What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-24 · 411 added, 366 removed, 1408 unchanged (36% of the section changed)

9 unchanged sentences

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.

Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for Leases as of January 1, 2019 due to the adoption of Accounting Standards Update No.

2016-02, Leases (Topic 842) .

Basis for Opinion

9 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates 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 a critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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 11 to the consolidated financial statements, the Company’s projected benefit obligation (PBO) associated with its pension plans established in North America and the United Kingdom were $884 million and $643 million as of December 31, 2020, respectively.

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 both the North American and United Kingdom plans and an adjusted retail price index (RPI) for the United Kingdom plans.

The selected discount rate and RPI are then applied to these future benefit payments in determining the present value of those obligations as of December 31, 2020.

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 both 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.

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 both the North American and United Kingdom pension plans.

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.

7 unchanged sentences

• 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.

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.

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

11 unchanged sentences

Selling, general and administrative expenses 223 206 239

Goodwill impairment 285 — —

Long-lived and intangible asset impairment 236 — —

Other operating—net ( 39 ) ( 17 ) ( 73 )

9 unchanged sentences

Net earnings 1,260 432 646

Net earnings attributable to noncontrolling interests 115 153 138

Net earnings attributable to noncontrolling interest 343 115 153

Net earnings attributable to common stockholders $ 917 $ 317 $ 493

12 unchanged sentences

Net earnings $ 1,260 $ 432 $ 646

Other comprehensive income (loss):

Other comprehensive income:

Foreign currency translation adjustment—net of taxes 3 44 62

2 unchanged sentences

Comprehensive income 1,323 478 651

Comprehensive income attributable to noncontrolling interests 115 153 138

Comprehensive income attributable to noncontrolling interest 343 115 153

Comprehensive income attributable to common stockholders $ 980 $ 363 $ 498

26 unchanged sentences

Total current liabilities 1,432 906

Long-term debt 3,712 3,957

Long-term debt, net of current maturities 3,465 3,712

Deferred income taxes 1,029 1,184

23 unchanged sentences

Equity Noncontrolling

Interests Total

Interest Total

(in millions)

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

Adoption of ASU No.

2016-01 — — — 1 ( 1 ) — — —

Adoption of ASU No.

2014-09 — — — ( 1 ) — ( 1 ) — ( 1 )

Adoption of ASU No.

2018-02 — — — 10 ( 10 ) — — —

Net earnings — — — 493 — 493 153 646

Other comprehensive loss — — — — ( 97 ) ( 97 ) — ( 97 )

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

3 unchanged sentences

— — — ( 265 ) — ( 265 ) — ( 265 )

Acquisition of noncontrolling interests in TNCLP — — ( 62 ) — — ( 62 ) ( 331 ) ( 393 )

Distributions declared to noncontrolling interests — — — — — — ( 139 ) ( 139 )

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

21 unchanged sentences

— — — ( 260 ) — ( 260 ) — ( 260 )

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

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

12 unchanged sentences

Stock-based compensation expense 30 25 28

Unrealized net (gain) loss on natural gas derivatives ( 6 ) 14 ( 13 )

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 )

12 unchanged sentences

Insurance proceeds for property, plant and equipment — 2 15

Other—net — — 1

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 )

7 unchanged sentences

Dividends paid on common stock ( 260 ) ( 258 ) ( 265 )

Acquisition of noncontrolling interests in TNCLP — — ( 388 )

Distributions to noncontrolling interests ( 174 ) ( 186 ) ( 139 )

Distributions to noncontrolling interest ( 194 ) ( 174 ) ( 186 )

Proceeds from issuances of common stock under employee stock plans 64 5 19

Shares withheld for taxes ( 10 ) ( 4 ) ( 4 )

Cash paid for shares withheld for taxes ( 11 ) ( 10 ) ( 4 )

Net cash used in financing activities ( 1,463 ) ( 542 ) ( 1,583 )

7 unchanged sentences

Background and Basis of Presentation

We are a leading global manufacturer of hydrogen and nitrogen products for clean energy, fertilizer, emissions abatement, and other industrial applications.

We operate nitrogen manufacturing complexes in the United States, Canada and the United Kingdom, which are among the most cost-advantaged, efficient and flexible in the world, and an extensive storage, transportation and distribution network in North America.

Our 3,000 employees focus on safe and reliable operations, environmental stewardship and disciplined capital and corporate management, driving our strategy to leverage our unique capabilities to accelerate the world’s transition to clean energy.

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.

