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Section 1: 10-Q (10-Q)

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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________
FORM 10-Q  
_______________________________________________________________________
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-32327  
_______________________________________________________________________
The Mosaic Company
(Exact name of registrant as specified in its charter)  
_______________________________________________________________________
 
Delaware
20-1026454
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3033 Campus Drive
Suite E490
Plymouth, Minnesota 55441
(800) 918-8270
(Address and zip code of principal executive offices and registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)  
_______________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):    Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 350,195,002 shares of Common Stock as of July 28, 2016.
 




Table of Contents

Table of Contents
 
 
 
 
 
 
PART I.
FINANCIAL INFORMATION
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
PART II.
OTHER INFORMATION
 
 
Item 1.
 
Item 2.
 
Item 4.
 
Item 6.
 
 




Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE MOSAIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share amounts)
(Unaudited)
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Net sales
$
1,674.6

 
$
2,487.5

 
$
3,348.5

 
$
4,626.6

Cost of goods sold
1,520.6

 
1,879.6

 
2,957.8

 
3,599.5

Gross margin
154.0

 
607.9

 
390.7

 
1,027.1

Selling, general and administrative expenses
72.9

 
89.3

 
162.7

 
189.8

Other operating expense
68.8

 
8.6

 
52.3

 
8.8

Operating earnings
12.3

 
510.0

 
175.7

 
828.5

Interest expense, net
(33.5
)
 
(23.5
)
 
(59.7
)
 
(54.8
)
Foreign currency transaction gain (loss)
14.7

 
(16.0
)
 
102.6

 
29.1

Other expense
(0.7
)
 
(7.8
)
 
(0.2
)
 
(13.4
)
Earnings (loss) from consolidated companies before income taxes
(7.2
)
 
462.7

 
218.4

 
789.4

Provision for (benefit from) income taxes
(9.8
)
 
72.6

 
(38.5
)
 
103.3

Earnings (loss) from consolidated companies
2.6

 
390.1

 
256.9

 
686.1

Equity in net earnings (loss) of nonconsolidated companies
(13.7
)
 
0.9

 
(11.0
)
 
(0.5
)
Net earnings (loss) including noncontrolling interests
(11.1
)
 
391.0

 
245.9

 
685.6

Less: Net earnings (loss) attributable to noncontrolling interests
(0.9
)
 
0.4

 
(0.8
)
 
0.2

Net earnings (loss) attributable to Mosaic
$
(10.2
)
 
$
390.6

 
$
246.7

 
$
685.4

Basic net earnings (loss) per share attributable to Mosaic
$
(0.03
)
 
$
1.08

 
$
0.70

 
$
1.89

Basic weighted average number of shares outstanding
349.8

 
361.3

 
350.6

 
363.6

Diluted net earnings (loss) per share attributable to Mosaic
$
(0.03
)
 
$
1.08

 
$
0.70

 
$
1.88

Diluted weighted average number of shares outstanding
349.8

 
363.3

 
351.8

 
365.5


See Notes to Condensed Consolidated Financial Statements
1




Table of Contents

THE MOSAIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Net earnings (loss) including noncontrolling interest
$
(11.1
)
 
$
391.0

 
$
245.9

 
$
685.6

Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation, net of tax
56.4

 
139.7

 
322.4

 
(476.4
)
Net actuarial gain and prior service cost, net of tax
1.7

 
1.9

 
3.3

 
5.2

Amortization of loss on interest rate swap, net of tax
0.4

 
0.6

 
1.3

 
1.3

Other comprehensive income (loss)
58.5

 
142.2

 
327.0

 
(469.9
)
Comprehensive income (loss)
47.4

 
533.2

 
572.9

 
215.7

Less: Comprehensive income (loss) attributable to noncontrolling interest
0.4

 
0.8

 
1.6

 
(2.0
)
Comprehensive income attributable to Mosaic
$
47.0

 
$
532.4

 
$
571.3

 
$
217.7



See Notes to Condensed Consolidated Financial Statements
2




Table of Contents

THE MOSAIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
(Unaudited)
 
 
June 30,
2016
 
December 31,
2015
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
1,059.3

 
$
1,276.3

 
Receivables, net
399.6

 
675.0

 
Inventories
1,702.1

 
1,563.5

 
Other current assets
631.5

 
628.6

 
Total current assets
3,792.5

 
4,143.4

 
Property, plant and equipment, net of accumulated depreciation of $5,468.3 million and $4,633.4 million, respectively
9,197.5

 
8,721.0

 
Investments in nonconsolidated companies
1,043.7

 
980.5

 
Goodwill
1,667.5

 
1,595.3

 
Deferred income taxes
726.5

 
691.9

 
Other assets
1,257.1

 
1,257.4

 
Total assets
$
17,684.8

 
$
17,389.5

 
Liabilities and Equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt
$
54.0

 
$
25.5

 
Current maturities of long-term debt
42.3

 
41.7

 
Structured accounts payable arrangements
195.5

 
481.7

 
Accounts payable
622.6

 
520.6

 
Accrued liabilities
988.3

 
977.5

 
Total current liabilities
1,902.7

 
2,047.0

 
Long-term debt, less current maturities
3,772.6

 
3,769.5

 
Deferred income taxes
1,069.6

 
977.4

 
Other noncurrent liabilities
945.7

 
1,030.6

 
Equity:
 
 
 
 
Preferred Stock, $0.01 par value, 15,000,000 shares authorized, none issued and outstanding as of June 30, 2016 and December 31, 2015

 

 
Class A Common Stock, $0.01 par value, none authorized, issued and outstanding as of June 30, 2016, 194,203,987 shares authorized, none issued and outstanding as of December 31, 2015

 

 
Class B Common Stock, $0.01 par value, none authorized, issued, and outstanding as of June 30, 2016, 87,008,602 shares authorized, none issued and outstanding as of December 31, 2015

 

 
Common Stock, $0.01 par value, 1,000,000,000 shares authorized, 387,875,113 shares issued and 349,926,264 shares outstanding as of June 30, 2016, 387,697,547 shares issued and 352,515,256 shares outstanding as of December 31, 2015
3.5

 
3.5

 
Capital in excess of par value
19.5

 
6.4

 
Retained earnings
11,103.0

 
11,014.8

 
Accumulated other comprehensive income (loss)
(1,168.3
)
 
(1,492.9
)
 
Total Mosaic stockholders' equity
9,957.7

 
9,531.8

 
Noncontrolling interests
36.5

 
33.2

 
Total equity
9,994.2

 
9,565.0

 
Total liabilities and equity
$
17,684.8

 
$
17,389.5


See Notes to Condensed Consolidated Financial Statements
3




Table of Contents

THE MOSAIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
 
Six months ended
 
June 30,
2016
 
June 30,
2015
 
 
Cash Flows from Operating Activities:
 
 
 
 
Net earnings including noncontrolling interests
$
245.9

 
$
685.6

 
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:
 
 
 
 
Depreciation, depletion and amortization
373.0

 
373.9

 
Deferred and other income taxes
(69.8
)
 
0.5

 
Equity in net earnings (loss) of nonconsolidated companies, net of dividends
27.4

 
24.0

 
Accretion expense for asset retirement obligations
19.8

 
15.5

 
Share-based compensation expense
22.3

 
33.9

 
Loss on write-down of long-lived asset
47.0

 

 
Unrealized (gain) loss on derivatives
(91.3
)
 
13.9

 
Other
6.2

 
15.3

 
Changes in assets and liabilities, excluding effects of acquisition:
 
 
 
 
Receivables, net
257.0

 
45.3

 
Inventories
(36.6
)
 
30.6

 
Other current and noncurrent assets
17.3

 
(151.1
)
 
