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Acquisition of Waggaman Ammonia Production Facility | 12 Months Ended
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Dec. 31, 2023
Business Combinations [Abstract] |
Acquisition of Waggaman Ammonia Production Facility | 6. Acquisition of Waggaman Ammonia Production Facility On December 1, 2023, we acquired an ammonia production facility located in Waggaman, Louisiana, from Dyno Nobel Louisiana Ammonia, LLC (DNLA), a U.S. subsidiary of Australia-based Incitec Pivot Limited (IPL), pursuant to an asset purchase agreement with DNLA and IPL. The facility has a nameplate capacity of 880,000 tons of ammonia annually. Our acquisition of the Waggaman facility is intended to expand our ammonia manufacturing and distribution capacity, including our ability to enable low-carbon ammonia production. In connection with the acquisition, we entered into a long-term ammonia offtake agreement providing for us to supply up to 200,000 tons of ammonia per year to IPL’s Dyno Nobel, Inc. subsidiary (the Supply Contract). Under the terms of the asset purchase agreement, $425 million of the purchase price of $1.675 billion, subject to adjustment, was allocated by the parties to the ammonia offtake agreement. We funded the balance of the purchase price with $1.223 billion of cash on hand. The consideration transferred reflects an estimated net working capital adjustment and other adjustments to the purchase price, which is subject to further adjustment pursuant to the terms of the asset purchase agreement. We expect any further purchase price adjustments required under the asset purchase agreement will be completed in 2024. In connection with the Waggaman acquisition, we incurred $36 million of acquisition-related costs in 2023, which are included in acquisition and integration costs in our consolidated statement of operations. We accounted for the acquisition as a business combination. The following table summarizes the preliminary allocation of the acquisition date fair value of the consideration transferred to the assets acquired and liabilities assumed. The estimated fair value of the assets acquired and liabilities assumed is based on the estimated net realizable value for inventory, a replacement cost approach for property, plant and equipment and the income approach for intangible assets and the Supply Contract liability. Final determination of the fair values may result in adjustments to the amounts presented below due primarily to customary post-closing purchase price adjustment procedures specified under the terms of the asset purchase agreement, as discussed above.
|  | Preliminary Valuation(1) |  |  |  |
| (in millions)
Assets acquired and liabilities assumed |  |  |  |  |
| Current assets | $ | 37 |  |  |  |  |
| Property, plant and equipment | 1,022 |  |  |  |  |
| Goodwill | 406 |  |  |  |  |
| Other assets | 539 |  |  |  |  |
| Total assets acquired | 2,004 |  |  |  |  |
| Current liabilities | 18 |  |  |  |  |
| Supply Contract liability | 757 |  |  |  |  |
| Other liabilities | 6 |  |  |  |  |
| Total liabilities assumed | 781 |  |  |  |  |
Total net assets acquired | $ | 1,223 |  |  |  |  |
_______________________________________________________________________________ (1)The purchase price related to the acquisition was initially allocated based on the information available at the acquisition date. Current assets acquired included accounts receivable of $32 million and inventory of $5 million. The acquired property, plant and equipment will be depreciated over a period consistent with our existing fixed assets depreciation policy. The acquisition resulted in the recognition of $406 million of goodwill, which is recognized in our ammonia segment. Goodwill arising from the acquisition is expected to be deductible for tax reporting purposes. Other assets acquired included intangible assets of $526 million, including $455 million of customer relationships and $71 million related to a favorable personal property tax agreement. The acquired intangible assets will be amortized over a period consistent with our existing intangible asset amortization policy. See Note 9—Goodwill and Other Intangible Assets, for additional information related to goodwill and the acquired intangible assets. In addition, the terms of the Supply Contract were determined to be unfavorable compared to market as of the acquisition date. As a result, we recorded an intangible liability, reflected as Supply Contract liability in the table above, with an acquisition date fair value of $757 million, which will be amortized to net sales over the estimated life of the Supply Contract of 25 years. Financial results of the Waggaman facility are included in our consolidated statement of operations from the acquisition date of December 1, 2023. For the year ended December 31, 2023, the amount of net sales and net earnings of the Waggaman facility included in our consolidated statement of operations was $28 million and $7 million, respectively. Estimates utilized in determining the fair value of acquired assets and assumed liabilities The valuation of the assets acquired and liabilities assumed as a result of our acquisition of the Waggaman ammonia production facility on December 1, 2023, required us to make significant estimates and assumptions. We estimated the fair value of the customer relationships of $455 million using the multi-period excess earnings method of the income approach, which incorporated the estimated future cash flows associated with the net earnings attributable to the acquired customer relationships. The estimated future cash flows were discounted to their present value using an appropriate risk-adjusted discount rate from the perspective of a market participant. Key assumptions used in estimating future cash flows include forecasted product selling prices, future production and sales volumes, probability of renewal, projected natural gas costs, operating rates, operating expenses, inflation, tax rates, capital spending, and contributory asset charges, among other factors. The discount rate utilized in estimating the fair value of the customer relationships was 9.0% and was derived using a capital asset pricing model and publicly available data for comparable companies to estimate the cost of equity financing. We used Moody’s Baa corporate bonds as a benchmark to estimate the cost of debt. Additional assumptions utilized in the valuation of the customer relationships included the duration of the forecasted cash flows and the tax amortization benefit, among other factors. The terms of the Supply Contract were determined to be unfavorable compared to market as of the acquisition date. Therefore, we estimated the fair value of the Supply Contract liability of $757 million using the with and without method of the income approach. This method included estimating the future cash flows by applying both a market price and the contract price in determining the respective forecasted sales. The difference in the estimated future cash flows using the resulting forecasted sales was then discounted to present value at the date of acquisition using an appropriate risk-adjusted discount rate from the perspective of a market participant. Key assumptions used in estimating future cash flows include forecasted product selling price, specifically the market price in excess of the contract price, future production and sales volumes, probability of renewal, and inflation, among other factors. The discount rate utilized in estimating the fair value of the Supply Contract liability was 6.2% and was derived based on the historical cost of our issued debt and treasury and corporate bond yields as of the acquisition date. Additional assumptions utilized in the valuation of the Supply Contract liability included the duration of the forecasted cash flows, among other factors. Due to the inherent uncertainties involved in making estimates and assumptions, actual results may differ from those assumed in our forecasts.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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