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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 March 31, 2021
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)
Delaware20-2697511
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
4 Parkway North, Suite 400
60015
Deerfield,Illinois (Zip Code)
 (Address of principal executive offices)
(847) 405-2400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
common stock, par value $0.01 per shareCFNew 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 filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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
214,514,904 shares of the registrant’s common stock, par value $0.01 per share, were outstanding at May 3, 2021.


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CF INDUSTRIES HOLDINGS, INC.

TABLE OF CONTENTS
 
  
  
  
  
  
  
  
 
 
 
 
 



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CF INDUSTRIES HOLDINGS, INC.

PART I—FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three months ended 
 March 31,
 20212020
 (in millions, except per share amounts)
Net sales $1,048 $971 
Cost of sales759 767 
Gross margin289 204 
Selling, general and administrative expenses55 54 
Other operating—net(2)6 
Total other operating costs and expenses53 60 
Equity in earnings of operating affiliate11 3 
Operating earnings247 147 
Interest expense48 44 
Interest income (1)
Loss on debt extinguishment6  
Earnings before income taxes193 104 
Income tax provision18 13 
Net earnings175 91 
Less: Net earnings attributable to noncontrolling interest24 23 
Net earnings attributable to common stockholders$151 $68 
Net earnings per share attributable to common stockholders:
Basic$0.70 $0.31 
Diluted$0.70 $0.31 
Weighted-average common shares outstanding:  
Basic214.9 216.0 
Diluted216.0 216.6 
Dividends declared per common share$0.30 $0.30 
See accompanying Notes to Unaudited Consolidated Financial Statements.

1

Table of Contents
CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 Three months ended 
 March 31,
 20212020
 (in millions)
Net earnings$175 $91 
Other comprehensive income (loss):  
Foreign currency translation adjustment—net of taxes14 (83)
Defined benefit plans—net of taxes1 9 
15 (74)
Comprehensive income190 17 
Less: Comprehensive income attributable to noncontrolling interest24 23 
Comprehensive income (loss) attributable to common stockholders$166 $(6)
See accompanying Notes to Unaudited Consolidated Financial Statements.

2

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS
(Unaudited)
 March 31, 
 2021
December 31,  
 2020
 (in millions, except share
and per share amounts)
Assets  
Current assets:  
Cash and cash equivalents$804 $683 
Accounts receivable—net271 265 
Inventories379 287 
Prepaid income taxes11 97 
Other current assets24 35 
Total current assets1,489 1,367 
Property, plant and equipment—net7,492 7,632 
Investment in affiliate91 80 
Goodwill2,377 2,374 
Operating lease right-of-use assets249 259 
Other assets313 311 
Total assets$12,011 $12,023 
Liabilities and Equity  
Current liabilities:  
Accounts payable and accrued expenses$451 $424 
Income taxes payable5  
Customer advances341 130 
Current operating lease liabilities88 88 
Current maturities of long-term debt 249 
Other current liabilities6 15 
Total current liabilities891 906 
Long-term debt, net of current maturities3,713 3,712 
Deferred income taxes1,175 1,184 
Operating lease liabilities166 174 
Other liabilities396 444 
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, 2021—214,842,250 shares issued and 2020—214,057,701 shares issued
2 2 
Paid-in capital1,333 1,317 
Retained earnings2,013 1,927 
Treasury stock—at cost, 2021—340,446 shares and 2020—102,843 shares
(14)(4)
Accumulated other comprehensive loss(305)(320)
Total stockholders’ equity3,029 2,922 
Noncontrolling interest2,641 2,681 
Total equity5,670 5,603 
Total liabilities and equity$12,011 $12,023 
See accompanying Notes to Unaudited Consolidated Financial Statements.
3

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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 December 31, 2020$2 $(4)$1,317 $1,927 $(320)$2,922 $2,681 $5,603 
Net earnings   151  151 24 175 
Other comprehensive income    15 15  15 
Acquisition of treasury stock under employee stock plans (10)   (10) (10)
Issuance of $0.01 par value common stock under employee stock plans
  8   8  8 
Stock-based compensation expense  8   8  8 
Cash dividends ($0.30 per share)
   (65) (65) (65)
Distribution declared to noncontrolling interest      (64)(64)
Balance as of March 31, 2021$2 $(14)$1,333 $2,013 $(305)$3,029 $2,641 $5,670 
Balance as of December 31, 2019$2 $ $1,303 $1,958 $(366)$2,897 $2,740 $5,637 
Net earnings   68  68 23 91 
Other comprehensive loss    (74)(74) (74)
Purchases of treasury stock (100)   (100) (100)
Acquisition of treasury stock under employee stock plans (8)   (8) (8)
Issuance of $0.01 par value common stock under employee stock plans
  3   3  3 
Stock-based compensation expense  7   7  7 
Cash dividends ($0.30 per share)
   (65) (65) (65)
Distribution declared to noncontrolling interest      (88)(88)
Balance as of March 31, 2020$2 $(108)$1,313 $1,961 $(440)$2,728 $2,675 $5,403 
See accompanying Notes to Unaudited Consolidated Financial Statements.
4

