CF INDUSTRIES HOLDINGS, INC. You should read the following discussion and analysis in conjunction with our annual consolidated financial statements and related notes and our discussion and analysis of financial condition and results of operations, which were included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , filed with theSecurities and Exchange Commission onFebruary 24, 2021 , as well as Item 1. Financial Statements in this Quarterly Report on Form 10-Q. All references to "CF Holdings ," "we," "us," "our" and "the Company" refer toCF Industries Holdings, Inc. and its subsidiaries, except where the context makes clear that the reference is only toCF Industries Holdings, Inc. itself and not its subsidiaries. All references to "CF Industries " refer toCF Industries, Inc. , a 100% owned subsidiary ofCF Industries Holdings, Inc. References to tons refer to short tons. Notes referenced in this discussion and analysis refer to the notes to our unaudited interim consolidated financial statements in Item 1. Financial Statements in this Quarterly Report on Form 10-Q. The following is an outline of the discussion and analysis included herein: •Overview ofCF Holdings •Our Company •Our Commitment to a Clean Energy Economy •Market Conditions and Current Developments •Financial Executive Summary •Items Affecting Comparability of Results •Consolidated Results of Operations •Third Quarter of 2021 Compared to Third Quarter of 2020 •Nine Months EndedSeptember 30, 2021 Compared to Nine Months EndedSeptember 30, 2020 •Operating Results by Business Segment •Liquidity and Capital Resources •Critical Accounting Estimates •Forward-Looking Statements Overview ofCF Holdings Our Company Our mission is to provide clean energy to feed and fuel the world sustainably. With our employees focused on safe and reliable operations, environmental stewardship, and disciplined capital and corporate management, we are on a path to decarbonize our ammonia production network - the world's largest - to enable green and blue hydrogen and nitrogen products for energy, fertilizer, emissions abatement and other industrial activities. Our nine manufacturing complexes inthe United States ,Canada and theUnited Kingdom , an extensive storage, transportation and distribution network inNorth America , and logistics capabilities enabling a global reach underpin our strategy to leverage our unique capabilities to accelerate the world's transition to clean energy. Our principal customers are cooperatives, independent fertilizer distributors, traders, wholesalers and industrial users. Our core product is anhydrous ammonia (ammonia), which contains 82% nitrogen and 18% hydrogen. Our nitrogen products that are upgraded from ammonia are granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN). Our other nitrogen products include diesel exhaust fluid (DEF), urea liquor, nitric acid and aqua ammonia, which are sold primarily to our industrial customers, and compound fertilizer products (NPKs), which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium. Our principal assets as ofSeptember 30, 2021 include: •fiveU.S. nitrogen manufacturing facilities located inDonaldsonville, Louisiana (the largest nitrogen complex in the world);Port Neal, Iowa ;Yazoo City, Mississippi ;Verdigris, Oklahoma ; andWoodward, Oklahoma . These facilities are wholly owned directly or indirectly byCF 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 inMedicine Hat, Alberta (the largest nitrogen complex inCanada ) andCourtright, Ontario ; •twoUnited Kingdom nitrogen manufacturing facilities located inBillingham and Ince; 26
--------------------------------------------------------------------------------
Table of Contents
CF INDUSTRIES HOLDINGS, INC. •an extensive system of terminals and associated transportation equipment located primarily in the Midwestern United States; and •a 50% interest inPoint Lisas Nitrogen Limited (PLNL), an ammonia production joint venture located in theRepublic of Trinidad and Tobago (Trinidad ) that we account for under the equity method. Our Commitment to a Clean Energy Economy InOctober 2020 , we announced that we are taking significant steps to support a global hydrogen and clean fuel economy, through the production of green and blue ammonia. Since ammonia is one of the most efficient ways to transport and store hydrogen and is also a fuel in its own right, we believe that the Company, as the world's largest producer of ammonia with an unparalleled manufacturing and distribution network and deep technical expertise, is uniquely positioned to fulfill anticipated demand for hydrogen and ammonia from green and blue sources. Our approach is focusing on green ammonia production, which refers to ammonia produced through a carbon-free process, and blue ammonia, which relates to ammonia produced by conventional processes but with CO2 removed through carbon capture and sequestration (CCS) and other certified carbon abatement projects. We announced an initial green ammonia project at our flagshipDonaldsonville nitrogen complex to produce approximately 20,000 tons per year of green ammonia, which is further discussed below. Additionally, we are developing CCS and other carbon abatement projects across our production facilities that will enable us to produce blue ammonia. InApril 2021 , we signed an engineering and procurement contract with thyssenkrupp to supply a 20 MW alkaline water electrolysis plant to produce green hydrogen at ourDonaldsonville nitrogen complex. Construction and installation, which will be managed by us, is expected to begin in the fourth quarter of 2021 and to finish in 2023. 