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 June 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	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 ☒  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 ☒

192,947,620 shares of the registrant’s common stock, par value $0.01 per share, were outstanding at July 31, 2023.

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	5
		Notes to Unaudited Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
	Item 4.	Controls and Procedures	49
PART II.	Other Information
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
	Item 5.	Other Information	50
	Item 6.	Exhibits	50

CF INDUSTRIES HOLDINGS, INC.

PART I—FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended   June 30,				Six months ended   June 30,
	2023		2022		2023		2022
	(in millions, except per share amounts)
Net sales	$	1,775	$	3,389	$	3,787	$	6,257
Cost of sales	971		1,398		2,120		2,568
Gross margin	804		1,991		1,667		3,689
Selling, general and administrative expenses	71		73		145		137
U.K. long-lived and intangible asset impairment	—		152		—		152
U.K. operations restructuring	—		10		2		10
Transaction costs	3		—		16		—
Other operating—net	3		6		(32)		8
Total other operating costs and expenses	77		241		131		307
Equity in earnings of operating affiliate	7		28		24		54
Operating earnings	734		1,778		1,560		3,436
Interest expense	36		82		76		323
Interest income	(40)		(8)		(70)		(44)
Loss on debt extinguishment	—		8		—		8
Other non-operating—net	(2)		—		(5)		1
Earnings before income taxes	740		1,696		1,559		3,148
Income tax provision	134		357		303		758
Net earnings	606		1,339		1,256		2,390
Less: Net earnings attributable to noncontrolling interest	79		174		169		342
Net earnings attributable to common stockholders	$	527	$	1,165	$	1,087	$	2,048
Net earnings per share attributable to common stockholders:
Basic	$	2.71	$	5.59	$	5.56	$	9.83
Diluted	$	2.70	$	5.58	$	5.55	$	9.78
Weighted-average common shares outstanding:
Basic	194.6		208.2		195.4		208.4
Diluted	195.0		208.9		195.9		209.4
Dividends declared per common share	$	0.40	$	0.40	$	0.80	$	0.70

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   June 30,				Six months ended   June 30,
	2023		2022		2023		2022
	(in millions)
Net earnings	$	606	$	1,339	$	1,256	$	2,390
Other comprehensive income (loss):
Foreign currency translation adjustment—net of taxes	23		(27)		30		(40)
Defined benefit plans—net of taxes	2		8		1		12
	25		(19)		31		(28)
Comprehensive income	631		1,320		1,287		2,362
Less: Comprehensive income attributable to noncontrolling interest	79		174		169		342
Comprehensive income attributable to common stockholders	$	552	$	1,146	$	1,118	$	2,020

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	June 30,   2023		December 31,   2022
	(in millions, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	3,219	$	2,323
Accounts receivable—net	388		582
Inventories	319		474
Prepaid income taxes	81		215
Other current assets	65		79
Total current assets	4,072		3,673
Property, plant and equipment—net	6,218		6,437
Investment in affiliate	72		74
Goodwill	2,089		2,089
Operating lease right-of-use assets	278		254
Other assets	808		786
Total assets	$	13,537	$	13,313
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses	$	451	$	575
Income taxes payable	47		3
Customer advances	9		229
Current operating lease liabilities	100		93
Other current liabilities	15		95
Total current liabilities	622		995
Long-term debt	2,967		2,965
Deferred income taxes	910		958
Operating lease liabilities	177		167
Other liabilities	341		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—196,248,883 shares issued and 2022—195,604,404 shares issued	2		2
Paid-in capital	1,430		1,412
Retained earnings	4,797		3,867
Treasury stock—at cost, 2023—3,313,189 shares and 2022—0 shares	(226)		—
Accumulated other comprehensive loss	(199)		(230)
Total stockholders’ equity	5,804		5,051
Noncontrolling interest	2,716		2,802
Total equity	8,520		7,853
Total liabilities and equity	$	13,537	$	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 March 31, 2023	$	2	$	(97)	$	1,424	$	4,348	$	(224)	$	5,453	$	2,637	$	8,090
Net earnings	—		—		—		527		—		527		79		606
Other comprehensive income	—		—		—		—		25		25		—		25
Purchases of treasury stock	—		(131)		—		—		—		(131)		—		(131)
Issuance of $0.01 par value common stock under employee stock plans	—		2		(1)		—		—		1		—		1
Stock-based compensation expense	—		—		7		—		—		7		—		7
Dividends and dividend equivalents ($0.40 per share)	—		—		—		(78)		—		(78)		—		(78)
Balance as of June 30, 2023	$	2	$	(226)	$	1,430	$	4,797	$	(199)	$	5,804	$	2,716	$	8,520

