CF Industries Holdings, Inc. - Quarter Report: 2021 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM			10-Q


(Mark One)
☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021





OR
☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 001-32597

CF INDUSTRIES HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-2697511

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

4 Parkway North, Suite 400

60015

Deerfield,

Illinois

(Zip Code)

(Address of principal executive offices)

(847) 405-2400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

common stock, par value $0.01 per share

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

214,514,904 shares of the registrant’s common stock, par value $0.01 per share, were outstanding at May 3, 2021.

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CF INDUSTRIES HOLDINGS, INC.

TABLE OF CONTENTS


PART I.	Financial Information
	Item 1.	Financial Statements (unaudited)
		Consolidated Statements of Operations	1
		Consolidated Statements of Comprehensive Income (Loss)	2
		Consolidated Balance Sheets	3
		Consolidated Statements of Equity	4
		Consolidated Statements of Cash Flows	5
		Notes to Unaudited Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
	Item 4.	Controls and Procedures	43
PART II.	Other Information
	Item 1.	Legal Proceedings	43

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
	Item 6.	Exhibits	44

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CF INDUSTRIES HOLDINGS, INC.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended March 31,
		2021		2020
		(in millions, except per share amounts)
Net sales		$	1,048	$	971
Cost of sales		759		767
Gross margin		289		204
Selling, general and administrative expenses		55		54

Other operating—net		(2)		6
Total other operating costs and expenses		53		60

Equity in earnings of operating affiliate		11		3
Operating earnings		247		147
Interest expense		48		44
Interest income		—		(1)
Loss on debt extinguishment		6		—

Earnings before income taxes		193		104
Income tax provision		18		13

Net earnings		175		91
Less: Net earnings attributable to noncontrolling interest		24		23
Net earnings attributable to common stockholders		$	151	$	68
Net earnings per share attributable to common stockholders:
Basic		$	0.70	$	0.31
Diluted		$	0.70	$	0.31
Weighted-average common shares outstanding:
Basic		214.9		216.0
Diluted		216.0		216.6
Dividends declared per common share		$	0.30	$	0.30

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three months ended March 31,
		2021		2020
		(in millions)
Net earnings		$	175	$	91
Other comprehensive income (loss):
Foreign currency translation adjustment—net of taxes		14		(83)


Defined benefit plans—net of taxes		1		9
		15		(74)
Comprehensive income		190		17
Less: Comprehensive income attributable to noncontrolling interest		24		23
Comprehensive income (loss) attributable to common stockholders		$	166	$	(6)

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	March 31, 2021		December 31, 2020
	(in millions, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	804	$	683

Accounts receivable—net	271		265
Inventories	379		287

Prepaid income taxes	11		97
Other current assets	24		35
Total current assets	1,489		1,367
Property, plant and equipment—net	7,492		7,632
Investment in affiliate	91		80
Goodwill	2,377		2,374
Operating lease right-of-use assets	249		259
Other assets	313		311
Total assets	$	12,011	$	12,023
Liabilities and Equity
Current liabilities:

Accounts payable and accrued expenses	$	451	$	424
Income taxes payable	5		—
Customer advances	341		130
Current operating lease liabilities	88		88
Current maturities of long-term debt	—		249
Other current liabilities	6		15
Total current liabilities	891		906
Long-term debt, net of current maturities	3,713		3,712
Deferred income taxes	1,175		1,184
Operating lease liabilities	166		174
Other liabilities	396		444
Equity:
Stockholders’ equity:
Preferred stock—$0.01 par value, 50,000,000 shares authorized	—		—
Common stock—$0.01 par value, 500,000,000 shares authorized, 2021—214,842,250 shares issued and 2020—214,057,701 shares issued	2		2
Paid-in capital	1,333		1,317
Retained earnings	2,013		1,927
Treasury stock—at cost, 2021—340,446 shares and 2020—102,843 shares	(14)		(4)
Accumulated other comprehensive loss	(305)		(320)
Total stockholders’ equity	3,029		2,922
Noncontrolling interest	2,641		2,681
Total equity	5,670		5,603
Total liabilities and equity	$	12,011	$	12,023

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


	Common Stockholders
	$0.01 Par Value Common Stock		Treasury Stock		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity		Noncontrolling Interest		Total Equity
	(in millions, except per share amounts)


















Balance as of December 31, 2020	$	2	$	(4)	$	1,317	$	1,927	$	(320)	$	2,922	$	2,681	$	5,603
Net earnings	—		—		—		151		—		151		24		175
Other comprehensive income	—		—		—		—		15		15		—		15


Acquisition of treasury stock under employee stock plans	—		(10)		—		—		—		(10)		—		(10)
Issuance of $0.01 par value common stock under employee stock plans	—		—		8		—		—		8		—		8

Stock-based compensation expense	—		—		8		—		—		8		—		8

Cash dividends ($0.30 per share)	—		—		—		(65)		—		(65)		—		(65)



Distribution declared to noncontrolling interest	—		—		—		—		—		—		(64)		(64)

Balance as of March 31, 2021	$	2	$	(14)	$	1,333	$	2,013	$	(305)	$	3,029	$	2,641	$	5,670

























Balance as of December 31, 2019	$	2	$	—	$	1,303	$	1,958	$	(366)	$	2,897	$	2,740	$	5,637


Net earnings	—		—		—		68		—		68		23		91
Other comprehensive loss	—		—		—		—		(74)		(74)		—		(74)
Purchases of treasury stock	—		(100)		—		—		—		(100)		—		(100)

Acquisition of treasury stock under employee stock plans	—		(8)		—		—		—		(8)		—		(8)
Issuance of $0.01 par value common stock under employee stock plans	—		—		3		—		—		3		—		3

Stock-based compensation expense	—		—		7		—		—		7		—		7

Cash dividends ($0.30 per share)	—		—		—		(65)		—		(65)		—		(65)



Distribution declared to noncontrolling interest	—		—		—		—		—		—		(88)		(88)

Balance as of March 31, 2020	$	2	$	(108)	$	1,313	$	1,961	$	(440)	$	2,728	$	2,675	$	5,403

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended March 31,
	2021		2020
	(in millions)
Operating Activities:
Net earnings	$	175	$	91
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	204		211
Deferred income taxes	(12)		(50)
Stock-based compensation expense	8		7

Loss on debt extinguishment	6		—
Unrealized net gain on natural gas derivatives	(6)		(12)
Unrealized gain on embedded derivative	—		(1)



Loss on disposal of property, plant and equipment	1		—
Undistributed earnings of affiliate—net of taxes	(12)		(4)
Changes in:
Accounts receivable—net	(7)		(12)
Inventories	(88)		(29)
Accrued and prepaid income taxes	78		10
Accounts payable and accrued expenses	36		(47)
Customer advances	211		120
Other—net	(16)		8
Net cash provided by operating activities	578		292
Investing Activities:
Additions to property, plant and equipment	(71)		(67)




Insurance proceeds for property, plant and equipment	—		2





Net cash used in investing activities	(71)		(65)
Financing Activities:

Proceeds from short-term borrowings	—		500

Payments of long-term borrowings	(255)		—

Dividends paid on common stock	(65)		(65)

Distributions to noncontrolling interest	(64)		(88)
Purchases of treasury stock	—		(100)
Proceeds from issuances of common stock under employee stock plans	7		3
Cash paid for shares withheld for taxes	(10)		(8)

Net cash (used in) provided by financing activities	(387)		242
Effect of exchange rate changes on cash and cash equivalents	1		(3)
Increase in cash and cash equivalents	121		466
Cash and cash equivalents at beginning of period	683		287
Cash and cash equivalents at end of period	$	804	$	753

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Background and Basis of Presentation

Our mission is to provide clean energy to feed and fuel the world sustainably. With our employees focused on safe and reliable operations, environmental stewardship, and disciplined capital and corporate management, we are on a path to decarbonize our ammonia production network – the world’s largest – to enable green and blue hydrogen and nitrogen products for energy, fertilizer, emissions abatement and other industrial activities. Our nine manufacturing complexes in the United States, Canada and the United Kingdom, an extensive storage, transportation and distribution network in North America, and logistics capabilities enabling a global reach underpin our strategy to leverage our unique capabilities to accelerate the world’s transition to clean energy. Our principal customers are cooperatives, independent fertilizer distributors, traders, wholesalers and industrial users. Our core product is anhydrous ammonia (ammonia), which contains 82% nitrogen and 18% hydrogen. Our nitrogen products that are upgraded from ammonia are granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN). Our other nitrogen products include diesel exhaust fluid (DEF), urea liquor, nitric acid and aqua ammonia, which are sold primarily to our industrial customers, and compound fertilizer products (NPKs), which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium.

All references to “CF Holdings,” “the Company,” “we,” “us” and “our” refer to CF Industries Holdings, Inc. and its subsidiaries, except where the context makes clear that the reference is only to CF Industries Holdings, Inc. itself and not its subsidiaries. All references to “CF Industries” refer to CF Industries, Inc., a 100% owned subsidiary of CF Industries Holdings, Inc.

The accompanying unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements for the year ended December 31, 2020, in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting. In the opinion of management, these statements reflect all adjustments, consisting only of normal and recurring adjustments, that are necessary for the fair representation of the information for the periods presented. The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Operating results for any period presented apply to that period only and are not necessarily indicative of results for any future period.

The accompanying unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related disclosures included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 24, 2021. The preparation of the unaudited interim consolidated financial statements requires us to make use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the unaudited consolidated financial statements and the reported revenues and expenses for the periods presented. Significant estimates and assumptions are used for, but are not limited to, net realizable value of inventories, environmental remediation liabilities, environmental and litigation contingencies, the cost of customer incentives, useful lives of property and identifiable intangible assets, the assumptions used in the evaluation of potential impairments of property, investments, identifiable intangible assets and goodwill, income tax and valuation reserves, allowances for doubtful accounts receivable, the measurement of the fair values of investments for which markets are not active, assumptions used in the determination of the funded status and annual expense of defined benefit pension and other postretirement benefit plans and the assumptions used in the valuation of stock-based compensation awards granted to employees.

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CF INDUSTRIES HOLDINGS, INC.

2. Revenue Recognition

We track our revenue by product and by geography. See Note 16—Segment Disclosures for our revenue by reportable segment, which are ammonia, granular urea, UAN, AN and Other. The following table summarizes our revenue by product and by geography (based on destination of our shipment) for the three months ended March 31, 2021 and 2020:

Ammonia

Granular Urea

UAN

Other

Total

(in millions)




Three months ended March 31, 2021
North America	$	168	$	399	$	222	$	41	$	77	$	907
Europe and other	38		—		10		64		29		141

Total revenue	$	206	$	399	$	232	$	105	$	106	$	1,048
Three months ended March 31, 2020
North America	$	154	$	331	$	230	$	46	$	59	$	820
Europe and other	39		6		5		70		31		151
Total revenue	$	193	$	337	$	235	$	116	$	90	$	971

As of March 31, 2021 and December 31, 2020, we had $341 million and $130 million, respectively, in customer advances on our consolidated balance sheets. The revenue recognized during the three months ended March 31, 2021 and 2020 that was included in our customer advances at the beginning of each respective period amounted to approximately $85 million and $75 million, respectively.

We offer cash incentives to certain customers that do not provide an option to the customer for additional product. The balances of customer incentives accrued at March 31, 2021 and December 31, 2020 were not material.

From time to time, we will enter the marketplace to purchase product in order to satisfy obligations under contracts with our customers. When we purchase product for this purpose, we are the principal in the transaction and recognize revenue on a gross basis. As discussed in Note 7—Equity Method Investment, we have transactions in the normal course of business with PLNL, reflecting our obligation to purchase 50% of the ammonia produced by PLNL at current market prices. During the three months ended March 31, 2021, in addition to products purchased from PLNL, we recognized $32 million of revenue from sales of granular urea, which we purchased in order to satisfy obligations under contracts with our customers due to lower production experienced as a result of Winter Storm Uri. For the three months ended March 31, 2020, other than products purchased from PLNL, products purchased in the marketplace in order to satisfy obligations under contracts with our customers were not material.

We have certain customer contracts with performance obligations where if the customer does not take the required amount of product specified in the contract, then the customer is required to make a payment to us, which may vary based upon the terms and conditions of the applicable contract. As of March 31, 2021, excluding contracts with original durations of less than one year, and based on the minimum product tonnage to be sold and current market price estimates, our remaining performance obligations under these contracts are approximately $805 million. We expect to recognize approximately 25% of these performance obligations as revenue in the remainder of 2021, approximately 47% as revenue during 2022 and 2023, approximately 25% as revenue during 2024 and 2025, and the remainder thereafter. Subject to the terms and conditions of the applicable contracts, if these customers do not satisfy their purchase obligations under such contracts, the minimum amount that they would be required to pay to us under these contracts, in the aggregate, is approximately $187 million as of March 31, 2021. We monitor the ability of our customers to meet their purchase obligations, which could be impacted by the ongoing coronavirus disease 2019 (COVID-19) pandemic. Other than the performance obligations described above, any performance obligations with our customers that were unfulfilled or partially filled at December 31, 2020 will be satisfied in 2021.

