CF Industries Holdings, Inc. [CF] Filings

10-Q 1 cf-20220331.htm 10-Q cf-20220331

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM			10-Q


(Mark One)
☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022





OR
☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 001-32597

CF INDUSTRIES HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-2697511

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

4 Parkway North

60015

Deerfield,

Illinois

(Zip Code)

(Address of principal executive offices)

(847) 405-2400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

common stock, par value $0.01 per share

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

208,601,720 shares of the registrant’s common stock, par value $0.01 per share, were outstanding at May 2, 2022.

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CF INDUSTRIES HOLDINGS, INC.

TABLE OF CONTENTS


PART I.	Financial Information
	Item 1.	Financial Statements (unaudited)
		Consolidated Statements of Operations	1
		Consolidated Statements of Comprehensive Income	2
		Consolidated Balance Sheets	3
		Consolidated Statements of Equity	4
		Consolidated Statements of Cash Flows	5
		Notes to Unaudited Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
	Item 4.	Controls and Procedures	45
PART II.	Other Information
	Item 1.	Legal Proceedings	45

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
	Item 6.	Exhibits	46

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CF INDUSTRIES HOLDINGS, INC.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended March 31,
		2022		2021
		(in millions, except per share amounts)
Net sales		$	2,868	$	1,048
Cost of sales		1,170		759
Gross margin		1,698		289
Selling, general and administrative expenses		64		55




Other operating—net		2		(2)
Total other operating costs and expenses		66		53

Equity in earnings of operating affiliate		26		11
Operating earnings		1,658		247
Interest expense		241		48
Interest income		(36)		—
Loss on debt extinguishment		—		6
Other non-operating—net		1		—
Earnings before income taxes		1,452		193
Income tax provision		401		18

Net earnings		1,051		175
Less: Net earnings attributable to noncontrolling interest		168		24
Net earnings attributable to common stockholders		$	883	$	151
Net earnings per share attributable to common stockholders:
Basic		$	4.23	$	0.70
Diluted		$	4.21	$	0.70
Weighted-average common shares outstanding:
Basic		208.6		214.9
Diluted		209.9		216.0
Dividends declared per common share		$	0.30	$	0.30

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three months ended March 31,
		2022		2021
		(in millions)
Net earnings		$	1,051	$	175
Other comprehensive (loss) income:
Foreign currency translation adjustment—net of taxes		(13)		14


Defined benefit plans—net of taxes		4		1
		(9)		15
Comprehensive income		1,042		190
Less: Comprehensive income attributable to noncontrolling interest		168		24
Comprehensive income attributable to common stockholders		$	874	$	166

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	March 31, 2022		December 31, 2021
	(in millions, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents	$	2,617	$	1,628

Accounts receivable—net	679		497
Inventories	488		408

Prepaid income taxes	—		4
Other current assets	42		56
Total current assets	3,826		2,593
Property, plant and equipment—net	6,906		7,081
Investment in affiliate	84		82
Goodwill	2,091		2,091
Operating lease right-of-use assets	236		243
Other assets	639		285
Total assets	$	13,782	$	12,375
Liabilities and Equity
Current liabilities:

Accounts payable and accrued expenses	$	629	$	565
Income taxes payable	408		24
Customer advances	598		700
Current operating lease liabilities	88		89
Current maturities of long-term debt	499		—
Other current liabilities	6		54
Total current liabilities	2,228		1,432
Long-term debt, net of current maturities	2,963		3,465
Deferred income taxes	1,028		1,029
Operating lease liabilities	152		162
Other liabilities	658		251
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, 2022—210,569,780 shares issued and 2021—207,603,940 shares issued	2		2
Paid-in capital	1,482		1,375
Retained earnings	2,907		2,088
Treasury stock—at cost, 2022—1,563,679 shares and 2021—27,962 shares	(123)		(2)
Accumulated other comprehensive loss	(266)		(257)
Total stockholders’ equity	4,002		3,206
Noncontrolling interest	2,751		2,830
Total equity	6,753		6,036
Total liabilities and equity	$	13,782	$	12,375

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


	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, except per share amounts)


















Balance as of December 31, 2021	$	2	$	(2)	$	1,375	$	2,088	$	(257)	$	3,206	$	2,830	$	6,036
Net earnings	—		—		—		883		—		883		168		1,051
Other comprehensive loss	—		—		—		—		(9)		(9)		—		(9)
Purchases of treasury stock	—		(100)		—		—		—		(100)		—		(100)
Retirement of treasury stock	—		2		—		—		—		2		—		2
Acquisition of treasury stock under employee stock plans	—		(23)		—		—		—		(23)		—		(23)
Issuance of $0.01 par value common stock under employee stock plans	—		—		97		—		—		97		—		97

