CF Industries Holdings, Inc. - Quarter Report: 2022 June (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 June 30, 2022





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

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 ☒

199,260,535 shares of the registrant’s common stock, par value $0.01 per share, were outstanding at July 28, 2022.

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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	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	24
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
	Item 4.	Controls and Procedures	54
PART II.	Other Information
	Item 1.	Legal Proceedings	54

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
	Item 6.	Exhibits	55

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CF INDUSTRIES HOLDINGS, INC.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(in millions, except per share amounts)
Net sales	$	3,389	$	1,588	$	6,257	$	2,636
Cost of sales	1,398		1,085		2,568		1,844
Gross margin	1,991		503		3,689		792
Selling, general and administrative expenses	73		60		137		115




U.K. operations restructuring	162		—		162		—
Other operating—net	6		4		8		2
Total other operating costs and expenses	241		64		307		117

Equity in earnings of operating affiliate	28		11		54		22
Operating earnings	1,778		450		3,436		697
Interest expense	82		46		323		94
Interest income	(8)		—		(44)		—
Loss on debt extinguishment	8		—		8		6
Other non-operating—net	—		2		1		2
Earnings before income taxes	1,696		402		3,148		595
Income tax provision	357		85		758		103

Net earnings	1,339		317		2,390		492
Less: Net earnings attributable to noncontrolling interest	174		71		342		95
Net earnings attributable to common stockholders	$	1,165	$	246	$	2,048	$	397
Net earnings per share attributable to common stockholders:
Basic	$	5.59	$	1.14	$	9.83	$	1.84
Diluted	$	5.58	$	1.14	$	9.78	$	1.83
Weighted-average common shares outstanding:
Basic	208.2		215.5		208.4		215.2
Diluted	208.9		216.6		209.4		216.3
Dividends declared per common share	$	0.40	$	0.30	$	0.70	$	0.60

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(in millions)
Net earnings	$	1,339	$	317	$	2,390	$	492
Other comprehensive (loss) income:
Foreign currency translation adjustment—net of taxes	(27)		10		(40)		24


Defined benefit plans—net of taxes	8		(1)		12		—
	(19)		9		(28)		24
Comprehensive income	1,320		326		2,362		516
Less: Comprehensive income attributable to noncontrolling interest	174		71		342		95
Comprehensive income attributable to common stockholders	$	1,146	$	255	$	2,020	$	421

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	June 30, 2022		December 31, 2021
	(in millions, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	2,370	$	1,628

Accounts receivable—net	724		497
Inventories	497		408

Prepaid income taxes	72		4
Other current assets	75		56
Total current assets	3,738		2,593
Property, plant and equipment—net	6,622		7,081
Investment in affiliate	79		82
Goodwill	2,090		2,091
Operating lease right-of-use assets	227		243
Other assets	667		285
Total assets	$	13,423	$	12,375
Liabilities and Equity
Current liabilities:

Accounts payable and accrued expenses	$	806	$	565
Income taxes payable	103		24
Customer advances	72		700
Current operating lease liabilities	87		89

Other current liabilities	29		54
Total current liabilities	1,097		1,432
Long-term debt	2,964		3,465
Deferred income taxes	1,025		1,029
Operating lease liabilities	147		162
Other liabilities	676		251
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, 2022—207,498,604 shares issued and 2021—207,603,940 shares issued	2		2
Paid-in capital	1,474		1,375
Retained earnings	3,729		2,088
Treasury stock—at cost, 2022—3,753,372 shares and 2021—27,962 shares	(331)		(2)
Accumulated other comprehensive loss	(285)		(257)
Total stockholders’ equity	4,589		3,206
Noncontrolling interest	2,925		2,830
Total equity	7,514		6,036
Total liabilities and equity	$	13,423	$	12,375

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 March 31, 2022	$	2	$	(123)	$	1,482	$	2,907	$	(266)	$	4,002	$	2,751	$	6,753
Net earnings	—		—		—		1,165		—		1,165		174		1,339
Other comprehensive loss	—		—		—		—		(19)		(19)		—		(19)
Purchases of treasury stock	—		(490)		—		—		—		(490)		—		(490)
Retirement of treasury stock	—		281		(23)		(260)		—		(2)		—		(2)

Issuance of $0.01 par value common stock under employee stock plans	—		1		3		—		—		4		—		4

Stock-based compensation expense	—		—		12		—		—		12		—		12

Cash dividends ($0.40 per share)	—		—		—		(83)		—		(83)		—		(83)





Balance as of June 30, 2022	$	2	$	(331)	$	1,474	$	3,729	$	(285)	$	4,589	$	2,925	$	7,514

























Balance as of December 31, 2021	$	2	$	(2)	$	1,375	$	2,088	$	(257)	$	3,206	$	2,830	$	6,036
Net earnings	—		—		—		2,048		—		2,048		342		2,390
Other comprehensive loss	—		—		—		—		(28)		(28)		—		(28)
Purchases of treasury stock	—		(590)		—		—		—		(590)		—		(590)
Retirement of treasury stock	—		283		(23)		(260)		—		—		—		—
Acquisition of treasury stock under employee stock plans	—		(23)		—		—		—		(23)		—		(23)
Issuance of $0.01 par value common stock under employee stock plans	—		1		100		—		—		101		—		101

Stock-based compensation expense	—		—		22		—		—		22		—		22

Cash dividends ($0.70 per share)	—		—		—		(147)		—		(147)		—		(147)



Distribution declared to noncontrolling interest	—		—		—		—		—		—		(247)		(247)

Balance as of June 30, 2022	$	2	$	(331)	$	1,474	$	3,729	$	(285)	$	4,589	$	2,925	$	7,514

(Continued)

CONSOLIDATED STATEMENTS OF EQUITY

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


Net earnings	—		—		—		246		—		246		71		317
Other comprehensive income	—		—		—		—		9		9		—		9

Retirement of treasury stock	—		13		(2)		(11)		—		—		—		—

Issuance of $0.01 par value common stock under employee stock plans	—		1		18		—		—		19		—		19

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

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





Balance as of June 30, 2021	$	2	$	—	$	1,357	$	2,183	$	(296)	$	3,246	$	2,712	$	5,958

























Balance as of December 31, 2020	$	2	$	(4)	$	1,317	$	1,927	$	(320)	$	2,922	$	2,681	$	5,603



Net earnings	—		—		—		397		—		397		95		492
Other comprehensive income	—		—		—		—		24		24		—		24

Retirement of treasury stock	—		13		(2)		(11)		—		—		—		—
Acquisition of treasury stock under employee stock plans	—		(10)		—		—		—		(10)		—		(10)
Issuance of $0.01 par value common stock under employee stock plans	—		1		26		—		—		27		—		27

Stock-based compensation expense	—		—		16		—		—		16		—		16

Cash dividends ($0.60 per share)	—		—		—		(130)		—		(130)		—		(130)



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

Balance as of June 30, 2021	$	2	$	—	$	1,357	$	2,183	$	(296)	$	3,246	$	2,712	$	5,958

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six months ended June 30,
	2022		2021
	(in millions)
Operating Activities:
Net earnings	$	2,390	$	492
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	431		447
Deferred income taxes	—		(31)
Stock-based compensation expense	22		16

Loss on debt extinguishment	8		6
Unrealized net gain on natural gas derivatives	(50)		(6)
Unrealized loss on embedded derivative	—		2


U.K. operations restructuring asset impairment	152		—
Gain on sale of emission credits	(3)		—
Loss on disposal of property, plant and equipment	—		2
Undistributed earnings of affiliate—net of taxes	(3)		(4)
Changes in:
Accounts receivable—net	(239)		(137)
Inventories	(99)		(9)
Accrued and prepaid income taxes	12		—
Accounts payable and accrued expenses	223		85
Customer advances	(628)		(121)
Other—net	64		(36)
Net cash provided by operating activities	2,280		706
Investing Activities:
Additions to property, plant and equipment	(129)		(181)
Proceeds from sale of property, plant and equipment	1		—


Distributions received from unconsolidated affiliate	4		—

Purchase of investments held in nonqualified employee benefit trust	(1)		(12)
Proceeds from sale of investments held in nonqualified employee benefit trust	1		12
Purchase of emission credits	(9)		—
Proceeds from sale of emission credits	12		—
Other—net	—		(1)
Net cash used in investing activities	(121)		(182)
Financing Activities:



Payments of long-term borrowings	(507)		(255)
Financing fees	(4)		—
Dividends paid on common stock	(147)		(130)

Distributions to noncontrolling interest	(247)		(64)
Purchases of treasury stock	(577)		—
Proceeds from issuances of common stock under employee stock plans	101		26
Cash paid for shares withheld for taxes	(23)		(10)

Net cash used in financing activities	(1,404)		(433)
Effect of exchange rate changes on cash and cash equivalents	(13)		3
Increase in cash and cash equivalents	742		94
Cash and cash equivalents at beginning of period	1,628		683
Cash and cash equivalents at end of period	$	2,370	$	777

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 nitrogen manufacturing complexes in the United States, Canada and the United Kingdom, an extensive storage, transportation and distribution network in North America, and logistics capabilities enabling a global reach underpin our strategy to leverage our unique capabilities to accelerate the world’s transition to clean energy. Our principal customers are cooperatives, independent fertilizer distributors, traders, wholesalers and industrial users. Our core product is anhydrous ammonia (ammonia), which contains 82% nitrogen and 18% hydrogen. Our nitrogen products that are upgraded from ammonia are granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN). Our other nitrogen products include diesel exhaust fluid (DEF), urea liquor, nitric acid and aqua ammonia, which are sold primarily to our industrial customers, and compound fertilizer products (NPKs), which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium.

