CF-03.31.2015-10Q

Table of Contents
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR
o
 
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
 (State or other jurisdiction of
incorporation or organization)
 
20-2697511
 (I.R.S. Employer
Identification No.)
 
 
 
4 Parkway North, Suite 400
Deerfield, Illinois
 (Address of principal executive offices)
 
60015
 (Zip Code)
(847) 405-2400
 (Registrant's telephone number, including area code)
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 x  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 (Do not check if a smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No x
47,069,448 shares of the registrant's common stock, $0.01 par value per share, were outstanding at April 30, 2015.
 


Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents

CF INDUSTRIES HOLDINGS, INC.
PART I—FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS.
        CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three months ended 
 March 31,
 
2015
 
2014
 
(in millions, except per share amounts)
Net sales
$
953.6

 
$
1,132.6

Cost of sales
537.8

 
689.8

Gross margin
415.8

 
442.8

Selling, general and administrative expenses
40.1

 
41.7

Other operating—net
18.2

 
(5.8
)
Total other operating costs and expenses
58.3

 
35.9

Gain on sale of phosphate business

 
747.1

Equity in earnings of operating affiliates
9.7

 
15.8

Operating earnings
367.2

 
1,169.8

Interest expense
33.9

 
40.0

Interest income
(0.4
)
 
(0.2
)
Other non-operating—net

 
(0.1
)
Earnings before income taxes and equity in earnings of non-operating affiliates
333.7

 
1,130.1

Income tax provision
112.7

 
413.2

Equity in earnings of non-operating affiliates—net of taxes
14.9

 
3.5

Net earnings
235.9

 
720.4

Less: Net earnings attributable to noncontrolling interest
5.3

 
11.9

Net earnings attributable to common stockholders
$
230.6

 
$
708.5

Net earnings per share attributable to common stockholders:
 

 
 

Basic
$
4.81

 
$
12.94

Diluted
$
4.79

 
$
12.90

Weighted-average common shares outstanding:
 

 
 

Basic
47.9

 
54.8

Diluted
48.1

 
54.9

Dividends declared per common share
$
1.50

 
$
1.00

   
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,
 
2015
 
2014
 
(in millions)
Net earnings
$
235.9

 
$
720.4

Other comprehensive income (loss):
 

 
 

Foreign currency translation adjustment—net of taxes
(86.3
)
 
(16.9
)
Unrealized gain on securities—net of taxes

 
0.1

Defined benefit plans—net of taxes
5.8

 
7.4

 
(80.5
)
 
(9.4
)
Comprehensive income
155.4

 
711.0

Less: Comprehensive income attributable to noncontrolling interest
5.3

 
11.9

Comprehensive income attributable to common stockholders
$
150.1

 
$
699.1

   
See Accompanying Notes to Unaudited Consolidated Financial Statements.


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CF INDUSTRIES HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
 
(Unaudited)
 
 
 
March 31,
2015
 
December 31,
2014
 
(in millions, except share
and per share amounts)
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
1,778.8

 
$
1,996.6

Restricted cash
63.3

 
86.1

Accounts receivable—net
167.1

 
191.5

Inventories
267.7

 
202.9

Deferred income taxes
55.1

 
84.0

Prepaid income taxes
27.7

 
34.8

Other current assets
20.0

 
18.6

Total current assets
2,379.7

 
2,614.5

Property, plant and equipment—net
5,925.0

 
5,525.8

Investments in and advances to affiliates
853.5

 
861.5

Goodwill
2,090.4

 
2,092.8

Other assets
236.7

 
243.6

Total assets
$
11,485.3

 
$
11,338.2

Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued expenses
$
693.2

 
$
589.9

Income taxes payable
79.4

 
16.0

Customer advances
495.2

 
325.4

Other current liabilities
43.5

 
48.4

Total current liabilities
1,311.3

 
979.7

Long-term debt
4,592.5

 
4,592.5

Deferred income taxes
783.0

 
818.6

Other noncurrent liabilities
380.0

 
374.9

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, 2015—49,219,895 shares issued and 2014—49,180,828 shares issued
0.5

 
0.5

Paid-in capital
1,426.5

 
1,415.9

Retained earnings
3,334.1

 
3,175.3

Treasury stock—at cost, 2015—1,658,165 shares and 2014—846,218 shares
(458.9
)
 
(222.2
)
Accumulated other comprehensive loss
(240.3
)
 
(159.8
)
Total stockholders' equity
4,061.9

 
4,209.7

Noncontrolling interest
356.6

 
362.8

Total equity
4,418.5

 
4,572.5

Total liabilities and equity
$
11,485.3

 
$
11,338.2

   
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
Income (Loss)
 
Total
Stockholders'
Equity
 
Noncontrolling
Interest
 
Total
Equity
 
(in millions)
Balance as of December 31, 2013
$
0.6

 
$
(201.8
)
 
$
1,594.3

 
$
3,725.6

 
$
(42.6
)
 
$
5,076.1

 
$
362.3

 
$
5,438.4

Net earnings

 

 

 
708.5

 

 
708.5

 
11.9

 
720.4

Other comprehensive income:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency translation adjustment—net of taxes

 

 

 

 
(16.9
)
 
(16.9
)
 

 
(16.9
)
Unrealized net gain on securities—net of taxes

 

 

 

 
0.1

 
0.1

 

 
0.1

Defined benefit plans—net of taxes

 

 

 

 
7.4

 
7.4

 

 
7.4

Comprehensive income
 

 
 

 
 

 
 

 
 

 
699.1

 
11.9

 
711.0

Purchases of treasury stock

 
(794.0
)
 

 

 

 
(794.0
)
 

 
(794.0
)
Issuance of $0.01 par value common stock under employee stock plans

 

 
9.4

 

 

 
9.4

 

 
9.4

Stock-based compensation expense

 

 
3.8

 

 

 
3.8

 

 
3.8

Excess tax benefit from stock-based compensation

 

 
4.5

 

 

 
4.5

 

 
4.5

Cash dividends ($1.00 per share)

 

 

 
(55.2
)
 

 
(55.2
)
 

 
(55.2
)
Distributions declared to noncontrolling interest

 

 

 

 

 

 
(9.6
)
 
(9.6
)
Balance as of March 31, 2014
$
0.6

 
$
(995.8
)
 
$
1,612.0

 
$
4,378.9

 
$
(52.0
)
 
$
4,943.7

 
$
364.6

 
$
5,308.3

Balance as of December 31, 2014
$
0.5

 
$
(222.2
)
 
$
1,415.9

 
$
3,175.3

 
$
(159.8
)
 
$
4,209.7

 
$
362.8

 
$
4,572.5

Net earnings

 

 

 
230.6

 

 
230.6

 
5.3

 
235.9

Other comprehensive income:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency translation adjustment—net of taxes

 

 

 

 
(86.3
)
 
(86.3
)
 

 
(86.3
)
Defined benefit plans—net of taxes

 

 

 

 
5.8

 
5.8

 

 
5.8

Comprehensive income
 

 
 

 
 

 
 

 
 

 
150.1

 
5.3

 
155.4

Purchases of treasury stock

 
(236.6
)
 

 

 

 
(236.6
)
 

 
(236.6
)
Acquisition of treasury stock under employee stock plans

 
(0.1
)
 

 

 

 
(0.1
)
 

 
(0.1
)
Issuance of $0.01 par value common stock under employee stock plans

 

 
5.7

 

 

 
5.7

 

 
5.7

Stock-based compensation expense

 

 
3.4

 

 

 
3.4

 

 
3.4

Excess tax benefit from stock-based compensation

 

 
1.5

 

 

 
1.5

 

 
1.5

Cash dividends ($1.50 per share)

 

 

 
(71.8
)
 

 
(71.8
)
 

 
(71.8
)
Distributions declared to noncontrolling interest

 

