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

120K characters. Original on sec.gov · Markdown

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, 2022, filed with the Securities and Exchange Commission (SEC) on February 23, 2023, 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

*•*Agreement to Purchase Ammonia Production Facility

*•*Market Conditions

*•*Financial Executive Summary

*•*Items Affecting Comparability of Results

Consolidated Results of Operations

*•*Operating Results by Business Segment

Liquidity and Capital Resources
Critical Accounting Estimates
Forward-Looking Statements

Overview of CF Holdings

Our Company

Our mission is to provide clean energy to feed and fuel the world sustainably. With our employees focused on safe and reliable operations, environmental stewardship, and disciplined capital and corporate management, we are on a path to decarbonize our ammonia production network – the world’s largest – to enable green and blue hydrogen and nitrogen products for energy, fertilizer, emissions abatement and other industrial activities. Our 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 March 31, 2023 include:

five U.S. nitrogen manufacturing facilities located in Donaldsonville, Louisiana (the largest nitrogen complex in the world); Sergeant Bluff, Iowa (our Port Neal complex); Yazoo City, Mississippi; Claremore, Oklahoma (our Verdigris complex); 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 12—Noncontrolling Interest for additional information on our strategic venture with CHS);
two Canadian nitrogen manufacturing facilities located in Medicine Hat, Alberta (the largest nitrogen complex in Canada) and Courtright, Ontario;

*•*a United Kingdom nitrogen manufacturing facility located in Billingham;

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

CF INDUSTRIES HOLDINGS, INC.

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.

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 byproduct removed through carbon capture and sequestration (CCS).

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, is expected to finish in late 2023, with an estimated total cost of approximately $100 million. 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 the Donaldsonville green ammonia project will be the largest of its kind in North America at the time of its startup.

In July 2022, we and Mitsui & Co., Ltd. (Mitsui) signed a joint development agreement for the companies’ proposed plans to construct an export-oriented blue ammonia facility. We and Mitsui continue to progress a front-end engineering and design (FEED) study for the project, and expect to make a final investment decision on the proposed facility in the second half of 2023. Should the companies agree to move forward, the ammonia facility would be constructed at our new Blue Point complex. We own the land for the complex, which is located on the west bank of the Mississippi river in Ascension Parish, Louisiana. Construction and commissioning of a new world-scale ammonia plant typically takes approximately four years from the time construction begins.

In the first quarter of 2023, we signed a memorandum of understanding (MOU) with JERA Co., Inc. (JERA), Japan’s largest energy generator, regarding the long-term supply of up to 500,000 tonnes per year of clean ammonia beginning in 2027. The execution of the MOU was the result of a supplier comparison and evaluation process for the procurement of clean ammonia that JERA initiated in February 2022 for the world’s first commercial scale ammonia co-firing operations that JERA is developing. The MOU establishes a framework for JERA and us to assess how we would best supply JERA with clean ammonia, which will be required to be produced with at least 60% lower carbon emissions than conventionally produced ammonia, under a long-term offtake agreement. We and JERA expect to evaluate a range of potential supply options, including JERA making an equity investment with us to develop a clean ammonia facility in Louisiana and a supplementary long-term offtake agreement.

In the first quarter of 2023, we signed an MOU with LOTTE CHEMICAL Corporation (LOTTE), a global chemicals company in South Korea. The MOU will guide LOTTE and us in a joint exploration of the development of clean ammonia production in the United States, in addition to the quantification of expected clean ammonia demand in South Korea and long-term clean ammonia offtake volumes into South Korea.

We are also pursuing opportunities to produce blue ammonia from our existing ammonia production network. We are currently executing a project with an estimated cost of $200 million to construct a CO2 dehydration and compression facility at our Donaldsonville complex to enable the transport and permanent sequestration of the ammonia process CO2 byproduct. Engineering activities and procurement of major equipment for the facility are in progress, and modification of the site’s existing equipment to allow integration with existing operations has begun. Once the dehydration and compression unit is 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 planned for 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.

CF INDUSTRIES HOLDINGS, INC.

Agreement to Purchase Ammonia Production Facility

On March 20, 2023, we entered into an asset purchase agreement with Dyno Nobel Louisiana Ammonia, LLC (DNLA), a U.S. subsidiary of Australian-based Incitec Pivot Limited (IPL), and IPL. Under the terms of the agreement, we will purchase DNLA’s ammonia production complex located in Waggaman, Louisiana for a purchase price of $1.675 billion, subject to adjustment. The facility has a nameplate capacity of 880,000 tons of ammonia annually. The parties will allocate $425 million of the purchase price to a long-term ammonia offtake agreement providing for us to supply up to 200,000 tons of ammonia per year to IPL’s Dyno Nobel, Inc. subsidiary. We expect to fund the balance of the purchase price, representing the $1.675 billion purchase price, as adjusted, less $425 million, with cash on hand.

The consummation of the transaction is subject to the satisfaction or waiver of customary conditions, including, among others, the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The agreement includes certain customary termination rights, including the right of either party to terminate the agreement if the closing has not occurred by March 20, 2025. We have agreed to pay a termination fee of $75 million if the agreement is terminated in certain circumstances and certain regulatory approvals are not obtained.

Market Conditions

Geopolitical Environment

Changes in the geopolitical environment can have significant effects on our financial results. Russia’s invasion of Ukraine in February 2022, and the resulting war between Russia and Ukraine, 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 were announced by U.S., Canadian, European and other governments against Russia in response to the war. During 2022 and continuing into 2023, market participants adjusted trade flows and manufacturers adjusted production levels in response to these factors. As of the date of filing of this report, nitrogen fertilizers have largely been explicitly exempted from Russian sanctions by the United States and certain other governments.

As further described below, natural gas is the principal raw material used to produce our nitrogen products. Natural gas is a globally traded commodity that experiences price fluctuations based on supply and demand balances and has been impacted by geopolitical events relating to the war between Russia and Ukraine. European energy markets, which have historically sourced a substantial portion of their natural gas from Russia, were disrupted by Russia’s invasion of Ukraine and the subsequent reduction of Russian natural gas supply to Europe during 2022. This led to further increases in natural gas prices and natural gas price volatility, which in turn led to disruptions in manufacturing and distribution activities at other nitrogen manufacturers and suppliers in our industry, resulting in changes in nitrogen product trade flows and reductions in global fertilizer supply. In September 2022, in response to the high prices for natural gas in the United Kingdom, we temporarily idled ammonia production at our Billingham complex and since that time have been importing ammonia from one of our North American manufacturing facilities or from purchases in the open market for upgrade into AN and other nitrogen products at that location.

