CF(US:CF)2022-02-23 16:00PART I Item 1. Business CF Industries Holdings, Inc. is a global leader in nitrogen products, committed to providing clean energy to feed and fuel the world - The company's mission is to provide clean energy to feed and fuel the world sustainably, with a strategic path to decarbonize its world-leading ammonia production network for green and blue hydrogen and nitrogen products5 - The company's principal assets include nine nitrogen manufacturing facilities across the U.S., Canada, and the U.K., an extensive North American distribution system, and a 50% interest in an ammonia production joint venture in Trinidad and Tobago6 - A strategic venture with CHS Inc. involves CHS holding an approximately 11% equity interest in CFN, a subsidiary of CF Holdings, and a supply agreement for granular urea and UAN7 Sales Volume and Net Sales (2019-2021) | Year | Sales Volume (million tons) | Net Sales (billion USD) | | :--- | :--- | :--- | | 2021 | 18.5 | $6.54 | | 2020 | 20.3 | $4.12 | | 2019 | 19.5 | $4.59 | Our Commitment to a Clean Energy Economy The company actively pursues a clean energy strategy by developing green and blue ammonia production projects - Announced an initial green ammonia project at the Donaldsonville complex, contracting with thyssenkrupp for a 20 MW alkaline water electrolysis plant to produce approximately 20,000 tons of green ammonia per year, with construction expected to finish in 2023 at an estimated cost of $100 million10 - The Board authorized projects to produce up to 1.25 million tons of blue ammonia annually starting in 2024, involving CO2 dehydration and compression units at Donaldsonville ($200 million cost) and Yazoo City ($85 million cost) for carbon sequestration11 - Signed a memorandum of understanding with Mitsui & Co., Inc. to jointly explore the development of blue ammonia projects in the United States, covering supply chain, CO2 transport, and marketing opportunities11 Our Products and Production The company's product portfolio includes Ammonia, Granular Urea, and UAN, with varying sales and production volumes Net Sales by Product (in millions USD) | Product | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Ammonia | $1,787 | $1,020 | $1,113 | | Granular urea | $1,880 | $1,248 | $1,342 | | UAN | $1,788 | $1,063 | $1,270 | | AN | $510 | $455 | $506 | | Other | $573 | $338 | $359 | | Total | $6,538 | $4,124 | $4,590 | Production Volume (in thousands of tons) | Product | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Ammonia (Gross) | 9,349 | 10,353 | 10,246 | | Granular urea | 4,123 | 5,001 | 4,941 | | UAN (32%) | 6,763 | 6,677 | 6,768 | | AN | 1,646 | 2,115 | 2,128 | Raw Materials, Distribution, and Competition Natural gas is a key raw material, supported by an extensive distribution network in a competitive market - Natural gas is the principal raw material and primary fuel source, accounting for approximately 40% of total production costs in 2021, with about 335 million MMBtus consumed during the year3536 - The company operates an extensive distribution network using a leased railcar fleet of approximately 5,000 cars, a fleet of ten tow boats and twenty-eight river barges, and access to the 2,000-mile Nustar ammonia pipeline3940 - CHS was the largest customer in 2021, accounting for approximately 14% of consolidated net sales, facing primary North American competitors like Nutrien Ltd. and Koch Fertilizer LLC, and foreign producers41 Environmental, Health and Safety The company adheres to extensive EHS regulations, with significant capital expenditures and evolving GHG compliance - Environmental, health and safety capital expenditures totaled approximately $31 million in 2021, with an estimated $63 million projected for 202247 - The company is subject to greenhouse gas (GHG) regulations in the UK (UK ETS), Canada (federal OBPS and provincial programs), and the U.S. (EPA reporting rules), with regulations becoming more stringent under the Paris Agreement505154 - The company is involved in a remedial investigation and feasibility study for a former phosphate mine site in Georgetown Canyon, Idaho, under a Consent Order with the IDEQ and U.S. Forest Service48 Human Capital Resources The company employs approximately 3,000 people, prioritizing diversity, inclusion, and a strong safety culture - Employed approximately 3,000 people at year-end 2021, with 67% in the U.S., 19% in the U.K., and 14% in Canada, and approximately 15% of the workforce covered by a collective bargaining agreement57 - The company exceeded its diversity goal, with approximately 38% of senior leadership roles held by females and persons of color as of December 31, 202158 - Maintained a strong safety record with a 12-month rolling average employee recordable incident rate (RIR) of 0.32 incidents per 200,000 work hours as of December 31, 202159 Item 1A. Risk Factors The company faces diverse risks including market volatility, raw material price fluctuations, financial leverage, and strategic uncertainties - Market Risk: The business is cyclical and