 

 

 

 

 
(11.5
)
 
(11.5
)
Balance as of March 31, 2015
$
0.5

 
$
(458.9
)
 
$
1,426.5

 
$
3,334.1

 
$
(240.3
)
 
$
4,061.9

 
$
356.6

 
$
4,418.5

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,
 
2015
 
2014
 
(in millions)
Operating Activities:
 

 
 

Net earnings
$
235.9

 
$
720.4

Adjustments to reconcile net earnings to net cash provided by operating activities:
 

 
 

Depreciation and amortization
115.4

 
105.3

Deferred income taxes
0.3

 
17.1

Stock-based compensation expense
3.9

 
3.8

Excess tax benefit from stock-based compensation
(1.5
)
 
(4.5
)
Unrealized (gain) loss on derivatives
(10.6
)
 
21.9

Gain on sale of phosphate business

 
(747.1
)
Loss on disposal of property, plant and equipment
5.5

 
0.1

Undistributed earnings of affiliates—net of taxes
(18.4
)
 
(11.4
)
Changes in:
 

 
 

Accounts receivable—net
24.1

 
32.2

Inventories
(68.0
)
 
(112.3
)
Accrued and prepaid income taxes
83.6

 
279.9

Accounts payable and accrued expenses
(10.6
)
 
67.4

Customer advances
169.8

 
356.8

Other—net
1.5

 
20.4

Net cash provided by operating activities
530.9

 
750.0

Investing Activities:
 

 
 

Additions to property, plant and equipment
(444.8
)
 
(392.4
)
Proceeds from sale of property, plant and equipment
3.3

 
1.3

Proceeds from sale of phosphate business

 
1,353.6

Deposits to restricted cash funds

 
(505.0
)
Withdrawals from restricted cash funds
22.8

 
5.7

Other—net
(10.9
)
 
5.8

Net cash (used in) provided by investing activities
(429.6
)
 
469.0

Financing Activities:
 

 
 

Proceeds from long-term borrowings

 
1,494.2

Financing fees
(2.0
)
 
(15.7
)
Dividends paid on common stock
(71.8
)
 
(55.2
)
Distributions to noncontrolling interest
(11.5
)
 
(9.6
)
Purchases of treasury stock
(236.2
)
 
(781.8
)
Issuances of common stock under employee stock plans
5.7

 
9.4

Excess tax benefit from stock-based compensation
1.5

 
4.5

Other—net

 
(43.0
)
Net cash (used in) provided by financing activities
(314.3
)
 
602.8

Effect of exchange rate changes on cash and cash equivalents
(4.8
)
 
(2.4
)
(Decrease) increase in cash and cash equivalents
(217.8
)
 
1,819.4

Cash and cash equivalents at beginning of period
1,996.6

 
1,710.8

Cash and cash equivalents at end of period
$
1,778.8

 
$
3,530.2

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
We are one of the largest manufacturers and distributors of nitrogen fertilizer and other nitrogen products in the world. Our principal customers are cooperatives, independent fertilizer distributors and industrial users. Our principal nitrogen fertilizer products are ammonia, granular urea and urea ammonium nitrate solution (UAN). Our other nitrogen products include ammonium nitrate (AN), diesel exhaust fluid (DEF), urea liquor, and aqua ammonia, which are sold primarily to our industrial customers. Our core market and distribution facilities are concentrated in the midwestern United States and other major agricultural areas of the United States and Canada. We also export nitrogen fertilizer products, primarily from our Donaldsonville, Louisiana manufacturing facility.
Prior to March 17, 2014, we also manufactured and distributed phosphate fertilizer products. Our principal phosphate products were diammonium phosphate (DAP) and monoammonium phosphate (MAP). On March 17, 2014, we completed the sale of our phosphate mining and manufacturing business (the "Transaction"), which was located in Florida, to The Mosaic Company (Mosaic) for approximately $1.4 billion in cash. The Transaction followed the terms of the definitive agreement executed in October 2013. The accounts receivable and accounts payable pertaining to the phosphate mining and manufacturing business and certain phosphate inventory held in distribution facilities were not sold to Mosaic in the Transaction and were settled in the ordinary course.
Upon closing the Transaction, we began to supply Mosaic with ammonia produced by our Point Lisas Nitrogen Limited (PLNL) joint venture. The contract to supply ammonia to Mosaic from our PLNL joint venture represents the continuation of a supply practice that previously existed between our former phosphate mining and manufacturing business and other operations of the Company. Prior to March 17, 2014, PLNL sold ammonia to us for use in the phosphate business and the cost was included in our production costs in the phosphate segment. Subsequent to the sale of the phosphate business, we now sell the PLNL-sourced ammonia to Mosaic. The revenue from these sales to Mosaic and the costs to purchase the ammonia from PLNL are now included in our ammonia segment. Our 50% share of the operating results of our PLNL joint venture continues to be included in our equity in earnings of operating affiliates in our consolidated statements of operations. Because of the significance of this continuing supply practice, in accordance with U.S. generally accepted accounting principles (GAAP), the phosphate mining and manufacturing business is not reported as discontinued operations in our consolidated statements of operations. See Note 3—Phosphate Business Disposition for additional information.
In the third quarter of 2014, we completed certain changes to our reporting structures and as a result, our reporting segments increased to the following five segments: ammonia, granular urea, UAN, other, and phosphate. The phosphate segment reflects the reported results of the phosphate business through March 17, 2014, plus the continuing sales of the phosphate inventory in the distribution network after March 17, 2014. The remaining phosphate inventory was sold in the second quarter of 2014; therefore, the phosphate segment does not have operating results subsequent to that quarter. The phosphate segment will continue to be included until the reporting of comparable period phosphate results ceases. Historical financial results have been restated to reflect the new segment structure on a comparable basis. See Note 18—Segment Disclosures.
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, 2014, in accordance with U.S. 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 2014 Annual Report on Form 10-K filed with the SEC on February 26, 2015.

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The preparation of the unaudited interim consolidated financial statements requires us to make use of estimates and assumptions that 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. 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 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 pension and postretirement employee benefit plans and the assumptions used in the valuation of stock-based compensation awards granted to employees.
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.
2.     New Accounting Standards
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. This ASU is effective for fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. We are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments. Additionally, information concerning the costs to obtain and fulfill a contract, including assets to be recognized, is to be disclosed. This ASU is effective for interim and annual reporting periods beginning after December 15, 2016. In April 2015, the FASB voted to propose to defer the effective date of this ASU by one year, with early adoption on the original effective date permitted. We are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.
3.     Phosphate Business Disposition
In March 2014, we completed the sale of our phosphate mining and manufacturing business to Mosaic (the "Transaction") pursuant to the terms of an Asset Purchase Agreement dated as of October 28, 2013 (the "Purchase Agreement"), among CF Industries Holdings, Inc., CF Industries, Inc. and Mosaic for approximately $1.4 billion in cash. During the first quarter of 2014, we recognized pre-tax and after-tax gains on the Transaction of $747.1 million and $461.0 million, respectively. Under the terms of the Purchase Agreement, the accounts receivable and accounts payable pertaining to the phosphate mining and manufacturing business and certain phosphate fertilizer inventory held in distribution facilities were not sold to Mosaic in the Transaction and were settled in the ordinary course. During the fourth quarter of 2014, based on the ordinary course settlement of certain transactions and certain adjustments that were made in accordance with the Purchase Agreement, we increased the recognized pre-tax and after-tax gains on the Transaction to $750.1 million and $462.8 million, respectively.
Upon closing the Transaction, we began to supply Mosaic with ammonia produced by our PLNL joint venture. The contract to supply ammonia to Mosaic from our PLNL joint venture represents the continuation of a supply practice that previously existed between our former phosphate mining and manufacturing business and other operations of the Company. Prior to March 17, 2014, PLNL sold ammonia to us for use in the phosphate business and the cost was included in our production costs in the phosphate segment. Subsequent to the sale of the phosphate business, we now sell the PLNL-sourced ammonia to Mosaic. The revenue from these sales to Mosaic and the costs to purchase the ammonia from PLNL are now included in our ammonia segment. Our 50% share of the operating results of our PLNL joint venture continues to be included in our equity in earnings of operating affiliates in our consolidated statements of operations.

