CF Industries Holdings, Inc. (CF) FY 2022 MD&A

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion and analysis in conjunction with the consolidated financial statements and related notes included in Item 8. Financial Statements and Supplementary Data. All references to “CF Holdings,” “we,” “us,” “our” and “the Company” refer to CF Industries Holdings, Inc. and its subsidiaries, except where the context makes clear that the reference is only to CF Industries Holdings, Inc. itself and not its subsidiaries. All references to “CF Industries” refer to CF Industries, Inc., a 100% owned subsidiary of CF Industries Holdings, Inc. References to tons refer to short tons and references to tonnes refer to metric tons. Notes referenced in this discussion and analysis refer to the notes to consolidated financial statements that are found in Item 8. Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements. For a discussion and analysis of the year ended December 31, 2021 compared to December 31, 2020, you should read Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 24, 2022. The following is an outline of the discussion and analysis included herein:

•Overview of CF Holdings

•Market Conditions and Current Developments

•Financial Executive Summary

•Items Affecting Comparability of Results

•Consolidated Results of Operations

•Operating Results by Business Segment

•Liquidity and Capital Resources

•Critical Accounting Estimates

Overview of CF Holdings

Our Company

Our mission is to provide clean energy to feed and fuel the world sustainably. With our employees focused on safe and reliable operations, environmental stewardship, and disciplined capital and corporate management, we are on a path to decarbonize our ammonia production network – the world’s largest – to enable green and blue hydrogen and nitrogen products for energy, fertilizer, emissions abatement, and other industrial activities. Our 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.

Our principal assets as of December 31, 2022 include:

•five U.S. nitrogen manufacturing facilities, located in Donaldsonville, Louisiana (the largest nitrogen complex in the world); Sergeant Bluff, Iowa (our Port Neal complex); Yazoo City, Mississippi; Claremore, Oklahoma (our Verdigris complex); and Woodward, Oklahoma. These facilities are wholly owned directly or indirectly by CF Industries Nitrogen, LLC (CFN), of which we own approximately 89% and CHS Inc. (CHS) owns the remainder (see Note 17—Noncontrolling Interest for additional information on our strategic venture with CHS);

•two Canadian nitrogen manufacturing facilities, located in Medicine Hat, Alberta (the largest nitrogen complex in Canada) and Courtright, Ontario;

•a United Kingdom nitrogen manufacturing facility located in Billingham;

•an extensive system of terminals and associated transportation equipment located primarily in the Midwestern United States; and

•a 50% interest in Point Lisas Nitrogen Limited (PLNL), an ammonia production joint venture located in the Republic of Trinidad and Tobago (Trinidad) that we account for under the equity method.

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We previously operated a United Kingdom nitrogen manufacturing facility located in Ince. In June 2022, we approved and announced our proposed plan to restructure our U.K. operations, including the planned permanent closure of our Ince facility. In August 2022, the final restructuring plan was approved, and decommissioning activities were initiated. See “Market Conditions and Current Developments—United Kingdom Operations,” below, for more information.

Our Commitment to a Clean Energy Economy

We are taking significant steps to support a global hydrogen and clean fuel economy, through the production of green and blue ammonia. Since ammonia is one of the most efficient ways to transport and store hydrogen and is also a fuel in its own right, we believe that the Company, as the world’s largest producer of ammonia with an unparalleled manufacturing and distribution network and deep technical expertise, is uniquely positioned to fulfill anticipated demand for hydrogen and ammonia from green and blue sources. Our approach includes green ammonia production, which refers to ammonia produced through a carbon-free process, and blue ammonia production, which relates to ammonia produced by conventional processes but with CO2 byproduct removed through carbon capture and sequestration (CCS).

In April 2021, we signed an engineering and procurement contract with thyssenkrupp to supply a 20 MW alkaline water electrolysis plant to produce green hydrogen at our Donaldsonville complex. Construction and installation, which is being managed by us, and is expected to finish in 2023, with an estimated total cost of approximately $100 million. We will integrate the green hydrogen generated by the electrolysis plant into existing ammonia synthesis loops to enable the production of approximately 20,000 tons per year of green ammonia. We believe that the Donaldsonville green ammonia project will be the largest of its kind in North America.

In July 2022, we and Mitsui & Co., Ltd. (Mitsui) signed a joint development agreement for the companies’ proposed plans to construct an export-oriented blue ammonia facility. We and Mitsui continue to progress a front-end engineering and design (FEED) study for the project, and expect to make a final investment decision on the proposed facility in the second half of 2023. Should the companies agree to move forward, the ammonia facility would be constructed at our new Blue Point complex. We acquired the land on the west bank of the Mississippi river in Ascension Parish, Louisiana, for the complex during the third quarter of 2022. Construction and commissioning of a new world-scale ammonia plant typically takes approximately four years from the time construction begins.

We are also exploring opportunities to produce blue ammonia from our existing ammonia production network. We have announced a project with an estimated cost of $200 million to construct a CO2 dehydration and compression facility at our Donaldsonville complex to enable the transport and permanent sequestration of the ammonia process CO2 byproduct. Engineering activities and procurement of major equipment for the facility are in progress, and modification of the site’s existing equipment to allow integration with existing operations has begun. Once the dehydration and compression unit is in service and sequestration is initiated, we expect that the Donaldsonville complex will have the capacity to dehydrate and compress up to 2 million tons per year of CO2, enabling the production of blue ammonia. In October 2022, we announced that we had entered into a definitive CO2 offtake agreement with ExxonMobil to transport and permanently sequester the CO2 from Donaldsonville. Start-up for the project is scheduled for early 2025. Under current regulations, the project would be expected to qualify for tax credits under Section 45Q of the Internal Revenue Code, which provides a credit per tonne of CO2 sequestered.

Industry Factors

We operate in a highly competitive, global industry. Our operating results are influenced by a broad range of factors, including those outlined below.

Global Supply and Demand Factors

Our products are globally traded commodities and are subject to price competition. The customers for our products make their purchasing decisions principally on the basis of delivered price and, to a lesser extent, on customer service and product quality. The selling prices of our products fluctuate in response to global market conditions, changes in supply and demand and cost factors.

Historically, global fertilizer demand has been driven primarily by population growth, gross domestic product growth, changes in dietary habits, planted acreage, and application rates, among other things. We expect these key variables to continue to have major impacts on long-term fertilizer demand for the foreseeable future. Short-term fertilizer demand growth may depend on global economic conditions, farm sector income, weather patterns, the level of global grain stocks relative to consumption, fertilizer application rates, and governmental regulations, including fertilizer subsidies or requirements mandating increased use of bio-fuels or industrial nitrogen products, such as DEF. Geopolitical factors such as temporary disruptions in fertilizer trade related to government intervention or changes in the buying/selling patterns of key exporting/consuming countries, including China, India, Russia and Brazil, among others, often play a major role in shaping near-term market

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fundamentals. The economics of nitrogen-based fertilizer manufacturing play a key role in decisions to increase or reduce production capacity. Supply of fertilizers is generally driven by available capacity and operating rates, raw material costs and availability, government policies and global trade. Raw materials are dependent on energy sources such as natural gas or coal; therefore, supply costs are affected by the supply of and demand for those commodities.

Global Trade in Fertilizer

Profitability of our products within a particular geographic region is determined not only by the relationship between global supply and demand, but also by the supply/demand balance within that region. Regional supply and demand can be influenced significantly by factors affecting trade within regions. Some of these factors include the relative cost to produce and deliver product, relative currency values, the availability of credit, agricultural supply and demand, industrial product demand and policies such as emissions abatement, government support for manufacturers or purchasers and governmental nitrogen product trade policies, including the imposition of duties, tariffs or quotas, that affect foreign trade or investment. The development of additional natural gas reserves in North America over the last decade has decreased natural gas costs in North America relative to the rest of the world, making North American nitrogen fertilizer producers more competitive. Changes in currency values may also alter our cost competitiveness relative to producers in other regions of the world.

The North American nitrogen fertilizer market for certain nitrogen products is dependent on imports to balance supply and demand, and imports traditionally account for a significant portion of nitrogen fertilizer products consumed in North America. Producers of nitrogen-based fertilizers located in the Middle East, Trinidad, North Africa and Russia have been major exporters to North America in recent years.

Farmers’ Economics

The demand for fertilizer is affected by the aggregate crop planting decisions and fertilizer application rate decisions of individual farmers. Individual farmers make planting decisions based largely on prospective profitability of a harvest, while the specific varieties and amounts of fertilizer they apply depend on factors like their current liquidity, soil conditions, weather patterns, crop and fertilizer prices, fertilizer products used and timing of applications, expected yields and the types of crops planted.

Market Conditions and Current Developments

Geopolitical Environment

Russia’s invasion of Ukraine in February 2022, and the resulting war between Russia and Ukraine, have disrupted global markets for certain commodities, including natural gas, nitrogen fertilizers and certain commodity grains, leading to production curtailments, export reductions and logistical complications involving these commodities. Additionally, energy, financial and transportation sanctions have been announced by U.S., Canadian, European and other governments against Russia in response to the war. Market participants have been adjusting trade flows and manufacturers have been adjusting production levels in response to these factors. Continued market disruption is expected given the uncertainty of the situation. As of the date of filing of this report, nitrogen fertilizers have largely been explicitly exempted from these Russian sanctions by the United States and certain other governments.

As further described below, natural gas is the principal raw material used to produce our nitrogen products. Natural gas is a globally traded commodity that experiences price fluctuations based on supply and demand balances and has been impacted by the recent geopolitical events. European energy markets, which have historically sourced a substantial portion of their natural gas from Russia, have been disrupted by Russia’s invasion of Ukraine and the subsequent reduction of Russian natural gas supply to Europe. This has led to further increases in natural gas prices and natural gas price volatility, which in turn have led to disruptions in manufacturing and distribution activities at other nitrogen manufacturers and suppliers in our industry, resulting in changes in nitrogen product trade flows and reductions in global fertilizer supply. In addition, as discussed under “Market Conditions and Current Developments—United Kingdom Operations,” below, in September 2022, we temporarily idled ammonia production at our Billingham complex due to the high price of natural gas. Several European governments, including the United Kingdom, and the European Union (EU) are seeking to address energy market supply and volatility with a variety of government programs and policy changes. These programs, some of which are evolving and may change over time, may reduce the costs of natural gas in the United Kingdom and, to some extent, the EU but the full impact of these programs remains to be seen.

The geopolitical developments relating to the war in Ukraine have also led to some supply chain disruptions for Russian producers of fertilizer, contributing to reduced global nitrogen fertilizer supply. Prior to its February 2022 invasion of Ukraine, Russia in recent years had been a significant supplier of nitrogen fertilizer products to North America and Europe and a leading exporter of nitrogen fertilizer products globally. Since that invasion, the closure of a pipeline historically transporting ammonia

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from Russia through Ukraine for export has been a large contributor to reduced global exportable ammonia supply. In addition, Russia and Ukraine have been large exporters of commodity grains such as wheat, corn and soybeans. The direct and indirect impacts of the war in Ukraine, and the related uncertainty, have resulted in reduced commodity grain supply from Russia and Ukraine, causing increased prices for grains globally. The increase in commodity grain prices in turn supported strong demand for nitrogen fertilizer in 2022.

