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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 March 31, 2019
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)  
_______________________________________________________________________
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
MOS
New York Stock Exchange
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 every Interactive Data File required to be submitted 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 such files).    Yes  x     No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):    Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨ Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
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: 385,788,256 shares of Common Stock as of May 3, 2019.
 



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 1A.
 
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
 
March 31,
 
2019
 
2018
Net sales
$
1,899.7

 
$
1,933.7

Cost of goods sold
1,590.2

 
1,691.6

Gross margin
309.5

 
242.1

Selling, general and administrative expenses
93.5

 
93.6

Other operating expense
13.9

 
67.8

Operating earnings
202.1

 
80.7

Interest expense, net
(47.0
)
 
(49.4
)
Foreign currency transaction gain (loss)
22.6

 
(32.2
)
Other expense
(1.1
)
 
(5.6
)
Earnings (loss) from consolidated companies before income taxes
176.6

 
(6.5
)
Provision for (benefit from) income taxes
46.6

 
(49.9
)
Earnings from consolidated companies
130.0

 
43.4

Equity in net loss of nonconsolidated companies
(0.1
)
 
(3.3
)
Net earnings including noncontrolling interests
129.9

 
40.1

Less: Net loss attributable to noncontrolling interests
(0.9
)
 
(2.2
)
Net earnings attributable to Mosaic
$
130.8

 
$
42.3

Basic net earnings per share attributable to Mosaic
$
0.34

 
$
0.11

Basic weighted average number of shares outstanding
385.5

 
382.6

Diluted net earnings per share attributable to Mosaic
$
0.34

 
$
0.11

Diluted weighted average number of shares outstanding
387.4

 
384.1


See Notes to Condensed Consolidated Financial Statements
1




Table of Contents


THE MOSAIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
 
Three months ended
 
March 31,
 
2019
 
2018
Net earnings including noncontrolling interest
$
129.9

 
$
40.1

Other comprehensive income (loss), net of tax
 
 
 
Foreign currency translation gain (loss), net of tax
51.8

 
(139.3
)
Net actuarial (loss) gain and prior service cost, net of tax
(1.0
)
 
2.1

Amortization of gain on interest rate swap, net of tax
0.6

 
0.4

Net gain (loss) on marketable securities held in trust fund, net of tax
10.0

 
(3.9
)
Other comprehensive income (loss)
61.4

 
(140.7
)
Comprehensive income (loss)
191.3

 
(100.6
)
Less: Comprehensive loss attributable to noncontrolling interest
(1.0
)
 
(2.9
)
Comprehensive income (loss) attributable to Mosaic
$
192.3

 
$
(97.7
)


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)
 
 
March 31,
2019
 
December 31,
2018
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
384.6

 
$
847.7

 
Receivables, net
792.0

 
838.5

 
Inventories
2,572.1

 
2,270.2

 
Other current assets
397.6

 
280.6

 
Total current assets
4,146.3

 
4,237.0

 
Property, plant and equipment, net of accumulated depreciation of $7,195.7 million and $6,934.5 million, respectively
11,942.7

 
11,746.5

 
Investments in nonconsolidated companies
823.3

 
826.6

 
Goodwill
1,726.8

 
1,707.5

 
Deferred income taxes
345.9

 
343.8

 
Other assets
1,460.3

 
1,257.8

 
Total assets
$
20,445.3

 
$
20,119.2

 
Liabilities and Equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt
$
167.5

 
$
11.5

 
Current maturities of long-term debt
40.8

 
26.0

 
Structured accounts payable arrangements
466.9

 
572.8

 
Accounts payable
781.6

 
780.9

 
Accrued liabilities
940.4

 
1,092.5

 
Total current liabilities
2,397.2

 
2,483.7

 
Long-term debt, less current maturities
4,533.0

 
4,491.5

 
Deferred income taxes
1,122.4

 
1,080.6

 
Other noncurrent liabilities
1,585.2

 
1,458.7

 
Equity:
 
 
 
 
Preferred Stock, $0.01 par value, 15,000,000 shares authorized, none issued and outstanding as of March 31, 2019 and December 31, 2018

 

 
Common Stock, $0.01 par value, 1,000,000,000 shares authorized, 389,560,531 shares issued and 385,788,256 shares outstanding as of March 31, 2019, 389,242,360 shares issued and 385,470,085 shares outstanding as of December 31, 2018
3.8

 
3.8

 
Capital in excess of par value
996.2

 
985.9

 
Retained earnings
11,196.8

 
11,064.7

 
Accumulated other comprehensive loss
(1,595.6
)
 
(1,657.1
)
 
Total Mosaic stockholders' equity
10,601.2

 
10,397.3

 
Noncontrolling interests
206.3

 
207.4

 
Total equity
10,807.5

 
10,604.7

 
Total liabilities and equity
$
20,445.3

 
$
20,119.2


See Notes to Condensed Consolidated Financial Statements
3




Table of Contents


THE MOSAIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
 
Three months ended
 
March 31,
2019
 
March 31,
2018
 
 
Cash Flows from Operating Activities:
 
 
 
 
Net earnings including noncontrolling interests
$
129.9

 
$
40.1

 
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:
 
 
 
 
Depreciation, depletion and amortization
218.1

 
217.5

 
Amortization of acquired inventory
(1.2
)
 
(30.1
)
 
Deferred and other income taxes
5.3

 
(63.2
)
 
Equity in net loss of nonconsolidated companies, net of dividends
3.6

 
3.3

 
Accretion expense for asset retirement obligations
15.3

 
12.1

 
Share-based compensation expense
15.3

 
15.7

 
Unrealized loss (gain) on derivatives
(46.9
)
 
14.2

 
Other
5.6

 
8.7

 
Changes in assets and liabilities, excluding effects of acquisition:
 
 
 
 
Receivables, net
59.0

 
62.5

 
Inventories
(304.5
)
 
(147.6
)
 
Other current and noncurrent assets
(66.0
)
 
