Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
| | | | | | | | | | | |
(Mark One) | | | |
x☒ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 2021
| | | | | | | | | | | |
For the quarterly period ended September 30, 2017 | | | |
OR | | |
o | |
OR |
☐ |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from to |
| |
Commission file number 001-32597
CF INDUSTRIES HOLDINGS, INC.
(Exact name of registrant as specified in its charter) | | | | | | | | | | | | | | | | | | | | | | | |
Delaware | | | | | 20-2697511 |
(State or other jurisdiction of incorporation or organization) | | | | | (I.R.S. Employer Identification No.) |
| | |
Delaware
(State or other jurisdiction of
incorporation or organization)
| | 20-2697511
(I.R.S. Employer
Identification No.)
| | |
| | |
4 Parkway North, Suite 400
| | | | | 60015 |
Deerfield, | Illinois | | | | | (Zip Code) |
(Address of principal executive offices) | | 60015
(Zip Code)
|
(847) 405-2400
(Registrant's telephone number, including area code)
| | |
(847) 405-2400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading symbol(s) | | Name of each exchange on which registered |
common stock, par value $0.01 per share | | CF | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Large accelerated filerx | ☒ | Accelerated filero | ☐ | Non-accelerated filero (Do not check if a smaller reporting company)
| ☐ | Smaller reporting companyo | ☐ | Emerging growth companyo | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x☒
233,260,048215,099,967 shares of the registrant'sregistrant’s common stock, $0.01 par value $0.01 per share, were outstanding at October 31, 2017.
CF INDUSTRIES HOLDINGS, INC.
TABLE OF CONTENTS
CF INDUSTRIES HOLDINGS, INC.
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | | 2021 | | 2020 | | 2021 | | 2020 |
| (in millions, except per share amounts) | | (in millions, except per share amounts) |
Net sales | $ | 870 |
| | $ | 680 |
| | $ | 3,031 |
| | $ | 2,818 |
| Net sales | $ | 1,588 | | | $ | 1,204 | | | $ | 2,636 | | | $ | 2,175 | |
Cost of sales | 861 |
| | 678 |
| | 2,744 |
| | 2,072 |
| Cost of sales | 1,085 | | | 870 | | | 1,844 | | | 1,637 | |
Gross margin | 9 |
| | 2 |
| | 287 |
| | 746 |
| Gross margin | 503 | | | 334 | | | 792 | | | 538 | |
Selling, general and administrative expenses | 45 |
| | 44 |
| | 140 |
| | 141 |
| Selling, general and administrative expenses | 60 | | | 51 | | | 115 | | | 105 | |
Transaction costs | — |
| | — |
| | — |
| | 179 |
| |
| Other operating—net | (2 | ) | | 57 |
| | 14 |
| | 181 |
| Other operating—net | 4 | | | 6 | | | 2 | | | 12 | |
Total other operating costs and expenses | 43 |
| | 101 |
| | 154 |
| | 501 |
| Total other operating costs and expenses | 64 | | | 57 | | | 117 | | | 117 | |
Equity in losses of operating affiliates | (5 | ) | | (2 | ) | | (8 | ) | | (11 | ) | |
Operating (loss) earnings | (39 | ) | | (101 | ) | | 125 |
| | 234 |
| |
| Equity in earnings of operating affiliate | | Equity in earnings of operating affiliate | 11 | | | 3 | | | 22 | | | 6 | |
Operating earnings | | Operating earnings | 450 | | | 280 | | | 697 | | | 427 | |
Interest expense | 81 |
| | 31 |
| | 241 |
| | 130 |
| Interest expense | 46 | | | 49 | | | 94 | | | 93 | |
Interest income | (5 | ) | | (2 | ) | | (8 | ) | | (4 | ) | Interest income | 0 | | | (17) | | | 0 | | | (18) | |
Loss on debt extinguishment | | Loss on debt extinguishment | 0 | | | 0 | | | 6 | | | 0 | |
Other non-operating—net | — |
| | 1 |
| | — |
| | (1 | ) | Other non-operating—net | 2 | | | (3) | | | 2 | | | (3) | |
(Loss) earnings before income taxes | (115 | ) | | (131 | ) | | (108 | ) | | 109 |
| |
Income tax benefit | (47 | ) | | (131 | ) | | (55 | ) | | (21 | ) | |
Net (loss) earnings | (68 | ) | | — |
| | (53 | ) | | 130 |
| |
Less: Net earnings attributable to noncontrolling interests | 19 |
| | 30 |
| | 54 |
| | 87 |
| |
Net (loss) earnings attributable to common stockholders | $ | (87 | ) | | $ | (30 | ) | | $ | (107 | ) | | $ | 43 |
| |
Net (loss) earnings per share attributable to common stockholders: | |
| | |
| | |
| | |
| |
Earnings before income taxes | | Earnings before income taxes | 402 | | | 251 | | | 595 | | | 355 | |
Income tax provision | | Income tax provision | 85 | | | 33 | | | 103 | | | 46 | |
| Net earnings | | Net earnings | 317 | | | 218 | | | 492 | | | 309 | |
Less: Net earnings attributable to noncontrolling interest | | Less: Net earnings attributable to noncontrolling interest | 71 | | | 28 | | | 95 | | | 51 | |
Net earnings attributable to common stockholders | | Net earnings attributable to common stockholders | $ | 246 | | | $ | 190 | | | $ | 397 | | | $ | 258 | |
Net earnings per share attributable to common stockholders: | | Net earnings per share attributable to common stockholders: | | | | | | | |
Basic | $ | (0.37 | ) | | $ | (0.13 | ) | | $ | (0.46 | ) | | $ | 0.19 |
| Basic | $ | 1.14 | | | $ | 0.89 | | | $ | 1.84 | | | $ | 1.20 | |
Diluted | $ | (0.37 | ) | | $ | (0.13 | ) | | $ | (0.46 | ) | | $ | 0.19 |
| Diluted | $ | 1.14 | | | $ | 0.89 | | | $ | 1.83 | | | $ | 1.20 | |
Weighted-average common shares outstanding: | | | | | |
| | |
| Weighted-average common shares outstanding: | | | | | | | |
Basic | 233.2 |
| | 233.1 |
| | 233.2 |
| | 233.2 |
| Basic | 215.5 | | | 214.5 | | | 215.2 | | | 215.2 | |
Diluted | 233.2 |
| | 233.1 |
| | 233.2 |
| | 233.5 |
| Diluted | 216.6 | | | 214.6 | | | 216.3 | | | 215.6 | |
Dividends declared per common share | $ | 0.30 |
| | $ | 0.30 |
| | $ | 0.90 |
| | $ | 0.90 |
| Dividends declared per common share | $ | 0.30 | | | $ | 0.30 | | | $ | 0.60 | | | $ | 0.60 | |
See accompanying Notes to Unaudited Consolidated Financial Statements.
CF INDUSTRIES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Net (loss) earnings | $ | (68 | ) | | $ | — |
| | $ | (53 | ) | | $ | 130 |
|
Other comprehensive income (loss): | |
| | |
| | |
| | |
|
Foreign currency translation adjustment—net of taxes | 52 |
| | (30 | ) | | 124 |
| | (20 | ) |
Defined benefit plans—net of taxes | (2 | ) | | — |
| | (1 | ) | | (3 | ) |
| 50 |
| | (30 | ) | | 123 |
| | (23 | ) |
Comprehensive (loss) income | (18 | ) | | (30 | ) | | 70 |
| | 107 |
|
Less: Comprehensive income attributable to noncontrolling interests | 19 |
| | 30 |
| | 54 |
| | 87 |
|
Comprehensive (loss) income attributable to common stockholders | $ | (37 | ) | | $ | (60 | ) | | $ | 16 |
| | $ | 20 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (in millions) |
Net earnings | $ | 317 | | | $ | 218 | | | $ | 492 | | | $ | 309 | |
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustment—net of taxes | 10 | | | 12 | | | 24 | | | (71) | |
| | | | | | | |
| | | | | | | |
Defined benefit plans—net of taxes | (1) | | | 2 | | | 0 | | | 11 | |
| 9 | | | 14 | | | 24 | | | (60) | |
Comprehensive income | 326 | | | 232 | | | 516 | | | 249 | |
Less: Comprehensive income attributable to noncontrolling interest | 71 | | | 28 | | | 95 | | | 51 | |
Comprehensive income attributable to common stockholders | $ | 255 | | | $ | 204 | | | $ | 421 | | | $ | 198 | |
See accompanying Notes to Unaudited Consolidated Financial Statements.
CF INDUSTRIES HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
| | | (Unaudited) | | | | (Unaudited) | |
| September 30, 2017 | | December 31, 2016 | | June 30, 2021 | | December 31, 2020 |
| (in millions, except share and per share amounts) | | (in millions, except share and per share amounts) |
Assets | |
| | |
| Assets | | | |
Current assets: | |
| | |
| Current assets: | | | |
Cash and cash equivalents | $ | 1,992 |
| | $ | 1,164 |
| Cash and cash equivalents | $ | 777 | | | $ | 683 | |
Restricted cash | — |
| | 5 |
| |
| Accounts receivable—net | 279 |
| | 236 |
| Accounts receivable—net | 401 | | | 265 | |
Inventories | 316 |
| | 339 |
| Inventories | 290 | | | 287 | |
| Prepaid income taxes | 42 |
| | 841 |
| Prepaid income taxes | 68 | | | 97 | |
Other current assets | 22 |
| | 70 |
| Other current assets | 33 | | | 35 | |
Total current assets | 2,651 |
| | 2,655 |
| Total current assets | 1,569 | | | 1,367 | |
Property, plant and equipment—net | 9,372 |
| | 9,652 |
| Property, plant and equipment—net | 7,437 | | | 7,632 | |
Investments in affiliates | 109 |
| | 139 |
| |
Investment in affiliate | | Investment in affiliate | 82 | | | 80 | |
Goodwill | 2,369 |
| | 2,345 |
| Goodwill | 2,378 | | | 2,374 | |
Operating lease right-of-use assets | | Operating lease right-of-use assets | 228 | | | 259 | |
Other assets | 356 |
| | 340 |
| Other assets | 313 | | | 311 | |
Total assets | $ | 14,857 |
| | $ | 15,131 |
| Total assets | $ | 12,007 | | | $ | 12,023 | |
Liabilities and Equity | |
| | |
| Liabilities and Equity | | | |
Current liabilities: | |
| | |
| Current liabilities: | | | |
| Accounts payable and accrued expenses | $ | 635 |
| | $ | 638 |
| Accounts payable and accrued expenses | $ | 545 | | | $ | 424 | |
Income taxes payable | 7 |
| | 1 |
| |
| Customer advances | 92 |
| | 42 |
| Customer advances | 9 | | | 130 | |
Current portion of long-term debt | 798 |
| | — |
| |
Current operating lease liabilities | | Current operating lease liabilities | 83 | | | 88 | |
Current maturities of long-term debt | | Current maturities of long-term debt | 0 | | | 249 | |
Other current liabilities | 19 |
| | 5 |
| Other current liabilities | 6 | | | 15 | |
Total current liabilities | 1,551 |
| | 686 |
| Total current liabilities | 643 | | | 906 | |
Long-term debt | 4,988 |
| | 5,778 |
| |
Long-term debt, net of current maturities | | Long-term debt, net of current maturities | 3,713 | | | 3,712 | |
Deferred income taxes | 1,592 |
| | 1,630 |
| Deferred income taxes | 1,156 | | | 1,184 | |
Operating lease liabilities | | Operating lease liabilities | 150 | | | 174 | |
Other liabilities | 486 |
| | 545 |
| Other liabilities | 387 | | | 444 | |
Equity: | |
| | |
| Equity: | | | |
Stockholders' equity: | |
| | |
| |
Stockholders’ equity: | | Stockholders’ equity: | | | |
Preferred stock—$0.01 par value, 50,000,000 shares authorized | — |
| | — |
| Preferred stock—$0.01 par value, 50,000,000 shares authorized | 0 | | | 0 | |
Common stock—$0.01 par value, 500,000,000 shares authorized, 2017—233,257,461 shares issued and 2016—233,141,771 shares issued | 2 |
| | 2 |
| |
Common stock—$0.01 par value, 500,000,000 shares authorized, 2021—215,093,493 shares issued and 2020—214,057,701 shares issued | | Common stock—$0.01 par value, 500,000,000 shares authorized, 2021—215,093,493 shares issued and 2020—214,057,701 shares issued | 2 | | | 2 | |
Paid-in capital | 1,392 |
| | 1,380 |
| Paid-in capital | 1,357 | | | 1,317 | |
Retained earnings | 2,048 |
| | 2,365 |
| Retained earnings | 2,183 | | | 1,927 | |
Treasury stock—at cost, 2017—386 shares and 2016—27,602 shares | — |
| | (1 | ) | |
Treasury stock—at cost, 2021—5,284 shares and 2020—102,843 shares | | Treasury stock—at cost, 2021—5,284 shares and 2020—102,843 shares | 0 | | | (4) | |
Accumulated other comprehensive loss | (275 | ) | | (398 | ) | Accumulated other comprehensive loss | (296) | | | (320) | |
Total stockholders' equity | 3,167 |
| | 3,348 |
| |
Noncontrolling interests | 3,073 |
| | 3,144 |
| |
Total stockholders’ equity | | Total stockholders’ equity | 3,246 | | | 2,922 | |
Noncontrolling interest | | Noncontrolling interest | 2,712 | | | 2,681 | |
Total equity | 6,240 |
| | 6,492 |
| Total equity | 5,958 | | | 5,603 | |
Total liabilities and equity | $ | 14,857 |
| | $ | 15,131 |
| Total liabilities and equity | $ | 12,007 | | | $ | 12,023 | |
See accompanying Notes to Unaudited Consolidated Financial Statements.
CF INDUSTRIES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stockholders | | | | |
| $0.01 Par Value Common Stock | | Treasury Stock | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders' Equity | | Noncontrolling Interests | | Total Equity |
| (in millions, except per share amounts) |
Balance as of December 31, 2015 | $ | 2 |
| | $ | (153 | ) | | $ | 1,378 |
| | $ | 3,058 |
| | $ | (250 | ) | | $ | 4,035 |
| | $ | 352 |
| | $ | 4,387 |
|
Net earnings | — |
| | — |
| | — |
| | 43 |
| | — |
| | 43 |
| | 87 |
| | 130 |
|
Other comprehensive income (loss): | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Foreign currency translation adjustment—net of taxes | — |
| | — |
| | — |
| | — |
| | (20 | ) | | (20 | ) | | — |
| | (20 | ) |
Defined benefit plans—net of taxes | — |
| | — |
| | — |
| | — |
| | (3 | ) | | (3 | ) | | — |
| | (3 | ) |
Comprehensive income | |
| | |
| | |
| | |
| | |
| | 20 |
| | 87 |
| | 107 |
|
Acquisition of treasury stock under employee stock plans | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
Issuance of $0.01 par value common stock under employee stock plans | — |
| | 3 |
| | (3 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Stock-based compensation expense | — |
| | — |
| | 15 |
| | — |
| | — |
| | 15 |
| | — |
| | 15 |
|
Cash dividends ($0.90 per share) | — |
| | — |
| | — |
| | (209 | ) | | — |
| | (209 | ) | | — |
| | (209 | ) |
Issuance of noncontrolling interest in CF Industries Nitrogen, LLC (CFN) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,792 |
| | 2,792 |
|
Distributions declared to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (111 | ) | | (111 | ) |
Balance as of September 30, 2016 | $ | 2 |
| | $ | (151 | ) | | $ | 1,390 |
| | $ | 2,892 |
| | $ | (273 | ) | | $ | 3,860 |
| | $ | 3,120 |
| | $ | 6,980 |
|
Balance as of December 31, 2016 | $ | 2 |
| | $ | (1 | ) | | $ | 1,380 |
| | $ | 2,365 |
| | $ | (398 | ) | | $ | 3,348 |
| | $ | 3,144 |
| | $ | 6,492 |
|
Net (loss) earnings | — |
| | — |
| | — |
| | (107 | ) | | — |
| | (107 | ) | | 54 |
| | (53 | ) |
Other comprehensive income (loss): | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Foreign currency translation adjustment—net of taxes | — |
| | — |
| | — |
| | — |
| | 124 |
| | 124 |
| | — |
| | 124 |
|
Defined benefit plans—net of taxes | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | | — |
| | (1 | ) |
Comprehensive income | |
| | |
| | |
| | |
| | |
| | 16 |
| | 54 |
| | 70 |
|
Issuance of $0.01 par value common stock under employee stock plans | — |
| | 1 |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Stock-based compensation expense | — |
| | — |
| | 13 |
| | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
Cash dividends ($0.90 per share) | — |
| | — |
| | — |
| | (210 | ) | | — |
| | (210 | ) | | — |
| | (210 | ) |
Distributions declared to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (125 | ) | | (125 | ) |
Balance as of September 30, 2017 | $ | 2 |
| | $ | — |
| | $ | 1,392 |
| | $ | 2,048 |
| | $ | (275 | ) | | $ | 3,167 |
| | $ | 3,073 |
| | $ | 6,240 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stockholders | | | | |
| $0.01 Par Value Common Stock | | Treasury Stock | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity | | Noncontrolling Interest | | Total Equity |
| (in millions, except per share amounts) |
Balance as of March 31, 2021 | $ | 2 | | | $ | (14) | | | $ | 1,333 | | | $ | 2,013 | | | $ | (305) | | | $ | 3,029 | | | $ | 2,641 | | | $ | 5,670 | |
Net earnings | 0 | | | 0 | | | 0 | | | 246 | | | 0 | | | 246 | | | 71 | | | 317 | |
Other comprehensive income | 0 | | | 0 | | | 0 | | | 0 | | | 9 | | | 9 | | | 0 | | | 9 | |
| | | | | | | | | | | | | | | |
Retirement of treasury stock | 0 | | | 13 | | | (2) | | | (11) | | | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | | | | | |
Issuance of $0.01 par value common stock under employee stock plans | 0 | | | 1 | | | 18 | | | 0 | | | 0 | | | 19 | | | 0 | | | 19 | |
| | | | | | | | | | | | | | | |
Stock-based compensation expense | 0 | | | 0 | | | 8 | | | 0 | | | 0 | | | 8 | | | 0 | | | 8 | |
| | | | | | | | | | | | | | | |
Cash dividends ($0.30 per share) | 0 | | | 0 | | | 0 | | | (65) | | | 0 | | | (65) | | | 0 | | | (65) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Balance as of June 30, 2021 | $ | 2 | | | $ | 0 | | | $ | 1,357 | | | $ | 2,183 | | | $ | (296) | | | $ | 3,246 | | | $ | 2,712 | | | $ | 5,958 | |
| | | | | | | | | | | | | | | |
Balance as of December 31, 2020 | $ | 2 | | | $ | (4) | | | $ | 1,317 | | | $ | 1,927 | | | $ | (320) | | | $ | 2,922 | | | $ | 2,681 | | | $ | 5,603 | |
Net earnings | 0 | | | 0 | | | 0 | | | 397 | | | 0 | | | 397 | | | 95 | | | 492 | |
Other comprehensive income | 0 | | | 0 | | | 0 | | | 0 | | | 24 | | | 24 | | | 0 | | | 24 | |
| | | | | | | | | | | | | | | |
Retirement of treasury stock | 0 | | | 13 | | | (2) | | | (11) | | | 0 | | | 0 | | | 0 | | | 0 | |
Acquisition of treasury stock under employee stock plans | 0 | | | (10) | | | 0 | | | 0 | | | 0 | | | (10) | | | 0 | | | (10) | |
Issuance of $0.01 par value common stock under employee stock plans | 0 | | | 1 | | | 26 | | | 0 | | | 0 | | | 27 | | | 0 | | | 27 | |
| | | | | | | | | | | | | | | |
Stock-based compensation expense | 0 | | | 0 | | | 16 | | | 0 | | | 0 | | | 16 | | | 0 | | | 16 | |
| | | | | | | | | | | | | | | |
Cash dividends ($0.60 per share) | 0 | | | 0 | | | 0 | | | (130) | | | 0 | | | (130) | | | 0 | | | (130) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Distribution declared to noncontrolling interest | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (64) | | | (64) | |
| | | | | | | | | | | | | | | |
Balance as of June 30, 2021 | $ | 2 | | | $ | 0 | | | $ | 1,357 | | | $ | 2,183 | | | $ | (296) | | | $ | 3,246 | | | $ | 2,712 | | | $ | 5,958 | |
(Continued)
CONSOLIDATED STATEMENTS OF EQUITY
(Continued) (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stockholders | | | | |
| $0.01 Par Value Common Stock | | Treasury Stock | | Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity | | Noncontrolling Interest | | Total Equity |
| (in millions, except per share amounts) |
Balance as of March 31, 2020 | $ | 2 | | | $ | (108) | | | $ | 1,313 | | | $ | 1,961 | | | $ | (440) | | | $ | 2,728 | | | $ | 2,675 | | | $ | 5,403 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net earnings | 0 | | | 0 | | | 0 | | | 190 | | | 0 | | | 190 | | | 28 | | | 218 | |
Other comprehensive income | 0 | | | 0 | | | 0 | | | 0 | | | 14 | | | 14 | | | 0 | | | 14 | |
| | | | | | | | | | | | | | | |
Retirement of treasury stock | 0 | | | 107 | | | (17) | | | (90) | | | 0 | | | 0 | | | 0 | | | 0 | |
Acquisition of treasury stock under employee stock plans | 0 | | | (1) | | | 0 | | | 0 | | | 0 | | | (1) | | | 0 | | | (1) | |
Issuance of $0.01 par value common stock under employee stock plans | 0 | | | 2 | | | (2) | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | | | | | |
Stock-based compensation expense | 0 | | | 0 | | | 6 | | | 0 | | | 0 | | | 6 | | | 0 | | | 6 | |
| | | | | | | | | | | | | | | |
Cash dividends ($0.30 per share) | 0 | | | 0 | | | 0 | | | (64) | | | 0 | | | (64) | | | 0 | | | (64) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Balance as of June 30, 2020 | $ | 2 | | | $ | 0 | | | $ | 1,300 | | | $ | 1,997 | | | $ | (426) | | | $ | 2,873 | | | $ | 2,703 | | | $ | 5,576 | |
| | | | | | | | | | | | | | | |
Balance as of December 31, 2019 | $ | 2 | | | $ | 0 | | | $ | 1,303 | | | $ | 1,958 | | | $ | (366) | | | $ | 2,897 | | | $ | 2,740 | | | $ | 5,637 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net earnings | 0 | | | 0 | | | 0 | | | 258 | | | 0 | | | 258 | | | 51 | | | 309 | |
Other comprehensive loss | 0 | | | 0 | | | 0 | | | 0 | | | (60) | | | (60) | | | 0 | | | (60) | |
Purchases of treasury stock | 0 | | | (100) | | | 0 | | | 0 | | | 0 | | | (100) | | | 0 | | | (100) | |
Retirement of treasury stock | 0 | | | 107 | | | (17) | | | (90) | | | 0 | | | 0 | | | 0 | | | 0 | |
Acquisition of treasury stock under employee stock plans | 0 | | | (9) | | | 0 | | | 0 | | | 0 | | | (9) | | | 0 | | | (9) | |
Issuance of $0.01 par value common stock under employee stock plans | 0 | | | 2 | | | 1 | | | 0 | | | 0 | | | 3 | | | 0 | | | 3 | |
| | | | | | | | | | | | | | | |
Stock-based compensation expense | 0 | | | 0 | | | 13 | | | 0 | | | 0 | | | 13 | | | 0 | | | 13 | |
| | | | | | | | | | | | | | | |
Cash dividends ($0.60 per share) | 0 | | | 0 | | | 0 | | | (129) | | | 0 | | | (129) | | | 0 | | | (129) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Distribution declared to noncontrolling interest | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (88) | | | (88) | |
| | | | | | | | | | | | | | | |
Balance as of June 30, 2020 | $ | 2 | | | $ | 0 | | | $ | 1,300 | | | $ | 1,997 | | | $ | (426) | | | $ | 2,873 | | | $ | 2,703 | | | $ | 5,576 | |
See accompanying Notes to Unaudited Consolidated Financial Statements.
CF INDUSTRIES HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
| (in millions) |
Operating Activities: | |
| | |
|
Net (loss) earnings | $ | (53 | ) | | $ | 130 |
|
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: | |
| | |
|
Depreciation and amortization | 648 |
| | 475 |
|
Deferred income taxes | (54 | ) | | 730 |
|
Stock-based compensation expense | 13 |
| | 15 |
|
Unrealized net loss (gain) on natural gas and foreign currency derivatives | 64 |
| | (169 | ) |
Unrealized loss on embedded derivative | 4 |
| | 22 |
|
Loss on disposal of property, plant and equipment | 3 |
| | 8 |
|
Undistributed losses of affiliates—net of taxes | 7 |
| | — |
|
Changes in: | |
| | |
|
Accounts receivable—net | (29 | ) | | 55 |
|
Inventories | 12 |
| | (4 | ) |
Accrued and prepaid income taxes | 804 |
| | (665 | ) |
Accounts payable and accrued expenses | 5 |
| | (7 | ) |
Customer advances | 51 |
| | (75 | ) |
Other—net | (74 | ) | | 76 |
|
Net cash provided by operating activities | 1,401 |
| | 591 |
|
Investing Activities: | |
| | |
|
Additions to property, plant and equipment | (290 | ) | | (1,819 | ) |
Proceeds from sale of property, plant and equipment | 13 |
| | 8 |
|
Distributions received from unconsolidated affiliates | 12 |
| | — |
|
Proceeds from sale of auction rate securities | 9 |
| | — |
|
Withdrawals from restricted cash funds | 5 |
| | 16 |
|
Other—net | — |
| | 4 |
|
Net cash used in investing activities | (251 | ) | | (1,791 | ) |
Financing Activities: | |
| | |
|
Proceeds from short-term borrowings | — |
| | 150 |
|
Payments of short-term borrowings | — |
| | (150 | ) |
Financing fees | (1 | ) | | (11 | ) |
Dividends paid on common stock | (210 | ) | | (209 | ) |
Issuance of noncontrolling interest in CFN | — |
| | 2,800 |
|
Distributions to noncontrolling interests | (125 | ) | | (111 | ) |
Issuances of common stock under employee stock plans | 1 |
| | — |
|
Net cash (used in) provided by financing activities | (335 | ) | | 2,469 |
|
Effect of exchange rate changes on cash and cash equivalents | 13 |
| | (1 | ) |
Increase in cash and cash equivalents | 828 |
| | 1,268 |
|
Cash and cash equivalents at beginning of period | 1,164 |
| | 286 |
|
Cash and cash equivalents at end of period | $ | 1,992 |
| | $ | 1,554 |
|
| | | | | | | | | | | |
| Six months ended June 30, |
| 2021 | | 2020 |
| (in millions) |
Operating Activities: | | | |
Net earnings | $ | 492 | | | $ | 309 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
Depreciation and amortization | 447 | | | 450 | |
Deferred income taxes | (31) | | | (96) | |
Stock-based compensation expense | 16 | | | 13 | |
| | | |
Loss on debt extinguishment | 6 | | | 0 | |
Unrealized net gain on natural gas derivatives | (6) | | | (12) | |
Unrealized loss on embedded derivative | 2 | | | 1 | |
| | | |
| | | |
| | | |
Loss on disposal of property, plant and equipment | 2 | | | 9 | |
Undistributed earnings of affiliate—net of taxes | (4) | | | (8) | |
Changes in: | | | |
Accounts receivable—net | (137) | | | (11) | |
Inventories | (9) | | | 51 | |
Accrued and prepaid income taxes | 0 | | | 190 | |
Accounts payable and accrued expenses | 85 | | | (43) | |
Customer advances | (121) | | | (110) | |
Other—net | (36) | | | (25) | |
Net cash provided by operating activities | 706 | | | 718 | |
Investing Activities: | | | |
Additions to property, plant and equipment | (181) | | | (119) | |
| | | |
| | | |
| | | |
| | | |
Insurance proceeds for property, plant and equipment | 0 | | | 2 | |
Purchase of investments held in nonqualified employee benefit trust | (12) | | | 0 | |
Proceeds from sale of investments held in nonqualified employee benefit trust | 12 | | | 0 | |
| | | |
| | | |
Other—net | (1) | | | 0 | |
Net cash used in investing activities | (182) | | | (117) | |
Financing Activities: | | | |
| | | |
Proceeds from short-term borrowings | 0 | | | 500 | |
Repayments of short-term borrowings | 0 | | | (500) | |
Payments of long-term borrowings | (255) | | | 0 | |
| | | |
Dividends paid on common stock | (130) | | | (129) | |
| | | |
Distributions to noncontrolling interest | (64) | | | (88) | |
Purchases of treasury stock | 0 | | | (100) | |
Proceeds from issuances of common stock under employee stock plans | 26 | | | 3 | |
Cash paid for shares withheld for taxes | (10) | | | (9) | |
| | | |
Net cash used in financing activities | (433) | | | (323) | |
Effect of exchange rate changes on cash and cash equivalents | 3 | | | (2) | |
Increase in cash and cash equivalents | 94 | | | 276 | |
Cash and cash equivalents at beginning of period | 683 | | | 287 | |
Cash and cash equivalents at end of period | $ | 777 | | | $ | 563 | |
See accompanying Notes to Unaudited Consolidated Financial Statements.
CF INDUSTRIES HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Background and Basis of Presentation
WeOur 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 one ofon a path to decarbonize our ammonia production network – the world’s largest manufacturers– to enable green and distributors ofblue hydrogen and nitrogen products for energy, fertilizer, emissions abatement and other nitrogen productsindustrial activities. Our nine manufacturing complexes in the world.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, farmerstraders, wholesalers and industrial users. Our principalcore product is anhydrous ammonia (ammonia), which contains 82% nitrogen fertilizerand 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 manufacturing and distribution facilities are concentrated in the midwestern United States and other major agricultural areas of the United States, Canada and the United Kingdom. We also export nitrogen fertilizer products from our Donaldsonville, Louisiana and Yazoo City, Mississippi manufacturing facilities, and our United Kingdom manufacturing facilities in Billingham and Ince.
All references to "CF“CF Holdings," "the” “the Company," "we," "us"” “we,” “us” and "our"“our” refer to CF Industries Holdings, Inc. and its subsidiaries, except where the context makes clear that the reference is only to CF Industries Holdings, Inc. itself and not its subsidiaries. All references to "CF Industries"“CF Industries” refer to CF Industries, Inc., a 100% owned subsidiary of CF Industries Holdings, Inc.
The accompanying unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements for the year ended December 31, 2016,2020, in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting. In the opinion of management, these statements reflect all adjustments, consisting only of normal and recurring adjustments, that are necessary for the fair representation of the information for the periods presented. The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Operating results for any period presented apply to that period only and are not necessarily indicative of results for any future period.
The accompanying unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related disclosures included in our 2016 Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 23, 2017.24, 2021. The preparation of the unaudited interim consolidated financial statements requires us to make use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the unaudited consolidated financial statements and the reported revenues and expenses for the periods presented. Significant estimates and assumptions are used for, but are not limited to, net realizable value of inventories, environmental remediation liabilities, environmental and litigation contingencies, the cost of carbon credits required to meet environmental regulations, the cost of customer incentives, useful lives of property and identifiable intangible assets, the assumptions used in the evaluation of potential impairments of property, investments, identifiable intangible assets and goodwill, income tax and valuation reserves, allowances for doubtful accounts receivable, the measurement of the fair values of investments for which markets are not active, assumptions used in the determination of the funded status and annual expense of defined benefit pension and other postretirement benefit plans and the assumptions used in the valuation of stock-based compensation awards granted to employees.
2. New Accounting Standards
Recently Adopted Pronouncement
On January 1, 2017, we adopted Accounting Standards Update (ASU) No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU No. 2015-11 changes the inventory measurement principle for entities using the first-in, first out (FIFO) or average cost methods. For entities utilizing one of these methods, the inventory measurement principle changed from lower of cost or market to the lower of cost and net realizable value. We follow the FIFO or average cost methods and the adoption of this ASU did not have a material effect on our consolidated financial statements.
CF INDUSTRIES HOLDINGS, INC.
2. Revenue Recognition
Recently Issued PronouncementsWe track our revenue by product and by geography. See Note 16—Segment Disclosures for our revenue by reportable segment, which are ammonia, granular urea, UAN, AN and Other. The following table summarizes our revenue by product and by geography (based on destination of our shipment) for the three and six months ended June 30, 2021 and 2020:
In May 2014, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ammonia | | Granular Urea | | UAN | | AN | | Other | | Total |
| (in millions) |
| | | | | | | | | | | |
Three months ended June 30, 2021 | | | | | | | | | | | |
North America | $ | 431 | | | $ | 433 | | | $ | 403 | | | $ | 55 | | | $ | 92 | | | $ | 1,414 | |
Europe and other | 28 | | | 0 | | | 31 | | | 81 | | | 34 | | | 174 | |
| | | | | | | | | | | |
Total revenue | $ | 459 | | | $ | 433 | | | $ | 434 | | | $ | 136 | | | $ | 126 | | | $ | 1,588 | |
Three months ended June 30, 2020 | | | | | | | | | | | |
North America | $ | 344 | | | $ | 312 | | | $ | 288 | | | $ | 51 | | | $ | 56 | | | $ | 1,051 | |
Europe and other | 20 | | | 17 | | | 20 | | | 67 | | | 29 | | | 153 | |
Total revenue | $ | 364 | | | $ | 329 | | | $ | 308 | | | $ | 118 | | | $ | 85 | | | $ | 1,204 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ammonia | | Granular Urea | | UAN | | AN | | Other | | Total |
| (in millions) |
Six months ended June 30, 2021 | | | | | | | | | | | |
North America | $ | 599 | | | $ | 832 | | | $ | 625 | | | $ | 96 | | | $ | 169 | | | $ | 2,321 | |
Europe and other | 66 | | | 0 | | | 41 | | | 145 | | | 63 | | | 315 | |
| | | | | | | | | | | |
Total revenue | $ | 665 | | | $ | 832 | | | $ | 666 | | | $ | 241 | | | $ | 232 | | | $ | 2,636 | |
Six months ended June 30, 2020 | | | | | | | | | | | |
North America | $ | 498 | | | $ | 643 | | | $ | 518 | | | $ | 97 | | | $ | 115 | | | $ | 1,871 | |
Europe and other | 59 | | | 23 | | | 25 | | | 137 | | | 60 | | | 304 | |
Total revenue | $ | 557 | | | $ | 666 | | | $ | 543 | | | $ | 234 | | | $ | 175 | | | $ | 2,175 | |
As of June 30, 2021 and December 31, 2020, we had $9 million and $130 million, respectively, in customer advances on our consolidated balance sheets. During the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedessix months ended June 30, 2021 and 2020, substantially all of the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. This ASU iscustomer advances at the beginning of each respective period were recognized as revenue.
We offer cash incentives to certain customers generally based on the principle that revenue is recognized to depictvolume of their purchases over the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue andfertilizer year ending June 30. Our cash flows arising from customer contracts, including significant judgments. Additionally, the costs to obtain and fulfill a contract, including assets to be recognized, are to be capitalized and such capitalized costs should be disclosed. In 2016, the FASB issued additional ASUs that enhance the operability of the principal versus agent guidance in ASU No. 2014-09 by clarifying that an entity should consider the nature of each good or service promised to a customer at the individual good or service level, clarify that ASU No. 2014-09 should not be applied to immaterial performance obligations, and enhance the guidance around the treatment of shipping costs incurred to fulfill performance obligations. As modified by ASU No. 2015-14, Deferral of the Effective Date, the effective date of ASU No. 2014-09 is for interim and annual periods beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. We continue to analyze the impact of ASU No. 2014-09 on our revenue contracts by comparing the revenue recognition that would have occurred from applying this ASU to revenue contracts that existed in 2015, 2016 and 2017. Based on analysis to date, we believe the adoption of ASU No. 2014-09 will not have a material impact on the revenue reported in our consolidated financial statements. We are also reviewing our business processes, systems, and controls to determine what changes are needed to support adoption, including the additional disclosures required under ASU No. 2014-09. We intend to adopt ASU No. 2014-09 effective January 1, 2018 using the modified retrospective approach.
In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which will change the presentation of net benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Service cost will be included within the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net benefit cost will be presented separately outside of operating income. Additionally, only service costs may be capitalized on the balance sheet. This ASU is effective for annual and interim periods beginning after December 15, 2017. We plan on adopting this guidance once it becomes effective. The guidance will be applied retrospectively for the income statement classification requirements and prospectively for the capitalization guidance. Weincentives do not expectprovide an option to the adoptioncustomer for additional product. As of this ASU will have a material effectJune 30, 2021 and December 31, 2020, we had $42 million and $24 million, respectively, of customer incentives accrued on our consolidated financial statements.balance sheet.
In August 2017,From time to time, we will enter the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvementsmarketplace to Accounting for Hedging Activities, which improves the financial reporting of hedging relationshipspurchase product in order to better portraysatisfy obligations under contracts with our customers. When we purchase product for this purpose, we are the economic resultsprincipal in the transaction and recognize revenue on a gross basis. As discussed in Note 7—Equity Method Investment, we have transactions in the normal course of an entity's risk management activities in its financial statements. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and should be appliedbusiness with Point Lisas Nitrogen Limited (PLNL), reflecting our obligation to existing hedging relationships aspurchase 50% of the dateammonia produced by PLNL at current market prices. During the three and six months ended June 30, 2021, in addition to products purchased from PLNL, we recognized $36 million and $68 million, respectively, of adoption. revenue from sales of granular urea, which we purchased in order to satisfy obligations under contracts with our customers due to lower production experienced as a result of Winter Storm Uri. For the six months ended June 30, 2020, other than products purchased from PLNL, products purchased in the marketplace in order to satisfy obligations under contracts with our customers were not material.
We planhave certain customer contracts with performance obligations where if the customer does not take the required amount of product specified in the contract, then the customer is required to make a payment to us, which may vary based upon the terms and conditions of the applicable contract. As of June 30, 2021, excluding contracts with original durations of less than one year, and based on adopting this guidance once it becomes effective.the minimum product tonnage to be sold and current market price estimates, our remaining performance obligations under these contracts are approximately $787 million. We do not expect the adoption of this ASU will have a material effect on our consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequencesapproximately 21% of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We plan on adopting this guidance once it becomes effective. We do not expect the adoption of this ASU will have a material effect on our consolidated financial statements.these
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the lease accounting requirements in ASC Topic 840, Leases. This ASU will require lessees to recognize the rights and obligations resulting from virtually all leases (other than leases that meet the definition of a short-term lease) on their balance sheets as right-of-use assets with corresponding lease liabilities. Extensive quantitative and qualitative disclosures, including significant judgments made by management, will be required to provide greater insight into the extent of income and expense recognized and expected to be recognized from existing contracts. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted, and requires the modified retrospective method of adoption. While we are continuing to evaluate the impact of the adoption of this ASU on our consolidated financial statements, we currently believe the most significant change relates to the recognition of new right-of-use assets and lease liabilities on our balance sheet for operating leases for certain property and equipment, including rail car leases and barge tow charters that are utilized for the distribution of our products.
CF INDUSTRIES HOLDINGS, INC.
performance obligations as revenue in the remainder of 2021, approximately 49% as revenue during 2022 and 2023, approximately 26% as revenue during 2024 and 2025, and the remainder thereafter. Subject to the terms and conditions of the applicable contracts, if these customers do not satisfy their purchase obligations under such contracts, the minimum amount that they would be required to pay to us under these contracts, in the aggregate, is approximately $161 million as of June 30, 2021. Other than the performance obligations described above, any performance obligations with our customers that were unfulfilled or partially fulfilled at December 31, 2020 will be satisfied in 2021.