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, 2021, 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, 2021, filed with the SEC on February 24, 2022. The preparation of the unaudited interim consolidated financial statements requires us to make use of estimates and assumptions that may significantly 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. Such estimates and assumptions are used for, but are not limited to, net realizable value of inventories, environmental remediation liabilities, environmental and litigation contingencies, plant closure and asset retirement obligations, the cost of carbon credits required to meet environmental regulations, the cost of customer incentives, the cost to fulfill contractual commitments to our customers, 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 reserves and the assessment of the realizability of deferred tax assets, assumptions used in the determination of the funded status and annual expense of defined benefit pension and other postretirement benefit plans and 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 17—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 and six months ended June 30, 2022 and 2021:


	Ammonia		Granular Urea		UAN		AN		Other		Total
	(in millions)

Three months ended June 30, 2022
North America	$	987	$	816	$	877	$	76	$	180	$	2,936
Europe and other	128		17		99		177		32		453

Total revenue	$	1,115	$	833	$	976	$	253	$	212	$	3,389
Three months ended June 30, 2021
North America	$	431	$	433	$	403	$	55	$	92	$	1,414
Europe and other	28		—		31		81		34		174
Total revenue	$	459	$	433	$	434	$	136	$	126	$	1,588

Six months ended June 30, 2022
North America	$	1,570	$	1,552	$	1,890	$	159	$	333	$	5,504
Europe and other	185		46		101		317		104		753

Total revenue	$	1,755	$	1,598	$	1,991	$	476	$	437	$	6,257
Six months ended June 30, 2021
North America	$	599	$	832	$	625	$	96	$	169	$	2,321
Europe and other	66		—		41		145		63		315
Total revenue	$	665	$	832	$	666	$	241	$	232	$	2,636

As of June 30, 2022 and December 31, 2021, we had $72 million and $700 million, respectively, in customer advances on our consolidated balance sheets. During the six months ended June 30, 2022 and 2021, substantially all of the customer advances at the beginning of each respective period were recognized as revenue.

We offer cash incentives to certain customers generally based on the volume of their purchases over the fertilizer year ending June 30. Our cash incentives do not provide an option to the customer for additional product. The balances of customer incentives accrued as of June 30, 2022 and December 31, 2021 were not material.

We have certain customer contracts with performance obligations under which, 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, the amount of which payment may vary based upon the terms and conditions of the applicable contract. As of June 30, 2022, 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 were approximately $790 million. We expect to recognize approximately 28% of these performance obligations as revenue in the remainder of 2022, approximately 65% as revenue during 2023-2024, approximately 5% as revenue during 2025-2026, and the remainder thereafter. Subject to the terms and conditions of the applicable contracts, if the customers do not satisfy their purchase obligations under such contracts, the minimum amount that they would be required to pay to us under such contracts, in the aggregate, was approximately $120 million as of June 30, 2022. Other than the performance obligations described above, any performance obligations with our customers that were unfulfilled or partially fulfilled at December 31, 2021 will be satisfied in 2022.

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CF INDUSTRIES HOLDINGS, INC.

3. Net Earnings Per Share

Net earnings per share were computed as follows:


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(in millions, except per share amounts)
Net earnings attributable to common stockholders	$	1,165	$	246	$	2,048	$	397
Basic earnings per common share:
Weighted-average common shares outstanding	208.2		215.5		208.4		215.2
Net earnings attributable to common stockholders	$	5.59	$	1.14	$	9.83	$	1.84
Diluted earnings per common share:
Weighted-average common shares outstanding	208.2		215.5		208.4		215.2
Dilutive common shares—stock-based awards	0.7		1.1		1.0		1.1
Diluted weighted-average common shares outstanding	208.9		216.6		209.4		216.3
Net earnings attributable to common stockholders	$	5.58	$	1.14	$	9.78	$	1.83

Diluted earnings per common 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 zero for the three and six months ended June 30, 2022, and 1.2 million in both the three and six months ended June 30, 2021.

4. Inventories

Inventories consist of the following:


	June 30, 2022		December 31, 2021
	(in millions)
Finished goods	$	455	$	358
Raw materials, spare parts and supplies	42		50
Total inventories	$	497	$	408

5. United Kingdom Operations, Proposed Restructuring and Impairment Charges

During the third quarter of 2021, the United Kingdom began experiencing an energy crisis that included a substantial increase in the price of natural gas. The U.K. energy crisis necessitated evaluations in the third and fourth quarters of 2021, of the long-lived assets, including definite-lived intangible assets, and goodwill of our U.K. operations to determine if their fair value had declined to below their carrying value. The evaluations resulted in total goodwill impairment charges of $285 million, and total long-lived and intangible asset impairment charges of $236 million, in 2021. As of December 31, 2021, after the recognition of the goodwill impairment charges, no goodwill related to our U.K. operations remained.

During the first quarter of 2022, we concluded that the continued impacts of the U.K. energy crisis, including further increases and volatility in natural gas prices due in part to geopolitical events as a result of Russia’s invasion of Ukraine in February 2022, triggered an additional long-lived asset impairment test. The results of this test indicated that no additional long-lived asset impairment existed as the undiscounted estimated future cash flows were in excess of the carrying values for each of the U.K. asset groups. The U.K. asset groups consist of U.K. Ammonia, U.K. AN and U.K. Other.

In June 2022, we approved and announced our proposed plan to restructure our U.K. operations, which includes our manufacturing complexes in Ince and Billingham. This plan includes permanently closing the Ince facility and optimizing the remaining manufacturing operations at the Billingham facility. The Ince facility has been idled since September 15, 2021. As a result, in the three months ended June 30, 2022, we recorded total charges of $162 million, as follows:

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CF INDUSTRIES HOLDINGS, INC.

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

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

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

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

and

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

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

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

6. Property, Plant and Equipment—Net

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


	June 30, 2022		December 31, 2021
	(in millions)
Land	$	66	$	68
Machinery and equipment(1)	12,590		12,757
Buildings and improvements(1)	912		915
Construction in progress(1)	225		148
Property, plant and equipment(2)	13,793		13,888
Less: Accumulated depreciation and amortization	7,171		6,807
Property, plant and equipment—net	$	6,622	$	7,081

_______________________________________________________________________________

(1)As of June 30, 2022, machinery and equipment, buildings and improvements, and construction in progress include cumulative impairment charges of $297 million, $7 million and $13 million, respectively, which include impairment charges related to our U.K. operations of $135 million recorded in the second quarter of 2022 and $182 million recorded in 2021. As of December 31, 2021, machinery and equipment, buildings and improvements, and construction in progress include cumulative impairment charges of $169 million, $5 million and $8 million, respectively, which were recorded in 2021.

(2)As of June 30, 2022 and December 31, 2021, we had property, plant and equipment that was accrued but unpaid of approximately $51 million and $35 million, respectively. As of June 30, 2021 and December 31, 2020, we had property, plant and equipment that was accrued but unpaid of approximately $76 million and $43 million, respectively.

Depreciation and amortization related to property, plant and equipment was $219 million and $424 million for the three and six months ended June 30, 2022, respectively, and $239 million and $439 million for the three and six months ended June 30, 2021, respectively.

In June 2022, we approved and announced our proposed plan to restructure our U.K. operations. This plan includes permanently closing the Ince facility and optimizing the remaining manufacturing operations at the Billingham facility. As a result, we recorded total charges of $162 million, including an asset impairment charge of $135 million to write down the property, plant and equipment at the Ince facility to its estimated salvage value, which are reflected in the line “U.K. operations restructuring” in our consolidated statements of operations for the three and six months ended June 30, 2022. The asset impairment consisted of $128 million related to machinery and equipment, $2 million relating to buildings and improvements,

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and $5 million related to construction in progress. See Note 5—United Kingdom Operations, Proposed Restructuring and Impairment Charges for additional information.

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.

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


	Six months ended June 30,
	2022		2021
	(in millions)
Net capitalized turnaround costs:
Beginning balance	$	355	$	226
Additions	26		89
Depreciation	(70)		(51)
Impairment	(7)		—
Effect of exchange rate changes	(4)		1
Ending balance	$	300	$	265

7. Goodwill and Other Intangible Assets

The following table shows the carrying amount of goodwill by reportable segment as of June 30, 2022 and December 31, 2021:


	Ammonia(1)		Granular Urea		UAN		AN(1)		Other(1)		Total
	(in millions)
Balance as of December 31, 2021	$	579	$	828	$	576	$	69	$	39	$	2,091

Effect of exchange rate changes	(1)		—		—		—		—		(1)
Balance as of June 30, 2022	$	578	$	828	$	576	$	69	$	39	$	2,090

_______________________________________________________________________________

(1)At both June 30, 2022 and December 31, 2021, the carrying amount of goodwill includes accumulated impairment losses in our Ammonia, AN and Other segments of $9 million, $241 million and $35 million, respectively.

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:


	June 30, 2022						December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
	(in millions)

Customer relationships(1)	$	81	$	(58)	$	23	$	84	$	(60)	$	24
Trade names(2)	20		(10)		10		31		(10)		21

Total intangible assets	$	101	$	(68)	$	33	$	115	$	(70)	$	45

_______________________________________________________________________________

(1)At both June 30, 2022 and December 31, 2021, the gross carrying amount for customer relationships includes cumulative impairment charges of $49 million, which were recorded in 2021.

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(2)At June 30, 2022, the gross carrying amount for trade names includes cumulative impairment charges of $9 million, including $8 million recorded in the second quarter of 2022, and $1 million recorded in 2021. At December 31, 2021, the gross carrying amount for trade names includes cumulative impairment charges of $1 million, which were recorded in 2021.

Our customer relationships and trade names are being amortized over a weighted-average life of approximately 20 years. Amortization expense of our identifiable intangible assets was $1 million and $2 million for the three and six months ended June 30, 2022, respectively, and $2 million and $4 million for the three and six months ended June 30, 2021, respectively. 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 2022 is $2 million and for each of the fiscal years 2023-2027 is $4 million.

8. 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 June 30, 2022, the total carrying value of our equity method investment in PLNL was $79 million, $37 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 11 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 $77 million and $151 million for the three and six months ended June 30, 2022, respectively, and $37 million and $63 million for the three and six months ended June 30, 2021, respectively.

9. Fair Value Measurements

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


	June 30, 2022
	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
	(in millions)
Cash	$	210	$	—	$	—	$	210
Cash equivalents:
U.S. and Canadian government obligations	1,942		—		—		1,942
Other debt securities	218		—		—		218
Total cash and cash equivalents	$	2,370	$	—	$	—	$	2,370

Nonqualified employee benefit trusts	16		1		—		17

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	December 31, 2021
	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
	(in millions)
Cash	$	121	$	—	$	—	$	121
Cash equivalents:
U.S. and Canadian government obligations	1,452		—		—		1,452
Other debt securities	55		—		—		55
Total cash and cash equivalents	$	1,628	$	—	$	—	$	1,628

Nonqualified employee benefit trusts	17		3		—		20

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.