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, theDonaldsonville green ammonia project will be the largest of its kind inNorth America . In the third quarter of 2021, we signed a memorandum of understanding withMitsui & Co., Inc. that will guide us in a joint exploration of the development of blue ammonia projects inthe United States . We plan to conduct preliminary studies covering areas such as blue ammonia supply and supply chain infrastructure, CO2 transportation and storage, expected environmental impacts, and blue ammonia economics and marketing opportunities inJapan and in other countries. Market Conditions and Current Developments Selling Prices and Sales Volume Our average selling price was higher in the third quarter of 2021 than in the third quarter of 2020, 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 continued to drive lower global operating rates. In the third quarter of 2021, the average selling price for our products was$360 per ton, an increase of 101%, compared to$179 per ton in the third quarter of 2020, reflecting higher average selling prices across all our segments, which drove an increase in net sales of approximately$686 million . In the nine months endedSeptember 30, 2021 , the average selling price for our products was$296 per ton, or 45% higher compared to$204 per ton for the nine months endedSeptember 30, 2020 . This resulted in an increase in net sales of approximately$1.22 billion . Our total sales volume was 20% lower in the third quarter of 2021 than in the third quarter of 2020 with lower sales reported in all segments. We shipped 3.8 million tons of product in the third quarter of 2021 compared to 4.7 million tons in the third quarter of 2020 due primarily to lower supply from the impact of weather-related outages and the impact of both planned and unplanned maintenance activity. During the third quarter of 2021, lower production was due primarily to a high level of plant turnaround and maintenance activity as well as downtime resulting from the impact of Hurricane Ida. The lower sales volumes also reflect the idling of certain portions of ourU.K. operations in the second half of September due to theUnited Kingdom energy crisis, which is further discussed below. Lower sales volume drove a decrease in net sales of approximately$171 million . 27
--------------------------------------------------------------------------------
Table of Contents
CF INDUSTRIES HOLDINGS, INC.
We shipped 13.5 million tons of product in the first nine months of 2021
compared to 14.8 million tons in the first nine months of 2020, or a decline of
9%. Lower sales volume drove a decrease in net sales of approximately $309
million . The decrease in total sales volume was due primarily to the impact of
decreased supply resulting from lower production in our ammonia, granular urea
and AN segments in the first nine months of 2021 as a result of severe weather
conditions in the first and third quarters of 2021, which disrupted natural gas
and electricity supply, respectively. Higher plant turnaround and maintenance
activity also impacted the period. Due to the lower production, we procured
additional granular urea in the nine months ended September 30, 2021 in order to
meet customer obligations and provide additional manufacturing flexibility once
production resumed. During the nine months ended September 30, 2021 , to meet
customer obligations, we purchased 201,000 tons of granular urea for
$71 million , which we sold to customers for $68 million .
We currently expect sales volumes for our products in 2021 will be approximately
18 million product tons as a result of the increase in maintenance activity due
to maintenance deferred from 2020, activity previously planned to occur in 2022
but accelerated into 2021, and the severe weather conditions in the first and
third quarters of 2021.
Natural Gas
Natural gas is the principal raw material used to produce our nitrogen products.
We use natural gas both as a chemical feedstock and as a fuel to produce
nitrogen products. Natural gas is a significant cost component of manufactured
nitrogen products, representing approximately one-third of our production costs.
