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
•Second Quarter of 2021 Compared to Second Quarter of 2020
•Six Months Ended June 30, 2021 Compared to Six Months Ended June 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 June 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
13-Noncontrolling Interest for additional information on our strategic venture
with CHS;
•two Canadian nitrogen manufacturing facilities located in Medicine Hat, Alberta
(the largest nitrogen complex in Canada) and Courtright, Ontario;
•two United Kingdom nitrogen manufacturing facilities located in Billingham and
Ince;
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CF INDUSTRIES HOLDINGS, INC.

•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 will focus on green ammonia production, which refers to ammonia
produced through a carbon-free process, and blue ammonia, which relates to
ammonia produced by conventional processes but with CO2 removed through carbon
capture and sequestration (CCS) and other certified carbon abatement projects.
We announced an initial green ammonia project at our flagship Donaldsonville
nitrogen complex to produce approximately 20,000 tons per year of green ammonia.
Additionally, we are developing CCS and other carbon abatement projects across
our production facilities that will enable us to produce blue ammonia.
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 second
half 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.
Market Conditions and Current Developments
Selling Prices and Sales Volume
Our average selling price was higher in the second quarter of 2021 than in the
second 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 second quarter of 2021, the average selling
price for our products was $307 per ton, an increase of 37%, compared to $224
per ton in the second quarter of 2020. We reported higher average selling prices
in the second quarter of 2021 as compared to the second quarter of 2020 across
all our segments, which drove an increase in net sales of approximately
$437 million. In the six months ended June 30, 2021, the average selling price
for our products was $271 per ton, or 25% higher compared to $216 per ton for
the six months ended June 30, 2020. This resulted in an increase in net sales of
approximately $538 million.
Our total sales volume was 4% lower in the second quarter of 2021 than in the
second quarter of 2020. We shipped 5.2 million tons of product in the second
quarter of 2021 compared to 5.4 million tons in last year's second quarter due
primarily to the impact of decreased supply resulting from lower production of
ammonia and the resulting upgraded products. Lower sales volume drove a decrease
in net sales of approximately $82 million.
We shipped 9.7 million tons of product in the first six months of 2021 compared
to 10.1 million tons in the first six months of 2020, or a decline of 3%. Lower
sales volume drove a decrease in net sales of approximately $138 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 six months of 2021 as a result of severe weather
conditions in the first quarter of 2021 due to Winter Storm Uri, which disrupted
natural gas supply at certain of our facilities, and higher maintenance
activity. Due to the lower production, we procured additional granular urea in
order to meet customer obligations and provide additional manufacturing
flexibility once production resumed. During the six months ended June 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
19 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
and the severe weather conditions in the first quarter of 2021.
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Natural Gas
Natural gas is the principal raw material used to produce our nitrogen products.
We use natural gas both as a chemical feedstock and as a fuel to produce
nitrogen products. Natural gas is a significant cost component of manufactured
nitrogen products, representing approximately one-third of our production costs.
In February 2021, the central portion of the United States experienced extreme
and unprecedented cold weather due to the impact of Winter Storm Uri. Certain
natural gas suppliers and natural gas pipelines declared force majeure events
due to natural gas well freeze-offs or frozen equipment. This occurred at the
same time as large increases in natural gas demand were occurring due to the