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CF INDUSTRIES HOLDINGS, INC.

3. Net Earnings Per Share

Net earnings per share were computed as follows:


	Three months ended March 31,
		2021		2020
		(in millions, except per share amounts)
Net earnings attributable to common stockholders		$	151	$	68
Basic earnings per common share:
Weighted-average common shares outstanding		214.9		216.0
Net earnings attributable to common stockholders		$	0.70	$	0.31
Diluted earnings per common share:
Weighted-average common shares outstanding		214.9		216.0
Dilutive common shares—stock-based awards		1.1		0.6
Diluted weighted-average shares outstanding		216.0		216.6
Net earnings attributable to common stockholders		$	0.70	$	0.31

Diluted earnings per share is calculated using weighted-average common shares outstanding, including the dilutive effect of stock-based awards as determined under the treasury stock method. In the computation of diluted earnings per common share, potentially dilutive stock-based awards are excluded if the effect of their inclusion is anti-dilutive. Shares for anti-dilutive stock-based awards not included in the computation of diluted earnings per common share were 1.2 million and 2.1 million in the three months ended March 31, 2021 and 2020, respectively.

4. Inventories

Inventories consist of the following:


	March 31, 2021		December 31, 2020
	(in millions)
Finished goods	$	338	$	246
Raw materials, spare parts and supplies	41		41
Total inventories	$	379	$	287

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CF INDUSTRIES HOLDINGS, INC.

5. Property, Plant and Equipment—Net

Property, plant and equipment—net consists of the following:


	March 31, 2021		December 31, 2020
	(in millions)
Land	$	68	$	68
Machinery and equipment	12,597		12,539
Buildings and improvements	898		895
Construction in progress	294		275
Property, plant and equipment(1)	13,857		13,777
Less: Accumulated depreciation and amortization	6,365		6,145
Property, plant and equipment—net	$	7,492	$	7,632

_______________________________________________________________________________

(1)As of March 31, 2021 and December 31, 2020, we had property, plant and equipment that was accrued but unpaid of approximately $33 million and $43 million, respectively. As of March 31, 2020 and December 31, 2019, we had property, plant and equipment that was accrued but unpaid of approximately $36 million and $42 million, respectively.

Depreciation and amortization related to property, plant and equipment was $200 million and $208 million for the three months ended March 31, 2021 and 2020, respectively.

Plant turnarounds—Scheduled inspections, replacements and overhauls of plant machinery and equipment at our continuous process manufacturing facilities during a full plant shutdown are referred to as plant turnarounds. The expenditures related to turnarounds are capitalized in property, plant and equipment when incurred. The following is a summary of capitalized plant turnaround costs:


	Three months ended March 31,
	2021		2020
	(in millions)
Net capitalized turnaround costs:
Beginning balance	$	226	$	246
Additions	10		7
Depreciation	(25)		(25)
Effect of exchange rate changes	—		(5)
Ending balance	$	211	$	223

Scheduled replacements and overhauls of plant machinery and equipment include the dismantling, repair or replacement and installation of various components including piping, valves, motors, turbines, pumps, compressors, heat exchangers and the replacement of catalysts when a full plant shutdown occurs. Scheduled inspections are also conducted during full plant shutdowns, including required safety inspections which entail the disassembly of various components such as steam boilers, pressure vessels and other equipment requiring safety certifications. Internal employee costs and overhead amounts are not considered turnaround costs and are not capitalized.

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CF INDUSTRIES HOLDINGS, INC.

6. Goodwill and Other Intangible Assets

The following table shows the carrying amount of goodwill by reportable segment as of March 31, 2021 and December 31, 2020:


	Ammonia		Granular Urea		UAN		AN		Other		Total
	(in millions)
Balance as of December 31, 2020	$	587	$	828	$	576	$	310	$	73	$	2,374

Effect of exchange rate changes	1		—		—		2		—		3
Balance as of March 31, 2021	$	588	$	828	$	576	$	312	$	73	$	2,377

All of our identifiable intangible assets have definite lives and are presented in other assets on our consolidated balance sheets at gross carrying amount, net of accumulated amortization, as follows:


	March 31, 2021						December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
	(in millions)

Customer relationships	$	134	$	(55)	$	79	$	133	$	(52)	$	81

Trade names	32		(9)		23		32		(9)		23
Total intangible assets	$	166	$	(64)	$	102	$	165	$	(61)	$	104

Our intangible assets are being amortized over a weighted-average life of approximately 20 years. Amortization expense of our identifiable intangible assets for each of the three-month periods ended March 31, 2021 and 2020 was $2 million. The gross carrying amount and accumulated amortization of our intangible assets are also impacted by the effect of exchange rate changes. Total estimated amortization expense for the remainder of 2021 and each of the five succeeding fiscal years is as follows:


	Estimated Amortization Expense
	(in millions)
Remainder of 2021	$	6
2022	9
2023	9
2024	9
2025	9
2026	9

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CF INDUSTRIES HOLDINGS, INC.

7. Equity Method Investment

We have a 50% ownership interest in Point Lisas Nitrogen Limited (PLNL), which operates an ammonia production facility in the Republic of Trinidad and Tobago. We include our share of the net earnings from this equity method investment as an element of earnings from operations because PLNL provides additional production to our operations and is integrated with our other supply chain and sales activities in the ammonia segment.

As of March 31, 2021, the total carrying value of our equity method investment in PLNL was $91 million, $41 million more than our share of PLNL’s book value. The excess is attributable to the purchase accounting impact of our acquisition of the investment in PLNL and reflects the revaluation of property, plant and equipment. The increased basis for property, plant and equipment is being amortized over a remaining period of approximately 12 years. Our equity in earnings of PLNL is different from our ownership interest in income reported by PLNL due to amortization of this basis difference.

We have transactions in the normal course of business with PLNL reflecting our obligation to purchase 50% of the ammonia produced by PLNL at current market prices. Our ammonia purchases from PLNL totaled $26 million and $10 million for the three months ended March 31, 2021 and 2020, respectively.

8. Fair Value Measurements

Our cash and cash equivalents and other investments consist of the following:


	March 31, 2021
	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
	(in millions)
Cash	$	69	$	—	$	—	$	69
Cash equivalents:
U.S. and Canadian government obligations	715		—		—		715
Other debt securities	20		—		—		20
Total cash and cash equivalents	$	804	$	—	$	—	$	804

Nonqualified employee benefit trusts	17		3		—		20


	December 31, 2020
	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
	(in millions)
Cash	$	108	$	—	$	—	$	108
Cash equivalents:
U.S. and Canadian government obligations	552		—		—		552
Other debt securities	23		—		—		23
Total cash and cash equivalents	$	683	$	—	$	—	$	683

Nonqualified employee benefit trusts	16		3		—		19

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.

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CF INDUSTRIES HOLDINGS, INC.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present assets and liabilities included in our consolidated balance sheets as of March 31, 2021 and December 31, 2020 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:


	March 31, 2021
	Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash equivalents	$	735	$	735	$	—	$	—

Nonqualified employee benefit trusts	20		20		—		—


Embedded derivative liability	(18)		—		(18)		—


	December 31, 2020
	Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash equivalents	$	575	$	575	$	—	$	—

Nonqualified employee benefit trusts	19		19		—		—
Derivative assets	1		—		1		—
Derivative liabilities	(7)		—		(7)		—
Embedded derivative liability	(18)		—		(18)		—

Cash Equivalents

As of March 31, 2021 and December 31, 2020, our cash equivalents consisted primarily of U.S. and Canadian government obligations and money market mutual funds that invest in U.S. government obligations and other investment-grade securities.

Nonqualified Employee Benefit Trusts

We maintain trusts associated with certain nonqualified supplemental pension plans. The fair values of the trust assets are based on daily quoted prices in an active market, which represents the net asset values of the shares held in the trusts, and are included on our consolidated balance sheets in other assets. Debt securities are accounted for as available-for-sale securities, and changes in fair value are reported in other comprehensive income. Changes in the fair value of available-for-sale equity securities in the trust assets are recognized through earnings.

Derivative Instruments

The derivative instruments that we may use are primarily natural gas fixed price swaps, basis swaps and options traded in the over-the-counter markets with multi-national commercial banks, other major financial institutions or large energy companies. The natural gas derivative contracts represent anticipated natural gas needs for future periods and settlements are scheduled to coincide with anticipated natural gas purchases during those future periods. The natural gas derivative contracts settle using primarily a NYMEX futures price index. To determine the fair value of these instruments, we use quoted market prices from NYMEX and standard pricing models with inputs derived from or corroborated by observable market data such as forward curves supplied by an industry-recognized independent third party. See Note 12—Derivative Financial Instruments for additional information.

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Embedded Derivative Liability

Under the terms of our strategic venture with CHS Inc. (CHS), if our credit rating as determined by two of three specified credit rating agencies is below certain levels, we are required to make a non-refundable yearly payment of $5 million to CHS. Since 2016, our credit ratings have been below certain levels and, as a result, we made an annual payment of $5 million to CHS in the fourth quarter of each year. These payments will continue on a yearly basis until the earlier of the date that our credit rating is upgraded to or above certain levels by two of the three specified credit rating agencies or February 1, 2026. This obligation is recognized on our consolidated balance sheets as an embedded derivative and is included within other current liabilities and other liabilities. As of both March 31, 2021 and December 31, 2020, the embedded derivative liability was $18 million. Included in other operating—net in our consolidated statement of operations for the three months ended March 31, 2020 is a net gain of $1 million.

The inputs into the fair value measurement include the probability of future upgrades and downgrades of our credit rating based on historical credit rating movements of other public companies and the discount rates to be applied to potential annual payments based on applicable credit spreads of other public companies at different credit rating levels. Based on these inputs, our fair value measurement is classified as Level 2.

See Note 13—Noncontrolling Interest for additional information regarding our strategic venture with CHS.

Financial Instruments

The carrying amount and estimated fair value of our financial instruments are as follows:


	March 31, 2021				December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in millions)
Long-term debt, including current maturities	$	3,713	$	4,224	$	3,961	$	4,731

The fair value of our long-term debt was based on quoted prices for identical or similar liabilities in markets that are not active or valuation models in which all significant inputs and value drivers are observable and, as a result, they are classified as Level 2 inputs.

The carrying amounts of cash and cash equivalents, as well as instruments included in other current assets and other current liabilities that meet the definition of financial instruments, approximate fair values because of their short-term maturities.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We also have assets and liabilities that may be measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment, when there is allocation of purchase price in an acquisition or when a new liability is being established that requires fair value measurement. These include long-lived assets, goodwill and other intangible assets and investments in unconsolidated subsidiaries, such as equity method investments, which may be written down to fair value as a result of impairment. The fair value measurements related to each of these rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets. Since certain of the Company’s assumptions would involve inputs that are not observable, these fair values would reside within Level 3 of the fair value hierarchy.

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9. Income Taxes

For the three months ended March 31, 2021, we recorded an income tax provision of $18 million on pre-tax income of $193 million or an effective tax rate of 9.3%, compared to an income tax provision of $13 million on pre-tax income of $104 million, or an effective tax rate of 12.3%, for the three months ended March 31, 2020.

For the three months ended March 31, 2021, our income tax provision includes a $22 million benefit reflecting the impact of agreement on certain issues related to U.S. federal income tax audits. For the three months ended March 31, 2020, our income tax provision included a $6 million benefit related to the settlement of certain U.S. and foreign income tax audits.

Our effective tax rate is also impacted by earnings attributable to the noncontrolling interest in CF Industries Nitrogen, LLC (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, 2021 of 9.3%, which is based on pre-tax income of $193 million, including $24 million attributable to the noncontrolling interest, would be 1.3 percentage points higher if based on pre-tax income exclusive of the $24 million attributable to the noncontrolling interest. Our effective tax rate for the three months ended March 31, 2020 of 12.3%, which is based on pre-tax income of $104 million, including $23 million attributable to the noncontrolling interest, would be 3.5 percentage points higher if based on pre-tax income exclusive of the $23 million attributable to the noncontrolling interest. See Note 13—Noncontrolling Interest for additional information.

