CF Industries Holdings, Inc. [CF] Filings

10-Q 1 cf-20230930.htm 10-Q cf-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM			10-Q


(Mark One)
☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023





OR
☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 001-32597

CF INDUSTRIES HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-2697511

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

4 Parkway North

60015

Deerfield, Illinois

(Zip Code)

(Address of principal executive offices)

(Registrant’s telephone number, including area code): (847) 405-2400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

common stock, par value $0.01 per share

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

191,056,501 shares of the registrant’s common stock, par value $0.01 per share, were outstanding at October 31, 2023.

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CF INDUSTRIES HOLDINGS, INC.

TABLE OF CONTENTS


PART I.	Financial Information
	Item 1.	Financial Statements (unaudited)
		Consolidated Statements of Operations	1
		Consolidated Statements of Comprehensive Income	2
		Consolidated Balance Sheets	3
		Consolidated Statements of Equity	4
		Consolidated Statements of Cash Flows	6
		Notes to Unaudited Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
	Item 4.	Controls and Procedures	53
PART II.	Other Information


	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
	Item 5.	Other Information	53
	Item 6.	Exhibits	53

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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,
	2023		2022		2023		2022
	(in millions, except per share amounts)
Net sales	$	1,273	$	2,321	$	5,060	$	8,578
Cost of sales	896		1,405		3,016		3,973
Gross margin	377		916		2,044		4,605
Selling, general and administrative expenses	68		66		213		203


U.K. long-lived and intangible asset impairment	—		87		—		239

U.K. operations restructuring	5		8		7		18
Transaction costs	11		—		27		—
Other operating—net	13		25		(19)		33
Total other operating costs and expenses	97		186		228		493

Equity in (losses) earnings of operating affiliate	(36)		20		(12)		74
Operating earnings	244		750		1,804		4,186
Interest expense	39		46		115		369
Interest income	(45)		(12)		(115)		(56)
Loss on debt extinguishment	—		—		—		8
Other non-operating—net	(3)		23		(8)		24
Earnings before income taxes	253		693		1,812		3,841
Income tax provision	23		155		326		913

Net earnings	230		538		1,486		2,928
Less: Net earnings attributable to noncontrolling interest	66		100		235		442
Net earnings attributable to common stockholders	$	164	$	438	$	1,251	$	2,486
Net earnings per share attributable to common stockholders:
Basic	$	0.85	$	2.19	$	6.44	$	12.09
Diluted	$	0.85	$	2.18	$	6.42	$	12.04
Weighted-average common shares outstanding:
Basic	192.4		200.2		194.4		205.6
Diluted	192.9		200.9		194.9		206.5
Dividends declared per common share	$	0.40	$	0.40	$	1.20	$	1.10

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
	(in millions)
Net earnings	$	230	$	538	$	1,486	$	2,928
Other comprehensive (loss) income:
Foreign currency translation adjustment—net of taxes	(27)		(9)		3		(49)


Defined benefit plans—net of taxes	1		24		2		36
	(26)		15		5		(13)
Comprehensive income	204		553		1,491		2,915
Less: Comprehensive income attributable to noncontrolling interest	66		100		235		442
Comprehensive income attributable to common stockholders	$	138	$	453	$	1,256	$	2,473

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	September 30, 2023		December 31, 2022
	(in millions, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	3,254	$	2,323

Accounts receivable—net	417		582
Inventories	318		474

Prepaid income taxes	147		215
Other current assets	54		79
Total current assets	4,190		3,673
Property, plant and equipment—net	6,156		6,437
Investment in affiliate	32		74
Goodwill	2,089		2,089
Operating lease right-of-use assets	277		254
Other assets	799		786
Total assets	$	13,543	$	13,313
Liabilities and Equity
Current liabilities:

Accounts payable and accrued expenses	$	497	$	575
Income taxes payable	20		3
Customer advances	282		229
Current operating lease liabilities	101		93

