Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

CF Industries Holdings, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of CF Industries Holdings, Inc. and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 22, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

(signed) KPMG LLP

We have served as the Company’s auditor since 1983.

Chicago, Illinois

February 22, 2019

CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended December 31,
	2018				2017				2016
	(in millions, except per share amounts)
Net sales	$	4,429			$	4,130			$	3,685
Cost of sales	3,512				3,696				2,842
Gross margin	917				434				843
Selling, general and administrative expenses	214				191				173
Transaction costs	—				—				179
Other operating—net	(27		)		18				208
Total other operating costs and expenses	187				209				560
Equity in earnings (loss) of operating affiliates	36				9				(145		)
Operating earnings	766				234				138
Interest expense	241				315				200
Interest income	(13		)		(12		)		(5		)
Loss on debt extinguishment	—				53				167
Other non-operating—net	(9		)		3				2
Earnings (loss) before income taxes	547				(125		)		(226		)
Income tax provision (benefit)	119				(575		)		(68		)
Net earnings (loss)	428				450				(158		)
Less: Net earnings attributable to noncontrolling interests	138				92				119
Net earnings (loss) attributable to common stockholders	$	290			$	358			$	(277	)
Net earnings (loss) per share attributable to common stockholders:
Basic	$	1.25			$	1.53			$	(1.19	)
Diluted	$	1.24			$	1.53			$	(1.19	)
Weighted-average common shares outstanding:
Basic	232.6				233.5				233.1
Diluted	233.8				233.9				233.1

See Accompanying Notes to Consolidated Financial Statements.

CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Year ended December 31,
	2018				2017				2016
	(in millions)
Net earnings (loss)	$	428			$	450			$	(158	)
Other comprehensive (loss) income:
Foreign currency translation adjustment—net of taxes	(105		)		127				(74		)
Derivatives—net of taxes	—				(1		)		—
Defined benefit plans—net of taxes	8				9				(74		)
	(97		)		135				(148		)
Comprehensive income (loss)	331				585				(306		)
Less: Comprehensive income attributable to noncontrolling interests	138				92				119
Comprehensive income (loss) attributable to common stockholders	$	193			$	493			$	(425	)

See Accompanying Notes to Consolidated Financial Statements.

CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2018				2017
	(in millions, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	682			$	835
Accounts receivable—net	235				307
Inventories	309				275
Prepaid income taxes	28				33
Other current assets	20				15
Total current assets	1,274				1,465
Property, plant and equipment—net	8,623				9,175
Investment in affiliate	93				108
Goodwill	2,353				2,371
Other assets	318				344
Total assets	$	12,661			$	13,463
Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses	$	545			$	472
Income taxes payable	5				2
Customer advances	149				89
Other current liabilities	6				17
Total current liabilities	705				580
Long-term debt	4,698				4,692
Deferred income taxes	1,117				1,047
Other liabilities	410				460
Equity:
Stockholders’ equity:
Preferred stock—$0.01 par value, 50,000,000 shares authorized	—				—
Common stock—$0.01 par value, 500,000,000 shares authorized, 2018—233,800,903 shares issued and 2017—233,287,799 shares issued	2				2
Paid-in capital	1,368				1,397
Retained earnings	2,463				2,443
Treasury stock—at cost, 2018—10,982,408 shares and 2017—710 shares	(504		)		—
Accumulated other comprehensive loss	(371		)		(263		)
Total stockholders’ equity	2,958				3,579
Noncontrolling interests	2,773				3,105
Total equity	5,731				6,684
Total liabilities and equity	$	12,661			$	13,463

See Accompanying Notes to Consolidated Financial Statements.

CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

	Common Stockholders
	$0.01 Par Value Common Stock				Treasury Stock				Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Total Stockholders’ Equity				Noncontrolling Interests				Total Equity
	(in millions)
Balance as of December 31, 2015	$	2			$	(153	)		$	1,378			$	3,058			$	(250	)		$	4,035			$	352			$	4,387
Net (loss) earnings	—				—				—				(277		)		—				(277		)		119				(158		)
Other comprehensive loss	—				—				—				—				(148		)		(148		)		—				(148		)
Retirement of treasury stock	—				150				(14		)		(136		)		—				—				—				—
Acquisition of treasury stock under employee stock plans	—				(1		)		—				—				—				(1		)		—				(1		)
Issuance of $0.01 par value common stock under employee stock plans	—				3				(3		)		—				—				—				—				—
Stock-based compensation expense	—				—				19				—				—				19				—				19
Cash dividends ($1.20 per share)	—				—				—				(280		)		—				(280		)		—				(280		)
Issuance of noncontrolling interest in CF Industries Nitrogen, LLC (CFN)	—				—				—				—				—				—				2,792				2,792
Distributions declared to noncontrolling interests	—				—				—				—				—				—				(119		)		(119		)
Balance as of December 31, 2016	$	2			$	(1	)		$	1,380			$	2,365			$	(398	)		$	3,348			$	3,144			$	6,492
Net earnings	—				—				—				358				—				358				92				450
Other comprehensive income	—				—				—				—				135				135				—				135
Issuance of $0.01 par value common stock under employee stock plans	—				1				—				—				—				1				—				1
Stock-based compensation expense	—				—				17				—				—				17				—				17
Cash dividends ($1.20 per share)	—				—				—				(280		)		—				(280		)		—				(280		)
Distributions declared to noncontrolling interests.	—				—				—				—				—				—				(131		)		(131		)
Balance as of December 31, 2017	$	2			$	—			$	1,397			$	2,443			$	(263	)		$	3,579			$	3,105			$	6,684
Adoption of ASU No. 2016-01	—				—				—				1				(1		)		—				—				—
Adoption of ASU No. 2014-09	—				—				—				(1		)		—				(1		)		—				(1		)
Adoption of ASU No. 2018-02	—				—				—				10				(10		)		—				—				—
Net earnings	—				—				—				290				—				290				138				428
Other comprehensive loss	—				—				—				—				(97		)		(97		)		—				(97		)
Purchases of treasury stock	—				(500		)		—				—				—				(500		)		—				(500		)
Issuance of $0.01 par value common stock under employee stock plans	—				(4		)		12				—				—				8				—				8
Stock-based compensation expense	—				—				21				—				—				21				—				21
Cash dividends ($1.20 per share)	—				—				—				(280		)		—				(280		)		—				(280		)
Acquisition of noncontrolling interests in TNCLP	—				—				(62		)		—				—				(62		)		(331		)		(393		)
Distributions declared to noncontrolling interests	—				—				—				—				—				—				(139		)		(139		)
Balance as of December 31, 2018	$	2			$	(504	)		$	1,368			$	2,463			$	(371	)		$	2,958			$	2,773			$	5,731

See Accompanying Notes to Consolidated Financial Statements.

CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2018				2017				2016
	(in millions)
Operating Activities:
Net earnings (loss)	$	428			$	450			$	(158	)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization	888				883				678
Deferred income taxes	78				(601		)		739
Stock-based compensation expense	22				17				19
Unrealized net (gain) loss on natural gas derivatives	(13		)		61				(260		)
Loss on embedded derivative	1				4				23
Impairment of equity method investment in PLNL	—				—				134
Gain on sale of equity method investment	—				(14		)		—
Loss on debt extinguishment	—				53				167
Loss on disposal of property, plant and equipment	6				3				10
Undistributed (earnings) losses of affiliates—net of taxes	(3		)		3				9
Changes in:
Accounts receivable—net	68				(57		)		18
Inventories	(52		)		40				(7		)
Accrued and prepaid income taxes	8				809				(676		)
Accounts payable and accrued expenses	44				(1		)		(18		)
Customer advances	59				48				(120		)
Other—net	(37		)		(67		)		59
Net cash provided by operating activities	1,497				1,631				617
Investing Activities:
Additions to property, plant and equipment	(422		)		(473		)		(2,211		)
Proceeds from sale of property, plant and equipment	26				20				14
Proceeds from sale of equity method investment	—				16				—
Proceeds from sale of auction rate securities	—				9				—
Distributions received from unconsolidated affiliates	10				14				—
Insurance proceeds	10				—				—
Other—net	1				1				2
Net cash used in investing activities	(375		)		(413		)		(2,195		)
Financing Activities:
Proceeds from long-term borrowings	—				—				1,244
Payments of long-term borrowings	—				(1,148		)		(1,170		)
Proceeds from short-term borrowings	—				—				150
Payments of short-term borrowings	—				—				(150		)
Payment to CHS related to credit provision	(5		)		(5		)		(5		)
Financing fees	1				(1		)		(31		)
Purchases of treasury stock	(467		)		—				—
Dividends paid on common stock	(280		)		(280		)		(280		)
Issuance of noncontrolling interest in CFN	—				—				2,800
Acquisition of noncontrolling interests in TNCLP	(388		)		—				—
Distributions to noncontrolling interests	(139		)		(131		)		(119		)
Issuances of common stock under employee stock plans	12				1				—
Shares withheld for taxes	(4		)		—				—
Net cash (used in) provided by financing activities	(1,270		)		(1,564		)		2,439
Effect of exchange rate changes on cash and cash equivalents	(5		)		12				(1		)
(Decrease) increase in cash, cash equivalents and restricted cash	(153		)		(334		)		860
Cash, cash equivalents and restricted cash at beginning of period	835				1,169				309
Cash, cash equivalents and restricted cash at end of period	$	682			$	835			$	1,169

See Accompanying Notes to Consolidated Financial Statements.

CF INDUSTRIES HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Background and Basis of Presentation

We are a leading global fertilizer and chemical company. Our 3,000 employees operate world-class manufacturing complexes in Canada, the United Kingdom and the United States. Our principal customers are cooperatives, independent fertilizer distributors, traders, wholesalers, farmers and industrial users. Our principal nitrogen fertilizer products are ammonia, granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN). Our other nitrogen products include diesel exhaust fluid (DEF), urea liquor, nitric acid and aqua ammonia, which are sold primarily to our industrial customers, and compound fertilizer products (NPKs), which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium. We serve our customers in North America through our production, storage, transportation and distribution network. We also reach a global customer base with exports from our Donaldsonville, Louisiana, plant, the world’s largest and most flexible nitrogen complex. Additionally, we move product to international destinations from our Verdigris, Oklahoma, facility, our Yazoo City, Mississippi, facility and our Billingham and Ince facilities in the United Kingdom, and a joint venture ammonia facility in the Republic of Trinidad and Tobago in which we own a 50 percent interest.

All references to “CF Holdings,” “the Company,” “we,” “us” and “our” refer to CF Industries Holdings, Inc. and its subsidiaries, except where the context makes clear that the reference is only to CF Industries Holdings, Inc. itself and not its subsidiaries. All references to “CF Industries” refer to CF Industries, Inc., a 100% owned subsidiary of CF Industries Holdings, Inc.

Our principal assets include:

•

five U.S. nitrogen fertilizer manufacturing facilities located in: Donaldsonville, Louisiana; Port Neal, Iowa; Yazoo City, Mississippi; Verdigris, Oklahoma; and Woodward, Oklahoma. These facilities are 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 Interests for additional information on our strategic venture with CHS;

•	two Canadian nitrogen fertilizer manufacturing facilities, located in Medicine Hat, Alberta and Courtright, Ontario;

•	two United Kingdom nitrogen manufacturing facilities, located in Billingham and Ince;

•	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 that we account for under the equity method.

During the first quarter of 2018, we adopted Accounting Standards Update (ASU) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. As a result, in our consolidated statements of cash flows for the years ended December 31, 2017 and 2016, we have reclassified $5 million and $18 million, respectively, of withdrawals from restricted cash funds, previously classified as cash provided by investing activities, to be included in the reconciliation of the beginning and ending balances of cash, cash equivalents and restricted cash. See Note 3—New Accounting Standards for additional information.

During the first quarter of 2018, we adopted ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. As a result, we reclassified certain amounts in our consolidated statements of operations for the years ended December 31, 2017 and 2016. See Note 3—New Accounting Standards for additional information.

CF INDUSTRIES HOLDINGS, INC.

2. Summary of Significant Accounting Policies

Consolidation and Noncontrolling Interests

The consolidated financial statements of CF Holdings include the accounts of CF Industries and all majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated.

In 2018, we announced that Terra Nitrogen GP Inc. (TNGP), the sole general partner of Terra Nitrogen Company, L.P. (TNCLP) and an indirect wholly owned subsidiary of CF Holdings, elected to exercise its right to purchase all of the 4,612,562 publicly traded common units of TNCLP (the TNCLP Public Units). TNGP completed its purchase of the TNCLP Public Units on April 2, 2018, for an aggregate cash purchase price of $388 million. Upon completion of the Purchase, we owned, through our subsidiaries, 100% of the general and limited partnership interests of TNCLP. Prior to the purchase of the TNCLP Public Units, we owned approximately 75.3% of TNCLP through general and limited partnership interests and outside investors owned the remaining approximately 24.7% of the limited partnership, and we consolidated TNCLP into our financial statements. The outside investors’ limited partnership interests in the partnership were included in noncontrolling interests in our consolidated financial statements prior to our purchase of the TNCLP Public Units.

On February 1, 2016, CHS made a capital contribution to CFN, a subsidiary of CF Holdings, in exchange for membership interests in CFN, which represented approximately 11% of the total membership interests of CFN. We own the remaining approximately 89% of CFN and consolidate CFN in our financial statements. CHS’ minority equity interest in CFN is included in noncontrolling interests in our consolidated financial statements, and represents CHS’ membership interests in CFN.

See Note 17—Noncontrolling Interests for additional information.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. Significant estimates and assumptions are used for, but are not limited to, net realizable value of inventories, environmental remediation liabilities, environmental and litigation contingencies, the cost of customer incentives, useful lives of property and identifiable intangible assets, the evaluation of potential impairments of property, investments, identifiable intangible assets and goodwill, income taxes, allowances for doubtful accounts receivable, the determination of the funded status and annual expense of defined benefit pension and other postretirement plans and the valuation of stock-based compensation awards granted to employees.

Revenue Recognition

We follow a five-step model for revenue recognition. The five steps are: (1) identification of the contract(s) with the customer, (2) identification of the performance obligation(s) in the contract(s), (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligation, and (5) recognition of revenue when (or as) the performance obligation is satisfied. We have fulfilled our performance obligations when control transfers to the customer, which occurs at the later of when title or risk of loss transfers to the customer, which is generally upon loading of our product onto transportation equipment or delivery to a customer destination. Revenue from forward sales programs is recognized on the same basis as other sales regardless of when the customer advances are received.

In situations where we have agreed to arrange delivery of the product to the customer’s intended destination and control of the product transfers upon loading of our product, we have elected to account for freight income associated with the delivery of these products as freight revenue. Shipping and handling costs incurred by us are included in cost of sales.

We offer cash incentives to certain customers based on the volume of their purchases over a certain period. Customer incentives are reported as a reduction in net sales.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less. The carrying value of cash and cash equivalents approximates fair value.

CF INDUSTRIES HOLDINGS, INC.

Investments

Short-term investments and noncurrent investments are accounted for primarily as available-for-sale securities reported at fair value. Prior to January 1, 2018, changes in fair value for available-for-sale debt and equity securities were reported in other comprehensive income. In 2018, as a result of our adoption of ASU No. 2016-01 on January 1, 2018, changes in the fair value of available-for-sale equity securities are recognized through earnings. The carrying values of short-term investments approximate fair values because of the short maturities and the highly liquid nature of these investments.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable includes trade receivables and non-trade receivables. Accounts receivable are recorded at face amounts less an allowance for doubtful accounts. The allowance is an estimate based on historical collection experience, current economic and market conditions, and a review of the current status of each customer’s trade accounts receivable. A receivable is past due if payments have not been received within the agreed-upon invoice terms. Account balances are charged-off against the allowance when management determines that it is probable that the receivable will not be recovered.

Inventories

Inventories are reported at the lower of cost and net realizable value with cost determined on a first-in, first-out and average cost basis. Inventory includes the cost of materials, production labor and production overhead. Inventory at warehouses and terminals also includes distribution costs to move inventory to the distribution facilities. Net realizable value is reviewed at least quarterly. Fixed production costs related to idle capacity are not included in the cost of inventory but are charged directly to cost of sales in the period incurred.

Investment in Unconsolidated Affiliate

The equity method of accounting is used for investments in affiliates that we do not consolidate, but over which we have the ability to exercise significant influence. Our equity method investment for which the results are included in operating earnings consists of our 50% ownership interest in PLNL, which operates an ammonia production facility in the Republic of Trinidad and Tobago. Our share of the net earnings from this investment is reported as an element of earnings from operations because PLNL’s operations provide additional production and are integrated with our supply chain and sales activities in the ammonia segment. See Note 8—Equity Method Investments for additional information.

Profits resulting from sales or purchases with equity method investees are eliminated until realized by the investee or investor, respectively. Investments in affiliates are reviewed for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. When circumstances indicate that the fair value of an investment in an affiliate is less than its carrying value, and the reduction in value is other than temporary, the reduction in value is recognized immediately in earnings.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method and are recorded over the estimated useful life of the property, plant and equipment. Useful lives are as follows:

	Years
Mobile and office equipment	3 to 10
Production facilities and related assets	2 to 30
Land improvements	10 to 30
Buildings	10 to 40

We periodically review the useful lives assigned to our property, plant and equipment and we change the estimates to reflect the results of those reviews.

CF INDUSTRIES HOLDINGS, INC.

Scheduled inspections, replacements and overhauls of plant machinery and equipment at our continuous process manufacturing facilities during a full plant shutdown are referred to as plant turnarounds. Plant turnarounds are accounted for under the deferral method, as opposed to the direct expense or built-in overhaul methods. Under the deferral method, expenditures related to turnarounds are capitalized in property, plant and equipment when incurred and amortized to production costs on a straight-line basis over the period benefited, which is until the next scheduled turnaround in up to five years. If the direct expense method were used, all turnaround costs would be expensed as incurred. Internal employee costs and overhead amounts are not considered turnaround costs and are not capitalized. Turnaround costs are classified as investing activities in our consolidated statements of cash flows. See Note 6—Property, Plant and Equipment—Net for additional information.

Recoverability of Long-Lived Assets

We review property, plant and equipment and other long-lived assets in order to assess recoverability based on expected future undiscounted cash flows whenever events or circumstances indicate that the carrying value may not be recoverable. If the sum of the expected future net cash flows is less than the carrying value, an impairment loss is recognized. The impairment loss is measured as the amount by which the carrying value exceeds the fair value of the asset.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price of an acquired entity over the amounts assigned to the assets acquired and liabilities assumed. Goodwill is not amortized, but is reviewed for impairment annually or more frequently if certain impairment conditions arise. We perform our annual goodwill impairment review in the fourth quarter of each year at the reporting unit level. Our evaluation can begin 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 the results of the qualitative test are unclear, 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 positive carrying amount, goodwill of the reporting unit is considered not impaired, and no further analysis 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.

Our intangible assets are presented in other assets on our consolidated balance sheets. See Note 7—Goodwill and Other Intangible Assets for additional information regarding our goodwill and other intangible assets.

Leases

Leases may be classified as either operating leases or capital leases. Assets acquired under capital leases, if any, would be depreciated on the same basis as property, plant and equipment. For operating leases, rental payments, including rent holidays, leasehold incentives, and scheduled rent increases are expensed on a straight-line basis. Leasehold improvements are amortized over the shorter of the depreciable lives of the corresponding fixed assets or the lease term including any applicable renewals.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are projected to be recovered or settled. Realization of deferred tax assets is dependent on our ability to generate sufficient taxable income of an appropriate character in future periods. A valuation allowance is established if it is determined to be more likely than not that a deferred tax asset will not be realized. Significant judgment is applied in evaluating the need for and magnitude of appropriate valuation allowances against deferred tax assets. Interest and penalties related to unrecognized tax benefits are reported as interest expense and income tax expense, respectively.