(137.5
)
 
Accounts payable and accrued liabilities
(186.7
)
 
(74.9
)
 
Other noncurrent liabilities
(22.3
)
 
8.2

 
Net cash used in operating activities
(175.5
)
 
(71.0
)
 
Cash Flows from Investing Activities:
 
 
 
 
Capital expenditures
(313.9
)
 
(223.3
)
 
Purchases of available-for-sale securities - restricted
(186.9
)
 
(185.7
)
 
Proceeds from sale of available-for-sale securities - restricted
182.3

 
184.0

 
Investments in consolidated affiliate

 
1.3

 
Acquisition, net of cash acquired

 
(994.6
)
 
Purchases of held-to-maturity securities
(13.0
)
 

 
Proceeds from sale of held-to-maturity securities
2.3

 

 
Other
0.3

 
(2.1
)
 
Net cash used in investing activities
(328.9
)
 
(1,220.4
)
 
Cash Flows from Financing Activities:
 
 
 
 
Payments of short-term debt
(53.7
)
 

 
Proceeds from issuance of short-term debt
206.0

 
65.3

 
Payments of structured accounts payable arrangements
(319.7
)
 
(235.7
)
 
Proceeds from structured accounts payable arrangements
209.5

 
173.8

 
Payments of long-term debt
(10.1
)
 
(206.9
)
 
Cash dividends paid
(9.6
)
 
(9.6
)
 
Other
(0.1
)
 
(0.2
)
 
Net cash provided by (used in) financing activities
22.3

 
(213.3
)
 
Effect of exchange rate changes on cash
13.5

 
13.4

 
Net change in cash, cash equivalents and restricted cash
(468.6
)
 
(1,491.3
)
 
Cash, cash equivalents and restricted cash - December 31
871.0

 
2,194.4

 
Cash, cash equivalents and restricted cash - March 31
$
402.4

 
$
703.1



See Notes to Condensed Consolidated Financial Statements
4




Table of Contents



THE MOSAIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
(Unaudited)

 
Three months ended
 
March 31,
2019
 
March 31,
2018
 
Reconciliation of cash, cash equivalents and restricted cash reported within the unaudited condensed consolidated balance sheets to the unaudited condensed consolidated statements of cash flows:
 
 
 
Cash and cash equivalents
$
384.6

 
$
659.4

Restricted cash in other current assets
8.8

 
9.4

Restricted cash in other assets
9.0

 
34.3

Total cash, cash equivalents and restricted cash shown in the unaudited condensed consolidated statement of cash flows
$
402.4

 
$
703.1

 
 
 
 
 
 
 
 
 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 
 
 
Cash paid during the period for:
 
 
 
Interest (net of amount capitalized of $6.0 and $5.3 for three months ended March 31, 2019 and 2018, respectively)
$
10.5

 
$
11.1

Income taxes (net of refunds)
93.8

 
12.8

 
 
 
 

See Notes to Condensed Consolidated Financial Statements
5




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 (Loss)
 
 
 
 
 
Common Stock
 
Common Stock
 
 
Retained Earnings
 
 
Noncontrolling Interests
 
Total Equity
 
 
 
 
 
 
 
Balance as of December 31, 2017
351.0

 
$
3.5

 
$
44.5

 
$
10,631.1

 
$
(1,061.6
)
 
$
21.6

 
$
9,639.1

Adoption of ASC Topic 606

 

 

 
2.7

 

 

 
2.7

Total comprehensive income (loss)

 

 

 
42.3

 
(140.0
)
 
(2.9
)
 
(100.6
)
Vesting of restricted stock units
0.2

 

 
(2.7
)
 

 

 

 
(2.7
)
Stock based compensation

 

 
15.7

 

 

 

 
15.7

Acquisition of Vale Fertilizantes
34.2

 
0.3

 
919.7

 

 

 

 
920.0

Dividends ($0.10 per share)

 

 

 
(0.5
)
 

 

 
(0.5
)
Dividends for noncontrolling interests

 

 

 

 

 
(0.2
)
 
(0.2
)
Equity from noncontrolling interests

 

 

 

 

 
206.2

 
206.2

Balance as of March 31, 2018
385.4

 
$
3.8

 
$
977.2

 
$
10,675.6

 
$
(1,201.6
)
 
$
224.7

 
$
10,679.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mosaic Shareholders
 
 
 
 
 
Shares
 
Dollars
 
 
 
 
 
Capital in Excess of Par Value
 
 
 
Accumulated Other Comprehensive (Loss)
 
 
 
 
 
Common Stock
 
Common Stock
 
 
Retained Earnings
 
 
Noncontrolling Interests
 
Total Equity
 
 
 
 
 
 
 
Balance as of December 31, 2018
385.5

 
3.8

 
985.9

 
11,064.7

 
(1,657.1
)
 
207.4

 
10,604.7

Adoption of ASC Topic 842

 

 

 
0.6

 

 

 
0.6

Total comprehensive income (loss)

 

 

 
130.8

 
61.5

 
(1.0
)
 
191.3

Vesting of restricted stock units
0.3

 

 
(5.0
)
 

 

 

 
(5.0
)
Stock based compensation

 

 
15.3

 

 

 

 
15.3

Dividends ($0.10 per share)

 

 

 
0.7

 

 

 
0.7

Dividends for noncontrolling interests

 

 

 

 

 
(0.1
)
 
(0.1
)
Balance as of March 31, 2019
385.8

 
$
3.8

 
$
996.2

 
$
11,196.8

 
$
(1,595.6
)
 