Accounts payable and accrued liabilities
11.1

 
240.8

 
Other noncurrent liabilities
19.8

 
4.0

 
Net cash provided by operating activities
849.1

 
1,332.2

 
Cash Flows from Investing Activities:
 
 
 
 
Capital expenditures
(437.3
)
 
(456.9
)
 
Proceeds from adjustment to acquisition of business

 
47.9

 
Investments in nonconsolidated companies
(100.0
)
 
(125.0
)
 
Investments in affiliate
(90.0
)
 

 
Other
(3.1
)
 
7.7

 
Net cash used in investing activities
(630.4
)
 
(526.3
)
 
Cash Flows from Financing Activities:
 
 
 
 
Payments of short-term debt
(173.7
)
 
(144.8
)
 
Proceeds from issuance of short-term debt
202.7

 
158.5

 
Payments of structured accounts payable arrangements
(494.6
)
 
(242.1
)
 
Proceeds from structured accounts payable arrangements
206.0

 
148.5

 
Payments of long-term debt
(1.8
)
 
(2.4
)
 
Proceeds from issuance of long-term debt

 
3.8

 
Proceeds from settlement of swaps
4.2

 

 
Proceeds from stock option exercises
2.6

 
4.2

 
Repurchases of stock
(75.0
)
 
(634.5
)
 
Cash dividends paid
(192.4
)
 
(189.5
)
 
Other
(0.5
)
 
0.5

 
Net cash used in financing activities
(522.5
)
 
(897.8
)
 
Effect of exchange rate changes on cash
86.8

 
(72.8
)
 
Net change in cash and cash equivalents
(217.0
)
 
(164.7
)
 
Cash and cash equivalents - December 31
1,276.3

 
2,374.6

 
Cash and cash equivalents - June 30
$
1,059.3

 
$
2,209.9

Supplemental Disclosure of Cash Flow Information:
 
 
 
Cash paid during the period for:
 
 
 
Interest (net of amount capitalized of $18.5 and $17.7 for the six months ended June 30, 2016 and 2015, respectively)
$
63.1

 
$
63.3

Income taxes (net of refunds)
25.5

 
138.0


See Notes to Condensed Consolidated Financial Statements
4




Table of Contents

THE MOSAIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In millions, except per share amounts)
(Unaudited)
 
 
 
Mosaic Shareholders
 
 
 
 
 
Shares
 
Dollars
 
 
 
 
 
Capital in Excess of Par Value
 
 
 
Accumulated Other Comprehensive Income
 
 
 
 
 
Common Stock
 
Common Stock
 
 
Retained Earnings
 
 
Noncontrolling Interests
 
Total Equity
 
 
 
 
 
 
 
Balance as of December 31, 2014
367.5

 
$
3.7

 
$
4.2

 
$
11,168.9

 
$
(473.7
)
 
$
17.5

 
$
10,720.6

Total comprehensive income (loss)

 

 

 
1,000.4

 
(1,019.2
)
 
(3.5
)
 
(22.3
)
Stock option exercises
0.6

 

 
5.3

 

 

 

 
5.3

Stock based compensation

 

 
27.9

 

 

 

 
27.9

Repurchases of stock
(15.6
)
 
(0.2
)
 
(30.2
)
 
(667.9
)
 

 

 
(698.3
)
Dividends ($1.075 per share)

 

 

 
(486.6
)
 

 

 
(486.6
)
Dividends for noncontrolling interests

 

 

 

 

 
(0.8
)
 
(0.8
)
Equity from noncontrolling interests

 

 

 

 

 
20.0

 
20.0

Tax shortfall related to share based compensation

 

 
(0.8
)
 

 

 

 
(0.8
)
Balance as of December 31, 2015
352.5

 
$
3.5

 
$
6.4

 
$
11,014.8

 
$
(1,492.9
)
 
$
33.2

 
$
9,565.0

Total comprehensive income (loss)

 

 

 
246.7

 
324.6

 
1.6

 
572.9

Stock option exercises
0.2

 

 
2.6

 

 

 

 
2.6

Stock based compensation

 

 
20.0

 

 

 

 
20.0

Repurchases of stock
(2.8
)
 

 
(9.5
)
 
(65.5
)
 

 

 
(75.0
)
Dividends ($0.275 per share)

 

 

 
(93.0
)
 

 

 
(93.0
)
Dividends for noncontrolling interests

 

 

 

 

 
(0.5
)
 
(0.5
)
Equity from noncontrolling interests

 

 

 

 

 
2.2

 
2.2

Balance as of June 30, 2016
349.9

 
$
3.5

 
$
19.5

 
$
11,103.0

 
$
(1,168.3
)
 
$
36.5

 
$
9,994.2



See Notes to Condensed Consolidated Financial Statements
5




Table of Contents

THE MOSAIC COMPANY
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 as well as businesses in which we own less than a majority or a noncontrolling interest, including consolidated variable interest entities and investments accounted for by the equity method.
We are organized into the following business segments:
Our Phosphates 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. Included in the Phosphates segment is our 35% economic interest in a joint venture that owns the Miski Mayo Phosphate Mine in Peru and our 25% interest in the Ma'aden Wa'ad Al Shamal Phosphate Company (the "MWSPC") to develop, own and operate integrated phosphate production facilities in the Kingdom of Saudi Arabia. Once operational, we will market approximately 25% of the MWSPC production.
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 International Distribution business segment consists of sales offices, crop nutrient blending and bagging facilities, port terminals and warehouses in several key non-U.S. countries, including Brazil, Paraguay, India and China. Our International Distribution segment serves as a distribution outlet for our Phosphates and Potash segments, but also purchases and markets products from other suppliers.
Intersegment eliminations, unrealized mark-to-market gains/losses on derivatives, and debt expenses are included within Corporate, Eliminations and Other. See Note 14 of our Condensed Consolidated Financial Statements in this report for segment results.
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 statement 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, 2015 (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 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.


6

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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"), the costs of our employee benefit obligations for pension plans and postretirement benefits, income tax related accounts, including the valuation allowance against deferred income tax assets, inventory valuation and accruals for pending legal and environmental matters. Actual results could differ from these estimates.
Structured Accounts Payable Arrangements
In Brazil, we finance some of our potash-based fertilizer and other raw material product purchases through third-party financing 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 and Mosaic makes payment to the third-party intermediary at a later date, stipulated in accordance with the commercial terms negotiated. At June 30, 2016 and December 31, 2015, these structured accounts payable arrangement liabilities were $195.5 million and $481.7 million, respectively.
We have corrected the presentation of certain previously-reported balances related to the structured accounts payable arrangements in the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows. The error resulted in an understatement of net cash provided by operating activities and a corresponding understatement of net cash used in financing activities of $93.6 million for the six months ended June 30, 2015. We evaluated the effects of these errors in the previously issued consolidated financial statements for both the annual and interim periods of the prior years and concluded, based on the relevant quantitative and qualitative factors that the errors were not material, individually or in the aggregate, in relation to the consolidated financial statements taken as a whole.
3. Recently Issued Accounting Guidance
Recently Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued guidance which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the associated debt liability, consistent with the presentation of a debt discount. In August 2015, the FASB issued additional guidance which clarified that an entity may defer and present debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortize those costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings on it. This guidance became effective for us beginning January 1, 2016 and has been implemented retroactively. Accordingly, we reclassified $22.9 million of deferred financing fees against outstanding long-term debt accounts within the December 31, 2015 balance sheet. Our deferred financing fees of $2.9 million related to our revolving credit facility will remain recorded as an asset.
In March 2016, the FASB issued guidance which simplifies several aspects of the accounting for share-based payment transactions, including certain income tax consequences, classifications on the statement of cash flows, and accounting for forfeitures. The guidance is effective for us beginning January 1, 2017, and early application is permitted. We adopted this standard in the second quarter of 2016 with an effective date of January 1, 2016. The effect of this adoption was not significant to our consolidated balance sheet, statements of earnings or statements of cash flows.



