10-K 1 cf-12312014x10k.htm 10-K CF-12.31.2014-10K
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
 
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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, Suite 400, Deerfield, Illinois
 
60015
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code (847) 405-2400
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class 
 
Name of each exchange on which registered 
Common Stock, $0.01 par value per share
Preferred Stock Purchase Rights
 
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 ý 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 ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 ý
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý
The aggregate market value of the registrant's common stock held by non-affiliates was $11,890,699,408 based on the closing sale price of common stock on June 30, 2014.
47,907,912 shares of the registrant's common stock, $0.01 par value per share, were outstanding as of January 31, 2015.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 2015 annual meeting of stockholders (Proxy Statement) are incorporated herein by reference into Part III of this Annual Report on Form 10-K. The Proxy Statement will be filed with the Securities and Exchange Commission, pursuant to Regulation 14A, not later than 120 days after the end of the 2014 fiscal year, or, if we do not file the proxy statement within such 120-day period, we will amend this Annual Report on Form 10-K to include the information required under Part III hereof not later than the end of such 120-day period.
 



CF INDUSTRIES HOLDINGS, INC.
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





CF INDUSTRIES HOLDINGS, INC.

PART I
ITEM 1.    BUSINESS.
Our Company
        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. Notes referenced throughout this document refer to consolidated financial statement footnote disclosures that are found in Item 8. Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements.
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 a 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 our 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 4—Phosphate Business Disposition for additional information.
Our principal assets include:
six nitrogen fertilizer manufacturing facilities located in: Donaldsonville, Louisiana (the largest nitrogen fertilizer complex in North America); Medicine Hat, Alberta (the largest nitrogen fertilizer complex in Canada); Port Neal, Iowa; Courtright, Ontario; Yazoo City, Mississippi; and Woodward, Oklahoma;

a 75.3% interest in Terra Nitrogen Company, L.P. (TNCLP), a publicly-traded limited partnership of which we are the sole general partner and the majority limited partner and which, through its subsidiary Terra Nitrogen, Limited Partnership (TNLP), operates a nitrogen fertilizer manufacturing facility in Verdigris, Oklahoma;

an extensive system of terminals and associated transportation equipment located primarily in the midwestern United States; and

joint venture investments that we account for under the equity method, which consist of:

a 50% interest in GrowHow UK Limited (GrowHow), a nitrogen products production joint venture located in the United Kingdom and serving primarily the British agricultural and industrial markets;


1


CF INDUSTRIES HOLDINGS, INC.

a 50% interest in PLNL, an ammonia production joint venture located in the Republic of Trinidad and Tobago; and

a 50% interest in KEYTRADE AG (Keytrade), a global fertilizer trading company headquartered near Zurich, Switzerland.

During the first quarter of 2014, we sold our phosphate mining and manufacturing business which was reported in our phosphate segment. Additionally, we appointed a new President and Chief Executive Officer who is the Chief Operating Decision Maker (CODM) as defined under U.S. GAAP. Our reportable segments are based on how the CODM assesses performance and allocates resources across the business. In the third quarter of 2014, we completed certain changes to our reporting structures that reflect how our CODM assesses the performance of our operating segments and makes decisions about resource allocation. As a result, the number of our reporting segments increased from two to five segments, consisting of the following: 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. However, the segment will continue to be included until the reporting of comparable period phosphate results ceases.
The ammonia, granular urea, UAN and other segments are also referred to throughout this document as the “Nitrogen Product Segments." For the year ended December 31, 2014, we sold 13.3 million product tons from the Nitrogen Product Segments and 0.5 million tons of phosphate fertilizers, generating net sales of $4.7 billion and pre-tax earnings of $2.2 billion.
Our principal executive offices are located outside of Chicago, Illinois, at 4 Parkway North, Suite 400, Deerfield, Illinois 60015 and our telephone number is 847-405-2400. Our Internet website address is www.cfindustries.com. Information made available on our website does not constitute part of this Annual Report on Form 10-K.
We make available free of charge on or through our Internet website, www.cfindustries.com, all of our reports on Forms 10-K, 10-Q and 8-K and all amendments to those reports as soon as reasonably practicable after such material is filed electronically with, or furnished to, the Securities and Exchange Commission (SEC). Copies of our Corporate Governance Guidelines, Code of Corporate Conduct and charters for the Audit Committee, Compensation Committee, and Corporate Governance and Nominating Committee of our Board of Directors are also available on our Internet website. We will provide electronic or paper copies of these documents free of charge upon request. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Company History
We were founded in 1946 as a fertilizer brokerage operation by a group of regional agricultural cooperatives. During the 1960s, we expanded our distribution capabilities and diversified into fertilizer manufacturing through the acquisition of several existing plants and facilities. During the 1970s and again during the 1990s, we expanded our production and distribution capabilities significantly, spending approximately $1 billion in each of these decades.
We operated as a traditional manufacturing and supply cooperative until 2002, when we adopted a new business model that established financial performance as our principal objective, rather than assured supply to our owners. A critical aspect of the new business model was to establish a more economically driven approach to the marketplace.
In August 2005, we completed our initial public offering (IPO) of common stock, which is listed on the New York Stock Exchange. In connection with the IPO, we consummated a reorganization transaction whereby we ceased to be a cooperative and our pre-IPO owners' equity interests in CF Industries, Inc., now our wholly-owned subsidiary, were canceled in exchange for all of the proceeds of the offering and shares of our common stock.
In April 2010, we acquired Terra Industries Inc. (Terra), a leading North American producer and marketer of nitrogen fertilizer products for a purchase price of $4.6 billion, which was paid in cash and shares of our common stock. As a result of the Terra acquisition, we acquired five nitrogen fertilizer manufacturing facilities, our 75.3% interest in TNCLP and certain joint venture interests.

2


CF INDUSTRIES HOLDINGS, INC.

In March 2014, we completed the sale of our phosphate mining and manufacturing business, which was located in Florida, to Mosaic for approximately $1.4 billion in cash. For the year ended December 31, 2014, we recognized pre-tax and after-tax gains on the sale of $750.1 million and $462.8 million, respectively.
Product Tons and Nutrient Tons
Unless otherwise stated, we measure our production and sales volume in this Annual Report on Form 10-K in product tons, which represents the weight of the product measured in short tons (one short ton is equal to 2,000 pounds). References to UAN product tons assume a 32% nitrogen content basis for production volume. 
We also provide certain supplementary volume information measured in nutrient tons. Nutrient tons represent the weight of the product’s nitrogen content, which varies by product. Ammonia represents 82% nitrogen content, granular urea represents 46% nitrogen content and UAN represents between 28% and 32% nitrogen content. 
Operating Segments
As discussed above, our reporting segments now consist of the following segments: 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. Historical financial results have been restated to reflect this new segment structure on a comparable basis. The ammonia, granular urea, UAN and other segments are referred to as our “Nitrogen Product Segments." See Note 5—Segment Disclosures for additional information.
We use 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.
Nitrogen Product Segments
We are the largest nitrogen fertilizer producer in North America. Our primary nitrogen fertilizer products are ammonia, granular urea and UAN. Our historical sales of nitrogen fertilizer products from our Nitrogen Product Segments are shown in the following table. Net sales do not reflect amounts used internally, such as ammonia, in the manufacture of other products.
 
2014
 
2013
 
2012
 
Tons
 
Net Sales
 
Tons
 
Net Sales
 
Tons
 
Net Sales
 
(tons in thousands; sales dollars in millions)
Nitrogen Product Segments
 
 
 
 
 
 
 

 
 

 
 

Ammonia
2,969

 
$
1,576.3

 
2,427

 
$
1,437.9

 
2,786

 
$
1,677.6

Granular urea
2,459

 
914.5

 
2,506

 
924.6

 
2,593

 
1,143.4

UAN
6,092

 
1,669.8

 
6,383

 
1,935.1

 
6,131

 
1,886.2

Other(1)
1,756

 
414.2

 
1,629

 
380.2

 
1,459

 
389.4

Total
13,276

 
$
4,574.8

 
12,945

 
$
4,677.8

 
12,969

 
$
5,096.6

_______________________________________________________________________________

(1) 
Other segment products include AN, DEF, urea liquor, aqua ammonia, and nitric acid.
Gross margin for the Nitrogen Product Segments was $1.8 billion, $2.4 billion and $2.9 billion for the years ended December 31, 2014, 2013 and 2012, respectively.
We operate seven nitrogen fertilizer production facilities in North America. We own four production facilities in the Central United States, one in Medicine Hat, Alberta, Canada and one in Courtright, Ontario, Canada. We also have a 75.3% interest in TNCLP and its subsidiary, TNLP, which owns a nitrogen fertilizer facility in Verdigris, Oklahoma. In 2014, the combined production capacity of these seven facilities represented approximately 38%, 34%, 46% and 22% of North American ammonia, granular urea, UAN and AN production capacity, respectively. Each of our nitrogen fertilizer production facilities in North America has on-site storage to provide flexibility to manage the flow of outbound shipments without impacting production.


3


CF INDUSTRIES HOLDINGS, INC.

The following table shows the production capacities at each of our nitrogen fertilizer production facilities:
 
Average Annual Capacity(1)
 
Gross
Ammonia(2)
 
Net
Ammonia(2)
 
UAN(3)
 
Urea(4)
 
AN(5)
 
Fertilizer
Compounds
 
(tons in thousands)
Donaldsonville, Louisiana(6)
3,050

 
1,110

 
2,415

 
1,680

 

 

Medicine Hat, Alberta
1,250

 
790

 

 
810

 

 

Port Neal, Iowa(8)
380

 
30

 
800

 
50

 

 

Verdigris, Oklahoma(7)(10)
1,140

 
350

 
1,975

 

 

 

Woodward, Oklahoma
480

 
140

 
820

 
25

 

 

Yazoo City, Mississippi(8)(9)(10)
560

 

 
160

 
20

 
1,075

 

Courtright, Ontario(8)(10)
500

 
265

 
345

 
160

 

 

 
7,360

 
2,685

 
6,515

 
2,745

 
1,075

 

Unconsolidated Affiliates(11)
 

 
 

 
 

 
 

 
 

 
 

Point Lisas, Trinidad
360

 
360

 

 

 

 

Ince, U.K.(12)
190

 

 

 

 
280

 
185

Billingham, U.K. 
275

 
135

 

 

 
310

 

Total
8,185

 
3,180

 
6,515

 
2,745

 
1,665

 
185

_______________________________________________________________________________

(1) 
Average annual capacity includes allowance for normal outages and planned maintenance shutdowns.
(2) 
Gross ammonia capacity includes ammonia used to produce upgraded products. Net ammonia capacity is gross ammonia capacity less ammonia used to produce upgraded products based on the product mix shown in the table.
(3) 
Measured in tons of UAN containing 32% nitrogen by weight.
(4) 
Urea is sold as granular urea from the Donaldsonville and Medicine Hat facilities, as urea liquor from the Port Neal, Woodward and Yazoo City facilities and as either granular urea or urea liquor from the Courtright facility. Urea liquor produced at the Yazoo City, Courtright, Woodward and Port Neal facilities can be sold as DEF.
(5) 
AN includes prilled products (Amtrate and IGAN) and AN solution produced for sale.
(6) 
The Donaldsonville facility's production capacity depends on product mix. With the UAN plants operating at capacity, approximately 1.7 million tons of granular urea can be produced. Granular urea production can be increased to approximately 2.0 million tons if UAN production is reduced to approximately 1.6 million tons.
(7) 
Represents 100% of the capacity of this facility.
(8) 
Production of urea products at the Port Neal and Courtright facilities can be increased by reducing UAN production. Urea liquor production at the Yazoo City facility can be increased by obtaining additional ammonia to supplement the facility's ammonia production.
(9) 
The Yazoo City facility's production capacity depends on product mix. With the facility maximizing the production of AN products, 160,000 tons of UAN can be produced. UAN production can be increased to 450,000 tons by reducing the production of AN to 945,000 tons.
(10) 
The Yazoo City; Courtright and Verdigris facilities also produce merchant nitric acid by reducing UAN or AN production.
(11) 
Represents our 50% interest in the capacity of each of these facilities.
(12) 
The Ince facility's production capacity depends on product mix. The facility can increase production of fertilizer compounds to 260,000 tons by reducing AN production to 240,000 tons (volumes represent our 50% interest).

4


CF INDUSTRIES HOLDINGS, INC.

The following table summarizes our nitrogen fertilizer production volume for the last three years.
 
December 31,
 
2014
 
2013
 
2012
 
(tons in thousands)
Ammonia(1)
7,011

 
7,105

 
7,067

Granular urea
2,347

 
2,474

 
2,560

UAN (32%)
5,939

 
6,332

 
6,027

AN
950

 
882

 
839

_______________________________________________________________________________

(1) 
Gross ammonia production, including amounts subsequently upgraded on-site into granular urea or UAN.
Donaldsonville, Louisiana
The Donaldsonville nitrogen fertilizer complex is the largest nitrogen fertilizer production facility in North America. It has five ammonia plants, four urea plants, three nitric acid plants and two UAN plants. The complex, which is located on the Mississippi River, includes deep-water docking facilities, access to an ammonia pipeline, and truck and railroad loading capabilities. The complex has on-site storage for 130,000 tons of ammonia, 168,000 tons of UAN (measured on a 32% nitrogen content basis) and 83,000 tons of granular urea.
In the fourth quarter of 2012, we announced our expansion project plans for our Donaldsonville, Louisiana facility, which will increase our annual capacity of ammonia and granular urea by up to 1.3 million tons and UAN by up to 1.8 million tons. For additional details regarding this project, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)—Liquidity and Capital Resources.
Medicine Hat, Alberta, Canada
Medicine Hat is the largest nitrogen fertilizer complex in Canada. It has two ammonia plants and one urea plant. The complex has on-site storage for 60,000 tons of ammonia and 70,000 tons of granular urea.
The complex is owned by Canadian Fertilizers Limited (CFL), which until April 30, 2013, was a variable interest entity which we consolidated in our financial statements. In April 2013, we purchased the remaining noncontrolling interest. CFL is now a wholly-owned subsidiary.
For further information about CFL, see Note 18—Noncontrolling Interest.
Port Neal, Iowa
The Port Neal facility is located approximately 12 miles south of Sioux City, Iowa on the Missouri River. The facility consists of an ammonia plant, two urea plants, two nitric acid plants and a UAN plant. The location has on-site storage for 30,000 tons of ammonia and 81,000 tons of 32% UAN.
In the fourth quarter of 2012, we also announced our expansion project plans for our Port Neal, Iowa facility, which will increase our annual capacity of ammonia by approximately 0.8 million tons and granular urea by approximately 1.3 million tons. For additional details regarding this project, see Item 7. MD&A—Liquidity and Capital Resources.
Verdigris, Oklahoma
The Verdigris facility is located northeast of Tulsa, Oklahoma, near the Verdigris River and is owned by TNLP. It is the second largest UAN production facility in North America. The facility comprises two ammonia plants, two nitric acid plants, two urea plants, two UAN plants and a port terminal. Through our 75.3% interest in TNCLP and its subsidiary, TNLP, we operate the plants and lease the port terminal from the Tulsa-Rogers County Port Authority. The complex has on-site storage for 60,000 tons of ammonia and 49,100 tons of 32% UAN.
Woodward, Oklahoma
The Woodward facility is located in rural northwest Oklahoma and consists of an ammonia plant, two nitric acid plants, two urea plants and two UAN plants. The facility has on-site storage for 36,000 tons of ammonia and 83,900 tons of 32% UAN.

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CF INDUSTRIES HOLDINGS, INC.