$
206.3

 
$
10,807.5



See Notes to Condensed Consolidated Financial Statements
6




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 and 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.
On January 8, 2018, we completed our acquisition (the “Acquisition”) of Vale Fertilizantes S.A. (now known as Mosaic Fertilizantes P&K S.A. or the “Acquired Business”). Upon completion of the Acquisition, we became the leading fertilizer producer and distributor in Brazil.
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. As part of the Acquisition, we acquired an additional 40% economic interest in the Miski Mayo Phosphate Mine in Peru, which increased our aggregate interest to 75%. These results are consolidated in the Phosphates segment. The Phosphates segment also includes our 25% interest in the Ma'aden Wa'ad Al Shamal Phosphate Company (the “MWSPC”), a joint venture to develop, own and operate integrated phosphate production facilities in the Kingdom of Saudi Arabia. We market approximately 25% of the 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 Acquisition, which include five phosphate rock mines, four phosphate chemical plants and a potash mine in Brazil. 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. As of January 1, 2019, certain selling, general and administrative costs that are not controllable by the business segments are no longer allocated to segments and are included within Corporate, Eliminations and Other. Our operating results for the quarter ended March 31, 2018, have been recast to reflect this change. See Note 15 of the 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 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


7

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

the SEC for the year ended December 31, 2018 (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.
Leases
At inception, we determine whether an arrangement is a lease and the appropriate lease classification. Operating leases with terms greater than twelve months are included as operating lease right-of-use (“ROU”) assets within other assets, and lease liabilities within accrued liabilities and other noncurrent liabilities on our consolidated balance sheets. Finance leases with terms greater than twelve months are included as finance ROU assets within property and equipment, and finance lease liabilities within current maturities of long-term debt and long-term debt on our consolidated balance sheets.  Leases with terms of less than twelve months, referred to as short-term leases, do not create an ROU asset or lease liability on the balance sheet. 
ROU assets represent our right to use an underlying asset for the lease term. Lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease, based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The company's incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. For both operating and finance leases, the initial ROU asset equals the lease liability, plus initial direct costs, less lease incentives received. Our lease agreements may include options to extend or terminate the lease, which are included in the lease term at the commencement date when it is reasonably certain that we will exercise that option. In general, we do not consider optional periods included in our lease agreements as reasonably certain of exercise at inception.
We have lease agreements with lease and non-lease components, which are generally accounted for separately. For full-service railcar leases, we account for the lease and non-lease components as a single lease component. Additionally, for certain equipment leases, we apply assumptions using a portfolio approach given the generally consistent terms of the agreements. Lease payments based on usage (for example, per-mile or per-hour charges), referred to as variable lease costs, are recorded separately from the determination of the ROU asset and lease liability.     
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.
3. Leases
In February 2016, the FASB issued a new standard (“ASC 842”) intended to improve financial reporting about leasing transactions. The FASB issued additional guidance subsequently to clarify aspects of the standard and provide certain relief for implementation. ASC 842 requires lessees to recognize on the balance sheet the rights and obligations created by leases with terms greater than twelve months. The primary change created by the new standard is the recognition of ROU assets and lease liabilities by lessees for those leases previously classified as operating leases. ASC 842 requires disclosures to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.


8

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

We adopted ASC 842 effective January 1, 2019, with an immaterial cumulative-effect adjustment to the opening balance of retained earnings as of that date. As allowed under the standard, we have not changed our accounting and reporting for lease arrangements for periods presented prior to January 1, 2019. The impacts upon adoption on previously reported amounts are shown below. Our accounting for capital leases (now referred to as finance leases) remained substantially unchanged. Adoption of the standard is not expected to significantly impact lease activity reported in our statements of earnings and cash flows.
We have operating and finance leases for heavy mobile equipment, railcars, fleet vehicles, field and plant equipment, river and cross-Gulf vessels, corporate offices, land, and computer equipment. Our leases have remaining lease terms of 1 year to 29 years, some of which may include options to extend the leases for up to 10 years, and some of which may include options to terminate the leases within 1 year. As of March 31, 2019, assets recorded under finance leases, included within property, plant and equipment, were $405.1 million, and accumulated depreciation associated with finance leases was $32.9 million. As of March 31, 2019, assets recorded under operating leases were $244.8 million, included in other assets.
Adoption of the standard related to leases impacted our previously reported results as follows:
 
 
Balance as of
 
Adoption
 
Balance as of
 
 
December 31, 2018
 
Adjustments
 
January 1, 2019
(in millions)
 
 
 
 
 
 
Operating lease right-of-use assets
 
$

 
$
241.1

 
$
241.1

Finance lease right-of-use assets
 
340.9

 

 
340.9

Accrued and other noncurrent liabilities
 

 
241.1

 
241.1

Long-term debt, including current maturities
 
302.2

 

 
302.2

Adoption of ASC 842 had no impact to cash from or used in operating, financing, or investing on our consolidated cash flows statements.
The components of lease expense, included primarily within cost of goods sold and selling, general and administrative expenses, were as follows:
 
 
Three Months Ended 
 March 31, 2019
(in millions)
 
 

Operating lease cost
 
$
26.6

Finance lease cost:
 
 
     Amortization of right-of-use assets
 
$
6.3

     Interest on lease liabilities
 
4.1

 
 
$
10.4

 
 
 
Short-term lease cost
 
$
17.6

Variable lease cost
 
4.6

Total lease cost
 
$
59.2

Supplement cash flow information related to leases was as follows:


9

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

 
 
Three Months Ended 
 March 31, 2019
(In millions)
 
 

Cash paid for amounts included in the measurement of lease liabilities:
 
 

Operating cash flows from operating leases
 
$
26.7

Operating cash flows from finance leases
 
$
2.8

Financing cash flows from finance leases
 
$
9.1

 
 
 

Right-of-use assets obtained in exchange for lease obligations:
 
 

Operating leases
 
$
29.0

Finance leases
 
$
66.0

Other information related to leases was as follows:
 
 
Three Months Ended 
 March 31, 2019
Weighted Average Remaining Lease Term
 
 
Operating leases
 
4.6 years

Finance leases
 
5.4 years

 
 
 

Weighted Average Discount Rate
 
 

Operating leases
 
6.7
%
Finance leases
 
4.0
%
Future lease payments under non-cancellable leases recorded as of March 31, 2019, were as follows:
 