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The phosphate segment reflects the reported results of the phosphate business through March 17, 2014, plus the continuing sales of the phosphate inventory in the distribution network after March 17, 2014. The remaining phosphate inventory was sold in the second quarter of 2014; therefore, the phosphate segment does not have operating results subsequent to that quarter. The segment will continue to be included until the reporting of comparable period phosphate results ceases.
The phosphate mining and manufacturing business assets we sold in the Transaction include the Hardee County Phosphate Rock Mine; the Plant City Phosphate Complex; an ammonia terminal, phosphate warehouse and dock at the Port of Tampa; and the site of the former Bartow Phosphate Complex. In addition, Mosaic assumed certain liabilities related to the phosphate mining and manufacturing business, including responsibility for closure, water treatment and long-term maintenance and monitoring of the phosphogypsum stacks at the Plant City and Bartow complexes. Mosaic also received the value of the phosphate mining and manufacturing business's asset retirement obligation trust and escrow funds totaling approximately $200 million. See further discussion related to Florida environmental matters in Note 17—Contingencies.
4.     Net Earnings Per Share
Net earnings per share were computed as follows:
 
Three months ended 
 March 31,
 
2015
 
2014
 
(in millions, except per share amounts)
Net earnings attributable to common stockholders
$
230.6

 
$
708.5

Basic earnings per common share:
 

 
 

Weighted-average common shares outstanding
47.9

 
54.8

Net earnings attributable to common stockholders
$
4.81

 
$
12.94

Diluted earnings per common share:
 

 
 

Weighted-average common shares outstanding
47.9

 
54.8

Dilutive common shares—stock options
0.2

 
0.1

Diluted weighted-average shares outstanding
48.1

 
54.9

Net earnings attributable to common stockholders
$
4.79

 
$
12.90

In the computation of diluted earnings per common share, potentially dilutive stock options are excluded if the effect of their inclusion is anti-dilutive. For the three months ended March 31, 2015 and 2014, anti-dilutive stock options were insignificant.
5.     Inventories
Inventories consist of the following:
 
March 31,
2015
 
December 31,
2014
 
(in millions)
Finished goods
$
244.6

 
$
179.5

Raw materials, spare parts and supplies
23.1

 
23.4

 
$
267.7

 
$
202.9


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6.   Property, Plant and Equipment—Net
Property, plant and equipment—net consists of the following:
 
March 31,
2015
 
December 31,
2014
 
(in millions)
Land
$
47.9

 
$
48.4

Machinery and equipment
5,276.0

 
5,268.7

Buildings and improvements
159.3

 
160.7

Construction in progress(1)
2,998.9

 
2,559.0

 
8,482.1

 
8,036.8

Less: Accumulated depreciation and amortization
2,557.1

 
2,511.0

 
$
5,925.0

 
$
5,525.8

_______________________________________________________________________________

(1) 
As of March 31, 2015 and December 31, 2014, we had construction in progress that was accrued but unpaid of $389.7 million and $279.0 million, respectively. These amounts included accruals related to our capacity expansion projects of $348.3 million and $244.3 million as of March 31, 2015 and December 31, 2014, respectively.
As of March 31, 2015 and December 31, 2014, construction in progress includes expenditures of $2.5 billion and $2.0 billion, respectively, related to our capacity expansion projects in Port Neal, Iowa and Donaldsonville, Louisiana.
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 plant turnaround activity:
 
Three months ended 
 March 31,
 
2015
 
2014
 
(in millions)
Net capitalized turnaround costs:
 

 
 

Beginning balance
$
153.2

 
$
119.8

Additions
26.5

 
17.1

Depreciation
(13.7
)
 
(18.7
)
Effect of exchange rate changes
(1.7
)
 
(0.6
)
Ending balance
$
164.3

 
$
117.6

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

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7.   Goodwill and Other Intangible Assets
The following table shows the carrying amount of goodwill by business segment as of March 31, 2015 and December 31, 2014:
 
Ammonia
 
Granular Urea
 
UAN
 
Other
 
Total
 
(in millions)
Balance as of December 31, 2014
$
578.7

 
$
829.6

 
$
577.0

 
$
107.5

 
$
2,092.8

Effect of exchange rate changes
(0.7
)
 
(1.0
)
 
(0.7
)
 

 
(2.4
)
Balance as of March 31, 2015
$
578.0

 
$
828.6

 
$
576.3

 
$
107.5

 
$
2,090.4

Our identifiable intangibles and carrying values are shown below and are presented in noncurrent other assets on our consolidated balance sheets.
 
March 31, 2015
 
December 31, 2014
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
(in millions)
Intangible assets:
 

 
 

 
 

 
 

 
 

 
 

Customer relationships
$
50.0

 
$
(13.9
)
 
$
36.1

 
$
50.0

 
$
(13.2
)
 
$
36.8

TerraCair brand
10.0

 
(10.0
)
 

 
10.0

 
(5.0
)
 
5.0

Total intangible assets
$
60.0

 
$
(23.9
)
 
$
36.1

 
$
60.0

 
$
(18.2
)
 
$
41.8

Amortization expense of our identifiable intangibles was $5.7 million and $1.0 million for the three months ended March 31, 2015 and 2014, respectively. In early 2015, management approved a plan to discontinue the usage of the TerraCair brand in the sale of DEF. Based on the change in the usage of this brand, the related intangible assets were fully amortized during the quarter.
Total estimated amortization expense for the remainder of 2015 and each of the five succeeding fiscal years is as follows:
 
Estimated
Amortization
Expense
 
(in millions)
Remainder of 2015
$
2.1

2016
2.8

2017
2.8

2018
2.8

2019
2.8

2020
2.8


10

Table of Contents

8.   Equity Method Investments
Equity method investments consist of the following:
 
March 31,
2015
 
December 31,
2014
 
(in millions)
Operating equity method investments
$
376.3

 
$
377.6

Non-operating equity method investments
477.2

 
483.9

Investments in and advances to affiliates
$
853.5

 
$
861.5

Operating Equity Method Investments
Our equity method investments included in operating earnings consist of: (1) a 50% ownership interest in Point Lisas Nitrogen Limited (PLNL), which operates an ammonia production facility in the Republic of Trinidad and Tobago; and (2) a 50% interest in an ammonia storage joint venture located in Houston, Texas. We include our share of the net earnings from these investments as an element of earnings from operations because these operations provide additional production and storage capacity to our operations and are integrated with our other supply chain and sales activities in the ammonia segment.
The combined results of operations and financial position for our operating equity method investments are summarized below:
 
Three months ended 
 March 31,
 
2015
 
2014
 
(in millions)
Summarized statement of operations information:
 

 
 

Net sales
$
75.2

 
$
75.2

Net earnings
$
23.0

 
$
24.8

Equity in earnings of operating affiliates
$
9.7

 
$
15.8

 
March 31,
2015
 
December 31,
2014
 
(in millions)
Summarized balance sheet information:
 

 
 

Current assets
$
91.0

 
$
111.2

Noncurrent assets
137.2

 
130.5

Total assets
$
228.2

 
$
241.7

Current liabilities
$
25.8

 
$
39.4

Noncurrent liabilities
21.0

 
22.0

Equity
181.4

 
180.3

Total liabilities and equity
$
228.2

 
$
241.7

The total carrying value of these investments as of March 31, 2015 was $376.3 million, which was $285.6 million more than our share of the affiliates' book value. The excess is primarily attributable to the purchase accounting impact of our acquisition of the investment in PLNL and reflects primarily the revaluation of property, plant and equipment, the value of an exclusive natural gas contract and goodwill. The increased basis for property, plant and equipment and the gas contract is being depreciated over a remaining period of approximately 19 years and 9 years, respectively. Our equity in earnings of operating affiliates is different from our ownership interest in income reported by the unconsolidated affiliates due to amortization of basis differences.
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 $29.6 million and $34.0 million for the three months ended March 31, 2015 and 2014, respectively.

