increased by $176 million to $198 million in the nine months ended September 30, 2022 from $22 million in the nine months ended September 30, 2021, and our gross margin percentage was 30.2% in the nine months ended September 30, 2022 compared to 6.1% in the nine months ended September 30, 2021. The increase in gross margin was due primarily to a 100% increase in average selling prices, which increased gross margin by $336 million, and favorable location product mix, which increased gross margin by $23 million. These increases in gross margin were partially offset by an increase in realized natural gas costs, which decreased gross margin by $201 million, and a net increase of $1 million in manufacturing, maintenance and other costs. Gross margin also includes the impact of a $18 million unrealized net mark-to-market gain on natural gas derivatives in the nine months ended September 30, 2022 compared to a $1 million gain in the nine months ended September 30, 2021.
Other Segment
Our Other segment primarily includes the following products:
-
Diesel exhaust fluid (DEF) is an aqueous urea solution typically made with 32.5% or 50% high-purity urea and the remainder deionized water.
-
Urea liquor is a liquid product that we sell in concentrations of 40%, 50% and 70% urea as a chemical intermediate.
-
Nitric acid is a nitrogen-based mineral acid that is used in the production of nitrate-based fertilizers, nylon precursors and other specialty chemicals.
The following table presents summary operating data for our Other segment:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 v. 2021 | 2022 | 2021 | 2022 v. 2021 | ||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions, except per ton amounts) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 185 | $ | 124 | $ | 61 | 49 | % | $ | 622 | $ | 356 | $ | 266 | 75 | % | |||||||||||||||||||||||||||||||
| Cost of sales | 108 | 105 | 3 | 3 | % | 314 | 290 | 24 | 8 | % | |||||||||||||||||||||||||||||||||||||
| Gross margin | $ | 77 | $ | 19 | $ | 58 | 305 | % | $ | 308 | $ | 66 | $ | 242 | 367 | % | |||||||||||||||||||||||||||||||
| Gross margin percentage | 41.6 | % | 15.3 | % | 26.3 | % | 49.5 | % | 18.5 | % | 31.0 | % | |||||||||||||||||||||||||||||||||||
| Sales volume by product tons (000s) | 496 | 544 | (48) | (9) | % | 1,598 | 1,749 | (151) | (9) | % | |||||||||||||||||||||||||||||||||||||
| Sales volume by nutrient tons (000s)(1) | 99 | 106 | (7) | (7) | % | 313 | 347 | (34) | (10) | % | |||||||||||||||||||||||||||||||||||||
| Average selling price per product ton | $ | 373 | $ | 228 | $ | 145 | 64 | % | $ | 389 | $ | 204 | $ | 185 | 91 | % | |||||||||||||||||||||||||||||||
| Average selling price per nutrient ton(1) | $ | 1,869 | $ | 1,170 | $ | 699 | 60 | % | $ | 1,987 | $ | 1,026 | $ | 961 | 94 | % | |||||||||||||||||||||||||||||||
| Gross margin per product ton | $ | 155 | $ | 35 | $ | 120 | 343 | % | $ | 193 | $ | 38 | $ | 155 | 408 | % | |||||||||||||||||||||||||||||||
| Gross margin per nutrient ton(1) | $ | 778 | $ | 179 | $ | 599 | 335 | % | $ | 984 | $ | 190 | $ | 794 | 418 | % | |||||||||||||||||||||||||||||||
| Depreciation and amortization | $ | 17 | $ | 22 | $ | (5) | (23) | % | $ | 53 | $ | 67 | $ | (14) | (21) | % | |||||||||||||||||||||||||||||||
| Unrealized net mark-to-market gain on natural gas derivatives | $ | — | $ | (1) | $ | 1 | 100 | % | $ | (7) | $ | (1) | $ | (6) | N/M | ||||||||||||||||||||||||||||||||
N/M—Not Meaningful
(1)Nutrient tons represent the tons of nitrogen within the product tons.
CF INDUSTRIES HOLDINGS, INC.
