NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except per share amounts and as otherwise designated)
(Unaudited)
1. Organization and Nature of Business
The Mosaic Company (“Mosaic,” and, with its consolidated subsidiaries, “we,” “us,” “our,” or the “Company”) produces and markets concentrated phosphate and potash crop nutrients. We conduct our business through wholly and majority owned subsidiaries and businesses in which we own less than a majority or a non-controlling interest, including consolidated variable interest entities and investments accounted for by the equity method.
We are organized into the following business segments:
•Our Phosphate business segment owns and operates mines and production facilities in Florida which produce concentrated phosphate crop nutrients and phosphate-based animal feed ingredients, and processing plants in Louisiana which produce concentrated phosphate crop nutrients. The Phosphate segment includes our 75% interest in the Miski Mayo Phosphate Mine in Peru. These results are consolidated in the Phosphate segment. The Phosphate segment also includes our 25% interest in the Ma’aden Wa’ad Al Shamal Phosphate Company (“MWSPC”), a joint venture to develop, own and operate integrated phosphate production facilities in the Kingdom of Saudi Arabia. We market approximately 25% of MWSPC phosphate production. We recognize our equity in the net earnings or losses relating to MWSPC on a one-quarter lag in our Condensed Consolidated Statements of Earnings.
•Our Potash business segment owns and operates potash mines and production facilities in Canada and the U.S. which produce potash-based crop nutrients, animal feed ingredients and industrial products. Potash sales include domestic and international sales. We are a member of Canpotex, Limited (“Canpotex”), an export association of Canadian potash producers through which we sell our Canadian potash outside the U.S. and Canada.
•Our Mosaic Fertilizantes business segment includes the assets in Brazil that we acquired in the 2018 acquisition (the “Acquisition”) of Vale Fertilizantes S.A. (now known as Mosaic Fertilizantes P&K S.A. or the “Acquired Business”), which consist of five phosphate rock mines, four phosphate chemical plants and a potash mine. The segment also includes our legacy distribution business in South America, which consists of sales offices, crop nutrient blending and bagging facilities, port terminals and warehouses in Brazil and Paraguay. We also have a majority interest in Fospar S.A., which owns and operates a single superphosphate granulation plant and a deep-water crop nutrition port and throughput warehouse terminal facility in Brazil.
Intersegment eliminations, unrealized mark-to-market gains/losses on derivatives, debt expenses, Streamsong Resort® results of operations, and the results of the China and India distribution businesses are included within Corporate, Eliminations and Other.
2. Summary of Significant Accounting Policies
Statement Presentation and Basis of Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements of Mosaic have been prepared on the accrual basis of accounting and in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim financial reporting. As permitted under these rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States (“GAAP”) can be condensed or omitted. The Condensed Consolidated Financial Statements included in this document reflect, in the opinion of our management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. The following notes should be read in conjunction with the accounting policies and other disclosures in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2021 (the “10-K Report”). Sales, expenses, cash flows, assets and liabilities can and do vary during the year as a result of seasonality and other factors. Therefore, interim results are not necessarily indicative of the results to be expected for the full fiscal year.
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
The accompanying Condensed Consolidated Financial Statements include the accounts of Mosaic, its majority-owned subsidiaries, and certain variable interest entities in which Mosaic is the primary beneficiary. Certain investments in companies where we do not have control but have the ability to exercise significant influence are accounted for by the equity method.
Accounting Estimates
Preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. The most significant estimates made by management relate to the estimates of fair value of acquired assets and liabilities, the recoverability of non-current assets including goodwill, the useful lives and net realizable values of long-lived assets, environmental and reclamation liabilities, including asset retirement obligations (“ARO”), and income tax-related accounts, including the valuation allowance against deferred income tax assets. Actual results could differ from these estimates.
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
3. Other Financial Statement Data
The following provides additional information concerning selected balance sheet accounts:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
|
Other current assets | | | |
| Income and other taxes receivable | $ | 185.6 | | | $ | 126.1 | |
| Prepaid expenses | 163.5 | | | 107.3 | |
| Other | 137.8 | | | 49.1 | |
| $ | 486.9 | | | $ | 282.5 | |
| | | |
| Other assets | | | |
| Restricted cash | $ | 9.4 | | | $ | 8.5 | |
| MRO inventory | 148.7 | | | 144.7 | |
| Marketable securities held in trust | 695.8 | | | 731.5 | |
| Operating lease right-of-use assets | 154.8 | | | 120.2 | |
| Indemnification asset | 24.9 | | | 21.0 | |
| Long-term receivable | 46.4 | | | 41.5 | |
| Other | 343.9 | | | 307.3 | |
| $ | 1,423.9 | | | $ | 1,374.7 | |
| | | |
| Accrued liabilities | | | |
| | | |
| Accrued dividends | $ | 1.9 | | | $ | 43.6 | |
| Payroll and employee benefits | 169.0 | | | 235.9 | |
| Asset retirement obligations | 218.0 | | | 222.4 | |
| | | |
Customer prepayments (a) | 818.4 | | | 437.7 | |
| Accrued income and other taxes | 250.4 | | | 184.3 | |
| Operating lease obligation | 56.1 | | | 59.7 | |
| Servicing liability | 152.4 | | | 81.1 | |
| Other | 606.5 | | | 618.9 | |
| $ | 2,272.7 | | | $ | 1,883.6 | |
| | | |
| Other noncurrent liabilities | | | |
| Asset retirement obligations | $ | 1,553.4 | | | $ | 1,526.9 | |
| Accrued pension and postretirement benefits | 127.9 | | | 64.3 | |
| Operating lease obligation | 101.6 | | | 114.4 | |
| Unrecognized tax benefits | 29.6 | | | 156.6 | |
| Other | 319.8 | | | 239.9 | |
| $ | 2,132.3 | | | $ | 2,102.1 | |
______________________________
(a) The timing of recognition of revenue related to our performance obligations may be different than the timing of collection of cash related to those performance obligations. Specifically, we collect prepayments from certain customers in Brazil. In addition, cash collection from
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
Canpotex may occur prior to delivery of product to the end customer. We generally satisfy our contractual liabilities within one quarter of incurring the liability.
4. Earnings Per Share
The numerator for basic and diluted earnings per share (“EPS”) is net earnings attributable to Mosaic. The denominator for basic EPS is the weighted average number of shares outstanding during the period. The denominator for diluted EPS also includes the weighted average number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued, unless the shares are anti-dilutive.
The following is a reconciliation of the numerator and denominator for the basic and diluted EPS computations:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
| Net income attributable to Mosaic | $ | 1,182.0 | | | $ | 156.7 | | | | | |
| Basic weighted average number of shares outstanding | 366.1 | | | 379.2 | | | | | |
| Dilutive impact of share-based awards | 4.0 | | | 3.6 | | | | | |
| Diluted weighted average number of shares outstanding | 370.1 | | | 382.8 | | | | | |
| Basic net income per share attributable to Mosaic | $ | 3.23 | | | $ | 0.41 | | | | | |
| Diluted net income per share attributable to Mosaic | $ | 3.19 | | | $ | 0.41 | | | | | |
A total of 0.4 million and 0.7 million shares of common stock subject to issuance related to share-based awards for the three months ended March 31, 2022 and March 31, 2021, respectively, have been excluded from the calculation of diluted EPS because the effect would have been anti-dilutive.