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 June 30, 2022 and December 31, 2021 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:


	June 30, 2022
	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	$	2,160	$	2,160	$	—	$	—

Nonqualified employee benefit trusts	17		17		—		—
Derivative assets	22		—		22		—
Derivative liabilities	(3)		—		(3)		—
Embedded derivative liability	(15)		—		(15)		—


	December 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	$	1,507	$	1,507	$	—	$	—

Nonqualified employee benefit trusts	20		20		—		—
Derivative assets	16		—		16		—
Derivative liabilities	(47)		—		(47)		—
Embedded derivative liability	(15)		—		(15)		—

Cash Equivalents

As of June 30, 2022 and December 31, 2021, 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.

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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 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 13—Derivative Financial Instruments for additional information.

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 June 30, 2022 and December 31, 2021, the embedded derivative liability was $15 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 14—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:


	June 30, 2022				December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in millions)
Long-term debt	$	2,964	$	2,881	$	3,465	$	4,113

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.

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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. In the case of property, plant and equipment held for abandonment, as described in Note 5—United Kingdom Operations, Proposed Restructuring and Impairment Charges, fair value was measured as the estimated salvage value of such assets, which was immaterial. 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.

10. Income Taxes

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

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

For the six months ended June 30, 2022, our income tax provision includes $22 million of income tax benefit due to share-based compensation activity and $78 million of income tax provision related to the Canada Revenue Agency Competent Authority Matter, as discussed below. For the six months ended June 30, 2021, our income tax provision includes a $22 million benefit reflecting the impact of agreement on certain issues related to U.S. federal income tax audits.

Our effective tax rate is also impacted by earnings attributable to the noncontrolling interest in 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 June 30, 2022 of 21.1%, which is based on pre-tax income of $1.70 billion, including $174 million of earnings attributable to the noncontrolling interest, would be 2.4 percentage points higher if based on pre-tax income exclusive of the $174 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended June 30, 2021 of 21.2%, which is based on pre-tax income of $402 million, including $71 million of earnings attributable to the noncontrolling interest, would be 4.6 percentage points higher if based on pre-tax income exclusive of the $71 million of earnings attributable to the noncontrolling interest.

Our effective tax rate for the six months ended June 30, 2022 of 24.1%, which is based on pre-tax income of $3.15 billion, including $342 million of earnings attributable to the noncontrolling interest, would be 2.9 percentage points higher if based on pre-tax income exclusive of the $342 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the six months ended June 30, 2021 of 17.4%, which is based on pre-tax income of $595 million, including $95 million of earnings attributable to the noncontrolling interest, would be 3.3 percentage points higher if based on pre-tax income exclusive of the $95 million of earnings attributable to the noncontrolling interest.

Canada Revenue Agency Competent Authority Matter

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

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In February 2022, we were informed that a decision was reached by the arbitration panel for tax years 2006 through 2011. In March 2022, we received further details of the results of the arbitration proceedings and the settlement provisions between the United States and Canadian competent authorities, and we accepted the decision of the arbitration panel. Under the terms of the arbitration decision, additional income for tax years 2006 through 2011 will be subject to tax in Canada, resulting in our having additional Canadian tax liability for those tax years of approximately $129 million, based on current estimates. We expect this resulting Canadian tax liability, plus interest of approximately $103 million, will be assessed in the second half of 2022 and that payment of those amounts, aggregating to approximately $232 million, based on current estimates, will be due in the second half of 2022. The letters of credit we had posted in lieu of paying the additional tax liability assessed by the Notices of Reassessment will be cancelled upon payment of the additional tax and interest to Canada. Due primarily to the availability of additional foreign tax credits to offset in part the increased Canadian tax referenced above, the Company will file amended tax returns in the United States to request a refund of tax overpaid.

In the six months ended June 30, 2022, as a result of the impact of these events on our Canadian and U.S. federal and state income taxes, we recognized an income tax provision of $78 million, reflecting the net impact of $129 million of accrued income taxes payable to Canada for tax years 2006 to 2011, partially offset by net income tax receivables of approximately $51 million in the United States, and we accrued net interest of $104 million, primarily reflecting the impact of estimated interest payable to Canada. Of the $78 million of income tax provision and $104 million of net interest expense recognized in the six months ended June 30, 2022, $2 million of income tax provision and $5 million of net interest expense was recognized in the three months ended June 30, 2022.

Transfer pricing reserves

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

•liabilities for unrecognized tax benefits of approximately $314 million with a corresponding income tax provision, and accrued interest of approximately $116 million related to the liabilities for unrecognized tax benefits, and

•noncurrent income tax receivables of approximately $359 million with a corresponding income tax benefit, and accrued interest income of approximately $30 million related to the noncurrent income tax receivables.

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

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

Unrecognized tax benefits

As of June 30, 2022, the total amount of our unrecognized tax benefits was $351 million, and the total amounts accrued for interest and penalties related to income taxes included in other liabilities was $125 million, which primarily reflects the impacts of the evaluation of our transfer pricing positions. As of December 31, 2021, the total amount of our unrecognized tax benefits was $27 million and the total amounts accrued for interest and penalties related to income taxes was $4 million. We expect that the ultimate outcome of these transfer pricing reserves will not have a material net impact on our results of operations, financial condition or cash flows. However, we can provide no assurance as to the ultimate outcome. Based on the information currently available, we believe we have adequately reserved for the open tax years.

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11. Financing Agreements

Revolving Credit Agreement

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

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.

As of June 30, 2022, we had unused borrowing capacity under the Revolving Credit Agreement of $750 million and no outstanding letters of credit. There were no borrowings outstanding under the Revolving Credit Agreement as of June 30, 2022 or December 31, 2021, or during the six months ended June 30, 2022.

The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants, including financial covenants. As of June 30, 2022, we were in compliance with all covenants under the Revolving Credit Agreement.

Letters of Credit

In addition to the letters of credit that may be issued under the Revolving Credit Agreement, as described above, we have also entered into a bilateral agreement with capacity to issue up to $350 million of letters of credit, reflecting an increase of $100 million in May 2022. As of June 30, 2022, approximately $275 million of letters of credit were outstanding under this agreement.

Senior Notes

Long-term debt presented on our consolidated balance sheets as of June 30, 2022 and December 31, 2021 consisted of the following debt securities issued by CF Industries:


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


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

4.500% due December 2026(2)	4.783%	750		742		750		742
Total long-term debt		$	3,000	$	2,964	$	3,500	$	3,465

_______________________________________________________________________________

(1)Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discount was $8 million as of both June 30, 2022 and December 31, 2021, and total deferred debt issuance costs were $28 million and $27 million as of June 30, 2022 and December 31, 2021, respectively.

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

As of June 30, 2022, under the indentures (including the applicable supplemental indentures) governing the senior notes due 2034, 2043 and 2044 identified in the table above (the Public Senior Notes), each series of Public Senior Notes was guaranteed by CF Holdings.

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As of June 30, 2022, 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 were guaranteed by CF Holdings. Until August 23, 2021, the 2026 Notes were guaranteed by certain subsidiaries of CF Industries. The requirement for subsidiary guarantees of the 2026 Notes was eliminated, and all subsidiary guarantees were automatically released, as a result of an investment grade rating event under the terms of the indenture governing the 2026 Notes on August 23, 2021.

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

On April 21, 2022, we redeemed in full all of the $500 million outstanding principal amount of the 3.450% senior notes due June 2023 (the 2023 Notes) in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid in connection with the redemption of the 2023 Notes was $513 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $8 million, consisting primarily of the premium paid on the redemption of the 2023 Notes prior to their scheduled maturity.

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. Interest Expense

Details of interest expense are as follows:


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(in millions)
Interest on borrowings(1)	$	38	$	44	$	80	$	90
Fees on financing agreements(1)	2		2		4		4
Interest on tax liabilities(2)	42		—		240		—
Interest capitalized	—		—		(1)		—
Total interest expense	$	82	$	46	$	323	$	94

_______________________________________________________________________________

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

(2)See Note 10—Income Taxes for additional information.

13. Derivative Financial Instruments

We use derivative financial instruments to reduce our exposure to changes in prices for natural gas that will be purchased in the future. Natural gas is the largest and most volatile component of our manufacturing cost for nitrogen-based products. From time to time, we may also use derivative financial instruments to reduce our exposure to changes in foreign currency exchange rates. The derivatives that we 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 June 30, 2022, we had natural gas derivative contracts covering certain periods through March 2023.

As of June 30, 2022, our open natural gas derivative contracts consisted of natural gas fixed price swaps and basis swaps for 11.2 million MMBtus. As of December 31, 2021, we had open natural gas derivative contracts consisting of natural gas fixed price swaps, basis swaps and options for 60.0 million MMBtus of natural gas. For the six months ended June 30, 2022, we used derivatives to cover approximately 24% of our natural gas consumption.

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


	Gain (loss) recognized in income
		Three months ended June 30,				Six months ended June 30,
	Location	2022		2021		2022		2021
		(in millions)


Unrealized net gains on natural gas derivatives	Cost of sales	$	17	$	—	$	50	$	6
Realized net (losses) gains on natural gas derivatives	Cost of sales	(9)		—		8		(3)
Gain on net settlement of natural gas derivatives due to Winter Storm Uri	Cost of sales	—		—		—		112
Net derivative gains		$	8	$	—	$	58	$	115

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 the first quarter of 2021, the central portion of the United States experienced extreme and unprecedented cold weather due to the impact of Winter Storm Uri. Certain natural gas suppliers and natural gas pipelines declared force majeure events due to frozen equipment. This occurred at the same time as large increases in natural gas demand were occurring due to the 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 these natural gas contracts, which is reflected in cost of sales in our consolidated statement of operations for the six months ended June 30, 2021.

The fair values of derivatives on our consolidated balance sheets are shown below. As of June 30, 2022 and December 31, 2021, none of our derivative instruments were designated as hedging instruments. See Note 9—Fair Value Measurements for additional information on derivative fair values.

Asset Derivatives

Liability Derivatives

Balance Sheet Location

June 30,
2022

December 31, 2021

Balance Sheet
Location

June 30,
2022

December 31, 2021

(in millions)

Natural gas derivatives

Other current assets

Other current liabilities

(3)

(47)

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. As of June 30, 2022 and December 31, 2021, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in net liability positions was zero and $31 million, respectively, which also approximates the fair value of the assets that may be needed to settle the obligations if the credit-risk-related contingent features were triggered at the reporting dates. 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. As of June 30, 2022 and December 31, 2021, we had no cash collateral on deposit with counterparties for derivative contracts.