3. Net (Loss) Earnings Per Share
Net (loss) earnings per share were computed as follows: | | | | | | | | | | | | Three months ended June 30, | | Six months ended June 30, |
| Three months ended September 30, | | Nine months ended September 30, | | 2021 | | 2020 | | 2021 | | 2020 |
| 2017 | | 2016 | | 2017 | | 2016 | | (in millions, except per share amounts) |
| (in millions, except per share amounts) | |
Net (loss) earnings attributable to common stockholders | $ | (87 | ) | | $ | (30 | ) | | $ | (107 | ) | | $ | 43 |
| |
Net earnings attributable to common stockholders | | Net earnings attributable to common stockholders | $ | 246 | | | $ | 190 | | | $ | 397 | | | $ | 258 | |
Basic earnings per common share: | |
| | |
| | |
| | |
| Basic earnings per common share: | | | | | | | |
Weighted-average common shares outstanding | 233.2 |
| | 233.1 |
| | 233.2 |
| | 233.2 |
| Weighted-average common shares outstanding | 215.5 | | | 214.5 | | | 215.2 | | | 215.2 | |
Net (loss) earnings attributable to common stockholders | $ | (0.37 | ) | | $ | (0.13 | ) | | $ | (0.46 | ) | | $ | 0.19 |
| |
Net earnings attributable to common stockholders | | Net earnings attributable to common stockholders | $ | 1.14 | | | $ | 0.89 | | | $ | 1.84 | | | $ | 1.20 | |
Diluted earnings per common share: | |
| | |
| | |
| | |
| Diluted earnings per common share: | | | | | | | |
Weighted-average common shares outstanding | 233.2 |
| | 233.1 |
| | 233.2 |
| | 233.2 |
| Weighted-average common shares outstanding | 215.5 | | | 214.5 | | | 215.2 | | | 215.2 | |
Dilutive common shares—stock options | — |
| | — |
| | — |
| | 0.3 |
| |
Dilutive common shares—stock-based awards | | Dilutive common shares—stock-based awards | 1.1 | | | 0.1 | | | 1.1 | | | 0.4 | |
Diluted weighted-average shares outstanding | 233.2 |
| | 233.1 |
| | 233.2 |
| | 233.5 |
| Diluted weighted-average shares outstanding | 216.6 | | | 214.6 | | | 216.3 | | | 215.6 | |
Net (loss) earnings attributable to common stockholders | $ | (0.37 | ) | | $ | (0.13 | ) | | $ | (0.46 | ) | | $ | 0.19 |
| |
Net earnings attributable to common stockholders | | Net earnings attributable to common stockholders | $ | 1.14 | | | $ | 0.89 | | | $ | 1.83 | | | $ | 1.20 | |
Diluted earnings per share is calculated using weighted-average common shares outstanding, including the dilutive effect of stock-based awards as determined under the treasury stock method. In the computation of diluted earnings per common share, potentially dilutive stock optionsstock-based awards are excluded if the effect of their inclusion is anti-dilutive. Shares for anti-dilutive stock optionsstock-based awards not included in the computation of diluted earnings per common share were 6.51.2 million in each ofboth the three and ninesix months ended SeptemberJune 30, 2017,2021, and 5.04.7 million and 4.33.4 million forin the three and ninesix months ended SeptemberJune 30, 2016,2020, respectively.
4. Inventories
Inventories consist of the following:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| (in millions) |
Finished goods | $ | 242 | | | $ | 246 | |
Raw materials, spare parts and supplies | 48 | | | 41 | |
Total inventories | $ | 290 | | | $ | 287 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| (in millions) |
Finished goods | $ | 277 |
| | $ | 279 |
|
Raw materials, spare parts and supplies | 39 |
| | 60 |
|
Total inventories | $ | 316 |
| | $ | 339 |
|
CF INDUSTRIES HOLDINGS, INC.
5. Property, Plant and Equipment—Net
Property, plant and equipment—net consists of the following:
| | | September 30, 2017 | | December 31, 2016 | | June 30, 2021 | | December 31, 2020 |
| (in millions) | | (in millions) |
Land | $ | 70 |
| | $ | 69 |
| Land | $ | 68 | | | $ | 68 | |
Machinery and equipment | 12,058 |
| | 11,664 |
| Machinery and equipment | 12,664 | | | 12,539 | |
Buildings and improvements | 882 |
| | 878 |
| Buildings and improvements | 911 | | | 895 | |
Construction in progress | 248 |
| | 280 |
| Construction in progress | 380 | | | 275 | |
Property, plant and equipment(1) | 13,258 |
| | 12,891 |
| Property, plant and equipment(1) | 14,023 | | | 13,777 | |
Less: Accumulated depreciation and amortization | 3,886 |
| | 3,239 |
| Less: Accumulated depreciation and amortization | 6,586 | | | 6,145 | |
Property, plant and equipment—net | $ | 9,372 |
| | $ | 9,652 |
| Property, plant and equipment—net | $ | 7,437 | | | $ | 7,632 | |
| |
(1)
| As of September 30, 2017 and December 31, 2016, we had property, plant and equipment that was accrued but unpaid of approximately$204 million and $225 million, respectively. These amounts included accruals related to our capacity expansion projects of $158 million and $185 million as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2016 and December 31, 2015, we had property, plant and equipment that was accrued but unpaid of $426 million and $543 million, respectively. |
(1)As of June 30, 2021 and December 31, 2020, we had property, plant and equipment that was accrued but unpaid of approximately $76 million and $43 million, respectively. As of both June 30, 2020 and December 31, 2019, we had property, plant and equipment that was accrued but unpaid of approximately $42 million.
Depreciation and amortization related to property, plant and equipment was $217$239 million and $622$439 million for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, and $139$235 million and $425$443 million for the three and ninesix months ended SeptemberJune 30, 2016,2020, respectively.
Plant turnarounds—Scheduled inspections, replacements and overhauls of plant machinery and equipment at our continuous process manufacturing facilities during a full plant shutdown are referred to as plant turnarounds. The expenditures related to turnarounds are capitalized in property, plant and equipment when incurred. The following is a summary of capitalized plant turnaround costs:
| | | Nine months ended September 30, | | Six months ended June 30, |
| 2017 | | 2016 | | 2021 | | 2020 |
| (in millions) | | (in millions) |
Net capitalized turnaround costs: | |
| | |
| Net capitalized turnaround costs: | | | |
Beginning balance | $ | 206 |
| | $ | 220 |
| Beginning balance | $ | 226 | | | $ | 246 | |
Additions | 83 |
| | 60 |
| Additions | 89 | | | 14 | |
Depreciation | (75 | ) | | (66 | ) | Depreciation | (51) | | | (52) | |
Effect of exchange rate changes | 5 |
| | 2 |
| Effect of exchange rate changes | 1 | | | (4) | |
Ending balance | $ | 219 |
| | $ | 216 |
| Ending balance | $ | 265 | | | $ | 204 | |
Scheduled replacements and overhauls of plant machinery and equipment include the dismantling, repair or replacement and installation of various components including piping, valves, motors, turbines, pumps, compressors, heat exchangers and the replacement of catalysts when a full plant shutdown occurs. Scheduled inspections are also conducted during full plant shutdowns, including required safety inspections which entail the disassembly of various components such as steam boilers, pressure vessels and other equipment requiring safety certifications. Internal employee costs and overhead amounts are not considered turnaround costs and are not capitalized.
CF INDUSTRIES HOLDINGS, INC.
6. Goodwill and Other Intangible Assets
The following table shows the carrying amount of goodwill by reportable segment as of SeptemberJune 30, 20172021 and December 31, 2016:2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ammonia | | Granular Urea | | UAN | | AN | | Other | | Total |
| (in millions) |
Balance as of December 31, 2020 | $ | 587 | | | $ | 828 | | | $ | 576 | | | $ | 310 | | | $ | 73 | | | $ | 2,374 | |
| | | | | | | | | | | |
Effect of exchange rate changes | 1 | | | 0 | | | 0 | | | 2 | | | 1 | | | 4 | |
Balance as of June 30, 2021 | $ | 588 | | | $ | 828 | | | $ | 576 | | | $ | 312 | | | $ | 74 | | | $ | 2,378 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Ammonia | | Granular Urea | | UAN | | AN | | Other | | Total |
| (in millions) |
Balance as of December 31, 2016 | $ | 585 |
| | $ | 828 |
| | $ | 576 |
| | $ | 286 |
| | $ | 70 |
| | $ | 2,345 |
|
Effect of exchange rate changes | 2 |
| | 1 |
| | — |
| | 18 |
| | 3 |
| | 24 |
|
Balance as of September 30, 2017 | $ | 587 |
| | $ | 829 |
| | $ | 576 |
| | $ | 304 |
| | $ | 73 |
| | $ | 2,369 |
|
All of our identifiable intangible assets have definite lives and are presented in other assets on our consolidated balance sheets at gross carrying amount, net of accumulated amortization, as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net |
| (in millions) |
| | | | | | | | | | | |
Customer relationships | $ | 135 | | | $ | (56) | | | $ | 79 | | | $ | 133 | | | $ | (52) | | | $ | 81 | |
| | | | | | | | | | | |
Trade names | 33 | | | (10) | | | 23 | | | 32 | | | (9) | | | 23 | |
Total intangible assets | $ | 168 | | | $ | (66) | | | $ | 102 | | | $ | 165 | | | $ | (61) | | | $ | 104 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Gross Carrying Amount | | Accumulated Amortization | | Net | | Gross Carrying Amount | | Accumulated Amortization | | Net |
| (in millions) |
Intangible assets: | |
| | |
| | |
| | |
| | |
| | |
|
Customer relationships | $ | 131 |
| | $ | (30 | ) | | $ | 101 |
| | $ | 125 |
| | $ | (24 | ) | | $ | 101 |
|
TerraCair brand | 10 |
| | (10 | ) | | — |
| | 10 |
| | (10 | ) | | — |
|
Trade names | 32 |
| | (3 | ) | | 29 |
| | 29 |
| | (2 | ) | | 27 |
|
Total intangible assets | $ | 173 |
| | $ | (43 | ) | | $ | 130 |
| | $ | 164 |
| | $ | (36 | ) | | $ | 128 |
|
Our intangible assets are being amortized over a weighted-average life of approximately 20 years. Amortization expense of our identifiable intangible assets was $2 million and $7$4 million for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, and $2 million and $6$4 million for the three and ninesix months ended SeptemberJune 30, 2016,2020, respectively.
The gross carrying amount and accumulated amortization of our intangible assets are also impacted by the effect of exchange rate changes. Total estimated amortization expense for the remainder of 20172021 and each of the five succeeding fiscal years is as follows:
| | | | | |
| Estimated Amortization Expense |
| (in millions) |
Remainder of 2021 | $ | 4 | |
2022 | 9 | |
2023 | 9 | |
2024 | 9 | |
2025 | 9 | |
2026 | 9 | |
| |
|
| | | |
| Estimated Amortization Expense |
| (in millions) |
Remainder of 2017 | $ | 2 |
|
2018 | 8 |
|
2019 | 8 |
|
2020 | 8 |
|
2021 | 8 |
|
2022 | 8 |
|
CF INDUSTRIES HOLDINGS, INC.
7. Equity Method InvestmentsInvestment
We have a 50% ownership interest in Point Lisas Nitrogen Limited (PLNL),PLNL, which operates an ammonia production facility in the Republic of Trinidad and Tobago. We include our share of the net earnings from this equity method investment as an element of earnings from operations because PLNL provides additional production to our operations and is integrated with our other supply chain and sales activities in the ammonia segment.
As of SeptemberJune 30, 2017,2021, the total carrying value of our equity method investment in PLNL of approximately $109was $82 million, was $59$40 million more than our share of PLNL'sPLNL’s book value. The excess is attributable to the purchase accounting impact of our acquisition of the investment in PLNL and primarily reflects the revaluation of property, plant and equipment and the value of an exclusive natural gas contract.equipment. The increased basis for property, plant and equipment and the gas contract areis being amortized over a remaining period of approximately 16 years and 6 months, respectively.12 years. Our equity in earnings of PLNL is different from our ownership interest in income reported by PLNL due to amortization of thesethis basis differences.difference.
We have transactions in the normal course of business with PLNL reflecting our obligation to purchase 50% of the ammonia produced by PLNL at current market prices. Our ammonia purchases from PLNL totaled $9$37 million and $53$63 million for the three and ninesix months ended SeptemberJune 30, 2017,2021, respectively, and $13 million and $47$23 million for the three and ninesix months ended SeptemberJune 30, 2016,2020, respectively.
PLNL operates an ammonia plant that relies on natural gas supplied, under a Gas Sales Contract (the NGC Contract), by The National Gas Company of Trinidad and Tobago Limited (NGC). PLNL has experienced curtailments in the supply of natural gas from NGC, which have reduced the ammonia production at PLNL. The NGC Contract had an initial expiration date of September 2018 and has been extended on the same terms until September 2023. Any NGC commitment to supply gas beyond 2023 will need to be based on new agreements regarding volume and price. PLNL and NGC are currently parties to arbitration proceedings where the main issue remaining in dispute is PLNL's claims for damages for past and ongoing curtailments.
Although PLNL believes its claims against NGC to be meritorious, it is not possible to predict the outcome of the arbitration. There are significant assumptions in the future operations of the joint venture that are uncertain at this time, including the quantities of gas that NGC will make available, the cost of such gas, the estimates that are used to determine the useful lives of fixed assets and the assumptions in the discounted cash flow models utilized for recoverability and impairment testing. As part of our impairment assessment of our equity method investment in PLNL during the fourth quarter of 2016, we determined the carrying value exceeded the fair value and recognized a $134 million impairment charge in 2016. The carrying value of our equity method investment in PLNL at September 30, 2017 is approximately $109 million. If NGC does not make sufficient quantities of natural gas available to PLNL at prices that permit profitable operations, PLNL may cease operating its facility and we would write off the remaining investment in PLNL.
The Trinidad tax authority (the Board of Inland Revenue) has issued a tax assessment against PLNL related to a dispute over whether tax depreciation must be claimed during a tax holiday period that was granted to PLNL under the Trinidad Fiscal Incentives Act. The tax holiday was granted as an incentive to construct PLNL’s ammonia plant. PLNL is appealing the assessment. Based on the facts and circumstances of this matter, PLNL recorded a tax contingency accrual in the second quarter of 2017, which reduced our equity in earnings of PLNL for the nine months ended September 30, 2017 by approximately $7 million reflecting our 50% ownership interest.
CF INDUSTRIES HOLDINGS, INC.
8. Fair Value Measurements
Our cash and cash equivalents and other investments consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Cost Basis | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| (in millions) |
Cash | $ | 85 | | | $ | — | | | $ | — | | | $ | 85 | |
Cash equivalents: | | | | | | | |
U.S. and Canadian government obligations | 672 | | | — | | | — | | | 672 | |
Other debt securities | 20 | | | — | | | — | | | 20 | |
Total cash and cash equivalents | $ | 777 | | | $ | — | | | $ | — | | | $ | 777 | |
| | | | | | | |
Nonqualified employee benefit trusts | 17 | | | 3 | | | 0 | | | 20 | |
|
| | | | | | | | | | | | | | | |
| September 30, 2017 |
| Cost Basis | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| (in millions) |
Cash | $ | 115 |
| | $ | — |
| | $ | — |
| | $ | 115 |
|
Cash equivalents: | | | | | | | |
U.S. and Canadian government obligations | 1,865 |
| | — |
| | — |
| | 1,865 |
|
Other debt securities | 12 |
| | — |
| | — |
| | 12 |
|
Total cash and cash equivalents | $ | 1,992 |
| | $ | — |
| | $ | — |
| | $ | 1,992 |
|
Nonqualified employee benefit trusts | 17 |
| | 2 |
| | — |
| | 19 |
|
| | | December 31, 2016 | | December 31, 2020 |
| Cost Basis | | Unrealized Gains | | Unrealized Losses | | Fair Value | | Cost Basis | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| (in millions) | | (in millions) |
Cash | $ | 89 |
| | $ | — |
| | $ | — |
| | $ | 89 |
| Cash | $ | 108 | | | $ | — | | | $ | — | | | $ | 108 | |
Cash equivalents: | | | | | | | | Cash equivalents: | |
U.S. and Canadian government obligations | 1,075 |
| | — |
| | — |
| | 1,075 |
| U.S. and Canadian government obligations | 552 | | | — | | | — | | | 552 | |
Other debt securities | | Other debt securities | 23 | | | — | | | — | | | 23 | |
Total cash and cash equivalents | $ | 1,164 |
| | $ | — |
| | $ | — |
| | $ | 1,164 |
| Total cash and cash equivalents | $ | 683 | | | $ | — | | | $ | — | | | $ | 683 | |
Restricted cash | 5 |
| | — |
| | — |
| | 5 |
| |
| Nonqualified employee benefit trusts | 18 |
| | 1 |
| | — |
| | 19 |
| Nonqualified employee benefit trusts | 16 | | | 3 | | | 0 | | | 19 | |
Under our short-term investment policy, we may invest our cash balances, either directly or through mutual funds, in several types of investment-grade securities, including notes and bonds issued by governmental entities or corporations. Securities issued by governmental entities include those issued directly by the U.S. and Canadian federal governments; those issued by state, local or other governmental entities; and those guaranteed by entities affiliated with governmental entities.
CF INDUSTRIES HOLDINGS, INC.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present assets and liabilities included in our consolidated balance sheets as of SeptemberJune 30, 20172021 and December 31, 20162020 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 |
| Total Fair Value | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| (in millions) |
Cash equivalents | $ | 692 | | | $ | 692 | | | $ | 0 | | | $ | 0 | |
| | | | | | | |
Nonqualified employee benefit trusts | 20�� | | | 20 | | | 0 | | | 0 | |
Derivative assets | 1 | | | 0 | | | 1 | | | 0 | |
Derivative liabilities | (1) | | | 0 | | | (1) | | | 0 | |
Embedded derivative liability | (20) | | | 0 | | | (20) | | | 0 | |
| | | September 30, 2017 | | December 31, 2020 |
| Total Fair Value | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total Fair Value | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| (in millions) | | (in millions) |
Cash equivalents | $ | 1,877 |
| | $ | 1,877 |
| | $ | — |
| | $ | — |
| Cash equivalents | $ | 575 | | | $ | 575 | | | $ | 0 | | | $ | 0 | |
| Nonqualified employee benefit trusts | 19 |
| | 19 |
| | — |
| | — |
| Nonqualified employee benefit trusts | 19 | | | 19 | | | 0 | | | 0 | |
Derivative assets | 1 |
| | — |
| | 1 |
| | — |
| Derivative assets | 1 | | | 0 | | | 1 | | | 0 | |
Derivative liabilities | (15 | ) | | — |
| | (15 | ) | | — |
| Derivative liabilities | (7) | | | 0 | | | (7) | | | 0 | |
Embedded derivative liability | (30 | ) | | — |
| | (30 | ) | | — |
| Embedded derivative liability | (18) | | | 0 | | | (18) | | | 0 | |
CF INDUSTRIES HOLDINGS, INC.
|
| | | | | | | | | | | | | | | |
| December 31, 2016 |
| Total Fair Value | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| (in millions) |
Cash equivalents | $ | 1,075 |
| | $ | 1,075 |
| | $ | — |
| | $ | — |
|
Restricted cash | 5 |
| | 5 |
| | — |
| | — |
|
Nonqualified employee benefit trusts | 19 |
| | 19 |
| | — |
| | — |
|
Derivative assets | 56 |
| | — |
| | 56 |
| | — |
|
Derivative liabilities | (6 | ) | | — |
| | (6 | ) | | — |
|
Embedded derivative liability | (26 | ) | | — |
| | (26 | ) | | — |
|
Cash Equivalents
As of SeptemberJune 30, 20172021 and December 31, 2016,2020, our cash equivalents consisted primarily of U.S. and Canadian government obligations and money market mutual funds that invest in U.S. government obligations and other investment-grade securities.
Restricted Cash
We maintained a cash account for which the use of the funds was restricted. The restricted cash was put in place to satisfy certain requirements included in our engineering and procurement services contract for our capacity expansion projects. Under the terms of this contract, we were required to grant an affiliate of ThyssenKrupp Industrial Solutions a security interest in a restricted cash account. During the three months ended September 30, 2017, the remaining balance in our restricted cash account was returned to us and the account was closed.
Nonqualified Employee Benefit Trusts
We maintain trusts associated with certain nonqualified supplemental pension plans. The investments are accounted for as available-for-sale securities. The fair values of the trust assets are based on daily quoted prices in an active market, which represents the net asset values of the shares held in the trusts. These trusts, and are included on our consolidated balance sheets in other assets. Debt securities are accounted for as available-for-sale securities, and changes in fair value are reported in other comprehensive income. Changes in the fair value of available-for-sale equity securities in the trust assets are recognized through earnings.
Derivative Instruments
The derivative instruments that we use are primarily natural gas fixed price swaps, basis swaps and natural gas options traded in the over-the-counter (OTC) markets with multinationalmulti-national commercial banks, other major financial institutions or large energy companies. The natural gas derivative contracts represent anticipated natural gas needs for future periods and settlements are scheduled to coincide with anticipated natural gas purchases during those future periods. The natural gas derivative contracts settle using primarily a NYMEX futures prices.price index. To determine the fair value of these instruments, we use quoted market prices from NYMEX and standard pricing models with inputs derived from or corroborated by observable market data such as forward curves supplied by an industry-recognized independent third party. See Note 12—Derivative Financial Instruments for additional information.
CF INDUSTRIES HOLDINGS, INC.
Embedded Derivative Liability
Under the terms of our strategic venture with CHS Inc. (CHS), if our credit rating as determined by two of three specified credit rating agencies is below certain levels, we are required to make a non-refundable yearly payment of $5 million to CHS. InSince 2016, our credit ratings have been below certain levels and, as a result, we made an annual payment of $5 million to CHS in the fourth quarter of 2016, as a result of a reduction in our credit rating, we made a $5 million payment to CHS. The paymenteach year. These payments will continue on a yearly basis until the earlier of the date that our credit rating is upgraded to or above certain levels by two of the three specified credit rating agencies or February 1, 2026. This term of the strategic ventureobligation is recognized on our consolidated balance sheetsheets as an embedded derivative. See Note 13—Noncontrolling Interests for additional information regarding our strategic venture with CHS.
During the nine months ended Septemberderivative and is included within other current liabilities and other liabilities. As of June 30, 2017, we recorded adjustments to adjust the value of2021 and December 31, 2020, the embedded derivative liability by $4was $20 million to $30 million. and $18 million, respectively. Included in other operating—net in our consolidated statement of operations for the six months ended June 30, 2021 and 2020 is a net loss of $2 million and $1 million, respectively.
The inputs into the fair value measurement include the probability of future upgrades and downgrades of our credit rating based on historical credit rating movements of other public companies and the discount rates to be applied to potential annual payments based on applicable credit spreads of other public companies at different credit rating levels. Based on these inputs, our fair value measurement is classified as Level 2. The charges to reflect
CF INDUSTRIES HOLDINGS, INC.
the changes in fair valueSee Note 13—Noncontrolling Interest for the nine months ended September 30, 2017, of $4 million are included in other operating—net inadditional information regarding our consolidated statement of operations. As of September 30, 2017 and December 31, 2016, the embedded derivative liability of $30 million and $26 million, respectively, is included in other current liabilities and other liabilities on our consolidated balance sheets.strategic venture with CHS.
Financial Instruments
The carrying amount and estimated fair value of our financial instruments are as follows:
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| (in millions) |
Long-term debt | $ | 5,786 |
| | $ | 5,916 |
| | $ | 5,778 |
| | $ | 5,506 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| (in millions) |
Long-term debt, including current maturities | $ | 3,713 | | | $ | 4,367 | | | $ | 3,961 | | | $ | 4,731 | |
The fair value of our long-term debt was based on quoted prices for identical or similar liabilities in markets that are not active or valuation models in which all significant inputs and value drivers are observable and, as a result, they are classified as Level 2 inputs.
The carrying amounts of cash and cash equivalents, as well as instruments included in other current assets and other current liabilities that meet the definition of financial instruments, approximate fair values because of their short-term maturities.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We also have assets and liabilities that may be measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment, when there is allocation of purchase price in an acquisition or when a new liability is being established that requires fair value measurement. These include long-lived assets, goodwill and other intangible assets and investments in unconsolidated subsidiaries, such as equity method investments, which may be written down to fair value as a result of impairment. The fair value measurements related to each of these rely primarily on Company-specific inputs and the Company'sCompany’s assumptions about the use of the assets. Since certain of the Company’s assumptions would involve inputs that are not observable, these fair values would reside within Level 3 of the fair value hierarchy.
Our equity method investment in the Republic
CF INDUSTRIES HOLDINGS, INC.
9. Income Taxes
For the three months ended SeptemberJune 30, 2017,2021, we recorded an income tax benefitprovision of $47$85 million on pre-tax lossincome of $115$402 million, or an effective tax rate of 40.9%21.2%, compared to an income tax benefitprovision of $131$33 million on pre-tax lossincome of $131$251 million, or an effective tax rate of 100.4%13.4%, for the three months ended SeptemberJune 30, 2016.2020. For the three months ended June 30, 2020, our income tax provision includes a $19 million benefit related to the settlement of the audit of the Terra amended tax returns, which is further described below.
For the six months ended June 30, 2021, we recorded an income tax provision of $103 million on pre-tax income of $595 million, or an effective tax rate of 17.4%, compared to an income tax provision of $46 million on pre-tax income of $355 million, or an effective tax rate of 13.1%, for the six months ended June 30, 2020.
For the six months ended June 30, 2021, our income tax provision includes a $22 million benefit reflecting the impact of agreement on certain issues related to U.S. federal income tax audits. For the six months ended June 30, 2020, our income tax provision includes a $25 million benefit related to the settlement of certain U.S. and foreign income tax audits, which primarily related to the settlement of the audit of the Terra amended tax returns, which is further described below.
Our effective tax rate in both periods is also impacted by earnings attributable to the noncontrolling interestsinterest in CF Industries Nitrogen, LLC (CFN) and Terra Nitrogen Company L.P. (TNCLP), as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interests. As a result, earnings attributable to the noncontrolling interests of $19 million in the third quarter of 2017 and $30 million in the third quarter of 2016, which are included in pre-tax loss, impact the effective tax rate in both periods. See Note 13—Noncontrolling Interests for additional information.interest. Our effective tax rate excluding the earnings attributable to the noncontrolling interests for the three months ended SeptemberJune 30, 20172021 of 21.2%, which is 35.2% as comparedbased on pre-tax income of $402 million, including $71 million attributable to anthe noncontrolling interest, would be 4.6 percentage points higher if based on pre-tax income exclusive of the $71 million attributable to the noncontrolling interest. Our effective tax rate of 81.8% for the three months ended SeptemberJune 30, 2016.
The2020 of 13.4%, which is based on pre-tax income tax benefit of $47$251 million, in the third quarter of 2017 was impacted by a $5including $28 million increase to our deferred tax liability for the State of Illinois enacted tax rate increase.
The income tax benefit of $131 million in the third quarter of 2016 primarily relatedattributable to the fact that we projected duringnoncontrolling interest, would be 1.6 percentage points higher if based on pre-tax income exclusive of the first half of 2016 that full year 2016 pre-tax earnings, excluding$28 million attributable to the noncontrolling interests, would be income. As of September 30, 2016, we were projecting a loss for the full year. The impact of this change in projected profitability was an income tax benefit of $163 million. In addition, other items included in our annualizedinterest. Our effective tax rate for the six months ended June 30, 2021 of 17.4%, which is based on pre-tax income of $595 million, including $95 million attributable to the noncontrolling interest, would be 3.3 percentage points higher if based on pre-tax income exclusive of the $95 million attributable to the noncontrolling interest. Our effective tax rate for the six months ended June 30, 2020 of 13.1%, which is based on pre-tax income of $355 million, including $51 million attributable to the noncontrolling interest, would be 2.1 percentage points higher if based on pre-tax income exclusive of the $51 million attributable to the noncontrolling interest. See Note 13—Noncontrolling Interest for additional information.
Terra Amended Tax Returns
We completed the acquisition of Terra Industries Inc. (Terra) in April 2010. After the acquisition, we determined that impactedthe 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 benefitand withholding tax returns. 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 the third quarterour consolidated balance sheet as of 2016 were, as follows:December 31, 2020.
CF INDUSTRIES HOLDINGS, INC.
We recorded income tax expense of $42 million related to the reversal of prior year U.S. manufacturing profits deductions due to the recapture of these benefits in the third quarter of 2016. The recapture resulted from our intention to carry back certain tax losses to prior years that reduced the amount of the prior year U.S. manufacturing profits deductions that can be claimed.
We recorded a valuation allowance of $21 million against certain foreign deferred tax assets which increased income tax expense.
We recorded an income tax benefit of $9 million related to the impact of certain transaction costs which were treated as not being deductible for tax purposes in the prior year and were deductible in 2016 as a result of the termination of the proposed combination with certain businesses of OCI.
During the third quarter of 2016, one of our Canadian subsidiaries received a Notice of Reassessment from the Canada Revenue Agency (CRA) for tax years 2006 through 2009 asserting a disallowance of certain patronage allocations. The tax assessment of CAD $174 million (or approximately $140 million), including provincial taxes but excluding any interest or penalties, is the result of an audit that was initiated by the CRA in January 2010 and involves the sole issue of whether certain patronage allocations meet the requirements for deductibility under the Income Tax Act of Canada. The reassessment has been appealed and a letter of credit in the amount of CAD $87 million (or approximately $70 million) has been posted. We believe that it is more likely than not that the patronage allocation deduction will ultimately be sustained. In the event that we do not prevail in the appeal, we should be entitled to a U.S. foreign tax credit against any incremental Canadian tax paid. The competent authorities of Canada and the United States have been notified of the potential need for competent authority assistance.
As of September 30, 2017 and December 31, 2016, we had prepaid income taxes in the amount of $42 million and $841 million, respectively. In June 2017, we received a federal tax refund of approximately $815 million related to the carryback of certain U.S. tax losses from 2016 to prior tax periods.
During the second quarter of 2017, the valuation allowance for the net operating losses of a subsidiary of the Company that were recorded in prior periods was reduced by $12 million as the result of a statutory income tax rate change.
10. Interest Expense
Details of interest expense are as follows:
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Interest on borrowings(1) | $ | 76 |
| | $ | 76 |
| | $ | 228 |
| | $ | 227 |
|
Fees on financing agreements(1)(2)(3) | 5 |
| | 6 |
| | 13 |
| | 42 |
|
Interest on tax liabilities | 1 |
| | 2 |
| | 2 |
| | 3 |
|
Interest capitalized(4) | (1 | ) | | (53 | ) | | (2 | ) | | (142 | ) |
Total interest expense | $ | 81 |
| | $ | 31 |
| | $ | 241 |
| | $ | 130 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (in millions) |
Interest on borrowings(1) | $ | 44 | | | $ | 47 | | | $ | 90 | | | $ | 93 | |
Fees on financing agreements(1) | 2 | | | 2 | | | 4 | | | 4 | |
Interest on tax liabilities(2) | 0 | | | 0 | | | 0 | | | (4) | |
| | | | | | | |
Total interest expense | $ | 46 | | | $ | 49 | | | $ | 94 | | | $ | 93 | |
| |
(1)
| See Note 11—Financing Agreements for additional information. |
| |
(2)
| Fees on financing agreements for the nine months ended September 30, 2016 includes $28 million of fees related to the termination of the tranche B commitment under the bridge credit agreement as a result of the termination of an agreement to combine between CF Holdings and OCI N.V. |
| |
(3)
| Fees on financing agreements for both the three and nine months ended September 30, 2016 includes $2 million of accelerated amortization of deferred fees related to a July 2016 amendment to our revolving credit facility, which reduced the facility to $1.5 billion from $2.0 billion. |
| |
(4)
| For the three and nine months ended September 30, 2016, amounts include interest capitalized for our capacity expansion projects, which were completed as of December 31, 2016. |
(1)See Note 11—Financing Agreements for additional information.
(2)Interest on tax liabilities for the six months ended June 30, 2020 consists of a reduction in interest accrued on the reserve for unrecognized tax benefits.
CF INDUSTRIES HOLDINGS, INC.
11. Financing Agreements
Revolving Credit Agreement
We have a senior secured revolving credit agreement (the Revolving Credit Agreement) providing, which provides for a revolving credit facility of up to $750 million with a maturity of September 18, 2020.December 5, 2024. The Revolving Credit Agreement includes a letter of credit sub-limit of $125 million. Borrowings under the Revolving Credit Agreement may be used for working capital, capital expenditures, acquisitions, share repurchases and other general corporate purposes. CF Industries may designate as borrowers one or more wholly owned subsidiaries that are organized in the United States or any state thereof or the District of Columbia.
Borrowings under the Revolving Credit Agreement may be denominated in U.S. dollars, Canadian dollars, euroeuros and British pounds, and bear interest at a per annum rate equal to, at our option, an applicable eurocurrency rate or base rate plus, in either case, a specified margin, and the borrowersmargin. We are required to pay an undrawn commitment fee on the undrawn portion of the commitments under the Revolving Credit Agreement and customary letter of credit fees. The specified margin and the amount of the commitment fee depend on CF Holdings’ credit rating at the time.
The guarantors under the Revolving Credit Agreement are currently comprised of CF Holdings and CF Holdings’ wholly owned subsidiaries CF Industries Enterprises, LLC (CFE), CF Industries Sales, LLC (CFS), CF USA Holdings, LLC (CF USA) and CF Industries Distribution Facilities, LLC (CFIDF).
As of SeptemberJune 30, 2017,2021, we had excessunused borrowing capacity under the Revolving Credit Agreement of $695$750 million (net ofand 0 outstanding letters of credit of $55 million).credit. There were no0 borrowings outstanding under the Revolving Credit Agreement as of SeptemberJune 30, 20172021 or December 31, 2016,2020, or during the ninesix months ended SeptemberJune 30, 2017.2021. Maximum borrowings outstanding under the Revolving Credit Agreement during the ninesix months ended SeptemberJune 30, 20162020 were $150 million with a$500 million. The weighted-average annual interest rate of 1.85%borrowings under the Revolving Credit Agreement during the six months ended June 30, 2020 was 2.05%. Borrowings under the Revolving Credit Agreement as of March 31, 2020 were repaid in full in April 2020.
The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants, including financial covenants. As of SeptemberJune 30, 2017,2021, we were in compliance with all covenants under the Revolving Credit Agreement.
Letters of Credit
In addition to the letters of credit outstandingthat may be issued under the Revolving Credit Agreement, as described above, we have also entered into a bilateral agreement with capacity to issue up to $250 million of letters of credit up to $75 million.credit. As of SeptemberJune 30, 2017,2021, approximately $73$222 million of letters of credit were outstanding under this agreement.
CF INDUSTRIES HOLDINGS, INC.
Senior Notes
Long-term debt presented on our consolidated balance sheets as of SeptemberJune 30, 20172021 and December 31, 20162020 consisted of the following Public Senior Notes (unsecured)debt securities issued by CF Industries:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Effective Interest Rate | | June 30, 2021 | | December 31, 2020 |
| | Principal | | Carrying Amount(1) | | Principal | | Carrying Amount(1) |
| | | (in millions) |
Public Senior Notes: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
3.450% due June 2023 | 3.562% | | $ | 750 | | | $ | 748 | | | $ | 750 | | | $ | 748 | |
5.150% due March 2034 | 5.279% | | 750 | | | 741 | | | 750 | | | 741 | |
4.950% due June 2043 | 5.031% | | 750 | | | 742 | | | 750 | | | 742 | |
5.375% due March 2044 | 5.465% | | 750 | | | 741 | | | 750 | | | 741 | |
Senior Secured Notes: | | | | | | | | | |
3.400% due December 2021 | 3.782% | | 0 | | | 0 | | | 250 | | | 249 | |
4.500% due December 2026 | 4.759% | | 750 | | | 741 | | | 750 | | | 740 | |
Total long-term debt | | | $ | 3,750 | | | $ | 3,713 | | | $ | 4,000 | | | $ | 3,961 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Less: Current maturities of long-term debt | | | 0 | | | 0 | | | 250 | | | 249 | |
Long-term debt, net of current maturities | | | $ | 3,750 | | | $ | 3,713 | | | $ | 3,750 | | | $ | 3,712 | |
(1)Carrying amount is net of unamortized debt discount and Senior Secured Notes:
|
| | | | | | | | | | | | | | | | | |
| Effective Interest Rate | | September 30, 2017 | | December 31, 2016 |
| | Principal | | Carrying Amount (1) | | Principal | | Carrying Amount (1) |
| | | (in millions) |
Public Senior Notes: | | | | | | | | | |
6.875% due May 2018 | 7.344% | | $ | 800 |
| | $ | 798 |
| | $ | 800 |
| | $ | 795 |
|
7.125% due May 2020 | 7.529% | | 800 |
| | 792 |
| | 800 |
| | 791 |
|
3.450% due June 2023 | 3.562% | | 750 |
| | 746 |
| | 750 |
| | 745 |
|
5.150% due March 2034 | 5.279% | | 750 |
| | 739 |
| | 750 |
| | 739 |
|
4.950% due June 2043 | 5.031% | | 750 |
| | 741 |
| | 750 |
| | 741 |
|
5.375% due March 2044 | 5.465% | | 750 |
| | 741 |
| | 750 |
| | 741 |
|
Senior Secured Notes: | | | | | | | | | |
3.400% due December 2021 | 3.782% | | 500 |
| | 493 |
| | 500 |
| | 491 |
|
4.500% due December 2026 | 4.759% | | 750 |
| | 736 |
| | 750 |
| | 735 |
|
Total long-term debt | | | $ | 5,850 |
| | $ | 5,786 |
| | $ | 5,850 |
| | $ | 5,778 |
|
Less: Current portion | | | 800 |
| | 798 |
| | — |
| | — |
|
Long-term debt | | | $ | 5,050 |
| | $ | 4,988 |
| | $ | 5,850 |
| | $ | 5,778 |
|
| |
(1)
| Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discount was $12 million as of both September 30, 2017 and December 31, 2016, and total deferred debt issuance costs were $52 million and $60 million as of September 30, 2017 and December 31, 2016, respectively. |
Public Senior Notesdeferred debt issuance costs. Total unamortized debt discount was $9 million as of both June 30, 2021 and December 31, 2020, and total deferred debt issuance costs were $28 million and $30 million as of June 30, 2021 and December 31, 2020, respectively.
Under the indentures (including the applicable supplemental indentures) governing the senior notes due 2018, 2020, 2023, 2034, 2043 and 2044 identified in the table above (the Public Senior Notes), each series of Public Senior Notes is guaranteed by CF Holdings.
Under the terms of the indenture governing the 4.500% senior secured notes due December 2026 (the 2026 Notes) identified in the table above, the 2026 Notes are guaranteed on a senior secured basis, jointly and severally, by CF Holdings and each current and future domestic subsidiary of CF Holdings (other than CF Industries) that from time to time is a borrower, or guarantees indebtedness, under the Revolving Credit Agreement. The subsidiary guarantors of the 2026 Notes currently consist of CFE, CFS, CF USA and CFIDF.
On March 20, 2021, we redeemed in full all of the remaining $250 million outstanding principal amount of the 3.400% senior secured notes due December 2021 (the 2021 Notes), in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the effectivenessredemption 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 November 2016 amendment to our Revolving Credit Agreement, CF Holdings' wholly owned subsidiaries CF Industries Enterprises, Inc. (CFE) and CF Industries Sales, LLC (CFS) became subsidiary guarantors of the Public Senior Notes.notes.
Interest on the Public Senior Notes and the 2026 Notes is payable semiannually, and the Public Senior Notes and the 2026 Notes are redeemable at our option, in whole at any time or in part from time to time, at specified make-whole redemption prices.
See Note 19—17—Subsequent Event for additional information regarding the 3.450% senior notes due May 2018.
Senior Secured Notes
On November 21, 2016, CF Industries issued $500 million aggregate principal amount of 3.400% senior secured notes due 2021 (the 2021 Notes) and $750 million aggregate principal amount of 4.500% senior secured notes due 2026 (the 2026 Notes, and together with the 2021 Notes, the Senior Secured Notes). The net proceeds, after deducting discounts and offering expenses, from the issuance and sale of the Senior Secured Notes were approximately $1.23 billion. CF Industries used approximately $1.18 billion of the net proceeds for the prepayment (including payment of a make-whole amount of approximately $170 million and accrued interest) in full of the outstanding $1.0 billion aggregate principal amount of the senior notes due 2022, 2025 and 2027 (Private Senior Notes) issued by CF Industries on September 24, 2015.