5. Inventories
Inventories consist of the following:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
|
| Raw materials | $ | 373.7 | | | $ | 296.6 | |
| Work in process | 749.6 | | | 741.1 | |
| Finished goods | 2,001.6 | | | 1,534.3 | |
Final price deferred(a) | 47.4 | | | 31.4 | |
| Operating materials and supplies | 154.2 | | | 138.0 | |
| $ | 3,326.5 | | | $ | 2,741.4 | |
______________________________
(a)Final price deferred is product that has shipped to customers, but the price has not yet been agreed upon.
6. Goodwill
Mosaic had goodwill of $1.2 billion as of March 31, 2022 and December 31, 2021, respectively. We review goodwill for impairment annually in October and at any time events or circumstances indicate that the carrying value may not be fully
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
recoverable, which is based on our accounting policy and GAAP. The changes in the carrying amount of goodwill, by reporting unit, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Potash | | Mosaic Fertilizantes | | Corporate, Eliminations and Other | | Total |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance as of December 31, 2021 | | | $ | 1,064.2 | | | $ | 95.9 | | | $ | 12.1 | | | $ | 1,172.2 | |
| Foreign currency translation | | | 19.9 | | | 4.3 | | | — | | | 24.2 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance as of March 31, 2022 | | | $ | 1,084.1 | | | $ | 100.2 | | | $ | 12.1 | | | $ | 1,196.4 | |
| | | | | | | | | |
We are required to perform our next annual goodwill impairment analysis as of October 31, 2022. It is possible that future business conditions could deteriorate from the current state, raw material or product price projections could decline significantly from current estimates, or our common stock price could decline significantly. If our net sales and cash flow projections are not achieved or our common stock price significantly declines from current levels, book values of certain operations could exceed their fair values, which may result in goodwill impairment charges in future periods. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.7. Marketable Securities Held in Trusts
In August 2016, Mosaic deposited $630 million into two trust funds (together, the “RCRA Trusts”) created to provide additional financial assurance in the form of cash for the estimated costs (“Gypstack Closure Costs”) of closure and long term care of our Florida and Louisiana phosphogypsum management systems (“Gypstacks”), as described further in Note 10 of our Notes to Condensed Consolidated Financial Statements. Our actual Gypstack Closure Costs are generally expected to be paid by us in the normal course of our Phosphate business; however, funds held in each of the RCRA Trusts can be drawn by the applicable governmental authority in the event we cannot perform our closure and long term care obligations. When our estimated Gypstack Closure Costs with respect to the facilities associated with a RCRA Trust are sufficiently lower than the amount on deposit in that RCRA Trust, we have the right to request that the excess funds be released to us. The same is true for the RCRA Trust balance remaining after the completion of our obligations, which will be performed over a period that may not end until three decades or more after a Gypstack has been closed. The investments held by the RCRA Trusts are managed by independent investment managers with discretion to buy, sell, and invest pursuant to the objectives and standards set forth in the related trust agreements. Amounts reserved to be held or held in the RCRA Trusts (including losses or reinvested earnings) are included in other assets on our Condensed Consolidated Balance Sheets.
The RCRA Trusts hold investments, which are restricted from our general use, in marketable debt securities classified as available-for-sale and are carried at fair value. As a result, unrealized gains and losses are included in other comprehensive income until realized, unless it is determined that the entire unamortized cost basis of the investment is not expected to be recovered. A credit loss would then be recognized in operations for the amount of the expected credit loss. As of March 31, 2022, we expect to recover our amortized cost on all available-for-sale securities and have not established an allowance for credit loss.
We review the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. We determine the fair market values of our available-for-sale securities and certain other assets based on the fair value hierarchy described below:
Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2: Values based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3: Values generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
The estimated fair value of the investments in the RCRA Trusts as of March 31, 2022 and December 31, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| Level 1 | | | | | | | |
| Cash and cash equivalents | $ | 7.1 | | | $ | — | | | $ | — | | | $ | 7.1 | |
| Level 2 | | | | | | | |
| Corporate debt securities | 198.6 | | | 0.8 | | | (7.3) | | | 192.1 | |
| Municipal bonds | 201.0 | | | 0.9 | | | (5.8) | | | 196.1 | |
| U.S. government bonds | 306.2 | | | — | | | (21.6) | | | 284.6 | |
| Total | $ | 712.9 | | | $ | 1.7 | | | $ | (34.7) | | | $ | 679.9 | |
| | | | | | | |
| December 31, 2021 |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| Level 1 | | | | | | | |
| Cash and cash equivalents | $ | 8.1 | | | $ | — | | | $ | — | | | $ | 8.1 | |
| Level 2 | | | | | | | |
| Corporate debt securities | 198.8 | | | 5.6 | | | (0.9) | | | 203.5 | |
| Municipal bonds | 198.1 | | | 6.5 | | | (0.5) | | | 204.1 | |
| U.S. government bonds | 305.3 | | | — | | | (6.1) | | | 299.2 | |
| Total | $ | 710.3 | | | $ | 12.1 | | | $ | (7.5) | | | $ | 714.9 | |
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
The following tables show gross unrealized losses and fair values of the RCRA Trusts’ available-for-sale securities that have been in a continuous unrealized loss position for which an allowance for credit losses has not been recorded as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (in millions) | Fair
Value | | Gross
Unrealized
Losses | | Fair
Value | | Gross
Unrealized
Losses |
| Securities that have been in a continuous loss position for less than 12 months: | | | | | | | |
| Corporate debt securities | $ | 143.8 | | | $ | (6.6) | | | $ | 67.1 | | | $ | (0.8) | |
| Municipal bonds | 127.2 | | | (5.0) | | | 39.9 | | | (0.4) | |
| U.S. government bonds | 116.5 | | | (8.3) | | | 152.2 | | | (2.5) | |
| $ | 387.5 | | | $ | (19.9) | | | $ | 259.2 | | | $ | (3.7) | |
| Securities that have been in a continuous loss position for more than 12 months: | | | | | | | |
| | | |
| | | | | | | |
| Corporate debt securities | $ | 6.5 | | | $ | (0.7) | | | $ | 3.6 | | | $ | (0.1) | |
| Municipal bonds | 10.3 | | | (0.8) | | | 4.5 | | | (0.1) | |
| U.S. government bonds | 165.7 | | | (13.3) | | | 143.4 | | | (3.6) | |
| $ | 182.5 | | | $ | (14.8) | | | $ | 151.5 | | | $ | (3.8) | |
| | | | | | | |
The following table summarizes the balance by contractual maturity of the available-for-sale debt securities invested by the RCRA Trusts as of March 31, 2022. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations before the underlying contracts mature.
| | | | | |
| March 31, 2022 |
| Due in one year or less | $ | 17.7 | |
| Due after one year through five years | 348.4 | |
| Due after five years through ten years | 280.7 | |
| Due after ten years | 26.0 | |
| Total debt securities | $ | 672.8 | |
For the three months ended March 31, 2022, realized gains were $0.8 million and there were no realized losses. For the three months ended March 31, 2021, realized gains were $2.9 million and realized losses were $0.3 million.
8. Financing Arrangements
Inventory Financing Arrangement
We have an inventory financing arrangement whereby we can sell up to $625 million of certain inventory for cash and subsequently repurchase the inventory at an agreed upon price and time in the future, not to exceed 180 days. Under the terms of the agreement, we may borrow up to 90% of the value of the inventory. It is later repurchased by Mosaic at the original sale price plus interest and any transaction costs. As of March 31, 2022 and December 31, 2021, $452.8 million and $302.7 million, respectively, of inventory was financed under this arrangement, which is included in short-term debt on the Condensed Consolidated Balance Sheet.