The following table presents amounts relevant to offsetting of our derivative assets and liabilities as of June 30, 2022 and December 31, 2021:

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	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)
June 30, 2022
Total derivative assets	$	22	$	—	$	—	$	22
Total derivative liabilities	(3)		—		—		(3)
Net derivative assets	$	19	$	—	$	—	$	19
December 31, 2021
Total derivative assets	$	16	$	—	$	—	$	16
Total derivative liabilities	(47)		—		—		(47)
Net derivative liabilities	$	(31)	$	—	$	—	$	(31)

_______________________________________________________________________________

(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.

14. Noncontrolling Interest

We have a strategic venture with CHS under which CHS owns 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.



	2022		2021

	(in millions)
Noncontrolling interest:
Balance as of January 1	$	2,830	$	2,681

Earnings attributable to noncontrolling interest	342		95
Declaration of distributions payable	(247)		(64)


Balance as of June 30	$	2,925	$	2,712
Distributions payable to noncontrolling interest:
Balance as of January 1	$	—	$	—
Declaration of distributions payable	247		64
Distributions to noncontrolling interest	(247)		(64)

Balance as of June 30	$	—	$	—

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

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venture, we recognized an embedded derivative related to our credit rating. See Note 9—Fair Value Measurements for additional information.

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

15. Stockholders’ Equity

2022 Equity and Incentive Plan

In May 2022, our shareholders approved the CF Industries Holdings, Inc. 2022 Equity and Incentive Plan (the Plan), including 2.5 million new shares of the Company’s common stock available for grant thereunder as part of our pay-for-performance compensation program, which we use to provide incentives that are aligned with the interests of our shareholders. The Plan replaced the CF Industries Holdings, Inc. 2014 Equity and Incentive Plan and permits grants of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards, which in each case may be conditioned on performance criteria, to employees and certain consultants of the Company and its subsidiaries and non-employee directors of the Company.

Treasury Stock

On November 3, 2021, our Board of Directors (the Board) authorized the repurchase of up to $1.5 billion of CF Holdings common stock through December 31, 2024 (the 2021 Share Repurchase Program). Repurchases under the 2021 Share Repurchase Program may be made from time to time in the open market, through privately negotiated transactions, through block transactions or otherwise. The manner, timing and amount of repurchases will be determined by our management based on the evaluation of market conditions, stock price, and other factors. In the six months ended June 30, 2022, we repurchased approximately 6.6 million shares under the 2021 Share Repurchase Program for $590 million, of which $14 million was accrued and unpaid as of June 30, 2022.

In the six months ended June 30, 2022, we retired approximately 3.2 million shares of repurchased stock, and we held approximately 3.8 million shares of treasury stock as of June 30, 2022.

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, 2020	$	(144)	$	4	$	(180)	$	(320)


Loss arising during the period	—		—		(3)		(3)
Reclassification to earnings(1)	—		—		5		5

Effect of exchange rate changes and deferred taxes	24		—		(2)		22
Balance as of June 30, 2021	$	(120)	$	4	$	(180)	$	(296)

Balance as of December 31, 2021	$	(141)	$	4	$	(120)	$	(257)


Gain arising during the period	—		—		3		3

Reclassification to earnings(1)	—		—		2		2

Effect of exchange rate changes and deferred taxes	(40)		—		7		(33)
Balance as of June 30, 2022	$	(181)	$	4	$	(108)	$	(285)

____________________________________________________________________________

(1)Reclassifications out of accumulated other comprehensive loss to the consolidated statements of operations during the three and six months ended June 30, 2022 and 2021 were not material.

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16. 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 did 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.

All but two of the claims, including all wrongful death and personal injury claims, have been resolved pursuant to confidential settlements that have been or we expect will be fully funded by insurance. The two remaining subrogation and statutory indemnification claims have not yet been set for trial. We believe we have strong legal and factual defenses and intend to continue defending the CF Entities vigorously in the remaining lawsuits. Based upon currently available information, we expect any potential loss to be immaterial and fully indemnified by insurance.

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. A remedial investigation was submitted to the agencies in 2021. The next step will be a risk assessment, followed by a feasibility study. In 2015, we and several other parties received a notice that the U.S. Department of the Interior and other trustees intended to undertake a natural resource damage assessment for 18 former phosphate mines and three former processing facilities in southeast Idaho. The Georgetown Canyon former mine and processing facility was included in the group of former mines and processing facilities identified by the trustees. In June 2021, we received another notice from the U.S. Department of the Interior that the natural resource damage trustees were commencing a ‘subsequent’ phase of the natural resource damage assessment, but no further details were provided with respect to said assessment. Because the former Georgetown Canyon mine site is still in the risk assessment 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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17. Segment Disclosures

Our reportable segments consist of Ammonia, Granular Urea, UAN, AN and Other. These segments are differentiated by products. Our management uses gross margin to evaluate segment performance and allocate resources. Total other operating costs and expenses (consisting primarily of selling, general and administrative expenses and other operating—net) and non-operating expenses (consisting primarily of interest and income taxes) are centrally managed and are not included in the measurement of segment profitability reviewed by management.

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 7—Goodwill and Other Intangible Assets. Segment data for sales, cost of sales and gross margin for the three and six months ended June 30, 2022 and 2021 are presented in the table below.



	Ammonia(1)		Granular Urea(2)		UAN(2)		AN(2)		Other(2)		Consolidated
	(in millions)
Three months ended June 30, 2022
Net sales	$	1,115	$	833	$	976	$	253	$	212	$	3,389
Cost of sales	442		360		343		151		102		1,398
Gross margin	$	673	$	473	$	633	$	102	$	110	1,991
Total other operating costs and expenses(3)											241
Equity in earnings of operating affiliate											28
Operating earnings											$	1,778
Three months ended June 30, 2021
Net sales	$	459	$	433	$	434	$	136	$	126	$	1,588
Cost of sales	333		241		296		120		95		1,085
Gross margin	$	126	$	192	$	138	$	16	$	31	503
Total other operating costs and expenses											64
Equity in earnings of operating affiliate											11
Operating earnings											$	450

Six months ended June 30, 2022
Net sales	$	1,755	$	1,598	$	1,991	$	476	$	437	$	6,257
Cost of sales	722		630		688		322		206		2,568
Gross margin	$	1,033	$	968	$	1,303	$	154	$	231	3,689
Total other operating costs and expenses(3)											307
Equity in earnings of operating affiliate											54
Operating earnings											$	3,436
Six months ended June 30, 2021
Net sales	$	665	$	832	$	666	$	241	$	232	$	2,636
Cost of sales	413		505		526		215		185		1,844
Gross margin	$	252	$	327	$	140	$	26	$	47	792
Total other operating costs and expenses											117

Equity in earnings of operating affiliate											22
Operating earnings											$	697

_______________________________________________________________________________

(1)Cost of sales and gross margin for the Ammonia segment for the six months ended June 30, 2021 include a $112 million gain on the net settlement of certain natural gas contracts with our suppliers. See Note 13—Derivative Financial Instruments for additional information.

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

(3)Total other operating costs and expenses for the three and six months ended June 30, 2022 include $162 million of restructuring charges related to our U.K. operations. See Note 5—United Kingdom Operations, Proposed Restructuring and Impairment Charges for additional information.

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18. Subsequent Event

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

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

You should read the following discussion and analysis in conjunction with our annual consolidated financial statements and related notes and our discussion and analysis of financial condition and results of operations that were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (SEC) on February 24, 2022, as well as Item 1. Financial Statements in Part I of this Quarterly Report on Form 10-Q. All references to “CF Holdings,” “we,” “us,” “our” and “the Company” refer to CF Industries Holdings, Inc. and its subsidiaries, except where the context makes clear that the reference is to CF Industries Holdings, Inc. only and not its subsidiaries. All references to “CF Industries” refer to CF Industries, Inc., a 100% owned subsidiary of CF Industries Holdings, Inc. References to tons refer to short tons, and references to tonnes refer to metric tons. Notes referenced in this discussion and analysis refer to the notes to our unaudited interim consolidated financial statements in Item 1. Financial Statements in Part I of this Quarterly Report on Form 10-Q. The following is an outline of the discussion and analysis included herein:

•Overview of CF Holdings

◦Our Company

◦Our Commitment to a Clean Energy Economy

•Market Conditions and Current Developments

•Financial Executive Summary

•Items Affecting Comparability of Results

•Consolidated Results of Operations

◦Second Quarter of 2022 Compared to Second Quarter of 2021

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

•Operating Results by Business Segment

•Liquidity and Capital Resources

•Critical Accounting Estimates

•Forward-Looking Statements

Overview of CF Holdings

Our Company

Our principal assets as of June 30, 2022 include:

•five U.S. nitrogen manufacturing facilities located in Donaldsonville, Louisiana (the largest nitrogen complex in the world); Port Neal, Iowa; Yazoo City, Mississippi; Verdigris, Oklahoma; and Woodward, Oklahoma. These facilities are wholly owned directly or indirectly by CF Industries Nitrogen, LLC (CFN), of which we own approximately 89% and CHS Inc. (CHS) owns the remainder (see Note 14—Noncontrolling Interest for additional information on our strategic venture with CHS);

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

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

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

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

Our Commitment to a Clean Energy Economy

We are taking significant steps to support a global hydrogen and clean fuel economy, through the production of green and blue ammonia. Since ammonia is one of the most efficient ways to transport and store hydrogen and is also a fuel in its own right, we believe that the Company, as the world’s largest producer of ammonia with an unparalleled manufacturing and distribution network and deep technical expertise, is uniquely positioned to fulfill anticipated demand for hydrogen and ammonia from green and blue sources. Our approach includes green ammonia production, which refers to ammonia produced through a carbon-free process, and blue ammonia production, which relates to ammonia produced by conventional processes but with CO2 removed through carbon capture and sequestration (CCS) and other certified carbon abatement projects.