Stock-based compensation expense	—		—		10		—		—		10		—		10

Cash dividends ($0.30 per share)	—		—		—		(64)		—		(64)		—		(64)



Distribution declared to noncontrolling interest	—		—		—		—		—		—		(247)		(247)

Balance as of March 31, 2022	$	2	$	(123)	$	1,482	$	2,907	$	(266)	$	4,002	$	2,751	$	6,753

























Balance as of December 31, 2020	$	2	$	(4)	$	1,317	$	1,927	$	(320)	$	2,922	$	2,681	$	5,603


Net earnings	—		—		—		151		—		151		24		175
Other comprehensive income	—		—		—		—		15		15		—		15


Acquisition of treasury stock under employee stock plans	—		(10)		—		—		—		(10)		—		(10)
Issuance of $0.01 par value common stock under employee stock plans	—		—		8		—		—		8		—		8

Stock-based compensation expense	—		—		8		—		—		8		—		8

Cash dividends ($0.30 per share)	—		—		—		(65)		—		(65)		—		(65)



Distribution declared to noncontrolling interest	—		—		—		—		—		—		(64)		(64)

Balance as of March 31, 2021	$	2	$	(14)	$	1,333	$	2,013	$	(305)	$	3,029	$	2,641	$	5,670

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended March 31,
	2022		2021
	(in millions)
Operating Activities:
Net earnings	$	1,051	$	175
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	208		204
Deferred income taxes	(2)		(12)
Stock-based compensation expense	10		8

Loss on debt extinguishment	—		6
Unrealized net gain on natural gas derivatives	(33)		(6)




Loss on disposal of property, plant and equipment	—		1
Undistributed earnings of affiliate—net of taxes	(2)		(12)
Changes in:
Accounts receivable—net	(185)		(7)
Inventories	(66)		(88)
Accrued and prepaid income taxes	387		78
Accounts payable and accrued expenses	76		36
Customer advances	(102)		211
Other—net	49		(16)
Net cash provided by operating activities	1,391		578
Investing Activities:
Additions to property, plant and equipment	(63)		(71)
Proceeds from sale of property, plant and equipment	1		—






Purchase of U.K. emission credits	(9)		—
Proceeds from sale of EU emission credits	9		—

Net cash used in investing activities	(62)		(71)
Financing Activities:



Payments of long-term borrowings	—		(255)
Financing fees	(4)		—
Dividends paid on common stock	(64)		(65)

Distributions to noncontrolling interest	(247)		(64)
Purchases of treasury stock	(98)		—
Proceeds from issuances of common stock under employee stock plans	97		7
Cash paid for shares withheld for taxes	(23)		(10)

Net cash used in financing activities	(339)		(387)
Effect of exchange rate changes on cash and cash equivalents	(1)		1
Increase in cash and cash equivalents	989		121
Cash and cash equivalents at beginning of period	1,628		683
Cash and cash equivalents at end of period	$	2,617	$	804

See accompanying Notes to Unaudited Consolidated Financial Statements.

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CF INDUSTRIES HOLDINGS, INC.

NOTES TO UNAUDITED 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.

The accompanying unaudited interim consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements for the year ended December 31, 2021, in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting. In the opinion of management, these statements reflect all adjustments, consisting only of normal and recurring adjustments, that are necessary for the fair representation of the information for the periods presented. The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Operating results for any period presented apply to that period only and are not necessarily indicative of results for any future period.

The accompanying unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related disclosures included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 24, 2022. The preparation of the unaudited interim consolidated financial statements requires us to make use of estimates and assumptions that may significantly affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the unaudited consolidated financial statements and the reported revenues and expenses for the periods presented. Such 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 carbon 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 assumptions used in 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, assumptions used in the determination of the funded status and annual expense of defined benefit pension and other postretirement benefit plans and the valuation of stock-based compensation awards granted to employees.

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CF INDUSTRIES HOLDINGS, INC.

2. Revenue Recognition

We track our revenue by product and by geography. See Note 17—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 the three months ended March 31, 2022 and 2021:


	Ammonia		Granular Urea		UAN		AN		Other		Total
	(in millions)











Three months ended March 31, 2022
North America	$	583	$	736	$	1,013	$	83	$	153	$	2,568
Europe and other	57		29		2		140		72		300

Total revenue	$	640	$	765	$	1,015	$	223	$	225	$	2,868
Three months ended March 31, 2021
North America	$	168	$	399	$	222	$	41	$	77	$	907
Europe and other	38		—		10		64		29		141
Total revenue	$	206	$	399	$	232	$	105	$	106	$	1,048

As of March 31, 2022 and December 31, 2021, we had $598 million and $700 million, respectively, in customer advances on our consolidated balance sheets. The revenue recognized during the three months ended March 31, 2022 and 2021 that was included in our customer advances at the beginning of each respective period amounted to approximately $560 million and $85 million, respectively.