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
Receivable Purchasing Arrangement
We finance certain accounts receivable through a Receivable Purchasing Agreement (“RPA”), with a bank whereby, from time-to-time, we sell the receivables. The net face value of the purchased receivables may not exceed $400 million at any point in time. The purchase price of the receivable sold under the RPA is the face value of the receivable less an agreed upon discount. The receivables sold under the RPA are accounted for as a true sale. Upon sale, these receivables are removed from the Condensed Consolidated Balance Sheets. Cash received is presented as cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows.
During the three months ended March 31, 2022 and March 31, 2021, the Company sold approximately $549.3 million, and $86.6 million, respectively, of accounts receivable under this arrangement. Discounts on sold receivables were not material for any period presented. Following the sale to the bank, we continue to service the collection of the receivable on behalf of the bank without further consideration. As of March 31, 2022 and December 31, 2021, $152.4 million and $81.1 million, respectively, had been collected but not yet remitted to the bank. This amount is classified in accrued liabilities on the Condensed Consolidated Balance Sheets. Cash collected and remitted are presented as financing activities in the Condensed Consolidated Statements of Cash Flows.
Structured Accounts Payable Arrangements
In Brazil, we finance some of our potash-based fertilizer, sulfur, ammonia and other raw material product purchases through third-party contractual arrangements. These arrangements provide that the third-party intermediary advance the amount of the scheduled payment to the vendor, less an appropriate discount, at a scheduled payment date. Mosaic then makes payment to the third-party intermediary at a later date, stipulated in accordance with the commercial terms negotiated. As of March 31, 2022 and December 31, 2021, the total structured accounts payable arrangements were $850.1 million and $743.7 million, respectively.
9. Asset Retirement Obligations
We recognize our estimated AROs in the period in which we have an existing legal obligation associated with the retirement of a tangible long-lived asset, and the amount of the liability can be reasonably estimated. The ARO is recognized at fair value when the liability is incurred with a corresponding increase in the carrying amount of the related long-lived asset. We depreciate the tangible asset over its estimated useful life. The liability is adjusted in subsequent periods through accretion expense, which represents the increase in the present value of the liability due to the passage of time. Such depreciation and accretion expenses are included in cost of goods sold for operating facilities and other operating expense for indefinitely closed facilities.
Our legal obligations related to asset retirement require us to: (i) reclaim lands disturbed by mining as a condition to receive permits to mine phosphate ore reserves; (ii) treat low pH process water in Gypstacks to neutralize acidity; (iii) close and monitor Gypstacks at our Florida and Louisiana facilities at the end of their useful lives; (iv) remediate certain other conditional obligations; (v) remove all surface structures and equipment, plug and abandon mine shafts, contour and revegetate, as necessary, and monitor for five years after closing our Carlsbad, New Mexico facility; (vi) decommission facilities, manage tailings and execute site reclamation at our Saskatchewan potash mines at the end of their useful lives; (vii) de-commission mines in Brazil and Peru; and (viii) decommission plant sites and close Gypstacks in Brazil. The estimated liability for these legal obligations is based on the estimated cost to satisfy the above obligations, which is discounted using a credit-adjusted risk-free rate.
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
A reconciliation of our AROs is as follows:
| | | | | | | | | | | |
| (in millions) | March 31, 2022 | | December 31, 2021 |
| AROs, beginning of period | $ | 1,749.3 | | | $ | 1,393.9 | |
| Liabilities incurred | 4.6 | | | 20.2 | |
| Liabilities settled | (54.1) | | | (163.1) | |
| Accretion expense | 19.6 | | | 71.9 | |
| Revisions in estimated cash flows | 12.1 | | | 443.3 | |
| Foreign currency translation | 39.9 | | | (16.9) | |
| AROs, end of period | 1,771.4 | | | 1,749.3 | |
| Less current portion | 218.0 | | | 222.4 | |
| Non-current portion of AROs | $ | 1,553.4 | | | $ | 1,526.9 | |
North America Gypstack Closure Costs
A majority of our ARO relates to Gypstack Closure Costs in Florida and Louisiana. For financial reporting purposes, we recognize our estimated Gypstack Closure Costs at their present value. This present value determined for financial reporting purposes is reflected on our Consolidated Balance Sheets in accrued liabilities and other non-current liabilities.
As discussed below, we have arrangements to provide financial assurance for the estimated Gypstack Closure Costs associated with our facilities in Florida and Louisiana.
EPA RCRA Initiative. On September 30, 2015, we and our subsidiary, Mosaic Fertilizer, LLC (“Mosaic Fertilizer”), reached agreements with the U.S. Environmental Protection Agency (“EPA”), the U.S. Department of Justice (“DOJ”), the Florida Department of Environmental Protection (“FDEP”) and the Louisiana Department of Environmental Quality on the terms of two consent decrees (collectively, the “2015 Consent Decrees”) to resolve claims relating to our management of certain waste materials onsite at our Riverview, New Wales, Mulberry, Green Bay, South Pierce and Bartow fertilizer manufacturing facilities in Florida and our Faustina and Uncle Sam facilities in Louisiana. This followed a 2003 announcement by the EPA Office of Enforcement and Compliance Assurance that it would be targeting facilities in mineral processing industries, including phosphoric acid producers, for a thorough review under the U.S. Resource Conservation and Recovery Act (“RCRA”) and related state laws. As discussed below, a separate consent decree was previously entered into with EPA and the FDEP with respect to RCRA compliance at the Plant City, Florida phosphate concentrates facility (the “Plant City Facility”) that we acquired as part of our acquisition (the “CF Phosphate Assets Acquisition”) of the Florida phosphate assets and assumption of certain related liabilities of CF Industries, Inc. (“CF”).
The remaining monetary obligations under the 2015 Consent Decrees include:
• Modification of certain operating practices and undertaking certain capital improvement projects over a period of several years that are expected to result in remaining capital expenditures likely to exceed $20 million in the aggregate.
• Provision of additional financial assurance for the estimated Gypstack Closure Costs for Gypstacks at the covered facilities. The RCRA Trusts are discussed in Note 7 to our Condensed Consolidated Financial Statements. In addition, we have agreed to guarantee the difference between the amounts held in each RCRA Trust (including any earnings) and the estimated closure and long-term care costs.
As of December 31, 2021, the undiscounted amount of our Gypstack Closure Costs ARO associated with the facilities covered by the 2015 Consent Decrees, determined using the assumptions used for financial reporting purposes, was approximately $1.8 billion, and the present value of our Gypstack Closure Costs ARO reflected in our Consolidated Balance Sheet for those facilities was approximately $603 million.