cold temperatures. Due to these unprecedented factors, several states declared a
state of emergency and natural gas was redirected for residential usage. At
certain of our manufacturing locations, we reduced our natural gas consumption
and therefore these plants either operated at reduced rates or temporarily
suspended operations. We net settled certain natural gas contracts with our
suppliers and received prevailing market prices, which were in excess of our
cost. As a result, we recognized a gain of $112 million, which is reflected in
cost of sales in our consolidated statement of operations for the six months
ended June 30, 2021.
Most of our nitrogen manufacturing facilities are located in the United States
and Canada. As a result, the price of natural gas in North America, which is
subject to volatility, directly impacts a substantial portion of our operating
expenses. Natural gas prices during the first six months of 2021 were higher
than in the first six months of 2020, due primarily to the impact of extreme
cold weather in the first quarter of 2021, including Winter Storm Uri in
February 2021, followed by above normal temperatures in the second quarter of
2021 and increased energy demand as the economy emerged from the COVID-19
pandemic. 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 June 30, 2021 was $2.88 per MMBtu compared to $1.65 per MMBtu for the
three months ended June 30, 2020, an increase of 75%. The average daily market
price at the Henry Hub for the six months ended June 30, 2021 was $3.13 per
MMBtu compared to $1.76 per MMBtu for the six months ended June 30, 2020, an
increase of 78%. As a result of Winter Storm Uri, the daily closing price at the
Henry Hub reached a high of $23.61 per MMBtu on February 18, 2021.
We also have manufacturing facilities located in the United Kingdom. These
facilities are subject to fluctuations associated with the price of natural gas
in Europe. The major natural gas trading point for the United Kingdom is the
National Balancing Point (NBP). The average daily market price of natural gas at
NBP for the three months ended June 30, 2021 was $8.90 per MMBtu compared to
$1.60 per MMBtu for the three months ended June 30, 2020. The price of natural
gas in the United Kingdom increased in the first six months of 2021 due
primarily to a tighter supply and demand balance in the global liquefied natural
gas market as a result of severe cold temperatures in Asia that increased global
liquefied natural gas demand and resulted in record Asian prices for liquefied
natural gas, raising European market prices to compete for limited supply. The
average daily market price at the NBP for the six months ended June 30, 2021 was
$7.90 per MMBtu compared to $2.40 per MMBtu for the six months ended June 30,
2020, an increase of 229%. Subsequent to June 30, 2021, the average daily market
price of natural gas at NBP for July 2021 was $12.37 per MMBtu.
In the second quarter of 2021, the cost of natural gas used for production,
which includes the impact of realized natural gas derivatives, increased 75% to
$3.25 per MMBtu in the three months ended June 30, 2021 from $1.86 per MMBtu in
the three months ended June 30, 2020. This increase in natural gas costs
resulted in a decrease in gross margin of approximately $131 million. In the
first half 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 47% to $3.24 per MMBtu in the six months ended June 30,
2021 from $2.20 per MMBtu in the six months ended June 30, 2020. This increase
in natural gas costs resulted in a decrease in gross margin of approximately
$179 million.
Manufacturing Costs and Granular Urea Purchases
In the first half of 2021, we experienced lower production levels and higher
manufacturing and maintenance costs. In response to the lower production levels,
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 that was deferred from 2020 as a result of
the COVID-19 pandemic. Because of these factors, in the first half of 2021, we
incurred higher costs for manufacturing, maintenance and repair activity for
both scheduled and unscheduled downtime.
•Due to the lower production, we procured additional granular urea in order to
meet customer obligations. In the first half of 2021, we purchased approximately
$71 million of granular urea, which we sold to customers for $68 million.
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CF INDUSTRIES HOLDINGS, INC.

