Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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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, 2021 and 2020, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2021, 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, 2021, 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 24, 2022 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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

CF INDUSTRIES HOLDINGS, INC.

Evaluation of the measurement of projected benefit obligations

As discussed in Note 12 to the consolidated financial statements, the Company’s projected benefit obligation (PBO) associated with its defined benefit pension plans established in North America and the United Kingdom were $841 million and $590 million as of December 31, 2021, respectively. The Company’s PBO represents an actuarially determined estimate of the present value of the future benefit payments attributed to past service under its pension plans to the beneficiaries of those plans. Determining the PBO requires the Company to make assumptions, including the selection of a discount rate for each of the North American and United Kingdom plans and assumptions relating to inflationary increases, including but not limited to an adjusted retail price index (RPI) for the United Kingdom plans. The selected discount rate and estimated inflationary increases are then applied to these future benefit payments in determining the present value of those obligations as of December 31, 2021.

We identified the evaluation of the Company’s measurement of the PBO to be a critical audit matter. Specialized skills were needed to evaluate the assumptions regarding the discount rates utilized in the measurement of the PBO for each of the North American and United Kingdom plans and the adjusted RPI utilized in the measurement of the PBO for the Company’s United Kingdom plans. In addition, a high degree of auditor judgment was required regarding the evaluation of these discount rates and the adjusted RPI, as minor changes to these assumptions could have a significant impact on the PBO.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s pension accounting process, including controls related to the determination of discount rates and adjusted RPI assumptions utilized in determining the Company’s PBO for each of the North American and United Kingdom pension plans. We involved actuarial professionals with specialized skills and knowledge, who evaluated the Company’s PBO by evaluating the Company’s actuary reports. Specifically, as it relates to the selected discount rates and adjusted RPI assumptions, the actuarial professionals:

developed an understanding and assessed the methods used by the Company’s actuaries to develop the discount rates and adjusted RPI
evaluated the relevance and reliability of information used by the Company’s actuaries in the development of the discount rates and the adjusted RPI
evaluated the North American discount rates’ period over period change using market trends based on published yield curves and indices
recalculated the Company’s single equivalent discount rate using the PBO cash flows and the Company’s actuaries’ proprietary yield curve for the North American discount rates
independently developed a single equivalent discount rate using the PBO cash flows and publicly available yield curves for the North American pension plans, and compared that to the Company’s selected discount rates for North America
developed discount rates using publicly available yield curves for the United Kingdom, adjusted for the assessment of the timing of payments expected to be made to beneficiaries under the Company’s pension plans, and compared those to the Company’s selected discount rates for the United Kingdom
developed an inflationary factor using published spot rate projection based on the assessment of the timing of payments expected to be made to beneficiaries under the Company’s pension plans within the United Kingdom, and compared that to the Company’s adjusted RPI.

Impairment of U.K. goodwill and long-lived assets

As discussed in Note 6 to the consolidated financial statements, the Company recognized long-lived assets and goodwill impairment charges of $236 million and $285 million, respectively, in the year ended December 31, 2021. Long-lived assets are reviewed for impairment at the asset group level whenever events or changes in circumstances indicate the asset group’s carrying amount may not be recoverable. An entity may first assess qualitative factors to determine whether it is necessary perform a quantitative goodwill impairment test. If a quantitative test for goodwill impairment is necessary, the Company must estimate the fair value of the reporting units to which goodwill is assigned. Management concluded the United Kingdom (U.K.) energy crisis necessitated a quantitative impairment evaluation of long-lived assets and goodwill of the Company’s U.K. Ammonia, U.K. AN and U.K. Other asset groups and reporting units to determine if their fair value had declined below their carrying value. Fair values of the asset groups and reporting units were estimated using the income approach. Management’s estimated future cash flows for the U.K. asset groups and U.K. reporting units involved the use of significant judgments and assumptions with respect to forecasted product selling prices and projected natural gas costs, among other factors.

CF INDUSTRIES HOLDINGS, INC.

We identified the evaluation of the long-lived assets and goodwill impairment analyses for the U.K. Ammonia, U.K. AN, and U.K. Other asset groups and reporting units as a critical audit matter. Subjective auditor judgment was required to evaluate the forecasted product selling prices and projected natural gas costs. Changes to these assumptions could have had a substantial impact on the fair value of each asset group or reporting unit and, as a result, on the amount of the impairment charges recognized.

The following are the primary procedures we performed to address the critical audit matter:

evaluated the design and tested the operating effectiveness of internal controls related to the valuation of long-lived assets and goodwill, including controls related to the assumptions about forecasted product selling prices and projected natural gas costs
evaluated the forecasted product selling prices by comparing them to the Company’s historical selling prices and external market data
evaluated the projected natural gas costs by comparing them to external market and industry data
performed sensitivity analyses over forecasted product selling prices and projected natural gas costs to evaluate management’s selected assumptions relative to a range of reasonable outcomes.

(signed) KPMG LLP

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

Chicago, Illinois

February 24, 2022

CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Year ended December 31,
	2021		2020		2019
	(in millions, except per share amounts)
Net sales	$	6,538	$	4,124	$	4,590
Cost of sales	4,151		3,323		3,416
Gross margin	2,387		801		1,174
Selling, general and administrative expenses	223		206		239
Goodwill impairment	285		—		—
Long-lived and intangible asset impairment	236		—		—

Other operating—net	(39)		(17)		(73)
Total other operating costs and expenses	705		189		166

Equity in earnings (loss) of operating affiliate	47		11		(5)
Operating earnings	1,729		623		1,003
Interest expense	184		179		237

Interest income	(1)		(18)		(20)
Loss on debt extinguishment	19		—		21
Other non-operating—net	(16)		(1)		(7)
Earnings before income taxes	1,543		463		772
Income tax provision	283		31		126

Net earnings	1,260		432		646
Less: Net earnings attributable to noncontrolling interest	343		115		153
Net earnings attributable to common stockholders	$	917	$	317	$	493
Net earnings per share attributable to common stockholders:
Basic	$	4.27	$	1.48	$	2.24
Diluted	$	4.24	$	1.47	$	2.23
Weighted-average common shares outstanding:
Basic	215.0		214.9		220.2
Diluted	216.2		215.2		221.6

See Accompanying Notes to Consolidated Financial Statements.

CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Year ended December 31,
	2021		2020		2019
	(in millions)
Net earnings	$	1,260	$	432	$	646
Other comprehensive income:
Foreign currency translation adjustment—net of taxes	3		44		62
Derivatives—net of taxes	—		(1)		—

Defined benefit plans—net of taxes	60		3		(57)
	63		46		5
Comprehensive income	1,323		478		651
Less: Comprehensive income attributable to noncontrolling interest	343		115		153
Comprehensive income attributable to common stockholders	$	980	$	363	$	498

See Accompanying Notes to Consolidated Financial Statements.

CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS


	December 31,
	2021		2020
	(in millions, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	1,628	$	683

Accounts receivable—net	497		265
Inventories	408		287

Prepaid income taxes	4		97

Other current assets	56		35
Total current assets	2,593		1,367
Property, plant and equipment—net	7,081		7,632
Investment in affiliate	82		80
Goodwill	2,091		2,374

Operating lease right-of-use assets	243		259
Other assets	285		311
Total assets	$	12,375	$	12,023
Liabilities and Equity
Current liabilities:

Accounts payable and accrued expenses	$	565	$	424
Income taxes payable	24		—
Customer advances	700		130
Current operating lease liabilities	89		88
Current maturities of long-term debt	—		249
Other current liabilities	54		15
Total current liabilities	1,432		906
Long-term debt, net of current maturities	3,465		3,712
Deferred income taxes	1,029		1,184
Operating lease liabilities	162		174

Other liabilities	251		444
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, 2021—207,603,940 shares issued and 2020—214,057,701 shares issued	2		2
Paid-in capital	1,375		1,317
Retained earnings	2,088		1,927
Treasury stock—at cost, 2021—27,962 shares and 2020—102,843 shares	(2)		(4)
Accumulated other comprehensive loss	(257)		(320)
Total stockholders’ equity	3,206		2,922
Noncontrolling interest	2,830		2,681
Total equity	6,036		5,603
Total liabilities and equity	$	12,375	$	12,023

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 Interest		Total Equity
	(in millions)
Balance as of December 31, 2018	$	2	$	(504)	$	1,368	$	2,463	$	(371)	$	2,958	$	2,773	$	5,731



Net earnings	—		—		—		493		—		493		153		646
Other comprehensive income	—		—		—		—		5		5		—		5
Purchases of treasury stock	—		(337)		—		—		—		(337)		—		(337)
Retirement of treasury stock	—		843		(110)		(733)		—		—		—		—
Acquisition of treasury stock under employee stock plans	—		(4)		—		—		—		(4)		—		(4)
Issuance of $0.01 par value common stock under employee stock plans	—		2		17		—		—		19		—		19

Stock-based compensation expense	—		—		28		—		—		28		—		28

Cash dividends ($1.20 per share)	—		—		—		(265)		—		(265)		—		(265)



Distributions declared to noncontrolling interest	—		—		—		—		—		—		(186)		(186)

Balance as of December 31, 2019	$	2	$	—	$	1,303	$	1,958	$	(366)	$	2,897	$	2,740	$	5,637



Net earnings	—		—		—		317		—		317		115		432
Other comprehensive income	—		—		—		—		46		46		—		46
Purchases of treasury stock	—		(100)		—		—		—		(100)		—		(100)
Retirement of treasury stock	—		107		(17)		(90)		—		—		—		—
Acquisition of treasury stock under employee stock plans	—		(13)		—		—		—		(13)		—		(13)
Issuance of $0.01 par value common stock under employee stock plans	—		2		6		—		—		8		—		8

Stock-based compensation expense	—		—		25		—		—		25		—		25

Cash dividends ($1.20 per share)	—		—		—		(258)		—		(258)		—		(258)



Distributions declared to noncontrolling interest	—		—		—		—		—		—		(174)		(174)

Balance as of December 31, 2020	$	2	$	(4)	$	1,317	$	1,927	$	(320)	$	2,922	$	2,681	$	5,603
Net earnings	—		—		—		917		—		917		343		1,260
Other comprehensive income	—		—		—		—		63		63		—		63
Purchases of treasury stock	—		(540)		—		—		—		(540)		—		(540)
Retirement of treasury stock	—		554		(58)		(496)		—		—		—		—
Acquisition of treasury stock under employee stock plans	—		(13)		—		—		—		(13)		—		(13)
Issuance of $0.01 par value common stock under employee stock plans	—		1		65		—		—		66		—		66

Stock-based compensation expense	—		—		30		—		—		30		—		30

Cash dividends ($1.20 per share)	—		—		—		(260)		—		(260)		—		(260)

Deferred tax related to noncontrolling interest	—		—		21		—		—		21		—		21

Distributions declared to noncontrolling interest	—		—		—		—		—		—		(194)		(194)

Balance as of December 31, 2021	$	2	$	(2)	$	1,375	$	2,088	$	(257)	$	3,206	$	2,830	$	6,036

See Accompanying Notes to Consolidated Financial Statements.

CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year ended December 31,
	2021		2020		2019
	(in millions)
Operating Activities:
Net earnings	$	1,260	$	432	$	646
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	888		892		875
Deferred income taxes	(196)		(74)		149
Stock-based compensation expense	30		25		28

Unrealized net loss (gain) on natural gas derivatives	25		(6)		14
Loss on embedded derivative	1		3		4
Loss on debt extinguishment	19		—		21
Goodwill impairment	285		—		—
Long-lived and intangible asset impairment	236		—		—
Gain on sale of emission credits	(49)		—		—

Loss (gain) on disposal of property, plant and equipment	3		15		(40)
Undistributed (earnings) losses of affiliate—net of taxes	(6)		(1)		2
Changes in:
Accounts receivable—net	(235)		(19)		(6)
Inventories	(123)		27		(26)
Accrued and prepaid income taxes	94		8		22
Accounts payable and accrued expenses	142		(15)		(72)
Customer advances	570		11		(30)

Other—net	(71)		(67)		(82)
Net cash provided by operating activities	2,873		1,231		1,505
Investing Activities:
Additions to property, plant and equipment	(514)		(309)		(404)
Proceeds from sale of property, plant and equipment	1		2		70




Distributions received from unconsolidated affiliate	—		6		—
Insurance proceeds for property, plant and equipment	—		2		15
Purchase of investments held in nonqualified employee benefit trust	(13)		—		—
Proceeds from sale of investments held in nonqualified employee benefit trust	12		—		—
Purchase of U.K. emission credits	(10)		—		—
Proceeds from sale of emission credits	58		—		—


Net cash used in investing activities	(466)		(299)		(319)
Financing Activities:

Payments of long-term borrowings	(518)		—		(769)
Proceeds from short-term borrowings	—		500		—
Repayments of short-term borrowings	—		(500)		—
Payment to CHS related to credit provision	(5)		(5)		(5)
Financing fees	—		—		(3)
Purchases of treasury stock	(539)		(100)		(370)
Dividends paid on common stock	(260)		(258)		(265)


Distributions to noncontrolling interest	(194)		(174)		(186)
Proceeds from issuances of common stock under employee stock plans	64		5		19
Cash paid for shares withheld for taxes	(11)		(10)		(4)




Net cash used in financing activities	(1,463)		(542)		(1,583)
Effect of exchange rate changes on cash and cash equivalents	1		6		2
Increase (decrease) in cash and cash equivalents	945		396		(395)
Cash and cash equivalents at beginning of period	683		287		682
Cash and cash equivalents at end of period	$	1,628	$	683	$	287

See Accompanying Notes to Consolidated Financial Statements.

CF INDUSTRIES HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Background and Basis of Presentation

Our mission is to provide clean energy to feed and fuel the world sustainably. With our employees focused on safe and reliable operations, environmental stewardship, and disciplined capital and corporate management, we are on a path to decarbonize our ammonia production network – the world’s largest – to enable green and blue hydrogen and nitrogen products for energy, fertilizer, emissions abatement and other industrial activities. Our nine nitrogen manufacturing complexes in the United States, Canada and the United Kingdom, an extensive storage, transportation and distribution network in North America, and logistics capabilities enabling a global reach underpin our strategy to leverage our unique capabilities to accelerate the world’s transition to clean energy. Our principal customers are cooperatives, independent fertilizer distributors, traders, wholesalers and industrial users. Our core product is anhydrous ammonia (ammonia), which contains 82% nitrogen and 18% hydrogen. Our nitrogen products that are upgraded from ammonia are granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN). Our other nitrogen products include diesel exhaust fluid (DEF), urea liquor, nitric acid and aqua ammonia, which are sold primarily to our industrial customers, and compound fertilizer products (NPKs), which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus and potassium.

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 as of December 31, 2021 include:

five U.S. nitrogen manufacturing facilities, located in Donaldsonville, Louisiana; Port Neal, Iowa; Yazoo City, Mississippi; Verdigris, Oklahoma; and Woodward, Oklahoma. These facilities are wholly owned directly or indirectly by CF Industries Nitrogen, LLC (CFN), of which we own approximately 89% and CHS Inc. (CHS) owns the remainder. See Note 18—Noncontrolling Interest for additional information on our strategic venture with CHS;
two Canadian nitrogen 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.

2. Summary of Significant Accounting Policies

Consolidation and Noncontrolling Interest

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.

We own approximately 89% of the membership interests in CFN and consolidate CFN in our financial statements. CHS’ minority equity interest in CFN is included in noncontrolling interest in our consolidated financial statements.

See Note 18—Noncontrolling Interest for additional information.

CF INDUSTRIES HOLDINGS, INC.

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 emission credits required to meet environmental regulations, the cost of customer incentives, the cost to fulfill contractual commitments to our customers, useful lives of property and identifiable intangible assets, the evaluation of potential impairments of property, investments, identifiable intangible assets and goodwill, income tax and valuation reserves, allowances for doubtful accounts receivable, the measurement of the fair values of investments for which markets are not active, the determination of the benefit obligation 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(s), and (5) recognition of revenue when (or as) each performance obligation is satisfied. 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 occurs at the later of when title or risk of loss transfers to the customer. Control generally transfers to the customer at a point in time 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 not identify delivery of the product as a performance obligation. We account for freight income associated with the delivery of these products as freight revenue, since this activity fulfills our obligation to transfer the product to the customer. 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.

Investments

Short-term investments and noncurrent investments are accounted for primarily as available-for-sale securities reported at fair value. Changes in the fair value of available-for-sale debt securities are recognized in other comprehensive income. 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.

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 our investment in an affiliate 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 9—Equity Method Investment for additional information.

CF INDUSTRIES HOLDINGS, INC.

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. If 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 would be 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.

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 7—Property, Plant and Equipment—Net for additional information.

Recoverability of Long-Lived Assets

We review property, plant and equipment and other long-lived assets at the asset group level in order to assess recoverability based on expected future undiscounted cash flows whenever events or circumstances indicate that the carrying value may not be recoverable. If the sum of the expected future net undiscounted cash flows is less than the carrying value, an impairment loss would be recognized. The impairment loss is measured as the amount by which the carrying value exceeds the fair value of the asset. See Note 6—United Kingdom Energy Crisis and Impairment Charges and Note 7—Property, Plant and Equipment—Net for additional information.

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 whenever events or circumstances indicate that the carrying value may not be recoverable. 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 carrying amount, 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 6—United Kingdom Energy Crisis and Impairment Charges and Note 8—Goodwill and Other Intangible Assets for additional information regarding our goodwill and other intangible assets.

CF INDUSTRIES HOLDINGS, INC.

Leases

Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate the present value represents our secured incremental borrowing rate and is calculated based on the treasury yield curve commensurate with the term of each lease, and a spread representative of our secured borrowing costs. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Leases may be classified as either operating leases or finance leases. We have made an accounting policy election to not include leases with an initial term of 12 months or less on the balance sheet. For finance leases, if any, ROU assets are amortized over the lease term on a straight-line basis and interest expense is recognized using the effective interest method and based on the lease liability at period end. 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. For our rail car leases, barge tow charters, and terminal and warehouse storage agreements, we have made an accounting policy election to not separate lease and non-lease components, such as operating costs and maintenance, due to sufficient data not being available. As a result, the non-lease components are included in the ROU assets and lease liabilities on our consolidated balance sheet. See Note 25—Leases for additional information.

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.

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.

Interest and penalties related to unrecognized tax benefits are reported as interest expense and income tax expense, respectively.

See Note 11—Income Taxes for additional information.

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 use are primarily natural gas fixed price swaps, basis swaps and 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 16—Derivative Financial Instruments for additional information.

CF INDUSTRIES HOLDINGS, INC.

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 13—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.

Emission Credits

Emission credits may be generated by or granted to the Company through emissions trading systems or other regulatory programs. From time to time, we may also purchase emission credits. We have elected to account for emission credits using the intangible asset model. Under this model, emission credits that are purchased are measured at their cost basis and tested for impairment annually. We do not recognize any internally generated emission credits under the intangible asset model until a monetary transaction occurs, such as a sale of the emission credits. If a facility exceeds regulatory emissions allowance levels and offsetting credits are not held by us, our obligation is recognized as an operating expense and a liability at the fair value of the emissions allowance deficit.

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 restricted stock 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. We have elected to recognize equity award forfeitures as they occur in determining the compensation cost to be recognized in each period. See Note 20—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 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.

CF INDUSTRIES HOLDINGS, INC.

Foreign Currency Translation and Remeasurement

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 (loss) 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 in 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

On January 1, 2020, we adopted Accounting Standards Update (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. This ASU does not affect the accounting for the service element of a hosting arrangement that is a service contract. We adopted this ASU prospectively. The adoption of this ASU did not have a material impact on our consolidated financial statements; however, it could have an effect on future financial results if significant new software involving a cloud computing arrangement is implemented. In this case, a certain portion of the implementation costs would be deferred and expensed over the term of the cloud computing arrangement.

4. Revenue Recognition

Our performance obligations under a customer 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. 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. When we arrange delivery of the product and control of the product transfers upon loading, we recognize freight revenue, which was not material for 2021, 2020 or 2019.

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 2021, 2020 and 2019, the total amount of revenue for these contracts was $92 million, $44 million and $55 million, respectively.

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 9—Equity Method Investment, 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 the year ended December 31, 2021, in addition to products purchased from PLNL, we recognized $68 million of revenue from sales of granular urea, which we purchased in order to satisfy obligations under contracts with our customers due primarily to the impact of Winter Storm Uri. Other than products purchased from PLNL and granular urea purchased as a result of Winter Storm Uri, products purchased in the marketplace in order to satisfy the obligations of our customers were not material during 2021, 2020 or 2019.

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. Any sales tax, value added tax, and other tax we collect concurrently with our revenue-producing activities are excluded from revenue. Returns of our product by our customers are permitted only when the product is not to specification. Returns were not material during 2021, 2020 or 2019.

We offer cash incentives to certain customers generally based on the volume of their purchases over the fertilizer year ending June 30. Our cash incentives do not provide an option to the customer for additional product. Accrual of these incentives involves the use of estimates, including how much product the customer will purchase and whether the customer will achieve a

CF INDUSTRIES HOLDINGS, INC.

certain level of purchases within the incentive period. The balances of customer incentives accrued at December 31, 2021 and 2020 were not material.

Revenue Disaggregation

We track our revenue by product and by geography. See Note 22—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 2021, 2020 and 2019:


	Ammonia		Granular Urea		UAN		AN		Other		Total
	(in millions)
Year ended December 31, 2021
North America	$	1,575	$	1,880	$	1,667	$	212	$	400	$	5,734
Europe and other	212		—		121		298		173		804
Total revenue	$	1,787	$	1,880	$	1,788	$	510	$	573	$	6,538

Year ended December 31, 2020
North America	$	874	$	1,183	$	998	$	197	$	235	$	3,487
Europe and other	146		65		65		258		103		637
Total revenue	$	1,020	$	1,248	$	1,063	$	455	$	338	$	4,124

Year ended December 31, 2019
North America	$	948	$	1,269	$	1,176	$	200	$	256	$	3,849
Europe and other	165		73		94		306		103		741
Total revenue	$	1,113	$	1,342	$	1,270	$	506	$	359	$	4,590

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 2021, 2020 and 2019, the amount of customer bad debt expense recognized was not material.

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.

As of December 31, 2021 and 2020, we had $700 million and $130 million, respectively, in customer advances on our consolidated balance sheets. The increase in the balance of customer advances was due primarily to higher average selling prices and an increase in forward contracts amidst an increasing price environment. During 2021, all of our customer advances that were recorded as of December 31, 2020 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, 2021, 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 $809 million. We expect to recognize approximately 44% of these performance obligations as revenue in 2022, approximately 50% as revenue during 2023 and 2024, approximately 4% as revenue during 2025 and 2026, 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 $162 million as of December 31, 2021. Other than the performance obligations described above, any performance obligations with our customers that were unfulfilled or partially filled at December 31, 2021 will be satisfied in 2022.

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 2021, 2020 or 2019.

CF INDUSTRIES HOLDINGS, INC.