Interest on the Senior Secured Notes is payable semiannually on December 1 and June 1 beginning on June 1, 2017, and the Senior Secured Notes are redeemable at our option, in whole at any time or in part from time to time, at specified make-whole redemption prices.
2023.
CF INDUSTRIES HOLDINGS, INC.
12. Derivative Financial Instruments
We use derivative financial instruments to reduce our exposure to changes in commodity prices and foreign currency exchange rates.
Commodity Price Risk Management
for natural gas that will be purchased in the future. Natural gas is the largest and most volatile component of theour manufacturing cost for nitrogen-based products. We manage the risk ofFrom time to time, we may also use derivative financial instruments to reduce our exposure to changes in natural gas prices primarily through the use of derivative financial instruments.foreign currency exchange rates. The derivatives that we use to reduce our exposure to changes in prices for this purposenatural gas are primarily natural gas fixed price swaps, basis swaps and natural gas options traded in the OTCover-the-counter markets. These natural gas derivatives settle using primarily a NYMEX futures price index, which represents the basis for fair value at any given time. We enter into natural gas derivative contracts with respect to natural gas to be consumed by us in the future, and settlements of those derivative contracts are scheduled to coincide with our anticipated purchases of natural gas used to manufacture nitrogen products during those future periods. We use natural gas derivatives as an economic hedge of natural gas price risk, but without the application of hedge accounting. As a result, changes in fair value of these contracts are recognized in earnings. As of SeptemberJune 30, 2017,2021, we havehad natural gas derivative contracts covering certain periods through December 2018.March 2022.
As of SeptemberJune 30, 2017 and2021, our open natural gas derivative contracts consisted of natural gas basis swaps for 6.8 million MMBtus. As of December 31, 2016,2020, we had open natural gas derivative contracts consisting of natural gas fixed price swaps and basis swaps for 75.334.1 million MMBtus (millions of British thermal units) and 183.0 million MMBtus, respectively.natural gas. For the ninesix months ended SeptemberJune 30, 2017,2021, we used derivatives to cover approximately 42%13% of our natural gas consumption.
Foreign Currency Exchange Rates
A portion of the costs for our capacity expansion projects at our Donaldsonville, Louisiana complex and Port Neal, Iowa complex were euro-denominated. In order to manage our exposure to changes in the euro to U.S. dollar currency exchange rates, we hedged our projected euro-denominated payments through the end of 2016 using foreign currency forward contracts.
As of September 30, 2017, accumulated other comprehensive loss (AOCL) includes $7 million of pre-tax gains related to foreign currency derivatives that were originally designated as cash flow hedges. The hedges were de-designated as of December 31, 2013. The remaining balance in AOCL is being reclassified into income over the depreciable lives of the property, plant and equipment associated with the capacity expansion projects.
The effect of derivatives in our consolidated statements of operations is shown in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gain (loss) recognized in income |
| | | Three months ended June 30, | | Six months ended June 30, |
| Location | | 2021 | | 2020 | | 2021 | | 2020 | | |
| | | (in millions) |
| | | | | | | | | | | |
| | | | | | | | | | | |
Unrealized net gains on natural gas derivatives | Cost of sales | | $ | 0 | | | $ | 0 | | | $ | 6 | | | $ | 12 | | | |
Realized net losses on natural gas derivatives | Cost of sales | | 0 | | | 0 | | | (3) | | | (16) | | | |
Gain on net settlement of natural gas derivatives due to Winter Storm Uri | Cost of sales | | 0 | | | 0 | | | 112 | | | 0 | | | |
Net derivative gains (losses) | | | $ | 0 | | | $ | 0 | | | $ | 115 | | | $ | (4) | | | |
|
| | | | | | | | | | | | | | | | | |
| Gain (loss) recognized in income |
| | | Three months ended September 30, | | Nine months ended September 30, |
Location | | 2017 | | 2016 | | 2017 | | 2016 |
| | | (in millions) |
Natural gas derivatives | Cost of sales | | $ | 7 |
| | $ | (21 | ) | | $ | (64 | ) | | $ | 169 |
|
Foreign exchange contracts | Other operating—net | | — |
| | — |
| | — |
| | (1 | ) |
Unrealized net gains (losses) recognized in income | | | 7 |
| | (21 | ) | | (64 | ) | | 168 |
|
Realized net losses | | | (11 | ) | | (10 | ) | | (13 | ) | | (125 | ) |
Net derivative (losses) gains | | | $ | (4 | ) | | $ | (31 | ) | | $ | (77 | ) | | $ | 43 |
|
Gain on net settlement of natural gas derivatives due to Winter Storm Uri
We also enter into supply agreements to facilitate the availability of natural gas to operate our plants. When we purchase natural gas under these agreements, we intend to take physical delivery for use in our plants. Certain of these supply agreements allow us to fix the price of the deliveries for the following month using an agreed upon first of month price. We utilize the Normal Purchase Normal Sales (NPNS) derivative scope exception for these fixed price contracts and therefore, we do not account for them as derivatives.
In February 2021, the central portion of the United States experienced extreme and unprecedented cold weather due to the impact of Winter Storm Uri. Certain natural gas suppliers and natural gas pipelines declared force majeure events due to natural gas well freeze-offs or frozen equipment. This occurred at the same time as large increases in natural gas demand were occurring due to the extreme cold temperatures. Due to these unprecedented factors, several states declared a state of emergency and natural gas was redirected for residential usage. We net settled certain natural gas contracts with our suppliers and received prevailing market prices, which were in excess of our cost. We no longer qualified for the NPNS derivative scope exception for the natural gas that was net settled with our suppliers due to the impact of Winter Storm Uri. As a result, we recognized a gain of $112 million from the net settlement of these natural gas contracts, which is reflected in cost of sales in our consolidated statement of operations for the six months ended June 30, 2021.
CF INDUSTRIES HOLDINGS, INC.
The fair values of derivatives on our consolidated balance sheets are shown below. As of SeptemberJune 30, 20172021 and December 31, 2016, none2020, NaN of our derivative instruments were designated as hedging instruments. See Note 8—Fair Value Measurements for additional information on derivative fair values. |
| | | | | | | | | | | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives |
| Balance Sheet Location | | September 30, 2017 | | December 31, 2016 | | Balance Sheet Location | | September 30, 2017 | | December 31, 2016 |
| | | (in millions) | | | | (in millions) |
Natural gas derivatives | Other current assets | | $ | 1 |
| | $ | 52 |
| | Other current liabilities | | $ | (14 | ) | | $ | — |
|
Natural gas derivatives | Other assets | | — |
| | 4 |
| | Other liabilities | | (1 | ) | | (6 | ) |
Total derivatives | | | $ | 1 |
| | $ | 56 |
| | | | $ | (15 | ) | | $ | (6 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives |
| Balance Sheet Location | | June 30, 2021 | | December 31, 2020 | | Balance Sheet Location | | June 30, 2021 | | December 31, 2020 |
| | | (in millions) | | | | (in millions) |
| | | | | | | | | | | |
| | | | | | | | | | | |
Natural gas derivatives | Other current assets | | $ | 1 | | | $ | 1 | | | Other current liabilities | | $ | (1) | | | $ | (7) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Most of our International Swaps and Derivatives Association (ISDA) agreements contain credit-risk-related contingent features such as cross default provisions and credit support thresholds.provisions. In the event of certain defaults or a credit ratings downgrade,termination events, our counterpartycounterparties may request early termination and net settlement of certain derivative trades or, under certain ISDA agreements, may require us to collateralize derivatives in a net liability position. The Revolving Credit Agreement, at any time when it is secured, provides a cross collateral feature for those of our derivatives that are with counterparties that are party to, or affiliates of parties to, the Revolving Credit Agreement so that no separate collateral would be required for those counterparties in connection with such derivatives. In the event the Revolving Credit Agreement becomes unsecured, separate collateral could be required in connection with such derivatives. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in net liability positions was $150 and $6 million, and zero, respectively, which also approximates the fair value of the maximum amount of additional collateral that wouldmay need to be posted or assets that may be needed to settle the obligations if the credit-risk-related contingent features were triggered at the reporting dates. At SeptemberAs of June 30, 2017,2021 and December 31, 2020, we had $100 thousand of cash collateral on deposit with one of our counterparties for derivative contracts. At December 31, 2016, we had no0 cash collateral on deposit with counterparties for derivative contracts. The credit support documents executed in connection with certain of our ISDA agreements generally provide us and our counterparties the right to set off collateral against amounts owing under the ISDA agreements upon the occurrence of a default or a specified termination event.
The following table presents amounts relevant to offsetting of our derivative assets and liabilities as of SeptemberJune 30, 20172021 and December 31, 2016:2020:
| | | | | | | | | | | | Amounts presented in consolidated balance sheets(1) | | Gross amounts not offset in consolidated balance sheets | |
| Amounts presented in consolidated balance sheets(1) | | Gross amounts not offset in consolidated balance sheets | | | | | Financial instruments | | Cash collateral received (pledged) | | Net amount |
| | Financial instruments | | Cash collateral received (pledged) | | Net amount | | (in millions) |
| (in millions) | |
September 30, 2017 | |
| | |
| | |
| | |
| |
June 30, 2021 | | June 30, 2021 | | | | | | | |
Total derivative assets | $ | 1 |
| | $ | 1 |
| | $ | — |
| | $ | — |
| Total derivative assets | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | 1 | |
Total derivative liabilities | (15 | ) | | (1 | ) | | — |
| | (14 | ) | Total derivative liabilities | (1) | | | 0 | | | 0 | | | (1) | |
Net derivative liabilities | $ | (14 | ) | | $ | — |
| | $ | — |
| | $ | (14 | ) | Net derivative liabilities | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
December 31, 2016 | |
| | |
| | |
| | |
| |
December 31, 2020 | | December 31, 2020 | | | | | | | |
Total derivative assets | $ | 56 |
| | $ | 6 |
| | $ | — |
| | $ | 50 |
| Total derivative assets | $ | 1 | | | $ | 0 | | | $ | 0 | | | $ | 1 | |
Total derivative liabilities | (6 | ) | | (6 | ) | | — |
| | — |
| Total derivative liabilities | (7) | | | 0 | | | 0 | | | (7) | |
Net derivative assets | $ | 50 |
| | $ | — |
| | $ | — |
| | $ | 50 |
| |
Net derivative liabilities | | Net derivative liabilities | $ | (6) | | | $ | 0 | | | $ | 0 | | | $ | (6) | |
(1)We report the fair values of our derivative assets and liabilities on a gross basis on our consolidated balance sheets. As a result, the gross amounts recognized and net amounts presented are the same.
| |
(1)
| We report the fair values of our derivative assets and liabilities on a gross basis on our consolidated balance sheets. As a result, the gross amounts recognized and net amounts presented are the same. |
We do not believe the contractually allowed netting, close-out netting or setoff of amounts owed to, or due from, the counterparties to our ISDA agreements would have a material effect on our financial position.
CF INDUSTRIES HOLDINGS, INC.
13. Noncontrolling Interests
A reconciliation of the beginning and ending balances of noncontrolling interests and distributions payable to noncontrolling interests in our consolidated balance sheets is provided below.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, |
| 2017 | | 2016 |
| CFN | | TNCLP | | Total | | CFN | | TNCLP | | Total |
| (in millions) |
Noncontrolling interests: | | | |
| | | | | | |
| | |
Beginning balance | $ | 2,806 |
| | $ | 338 |
| | $ | 3,144 |
| | $ | — |
| | $ | 352 |
| | $ | 352 |
|
Issuance of noncontrolling interest in CFN | — |
| | — |
| | — |
| | 2,792 |
| | — |
| | 2,792 |
|
Earnings attributable to noncontrolling interests | 40 |
| | 14 |
| | 54 |
| | 67 |
| | 20 |
| | 87 |
|
Declaration of distributions payable | (107 | ) | | (18 | ) | | (125 | ) | | (79 | ) | | (32 | ) | | (111 | ) |
Ending balance | $ | 2,739 |
| | $ | 334 |
| | $ | 3,073 |
| | $ | 2,780 |
| | $ | 340 |
| | $ | 3,120 |
|
Distributions payable to noncontrolling interests: | | | |
| | | | | | |
| | |
Beginning balance | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Declaration of distributions payable | 107 |
| | 18 |
| | 125 |
| | 79 |
| | 32 |
| | 111 |
|
Distributions to noncontrolling interests | (107 | ) | | (18 | ) | | (125 | ) | | (79 | ) | | (32 | ) | | (111 | ) |
Ending balance | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
CF Industries Nitrogen, LLC (CFN)Interest
We commencedhave a strategic venture with CHS on February 1, 2016, atunder which time CHS purchased a minoritythey own an equity interest in CFN, a subsidiary of CF Holdings, for $2.8 billion, which representedrepresents approximately 11% of the membership interestinterests of CFN. We own the remaining membership interest.interests. Under the terms of CFN'sCFN’s limited liability company agreement, each member’s percentage membership interest will reflect, over time, the impact of the profitability of CFN, and any member contributions made to CFN and withdrawals and distributions received from CFN. For financial reporting purposes, the assets, liabilities and earnings of the strategic venture are consolidated into our financial statements. CHS'CHS’ interest in the strategic venture is recorded in noncontrolling interestsinterest in our consolidated financial statements. On February 1, 2016,
A reconciliation of the beginning and ending balances of noncontrolling interest and distributions payable to noncontrolling interest in our consolidated balance sheets is provided below.
| | | | | | | | | | | |
| |
| 2021 | | 2020 |
| | | |
| (in millions) |
Noncontrolling interest: | | | |
Balance as of January 1 | $ | 2,681 | | | $ | 2,740 | |
| | | |
Earnings attributable to noncontrolling interest | 95 | | | 51 | |
Declaration of distributions payable | (64) | | | (88) | |
| | | |
| | | |
Balance as of June 30 | $ | 2,712 | | | $ | 2,703 | |
Distributions payable to noncontrolling interest: | | | |
Balance as of January 1 | $ | 0 | | | $ | 0 | |
Declaration of distributions payable | 64 | | | 88 | |
Distributions to noncontrolling interest | (64) | | | (88) | |
| | | |
Balance as of June 30 | $ | 0 | | | $ | 0 | |
CHS also began receivingreceives deliveries pursuant to a supply agreement under which CHS has the right to purchase annually from CFN up to approximately 1.1 million tons of granular urea and 580,000 tons of UAN at market prices. As a result of its minority equity interest in CFN, CHS is entitled to semi-annual cash distributions from CFN. We are also entitled to semi-annual cash distributions from CFN. The amounts of distributions from CFN to us and CHS are based generally on the profitability of CFN and determined based on the volume of granular urea and UAN sold by CFN to us and CHS pursuant to supply agreements, less a formula driven amount based primarily on the cost of natural gas used to produce the granular urea and UAN, and adjusted for the allocation of items such as operational efficiencies and overhead amounts.
Additionally, under the terms of the strategic venture, ifwe recognized an embedded derivative related to our credit rating as determined by two of three specified credit rating agencies is below certain levels, we are required to make a non-refundable yearly payment of $5 million to CHS. In the fourth quarter of 2016, as a result of a reduction in our credit rating, we made a $5 million payment to CHS. The payment will continue on a yearly basis until the earlier of the date that our credit rating is upgraded to or above certain levels by two of the three specified credit rating agencies or February 1, 2026. We recognized this term of the strategic venture as an embedded derivative. As of September 30, 2017 and December 31, 2016, the embedded derivative liability of $30 million and $26 million, respectively, is included in other current liabilities and other liabilities on our consolidated balance sheet. The $4 million charge to reflect the change in fair value for the nine months ended September 30, 2017 is included in other operating—net in our consolidated statement of operations.rating. See Note 8—Fair Value Measurements for additional information.
On July 30, 2021, the CFN Board of Managers approved semi-annual distribution payments for the distribution period ended June 30, 2021 in accordance with CFN’s limited liability company agreement. On July 30, 2021, CFN distributed $130 million to CHS for the distribution period ended June 30, 2021.
CF INDUSTRIES HOLDINGS, INC.
14. Stockholders’ Equity
Terra Nitrogen Company, L.P. (TNCLP)Treasury Stock
TNCLP is a master limited partnership (MLP) that owns a nitrogen fertilizer manufacturing facility in Verdigris, Oklahoma. We own approximately 75.3%On February 13, 2019, the Board authorized the repurchase of TNCLP through general and limited partnership interests. Outside investors own the remaining approximately 24.7% of the limited partnership. For financial reporting purposes, the assets, liabilities and earnings of the partnership are consolidated into our financial statements. The outside investors' limited partnership interests in the partnership are recorded in noncontrolling interests in our consolidated financial statements. The noncontrolling interest represents the noncontrolling unitholders' interest in the earnings and equity of TNCLP. Affiliates of CF Industries are requiredup to purchase all of TNCLP's fertilizer products at market prices as defined in the Amendment to the General and Administrative Services and Product Offtake Agreement, dated September 28, 2010.
TNCLP makes cash distributions to the general and limited partners based on formulas defined within its First Amended and Restated Agreement of Limited Partnership (as amended, the TNCLP Agreement of Limited Partnership). Cash available for distribution (Available Cash) is defined in the TNCLP Agreement of Limited Partnership generally as all cash receipts less all cash disbursements, less certain reserves (including reserves for future operating and capital needs) established as the general partner determines in its reasonable discretion to be necessary or appropriate. Changes in working capital affect Available Cash, as increases in the amount of cash invested in working capital items (such as increases in receivables or inventory and decreases in accounts payable) reduce Available Cash, while declines in the amount of cash invested in working capital items increase Available Cash. Cash distributions to the limited partners and general partner vary depending on the extent to which the cumulative distributions exceed certain target threshold levels set forth in the TNCLP Agreement of Limited Partnership.
In each of the first, second and third quarters of 2017 and 2016, the minimum quarterly distributions under the TNCLP Agreement of Limited Partnership were satisfied, which entitled Terra Nitrogen GP Inc. (TNGP), the general partner of TNCLP and an indirect wholly owned subsidiary$1 billion of CF Holdings to receive incentive distributions on its general partner interests (in addition to minimum quarterly distributions)common stock through December 31, 2021 (the 2019 Share Repurchase Program). TNGP has assigned its right to receive such incentive distributions to an affiliate of TNGP that is also an indirect wholly owned subsidiary of CF Holdings. The earnings attributed to our general partner interest in excess of the threshold levels for the nine months ended September 30, 2017 and 2016, were $19 million and $56 million, respectively.
As of September 30, 2017, TNGP and its affiliates owned approximately 75.1% of TNCLP's outstanding common units. When not more than 25% of TNCLP's issued and outstanding common units are held by persons other than TNGP and its affiliates (collectively, non-affiliated persons), as was the case at September 30, 2017, TNCLP, at TNGP's sole discretion, may call or assign to TNGP or its affiliates, TNCLP's right to acquire all, but not less than all, such outstanding common units held by non-affiliated persons. If TNGP elects to acquire all outstanding common units, TNCLP is required to give at least 30 but not more than 60 days' notice of TNCLP's decision to purchase the outstanding common units, and the purchase price per unit would be the greater of (1) the average of the previous 20 trading days' closing prices as of the date five days before the purchase is announced or (2) the highest price paid by TNGP or any of its affiliates for any unit within the 90 days preceding the date the purchase is announced.
Internal Revenue Service Regulation Impacting Master Limited Partnerships
Currently, no federal income taxes are paid by TNCLP due to its MLP status. Partnerships are generally not subject to federal income tax, although publicly traded partnerships (such as TNCLP) are treated as corporations for federal income tax purposes (and therefore are subject to federal income tax), unless at least 90% of the partnership's gross income is "qualifying income" as defined in Section 7704 of the Internal Revenue Code of 1986, as amended, and the partnership is not required to register as an investment companyRepurchases under the Investment Company Act of 1940. Any change2019 Share Repurchase Program may be made from time to time in the tax treatmentopen market, through privately negotiated transactions, block transactions or otherwise. The manner, timing and amount of income from fertilizer-related activities as qualifying income could cause TNCLP torepurchases will be treated as a corporation for federal income tax purposes. If TNCLP were taxed as a corporation, under current law, due to its current ownership interest, CF Industries would qualify for a partial dividends received deductiondetermined by our management based on the dividends received from TNCLP. Therefore,evaluation of market conditions, stock price, and other factors. Since the 2019 Share Repurchase Program was announced in February 2019, we would not expect a change inhave repurchased approximately 10.2 million shares for $437 million, including 2.6 million shares repurchased during the tax treatmentfirst quarter of TNCLP to2020 for $100 million. No shares have a material impact onbeen repurchased since the consolidated financial condition or resultsfirst quarter of operations of CF Holdings.
On January 19, 2017, the Internal Revenue Service (IRS) issued final regulations on the types of income and activities that constitute or generate qualifying income of a MLP. For calendar year MLPs, the effective date of the regulations is January 1, 2018. The regulations have the effect of limiting the types of income and activities that qualify2020 under the MLP rules, subject to certain transition provisions. The regulations define the activities that generate qualifying income from certain processing or refining and transportation activities with respect to any mineral or natural resource (including fertilizer) as activities that generate qualifying income, but the regulations reserve on specifics regarding fertilizer-related activities. We continue to monitor these IRS regulatory activities.2019 Share Repurchase Program. At June 30, 2021, we held 5,284 shares of treasury stock.
CF INDUSTRIES HOLDINGS, INC.
14. Defined Benefit Pension Plans
We contributed $75 million to our pension plans during the nine months ended September 30, 2017, and expect to contribute an additional $6 million, or a total of approximately $81 million for the full year 2017. The contributions include a voluntary contribution of $59 million made to our U.S. pension plan in the second quarter of 2017.
15. Accumulated Other Comprehensive Income (Loss)Loss
Changes to accumulated
other comprehensive loss and the impact on other comprehensive income (loss) are as follows:
|
| | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustment | | Unrealized Gain (Loss) on Securities | | Unrealized Gain (Loss) on Derivatives | | Defined Benefit Plans | | Accumulated Other Comprehensive Income (Loss) |
| (in millions) |
Balance as of December 31, 2015 | $ | (198 | ) | | $ | 1 |
| | $ | 5 |
| | $ | (58 | ) | | $ | (250 | ) |
Loss arising during the period | — |
| | — |
| | — |
| | (3 | ) | | (3 | ) |
Effect of exchange rate changes and deferred taxes | (20 | ) | | — |
| | — |
| | — |
| | (20 | ) |
Balance as of September 30, 2016 | $ | (218 | ) | | $ | 1 |
| | $ | 5 |
| | $ | (61 | ) | | $ | (273 | ) |
Balance as of December 31, 2016 | $ | (272 | ) | | $ | 1 |
| | $ | 5 |
| | $ | (132 | ) | | $ | (398 | ) |
Gain arising during the period | — |
| | — |
| | — |
| | 7 |
| | 7 |
|
Reclassification to earnings | — |
| | — |
| | — |
| | 1 |
| | 1 |
|
Effect of exchange rate changes and deferred taxes | 124 |
| | — |
| | — |
| | (9 | ) | | 115 |
|
Balance as of September 30, 2017 | $ | (148 | ) | | $ | 1 |
| | $ | 5 |
| | $ | (133 | ) | | $ | (275 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustment | | | | Unrealized Gain on Derivatives | | Defined Benefit Plans | | Accumulated Other Comprehensive Income (Loss) |
| (in millions) |
Balance as of December 31, 2019 | $ | (188) | | | | | $ | 5 | | | $ | (183) | | | $ | (366) | |
| | | | | | | | | |
| | | | | | | | | |
Gain arising during the period | 0 | | | | | 0 | | | 1 | | | 1 | |
Reclassification to earnings(1) | 0 | | | | | 0 | | | 3 | | | 3 | |
| | | | | | | | | |
Effect of exchange rate changes and deferred taxes | (71) | | | | | 0 | | | 7 | | | (64) | |
Balance as of June 30, 2020 | $ | (259) | | | | | $ | 5 | | | $ | (172) | | | $ | (426) | |
| | | | | | | | | |
Balance as of December 31, 2020 | $ | (144) | | | | | $ | 4 | | | $ | (180) | | | $ | (320) | |
| | | | | | | | | |
| | | | | | | | | |
Loss arising during the period | 0 | | | | | 0 | | | (3) | | | (3) | |
| | | | | | | | | |
Reclassification to earnings(1) | 0 | | | | | 0 | | | 5 | | | 5 | |
| | | | | | | | | |
Effect of exchange rate changes and deferred taxes | 24 | | | | | 0 | | | (2) | | | 22 | |
Balance as of June 30, 2021 | $ | (120) | | | | | $ | 4 | | | $ | (180) | | | $ | (296) | |
(1)Reclassifications out of accumulated other comprehensive income (loss)loss to earnings during the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020 were as follows:not material.
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| (in millions) |
Defined Benefit Plans | |
| | |
| | |
| | |
|
Amortization of prior service (benefit) cost(1) | $ | (1 | ) | | $ | (1 | ) | | $ | (1 | ) | | $ | (1 | ) |
Amortization of net loss(1) | 2 |
| | 1 |
| | 2 |
| | 1 |
|
Total before tax | 1 |
| | — |
| | 1 |
| | — |
|
Tax effect | — |
| | — |
| | — |
| | — |
|
Net of tax | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | — |
|
Total reclassifications for the period | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | — |
|
| |
(1)
| These components are included in the computation of net periodic benefit cost and were reclassified from accumulated other comprehensive income (loss) into cost of sales and selling, general and administrative expenses. |
CF INDUSTRIES HOLDINGS, INC.
16.15. Contingencies
Litigation
West Fertilizer Co.
On April 17, 2013, there was a fire and explosion at the West Fertilizer Co. fertilizer storage and distribution facility in West, Texas. According to published reports, 15 people were killed and approximately 200 people were injured in the incident, and the fire and explosion damaged or destroyed a number of homes and buildings around the facility. Various subsidiaries of CF Industries Holdings, Inc. (the CF Entities) have beenwere named as defendants along with other companies in lawsuits filed in 2013, 2014 and 2015 in the District Court of McLennan County, Texas by the City of West, individual residents of the County and other parties seeking recovery for damages allegedly sustained as a result of the explosion. The cases have beenwere consolidated for discovery and pretrial proceedings in the District Court of McLennan County under the caption "In“In re: West Explosion Cases."” The two-year statute of limitations expired on April 17, 2015. As of that date, over 400 plaintiffs had filed claims, including at least 9 entities, 325 individuals, and 80 insurance companies. Plaintiffs allege various theories of negligence, strict liability, and breach of warranty under Texas law. Although we do not own or operate the facility or directly sell our products to West Fertilizer Co., products that the CF Entities have manufactured and sold to others have beenwere delivered to the facility and may have been stored at the West facility at the time of the incident.
CF INDUSTRIES HOLDINGS, INC.
The Court granted in part and denied in part the CF Entities'Entities’ Motions for Summary Judgment in August 2015. Over one hundred fortyNearly all of the cases, including all wrongful death and personal injury claims, have been resolved pursuant to confidential settlements that have been or we expect will be fully funded by insurance. The remaining casessubrogation and statutory indemnification claims total approximately $37 million, before prejudgment interest, and are in various stages of discovery and pre-trial proceedings. The nextremaining claims are expected to be set for trial is scheduled to begin on January 16, 2018.in 2022. We believe we have strong legal and factual defenses and intend to continue defending the CF Entities vigorously in the pendingremaining lawsuits. The Company cannot provide a range of reasonably possible loss due to the lack of damages discovery for many of the remaining claims and the uncertain nature of this litigation, including uncertainties around the potential allocation of responsibility by a jury to other defendants or responsible third parties. The recognition of a potential loss in the future in the West Fertilizer Co. litigation could negatively affect our results in the period of recognition. However, based upon currently available information, including availablewe expect any potential loss to be fully indemnified by insurance coverage, weand do not believe that this litigation will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Other Litigation
From time to time, we are subject to ordinary, routine legal proceedings related to the usual conduct of our business, including proceedings regarding public utility and transportation rates, environmental matters, taxes and permits relating to the operations of our various plants and facilities. Based on the information available as of the date of this filing, we believe that the ultimate outcome of these routine matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Environmental
Louisiana Environmental Matters
Clean Air Act—Section 185 Fee
Our Donaldsonville nitrogen complex is located in a five-parish region near Baton Rouge, Louisiana that, as of 2005, was designated as being in "severe" nonattainment with respect to the national ambient air quality standard (NAAQS) for ozone (the 1-hour ozone standard) pursuant to the Federal Clean Air Act (the Act). Section 185 of the Act requires states, in their state implementation plans, to levy a fee (Section 185 fee) on major stationary sources (such as the Donaldsonville complex) located in a severe nonattainment area that did not meet the 1-hour ozone standard by November 30, 2005. The fee was to be assessed for each calendar year (beginning in 2006) until the area achieved compliance with the ozone NAAQS.
Prior to the imposition of Section 185 fees, the Environmental Protection Agency (EPA) adopted a new ozone standard (the 8-hour ozone standard) and rescinded the 1-hour ozone standard. The Baton Rouge area was designated as a "moderate" nonattainment area with respect to the 8-hour ozone standard. However, because Section 185 fees had never been assessed prior to the rescission of the 1-hour ozone standard (rescinded prior to the November 30, 2005 ozone attainment deadline), the EPA concluded in a 2004 rulemaking implementing the 8-hour ozone standard that the Act did not require states to assess Section 185 fees. As a result, Section 185 fees were not assessed against us and other companies located in the Baton Rouge area.
In 2006, the federal D.C. Circuit Court of Appeals rejected the EPA's position and held that Section 185 fees were controls that must be maintained and fees should have been assessed under the Act. In January 2008, the U.S. Supreme Court declined to accept the case for review, making the appellate court's decision final.
CF INDUSTRIES HOLDINGS, INC.
In July 2011, the EPA approved a revision to Louisiana's air pollution program that eliminated the requirement for Baton Rouge area companies to pay Section 185 fees, based on Baton Rouge's ultimate attainment of the 1-hour standard through permanent and enforceable emissions reductions. The EPA's approval of the Louisiana air program revision became effective on August 8, 2011. However, a July 2011 decision by the federal D.C. Circuit Court of Appeals struck down a similar, but perhaps distinguishable, EPA guidance document regarding alternatives to Section 185 fees. At this time, the viability of EPA's approval of Louisiana's elimination of Section 185 fees is uncertain. Regardless of the approach ultimately adopted by the EPA, we expect that it is likely to be challenged by the environmental community, the states, and/or affected industries. Therefore, the costs associated with compliance with the Act cannot be determined at this time, and we cannot reasonably estimate the impact on our consolidated financial position, results of operations or cash flows.
Since 2011, the area has seen significant reductions in ozone levels, attributable to federal and state regulations and community involvement. On December 15, 2016, the EPA redesignated the Baton Rouge Nonattainment Area as "attainment" with the 2008 8-hour ozone standard. However, based on 2013-2015 air quality monitoring data, the State of Louisiana has recommended that the EPA designate the Baton Rouge area as "non-attainment" pursuant to the updated 2015 8-hour ozone standard. In June 2017, the EPA announced that it was extending the deadline to establish designations under the 2015 ozone standard by one year, from October 1, 2017 to October 1, 2018. Although the EPA later announced that it would comply with the October 1, 2017 deadline, it has not yet issued final air quality designations under the 2015 ozone standard.
Clean Air Act Information Request
On February 26, 2009, we received a letter from the EPA under Section 114 of the Act requesting information and copies of records relating to compliance with New Source Review and New Source Performance Standards at our Donaldsonville facility. We have completed the submittal of all requested information. There has been no further contact from the EPA regarding this matter.
Other
CERCLA/Remediation Matters
From time to time, we receive notices from governmental agencies or third parties alleging that we are a potentially responsible party at certain cleanup sites under CERCLAthe Comprehensive Environmental Response, Compensation, and Liability Act or other environmental cleanup laws. In 2011, we received a notice from the Idaho Department of Environmental Quality (IDEQ) that alleged that we were a potentially responsible party for the cleanup of a former phosphate mine site we owned in the late 1950s and early 1960s located in Georgetown Canyon, Idaho. The current owner of the property and a former mining contractor received similar notices for the site. In 2014, we and the current property owner entered into a Consent Order with IDEQ and the U.S. Forest Service to conduct a remedial investigation and feasibility study of the site. In 2015, we and several other parties received a notice that the U.S. Department of the Interior and other trustees intendintended to undertake a natural resource damage assessment for a group of18 former phosphate mines and 3 former processing facilities in southeast Idaho, includingwhich includes the Georgetown Canyon former mine and processing facility. In June 2021, we received another notice from the U.S. Department of the Interior that the natural resource damage trustees were commencing a ‘subsequent’ phase of the natural resource damage assessment, but no further details were provided with respect to said assessment. Because the former Georgetown Canyon mine. Wemine site is still in the remedial investigation and feasibility study stage, we are not able to estimate at this time our potential liability, if any, with respect to the cleanup of the site or a possible claim for natural resource damages. However, based on currently available information,the results of the site investigation conducted to date, we do not expect the remedial or financial obligations to which we may be subject involving this or other cleanup sites will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
CF INDUSTRIES HOLDINGS, INC.
17.16. Segment Disclosures
Our reportable segments consist of ammonia, granular urea, UAN, AN and Other. These segments are differentiated by products. Our management uses gross margin to evaluate segment performance and allocate resources. Total other operating costs and expenses (consisting of selling, general and administrative expenses and other operating—net) and non-operating expenses (interest and income taxes) are centrally managed and are not included in the measurement of segment profitability reviewed by management.
Our assets, with the exception of goodwill, are not monitored by or reported to our chief operating decision maker by segment; therefore, we do not present total assets by segment. Goodwill by segment is presented in Note 6—Goodwill and Other Intangible Assets.
Segment data for sales, cost of sales and gross margin for the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020 are presented in the tables below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Ammonia | | Granular Urea(1) | | UAN(1) | | AN(1) | | Other(1) | | Consolidated |
| (in millions) |
Three months ended June 30, 2021 | | | | | | | | | | | |
Net sales | $ | 459 | | | $ | 433 | | | $ | 434 | | | $ | 136 | | | $ | 126 | | | $ | 1,588 | |
Cost of sales | 333 | | | 241 | | | 296 | | | 120 | | | 95 | | | 1,085 | |
Gross margin | $ | 126 | | | $ | 192 | | | $ | 138 | | | $ | 16 | | | $ | 31 | | | 503 | |
Total other operating costs and expenses | | | | | | | | | | | 64 | |
Equity in earnings of operating affiliate | | | | | | | | | | | 11 | |
Operating earnings | | | | | | | | | | | $ | 450 | |
| | | | | | | | | | | |
Three months ended June 30, 2020 | | | | | | | | | | | |
Net sales | $ | 364 | | | $ | 329 | | | $ | 308 | | | $ | 118 | | | $ | 85 | | | $ | 1,204 | |
Cost of sales | 262 | | | 205 | | | 245 | | | 91 | | | 67 | | | 870 | |
Gross margin | $ | 102 | | | $ | 124 | | | $ | 63 | | | $ | 27 | | | $ | 18 | | | 334 | |
Total other operating costs and expenses | | | | | | | | | | | 57 | |
Equity in earnings of operating affiliate | | | | | | | | | | | 3 | |
Operating earnings | | | | | | | | | | | $ | 280 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Ammonia(2) | | Granular Urea(1) | | UAN(1) | | AN(1) | | Other(1) | | Consolidated |
| (in millions) |
Six months ended June 30, 2021 | | | | | | | | | | | |
Net sales | $ | 665 | | | $ | 832 | | | $ | 666 | | | $ | 241 | | | $ | 232 | | | $ | 2,636 | |
Cost of sales | 413 | | | 505 | | | 526 | | | 215 | | | 185 | | | 1,844 | |
Gross margin | $ | 252 | | | $ | 327 | | | $ | 140 | | | $ | 26 | | | $ | 47 | | | 792 | |
Total other operating costs and expenses | | | | | | | | | | | 117 | |
Equity in earnings of operating affiliate | | | | | | | | | | | 22 | |
Operating earnings | | | | | | | | | | | $ | 697 | |
| | | | | | | | | | | |
Six months ended June 30, 2020 | | | | | | | | | | | |
Net sales | $ | 557 | | | $ | 666 | | | $ | 543 | | | $ | 234 | | | $ | 175 | | | $ | 2,175 | |
Cost of sales | 435 | | | 429 | | | 438 | | | 194 | | | 141 | | | 1,637 | |
Gross margin | $ | 122 | | | $ | 237 | | | $ | 105 | | | $ | 40 | | | $ | 34 | | | 538 | |
Total other operating costs and expenses | | | | | | | | | | | 117 | |
| | | | | | | | | | | |
Equity in earnings of operating affiliate | | | | | | | | | | | 6 | |
Operating earnings | | | | | | | | | | | $ | 427 | |
_______________________________________________________________________________(1)The cost of the products that are upgraded into other products is transferred at cost into the upgraded product results.
(2)Cost of sales and gross margin for the ammonia segment in the six months ended June 30, 2021, include the $112 million gain on the net settlement of certain natural gas contracts with our suppliers. See Note 12—Derivative Financial Instruments for additional information.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Ammonia | | Granular Urea(1) | | UAN(1) | | AN(1) | | Other(1) | | Consolidated |
| (in millions) |
Three months ended September 30, 2017 | |
| | |
| | |
| | | | |
| | |
|
Net sales | $ | 194 |
| | $ | 228 |
| | $ | 243 |
| | $ | 135 |
| | $ | 70 |
| | $ | 870 |
|
Cost of sales | 204 |
| | 220 |
| | 253 |
| | 123 |
| | 61 |
| | 861 |
|
Gross margin | $ | (10 | ) | | $ | 8 |
| | $ | (10 | ) | | $ | 12 |
| | $ | 9 |
| | 9 |
|
Total other operating costs and expenses | |
| | |
| | |
| | | | |
| | 43 |
|
Equity in losses of operating affiliates | |
| | |
| | |
| | | | |
| | (5 | ) |
Operating loss | |
| | |
| | |
| | | | |
| | $ | (39 | ) |
Three months ended September 30, 2016 | |
| | |
| | |
| | | | |
| | |
|
Net sales | $ | 145 |
| | $ | 167 |
| | $ | 212 |
| | $ | 103 |
| | $ | 53 |
| | $ | 680 |
|
Cost of sales | 149 |
| | 152 |
| | 218 |
| | 114 |
| | 45 |
| | 678 |
|
Gross margin | $ | (4 | ) | | $ | 15 |
| | $ | (6 | ) | | $ | (11 | ) | | $ | 8 |
| | 2 |
|
Total other operating costs and expenses | |
| | |
| | |
| | | | |
| | 101 |
|
Equity in losses of operating affiliates | |
| | |
| | |
| | | | |
| | (2 | ) |
Operating loss | |
| | |
| | |
| | | | |
| | $ | (101 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Ammonia | | Granular Urea(1) | | UAN(1) | | AN(1) | | Other(1) | | Consolidated |
| (in millions) |
Nine months ended September 30, 2017 | |
| | |
| | |
| | | | |
| | |
|
Net sales | $ | 865 |
| | $ | 725 |
| | $ | 846 |
| | $ | 372 |
| | $ | 223 |
| | $ | 3,031 |
|
Cost of sales | 771 |
| | 668 |
| | 783 |
| | 331 |
| | 191 |
| | 2,744 |
|
Gross margin | $ | 94 |
| | $ | 57 |
| | $ | 63 |
| | $ | 41 |
| | $ | 32 |
| | 287 |
|
Total other operating costs and expenses | |
| | |
| | |
| | | | |
| | 154 |
|
Equity in losses of operating affiliates | |
| | |
| | |
| | | | |
| | (8 | ) |
Operating earnings | |
| | |
| | |
| | | | |
| | $ | 125 |
|
Nine months ended September 30, 2016 | |
| | |
| | |
| | | | |
| | |
|
Net sales | $ | 770 |
| | $ | 642 |
| | $ | 891 |
| | $ | 318 |
| | $ | 197 |
| | $ | 2,818 |
|
Cost of sales | 505 |
| | 445 |
| | 646 |
| | 316 |
| | 160 |
| | 2,072 |
|
Gross margin | $ | 265 |
| | $ | 197 |
| | $ | 245 |
| | $ | 2 |
| | $ | 37 |
| | 746 |
|
Total other operating costs and expenses | |
| | |
| | |
| | | | |
| | 501 |
|
Equity in losses of operating affiliates | |
| | |
| | |
| | | | |
| | (11 | ) |
Operating earnings | |
| | |
| | |
| | | | |
| | $ | 234 |
|
| |
(1)
| The cost of the products that are upgraded into other products is transferred at cost into the upgraded product results. |
CF INDUSTRIES HOLDINGS, INC.