11

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Non-Operating Equity Method Investments
Our non-operating equity method investments consist of: (1) a 50% ownership interest in KEYTRADE AG (Keytrade), a fertilizer trading company headquartered near Zurich, Switzerland; and (2) a 50% ownership interest in GrowHow UK Limited (GrowHow), which operates nitrogen production facilities in the United Kingdom. We account for these investments as non-operating equity method investments, and exclude the net earnings of these investments in earnings from operations since these operations do not directly provide additional capacity to us, nor are these operations integrated within our supply chain.
The combined results of operations and financial position of our non-operating equity method investments are summarized below:
 
Three months ended 
 March 31,
 
2015
 
2014
 
(in millions)
Summarized statement of operations information:
 

 
 

Net sales
$
470.2

 
$
570.3

Net earnings
$
35.3

 
$
22.4

Equity in earnings of non-operating affiliates—net of taxes
$
14.9

 
$
3.5

 
March 31,
2015
 
December 31,
2014
 
(in millions)
Summarized balance sheet information:
 

 
 

Current assets
$
523.7

 
$
499.8

Noncurrent assets
281.5

 
298.2

Total assets
$
805.2

 
$
798.0

Current liabilities
$
287.9

 
$
290.7

Noncurrent liabilities
174.7

 
186.9

Equity
342.6

 
320.4

Total liabilities and equity
$
805.2

 
$
798.0

In conjunction with our investment in Keytrade, we provided financing to Keytrade in exchange for subordinated notes that mature on September 30, 2017 and bear interest at LIBOR plus 1.00 percent. As of March 31, 2015 and December 31, 2014, the amount of the outstanding advances to Keytrade on our consolidated balance sheets was $12.4 million. For each of the three-month periods ended March 31, 2015 and 2014, we recognized interest income on advances to Keytrade of approximately $0.1 million. The carrying value of our advances to Keytrade approximates fair value.
Excluding the advances to Keytrade, the carrying value of our non-operating equity method investments as of March 31, 2015 was $464.8 million, which was $293.5 million more than our share of the affiliates' book value. The excess is primarily attributable to the purchase accounting impact of our acquisition of GrowHow and reflects the revaluation of property, plant and equipment, identifiable intangibles and goodwill. The increased basis for property, plant and equipment and identifiable intangibles is being depreciated over remaining periods of up to 11 years. Our equity in earnings of non-operating affiliates—net of taxes is different than our ownership interest in their net earnings due to the amortization of basis differences.
As of March 31, 2015, the amount of our consolidated retained earnings that represents our undistributed earnings of non-operating equity method investments is $22.5 million.

12

Table of Contents

9.   Fair Value Measurements
Our cash and cash equivalents and other investments consist of the following:
 
March 31, 2015
 
Cost Basis
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in millions)
Cash
$
62.4

 
$

 
$

 
$
62.4

Cash equivalents:
 
 
 
 
 
 
 
U.S. and Canadian government obligations
1,691.4

 

 

 
1,691.4

Other debt securities
25.0

 

 

 
25.0

Total cash and cash equivalents
$
1,778.8

 
$

 
$

 
$
1,778.8

Restricted cash
63.3

 

 

 
63.3

Nonqualified employee benefit trusts
18.4

 
2.1

 

 
20.5


 
December 31, 2014
 
Cost Basis
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Value
 
(in millions)
Cash
$
71.3

 
$

 
$

 
$
71.3

Cash equivalents:
 
 
 
 
 
 
 
U.S. and Canadian government obligations
1,916.3

 

 

 
1,916.3

Other debt securities
9.0

 

 

 
9.0

Total cash and cash equivalents
$
1,996.6

 
$

 
$

 
$
1,996.6

Restricted cash
86.1

 

 

 
86.1

Nonqualified employee benefit trusts
17.4

 
2.0

 

 
19.4

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 Federal government; those issued by state, local or other governmental entities; and those guaranteed by entities affiliated with governmental entities.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present assets and liabilities included in our consolidated balance sheets as of March 31, 2015 and December 31, 2014 that are recognized at fair value on a recurring basis, and indicate the fair value hierarchy utilized to determine such fair value:
 
March 31, 2015
 
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
$
1,716.4

 
$
1,716.4

 
$

 
$

Restricted cash
63.3

 
63.3

 

 

Derivative assets
6.2

 

 
6.2

 

Nonqualified employee benefit trusts
20.5

 
20.5

 

 

Derivative liabilities
(43.5
)
 

 
(43.5
)
 



13

Table of Contents

 
December 31, 2014
 
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
$
1,925.3

 
$
1,925.3

 
$

 
$

Restricted cash
86.1

 
86.1

 

 

Derivative assets
0.5

 

 
0.5

 

Nonqualified employee benefit trusts
19.4

 
19.4

 

 

Derivative liabilities
(48.4
)
 

 
(48.4
)
 

Cash Equivalents
As of March 31, 2015 and December 31, 2014, 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.
Restricted Cash
We maintain a cash account for which the use of the funds is restricted. The restricted cash account as of March 31, 2015 and December 31, 2014 was put in place to satisfy certain requirements included in our engineering and procurement services contract for our capacity expansion projects. Under the terms of this contract, we are required to grant an affiliate of ThyssenKrupp Industrial Solutions, formerly ThyssenKrupp Uhde, a security interest in a restricted cash account and maintain a cash balance in that account equal to the cancellation fees for procurement services and equipment that would arise if we were to cancel the projects.
Derivative Instruments
The derivative instruments that we use are primarily natural gas options, natural gas fixed price swaps and foreign currency forward contracts traded in the over-the-counter (OTC) markets with multi-national commercial banks, other major financial institutions and large energy companies. The natural gas derivatives are traded in months forward and settlements are scheduled to coincide with anticipated gas purchases during those future periods. The foreign currency derivative contracts held are for the exchange of a specified notional amount of currencies at specified future dates coinciding with anticipated foreign currency cash outflows associated with our Donaldsonville, Louisiana and Port Neal, Iowa capacity expansion projects. The natural gas derivative contracts settle using primarily NYMEX futures prices. 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 unrelated third party. The currency derivatives are valued based on quoted market prices supplied by an industry-recognized independent third party. See Note 14—Derivative Financial Instruments for additional information.
Nonqualified Employee Benefit Trusts
We maintain trusts associated with certain deferred compensation related nonqualified employee benefits. The investments are accounted for as available-for-sale securities. The fair values of the trusts are based on daily quoted prices representing the net asset values (NAV) of the investments. These trusts are included on our consolidated balance sheets in other assets.
Financial Instruments
The carrying amounts and estimated fair values of our financial instruments are as follows:
 