The geopolitical developments relating to the war in Ukraine also led to some supply chain disruptions for Russian producers of fertilizer, contributing to reduced global nitrogen fertilizer supply. Prior to its February 2022 invasion of Ukraine, 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. Since that invasion, the closure of a pipeline historically transporting ammonia from Russia through Ukraine for export has been a large contributor to reduced global exportable ammonia supply. 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, resulted in reduced commodity grain supply from Russia and Ukraine, causing increased prices for grains globally. The increase in commodity grain prices in turn supported strong demand for nitrogen fertilizer in 2022. All of these geopolitical developments further contributed to an already tight global supply and demand balance for nitrogen fertilizers. These factors caused changes in global trade flows as both manufacturers and customers reacted to the changing market dynamics. As a result, global nitrogen fertilizer prices remained high and also experienced significant volatility in 2022.

As Russian-sourced natural gas supply declined due to geopolitical factors, European purchasers of natural gas increased imports from the liquified natural gas (LNG) market to build storage levels leading up to the winter 2022/2023 peak demand season. As storage levels of natural gas increased due to the increased LNG imports, in conjunction with a warmer than expected winter in Europe, prices for natural gas first stabilized and then fell as the first quarter of 2023 progressed. As natural gas prices decreased, certain nitrogen producers restarted previously idled production, leading to an increase in global nitrogen production operating rates. The increased nitrogen product supply availability resulting from the increase in operating rates, in

CF INDUSTRIES HOLDINGS, INC.

addition to new global production coming on line and an increase in Russian imports into North America, resulted in lower average selling prices in the first quarter of 2023 compared to average selling prices realized in 2022.

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 first quarter of 2023, the average selling price for our products was $444 per ton, a decrease of 28% compared to $620 per ton in the first quarter of 2022, reflecting lower average selling prices across all our segments, which drove a decrease in net sales of approximately $804 million for the first quarter of 2023 compared to the first quarter of 2022. The decrease in average selling prices reflects the impact of an increase in global supply availability as lower global energy costs drove higher global operating rates. In addition, higher average selling prices in 2022 were driven in part by the geopolitical environment experienced in 2022, as described above.

Natural Gas

Natural gas is the principal raw material used to produce our nitrogen products. Natural gas is both a chemical feedstock and a fuel used to produce nitrogen products. Natural gas is a significant cost component of our manufactured nitrogen products, representing approximately 50% of our production costs in both the first three months of 2023 and in the year ended December 31, 2022.

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


	Three Months Ended March 31,
		2023	2022		2023 v. 2022

Natural gas supplemental data (per MMBtu)






Average daily market price of natural gas Henry Hub (Louisiana)			$	2.68	$	4.60	$	(1.92)	(42)	%
Average daily market price of natural gas National Balancing Point (United Kingdom)			$	16.20	$	30.20	$	(14.00)	(46)	%

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 were lower on average during the first three months of 2023 than during the first three months of 2022. Warmer-than-normal temperatures in the first quarter of 2023 drove lower heating demand for natural gas, while North American supply remained strong, as there were few weather-related disruptions. In addition, although the higher cost for natural gas outside of North America incentivized liquefaction facilities in the United States to export domestic natural gas during the first quarter of 2023, the ongoing outage at the Freeport LNG facility limited total gas exports, supporting domestic supply. As a result, North American gas withdrawals from storage during the first quarter of 2023 were lower than normal, leading to end-of-quarter storage levels that were 32% higher than one year ago and 20% higher than the five-year average. For the first three weeks of April 2023, the average daily market price of natural gas at the Henry Hub was $2.11 per MMBtu.

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 in February 2022 disrupted European energy markets and threatened security of supply, driving natural gas prices in Europe upward to unprecedented levels. During the first quarter of 2023, Europe benefited from warmer-than-normal temperatures along with increased LNG imports, which were used to fill local storage capacity, decreasing the risk of natural gas shortage. This resulted in lower natural gas prices in the United Kingdom during the first quarter of 2023, despite lower European natural gas imports from Russia. Throughout the first quarter of 2023, storage levels remained well above historical averages, putting the market in a strong position to refill stocks in preparation for the next winter season and contributing to lower prices. For the three months ended March 31, 2023, the daily closing price at the NBP reached a low of $11.00 per MMBtu on March 21, 2023 and a high of $21.51 per MMBtu on two consecutive days in January 2023. For the first three weeks of April 2023, the average daily market price of natural gas at the NBP was $12.84 per MMBtu.

In the first quarter of 2023, our cost of natural gas used for production, which includes the impact of realized natural gas derivatives, increased 2% to $6.62 per MMBtu from $6.48 per MMBtu in the first quarter of 2022. This increase in natural gas costs resulted in a decrease in gross margin of approximately $28 million compared to the first quarter 2022. The higher cost of

CF INDUSTRIES HOLDINGS, INC.

natural gas reflects the impact of losses realized on natural gas derivatives that settled during the first quarter of 2023. In 2022, in response to high North American natural gas prices and continued price volatility, we entered into certain natural gas derivatives in order to reduce our exposure to further natural gas price volatility in the winter of 2022/2023.

Financial Executive Summary

We reported net earnings attributable to common stockholders of $560 million for the three months ended March 31, 2023 compared to $883 million for the three months ended March 31, 2022, a decrease in net earnings of $323 million. The decrease in net earnings for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 reflects a decrease of $835 million in gross margin to $863 million for the three months ended March 31, 2023. The decrease in gross margin was due primarily to a decrease of 28% in average selling prices to $444 per ton in the first quarter of 2023 from $620 per ton in the first quarter of 2022, which decreased gross margin by $804 million. Lower gross margin was partially offset by a decrease in interest expense of $201 million due primarily to interest expense on tax liabilities related to Canadian-U.S. transfer pricing matters in the first quarter of 2022 that did not recur in 2023 and a decrease in the income tax provision of $232 million due primarily to lower earnings in the first quarter of 2023.

Diluted net earnings per share attributable to common stockholders decreased $1.36 per share, to $2.85 per share, in the first quarter of 2023 compared to $4.21 per share in the first quarter of 2022 due primarily to lower net earnings, partially offset by lower weighted-average common shares outstanding as a result of shares repurchased under our share repurchase program.

