United Kingdom Operations, Proposed Restructuring and Impairment Charges

9 Months Ended

Sep. 30, 2022

Property, Plant and Equipment [Abstract]

United Kingdom Operations, Proposed Restructuring and Impairment Charges

Starting in the third quarter of 2021 the United Kingdom began experiencing an energy crisis that included a substantial increase in the price of natural gas. The following summarizes the impairment and restructuring charges that have been recognized as a result of the U.K. energy crisis.

2021 Impairment

The U.K. energy crisis necessitated evaluations in the third and fourth quarters of 2021 of the long-lived assets, including definite-lived intangible assets, and goodwill of our U.K. operations to determine if their fair value had declined to below their carrying value. These evaluations in 2021 resulted in total goodwill impairment charges of $285 million, of which $259 million was recorded in the third quarter of 2021, and total long-lived and intangible asset impairment charges of $236 million, which were recorded in the third quarter of 2021. As of December 31, 2021, after the recognition of the goodwill impairment charges, no goodwill related to our U.K. reporting units remained.

2022 Impairment and Restructuring

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

Second quarter 2022 — In the second quarter of 2022, we approved and announced our proposed plan to restructure our U.K. operations, including the permanent closure of the Ince facility and optimization of the remaining manufacturing operations at the Billingham facility. The Ince facility had been idled since September 15, 2021. As a result, in the second quarter of 2022, we recorded total charges of $162 million as follows:

•asset impairment charges totaling $152 million, which are included in the U.K. long-lived and intangible asset impairment line item in our consolidated statement of operations, consisting of the following:

◦an impairment charge of $135 million related to property, plant and equipment that has been classified as held for abandonment at the Ince facility, including a liability of approximately $9 million for the costs of certain asset retirement activities related to the Ince site;

◦an intangible asset impairment charge of $8 million related to trade names; and

◦an impairment charge of $9 million related to the write-down of spare parts and certain raw materials at the Ince facility;

and

•a charge for post-employment benefits totaling $10 million, which is included in the U.K. operations restructuring line item in our consolidated statements of operations, related to contractual and statutory obligations due to employees whose employment would be terminated in the proposed plan.

As a result of the proposed restructuring of our U.K. operations, we concluded that an additional impairment test was triggered in the second quarter of 2022 for the asset groups that comprise the continuing U.K. operations, consisting of U.K. Ammonia, U.K. AN and U.K. Other. The results of this long-lived asset impairment test indicated that no additional asset impairment existed as the undiscounted estimated future cash flows for the continuing U.K. operations were in excess of the carrying values for each of the U.K. asset groups.

Third quarter 2022 — In the third quarter of 2022, the United Kingdom continued to experience extremely high and volatile natural gas prices. Russian natural gas pipeline flows to Europe via the Nord Stream 1 pipeline ceased, causing the United Kingdom to experience unprecedented natural gas prices. In addition, the European Union announced a desire to cap the price that Europe would pay Russia for natural gas deliveries, further contributing to the uncertainty in European energy markets. Given these factors and the lack of a corresponding increase in global nitrogen product market prices, in September 2022, we temporarily idled ammonia production at our Billingham complex. As a result, we concluded that an additional impairment test was triggered for the asset groups that comprise the continuing U.K. operations. The results of our impairment test indicated that the carrying values for our U.K. Ammonia and U.K. AN asset groups exceeded the undiscounted estimated future cash flows. As a result, we recognized asset impairment charges of $87 million, primarily related to property, plant and equipment and definite-lived intangible assets, which are included in the U.K. long-lived and intangible asset impairment line item in our consolidated statement of operations. The expected cash flows used in the long-lived asset impairment analysis reflected assumptions about product selling prices and natural gas costs, as well as estimates of future production and sales volumes, operating rates, operating expenses, inflation, tax rates and capital spending. The fair value of our property, plant and equipment utilized in the long-lived asset impairment analysis was estimated using the indirect method of the cost approach by determining the reproduction cost new of the assets and applying appropriate adjustments for depreciation including an inutility adjustment based on the cash flows expected to be generated by those asset groups.

In August 2022, the final restructuring plan for our U.K. operations was approved, and decommissioning activities were initiated. As a result, in the third quarter of 2022, we incurred additional charges related to our U.K. restructuring of $8 million, primarily related to one-time termination benefits, which is included in the U.K. operations restructuring line item in our consolidated statement of operations.

We are working with customers, vendors, regulators and others to finalize closure plans of our Ince facility, and we expect substantially all of these restructuring activities will be completed within the next twelve months.