These events have further contributed to an already tight global supply and demand balance for nitrogen fertilizers. These factors are causing changes in global trade flows as both manufacturers and customers react to the changing market dynamics. As a result, global nitrogen fertilizer prices remained high and also experienced significant volatility in 2022.

We expect that the recent geopolitical events, and any further government-imposed sanctions or other government actions affecting food or energy security, will continue to have an impact on the supply and demand balance of nitrogen fertilizer products globally and selling prices for our nitrogen fertilizer products, but the ultimate scope and duration of these impacts remain to be seen.

Nitrogen Selling Prices and Sales Volume

Our nitrogen products are globally traded commodities with selling prices that fluctuate in response to global market conditions, changes in supply and demand, and other cost factors including domestic and local conditions. Intense global competition—reflected in import volumes and prices—strongly influences delivered prices for nitrogen fertilizers. In general, the prevailing global prices for nitrogen products must be at a level to incent the high cost marginal producer to produce product at a breakeven or above price, or else they would cease production and leave a portion of global demand unsatisfied.

The selling prices for all of our major products were higher in 2022 than in 2021, driven by the impact of a tighter global nitrogen supply and demand balance, as a result of strong global demand and a decrease in global supply availability as higher global energy costs continued to drive lower global operating rates, and exacerbated by the geopolitical environment described above. The average selling price for our products for 2022 and 2021 was $610 per ton and $353 per ton, respectively. The increase in average selling prices of 73% in 2022 from 2021 resulted in an increase in net sales of approximately $4.80 billion.

Our total sales volume was 1% lower in 2022 than in 2021 as lower sales volume in our Ammonia, Other and AN segments was mostly offset by higher sales volume in our Granular Urea and UAN segments. We shipped 18.3 million tons of product in 2022 compared to 18.5 million tons in 2021. The lower sales volume reflects the impact of our Ince facility closure, which is further discussed below.

Sales volume for our products in 2022, 2021 and 2020 is shown in the table below.

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Natural Gas

Natural gas is the principal raw material used to produce our nitrogen products. Natural gas is both a chemical feedstock and a fuel to produce nitrogen products. Natural gas is a significant cost component of our manufactured nitrogen products, representing approximately 50% of our production costs in 2022 and 40% of our production costs in 2021.

The following table presents the average daily market price of natural gas at the Henry Hub, the most heavily-traded natural gas pricing point in North America, and the National Balancing Point (NBP), the major trading point for natural gas in the United Kingdom:

Most of our nitrogen manufacturing facilities are located in the United States and Canada. As a result, the price of natural gas in North America directly impacts a substantial portion of our operating expenses. North American natural gas prices during 2022 were higher on average than during 2021 due to tighter supply and demand conditions within the market. Natural gas prices increased steadily through the first half of 2022 as the increase in demand for natural gas for power generation and liquefied natural gas (LNG) exports exceeded production increases. Late in the second quarter of 2022, prices declined as the Freeport LNG facility outage reduced demand for natural gas for LNG exports and allowed natural gas injections to refill storage at an accelerated pace. Record high temperatures in the United States in the summer of 2022 and the limited substitution to coal generation due to high coal prices and available coal supply increased demand for natural gas in the electricity sector, raising natural gas prices to over $9.00 per MMBtu. Natural gas prices decreased late in the third quarter of 2022 due to increasing production, cooler temperatures and above average storage injections. Prices continued to decline during the fourth quarter of 2022 until late December when extreme cold weather covered much of the United States, increasing demand for natural gas for use in residential and commercial heating.

The average daily market price at the Henry Hub was $6.38 per MMBtu for 2022 compared to $3.82 per MMBtu for 2021, an increase of 67%. During 2022, the daily closing price at the Henry Hub reached a low of $3.45 per MMBtu on November 10, 2022 and a high of $9.85 per MMBtu on August 23, 2022. During the three-year period ended December 31, 2022, the daily closing price at the Henry Hub reached a low of $1.34 per MMBtu on September 22, 2020 and three consecutive days in October 2020 and a high of $23.61 per MMBtu on February 18, 2021. The average daily market price of natural gas at the Henry Hub for January 2023 was $3.29 per MMBtu.

In the first quarter of 2021, the central portion of the United States experienced extreme and unprecedented cold weather due to the impact of Winter Storm Uri. Certain natural gas suppliers and natural gas pipelines declared force majeure events due to frozen equipment. This occurred at the same time as large increases in natural gas demand were occurring due to the cold temperatures. Due to these unprecedented factors, several states declared a state of emergency, and natural gas was redirected for residential use. At certain of our manufacturing locations, we reduced our natural gas consumption, and, as a consequence, our plants at these locations either operated at reduced rates or temporarily suspended operations. We net settled certain natural gas contracts with our suppliers and received prevailing market prices, which were in excess of our cost. As a result, we recognized a gain of $112 million, which is reflected in cost of sales in our consolidated statement of operations for the year ended December 31, 2021.

Our Billingham U.K. nitrogen manufacturing facility is subject to fluctuations associated with the price of natural gas in Europe. Russia’s invasion of Ukraine on February 24, 2022 disrupted European energy markets and threatened security of supply, driving natural gas prices in Europe upward to unprecedented levels. During the second quarter of 2022, the price of natural gas in the United Kingdom declined as Russian natural gas flows via pipeline to Europe generally remained steady despite the ongoing war in Ukraine. European natural gas prices began to increase late in the second quarter of 2022 after the unplanned outage of the Freeport LNG liquefaction terminal in the United States impacted global LNG supply. In the third quarter of 2022, prices continued to increase when Russian natural gas flows to Europe via the Nord Stream 1 pipeline ceased. Natural gas prices began to decrease late in the third quarter of 2022 as natural gas storage levels in continental Europe reached robust levels, although prices remained elevated compared to historical price levels. This trend continued in the fourth quarter of 2022 as Europe experienced a mild start to winter and LNG deliveries to the continent remained elevated, decreasing the risk of natural gas shortages.

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The major natural gas trading point for the United Kingdom is the NBP. The average daily market price at the NBP was $24.56 per MMBtu for 2022 compared to $15.50 per MMBtu for 2021, an increase of 58%. During 2022, the daily closing price at the NBP reached a low of $1.23 per MMBtu on June 10, 2022 and a high of $67.08 per MMBtu on March 8, 2022. During the three-year period ended December 31, 2022, the daily closing price at the NBP reached a low of $1.04 per MMBtu on May 22, 2020, and a high of $67.08 per MMBtu on March 8, 2022. The average daily market price of natural gas at the NBP for January 2023 was $18.93 per MMBtu.

In 2022, the total cost of natural gas used for production at all of our locations, which includes the impact of realized natural gas derivatives, increased 71% to $7.18 from $4.21 per MMBtu in 2021. The cost of natural gas used for production of $4.21 per MMBtu in 2021 does not include the $112 million gain from the net settlement of certain natural gas contracts in February 2021. The increase in natural gas costs in 2022 as compared to 2021 resulted in a decrease in gross margin of approximately $1.05 billion.

United Kingdom Operations

Starting in the third quarter of 2021, the United Kingdom began experiencing an energy crisis that included a substantial increase in the price of natural gas, which impacted our U.K. operations. The energy crisis and the geopolitical environment, as discussed above, have continued to evolve since the third quarter of 2021. As a result of these factors, management has taken certain actions relating to our U.K. operations. The following table summarizes the total impact of these factors for the years ended December 31, 2022 and 2021. For the year ended December 31, 2020, no impairment or restructuring charges were recognized.

___________________________________________________________________________

N/M—Not Meaningful

2021 Impairment

In the first half of 2021, natural gas prices in the United Kingdom had increased to levels that were considered high compared to historical prices, and prices then more than doubled in the third quarter of 2021. On September 15, 2021, we announced the halt of operations at both our Ince and Billingham manufacturing facilities in the United Kingdom due to negative profitability driven by the high cost of natural gas. Shortly thereafter, our Billingham facility resumed operations.

The U.K. energy crisis necessitated evaluations in the third and fourth quarters of 2021 of the long-lived assets, including the definite-lived intangible assets, and goodwill of our U.K. operations to determine if their fair value had declined to below their carrying value. These evaluations in 2021 resulted in total goodwill impairment charges of $285 million, and total long-lived and intangible asset impairment charges of $236 million. As of December 31, 2021, after the recognition of the goodwill impairment charges, no goodwill related to our U.K. operations remained.

2022 Impairment and Restructuring

In 2022, we recognized total impairment charges of $239 million and restructuring charges of $19 million, as described below.

In the second quarter of 2022, the long-term outlook deteriorated for nitrogen producers in regions that rely on LNG imports to satisfy natural gas demand. As further described above, natural gas represents a substantial portion of the cost to produce nitrogen products. Natural gas forward prices suggested that nitrogen facilities in the United Kingdom and mainland Europe would be the world’s high-cost marginal producers for the foreseeable future, presenting a challenge to the sustainability of our U.K. operations. In June 2022, due in large part to the nitrogen industry conditions described above, we approved and announced our proposed plan to restructure our U.K. operations, including the planned permanent closure of our

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Ince facility and optimization of the remaining manufacturing operations at our Billingham facility. As a result, in the second quarter of 2022, we recorded total charges of $162 million as follows:

•asset impairment charges of $152 million, primarily consisting of impairment of property, plant and equipment at the Ince facility that is planned for abandonment, and impairment of certain trade name intangible assets; and

•a charge for post-employment benefits of $10 million related to contractual and statutory obligations due to employees whose employment would be terminated in the proposed plan.

In the third quarter of 2022, the United Kingdom continued to experience extremely high and volatile natural gas prices. Russian natural gas 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 temporarily 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 our continuing U.K. operations. As a result, in the third quarter of 2022, we recorded total charges of $95 million as follows:

•asset impairment charges of $87 million related to property, plant and equipment and definite-lived intangible assets at our Billingham complex; and

•a charge for post-employment benefits of $8 million for additional charges primarily related to one-time termination benefits.

In the fourth quarter of 2022, we incurred additional charges related to our U.K. restructuring of $1 million, primarily related to one-time termination benefits. We continue to work with customers, vendors, regulators and others to finalize closure plans of our Ince complex.

The results of our U.K. operations are included in our Ammonia, AN and Other segments, and account for a small portion of our consolidated gross margin. For the year ended December 31, 2022, gross margin generated by our U.K. operations represented approximately 2% of our consolidated gross margin. For the year ended December 31, 2021, our U.K. operations generated negative gross margin representing approximately 1% of our consolidated gross margin. See Note 5—United Kingdom Operations Restructuring and Impairment Charges for further information.

Financial Executive Summary

We reported net earnings attributable to common stockholders of $3.35 billion in 2022 compared to $917 million in 2021, an increase in net earnings of 265%, or $2.43 billion. The increase in net earnings reflects an increase of $3.47 billion in gross margin to $5.86 billion for the year ended December 31, 2022, due primarily to higher average selling prices partially offset by higher natural gas costs.