March 31, 2015
 
December 31, 2014
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
 
(in millions)
Long-term debt
$
4,592.5

 
$
5,086.6

 
$
4,592.5

 
$
4,969.3


14

Table of Contents

The fair value of our long-term debt was based on quoted prices for identical or similar liabilities in markets that are not active or valuation models in which all significant inputs and value drivers are observable and, as a result, are classified as Level 2 inputs.
The carrying amounts of cash and cash equivalents, as well as instruments included in other current assets and other current liabilities that meet the definition of financial instruments, approximate fair values because of their short-term maturities.
10.     Income Taxes
Our income tax provision for the three months ended March 31, 2015 was $112.7 million on pre-tax income of $333.7 million, or an effective tax rate of 33.8%, compared to an income tax provision of $413.2 million on pre-tax income of $1,130.1 million, or an effective tax rate of 36.6%, for the three months ended March 31, 2014. Our effective tax rate was lower in the three months ended March 31, 2015 principally due to the higher effective tax rate on the gain related to the sale of our phosphate mining and manufacturing business in March 2014.
Our effective tax rate based on pre-tax earnings differs from our effective tax rate based on pre-tax earnings exclusive of the noncontrolling interest, as our consolidated income tax provision does not include a tax provision on the earnings attributable to the noncontrolling interest in Terra Nitrogen Company, L.P. (TNCLP), which does not record an income tax provision.
Our unrecognized tax benefits are $135.8 million as of March 31, 2015 of which approximately $97.0 million would impact our effective tax rate if these unrecognized tax benefits were to be recognized in the future.
11.     Interest Expense
Details of interest expense are as follows:
 
Three months ended 
 March 31,
 
2015
 
2014
 
(in millions)
Interest on borrowings(1)
$
63.5

 
$
47.9

Fees on financing agreements(1)
1.4

 
3.5

Interest on tax liabilities
0.5

 
1.5

Interest capitalized
(31.5
)
 
(12.9
)
 
$
33.9

 
$
40.0

_______________________________________________________________________________

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

15

Table of Contents

12.   Financing Agreements
Credit Agreement
CF Holdings, as a guarantor, and CF Industries, as borrower, entered into a $500.0 million senior unsecured credit agreement, dated May 1, 2012 (the Credit Agreement), which provided for a revolving credit facility of up to $500.0 million with a maturity of five years. On April 22, 2013, the Credit Agreement was amended and restated to increase the credit facility from $500.0 million to $1.0 billion and extend its maturity to May 1, 2018. On March 20, 2015, the Credit Agreement was further amended and restated to increase the credit facility from $1.0 billion to $1.5 billion and extend its maturity to March 20, 2020.
Borrowings under the Credit Agreement bear interest at a variable rate based on an applicable margin over LIBOR or a base rate and may be used for working capital, capital expenditures, acquisitions, share repurchases and other general corporate purposes. The Credit Agreement requires that the Company maintain a minimum interest coverage ratio and not exceed a maximum total leverage ratio, and includes other customary terms and conditions, including customary events of default and covenants.
All obligations under the Credit Agreement are unsecured. Currently, CF Holdings is the only guarantor of CF Industries' obligations under the Credit Agreement. Certain of CF Industries' domestic subsidiaries would be required to become guarantors under the Credit Agreement if such subsidiary were to guarantee other debt of the Company or CF Industries in excess of $450.0 million. Currently, no such subsidiary guarantees any debt.
As of March 31, 2015, there was $1,495.1 million of available credit under the Credit Agreement (net of outstanding letters of credit of $4.9 million), and there were no borrowings outstanding as of March 31, 2015 or December 31, 2014.
Senior Notes
Long-term debt presented on our consolidated balance sheets as of March 31, 2015 and December 31, 2014 consisted of the following:
 
 
March 31,
2015
 
December 31,
2014
 
 
(in millions)
Unsecured senior notes:
 
 

 
 

6.875% due 2018
 
$
800.0

 
$
800.0

7.125% due 2020
 
800.0

 
800.0

3.450% due 2023
 
749.4

 
749.4

5.150% due 2034
 
746.2

 
746.2

4.950% due 2043
 
748.8

 
748.8

5.375% due 2044
 
748.1

 
748.1

 
 
4,592.5

 
4,592.5

Less: Current portion
 

 

Net long-term debt
 
$
4,592.5

 
$
4,592.5

Under the indentures (including the applicable supplemental indentures) governing the senior notes identified in the table above, each series of senior notes is guaranteed by CF Holdings. Interest is paid semiannually and the senior notes are redeemable at our option, in whole at any time or in part from time to time, at specified make-whole redemption prices. The indentures governing the senior notes contain customary events of default and covenants that limit, among other things, the ability of CF Holdings and its subsidiaries, including CF Industries, to incur liens on certain properties to secure debt.
If a Change of Control occurs together with a Ratings Downgrade (as both terms are defined under the indentures governing the senior notes), CF Industries would be required to offer to repurchase each series of senior notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest. In addition, in the event that a subsidiary of ours, other than CF Industries, becomes a borrower or a guarantor under the Credit Agreement (or any renewal, replacement or refinancing thereof), such subsidiary would be required to become a guarantor of the senior notes, provided that such requirement will no longer apply with respect to the senior notes due in 2023, 2034, 2043 and 2044 following the repayment of the senior notes due in 2018 and 2020 or the subsidiaries of ours, other than CF Industries, otherwise becoming no longer subject to such a requirement to guarantee the senior notes due in 2018 and 2020.

16

Table of Contents

13.   Noncontrolling Interest
Terra Nitrogen Company, L.P. (TNCLP) is a master limited partnership that owns a nitrogen manufacturing facility in Verdigris, Oklahoma. We own an aggregate 75.3% of TNCLP through general and limited partnership interests. Outside investors own the remaining 24.7% of the limited partnership. For financial reporting purposes, the assets, liabilities and earnings of the partnership are consolidated into our financial statements. The outside investors' limited partnership interests in the partnership are recorded in noncontrolling interest in our consolidated financial statements. The noncontrolling interest represents the noncontrolling unitholders' interest in the earnings and equity of TNCLP. An affiliate of CF Industries is required to purchase all of TNCLP's fertilizer products at market prices as defined in the Amendment to the General and Administrative Services and Product Offtake Agreement, dated September 28, 2010.
TNCLP makes cash distributions to the general and limited partners based on formulas defined within its Agreement of Limited Partnership. Cash available for distribution is defined in the agreement generally as all cash receipts less all cash disbursements, less certain reserves (including reserves for future operating and capital needs) established as the general partner determines in its reasonable discretion to be necessary or appropriate. Changes in working capital affect available cash, as increases in the amount of cash invested in working capital items (such as increases in inventory and decreases in accounts payable) reduce available cash, while declines in the amount of cash invested in working capital items increase available cash. Cash distributions to the limited partners and general partner vary depending on the extent to which the cumulative distributions exceed certain target threshold levels set forth in the Agreement of Limited Partnership.
In each of the applicable quarters of 2015 and 2014, the minimum quarterly distributions were satisfied, which entitled us, as the general partner, to receive increased distributions on our general partner interests as provided for in the Agreement of Limited Partnership. The earnings attributed to our general partner interest in excess of the threshold levels for the three months ended March 31, 2015 and 2014, were $20.3 million and $40.5 million, respectively.
As of March 31, 2015, Terra Nitrogen GP Inc. (TNGP), the general partner of TNCLP (and an indirect wholly-owned subsidiary of CF Industries), and its affiliates owned 75.3% of TNCLP's outstanding units. When not more than 25% of TNCLP's issued and outstanding units are held by non-affiliates of TNGP, TNCLP, at TNGP's sole discretion, may call, or assign to TNGP or its affiliates, TNCLP's right to acquire all such outstanding units held by non-affiliated persons. If TNGP elects to acquire all outstanding units, TNCLP is required to give at least 30 but not more than 60 days' notice of TNCLP's decision to purchase the outstanding units. The purchase price per unit will be the greater of (1) the average of the previous 20 trading days' closing prices as of the date five days before the purchase is announced or (2) the highest price paid by TNGP or any of its affiliates for any unit within the 90 days preceding the date the purchase is announced.
A reconciliation of the beginning and ending balances of TNCLP's noncontrolling interest and distributions payable to noncontrolling interests in our consolidated balance sheets is provided below.
 