7

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Pronouncements Issued But Not Yet Adopted
In May 2014, the FASB issued guidance addressing how revenue is recognized from contracts with customers and related disclosures. This standard supersedes existing revenue recognition requirements and most industry-specific guidance. This standard was initially expected to be effective for us beginning January 1, 2017, and provides for either full retrospective adoption or a modified retrospective adoption by which the cumulative effect of the change is recognized in retained earnings at the date of initial application. In July 2015, the FASB approved the deferral of the effective date of this standard by one year, and allows for adoption either at January 1, 2017 or January 1, 2018. We intend to utilize the full retrospective adoption method and to elect the deferred adoption date of January 1, 2018. We are currently evaluating the requirements of this guidance, and have not yet determined the impact on our consolidated financial statements.
In January 2016, the FASB issued guidance which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance is effective for us beginning January 1, 2018, and early adoption is not permitted. We are currently evaluating the impact that this guidance will have on our consolidated financial statements.
In February 2016, the FASB issued guidance which requires recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This guidance is effective for us beginning January 1, 2019, with early adoption permitted. The provisions of this guidance are to be applied using a modified retrospective approach, which requires application of the guidance for all periods presented. We are currently evaluating the impact that this guidance will have on our consolidated financial statements.



8

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4. Other Financial Statement Data
The following provides additional information concerning selected balance sheet accounts:
 

June 30,
2016
 
December 31,
2015
 
 
Other current assets 
 
 
 
 
Final price deferred(a)
$
119.6

 
$
175.6

 
Income and other taxes receivable
244.4

 
249.4

 
Prepaid expenses
142.6

 
123.1

 
Other
124.9

 
80.5

 
 
$
631.5

 
$
628.6

 
 
 
 
 
 
Other assets
 
 
 
 
MRO inventory
$
115.8

 
$
118.1

 
Restricted cash(b)
857.5

 
851.4

 
Other
283.8

 
287.9

 
 
$
1,257.1

 
$
1,257.4

 
 
 
 
 
 
Accrued liabilities
 
 
 
 
Non-income taxes
$
37.6

 
$
24.9

 
Payroll and employee benefits
135.3

 
162.9

 
Asset retirement obligations
107.0

 
91.9

 
Customer prepayments
360.5

 
121.2

 
Future capital commitment(c)
120.0

 
120.0

 
Other
227.9

 
456.6

 
 
$
988.3

 
$
977.5

 
 
 
 
 
 
Other noncurrent liabilities
 
 
 
 
Asset retirement obligations
$
727.2

 
$
749.7

 
Accrued pension and postretirement benefits
65.8

 
69.6

 
Unrecognized tax benefits
25.9

 
79.2

 
Other
126.8

 
132.1

 
 
$
945.7

 
$
1,030.6

(a) Final price deferred is product that has shipped to customers, but the price has not yet been agreed upon. This has not been included in inventory as risk of loss has passed to our customers. Amounts in this account are based on inventory cost.
(b) Included in restricted cash, as of June 30, 2016 and December 31, 2015, is $630 million that is committed to be placed in trust following the effectiveness of the consent decrees discussed under "EPA RCRA Initiative" in Note 9 of our Notes to Condensed Consolidated Financial Statements, as financial assurance to support certain estimated future asset retirement obligations.
(c) This amount was paid on July 1, 2016.


9

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5. 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
 
Six months ended
June 30,
 
June 30,
2016
 
2015
 
2016
 
2015
Net earnings (loss) attributable to Mosaic
$
(10.2
)
 
$
390.6

 
$
246.7

 
$
685.4

Basic weighted average number of shares outstanding
349.8

 
361.3

 
350.6

 
363.6

Dilutive impact of share-based awards

 
2.0

 
1.2

 
1.9

Diluted weighted average number of shares outstanding
349.8

 
363.3

 
351.8

 
365.5

Basic net earnings (loss) per share attributable to Mosaic
$
(0.03
)
 
$
1.08

 
$
0.70

 
$
1.89

Diluted net earnings (loss) per share attributable to Mosaic
$
(0.03
)
 
$
1.08

 
$
0.70

 
$
1.88

A total of 4.1 million and 3.1 million shares of Common Stock subject to issuance upon exercise of stock options for the three and six months ended June 30, 2016 and 1.3 million shares for the three and six months ended June 30, 2015, respectively, have been excluded from the calculation of diluted EPS as the effect would have been anti-dilutive.
6. Income Taxes
During the six months ended June 30, 2016, gross unrecognized tax benefits decreased by $75.6 million to $23.0 million as a result of the resolution of audit activity. If recognized, approximately $7.0 million of the $23.0 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 $1.5 million and $17.1 million as of June 30, 2016 and December 31, 2015, respectively, that were included in other noncurrent liabilities in the Condensed Consolidated Balance Sheets.
For the three months ended June 30, 2016, tax expense specific to the period included an expense of $4.8 million, which primarily related to distributions from certain non-U.S. subsidiaries. For the six months ended June 30, 2016, tax expense specific to the period included a benefit of $59.1 million, which includes a domestic benefit of $85.8 million related to the resolution of an Advanced Pricing Agreement, which is a tax treaty-based process, partially offset by a $20.5 million expense related to distributions from certain non-U.S. subsidiaries and $6.2 million of expense primarily related to changes in estimates from prior periods.
For the three and six months ended June 30, 2016, our income tax rate was favorably impacted by the mix of earnings across the jurisdictions in which we operate and by a benefit associated with depletion when compared to the three and six months ended June 30, 2015. In addition, for the three months ended June 30, 2016, the benefit from income taxes was favorably impacted by approximately $14 million from the cumulative adjustment resulting from the change in our estimated annual tax rate.
For the three months ended June 30, 2015, tax expense specific to the period included a benefit of $9.7 million. This benefit is primarily related to changes in estimates associated with an Advanced Pricing Agreement, which is a tax treaty-based process. For the six months ended June 30, 2015, tax expense specific to the period included a benefit of $38.0 million, which is primarily related to the resolution of certain state tax matters, resulting in a benefit of $18.4 million, and a reduction in the tax rate change for one of our equity method investments, resulting in a benefit of $7.5 million.


10

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

7. Inventories
Inventories consist of the following:
 
 
June 30,
2016
 
December 31,
2015
 
 
Raw materials
$
43.4

 
$
68.1

 
Work in process
387.1

 
435.9

 
Finished goods
1,193.2

 
991.0

 
Operating materials and supplies
78.4

 
68.5

 
 
$
1,702.1

 
$
1,563.5

8. Goodwill
The changes in the carrying amount of goodwill, by reporting unit, are as follows:
 
Phosphates
 
Potash
 
International Distribution
 
Total
Balance as of December 31, 2015
$
492.4

 
$
984.7

 
$
118.2

 
$
1,595.3

Foreign currency translation

 
64.8

 
7.4

 
72.2

Balance as of June 30, 2016
$
492.4

 
$
1,049.5

 
$
125.6

 
$
1,667.5

We review goodwill for impairment annually in October or at any time events or circumstances indicate that the carrying value may not be fully recoverable, which is based on our accounting policy and GAAP. We continue to monitor events and circumstances in 2016 and we do not believe there has been a triggering event that would indicate it is more likely than not that a goodwill impairment loss has been incurred, although declining selling prices and forecasted selling prices have likely reduced the excess fair value in certain reporting units.
9. Contingencies
We have described below judicial and administrative proceedings to which we are subject.
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 $23.6 million and $25.6 million as of June 30, 2016 and December 31, 2015, 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.
EPA RCRA Initiative. In 2003, the U.S. Environmental Protection Agency ("EPA") Office of Enforcement and Compliance Assurance announced 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