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. The balances of customer incentives accrued as of March 31, 2022 and December 31, 2021 were not material.

We have certain customer contracts with performance obligations under which, 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, the amount of which payment may vary based upon the terms and conditions of the applicable contract. As of March 31, 2022, 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 $750 million. We expect to recognize approximately 36% of these performance obligations as revenue in the remainder of 2022, approximately 57% as revenue during 2023-2024, approximately 5% as revenue during 2025-2026, and the remainder thereafter. Subject to the terms and conditions of the applicable contracts, if the customers do not satisfy their purchase obligations under such contracts, the minimum amount that they would be required to pay to us under such contracts, in the aggregate, is approximately $140 million as of March 31, 2022. Other than the performance obligations described above, any performance obligations with our customers that were unfulfilled or partially fulfilled at December 31, 2021 will be satisfied in 2022.

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CF INDUSTRIES HOLDINGS, INC.

3. Net Earnings Per Share

Net earnings per share were computed as follows:


	Three months ended March 31,
		2022		2021
		(in millions, except per share amounts)
Net earnings attributable to common stockholders		$	883	$	151
Basic earnings per common share:
Weighted-average common shares outstanding		208.6		214.9
Net earnings attributable to common stockholders		$	4.23	$	0.70
Diluted earnings per common share:
Weighted-average common shares outstanding		208.6		214.9
Dilutive common shares—stock-based awards		1.3		1.1
Diluted weighted-average common shares outstanding		209.9		216.0
Net earnings attributable to common stockholders		$	4.21	$	0.70

Diluted earnings per common 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 1.2 million in the three months ended March 31, 2021.

4. Inventories

Inventories consist of the following:


	March 31, 2022		December 31, 2021
	(in millions)
Finished goods	$	436	$	358
Raw materials, spare parts and supplies	52		50
Total inventories	$	488	$	408

5. 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, which impacted our U.K. operations. 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. After certain agreements were finalized, our Billingham facility resumed operations. As of the filing of this report, production continues at our Billingham facility and continues to be idled at our Ince facility.

In the second half of 2021, the U.K. energy crisis necessitated evaluations of the goodwill and long-lived assets, including definite-lived intangible assets, of our U.K. operations to determine if their fair value had declined to below their carrying value. Based on these analyses, we concluded that declines in fair value had occurred, and we recognized 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. As a result, we had no remaining goodwill related to our U.K. operations on our consolidated balance sheet as of December 31, 2021.

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CF INDUSTRIES HOLDINGS, INC.

During the first quarter of 2022, we concluded that the continued impacts of the U.K. energy crisis, including further increases and volatility in natural gas prices due in part to recent geopolitical events as a result of Russia’s invasion of Ukraine in February 2022, triggered an additional long-lived asset impairment test. The results of the interim impairment test indicated that no additional long-lived asset impairment existed as the undiscounted estimated future cash flows were in excess of the carrying values for each of the U.K. asset groups, consisting of U.K. Ammonia, U.K. AN and U.K. Other.

6. Property, Plant and Equipment—Net

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


	March 31, 2022		December 31, 2021
	(in millions)
Land	$	67	$	68
Machinery and equipment(1)	12,763		12,757
Buildings and improvements(1)	916		915
Construction in progress(1)	179		148
Property, plant and equipment(2)	13,925		13,888
Less: Accumulated depreciation and amortization	7,019		6,807
Property, plant and equipment—net	$	6,906	$	7,081

_______________________________________________________________________________

(1)At both March 31, 2022 and December 31, 2021, machinery and equipment, buildings and improvements, and construction in progress include cumulative impairment charges of $169 million, $5 million and $8 million, respectively, which were recorded in 2021.

(2)As of March 31, 2022 and December 31, 2021, we had property, plant and equipment that was accrued but unpaid of approximately $22 million and $35 million, respectively. As of March 31, 2021 and December 31, 2020, we had property, plant and equipment that was accrued but unpaid of approximately $33 million and $43 million, respectively.

Depreciation and amortization related to property, plant and equipment was $205 million and $200 million for the three months ended March 31, 2022 and 2021, respectively.