Plant City and Bonnie Facilities. As part of the CF Phosphate Assets Acquisition, we assumed certain AROs related to Gypstack Closure Costs at both the Plant City Facility and a closed Florida phosphate concentrates facility in Bartow, Florida
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
(the “Bonnie Facility”) that we acquired. Associated with these assets are two related financial assurance arrangements for which we became responsible and that provided sources of funds for the estimated Gypstack Closure Costs for these facilities. Pursuant to federal or state laws, the applicable government entities are permitted to draw against such amounts in the event we cannot perform such closure activities. One of the financial assurance arrangements was initially a trust (the “Plant City Trust”) established to meet the requirements under a consent decree with the EPA and the FDEP with respect to RCRA compliance at Plant City. The Plant City Trust also satisfied Florida financial assurance requirements at that site. Beginning in September 2016, as a substitute for the financial assurance provided through the Plant City Trust, we have provided financial assurance for the Plant City Facility in the form of a surety bond (the “Plant City Bond”). The amount of the Plant City Bond is $249.7 million, which reflects our closure cost estimates as of December 31, 2021. The other financial assurance arrangement was also a trust fund (the “Bonnie Facility Trust”) established to meet the requirements under Florida financial assurance regulations that apply to the Bonnie Facility. In July 2018, we received $21.0 million from the Bonnie Facility Trust by substituting for the trust fund a financial test mechanism (“Bonnie Financial Test”) supported by a corporate guarantee as allowed by state regulations. Both financial assurance funding obligations require estimates of future expenditures that could be impacted by refinements in scope, technological developments, new information, cost inflation, changes in regulations, discount rates and the timing of activities. Under our current approach to satisfying applicable requirements, additional financial assurance would be required in the future if increases in cost estimates exceed the face amount of the Plant City Bond or the amount supported by the Bonnie Financial Test.
As of March 31, 2022 and December 31, 2021, the aggregate amounts of AROs associated with the combined Plant City Facility and Bonnie Facility Gypstack closure costs included in our Condensed Consolidated Balance Sheets were $249.7 million and $262.9 million, respectively. The aggregate amount represented by the Plant City Bond exceeds the present value of the aggregate amount of ARO associated with that facility. This is because the amount of financial assurance we are required to provide represents the aggregate undiscounted estimated amount to be paid by us in the normal course of our Phosphate business over a period that may not end until three decades or more after the Gypstack has been closed, whereas the ARO included in our Condensed Consolidated Balance Sheet reflects the discounted present value of those estimated amounts.
10. Income Taxes
During the three months ended March 31, 2022, gross unrecognized tax benefits decreased by $100.4 million to $24.2 million. The decrease is primarily related to the effective settlement of unrecognized tax benefits during the quarter. If recognized, approximately $23.8 million of the $24.2 million in unrecognized tax benefits would affect our effective tax rate and net earnings in future periods.
We recognize interest and penalties related to unrecognized tax benefits as a component of our income tax provision. We had accrued interest and penalties totaling $4.4 million and $31.1 million as of March 31, 2022 and December 31, 2021, respectively, that were included in other noncurrent liabilities in the Condensed Consolidated Balance Sheets.
Accounting for uncertain tax positions is determined by prescribing the minimum probability threshold that a tax position is more likely than not to be sustained based on the technical merits of the position. Mosaic is continually under audit by various tax authorities in the normal course of business. Such tax authorities may raise issues contrary to positions taken by the Company. If such positions are ultimately not sustained by the Company, this could result in material assessments to the Company. The costs related to defending, if needed, such positions on appeal or in court may be material. The Company believes that any issues raised have been properly accounted for in its current financial statements.
For the three months ended March 31, 2022, tax expense was a benefit of approximately $9.0 million. This consisted primarily of a share-based excess benefit, which was partially offset by changes in valuation allowances and other miscellaneous benefits. In addition to items specific to the period, our income tax rate is impacted by the mix of earnings across the jurisdictions in which we operate, by a benefit associated with depletion, a benefit associated with non-U.S. incentives, changes in valuation allowances and by the impact of certain entities being taxed in both their foreign jurisdiction and the U.S., including foreign tax credits for various taxes incurred.
Generally, for interim periods, income tax is equal to the total of (1) year-to-date pretax income multiplied by our forecasted effective tax rate plus (2) tax expense items specific to the period. In situations where we expect to report losses for which we do not expect to receive tax benefits, we are required to apply separate forecasted effective tax rates to those jurisdictions rather
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
than including them in the consolidated effective tax rate. For the three months ended March 31, 2022, income tax expense was not impacted by this set of rules.
For the three months ended March 31, 2021, discrete tax expense was a benefit of approximately $4.4 million. This consisted primarily of tax cost related to non-U.S. prior year adjustments, write-off of expired stock options, and other miscellaneous costs. In addition to items specific to the period, our income tax rate is impacted by the mix of earnings across the jurisdictions in which we operate, by a benefit associated with depletion, by a benefit associated with non-U.S. incentives, by changes in valuation allowances and by the impact of certain entities being taxed in both their foreign jurisdiction and the U.S., including foreign tax credits for various taxes incurred.
11. Derivative Instruments and Hedging Activities
We periodically enter into derivatives to mitigate our exposure to foreign currency risks, interest rate movements and the effects of changing commodity prices. We record all derivatives on the Condensed Consolidated Balance Sheets at fair value. The fair value of these instruments is determined by using quoted market prices, third-party comparables, or internal estimates. We net our derivative asset and liability positions when we have a master netting arrangement in place. Changes in the fair value of the foreign currency, commodity and freight derivatives are immediately recognized in earnings.
We do not apply hedge accounting treatments to our foreign currency exchange contracts, commodities contracts, or freight contracts. Unrealized gains and (losses) on foreign currency exchange contracts used to hedge cash flows related to the production of our products are included in cost of goods sold in the Condensed Consolidated Statements of Earnings. Unrealized gains and (losses) on commodities contracts and certain forward freight agreements are also recorded in cost of goods sold in the Condensed Consolidated Statements of Earnings. Unrealized gains or (losses) on foreign currency exchange contracts used to hedge cash flows that are not related to the production of our products are included in the foreign currency transaction gain/(loss) caption in the Condensed Consolidated Statements of Earnings.
From time to time, we enter into fixed-to-floating interest rate contracts. We apply fair value hedge accounting treatment to these contracts. Under these arrangements, we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. The mark-to-market of these fair value hedges is recorded as gains or losses in interest expense. We had no fixed-to-floating interest rate swap agreements in effect as of March 31, 2022 and December 31, 2021.
As of March 31, 2022 and December 31, 2021, the gross asset position of our derivative instruments was $144.2 million and $45.3 million, respectively, and the gross liability position of our liability instruments was $47.9 million and $45.5 million, respectively.
As of March 31, 2022 and December 31, 2021, the following is the total absolute notional volume associated with our outstanding derivative instruments:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions of Units) | | | | | | March 31, 2022 | | December 31, 2021 |
| Derivative Instrument | Derivative Category | Unit of Measure |
| Foreign currency derivatives | | Foreign currency | | US Dollars | | 3,215.4 | | | 3,185.8 | |
| | | | | | | | |
| | | | | | | | |
| Natural gas derivatives | | Commodity | | MMbtu | | 20.8 | | 23.6 |
| | | | | | | | |
Credit-Risk-Related Contingent Features
Certain of our derivative instruments contain provisions that are governed by International Swap and Derivatives Association agreements with the counterparties. These agreements contain provisions that allow us to settle for the net amount between payments and receipts, and also state that if our debt were to be rated below investment grade, certain counterparties could request full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position as of March 31, 2022 and December 31, 2021, was $13.3 million and $8.6 million, respectively. We have no cash collateral posted in association with these contracts. If the credit-risk-related contingent features underlying these agreements were triggered on March 31, 2022, we would have been
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
required to post an additional $1.8 million of collateral assets, which are either cash or U.S. Treasury instruments, to the counterparties.