 
Operating Leases
 
Finance Leases
(in millions)
 
 
 
 
2019 (excluding the three months ended March 31, 2019)
 
$
79.1

 
$
32.4

2020
 
75.6

 
50.6

2021
 
49.8

 
45.6

2022
 
34.9

 
37.9

2023
 
24.9

 
70.0

Thereafter
 
24.0

 
172.9

Total future lease payments
 
$
288.3

 
$
409.4

Less imputed interest
 
(40.7
)
 
(56.4
)
Total
 
$
247.6

 
$
353.0

 
 
 
 
 
Reported as of March 31, 2019
 
 
 
 
Other accrued liabilities
 
$
83.9

 
$

Current maturities of long-term debt
 

 
35.2

Other noncurrent liabilities
 
163.7

 

Long-term debt, less current maturities
 

 
317.8

Total
 
$
247.6

 
$
353.0



10

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

A schedule of our minimum lease payments under non-cancelable capital and operating leases as of December 31, 2018 is as follows:
(in millions)
 
Operating Leases
 
Capital Leases
2019
 
$
97.5

 
$
20.4

2020

76.8

 
26.4

2021

54.7

 
23.4

2022

36.6

 
17.2

2023

28.1

 
48.9

Subsequent years

30.9

 
165.9

 
 
$
324.6

 
$
302.2



11

 
 
 
 
 
 
 
 
 
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:
 

March 31,
2019
 
December 31,
2018
 
 
Other current assets 
 
 
 
 
Income and other taxes receivable
$
240.7

 
$
149.2

 
Prepaid expenses
114.9

 
86.8

 
Other
42.0

 
44.6

 
 
$
397.6

 
$
280.6

 
 
 
 
 
 
Other assets
 
 
 
 
Restricted cash
$
9.0

 
$
15.8

 
MRO inventory
138.8

 
134.6

 
Marketable securities held in trust
656.7

 
632.3

 
Operating lease right-of-use assets
244.8

 

 
Indemnification asset
30.3

 
30.7

 
Long-term receivable
84.9

 
91.7

 
Other
295.8

 
352.7

 
 
$
1,460.3

 
$
1,257.8

 
 
 
 
 
 
Accrued liabilities
 
 
 
 
Accrued dividends
$
0.7

 
$
11.8

 
Payroll and employee benefits
121.4

 
$
217.5

 
Asset retirement obligations
140.0

 
136.3

 
Customer prepayments (a)
188.2

 
199.8

 
Accrued income tax
29.9

 
65.5

 
Operating lease obligation
83.9

 

 
Other
376.3

 
461.6

 
 
$
940.4

 
$
1,092.5

 
 
 
 
 
 
Other noncurrent liabilities
 
 
 
 
Asset retirement obligations
$
1,020.0

 
$
1,023.8

 
Operating lease obligation
163.7

 

 
Accrued pension and postretirement benefits
147.5

 
146.3

 
Unrecognized tax benefits
34.6

 
33.0

 
Other
219.4

 
255.6

 
 
$
1,585.2

 
$
1,458.7

______________________________
(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, as well as timing of cash collection from Canpotex which may occur prior to delivery of product to the end customer.  We generally satisfy our contract liabilities within one quarter of incurring the liability.


12

 
 
 
 
 
 
 
 
 
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
March 31,
2019
 
2018
Net earnings attributable to Mosaic
$
130.8

 
$
42.3

Basic weighted average number of shares outstanding
385.5

 
382.6

Dilutive impact of share-based awards
1.9

 
1.5

Diluted weighted average number of shares outstanding
387.4

 
384.1

Basic net earnings per share attributable to Mosaic
$
0.34

 
$
0.11

Diluted net earnings per share attributable to Mosaic
$
0.34

 
$
0.11

A total of 1.6 million and 2.7 million shares of common stock subject to issuance upon exercise of stock options for the three months ended March 31, 2019 and March 31, 2018, respectively, have been excluded from the calculation of diluted EPS because the effect would have been anti-dilutive.
6. Income Taxes
During the three months ended March 31, 2019, gross unrecognized tax benefits increased by $1.2 million to $39.3 million. The increase is primarily related to U.S. tax positions. If recognized, approximately $19.3 million of the $39.3 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 $5.5 million and $4.9 million as of March 31, 2019 and December 31, 2018, 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 are properly accounted for.
For the three months ended March 31, 2019, tax expense specific to the period was a benefit of approximately $0.4 million. 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, and by the impact of certain entities being taxed in both foreign jurisdictions 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 than including them in the consolidated effective tax rate. For the three months ended March 31, 2019, income tax expense was impacted by this set of rules, resulting in an additional benefit of $0.3 million compared to what would have been recorded under the general rule on a consolidated basis.
For the three months ended March 31, 2018, tax expense specific to the period was a benefit of approximately $48.0 million. This consisted primarily of a partial release of $57.0 million of valuation allowance as a result of revisions to


13

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

provisional estimates related to The Act. This was partially offset by a share-based excess cost of $1.6 million, a change in AMT refunds of $2.0 million, and changes in estimates related to prior years of $3.8 million.
7. Inventories
Inventories consist of the following:
 
 
March 31,
2019
 
December 31,
2018
 
 
Raw materials
$
116.6

 
$
147.5

 
Work in process
610.1

 
625.5

 
Finished goods
1,665.3

 
1,343.8

 
Final price deferred(a)
71.4

 
39.3

 
Operating materials and supplies
108.7

 
114.1

 
 
$
2,572.1

 
$
2,270.2

______________________________
(a) 
Final price deferred is product that has shipped to customers, but the price has not yet been agreed upon.
8. Goodwill
Mosaic had goodwill of $1.7 billion at March 31, 2019 and December 31, 2018. 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. The changes in the carrying amount of goodwill, by reporting unit, are as follows:
 