Other current liabilities	26		95
Total current liabilities	926		995
Long-term debt	2,967		2,965
Deferred income taxes	882		958
Operating lease liabilities	179		167
Other liabilities	288		375
Equity:
Stockholders’ equity:
Preferred stock—$0.01 par value, 50,000,000 shares authorized	—		—
Common stock—$0.01 par value, 500,000,000 shares authorized, 2023—192,963,252 shares issued and 2022—195,604,404 shares issued	2		2
Paid-in capital	1,416		1,412
Retained earnings	4,681		3,867
Treasury stock—at cost, 2023—1,911,732 shares and 2022—0 shares	(151)		—
Accumulated other comprehensive loss	(225)		(230)
Total stockholders’ equity	5,723		5,051
Noncontrolling interest	2,578		2,802
Total equity	8,301		7,853
Total liabilities and equity	$	13,543	$	13,313

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)



	Common Stockholders
	$0.01 Par Value Common Stock		Treasury Stock		Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity		Noncontrolling Interest		Total Equity
	(in millions, except per share amounts)
Balance as of June 30, 2023	$	2	$	(226)	$	1,430	$	4,797	$	(199)	$	5,804	$	2,716	$	8,520
Net earnings	—		—		—		164		—		164		66		230
Other comprehensive loss	—		—		—		—		(26)		(26)		—		(26)
Purchases of treasury stock	—		(151)		—		—		—		(151)		—		(151)
Retirement of treasury stock	—		226		(24)		(202)		—		—		—		—



Stock-based compensation expense	—		—		10		—		—		10		—		10

Dividends and dividend equivalents ($0.40 per share)	—		—		—		(78)		—		(78)		—		(78)



Distribution declared to noncontrolling interest	—		—		—		—		—		—		(204)		(204)

Balance as of September 30, 2023	$	2	$	(151)	$	1,416	$	4,681	$	(225)	$	5,723	$	2,578	$	8,301

























Balance as of December 31, 2022	$	2	$	—	$	1,412	$	3,867	$	(230)	$	5,051	$	2,802	$	7,853
Net earnings	—		—		—		1,251		—		1,251		235		1,486
Other comprehensive income	—		—		—		—		5		5		—		5
Purchases of treasury stock	—		(357)		—		—		—		(357)		—		(357)
Retirement of treasury stock	—		226		(24)		(202)		—		—		—		—
Acquisition of treasury stock under employee stock plans	—		(22)		—		—		—		(22)		—		(22)
Issuance of $0.01 par value common stock under employee stock plans	—		2		(1)		—		—		1		—		1

Stock-based compensation expense	—		—		29		—		—		29		—		29

Dividends and dividend equivalents ($1.20 per share)	—		—		—		(235)		—		(235)		—		(235)



Distributions declared to noncontrolling interest	—		—		—		—		—		—		(459)		(459)

Balance as of September 30, 2023	$	2	$	(151)	$	1,416	$	4,681	$	(225)	$	5,723	$	2,578	$	8,301

(Continued)

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CF INDUSTRIES HOLDINGS, INC.

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


Net earnings	—		—		—		438		—		438		100		538
Other comprehensive income	—		—		—		—		15		15		—		15
Purchases of treasury stock	—		(532)		—		—		—		(532)		—		(532)


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

Stock-based compensation expense	—		—		10		—		—		10		—		10

Cash dividends ($0.40 per share)	—		—		—		(80)		—		(80)		—		(80)



Distribution declared to noncontrolling interest	—		—		—		—		—		—		(372)		(372)

Balance as of September 30, 2022	$	2	$	(863)	$	1,488	$	4,087	$	(270)	$	4,444	$	2,653	$	7,097

Balance as of December 31, 2021	$	2	$	(2)	$	1,375	$	2,088	$	(257)	$	3,206	$	2,830	$	6,036



Net earnings	—		—		—		2,486		—		2,486		442		2,928
Other comprehensive loss	—		—		—		—		(13)		(13)		—		(13)
Purchases of treasury stock	—		(1,122)		—		—		—		(1,122)		—		(1,122)
Retirement of treasury stock	—		283		(23)		(260)		—		—		—		—
Acquisition of treasury stock under employee stock plans	—		(23)		—		—		—		(23)		—		(23)
Issuance of $0.01 par value common stock under employee stock plans	—		1		104		—		—		105		—		105

Stock-based compensation expense	—		—		32		—		—		32		—		32

Cash dividends ($1.10 per share)	—		—		—		(227)		—		(227)		—		(227)



Distributions declared to noncontrolling interest	—		—		—		—		—		—		(619)		(619)

Balance as of September 30, 2022	$	2	$	(863)	$	1,488	$	4,087	$	(270)	$	4,444	$	2,653	$	7,097