18. Condensed Consolidating Financial Statements
The following condensed consolidating financial information is presented in accordance with SEC Regulation S-X Rule 3-10, Financial statements of guarantors and issuers of guaranteed securities registered or being registered, and relates to (i) the senior notes due 2018, 2020, 2023, 2034, 2043 and 2044 (described in Note 11—Financing Agreements and referred to in this report as the Public Senior Notes) issued by CF Industries, Inc. (CF Industries), a 100% owned subsidiary of CF Industries Holdings, Inc. (Parent), and guarantees of the Public Senior Notes by Parent and by CFE and CFS (the Subsidiary Guarantors), which are 100% owned subsidiaries of Parent, and (ii) debt securities of CF Industries (Other Debt Securities), and guarantees thereof by Parent and the Subsidiary Guarantors, that may be offered and sold from time to time under registration statements that may be filed by Parent, CF Industries and the Subsidiary Guarantors with the SEC.
In the event that a subsidiary of Parent, other than CF Industries, becomes a borrower or a guarantor under the Revolving Credit Agreement (or any renewal, replacement or refinancing thereof), such subsidiary would be required to become a guarantor of the Public Senior Notes, provided that such requirement will no longer apply with respect to the Public Senior Notes due 2023, 2034, 2043 and 2044 following the repayment of the Public Senior Notes due 2018 and 2020 or the subsidiaries of Parent, other than CF Industries, otherwise becoming no longer subject to such a requirement to guarantee the Public Senior Notes due 2018 and 2020. CFE and CFS became guarantors of the Public Senior Notes as a result of this requirement on November 21, 2016.
All of the guarantees of the Public Senior Notes are, and we have assumed for purposes of this presentation of condensed consolidating financial information that the guarantees of any Other Debt Securities would be, full and unconditional (as such term is defined in SEC Regulation S-X Rule 3-10(h)) and joint and several. The guarantee of a Subsidiary Guarantor will be automatically released with respect to a series of the Public Senior Notes (1) upon the release, discharge or termination of such Subsidiary Guarantor’s guarantee of the Revolving Credit Agreement (or any renewal, replacement or refinancing thereof), (2) upon legal defeasance with respect to the Public Senior Notes of such series or satisfaction and discharge of the indenture with respect to such series of Public Senior Notes or (3) in the case of the Public Senior Notes due 2023, 2034, 2043 and 2044, upon the later to occur of (a) the discharge, termination or release of, or the release of such Subsidiary Guarantor from its obligations under, such Subsidiary Guarantor’s guarantee of the Public Senior Notes due 2018, including, without limitation, any such discharge, termination or release as a result of retirement, discharge or legal or covenant defeasance of, or satisfaction and discharge of the supplemental indenture governing, the Public Senior Notes due 2018, and (b) the discharge, termination or release of, or the release of such Subsidiary Guarantor from its obligations under, such Subsidiary Guarantor’s guarantee of the Public Senior Notes due 2020, including, without limitation, any such discharge, termination or release as a result of retirement, discharge or legal or covenant defeasance of, or satisfaction and discharge of the supplemental indenture governing, the Public Senior Notes due 2020.
For purposes of the presentation of condensed consolidating financial information, the subsidiaries of Parent other than CF Industries, CFE and CFS are referred to as the Non-Guarantors.
Presented below are condensed consolidating statements of operations for Parent, CF Industries, the Subsidiary Guarantors and the Non-Guarantors for the three and nine months ended September 30, 2017 and 2016, condensed consolidating statements of cash flows for Parent, CF Industries, the Subsidiary Guarantors and the Non-Guarantors for the nine months ended September 30, 2017 and 2016, and condensed consolidating balance sheets for Parent, CF Industries, the Subsidiary Guarantors and the Non-Guarantors as of September 30, 2017 and December 31, 2016. To reflect the additional Subsidiary Guarantors that became effective on November 21, 2016, the condensed consolidating statement of operations for the three and nine months ended September 30, 2016 and statement of cash flows for the nine months ended September 30, 2016 have been restated to reflect the separate Subsidiary Guarantors. The condensed consolidating financial information presented below is not necessarily indicative of the financial position, results of operations, comprehensive income or cash flows of Parent, CF Industries, the Subsidiary Guarantors or the Non-Guarantors on a stand-alone basis.
In these condensed consolidating financial statements, investments in subsidiaries are presented under the equity method, in which our investments are recorded at cost and adjusted for our ownership share of a subsidiary's cumulative results of operations, distributions and other equity changes, and the eliminating entries reflect primarily intercompany transactions such as sales, accounts receivable and accounts payable and the elimination of equity investments and earnings of subsidiaries. Two of our consolidated entities have made elections to be taxed as partnerships for U.S. federal income tax purposes and are included in the non-guarantor column. Due to the partnership tax treatment, these subsidiaries do not record taxes on their financial statements. The tax provision pertaining to the income of these partnerships, plus applicable deferred tax balances are reflected on the financial statements of the parent company owner that is included in the subsidiary guarantors column in the following financial information. Liabilities related to benefit plan obligations are reflected on the legal entity that funds the obligation, while the benefit plan expense is included on the legal entity to which the employee provides services.
CF INDUSTRIES HOLDINGS, INC.
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2017 |
| Parent | | CF Industries | | Subsidiary Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| (in millions) |
Net sales | $ | — |
| | $ | 105 |
| | $ | 661 |
| | $ | 770 |
| | $ | (666 | ) | | $ | 870 |
|
Cost of sales | — |
| | 62 |
| | 725 |
| | 740 |
| | (666 | ) | | 861 |
|
Gross margin | — |
| | 43 |
| | (64 | ) | | 30 |
| | — |
| | 9 |
|
Selling, general and administrative expenses | 1 |
| | (2 | ) | | 28 |
| | 18 |
| | — |
| | 45 |
|
Other operating—net | — |
| | (6 | ) | | 3 |
| | 1 |
| | — |
| | (2 | ) |
Total other operating costs and expenses | 1 |
| | (8 | ) | | 31 |
| | 19 |
| | — |
| | 43 |
|
Equity in losses of operating affiliates | — |
| | — |
| | — |
| | (5 | ) | | — |
| | (5 | ) |
Operating (loss) earnings | (1 | ) | | 51 |
| | (95 | ) | | 6 |
| | — |
| | (39 | ) |
Interest expense | — |
| | 80 |
| | 11 |
| | 1 |
| | (11 | ) | | 81 |
|
Interest income | — |
| | (8 | ) | | (5 | ) | | (3 | ) | | 11 |
| | (5 | ) |
Net loss of wholly owned subsidiaries | 86 |
| | 73 |
| | 13 |
| | — |
| | (172 | ) | | — |
|
(Loss) earnings before income taxes | (87 | ) | | (94 | ) | | (114 | ) | | 8 |
| | 172 |
| | (115 | ) |
Income tax (benefit) provision | — |
| | (8 | ) | | (44 | ) | | 5 |
| | — |
| | (47 | ) |
Net (loss) earnings | (87 | ) | | (86 | ) | | (70 | ) | | 3 |
| | 172 |
| | (68 | ) |
Less: Net earnings attributable to noncontrolling interests | — |
| | — |
| | — |
| | 19 |
| | — |
| | 19 |
|
Net loss attributable to common stockholders | $ | (87 | ) | | $ | (86 | ) | | $ | (70 | ) | | $ | (16 | ) | | $ | 172 |
| | $ | (87 | ) |
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2017 |
| Parent | | CF Industries | | Subsidiary Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| (in millions) |
Net (loss) earnings | $ | (87 | ) | | $ | (86 | ) | | $ | (70 | ) | | $ | 3 |
| | $ | 172 |
| | $ | (68 | ) |
Other comprehensive income | 50 |
| | 49 |
| | 36 |
| | 49 |
| | (134 | ) | | 50 |
|
Comprehensive (loss) income | (37 | ) | | (37 | ) | | (34 | ) | | 52 |
| | 38 |
| | (18 | ) |
Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | — |
| | 19 |
| | — |
| | 19 |
|
Comprehensive (loss) income attributable to common stockholders | $ | (37 | ) | | $ | (37 | ) | | $ | (34 | ) | | $ | 33 |
| | $ | 38 |
| | $ | (37 | ) |
CF INDUSTRIES HOLDINGS, INC.
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2017 |
| Parent | | CF Industries | | Subsidiary Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| (in millions) |
Net sales | $ | — |
| | $ | 306 |
| | $ | 2,386 |
| | $ | 2,499 |
| | $ | (2,160 | ) | | $ | 3,031 |
|
Cost of sales | — |
| | 184 |
| | 2,488 |
| | 2,232 |
| | (2,160 | ) | | 2,744 |
|
Gross margin | — |
| | 122 |
| | (102 | ) | | 267 |
| | — |
| | 287 |
|
Selling, general and administrative expenses | 3 |
| | 3 |
| | 83 |
| | 51 |
| | — |
| | 140 |
|
Other operating—net | — |
| | (8 | ) | | 5 |
| | 17 |
| | — |
| | 14 |
|
Total other operating costs and expenses | 3 |
| | (5 | ) | | 88 |
| | 68 |
| | — |
| | 154 |
|
Equity in losses of operating affiliates | — |
| | — |
| | — |
| | (8 | ) | | — |
| | (8 | ) |
Operating (loss) earnings | (3 | ) | | 127 |
| | (190 | ) | | 191 |
| | — |
| | 125 |
|
Interest expense | — |
| | 241 |
| | 31 |
| | 4 |
| | (35 | ) | | 241 |
|
Interest income | — |
| | (27 | ) | | (7 | ) | | (9 | ) | | 35 |
| | (8 | ) |
Net loss (earnings) of wholly owned subsidiaries | 105 |
| | 49 |
| | (127 | ) | | — |
| | (27 | ) | | — |
|
(Loss) earnings before income taxes | (108 | ) | | (136 | ) | | (87 | ) | | 196 |
| | 27 |
| | (108 | ) |
Income tax (benefit) provision | (1 | ) | | (31 | ) | | (34 | ) | | 11 |
| | — |
| | (55 | ) |
Net (loss) earnings | (107 | ) | | (105 | ) | | (53 | ) | | 185 |
| | 27 |
| | (53 | ) |
Less: Net earnings attributable to noncontrolling interests | — |
| | — |
| | — |
| | 54 |
| | — |
| | 54 |
|
Net (loss) earnings attributable to common stockholders | $ | (107 | ) | | $ | (105 | ) | | $ | (53 | ) | | $ | 131 |
| | $ | 27 |
| | $ | (107 | ) |
Condensed Consolidating Statement of Comprehensive Income
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2017 |
| Parent | | CF Industries | | Subsidiary Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| (in millions) |
Net (loss) earnings | $ | (107 | ) | | $ | (105 | ) | | $ | (53 | ) | | $ | 185 |
| | $ | 27 |
| | $ | (53 | ) |
Other comprehensive income | 123 |
| | 122 |
| | 85 |
| | 117 |
| | (324 | ) | | 123 |
|
Comprehensive income | 16 |
| | 17 |
| | 32 |
| | 302 |
| | (297 | ) | | 70 |
|
Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | — |
| | 54 |
| | — |
| | 54 |
|
Comprehensive income attributable to common stockholders | $ | 16 |
| | $ | 17 |
| | $ | 32 |
| | $ | 248 |
| | $ | (297 | ) | | $ | 16 |
|
CF INDUSTRIES HOLDINGS, INC.
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2016 |
| Parent | | CF Industries | | Subsidiary Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| (in millions) |
Net sales | $ | — |
| | $ | 81 |
| | $ | 497 |
| | $ | 643 |
| | $ | (541 | ) | | $ | 680 |
|
Cost of sales | — |
| | 35 |
| | 598 |
| | 586 |
| | (541 | ) | | 678 |
|
Gross margin | — |
| | 46 |
| | (101 | ) | | 57 |
| | — |
| | 2 |
|
Selling, general and administrative expenses | 1 |
| | 4 |
| | 26 |
| | 13 |
| | — |
| | 44 |
|
Other operating—net | — |
| | 5 |
| | 22 |
| | 30 |
| | — |
| | 57 |
|
Total other operating costs and expenses | 1 |
| | 9 |
| | 48 |
| | 43 |
| | — |
| | 101 |
|
Equity in losses of operating affiliates | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
Operating (loss) earnings | (1 | ) | | 37 |
| | (149 | ) | | 12 |
| | — |
| | (101 | ) |
Interest expense | — |
| | 87 |
| | 12 |
| | (50 | ) | | (18 | ) | | 31 |
|
Interest income | — |
| | (11 | ) | | (1 | ) | | (8 | ) | | 18 |
| | (2 | ) |
Net loss (earnings) of wholly owned subsidiaries | 39 |
| | — |
| | (113 | ) | | — |
| | 74 |
| | — |
|
Other non-operating—net | — |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
|
(Loss) earnings before income taxes | (40 | ) | | (39 | ) | | (48 | ) | | 70 |
| | (74 | ) | | (131 | ) |
Income tax benefit | (10 | ) | | — |
| | (118 | ) | | (3 | ) | | — |
| | (131 | ) |
Net (loss) earnings | (30 | ) | | (39 | ) | | 70 |
| | 73 |
| | (74 | ) | | — |
|
Less: Net earnings attributable to noncontrolling interest | — |
| | — |
| | — |
| | 30 |
| | — |
| | 30 |
|
Net (loss) earnings attributable to common stockholders | $ | (30 | ) | | $ | (39 | ) | | $ | 70 |
| | $ | 43 |
| | $ | (74 | ) | | $ | (30 | ) |
Condensed Consolidating Statement of Comprehensive Income (Loss)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2016 |
| Parent | | CF Industries | | Subsidiary Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| (in millions) |
Net (loss) earnings | $ | (30 | ) | | $ | (39 | ) | | $ | 70 |
| | $ | 73 |
| | $ | (74 | ) | | $ | — |
|
Other comprehensive loss | (30 | ) | | (30 | ) | | (3 | ) | | (20 | ) | | 53 |
| | (30 | ) |
Comprehensive (loss) income | (60 | ) | | (69 | ) | | 67 |
| | 53 |
| | (21 | ) | | (30 | ) |
Less: Comprehensive income attributable to noncontrolling interest | — |
| | — |
| | — |
| | 30 |
| | — |
| | 30 |
|
Comprehensive (loss) income attributable to common stockholders | $ | (60 | ) | | $ | (69 | ) | | $ | 67 |
| | $ | 23 |
| | $ | (21 | ) | | $ | (60 | ) |
CF INDUSTRIES HOLDINGS, INC.
Condensed Consolidating Statement of Operations
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2016 |
| Parent | | CF Industries | | Subsidiary Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| (in millions) |
Net sales | $ | — |
| | $ | 283 |
| | $ | 2,240 |
| | $ | 2,152 |
| | $ | (1,857 | ) | | $ | 2,818 |
|
Cost of sales | — |
| | 161 |
| | 2,079 |
| | 1,689 |
| | (1,857 | ) | | 2,072 |
|
Gross margin | — |
| | 122 |
| | 161 |
| | 463 |
| | — |
| | 746 |
|
Selling, general and administrative expenses | 3 |
| | 8 |
| | 88 |
| | 42 |
| | — |
| | 141 |
|
Transaction costs | (46 | ) | | — |
| | 224 |
| | 1 |
| | — |
| | 179 |
|
Other operating—net | — |
| | 5 |
| | 30 |
| | 146 |
| | — |
| | 181 |
|
Total other operating costs and expenses | (43 | ) | | 13 |
| | 342 |
| | 189 |
| | — |
| | 501 |
|
Equity in losses of operating affiliates | — |
| | — |
| | — |
| | (11 | ) | | — |
| | (11 | ) |
Operating earnings (loss) | 43 |
| | 109 |
| | (181 | ) | | 263 |
| | — |
| | 234 |
|
Interest expense | — |
| | 249 |
| | 73 |
| | (126 | ) | | (66 | ) | | 130 |
|
Interest income | — |
| | (43 | ) | | (7 | ) | | (20 | ) | | 66 |
| | (4 | ) |
Net earnings of wholly owned subsidiaries | (16 | ) | | (76 | ) | | (404 | ) | | — |
| | 496 |
| | — |
|
Other non-operating—net | — |
| | — |
| | 1 |
| | (2 | ) | | — |
| | (1 | ) |
Earnings (loss) before income taxes | 59 |
| | (21 | ) | | 156 |
| | 411 |
| | (496 | ) | | 109 |
|
Income tax provision (benefit) | 16 |
| | (37 | ) | | (15 | ) | | 15 |
| | — |
| | (21 | ) |
Net earnings | 43 |
| | 16 |
| | 171 |
| | 396 |
| | (496 | ) | | 130 |
|
Less: Net earnings attributable to noncontrolling interest | — |
| | — |
| | — |
| | 87 |
| | — |
| | 87 |
|
Net earnings attributable to common stockholders | $ | 43 |
| | $ | 16 |
| | $ | 171 |
| | $ | 309 |
| | $ | (496 | ) | | $ | 43 |
|
Condensed Consolidating Statement of Comprehensive Income (Loss)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2016 |
| Parent | | CF Industries | | Subsidiary Guarantors | | Non-Guarantors | | Eliminations | | Consolidated |
| (in millions) |
Net earnings | $ | 43 |
| | $ | 16 |
| | $ | 171 |
| | $ | 396 |
| | $ | (496 | ) | | $ | 130 |
|
Other comprehensive (loss) income | (23 | ) | | (23 | ) | | 4 |
| | (20 | ) | | 39 |
| | (23 | ) |
Comprehensive income (loss) | 20 |
| | (7 | ) | | 175 |
| | 376 |
| | (457 | ) | | 107 |
|
Less: Comprehensive income attributable to noncontrolling interest | — |
| | — |
| | — |
| | 87 |
| | — |
| | 87 |
|
Comprehensive income (loss) attributable to common stockholders | $ | 20 |
| | $ | (7 | ) | | $ | 175 |
| | $ | 289 |
| | $ | (457 | ) | | $ | 20 |
|
CF INDUSTRIES HOLDINGS, INC.
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| Parent | | CF Industries | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations and Reclassifications | | Consolidated |
| (in millions) |
Assets | |
| | |
| | | | |
| | |
| | |
|
Current assets: | |
| | |
| | | | |
| | |
| | |
|
Cash and cash equivalents | $ | — |
| | $ | 32 |
| | $ | 1,619 |
| | $ | 341 |
| | $ | — |
| | $ | 1,992 |
|
Accounts and notes receivable—net | 17 |
| | 989 |
| | 1,733 |
| | 320 |
| | (2,780 | ) | | 279 |
|
Inventories | — |
| | — |
| | 164 |
| | 152 |
| | — |
| | 316 |
|
Deferred income taxes | — |
| | 15 |
| | — |
| | — |
| | (15 | ) | | — |
|
Prepaid income taxes | — |
| | — |
| | 39 |
| | 3 |
| | — |
| | 42 |
|
Other current assets | — |
| | — |
| | 14 |
| | 8 |
| | — |
| | 22 |
|
Total current assets | 17 |
| | 1,036 |
| | 3,569 |
| | 824 |
| | (2,795 | ) | | 2,651 |
|
Property, plant and equipment—net | — |
| | — |
| | 122 |
| | 9,250 |
| | — |
| | 9,372 |
|
Deferred income taxes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Investments in affiliates | 3,727 |
| | 9,443 |
| | 6,436 |
| | 109 |
| | (19,606 | ) | | 109 |
|
Due from affiliates | 571 |
| | — |
| | — |
| | — |
| | (571 | ) | | — |
|
Goodwill | — |
| | — |
| | 2,064 |
| | 305 |
| | — |
| | 2,369 |
|
Other assets | — |
| | 85 |
| | 94 |
| | 512 |
| | (335 | ) | | 356 |
|
Total assets | $ | 4,315 |
| | $ | 10,564 |
| | $ | 12,285 |
| | $ | 11,000 |
| | $ | (23,307 | ) | | $ | 14,857 |
|
Liabilities and Equity | |
| | |
| | | | |
| | |
| | |
|
Current liabilities: | |
| | |
| | | | |
| | |
| | |
|
Accounts and notes payable and accrued expenses | $ | 1,148 |
| | $ | 465 |
| | $ | 1,296 |
| | $ | 506 |
| | $ | (2,780 | ) | | $ | 635 |
|
Income taxes payable | — |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
|
Customer advances | — |
| | — |
| | 92 |
| | — |
| | — |
| | 92 |
|
Current portion of long-term debt | — |
| | 798 |
| | — |
| | — |
| | — |
| | 798 |
|
Other current liabilities | — |
| | — |
| | 17 |
| | 2 |
| | — |
| | 19 |
|
Total current liabilities | 1,148 |
| | 1,263 |
| | 1,405 |
| | 515 |
| | (2,780 | ) | | 1,551 |
|
Long-term debt | — |
| | 4,988 |
| | 260 |
| | 76 |
| | (336 | ) | | 4,988 |
|
Deferred income taxes | — |
| | — |
| | 1,437 |
| | 170 |
| | (15 | ) | | 1,592 |
|
Due to affiliates | — |
| | 571 |
| | — |
| | — |
| | (571 | ) | | — |
|
Other liabilities | — |
| | 15 |
| | 254 |
| | 217 |
| | — |
| | 486 |
|
Equity: | |
| | |
| | | | |
| | |
| | |
|
Stockholders' equity: | |
| | |
| | | | |
| | |
| | |
|
Preferred stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Common stock | 2 |
| | — |
| | — |
| | 4,712 |
| | (4,712 | ) | | 2 |
|
Paid-in capital | 1,392 |
| | (13 | ) | | 9,505 |
| | 1,783 |
| | (11,275 | ) | | 1,392 |
|
Retained earnings | 2,048 |
| | 4,016 |
| | (382 | ) | | 680 |
| | (4,314 | ) | | 2,048 |
|
Treasury stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Accumulated other comprehensive loss | (275 | ) | | (276 | ) | | (186 | ) | | (234 | ) | | 696 |
| | (275 | ) |
Total stockholders' equity | 3,167 |
| | 3,727 |
| | 8,937 |
| | 6,941 |
| | (19,605 | ) | | 3,167 |
|
Noncontrolling interests | — |
| | — |
| | (8 | ) | | 3,081 |
| | — |
| | 3,073 |
|
Total equity | 3,167 |
| | 3,727 |
| | 8,929 |
| | 10,022 |
| | (19,605 | ) | | 6,240 |
|
Total liabilities and equity | $ | 4,315 |
| | $ | 10,564 |
| | $ | 12,285 |
| | $ | 11,000 |
| | $ | (23,307 | ) | | $ | 14,857 |
|
CF INDUSTRIES HOLDINGS, INC.
Condensed Consolidating Balance Sheet
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Parent | | CF Industries | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations and Reclassifications | | Consolidated |
| (in millions) |
Assets | |
| | |
| | | | |
| | |
| | |
|
Current assets: | |
| | |
| | | | |
| | |
| | |
|
Cash and cash equivalents | $ | — |
| | $ | 36 |
| | $ | 878 |
| | $ | 250 |
| | $ | — |
| | $ | 1,164 |
|
Restricted cash | — |
| | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Accounts and notes receivable—net | 20 |
| | 1,259 |
| | 1,418 |
| | 495 |
| | (2,956 | ) | | 236 |
|
Inventories | — |
| | — |
| | 164 |
| | 175 |
| | — |
| | 339 |
|
Prepaid income taxes | — |
| | — |
| | 839 |
| | 2 |
| | — |
| | 841 |
|
Other current assets | — |
| | — |
| | 59 |
| | 11 |
| | — |
| | 70 |
|
Total current assets | 20 |
| | 1,295 |
| | 3,358 |
| | 938 |
| | (2,956 | ) | | 2,655 |
|
Property, plant and equipment—net | — |
| | — |
| | 131 |
| | 9,521 |
| | — |
| | 9,652 |
|
Investments in affiliates | 3,711 |
| | 9,370 |
| | 6,019 |
| | 139 |
| | (19,100 | ) | | 139 |
|
Due from affiliates | 571 |
| | — |
| | — |
| | — |
| | (571 | ) | | — |
|
Goodwill | — |
| | — |
| | 2,064 |
| | 281 |
| | — |
| | 2,345 |
|
Other assets | — |
| | 85 |
| | 101 |
| | 385 |
| | (231 | ) | | 340 |
|
Total assets | $ | 4,302 |
| | $ | 10,750 |
| | $ | 11,673 |
| | $ | 11,264 |
| | $ | (22,858 | ) | | $ | 15,131 |
|
Liabilities and Equity | |
| | |
| | | | |
| | |
| | |
|
Current liabilities: | |
| | |
| | | | |
| | |
| | |
|
Accounts and notes payable and accrued expenses | $ | 954 |
| | $ | 418 |
| | $ | 1,505 |
| | $ | 717 |
| | $ | (2,956 | ) | | $ | 638 |
|
Income taxes payable | — |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
Customer advances | — |
| | — |
| | 42 |
| | — |
| | — |
| | 42 |
|
Other current liabilities | — |
| | — |
| | 5 |
| | — |
| | — |
| | 5 |
|
Total current liabilities | 954 |
| | 418 |
| | 1,552 |
| | 718 |
| | (2,956 | ) | | 686 |
|
Long-term debt | — |
| | 5,903 |
| | 39 |
| | 67 |
| | (231 | ) | | 5,778 |
|
Deferred income taxes | — |
| | 90 |
| | 1,374 |
| | 166 |
| | — |
| | 1,630 |
|
Due to affiliates | — |
| | 571 |
| | — |
| | — |
| | (571 | ) | | — |
|
Other liabilities | — |
| | 59 |
| | 270 |
| | 216 |
| | — |
| | 545 |
|
Equity: | |
| | |
| | | | |
| | |
| | |
|
Stockholders' equity: | |
| | |
| | | | |
| | |
| | |
|
Preferred stock | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Common stock | 2 |
| | — |
| | — |
| | 4,383 |
| | (4,383 | ) | | 2 |
|
Paid-in capital | 1,380 |
| | (13 | ) | | 9,045 |
| | 2,246 |
| | (11,278 | ) | | 1,380 |
|
Retained earnings | 2,365 |
| | 4,120 |
| | (329 | ) | | 668 |
| | (4,459 | ) | | 2,365 |
|
Treasury stock | (1 | ) | | — |
| | — |
| | — |
| | — |
| | (1 | ) |
Accumulated other comprehensive loss | (398 | ) | | (398 | ) | | (271 | ) | | (351 | ) | | 1,020 |
| | (398 | ) |
Total stockholders' equity | 3,348 |
| | 3,709 |
| | 8,445 |
| | 6,946 |
| | (19,100 | ) | | 3,348 |
|
Noncontrolling interests | — |
| | — |
| | (7 | ) | | 3,151 |
| | — |
| | 3,144 |
|
Total equity | 3,348 |
| | 3,709 |
| | 8,438 |
| | 10,097 |
| | (19,100 | ) | | 6,492 |
|
Total liabilities and equity | $ | 4,302 |
| | $ | 10,750 |
| | $ | 11,673 |
| | $ | 11,264 |
| | $ | (22,858 | ) | | $ | 15,131 |
|
CF INDUSTRIES HOLDINGS, INC.
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2017 |
| Parent | | CF Industries | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations | | Consolidated |
| (in millions) |
Operating Activities: | |
| | |
| | | | |
| | |
| | |
|
Net (loss) earnings | $ | (107 | ) | | $ | (105 | ) | | $ | (53 | ) | | $ | 185 |
| | $ | 27 |
| | $ | (53 | ) |
Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities: | |
| | |
| | |
| | |
| | |
| | |
|
Depreciation and amortization | — |
| | 10 |
| | 16 |
| | 622 |
| | — |
| | 648 |
|
Deferred income taxes | — |
| | — |
| | (44 | ) | | (10 | ) | | — |
| | (54 | ) |
Stock-based compensation expense | 13 |
| | — |
| | — |
| | — |
| | — |
| | 13 |
|
Unrealized net loss on natural gas and foreign currency derivatives | — |
| | — |
| | 54 |
| | 10 |
| | — |
| | 64 |
|
Unrealized loss on embedded derivative | — |
| | — |
| | 4 |
| | — |
| | — |
| | 4 |
|
Loss on disposal of property, plant and equipment | — |
| | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
Undistributed loss (earnings) of affiliates—net | 105 |
| | 48 |
| | (126 | ) | | 7 |
| | (27 | ) | | 7 |
|
Changes in: | |
| | |
| | | | |
| | |
| | |
|
Intercompany accounts receivable/accounts payable—net | (10 | ) | | (91 | ) | | 92 |
| | 9 |
| | — |
| | — |
|
Accounts receivable—net | — |
| | (8 | ) | | (23 | ) | | 2 |
| | — |
| | (29 | ) |
Inventories | — |
| | — |
| | 1 |
| | 11 |
| | — |
| | 12 |
|
Accrued and prepaid income taxes | (1 | ) | | (30 | ) | | 832 |
| | 3 |
| | — |
| | 804 |
|
Accounts and notes payable and accrued expenses | — |
| | 37 |
| | (4 | ) | | (28 | ) | | — |
| | 5 |
|
Customer advances | — |
| | — |
| | 51 |
| | — |
| | — |
| | 51 |
|
Other—net | — |
| | (5 | ) | | (46 | ) | | (23 | ) | | — |
| | (74 | ) |
Net cash (used in) provided by operating activities | — |
| | (144 | ) | | 754 |
| | 791 |
| | — |
| | 1,401 |
|
Investing Activities: | |
| | |
| | | | |
| | |
| | |
|
Additions to property, plant and equipment | — |
| | — |
| | (7 | ) | | (283 | ) | | — |
| | (290 | ) |
Proceeds from sale of property, plant and equipment | — |
| | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
Distributions received from unconsolidated affiliates | — |
| | — |
| | 179 |
| | (167 | ) | | — |
| | 12 |
|
Proceeds from sale of auction rate securities | — |
| | 9 |
| | — |
| | — |
| | — |
| | 9 |
|
Withdrawals from restricted cash funds | — |
| | — |
| | — |
| | 5 |
| | — |
| | 5 |
|
Net cash provided by (used in) investing activities | — |
| | 9 |
| | 172 |
| | (432 | ) | | — |
| | (251 | ) |
Financing Activities: | |
| | |
| | | | |
| | |
| | |
|
Long-term debt—net | — |
| | (126 | ) | | 215 |
| | (89 | ) | | — |
| | — |
|
Short-term debt—net | 209 |
| | 258 |
| | (473 | ) | | 6 |
| | — |
| | — |
|
Financing fees | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) |
Dividends paid on common stock | (210 | ) | | — |
| | — |
| | (73 | ) | | 73 |
| | (210 | ) |
Dividends to/from affiliates | — |
| | — |
| | 73 |
| | — |
| | (73 | ) | | — |
|
Distributions to noncontrolling interests | — |
| | — |
| | — |
| | (125 | ) | | — |
| | (125 | ) |
Issuances of common stock under employee stock plans | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
Net cash provided by (used in) financing activities | — |
| | 131 |
| | (185 | ) | | (281 | ) | | — |
| | (335 | ) |
Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | 13 |
| | — |
| | 13 |
|
(Decrease) increase in cash and cash equivalents | — |
| | (4 | ) | | 741 |
| | 91 |
| | — |
| | 828 |
|
Cash and cash equivalents at beginning of period | — |
| | 36 |
| | 878 |
| | 250 |
| | — |
| | 1,164 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 32 |
| | $ | 1,619 |
| | $ | 341 |
| | $ | — |
| | $ | 1,992 |
|
CF INDUSTRIES HOLDINGS, INC.
Condensed Consolidating Statement of Cash Flows
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2016 |
| Parent | | CF Industries | | Subsidiary Guarantors | | Non- Guarantors | | Eliminations | | Consolidated |
| (in millions) |
Operating Activities: | |
| | |
| | | | |
| | |
| | |
|
Net earnings | $ | 43 |
| | $ | 16 |
| | $ | 171 |
| | $ | 396 |
| | $ | (496 | ) | | $ | 130 |
|
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | |
| | |
| | |
| | |
| | |
| | |
|
Depreciation and amortization | — |
| | 4 |
| | 50 |
| | 421 |
| | — |
| | 475 |
|
Deferred income taxes | — |
| | 29 |
| | 706 |
| | (5 | ) | | — |
| | 730 |
|
Stock-based compensation expense | 14 |
| | — |
| | — |
| | 1 |
| | — |
| | 15 |
|
Unrealized net gain on natural gas and foreign currency derivatives | — |
| | — |
| | (147 | ) | | (22 | ) | | — |
| | (169 | ) |
Unrealized loss on embedded derivative | — |
| | — |
| | 22 |
| | — |
| | — |
| | 22 |
|
Loss on disposal of property, plant and equipment | — |
| | — |
| | 2 |
| | 6 |
| | — |
| | 8 |
|
Undistributed (earnings) losses of affiliates—net | (16 | ) | | (76 | ) | | (404 | ) | | — |
| | 496 |
| | — |
|
Changes in: | |
| | |
| | | | |
| | |
| | |
|
Intercompany accounts receivable/accounts payable—net | (31 | ) | | 133 |
| | 192 |
| | (294 | ) | | — |
| | — |
|
Accounts receivable—net | — |
| | 45 |
| | 5 |
| | 5 |
| | — |
| | 55 |
|
Inventories | — |
| | — |
| | (16 | ) | | 12 |
| | — |
| | (4 | ) |
Accrued and prepaid income taxes | — |
| | — |
| | (649 | ) | | (16 | ) | | — |
| | (665 | ) |
Accounts and notes payable and accrued expenses | (9 | ) | | (23 | ) | | (46 | ) | | 71 |
| | — |
| | (7 | ) |
Customer advances | — |
| | — |
| | (75 | ) | | — |
| | — |
| | (75 | ) |
Other—net | — |
| | (1 | ) | | (9 | ) | | 86 |
| | — |
| | 76 |
|
Net cash provided by (used in) operating activities | 1 |
| | 127 |
| | (198 | ) | | 661 |
| | — |
| | 591 |
|
Investing Activities: | |
| | |
| | | | |
| | |
| | |
|
Additions to property, plant and equipment | — |
| | — |
| | (19 | ) | | (1,800 | ) | | — |
| | (1,819 | ) |
Proceeds from sale of property, plant and equipment | — |
| | — |
| | 4 |
| | 4 |
| | — |
| | 8 |
|
Withdrawals from restricted cash funds | — |
| | — |
| | — |
| | 16 |
| | — |
| | 16 |
|
Other—net | — |
| | — |
| | (650 | ) | | 4 |
| | 650 |
| | 4 |
|
Net cash used in investing activities | — |
| | — |
| | (665 | ) | | (1,776 | ) | | 650 |
| | (1,791 | ) |
Financing Activities: | |
| | |
| | | | |
| | |
| | |
|
Short-term debt—net | 68 |
| | (112 | ) | | (186 | ) | | 230 |
| | — |
| | — |
|
Proceeds from short-term debt | — |
| | 150 |
| | — |
| | — |
| | — |
| | 150 |
|
Payments on short-term debt | — |
| | (150 | ) | | — |
| | — |
| | — |
| | (150 | ) |
Financing fees | — |
| | (11 | ) | | — |
| | — |
| | — |
| | (11 | ) |
Dividends paid on common stock | (209 | ) | | (140 | ) | | (140 | ) | | (176 | ) | | 456 |
| | (209 | ) |
Dividends to/from affiliates | 140 |
| | 140 |
| | 176 |
| | — |
| | (456 | ) | | — |
|
Issuance of noncontrolling interest in CFN | — |
| | — |
| | — |
| | 2,800 |
| | — |
| | 2,800 |
|
Distributions to noncontrolling interest | — |
| | — |
| | — |
| | (111 | ) | | — |
| | (111 | ) |
Distribution received for CHS strategic venture | — |
| | — |
| | 2,000 |
| | (2,000 | ) | | — |
| | — |
|
Other—net | — |
| | — |
| | — |
| | 650 |
| | (650 | ) | | — |
|
Net cash (used in) provided by financing activities | (1 | ) | | (123 | ) | | 1,850 |
| | 1,393 |
| | (650 | ) | | 2,469 |
|
Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) |
Increase in cash and cash equivalents | — |
| | 4 |
| | 987 |
| | 277 |
| | — |
| | 1,268 |
|
Cash and cash equivalents at beginning of period | 1 |
| | — |
| | 121 |
| | 164 |
| | — |
| | 286 |
|
Cash and cash equivalents at end of period | $ | 1 |
| | $ | 4 |
| | $ | 1,108 |
| | $ | 441 |
| | $ | — |
| | $ | 1,554 |
|
CF INDUSTRIES HOLDINGS, INC.
19.17. Subsequent Event
On October 30, 2017,August 9, 2021, we announced that our wholly owned subsidiary CF Industries Inc.has elected to redeem in fullon September 10, 2021, $250 million principal amount, representing one-third of the entirecurrently outstanding $800$750 million principal amount, of the 6.875%3.450% senior notes (thedue 2023 (2023 Notes) due May 2018,, in accordance with the optional redemption provisions provided in the indenture governing the 2023 Notes. We estimate, based on market interest rates on October 30, 2017,August 2, 2021, the total amount for the partial redemption of the 2023 Notes will be approximately $817 million.$265 million, including accrued interest. The partial redemption of the 2023 Notes will be redeemedfunded with cash on December 1, 2017.hand. See Note 11—Financing Agreements for additional information.
CF INDUSTRIES HOLDINGS, INC.
ITEM 2. MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion and analysis in conjunction with our annual consolidated financial statements and related notes and our discussion and analysis of financial condition and results of operations, which were included in our 2016 Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission on February 23, 2017,24, 2021, as well as Item 1. Financial Statements in this Quarterly Report on Form 10-Q. All references to "CF“CF Holdings," "we," "us," "our"” “we,” “us,” “our” and "the Company"“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"“CF Industries” refer to CF Industries, Inc., a 100% owned subsidiary of CF Industries Holdings, Inc. References to tons refer to short-tons.short tons. Notes referenced in this discussion and analysis refer to the notes to our unaudited interim consolidated financial statements that are found in the preceding section: Item 1. Financial Statements.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
Items Affecting Comparability of Results
Financial Executive Summary
Results of Consolidated Operations
Third Quarter of 2017 ComparedOur mission is to Third Quarter of 2016
Nine Months Ended September 30, 2017 Comparedprovide clean energy to Nine Months Ended September 30, 2016
Operating Results by Business Segment
Liquidityfeed and Capital Resources
Off-Balance Sheet Arrangements
Critical Accounting Policiesfuel the world sustainably. With our employees focused on safe and Estimates
Recent Accounting Pronouncements
Forward-Looking Statements
Overview of CF Holdings
Our Company
Wereliable operations, environmental stewardship, and disciplined capital and corporate management, we are one ofon a path to decarbonize our ammonia production network – the world’s largest manufacturers– to enable green and distributors ofblue hydrogen and nitrogen products for energy, fertilizer, emissions abatement and other nitrogen productsindustrial activities. Our nine manufacturing complexes in the world.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, farmerstraders, wholesalers and industrial users. Our principalcore product is anhydrous ammonia (ammonia), which contains 82% nitrogen fertilizerand 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 manufacturing and distribution facilities are concentrated in the midwestern United States and other major agricultural areas of the United States, Canada and the United Kingdom. We also export nitrogen fertilizer products from our Donaldsonville, Louisiana and Yazoo City, Mississippi manufacturing facilities, and our United Kingdom manufacturing facilities in Billingham and Ince.