5. Net Earnings Per Share

Net earnings per share were computed as follows:


	Year ended December 31,
	2021		2020		2019
	(in millions, except per share amounts)
Net earnings attributable to common stockholders	$	917	$	317	$	493
Basic earnings per common share:
Weighted-average common shares outstanding	215.0		214.9		220.2
Net earnings attributable to common stockholders	$	4.27	$	1.48	$	2.24
Diluted earnings per common share:
Weighted-average common shares outstanding	215.0		214.9		220.2
Dilutive common shares—stock-based awards	1.2		0.3		1.4
Diluted weighted-average shares outstanding	216.2		215.2		221.6
Net earnings attributable to common stockholders	$	4.24	$	1.47	$	2.23

Dilutive earnings per share is calculated using weighted-average common shares outstanding, including the dilutive effect of stock-based awards as determined under the treasury stock method. In the computation of diluted earnings per common share, potentially dilutive stock-based awards are excluded if the effect of their inclusion is anti-dilutive. Shares for anti-dilutive stock-based awards not included in the computation of diluted earnings per common share were 0.9 million, 3.3 million and 1.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.

6. United Kingdom Energy Crisis and Impairment Charges

During the third quarter of 2021, the United Kingdom began experiencing an energy crisis that included a substantial increase in the price of natural gas. In the first half of 2021, natural gas prices had increased to levels that were considered high compared to historical prices, and prices then more than doubled within the third quarter of 2021. On September 15, 2021, we announced the halt of operations at both our Ince and Billingham manufacturing facilities in the United Kingdom due to negative profitability driven by the high cost of natural gas. The halt of operations at our U.K. plants impacted the availability of certain products in the United Kingdom, including carbon dioxide, which is a byproduct of ammonia production. Due to the critical nature of carbon dioxide to certain industries in the United Kingdom, on September 21, 2021, we entered into an interim agreement with the U.K. government. Under the terms of the agreement, the U.K. government agreed to cover the costs to restart the ammonia plant at Billingham and to offset losses incurred from production for a 21-day period. As a result, we resumed production of ammonia at the Billingham facility in order to produce carbon dioxide for the United Kingdom. While the interim agreement was in place, we entered into new carbon dioxide pricing and offtake agreements with our customers, which had an initial term through January 31, 2022. The amount of financial support provided by the U.K. government under the terms of the interim agreement was not material. As of the filing of this report, production continues to be idled at our Ince facility.

Impairment Charges

The U.K. energy crisis necessitated an evaluation of the long-lived assets, including definite-lived intangible assets, and goodwill of our U.K. operations to determine if their fair value had declined to below their carrying value. We performed the impairment evaluations on the U.K. Ammonia, U.K. AN and U.K. Other asset groups’ long-lived assets, including definite-lived intangible assets, and the U.K. Ammonia, U.K. AN and U.K. Other reporting units’ goodwill as of September 30, 2021. Our assets groups are the same as our reporting units. Based on these analyses, we concluded that a decline in fair value had occurred, and we recognized impairment charges of $495 million in the third quarter of 2021, consisting of long-lived and intangible asset impairment charges of $236 million and a goodwill impairment charge of $259 million.

In the fourth quarter of 2021, natural gas prices in the United Kingdom continued to rise, which triggered an additional impairment test of long-lived assets and goodwill and resulted in an additional goodwill impairment charge of $26 million. The results of our long-lived asset impairment test indicated that no additional long-lived asset impairment should be recorded as the undiscounted cash flows were in excess of the carrying values for each of the U.K. asset groups. In total, we recognized

CF INDUSTRIES HOLDINGS, INC.

impairment charges of $521 million in 2021, consisting of long-lived and intangible asset impairment charges of $236 million and goodwill impairment charges of $285 million.

The valuation of our asset groups and reporting units requires significant judgment in evaluating recent indicators of market activity and estimating future cash flows, discount rates, and other factors. Expected cash flows used in the long-lived asset and goodwill impairment tests reflect assumptions about product selling prices and natural gas costs, as well as estimates of future production and sales volumes, operating rates, operating expenses, inflation, discount rates, tax rates and capital spending. The valuation also incorporated assumptions regarding the time it could take for the U.K. energy crisis to be resolved.

For purposes of our goodwill impairment analyses, we estimated the fair value of the reporting units using the income approach, which incorporated the estimated future cash flows and a terminal value discounted to their present value using an appropriate risk-adjusted discount rate from the perspective of a market participant. The estimated future cash flows were based on our internal forecasts, updated for recent events. These estimated future cash flows went beyond the specific operating plans, using a terminal value calculation, which incorporated historical and forecasted trends and an estimate of long-term future growth rates. The future growth rates were based on our view of the long-term outlook for each reporting unit.

The discount rates utilized in the income approach, for our goodwill impairment tests, and to discount the cash flows in calculating the long-lived asset impairment, were derived using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. The discount rates are commensurate with the risks and uncertainties inherent in the business and in the United Kingdom and our cash flow forecasts, updated for recent events.

The fair value of our property, plant and equipment utilized in the long-lived asset impairment analysis was estimated using the indirect method of the cost approach by determining the reproduction cost new of the assets and applying an appropriate inutility adjustment for certain assets in an idled state. Additional assumptions utilized in the long-lived asset impairment analysis were royalty rates and attrition rates in estimating the fair value of our definite-lived intangible assets, consisting of trade names and customer relationships, for which we used the relief from royalty method of the income approach and the multi-period excess earnings method, respectively. Due to the inherent uncertainties involved in making estimates and assumptions, actual results may differ from those assumed in our forecasts.

As of December 31, 2021, after the recognition of the $26 million goodwill impairment charge in the fourth quarter of 2021, we have no remaining goodwill related to our U.K. operations, and the remaining long-lived assets related to our U.K. operations were approximately $425 million, primarily consisting of property, plant and equipment. For further information see Note 7—Property, Plant and Equipment—Net and Note 8—Goodwill and Other Intangible Assets.

As discussed above, the results of our fourth quarter long-lived asset impairment test indicated that no additional long-lived asset impairment should be recorded as the undiscounted cash flows were in excess of the carrying values for each of the U.K. asset groups. Of the factors discussed above, the assumptions regarding product selling prices and natural gas costs included in the expected cash flows utilized in the long-lived asset impairment test were more sensitive than others. Assuming that all other assumptions utilized in our expected cash flows and the other inputs used in our long-lived asset test remained unchanged, a decrease of $5.00 per product ton in the average selling price or an increase of $0.50 per MMBtu in the cost of natural gas would have resulted in long-lived asset impairment for certain of the U.K. asset groups as the undiscounted cash flows would have been lower than their carrying values, and the resulting long-lived asset impairment charges for the fourth quarter of 2021 would have been as follows:


	Increase in
	Long-lived Asset Impairment
Assumption	(in millions)






	+$5.00		-$5.00

Average Selling Price per Product Ton	$	—	$	10



	+$0.50		-$0.50

Natural Gas Cost per MMBtu(1)	$	13	$	—

(1)The sensitivity impact of a $0.50/MMBtu increase or decrease in the cost of natural gas includes any corresponding impact to selling prices from contractually stipulated sales provisions.

CF INDUSTRIES HOLDINGS, INC.

7. Property, Plant and Equipment—Net

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


	December 31,
	2021		2020
	(in millions)
Land	$	68	$	68
Machinery and equipment(1)	12,757		12,539
Buildings and improvements(1)	915		895
Construction in progress(1)	148		275
Property, plant and equipment(2)	13,888		13,777
Less: Accumulated depreciation and amortization	6,807		6,145
Property, plant and equipment—net	$	7,081	$	7,632

(1)As of December 31, 2021, machinery and equipment, buildings and improvements, and construction in progress include impairment charges in 2021 of $169 million, $5 million and $8 million, respectively.

(2)As of December 31, 2021 and 2020, we had property, plant and equipment that was accrued but unpaid of approximately $35 million and $43 million, respectively.

Depreciation and amortization related to property, plant and equipment was $871 million, $876 million and $855 million in 2021, 2020 and 2019, respectively.

Asset impairment—During the third quarter of 2021, in light of the substantial increase in natural gas prices in the United Kingdom and its estimated impact on our U.K. operations, we identified a triggering event indicating possible impairment of the long-lived assets related to our U.K. manufacturing facilities within our Ammonia, AN and Other segments, including property, plant, and equipment. Accordingly, we performed a recoverability test on the U.K. Ammonia, U.K. AN and U.K. Other asset groups’ long-lived assets as of September 30, 2021. Our assets groups are the same as our reporting units. The recoverability tests were based on forecasts of undiscounted cash flows within each of our U.K. asset groups. The results of the recoverability tests indicated that the long-lived assets within our U.K. Ammonia, U.K. AN and U.K. Other asset groups were not fully recoverable. As a result, long-lived asset impairment charges of $236 million were recorded. The amount of the impairment that was allocated to property, plant and equipment was $182 million.

In the fourth quarter of 2021, natural gas prices in the United Kingdom continued to rise, which triggered an additional impairment test of the long-lived assets in our U.K. asset groups. This test indicated that no additional long-lived asset impairment should be recorded as the undiscounted cash flows were in excess of the carrying values for each of the U.K. asset groups. Long-lived assets on our consolidated balance sheet as of December 31, 2021 include approximately $425 million related to the U.K. asset groups, which primarily consists of approximately $385 million of property, plant and equipment. See Note 6—United Kingdom Energy Crisis and Impairment Charges and Note 8—Goodwill and Other Intangible Assets for additional information.

Sale of Pine Bend facility—In 2019, we sold our Pine Bend dry bulk storage and logistics facility in Minnesota, received proceeds of $55 million and recognized a pre-tax gain of $45 million. The gain is reflected in other operating—net in our consolidated statement of operations for the year ended December 31, 2019.

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,
	2021		2020		2019
	(in millions)
Net capitalized turnaround costs at beginning of the year	$	226	$	246	$	252
Additions	250		84		102
Depreciation	(121)		(104)		(112)
Effect of exchange rate changes	—		—		4
Net capitalized turnaround costs at end of the year	$	355	$	226	$	246

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.

8. Goodwill and Other Intangible Assets

Goodwill

The following table shows the carrying amount of goodwill by reportable segment as of December 31, 2021 and 2020:


	Ammonia		Granular Urea		UAN		AN		Other		Total
	(in millions)
Balance as of December 31, 2020	$	587	$	828	$	576	$	310	$	73	$	2,374
Impairment losses	(9)		—		—		(241)		(35)		(285)
Effect of exchange rate changes	1		—		—		—		1		2
Balance as of December 31, 2021	$	579	$	828	$	576	$	69	$	39	$	2,091

Goodwill is not amortized, but is reviewed for impairment annually in the fourth quarter or more frequently whenever events or circumstances indicate that the carrying value may not be recoverable. During the third quarter of 2021, in light of the unprecedented increase in natural gas prices in the United Kingdom and its estimated impact on our U.K. operations, we identified a triggering event indicating possible impairment of goodwill within our U.K. Ammonia, U.K. AN and U.K. Other reporting units. Due to the triggering event, we performed an interim quantitative goodwill impairment analysis as of September 30, 2021 for our U.K. Ammonia, U.K. AN and U.K. Other reporting units. We estimated the fair value of the reporting units using the income approach described in Note 6—United Kingdom Energy Crisis and Impairment Charges. Based on the evaluation performed, we determined that the carrying value of all three reporting units exceeded their fair value, which resulted in a goodwill impairment charge totaling $259 million in the third quarter of 2021. The goodwill impairment was calculated as the amount that the carrying value of the reporting unit, including any goodwill, exceeded its fair value, limited to the total amount of goodwill allocated to the reporting unit.

In the fourth quarter of 2021, the continued impacts of the U.K. energy crisis triggered an additional impairment test of goodwill, which resulted in an additional goodwill impairment charge of $26 million. As a result, we have no remaining goodwill related to our U.K. operations on our consolidated balance sheet as of December 31, 2021. See Note 6—United Kingdom Energy Crisis and Impairment Charges for additional information.

CF INDUSTRIES HOLDINGS, INC.

Other Intangible Assets

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, 2021						December 31, 2020
	Gross Carrying Amount(1)		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
	(in millions)

Customer relationships	$	84	$	(60)	$	24	$	133	$	(52)	$	81

Trade names	31		(10)		21		32		(9)		23

Total intangible assets	$	115	$	(70)	$	45	$	165	$	(61)	$	104

(1)As of December 31, 2021, the gross carrying amount for customer relationships and trade names include impairment charges in 2021 of $49 million and $1 million, respectively.