Third Quarter of 2022 Compared to Third Quarter of 2021
In June 2022, we approved and announced our proposed plan to restructure our U.K. operations, including the permanent closure of our Ince facility. In August 2022, the final restructuring plan was approved, and decommissioning activities were initiated. We produced compound fertilizer products (NPKs), which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium, only at our Ince facility, and closure of this facility has resulted in our discontinuation of the NPK product line. Total sales of NPK products were $15 million in the first nine 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,” above, for further information.
Net Sales. Net sales in our Other segment increased by $61 million, or 49%, to $185 million in the third quarter of 2022 from $124 million in the third quarter of 2021 due to a 64% 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 nitric acid and NPK sales volumes in the third quarter of 2022, as operations at our Ince manufacturing plant have ceased, partially offset by higher DEF sales volumes.
Cost of Sales. Cost of sales in our Other segment averaged $218 per ton in the third quarter of 2022, a 13% increase from $193 per ton in the third quarter of 2021, due primarily to higher realized natural gas costs.
Gross Margin. Gross margin in our Other segment increased by $58 million to $77 million in the third quarter of 2022 from $19 million in the third quarter of 2021, and our gross margin percentage was 41.6% in the third quarter of 2022 compared to 15.3% in the third quarter of 2021. The increase in gross margin was due primarily to a 64% increase in average selling prices, which increased gross margin by $71 million, a net decrease of $13 million in manufacturing, maintenance and other costs, and an increase of $1 million due to favorable product mix. These factors that increased gross margin were partially offset by an increase in realized natural gas costs, which reduced gross margin by $26 million. Gross margin also includes the impact of a $1 million gain in the third quarter of 2021.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Net Sales. Net sales in our Other segment increased by $266 million, or 75%, to $622 million in the nine months ended September 30, 2022 from $356 million in the nine months ended September 30, 2021 due primarily to a 91% 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 and nitric acid sales volumes, as operations at our Ince manufacturing plant have ceased, and lower urea liquor sales volumes, partially offset by higher DEF sales volumes.
Cost of Sales. Cost of sales in our Other segment averaged $196 per ton in the nine months ended September 30, 2022, an 18% increase from $166 per ton in the nine months ended September 30, 2021, due primarily to higher realized natural gas costs.
Gross Margin. Gross margin in our Other segment increased by $242 million, or 367%, to $308 million in the nine months ended September 30, 2022 from $66 million in the nine months ended September 30, 2021, and our gross margin percentage was 49.5% in the nine months ended September 30, 2022 compared to 18.5% in the nine months ended September 30, 2021. The increase in gross margin was due to a 91% increase in average selling prices, which increased gross margin by $304 million, a net decrease of $14 million in manufacturing, maintenance and other costs, and a $1 million increase due primarily to favorable product mix. These increases in gross margin were partially offset by an increase in realized natural gas costs, which decreased gross margin by $83 million. Gross margin also includes the impact of a $7 million unrealized net mark-to-market gain on natural gas derivatives in the nine months ended September 30, 2022 compared to a $1 million gain in the nine months ended September 30, 2021.
CF INDUSTRIES HOLDINGS, INC.
Liquidity and Capital Resources
Our primary uses of cash are generally for operating costs, working capital, capital expenditures, debt service, investments, taxes, share repurchases and dividends. Our working capital requirements are affected by several factors, including demand for our products, selling prices, raw material costs, freight costs and seasonal factors inherent in the business. In addition, we may from time to time seek to retire or purchase our outstanding debt through cash purchases, in open market or privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Generally, our primary source of cash is cash from operations, which includes cash generated by customer advances. We may also from time to time access the capital markets or engage in borrowings under our revolving credit agreement.
As of September 30, 2022, our cash and cash equivalents balance was $2.19 billion, an increase of $564 million from $1.63 billion at December 31, 2021. At September 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 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. See the discussion under “Debt,” below, for further information.
In the second and third quarter of 2022, quarterly dividends of $0.40 per common share were declared and paid, 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.
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 Programs
On November 3, 2021, our Board of Directors (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 nine months ended September 30, 2022, we repurchased approximately 12.7 million shares under the 2021 Share Repurchase Program for $1.12 billion, of which $27 million was accrued and unpaid as of September 30, 2022.