14 unchanged sentences

(CHS) owns the remainder.

See Note 17—Noncontrolling Interests for additional information on our strategic venture with CHS;

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;

3 unchanged sentences

Summary of Significant Accounting Policies

Consolidation and Noncontrolling Interests

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.

In 2018, we announced that Terra Nitrogen GP Inc.

(TNGP), the sole general partner of Terra Nitrogen Company, L.P.

(TNCLP) and an indirect wholly owned subsidiary of CF Holdings, elected to exercise its right to purchase all of the 4,612,562 publicly traded common units of TNCLP (the TNCLP Public Units).

On April 2, 2018, TNGP completed its purchase of the TNCLP Public Units (the Purchase) for an aggregate cash purchase price of $ 388 million.

Upon completion of the Purchase, we owned, through our subsidiaries, 100% of the general and limited partnership interests of TNCLP.

Prior to the purchase of the TNCLP Public Units, we owned approximately 75.3 % of TNCLP through general and limited partnership interests and outside investors owned the remaining approximately 24.7 % of the limited partnership, and we consolidated TNCLP into our financial statements.

The outside investors’ limited partnership interests in the partnership were included in noncontrolling interests in our consolidated financial statements prior to our purchase of the TNCLP Public Units.

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 interests in our consolidated financial statements.

See Note 17—Noncontrolling Interests for additional information.

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.

2 unchanged sentences

GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the periods presented.

Significant estimates and assumptions are used for, but are not limited to, net realizable value of inventories, environmental remediation liabilities, environmental and litigation contingencies, the cost of customer incentives, useful lives of property and identifiable intangible assets, the evaluation of potential impairments of property, investments, identifiable intangible assets and goodwill, income taxes, allowances for doubtful accounts receivable, the determination of the benefit obligation and annual expense of defined benefit pension and other postretirement plans and the valuation of stock-based compensation awards granted to employees.

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

48 unchanged sentences

Recoverability of Long-Lived Assets

We review property, plant and equipment and other long-lived assets in order to assess recoverability based on expected future undiscounted cash flows whenever events or circumstances indicate that the carrying value may not be recoverable.

If the sum of the expected future net cash flows is less than the carrying value, an impairment loss would be recognized.

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 if certain impairment conditions arise.

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.

3 unchanged sentences

We use an income-based valuation method, determining the present value of future cash flows, to estimate the fair value of a reporting unit.

If the fair value of a reporting unit exceeds its positive carrying amount, goodwill of the reporting unit is considered not impaired, and no further analysis is necessary.

If the fair value of 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 7—Goodwill and Other Intangible Assets for additional information regarding our goodwill and other intangible assets.

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.

26 unchanged sentences

We manage the risk of changes in natural gas prices primarily through the use of derivative financial instruments.

The derivative instruments that we may use are primarily natural gas fixed price swaps, basis swaps and options traded in the over-the-counter (OTC) markets.

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.

48 unchanged sentences

Predicting the outcome of claims and litigation, and estimating related costs and exposure, involves substantial uncertainties that could cause actual costs to vary materially from estimates and accruals.

Foreign Currency Translation

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.

CF INDUSTRIES HOLDINGS, INC.

The resulting translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) within stockholders’ equity.

1 unchanged sentence

dollars at exchange rates existing at the respective balance sheet dates.

Gains and losses resulting from these foreign currency transactions are included in other operating—net on our consolidated statements of operations.

Gains and losses resulting from 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.

New Accounting Standards

Recently Adopted Pronouncements

On January 1, 2020, we adopted Accounting Standards Update (ASU) No.

5 unchanged sentences

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 agreement is implemented.

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.

On January 1, 2019, we adopted ASU No.

2016-02, Leases (Topic 842), which supersedes the lease accounting requirements in ASC Topic 840, Leases.

This ASU requires lessees to recognize the rights and obligations resulting from virtually all leases (other than leases that meet the definition of a short-term lease) on their balance sheets as right-of-use assets with corresponding lease liabilities.

Extensive quantitative and qualitative disclosures, including significant judgments made by management, are required to provide greater insight into the extent of income and expense recognized and expected to be recognized from existing contracts.

We elected the optional transition method provided under ASU No.

2018-11, Leases (Topic 842):

Targeted Improvements, which provides the option to adopt ASU No.

2016-02 as of the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The cumulative effect adjustment we recognized in the opening balance of retained earnings as of January 1, 2019 was not material.

In addition, we elected the package of practical expedients permitted under the transition guidance within ASU No.