Our principal assets as of June 30, 2021 include:
four•five U.S. nitrogen fertilizer manufacturing facilities located in Donaldsonville, Louisiana (the largest nitrogen fertilizer 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), inof which we own approximately 89% and CHS Inc. (CHS), owns the remainder. See Note 13—Noncontrolling Interests to our unaudited interim consolidated financial statementsInterest for additional information on our strategic venture with CHS.CHS;
an approximately 75.3% interest in Terra Nitrogen Company, L.P. (TNCLP), a publicly traded limited partnership of which we are the sole general partner and the majority limited partner and which, through its subsidiary Terra Nitrogen, Limited Partnership (TNLP), operates a nitrogen fertilizer manufacturing facility in Verdigris, Oklahoma;
•two Canadian nitrogen fertilizer manufacturing facilities located in Medicine Hat, Alberta (the largest nitrogen fertilizer complex in Canada) and Courtright, Ontario;
•two United Kingdom nitrogen manufacturing complexesfacilities located in Billingham and Ince;
CF INDUSTRIES HOLDINGS, INC.
•an extensive system of terminals and associated transportation equipment located primarily in the midwesternMidwestern 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.
Items Affecting ComparabilityOur 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 Results
Nitrogen Fertilizer Selling Prices
Overgreen and blue ammonia. Since ammonia is one of the last decade, strongmost 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 high capacity utilizationfor hydrogen and increasing operating margins asammonia from green and blue sources. Our approach will focus on green ammonia production, which refers to ammonia produced through a resultcarbon-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 higher global nitrogen fertilizer prices stimulated global investment in nitrogengreen 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 resulted in an increase in global nitrogen fertilizer production capacity. As a result, global nitrogen fertilizer supply increased more quickly than global nitrogen fertilizer demand, creating the current global oversupply in the market, and leadingwill be managed by us, is expected to lower nitrogen fertilizer selling prices.
A significant amount of new nitrogen production capacity came on line in 2016 and 2017, including an increase in production capacity located in North America, which has further increased supply. We expect the lower priced environment to continue until global supply and demand become more balanced through a combination of continued demand growth and supply reductions as producers respond to lower realized margins by taking higher cost production facilities off line.
The U.S. Gulf is a major global fertilizer pricing point due to the volume of nitrogen fertilizer that trades there. Through most of 2016, nitrogen pricing at the U.S. Gulf declined, often trading below parity with other international pricing points due to continued imports from various exporting regions and decreased North American buyer interest as a result of greater global nitrogen supply availability. Seasonal decreases in agricultural demand combined with delayed customer purchasing activity resulted in multi-year lows in nitrogen fertilizer selling pricesbegin in the second half of 2016. During2021 and to finish in 2023. The cost of the firstproject 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 2017, prices began to increase as2021 than in the second quarter of 2020, driven by the impact of a tighter global nitrogen supply and demand balance, tightened in anticipationas a result of spring fertilizerstrong global demand for the planting and growing season. However, as the first quarter progressed, increased imports into North America increased fertilizerwell as decreased global supply in the region, which pressured selling prices downwardavailability as the quarter ended. Duringhigher global energy costs continued to drive lower global operating rates. In the second quarter of 2017, anticipated demand failed to materialize and2021, the increased imports into the United States that occurred in the first quarter of 2017 continued in the second quarter, negatively impacting selling prices. During the third quarter of 2017, selling prices for most nitrogen products increased throughout the quarter, ending higher than at the beginning of the quarter. The strengthening price environment was driven by significantly lower Chinese exports; higher energy and production costs in parts of the world, including higher natural gas costs in Europe and higher coal costs in China; a weaker U.S. dollar; and strong global demand.
The greater global nitrogen supply availability and resulting low nitrogen fertilizer selling prices significantly impacted our results for the three and nine months ended September 30, 2017. 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.
CF INDUSTRIES HOLDINGS, INC.
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 SeptemberJune 30, 20172021 was $178$2.88 per tonMMBtu compared to $185$1.65 per tonMMBtu for the three months ended SeptemberJune 30, 2016,2020, 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 decreaseresult of 4% resultingWinter 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 both net sales and gross margin of approximately $62$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 betweengain that resulted from the periods. The average selling prices fornet settlement of certain natural gas contracts with our productssuppliers, increased 47% to $3.24 per MMBtu in the ninesix months ended SeptemberJune 30, 2017 was $2072021 from $2.20 per ton compared to $230 per ton forMMBtu in the ninesix months ended SeptemberJune 30, 2016, a decrease of 10%, resulting2020. This increase in natural gas costs resulted in a decrease in both net sales and gross margin of approximately $326$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 betweenof granular urea, which we sold to customers for $68 million.
CF INDUSTRIES HOLDINGS, INC.
COVID-19 Pandemic
In March 2020, the periods.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 directpandemic. 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.
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| | | Variance due to the following items: | | | | |
| Second Quarter of 2020 | | Higher Average Selling Prices(1) | Volume(1) | Higher Natural Gas Costs(2) | | Higher Manufacturing, Maintenance, and Other Costs | Increase in Purchased Urea(3) | | | | | Second Quarter of 2021 |
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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 | % |
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(1)Selling price and volume impact of lowergranular 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 during periods of declining prices, customers tendincreased 37% to delay purchasing fertilizer in anticipation of prices$307 per ton in the future being lower than current prices.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.
CF INDUSTRIES HOLDINGS, INC.
Items Affecting Comparability of Results
In addition to the impact of market conditions, on nitrogen fertilizer selling prices,winter storms and manufacturing and maintenance activity discussed above, certain significant items impacted the comparability of our financial results during the three and ninesix months ended SeptemberJune 30, 20172021 and 2016.2020. The following table and related discussion outline these significant items and how they impacted the comparability of our financial results during these periods. During the three months ended SeptemberJune 30, 20172021 and 2016,2020, we reported a net loss attributable to common stockholders of $(87) million and $(30) million, respectively. During the nine months ended September 30, 2017 and 2016, we reported net (loss) earnings attributable to common stockholders of $(107)$246 million and $43$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.
CF INDUSTRIES HOLDINGS, INC.
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
| Pre-Tax | After-Tax | | Pre-Tax | After-Tax | | Pre-Tax | After-Tax | | Pre-Tax | After-Tax |
| (in millions) | | (in millions) |
Depreciation and amortization(1) | $ | 226 |
| $ | 142 |
| | $ | 148 |
| $ | 93 |
| | $ | 648 |
| $ | 407 |
| | $ | 475 |
| $ | 298 |
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Unrealized net mark-to-market (gain) loss on natural gas derivatives(2) | (7 | ) | (4 | ) | | 21 |
| 13 |
| | 64 |
| 40 |
| | (169 | ) | (106 | ) |
Capacity expansion project expenses(3) | — |
| — |
| | 24 |
| 15 |
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| — |
| | 59 |
| 37 |
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Start-up costs Donaldsonville ammonia(2) | — |
| — |
| | 18 |
| 11 |
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| — |
| | 18 |
| 11 |
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Transaction costs | — |
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| — |
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| 96 |
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Loss on foreign currency transactions including intercompany loans(3) | 1 |
| 1 |
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| 4 |
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| 2 |
| | 86 |
| 85 |
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Equity method investment tax contingency accrual(4) | — |
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| 7 |
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Financing costs related to bridge loan commitment fee(5) | — |
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| 18 |
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Strategic Venture with CHS: | | | | | | | | | | | |
Noncontrolling interest(6) | 17 |
| 17 |
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| 27 |
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| 40 |
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| 67 |
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Loss on embedded derivative(3) | 1 |
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| 14 |
| | 4 |
| 2 |
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| 14 |
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Total Impact of Significant Items | $ | 238 |
| $ | 156 |
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| $ | 177 |
| | $ | 765 |
| $ | 498 |
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| $ | 520 |
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| 2021 | | 2020 | | 2021 | | 2020 |
| Pre-Tax | After-Tax | | Pre-Tax | After-Tax | | Pre-Tax | After-Tax | | Pre-Tax | After-Tax |
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Unrealized net mark-to-market gain on natural gas derivatives(1) | $ | — | | $ | — | | | $ | — | | $ | — | | | $ | (6) | | $ | (5) | | | $ | (12) | | $ | (9) | |
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Special COVID-19 bonus for operational workforce(1) | — | | — | | | 15 | | 12 | | | — | | — | | | 15 | | 12 | |
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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 | |
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Insurance proceeds(2) | — | | — | | | — | | — | | | — | | — | | | (10) | | (8) | |
Loss on debt extinguishment | — | | — | | | — | | — | | | 6 | | 5 | | | — | | — | |
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Terra amended tax returns—interest income and income tax benefit(3) | — | | — | | | (16) | | (32) | | | — | | — | | | (16) | | (32) | |
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(1)Included primarily in cost of sales and selling, general and administrative expenses in our consolidated statements of operations.
(2) Included in cost of sales in our consolidated statements of operations.
(3) (2)Included in other operating—net in our consolidated statements of operations.
(4) (3)Included in equity in losses of operating affiliatesinterest income and income tax provision in our consolidated statements of operations.
(5) Included in interest expense in our consolidated statements of operations.
(6) Included in net earnings attributable to noncontrolling interests in our consolidated statements of operations.
The following describes the significant items that impacted the comparability of our financial results for the three and nine months ended September 30, 2017 and 2016. Descriptions of items below that refer to amounts in the table above, refer to the pre-tax amounts.
Depreciation and amortization
Total depreciation and amortization expense recognized in the three and nine months ended September 30, 2017 was $226 million and $648 million, respectively, and for the three and nine months ended September 30, 2016 was $148 million and $475 million, respectively. This increase in depreciation expense reflects the completion of our capacity expansion projects and placing in service all five of the new plants prior to the end of 2016. The capacity expansion projects were originally announced in 2012 and included the construction of new ammonia, urea, and UAN plants at our Donaldsonville, Louisiana complex and new ammonia and urea plants at our Port Neal, Iowa complex. These plants increased our overall production capacity by approximately 25%, improved our product mix flexibility at Donaldsonville, and improved our ability to serve upper-Midwest urea customers from our Port Neal location. The following table indicates the quarter in which each of the five expansion plants were placed in service.
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Quarter placed in service | | Expansion plant location |
Q4 2015 | | Donaldsonville Urea |
Q1 2016 | | Donaldsonville UAN |
Q4 2016 | | Donaldsonville Ammonia |
Q4 2016 | | Port Neal Ammonia and Urea |
Depreciation expense pertaining to each of our capacity expansion plants commenced once the applicable plant was placed in service.
CF INDUSTRIES HOLDINGS, INC.
Unrealized net mark-to-market (gain) lossgain on natural gas derivatives
Natural gas is typically the largest and most volatile single component of the manufacturing cost for nitrogen-based products. We manageAt 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 natural gas 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 isare reflected in cost of sales in our consolidated statements of operations. In the threesix months ended SeptemberJune 30, 20172021 and 2016,2020, we recognized unrealized net mark-to-market (gain) loss on natural gas derivativesgains of $(7)$6 million and $21$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 nineCOVID-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 SeptemberJune 30, 20172020, and 2016, wethe remaining $4 million was recognized unrealized net mark-to-market loss (gain) of $64 million and $(169) million, respectively.
Capacity expansion projects
Our capacity expansion projects were completed as of December 31, 2016. Capacity expansion project expenses in the three and nine months ended September 30, 2016 were $24 million and $59 million, respectively, generally consisting of administrative costs and other project costs that did not qualify for capitalization. Start-up costs of $18 million, which primarily relate to the cost of commencing production at the Donaldsonville ammonia plant, were incurred in the three and nine months ended September 30, 2016.
Transaction costs
On August 6, 2015, we entered into a definitive agreement (as amended, the Combination Agreement) to combine with the European, North American and global distribution businesses of OCI N.V. (OCI). On May 22, 2016, CF Holdings, OCI and the other parties to the Combination Agreement entered into a termination agreement under which the parties agreed to terminate the Combination Agreement by mutual written consent. In the nine months ended September 30, 2016, we incurred $179 million of transaction costs associated with the proposed combination with certain businesses of OCI and our strategic venture with CHS, including a $150 million termination fee paid to OCI in the secondthird quarter of 2016 and costs for various consulting and legal services.2020.
Loss (gain) on foreign currency transactions, including intercompany loans
In the three and ninesix months ended SeptemberJune 30, 2016,2021 and 2020, we recognized losses of $3 million and $86$13 million, respectively, fromwhich consist of foreign currency exchange rate impacts on foreign currency denominated transactions, including the impact of changes in foreign currency exchange rates on primarily British pound and Canadian dollar denominated intercompany loans that were not permanently invested. Due to
Engineering cost write-off
In June 2020, a restructuringproject at one of certain intercompany loans, we did not incur the same levelour nitrogen complexes was cancelled and, as a result, $8 million of foreign exchange rate impactspreviously capitalized engineering costs were expensed in the three and nine months ended SeptemberJune 30, 2017.
Equity method investment tax contingency accrual
2020. The Trinidad tax authority (the Boardexpense is reflected in other operating—net in our consolidated statements of Inland Revenue) has issued a tax assessment against our equity method investment in the Republic of Trinidad and Tobago, PLNL, related to a dispute over whether tax depreciation must be claimed during a tax holiday period that was granted to PLNL under the Trinidad Fiscal Incentives Act. The tax holiday was granted as an incentive to construct PLNL’s ammonia plant. PLNL is appealing the assessment. Based on the facts and circumstances of this matter, PLNL recorded a tax contingency accrual in the second quarter of 2017, which reduced our equity in earnings of PLNL for the nine months ended September 30, 2017 by approximately $7 million reflecting our 50% ownership interest.
Strategic Venture with CHS
We commenced a strategic venture with CHS on February 1, 2016, at which time CHS purchased a minority equity interest in CFN for $2.8 billion, which represented approximately 11% of the membership interest of CFN. We own the remaining membership interest. Under the terms of CFN's limited liability company agreement, each member’s percentage membership interest will reflect, over time, the impact of the profitability of CFN and any member contributions made to, and distributions received from, CFN. CHS also began receiving deliveries pursuant to a supply agreement under which CHS has the right to purchase annually from CFN up to approximately 1.1 million tons of granular urea and 580,000 tons of UAN at market prices. As a result of its minority equity interest in CFN, CHS is entitled to semi-annual cash distributions from CFN. We are also entitled to semi-annual cash distributions from CFN. The amounts of distributions from CFN to us and CHS are based generally on the profitability of CFN and determined based on the volume of granular urea and UAN sold by CFN to us and CHS pursuant to supply agreements, less a formula driven amount based primarily on the cost of natural gas used to produce the granular urea and UAN, and adjusted for the allocation of items such as operational efficiencies and overhead amounts. We began recognizing the noncontrolling interest pertaining to CHS’ ownership interest in CFN on February 1, 2016. We recognized earnings attributable to the noncontrolling interest in CFN of $17 million and $40 million for the three and nine months ended September 30, 2017, respectively, and $27 million and $67 million for the three and nine months ended
operations.
CF INDUSTRIES HOLDINGS, INC.
Insurance proceeds
SeptemberIn the six months ended June 30, 2016, respectively. See Note 13—Noncontrolling Interests for additional information on our strategic venture with CHS.
Under the terms2020, we recognized income of $10 million related to insurance claims at one of our strategic venture with CHS, if our credit rating as determined by twonitrogen complexes, which consisted of three specified credit rating agencies is below certain levels, we$8 million related to business interruption proceeds and $2 million related to property insurance proceeds. These proceeds are required to make a non-refundable yearly payment of $5 million to CHS. The payment would continue on a yearly basis until the earlier of the date that our credit rating is upgraded to or above certain levels by two of three specified credit rating agencies or February 1, 2026. In the fourth quarter of 2016, as a result of a reduction in our credit rating, we made a $5 million payment to CHS. This term of the strategic venture is recognized on our consolidated balance sheet as an embedded derivative liability. Includedreflected in other operating—operating—net in our consolidated statement of operations foroperations.
Loss on debt extinguishment
On March 20, 2021, we redeemed in full all of the nine months ended September 30, 2017 is an unrealizedremaining $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 $4$6 million, to adjustprimarily consisting of a premium paid on the liability to fair value.early redemption of the notes.
Financial Executive SummaryTerra 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 net loss attributableresult, in 2012 we amended certain tax returns, including Terra’s income and withholding tax returns, back to common stockholders1999 (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 $87 million for the three months ended September 30, 2017 compared to a net lossU.S. tax aspects of $30 million for the three months ended September 30, 2016. Diluted net loss per share attributable to common stockholders was $0.37 inAmended Tax Returns.
In the thirdsecond quarter of 2017 compared to $0.13 in the third quarter of 2016.
During the third quarter of 2017,2020, we experienced higher net losses attributable to common stockholders compared to the third quarter of 2016 due primarily to lower average selling prices resulting from the excess global supply of nitrogen fertilizer, higher realized natural gas costs, and higher depreciation as a result of the completion of our capacity expansion projects. These items were partially offset by an increase in sales volume as a result of increased production from the completion of our capacity expansion projects and higher gross margin as a result of higher unrealized net mark-to-market gains on natural gas derivatives.
Net interest expense increased to $76 million in the three months ended September 30, 2017 from $29 million in the three months ended September 30, 2016, due primarily to higher amounts of capitalized interest in 2016 related to our capacity expansion projects that reduced interest expense in 2016. The completion of our capacity expansion projects reducedreceived IRS notices indicating the amount of capitalizedtax 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 2017. Capitalizedthe second quarter of 2020, we received U.S. Federal income tax refunds, including interest, of $1$108 million was recorded forrelating to these matters. In July 2020, we received an additional $2 million, which finalized these matters with the three months ended September 30,IRS.
In 2017, comparedwe made a Voluntary Disclosures Program filing with the Canada Revenue Agency (CRA) with respect to $53 million for the three months ended September 30, 2016.
Our total gross margin increased by $7 million to $9 millionCanadian 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 thirdfirst quarter of 20172021, we received approximately $20 million of withholding tax refunds, including interest, from $2 millionthe CRA. These amounts were previously recorded in the third quarterour consolidated balance sheet as of 2016. The change in gross margin was due primarily to:
•an increase in sales volume of 33%, which increased gross margin by $63 million, primarily driven by an increase in sales volume for ammonia and granular urea of 64% and 42%, respectively,
•targeted cost reduction initiatives and production efficiencies due to increased volume,
•a higher unrealized net mark-to-market gain on natural gas derivatives, which increased gross margin by $28 million as the third quarter of 2017 included a $7 million gain and the third quarter of 2016 included a $21 million loss,
•start-up costs of $18 million of the new ammonia plant at our Donaldsonville facility that occurred in the third quarter of 2016,
•a decrease in average selling prices of 4%, which reduced gross margin by $62 million. In the third quarter, the average selling prices for ammonia, UAN and granular urea declined by 18%, 8%, and 4%, respectively, while the average selling price for AN increased by 17%,
•an increase in depreciation and amortization due primarily to the completion of our capacity expansion projects, and
•an increase in physical natural gas costs in the third quarter of 2017, partially offset by the impact of natural gas derivatives that settled in the period, which decreased gross margin by $46 million as compared to the third quarter of 2016.
December 31, 2020.
CF INDUSTRIES HOLDINGS, INC.
Consolidated Results of Consolidated Operations
The following table presents our consolidated results of operations and supplemental data:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 v. 2016 | | 2017 | | 2016 | | 2017 v. 2016 | | 2021 | | 2020 | | 2021 v. 2020 | | 2021 | | 2020 | | 2021 v. 2020 |
| (in millions, except as noted) | | (in millions, except per share and per MMBtu) |
Net sales | $ | 870 |
| | $ | 680 |
| | $ | 190 |
| | 28 | % | | $ | 3,031 |
| | $ | 2,818 |
| | $ | 213 |
| | 8 | % | Net sales | $ | 1,588 | | | $ | 1,204 | | | $ | 384 | | | 32 | % | | $ | 2,636 | | | $ | 2,175 | | | $ | 461 | | | 21 | % |
Cost of sales | 861 |
| | 678 |
| | 183 |
| | 27 | % | | 2,744 |
| | 2,072 |
| | 672 |
| | 32 | % | Cost of sales | 1,085 | | | 870 | | | 215 | | | 25 | % | | 1,844 | | | 1,637 | | | 207 | | | 13 | % |
Gross margin | 9 |
| | 2 |
| | 7 |
| | N/M |
| | 287 |
| | 746 |
| | (459 | ) | | (62 | )% | Gross margin | 503 | | | 334 | | | 169 | | | 51 | % | | 792 | | | 538 | | | 254 | | | 47 | % |
Gross margin percentage | 1.0 | % | | 0.3 | % | | 0.7 | % | | | | 9.5 | % | | 26.5 | % | | (17.0 | )% | | | Gross margin percentage | 31.7 | % | | 27.7 | % | | 4.0 | % | | 30.0 | % | | 24.7 | % | | 5.3 | % | |
Selling, general and administrative expenses | 45 |
| | 44 |
| | 1 |
| | 2 | % | | 140 |
| | 141 |
| | (1 | ) | | (1 | )% | Selling, general and administrative expenses | 60 | | | 51 | | | 9 | | | 18 | % | | 115 | | | 105 | | | 10 | | | 10 | % |
Transaction costs | — |
| | — |
| | — |
| | — | % | | — |
| | 179 |
| | (179 | ) | | (100 | )% | |
| Other operating—net | (2 | ) | | 57 |
| | (59 | ) | | N/M |
| | 14 |
| | 181 |
| | (167 | ) | | (92 | )% | Other operating—net | 4 | | | 6 | | | (2) | | | (33) | % | | 2 | | | 12 | | | (10) | | | (83) | % |
Total other operating costs and expenses | 43 |
| | 101 |
| | (58 | ) | | (57 | )% | | 154 |
| | 501 |
| | (347 | ) | | (69 | )% | Total other operating costs and expenses | 64 | | | 57 | | | 7 | | | 12 | % | | 117 | | | 117 | | | — | | | — | % |
Equity in losses of operating affiliates | (5 | ) | | (2 | ) | | (3 | ) | | (150 | )% | | (8 | ) | | (11 | ) | | 3 |
| | 27 | % | |
Operating (loss) earnings | (39 | ) | | (101 | ) | | 62 |
| | (61 | )% | | 125 |
| | 234 |
| | (109 | ) | | (47 | )% | |
| Equity in earnings of operating affiliate | | Equity in earnings of operating affiliate | 11 | | | 3 | | | 8 | | | N/M | | 22 | | | 6 | | | 16 | | | N/M |
Operating earnings | | Operating earnings | 450 | | | 280 | | | 170 | | | 61 | % | | 697 | | | 427 | | | 270 | | | 63 | % |
Interest expense—net | 76 |
| | 29 |
| | 47 |
| | 162 | % | | 233 |
| | 126 |
| | 107 |
| | 85 | % | Interest expense—net | 46 | | | 32 | | | 14 | | | 44 | % | | 94 | | | 75 | | | 19 | | | 25 | % |
Loss on debt extinguishment | | Loss on debt extinguishment | — | | | — | | | — | | | — | % | | 6 | | | — | | | 6 | | | N/M |
Other non-operating—net | — |
| | 1 |
| | (1 | ) | | (100 | )% | | — |
| | (1 | ) | | 1 |
| | 100 | % | Other non-operating—net | 2 | | | (3) | | | 5 | | | N/M | | 2 | | | (3) | | | 5 | | | N/M |
(Loss) earnings before income taxes | (115 | ) | | (131 | ) | | 16 |
| | 12 | % | | (108 | ) | | 109 |
| | (217 | ) | | N/M |
| |
Income tax benefit | (47 | ) | | (131 | ) | | 84 |
| | 64 | % | | (55 | ) | | (21 | ) | | (34 | ) | | 162 | % | |
Net (loss) earnings | (68 | ) | | — |
| | (68 | ) | | N/M |
| | (53 | ) | | 130 |
| | (183 | ) | | N/M |
| |
Less: Net earnings attributable to noncontrolling interests | 19 |
| | 30 |
| | (11 | ) | | (37 | )% | | 54 |
| | 87 |
| | (33 | ) | | (38 | )% | |
Net (loss) earnings attributable to common stockholders | $ | (87 | ) | | $ | (30 | ) | | $ | (57 | ) | | (190 | )% | | $ | (107 | ) | | $ | 43 |
| | $ | (150 | ) | | N/M |
| |
Diluted net (loss) earnings per share attributable to common stockholders | $ | (0.37 | ) | | $ | (0.13 | ) | | $ | (0.24 | ) | | (185 | )% | | $ | (0.46 | ) | | $ | 0.19 |
| | $ | (0.65 | ) | | N/M |
| |
Earnings before income taxes | | Earnings before income taxes | 402 | | | 251 | | | 151 | | | 60 | % | | 595 | | | 355 | | | 240 | | | 68 | % |
Income tax provision | | Income tax provision | 85 | | | 33 | | | 52 | | | 158 | % | | 103 | | | 46 | | | 57 | | | 124 | % |
| Net earnings | | Net earnings | 317 | | | 218 | | | 99 | | | 45 | % | | 492 | | | 309 | | | 183 | | | 59 | % |
Less: Net earnings attributable to noncontrolling interest | | Less: Net earnings attributable to noncontrolling interest | 71 | | | 28 | | | 43 | | | 154 | % | | 95 | | | 51 | | | 44 | | | 86 | % |
Net earnings attributable to common stockholders | | Net earnings attributable to common stockholders | $ | 246 | | | $ | 190 | | | $ | 56 | | | 29 | % | | $ | 397 | | | $ | 258 | | | $ | 139 | | | 54 | % |
Diluted net earnings per share attributable to common stockholders | | Diluted net earnings per share attributable to common stockholders | $ | 1.14 | | | $ | 0.89 | | | $ | 0.25 | | | 28 | % | | $ | 1.83 | | | $ | 1.20 | | | $ | 0.63 | | | 53 | % |
Diluted weighted-average common shares outstanding | 233.2 |
| | 233.1 |
| | 0.1 |
| | — | % | | 233.2 |
| | 233.5 |
| | (0.3 | ) | | — | % | Diluted weighted-average common shares outstanding | 216.6 | | | 214.6 | | | 2.0 | | | 1 | % | | 216.3 | | | 215.6 | | | 0.7 | | | — | % |
Dividends declared per common share | $ | 0.30 |
| | $ | 0.30 |
| | $ | — |
| | — | % | | $ | 0.90 |
| | $ | 0.90 |
| | $ | — |
| | — | % | Dividends declared per common share | $ | 0.30 | | | $ | 0.30 | | | $ | — | | | — | % | | $ | 0.60 | | | $ | 0.60 | | | $ | — | | | — | % |
Natural Gas Supplemental Data (per MMBtu) | | | | | | | | | | | | | | | | |
Natural gas costs in cost of sales(1) | $ | 3.22 |
| | $ | 2.70 |
| | $ | 0.52 |
| | 19 | % | | $ | 3.41 |
| | $ | 2.41 |
| | $ | 1.00 |
| | 41 | % | |
Realized derivatives loss in cost of sales(2) | 0.13 |
| | 0.17 |
| | (0.04 | ) | | (24 | )% | | 0.05 |
| | 0.60 |
| | (0.55 | ) | | (92 | )% | |
Cost of natural gas in cost of sales | $ | 3.35 |
| | $ | 2.87 |
| | $ | 0.48 |
| | 17 | % | | $ | 3.46 |
| | $ | 3.01 |
| | $ | 0.45 |
| | 15 | % | |
Natural gas supplemental data (per MMBtu) | | Natural gas supplemental data (per MMBtu) | |
| Cost of natural gas used for production in cost of sales(1) | | Cost of natural gas used for production in cost of sales(1) | $ | 3.25 | | | $ | 1.86 | | | $ | 1.39 | | | 75 | % | | $ | 3.24 | | | $ | 2.20 | | | $ | 1.04 | | | 47 | % |
| Average daily market price of natural gas Henry Hub (Louisiana) | $ | 2.93 |
| | $ | 2.84 |
| | $ | 0.09 |
| | 3 | % | | $ | 2.99 |
| | $ | 2.31 |
| | $ | 0.68 |
| | 29 | % | Average daily market price of natural gas Henry Hub (Louisiana) | $ | 2.88 | | | $ | 1.65 | | | $ | 1.23 | | | 75 | % | | $ | 3.13 | | | $ | 1.76 | | | $ | 1.37 | | | 78 | % |
Average daily market price of natural gas National Balancing Point (UK) | $ | 5.46 |
| | $ | 4.08 |
| | $ | 1.38 |
| | 34 | % | | $ | 5.43 |
| | $ | 4.31 |
| | $ | 1.12 |
| | 26 | % | Average daily market price of natural gas National Balancing Point (UK) | $ | 8.90 | | | $ | 1.60 | | | $ | 7.30 | | | N/M | | $ | 7.90 | | | $ | 2.40 | | | $ | 5.50 | | | 229 | % |
Unrealized net mark-to-market (gain) loss on natural gas derivatives | $ | (7 | ) | | $ | 21 |
| | $ | (28 | ) | | N/M |
| | $ | 64 |
| | $ | (169 | ) | | $ | 233 |
| | N/M |
| |
Unrealized net mark-to-market gain on natural gas derivatives | | Unrealized net mark-to-market gain on natural gas derivatives | $ | — | | | $ | — | | | $ | — | | | — | % | | $ | (6) | | | $ | (12) | | | $ | 6 | | | 50 | % |
Depreciation and amortization | $ | 226 |
| | $ | 148 |
| | $ | 78 |
| | 53 | % | | $ | 648 |
| | $ | 475 |
| | $ | 173 |
| | 36 | % | Depreciation and amortization | $ | 243 | | | $ | 239 | | | $ | 4 | | | 2 | % | | $ | 447 | | | $ | 450 | | | $ | (3) | | | (1) | % |
Capital expenditures | $ | 105 |
| | $ | 440 |
| | $ | (335 | ) | | (76 | )% | | $ | 290 |
| | $ | 1,819 |
| | $ | (1,529 | ) | | (84 | )% | Capital expenditures | $ | 110 | | | $ | 52 | | | $ | 58 | | | 112 | % | | $ | 181 | | | $ | 119 | | | $ | 62 | | | 52 | % |
Sales volume by product tons (000s) | 4,877 |
| | 3,666 |
| | 1,211 |
| | 33 | % | | 14,668 |
| | 12,274 |
| | 2,394 |
| | 20 | % | Sales volume by product tons (000s) | 5,174 | | | 5,386 | | | (212) | | | (4) | % | | 9,738 | | | 10,074 | | | (336) | | | (3) | % |
Production volume by product tons (000s): | | | | | | | | | | | | | | | | Production volume by product tons (000s): | |
Ammonia(3) | 2,489 |
| | 1,987 |
| | 502 |
| | 25 | % | | 7,653 |
| | 5,981 |
| | 1,672 |
| | 28 | % | |
Ammonia(2) | | Ammonia(2) | 2,232 | | | 2,483 | | | (251) | | | (10) | % | | 4,711 | | | 5,153 | | | (442) | | | (9) | % |
Granular urea | 1,091 |
| | 827 |
| | 264 |
| | 32 | % | | 3,329 |
| | 2,454 |
| | 875 |
| | 36 | % | Granular urea | 968 | | | 1,206 | | | (238) | | | (20) | % | | 2,152 | | | 2,491 | | | (339) | | | (14) | % |
UAN (32%) | 1,483 |
| | 1,614 |
| | (131 | ) | | (8 | )% | | 5,022 |
| | 4,903 |
| | 119 |
| | 2 | % | UAN (32%) | 1,628 | | | 1,708 | | | (80) | | | (5) | % | | 3,317 | | | 3,307 | | | 10 | | | — | % |
AN | 571 |
| | 475 |
| | 96 |
| | 20 | % | | 1,572 |
| | 1,292 |
| | 280 |
| | 22 | % | AN | 449 | | | 546 | | | (97) | | | (18) | % | | 924 | | | 1,061 | | | (137) | | | (13) | % |
N/M—Not Meaningful
| |
(1)
| Includes the cost of natural gas that is included in cost of sales during the period under the first-in, first-out inventory cost method. |
| |
(2)
| Includes realized gains and losses on natural gas derivatives settled during the period. Excludes unrealized mark-to-market gains and losses on natural gas derivatives. |
| |
(3)
| Gross ammonia production, including amounts subsequently upgraded on-site into granular urea, UAN, or AN. |
(1)Includes the cost of natural gas used for production and related transportation that is included in cost of sales during the period under the first-in, first-out inventory cost method. Includes realized gains and losses on natural gas derivatives settled during the period. Excludes unrealized mark-to-market gains and losses on natural gas derivatives. For the six months ended June 30, 2021, excludes the $112 million gain on net settlement of certain natural gas contracts with our suppliers due to Winter Storm Uri in February 2021.
(2)Gross ammonia production, including amounts subsequently upgraded on-site into granular urea, UAN, or AN.
CF INDUSTRIES HOLDINGS, INC.
ThirdSecond Quarter of 20172021 Compared to ThirdSecond Quarter of 20162020
Net Sales
Our total net sales increased $190$384 million, or 28%32%, to $870 million$1.59 billion in the thirdsecond quarter of 20172021 compared to $680 million$1.20 billion in the thirdsecond quarter of 20162020 due to a 33%an increase in average selling prices, partially offset by a decrease in sales volume,volume. Average selling prices increased by 37% due to strong market conditions, which increased net sales by $252 million,was partially offset by a 4% decreasedecline in sales volume. The increase in net sales also reflects the sale of 104,000 tons of granular urea that we purchased during the second quarter of 2021 to meet customer obligations, an increase of 80,000 tons compared to the second quarter of 2020.
Our average selling prices, which reduced net sales by $62 million.
Average selling prices were $178price was $307 per ton in the thirdsecond quarter of 20172021, or 37% higher, compared to $185$224 per ton in the thirdsecond quarter of 20162020 due primarily to lower ammonia, UAN and granular ureahigher average selling prices in 2017. Selling prices were negatively impactedacross all of our segments, primarily driven by greaterthe impact of a tighter global nitrogen supply and demand balance, as a result of strong global demand as well as decreased global supply availability which continuesas higher global energy costs continued to pressure selling prices globally. During the third quarter of 2017, selling prices for most nitrogen products increased throughout the quarter. The strengthening price environment was driven by significantlydrive lower Chinese exports; higher energy and production costs in parts of the world, including higher natural gas costs in Europe and higher coal costs in China; a weaker U.S. dollar; and strong global demand.operating rates.
The increase inOur total sales volume of 33%5.2 million product tons in the second quarter of 2021 was due primarily4% lower compared to increased5.4 million tons in the second quarter of 2020 as lower sales volume in our granular urea, ammonia and AN segments was offset by higher sales volume in our UAN and Other segments. Sales volume was lower as a result of lower production from the completion of our capacity expansion projects, higher export sales due to the increased imports into the United Statesreduced plant operating rates as a result of higher plant turnaround and a stronger summer UAN fill program.maintenance activity in 2021.
Cost of Sales
Our total cost of sales increased $183$215 million, or 27%25%, fromto $1.09 billion in the thirdsecond quarter of 2016 to2021 from $870 million in the thirdsecond quarter of 2017.2020. The increase in our cost of sales was due primarily to higher costs for natural gas, which increased cost of sales volume, higher depreciation expense related to the completion of our capacity expansion projects and placing those assets into serviceby $131 million, and higher realized natural gasmanufacturing, maintenance and other costs, including the impact of realized derivatives. These increases towhich increased cost of sales by $105 million. These increases were partially offset by targeteda decline in cost reduction initiatives, production efficienciesof sales of $52 million due primarily to increased volume,a 4% decline in sales volume. The increase in cost of sales also reflects the purchase of 104,000 tons of granular urea to meet customer obligations, an unrealized net mark-to-market gain onincrease of 80,000 tons compared to the second quarter of 2020.
Cost of sales averaged $210 per ton in the second quarter of 2021, a 30% increase from $162 per ton in the second quarter of 2020. The cost of natural gas derivatives in the third quarter of 2017 compared to a loss in the same quarter of 2016 and start-up costs of the new ammonia plant at our Donaldsonville facility that occurred in the third quarter of 2016. Additionally, realized natural gas costs,used for production, including the impact of realized derivatives, increased 17% from $2.8775% to $3.25 per MMBtu in 2016 to $3.35 in 2017. The costthe second quarter of sales2021 from $1.86 per ton averaged $177MMBtu in the thirdsecond quarter of 2017, a 4% decrease from the $185 per ton in the same quarter of 2016. The third quarter of 2017 included an unrealized net mark-to-market gain of $7 million compared to an unrealized net mark-to-market loss of $21 million in the third quarter of 2016.2020.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were virtually unchanged at $45increased $9 million to $60 million in the thirdsecond quarter of 20172021 as compared to $44$51 million in the samesecond quarter of 2016.2020. The increase was due primarily to higher incentive compensation due to strong operating performance.
Other Operating—Net
Other operating—net was $2 million of income in the third quarter of 2017 compared to $57$4 million of expense in the samesecond quarter of 2016. The third2021 compared to $6 million of expense in the second quarter of 2016 includes expansion project expenses2020. The $4 million of $24 million, generally consisting of administrative and other project costs that did not qualify for capitalization. The thirdexpense in the second quarter of 2016 also includes an unrealized2021 was due primarily to the loss on foreign currency transactions of $22$3 million, representing a fair value adjustmentwhich consists of foreign currency exchange rate impacts on foreign currency denominated transactions, including the impact of changes in foreign currency exchange rates on intercompany loans that were not permanently invested. The $6 million of expense in the second quarter of 2020 was due primarily to an embedded derivative$8 million of expense related to our strategic venture with CHS. See Note 8—Fair Value Measurements for additional information.the cancellation of a project, which is more fully described in the section above titled “Items Affecting Comparability of Results—Engineering cost write-off,” partially offset by a gain on foreign currency transactions of $5 million.
Equity in LossesEarnings of Operating AffiliatesAffiliate
Equity in lossesearnings of operating affiliates, consistingaffiliate was $11 million in the second quarter of our 50% share2021 compared to $3 million in the second quarter of 2020. The increase in the second quarter of 2021 was due primarily to an increase in the operating results of PLNL was $5 million in the third quarteras a result of 2017 compared to $2 million in the third quarter of 2016. Lower operating results for PLNL were due primarily to lowerhigher ammonia selling prices due to greater nitrogen supply availability.prices.
Interest Expense—Net
Net interest expense was $76$46 million in the thirdsecond quarter of 20172021 compared to $29$32 million in the thirdsecond quarter of 2016, an increase2020. The second quarter of $47 million. The increased interest expense is primarily due to a decrease in the amount2020 included $16 million of interest capitalized dueincome related to the completionfinalization of our capacity expansion projects. In the third quarter of 2016, capitalized interest was $53 million compared to $1 million in the third quarter of 2017. Net interest expense in the third quarter of 2016 also includes $2 million of accelerated amortization of deferred fees related to a July 2016 amendment to our revolving credit facilityTerra amended tax returns, which reduced the facility to $1.5 billion from $2.0 billion.
is more fully described under “Liquidity and Capital Resources—Terra Amended Tax Returns,” below.
CF INDUSTRIES HOLDINGS, INC.
Income Taxes
For the three months ended SeptemberJune 30, 2017,2021, we recorded an income tax benefitprovision of $47$85 million on pre-tax lossincome of $115$402 million, or an effective tax rate of 40.9%21.2%, compared to an income tax benefitprovision of $131$33 million on pre-tax lossincome of $131$251 million, or an effective tax rate of 100.4%13.4%, for the three months ended SeptemberJune 30, 2016.2020. For the three months ended June 30, 2020, our income tax provision includes a $19 million benefit related to the settlement of the audit of the Terra Amended Tax Returns, which is more fully described under “Liquidity and Capital Resources—Terra Amended Tax Returns,” below.
Our effective tax rate in both periods is also impacted by earnings attributable to the noncontrolling interestsinterest in CFN, and TNCLP, as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interests. As a result,interest. Our effective tax rate for the three months ended June 30, 2021 of 21.2%, which is based on pre-tax income of $402 million, including $71 million of earnings attributable to the noncontrolling interestsinterest, would be 4.6 percentage points higher, or 25.8%, if based on pre-tax income exclusive of $19the $71 million in the third quarter of 2017 and$30 million in the third quarter of 2016, which are included in pre-tax loss, have the effect of increasing the effective tax rate in both periods. Our effective tax rate excluding the earnings attributable to the noncontrolling interestsinterest. Our effective tax rate for the three months ended SeptemberJune 30, 20172020 of 13.4%, which is 35.2% as compared to an effective tax ratebased on pre-tax income of 81.8% for the three months ended September 30, 2016.