Yazoo City, Mississippi
The Yazoo City facility includes one ammonia plant, four nitric acid plants, an AN plant, two urea plants, a UAN plant and a dinitrogen tetroxide production and storage facility. The site has on-site storage for 28,000 tons of ammonia, 48,000 tons of 32% UAN and 7,000 tons of AN and related products.
Courtright, Ontario, Canada
The Courtright facility is located south of Sarnia, Ontario near the St. Clair River. The facility consists of an ammonia plant, a UAN plant, a nitric acid plant and a urea plant. The location has on-site storage for 64,100 tons of ammonia, 10,400 tons of granular urea and 16,000 tons of 32% UAN.
Point Lisas, Trinidad
The Point Lisas Nitrogen facility in the Republic of Trinidad and Tobago is owned jointly through a 50/50 venture with Koch Fertilizer LLC. This facility has the capacity to produce 720,000 tons of ammonia annually from natural gas supplied under a contract with The National Gas Company of Trinidad and Tobago.
United Kingdom
GrowHow is a 50/50 joint venture between us and Yara International ASA (Yara) that owns and operates the Ince and Billingham facilities. The Ince facility is located in northwestern England and consists of an ammonia plant, three nitric acid plants, an AN plant and three fertilizer compound plants. The Billingham facility located in the Teesside chemical area, is geographically split between two primary areas: the main site contains an ammonia plant, three nitric acid plants and a carbon dioxide plant; and the Portrack site, approximately two miles away, contains an AN fertilizer plant.
Nitrogen Fertilizer Raw Materials
Natural gas is the principal raw material and primary fuel source used in the ammonia production process at our nitrogen fertilizer manufacturing facilities. In 2014, natural gas accounted for approximately 52% of our total production costs for nitrogen fertilizer products. Our nitrogen fertilizer manufacturing facilities have access to abundant, competitively-priced natural gas through a reliable network of pipelines that are connected to major natural gas trading hubs near the facilities. We have facilities located at or near the following natural gas hubs: Henry Hub in Louisiana; ONEOK in Oklahoma; AECO in Alberta; Ventura in Iowa; and Dawn in Ontario.
Our nitrogen manufacturing facilities consume, in the aggregate, approximately 250 million MMBtus of natural gas annually. We employ a combination of spot and term purchases from a variety of quality suppliers to maintain a reliable, competitively-priced supply of natural gas. We also use certain financial instruments to hedge natural gas prices. For further information about our natural gas hedging activities, see Note 16—Derivative Financial Instruments.
Nitrogen Fertilizer Distribution
The safe, efficient and economical distribution of nitrogen fertilizer products is critical for successful operations. Our nitrogen fertilizer production facilities have access to multiple transportation modes by which we ship fertilizer products to terminals, warehouses and customers. Each of our production facilities has a unique distribution pattern based on its production capacity and location.
Our North American nitrogen production facilities can ship products via truck and rail to customers and our storage facilities in the U.S. and Canada, with access to our leased railcar fleet of approximately 5,900 tank and hopper cars, as well as railcars provided by rail carriers.
The North American waterway system is also used extensively to ship products from our Donaldsonville, Verdigris and Yazoo City facilities. We employ a fleet of ten leased tow boats and 32 river barges to ship ammonia and UAN. We also utilize contract marine services to move urea fertilizer.
Three of our nitrogen production facilities also have access to pipelines for the transportation of ammonia. The Donaldsonville facility is connected to the 2,000-mile long Nustar pipeline through which we transport ammonia to more than 20 terminals and shipping points in the midwestern U.S. corn belt. Our Verdigris and Port Neal facilities are connected to the 1,100-mile long Magellan ammonia pipeline that also serves the U.S. Midwest.

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CF INDUSTRIES HOLDINGS, INC.

Phosphate Segment
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 although the 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 our 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 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. For additional information regarding this sale, see Note 4—Phosphate Business Disposition and Note 22—Assets and Liabilities Held for Sale.
Our historical sales of phosphate fertilizer products are shown in the table below.
 
2014
 
2013
 
2012
 
Tons
 
Net Sales
 
Tons
 
Net Sales
 
Tons
 
Net Sales
 
(tons in thousands; sales dollars in millions)
Phosphate Fertilizer Products
 

 
 

 
 

 
 

 
 

 
 

DAP
372

 
$
127.6

 
1,408

 
$
600.6

 
1,611

 
$
794.5

MAP
115

 
40.8

 
449

 
196.3

 
424

 
212.9

Total
487

 
$
168.4

 
1,857

 
$
796.9

 
2,035

 
$
1,007.4

Gross margin for the phosphate segment was $10.1 million, $74.9 million and $199.7 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Storage Facilities and Other Properties
As of December 31, 2014, we owned or leased space at 86 in-market storage terminals and warehouses located in a 22-state region and Canada. Including storage at our production facilities, we have an aggregate storage capacity for approximately 2.7 million tons of fertilizer. Our storage capabilities are summarized in the following table.
 
Ammonia
 
Granular Urea
 
UAN(1)
 
AN
 
Number of
Facilities
 
Capacity
(000 Tons)
 
Number of
Facilities
 
Capacity
(000 Tons)
 
Number of
Facilities
 
Capacity
(000 Tons)
 
Number of
Facilities
 
Capacity
(000 Tons)
Plants
7

 
408

 
2

 
153

 
6

 
446

 
1

 
7

Terminal and Warehouse Locations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owned
21

 
779

 
1

 
40

 
9

 
252

 

 

Leased(2)
2

 
90

 
2

 
39

 
51

 
445

 

 

Total In-Market
23

 
869

 
3

 
79

 
60

 
697

 

 

Total Storage Capacity
 

 
1,277

 
 

 
232

 
 

 
1,143

 
 

 
7

_______________________________________________________________________________

(1) 
Capacity is expressed as the equivalent volume of UAN measured on a 32% nitrogen content basis.
(2) 
Our lease agreements are typically for periods of one to three years.

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CF INDUSTRIES HOLDINGS, INC.

Customers
The principal customers for our nitrogen fertilizer and other nitrogen products are cooperatives, independent fertilizer distributors and industrial users. None of our customers in 2014 accounted for more than ten percent of our consolidated net sales. Sales are generated by our internal marketing and sales force.
Competition
Our markets are global and intensely competitive, based primarily on delivered price and to a lesser extent on customer service and product quality. During the peak demand periods, product availability and delivery time also play a role in the buying decisions of customers.
For our Nitrogen Product Segments, our primary North American-based competitors include Agrium Inc., Koch Fertilizer LLC and Potash Corporation of Saskatchewan Inc. There is also significant competition from products sourced from other regions of the world, including some with lower natural gas or other feedstock costs. Because ammonia, urea and UAN are widely-traded fertilizer products and there are limited barriers to entry, we experience competition from foreign-sourced products continuously.
Seasonality
In North America, the sales patterns of our major products are seasonal. The strongest demand for our products occurs during the spring planting season, with a second period of strong demand following the fall harvest. We and our customers generally build inventories during the low demand periods of the year in order to ensure timely product availability during the peak sales seasons. Seasonality is greatest for ammonia due to the limited ability of our customers and their customers to store significant quantities of this product. The seasonality of fertilizer demand generally results in our sales volumes and net sales being the highest during the spring and our working capital requirements being the highest just prior to the start of the spring season. Our quarterly financial results can vary significantly from one year to the next due to weather-related shifts in planting schedules and purchasing patterns.
Financial Information About Foreign and Domestic Sales and Operations
The amount of net sales attributable to our sales to foreign and domestic markets over the last three fiscal years and the carrying value of our foreign and domestic assets are set forth in Note 5—Segment Disclosures.
Environmental, Health and Safety
We are subject to numerous environmental, health and safety laws and regulations in the United States, Canada, the United Kingdom and the Republic of Trinidad and Tobago, including laws and regulations relating to the generation and handling of hazardous substances and wastes; the cleanup of hazardous substance releases; the discharge of regulated substances to air or water; and the demolition of existing plant sites upon permanent closure. In the United States, these laws include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act (RCRA), the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), the Toxic Substances Control Act (TSCA) and various other federal, state, provincial, local and international statutes. Violations of environmental, health and safety laws can result in substantial penalties, court orders to install pollution-control equipment, civil and criminal sanctions, permit revocations and facility shutdowns. In addition, environmental, health and safety laws and regulations may impose joint and several liability, without regard to fault, for cleanup costs on potentially responsible parties who have released or disposed of hazardous substances into the environment.
Environmental, Health and Safety Expenditures
Our environmental, health and safety capital expenditures in 2014 totaled approximately $48.0 million. In 2015, we estimate that we will spend approximately $46.0 million for environmental, health and safety capital expenditures. Environmental, health and safety laws and regulations are complex, change frequently and have tended to become more stringent over time. We expect that continued government and public emphasis on environmental issues will result in increased future expenditures for environmental controls at our operations. Such expenditures could have a material adverse effect on our business, financial condition, results of operations and cash flows.
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

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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. For additional information on the Section 185 fee, see Note 24—Contingencies.
Clean Air Act Information Request
On February 26, 2009, we received a letter from the Environmental Protection Agency (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 our Donaldsonville facility. For additional information on the Clean Air Act Information Request, see Note 24—Contingencies.
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 2002 and in 2009, we were asked by the current owner of a former phosphate mine and processing facility that we owned in the late 1950s and early 1960s located in Georgetown Canyon, Idaho, to contribute to a cleanup of the former processing portion of the site. For additional information on the CERCLA/Remediation matters, see Note 24—Contingencies.
Regulation of Greenhouse Gases
We are subject to regulations in the United Kingdom, Canada and the United States concerning greenhouse gas (GHG) emissions.
The United Kingdom is a party to the Kyoto Protocol. As a result of agreements reached during a conference in Durban, South Africa in 2011, the Kyoto Protocol will continue in force for a second commitment period, which will expire by 2020, to be replaced by another international agreement to be negotiated by 2015 (which agreement is to go into effect in 2020). The United Kingdom has adopted GHG emissions regulations, including regulations to implement the European Union Greenhouse Gas Trading System. Our joint venture U.K. manufacturing plants are required to report GHG emissions annually to the United Kingdom Environment Agency pursuant to their site Environmental Permits and Climate Change Agreement, which specify energy efficiency targets. Failure to meet efficiency targets may require the joint venture to purchase CO2 emissions allowances. The steam boilers at each of our joint venture U.K. sites are also subject to the European Union Emissions Trading Scheme.
In Canada (which in December 2011 withdrew from further participation in the Kyoto Protocol, but signed the Durban platform to negotiate a new international GHG agreement or protocol by 2015), we are required to conduct an annual review of our operations with respect to compliance with Environment Canada's National Pollutant Release Inventory and Ontario's Mandatory Monitoring and Reporting Regulation and the GHG Reporting Regulation. Ontario is party to the Western Climate Initiative (WCI), comprising California and several Canadian provinces. The province of Quebec (a WCI party) and California have created a regional program linking their cap and trade emissions programs.
Although Ontario has not disavowed its participation in the initiative, it has not developed regulations to establish a cap and trade program. In Alberta, the Specified Gas Emitters Regulation (GHG Regulation) was implemented in 2007. This program requires facilities emitting more than 100,000 tons of GHGs per year to reduce emissions by 12% over 2007 levels. To meet this requirement, companies can reduce emissions, purchase/use offset credits, or contribute to a technology fund at a rate of $15 per ton of CO2. Currently, our Medicine Hat facility’s method of compliance is to make contributions to the technology fund.
In the United States (not a party to the Kyoto Protocol, but a signatory to the Durban platform with respect to the negotiation of a replacement for the Kyoto Protocol), GHG regulation is evolving at state, regional and federal levels. The EPA has issued federal GHG regulations that impact our facilities, including a mandatory GHG reporting rule that required all of our U.S. manufacturing facilities to commence monitoring GHG emissions beginning on January 1, 2010 and begin reporting the previous year's emissions annually starting in 2011. In May 2010, the EPA issued the Prevention of Significant Deterioration (PSD) and Title V Greenhouse Gas Tailoring Rule (Tailoring Rule), which rule would have subjected certain large sources of GHG emissions to air permitting requirements solely because of their emissions of GHGs. In Utility Air Regulatory Group v. EPA, 134 S. Ct. 2427 (2014), the Supreme Court concluded that the Clean Air Act could not be interpreted to require sources to be subject to these permit programs solely because of their GHG emissions. However, the Court also held that GHG emissions could be regulated at a facility that would otherwise be required to obtain a PSD permit (to construct or modify a facility) due to the facility's emissions of other regulated air pollutants. Regulation of GHG emissions pursuant to the PSD program could subject new capital projects to additional permitting requirements that may result in increased costs or delays in completing such projects.

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Under the Title V provisions of the Tailoring Rule, all of our U.S. manufacturing facilities will be required to include GHG emissions in future Title V air permit applications. Other than the states' implementation of the Tailoring Rule, none of the states where our U.S. production facilities are located—Louisiana, Mississippi, Iowa and Oklahoma—has proposed control regulations limiting GHG emissions.
Revisions to New Source Performance Standards for Nitric Acid Plants
We operate 13 nitric acid plants in the United States. On August 14, 2012, the EPA issued a final regulation revising air emission standards applicable to newly constructed, reconstructed or modified nitric acid plants. The regulations will apply to these plants if and when we undertake activities or operations that are considered modifications, including physical changes that would allow us to increase our production capacity at these plants. The regulations include certain provisions that could make it difficult for us to meet the limits on emissions of nitrogen oxides (NOx) notwithstanding pollution controls we may add to our plants, and accordingly, the regulations, could impact our ability to expand production at our existing plants. The EPA regulation did not include a limitation on emissions of nitrous oxide (a greenhouse gas).
Regulatory Permits and Approvals
We hold numerous environmental and other governmental permits and approvals authorizing operations at each of our facilities. A decision by a government agency to deny or delay issuing a new or renewed regulatory material permit or approval, or to revoke or substantially modify an existing material permit or approval, could have a material adverse effect on our ability to continue operations at the affected facility. Any future expansion of our existing operations is also predicated upon securing the necessary environmental or other permits or approvals.
Employees and Labor Relations
As of December 31, 2014, we employed approximately 2,200 full-time and 100 part-time employees.