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 , the major trading point for natural
gas in the United Kingdom :
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 v. 2020 2021 2020 2021 v. 2020
Natural gas supplemental data (per
MMBtu)
Average daily market price of natural
gas Henry Hub (Louisiana) $ 4.27 $ 1.95 $ 2.32 119 % $ 3.52 $ 1.82 $ 1.70 93 %
Average daily market price of natural
gas National Balancing Point (United
Kingdom) $ 15.98 $ 2.69 $ 13.29 494 % $ 10.63 $ 2.49 $ 8.14 327 %
Most of our nitrogen manufacturing facilities are located in the United States
and Canada . As a result, the price of natural gas in North America , which is
subject to volatility, directly impacts a substantial portion of our operating
expenses. Natural gas prices during the first nine months of 2021 were higher
than in the first nine months of 2020 due primarily to the impact of both
extreme cold weather in the first quarter of 2021, including Winter Storm Uri in
February 2021 , and increased natural gas demand in the second and third quarters
of 2021 due to the combination of the economy emerging from the COVID-19
pandemic and higher than normal temperatures.
The average daily market price at the Henry Hub, the most heavily-traded natural
gas pricing point in North America , for the three months ended September 30,
2021 was $4.27 per MMBtu compared to $1.95 per MMBtu for the three months ended
September 30, 2020 , an increase of 119%. For the three months ended September
30, 2021 , the daily closing price at the Henry Hub reached a low of $3.54 per
MMBtu on July 9, 2021 and a high of $5.93 per MMBtu on September 29, 2021 . The
average daily market price at the Henry Hub for the nine months ended September
30, 2021 was $3.52 per MMBtu compared to $1.82 per MMBtu for the nine months
ended September 30, 2020 , an increase of 93%. As a result of Winter Storm Uri,
the daily closing price at the Henry Hub reached a high of $23.61 per MMBtu on
February 18, 2021 . The average daily market price of natural gas at the Henry
Hub for October 2021 was $5.49 per MMBtu.
In February 2021 , the central portion of the United States experienced extreme
and unprecedented cold weather due to the impact of Winter Storm Uri. Certain
natural gas suppliers and natural gas pipelines declared force majeure events
due to natural gas well freeze-offs or frozen equipment. This occurred at the
same time as large increases in natural gas demand were occurring due to the
cold temperatures. Due to these unprecedented factors, several states declared a
state of emergency and natural gas was redirected for residential use. At
certain of our manufacturing locations, we reduced our natural gas consumption,
and, as a consequence, our plants at these locations either operated at reduced
rates or temporarily suspended operations. We net settled certain natural gas
contracts with our suppliers and received prevailing market prices, which were
in excess of our cost. As a result, we recognized a gain of $112 million , which
is reflected in cost of sales in our consolidated statement of operations for
the nine months ended September 30, 2021 .
28--------------------------------------------------------------------------------
Table of Contents
CF INDUSTRIES HOLDINGS, INC. Our two nitrogen manufacturing facilities located in theUnited Kingdom are subject to fluctuations associated with the price of natural gas inEurope . The price of natural gas in theUnited Kingdom increased throughout the first nine months of 2021 and reached unprecedented high levels in the third quarter of 2021, due primarily to a tighter supply and demand balance in the global liquefied natural gas market as a result of strong demand for natural gas in anticipation of winter weather and in response to low storage levels of natural gas in bothAsia andEurope . These factors have resulted in record high global prices for liquefied natural gas, raising European andU.K. market prices to compete for limited supply. Due to the high price levels for natural gas, we halted certain of ourU.K. manufacturing operations inSeptember 2021 . See the discussion under "United Kingdom Energy Crisis," below, for further information. The major natural gas trading point for theUnited Kingdom is theNational Balancing Point (NBP). The average daily market price of natural gas at NBP for the three months endedSeptember 30, 2021 was$15.98 per MMBtu compared to$2.69 per MMBtu for the three months endedSeptember 30, 2020 , an increase of nearly 500%. For the three months endedSeptember 30, 2021 , the daily closing price at NBP reached a low of$11.14 per MMBtu onJuly 8, 2021 and a high of$25.41 per MMBtu onSeptember 21, 2021 . The average daily market price of natural gas at NBP for the nine months endedSeptember 30, 2021 was$10.63 per MMBtu compared to$2.49 per MMBtu for the nine months endedSeptember 30, 2020 , an increase of 327%. The average daily market price of natural gas at NBP forOctober 2021 was$27.32 per MMBtu. In the third quarter of 2021, the cost of natural gas used for production, which includes the impact of realized natural gas derivatives, increased 120% to$4.21 per MMBtu from$1.91 per MMBtu in the