Counterparty Credit Risk
We enter into foreign exchange, certain commodity and interest rate derivatives, primarily with a diversified group of highly rated counterparties. We continually monitor our positions and the credit ratings of the counterparties involved and limit the amount of credit exposure to any one party. While we may be exposed to potential losses due to the credit risk of non-performance by these counterparties, material losses are not anticipated. We closely monitor the credit risk associated with our counterparties and customers and to date have not experienced material losses.
12. Fair Value Measurements
Following is a summary of the valuation techniques for assets and liabilities recorded in our Condensed Consolidated Balance Sheets at fair value on a recurring basis:
Foreign Currency Derivatives - The foreign currency derivative instruments that we currently use are forward contracts and zero-cost collars, which typically expire within eighteen months. Most of the valuations are adjusted by a forward yield curve or interest rates. In such cases, these derivative contracts are classified within Level 2. Some valuations are based on exchange-quoted prices, which are classified as Level 1. Changes in the fair market values of these contracts are recognized in the Condensed Consolidated Financial Statements as a component of cost of goods sold in our Corporate, Eliminations and Other segment, or foreign currency transaction (gain) loss. As of March 31, 2022 and December 31, 2021, the gross asset position of our foreign currency derivative instruments was $103.2 million and $27.0 million, respectively, and the gross liability position of our foreign currency derivative instruments was $47.9 million and $45.4 million, respectively.
Commodity Derivatives - The commodity contracts primarily relate to natural gas. The commodity derivative instruments that we currently use are forward purchase contracts, swaps, and three-way collars. The natural gas contracts settle using NYMEX futures or AECO price indexes, which represent fair value at any given time. The contracts’ maturities and settlements are scheduled for future months and settlements are scheduled to coincide with anticipated gas purchases during those future periods. Quoted market prices from NYMEX and AECO are used to determine the fair value of these instruments. These market prices are adjusted by a forward yield curve and are classified within Level 2. Changes in the fair market values of these contracts are recognized in the Condensed Consolidated Financial Statements as a component of cost of goods sold in our Corporate, Eliminations and Other segment. As of March 31, 2022 and December 31, 2021, the gross asset position of our commodity derivative instruments was $41.0 million and $18.3 million, respectively, and the gross liability position of our commodity instruments was zero and $0.1 million, respectively.
Interest Rate Derivatives - We manage interest expense through interest rate contracts to convert a portion of our fixed-rate debt into floating-rate debt. From time to time, we also enter into interest rate swap agreements to hedge our exposure to changes in future interest rates related to anticipated debt issuances. Valuations are based on external pricing sources and are classified as Level 2. Changes in the fair market values of these contracts are recognized in the Condensed Consolidated Financial Statements as a component of interest expense. We did not hold any interest rate derivative positions as of March 31, 2022.
Financial Instruments
The carrying amounts and estimated fair values of our financial instruments are as follows:
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Carrying Amount | | Fair Value | Carrying Amount | | Fair Value |
|
| Cash and cash equivalents | $ | 881.9 | | | $ | 881.9 | | | $ | 769.5 | | | $ | 769.5 | |
| Accounts receivable | 1,530.1 | | | 1,530.1 | | | 1,531.9 | | | 1,531.9 | |
| Accounts payable | 848.7 | | | 848.7 | | | 1,260.7 | | | 1,260.7 | |
| Structured accounts payable arrangements | 850.1 | | | 850.1 | | | 743.7 | | | 743.7 | |
| Short-term debt | 480.5 | | | 480.5 | | | 302.8 | | | 302.8 | |
| Long-term debt, including current portion | 3,977.3 | | | 4,261.0 | | | 3,978.8 | | | 4,516.1 | |
For cash and cash equivalents, accounts receivables, accounts payable, structured accounts payable arrangements, and short-term debt, the carrying amount approximates fair value because of the short-term maturity of those instruments. The fair value of long-term debt, including the current portion, is estimated using quoted market prices for the publicly registered notes and debentures, classified as Level 1 and Level 2, respectively, within the fair value hierarchy, depending on the market liquidity of the debt.
13. Share Repurchases
On August 23, 2021, our Board of Directors authorized a $1.0 billion share repurchase program (the “2021 Repurchase Program”), replacing our 2015 Repurchase Program. The 2021 Repurchase Program allows the Company to repurchase shares of our Common Stock, through open market purchases, accelerated share repurchase arrangements, privately negotiated transactions or otherwise and has no set expiration date. In connection with this authorization, the remaining amount of $700 million authorized under 2015 Repurchase Program was terminated.
On February 24, 2022, pursuant to existing stock repurchase authorizations, we entered into an accelerated share repurchase (“ASR”) agreement with a third-party financial institution to repurchase $400 million of our Common Stock. At inception, we paid the financial institution $400 million and took initial delivery of 7,056,229 shares of our Common Stock. Under the terms of the ASR agreement, upon settlement, we would either receive additional shares from the financial institution or be required to deliver additional shares or cash to the financial institution. In the second quarter of 2022, the ASR agreement was completed and we paid the financial institution an additional $54.2 million. When combining the initial $400 million paid at the inception of the ASR agreement and the cash settlement of $54.2 million at the termination of the ASR agreement, we repurchased approximately 7,056,229 shares at an average repurchase price of $64.37 per share. This ASR will exhaust most of the remaining share repurchase authorization established in the 2021 Repurchase Program. Following the completion of the current authorization, our Board of Director has approved the establishment of a new $1.0 billion share repurchase authorization.
During the quarter ended March 31, 2022, we repurchased 7,589,664 shares of Common Stock in the open market under the 2021 Repurchase Program for approximately $422.1 million. This includes 7,056,229 shares purchased under the ASR agreement.
The extent to which we repurchase our shares and the timing of any such repurchases depend on a number of factors, including market and business conditions, the price of our shares, and corporate, regulatory and other considerations.
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
14. Accumulated Other Comprehensive Income (Loss)
The following table sets forth the changes in AOCI, net of tax, by component during the three months ended March 31, 2022 and March 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Gain (Loss) | | Net Actuarial Gain and Prior Service Cost | | Amortization of Gain on Interest Rate Swap | | Net Gain (Loss) on Marketable Securities Held in Trust | | Total |
| Three Months Ended March 31, 2022 | | | | | | | | | |
| Balance at December 31, 2021 | $ | (1,825.5) | | | $ | (72.8) | | | $ | 5.2 | | | $ | 1.3 | | | $ | (1,891.8) | |
| Other comprehensive income (loss) | 302.5 | | | 0.7 | | | 0.5 | | | (37.0) | | | 266.7 | |
| Tax (expense) benefit | 2.8 | | | (0.3) | | | — | | | 8.6 | | | 11.1 | |
| Other comprehensive income (loss), net of tax | 305.3 | | | 0.4 | | | 0.5 | | | (28.4) | | | 277.8 | |
| Other comprehensive income (loss) attributable to noncontrolling interest | (4.3) | | | — | | | — | | | — | | | (4.3) | |
| Balance as of March 31, 2022 | $ | (1,524.5) | | | $ | (72.4) | | | $ | 5.7 | | | $ | (27.1) | | | $ | (1,618.3) | |
| | | | | | | | | |
| Three Months Ended March 31, 2021 | | | | | | | | | |
| Balance at December 31, 2020 | $ | (1,719.1) | | | $ | (109.7) | | | $ | 3.7 | | | $ | 18.9 | | | $ | (1,806.2) | |
| Other comprehensive income (loss) | (114.4) | | | 1.3 | | | 0.5 | | | (17.8) | | | (130.4) | |
| Tax (expense) benefit | 8.3 | | | 2.5 | | | — | | | — | | | 10.8 | |
| Other comprehensive income (loss), net of tax | (106.1) | | | 3.8 | | | 0.5 | | | (17.8) | | | (119.6) | |
| Other comprehensive income (loss) attributable to noncontrolling interest | 2.3 | | | — | | | — | | | — | | | 2.3 | |
| Balance as of March 31, 2021 | $ | (1,822.9) | | | $ | (105.9) | | | $ | 4.2 | | | $ | 1.1 | | | $ | (1,923.5) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
15. Related Party Transactions
We enter into transactions and agreements with certain of our non-consolidated companies and other related parties from time to time. As of March 31, 2022 and December 31, 2021, the net amount due from our non-consolidated companies totaled $156.8 million and $63.0 million, respectively. These amounts include a long-term indemnification asset from Vale S.A. for reimbursement of pension plan obligations. This asset had a balance of $24.9 million and $21.0 million as of March 31, 2022 and December 31, 2021, respectively.
