CF Industries Holdings, Inc. | 2013 | FY | 3

10.   Asset Retirement Obligations

        Asset retirement obligations (AROs) are legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal operation of such assets. Our recorded AROs are associated with phosphogypsum stack systems and mine reclamation of our phosphate operations in Florida. This recorded liability is included in the disposal group pertaining to our announced sale of the phosphate business and is included in current and non-current liabilities held for sale at December 31, 2013.

        The balances of AROs and changes thereto are summarized below.

System Costs
  (in millions)

Obligation at December 31, 2010

  $ 52.1   $ 61.3   $ 6.4   $ 119.8  

Accretion expense

    3.9     5.1     0.4     9.4  

Liabilities incurred

        2.4         2.4  


    (2.8 )   (2.7 )   (0.5 )   (6.0 )

Change in estimate

    1.7     1.5     2.8     6.0  

Obligation at December 31, 2011

    54.9     67.6     9.1     131.6  

Accretion expense

    4.1     5.3     0.4     9.8  

Liabilities incurred

    12.5     0.9         13.4  


    (1.5 )   (3.3 )   (1.4 )   (6.2 )

Change in estimate

    0.1     (3.8 )   0.1     (3.6 )

Obligation at December 31, 2012

    70.1     66.7     8.2     145.0  

Accretion expense

    4.7     5.2     0.4     10.3  

Liabilities incurred

        2.5         2.5  


    (0.6 )   (2.3 )   (1.3 )   (4.2 )

Change in estimate

    4.7     9.3     (1.0 )   13.0  

Obligation at December 31, 2013

  $ 78.9   $ 81.4   $ 6.3   $ 166.6  

        Our phosphate operations in Florida are subject to regulations governing the construction, operation, closure and long-term maintenance of phosphogypsum stack systems and regulations concerning site reclamation for phosphate rock mines. Our liability for phosphogypsum stack system costs includes the cost of stack closure at Plant City and the costs of cooling pond closure, post-closure monitoring, and ongoing water treatment at both Bartow and Plant City. The actual amounts to be spent will depend on factors such as the timing of activities, refinements in scope, technological developments, cost inflation and changes in regulations. It is possible that these factors could change at any time and impact the estimates. Closure expenditures for the Bartow cooling pond are estimated to occur through 2016. Closure expenditures for the Plant City stack expansion are estimated to occur in the 2038 to 2042 time frame and closure of the Plant City cooling pond is assumed to occur in the year 2092. Additional AROs may be incurred in the future.

        The liability for mine reclamation costs is primarily for work involving the re-contouring, re-vegetation and re-establishment of wildlife habitat and hydrology of land disturbed by phosphate rock mining activities. In accordance with regulations in Florida, physical reclamation and restoration of disturbed areas is generally required to be completed within a prescribed time frame after completion of mining operations, and the timing of reconnection to surrounding lands and waterways varies based on achievement of applicable release criteria. The actual time required to complete the work may vary depending on site-specific reclamation plans and other circumstances.

        The $6.0 million change in estimate in 2011 relates primarily to changes in the scope of closure activities of our Bartow phosphogypsum stack system and mine reclamation activities at our Hardee County, Florida phosphate rock mine. Of this amount, $6.6 million was charged to earnings and an offsetting $0.6 million was recorded as a decrease in property, plant and equipment.

        The $3.6 million change in estimate in 2012 relates primarily to changes in mining and reclamation plans at our Hardee County, Florida phosphate rock mine. Of this amount, $6.5 million was recorded as a decrease in property, plant and equipment and $2.9 million was charged to cost of sales. The $13.4 million liability incurred in 2012 relates primarily to the expansion of our phosphogysum stack at the Plant City, Florida phosphate facility. This expansion will allow us to continue to operate the Plant City facility through the life of our current phosphate rock reserves.

        The $13.0 million change in estimate in 2013 relates primarily to changes in mining and reclamation plans at our Hardee County, Florida phosphate rock mine and changes in the timing of closure activities at the Plant City, Florida phosphate facility. Of this amount, $14.6 million was recorded as an increase in property, plant and equipment partially offset by a $1.6 million decrease to cost of sales.

        In addition to various operational and environmental regulations related to our phosphate segment, we are also subject to financial assurance obligations related to the closure and maintenance of our phosphogypsum stack systems at both our Plant City, Florida phosphate fertilizer complex and our closed Bartow, Florida phosphate fertilizer complex. These financial assurance obligations result from two requirements. The first is a 2010 consent decree with the EPA and the FDEP with respect to our compliance with the Resource Conservation and Recovery Act (RCRA) at our Plant City complex (the Plant City Consent Decree). The second is State of Florida financial assurance regulations (Florida Financial Assurance) that apply to both our Plant City and Bartow complexes. Both of these regulations allow the use of a funding mechanism as a means of complying with the financial assurance requirements associated with the closure, long-term maintenance, and monitoring costs for the phosphogypsum stacks, as well as costs incurred to manage the water contained in the stack system upon closure. We maintain a trust account for the benefit of the EPA and FDEP and an escrow account for the benefit of the FDEP to meet these financial assurance requirements. On our consolidated balance sheets, these are collectively referred to as "Asset retirement obligation funds" (ARO funds) and at December 31, 2013, these assets were recorded as assets held for sale. The trust for the Plant City Consent Decree is fully funded, and we expect the remaining $1.0 million will be funded in the State of Florida Financial Assurance escrow account near the end of 2015. Both financial assurance funding obligations require estimates of future expenditures that could be impacted by refinements in scope, technological developments, cost inflation, changes in regulations, discount rates and the timing of activities. Additional funding would be required in the future if increases in cost estimates exceed investment earnings in the trust or escrow accounts. At December 31, 2013 and 2012, the balance in the ARO funds was $203.7 million and $200.8 million, respectively.

        Prior to the Plant City Consent Decree, the Company's financial assurance requirements for the closure, water treatment, long-term maintenance, and monitoring costs for the Plant City phosphogypsum stack system were determined solely by Florida regulations that would have required funding of the escrow account over a period of years. The Plant City Consent Decree described above effectively requires the Company to fund the greater of the requirements under the Plant City Consent Decree or Florida law, which may vary over time. We are still required under Florida law to maintain the existing Florida escrow account for the closure, water treatment, long-term maintenance, and monitoring costs for the phosphogypsum stack system at our closed Bartow phosphate complex.

        We have unrecorded AROs at our nitrogen fertilizer manufacturing facilities and at our distribution and storage facilities that are conditional upon cessation of operations. These AROs include certain decommissioning activities as well as the removal and disposition of certain chemicals, waste materials, structures, equipment, vessels, piping and storage tanks. Also included is reclamation of land and the closure of certain effluent ponds. The most recent estimate of the aggregate cost of these AROs expressed in 2013 dollars is $53.0 million. We have not recorded a liability for these conditional AROs at December 31, 2013 because we do not believe there is currently a reasonable basis for estimating a date or range of dates of cessation of operations at these facilities, which is necessary in order to estimate fair value. In reaching this conclusion, we considered the historical performance of each facility and have taken into account factors such as planned maintenance, asset replacements and upgrades of plant and equipment, which if conducted as in the past, can extend the physical lives of our nitrogen manufacturing facilities indefinitely. We also considered the possibility of changes in technology, risk of obsolescence, and availability of raw materials in arriving at our conclusion.