Third Quarter Highlights

Net earnings attributable to common stockholders were $38.5 million, or $0.78 per diluted share, down from $47.1 million, or $0.82 per share, in third quarter 2008. Third quarter results included $1.9 million in non-cash, pre-tax gains, or $0.02 per diluted share on an after-tax basis, from mark-to-market adjustments on natural gas derivatives and $18.7 million pre-tax, or $0.21 per diluted share on an after-tax basis, for proposed business combination and Perú project development costs. Earnings in the year-ago quarter were impacted by large negative mark-to-market adjustments on natural gas derivatives.

Net sales were $430.1 million, down 58 percent from third quarter 2008.

Net debt (net cash) was $(574.7) million at September 30, 2009 versus $(846.1) million at June 30, 2009. The decrease was due largely to open market purchases of the common shares of Terra Industries (NYSE: TRA) during the quarter.

Despite mixed market conditions, nitrogen segment volume declined by only three percent as lower domestic sales were largely offset by exports. Total phosphate segment volume rose nine percent, reflecting the sale of purchased potash.

CF Industries' flexible production and transportation capabilities allowed the company to export record volumes for the third quarter and adjust supply logistics in response to unusual pricing differentials.

Outlook

The company is prepared for a reasonably good fall application season (weather permitting) and solid spring demand due to attractive corn farming economics and needed restocking in the downstream fertilizer channels.

CF Industries Holdings, Inc. (NYSE: CF) today reported third quarter 2009 net earnings attributable to common stockholders of $38.5 million, or $0.78 per diluted share. This represents an 18 percent decrease from the $47.1 million, or $0.82 per diluted share, the company reported in the third quarter of 2008. The third quarter is typically the lowest-volume quarter of the year for domestic fertilizer demand.

"We are pleased with what we accomplished in a difficult industry environment this quarter," commented Stephen R. Wilson, chairman and chief executive officer, CF Industries Holdings, Inc.

"Domestic distributors and retailers remain hesitant to carry inventory because of the write-downs they experienced as prices fell last winter. Still, we achieved total sales volume that was about equal to the third quarter of last year," Wilson noted.

Responding to weak demand, CF Industries again demonstrated its nimbleness and flexibility by exploiting opportunities to improve profitability in a changing market.

The company's enhanced international marketing capabilities for both nitrogen and phosphate products contributed favorably to average price realizations in the quarter. Exports of 287,000 tons amounted to the largest export volume for the third quarter in CF Industries' history as a public company. During the quarter, the company exported 155,000 tons of phosphate to markets primarily in Central and South America and 132,000 tons of urea ammonium nitrate (UAN) solution and granular urea to Europe and South America.

The company's strategic decision in the second quarter to de-emphasize forward sales and increase exposure to spot prices for fertilizer sales and natural gas purchases paid off as natural gas prices in North America reached recent historic lows.

The company acted quickly to adjust production levels to market conditions, resulting in comfortable quarter-end inventory levels positioned to meet fall demand.

For the quarter, net sales totaled $430.1 million, representing a decrease of 58 percent from third quarter 2008 that resulted from lower price realizations for all products. The third quarter sales total included $30 million in sales of previously purchased potash. There were no potash sales in the previous year.

Gross margin was $124.0 million, up 3 percent from $120.9 million in the year-earlier quarter. Nitrogen segment gross margin increased by $172.4 million while phosphate segment gross margin declined by $169.3 million from the level reached during last year's pricing peak. Nitrogen gross margin in the year-ago quarter was impacted by large mark-to-market losses.

Third quarter results included $1.9 million in non-cash, pre-tax gains, or $0.02 per diluted share on an after-tax basis, from mark-to-market adjustments on natural gas derivatives. The gains compare to $251.0 million in non-cash, pre-tax losses, or $2.88 per diluted share on an after-tax basis, from mark-to-market adjustments included in third quarter 2008 results.

Third quarter results also included $18.7 million of proposed business combination and Perú project development costs, or $0.21 per diluted share on an after-tax basis. The business combination costs are associated with CF Industries' proposed business combination with Terra Industries and costs associated with responding to Agrium Inc.'s offer for CF Industries. The project development costs are related to the company's proposed nitrogen complex in Perú. Results in the year-earlier quarter included $0.3 million in project development costs.