Historically, a deferred income tax liability was recorded for income taxes that would result from the repatriation of the portion of the investment in the Company’s non-U.S. subsidiaries and joint venture that were considered to not be permanently reinvested. No deferred income tax liability was recorded for the remainder of our investment in non-U.S. subsidiaries and joint venture, which we believed to be permanently reinvested. We record our tax expense for Global Intangible Low-Taxed Income (GILTI) as an expense in the period in which incurred and as such do not record a deferred tax liability for taxes that may be due in future periods. See Note 10—Income Taxes for additional information.

CF INDUSTRIES HOLDINGS, INC.

Customer Advances

Customer advances represent cash received from customers following acceptance of orders under our forward sales programs. Under such advances, the customer prepays a portion of the value of the sales contract prior to obtaining control of the product, thereby reducing or eliminating accounts receivable from customers. Revenue is recognized when the customer obtains control of the product.

Derivative Financial Instruments

Natural gas is the principal raw material used to produce nitrogen-based products. We manage the risk of changes in natural gas prices primarily through the use of derivative financial instruments. The derivative instruments that we may use are primarily natural gas fixed price swaps, natural gas basis swaps and natural gas options traded in the over-the-counter (OTC) markets. The derivatives reference primarily a NYMEX futures price index, which represent the basis for fair value at any given time. These derivatives are traded in months forward and settlements are scheduled to coincide with anticipated gas purchases during those future periods. We do not use derivatives for trading purposes and are not a party to any leveraged derivatives.

Derivative financial instruments are accounted for at fair value and recognized as current or noncurrent assets and liabilities on our consolidated balance sheets. We use natural gas derivatives as an economic hedge of natural gas price risk, but without the application of hedge accounting. As a result, changes in fair value of these contracts are recognized in earnings. The fair values of derivative instruments and any related cash collateral are reported on a gross basis rather than on a net basis. Cash flows related to natural gas derivatives are reported as operating activities.

See Note 15—Derivative Financial Instruments for additional information.

Debt Issuance Costs

Costs associated with the issuance of debt are recorded on the balance sheet as a direct deduction from the carrying amount of the related debt liability. Costs associated with entering into revolving credit facilities are recorded as an asset in noncurrent assets. All debt issuance costs are amortized over the term of the related debt using the effective interest rate method. Debt issuance discounts are netted against the related debt and are amortized over the term of the debt using the effective interest method. See Note 12—Financing Agreements for additional information.

Environmental

Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations are expensed. Expenditures that increase the capacity or extend the useful life of an asset, improve the safety or efficiency of the operations, or mitigate or prevent future environmental contamination are capitalized. Liabilities are recorded when it is probable that an obligation has been incurred and the costs can be reasonably estimated. Environmental liabilities are not discounted.

Stock-based Compensation

We grant stock-based compensation awards under our equity and incentive plans. The awards that have been granted to date are nonqualified stock options, restricted stock awards, restricted stock units and performance share units. The cost of employee services received in exchange for the awards is measured based on the fair value of the award on the grant date and is recognized as expense on a straight-line basis over the period during which the employee is required to provide the services. See Note 19—Stock-Based Compensation for additional information.

Treasury Stock

We periodically retire treasury shares acquired through repurchases of our common stock and return those shares to the status of authorized but unissued. We account for treasury stock transactions under the cost method. For each reacquisition of common stock, the number of shares and the acquisition price for those shares is added to the treasury stock count and total value. When treasury shares are retired, we allocate the excess of the repurchase price over the par value of shares acquired to both retained earnings and paid-in capital. The portion allocated to paid-in capital is determined by applying the average paid-in capital per share, and the remaining portion is recorded to retained earnings.

Litigation

From time to time, we are subject to ordinary, routine legal proceedings related to the usual conduct of our business. We may also be involved in proceedings regarding public utility and transportation rates, environmental matters, taxes and permits relating to the operations of our various plants and facilities. Accruals for such contingencies are recorded to the extent

CF INDUSTRIES HOLDINGS, INC.

management concludes their occurrence is probable and the financial impact of an adverse outcome is reasonably estimable. Legal fees are recognized as incurred and are not included in accruals for contingencies. Disclosure for specific legal contingencies is provided if the likelihood of occurrence is at least reasonably possible and the exposure is considered material to the consolidated financial statements.

In making determinations of likely outcomes of litigation matters, many factors are considered. These factors include, but are not limited to, history, scientific and other evidence, and the specifics and status of each matter. If the assessment of various factors changes, the estimates may change. Predicting the outcome of claims and litigation, and estimating related costs and exposure involves substantial uncertainties that could cause actual costs to vary materially from estimates and accruals.

Foreign Currency Translation

We translate the financial statements of our foreign subsidiaries with non-U.S. dollar functional currencies using period-end exchange rates for assets and liabilities and weighted-average exchange rates for each period for revenues and expenses. The resulting translation adjustments are recorded as a separate component of accumulated other comprehensive income (AOCI) within stockholders’ equity.

Foreign currency-denominated assets and liabilities are remeasured into U.S. dollars at exchange rates existing at the respective balance sheet dates. Gains and losses resulting from these foreign currency transactions are included in other operating—net on our consolidated statements of operations. Gains and losses resulting from intercompany foreign currency transactions that are of a long-term investment nature, if any, are reported in other comprehensive income.

3. New Accounting Standards

Recently Adopted Pronouncements

On January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments. Additionally, the costs to obtain and fulfill a contract, including assets to be recognized, are to be capitalized and such capitalized costs should be disclosed. In 2016, the Financial Accounting Standards Board (FASB) issued additional ASUs that enhanced the operability of the principal versus agent guidance in ASU No. 2014-09 by clarifying that an entity should consider the nature of each good or service promised to a customer at the individual good or service level, clarified that ASU No. 2014-09 should not be applied to immaterial performance obligations, and enhanced the guidance around the treatment of shipping costs incurred to fulfill performance obligations. Our adoption of this ASU, utilizing the modified retrospective approach on contracts that were not completed as of January 1, 2018, resulted in a reduction to opening retained earnings of $1 million related to the cumulative difference between ASC Topic 605 and ASC Topic 606. See Note 4—Revenue Recognition for additional information.

On January 1, 2018, we adopted ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities, which changes the income statement impact of equity investments held by an entity. The amendments require the unrealized gains or unrealized losses of equity instruments measured at fair value to be recognized in net income. Our adoption of this ASU resulted in an increase to opening retained earnings of $1 million representing the cumulative effect of unrealized gains from equity securities from AOCI.

On January 1, 2018, we adopted ASU No. 2016-18, Statement of Cash Flows (Topic 230) Restricted Cash - a consensus of the FASB Emerging Issues Task Force, which requires that the statement of cash flows include amounts described as restricted cash and restricted cash equivalents as part of cash and cash equivalents when reconciling the beginning and ending period balances. Upon adoption of this ASU, $5 million and $18 million of withdrawals from restricted cash funds previously reflected as cash provided by investing activities for the years ended December 31, 2017 and 2016, respectively, and our restricted cash balances of $5 million and $23 million as of December 31, 2016 and 2015, respectively, were reclassified to be included within the reconciliation of beginning and ending cash, cash equivalents and restricted cash balances on our consolidated statements of cash flows for the years ended December 31, 2017 and 2016, respectively.

CF INDUSTRIES HOLDINGS, INC.

On January 1, 2018, we adopted ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changed the presentation of net benefit cost related to employer sponsored defined benefit plans and other postretirement benefits. Only service cost can be included within the same income statement line item as other compensation costs arising from services rendered during the period, while other components of net benefit cost must be presented separately outside of operating income. Additionally, only service costs may be capitalized on the balance sheet. Our adoption of this ASU was applied retrospectively for the income statement classification requirements and prospectively for the capitalization guidance, which resulted in net benefit cost previously recognized in cost of sales and selling, general and administrative expenses to be reclassified to other non-operating—net on our consolidated statement of operations for the years ended December 31, 2017 and 2016, as follows:

	Year ended December 31,
	2017												2016
	As Reported				Adjustment				As Adjusted				As Reported				Adjustment				As Adjusted
	(in millions)
Cost of sales	$	3,700			$	(4	)		$	3,696			$	2,845			$	(3	)		$	2,842
Gross margin	430				4				434				840				3				843
Selling, general and administrative expenses	192				(1		)		191				174				(1		)		173
Operating earnings	229				5				234				134				4				138
Other non-operating (income) expense—net	(2		)		5				3				(2		)		4				2

On January 1, 2018, we adopted ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Our adoption of this ASU had no impact on our consolidated financial statements.

In the third quarter of 2018, we adopted ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. Step 2 required entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. Under Step 2, the carrying value in excess of the implied fair value would be recognized as goodwill impairment. Under this new ASU, goodwill impairment is 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. Our adoption of this ASU had no impact on our consolidated financial statements.

In the fourth quarter of 2018, we adopted ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. As a result of our adoption of this ASU, we reclassified $10 million of stranded tax effects previously recognized in AOCI to retained earnings during the fourth quarter of 2018. See Note 10—Income Taxes and Note 18—Stockholders’ Equity for additional information.

In the fourth quarter of 2018, we adopted ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans and must be applied retrospectively. The modified disclosure requirements of this ASU are reflected in Note 11—Pension and Other Postretirement Benefits.

CF INDUSTRIES HOLDINGS, INC.

Recently Issued Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the lease accounting requirements in ASC Topic 840, Leases. This ASU will require lessees to recognize the rights and obligations resulting from virtually all leases (other than leases that meet the definition of a short-term lease) on their balance sheets as right-of-use assets with corresponding lease liabilities. Extensive quantitative and qualitative disclosures, including significant judgments made by management, will be required to provide greater insight into the extent of income and expense recognized and expected to be recognized from existing contracts. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted, and requires the modified retrospective method of adoption. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides the option to initially apply ASU No. 2016-02 at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, instead of applying the new guidance retrospectively for each prior reporting period presented. We plan to elect the optional transition method within ASU No. 2018-11. We believe the most significant change of the adoption of these ASUs on our consolidated financial statements relates to the recognition of the right-of-use assets and lease liabilities on our balance sheet for operating leases for certain property and equipment, including transportation equipment utilized for the distribution of our products. We estimate that the right-of-use asset and lease liability that we will recognize on our consolidated balance sheet upon adoption on January 1, 2019 will be approximately $300 million. See Note 24—Leases for additional information.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships in order to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and should be applied to existing hedging relationships as of the date of adoption. Early adoption of this ASU is permitted. We do not expect the adoption of this ASU will have a material effect on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2019 and can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption is permitted. We are currently evaluating the impact that our adoption of this ASU will have on our consolidated financial statements.

4. Revenue Recognition

Prior to the adoption of ASC 606, under ASC 605, the basic criteria necessary for revenue recognition were: (1) evidence that a sales arrangement existed, (2) delivery of goods had occurred, (3) the seller’s price to the buyer was fixed or determinable, and (4) collectability was reasonably assured. We recognized revenue when these criteria had been met, and when title and risk of loss transferred to the customer, which could be at the plant gate, a distribution facility, a supplier location or a customer destination.

We adopted ASC 606 on January 1, 2018. The revenue that we recognize, both prior to and after the adoption of ASC 606, arises from contracts we have with our customers. Our performance obligations under a contract correspond to each shipment of product that we make to our customer under the contract; as a result, each contract may have more than one performance obligation based on the number of products ordered, the quantity of product to be shipped and the mode of shipment requested by the customer. Control of our products transfers to our customers when the customer is able to direct the use of, and obtain substantially all of the benefits from, our products, which generally occurs at the later of when the customer obtains title to our product or when the customer assumes risk of loss of our product. The transfer of control generally occurs at a point in time upon loading of our product onto transportation equipment or upon delivery to the customer’s intended destination. Once this occurs, we have satisfied our performance obligation and we recognize revenue.

When we enter into a contract with a customer, we are obligated to provide the product in that contract during a mutually agreed upon time period. Depending on the terms of the contract, either we or the customer arranges delivery of the product to the customer’s intended destination. In situations where we have agreed to arrange delivery of the product to the customer’s intended destination and control of the product transfers upon loading of our product onto transportation equipment, we have elected to account for any freight income associated with the delivery of these products as freight revenue, consistent with our

CF INDUSTRIES HOLDINGS, INC.

treatment of this income prior to the adoption of ASC 606, since this activity fulfills our obligation to transfer the product to the customer. For 2018, the total amount of freight recognized as revenue was not material.

Certain of our contracts require us to supply products on a continuous basis to the customer. We recognize revenue on these contracts based on the quantity of products transferred to the customer during the period. For 2018, the total amount of revenue for these contracts was $85 million.

From time to time, we will enter the marketplace to purchase product in order to satisfy the obligations of our customer contracts. When we purchase product for this purpose, we are the principal in the transaction and recognize revenue on a gross basis. As discussed in Note 8—Equity Method Investments, we have transactions in the normal course of business with PLNL, reflecting our obligation to purchase 50% of the ammonia produced by PLNL at current market prices. During 2018, other than products purchased from PLNL, we did not purchase any products in the marketplace in order to satisfy the obligations of our customer contracts.

Transaction Price

We agree with our customers on the selling price of each transaction. This transaction price is generally based on the product, market conditions, including supply and demand balances, freight arrangements including where control transfers, and customer incentives. In our contracts with customers, we allocate the entire transaction price to the sale of product to the customer, which is the basis for the determination of the relative standalone selling price allocated to each performance obligation. Returns of our product by our customers are permitted only when the product is not to specification. Returns were not material during 2018. Any sales tax, value added tax, and other tax we collect concurrently with our revenue-producing activities are excluded from revenue.

We offer cash incentives to certain customers based on the volume of their purchases over a certain period. These incentives do not provide an option to the customer for additional product. Customer incentives are reported as a reduction in net sales. Accrual of these incentives involves the use of estimates, including how much product the customer will purchase and whether the customer will achieve a certain level of purchases within the incentive period. The balances of customer incentives accrued at December 31, 2018 and 2017 were not material.

If we had continued to apply legacy revenue recognition guidance for 2018, our net sales, gross margin, and net income attributable to common shareholders would not have been materially different. See Note 3—New Accounting Standards for the impact of our adoption of ASU No. 2014-09.

Revenue Disaggregation

We track our revenue by product and by geography. See Note 21—Segment Disclosures for our revenue by reportable segment, which are ammonia, granular urea, UAN, AN and Other.

The following table summarizes our revenue by product and by geography (based on destination of our shipment) for 2018:

	Ammonia					Granular Urea				UAN				AN				Other				Total
	(in millions)
Year ended December 31, 2018
North America	$	883				$	1,243			$	1,047			$	186			$	261			$	3,620
Europe and other	145					79				187				274				124				809
Total revenue	$	1,028		—		$	1,322			$	1,234			$	460			$	385			$	4,429

Accounts Receivable and Customer Advances

Our customers purchase our products through sales on credit or forward sales. Products sold to our customers on credit are recorded as accounts receivable when the customer obtains control of the product. Customers that purchase our products on credit are required to pay in accordance with our customary payment terms, which are generally less than 30 days. For 2018, the amount of customer bad debt expense recognized was immaterial.

For forward sales, the customer prepays a portion of the value of the sales contract prior to obtaining control of the product. These prepayments, when received, are recorded as customer advances and are recognized as revenue when the customer obtains control of the product. Forward sales are customarily offered for periods of less than one year in advance of when the customer obtains control of the product.

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As of December 31, 2018 and 2017, we had $149 million and $89 million, respectively, in customer advances on our consolidated balance sheets. The increase in the balance of customer advances primarily resulted from higher nitrogen prices and stronger nitrogen demand resulting in an increase in forward contracts. During 2018, all of our customer advances that were recorded as of December 31, 2017 were recognized as revenue.

We have certain customer contracts with performance obligations where if the customer does not take the required amount of product specified in the contract, then the customer is required to make a payment to us, which may vary based upon the terms and conditions of the applicable contract. As of December 31, 2018, excluding contracts with original durations of less than one year, and based on the minimum product tonnage to be sold and current market price estimates, our remaining performance obligations under these contracts are approximately $1.4 billion. We expect to recognize approximately 24% of these performance obligations as revenue in 2019, approximately 38% as revenue during 2020 and 2021, approximately 25% as revenue during 2022 and 2023, and the remainder thereafter. If these customers do not fulfill their contractual obligations under such contracts, the legally enforceable minimum amount that they would pay to us under these contracts is approximately $269 million as of December 31, 2018. Other than the performance obligations described above, any performance obligations with our customers that were unfulfilled or partially filled at December 31, 2018 will be satisfied in 2019.

All of our contracts require that the period between the payment for goods and the transfer of those goods to the customer occur within normal contractual terms that do not exceed one year; therefore, we have not adjusted the transaction price of any of our contracts to recognize a significant financing component. We have also expensed any incremental costs associated with obtaining a contract that has a duration of less than one year, and there were no costs capitalized during 2018.

5. Net Earnings (Loss) Per Share

Net earnings (loss) per share were computed as follows:

	Year ended December 31,
	2018				2017				2016
	(in millions, except per share amounts)
Net earnings (loss) attributable to common stockholders	$	290			$	358			$	(277	)
Basic earnings per common share:
Weighted-average common shares outstanding	232.6				233.5				233.1
Net earnings (loss) attributable to common stockholders	$	1.25			$	1.53			$	(1.19	)
Diluted earnings per common share:
Weighted-average common shares outstanding	232.6				233.5				233.1
Dilutive common shares—stock options	1.2				0.4				—
Diluted weighted-average shares outstanding	233.8				233.9				233.1
Net earnings (loss) attributable to common stockholders	$	1.24			$	1.53			$	(1.19	)

In the computation of diluted earnings per common share, potentially dilutive stock options are excluded if the effect of their inclusion is anti-dilutive. Shares for anti-dilutive stock options not included in the computation of diluted earnings per common share were 1.5 million, 3.7 million and 4.9 million for the years ended December 31, 2018, 2017 and 2016, respectively.

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6. Property, Plant and Equipment—Net

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

	December 31,
	2018				2017
	(in millions)
Land	$	69			$	71
Machinery and equipment	12,127				12,070
Buildings and improvements	886				882
Construction in progress	225				223
Property, plant and equipment(1)	13,307				13,246
Less: Accumulated depreciation and amortization	4,684				4,071
Property, plant and equipment—net	$	8,623			$	9,175

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(1)	As of December 31, 2018 and 2017, we had property, plant and equipment that was accrued but unpaid of approximately $48 million and $46 million, respectively.

Depreciation and amortization related to property, plant and equipment was $865 million, $848 million and $607 million in 2018, 2017 and 2016, respectively.

Plant turnarounds—Scheduled inspections, replacements and overhauls of plant machinery and equipment at our continuous process manufacturing facilities during a full plant shutdown are referred to as plant turnarounds. The expenditures related to turnarounds are capitalized in property, plant and equipment when incurred. The following is a summary of capitalized plant turnaround costs:

	Year ended December 31,
	2018				2017				2016
	(in millions)
Net capitalized turnaround costs at beginning of the year	$	208			$	206			$	220
Additions	156				100				74
Depreciation	(111		)		(102		)		(89		)
Effect of exchange rate changes	(1		)		4				1
Net capitalized turnaround costs at end of the year	$	252			$	208			$	206

Scheduled replacements and overhauls of plant machinery and equipment include the dismantling, repair or replacement and installation of various components including piping, valves, motors, turbines, pumps, compressors, heat exchangers and the replacement of catalysts when a full plant shutdown occurs. Scheduled inspections are also conducted during full plant shutdowns, including required safety inspections which entail the disassembly of various components such as steam boilers, pressure vessels and other equipment requiring safety certifications. Internal employee costs and overhead amounts are not considered turnaround costs and are not capitalized.