Three months ended 
 March 31,
 
2015
 
2014
 
(in millions)
Noncontrolling interest:
 

 
 

Beginning balance
$
362.8

 
$
362.3

Earnings attributable to noncontrolling interest
5.3

 
11.9

Declaration of distributions payable
(11.5
)
 
(9.6
)
Ending balance
$
356.6

 
$
364.6

Distributions payable to noncontrolling interest:
 

 
 

Beginning balance
$

 
$

Declaration of distributions payable
11.5

 
9.6

Distributions to noncontrolling interest
(11.5
)
 
(9.6
)
Ending balance
$

 
$


17

Table of Contents

14.     Derivative Financial Instruments
We use derivative financial instruments to reduce our exposure to changes in commodity prices and foreign currency exchange rates.
Commodity Price Risk Management
Natural gas is the largest and most volatile component of the manufacturing cost for nitrogen-based products. We manage the risk of changes in natural gas prices primarily through the use of derivative financial instruments covering periods of generally less than 18 months. The derivatives that we use are primarily natural gas options and natural gas fixed price swaps traded in the OTC markets. These natural gas derivatives settle using primarily a NYMEX futures price index, which represents the basis for fair value at any given time. We enter into natural gas derivative contracts with respect to natural gas to be consumed by us in the future, and settlements of those derivative contracts are scheduled to coincide with our anticipated purchases of natural gas used to manufacture nitrogen products during those future periods. We use natural gas derivatives as an economic hedge of natural gas price risk, but without the application of hedge accounting. As a result, changes in fair value of these contracts are recorded in earnings.
As of March 31, 2015 and December 31, 2014, we had open natural gas derivative contracts for 77.4 million MMBtus and 58.7 million MMBtus, respectively. For the three months ended March 31, 2015, we used derivatives to cover approximately 93% of our natural gas consumption.
Foreign Currency Exchange Rates
In the fourth quarter of 2012, our Board of Directors authorized a project to construct new ammonia and urea/UAN plants at our Donaldsonville, Louisiana complex and new ammonia and urea plants at our Port Neal, Iowa complex. A portion of the capacity expansion project costs are euro-denominated. In order to manage our exposure to changes in the euro to U.S. dollar currency exchange rates, we have hedged our projected euro-denominated payments through the fourth quarter of 2015 using foreign currency forward contracts. Certain of these contracts were originally designated as cash flow hedges.
As of December 31, 2013, we de-designated the remaining cash flow hedges related to our capacity expansion projects. As of March 31, 2015 and December 31, 2014, the notional amount of our open foreign currency derivatives was €144.0 million and €209.0 million, respectively. None of these open foreign currency derivatives were designated as hedging instruments for accounting purposes.
As of March 31, 2015, the remaining pre-tax accumulated other comprehensive income balance of $7.4 million related to the de-designated cash flow hedges is expected to be reclassified into income over the depreciable lives of the property, plant and equipment associated with the capacity expansion projects. We expect that the amounts to be reclassified within the next twelve months will be insignificant. See Note 16—Accumulated Other Comprehensive Income (Loss), for further information.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

18

Table of Contents

The effect of derivatives in our consolidated statements of operations is shown in the table below. None of our derivatives were designated as hedging instruments.
 
Unrealized gain (loss) recognized in income
 
 
 
Three months ended 
 March 31,
Location
 
2015
 
2014
 
 
 
(in millions)
Natural gas derivatives
Cost of sales
 
$
28.7

 
$
(22.6
)
Foreign exchange contracts
Other operating—net
 
(12.3
)
 
(4.9
)
Unrealized gains (losses) recognized in income
 
$
16.4

 
$
(27.5
)
 
Gain (loss) in income
 
Three months ended 
 March 31,
All Derivatives
2015
 
2014
 
(in millions)
Unrealized gains (losses)
$
16.4

 
$
(27.5
)
Realized (losses) gains
(43.7
)
 
62.0

Net derivative (losses) gains
$
(27.3
)
 
$
34.5

The fair values of derivatives on our consolidated balance sheets are shown below. As of March 31, 2015 and December 31, 2014, none of our derivative instruments were designated as hedging instruments. For additional information on derivative fair values, see Note 9—Fair Value Measurements.
 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet
Location
 
March 31, 2015
 
December 31, 2014
 
Balance Sheet
Location
 
March 31, 2015
 
December 31, 2014
 
 
 
(in millions)
 
 
 
(in millions)
Foreign exchange contracts
Other current assets
 
$
1.2

 
$

 
Other current liabilities
 
$
(36.0
)
 
$
(22.4
)
Foreign exchange contracts
Other noncurrent assets
 

 

 
Other noncurrent liabilities
 

 

Natural gas derivatives
Other current assets
 
5.0

 
0.5

 
Other current liabilities
 
(7.5
)
 
(26.0
)
Natural gas derivatives
Other noncurrent assets
 

 

 
Other noncurrent liabilities
 

 

Total derivatives
 
 
$
6.2

 
$
0.5

 
 
 
$
(43.5
)
 
$
(48.4
)
Current / Noncurrent totals
 
 
 

 
 

 
 
 
 

 
 

 
Other current assets
 
$
6.2

 
$
0.5

 
Other current liabilities
 
$
(43.5
)
 
$
(48.4
)
 
Other noncurrent assets
 

 

 
Other noncurrent liabilities
 

 

Total derivatives
 
 
$
6.2

 
$
0.5

 
 
 
$
(43.5
)
 
$
(48.4
)
As of March 31, 2015 and December 31, 2014, the aggregate fair value of the derivative instruments with credit-risk-related contingent features in a net liability position was $38.3 million and $47.1 million, respectively, which also approximates the fair value of the maximum amount of additional collateral that would need to be posted or assets needed to settle the obligations if the credit-risk-related contingent features were triggered at the reporting dates. At both March 31, 2015 and December 31, 2014, we had no cash collateral on deposit with counterparties for derivative contracts. The credit support documents executed in connection with certain of our International Swaps and Derivatives Association (ISDA) agreements generally provide us and our counterparties the right to set off collateral against amounts owing under the ISDA agreements upon the occurrence of a default or a specified termination event.

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The following table presents amounts relevant to offsetting of our derivative assets and liabilities as of March 31, 2015 and December 31, 2014:
 
Amounts
presented in
consolidated
balance
sheets(1)
 
Gross amounts not offset in consolidated balance sheets
 
 
 
 
Financial
instruments
 
Cash
collateral
received
(pledged)
 
Net
amount
 
(in millions)
March 31, 2015
 

 
 

 
 

 
 

Total derivative assets
$
6.2

 
$
5.8

 
$

 
$
0.4

Total derivative liabilities
43.5

 
5.8

 

 
37.7

Net liabilities
$
(37.3
)
 
$

 
$

 
$
(37.3
)
December 31, 2014
 

 
 

 
 

 
 

Total derivative assets
$
0.5

 
$
0.5

 
$

 
$

Total derivative liabilities
48.4

 
0.5

 

 
47.9

Net liabilities
$
(47.9
)
 
$

 
$

 
$
(47.9
)
_______________________________________________________________________________

(1) 
We report the fair values of our derivative assets and liabilities on a gross basis on our consolidated balance sheets. As a result, the gross amounts recognized and net amounts presented are the same.
We do not believe the contractually allowed netting, close-out netting or setoff of amounts owed to, or due from, the counterparties to our ISDA agreements would have a material effect on our financial position.