Nine Month Comparisons

Net earnings attributable to common stockholders totaled $314.2 million, or $6.38 per diluted share, including $1.01 per diluted share of positive mark-to-market adjustments. In the year-ago period, net earnings attributable to common stockholders totaled $494.5 million, or $8.59 per diluted share, including $1.10 per diluted share of negative mark-to-market adjustments.

Net sales for the first nine months of 2009 totaled $2.10 billion, down 26 percent from $2.85 billion in the same period of 2008. The decline resulted primarily from lower price realizations for most products, offset in part by increased phosphate and potash sales volume.

Gross margin for the first nine months of 2009 totaled $713.3 million, down 17 percent from $862.0 million in the year-ago period. Year-to-date gross margin included a non-cash, pre-tax gain of $84.8 million from mark-to-market adjustments on natural gas derivatives, compared to a non-cash, pre-tax loss of $98.2 million in the first nine months of 2008.

The company's results for the first nine months also included $53.1 million of proposed business combination and Perú project development costs, or $0.64 per diluted share on an after tax basis.

Nitrogen Fertilizer Segment

During the quarter, nitrogen market conditions varied by product. Global ammonia prices rebounded from lows in the second quarter, but prices in the Midwest failed to keep pace because inventories were higher than normal after a shortened direct application season in the spring. Industry prices for urea rose early in the quarter, but finished the quarter lower. UAN traded considerably lower as buyers remained cautious, showing reluctance to fill storage amid future price uncertainty. In light of low domestic prices, CF Industries chose to export significant quantities of UAN and urea.

Despite these mixed market conditions, nitrogen segment volume declined by only 3 percent from the year-earlier period, to 1.2 million tons. Net sales totaled $276.1 million, down 54 percent from $599.1 million in the 2008 third quarter. The quarter's volume included approximately 132,000 tons of UAN and urea exports.

Gross margin for the nitrogen segment was $101.9 million, compared to $(70.5) million in last year's quarter when large negative mark-to-market adjustments were incurred due to falling natural gas prices. Gross margin as a percent of sales, including the effect of the segment's mark-to-market gains on derivatives, was 37 percent in the quarter. The average price of natural gas at Henry Hub in the third quarter of 2009 declined to $3.15/MMBtu, from $9.02/MMBtu in the year-earlier quarter. At AECO, the average price of natural gas declined in the third quarter of 2009 to $2.68/MMBtu from $7.56/MMBtu in the third quarter of 2008.

Compared to the second quarter of 2009, CF Industries' average urea selling prices declined by 12 percent, and average ammonia and UAN prices declined by approximately 50 percent. Over the same period, the company's realized cost of natural gas fell by approximately 31 percent, while average cash prices at AECO (Alberta) and Henry Hub (Louisiana) declined by 10 and 15 percent, respectively.

"This quarter we benefited from having reduced bookings under our Forward Pricing Program (FPP), which increased our exposure to spot prices for natural gas," said Wilson.

CF Industries' nitrogen complexes operated at 89 percent of capacity during the third quarter and entered the fourth quarter operating at similar rates.

Nitrogen sales under the company's FPP totaled 0.4 million tons during the quarter, representing 36 percent of nitrogen sales volume. In the year-earlier quarter, FPP sales accounted for 75 percent of segment sales.

Phosphate Fertilizer Segment

Phosphate segment net sales were $154.0 million, a 63 percent decrease from third quarter 2008 levels. Volume was 497,000 tons, up 9 percent from 457,000 tons in the year-earlier quarter reflecting sales of 58,000 tons of previously purchased potash during the quarter. With these sales, the company has eliminated its inventory of potash. Domestic phosphate volume was higher than the previous and year-ago quarters, but it was sold at lower prices.

Phosphate segment gross margin of $22.1 million was down from $191.4 million in third quarter 2008, due primarily to significantly lower price realizations. As a percent of sales, gross margin for diammonium phosphate (DAP) and monoammonium phosphate (MAP) was 17 percent and gross margin for potash was 3 percent. For the segment, gross margin was 14 percent of sales, compared to 45 percent in the year-earlier period. There were no potash sales in the comparable 2008 quarter.