The income tax benefit of $47$251 million, in the third quarter of 2017 was impacted by a $5including $28 million increase to our deferred tax liability for the State of Illinois enacted tax rate increase.
The income tax benefit of $131 million in the third quarter of 2016 primarily relatedattributable to the fact that we projected that full year 2016noncontrolling interest, would be 1.6 percentage points higher, or 15.0%, if based on pre-tax earnings, excludingincome exclusive of the $28 million attributable to the noncontrolling interests, as a loss. As of June 30, 2016, we were projecting profit for the full year. The impact of this change in projected profitability was an income tax benefit of $163 million. In addition, other items included in our annualized effective tax rate that impacted the income tax benefit recorded in the third quarter of 2016 were, as follows:
We recorded income tax expense of $42 million related to the reversal of prior year U.S. manufacturing profits deductions due to the recapture of these benefits in the third quarter of 2016. The recapture resulted from our intention to carry back certain tax losses to prior years that reduced the amount of the prior year U.S. manufacturing profits deductions that can be claimed.
We recorded a valuation allowance of $21 million against certain foreign deferred tax assets which increased income tax expense.
We recorded an income tax benefit of $9 million related to the impact of certain transaction costs which were treated as not being deductible for tax purposes in the prior year and were deductible in 2016 as a result of the termination of the proposed combination with certain businesses of OCI.
interest. See Note 9—Income Taxes and Note 13—Noncontrolling InterestsInterest for additional information.
Net Earnings Attributable to Noncontrolling InterestsInterest
Net earnings attributable to noncontrolling interests decreased $11interest increased $43 million to $71 million in the thirdsecond quarter of 20172021 as compared to $28 million in the thirdsecond quarter of 20162020 due to lowerhigher earnings from bothof CFN and TNCLP as both were impacteddriven by lowerhigher average selling prices due primarily to a tighter global nitrogen oversupply. The earnings of CFN were also impacted by higher natural gas pricessupply and the impact of higher depreciationdemand balance, as a result of the completion of our capacity expansion projects and placing those assets into service.strong global demand as well as decreased global supply availability as higher global energy costs continued to drive lower global operating rates.
Diluted Net LossEarnings Per Share Attributable to Common Stockholders
Diluted net lossNet earnings per share attributable to common stockholders was $0.37increased $0.25 to $1.14 per diluted share in the thirdsecond quarter of 2017 compared to $0.132021 from $0.89 per diluted share in the thirdsecond quarter of 2016. The higher loss is2020. This increase was due primarily to lower gross marginhigher net earnings, driven by the impact of lowerincrease in average selling prices due to the global nitrogen oversupply, higher depreciation expense related to the completion of our capacity expansion projects, and higher realized natural gas costs, including the impact of realized derivatives.described above.
CF INDUSTRIES HOLDINGS, INC.
NineSix Months Ended SeptemberJune 30, 20172021 Compared to NineSix Months Ended SeptemberJune 30, 20162020
Net Sales
Our total net sales increased $213$461 million, or 8%21%, to $3,031 million$2.64 billion in the first ninesix months of 20172021 as compared to $2,818 million$2.18 billion in the first ninesix months of 20162020 due to a 20%25% increase in sales volume, which increased net sales by $572 million,average selling prices, partially offset by a 10%3% decrease in average selling prices, which reducedsales volume. The increase in net sales by $359 million.also reflects the sale of 201,000 tons of granular urea that we purchased during the first half of 2021 to meet customer obligations, an increase of 177,000 tons compared to the first half of 2020.
Average selling prices were $207$271 per ton in the first ninesix months of 20172021, or 25% higher compared to $230$216 per ton in the first ninesix months of 20162020 due primarily to lower ammonia, UAN, and granular ureahigher average selling prices in 2017. Selling prices were negatively impactedacross all of our segments, primarily driven by greaterthe impact of a tighter global nitrogen supply availability. During the first quarter of 2017, prices began to increase as the supply and demand balance, tightened in anticipationas a result of spring fertilizer demand for the planting and growing season. However, as the first quarter progressed, increased imports into North America increased fertilizer supply, which pressured selling prices downward as the quarter ended. During the second quarter of 2017, anticipated demand failed to materialize and the increased imports that occurred in the first quarter of 2017 continued in the second quarter impacting selling prices. During the third quarter of 2017, selling prices increased throughout the quarter, ending higher than at the beginning of the quarter. The strengthening price environment was driven by significantly lower Chinese exports; higher energy and production costs in parts of the world, including higher natural gas costs in Europe and higher coal costs in China; a weaker U.S. dollar; and strong global demand.demand as well as decreased global supply availability as higher global energy costs continued to drive lower global operating rates.
Our total sales volume increased by 20% fromof 9.7 million product tons in the first ninesix months of 20162021 was 3% lower compared to 10.1 million product tons in the first six months of 2020 as a result of lower production due to the first nine monthstemporary idling of 2017certain plants due primarily to the increased production from the completionWinter Storm Uri and reduced plant operating rates as a result of our capacity expansion projects.higher plant turnaround, maintenance and repair activities in 2021.
Cost of Sales
Our total cost of sales increased $672$207 million, or 32%13%, fromto $1.84 billion in the first ninesix months of 20162021 as compared to $1.64 billion in the first ninesix months of 2017.2020. The increase in our cost of sales was due primarily to the impact of higher sales volume, higher unrealized net mark-to-market losses oncosts for natural gas, derivatives and higher realized natural gas costs, including the impact of realized derivatives, in addition to higher depreciation expense related to the completion of our capacity expansion projects and placing those assets into service. These increases towhich increased cost of sales by $179 million, higher manufacturing, maintenance and other costs, which increased cost of sales by $168 million, and higher costs for purchased products as we purchased $71 million of granular urea during the first half of 2021 to meet customer obligations.
These increases were partially offset by targeted cost reduction initiatives and production efficienciesthe $112 million gain we recognized from the net settlement of certain natural gas contracts with our suppliers in February 2021 due to increased volume and start-up costs ofWinter Storm Uri as described above under the new ammonia plant at our Donaldsonville facility that occurredheading “Natural Gas” in the third quartersection titled “Market Conditions and Current Developments.” The $112 million gain on the net settlement of 2016. Thecertain natural gas contracts in February 2021 is reflected in, and had the effect of reducing, our cost of sales per ton averaged $187 in the first ninesix months of 2017, an 11% increase from $169
CF INDUSTRIES HOLDINGS, INC.
2021. In addition, there was a $98 million decline in cost of sales in the first six months of 2021, as compared to the first six months of 2020, due primarily to a 3% decline in sales volume.
Cost of sales averaged $189 per ton in the same period of 2016. The first ninesix months of 2017 included2021, a $64 million unrealized net mark-to-market loss compared to a $169 million unrealized net mark-to-market gain17% increase from $161 per ton in the first ninesix months of 2016. Additionally, realized2020. The cost of natural gas costs,used for production, including the impact of realized derivatives, increased 15% from $3.0147% to $3.24 per MMBtu in 2016 to $3.46the first six months of 2021 from $2.20 per MMBtu in 2017.the first six months of 2020. The cost of natural gas used for production of $3.24 per MMBtu in the first half of 2021 does not include the $112 million gain from the net settlement of certain natural gas contracts in February 2021.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were virtually unchanged at $140increased $10 million to $115 million in the first ninesix months of 20172021 as compared to $141$105 million in the comparable period of 2016.
Transaction Costs
In the first ninesix months of 2016, we incurred $179 million of transaction costs associated with the agreements pertaining2020. The increase was due primarily to the proposed combination with certain businesses of OCI and our strategic venture with CHS. Transaction costs include the $150 million termination fee paidhigher incentive compensation due to OCI in the second quarter of 2016 as a result of the termination of the combination agreement and costs for various consulting and legal services.strong operating performance.
Other Operating—Net
Other operating—net was $14$2 million of expense in the first ninesix months of 20172021 compared to $181$12 million of expense in the comparable periodfirst six months of 2016.2020. The decreased expense was due primarily to an $86 million loss in the first ninesix months of 2016 from2020 includes $8 million of expense related to the cancellation of a project, which is more fully described in the section above titled “Items Affecting Comparability of Results—Engineering cost write-off,” and foreign currency transaction losses of $13 million, due to the impact of changes in foreign currency exchange rates on primarily British pound and Canadian dollar denominated intercompany loans that were not permanently invested. Due to a restructuringThese factors were partially offset by insurance proceeds of certain intercompany loans, we did not incur the same level$10 million. See “Items Affecting Comparability of foreign exchange rate impactsResults—Insurance proceeds,” above, for additional information.
Equity in Earnings of Operating Affiliate
Equity in earnings of operating affiliate was $22 million in the first ninesix months of 2017. The decreased expense is also due2021 compared to expansion project expenses$6 million in the first ninesix months of 2016 of $59 million, generally consisting of administrative and other project costs that did not qualify for capitalization, and an unrealized loss of $22 million representing a fair value adjustment2020. The increase was due primarily to an embedded derivative related to our strategic venture with CHS.
Equityincrease in Losses of Operating Affiliates
Equity in losses of operating affiliates consists primarily of our 50% share of the operating results of PLNL. Equity in lossesPLNL as a result of operating affiliates was $8 million in the first nine months of 2017 compared to $11 million in the first nine months of
CF INDUSTRIES HOLDINGS, INC.
2016. During the second quarter of 2017, PLNL recorded a tax contingency accrual related to a tax assessment against PLNL, which reduced our equity in earnings of PLNL for the nine months ended September 30, 2017 by approximately $7 million reflecting our 50% ownership interest. The loss in 2016 at PLNL was due primarily to costs of $24 million that were incurred by PLNL during the second quarter of 2016 related to a planned maintenance activity at the PLNLhigher ammonia plant that resulted in the shutdown of the plant for approximately 45 days.selling prices.
Interest Expense—Net
Net interest expense was $233increased by $19 million to $94 million in the first ninesix months of 20172021 compared to $126$75 million in the first ninesix months of 2016.2020. The $107 million increase is primarily due to a decrease$16 million of interest income in 2020 related to the finalization of the Terra amended tax returns, which is more fully described under “Liquidity and Capital Resources—Terra Amended Tax Returns,” below.
Loss on Debt Extinguishment
On March 20, 2021, we redeemed in full all of the remaining $250 million outstanding principal amount of the 2021 Notes in accordance with the optional redemption provisions in the amountindenture 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 interest capitalized due to$6 million, primarily consisting of a premium paid on the completionearly redemption of the capacity expansion projects. In the first nine months of 2016, capitalized interest was $142 million compared to $2 million in the first nine months of 2017. Net interest expense in the first nine months of 2016 also includes the amortization of capitalized bridge credit agreement fees of $28 million pertaining to the bridge loan for our proposed combination with certain businesses of OCI. Upon the termination of the proposed combination with OCI, the unamortized portion of these fees was expensed.notes.
Income Taxes
For the ninesix months ended SeptemberJune 30, 2017,2021, we recorded an income tax benefitprovision of $55$103 million on pre-tax lossincome of $108$595 million, or an effective tax rate of 50.8%17.4%, compared to an income tax benefitprovision of $21$46 million on pre-tax income of $109$355 million, or an effective tax rate of 19.2%13.1%, for the ninesix months ended SeptemberJune 30, 2016.2020.
For the six months ended June 30, 2021, our income tax provision includes a $22 million benefit reflecting the impact of agreement on certain issues related to U.S. federal income tax audits. For the six months ended June 30, 2020, our income tax provision includes a $25 million benefit related to the settlement of certain U.S. and foreign income tax audits, which primarily related to the settlement of the audit of the Terra amended tax returns, which is more fully described under “Liquidity and Capital Resources—Terra Amended Tax Returns,” below.
Our effective tax rate in both periods is also impacted by earnings attributable to the noncontrolling interestsinterest in CFN, and TNCLP, as our consolidated income tax (benefit) provision does not include a tax provision on the earnings attributable to the noncontrolling interests. As a result, ininterest. Our effective tax rate for the first ninesix months ended June 30, 2021 of 2017 and 2016, earnings17.4%, which is based on pre-tax income of $595 million, including $95 million attributable to the noncontrolling interestsinterest, would be 3.3 percentage points higher, or 20.7%, if based on pre-tax
CF INDUSTRIES HOLDINGS, INC.
income exclusive of the $95 million and $87 million, respectively, which are included in pre-tax income (loss), haveattributable to the effect of increasing the effective tax rate.noncontrolling interest. Our effective tax rate excludingfor the earningssix months ended June 30, 2020 of 13.1%, which is based on pre-tax income of $355 million, including $51 million attributable to the noncontrolling interests forinterest, would be 2.1 percentage points higher, or 15.2%, if based on pre-tax income exclusive of the nine months ended September 30, 2017 is 34.0% as compared to an effective tax rate of 93.7% for the nine months ended September 30, 2016.
The income tax benefit of $55$51 million for the nine months ended September 30, 2017 was impacted by a $5 million increase to our deferred tax liability for the State of Illinois enacted tax rate increase.
The income tax benefit of $21 million for the nine months ended September 30, 2016 primarily relatedattributable to the fact that pre-tax earnings excluding the noncontrolling interests was projected to be a loss, but was previously expected to be income.
interest. See Note 9—Income Taxes and Note 13—Noncontrolling InterestsInterest for additional information.
Net Earnings Attributable to Noncontrolling InterestsInterest
Net earnings attributable to noncontrolling interests decreased $33interest increased 86% to $95 million in the first ninesix months of 2017 compared to2021 from $51 million in the first ninesix months of 20162020 due to lowerhigher earnings from bothof CFN and TNCLP as both were impacteddriven by lowerhigher average selling prices due primarily to a tighter global nitrogen oversupply. The earnings of CFN were also impacted bysupply and demand balance as higher natural gas prices and the impact of higher depreciation as a result of the completion of our capacity expansion projects and placing those assets into service.global energy costs drove lower global operating rates.
Diluted Net (Loss) Earnings Per Share Attributable to Common Stockholders
Diluted net (loss)Net earnings per share attributable to common stockholders decreased $0.65increased 53% to $(0.46)$1.83 per diluted share in the first ninesix months of 20172021 from $0.19$1.20 per diluted share in the first ninesix months of 2016.2020. This decreaseincrease is due primarily to lower gross margin primarilythe increase in net earnings, driven by the impact of lowerhigher average selling prices, due to greater global nitrogen supply availability, an increase in unrealized net mark-to-market loss on natural gas derivatives, higher realized natural gas costs, including the impact of realized derivatives, and higher depreciation expense.as described above.
CF INDUSTRIES HOLDINGS, INC.
Operating Results by Business Segment
Our reportable segments consist of ammonia, granular urea, UAN, AN and Other. These segments are differentiated by products. Our management uses gross margin to evaluate segment performance and allocate resources. Total other operating costs and expenses (consisting of selling, general and administrative expenses and other operating—net) and non-operating expenses (interest and income taxes), are centrally managed and are not included in the measurement of segment profitability reviewed by management. The following table presentstables present summary operating results by business segment:segment and the major drivers of the variance in net sales, cost of sales and gross margin:
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| | | Variance due to the following items: | | | | |
| Second Quarter of 2020 | | Higher Average Selling Prices(1) | Volume(1) | Higher Natural Gas Costs(2) | Unrealized MTM on natural gas derivatives | Higher Manufacturing, Maintenance and Other Costs | Increase in Purchased Urea(3) | | | | | Second Quarter of 2021 |
| (dollars in millions) |
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Consolidated | | | | | | | | | | | | | |
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 | % |
Ammonia | | | | | | | | | | | | | |
Net sales | $ | 364 | | | $ | 121 | | $ | (26) | | $ | — | | $ | — | | $ | — | | $ | — | | | | | | $ | 459 | |
Cost of sales | 262 | | | — | | (13) | | 38 | | — | | 46 | | — | | | | | | 333 | |
Gross margin | $ | 102 | | | $ | 121 | | $ | (13) | | $ | (38) | | $ | — | | $ | (46) | | $ | — | | | | | | $ | 126 | |
Gross margin percentage | 28.0 | % | | | | | | | | | | | | 27.5 | % |
Granular Urea | | | | | | | | | | | | | |
Net sales | $ | 329 | | | $ | 144 | | $ | (69) | | $ | — | | $ | — | | $ | — | | $ | 29 | | | | | | $ | 433 | |
Cost of sales | 205 | | | — | | (40) | | 27 | | — | | 18 | | 31 | | | | | | 241 | |
Gross margin | $ | 124 | | | $ | 144 | | $ | (29) | | $ | (27) | | $ | — | | $ | (18) | | $ | (2) | | | | | | $ | 192 | |
Gross margin percentage | 37.7 | % | | | | | | | | | | | | 44.3 | % |
UAN | | | | | | | | | | | | | |
Net sales | $ | 308 | | | $ | 104 | | $ | 22 | | $ | — | | $ | — | | $ | — | | $ | — | | | | | | $ | 434 | |
Cost of sales | 245 | | | — | | 13 | | 36 | | 1 | | 1 | | — | | | | | | 296 | |
Gross margin | $ | 63 | | | $ | 104 | | $ | 9 | | $ | (36) | | $ | (1) | | $ | (1) | | $ | — | | | | | | $ | 138 | |
Gross margin percentage | 20.5 | % | | | | | | | | | | | | 31.8 | % |
AN | | | | | | | | | | | | | |
Net sales | $ | 118 | | | $ | 34 | | $ | (16) | | $ | — | | $ | — | | $ | — | | $ | — | | | | | | $ | 136 | |
Cost of sales | 91 | | | — | | (11) | | 19 | | (1) | | 22 | | — | | | | | | 120 | |
Gross margin | $ | 27 | | | $ | 34 | | $ | (5) | | $ | (19) | | $ | 1 | | $ | (22) | | $ | — | | | | | | $ | 16 | |
Gross margin percentage | 22.9 | % | | | | | | | | | | | | 11.8 | % |
Other | | | | | | | | | | | | | |
Net sales | $ | 85 | | | $ | 34 | | $ | 7 | | $ | — | | $ | — | | $ | — | | $ | — | | | | | | $ | 126 | |
Cost of sales | 67 | | | — | | (1) | | 11 | | — | | 18 | | — | | | | | | 95 | |
Gross margin | $ | 18 | | | $ | 34 | | $ | 8 | | $ | (11) | | $ | — | | $ | (18) | | $ | — | | | | | | $ | 31 | |
Gross margin percentage | 21.2 | % | | | | | | | | | | | | 24.6 | % |
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| Ammonia | | Granular Urea(1) | | UAN(1) | | AN(1) | | Other(1) | | Consolidated |
| (in millions, except percentages) |
Three months ended September 30, 2017 | |
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Net sales | $ | 194 |
| | $ | 228 |
| | $ | 243 |
| | $ | 135 |
| | $ | 70 |
| | $ | 870 |
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Cost of sales | 204 |
| | 220 |
| | 253 |
| | 123 |
| | 61 |
| | 861 |
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Gross margin | $ | (10 | ) | | $ | 8 |
| | $ | (10 | ) | | $ | 12 |
| | $ | 9 |
| | $ | 9 |
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Gross margin percentage | (5.2 | )% | | 3.5 | % | | (4.1 | )% | | 8.9 | % | | 12.9 | % | | 1.0 | % |
Three months ended September 30, 2016 | |
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Net sales | $ | 145 |
| | $ | 167 |
| | $ | 212 |
| | $ | 103 |
| | $ | 53 |
| | $ | 680 |
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Cost of sales | 149 |
| | 152 |
| | 218 |
| | 114 |
| | 45 |
| | 678 |
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Gross margin | $ | (4 | ) | | $ | 15 |
| | $ | (6 | ) | | $ | (11 | ) | | $ | 8 |
| | $ | 2 |
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Gross margin percentage | (2.8 | )% | | 9.0 | % | | (2.8 | )% | | (10.7 | )% | | 15.1 | % | | 0.3 | % |
Nine months ended September 30, 2017 | |
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Net sales | $ | 865 |
| | $ | 725 |
| | $ | 846 |
| | $ | 372 |
| | $ | 223 |
| | $ | 3,031 |
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Cost of sales | 771 |
| | 668 |
| | 783 |
| | 331 |
| | 191 |
| | 2,744 |
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Gross margin | $ | 94 |
| | $ | 57 |
| | $ | 63 |
| | $ | 41 |
| | $ | 32 |
| | $ | 287 |
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Gross margin percentage | 10.9 | % | | 7.9 | % | | 7.4 | % | | 11.0 | % | | 14.3 | % | | 9.5 | % |
Nine months ended September 30, 2016 | |
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Net sales | $ | 770 |
| | $ | 642 |
| | $ | 891 |
| | $ | 318 |
| | $ | 197 |
| | $ | 2,818 |
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Cost of sales | 505 |
| | 445 |
| | 646 |
| | 316 |
| | 160 |
| | 2,072 |
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Gross margin | $ | 265 |
| | $ | 197 |
| | $ | 245 |
| | $ | 2 |
| | $ | 37 |
| | $ | 746 |
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Gross margin percentage | 34.4 | % | | 30.7 | % | | 27.5 | % | | 0.6 | % | | 18.8 | % | | 26.5 | % |
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(1)
| The cost of products that are upgraded into other products is transferred at cost into the upgraded product results. |
CF INDUSTRIES HOLDINGS, INC.
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| | | Variance due to the following items: | | | | |
| Six Months Ended June 30, 2020 | | Higher Average Selling Prices(1) | Volume(1) | Higher Natural Gas Costs(2) | Unrealized MTM on natural gas derivatives | Higher Manufacturing, Maintenance and Other Costs | Increase in Purchased Urea(3) | Gain on Net Settlement of Natural Gas Contracts | | | | Six Months Ended June 30, 2021 |
| (dollars in millions) |
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Consolidated | | | | | | | | | | | | | |
Net sales | $ | 2,175 | | | $ | 538 | | $ | (138) | | $ | — | | $ | — | | $ | — | | $ | 61 | | $ | — | | | | | $ | 2,636 | |
Cost of sales | 1,637 | | | — | | (98) | | 179 | | 6 | | 168 | | 64 | | (112) | | | | | 1,844 | |
Gross margin | $ | 538 | | | $ | 538 | | $ | (40) | | $ | (179) | | $ | (6) | | $ | (168) | | $ | (3) | | $ | 112 | | | | | $ | 792 | |
Gross margin percentage | 24.7 | % | | | | | | | | | | | | 30.0 | % |
Ammonia | | | | | | | | | | | | | |
Net sales | $ | 557 | | | $ | 151 | | $ | (43) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | | | $ | 665 | |
Cost of sales | 435 | | | — | | (26) | | 43 | | 2 | | 71 | | — | | (112) | | | | | 413 | |
Gross margin | $ | 122 | | | $ | 151 | | $ | (17) | | $ | (43) | | $ | (2) | | $ | (71) | | $ | — | | $ | 112 | | | | | $ | 252 | |
Gross margin percentage | 21.9 | % | | | | | | | | | | | | 37.9 | % |
Granular Urea | | | | | | | | | | | | | |
Net sales | $ | 666 | | | $ | 210 | | $ | (105) | | $ | — | | $ | — | | $ | — | | $ | 61 | | $ | — | | | | | $ | 832 | |
Cost of sales | 429 | | | — | | (62) | | 43 | | 2 | | 29 | | 64 | | — | | | | | 505 | |
Gross margin | $ | 237 | | | $ | 210 | | $ | (43) | | $ | (43) | | $ | (2) | | $ | (29) | | $ | (3) | | $ | — | | | | | $ | 327 | |
Gross margin percentage | 35.6 | % | | | | | | | | | | | | 39.3 | % |
UAN | | | | | | | | | | | | | |
Net sales | $ | 543 | | | $ | 81 | | $ | 42 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | | | $ | 666 | |
Cost of sales | 438 | | | — | | 25 | | 50 | | 2 | | 11 | | — | | — | | | | | 526 | |
Gross margin | $ | 105 | | | $ | 81 | | $ | 17 | | $ | (50) | | $ | (2) | | $ | (11) | | $ | — | | $ | — | | | | | $ | 140 | |
Gross margin percentage | 19.3 | % | | | | | | | | | | | | 21.0 | % |
AN | | | | | | | | | | | | | |
Net sales | $ | 234 | | | $ | 46 | | $ | (39) | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | | | $ | 241 | |
Cost of sales | 194 | | | — | | (31) | | 27 | | — | | 25 | | — | | — | | | | | 215 | |
Gross margin | $ | 40 | | | $ | 46 | | $ | (8) | | $ | (27) | | $ | — | | $ | (25) | | $ | — | | $ | — | | | | | $ | 26 | |
Gross margin percentage | 17.1 | % | | | | | | | | | | | | 10.8 | % |
Other | | | | | | | | | | | | | |
Net sales | $ | 175 | | | $ | 50 | | $ | 7 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | | | | $ | 232 | |
Cost of sales | 141 | | | — | | (4) | | 16 | | — | | 32 | | — | | — | | | | | 185 | |
Gross margin | $ | 34 | | | $ | 50 | | $ | 11 | | $ | (16) | | $ | — | | $ | (32) | | $ | — | | $ | — | | | | | $ | 47 | |
Gross margin percentage | 19.4 | % | | | | | | | | | | | | 20.3 | % |
(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.
CF INDUSTRIES HOLDINGS, INC.
Ammonia Segment
Our ammonia segment produces anhydrous ammonia (ammonia), which is our most concentrated nitrogen fertilizer as itproduct. Ammonia contains 82% nitrogen.nitrogen and 18% hydrogen. The results of our ammonia segment consist of sales of ammonia to external customers. In addition, ammonia is the "basic"base nitrogen product that we upgrade into other nitrogen products such as granular urea, UAN and AN. We produce ammonia at all of our nitrogen manufacturing complexes.
The following table presents summary operating data for our ammonia segment:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 v. 2016 | | 2017 | | 2016 | | 2017 v. 2016 | | 2021 | | 2020 | | 2021 v. 2020 | | 2021 | | 2020 | | 2021 v. 2020 |
| (in millions, except as noted) | | (in millions, except as noted) | | (dollars in millions, except per ton amounts) |
Net sales | $ | 194 |
| | $ | 145 |
| | $ | 49 |
| | 34 | % | | $ | 865 |
| | $ | 770 |
| | $ | 95 |
| | 12 | % | Net sales | $ | 459 | | | $ | 364 | | | $ | 95 | | | 26 | % | | $ | 665 | | | $ | 557 | | | $ | 108 | | | 19 | % |
Cost of sales | 204 |
| | 149 |
| | 55 |
| | 37 | % | | 771 |
| | 505 |
| | 266 |
| | 53 | % | Cost of sales | 333 | | | 262 | | | 71 | | | 27 | % | | 413 | | | 435 | | | (22) | | | (5) | % |
Gross margin | $ | (10 | ) | | $ | (4 | ) | | $ | (6 | ) | | (150 | )% | | $ | 94 |
| | $ | 265 |
| | $ | (171 | ) | | (65 | )% | Gross margin | $ | 126 | | | $ | 102 | | | $ | 24 | | | 24 | % | | $ | 252 | | | $ | 122 | | | $ | 130 | | | 107 | % |
Gross margin percentage | (5.2 | )% | | (2.8 | )% | | (2.4 | )% | | | | 10.9 | % | | 34.4 | % | | (23.5 | )% | | | Gross margin percentage | 27.5 | % | | 28.0 | % | | (0.5) | % | | 37.9 | % | | 21.9 | % | | 16.0 | % | |
Sales volume by product tons (000s) | 826 |
| | 505 |
| | 321 |
| | 64 | % | | 2,898 |
| | 2,112 |
| | 786 |
| | 37 | % | Sales volume by product tons (000s) | 1,036 | | | 1,118 | | | (82) | | | (7) | % | | 1,719 | | | 1,880 | | | (161) | | | (9) | % |
Sales volume by nutrient tons (000s)(1) | 677 |
| | 414 |
| | 263 |
| | 64 | % | | 2,376 |
| | 1,732 |
| | 644 |
| | 37 | % | Sales volume by nutrient tons (000s)(1) | 850 | | | 917 | | | (67) | | | (7) | % | | 1,410 | | | 1,542 | | | (132) | | | (9) | % |
Average selling price per product ton | $ | 235 |
| | $ | 287 |
| | $ | (52 | ) | | (18 | )% | | $ | 298 |
| | $ | 365 |
| | $ | (67 | ) | | (18 | )% | Average selling price per product ton | $ | 443 | | | $ | 326 | | | $ | 117 | | | 36 | % | | $ | 387 | | | $ | 296 | | | $ | 91 | | | 31 | % |
Average selling price per nutrient ton(1) | $ | 287 |
| | $ | 350 |
| | $ | (63 | ) | | (18 | )% | | $ | 364 |
| | $ | 445 |
| | $ | (81 | ) | | (18 | )% | Average selling price per nutrient ton(1) | $ | 540 | | | $ | 397 | | | $ | 143 | | | 36 | % | | $ | 472 | | | $ | 361 | | | $ | 111 | | | 31 | % |
Gross margin per product ton | $ | (12 | ) | | $ | (8 | ) | | $ | (4 | ) | | (50 | )% | | $ | 32 |
| | $ | 125 |
| | $ | (93 | ) | | (74 | )% | Gross margin per product ton | $ | 122 | | | $ | 91 | | | $ | 31 | | | 34 | % | | $ | 147 | | | $ | 65 | | | $ | 82 | | | 126 | % |
Gross margin per nutrient ton(1) | $ | (15 | ) | | $ | (10 | ) | | $ | (5 | ) | | (50 | )% | | $ | 40 |
| | $ | 153 |
| | $ | (113 | ) | | (74 | )% | Gross margin per nutrient ton(1) | $ | 148 | | | $ | 111 | | | $ | 37 | | | 33 | % | | $ | 179 | | | $ | 79 | | | $ | 100 | | | 127 | % |
Depreciation and amortization | $ | 37 |
| | $ | 19 |
| | $ | 18 |
| | 95 | % | | $ | 130 |
| | $ | 59 |
| | $ | 71 |
| | 120 | % | Depreciation and amortization | $ | 61 | | | $ | 60 | | | $ | 1 | | | 2 | % | | $ | 97 | | | $ | 99 | | | $ | (2) | | | (2) | % |
Unrealized net mark-to-market (gain) loss on natural gas derivatives | $ | (3 | ) | | $ | 7 |
| | $ | (10 | ) | | N/M |
| | $ | 20 |
| | $ | (55 | ) | | $ | 75 |
| | N/M |
| |
Unrealized net mark-to-market gain on natural gas derivatives | | Unrealized net mark-to-market gain on natural gas derivatives | $ | — | | | $ | — | | | $ | — | | | — | % | | $ | (2) | | | $ | (4) | | | $ | 2 | | | 50 | % |
|
(1)Ammonia represents 82% nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.
N/M—Not Meaningful
| |
(1)
| Ammonia represents 82% nitrogen content. Nutrient tons represent the equivalent tons of nitrogen within the product tons. |
ThirdSecond Quarter of 20172021 Compared to ThirdSecond Quarter of 20162020
Net Sales. Total net Net sales in theour ammonia segment increased by $49$95 million, or 34%26%, to $459 million in the thirdsecond quarter of 20172021 from $364 million in the thirdsecond quarter of 20162020 due primarily to a 64%36% increase in sales volumeaverage selling prices, partially offset by an 18%a 7% decrease in averagesales volume. Average selling prices. The increaseprices increased to $443 per ton in salesthe second quarter of 2021 compared to $326 per ton in the second quarter of 2020 due primarily to the impact of a tighter global nitrogen supply and demand balance. Sales volume was lower due primarily to lower supply availability resulting from reduced production, due to higher production from the completion of our capacity expansion projectsplant turnaround and an increasemaintenance activity in exports. Selling prices declined due to greater global nitrogen supply availability.2021.
Cost of Sales. Cost of sales in our ammonia segment averaged $247$321 per ton in the thirdsecond quarter of 2017,2021, a 16% decrease37% increase from $295$235 per ton in the samesecond quarter of 2016.2020. The decreaseincrease is due primarily to higher realized natural gas costs, higher costs related to plant turnaround and maintenance activity, and a higher cost for purchased ammonia from our joint venture in Trinidad.
Gross Margin. Gross margin in our ammonia segment increased by $24 million to $126 million in the second quarter of 2021 from $102 million in the second quarter of 2020, and our gross margin percentage was 27.5% in the second quarter of 2021 compared to 28.0% in the second quarter of 2020. The increase in gross margin was due primarily to start-upa 36% increase in average selling prices, which increased gross margin by $121 million. This factor was partially offset by the impact of a $46 million net increase in manufacturing, maintenance and other costs, an increase in realized natural gas costs, which reduced gross margin by $38 million, and a 7% decrease in sales volume, which decreased gross margin by $13 million.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Net Sales. Net sales in our ammonia segment increased by $108 million, or 19%, to $665 million in the six months ended June 30, 2021 from $557 million in the six months ended June 30, 2020 due primarily to a 31% increase in average selling prices, partially offset by a 9% decrease in sales volume. The increase in average selling prices was due primarily to the impact of a tighter global nitrogen supply and demand balance. Sales volume was lower due primarily to lower supply
CF INDUSTRIES HOLDINGS, INC.
availability resulting from reduced production due to higher plant turnaround and maintenance activity, including the impact of Winter Storm Uri.
Cost of Sales. Cost of sales in our ammonia segment averaged $240 per ton in the six months ended June 30, 2021, a 4% increase from $231 per ton in the six months ended June 30, 2020. The increase is due primarily to higher realized natural gas costs, a higher cost for purchased ammonia from our joint venture in Trinidad, and higher maintenance and repair activity, partially offset by the impact of the new$112 million gain on the net settlement of certain natural gas contracts with our suppliers in February 2021. See “Market Conditions and Current Developments” above, for additional information on the operational impact of Winter Storm Uri.
Gross Margin. Gross margin in our ammonia plant at our Donaldsonville facility that occurredsegment increased by $130 million to $252 million in the third quartersix months ended June 30, 2021 from $122 million in the six months ended June 30, 2020, and our gross margin percentage was 37.9% in the six months ended June 30, 2021 compared to 21.9% in the six months ended June 30, 2020. The increase in gross margin was due primarily to a 31% increase in average selling prices, which increased gross margin by $151 million, and the $112 million gain on the net settlement of 2016,certain natural gas contracts in February 2021. These factors were partially offset by a $71 million net increase in manufacturing, maintenance and other costs, an increase in realized natural gas costs, which decreased gross margin by $43 million, a 9% decrease in sales volume, which decreased gross margin by $17 million, and the impact of a $2 million unrealized net mark-to-market gain on natural gas derivatives in the third quarter of 2017six months ended June 30, 2021 compared to a loss in the same quarter of 2016 and production efficiencies due to increased volume, partially offset by higher realized natural gas costs and higher depreciation as a result of the new ammonia plants at our Donaldsonville and Port Neal facilities and placing those assets into service in the fourth quarter of 2016. Depreciation and amortization in our ammonia segment in the third quarter of 2017 was $45 per ton compared to $38 per ton in the third quarter of 2016.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Net Sales. Total net sales in the ammonia segment increased by $95$4 million or 12%, in the nine months ended September 30, 2017 from the nine months ended September 30, 2016 due primarily to a 37% increase in sales volume partially offset by an 18% decrease in average selling prices. The increase in sales volume was due to higher production from the completion of our capacity expansion projects and an increase in exports. Selling prices declined due to greater global nitrogen supply availability.
Cost of Sales. Cost of sales in our ammonia segment averaged $266 per ton in the nine months ended September 30, 2017, a 11% increase from $240 per ton in the nine months ended September 30, 2016. The increase was due primarily to an unrealized net mark-to-market loss on natural gas derivatives in the nine months ended September 30, 2017 compared to a gain in the comparable period of 2016, higher depreciation as a result of the new ammonia plants at our Donaldsonville and Port Neal facilities and higher realized natural gas costs, including the impact of realized derivatives, partially offset by production
CF INDUSTRIES HOLDINGS, INC.
efficiencies due to increased volume and start-up costs of the new ammonia plant at our Donaldsonville facility that occurred in the third quarter of 2016. Depreciation and amortization in our ammonia segment in the ninesix months ended SeptemberJune 30, 2017 was $45 per ton compared to $28 per ton in the nine months ended September 30, 2016.2020.
Granular Urea Segment
Our granular urea segment produces granular urea, which contains 46% nitrogen. Produced from ammonia and carbon dioxide, it has the highest nitrogen content of any of our solid nitrogen fertilizers. Granular urea is produced at our Courtright, Ontario; Donaldsonville, Louisiana; Medicine Hat, Alberta; and Port Neal, Iowa, nitrogen complexes.
The following table presents summary operating data for our granular urea segment:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 v. 2016 | | 2017 | | 2016 | | 2017 v. 2016 | | 2021 | | 2020 | | 2021 v. 2020 | | 2021 | | 2020 | | 2021 v. 2020 |
| (in millions, except as noted) | | (in millions, except as noted) | | (dollars in millions, except per ton amounts) |
Net sales | $ | 228 |
| | $ | 167 |
| | $ | 61 |
| | 37 | % | | $ | 725 |
| | $ | 642 |
| | $ | 83 |
| | 13 | % | Net sales | $ | 433 | | | $ | 329 | | | $ | 104 | | | 32 | % | | $ | 832 | | | $ | 666 | | | $ | 166 | | | 25 | % |
Cost of sales | 220 |
| | 152 |
| | 68 |
| | 45 | % | | 668 |
| | 445 |
| | 223 |
| | 50 | % | Cost of sales | 241 | | | 205 | | | 36 | | | 18 | % | | 505 | | | 429 | | | 76 | | | 18 | % |
Gross margin | $ | 8 |
| | $ | 15 |
| | $ | (7 | ) | | (47 | )% | | $ | 57 |
| | $ | 197 |
| | $ | (140 | ) | | (71 | )% | Gross margin | $ | 192 | | | $ | 124 | | | $ | 68 | | | 55 | % | | $ | 327 | | | $ | 237 | | | $ | 90 | | | 38 | % |
Gross margin percentage | 3.5 | % | | 9.0 | % | | (5.5 | )% | | | | 7.9 | % | | 30.7 | % | | (22.8 | )% | | | Gross margin percentage | 44.3 | % | | 37.7 | % | | 6.6 | % | | 39.3 | % | | 35.6 | % | | 3.7 | % | |
Sales volume by product tons (000s) | 1,170 |
| | 823 |
| | 347 |
| | 42 | % | | 3,349 |
| | 2,714 |
| | 635 |
| | 23 | % | Sales volume by product tons (000s) | 1,092 | | | 1,314 | | | (222) | | | (17) | % | | 2,412 | | | 2,695 | | | (283) | | | (11) | % |
Sales volume by nutrient tons (000s)(1) | 539 |
| | 378 |
| | 161 |
| | 43 | % | | 1,541 |
| | 1,248 |
| | 293 |
| | 23 | % | Sales volume by nutrient tons (000s)(1) | 502 | | | 604 | | | (102) | | | (17) | % | | 1,109 | | | 1,239 | | | (130) | | | (10) | % |
Average selling price per product ton | $ | 195 |
| | $ | 203 |
| | $ | (8 | ) | | (4 | )% | | $ | 216 |
| | $ | 237 |
| | $ | (21 | ) | | (9 | )% | Average selling price per product ton | $ | 397 | | | $ | 250 | | | $ | 147 | | | 59 | % | | $ | 345 | | | $ | 247 | | | $ | 98 | | | 40 | % |
Average selling price per nutrient ton(1) | $ | 423 |
| | $ | 442 |
| | $ | (19 | ) | | (4 | )% | | $ | 470 |
| | $ | 514 |
| | $ | (44 | ) | | (9 | )% | Average selling price per nutrient ton(1) | $ | 863 | | | $ | 545 | | | $ | 318 | | | 58 | % | | $ | 750 | | | $ | 538 | | | $ | 212 | | | 39 | % |
Gross margin per product ton | $ | 7 |
| | $ | 18 |
| | $ | (11 | ) | | (61 | )% | | $ | 17 |
| | $ | 73 |
| | $ | (56 | ) | | (77 | )% | Gross margin per product ton | $ | 176 | | | $ | 94 | | | $ | 82 | | | 87 | % | | $ | 136 | | | $ | 88 | | | $ | 48 | | | 55 | % |
Gross margin per nutrient ton(1) | $ | 15 |
| | $ | 40 |
| | $ | (25 | ) | | (63 | )% | | $ | 37 |
| | $ | 158 |
| | $ | (121 | ) | | (77 | )% | Gross margin per nutrient ton(1) | $ | 382 | | | $ | 205 | | | $ | 177 | | | 86 | % | | $ | 295 | | | $ | 191 | | | $ | 104 | | | 54 | % |
Depreciation and amortization | $ | 67 |
| | $ | 25 |
| | $ | 42 |
| | 168 | % | | $ | 187 |
| | $ | 75 |
| | $ | 112 |
| | 149 | % | Depreciation and amortization | $ | 55 | | | $ | 66 | | | $ | (11) | | | (17) | % | | $ | 121 | | | $ | 138 | | | $ | (17) | | | (12) | % |
Unrealized net mark-to-market (gain) loss on natural gas derivatives | $ | (2 | ) | | $ | 5 |
| | $ | (7 | ) | | N/M |
| | $ | 17 |
| | $ | (44 | ) | | $ | 61 |
| | N/M |
| |
Unrealized net mark-to-market gain on natural gas derivatives | | Unrealized net mark-to-market gain on natural gas derivatives | $ | — | | | $ | — | | | $ | — | | | — | % | | $ | (2) | | | $ | (4) | | | $ | 2 | | | 50 | % |
|
N/M—Not Meaningful
(1)Granular urea represents 46% nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.