Items Affecting Comparability of Results

For the three months ended March 31, 2023 and 2022, we reported net earnings attributable to common stockholders of $560 million and $883 million, respectively. In addition to the impact of market conditions discussed above, certain items affected the comparability of our financial results for the three months ended March 31, 2023 and 2022. The following table and related discussion outline these items and their impact on 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 March 31,
		2023			2022
			Pre-Tax		After-Tax		Pre-Tax		After-Tax
			(in millions)

Unrealized net mark-to-market gain on natural gas derivatives(1)			$	(72)	$	(55)	$	(33)	$	(25)










(Gain) loss on foreign currency transactions, including intercompany loans(2)			(1)		(1)		6		5





U.K. operations restructuring			2		2		—		—


Transaction costs related to acquisition agreement			13		10		—		—


Canada Revenue Agency Competent Authority Matter and transfer pricing positions:
Interest expense			—		—		198		196
Interest income			—		—		(36)		(28)
Income tax provision(3)			—		—		—		72

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

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

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

Unrealized net mark-to-market gain on natural gas derivatives

Natural gas is the largest and most volatile single component of the manufacturing cost for 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 March 31, 2023 and 2022, we recognized unrealized net mark-to-market gains of $72 million and $33 million, respectively.

CF INDUSTRIES HOLDINGS, INC.

(Gain) loss on foreign currency transactions, including intercompany loans

In the three months ended March 31, 2023 and 2022, we recognized a (gain) loss on foreign currency transactions of $(1) million and $6 million, respectively. Gains and losses on foreign currency transactions consist of foreign currency exchange rate impacts on foreign currency denominated transactions, including the impact of changes in foreign currency exchange rates on intercompany loans that were not permanently invested.

U.K. operations restructuring

In the three months ended March 31, 2023, we incurred restructuring costs of $2 million related to the permanent closure of our Ince facility.

Transaction costs related to acquisition agreement

On March 20, 2023, we entered into an asset purchase agreement with DNLA and IPL to acquire DNLA’s ammonia production complex located in Waggaman, Louisiana, as described above under “Agreement to Purchase Ammonia Production Facility.” In the three months ended March 31, 2023, we incurred $13 million of transaction costs related to the acquisition agreement.

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 served as security until the matter was 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 was subject to tax in Canada, resulting in our having additional Canadian tax liability for those tax years. See Note 8—Income Taxes for additional information.

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

Transfer pricing positions

In the first quarter of 2022, 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:

liabilities for unrecognized tax benefits of $319 million, with a corresponding income tax provision, and accrued interest of $91 million related to the liabilities for unrecognized tax benefits, and
noncurrent income tax receivables of $329 million, with a corresponding income tax benefit, and accrued interest income of $28 million related to the noncurrent income tax receivables.

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

CF INDUSTRIES HOLDINGS, INC.

Consolidated Results of Operations

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


	Three Months Ended March 31,
		2023	2022			2023 v. 2022
			(in millions, except per share and per MMBtu)
Net sales			$	2,012		$	2,868		$	(856)		(30)	%
Cost of sales			1,149			1,170			(21)			(2)	%
Gross margin			863			1,698			(835)			(49)	%
Gross margin percentage			42.9		%	59.2		%	(16.3)		%
Selling, general and administrative expenses			74			64			10			16	%
U.K. operations restructuring			2			—			2			N/M


Transaction costs			13			—			13			N/M

Other operating—net			(35)			2			(37)			N/M
Total other operating costs and expenses			54			66			(12)			(18)	%

Equity in earnings of operating affiliate			17			26			(9)			(35)	%
Operating earnings			826			1,658			(832)			(50)	%
Interest expense—net			10			205			(195)			(95)	%

Other non-operating—net			(3)			1			(4)			N/M
Earnings before income taxes			819			1,452			(633)			(44)	%
Income tax provision			169			401			(232)			(58)	%

Net earnings			650			1,051			(401)			(38)	%
Less: Net earnings attributable to noncontrolling interest			90			168			(78)			(46)	%
Net earnings attributable to common stockholders			$	560		$	883		$	(323)		(37)	%
Diluted net earnings per share attributable to common stockholders			$	2.85		$	4.21		$	(1.36)		(32)	%
Diluted weighted-average common shares outstanding			196.9			209.9			(13.0)			(6)	%
Dividends declared per common share			$	0.40		$	0.30		$	0.10		33	%
Natural gas supplemental data (per MMBtu)
Natural gas costs in cost of sales(1)			$	5.14		$	6.70		$	(1.56)		(23)	%
Realized derivatives loss (gain) in cost of sales(2)			1.48			(0.22)			1.70			N/M
Cost of natural gas used for production in cost of sales			$	6.62		$	6.48		$	0.14		2	%



Average daily market price of natural gas Henry Hub (Louisiana)			$	2.68		$	4.60		$	(1.92)		(42)	%
Average daily market price of natural gas National Balancing Point (United Kingdom)			$	16.20		$	30.20		$	(14.00)		(46)	%
Unrealized net mark-to-market gain on natural gas derivatives			$	(72)		$	(33)		$	(39)		(118)	%
Depreciation and amortization			$	206		$	208		$	(2)		(1)	%
Capital expenditures			$	69		$	63		$	6		10	%
Sales volume by product tons (000s)			4,535			4,624			(89)			(2)	%
Production volume by product tons (000s):
Ammonia(3)			2,359			2,613			(254)			(10)	%
Granular urea			1,211			1,074			137			13	%
UAN (32%)			1,598			1,865			(267)			(14)	%
AN			388			405			(17)			(4)	%

N/M—Not Meaningful

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

(2)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.

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

CF INDUSTRIES HOLDINGS, INC.

First Quarter of 2023 Compared to First Quarter of 2022

Net Sales

Our total net sales decreased $856 million, or 30%, to $2.01 billion in the first quarter of 2023 compared to $2.87 billion in the first quarter of 2022 due to decreases in average selling prices and sales volume.

Our average selling price was $444 per ton in the first quarter of 2023, or 28% lower compared to $620 per ton in the first quarter of 2022, due to lower average selling prices across all of our segments, primarily driven by an increase in global supply availability as lower global energy costs drove higher global operating rates.

Our total sales volume of 4.5 million product tons in the first quarter of 2023 was 2% lower compared to 4.6 million product tons in the first quarter of 2022, as lower sales volume in our UAN, Ammonia, AN and Other segments was partially offset by higher sales volume in our Granular Urea segment.

Cost of Sales

Our total cost of sales decreased $21 million, or 2%, to $1.15 billion in the first quarter of 2023 from $1.17 billion in the first quarter of 2022. The decrease in our cost of sales was due primarily to a decrease in sales volume of 2%, which decreased cost of sales by $30 million, and lower costs for ammonia purchased from PLNL, our joint venture in Trinidad. The factors that decreased cost of sales were partially offset by higher costs for natural gas, including the impact of realized derivatives, which increased cost of sales by $28 million, and higher costs for imported ammonia for our operations in the United Kingdom. Higher costs for natural gas were due primarily to losses on natural gas derivatives settled in the first quarter of 2023, partially offset by lower costs for natural gas in the United Kingdom as we imported ammonia for upgrading to AN.