Phosphates
 
Potash
 
Mosaic Fertilizantes
 
Corporate, Eliminations and Other
 
Total
Balance as of December 31, 2018
$
588.6

 
$
1,000.4

 
$
106.4

 
$
12.1

 
$
1,707.5

Foreign currency translation

 
19.5

 
(0.2
)
 

 
19.3

Balance as of March 31, 2019
$
588.6

 
$
1,019.9

 
$
106.2

 
$
12.1

 
$
1,726.8

We are required to perform our next annual goodwill impairment analysis as of October 31, 2019. It is possible that, during the remainder of 2019 or beyond, 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 assumed 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.
9. 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


14

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

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 carrying value of an investment is impaired on an other-than-temporary basis. There were no other-than-temporary impairment write-downs on available-for-sale securities during the three months ended March 31, 2019.
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 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, 2019 and December 31, 2018 are as follows:
 
March 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Level 1
 
 
 
 
 
 
 
    Cash and cash equivalents
$
7.0

 
$

 
$

 
$
7.0

Level 2
 
 
 
 
 
 
 
    Corporate debt securities
180.4

 
2.2

 
(1.3
)
 
181.3

    Municipal bonds
183.7

 
1.9

 
(1.2
)
 
184.4

    U.S. government bonds
269.8

 
5.3

 

 
275.1

Total
$
640.9

 
$
9.4

 
$
(2.5
)
 
$
647.8

 
 
 
 
 
 
 
 
 
December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Level 1
 
 
 
 
 
 
 
    Cash and cash equivalents
$
4.0

 
$

 
$

 
$
4.0

Level 2
 
 
 
 
 
 
 
    Corporate debt securities
180.8

 
0.3

 
(4.3
)
 
176.8

    Municipal bonds
186.1

 
0.5

 
(3.4
)
 
183.2

    U.S. government bonds
262.1

 
3.3

 

 
265.4

Total
$
633.0

 
$
4.1

 
$
(7.7
)
 
$
629.4



15

 
 
 
 
 
 
 
 
 
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 deemed to be temporary as of March 31, 2019 and December 31, 2018.
 
March 31, 2019
 
December 31, 2018
 
Less than 12 months
 
Less than 12 months
 
Fair
Value
 
Gross
Unrealized
Losses(a)
 
Fair
Value
 
Gross
Unrealized
Losses(a)
Corporate debt securities
$
1.9

 
$

 
$
43.9

 
$
(0.6
)
Municipal bonds
1.6

 

 
12.3

 

U.S. government bonds

 

 

 

Total
$
3.5

 
$

 
$
56.2

 
$
(0.6
)
 
 
 
 
 
 
 
 
 
March 31, 2019
 
December 31, 2018
 
Greater than 12 months
 
Greater than 12 months
 
Fair
Value
 
Gross
Unrealized
Losses(a)
 
Fair
Value
 
Gross
Unrealized
Losses(a)
Corporate debt securities
$
86.4

 
$
(1.3
)
 
$
103.4

 
$
(3.7
)
Municipal bonds
81.0

 
(1.2
)
 
117.5

 
(3.4
)
U.S. government bonds

 

 

 

Total
$
167.4

 
$
(2.5
)
 
$
220.9

 
$
(7.1
)
______________________________
(a) 
Represents the aggregate of the gross unrealized losses that have been in a continuous unrealized loss position as of March 31, 2019 and December 31, 2018.
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, 2019. 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, 2019
Due in one year or less
$
42.7

Due after one year through five years
355.8

Due after five years through ten years
206.4

Due after ten years
35.9

Total debt securities
$
640.8

For the three months ended March 31, 2019, realized gains were $3.1 million and realized losses were $0.8 million. For the three months ended March 31, 2018, realized gains were zero and realized losses were $4.9 million.
10. Asset Retirement Obligations
We recognize our estimated asset retirement obligations (“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.


16

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

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 acquired as part of the Acquisition and (viii) decommission plant sites and close Gypstacks in Brazil also as part of the Acquisition. 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.
A reconciliation of our AROs is as follows:
(in millions)
March 31, 2019
 
December 31, 2018
AROs, beginning of period
$
1,160.1

 
$
859.3

Liabilities acquired in the Acquisition

 
258.9

Liabilities incurred
4.0

 
27.8

Liabilities settled
(22.2
)
 
(69.6
)
Accretion expense
15.3

 
48.0

Revisions in estimated cash flows
1.5

 
78.2

Foreign currency translation
1.3

 
(42.5
)
AROs, end of period
1,160.0

 
1,160.1

Less current portion
140.0

 
136.3

 
$
1,020.0

 
$
1,023.8

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 noncurrent 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 (“LDEQ”) 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 capital expenditures likely to exceed $200 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 9 to our Condensed Consolidated Financial Statements. In


17

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

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, 2018, 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 $1.5 billion, and the present value of our Gypstack Closure Costs ARO reflected in our Consolidated Balance Sheet for those facilities was approximately $457.1 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 “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 law: the government entities can draw against such amounts in the event we cannot perform such closure activities. One 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 that 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 Plant City in the form of a surety bond (the “Plant City Bond”). The amount of the Plant City Bond is $233.7 million, which reflects our closure cost estimates as of December 31, 2018.  The other 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.
At March 31, 2019 and December 31, 2018, the aggregate amounts of AROs associated with the Plant City Facility and Bonnie Facility gypstack closure costs included in our Condensed Consolidated Balance Sheets were $110.1 million and $109.2 million, respectively. The aggregate amount represented by the Plant City Bond exceeds 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 Phosphates 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.
11. 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 $54.8 million and $58.6 million as of March 31, 2019 and December 31, 2018, 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


18

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

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 with 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, 2019, the sinkhole repairs were substantially complete, with $79.7 million spent in remediation and sinkhole-related costs through this date. We estimate remaining costs will be approximately $1.3 million. Additional expenditures could be required in the future for additional remediation or other measures in connection with the sinkhole including if, for example, 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.
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.
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 national enforcement initiative focusing on sulfuric acid plants.  On June 16, 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 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. We do not expect that any related penalties assessed against us as part of a potential settlement would be material. 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.