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine months ended September 30,
	2023		2022
	(in millions)
Operating Activities:
Net earnings	$	1,486	$	2,928
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	640		652
Deferred income taxes	(73)		(7)
Stock-based compensation expense	29		32

Loss on debt extinguishment	—		8
Unrealized net gain on natural gas derivatives	(65)		(39)


Impairment of equity method investment in PLNL	43		—
U.K. long-lived and intangible asset impairment	—		239
Pension settlement loss	—		24
Gain on sale of emission credits	(39)		(6)
Loss on disposal of property, plant and equipment	4		1
Undistributed earnings of affiliate—net of taxes	(2)		(10)
Changes in:
Accounts receivable—net	165		(245)
Inventories	130		(131)
Accrued and prepaid income taxes	57		(168)
Accounts payable and accrued expenses	(116)		111
Customer advances	53		(188)
Other—net	(35)		69
Net cash provided by operating activities	2,277		3,270
Investing Activities:
Additions to property, plant and equipment	(311)		(319)
Proceeds from sale of property, plant and equipment	1		1


Distributions received from unconsolidated affiliate	—		4

Purchase of investments held in nonqualified employee benefit trust	—		(1)
Proceeds from sale of investments held in nonqualified employee benefit trust	—		1
Purchase of emission credits	—		(9)
Proceeds from sale of emission credits	39		15

Net cash used in investing activities	(271)		(308)
Financing Activities:



Payments of long-term borrowings	—		(507)
Financing fees	—		(4)
Dividends paid	(235)		(227)

Distributions to noncontrolling interest	(459)		(619)
Purchases of treasury stock	(355)		(1,096)
Proceeds from issuances of common stock under employee stock plans	1		106
Cash paid for shares withheld for taxes	(22)		(23)

Net cash used in financing activities	(1,070)		(2,370)
Effect of exchange rate changes on cash and cash equivalents	(5)		(28)
Increase in cash and cash equivalents	931		564
Cash and cash equivalents at beginning of period	2,323		1,628
Cash and cash equivalents at end of period	$	3,254	$	2,192

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Background and Basis of Presentation

Our mission is to provide clean energy to feed and fuel the world sustainably. With our employees focused on safe and reliable operations, environmental stewardship, and disciplined capital and corporate management, we are on a path to decarbonize our ammonia production network – the world’s largest – to enable green and blue hydrogen and nitrogen products for energy, fertilizer, emissions abatement and other industrial activities. Our nitrogen manufacturing complexes in the United States, Canada and the United Kingdom, an extensive storage, transportation and distribution network in North America, and logistics capabilities enabling a global reach underpin our strategy to leverage our unique capabilities to accelerate the world’s transition to clean energy. Our principal customers are cooperatives, independent fertilizer distributors, traders, wholesalers and industrial users. Our core product is anhydrous ammonia (ammonia), which contains 82% nitrogen and 18% hydrogen. Our nitrogen products that are upgraded from ammonia are granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN). Our other nitrogen products include diesel exhaust fluid (DEF), urea liquor, nitric acid and aqua ammonia, which are sold primarily to our industrial customers.

All references to “CF Holdings,” “the Company,” “we,” “us” and “our” refer to CF Industries Holdings, Inc. and its subsidiaries, except where the context makes clear that the reference is only to CF Industries Holdings, Inc. itself and not its subsidiaries. All references to “CF Industries” refer to CF Industries, Inc., a 100% owned subsidiary of CF Industries Holdings, Inc.

The accompanying unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements for the year ended December 31, 2022, in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting. In the opinion of management, these statements reflect all adjustments, consisting only of normal and recurring adjustments, that are necessary for the fair representation of the information for the periods presented. The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Operating results for any period presented apply to that period only and are not necessarily indicative of results for any future period.

The accompanying unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related disclosures included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 23, 2023. The preparation of the unaudited interim consolidated financial statements requires us to make use of estimates and assumptions that may significantly affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the unaudited interim consolidated financial statements and the reported revenues and expenses for the periods presented. Such estimates and assumptions are used for, but are not limited to, net realizable value of inventories, environmental remediation liabilities, environmental and litigation contingencies, plant closure and asset retirement obligations, the cost of emission credits required to meet environmental regulations, the cost of customer incentives, useful lives of property and identifiable intangible assets, the evaluation of potential impairments of property, investments, identifiable intangible assets and goodwill, income tax reserves and the assessment of the realizability of deferred tax assets, the determination of the funded status and annual expense of defined benefit pension and other postretirement plans and the valuation of stock-based compensation awards granted to employees.