On November 2, 2022, the Board authorized the repurchase of up to $3 billion of CF Holdings common stock commencing upon completion of the 2021 Share Repurchase Program and effective through December 31, 2025 (the 2022 Share Repurchase Program).
Capital Spending
We make capital expenditures to sustain our asset base, increase our capacity, improve plant efficiency, comply with various environmental, health and safety requirements, and invest in our clean energy strategy. Capital expenditures totaled $319 million in the first nine months of 2022 compared to $382 million in the first nine months of 2021.
We currently anticipate that capital expenditures for the full year of 2022 will be approximately $500 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 and Transfer Pricing
In connection with the matter described above under “Items Affecting Comparability of Results—Canada Revenue Agency Competent Authority Matter,” in the third quarter of 2022, Canada Revenue Agency assessed, and we paid, additional tax and interest for tax years 2006 to 2011 of approximately $147 million. In the fourth quarter of 2022, we expect provincial tax authorities will assess additional tax and interest for tax years 2006 to 2011 of approximately $80 million, based on current estimates and foreign currency exchange rates, which we expect will be due in the fourth quarter of 2022, and the Company will then 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.
As described above under “Items Affecting Comparability of Results—Transfer pricing positions,” we have unrecognized tax benefits recorded in connection with certain tax years subsequent to 2011 that have been reassessed for transfer pricing matters by the Canadian tax authorities. Prior to the end of 2022, we expect to make tax payments to the Canadian taxing authorities of approximately $300 million related to these reassessed tax years while we continue to dispute the reassessments. The payments would be recorded as noncurrent income tax receivables and the associated letters of credit would be cancelled. For the amounts ultimately owed and paid to the Canadian tax authorities upon resolution of these tax disputes, the Company would seek refunds of related taxes overpaid in the United States.
United Kingdom Operations
As discussed under “Market Conditions and Current Developments—United Kingdom Operations,” 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.
In June 2022, we approved and announced our proposed plan to restructure our U.K. operations, including the permanent closure of our Ince facility and optimization of the remaining manufacturing operations at the Billingham facility. As a result, we recognized $152 million of asset impairment charges, primarily related to property, plant and equipment at the Ince facility, and a $10 million charge for post-employment benefits related to contractual and statutory obligations, which are included in the U.K. operations restructuring line item in our consolidated statements of operations. In August 2022, the final restructuring plan was approved, and decommissioning activities were initiated. As a result, in the third quarter of 2022, we incurred additional charges related to our U.K. restructuring of $8 million, primarily related to one-time termination benefits.
In the third quarter of 2022, the United Kingdom continued to experience extremely high and volatile natural gas prices. Russian natural gas pipeline flows to Europe via the Nord Stream 1 pipeline ceased, causing the United Kingdom to experience unprecedented natural gas prices. In addition, the European Union announced a desire to cap the price that Europe would pay Russia for natural gas deliveries, further contributing to the uncertainty in European energy markets. Given these factors and the lack of a corresponding increase in global nitrogen product market prices, in September 2022, we temporarily idled ammonia production at our Billingham complex. As a result, we concluded that an additional impairment test was triggered for the asset groups that comprise the continuing U.K. operations, which resulted in asset impairment charges of $87 million, primarily related to property, plant and equipment and definite-lived intangible assets.
The factors that could lead to the resolution of the U.K. energy crisis, and the timing of any such resolution, are unknown to us. Production of AN continues at our Billingham facility using ammonia on site and ammonia that is imported from our other ammonia production sites. Persistence of the current levels of energy costs in the United Kingdom could lead to the continued idling of ammonia production at our Billingham facility. There remains uncertainty regarding the future cost of natural gas and electricity, selling prices for the products we produce in the United Kingdom and U.K. government policy, which could result in, among other things, additional funding to support the cash needs of our U.K. operations and recognition of further losses and could have a material adverse impact on our results of operations and cash flows.
CF INDUSTRIES HOLDINGS, INC.
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 September 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 September 30, 2022 or December 31, 2021, or during the nine months ended September 30, 2022.
The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants, including financial covenants. As of September 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 September 30, 2022, approximately $197 million of letters of credit were outstanding under this agreement.