three months endedSeptember 30, 2020 . This increase in natural gas costs resulted in a decrease in gross margin of approximately$153 million . In the first nine months of 2021, the cost of natural gas used for production, which includes the impact of realized natural gas derivatives and excludes the$112 million gain that resulted from the net settlement of certain natural gas contracts with our suppliers, increased 66% to$3.51 per MMBtu from$2.11 per MMBtu in the nine months endedSeptember 30, 2020 . This increase in natural gas costs resulted in a decrease in gross margin of approximately$332 million . United Kingdom Energy Crisis During the third quarter of 2021, theUnited Kingdom experienced an energy crisis that included a substantial increase in the price of natural gas. 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. The average daily market price of natural gas at NBP was$3.20 per MMBtu for the full year endedDecember 31, 2020 . During the third quarter of 2021, the average daily market price of natural gas at NBP was$15.98 per MMBtu, with a high of$25.41 per MMBtu onSeptember 21, 2021 . OnSeptember 15, 2021 , we announced the halt of operations at both our Ince andBillingham manufacturing facilities in theUnited Kingdom due to negative profitability driven by the high cost of natural gas. The halt of operations at ourU.K. plants impacted the availability of certain products in theUnited Kingdom , including carbon dioxide, which is a byproduct of ammonia production. Due to the critical nature of carbon dioxide to certain industries in theUnited Kingdom , onSeptember 21, 2021 , we entered into an interim agreement with theU.K. government. Under the terms of the agreement, theU.K. government agreed to cover the costs to restart the ammonia plant atBillingham and to offset losses incurred from production for a 21-day period. As a result, we resumed production of ammonia at theBillingham facility in order to produce carbon dioxide for theUnited Kingdom . While the interim agreement was in place, we entered into carbon dioxide pricing and offtake agreements with our customers, which have an initial term throughJanuary 31, 2022 . The amount of financial support that will be provided by theU.K. government for theSeptember 2021 period of the interim agreement is not expected to be material to our results of operations. As of the filing of this report, production continues to be idled at our Ince facility. TheU.K. energy crisis necessitated an evaluation of the goodwill and long-lived assets, including definite-lived intangible assets, of ourU.K. operations to determine if their fair value had declined to below their carrying value. We concluded that a decline in the fair value had occurred, and we recognized impairment charges of$495 million in the third quarter of 2021, consisting of a goodwill impairment charge of$259 million and long-lived and intangible asset impairment charges of$236 million . See "Items Affecting Comparability of Results-U.K. energy crisis impacts," "Liquidity and Capital Resources-United Kingdom Energy Crisis," below, Note 3-United Kingdom Energy Crisis and Impairment Charges, Note 6-Property, Plant and Equipment-Net and Note 7-Goodwill and Other Intangible Assets for further information. As ofSeptember 30, 2021 , after the recognition of the$495 million of impairment charges noted above, the goodwill related to ourU.K. operations was approximately$26 million and the remaining long-lived assets related to ourU.K. operations was$450 million , primarily consisting of property, plant and equipment. 29
--------------------------------------------------------------------------------
Table of Contents
CF INDUSTRIES HOLDINGS, INC. The results of ourU.K. operations are included in our ammonia, AN and Other segments, and account for a small portion of our consolidated gross margin. For the nine months endedSeptember 30, 2021 , ourU.K. operations generated negative gross margin representing approximately 3% of our consolidated gross margin. For the year endedDecember 31, 2020 , gross margin generated by ourU.K. operations accounted for 2% of our consolidated gross margin. Manufacturing Costs and Granular Urea Purchases In the first nine months of 2021, we experienced lower production levels and higher manufacturing and maintenance costs. In response to the lower production levels, in the first nine months of 2021, we procured granular urea in order to meet customer obligations and provide additional manufacturing flexibility. The following summarizes the impact from these activities: •Certain of our plants operated at lower operating rates or temporarily suspended operations due to the lack of natural gas due to Winter Storm Uri or due to maintenance activity in 2021, including activity that was deferred from 2020 as a result of the COVID-19 pandemic. Because of these factors and the halt of operations in theUnited Kingdom , we incurred higher costs for manufacturing, maintenance and repair activity for both scheduled and unscheduled downtime in the first nine months of 2021. •Due to the lower production, we procured additional granular urea in order to meet customer obligations. In the