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CF INDUSTRIES HOLDINGS, INC.

2. Revenue Recognition

We track our revenue by product and by geography. See Note 16—Segment Disclosures for the revenue of each of our reportable segments, 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 nine months ended September 30, 2023 and 2022:


	Ammonia		Granular Urea		UAN		AN		Other		Total
	(in millions)
Three months ended September 30, 2023
North America	$	165	$	340	$	330	$	50	$	111	$	996
Europe and other	70		20		105		64		18		277

Total revenue	$	235	$	360	$	435	$	114	$	129	$	1,273
Three months ended September 30, 2022
North America	$	367	$	571	$	531	$	70	$	132	$	1,671
Europe and other	164		118		205		110		53		650
Total revenue	$	531	$	689	$	736	$	180	$	185	$	2,321

Nine months ended September 30, 2023
North America	$	955	$	1,375	$	1,312	$	189	$	357	$	4,188
Europe and other	229		56		338		188		61		872

Total revenue	$	1,184	$	1,431	$	1,650	$	377	$	418	$	5,060
Nine months ended September 30, 2022
North America	$	1,937	$	2,123	$	2,421	$	229	$	465	$	7,175
Europe and other	349		164		306		427		157		1,403
Total revenue	$	2,286	$	2,287	$	2,727	$	656	$	622	$	8,578

As of September 30, 2023 and December 31, 2022, we had $282 million and $229 million, respectively, in customer advances on our consolidated balance sheets. During the nine months ended September 30, 2023 and 2022, substantially all of the customer advances at the beginning of each respective period were recognized as revenue.

We offer cash incentives to certain customers generally based on the volume of their purchases over the fertilizer year ending June 30. Our cash incentives do not provide an option to the customer for additional product. The balances of customer incentives accrued as of September 30, 2023 and December 31, 2022 were not material.

We have certain customer contracts with performance obligations under which, if the customer does not take the required amount of product specified in the contract, then the customer is required to make a payment to us, the amount of which payment may vary based upon the terms and conditions of the applicable contract. As of September 30, 2023, excluding contracts with original durations of less than one year, and based on the minimum product tonnage to be sold and current market price estimates, our remaining performance obligations under these contracts were approximately $910 million. We expect to recognize approximately 14% of these performance obligations as revenue in the remainder of 2023, approximately 52% as revenue during 2024-2026, approximately 15% as revenue during 2027-2029, and the remainder thereafter. Subject to the terms and conditions of the applicable contracts, if the customers do not satisfy their purchase obligations under such contracts, the minimum amount that they would be required to pay to us under such contracts, in the aggregate, was approximately $280 million as of September 30, 2023. Other than the performance obligations described above, we expect that any performance obligations under our customer contracts that were unfulfilled or partially fulfilled at December 31, 2022 will be satisfied in 2023.

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CF INDUSTRIES HOLDINGS, INC.

3. Net Earnings Per Share

Net earnings per share were computed as follows:


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
	(in millions, except per share amounts)
Net earnings attributable to common stockholders	$	164	$	438	$	1,251	$	2,486
Basic earnings per common share:
Weighted-average common shares outstanding	192.4		200.2		194.4		205.6
Net earnings attributable to common stockholders	$	0.85	$	2.19	$	6.44	$	12.09
Diluted earnings per common share:
Weighted-average common shares outstanding	192.4		200.2		194.4		205.6
Dilutive common shares—stock-based awards	0.5		0.7		0.5		0.9
Diluted weighted-average common shares outstanding	192.9		200.9		194.9		206.5
Net earnings attributable to common stockholders	$	0.85	$	2.18	$	6.42	$	12.04

Diluted earnings per common share is calculated using weighted-average common shares outstanding, including the dilutive effect of stock-based awards as determined under the treasury stock method. In the computation of diluted earnings per common share, potentially dilutive stock-based awards are excluded if the effect of their inclusion is anti-dilutive. Shares for anti-dilutive stock-based awards not included in the computation of diluted earnings per common share were zero in both the three and nine months ended September 30, 2023 and the three and nine months ended September 30, 2022.