Average selling prices increased 73% to $610 per ton in 2022 from $353 per ton in 2021, which increased gross margin by $4.80 billion. The cost of natural gas used for production increased 71% to $7.18 per MMBtu from $4.21 per MMBtu in 2021, which reduced gross margin by approximately $1.05 billion.

The increase in average selling prices and higher natural gas costs are more fully described above under “Market Conditions and Current Developments.”

Partially offsetting the increase in gross margin was an increase in the income tax provision of $875 million for the year ended December 31, 2022, to $1.16 billion, due primarily to higher taxable income due to improved profitability.

The year ended December 31, 2022 also includes pre-tax impairment and restructuring charges related to our U.K. operations of $258 million compared to $521 million in the year ended December 31, 2021, which are more fully described under “Market Conditions and Current Developments—United Kingdom Operations,” above.

Diluted net earnings per share attributable to common stockholders increased $12.14 per share, to $16.38 per share in 2022 compared to $4.24 per share in 2021.

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Items Affecting Comparability of Results

During the years ended December 31, 2022 and 2021, we reported net earnings attributable to common stockholders of $3.35 billion and $917 million, respectively. In addition to the impact of market conditions discussed above, certain items affected the comparability of our financial results during the years ended December 31, 2022 and 2021. The following table and related discussion outline these items. The descriptions of items below that refer to amounts in the table refer to the pre-tax amounts unless otherwise noted.

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(1)The tax impact is calculated utilizing a marginal effective rate of 23.5% and 23.6% in 2022 and 2021, respectively, except for U.K. long-lived and intangible asset impairments, which reflects the amount of income tax benefit recognized. An income tax benefit for the U.K. goodwill impairment was not recorded as it is nondeductible for income tax purposes.

(2)Included in cost of sales in our consolidated statements of operations.

(3)Included in other operating—net in our consolidated statements of operations.

(4)Included in other non-operating—net in our consolidated statement of operations.

(5)For the year ended December 31, 2022, the after-tax income tax provision amount of $65 million reflects an income tax provision of $70 million, consisting of the $78 million income tax provision referenced below under “Canada Revenue Agency Competent Authority Matter” and the $8 million of income tax benefit referenced below under “Transfer pricing positions,” net of $5 million of income tax provision that is reflected in the after-tax interest expense and interest income amounts shown in this table.

Unrealized net mark-to-market loss on natural gas derivatives

Natural gas is the largest and most volatile single component of the manufacturing cost for nitrogen-based products. At certain times, we have managed the risk of changes in natural gas prices through the use of derivative financial instruments. The derivatives that we use for this purpose are primarily natural gas fixed price swaps, basis swaps and options. We use natural gas derivatives as an economic hedge of natural gas price risk, but without the application of hedge accounting. This can result in volatility in reported earnings due to the unrealized mark-to-market adjustments that occur from changes in the value of the derivatives, which are reflected in cost of sales in our consolidated statements of operations. In 2022 and 2021, we recognized an unrealized net mark-to-market loss on natural gas derivatives of $41 million and $25 million, respectively.

Loss on foreign currency transactions, including intercompany loans

In 2022 and 2021, we recognized losses on foreign currency transactions of $28 million and $6 million, respectively, which consist of foreign currency exchange rate impacts on foreign currency denominated transactions, including the impact of changes in foreign currency exchange rates on intercompany loans that were not permanently invested.

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U.K. operations

In 2022, we recognized total charges related to our U.K. operations of $258 million, consisting primarily of asset impairment charges related to property, plant and equipment at our Billingham and Ince facilities and definite-lived intangible assets. In 2021, we recognized impairment charges of $521 million, including a goodwill impairment charge of $285 million and long-lived and intangible asset impairment charges of $236 million.

See “Market Conditions and Current Developments—United Kingdom Operations,” above; Note 5—United Kingdom Operations Restructuring and Impairment Charges; Note 6—Property, Plant and Equipment—Net; and Note 7—Goodwill and Other Intangible Assets for further information.

Unrealized gain on embedded derivative liability

Under the terms of our strategic venture with CHS, if our credit rating as determined by two of three specified credit rating agencies is below certain levels, we are required to make a non-refundable yearly payment of $5 million to CHS until the earlier of the date that our credit rating is upgraded to above such levels by two of the three specified credit rating agencies or February 1, 2026. This obligation is recorded at fair value and has been recognized on our consolidated balance sheets as an embedded derivative. Beginning in 2016, our credit ratings were below such levels and, as a result, under the terms of the strategic venture, we made an annual payment of $5 million to CHS in the fourth quarter of each year from 2016 through 2021. Our credit rating was upgraded above certain levels in July 2022 by one of the specified credit rating agencies and in October 2022 by another one of the specified credit rating agencies. As a result of these upgrades, in the fourth quarter of 2022, there was a reduction in the fair value of the embedded derivative liability, and we recognized an unrealized gain of $14 million.

Pension settlement loss and curtailment gains—net

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 we 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 to us, which decreased the non-cash pre-tax pension settlement loss recognized by $3 million to $21 million. The settlement loss is reflected in other non-operating—net in our consolidated statement of operations for the year ended December 31, 2022.

In October 2022, we remeasured certain of our U.S. and Canadian defined benefit pension plans due to plan amendments resulting from a revision to our North American retirement plan strategy. As a result of these plan amendments, we recognized $4 million of curtailment gains, which are reflected in other non-operating—net in our consolidated statement of operations. See Note 11—Pension and Other Postretirement Benefits for further information for the year ended December 31, 2022.

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 of approximately $129 million.

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In 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 $102 million, primarily reflecting the interest paid to Canada.

See “Liquidity and Capital Resources—Canada Revenue Agency Competent Authority Matter and Transfer Pricing,” below, for additional information.

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 2022:

•liabilities for unrecognized tax benefits of $159 million, with a corresponding income tax provision, and accrued interest of $59 million related to the liabilities for unrecognized tax benefits, and

•noncurrent income tax receivables of $188 million, with a corresponding income tax benefit, and accrued interest income of $20 million related to the noncurrent income tax receivables.

In 2022, the impact of these evaluations of transfer pricing positions on our consolidated statement of operations, including $21 million of net deferred income tax provision for other transfer pricing tax effects, was $8 million of income tax benefit and $39 million of net interest expense before tax ($44 million after tax).

See “Liquidity and Capital Resources—Canada Revenue Agency Competent Authority Matter and Transfer Pricing,” below, for additional information.

Loss on debt extinguishment

On April 21, 2022, we redeemed in full all of the $500 million outstanding principal amount of the 3.450% senior notes due June 2023 (the 2023 Notes) in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid in connection with the April 2022 redemption of the 2023 Notes was $513 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $8 million, consisting primarily of the premium paid on the redemption of the $500 million principal amount of the 2023 Notes prior to their scheduled maturity.

On September 10, 2021, we redeemed $250 million principal amount, representing one-third of the $750 million principal amount outstanding immediately prior to such redemption, of the 2023 Notes, in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid for the 2023 Notes redeemed in September 2021 was approximately $265 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $13 million, consisting primarily of a premium paid on the redemption of the $250 million principal amount of the 2023 Notes prior to their scheduled maturity.

On March 20, 2021, we redeemed in full all of the $250 million outstanding principal amount of the 3.400% senior secured notes due December 2021 (the 2021 Notes) in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid in connection with the March 2021 redemption of 2021 Notes was $258 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million, consisting primarily of the premium paid on the redemption of the $250 million principal amount of the 2021 Notes prior to their scheduled maturity.

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Consolidated Results of Operations

The following table presents our consolidated results of operations and supplemental data:

______________________________________________________________________________

N/M—Not Meaningful

(1)For a discussion and analysis of the year ended December 31, 2020, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K filed with the SEC on February 24, 2022.

(2)Includes the cost of natural gas and related transportation that is included in cost of sales during the period under the first-in, first-out inventory cost method. Includes realized gains and losses on natural gas derivatives settled during the period. Excludes unrealized mark-to-market gains and losses on natural gas derivatives.

(3)Gross ammonia production, including amounts subsequently upgraded on-site into granular urea, UAN, or AN.

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The following is a discussion and analysis of our consolidated results of operations for the year ended December 31, 2022, compared to the year ended December 31, 2021. For a discussion and analysis of our consolidated results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K filed with the SEC on February 24, 2022.

Net Sales

Our net sales are derived primarily from the sale of nitrogen products and are determined by the quantities of nitrogen products we sell and the selling prices we realize. The volumes, mix and selling prices we realize are determined to a great extent by a combination of global and regional supply and demand factors. Net sales also include shipping and handling costs that are billed to our customers. Sales incentives are reported as a reduction in net sales.

Our net sales increased $4.65 billion, or 71%, to $11.19 billion in 2022 compared to $6.54 billion in 2021 due to a 73% increase in average selling prices, partially offset by a 1% decrease in sales volume.

Average selling prices were $610 per ton in 2022 compared to $353 per ton in 2021, an increase of 73%, due to higher average selling prices across all of our segments, primarily driven by the impact of a tighter global nitrogen supply and demand balance, as a result of strong global demand and decreased global supply availability as higher global energy costs and geopolitical events drove lower global operating rates. See “Market Conditions and Current Developments—Geopolitical Environment,” above, for further discussion.

Our sales volume of 18.3 million product tons in 2022 was 1% lower compared to 18.5 million product tons in 2021, as lower sales volume in our Ammonia, Other and AN segments was mostly offset by higher sales volume in our Granular Urea and UAN segments.

Gross ammonia production for 2022 was approximately 9.8 million tons compared to 9.3 million tons in 2021, reflecting a return to a typical level of planned maintenance activities compared to 2021. We expect gross ammonia production for 2023 will be approximately 9.5 million tons, which could be higher or lower depending on operating rates at our Billingham complex.

Cost of Sales

Our cost of sales includes manufacturing costs, purchased product costs, distribution costs and storage costs. Manufacturing costs, the most significant element of cost of sales, consist primarily of raw materials, realized and unrealized gains and losses on natural gas derivatives, maintenance, direct labor, depreciation and other plant overhead expenses. Purchased product costs primarily include the cost to purchase nitrogen fertilizers to augment or replace production at our facilities. Distribution costs consist of the cost of freight required to transport finished products from our plants to our distribution facilities, which are recognized in cost of sales when the product is sold to our customers. Storage costs consist of costs incurred prior to final shipment to customers.

Our cost of sales increased $1.17 billion, or 28%, to $5.33 billion in 2022 as compared to $4.15 billion in 2021. The increase in our cost of sales was due primarily to higher costs for natural gas, including the impact of realized derivatives, which increased cost of sales by $1.05 billion, and higher costs for ammonia purchased from PLNL, our joint venture in Trinidad. In addition, cost of sales in 2021 includes a gain of $112 million on the net settlement of certain natural gas contracts with our suppliers as a result of Winter Storm Uri.