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ITEM 1A.    RISK FACTORS.
        In addition to the other information contained in this Annual Report on Form 10-K, you should carefully consider the factors discussed below before deciding to invest in any of our securities. These risks and uncertainties could materially and adversely affect our business, financial condition, results of operations and cash flows.
Our business is dependent on North American natural gas, the prices of which are subject to volatility.
Natural gas is the principal raw material used to produce nitrogen fertilizers. We use natural gas both as a chemical feedstock and as a fuel to produce ammonia, urea, UAN and other nitrogen products. Because most of our nitrogen fertilizer manufacturing facilities are located in the United States and Canada, North American natural gas comprises a significant portion of the total production cost of our nitrogen fertilizers.
The price of natural gas in North America has been volatile in recent years. During 2014, the average daily closing price at the Henry Hub, the most heavily-traded natural gas pricing basis in North America, reached a low of $2.75 per MMBtu on December 26, 2014 and a high of $7.94 per MMBtu on March 5, 2014. During the three year period ended December 31, 2014, the daily closing price at the Henry Hub reached a low of $1.84 per MMBtu on April 20, 2012 and a high of $7.94 per MMBtu on March 5, 2014.
Changes in the supply of and demand for natural gas can lead to periods of volatile natural gas prices. If high prices were to occur during a period of low fertilizer selling prices, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
North American natural gas prices have declined over the last several years in response to increased supply from the development of natural gas production from shale formations. Future production of natural gas from shale formations could be reduced by regulatory changes that restrict drilling or increase its cost or by reduction in oil exploration and development prompted by lower oil prices and resulting in production of less associated gas. If this were to occur, or if other developments adversely impact the supply/demand balance for natural gas in the United States, natural gas prices could rise, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our business is cyclical, resulting in periods of industry oversupply during which our financial condition, results of operations and cash flows tend to be negatively affected.
Historically, selling prices for our products have fluctuated in response to periodic changes in supply and demand conditions. Demand is affected by planted acreage and application rates, driven by population growth, changes in dietary habits and non-food usage of crops such as the production of ethanol and other biofuels, among other things. Supply is affected by available capacity and operating rates, raw material costs and availability, government policies and global trade. The construction of new nitrogen fertilizer manufacturing capacity in the industry, plus improvements to increase output from the existing production assets, increase nitrogen supply and affect the supply demand balance.
Periods of high demand, high capacity utilization and increasing operating margins tend to result in investment in production capacity, which may cause supply to exceed demand and selling prices and capacity utilization to decline. Future growth in demand for fertilizer may not be sufficient to absorb excess industry capacity.
During periods of industry oversupply, our financial condition, results of operations and cash flows tend to be affected negatively as the price at which we sell our products typically declines, resulting in possible reduced profit margins, write-downs in the value of our inventory and temporary or permanent curtailments of production.
Our products are global commodities and we face intense global competition from other fertilizer producers.
We are subject to intense price competition from both domestic and foreign sources. Most fertilizers are global commodities, with little or no product differentiation, and customers make their purchasing decisions principally on the basis of delivered price and to a lesser extent on customer service and product quality. We compete with a number of domestic and foreign producers, including state-owned and government-subsidized entities.
Some of these competitors have greater total resources and are less dependent on earnings from fertilizer sales, which make them less vulnerable to industry downturns and better positioned to pursue new expansion and development opportunities. Our competitive position could suffer to the extent we are not able to expand our own resources either through investments in new or existing operations or through acquisitions, joint ventures or partnerships.
China, the world's largest producer and consumer of nitrogen fertilizers, is expected to continue expanding its fertilizer production capacity in the medium term. If Chinese government policy, or decreases in Chinese producers' underlying costs

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such as the price of Chinese coal, encourages exports, this expected increase in capacity could adversely affect the balance between global supply and demand and may put downward pressure on global fertilizer prices, which could materially adversely affect our business, financial condition, results of operations and cash flows.
Antidumping duties for Russian and Ukrainian fertilizer grade ammonium nitrate ended in November 2014. As a result, we could face much higher volumes of lower priced Russian and Ukrainian fertilizer grade ammonium nitrate in the United States.
A decline in U.S. agricultural production or limitations on the use of our products for agricultural purposes could materially adversely affect the market for our products.
Conditions in the U.S. agricultural industry significantly impact our operating results. The U.S. agricultural industry can be affected by a number of factors, including weather patterns and field conditions, current and projected grain inventories and prices, domestic and international demand for U.S. agricultural products and U.S. and foreign policies regarding trade in agricultural products. These factors are outside of our control.
State and federal governmental policies, including farm and biofuel subsidies and commodity support programs, as well as the prices of fertilizer products, may also directly or indirectly influence the number of acres planted, the mix of crops planted and the use of fertilizers for particular agricultural applications. Ethanol production in the United States contributes significantly to corn demand, due in part to federal legislation mandating use of renewable fuels. An increase in ethanol production has led to an increase in the amount of corn grown in the United States and to increased fertilizer usage on both corn and other crops that have also benefited from improved farm economics. While the current Renewable Fuel Standard (RFS) encourages continued high levels of corn-based ethanol production, a continuing "food versus fuel" debate and other factors have resulted in calls to eliminate the renewable fuel mandate, which could have an adverse effect on corn-based ethanol production, planted corn acreage and fertilizer demand. In December 2014, the EPA announced that the final ruling of the renewable fuels volumes required for calendar year 2014 would not be finalized in 2014 and would be made prior to or in conjunction with action on the standards applicable for calendar year 2015. Developments in crop technology, such as nitrogen fixation, the conversion of atmospheric nitrogen into compounds that plants can assimilate, could also reduce the use of chemical fertilizers and adversely affect the demand for our products. In addition, from time to time various state legislatures have considered limitations on the use and application of chemical fertilizers due to concerns about the impact of these products on the environment.
Our operations and those of our joint ventures are dependent upon raw materials provided by third parties, and any delay or interruption in the delivery may adversely affect our business.
We and our joint ventures use natural gas in the manufacture of fertilizers. We purchase the natural gas from third party suppliers and it is transported by pipeline to our facilities and those of our joint ventures by third party transportation providers or through the use of facilities owned by third parties. Any delays or interruptions in the delivery of natural gas, including those caused by capacity constraints, leaks, ruptures, severe weather or natural disasters, unscheduled downtime, labor difficulties, deliberate sabotage and terrorist incidents, or mechanical failures, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our transportation and distribution activities rely on third party providers. This exposes us to risks and uncertainties beyond our control that may adversely affect our operations and exposes us to additional liability.
We rely on railroad, truck, pipeline, river barge and ocean vessel companies to transport raw materials to our manufacturing facilities, to coordinate and deliver finished products to our distribution system and to ship finished products to our customers. We also lease rail cars in order to ship raw materials and finished products. These transportation operations, equipment and services are subject to various hazards, including adverse operating conditions on the inland waterway system, extreme weather conditions, system failures, work stoppages, delays, accidents such as spills and derailments and other accidents and other operating hazards. Additionally, due to the aging infrastructure of certain bridges, roadways, rail lines, river locks, and other equipment that our third party service providers utilize, we may experience delays in both the receipt of raw materials or the shipment of finished product while repairs, maintenance or replacement activities are conducted. Also, certain third party service providers, particularly railroads, have experienced recent periodic service slowdowns due to capacity constraints in their systems which impact the shipping times of our products.
These transportation operations, equipment and services are also subject to environmental, safety, and regulatory oversight. Due to concerns related to accidents, terrorism or the potential use of fertilizers as explosives, local, state and federal governments could implement new regulations affecting the transportation of raw materials or finished products.

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If shipping of our products was delayed or we were unable to obtain raw materials as a result of these transportation companies' failure to operate properly, or if new and more stringent regulatory requirements are implemented affecting transportation operations or equipment, or if there are significant increases in the cost of these services or equipment, our revenues and cost of operations could be adversely affected. In addition, increases in our transportation costs, or changes in such costs relative to transportation costs incurred by our competitors, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The railroad industry continues various efforts to limit the railroads' potential liability stemming from the transportation of Toxic Inhalation Hazard (TIH) materials, such as the anhydrous ammonia we transport to and from our manufacturing and distribution facilities. For example, various railroads have implemented tariffs that include provisions that purport to shift liability to shippers to the extent that liabilities arise from third parties with insufficient resources. These initiatives could materially and adversely affect our operating expenses and potentially our ability to transport anhydrous ammonia and increase our liability for releases of our anhydrous ammonia while in the care, custody and control of the railroads, for which our insurance may be insufficient or unavailable. New regulations also could be implemented affecting the equipment used to ship our raw materials or finished products.
Our operations and the production and handling of our products involve significant risks and hazards. We are not fully insured against all potential hazards and risks incident to our business. Therefore, our insurance coverage may not adequately cover our losses.
Our operations are subject to hazards inherent in the manufacture, transportation, storage and distribution of chemical fertilizers, including ammonia, which is highly toxic and corrosive. These hazards include: explosions; fires; severe weather and natural disasters; train derailments, collisions, vessel groundings and other transportation and maritime incidents; leaks and ruptures involving storage tanks, pipelines and rail cars; spills, discharges and releases of toxic or hazardous substances or gases; deliberate sabotage and terrorist incidents; mechanical failures; unscheduled plant downtime; labor difficulties and other risks. Some of these hazards can cause bodily injury and loss of life, severe damage to or destruction of property and equipment and environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties and liabilities.
We maintain property, business interruption, casualty and liability insurance policies, but we are not fully insured against all potential hazards and risks incident to our business. If we were to incur significant liability for which we were not fully insured, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. We are subject to various self-retentions, deductibles and limits under these insurance policies. The policies also contain exclusions and conditions that could have a material adverse impact on our ability to receive indemnification thereunder. Our policies are generally renewed annually. As a result of market conditions, our premiums, self-retentions and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage. In addition, significantly increased costs could lead us to decide to reduce, or possibly eliminate, coverage.
In April 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 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. Plaintiffs allege various theories of negligence, strict liability and breach of warranty under Texas law. Although we do not own or operate the facility or directly sell our product 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. Based on our assessment of the pending lawsuits, we believe that we have strong legal and factual defenses to the claims and intend to defend ourselves vigorously in the pending lawsuits and any other claims brought against us in connection with the incident. In addition, the increased focus on the risks associated with fertilizers as a result of the incident could impact the regulatory environment and requirements applicable to fertilizer manufacturing and storage facilities.
Cyber security risks could result in disruptions in business operations and adverse operating results.
As we continue to increase our dependence on information technologies to conduct our operations, the risks associated with cyber security also increase. We rely on management information systems and computer control systems. Business and supply chain disruptions, plant and utility outages and information technology system and network disruptions due to cyber attacks could seriously harm our operations and materially adversely affect our operating results. Cyber security risks include attacks on information technology and infrastructure by hackers, damage or loss of information due to viruses, the unintended disclosure of confidential information, the misuse or loss of control over computer control systems, and breaches due to

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employee error. Our exposure to cyber security risks includes exposure through third parties on whose systems we place significant reliance for the conduct of our business. We have implemented security procedures and measures in order to protect our systems and information from being vulnerable to cyber attacks. We believe these measures and procedures are appropriate. To date, we have not experienced any material impact from cyber security events. However, we may not have the resources or technical sophistication to anticipate, prevent, or recover from rapidly evolving types of cyber-attacks. Compromises to our information and control systems could have severe financial and other business implications. 
Adverse weather conditions may decrease demand for our fertilizer products, increase the cost of natural gas or materially disrupt our operations.
Weather conditions that delay or disrupt field work during the planting and growing seasons may cause agricultural customers to use different forms of nitrogen fertilizer, which may adversely affect demand for the forms that we sell or may impede farmers from applying our fertilizers until the following growing season, resulting in lower demand for our products.
Adverse weather conditions following harvest may delay or eliminate opportunities to apply fertilizer in the fall. Weather can also have an adverse effect on crop yields, which could lower the income of growers and impair their ability to purchase fertilizer from our customers. Our quarterly financial results can vary significantly from one year to the next due to weather-related shifts in planting schedules and purchasing patterns.
Weather conditions or, in certain cases, weather forecasts, also can affect the price of natural gas, the principal raw material used to make our nitrogen-based fertilizers. Colder than normal winters and warmer than normal summers increase the demand for natural gas for residential and industrial use which can increase the cost and/or decrease the availability of natural gas. In addition, adverse weather events such as very low temperatures leading to well freeze-offs or hurricanes affecting the Gulf of Mexico coastal states can impact the supply of natural gas and cause prices to rise.
We may not be able to complete our capacity expansion projects on schedule as planned, on budget or at all due to a number of factors, many of which are beyond our control.
We are constructing new ammonia and urea/UAN plants at our complex in Donaldsonville, Louisiana, and new ammonia and urea units at our complex in Port Neal, Iowa. We recently announced that the total cost of these projects is estimated to be approximately $4.2 billion. The total amount invested in these projects through December 31, 2014 was $2.0 billion.
The design, development, construction and start-up of the new plants are subject to a number of risks, any of which could prevent us from completing the projects on schedule as planned and on budget or at all, including cost overruns, performance of third parties, permitting matters, adverse weather, defects in materials and workmanship, labor and raw material shortages, transportation constraints, engineering and construction change orders, errors in the design, construction or start-up, and other unforeseen difficulties.
The Donaldsonville and Port Neal expansion projects are dependent on the availability and performance of the engineering firms, construction firms, equipment suppliers, transportation providers and other vendors necessary to design and build the new units on a timely basis and on acceptable economic terms. If any of the third parties fails to perform as we expect, our ability to meet our expansion goals would be affected.
Our expansion plans may also result in other unanticipated adverse consequences, such as the diversion of management's attention from our existing plants and businesses and other opportunities.
Other expansions of our business may result in unanticipated adverse consequences.
We routinely consider possible expansions of our business, both domestically and in foreign locations. Major investments in our business, including as a result of acquisitions, partnerships, joint ventures, business combination transactions or other major investments require significant managerial resources, the diversion of which from our other activities may impair the operation of our business. The risks of any expansion of our business through investments, acquisitions, partnerships, joint ventures or business combination transactions are increased due to the significant capital and other resources that we may have to commit to any such expansion, which may not be recoverable if the expansion initiative to which they were devoted is ultimately not implemented. As a result of these and other factors, including general economic risk, we may not be able to realize our projected returns from any future acquisitions, partnerships, joint ventures, business combination transactions or other major investments. Among the risks associated with the pursuit and consummation of acquisitions, partnerships, joint ventures or other major investments or business combination transactions are those involving
difficulties in integrating the parties’ operations, systems, technologies, products and personnel;
incurrence of significant transaction-related expenses;
potential integration or restructuring costs;

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potential impairment charges related to the goodwill, intangible assets or other assets to which any such transaction relates, in the event that the economic benefits of such transaction prove to be less than anticipated;
other, unanticipated costs associated with such transactions;
our ability to achieve operating and financial efficiencies, synergies and cost savings;
our ability to obtain the desired financial or strategic benefits from any such transaction;
the parties’ ability to retain key business relationships, including relationships with employees, customers, partners and suppliers;
potential loss of key personnel;
entry into markets or involvement with products with which we have limited current or prior experience or in which competitors may have stronger positions;
assumption of contingent liabilities, including litigation;
exposure to unanticipated liabilities;
differences in the parties’ internal control environments, which may require significant time and resources to resolve in conformity with applicable legal and accounting standards;
increased scope, geographic diversity and complexity of our operations;
the tax effects of any such transaction; and
the potential for costly and time-consuming litigation, including stockholder lawsuits.

International acquisitions, partnerships, joint ventures, business combination or investments and other international expansions of our business involve additional risks and uncertainties, including

the impact of particular economic, tax, currency, political, legal and regulatory risks associated with specific countries;
challenges caused by distance and by language and cultural differences;
difficulties and costs of complying with a wide variety of complex laws, treaties and regulations;
unexpected changes in regulatory environments;
political and economic instability, including the possibility for civil unrest;
nationalization of properties by foreign governments;
tax rates that may exceed those in the United States, and earnings that may be subject to withholding requirements;
the imposition of tariffs, exchange controls or other restrictions; and
the impact of currency exchange rate fluctuations.

If we finance acquisitions, partnerships, joint ventures, business combination transactions or other major investments by issuing equity or convertible or other debt securities or loans, our existing stockholders may be diluted or we could face constraints under the terms of, and as a result of the repayment and debt-service obligations under, the additional indebtedness. A business combination transaction between us and another company could result in our stockholders receiving cash or shares of another entity on terms that such stockholders may not consider desirable.
We are subject to numerous environmental, health and safety laws, regulations and permitting requirements, as well as potential environmental liabilities, which may require us to make substantial expenditures.
We are subject to numerous environmental, health and safety laws and regulations in the United States, Canada, the United Kingdom and the Republic of Trinidad and Tobago, including laws and regulations relating to the generation and handling of hazardous substances and wastes; the cleanup of hazardous substance releases; the discharge of regulated substances to air or water; and the demolition of existing plant sites upon permanent closure. In the United States, these laws include the Clean Air Act, the Clean Water Act, the RCRA, the CERCLA, the TSCA and various other federal, state, provincial, local and international statutes.
As a fertilizer company working with chemicals and other hazardous substances, our business is inherently subject to spills, discharges or other releases of hazardous substances into the environment. Certain environmental laws, including CERCLA, impose joint and several liability, without regard to fault, for cleanup costs on persons who have disposed of or released hazardous substances into the environment. Given the nature of our business, we have incurred, are incurring currently, and are likely to incur periodically in the future, liabilities under CERCLA and other environmental cleanup laws at our current or former facilities, adjacent or nearby third-party facilities or offsite disposal locations. The costs associated with future cleanup activities that we may be required to conduct or finance may be material. Additionally, we may become liable to third parties for damages, including personal injury and property damage, resulting from the disposal or release of hazardous substances into the environment.