In October 2020, we announced an initial green ammonia project at our Donaldsonville complex. In April 2021, we signed an engineering and procurement contract with thyssenkrupp to supply a 20 MW alkaline water electrolysis plant to produce green hydrogen at our Donaldsonville complex. Construction and installation, which is being managed by us, began in the fourth quarter of 2021 and is expected to finish in 2023, with an estimated total cost of approximately $100 million. The cost of the project is expected to fit within our annual capital expenditure budgets. We will integrate the green hydrogen generated by the electrolysis plant into existing ammonia synthesis loops to enable the production of approximately 20,000 tons per year of green ammonia. We believe that, when completed in 2023, the Donaldsonville green ammonia project will be the largest of its kind in North America.

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

We have also announced steps to produce blue ammonia from our existing ammonia production network, including a project to construct a CO2 dehydration and compression facility at our Donaldsonville complex to enable the transport and sequestration of the ammonia process byproduct. Engineering activities and procurement of major equipment for the facility are in progress, and modification of the site’s existing equipment to allow integration with existing operations has begun. Once the units are in service and sequestration is initiated, we expect that the Donaldsonville complex will have the capacity to dehydrate and compress up to 2 million tons per year of CO2 and will be able to produce up to 1.7 million tons of blue ammonia per year. Construction of the dehydration and compression units at the Donaldsonville complex is expected to begin in 2023 and to be completed in 2024, with an estimated total cost of $200 million. In addition, we are currently in advanced discussions with several parties regarding transportation and sequestration of CO2 from Donaldsonville. Under current regulations, the project would be expected to qualify for tax credits under Section 45Q of the Internal Revenue Code, which provides a credit per tonne of CO2 sequestered.

Market Conditions and Current Developments

Geopolitical Environment

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

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

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

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

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

Nitrogen Selling Prices

Our nitrogen products are globally traded commodities with selling prices that fluctuate in response to global market conditions, changes in supply and demand, and other cost factors including domestic and local conditions. Intense global competition—reflected in import volumes and prices—strongly influences delivered prices for nitrogen fertilizers. In general, the prevailing global prices for nitrogen products must be at a level to incent the high cost marginal producer to produce product at a breakeven or above price, or else they would cease production and leave a portion of global demand unsatisfied.

In the second quarter of 2022, the average selling price for our products was $701 per ton, an increase of 128%, compared to $307 per ton in the second quarter of 2021, reflecting higher average selling prices across all our segments, which drove an increase in net sales of approximately $1.88 billion for the second quarter of 2022 compared to the second quarter of 2021. The increase in our average selling price was caused by a tighter global nitrogen supply and demand balance resulting from strong global demand as well as a decrease in global supply availability as higher global energy costs continued to drive lower global operating rates, and exacerbated by the geopolitical environment described above. In the six months ended June 30, 2022, the average selling price for our products was $661 per ton, or 144% higher compared to $271 per ton in the six months ended June 30, 2021. This resulted in an increase in net sales of approximately $3.72 billion for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. As the second quarter of 2022 ended, average selling prices began to show seasonal weakness that typically occurs at the end of the fertilizer application period after the spring planting season in the Northern hemisphere.

Natural Gas

Natural gas is the principal raw material used to produce our nitrogen products. Natural gas is both a chemical feedstock and a fuel used to produce nitrogen products. Natural gas is a significant cost component of manufactured nitrogen products, representing approximately 50% of our production costs in the first six months of 2022 and 40% of our production costs in 2021.

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

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

Natural gas supplemental data (per MMBtu)






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

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

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

In the first quarter of 2021, the central portion of the United States experienced extreme and unprecedented cold weather due to the impact of Winter Storm Uri. Certain natural gas suppliers and natural gas pipelines declared force majeure events due to frozen equipment. This occurred at the same time as large increases in natural gas demand were occurring due to the cold temperatures. Due to these unprecedented factors, several states declared a state of emergency. and natural gas was redirected for residential use. At certain of our manufacturing locations, we reduced our natural gas consumption, and, as a consequence, our plants at these locations either operated at reduced rates or temporarily suspended operations. We net settled certain natural gas contracts with our suppliers and received prevailing market prices, which were in excess of our cost. As a result, we recognized a gain of $112 million, which is reflected in cost of sales in our consolidated statement of operations for the six months ended June 30, 2021.

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

The average daily market price of natural gas at the NBP for the three months ended June 30, 2022 was $16.00 per MMBtu compared to $8.90 per MMBtu for the three months ended June 30, 2021, an increase of 80%. The average daily market price of natural gas at the NBP for the six months ended June 30, 2022 was $23.06 per MMBtu compared to $7.90 per MMBtu for the six months ended June 30, 2021, an increase of 192%. For the six months ended June 30, 2022, the daily closing price at the NBP reached a low of $1.23 per MMBtu on June 10, 2022 and a high of $67.08 per MMBtu on March 8, 2022. The average daily market price of natural gas at the NBP for the first four weeks of July 2022 was $25.94 per MMBtu.

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

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

United Kingdom Operations, Proposed Restructuring and Impairment Charges

During the third quarter of 2021, the United Kingdom began experiencing an energy crisis that included a substantial increase in the price of natural gas, which impacted our U.K. operations. In the first half of 2021, natural gas prices had increased to levels that were considered high compared to historical prices, and prices then more than doubled within the third quarter of 2021. On September 15, 2021, we announced the halt of operations at both our Ince and Billingham manufacturing facilities in the United Kingdom due to negative profitability driven by the high cost of natural gas. Shortly thereafter, our Billingham facility resumed operations. As of the filing of this report, production continues at our Billingham facility and continues to be idled at our Ince facility.

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

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

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

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

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

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

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

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

and

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

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The results of our U.K. operations are included in our Ammonia, AN and Other segments, and account for a small portion of our consolidated gross margin. For the six months ended June 30, 2022, gross margin generated by our U.K. operations represented approximately 3% of our consolidated gross margin. For the year ended December 31, 2021, our U.K. operations generated negative gross margin representing approximately 1% of our consolidated gross margin.

Financial Executive Summary

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

Average selling prices increased 128% to $701 per ton in the second quarter of 2022 from $307 per ton in the second quarter of 2021, which increased gross margin by $1.88 billion. The impact of higher average selling prices was partially offset by an increase in natural gas costs. The cost of natural gas used for production increased 117% to $7.05 per MMBtu in the second quarter of 2022 from $3.25 per MMBtu in the second quarter of 2021, which reduced gross margin by $352 million.

Items Affecting Comparability of Results

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


	Three Months Ended June 30,								Six Months Ended June 30,
	2022				2021				2022				2021
	Pre-Tax		After-Tax		Pre-Tax		After-Tax		Pre-Tax		After-Tax		Pre-Tax		After-Tax
	(in millions)

Unrealized net mark-to-market gain on natural gas derivatives(1)	$	(17)	$	(13)	$	—	$	—	$	(50)	$	(38)	$	(6)	$	(5)










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





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

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

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

______________________________________________________________________________

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

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

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

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

Natural gas is the largest and most volatile single component of the manufacturing cost for nitrogen-based products. At certain times, we have managed the risk of changes in natural gas prices through the use of derivative financial instruments. The derivatives that we use for this purpose are primarily natural gas fixed price swaps, basis swaps and options. We use natural gas derivatives as an economic hedge of natural gas price risk, but without the application of hedge accounting. This can result in volatility in reported earnings due to the unrealized mark-to-market adjustments that occur from changes in the value of the derivatives, which are reflected in cost of sales in our consolidated statements of operations. In the three months ended June 30, 2022, we recognized an unrealized net mark-to-market gain of $17 million. In the six months ended June 30, 2022 and 2021, we recognized unrealized net mark-to-market gains of $50 million and $6 million, respectively.

Loss on foreign currency transactions, including intercompany loans

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

U.K. operations restructuring

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

Canada Revenue Agency Competent Authority Matter

In February 2022, we were informed that a decision was reached by the arbitration panel for tax years 2006 through 2011. In March 2022, we received further details of the results of the arbitration proceedings and the settlement provisions between the United States and Canadian competent authorities, and we accepted the decision of the arbitration panel. Under the terms of the arbitration decision, additional income for tax years 2006 through 2011 will be subject to tax in Canada, resulting in our having additional Canadian tax liability for those tax years of approximately $129 million, based on current estimates. We currently expect this resulting Canadian tax liability, plus interest of approximately $103 million, will be assessed in the second half of 2022 and that payment of those amounts, aggregating to approximately $232 million, based on current estimates, will be due in the second half of 2022. The letters of credit we had posted in lieu of paying the additional tax liability assessed by the Notices of Reassessment will be cancelled upon payment of the additional tax and interest to Canada. Due primarily to the availability of additional foreign tax credits to offset in part the increased Canadian tax referenced above, the Company will file amended tax returns in the United States to request a refund of tax overpaid.

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

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Transfer pricing reserves

•liabilities for unrecognized tax benefits of $314 million with a corresponding income tax provision, and accrued interest of $116 million related to the liabilities for unrecognized tax benefits, and

•noncurrent income tax receivables of $359 million with a corresponding income tax benefit, and accrued interest income of $30 million related to the noncurrent income tax receivables.

Loss on debt extinguishment

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Consolidated Results of Operations

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


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




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

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

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


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



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

___________________________________________________________________________

N/M—Not Meaningful

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

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

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

Second Quarter of 2022 Compared to Second Quarter of 2021

Net Sales

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

Our average selling price was $701 per ton in the second quarter of 2022, or 128% higher, compared to $307 per ton in the second quarter of 2021 due to higher average selling prices across all of our segments, primarily driven by the impact of a tighter global nitrogen supply and demand balance, as a result of strong global demand as well as decreased global supply availability as higher global energy costs and geopolitical events drove lower global operating rates. See “Market Conditions and Current Developments—Geopolitical Environment,” above, for further discussion.

Our total sales volume of 4.8 million product tons in the second quarter of 2022 was 7% lower compared to 5.2 million product tons in the second quarter of 2021, as lower sales volume in our UAN, AN and Other segments was partially offset by higher sales volume in our Granular Urea segment.

Cost of Sales

Our total cost of sales increased $313 million, or 29%, to $1.40 billion in the second quarter of 2022 from $1.09 billion in the second quarter of 2021. The increase in our cost of sales was due primarily to higher costs for natural gas, which increased cost of sales by $352 million, and higher costs for ammonia purchased from PLNL, our joint venture in Trinidad, partially offset by a decline in sales volume of 7% that decreased cost of sales by $84 million.