nine months endedSeptember 30, 2021 , we purchased approximately$71 million of granular urea, which we sold to customers for$68 million . COVID-19 Pandemic InMarch 2020 , theWorld Health Organization characterized the outbreak of coronavirus disease 2019 (COVID-19) as a pandemic. Due to the use of fertilizer products in crop production to support the global food supply chain, our business operations were designated as part of the critical infrastructure bythe United States and as essential businesses in theUnited Kingdom andCanada , with corresponding designations by those states and provinces in which we operate. As a result, our manufacturing complexes continued to operate during 2020 and have continued to operate through the date of this report. In addition, we have continued to ship products by all modes of transportation to our customers, and we have not experienced any significant delays in marine, rail or truck transportation services due to the pandemic. Through the date of this report, we have not experienced any meaningful impact in customer demand as a result of the pandemic. In response to the pandemic, we instituted and have continued to enforce safety precautions to protect the health and well-being of all of our employees, including the manufacturing workforcewho operate our nitrogen complexes and distribution facilities. We will continue to monitor safety guidelines related to COVID-19 as issued by governmental authorities and adjust our safety protocols, as needed. 30
--------------------------------------------------------------------------------
Table of Contents
CF INDUSTRIES HOLDINGS, INC. Financial Executive Summary We reported a net loss attributable to common stockholders of$185 million for the three months endedSeptember 30, 2021 compared to a net loss attributable to common stockholders of$28 million for the three months endedSeptember 30, 2020 , a decrease in net earnings of$157 million . Diluted net earnings per share attributable to common stockholders decreased$0.73 per share, to a loss of$0.86 per share in the third quarter of 2021 compared to a loss of$0.13 per share in the third quarter of 2020. These decreases were due primarily to impairment charges related to ourU.K. operations, partially offset by higher operating results driven by an increase in gross margin. Impact of impairment charges The decrease in net earnings and diluted net earnings per share in the third quarter of 2021 was due primarily to impairment charges related to ourU.K. operations of$495 million , consisting of a goodwill impairment charge of$259 million and long-lived and intangible asset impairment charges of$236 million . The after-tax impact of the impairment charges to the net loss per share attributable to common stockholders and diluted net loss per share attributable to common stockholders was$403 million and$1.88 , respectively. See "Market Conditions and Current Developments-United Kingdom Energy Crisis," above, Note 3-United Kingdom Energy Crisis and Impairment Charges, Note 6-Property, Plant and Equipment-Net and Note 7-Goodwill and Other Intangible Assets, for further information. The following table includes gross margin, operating (loss) earnings, (loss) earnings before income taxes, net (loss) earnings attributable to common stockholders and diluted net (loss) earnings per share attributable to common stockholders for the third quarter of 2021, and shows the impact of the impairment charges on each of these measures by also including the corresponding "as adjusted" measure, which excludes the before- and after-tax impacts of the impairment charges. Management utilizes these "as adjusted" measures, and believes they provide useful information to investors, for assessing period-to-period changes in our underlying operating performance, because these "as adjusted" measures exclude the non-cash impairment charges that resulted from theU.K. energy crisis, as more fully described above.
Three months ended
Impact of
impairment
As reported charges As adjusted(1)
(dollars in millions, except per share)
Gross margin $ 440 $ - $ 440
Operating (loss) earnings (97) 495 398
(Loss) earnings before income taxes (137) 495 358
Net (loss) earnings attributable to common
stockholders(2) (185) 403 218
Diluted net (loss) earnings per share attributable to common stockholders(2)
(0.86) 1.88 1.02
_______________________________________________________________________________
(1)The "as adjusted" financial measures presented above are non-GAAP financial
measures that should be viewed in addition to, and not as an alternative for,
our reported results calculated and presented in accordance with U.S. GAAP.
(2)The after-tax impact of impairment charges reflects the amount of income tax
benefit recognized in the three months ended September 30, 2021 in accordance
with guidance on accounting for income taxes in interim reporting periods.
Impact of higher gross margin
Gross margin increased by $357 million in the third quarter of 2021 to
$440 million as compared to $83 million in the third quarter of 2020. The
following table and related discussion describe the significant factors that
drove the increase in gross margin.