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15.   Treasury Stock
Our Board of Directors has authorized certain programs to repurchase shares of our common stock. Each of these programs is consistent in that repurchases may be made from time to time in the open market, through privately-negotiated transactions, through block transactions or otherwise. The manner, timing and amount of repurchases are determined by our management based on the evaluation of market conditions, stock price and other factors. 
In the third quarter of 2012, our Board of Directors authorized a program to repurchase up to $3.0 billion of the common stock of CF Holdings through December 31, 2016 (the 2012 Program). The repurchases under this program were completed in the second quarter of 2014. On August 6, 2014, our Board of Directors authorized a program to repurchase up to $1.0 billion of the common stock of CF Holdings through December 31, 2016 (the 2014 Program). 
The following table summarizes the share repurchases under the 2014 Program and the 2012 Program:
 
2014 Program
 
2012 Program
 
Shares
 
Amounts
 
Shares
 
Amounts
 
(in millions)
Shares repurchased as of December 31, 2013

 
$

 
7.3

 
$
1,449.3

Shares repurchased in 2014:
 
 
 
 
 
 
 
First quarter

 
$

 
3.2

 
$
793.9

Second quarter

 

 
3.1

 
756.8

Third quarter

 

 

 

Fourth quarter
1.4

 
372.8

 

 

Total shares repurchased in 2014
1.4

 
372.8

 
6.3

 
1,550.7

Shares repurchased as of December 31, 2014 
1.4

 
$
372.8

 
13.6

 
$
3,000.0

Shares repurchased in 2015:
 
 
 
 
 
 
 
First quarter
0.8

 
$
236.6

 
 
 
 
Shares repurchased as of March 31, 2015
2.2

 
$
609.4

 
 
 
 
As of March 31, 2015 and December 31, 2014, the amount of shares repurchased that was accrued but unpaid was $29.6 million and $29.1 million, respectively.
As of March 31, 2015 and December 31, 2014, we held in treasury approximately 1.7 million and 0.8 million shares of repurchased stock, respectively.
See Note 20—Subsequent Event for a discussion of shares repurchased subsequent to March 31, 2015.

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16.   Accumulated Other Comprehensive Income (Loss)
Changes to accumulated other comprehensive income (AOCI) are as follows:
 
Foreign
Currency
Translation
Adjustment
 
Unrealized
Gain (Loss)
on
Securities
 
Unrealized
Gain (Loss)
on
Derivatives
 
Defined
Benefit
Plans
 
Accumulated
Other
Comprehensive
Income (Loss)
 
(in millions)
Balance as of December 31, 2013
$
31.9

 
$
0.6

 
$
6.5

 
$
(81.6
)
 
$
(42.6
)
Unrealized gain

 
0.1

 

 

 
0.1

Reclassification to earnings

 
(0.1
)
 

 
0.5

 
0.4

Gain arising during the period

 

 

 
2.7

 
2.7

Effect of exchange rate changes and deferred taxes
(16.9
)
 
0.1

 

 
4.2

 
(12.6
)
Balance as of March 31, 2014
$
15.0

 
$
0.7

 
$
6.5

 
$
(74.2
)
 
$
(52.0
)
Balance as of December 31, 2014
$
(40.5
)
 
$
0.8

 
$
4.7

 
$
(124.8
)
 
$
(159.8
)
Unrealized gain

 
0.1

 

 

 
0.1

Reclassification to earnings

 
(0.1
)
 

 
1.4

 
1.3

Effect of exchange rate changes and deferred taxes
(86.3
)
 

 

 
4.4

 
(81.9
)
Balance as of March 31, 2015
$
(126.8
)
 
$
0.8

 
$
4.7

 
$
(119.0
)
 
$
(240.3
)
Reclassifications out of AOCI during the three months ended March 31, 2015 and 2014 were as follows:
 
 
Three months ended 
 March 31,
 
 
2015
 
2014
 
 
(in millions)
Unrealized (Gain) Loss on Securities
 
 

 
 

Available-for-sale securities(1)
 
$
(0.1
)
 
$
(0.1
)
Total before tax
 
(0.1
)
 
(0.1
)
Tax effect
 

 

Net of tax
 
$
(0.1
)
 
$
(0.1
)
Defined Benefit Plans
 
 

 
 

Amortization of prior service (benefit) cost(2)
 
$
(0.3
)
 
$

Amortization of net loss(2)
 
1.7

 
0.5

Total before tax
 
1.4

 
0.5

Tax effect
 
(0.5
)
 
(0.2
)
Net of tax
 
$
0.9

 
$
0.3

Total reclassifications for the period
 
$
0.8

 
$
0.2

_______________________________________________________________________________

(1) 
Represents the amount that was reclassified into interest income.
(2) 
These components are included in the computation of net periodic pension cost and were reclassified from AOCI into cost of sales and selling, general and administrative expenses.

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17.   Contingencies
Litigation
West Fertilizer Co.
On April 17, 2013, there was a fire and explosion at the West Fertilizer Co. fertilizer storage and distribution facility in West, Texas. According to published reports, 15 people were killed and approximately 200 people were injured in the incident, and the fire and explosion damaged or destroyed a number of homes and buildings around the facility. We have been named as defendants along with other companies in lawsuits filed in 2013 and 2014 in the District Court of McLennan County, Texas by the City of West, individual residents of the County and other parties seeking recovery for damages allegedly sustained as a result of the explosion. The cases have been consolidated for discovery and pretrial proceedings before Judge Jim Meyer in the District Court of McLennan County under the caption "In re: West Explosion Cases." The two-year statute of limitations expired on April 17, 2015. As of that date, over 400 plaintiffs had filed claims, including at least 9 entities, 325 individuals, and 80 insurance companies. Plaintiffs allege various theories of negligence, strict liability, breach of warranty and assault under Texas law. Although we do not own or operate the facility or directly sell our products to West Fertilizer Co., products we have manufactured and sold to others have been delivered to the facility and may have been stored at the West facility at the time of the incident.
Fact and expert witness discovery continues about the circumstances surrounding the April 17, 2013 fire and explosion. On April 2, 2015, the Court entered a revised scheduling order requiring the parties to file dispositive Motions for Summary Judgment by May 15, 2015, with subsequent briefing and hearings to occur into August 2015. Any mediation between the parties must be completed by August 17, 2015. The first three cases are scheduled to begin trial on October 12, 2015. We believe we have strong legal and factual defenses and intend to continue defending ourselves vigorously in the pending lawsuits.
Other Litigation
From time to time, we are subject to ordinary, routine legal proceedings related to the usual conduct of our business, including proceedings regarding public utility and transportation rates, environmental matters, taxes and permits relating to the operations of our various plants and facilities. Based on the information available as of the date of this filing, we believe that the ultimate outcome of these routine matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Environmental
Louisiana Environmental Matters
Clean Air Act—Section 185 Fee
Our Donaldsonville nitrogen complex is located in a five-parish region near Baton Rouge, Louisiana that, as of 2005, was designated as being in "severe" nonattainment with respect to the national ambient air quality standard (NAAQS) for ozone (the 1-hour ozone standard) pursuant to the Federal Clean Air Act (the Act). Section 185 of the Act requires states, in their state implementation plans, to levy a fee (Section 185 fee) on major stationary sources (such as the Donaldsonville complex) located in a severe nonattainment area that did not meet the 1-hour ozone standard by November 30, 2005. The fee was to be assessed for each calendar year (beginning in 2006) until the area achieved compliance with the ozone NAAQS.
Prior to the imposition of Section 185 fees, the Environmental Protection Agency (EPA) adopted a new ozone standard (the 8-hour ozone standard) and rescinded the 1-hour ozone standard. The Baton Rouge area was designated as a "moderate" nonattainment area with respect to the 8-hour ozone standard. However, because Section 185 fees had never been assessed prior to the rescission of the 1-hour ozone standard (rescinded prior to the November 30, 2005 ozone attainment deadline), the EPA concluded in a 2004 rulemaking implementing the 8-hour ozone standard that the Act did not require states to assess Section 185 fees. As a result, Section 185 fees were not assessed against us and other companies located in the Baton Rouge area.
In 2006, the federal D.C. Circuit Court of Appeals rejected the EPA's position and held that Section 185 fees were controls that must be maintained and fees should have been assessed under the Act. In January 2008, the U.S. Supreme Court declined to accept the case for review, making the appellate court's decision final.

