Equity Method Investments

3 Months Ended

Mar. 31, 2012

Equity Method Investments

Equity Method Investments

14.   Equity Method Investments

        Equity method investments consist of the following:

	March 31, 2012		December 31, 2011
	(in millions)
Operating equity method investments	$	407.9	$	413.1
Non-operating equity method investments		526.8		515.5
Investments in and advances to affiliates	$	934.7	$	928.6

Operating Equity Method Investments

        Our equity method investments included in operating earnings consist of: (1) a 50% ownership interest in Point Lisas Nitrogen Limited (PLNL), which operates an ammonia production facility in the Republic of Trinidad and Tobago; and (2) a 50% interest in an ammonia storage joint venture located in Houston, Texas. We include our share of the net earnings from these investments as an element of earnings from operations because these operations provide additional production and storage capacity to our operations and are integrated with our other supply chain and sales activities in the nitrogen segment.

        The combined results of operations and financial position for our operating equity method investments are summarized below:

	Three months ended March 31,
	2012		2011
	(in millions)
Condensed statement of operations information:
Net sales	$	77.5	$	79.8
Net earnings	$	24.5	$	27.5
Equity in earnings of operating affiliates	$	15.5	$	11.5

	March 31, 2012		December 31, 2011
	(in millions)
Condensed balance sheet information:
Current assets	$	105.1	$	126.6
Long-term assets		147.4		147.2
Total assets	$	252.5	$	273.8
Current liabilities	$	30.5	$	41.1
Long-term liabilities		20.0		24.2
Equity		202.0		208.5
Total liabilities and equity	$	252.5	$	273.8

        The carrying value of these investments at March 31, 2012 was $407.9 million, which was $306.9 million more than our share of the affiliates' book value. The excess is primarily attributable to the impact of our acquisition of Terra and reflects primarily the revaluation of property, plant and equipment, the value of an exclusive natural gas contract and goodwill. The increased basis for property, plant and equipment and the gas contract are being depreciated over a remaining period of approximately 22 years and 12 years, respectively. Our equity in earnings of operating affiliates is different from our ownership interest in income reported by the unconsolidated subsidiaries due to amortization of basis differences.

        We have transactions in the normal course of business with PLNL reflecting our obligation to purchase 50% of the ammonia produced by PLNL at current market prices. We purchased approximately $38.5 million and $36.0 million of ammonia from PLNL for the three months ended March 31, 2012 and 2011, respectively.

Non-Operating Equity Method Investments

        Our non-operating equity method investments consist of: (1) a 50% ownership of KEYTRADE AG (Keytrade), a fertilizer trading company headquartered near Zurich, Switzerland; and (2) a 50% ownership in GrowHow UK Limited (GrowHow), which operates nitrogen production facilities in the United Kingdom. We account for these investments as non-operating equity method investments, and do not include the net earnings of these investments in earnings from operations since these operations do not provide additional capacity to us, nor are these operations integrated within our supply chain. GrowHow is a joint venture between us and Yara International ASA.

        The combined results of operations and financial position of our non-operating equity method investments are summarized below:

	Three months ended March 31,
	2012			2011
	(in millions)
Condensed statement of operations information:
Net sales	$	638.4		$	530.3
Net earnings	$	2.0		$	23.2
Equity in (losses) earnings of non-operating affiliates—net of taxes	$	(2.3	)	$	8.5

	March 31, 2012		December 31, 2011
	(in millions)
Condensed balance sheet information:
Current assets	$	519.1	$	504.2
Long-term assets		295.7		293.4
Total assets	$	814.8	$	797.6
Current liabilities	$	349.7	$	339.5
Long-term liabilities		148.5		149.4
Equity		316.6		308.7
Total liabilities and equity	$	814.8	$	797.6

        In conjunction with our investment in Keytrade, we provided financing to Keytrade in the form of subordinated notes that mature on September 30, 2017 and bear interest at LIBOR plus 1.00 percent. At March 31, 2012 and December 31, 2011, the amount of the outstanding advances to Keytrade on our consolidated balance sheets was $12.4 million. For each of the three month periods ended March 31, 2012 and 2011, we recognized interest income on advances to Keytrade of $0.1 million. The carrying value of our advances to Keytrade approximates fair value.

        Excluding the advances to Keytrade, the carrying value of our non-operating equity method investments at March 31, 2012 was $514.4 million, which was $356.1 million more than our share of the affiliates' book value. The excess is primarily attributable to the impact of our acquisition of Terra and reflects primarily the revaluation of property, plant and equipment, identifiable intangibles and goodwill. The increased basis for property, plant and equipment and identifiable intangibles are being depreciated over remaining periods ranging from 2 to 14 years. Our equity in earnings of non-operating affiliates-net of taxes is different than our ownership interest in their net earnings due to the amortization of basis differences.

        At March 31, 2012, the amount of our consolidated retained earnings that represents our undistributed earnings of non-operating equity method investments is $16.5 million.