subject to periods of industry oversupply, which negatively affects selling prices and profitability, with average selling prices increasing 74% in 2021 after decreasing 14% in 20206467 - Raw Material Risk: The business is highly dependent on natural gas, with prices being volatile, as seen in 2021 when the Henry Hub price ranged from $2.36 to $23.61 per MMBtu and the UK NBP price ranged from $5.58 to $60.10 per MMBtu798182 - Financial Risk: The company has substantial indebtedness of approximately $3.5 billion as of December 31, 2021, which could impact cash flow, limit business opportunities, and increase vulnerability to adverse economic conditions122 - Strategic Risk: The development of the market for green and blue (low-carbon) ammonia is uncertain and may be slow to materialize, depending on factors like renewable energy capacity, technology evolution, and government policies, which are largely beyond the company's control148150 Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None164 Item 2. Properties Information regarding the company's facilities and properties is detailed in Item 1 of this report - Information regarding facilities and properties is included in Item 1. Business164 Item 3. Legal Proceedings The company is involved in litigation related to the 2013 West Fertilizer Co. explosion, with most claims settled - The company is a defendant in lawsuits related to the 2013 West Fertilizer Co. explosion, with nearly all wrongful death and personal injury claims resolved via confidential settlements expected to be fully funded by insurance165 - Remaining subrogation and statutory indemnification claims total approximately $37 million, before prejudgment interest, with trials expected in 2022165 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable166 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the NYSE, with significant share repurchases in Q4 2021 and a new program authorized Share Repurchases for Q4 2021 | Period | Total Shares Purchased | Average Price Paid per Share ($) | Total Shares Purchased under Program | | :--- | :--- | :--- | :--- | | Oct 2021 | 7,717 | 60.56 | — | | Nov 2021 | 656,695 | 64.32 | 652,352 | | Dec 2021 | 6,816,628 | 65.85 | 6,816,416 | | Total | 7,481,040 | 65.71 | 7,468,768 | - On November 3, 2021, the Board of Directors authorized a new share repurchase program for up to $1.5 billion of common stock, effective from January 1, 2022, through December 31, 2024170 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Net earnings significantly increased in 2021 due to higher selling prices, despite an impairment charge and volume decrease Financial Highlights 2021 vs. 2020 | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net Earnings Attributable to Common Stockholders | $917 million | $317 million | +189% | | Diluted EPS | $4.24 | $1.47 | +$2.77 | | Gross Margin | $2.39 billion | $801 million | +$1.59 billion | - The average selling price for products increased 74% to $353 per ton in 2021 from $203 per ton in 2020, increasing gross margin by approximately $2.76 billion182205 - The company recognized total impairment charges of $521 million in 2021 related to its UK operations due to a severe energy crisis, which reduced net earnings by an after-tax amount of $463 million, or $2.14 per diluted share195206 - The cost of natural gas used for production increased 88% to $4.21 per MMBtu in 2021, reducing gross margin by $663 million192205 Consolidated Results of Operations Net sales surged 59% in 2021 due to higher selling prices, significantly boosting gross margin and operating earnings Consolidated Results of Operations (in millions, except per share data) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net sales | $6,538 | $4,124 | | Gross margin | $2,387 | $801 | | Operating earnings | $1,729 | $623 | | Net earnings attributable to common stockholders | $917 | $317 | | Diluted net earnings per share | $4.24 | $1.47 | - Net sales increased by $2.41 billion (59%) in 2021, primarily due to a 74% increase in average selling prices, partially offset by a 9% decrease in sales volume225 - Cost of sales increased by $828 million (25%) due to higher natural gas costs ($663 million), increased manufacturing and maintenance costs ($494 million), and purchased products ($71 million), partially offset by a $112 million gain from the net settlement of natural gas contracts during Winter Storm Uri227228 Operating Results by Business Segment All segments benefited from higher selling prices in 2021, with significant gross margin increases across most product lines Gross Margin by Segment (in millions USD) | Segment | 2021 | 2020 | | :--- | :--- | :--- | | Ammonia | $625 | $170 | | Granular Urea | $888 | $401 | | UAN | $669 | $114 | | AN | $35 | $65 | | Other | $170 | $51 | | Total | $2,387 | $801 | - The Ammonia segment's gross margin increased by $455 million, driven by an 84% increase in average selling prices and a $112 million gain on the net settlement of natural gas contracts248 - The AN segment's gross margin decreased by $30 