4. Inventories

Inventories consist of the following:


	September 30, 2023		December 31, 2022
	(in millions)
Finished goods	$	279	$	437
Raw materials, spare parts and supplies	39		37
Total inventories	$	318	$	474

5. United Kingdom Operations Restructuring

In the second quarter of 2022, we approved and announced our proposed plan to restructure our U.K. operations, including the planned permanent closure of the Ince facility, which had been idled since September 2021, and optimization of the remaining manufacturing operations at our Billingham facility. Pursuant to our proposed plan to restructure our U.K. operations and dispose of the Ince facility assets before we originally intended, we concluded that an evaluation of our long-lived assets and an impairment test was required. Our assessment then identified the U.K. asset groups as U.K. Ammonia, U.K. AN and U.K. Other, comprising our ongoing U.K. operations, and Ince, U.K. In response to this impairment indicator, we compared the undiscounted cash flows expected to result from the use and eventual disposition of the Ince, U.K. asset group to its carrying amount and concluded the carrying amount was not recoverable and should be adjusted to its fair value. As a result, in the second quarter of 2022, we recorded total charges of $162 million related to the Ince facility as follows:

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

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

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

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CF INDUSTRIES HOLDINGS, INC.

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

and

•a charge for post-employment benefits totaling $10 million, which is included in the U.K. operations restructuring line item in our consolidated statements of operations, related to contractual and statutory obligations due to employees whose employment would be terminated in the proposed plan.

In August 2022, the final restructuring plan for our U.K. operations was approved, and decommissioning activities at our Ince facility were initiated. As a result, in the third quarter of 2022, we incurred additional charges related to our U.K. restructuring of $8 million, primarily related to one-time termination benefits, which are included in the U.K. operations restructuring line item in our consolidated statement of operations. As of June 30, 2023, the decommissioning of our Ince facility and other approved restructuring actions had been completed.

In the third quarter of 2022, the United Kingdom continued to experience extremely high and volatile natural gas prices. Russian natural gas pipeline flows to Europe via the Nord Stream 1 pipeline ceased, causing the United Kingdom to experience unprecedented natural gas prices. In addition, the European Union announced a desire to cap the price that Europe would pay Russia for natural gas deliveries, further contributing to the uncertainty in European energy markets. Given these factors and the lack of a corresponding increase in global nitrogen product market prices, in September 2022, we idled ammonia production at our Billingham complex. As a result, we concluded that an additional impairment test was triggered for the asset groups that comprise the continuing U.K. operations. The results of our impairment test indicated that the carrying values for our U.K. Ammonia and U.K. AN asset groups exceeded the undiscounted estimated future cash flows. As a result, we recognized asset impairment charges of $87 million, primarily related to property, plant and equipment and definite-lived intangible assets, which are included in the U.K. long-lived and intangible asset impairment line item in our consolidated statement of operations.

In July 2023, we approved and announced our proposed plan to permanently close the Billingham ammonia plant, and, in September 2023, the final plan was approved. As a result, in the third quarter of 2023, we recognized total charges of $5 million consisting primarily of the recognition of an asset retirement obligation and post-employment benefits related to contractual and statutory obligations due to employees whose employment would be terminated.

6. Property, Plant and Equipment—Net

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


	September 30, 2023		December 31, 2022
	(in millions)
Land	$	114	$	113
Machinery and equipment	12,716		12,633
Buildings and improvements	923		914
Construction in progress	339		203
Property, plant and equipment(1)	14,092		13,863
Less: Accumulated depreciation and amortization	7,936		7,426
Property, plant and equipment—net	$	6,156	$	6,437

_______________________________________________________________________________

(1)As of September 30, 2023 and December 31, 2022, we had property, plant and equipment that was accrued but unpaid of approximately $80 million and $53 million, respectively. As of September 30, 2022 and December 31, 2021, we had property, plant and equipment that was accrued but unpaid of approximately $60 million and $35 million, respectively.

Depreciation and amortization related to property, plant and equipment was $211 million and $633 million for the three and nine months ended September 30, 2023, respectively, and $219 million and $643 million for the three and nine months ended September 30, 2022, 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.