11

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

laws. Mining and processing of phosphate rock generates residual materials that must be managed both during the operation of a facility and upon a facility’s closure. Certain solid wastes generated by our phosphate operations may be subject to regulation under RCRA and related state laws. EPA rules exempt “extraction” and “beneficiation” wastes, as well as 20 specified “mineral processing” wastes, from the hazardous waste management requirements of RCRA. Accordingly, certain of the residual materials which our phosphate operations generate, as well as process wastewater from phosphoric acid production, are exempt from regulation as hazardous wastes under RCRA. However, the generation and management of other solid wastes from phosphate operations may be subject to hazardous waste regulation if the waste is deemed to exhibit a “hazardous waste characteristic.” As part of its initiative, we understand that EPA has inspected all or nearly all facilities in the U.S. phosphoric acid production sector, including ours, to ensure compliance with applicable RCRA regulations and to address any “imminent and substantial endangerment” found by EPA under RCRA. In addition to EPA’s inspections, our phosphates concentrates facilities have entered into consent orders to perform analyses of existing environmental data, to perform further environmental sampling as may be necessary, and to assess whether the facilities pose a risk of harm to human health or the surrounding environment.
We received Notices of Violation ("NOVs") from EPA related to the handling of hazardous waste at our Riverview (September 2005), New Wales (October 2005), Mulberry (June 2006), Green Bay (August 2006) and Bartow (September 2006) facilities in Florida. EPA issued similar NOVs to our competitors, including with respect to the Plant City facility acquired in our March 2014 acquisition of the Florida phosphate assets and assumption of certain liabilities (the "CF Phosphate Assets Acquisition") of CF Industries, Inc. ("CF"), and referred the NOVs to the U.S. Department of Justice ("DOJ") for further enforcement.
Following negotiations with the DOJ, EPA and state agencies, on September 30, 2015, we and our wholly owned subsidiary, Mosaic Fertilizer, LLC, reached agreements with EPA, the DOJ, the Florida Department of Environmental Protection ("FDEP") and the Louisiana Department of Environmental Quality (the "LDEQ") on the terms of two 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. The consent decrees do not cover the Plant City, Florida phosphate concentrates facility that we acquired as part of the CF Phosphate Assets Acquisition (the "Plant City Facility"). As discussed below, a separate consent decree was previously entered into with EPA and the FDEP with respect to RCRA compliance at Plant City.
The consent decree relating to our Louisiana facilities was entered by the United States District Court for the Eastern District of Louisiana on July 6, 2016, in substantially the form lodged on September 30, 2015.  Upon the entry by the United States District Court for the Middle District of Florida of the consent decree relating to our Florida facilities, both consent decrees (collectively, the “2015 Consent Decrees”) will become effective.  Under the 2015 Consent Decrees we have agreed to the following:
Payment of a cash penalty of approximately $8 million, in the aggregate.
Payment of up to $2.2 million to fund specific environmental projects unrelated to our facilities.
Modification of certain operating practices and undertaking certain capital improvement projects over a period of several years that are expected to result in capital expenditures likely to exceed $200 million in the aggregate.
Provision of additional financial assurance for the estimated costs of closure and long term care ("Gypstack Closure Costs") of our phosphogypsum management systems ("Gypstacks"). For financial reporting purposes, we recognize our estimated asset retirement obligations ("ARO"), including 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 noncurrent liabilities. As of December 31, 2015, the undiscounted amount of our Gypstack Closure Costs ARO, determined using the assumptions used for financial reporting purposes, was approximately $1.7 billion and the present value of our Gypstack Closure Costs ARO reflected in our Consolidated Balance Sheet was approximately $535 million. Following the effectiveness of the 2015 Consent Decrees, we will deposit cash, in the total amount of $630 million, into two trust funds which are expected to increase over time with reinvestment of earnings. The amount to be deposited corresponds to a material portion of our estimated Gypstack Closure Costs ARO. At December 31, 2015 and June 30, 2016, amounts to be held in such trust funds (including reinvested earnings) are classified as restricted cash and are included in other assets


12

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

on our Condensed Consolidated Balance Sheets. We will also issue a $50 million letter of credit in 2017 to further support our financial assurance obligations under the Florida 2015 Consent Decree. In addition, we have agreed to guarantee the difference between the amounts held in each trust fund (including earnings) and the estimated closure and long-term care costs. Our actual Gypstack Closure Costs are generally expected to be paid by us in the normal course of our Phosphates business over a period that may not end until three decades or more after a Gypstack has been closed.
In light of the amount of restricted cash referenced above, together with our operating cash flows, liquidity and capital resources, we believe that we have sufficient liquidity and capital resources to be able to fund the capital expenditures, financial assurance requirements and civil penalties provided for in the 2015 Consent Decrees.
As part of the CF Phosphate Assets Acquisition, we assumed certain ARO related to Gypstack Closure Costs at both the Plant City Facility and a closed Florida phosphate concentrates facility in Bartow, Florida (the “Bonnie Facility”) that we acquired. Associated with these assets are two related financial assurance arrangements for which we became responsible and that hold in trust the estimated Gypstack Closure Costs for these facilities, pursuant to federal or state law, which the government can draw against in the event we cannot perform such closure activities. One is a trust (the “Plant City Trust”) established to meet the requirements under a consent decree with EPA and the FDEP with respect to RCRA compliance at Plant City that also satisfies Florida financial assurance requirements at that site. The other is a trust fund (the “Bonnie Facility Trust”) established to meet the requirements under Florida financial assurance regulations (the “Florida Financial Assurance Requirement”) that apply to the Bonnie Facility. In the CF Phosphate Assets Acquisition, we deposited $189.2 million into the Plant City Trust as a substitute for funds that CF had deposited into trust. Based on our updated closure cost estimates, an additional $7 million was added to the Plant City Trust in the fourth quarter of 2014 and an additional $1.7 million was deposited in the third quarter of 2015 to correspond to that site's then estimated Gypstack Closure Costs. In addition, in July 2014, the FDEP approved our funding of $14.5 million into the Bonnie Facility Trust, which substituted funds that CF had deposited into an escrow account. We deposited an additional $3 million in the Bonnie Facility Trust in the second quarter of 2015. 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 amounts held in the Plant City Trust or the Bonnie Facility Trust. We are also permitted to satisfy our financial assurance obligations with respect to the Bonnie and Plant City Facilities by means of alternative credit support, including surety bonds or letters of credit.
At June 30, 2016, the aggregate amount of AROs associated with the Plant City Facility and the Bonnie Facility included in our consolidated balance sheet was $92.0 million. The aggregate amount held in the Plant City Trust and the Bonnie Facility Trust exceeds the aggregate amount of AROs associated with the Plant City Facility and the Bonnie Facility because the amount required to be held in the Plant City Trust represents the aggregate undiscounted estimated amount to be paid by us in the normal course of our Phosphates business over a period that may not end until three decades or more after the Gypstack has been closed, while the AROs included in our Consolidated Balance Sheet reflect the discounted present value of those estimated amounts. As part of the acquisition, we also assumed ARO related to land reclamation.
EPA EPCRA Initiative. In July 2008, DOJ sent a letter to major U.S. phosphoric acid manufacturers, including us, stating that EPA’s ongoing investigation indicates apparent violations of Section 313 of the Emergency Planning and Community Right-to-Know Act ("EPCRA") at their phosphoric acid manufacturing facilities. Section 313 of EPCRA requires annual reports to be submitted with respect to the use or presence of certain toxic chemicals. DOJ and EPA also stated that they believe that a number of these facilities have violated Section 304 of EPCRA and Section 103 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") by failing to provide required notifications relating to the release of hydrogen fluoride from the facilities. The letter did not identify any specific violations by us or assert a demand for penalties against us. We cannot predict at this time whether EPA and DOJ will initiate an enforcement action over this matter, what its scope would be, or what the range of outcomes of such a potential enforcement action might be.
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