10. Interest Expense

Details of interest expense are as follows:


	Three months ended March 31,
		2021		2020
		(in millions)
Interest on borrowings(1)		$	46	$	46
Fees on financing agreements(1)		2		2
Interest on tax liabilities(2)		—		(4)

Total interest expense		$	48	$	44

_______________________________________________________________________________

(1)See Note 11—Financing Agreements for additional information.

(2)Interest on tax liabilities for the three months ended March 31, 2020 consists of a reduction in interest accrued on the reserve for unrecognized tax benefits.

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11. Financing Agreements

Revolving Credit Agreement

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

Borrowings under the Revolving Credit Agreement may be denominated in U.S. dollars, Canadian dollars, euros and British pounds, and bear interest at a per annum rate equal to, at our option, 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.

The guarantors under the Revolving Credit Agreement are currently comprised of CF Holdings and CF Holdings’ wholly owned subsidiaries CF Industries Enterprises, LLC (CFE), CF Industries Sales, LLC (CFS), CF USA Holdings, LLC (CF USA) and CF Industries Distribution Facilities, LLC (CFIDF).

As of March 31, 2021, we had unused borrowing capacity under the Revolving Credit Agreement of $750 million and no outstanding letters of credit. There were no borrowings outstanding under the Revolving Credit Agreement as of March 31, 2021 or December 31, 2020, or during the three months ended March 31, 2021. Maximum borrowings under the Revolving Credit Agreement during the three months ended March 31, 2020 were $500 million. The weighted-average annual interest rate of borrowings under the Revolving Credit Agreement during the three months ended March 31, 2020 was 2.05%. Borrowings under the Revolving Credit Agreement as of March 31, 2020 were repaid in full in April 2020.

The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants, including financial covenants. As of March 31, 2021, we were in compliance with all covenants under the Revolving Credit Agreement.

Letters of Credit

In addition to the letters of credit that may be issued under the Revolving Credit Agreement, as described above, we have also entered into a bilateral agreement with capacity to issue up to $250 million of letters of credit. As of March 31, 2021, approximately $220 million of letters of credit were outstanding under this agreement.

Senior Notes

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


	Effective Interest Rate	March 31, 2021				December 31, 2020
		Principal		Carrying Amount(1)		Principal		Carrying Amount(1)
		(in millions)
Public Senior Notes:


3.450% due June 2023	3.562%	$	750	$	748	$	750	$	748
5.150% due March 2034	5.279%	750		741		750		741
4.950% due June 2043	5.031%	750		742		750		742
5.375% due March 2044	5.465%	750		741		750		741
Senior Secured Notes:
3.400% due December 2021	3.782%	—		—		250		249
4.500% due December 2026	4.759%	750		741		750		740
Total long-term debt		$	3,750	$	3,713	$	4,000	$	3,961



Less: Current maturities of long-term debt		—		—		250		249
Long-term debt, net of current maturities		$	3,750	$	3,713	$	3,750	$	3,712

_______________________________________________________________________________

(1)Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discount was $9 million as of both March 31, 2021 and December 31, 2020, and total deferred debt issuance costs were $28 million and $30 million as of March 31, 2021 and December 31, 2020, respectively.

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Under the indentures (including the applicable supplemental indentures) governing the senior notes due 2023, 2034, 2043 and 2044 identified in the table above (the Public Senior Notes), each series of Public Senior Notes is guaranteed by CF Holdings.

Under the terms of the indenture governing the 4.500% senior secured notes due December 2026 (the 2026 Notes) identified in the table above, the 2026 Notes are guaranteed on a senior secured basis, jointly and severally, by CF Holdings and each current and future domestic subsidiary of CF Holdings (other than CF Industries) that from time to time is a borrower, or guarantees indebtedness, under the Revolving Credit Agreement. The subsidiary guarantors of the 2026 Notes currently consist of CFE, CFS, CF USA and CFIDF.

On March 20, 2021, we redeemed in full all of the remaining $250 million outstanding principal amount of the 3.400% senior secured notes due December 2021 (the 2021 Notes), in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the redemption was $258 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million, primarily consisting of a premium paid on the early redemption of the notes.

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.

12. Derivative Financial Instruments

We may 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. The derivatives that we may use to reduce our exposure to changes in prices for natural gas are primarily natural gas fixed price swaps, basis swaps and options traded in the over-the-counter markets. These natural gas derivatives settle using primarily a NYMEX futures price index, which represents the basis for fair value at any given time. We enter into natural gas derivative contracts with respect to natural gas to be consumed by us in the future, and settlements of those derivative contracts are scheduled to coincide with our anticipated purchases of natural gas used to manufacture nitrogen products during those future periods. We use natural gas derivatives as an economic hedge of natural gas price risk, but without the application of hedge accounting. As a result, changes in fair value of these contracts are recognized in earnings. As of March 31, 2021, we had natural gas derivative contracts covering certain periods through March 2022.

As of March 31, 2021, our open natural gas derivative contracts consisted of natural gas basis swaps for 0.5 million MMBtus. As of December 31, 2020, we had open natural gas derivative contracts consisting of natural gas fixed price swaps and basis swaps for 34.1 million MMBtus of natural gas. For the three months ended March 31, 2021, we used derivatives to cover approximately 26% of our natural gas consumption.

The effect of derivatives in our consolidated statements of operations is shown in the table below.


	Gain (loss) recognized in income
		Three months ended March 31,
	Location	2021		2020
		(in millions)


Unrealized net gains on natural gas derivatives	Cost of sales	$	6	$	12
Realized net losses on natural gas derivatives	Cost of sales	(3)		(16)
Gain on net settlement of natural gas derivatives due to Winter Storm Uri	Cost of sales	112		—
Net derivative gains (losses)		$	115	$	(4)

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Gain on net settlement of natural gas derivatives due to Winter Storm Uri

We also enter into supply agreements to facilitate the availability of natural gas to operate our plants. When we purchase natural gas under these agreements, we intend to take physical delivery for use in our plants. Certain of these supply agreements allow us to fix the price of the deliveries for the following month using an agreed upon first of month price. We utilize the Normal Purchase Normal Sales (NPNS) derivative scope exception for these fixed price contracts and therefore, we do not account for them as derivatives.

In February 2021, the central portion of the United States experienced extreme and unprecedented cold weather due to the impact of Winter Storm Uri. Certain natural gas suppliers and natural gas pipelines declared force majeure events due to natural gas well freeze-offs or frozen equipment. This occurred at the same time as large increases in natural gas demand were occurring due to the extreme cold temperatures. Due to these unprecedented factors, several states declared a state of emergency and natural gas was redirected for residential usage. We net settled certain natural gas contracts with our suppliers and received prevailing market prices, which were in excess of our cost. We no longer qualified for the NPNS derivative scope exception for the natural gas that was net settled with our suppliers due to the impact of Winter Storm Uri. As a result, we recognized a gain of $112 million from the net settlement of the natural gas contracts, which is reflected in cost of sales in our consolidated statement of operations for the three months ended March 31, 2021.

The fair values of derivatives on our consolidated balance sheets are shown below. As of March 31, 2021 and December 31, 2020, none of our derivative instruments were designated as hedging instruments. See Note 8—Fair Value Measurements for additional information on derivative fair values.

Asset Derivatives

Liability Derivatives

Balance Sheet Location

March 31, 2021

December 31, 2020

Balance Sheet Location

March 31, 2021

December 31, 2020

(in millions)

Natural gas derivatives

Other current assets

—

Other current liabilities

—

(7)

Most of our International Swaps and Derivatives Association (ISDA) agreements contain credit-risk-related contingent features such as cross default provisions. In the event of certain defaults or termination events, our counterparties may request early termination and net settlement of certain derivative trades or, under certain ISDA agreements, may require us to collateralize derivatives in a net liability position. The Revolving Credit Agreement, at any time when it is secured, provides a cross collateral feature for those of our derivatives that are with counterparties that are party to, or affiliates of parties to, the Revolving Credit Agreement so that no separate collateral would be required for those counterparties in connection with such derivatives. In the event the Revolving Credit Agreement becomes unsecured, separate collateral could be required in connection with such derivatives. As of March 31, 2021 and December 31, 2020, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in net liability positions was zero and $6 million, respectively, which also approximates the fair value of the maximum amount of additional collateral that may need to be posted or assets that may be needed to settle the obligations if the credit-risk-related contingent features were triggered at the reporting dates. As of March 31, 2021 and December 31, 2020, we had no cash collateral on deposit with counterparties for derivative contracts. The credit support documents executed in connection with certain of our ISDA agreements generally provide us and our counterparties the right to set off collateral against amounts owing under the ISDA agreements upon the occurrence of a default or a specified termination event.

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The following table presents amounts relevant to offsetting of our derivative assets and liabilities as of December 31, 2020:


	Amounts presented in consolidated balance sheets(1)		Gross amounts not offset in consolidated balance sheets
			Financial instruments		Cash collateral received (pledged)		Net amount
	(in millions)




December 31, 2020
Total derivative assets	$	1	$	—	$	—	$	1
Total derivative liabilities	(7)		—		—		(7)
Net derivative liabilities	$	(6)	$	—	$	—	$	(6)

_______________________________________________________________________________

(1)We report the fair values of our derivative assets and liabilities on a gross basis on our consolidated balance sheets. As a result, the gross amounts recognized and net amounts presented are the same.

We do not believe the contractually allowed netting, close-out netting or setoff of amounts owed to, or due from, the counterparties to our ISDA agreements would have a material effect on our financial position.

13. Noncontrolling Interest

We have a strategic venture with CHS under which they own an equity interest in CFN, a subsidiary of CF Holdings, which represents approximately 11% of the membership interests of CFN. We own the remaining membership interests. Under the terms of CFN’s limited liability company agreement, each member’s interest will reflect, over time, the impact of the profitability of CFN, any member contributions made to CFN and withdrawals and distributions received from CFN. For financial reporting purposes, the assets, liabilities and earnings of the strategic venture are consolidated into our financial statements. CHS’ interest in the strategic venture is recorded in noncontrolling interest in our consolidated financial statements.

A reconciliation of the beginning and ending balances of noncontrolling interest and distributions payable to noncontrolling interest in our consolidated balance sheets is provided below.



	2021		2020

	(in millions)
Noncontrolling interest:
Balance as of January 1	$	2,681	$	2,740

Earnings attributable to noncontrolling interest	24		23
Declaration of distributions payable	(64)		(88)


Balance as of March 31	$	2,641	$	2,675
Distributions payable to noncontrolling interest:
Balance as of January 1	$	—	$	—
Declaration of distributions payable	64		88
Distributions to noncontrolling interest	(64)		(88)

Balance as of March 31	$	—	$	—

CHS also receives deliveries pursuant to a supply agreement under which CHS has the right to purchase annually from CFN up to approximately 1.1 million tons of granular urea and 580,000 tons of UAN at market prices. As a result of its equity interest in CFN, CHS is entitled to semi-annual cash distributions from CFN. We are also entitled to semi-annual cash distributions from CFN. The amounts of distributions from CFN to us and CHS are based generally on the profitability of CFN and determined based on the volume of granular urea and UAN sold by CFN to us and CHS pursuant to supply agreements, less a formula driven amount based primarily on the cost of natural gas used to produce the granular urea and UAN, and adjusted for the allocation of items such as operational efficiencies and overhead amounts. Additionally, under the terms of the strategic venture, we recognized an embedded derivative related to our credit rating. See Note 8—Fair Value Measurements for additional information.

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14. Stockholders’ Equity

Treasury Stock

On February 13, 2019, the Board authorized the repurchase of up to $1 billion of CF Holdings common stock through December 31, 2021 (the 2019 Share Repurchase Program). Repurchases under the 2019 Share Repurchase Program may be made from time to time in the open market, through privately negotiated transactions, block transactions or otherwise. The manner, timing and amount of repurchases will be determined by our management based on the evaluation of market conditions, stock price, and other factors. Since the 2019 Share Repurchase Program was announced in February 2019, we have repurchased approximately 10.2 million shares for $437 million, including 2.6 million shares repurchased during the first quarter of 2020 for $100 million. No shares have been repurchased since the first quarter of 2020 under the 2019 Share Repurchase Program. At March 31, 2021, we held 340,446 shares of treasury stock.

Accumulated Other Comprehensive Loss

Changes to accumulated other comprehensive loss and the impact on other comprehensive income (loss) are as follows:


	Foreign Currency Translation Adjustment		Unrealized Gain on Derivatives		Defined Benefit Plans		Accumulated Other Comprehensive Income (Loss)
	(in millions)
Balance as of December 31, 2019	$	(188)	$	5	$	(183)	$	(366)



Reclassification to earnings(1)	—		—		1		1

Effect of exchange rate changes and deferred taxes	(83)		—		8		(75)
Balance as of March 31, 2020	$	(271)	$	5	$	(174)	$	(440)

Balance as of December 31, 2020	$	(144)	$	4	$	(180)	$	(320)




Reclassification to earnings(1)	—		—		2		2

Effect of exchange rate changes and deferred taxes	14		—		(1)		13
Balance as of March 31, 2021	$	(130)	$	4	$	(179)	$	(305)

____________________________________________________________________________

(1)Reclassifications out of accumulated other comprehensive loss to earnings during the three months ended March 31, 2021 and 2020 were not material.