Our customer relationships and trade names are being amortized over a weighted-average life of approximately 20 years. During the fourth quarter of 2021, as we had estimated that we had sufficient emission credits for our 2021 obligations, we sold excess U.K. emission credits, including those purchased in the third quarter of 2021, for approximately $46 million and recognized a corresponding gain of $27 million, which is included in other operating—net in our consolidated statement of operations. Amortization expense of our identifiable intangible assets for each of the years ended December 31, 2021, 2020 and 2019 was $8 million. The gross carrying amount and accumulated amortization of our intangible assets are also impacted by the effect of exchange rate changes. Total estimated amortization expense for each of the fiscal years 2022-2026 is $4 million.

In the third quarter of 2021, as a result of the triggering event described above, we also performed a recoverability test on our long-lived assets within the U.K. Ammonia, U.K. AN and U.K. Other asset groups, including our definite-lived intangible assets, as of September 30, 2021. The recoverability test was based on forecasts of undiscounted cash flows, as described in Note 6—United Kingdom Energy Crisis and Impairment Charges. The results of the recoverability test indicated that the long-lived assets within our U.K. Ammonia, U.K. AN and U.K. Other asset groups were not fully recoverable. As a result, long-lived asset impairment charges, inclusive of the definite-lived intangible assets, of $236 million were recorded. The amount of the impairment that was allocated to definite-lived intangible assets was $50 million.

Long-lived assets on our consolidated balance sheet as of December 31, 2021 include approximately $425 million related to the U.K. asset groups, including approximately $30 million of customer relationships and trade names.

9. Equity Method Investment

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, 2021, the total carrying value of our equity method investment in PLNL was $82 million, $39 million more than our share of PLNL’s book value. The excess is attributable to the purchase accounting impact of our acquisition of the investment in PLNL and reflects the revaluation of property, plant and equipment. The increased basis for property, plant and equipment is being amortized over a remaining period of approximately 11 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 $150 million, $57 million and $69 million in 2021, 2020 and 2019, respectively.

CF INDUSTRIES HOLDINGS, INC.

The Trinidadian tax authority (the Board of Inland Revenue) issued a proposed tax assessment against PLNL with respect to tax years 2011 and 2012 asserting that PLNL should have withheld tax at a higher rate on dividends paid to its Trinidadian owners. The Board of Inland Revenue also would have assessed statutory interest and penalties on the amount of tax owed when a final assessment was issued. As we own a 50% interest in PLNL, our effective share of any assessment that was determined to be a liability of PLNL would be 50%, which would be reflected as a reduction in our equity in earnings of PLNL. During the third quarter of 2019, the Trinidadian government offered a tax amnesty period that provided taxpayers the opportunity to pay any prior year tax obligations and avoid accumulated interest or penalties. During the tax amnesty period, PLNL evaluated the proposed assessment, including considering the outcome of certain recent legal cases involving other taxpayers. As a result of this evaluation, in the third quarter of 2019, PLNL paid withholding tax to the Board of Inland Revenue under the amnesty program for tax years back to 2011, and recognized a charge for $32 million in the third quarter of 2019. Our 50% share of PLNL’s tax charge was $16 million, which reduced our equity in earnings of operating affiliate for 2019.

10. Fair Value Measurements

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


	December 31, 2021
	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
	(in millions)
Cash	$	121	$	—	$	—	$	121
Cash equivalents:
U.S. and Canadian government obligations	1,452		—		—		1,452
Other debt securities	55		—		—		55
Total cash and cash equivalents	$	1,628	$	—	$	—	$	1,628

Nonqualified employee benefit trusts	17		3		—		20


	December 31, 2020
	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
	(in millions)
Cash	$	108	$	—	$	—	$	108
Cash equivalents:
U.S. and Canadian government obligations	552		—		—		552
Other debt securities	23		—		—		23
Total cash and cash equivalents	$	683	$	—	$	—	$	683


Nonqualified employee benefit trusts	16		3		—		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, 2021 and 2020 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:

CF INDUSTRIES HOLDINGS, INC.


	December 31, 2021
	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	$	1,507	$	1,507	$	—	$	—

Nonqualified employee benefit trusts	20		20		—		—

Derivative assets	16		—		16		—
Derivative liabilities	(47)		—		(47)		—
Embedded derivative liability	(15)		—		(15)		—


	December 31, 2020
	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	$	575	$	575	$	—	$	—

Nonqualified employee benefit trusts	19		19		—		—
Derivative assets	1		—		1		—

Derivative liabilities	(7)		—		(7)		—
Embedded derivative liability	(18)		—		(18)		—

Cash Equivalents

As of December 31, 2021 and 2020, 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 and changes in fair value are reported in other comprehensive income. Changes in the fair value of available-for-sale equity securities in the trust assets are recognized through earnings.

Derivative Instruments

The derivative instruments that we use are primarily natural gas fixed price swaps, basis swaps and options traded in the 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 16—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 2016, our credit ratings have been below certain levels and, as a result, we made an annual payment of $5 million to CHS in the fourth quarter of 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 and is included within other current liabilities and other liabilities. As of December 31, 2021 and 2020, the embedded derivative liability was $15 million and $18 million,

CF INDUSTRIES HOLDINGS, INC.

respectively. Included in other operating—net in our consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019 is a net loss of $1 million, $3 million and $4 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 18—Noncontrolling Interest for additional information regarding our strategic venture with CHS.

Financial Instruments

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



	December 31, 2021				December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in millions)
Long-term debt, including current maturities	$	3,465	$	4,113	$	3,961	$	4,731

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. See Note 6—United Kingdom Energy Crisis and Impairment Charges for additional information on the fair values and unobservable inputs utilized in the impairment evaluations performed in 2021 for the long-lived assets, including definite-lived intangible assets, and goodwill related to our U.K. operations.

CF INDUSTRIES HOLDINGS, INC.

11. Income Taxes

Income Tax Provision

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


	Year ended December 31,
	2021		2020		2019
	(in millions)
Domestic	$	1,979	$	421	$	679
Non-U.S.	(436)		42		93
Earnings before income taxes	$	1,543	$	463	$	772





Current
Federal	$	394	$	106	$	4
Foreign	30		6		21
State	55		(7)		(48)
	479		105		(23)
Deferred
Federal	(137)		(76)		112
Foreign	(50)		4		—
State	(9)		(2)		37
	(196)		(74)		149
Income tax provision	$	283	$	31	$	126

Terra Amended Tax Returns

We completed the acquisition of Terra Industries Inc. (Terra) in April 2010. After the acquisition, we determined that the manner in which Terra reported the repatriation of cash from foreign affiliates to its U.S. parent for U.S. and foreign income tax purposes was not appropriate. As a result, in 2012 we amended certain tax returns, including Terra’s income and withholding tax returns, back to 1999 (the Amended Tax Returns) and paid additional income and withholding taxes, and related interest and penalties. In 2013, the Internal Revenue Service (IRS) commenced an examination of the U.S. tax aspects of the Amended Tax Returns. In 2017, we also made a Voluntary Disclosures Program filing with the Canada Revenue Agency (CRA) with respect to the Canadian tax aspects of the Amended Tax Returns and paid additional Canadian taxes due.

In early 2019, the IRS completed its examination of the Amended Tax Returns and submitted its audit reports and related refund claims to the Joint Committee on Taxation of the U.S. Congress (the Joint Committee). For purposes of its review, the Joint Committee separated the IRS audit reports into two separate matters: (i) an income tax related matter and (ii) a withholding tax matter. In late 2019, we received notification that the Joint Committee had approved the IRS audit reports and related income tax refunds relating to the income tax related matter. As a result of the approval by the Joint Committee, we recognized in the fourth quarter of 2019 the following amounts in our consolidated statement of operations: (i) $5 million of interest income ($4 million, net of tax); and (ii) a reduction in income tax expense of $10 million as a result of the favorable settlement of certain uncertain tax positions. No income tax refunds were received in 2019 related to the Amended Tax Returns.

In 2020, we received notification that the Joint Committee approved the IRS audit report and related withholding tax refunds relating to the withholding tax matter and we received IRS Notices indicating the amount of tax and interest to be refunded and received with respect to the income tax and withholding tax returns. As a result of these events, we recognized $26 million of interest-related income and $18 million of income tax benefit, which consisted of the following:

additional income of $26 million ($23 million, net of tax) representing $16 million of interest income related to the U.S. Federal income tax matter and withholding tax matter and a $10 million reversal of previously accrued interest related to the Canadian tax aspects of this matter,
a reduction in our liabilities for unrecognized tax benefits of $12 million with a corresponding reduction in income tax expense related to the U.S. Federal withholding tax matter, and

CF INDUSTRIES HOLDINGS, INC.

an additional income tax benefit of $9 million related to the U.S. Federal income tax matter and related state amended returns.

In 2020, we received U.S. Federal income tax refunds, including interest, of $110 million relating to the Amended Tax Returns, consisting of $68 million related to the income tax matter and $42 million related to the withholding tax matter, which finalized these matters with the IRS. As a result, all U.S. federal tax years commencing before January 1, 2012 are now closed.

In addition, in late 2020, the CRA settled with us the voluntary disclosure matter, and, in the first quarter of 2021, we received approximately $20 million of withholding tax refunds, including interest, from the CRA. These amounts were previously recorded in our consolidated balance sheet as of December 31, 2020.

Canada Revenue Agency Competent Authority Matter

In 2016, the CRA and Alberta Tax and Revenue Administration (TRA) issued Notices of Reassessment for tax years 2006 through 2009 to one of our Canadian affiliates asserting a disallowance of certain patronage allocations. The tax assessments totaled CAD $174 million (or approximately $138 million), including provincial taxes but excluding any interest or penalties. We filed Notices of Objection with respect to the Notices of Reassessment with the CRA and Alberta TRA and we posted letters of credit in lieu of paying the additional tax liability assessed. The letters of credit serve as security until the matter is resolved. In 2018, the matter, including the related transfer pricing topic, was accepted for consideration under the bilateral settlement provisions of the U.S.-Canada tax treaty (the Treaty) by the United States and Canadian competent authorities, and included tax years 2006 through 2011. In the second quarter of 2021, the Company entered the matter into the arbitration process under the terms of the Treaty.

In February 2022, we were informed that a decision was reached by the arbitration board regarding the matter. See Note 26—Subsequent Event for further information.

Effective Tax Rate

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


	Year ended December 31,
	2021			2020			2019
	(in millions, except percentages)
Earnings before income taxes	$	1,543		$	463		$	772
Expected tax provision at U.S. statutory rate of 21%	$	324		$	97		$	162
State income taxes, net of federal	34			(1)			2
Net earnings attributable to noncontrolling interest	(72)			(24)			(32)

Foreign tax rate differential	(1)			1			2
U.S. tax on foreign earnings	—			(6)			3
Foreign partnership basis difference	—			(7)			—
Non-deductible goodwill impairment	60			—			—
Federal income tax return audits	(38)			—			—
Terra amended tax returns	—			(24)			(10)
Other	(24)			(5)			(1)


Income tax provision	$	283		$	31		$	126
Effective tax rate	18.3		%	6.7		%	16.3		%

Our effective tax rate is impacted by earnings attributable to the noncontrolling interest in CFN, as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interest. As a result, earnings attributable to the noncontrolling interest of $343 million, $115 million and $153 million in 2021, 2020 and 2019, respectively, which are included in earnings before income taxes, impacted the effective tax rate in all three years. See Note 18—Noncontrolling Interest for additional information.

CF INDUSTRIES HOLDINGS, INC.

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. In 2021 and 2020, the foreign tax rate differential includes $12 million and $6 million of tax expense, respectively, for the revaluing of deferred taxes due to an enacted rate change in the jurisdiction of a foreign affiliate.