Senior Notes
Long-term debt presented on our consolidated balance sheets as of September 30, 2022 and December 31, 2021 consisted of the following debt securities issued by CF Industries:
| Effective Interest Rate | September 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 | 742 | 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 | $ | 2,965 | $ | 3,500 | $ | 3,465 | |||||||||||||||||||||
(1)Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discount was $7 million and $8 million as of September 30, 2022 and December 31, 2021, respectively, and total deferred debt issuance costs were $28 million and $27 million as of September 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.
CF INDUSTRIES HOLDINGS, INC.
Public Senior Notes
On April 21, 2022, we redeemed in full all of the $500 million outstanding principal amount of the 2023 Notes in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid in connection with the redemption of the 2023 Notes, which was funded with cash on hand, 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 $500 million principal amount of the 2023 Notes prior to their scheduled maturity.
On September 10, 2021, we redeemed $250 million principal amount, representing one-third of the $750 million principal amount outstanding immediately prior to such redemption, of the 2023 Notes, in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid in connection with the redemption of the 2023 Notes, which was funded with cash on hand, was approximately $265 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $13 million in the third quarter of 2021, consisting primarily of a premium paid on the redemption of the $250 million principal amount of the 2023 Notes prior to their scheduled maturity.
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
On March 20, 2021, we redeemed in full all of the $250 million outstanding principal amount of the 2021 Notes in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the redemption, which was funded with cash on hand, 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 $250 million principal amount of the 2021 Notes prior to their scheduled maturity.
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 connection with forward sales contracts are reflected on our consolidated balance sheets as a current liability until control transfers and revenue is recognized. As of September 30, 2022 and December 31, 2021, we had $511 million and $700 million, respectively, in customer advances on our consolidated balance sheets.
CF INDUSTRIES HOLDINGS, INC.
While customer advances are generally a significant source of liquidity, the level of forward sales contracts is affected by many factors including current market conditions, our customers’ outlook of future market fundamentals and seasonality. During periods of declining prices, customers tend to delay purchasing fertilizer in anticipation that prices in the future will be lower than the current prices. If the level of sales under our forward sales programs were to decrease in the future, our cash received from customer advances would likely decrease and our accounts receivable balances would likely increase. Additionally, borrowing under the Revolving Credit Agreement could become necessary. Due to the volatility inherent in our business and changing customer expectations, we cannot estimate the amount of future forward sales activity.
Under our forward sales programs, a customer may delay delivery of an order due to weather conditions or other factors. These delays generally subject the customer to potential charges for storage or may be grounds for termination of the contract by us. Such a delay in scheduled shipment or termination of a forward sales contract due to a customer’s inability or unwillingness to perform may negatively impact our reported sales.
Derivative Financial Instruments
We use derivative financial instruments to reduce our exposure to changes in prices for natural gas that will be purchased in the future. Natural gas is the largest and most volatile component of our manufacturing cost for nitrogen-based products. From time to time, we may also use derivative financial instruments to reduce our exposure to changes in foreign currency exchange rates. Volatility in reported quarterly earnings can result from the unrealized mark-to-market adjustments in the value of the derivatives. As of September 30, 2022, our open natural gas derivative contracts consisted of natural gas fixed price swaps, basis swaps and options for 48.2 million MMBtus of natural gas. 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 of natural gas.
Defined Benefit Pension Plans
We contributed $20 million to our pension plans in the nine months ended September 30, 2022. Over the remainder of 2022, we expect to contribute approximately $6 million to our pension plans, which would result in our making a total of approximately $26 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 $56 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 assumed 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 remeasured the plan's projected benefit obligation and plan assets and recognized a non-cash pre-tax pension settlement loss of $24 million, 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, and on August 1, 2022, CFN distributed approximately $372 million to CHS for this distribution period. The estimate of the partnership distribution earned by CHS, but not yet declared, for the third quarter of 2022 is approximately $106 million.