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Violations of environmental, health and safety laws can result in substantial penalties, court orders to install pollution-control equipment, civil and criminal sanctions, permit revocations and facility shutdowns. Environmental, health and safety laws change rapidly and have tended to become more stringent over time. As a result, we have not always been and may not always be in compliance with all environmental, health and safety laws and regulations. Additionally, future environmental, health and safety laws and regulations or reinterpretation of current laws and regulations may require us to make substantial expenditures. Additionally, our costs to comply with, or any liabilities under, these laws and regulations could have a material adverse effect on our business, financial condition, results of operations and cash flows.
From time to time, our production of anhydrous ammonia has resulted in accidental releases that have temporarily disrupted our manufacturing operations and resulted in liability for administrative penalties and claims for personal injury. To date, our costs to resolve these liabilities have not been material. However, we could incur significant costs if our liability coverage is not sufficient to pay for all or a large part of any judgments against us, or if our insurance carrier refuses coverage for these losses.
Expansion or modification of our operations is predicated upon securing necessary environmental or other permits or approvals. A decision by a government agency to deny or delay issuing a new or renewed regulatory material permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue operations at our facilities and on our business, financial condition, results of operations and cash flows.
Our operations are dependent on numerous required permits and approvals and meeting financial assurance requirements of governmental authorities.
We hold numerous environmental and other governmental permits and approvals authorizing operations at each of our facilities. Expansion of our operations is dependent upon securing the necessary environmental or other permits or approvals. A decision by a government agency to deny or delay issuing a new or renewed regulatory material permit or approval, or to revoke or substantially modify an existing material permit or approval, could have a material adverse effect on our ability to continue operations at the affected facility and on our business, financial condition, results of operations and cash flows.
In certain cases, as a condition to procuring such permits and approvals or as a condition to maintaining existing approvals, we may be required to comply with regulatory financial assurance requirements. The purpose of these requirements is to assure local, state or federal government agencies that we will have sufficient funds available for the ultimate closure, post-closure care and reclamation at our facilities.
Future regulatory restrictions on greenhouse gas emissions in the jurisdictions in which we operate could materially adversely affect our business, financial condition, results of operations and cash flows.
We are subject to greenhouse gas (GHG) regulations in the United Kingdom, Canada and the United States. There are substantial uncertainties as to the nature, stringency and timing of any future GHG regulations. More stringent GHG limitations, if they are enacted, are likely to have a significant impact on us, because our production facilities emit GHGs such as carbon dioxide and nitrous oxide and because natural gas, a fossil fuel, is a primary raw material used in our nitrogen production process. Regulation of GHGs may require us to make changes in our operating activities that would increase our operating costs, reduce our efficiency, limit our output, require us to make capital improvements to our facilities, increase our costs for or limit the availability of energy, raw materials or transportation, or otherwise materially adversely affect our business, financial condition, results of operations and cash flows. In addition, to the extent that GHG restrictions are not imposed in countries where our competitors operate or are less stringent than regulations that may be imposed in the United States or Canada, our competitors may have cost or other competitive advantages over us.
Our operating results fluctuate due to seasonality. Our inability to predict future seasonal fertilizer demand accurately could result in our having excess inventory, potentially at costs in excess of market value, or product shortages.
The fertilizer business is seasonal. The degree of seasonality of our business can change significantly from year to year due to conditions in the agricultural industry and other factors. The strongest demand for our products occurs during the spring planting season, with a second period of strong demand following the fall harvest. We and our customers generally build inventories during the low demand periods of the year to ensure timely product availability during the peak sales seasons. Seasonality is greatest for ammonia due to the short application season and the limited ability of our customers and their customers to store significant quantities of this product. The seasonality of fertilizer demand results in our sales volumes and net sales being the highest during the spring and our working capital requirements being the highest just prior to the start of the spring planting season.
If seasonal demand is less than we expect, we may be left with excess inventory that will have to be stored (in which case our results of operations will be negatively affected by any related increased storage costs) or liquidated (in which case the

16


CF INDUSTRIES HOLDINGS, INC.

selling price may be below our production, procurement and storage costs). The risks associated with excess inventory and product shortages are exacerbated by the volatility of natural gas and nitrogen fertilizer prices and the relatively brief periods during which farmers can apply nitrogen fertilizers. If prices for our products rapidly decrease, we may be subject to inventory write-downs, adversely affecting our operating results. If seasonal demand is greater than we expect, we may experience product shortages, and customers of ours may turn to our competitors for products that they would otherwise have purchased from us.
A change in the volume of products that our customers purchase on a forward basis, or the percentage of our sales volume that is sold to our customers on a forward basis, could increase our exposure to fluctuations in our profit margins and materially adversely affect our business, financial condition, results of operations and cash flows.
We offer our customers the opportunity to purchase products from us on a forward basis at prices and delivery dates we propose. Under our forward sales programs, customers generally make an initial cash down payment at the time of order and pay the remaining portion of the contract sales value in advance of the shipment date. Forward sales improve our liquidity due to the cash payments received from customers in advance of shipment of the product and allow us to improve our production scheduling and planning and the utilization of our manufacturing and distribution assets.
Any cash payments received in advance from customers in connection with forward sales are reflected on our consolidated balance sheets as a current liability until the related orders are shipped, which can take up to several months. As of December 31, 2014 and 2013, our current liability for customer advances related to unshipped orders was approximately 16% and 7%, respectively, of our cash and cash equivalents.
We believe the ability to purchase product on a forward basis is most appealing to our customers during periods of generally increasing prices for nitrogen fertilizers. Our customers may be less willing or even unwilling to purchase products on a forward basis during periods of generally decreasing or stable prices or during periods of relatively high fertilizer prices due to the expectation of lower prices in the future or limited capital resources. In periods of rising fertilizer prices, selling our nitrogen fertilizers on a forward basis may result in lower profit margins than if we had not sold fertilizer on a forward basis. Conversely, in periods of declining fertilizer prices, selling our nitrogen fertilizers on a forward basis may result in higher profit margins than if we had not sold fertilizer on a forward basis. In addition, fixing the selling prices of our products, often months in advance of their ultimate delivery to customers, typically causes our reported selling prices and margins to differ from spot market prices and margins available at the time of shipment.
Our business is subject to risks involving derivatives, including the risk that our hedging activities might not prevent losses.
We often utilize natural gas derivatives to hedge our financial exposure to the price volatility of natural gas, the principal raw material used in the production of nitrogen-based fertilizers. We have used fixed-price, physical purchase and sales contracts, futures, financial swaps and option contracts traded in the over-the-counter markets or on exchanges. In order to manage our exposure to changes in foreign currency exchange rates, from time to time, we may use foreign currency derivatives, primarily forward exchange contracts.
Our use of derivatives can result in volatility in reported earnings due to the unrealized mark-to-market adjustments that occur from changes in the value of the derivatives that do not qualify for, or to which we do not apply, hedge accounting. To the extent that our derivative positions lose value, we may be required to post collateral with our counterparties, adversely affecting our liquidity.
Hedging arrangements are imperfect and unhedged risks will always exist. In addition, our hedging activities may themselves give rise to various risks that could adversely affect us. For example, we are exposed to counterparty credit risk when our derivatives are in a net asset position. The counterparties to our derivatives are either multi-national commercial banks, major financial institutions or large energy companies. We monitor the derivative portfolio and credit quality of our counterparties and adjust the level of activity we conduct with individual counterparties as necessary. We also manage the credit risk through the use of multiple counterparties, credit limits, credit monitoring procedures, cash collateral requirements and master netting arrangements. However, our liquidity could be negatively impacted by a counterparty default on settlement of one or more of our derivative financial instruments.
We are reliant on a limited number of key facilities.
Our nitrogen fertilizer operations are concentrated in seven separate nitrogen complexes, the largest of which is the Donaldsonville complex, which represents approximately 40% of our ammonia production capacity. The suspension of operations at any of these complexes could adversely affect our ability to produce our products and fulfill our commitments, and could have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition,

17


CF INDUSTRIES HOLDINGS, INC.

our Donaldsonville complex is located in an area of the United States that experiences a relatively high level of hurricane activity and our other complexes are located in areas that experience severe weather. Such storms, depending on their severity and location, have the potential not only to damage our facilities and disrupt our operations, but also to adversely affect the shipping and distribution of our products and the supply and price of natural gas in the respective regions.
We are exposed to risks associated with our joint ventures.
We participate in joint ventures including Point Lisas (which owns a facility in the Republic of Trinidad and Tobago), GrowHow (which owns facilities in Billingham and Ince, United Kingdom) and Keytrade (a global fertilizer trading company headquartered near Zurich, Switzerland). Our joint venture partners may share a measure of control over the operations of our joint ventures. As a result, our investments in joint ventures involve risks that are different from the risks involved in owning facilities and operations independently. These risks include the possibility that our joint ventures or our partners: have economic or business interests or goals that are or become inconsistent with our economic or business interests or goals; are in a position to take action contrary to our instructions, requests, policies or objectives; subject a joint venture to liabilities exceeding those contemplated; take actions that reduce our return on investment; or take actions that harm our reputation or restrict our ability to run our business.
In addition, we may become involved in disputes with our joint venture partners, which could lead to impasses or situations that could harm the joint venture, which could reduce our revenues or increase our costs.
Our joint venture in Point Lisas in the Republic of Trinidad and Tobago operates an ammonia plant that relies on natural gas supplied by The National Gas Company of Trinidad and Tobago Limited (“NGC”). The joint venture has experienced natural gas curtailments due to major maintenance activities being conducted at natural gas facilities and decreased gas exploration and development activity in Trinidad. These curtailments are expected to continue into 2015 and it is unclear if they will extend beyond that time. Failure to secure a long-term gas supply from NGC on a cost effective basis could adversely affect our ability to produce ammonia at the joint venture which could result in impairment to the value of the joint venture, and could have a material adverse effect on our results of operations.
Acts of terrorism and regulations to combat terrorism could negatively affect our business.
Like other companies with major industrial facilities, we may be targets of terrorist activities. Many of our plants and facilities store significant quantities of ammonia and other materials that can be dangerous if mishandled. Any damage to infrastructure facilities, such as electric generation, transmission and distribution facilities, or injury to employees, who could be direct targets or indirect casualties of an act of terrorism, may affect our operations. Any disruption of our ability to produce or distribute our products could result in a significant decrease in revenues and significant additional costs to replace, repair or insure our assets, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Due to concerns related to terrorism or the potential use of certain fertilizers as explosives, we are subject to various security laws including the Maritime Transportation Security Act of 2002 (MTSA) and the Chemical Facilities Anti-Terrorism Standards (CFATS) regulation. In addition, President Obama issued Executive Order (EO) 13650 Improving Chemical Facility Safety and Security to improve chemical facility safety in coordination with owners and operators. Local, state, federal and foreign governments could implement new or impose more stringent regulations affecting the security of our plants, terminals and warehouses or the transportation and use of fertilizers. These regulations could result in higher operating costs or limitations on the sale of our products and could result in significant unanticipated costs, lower revenues and reduced profit margins. We manufacture and sell certain nitrogen fertilizers that can be used as explosives. It is possible that the United States or foreign governments could impose additional limitations on the use, sale or distribution of nitrogen fertilizers, thereby limiting our ability to manufacture or sell those products, or that illicit use of our products could result in liability for us.
We are subject to risks associated with international operations.
Our international business operations are subject to numerous risks and uncertainties, including difficulties and costs associated with complying with a wide variety of complex laws, treaties and regulations; unexpected changes in regulatory environments; currency fluctuations; tax rates that may exceed those in the United States; earnings that may be subject to withholding requirements; and the imposition of tariffs, exchange controls or other restrictions. During 2014, we derived approximately 16% of our net sales from outside of the United States. Our business operations include our nitrogen fertilizer complex in Medicine Hat, Alberta; our nitrogen fertilizer manufacturing facility in Courtright, Ontario; a 50% interest in an ammonia production joint venture in Trinidad; a 50% interest in a U.K. joint venture for the production of anhydrous ammonia and other fertilizer products; and a 50% interest in a fertilizer trading operation headquartered near Zurich, Switzerland.

18


CF INDUSTRIES HOLDINGS, INC.

Our investments in securities are subject to risks that may result in losses.
Our cash flows from operations have resulted in cash and cash equivalents of approximately $2.0 billion as of December 31, 2014. We generally invest these cash and cash equivalents in what we believe to be relatively short-term, highly liquid and high credit quality instruments, including notes and bonds issued by governmental entities or corporations and money market funds. Securities issued by governmental entities include those issued directly by the United States government, those issued by state, local or other governmental entities, and those guaranteed by entities affiliated with governmental entities. Our investments are subject to fluctuations in both market value and yield based upon changes in market conditions, including interest rates, liquidity, general economic and credit market conditions and conditions specific to the issuers.
Due to the risks of investments, we may not achieve expected returns or may realize losses on our investments, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Deterioration of global market and economic conditions could have a material adverse effect on our business, financial condition, results of operations and cash flows.
A slowdown of, or persistent weakness in, economic activity caused by a deterioration of global market and economic conditions could adversely affect our business in the following ways, among others: conditions in the credit markets could affect the ability of our customers and their customers to obtain sufficient credit to support their operations; the failure of our customers to fulfill their purchase obligations could result in increases in bad debts and impact our working capital; and the failure of certain key suppliers could increase our exposure to disruptions in supply or to financial losses. We also may experience declining demand and falling prices for some of our products due to our customers' reluctance to replenish inventories. The overall impact of a global economic downturn on us is difficult to predict, and our business could be materially adversely impacted.
In addition, conditions in the international market for nitrogen fertilizer significantly influence our operating results. The international market for fertilizers is influenced by such factors as the relative value of the U.S. dollar and its impact on the importation of fertilizers, foreign agricultural policies, the existence of, or changes in, import or foreign currency exchange barriers in certain foreign markets and other regulatory policies of foreign governments, as well as the laws and policies of the United States affecting foreign trade and investment.
We have a material amount of indebtedness and may incur additional indebtedness, or need to refinance existing indebtedness, in the future, which may adversely affect us.
As of December 31, 2014, we had approximately $4.6 billion of total indebtedness, consisting primarily of senior notes with varying maturity dates between 2018 and 2044. We had excess borrowing capacity for general corporate purposes under our existing revolving credit facility of approximately $995.1 million.
Our substantial debt service obligations could have an adverse impact on our earnings and cash flow. Our substantial indebtedness could, as a result of our debt service obligation or through the operation of the financial and other restrictive covenants to which we are subject under the agreements and instruments governing that indebtedness and otherwise, have important consequences. For example, it could:
make it more difficult for us to pay or refinance our debts as they become due during adverse economic and industry conditions because any related decrease in revenues could cause us to not have sufficient cash flows from operations to make our scheduled debt payments;
cause us to be less able to take advantage of significant business opportunities, such as acquisition opportunities, and to react to changes in market or industry conditions;
cause us to use a portion of our cash flow from operations for debt service, reducing the availability of cash to fund working capital and capital expenditures, research and development and other business activities;
cause us to be more vulnerable to general adverse economic and industry conditions;
expose us to the risk of increased interest rates because certain of our borrowings, including borrowings under our revolving credit facility, could be at variable rates of interest;
make us more leveraged than some of our competitors, which could place us at a competitive disadvantage;
limit our ability to borrow additional monies in the future to fund working capital, capital expenditures and other general corporate purposes; and
result in a downgrade in the credit rating of our indebtedness which could increase the cost of further borrowings.

19


CF INDUSTRIES HOLDINGS, INC.

From time to time we consider our options to refinance our outstanding indebtedness. Our ability to obtain any financing, whether through the issuance of new debt securities or otherwise, and the terms of any such financing are dependent on, among other things, our financial condition, financial market conditions within our industry and generally, credit ratings and numerous other factors, including factors beyond our control. Consequently, in the event that we need to access the credit markets, including to refinance our debt, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable timeframe, if at all. An inability to obtain financing with acceptable terms when needed could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The terms of our existing indebtedness allow us to incur significant additional debt in the future. If we incur additional indebtedness, the risks that we now face as a result of our leverage could intensify. If our financial condition or operating results deteriorate, our relations with our creditors, including the holders of our outstanding debt securities, the lenders under our revolving credit facility and our suppliers, may be materially and adversely affected.

20


CF INDUSTRIES HOLDINGS, INC.