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.
Financial Executive Summary
We reported net earnings attributable to common stockholders of $246 million for
the three months ended June 30, 2021 compared to $190 million for the three
months ended June 30, 2020, an increase in net earnings of $56 million, or 29%.
The increase in net earnings was due primarily to higher average selling prices,
partially offset by higher natural gas costs and higher costs related to
manufacturing, maintenance and repair activity. Gross margin increased by
$169 million in the second quarter of 2021 to $503 million as compared to
$334 million in the second 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
                                                      Higher Average                                     Manufacturing,
                                Second Quarter           Selling                    Higher Natural      Maintenance, and     Increase in                    Second Quarter
                                   of 2020              Prices(1)       Volume(1)    Gas Costs(2)         Other Costs     Purchased Urea(3)                    of 2021
                                                                             (dollars in millions)

Net sales                       $   1,204            $         437    $      (82)   $          -       $             -    $            29                   $   1,588
Cost of sales                         870                        -           (52)            131                   105                 31                       1,085
Gross margin                    $     334            $         437    $      (30)   $       (131)      $          (105)   $            (2)                  $     503
Gross margin percentage              27.7    %                                                                                                                   31.7    %

_______________________________________________________________________________


(1)Selling price and volume impact of granular urea purchased to satisfy
customer commitments is reflected in the Increase in Purchased Urea column.
(2)Higher natural gas costs include the impact, if any, of realized natural gas
derivatives.
(3)Represents the impact of the incremental tons compared to the prior year
period.
•Average selling prices increased 37% to $307 per ton in the second quarter of
2021 from $224 per ton in the second quarter of 2020, which increased gross
margin by $437 million,
•Sales volume declined by 4% to 5.2 million tons in the second quarter of 2021
from 5.4 million tons in the second quarter of 2020, which reduced gross margin
by $30 million,
•The cost of natural gas used for production increased 75% to $3.25 per MMBtu in
the second quarter of 2021 from $1.86 per MMBtu in the second quarter of 2020,
which reduced gross margin by $131 million,
•We incurred higher manufacturing, maintenance and other costs, which reduced
gross margin by $105 million, due primarily to higher plant turnaround,
maintenance and repair activities, and
•During the second quarter of 2021, to meet customer obligations, we purchased
104,000 tons of granular urea, an increase of 80,000 tons compared to the second
quarter of 2020.
Diluted net earnings per share attributable to common stockholders increased
$0.25 per share, to $1.14 per share, in the second quarter of 2021 compared to
$0.89 per share in the second quarter of 2020. This increase was due primarily
to higher net earnings driven by the increase in average selling prices
described above.
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                          CF INDUSTRIES HOLDINGS, INC.

Items Affecting Comparability of Results
In addition to the impact of market conditions, winter storms and manufacturing
and maintenance activity discussed above, certain items impacted the
comparability of our financial results during the three and six months ended
June 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 June 30, 2021 and 2020, we reported
net earnings attributable to common stockholders of $246 million and
$190 million, respectively. During the six months ended June 30, 2021 and 2020,
we reported net earnings attributable to common stockholders of $397 million and
$258 million, respectively.

                                                      Three Months Ended June 30,                                     Six Months Ended June 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)              $      -    $       -          $

- $ - $ (6) $ (5) $ (12) $

(9)



Special COVID-19 bonus for operational
workforce(1)                                   -            -                15           12                 -             -                15

12



Loss (gain) on foreign currency
transactions, including intercompany
loans(2)                                       3            3                (5)          (4)                3             3                13            10
Engineering cost write-off(2)                  -            -                 8            6                 -             -                 8             6

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

Terra amended tax returns-interest
income and income tax benefit(3)               -            -               (16)         (32)                -             -               (16)

(32)

______________________________________________________________________________


(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)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 six months ended June 30, 2021
and 2020, we recognized unrealized net mark-to-market gains of $6 million and
$12 million, respectively.
Special COVID-19 bonus for operational workforce
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, of which approximately $15 million was
recognized in cost of sales in our consolidated statement of operations for the
three months ended June 30, 2020, and the remaining $4 million was recognized in
the third quarter of 2020.
Loss (gain) on foreign currency transactions, including intercompany loans
In the six months ended June 30, 2021 and 2020, we recognized losses of $3
million and $13 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.
Engineering cost write-off
In June 2020, a project at one of our nitrogen complexes was cancelled and, as a
result, $8 million of previously capitalized engineering costs were expensed in
the three months ended June 30, 2020. The expense is reflected in other
operating-net in our consolidated statements of operations.
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Insurance proceeds
In the six months ended June 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.
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.
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 this matter 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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