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

The following is a summary of capitalized plant turnaround costs:


	Nine months ended September 30,
	2023		2022
	(in millions)
Net capitalized turnaround costs as of January 1	$	312	$	355
Additions	121		84

Depreciation	(95)		(101)
Impairment related to U.K. operations	—		(21)
Effect of exchange rate changes and other	(4)		(7)
Net capitalized turnaround costs as of September 30	$	334	$	310

7. Equity Method Investment

We have a 50% ownership interest in Point Lisas Nitrogen Limited (PLNL), which operates an ammonia production facility in the Republic of Trinidad and Tobago. We include our share of the net earnings from this equity method investment as an element of earnings from operations because PLNL provides additional production to our operations and is integrated with our other supply chain and sales activities in the Ammonia segment.

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). The NGC Contract had an expiration date of September 2023. In the third quarter of 2023, PLNL entered into a new gas sales contract with NGC (the New NGC Contract), which is effective October 2023 through December 2025.

In the third quarter of 2023 and due to the terms of the New NGC Contract, we assessed our investment in PLNL for impairment and determined that the carrying value of our equity method investment in PLNL exceeded its fair value. As a result, we recorded an impairment of our equity method investment in PLNL of $43 million, which is reflected in equity in (losses) earnings of operating affiliate on our consolidated statements of operations for the three and nine months ended September 30, 2023. As of September 30, 2023, the total carrying value of our equity method investment in PLNL was $32 million.

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 $20 million and $115 million for the three and nine months ended September 30, 2023, respectively, and $61 million and $212 million for the three and nine months ended September 30, 2022, respectively.

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8. Fair Value Measurements

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


	September 30, 2023
	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
	(in millions)
Cash	$	193	$	—	$	—	$	193
Cash equivalents:
U.S. and Canadian government obligations	2,687		—		—		2,687
Other debt securities	374		—		—		374
Total cash and cash equivalents	$	3,254	$	—	$	—	$	3,254

Nonqualified employee benefit trusts	16		—		—		16


	December 31, 2022
	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
	(in millions)
Cash	$	153	$	—	$	—	$	153
Cash equivalents:
U.S. and Canadian government obligations	1,902		—		—		1,902
Other debt securities	268		—		—		268
Total cash and cash equivalents	$	2,323	$	—	$	—	$	2,323

Nonqualified employee benefit trusts	16		—		—		16

Under our short-term investment policy, we may invest our cash balances, either directly or through mutual funds, in several types of investment-grade securities, including notes and bonds issued by governmental entities or corporations. Securities issued by governmental entities include those issued directly by the U.S. and Canadian federal governments; those issued by state, local or other governmental entities; and those guaranteed by entities affiliated with governmental entities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present assets and liabilities included in our consolidated balance sheets as of September 30, 2023 and December 31, 2022 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:


	September 30, 2023
	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	$	3,061	$	3,061	$	—	$	—

Nonqualified employee benefit trusts	16		16		—		—
Derivative assets	8		—		8		—
Derivative liabilities	(16)		—		(16)		—

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	December 31, 2022
	Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash equivalents	$	2,170	$	2,170	$	—	$	—

Nonqualified employee benefit trusts	16		16		—		—
Derivative assets	12		—		12		—
Derivative liabilities	(85)		—		(85)		—

Cash Equivalents

Cash equivalents include highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less. As of September 30, 2023 and December 31, 2022, 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.

Nonqualified Employee Benefit Trusts

We maintain trusts associated with certain nonqualified supplemental pension plans. The fair values of the trust assets are based on daily quoted prices in an active market, which represent the net asset values of the shares held in the trusts, and are included on our consolidated balance sheets in other assets. Debt securities are accounted for as available-for-sale securities, and changes in fair value are reported in other comprehensive income. Changes in the fair value of available-for-sale equity securities in the trust assets are recognized through earnings.

Derivative Instruments

The derivative instruments that we use are primarily natural gas fixed price swaps, basis swaps and options traded in the over-the-counter markets with multi-national commercial banks, other major financial institutions or large energy companies. The natural gas derivative contracts represent anticipated natural gas needs for future periods, and settlements are scheduled to coincide with anticipated natural gas purchases during those future periods. The natural gas derivative contracts settle using primarily a NYMEX futures price index. To determine the fair value of these instruments, we use quoted market prices from NYMEX and standard pricing models with inputs derived from or corroborated by observable market data such as forward curves supplied by an industry-recognized independent third party. See Note 13—Derivative Financial Instruments for additional information.