FORWARD LOOKING STATEMENTS
From time to time, in this Annual Report on Form 10-K as well as in other written reports and verbal statements, we make forward-looking statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our future prospects, developments and business strategies. We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," and similar terms and phrases, including references to assumptions, to identify forward-looking statements in this document. These forward-looking statements are made based on currently available competitive, financial and economic data, our current expectations, estimates, forecasts and projections about the industries and markets in which we operate and management's beliefs and assumptions concerning future events affecting us. These statements are not guarantees of future performance and are subject to risks, uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Therefore, our actual results may differ materially from what is expressed in or implied by any forward-looking statements. We want to caution you not to place undue reliance on any forward-looking statements. We do not undertake any responsibility to release publicly any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this document. Additionally, we do not undertake any responsibility to provide updates regarding the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this document.
Important factors that could cause actual results to differ materially from our expectations are disclosed under "Risk Factors" and elsewhere in this Form 10-K. Such factors include, among others:
the volatility of natural gas prices in North America;
the cyclical nature of our business and the agricultural sector;
the global commodity nature of our fertilizer products, the impact of global supply and demand on our selling prices, and the intense global competition from other fertilizer producers;
conditions in the U.S. agricultural industry;
difficulties in securing the supply and delivery of raw materials, increases in their costs or delays or interruptions in their delivery;
reliance on third party providers of transportation services and equipment;
the significant risks and hazards involved in producing and handling our products against which we may not be fully insured;
risks associated with cyber security;
weather conditions;
our ability to complete our production capacity expansion projects on schedule as planned, on budget or at all;
risks associated with other expansions of our business, including unanticipated adverse consequences and the significant resources that could be required;
potential liabilities and expenditures related to environmental, health and safety laws and regulations;
our potential inability to obtain or maintain required permits and governmental approvals or to meet financial assurance requirements from governmental authorities;
future regulatory restrictions and requirements related to GHG emissions;
the seasonality of the fertilizer business;
the impact of changing market conditions on our forward sales programs;
risks involving derivatives and the effectiveness of our risk measurement and hedging activities;
our reliance on a limited number of key facilities;

21


CF INDUSTRIES HOLDINGS, INC.

risks associated with joint ventures;
acts of terrorism and regulations to combat terrorism;
risks associated with international operations;
losses on our investments in securities;
deterioration of global market and economic conditions; and
our ability to manage our indebtedness.

22


CF INDUSTRIES HOLDINGS, INC.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.    PROPERTIES.
Information regarding our facilities and properties is included in Part I, Item 1. Business—Operating Segments and Part I, Item 1. Business—Storage Facilities and Other Properties.
ITEM 3.    LEGAL PROCEEDINGS.
Litigation
West Fertilizer Co.
In April 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 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. Plaintiffs allege various theories of negligence, strict liability and breach of warranty under Texas law. Although we do not own or operate the facility or directly sell our products to West Fertilizer Co., products 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. Based on our assessment of the pending lawsuits, we believe that we have strong legal and factual defenses to the claims and intend to defend ourselves vigorously in the pending lawsuits and any other claims brought against us in connection with the incident.
Other Litigation
From time to time, we are subject to ordinary, routine legal proceedings related to the usual conduct of our business, including proceedings regarding public utility and transportation rates, environmental matters, taxes and permits relating to the operations of our various plants and facilities. Based on the information available as of the date of this filing, we believe that the ultimate outcome of these routine matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Environmental
Florida Environmental Matters
On March 17, 2014, we completed the sale of our phosphate mining and manufacturing business, which was located in Florida, to Mosaic. Pursuant to the terms of an Asset Purchase Agreement dated as of October 28, 2013 (the "Purchase Agreement") among CF Industries Holdings, Inc., CF Industries, Inc. and Mosaic, 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 Environmental Protection Agency (EPA) by letter dated June 16, 2010, alleging that we violated the Prevention of Significant Deterioration (PSD) Clean Air Act regulations relating to certain projects undertaken at the former Plant City, Florida facility's sulfuric acid plants. This NOV further alleges that the actions that are the basis for the alleged PSD violations also resulted in violations of Title V air operating permit regulations. Finally, the NOV alleges that we failed to comply with certain compliance dates established by hazardous air pollutant regulations for phosphoric acid manufacturing plants and phosphate fertilizer production plants. We had several meetings with the EPA with respect to this matter prior to our sale of the phosphate mining and manufacturing business in March 2014. We 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.

23


CF INDUSTRIES HOLDINGS, INC.

EPCRA/CERCLA Notice of Violation
By letter dated July 6, 2010, the EPA issued a NOV to us alleging violations of Section 313 of the Emergency Planning and Community Right-to-Know Act (EPCRA) in connection with the former Plant City facility. EPCRA requires annual reports to be submitted with respect to the use of certain toxic chemicals. The NOV also included an allegation that we violated Section 304 of EPCRA and Section 103 of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) by failing to file a timely notification relating to the release of hydrogen fluoride above applicable reportable quantities. We do not know at this time if this matter will be settled prior to initiation of formal legal action.
We do not expect that penalties or fines, if any, that may arise out of the EPCRA/CERCLA matter will have a material impact on our consolidated financial position, results of operations or cash flows.
Other
CERCLA/Remediation Matters
For information on pending proceedings relating to environmental remediation matters, see Item 1. Business—Environmental, Health and Safety and Note 24—Contingencies.
ITEM 4.    MINE SAFETY DISCLOSURES
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is incorporated herein by reference to Exhibit 95 to CF Industries Holdings, Inc.'s Quarterly Report on Form 10-Q filed with the SEC on May 8, 2014, File No. 001-32597.


24


CF INDUSTRIES HOLDINGS, INC.

PART II
ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the New York Stock Exchange, Inc. (NYSE) under the symbol "CF". Quarterly high and low sales prices, as reported by the NYSE, are provided below:
 
Sales Prices
 
Dividends
per Share
2014
High
 
Low
 
First Quarter
$
267.76

 
$
220.12

 
$
1.00

Second Quarter
266.94

 
232.40

 
1.00

Third Quarter
280.34

 
238.55

 
1.50

Fourth Quarter
290.29

 
239.46

 
1.50


 
Sales Prices
 
Dividends
per Share
2013
High
 
Low
 
First Quarter
$
233.43

 
$
189.74

 
$
0.40

Second Quarter
197.38

 
170.53

 
0.40

Third Quarter
216.49

 
169.33

 
0.40

Fourth Quarter
239.40

 
203.04

 
1.00

As of February 18, 2015, there were 854 stockholders of record.
The following table sets forth stock repurchases for each of the three months of the quarter ended December 31, 2014.
 
Issuer Purchases of Equity Securities
Period
Total Number
of Shares
(or Units)
Purchased
 
Average
Price Paid
per Share
(or Unit)
 
Cumulative Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
 
Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs
(in thousands)
October 1, 2014 - October 31, 2014

 
$

  

 
$
1,000,000

November 1, 2014 - November 30, 2014
569,776

(1) 
268.39

(2) 
569,776

 
847,079

December 1, 2014 - December 31, 2014
836,897

(1) 
262.78

(2) 
1,406,673

 
627,159

Total
1,406,673

 
265.05

 
 

 
 

_______________________________________________________________________________

(1) 
On August 6, 2014, our Board of Directors authorized management to repurchase common stock for a total expenditure of up to $1.0 billion through December 31, 2016, subject to market conditions (the 2014 Stock Repurchase Program). This program is discussed in Note 19—Stockholders' Equity, in the notes to the consolidated financial statements included in Item 8 of this report.

(2) 
Average price paid per share of common stock repurchased under the 2014 Stock Repurchase Program is the execution price, excluding commissions paid to brokers.


25


CF INDUSTRIES HOLDINGS, INC.

ITEM 6.    SELECTED FINANCIAL DATA.
The following selected historical financial data as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013 and 2012 have been derived from our audited consolidated financial statements and related notes included elsewhere in this document. The following selected historical financial data as of December 31, 2012, 2011 and 2010 and for the years ended December 31, 2011 and 2010 have been derived from our consolidated financial statements, which are not included in this document. Since April 2010, the results of Terra have been included in our consolidated financial statements.
The selected historical financial data should be read in conjunction with the information contained in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data.
 
Year ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(in millions, except per share amounts)
Statement of Operations Data:
 

 
 

 
 

 
 

 
 

Net sales
$
4,743.2

 
$
5,474.7

 
$
6,104.0

 
$
6,097.9

 
$
3,965.0

Cost of sales
2,964.7

 
2,954.5

 
2,990.7

 
3,202.3

 
2,785.5

Gross margin
1,778.5

 
2,520.2

 
3,113.3

 
2,895.6

 
1,179.5

Selling, general and administrative expenses
151.9

 
166.0

 
151.8

 
130.0

 
106.1

Restructuring and integration costs

 

 

 
4.4

 
21.6

Other operating—net
53.3

 
(15.8
)
 
49.1

 
20.9

 
166.7

Total other operating costs and expenses
205.2

 
150.2

 
200.9

 
155.3

 
294.4

Gain on sale of phosphate business
750.1

 

 

 

 

Equity in earnings of operating affiliates
43.1

 
41.7

 
47.0

 
50.2

 
10.6

Operating earnings
2,366.5

 
2,411.7

 
2,959.4

 
2,790.5

 
895.7

Interest expense (income)—net
177.3

 
147.5

 
131.0

 
145.5

 
219.8

Loss on extinguishment of debt

 

 

 

 
17.0

Other non-operating—net
1.9

 
54.5

 
(1.1
)
 
(0.6
)
 
(28.8
)
Earnings before income taxes and equity in earnings of non-operating affiliates
2,187.3

 
2,209.7

 
2,829.5

 
2,645.6

 
687.7

Income tax provision
773.0

 
686.5

 
964.2

 
926.5

 
273.7

Equity in earnings of non-operating affiliates—net of taxes
22.5

 
9.6

 
58.1

 
41.9

 
26.7

Net earnings
1,436.8

 
1,532.8

 
1,923.4

 
1,761.0

 
440.7

Less: Net earnings attributable to noncontrolling interest
46.5

 
68.2

 
74.7

 
221.8

 
91.5

Net earnings attributable to common stockholders
$
1,390.3

 
$
1,464.6

 
$
1,848.7

 
$
1,539.2

 
$
349.2

Cash dividends declared per common share
$
5.00

 
$
2.20

 
$
1.60

 
$
1.00

 
$
0.40

Share and per share data:
 

 
 

 
 

 
 

 
 

Net earnings per share attributable to common stockholders:
 

 
 

 
 

 
 

 
 

Basic
$
27.16

 
$
24.87

 
$
28.94

 
$
22.18

 
$
5.40

Diluted
27.08

 
24.74

 
28.59

 
21.98

 
5.34

Weighted-average common shares outstanding:
 

 
 

 
 

 
 

 
 

Basic
51.2

 
58.9

 
63.9

 
69.4

 
64.7

Diluted
51.3

 
59.2

 
64.7

 
70.0

 
65.4

Other Financial Data:
 

 
 

 
 

 
 

 
 

Depreciation, depletion and amortization
$
392.5

 
$
410.6

 
$
419.8

 
$
416.2

 
$
394.8

Capital expenditures
1,808.5

 
823.8

 
523.5

 
247.2

 
258.1


26


CF INDUSTRIES HOLDINGS, INC.

 
 
December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(in millions)
Balance Sheet Data:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
1,996.6

 
$
1,710.8

 
$
2,274.9

 
$
1,207.0

 
$
797.7

Short-term investments

 

 

 

 
3.1

Total assets
11,338.2

 
10,678.1

 
10,166.9

 
8,974.5

 
8,758.5

Customer advances
325.4

 
120.6

 
380.7

 
257.2

 
431.5

Total debt
4,592.5

 
3,098.1

 
1,605.0

 
1,617.8

 
1,959.0

Total equity
4,572.5

 
5,438.4

 
6,282.2

 
4,932.9

 
4,433.4



27


CF INDUSTRIES HOLDINGS, INC.

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
    You should read the following discussion and analysis in conjunction with the consolidated financial statements and related notes included in Item 8. Financial Statements and Supplementary Data. All references to "CF Holdings," "we," "us," "our" and "the Company" 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. References to tons refer to short-tons. Footnotes referenced in this discussion and analysis refer to the notes to consolidated financial statements that are found in the following section: Item 8. Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements. The following is an outline of the discussion and analysis included herein:
Overview of CF Holdings
Our Company
Items Affecting Comparability of Results
Financial Executive Summary
Key Industry Factors
Factors Affecting Our Results
Results of Consolidated Operations
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Operating Results by Business Segment
Liquidity and Capital Resources
Off-Balance Sheet Arrangements
Critical Accounting Policies and Estimates
Recent Accounting Pronouncements
Discussion of Seasonality Impacts on Operations
Overview of CF Holdings
Our Company
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) 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 and Mosaic for approximately $1.4 billion in cash.
Upon selling the phosphate business, 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 our phosphate segment. Subsequent to the sale of 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

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CF INDUSTRIES HOLDINGS, INC.

phosphate mining and manufacturing business is not reported as discontinued operations in our consolidated statements of operations.
Our principal assets include:
six nitrogen fertilizer manufacturing facilities located in: Donaldsonville, Louisiana (the largest nitrogen fertilizer complex in North America); Medicine Hat, Alberta (the largest nitrogen fertilizer complex in Canada); Port Neal, Iowa; Courtright, Ontario; Yazoo City, Mississippi; and Woodward, Oklahoma;
a 75.3% interest in Terra Nitrogen Company, L.P. (TNCLP), a publicly-traded limited partnership of which we are the sole general partner and the majority limited partner and which, through its subsidiary Terra Nitrogen, Limited Partnership (TNLP), operates a nitrogen fertilizer manufacturing facility in Verdigris, Oklahoma;
an extensive system of terminals and associated transportation equipment located primarily in the midwestern United States; and
joint venture investments that we account for under the equity method, which consist of:
a 50% interest in GrowHow UK Limited (GrowHow), a nitrogen products production joint venture located in the United Kingdom and serving primarily the British agricultural and industrial markets;
a 50% interest in Point Lisas Nitrogen Limited (PLNL), an ammonia production joint venture located in the Republic of Trinidad and Tobago; and
a 50% interest in KEYTRADE AG (Keytrade), a global fertilizer trading company headquartered near Zurich, Switzerland.
During the first quarter of 2014, we sold the phosphate mining and manufacturing business which was reported in the phosphate segment. Additionally, we appointed a new President and Chief Executive Officer who is the Chief Operating Decision Maker (CODM) as defined under U.S. GAAP. Our reportable segments are based on how the CODM assesses performance and allocates resources across the business. In the third quarter of 2014, we completed certain changes to our reporting structures that reflect how our CODM assesses the performance of our operating segments and makes decisions about resource allocation. As a result, the number of our reporting segments increased from two to five segments, consisting 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. Historical financial results have been restated to reflect the new segment structure on a comparable basis.
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. However, the segment will continue to be included until the reporting of comparable period phosphate results ceases. The ammonia, granular urea, UAN and other segments are referred to in this discussion and analysis as the “Nitrogen Product Segments.”
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.
A description of our five reporting segments is included in the discussion of the operating results by business segment later in this discussion and analysis.
Items Affecting Comparability of Results
Phosphate Business Disposition
In 2014, we sold our phosphate mining and manufacturing business and recognized pre-tax and after-tax gains on the sale of the phosphate business of $750.1 million and $462.8 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 inventory held in distribution facilities were not sold to Mosaic in the Transaction and were settled in the ordinary course.

29


CF INDUSTRIES HOLDINGS, INC.