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

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

Selling, General and Administrative Expenses

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

U.K. Operations Restructuring

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

Equity in Earnings of Operating Affiliate

Equity in earnings of operating affiliate was $28 million in the second quarter of 2022 compared to $11 million in the second quarter of 2021. The increase in the second quarter of 2022 was due primarily to an increase in the operating results of PLNL as a result of higher ammonia selling prices partially offset by higher natural gas costs.

Interest Expense—Net

Net interest expense was $74 million in the second quarter of 2022 compared to $46 million in the second quarter of 2021. The net increase of $28 million was due primarily to net interest expense of $37 million recorded in the second quarter of 2022 related to income tax matters, which are more fully described under “Items Affecting Comparability of Results—Canada Revenue Agency Competent Authority Matter” and “Items Affecting Comparability of Results—Transfer pricing reserves,” above. This increase was partially offset by a $6 million decrease in interest on borrowings due to the redemption of senior

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notes in April 2022.

Loss on Debt Extinguishment

On April 21, 2022, we redeemed in full all of the $500 million outstanding principal amount of the 2023 Notes in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid in connection with the redemption of the 2023 Notes was $513 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $8 million, consisting primarily of the premium paid on the redemption of the 2023 Notes prior to their scheduled maturity.

Income Taxes

Our effective tax rate is impacted by earnings attributable to the noncontrolling interest in CFN, as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended June 30, 2022 of 21.1%, which is based on pre-tax income of $1.70 billion, including $174 million of earnings attributable to the noncontrolling interest, would be 2.4 percentage points higher, or 23.5%, if based on pre-tax income exclusive of the $174 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended June 30, 2021 of 21.2%, which is based on pre-tax income of $402 million, including $71 million of earnings attributable to the noncontrolling interest, would be 4.6 percentage points higher, or 25.8%, if based on pre-tax income exclusive of the $71 million of earnings attributable to the noncontrolling interest. See Note 10—Income Taxes and Note 14—Noncontrolling Interest for additional information.

Net Earnings Attributable to Noncontrolling Interest

Net earnings attributable to noncontrolling interest increased $103 million to $174 million in the second quarter of 2022 as compared to $71 million in the second quarter of 2021 due to higher earnings of CFN driven by higher average selling prices as described above under “Net Sales.”

Diluted Net Earnings Per Share Attributable to Common Stockholders

Net earnings per share attributable to common stockholders increased $4.44 to $5.58 per diluted share in the second quarter of 2022 from $1.14 per diluted share in the second quarter of 2021. This increase was due primarily to an increase in gross margin, driven by higher average selling prices, partially offset by an increase in natural gas costs, the U.K. operations restructuring charge, an increase in the income tax provision due primarily to increased profitability, and an increase in net earnings attributable to noncontrolling interest. Additionally, net earnings per diluted share increased due to a 4% reduction in the diluted weighted-average common shares outstanding, which declined from 216.6 million shares for the three months ended June 30, 2021 to 208.9 million shares for the three months ended June 30, 2022, due primarily to repurchases of common shares under our share repurchase programs.

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

Net Sales

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

Average selling prices were $661 per ton in the first six months of 2022, or 144% higher compared to $271 per ton in the first six months of 2021 due to higher average selling prices across all of our segments, primarily driven by the impact of a tighter global nitrogen supply and demand balance, as a result of strong global demand as well as decreased global supply availability as higher global energy costs and geopolitical events drove lower global operating rates. See “Market Conditions and Current Developments—Geopolitical Environment,” above, for further discussion.

Our total sales volume of 9.5 million product tons in the first six months of 2022 was 3% lower compared to 9.7 million product tons in the first six months of 2021 as a result of lower sales volume in our Granular Urea, Other and AN segments partially offset by higher sales volume in our Ammonia segment.

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Cost of Sales

Our total cost of sales increased $724 million, or 39%, to $2.57 billion in the first six months of 2022 as compared to $1.84 billion in the first six months of 2021. The increase in our cost of sales was due primarily to higher costs for natural gas, including the impact of realized derivatives, which increased cost of sales by $623 million and higher costs for ammonia purchased from PLNL, our joint venture in Trinidad. In addition, in the first six months of 2021, we recognized a gain of $112 million, which is included in cost of sales, as a result of the net settlement of certain natural gas contracts with our suppliers as a result of Winter Storm Uri. Partially offsetting these increases in cost of sales was a 3% decline in sales volume in the first six months of 2022 compared to the first six months of 2021, which reduced cost of sales by $117 million.

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

Cost of sales averaged $271 per ton in the first six months of 2022, a 43% increase from $189 per ton in the first six months of 2021. The cost of natural gas used for production, including the impact of realized derivatives, increased 110% to $6.79 per MMBtu in the first six months of 2022 from $3.24 per MMBtu in the first six months of 2021. The cost of natural gas used for production of $3.24 per MMBtu in the first six months of 2021 does not include the $112 million gain from the net settlement of certain natural gas contracts in February 2021.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $22 million to $137 million in the first six months of 2022 as compared to $115 million in the first six months of 2021. The increase was due primarily to higher costs associated with certain corporate initiatives, including costs related to the development of an enterprise resource planning system that we will be implementing for our North American operations.

U.K. Operations Restructuring

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

Equity in Earnings of Operating Affiliate

Equity in earnings of operating affiliate was $54 million in the first six months of 2022 compared to $22 million in the first six months of 2021. The increase was due primarily to an increase in the operating results of PLNL as a result of higher ammonia selling prices partially offset by higher natural gas costs.

Interest Expense—Net

Net interest expense increased by $185 million to $279 million in the first six months of 2022 compared to $94 million in the first six months of 2021. The increase was due primarily to $199 million of net interest expense recorded in the first six months of 2022 related to income tax matters, which are more fully described under “Items Affecting Comparability of Results—Canada Revenue Agency Competent Authority Matter” and “Items Affecting Comparability of Results—Transfer pricing reserves,” above. This increase was partially offset by a $10 million decrease in interest on borrowings due to the redemption of senior notes in April 2022 and March 2021.

Loss on Debt Extinguishment

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

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Income Taxes

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

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

Our effective tax rate is also impacted by earnings attributable to the noncontrolling interest in CFN, as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interest. Our effective tax rate for the six months ended June 30, 2022 of 24.1%, which is based on pre-tax income of $3.15 billion, including $342 million of earnings attributable to the noncontrolling interest, would be 2.9 percentage points higher, or 27.0%, if based on pre-tax income exclusive of the $342 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the six months ended June 30, 2021 of 17.4%, which is based on pre-tax income of $595 million, including $95 million of earnings attributable to the noncontrolling interest, would be 3.3 percentage points higher, or 20.7%, if based on pre-tax income exclusive of the $95 million of earnings attributable to the noncontrolling interest. See Note 10—Income Taxes and Note 14—Noncontrolling Interest for additional information.

Net Earnings Attributable to Noncontrolling Interest

Net earnings attributable to noncontrolling interest increased 260% to $342 million in the first six months of 2022 from $95 million in the first six months of 2021 due to higher earnings of CFN driven by higher average selling prices due primarily to a tighter global nitrogen supply and demand balance as higher global energy costs drove lower global operating rates.

Diluted Net Earnings Per Share Attributable to Common Stockholders

Net earnings per share attributable to common stockholders increased 434% to $9.78 per diluted share in the first six months of 2022 from $1.83 per diluted share in the first six months of 2021. This increase is due primarily to an increase in gross margin, driven by higher average selling prices, partially offset by increases in natural gas costs, the U.K. operations restructuring charge, an increase in the income tax provision due primarily to increased profitability, and an increase in net earnings attributable to noncontrolling interest. Additionally, net earnings per diluted share increased due to a 3% reduction in the diluted weighted-average common shares outstanding, which declined from 216.3 million shares for the six months ended June 30, 2021 to 209.4 million shares for the six months ended June 30, 2022, due primarily to repurchases of common shares under our share repurchase programs.

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Operating Results by Business Segment

Our reportable segments consist of Ammonia, Granular Urea, UAN, AN and Other. These segments are differentiated by products. Our management uses gross margin to evaluate segment performance and allocate resources. Total other operating costs and expenses (consisting primarily of selling, general and administrative expenses and other operating—net) and non-operating expenses (consisting primarily of interest and income taxes), are centrally managed and are not included in the measurement of segment profitability reviewed by management. The following tables present summary operating results by business segment:



	Ammonia(1)			Granular Urea(2)			UAN(2)			AN(2)			Other(2)			Consolidated
	(in millions)
Three months ended June 30, 2022
Net sales	$	1,115		$	833		$	976		$	253		$	212		$	3,389
Cost of sales	442			360			343			151			102			1,398
Gross margin	$	673		$	473		$	633		$	102		$	110		$	1,991
Gross margin percentage	60.4		%	56.8		%	64.9		%	40.3		%	51.9		%	58.7		%
Three months ended June 30, 2021
Net sales	$	459		$	433		$	434		$	136		$	126		$	1,588
Cost of sales	333			241			296			120			95			1,085
Gross margin	$	126		$	192		$	138		$	16		$	31		$	503
Gross margin percentage	27.5		%	44.3		%	31.8		%	11.8		%	24.6		%	31.7		%
Six months ended June 30, 2022
Net sales	$	1,755		$	1,598		$	1,991		$	476		$	437		$	6,257
Cost of sales	722			630			688			322			206			2,568
Gross margin	$	1,033		$	968		$	1,303		$	154		$	231		$	3,689
Gross margin percentage	58.9		%	60.6		%	65.4		%	32.4		%	52.9		%	59.0		%
Six months ended June 30, 2021
Net sales	$	665		$	832		$	666		$	241		$	232		$	2,636
Cost of sales	413			505			526			215			185			1,844
Gross margin	$	252		$	327		$	140		$	26		$	47		$	792
Gross margin percentage	37.9		%	39.3		%	21.0		%	10.8		%	20.3		%	30.0		%

_______________________________________________________________________________

(1)Cost of sales and gross margin for the Ammonia segment in the six months ended June 30, 2021 include a $112 million gain on the net settlement of certain natural gas contracts with our suppliers. See Note 13—Derivative Financial Instruments for additional information.

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

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CF INDUSTRIES HOLDINGS, INC.