2016-02, which allows us to carry forward the historical lease determination, lease classification, and assessment of initial direct costs.

See Note 24—Leases for additional information.

Recently Issued Pronouncement

In December 2019, the Financial Accounting Standards Board issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This ASU adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codification.

The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

We do not expect our adoption of this ASU on January 1, 2021 will have a material effect on our consolidated financial statements.

Revenue Recognition

10 unchanged sentences

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.

Other than products

CF INDUSTRIES HOLDINGS, INC.

purchased from PLNL, products purchased in the marketplace in order to satisfy the obligations of our customers were not material during 2020, 2019 or 2018.

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

5 unchanged sentences

Returns were not material during 2021, 2020 or 2019.

We offer cash incentives to certain customers that 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 certain level of purchases within the incentive period.

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.

22 unchanged sentences

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 2020, 2019 and 2018, the amount of customer bad debt expense recognized was immaterial.

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.

2 unchanged sentences

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 an increase in forward contracts amidst an increasing price environment.

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.

CF INDUSTRIES HOLDINGS, INC.

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.

6 unchanged sentences

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.

Net Earnings Per Share

15 unchanged sentences

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.

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.

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

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.

Other asset groups’ long-lived assets, including definite-lived intangible assets, and the U.K.

Ammonia, 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:

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)

_______________________________________________________________________________

(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.

Property, Plant and Equipment—Net

3 unchanged sentences

Machinery and equipment (1)

12,757 12,539

Buildings and improvements (1)

5 unchanged sentences

_______________________________________________________________________________

(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.

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.

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.

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.

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.

13 unchanged sentences

Internal employee costs and overhead amounts are not considered turnaround costs and are not capitalized.

CF INDUSTRIES HOLDINGS, INC.

Goodwill and Other Intangible Assets

3 unchanged sentences

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.

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.

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

Amount Accumulated

Amortization Net Gross

5 unchanged sentences

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

Our intangible assets are being amortized over a weighted-average life of approximately 20 years.

Amortization expense of our identifiable intangibles was $ 8 million, $ 8 million and $ 7 million for the years ended December 31, 2020, 2019 and 2018, respectively.

_______________________________________________________________________________

(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 five succeeding fiscal years is as follows:

(in millions)

CF INDUSTRIES HOLDINGS, INC.

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.

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.

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.

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.

See Note 6—United Kingdom Energy Crisis and Impairment Charges and Note 7—Property, Plant and Equipment—Net for additional information.

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.

Equity Method Investment

7 unchanged sentences

Our ammonia purchases from PLNL totaled $ 150 million, $ 57 million and $ 69 million in 2021, 2020 and 2019, respectively.

The Trinidadian tax authority (the Board of Inland Revenue) issued a proposed tax assessment against PLNL with respect to tax years 2011 and 2012 in the amount of approximately $ 12 million.

The proposed assessment asserted 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 for the tax years 2011 and 2012.

As we own a 50 % interest in PLNL, our effective share of any assessment that is determined to be a liability of PLNL would be 50 %, which would be reflected as a reduction in our equity in earnings of PLNL.

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.

2 unchanged sentences

Our 50 % share of PLNL’s tax charge was $ 16 million, which reduced our equity in earnings of operating affiliate for 2019.

PLNL operates an ammonia plant that relies on natural gas supplied, under a Gas Sales Contract (the NGC Contract), by The National Gas Company of Trinidad and Tobago Limited (NGC).

PLNL experienced past curtailments in the supply of natural gas from NGC, which reduced historical ammonia production at PLNL.

The NGC Contract had an initial expiration date of September 2018 and was extended on the same terms until September 2023.

Any NGC commitment to supply gas beyond 2023 will be based on new agreements.

In May 2018, the NGC and PLNL reached a settlement of an arbitration proceeding regarding PLNL’s claims for damages due to natural gas supply curtailments.

The net after-tax impact of the settlement reached between NGC and PLNL that was recognized in our consolidated statement of operations for 2018 was an increase in our equity in earnings of operating affiliate of approximately $ 19 million.

CF INDUSTRIES HOLDINGS, INC.

Fair Value Measurements

29 unchanged sentences

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

8 unchanged sentences

Embedded derivative liability ( 15 ) — ( 15 ) —

CF INDUSTRIES HOLDINGS, INC.

December 31, 2020

5 unchanged sentences

Nonqualified employee benefit trusts 19 19 — —

Derivative assets 1 — 1 —

Derivative liabilities ( 7 ) — ( 7 ) —

10 unchanged sentences

Derivative Instruments

The derivative instruments that we may 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 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.