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three months ended 
 March 31,
 20212020
 (in millions)
Operating Activities:  
Net earnings$175 $91 
Adjustments to reconcile net earnings to net cash provided by operating activities:  
Depreciation and amortization204 211 
Deferred income taxes(12)(50)
Stock-based compensation expense8 7 
Loss on debt extinguishment6  
Unrealized net gain on natural gas derivatives(6)(12)
Unrealized gain on embedded derivative (1)
Loss on disposal of property, plant and equipment 1  
Undistributed earnings of affiliate—net of taxes(12)(4)
Changes in:  
Accounts receivable—net(7)(12)
Inventories(88)(29)
Accrued and prepaid income taxes78 10 
Accounts payable and accrued expenses36 (47)
Customer advances211 120 
Other—net(16)8 
Net cash provided by operating activities578 292 
Investing Activities:  
Additions to property, plant and equipment(71)(67)
Insurance proceeds for property, plant and equipment 2 
Net cash used in investing activities(71)(65)
Financing Activities:  
Proceeds from short-term borrowings 500 
Payments of long-term borrowings(255) 
Dividends paid on common stock(65)(65)
Distributions to noncontrolling interest(64)(88)
Purchases of treasury stock (100)
Proceeds from issuances of common stock under employee stock plans7 3 
Cash paid for shares withheld for taxes(10)(8)
Net cash (used in) provided by financing activities(387)242 
Effect of exchange rate changes on cash and cash equivalents1 (3)
Increase in cash and cash equivalents121 466 
Cash and cash equivalents at beginning of period683 287 
Cash and cash equivalents at end of period$804 $753 
See accompanying Notes to Unaudited Consolidated Financial Statements.
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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 nine manufacturing complexes in the United States, Canada and the United Kingdom, an extensive storage, transportation and distribution network in North America, and logistics capabilities enabling a global reach underpin our strategy to leverage our unique capabilities to accelerate the world’s transition to clean energy. Our principal customers are cooperatives, independent fertilizer distributors, traders, wholesalers and industrial users. Our core product is anhydrous ammonia (ammonia), which contains 82% nitrogen and 18% hydrogen. Our nitrogen products that are upgraded from ammonia are granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN). Our other nitrogen products include diesel exhaust fluid (DEF), urea liquor, nitric acid and aqua ammonia, which are sold primarily to our industrial customers, and compound fertilizer products (NPKs), which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium.
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, 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 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 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.

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2.   Revenue Recognition
We 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 months ended March 31, 2021 and 2020:
AmmoniaGranular UreaUANANOtherTotal
(in millions)
Three months ended March 31, 2021     
North America$168 $399 $222 $41 $77 $907 
Europe and other38  10 64 29 141 
Total revenue$206 $399 $232 $105 $106 $1,048 
Three months ended March 31, 2020  
North America$154 $331 $230 $46 $59 $820 
Europe and other39 6 5 70 31 151 
Total revenue$193 $337 $235 $116 $90 $971 

As of March 31, 2021 and December 31, 2020, we had $341 million and $130 million, respectively, in customer advances on our consolidated balance sheets. The revenue recognized during the three months ended March 31, 2021 and 2020 that was included in our customer advances at the beginning of each respective period amounted to approximately $85 million and $75 million, respectively.
We offer cash incentives to certain customers that do not provide an option to the customer for additional product. The balances of customer incentives accrued at March 31, 2021 and December 31, 2020 were not material.
From time to time, we will enter the marketplace to purchase product in order to satisfy obligations under contracts with our customers. When we purchase product for this purpose, we are the principal 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 business with PLNL, reflecting our obligation to purchase 50% of the ammonia produced by PLNL at current market prices. During the three months ended March 31, 2021, in addition to products purchased from PLNL, we recognized $32 million of 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 three months ended March 31, 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 have 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 March 31, 2021, 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 are approximately $805 million. We expect to recognize approximately 25% of these performance obligations as revenue in the remainder of 2021, approximately 47% as revenue during 2022 and 2023, approximately 25% 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 $187 million as of March 31, 2021. We monitor the ability of our customers to meet their purchase obligations, which could be impacted by the ongoing coronavirus disease 2019 (COVID-19) pandemic. Other than the performance obligations described above, any performance obligations with our customers that were unfulfilled or partially filled at December 31, 2020 will be satisfied in 2021.