Cost of sales averaged $290 per ton in 2022, a 29% increase from $224 per ton in 2021. The cost of natural gas used for production, including the impact of realized derivatives, increased 71% to $7.18 per MMBtu in 2022 from $4.21 per MMBtu in 2021. The cost of natural gas used for production of $4.21 per MMBtu in 2021 does not include the $112 million gain from the net settlement of certain natural gas contracts in February 2021.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of corporate office expenses such as salaries and other payroll-related costs for our executive, administrative, legal, financial, IT, and sales functions, as well as certain taxes and insurance and other professional service fees, including those for corporate initiatives.

Selling, general and administrative expenses increased $67 million, or 30%, to $290 million in 2022 from $223 million in 2021. The increase was due primarily to higher costs associated with certain corporate initiatives, including costs related to the development of a new enterprise resource planning system (ERP) for our North American operations as well as costs related to our clean energy strategy. In addition, the increase in selling, general and administrative expenses includes an increase in

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charitable contributions for the initial funding of the CF Industries Foundation and higher stock-based compensation. The CF Industries Foundation is a not-for-profit corporation that we formed in December 2022 to advance our philanthropic goals and develop programs that further our charitable objectives.

U.K. Operations

In 2022, we recognized total charges related to our U.K. operations of $258 million, consisting of $239 million of asset impairment charges primarily related to property, plant and equipment at our Billingham and Ince facilities and definite-lived intangible assets and $19 million of restructuring charges primarily related to post-employment benefits related to contractual and statutory obligations and one-time termination benefits. In 2021, we recognized total charges related to our U.K. operations of $521 million, consisting of goodwill impairment of $285 million and long-lived and intangible asset impairment charges of $236 million.

See “Market Conditions and Current Developments—United Kingdom Operations,” above; Note 5—United Kingdom Operations Restructuring and Impairment Charges; Note 6—Property, Plant and Equipment—Net; and Note 7—Goodwill and Other Intangible Assets for further information.

Other Operating—Net

Other operating—net includes administrative costs that do not relate directly to our central operations. Costs included in “other operating costs” can include foreign currency transaction gains and losses, unrealized gains and losses on foreign currency derivatives, litigation expenses, gains and losses on the disposal of fixed assets and FEED study costs related to a greenfield ammonia production facility.

Other operating—net was $10 million of expense in 2022 compared to $39 million of income in 2021. The expense in 2022 primarily includes a loss on foreign currency transactions of $28 million, which consists of foreign currency exchange rate impacts on foreign currency denominated transactions, including the impact of changes in foreign currency exchange rates on intercompany loans that were not permanently invested. The loss on foreign currency transactions in 2022 was partially offset by an unrealized gain of $14 million related to an embedded derivative liability. See “Items Affecting Comparability of Results—Unrealized gain on embedded derivative liability,” above, for further information. The income in 2021 includes a gain of $29 million on sales of emission credits. In addition, other operating—net in 2021 includes the amount received under the terms of an agreement with the U.K. government associated with the restart of our Billingham facility, partially offset by a loss on foreign currency transactions of $6 million.

Equity in Earnings of Operating Affiliate

Equity in earnings of operating affiliate consists of our 50% ownership interest in PLNL. We include our share of the net earnings from our equity method investment in PLNL as an element of earnings from operations because this investment provides additional production and is integrated with our other supply chain and sales activities. Our share of the net earnings includes the amortization of the increased basis of property, plant and equipment revalued as part of the application of purchase accounting at acquisition.

Equity in earnings of operating affiliate was $94 million in 2022 compared to $47 million in 2021. The increase was due primarily to an increase in the operating results of PLNL as a result of higher ammonia selling prices partially offset by higher natural gas costs.

Interest Expense—Net

Our interest expense—net represents the net of our interest expense and interest income. Interest expense includes interest on our long-term debt, amortization of the related fees required to execute financing agreements, annual fees pursuant to our revolving credit agreement and interest on tax liabilities. Capitalized interest relating to the construction of major capital projects reduces interest expense as the interest is capitalized and amortized over the estimated useful lives of the related assets. Interest income includes amounts earned on our cash, cash equivalents, and investments and any interest earned related to income tax refunds.

Net interest expense increased by $96 million to $279 million in 2022 from $183 million in 2021. The increase was due primarily to $141 million of net interest expense recorded in 2022 related to income tax matters, which are described under “Items Affecting Comparability of Results—Canada Revenue Agency Competent Authority Matter” and “Items Affecting Comparability of Results—Transfer pricing positions,” above. This increase was partially offset by $33 million of higher interest income on investments and a $20 million decrease in interest on borrowings due to the redemption of senior notes described under “Liquidity and Capital Resources,” below.

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Loss on Debt Extinguishment

Loss on debt extinguishment of $8 million and $19 million in 2022 and in 2021, respectively, is described under “Items Affecting Comparability of Results—Loss on Debt Extinguishment,” above.

Other Non-Operating—Net

Other non-operating—net was $15 million of expense in 2022 compared to $16 million of income in 2021. The $15 million of expense in 2022 was due primarily to a pension settlement loss of $21 million related to the purchase of a non-participating group annuity contract to settle retiree obligations under our primary U.S. defined benefit pension plan and curtailment gains of $4 million related to the remeasurement of certain of our North American defined benefit pension plans due to plan amendments. The pension settlement loss and curtailment gains are described under “Items Affecting Comparability of Results—Pension settlement loss and curtailment gains—net,” above. The $16 million of income in 2021 was due primarily to a gain of $20 million on the sale of EU emission credits that, due to Brexit, could no longer be utilized by our U.K. operations for carbon emission obligations in the United Kingdom.

Income Tax Provision

Our income tax provision for 2022 was $1.16 billion on pre-tax income of $5.10 billion, or an effective tax rate of 22.7%, compared to an income tax provision of $283 million on pre-tax income of $1.54 billion, or an effective tax rate of 18.3%, in 2021.

For 2022, our income tax provision includes $22 million of income tax expense to record a valuation allowance in the United Kingdom, $23 million of income tax benefit for the excess tax benefit related to certain share-based compensation activity and $78 million of income tax provision related to the Canada Revenue Agency Competent Authority Matter, which is described above under “Items Affecting Comparability of Results.”

For 2021, we did not record an income tax benefit related to the goodwill impairment charges described in Note 5—United Kingdom Operations Restructuring and Impairment Charges, as the goodwill impairment charges are non-deductible for income tax purposes. Our income tax provision for 2021 includes a $26 million benefit reflecting the impact of agreement on certain issues related to U.S. federal income tax audits, including a discrete income tax benefit of approximately $15 million due to the reversal of an accrual for unrecognized tax benefits as a result of the effective settlement of the U.S. federal income tax audit for the tax years 2012 through 2016.

Our effective tax rate is impacted by earnings attributable to the noncontrolling interest in 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 2022 of 22.7%, which is based on pre-tax income of $5.10 billion, would be 3.0 percentage points higher, or 25.7%, if based on pre-tax income exclusive of the earnings attributable to the noncontrolling interest of $591 million. Our effective tax rate for 2021 of 18.3%, which is based on pre-tax income of $1.54 billion, would be 5.3 percentage points higher, or 23.6%, if based on pre-tax income exclusive of the earnings attributable to the noncontrolling interest of $343 million.

Both 2022 and 2021 were impacted by additional discrete tax items. See Note 10—Income Taxes for additional information.

Net Earnings Attributable to Noncontrolling Interest

Net earnings attributable to noncontrolling interest includes the net earnings attributable to the approximately 11% CHS minority equity interest in CFN, a subsidiary of CF Holdings.

Net earnings attributable to noncontrolling interest increased $248 million, or 72%, to $591 million in 2022 compared to $343 million in 2021 due to higher earnings of CFN driven by higher average selling prices due primarily to a tighter global nitrogen supply and demand balance as higher global energy costs drove lower global operating rates.

Diluted Net Earnings Per Share Attributable to Common Stockholders

Net earnings per share attributable to common stockholders increased 286% to $16.38 per diluted share in 2022 from $4.24 per diluted share in 2021. This increase is due primarily to higher average selling prices, partially offset by higher natural gas costs, and an increase in the income tax provision due primarily to increased profitability. Additionally, net earnings per diluted share increased due to a 6% reduction in the diluted weighted-average common shares outstanding, which declined from 216.2 million shares for 2021 to 204.2 million shares for 2022, due primarily to repurchases of common shares under our share repurchase programs.

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Operating Results by Business Segment

Our reportable segment structure reflects how our chief operating decision maker, as defined in U.S. GAAP, assesses the performance of our reportable segments and makes decisions about resource allocation. These segments are differentiated by products. Our management uses gross margin to evaluate segment performance and allocate resources. Total other operating costs and expenses (consisting primarily of selling, general and administrative expenses and other operating—net) and non-operating expenses (consisting primarily of interest and income taxes), are centrally managed and are not included in the measurement of segment profitability reviewed by management. The following table presents summary operating results by business segment:

_______________________________________________________________________________

(1)Cost of sales and gross margin for the Ammonia segment in 2021 include a $112 million gain on the net settlement of certain natural gas contracts with our suppliers. See Note 15—Derivative Financial Instruments for additional information.

(2)The cost of the products that are upgraded into other products is transferred at cost into the upgraded product results.

The following is a discussion and analysis of our operating results by business segment for the year ended December 31, 2022 compared to the year ended December 31, 2021. For a discussion and analysis of our operating results by business segment for the year ended December 31, 2021 compared to the year ended December 31, 2020, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K filed with the SEC on February 24, 2022.

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Ammonia Segment

Our Ammonia segment produces anhydrous ammonia (ammonia), which is the base product that we manufacture, containing 82% nitrogen and 18% hydrogen. The results of our Ammonia segment consist of sales of ammonia to external customers for its nitrogen content as a fertilizer, in emissions control and in other industrial applications. In addition, we upgrade ammonia into other nitrogen products such as granular urea, UAN and AN.

The following table presents summary operating data for our Ammonia segment:

_______________________________________________________________________________

N/M—Not Meaningful

(1)Ammonia represents 82% nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Net Sales. Net sales in our Ammonia segment increased by $1.30 billion, or 73%, to $3.09 billion in 2022 from $1.79 billion in 2021 due primarily to an 88% increase in average selling prices, partially offset by an 8% decrease in sales volume. Average selling prices increased to $936 per ton in 2022 compared to $498 per ton in 2021. The increase in average selling prices was due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.” Sales volume was lower in 2022 due primarily to more typical fall ammonia applications in 2022 compared to a stronger prior year fall ammonia season.

Cost of Sales. Cost of sales in our Ammonia segment averaged $451 per ton in 2022, a 39% increase from $324 per ton in 2021. The increase is due primarily to higher realized natural gas costs, a higher cost per ton for purchased ammonia from our joint venture in Trinidad and the impact of the $112 million gain in 2021 on the net settlement of certain natural gas contracts as a result of Winter Storm Uri.

