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OFFON

CF INDUSTRIES HOLDINGS, INC.

(CF)
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CF INDUSTRIES HOLDINGS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

11/05/2021 | 02:34pm EST
You should read the following discussion and analysis in conjunction with
our annual consolidated financial statements and related notes and our
discussion and analysis of financial condition and results of operations, which
were included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2020, filed with the Securities and Exchange Commission on
February 24, 2021, as well as Item 1. Financial Statements in this Quarterly
Report on Form 10-Q. All references to "CF Holdings," "we," "us," "our" and "the
Company" refer to CF Industries Holdings, Inc. and its subsidiaries, except
where the context makes clear that the reference is only to CF Industries
Holdings, Inc. itself and not its subsidiaries. All references to
"CF Industries" refer to CF Industries, Inc., a 100% owned subsidiary of
CF Industries Holdings, Inc. References to tons refer to short tons. Notes
referenced in this discussion and analysis refer to the notes to our unaudited
interim consolidated financial statements in Item 1. Financial Statements in
this Quarterly Report on Form 10-Q. The following is an outline of the
discussion and analysis included herein:
•Overview of CF Holdings
•Our Company
•Our Commitment to a Clean Energy Economy
•Market Conditions and Current Developments
•Financial Executive Summary
•Items Affecting Comparability of Results
•Consolidated Results of Operations
•Third Quarter of 2021 Compared to Third Quarter of 2020
•Nine Months Ended September 30, 2021 Compared to Nine Months Ended September
30, 2020
•Operating Results by Business Segment
•Liquidity and Capital Resources
•Critical Accounting Estimates
•Forward-Looking Statements

Overview of CF Holdings
Our Company
Our mission is to provide clean energy to feed and fuel the world sustainably.
With our employees focused on safe and reliable operations, environmental
stewardship, and disciplined capital and corporate management, we are on a path
to decarbonize our ammonia production network - the world's largest - to enable
green and blue hydrogen and nitrogen products for energy, fertilizer, emissions
abatement and other industrial activities. Our nine manufacturing complexes in
the United States, Canada and the United Kingdom, an extensive storage,
transportation and distribution network in North America, and logistics
capabilities enabling a global reach underpin our strategy to leverage our
unique capabilities to accelerate the world's transition to clean energy. Our
principal customers are cooperatives, independent fertilizer distributors,
traders, wholesalers and industrial users. Our core product is anhydrous ammonia
(ammonia), which contains 82% nitrogen and 18% hydrogen. Our nitrogen products
that are upgraded from ammonia are granular urea, urea ammonium nitrate solution
(UAN) and ammonium nitrate (AN). Our other nitrogen products include diesel
exhaust fluid (DEF), urea liquor, nitric acid and aqua ammonia, which are sold
primarily to our industrial customers, and compound fertilizer products (NPKs),
which are solid granular fertilizer products for which the nutrient content is a
combination of nitrogen, phosphorus and potassium.
Our principal assets as of September 30, 2021 include:
•five U.S. nitrogen manufacturing facilities located in Donaldsonville,
Louisiana (the largest nitrogen complex in the world); Port Neal, Iowa; Yazoo
City, Mississippi; Verdigris, Oklahoma; and Woodward, Oklahoma. These facilities
are wholly owned directly or indirectly by CF Industries Nitrogen, LLC (CFN), of
which we own approximately 89% and CHS Inc. (CHS) owns the remainder. See Note
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;
•two United Kingdom nitrogen manufacturing facilities located in Billingham and
Ince;
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•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
In October 2020, we announced that we are taking significant steps to support a
global hydrogen and clean fuel economy, through the production of green and blue
ammonia. Since ammonia is one of the most efficient ways to transport and store
hydrogen and is also a fuel in its own right, we believe that the Company, as
the world's largest producer of ammonia with an unparalleled manufacturing and
distribution network and deep technical expertise, is uniquely positioned to
fulfill anticipated demand for hydrogen and ammonia from green and blue sources.
Our approach 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 flagship Donaldsonville
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.
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 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, the Donaldsonville green
ammonia project will be the largest of its kind in North America.
In the third quarter of 2021, we signed a memorandum of understanding with
Mitsui & Co., Inc. that will guide us in a joint exploration of the development
of blue ammonia projects in the 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 in Japan 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 ended September 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 ended September 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 our U.K. operations in the second
half of September due to the United Kingdom energy crisis, which is further
discussed below. Lower sales volume drove a decrease in net sales of
approximately $171 million.
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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.
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Our two 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 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 both Asia and Europe. These factors have resulted in record high global
prices for liquefied natural gas, raising European and U.K. market prices to
compete for limited supply. Due to the high price levels for natural gas, we
halted certain of our U.K. manufacturing operations in September 2021. See the
discussion under "United Kingdom Energy Crisis," below, for further information.
The major natural gas trading point for the United Kingdom is the National
Balancing Point (NBP). The average daily market price of natural gas at NBP for
the three months ended September 30, 2021 was $15.98 per MMBtu compared to $2.69
per MMBtu for the three months ended September 30, 2020, an increase of nearly
500%. For the three months ended September 30, 2021, the daily closing price at
NBP reached a low of $11.14 per MMBtu on July 8, 2021 and a high of $25.41 per
MMBtu on September 21, 2021. The average daily market price of natural gas at
NBP for the nine months ended September 30, 2021 was $10.63 per MMBtu compared
to $2.49 per MMBtu for the nine months ended September 30, 2020, an increase of
327%. The average daily market price of natural gas at NBP for October 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 ended September 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 ended September 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, the United 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 ended December 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 on September 21, 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. The halt of operations at
our U.K. plants impacted the availability of certain products in the United
Kingdom, including carbon dioxide, which is a byproduct of ammonia production.
Due to the critical nature of carbon dioxide to certain industries in the United
Kingdom, on September 21, 2021, we entered into an interim agreement with the
U.K. government. Under the terms of the agreement, the U.K. government agreed to
cover the costs to restart the ammonia plant at Billingham and to offset losses
incurred from production for a 21-day period. As a result, we resumed production
of ammonia at the Billingham facility in order to produce carbon dioxide for the
United 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 through January 31, 2022. The amount of financial support that will be
provided by the U.K. government for the September 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.
The U.K. energy crisis necessitated an evaluation of the goodwill and long-lived
assets, including definite-lived intangible assets, of our U.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 of September 30, 2021,
after the recognition of the $495 million of impairment charges noted above, the
goodwill related to our U.K. operations was approximately $26 million and the
remaining long-lived assets related to our U.K. operations was $450 million,
primarily consisting of property, plant and equipment.
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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 nine months ended September 30, 2021, our U.K. operations generated negative
gross margin representing approximately 3% of our consolidated gross margin. For
the year ended December 31, 2020, gross margin generated by our U.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 the United 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 ended September 30, 2021, we
purchased approximately $71 million of granular urea, which we sold to customers
for $68 million.
COVID-19 Pandemic
In March 2020, the World Health Organization characterized the outbreak of
coronavirus disease 2019 (COVID-19) as a pandemic. Due to the use of fertilizer
products in crop production to support the global food supply chain, our
business operations were designated as part of the critical infrastructure by
the United States and as essential businesses in the United Kingdom and Canada,
with corresponding designations by those states and provinces in which we
operate. As a result, our manufacturing complexes continued to operate during
2020 and have continued to operate through the date of this report. In addition,
we have continued to ship products by all modes of transportation to our
customers, and we have not experienced any significant delays in marine, rail or
truck transportation services due to the pandemic. 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 workforce who 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.