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 our 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. GAAP, the phosphate mining and manufacturing business is not reported as discontinued operations in our consolidated statements of operations.
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. However, 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. The assets and liabilities sold to and assumed by Mosaic were classified as held for sale as of December 31, 2013; therefore, no depreciation, depletion or amortization was recorded in 2014 for the related property, plant and equipment.
CFL Selling Price Modifications
Prior to April 30, 2013, CF Industries owned 49% of the voting common shares and 66% of the non-voting preferred shares of Canadian Fertilizers Limited (CFL), an Alberta, Canada based nitrogen fertilizer manufacturer and had the right to purchase 66% of the production of CFL. Also prior to April 30, 2013, Viterra, Inc. (Viterra) held 34% of the equity ownership of CFL and had the right to purchase up to the remaining 34% of CFL's production. Both CF Industries and Viterra were entitled to receive distributions of net earnings of CFL based upon their respective purchases from CFL. CFL was a variable interest entity that was consolidated in our financial statements. On April 30, 2013, CF Industries completed the acquisitions of all of the outstanding interests in CFL that it did not already own and CFL became our wholly-owned subsidiary. Once CFL became a wholly-owned subsidiary, CF industries began purchasing all of the output of CFL for resale and reported those sales in its consolidated financial statements at market prices.
CF Industries' and Viterra's purchases of nitrogen fertilizer products from CFL were made under product purchase agreements, and the selling prices were determined under the provisions of these agreements. Until April 30, 2013, when CFL became a wholly-owned subsidiary in our consolidated financial statements, net sales and accounts receivable attributable to CFL were solely generated by transactions with Viterra, as all transactions with CF Industries were eliminated in consolidation in our financial statements.
The following summarizes the selling prices in the product purchase agreements that impacted the Company's results due to sales transactions to Viterra both before and after the effective date of the amendment.
For the 2012 annual reporting period, and between the period of January 1, 2013 and April 30, 2013, CFL selling prices were based on production cost plus an agreed-upon margin.
Starting on April 30, 2013, CFL became a wholly-owned subsidiary of CF Industries. Once CFL became a wholly-owned subsidiary, CF industries began purchasing all of the output of CFL for resale and reported those sales in its consolidated financial statements at market prices.
As a result, the consolidated financial results for 2014 included twelve months of market-based selling prices, while 2013 included four months of selling prices based on production cost plus an agreed-upon margin and eight months of market-based selling prices. The 2012 annual period included twelve months of selling prices based upon production cost plus an agreed-upon margin. These changes affect the year-over-year comparability of net sales, gross margin, operating earnings, earnings before income taxes and net earnings attributable to noncontrolling interest, but do not impact the comparability of our net earnings attributable to common stockholders or net cash flows for the same period.

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CF INDUSTRIES HOLDINGS, INC.

In order to provide comparable information for the periods presented, certain financial information is being provided for the prior year comparable periods adjusted as if the current year of twelve months of market-based selling prices had been used in the prior year comparable periods.
We report our consolidated financial results in accordance with U.S. GAAP. Management believes that the presentation in this report of non-GAAP financial measures of certain adjusted data and the period-to-period percentage changes in such measures, provides investors with additional meaningful information to assess period-to-period changes in our underlying operating performance. This information includes consolidated net sales, gross margin, net earnings attributable to noncontrolling interest, in addition to segment net sales, gross margin, gross margin as a percentage of net sales, and average selling prices per ton of ammonia and granular urea presented on an as adjusted basis as if all CFL sales to the noncontrolling interest had been priced based on market-based selling prices for the twelve months of 2013 and 2012. These non-GAAP financial measures are provided only for the purpose of facilitating comparisons between the periods' operating performance, and do not purport to represent what our actual consolidated results of operations would have been, nor are they necessarily indicative of our future consolidated results of operations. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results prepared in accordance with U.S. GAAP.
Net Operating Loss (NOL) Settlement
At the time of our initial public offering (IPO) in 2005, we had accumulated a substantial amount of NOLs. Due to the uncertainty of realizing the tax benefit from the NOLs when we ceased to be a non-exempt cooperative for income tax purposes and became a public company, a full valuation allowance was recorded against the benefit of those NOLs. At that time, we entered into an agreement (NOL Agreement) with the pre-IPO owners under which they would benefit should any of the pre-IPO NOLs be realized in future years by using the NOLs to offset post-IPO taxable income. If this were to occur, we would pay the pre-IPO owners amounts equal to the resulting federal and state income taxes actually saved. As of December 31, 2012, the NOLs had a potential tax benefit of $94.3 million, which had been fully reserved by the valuation allowance.
In January 2013, we and the pre-IPO owners amended the NOL Agreement to provide, among other things, that we would be entitled to retain 26.9% of any settlement realized and 73.1% would be payable to them.
In March 2013, we entered into a closing agreement with the Internal Revenue Service (IRS) to resolve the tax treatment of the pre-IPO NOLs. Pursuant to the closing agreement, we agreed with the IRS that we will be entitled to a tax deduction equal to a portion of the NOLs over five years commencing with the 2012 tax year. The $20.6 million net benefit from this NOL settlement was recognized in the first quarter of 2013 as follows:
NOL tax benefits of $75.8 million were recognized, which reduced income tax expense.
A charge of $55.2 million was recognized for the 73.1% portion of the NOL benefit that will be paid to the pre-IPO owners as the tax benefits are realized. The $55.2 million charge was recognized in the consolidated statement of operations in other non-operating—net.
Financial Executive Summary
We reported net earnings of $1.4 billion in 2014, compared to net earnings of $1.5 billion in 2013, or a decline of $74.3 million or 5%. Diluted earnings per share attributable to common stockholders increased 9% to $27.08 per share in 2014 from $24.74 per share in 2013 as the impact of lower average shares outstanding in 2014 due to our share repurchase program offset the impact of lower net earnings. During 2014, we repurchased 7.7 million shares of our common stock representing 14% of the prior year end outstanding shares, at a cost of $1.9 billion.
The 2014 reported results were significantly impacted by the sale of the Company’s phosphate business as the gain on the sale of this business partially offset a decline in operating results from our continuing Nitrogen Product Segments.  In the first quarter of 2014, the Company sold its phosphate business and recognized a pre-tax gain of $750.1 million ($462.8 million after tax) on the sale of this business.
Our gross margin declined by $741.7 million, or 29%, to $1.8 billion in 2014 from $2.5 billion in 2013. The impact of the sale of the phosphate business reduced gross margin by $64.8 million while the decline in the Nitrogen Product Segments reduced gross margin by $676.9 million, or 28%. The decline in the Nitrogen Product Segments was due primarily to lower average selling prices, higher natural gas costs, and the impact of mark-to-market losses on natural gas derivatives.
Average selling prices in the Nitrogen Product Segments declined by 4% in 2014 as compared to 2013, which reduced gross margins by $358.9 million. The decline in selling prices was primarily attributable to lower

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CF INDUSTRIES HOLDINGS, INC.

ammonia prices due to high producer inventory levels entering into 2014 and lower UAN pricing due to customer’s preferences for attractively priced ammonia.
Higher physical natural gas costs, partially offset by realized natural gas derivative impacts, reduced gross margin by $122.3 million as the extremely cold winter weather in North America at the beginning of 2014 caused a spike in natural gas costs that tempered as the year progressed, but remained above 2013 levels for the entire year.
Unrealized mark-to-market activity on natural gas derivatives decreased gross margin between the periods by $132.4 million as 2014 included a $79.5 million loss and 2013 included a $52.9 million gain.
Selling, general and administrative expenses declined by $14.1 million, or 8% to $151.9 million in 2014 from $166.0 million in 2013 due to lower incentive compensation costs in 2014 and lower expenditures for certain corporate activities such as information technology projects.
Other operating expenses increased by $69.1 million from $15.8 million of income in 2013 to expense of $53.3 million in 2014. The increased expense was due primarily to losses on foreign currency derivatives contracts resulting from a strengthening U.S. dollar and from increases in certain expenses related to our capacity expansion projects that do not qualify for capitalization. The derivative contracts are used to hedge our European euro exposure on equipment purchases relating to our capacity expansion projects in Donaldsonville, Louisiana and Port Neal, Iowa.
Net interest expense increased by $29.8 million to $177.3 million in 2014 from $147.5 million in 2013 due primarily to the interest expense on the $1.5 billion of senior notes issued during the first quarter of 2014 and the $1.5 billion of senior notes issued during the second quarter of 2013. This increase was partially offset by increased capitalized interest of $74.2 million in 2014 primarily related to our capacity expansion projects compared to $26.7 million in 2013.
Net cash provided by operating activities in 2014 was $1.4 billion as compared to $1.5 billion in 2013. The $58.2 million decrease in net cash provided by operating activities resulted from lower earnings from core operating activities partially offset by favorable working capital changes during 2014 versus 2013. The lower earnings from core operating activities were primarily the result of the $741.7 million decline in gross margin. Partially offsetting the decline in gross margin, $638.6 million less was invested in net working capital than in 2013. Improvements in working capital during 2014 were due to a combination of higher customer advances, lower inventory levels and lower amounts paid for income taxes in 2014 as compared in 2013. Customer advances are higher in anticipation of a busy spring 2015 application season combined with tighter North American nitrogen fertilizer supply compared to the prior year period.
Net cash used in investing activities was $343.5 million in 2014 compared to $1,019.3 million in 2013. During 2014, we spent $1.8 billion on capital expenditures primarily related to the capacity expansion projects, partially offset by the proceeds of $1.4 billion we received from the sale of phosphate business. In 2013, we spent $823.8 million in capital expenditures and made a $154.0 million deposit in a restricted cash account, both primarily related to the major capacity expansion projects at our Donaldsonville, Louisiana and Port Neal, Iowa facilities.
We are currently constructing new ammonia and urea/UAN plants at our Donaldsonville, Louisiana complex and new ammonia and urea plants at our Port Neal, Iowa complex that are referred to as our capacity expansion projects. As discussed in the Liquidity and Capital Resources section of this Management Discussion and Analysis, the aggregate cost estimate for the total projects has increased just under 10% from the original $3.8 billion to approximately $4.2 billion.
The following is a summary of certain significant items that impacted the consolidated financial results in 2014, 2013 and 2012:
Net earnings attributable to common stockholders of $1.4 billion for 2014 included a $750.1 million pre-tax gain ($462.8 million after tax) on the sale of the phosphate business, a $79.5 million unrealized net mark-to-market loss ($50.1 million after tax) on natural gas derivatives, $30.7 million of expenses ($19.4 million after tax) related to our capacity expansion projects in Donaldsonville, Louisiana and Port Neal, Iowa, a $38.4 million ($24.2 million after tax) realized and unrealized net losses on foreign currency derivatives and $13.1 million ($8.2 million after tax) of retirement benefits settlement charges. During 2014, we repurchased 7.7 million shares of our common stock at an average price of $250 per share representing 14% of the prior year end's outstanding shares at a cost of $1.9 billion.

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CF INDUSTRIES HOLDINGS, INC.

In 2013, we reported net earnings attributable to common stockholders of $1.5 billion. Our 2013 results included a $52.9 million pre-tax unrealized net mark-to-market gain ($33.5 million after tax) on natural gas derivatives, $10.8 million of expenses ($6.8 million after tax) related to our capacity expansion projects, $20.8 million ($13.2 million after tax) of realized and unrealized net gains on foreign currency derivatives and a net $20.6 million benefit from a settlement with the IRS concerning certain pre-IPO NOLs. During 2013, we repurchased 7.3 million shares of our common stock at an average price of $197 representing 12% of the prior year end's outstanding shares at a cost of $1.4 billion.
In 2012, we reported net earnings attributable to common stockholders of $1.8 billion which included a $66.5 million pre-tax unrealized net mark-to-market gain ($41.2 million after tax) on natural gas derivatives, $8.1 million of realized and unrealized net gains ($5.0 million after tax) on foreign currency derivatives, a $15.2 million charge ($9.4 million after tax) for the accelerated amortization of deferred loan fees on our 2010 credit agreement that we replaced in May 2012 and a $10.9 million pre-tax curtailment gain ($6.8 million after tax) from a reduction in certain retiree medical benefits. During 2012, we repurchased 3.1 million shares of our common stock at an average price of $164 representing 5% of the prior year end's outstanding shares at a cost of $0.5 billion.
Key Industry Factors
We operate in a highly competitive, global industry. Our agricultural products are globally-traded commodities and, as a result, we compete principally on the basis of delivered price and to a lesser extent on customer service and product quality. Moreover, our operating results are influenced by a broad range of factors, including those outlined below.
Global Supply & Demand
Historically, global fertilizer demand has been driven primarily by population growth, changes in dietary habits and planted acreage, and application rates, among other things. We expect these key variables to continue to have major impacts on long-term fertilizer demand for the foreseeable future. Short-term fertilizer demand depends on global economic conditions, weather patterns, the level of global grain stocks relative to consumption, federal regulations, including requirements mandating increased use of bio-fuels and farm sector income. Other geopolitical factors like temporary disruptions in fertilizer trade related to government intervention or changes in the buying/selling patterns of key exporting/consuming countries such as China, India and Brazil, among others, often play a major role in shaping near-term market fundamentals. The economics of fertilizer manufacturing play a key role in decisions to increase or reduce production capacity. Supply of fertilizers is generally driven by available capacity and operating rates, raw material costs, availability of raw materials, government policies and global trade.
Natural Gas Prices
Natural gas is the principal raw material used to produce nitrogen fertilizers. We use natural gas both as a chemical feedstock and as a fuel to produce ammonia, granular urea, UAN and other nitrogen products. Because most of our nitrogen fertilizer manufacturing facilities are located in the United States and Canada, the price of natural gas in North America directly impacts a substantial portion of our operating expenses. Due to increases in natural gas production resulting from the rise in production from shale gas formations, natural gas prices in North America declined over the past several years, but are subject to volatility. During the three year period ended December 31, 2014, the daily closing price at the Henry Hub reached a high of $7.94 per MMBtu on March 5, 2014 and a low of $1.84 per MMBtu on April 20, 2012. Natural gas costs, including the impact of realized natural gas derivatives, rose 16% in 2014 from 2013. Expenditures on natural gas represent a significant portion of our production costs. For example, natural gas costs, including realized gains and losses, comprised approximately 52% of our Nitrogen Product Segments total production costs in 2014.
Farmers' Economics
The demand for fertilizer is affected by the aggregate crop planting decisions and fertilizer application rate decisions of individual farmers. Individual farmers make planting decisions based largely on prospective profitability of a harvest, while the specific varieties and amounts of fertilizer they apply depend on factors like their current liquidity, soil conditions, weather patterns, crop prices and the types of crops planted.

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CF INDUSTRIES HOLDINGS, INC.

Global Trade in Fertilizer
In addition to the relationship between global supply and demand, profitability within a particular geographic region is determined by the supply/demand balance within that region. Regional supply and demand can be influenced significantly by factors affecting trade within regions. Some of these factors include the relative cost to produce and deliver product, relative currency values, the availability of credit and governmental policies affecting trade and other matters. The development of additional natural gas reserves in North America over the last few years has decreased natural gas costs relative to the rest of the world, making North American nitrogen fertilizer producers more competitive. These lower natural gas costs contributed to announcements of several nitrogen fertilizer capacity expansion projects in North America. Changes in currency values may also alter our cost competitiveness relative to producers in other regions of the world.
Imports account for a significant portion of the nitrogen fertilizer consumed in North America. Producers of nitrogen-based fertilizers located in the Middle East, Ukraine, Republic of Trinidad and Tobago, Venezuela, North Africa, Russia and China are major exporters to North America.
Government Policies
The policies of governments around the world can result in restrictions on imports and exports, the subsidization of natural gas prices, the subsidization of domestic producers and the subsidization of exports. Due to the critical role that fertilizers play in food production, the construction and operation of fertilizer plants often are influenced by political and social objectives.
Ethanol Industry and the Renewable Fuel Standard
Corn used to produce ethanol accounts for approximately 38% of total U.S. corn demand. U.S. government policy, as expressed in the Renewable Fuel Standard (RFS), is a major determinant for the ethanol market. The RFS establishes minimum volumes of various types of renewable fuels, including ethanol, that must be included in the United States’ supply of fuel for transportation. For 2015, the Environmental Protection Agency (EPA) has yet to determine the RFS resulting in uncertainty for ethanol demand. In addition, Congress, at various times, has proposed legislation to either reduce or eliminate the RFS. While past legislation proposing changes to the RFS has not passed, there can be no assurance that future legislation will not be passed into law. Other factors that drive the ethanol market include the prices of ethanol, gasoline and corn. Lower gasoline prices may put pressure on ethanol prices that could result in reduced profitability and lower production for the ethanol industry.
Factors Affecting Our Results
Net Sales.    Our net sales are derived primarily from the sale of nitrogen fertilizers and are determined by the quantities of fertilizers we sell and the selling prices we realize. The volumes, mix and selling prices we realize are determined to a great extent by a combination of global and regional supply and demand factors. Net sales also include shipping and handling costs that are billed to our customers. Sales incentives are reported as a reduction in net sales.
Cost of Sales.    Our cost of sales includes manufacturing costs, purchased product costs, and distribution costs. Manufacturing costs, the most significant element of cost of sales, consist primarily of raw materials, realized and unrealized gains and losses on natural gas derivative instruments, maintenance, direct labor, depreciation and other plant overhead expenses. Purchased product costs primarily include the cost to purchase nitrogen fertilizers to augment or replace production at our facilities. Distribution costs include the cost of freight required to transport finished products from our plants to our distribution facilities and storage costs incurred prior to final shipment to customers.
We offer our customers the opportunity to purchase products from us on a forward basis at prices and on delivery dates we propose. As our customers enter into forward nitrogen fertilizer purchase contracts with us, we often use derivative instruments to reduce our exposure to changes in the cost of natural gas, the largest and most volatile component of our manufacturing costs for nitrogen-based fertilizer. We report our natural gas derivatives on the consolidated balance sheets at their fair value. Changes in the fair value of these derivatives are recorded in cost of sales as the changes occur. See "Forward Sales and Customer Advances" later in this discussion and analysis. As a result of fixing the selling prices of our products, often months in advance of their ultimate delivery to customers, our reported selling prices and margins may differ from market spot prices and margins available at the time of shipment. Volatility in quarterly reported earnings also may arise from the unrealized mark-to-market adjustments in the value of derivatives.
Selling, General and Administrative Expenses.    Our selling, general and administrative expenses consist primarily of corporate office expenses such as salaries and other payroll-related costs for our executive, administrative, legal, financial and marketing functions, as well as certain taxes and insurance and other professional service fees, including those for corporate initiatives.