Gross Margin.  Gross margin in our Ammonia segment increased by $974 million to $1.60 billion in 2022 from $625 million in 2021, and our gross margin percentage was 51.7% in 2022 compared to 35.0% in 2021. The increase in gross margin was due to an 88% increase in average selling prices, which increased gross margin by $1.51 billion. The increase in average selling prices was partially offset by an increase in realized natural gas costs, which decreased gross margin by $307 million, an 8% decrease in sales volume, which decreased gross margin by $76 million, and a net increase in manufacturing, maintenance and other costs, which decreased gross margin by $34 million. In addition, the impact of the $112 million gain on the net settlement of certain natural gas contracts is included in gross margin in 2021. Gross margin also includes the impact of a $13 million unrealized net mark-to-market loss on natural gas derivatives in 2022 compared to a $7 million loss in 2021.

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Granular Urea Segment

Our Granular Urea segment produces granular urea, which contains 46% nitrogen. Produced from ammonia and carbon dioxide, it has the highest nitrogen content of any of our solid nitrogen fertilizers. Granular urea is produced at our Donaldsonville, Port Neal and Medicine Hat nitrogen complexes.

The following table presents summary operating data for our Granular Urea segment:

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N/M—Not Meaningful

(1)Granular urea represents 46% nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Net Sales. Net sales in our Granular Urea segment increased $1.01 billion, or 54%, to $2.89 billion in 2022 compared to $1.88 billion in 2021 due primarily to a 45% increase in average selling prices and a 7% increase in sales volume. Average selling prices increased to $633 per ton in 2022 compared to $438 per ton in 2021. The increase in average selling prices was due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.” Sales volume was higher due primarily to higher supply availability resulting from higher production.

Cost of Sales. Cost of sales in our Granular Urea segment averaged $291 per ton in 2022, a 26% increase from $231 per ton in 2021, due primarily to higher realized natural gas costs.

Gross Margin.  Gross margin in our Granular Urea segment increased by $676 million to $1.56 billion in 2022 from $888 million in 2021, and our gross margin percentage was 54.1% in 2022 compared to 47.2% in 2021. The increase in gross margin was driven by a 45% increase in average selling prices, which increased gross margin by approximately $857 million and a 7% increase in sales volume, which increased gross margin by $113 million. These factors that increased gross margin were partially offset by higher realized natural gas costs, which decreased gross margin by $250 million, and a net increase in manufacturing, maintenance and other costs, which reduced gross margin by $37 million. Gross margin also includes the impact of a $13 million unrealized net mark-to-market loss on natural gas derivatives in 2022 compared to a $6 million loss in 2021.

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UAN Segment

Our UAN segment produces urea ammonium nitrate solution (UAN). UAN, a liquid fertilizer product with a nitrogen content that typically ranges from 28% to 32%, is produced by combining urea and ammonium nitrate. UAN is produced at our Courtright, Donaldsonville, Port Neal, Verdigris, Woodward, and Yazoo City nitrogen complexes.

The following table presents summary operating data for our UAN segment:

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N/M—Not Meaningful

(1)UAN represents between 28% and 32% of nitrogen content, depending on the concentration specified by the customer. Nutrient tons represent the tons of nitrogen within the product tons.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Net Sales. Net sales in our UAN segment increased $1.78 billion, or 100%, to $3.57 billion in 2022 compared to $1.79 billion in 2021 due primarily to a 93% increase in average selling prices and a 3% increase in sales volume. Average selling prices increased to $526 per ton in 2022 compared to $272 per ton in 2021 due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.” The increase in sales volume was due primarily to greater supply availability from higher beginning inventory.

Cost of Sales. Cost of sales in our UAN segment averaged $219 per ton in 2022, a 29% increase from $170 per ton in 2021, due primarily to the impact of higher realized natural gas costs and higher export freight costs.

Gross Margin.  Gross margin in our UAN segment increased by $1.41 billion to $2.08 billion in 2022 from $669 million in 2021, and our gross margin percentage was 58.3% in 2022 compared to 37.4% in 2021. The increase in gross margin was due to a 93% increase in average selling prices, which increased gross margin by $1.77 billion. The impact of higher average selling prices was partially offset by higher realized natural gas costs, which decreased gross margin by $245 million, a net increase in manufacturing, maintenance and other costs, including freight, which reduced gross margin by $95 million, and a change in location product mix, which reduced gross margin by $9 million. Gross margin includes the impact of a $14 million unrealized net mark-to-market loss on natural gas derivatives in 2022 compared to a $5 million loss in 2021.

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AN Segment

Our AN segment produces ammonium nitrate (AN). AN, which has a nitrogen content between 29% and 35%, is produced by combining anhydrous ammonia and nitric acid. AN is used as nitrogen fertilizer and is also used by industrial customers for commercial explosives and blasting systems. AN is produced at our Yazoo City and Billingham nitrogen complexes.

The following table presents summary operating data for our AN segment:

_______________________________________________________________________________

N/M—Not Meaningful

(1)AN represents between 29% and 35% of nitrogen content. Nutrient tons represent the tons of nitrogen within the product tons.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

On September 15, 2021, we announced the halt of operations at both our Ince and Billingham manufacturing facilities in the United Kingdom due to negative profitability driven by the high cost of natural gas. Shortly thereafter, we restarted production at our Billingham facility. In June 2022, we approved and announced our proposed plan to restructure our U.K. operations, including the planned permanent closure of our Ince facility. In August 2022, the final restructuring plan was approved, and decommissioning activities were initiated. In September 2022, as a result of extremely high and volatile natural gas prices and the lack of a corresponding increase in global nitrogen product market prices, we temporarily idled ammonia production at our Billingham complex. Since that time, we have imported ammonia for upgrade into AN and other nitrogen products at that location. See the discussion under “Market Conditions and Current Developments—United Kingdom Operations,” above, for further information.

Net Sales. Net sales in our AN segment increased $335 million, or 66%, to $845 million in 2022 from $510 million in 2021 due primarily to a 78% increase in average selling prices, partially offset by a 7% decrease in sales volume. Average selling prices increased to $530 per ton in 2022 compared to $297 per ton in 2021 due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.” Sales volume decreased due primarily to lower supply availability as a result of our Ince facility closure.

Cost of Sales. Cost of sales in our AN segment averaged $374 per ton in 2022, a 35% increase from $277 per ton in 2021, due primarily to higher realized natural gas costs.

Gross Margin.  Gross margin in our AN segment increased by $213 million to $248 million in 2022 from $35 million in 2021, and our gross margin percentage was 29.3% in 2022 compared to 6.9% in 2021. The increase in gross margin was due primarily to a 78% increase in average selling prices, which increased gross margin by $382 million, and favorable location product mix, which increased gross margin by $28 million. These factors that increased gross margin were partially offset by an increase in realized natural gas costs, which decreased gross margin by $175 million and a net increase in manufacturing, maintenance and other costs, which reduced gross margin by $28 million. Gross margin also includes the impact of a $2 million

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unrealized net mark-to-market gain on natural gas derivatives in 2022 compared to a $4 million loss on natural gas derivatives in 2021.

Other Segment

Our Other segment primarily includes the following products:

•Diesel exhaust fluid (DEF) is an aqueous urea solution typically made with 32.5% or 50% high-purity urea and the remainder deionized water.

•Urea liquor is a liquid product that we sell in concentrations of 40%, 50% and 70% urea as a chemical intermediate.

•Nitric acid is a nitrogen-based mineral acid that is used in the production of nitrate-based fertilizers, nylon precursors and other specialty chemicals.

The following table presents summary operating data for our Other segment:

_______________________________________________________________________________

N/M—Not Meaningful

(1)Nutrient tons represent the tons of nitrogen within the product tons.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

In June 2022, we approved and announced our proposed plan to restructure our U.K. operations, including the planned permanent closure of our Ince facility. In August 2022, the final restructuring plan was approved, and decommissioning activities were initiated. We produced compound fertilizer products (NPKs), which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium, only at our Ince facility, and closure of this facility has resulted in our discontinuation of the NPK product line. Total sales of NPK products were $15 million in the year ended December 31, 2022 and $47 million in the year ended December 31, 2021. See the discussion under “Market Conditions and Current Developments—United Kingdom Operations,” above, for further information.

Net Sales. Net sales in our Other segment increased $214 million, or 37%, to $787 million in 2022 from $573 million in 2021 due to a 53% increase in average selling prices, partially offset by a 10% decrease in sales volume. Average selling prices increased to $379 per ton in 2022 compared to $247 per ton in 2021, due primarily to the impact of a tighter global nitrogen supply and demand balance, reflecting in part the geopolitical factors described above under “Market Conditions and Current Developments—Geopolitical Environment.” The decrease in sales volume was due primarily to lower NPK and nitric acid sales volumes, as operations at our Ince manufacturing plant have ceased.

Cost of Sales. Cost of sales in our Other segment averaged $202 per ton in 2022, a 16% increase from $174 per ton in 2021, due primarily to higher realized natural gas costs.

Gross Margin.  Gross margin in our Other segment increased by $197 million to $367 million in 2022 from $170 million in 2021, and our gross margin percentage was 46.6% in 2022 compared to 29.7% in 2021. The increase in gross margin was due primarily to a 53% increase in average selling prices, which increased gross margin by $282 million, and a net

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decrease in manufacturing, maintenance and other costs, which increased gross margin by $3 million. These factors that increased gross margin were partially offset by an increase in realized natural gas costs, which reduced gross margin by $75 million, and a 10% decrease in sales volume, which reduced gross margin by $13 million.

Liquidity and Capital Resources

Our primary uses of cash are generally for operating costs, working capital, capital expenditures, debt service, investments, taxes, share repurchases and dividends. Our working capital requirements are affected by several factors, including demand for our products, selling prices, raw material costs, freight costs and seasonal factors inherent in the business. In addition, we may from time to time seek to retire or purchase our outstanding debt through cash purchases, in open market or privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Generally, our primary source of cash is cash from operations, which includes cash generated by customer advances. We may also from time to time access the capital markets or engage in borrowings under our revolving credit agreement.

Our cash and cash equivalents balance was $2.32 billion at December 31, 2022, an increase of $695 million from $1.63 billion at December 31, 2021. At December 31, 2022, we were in compliance with all applicable covenant requirements under our revolving credit agreement and senior notes, and unused borrowing capacity under our revolving credit agreement was $750 million.

On April 21, 2022, we redeemed in full all of the $500 million outstanding principal amount of the 2023 Notes in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. See the discussion under “Debt,” below, for further information.

In the second, third and fourth quarters of 2022, quarterly dividends of $0.40 per common share were declared and paid, representing a 33% increase from the quarterly dividend of $0.30 per common share that was declared and paid in the first quarter of 2022.

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. 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.

Share Repurchase Programs

On November 3, 2021, our Board of Directors (the Board) authorized the repurchase of up to $1.5 billion of CF Holdings common stock through December 31, 2024 (the 2021 Share Repurchase Program). On November 2, 2022, the Board authorized the repurchase of up to $3 billion of CF Holdings common stock commencing upon completion of the 2021 Share Repurchase Program and effective through December 31, 2025 (the 2022 Share Repurchase Program). Repurchases under our share repurchase programs may be made from time to time in the open market, through privately negotiated transactions, through block transactions or otherwise. The manner, timing and amount of repurchases will be determined by our management based on the evaluation of market conditions, stock price, and other factors. Shares repurchased, including those repurchased under share repurchase programs, are retired as approved by the Board.