Variance due to the following items:
Higher
Unrealized MTM Manufacturing,
Third Quarter of Higher Average Lower Higher Natural on natural gas Maintenance, and Third Quarter
2020 Selling Prices Volume Gas Costs(1) derivatives Other Costs of 2021
(dollars in millions)
Net sales $ 847 $ 686 $ (171) $ - $ - $ - $ 1,362
Cost of sales 764 - (122) 153 (12) 139 922
Gross margin $ 83 $ 686 $ (49) $ (153) $ 12 $ (139) $ 440
Gross margin percentage 9.8 % 32.3 %
_______________________________________________________________________________
(1)Higher natural gas costs include the impact, if any, of realized natural gas derivatives.
31--------------------------------------------------------------------------------
Table of Contents
CF INDUSTRIES HOLDINGS, INC.
•Average selling prices increased 101% to $360 per ton in the third quarter of
2021 from $179 per ton in the third quarter of 2020, which increased gross
margin by $686 million ,
•Sales volume declined by 20% to 3.8 million tons in the third quarter of 2021
from 4.7 million tons in the third quarter of 2020, which reduced gross margin
by $49 million ,
•The cost of natural gas used for production increased 120% to $4.21 per MMBtu
in the third quarter of 2021 from $1.91 per MMBtu in the third quarter of 2020,
which reduced gross margin by $153 million , and
•We incurred higher manufacturing, maintenance and other costs, which reduced
gross margin by $139 million , due primarily to higher plant turnaround and
maintenance activity.
Items Affecting Comparability of Results
In addition to the impact of market conditions discussed above, certain items
impacted the comparability of our financial results during the three and nine
months ended September 30, 2021 and 2020. The following table and related
discussion outline these items and how they impacted the comparability of our
financial results during these periods. During the three months ended September
30, 2021 and 2020, we reported a net loss attributable to common stockholders of
$185 million and $28 million , respectively. During the nine months ended
September 30, 2021 and 2020, we reported net earnings attributable to common
stockholders of $212 million and $230 million , respectively.
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
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) $ (12) $ (9) $ - $ - $ (18) $ (14) $ (12) $ (9)
COVID impacts:
Special COVID-19 bonus for operational
workforce(1) - - 4 3 - - 19 15
Turnaround deferral(1) - - 7 6 - - 7 6
Asset impairments(2) 495 403 - - 495 403 - -
Loss (gain) on foreign currency
transactions, including intercompany
loans(3) 2 1 (6) (5) 5 4 7 5
Engineering cost write-off(3) - - 1 1 - - 9 7
Loss on sale of surplus land(3) - - 2 1 - - 2 1
Insurance proceeds(3) - - - - - - (10) (8)
Loss on debt extinguishment 13 10 - - 19 15 - -
Terra amended tax returns-interest
income and income tax benefit(4) - - - - - - (16) (32)
______________________________________________________________________________
(1)Included in cost of sales in our consolidated statements of operations. (2)The after-tax impact of asset impairment charges reflects the amount of income tax benefit recognized in the three and nine months endedSeptember 30, 2021 in accordance with guidance on accounting for income taxes in interim reporting periods. (3)Included in other operating-net in our consolidated statements of operations. (4)Included in interest income and income tax provision in our consolidated statements of operations. Unrealized net mark-to-market gain on natural gas derivatives Natural gas is the largest and most volatile single component of the manufacturing cost for nitrogen-based products. At certain times, we have managed the risk of changes in natural gas prices through the use of derivative financial instruments. The derivatives that we 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 endedSeptember 30, 2021 , we recognized an unrealized net mark-to-market gain of$12 million . In the nine months endedSeptember 30, 2021 and 2020, we recognized unrealized net mark-to-market gains of$18 million and$12 million , respectively. 32
--------------------------------------------------------------------------------
Table of Contents