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3.   Net Earnings Per Share
Net earnings per share were computed as follows:
 Three months ended 
 March 31,
 20212020
 (in millions, except per share amounts)
Net earnings attributable to common stockholders$151 $68 
Basic earnings per common share:  
Weighted-average common shares outstanding214.9 216.0 
Net earnings attributable to common stockholders$0.70 $0.31 
Diluted earnings per common share:  
Weighted-average common shares outstanding214.9 216.0 
Dilutive common shares—stock-based awards1.1 0.6 
Diluted weighted-average shares outstanding216.0 216.6 
Net earnings attributable to common stockholders$0.70 $0.31 
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-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 1.2 million and 2.1 million in the three months ended March 31, 2021 and 2020, respectively.

4.   Inventories
Inventories consist of the following:
 March 31, 
 2021
December 31,  
 2020
 (in millions)
Finished goods$338 $246 
Raw materials, spare parts and supplies41 41 
Total inventories$379 $287 
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5.   Property, Plant and Equipment—Net
Property, plant and equipment—net consists of the following:
 March 31, 
 2021
December 31,  
 2020
 (in millions)
Land$68 $68 
Machinery and equipment12,597 12,539 
Buildings and improvements898 895 
Construction in progress294 275 
Property, plant and equipment(1)
13,857 13,777 
Less: Accumulated depreciation and amortization6,365 6,145 
Property, plant and equipment—net$7,492 $7,632 
_______________________________________________________________________________
(1)As of March 31, 2021 and December 31, 2020, we had property, plant and equipment that was accrued but unpaid of approximately $33 million and $43 million, respectively. As of March 31, 2020 and December 31, 2019, we had property, plant and equipment that was accrued but unpaid of approximately $36 million and $42 million, respectively.
Depreciation and amortization related to property, plant and equipment was $200 million and $208 million for the three months ended March 31, 2021 and 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:
 Three months ended 
 March 31,
 20212020
 (in millions)
Net capitalized turnaround costs:  
Beginning balance$226 $246 
Additions10 7 
Depreciation(25)(25)
Effect of exchange rate changes (5)
Ending balance$211 $223 
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.
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6.  Goodwill and Other Intangible Assets
The following table shows the carrying amount of goodwill by reportable segment as of March 31, 2021 and December 31, 2020:
 AmmoniaGranular UreaUANANOtherTotal
 (in millions)
Balance as of December 31, 2020$587 $828 $576 $310 $73 $2,374 
Effect of exchange rate changes1   2  3 
Balance as of March 31, 2021$588 $828 $576 $312 $73 $2,377 

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:
 March 31, 2021December 31, 2020
 Gross
Carrying
Amount
Accumulated
Amortization
NetGross
Carrying
Amount
Accumulated
Amortization
Net
 (in millions)
Customer relationships$134 $(55)$79 $133 $(52)$81 
Trade names32 (9)23 32 (9)23 
Total intangible assets$166 $(64)$102 $165 $(61)$104 
Our intangible assets are being amortized over a weighted-average life of approximately 20 years. Amortization expense of our identifiable intangible assets for each of the three-month periods ended March 31, 2021 and 2020 was $2 million. 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 2021 and each of the five succeeding fiscal years is as follows:
 Estimated
Amortization
Expense
 (in millions)
Remainder of 2021$6 
20229 
20239 
20249 
20259 
20269 

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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.
As of March 31, 2021, the total carrying value of our equity method investment in PLNL was $91 million, $41 million more than our share of PLNL’s book value. The excess is attributable to the purchase accounting impact of our acquisition of the investment in PLNL and reflects the revaluation of property, plant and equipment. The increased basis for property, plant and equipment is being amortized over a remaining period of approximately 12 years. Our equity in earnings of PLNL is different from our ownership interest in income reported by PLNL due to amortization of this basis 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 $26 million and $10 million for the three months ended March 31, 2021 and 2020, respectively.