Cost of sales also includes the impact of a $72 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2023 compared to a $33 million gain in the first quarter of 2022.

Cost of sales averaged $254 per ton in the first quarter of 2023 compared to $253 per ton in the first quarter of 2022. The cost of natural gas used for production includes the impact of natural gas derivatives used to reduce the volatility of natural gas prices. The cost of natural gas increased 2% to $6.62 per MMBtu in the first quarter of 2023 from $6.48 per MMBtu in the first quarter of 2022. The higher cost of natural gas reflects the impact of losses realized on natural gas derivatives that settled during the first quarter of 2023. In 2022, in response to high North American natural gas prices and continued price volatility, we entered into certain natural gas derivatives in order to reduce our exposure to further natural gas price volatility in the winter of 2022/2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $10 million to $74 million in the first quarter of 2023 as compared to $64 million in the first quarter of 2022. The increase was due primarily to higher costs related to certain corporate initiatives, including amortization of our recently implemented enterprise resource planning (ERP) system, and higher salaries and incentive compensation.

Transaction Costs

Other Operating—Net

Other operating—net was $35 million of income in the first quarter of 2023 compared to $2 million of expense in the first quarter of 2022. The $35 million of income in the first quarter of 2023 consists primarily of a gain on sales of emission credits.

Equity in Earnings of Operating Affiliate

Equity in earnings of operating affiliate was $17 million in the first quarter of 2023 compared to $26 million in the first quarter of 2022. The decrease was due primarily to a decrease in the operating results of PLNL as a result of lower ammonia selling prices, partially offset by lower natural gas costs.

CF INDUSTRIES HOLDINGS, INC.

Interest Expense—Net

Net interest expense was $10 million in the first quarter of 2023 compared to $205 million in the first quarter of 2022. The decrease of $195 million was due primarily to $162 million of net interest expense recorded in the first quarter of 2022 related to income tax matters, which are described under “Items Affecting Comparability of Results—Canada Revenue Agency Competent Authority Matter” and “Items Affecting Comparability of Results—Transfer pricing positions,” above. In addition, the decrease in net interest expense was due to higher interest income on investments and lower interest expense on borrowings due to the redemption of $500 million principal amount of 3.450% senior notes due June 2023 in April 2022 prior to their scheduled maturity.

Income Taxes

For the three months ended March 31, 2023, we recorded an income tax provision of $169 million on pre-tax income of $819 million, or an effective tax rate of 20.6%, compared to an income tax provision of $401 million on a pre-tax income of $1.45 billion, or an effective tax rate of 27.6%, for the three months ended March 31, 2022.

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 March 31, 2023 of 20.6%, which is based on pre-tax income of $819 million, including $90 million of earnings attributable to the noncontrolling interest, would be 2.6 percentage points higher, or 23.2%, if based on pre-tax income exclusive of the $90 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended March 31, 2022 of 27.6%, which is based on pre-tax income of $1.45 billion, including $168 million of earnings attributable to the noncontrolling interest, would be 3.7 percentage points higher, or 31.3%, if based on pre-tax income exclusive of the $168 million of earnings attributable to the noncontrolling interest. See Note 12—Noncontrolling Interest for additional information.

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

Net Earnings Attributable to Noncontrolling Interest

Net earnings attributable to noncontrolling interest decreased $78 million to $90 million in the first quarter of 2023 compared to $168 million in the first quarter of 2022 due to lower earnings of CFN driven by lower average selling prices as described above under “Net Sales.”

Diluted Net Earnings Per Share Attributable to Common Stockholders

Net earnings per share attributable to common stockholders decreased $1.36 to $2.85 per diluted share in the first quarter of 2023 from $4.21 per diluted share in the first quarter of 2022. This decrease was due primarily to a decrease in gross margin, driven by lower average selling prices. Lower gross margin was partially offset by a decrease in interest expense due primarily to interest expense on tax liabilities in the first quarter of 2022 related to Canadian-U.S. transfer pricing matters and a decrease in the income tax provision resulting from lower profitability. Additionally, diluted weighted-average common shares outstanding declined 6% from 209.9 million shares for the three months ended March 31, 2022 to 196.9 million shares for the three months ended March 31, 2023, due primarily to repurchases of common shares under our share repurchase program.

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 table presents summary operating results by business segment:



	Ammonia			Granular Urea(1)			UAN(1)			AN(1)			Other(1)			Consolidated
	(in millions)










Three months ended March 31, 2023
Net sales	$	424		$	611		$	667		$	159		$	151		$	2,012
Cost of sales	280			327			346			104			92			1,149
Gross margin	$	144		$	284		$	321		$	55		$	59		$	863
Gross margin percentage	34.0		%	46.5		%	48.1		%	34.6		%	39.1		%	42.9		%
Three months ended March 31, 2022
Net sales	$	640		$	765		$	1,015		$	223		$	225		$	2,868
Cost of sales	280			270			345			171			104			1,170
Gross margin	$	360		$	495		$	670		$	52		$	121		$	1,698
Gross margin percentage	56.3		%	64.7		%	66.0		%	23.3		%	53.8		%	59.2		%

(1)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 the base product that we manufacture, containing 82% nitrogen and 18% hydrogen. The results of our Ammonia segment consist of sales of ammonia to external customers for its nitrogen content as a fertilizer, in emissions control and in other industrial applications. In addition, we upgrade ammonia into other nitrogen products such as granular urea, UAN and AN.

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


	Three Months Ended March 31,
		2023	2022			2023 v. 2022
			(dollars in millions, except per ton amounts)
Net sales			$	424		$	640		$	(216)		(34)	%
Cost of sales			280			280			—			—	%
Gross margin			$	144		$	360		$	(216)		(60)	%
Gross margin percentage			34.0		%	56.3		%	(22.3)		%
Sales volume by product tons (000s)			652			727			(75)			(10)	%
Sales volume by nutrient tons (000s)(1)			535			596			(61)			(10)	%
Average selling price per product ton			$	650		$	880		$	(230)		(26)	%
Average selling price per nutrient ton(1)			$	793		$	1,074		$	(281)		(26)	%
Gross margin per product ton			$	221		$	495		$	(274)		(55)	%
Gross margin per nutrient ton(1)			$	269		$	604		$	(335)		(55)	%
Depreciation and amortization			$	31		$	34		$	(3)		(9)	%
Unrealized net mark-to-market gain on natural gas derivatives			$	(21)		$	(8)		$	(13)		(163)	%

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

First Quarter of 2023 Compared to First Quarter of 2022

Net Sales. Net sales in our Ammonia segment decreased by $216 million, or 34%, to $424 million in the first quarter of 2023 from $640 million in the first quarter of 2022 due to a 26% decrease in average selling prices and a 10% decrease in sales volume. Average selling prices decreased to $650 per ton in the first quarter of 2023 compared to $880 per ton in the first quarter of 2022 due primarily to an increase in global supply availability as lower global energy costs drove higher global operating rates. Sales volume was lower due primarily to lower demand compared to a robust ammonia sales environment in the first quarter of 2022.