7 unchanged sentences

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, 2020 and 2019, the embedded derivative liability was $ 18 million and $ 20 million, respectively.

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.

1 unchanged sentence

Based on these inputs, our fair value measurement is classified as Level 2.

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

CF INDUSTRIES HOLDINGS, INC.

See Note 18—Noncontrolling Interest for additional information regarding our strategic venture with CHS.

Financial Instruments

13 unchanged sentences

Since certain of the Company’s assumptions would involve inputs that are not observable, these fair values would reside within Level 3 of the fair value hierarchy.

We review the carrying value of our goodwill, definite lived intangible assets, and investments in unconsolidated subsidiaries to assess recoverability as part of our annual impairment review in the fourth quarter of each year and more frequently if there is an event that requires reassessment during the year.

As part of the assessment process when performing impairment tests, we estimate many factors including future production and sales volumes, selling prices, raw materials costs, operating rates, operating expenses, inflation, discount rates, exchange rates, tax rates and capital spending.

The assumptions we make are material estimates that are used in the impairment testing.

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.

CF INDUSTRIES HOLDINGS, INC.

5 unchanged sentences

Domestic $ 1,979 $ 421 $ 679

( 436 ) 42 93

Earnings before income taxes $ 1,543 $ 463 $ 772

7 unchanged sentences

( 196 ) ( 74 ) 149

Income tax provision before Tax Reform 31 126 103

Tax Reform - Current

Federal — — 19

Foreign — — —

State — — ( 3 )

Income tax provision - Tax Reform — — 16

Income tax provision $ 283 $ 31 $ 126

6 unchanged sentences

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 early 2013, the Internal Revenue Service (IRS) commenced an examination of the U.S.

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 Disclosure Filing with the Canadian Revenue Agency (CRA) with respect to the Canadian tax aspects of this matter and paid additional Canadian taxes due.

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.

7 unchanged sentences

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 withholding tax matter and the income tax matter.

In addition, the CRA settled with us the Voluntary Disclosure matter.

CF INDUSTRIES HOLDINGS, INC.

In 2020, 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:

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.

2 unchanged sentences

Federal withholding tax matter, and

CF INDUSTRIES HOLDINGS, INC.

• an additional income tax benefit of $ 9 million related to the U.S.

2 unchanged sentences

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 of the finalization of the income tax matter and the withholding tax matter, all U.S.

As a result, all U.S.

federal tax years commencing before January 1, 2012 are now closed.

In the first quarter of 2021, we received approximately $ 20 million of withholding tax refunds, including interest, from the CRA, related to the Voluntary Disclosure Filing.

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 Notices of Reassessment

In 2016, the Canada Revenue Agency (CRA) issued Notices of Reassessment for tax years 2006 through 2009 to one of our Canadian affiliates asserting a disallowance of certain patronage allocations.

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 a Notice of Objection with respect to the Notices of Reassessment with the CRA and Alberta Tax and Revenue Administration and we posted letters of credit in lieu of paying the additional tax liability assessed.

In 2018, the matter was accepted for consideration under the bilateral settlement provisions of the US-Canada Tax Treaty (the Treaty) by the United States and Canadian competent authorities and was subject to a two-year period to reach a settlement.

The period was subsequently extended, but it expired in February 2021 and the matter is being referred to binding arbitration under the provisions of the Treaty.

While there is uncertainty about the ultimate timing and outcome of this matter, which may be resolved in binding arbitration, we do not expect that resolution of the matter will result in a material net tax liability, because the Company would be entitled to an offsetting U.S.

foreign tax credit for any incremental Canadian tax paid.

Upon resolution of the matter, interest would be assessed based upon the amount of tax due.

Similarly, the Company would be entitled to receive interest on the offsetting reduction in tax due to the foreign tax credit.

Due to uncertainty in how each taxing authority would apply their interest calculation rules, we are not able to predict the net amount of interest that we would pay to or receive from the taxing authorities.

The Tax Cuts and Jobs Act (the “Tax Act” or “Tax Reform”) was enacted on December 22, 2017.

Among other provisions, the Tax Act imposed a transition tax liability on taxpayers with undistributed foreign entity earnings.

In 2018, we recorded a $ 16 million increase to the provisional amount of the transition tax liability.

The adjustment to the provisional amount was required to properly reflect the inclusion of amounts subject to the transition tax in tax returns where the amounts were to be reported.