As of December 31, 2022, we repurchased 14.9 million shares under the 2021 Share Repurchase Program for $1.35 billion. We held no shares of treasury stock as of December 31, 2022.

On August 16, 2022, the Inflation Reduction Act of 2022 (IRA) was enacted into law. The IRA made several changes to the U.S. tax code effective after December 31, 2022, including, but not limited to, an excise tax of 1% tax on the fair market value of net stock repurchases made after December 31, 2022, which will be accounted for in treasury stock. The impact of this provision will be dependent on the extent of share repurchases made in future periods.

Capital Spending

We make capital expenditures to sustain our asset base, increase our capacity or capabilities, improve plant efficiency, comply with various environmental, health and safety requirements, and invest in our clean energy strategy. Capital expenditures totaled $453 million in 2022 compared to $514 million in 2021 reflecting lower turnaround activity in 2022.

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Capital expenditures in 2023 are estimated to be in the range of $500 to $550 million, which includes capital expenditures related to green and blue ammonia projects. Planned capital expenditures are generally subject to change due to delays in regulatory approvals or permitting, unanticipated increases in cost, changes in scope and completion time, performance of third parties, delays in the receipt of equipment, adverse weather, defects in materials and workmanship, labor or material shortages, transportation constraints, acceleration or delays in the timing of the work and other unforeseen difficulties.

Government Policies

The policies or laws of governments around the world can result in the imposition of taxes, duties, tariffs or other restrictions or regulatory requirements on imports and exports of raw materials, finished goods or services from a particular country or region of the world. The policies and laws of governments can also impact the subsidization of natural gas prices, and subsidies or quotas applied to domestic producers or farmers. Due to the critical role that fertilizers play in food production, the construction and operation of fertilizer plants often are influenced by economic, political and social objectives. Additionally, the import or export of fertilizer can be subject to local taxes imposed by governments which can have the effect of either encouraging or discouraging import and export activity. The impact of changes in governmental policies or laws or the political or social objectives of a country could have a material impact on fertilizer demand and selling prices and therefore could impact our liquidity.

Canada Revenue Agency Competent Authority Matter and Transfer Pricing

In connection with the Canada Revenue Agency Competent Authority Matter, which is described above under “Items Affecting Comparability of Results—Canada Revenue Agency Competent Authority Matter,” in the second half of 2022, we were assessed, and we paid additional tax and interest for tax years 2006 through 2011 of $224 million. As a result, letters of credit we had posted were cancelled. Due primarily to the availability of additional foreign tax credits to offset in part the increased Canadian tax referenced above, we will file amended tax returns with U.S. federal and state tax authorities for the relevant tax years.

As described above under “Items Affecting Comparability of Results—Transfer pricing positions,” we have unrecognized tax benefits recorded in connection with certain tax years subsequent to 2011 that have been reassessed for transfer pricing matters by the Canadian tax authorities. In order to mitigate the assessment of future Canadian interest on these Canadian transfer pricing positions, in the fourth quarter of 2022, we made payments to the Canadian taxing authorities of CAD $363 million (approximately $267 million) related to these reassessed tax years while we continue to dispute the reassessments and for certain years that are open for examination. The payments were recorded as noncurrent income tax receivables. For the amounts ultimately owed and paid to the Canadian tax authorities upon resolution of these tax years, the Company would seek refunds of related taxes paid in the United States.

United Kingdom Operations

As discussed under “Market Conditions and Current Developments—United Kingdom Operations,” above, during the third quarter of 2021, the United Kingdom began experiencing an energy crisis that included a substantial increase in the price of natural gas, which impacted our U.K. operations. On September 15, 2021, we announced the halt of operations at both our Ince and Billingham manufacturing facilities in the United Kingdom due to negative profitability driven by the high cost of natural gas. Shortly thereafter, our Billingham facility resumed operations.

In June 2022, we approved and announced our proposed plan to restructure our U.K. operations, including the planned permanent closure of our Ince facility and optimization of the remaining manufacturing operations at our Billingham facility. As a result, we recognized $152 million of asset impairment charges, primarily related to property, plant and equipment at the Ince facility, and a $10 million charge for post-employment benefits related to contractual and statutory obligations, which are included in the U.K. operations restructuring line item in our consolidated statements of operations. In August 2022, the final restructuring plan was approved, and decommissioning activities were initiated. As a result, in the third and fourth quarters of 2022, we incurred additional charges related to our U.K. restructuring of $9 million, primarily related to one-time termination benefits.

In the third quarter of 2022, the United Kingdom continued to experience extremely high and volatile natural gas prices. Russian natural gas 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 temporarily idled ammonia production at our Billingham complex. As a result, we concluded that an additional impairment test was triggered for the asset

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groups that comprise the continuing U.K. operations, which resulted in asset impairment charges of $87 million, primarily related to property, plant and equipment and definite-lived intangible assets.

The factors that could lead to the resolution of the U.K. energy crisis, and the timing of any such resolution, are unknown to us. Production of AN and other nitrogen products continues at our Billingham facility using imported ammonia, a portion of which is imported from our other ammonia production sites. Persistence of the current levels of energy costs in the United Kingdom could lead to the continued idling of ammonia production at our Billingham facility. There remains uncertainty regarding the future cost of natural gas and electricity, selling prices for the products we produce in the United Kingdom and U.K. government policy, which could result in, among other things, additional funding to support the cash needs of our U.K. operations and recognition of further losses and could have a material adverse impact on our results of operations and cash flows.

Repatriation of Foreign Earnings and Income Taxes

We have operations in Canada, the United Kingdom and a 50% interest in a joint venture in Trinidad. Historically, the estimated additional U.S. and foreign income taxes due upon repatriation of the earnings of these foreign operations to the U.S. were recognized in our consolidated financial statements as the earnings were recognized, unless the earnings were considered to be permanently reinvested based upon our then current plans. However, the cash payment of the income tax liabilities associated with repatriation of earnings from foreign operations occurred at the time of the repatriation. As a result, the recognition of income tax expense related to foreign earnings, as applicable, and the payment of taxes resulting from repatriation of those earnings could occur in different periods.

In light of changes made by the Tax Cuts and Jobs Act, commencing with the 2018 tax year, the United States no longer taxes earnings of foreign subsidiaries even when such earnings are earned or repatriated to the United States, unless such earnings are subject to U.S. rules on passive income or certain anti-abuse provisions. Foreign subsidiary earnings may still be subject to withholding taxes when repatriated to the United States.

Cash balances held by our joint venture are maintained at sufficient levels to fund local operations as accumulated earnings are repatriated from the joint venture on a periodic basis.

As of December 31, 2022, approximately $96 million of our consolidated cash and cash equivalents balance of $2.32 billion was held by our Canadian and United Kingdom subsidiaries. As of December 31, 2022, we recorded a deferred tax liability of $12 million on the undistributed earnings of our Canadian affiliates for which the Company does not have an indefinite reinvestment assertion. We have not provided for deferred taxes on the remainder of undistributed earnings from our foreign affiliates because such earnings would not give rise to additional tax liabilities upon repatriation or are considered to be indefinitely reinvested.

Debt

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 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.

CF Industries is the lead borrower, and CF Holdings is the sole guarantor, under the Revolving Credit Agreement.

The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants customary for a financing of this type. The financial covenants applicable to CF Holdings and its subsidiaries in the Revolving Credit Agreement:

(i) require that the interest coverage ratio (as defined in the Revolving Credit Agreement) be not less than 2.75:1.00 as of the last day of each fiscal quarter and

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(ii) require that the total net leverage ratio (as defined in the Revolving Credit Agreement) be not greater than 3.75:1.00 (the Maximum Total Net Leverage Ratio) as of the last day of each fiscal quarter, provided that, if any borrower or subsidiary consummates a material acquisition during any fiscal quarter, CF Industries may elect to increase the Maximum Total Net Leverage Ratio to 4.25:1.00 for the period of four consecutive fiscal quarters commencing with such fiscal quarter (and no further such election may be made unless and until the Maximum Total Net Leverage Ratio is less than or equal to 3.75:1.00 as of the end of two consecutive fiscal quarters after the end of such period).

As of December 31, 2022, we were in compliance with all covenants under the Revolving Credit Agreement.

The Revolving Credit Agreement contains events of default (with notice requirements and cure periods, as applicable) customary for a financing of this type, including, but not limited to, non-payment of principal, interest or fees; inaccuracy of representations and warranties in any material respect; and failure to comply with specified covenants. Upon the occurrence and during the continuance of an event of default under the Revolving Credit Agreement and after any applicable cure period, subject to specified exceptions, the administrative agent may, and at the request of the requisite lenders is required to, accelerate the loans under the Revolving Credit Agreement or terminate the lenders’ commitments under the Revolving Credit Agreement.

As of December 31, 2022, we had unused borrowing capacity under the Revolving Credit Agreement of $750 million and no outstanding letters of credit. In addition, there were no borrowings outstanding under the Revolving Credit Agreement as of December 31, 2022 or 2021, or during the year ended December 31, 2022.

Letters of Credit

In addition to the letters of credit that may be issued under the Revolving Credit Agreement, as described above, we have capacity to issue up to $350 million of letters of credit, reflecting an increase of $100 million in May 2022, under a bilateral agreement. As of December 31, 2022, approximately $201 million of letters of credit were outstanding under this agreement.

Senior Notes

Long-term debt presented on our consolidated balance sheets as of December 31, 2022 and 2021 consisted of the following debt securities issued by CF Industries:

_______________________________________________________________________________

(1)Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discount was $7 million and $8 million as of December 31, 2022 and 2021, respectively, and total deferred debt issuance costs were $28 million and $27 million as of December 31, 2022 and 2021, respectively.

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

Public Senior Notes

On April 21, 2022, we redeemed in full all of the $500 million outstanding principal amount of the 2023 Notes in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid in connection with the April 2022 redemption of the 2023 Notes, which was funded with cash on hand, was $513 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $8 million, consisting primarily of the premium paid on the redemption of the $500 million principal amount of the 2023 Notes prior to their scheduled maturity.

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On September 10, 2021, we redeemed $250 million principal amount, representing one-third of the $750 million principal amount outstanding immediately prior to such redemption, of the 2023 Notes, in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid in connection with the redemption of the $250 million principal amount of the 2023 Notes, which was funded with cash on hand, was approximately $265 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $13 million in the third quarter of 2021, consisting primarily of a premium paid on the redemption of the $250 million principal amount of the 2023 Notes prior to their scheduled maturity.

Under the indentures (including the applicable supplemental indentures) governing our 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. Interest on the Public Senior Notes is payable semiannually, and the Public Senior Notes are redeemable at our option, in whole at any time or in part from time to time, at specified make-whole redemption prices.