Ammonia Segment

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

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


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

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N/M—Not Meaningful

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

Second Quarter of 2022 Compared to Second Quarter of 2021

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

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

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

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

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

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

Cost of Sales. Cost of sales in our Ammonia segment averaged $410 per ton in the six months ended June 30, 2022, a 71% increase from $240 per ton in the six months ended June 30, 2021. The increase is due primarily to higher realized natural gas costs, a higher cost per ton for purchased ammonia from our joint venture in Trinidad, and the impact of the $112 million gain on the net settlement of certain natural gas contracts in February 2021. See “Market Conditions and Current Developments—Natural Gas” above, for additional information on the operational impact of Winter Storm Uri. These increases in cost of sales were partially offset by lower manufacturing and maintenance costs.

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

Granular Urea Segment

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

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


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

_______________________________________________________________________________

N/M—Not Meaningful

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

Second Quarter of 2022 Compared to Second Quarter of 2021

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

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

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

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

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

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

Gross Margin. Gross margin in our Granular Urea segment increased by $641 million to $968 million in the six months ended June 30, 2022 from $327 million in the six months ended June 30, 2021, and our gross margin percentage was 60.6% in the six months ended June 30, 2022 compared to 39.3% in the six months ended June 30, 2021. The increase in gross margin was due to a 103% increase in average selling prices, which increased gross margin by $797 million. Gross margin was also impacted by higher realized natural gas costs, which decreased gross margin by $140 million, a $39 million net increase in manufacturing, maintenance and other costs, and an increase in urea production as compared to urea purchased for resale in 2021 from winter storm outages, which increased gross margin by $17 million. Gross margin also includes the impact of an $8 million unrealized net mark-to-market gain on natural gas derivatives in the six months ended June 30, 2022 compared to a $2 million gain in the six months ended June 30, 2021.

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UAN Segment

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

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


	Three Months Ended June 30,											Six Months Ended June 30,
	2022			2021			2022 v. 2021					2022			2021			2022 v. 2021
	(dollars in millions, except per ton amounts)
Net sales	$	976		$	434		$	542		125	%	$	1,991		$	666		$	1,325		199	%
Cost of sales	343			296			47			16	%	688			526			162			31	%
Gross margin	$	633		$	138		$	495		359	%	$	1,303		$	140		$	1,163		N/M
Gross margin percentage	64.9		%	31.8		%	33.1		%			65.4		%	21.0		%	44.4		%
Sales volume by product tons (000s)	1,626			1,949			(323)			(17)	%	3,454			3,463			(9)			—	%
Sales volume by nutrient tons (000s)(1)	515			612			(97)			(16)	%	1,091			1,088			3			—	%
Average selling price per product ton	$	600		$	223		$	377		169	%	$	576		$	192		$	384		200	%
Average selling price per nutrient ton(1)	$	1,895		$	709		$	1,186		167	%	$	1,825		$	612		$	1,213		198	%
Gross margin per product ton	$	389		$	71		$	318		448	%	$	377		$	40		$	337		N/M
Gross margin per nutrient ton(1)	$	1,229		$	225		$	1,004		446	%	$	1,194		$	129		$	1,065		N/M
Depreciation and amortization	$	65		$	76		$	(11)		(14)	%	$	135		$	132		$	3		2	%
Unrealized net mark-to-market gain on natural gas derivatives	$	—		$	—		$	—		—	%	$	(8)		$	(2)		$	(6)		(300)	%

_______________________________________________________________________________

N/M—Not Meaningful

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

Second Quarter of 2022 Compared to Second Quarter of 2021

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

Cost of Sales. Cost of sales in our UAN segment averaged $211 per ton in the second quarter of 2022, a 39% increase from $152 per ton in the second quarter of 2021, due primarily to the impact of higher realized natural gas costs and higher freight costs to ship UAN to meet demand on both the east and west coasts of the United States.

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

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

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

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CF INDUSTRIES HOLDINGS, INC.

Cost of Sales. Cost of sales in our UAN segment averaged $199 per ton in the six months ended June 30, 2022, a 31% increase from $152 per ton in the six months ended June 30, 2021. The increase was due primarily to the impact of higher realized natural gas costs and higher freight costs to ship UAN to meet demand on both the east and west coasts of the United States.

Gross Margin. Gross margin in our UAN segment increased by $1.16 billion to $1.30 billion in the six months ended June 30, 2022 from $140 million in the six months ended June 30, 2021, and our gross margin percentage was 65.4% in the six months ended June 30, 2022 compared to 21.0% in the six months ended June 30, 2021. The increase in gross margin was due to a 200% increase in average selling prices, which increased gross margin by $1.35 billion. The impact of higher average selling prices was partially offset by higher realized natural gas costs, which decreased gross margin by $130 million, a $43 million net increase in manufacturing, maintenance and other costs, and a nominal decrease in sales volume, which decreased gross margin by $22 million. Gross margin also includes the impact of an $8 million unrealized net mark-to-market gain on natural gas derivatives in the six months ended June 30, 2022 compared to a $2 million gain in the six months ended June 30, 2021.

Antidumping and Countervailing Duty Investigations

On June 30, 2021, we filed petitions with the U.S. Department of Commerce (Commerce) and the U.S. International Trade Commission (ITC) requesting the initiation of antidumping and countervailing duty investigations on imports of UAN from Russia and Trinidad. Preliminary affirmative determinations were announced by the ITC on August 13, 2021 and by Commerce on November 30, 2021 and January 27, 2022.

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

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

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

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

_______________________________________________________________________________

N/M—Not Meaningful

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

Second Quarter of 2022 Compared to Second Quarter of 2021

On September 15, 2021, we announced the halt of operations at both our Ince and Billingham manufacturing facilities in the United Kingdom due to negative profitability driven by the high cost of natural gas. Shortly thereafter, we restarted production at our Billingham facility. In June 2022, we approved and announced our proposed plan to restructure our U.K. operations, which includes the permanent closure of our Ince facility. See the discussion under “Market Conditions and Current Developments—United Kingdom Operations, Proposed Restructuring and Impairment Charges,” above, for further information.

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

Cost of Sales. Cost of sales in our AN segment averaged $346 per ton in the second quarter of 2022, a 45% increase from $239 per ton in the second quarter of 2021. The increase was due primarily to higher realized natural gas costs. Natural gas costs increased in both the United States and the United Kingdom in the second quarter of 2022. As measured by the average daily market price at the Henry Hub, natural gas prices in the United States increased to $7.40 per MMBtu in the second quarter of 2022 from $2.88 per MMBtu in the second quarter of 2021. In the United Kingdom, the average daily market price of natural gas at the NBP increased to $16.00 per MMBtu in the second quarter of 2022 from $8.90 per MMBtu in the second quarter of 2021. See the discussion under “Market Conditions and Current Developments—Natural Gas,” above, for further information.

Gross Margin. Gross margin in our AN segment increased $86 million to $102 million in the second quarter of 2022 from $16 million in the second quarter of 2021, and our gross margin percentage was 40.3% in the second quarter of 2022

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

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

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

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

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

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Other Segment

Our Other segment primarily includes the following products:

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

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

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

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

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


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

_______________________________________________________________________________

N/M—Not Meaningful

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

Second Quarter of 2022 Compared to Second Quarter of 2021

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

Net Sales. Net sales in our Other segment increased by $86 million, or 68%, to $212 million in the second quarter of 2022 from $126 million in the second quarter of 2021 due to an 81% increase in average selling prices, partially offset by a 7% decrease in sales volume. The increase in average selling prices was due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.” The decrease in sales volume was due primarily to lower NPK sales volumes in the second quarter of 2022, as operations at our Ince manufacturing plant have been idled, and lower urea liquor sales volumes, partially offset by higher DEF sales volumes.

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

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

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

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

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

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

Gross Margin. Gross margin in our Other segment increased by $184 million, or 391%, to $231 million in the six months ended June 30, 2022 from $47 million in the six months ended June 30, 2021, and our gross margin percentage was 52.9% in the six months ended June 30, 2022 compared to 20.3% in the six months ended June 30, 2021. The increase in gross margin was due to a 106% increase in average selling prices, which increased gross margin by $233 million, and a net decrease of $1 million in manufacturing, maintenance and other costs. These increases were partially offset by an increase in realized natural gas costs, which decreased gross margin by $57 million. Gross margin also includes the impact of a $7 million unrealized net mark-to-market gain on natural gas derivatives in the six months ended June 30, 2022.

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Liquidity and Capital Resources

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

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

As of June 30, 2022, our cash and cash equivalents balance was $2.37 billion, an increase of $742 million from $1.63 billion at December 31, 2021. At June 30, 2022, we were in compliance with all applicable covenant requirements under our revolving credit agreement and senior notes, and unused borrowing capacity under our revolving credit agreement was $750 million.

On April 27, 2022, the Board declared a quarterly dividend of $0.40 per common share, representing a 33% increase from the quarterly dividend of $0.30 per common share that was declared and paid in the first quarter of 2022. The dividend was paid on May 31, 2022 to stockholders of record as of May 16, 2022.

Cash Equivalents

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

Share Repurchase Program

On November 3, 2021, the Board authorized the repurchase of up to $1.5 billion of CF Holdings common stock through December 31, 2024 (the 2021 Share Repurchase Program). Repurchases under the 2021 Share Repurchase Program may be made from time to time in the open market, through privately negotiated transactions, through block transactions or otherwise. The manner, timing and amount of repurchases will be determined by our management based on the evaluation of market conditions, stock price, and other factors. In the six months ended June 30, 2022, we repurchased approximately 6.6 million shares under the 2021 Share Repurchase Program for $590 million, of which $14 million was accrued and unpaid as of June 30, 2022.

Capital Spending

We make capital expenditures to sustain our asset base, increase our capacity, improve plant efficiency and comply with various environmental, health and safety requirements. Capital expenditures totaled $129 million in the first six months of 2022 compared to $181 million in the first six months of 2021.

We currently anticipate that capital expenditures for the full year of 2022 will be in the range of $500 to $550 million, which includes capital expenditures at our Donaldsonville complex related to green and blue ammonia projects. Planned capital expenditures are generally subject to change due to delays in regulatory approvals or permitting, unanticipated increases in cost, changes in scope and completion time, performance of third parties, delays in the receipt of equipment, adverse weather, defects in materials and workmanship, labor or material shortages, transportation constraints, acceleration or delays in the timing of the work and other unforeseen difficulties.