The adjustment related to changes in (i) the amount of includible income subject to the transition tax;

(ii) the computation of the allowable foreign tax credits against the transition tax liability and (iii) the allocation of certain gains and losses to various foreign tax credit baskets.

The adjustment to the provisional amount represented an approximate 3 percentage point increase to our effective tax rate for the year ended December 31, 2018.

The Tax Act also provided a new category of income from foreign operations, Global Intangible Low-Taxed Income (GILTI), that was subject to federal income tax beginning in the year ended December 31, 2018.

tax on foreign earnings in the effective tax rate table below includes our tax on GILTI, which is primarily related to Canadian earnings.

CF INDUSTRIES HOLDINGS, INC.

COVID-19 Tax Legislation

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) was signed into law.

The CARES Act includes, among other things, a five-year net operating loss (NOL) carryback (including a related technical correction to the 2017 Tax Cuts and Jobs Act) for tax losses incurred in tax years 2018 through 2020, a change in interest deduction limitations for tax years 2019 and 2020, increasing the annual interest limitation from 30% to 50% of adjusted taxable income and increased refundability of corporate alternative minimum tax (AMT) credits.

These provisions have limited applicability to the Company.

On December 27, 2020, the Consolidated Appropriations Act, 2021 (the CAA) was signed into law.

The CAA extends certain provisions of the CARES Act, provides additional funding for others and contains new relief provisions.

The tax provisions within this legislation will not have a significant effect on the Company.

We continue to monitor and assess the impact of tax legislation related to COVID-19 in all tax jurisdictions in which we operate.

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

7 unchanged sentences

State income taxes, net of federal 34 ( 1 ) 2

Net earnings attributable to noncontrolling interests ( 24 ) ( 32 ) ( 29 )

Net earnings attributable to noncontrolling interest ( 72 ) ( 24 ) ( 32 )

Foreign tax rate differential ( 1 ) 1 2

1 unchanged sentence

Foreign partnership basis difference — ( 7 ) —

Valuation allowance — — 4

Tax rate change — — ( 2 )

Non-deductible goodwill impairment 60 — —

Federal income tax return audits ( 38 ) — —

Terra amended tax returns — ( 24 ) ( 10 )

Other ( 24 ) ( 5 ) ( 1 )

Transition tax liability (Tax Reform) — — 16

Income tax provision $ 283 $ 31 $ 126

Effective tax rate 18.3 % 6.7 % 16.3 %

Income tax provision before Tax Reform (1)

$ 31 $ 126 $ 103

Effective tax rate before Tax Reform 6.7 % 16.3 % 18.7 %

_______________________________________________________________________________

(1) Income tax provision before Tax Reform reflects the income tax provision less the Tax Reform impact included in the table above consisting of the transition tax liability.

On April 2, 2018, we acquired the TNCLP Public Units.

Our effective tax rate in 2018 was impacted by a $ 16 million reduction to our deferred tax liability as a result of the change in our effective state income tax rate due to the implementation of legal entity structure changes related to the acquisition.

See Note 17—Noncontrolling Interests for additional information.

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

tax on foreign earnings for the year ended December 31, 2020 is inclusive of the current year tax on global intangible low-tax income (GILTI), benefit from the Section 250 deduction and foreign tax credits, as well as adjustments to prior year amounts for these items recorded upon filing the U.S.

federal return in the fourth quarter of 2020.

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.

Our effective tax rate is impacted by earnings attributable to noncontrolling interests in CFN and, prior to April 2, 2018, TNCLP, as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interests.

As a result, earnings attributable to the noncontrolling interests of $ 115 million, $ 153 million and $ 138 million in 2020, 2019 and 2018, respectively, which are included in earnings before income taxes, impacted the effective tax rate in all three years.

See Note 17—Noncontrolling Interests for additional information.

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.

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

2 unchanged sentences

Deferred tax assets:

Net operating loss and capital loss carryforwards $ 194 $ 108

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

12 unchanged sentences

and foreign income tax that would be due upon repatriation of these accumulated earnings, other than foreign withholding tax, which we have not accrued.

During 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 the current year is primarily attributable to a capital loss.

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.

As of December 31, 2020, our net operating loss and capital loss carryforwards are comprised of state net operating loss carryforwards with expiration dates generally ranging from 2027 to 2037 and foreign capital loss carryforwards, which can be carried forward indefinitely.

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.

2 unchanged sentences

The state tax credits have expiration dates generally ranging from 2038 to 2041.