U.S. tax on foreign earnings is inclusive of the current year tax on global intangible low-tax income (GILTI), benefit from the GILTI Section 250 deduction and foreign tax credits, as well as adjustments to prior year amounts for these items.

Non-deductible goodwill impairment in the table above relates to the goodwill impairment described in Note 6—United Kingdom Energy Crisis and Impairment Charges, above. We did not record an income tax benefit for the goodwill impairment as it is nondeductible for income tax purposes.

We reached agreement on certain issues related to U.S. federal income tax audits for the 2012-2016 tax years and reversed accruals for unrecognized tax benefits of $13 million related to those tax years. This resulted in a $38 million federal income tax benefit, which included the reduction in our unrecognized tax benefits. The federal income tax benefit was offset by $12 million of state income tax liability resulting from adjustments to U.S. federal taxable income, which is included in the line “State income tax, net of federal” in the table above.

Deferred Taxes

Deferred tax assets and deferred tax liabilities are as follows:


	December 31,
	2021		2020
	(in millions)
Deferred tax assets:

Net operating loss and capital loss carryforwards, state	$	38	$	72
Net operating loss and capital loss carryforwards, foreign	122		122
Retirement and other employee benefits	51		69


State tax credits	29		69



Operating lease liabilities	62		61
Other	43		23
	345		416
Valuation allowance	(150)		(157)
	195		259
Deferred tax liabilities:
Depreciation and amortization	(157)		(204)
Investments in partnerships	(998)		(1,173)
Operating lease right-of-use assets	(60)		(60)




Other	(9)		(6)
	(1,224)		(1,443)
Net deferred tax liability	$	(1,029)	$	(1,184)

We consider the earnings of our United Kingdom subsidiaries to be permanently reinvested. As of December 31, 2021, we would not expect any additional U.S. and foreign income tax that would be due upon repatriation of these accumulated earnings, other than foreign withholding tax, which we have not accrued.

As of December 31, 2021, our net operating loss and capital loss carryforwards are primarily comprised of state net operating loss carryforwards of $37 million with expiration dates generally ranging from 2027 to 2037 and foreign capital loss carryforwards of $118 million, which can be carried forward indefinitely. Our foreign affiliates, including the foreign affiliate described above, have operations that do not normally generate capital gains and have no practical plans to do so in the future. As a result, we have recorded a full valuation allowance against all foreign capital loss carryforwards.

As of December 31, 2021, we have state tax credit carryforwards resulting in a deferred tax asset of $29 million. The state tax credits have expiration dates generally ranging from 2038 to 2041.

CF INDUSTRIES HOLDINGS, INC.

In 2021, the valuation allowance activity is primarily attributable to state tax credit carryforwards and excess foreign tax credits associated with certain U.S. taxed foreign branch income. Due to the expiration of statute of limitations on state tax credits and increases in taxable income, we no longer have valuation allowances on the remaining state tax credit carryforwards resulting in a decrease of $27 million. The excess foreign tax credits carried forward, subject to U.S. foreign tax credit limitation rules, are not expected to be utilized prior to expiration and have a full valuation allowance of approximately of $18 million. These foreign tax credits are reflected in the other line within deferred tax assets in the table above.

In 2020, as a result of an intercompany transaction with a foreign affiliate, we recognized a capital loss which will be carried forward and for which we recorded a deferred tax asset of approximately $90 million. The foreign affiliate operations do not normally generate capital gains and there is no practical plan to do so in the future; therefore, we established a full valuation allowance of approximately $90 million against the deferred tax asset.

In 2019, as a result of group legal entity reorganizations, foreign net operating loss carryforwards were eliminated, which resulted in a net decrease of $99 million in the net operating loss carryforwards deferred tax asset. We recorded a corresponding reduction in the related valuation allowance of $99 million as these losses were not anticipated to be realized. The valuation allowance activity in 2020 was primarily attributable to a capital loss.

Unrecognized Tax Benefits

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


	December 31,
	2021		2020
	(in millions)
Unrecognized tax benefits:
Balance as of January 1	$	81	$	104
Additions for tax positions taken during the current year	—		—
Additions for tax positions taken during prior years	5		—
Reductions related to lapsed statutes of limitations	—		—
Reductions related to settlements with tax jurisdictions	(59)		(23)
Balance as of December 31	$	27	$	81

Our effective tax rate would be affected by $21 million if these unrecognized tax benefits were to be recognized in the future.

In 2021, we increased the amount of our unrecognized tax benefits for $5 million related to an addition for state investment tax credits. In addition, we reduced the amount of unrecognized tax benefits in 2021 by $59 million primarily related to the effective settlement of the U.S. federal income tax audits for the 2012-2016 tax years, as described above.

In 2020, as a result of the settlement and finalization of carryover impacts of the Terra Amended Tax Returns on other tax periods, we reduced our liability for unrecognized tax benefits by $19 million and recorded a corresponding deferred income tax liability. In addition, we reduced our liabilities for unrecognized tax benefits by $4 million with a corresponding reduction in income tax provision.

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 2017 and thereafter, by Canadian tax jurisdictions for years 2006 and thereafter, and by the United Kingdom for years 2019 and thereafter.

Interest expense and penalties of $(29) million and $4 million were recorded for the years ended December 31, 2020 and 2019, respectively. Interest expense and penalties recorded for the year ended December 31, 2021 were not material. Amounts recognized in our consolidated balance sheets for accrued interest and penalties related to income taxes of $4 million and $4 million as of December 31, 2021 and 2020, respectively, are included in other liabilities.

CF INDUSTRIES HOLDINGS, INC.

12. 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,
	2021		2020		2021		2020		2021		2020
	(in millions)
Change in plan assets
Fair value of plan assets as of January 1	$	846	$	790	$	491	$	418	$	—	$	—

Return on plan assets	15		96		20		58		—		—
Employer contributions	14		22		26		23		4		4
Plan participant contributions	—		—		—		—		—		1
Benefit payments	(46)		(66)		(27)		(25)		(4)		(5)
Foreign currency translation	1		4		(5)		17		—		—
Fair value of plan assets as of December 31	830		846		505		491		—		—
Change in benefit obligation
Benefit obligation as of January 1	(884)		(839)		(643)		(597)		(35)		(37)



Service cost	(20)		(17)		—		—		—		—
Interest cost	(21)		(25)		(9)		(11)		(1)		(1)
Benefit payments	46		66		27		25		4		5
Foreign currency translation	(1)		(4)		6		(20)		—		—

Plan participant contributions	—		—		—		—		—		(1)
Change in assumptions and other	39		(65)		29		(40)		—		(1)
Benefit obligation as of December 31	(841)		(884)		(590)		(643)		(32)		(35)
Funded status as of December 31	$	(11)	$	(38)	$	(85)	$	(152)	$	(32)	$	(35)

The line titled “Change in assumptions and other” for our North America pension plans primarily reflects the impact of gains due to the increase in discount rates for 2021 and losses due to the decrease in discount rates for 2020.

The line titled “Change in assumptions and other” for our U.K. pension plans primarily reflects gains due to the increase in discount rates for 2021 and losses due to the decrease in discount rates for 2020. For 2021, the gains from the decrease in discount rates were partially offset by losses due to an increase in the inflation rate assumptions.

The line titled “Benefit payments” for 2020 includes $22 million of lump sum payments for our U.S. pension plan paid in December 2020.

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,
	2021		2020		2021		2020		2021		2020
	(in millions)
Other assets	$	16	$	10	$	—	$	—	$	—	$	—
Accrued expenses	—		—		—		—		(3)		(3)
Other liabilities	(27)		(48)		(85)		(152)		(29)		(32)
	$	(11)	$	(38)	$	(85)	$	(152)	$	(32)	$	(35)

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,
	2021		2020		2021		2020		2021		2020
	(in millions)
Prior service cost	$	3	$	4	$	1	$	1	$	—	$	—
Net actuarial loss	43		79		89		129		4		4
	$	46	$	83	$	90	$	130	$	4	$	4

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


	Pension Plans												Retiree Medical Plans
	North America						United Kingdom						North America

	2021		2020		2019		2021		2020		2019		2021		2020		2019
	(in millions)
Service cost	$	20	$	17	$	14	$	—	$	—	$	—	$	—	$	—	$	—
Interest cost	21		25		30		9		11		15		1		1		1
Expected return on plan assets	(24)		(30)		(32)		(14)		(14)		(18)		—		—		—




Amortization of prior service cost (benefit)	1		1		—		—		—		—		—		—		(1)
Amortization of actuarial loss (gain)	5		3		—		4		3		—		—		(1)		(1)
Net periodic benefit cost (income)	23		16		12		(1)		—		(3)		1		—		(1)
Net actuarial (gain) loss	(31)		(1)		3		(36)		(4)		60		—		1		(4)
Prior service cost (credit)	—		—		4		—		—		(3)		—		—		—



Amortization of prior service (cost) benefit	(1)		(1)		—		—		—		—		—		—		1
Amortization of actuarial (loss) gain	(5)		(3)		—		(4)		(3)		—		—		1		1
Total recognized in other comprehensive (income) loss	(37)		(5)		7		(40)		(7)		57		—		2		(2)
Total recognized in net periodic benefit cost (income) and other comprehensive (income) loss	$	(14)	$	11	$	19	$	(41)	$	(7)	$	54	$	1	$	2	$	(3)

In the table above, the line titled “Prior service cost (credit)” in 2019 relates to plan amendments for updates to certain mortality tables for the U.S. plan and a conversion option for pensions in payment for the U.K. plans.

Service cost is recognized in cost of sales and selling, general and administrative expenses, and the other components of net periodic benefit cost are recognized in other non-operating—net in our consolidated statements of operations.

CF INDUSTRIES HOLDINGS, INC.

The accumulated benefit obligation (ABO) in aggregate for the defined benefit pension plans in North America was approximately $797 million and $834 million as of December 31, 2021 and 2020, respectively. The ABO in aggregate for the defined benefit pension plans in the United Kingdom was approximately $590 million and $643 million as of December 31, 2021 and 2020, 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, for 2021, excludes the three North American defined benefit pension plans and, for 2020, excludes two of the North American defined benefit pension plans, as each has plan assets in excess of its ABO:


	North America				United Kingdom
	2021		2020		2021		2020
	(in millions)
Accumulated benefit obligation	$	—	$	(678)	$	(590)	$	(643)
Fair value of plan assets	—		667		505		491

The following table presents aggregated information for those individual defined benefit pension plans that have a projected benefit obligation (PBO) 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 PBO:


	North America				United Kingdom
	2021		2020		2021	2020
	(in millions)
Projected benefit obligation	$	(684)	$	(715)	(590)	$	(643)
Fair value of plan assets	656		667		505	491

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 2022 will be approximately $2 million for the North American plans and $27 million for the United Kingdom plans.

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)
2022	$	47	$	28	$	3
2023	48		28		2
2024	49		29		2
2025	49		30		2
2026	50		31		2
2027-2031	253		167		9

CF INDUSTRIES HOLDINGS, INC.

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


	Pension Plans													Retiree Medical Plans
	North America						United Kingdom						North America
	2021		2020		2019		2021		2020		2019			2021		2020		2019
Weighted-average discount rate—obligation	2.8	%	2.4	%	3.1	%	2.0	%	1.5	%	2.0	%		2.7	%	2.2	%	3.0	%
Weighted-average discount rate—expense	2.4	%	3.1	%	4.1	%	1.5	%	2.0	%	2.9	%		2.2	%	3.0	%	4.1	%
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	4.2	%	4.2	%	4.2	%	n/a		n/a		n/a			n/a		n/a		n/a
Weighted-average expected long-term rate of return on assets—expense	3.2	%	4.1	%	4.6	%	3.3	%	3.4	%	4.4	%		n/a		n/a		n/a
Weighted-average retail price index—obligation	n/a		n/a		n/a		3.3	%	3.0	%	3.0	%		n/a		n/a		n/a
Weighted-average retail price index—expense	n/a		n/a		n/a		3.0	%	3.0	%	3.3	%		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 hypothetical 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 3.0%.