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Canada Revenue Agency Competent Authority Matter

In connection with the matter described above under “Items Affecting Comparability of Results—Canada Revenue Agency Competent Authority Matter,” we expect Canadian tax authorities will assess additional tax and interest for tax years 2006 to 2011 of approximately $232 million, based on current estimates, which we expect will be due in the second half of 2022, and the Company will file amended tax returns with U.S. federal and state tax authorities for the relevant tax years, as a result of which we expect to receive net refunds of approximately $50 million, including tax and interest, in the next twelve months. All such amounts have been reflected in our consolidated financial statements.

United Kingdom Operations, Proposed Restructuring and Impairment Charges

As discussed under “Market Conditions and Current Developments—United Kingdom Operations, Proposed Restructuring and Impairment Charges,” above, during the third quarter of 2021, the United Kingdom began experiencing an energy crisis that included a substantial increase in the price of natural gas, which impacted our U.K. operations. On September 15, 2021, we announced the halt of operations at both our Ince and Billingham manufacturing facilities in the United Kingdom due to negative profitability driven by the high cost of natural gas. Shortly thereafter, our Billingham facility resumed operations. As of the filing of this report, production continues at our Billingham facility and continues to be idled at our Ince facility.

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

There remains uncertainty regarding future closure activities and obligations for the Ince facility. This could result in, among other things, additional funding to support the cash needs of our continuing U.K. operations and recognition of further losses, or additional exit or closure costs related to our U.K. operations. Any of these future events could have a material adverse impact on our results of operations and cash flows.

Debt

Revolving Credit Agreement

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.

Letters of Credit

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Senior Notes

Long-term debt presented on our consolidated balance sheets as of June 30, 2022 and December 31, 2021 consisted of the following debt securities issued by CF Industries:


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


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

4.500% due December 2026(2)	4.783%	750		742		750		742
Total long-term debt		$	3,000	$	2,964	$	3,500	$	3,465

_______________________________________________________________________________

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

Public Senior Notes

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

Senior Secured Notes

Under the terms of the indenture governing the 4.500% senior secured notes due 2026 (the 2026 Notes), the 2026 Notes are guaranteed by CF Holdings. Until August 23, 2021, the 2026 Notes were guaranteed by certain subsidiaries of CF Industries. The requirement for subsidiary guarantees of the 2026 Notes was eliminated, and all subsidiary guarantees were automatically released, as a result of an investment grade rating event under the terms of the indenture governing the 2026 Notes on August 23, 2021. Prior to the investment grade rating event, subject to certain exceptions, the obligations under the 2026 Notes and related guarantees were secured by a first priority security interest in collateral consisting of substantially all of the assets of CF Industries, CF Holdings and the subsidiary guarantors. As a result of the investment grade rating event, the liens on the collateral securing the obligations under the 2026 Notes and related guarantees were automatically released on August 23, 2021, and the indenture covenant that had limited dispositions of assets constituting collateral no longer applies.

Interest on the 2026 Notes is payable semiannually, and the 2026 Notes are redeemable at our option, in whole at any time or in part from time to time, at specified make-whole redemption prices.

Forward Sales and Customer Advances

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

Customer advances, which typically represent a portion of the contract’s value, are received shortly after the contract is executed, with any remaining unpaid amount generally being collected by the time control transfers to the customer, thereby reducing or eliminating the accounts receivable related to such sales. Any cash payments received in advance from customers in

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connection with forward sales contracts are reflected on our consolidated balance sheets as a current liability until control transfers and revenue is recognized. As of June 30, 2022 and December 31, 2021, we had $72 million and $700 million, respectively, in customer advances on our consolidated balance sheets.

While customer advances are generally a significant source of liquidity, the level of forward sales contracts is affected by many factors including current market conditions, our customers’ outlook of future market fundamentals and seasonality. During periods of declining prices, customers tend to delay purchasing fertilizer in anticipation that prices in the future will be lower than the current prices. If the level of sales under our forward sales programs were to decrease in the future, our cash received from customer advances would likely decrease and our accounts receivable balances would likely increase. Additionally, borrowing under the Revolving Credit Agreement could become necessary. Due to the volatility inherent in our business and changing customer expectations, we cannot estimate the amount of future forward sales activity.

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

Derivative Financial Instruments

Defined Benefit Pension Plans

We contributed $14 million to our pension plans in the six months ended June 30, 2022. Over the remainder of 2022, we expect to contribute approximately $13 million to our pension plans, which would result in our making a total of approximately $27 million of contributions to our pension plans for the full year 2022. In addition, we expect to contribute a total of approximately £50 million (or $61 million) to our U.K. plans in the three-year period from 2023 to 2025, as agreed with the plans’ trustees.

Distribution to Noncontrolling Interest in CFN

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

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Cash Flows

Net cash provided by operating activities during the first six months of 2022 was $2.28 billion, an increase of $1.57 billion compared to $706 million in the first six months of 2021. The increase in cash flow from operations was due primarily to higher net earnings, partially offset by changes in net working capital. Net earnings for the first six months of 2022 was $2.39 billion as compared to $492 million for the first six months of 2021, an increase of $1.90 billion. The increase in net earnings was due primarily to an increase in gross margin, driven by higher average selling prices, partially offset by increases in natural gas costs, the U.K. operations restructuring charge, an increase in the income tax provision, and an increase in net earnings attributable to noncontrolling interest. During the first six months of 2022, net changes in working capital reduced cash flow from operations by $731 million, while in the first six months of 2021 net changes in working capital reduced cash flow from operations by $182 million. The decreased cash flow from working capital changes was primarily attributable to customer advances and accounts receivable, partially offset by accrued and prepaid income taxes.

Net cash used in investing activities was $121 million in the first six months of 2022 as compared to $182 million in the first six months of 2021. Capital expenditures totaled $129 million during the first six months of 2022 compared to $181 million in the first six months of 2021.

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

Critical Accounting Estimates

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

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Forward-Looking Statements

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

Important factors that could cause actual results to differ materially from our expectations are disclosed under “Risk Factors” in Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 24, 2022. Such factors include, among others:

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

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

•conditions in the United States, Europe and other agricultural areas, including the influence of governmental policies and technological developments on the demand for agricultural products;

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

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

•the seasonality of the fertilizer business;

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

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

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

•our reliance on a limited number of key facilities;

•risks associated with cyber security;

•acts of terrorism and regulations to combat terrorism;

•risks associated with international operations;

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

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

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

•downgrades of our credit ratings;

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

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

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

•regulatory restrictions and requirements related to greenhouse gas emissions;

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

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

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

•the impact of the novel coronavirus disease 2019 (COVID-19) pandemic on our business and operations.

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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 $16, 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 June 30, 2022, we had natural gas derivative contracts covering certain periods through March 2023.

As of June 30, 2022 and December 31, 2021, we had open derivative contracts for 11.2 million MMBtus and 60.0 million MMBtus, respectively. A $1.00 per MMBtu increase in the forward curve prices of natural gas at June 30, 2022 would result in a favorable change in the fair value of these derivative positions of approximately $10 million, and a $1.00 per MMBtu decrease in the forward curve prices of natural gas would change their fair value unfavorably by approximately $10 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 June 30, 2022, we had four series of senior notes totaling $3.00 billion of principal outstanding with maturity dates of December 1, 2026, March 15, 2034, June 1, 2043 and March 15, 2044. The senior notes have fixed interest rates. As of June 30, 2022, the carrying value and fair value of our senior notes was approximately $2.96 billion and $2.88 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 June 30, 2022, or December 31, 2021, or during the six months ended June 30, 2022.

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 June 30, 2022 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.

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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 June 30, 2022.


	Issuer Purchases of Equity Securities
Period	Total number of shares (or units) purchased		Average price paid per share (or unit)(1)		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)
April 1, 2022 - April 30, 2022	392,349		$	102.77	392,349	$	1,359,678
May 1, 2022 - May 31, 2022	1,216,964	(3)	98.21		1,211,381	1,240,706
June 1, 2022 - June 30, 2022	3,753,372		88.05		3,753,372	910,215
Total	5,362,685		$	91.43	5,357,102

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(1)Average price paid per share of CF Industries Holdings, Inc. (CF Holdings) common stock repurchased under the 2021 Share Repurchase Program, as defined below, is the execution price, excluding commissions paid to brokers.

(2)On November 3, 2021, we announced that our Board of Directors authorized the repurchase of up to $1.5 billion of CF Holdings common stock from January 1, 2022 through December 31, 2024 (the 2021 Share Repurchase Program). This program is discussed in Note 15—Stockholders’ Equity, in the notes to the unaudited consolidated financial statements included in Part I.

(3)Includes 5,583 shares withheld to pay employee tax obligations upon the lapse of restrictions on restricted stock units.

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 56 of this report.

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CF INDUSTRIES HOLDINGS, INC.

EXHIBIT INDEX


Exhibit No.			Description
























































10.1			CF Industries Holdings, Inc. 2022 Equity and Incentive Plan (incorporated by reference to Appendix B to CF Industries Holdings, Inc.’s definitive proxy statement on Schedule 14A filed with the SEC on March 30, 2022)
10.2			Form of Non-Employee Director Restricted Stock Award Agreement under CF Industries Holdings, Inc. 2022 Equity and Incentive Plan (incorporated by reference to Exhibit 10.2 to CF Industries Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on May 13, 2022)
10.3			Form of Restricted Stock Unit Award Agreement under CF Industries Holdings, Inc. 2022 Equity and Incentive Plan (incorporated by reference to Exhibit 10.3 to CF Industries Holdings, Inc.’s Current Report on Form 8-K filed with the SEC on May 13, 2022)
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 quarterly period ended June 30, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (1) Consolidated Statements of Operations, (2) Consolidated Statements of Comprehensive Income, (3) Consolidated Balance Sheets, (4) Consolidated Statements of Equity, (5) Consolidated Statements of Cash Flows, and (6) Notes to Unaudited Consolidated Financial Statements
104			Cover Page Interactive Data File (included in the Exhibit 101 Inline XBRL Document Set)

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CF INDUSTRIES HOLDINGS, INC.

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: August 2, 2022	By:	/s/ W. ANTHONY WILL
		W. Anthony Will President and Chief Executive Officer (Principal Executive Officer)
Date: August 2, 2022	By:	/s/ CHRISTOPHER D. BOHN
		Christopher D. Bohn Senior Vice President and Chief Financial Officer (Principal Financial Officer)