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7. Goodwill and Other Intangible Assets

The following table shows the carrying amount of goodwill by reportable segment as of December 31, 2018 and 2017:

	Ammonia				Granular Urea				UAN				AN				Other				Total
	(in millions)
Balance as of December 31, 2017	$	587			$	829			$	576			$	306			$	73			$	2,371
Effect of exchange rate changes	(1		)		(1		)		—				(14		)		(2		)		(18		)
Balance as of December 31, 2018	$	586			$	828			$	576			$	292			$	71			$	2,353

All of our identifiable intangible assets have definite lives and are presented in other assets on our consolidated balance sheets at gross carrying amount, net of accumulated amortization, as follows:

	December 31, 2018												December 31, 2017
	Gross Carrying Amount				Accumulated Amortization				Net				Gross Carrying Amount				Accumulated Amortization				Net
	(in millions)
Intangible assets:
Customer relationships	$	127			$	(37	)		$	90			$	132			$	(31	)		$	101
TerraCair brand	10				(10		)		—				10				(10		)		—
Trade names	30				(5		)		25				32				(4		)		28
Total intangible assets	$	167			$	(52	)		$	115			$	174			$	(45	)		$	129

Amortization expense of our identifiable intangibles was $7 million, $9 million and $7 million for the years ended December 31, 2018, 2017 and 2016, respectively. Our intangible assets are being amortized over a weighted-average life of approximately 20 years.

Total estimated amortization expense for each of the five succeeding fiscal years is as follows:

	Estimated Amortization Expense
	(in millions)
2019	$	8
2020	8
2021	8
2022	8
2023	8

CF INDUSTRIES HOLDINGS, INC.

8. Equity Method Investments

We have a 50% ownership interest in PLNL, which operates an ammonia production facility in the Republic of Trinidad and Tobago. We include our share of the net earnings from this equity method investment as an element of earnings from operations because PLNL provides additional production to our operations and is integrated with our other supply chain and sales activities in the ammonia segment.

As of December 31, 2018, the total carrying value of our equity method investment in PLNL of $93 million was $49 million more than our share of PLNL’s book value. The excess is attributable to the purchase accounting impact of our acquisition of the investment in PLNL and primarily reflects the revaluation of property, plant and equipment. The increased basis for property, plant and equipment is being amortized over a remaining period of approximately 14 years. Our equity in earnings of PLNL is different from our ownership interest in income reported by PLNL due to amortization of this basis difference.

We have transactions in the normal course of business with PLNL reflecting our obligation to purchase 50% of the ammonia produced by PLNL at current market prices. Our ammonia purchases from PLNL totaled $86 million, $76 million and $62 million in 2018, 2017 and 2016, respectively.

PLNL 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). PLNL experienced past curtailments in the supply of natural gas from NGC, which reduced historical 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 2023 will be based on new agreements. In May 2018, the NGC and PLNL reached a settlement of an arbitration proceeding regarding PLNL’s claims for damages due to natural gas supply curtailments. The net after-tax impact of the settlement reached between NGC and PLNL that is recognized in our consolidated statement of operations for 2018 was an increase in our equity in earnings of operating affiliates of approximately $19 million.

The Trinidad tax authority (the Board of Inland Revenue) previously issued a tax assessment against PLNL related to a dispute over whether tax depreciation must be claimed during a tax holiday period that was granted to PLNL under the Trinidadian Fiscal Incentives Act. The tax holiday was granted as an incentive to construct PLNL’s ammonia plant. Based on the facts and circumstances of this matter, PLNL recorded a tax contingency accrual in the second quarter of 2017, which reduced our equity in earnings of PLNL for 2017 by approximately $7 million reflecting our 50% ownership interest. In early 2018, PLNL settled this matter with the Board of Inland Revenue for the amounts accrued.

The Board of Inland Revenue has issued PLNL a tax assessment with respect to tax years 2011 and 2012 in the aggregate amount of approximately $12 million, plus interest and penalties in the aggregate amount of approximately $22 million, for alleged underpayment of withholding taxes on distributions made by PLNL to its owners. Since we own a 50% interest in PLNL, our effective share of any assessment that is determined to be a liability of PLNL would be 50%, which would be reflected as a reduction in our equity in earnings of PLNL. The Board of Inland Revenue has not provided PLNL with the legal or factual basis for the assessment. As a result, PLNL cannot assess the likelihood of the outcome of this matter and we cannot assess the potential foreign tax credit we may be eligible for, if the withholding tax amount was determined to be a liability of PLNL.

In the fourth quarter of 2017, we sold our interest in a joint venture that owned a carbon dioxide liquefaction and purification facility and recognized a gain of $14 million, which is included in equity in earnings of operating affiliates in our consolidated statement of operations for 2017.

As part of our impairment assessment of our equity method investment in PLNL during the fourth quarter of 2016, we determined the carrying value exceeded the fair value and recognized a $134 million impairment charge in 2016. The carrying value of our equity method investment in PLNL at December 31, 2018 is $93 million. 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.

CF INDUSTRIES HOLDINGS, INC.

9. Fair Value Measurements

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

	December 31, 2018
	Cost Basis				Unrealized Gains				Unrealized Losses				Fair Value
	(in millions)
Cash	$	34			$	—			$	—			$	34
Cash equivalents:
U.S. and Canadian government obligations	623				—				—				623
Other debt securities	25				—				—				25
Total cash and cash equivalents	$	682			$	—			$	—			$	682
Nonqualified employee benefit trusts	17				2				—				19

	December 31, 2017
	Cost Basis				Unrealized Gains				Unrealized Losses				Fair Value
	(in millions)
Cash	$	120			$	—			$	—			$	120
Cash equivalents:
U.S. and Canadian government obligations	710				—				—				710
Other debt securities	5				—				—				5
Total cash and cash equivalents	$	835			$	—			$	—			$	835
Nonqualified employee benefit trusts	17				2				—				19

Under our short-term investment policy, we may invest our cash balances, either directly or through mutual funds, in several types of investment-grade securities, including notes and bonds issued by governmental entities or corporations. Securities issued by governmental entities include those issued directly by the U.S. and Canadian federal governments; those issued by state, local or other governmental entities; and those guaranteed by entities affiliated with governmental entities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present assets and liabilities included in our consolidated balance sheets as of December 31, 2018 and 2017 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:

	December 31, 2018
	Total Fair Value				Quoted Prices in Active Markets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
	(in millions)
Cash equivalents	$	648			$	648			$	—			$	—
Nonqualified employee benefit trusts	19				19				—				—
Derivative assets	2				—				2				—
Embedded derivative liability	(21		)		—				(21		)		—

CF INDUSTRIES HOLDINGS, INC.

	December 31, 2017
	Total Fair Value				Quoted Prices in Active Markets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
	(in millions)
Cash equivalents	$	715			$	715			$	—			$	—
Nonqualified employee benefit trusts	19				19				—				—
Derivative assets	1				—				1				—
Derivative liabilities	(12		)		—				(12		)		—
Embedded derivative liability	(25		)		—				(25		)		—

Cash Equivalents

As of December 31, 2018 and 2017, our cash equivalents consisted primarily of U.S. and Canadian government obligations and money market mutual funds that invest in U.S. government obligations and other investment-grade securities.

Nonqualified Employee Benefit Trusts

We maintain trusts associated with certain nonqualified supplemental pension plans. The fair values of the trust assets are based on daily quoted prices in an active market, which represents the net asset values of the shares held in the trusts, and are included on our consolidated balance sheets in other assets. Debt securities are accounted for as available-for-sale securities. In 2018, as a result of our adoption of ASU 2016-01 on January 1, 2018, changes in the fair value of equity securities in the trust assets are recognized through earnings. See Note 3—New Accounting Standards for additional information.

Derivative Instruments

The derivative instruments that we may use are primarily natural gas fixed price swaps, natural gas basis swaps and natural gas options traded in the OTC markets with multi-national commercial banks, other major financial institutions or large energy companies. The natural gas derivative contracts represent anticipated natural gas needs for future periods and settlements are scheduled to coincide with anticipated natural gas purchases during those future periods. The natural gas derivative contracts settle using primarily a NYMEX futures price index. To determine the fair value of these instruments, we use quoted market prices from NYMEX and standard pricing models with inputs derived from or corroborated by observable market data such as forward curves supplied by an industry-recognized independent third party. See Note 15—Derivative Financial Instruments for additional information.

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. Since our credit ratings were below certain levels in 2016, 2017 and 2018, we made a payment of $5 million to CHS in each year. These payments will continue on a yearly basis until the earlier of the date that our credit rating is upgraded to or above certain levels by two of the three specified credit rating agencies or February 1, 2026. This obligation is recognized on our consolidated balance sheets as an embedded derivative. As of December 31, 2018 and 2017, the embedded derivative liability of $21 million and $25 million, respectively, is included in other current liabilities and other liabilities on our consolidated balance sheets. Included in other operating—net in our consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016 is a net loss of $1 million, $4 million and $23 million, respectively.

The inputs into the fair value measurement include the probability of future upgrades and downgrades of our credit rating based on historical credit rating movements of other public companies and the discount rates to be applied to potential annual payments based on applicable credit spreads of other public companies at different credit rating levels. Based on these inputs, our fair value measurement is classified as Level 2.

See Note 17—Noncontrolling Interests for additional information regarding our strategic venture with CHS.

CF INDUSTRIES HOLDINGS, INC.

Financial Instruments

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

	December 31,
	2018								2017
	Carrying Amount				Fair Value				Carrying Amount				Fair Value
	(in millions)
Long-term debt	$	4,698			$	4,265			$	4,692			$	4,800

The fair value of our long-term debt was based on quoted prices for identical or similar liabilities in markets that are not active or valuation models in which all significant inputs and value drivers are observable and, as a result, they are classified as Level 2 inputs.

The carrying amounts of cash and cash equivalents, as well as instruments included in other current assets and other current liabilities that meet the definition of financial instruments, approximate fair values because of their short-term maturities.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We also have assets and liabilities that may be measured at fair value on a nonrecurring basis; that is, the assets and liabilities are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment, when there is allocation of purchase price in an acquisition or when a new liability is being established that requires fair value measurement. These include long-lived assets, goodwill and other intangible assets and investments in unconsolidated subsidiaries, such as equity method investments, which may be written down to fair value as a result of impairment. The fair value measurements related to each of these rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets. Since certain of the Company’s assumptions would involve inputs that are not observable, these fair values would reside within Level 3 of the fair value hierarchy.

We review the carrying value of our goodwill, definite lived intangible assets, and investments in unconsolidated subsidiaries to assess recoverability as part of our annual impairment review in the fourth quarter of each year. As part of the assessment process when performing impairment tests, we estimate many factors including future sales volume, selling prices, raw materials costs, operating rates, operating expenses, inflation, discount rates, exchange rates, tax rates and capital spending. The assumptions we make are material estimates that are used in the impairment testing.

Our equity method investment in the Republic of Trinidad and Tobago, PLNL, operates an ammonia plant that relies on natural gas supplied by NGC pursuant to the NGC Contract. As part of our impairment assessment of our equity method investment in PLNL during the fourth quarter of 2016, we determined the carrying value exceeded the fair value and recognized a $134 million impairment charge in 2016. See Note 8—Equity Method Investments for additional information.

CF INDUSTRIES HOLDINGS, INC.

10. Income Taxes

Income Tax Provision (Benefit)

The components of earnings (loss) before income taxes and the components of our income tax provision (benefit) are as follows:

	Year ended December 31,
	2018				2017				2016
	(in millions)
Domestic	$	516			$	(186	)		$	(43	)
Non-U.S.	31				61				(183		)
Earnings (loss) before income taxes	$	547			$	(125	)		$	(226	)

Current
Federal	$	5			$	(43	)		$	(795	)
Foreign	14				19				11
State	6				(6		)		(23		)
	25				(30		)		(807		)
Deferred
Federal	85				(44		)		761
Foreign	(10		)		(3		)		(1		)
State	3				(7		)		(21		)
	78				(54		)		739
Income tax provision (benefit) before Tax Reform	103				(84		)		(68		)
Tax Reform - Current
Federal	19				54				—
Foreign	—				—				—
State	(3		)		3				—
	16				57				—
Tax Reform - Deferred
Federal	—				(548		)		—
Foreign	—				—				—
State	—				—				—
	—				(548		)		—
Income tax provision (benefit) - Tax Reform	16				(491		)		—
Income tax provision (benefit)	$	119			$	(575	)		$	(68	)

Tax Reform

During the fourth quarter of 2017, we recorded the impact of the Tax Cuts and Jobs Act (the “Tax Act” or “Tax Reform”) that was enacted on December 22, 2017, including a provisional amount for the impact of the transition tax liability based on amounts reasonably estimable. A $16 million increase to the provisional amount of the transition tax liability was recorded in 2018. The adjustment to the provisional amount was required to properly reflect the inclusion of amounts subject to the transition tax in tax returns where the amounts were to be reported. The adjustments related to changes in (i) the amount of includible income subject to the transition tax; (ii) the computation of the allowable foreign tax credits against the transition tax liability and (iii) the allocation of certain gains and losses to various foreign tax credit baskets. The adjustment to the provisional amount represents an approximate 3 percentage point increase to our effective tax rate for the year ended December 31, 2018.

CF INDUSTRIES HOLDINGS, INC.

The Tax Act also provided a new category of income from foreign operations, Global Intangible Low-Taxed Income (GILTI), that is subject to federal income tax beginning in the year ended December 31, 2018. The U.S. tax on foreign earnings in the effective tax rate table below includes $12 million for our tax on GILTI. In 2018, we also recorded a $13 million foreign tax credit related to GILTI and a corresponding increase in the valuation allowance due to the limitation on realization of the credit.

The Tax Act also adopted new rules imposing a limitation of the ability of corporations to deduct net business interest expense. This provision limits the deduction of net business interest expense to thirty percent of Adjusted Taxable Income. For calendar year 2018, we do not expect to have any of our net business interest expense disallowed under this provision.

During 2018, the United States Internal Revenue Service (IRS) issued proposed regulations clarifying and implementing a number of provisions contained within the Tax Act (the Proposed Regulations). While the Proposed Regulations are not final and there is no assurance that when finally enacted, the enacted regulations will be the same as the Proposed Regulations, we have computed our 2018 income tax provision and related balance sheet accounts reflecting the provisions of the Proposed Regulations.

Effective Tax Rate

Differences in the expected income tax provision (benefit) based on statutory rates applied to earnings (loss) before income taxes and the income tax provision (benefit) reflected in the consolidated statements of operations are summarized below.

	Year ended December 31,
	2018				2017				2016
	(in millions, except percentages)
Earnings (loss) before income taxes	$	547			$	(125	)		$	(226	)
Expected tax provision (benefit) at U.S. statutory rate (21% in 2018, 35% in 2017 and 2016)	$	115			$	(44	)		$	(79	)
State income taxes, net of federal	3				(21		)		(33		)
Net earnings attributable to noncontrolling interests	(29		)		(32		)		(42		)
U.S. manufacturing profits deduction	—				6				39
Foreign tax rate differential	—				(6		)		30
U.S. tax on foreign earnings (including GILTI in 2018)	12				1				(10		)
Valuation allowance	4				(3		)		50
Non-deductible capital costs	—				—				(17		)
Tax rate change	(2		)		17				—
Other	—				(2		)		(6		)
U.S. enacted tax rate change (Tax Reform)	—				(552		)		—
Transition tax liability and other (Tax Reform)	16				61				—
Income tax provision (benefit)	$	119			$	(575	)		$	(68	)
Effective tax rate	21.7		%		457.2		%		30.0		%
Income tax provision (benefit) before Tax Reform(1)	$	103			$	(84	)		$	(68	)
Effective tax rate before Tax Reform	18.7		%		67.0		%		30.0		%

---

(1)	Income tax provision (benefit) before Tax Reform reflects the income tax provision (benefit) less the Tax Reform impacts included in the table above consisting of U.S. enacted tax rate change (Tax Reform) and transition tax liability and other.

On April 2, 2018, we acquired the TNCLP Public Units. Our effective tax rate in 2018 is impacted by a $16 million reduction to our deferred tax liability as a result of the change in our effective state income tax rate as a result of the implementation of legal entity structure changes related to the acquisition. See Note 17—Noncontrolling Interests for additional information.

State income taxes for the years ended December 31, 2018, 2017 and 2016 includes a tax benefit of $3 million, $30 million and $46 million, respectively, net of federal tax effect, for state net operating loss carryforwards.

CF INDUSTRIES HOLDINGS, INC.

State income taxes for the years ended December 31, 2018, 2017 and 2016, were also impacted by state tax credits of $18 million, $1 million and $13 million, respectively, net of federal tax effect, principally related to the generation of new jobs at our capital expansion project in Iowa as well as capital assets placed in service at our production facilities in Oklahoma. Most of these credits have been recorded as deferred tax assets and will be available to offset state income tax liabilities in future tax years. Due to limitations on the availability of some of these credits in future tax years, a valuation allowance of $11 million was recorded in the year ended December 31, 2018.

The foreign tax rate differential is impacted by the inclusion of equity earnings from our equity method investment in PLNL, a foreign operating affiliate, which are included in pre-tax earnings on an after-tax basis and the tax effect of net operating losses of a foreign subsidiary of the Company for which a valuation allowance has been recorded. We determined the carrying value of our equity method investment in PLNL exceeded fair value and recognized an impairment of our equity method investment in PLNL of $134 million in the fourth quarter of 2016. The impairment is included in equity in earnings of operating affiliates. Our income tax provision does not include a tax benefit for the impairment of our equity method investment as the impairment does not give rise to a tax deduction. See Note 8—Equity Method Investments for additional information.

Our effective tax rate is impacted by earnings attributable to noncontrolling interests in CFN and, prior to April 2, 2018, TNCLP, as our consolidated income tax provision (benefit) does not include a tax provision on the earnings attributable to the noncontrolling interests. As a result, earnings attributable to the noncontrolling interests of $138 million, $92 million and $119 million in 2018, 2017 and 2016, respectively, which are included in earnings (loss) before income taxes, impact the effective tax rate in all three years. See Note 17—Noncontrolling Interests for additional information.

We recorded an income tax receivable of approximately $22 million as a result of the carryback of the tax net operating loss for the year ended December 31, 2017 to prior tax years. The tax receivable from the net operating loss carryback has been reduced by an alternative minimum tax of $36 million in the carryback periods. The alternative minimum tax incurred as a result of the carryback of the net operating loss became a refundable tax credit as a result of the impact of the Tax Act. These refundable tax credits are available for tax years subsequent to the tax year ended December 31, 2018 and are recorded in our noncurrent income tax receivable. The $22 million income tax receivable for the net operating loss carryback is included in prepaid income taxes on our consolidated balance sheet as of December 31, 2018. The remaining federal net operating loss carryforward at December 31, 2018 is approximately $258 million and is available until the tax year 2037.

On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) was signed into law and was applicable to tax years 2015 through 2019. One of the provisions of the PATH Act permitted companies to deduct 50% of their capital expenditures for federal income tax purposes in the year qualifying assets were placed into service. We recorded a federal tax receivable of approximately $816 million for the year ended December 31, 2016 as a result of our intention at that time to carryback the tax net operating loss that was principally the result of this tax law change. The tax receivable was primarily associated with completion of the new capacity expansion projects that were placed into service at our Donaldsonville, Louisiana and Port Neal, Iowa complexes during November and December of 2016. The tax receivable is included in prepaid income taxes on our consolidated balance sheet as of December 31, 2016 and was received in the second quarter of 2017.

The income tax benefits for the years ended December 31, 2017 and 2016 include the tax impact of the U.S. manufacturing profits deductions claimed in prior years that will not be deductible as a result of the carryback of the tax net operating losses for these tax years.

Foreign subsidiaries of the Company have incurred capital losses of $116 million that are indefinitely available to offset capital gains in the applicable foreign jurisdictions. As the future realization of these carryforwards is not anticipated, a valuation allowance of $29 million was recorded in the year ended December 31, 2016.

Non-deductible capital costs for the tax year ended December 31, 2016 include certain transaction costs capitalized in the prior year that are now deductible as a result of the termination of the proposed combination with certain businesses of OCI N.V. (OCI).

The foreign tax rate differential for the tax year ended December 31, 2016 includes a $5 million deferred tax benefit for an enacted tax rate change.

CF INDUSTRIES HOLDINGS, INC.