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, 2022, our weighted-average expected long-term rate of return on assets is 3.6%, which will be used in determining expense for 2022.

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 and estimated plan expenses. As of January 1, 2022, our weighted-average expected long-term rate of return on assets is 3.4%, which will be used in determining expense for 2022.

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, 2021 for our primary (U.S.) retiree medical benefit plans, the assumed health care cost trend rates, for pre-65 retirees, start with a 6.3% increase in 2022, followed by a gradual decline in increases to 4.5% for 2030 and thereafter. For post-65 retirees, the assumed health care cost trend rates start with a 6.8% increase in 2022, followed by a gradual decline in increases to 4.5% for 2030 and thereafter. For the measurement of the benefit obligation at December 31, 2020 for our primary (U.S.) retiree medical benefit plans, the assumed health care cost trend rates, for pre-65 retirees, started with a 6.3% increase in 2021, followed by a gradual decline in increases to 4.5% for 2030 and thereafter. For post-65 retirees, the assumed health care cost trend rates started with a 7.0% increase in 2021, followed by a gradual decline in increases to 4.5% for 2030 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.

CF INDUSTRIES HOLDINGS, INC.

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 70% non-equity and 30% equity, and 100% non-equity for the other Canadian plan. This investment strategy is achieved through the use of a mutual fund for equity investments and individual securities for non-equity investments. The equity investment is a passively managed portfolio that diversifies assets across multiple securities, economic sectors and countries. The non-equity investments consist primarily of investments in debt securities 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.

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, with a requirement that member-nominated trustees represent at least one-third of each Board of Trustees. 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 assets are allocated between a growth portfolio and a matching portfolio. The growth portfolio seeks a return premium on investments across multiple asset classes. Growth portfolio funds may include, among others, traditional equities and bonds, growth fixed income, hedged funds, and may use derivatives. The matching portfolio seeks to align asset changes with changes in liabilities due to interest rates and inflation expectations. Matching portfolio funds are composed of corporate bonds, U.K. gilts and liability-driven investment funds and generally invest in fixed income debt securities including government bonds, gilts, gilt repurchase agreements, swaps and investment grade corporate bonds and may use derivatives. The target asset allocation for one of the United Kingdom plans is 55% in the growth portfolio and 45% in the matching portfolio and the other United Kingdom plan is 60% in the growth portfolio (including a legacy holding in an actively managed property fund) and 40% in the matching portfolio.

CF INDUSTRIES HOLDINGS, INC.

The fair values of our pension plan assets as of December 31, 2021 and 2020, by major asset class, are as follows:


	North America
	December 31, 2021
	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)	$	14	$	10	$	4	$	—
Equity mutual funds
Index equity(2)	157		157		—		—
Pooled equity(3)	34		—		34		—
Fixed income
U.S. Treasury bonds and notes(4)	61		61		—		—
Corporate bonds and notes(5)	460		—		460		—
Government and agency securities(6)	103		—		103		—
Other(7)	7		—		7		—
Total assets at fair value by fair value levels	$	836	$	228	$	608	$	—




Accruals and payables—net	(6)
Total assets	$	830


	United Kingdom
	December 31, 2021
	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 funds(8)	$	15	$	8	$	7	$	—
Pooled equity funds(9)	122		—		122		—
Pooled diversified funds(10)	52		—		52		—
Debt funds
Pooled U.K. government fixed and index-linked securities funds(11)	78		—		78		—
Pooled global debt funds(12)	88		—		88		—
Pooled liability-driven investment funds(13)	67		—		67		—
Total assets at fair value by fair value levels	$	422	$	8	$	414	$	—
Funds measured at NAV as a practical expedient(14)	83




Total assets	$	505

CF INDUSTRIES HOLDINGS, INC.


	North America

	December 31, 2020
	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)	$	30	$	7	$	23	$	—
Equity mutual funds
Index equity(2)	134		134		—		—
Pooled equity(3)	30		—		30		—
Fixed income
U.S. Treasury bonds and notes(4)	37		37		—		—

Corporate bonds and notes(5)	499		—		499		—
Government and agency securities(6)	110		—		110		—
Other(7)	7		—		7		—
Total assets at fair value by fair value levels	$	847	$	178	$	669	$	—





Accruals and payables—net	(1)
Total assets	$	846


	United Kingdom
	December 31, 2020
	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 funds(8)	$	22	$	5	$	17	$	—
Pooled equity funds(9)	118		—		118		—
Pooled diversified funds(10)	55		—		55		—
Debt funds
Pooled U.K. government fixed and index-linked securities funds(11)	73		—		73		—
Pooled global debt funds(12)	88		—		88		—
Pooled liability-driven investment funds(13)	83		—		83		—
Total assets at fair value by fair value levels	$	439	$	5	$	434	$	—
Funds measured at NAV as a practical expedient(14)	52








Total assets	$	491

(1)Cash and cash equivalents are primarily short-term U.S. treasury bills and short-term money market funds in 2021, and also included repurchase agreements in 2020.

(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)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.

(6)Government and agency securities consist of U.S. municipal bonds and Canadian provincial 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.

(7)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.

(8)Cash and cash funds include a cash fund that holds primarily short-dated term money market securities.

(9)Pooled equity funds invest in a broad array of global equity, equity-related securities, a range of diversifiers and may use derivatives for efficient portfolio management. 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 diversified funds invest in a broad array of asset classes and a range of diversifiers including the 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.

(11)Pooled U.K. government fixed and index-linked securities funds invest primarily in Sterling denominated fixed income and inflation-linked fixed income securities issued or guaranteed by the U.K. government and may use derivatives for efficient portfolio management. 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 global debt funds invest in a broad array of debt securities from corporate and government bonds to emerging markets and high-yield fixed and floating rate securities of varying maturities. The funds are valued at NAV as determined by the fund managers based on the value of the underlying net assets of the fund.

(13)Pooled liability-driven investment funds invest primarily in gilt repurchase agreements, physical U.K. government gilts, and derivatives to provide exposure to interest rates and inflation, thus hedging these elements of risk associated with pension liabilities. The funds are valued at NAV as determined by the fund managers based on the value of the underlying net assets of the fund.

(14)Funds measured at NAV as a practical expedient include funds of funds with return strategies with exposure to varying asset classes and credit strategies, as well as alternative investment strategies not precluding multi-asset credit strategies, global macro strategies, commodities, fixed income, equities and currency, and funds that invest primarily in freehold and leasehold property in the United Kingdom. The funds are valued using NAV as determined by the fund managers based on the value of the underlying 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 2021, 2020 and 2019, we recognized expense related to our contributions to the defined contribution plans of $25 million, $22 million and $20 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 $1 million and $14 million, respectively, as of December 31, 2021, and $4 million and $16 million, respectively, as of December 31, 2020. We recognized expense for these plans of $2 million, $2 million and $1 million in 2021, 2020 and 2019, respectively.

CF INDUSTRIES HOLDINGS, INC.

13. Financing Agreements

Revolving Credit Agreement

We have a senior unsecured revolving credit agreement (the Revolving Credit Agreement), which provides for a revolving credit facility of up to $750 million with a maturity of December 5, 2024. The Revolving Credit Agreement includes a letter of credit sub-limit of $125 million. Borrowings under the Revolving Credit Agreement may be used for working capital, capital expenditures, acquisitions, share repurchases and other general corporate purposes.

Borrowings under the Revolving Credit Agreement may be denominated in U.S. dollars, Canadian dollars, euros and British pounds, and bear interest at a per annum rate equal to, at our option, an applicable eurocurrency rate or base rate plus, in either case, a specified margin. We are required to pay an undrawn commitment fee on the undrawn portion of the commitments under the Revolving Credit Agreement and customary letter of credit fees. The specified margin and the amount of the commitment fee depend on CF Holdings’ credit rating at the time.

As of December 31, 2021, we had unused borrowing capacity under the Revolving Credit Agreement of $750 million and no outstanding letters of credit. There were no borrowings outstanding under the Revolving Credit Agreement as of December 31, 2021 or 2020, or during the year ended December 31, 2021. Maximum borrowings under the Revolving Credit Agreement during the year ended December 31, 2020 were $500 million. The weighted-average annual interest rate of borrowings under the Revolving Credit Agreement during the year ended December 31, 2020 was 2.05%. Borrowings under the Revolving Credit Agreement in March 2020 were repaid in full in April 2020.

The Revolving Credit Agreement contains representations and warranties and affirmative and negative covenants, including financial covenants. As of December 31, 2021, we were in compliance with all covenants under the Revolving Credit Agreement.

Letters of Credit

In addition to the letters of credit that may be issued under the Revolving Credit Agreement, as described above, we have also entered into a bilateral agreement with capacity to issue letters of credit up to $250 million. As of December 31, 2021, approximately $223 million of letters of credit were outstanding under this agreement.

Senior Notes

Long-term debt presented on our consolidated balance sheets as of December 31, 2021 and 2020 consisted of the following debt securities issued by CF Industries:


	Effective Interest Rate		December 31, 2021						December 31, 2020
		Principal			Carrying Amount(1)			Principal			Carrying Amount(1)
			(in millions)
Public Senior Notes:

3.450% due June 2023	3.562%		$	500		$	499		$	750		$	748
5.150% due March 2034	5.279%		750			741			750			741
4.950% due June 2043	5.031%		750			742			750			742
5.375% due March 2044	5.465%		750			741			750			741
Senior Secured Notes:
3.400% due December 2021	3.782%		—			—			250			249
4.500% due December 2026(2)	4.759%		750			742			750			740
Total long-term debt			$	3,500		$	3,465		$	4,000		$	3,961
Less: Current maturities of long-term debt			—			—			250			249
Long-term debt, net of current maturities			$	3,500		$	3,465		$	3,750		$	3,712

(1)Carrying amount is net of unamortized debt discount and deferred debt issuance costs. Total unamortized debt discount was $8 million and $9 million as of December 31, 2021 and 2020, respectively, and total deferred debt issuance costs were $27 million and $30 million as of December 31, 2021 and 2020, respectively.

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

CF INDUSTRIES HOLDINGS, INC.

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

Under the terms of the indenture governing the 4.500% senior secured notes due December 2026 (the 2026 Notes) identified in the table above, the 2026 Notes are guaranteed by CF Holdings. Until August 23, 2021, the 2026 Notes were guaranteed by certain subsidiaries of CF Industries. The requirement for subsidiary guarantees of the 2026 Notes was eliminated, and all subsidiary guarantees were automatically released, as a result of an investment grade rating event under the terms of the indenture governing the 2026 Notes on August 23, 2021.

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

On September 10, 2021, we redeemed $250 million principal amount, representing one-third of the $750 million principal amount outstanding immediately prior to such redemption, of the 3.450% senior notes due 2023 (2023 Notes), in accordance with the optional redemption provisions in the indenture governing the 2023 Notes. The total aggregate redemption price paid in connection with the redemption of the 2023 Notes was approximately $265 million, including accrued interest. As a result, we recognized a loss on debt extinguishment of $13 million, consisting primarily of the premium paid on the redemption of the $250 million principal amount of the 2023 Notes prior to their scheduled maturity.

Interest on the Public Senior Notes and the 2026 Notes is payable semiannually, and the Public Senior Notes and the 2026 Notes are redeemable at our option, in whole at any time or in part from time to time, at specified make-whole redemption prices.

14. Interest Expense

Details of interest expense are as follows:


	Year ended December 31,
	2021		2020		2019
	(in millions)
Interest on borrowings(1)	$	175	$	185	$	223
Fees on financing agreements(1)	9		8		13
Interest on tax liabilities(2)	1		(14)		3
Interest capitalized	(1)		—		(2)
Interest expense	$	184	$	179	$	237

(1)See Note 13—Financing Agreements for additional information.