The company realized an average price of $281 per ton for DAP, down 8 percent sequentially and down 70 percent from the prior year's quarter.

Input costs for phosphates were sharply lower than in the year-ago quarter, but were mixed compared to the second quarter of 2009. Tampa delivered prices for sulfur remained at historically low levels near $10 per long ton, compared to more than $600 per long ton in the third quarter of 2008. Prices for ammonia at Tampa rose unexpectedly during the quarter, resulting in unusual price differentials relative to Midwest pricing. The company's flexible production facilities and advantageous port locations allowed it to exchange Donaldsonville produced ammonia for Tampa delivery.

The company's Plant City, Florida Phosphate Complex operated at 85 percent of capacity during the third quarter, reflecting a significantly reduced operating rate during the month of July. The complex was running at full planned rates given our maintenance schedule at the end of the quarter.

Phosphate sales under the company's FPP totaled approximately 61,000 tons during the quarter, representing 12 percent of segment volume, down from 237,000 tons sold or 52 percent of segment volume in the third quarter 2008.

Liquidity and Financial Position

At September 30, 2009, the company's cash, cash equivalents and short-term investments totaled approximately $702.6 million, compared to $625.0 million at December 31, 2008. CF Industries also held investments in illiquid auction rate securities (ARS) that were valued at $139.5 million, compared to $177.8 million at December 31, 2008. During the third quarter, a nominal amount of ARS were redeemed at par, and the unrealized holding loss on the remaining ARS declined by approximately $3.8 million due primarily to higher valuations for these securities as the credit spread over treasury yields for these securities declined.

In addition, the company held investments in marketable equity securities of $242.2 million, reflecting its purchase of a 7 percent stake in Terra Industries during the quarter. This investment is carried at market value, with changes in value recognized on the balance sheet in equity rather than in net earnings.

Dividend Payment

On October 22, 2009, the Board of Directors declared the regular quarterly dividend of $0.10 per common share. The dividend will be paid on November 30, 2009 to stockholders of record on November 16, 2009.

Safety Performance

During the quarter, the company's Donaldsonville, Louisiana Nitrogen Complex surpassed four million man-hours (nearly eight years) without a lost time accident (LTA). Also during the quarter, the company's Bartow complex, which is currently being dismantled, surpassed ten years without an LTA.

The company's nitrogen complex in Medicine Hat, Alberta, was recognized by the government of Alberta as a Work Safe Alberta 2008 Best Safety Performer.

After more than 1.75 million man-hours (nearly 5 years) without an LTA, the company's Hardee County Phosphate Mine and Beneficiation Plant incurred an LTA in the third quarter.

Perú Nitrogen Complex

CF Industries continues to make significant progress on its proposed nitrogen complex in Perú. On October 13, the company announced that it had signed an agreement for the supply of natural gas to the complex under an advantageous pricing structure. Work continues on the front-end engineering and design (FEED) study, the environmental impact assessment and the financing plan, which are expected to lead to a final decision on the project in early 2010. During the third quarter, the company incurred $15.5 million in Perú project development costs.

Outlook

The company continues to have a positive outlook for the factors affecting North American fertilizer producers, including tight world grain stocks, favorable farm economics for corn production, strong foreign currencies, a need to replenish nutrients used in the large North American crop this year and low downstream fertilizer inventories worldwide.

"Weather challenges in harvesting this year's crop underscore the value of planting early, and direct application of anhydrous ammonia in the fall is a key enabler for early planting," said Wilson. "If the weather cooperates, we could still see a reasonably good fall application season. Even if it does not, we are set up for a very strong spring because of our balance in all three nitrogen fertilizer products," he continued.

As of September 30, 2009, the company's inventories for all products except urea were below year-ago levels. Inventories at the wholesale, distributor and retail level also are believed to be low, presaging restocking activity in the upcoming quarters. In recent months, North American prices for urea and UAN have not been sufficient to attract imports needed to support the spring fertilizer season.