The Condensed Consolidated Statements of Earnings included the following transactions with our non-consolidated companies:
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2022 | | 2021 | | | | |
Transactions with related parties included in net sales | $ | 513.0 | | | $ | 157.4 | | | | | |
Transactions with related parties included in cost of goods sold | 511.1 | | | 217.7 | | | | | |
As part of the MWSPC joint venture, we market approximately 25% of MWSPC production. Marketing fees of approximately $3.3 million and $1.6 million, are included in revenue for the three months ended March 31, 2022 and 2021, respectively.
In 2015, we agreed to provide funds to finance the purchase and construction of two articulated tug and barge units, intended to transport anhydrous ammonia for our operations, through a bridge loan agreement with Gulf Marine Solutions, LLC (“GMS”). GMS is a wholly owned subsidiary of Gulf Sulphur Services Ltd., LLLP (“Gulf Sulphur Services”), an entity in which we and a joint venture partner, Savage Companies (“Savage”), each indirectly own a 50% equity interest and for which a subsidiary of Savage provides operating and management services. GMS provided these funds through draws on the Mosaic bridge loan and
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
through additional loans from Gulf Sulphur Services. We are the primary beneficiary of GMS, a variable interest entity, and consolidate GMS’s operations in our Phosphate segment.
On October 24, 2017, a lease financing transaction was completed with respect to the completed tug and barge unit and, following the application of proceeds from the transaction, all outstanding loans made by Gulf Sulphur Services to GMS, together with accrued interest, were repaid, and the bridge loans related to the first unit’s construction were repaid. As of March 31, 2022 and December 31, 2021, there were outstanding bridge loans of $74.7 million relating to the cancelled second barge and the remaining tug, which bridge loans are eliminated in consolidation. Reserves against the bridge loans of approximately $54.2 million were established in 2018 and remain unchanged. Several subsidiaries of Savage operate vessels utilized by Mosaic under time charter arrangements, including the ammonia tug and barge unit.
16. Contingencies
We have described below material judicial and administrative proceedings to which we are subject.
Environmental Matters
We have contingent environmental liabilities that arise principally from three sources: (i) facilities currently or formerly owned by our subsidiaries or their predecessors; (ii) facilities adjacent to currently or formerly owned facilities; and (iii) third-party Superfund or state equivalent sites. At facilities currently or formerly owned by our subsidiaries or their predecessors, the historical use and handling of regulated chemical substances, crop and animal nutrients and additives and by-product or process tailings have resulted in soil, surface water and/or groundwater contamination. Spills or other releases of regulated substances, subsidence from mining operations and other incidents arising out of operations, including accidents, have occurred previously at these facilities, and potentially could occur in the future, possibly requiring us to undertake or fund cleanup or result in monetary damage awards, fines, penalties, other liabilities, injunctions or other court or administrative rulings. In some instances, pursuant to consent orders or agreements with governmental agencies, we are undertaking certain remedial actions or investigations to determine whether remedial action may be required to address contamination. At other locations, we have entered into consent orders or agreements with appropriate governmental agencies to perform required remedial activities that will address identified site conditions. Taking into consideration established accruals of approximately $56.2 million and $57.3 million as of March 31, 2022 and December 31, 2021, respectively, expenditures for these known conditions currently are not expected, individually or in the aggregate, to have a material effect on our business or financial condition. However, material expenditures could be required in the future to remediate the contamination at known sites or at other current or former sites or as a result of other environmental, health and safety matters. Below is a discussion of the more significant environmental matters.
New Wales Water Loss Incident. In August 2016, a sinkhole developed under one of the two cells of the active Gypstack at our New Wales facility in Polk County, Florida, resulting in process water from the stack draining into the sinkhole. The incident was reported to the FDEP and EPA. In October 2016, our subsidiary, Mosaic Fertilizer, entered into a consent order (the “Order”) with the FDEP relating to the incident. Under the Order, Mosaic Fertilizer agreed to, among other things: implement a remediation plan to close the sinkhole; perform additional monitoring of the groundwater quality and act to assess and remediate in the event monitored off-site water does not comply with applicable standards as a result of the incident; evaluate the risk of potential future sinkhole formation at the New Wales facility and at Mosaic Fertilizer’s active Gypstack operations at the Bartow, Riverview and Plant City facilities and provide recommendations to address any identified issues; and provide financial assurance of no less than $40.0 million, which we have done without the need for any expenditure of corporate funds through satisfaction of a financial strength test and Mosaic parent guarantee. The Order did not require payment of civil penalties relating to the incident.
As of March 31, 2022, the sinkhole repairs were substantially complete. Additional expenditures could be required in the future for additional remediation or other measures in connection with the sinkhole including if, for example, the FDEP or EPA were to request additional measures to address risks presented by the Gypstack. These expenditures could be material. In addition, we are unable to predict at this time what, if any, impact the New Wales water loss incident will have on future Florida permitting efforts.
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
EPA RCRA Initiative. We have certain financial assurance and other obligations under consent decrees and a separate financial assurance arrangement relating to our facilities in Florida and Louisiana. These obligations are discussed in Note 10 of our Notes to Condensed Consolidated Financial Statements.
Florida Sulfuric Acid Plants. On April 8, 2010, EPA Region 4 submitted an administrative subpoena to us under Section 114 of the Federal Clean Air Act (the “CAA”) regarding compliance of our Florida sulfuric acid plants with the “New Source Review” requirements of the CAA. The request received by Mosaic appears to be part of a broader EPA national enforcement initiative focusing on sulfuric acid plants. On June 6, 2010, EPA issued a notice of violation to CF (the “CF NOV”) with respect to “New Source Review” compliance at the Plant City Facility’s sulfuric acid plants and the allegations in the CF NOV were not resolved before our 2014 acquisition of the Plant City Facility. CF has agreed to indemnify us with respect to any penalty EPA may assess as a result of the allegations in the CF NOV.
We have been engaged in settlement discussions with U.S. EPA and the Department of Justice, originating with the allegations of violations of Clean Air Act Prevention of Significant Deterioration (“PSD”) permitting requirements at the Plant City sulfuric acid plants and encompassing injunctive relief regarding sulfur dioxide emissions across Mosaic’s Florida sulfuric acid plant fleet. With the closure of the Plant City Facility fertilizer operations, there is no longer a need to reach resolution with the government on injunctive relief (i.e., reduction of sulfur dioxide emissions) at that facility. Furthermore, the Department of Justice has determined that there is no basis for proceeding with a settlement, as EPA and the Department have not currently alleged any violations of the Clean Air Act PSD permitting requirements at any other of Mosaic’s Florida sulfuric acid plants. On July 24, 2020, the DOJ filed a complaint against CF and stipulation of settlement, including a $550,000 civil penalty, concluding enforcement against CF related to the CF NOV.