Balance as of December 31, 2022	$	2	$	—	$	1,412	$	3,867	$	(230)	$	5,051	$	2,802	$	7,853
Net earnings	—		—		—		1,087		—		1,087		169		1,256
Other comprehensive income	—		—		—		—		31		31		—		31
Purchases of treasury stock	—		(206)		—		—		—		(206)		—		(206)
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	—		—		19		—		—		19		—		19
Dividends and dividend equivalents ($0.80 per share)	—		—		—		(157)		—		(157)		—		(157)
Distribution declared to noncontrolling interest	—		—		—		—		—		—		(255)		(255)
Balance as of June 30, 2023	$	2	$	(226)	$	1,430	$	4,797	$	(199)	$	5,804	$	2,716	$	8,520

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, 2022	$	2	$	(123)	$	1,482	$	2,907	$	(266)	$	4,002	$	2,751	$	6,753
Net earnings	—		—		—		1,165		—		1,165		174		1,339
Other comprehensive loss	—		—		—		—		(19)		(19)		—		(19)
Purchases of treasury stock	—		(490)		—		—		—		(490)		—		(490)
Retirement of treasury stock	—		281		(23)		(260)		—		(2)		—		(2)
Issuance of $0.01 par value common stock under employee stock plans	—		1		3		—		—		4		—		4
Stock-based compensation expense	—		—		12		—		—		12		—		12
Dividends and dividend equivalents ($0.40 per share)	—		—		—		(83)		—		(83)		—		(83)
Balance as of June 30, 2022	$	2	$	(331)	$	1,474	$	3,729	$	(285)	$	4,589	$	2,925	$	7,514

Balance as of December 31, 2021	$	2	$	(2)	$	1,375	$	2,088	$	(257)	$	3,206	$	2,830	$	6,036
Net earnings	—		—		—		2,048		—		2,048		342		2,390
Other comprehensive loss	—		—		—		—		(28)		(28)		—		(28)
Purchases of treasury stock	—		(590)		—		—		—		(590)		—		(590)
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		100		—		—		101		—		101
Stock-based compensation expense	—		—		22		—		—		22		—		22
Dividends and dividend equivalents ($0.70 per share)	—		—		—		(147)		—		(147)		—		(147)
Distribution declared to noncontrolling interest	—		—		—		—		—		—		(247)		(247)
Balance as of June 30, 2022	$	2	$	(331)	$	1,474	$	3,729	$	(285)	$	4,589	$	2,925	$	7,514

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six months ended   June 30,
	2023		2022
	(in millions)
Operating Activities:
Net earnings	$	1,256	$	2,390
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	427		431
Deferred income taxes	(53)		—
Stock-based compensation expense	19		22
Loss on debt extinguishment	—		8
Unrealized net gain on natural gas derivatives	(72)		(50)
U.K. long-lived and intangible asset impairment	—		152
Gain on sale of emission credits	(36)		(3)
Loss on disposal of property, plant and equipment	1		—
Undistributed earnings of affiliate—net of taxes	—		(3)
Changes in:
Accounts receivable—net	198		(239)
Inventories	140		(99)
Accrued and prepaid income taxes	166		12
Accounts payable and accrued expenses	(138)		223
Customer advances	(220)		(628)
Other—net	(29)		64
Net cash provided by operating activities	1,659		2,280
Investing Activities:
Additions to property, plant and equipment	(164)		(129)
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	36		12
Net cash used in investing activities	(127)		(121)
Financing Activities:
Payments of long-term borrowings	—		(507)
Financing fees	—		(4)
Dividends paid	(158)		(147)
Distributions to noncontrolling interest	(255)		(247)
Purchases of treasury stock	(205)		(577)
Proceeds from issuances of common stock under employee stock plans	1		101
Cash paid for shares withheld for taxes	(22)		(23)
Net cash used in financing activities	(639)		(1,404)
Effect of exchange rate changes on cash and cash equivalents	3		(13)
Increase in cash and cash equivalents	896		742
Cash and cash equivalents at beginning of period	2,323		1,628
Cash and cash equivalents at end of period	$	3,219	$	2,370

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 15—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 six months ended June 30, 2023 and 2022:

	Ammonia		Granular Urea		UAN		AN		Other		Total
	(in millions)
Three months ended June 30, 2023
North America	$	460	$	460	$	463	$	65	$	120	$	1,568
Europe and other	65		—		85		39		18		207
Total revenue	$	525	$	460	$	548	$	104	$	138	$	1,775
Three months ended June 30, 2022
North America	$	987	$	816	$	877	$	76	$	180	$	2,936
Europe and other	128		17		99		177		32		453
Total revenue	$	1,115	$	833	$	976	$	253	$	212	$	3,389
Six months ended June 30, 2023
North America	$	790	$	1,035	$	982	$	139	$	246	$	3,192
Europe and other	159		36		233		124		43		595
Total revenue	$	949	$	1,071	$	1,215	$	263	$	289	$	3,787
Six months ended June 30, 2022
North America	$	1,570	$	1,552	$	1,890	$	159	$	333	$	5,504
Europe and other	185		46		101		317		104		753
Total revenue	$	1,755	$	1,598	$	1,991	$	476	$	437	$	6,257