In the first quarter of 2022, we concluded that the continued impacts of the U.K. energy crisis, including higher natural gas prices due in part to recent geopolitical events, triggered an impairment test of the long-lived assets in our U.K. asset groups. This test indicated that no long-lived asset impairment existed as the undiscounted estimated future 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 March 31, 2022 include approximately $400 million, approximately $360 million of which consists of property, plant and equipment, related to the U.K. asset groups. See Note 5—United Kingdom Energy Crisis and Impairment Charges for additional information.

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:


	Three months ended March 31,
	2022		2021
	(in millions)
Net capitalized turnaround costs:
Beginning balance	$	355	$	226
Additions	5		10
Depreciation	(36)		(25)
Effect of exchange rate changes	(1)		—
Ending balance	$	323	$	211

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CF INDUSTRIES HOLDINGS, INC.

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

7. Goodwill and Other Intangible Assets

The following table shows the carrying amount of goodwill by reportable segment as of March 31, 2022 and December 31, 2021:


	Ammonia(1)		Granular Urea		UAN		AN(1)		Other(1)		Total
	(in millions)
Balance as of December 31, 2021	$	579	$	828	$	576	$	69	$	39	$	2,091

Effect of exchange rate changes	—		—		—		—		—		—
Balance as of March 31, 2022	$	579	$	828	$	576	$	69	$	39	$	2,091

_______________________________________________________________________________

(1)At both March 31, 2022 and December 31, 2021, the carrying amount of goodwill includes accumulated impairment losses in our Ammonia, AN and Other segments of $9 million, $241 million and $35 million, respectively.

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:


	March 31, 2022						December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
	(in millions)

Customer relationships(1)	$	83	$	(59)	$	24	$	84	$	(60)	$	24
Trade names(1)	30		(10)		20		31		(10)		21

Total intangible assets	$	113	$	(69)	$	44	$	115	$	(70)	$	45

_______________________________________________________________________________

(1)At both March 31, 2022 and December 31, 2021, the gross carrying amount for customer relationships and trade names includes cumulative impairment charges of $49 million and $1 million, respectively, which were recorded in 2021.

Our customer relationships and trade names are being amortized over a weighted-average life of approximately 20 years. Amortization expense of our identifiable intangible assets was $1 million and $2 million for the three months ended March 31, 2022 and 2021, respectively. 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 the remainder of 2022 is $3 million and for each of the fiscal years 2023-2027 is $4 million.

In the first quarter of 2022, we concluded that the continued impacts of the U.K. energy crisis, including higher natural gas prices due in part to recent geopolitical events, triggered an impairment test of the long-lived assets in our U.K. asset groups. This test indicated that no long-lived asset impairment existed as the undiscounted estimated future cash flows were in excess of the carrying values for each of the U.K. asset groups. See Note 5—United Kingdom Energy Crisis and Impairment Charges for additional information. Long-lived assets on our consolidated balance sheet as of March 31, 2022 include approximately $400 million, $25 million of which consists of customer relationships and trade names, related to the U.K. asset groups.

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CF INDUSTRIES HOLDINGS, INC.

8. Equity Method Investment

We have a 50% ownership interest in Point Lisas Nitrogen Limited (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 March 31, 2022, the total carrying value of our equity method investment in PLNL was $84 million, $38 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 $74 million and $26 million for the three months ended March 31, 2022 and 2021, respectively.

9. Fair Value Measurements

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


	March 31, 2022
	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
	(in millions)
Cash	$	207	$	—	$	—	$	207
Cash equivalents:
U.S. and Canadian government obligations	2,324		—		—		2,324
Other debt securities	86		—		—		86
Total cash and cash equivalents	$	2,617	$	—	$	—	$	2,617

Nonqualified employee benefit trusts	17		2		—		19


	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

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.

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CF INDUSTRIES HOLDINGS, INC.

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 March 31, 2022 and December 31, 2021 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:


	March 31, 2022
	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	$	2,410	$	2,410	$	—	$	—

Nonqualified employee benefit trusts	19		19		—		—
Derivative assets	3		—		3		—

Embedded derivative liability	(15)		—		(15)		—


	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)		—

Cash Equivalents

As of March 31, 2022 and December 31, 2021, 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 over-the-counter 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 13—Derivative Financial Instruments for additional information.

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CF INDUSTRIES HOLDINGS, INC.

Embedded Derivative Liability

Under the terms of our strategic venture with CHS Inc. (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 both March 31, 2022 and December 31, 2021, the embedded derivative liability was $15 million.

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 14—Noncontrolling Interest for additional information regarding our strategic venture with CHS.

Financial Instruments

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

March 31, 2022