13

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

national enforcement initiative focusing on sulfuric acid plants.  On June 16, 2010, EPA issued an NOV 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 that 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 that NOV. We are negotiating the terms of a settlement with EPA that would resolve both the violations alleged in the CF NOV, and violations which EPA may contend, but have not asserted, exist at the sulfuric acid plants at our other facilities in Florida.  Based on the current status of the negotiations, we expect that our commitments will include an agreement to reduce our sulfur dioxide emissions over the next five years to comply with a sulfur dioxide ambient air quality standard enacted by EPA in 2010. In the event we are unable to finalize agreement on the terms of the settlement, we cannot predict at this time whether EPA and DOJ will initiate an enforcement action with respect to “New Source Review” compliance at our Florida sulfuric acid plants other than the Plant City Facility or what its scope would be, or what the range of outcomes might be with respect to such a potential enforcement action or with respect to the CF NOV.
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.
MicroEssentials® Patent Lawsuit
On January 9, 2009, John Sanders and Specialty Fertilizer Products, LLC filed a complaint against Mosaic, Mosaic Fertilizer, LLC, Cargill, Incorporated and Cargill Fertilizer, Inc. in the United States District Court for the Western District of Missouri (the "Missouri District Court"). The complaint alleges that our production of MicroEssentials® SZ, one of several types of the MicroEssentials® value-added ammoniated phosphate crop nutrient products that we produce, infringes on a patent held by the plaintiffs since 2001 and which would expire in 2018. Plaintiffs have since asserted that other MicroEssentials® products also infringe the patent. Plaintiffs seek to enjoin the alleged infringement and to recover an unspecified amount of damages and attorneys’ fees for past infringement. Our answer to the complaint responds that the plaintiffs’ patent is not infringed, is invalid and is unenforceable because the plaintiffs engaged in inequitable conduct during the prosecution of the patent.
Through an order entered by the court on September 25, 2014, Cargill was dismissed as a defendant, and the two original plaintiffs were replaced by a single plaintiff, JLSMN LLC, an entity to whom the patents were transferred.
The Missouri District Court stayed the lawsuit pending an ex parte reexamination of plaintiff's current patent claims by the U.S. Patent and Trademark Office (the "PTO"). That ex parte reexamination has now ended. On September 12, 2012, however, Shell Oil Company ("Shell") filed an additional reexamination request which in part asserted that the claims as amended and added in connection with the ex parte reexamination are unpatentable. On October 4, 2012, the PTO issued an Ex Parte Reexamination Certificate in which certain claims of the plaintiff's patent were cancelled, disclaimed and amended, and new claims were added. Following the PTO’s grant of Shell’s request for an inter parties reexamination, on December 11, 2012, the PTO issued an initial rejection of all of plaintiff's remaining patent claims. On September 12, 2013, the PTO reversed its initial rejection of the plaintiff's remaining patent claims and allowed them to stand. Shell appealed


14

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

the PTO’s decision, and on June 7, 2016, the Patent Trial and Appeal Board, the highest appellate authority within the PTO, issued a final decision holding that all claims initially allowed to the plaintiff by the PTO examiner should instead have been found invalid.  Although appeal to the United States Court of Appeals for the Federal Circuit remains available to the plaintiff, the PTO decision, if sustained, would result in no remaining claims against us. Although no Federal Circuit appeal has yet been filed, such an appeal may occur, resulting in further delays. The stay in the Missouri District Court litigation is expected to remain in place during further PTO and any appellate proceedings.
We believe that the plaintiff's allegations are without merit and intend to defend vigorously against them. At this stage of the proceedings, we cannot predict the outcome of this litigation, estimate the potential amount or range of loss or determine whether it will have a material effect on our results of operations, liquidity or capital resources.
Brazil Tax Contingencies
Our Brazilian subsidiary is 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 $95 million. Approximately $65 million of the maximum potential liability relates to a Brazilian federal value added tax, PIS and Cofins, tax credit cases for the period from 2004 to 2011; while the majority of the remaining amount relates to various other non-income tax cases such as value-added taxes. Based on Brazil legislation and the current status of similar tax cases involving unrelated taxpayers, we believe we have recorded adequate accruals, which are immaterial, for the probable liability with respect to these Brazilian judicial and administrative proceedings.
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.
10. Accounting for Derivative Instruments and Hedging Activities
We periodically enter into derivatives to mitigate our exposure to foreign currency risks 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 and commodity derivatives are immediately recognized in earnings because we do not apply hedge accounting treatment to these instruments. As of June 30, 2016 and December 31, 2015, the gross asset position of our derivative instruments was $35.6 million and $6.8 million, respectively, and the gross liability position of our liability instruments was $18.0 million and $79.3 million, respectively.
 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 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.
As of June 30, 2016 and December 31, 2015, the following is the total absolute notional volume associated with our outstanding derivative instruments:
(in millions of Units)
 
 
 
 
 
June 30,
2016
 
December 31,
2015
Derivative Instrument
Derivative Category
Unit of Measure
Foreign currency derivatives
 
Foreign currency
 
US Dollars
 
901.6

 
1,230.6
Interest rate derivatives
 
Interest rate
 
US Dollars
 

 
175.0
Natural gas derivatives
 
Commodity
 
MMbtu
 
18.9

 
32.4


15

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 June 30, 2016 and December 31, 2015, was $5.6 million and $53.4 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 June 30, 2016, we would have been required to post $4.3 million of collateral assets, which are either cash or U.S. Treasury instruments, to the counterparties.
Counterparty Credit Risk
We enter into foreign exchange and 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.
11. Fair Value Measurements
Following is a summary of the valuation techniques for assets and liabilities recorded in our 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 June 30, 2016 and December 31, 2015, the gross asset position of our foreign currency derivative instruments was $33.3 million and $5.7 million, respectively, and the gross liability position of our foreign currency derivative instruments was $11.5 million and $59.6 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 June 30, 2016 and December 31, 2015, the gross asset position of our commodity derivative instruments was $2.3 million and $1.0 million, respectively, and the gross liability position of our commodity instruments was $5.0 million and $16.7 million, respectively.


16

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Financial Instruments
The carrying amounts and estimated fair values of our financial instruments are as follows:
 