Deferred Taxes

Deferred tax assets and deferred tax liabilities are as follows:

	December 31,
	2018				2017
	(in millions)
Deferred tax assets:
Net operating loss and capital loss carryforwards	$	271			$	359
Retirement and other employee benefits	57				67
Unrealized loss on hedging derivatives	3				6
Intangible asset	—				5
Other	151				115
	482				552
Valuation allowance	(173		)		(156		)
	309				396
Deferred tax liabilities:
Depreciation and amortization	(262		)		(256		)
Investments in partnerships	(1,121		)		(1,151		)
Foreign earnings	(28		)		(28		)
Other	(15		)		(8		)
	(1,426		)		(1,443		)
Net deferred tax liability	$	(1,117	)		$	(1,047	)

A foreign subsidiary of the Company has net operating loss carryforwards of $379 million that are indefinitely available in the foreign jurisdiction. As the future realization of these carryforwards is not anticipated, a valuation allowance of $99 million has been recorded. Of this amount, $7 million and $11 million were recorded as valuation allowances in the years ended December 31, 2018 and 2017, respectively.

We consider the earnings of certain of our Canadian operating subsidiaries to not be permanently reinvested and we recognize a deferred tax liability for the future repatriation of these earnings, as they are earned. As of December 31, 2018, we have recorded a deferred income tax liability of approximately $28 million, which reflects the additional U.S. and foreign income taxes that would be due upon the repatriation of the accumulated earnings of our non-U.S. subsidiaries that are considered to not be permanently reinvested.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	December 31,
	2018				2017
	(in millions)
Unrecognized tax benefits:
Beginning balance	$	122			$	134
Additions for tax positions taken during the current year	—				—
Additions for tax positions taken during prior years	4				—
Reductions related to lapsed statutes of limitations	—				(11		)
Reductions related to settlements with tax jurisdictions	—				(1		)
Ending balance	$	126			$	122

Our effective tax rate would be affected by $95 million if these unrecognized tax benefits were to be recognized in the future.

CF INDUSTRIES HOLDINGS, INC.

We file federal, provincial, state and local income tax returns principally in the United States, Canada and the United Kingdom, as well as in certain other foreign jurisdictions. In general, filed tax returns remain subject to examination by United States tax jurisdictions for years 1999 and thereafter, by Canadian tax jurisdictions for years 2006 and thereafter, and by United Kingdom tax jurisdictions for years 2016 and thereafter. Our income tax liability or transition tax expense could be impacted by the finalization of currently on-going U.S. or foreign income tax audits of prior tax years falling before the date of enactment of the Tax Act or audits by the U.S. or foreign taxing authorities, which change the amount of our total income allocable to and taxed in the United States or a foreign country.

During the third quarter of 2016, one of our Canadian subsidiaries received a Notice of Reassessment from the Canada Revenue Agency (CRA) for tax years 2006 through 2009 asserting a disallowance of certain patronage allocations. The tax assessment of CAD $174 million (or approximately $128 million), including provincial taxes but excluding any interest or penalties, is the result of an audit that was initiated by the CRA in January 2010 and involves the sole issue of whether certain patronage allocations meet the requirements for deductibility under the Income Tax Act of Canada. The reassessment has been appealed and a letter of credit in the amount of CAD $98 million (or approximately $72 million) has been posted. We believe that it is more likely than not that the patronage allocation deduction will ultimately be sustained. In the event that we do not prevail in the appeal, we should be entitled to a U.S. foreign tax credit against any incremental Canadian tax paid. This issue is currently under review by the competent authorities of Canada and the United States.

Interest expense and penalties of $1 million, $2 million, and $4 million were recorded for the years ended December 31, 2018, 2017 and 2016, respectively. Amounts recognized in our consolidated balance sheets for accrued interest and penalties related to income taxes of $29 million as of December 31, 2018 and 2017, are included in other liabilities.

CF INDUSTRIES HOLDINGS, INC.

11. Pension and Other Postretirement Benefits

We maintain five funded pension plans, consisting of three in North America (one U.S. plan and two Canadian plans) and two in the United Kingdom. One of our Canadian plans is closed to new employees and the two United Kingdom plans are closed to new employees and future accruals. The portion of the U.S. plan that is open to new employees is a cash balance plan, which provides benefits based on years of service and interest credits. We also provide group medical insurance benefits to certain retirees in North America. The specific medical benefits provided to retirees vary by group and location.

Our plan assets, benefit obligations, funded status and amounts recognized on our consolidated balance sheets for our North America and United Kingdom plans as of the December 31 measurement date are as follows:

	Pension Plans																Retiree Medical Plans
	North America								United Kingdom								North America
	December 31,								December 31,								December 31,
	2018				2017				2018				2017				2018				2017
	(in millions)
Change in plan assets
Fair value of plan assets as of January 1	$	738			$	636			$	414			$	366			$	—			$	—
Return on plan assets	(25		)		70				(11		)		16				—				—
Employer contributions	13				63				26				19				4				5
Plan participant contributions	—				—				—				—				1				1
Benefit payments	(42		)		(40		)		(23		)		(22		)		(5		)		(6		)
Foreign currency translation	(11		)		9				(23		)		35				—				—
Fair value of plan assets as of December 31	673				738				383				414				—				—
Change in benefit obligation
Benefit obligation as of January 1	(805		)		(759		)		(590		)		(559		)		(53		)		(52		)
Service cost	(15		)		(14		)		—				—				—				—
Interest cost	(28		)		(30		)		(14		)		(16		)		(2		)		(2		)
Benefit payments	42				40				23				22				5				6
Foreign currency translation	11				(9		)		31				(52		)		—				—
Plan amendment	—				—				(5		)		—				—				—
Plan participant contributions	—				—				—				—				(1		)		(1		)
Change in assumptions and other	53				(33		)		31				15				8				(4		)
Benefit obligation as of December 31	(742		)		(805		)		(524		)		(590		)		(43		)		(53		)
Funded status as of year end	$	(69	)		$	(67	)		$	(141	)		$	(176	)		$	(43	)		$	(53	)

In the table above, the line titled “Plan amendment” relates to Guaranteed Minimum Pension equalization due to a U.K. High Court ruling that occurred in 2018.

The line titled “Change in assumptions and other” for our North America pension plans primary reflects the impact of gains due to the increase in discount rates for 2018, and for 2017, losses due to the decrease in discount rates and, to a lesser extent, gains on adopting new mortality assumptions for our U.S. plan and gains on plan experience for participant demographic changes.

The line titled “Change in assumptions and other” for our U.K. plans primarily reflects gains due to the increase in discount rates offset partially by losses due to the increase of inflation rate assumptions for 2018, and for 2017, losses due to the decrease in discount rates, gains on adopting new mortality assumptions, and gains on plan experience for participant demographic changes.

The line titled “Change in assumptions and other” for our retiree medical plans primarily reflects gains due to the increase in discount rates for 2018, and for 2017, losses due to the decrease in discount rates.

CF INDUSTRIES HOLDINGS, INC.

Amounts recognized on the consolidated balance sheets consist of the following:

	Pension Plans																Retiree Medical Plans
	North America								United Kingdom								North America
	December 31,								December 31,								December 31,
	2018				2017				2018				2017				2018				2017
	(in millions)
Other assets	$	9			$	10			$	—			$	—			$	—			$	—
Accrued expenses	—				—				—				—				(4		)		(4		)
Other liabilities	(78		)		(77		)		(141		)		(176		)		(39		)		(49		)
	$	(69	)		$	(67	)		$	(141	)		$	(176	)		$	(43	)		$	(53	)

Pre-tax amounts recognized in accumulated other comprehensive loss consist of the following:

	Pension Plans																Retiree Medical Plans
	North America								United Kingdom								North America
	December 31,								December 31,								December 31,
	2018				2017				2018				2017				2018				2017
	(in millions)
Prior service cost (benefit)	$	—			$	1			$	5			$	—			$	(1	)		$	(2	)
Net actuarial loss	79				80				66				73				4				12
	$	79			$	81			$	71			$	73			$	3			$	10

Net periodic benefit cost (income) and other amounts recognized in accumulated other comprehensive loss for the years ended December 31 included the following:

	Pension Plans																								Retiree Medical Plans
	North America												United Kingdom												North America
	2018				2017				2016				2018				2017				2016				2018				2017				2016
	(in millions)
Service cost	$	15			$	14			$	14			$	—			$	—			$	—			$	—			$	—			$	—
Interest cost	28				30				31				14				16				19				2				2				2
Expected return on plan assets	(31		)		(26		)		(30		)		(17		)		(18		)		(20		)		—				—				—
Amortization of prior service (benefit) cost	—				—				—				—				—				—				(1		)		(1		)		(1		)
Amortization of actuarial loss (gain)	3				1				1				—				1				—				(1		)		(1		)		(1		)
Net periodic benefit cost (income)	15				19				16				(3		)		(1		)		(1		)		—				—				—
Net actuarial loss (gain)	3				(11		)		4				(3		)		(13		)		94				(8		)		5				(2		)
Prior service cost	—				—				—				5				—				—				—				—				—
Amortization of prior service benefit	—				—				—				—				—				—				1				1				1
Amortization of actuarial (loss) gain	(3		)		(1		)		(1		)		—				(1		)		—				1				1				—
Total recognized in accumulated other comprehensive loss	—				(12		)		3				2				(14		)		94				(6		)		7				(1		)
Total recognized in net periodic benefit cost (income) and accumulated other comprehensive loss	$	15			$	7			$	19			$	(1	)		$	(15	)		$	93			$	(6	)		$	7			$	(1	)

In the table above, the line titled “Prior service cost” relates to a plan amendment due to the Guaranteed Minimum Pension equalization resulting from a U.K. High Court ruling that occurred in 2018.

CF INDUSTRIES HOLDINGS, INC.

As a result of our adoption of ASU No. 2017-07 on January 1, 2018, only service costs are recognized in cost of sales and selling, general and administrative expenses, and other costs are recognized in other non-operating—net on our consolidated statements of operations. Our adoption of this ASU was applied retrospectively, which resulted in $5 million and $4 million of net benefit cost previously recognized in cost of sales and selling, general and administrative expenses for the years ended December 31, 2017 and 2016, respectively, to be reclassified to other non-operating—net on our consolidated statements of operations.

The accumulated benefit obligation (ABO) in aggregate for the defined benefit pension plans in North America was approximately $703 million and $759 million as of December 31, 2018 and December 31, 2017, respectively. The ABO in aggregate for the defined benefit pension plans in the United Kingdom was approximately $524 million and $590 million as of December 31, 2018 and December 31, 2017, respectively.

The following table presents aggregated information for those individual defined benefit pension plans that have an ABO in excess of plan assets as of December 31, which excludes two North American defined benefit pension plans that have plan assets in excess of its ABO:

	North America								United Kingdom
	2018				2017				2018				2017
	(in millions)
Accumulated benefit obligation	$	(585	)		$	(629	)		$	(524	)		$	(590	)
Fair value of plan assets	537				590				383				414

The following table presents aggregated information for those individual defined benefit pension plans that have a PBO in excess of plan assets as of December 31, which excludes one North American defined benefit pension plan that has plan assets in excess of its PBO:

	North America								United Kingdom
	2018				2017				2018				2017
	(in millions)
Projected benefit obligation	$	(684	)		$	(739	)		$	(524	)		$	(590	)
Fair value of plan assets	606				663				383				414

Our pension funding policy in North America is to contribute amounts sufficient to meet minimum legal funding requirements plus discretionary amounts that we may deem to be appropriate. Actual contributions may vary from estimated amounts depending on changes in assumptions, actual returns on plan assets, changes in regulatory requirements and funding decisions.

In accordance with United Kingdom pension legislation, our United Kingdom pension funding policy is to contribute amounts sufficient to meet the funding level target agreed between the employer and the trustees of the United Kingdom plans. Actual contributions are usually agreed with the plan trustees in connection with each triennial valuation and may vary following each such review depending on changes in assumptions, actual returns on plan assets, changes in regulatory requirements and funding decisions.

We currently estimate that our consolidated pension funding contributions for 2019 will be approximately $40 million for the North America plans and $22 million for the United Kingdom plans.

CF INDUSTRIES HOLDINGS, INC.

The expected future benefit payments for our pension and retiree medical plans are as follows:

	Pension Plans								Retiree Medical Plans
	North America				United Kingdom				North America
	(in millions)
2019	$	44			$	22			$	4
2020	45				23				4
2021	47				24				4
2022	48				24				3
2023	48				25				3
2024-2028	251				136				13

The following assumptions were used in determining the benefit obligations and expense:

	Pension Plans																		Retiree Medical Plans
	North America									United Kingdom									North America
	2018			2017			2016			2018			2017			2016			2018			2017			2016
Weighted-average discount rate—obligation	4.1	%		3.6	%		4.0	%		2.9	%		2.5	%		2.8	%		4.1	%		3.4	%		3.8	%
Weighted-average discount rate—expense	3.6	%		4.0	%		4.3	%		2.5	%		2.8	%		3.8	%		3.4	%		3.8	%		3.9	%
Weighted-average cash balance interest crediting rate—obligation	3.0	%		3.0	%		3.0	%		n/a			n/a			n/a			n/a			n/a			n/a
Weighted-average cash balance interest crediting rate—expense	3.0	%		3.0	%		3.0	%		n/a			n/a			n/a			n/a			n/a			n/a
Weighted-average rate of increase in future compensation	4.3	%		4.3	%		4.3	%		n/a			n/a			n/a			n/a			n/a			n/a
Weighted-average expected long-term rate of return on assets—expense	4.5	%		4.2	%		4.9	%		4.2	%		4.6	%		5.2	%		n/a			n/a			n/a
Weighted-average retail price index—obligation	n/a			n/a			n/a			3.3	%		3.2	%		3.3	%		n/a			n/a			n/a
Weighted-average retail price index—expense	n/a			n/a			n/a			3.2	%		3.3	%		3.1	%		n/a			n/a			n/a

---

n/a—not applicable

The discount rates for all plans are developed by plan using spot rates derived from a yield curve of high quality (AA rated or better) fixed income debt securities as of the year-end measurement date to calculate discounted cash flows (the projected benefit obligation) and solving for a single equivalent discount rate that produces the same projected benefit obligation. In determining our benefit obligation, we use the actuarial present value of the vested benefits to which each eligible employee is currently entitled, based on the employee’s expected date of separation or retirement.

The cash balance interest crediting rate for the U.S. plan is based on the greater of 10-year Treasuries or 3.00%.

For our North America plans, the expected long-term rate of return on assets is based on analysis of historical rates of return achieved by equity and non-equity investments and current market characteristics, adjusted for estimated plan expenses and weighted by target asset allocation percentages. As of January 1, 2019, our weighted-average expected long-term rate of return on assets is 4.6%, which will be used in determining expense for 2019.

For our United Kingdom plans, the expected long-term rate of return on assets is based on the expected long-term performance of the underlying investments, adjusted for investment managers’ fees. As of January 1, 2019, our weighted-average expected long-term rate of return on assets is 4.4%, which will be used in determining expense for 2019.

The retail price index for the United Kingdom plans is developed using the Bank of England implied retail price inflation curve, which is based on the difference between yields on fixed interest government bonds and index-linked government bonds.

For the measurement of the benefit obligation at December 31, 2018 for our primary (U.S.) retiree medical benefit plans, the assumed health care cost trend rates, for pre-65 retirees, start with a 7.5% increase in 2019, followed by a gradual decline in increases to 4.5% for 2026 and thereafter. For post-65 retirees, the assumed health care cost trend rates start with a 8.8%

CF INDUSTRIES HOLDINGS, INC.

increase in 2019, followed by a gradual decline in increases to 4.5% for 2026 and thereafter. For the measurement of the benefit obligation at December 31, 2017 for our primary (U.S.) retiree medical benefit plans, the assumed health care cost trend rates, for pre-65 retirees, start with a 8.0% increase in 2018, followed by a gradual decline in increases to 4.5% for 2026 and thereafter. For post-65 retirees, the assumed health care cost trend rates start with a 9.5% increase in 2018, followed by a gradual decline in increases to 4.5% for 2026 and thereafter.

The objectives of the investment policies governing the pension plans are to administer the assets of the plans for the benefit of the participants in compliance with all laws and regulations, and to establish an asset mix that provides for diversification and considers the risk of various different asset classes with the purpose of generating favorable investment returns. The investment policies consider circumstances such as participant demographics, time horizon to retirement and liquidity needs, and provide guidelines for asset allocation, planning horizon, general portfolio issues and investment manager evaluation criteria. The investment strategies for the plans, including target asset allocations and investment vehicles, are subject to change within the guidelines of the policies.

The target asset allocation for our U.S. pension plan is 80% non-equity and 20% equity, which has been determined based on analysis of actual historical rates of return and plan needs and circumstances. The equity investments are tailored to exceed the growth of the benefit obligation and are a combination of U.S. and non-U.S. total stock market index mutual funds. The non-equity investments consist primarily of investments in debt securities and money market instruments that are selected based on investment quality and duration to mitigate volatility of the funded status and annual required contributions. The non-equity investments have a duration profile that is similar to the benefit obligation in order to mitigate the impact of interest rate changes on the funded status. This investment strategy is achieved through the use of mutual funds and individual securities.

The target asset allocation for one of the Canadian plans is 60% non-equity and 40% equity, and 100% non-equity for the other Canadian plan. The equity investments are passively managed portfolios that diversify assets across multiple securities, economic sectors and countries. The non-equity investments are high quality passively managed portfolios that diversify assets across economic sectors, countries and maturity spectrums. This investment strategy is achieved through the use of mutual funds.

The pension assets in the United Kingdom plans are each administered by a Board of Trustees consisting of employer nominated trustees, member nominated trustees and an independent trustee. Trustees may be appointed or removed by CF Fertilisers UK Group Limited (formerly known as GrowHow UK Group Limited) (CF Fertilisers UK), provided CF Fertilisers UK fulfills its obligation to have at least one third of the Board of Trustees as member nominated. It is the responsibility of the trustees to ensure prudent management and investment of the assets in the plans. The trustees meet on a quarterly basis to review and discuss fund performance and other administrative matters.

The trustees’ investment objectives are to hold assets that generate returns sufficient to cover prudently each plan’s liability without exposing the plans to unacceptable risk. This is accomplished through the asset allocation strategy of each plan. For both plans, if the asset allocation moves more than plus or minus 5% from the benchmark allocation, the trustees may decide to amend the asset allocation. At a minimum, the trustees review the investment strategy at every triennial actuarial valuation to ensure that the strategy remains consistent with its funding principles. The trustees may review the strategy more frequently if opportunities arise to reduce risk within the investments without jeopardizing the funding position.

Assets of the United Kingdom plans are invested in externally managed pooled funds. The target asset allocation for one of the United Kingdom plans is 55% actively managed target return funds, 30% actively and passively managed bond and gilt funds and 15% actively managed property funds. The target asset allocation for the other United Kingdom plan is 50% actively managed target return funds, 45% actively and passively managed bond and gilt funds and 5% in an actively managed property fund. The target return funds diversify assets across multiple asset classes (which may include, among others, traditional equities and bonds) and may use derivatives. The bond and gilt funds generally invest in fixed income debt securities including government bonds, gilts, high yield and emerging market bonds, and investment grade corporate bonds and may use derivatives. The property funds are invested predominately in freehold and leasehold property.

CF INDUSTRIES HOLDINGS, INC.

The fair values of our pension plan assets as of December 31, 2018 and 2017, by major asset class, are as follows:

	North America
	December 31, 2018
	Total Fair Value				Quoted Prices in Active Markets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
	(in millions)
Cash and cash equivalents(1)	$	19			$	—			$	19			$	—
Equity mutual funds
Index equity(2)	99				99				—				—
Pooled equity(3)	27				—				27				—
Fixed income
U.S. Treasury bonds and notes(4)	34				34				—				—
Pooled mutual funds(5)	109				—				109				—
Corporate bonds and notes(6)	376				—				376				—
Government and agency securities(7)	7				—				7				—
Other(8)	3				—				3				—
Total assets at fair value by fair value levels	$	674			$	133			$	541			$	—
Accruals and payables—net	(1		)
Total assets	$	673

	United Kingdom
	December 31, 2018
	Total Fair Value				Quoted Prices in Active Markets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
	(in millions)
Cash	$	2			$	2			$	—			$	—
Pooled target return funds(9)	194				—				194				—
Fixed income													—
Pooled UK government index-linked securities(10)	29				—				29				—
Pooled global fixed income funds(11)	116				—				116				—
Total assets at fair value by fair value levels	$	341			$	2			$	339			$	—
Pooled property funds measured at NAV as a practical expedient(12)	42
Total assets	$	383

CF INDUSTRIES HOLDINGS, INC.

	North America
	December 31, 2017
	Total Fair Value				Quoted Prices in Active Markets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
	(in millions)
Cash and cash equivalents(1)	$	26			$	—			$	26			$	—
Equity mutual funds
Index equity(2)	136				136				—				—
Pooled equity(3)	42				—				42				—
Fixed income
U.S. Treasury bonds and notes(4)	15				15				—				—
Pooled mutual funds(5)	106				—				106				—
Corporate bonds and notes(6)	400				—				400				—
Government and agency securities(7)	9				—				9				—
Other(8)	3				—				3				—
Total assets at fair value by fair value levels	$	737			$	151			$	586			$	—
Receivables—net	1
Total assets	$	738

	United Kingdom
	December 31, 2017
	Total Fair Value				Quoted Prices in Active Markets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
	(in millions)
Cash	$	5			$	5			$	—			$	—
Pooled target return funds(9)	213				—				213				—
Fixed income
Pooled UK government index-linked securities(10)	31				—				31				—
Pooled global fixed income funds(11)	122				—				122				—
Total assets at fair value by fair value levels	$	371			$	5			$	366			$	—
Pooled property funds measured at NAV as a practical expedient(12)	43
Total assets	$	414

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(1)	Cash and cash equivalents are primarily repurchase agreements and short-term money market funds.

(2)	The index equity funds are mutual funds that utilize a passively managed investment approach designed to track specific equity indices. They are valued at quoted market prices in an active market, which represent the net asset values of the shares held by the plan.

(3)	The equity pooled mutual funds consist of pooled funds that invest in common stock and other equity securities that are traded on U.S., Canadian, and foreign markets.

(4)	U.S. Treasury bonds and notes are valued based on quoted market prices in an active market.

(5)	The fixed income pooled mutual funds invest in investment-grade corporate debt, various governmental debt obligations, and mortgage-backed securities with varying maturities.

(6)	Corporate bonds and notes, including private placement securities, are valued by institutional bond pricing services, which gather information from market sources and integrate credit information, observed market movements and sector news into their pricing applications and models.

CF INDUSTRIES HOLDINGS, INC.

(7)	Government and agency securities consist of municipal bonds that are valued by institutional bond pricing services, which gather information on current trading activity, market movements, trends, and specific data on specialty issues.

(8)	Other includes primarily mortgage-backed and asset-backed securities, which are valued by institutional pricing services, which gather information from market sources and integrate credit information, observed market movements and sector news into their pricing applications and models.

(9)	Pooled target return funds invest in a broad array of asset classes and a range of diversifiers including the use of derivatives. The funds are valued at net asset value (NAV) as determined by the fund managers based on the value of the underlying net assets of the fund.

(10)	Pooled United Kingdom government index-linked funds invest primarily in United Kingdom government index-linked gilt securities. The funds are valued at NAV as determined by the fund managers based on the value of the underlying net assets of the fund.

(11)	Pooled global fixed income funds invest primarily in government bonds, investment grade corporate bonds, high yield and emerging market bonds and can make use of derivatives. The funds are valued at NAV as determined by the fund managers based on the value of the underlying net assets of the fund.

(12)	Pooled property funds invest primarily in freehold and leasehold property in the United Kingdom. The funds are valued using NAV as a practical expedient. NAV is determined by the fund managers based on the value of the underlying net assets of the fund.

We have defined contribution plans covering substantially all employees in North America and the United Kingdom. Depending on the specific provisions of each plan, qualified employees receive company contributions based on a percentage of base salary, matching of employee contributions up to specified limits, or a combination of both. In 2018, 2017, and 2016, we recognized expense related to company contributions to the defined contribution plans of $18 million, $18 million, and $16 million, respectively.

In addition to our qualified defined benefit pension plans, we also maintain certain nonqualified supplemental pension plans for highly compensated employees as defined under federal law. The amounts recognized in accrued expenses and other liabilities in our consolidated balance sheets for these plans were $2 million and $15 million as of December 31, 2018 and $2 million and $16 million as of December 31, 2017, respectively. We recognized expense for these plans of $1 million, $2 million, and $3 million in 2018, 2017, and 2016, respectively. The expense recognized in 2017 and 2016 includes a settlement charge of $1 million in each year.

CF INDUSTRIES HOLDINGS, INC.

12. Financing Agreements

Revolving Credit Agreement

We have a senior secured revolving credit agreement (as amended, the Revolving Credit Agreement) providing for a revolving credit facility of up to $750 million with a maturity of September 18, 2020. 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 and general corporate purposes. CF Industries, the borrower under the Revolving Credit Agreement, may also designate as borrowers one or more wholly owned subsidiaries that are organized in the United States or any state thereof or the District of Columbia.

Borrowings under the Revolving Credit Agreement may be denominated in 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, and the borrowers are required to pay an undrawn commitment fee on the undrawn portion of the commitments under the Revolving Credit Agreement and customary letter of credit fees. The specified margin and the amount of the commitment fee depend on CF Holdings’ credit rating at the time.

The guarantors under the Revolving Credit Agreement are currently comprised of CF Holdings and CF Holdings’ wholly owned subsidiaries CF Industries Enterprises, LLC (CFE), CF Industries Sales, LLC (CFS) and CF USA Holdings, LLC (CF USA).

As of December 31, 2018, we had excess borrowing capacity under the Revolving Credit Agreement of $746 million (net of outstanding letters of credit of $4 million). There were no borrowings outstanding under the Revolving Credit Agreement as of December 31, 2018 or December 31, 2017, or during 2018 or 2017. Maximum borrowings outstanding under the Revolving Credit Agreement during the year ended December 31, 2016 were $150 million with a weighted-average annual interest rate of 1.85%.

The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants, including financial covenants. As of December 31, 2018, we were in compliance with all covenants under the Revolving Credit Agreement.

Letters of Credit

In addition to the letters of credit outstanding under the Revolving Credit Agreement, as described above, we have also entered into a bilateral agreement with capacity to issue letters of credit up to $125 million (reflecting an increase of $50 million in March 2018). As of December 31, 2018, approximately $114 million of letters of credit were outstanding under this agreement.

CF INDUSTRIES HOLDINGS, INC.

Senior Notes

Long-term debt presented on our consolidated balance sheets as of December 31, 2018 and 2017 consisted of the following Public Senior Notes (unsecured) and Senior Secured Notes issued by CF Industries:

	Effective Interest Rate		December 31, 2018								December 31, 2017
		Principal				Carrying Amount(1)				Principal				Carrying Amount(1)
			(in millions)
Public Senior Notes:
7.125% due May 2020	7.529%		500				497				500				496
3.450% due June 2023	3.562%		750				747				750				746
5.150% due March 2034	5.279%		750				740				750				739
4.950% due June 2043	5.031%		750				741				750				741
5.375% due March 2044	5.465%		750				741				750				741
Senior Secured Notes:
3.400% due December 2021	3.782%		500				495				500				493
4.500% due December 2026	4.759%		750				737				750				736
Total long-term debt			$	4,750			$	4,698			$	4,750			$	4,692

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(1)	Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discount was $11 million and $12 million as of December 31, 2018 and 2017, respectively, and total deferred debt issuance costs were $41 million and $46 million as of December 31, 2018 and 2017, respectively.

Public Senior Notes

Under the indentures (including the applicable supplemental indentures) governing the senior notes due 2020, 2023, 2034, 2043 and 2044 identified in the table above (the Public Senior Notes), each series of Public Senior Notes is guaranteed by CF Holdings and CF Holdings’ wholly owned subsidiaries CFE, CFS and CF USA. CFE, CFS and CF USA became subsidiary guarantors of the Public Senior Notes as a result of their becoming guarantors under the Revolving Credit Agreement. 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.

Senior Secured Notes

On November 21, 2016, CF Industries issued $500 million aggregate principal amount of 3.400% senior secured notes due 2021 (the 2021 Notes) and $750 million aggregate principal amount of 4.500% senior secured notes due 2026 (the 2026 Notes, and together with the 2021 Notes, the Senior Secured Notes). CF Holdings and the subsidiary guarantors of the Public Senior Notes are also guarantors of the Senior Secured Notes. Interest on the Senior Secured Notes is payable semiannually on December 1 and June 1 beginning on June 1, 2017, and the Senior Secured Notes are redeemable at our option, in whole at any time or in part from time to time, at specified make-whole redemption prices.

CF INDUSTRIES HOLDINGS, INC.

13. Interest Expense

Details of interest expense are as follows:

	Year ended December 31,
	2018				2017				2016
	(in millions)
Interest on borrowings(1)	$	228			$	300			$	303
Fees on financing agreements(1)(2)(3)	13				16				59
Interest on tax liabilities	1				1				4
Interest capitalized	(1		)		(2		)		(166		)
Interest expense	$	241			$	315			$	200

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(1)	See Note 12—Financing Agreements for additional information.

(2)	Fees on financing agreements for the year ended December 31, 2016 includes $28 million of fees related to the termination of the tranche B commitment under the bridge credit agreement as a result of the termination of our definitive agreement (as amended, the Combination Agreement) to combine with the European, North American and global distribution businesses of OCI.

(3)

Fees on financing agreements for the year ended December 31, 2016 includes $9 million of accelerated amortization of deferred fees related to the payment of the senior notes due 2022, 2025 and 2027 in November 2016, $2 million of accelerated amortization of deferred fees related to the July 2016 amendment to the Revolving Credit Agreement, which reduced the Revolving Credit Facility to $1.5 billion from $2.0 billion, and $4 million of accelerated amortization of deferred fees related to the November 2016 amendment to the Revolving Credit Agreement, which reduced the Revolving Credit Facility to $750 million from $1.5 billion. See Note 12—Financing Agreements for additional information.

CF INDUSTRIES HOLDINGS, INC.

14. Other Operating Expenses

Other operating—net

Details of other operating—net are as follows:

	Year ended December 31,
	2018				2017				2016
	(in millions)
Insurance proceeds(1)	$	(10	)		$	—			$	—
Loss on disposal of property, plant and equipment—net	6				3				10
Expansion project costs(2)	—				—				73
(Gain) loss on foreign currency transactions(3)	(5		)		2				93
Loss on embedded derivative(4)	1				4				23
Other	(19		)		9				9
Other operating—net	$	(27	)		$	18			$	208

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(1)	Income related to a property insurance claim at one of our nitrogen complexes.

(2)	Expansion project costs that did not qualify for capitalization include amounts related to administrative and consulting services for our capacity expansion projects in Port Neal, Iowa and Donaldsonville, Louisiana. Our capacity expansion projects were completed as of December 31, 2016.

(3)	(Gain) loss on foreign currency transactions primarily relates to the unrealized foreign currency exchange rate impact on intercompany debt that has not been permanently invested.

(4)	The loss on embedded derivative consists of unrealized and realized losses related to a provision of our strategic venture with CHS. See Note 9—Fair Value Measurements for additional information.

Transaction costs

Pursuant to the termination agreement entered into on May 22, 2016, under which CF Holdings, OCI and the other parties to the Combination Agreement agreed to terminate the Combination Agreement by mutual written consent, CF Holdings paid OCI a termination fee of $150 million, which is included in transaction costs in our consolidated statement of operations for the year ended December 31, 2016.

15. Derivative Financial Instruments

We may use derivative financial instruments to reduce our exposure to changes in commodity prices. Natural gas is the largest and most volatile component of the manufacturing cost for nitrogen-based products. We manage the risk of changes in natural gas prices primarily through the use of derivative financial instruments. The derivatives that we may use for this purpose are primarily natural gas fixed price swaps, natural gas basis swaps and natural gas options traded in the OTC markets. These natural gas derivatives settle using primarily a NYMEX futures price index, which represents the basis for fair value at any given time. We enter into natural gas derivative contracts with respect to natural gas to be consumed by us in the future, and settlements of those derivative contracts are scheduled to coincide with our anticipated purchases of natural gas used to manufacture nitrogen products during those future periods. We use natural gas derivatives as an economic hedge of natural gas price risk, but without the application of hedge accounting. As a result, changes in fair value of these contracts are recognized in earnings. As of December 31, 2018, we had natural gas basis swaps covering certain periods through March 2019.

As of December 31, 2018, we had open natural gas derivative contracts for 6.6 million MMBtus of natural gas basis swaps. As of December 31, 2017, we had open natural gas derivative contracts for 35.9 million MMBtus that included natural gas fixed price swaps and basis swaps. For the year ended December 31, 2018, we used derivatives to cover approximately 9% of our natural gas consumption.

CF INDUSTRIES HOLDINGS, INC.

The effect of derivatives in our consolidated statements of operations is shown in the table below.

	Gain (loss) recognized in income
			Year ended December 31,
	Location		2018				2017				2016
			(in millions)
Natural gas derivatives
Unrealized net gains (losses)	Cost of sales		13				(61		)		260
Realized net losses	Cost of sales		(2		)		(26		)		(133		)
Net derivative gains (losses)			$	11			$	(87	)		$	127

The fair values of derivatives on our consolidated balance sheets are shown below. As of December 31, 2018 and 2017, none of our derivative instruments were designated as hedging instruments. See Note 9—Fair Value Measurements for additional information on derivative fair values.

	Asset Derivatives										Liability Derivatives
	Balance Sheet Location		December 31,								Balance Sheet Location		December 31,
		2018				2017					2018				2017
			(in millions)										(in millions)
Natural gas derivatives	Other current assets		$	2			$	1			Other current liabilities		$	—			$	(12	)

The counterparties to our derivative contracts are multinational commercial banks, major financial institutions and large energy companies. Our derivatives are executed with several counterparties, generally under International Swaps and Derivatives Association (ISDA) agreements. The ISDA agreements are master netting arrangements commonly used for OTC 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. These rights are described further below:

•	Settlement netting generally allows us and our counterparties to net, into a single net payable or receivable, ordinary settlement obligations arising between us under the ISDA agreement on the same day, in the same currency, for the same types of derivative instruments, and through the same pairing of offices.

•

Close-out netting rights are provided in the event of a default or other termination event (as defined in the ISDA agreements), including bankruptcy. Depending on the cause of early termination, the non-defaulting party may elect to terminate all or some transactions outstanding under the ISDA agreement. The values of all terminated transactions and certain other payments under the ISDA agreement are netted, resulting in a single net close-out amount payable to or by the non-defaulting party. Termination values may be determined using a mark-to-market approach or based on a party’s good faith estimate of its loss. If the final net close-out amount is payable by the non-defaulting party, that party’s obligation to make the payment may be conditioned on factors such as the termination of all derivative transactions between the parties or payment in full of all of the defaulting party’s obligations to the non-defaulting party, in each case regardless of whether arising under the ISDA agreement or otherwise.

•

Setoff rights are provided by certain of our ISDA agreements and generally allow a non-defaulting party to elect to set off, against the final net close-out payment, other matured and contingent amounts payable between us and our counterparties under the ISDA agreement or otherwise. Typically, these setoff rights arise upon the early termination of all transactions outstanding under an ISDA agreement following a default or specified termination event.

CF INDUSTRIES HOLDINGS, INC.

Most of our ISDA agreements contain credit-risk-related contingent features such as cross default provisions and credit support thresholds. In the event of certain defaults or a credit ratings downgrade, our counterparty may request early termination and net settlement of certain derivative trades or may require us to collateralize derivatives in a net liability position. The Revolving Credit Agreement, at any time when it is secured, provides a cross collateral feature for those of our derivatives that are with counterparties that are party to, or affiliates of parties to, the Revolving Credit Agreement so that no separate collateral would be required for those counterparties in connection with such derivatives. In the event the Revolving Credit Agreement becomes unsecured, separate collateral could be required in connection with such derivatives. As of December 31, 2018 and 2017, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in net liability positions was zero and $12 million, respectively, which also approximates the fair value of the maximum amount of additional collateral that would need to be posted or assets needed to settle the obligations if the credit-risk-related contingent features were triggered at the reporting dates. As of December 31, 2018 and 2017, 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.

The following table presents amounts relevant to offsetting of our derivative assets and liabilities as of December 31, 2018 and 2017:

	Amounts presented in consolidated balance sheets(1)				Gross amounts not offset in consolidated balance sheets
		Financial instruments				Cash collateral received (pledged)				Net amount
	(in millions)
December 31, 2018
Total derivative assets	$	2			$	—			$	—			$	2
Total derivative liabilities	—				—				—				—
Net derivative assets	$	2			$	—			$	—			$	2
December 31, 2017
Total derivative assets	$	1			$	1			$	—			$	—
Total derivative liabilities	(12		)		(1		)		—				(11		)
Net derivative liabilities	$	(11	)		$	—			$	—			$	(11	)

---

(1)	We report the fair values of our derivative assets and liabilities on a gross basis on our consolidated balance sheets. As a result, the gross amounts recognized and net amounts presented are the same.

We do not believe the contractually allowed netting, close-out netting or setoff of amounts owed to, or due from, the counterparties to our ISDA agreements would have a material effect on our financial position.

16. Supplemental Balance Sheet Data

Accounts Receivable—Net

Accounts receivable—net consist of the following:

	December 31,
	2018				2017
	(in millions)
Trade	$	226			$	297
Other	9				10
Accounts receivable—net	$	235			$	307

Trade accounts receivable is net of an allowance for doubtful accounts of $3 million as of December 31, 2018 and 2017.

CF INDUSTRIES HOLDINGS, INC.

Inventories

Inventories consist of the following:

	December 31,
	2018				2017
	(in millions)
Finished goods	$	272			$	233
Raw materials, spare parts and supplies	37				42
Total inventories	$	309			$	275

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

	December 31,
	2018				2017
	(in millions)
Accounts payable	$	101			$	99
Accrued natural gas costs	129				109
Payroll and employee-related costs	79				65
Accrued interest	39				38
Accrued share repurchases	33				—
Other	164				161
Accounts payable and accrued expenses	$	545			$	472

Payroll and employee-related costs include accrued salaries and wages, vacation, incentive plans and payroll taxes.

Accrued interest includes interest payable on our outstanding senior notes. See Note 12—Financing Agreements and Note 13—Interest Expense for additional information.

Other includes accrued utilities, property taxes, sales incentives and other credits, accrued litigation settlement costs, accrued maintenance and professional services.

Other Current Liabilities

As of December 31, 2018, other current liabilities of $6 million includes $5 million representing the current portion of the unrealized loss on the embedded derivative liability related to our strategic venture with CHS. As of December 31, 2017, other current liabilities of $17 million consists of $12 million of unrealized loss on natural gas derivatives and $5 million of the current portion of the unrealized loss on the embedded derivative liability related to our strategic venture with CHS.

See Note 9—Fair Value Measurements, Note 15—Derivative Financial Instruments and Note 17—Noncontrolling Interests for additional information.

CF INDUSTRIES HOLDINGS, INC.

Other Liabilities

Other liabilities consist of the following:

	December 31,
	2018				2017
	(in millions)
Benefit plans and deferred compensation	$	280			$	324
Tax-related liabilities	96				93
Unrealized loss on embedded derivative	16				20
Environmental and related costs	7				7
Other	11				16
Other liabilities	$	410			$	460

Benefit plans and deferred compensation include liabilities for pensions, retiree medical benefits, and the noncurrent portion of incentive plans. See Note 11—Pension and Other Postretirement Benefits for additional information.

17. Noncontrolling Interests

A reconciliation of the beginning and ending balances of noncontrolling interests and distributions payable to the noncontrolling interests on our consolidated balance sheets is provided below.

	Year ended December 31,
	2018												2017												2016
	CFN				TNCLP				Total				CFN				TNCLP				Total				CFN				TNCLP				Total
					(in millions)
Noncontrolling interests:
Beginning balance	$	2,772			$	333			$	3,105			$	2,806			$	338			$	3,144			$	—			$	352			$	352
Issuance of noncontrolling interest in CFN	—				—				—				—				—				—				2,792				—				2,792
Earnings attributable to noncontrolling interests	130				8				138				73				19				92				93				26				119
Declaration of distributions payable	(129		)		(10		)		(139		)		(107		)		(24		)		(131		)		(79		)		(40		)		(119		)
Purchase of TNCLP Public Units	—				(331		)		(331		)		—				—				—				—				—				—
Ending balance	$	2,773			$	—			$	2,773			$	2,772			$	333			$	3,105			$	2,806			$	338			$	3,144
Distributions payable to noncontrolling interests:
Beginning balance	$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—
Declaration of distributions payable	129				10				139				107				24				131				79				40				119
Distributions to noncontrolling interests	(129		)		(10		)		(139		)		(107		)		(24		)		(131		)		(79		)		(40		)		(119		)
Ending balance	$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	—

CF INDUSTRIES HOLDINGS, INC.

CF Industries Nitrogen, LLC (CFN)

We have a strategic venture with CHS under which they own an equity interest in CFN, a subsidiary of CF Holdings, which represents approximately 11% of the membership interests of CFN. We own the remaining membership interests. Under the terms of CFN’s limited liability company agreement, each member’s interest will reflect, over time, the impact of the profitability of CFN and any member contributions made to, and distributions received from, CFN. For financial reporting purposes, the assets, liabilities and earnings of the strategic venture are consolidated into our financial statements. CHS’ interest in the strategic venture is recorded in noncontrolling interests in our consolidated financial statements. CHS also receives deliveries pursuant to a supply agreement under which CHS has the right to purchase annually from CFN up to approximately 1.1 million tons of granular urea and 580,000 tons of UAN at market prices. As a result of its equity interest in CFN, CHS is entitled to semi-annual cash distributions from CFN. We are also entitled to semi-annual cash distributions from CFN. The amounts of distributions from CFN to us and CHS are based generally on the profitability of CFN and determined based on the volume of granular urea and UAN sold by CFN to us and CHS pursuant to supply agreements, less a formula driven amount based primarily on the cost of natural gas used to produce the granular urea and UAN, and adjusted for the allocation of items such as operational efficiencies and overhead amounts. Additionally, under the terms of the strategic venture, we recognized an embedded derivative related to our credit rating. See Note 9—Fair Value Measurements for additional information.

In the first quarter of 2019, the CFN Board of Managers approved semi-annual distribution payments for the distribution period ended December 31, 2018 in accordance with CFN’s limited liability company agreement. On January 31, 2019, CFN distributed $86 million to CHS for the distribution period ended December 31, 2018.

Terra Nitrogen Company, L.P. (TNCLP)

On February 7, 2018, we announced that, in accordance with the terms of TNCLP’s First Amended and Restated Agreement of Limited Partnership (as amended by Amendment No. 1 to the First Amended and Restated Agreement of Limited Partnership, the TNCLP Agreement of Limited Partnership), Terra Nitrogen GP Inc. (TNGP), the sole general partner of TNCLP and an indirect wholly owned subsidiary of CF Holdings, elected to exercise its right to purchase all of the 4,612,562 publicly traded common units of TNCLP (the TNCLP Public Units). TNGP completed its purchase of the TNCLP Public Units on April 2, 2018 (the Purchase) for an aggregate cash purchase price of $388 million, which was recognized as a reduction in paid-in capital of $62 million; a deferred tax liability of $5 million; and the removal of the TNCLP noncontrolling interests, as shown in the table above. Upon completion of the Purchase, CF Holdings owned, through its subsidiaries, 100 percent of the general and limited partnership interests of TNCLP.

Prior to April 2, 2018, TNCLP was a master limited partnership that owned a nitrogen fertilizer manufacturing facility in Verdigris, Oklahoma. We owned approximately 75.3% of TNCLP through general and limited partnership interests and outside investors owned the remaining approximately 24.7% of the limited partnership. For financial reporting purposes, the assets, liabilities and earnings of the partnership were consolidated into our financial statements. The outside investors’ limited partnership interests in TNCLP were recorded in noncontrolling interests in our consolidated financial statements. The noncontrolling interest represented the noncontrolling unitholders’ interest (prior to the Purchase) in the earnings and equity of TNCLP. Affiliates of CF Industries were required to purchase all of TNCLP’s fertilizer products at market prices as defined in the Amendment to the General and Administrative Services and Product Offtake Agreement, dated September 28, 2010.

Prior to April 2, 2018, TNCLP made cash distributions to the general and limited partners based on formulas defined within the TNCLP Agreement of Limited Partnership. Cash available for distribution (Available Cash) was defined in the TNCLP Agreement of Limited Partnership generally as all cash receipts less all cash disbursements, less certain reserves (including reserves for future operating and capital needs) established as the general partner determined in its reasonable discretion to be necessary or appropriate. Changes in working capital affected Available Cash, as increases in the amount of cash invested in working capital items (such as increases in receivables or inventory and decreases in accounts payable) reduced Available Cash, while declines in the amount of cash invested in working capital items increased Available Cash. Cash distributions to the limited partners and general partner varied depending on the extent to which the cumulative distributions exceeded certain target threshold levels set forth in the TNCLP Agreement of Limited Partnership.

In each quarter of 2017 and 2016, the minimum quarterly distributions requirements under the TNCLP Agreement of Limited Partnership were satisfied, which entitled TNGP to receive incentive distributions on its general partner interests (in addition to minimum quarterly distributions). TNGP assigned its right to receive such incentive distributions to an affiliate of TNGP that was also an indirect wholly owned subsidiary of CF Holdings. The earnings attributed to our general partner interest in excess of the threshold levels for the years ended December 31, 2017 and 2016 were $41 million and $65 million, respectively.

CF INDUSTRIES HOLDINGS, INC.

18. Stockholders’ Equity

Common Stock

Our Board of Directors (the Board) has authorized certain programs to repurchase shares of our common stock. These programs have generally permitted repurchases to be made from time to time in the open market, through privately-negotiated transactions, through block transactions or otherwise. Our management has determined the manner, timing and amount of repurchases under these programs based on the evaluation of market conditions, stock price and other factors.

On August 1, 2018, the Board authorized the repurchase of up to $500 million of CF Holdings common stock

through June 30, 2020 (the 2018 Share Repurchase Program). In the third and fourth quarters of 2018, we repurchased 10.9 million shares for $500 million, completing the 2018 Share Repurchase Program. As of December 31, 2018, $33 million of the repurchases were accrued and not yet settled. At December 31, 2018, we held 10,982,408 shares of treasury stock. The following table summarizes the share repurchases under the 2018 Share Repurchase Program:

	Shares			Amounts
	(in millions)
Third quarter	1.8			$	91
Fourth quarter	9.1			409
Total shares repurchased in 2018	10.9			$	500

As of December 31, 2018, 2017 and 2016, we held in treasury approximately 11 million shares, 1 thousand shares and 28 thousand shares, respectively, of repurchased stock.

During 2016, we retired 2.4 million shares of repurchased stock. The retired shares were returned to the status of authorized but unissued shares. As part of the retirements, we reduced our treasury stock, paid-in capital, and retained earnings balances for 2016 by $150 million, $14 million, and $136 million, respectively.

Changes in common shares outstanding are as follows:

	Year ended December 31,
	2018			2017			2016
Beginning balance	233,287,089			233,114,169			233,081,556
Exercise of stock options	462,647			90,938			17,600
Issuance of restricted stock(1)	68,803			93,833			44,941
Forfeitures of restricted stock	—			—			(10,000	)
Purchase of treasury shares(2)	(11,000,044	)		(11,851	)		(19,928	)
Ending balance	222,818,495			233,287,089			233,114,169

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(1)	Includes shares issued from treasury.

(2)	Includes shares withheld to pay employee tax obligations upon the vesting of restricted stock.

Preferred Stock

CF Holdings is authorized to issue 50 million shares of $0.01 par value preferred stock. Our Second Amended and Restated Certificate of Incorporation, as amended, authorizes the Board, without any further stockholder action or approval, to issue these shares in one or more classes or series, and (except in the case of our Series A Junior Participating Preferred Stock, 500,000 shares of which are authorized and the terms of which were specified in the original certificate of incorporation of CF Holdings) to fix the rights, preferences and privileges of the shares of each wholly unissued class or series and any of its qualifications, limitations or restrictions. The Series A Junior Participating Preferred Stock had been established in CF Holdings’ original certificate of incorporation in connection with our former stockholder rights plan that expired in 2015. No shares of preferred stock have been issued.

CF INDUSTRIES HOLDINGS, INC.

Accumulated Other Comprehensive (Loss) Income

Changes to accumulated other comprehensive (loss) income (AOCI) and the impact on other comprehensive income (loss) are as follows:

	Foreign Currency Translation Adjustment				Unrealized Gain (Loss) on Securities				Unrealized Gain (Loss) on Derivatives				Defined Benefit Plans				Accumulated Other Comprehensive (Loss) Income
	(in millions)
Balance as of December 31, 2015	$	(198	)		$	1			$	5			$	(58	)		$	(250	)
Unrealized loss	—				(1		)		—				—				(1		)
Reclassification to earnings(2)	—				1				—				1				2
Loss arising during the period	—				—				—				(97		)		(97		)
Effect of exchange rate changes and deferred taxes	(74		)		—				—				22				(52		)
Balance as of December 31, 2016	(272		)		1				5				(132		)		(398		)
Reclassification to earnings(2)	—				—				(1		)		1				—
Gain arising during the period	—				—				—				19				19
Effect of exchange rate changes and deferred taxes	127				—				—				(11		)		116
Balance as of December 31, 2017	(145		)		1				4				(123		)		(263		)
Adoption of ASU 2016-01 (1)	—				(1		)		—				—				(1		)
Adoption of ASU 2018-02 (1)	—				—				1				(11		)		(10		)
Gain arising during the period	—				—				—				3				3
Reclassification to earnings(2)	—				—				—				2				2
Effect of exchange rate changes and deferred taxes	(105		)		—				—				3				(102		)
Balance as of December 31, 2018	$	(250	)		$	—			$	5			$	(126	)		$	(371	)

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(1)	See Note 3—New Accounting Standards for additional information.

(2)	Reclassifications out of AOCI to the consolidated statements of operations were not material.

CF INDUSTRIES HOLDINGS, INC.

19. Stock-Based Compensation

2014 Equity and Incentive Plan

On May 14, 2014, our shareholders approved the CF Industries Holdings, Inc. 2014 Equity and Incentive Plan (the 2014 Equity and Incentive Plan) which replaced the CF Industries Holdings, Inc. 2009 Equity and Incentive Plan. Under the 2014 Equity and Incentive Plan, we may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards (payable in cash or stock) and other stock-based awards to our officers, employees, consultants and independent contractors (including non-employee directors). The purpose of the 2014 Equity and Incentive Plan is to provide an incentive for our employees, officers, consultants and non-employee directors that is aligned with the interests of our shareholders.

Share Reserve and Individual Award Limits

The maximum number of shares reserved for the grant of awards under the 2014 Equity and Incentive Plan is the sum of (i) 13.9 million and (ii) the number of shares subject to outstanding awards under our predecessor plans to the extent such awards terminate or expire without delivery of shares. For purposes of determining the number of shares of stock available for grant under the 2014 Equity and Incentive Plan, each option or stock appreciation right is counted against the reserve as one share. Each share of stock granted, other than an option or a stock appreciation right, is counted against the reserve as 1.61 shares. If any outstanding award expires or is settled in cash, any unissued shares subject to the award are again available for grant under the 2014 Equity and Incentive Plan. Shares tendered in payment of the exercise price of an option and shares withheld by the Company or otherwise received by the Company to satisfy tax withholding obligations are not available for future grant under the 2014 Equity and Incentive Plan. As of December 31, 2018, we had 8.4 million shares available for future awards under the 2014 Equity and Incentive Plan. The 2014 Equity and Incentive Plan provides that no more than 5.0 million underlying shares may be granted to a participant in any one calendar year.

Restricted Stock Awards, Restricted Stock Units and Performance Share Units

The fair value of a restricted stock award (RSA) or a restricted stock unit (RSU) is equal to the number of shares subject to the award multiplied by the closing market price of our common stock on the date of grant. We estimated the fair value of each performance share unit (PSU) on the date of grant using a Monte Carlo simulation. RSUs granted in 2018 generally vest over three years in three equal annual installments on the anniversary of the grant date. RSUs granted prior to 2018 vest in three years from the date of grant. PSUs are granted to key employees and generally vest three years from the date of grant. The vesting of PSUs is also subject to the attainment of applicable performance goals during the performance period. The RSAs awarded to non-management members of the Board vest the earlier of one year from the date of the grant or the date of the next annual stockholder meeting. During the vesting period, the holders of the RSAs are entitled to dividends and voting rights. During the vesting period, the holders of the RSUs are paid dividend equivalents in cash to the extent we pay cash dividends. PSUs accrue dividend equivalents to the extent we pay cash dividends on our common stock during the performance and vesting periods. Upon vesting of the PSUs, holders are paid the cash equivalent of the dividends paid during the performance and vesting periods based on the shares of common stock, if any, delivered in settlement of PSUs. Holders of RSUs and PSUs are not entitled to voting rights unless and until the awards have vested.

A summary of restricted stock activity during the year ended December 31, 2018 is presented below.

	Restricted Stock Awards							Restricted Stock Units							Performance Share Units
	Shares			Weighted- Average Grant-Date Fair Value				Shares			Weighted- Average Grant-Date Fair Value				Shares			Weighted- Average Grant-Date Fair Value
Outstanding as of December 31, 2017	51,258			$	27.31			270,245			$	35.88			140,581			$	49.79
Granted	37,870			40.40				332,603			43.09				77,097			44.59
Restrictions lapsed (vested)(1)	(51,258	)		27.31				(30,933	)		59.31				(19,741	)		91.13
Forfeited	—			—				(2,108	)		43.14				—			—
Outstanding as of December 31, 2018	37,870			40.40				569,807			38.79				197,937			43.64

---

(1)	For performance share units, the shares represent the performance share units granted in 2015, for which the three year performance period ended December 31, 2017. Because the applicable performance goals were not met, no common shares were delivered in settlement of these units.

CF INDUSTRIES HOLDINGS, INC.

The 2018, 2017 and 2016 weighted-average grant date fair value for RSAs was $40.40, $27.31, and $27.85, for RSUs was $43.09, $31.20, and $36.00, and for PSUs was $44.59, $45.37, and $40.62, respectively.

Selected amounts pertaining to restricted stock awards that vested are as follows:

	Year ended December 31,
	2018				2017				2016
	(in millions)
Actual tax benefit realized from restricted stock vested	$	1			$	1			$	1
Fair value of restricted stock vested	$	3			$	2			$	2

Stock Options

Under the 2014 Equity and Incentive Plan and our predecessor plans, we have granted to plan participants nonqualified stock options to purchase shares of our common stock. The exercise price of these options was equal to the market price of our common stock on the date of grant. The contractual life of each option was ten years and generally one-third of the options vest on each of the first three anniversaries of the date of grant. No stock option awards were granted to plan participants during 2018.

The fair value of each stock option award was estimated using the Black-Scholes option valuation model. Key assumptions used and resulting grant date fair values are shown in the following table:

	2017		2016
Weighted-average assumptions:
Expected term of stock options	4.3 Years		4.3 Years
Expected volatility	40%		39%
Risk-free interest rate	1.9%		1.2%
Expected dividend yield	3.9%		3.3%
Weighted-average grant date fair value	$7.66		$8.97

The expected volatility of our stock options was based on the combination of the historical volatility of our common stock and implied volatilities of exchange traded options on our common stock. The expected term of options was estimated based on our historical exercise experience, post-vesting employment termination behavior and the contractual term. The risk-free interest rate was based on the U.S. Treasury Strip yield curve in effect at the time of grant for the expected term of the options.

A summary of stock option activity during the year ended December 31, 2018 is presented below:

	Shares			Weighted- Average Exercise Price
Outstanding as of December 31, 2017	6,432,734			$	37.97
Exercised	(462,647	)		26.50
Forfeited	(18,109	)		33.07
Expired	(167,878	)		41.72
Outstanding as of December 31, 2018	5,784,100			38.79
Exercisable as of December 31, 2018	4,188,841			41.20

CF INDUSTRIES HOLDINGS, INC.

Selected amounts pertaining to stock option exercises are as follows:

	2018				2017				2016
	(in millions)
Cash received from stock option exercises	$	12			$	1			$	—
Actual tax benefit realized from stock option exercises	$	2			$	1			$	—
Pre-tax intrinsic value of stock options exercised	$	10			$	2			$	—

The following table summarizes information about stock options outstanding and exercisable as of December 31, 2018:

	Options Outstanding													Options Exercisable
Range of Exercise Prices	Shares			Weighted- Average Remaining Contractual Term (years)		Weighted- Average Exercise Price				Aggregate Intrinsic Value(1) (in millions)				Shares			Weighted- Average Remaining Contractual Term (years)		Weighted- Average Exercise Price				Aggregate Intrinsic Value(1) (in millions)
$13.40 - $20.00	357,700			1.3		$	15.72			$	10			357,700			1.3		$	15.72			$	10
$20.01 - $62.25	5,426,400			6.4		40.31				36				3,831,141			5.8		43.58				19
	5,784,100			6.1		38.79				$	46			4,188,841			5.4		41.20				$	29

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(1)	The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $43.51 as of December 31, 2018, which would have been received by the option holders had all option holders exercised their options as of that date.

Compensation Cost

Compensation cost is recorded primarily in selling, general and administrative expenses. The following table summarizes stock-based compensation costs and related income tax benefits:

	Year ended December 31,
	2018				2017				2016
	(in millions)
Stock-based compensation expense	$	21			$	17			$	19
Income tax benefit	(4		)		(6		)		(7		)
Stock-based compensation expense, net of income taxes	$	17			$	11			$	12

As of December 31, 2018, pre-tax unrecognized compensation cost was $5 million for stock options, which will be recognized over a weighted-average period of 1.1 years, $12 million for RSAs and RSUs, which will be recognized over a weighted-average period of 1.7 years, and $6 million for PSUs, which will be recognized over a weighted-average period of 2.0 years.

Excess tax benefits realized from the vesting of restricted stock or stock option exercises are recognized as an income tax benefit in our consolidated statements of operations and are required to be reported as an operating cash inflow rather than a reduction of taxes paid. The excess tax benefits realized in 2018, 2017 and 2016 were $6 million, $1 million, and zero, respectively.

CF INDUSTRIES HOLDINGS, INC.

20. Contingencies

Litigation

West Fertilizer Co.

On April 17, 2013, there was a fire and explosion at the West Fertilizer Co. fertilizer storage and distribution facility in West, Texas. According to published reports, 15 people were killed and approximately 200 people were injured in the incident, and the fire and explosion damaged or destroyed a number of homes and buildings around the facility. Various subsidiaries of CF Industries Holdings, Inc. (the CF Entities) were named as defendants along with other companies in lawsuits filed in 2013, 2014 and 2015 in the District Court of McLennan County, Texas by the City of West, individual residents of the County and other parties seeking recovery for damages allegedly sustained as a result of the explosion. The cases were consolidated for discovery and pretrial proceedings in the District Court of McLennan County under the caption “In re: West Explosion Cases.” The two-year statute of limitations expired on April 17, 2015. As of that date, over 400 plaintiffs had filed claims, including at least 9 entities, 325 individuals, and 80 insurance companies. Plaintiffs allege various theories of negligence, strict liability, and breach of warranty under Texas law. Although we do not own or operate the facility or directly sell our products to West Fertilizer Co., products that the CF Entities manufactured and sold to others were delivered to the facility and may have been stored at the West facility at the time of the incident.