15. Contingencies

Litigation

West Fertilizer Co.

On April 17, 2013, there was a fire and explosion at the West Fertilizer Co. fertilizer storage and distribution facility in West, Texas. According to published reports, 15 people were killed and approximately 200 people were injured in the incident, and the fire and explosion damaged or destroyed a number of homes and buildings around the facility. Various subsidiaries of CF Industries Holdings, Inc. (the CF Entities) were named as defendants along with other companies in lawsuits filed in 2013, 2014 and 2015 in the District Court of McLennan County, Texas by the City of West, individual residents of the County and other parties seeking recovery for damages allegedly sustained as a result of the explosion. The cases were consolidated for discovery and pretrial proceedings in the District Court of McLennan County under the caption “In re: West Explosion Cases.” The two-year statute of limitations expired on April 17, 2015. As of that date, over 400 plaintiffs had filed claims, including at least 9 entities, 325 individuals, and 80 insurance companies. Plaintiffs allege various theories of negligence, strict liability, and breach of warranty under Texas law. Although we do not own or operate the facility or directly sell our products to West Fertilizer Co., products that the CF Entities manufactured and sold to others were delivered to the facility and may have been stored at the West facility at the time of the incident.

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The Court granted in part and denied in part the CF Entities’ Motions for Summary Judgment in August 2015. Over three hundred cases have been resolved pursuant to confidential settlements that have been or we expect will be fully funded by insurance. The remaining cases are in various stages of discovery and pre-trial proceedings. The next group of cases is expected to be set for trial after the Court resumes scheduling civil jury trials currently on hold because of the COVID-19 pandemic. We believe we have strong legal and factual defenses and intend to continue defending the CF Entities vigorously in the pending lawsuits. The Company cannot provide a range of reasonably possible loss due to the uncertain nature of this litigation, including uncertainties around the potential allocation of responsibility by a jury to other defendants or responsible third parties. The recognition of a potential loss in the future in the West Fertilizer Co. litigation could negatively affect our results in the period of recognition. However, based upon currently available information, including available insurance coverage, we do not believe that this litigation will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Other Litigation

From time to time, we are subject to ordinary, routine legal proceedings related to the usual conduct of our business, including proceedings regarding public utility and transportation rates, environmental matters, taxes and permits relating to the operations of our various plants and facilities. Based on the information available as of the date of this filing, we believe that the ultimate outcome of these routine matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Environmental

From time to time, we receive notices from governmental agencies or third parties alleging that we are a potentially responsible party at certain cleanup sites under the Comprehensive Environmental Response, Compensation, and Liability Act or other environmental cleanup laws. In 2011, we received a notice from the Idaho Department of Environmental Quality (IDEQ) that alleged that we were a potentially responsible party for the cleanup of a former phosphate mine site we owned in the late 1950s and early 1960s located in Georgetown Canyon, Idaho. The current owner of the property and a former mining contractor received similar notices for the site. In 2014, we and the current property owner entered into a Consent Order with IDEQ and the U.S. Forest Service to conduct a remedial investigation and feasibility study of the site. In 2015, we and several other parties received a notice that the U.S. Department of the Interior and other trustees intend to undertake a natural resource damage assessment for 17 former phosphate mines in southeast Idaho, one of which is the former Georgetown Canyon mine. Because the former mine site is still in the remedial investigation and feasibility study stage, we are not able to estimate at this time our potential liability, if any, with respect to the cleanup of the site or a possible claim for natural resource damages. However, based on the results of the site investigation conducted to date, we do not expect the remedial or financial obligations to which we may be subject involving this or other cleanup sites will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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16. Segment Disclosures

Our assets, with the exception of goodwill, are not monitored by or reported to our chief operating decision maker by segment; therefore, we do not present total assets by segment. Goodwill by segment is presented in Note 6—Goodwill and Other Intangible Assets.

Segment data for sales, cost of sales and gross margin for the three months ended March 31, 2021 and 2020 are presented in the tables below.


	Ammonia(1)		Granular Urea(2)		UAN(2)		AN(2)		Other(2)		Consolidated
	(in millions)
Three months ended March 31, 2021
Net sales	$	206	$	399	$	232	$	105	$	106	$	1,048
Cost of sales	80		264		230		95		90		759
Gross margin	$	126	$	135	$	2	$	10	$	16	289
Total other operating costs and expenses											53
Equity in earnings of operating affiliate											11
Operating earnings											$	247

Three months ended March 31, 2020
Net sales	$	193	$	337	$	235	$	116	$	90	$	971
Cost of sales	173		224		193		103		74		767
Gross margin	$	20	$	113	$	42	$	13	$	16	204
Total other operating costs and expenses											60

Equity in earnings of operating affiliate											3
Operating earnings											$	147

_______________________________________________________________________________

(1)Cost of sales and gross margin for the ammonia segment in the three months ended March 31, 2021, include the $112 million gain on the net settlement of certain natural gas contracts with our suppliers. See Note 12—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.

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

You should read the following discussion and analysis in conjunction with our annual consolidated financial statements and related notes and our discussion and analysis of financial condition and results of operations, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission on February 24, 2021, as well as Item 1. Financial Statements in this Quarterly Report on Form 10-Q. All references to “CF Holdings,” “we,” “us,” “our” and “the Company” refer to CF Industries Holdings, Inc. and its subsidiaries, except where the context makes clear that the reference is only to CF Industries Holdings, Inc. itself and not its subsidiaries. All references to “CF Industries” refer to CF Industries, Inc., a 100% owned subsidiary of CF Industries Holdings, Inc. References to tons refer to short tons. Notes referenced in this discussion and analysis refer to the notes to our unaudited interim consolidated financial statements in Item 1. Financial Statements in this Quarterly Report on Form 10-Q. The following is an outline of the discussion and analysis included herein:

•Overview of CF Holdings

◦Our Company

◦Our Commitment to a Clean Energy Economy

◦Market Conditions and Current Developments

◦Financial Executive Summary

◦Items Affecting Comparability of Results

•Consolidated Results of Operations

•Operating Results by Business Segment

•Liquidity and Capital Resources

•Critical Accounting Estimates

•Forward-Looking Statements

Overview of CF Holdings

Our Company

Our principal assets as of March 31, 2021 include:

•five U.S. nitrogen manufacturing facilities located in Donaldsonville, Louisiana (the largest nitrogen complex in the world); Port Neal, Iowa; Yazoo City, Mississippi; Verdigris, Oklahoma; and Woodward, Oklahoma. These facilities are wholly owned directly or indirectly by CF Industries Nitrogen, LLC (CFN), of which we own approximately 89% and CHS Inc. (CHS) owns the remainder. See Note 13—Noncontrolling Interest for additional information on our strategic venture with CHS;

•two Canadian nitrogen manufacturing facilities located in Medicine Hat, Alberta (the largest nitrogen complex in Canada) and Courtright, Ontario;

•two United Kingdom nitrogen manufacturing facilities located in Billingham and Ince;

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

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

Our Commitment to a Clean Energy Economy

In October 2020, we announced that we are taking significant steps to support a global hydrogen and clean fuel economy, through the production of green and blue ammonia. Since ammonia is one of the most efficient ways to transport and store hydrogen and is also a fuel in its own right, we believe that the Company, as the world’s largest producer of ammonia with an unparalleled manufacturing and distribution network and deep technical expertise, is uniquely positioned to fulfill anticipated demand for hydrogen and ammonia from green and blue sources. Our approach will focus on green ammonia production, which refers to ammonia produced through a carbon-free process, and blue ammonia, which relates to ammonia produced by conventional processes but with CO2 removed through carbon capture and sequestration (CCS) and other certified carbon abatement projects. We have announced an initial green ammonia project at our flagship Donaldsonville nitrogen complex to produce approximately 20,000 tons per year of green ammonia. Additionally, we are developing CCS and other carbon abatement projects across our production facilities that will enable us to produce blue ammonia.

Market Conditions and Current Developments

Selling Prices and Sales Volume

Our average selling price was higher in the first quarter of 2021 than in the first quarter of 2020, driven by the impact of a tighter global nitrogen supply and demand balance as higher global energy costs drove lower global operating rates. In the first quarter of 2021, the average selling price for our products was $230 per ton, an increase of 11%, compared to $207 per ton in the first quarter of 2020. Higher average selling prices drove an increase in net sales of approximately $101 million. We reported higher average selling prices in the first quarter of 2021 as compared to the first quarter of 2020 across most of our segments.

Our total sales volume was 3% lower in the first three months of 2021 compared to the first three months of 2020. We shipped 4.6 million tons of product compared to 4.7 million tons in the first three months of 2020. Lower sales volume drove a decrease in net sales of approximately $56 million. The decrease in total sales volume was due primarily to the impact of decreased supply resulting from lower production in the first three months of 2021 in our ammonia, granular urea and AN segments as a result of severe weather conditions, which disrupted natural gas supply at certain of our facilities primarily as a result of Winter Storm Uri, and higher maintenance activity. Lower sales volumes in our AN, ammonia and granular urea segments were partially offset by higher sales volumes in our UAN and Other segments. Due to the lower production, we procured additional granular urea in order to meet obligations to customers and provide additional manufacturing flexibility once production resumed. We purchased 97 thousand tons of granular urea for $33 million to meet customer obligations, which we sold to customers and recognized revenue of $32 million.

Natural Gas

Natural gas is the principal raw material used to produce our nitrogen products. We use natural gas both as a chemical feedstock and as a fuel to produce nitrogen products. Natural gas is a significant cost component of manufactured nitrogen products, representing approximately one-third of our production costs.

In February 2021, the central portion of the United States experienced extreme and unprecedented cold weather due to the impact of Winter Storm Uri. Certain natural gas suppliers and natural gas pipelines declared force majeure events due to natural gas well freeze-offs or frozen equipment. This occurred at the same time as large increases in natural gas demand were occurring due to the cold temperatures. Due to these unprecedented factors, several states declared a state of emergency and natural gas was redirected for residential usage. At certain of our manufacturing locations, we reduced our natural gas consumption and therefore these plants either operated at reduced rates or temporarily suspended operations. We net settled certain natural gas contracts with our suppliers and received prevailing market prices, which were in excess of our cost. As a result, we recognized a gain of $112 million, which is reflected in cost of sales in our consolidated statement of operations for the three months ended March 31, 2021.

Most of our nitrogen manufacturing facilities are located in the United States and Canada. As a result, the price of natural gas in North America, which is subject to volatility, directly impacts a substantial portion of our operating expenses. Natural gas prices during the first three months of 2021 were higher than in the first three months of 2020, due primarily to the impact of extreme cold weather in the first quarter of 2021, including Winter Storm Uri in February 2021. The average daily market price at the Henry Hub, the most heavily-traded natural gas pricing point in North America, for the three months ended March 31, 2021 was $3.38 per MMBtu compared to $1.88 per MMBtu for the three months ended March 31, 2020, an increase of

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CF INDUSTRIES HOLDINGS, INC.

80%. As a result of Winter Storm Uri, the daily closing price at the Henry Hub reached a high of $23.61 per MMBtu on February 18, 2021.

We also have manufacturing facilities located in the United Kingdom. These facilities are subject to fluctuations associated with the price of natural gas in Europe. The major natural gas trading point for the United Kingdom is the National Balancing Point (NBP). The average daily market price of natural gas at NBP for the three months ended March 31, 2021 was $6.90 per MMBtu compared to $3.20 per MMBtu for the three months ended March 31, 2020, an increase of 116%. The price of natural gas in the United Kingdom increased in the first three months of 2021 due primarily to a tighter supply and demand balance in the global liquefied natural gas market as a result of severe cold temperatures in Asia that increased global liquefied natural gas demand and resulted in record Asian prices for liquefied natural gas.

The cost of natural gas used for production, which includes the impact of realized natural gas derivatives and excludes the $112 million gain that resulted from returning/selling gas to our suppliers, increased 23% to $3.22 per MMBtu in the three months ended March 31, 2021 from $2.61 per MMBtu in the three months ended March 31, 2020. This increase in natural gas costs resulted in a decrease in gross margin of approximately $48 million.