 
June 30, 2016
 
December 31, 2015
 
Carrying Amount
 
Fair Value
Carrying Amount
 
Fair Value
 
 
Cash and cash equivalents
$
1,059.3

 
$
1,059.3

 
$
1,276.3

 
$
1,276.3

 
Receivables, net
399.6

 
399.6

 
675.0

 
675.0

 
Accounts payable
622.6

 
622.6

 
520.6

 
520.6

 
Structured accounts payable arrangements
195.5

 
195.5

 
481.7

 
481.7

 
Short-term debt
54.0

 
54.0

 
25.5

 
25.5

 
Long-term debt, including current portion
3,814.9

 
4,107.6

 
3,811.2

 
3,860.4

For cash and cash equivalents, receivables, net, 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.
12. Share Repurchases
In February of 2014, our Board of Directors authorized a $1 billion share repurchase program ("2014 Repurchase Program"), allowing the Company to repurchase Class A Shares or shares of our Common Stock ("Common Stock"), through direct buybacks or in open market transactions. During the six months ended June 30, 2015, under the 2014 Repurchase Program, 2,560,277 shares of Common Stock were repurchased in the open market for an aggregate of approximately $123.3 million. In total, 18,339,060 shares of stock were repurchased under the 2014 Repurchase program for an aggregate total of $850.6 million. The remaining authorized amount of $149.4 million was terminated in connection with the authorization of the 2015 Repurchase Program discussed below.
On May 14, 2015, our Board of Directors authorized a new $1.5 billion share repurchase program ("2015 Repurchase Program"), with no set expiration date, allowing the Company to repurchase shares of our Common Stock, through open market purchases, accelerated share repurchase arrangements, privately negotiated transactions or otherwise. During 2015, we repurchased 1,891,620 shares of Common Stock in the open market under the 2015 Repurchase Program for approximately $74.9 million.
In May 2015 and February 2016, under the 2015 Repurchase Program, we entered into separate accelerated share repurchase transactions ("ASRs") with financial institutions to repurchase shares of our Common Stock for up-front payments of $500 million and $75 million, respectively. For each ASR, the total number of shares ultimately delivered, and therefore the average price paid per share, were determined at the end of the ASR’s purchase period based on the volume-weighted average price of our Common Stock during that period, less an agreed discount. The shares received were retired in the period they were delivered, and each up-front payment is accounted for as a reduction to shareholders’ equity in our Condensed Consolidated Balance Sheet in the period the payment was made. Neither ASR was dilutive to our earnings per share calculation from its execution date through its settlement date. The unsettled portion of each ASR during that period met the criteria to be accounted for as a forward contract indexed to our Common Stock and qualified as an equity transaction. Additional information relating to each ASR is shown below:
 
 
Settlement Date
 
Shares Delivered
 
Average Price
Per Share
 
ASR Amount
May 2015 ASR
 
July 28, 2015
 
11,106,847

 
$45.02
 
$500.0 million
February 2016 ASR
 
March 29, 2016
 
2,766,558

 
$27.11
 
$75.0 million


17

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

As of June 30, 2016, 15,765,025 shares of Common Stock have been repurchased under the 2015 Repurchase Program for an aggregate total of approximately $650 million, bringing the remaining amount that could be repurchased under this program to $850 million.
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.
13. Related Party Transactions
We enter into transactions and agreements with certain of our non-consolidated companies from time to time. As of June 30, 2016 and December 31, 2015, the net amount due to our non-consolidated companies totaled $118.5 million and $26.4 million, respectively.
The Condensed Consolidated Statements of Earnings included the following transactions with our non-consolidated companies:
 
Three months ended
 
Six months ended
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Transactions with non-consolidated companies included in net sales
$
141.2

 
$
358.2

 
$
288.4

 
$
622.1

Transactions with non-consolidated companies included in cost of goods sold
208.6

 
368.2

 
327.5

 
480.9

14. 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.
For a description of our business segments see Note 1 to the Condensed Consolidated Financial Statements in this report. 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 and our legacy Argentina and Chile results are included within Corporate, Eliminations and Other.


18

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Segment information for the three and six months ended June 30, 2016 and 2015 was as follows:
 
Phosphates
 
Potash
 
International Distribution
 
Corporate, Eliminations and Other
 
Total
Three months ended June 30, 2016
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
678.7

 
$
454.2

 
$
533.6

 
$
8.1

 
$
1,674.6

Intersegment net sales(a)
297.2

 
2.7

 
0.3

 
(300.2
)
 

Net sales
975.9

 
456.9

 
533.9

 
(292.1
)
 
1,674.6

Gross margin(a)
100.4

 
53.0

 
4.7

 
(4.1
)
 
154.0

Canadian resource taxes

 
38.1

 

 

 
38.1

Gross margin (excluding Canadian resource taxes)
100.4

 
91.1

 
4.7

 
(4.1
)
 
192.1

Operating earnings (loss)
11.8

 
18.3

 
(11.0
)
 
(6.8
)
 
12.3

Depreciation, depletion and amortization expense
101.4

 
79.1

 
3.8

 
5.0

 
189.3

Capital expenditures
90.3

 
98.4

 
6.6

 
6.4

 
201.7

 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2015
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
1,111.1

 
$
727.4

 
$
637.0

 
$
12.0

 
$
2,487.5

Intersegment net sales(a)
273.9

 
2.8

 
0.4

 
(277.1
)
 

Net sales
1,385.0

 
730.2

 
637.4

 
(265.1
)
 
2,487.5

Gross margin(a)
295.9

 
295.0

 
28.5

 
(11.5
)
 
607.9

Canadian resource taxes

 
54.9

 

 

 
54.9

Gross margin (excluding Canadian resource taxes)
295.9

 
349.9

 
28.5

 
(11.5
)
 
662.8

Operating earnings (loss)
259.4

 
258.8

 
7.7

 
(15.9
)
 
510.0

Depreciation, depletion and amortization expense
98.5

 
81.7

 
4.6

 
6.3

 
191.1

Capital expenditures
117.6

 
88.0

 
16.5

 
5.3

 
227.4

 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2016
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
1,485.7

 
$
845.3

 
$
1,000.2

 
$
17.3

 
$
3,348.5

Intersegment net sales(a)
399.7

 
5.8

 
0.5

 
(406.0
)
 

Net sales
1,885.4

 
851.1

 
1,000.7

 
(388.7
)
 
3,348.5

Gross margin(a)
165.0

 
151.1

 
16.5

 
58.1

 
390.7

Canadian resource taxes

 
56.4

 

 

 
56.4

Gross margin (excluding Canadian resource taxes)
165.0

 
207.5

 
16.5

 
58.1

 
447.1

Operating earnings (loss)
29.5

 
104.1

 
(15.4
)
 
57.5

 
175.7

Depreciation, depletion and amortization expense
200.1

 
155.1

 
7.3

 
10.5

 
373.0

Capital expenditures
201.9

 
211.1

 
11.9

 
12.4

 
437.3

 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2015
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
2,151.7

 
$
1,379.8

 
$
1,075.4

 
$
19.7

 
$
4,626.6

Intersegment net sales(a)
405.6

 
3.2

 
0.9

 
(409.7
)
 

Net sales
2,557.3

 
1,383.0

 
1,076.3

 
(390.0
)
 
4,626.6

Gross margin(a)
517.6

 
536.9

 
49.0

 
(76.4
)
 
1,027.1

Canadian resource taxes

 
133.0

 

 

 
133.0

Gross margin (excluding Canadian resource taxes)
517.6

 
669.9

 
49.0

 
(76.4
)
 
1,160.1

Operating earnings (loss)
449.8

 
463.0

 
10.6

 
(94.9
)
 
828.5

Depreciation, depletion and amortization expense
192.7

 
161.0

 
7.4

 
12.8

 
373.9

Capital expenditures
246.4

 
182.7

 
20.3

 
7.5

 
456.9

Total Assets
 
 
 
 
 
 
 
 
 
As of June 30, 2016
$
8,118.3

 
$
8,933.7

 
$
1,734.2

 
$
(1,101.4
)
 
$
17,684.8

As of December 31, 2015
8,369.8

 
8,363.9

 
1,695.6

 
(1,039.8
)
 
17,389.5



19

 
 
 
 
 
 
 
 