The Court granted in part and denied in part the CF Entities’ Motions for Summary Judgment in August 2015. Over two hundred cases have been resolved pursuant to confidential settlements that have been or we expect will be fully funded by insurance. The remaining cases are in various stages of discovery and pre-trial proceedings. The next group of cases was reset for trial beginning on July 23, 2019. We believe we have strong legal and factual defenses and intend to continue defending the CF Entities vigorously in the pending lawsuits. The Company cannot provide a range of reasonably possible loss due to the lack of damages discovery for many of the remaining claims and the uncertain nature of this litigation, including uncertainties around the potential allocation of responsibility by a jury to other defendants or responsible third parties. The recognition of a potential loss in the future in the West Fertilizer Co. litigation could negatively affect our results in the period of recognition. However, based upon currently available information, including available insurance coverage, we do not believe that this litigation will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Other Litigation

From time to time, we are subject to ordinary, routine legal proceedings related to the usual conduct of our business, including proceedings regarding public utility and transportation rates, environmental matters, taxes and permits relating to the operations of our various plants and facilities. Based on the information available as of the date of this filing, we believe that the ultimate outcome of these routine matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Environmental

Florida Environmental Matters

On March 17, 2014, we completed the sale of our phosphate mining and manufacturing business, which was located in Florida, to Mosaic. Pursuant to the terms of the definitive agreement executed in October 2013, Mosaic assumed the following environmental matters and we agreed to indemnify Mosaic with respect to losses arising out of the matters below, subject to a maximum indemnification cap and the other terms of the definitive agreement.

Clean Air Act Notice of Violation

We received a Notice of Violation (NOV) from the EPA by letter dated June 16, 2010, alleging that we violated the Prevention of Significant Deterioration (PSD) Clean Air Act regulations relating to certain projects undertaken at the former Plant City, Florida facility’s sulfuric acid plants. This NOV further alleges that the actions that are the basis for the alleged PSD violations also resulted in violations of Title V air operating permit regulations. Finally, the NOV alleges that we failed to comply with certain compliance dates established by hazardous air pollutant regulations for phosphoric acid manufacturing plants and phosphate fertilizer production plants. We had several meetings with the EPA with respect to this matter prior to our sale of the phosphate mining and manufacturing business in March 2014. We and Mosaic have separately had continued discussions with the EPA subsequent to our sale of the phosphate mining and manufacturing business with respect to this matter. We do not know at this time if this matter will be settled prior to initiation of formal legal action.

CF INDUSTRIES HOLDINGS, INC.

We cannot estimate the potential penalties, fines or other expenditures, if any, that may result from the Clean Air Act NOV and, therefore, we cannot determine if the ultimate outcome of this matter will have a material impact on our consolidated financial position, results of operations or cash flows.

EPCRA/CERCLA Notice of Violation

By letter dated July 6, 2010, the EPA issued a NOV to us alleging violations of Section 313 of the Emergency Planning and Community Right-to-Know Act (EPCRA) in connection with the former Plant City facility. EPCRA requires annual reports to be submitted with respect to the use of certain toxic chemicals. The NOV also included an allegation that we violated Section 304 of EPCRA and Section 103 of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) by failing to file a timely notification relating to the release of hydrogen fluoride above applicable reportable quantities. We do not know at this time if this matter will be settled prior to initiation of formal legal action.

We do not expect that penalties or fines, if any, that may arise out of the EPCRA/CERCLA matter will have a material impact on our consolidated financial position, results of operations or cash flows.

Other Environmental Matters

From time to time, we receive notices from governmental agencies or third parties alleging that we are a potentially responsible party at certain cleanup sites under CERCLA or other environmental cleanup laws. In 2011, we received a notice from the Idaho Department of Environmental Quality (IDEQ) that alleged that we were a potentially responsible party for the cleanup of a former phosphate mine site we owned in the late 1950s and early 1960s located in Georgetown Canyon, Idaho. The current owner of the property and a former mining contractor received similar notices for the site. In 2014, we and the current property owner entered into a Consent Order with IDEQ and the U.S. Forest Service to conduct a remedial investigation and feasibility study of the site. In 2015, we and several other parties received a notice that the U.S. Department of the Interior and other trustees intend to undertake a natural resource damage assessment for 17 former phosphate mines in southeast Idaho, one of which is the former Georgetown Canyon mine. We are not able to estimate at this time our potential liability, if any, with respect to the cleanup of the site or a possible claim for natural resource damages. However, based on currently available information, we do not expect the remedial or financial obligations to which we may be subject involving this or other cleanup sites will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

CF INDUSTRIES HOLDINGS, INC.

21. Segment Disclosures

Our reportable segments consist of ammonia, granular urea, UAN, AN, and Other. 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 of selling, general and administrative expenses and other operating—net) and non-operating expenses (interest and income taxes) are centrally managed and are not included in the measurement of segment profitability reviewed by management.

Our assets, with the exception of goodwill, are not monitored by or reported to our chief operating decision maker by segment; therefore, we do not present total assets by segment. Goodwill by segment is presented in Note 7—Goodwill and Other Intangible Assets.

Segment data for sales, cost of sales and gross margin for 2018, 2017 and 2016 are presented in the tables below.

	Ammonia(2)				Granular Urea(1)(2)				UAN(1)(2)				AN(1)				Other(1)				Consolidated(2)
	(in millions)
Year ended December 31, 2018
Net sales	$	1,028			$	1,322			$	1,234			$	460			$	385			$	4,429
Cost of sales	867				889				1,007				414				335				3,512
Gross margin	$	161			$	433			$	227			$	46			$	50			917
Total other operating costs and expenses																					187
Equity in earnings of operating affiliates																					36
Operating earnings																					$	766
Year ended December 31, 2017
Net sales	$	1,209			$	971			$	1,134			$	497			$	319			$	4,130
Cost of sales	1,070				855				1,053				446				272				3,696
Gross margin	$	139			$	116			$	81			$	51			$	47			434
Total other operating costs and expenses																					209
Equity in earnings of operating affiliates																					9
Operating earnings																					$	234
Year ended December 31, 2016
Net sales	$	981			$	831			$	1,196			$	411			$	266			$	3,685
Cost of sales	714				583				919				409				217				2,842
Gross margin	$	267			$	248			$	277			$	2			$	49			843
Total other operating costs and expenses																					560
Equity in loss of operating affiliates																					(145		)
Operating earnings																					$	138

---

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

(2)	As a result of our adoption of ASU No. 2017-07 on January 1, 2018, cost of sales and gross margin were adjusted for the years ended December 31, 2017 and 2016. See Note 3—New Accounting Standards for additional information.

	Ammonia				Granular Urea				UAN				AN				Other				Corporate				Consolidated
	(in millions)
Depreciation and amortization
Year ended December 31, 2018	$	155			$	276			$	270			$	85			$	67			$	35			$	888
Year ended December 31, 2017	$	183			$	246			$	265			$	85			$	57			$	47			$	883
Year ended December 31, 2016	$	96			$	112			$	247			$	93			$	46			$	84			$	678

CF INDUSTRIES HOLDINGS, INC.

Enterprise-wide data by geographic region is as follows:

	Year ended December 31,
	2018				2017				2016
	(in millions)
Sales by geographic region (based on destination of shipments):
United States	$	3,160			$	2,851			$	2,728
Foreign:
Canada	379				352				349
North America excluding U.S. and Canada	81				50				24
United Kingdom	425				427				394
Other foreign	384				450				190
Total foreign	1,269				1,279				957
Consolidated	$	4,429			$	4,130			$	3,685

	December 31,
	2018				2017				2016
	(in millions)
Property, plant and equipment—net by geographic region:
United States	$	7,426			$	7,921			$	8,444
Foreign:
Canada	544				551				523
United Kingdom	653				703				685
Total foreign	1,197				1,254				1,208
Consolidated	$	8,623			$	9,175			$	9,652

Our principal customers are cooperatives, independent fertilizer distributors, traders, wholesalers, and industrial users. In 2018, 2017 and 2016, CHS accounted for approximately 14%, 11% and 12% of our consolidated net sales, respectively. See Note 17—Noncontrolling Interests for additional information.

22. Supplemental Cash Flow Information

The following provides additional information relating to cash flow activities:

	Year ended December 31,
	2018				2017				2016
	(in millions)
Cash paid during the year for
Interest—net of interest capitalized	$	227			$	311			$	144
Income taxes—net of refunds	7				(807		)		(110		)
Supplemental disclosure of noncash investing and financing activities:
Change in capitalized expenditures in accounts payable and accrued expenses	2				(179		)		(263		)
Change in capitalized expenditures in other liabilities	—				—				(55		)
Change in noncontrolling interests in other liabilities	—				—				8
Change in accrued share repurchases	33				—				—

CF INDUSTRIES HOLDINGS, INC.

23. Asset Retirement Obligations

Asset retirement obligations (AROs) are legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal operation of such assets. AROs are initially recognized as incurred when sufficient information exists to estimate fair value. We have AROs at our nitrogen fertilizer manufacturing complexes and at our distribution and storage facilities that are conditional upon cessation of operations. These AROs include certain decommissioning activities as well as the removal and disposal of certain chemicals, waste materials, structures, equipment, vessels, piping and storage tanks. Also included are reclamation of land and the closure of certain effluent ponds. The most recent estimate of the aggregate cost of these AROs expressed in 2018 dollars is $77 million. We have not recorded a liability for these conditional AROs as of December 31, 2018 because we do not believe there is currently a reasonable basis for estimating a date or range of dates of cessation of operations at our nitrogen fertilizer manufacturing facilities or our distribution and storage facilities, which is necessary in order to estimate fair value. In reaching this conclusion, we considered the historical performance of each complex or facility and have taken into account factors such as planned maintenance, asset replacements and upgrades of plant and equipment, which if conducted as in the past, can extend the physical lives of our nitrogen manufacturing facilities and our distribution and storage facilities indefinitely. We also considered the possibility of changes in technology, risk of obsolescence, and availability of raw materials in arriving at our conclusion.

24. Leases

We have operating leases for certain property and equipment under various noncancelable agreements, the most significant of which are rail car leases and barge tow charters for the distribution of our products. The rail car leases currently have minimum terms ranging from one to eleven years and the barge charter commitments range from approximately two to seven years. We also have terminal and warehouse storage agreements for our distribution system, some of which contain minimum throughput requirements. The storage agreements contain minimum terms generally ranging from one to five years and commonly contain provisions for automatic annual renewal thereafter unless canceled by either party.

Future minimum payments under noncancelable operating leases with initial or remaining noncancelable lease terms in excess of one year as of December 31, 2018 are shown below.

	Operating Lease Payments
	(in millions)
2019	$	93
2020	80
2021	59
2022	41
2023	28
Thereafter	62
	$	363

Total rent expense for cancelable and noncancelable operating leases was $121 million for 2018, $125 million for 2017 and $111 million for 2016.

CF INDUSTRIES HOLDINGS, INC.

25. Quarterly Data—Unaudited

The following tables present the unaudited quarterly results of operations for the eight quarters ended December 31, 2018. This quarterly information has been prepared on the same basis as the consolidated financial statements and, in the opinion of management, reflects all adjustments necessary for the fair representation of the information for the periods presented. This data should be read in conjunction with the audited consolidated financial statements and related disclosures. Operating results for any quarter apply to that quarter only and are not necessarily indicative of results for any future period.

	Three months ended,
	March 31				June 30				September 30				December 31				Full Year
	(in millions, except per share amounts)
2018
Net sales	$	957			$	1,300			$	1,040			$	1,132			$	4,429
Gross margin	190				312				173				242				917
Unrealized gains on natural gas derivatives(1)	3				5				3				2				13
Net earnings attributable to common stockholders	63				148				30				49				290
Net earnings per share attributable to common stockholders
Basic(2)	0.27				0.63				0.13				0.21				1.25
Diluted(2)	0.27				0.63				0.13				0.21				1.24
2017
Net sales	$	1,037			$	1,124			$	870			$	1,099			$	4,130
Gross margin(3)	107				173				11				143				434
Unrealized (losses) gains on natural gas derivatives(1)	(53		)		(18		)		7				3				(61		)
Net (loss) earnings attributable to common stockholders(4)	(23		)		3				(87		)		465				358
Net (loss) earnings per share attributable to common stockholders(4)
Basic(2)	(0.10		)		0.01				(0.37		)		1.99				1.53
Diluted(2)	(0.10		)		0.01				(0.37		)		1.98				1.53

---

(1)	Amounts represent pre-tax unrealized (losses) gains on natural gas derivatives, which are included in gross margin. See Note 15—Derivative Financial Instruments for additional information.

(2)	The sum of the four quarters is not necessarily the same as the total for the year.

(3)

Gross margin for the three months ended March 31, June 30 and September 30, 2018 have been adjusted to reflect our January 1, 2018 adoption of ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. As a result, we reclassified certain amounts from cost of sales and gross margin to other non-operating—net. See Note 3—New Accounting Standards for additional information.

(4)	For the three months ended December 31, 2017, net earnings attributable to common stockholders includes the Tax Reform impact of $491 million that is included in income tax benefit, and net earnings per share attributable to common stockholders, basic and diluted, include the per share impact of $2.09. See Note 10—Income Taxes for additional information.

CF INDUSTRIES HOLDINGS, INC.

26. Condensed Consolidating Financial Statements

The following condensed consolidating financial information is presented in accordance with SEC Regulation S-X Rule 3-10, Financial statements of guarantors and issuers of guaranteed securities registered or being registered, and relates to (i) the senior notes due 2020, 2023, 2034, 2043 and 2044 (described in Note 12—Financing Agreements and referred to in this report as the Public Senior Notes) issued by CF Industries, Inc. (CF Industries), a 100% owned subsidiary of CF Industries Holdings, Inc. (Parent), and guarantees of the Public Senior Notes by Parent and by CFE, CFS and CF USA (the Subsidiary Guarantors), which are 100% owned subsidiaries of Parent, and (ii) debt securities of CF Industries (Other Debt Securities), and guarantees thereof by Parent and the Subsidiary Guarantors, that may be offered and sold from time to time under registration statements that may be filed by Parent, CF Industries and the Subsidiary Guarantors with the SEC.

In the event that a subsidiary of Parent, other than CF Industries, becomes a borrower or a guarantor under the Revolving Credit Agreement (or any renewal, replacement or refinancing thereof), such subsidiary would be required to become a guarantor of the Public Senior Notes, provided that such requirement will no longer apply with respect to the Public Senior Notes due 2023, 2034, 2043 and 2044 following the repayment of the Public Senior Notes due 2020 or the subsidiaries of Parent, other than CF Industries, otherwise becoming no longer subject to such a requirement to guarantee the Public Senior Notes due 2020. The Subsidiary Guarantors became guarantors of the Public Senior Notes as a result of this requirement.

All of the guarantees of the Public Senior Notes are, and we have assumed for purposes of this presentation of condensed consolidating financial information that the guarantees of any Other Debt Securities would be, full and unconditional (as such term is defined in SEC Regulation S-X Rule 3-10(h)) and joint and several. The guarantee of a Subsidiary Guarantor will be automatically released with respect to a series of the Public Senior Notes (1) upon the release, discharge or termination of such Subsidiary Guarantor’s guarantee of the Revolving Credit Agreement (or any renewal, replacement or refinancing thereof), (2) upon legal defeasance with respect to the Public Senior Notes of such series or satisfaction and discharge of the indenture with respect to such series of Public Senior Notes or (3) in the case of the Public Senior Notes due 2023, 2034, 2043 and 2044, upon the discharge, termination or release of, or the release of such Subsidiary Guarantor from its obligations under, such Subsidiary Guarantor’s guarantee of the Public Senior Notes due 2020, including, without limitation, any such discharge, termination or release as a result of retirement, discharge or legal or covenant defeasance of, or satisfaction and discharge of the supplemental indenture governing, the Public Senior Notes due 2020.

For purposes of the presentation of condensed consolidating financial information, the subsidiaries of Parent other than CF Industries and the Subsidiary Guarantors are referred to as the Non-Guarantors.

Presented below are condensed consolidating statements of operations and statements of cash flows for Parent, CF Industries, the Subsidiary Guarantors and the Non-Guarantors for the years ended December 31, 2018, 2017 and 2016 and condensed consolidating balance sheets for Parent, CF Industries, the Subsidiary Guarantors and the Non-Guarantors as of December 31, 2018 and 2017. The condensed consolidating financial information presented below is not necessarily indicative of the financial position, results of operations, comprehensive income (loss) or cash flows of Parent, CF Industries, the Subsidiary Guarantors or the Non-Guarantors on a stand-alone basis.

In these condensed consolidating financial statements, investments in subsidiaries are presented under the equity method, in which our investments are recorded at cost and adjusted for our ownership share of a subsidiary’s cumulative results of operations, distributions and other equity changes, and the eliminating entries reflect primarily intercompany transactions such as sales, accounts receivable and accounts payable and the elimination of equity investments and earnings of subsidiaries. As of December 31, 2018, two of our consolidated entities have made elections to be taxed as partnerships for U.S. federal income tax purposes and are included in the Non-Guarantors column. Due to the partnership tax treatment, these subsidiaries do not record taxes on their financial statements. The tax provision pertaining to the income of these partnerships, plus applicable deferred tax balances are reflected on the financial statements of the parent company owner that is included in the Subsidiary Guarantors column in the following financial information. Liabilities related to benefit plan obligations are reflected on the legal entity that funds the obligation, while the benefit plan expense is included on the legal entity to which the employee provides services.

CF INDUSTRIES HOLDINGS, INC.

Condensed Consolidating Statement of Operations

	Year ended December 31, 2018
	Parent				CF Industries				Subsidiary Guarantors				Non- Guarantors				Eliminations				Consolidated
	(in millions)
Net sales	$	—			$	349			$	3,470			$	3,604			$	(2,994	)		$	4,429
Cost of sales	—				288				3,237				2,970				(2,983		)		3,512
Gross margin	—				61				233				634				(11		)		917
Selling, general and administrative expenses	4				1				143				77				(11		)		214
Other operating—net	—				(11		)		(1		)		(15		)		—				(27		)
Total other operating costs and expenses	4				(10		)		142				62				(11		)		187
Equity in earnings of operating affiliates	—				2				—				34				—				36
Operating (loss) earnings	(4		)		73				91				606				—				766
Interest expense	—				245				14				5				(23		)		241
Interest income	(2		)		(5		)		(9		)		(20		)		23				(13		)
Net earnings of wholly owned subsidiaries	(292		)		(423		)		(477		)		—				1,192				—
Other non-operating—net	—				—				(2		)		(7		)		—				(9		)
Earnings before income taxes	290				256				565				628				(1,192		)		547
Income tax (benefit) provision	—				(36		)		151				4				—				119
Net earnings	290				292				414				624				(1,192		)		428
Less: Net earnings attributable to noncontrolling interests	—				—				—				138				—				138
Net earnings attributable to common stockholders	$	290			$	292			$	414			$	486			$	(1,192	)		$	290

Condensed Consolidating Statement of Comprehensive Income

	Year ended December 31, 2018
	Parent				CF Industries				Subsidiary Guarantors				Non- Guarantors				Eliminations				Consolidated
	(in millions)
Net earnings	$	290			$	292			$	414			$	624			$	(1,192	)		$	428
Other comprehensive loss	(109		)		(109		)		(87		)		(103		)		311				(97		)
Comprehensive income	181				183				327				521				(881		)		331
Less: Comprehensive income attributable to noncontrolling interests	—				—				—				138				—				138
Comprehensive income attributable to common stockholders	$	181			$	183			$	327			$	383			$	(881	)		$	193

CF INDUSTRIES HOLDINGS, INC.