Manufacturing Costs and Granular Urea Purchases

In the first quarter of 2021, we experienced lower production levels and higher manufacturing and maintenance costs. In response to these factors, we procured granular urea in order to meet obligations to customers and provide additional manufacturing flexibility once production resumed. The following summarizes the impact from these activities:

•Certain of our plants operated at lower operating rates or temporarily suspended operations due to the lack of natural gas due to Winter Storm Uri or due to maintenance activity. As a result, in the first quarter of 2021, we incurred higher costs for manufacturing, maintenance and repair activity for both scheduled and unscheduled downtime.

•Due to the lower production, we procured additional granular urea in order to meet obligations to customers. We purchased approximately $33 million of granular urea to meet customer obligations, which we sold to customers and recognized revenue of $32 million.

COVID-19 Pandemic

In March 2020, the World Health Organization characterized the outbreak of coronavirus disease 2019 (COVID-19) as a pandemic. Due to the use of fertilizer products in crop production to support the global food supply chain, our business operations were designated as part of the critical infrastructure by the United States and as essential businesses in the United Kingdom and Canada, with corresponding designations by those states and provinces in which we operate. As a result, our manufacturing complexes continued to operate during 2020 and have continued to operate through the date of this report. In addition, we have continued to ship products by all modes of transportation to our customers, and we have not experienced any significant delays in marine, rail or truck transportation services due to the pandemic.

In response to the pandemic, we instituted and have continued to enforce safety precautions to protect the health and well-being of all of our employees, including the manufacturing workforce who operate our nitrogen complexes and distribution facilities. Through the date of this report, we have not experienced any meaningful impact in customer demand as a result of the pandemic.

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CF INDUSTRIES HOLDINGS, INC.

Financial Executive Summary

We reported net earnings attributable to common stockholders of $151 million for the three months ended March 31, 2021 compared to $68 million for the three months ended March 31, 2020, an increase in net earnings of $83 million, or 122%. The increase in net earnings was due primarily to higher average selling prices and the $112 million gain on the net settlement of certain natural gas contracts with our suppliers in February 2021, partially offset by higher natural gas costs and higher costs related to manufacturing, maintenance and repair activity due primarily to Winter Storm Uri. Gross margin increased by $85 million in the first quarter of 2021 to $289 million as compared to $204 million in the first quarter of 2020. The following table and related discussion describe the significant factors that drove the increase in gross margin.


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











Net sales	$	971		$	101	$	(56)	$	—	$	—	$	—	$	32	$	—	$	1,048
Cost of sales	767			—		(46)		48		6		63		33		(112)		759
Gross margin	$	204		$	101	$	(10)	$	(48)	$	(6)	$	(63)	$	(1)	$	112	$	289
Gross margin percentage	21.0		%															27.6		%

_______________________________________________________________________________

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

(2)Higher natural gas costs include the impact of realized natural gas derivatives.

•Average selling prices increased 11% to $230 per ton in the first quarter of 2021 from $207 per ton in the first quarter of 2020, which increased gross margin by $101 million,

•Sales volume declined by 3% to 4.6 million tons in the first quarter of 2021 from 4.7 million tons in the first quarter of 2020, which reduced gross margin by $10 million,

•The cost of natural gas used for production increased 23% to $3.22 per MMBtu in the first quarter of 2021 from $2.61 per MMBtu in the first quarter of 2020, which reduced gross margin by $48 million,

•We recognized a net unfavorable unrealized mark-to-market impact of $6 million as the first quarter of 2020 included an unrealized net mark-to-market gain of $12 million and the first quarter of 2021 included an unrealized net mark-to-market gain of $6 million,

•We incurred higher manufacturing, maintenance and other costs, which reduced gross margin by $63 million, due primarily to higher maintenance and repair activities, including the impact of winter storms,

•We purchased 97 thousand tons of granular urea for $33 million to meet obligations to customers, which we sold to customers and recognized revenue of $32 million, and

•The gain on the net settlement of certain natural gas contracts with our suppliers as a result of Winter Storm Uri was $112 million.

Diluted net earnings per share attributable to common stockholders increased $0.39 per share, to $0.70 per share in the first quarter of 2021 compared to $0.31 per share in the first quarter of 2020. This increase is due primarily to higher net earnings driven by the increase in gross margin, as described above.

During the first quarter of 2021, we redeemed in full all of the remaining $250 million outstanding principal amount of the 3.400% senior secured notes due December 2021 and recognized a loss on debt extinguishment of $6 million.

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Items Affecting Comparability of Results

In addition to the impact of market conditions, winter storms and manufacturing and maintenance activity discussed above, certain items impacted the comparability of our financial results during the three months ended March 31, 2021 and 2020. The following table and related discussion outline these items and how they impacted the comparability of our financial results during these periods. During the three months ended March 31, 2021 and 2020, we reported net earnings attributable to common stockholders of $151 million and $68 million, respectively.


	Three Months Ended March 31,
		2021			2020
			Pre-Tax		After-Tax		Pre-Tax		After-Tax
			(in millions)

Unrealized net mark-to-market gain on natural gas derivatives(1)			$	(6)	$	(5)	$	(12)	$	(9)










Loss on foreign currency transactions, including intercompany loans(2)			—		—		18		14


Insurance proceeds(2)			—		—		(10)		(8)
Loss on debt extinguishment			6		5		—		—

______________________________________________________________________________

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

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

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

Natural gas is the largest and most volatile single component of the manufacturing cost for nitrogen-based products. At certain times, we have managed the risk of changes in natural gas prices through the use of derivative financial instruments. The derivatives that we may 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, 2021 and 2020, we recognized unrealized net mark-to-market gains of $6 million and $12 million, respectively.

Loss on foreign currency transactions, including intercompany loans

In the three months ended March 31, 2020, we recognized a loss of $18 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.

Insurance proceeds

In the three months ended March 31, 2020, we recognized income of $10 million related to insurance claims at one of our nitrogen complexes, which consisted of $8 million related to business interruption proceeds and $2 million related to property insurance proceeds. These proceeds are reflected in other operating—net in our consolidated statement of operations.

Loss on debt extinguishment

On March 20, 2021, we redeemed in full all of the remaining $250 million outstanding principal amount of the 3.400% senior secured notes due December 2021 (the 2021 Notes) in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the redemption was $258 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million, primarily consisting of a premium paid on the early redemption of the notes.

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Consolidated Results of Operations

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


	Three Months Ended March 31,
		2021	2020			2021 v. 2020
			(in millions, except per share and per MMBtu)
Net sales			$	1,048		$	971		$	77		8	%
Cost of sales			759			767			(8)			(1)	%
Gross margin			289			204			85			42	%
Gross margin percentage			27.6		%	21.0		%	6.6		%
Selling, general and administrative expenses			55			54			1			2	%

Other operating—net			(2)			6			(8)			N/M
Total other operating costs and expenses			53			60			(7)			(12)	%

Equity in earnings of operating affiliate			11			3			8			N/M
Operating earnings			247			147			100			68	%
Interest expense—net			48			43			5			12	%
Loss on debt extinguishment			6			—			6			N/M

Earnings before income taxes			193			104			89			86	%
Income tax provision			18			13			5			38	%

Net earnings			175			91			84			92	%
Less: Net earnings attributable to noncontrolling interest			24			23			1			4	%
Net earnings attributable to common stockholders			$	151		$	68		$	83		122	%
Diluted net earnings per share attributable to common stockholders			$	0.70		$	0.31		$	0.39		126	%
Diluted weighted-average common shares outstanding			216.0			216.6			(0.6)			—	%
Dividends declared per common share			$	0.30		$	0.30		$	—		—	%
Natural gas supplemental data (per MMBtu)


Cost of natural gas used for production in cost of sales(1)			$	3.22		$	2.61		$	0.61		23	%



Average daily market price of natural gas Henry Hub (Louisiana)			$	3.38		$	1.88		$	1.50		80	%
Average daily market price of natural gas National Balancing Point (UK)			$	6.90		$	3.20		$	3.70		116	%
Unrealized net mark-to-market gain on natural gas derivatives			$	(6)		$	(12)		$	6		50	%
Depreciation and amortization			$	204		$	211		$	(7)		(3)	%
Capital expenditures			$	71		$	67		$	4		6	%
Sales volume by product tons (000s)			4,564			4,688			(124)			(3)	%
Production volume by product tons (000s):
Ammonia(2)			2,479			2,670			(191)			(7)	%
Granular urea			1,184			1,285			(101)			(8)	%
UAN (32%)			1,689			1,599			90			6	%
AN			475			515			(40)			(8)	%

___________________________________________________________________________

N/M—Not Meaningful

(1)Includes the cost of natural gas used for production and related transportation that is included in cost of sales during the period under the first-in, first-out inventory cost method. Includes realized gains and losses on natural gas derivatives settled during the period. Excludes unrealized mark-to-market gains and losses on natural gas derivatives. Excludes the $112 million gain on net settlement of certain natural gas contracts with our suppliers due to Winter Storm Uri in February 2021.

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

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First Quarter of 2021 Compared to First Quarter of 2020

Net Sales

Our total net sales increased $77 million, or 8%, to $1,048 million in the first quarter of 2021 compared to $971 million in the first quarter of 2020 due to an increase in average selling prices, partially offset by a decrease in sales volume. Average selling prices increased by 11% due to strong market conditions, which was partially offset by a 3% decline in sales volume. The increase in net sales also reflects the sale of 97 thousand tons of granular urea that we purchased during the first quarter of 2021 to meet obligations to customers.

Our average selling price was $230 per ton in the first quarter of 2021, or 11% higher, compared to $207 per ton in the first quarter of 2020 due to higher average selling prices across most of our segments, primarily driven by the impact of a tighter global nitrogen supply and demand balance, partially offset by a lower average selling price for our UAN segment as orders that were fulfilled in the first quarter of 2021 were taken and priced in the later portion of 2020 when selling prices were lower.

Our total sales volume of 4.6 million product tons in the first quarter of 2021 was 3% lower compared to 4.7 million tons in the first quarter of 2020 as lower sales volume in our AN, ammonia and granular urea segments was offset by higher sales volume in our UAN and Other segments. Sales volume was lower due to the impact of lower production due to reduced plant operating rates or the temporary idling of certain plants due to Winter Storm Uri and maintenance and repair activity.

Cost of Sales

Our total cost of sales decreased $8 million, or 1%, to $759 million in the first quarter of 2021 from $767 million in the first quarter of 2020. The decrease in our cost of sales was due primarily to the gain we recognized from the net settlement of certain natural gas contracts with our suppliers due to Winter Storm Uri that reduced cost of sales, which is more fully described above in the section titled “Market Conditions and Current Developments.” This gain was partially offset by higher costs for natural gas, higher costs for purchased products, and higher manufacturing, maintenance and other costs due primarily to higher maintenance and repair activities, including the impact of winter storms.

We recognized a $112 million gain on the net settlement of certain natural gas contracts with our suppliers in February 2021 due to Winter Storm Uri, which is included in cost of sales. Additionally, cost of sales declined by $46 million due primarily to a 3% decline in sales volume. These reductions in cost of sales were partially offset by higher realized natural gas costs, including the impact of realized derivatives, which increased cost of sales by $48 million, and higher manufacturing, maintenance and other costs, which increased cost of sales by $63 million. In addition, we purchased $33 million of granular urea during the first quarter of 2021 to meet obligations to customers.

Cost of sales averaged $167 per ton in the first quarter of 2021, a 2% increase from $163 per ton in the first quarter of 2020, reflecting the net impact of higher natural gas costs, the impact of higher quantities of purchased products, and higher manufacturing, maintenance and repair costs, partially offset by the $112 million gain on the net settlement of certain natural gas contracts in February 2021. The cost of natural gas used for production, including the impact of realized derivatives, increased 23% to $3.22 per MMBtu in the first quarter of 2021 from $2.61 per MMBtu in the first quarter of 2020. The cost of natural gas used for production of $3.22 per MMBtu in the first quarter of 2021 does not include the $112 million gain from the net settlement of certain natural gas contracts in February 2021.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were essentially unchanged at $55 million in the first quarter of 2021 as compared to $54 million in the first quarter of 2020.

Other Operating—Net

Other operating—net was $2 million of income in the first quarter of 2021 compared to $6 million of expense in the first quarter of 2020. The $2 million of income in the first quarter of 2021 was due primarily to the gain recognized on the recovery of certain precious metals from our manufacturing operations. The $6 million of expense in the first quarter of 2020 was due primarily to foreign currency transaction losses of $18 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. These losses were partially offset by insurance proceeds of $10 million. See “Items Affecting Comparability of Results—Insurance proceeds,” above, for additional information.