 
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


(a) 
Certain intercompany sales within the Phosphates segment are recognized as revenue before the final price is determined. During the three and six months ended June 30, 2015 these transactions had the effect of increasing Phosphate segment revenues and gross margin by $75.0 million and $21.4 million, respectively. There were no intersegment sales of this type outstanding at June 30, 2016. Revenues and cost of goods sold on these Phosphates sales are eliminated in the "Corporate and Other" category similar to all other intercompany transactions.
15. Guarantee
Guarantee of Payments
Mosaic has entered into an agreement (as amended to date, the “Bridge Loan”) to provide bridge funding to Gulf Marine Solutions, LLC (“GMS”) to finance the purchase and construction of two articulated tug and barge units (the “ATBs”) intended to transport anhydrous ammonia, primarily for Mosaic’s operations. In May 2015, the parties agreed to increase the Bridge Loan from $75 million to $185 million. GMS is a wholly owned subsidiary of Gulf Sulphur Services Ltd., LLLP (“Gulf Sulphur Services”), an entity in which Mosaic owns a 50% equity interest and which is operated by Mosaic’s joint venture partner. Mosaic’s joint venture partner is arranging for construction of the ATBs, utilizing funds borrowed from GMS, and will enter into a long-term transportation contract with a subsidiary of Mosaic to transport anhydrous ammonia. During the quarter ended June 30, 2016, at Mosaic's instruction, Mosaic's joint venture partner notified the barge builder of its election under the construction contract to cancel construction of the second barge unit, resulting in a charge of $47 million during the quarter ended June 30, 2016, which is included in other operating expense. Construction of the first barge unit and the two tugs will continue as planned. At June 30, 2016, $97.0 million was outstanding under the Bridge Loan, and GMS had received additional loans from Gulf Sulphur Services in the aggregate amount of $51.8 million for the ATB project, which are included in long-term debt in our Condensed Consolidated Balance Sheets. These loans obtained by GMS were in turn lent to Mosaic’s joint venture partner for use in constructing the ATBs. The parties are seeking third-party financing for the ATB project, with proceeds to be utilized to repay outstanding Bridge Loans and loans from Gulf Sulphur Services. In connection with the ATB project, Mosaic has also agreed to guarantee up to $100 million of payment obligations to the barge builder. The guarantee will remain in effect until final payment under the construction agreement. 
Beginning in the quarter ended December 31, 2015, we determined we are the primary beneficiary of GMS, a variable interest entity, and have consolidated its balance sheet and statement of earnings within our consolidated financial statements in our Phosphates segment.



20


Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the material under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report on Form 10-K of The Mosaic Company filed with the Securities and Exchange Commission for the year ended December 31, 2015 (the "10-K Report") and the material under Item 1 of Part I of this report.
Throughout the discussion below, we measure units of production, sales and raw materials in metric tonnes, which are the equivalent of 2,205 pounds, unless we specifically state we mean long ton(s), which are the equivalent of 2,240 pounds. In the following tables, there are certain percentages that are not considered to be meaningful and are represented by "NM".
Results of Operations
The following table shows the results of operations for the three and six months ended June 30, 2016 and 2015:
 
Three months ended
 
 
 
 
 
Six months ended
 
 
 
 
 
June 30,
 
2016-2015
 
June 30,
 
2016-2015
(in millions, except per share data)
2016
 
2015
 
Change
 
Percent
 
2016
 
2015
 
Change
 
Percent
Net sales
$
1,674.6

 
$
2,487.5

 
$
(812.9
)
 
(33
)%
 
$
3,348.5

 
$
4,626.6

 
$
(1,278.1
)
 
(28
)%
Cost of goods sold
1,520.6

 
1,879.6

 
(359.0
)
 
(19
)%
 
2,957.8

 
3,599.5

 
(641.7
)
 
(18
)%
Gross margin
154.0

 
607.9

 
(453.9
)
 
(75
)%
 
390.7

 
1,027.1

 
(636.4
)
 
(62
)%
Gross margin percentage
9
%
 
24
%
 
 
 
 
 
12
%
 
22
%
 
 
 


Selling, general and administrative expenses
72.9

 
89.3

 
(16.4
)
 
(18
)%
 
162.7

 
189.8

 
(27.1
)
 
(14
)%
Other operating expense
68.8

 
8.6

 
60.2

 
NM

 
52.3

 
8.8

 
43.5

 
NM

Operating earnings
12.3

 
510.0

 
(497.7
)
 
(98
)%
 
175.7

 
828.5

 
(652.8
)
 
(79
)%
Interest expense, net
(33.5
)
 
(23.5
)
 
(10.0
)
 
43
 %
 
(59.7
)
 
(54.8
)
 
(4.9
)
 
9
 %
Foreign currency transaction gain (loss)
14.7

 
(16.0
)
 
30.7

 
NM

 
102.6

 
29.1

 
73.5

 
NM

Other expense
(0.7
)
 
(7.8
)
 
7.1

 
(91
)%
 
(0.2
)
 
(13.4
)
 
13.2

 
(99
)%
Earnings (loss) from consolidated companies before income taxes
(7.2
)
 
462.7

 
(469.9
)
 
NM

 
218.4

 
789.4

 
(571.0
)
 
(72
)%
Provision for (benefit from) income taxes
(9.8
)
 
72.6

 
(82.4
)
 
NM

 
(38.5
)
 
103.3

 
(141.8
)
 
NM

Earnings (loss) from consolidated companies
2.6

 
390.1

 
(387.5
)
 
(99
)%
 
256.9

 
686.1

 
(429.2
)
 
(63
)%
Equity in net earnings (loss) of nonconsolidated companies
(13.7
)
 
0.9

 
(14.6
)
 
NM

 
(11.0
)
 
(0.5
)
 
(10.5
)
 
NM

Net earnings (loss) including noncontrolling interests
(11.1
)
 
391.0

 
(402.1
)
 
NM

 
245.9

 
685.6

 
(439.7
)
 
(64
)%
Less: Net earnings (loss) attributable to noncontrolling interests
(0.9
)
 
0.4

 
(1.3
)
 
NM

 
(0.8
)
 
0.2

 
(1.0
)
 
NM

Net earnings (loss) attributable to Mosaic
$
(10.2
)
 
$
390.6

 
$
(400.8
)
 
NM

 
$
246.7

 
$
685.4

 
$
(438.7
)
 
(64
)%
Diluted net earnings (loss) per share attributable to Mosaic
$
(0.03
)
 
$
1.08

 
$
(1.11
)
 
NM

 
$
0.70

 
$
1.88

 
$
(1.18
)
 
(63
)%
Diluted weighted average number of shares outstanding
349.8

 
363.3

 
 
 
 
 
351.8

 
365.5

 
 
 
 


21


Table of Contents

Overview of Consolidated Results for the three months ended June 30, 2016 and 2015
Net sales decreased to $1.7 billion for the three months ended June 30, 2016, compared to $2.5 billion in the prior year period. Net loss attributable to Mosaic for the three months ended June 30, 2016 was $(10.2) million, or $(0.03) per diluted share, compared to net earnings of $390.6 million, or $1.08 per diluted share, for the year ago period. Reflected in current period results are the impacts of actions we have taken to lower spending on capital projects and reduce expenses, including a loss on the write-off of construction in process of approximately $47 million, or $(0.12) per diluted share, the write-off of a capital project at one of our equity investments, of which our share was approximately $24 million, or $16 million after tax and $(0.05) per diluted share, and restructuring expenses of $11 million, or $(0.03) per diluted share.
Significant factors affecting our results of operations and financial condition are listed below. Certain of these factors are discussed in more detail in the following sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In addition to the items noted above, our net sales and operating results for the three months ended June 30, 2016 were negatively impacted by a significant decline in phosphates average selling prices and a decrease in sales volumes compared to the same period in the prior year. Phosphates average selling prices in the current year period were unfavorably impacted by cautious purchasing behavior as North American customers signaled an unwillingness to carry inventory following the spring season, and increased competitors' shipments into North America and Brazil. Current period selling prices were also influenced by lower raw material prices in the current year period. In addition, sales volumes were negatively impacted by the cautious purchasing behavior in North America and lower exports to third parties as we chose not to match aggressive pricing by other global producers.
Net sales and operating results were also unfavorably impacted by significantly lower potash average selling prices and sales volumes in the current year period compared to the same period in the prior year. In 2016, potash average selling prices have been negatively impacted by lower prices primarily the result of a strong U.S. dollar, which has impacted the global competitive environment. Delays in settlement of the Chinese potash contract have also added pressure on potash selling prices. Despite strong demand for potash in North America and Brazil in the quarter ended June 30, 2016, overall potash sales volumes decreased compared to the prior year period due to the delay in settlement of the China contract, which impacted the timing of sales to major contract markets.
We continued to see additional declines in potash and phosphate average selling prices in the third quarter of 2016.
Other Highlights
During the three months ended June 30, 2016:
We continued to execute against our cost saving initiatives in ways that are positively impacting financial results.
We are on track to meet the goal we set three years ago to achieve $500 million in cost savings by the end of 2018.
We are targeting an additional $75 million in savings in our support functions and expect to realize most of these savings in 2017.
We are managing our capital through reducing or eliminating certain capital spending as noted above.
Subsequent to quarter-end, on July 13, 2016, we announced that we will idle our Colonsay, Saskatchewan potash mine for the remainder of 2016 in light of reduced customer demand while adapting to challenging potash market conditions. Our lower-cost Esterhazy and Belle Plaine mines, in combination with current inventory, will allow us to meet our short-term potash supply needs.
We made an equity contribution of $100 million to the Ma'aden Wa'ad Al Shamal Joint Venture. We estimate the cost to develop and construct the integrated phosphate production facilities to be approximately $8 billion. We and our joint venture partners expect the remaining amount to be funded through external debt facilities and investments by the joint venture members.
Our Esterhazy K3 mine development remained on track to start producing ore in 2017.
We recorded a foreign currency transaction gain of $14.7 million, or $0.04 per diluted share, compared with a loss of $16.0 million, or ($0.04) per diluted share, in the prior year period.