Financial Instruments

The carrying amount and estimated fair value of our financial instruments are as follows:


	September 30, 2023				December 31, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in millions)
Long-term debt	$	2,967	$	2,656	$	2,965	$	2,764

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 any 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

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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’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.

In the third quarter of 2023, we determined the carrying value of our equity method investment in PLNL exceeded its fair value and recorded an impairment of our equity method investment in PLNL of $43 million. See Note 7—Equity Method Investment for additional information.

9. Income Taxes

For the three months ended September 30, 2023, we recorded an income tax provision of $23 million on pre-tax income of $253 million, or an effective tax rate of 9.1%, compared to an income tax provision of $155 million on pre-tax income of $693 million, or an effective tax rate of 22.3%, for the three months ended September 30, 2022. For the three months ended September 30, 2023, our income tax provision includes a $9 million income tax benefit arising from the finalization of tax return filing positions and adjustments to accrued withholding taxes as a result of changes reflected on our filed U.S. federal return. This income tax benefit in relation to pre-tax income of $253 million contributed to a lower effective tax rate in the third quarter of 2023 compared to the U.S. statutory rate of 21%.

For the nine months ended September 30, 2023, we recorded an income tax provision of $326 million on pre-tax income of $1.81 billion, or an effective tax rate of 18.0%, compared to an income tax provision of $913 million on pre-tax income of $3.84 billion, or an effective tax rate of 23.8%, for the nine months ended September 30, 2022.

For the three and nine months ended September 30, 2022, our income tax provision includes $18 million of income tax expense to record a valuation allowance in the United Kingdom due to the uncertainty surrounding the realization of the deferred tax assets as a result of the impairment described in Note 5—United Kingdom Operations Restructuring. In addition, for the nine months ended September 30, 2022, our income tax provision includes $22 million of income tax benefit due to share-based compensation activity and $78 million of income tax provision related to the Canada Revenue Agency Competent Authority Matter, as discussed below.

Our effective tax rate is impacted by earnings attributable to the noncontrolling interest in CF Industries Nitrogen, LLC (CFN), as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended September 30, 2023 of 9.1%, which is based on pre-tax income of $253 million, including $66 million of earnings attributable to the noncontrolling interest, would be 3.2 percentage points higher if based on pre-tax income exclusive of the $66 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended September 30, 2022 of 22.3%, which is based on pre-tax income of $693 million, including $100 million of earnings attributable to the noncontrolling interest, would be 3.7 percentage points higher if based on pre-tax income exclusive of the $100 million of earnings attributable to the noncontrolling interest.

Our effective tax rate for the nine months ended September 30, 2023 of 18.0%, which is based on pre-tax income of $1.81 billion, including $235 million of earnings attributable to the noncontrolling interest, would be 2.7 percentage points higher if based on pre-tax income exclusive of the $235 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the nine months ended September 30, 2022 of 23.8%, which is based on pre-tax income of $3.84 billion, including $442 million of earnings attributable to the noncontrolling interest, would be 3.1 percentage points higher if based on pre-tax income exclusive of the $442 million of earnings attributable to the noncontrolling interest.

Canada Revenue Agency Competent Authority Matter

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

In February 2022, we were informed that a decision was reached by the arbitration panel for tax years 2006 through 2011. In March 2022, we received further details of the results of the arbitration proceedings and the settlement provisions between the United States and Canadian competent authorities, and we accepted the decision of the arbitration panel. Under the terms of

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the arbitration decision, additional income for tax years 2006 through 2011 was subject to tax in Canada, resulting in our having additional Canadian tax liability for those tax years.

In the nine months ended September 30, 2022, as a result of the impact of these events on our Canadian and U.S. federal and state income taxes, we recognized an income tax provision of $78 million, reflecting the net impact of $129 million of accrued income taxes payable to Canada for tax years 2006 through 2011, partially offset by net income tax receivables of approximately $51 million in the United States, and we accrued net interest of $103 million, primarily reflecting the impact of estimated interest payable to Canada.

Of the $78 million of income tax provision and $103 million of net interest expense recognized in the nine months ended September 30, 2022, a reduction of $1 million of net interest expense was recognized in the three months ended September 30, 2022.