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Equity in Earnings of Operating Affiliate

Equity in earnings of operating affiliate was $11 million in the first quarter of 2021 compared to $3 million in the first quarter of 2020. The increase in the first quarter of 2021 was due primarily to an increase in the operating results of PLNL as a result of higher ammonia average selling prices.

Interest Expense—Net

Net interest expense was $48 million in the first quarter of 2021 compared to $43 million in the first quarter of 2020. The first quarter of 2020 included a $4 million reduction in interest accrued on the reserve for unrecognized tax benefits.

Loss on Debt Extinguishment

On March 20, 2021, we redeemed in full all of the remaining $250 million outstanding principal amount of the 2021 Notes in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the redemption was $258 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million, primarily consisting of a premium paid on the early redemption of the notes.

Income Taxes

For the three months ended March 31, 2021, we recorded an income tax provision of $18 million on pre-tax income of $193 million, or an effective tax rate of 9.3%, compared to an income tax provision of $13 million on pre-tax income of $104 million, or an effective tax rate of 12.3%, for the three months ended March 31, 2020.

Our effective tax rate is also impacted by earnings attributable to the noncontrolling interest in CFN, as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended March 31, 2021 of 9.3%, which is based on pre-tax income of $193 million, including $24 million of earnings attributable to the noncontrolling interest, would be 1.3 percentage points higher, or 10.6%, if based on pre-tax income exclusive of the $24 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended March 31, 2020 of 12.3%, which is based on pre-tax income of $104 million, including $23 million attributable to the noncontrolling interest, would be 3.5 percentage points higher, or 15.8%, if based on pre-tax income exclusive of the $23 million attributable to the noncontrolling interest. See Note 9—Income Taxes and Note 13—Noncontrolling Interest for additional information.

Net Earnings Attributable to Noncontrolling Interest

Net earnings attributable to noncontrolling interest were essentially unchanged at $24 million in the first quarter of 2021 as compared to $23 million in the first quarter of 2020.

Diluted Net Earnings Per Share Attributable to Common Stockholders

Net earnings per share attributable to common stockholders increased $0.39 to $0.70 per diluted share in the first quarter of 2021 from $0.31 per diluted share in the first quarter of 2020. This increase was due primarily to the increase in net earnings, driven by higher gross margin, as described above.

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CF INDUSTRIES HOLDINGS, INC.

Operating Results by Business Segment

Our reportable segments consist of ammonia, granular urea, UAN, AN and Other. These segments are differentiated by products. Our management uses gross margin to evaluate segment performance and allocate resources. Total other operating costs and expenses (consisting of selling, general and administrative expenses and other operating—net) and non-operating expenses (interest and income taxes), are centrally managed and are not included in the measurement of segment profitability reviewed by management. The following table presents summary operating results by business segment for the first quarter of 2021 and the major drivers of the variance in net sales, cost of sales and gross margin compared to the first quarter of 2020:


				Variance due to the following items:
	First Quarter of 2020			Higher (Lower) Average Selling Prices(1)		Volume(1)		Higher Natural Gas Costs(2)		Unrealized MTM on natural gas derivatives		Higher Manufacturing, Maintenance and Other Costs		Purchased Urea(1)		Gain on Net Settlement of Natural Gas Contracts		First Quarter of 2021
	(dollars in millions)










Consolidated
Net sales	$	971		$	101	$	(56)	$	—	$	—	$	—	$	32	$	—	$	1,048
Cost of sales	767			—		(46)		48		6		63		33		(112)		759
Gross margin	$	204		$	101	$	(10)	$	(48)	$	(6)	$	(63)	$	(1)	$	112	$	289
Gross margin percentage	21.0		%															27.6		%
Ammonia
Net sales	$	193		$	30	$	(17)	$	—	$	—	$	—	$	—	$	—	$	206
Cost of sales	173			—		(13)		5		2		25		—		(112)		80
Gross margin	$	20		$	30	$	(4)	$	(5)	$	(2)	$	(25)	$	—	$	112	$	126
Gross margin percentage	10.4		%															61.2		%
Granular Urea
Net sales	$	337		$	66	$	(36)	$	—	$	—	$	—	$	32	$	—	$	399
Cost of sales	224			—		(22)		16		2		11		33		—		264
Gross margin	$	113		$	66	$	(14)	$	(16)	$	(2)	$	(11)	$	(1)	$	—	$	135
Gross margin percentage	33.5		%															33.8		%
UAN
Net sales	$	235		$	(23)	$	20	$	—	$	—	$	—	$	—	$	—	$	232
Cost of sales	193			—		12		14		1		10		—		—		230
Gross margin	$	42		$	(23)	$	8	$	(14)	$	(1)	$	(10)	$	—	$	—	$	2
Gross margin percentage	17.9		%															0.9		%
AN
Net sales	$	116		$	12	$	(23)	$	—	$	—	$	—	$	—	$	—	$	105
Cost of sales	103			—		(20)		8		1		3		—		—		95
Gross margin	$	13		$	12	$	(3)	$	(8)	$	(1)	$	(3)	$	—	$	—	$	10
Gross margin percentage	11.2		%															9.5		%
Other
Net sales	$	90		$	16	$	—	$	—	$	—	$	—	$	—	$	—	$	106
Cost of sales	74			—		(3)		5		—		14		—		—		90
Gross margin	$	16		$	16	$	3	$	(5)	$	—	$	(14)	$	—	$	—	$	16
Gross margin percentage	17.8		%															15.1		%

_______________________________________________________________________________

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

(2)Higher natural gas costs include the impact of realized natural gas derivatives.

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Ammonia Segment

Our ammonia segment produces anhydrous ammonia (ammonia), which is our most concentrated nitrogen product. Ammonia contains 82% nitrogen and 18% hydrogen. The results of our ammonia segment consist of sales of ammonia to external customers. In addition, ammonia is the base nitrogen product that we upgrade into other nitrogen products such as granular urea, UAN and AN. We produce ammonia at all of our nitrogen manufacturing complexes.

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


	Three Months Ended March 31,
		2021	2020			2021 v. 2020
			(dollars in millions, except per ton amounts)
Net sales			$	206		$	193		$	13		7	%
Cost of sales			80			173			(93)			(54)	%
Gross margin			$	126		$	20		$	106		N/M
Gross margin percentage			61.2		%	10.4		%	50.8		%
Sales volume by product tons (000s)			683			762			(79)			(10)	%
Sales volume by nutrient tons (000s)(1)			560			625			(65)			(10)	%
Average selling price per product ton			$	302		$	253		$	49		19	%
Average selling price per nutrient ton(1)			$	368		$	309		$	59		19	%
Gross margin per product ton			$	184		$	26		$	158		N/M
Gross margin per nutrient ton(1)			$	225		$	32		$	193		N/M
Depreciation and amortization			$	36		$	39		$	(3)		(8)	%
Unrealized net mark-to-market gain on natural gas derivatives			$	(2)		$	(4)		$	2		50	%

_______________________________________________________________________________

N/M—Not Meaningful

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

First Quarter of 2021 Compared to First Quarter of 2020

Net Sales. Net sales in our ammonia segment increased by $13 million, or 7%, to $206 million in the first quarter of 2021 from $193 million in the first quarter of 2020 due primarily to a 19% increase in average selling prices, partially offset by a 10% decrease in sales volume. Average selling prices increased to $302 per ton in the first quarter of 2021 compared to $253 per ton in the first quarter of 2020 due primarily to the impact of a tighter global nitrogen supply and demand balance. Sales volume was lower due primarily to lower supply availability resulting from reduced production.

Cost of Sales. Cost of sales in our ammonia segment averaged $118 per ton in the first quarter of 2021, a 48% decrease from $227 per ton in the first quarter of 2020. The decrease is due primarily to the impact of the $112 million gain on the net settlement of certain natural gas contracts with our suppliers in February 2021. See “Market Conditions and Current Developments” above, for additional information on the operational impacts of Winter Storm Uri. The $112 million gain on the net settlement of certain natural gas contracts reduced cost of sales by $164 per ton. Cost of sales per ton, exclusive of the gain, is $282 per ton, a 24% increase compared to the first quarter of 2020. The increase reflects higher maintenance and repair activity due primarily to Winter Storm Uri and higher realized natural gas costs.

Gross Margin. Gross margin in our ammonia segment increased by $106 million to $126 million in the first quarter of 2021 from $20 million in the first quarter of 2020, and our gross margin percentage was 61.2% in the first quarter of 2021 compared to 10.4% in the first quarter of 2020. The increase in gross margin was due primarily to the $112 million gain on the net settlement of certain natural gas contracts in February 2021 and a 19% increase in average selling prices, which increased gross margin by $30 million. These factors were partially offset by the impact of a $25 million net increase in manufacturing, maintenance and other costs, including the impact of Winter Storm Uri, an increase in realized natural gas costs, which reduced gross margin by $5 million, a 10% decrease in sales volume, which decreased gross margin by $4 million, and the impact of a $2 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2021 compared to a $4 million gain in the first quarter of 2020.

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CF INDUSTRIES HOLDINGS, INC.

Granular Urea Segment

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

The following table presents summary operating data for our granular urea segment:


	Three Months Ended March 31,
		2021	2020			2021 v. 2020
			(dollars in millions, except per ton amounts)
Net sales			$	399		$	337		$	62		18	%
Cost of sales			264			224			40			18	%
Gross margin			$	135		$	113		$	22		19	%
Gross margin percentage			33.8		%	33.5		%	0.3		%
Sales volume by product tons (000s)			1,320			1,381			(61)			(4)	%
Sales volume by nutrient tons (000s)(1)			607			635			(28)			(4)	%
Average selling price per product ton			$	302		$	244		$	58		24	%
Average selling price per nutrient ton(1)			$	657		$	531		$	126		24	%
Gross margin per product ton			$	102		$	82		$	20		24	%
Gross margin per nutrient ton(1)			$	222		$	178		$	44		25	%
Depreciation and amortization			$	66		$	72		$	(6)		(8)	%
Unrealized net mark-to-market gain on natural gas derivatives			$	(2)		$	(4)		$	2		50	%

_______________________________________________________________________________

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

First Quarter of 2021 Compared to First Quarter of 2020

Net Sales. Net sales in our granular urea segment increased $62 million, or 18%, to $399 million in the first quarter of 2021 from $337 million in the first quarter of 2020 due primarily to a 24% increase in average selling prices, partially offset by a 4% decrease in sales volume. Average selling prices increased to $302 per ton in the first quarter of 2021 compared to $244 per ton in the first quarter of 2020 due primarily to a tighter global nitrogen supply and demand balance. Sales volume was lower due primarily to lower supply availability resulting from reduced production due to the impact of Winter Storm Uri and maintenance and repair activity. See “Market Conditions and Current Developments” above for further information on the operational impacts of Winter Storm Uri. Due to the reduced production, we purchased additional granular urea to meet obligations to customers, which we sold for $32 million.

Cost of Sales. Cost of sales in our granular urea segment averaged $200 per ton in the first quarter of 2021, a 23% increase from $162 per ton in the first quarter of 2020, due primarily to the impact of purchasing $33 million of granular urea to meet obligations to customers. In addition, the increase in cost of sales per ton resulted from higher realized natural gas costs and higher costs related to maintenance and repair activity due primarily to Winter Storm Uri.

Gross Margin. Gross margin in our granular urea segment increased by $22 million to $135 million in the first quarter of 2021 from $113 million in the first quarter of 2020, and our gross margin percentage was 33.8% in the first quarter of 2021 compared to 33.5% in the first quarter of 2020. The increase in gross margin was due to higher average selling prices, which increased gross margin by $66 million. Partially offsetting the increase in average selling prices was the impact of an increase in realized natural gas costs, which decreased gross margin by $16 million, higher manufacturing, maintenance and other costs, including the impact of Winter Storm Uri, reduced gross margin by $11 million, a decrease in sales volume, which decreased gross margin by $14 million, the impact of a $2 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2021 compared to a $4 million gain in the first quarter of 2020, and a $1 million loss on the sale of purchased urea. In addition, due to the impact of Winter Storm Uri, we experienced lower production during the first quarter of 2021 and purchased 97 thousand tons of granular urea for $33 million to meet obligations to customers, which was sold for $32 million, which had the impact of reducing our gross margin percentage in our granular urea segment by 3.3 percentage points.

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CF INDUSTRIES HOLDINGS, INC.

UAN Segment

Our UAN segment produces urea ammonium nitrate solution (UAN). UAN, a liquid fertilizer product with a nitrogen content that typically ranges from 28% to 32%, is produced by combining urea and ammonium nitrate. UAN is produced at our nitrogen complexes in Courtright, Ontario; Donaldsonville, Louisiana; Port Neal, Iowa; Verdigris, Oklahoma; Woodward, Oklahoma; and Yazoo City, Mississippi.

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


	Three Months Ended March 31,
		2021	2020			2021 v. 2020
			(dollars in millions, except per ton amounts)
Net sales			$	232		$	235		$	(3)		(1)	%
Cost of sales			230			193			37			19	%
Gross margin			$	2		$	42		$	(40)		(95)	%
Gross margin percentage			0.9		%	17.9		%	(17.0)		%
Sales volume by product tons (000s)			1,514			1,390			124			9	%
Sales volume by nutrient tons (000s)(1)			476			436			40			9	%
Average selling price per product ton			$	153		$	169		$	(16)		(9)	%
Average selling price per nutrient ton(1)			$	487		$	539		$	(52)		(10)	%
Gross margin per product ton			$	1		$	30		$	(29)		(97)	%
Gross margin per nutrient ton(1)			$	4		$	96		$	(92)		(96)	%
Depreciation and amortization			$	56		$	52		$	4		8	%
Unrealized net mark-to-market gain on natural gas derivatives			$	(2)		$	(3)		$	1		33	%

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

First Quarter of 2021 Compared to First Quarter of 2020

Net Sales. Net sales in our UAN segment decreased $3 million, or 1%, to $232 million in the first quarter of 2021 from $235 million in the first quarter of 2020 due primarily to a 9% decrease in average selling prices, partially offset by a 9% increase in sales volume. Average selling prices decreased to $153 per ton in the first quarter of 2021 compared to $169 per ton in the first quarter of 2020 as orders that were fulfilled in the first quarter of 2021 were taken and priced in the later portion of 2020 when selling prices were lower. Sales volume was higher due primarily to increased production and higher demand from fall 2020 forward commitments.

Cost of Sales. Cost of sales in our UAN segment averaged $152 per ton in the first quarter of 2021, a 9% increase from $139 per ton in the first quarter of 2020, due primarily to the impact of higher realized natural gas costs.

Gross Margin. Gross margin in our UAN segment decreased by $40 million to $2 million in the first quarter of 2021 from $42 million in the first quarter of 2020, and our gross margin percentage was 0.9% in the first quarter of 2021 compared to 17.9% in the first quarter of 2020. The decrease in gross margin was due to a 9% decrease in average selling prices, which decreased gross margin by $23 million, higher realized natural gas costs, which decreased gross margin by $14 million, a $10 million net increase in manufacturing, maintenance and other costs, and the impact of a $2 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2021 compared to a $3 million gain in the first quarter of 2020. These factors were partially offset by a 9% increase in sales volume, which increased gross margin by $8 million.

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CF INDUSTRIES HOLDINGS, INC.

AN Segment

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

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


	Three Months Ended March 31,
		2021	2020			2021 v. 2020
			(dollars in millions, except per ton amounts)
Net sales			$	105		$	116		$	(11)		(9)	%
Cost of sales			95			103			(8)			(8)	%
Gross margin			$	10		$	13		$	(3)		(23)	%
Gross margin percentage			9.5		%	11.2		%	(1.7)		%
Sales volume by product tons (000s)			438			547			(109)			(20)	%
Sales volume by nutrient tons (000s)(1)			147			184			(37)			(20)	%
Average selling price per product ton			$	240		$	212		$	28		13	%
Average selling price per nutrient ton(1)			$	714		$	630		$	84		13	%
Gross margin per product ton			$	23		$	24		$	(1)		(4)	%
Gross margin per nutrient ton(1)			$	68		$	71		$	(3)		(4)	%
Depreciation and amortization			$	19		$	26		$	(7)		(27)	%
Unrealized net mark-to-market gain on natural gas derivatives			$	—		$	(1)		$	1		100	%

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

First Quarter of 2021 Compared to First Quarter of 2020

Net Sales. Net sales in our AN segment decreased $11 million, or 9%, to $105 million in the first quarter of 2021 from $116 million in the first quarter of 2020 due primarily to a 20% decrease in sales volume, partially offset by a 13% increase in average selling prices. Sales volume declined due primarily to lower supply availability resulting from lower inventory levels entering 2021 and reduced production. Average selling prices increased to $240 per ton in the first quarter of 2021 compared to $212 per ton in the first quarter of 2020 due primarily to a tighter global nitrogen supply and demand balance.

Cost of Sales. Cost of sales in our AN segment averaged $217 per ton in the first quarter of 2021, a 15% increase from $188 per ton in the first quarter of 2020. The increase was due primarily to higher realized natural gas costs.

Gross Margin. Gross margin in our AN segment decreased $3 million, or 23%, to $10 million in the first quarter of 2021 from $13 million in the first quarter of 2020, and our gross margin percentage was 9.5% in the first quarter of 2021 compared to 11.2% in the first quarter of 2020. The decrease in gross margin was due to an increase in realized natural gas costs, which decreased gross margin by $8 million, a 20% decrease in sales volume, which decreased gross margin by $3 million, a net increase of $3 million in manufacturing, maintenance and other costs, and the impact of a $1 million unrealized net mark-to-market gain on natural gas derivatives in the first quarter of 2020. These factors were partially offset by a 13% increase in average selling prices, which increased gross margin by $12 million.

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CF INDUSTRIES HOLDINGS, INC.

Other Segment

Our Other segment primarily includes the following products:

•Diesel exhaust fluid (DEF) is an aqueous urea solution typically made with 32.5% or 50% high-purity urea and the remainder deionized water.

•Urea liquor is a liquid product that we sell in concentrations of 40%, 50% and 70% urea as a chemical intermediate.

•Nitric acid is a nitrogen-based mineral acid that is used in the production of nitrate-based fertilizers, nylon precursors and other specialty chemicals.

•Compound fertilizer products (NPKs) are granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium.

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


	Three Months Ended March 31,
		2021	2020			2021 v. 2020
			(dollars in millions, except per ton amounts)
Net sales			$	106		$	90		$	16		18	%
Cost of sales			90			74			16			22	%
Gross margin			$	16		$	16		$	—		—	%
Gross margin percentage			15.1		%	17.8		%	(2.7)		%
Sales volume by product tons (000s)			609			608			1			—	%
Sales volume by nutrient tons (000s)(1)			122			120			2			2	%
Average selling price per product ton			$	174		$	148		$	26		18	%
Average selling price per nutrient ton(1)			$	869		$	750		$	119		16	%
Gross margin per product ton			$	26		$	26		$	—		—	%
Gross margin per nutrient ton(1)			$	131		$	133		$	(2)		(2)	%
Depreciation and amortization			$	22		$	17		$	5		29	%
Unrealized net mark-to-market (gain) loss on natural gas derivatives			$	—		$	—		$	—		—	%

_______________________________________________________________________________

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

First Quarter of 2021 Compared to First Quarter of 2020

Net Sales. Net sales in our Other segment increased by $16 million, or 18%, to $106 million in the first quarter of 2021 from $90 million in the first quarter of 2020 due primarily to an 18% increase in average selling prices. The increase in average selling prices was due primarily to a tighter global nitrogen supply and demand balance.

Cost of Sales. Cost of sales in our Other segment averaged $148 per ton in the first quarter of 2021, a 21% increase from $122 per ton in the first quarter of 2020, due primarily to higher costs related to manufacturing and maintenance activity and higher realized natural gas costs.

Gross Margin. Gross margin in our Other segment was $16 million in both the first quarter of 2021 and the first quarter of 2020, and our gross margin percentage was 15.1% in the first quarter of 2021 compared to 17.8% in the first quarter of 2020. Gross margin was impacted by an 18% increase in average selling prices, which increased gross margin by $16 million and an increase of $3 million due to product mix. Offsetting these factors was a $14 million net increase in manufacturing, maintenance and other costs and an increase in realized natural gas costs, which decreased gross margin by $5 million.

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CF INDUSTRIES HOLDINGS, INC.

Liquidity and Capital Resources

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

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

On March 20, 2021, we redeemed in full all of the remaining $250 million outstanding principal amount of the 2021 Notes, in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the redemption was $258 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million, primarily consisting of a premium paid on the early redemption of the notes.

As of March 31, 2021, our cash and cash equivalents balance was $804 million, an increase of $121 million from $683 million at December 31, 2020. At March 31, 2021, we were in compliance with all applicable covenant requirements under our revolving credit agreement, senior notes and senior secured notes, and unused borrowing capacity under our revolving credit agreement was $750 million.

Cash Equivalents

Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less. Under our short-term investment policy, we may invest our cash balances, either directly or through mutual funds, in several types of investment-grade securities, including notes and bonds issued by governmental entities or corporations. Securities issued by governmental entities include those issued directly by the U.S. and Canadian federal governments; those issued by state, local or other governmental entities; and those guaranteed by entities affiliated with governmental entities.

Share Repurchase Program

Since the 2019 Share Repurchase Program was announced in February 2019, we have repurchased approximately 10.2 million shares for $437 million, including 2.6 million shares repurchased during the first quarter of 2020 for $100 million. No shares have been repurchased since the first quarter of 2020 under the 2019 Share Repurchase Program. At March 31, 2021, we held 340,446 shares of treasury stock.

Capital Spending

We make capital expenditures to sustain our asset base, increase our capacity, improve plant efficiency and comply with various environmental, health and safety requirements. Capital expenditures totaled $71 million in the first three months of 2021 compared to $67 million in the first three months of 2020.

We currently anticipate that capital expenditures for the full year of 2021 will be in the range of $450 million, which reflects a return to a normal spending level and includes expenditures for the green ammonia project at our Donaldsonville manufacturing complex. 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.

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CF INDUSTRIES HOLDINGS, INC.

Debt

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.

CF Industries is the lead borrower under the Revolving Credit Agreement. The guarantors under the Revolving Credit Agreement are currently comprised of CF Holdings and CF Holdings’ wholly owned subsidiaries CF Industries Enterprises, LLC (CFE), CF Industries Sales, LLC (CFS), CF USA Holdings, LLC (CF USA) and CF Industries Distribution Facilities, LLC (CFIDF).

In March 2020, we borrowed $500 million under the Revolving Credit Agreement to ensure we maintained ample financial flexibility in light of the uncertainty in the global markets, including the financial credit markets, caused by the COVID-19 pandemic. In April 2020, due to confidence in the functioning of the credit markets and strong nitrogen fertilizer business conditions, we repaid the $500 million of borrowings that were outstanding under the Revolving Credit Agreement as of March 31, 2020, which returned our unused borrowing capacity under the Revolving Credit Agreement to $750 million.

Letters of Credit

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CF INDUSTRIES HOLDINGS, INC.

Senior Notes

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


	Effective Interest Rate	March 31, 2021				December 31, 2020
		Principal		Carrying Amount(1)		Principal		Carrying Amount(1)
		(in millions)
Public Senior Notes:


3.450% due June 2023	3.562%	$	750	$	748	$	750	$	748
5.150% due March 2034	5.279%	750		741		750		741
4.950% due June 2043	5.031%	750		742		750		742
5.375% due March 2044	5.465%	750		741		750		741
Senior Secured Notes:
3.400% due December 2021	3.782%	—		—		250		249
4.500% due December 2026	4.759%	750		741		750		740
Total long-term debt		$	3,750	$	3,713	$	4,000	$	3,961
Less: Current maturities of long-term debt		—		—		250		249
Long-term debt, net of current maturities		$	3,750	$	3,713	$	3,750	$	3,712

_______________________________________________________________________________

Public Senior Notes

Under the indentures (including the applicable supplemental indentures) governing our senior notes due 2023, 2034, 2043 and 2044 identified in the table above (the Public Senior Notes), each series of Public Senior Notes is guaranteed by CF Holdings. Interest on the Public Senior Notes is payable semiannually, and the Public Senior Notes are redeemable at our option, in whole at any time or in part from time to time, at specified make-whole redemption prices.

Senior Secured Notes

Under the terms of the indenture governing the 4.500% senior secured notes due 2026 (the 2026 Notes), the 2026 Notes are guaranteed on a senior secured basis, jointly and severally, by CF Holdings and each current and future domestic subsidiary of CF Holdings (other than CF Industries) that from time to time is a borrower, or guarantees indebtedness, under the Revolving Credit Agreement. The subsidiary guarantors of the 2026 Notes currently consist of CFE, CFS, CF USA and CFIDF.

Subject to certain exceptions, the obligations under the 2026 Notes and each guarantor’s related guarantee are secured by a first priority security interest in substantially all of the assets of CF Industries, CF Holdings and the subsidiary guarantors, including a pledge by CF USA of its equity interests in CFN and mortgages over certain material fee-owned domestic real properties (the Collateral). The obligations under the Revolving Credit Agreement, together with certain letter of credit, cash management, hedging and similar obligations and future pari passu secured indebtedness, are secured by the Collateral on a pari passu basis with the 2026 Notes. The liens on the Collateral securing the obligations under the 2026 Notes and the related guarantees will be automatically released and the covenant under the indenture limiting dispositions of Collateral will no longer apply if CF Holdings has an investment grade corporate rating, with a stable or better outlook, from two of three selected ratings agencies and there is no default or event of default under the indenture.

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.

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CF INDUSTRIES HOLDINGS, INC.

Forward Sales and Customer Advances

We offer our customers the opportunity to purchase products from us on a forward basis at prices and on delivery dates we propose. Therefore, our reported fertilizer selling prices and margins may differ from market spot prices and margins available at the time of shipment.

Customer advances, which typically represent a portion of the contract’s value, are received shortly after the contract is executed, with any remaining unpaid amount generally being collected by the time control transfers to the customer, thereby reducing or eliminating the accounts receivable related to such sales. Any cash payments received in advance from customers in connection with forward sales contracts are reflected on our consolidated balance sheets as a current liability until control transfers and revenue is recognized. As of March 31, 2021 and December 31, 2020, we had $341 million and $130 million, respectively, in customer advances on our consolidated balance sheets.

While customer advances are generally a significant source of liquidity, the level of forward sales contracts is affected by many factors including current market conditions and our customers’ outlook of future market fundamentals. 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, further 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

Defined Benefit Pension Plans

We contributed $7 million to our pension plans during the three months ended March 31, 2021. Over the remainder of 2021, we expect to contribute an additional $25 million to our pension plans, or a total of approximately $32 million for the full year 2021.

Distribution to Noncontrolling Interest in CFN

On January 31, 2021, the CFN Board of Managers approved semi-annual distribution payments for the distribution period ended December 31, 2020 in accordance with CFN’s limited liability company agreement. On February 1, 2021, CFN distributed $64 million to CHS for the distribution period ended December 31, 2020. The estimate of the partnership distribution earned by CHS, but not yet declared, for the first quarter of 2021 is approximately $50 million.

Cash Flows

Operating Activities

Net cash provided by operating activities during the first three months of 2021 was $578 million, an increase of $286 million compared to $292 million in the first three months of 2020. The increase in cash flow from operations was due primarily to favorable changes in net working capital and higher net earnings. During the first three months of 2021, net changes in working capital contributed $230 million to cash flow from operations, while in the first three months of 2020 net changes in working capital contributed $42 million to cash flow from operations. The increased cash flow from working capital changes was primarily driven by customer advances and accounts payable and accrued expenses. The increase in net earnings was due primarily to higher average selling prices and the $112 million gain on the net settlement of certain natural gas contracts with our suppliers in February 2021, partially offset by higher costs related to manufacturing, maintenance and repair activity due primarily to Winter Storm Uri.

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CF INDUSTRIES HOLDINGS, INC.

Investing Activities

Net cash used in investing activities was $71 million in the first three months of 2021 as compared to $65 million in the first three months of 2020. During the first three months of 2021, capital expenditures totaled $71 million compared to $67 million in the first three months of 2020.

Financing Activities

Net cash used in financing activities was $387 million in the first three months of 2021 compared to $242 million in the first three months of 2020. In the first three months of 2021, we paid $255 million in connection with the redemption of the 2021 Notes. The first three months of 2020 included $500 million of borrowings under the Revolving Credit Agreement. In the first three months of 2021, no shares of common stock were repurchased compared to $100 million in the first three months of 2020. Dividends paid on common stock for each of the three-month periods ended March 31, 2021 and 2020 was $65 million. Distributions to noncontrolling interest totaled $64 million in the first three months of 2021 as compared to $88 million in the first three months of 2020.

Critical Accounting Estimates

There were no changes to our significant accounting estimates during the first three months of 2021.

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CF INDUSTRIES HOLDINGS, INC.

FORWARD-LOOKING STATEMENTS

From time to time, in this Quarterly Report on Form 10-Q as well as in other written reports and oral statements, we make forward-looking statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our prospects, future developments and business strategies. We have used the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” or “would” and similar terms and phrases, including references to assumptions, to identify forward-looking statements in this document. These forward-looking statements are made based on currently available competitive, financial and economic data, our current expectations, estimates, forecasts and projections about the industries and markets in which we operate and management’s beliefs and assumptions concerning future events affecting us. These statements are not guarantees of future performance and are subject to risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Therefore, our actual results may differ materially from what is expressed in or implied by any forward-looking statements. We want to caution you not to place undue reliance on any forward-looking statements. We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this document. Additionally, we do not undertake any responsibility to provide updates regarding the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this document.

Important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk Factors” in Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 24, 2021. Such factors include, among others:

•the cyclical nature of our business and the impact of global supply and demand on our selling prices;

•the global commodity nature of our fertilizer products, the conditions in the international market for nitrogen products, and the intense global competition from other fertilizer producers;

•conditions in the United States, Europe and other agricultural areas;

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

•weather conditions;

•the seasonality of the fertilizer business;

•the impact of changing market conditions on our forward sales programs;

•difficulties in securing the supply and delivery of raw materials, increases in their costs or delays or interruptions in their delivery;

•reliance on third party providers of transportation services and equipment;

•risks associated with cyber security;

•our reliance on a limited number of key facilities;

•acts of terrorism and regulations to combat terrorism;

•risks associated with international operations;

•the significant risks and hazards involved in producing and handling our products against which we may not be fully insured;

•our ability to manage our indebtedness and any additional indebtedness that may be incurred;

•our ability to maintain compliance with covenants under our revolving credit agreement and the agreements governing our indebtedness;

•downgrades of our credit ratings;

•risks associated with changes in tax laws and disagreements with taxing authorities;

•risks involving derivatives and the effectiveness of our risk measurement and hedging activities;

•potential liabilities and expenditures related to environmental, health and safety laws and regulations and permitting requirements;

•regulatory restrictions and requirements related to greenhouse gas emissions;

•the development and growth of the market for green and blue (low-carbon) ammonia and the risks and uncertainties relating to the development and implementation of our green and blue (low-carbon) ammonia projects;

•risks associated with expansions of our business, including unanticipated adverse consequences and the significant resources that could be required;

•risks associated with the operation or management of the CHS strategic venture, risks and uncertainties relating to the market prices of the fertilizer products that are the subject of our supply agreement with CHS over the life of the supply agreement, and the risk that any challenges related to the CHS strategic venture will harm our other business relationships; and

•the impact of the novel coronavirus disease 2019 (COVID-19) pandemic, including measures taken by governmental authorities to slow the spread of the virus, on our business and operations.

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CF INDUSTRIES HOLDINGS, INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to the impact of changes in commodity prices, interest rates and foreign currency exchange rates.

Commodity Prices

Our net sales, cash flows and estimates of future cash flows related to nitrogen-based products are sensitive to changes in selling prices as well as changes in the prices of natural gas and other raw materials unless these costs have been fixed or hedged. A $1.00 per MMBtu change in the price of natural gas would change the cost to produce a ton of ammonia, granular urea, UAN (32%), and AN by approximately $33, $22, $14 and $15, respectively.

Natural gas is the largest and most volatile component of the manufacturing cost for nitrogen-based products. At certain times, we have managed the risk of changes in natural gas prices through the use of derivative financial instruments. The derivative instruments that we may use for this purpose are primarily natural gas fixed price swaps, basis swaps and options. These derivatives settle using primarily a NYMEX futures price index, which represents the basis for fair value at any given time. The contracts represent anticipated natural gas needs for future periods and settlements are scheduled to coincide with anticipated natural gas purchases during those future periods. As of March 31, 2021, we had natural gas derivative contracts covering certain periods through March 2022.

As of March 31, 2021 and December 31, 2020, we had open derivative contracts for 0.5 million MMBtus and 34.1 million MMBtus, respectively. A $1.00 per MMBtu increase in the forward curve prices of natural gas at March 31, 2021 would result in a favorable change in the fair value of these derivative positions of approximately $1 million, and a $1.00 per MMBtu decrease in the forward curve prices of natural gas would change their fair value unfavorably by approximately $1 million.

From time to time we may purchase nitrogen products on the open market to augment or replace production at our facilities.

Interest Rates

As of March 31, 2021, we had five series of senior notes totaling $3.75 billion of principal outstanding with maturity dates of June 1, 2023, December 1, 2026, March 15, 2034, June 1, 2043 and March 15, 2044. The senior notes have fixed interest rates. As of March 31, 2021, the carrying value and fair value of our senior notes was approximately $3.71 billion and $4.22 billion, respectively.

Borrowings under the Revolving Credit Agreement bear current market rates of interest and we are subject to interest rate risk on such borrowings. There were no borrowings outstanding under the Revolving Credit Agreement as of March 31, 2021, or December 31, 2020, or during the three months ended March 31, 2021. We had $500 million of borrowings outstanding under the Revolving Credit Agreement as of March 31, 2020. Maximum borrowings under the Revolving Credit Agreement during the three months ended March 31, 2020 were $500 million. The weighted-average annual interest rate of borrowings under the Revolving Credit Agreement during the three months ended March 31, 2020 was 2.05%.

Foreign Currency Exchange Rates

We are directly exposed to changes in the value of the Canadian dollar, the British pound and the euro. We generally do not maintain any exchange rate derivatives or hedges related to these currencies.

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ITEM 4. CONTROLS AND PROCEDURES.

(a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in (i) ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

West Fertilizer Co.

The Court granted in part and denied in part the CF Entities’ Motions for Summary Judgment in August 2015. Over three hundred cases have been resolved pursuant to confidential settlements that have been or we expect will be fully funded by insurance. The remaining cases are in various stages of discovery and pre-trial proceedings. The next group of cases is expected to be set for trial after the Court resumes scheduling civil jury trials currently on hold because of the coronavirus disease 2019 (COVID-19) pandemic. We believe we have strong legal and factual defenses and intend to continue defending the CF Entities vigorously in the pending lawsuits. The Company cannot provide a range of reasonably possible loss due to the uncertain nature of this litigation, including uncertainties around the potential allocation of responsibility by a jury to other defendants or responsible third parties. The recognition of a potential loss in the future in the West Fertilizer Co. litigation could negatively affect our results in the period of recognition. However, based upon currently available information, including available insurance coverage, we do not believe that this litigation will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table sets forth share repurchases, on a trade date basis, for each of the three months of the quarter ended March 31, 2021.


	Issuer Purchases of Equity Securities
Period	Total number of shares (or units) purchased(1)	Average price paid per share (or unit)		Total number of shares (or units) purchased as part of publicly announced plans or programs(2)	Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs (in thousands)(2)
January 1, 2021 - January 31, 2021	112,447	$	38.53	—	$	563,407
February 1, 2021 - February 28, 2021	13,768	46.10		—	563,407
March 1, 2021 - March 31, 2021	111,388	46.00		—	563,407
Total	237,603	$	42.47	—

_______________________________________________________________________________

(1)Represents shares withheld to pay employee tax obligations upon the lapse of restrictions on restricted stock units and performance restricted stock units and upon the exercise of nonqualified stock options, and shares withheld to cover the price of the shares upon the exercise of nonqualified stock options.

(2)On February 13, 2019, our Board of Directors authorized management to repurchase CF Holdings common stock for a total expenditure of up to $1 billion through December 31, 2021 (the 2019 Share Repurchase Program). This program is discussed in Note 14—Stockholders’ Equity, in the notes to the unaudited consolidated financial statements included in Part I.

ITEM 6. EXHIBITS.


A list of exhibits filed with this Quarterly Report on Form 10-Q (or incorporated by reference to exhibits previously filed or furnished) is provided in the Exhibit Index on page 45 of this report.

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EXHIBIT INDEX


Exhibit No.			Description
















































3.1			Fourth Amended and Restated Bylaws of CF Industries Holdings, Inc., effective October 14, 2015, as amended April 20, 2018, as further amended May 4, 2021
31.1			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2			Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101			The following financial information from CF Industries Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (1) Consolidated Statements of Operations, (2) Consolidated Statements of Comprehensive Income (Loss), (3) Consolidated Balance Sheets, (4) Consolidated Statements of Equity, (5) Consolidated Statements of Cash Flows, and (6) the Notes to Unaudited Consolidated Financial Statements
104			Cover Page Interactive Data File (included in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CF INDUSTRIES HOLDINGS, INC.
Date: May 6, 2021	By:	/s/ W. ANTHONY WILL
		W. Anthony Will President and Chief Executive Officer (Principal Executive Officer)
Date: May 6, 2021	By:	/s/ CHRISTOPHER D. BOHN
		Christopher D. Bohn Senior Vice President and Chief Financial Officer (Principal Financial Officer)