22


Table of Contents

We recorded unrealized mark-to-market gains on derivatives of $29.8 million, or $0.08 per diluted share, compared with gains of $27.2 million, or $0.06 per diluted share, in the same period a year ago.
Subsequent to the quarter end we made an equity contribution of $120 million to the Ma'aden Wa'ad Al Shamal Joint Venture.
During the three months ended June 30, 2015:
Our Board of Directors approved, on May 14, 2015, a new share repurchase authorization in the amount of $1.5 billion, allowing Mosaic to repurchase shares of our Common Stock, through open market purchases, accelerated share repurchase arrangements, privately negotiated transactions or otherwise (the "2015 Repurchase Program"). The 2015 Repurchase Program has no set expiration date. In connection with the authorization of the 2015 Repurchase Program, the remaining amount of $149.4 million under our $1 billion share repurchase program authorized in February 2014 (the "2014 Repurchase Program") was terminated.
As an initial repurchase under the 2015 Repurchase Program, in May 2015 we entered into an accelerated share repurchase transaction ("ASR") to repurchase shares of our Common Stock for a payment of $500 million. In connection with the ASR, we received an initial delivery of 8,333,333 shares of Common Stock. These shares were accounted for as a reduction to shareholders' equity in our Condensed Consolidated Balance Sheet and are reflected in our EPS calculation for the three and six months ended June 30, 2015. We received an additional 2,773,514 shares upon closing of the transaction on July 28, 2015, bringing the total shares received under this program to 11,106,847 shares. The final average price per share was $45.02.
Overview of Consolidated Results for the six months ended June 30, 2016 and 2015
Net earnings attributable to Mosaic for the six months ended June 30, 2016 were $246.7 million, or $0.70 per diluted share, compared to $685.4 million, or $1.88 per diluted share, for the same period a year ago. Net earnings for the six months ended June 30, 2016, included the items discussed above and discrete income tax benefits of $59 million, or $0.17 per diluted share. Included in net earnings for the six months ended June 30, 2015 are discrete income tax benefits of $38 million, or $0.10 per diluted share.
Results for the six months ended June 30, 2016 and 2015 reflected the factors discussed above for the three months ended June 30, 2016 and 2015, in addition to those noted below. Certain of these factors are discussed in more detail in the following sections of this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Lower phosphates average selling prices and sales volumes, partially offset by lower raw material costs, negatively impacted operating earnings for the six months ended June 30, 2016, compared to the same period in the prior year. Selling prices were impacted by cautious purchasing behavior and lower raw material costs as discussed above and increased pricing pressure from other global producers. Sales volumes were impacted by cautious behavior as discussed above.
Operating earnings for the six months ended June 30, 2016, were also unfavorably impacted by lower potash selling prices and sales volumes, when compared to the same period in the prior year. Lower potash average selling prices were driven by the reasons mentioned above in the three-month period discussion as well as increased supply from other North American producers in the first quarter of 2016. Potash sales volumes decreased in the current year compared to the same period of the prior year due to a decline in international sales volumes primarily due to the delay in settling the China contract as discussed above. This was partially offset by strong demand in North America driven by a strong spring application season.
Other noteworthy matters during the six months ended June 30, 2016 included:
We entered into an accelerated share repurchase transaction in February 2016 (the "2016 ASR") to repurchase shares of our Common Stock for a payment of $75 million under the 2015 Repurchase Program. The 2016 ASR was settled on March 29, 2016 and we received a total of 2,766,558 shares of Common Stock. The final average price per share was $27.11.
We received insurance proceeds of $28 million related to the collapse of a warehouse roof at our Carlsbad, New Mexico location in 2014, which are included in other operating income.
We recorded a foreign currency transaction gain of $102.6 million, or $0.26 per diluted share, compared with a gain of $29.1 million, or $0.06 per diluted share, in the prior year period.


23


Table of Contents

We recorded unrealized mark-to-market gains on derivatives of $82.6 million, or $0.21 per diluted share, compared with a loss of $11.2 million, or $(0.02) per diluted share, in the same period a year ago.
During the six months ended June 30, 2015:
Our Board of Directors approved an increase in our annual dividend to $1.10 from $1.00 per share, which was effective in May 2015.
During the first six months of 2015, we completed the integration of our December 2014 purchase of Archer Daniels Midland Company's ("ADM") fertilizer distribution business and working capital in Brazil and Paraguay (the "ADM Acquisition").


24


Table of Contents

Phosphates Net Sales and Gross Margin
The following table summarizes the Phosphates segment’s net sales, gross margin, sales volume, selling prices and raw material prices:
 
Three months ended
 
 
 
 
 
Six months ended
 
 
 
 
 
June 30,
 
2016-2015
 
June 30,
 
2016-2015
(in millions, except price per tonne or unit)  
2016
 
2015
 
Change
 
Percent
 
2016
 
2015
 
Change
 
Percent
Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North America
$
475.8

 
$
704.5

 
$
(228.7
)
 
(32
)%
 
$
1,073.4

 
$
1,387.6

 
$
(314.2
)
 
(23
)%
International
500.1

 
680.5

 
(180.4
)
 
(27
)%
 
812.0

 
1,169.7

 
(357.7
)
 
(31
)%
Total
975.9

 
1,385.0

 
(409.1
)
 
(30
)%
 
1,885.4

 
2,557.3

 
(671.9
)
 
(26
)%
Cost of goods sold
875.5

 
1,089.1

 
(213.6
)
 
(20
)%
 
1,720.4

 
2,039.7

 
(319.3
)
 
(16
)%
Gross margin
$
100.4

 
$
295.9

 
$
(195.5
)
 
(66
)%
 
$
165.0

 
$
517.6

 
$
(352.6
)
 
(68
)%
Gross margin as a percentage of net sales
10
%
 
21
%
 
 
 
 
 
9
%
 
20
%
 
 
 
 
Sales volume (in thousands of metric tonnes)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crop Nutrients
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North America - DAP/MAP (a)
738

 
895

 
(157
)
 
(18
)%
 
1,689

 
1,846

 
(157
)
 
(9
)%
International - DAP/MAP (a)(b)
1,022

 
1,224

 
(202
)
 
(17
)%
 
1,678

 
1,978

 
(300
)
 
(15
)%
MicroEssentials® (b)
567

 
516

 
51

 
10
 %
 
1,036

 
956

 
80

 
8
 %
Feed and Other (b)
122

 
153

 
(31
)
 
(20
)%
 
252

 
304