Condensed Consolidating Statement of Operations

	Year ended December 31, 2017
	Parent				CF Industries				Subsidiary Guarantors				Non- Guarantors				Eliminations				Consolidated
	(in millions)
Net sales	$	—			$	442			$	3,257			$	3,380			$	(2,949	)		$	4,130
Cost of sales	—				278				3,382				2,985				(2,949		)		3,696
Gross margin	—				164				(125		)		395				—				434
Selling, general and administrative expenses	4				(4		)		112				79				—				191
Other operating—net	—				2				3				13				—				18
Total other operating costs and expenses	4				(2		)		115				92				—				209
Equity in (loss) earnings of operating affiliates	—				(3		)		—				12				—				9
Operating (loss) earnings	(4		)		163				(240		)		315				—				234
Interest expense	—				318				37				5				(45		)		315
Interest income	—				(33		)		(11		)		(13		)		45				(12		)
Loss on debt extinguishment	—				53				—				—				—				53
Net loss (earnings) of wholly owned subsidiaries	361				1,091				(204		)		—				(1,248		)		—
Other non-operating—net	—				—				4				(1		)		—				3
(Loss) earnings before income taxes	(365		)		(1,266		)		(66		)		324				1,248				(125		)
Income tax (benefit) provision	(723		)		(905		)		1,037				16				—				(575		)
Net earnings (loss)	358				(361		)		(1,103		)		308				1,248				450
Less: Net earnings attributable to noncontrolling interests	—				—				—				92				—				92
Net earnings (loss) attributable to common stockholders	$	358			$	(361	)		$	(1,103	)		$	216			$	1,248			$	358

Condensed Consolidating Statement of Comprehensive Income (Loss)

	Year ended December 31, 2017
	Parent				CF Industries				Subsidiary Guarantors				Non- Guarantors				Eliminations				Consolidated
	(in millions)
Net earnings (loss)	$	358			$	(361	)		$	(1,103	)		$	308			$	1,248			$	450
Other comprehensive income	135				135				91				130				(356		)		135
Comprehensive income (loss)	493				(226		)		(1,012		)		438				892				585
Less: Comprehensive income attributable to noncontrolling interests	—				—				—				92				—				92
Comprehensive income (loss) attributable to common stockholders	$	493			$	(226	)		$	(1,012	)		$	346			$	892			$	493

CF INDUSTRIES HOLDINGS, INC.

Condensed Consolidating Statement of Operations

	Year ended December 31, 2016
	Parent				CF Industries				Subsidiary Guarantors				Non- Guarantors				Eliminations				Consolidated
	(in millions)
Net sales	$	—			$	362			$	2,932			$	2,939			$	(2,548	)		$	3,685
Cost of sales	—				207				2,803				2,380				(2,548		)		2,842
Gross margin	—				155				129				559				—				843
Selling, general and administrative expenses	4				9				104				56				—				173
Transaction costs	(46		)		—				223				2				—				179
Other operating—net	—				7				30				171				—				208
Total other operating costs and expenses	(42		)		16				357				229				—				560
Equity in loss of operating affiliates	—				—				—				(145		)		—				(145		)
Operating earnings (losses)	42				139				(228		)		185				—				138
Interest expense	—				347				85				(155		)		(77		)		200
Interest income	—				(49		)		(8		)		(25		)		77				(5		)
Loss on debt extinguishment	—				167				—				—				—				167
Net loss (earnings) of wholly owned subsidiaries	304				92				(315		)		—				(81		)		—
Other non-operating—net	—				—				4				(2		)		—				2
(Loss) earnings before income taxes	(262		)		(418		)		6				367				81				(226		)
Income tax provision (benefit)	15				(114		)		18				13				—				(68		)
Net (loss) earnings	(277		)		(304		)		(12		)		354				81				(158		)
Less: Net earnings attributable to noncontrolling interest	—				—				—				119				—				119
Net (loss) earnings attributable to common stockholders	$	(277	)		$	(304	)		$	(12	)		$	235			$	81			$	(277	)

Condensed Consolidating Statement of Comprehensive (Loss) Income

	Year ended December 31, 2016
	Parent				CF Industries				Subsidiary Guarantors				Non- Guarantors				Eliminations				Consolidated
	(in millions)
Net (loss) earnings	$	(277	)		$	(304	)		$	(12	)		$	354			$	81			$	(158	)
Other comprehensive loss	(148		)		(148		)		(68		)		(134		)		350				(148		)
Comprehensive (loss) income	(425		)		(452		)		(80		)		220				431				(306		)
Less: Comprehensive income attributable to noncontrolling interest	—				—				—				119				—				119
Comprehensive (loss) income attributable to common stockholders	$	(425	)		$	(452	)		$	(80	)		$	101			$	431			$	(425	)

CF INDUSTRIES HOLDINGS, INC.

Condensed Consolidating Balance Sheet

	December 31, 2018
	Parent				CF Industries				Subsidiary Guarantors				Non- Guarantors				Eliminations and Reclassifications				Consolidated
	(in millions)
Assets
Current assets:
Cash and cash equivalents	$	36			$	27			$	65			$	554			$	—			$	682
Accounts and notes receivable—net	135				500				1,203				911				(2,514		)		235
Inventories	—				4				142				163				—				309
Prepaid income taxes	—				—				24				4				—				28
Other current assets	—				—				15				5				—				20
Total current assets	171				531				1,449				1,637				(2,514		)		1,274
Property, plant and equipment—net	—				—				118				8,505				—				8,623
Investments in affiliates	3,656				8,208				6,857				94				(18,722		)		93
Goodwill	—				—				2,064				289				—				2,353
Other assets	—				4				126				320				(132		)		318
Total assets	$	3,827			$	8,743			$	10,614			$	10,845			$	(21,368	)		$	12,661
Liabilities and Equity
Current liabilities:
Accounts and notes payable and accrued expenses	$	870			$	374			$	1,429			$	386			$	(2,514	)		$	545
Income taxes payable	—				—				5				—				—				5
Customer advances	—				—				149				—				—				149
Other current liabilities	—				—				6				—				—				6
Total current liabilities	870				374				1,589				386				(2,514		)		705
Long-term debt	—				4,698				43				89				(132		)		4,698
Deferred income taxes	—				—				960				157				—				1,117
Other liabilities	—				15				232				163				—				410
Equity:
Stockholders’ equity:
Preferred stock	—				—				—				—				—				—
Common stock	2				—				—				5,363				(5,363		)		2
Paid-in capital	1,368				1,799				9,070				1,265				(12,134		)		1,368
Retained earnings	2,463				2,229				(995		)		965				(2,199		)		2,463
Treasury stock	(504		)		—				—				—				—				(504		)
Accumulated other comprehensive loss	(372		)		(372		)		(277		)		(324		)		974				(371		)
Total stockholders’ equity	2,957				3,656				7,798				7,269				(18,722		)		2,958
Noncontrolling interests	—				—				(8		)		2,781				—				2,773
Total equity	2,957				3,656				7,790				10,050				(18,722		)		5,731
Total liabilities and equity	$	3,827			$	8,743			$	10,614			$	10,845			$	(21,368	)		$	12,661

CF INDUSTRIES HOLDINGS, INC.

Condensed Consolidating Balance Sheet

	December 31, 2017
	Parent				CF Industries				Subsidiary Guarantors				Non- Guarantors				Eliminations and Reclassifications				Consolidated
	(in millions)
Assets
Current assets:
Cash and cash equivalents	$	—			$	15			$	388			$	432			$	—			$	835
Accounts and notes receivable—net	743				1,553				2,670				768				(5,427		)		307
Inventories	—				4				104				167				—				275
Prepaid income taxes	—				—				33				—				—				33
Other current assets	—				—				10				5				—				15
Total current assets	743				1,572				3,205				1,372				(5,427		)		1,465
Property, plant and equipment—net	—				—				123				9,052				—				9,175
Deferred income taxes	—				8				—				—				(8		)		—
Investments in affiliates	4,055				8,411				6,490				108				(18,956		)		108
Goodwill	—				—				2,063				308				—				2,371
Other assets	—				85				82				453				(276		)		344
Total assets	$	4,798			$	10,076			$	11,963			$	11,293			$	(24,667	)		$	13,463
Liabilities and Equity
Current liabilities:
Accounts and notes payable and accrued expenses	$	1,219			$	1,314			$	2,658			$	708			$	(5,427	)		$	472
Income taxes payable	—				—				—				2				—				2
Customer advances	—				—				89				—				—				89
Other current liabilities	—				—				14				3				—				17
Total current liabilities	1,219				1,314				2,761				713				(5,427		)		580
Long-term debt	—				4,692				198				78				(276		)		4,692
Deferred income taxes	—				—				876				179				(8		)		1,047
Other liabilities	—				16				243				201				—				460
Equity:
Stockholders’ equity:
Preferred stock	—				—				—				—				—				—
Common stock	2				—				—				4,738				(4,738		)		2
Paid-in capital	1,397				1,854				9,505				1,783				(13,142		)		1,397
Retained earnings	2,443				2,463				(1,432		)		709				(1,740		)		2,443
Treasury stock	—				—				—				—				—				—
Accumulated other comprehensive loss	(263		)		(263		)		(180		)		(221		)		664				(263		)
Total stockholders’ equity	3,579				4,054				7,893				7,009				(18,956		)		3,579
Noncontrolling interests	—				—				(8		)		3,113				—				3,105
Total equity	3,579				4,054				7,885				10,122				(18,956		)		6,684
Total liabilities and equity	$	4,798			$	10,076			$	11,963			$	11,293			$	(24,667	)		$	13,463

CF INDUSTRIES HOLDINGS, INC.

Condensed Consolidating Statement of Cash Flows

	Year ended December 31, 2018
	Parent				CF Industries				Subsidiary Guarantors				Non- Guarantors				Eliminations				Consolidated
	(in millions)
Operating Activities:
Net earnings	$	290			$	292			$	414			$	624			$	(1,192	)		$	428
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization	—				9				22				857				—				888
Deferred income taxes	—				—				88				(10		)		—				78
Stock-based compensation expense	21				—				—				1				—				22
Unrealized net gain on natural gas derivatives	—				—				(10		)		(3		)		—				(13		)
Loss on embedded derivative	—				—				1				—				—				1
Loss on disposal of property, plant and equipment	—				—				—				6				—				6
Undistributed earnings of affiliates—net	(292		)		(423		)		(477		)		(3		)		1,192				(3		)
Changes in:
Intercompany accounts receivable/accounts payable—net	(14		)		(117		)		169				(38		)		—				—
Accounts receivable—net	—				(7		)		68				7				—				68
Inventories	—				(1		)		(37		)		(14		)		—				(52		)
Accrued and prepaid income taxes	(1		)		(35		)		51				(7		)		—				8
Accounts and notes payable and accrued expenses	—				(12		)		34				22				—				44
Customer advances	—				—				59				—				—				59
Other—net	—				9				7				(53		)		—				(37		)
Net cash provided by (used in) operating activities	4				(285		)		389				1,389				—				1,497
Investing Activities:
Additions to property, plant and equipment	—				—				(14		)		(408		)		—				(422		)
Proceeds from sale of property, plant and equipment	—				—				—				26				—				26
Distributions received from unconsolidated affiliates	—				503				7				(500		)		—				10
Insurance proceeds	—				—				—				10				—				10
Investments in consolidated subsidiaries - capital contributions	—				(31		)		(415		)		446				—				—
Other—net	—				—				—				1				—				1
Net cash provided by (used in) investing activities	—				472				(422		)		(425		)		—				(375		)
Financing Activities:
Long-term debt—net	—				69				90				(159		)		—				—
Short-term debt—net	234				292				(424		)		(102		)		—				—
Financing fees	—				1				—				—				—				1
Dividends paid on common stock	(280		)		(537		)		—				(49		)		586				(280		)
Dividends to/from affiliates	537				—				49				—				(586		)		—
Acquisition of noncontrolling interests in TNCLP	—				—				—				(388		)		—				(388		)
Payment to CHS related to credit provision	—				—				(5		)		—				—				(5		)
Distributions to noncontrolling interests	—				—				—				(139		)		—				(139		)
Purchases of treasury stock	(467		)		—				—				—				—				(467		)
Issuances of common stock under employee stock plans	12				—				—				—				—				12
Shares withheld for taxes	(4		)		—				—				—				—				(4		)
Net cash provided by (used in) financing activities	32				(175		)		(290		)		(837		)		—				(1,270		)
Effect of exchange rate changes on cash and cash equivalents	—				—				—				(5		)		—				(5		)
Increase (decrease) in cash and cash equivalents	36				12				(323		)		122				—				(153		)
Cash and cash equivalents at beginning of period	—				15				388				432				—				835
Cash and cash equivalents at end of period	$	36			$	27			$	65			$	554			$	—			$	682

CF INDUSTRIES HOLDINGS, INC.

Condensed Consolidating Statement of Cash Flows

	Year ended December 31, 2017
	Parent				CF Industries				Subsidiary Guarantors				Non- Guarantors				Eliminations				Consolidated
	(in millions)
Operating Activities:
Net earnings (loss)	$	358			$	(361	)		$	(1,103	)		$	308			$	1,248			$	450
Adjustments to reconcile net earnings (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	—				13				22				848				—				883
Deferred income taxes	—				—				(599		)		(2		)		—				(601		)
Stock-based compensation expense	17				—				—				—				—				17
Unrealized net loss on natural gas derivatives	—				—				51				10				—				61
Loss on embedded derivative	—				—				4				—				—				4
Gain on sale of equity method investments	—				—				—				(14		)		—				(14		)
Loss on debt extinguishment	—				53				—				—				—				53
Loss on disposal of property, plant and equipment	—				—				—				3				—				3
Undistributed losses (earnings) of affiliates—net	361				1,091				(204		)		3				(1,248		)		3
Changes in:
Intercompany accounts receivable/accounts payable—net	(736		)		(1,297		)		1,527				506				—				—
Accounts receivable—net	—				—				(51		)		(6		)		—				(57		)
Inventories	—				(4		)		60				(16		)		—				40
Accrued and prepaid income taxes	(1		)		(60		)		1,217				(347		)		—				809
Accounts and notes payable and accrued expenses	—				228				27				(256		)		—				(1		)
Customer advances	—				—				48				—				—				48
Other—net	—				(5		)		(32		)		(30		)		—				(67		)
Net cash (used in) provided by operating activities	(1		)		(342		)		967				1,007				—				1,631
Investing Activities:
Additions to property, plant and equipment	—				—				(12		)		(461		)		—				(473		)
Proceeds from sale of property, plant and equipment	—				—				—				20				—				20
Proceeds from sale of equity method investment	—				—				—				16				—				16
Distributions received from unconsolidated affiliates	—				—				179				(165		)		—				14
Proceeds from sale of auction rate securities	—				9				—				—				—				9
Other—net	—				—				—				1				—				1
Net cash provided by (used in) investing activities	—				9				167				(589		)		—				(413		)
Financing Activities:
Long-term debt—net	—				(125		)		150				(25		)		—				—
Payments of long-term borrowings	—				(1,148		)		—				—				—				(1,148		)
Short-term debt—net	280				1,584				(1,870		)		6				—				—
Payment to CHS related to credit provision	—				—				(5		)		—				—				(5		)
Financing fees	—				(1		)		—				—				—				(1		)
Dividends paid on common stock	(280		)		—				—				(103		)		103				(280		)
Distributions to noncontrolling interests	—				—				—				(131		)		—				(131		)
Issuances of common stock under employee stock plans	1				—				—				—				—				1
Dividends to/from affiliates	—				2				101				—				(103		)		—
Net cash provided by (used in) financing activities	1				312				(1,624		)		(253		)		—				(1,564		)
Effect of exchange rate changes on cash and cash equivalents	—				—				—				12				—				12
(Decrease) increase in cash, cash equivalents and restricted cash	—				(21		)		(490		)		177				—				(334		)
Cash, cash equivalents and restricted cash at beginning of period	—				36				878				255				—				1,169
Cash, cash equivalents and restricted cash at end of period	$	—			$	15			$	388			$	432			$	—			$	835

CF INDUSTRIES HOLDINGS, INC.

Condensed Consolidating Statement of Cash Flows

	Year ended December 31, 2016
	Parent				CF Industries				Subsidiary Guarantors				Non- Guarantors				Eliminations				Consolidated
	(in millions)
Operating Activities:
Net (loss) earnings	$	(277	)		$	(304	)		$	(12	)		$	354			$	81			$	(158	)
Adjustments to reconcile net (loss) earnings to net cash provided by (used in) operating activities:
Depreciation and amortization	—				21				55				602				—				678
Deferred income taxes	—				—				740				(1		)		—				739
Stock-based compensation expense	18				—				—				1				—				19
Unrealized net gain on natural gas derivatives	—				—				(225		)		(35		)		—				(260		)
Loss on embedded derivative	—				—				23				—				—				23
Impairment of equity method investment in PLNL	—				—				—				134				—				134
Loss on debt extinguishment	—				167				—				—				—				167
Loss on disposal of property, plant and equipment	—				—				2				8				—				10
Undistributed losses (earnings) of affiliates—net	304				92				(315		)		9				(81		)		9
Changes in:
Intercompany accounts receivable/accounts payable—net	(4		)		(10		)		308				(294		)		—				—
Accounts receivable—net	—				44				(11		)		(15		)		—				18
Inventories	—				—				(8		)		1				—				(7		)
Accrued and prepaid income taxes	—				—				(682		)		6				—				(676		)
Accounts and notes payable and accrued expenses	(8		)		(63		)		(12		)		65				—				(18		)
Customer advances	—				—				(120		)		—				—				(120		)
Other—net	—				(6		)		(17		)		82				—				59
Net cash provided by (used in) operating activities	33				(59		)		(274		)		917				—				617
Investing Activities:
Additions to property, plant and equipment	—				—				(25		)		(2,186		)		—				(2,211		)
Proceeds from sale of property, plant and equipment	—				—				4				10				—				14
Investments in unconsolidated affiliates	—				(44		)		(649		)		—				693				—
Other—net	—				6				—				(4		)		—				2
Net cash used in investing activities	—				(38		)		(670		)		(2,180		)		693				(2,195		)
Financing Activities:
Long-term debt—net	—				125				—				(125		)		—				—
Proceeds from long-term borrowings	—				1,244				—				—				—				1,244
Payments of long-term borrowings	—				(1,170		)		—				—				—				(1,170		)
Short-term debt—net	106				(40		)		(371		)		305				—				—
Proceeds from short-term borrowings	—				150				—				—				—				150
Payments on short-term borrowings	—				(150		)		—				—				—				(150		)
Payment to CHS related to credit provision	—				—				(5		)		—				—				(5		)
Financing fees	—				(31		)		—				—				—				(31		)
Dividends paid on common stock	(280		)		(140		)		(140		)		(222		)		502				(280		)
Issuance of noncontrolling interest in CFN	—				—				—				2,800				—				2,800
Distributions to noncontrolling interests	—				—				—				(119		)		—				(119		)
Distributions received for CHS strategic venture	—				—				2,000				(2,000		)		—				—
Dividends to/from affiliates	140				145				217				—				(502		)		—
Other—net	—				—				—				693				(693		)		—
Net cash (used in) provided by financing activities	(34		)		133				1,701				1,332				(693		)		2,439
Effect of exchange rate changes on cash and cash equivalents	—				—				—				(1		)		—				(1		)
(Decrease) increase in cash, cash equivalents and restricted cash	(1		)		36				757				68				—				860
Cash, cash equivalents and restricted cash at beginning of period	1				—				121				187				—				309
Cash, cash equivalents and restricted cash at end of period	$	—			$	36			$	878			$	255			$	—			$	1,169

CF INDUSTRIES HOLDINGS, INC.

27. Subsequent Event

On February 13, 2019, the Board authorized the repurchase of up to $1 billion of CF Holdings common stock through December 31, 2021 (the 2019 Share Repurchase Program). Repurchases under the 2019 Share Repurchase Program may be made from time to time in the open market, through privately negotiated transactions, 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.

CF INDUSTRIES HOLDINGS, INC.