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In July 2011, the EPA approved a revision to Louisiana's air pollution program that eliminated the requirement for Baton Rouge area companies to pay Section 185 fees, based on Baton Rouge's ultimate attainment of the 1-hour standard through permanent and enforceable emissions reductions. EPA's approval of the Louisiana air program revision became effective on August 8, 2011. However, a recent decision by the federal D.C. Circuit Court of Appeals struck down a similar, but perhaps distinguishable, EPA guidance document regarding alternatives to Section 185 fees. At this time, the viability of EPA's approval of Louisiana's elimination of Section 185 fees is uncertain. Regardless of the approach ultimately adopted by the EPA, we expect that it is likely to be challenged by the environmental community, the states, and/or affected industries. Therefore, the costs associated with compliance with the Act cannot be determined at this time, and we cannot reasonably estimate the impact on our consolidated financial position, results of operations or cash flows.
Furthermore, the area has seen significant reductions in ozone levels, attributable to federal and state regulations and community involvement. Preliminary ozone design values computed for the Baton Rouge nonattainment area suggest the area has achieved attainment with the 2008 8-hour ozone standard. A determination from EPA was issued on April 4, 2014 indicating that the Baton Rouge area is currently attaining the 2008 8-hour ozone standard. The determination is based on a recent review of air quality data from 2011-2013. Additional revisions to the ozone NAAQS, like the proposed rule that would strengthen the ozone standard that was proposed on December 17, 2014, may affect the longevity and long-term consequences of this determination.
Clean Air Act Information Request
On February 26, 2009, we received a letter from the EPA under Section 114 of the Act requesting information and copies of records relating to compliance with New Source Review and New Source Performance Standards at the Donaldsonville facility. We have completed the submittal of all requested information. There has been no further contact from the EPA regarding this matter.
Florida Environmental Matters
On March 17, 2014, we completed the sale of our phosphate mining and manufacturing business, which was located in Florida, to Mosaic. Pursuant to the terms of the Purchase Agreement, Mosaic has assumed the following environmental matters and we have agreed to indemnify Mosaic with respect to losses arising out of the matters below, subject to a maximum indemnification cap and the other terms of the Purchase Agreement.
Clean Air Act Notice of Violation
We received a Notice of Violation (NOV) from the EPA by letter dated June 16, 2010, alleging that we violated the Prevention of Significant Deterioration (PSD) Clean Air Act regulations relating to certain projects undertaken at the former Plant City, Florida facility's sulfuric acid plants. This NOV further alleges that the actions that are the basis for the alleged PSD violations also resulted in violations of Title V air operating permit regulations. Finally, the NOV alleges that we failed to comply with certain compliance dates established by hazardous air pollutant regulations for phosphoric acid manufacturing plants and phosphate fertilizer production plants. We had several meetings with the EPA with respect to this matter prior to the sale of the phosphate mining and manufacturing business in March 2014. We do not know at this time if this matter will be settled prior to initiation of formal legal action.
We cannot estimate the potential penalties, fines or other expenditures, if any, that may result from the Clean Air Act NOV and, therefore, we cannot determine if the ultimate outcome of this matter will have a material impact on our consolidated financial position, results of operations or cash flows.
EPCRA/CERCLA Notice of Violation
By letter dated July 6, 2010, the EPA issued a NOV to us alleging violations of Section 313 of the Emergency Planning and Community Right-to-Know Act (EPCRA) in connection with the former Plant City facility. EPCRA requires annual reports to be submitted with respect to the use of certain toxic chemicals. The NOV also included an allegation that we violated Section 304 of EPCRA and Section 103 of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) by failing to file a timely notification relating to the release of hydrogen fluoride above applicable reportable quantities. We not know at this time if this matter will be settled prior to initiation of formal legal action.
We do not expect that penalties or fines, if any, that may arise out of the EPCRA/CERCLA matter will have a material impact on our consolidated financial position, results of operations or cash flows.

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

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18.   Segment Disclosures
Our reporting segments consist of the following: ammonia, granular urea, UAN, other, and phosphate. These segments are differentiated by products, which are used differently by agricultural customers based on crop application, weather and other agronomic factors or by industrial customers based on their usage.
We sold our phosphate mining and manufacturing business during the first quarter of 2014. The phosphate segment reflects the reported results of the phosphate business through March 17, 2014, plus the continuing sales of the phosphate inventory in the distribution network after March 17, 2014. The remaining phosphate inventory was sold in the second quarter of 2014; therefore, the phosphate segment does not have operating results subsequent to that quarter. The phosphate segment will continue to be included until the reporting of comparable period phosphate results ceases. Upon selling the phosphate business, we began to supply Mosaic with ammonia produced by our PLNL joint venture. The contract to supply ammonia to Mosaic from our PLNL joint venture represents the continuation of a supply practice that previously existed between our former phosphate mining and manufacturing business and other operations of the Company. Prior to March 17, 2014, PLNL sold ammonia to us for use in the phosphate business and the cost was included in our production costs in the phosphate segment. Subsequent to the sale of the phosphate business, we now sell the PLNL-sourced ammonia to Mosaic. The revenue from these sales to Mosaic and costs to purchase the ammonia from PLNL are now included in our ammonia segment. Our 50% share of the operating results of our PLNL joint venture continues to be included in our equity in earnings of operating affiliates in our consolidated statements of operations. Because of the significance of this continuing supply practice, in accordance with U.S. GAAP, the phosphate mining and manufacturing business is not reported as discontinued operations in our consolidated statements of operations.
Our management uses gross margin to evaluate segment performance and allocate resources. Total other operating costs and expenses (consisting of selling, general and administrative expenses and other operating—net) and non-operating expenses (interest and income taxes) are centrally managed and are not included in the measurement of segment profitability reviewed by management.
Our assets, with the exception of goodwill, are not monitored by or reported to our Chief Operating Decision Maker by segment; therefore, we do not present total assets by segment. Goodwill by segment is presented in Note 7—Goodwill and Other Intangible Assets.
Segment data for sales, cost of sales and gross margin for the three months ended March 31, 2015 and 2014 are presented in the tables below.
 
 
 
 
 
 
 
 
 
 
 
 
 
Ammonia
 
Granular
Urea(1)
 
UAN(1)
 
Other(1)
 
Phosphate
 
Consolidated
 
(in millions)
Three months ended March 31, 2015
 

 
 

 
 

 
 

 
 

 
 

Net sales
$
287.7

 
$
212.2

 
$
355.7

 
$
98.0

 
$

 
$
953.6

Cost of sales
167.8

 
100.1

 
197.0

 
72.9

 

 
537.8

Gross margin
$
119.9

 
$
112.1

 
$
158.7

 
$
25.1

 
$

 
415.8

Total other operating costs and expenses
 

 
 

 
 

 
 

 
 

 
58.3

Equity in earnings of operating affiliates
 

 
 

 
 

 
 

 
 

 
9.7

Operating earnings
 

 
 

 
 

 
 

 
 

 
$
367.2

Three months ended March 31, 2014(2)
 

 
 

 
 

 
 

 
 

 
 

Net sales
$
272.4

 
$
216.2

 
$
399.9

 
$
99.0

 
$
145.1

 
$
1,132.6

Cost of sales
148.1

 
114.5

 
217.8

 
72.8

 
136.6

 
689.8

Gross margin
$
124.3

 
$
101.7

 
$
182.1

 
$
26.2

 
$
8.5

 
442.8

Total other operating costs and expenses
 

 
 

 
 

 
 

 
 

 
35.9

Gain on sale of phosphate business