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CF INDUSTRIES HOLDINGS, INC.

Other Operating—Net.    Other operating—net includes the costs associated with engineering studies for proposed capital projects, administrative costs associated with our capacity expansion projects, and other costs that do not relate directly to our central operations. Costs included in "other costs" can include foreign exchange gains and losses, unrealized gains and losses on foreign currency derivatives, costs associated with our closed facilities, amounts recorded for environmental remediation for other areas of our business, litigation expenses and gains and losses on the disposal of fixed assets.
Equity in Earnings of Operating Affiliates.    We have investments accounted for under the equity method for which the results are included in our operating earnings. These consist of the following: (1) 50% ownership interest in PLNL and (2) 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 investments provide additional production and storage capacity to our operations and are integrated with our other supply chain and sales activities in the Nitrogen Product Segments. Our share of the net earnings includes the amortization of certain tangible and intangible assets identified as part of the application of purchase accounting at acquisition.
Interest Expense.    Our interest expense includes the interest on our long-term debt, amortization of the related fees required to execute financing agreements and annual fees on our senior revolving credit facility. Capitalized interest relating to the construction of major capital projects reduces interest expense as the interest is capitalized and amortized over the estimated useful lives of the facility along with all other construction costs.
Interest Income.    Our interest income represents amounts earned on our cash, cash equivalents, investments and advances to unconsolidated affiliates.
Income Tax Provision.    Our income tax provision includes all currently payable and deferred United States and foreign income tax expense applicable to our ongoing operations.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those differences are projected to be recovered or settled. Realization of deferred tax assets is dependent on our ability to generate sufficient taxable income, of an appropriate character, in future periods. A valuation allowance is established if it is determined to be more likely than not that a deferred tax asset will not be realized. Interest and penalties related to unrecognized tax benefits are reported as interest expense and income tax expense, respectively.
Equity in Earnings of Non-Operating Affiliates—Net of Taxes.    Equity in earnings of non-operating affiliates—net of taxes represents our share of the net earnings of the entities that we account for using the equity method and exclude from operating earnings. Income taxes related to these investments, if any, are reflected in this line. The amounts recorded as equity in earnings of non-operating affiliates—net of taxes relate to our investments in GrowHow and Keytrade. Our share of the net earnings includes the amortization of certain tangible and intangible assets identified as part of the application of purchase accounting at acquisition. 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 provide additional production capacity to us, nor are these operations integrated within our supply chain.
Net Earnings Attributable to Noncontrolling Interest.    Net earnings attributable to noncontrolling interest include the net earnings attributable to the 24.7% interest of the publicly-held common units of TNCLP. Net earnings attributable to noncontrolling interest for the first four months of 2013 and all of 2012 also included the interest of the 34% holder of CFL's equity ownership. On April 30, 2013, we purchased the noncontrolling interests of CFL.
We own an aggregate 75.3% of TNCLP and outside investors own the remaining 24.7%. The TNCLP Agreement of Limited Partnership allows the General Partner to receive Incentive Distribution Rights once a minimum distribution threshold has been met. Partnership interests in TNCLP are traded on the NYSE and TNCLP is separately registered with the SEC.

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CF INDUSTRIES HOLDINGS, INC.

Results of Consolidated Operations
The following table presents our consolidated results of operations:
 
Year Ended December 31,
 
2014
 
2013
 
2012
 
2014 v. 2013
 
2013 v. 2012
 
(in millions, except as noted)
Net sales
$
4,743.2

 
$
5,474.7

 
$
6,104.0

 
$
(731.5
)
 
(13
)%
 
$
(629.3
)
 
(10
)%
Cost of sales
2,964.7

 
2,954.5

 
2,990.7

 
10.2

 
 %
 
(36.2
)
 
(1
)%
Gross margin
1,778.5

 
2,520.2

 
3,113.3

 
(741.7
)
 
(29
)%
 
(593.1
)
 
(19
)%
Gross margin percentage
37.5
%
 
46.0
%
 
51.0
%
 
(8.5
)%
 
 
 
(5.0
)%
 
 
Selling, general and administrative expenses
151.9

 
166.0

 
151.8

 
(14.1
)
 
(8
)%
 
14.2

 
9
 %
Other operating—net
53.3

 
(15.8
)
 
49.1

 
69.1

 
N/M

 
(64.9
)
 
(132
)%
Total other operating costs and expenses
205.2

 
150.2

 
200.9

 
55.0

 
37
 %
 
(50.7
)
 
(25
)%
Gain on sale of phosphate business
750.1

 

 

 
750.1

 
N/M

 

 
N/M

Equity in earnings of operating affiliates
43.1

 
41.7

 
47.0

 
1.4

 
3
 %
 
(5.3
)
 
(11
)%
Operating earnings
2,366.5

 
2,411.7

 
2,959.4

 
(45.2
)
 
(2
)%
 
(547.7
)
 
(19
)%
Interest expense—net
177.3

 
147.5

 
131.0

 
29.8

 
20
 %
 
16.5

 
13
 %
Other non-operating—net
1.9

 
54.5

 
(1.1
)
 
(52.6
)
 
(97
)%
 
55.6

 
N/M

Earnings before income taxes and equity in earnings of non-operating affiliates
2,187.3

 
2,209.7

 
2,829.5

 
(22.4
)
 
(1
)%
 
(619.8
)
 
(22
)%
Income tax provision
773.0

 
686.5

 
964.2

 
86.5

 
13
 %
 
(277.7
)
 
(29
)%
Equity in earnings of non-operating affiliates—net of taxes
22.5

 
9.6

 
58.1

 
12.9

 
134
 %
 
(48.5
)
 
(83
)%
Net earnings
1,436.8

 
1,532.8

 
1,923.4

 
(96.0
)
 
(6
)%
 
(390.6
)
 
(20
)%
Less: Net earnings attributable to noncontrolling interest
46.5

 
68.2

 
74.7

 
(21.7
)
 
(32
)%
 
(6.5
)
 
(9
)%
Net earnings attributable to common stockholders
$
1,390.3

 
$
1,464.6

 
$
1,848.7

 
$
(74.3
)
 
(5
)%
 
$
(384.1
)
 
(21
)%
Diluted net earnings per share attributable to common stockholders
$
27.08

 
$
24.74

 
$
28.59

 
$
2.34

 
 

 
$
(3.85
)
 
 

Diluted weighted-average common shares outstanding           
51.3

 
59.2

 
64.7

 
(7.9
)
 
 

 
(5.5
)
 
 

Dividends declared per common share
$
5.00

 
$
2.20

 
$
1.60

 
$
2.80

 
 

 
$
0.60

 
 

Supplemental Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchased natural gas costs (per MMBtu)(1)
$
4.49

 
$
3.64

 
$
2.81

 
$
0.85

 
 
 
$
0.83

 
 
Realized derivatives (gain) loss (per MMBtu)(2)
(0.24
)
 
0.02

 
0.58

 
(0.26
)
 
 
 
(0.56
)
 
 
Cost of natural gas (per MMBtu)
$
4.25

 
$
3.66

 
$
3.39

 
$
0.59

 
16
 %
 
$
0.27

 
8
 %
Average daily market price of natural gas (per MMBtu) Henry Hub (Louisiana)
$
4.32

 
$
3.72

 
$
2.75

 
$
0.60

 
16
 %
 
$
0.97

 
35
 %
Capital expenditures
$
1,808.5

 
$
823.8

 
$
523.5

 
$
984.7

 
120
 %
 
$
300.3

 
57
 %
Production volume by product tons (000s):
 
 
 
 
 
 
 
 
 
 
 
 
 
      Ammonia(3)
7,011

 
7,105

 
7,067

 
(94
)
 
(1
)%
 
38

 
1
 %
      Granular urea
2,347

 
2,474

 
2,560

 
(127
)
 
(5
)%
 
(86
)
 
(3
)%
      UAN (32%)
5,939

 
6,332

 
6,027

 
(393
)
 
(6
)%
 
305

 
5
 %
_______________________________________________________________________________
N/M—Not Meaningful
(1) 
Includes the cost of natural gas purchased during the period for use in production.
(2) 
Includes the impact of gains and losses on natural gas derivatives that were settled and realized during the period. Excludes the unrealized mark-to-market gains and losses on natural gas derivatives.
(3) 
Gross ammonia production, including amounts subsequently upgraded on-site into urea and/or UAN.



36


CF INDUSTRIES HOLDINGS, INC.

Impact of CFL Selling Price Modifications
As discussed in the Items Affecting Comparability of Results section of this discussion and analysis, on April 30, 2013, CF Industries acquired the noncontrolling interests in CFL and CFL became a wholly-owned subsidiary of CF Industries. As a result, the consolidated financial results for 2014 included twelve months of market-based selling prices, while 2013 included four months of selling prices based on production cost plus an agreed-upon margin and eight months of market-based selling prices. The 2012 annual period included twelve months of selling prices based upon production cost plus an agreed-upon margin. These changes affect the year-over-year comparability of net sales, gross margin, operating earnings, earnings before income taxes and net earnings attributable to noncontrolling interest, but do not impact the comparability of our net earnings attributable to common stockholders or net cash flows for the same period. 
The following table adjusts the results for 2013 and 2012 to market-based selling prices for the full year to be on a comparable basis with 2014.
 
Year Ended December 31,
 
2014
 
2013
 
2012
 
2014 v. 2013
 
2013 v. 2012
 
(in millions, except percentages)
Net sales
 

 
 

 
 

 
 

 
 

 
 

 
 

As reported
$
4,743.2

 
$
5,474.7

 
$
6,104.0

 
$
(731.5
)
 
(13
)%
 
$
(629.3
)
 
(10
)%
Impact of selling price adjustment

 
71.1

 
193.8

 
(71.1
)
 
 

 
(122.7
)
 
 

As adjusted
$
4,743.2

 
$
5,545.8

 
$
6,297.8

 
$
(802.6
)
 
(14
)%
 
$
(752.0
)
 
(12
)%
Gross margin
 

 
 

 
 

 
 

 
 

 
 

 
 

As reported
$
1,778.5

 
$
2,520.2

 
$
3,113.3

 
$
(741.7
)
 
(29
)%
 
$
(593.1
)
 
(19
)%
Impact of selling price adjustment

 
71.1

 
193.8

 
(71.1
)
 
 

 
(122.7
)
 
 

As adjusted
$
1,778.5

 
$
2,591.3

 
$
3,307.1

 
$
(812.8
)
 
(31
)%
 
$
(715.8
)
 
(22
)%
Net earnings attributable to noncontrolling interest
 

 
 

 
 

 
 

 
 

 
 

 
 

As reported
$
46.5

 
$
68.2

 
$
74.7

 
$
(21.7
)
 
(32
)%
 
$
(6.5
)
 
(9
)%
Impact of selling price adjustment

 
71.1

 
193.8

 
(71.1
)
 
 

 
(122.7
)
 
 

As adjusted
$
46.5

 
$
139.3

 
$
268.5

 
$
(92.8
)
 
(67
)%
 
$
(129.2
)
 
(48
)%
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Consolidated Operating Results
During the third quarter of 2014, we adopted a new segment reporting structure that includes the following five segments: ammonia, granular urea, UAN, other, and phosphate. The ammonia, granular urea, UAN and other segments are referred to in this discussion and analysis as the “Nitrogen Product Segments.”
Our total gross margin declined by $741.7 million, or 29%, to $1.8 billion in 2014 from $2.5 billion in 2013. The sale of the phosphate business reduced gross margin between the periods by $64.8 million as the business was sold in the first quarter of 2014, but had reported results in both the first six months of 2014 and the entire year in 2013. Gross margin for the Nitrogen Product Segments declined by $676.9 million, or 28%. This decline in gross margin is due primarily to the following factors:
Average selling prices in the Nitrogen Product Segments declined by 4%, which reduced gross margin by $358.9 million.
Sales volume in the Nitrogen Product Segments increased by 3%, which increased gross margin by $73.5 million.
Higher natural gas costs reduced gross margin by $122.3 million.
Unrealized net mark-to-market losses on natural gas derivatives decreased gross margin by $132.4 million as 2014 included a $79.5 million loss and 2013 included a $52.9 million gain.
Other production costs, including production outage related expenses, and distribution and storage expenses increased compared to the prior year.

37


CF INDUSTRIES HOLDINGS, INC.

Net earnings attributable to common stockholders of $1.4 billion for 2014 included a $750.1 million pre-tax gain ($462.8 million after tax) on the sale of the phosphate business, $79.5 million unrealized net mark-to-market loss ($50.1 million after tax) on natural gas derivatives, $30.7 million of expenses ($19.4 million after tax) related to our capacity expansion projects in Donaldsonville, Louisiana and Port Neal, Iowa, $38.4 million ($24.2 million after tax) realized and unrealized net losses on foreign currency derivatives and $13.1 million ($8.2 million after tax) of retirement benefits settlement charges. Net earnings in 2013 of $1.5 billion included a $52.9 million unrealized net mark-to-market gain ($33.5 million after tax) on natural gas derivatives, $10.8 million of expenses ($6.8 million after tax) related to our capacity expansion projects, a $20.8 million ($13.2 million after tax) realized and unrealized net gains on foreign currency derivatives and a net $20.6 million benefit from a settlement with the IRS concerning certain pre-IPO NOLs.
Net Sales
Net sales decreased $731.5 million, or 13%, to $4.7 billion in 2014 compared to $5.5 billion in 2013. These results were impacted by the CFL selling price modifications in the prior year. On an as adjusted basis, 2014 net sales decreased 14% compared to 2013. The $731.5 million decrease in net sales is attributable to a $103.0 million decrease in the Nitrogen Product Segments and a $628.5 million decrease in the phosphate segment due to the sale of the phosphate business in March 2014.
Nitrogen Product Segments net sales decreased $103.0 million, or 2%, due primarily to a 4% decline in average selling prices partially offset by a 3% increase in sales volume. Nitrogen Product Segments average selling prices declined due primarily to lower ammonia and UAN selling prices compared to the prior year period. Ammonia prices were lower due primarily to the higher producer inventory levels that carried over from the end of 2013 as compared to the previous year as a result of the shortened 2013 fall ammonia application season caused by cold weather conditions. The decline in UAN prices was due primarily to customer preferences for attractively priced ammonia during the extended spring ammonia application season in 2014.
Nitrogen Product Segments sales volume increased due primarily to increased sales of ammonia and increased sales in the other segment, mainly AN and DEF. Ammonia volume benefited this year from a combination of attractive pricing compared to other forms of nitrogen fertilizer, favorable weather conditions that resulted in an extended spring application season, and effective utilization of our terminal and logistics system to resupply in advance of periods of high demand. In addition, sales to Mosaic under our ammonia supply contract from our PLNL joint venture also increased volume compared to the prior year period. Other segment sales volume increased due to higher AN exports and increased late season AN fertilizer demand compared to the prior year period. DEF volume increased along with the growing North American DEF market.
Cost of Sales
Total cost of sales increased $10.2 million from 2013 to 2014 due primarily to higher Nitrogen Product Segments cost of sales partially offset by the sale of the phosphate business in March 2014. Total cost of sales per ton in our Nitrogen Product Segments averaged $211 per ton in 2014 compared to $172 per ton in 2013. This 23% increase was due primarily to higher natural gas costs and higher other production costs. Total realized gas costs increased 16%. Natural gas costs for the current year also included a $79.5 million unrealized net mark-to-market loss on natural gas derivatives and 2013 included a $52.9 million gain. Additionally, we incurred higher other production costs, including production outage related expenses, and distribution and storage expenses compared to the prior year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $14.1 million to $151.9 million in 2014 from $166.0 million in 2013. The decrease was due primarily to lower incentive compensation costs and lower corporate office costs for certain corporate activities such as information technology projects.
Other Operating—Net
Other operating—net changed by $69.1 million from $15.8 million of income in 2013 to expense of $53.3 million in 2014. The increased expense was due primarily to $38.4 million of losses on foreign currency derivatives in 2014 compared to $20.8 million of gains in 2013. Additionally, expenses related to the capacity expansion projects in Donaldsonville, Louisiana and Port Neal, Iowa that did not qualify for capitalization increased by $19.9 million between the years.