The indentures governing the Public Senior Notes contain covenants that limit, among other things, the ability of CF Holdings and its subsidiaries, including CF Industries, to incur liens on certain assets to secure debt, to engage in sale and leaseback transactions, to merge or consolidate with other entities and to sell, lease or transfer all or substantially all of the assets of CF Holdings and its subsidiaries to another entity. Each of the indentures governing the Public Senior Notes provides for customary events of default, which include (subject in certain cases to customary grace and cure periods), among others, nonpayment of principal or interest on the applicable Public Senior Notes; failure to comply with other covenants or agreements under the indenture; certain defaults on other indebtedness; the failure of CF Holdings’ guarantee of the applicable Public Senior Notes to be enforceable; and specified events of bankruptcy or insolvency. Under each indenture governing the Public Senior Notes, in the case of an event of default arising from one of the specified events of bankruptcy or insolvency, the applicable Public Senior Notes would become due and payable immediately, and, in the case of any other event of default (other than an event of default related to CF Industries’ and CF Holdings’ reporting obligations), the trustee or the holders of at least 25% in aggregate principal amount of the applicable Public Senior Notes then outstanding may declare all of such Public Senior Notes to be due and payable immediately.

Under each of the indentures governing the Public Senior Notes, specified changes of control involving CF Holdings or CF Industries, when accompanied by a ratings downgrade, as defined with respect to the applicable series of Public Senior Notes, constitute change of control repurchase events. Upon the occurrence of a change of control repurchase event with respect to a series of Public Senior Notes, unless CF Industries has exercised its option to redeem such Public Senior Notes, CF Industries will be required to offer to repurchase them at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

Senior Secured Notes

On March 20, 2021, we redeemed in full all of the $250 million outstanding principal amount of the 2021 Notes in accordance with the optional redemption provisions in the indenture governing the 2021 Notes. The total aggregate redemption price paid on the 2021 Notes in connection with the redemption, which was funded with cash on hand, was $258 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $6 million, consisting primarily of the premium paid on the redemption of the $250 million principal amount of the 2021 Notes prior to their scheduled maturity.

Under the terms of the indenture governing the 4.500% senior secured notes due 2026 (the 2026 Notes), the 2026 Notes are guaranteed by CF Holdings. Until August 23, 2021, the 2026 Notes were guaranteed by CF Holdings and certain subsidiaries of CF Industries. The requirement for subsidiary guarantees of the 2026 Notes was eliminated, and all subsidiary guarantees were automatically released, as a result of an investment grade rating event under the terms of the indenture governing the 2026 Notes, on August 23, 2021. Prior to the investment grade rating event, subject to certain exceptions, the obligations under the 2026 Notes and related guarantees were secured by a first priority security interest in collateral consisting of substantially all of the assets of CF Industries, CF Holdings and the subsidiary guarantors. As a result of the investment grade rating event, the liens on the collateral securing the obligations under the 2026 Notes and related guarantees were automatically released on August 23, 2021, and the indenture covenant that had limited dispositions of assets constituting collateral no longer applies.

Interest on the 2026 Notes is payable semiannually, 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.

Under the indenture governing the 2026 Notes, specified changes of control involving CF Holdings or CF Industries, when accompanied by a ratings downgrade, as defined with respect to the 2026 Notes, constitute change of control repurchase events. Upon the occurrence of a change of control repurchase event with respect to the 2026 Notes, unless CF Industries has

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exercised its option to redeem such notes, CF Industries will be required to offer to repurchase them at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of repurchase.

The indenture governing the 2026 Notes contains covenants that limit, among other things, the ability of CF Holdings and its subsidiaries, including CF Industries, to incur liens on certain assets to secure debt, to engage in sale and leaseback transactions, to merge or consolidate with other entities and to sell, lease or transfer all or substantially all of the assets of CF Holdings and its subsidiaries to another entity. The indenture governing the 2026 Notes provides for customary events of default, which include (subject in certain cases to customary grace and cure periods), among others, nonpayment of principal or interest of the 2026 Notes; failure to comply with other covenants or agreements under the indenture; certain defaults on other indebtedness; the failure of CF Holdings’ guarantee of the 2026 Notes to be enforceable; and specified events of bankruptcy or insolvency. Under the indenture governing the 2026 Notes, in the case of an event of default arising from one of the specified events of bankruptcy or insolvency, the 2026 Notes would become due and payable immediately, and, in the case of any other event of default (other than an event of default related to CF Industries’ and CF Holdings’ reporting obligations), the trustee or the holders of at least 25% in aggregate principal amount of the 2026 Notes then outstanding may declare all of such notes to be due and payable immediately.

Forward Sales and Customer Advances

We offer our customers the opportunity to purchase products from us on a forward basis at prices and on delivery dates we propose. Therefore, our reported nitrogen selling prices and margins may differ from market spot prices and margins available at the time of shipment.

Customer advances, which typically represent a portion of the contract’s value, are received shortly after the contract is executed, with any remaining unpaid amount generally being collected by the time control transfers to the customer, thereby reducing or eliminating the accounts receivable related to such sales. Any cash payments received in advance from customers in connection with forward sales contracts are reflected on our consolidated balance sheets as a current liability until control transfers and revenue is recognized. As of December 31, 2022 and 2021, we had $229 million and $700 million, respectively, in customer advances on our consolidated balance sheets.

While customer advances are generally a significant source of liquidity, the level of forward sales contracts is affected by many factors including current market conditions, our customers’ outlook of future market fundamentals and seasonality. During periods of declining prices, customers tend to delay purchasing fertilizer in anticipation that prices in the future will be lower than the current prices. If the level of sales under our forward sales programs were to decrease in the future, our cash received from customer advances would likely decrease and our accounts receivable balances would likely increase. Additionally, borrowing under the Revolving Credit Agreement could become necessary. Due to the volatility inherent in our business and changing customer expectations, we cannot estimate the amount of future forward sales activity.

Under our forward sales programs, a customer may delay delivery of an order due to weather conditions or other factors. These delays generally subject the customer to potential charges for storage or may be grounds for termination of the contract by us. Such a delay in scheduled shipment or termination of a forward sales contract due to a customer’s inability or unwillingness to perform may negatively impact our reported sales.

Natural Gas

Natural gas is the principal raw material used to produce nitrogen products. We use natural gas both as a chemical feedstock and as a fuel to produce ammonia, granular urea, UAN, AN and other products. Expenditures on natural gas are a significant portion of our production costs, representing approximately 50% of our total production costs in 2022. As a result of these factors, natural gas prices have a significant impact on our operating expenses and can thus affect our liquidity. Natural gas costs in our cost of sales, including the impact of realized natural gas derivatives, increased 71% to $7.18 per MMBtu in 2022 from $4.21 per MMBtu in 2021.

We enter into agreements for a portion of our future natural gas supply and related transportation. As of December 31, 2022, our natural gas purchase agreements have terms that range from one to three years and a total minimum commitment of approximately $1.68 billion, and our natural gas transportation agreements have terms that range from one to ten years and a total minimum commitment of approximately $126 million. Our minimum commitments to purchase and transport natural gas are based on prevailing market-based forward prices excluding reductions for plant maintenance and turnaround activities.

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Most of our nitrogen manufacturing facilities are located in the United States and Canada. As a result, the price of natural gas in North America directly impacts a substantial portion of our operating expenses. During 2022, the daily closing price at the Henry Hub, the most heavily-traded natural gas pricing point in North America, reached a low of $3.45 per MMBtu on November 10, 2022 and a high of $9.85 per MMBtu on August 23, 2022. During the three-year period ended December 31, 2022, the daily closing price at the Henry Hub reached a low of $1.34 per MMBtu on September 22, 2020 and three consecutive days in October 2020 and a high of $23.61 per MMBtu on February 18, 2021.

Our Billingham U.K. nitrogen manufacturing facility is subject to fluctuations associated with the price of natural gas in Europe. The major natural gas trading point for the United Kingdom is the NBP. During 2022, the daily closing price at the NBP reached a low of $1.23 per MMBtu on June 10, 2022 and a high of $67.08 per MMBtu on March 8, 2022. During the three-year period ended December 31, 2022, the daily closing price at the NBP reached a low of $1.04 per MMBtu on May 22, 2020, and a high of $67.08 per MMBtu on March 8, 2022.

In September 2022, as a result of extremely high and volatile natural gas prices and the lack of a corresponding increase in global nitrogen product market prices, we temporarily idled ammonia production at our Billingham complex. Since that time, we have imported ammonia for upgrade into AN and other nitrogen products at that location; therefore, our natural gas purchases in the United Kingdom have been insignificant.

Derivative Financial Instruments

We use derivative financial instruments to reduce our exposure to changes in prices for natural gas that will be purchased in the future. Natural gas is the largest and most volatile component of our manufacturing cost for our nitrogen-based products. From time to time, we may also use derivative financial instruments to reduce our exposure to changes in foreign currency exchange rates. Volatility in reported quarterly earnings can result from the unrealized mark-to-market adjustments in the value of the derivatives. In 2022 and 2021, we recognized an unrealized net mark-to-market loss on natural gas derivatives of $41 million and $25 million, respectively, which is reflected in cost of sales in our consolidated statements of operations.

Derivatives expose us to counterparties and the risks associated with their ability to meet the terms of the contracts. For derivatives that are in net asset positions, we are exposed to credit loss from nonperformance by the counterparties. We control our credit risk through the use of multiple counterparties that are multinational commercial banks, other major financial institutions or large energy companies, and the use of International Swaps and Derivatives Association (ISDA) master netting arrangements. The ISDA agreements are master netting arrangements commonly used for over-the-counter derivatives that mitigate exposure to counterparty credit risk, in part, by creating contractual rights of netting and setoff, the specifics of which vary from agreement to agreement.

The ISDA agreements for most of our derivative instruments contain credit-risk-related contingent features, such as cross default provisions. In the event of certain defaults or termination events, our counterparties may request early termination and net settlement of certain derivative trades or may require us to collateralize derivatives in a net liability position. As of December 31, 2022 and 2021, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in net liability positions was $73 million and $31 million, respectively, which also approximates the fair value of the assets that may be needed to settle the obligations if the credit-risk-related contingent features were triggered at the reporting dates.

As of December 31, 2022, our open natural gas derivative contracts consisted of natural gas fixed price swaps, basis swaps and options for 66.3 million MMBtus. As of December 31, 2021, our open natural gas derivative contracts consisted of natural gas fixed price swaps, basis swaps and options for 60.0 million MMBtus. At both December 31, 2022 and 2021, we had no cash collateral on deposit with counterparties for derivative contracts. The credit support documents executed in connection with certain of our ISDA agreements generally provide us and our counterparties the right to set off collateral against amounts owing under the ISDA agreements upon the occurrence of a default or a specified termination event.

Defined Benefit Pension Plans

We contributed $26 million to our pension plans in 2022. In 2023, we expect to contribute approximately $42 million to our pension plans. In addition, we expect to contribute a total of approximately £30 million (or $36 million) to our U.K. plans in the two-year period from 2024 to 2025, as agreed with the plans’ trustees.

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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.

In October 2022, we remeasured certain of our defined benefit pension plans due to plan amendments resulting from a revision to our North American retirement plan strategy. The plan curtailments resulted in a reduction in our benefit obligations of $20 million and curtailment gains of $4 million. See Note 11—Pension and Other Postretirement Benefits for further information.