19

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

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. Environmental Protection Agency.  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 and constructing a stability berm at the base of the slope to increase resistance.  Both steps have improved slope stability.  We are planning others that will further increase that stability.  There has been no loss of containment resulting from the movement observed, and none is expected. Although this could have a material effect on our future operations, at this time, we cannot predict the prospective impact on our results of operations.
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.
Phosphate Mine Permitting in Florida
Denial of the permits sought at any of our mines, 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 required to operate our Florida and Louisiana phosphate plants at desired levels or increase our costs in the future.
The South Pasture Extension. In November 2016, the Army Corps of Engineers (the “Corps”) issued a federal wetlands permit under the Clean Water Act for mining an extension of our South Pasture phosphate rock mine in central Florida. On December 20, 2016, the Center for Biological Diversity, ManaSota-88, People for Protecting Peace River and Suncoast Waterkeeper issued a 60-day notice of intent to sue the Corps and the U.S. Fish and Wildlife Service (the “Service”) under the federal Endangered Species Act regarding actions taken by the Corps and the Service in connection with the issuance of the permit. On March 15, 2017, the same group filed a complaint against the Corps, the Service and the U.S. Department of the Interior in the U.S. District Court for the Middle District of Florida, Tampa Division. The complaint alleges that various actions taken by the Corps and the Service in connection with the issuance of the permit, including in connection with the Service's biological opinion and the Corps' reliance on that biological opinion, violated substantive and procedural requirements of the federal Clean Water Act (“CWA”), the National Environmental Policy Act (“NEPA”) and the Endangered Species Act (the “ESA”), and were arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law, in violation of the Administrative Procedure Act (the “APA”). As to the Corps, plaintiffs allege in their complaint, among other things, that the Corps failed to conduct an adequate analysis under the CWA of alternatives, failed to fully consider the effects of the South Pasture extension mine, failed to take adequate steps to minimize potential adverse impacts and violated the ESA by relying on the Service's biological opinion to determine that its permitting decision is not likely to adversely affect certain endangered or rare species. As to the Service, plaintiffs allege in their complaint, among other things, that the Service's biological opinion fails to meet statutory requirements, that the Service failed to properly consider impacts and adequately assess the cumulative effects on certain species, and that the Service violated the ESA in finding that the South Pasture extension mine is not likely to adversely affect certain endangered or rare species. The plaintiffs are


20

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

seeking relief including (i) declarations that the Corps' decision to issue the permit violated the CWA, NEPA, the ESA and the APA and that its NEPA review violated the law; (ii) declarations that the Service's biological opinion violated applicable law and that the Corps' reliance on the biological opinion violated the ESA; (iii) orders that the Corps rescind the permit, that the Service withdraw its biological opinion and related analyses and prepare a biological opinion that complies with the ESA; and (iv) that the Corps be preliminarily and permanently enjoined from authorizing any further action under the permit until it complies fully with the requirements of the CWA, NEPA, the ESA and the APA. On March 31, 2017, Mosaic's motion for intervention was granted with no restrictions. Plaintiffs filed an amended complaint on June 2, 2017, without any new substantive allegations, and on June 28, 2017, Mosaic (as intervenor) and separately, the defendants, filed answers to the amended complaint. On June 30, 2017, the plaintiffs filed a motion for summary judgment, arguing that the permit should not have been issued. On July 15, 2017, Mosaic filed a response in opposition to the plaintiffs' motion, and on July 28, 2017, Mosaic filed its own motion for summary judgment. On December 14, 2017, the Tampa District Court granted Mosaic’s motion for summary judgment in favor of Mosaic and the government defendants, and denied the plaintiffs’ motion to supplement the administrative record. On February 12, 2018, the plaintiffs filed an appeal with the U.S. Court of Appeals for the Eleventh Circuit of the Tampa District Court decision. A mandatory mediation occurred on March 19, 2018, but no settlement was reached. Briefing by all parties was completed on July 13, 2018. Oral arguments are scheduled for May 22, 2019.
We believe the plaintiffs' claims in this case are without merit and we intend to vigorously defend the Corps' issuance of the South Pasture extension permit and the Service's biological opinion. However, if the plaintiffs were to prevail in this case, we would be prohibited from continuing to mine the South Pasture extension, and obtaining new or modified permits could significantly delay our resumption of mining and could result in more onerous mining conditions. This could have a material effect on our future results of operations, reduce future cash flows from operations, and in the longer term, conceivably adversely affect our liquidity and capital resources.
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 $1.1 billion. We estimate that our probable aggregate loss with respect to these claims is approximately $46.4 million, which amount is included in our accrued liabilities in our Condensed Consolidated Balance Sheet at March 31, 2019.
Approximately $757.0 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 $37.0 million, which is included in accrued liabilities in our Condensed Consolidated Balance Sheet at March 31, 2019. Based on Brazil 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 potential exposure could increase and additional accruals could be required.
Approximately $2.7 million of the above mentioned $37.0 million reserves relates to a purported class action filed by one of the unions claiming additional payment for occupational hazard due to the alleged exposure of workers at the Company’s potash mine at Rosário do Catete, Sergipe, to explosive gases that could be found during the mining process. The matter currently is before the Brazilian Labor Supreme Court.
The environmental and mining judicial and administrative proceedings claims allege aggregate damages and/or fines of approximately $164.1 million. We estimate that our probable aggregate loss regarding these claims is approximately $5.6 million, which has been accrued at March 31, 2019. The majority of the reserves involves a claim filed in 2012 by the State Public Prosecutor Office, alleging that the Company delayed construction of an effluent treatment plant, thereby subjecting it to a fine under the commitment agreement.
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 and other civil matters arising in the ordinary course of business. These claims allege aggregate damages in excess of $172.9 million. We estimate that the probable aggregate loss with respect to these matters is approximately $3.7 million.