38


CF INDUSTRIES HOLDINGS, INC.

Phosphate Business Disposition
In March 2014, we completed the sale of the Company’s phosphate mining and manufacturing business to Mosaic pursuant to the terms of an Asset Purchase Agreement dated as of October 28, 2013, among the Company, CF Industries and Mosaic for approximately $1.4 billion in cash. In 2014, we recognized pre-tax and after-tax gains on the sale of the phosphate business of $750.1 million and $462.8 million, respectively.
Equity in Earnings of Operating Affiliates
Equity in earnings of operating affiliates consists of our 50% share of the operating results of PLNL and our 50% interest in an ammonia storage joint venture located in Houston, Texas. Equity in earnings of operating affiliates was $43.1 million in 2014 as compared to $41.7 million in 2013. The increase was due primarily to improved operating results from PLNL.
Interest—Net
Net interest expense was $177.3 million in 2014 compared to $147.5 million in 2013. The $29.8 million increase in net interest expense was due primarily to the interest expense on the $1.5 billion of senior notes issued during the first quarter of 2014 and the $1.5 billion of senior notes issued during the second quarter of 2013. This increase was partially offset by capitalized interest of $74.2 million in 2014 primarily related to our capacity expansion projects compared to $26.7 million in 2013.
Other Non-Operating—Net
Other non-operating-net was a $1.9 million expense in 2014 compared to expense of $54.5 million in 2013. As discussed under Items Affecting Comparability of Results-Net Operating Loss Settlement, in 2013, a charge of $55.2 million was recognized for the 73.1% portion of the NOLs we had accumulated prior to our 2005 public offering that will be paid to pre-IPO owners as NOL tax benefits are realized.
Income Taxes
Our income tax provision for 2014 was $773.0 million on pre-tax income of $2.2 billion, or an effective tax rate of 35.3%, compared to an income tax provision of $686.5 million on pre-tax income of $2.2 billion, or an effective tax rate of 31.1% in the prior year. The primary increase in the effective tax rate in 2014 was due to the fact that we recognized a tax benefit in 2013 for the impact of our closing agreement with the IRS (2.2%), enabling us to utilize a portion of our pre-IPO NOLs. The current year effective tax rate is also impacted by reduced tax benefits from depletion (1.1%) related to our disposed phosphate business. The income tax provision in 2014 includes $287.3 million of income tax expense relating to the phosphate business sale, which increased the effective tax rate by 1.5%.
The effective tax rate does not reflect a tax provision on the earnings attributable to noncontrolling interest in TNCLP (a partnership), which is not a taxable entity. For additional information on income taxes, see Note 12—Income Taxes to our consolidated financial statements included in Item 8 of this report.
Equity in Earnings of Non-Operating Affiliates—Net of Taxes
Equity in earnings of non-operating affiliates—net of taxes consists of our share of the operating results of unconsolidated joint venture interests in GrowHow and Keytrade. The $12.9 million increase in 2014 compared to 2013 was due primarily to increased earnings from GrowHow reflecting lower natural gas prices in the United Kingdom and improved trading performance at Keytrade.
Net Earnings Attributable to Noncontrolling Interest
Net earnings attributable to noncontrolling interest decreased $21.7 million in 2014 compared to 2013 due primarily to lower net earnings attributable to the 24.7% interest of the publicly-held common units of TNCLP.
Diluted Net Earnings Per Share Attributable to Common Stockholders
Diluted net earnings per share attributable to common stockholders increased to $27.08 in 2014 from $24.74 in 2013 due primarily to the gain on the phosphate business sale and a lower weighted-average number of outstanding shares due to the impact of share repurchase programs. We repurchased 7.7 million shares in 2014 for $1.9 billion, or an average cost of $250 per share. The total shares repurchased during 2014 represent 14% of the shares outstanding as of December 31, 2013.

39


CF INDUSTRIES HOLDINGS, INC.

Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Consolidated Operating Results
Net sales and net earnings for 2013 declined in both the Nitrogen Product Segments and the phosphate segment from prior year levels. These declines were due to increased supply and weakness in global fertilizer markets. Higher exports by Chinese producers increased supply and weighed on global nitrogen prices, while weaker demand from India had a similar impact on phosphate prices. North American demand in 2013 for both the nitrogen and the phosphate fertilizers was impacted by a delayed fall application period due to a late harvest and a narrow application window due to adverse weather in the Midwest. Additionally, an 8% increase in realized natural gas costs contributed to lower earnings in 2013 compared to 2012.
Our total gross margin decreased by $593.1 million, or 19%, to $2.5 billion in 2013 from $3.1 billion in 2012 reflecting declines in the Nitrogen Product Segments and the phosphate segment. The consolidated gross margin was impacted by the CFL selling price modifications previously discussed. On an as adjusted basis, the gross margin decreased 22% from the prior year.
In the Nitrogen Product segments, the gross margin decreased by $468.3 million, or 16%, to $2.4 billion as compared to $2.9 billion in 2012 due primarily to an 8% decrease in average selling prices, an 8% increase in realized natural gas costs, and a $13.6 million decrease in net unrealized mark-to-market gains on natural gas derivatives in 2013 as compared to 2012. The Nitrogen Product Segments gross margin was impacted by the CFL sales price modifications.
In the phosphate segment, gross margin decreased by $124.8 million, or 62%, to $74.9 million in 2013 from $199.7 million in 2012, due primarily to a 13% decline in average selling prices and a 9% decrease in sales volume.
Net earnings attributable to common stockholders of $1.5 billion for 2013 included $52.9 million of pre-tax unrealized mark-to-market gains ($33.5 million after tax) on natural gas derivatives, $10.8 million of expenses ($6.8 million after tax) related to our capacity expansion projects, $20.8 million ($13.2 million after tax) of realized and unrealized net gains on foreign currency derivatives and a net $20.6 million benefit from a settlement with the IRS concerning certain pre-IPO NOLs. Net earnings in 2012 of $1.8 billion included $66.5 million of pre-tax unrealized net mark-to-market gain ($41.2 million after tax) on natural gas derivatives, $8.1 million ($5.0 million after tax) of realized and unrealized net gains on foreign currency derivatives, a $15.2 million charge ($9.4 million after tax) for the accelerated amortization of deferred loan fees on our 2010 credit agreement that we replaced in May 2012 and a $10.9 million pre-tax curtailment gain ($6.8 million after tax) from a reduction in certain retiree medical benefits.
Net Sales
Net sales decreased $629.3 million, or 10%, to $5.5 billion in 2013 compared to $6.1 billion in 2012 with a $418.8 million decrease in the Nitrogen Product Segments and a $210.5 million decrease in the phosphate segment. These results were impacted by the CFL selling price modifications. On an as adjusted basis, consolidated 2013 net sales decreased 12% compared to 2012.
In the Nitrogen Product Segments, net sales decreased 8% due primarily to an 8% decrease in average selling prices. The decrease in prices was due primarily to increased supply from China and a shift in product mix from ammonia to UAN. The comparability of 2013 Nitrogen Product Segments net sales to 2012 was impacted by the CFL sales price modifications. In the phosphate segment, net sales declined $210.5 million, or 21%, due to a 13% decrease in average selling prices and a 9% decrease in volume. The decrease in prices was due primarily to lower global demand, notably India.
Cost of Sales
Cost of sales decreased $36.2 million, or 1%, from 2012 to 2013. Cost of sales per ton in our Nitrogen Product Segments averaged $172 in 2013, a 2% increase over a cost of sales per ton of $168 in 2012. The increase was due primarily to an 8% increase in realized natural gas costs and a $13.6 million decrease in net mark-to-market gains related to natural gas derivatives. Phosphate segment cost of sales averaged $389 per ton in 2013 compared to $397 per ton in the prior year. This 2% decrease was due primarily to reduced raw material costs, namely ammonia and sulfur.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $14.2 million to $166.0 million in 2013 from $151.8 million in 2012. The increase was due primarily to higher corporate office costs, including costs associated with certain information technology development activities, including the implementation and incremental amortization of the cost of a new enterprise resource planning system. Additionally, higher legal fees were incurred in 2013 due to strategic initiatives including the acquisition of CFL and the sale of the phosphate business.

40


CF INDUSTRIES HOLDINGS, INC.

Other Operating—Net
Other operating—net was $15.8 million of income in 2013 compared to a $49.1 million net expense in 2012. The 2013 income included $20.8 million of gains on foreign currency derivatives related to our capacity expansion projects, partially offset by $10.8 million of expenses related to our capacity expansion activities and $5.6 million of losses on the disposal of fixed assets. The expense recorded in 2012 consisted primarily of $21.9 million of costs associated with engineering studies for capacity expansion projects at various nitrogen complexes, $13.3 million of environmental and other costs associated with our closed facilities and $5.5 million of losses on the disposal of fixed assets.
Equity in Earnings of Operating Affiliates
Equity in earnings of operating affiliates consists of our 50% share of the operating results of PLNL and our 50% interest in an ammonia storage joint venture located in Houston, Texas. Equity in earnings of operating affiliates decreased 11% to $41.7 million in 2013 compared to $47.0 million in 2012 due to reduced operating results from these ventures.
Interest—Net
Net interest expense was $147.5 million in 2013 compared to $131.0 million in 2012. The $16.5 million increase was due primarily to the $1.5 billion of senior notes we issued during the second quarter of 2013, partially offset by higher capitalized interest in 2013 related to our capacity expansion projects.
Other Non‑Operating—Net
Other non‑operating—net was a $54.5 million expense in 2013 compared to income of $1.1 million in 2012. As discussed under Items Affecting Comparability of Results‑Net Operating Loss Settlement, in 2013, a charge of $55.2 million was recognized for the 73.1% portion of the NOLs we had accumulated prior to our 2005 public offering that will be paid to pre‑IPO owners as NOL tax benefits are realized.
Income Taxes
Our income tax provision for 2013 was $686.5 million on pre-tax income of $2.2 billion, or an effective tax rate of 31.1%, compared to an income tax provision of $964.2 million on pre-tax income of $2.8 billion, or an effective tax rate of 34.1% in the prior year. The effective tax rate was reduced due to an IRS tax settlement (2.2%), the impact of lower state income taxes resulting from our legal entity restructuring (1.5%) and the increased tax benefits from a depletion tax method change (0.8%), partially offset by an increased tax expense related to our future repatriation of foreign earnings (1.5%).
The effective tax rate does not reflect a tax provision on the earnings attributable to noncontrolling interest in TNCLP (a partnership), which is not a taxable entity. For additional information on income taxes, see Note 12—Income Taxes to our consolidated financial statements included in Item 8 of this report.
Equity in Earnings of Non-Operating Affiliates—Net of Taxes
Equity in earnings of non-operating affiliates—net of taxes consists of our share of the operating results of unconsolidated joint venture interests in GrowHow and Keytrade. The $48.5 million decrease in 2013 compared to 2012 was due primarily to lower earnings at GrowHow due to higher natural gas costs and lower average fertilizer selling prices in the United Kingdom.
Net Earnings Attributable to Noncontrolling Interest
Net earnings attributable to noncontrolling interest decreased $6.5 million in 2013 compared to 2012 due primarily to lower net earnings at TNCLP for the year and the April 30, 2013 purchase of the noncontrolling interests in CFL. Net earnings attributable to noncontrolling interest for 2013 and 2012 include the net earnings attributable to the 24.7% interest of the publicly-held common units of TNCLP for the entire year. For additional information, see the section titled Items Affecting Comparability of Results earlier in this discussion and analysis.
Diluted Net Earnings Per Share Attributable to Common Stockholders
Diluted net earnings per share attributable to common stockholders decreased to $24.74 in the 2013 from $28.59 in 2012 due to a decrease in net earnings attributable to common stockholders, partially offset by a decrease in the weighted-average number of shares outstanding due to our share repurchase programs. During 2013, we repurchased 7.3 million shares of our common stock for $1.4 billion, representing 12% of the shares outstanding as of December 31, 2012. During 2012, we repurchased 3.1 million shares for $500.0 million.

41


CF INDUSTRIES HOLDINGS, INC.

Operating Results by Business Segment
Our business was previously organized and managed internally based on two segments, the nitrogen segment and the phosphate segment. During the first quarter of 2014, we sold the phosphate mining and manufacturing business, which was reported in the phosphate segment. Additionally, we appointed a new President and Chief Executive Officer who is the Chief Operating Decision Maker (CODM) as defined under U.S. GAAP. Our reportable segments are based on how the CODM assesses performance and allocates resources across the business.
In the third quarter of 2014, we completed certain changes to our reporting structures that reflect how our CODM assesses the performance of our operating segments and makes decisions about resource allocation. As a result, the number of our reporting segments increased from two to five segments, consisting 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. Historical financial results have been restated to reflect the new segment structure on a comparable basis. The ammonia, granular urea, UAN and other segments are referred to in this discussion and analysis as the "Nitrogen Product Segments."
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. However, the segment will continue to be included until the reporting of comparable period phosphate results ceases. We use gross margin to evaluate segment performance and allocate resources. Total other operating costs and expenses (consisting of selling, general and administrative expenses and other operatingnet) and non‑operating expenses (interest and income taxes), are centrally managed and are not included in the measurement of segment profitability reviewed by management.
The following table presents summary operating results by business segment:
 
Ammonia
 
Granular Urea(1)
 
UAN(1)
 
Other(1)
 
Phosphate
 
Consolidated
 
(in million, except percentages)
Year ended December 31, 2014
 
 
 
 
 
 


 
 
 
 
Net sales
$
1,576.3

 
$
914.5

 
$
1,669.8

 
$
414.2

 
$
168.4

 
$
4,743.2

Cost of sales
983.2

 
516.6

 
997.4

 
309.2

 
158.3

 
2,964.7

Gross margin
$
593.1

 
$
397.9

 
$
672.4

 
$
105.0

 
$
10.1

 
$
1,778.5

Gross margin percentage
37.6
%
 
43.5
%
 
40.3
%
 
25.4
%
 
6.0
%
 
37.5
%
Year ended December 31, 2013
 

 
 

 
 

 
 

 
 

 
 

Net sales
$
1,437.9

 
$
924.6

 
$
1,935.1

 
$
380.2