We cannot predict at this time whether EPA and DOJ will initiate an enforcement action in the future with respect to “New Source Review” compliance at our Florida sulfuric acid plants or what its scope would be, or what the range of outcomes might be with respect to such a potential enforcement action.
Uncle Sam Gypstack. In January 2019, we observed lateral movement of the north slope of our active phosphogypsum stack at the Uncle Sam facility in Louisiana. The observation was reported to the Louisiana Department of Environmental Quality and the U.S. EPA. We continue to provide updates to the agencies on the movement, which has slowed following actions we have taken, which include reducing process water volume stored atop the stack to reduce the active load causing the movement; constructing a stability berm at the base of the slope to increase resistance; and removing gypsum from the north side to the south side. These steps have improved slope stability, reduced slope movement and reduced our capacity to store process water. There has been no loss of containment resulting from the movement observed, and none is expected. Although continued lateral movement on the north slope could have a material effect on our future operations at that facility, we cannot predict the prospective impact on our results of operations at this time.
Other Environmental Matters. Superfund and equivalent state statutes impose liability without regard to fault or to the legality of a party’s conduct on certain categories of persons who are considered to have contributed to the release of “hazardous substances” into the environment. Under Superfund, or its various state analogues, one party may, under certain circumstances, be required to bear more than its proportionate share of cleanup costs at a site where it has liability if payments cannot be obtained from other responsible parties. Currently, certain of our subsidiaries are involved or concluding involvement at several Superfund or equivalent state sites. Our remedial liability from these sites, alone or in the aggregate, currently is not expected to have a material effect on our business or financial condition. As more information is obtained regarding these sites and the potentially responsible parties involved, this expectation could change.
We believe that, pursuant to several indemnification agreements, our subsidiaries are entitled to at least partial, and in many instances complete, indemnification for the costs that may be expended by us or our subsidiaries to remedy environmental issues at certain facilities. These agreements address issues that resulted from activities occurring prior to our acquisition of facilities or businesses from parties including, but not limited to, ARCO (BP); Beatrice Fund for Environmental Liabilities; Conoco; Conserv; Estech, Inc.; Kaiser Aluminum & Chemical Corporation; Kerr-McGee Inc.; PPG Industries, Inc.; The Williams Companies; CF; and certain other private parties. Our subsidiaries have already received and anticipate receiving amounts pursuant to the indemnification agreements for certain of their expenses incurred to date as well as future anticipated expenditures. We record potential indemnifications as an offset to the established accruals when they are realizable or realized. The failure of an indemnitor to fulfill its obligations could result in future costs that could be material.
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
Louisiana Parishes Coastal Zone Cases
Several Louisiana parishes and the City of New Orleans have filed lawsuits against hundreds of oil and gas companies seeking regulatory, restoration and compensatory damages in connection with historical oil, gas and sulfur mining and transportation operations in the coastal zone of Louisiana. Mosaic is the corporate successor to certain companies which performed these types of operations in the coastal zone of Louisiana. Mosaic has been named in two of the lawsuits filed to date. In addition, in several other cases, historical oil, gas and sulfur operations which may have been related to Mosaic’s corporate predecessors have been identified in the complaints. Based upon information known to date, Mosaic has contractual indemnification rights against third parties for any loss or liability arising out of these claims pursuant to indemnification agreements entered into by Mosaic’s corporate predecessor(s) with third parties. There may also be insurance contracts which may respond to some or all of the claims. However, the financial ability of the third-party indemnitors, the extent of potential insurance coverage and the extent of potential liability from these claims is currently unknown.
In September 2019, counsel for several of the parishes announced that an agreement had been reached to settle the claims against Mosaic and its corporate predecessors, subject to approval by the participating parishes and the State of Louisiana. In connection with that settlement agreement, the proposed settlement payment obligations would be paid by third-party indemnitors.
North America Phosphate Operations
Denial of the permits sought, issuance of the permits with cost-prohibitive conditions, substantial delays in issuing the permits, legal actions that prevent us from relying on permits or revocation of permits may create challenges for us to mine the phosphate rock or to operate our Florida and Louisiana phosphate plants at desired levels or increase our costs in the future.
Brazil Legal Contingencies
Our Brazilian subsidiaries are engaged in a number of judicial and administrative proceedings regarding labor, environmental, mining and civil claims that allege aggregate damages and/or fines of approximately $843.1 million. We estimate that our probable aggregate loss with respect to these claims is approximately $69.2 million, which is included in our accrued liabilities in our Condensed Consolidated Balance Sheet as of March 31, 2022.
Approximately $653.3 million of the maximum potential loss relates to labor claims, such as in-house and third-party employees’ judicial proceedings alleging the right to receive overtime pay, additional payment due to work in hazardous conditions, risk premium, profit sharing, additional payment due to night work, salary parity and wage differences. We estimate that our probable aggregate loss regarding these claims is approximately $61.2 million, which has been accrued as of March 31, 2022.
Based on Brazilian legislation and the current status of similar labor cases involving unrelated companies, we believe we have recorded adequate loss contingency reserves sufficient to cover our estimate of probable losses. If the status of similar cases involving unrelated companies were to adversely change in the future, our maximum exposure could increase and additional accruals could be required.
The environmental, judicial and administrative proceedings claims allege aggregate damages and/or fines in excess of $23.1 million; however, we estimate that our probable aggregate loss regarding these claims is approximately $5.9 million, which has been accrued as of March 31, 2022.
Our Brazilian subsidiaries also have certain other civil contingent liabilities with respect to judicial, administrative and arbitration proceedings and claims related to contract disputes, pension plan matters, real estate disputes, regulatory issues and other civil matters arising in the ordinary course of business. These claims allege aggregate damages in excess of $166.6 million. We estimate that the probable aggregate loss with respect to these matters is approximately $2.1 million.
Uberaba Judicial Settlement
In 2013, the Federal Public Prosecutor filed a public civil action requesting that the Company adopt several measures to mitigate soil and water contamination related to the Gypstack at our Uberaba facility, located in the State of Minas Gerais, including compensation for the alleged social and environmental damages. In 2014, our predecessor subsidiary in Brazil entered into a judicial settlement with the Federal Public Prosecutor, the State of Minas Gerais public prosecutor and the federal
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
environmental agency. Under this agreement, we agreed to implement remediation measures such as: constructing a liner under the Gypstack water ponds and lagoons, and monitoring the groundwater and soil quality. We also agreed to create a private reserve of natural heritage and to pay compensation in the amount of approximately $0.3 million, which was paid in July 2018. We are currently acting in compliance with our obligations under the judicial settlement and expect them to be completed by December 31, 2025.
Brazil Tax Contingencies
Our Brazilian subsidiaries are engaged in a number of judicial and administrative proceedings relating to various non-income tax matters. We estimate that our maximum potential liability with respect to these matters is approximately $468.3 million, of which $218.7 million is subject to an indemnification agreement entered into with Vale S.A in connection with the Acquisition.