In the second half of 2022, this tax liability and the related interest were assessed and paid, resulting in total payments of $224 million, which also reflect the impact of changes in foreign currency exchange rates. As a result, the letters of credit we had posted in lieu of paying the additional tax liability assessed by the Notices of Reassessment were cancelled. Due primarily to the availability of additional foreign tax credits to offset in part the increased Canadian tax referenced above, the Company has filed amended tax returns in the United States to request a refund of taxes paid.

Transfer pricing positions

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

•liabilities for unrecognized tax benefits of approximately $314 million, with a corresponding income tax provision, and accrued interest of approximately $123 million related to the liabilities for unrecognized tax benefits, and

•noncurrent income tax receivables of approximately $359 million, with a corresponding income tax benefit, and accrued interest income of approximately $33 million related to the noncurrent income tax receivables.

In the nine months ended September 30, 2022, the impact on our consolidated statement of operations of the amounts recorded as a result of this evaluation of transfer pricing positions, including $29 million of net deferred income tax provision for other transfer pricing tax effects, was $16 million of income tax benefit and $90 million of net interest expense before tax ($98 million after tax).

Of the $16 million of income tax benefit and $90 million of net interest expense recognized in the nine months ended September 30, 2022, $3 million of income tax provision and $4 million of net interest expense ($5 million after tax) was recognized in the three months ended September 30, 2022.

10. Pension Retiree Annuity Purchase

On July 15, 2022, we entered into an agreement with an insurance company to purchase a non-participating group annuity contract and transfer approximately $375 million of our primary U.S. defined benefit pension plan’s projected benefit obligation. The transaction closed on July 22, 2022 and was funded with plan assets. Under the transaction, the insurance company assumed responsibility for pension benefits and annuity administration for approximately 4,000 retirees or their beneficiaries. As a result of this transaction, in the third quarter of 2022, we remeasured the plan's projected benefit obligation and plan assets and recognized a non-cash pre-tax pension settlement loss of $24 million, reflecting the unamortized net unrecognized postretirement benefit costs related to the settled obligations, with a corresponding offset to accumulated other comprehensive loss. In the fourth quarter of 2022, the final settlement of the non-participating group annuity contract resulted in a refund of $4 million, which decreased the settlement loss by $3 million to $21 million.

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11. Financing Agreements

Revolving Credit Agreement

On October 26, 2023, we entered into a new senior unsecured revolving credit agreement (the New Revolving Credit Agreement), which replaced our prior senior unsecured revolving credit agreement (the Prior Revolving Credit Agreement). See Note 18—Subsequent Event for additional information.

The Prior Revolving Credit Agreement provided for a revolving credit facility of up to $750 million with a maturity of December 5, 2024 and included a letter of credit sub-limit of $125 million. Borrowings under the Prior Revolving Credit Agreement could be used for working capital, capital expenditures, acquisitions, share repurchases and other general corporate purposes.

Borrowings under the Prior Revolving Credit Agreement could be denominated in U.S. dollars, Canadian dollars, euros and British pounds. Borrowings in U.S. dollars bore interest at a per annum rate equal to, at our option, an applicable adjusted term Secured Overnight Financing Rate or base rate plus, in either case, a specified margin. We were required to pay an undrawn commitment fee on the undrawn portion of the commitments under the Prior Revolving Credit Agreement and customary letter of credit fees. The specified margin and the amount of the commitment fee depended on CF Holdings’ credit rating at the time.

The Prior Revolving Credit Agreement contained representations and warranties and affirmative and negative covenants, including financial covenants. As of September 30, 2023, we were in compliance with all covenants under the Prior Revolving Credit Agreement.

As of September 30, 2023, we had unused borrowing capacity under the Prior Revolving Credit Agreement of $750 million and no outstanding letters of credit under the Prior Revolving Credit Agreement. There were no borrowings outstanding under the Prior Revolving Credit Agreement as of September 30, 2023 or December 31, 2022, or during the nine months ended September 30, 2023.

Letters of Credit Under Bilateral Agreement

We are party to a bilateral agreement providing for the issuance of up to $350 million of letters of credit. As of September 30, 2023, approximately $200 million of letters of credit were outstanding under this agreement.

Senior Notes

Long-term debt presented on our consolidated balance sheets as of September 30, 2023 and December 31, 2022 consisted of the following debt securities issued by CF Industries:

Effective Interest Rate

September 30, 2023

December 31, 2022

Principal

Carrying Amount(1)

Principal

Carrying Amount(1)

(in millions)

Public Senior Notes: