Stock-Based Compensation

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

2014 Equity and Incentive Plan

On May 14, 2014, our shareholders approved the CF Industries Holdings, Inc. 2014 Equity and Incentive Plan (the 2014 Equity and Incentive Plan) which replaced the CF Industries Holdings, Inc. 2009 Equity and Incentive Plan. Under the 2014 Equity and Incentive Plan, we may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards (payable in cash or stock) and other stock-based awards to our officers, employees, consultants and independent contractors (including non-employee directors). The purpose of the 2014 Equity and Incentive Plan is to provide an incentive that is aligned with the interests of our shareholders.

Share Reserve and Individual Award Limits

The maximum number of shares reserved for the grant of awards under the 2014 Equity and Incentive Plan is the sum of (i) 13.9 million and (ii) the number of shares subject to outstanding awards under our predecessor plans to the extent such awards terminate or expire without delivery of shares. For purposes of determining the number of shares of stock available for grant under the 2014 Equity and Incentive Plan, each option or stock appreciation right is counted against the reserve as one share. Each share of stock granted, other than an option or a stock appreciation right, is counted against the reserve as 1.61 shares. If any outstanding award expires or is settled in cash, any unissued shares subject to the award are again available for grant under the 2014 Equity and Incentive Plan. Shares tendered in payment of the exercise price of an option and shares withheld by the Company or otherwise received by the Company to satisfy tax withholding obligations are not available for future grant under the 2014 Equity and Incentive Plan. As of December 31, 2019, we had 7.2 million shares available for future awards under the 2014 Equity and Incentive Plan. The 2014 Equity and Incentive Plan provides that no more than 5.0 million shares underlying awards of stock options and stock appreciation rights may be granted to a participant in any one calendar year.

Restricted Stock Awards, Restricted Stock Units and Performance Share Units

The fair value of a restricted stock award (RSA) or a restricted stock unit (RSU) is equal to the number of shares subject to the award multiplied by the closing market price of our common stock on the date of grant. We estimated the fair value of each performance share unit (PSU) on the date of grant using a Monte Carlo simulation. Generally, RSUs granted in 2018 and 2019 will vest in three equal annual installments following the date of grant. RSUs granted prior to 2018 vest in three years from the date of grant. PSUs are granted to key employees and generally vest three years from the date of grant subject to the attainment of applicable performance goals during the performance period. The RSAs awarded to non-management members of the Board vest the earlier of one year from the date of the grant or the date of the next annual stockholder meeting. During the vesting period, the holders of the RSAs are entitled to dividends and voting rights. During the vesting period, the holders of the RSUs are paid dividend equivalents in cash to the extent we pay cash dividends. PSUs accrue dividend equivalents to the extent we pay cash dividends on our common stock during the performance and vesting periods. Upon vesting of the PSUs, holders are paid the cash equivalent of the dividends paid during the performance and vesting periods based on the shares of common stock, if any, delivered in settlement of PSUs. Holders of RSUs and PSUs are not entitled to voting rights unless and until the awards have vested.

A summary of restricted stock activity during the year ended December 31, 2019 is presented below.



	Restricted Stock Awards				Restricted Stock Units				Performance Share Units
	Shares		Weighted- Average Grant-Date Fair Value		Shares		Weighted- Average Grant-Date Fair Value		Shares		Weighted- Average Grant-Date Fair Value
Outstanding as of December 31, 2018	37,870		$	40.40	569,807		$	38.79	197,937		$	43.64
Granted	36,567		41.84		356,110		41.94		179,876		43.09
Restrictions lapsed (vested)⁽¹⁾	(37,870	)	40.40		(196,611	)	40.26		(59,407	)	40.62
Forfeited	—		—		(35,346	)	41.04		(13,572	)	44.31
Outstanding as of December 31, 2019	36,567		41.84		693,960		40.14		304,834		44.42

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⁽¹⁾	For performance share units, the shares represent the performance share units granted in 2016, for which the three-year performance period ended December 31, 2018.

The 2019, 2018 and 2017 weighted-average grant date fair value for RSAs was $41.84, $40.40, and $27.31, for RSUs was $41.94, $43.09, and $31.20, and for PSUs was $43.09, $44.59, and $45.37, respectively.

The actual tax benefit realized from restricted stock vested in each of the years ended December 31, 2019, 2018 and 2017 was $3 million, $1 million and $1 million, respectively. The fair value of restricted stock vested was $11 million, $3 million and $2 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Stock Options

Under the 2014 Equity and Incentive Plan and our predecessor plans, we have granted to plan participants nonqualified stock options to purchase shares of our common stock. The exercise price of these options was equal to the market price of our common stock on the date of grant. The contractual life of each option was ten years and generally one-third of the options vested on each of the first three anniversaries of the date of grant. No stock option awards have been granted to plan participants since 2017.

The fair value of each stock option award was estimated using the Black-Scholes option valuation model. Key assumptions used and resulting grant date fair values are shown in the following table:



	2017
Weighted-average assumptions:
Expected term of stock options	4.3 Years
Expected volatility	40%
Risk-free interest rate	1.9%
Expected dividend yield	3.9%
Weighted-average grant date fair value	$7.66

The expected volatility of our stock options was based on the combination of the historical volatility of our common stock and implied volatilities of exchange-traded options on our common stock. The expected term of options was estimated based on our historical exercise experience, post-vesting employment termination behavior and the contractual term. The risk-free interest rate was based on the U.S. Treasury Strip yield curve in effect at the time of grant for the expected term of the options.

A summary of stock option activity during the year ended December 31, 2019 is presented below:



	Shares		Weighted- Average Exercise Price
Outstanding as of December 31, 2018	5,784,100		$	38.79
Exercised	(629,186	)	28.89
Forfeited	(54,045	)	37.11
Expired	(40,977	)	58.78
Outstanding as of December 31, 2019	5,059,892		39.88
Exercisable as of December 31, 2019	4,518,530		40.94



	Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value⁽¹⁾ (in millions)
Outstanding as of December 31, 2019	4.9	$	52
Exercisable as of December 31, 2019	4.7	$	43

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⁽¹⁾	The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $47.74 as of December 31, 2019, which would have been received by the option holders had all option holders exercised their options as of that date.

Selected amounts pertaining to stock option exercises are as follows:



	2019		2018		2017
	(in millions)
Cash received from stock option exercises	$	18	$	12	$	1
Actual tax benefit realized from stock option exercises	$	3	$	2	$	1
Pre-tax intrinsic value of stock options exercised	$	12	$	10	$	2

Compensation Cost

Compensation cost is recorded primarily in selling, general and administrative expenses. The following table summarizes stock-based compensation costs and related income tax benefits:



	Year ended December 31,
	2019			2018			2017
	(in millions)
Stock-based compensation expense	$	28		$	21		$	17
Income tax benefit	(6		)	(4		)	(6		)
Stock-based compensation expense, net of income taxes	$	22		$	17		$	11

As of December 31, 2019, pre-tax unrecognized compensation cost was $14 million for RSAs and RSUs, which will be recognized over a weighted-average period of 1.6 years, $9 million for PSUs, which will be recognized over a weighted-average period of 1.7 years, and $1 million for stock options, which will be recognized over a weighted-average period of 0.2 years.

Excess tax benefits realized from the vesting of restricted stock or stock option exercises are recognized as an income tax benefit in our consolidated statements of operations and are required to be reported as an operating cash inflow rather than a reduction of taxes paid. The excess tax benefits realized in 2019, 2018 and 2017 were $7 million, $6 million, and $1 million, respectively.