Approximately $280.3 million of the maximum potential liability relates to a Brazilian federal value added tax, PIS and COFINS, and tax credit cases, while the majority of the remaining amount relates to various other non-income tax cases. The maximum potential liability can increase with new audits from Brazilian tax authorities. Based on Brazil tax legislation and the current status of similar tax cases involving unrelated taxpayers, we believe we have recorded adequate loss contingency reserves sufficient to cover our estimate of probable losses, which are immaterial. If the status of similar tax cases involving unrelated taxpayer changes in the future, additional accruals could be required.
Other Claims
We also have certain other contingent liabilities with respect to judicial, administrative and arbitration proceedings and claims of third parties, including tax matters, arising in the ordinary course of business. We do not believe that any of these contingent liabilities will have a material adverse impact on our business or financial condition, results of operations, and cash flows.
17. Business Segments
The reportable segments are determined by management based upon factors such as products and services, production processes, technologies, market dynamics, and for which segment financial information is available for our chief operating decision maker.
We evaluate performance based on the operating earnings of the respective business segments, which includes certain allocations of corporate selling, general and administrative expenses. The segment results may not represent the actual results that would be expected if they were independent, stand-alone businesses. Intersegment eliminations, including profit on intersegment sales, mark-to-market gains/losses on derivatives, debt expenses, Streamsong Resort® results of operations and the results of the China and India distribution businesses are included within Corporate, Eliminations and Other. For a description of our business segments, see Note 1 to the Condensed Consolidated Financial Statements.
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
Segment information for the three months ended March 31, 2022 and 2021 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Phosphate | | Potash | | Mosaic Fertilizantes | | Corporate, Eliminations and Other (a) | | Total |
| Three months ended March 31, 2022 | | | | | | | | | |
| Net sales to external customers | $ | 1,152.8 | | | $ | 1,035.7 | | | $ | 1,488.6 | | | $ | 245.2 | | | $ | 3,922.3 | |
| Intersegment net sales | 343.2 | | | 24.1 | | | — | | | (367.3) | | | — | |
| Net sales | 1,496.0 | | | 1,059.8 | | | 1,488.6 | | | (122.1) | | | 3,922.3 | |
| Gross margin | 527.7 | | | 578.9 | | | 219.3 | | | 113.2 | | | 1,439.1 | |
| Canadian resource taxes | — | | | 157.2 | | | — | | | — | | | 157.2 | |
| Gross margin (excluding Canadian resource taxes) | 527.7 | | | 736.1 | | | 219.3 | | | 113.2 | | | 1,596.3 | |
| Operating earnings | 492.5 | | | 563.3 | | | 186.7 | | | 13.3 | | | 1,255.8 | |
| Capital expenditures | 147.7 | | | 65.1 | | | 75.1 | | | 2.6 | | | 290.5 | |
| Depreciation, depletion and amortization expense | 120.5 | | | 77.0 | | | 25.2 | | | 4.0 | | | 226.7 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Three months ended March 31, 2021 | | | | | | | | | |
| Net sales to external customers | $ | 884.6 | | | $ | 473.1 | | | $ | 763.4 | | | $ | 176.0 | | | $ | 2,297.1 | |
| Intersegment net sales | 116.4 | | | 4.3 | | | — | | | (120.7) | | | — | |
| Net sales | 1,001.0 | | | 477.4 | | | 763.4 | | | 55.3 | | | 2,297.1 | |
| Gross margin | 172.6 | | | 140.2 | | | 103.1 | | | 19.0 | | | 434.9 | |
| Canadian resource taxes | — | | | 35.0 | | | — | | | — | | | 35.0 | |
| Gross margin (excluding Canadian resource taxes) | 172.6 | | | 175.2 | | | 103.1 | | | 19.0 | | | 469.9 | |
| | | | | | | | | |
| Operating earnings (loss) | 152.9 | | | 124.9 | | | 90.5 | | | (55.1) | | | 313.2 | |
| Capital expenditures | 152.5 | | | 96.5 | | | 38.8 | | | 0.8 | | | 288.6 | |
| Depreciation, depletion and amortization expense | 102.4 | | | 79.5 | | | 23.2 | | | 4.0 | | | 209.1 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Total Assets | | | | | | | | | |
| As of March 31, 2022 | $ | 8,901.3 | | | $ | 8,887.6 | | | $ | 5,984.8 | | | $ | (350.6) | | | $ | 23,423.1 | |
| As of December 31, 2021 | 8,776.4 | | | 8,312.8 | | | 4,908.2 | | | 39.0 | | | 22,036.4 | |
______________________________
(a)The “Corporate, Eliminations and Other” category includes the results of our ancillary distribution operations in India and China. For the three months ended March 31, 2022, distribution operations in India and China had revenue of $220.9 million, and gross margin of $87.0 million. For the three months ended March 31, 2021, distribution operations in India and China had revenue of $159.6 million, and gross margin of $30.3 million.
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
Financial information relating to our operations by geographic area is as follows:
| | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| (in millions) | 2022 | | 2021 | | | | |
Net sales(a): | | | | | | | |
| Brazil | $ | 1,448.5 | | | $ | 767.8 | | | | | |
Canpotex(b) | 492.5 | | | 150.2 | | | | | |
| Canada | 230.5 | | | 190.4 | | | | | |
| China | 220.8 | | | 125.7 | | | | | |
| Mexico | 67.9 | | | 50.2 | | | | | |
| Argentina | 53.6 | | | 17.3 | | | | | |
| Paraguay | 35.0 | | | 19.0 | | | | | |
| Colombia | 32.2 | | | 27.8 | | | | | |
| Japan | 26.5 | | | 21.7 | | | | | |
| Australia | 24.9 | | | 23.8 | | | | | |
| Honduras | 3.4 | | | 2.8 | | | | | |
| Thailand | 2.3 | | | 3.1 | | | | | |
| Dominican Republic | 2.2 | | | 6.6 | | | | | |
| India | — | | | 29.5 | | | | | |
| Other | 20.2 | | | 13.2 | | | | | |
| Total international countries | 2,660.5 | | | 1,449.1 | | | | | |
| United States | 1,261.8 | | | 848.0 | | | | | |
| Consolidated | $ | 3,922.3 | | | $ | 2,297.1 | | | | | |
______________________________
(a)Revenues are attributed to countries based on location of customer.
(b)Canpotex is the export association of two Saskatchewan potash producers. The net sales of potash from Mosaic to Canpotex included in our consolidated financial statements in the Net Sales line represent Mosaic’s sales of potash to Canpotex, and are recognized upon delivery to the unrelated third-party customer. Canpotex annual sales to the ultimate third-party customers are approximately: 30% to customers based in Brazil, 14% to customers based in Indonesia, 11% to customers based in China, 6% to customers based in India, and 39% to customers based in the rest of the world.
| | | | | | | | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
Net sales by product type are as follows:
| | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| (in millions) | 2022 | | 2021 | | | | |
| Sales by product type: | | | | | | | |
| Phosphate Crop Nutrients | $ | 958.8 | | | $ | 666.6 | | | | | |
| Potash Crop Nutrients | 1,194.8 | | | 557.5 | | | | | |
| Crop Nutrient Blends | 553.0 | | | 314.7 | | | | | |
Performance Products(a) | 616.4 | | | 399.4 | | | | | |
| Phosphate Rock | 27.1 | | | 16.9 | | | | | |
Other(b) | 572.2 | | | 342.0 | | | | | |
| $ | 3,922.3 | | | $ | 2,297.1 | | | | | |
____________________________________________
(a)Includes sales of MicroEssentials®, K-Mag, Aspire and Sus-Terra.
(b)Includes sales of industrial potash, feed products, nitrogen and other products.