As of June 30, 2023 and December 31, 2022, we had $9 million and $229 million, respectively, in customer advances on our consolidated balance sheets. During the six months ended June 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 June 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 June 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 $845 million. We expect to recognize approximately 27% of these performance obligations as revenue in the remainder of 2023, approximately 36% as revenue during 2024-2026, approximately 17% 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 $255 million as of June 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   June 30,				Six months ended   June 30,
	2023		2022		2023		2022
	(in millions, except per share amounts)
Net earnings attributable to common stockholders	$	527	$	1,165	$	1,087	$	2,048
Basic earnings per common share:
Weighted-average common shares outstanding	194.6		208.2		195.4		208.4
Net earnings attributable to common stockholders	$	2.71	$	5.59	$	5.56	$	9.83
Diluted earnings per common share:
Weighted-average common shares outstanding	194.6		208.2		195.4		208.4
Dilutive common shares—stock-based awards	0.4		0.7		0.5		1.0
Diluted weighted-average common shares outstanding	195.0		208.9		195.9		209.4
Net earnings attributable to common stockholders	$	2.70	$	5.58	$	5.55	$	9.78

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 six months ended June 30, 2023 and the three and six months ended June 30, 2022.

4.   Inventories

Inventories consist of the following:

	June 30,   2023		December 31,   2022
	(in millions)
Finished goods	$	280	$	437
Raw materials, spare parts and supplies	39		37
Total inventories	$	319	$	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 was approved, and decommissioning activities at our Ince facility were initiated. As of June 30, 2023, the decommissioning of our Ince facility and other approved restructuring actions have been completed.

6.   Property, Plant and Equipment—Net

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

	June 30,   2023		December 31,   2022
	(in millions)
Land	$	114	$	113
Machinery and equipment	12,740		12,633
Buildings and improvements	923		914
Construction in progress	303		203
Property, plant and equipment(1)	14,080		13,863
Less: Accumulated depreciation and amortization	7,862		7,426
Property, plant and equipment—net	$	6,218	$	6,437

_______________________________________________________________________________

(1)As of June 30, 2023 and December 31, 2022, we had property, plant and equipment that was accrued but unpaid of approximately $63 million and $53 million, respectively. As of June 30, 2022 and December 31, 2021, we had property, plant and equipment that was accrued but unpaid of approximately $51 million and $35 million, respectively.

Depreciation and amortization related to property, plant and equipment was $218 million and $422 million for the three and six months ended June 30, 2023, respectively, and $219 million and $424 million for the three and six months ended June 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.

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.

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CF INDUSTRIES HOLDINGS, INC.

The following is a summary of capitalized plant turnaround costs:

	Six months ended   June 30,
	2023		2022
	(in millions)
Net capitalized turnaround costs as of January 1	$	312	$	355
Additions	47		26
Depreciation	(62)		(70)
Impairment related to U.K. operations	—		(7)
Effect of exchange rate changes	1		(4)
Net capitalized turnaround costs as of June 30	$	298	$	300

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 June 30, 2023, the total carrying value of our equity method investment in PLNL was $72 million, $32 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 10 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 $36 million and $95 million for the three and six months ended June 30, 2023, respectively, and $77 million and $151 million for the three and six months ended June 30, 2022, respectively.

8.   Fair Value Measurements

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

	June 30, 2023
	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
	(in millions)
Cash	$	183	$	—	$	—	$	183
Cash equivalents:
U.S. and Canadian government obligations	2,792		—		—		2,792
Other debt securities	244		—		—		244
Total cash and cash equivalents	$	3,219	$	—	$	—	$	3,219
Nonqualified employee benefit trusts	16		1		—		17

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CF INDUSTRIES HOLDINGS, INC.

	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 June 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:

	June 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	$	3,036	$	3,036	$	—	$	—
Nonqualified employee benefit trusts	17		17		—		—
Derivative assets	9		—		9		—
Derivative liabilities	(9)		—		(9)		—

	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 June 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.

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CF INDUSTRIES HOLDINGS, INC.

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 12—Derivative Financial Instruments for additional information.

Financial Instruments

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

	June 30, 2023				December 31, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in millions)
Long-term debt	$	2,967	$	2,767	$	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 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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CF INDUSTRIES HOLDINGS, INC.

9.   Income Taxes

For the three months ended June 30, 2023, we recorded an income tax provision of $134 million on pre-tax income of $740 million, or an effective tax rate of 18.2%, compared to an income tax provision of $357 million on pre-tax income of $1.70 billion, or an effective tax rate of 21.1%, for the three months ended June 30, 2022.

For the six months ended June 30, 2023, we recorded an income tax provision of $303 million on pre-tax income of $1.56 billion, or an effective tax rate of 19.5%, compared to an income tax provision of $758 million on pre-tax income of $3.15 billion, or an effective tax rate of 24.1%, for the six months ended June 30, 2022.

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 June 30, 2023 of 18.2%, which is based on pre-tax income of $740 million, including $79 million of earnings attributable to the noncontrolling interest, would be 2.1 percentage points higher if based on pre-tax income exclusive of the $79 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the three months ended June 30, 2022 of 21.1%, which is based on pre-tax income of $1.70 billion, including $174 million of earnings attributable to the noncontrolling interest, would be 2.4 percentage points higher if based on pre-tax income exclusive of the $174 million of earnings attributable to the noncontrolling interest.

Our effective tax rate for the six months ended June 30, 2023 of 19.5%, which is based on pre-tax income of $1.56 billion, including $169 million of earnings attributable to the noncontrolling interest, would be 2.3 percentage points higher if based on pre-tax income exclusive of the $169 million of earnings attributable to the noncontrolling interest. Our effective tax rate for the six months ended June 30, 2022 of 24.1%, which is based on pre-tax income of $3.15 billion, including $342 million of earnings attributable to the noncontrolling interest, would be 2.9 percentage points higher if based on pre-tax income exclusive of the $342 million of earnings attributable to the noncontrolling interest.

In addition, for the six months ended June 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.

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 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 six months ended June 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 $104 million, primarily reflecting the impact of estimated interest payable to Canada. Of the $78 million of income tax provision and $104 million of net interest expense recognized in the six months ended June 30, 2022, $2 million of income tax provision and $5 million of net interest expense was recognized in the three months ended June 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.

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CF INDUSTRIES HOLDINGS, INC.

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, for the six months ended June 30, 2022, we recorded the following:

•liabilities for unrecognized tax benefits of approximately $314 million, with a corresponding income tax provision, and accrued interest of approximately $116 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 $30 million related to the noncurrent income tax receivables.

In the six months ended June 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 $26 million of net deferred income tax provision for other transfer pricing tax effects, was $19 million of income tax benefit and $86 million of net interest expense before tax ($93 million after tax). Of the $19 million of income tax benefit and $86 million of net interest expense recognized in the six months ended June 30, 2022, $21 million of income tax benefit and $23 million of net interest expense ($24 million after tax) was recognized in the three months ended June 30, 2022.

10.   Financing Agreements

Revolving Credit Agreement

We have a senior unsecured 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 adjusted term Secured Overnight Financing 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.

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

The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants, including financial covenants. As of June 30, 2023, 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 $350 million of letters of credit. As of June 30, 2023, approximately $205 million of letters of credit were outstanding under this agreement.

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CF INDUSTRIES HOLDINGS, INC.

Senior Notes

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

	Effective Interest Rate	June 30, 2023				December 31, 2022
		Principal		Carrying Amount(1)		Principal		Carrying Amount(1)
		(in millions)
Public Senior Notes:
5.150% due March 2034	5.293%	750		741		750		741
4.950% due June 2043	5.040%	750		742		750		742
5.375% due March 2044	5.478%	750		741		750		740
Senior Secured Notes:
4.500% due December 2026(2)	4.783%	750		743		750		742
Total long-term debt		$	3,000	$	2,967	$	3,000	$	2,965

_______________________________________________________________________________

(1)Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discount was $7 million as of both June 30, 2023 and December 31, 2022, and total deferred debt issuance costs were $26 million and $28 million as of June 30, 2023 and December 31, 2022, respectively. 

(2)Effective August 23, 2021, these notes are no longer secured, in accordance with the terms of the applicable indenture.

Under the indentures (including the applicable supplemental indentures) governing the senior notes due 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 by CF Holdings.

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.

11.   Interest Expense

Details of interest expense are as follows:

	Three months ended   June 30,				Six months ended   June 30,
	2023		2022		2023		2022
	(in millions)
Interest on borrowings(1)	$	37	$	38	$	74	$	80
Fees on financing agreements(1)	2		2		4		4
Interest on tax liabilities(2)	(2)		42		—		240
Interest capitalized	(1)		—		(2)		(1)
Total interest expense	$	36	$	82	$	76