CF INDUSTRIES HOLDINGS, INC. COVID impacts InMarch 2020 , a short-term bonus program was initiated to compensate operational employees for continuing their critical tasks during the COVID-19 pandemic. The bonus program concluded inJune 2020 . Approximately$19 million was paid as part of the program and was recognized in cost of sales in our consolidated statements of operations for the nine months endedSeptember 30, 2020 , of which approximately$4 million was recognized in the third quarter of 2020. In the three and nine months endedSeptember 30, 2020 , certain plant turnaround activities were deferred because of the COVID-19 pandemic. As a result, we incurred$7 million of expense, which is recognized in cost of sales in our consolidated statements of operations. Loss (gain) on foreign currency transactions, including intercompany loans In the nine months endedSeptember 30, 2021 and 2020, we recognized losses of$5 million and$7 million , respectively, which consist of foreign currency exchange rate impacts on foreign currency denominated transactions, including the impact of changes in foreign currency exchange rates on intercompany loans that were not permanently invested. Asset impairments As a result of theU.K. energy crisis and the events described under "Market Conditions and Current Developments-United Kingdom Energy Crisis," above, we recognized impairment charges of$495 million in the third quarter of 2021, including a goodwill impairment charge of$259 million and long-lived and intangible asset impairment charges of$236 million . See Note 3-United Kingdom Energy Crisis and Impairment Charges, Note 6-Property, Plant and Equipment-Net and Note 7-Goodwill and Other Intangible Assets for further information. Engineering cost write-off InJune 2020 , a project at one of our nitrogen complexes was cancelled and, as a result,$9 million of previously capitalized engineering costs were expensed in the nine months endedSeptember 30, 2020 . The expense is reflected in other operating-net in our consolidated statements of operations. Loss on sale of surplus land In the three and nine months endedSeptember 30, 2020 , we recognized a loss of$2 million on the sale of surplus land, which is reflected in other operating-net in our consolidated statements of operations. Insurance proceeds In the nine months endedSeptember 30, 2020 , we recognized income of$10 million related to insurance claims at one of our nitrogen complexes, which consisted of$8 million related to business interruption proceeds and$2 million related to property insurance proceeds. These proceeds are reflected in other operating-net in our consolidated statement of operations. Loss on debt extinguishment OnMarch 20, 2021 , we redeemed in full all of the remaining$250 million outstanding principal amount of the 3.400% senior secured notes dueDecember 2021 (the 2021 Notes) in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the redemption was$258 million , including accrued interest. As a result, we recognized a loss on debt extinguishment of$6 million , primarily consisting of a premium paid on the early redemption of the notes. OnSeptember 10, 2021 , we redeemed$250 million principal amount, representing one-third of the$750 million principal amount outstanding immediately prior to such redemption, of the 3.450% senior notes due 2023 (2023 Notes), in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid on the 2023 Notes was approximately$265 million , including accrued interest. As a result, we recognized a loss on debt extinguishment of$13 million , primarily consisting of a premium paid on the early redemption of the notes. Terra amended tax returns We completed the acquisition ofTerra Industries Inc. (Terra) inApril 2010 . After the acquisition, we determined that the manner in which Terra reported the repatriation of cash from foreign affiliates to itsU.S. parent forU.S. and foreign income tax purposes was not appropriate. As a result, in 2012 we amended certain tax returns, including Terra's income and withholding tax returns, back to 1999 (the Amended Tax Returns) and paid additional income and withholding taxes, and related interest and penalties. In 2013, the Internal Revenue Service (IRS) commenced an examination of theU.S. tax aspects of the Amended Tax Returns. 33
--------------------------------------------------------------------------------
Table of Contents
CF INDUSTRIES HOLDINGS, INC. In the second quarter of 2020, we receivedIRS notices indicating the amount of tax and interest to be refunded and received with respect to the income tax and withholding tax returns. See "Liquidity and Capital Resources-Terra Amended Tax Returns," below, for additional information. As a result, we recognized$16 million of interest income ($13 million , net of tax) and$19 million of additional income tax benefit. In addition, in the second quarter of 2020, we receivedU.S. Federal income tax refunds, including interest, of$108 million relating to these matters. InJuly 2020 , we received an additional$2 million , which finalized these matters with theIRS . In 2017, we made a Voluntary Disclosures Program filing with theCanada Revenue Agency (CRA) with respect to the Canadian tax aspects of the amended returns and paid additional Canadian taxes due. In late 2020, the CRA settled with us the voluntary disclosure matter, and, in the first quarter of 2021, we received approximately$20 million of withholding tax refunds, including interest, from the CRA. These amounts were previously recorded in our consolidated balance sheet as ofDecember 31, 2020 . 34
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