(2)Interest on tax liabilities for the year ended December 31, 2020 includes a reduction in interest accrued on the reserve for unrecognized tax benefits.

CF INDUSTRIES HOLDINGS, INC.

15. Other Operating—Net

Details of other operating—net are as follows:


	Year ended December 31,
	2021		2020		2019
	(in millions)

Insurance proceeds(1)	$	—	$	(37)	$	(37)
Loss (gain) on disposal of property, plant and equipment—net(2)	3		15		(40)
Gain on sale of emission credits	(29)		—		—

Loss (gain) on foreign currency transactions(3)	6		5		(1)

Loss on embedded derivative(4)	1		3		4

Other(5)	(20)		(3)		1
Other operating—net	$	(39)	$	(17)	$	(73)

(1)Insurance proceeds in 2020 and 2019 relate to property and business interruption insurance claims at one of our nitrogen complexes.

(2)Loss (gain) on disposal of property, plant and equipment—net in 2020 includes $9 million of engineering costs written off upon the cancellation of a project at one of our nitrogen complexes, and in 2019, includes the gain on sale of our Pine Bend facility of $45 million. See Note 7—Property, Plant and Equipment—Net for additional information on the sale of our Pine Bend facility.

(3)Loss (gain) on foreign currency transactions consists of foreign currency exchange rate impacts on foreign currency denominated transactions, including the impact of changes in foreign currency exchange rates on intercompany loans that were not permanently invested.

(4)Loss on embedded derivative consists of unrealized and realized losses related to a provision of our strategic venture with CHS. See Note 10—Fair Value Measurements for additional information.

(5)Other includes the recovery of certain precious metals used in the manufacturing process, litigation expenses, and, in 2021, the amount received under the terms of the agreement with the U.K. government associated with the restart of our Billingham facility.

16. Derivative Financial Instruments

We use derivative financial instruments to reduce our exposure to changes in prices for natural gas that will be purchased in the future. Natural gas is the largest and most volatile component of our manufacturing cost for nitrogen-based products. From time to time, we may also use derivative financial instruments to reduce our exposure to changes in foreign currency exchange rates. The derivatives that we use to reduce our exposure to changes in prices for natural gas are primarily natural gas fixed price swaps, basis swaps and 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, 2021, we had natural gas derivative contracts covering certain periods through March 2022.

As of December 31, 2021, our open natural gas derivative contracts consisted of natural gas fixed price swaps, basis swaps and options for 60.0 million MMBtus of natural gas. As of December 31, 2020, we had open natural gas derivative contracts consisting of natural gas fixed price swaps and basis swaps for 34.1 million MMBtus of natural gas. For the year ended December 31, 2021, we used derivatives to cover approximately 16% 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	2021		2020		2019
		(in millions)
Natural gas derivatives

Unrealized net (losses) gains	Cost of sales	$	(25)	$	6	$	(14)
Realized net gains (losses)	Cost of sales	1		(13)		4
Gain on net settlement of natural gas derivatives due to Winter Storm Uri	Cost of sales	112		—		—
Net derivative gains (losses)		$	88	$	(7)	$	(10)

Gain on net settlement of natural gas derivatives due to Winter Storm Uri

We also enter into supply agreements to facilitate the availability of natural gas to operate our plants. When we purchase natural gas under these agreements, we intend to take physical delivery for use in our plants. Certain of these supply agreements allow us to fix the price of the deliveries for the following month using an agreed upon first of month price. We utilize the Normal Purchase Normal Sales (NPNS) derivative scope exception for these fixed price contracts and, therefore, we do not account for them as derivatives.

In February 2021, the central portion of the United States experienced extreme and unprecedented cold weather due to the impact of Winter Storm Uri. Certain natural gas suppliers and natural gas pipelines declared force majeure events due to natural gas well freeze-offs or frozen equipment. This occurred at the same time as large increases in natural gas demand were occurring due to the extreme cold temperatures. Due to these unprecedented factors, several states declared a state of emergency and natural gas was redirected for residential usage. We net settled certain natural gas contracts with our suppliers and received prevailing market prices, which were in excess of our cost. We no longer qualified for the NPNS derivative scope exception for the natural gas that was net settled with our suppliers due to the impact of Winter Storm Uri. As a result, we recognized a gain of $112 million from the net settlement of these natural gas contracts, which is reflected in cost of sales in our consolidated statement of operations for the year ended December 31, 2021.

The fair values of derivatives on our consolidated balance sheets are shown below. As of December 31, 2021 and 2020, none of our derivative instruments were designated as hedging instruments. See Note 10—Fair Value Measurements for additional information on derivative fair values.


	Asset Derivatives							Liability Derivatives
	Balance Sheet Location		December 31,					Balance Sheet Location	December 31,
		2021			2020			2021	2020
			(in millions)						(in millions)


Natural gas derivatives	Other current assets		$	16		$	1	Other current liabilities	$	(47)	$	(7)

The counterparties to our derivative contracts are multinational commercial banks, major financial institutions and large energy companies. Our derivative contracts are executed with several counterparties 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.

CF INDUSTRIES HOLDINGS, INC.

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.

Most of our ISDA agreements contain credit-risk-related contingent features such as cross default provisions. In the event of certain defaults or termination events, our counterparties may request early termination and net settlement of certain derivative trades or, under certain ISDA agreements, may require us to collateralize derivatives in a net liability position. As of December 31, 2021 and 2020, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in net liability positions was $31 million and $6 million, respectively, which also approximates the fair value of the assets that may be needed to settle the obligations if the credit-risk-related contingent features were triggered at the reporting dates. 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. As of December 31, 2021 and 2020, we had no cash collateral on deposit with counterparties for derivative contracts.

The following table presents amounts relevant to offsetting of our derivative assets and liabilities as of December 31, 2021 and 2020:


	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, 2021
Total derivative assets	$	16		$	—		$	—		$	16
Total derivative liabilities	(47)			—			—			(47)
Net derivative liabilities	$	(31)		$	—		$	—		$	(31)
December 31, 2020
Total derivative assets	$	1		$	—		$	—		$	1
Total derivative liabilities	(7)			—			—			(7)
Net derivative liabilities	$	(6)		$	—		$	—		$	(6)

(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.

CF INDUSTRIES HOLDINGS, INC.

17. Supplemental Balance Sheet Data

Accounts Receivable—Net

Accounts receivable—net consist of the following:


	December 31,
	2021		2020
	(in millions)
Trade	$	464	$	256
Other	33		9
Accounts receivable—net	$	497	$	265

Inventories

Inventories consist of the following:


	December 31,
	2021		2020
	(in millions)
Finished goods	$	358	$	246
Raw materials, spare parts and supplies	50		41
Total inventories	$	408	$	287

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:


	December 31,
	2021		2020
	(in millions)
Accounts payable	$	110	$	85

Accrued natural gas costs	168		106
Payroll and employee-related costs	88		68
Accrued interest	30		32

Other	169		133
Total accounts payable and accrued expenses	$	565	$	424

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

Accrued interest includes interest payable on our outstanding senior notes. See Note 13—Financing Agreements and Note 14—Interest Expense for additional information.

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

Other Current Liabilities

As of December 31, 2021, other current liabilities of $54 million primarily includes $47 million of unrealized loss on natural gas derivatives and $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, 2020, other current liabilities of $15 million primarily includes $7 million of unrealized loss on natural gas derivatives and $5 million representing the current portion of the unrealized loss on the embedded derivative liability related to our strategic venture with CHS.

See Note 10—Fair Value Measurements, Note 16—Derivative Financial Instruments and Note 18—Noncontrolling Interest for additional information.

CF INDUSTRIES HOLDINGS, INC.

Other Liabilities

Other liabilities consist of the following:


	December 31,
	2021		2020
	(in millions)
Benefit plans and deferred compensation	$	165	$	256
Tax-related liabilities	62		155

Unrealized loss on embedded derivative	10		13


Other	14		20
Other liabilities	$	251	$	444

Benefit plans and deferred compensation include liabilities for pensions, retiree medical benefits, and the noncurrent portion of incentive plans. See Note 12—Pension and Other Postretirement Benefits for additional information.

18. Noncontrolling Interest

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


	Year ended December 31,
	2021		2020		2019

	(in millions)
Noncontrolling interest:
Balance as of January 1	$	2,681	$	2,740	$	2,773
Earnings attributable to noncontrolling interest	343		115		153
Declaration of distributions payable	(194)		(174)		(186)



Balance as of December 31	$	2,830	$	2,681	$	2,740
Distributions payable to noncontrolling interest:
Balance as of January 1	$	—	$	—	$	—
Declaration of distributions payable	194		174		186
Distributions to noncontrolling interest	(194)		(174)		(186)

Balance as of December 31	$	—	$	—	$	—

We have a strategic venture with CHS under which CHS owns 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, any member contributions made to CFN and withdrawals 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 interest 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 10—Fair Value Measurements for additional information.

On January 31, 2022, the CFN Board of Managers approved semi-annual distribution payments for the distribution period ended December 31, 2021 in accordance with CFN’s limited liability company agreement. On January 31, 2022, CFN distributed $247 million to CHS for the distribution period ended December 31, 2021.

CF INDUSTRIES HOLDINGS, INC.

19. 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 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). The following table summarizes the share repurchases under the 2019 Share Repurchase Program.



	Shares	Amounts
	(in millions)
Shares repurchased in 2019	7.6	$	337
Shares repurchased in 2020	2.6	100
Shares repurchased in 2021	8.6	540
Total shares repurchased under the 2019 Share Repurchase Program	18.8	$	977

The shares we repurchase are held as treasury stock. If the Board authorizes us to retire the shares, they are returned to the status of authorized but unissued shares. As part of the retirements, we reduce our treasury stock, paid-in capital and retained earnings balances. In 2020, we retired 2.8 million shares of repurchased stock, including shares repurchased under the 2019 Share Repurchase Program. As of December 31, 2020, we held 102,843 shares of treasury stock. In 2021, we retired 8.9 million shares of repurchased stock, including shares repurchased under the 2019 Share Repurchase Program. As of December 31, 2021, we held 27,962 shares of treasury stock.

On November 3, 2021, the Board authorized the repurchase of up to $1.5 billion of CF Holdings common stock from January 1, 2022 through December 31, 2024 (the 2021 Share Repurchase Program).

Changes in common shares outstanding are as follows:


	Year ended December 31,
	2021	2020	2019
Beginning balance	213,954,858	216,023,826	222,818,495
Exercise of stock options	1,806,940	321,465	629,186
Issuance of restricted stock(1)	643,882	552,362	267,165

Purchase of treasury shares(2)	(8,829,702)	(2,942,795)	(7,691,020)
Ending balance	207,575,978	213,954,858	216,023,826

(1)Includes shares issued from treasury.

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

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

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


	Foreign Currency Translation Adjustment		Unrealized Gain (Loss) on Derivatives		Defined Benefit Plans		Accumulated Other Comprehensive Loss
	(in millions)
Balance as of December 31, 2018	$	(250)	$	5	$	(126)	$	(371)


Loss arising during the period	—		—		(62)		(62)

Reclassification to earnings(1)	—		—		(2)		(2)

Effect of exchange rate changes and deferred taxes	62		—		7		69
Balance as of December 31, 2019	(188)		5		(183)		(366)




Gain arising during the period	—		—		1		1
Reclassification to earnings(1)	—		(1)		6		5
Effect of exchange rate changes and deferred taxes	44		—		(4)		40
Balance as of December 31, 2020	(144)		4		(180)		(320)



Gain arising during the period	—		—		67		67
Reclassification to earnings(1)	—		—		12		12


Effect of exchange rate changes and deferred taxes	3		—		(19)		(16)
Balance as of December 31, 2021	$	(141)	$	4	$	(120)	$	(257)

(1) Reclassifications out of accumulated other comprehensive loss to the consolidated statements of operations were not material.