million, as a 45% increase in selling prices was more than offset by higher natural gas costs, increased manufacturing costs, and a 22% decrease in sales volume due to idled UK operations266 Liquidity and Capital Resources The company's liquidity significantly strengthened in 2021, driven by strong operating cash flow and strategic capital allocation Cash Flow Summary (in millions USD) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,873 | $1,231 | | Net cash used in investing activities | ($466) | ($299) | | Net cash used in financing activities | ($1,463) | ($542) | - Cash and cash equivalents increased to $1.63 billion at December 31, 2021, from $683 million at the end of 2020275 - The company redeemed $500 million in debt during 2021, including the full redemption of the 2021 Notes and a partial redemption of the 2023 Notes274 - Capital expenditures in 2022 are estimated to be in the range of $500 to $550 million, including spending on green and blue ammonia projects283 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from commodity prices, interest rates, and foreign currency exchange rates - A $1.00 per MMBtu change in the price of natural gas would alter the cost to produce a ton of ammonia by approximately $33, granular urea by $22, UAN by $14, and AN by $16346 - As of December 31, 2021, the company had open derivative contracts for 60.0 million MMBtus of natural gas, where a hypothetical $1.00 per MMBtu change in forward prices would alter the fair value of these positions by $35 million348 - The company's $3.50 billion of senior notes have fixed interest rates, mitigating exposure to interest rate fluctuations on existing long-term debt348 Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements and the independent auditor's report Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on the financial statements and internal controls, highlighting key audit matters - The auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of the company's internal control over financial reporting as of December 31, 2021351352 - Critical Audit Matters highlighted were the evaluation of the measurement of projected benefit obligations for pension plans and the impairment analysis of UK goodwill and long-lived assets357360 Consolidated Financial Statements The consolidated financial statements provide a detailed overview of the company's financial performance and position Key Financial Statement Data (as of or for the year ended Dec 31, 2021) | Metric | Amount (in millions USD) | | :--- | :--- | | Statement of Operations: | | | Net Sales | $6,538 | | Gross Margin | $2,387 | | Net Earnings Attributable to Common Stockholders | $917 | | Balance Sheet: | | | Total Assets | $12,375 | | Total Liabilities | $6,339 | | Total Stockholders' Equity | $3,206 | | Cash Flow Statement: | | | Net Cash from Operating Activities | $2,873 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, financial data, and significant events impacting the company - Note 6: The UK energy crisis led to impairment charges of $521 million in 2021, comprising $236 million for long-lived and intangible assets and $285 million for goodwill427 - Note 13: As of Dec 31, 2021, total long-term debt was $3.5 billion, and during the year, the company redeemed $250 million of its 2021 Notes and $250 million of its 2023 Notes530533534 - Note 19: The company repurchased 8.6 million shares for $540 million in 2021 under its 2019 Share Repurchase Program, with a new $1.5 billion program authorized for 2022-2024566568 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None612 Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report613 - Based on an assessment using the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2021614 PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the company's 2022 Proxy Statement623 Item 11. Executive Compensation Information regarding executive and director compensation is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the company's 2022 Proxy Statement625 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the 2022 proxy statement Equity Compensation Plan Information as of December 31, 2021 | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price ($) | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 4,897,075 | 42.48 | 5,037,620 | | Not approved by security holders | — | — | — | | Total | 4,897,075 | $42.48 | 5,037,620 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related person transactions and director independence is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the company's 2022 Proxy Statement629 Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2022 proxy statement - Required information is incorporated by reference from the company's 2022 Proxy Statement629 PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the Annual Report on Form 10-K - The financial statements are included in Part II, Item 8. An Exhibit Index is provided on page 119 of the report630 Item 16. Form 10-K Summary The company has not provided a summary for its Form 10-K - None631