Distributions on Noncontrolling Interest in CFN

The CFN Board of Managers approved semi-annual distribution payments for the years ended December 31, 2022, 2021 and 2020, in accordance with CFN’s limited liability company agreement, as follows:

Cash Flows

Net cash provided by operating activities in 2022 was $3.86 billion as compared to $2.87 billion in 2021, an increase of $982 million. The increase in cash flow from operations was due primarily to higher net earnings, partially offset by changes in net working capital. Net earnings in 2022 was $3.94 billion compared to $1.26 billion in 2021. The increase in net earnings was due primarily to an increase in gross margin, driven by higher average selling prices, and a decrease in charges related to our U.K. operations. These factors that increased gross margin were partially offset by increases in natural gas costs, an increase in the income tax provision and an increase in net earnings attributable to noncontrolling interest. During 2022, net changes in working capital reduced cash flow from operations by $900 million, while in 2021, net changes in working capital contributed $448 million to cash flow from operations. The decrease in cash flow from working capital changes was attributable primarily to lower levels of customer advances, higher levels of accounts receivable and an increase in income tax payments in 2022 as compared to 2021.

Net cash used in investing activities was $440 million in 2022 compared to $466 million in 2021, or a decrease of $26 million. During 2022, capital expenditures totaled $453 million compared to $514 million in 2021.

Net cash used in financing activities was $2.70 billion in 2022 compared to $1.46 billion in 2021. The increase was due primarily to share repurchases in 2022 and higher distributions to noncontrolling interest. In 2022, we paid $1.35 billion for share repurchases, including $1 million related to shares repurchased in late 2021 that were paid for in 2022, compared to $539 million for share repurchases in 2021. In 2022, distributions to noncontrolling interest were $619 million compared to $194 million in 2021.

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Critical Accounting Estimates

Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. U.S. GAAP requires that we select policies and make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates. We base our estimates on historical experience, technological assessment, opinions of appropriate outside experts, and the most recent information available to us. Actual results may differ from these estimates. Changes in estimates that may have a material impact on our results are discussed in the context of the underlying financial statements to which they relate. The following discussion presents information about our most critical accounting estimates.

Recoverability of Long-Lived Assets, Goodwill and Investment in Unconsolidated Affiliate

We review the carrying values of our property, plant and equipment and other long-lived assets, including our finite-lived intangible assets, goodwill and our investment in an unconsolidated affiliate in accordance with U.S. GAAP in order to assess recoverability. Factors that we must estimate when performing impairment tests include production and sales volumes, selling prices, raw material costs, operating rates, operating expenses, inflation, discount rates, exchange rates, tax rates, capital spending and the impact that future market dynamics and geopolitical events could have on these factors. Judgment is involved in estimating each of these factors, which include inherent uncertainties. The factors we use are consistent with those used in our internal planning process. The recoverability of the values associated with our goodwill, long-lived assets and our investment in an unconsolidated affiliate is dependent upon future operating performance of the specific businesses to which they are attributed. Certain of the operating assumptions are particularly sensitive to the cyclical nature of the fertilizer business. Adverse changes in demand for our products, increases in supply and the availability and costs of key raw materials could significantly affect the results of our review.

The recoverability and impairment tests of long-lived assets are required only when conditions exist that indicate the carrying value may not be recoverable. For goodwill, impairment tests are required at least annually, or more frequently whenever events or circumstances indicate that the carrying value may not be recoverable. Our investment in an unconsolidated affiliate is reviewed for impairment whenever events or circumstances indicate that its carrying value may not be recoverable. When circumstances indicate that the fair value of our investment is less than its carrying value, and the reduction in value is other than temporary, the reduction in value would be recognized immediately in earnings.

We evaluate goodwill for impairment in the fourth quarter at the reporting unit level. Our evaluation generally begins with a qualitative assessment of the factors that could impact the significant inputs used to estimate fair value. If after performing the qualitative assessment, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, then no further analysis is necessary. However, if it is unclear based on the results of the qualitative test, we perform a quantitative test, which involves comparing the fair value of a reporting unit with its carrying amount, including goodwill. We use an income-based valuation method, determining the present value of future cash flows, to estimate the fair value of a reporting unit. If the fair value of a reporting unit exceeds its carrying amount, no further testing is necessary. If the fair value of the reporting unit is less than its carrying amount, goodwill impairment would be recognized equal to the amount of the carrying value in excess of the reporting unit’s fair value, limited to the total amount of goodwill allocated to the reporting unit.

We review property, plant and equipment and other long-lived assets at the asset group level in order to assess recoverability based on expected future undiscounted cash flows. If the sum of the expected future net undiscounted cash flows is less than the carrying value, an impairment loss would be recognized. The impairment loss is measured as the amount by which the carrying value exceeds the fair value of the long-lived assets.

During the first quarter of 2022, we concluded that the continued impacts of the U.K. energy crisis, including further increases and volatility in natural gas prices due in part to geopolitical events as a result of Russia’s invasion of Ukraine in February 2022, triggered a long-lived asset impairment test. The results of this test indicated that no additional long-lived asset impairment existed, as the undiscounted estimated future cash flows were in excess of the carrying values for each of the U.K. asset groups, which consisted of U.K. Ammonia, U.K. AN and U.K. Other. Previous impairments of these U.K. asset groups had been recognized in 2021, when the U.K. energy crisis began.

In the second quarter of 2022, the long-term outlook deteriorated for nitrogen producers in regions that rely on LNG imports to satisfy natural gas demand. As result, 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. 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 additional impairment test was required. Our assessment then identified the U.K.

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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, we recorded asset impairment charges related to the Ince, U.K. asset group totaling $152 million, which are included in the U.K. long-lived and intangible asset impairment line item in our consolidated statement of operations for the year ended December 31, 2022 and are further described under “Market Conditions and Current Developments—United Kingdom Operations,” above.

There was no additional asset impairment indicated for the three asset groups that comprise the continuing U.K. operations as the undiscounted estimated future cash flows were in excess of the carrying values for each of these asset groups.

In the third quarter of 2022, the United Kingdom continued to experience extremely high and volatile natural gas prices. Russian natural gas 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 temporarily 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 for the year ended December 31, 2022. The expected cash flows used in the long-lived asset impairment analysis reflected assumptions about product selling prices and natural gas costs, as well as estimates of future production and sales volumes, operating rates, operating expenses, inflation, tax rates, capital spending and the impact that future market dynamics and geopolitical events could have on these factors.

For the asset groups that comprise the continuing U.K. operations, the fair value of our property, plant and equipment utilized in the long-lived asset impairment analyses was estimated using the indirect method of the cost approach by determining the reproduction cost new, or replacement cost, of the assets and applying appropriate adjustments for depreciation including an inutility adjustment based on the cash flows expected to be generated by those asset groups. For property, plant and equipment within the Ince, U.K. asset group, an asset group planned for abandonment, we first considered use of a market or income-based valuation method. However, given that a secondary market did not exist and the assets had been idled with a planned abandonment and therefore would not generate future cash flows from operations, we estimated the fair value of the asset group by determining the replacement cost of the underlying assets, which included inflationary adjustments to original asset costs, and then adjusting each of the asset categories to an estimated salvage value utilizing industry recognized price publications.

See “Liquidity and Capital Resources—United Kingdom Operations” above, Note 5—United Kingdom Operations Restructuring and Impairment Charges, Note 6—Property, Plant and Equipment—Net and Note 7—Goodwill and Other Intangible Assets for further information.

PLNL is our joint venture investment in Trinidad and 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 joint venture is accounted for under the equity method. The joint venture experienced past curtailments in the supply of natural gas from NGC, which reduced the ammonia production at PLNL. The NGC Contract had an initial expiration date of September 2018 and was extended on the same terms until September 2023. Any NGC commitment to supply gas beyond September 2023 will be based on new agreements. If NGC does not make sufficient quantities of natural gas available to PLNL at prices that permit profitable operations, PLNL may cease operating its facility and we would write off the remaining investment in PLNL. The carrying value of our equity method investment in PLNL at December 31, 2022 was $74 million.

Projected Benefit Obligations

The projected benefit obligations (PBOs) for our defined benefit pension plans are affected by plan design, actuarial estimates and discount rates. Key assumptions that affect our PBO are discount rates and, in addition for our United Kingdom plans, inflation rates, including an adjusted U.K. retail price index (RPI).

The December 31, 2022 PBO was computed based on a weighted-average discount rate of 5.1% for our North America plans and 4.8% for our United Kingdom plans, which were based on yields for high-quality (AA rated or better) fixed income debt securities that match the timing and amounts of expected benefit payments as of the measurement date of December 31, 2022. Declines in comparable bond yields would increase our PBO. For our United Kingdom plans, the 3.2% RPI used to

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calculate our PBO is developed using a U.K. government gilt prices only retail price inflation curve, which is based on the difference between yields on fixed interest government bonds and index-linked government bonds.

For North America qualified pension plans, our PBO was $274 million as of December 31, 2022, which was $1 million higher than pension plan assets. For our United Kingdom pension plans, our PBO was $347 million as of December 31, 2022, which was $27 million higher than pension plan assets. The tables below estimate the impact of a 50 basis point increase or decrease in the key assumptions on our December 31, 2022 PBO:

See Note 11—Pension and Other Postretirement Benefits for further discussion of our pension plans.

Income Taxes

We are subject to the income tax laws of the many jurisdictions in which we operate, and we recognize expense, assets and liabilities based on estimates of amounts that ultimately will be determined to be taxable or deductible in tax returns filed in various jurisdictions. These tax laws are complex, and how they apply to our facts is sometimes open to interpretation. We recognize the effect of income tax positions only if sustaining those positions is more likely than not. Tax positions that meet the more likely than not recognition threshold but are not highly certain are measured based on the largest amount of benefit that is greater than 50% likely of being realized upon settlement with the taxing authority. Differences in interpretation of the tax laws and regulations, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state and international tax audits, can result in differences in taxes paid, which may be higher or lower than our estimates. The judgments made at a point in time may change from previous conclusions based on the outcome of tax audits, as well as changes to, or further interpretations of, tax laws and regulations, and these changes could significantly impact the provision for income taxes, the amount of taxes payable and the deferred tax asset and liability balances. We adjust our income tax provision in the period in which these changes occur. As of December 31, 2022, we have recorded a reserve for unrecognized tax benefits, including penalties and interest, of $243 million.

We also engage in a significant amount of cross border transactions. The taxability of cross border transactions has received an increasing level of scrutiny among regulators across the globe, including the jurisdictions in which we operate. The tax rules and regulations of the various jurisdictions in which we operate are complex, and in many cases, there is not symmetry between the rules of the various jurisdictions. As a result, there are instances where regulators within the jurisdictions involved in a cross border transaction may reach different conclusions regarding the taxability of the transaction in their respective jurisdictions based on the same set of facts and circumstances. We work closely with regulators to reach a common understanding and conclusion regarding the taxability of cross border transactions.

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