21

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

Uberaba Judicial Settlement
In 2008, the Federal Public Prosecutor filed a public civil action requesting the Company to adopt several measures to mitigate soil and water contamination related to the Gypstack at our Uberaba facility, 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 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, 2023.
Uberaba EHS Class Action
In 2013, the State of Minas Gerais public prosecutor filed a class action claiming that our predecessor company in Brazil did not comply with labor safety rules and working hour laws. This claim was based on an inspection conducted by the Labor and Employment Ministry in 2010, following which we were fined for not complying with several labor regulations. We filed our defense, claiming that we complied with these labor regulations and that the assessment carried out by the inspectors in 2010 was abusive. Following the initial hearing, the court ordered an examination to determine whether there has been any non-compliance with labor regulations. The examination is currently pending. The amount involved in the proceeding is $31.8 million.
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 $481.0 million, of which $233.0 million is subject to an indemnification agreement entered into with Vale S.A in connection with the Acquisition.
Approximately $301.0 million of the maximum potential liability relates to a Brazilian federal value-added tax, PIS and Coffins, 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. Based on Brazil 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; these reserves are immaterial in amount. If the status of similar tax cases involving unrelated taxpayers 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.
12. Accounting for 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. As of March 31, 2019 and December 31, 2018, the gross asset position of our derivative instruments was $14.6 million and $13.4 million, respectively, and the gross liability position of our liability instruments was $37.3 million and $89.4 million, respectively.


22

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

 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.
We apply fair value hedge accounting treatment to our fixed-to-floating interest rate 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. These fair value hedges are considered to be highly effective and, thus, as of March 31, 2019, the impact on earnings due to hedge ineffectiveness was immaterial. Consistent with our intent to have floating rate debt as a portion of our outstanding debt, in December 2016 and the first quarter of 2017, we entered into four and five, respectively, fixed-to-floating interest rate swap agreements, with a total notional amount of $310.0 million and $275.0 million, respectively, related to our Senior Notes due 2023.
As of March 31, 2019 and December 31, 2018, the following is the total absolute notional volume associated with our outstanding derivative instruments:
(in millions of Units)
 
 
 
 
 
March 31,
2019
 
December 31,
2018
Derivative Instrument
Derivative Category
Unit of Measure
Foreign currency derivatives
 
Foreign currency
 
US Dollars
 
1,626.6

 
2,091.7
Interest rate derivatives
 
Interest rate
 
US Dollars
 
585.0

 
585.0
Natural gas derivatives
 
Commodity
 
MMbtu
 
50.7

 
52.2
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, 2019 and December 31, 2018, was $14.9 million and $37.9 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, 2019, we would have been required to post an additional $13.1 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.
13. 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:


23

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

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, 2019 and December 31, 2018, the gross asset position of our foreign currency derivative instruments was $13.1 million and the gross liability position of our foreign currency derivative instruments was $24.5 million and $62.2 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, 2019 and December 31, 2018, the gross asset position of our commodity derivative instruments was $1.4 million and $0.3 million, respectively, and the gross liability position of our commodity instruments was $10.8 million and $17.7 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. 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. As of March 31, 2019 and December 31, 2018, the gross asset position of our interest rate swap instruments was $0.1 million and zero, respectively, and the gross liability position of our interest rate swap instruments was $2.0 million and $9.5 million, respectively.
Financial Instruments
The carrying amounts and estimated fair values of our financial instruments are as follows:
 
 
March 31, 2019
 
December 31, 2018
 
Carrying Amount
 
Fair Value
Carrying Amount
 
Fair Value
 
 
Cash and cash equivalents
$
384.6

 
$
384.6

 
$
847.7

 
$
847.7

 
Accounts Receivables
792.0

 
792.0

 
838.5

 
838.5

 
Accounts payable
781.6

 
781.6

 
780.9

 
780.9

 
Structured accounts payable arrangements
466.9

 
466.9

 
572.8

 
572.8

 
Short-term debt (a)
167.5

 
167.5

 
11.5

 
11.5

 
Long-term debt, including current portion
4,573.8

 
4,724.0

 
4,517.5

 
4,554.6

(a) Includes approximately $38.0 million related to a collateralized subsidy payment by the Government of India which was repaid in April 2019.
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.


24

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


14. 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, 2019 and December 31, 2018, the net amount due (to) from our non-consolidated companies totaled $(182.9) million and $95.2 million, respectively. These amounts include a long-term indemnification asset of $30.3 million from Vale S.A. for reimbursement of pension plan obligations.
The Condensed Consolidated Statements of Earnings included the following transactions with our non-consolidated companies:
 
Three months ended
March 31,
 
2019
 
2018
Transactions with non-consolidated companies included in net sales
$
262.5

 
$
114.1

Transactions with non-consolidated companies included in cost of goods sold
251.0

 
203.7

As part of the MWSPC joint venture, we market approximately 25% of the MWSPC production, for which approximately $2.7 million and $1.0 million is included in revenue for the three months ended March 31, 2019 and March 31, 2018, respectively.
In November 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 through additional loans from Gulf Sulphur Services.  We determined, beginning in 2015 that we are the primary beneficiary of GMS, a variable interest entity and, at that time, we consolidated GMS’s operations in our Phosphates 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. At March 31, 2019 and December 31, 2018, $81.1 million and $75.3 million in bridge loans, respectively, which are eliminated in consolidation, were outstanding, relating to the cancelled second barge and the remaining tug. Reserves against the bridge loan of approximately $54.2 million were recorded through December 31, 2018, and no additional charges were recorded in 2018 or 2019.  The construction of the remaining tug, funded by the bridge loan advances in excess of the reserves, is recorded within construction in-progress within our consolidated balance sheet. Several subsidiaries of Savage operate vessels utilized by Mosaic under time charter arrangements, including the ammonia tug and barge unit.
15. 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.