We have recorded a $ 27 million valuation allowance on the portion of the state tax credits that are not expected to be realized before they expire based on taxable income projections.

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

9 unchanged sentences

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.

In 2019, we increased the amount of our unrecognized tax benefits by $ 22 million.

The increase primarily related to an addition for state investment tax credits.

In addition, we reduced the amount of our unrecognized tax benefits in 2019 by $ 44 million.

This reduction primarily related to the approval by the Joint Committee of the IRS audit report related to the Terra Amended Tax Returns described above.

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 2012 and thereafter, by Canadian tax jurisdictions for years 2006 and thereafter, and by United Kingdom tax jurisdictions for years 2018 and thereafter.

Our income tax liability or transition tax expense could be impacted by the finalization of currently on-going U.S.

or foreign income tax audits of prior tax years falling before the date of enactment of the Tax Act or audits by the U.S.

or foreign taxing authorities, which change the amount of our total income allocable to and taxed in the United States or a foreign country.

Interest expense and penalties of $( 29 ) million, $ 4 million, and $ 1 million were recorded for the years ended December 31, 2020, 2019 and 2018, respectively.

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.

28 unchanged sentences

Foreign currency translation ( 1 ) ( 4 ) 6 ( 20 ) — —

Plan amendments — ( 4 ) — 3 — —

Plan participant contributions — — — — — ( 1 )

2 unchanged sentences

Funded status as of December 31 $ ( 11 ) $ ( 38 ) $ ( 85 ) $ ( 152 ) $ ( 32 ) $ ( 35 )

In the table above, the line titled “Plan amendments” for 2019 relates to the impact of updates to certain mortality tables for the U.S.

plan and a conversion option for pensions in payment for the U.K.

The line titled “Change in assumptions and other” for our North America pension plans primarily reflects the impact of losses due to the decrease in discount rates for 2020 and 2019.

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 losses due to the decrease in discount rates for 2020 and 2019.

For 2019, the losses from the decrease in discount rates was partially offset by gains due to the decrease in inflation rate assumptions.

The line titled “Benefit payments” includes $ 22 million of lump sum payments for our U.S.

pension plan in December 2020.

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.

18 unchanged sentences

$ 46 $ 83 $ 90 $ 130 $ 4 $ 4

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

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

12 unchanged sentences

Amortization of actuarial (loss) gain ( 5 ) ( 3 ) — ( 4 ) ( 3 ) — — 1 1

Total recognized in accumulated other comprehensive loss ( 5 ) 7 — ( 7 ) 57 2 2 ( 2 ) ( 6 )

Total recognized in net periodic benefit cost (income) and accumulated other comprehensive loss $ 11 $ 19 $ 15 $ ( 7 ) $ 54 $ ( 1 ) $ 2 $ ( 3 ) $ ( 6 )

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.

Service costs are recognized in cost of sales and selling, general and administrative expenses, and other costs are recognized in other non-operating—net on our consolidated statements of operations.

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.

1 unchanged sentence

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 excludes two North American defined benefit pension plans that have plan assets in excess of its ABO:

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

13 unchanged sentences

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 2021 will be approximately $ 6 million for the North America plans and $ 27 million for the United Kingdom plans.

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:

31 unchanged sentences

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 an 8.3 % increase in 2020, followed by a gradual decline in increases to 4.5 % for 2026 and thereafter.

For post-65 retirees, the assumed health care cost trend rates 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.

26 unchanged sentences

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 liability due to interest and discount rate.

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.

56 unchanged sentences

(in millions)

Cash $ 4 $ 4 $ — $ —

Pooled target return funds (15)

government index-linked securities funds (16)

Pooled global fixed income funds (17)

Cash and cash funds (8)

$ 22 $ 5 $ 17 $ —

Pooled equity funds (9)

Pooled diversified funds (10)

government fixed and index-linked securities funds (11)

Pooled global debt funds (12)

Pooled liability-driven investment funds (13)

Total assets at fair value by fair value levels $ 439 $ 5 $ 434 $ —

Pooled property funds measured at NAV as a practical expedient (14)

Funds measured at NAV as a practical expedient (14)

Total assets $ 491

_______________________________________________________________________________

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

(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.

3 unchanged sentences

(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.

CF INDUSTRIES HOLDINGS, INC.

(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.

2 unchanged sentences

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 broad array of asset classes and a range of diversifiers including the use of derivatives.

(10) Pooled diversified funds invest in a broad array of asset classes and a range of diversifiers including the use of derivatives.