20. 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 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, 2021, we had 5.0 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 shares underlying awards of stock options and stock appreciation rights may be granted to a participant in any one calendar year.

Restricted Stock Awards, Restricted Stock Units and Performance Restricted Stock 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 restricted stock unit (PSU) on the date of grant using a Monte Carlo simulation. Generally, RSUs vest in three equal annual installments following the date of grant. PSUs are granted to key employees and generally vest three years from the date of grant subject to the attainment of applicable performance goals during the performance period. The RSAs

CF INDUSTRIES HOLDINGS, INC.

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, 2021 is presented below.


	Restricted Stock Awards			Restricted Stock Units			Performance Restricted Stock 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, 2020	50,895	$	27.51	614,094	$	43.70	445,498	$	45.72
Granted	35,508	49.28		389,059	38.69		243,845	48.25
Restrictions lapsed (vested)(1)	(50,895)	27.51		(310,061)	43.38		(243,406)	45.73
Forfeited	—	—		(32,243)	42.02		(20,669)	47.42
Outstanding as of December 31, 2021	35,508	49.28		660,849	40.98		425,268	46.83

(1)For performance restricted stock units, the shares represent the performance restricted stock units granted in 2018, for which the three-year performance period ended December 31, 2020.

The 2021, 2020 and 2019 weighted-average grant date fair value for RSAs was $49.28, $27.51, and $41.84, for RSUs was $38.69, $45.23, and $41.94, and for PSUs was $48.25, $47.93, and $43.09, respectively.

The actual tax benefit realized from restricted stock vested in each of the years ended December 31, 2021, 2020 and 2019 was $7 million, $5 million and $3 million, respectively. The fair value of restricted stock vested was $29 million, $22 million and $11 million for the years ended December 31, 2021, 2020 and 2019, respectively.

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 vested on each of the first three anniversaries of the date of grant. No stock option awards have been granted to plan participants since 2017.

A summary of stock option activity during the year ended December 31, 2021 is presented below:


	Shares	Weighted- Average Exercise Price
Outstanding as of December 31, 2020	4,569,041	$	40.41

Exercised	(1,806,940)	36.45
Forfeited	—	—
Expired	(124,515)	53.80
Outstanding as of December 31, 2021	2,637,586	42.48
Exercisable as of December 31, 2021	2,637,586	42.48

CF INDUSTRIES HOLDINGS, INC.


	Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value(1)(in millions)
Outstanding as of December 31, 2021	3.5	$	75
Exercisable as of December 31, 2021	3.5	$	75

(1)The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $70.78 as of December 31, 2021, which would have been received by the option holders had all option holders exercised their options as of that date.

Selected amounts pertaining to stock option exercises are as follows:


	Year ended December 31,
	2021		2020		2019
	(in millions)
Cash received from stock option exercises	$	64	$	8	$	18
Actual tax benefit realized from stock option exercises	$	9	$	1	$	3
Pre-tax intrinsic value of stock options exercised	$	39	$	4	$	12

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,
	2021		2020		2019
	(in millions)
Stock-based compensation expense	$	30	$	26	$	28
Income tax benefit	(7)		(6)		(6)
Stock-based compensation expense, net of income taxes	$	23	$	20	$	22

As of December 31, 2021, pre-tax unrecognized compensation cost was $15 million for RSAs and RSUs, which will be recognized over a weighted-average period of 1.6 years, and $13 million for PSUs, which will be recognized over a weighted-average period of 1.6 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 2021, 2020 and 2019 were $22 million, $3 million and $7 million, respectively.

21. Contingencies

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 did 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.

CF INDUSTRIES HOLDINGS, INC.

The Court granted in part and denied in part the CF Entities’ Motions for Summary Judgment in August 2015. Nearly all of the cases, including all wrongful death and personal injury claims, have been resolved pursuant to confidential settlements that have been or we expect will be fully funded by insurance. The remaining subrogation and statutory indemnification claims total approximately $37 million, before prejudgment interest, and are in various stages of discovery and pre-trial proceedings. The remaining claims are expected to be set for trial in 2022. We believe we have strong legal and factual defenses and intend to continue defending the CF Entities vigorously in the remaining lawsuits. The Company cannot provide a range of reasonably possible loss due to 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, we expect any potential loss to be fully indemnified by insurance and 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

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 the Comprehensive Environmental Response, Compensation, and Liability Act 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 intended to undertake a natural resource damage assessment for 18 former phosphate mines and three former processing facilities in southeast Idaho, which includes the Georgetown Canyon former mine and processing facility. In June 2021, we received another notice from the U.S. Department of the Interior that the natural resource damage trustees were commencing a ‘subsequent’ phase of the natural resource damage assessment, but no further details were provided with respect to said assessment. Because the former mine site is still in the remedial investigation and feasibility study stage, and because a schedule for a natural resource injury assessment has yet to be determined, 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 the results of the site investigation conducted to date, 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.

22. 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 primarily of selling, general and administrative expenses and other operating—net) and non-operating expenses (consisting primarily of interest and income taxes) are centrally managed and are not included in the measurement of segment profitability reviewed by management.

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 8—Goodwill and Other Intangible Assets.

Segment data for sales, cost of sales and gross margin for 2021, 2020 and 2019 are presented in the table below.


	Ammonia(1)		Granular Urea(2)		UAN(2)		AN(2)		Other(2)		Consolidated
	(in millions)
Year ended December 31, 2021
Net sales	$	1,787	$	1,880	$	1,788	$	510	$	573	$	6,538
Cost of sales	1,162		992		1,119		475		403		4,151
Gross margin	$	625	$	888	$	669	$	35	$	170	2,387
Total other operating costs and expenses(3)											705
Equity in earnings of operating affiliate											47
Operating earnings											$	1,729
Year ended December 31, 2020
Net sales	$	1,020	$	1,248	$	1,063	$	455	$	338	$	4,124
Cost of sales	850		847		949		390		287		3,323
Gross margin	$	170	$	401	$	114	$	65	$	51	801
Total other operating costs and expenses											189

Equity in earnings of operating affiliate											11
Operating earnings											$	623
Year ended December 31, 2019
Net sales	$	1,113	$	1,342	$	1,270	$	506	$	359	$	4,590
Cost of sales	878		861		981		399		297		3,416
Gross margin	$	235	$	481	$	289	$	107	$	62	1,174
Total other operating costs and expenses											166
Equity in loss of operating affiliate											(5)
Operating earnings											$	1,003

(1)Cost of sales and gross margin for the Ammonia segment for the year ended December 31, 2021 include a $112 million gain on the net settlement of certain natural gas contracts with our suppliers. See Note 16—Derivative Financial Instruments for additional information.

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

(3)Total other operating costs and expenses for the year ended December 31, 2021 includes long-lived and intangible asset impairment charges of $236 million and goodwill impairment charges of $285 million.

CF INDUSTRIES HOLDINGS, INC.

Depreciation and amortization by segment for 2021, 2020 and 2019 is as follows:


	Ammonia		Granular Urea		UAN		AN		Other		Corporate		Consolidated
	(in millions)
Depreciation and amortization
Year ended December 31, 2021	$	209	$	235	$	259	$	77	$	87	$	21	$	888
Year ended December 31, 2020	176		270		256		100		68		22		892
Year ended December 31, 2019	167		264		251		88		72		33		875

Enterprise-wide data by geographic region is as follows:


	Year ended December 31,
	2021		2020		2019
	(in millions)
Sales by geographic region (based on destination of shipments):
United States	$	5,086	$	3,036	$	3,387
Foreign:
Canada	568		397		410
North America, excluding U.S. and Canada	79		54		53
United Kingdom	464		332		413
Other foreign	341		305		327
Total foreign	1,452		1,088		1,203
Consolidated	$	6,538	$	4,124	$	4,590


	December 31,
	2021		2020		2019
	(in millions)
Property, plant and equipment—net by geographic region:
United States	$	6,211	$	6,527	$	6,991
Foreign:
Canada	485		525		558
United Kingdom	385		580		621
Total foreign	870		1,105		1,179
Consolidated	$	7,081	$	7,632	$	8,170

Our principal customers are cooperatives, independent fertilizer distributors, traders, wholesalers and industrial users. In 2021, 2020 and 2019, CHS accounted for approximately 14%, 13% and 15% of our consolidated net sales, respectively. See Note 18—Noncontrolling Interest for additional information.

CF INDUSTRIES HOLDINGS, INC.

23. Supplemental Cash Flow Information

The following provides additional information relating to cash flow activities:


	Year ended December 31,
	2021		2020		2019
	(in millions)
Cash paid during the year for
Interest—net of interest capitalized	$	176	$	184	$	228
Income taxes—net of refunds	430		111		(41)

Supplemental disclosure of noncash investing and financing activities:
Change in capitalized expenditures in accounts payable and accrued expenses	$	(8)	$	1	$	(6)
Change in accrued share repurchases	(1)		—		(33)

24. 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 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 and/or waste storage areas. The most recent estimate of the aggregate cost of these AROs expressed in 2021 dollars is approximately $116 million. We have not recorded a liability for these conditional AROs as of December 31, 2021 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 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.

25. 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 tow charter commitments range from two to six years. Our rail car leases and barge tow charters commonly contain provisions for automatic renewal that can extend the lease term unless canceled by either party. We also have operating leases for terminal and warehouse storage for our distribution system, some of which contain minimum throughput requirements. The storage agreements contain minimum terms generally ranging from one to ten years and commonly contain provisions for automatic renewal thereafter unless canceled by either party. The renewal provisions for our rail car leases, barge tow charters and terminal and warehouse storage agreements are not reasonably certain to be exercised.

The components of lease costs were as follows:


	Year ended December 31,
	2021		2020		2019
	(in millions)
Operating lease cost	$	102	$	107	$	95



Short-term lease cost	25		17		26
Variable lease cost	7		6		4

Total lease cost	$	134	$	130	$	125

CF INDUSTRIES HOLDINGS, INC.

Supplemental cash flow information related to leases was as follows:


	Year ended December 31,
	2021		2020		2019
	(in millions)

Operating cash flows - cash paid for amounts included in the measurement of operating lease liabilities	$	97	$	105	$	93




Right-of-use (ROU) assets obtained in exchange for operating lease obligations	80		80		73

Supplemental balance sheet information related to leases was as follows:


	December 31,
	2021		2020
	(in millions)

Operating lease ROU assets	$	243	$	259

Current operating lease liabilities	$	89	$	88
Operating lease liabilities	162		174
Total operating lease liabilities	$	251	$	262


	December 31,
	2021		2020
Operating leases
Weighted-average remaining lease term	4 years		4 years
Weighted-average discount rate(1)	3.8	%	4.7	%

(1)Upon adoption of the new lease accounting standard, discount rates used for existing leases were established at January 1, 2019.

The following table reconciles the undiscounted cash flows for our operating leases to the operating lease liabilities recorded on our consolidated balance sheet as of December 31, 2021.


	Operating lease payments
	(in millions)
2022	$	91
2023	69
2024	50
2025	30
2026	19
Thereafter	11
Total lease payments	270
Less: imputed interest	(19)

Present value of lease liabilities	251
Less: Current operating lease liabilities	(89)
Operating lease liabilities	$	162

CF INDUSTRIES HOLDINGS, INC.

26. Subsequent Event

In February 2022, we were informed that a decision was reached by the arbitration board regarding the transfer pricing matter with the CRA for tax years 2006 through 2011, as discussed in Note 11—Income Taxes above. We are awaiting further details of the results of the arbitration proceedings and the settlement provisions between the United States and Canadian competent authorities. We need to decide whether to accept the decision of the arbitration board or pursue other resolution alternatives, which is expected to occur in the first quarter of 2022.

CF INDUSTRIES HOLDINGS, INC.

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