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Financial Executive Summary
We reported a net loss attributable to common stockholders of $185 million for
the three months ended September 30, 2021 compared to a net loss attributable to
common stockholders of $28 million for the three months ended September 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 our U.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 our U.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 the U.K. energy crisis, as more fully described above.
                                                                        

Three months ended September 30, 2021

                                                                                      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.

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•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 ended September 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 ended September
30, 2021, we recognized an unrealized net mark-to-market gain of $12 million. In
the nine months ended September 30, 2021 and 2020, we recognized unrealized net
mark-to-market gains of $18 million and $12 million, respectively.
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COVID impacts
In March 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 in June 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 ended September 30,
2020, of which approximately $4 million was recognized in the third quarter of
2020.
In the three and nine months ended September 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 ended September 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 the U.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
In June 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 ended September 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 ended September 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 ended September 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
On March 20, 2021, we redeemed in full all of the remaining $250 million
outstanding principal amount of the 3.400% senior secured notes due December
2021 (the 2021 Notes) in accordance with the optional redemption provisions in
the indenture governing the 2021 Notes. The total aggregate redemption price
paid on the 2021 Notes in connection with the redemption was $258 million,
including accrued interest. As a result, we recognized a loss on debt
extinguishment of $6 million, primarily consisting of a premium paid on the
early redemption of the notes.
On September 10, 2021, we redeemed $250 million principal amount, representing
one-third of the $750 million principal amount outstanding immediately prior to
such redemption, of the 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 of Terra Industries Inc. (Terra) in April 2010.
After the acquisition, we determined that the manner in which Terra reported the
repatriation of cash from foreign affiliates to its U.S. parent for U.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 the U.S. tax aspects of the Amended Tax
Returns.
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In the second quarter of 2020, we received IRS 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
received U.S. Federal income tax refunds, including interest, of $108 million
relating to these matters. In July 2020, we received an additional $2 million,
which finalized these matters with the IRS.
In 2017, we made a Voluntary Disclosures Program filing with the Canada 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 of December 31, 2020.
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