ThirdSecond Quarter of 20172021 Compared to ThirdSecond Quarter of 20162020
Net Sales. Net sales in theour granular urea segment increased $61$104 million, or 37%32%, to $433 million in the thirdsecond quarter of 20172021 from $329 million in the thirdsecond quarter of 20162020 due primarily to a 42%59% increase in sales volumeaverage selling prices, partially offset by a 4%17% decrease in average selling prices. Sales volume was higher due primarily to increased production as a result of our expanded urea capacity at our Port Neal facility that came on line in the fourth quarter of 2016.sales volume. Average selling prices decreasedincreased to $195$397 per ton in the thirdsecond quarter of 20172021 compared to $203$250 per ton in the thirdsecond quarter of 20162020 due primarily to greatera tighter global nitrogen supply availability.and demand balance. Sales volume was lower due primarily to lower supply availability resulting from reduced production due to the impact of maintenance and repair activity. Due to the reduced production, we purchased additional granular urea, which we sold for $36 million, to meet customer obligations.
CF INDUSTRIES HOLDINGS, INC.
Cost of Sales. Cost of sales in our granular urea segment averaged $188$221 per ton in the thirdsecond quarter of 2017,2021, a 2%42% increase from $185$156 per ton in the samesecond quarter of 2016.2020, due primarily to higher realized natural gas costs and higher costs related to maintenance and repair activity. In addition, we purchased $38 million of granular urea in the second quarter of 2021 to meet customer obligations.
Gross Margin. Gross margin in our granular urea segment increased by $68 million to $192 million in the second quarter of 2021 from $124 million in the second quarter of 2020, and our gross margin percentage was 44.3% in the second quarter of 2021 compared to 37.7% in the second quarter of 2020. The increase in gross margin was due primarily to higher depreciation as a result of the new granular urea plant at our Port Neal facility,59% increase in average selling prices, which increased gross margin by $144 million. This factor was partially offset by a 17% decrease in sales volume, which decreased gross margin by $29 million, the impact of an increase in realized natural gas costs, which decreased gross margin by $27 million, and an $18 million net increase in other manufacturing and distribution costs. In addition, we experienced lower production efficienciesduring the second quarter of 2021 and purchased 104,000 tons of granular urea to meet customer obligations, which had the impact of reducing our gross margin percentage in our granular urea segment by 4.6 percentage points.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Net Sales. Net sales in our granular urea segment increased $166 million, or 25%, to $832 million in the six months ended June 30, 2021 from $666 million in the six months ended June 30, 2020 due primarily to a 40% increase in average selling prices, partially offset by an 11% decrease in sales volume. Average selling prices increased to $345 per ton in the six months ended June 30, 2021 compared to $247 per ton in the six months ended June 30, 2020 due primarily to a tighter global nitrogen supply and demand balance. Sales volume was lower due primarily to lower supply availability resulting from reduced production due to the impact of Winter Storm Uri and maintenance and repair activity. Due to the reduced production, we purchased granular urea, which we sold for $68 million, to meet customer obligations.
Cost of Sales. Cost of sales in our granular urea segment averaged $209 per ton in the six months ended June 30, 2021, a 31% increase from $159 per ton in the six months ended June 30, 2020, due primarily to higher realized natural gas costs and higher costs related to maintenance and repair activity due primarily to Winter Storm Uri. In addition, we purchased $71 million of granular urea to meet customer obligations.
Gross Margin. Gross margin in our granular urea segment increased by $90 million to $327 million in the six months ended June 30, 2021 from $237 million in the six months ended June 30, 2020, and our gross margin percentage was 39.3% in the six months ended June 30, 2021 compared to 35.6% in the six months ended June 30, 2020. The increase in gross margin was due to a 40% increase in average selling prices, which increased gross margin by $210 million. This factor was partially offset by an 11% decrease in sales volume, which decreased gross margin by $43 million, higher realized natural gas costs, which decreased gross margin by $43 million, a $29 million net increase in manufacturing, maintenance and another costs, and the impact of a $2 million unrealized net mark-to-market gain on natural gas derivatives in the third quarter of 2017six months ended June 30, 2021 compared to a loss$4 million gain in the same quartersix months ended June 30, 2020. In addition, we experienced lower production during the six months ended June 30, 2021 and purchased 201,000 tons of 2016. Depreciation and amortizationgranular urea to meet customer obligations, which had the impact of reducing our gross margin percentage in our granular urea segment in the third quarter of 2017 was $57 per ton compared to $30 per ton in the third quarter of 2016.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Net Sales. Net sales in the granular urea segment increased $83 million, or 13%, in the nine months ended September 30, 2017 from the nine months ended September 30, 2016 due primarily to a 23% increase in sales volume partially offset by a 9% decrease in average selling prices. Sales volume was higher due to increased production as a result of our expanded urea capacity at our Port Neal facility that came on line in the fourth quarter of 2016. Average selling prices decreased to $216 per ton in the first nine months of 2017 compared to $237 per ton in the comparable period of 2016 due primarily to greater global nitrogen supply availability.
Cost of Sales. Cost of sales in our granular urea segment averaged $199 per ton in the first nine months of 2017, a 21% increase from $164 per ton in the comparable period of 2016. The increase was due primarily to higher depreciation as a result of the new granular urea plant at our Port Neal facility, an unrealized net mark-to-market loss on natural gas derivatives in the
3.9 percentage points.
CF INDUSTRIES HOLDINGS, INC.
nine months ended September 30, 2017 compared to a gain in the comparable period of 2016 and higher realized natural gas costs, including the impact of realized derivatives. These increases in cost of sales were partially offset by the impact of production efficiencies due to increased volume. Depreciation and amortization in our granular urea segment in the nine months ended September 30, 2017 was $56 per ton compared to $28 per ton in the nine months ended September 30, 2016.
UAN Segment
Our UAN segment produces urea ammonium nitrate solution (UAN). UAN, a liquid fertilizer product with a nitrogen content that typically ranges from 28% to 32%, is produced by combining urea and ammonium nitrate. UAN is produced at our nitrogen complexes in Courtright, Ontario; Donaldsonville, Louisiana; Port Neal, Iowa; Verdigris, Oklahoma; Woodward, Oklahoma; and Yazoo City, Mississippi.
The following table presents summary operating data for our UAN segment:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 v. 2016 | | 2017 | | 2016 | | 2017 v. 2016 | | 2021 | | 2020 | | 2021 v. 2020 | | 2021 | | 2020 | | 2021 v. 2020 |
| (in millions, except as noted) | | (in millions, except as noted) | | (dollars in millions, except per ton amounts) |
Net sales | $ | 243 |
| | $ | 212 |
| | $ | 31 |
| | 15 | % | | $ | 846 |
| | $ | 891 |
| | $ | (45 | ) | | (5 | )% | Net sales | $ | 434 | | | $ | 308 | | | $ | 126 | | | 41 | % | | $ | 666 | | | $ | 543 | | | $ | 123 | | | 23 | % |
Cost of sales | 253 |
| | 218 |
| | 35 |
| | 16 | % | | 783 |
| | 646 |
| | 137 |
| | 21 | % | Cost of sales | 296 | | | 245 | | | 51 | | | 21 | % | | 526 | | | 438 | | | 88 | | | 20 | % |
Gross margin | $ | (10 | ) | | $ | (6 | ) | | $ | (4 | ) | | (67 | )% | | $ | 63 |
| | $ | 245 |
| | $ | (182 | ) | | (74 | )% | Gross margin | $ | 138 | | | $ | 63 | | | $ | 75 | | | 119 | % | | $ | 140 | | | $ | 105 | | | $ | 35 | | | 33 | % |
Gross margin percentage | (4.1 | )% | | (2.8 | )% | | (1.3 | )% | | | | 7.4 | % | | 27.5 | % | | (20.1 | )% | | | Gross margin percentage | 31.8 | % | | 20.5 | % | | 11.3 | % | | 21.0 | % | | 19.3 | % | | 1.7 | % | |
Sales volume by product tons (000s) | 1,693 |
| | 1,350 |
| | 343 |
| | 25 | % | | 5,173 |
| | 4,634 |
| | 539 |
| | 12 | % | Sales volume by product tons (000s) | 1,949 | | | 1,840 | | | 109 | | | 6 | % | | 3,463 | | | 3,230 | | | 233 | | | 7 | % |
Sales volume by nutrient tons (000s)(1) | 536 |
| | 427 |
| | 109 |
| | 26 | % | | 1,636 |
| | 1,461 |
| | 175 |
| | 12 | % | Sales volume by nutrient tons (000s)(1) | 612 | | | 580 | | | 32 | | | 6 | % | | 1,088 | | | 1,016 | | | 72 | | | 7 | % |
Average selling price per product ton | $ | 144 |
| | $ | 157 |
| | $ | (13 | ) | | (8 | )% | | $ | 164 |
| | $ | 192 |
| | $ | (28 | ) | | (15 | )% | Average selling price per product ton | $ | 223 | | | $ | 167 | | | $ | 56 | | | 34 | % | | $ | 192 | | | $ | 168 | | | $ | 24 | | | 14 | % |
Average selling price per nutrient ton(1) | $ | 453 |
| | $ | 496 |
| | $ | (43 | ) | | (9 | )% | | $ | 517 |
| | $ | 610 |
| | $ | (93 | ) | | (15 | )% | Average selling price per nutrient ton(1) | $ | 709 | | | $ | 531 | | | $ | 178 | | | 34 | % | | $ | 612 | | | $ | 534 | | | $ | 78 | | | 15 | % |
Gross margin per product ton | $ | (6 | ) | | $ | (4 | ) | | $ | (2 | ) | | (50 | )% | | $ | 12 |
| | $ | 53 |
| | $ | (41 | ) | | (77 | )% | Gross margin per product ton | $ | 71 | | | $ | 34 | | | $ | 37 | | | 109 | % | | $ | 40 | | | $ | 33 | | | $ | 7 | | | 21 | % |
Gross margin per nutrient ton(1) | $ | (19 | ) | | $ | (14 | ) | | $ | (5 | ) | | (36 | )% | | $ | 39 |
| | $ | 168 |
| | $ | (129 | ) | | (77 | )% | Gross margin per nutrient ton(1) | $ | 225 | | | $ | 109 | | | $ | 116 | | | 106 | % | | $ | 129 | | | $ | 103 | | | $ | 26 | | | 25 | % |
Depreciation and amortization | $ | 71 |
| | $ | 58 |
| | $ | 13 |
| | 22 | % | | $ | 192 |
| | $ | 175 |
| | $ | 17 |
| | 10 | % | Depreciation and amortization | $ | 76 | | | $ | 65 | | | $ | 11 | | | 17 | % | | $ | 132 | | | $ | 117 | | | $ | 15 | | | 13 | % |
Unrealized net mark-to-market (gain) loss on natural gas derivatives | $ | (2 | ) | | $ | 7 |
| | $ | (9 | ) | | N/M |
| | $ | 19 |
| | $ | (52 | ) | | $ | 71 |
| | N/M |
| |
Unrealized net mark-to-market gain on natural gas derivatives | | Unrealized net mark-to-market gain on natural gas derivatives | $ | — | | | $ | (1) | | | $ | 1 | | | 100 | % | | $ | (2) | | | $ | (4) | | | $ | 2 | | | 50 | % |
|
(1)UAN represents between 28% and 32% of nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.
N/M—Not Meaningful
| |
(1)
| UAN represents between 28% and 32% of nitrogen content, depending on the concentration specified by the customer. Nutrient tons represent the tons of nitrogen within the product tons. |
ThirdSecond Quarter of 20172021 Compared to ThirdSecond Quarter of 20162020
Net Sales. Net sales in theour UAN segment increased $31$126 million, or 15%41%, to $434 million in the thirdsecond quarter of 20172021 from $308 million in the thirdsecond quarter of 20162020 due primarily to a 25%34% increase in average selling prices and a 6% increase in sales volume partially offset by an 8% decreasevolume. Average selling prices increased to $223 per ton in average selling prices.the second quarter of 2021 compared to $167 per ton in the second quarter of 2020 due primarily to a tighter global nitrogen supply and demand balance. Sales volume was higher due primarily to greater customer participationhigher demand resulting in a drawdown of our summer fill program and higher export sales. Average selling prices decreased to $144 per ton in the third quarter of 2017 compared to $157 per ton in the third quarter of 2016. UAN selling prices were lower due to greater global nitrogen supply availability.inventory.
Cost of Sales. Cost of sales in our UAN segment averaged $150 per ton in the third quarter of 2017, a 7% decrease from $161 per ton in the third quarter of 2016. The decrease was due primarily to targeted cost reduction initiatives and an unrealized net mark-to-market gain on natural gas derivatives in the third quarter of 2017 compared to a loss in the same quarter of 2016, partially offset by higher realized natural gas costs. Depreciation and amortization in our UAN segment in the third quarter of 2017 was $42 per ton compared to $43 per ton in the third quarter of 2016.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Net Sales. Net sales in the UAN segment decreased $45 million, or 5%, in the nine months ended September 30, 2017 from the nine months ended September 30, 2016 due primarily to a 15% decrease in average selling prices, partially offset by a 12% increase in sales volume. Average selling prices decreased to $164 per ton in the first nine months of 2017 compared to $192 per ton in the comparable period of 2016. UAN selling prices were lower due primarily to greater global nitrogen supply availability. Our sales volume was higher due primarily to greater customer participation in our summer fill program and higher export sales.
Cost of Sales. Cost of sales in our UAN segment averaged $152 per ton in the first nine monthssecond quarter of 2017,2021, a 9%14% increase from $139$133 per ton in the comparable periodsecond quarter of 2016.2020, due primarily to the impact of higher realized natural gas costs and higher costs related to maintenance and repair activity.
Gross Margin. Gross margin in our UAN segment increased by $75 million to $138 million in the second quarter of 2021 from $63 million in the second quarter of 2020, and our gross margin percentage was 31.8% in the second quarter of 2021 compared to 20.5% in the second quarter of 2020. The increase in gross margin was due to a 34% increase in average selling prices, which increased gross margin by $104 million, and a 6% increase in sales volume, which increased gross margin by $9 million. These factors were partially offset by higher realized natural gas costs, which decreased gross margin by $36 million, a $1 million net increase in manufacturing, maintenance and other costs, andthe impact of a $1 million unrealized net mark-to-market gain on natural gas derivatives in the second quarter of 2020.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Net Sales. Net sales in our UAN segment increased $123 million, or 23%, to $666 million in the six months ended June 30, 2021 from $543 million in the six months ended June 30, 2020 due primarily to a 14% increase in average selling prices and a 7% increase in sales volume. Average selling prices increased to $192 per ton in the six months ended June 30, 2021 compared to $168 per ton in the six months ended June 30, 2020, due primarily to a tighter global nitrogen supply and demand balance. The increase in sales volume was due to higher demand resulting in a drawdown of our inventory.
Cost of Sales. Cost of sales in our UAN segment averaged $152 per ton in the six months ended June 30, 2021, a 13% increase from $135 per ton in the six months ended June 30, 2020. The increase was due primarily to the impact of higher realized natural gas costs and higher costs related to maintenance and repair activity.
CF INDUSTRIES HOLDINGS, INC.
Gross Margin. Gross margin in our UAN segment increased by $35 million to $140 million in the six months ended June 30, 2021 from $105 million in the six months ended June 30, 2020, and our gross margin percentage was 21.0% in the six months ended June 30, 2021 compared to 19.3% in the six months ended June 30, 2020. The increase in gross margin was due to a 14% increase in average selling prices, which increased gross margin by $81 million, and a 7% increase in sales volume, which increased gross margin by $17 million. These factors were partially offset by higher realized natural gas costs, which decreased gross margin by $50 million, an $11 million net increase in manufacturing, maintenance and other costs, and the impact of a $2 million unrealized net mark-to-market lossgain on natural gas derivatives in the first ninesix months of 2017ended June 30, 2021 compared to a $4 million gain in the comparable periodsix months ended June 30, 2020.
Antidumping and Countervailing Duty Investigations
On June 30, 2021, we filed petitions with the U.S. Department of 2016Commerce (Commerce) and
CF INDUSTRIES HOLDINGS, INC.
antidumping and countervailing duty investigations on imports of UAN from Russia and Trinidad. We requested the impact of higher realized natural gas costs in the first nine months of 2017, partially offset by targeted cost reduction initiatives and production efficienciesinvestigations due to increased volume. Depreciationthe harm we believe the domestic UAN industry has experienced from dumped and amortization in ourunfairly subsidized imports from these two countries. The ITC instituted preliminary phase injury investigations on July 1, 2021 and Commerce initiated antidumping and countervailing duty investigations on July 20, 2021. The ITC is scheduled to take a preliminary vote on August 13, 2021 on whether there is a reasonable indication that the U.S. UAN segment inindustry is materially injured or threatened with material injury by reason of imports of UAN from Russia and Trinidad. If the nine months ended September 30, 2017 was $37 per ton comparedITC preliminary determination is negative, the ITC and Commerce investigations will be terminated and no antidumping or countervailing duties will be imposed on imports of UAN from Russia or Trinidad. If the ITC preliminary determination is affirmative, Commerce will proceed with its preliminary and final determinations on whether and to $38 per ton inwhat extent these imports are dumped and unfairly subsidized. If any of Commerce’s final determinations are affirmative, the nine months ended September 30, 2016.ITC will make a final determination as to whether the unfairly traded imports materially injure or threaten material injury to the domestic UAN industry. If the ITC makes affirmative final determinations, then Commerce can impose duties equal to the level of dumping and unfair subsidies it has found. At this time, we cannot predict the outcome of the proceedings, including whether antidumping or countervailing duties will be imposed on imports from either country, or the rate of any such duties.
AN Segment
Our AN segment produces ammonium nitrate (AN). AN, is a nitrogen-based product withwhich has a nitrogen content between 29% and 35%., is produced by combining anhydrous ammonia and nitric acid. AN is used as nitrogen fertilizer and is also used by industrial customers for commercial explosives and blasting systems. AN is produced at our nitrogen complexes in Yazoo City, Mississippi and Ince and Billingham, United Kingdom.
The following table presents summary operating data for our AN segment:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 v. 2016 | | 2017 | | 2016 | | 2017 v. 2016 | | 2021 | | 2020 | | 2021 v. 2020 | | 2021 | | 2020 | | 2021 v. 2020 |
| (in millions, except as noted) | | (in millions, except as noted) | | (dollars in millions, except per ton amounts) |
Net sales | $ | 135 |
| | $ | 103 |
| | $ | 32 |
| | 31 | % | | $ | 372 |
| | $ | 318 |
| | $ | 54 |
| | 17 | % | Net sales | $ | 136 | | | $ | 118 | | | $ | 18 | | | 15 | % | | $ | 241 | | | $ | 234 | | | $ | 7 | | | 3 | % |
Cost of sales | 123 |
| | 114 |
| | 9 |
| | 8 | % | | 331 |
| | 316 |
| | 15 |
| | 5 | % | Cost of sales | 120 | | | 91 | | | 29 | | | 32 | % | | 215 | | | 194 | | | 21 | | | 11 | % |
Gross margin | $ | 12 |
| | $ | (11 | ) | | $ | 23 |
| | N/M |
| | $ | 41 |
| | $ | 2 |
| | $ | 39 |
| | N/M |
| Gross margin | $ | 16 | | | $ | 27 | | | $ | (11) | | | (41) | % | | $ | 26 | | | $ | 40 | | | $ | (14) | | | (35) | % |
Gross margin percentage | 8.9 | % | | (10.7 | )% | | 19.6 | % | | | | 11.0 | % | | 0.6 | % | | 10.4 | % | | | Gross margin percentage | 11.8 | % | | 22.9 | % | | (11.1) | % | | 10.8 | % | | 17.1 | % | | (6.3) | % | |
Sales volume by product tons (000s) | 670 |
| | 599 |
| | 71 |
| | 12 | % | | 1,777 |
| | 1,610 |
| | 167 |
| | 10 | % | Sales volume by product tons (000s) | 501 | | | 576 | | | (75) | | | (13) | % | | 939 | | | 1,123 | | | (184) | | | (16) | % |
Sales volume by nutrient tons (000s)(1) | 225 |
| | 203 |
| | 22 |
| | 11 | % | | 599 |
| | 545 |
| | 54 |
| | 10 | % | Sales volume by nutrient tons (000s)(1) | 171 | | | 195 | | | (24) | | | (12) | % | | 318 | | | 379 | | | (61) | | | (16) | % |
Average selling price per product ton | $ | 201 |
| | $ | 172 |
| | $ | 29 |
| | 17 | % | | $ | 209 |
| | $ | 198 |
| | $ | 11 |
| | 6 | % | Average selling price per product ton | $ | 271 | | | $ | 205 | | | $ | 66 | | | 32 | % | | $ | 257 | | | $ | 208 | | | $ | 49 | | | 24 | % |
Average selling price per nutrient ton(1) | $ | 600 |
| | $ | 507 |
| | $ | 93 |
| | 18 | % | | $ | 621 |
| | $ | 583 |
| | $ | 38 |
| | 7 | % | Average selling price per nutrient ton(1) | $ | 795 | | | $ | 605 | | | $ | 190 | | | 31 | % | | $ | 758 | | | $ | 617 | | | $ | 141 | | | 23 | % |
Gross margin per product ton | $ | 18 |
| | $ | (18 | ) | | $ | 36 |
| | N/M |
| | $ | 23 |
| | $ | 1 |
| | $ | 22 |
| | N/M |
| Gross margin per product ton | $ | 32 | | | $ | 47 | | | $ | (15) | | | (32) | % | | $ | 28 | | | $ | 36 | | | $ | (8) | | | (22) | % |
Gross margin per nutrient ton(1) | $ | 53 |
| | $ | (54 | ) | | $ | 107 |
| | N/M |
| | $ | 68 |
| | $ | 4 |
| | $ | 64 |
| | N/M |
| Gross margin per nutrient ton(1) | $ | 94 | | | $ | 138 | | | $ | (44) | | | (32) | % | | $ | 82 | | | $ | 106 | | | $ | (24) | | | (23) | % |
Depreciation and amortization | $ | 24 |
| | $ | 22 |
| | $ | 2 |
| | 9 | % | | $ | 64 |
| | $ | 72 |
| | $ | (8 | ) | | (11 | )% | Depreciation and amortization | $ | 22 | | | $ | 25 | | | $ | (3) | | | (12) | % | | $ | 41 | | | $ | 51 | | | $ | (10) | | | (20) | % |
Unrealized net mark-to-market loss (gain) on natural gas derivatives | $ | — |
| | $ | 1 |
| | $ | (1 | ) | | (100 | )% | | $ | 3 |
| | $ | (7 | ) | | $ | 10 |
| | N/M |
| |
Unrealized net mark-to-market loss on natural gas derivatives | | Unrealized net mark-to-market loss on natural gas derivatives | $ | — | | | $ | 1 | | | $ | (1) | | | (100) | % | | $ | — | | | $ | — | | | $ | — | | | — | % |
|
N/M—Not Meaningful(1)AN represents between 29% and 35% of nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.
| |
(1)
| Nutrient tons represent the tons of nitrogen within the product tons. |
CF INDUSTRIES HOLDINGS, INC.
Second Quarter of 20172021 Compared to ThirdSecond Quarter of 20162020
Net Sales. Total net Net sales in our AN segment increased $32$18 million, or 31%15%, to $136 million in the thirdsecond quarter of 20172021 from $118 million in the thirdsecond quarter of 20162020 due primarily to a 17%32% increase in average selling prices, andpartially offset by a 12% increase13% decrease in sales volume. Average selling prices increased to $271 per ton in the second quarter of 2021 compared to $205 per ton in the second quarter of 2020 due primarily to a tighter global nitrogen supply and salesdemand balance. Sales volume were higherdeclined due primarily to lower supply availability resulting from reduced production, due to the commencement of a new long-term supply agreement in 2017. The increase in sales volume was also driven by a strong summer sales campaign in the United Kingdom.plant turnaround activity.
Cost of Sales. Total cost Cost of sales in our AN segment averaged $183$239 per ton in the third quarter of 2017, a 4% decrease from $190 per ton in the third quarter of 2016, due primarily to costs in the third quarter of 2016 related to plant outages, partially offset by higher realized natural gas costs, including the impact of realized derivatives.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Net Sales. Total net sales in our AN segment increased $54 million, or 17%, in the nine months ended September 30, 2017 from the nine months ended September 30, 2016 as a 10% increase in sales volume, due to the commencement of a new long-term supply agreement, and higher average selling prices, were partially offset by the impact of foreign exchange rate changes between the U.S. dollar and the British pound.
Cost of Sales. Total cost of sales in our AN segment averaged $186 per ton in the first nine months of 2017, a 6% decrease from $197 per ton in the comparable period of 2016. The decrease was due primarily to the impact of foreign exchange rate changes between the U.S. dollar and the British pound, costs in the second quarter of 2016 related to the completion of the reconfiguration at our Yazoo City complex, and plant outages2021, a 51% increase from $158 per ton in the prior year. These decreases were partially offset bysecond quarter of 2020. The increase was due primarily to higher realized natural gas costs and higher costs related to plant turnaround activity. Natural gas costs increased in both the United States and the United Kingdom in 2021 due to increased energy demand as both economies emerged from the COVID-19 pandemic. For example, as measured by the average daily market price of natural gas at the NBP, the major natural gas trading point for the United Kingdom, natural gas prices increased to $8.90 per MMBtu in the second quarter of 2021 from $1.60 per MMBtu in the second quarter of 2020.
Gross Margin. Gross margin in our AN segment decreased $11 million, or 41%, to $16 million in the second quarter of 2021 from $27 million in the second quarter of 2020, and our gross margin percentage was 11.8% in the second quarter of 2021 compared to 22.9% in the second quarter of 2020. The decrease in gross margin was due to a net increase of $22 million in manufacturing, maintenance and other costs, an increase in realized natural gas costs, which decreased gross margin by $19 million, and a 13% decrease in sales volume, which decreased gross margin by $5 million. These factors were partially offset by a 32% increase in average selling prices, which increased gross margin by $34 million, and the impact of an a $1 million unrealized net mark-to-market loss on natural gas derivatives in the first ninesecond quarter of 2020.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Net Sales. Net sales in our AN segment increased $7 million, or 3%, to $241 million in the six months of 2017ended June 30, 2021 from $234 million in the six months ended June 30, 2020 due primarily to a 24% increase in average selling prices, partially offset by a 16% decrease in sales volume. Average selling prices increased to $257 per ton in the six months ended June 30, 2021 compared to a gain$208 per ton in the comparable periodsix months ended June 30, 2020 due primarily to a tighter global nitrogen supply and demand balance. The decrease in sales volume was due to lower supply availability as a result of 2016.reduced production.
Cost of Sales. Cost of sales in our AN segment averaged $229 per ton in the six months ended June 30, 2021, a 33% increase from $172 per ton in the six months ended June 30, 2020. The increase was due primarily to higher realized natural gas costs and higher costs related to plant maintenance activity.
Gross Margin. Gross margin in our AN segment decreased by $14 million, or 35%, to $26 million in the six months ended June 30, 2021 from $40 million in the six months ended June 30, 2020, and our gross margin percentage was 10.8% in the six months ended June 30, 2021 compared to 17.1% in the six months ended June 30, 2020. The decrease in gross margin was due to an increase in realized natural gas costs, which decreased gross margin by $27 million, a net increase of $25 million in manufacturing, maintenance and other costs, and a 16% decrease in sales volume, which decreased gross margin by $8 million. These factors were partially offset by a 24% increase in average selling prices, which increased gross margin by $46 million.
CF INDUSTRIES HOLDINGS, INC.
Other Segment
Our Other segment primarily includes the following products:
•Diesel exhaust fluid (DEF) is an aqueous urea solution typically made with 32.5% or 50% high-purity urea and 67.5%the remainder deionized water.
•Urea liquor is a liquid product that we sell in concentrations of 40%, 50% and 70% urea as a chemical intermediate.
•Nitric acid is a nitrogen-based product with a nitrogen contentmineral acid that is used in the production of 22.2%.nitrate-based fertilizers, nylon precursors and other specialty chemicals.
•Compound fertilizer products (NPKs) are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium.
The following table presents summary operating data for our Other segment:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | 2017 v. 2016 | | 2017 | | 2016 | | 2017 v. 2016 | | 2021 | | 2020 | | 2021 v. 2020 | | 2021 | | 2020 | | 2021 v. 2020 |
| (in millions, except as noted) | | (in millions, except as noted) | | (dollars in millions, except per ton amounts) |
Net sales | $ | 70 |
| | $ | 53 |
| | $ | 17 |
| | 32 | % | | $ | 223 |
| | $ | 197 |
| | $ | 26 |
| | 13 | % | Net sales | $ | 126 | | | $ | 85 | | | $ | 41 | | | 48 | % | | $ | 232 | | | $ | 175 | | | $ | 57 | | | 33 | % |
Cost of sales | 61 |
| | 45 |
| | 16 |
| | 36 | % | | 191 |
| | 160 |
| | 31 |
| | 19 | % | Cost of sales | 95 | | | 67 | | | 28 | | | 42 | % | | 185 | | | 141 | | | 44 | | | 31 | % |
Gross margin | $ | 9 |
| | $ | 8 |
| | $ | 1 |
| | 13 | % | | $ | 32 |
| | $ | 37 |
| | $ | (5 | ) | | (14 | )% | Gross margin | $ | 31 | | | $ | 18 | | | $ | 13 | | | 72 | % | | $ | 47 | | | $ | 34 | | | $ | 13 | | | 38 | % |
Gross margin percentage | 12.9 | % | | 15.1 | % | | (2.2 | )% | | | | 14.3 | % | | 18.8 | % | | (4.5 | )% | | | Gross margin percentage | 24.6 | % | | 21.2 | % | | 3.4 | % | | 20.3 | % | | 19.4 | % | | 0.9 | % | |
Sales volume by product tons (000s) | 518 |
| | 389 |
| | 129 |
| | 33 | % | | 1,471 |
| | 1,204 |
| | 267 |
| | 22 | % | Sales volume by product tons (000s) | 596 | | | 538 | | | 58 | | | 11 | % | | 1,205 | | | 1,146 | | | 59 | | | 5 | % |
Sales volume by nutrient tons (000s)(1) | 97 |
| | 73 |
| | 24 |
| | 33 | % | | 285 |
| | 230 |
| | 55 |
| | 24 | % | Sales volume by nutrient tons (000s)(1) | 119 | | | 108 | | | 11 | | | 10 | % | | 241 | | | 228 | | | 13 | | | 6 | % |
Average selling price per product ton | $ | 135 |
| | $ | 136 |
| | $ | (1 | ) | | (1 | )% | | $ | 152 |
| | $ | 164 |
| | $ | (12 | ) | | (7 | )% | Average selling price per product ton | $ | 211 | | | $ | 158 | | | $ | 53 | | | 34 | % | | $ | 193 | | | $ | 153 | | | $ | 40 | | | 26 | % |
Average selling price per nutrient ton(1) | $ | 722 |
| | $ | 726 |
| | $ | (4 | ) | | (1 | )% | | $ | 782 |
| | $ | 857 |
| | $ | (75 | ) | | (9 | )% | Average selling price per nutrient ton(1) | $ | 1,059 | | | $ | 787 | | | $ | 272 | | | 35 | % | | $ | 963 | | | $ | 768 | | | $ | 195 | | | 25 | % |
Gross margin per product ton | $ | 17 |
| | $ | 21 |
| | $ | (4 | ) | | (19 | )% | | $ | 22 |
| | $ | 31 |
| | $ | (9 | ) | | (29 | )% | Gross margin per product ton | $ | 52 | | | $ | 33 | | | $ | 19 | | | 58 | % | | $ | 39 | | | $ | 30 | | | $ | 9 | | | 30 | % |
Gross margin per nutrient ton(1) | $ | 93 |
| | $ | 110 |
| | $ | (17 | ) | | (15 | )% | | $ | 112 |
| | $ | 161 |
| | $ | (49 | ) | | (30 | )% | Gross margin per nutrient ton(1) | $ | 261 | | | $ | 167 | | | $ | 94 | | | 56 | % | | $ | 195 | | | $ | 149 | | | $ | 46 | | | 31 | % |
Depreciation and amortization | $ | 15 |
| | $ | 12 |
| | $ | 3 |
| | 25 | % | | $ | 40 |
| | $ | 34 |
| | $ | 6 |
| | 18 | % | Depreciation and amortization | $ | 23 | | | $ | 17 | | | $ | 6 | | | 35 | % | | $ | 45 | | | $ | 34 | | | $ | 11 | | | 32 | % |
Unrealized net mark-to-market loss (gain) on natural gas derivatives | $ | — |
| | $ | 1 |
| | $ | (1 | ) | | (100 | )% | | $ | 5 |
| | $ | (11 | ) | | $ | 16 |
| | N/M |
| |
Unrealized net mark-to-market (gain) loss on natural gas derivatives | | Unrealized net mark-to-market (gain) loss on natural gas derivatives | $ | — | | | $ | — | | | $ | — | | | — | % | | $ | — | | | $ | — | | | $ | — | | | — | % |
|
_______________________________________________________________________________N/M—Not Meaningful(1)Nutrient tons represent the tons of nitrogen within the product tons.
| |
(1)
| Nutrient tons represent the tons of nitrogen within the product tons. |
ThirdSecond Quarter of 20172021 Compared to ThirdSecond Quarter of 20162020
Net Sales. Total net Net sales in our Other segment increased by $17$41 million, or 32%48%, to $126 million in the thirdsecond quarter of 20172021 from $85 million in the thirdsecond quarter of 20162020 due primarily to a 33%34% increase in average selling prices and an 11% increase in sales volume partially offset by a 1% decreasevolume. The increase in average selling prices.prices was due primarily to a tighter global nitrogen supply and demand balance. The increase in our Other segment sales volume was due primarily to an increase inhigher DEF and nitric acid sales volume as demand in North America continued to grow. The decline in average selling prices is due primarily to greater global nitrogen supply availability weighing on global nitrogen fertilizer selling prices.volumes, partially offset by lower NPK sales volume.
Cost of Sales. Cost of sales in our Other segment averaged $118$159 per ton in the thirdsecond quarter of 2017,2021, a 3%27% increase from $115$125 per ton in the thirdsecond quarter of 20162020, due primarily to higher realized natural gas costs.costs and higher costs related to plant maintenance activity.
NineGross Margin. Gross margin in our Other segment increased by $13 million, or 72%, to $31 million in the second quarter of 2021 from $18 million in the second quarter of 2020, and our gross margin percentage was 24.6% in the second quarter of 2021 compared to 21.2% in the second quarter of 2020. The increase in gross margin was due to a 34% increase in average selling prices, which increased gross margin by $34 million, and an 11% increase in sales volume, which increased gross margin by $8 million. These factors were partially offset by an $18 million net increase in manufacturing, maintenance and other costs, and an increase in realized natural gas costs, which decreased gross margin by $11 million.
Six Months Ended SeptemberJune 30, 20172021 Compared to NineSix Months Ended SeptemberJune 30, 20162020
Net Sales. Total net Net sales in our Other segment increased by $26$57 million, or 13%33%, to $232 million in the ninesix months ended SeptemberJune 30, 20172021 from $175 million in the ninesix months ended SeptemberJune 30, 20162020 due primarily to a 22%26% increase in average selling prices and a 5% increase in sales volume. The increase in average selling prices was due primarily to a tighter global nitrogen
CF INDUSTRIES HOLDINGS, INC.
supply and demand balance. The increase in sales volume was due primarily to higher DEF and nitric acid sales volumes, partially offset by a 7% decrease in average selling prices. The increase in our Other segment sales volume was due to an increase in DEF sales volume as demand in North America continued to grow. The decline in average selling prices is due to greater global nitrogen supply availability weighing on global nitrogen fertilizer selling prices and the impact of foreign exchange rate changes between the U.S. dollar and the British pound.lower NPK volume.
Cost of Sales. Cost of sales in our Other segment averaged $130$154 per ton in the ninesix months ended SeptemberJune 30, 2017,2021, a 2% decrease25% increase from $133$123 per ton in the ninesix months ended SeptemberJune 30, 20162020 due primarily to the impact of foreign exchange rate changes between the U.S. dollar and the British pound, and the impact of production efficiencies, partially offset by the impact of an unrealized net mark-to-market loss on natural gas derivatives in the first nine months of 2017 comparedhigher costs related to a gain in the comparable period of 2016plant maintenance activity and higher realized natural gas costs.
Gross Margin. Gross margin in our Other segment increased by $13 million, or 38%, to $47 million in the six months ended June 30, 2021 from $34 million in the six months ended June 30, 2020, and our gross margin percentage was 20.3% in the six months ended June 30, 2021 compared to 19.4% in the six months ended June 30, 2020. The increase in gross margin was due to a 26% increase in average selling prices, which increased gross margin by $50 million, and a 5% increase in sales volume, which increased gross margin by $11 million. These factors were partially offset by a $32 million net increase in manufacturing, maintenance and other costs and an increase in realized natural gas costs, which decreased gross margin by $16 million.
CF INDUSTRIES HOLDINGS, INC.
Liquidity and Capital Resources
Our primary uses of cash are generally for operating costs, working capital, capital expenditures, debt service, investments, taxes, share repurchases and dividends. Our working capital requirements are affected by several factors, including demand for our products, selling prices, raw material costs, freight costs and seasonal factors inherent in the business. In addition, we may from time to time seek to retire or purchase our outstanding debt through cash purchases, in open market or privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Generally, our primary source of cash is cash from operations, which includes cash generated by customer advances. We may also from time to time access the capital markets or engage in borrowings under our credit agreements.agreement.
In 2016,On March 20, 2021, we completedredeemed in full all of the remaining $250 million outstanding principal amount of the 2021 Notes, in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the redemption was $258 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million in the six months ended June 30, 2021, primarily consisting of a premium paid on the early redemption of the notes.
On August 9, 2021, we announced that our capacity expansion projects at Donaldsonville, Louisiana and Port Neal, Iowa that were originally announcedwholly owned subsidiary CF Industries has elected to redeem on September 10, 2021, $250 million principal amount, representing one-third of the currently outstanding $750 million principal amount, of the 3.450% senior notes due 2023 (the 2023 Notes), in 2012. These projectsaccordance with the optional redemption provisions provided us with an increase of approximately 25% in production capacity and had a total capital cost of $5.2 billion. The completion of our capacity expansion projects will reduce what had been a substantial use of liquidity in recent years.the indenture governing the 2023 Notes. See discussion under "Overview of CF Holdings—Items Affecting Comparability of Results—Depreciation and Amortization," above, and "—Capital Spending,"“Debt,” below, for further information on these projects.information.