25

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

For a description of our business segments, see Note 1 to the Condensed Consolidated Financial Statements. 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. As of January 1, 2019, certain selling, general and administrative costs that are not controllable by the business segments are no longer allocated to segments and are included within Corporate, Eliminations and Other. Our operating results for the quarter ended March 31, 2018, have been recast to reflect this change.
Segment information for the three months ended March 31, 2019 and 2018 was as follows:
 
Phosphates
 
Potash
 
Mosaic Fertilizantes
 
Corporate, Eliminations and Other (a)
 
Total
Three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
598.1

 
$
497.3

 
$
698.0

 
$
106.3

 
$
1,899.7

Intersegment net sales
207.9

 
6.2

 

 
(214.1
)
 

Net sales
806.0

 
503.5

 
698.0

 
(107.8
)
 
1,899.7

Gross margin
54.8

 
185.4

 
52.4

 
16.9

 
309.5

Canadian resource taxes

 
46.9

 

 

 
46.9

Gross margin (excluding Canadian resource taxes)
54.8

 
232.3

 
52.4

 
16.9

 
356.4

Operating earnings (loss)
43.5

 
175.8

 
27.3

 
(44.5
)
 
202.1

Capital expenditures
120.4

 
140.4

 
51.8

 
1.3

 
313.9

Depreciation, depletion and amortization expense
103.5

 
78.3

 
31.5

 
4.8

 
218.1

Three months ended March 31, 2018
 
 
 
 
 
 
 
 
 
Net sales to external customers
$
764.2

 
$
401.5

 
$
665.3

 
$
102.7

 
$
1,933.7

Intersegment net sales
101.7

 
2.2

 

 
(103.9
)
 

Net sales
865.9

 
403.7

 
665.3

 
(1.2
)
 
1,933.7

Gross margin
96.5

 
102.4

 
59.2

 
(16.0
)
 
242.1

Canadian resource taxes

 
26.3

 

 

 
26.3

Gross margin (excluding Canadian resource taxes)
96.5

 
128.7

 
59.2

 
(16.0
)
 
268.4

Operating earnings (loss)
77.8

 
91.6

 
12.8

 
(101.5
)
 
80.7

Capital expenditures
100.2

 
103.8

 
17.9

 
1.4

 
223.3

Depreciation, depletion and amortization expense
99.3

 
75.6

 
37.2

 
5.4

 
217.5

Total Assets
 
 
 
 
 
 
 
 
 
As of March 31, 2019
$
8,424.4

 
$
7,439.0

 
$
4,070.4

 
$
511.5

 
$
20,445.3

As of December 31, 2018
7,877.3

 
7,763.1

 
3,952.4

 
526.4

 
20,119.2

______________________________
(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, 2019, distribution operations in India and China had revenue of $93.2 million and gross margin of $9.0 million. For the three months ended March 31, 2018, distribution operations in India and China had revenue of $89.4 million and gross margin of $10.1 million.



26

 
 
 
 
 
 
 
 
 
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)
2019
 
2018
Net sales(a):
 
 
 
Brazil
$
678.0

 
$
688.6

Canpotex(b)
257.6

 
110.6

Canada
136.1

 
126.1

China
65.1

 
62.9

Australia
56.0

 
83.9

Mexico
44.4

 
59.0

India
27.8

 
32.3

Argentina
25.8

 
6.8

Paraguay
21.4

 
14.5

Peru
20.1

 
11.5

Columbia
16.5

 
26.4

Chile
10.9

 
15.7

Dominican Republic
7.5

 
2.5

Thailand
5.1

 
8.0

Other
17.5

 
53.9

Total international countries
1,389.8

 
1,302.7

United States
509.9

 
631.0

Consolidated
$
1,899.7

 
$
1,933.7

______________________________
(a) 
Revenues are attributed to countries based on location of customer.
(b) 
Canpotex is the export association of the Saskatchewan potash producers.
Net sales by product type are as follows:
 
Three Months Ended March 31,
(in millions)
2019
 
2018
Sales by product type:
 
 
 
Phosphate Crop Nutrients
$
524.6

 
$
636.9

Potash Crop Nutrients
572.1

 
463.3

Crop Nutrient Blends
293.4

 
268.4

Specialty Products(a)
319.5

 
374.5

Phosphate Rock
7.0

 
21.8

Other(b)
183.1

 
168.8

 
$
1,899.7

 
$
1,933.7

____________________________
(a) 
Includes sales of MicroEssentials®, K-Mag, Aspire and animal feed ingredients.
(b) 
Includes sales of industrial potash, nitrogen and other products.


27


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, 2018 (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 months ended March 31, 2019 and 2018:
 
Three months ended
 
 
 
 
 
March 31,
 
2019-2018
(in millions, except per share data)
2019
 
2018
 
Change
 
Percent
Net sales
$
1,899.7

 
$
1,933.7

 
$
(34.0
)
 
(2
)%
Cost of goods sold
1,590.2

 
1,691.6

 
(101.4
)
 
(6
)%
Gross margin
309.5

 
242.1

 
67.4

 
28
 %
Gross margin percentage
16
%
 
13
%
 
 
 
 
Selling, general and administrative expenses
93.5

 
93.6

 
(0.1
)
 
0
 %
Other operating expense
13.9

 
67.8

 
(53.9
)
 
(79
)%
Operating earnings
202.1

 
80.7

 
121.4

 
150
 %
Interest expense, net
(47.0
)
 
(49.4
)
 
2.4

 
(5
)%
Foreign currency transaction gain (loss)
22.6

 
(32.2
)
 
54.8

 
NM

Other expense
(1.1
)
 
(5.6
)
 
4.5

 
(80
)%
Earnings (loss) from consolidated companies before income taxes
176.6

 
(6.5
)
 
183.1

 
NM

Provision for (benefit from) income taxes
46.6

 
(49.9
)
 
96.5

 
NM