8.  Fair Value Measurements
Our cash and cash equivalents and other investments consist of the following:
 March 31, 2021
 Cost BasisUnrealized
Gains
Unrealized
Losses
Fair Value
 (in millions)
Cash$69 $— $— $69 
Cash equivalents:
U.S. and Canadian government obligations715 — — 715 
Other debt securities20 — — 20 
Total cash and cash equivalents$804 $— $— $804 
Nonqualified employee benefit trusts17 3  20 
 December 31, 2020
 Cost BasisUnrealized
Gains
Unrealized
Losses
Fair Value
 (in millions)
Cash$108 $— $— $108 
Cash equivalents:
U.S. and Canadian government obligations552 — — 552 
Other debt securities23 — — 23 
Total cash and cash equivalents$683 $— $— $683 
Nonqualified employee benefit trusts16 3  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.
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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 March 31, 2021 and December 31, 2020 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:
 March 31, 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$735 $735 $ $ 
Nonqualified employee benefit trusts20 20   
Embedded derivative liability(18) (18) 
 December 31, 2020
 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$575 $575 $ $ 
Nonqualified employee benefit trusts19 19   
Derivative assets1  1  
Derivative liabilities(7) (7) 
Embedded derivative liability(18) (18) 

Cash Equivalents
As of March 31, 2021 and December 31, 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.
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 represents 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 may 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 12—Derivative Financial Instruments for additional information.
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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. Since 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 each 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 obligation is recognized on our consolidated balance sheets as an embedded derivative and is included within other current liabilities and other liabilities. As of both March 31, 2021 and December 31, 2020, the embedded derivative liability was $18 million. Included in other operating—net in our consolidated statement of operations for the three months ended March 31, 2020 is a net gain of $1 million.
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.
See Note 13—Noncontrolling Interest for additional information regarding our strategic venture with CHS.
Financial Instruments
The carrying amount and estimated fair value of our financial instruments are as follows:
 March 31, 2021December 31, 2020
 Carrying
Amount
Fair ValueCarrying
Amount
Fair Value
 (in millions)
Long-term debt, including current maturities $3,713 $4,224 $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’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.

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9.   Income Taxes
For the three months ended March 31, 2021, we recorded an income tax provision of $18 million on pre-tax income of $193 million or an effective tax rate of 9.3%, compared to an income tax provision of $13 million on pre-tax income of $104 million, or an effective tax rate of 12.3%, for the three months ended March 31, 2020.
For the three months ended March 31, 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 three months ended March 31, 2020, our income tax provision included a $6 million benefit related to the settlement of certain U.S. and foreign income tax audits.
Our effective tax rate is also 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 March 31, 2021 of 9.3%, which is based on pre-tax income of $193 million, including $24 million attributable to the noncontrolling interest, would be 1.3 percentage points higher if based on pre-tax income exclusive of the $24 million attributable to the noncontrolling interest. Our effective tax rate for the three months ended March 31, 2020 of 12.3%, which is based on pre-tax income of $104 million, including $23 million attributable to the noncontrolling interest, would be 3.5 percentage points higher if based on pre-tax income exclusive of the $23 million attributable to the noncontrolling interest. See Note 13—Noncontrolling Interest for additional information.

10.   Interest Expense
Details of interest expense are as follows:
 Three months ended 
 March 31,
 20212020
 (in millions)
Interest on borrowings(1)
$46 $46 
Fees on financing agreements(1)
2 2 
Interest on tax liabilities(2)
 (4)
Total interest expense$48 $44 
_______________________________________________________________________________
(1)See Note 11—Financing Agreements for additional information.
(2)Interest on tax liabilities for the three months ended March 31, 2020 consists of a reduction in interest accrued on the reserve for unrecognized tax benefits.


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11.  Financing Agreements
Revolving Credit Agreement
We have a senior secured revolving credit agreement (the Revolving Credit Agreement), which provides for a revolving credit facility of up to $750 million with a maturity of 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.
Borrowings under the Revolving Credit Agreement may be denominated in U.S. dollars, Canadian dollars, euros 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. 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 March 31, 2021, we had unused borrowing capacity under the Revolving Credit Agreement of $750 million and no outstanding letters of credit. There were no borrowings outstanding under the Revolving Credit Agreement as of March 31, 2021 or December 31, 2020, or during the three months ended March 31, 2021. Maximum borrowings under the Revolving Credit Agreement during the three months ended March 31, 2020 were $500 million. The weighted-average annual interest rate of borrowings under the Revolving Credit Agreement during the three months ended March 31, 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 March 31, 2021, we were in compliance with all covenants under the Revolving Credit Agreement.
Letters of Credit
In addition to the letters of credit that 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. As of March 31, 2021, approximately $220 million of letters of credit were outstanding under this agreement.
Senior Notes
Long-term debt presented on our consolidated balance sheets as of March 31, 2021 and December 31, 2020 consisted of the following debt securities issued by CF Industries:
 Effective Interest RateMarch 31, 2021December 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