Cost of Sales. Cost of sales in our Ammonia segment averaged $429 per ton in the first quarter of 2023, an 11% increase from $385 per ton in the first quarter of 2022. The increase was due primarily to higher realized natural gas costs, including the impact of realized derivatives, partially offset by a lower cost per ton for purchased ammonia from PLNL, our joint venture in Trinidad.

Gross Margin. Gross margin in our Ammonia segment decreased by $216 million to $144 million in the first quarter of 2023 from $360 million in the first quarter of 2022, and our gross margin percentage was 34.0% in the first quarter of 2023 compared to 56.3% in the first quarter of 2022. The decrease in gross margin was due primarily to a 26% decrease in average selling prices, which decreased gross margin by $144 million, a 10% decrease in sales volume, which decreased gross margin by $63 million, and an increase in realized natural gas costs, including the impact of realized derivatives, which reduced gross margin by $47 million. The factors that decreased gross margin were partially offset by a $25 million net decrease in manufacturing, maintenance and other costs, driven by lower purchased product costs. Gross margin also includes the impact of a $21 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2023 compared to an $8 million gain in the first quarter of 2022.

CF INDUSTRIES HOLDINGS, INC.

Granular Urea Segment

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

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


	Three Months Ended March 31,
		2023	2022			2023 v. 2022
			(dollars in millions, except per ton amounts)
Net sales			$	611		$	765		$	(154)		(20)	%
Cost of sales			327			270			57			21	%
Gross margin			$	284		$	495		$	(211)		(43)	%
Gross margin percentage			46.5		%	64.7		%	(18.2)		%
Sales volume by product tons (000s)			1,323			1,096			227			21	%
Sales volume by nutrient tons (000s)(1)			608			504			104			21	%
Average selling price per product ton			$	462		$	698		$	(236)		(34)	%
Average selling price per nutrient ton(1)			$	1,005		$	1,518		$	(513)		(34)	%
Gross margin per product ton			$	215		$	452		$	(237)		(52)	%
Gross margin per nutrient ton(1)			$	467		$	982		$	(515)		(52)	%
Depreciation and amortization			$	79		$	64		$	15		23	%
Unrealized net mark-to-market gain on natural gas derivatives			$	(20)		$	(7)		$	(13)		(186)	%

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

First Quarter of 2023 Compared to First Quarter of 2022

Net Sales. Net sales in our Granular Urea segment decreased $154 million, or 20%, to $611 million in the first quarter of 2023 from $765 million in the first quarter of 2022 due primarily to a 34% decrease in average selling prices, partially offset by a 21% increase in sales volume. Average selling prices decreased to $462 per ton in the first quarter of 2023 compared to $698 per ton in the first quarter of 2022 due primarily to an increase in global supply availability as lower global energy costs drove higher global operating rates, and an increase in global supply availability resulting from new global production coming online. Sales volume was higher due primarily to greater supply availability resulting from higher production.

Cost of Sales. Cost of sales in our Granular Urea segment averaged $247 per ton in the first quarter of 2023 compared to $246 per ton in the first quarter of 2022, as higher realized natural gas costs, including the impact of realized derivatives, were partially offset by the impact of lower production costs.

Gross Margin. Gross margin in our Granular Urea segment decreased by $211 million to $284 million in the first quarter of 2023 from $495 million in the first quarter of 2022, and our gross margin percentage was 46.5% in the first quarter of 2023 compared to 64.7% in the first quarter of 2022. The decrease in gross margin was due primarily to a 34% decrease in average selling prices, which decreased gross margin by $313 million, and an increase in realized natural gas costs, including the impact of realized derivatives, which reduced gross margin by $19 million. The factors that reduced gross margin were partially offset by a 21% increase in sales volume, which increased gross margin by $104 million, and a $4 million net decrease in manufacturing, maintenance and other costs. Gross margin also includes the impact of a $20 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2023 compared to a $7 million gain in the first quarter of 2022.

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 Courtright, Donaldsonville, Port Neal, Verdigris, Woodward and Yazoo City nitrogen complexes.

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


	Three Months Ended March 31,
		2023	2022			2023 v. 2022
			(dollars in millions, except per ton amounts)
Net sales			$	667		$	1,015		$	(348)		(34)	%
Cost of sales			346			345			1			—	%
Gross margin			$	321		$	670		$	(349)		(52)	%
Gross margin percentage			48.1		%	66.0		%	(17.9)		%
Sales volume by product tons (000s)			1,662			1,828			(166)			(9)	%
Sales volume by nutrient tons (000s)(1)			524			576			(52)			(9)	%
Average selling price per product ton			$	401		$	555		$	(154)		(28)	%
Average selling price per nutrient ton(1)			$	1,273		$	1,762		$	(489)		(28)	%
Gross margin per product ton			$	193		$	367		$	(174)		(47)	%
Gross margin per nutrient ton(1)			$	613		$	1,163		$	(550)		(47)	%
Depreciation and amortization			$	66		$	70		$	(4)		(6)	%
Unrealized net mark-to-market gain on natural gas derivatives			$	(21)		$	(8)		$	(13)		(163)	%

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

First Quarter of 2023 Compared to First Quarter of 2022

Net Sales. Net sales in our UAN segment decreased $348 million, or 34%, to $667 million in the first quarter of 2023 from $1.02 billion in the first quarter of 2022 due to a 28% decrease in average selling prices and a 9% decrease in sales volume. Average selling prices decreased to $401 per ton in the first quarter of 2023 compared to $555 per ton in the first quarter of 2022 due primarily to an increase in global supply availability as lower global energy costs drove higher global operating rates. Sales volume was lower due primarily to lower supply availability resulting from a decrease in production.

Cost of Sales. Cost of sales in our UAN segment averaged $208 per ton in the first quarter of 2023, an 11% increase from $188 per ton in the first quarter of 2022, due primarily to the impact of higher realized natural gas costs, including the impact of realized derivatives, and higher production costs.

Gross Margin. Gross margin in our UAN segment decreased by $349 million to $321 million in the first quarter of 2023 from $670 million in the first quarter of 2022, and our gross margin percentage was 48.1% in the first quarter of 2023 compared to 66.0% in the first quarter of 2022. The decrease in gross margin was due primarily to a 28% decrease in average selling prices, which decreased gross margin by $259 million, a 9% decrease in sales volume, which decreased gross margin by $63 million, an increase in realized natural gas costs, including the impact of realized derivatives, which reduced gross margin by $29 million, and a net increase in manufacturing, maintenance and other costs, which reduced gross margin by $11 million. Gross margin also includes the impact of a $21 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2023 compared to an $8 million gain in the first quarter of 2022.

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 Yazoo City and Billingham nitrogen complexes.

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


	Three Months Ended March 31,
		2023	2022			2023 v. 2022
			(dollars in millions, except per ton amounts)
Net sales			$	159		$	223		$	(64)		(29)	%
Cost of sales			104			171			(67)			(39)	%
Gross margin			$	55		$	52		$	3		6	%
Gross margin percentage			34.6		%	23.3		%	11.3		%
Sales volume by product tons (000s)			374			428			(54)			(13)	%
Sales volume by nutrient tons (000s)(1)			128			146			(18)			(12)	%
Average selling price per product ton			$	425		$	521		$	(96)		(18)	%
Average selling price per nutrient ton(1)			$	1,242		$	1,527		$	(285)		(19)	%
Gross margin per product ton			$	147		$	121		$	26		21	%
Gross margin per nutrient ton(1)			$	430		$	356		$	74		21	%
Depreciation and amortization			$	11		$	17		$	(6)		(35)	%
Unrealized net mark-to-market gain on natural gas derivatives			$	(3)		$	(6)		$	3		50	%

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

First Quarter of 2023 Compared to First Quarter of 2022

In September 2022, as a result of extremely high and volatile natural gas prices and the lack of a corresponding increase in global nitrogen product market prices, we temporarily idled ammonia production at our Billingham complex. Since that time, we have imported ammonia for upgrade into AN and other nitrogen products at that location.

Net Sales. Net sales in our AN segment decreased $64 million, or 29%, to $159 million in the first quarter of 2023 from $223 million in the first quarter of 2022 due to an 18% decrease in average selling prices and a 13% decrease in sales volume. Average selling prices decreased to $425 per ton in the first quarter of 2023 compared to $521 per ton in the first quarter of 2022 due primarily to an increase in global supply availability as lower global energy costs drove higher global operating rates. Sales volume declined due primarily to weak domestic demand in the United Kingdom.

Cost of Sales. Cost of sales in our AN segment averaged $278 per ton in the first quarter of 2023, a 31% decrease from $400 per ton in the first quarter of 2022. The decrease was due primarily to lower production costs in the first quarter of 2023 as purchased ammonia was used for upgrading into AN as compared to the higher-cost natural gas used to produce ammonia to upgrade into AN in the first quarter of 2022.

Gross Margin. Gross margin in our AN segment increased $3 million to $55 million in the first quarter of 2023 from $52 million in the first quarter of 2022, and our gross margin percentage was 34.6% in the first quarter of 2023 compared to 23.3% in the first quarter of 2022. The increase in gross margin reflects the following:

a decrease in realized natural gas costs, due primarily to the idling of the Billingham ammonia plant, which increased gross margin by $55 million, partially offset by a net increase of $25 million in manufacturing, maintenance and other costs, driven by the cost for purchased ammonia for upgrade, partially offset by lower production costs;
favorable location product mix, which increased gross margin by $2 million;
a decrease in average selling prices of 18%, which decreased gross margin by $26 million; and

CF INDUSTRIES HOLDINGS, INC.

the impact of a $3 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2023 compared to a $6 million gain in the first quarter of 2022.

Other Segment

Our Other segment primarily includes the following products:

diesel exhaust fluid (DEF), an aqueous urea solution typically made with 32.5% or 50% high-purity urea and the remainder deionized water;
urea liquor, a liquid product that we sell in concentrations of 40%, 50% and 70% urea as a chemical intermediate and
nitric acid, 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 March 31,
		2023	2022			2023 v. 2022
			(dollars in millions, except per ton amounts)
Net sales			$	151		$	225		$	(74)		(33)	%
Cost of sales			92			104			(12)			(12)	%
Gross margin			$	59		$	121		$	(62)		(51)	%
Gross margin percentage			39.1		%	53.8		%	(14.7)		%
Sales volume by product tons (000s)			524			545			(21)			(4)	%
Sales volume by nutrient tons (000s)(1)			103			104			(1)			(1)	%
Average selling price per product ton			$	288		$	413		$	(125)		(30)	%
Average selling price per nutrient ton(1)			$	1,466		$	2,163		$	(697)		(32)	%
Gross margin per product ton			$	113		$	222		$	(109)		(49)	%
Gross margin per nutrient ton(1)			$	573		$	1,163		$	(590)		(51)	%
Depreciation and amortization			$	16		$	19		$	(3)		(16)	%
Unrealized net mark-to-market gain on natural gas derivatives			$	(7)		$	(4)		$	(3)		(75)	%

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

First Quarter of 2023 Compared to First Quarter of 2022

In June 2022, we approved and announced our proposed plan to restructure our U.K. operations, including the planned 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 resulted in our discontinuation of the NPK product line.

Net Sales. Net sales in our Other segment decreased by $74 million, or 33%, to $151 million in the first quarter of 2023 from $225 million in the first quarter of 2022 due to a 30% decrease in average selling prices and a 4% decrease in sales volume. The decrease in average selling prices was due primarily to an increase in global supply availability as lower global energy costs drove higher global operating rates. The decrease in sales volume was due primarily to lower nitric acid and NPK sales volumes in the first quarter of 2023, partially offset by higher DEF sales volumes.

Cost of Sales. Cost of sales in our Other segment averaged $175 per ton in the first quarter of 2023, an 8% decrease from $191 per ton in the first quarter of 2022, due primarily to the idling of the Billingham ammonia plant and its usage of purchased ammonia for upgrading, and lower other manufacturing costs.

CF INDUSTRIES HOLDINGS, INC.

Gross Margin. Gross margin in our Other segment decreased by $62 million to $59 million in the first quarter of 2023 from $121 million in the first quarter of 2022, and our gross margin percentage was 39.1% in the first quarter of 2023 compared to 53.8% in the first quarter of 2022. The decrease in gross margin reflects the following:

a decrease in average selling prices of 30%, which decreased gross margin by $62 million;
a net increase of $13 million in manufacturing, maintenance and other costs, driven by the cost for purchased ammonia for upgrade, partially offset by lower production costs, which net increase was partially offset by a decrease in realized natural gas costs, due primarily to the idling of the Billingham ammonia plant, which increased gross margin by $12 million;
a decrease in sales volume of 4%, which decreased gross margin by $2 million; and
the impact of a $7 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2023 compared to a $4 million gain in the first quarter of 2022.

CF INDUSTRIES HOLDINGS, INC.

Liquidity and Capital Resources

Our primary uses of cash are generally for operating costs, working capital, capital expenditures, debt service, investments, taxes, share repurchases, and dividends. Our working capital requirements are affected by several factors, including demand for our products, selling prices, raw material costs, freight costs and seasonal factors inherent in the business. We may also utilize our cash to fund acquisitions. In addition, we may from time to time seek to retire or purchase our outstanding debt through cash purchases, in open market or privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Generally, our primary source of cash is cash from operations, which includes cash generated by customer advances. We may also from time to time access the capital markets or engage in borrowings under our revolving credit agreement.

As of March 31, 2023, our cash and cash equivalents balance was $2.83 billion, an increase of $502 million from $2.32 billion at December 31, 2022. At March 31, 2023, 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.

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). 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). Repurchases under our share repurchase programs 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. Shares repurchased, including those repurchased under share repurchase programs, are retired as approved by the Board.

In the three months ended March 31, 2023, we repurchased approximately 1.1 million shares under the 2021 Share Repurchase Program for $75 million, of which $21 million was accrued and unpaid as of March 31, 2023. As of March 31, 2023, there was approximately $80 million of authorization remaining under the 2021 Share Repurchase Program.

Capital Spending

We make capital expenditures to sustain our asset base, increase our capacity or capabilities, improve plant efficiency, comply with various environmental, health and safety requirements, and invest in our clean energy strategy. Capital expenditures totaled $69 million in the first three months of 2023 compared to $63 million in the first three months of 2022.

We currently anticipate that capital expenditures for the full year 2023 will be in the range of $500 to $550 million, which includes capital expenditures 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.

Agreement to Purchase Ammonia Production Facility

On March 20, 2023, we entered into an asset purchase agreement with DNLA and IPL. Under the terms of the agreement, we will purchase DNLA’s ammonia production complex located in Waggaman, Louisiana for a purchase price of $1.675 billion, subject to adjustment. The facility has a nameplate capacity of 880,000 tons of ammonia annually. The parties will allocate $425 million of the purchase price to a long-term ammonia offtake agreement providing for us to supply up to

CF INDUSTRIES HOLDINGS, INC.

200,000 tons of ammonia per year to IPL’s Dyno Nobel, Inc. subsidiary. We expect to fund the balance of the purchase price, representing the $1.675 billion purchase price, as adjusted, less $425 million, with cash on hand.

United Kingdom Operations

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. In August 2022, the final restructuring plan was approved, and decommissioning activities were initiated.

Production of AN and other nitrogen products continues at our Billingham facility using imported ammonia, a portion of which is imported from our other ammonia production sites. 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 necessitate, 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.

Debt

Revolving Credit Agreement

We have a senior unsecured revolving credit agreement (the Revolving Credit Agreement), which provides for a revolving credit facility of up to $750 million with a maturity of December 5, 2024. The Revolving Credit Agreement includes a letter of credit sub-limit of $125 million. Borrowings under the Revolving Credit Agreement may be used for working capital, capital expenditures, acquisitions, share repurchases and other general corporate purposes. CF Industries is the lead borrower, and CF Holdings is the sole guarantor, under the Revolving Credit Agreement.

Borrowings under the Revolving Credit Agreement may be denominated in U.S. dollars, Canadian dollars, euros and British pounds, and bear interest at a per annum rate equal to an applicable eurocurrency rate or base rate plus, in either case, a specified margin. We are required to pay an undrawn commitment fee on the undrawn portion of the commitments under the Revolving Credit Agreement and customary letter of credit fees. The specified margin and the amount of the commitment fee depend on CF Holdings’ credit rating at the time.

As of March 31, 2023, we had unused borrowing capacity under the Revolving Credit Agreement of $750 million and no outstanding letters of credit. There were no borrowings outstanding under the Revolving Credit Agreement as of March 31, 2023 or December 31, 2022, or during the three months ended March 31, 2023.

The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants, including financial covenants. As of March 31, 2023, 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. As of March 31, 2023, approximately $201 million of letters of credit were outstanding under this agreement.

CF INDUSTRIES HOLDINGS, INC.

Senior Notes

Long-term debt presented on our consolidated balance sheets as of March 31, 2023 and December 31, 2022 consisted of the following debt securities issued by CF Industries:


	Effective Interest Rate		March 31, 2023						December 31, 2022
		Principal			Carrying Amount(1)			Principal			Carrying Amount(1)
			(in millions)
Public Senior Notes:



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			740
Senior Secured Notes:

4.500% due December 2026(2)	4.783%		750			743			750			742
Total long-term debt			$	3,000		$	2,966		$	3,000		$	2,965

(1)Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discount was $7 million as of both March 31, 2023 and December 31, 2022, and total deferred debt issuance costs were $27 million and $28 million as of March 31, 2023 and December 31, 2022, respectively.

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

Under the terms of 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.

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 CF Holdings and 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 Public Senior Notes and the 2026 Notes is payable semiannually, and the Public Senior Notes 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 March 31, 2023 and December 31, 2022, we had $284 million and $229 million, respectively, in customer advances on our consolidated balance sheets.

While customer advances are generally a significant source of liquidity, the level of forward sales contracts is affected by many factors including current market conditions, our customers’ outlook of future market fundamentals and seasonality. During periods of declining prices, customers tend to delay purchasing fertilizer in anticipation that prices in the future will be lower than the current prices. If the level of sales under our forward sales programs were to decrease in the future, our cash received from customer advances would likely decrease and our accounts receivable balances would likely increase.

CF INDUSTRIES HOLDINGS, INC.

Additionally, borrowing under the Revolving Credit Agreement could become necessary. Due to the volatility inherent in our business and changing customer expectations, we cannot estimate the amount of future forward sales activity.

Under our forward sales programs, a customer may delay delivery of an order due to weather conditions or other factors. These delays generally subject the customer to potential charges for storage or may be grounds for termination of the contract by us. Such a delay in scheduled shipment or termination of a forward sales contract due to a customer’s inability or unwillingness to perform may negatively impact our reported sales.

Derivative Financial Instruments

We use derivative financial instruments to reduce our exposure to changes in prices for natural gas that will be purchased in the future. Natural gas is the largest and most volatile component of our manufacturing cost for nitrogen-based products. From time to time, we may also use derivative financial instruments to reduce our exposure to changes in foreign currency exchange rates. Volatility in reported quarterly earnings can result from the unrealized mark-to-market adjustments in the value of the derivatives. As of March 31, 2023, our open natural gas derivative contracts consisted of natural gas fixed price swaps, basis swaps and options for 18.9 million MMBtus of natural gas. As of December 31, 2022, our open natural gas derivative contracts consisted of natural gas fixed price swaps, basis swaps and options for 66.3 million MMBtus of natural gas.

Defined Benefit Pension Plans

We contributed $7 million to our pension plans in the three months ended March 31, 2023. Over the remainder of 2023, we expect to contribute approximately $36 million to our pension plans, which would result in our making total contributions of approximately $43 million to our pension plans for the full year 2023. In addition, in the two-year period from 2024 to 2025, we expect to contribute a total of approximately £30 million (or $37 million) to our U.K. plans, as agreed with the plans’ trustees.

Distribution to Noncontrolling Interest in CFN

On January 31, 2023, the CFN Board of Managers approved semi-annual distribution payments for the distribution period ended December 31, 2022 in accordance with CFN’s limited liability company agreement. On January 31, 2023, CFN distributed $255 million to CHS for the distribution period ended December 31, 2022. The estimate of the partnership distribution earned by CHS, but not yet declared, for the first quarter of 2023 is approximately $110 million.

Cash Flows

Net cash provided by operating activities during the first three months of 2023 was $947 million, a decrease of $444 million compared to $1.39 billion in the first three months of 2022. The decrease in cash flow from operations was due primarily to lower net earnings, partially offset by changes in net working capital. Net earnings for the first three months of 2023 was $650 million as compared to $1.05 billion for the first three months of 2022, a decrease of $401 million. The decrease in net earnings was due primarily to a decrease in gross margin, driven by lower average selling prices and sales volume. During the first three months of 2023, net changes in working capital increased cash flow from operations by $213 million, while in the first three months of 2022, net changes in working capital increased cash flow from operations by $110 million. The increase in cash flow from working capital changes was attributable primarily to higher cash collections from customer advances and lower levels of accounts receivable in the first three months of 2023 as compared to the first three months of 2022.

Net cash used in investing activities was $34 million in the first three months of 2023 as compared to $62 million in the first three months of 2022. The decrease was due primarily to an increase in proceeds from the sale of emission credits, as proceeds from the sale of emission credits was $35 million in the first three months of 2023 compared to $9 million in the first three months of 2022. Capital expenditures totaled $69 million during the first three months of 2023 compared to $63 million in the first three months of 2022.

Net cash used in financing activities was $410 million in the first three months of 2023 compared to $339 million in the first three months of 2022. The increase was due primarily to proceeds from issuances of common stock under employee stock plans of $97 million in the first three months of 2022 that did not recur in the first three months of 2023. In addition, the increase reflects an increase in dividends, as the dividend declared and paid in the first quarter of 2023 was $0.40 per common share compared to $0.30 per common share in the first quarter of 2022. Dividends paid on common stock was $79 million in the first three months of 2023 compared to $64 million in the first three months of 2022. These factors were partially offset by a decrease in share repurchases. In the first three months of 2023, we paid $54 million for share repurchases compared to $98 million for share repurchases in the first three months of 2022. In the first three months of 2023, share repurchases totaled $75 million, of which $21 million was accrued and unpaid as of March 31, 2023.

CF INDUSTRIES HOLDINGS, INC.

Critical Accounting Estimates

During the first three months of 2023, 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, 2022.

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, 2022, filed with the SEC on February 23, 2023. Such factors include, among others:

the risk that regulatory approvals required for the proposed transactions with Incitec Pivot Limited (IPL) are not obtained or that required approvals delay the transactions or cause the parties to abandon the transactions; the risk that other conditions to the closing of the proposed transactions with IPL are not satisfied; risks and uncertainties arising from the length of time necessary to consummate the proposed transactions with IPL and the possibility that the proposed transactions with IPL may be delayed or may not occur; the risk of obstacles to realization of the benefits of the proposed transactions with IPL;
the risk that the synergies from the proposed transactions with IPL may not be fully realized or may take longer to realize than expected; the risk that the pendency or completion of the proposed transactions with IPL, including integration of the Waggaman ammonia production complex into the Company’s operations, disrupt current operations or harm relationships with customers, employees and suppliers; the risk that integration of the Waggaman ammonia production complex with the Company’s current operations will be more costly or difficult than expected or may otherwise be unsuccessful; diversion of management time and attention to issues relating to the proposed transactions with IPL; unanticipated costs or liabilities associated with the IPL transactions;
the cyclical nature of our business and the impact of global supply and demand on our selling prices;
the global commodity nature of our nitrogen products, the conditions in the international market for nitrogen products, and the intense global competition from other producers;
conditions in the United States, Europe and other agricultural areas, including the influence of governmental policies and technological developments on the demand for our fertilizer products;
the volatility of natural gas prices in North America and the United Kingdom;
weather conditions and the impact of adverse weather events;
the seasonality of the fertilizer business;
the impact of changing market conditions on our forward sales programs;
difficulties in securing the supply and delivery of raw materials, increases in their costs or delays or interruptions in their delivery;
reliance on third party providers of transportation services and equipment;
our reliance on a limited number of key facilities;
risks associated with cybersecurity;
acts of terrorism and regulations to combat terrorism;
risks associated with international operations;
the significant risks and hazards involved in producing and handling our products against which we may not be fully insured;
our ability to manage our indebtedness and any additional indebtedness that may be incurred;

CF INDUSTRIES HOLDINGS, INC.

our ability to maintain compliance with covenants under our revolving credit agreement and the agreements governing our indebtedness;
downgrades of our credit ratings;
risks associated with changes in tax laws and disagreements with taxing authorities;
risks involving derivatives and the effectiveness of our risk management and hedging activities;
potential liabilities and expenditures related to environmental, health and safety laws and regulations and permitting requirements;
regulatory restrictions and requirements related to greenhouse gas emissions;
the development and growth of the market for green and blue (low-carbon) ammonia and the risks and uncertainties relating to the development and implementation of our green and blue ammonia projects;
risks associated with expansions of our business, including unanticipated adverse consequences and the significant resources that could be required; and
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.

Previous: Item 1. FINANCIAL STATEMENTS. · Next: Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.