Cash Flows
Net cash provided by operating activities during the first nine months of 2022 was $3.27 billion, an increase of $1.88 billion compared to $1.39 billion in the first nine 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 nine months of 2022 was $2.93 billion as compared to $401 million for the first nine months of 2021, an increase of $2.53 billion. The increase in net earnings was due primarily to an increase in gross margin, driven by higher average selling prices, higher sales volume and a decrease in charges related to our U.K. operations. These increases were partially offset by increases in natural gas costs, an increase in the income tax provision and an increase in net earnings attributable to noncontrolling interest. During the first nine months of 2022, net changes in working capital reduced cash flow from operations by $621 million, while in the first nine months of 2021 net changes in working capital reduced cash flow from operations by $53 million. The decreased cash flow from working capital changes was attributable primarily to lower cash collections from customer advances and higher levels of accounts receivable in the first nine months of 2022 as compared to the first nine months of 2021.
CF INDUSTRIES HOLDINGS, INC.
Net cash used in investing activities was $308 million in the first nine months of 2022 as compared to $383 million in the first nine months of 2021. Capital expenditures totaled $319 million during the first nine months of 2022 compared to $382 million in the first nine months of 2021.
Net cash used in financing activities was $2.37 billion in the first nine months of 2022 compared to $936 million in the first nine months of 2021. The increase was due primarily to share repurchases in the first nine months of 2022 and higher distributions to noncontrolling interest. In the first nine months of 2022, we paid $1.10 billion for share repurchases, including $1 million related to shares repurchased in late 2021 that were paid for in 2022, compared to $50 million for share repurchases in the first nine months of 2021. In the first nine months of 2022, distributions to noncontrolling interest were $619 million compared to $194 million in the first nine 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 $106 million in the first nine months of 2022 compared to $32 million in the first nine months of 2021.
Critical Accounting Estimates
During the first nine months of 2022, there were no material changes to our critical accounting estimates as described in Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
CF INDUSTRIES HOLDINGS, INC.
Forward-Looking Statements
From time to time, in this Quarterly Report on Form 10-Q as well as in other written reports and oral statements, we make forward-looking statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our prospects, future developments and business strategies. We have used the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” or “would” and similar terms and phrases, including references to assumptions, to identify forward-looking statements in this document. These forward-looking statements are made based on currently available competitive, financial and economic data, our current expectations, estimates, forecasts and projections about the industries and markets in which we operate and management’s beliefs and assumptions concerning future events affecting us. These statements are not guarantees of future performance and are subject to risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Therefore, our actual results may differ materially from what is expressed in or implied by any forward-looking statements. We want to caution you not to place undue reliance on any forward-looking statements. We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this document. Additionally, we do not undertake any responsibility to provide updates regarding the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this document.
Important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk Factors” in Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 24, 2022. Such factors include, among others:
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the cyclical nature of our business and the impact of global supply and demand on our selling prices;
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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;
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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;
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the volatility of natural gas prices in North America and the United Kingdom;
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weather conditions and the impact of severe adverse weather events;
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the seasonality of the fertilizer business;
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the impact of changing market conditions on our forward sales programs;
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difficulties in securing the supply and delivery of raw materials, increases in their costs or delays or interruptions in their delivery;
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reliance on third party providers of transportation services and equipment;
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our reliance on a limited number of key facilities;
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risks associated with cyber security;
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acts of terrorism and regulations to combat terrorism;
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risks associated with international operations;
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the significant risks and hazards involved in producing and handling our products against which we may not be fully insured;
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our ability to manage our indebtedness and any additional indebtedness that may be incurred;
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our ability to maintain compliance with covenants under our revolving credit agreement and the agreements governing our indebtedness;
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downgrades of our credit ratings;
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risks associated with changes in tax laws and disagreements with taxing authorities;
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risks involving derivatives and the effectiveness of our risk measurement and hedging activities;
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potential liabilities and expenditures related to environmental, health and safety laws and regulations and permitting requirements;
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regulatory restrictions and requirements related to greenhouse gas emissions;
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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;
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risks associated with expansions of our business, including unanticipated adverse consequences and the significant resources that could be required;
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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
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the impact of the novel coronavirus disease 2019 (COVID-19) pandemic on our business and operations.
CF INDUSTRIES HOLDINGS, INC.
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