A significant portionAs of the capital assets that were constructed as part of the capacity expansion projects qualifies for bonus depreciation under the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). Under the provisions of the PATH Act, eligible capital additions are subject to 50% bonus depreciation in the year the asset is placed in service. We generated a substantial federal tax loss in 2016, primarily as a result of the bonus depreciation deductions. In the second quarter of 2017, we received a federal tax refund of approximately $815 million as a result of the claim to carry back the 2016 federal tax loss to prior income tax years.
At SeptemberJune 30, 2017,2021, our balance of cash and cash equivalents balance was $1.99 billion and$777 million, an increase of $94 million from $683 million at December 31, 2020. At June 30, 2021, we were in compliance with all applicable covenant requirements under our Revolving Credit Agreement, Public Senior Notesrevolving credit agreement, senior notes and Senior Secured Notes.senior secured notes, and unused borrowing capacity under our revolving credit agreement was $750 million.
Cash and Cash Equivalents
We had cash and cash equivalents of $1.99 billion and $1.16 billion as of September 30, 2017 and December 31, 2016, respectively. Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less. Under our short-term investment policy, we may invest our cash balances, either directly or through mutual funds, in several types of investment-grade securities, including notes and bonds issued by governmental entities or corporations. Securities issued by governmental entities include those issued directly by the U.S. and Canadian federal governments; those issued by state, local or other governmental entities; and those guaranteed by entities affiliated with governmental entities.
Capital Spending
We make capital expenditures to sustain our asset base, increase our capacity, improve plant efficiency and comply with various environmental, health and safety requirements. Capital expenditures totaled $290$181 million in the first ninesix months of 20172021 compared to $1,819$119 million in the first ninesix months of 2016, with the decrease primarily due to the completion in 2016 of our capacity expansion projects at Donaldsonville, Louisiana and Port Neal, Iowa.2020.
The total cost of the capacity expansion projects includes approximately $158 million of costs for work performed in 2016, which were accrued but unpaid as of September 30, 2017. See discussion under "—Projected Capital Spending," below, for further information.
Projected Capital Spending
NewWe currently anticipate that capital expenditures for 2017 are estimatedthe full year of 2021 will be in the range of $500 million, which includes expenditures for our green ammonia project at our Donaldsonville manufacturing complex and reflects higher capital spending due to be approximately $375 million. Additionally,maintenance deferred from 2020 as of September 30, 2017 and December 31, 2016, we had approximately $158 million and $185 million, respectively, of costs accrued for work completedwell as activity that was previously planned to occur in 2016 related to the capacity expansion projects. Most of these unpaid amounts are the subject of disputes with certain contractors and vendors. Actual cash expenditures in 2017 will also reflect any payments for these capacity expansion project amounts when they occur.
2022. Planned capital expenditures are generally subject to change due to delays in regulatory approvals or permitting, unanticipated increases in cost, changes in scope and completion time, performance of third parties, delays in the receipt of equipment, adverse weather, defects in materials and workmanship, labor or material shortages, transportation constraints, acceleration or delays in the timing of the work and other unforeseen difficulties.
CF INDUSTRIES HOLDINGS, INC.
Debt
Revolving Credit Agreement
We have a senior secured revolving credit agreement (the Revolving Credit Agreement) providing, which provides for a revolving credit facility of up to $750 million with a maturity of September 18, 2020.December 5, 2024. The Revolving Credit Agreement includes a letter of credit sub-limit of $125 million. Borrowings under the Revolving Credit Agreement may be used for working capital, capital expenditures, acquisitions, share repurchases and other general corporate purposes. CF Industries may designate as borrowers one or more wholly owned subsidiaries that are organized in the United States or any state thereof, or the District of Columbia.
Borrowings under the Revolving Credit Agreement may be denominated in U.S. dollars, Canadian dollars, euroeuros and British pounds, and bear interest at a per annum rate equal to an applicable eurocurrency rate or base rate plus, in either case, a specified margin, and the borrowersmargin. We are required to pay an undrawn commitment fee on the undrawn portion of the commitments under the Revolving Credit Agreement and customary letter of credit fees. The specified margin and the amount of the commitment fee depend on CF Holdings’ credit rating at the time.
CF Industries is the lead borrower under the Revolving Credit Agreement. The guarantors under the Revolving Credit Agreement are currently comprised of CF Holdings and CF Holdings’ wholly owned subsidiaries CF Industries Enterprises, LLC (CFE), CF Industries Sales, LLC (CFS), CF USA Holdings, LLC (CF USA) and CF Industries Distribution Facilities, LLC (CFIDF).
In March 2020, we borrowed $500 million under the Revolving Credit Agreement to ensure we maintained ample financial flexibility in light of the uncertainty in the global markets, including the financial credit markets, caused by the COVID-19 pandemic. In April 2020, due to confidence in the functioning of the credit markets and strong nitrogen fertilizer business conditions, we repaid the $500 million of borrowings that were outstanding under the Revolving Credit Agreement as of March 31, 2020, which returned our unused borrowing capacity under the Revolving Credit Agreement to $750 million.
As of SeptemberJune 30, 2017,2021, we had excessunused borrowing capacity under the Revolving Credit Agreement of $695$750 million (net ofand no outstanding letters of credit of $55 million).credit. There were no borrowings outstanding under the Revolving Credit Agreement as of SeptemberJune 30, 20172021 or December 31, 2016,2020, or during the ninesix months ended SeptemberJune 30, 2017.2021. Maximum borrowings outstanding under the Revolving Credit Agreement during the ninesix months ended SeptemberJune 30, 20162020 were $150 million, with a$500 million. The weighted-average annual interest rate of 1.85%borrowings under the Revolving Credit Agreement during the six months ended June 30, 2020 was 2.05%. Borrowings under the Revolving Credit Agreement as of March 31, 2020 were repaid in full in April 2020.
The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants, including financial covenants. As of SeptemberJune 30, 2017,2021, we were in compliance with all covenants under the Revolving Credit Agreement.
Letters of Credit
In addition to the letters of credit outstandingthat may be issued under the Revolving Credit Agreement, as described above, we have also entered into a bilateral agreement with capacity to issue up to $250 million of letters of credit up to $75 million.credit. As of SeptemberJune 30, 2017,2021, approximately $73$222 million of letters of credit were outstanding under this agreement.
CF INDUSTRIES HOLDINGS, INC.
Senior Notes
Long-term debt presented on our consolidated balance sheets as of SeptemberJune 30, 20172021 and December 31, 20162020 consisted of the following Public Senior Notes (unsecured)debt securities issued by CF Industries:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Effective Interest Rate | | June 30, 2021 | | December 31, 2020 |
| | Principal | | Carrying Amount(1) | | Principal | | Carrying Amount(1) |
| | | (in millions) |
Public Senior Notes: | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
3.450% due June 2023 | 3.562% | | $ | 750 | | | $ | 748 | | | $ | 750 | | | $ | 748 | |
5.150% due March 2034 | 5.279% | | 750 | | | 741 | | | 750 | | | 741 | |
4.950% due June 2043 | 5.031% | | 750 | | | 742 | | | 750 | | | 742 | |
5.375% due March 2044 | 5.465% | | 750 | | | 741 | | | 750 | | | 741 | |
Senior Secured Notes: | | | | | | | | | |
3.400% due December 2021 | 3.782% | | — | | | — | | | 250 | | | 249 | |
4.500% due December 2026 | 4.759% | | 750 | | | 741 | | | 750 | | | 740 | |
Total long-term debt | | | $ | 3,750 | | | $ | 3,713 | | | $ | 4,000 | | | $ | 3,961 | |
Less: Current maturities of long-term debt | | | — | | | — | | | 250 | | | 249 | |
Long-term debt, net of current maturities | | | $ | 3,750 | | | $ | 3,713 | | | $ | 3,750 | | | $ | 3,712 | |
(1)Carrying amount is net of unamortized debt discount and Senior Secured Notes:
|
| | | | | | | | | | | | | | | | | |
| Effective Interest Rate | | September 30, 2017 | | December 31, 2016 |
| | Principal | | Carrying Amount (1) | | Principal | | Carrying Amount (1) |
| | | (in millions) |
Public Senior Notes: | | | | | | | | | |
6.875% due May 2018 | 7.344% | | $ | 800 |
| | $ | 798 |
| | $ | 800 |
| | $ | 795 |
|
7.125% due May 2020 | 7.529% | | 800 |
| | 792 |
| | 800 |
| | 791 |
|
3.450% due June 2023 | 3.562% | | 750 |
| | 746 |
| | 750 |
| | 745 |
|
5.150% due March 2034 | 5.279% | | 750 |
| | 739 |
| | 750 |
| | 739 |
|
4.950% due June 2043 | 5.031% | | 750 |
| | 741 |
| | 750 |
| | 741 |
|
5.375% due March 2044 | 5.465% | | 750 |
| | 741 |
| | 750 |
| | 741 |
|
Senior Secured Notes: | | | | | | | | | |
3.400% due December 2021 | 3.782% | | 500 |
| | 493 |
| | 500 |
| | 491 |
|
4.500% due December 2026 | 4.759% | | 750 |
| | 736 |
| | 750 |
| | 735 |
|
Total long-term debt | | | $ | 5,850 |
| | $ | 5,786 |
| | $ | 5,850 |
| | $ | 5,778 |
|
Less: Current portion | | | 800 |
| | 798 |
| | — |
| | — |
|
Long-term debt | | | $ | 5,050 |
| | $ | 4,988 |
| | $ | 5,850 |
| | $ | 5,778 |
|
| |
(1)
| Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discount was $12deferred debt issuance costs. Total unamortized debt discount was $9 million as of both September 30, 2017 and December 31, 2016, and total deferred debt issuance costs were $52 million and $60 million as of September 30, 2017 and December 31, 2016, respectively. |
CF INDUSTRIES HOLDINGS, INC.
both June 30, 2021 and December 31, 2020, and total deferred debt issuance costs were $28 million and $30 million as of June 30, 2021 and December 31, 2020, respectively.
Public Senior Notes
Under the indentures (including the applicable supplemental indentures) governing our senior notes due 2018, 2020, 2023, 2034, 2043 and 2044 identified in the table above (the Public Senior Notes), each series of Public Senior Notes is guaranteed by CF Holdings, and, in connection with the effectiveness of the November 2016 amendment to our Revolving Credit Agreement, CF Holdings' wholly owned subsidiaries CF Industries Enterprises, Inc. (CFE) and CF Industries Sales, LLC (CFS) became subsidiary guarantors of the Public Senior Notes.
Holdings. Interest on the Public Senior Notes is payable semiannually, and the Public Senior Notes are redeemable at our option, in whole at any time or in part from time to time, at specified make-whole redemption prices.
On October 30, 2017,August 9, 2021, we announced that our wholly owned subsidiary CF Industries Inc.has elected to redeem in fullon September 10, 2021, $250 million principal amount, representing one-third of the entirecurrently outstanding $800$750 million principal amount, of the 6.875% senior notes (the Notes) due May 2018,2023 Notes, in accordance with the optional redemption provisions provided in the indenture governing the 2023 Notes. We estimate, based on market interest rates on October 30, 2017,August 2, 2021, the total amount for the partial redemption of the 2023 Notes will be approximately $817 million.$265 million, including accrued interest. The partial redemption of the 2023 Notes will be redeemedfunded with cash on December 1, 2017.hand. See Note 11—Financing Agreements for additional information.
Senior Secured Notes
On November 21, 2016, CF Industries issued $500March 20, 2021, we redeemed in full all of the remaining $250 million aggregateoutstanding principal amount of 3.400% senior secured notes duethe 2021 (theNotes in accordance with the optional redemption provisions in the indenture governing the 2021 Notes) and $750Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the redemption was $258 million, aggregate principal amountincluding accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million in the six months ended June 30, 2021, primarily consisting of a premium paid on the early redemption of the notes.
Under the terms of the indenture governing the 4.500% senior secured notes due 2026 (the 2026 Notes), the 2026 Notes are guaranteed on a senior secured basis, jointly and severally, by CF Holdings and each current and future domestic subsidiary of CF Holdings (other than CF Industries) that from time to time is a borrower, or guarantees indebtedness, under the Revolving Credit Agreement. The subsidiary guarantors of the 2026 Notes currently consist of CFE, CFS, CF USA and CFIDF.
Subject to certain exceptions, the obligations under the 2026 Notes and each guarantor’s related guarantee are secured by a first priority security interest in substantially all of the assets of CF Industries, CF Holdings and the subsidiary guarantors, including a pledge by CF USA of its equity interests in CFN and mortgages over certain material fee-owned domestic real properties (the Collateral). The obligations under the Revolving Credit Agreement, together with certain letter of credit, cash management, hedging and similar obligations and future pari passu secured indebtedness, are secured by the 2021Collateral on a pari passu basis with the 2026 Notes. The liens on the Collateral securing the obligations under the 2026 Notes and the Senior Secured Notes). The net proceeds, after deducting discountsrelated
CF INDUSTRIES HOLDINGS, INC.
guarantees will be automatically released and offering expenses,the covenant under the indenture limiting dispositions of Collateral will no longer apply if CF Holdings has an investment grade corporate rating, with a stable or better outlook, from two of three selected ratings agencies and there is no default or event of default under the issuance and sale of the Senior Secured Notes were approximately $1.23 billion. CF Industries used approximately $1.18 billion of the net proceeds for the prepayment (including payment of a make-whole amount of approximately $170 million and accrued interest) in full of the outstanding $1.0 billion aggregate principal amount of the senior notes 2022, 2025 and 2027 (Private Senior Notes) issued by CF Industries on September 24, 2015.indenture.
Interest on the Senior Secured2026 Notes is payable semiannually, on December 1 and June 1 beginning on June 1, 2017, and the Senior Secured2026 Notes are redeemable at our option, in whole at any time or in part from time to time, at specified make-whole redemption prices.
Share Repurchase Program
On February 13, 2019, the Board authorized the repurchase of up to $1 billion of CF Holdings common stock through December 31, 2021 (the 2019 Share Repurchase Program). Repurchases under the 2019 Share Repurchase Program may be made from time to time in the open market, through privately negotiated transactions, block transactions or otherwise. The manner, timing and amount of repurchases will be determined by our management based on the evaluation of market conditions, stock price, and other factors. Since the 2019 Share Repurchase Program was announced in February 2019, we have repurchased approximately 10.2 million shares for $437 million, including 2.6 million shares repurchased during the first quarter of 2020 for $100 million. No shares have been repurchased since the first quarter of 2020 under the 2019 Share Repurchase Program.
Forward Sales and Customer Advances
We offer our customers the opportunity to purchase products from us on a forward basis at prices and on delivery dates we propose. Therefore, our reported fertilizer selling prices and margins may differ from market spot prices and margins available at the time of shipment.
Customer advances, which typically represent a portion of the contract's salescontract’s value, are received shortly after the contract is executed, with any remaining unpaid amount generally being collected by the time control transfers to the product is shipped,customer, thereby reducing or eliminating the accounts receivable related to such sales. Any cash payments received in advance from customers in connection with forward sales contracts are reflected on our consolidated balance sheets as a current liability until related orders are shippedcontrol transfers and revenue is recognized. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, we had $92$9 million and $42$130 million, respectively, in customer advances on our consolidated balance sheets.
While customer advances are generally a significant source of liquidity, the level of forward sales contracts is affected by many factors including current market conditions, and our customers'customers’ outlook of future market fundamentals.fundamentals and seasonality. During periods of declining prices, such as the current environment, customers tend to delay purchasing fertilizer in anticipation that prices in the future will be lower than the current prices. If the level of sales under our forward sales programs were to decrease in the future, our cash received from customer advances would likely decrease and our accounts receivable balances would likely increase. Additionally, borrowing under the Revolving Credit Agreement could become necessary. Due to the volatility inherent in our business and changing customer expectations, we cannot estimate the amount of future forward sales activity.
Under our forward sales programs, a customer may delay delivery of an order due to weather conditions or other factors. These delays generally subject the customer to potential charges for storage or may be grounds for termination of the contract by us. Such a delay in scheduled shipment or termination of a forward sales contract due to a customer'scustomer’s inability or unwillingness to perform may negatively impact our reported sales.
CF INDUSTRIES HOLDINGS, INC.
Derivative Financial Instruments
We use derivative financial instruments to reduce our exposure to changes in prices for natural gas that will be purchased in the future. Natural gas is the largest and most volatile component of our manufacturing cost for nitrogen-based fertilizers.products. From time to time, we may also use derivative financial instruments to reduce our exposure to changes in foreign currency exchange rates. Because we use derivative instruments, volatilityVolatility in reported quarterly earnings can result from the unrealized mark-to-market adjustments in the value of the derivatives. In the three and nine months ended September 30, 2017, we recognized unrealized net mark-to-market (gain) loss on natural gas derivatives of $(7) million and $64 million, respectively. In the three and nine months ended September 30, 2016, we recognized unrealized net mark-to-market loss (gain) on natural gas derivatives of $21 million and $(169) million, respectively. These amounts are reflected in cost of sales in our consolidated statements of operations.
Derivatives expose us to counterparties and the risks associated with their ability to meet the terms of the contracts. For derivatives that are in net asset positions, we are exposed to credit loss from nonperformance by the counterparties. We control our credit risk through the use of multiple counterparties that are multinational commercial banks, other major financial institutions or large energy companies, and, in most cases, the use of International Swaps Derivative Association (ISDA) agreements. The ISDA agreements are master netting arrangements commonly used for over-the-counter derivatives that mitigate exposure to counterparty credit risk, in part, by creating contractual rights of netting and setoff, the specifics of which vary from agreement to agreement.
The ISDA agreements to most of our derivative instruments contain credit-risk-related contingent features, such as cross default provisions and credit support thresholds. In the event of certain defaults or a credit ratings downgrade, our counterparty may request early termination and net settlement of certain derivative trades or may require us to collateralize derivatives in a net liability position. The Revolving Credit Agreement, at any time when it is secured, provides a cross collateral feature for those of our derivatives that are with counterparties that are party to, or affiliates of parties to, the Revolving Credit Agreement so that no separate collateral would be required for those counterparties in connection with such derivatives. In the event the Revolving Credit Agreement becomes unsecured, separate collateral could be required in connection with such derivatives.
As of SeptemberJune 30, 2017 and December 31, 2016, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in net liability positions was $15 million and zero, respectively, which also approximates the fair value of the maximum amount of additional collateral that would need to be posted or assets needed to settle the obligations if the credit-risk-related contingent features were triggered at the reporting dates. As of September 30, 2017 and December 31, 2016, we had2021, our open natural gas derivative contracts consisted of natural gas basis swaps for 75.36.8 million MMBtus and 183.0 million MMBtus, respectively. At September 30, 2017, we had $100 thousand cash collateral on deposit with counterparties for derivative contracts. AtMMBtus. As of December 31, 2016, we had no cash collateral on deposit with counterparties2020, our open natural gas derivative contracts consisted of natural gas fixed price swaps and basis swaps for derivative contracts. The credit support documents executed in connection with certain of our ISDA agreements generally provide us and our counterparties the right to set off collateral against amounts owing under the ISDA agreements upon the occurrence of a default or a specified termination event.
Embedded Derivative Liability
Under the terms of our strategic venture with CHS, if our credit rating as determined by two of three specified credit rating agencies is below certain levels, we are required to make a non-refundable yearly payment of $534.1 million to CHS. The payment would continue on a yearly basis until the earlier of the date that our credit rating is upgraded to or above certain levels by two of three specified credit rating agencies or February 1, 2026. In the fourth quarter of 2016, as a result of a reduction in our credit rating, we made a $5 million payment to CHS.
This term of the strategic venture is recognized on our consolidated balance sheet as an embedded derivative and its value is included in other liabilities. See Note 13—Noncontrolling Interests for additional information.
The fair value of the embedded derivative liability as of September 30, 2017, is $30 million, which is included in other liabilities and other current liabilities on our consolidated balance sheet. Included in other operating—net in our consolidated statement of operations for the nine months ended September 30, 2017 is a loss of $4 million to adjust the liability to fair value.MMBtus.
Defined Benefit Pension Plans
We contributed $75$14 million to our pension plans during the ninesix months ended SeptemberJune 30, 2017.2021. Over the remainder of 2017,2021, we expect to contribute an additional $6$26 million to our pension plans, or a total of approximately $81$40 million for the full year 2017. The contributions in 2017 include a voluntary contribution of $59 million made in the second quarter of 2017.
2021.
CF INDUSTRIES HOLDINGS, INC.
Distribution onto Noncontrolling Interest in CFN
In the third quarter of 2017,On July 30, 2021, the CFN Board of Managers approved semi-annual distribution payments for the distribution period ended June 30, 20172021 in accordance with the CFNCFN’s limited liability company agreement. On July 31, 2017,30, 2021, CFN distributed $59$130 million to CHS for the distribution period ended June 30, 2017. The estimate of the partnership distribution earned by CHS, but not yet declared, for the third quarter of 2017 is approximately $17 million.2021.
Cash Flows
Operating Activities
Net cash provided by operating activities during the first ninesix months of 20172021 was $1,401$706 million, asa decrease of $12 million compared to $591$718 million in the first ninesix months of 2016.2020. The $810decrease in cash flow from operations was due primarily to unfavorable changes in net working capital, partially offset by higher net earnings. During the first six months of 2021, net changes in working capital reduced cash flow from operations by $182 million, increase was primarily duewhile in the first six months of 2020 net changes in working capital contributed $77 million to cash flow from operations. The decreased cash flow from working capital changes including the receipt of our $815 million income tax refund related to the claim to carry back the 2016 federal tax loss to prior income tax years.was primarily driven by accounts receivable and customer advances. The increase in net cash provided by operating activitiesearnings was also a resultdue primarily to higher average selling prices and the $112 million gain on the net settlement of entering 2017certain natural gas contracts with a lower level of customer advances than 2016 due to customer reluctance to enter into prepaid contractsour suppliers in a declining fertilizer price environment. These increases wereFebruary 2021, partially offset by higher contributionscosts related to our pension plans. In the first nine months of 2017, we contributed $75 million to our pension plans compared to $17 million in the first nine months of 2016.manufacturing, maintenance and repair activity.
Investing Activities
Net cash used in investing activities was $251$182 million in the first ninesix months of 20172021 as compared to $1,791$117 million in the first ninesix months of 2016. The $1,540 million decrease is due primarily to lower capital expenditures as a result of the completion of our capacity expansion projects in Donaldsonville, Louisiana and Port Neal, Iowa at the end of 2016.2020. During the first ninesix months of 2017,2021, capital expenditures totaled $290$181 million compared to $1,819$119 million in the first ninesix months of 2016.2020.
Financing Activities
Net cash used in financing activities was $335$433 million in the first ninesix months of 20172021 compared to net cash provided by financing activities of $2,469$323 million in the same periodfirst six months of 2016.2020. In the first ninesix months of 2016, CHS purchased a minority equity interest2021, no shares of common stock were repurchased compared to $100 million in CFN for $2.8 billion.the first six months of 2020. Dividends paid on common stock were $210 million and $209was $130 million in the ninefirst six months ended September 30, 2017of 2021 compared to $129 million in the first six months of 2020. Distributions to noncontrolling interest totaled $64 million in the first six months of 2021 as compared to $88 million in the first six months of 2020.
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 2016, respectively.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.
Contractual Obligations
Except for our October 30, 2017 announcement to redeem in fullIn the entire outstanding $800 million principalsecond quarter of 2020, we received IRS notices indicating the amount of tax and interest to be refunded and received with respect to the Notesincome tax and withholding tax returns. As a result of these events, 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.
Canada Revenue Agency Notices of Reassessment
In 2016, the Canada Revenue Agency (CRA) issued Notices of Reassessment for tax years 2006 through 2009 to one of our Canadian affiliates asserting a disallowance of certain patronage allocations. We filed notices of objection with respect to these reassessments with the CRA and posted letters of credit, which serve as security until the matter is resolved. In 2018, the matter was accepted for consideration under the bilateral settlement provisions of the US-Canada Tax Treaty (the Treaty) by the United States and Canadian competent authorities. In the second quarter of 2021, the Company entered the matter into a binding arbitration process under the terms of the Treaty. The arbitration decision will be issued no later than the first quarter of 2022.
CF INDUSTRIES HOLDINGS, INC.
If we accept the arbitration decision, the associated letters of credit would be cancelled and we may owe additional tax and interest to one taxing jurisdiction, which would likely be due May 2018in the second quarter of 2022. Simultaneously, pursuant to the arbitration determination, the Company would file amended tax returns for the relevant tax years with the second taxing jurisdiction to recover taxes overpaid and would receive interest on December 1, 2017, there have been nothe overpayment. The payment of tax and interest, and the subsequent receipt of tax and interest refunds, each of which could be material, will likely occur in different reporting periods. Due to uncertainty about the ultimate outcome of this matter, we are not able to predict the amount of tax and interest that we may ultimately pay to, or subsequently receive from, the taxing authorities.
Regulation of Greenhouse Gases
Our U.K manufacturing plants are subject to greenhouse gas (GHG) regulations in the United Kingdom. After the United Kingdom’s exit from the European Union, the U.K. government instituted new GHG regulations in 2021, including establishing the U.K. Emission Trading Scheme (UK ETS). The UK ETS replaces the European Union Emissions Trading System for U.K. companies. In conjunction with these changes, outside the ordinary course of businessU.K. GHG regulations established a lower emission cap than applied to us under the European GHG regulations. Under the new U.K. requirements, we are required to obtain and surrender emission allowances equivalent to our contractual obligations as describedannual greenhouse gas emissions, although we anticipate that we will be allocated a certain number of free allowances. Our remaining European Union emissions credits are not applicable in our 2016 Annual Report on Form 10-K filed with the SEC on February 23, 2017.
Off-Balance Sheet Arrangements
United Kingdom, and separate U.K. emissions credits will need to be procured to offset emissions that are in excess of the number of free allowances allocated to us. We have operating leases for certain propertyrecognized the estimated cost to procure the necessary U.K. credits based on our understanding of the program requirements and equipment under various noncancelable agreements, including rail car leases and barge tow charters that are utilized forusing market observable transactions. Given the distributionrecent development of our products. The rail car leases currently have minimum terms ranging from one to eleven yearsthe U.K. emissions trading market and the barge charter commitments currently have terms ranging from one to seven years. We also have terminal and warehouse storage agreements for our distribution system, somelimited number of which contain minimum throughput requirements. The storage agreements contain minimum terms ranging from one to five years and commonly contain automatic annual renewal provisions thereafter unless canceled by either party. See Note 24—Leasesparticipants, changes in the notesprice of credits could occur as the market is subject to our consolidated financial statements included in our 2016 Annual Reportchange based on Form 10-K filedmarket participants and liquidity. It is unclear if the UK ETS will be linked with other emission trading programs from other countries. The U.K. government can also change the SEC on February 23, 2017 for additional information concerning leases.emission cap or allowances of the GHG regulations, which could also impact the cost of compliance with this program.
We do not have any other off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
There were no changes to our significant accounting policies or estimates during the first ninesix months of 2017.
Recent Accounting Pronouncements
See Note 2—New Accounting Standards for a discussion of recent accounting pronouncements.
2021.
CF INDUSTRIES HOLDINGS, INC.
FORWARD-LOOKING STATEMENTS
From time to time, in this Quarterly Report on Form 10-Q as well as in other written reports and oral statements, we make forward-looking statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our prospects, future developments and business strategies. We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will,"“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” or "would"“would” and similar terms and phrases, including references to assumptions, to identify forward-looking statements in this document. These forward-looking statements are made based on currently available competitive, financial and economic data, our current expectations, estimates, forecasts and projections about the industries and markets in which we operate and management'smanagement’s beliefs and assumptions concerning future events affecting us. These statements are not guarantees of future performance and are subject to risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Therefore, our actual results may differ materially from what is expressed in or implied by any forward-looking statements. We want to caution you not to place undue reliance on any forward-looking statements. We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this document. Additionally, we do not undertake any responsibility to provide updates regarding the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this document.
Important factors that could cause actual results to differ materially from our expectations are disclosed under "Risk Factors"“Risk Factors” in Item 1A in our 2016 Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 23, 2017.24, 2021. Such factors include, among others:
•the cyclical nature of our business and the agricultural sector;
the global commodity nature of our fertilizer products, the impact of global supply and demand on our selling prices,prices;
•the global commodity nature of our nitrogen products, the conditions in the international market for nitrogen products, and the intense global competition from other fertilizer producers;
•conditions in the U.S.United States, Europe and Europeanother agricultural industry;areas;
•the volatility of natural gas prices in North America and Europe;
•weather conditions;
•the seasonality of the fertilizer business;
•the impact of changing market conditions on our forward sales programs;
•difficulties in securing the supply and delivery of raw materials, increases in their costs or delays or interruptions in their delivery;
•reliance on third party providers of transportation services and equipment;
•risks associated with cyber security;
•our reliance on a limited number of key facilities;
•acts of terrorism and regulations to combat terrorism;
•risks associated with international operations;
•the significant risks and hazards involved in producing and handling our products against which we may not be fully insured;
•our ability to manage our indebtedness;indebtedness and any additional indebtedness that may be incurred;
operating and financial restrictions imposed on us by the agreements governing our senior secured indebtedness;
risks associated with our incurrence of additional indebtedness;
•our ability to maintain compliance with covenants under our revolving credit agreement and the agreements governing our indebtedness;
•downgrades of our credit ratings;
risks associated with cyber security;
weather conditions;
risks associated with our ability to utilize our tax net operating losses and other tax assets, including the risk that the use of such tax benefits is limited by an "ownership change;"
•risks associated with changes in tax laws and disagreements with taxing authorities;
•risks involving derivatives and the effectiveness of our risk measurement and hedging activities;
•potential liabilities and expenditures related to environmental, health and safety laws and regulations and permitting requirements;
•regulatory restrictions and requirements related to greenhouse gas emissions;
•the development and growth of the market for green and blue (low-carbon) ammonia and the risks and uncertainties relating to the development and implementation of our green and blue (low-carbon) ammonia projects;
•risks associated with expansions of our business, including unanticipated adverse consequences and the significant resources that could be required;
potential liabilities and expenditures related to environmental, health and safety laws and regulations and permitting requirements;
future regulatory restrictions and requirements related to greenhouse gas emissions;
the seasonality of the fertilizer business;
the impact of changing market conditions on our forward sales programs;
risks involving derivatives and the effectiveness of our risk measurement and hedging activities;
our reliance on a limited number of key facilities;
•risks associated with the operation or management of the CHS strategic venture, risks and uncertainties relating to the market prices of the fertilizer products that are the subject of our supply agreement with CHS over the life of the supply agreement, and the risk that any challenges related to the CHS strategic venture will harm our other business relationships; and
risks associated with•the impact of the novel coronavirus disease 2019 (COVID-19) pandemic, including measures taken by governmental authorities to slow the spread of the virus, on our PLNL joint venture;
acts of terrorismbusiness and regulations to combat terrorism;
risks associated with international operations; and
deterioration of global market and economic conditions.
operations.
CF INDUSTRIES HOLDINGS, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to the impact of changes in commodity prices, interest rates and foreign currency exchange rates.
Commodity Prices
Our net sales, cash flows and estimates of future cash flows related to nitrogen-based fertilizersproducts are sensitive to changes in fertilizerselling prices as well as changes in the prices of natural gas and other raw materials unless these costs have been fixed or hedged. A $1.00 per MMBtu change in the price of natural gas would change the cost to produce a ton of ammonia, granular urea, UAN (32%), and AN by approximately $32,$33, $22, $14 and $15, respectively.
Natural gas is the largest and most volatile component of the manufacturing cost for nitrogen-based fertilizers. We manageproducts. At certain times, we have managed the risk of changes in natural gas prices primarily withthrough the use of derivative financial instruments covering periods through December 2018.instruments. The derivative instruments that we use for this purpose are primarily natural gas fixed price swaps, basis swaps and natural gas options. These derivatives settle using primarily a NYMEX futures price indexes,index, which representrepresents the basis for fair value at any given time. The contracts represent anticipated natural gas needs for future periods and settlements are scheduled to coincide with anticipated natural gas purchases during those future periods.
As of SeptemberJune 30, 2017 and December 31, 2016,2021, we had open natural gas derivative contracts covering certain periods through March 2022.
As of June 30, 2021 and December 31, 2020, we had open derivative contracts for 75.36.8 million MMBtus and 183.034.1 million MMBtus, respectively. A $1.00 per MMBtu increase in the forward curve prices of natural gas at SeptemberJune 30, 20172021 would result in a favorable change in the fair value of these derivative positions of $62approximately $7 million, and a $1.00 per MMBtu decrease in the forward curve prices of natural gas would change their fair value unfavorably by $62approximately $7 million.
From time to time we may purchase nitrogen products on the open market to augment or replace production at our facilities.
Interest Rate FluctuationsRates
As of SeptemberJune 30, 2017,2021, we had eightfive series of senior notes totaling $5.85$3.75 billion of principal outstanding with maturity dates of May 1, 2018, May 1, 2020, December 1, 2021, June 1, 2023, December 1, 2026, March 15, 2034, June 1, 2043 and March 15, 2044. The senior notes have fixed interest rates. As of SeptemberJune 30, 2017,2021, the carrying value and fair value of our senior notes was approximately $5.79$3.71 billion and $5.92$4.37 billion, respectively.
Borrowings under the Revolving Credit Agreement bear current market rates of interest and we are subject to interest rate risk on such borrowings. There were no borrowings outstanding under the Revolving Credit Agreement as of SeptemberJune 30, 20172021, or December 31, 2016,2020, or during the ninesix months ended SeptemberJune 30, 2017.2021. Maximum borrowings outstanding under the Revolving Credit Agreement during the ninesix months ended SeptemberJune 30, 20162020 were $150 million with a$500 million. The weighted-average annual interest rate of 1.85%borrowings under the Revolving Credit Agreement during the six months ended June 30, 2020 was 2.05%.
Foreign Currency Exchange Rates
From the fourth quarter of 2012 through 2016, we had entered into euro/U.S. dollar derivative hedging transactions related to the euro-denominated construction costs associated with our capacity expansion projects at our Donaldsonville, Louisiana and Port Neal, Iowa facilities. All of these foreign currency derivatives settled prior to December 31, 2016.
We are directly exposed to changes in the value of the Canadian dollar, the British pound and the euro. Outside of the transactions described above, weWe generally do not maintain any exchange rate derivatives or hedges related to these currencies.
CF INDUSTRIES HOLDINGS, INC.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Disclosure Controls and Procedures. The Company'sCompany’s management, with the participation of the Company'sCompany’s principal executive officer and principal financial officer, has evaluated the effectiveness of the Company'sCompany’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, the Company'sCompany’s principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company'sCompany’s disclosure controls and procedures are effective in (i) ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC'sSEC’s rules and forms and (ii) ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company'sCompany’s management, including the Company'sCompany’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting. There have not been any changes in the Company'sCompany’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended SeptemberJune 30, 20172021 that have materially affected, or are reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
West Fertilizer Co.
On April 17, 2013, there was a fire and explosion at the West Fertilizer Co. fertilizer storage and distribution facility in West, Texas. According to published reports, 15 people were killed and approximately 200 people were injured in the incident, and the fire and explosion damaged or destroyed a number of homes and buildings around the facility. Various subsidiaries of CF Industries Holdings, Inc. (the CF Entities) have beenwere named as defendants along with other companies in lawsuits filed in 2013, 2014 and 2015 in the District Court of McLennan County, Texas by the City of West, individual residents of the County and other parties seeking recovery for damages allegedly sustained as a result of the explosion. The cases have beenwere consolidated for discovery and pretrial proceedings in the District Court of McLennan County under the caption "In“In re: West Explosion Cases."” The two-year statute of limitations expired on April 17, 2015. As of that date, over 400 plaintiffs had filed claims, including at least 9 entities, 325 individuals, and 80 insurance companies. Plaintiffs allege various theories of negligence, strict liability, and breach of warranty under Texas law. Although we do not own or operate the facility or directly sell our products to West Fertilizer Co., products that the CF Entities have manufactured and sold to others have beenwere delivered to the facility and may have been stored at the West facility at the time of the incident.
The Court granted in part and denied in part the CF Entities'Entities’ Motions for Summary Judgment in August 2015. Over one hundred fortyNearly all of the cases, including all wrongful death and personal injury claims, have been resolved pursuant to confidential settlements that have been or we expect will be fully funded by insurance. The remaining casessubrogation and statutory indemnification claims total approximately $37 million, before prejudgment interest, and are in various stages of discovery and pre-trial proceedings. The nextremaining claims are expected to be set for trial is scheduled to begin on January 16, 2018.in 2022. We believe we have strong legal and factual defenses and intend to continue defending the CF Entities vigorously in the pendingremaining lawsuits. The Company cannot provide a range of reasonably possible loss due to the lack of damages discovery for many of the remaining claims and the uncertain nature of this litigation, including uncertainties around the potential allocation of responsibility by a jury to other defendants or responsible third parties. The recognition of a potential loss in the future in the West Fertilizer Co. litigation could negatively affect our results in the period of recognition. However, based upon currently available information, including availablewe expect any potential loss to be fully indemnified by insurance coverage, weand do not believe that this litigation will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
CF INDUSTRIES HOLDINGS, INC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
There were no stockThe following table sets forth share repurchases, duringon a trade date basis, for each of the three months of the quarter ended SeptemberJune 30, 2017.2021.
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| Issuer Purchases of Equity Securities |
Period | Total number of shares (or units) purchased(1) | | Average price paid per share (or unit) | | Total number of shares (or units) purchased as part of publicly announced plans or programs(2) | | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs (in thousands)(2) |
April 1, 2021 - April 30, 2021 | — | | | $ | — | | | — | | | $ | 563,407 | |
May 1, 2021 - May 31, 2021 | 6,875 | | | 54.65 | | | — | | | 563,407 | |
June 1, 2021 - June 30, 2021 | 5,284 | | | 51.42 | | | — | | | 563,407 | |
Total | 12,159 | |
| $ | 53.25 | | | — | | | |
(1)Represents shares withheld to pay employee tax obligations upon the lapse of restrictions on restricted stock units and performance restricted stock units and upon the exercise of nonqualified stock options, and shares withheld to cover the price of the shares upon the exercise of nonqualified stock options.
(2)On February 13, 2019, our Board of Directors authorized management to repurchase CF Holdings common stock for a total expenditure of up to $1 billion through December 31, 2021 (the 2019 Share Repurchase Program). This program is discussed in Note 14—Stockholders’ Equity, in the notes to the unaudited consolidated financial statements included in Part I.
ITEM 6. EXHIBITS.
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A list of exhibits filed with this Quarterly Report on Form 10-Q (or incorporated by reference to exhibits previously filed or furnished) is provided in the Exhibit Index on page 6055 of this report. |
CF INDUSTRIES HOLDINGS, INC.
EXHIBIT INDEX
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101 |
| The following financial information from CF Industries Holdings, Inc.'s’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2017,2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (1) Consolidated Statements of Operations, (2) Consolidated Statements of Comprehensive Income, (Loss), (3) Consolidated Balance Sheets, (4) Consolidated Statements of Equity, (5) Consolidated Statements of Cash Flows, and (6) the Notes to Unaudited Consolidated Financial Statements |
104 | | Cover Page Interactive Data File (included in the Exhibit 101 Inline XBRL Document Set)
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CF INDUSTRIES HOLDINGS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | CF INDUSTRIES HOLDINGS, INC. |
| Date: November 2, 2017August 9, 2021 | By: | /s/ W. ANTHONY WILL |
| | | W. Anthony Will President and Chief Executive Officer (Principal Executive Officer) |
| Date: November 2, 2017August 9, 2021 | By: | /s/ DENNIS P. KELLEHERCHRISTOPHER D. BOHN |
| | | Dennis P. KelleherChristopher D. Bohn
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |