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.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | |
arrangements for which we became responsible and that provided sources of funds for the estimated Gypstack Closure Costs for these facilities, pursuantfacilities. Pursuant to federal or state law:laws, the applicable government entities canare permitted to draw against such amounts in the event we cannot perform such closure activities. One of the financial assurance arrangements was initially a trust (the “Plant City Trust”) established to meet the requirements under a consent decree with the EPA and the FDEP with respect to RCRA compliance at Plant City. The Plant City thatTrust also satisfied Florida financial assurance requirements at that site. Beginning in September 2016, as a substitute for the financial assurance provided through the Plant City Trust, we have provided financial assurance for the Plant City Facility in the form of a surety bond (the “Plant City Bond”). The amount of the Plant City Bond is $233.7$244.9 million, which reflects our closure cost estimates as of December 31, 2018.2019. The other financial assurance arrangement was also a trust fund (the “Bonnie Facility Trust”) established to meet the requirements under Florida financial assurance regulations that apply to the Bonnie Facility. In July 2018, we received $21.0 million from the Bonnie Facility Trust by substituting for the trust fund a financial test mechanism (“Bonnie Financial Test”) supported by a corporate guarantee as allowed by state regulations. Both financial assurance funding obligations require estimates of future expenditures that could be impacted by refinements in scope, technological developments, new information, cost inflation, changes in regulations, discount rates and the timing of activities. Under our current approach to satisfying applicable requirements, additional financial assurance would be required in the future if increases in cost estimates exceed the face amount of the Plant City Bond or the amount supported by the Bonnie Financial Test.
AtAs of June 30, 20192020 and December 31, 2018,2019, the aggregate amounts of AROs associated with the combined Plant City Facility and Bonnie Facility gypstack closure costs included in our Condensed Consolidated Balance Sheets were $233.9$205.4 million and $109.2$211.2 million, respectively. The aggregate amount represented by the Plant City Bond exceeds the present value of the aggregate amount of ARO associated with that Facility.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 three3 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. Income Taxes
During the six months ended June 30, 2020, gross unrecognized tax benefits decreased by $5.2 million to $34.3 million. The decrease is primarily related to releasing a reserve in the U.S. for AMT sequestration. If recognized, approximately $18.1 million of the $34.3 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 $7.8 million and $7.4 million as of June 30, 2020 and December 31, 2019, 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 June 30, 2020, tax expense specific to the period was a benefit of approximately $2.5 million. This consisted primarily of tax benefit of $3.0 million recorded for interest income on AMT tax refunds. 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 June 30, 2020, income tax expense was impacted by this set of rules, resulting in an additional cost of $18.8 million compared to what would have been recorded under the general rule on a consolidated basis.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | |
For the six months ended June 30, 2020, tax expense specific to the period was a benefit of approximately $30.8 million. This consisted primarily of tax benefit of $25.1 million recorded related to the impacts of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to prior years. The CARES Act provides various tax relief measures to taxpayers impacted by the coronavirus. Tax expense specific to the period also included a benefit of $5.7 million of which $5.5 million related to release of the sequestration on AMT. 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.
12. Derivative Instruments and Hedging Activities
We periodically enter into derivatives to mitigate our exposure to foreign currency risks, interest rate movements and the effects of changing commodity prices. We record all derivatives on the Condensed Consolidated Balance Sheets at fair value. The fair value of these instruments is determined by using quoted market prices, third party comparables, or internal estimates. We net our derivative asset and liability positions when we have a master netting arrangement in place. Changes in the fair value of the foreign currency, commodity and freight derivatives are immediately recognized in earnings.
We do not apply hedge accounting treatments to our foreign currency exchange contracts, commodities contracts, or freight contracts. Unrealized gains and (losses) on foreign currency exchange contracts used to hedge cash flows related to the production of our products are included in cost of goods sold in the Condensed Consolidated Statements of Earnings. Unrealized gains and (losses) on commodities contracts and certain forward freight agreements are also recorded in cost of goods sold in the Condensed Consolidated Statements of Earnings. Unrealized gains or (losses) on foreign currency exchange contracts used to hedge cash flows that are not related to the production of our products are included in the foreign currency transaction gain/(loss) caption in the Condensed Consolidated Statements of Earnings.
From time to time, we enter into fixed-to-floating interest rate contracts. We apply fair value hedge accounting treatment to these contracts. Under these arrangements, we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. The mark-to-market of these fair value hedges is recorded as gains or losses in interest expense. We had 9 fixed-to-floating interest rate swap agreements with a total notional amount of $585.0 million as of December 31, 2019 related to our Senior Notes due 2023. All nine fixed-to-floating interest rate swap agreements were terminated in April of 2020, for which we received net proceeds of approximately $35 million. The termination resulted in an immaterial impact to our Condensed Consolidated Statement of Earnings (Loss). As a result, Mosaic no longer has fixed-to-floating interest rate swap agreements in effect as of June 30, 2020.
As of June 30, 2020 and December 31, 2019, the gross asset position of our derivative instruments was $32.7 million and $29.9 million, respectively, and the gross liability position of our liability instruments was $93.1 million and $29.1 million, respectively.
As of June 30, 2020 and December 31, 2019, the following is the total absolute notional volume associated with our outstanding derivative instruments:
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(in millions of Units) | | | | | | June 30, 2020 | | December 31, 2019 |
Derivative Instrument | | Derivative Category | | Unit of Measure | | | | |
Foreign currency derivatives | | Foreign currency | | US Dollars | | 2,538.8 | | | 1,923.3 | |
Interest rate derivatives | | Interest rate | | US Dollars | | — | | | 585.0 | |
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Natural gas derivatives | | Commodity | | MMbtu | | 33.1 | | 44.1 |
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Credit-Risk-Related Contingent Features
Certain of our derivative instruments contain provisions that are governed by International Swap and Derivatives Association agreements with the counterparties. These agreements contain provisions that allow us to settle for the net amount between payments and receipts, and also state that if our debt were to be rated below investment grade, certain counterparties could request full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position as of June 30, 2020 and December 31,
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | |
2019, was $52.0 million and $11.6 million, respectively. We have no cash collateral posted in association with these contracts. If the credit-risk-related contingent features underlying these agreements were triggered on June 30, 2020, we would have been required to post an additional $46.1 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:
Foreign Currency Derivatives - The foreign currency derivative instruments that we currently use are forward contracts and zero-cost collars, which typically expire within eighteen months. Most of the valuations are adjusted by a forward yield curve or interest rates. In such cases, these derivative contracts are classified within Level 2. Some valuations are based on exchange-quoted prices, which are classified as Level 1. Changes in the fair market values of these contracts are recognized in the Condensed Consolidated Financial Statements as a component of cost of goods sold in our Corporate, Eliminations and Other segment, or foreign currency transaction (gain) loss. As of June 30, 2020 and December 31, 2019, the gross asset position of our foreign currency derivative instruments was $26.6 million and $15.6 million, respectively, and the gross liability position of our foreign currency derivative instruments was $90.6 million and $22.9 million, respectively.
Commodity Derivatives - The commodity contracts primarily relate to natural gas. The commodity derivative instruments that we currently use are forward purchase contracts, swaps, and three-way collars. The natural gas contracts settle using NYMEX futures or AECO price indexes, which represent fair value at any given time. The contracts’ maturities and settlements are scheduled for future months and settlements are scheduled to coincide with anticipated gas purchases during those future periods. Quoted market prices from NYMEX and AECO are used to determine the fair value of these instruments. These market prices are adjusted by a forward yield curve and are classified within Level 2. Changes in the fair market values of these contracts are recognized in the Condensed Consolidated Financial Statements as a component of cost of goods sold in our Corporate, Eliminations and Other segment. As of June 30, 2020 and December 31, 2019, the gross asset position of our commodity derivative instruments was $6.1 million and $2.9 million, respectively, and the gross liability position of our commodity instruments was $2.5 million and $6.2 million, respectively.
Interest Rate Derivatives - We manage interest expense through interest rate contracts to convert a portion of our fixed-rate debt into floating-rate debt. From time to time, we also enter into interest rate swap agreements to hedge our exposure to changes in future interest rates related to anticipated debt issuances. Valuations are based on external pricing sources and are classified as Level 2. Changes in the fair market values of these contracts are recognized in the Condensed Consolidated Financial Statements as a component of interest expense. In April 2020, we terminated our outstanding interest rate swap contracts which resulted in an immaterial impact to our Condensed Consolidated Statement of Earnings (Loss). As of June 30, 2020 and December 31, 2019, the gross asset position of our interest rate swap instruments was 0 and $11.4 million, respectively, and the gross liability position of our interest rate swap instruments was 0 as of June 30, 2020 and December 31, 2019.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | |
Financial Instruments
The carrying amounts and estimated fair values of our financial instruments are as follows:
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| June 30, 2020 | | | | December 31, 2019 | | |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
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Cash and cash equivalents | $ | 1,073.3 | | | $ | 1,073.3 | | | $ | 519.1 | | | $ | 519.1 | |
Accounts receivable | 689.6 | | | 689.6 | | | 803.9 | | | 803.9 | |
Accounts payable | 811.9 | | | 811.9 | | | 680.4 | | | 680.4 | |
Structured accounts payable arrangements | 410.3 | | | 410.3 | | | 740.6 | | | 740.6 | |
Short-term debt | 610.0 | | | 610.0 | | | 41.6 | | | 41.6 | |
Long-term debt, including current portion | 4,587.1 | | | 4,803.4 | | | 4,572.7 | | | 4,920.9 | |
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.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | |
14. Accumulated Other Comprehensive Income (Loss)
The following table sets forth the changes in AOCI, net of tax, by component during the three and six months ended June 30, 2020 and June 30, 2019:
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| Foreign Currency Translation Gain (Loss) | | Net Actuarial Gain and Prior Service Cost | | Amortization of Gain on Interest Rate Swap | | Net Gain (Loss) on Marketable Securities Held in Trust | | Total |
Three Months Ended June 30, 2020 | | | | | | | | | |
Balance as of March 31, 2020 | $ | (2,072.9) | | | $ | (127.8) | | | $ | 2.6 | | | $ | 14.1 | | | $ | (2,184.0) | |
Other comprehensive income (loss) | 56.5 | | | 2.6 | | | 0.5 | | | 12.5 | | | 72.1 | |
Tax expense | (1.2) | | | 3.4 | | | (0.2) | | | (4.6) | | | (2.6) | |
Other comprehensive income (loss), net of tax | 55.3 | | | 6.0 | | | 0.3 | | | 7.9 | | | 69.5 | |
Other comprehensive income attributable to noncontrolling interest | 1.3 | | | — | | | — | | | — | | | 1.3 | |
Balance as of June 30, 2020 | $ | (2,016.3) | | | $ | (121.8) | | | $ | 2.9 | | | $ | 22.0 | | | $ | (2,113.2) | |
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Three Months Ended June 30, 2019 | | | | | | | | | |
Balance as of March 31, 2019 | $ | (1,495.5) | | | $ | (106.3) | | | $ | 1.0 | | | $ | 5.2 | | | $ | (1,595.6) | |
Other comprehensive income (loss) | 99.9 | | | 2.6 | | | 0.5 | | | 12.2 | | | 115.2 | |
Tax expense | 7.3 | | | (3.9) | | | — | | | (0.5) | | | 2.9 | |
Other comprehensive income (loss), net of tax | 107.2 | | | (1.3) | | | 0.5 | | | 11.7 | | | 118.1 | |
Other comprehensive loss attributable to noncontrolling interest | (0.4) | | | — | | | — | | | — | | | (0.4) | |
Balance as of June 30, 2019 | $ | (1,388.7) | | | $ | (107.6) | | | $ | 1.5 | | | $ | 16.9 | | | $ | (1,477.9) | |
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Six Months Ended June 30, 2020 | | | | | | | | | |
Balance at December 31, 2019 | $ | (1,476.8) | | | $ | (129.6) | | | $ | 2.1 | | | $ | 6.1 | | | $ | (1,598.2) | |
Other comprehensive income (loss) | (539.4) | | | 12.3 | | | 1 | | | 20.5 | | | (505.6) | |
Tax expense | (8.7) | | | (4.5) | | | (0.2) | | | (4.6) | | | (18.0) | |
Other comprehensive income (loss), net of tax | (548.1) | | | 7.8 | | | 0.8 | | | 15.9 | | | (523.6) | |
Addback: other comprehensive loss attributable to noncontrolling interest | 8.6 | | | — | | | — | | | — | | | 8.6 | |
Balance as of June 30, 2020 | $ | (2,016.3) | | | $ | (121.8) | | | $ | 2.9 | | | $ | 22.0 | | | $ | (2,113.2) | |
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Six Months Ended June 30, 2019 | | | | | | | | | |
Balance at December 31, 2018 | $ | (1,547.4) | | | $ | (105.3) | | | $ | 0.4 | | | $ | (4.8) | | | $ | (1,657.1) | |
Other comprehensive income (loss) | 160.8 | | | 5.2 | | | 1.1 | | | 22.7 | | | 189.8 | |
Tax expense | (1.8) | | | (7.5) | | | — | | | (1.0) | | | (10.3) | |
Other comprehensive income (loss), net of tax | 159.0 | | | (2.3) | | | 1.1 | | | 21.7 | | | 179.5 | |
Addback: other comprehensive loss attributable to noncontrolling interest | (0.3) | | | — | | | — | | | — | | | (0.3) | |
Balance as of June 30, 2019 | $ | (1,388.7) | | | $ | (107.6) | | | $ | 1.5 | | | $ | 16.9 | | | $ | (1,477.9) | |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | |
15. Related Party Transactions
We enter into transactions and agreements with certain of our non-consolidated companies and other related parties from time to time. As of June 30, 2020, the net amount due to our non-consolidated companies totaled $175.1 million. As of December 31, 2019, there was a net amount due from our non-consolidated companies totaling $23.2 million. These amounts include a long-term indemnification asset of $21.3 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:
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| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Transactions with non-consolidated companies included in net sales | $ | 222.5 | | | $ | 289.3 | | | $ | 371.1 | | | $ | 551.8 | |
Transactions with non-consolidated companies included in cost of goods sold | 218.4 | | | 299.8 | | | 395.5 | | | 550.8 | |
As part of the MWSPC joint venture, we market approximately 25% of the MWSPC production, for which approximately $1.5 million and $3.9 million, and $1.9 million and $4.6 million of marketing fees are included in revenue for the three and six months ended June 30, 2020 and June 30, 2019, respectively.
In 2015, we agreed to provide funds to finance the purchase and construction of two articulated tug and barge units, intended to transport anhydrous ammonia for our operations, through a bridge loan agreement with Gulf Marine Solutions, LLC (“GMS”). GMS is a wholly owned subsidiary of Gulf Sulphur Services Ltd., LLLP (“Gulf Sulphur Services”), an entity in which we and a joint venture partner, Savage Companies (“Savage”), each indirectly own a 50% equity interest and for which a subsidiary of Savage provides operating and management services. GMS provided these funds through draws on the Mosaic bridge loan and through additional loans from Gulf Sulphur Services. We are the primary beneficiary of GMS, a variable interest entity, and consolidate GMS’s operations in our 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. As of June 30, 2020 and December 31, 2019, there were outstanding bridge loans of $74.7 million and $74.7 million, respectively, relating to the cancelled second barge and the remaining tug, which bridge loans are eliminated in consolidation. Reserves against the bridge loans of approximately $54.2 million were established in 2018 and remain unchanged. 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.
16. Contingencies
We have described below judicial and administrative proceedings to which we are subject.
Environmental Matters
We have contingent environmental liabilities that arise principally from three sources: (i) facilities currently or formerly owned by our subsidiaries or their predecessors; (ii) facilities adjacent to currently or formerly owned facilities; and (iii) third-party Superfund or state equivalent sites. At facilities currently or formerly owned by our subsidiaries or their predecessors, the historical use and handling of regulated chemical substances, crop and animal nutrients and additives and by-product or process tailings have resulted in soil, surface water and/or groundwater contamination. Spills or other releases of regulated substances, subsidence from mining operations and other incidents arising out of operations, including accidents, have occurred previously at these facilities, and potentially could occur in the future, possibly requiring us to undertake or fund cleanup or result in monetary damage awards, fines, penalties, other liabilities, injunctions or other court or administrative rulings. In some instances, pursuant to consent orders or agreements with governmental agencies, we are undertaking certain remedial actions or investigations to determine whether remedial action may be required to address contamination. At other locations, we have entered into consent orders or agreements with appropriate governmental agencies to perform required remedial activities that
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | |
will address identified site conditions. Taking into consideration established accruals of approximately $52.3$28.6 million and $58.6$39.3 million as of June 30, 20192020 and December 31, 2018,2019, respectively, expenditures for these known conditions currently are not expected, individually or in the aggregate, to have a material effect on our business or financial condition. However, material expenditures could be required in the future to remediate the contamination at known sites or at other current or former sites or as a result of other environmental, health and safety matters. Below is a discussion of the more significant environmental matters.
New Wales Water Loss IncidentIncident. . In August 2016, a sinkhole developed under one1 of the two2 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
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
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 June 30, 2019,2020, the sinkhole repairs were substantially complete, with $80.1 million spent in remediation and sinkhole-related costs through this date. We estimate remaining costs will be approximately $0.9 million.complete. 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 InitiativeInitiative. .
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 1110 of our Notes to Condensed Consolidated Financial Statements.
EPA EPCRA InitiativeInitiative. . 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 PlantsPlants. . 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“New Source Review"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 16,6, 2010, EPA issued a notice of violation to CF (the "CF NOV") with respect to "New Source Review" compliance at the Plant City Facility's sulfuric acid plants and the allegations in the CF NOV were not resolved before our 2014 acquisition of the Plant City Facility. CF has agreed to indemnify us with respect to any penalty EPA may assess as a result of the allegations in the CF NOV.
We are negotiatinghave been engaged in settlement discussions with U.S. EPA and the termsDepartment of a settlementJustice, originating with EPA that would resolve both the allegations of violations alleged in the CF NOV, and violations which EPA may contend, but have not asserted, existof Clean Air Act Prevention of Significant Deterioration (PSD) permitting requirements at the Plant City 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 ourand encompassing injunctive relief regarding sulfur dioxide emissions overacross Mosaic’s Florida sulfuric acid plant fleet. With the next five yearsclosure of Plant City fertilizer operations, there is no longer a need to complyreach resolution with the government on injunctive relief (i.e., reduction of sulfur dioxide emissions) at that facility. Furthermore, the Department of Justice has determined that there is no basis for proceeding with a sulfur dioxide ambient air quality standard enacted bysettlement, as EPA in 2010. We doand the Department have not expect thatcurrently alleged 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 termsviolations of the settlement, weClean Air Act PSD permitting requirements at any other of Mosaic’s Florida sulfuric acid plants.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | |
We cannot predict at this time whether EPA and DOJ will initiate an enforcement action in the future with respect to “New Source Review” compliance at our Florida sulfuric acid plants 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.action.
Uncle Sam Gypstack. In January 2019, we observed lateral movement of the north slope of our active phosphogypsum stack at the Uncle Sam facility in Louisiana. The observation was reported to the Louisiana Department of Environmental Quality and the U.S. EPA. We continue to provide updates to the agencies on the movement, which has slowed following actions we have taken, which include reducing process water volume stored atop the stack to reduce the active load causing the movement; and constructing a stability berm at the base of the slope to increase resistance. Both steps have improved slope stability. In June 2019, we began to removeresistance; and removing gypsum from the north side to the south stack, which is expectedside. These steps have improved slope stability, reduced slope movement and reduced our capacity to increase stability and reduce movement.store process water. There has been no loss of containment resulting from the movement observed, and none is expected. Although continued lateral movement on the north slope could have a material effect on our future operations at this time,that facility, we cannot predict the prospective impact on our results of operations.operations at this time.
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Other Environmental MattersMatters. . 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"“hazardous substances” into the environment. Under Superfund, or its various state analogues, one party may, under certain circumstances, be required to bear more than its proportionate share of cleanup costs at a site where it has liability if payments cannot be obtained from other responsible parties. Currently, certain of our subsidiaries are involved or concluding involvement at several Superfund or equivalent state sites. Our remedial liability from these sites, alone or in the aggregate, currently is not expected to have a material effect on our business or financial condition. As more information is obtained regarding these sites and the potentially responsible parties involved, this expectation could change.
We believe that, pursuant to several indemnification agreements, our subsidiaries are entitled to at least partial, and in many instances complete, indemnification for the costs that may be expended by us or our subsidiaries to remedy environmental issues at certain facilities. These agreements address issues that resulted from activities occurring prior to our acquisition of facilities or businesses from parties including, but not limited to, ARCO (BP); Beatrice Fund for Environmental Liabilities; Conoco; Conserv; Estech, Inc.; Kaiser Aluminum & Chemical Corporation; Kerr-McGee Inc.; PPG Industries, Inc.; The Williams Companies; CF; and certain other private parties. Our subsidiaries have already received and anticipate receiving amounts pursuant to the indemnification agreements for certain of their expenses incurred to date as well as future anticipated expenditures. We record potential indemnifications as an offset to the established accruals when they are realizable or realized. The failure of an indemnitor to fulfill its obligations could result in future costs that could be material.
Louisiana Parishes Coastal Zone Cases
Several Louisiana parishes and the City of New Orleans have filed lawsuits against hundreds of oil and gas companies seeking regulatory, restoration and compensatory damages in connection with historical oil, gas and sulfur mining and transportation operations in the coastal zone of Louisiana. Mosaic is the corporate successor to certain companies who historicallywhich performed these types of operations in the coastal zone of Louisiana. Mosaic has been named in two of the lawsuits filed to date. In addition, in several other cases, historical oil, gas and sulphursulfur operations which may have been related to Mosaic’s corporate predecessors have been identified in the complaints. Based upon information known to date, Mosaic has contractual indemnification rights against third parties for any loss or liability arising out of these claims pursuant to indemnification agreements entered into by Mosaic’s corporate predecessor(s) with third parties. There may also be insurance contracts which may respond to some or all of the claims. However, the financial ability of the third party indemnitors, the extent of potential insurance coverage and the extent of potential liability from these claims is currently unknown.
In September 2019, counsel for several of the parishes announced that an agreement had been reached to settle the claims against Mosaic and its corporate predecessors, subject to approval by the participating parishes and the State of Louisiana. In connection with that settlement agreement, the proposed settlement payment obligations would be paid by third party indemnitors.
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
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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 Mine Litigation. . 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 (collectively, “NGO Plaintiffs”) 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 groupNGO Plaintiffs filed a complaint against the Corps, the Service and the U.S. Department of the Interior (collectively “Government Defendants”) 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'sService’s biological opinion and the Corps'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 toIn their Complaint, 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
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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 seekingNGO Plaintiffs sought specific relief including (i) declarations that the Corps'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'sService’s biological opinion violated applicable law and that the Corps'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'sMosaic’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,Government Defendants, filed answers to the amended complaint. On
In June 30,through July 2017, the plaintiffsparties filed a motioncompeting Motions for summary judgment, arguing thatSummary Judgment based on the permit should not have been issued. On July 15, 2017, Mosaic filed a response in opposition toadministrative record developed for the plaintiffs' motion,challenged federal permits and on July 28, 2017, Mosaic filed its own motion for summary judgment.approvals, consistent with the Administrative Procedures Act. On December 14, 2017, the TampaU.S. District Court granted Mosaic’s motion for summary judgment in favor of Mosaic and the government defendants,Government Defendants, denied all claims raised by the NGO Plaintiffs, and denied the plaintiffs’NGO Plaintiffs’ motion to supplement the administrative record.
On February 12, 2018, the plaintiffsNGO Plaintiffs filed an appeal with the U.S. Court of Appeals for the Eleventh Circuit seeking to overturn the U.S. District Court’s decision. Notably, the NGO Plaintiffs did not seek reversal of the Tampa District Court decision.Court’s decision as to the Clean Water Act claims, but focused on the Endangered Species Act and National Environmental Policy Act claims for relief. The appellate case was fully briefed with close coordination between counsel for Mosaic and the Justice Department in developing the Appellants’ Briefs and Reply Briefs. A mandatory mediation occurred on March 19, 2018, but no settlement was reached. Oral argument was held before the Eleventh Circuit Court of Appeals on May 22, 2019.
On November 4, 2019, the 11th Circuit U.S. Court of Appeals upheld the federal permits issued for Mosaic’s South Pasture Extension Mine and the adequacy of the Area-wide Environmental Impact Statement (AEIS) that served as the NEPA support for three of Mosaic’s new Florida phosphate mines. The Court has not yetof Appeals held that the Corps of Engineers’ decision to issue the Clean Water Act 404 Permit and its reliance on the AEIS to satisfy the federal NEPA requirements were proper exercises of its authority.
On December 18, 2019, the NGO Plaintiffs filed a Petition for Rehearing En Banc seeking a rehearing before the entire 15-judge panel of the Court of Appeals. No responses to the Petition for Rehearing are allowed by Mosaic or the Government Defendants, unless requested by the Court.
On February 5, 2020, the 11th Circuit Court of Appeals issued its decision.Order denying the Petition for Rehearing. Under existing rules, the Appellants would be given 90 days from February 5, 2020 to file a Petition for Writ of Certiorari with the U.S. Supreme Court. However, due to the Corona Virus pandemic, on March 4th the U.S. Supreme Court issued an Order extending the deadlines for filing a Petition for Writ of Certiorari (a "Petition") to 150 days.Accordingly, the deadline for the NGO Plaintiffs to file a timely Petition was July 6, 2020.That date has passed, and the NGO Plaintiffs did not file a timely Petition.As a result, the decision by the 11th Circuit Court of Appeals upholding the U.S. District Court’s decision (affirming the federal
We believe the plaintiffs' claims in this case are without merit and we intend to vigorously defend the Corps' issuance of the
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approvals issued for Mosaic’s South Pasture extension permitExtension Mine and finding the Service's biological opinion. However, if the plaintiffs wereAEIS consistent with federal law), is final and no longer subject 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.legal challenge.
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.$835 million. We estimate that our probable aggregate loss with respect to these claims is approximately $53.1$59.6 million, which amount is included in our accrued liabilities in our Condensed Consolidated Balance Sheet atas of June 30, 2019.2020.
Approximately $781.2$582.9 million of the maximum potential loss relates to labor claims, such as in-house and third party employees’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 $41.0$52.5 million, which is included in accrued liabilities in our Condensed Consolidated Balance Sheet atas of June 30, 2019. 2020.
•Approximately $3.5 million of the $59.6 million of reserves relates to a collective lawsuit filed by the labor union in Tapira (no. 114) claiming workers are entitled to overtime pay because the work shift should include transportation time to travel to a facility in which no public transportation was available.
•Approximately $3.8 million of these reserves relates to a collective lawsuit filed by the labor union in Rosário do Catete (no. 6654), Sergipe, claiming payment of overtime due to an irregular work shift in force until 2016. Both matters are currently before the Brazilian Labor Superior Court.
•Approximately $2.1 million of these reserves relates to a class action filed by one of the unions (no. 1051) claiming additional payment for occupational hazard due to the alleged exposure of workers to explosive gases at the Company's potash mine at Rosário do Catete, Sergipe.
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 $2.8 million of the above mentioned $41.0 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 judicial and administrative proceedings claims allege aggregate damages and/or fines in excess of $110.0 million; however, we estimate that our probable aggregate loss regarding these claims is approximately $3.9 million, which has been accrued as of June 30, 2020.
The mining judicial and administrative proceedings claims allege aggregate damages and/or fines of approximately $169.4$3.4 million. We estimate that our probable aggregate loss regarding these claims is approximately $5.8 million, which has been accrued atwill be immaterial as of June 30, 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.
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2020.
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 estatestate disputes and other civil matters arising in the ordinary course of business. These claims allege aggregate damages in excess of $180.3$138.7 million. We estimate that the probable aggregate loss with respect to these matters is approximately $6.3 million, which has been accrued at June 30, 2019.$3.9 million.
Uberaba Judicial Settlement
In 2008,2013, the Federal Public Prosecutor filed a public civil action requesting that the Company to adopt several measures to mitigate soil and water contamination related to the Gypstack at our Uberaba facility, located in the State of Minas Gerais, including compensation for the alleged social and environmental damages. In 2014, our predecessor subsidiary in Brazil entered into a judicial settlement with the Federal Public Prosecutor, the State of Minas Gerais public prosecutor and the federal 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.
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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.pending and the parties are negotiating a settlement. The amount involvedclaimed in the proceeding is $35.5$27.0 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 $428.0$333.4 million, of which $215.0$156.8 million is subject to an indemnification agreement entered into with Vale S.A in connection with the Acquisition.
Approximately $301.0$227.0 million of the maximum potential liability relates to a Brazilian federal value-addedvalue added tax, PIS and Coffins,COFINS, and tax credit cases, while the majority of the remaining amount relates to various other non-income tax cases. The maximum potential liability can increase with new audits. 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 reserveslosses, which are immaterial in amount.immaterial. If the status of similar tax cases involving unrelated taxpayerstaxpayer 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.
13. 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 June 30, 2019 and December 31, 2018, the gross asset position of our derivative instruments was $25.1 million and $13.4
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million, respectively, and the gross liability position of our liability instruments was $38.3 million and $89.4 million, respectively.
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 June 30, 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 June 30, 2019 and December 31, 2018, the following is the total absolute notional volume associated with our outstanding derivative instruments:
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(in millions of Units) | | | | | | June 30, 2019 | | December 31, 2018 |
Derivative Instrument | Derivative Category | Unit of Measure |
Foreign currency derivatives | | Foreign currency | | US Dollars | | 1,994.9 |
| | 2,091.7 |
Interest rate derivatives | | Interest rate | | US Dollars | | 585.0 |
| | 585.0 |
Natural gas derivatives | | Commodity | | MMbtu | | 54.9 |
| | 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 June 30, 2019 and December 31, 2018, was $15.2 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 June 30, 2019, we would have been required to post an additional $13.0 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.
14. 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:
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Foreign Currency Derivatives - The foreign currency derivative instruments that we currently use are forward contracts and zero-cost collars, which typically expire within eighteen months. Most of the valuations are adjusted by a forward yield curve or interest rates. In such cases, these derivative contracts are classified within Level 2. Some valuations are based on exchange-quoted prices, which are classified as Level 1. Changes in the fair market values of these contracts are recognized in the Condensed Consolidated Financial Statements as a component of cost of goods sold in our Corporate, Eliminations and Other segment, or foreign currency transaction (gain) loss. As of June 30, 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 $25.2 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 June 30, 2019 and December 31, 2018, the gross asset position of our commodity derivative instruments was $0.8 million and $0.3 million, respectively, and the gross liability position of our commodity instruments was $13.1 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 June 30, 2019 and December 31, 2018, the gross asset position of our interest rate swap instruments was $11.2 million and zero, respectively, and the gross liability position of our interest rate swap instruments was zero and $9.5 million, respectively.
Financial Instruments
The carrying amounts and estimated fair values of our financial instruments are as follows:
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| Carrying Amount | | Fair Value | Carrying Amount | | Fair Value |
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| Cash and cash equivalents | $ | 401.9 |
| | $ | 401.9 |
| | $ | 847.7 |
| | $ | 847.7 |
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| Accounts Receivables | 711.7 |
| | 711.7 |
| | 838.5 |
| | 838.5 |
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| Accounts payable | 808.6 |
| | 808.6 |
| | 780.9 |
| | 780.9 |
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| Structured accounts payable arrangements | 429.1 |
| | 429.1 |
| | 572.8 |
| | 572.8 |
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| Short-term debt | 94.4 |
| | 94.4 |
| | 11.5 |
| | 11.5 |
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| Long-term debt, including current portion | 4,585.1 |
| | 4,856.3 |
| | 4,517.5 |
| | 4,554.6 |
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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.
15. Related Party Transactions
We enter into transactions and agreements with certain of our non-consolidated companies and other related parties from time to time. As of June 30, 2019 and December 31, 2018, the net amount due (to) from our non-consolidated companies
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totaled $(202.7) million and $95.2 million, respectively. These amounts include a long-term indemnification asset of $32.2 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:
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| Three months ended | | Six months ended |
June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Transactions with non-consolidated companies included in net sales | $ | 289.3 |
| | $ | 216.4 |
| | $ | 551.8 |
| | $ | 330.7 |
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Transactions with non-consolidated companies included in cost of goods sold | 299.8 |
| | 187.0 |
| | 550.8 |
| | 390.7 |
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As part of the MWSPC joint venture, we market approximately 25% of the MWSPC production, for which approximately $1.9 million and $4.6 million is included in revenue for the three and six months ended June 30, 2019, 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 June 30, 2019 and December 31, 2018, $80.5 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.
16.17. Business Segments
The reportable segments are determined by management based upon factors such as products and services, production processes, technologies, market dynamics, and for which segment financial information is available for our chief operating decision maker.
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. AsFor a description of January 1, 2019, certain selling, general and administrative costs that are not controllable by theour business segments, are no longer allocatedsee Note 1 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.Condensed Consolidated Financial Statements.
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Segment information for the three and six months ended June 30, 20192020 and 20182019 was as follows:
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| Phosphates | | Potash | | Mosaic Fertilizantes | | Corporate, Eliminations and Other (a) | | Total |
Three months ended June 30, 2020 | | | | | | | | | |
Net sales to external customers | $ | 550.1 | | | $ | 544.8 | | | $ | 787.0 | | | $ | 162.8 | | | $ | 2,044.7 | |
Intersegment net sales | 212.3 | | | 10.6 | | | — | | | (222.9) | | | — | |
Net sales | 762.4 | | | 555.4 | | | 787.0 | | | (60.1) | | | 2,044.7 | |
Gross margin | 17.7 | | | 131.6 | | | 100.7 | | | 7.0 | | | 257.0 | |
Canadian resource taxes | — | | | 52.1 | | | — | | | — | | | 52.1 | |
Gross margin (excluding Canadian resource taxes) | 17.7 | | | 183.7 | | | 100.7 | | | 7.0 | | | 309.1 | |
Operating earnings (loss) | (59.4) | | | 125.5 | | | 76.4 | | | (56.7) | | | 85.8 | |
Capital expenditures | 122.2 | | | 111.4 | | | 19.7 | | | 3.9 | | | 257.2 | |
Depreciation, depletion and amortization expense | 113.9 | | | 71.8 | | | 27.0 | | | 2.7 | | | 215.4 | |
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Three months ended June 30, 2019 | | | | | | | | | |
Net sales to external customers | $ | 600.6 | | | $ | 591.9 | | | $ | 832.7 | | | $ | 151.7 | | | $ | 2,176.9 | |
Intersegment net sales | 316.8 | | | 7.2 | | | — | | | (324.0) | | | — | |
Net sales | 917.4 | | | 599.1 | | | 832.7 | | | (172.3) | | | 2,176.9 | |
Gross margin | (11.8) | | | 181.1 | | | 35.2 | | | 22.7 | | | 227.2 | |
Canadian resource taxes | — | | | 56.4 | | | — | | | — | | | 56.4 | |
Gross margin (excluding Canadian resource taxes) | (11.8) | | | 237.5 | | | 35.2 | | | 22.7 | | | 283.6 | |
Impairment, restructuring and other expenses | 369.4 | | | — | | | — | | | — | | | 369.4 | |
Operating earnings (loss) | (393.1) | | | 174.0 | | | 2.4 | | | (25.2) | | | (241.9) | |
Capital expenditures | 122.1 | | | 130.1 | | | 40.8 | | | 1.9 | | | 294.9 | |
Depreciation, depletion and amortization expense | 105.0 | | | 78.3 | | | 32.1 | | | 5.3 | | | 220.7 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Six months ended June 30, 2020 | | | | | | | | | |
Net sales to external customers | $ | 1,087.4 | | | $ | 983.4 | | | $ | 1,518.1 | | | $ | 253.9 | | | $ | 3,842.8 | |
Intersegment net sales | 294.4 | | | 13.6 | | | — | | | (308.0) | | | — | |
Net sales | 1,381.8 | | | 997.0 | | | 1,518.1 | | | (54.1) | | | 3,842.8 | |
Gross margin | (65.2) | | | 240.7 | | | 167.2 | | | (44.3) | | | 298.4 | |
Canadian resource taxes | — | | | 83.8 | | | — | | | — | | | 83.8 | |
Gross margin (excluding Canadian resource taxes) | (65.2) | | | 324.5 | | | 167.2 | | | (44.3) | | | 382.2 | |
Operating earnings (loss) | (166.2) | | | 219.7 | | | 105.4 | | | (139.3) | | | 19.6 | |
Capital expenditures | 260.1 | | | 209.7 | | | 45.0 | | | 5.9 | | | 520.7 | |
Depreciation, depletion and amortization expense | 228.3 | | | 141.9 | | | 55.2 | | | 7.8 | | | 433.2 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Six months ended June 30, 2019 | | | | | | | | | |
Net sales to external customers | $ | 1,198.7 | | | $ | 1,089.2 | | | $ | 1,530.7 | | | $ | 258.0 | | | $ | 4,076.6 | |
Intersegment net sales | 524.7 | | | 13.4 | | | — | | | (538.1) | | | — | |
Net sales | 1,723.4 | | | 1,102.6 | | | 1,530.7 | | | (280.1) | | | 4,076.6 | |
Gross margin | 43.0 | | | 366.5 | | | 87.6 | | | 39.6 | | | 536.7 | |
Canadian resource taxes | — | | | 103.3 | | | — | | | — | | | 103.3 | |
Gross margin (excluding Canadian resource taxes) | 43.0 | | | 469.8 | | | 87.6 | | | 39.6 | | | 640.0 | |
Impairment, restructuring and other expenses | 369.4 | | | — | | | — | | | — | | | 369.4 | |
Operating earnings (loss) | (349.6) | | | 349.8 | | | 29.7 | | | (69.7) | | | (39.8) | |
Capital expenditures | 242.5 | | | 270.5 | | | 92.6 | | | 3.2 | | | 608.8 | |
Depreciation, depletion and amortization expense | 208.5 | | | 156.6 | | | 63.6 | | | 10.1 | | | 438.8 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total Assets | | | | | | | | | |
As of June 30, 2020 | $ | 7,635.5 | | | $ | 6,959.2 | | | $ | 3,494.1 | | | $ | 931.8 | | | $ | 19,020.6 | |
As of December 31, 2019 | 7,183.5 | | | 7,219.2 | | | 3,974.9 | | | 920.9 | | | 19,298.5 | |
| | | | | | | | |
| | |
| | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
|
| | | | | | | | | | | | | | | | | | | |
| Phosphates | | Potash | | Mosaic Fertilizantes | | Corporate, Eliminations and Other (a) | | Total |
Three months ended June 30, 2019 | | | | | | | | | |
Net sales to external customers | $ | 600.6 |
| | $ | 591.9 |
| | $ | 832.7 |
| | $ | 151.7 |
| | $ | 2,176.9 |
|
Intersegment net sales | 316.8 |
| | 7.2 |
| | — |
| | (324.0 | ) | | — |
|
Net sales | 917.4 |
| | 599.1 |
| | 832.7 |
| | (172.3 | ) | | 2,176.9 |
|
Gross margin | (11.8 | ) | | 181.1 |
| | 35.2 |
| | 22.7 |
| | 227.2 |
|
Canadian resource taxes | — |
| | 56.4 |
| | — |
| | — |
| | 56.4 |
|
Gross margin (excluding Canadian resource taxes) | (11.8 | ) | | 237.5 |
| | 35.2 |
| | 22.7 |
| | 283.6 |
|
Operating earnings (loss) | (393.1 | ) | | 174.0 |
| | 2.4 |
| | (25.2 | ) | | (241.9 | ) |
Capital expenditures | 122.1 |
| | 130.1 |
| | 40.8 |
| | 1.9 |
| | 294.9 |
|
Depreciation, depletion and amortization expense | 105.0 |
| | 78.3 |
| | 32.1 |
| | 5.3 |
| | 220.7 |
|
Three months ended June 30, 2018 | | | | | | | | | |
Net sales to external customers | $ | 780.4 |
| | $ | 560.0 |
| | $ | 712.7 |
| | $ | 151.9 |
| | $ | 2,205.0 |
|
Intersegment net sales | 272.8 |
| | 9.5 |
| | — |
| | (282.3 | ) | | — |
|
Net sales | 1,053.2 |
| | 569.5 |
| | 712.7 |
| | (130.4 | ) | | 2,205.0 |
|
Gross margin | 153.8 |
| | 132.2 |
| | 53.0 |
| | (44.4 | ) | | 294.6 |
|
Canadian resource taxes | — |
| | 33.7 |
| | — |
| | — |
| | 33.7 |
|
Gross margin (excluding Canadian resource taxes) | 153.8 |
| | 165.9 |
| | 53.0 |
| | (44.4 | ) | | 328.3 |
|
Operating earnings (loss) | 141.9 |
| | 121.5 |
| | 17.4 |
| | (84.5 | ) | | 196.3 |
|
Capital expenditures | 91.5 |
| | 80.1 |
| | 28.8 |
| | 0.7 |
| | 201.1 |
|
Depreciation, depletion and amortization expense | 102.1 |
| | 72.9 |
| | 36.8 |
| | 5.0 |
| | 216.8 |
|
Six months ended June 30, 2019 | | | | | | | | | |
Net sales to external customers | $ | 1,198.7 |
| | $ | 1,089.2 |
| | $ | 1,530.7 |
| | $ | 258.0 |
| | $ | 4,076.6 |
|
Intersegment net sales | 524.7 |
| | 13.4 |
| | — |
| | (538.1 | ) | | — |
|
Net sales | 1,723.4 |
| | 1,102.6 |
| | 1,530.7 |
| | (280.1 | ) | | 4,076.6 |
|
Gross margin | 43.0 |
| | 366.5 |
| | 87.6 |
| | 39.6 |
| | 536.7 |
|
Canadian resource taxes | — |
| | 103.3 |
| | — |
| | — |
| | 103.3 |
|
Gross margin (excluding Canadian resource taxes) | 43.0 |
| | 469.8 |
| | 87.6 |
| | 39.6 |
| | 640.0 |
|
Operating earnings (loss) | (349.6 | ) | | 349.8 |
| | 29.7 |
| | (69.7 | ) | | (39.8 | ) |
Capital expenditures | 242.5 |
| | 270.5 |
| | 92.6 |
| | 3.2 |
| | 608.8 |
|
Depreciation, depletion and amortization expense | 208.5 |
| | 156.6 |
| | 63.6 |
| | 10.1 |
| | 438.8 |
|
Six months ended June 30, 2018 | | | | | | | | | |
Net sales to external customers | $ | 1,544.6 |
| | $ | 961.5 |
| | $ | 1,378.0 |
| | $ | 254.6 |
| | $ | 4,138.7 |
|
Intersegment net sales | 374.5 |
| | 11.7 |
| | — |
| | (386.2 | ) | | — |
|
Net sales | 1,919.1 |
| | 973.2 |
| | 1,378.0 |
| | (131.6 | ) | | 4,138.7 |
|
Gross margin | 250.3 |
| | 234.6 |
| | 112.2 |
| | (60.4 | ) | | 536.7 |
|
Canadian resource taxes | — |
| | 60.0 |
| | — |
| | — |
| | 60.0 |
|
Gross margin (excluding Canadian resource taxes) | 250.3 |
| | 294.6 |
| | 112.2 |
| | (60.4 | ) | | 596.7 |
|
Operating earnings (loss) | 219.7 |
| | 213.1 |
| | 30.2 |
| | (186.0 | ) | | 277.0 |
|
Capital expenditures | 191.7 |
| | 183.9 |
| | 46.7 |
| | 2.1 |
| | 424.4 |
|
Depreciation, depletion and amortization expense | 201.4 |
| | 148.5 |
| | 74.0 |
| | 10.4 |
| | 434.3 |
|
Total Assets | | | | | | | | | |
As of June 30, 2019 | $ | 8,573.4 |
| | $ | 7,569.1 |
| | $ | 4,326.3 |
| | $ | 175.1 |
| | $ | 20,643.9 |
|
As of December 31, 2018 | 7,877.3 |
| | 7,763.1 |
| | 3,952.4 |
| | 526.4 |
| | 20,119.2 |
|
______________________________
|
| | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) |
| |
(a)(a)The “Corporate, Eliminations and Other” category includes the results of our ancillary distribution operations in India and China. For the three and six months ended June 30, 2020, distribution operations in India and China had revenue of $161.5 million and $238.3 million, respectively, and gross margin of $20.0 million and $22.0 million, respectively. For the three and six months ended June 30, 2019, distribution operations in India and China had revenue of $133.3 million and $226.5 million, respectively, and gross margin of $10.2 million and $19.2 million, respectively.
| The “Corporate, Eliminations and Other” category includes the results of our ancillary distribution operations in India and China. For the three and six months ended June 30, 2019, distribution operations in India and China had revenue of $133.3 million and $226.5 million, respectively, and gross margin of $10.2 million and $19.2 million, respectively. For the three and six months ended June 30, 2018, distribution operations in India and China had revenue of $137.9 million and $227.3 million, respectively, and gross margin of $12.6 million and $22.7 million, respectively. |
Financial information relating to our operations by geographic area is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
(in millions) | 2020 | | 2019 | | 2020 | | 2019 |
Net sales(a): | | | | | | | |
Brazil | $ | 757.0 | | | $ | 805.7 | | | $ | 1,469.7 | | | $ | 1,483.7 | |
Canpotex(b) | 215.8 | | | 281.7 | | | 362.2 | | | 539.3 | |
Canada | 137.4 | | | 142.2 | | | 254.7 | | | 278.3 | |
India | 100.8 | | | 72.3 | | | 138.0 | | | 100.1 | |
China | 74.5 | | | 58.8 | | | 113.9 | | | 123.9 | |
Argentina | 55.1 | | | 46.6 | | | 83.1 | | | 72.4 | |
Japan | 32.6 | | | 8.9 | | | 44.5 | | | 9.0 | |
Paraguay | 26.4 | | | 26.1 | | | 42.7 | | | 47.5 | |
Colombia | 25.8 | | | 22.1 | | | 40.0 | | | 38.6 | |
Mexico | 22.8 | | | 35.8 | | | 47.7 | | | 80.2 | |
Honduras | 10.5 | | | 3.6 | | | 17.5 | | | 8.0 | |
Thailand | 4.7 | | | 8.1 | | | 9.1 | | | 13.2 | |
Australia | 0.3 | | | 0.1 | | | 41.3 | | | 56.1 | |
Peru | — | | | 26.1 | | | 6.0 | | | 46.2 | |
Other | 19.7 | | | 23.4 | | | 49.8 | | | 54.8 | |
Total international countries | 1,483.4 | | | 1,561.5 | | | 2,720.2 | | | 2,951.3 | |
United States | 561.3 | | | 615.4 | | | 1,122.6 | | | 1,125.3 | |
Consolidated | $ | 2,044.7 | | | $ | 2,176.9 | | | $ | 3,842.8 | | | $ | 4,076.6 | |
(a)Revenues are attributed to countries based on location of customer.
(b)Canpotex is the export association of certain Saskatchewan potash producers.
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2019 | | 2018 | | 2019 | | 2018 |
Net sales(a): | | | | | | | |
Brazil | $ | 805.7 |
| | $ | 702.5 |
| | $ | 1,483.7 |
| | $ | 1,391.1 |
|
Canpotex(b) | 281.7 |
| | 201.5 |
| | 539.3 |
| | 312.1 |
|
Canada | 142.2 |
| | 150.2 |
| | 278.3 |
| | 276.3 |
|
China | 58.8 |
| | 53.4 |
| | 123.9 |
| | 116.3 |
|
India | 72.3 |
| | 82.8 |
| | 100.1 |
| | 115.1 |
|
Mexico | 35.8 |
| | 23.1 |
| | 80.2 |
| | 82.1 |
|
Argentina | 46.6 |
| | 26.6 |
| | 72.4 |
| | 33.4 |
|
Australia | 0.1 |
| | 0.3 |
| | 56.1 |
| | 84.2 |
|
Paraguay | 26.1 |
| | 24.2 |
| | 47.5 |
| | 38.7 |
|
Peru | 26.1 |
| | 21.6 |
| | 46.2 |
| | 33.1 |
|
Columbia | 22.1 |
| | 30.9 |
| | 38.6 |
| | 57.3 |
|
Chile | 9.3 |
| | 6.9 |
| | 20.2 |
| | 22.6 |
|
Thailand | 8.1 |
| | 8.6 |
| | 13.2 |
| | 16.6 |
|
Dominican Republic | 1.5 |
| | — |
| | 9.0 |
| | 2.5 |
|
Japan | 8.9 |
| | 29.4 |
| | 9.0 |
| | 57.9 |
|
Other | 16.2 |
| | 28.4 |
| | 33.6 |
| | 53.8 |
|
Total international countries | 1,561.5 |
| | 1,390.4 |
| | 2,951.3 |
| | 2,693.1 |
|
United States | 615.4 |
| | 814.6 |
| | 1,125.3 |
| | 1,445.6 |
|
Consolidated | $ | 2,176.9 |
| | $ | 2,205.0 |
| | $ | 4,076.6 |
| | $ | 4,138.7 |
|
| | | | | | | | |
| Revenues are attributed to countries based on location of customer. |
| |
(b)
| Canpotex is the export association of the Saskatchewan potash producers. |
|
| | |
| | |
| | |
| | |
| THE MOSAIC COMPANY | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) | | |
Net sales by product type are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | Six Months Ended June 30, | | |
(in millions) | 2020 | | 2019 | | 2020 | | 2019 |
Sales by product type: | | | | | | | |
Phosphate Crop Nutrients | $ | 559.6 | | | $ | 643.3 | | | $ | 1,106.8 | | | $ | 1,167.9 | |
Potash Crop Nutrients | 658.0 | | | 711.9 | | | 1,129.0 | | | 1,284.0 | |
Crop Nutrient Blends | 252.0 | | | 287.4 | | | 539.3 | | | 580.8 | |
Specialty Products(a) | 436.2 | | | 417.4 | | | 752.1 | | | 736.9 | |
Phosphate Rock | 7.5 | | | 12.4 | | | 14.0 | | | 19.4 | |
Other(b) | 131.4 | | | 104.5 | | | 301.6 | | | 287.6 | |
| $ | 2,044.7 | | | $ | 2,176.9 | | | $ | 3,842.8 | | | $ | 4,076.6 | |
(a)Includes sales of MicroEssentials |
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2019 | | 2018 | | 2019 | | 2018 |
Sales by product type: | | | | | | | |
Phosphate Crop Nutrients | $ | 643.3 |
| | $ | 698.5 |
| | $ | 1,167.9 |
| | $ | 1,335.4 |
|
Potash Crop Nutrients | 711.9 |
| | 646.4 |
| | 1,284.0 |
| | 1,109.7 |
|
Crop Nutrient Blends | 287.4 |
| | 266.4 |
| | 580.8 |
| | 534.8 |
|
Specialty Products(a) | 417.4 |
| | 471.6 |
| | 736.9 |
| | 846.1 |
|
Phosphate Rock | 12.4 |
| | 8.0 |
| | 19.4 |
| | 29.8 |
|
Other(b) | 104.5 |
| | 114.1 |
| | 287.6 |
| | 282.9 |
|
| $ | 2,176.9 |
| | $ | 2,205.0 |
| | $ | 4,076.6 |
| | $ | 4,138.7 |
|
®____________________________, K-Mag, Aspire and animal feed ingredients. | |
(b)(a) | Includes sales of MicroEssentials®, K-Mag, Aspire and animal feed ingredients.
|
| |
(b)
| Includes sales of industrial potash, nitrogen and other products. |
17. Plant City Closure Costs
On June 18, 2019, we announced the permanent closure of the Plant City Facility. We temporarily idled the Plant City Facility in the fourth quarter of 2017, as it was one of our higher cost phosphate facilities. For the three months ended June 30, 2019, we recognized pre-tax costs of $369.4 million related to the permanent closure of this facility. These costs consisted of approximately $210 million related to the write-off of fixed assets, $126 million related to asset retirement obligations, and $34 million related to inventory and other reserves.products.
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, 20182019 (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"."NM."
Results of Operations
The following table shows the results of operations for the three and six months ended June 30, 20192020 and 2018:June 30, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | | | Six months ended | | | | | | |
| June 30, | | | | 2020-2019 | | | | June 30, | | | | 2020-2019 | | |
(in millions, except per share data) | 2020 | | 2019 | | Change | | Percent | | 2020 | | 2019 | | Change | | Percent |
Net sales | $ | 2,044.7 | | | $ | 2,176.9 | | | $ | (132.2) | | | (6) | % | | $ | 3,842.8 | | | $ | 4,076.6 | | | $ | (233.8) | | | (6) | % |
Cost of goods sold | 1,787.7 | | | 1,949.7 | | | (162.0) | | | (8) | % | | 3,544.4 | | | 3,539.9 | | | 4.5 | | | — | % |
Gross margin | 257.0 | | | 227.2 | | | 29.8 | | | 13 | % | | 298.4 | | | 536.7 | | | (238.3) | | | (44) | % |
Gross margin percentage | 13 | % | | 10 | % | | | | | | 8 | % | | 13 | % | | | | |
Selling, general and administrative expenses | 95.1 | | | 78.1 | | | 17.0 | | | 22 | % | | 163.0 | | | 171.6 | | | (8.6) | | | (5) | % |
| | | | | | | | | | | | | | | |
Impairment, restructuring and other expenses | — | | | 369.4 | | | (369.4) | | | NM | | — | | | 369.4 | | | (369.4) | | | NM |
Other operating expense | 76.1 | | | 21.6 | | | 54.5 | | | NM | | 115.8 | | | 35.5 | | | 80.3 | | | NM |
Operating earnings (loss) | 85.8 | | | (241.9) | | | 327.7 | | | NM | | 19.6 | | | (39.8) | | | 59.4 | | | NM |
| | | | | | | | | | | | | | | |
Interest expense, net | (49.3) | | | (46.0) | | | (3.3) | | | 7 | % | | (90.4) | | | (93.0) | | | 2.6 | | | (3) | % |
Foreign currency transaction gain (loss) | 34.1 | | | 20.8 | | | 13.3 | | | 64 | % | | (180.1) | | | 43.4 | | | (223.5) | | | NM |
Other income (expense) | 2.4 | | | (3.7) | | | 6.1 | | | NM | | 6.9 | | | (4.8) | | | 11.7 | | | NM |
Earnings (loss) from consolidated companies before income taxes | 73.0 | | | (270.8) | | | 343.8 | | | NM | | (244.0) | | | (94.2) | | | (149.8) | | | 159 | % |
Benefit from income taxes | (2.7) | | | (51.7) | | | 49.0 | | | (95) | % | | (135.7) | | | (5.1) | | | (130.6) | | | NM |
Earnings (loss) from consolidated companies | 75.7 | | | (219.1) | | | 294.8 | | | NM | | (108.3) | | | (89.1) | | | (19.2) | | | 22 | % |
Equity in net loss of nonconsolidated companies | (29.8) | | | (11.2) | | | (18.6) | | | 166 | % | | (49.8) | | | (11.3) | | | (38.5) | | | NM |
Net earnings (loss) including noncontrolling interests | 45.9 | | | (230.3) | | | 276.2 | | | NM | | (158.1) | | | (100.4) | | | (57.7) | | | 57 | % |
Less: Net (loss) earnings attributable to noncontrolling interests | (1.5) | | | 2.8 | | | (4.3) | | | NM | | (2.5) | | | 1.9 | | | (4.4) | | | NM |
Net earnings (loss) attributable to Mosaic | $ | 47.4 | | | $ | (233.1) | | | $ | 280.5 | | | NM | | $ | (155.6) | | | $ | (102.3) | | | $ | (53.3) | | | 52 | % |
Diluted net earnings (loss) per share attributable to Mosaic | $ | 0.12 | | | $ | (0.60) | | | $ | 0.72 | | | NM | | $ | (0.41) | | | $ | (0.27) | | | $ | (0.14) | | | 52 | % |
Diluted weighted average number of shares outstanding | 381.3 | | | 385.8 | | | | | | | 378.9 | | | 385.7 | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | Six months ended | | | | |
| June 30, | | 2019-2018 | | June 30, | | 2019-2018 |
(in millions, except per share data) | 2019 | | 2018 | | Change | | Percent | | 2019 | | 2018 | | Change | | Percent |
Net sales | $ | 2,176.9 |
| | $ | 2,205.0 |
| | $ | (28.1 | ) | | (1 | )% | | $ | 4,076.6 |
| | $ | 4,138.7 |
| | $ | (62.1 | ) | | (2 | )% |
Cost of goods sold | 1,949.7 |
| | 1,910.4 |
| | 39.3 |
| | 2 | % | | 3,539.9 |
| | 3,602.0 |
| | (62.1 | ) | | (2 | )% |
Gross margin | 227.2 |
| | 294.6 |
| | (67.4 | ) | | (23 | )% | | 536.7 |
| | 536.7 |
| | — |
| | 0 | % |
Gross margin percentage | 10 | % | | 13 | % | | | | | | 13 | % | | 13 | % | | | |
|
|
Selling, general and administrative expenses | 78.1 |
| | 79.3 |
| | (1.2 | ) | | (2 | )% | | 171.6 |
| | 172.9 |
| | (1.3 | ) | | (1 | )% |
Plant City closure costs | 369.4 |
| | — |
| | 369.4 |
| | NM |
| | 369.4 |
| | — |
| | 369.4 |
| | NM |
|
Other operating expense | 21.6 |
| | 19.0 |
| | 2.6 |
| | 14 | % | | 35.5 |
| | 86.8 |
| | (51.3 | ) | | (59 | )% |
Operating (loss) earnings | (241.9 | ) | | 196.3 |
| | (438.2 | ) | | NM |
| | (39.8 | ) | | 277.0 |
| | (316.8 | ) | | NM |
|
Interest expense, net | (46.0 | ) | | (45.1 | ) | | (0.9 | ) | | 2 | % | | (93.0 | ) | | (94.5 | ) | | 1.5 |
| | (2 | )% |
Foreign currency transaction gain (loss) | 20.8 |
| | (78.7 | ) | | 99.5 |
| | NM |
| | 43.4 |
| | (110.9 | ) | | 154.3 |
| | (139 | )% |
Other expense | (3.7 | ) | | (2.4 | ) | | (1.3 | ) | | 54 | % | | (4.8 | ) | | (8.0 | ) | | 3.2 |
| | (40 | )% |
(Loss) earnings from consolidated companies before income taxes | (270.8 | ) | | 70.1 |
| | (340.9 | ) | | NM |
| | (94.2 | ) | | 63.6 |
| | (157.8 | ) | | NM |
|
(Benefit from) provision for income taxes | (51.7 | ) | | 3.7 |
| | (55.4 | ) | | NM |
| | (5.1 | ) | | (46.2 | ) | | 41.1 |
| | (89 | )% |
(Loss) earnings from consolidated companies | (219.1 | ) | | 66.4 |
| | (285.5 | ) | | NM |
| | (89.1 | ) | | 109.8 |
| | (198.9 | ) | | NM |
|
Equity in net (loss) earnings of nonconsolidated companies | (11.2 | ) | | 1.7 |
| | (12.9 | ) | | NM |
| | (11.3 | ) | | (1.6 | ) | | (9.7 | ) | | NM |
|
Net (loss) earnings including noncontrolling interests | (230.3 | ) | | 68.1 |
| | (298.4 | ) | | NM |
| | (100.4 | ) | | 108.2 |
| | (208.6 | ) | | NM |
|
Less: Net gain (loss) attributable to noncontrolling interests | 2.8 |
| | 0.2 |
| | 2.6 |
| | NM |
| | 1.9 |
| | (2.0 | ) | | 3.9 |
| | NM |
|
Net (loss) earnings attributable to Mosaic | $ | (233.1 | ) | | $ | 67.9 |
| | $ | (301.0 | ) | | NM |
| | $ | (102.3 | ) | | $ | 110.2 |
| | $ | (212.5 | ) | | NM |
|
Diluted net (loss) earnings per share attributable to Mosaic | $ | (0.60 | ) | | $ | 0.18 |
| | $ | (0.78 | ) | | NM |
| | $ | (0.27 | ) | | $ | 0.29 |
| | $ | (0.56 | ) | | NM |
|
Diluted weighted average number of shares outstanding | 385.8 |
| | 387.2 |
| | | | | | 385.7 |
| | 385.5 |
| | | | |
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”). The aggregate consideration paid by us at closing was $1.08 billion in cash (after giving effect to certain adjustments based on matters such as the working capital and indebtedness balances of the Acquired Business, which were estimated at the time of closing) and 34,176,574 shares of our Common Stock, par value $0.01 per share, which was valued at $26.92 per share at closing. The assets we acquired included five Brazilian
phosphate rock mines; four phosphate chemical plants; a potash mine in Brazil; an additional 40% economic interest in the Miski Mayo phosphate rock mine in the Bayovar region of Peru, which increased our aggregate interest to 75%; and a potash project in Kronau, Saskatchewan. Upon completion of the Acquisition, we became the leading fertilizer producer and distributor in Brazil.
Overview of Consolidated Results for the three months ended June 30, 20192020 and 20182019
For the three months ended June 30, 2019,2020, Mosaic had net earnings of $47.4 million, or $0.12 per diluted share, compared to a net loss of $233.1 million, or $(0.60) per diluted share, compared to net earnings of $67.9 million, or $0.18 per diluted share, for the prior year period. The current period net loss wasresults were impacted by $347$50 million, or $(0.72)$0.01 per diluted share, related to the following notable items:
•Asset retirement obligation costs of $50 million, or $(0.07) per diluted share, related to new regulations
•Depreciation expense of $22 million, or $(0.03) per diluted share, related to the acceleration of the closure of our K1 and K2 mine shafts at our Esterhazy, Saskatchewan mine as we ramp up K3
•Other operating expenses of $19 million, or $(0.03) per diluted share, related to maintaining closed and indefinitely idled facilities
•Idle plant costs of $8 million, or $(0.01) per diluted share, related to the government-mandated shutdown on March 16, 2020, of our Miski Mayo phosphate rock mine in Peru due to the Covid-19 outbreak
•Write-down of assets of $4 million, or $(0.01) per diluted share
•A change in the effective annual tax rate creating a benefit of $32 million, or $0.08 per diluted share
•Foreign currency transaction gain of $34 million, or $0.05 per diluted share
•Unrealized gain on derivatives of $9 million, or $0.01 per diluted share
•Other operating income of $7 million, or $0.01 per diluted share, related to a legal settlement
•Discrete income tax benefit of $3 million, or $0.01 per diluted share
•Other non-operating income of $3 million, or $0.00 per diluted share, related to a realized gain on RCRA trust securities
During the three months ended June 30, 2019, our results included:
•Closure costs for our Plant City, Florida phosphates manufacturing facility of $369 million, or $(0.73) per diluted share
•Foreign currency transaction gains of $21 million, or $0.04 per diluted share
•Discrete income tax expense of $10 million, or $(0.02) per diluted share
•Other operating income of $8 million, or $0.02 per diluted share, related to insurance proceeds for the 2017 flooding at the Miski Mayo mine
•Unrealized gains on derivatives of $7 million, or $0.01 per diluted share
•Other operating expenses of $6 million, or $(0.02) per diluted share, related to the Acquisition
•Expenses of $5 million, or $(0.01) per diluted share, related to repairing the lateral movement at the Gypstack at our Uncle Sam facility in Louisiana
•Asset retirement obligation costs of $3 million, or $(0.01) per diluted share, related to closed facilities
During the three months ended June 30, 2018, our results included:
•Foreign currency transaction losses of $79 million, or $(0.16) per diluted share
•Unrealized losses on derivatives of $34 million, or $(0.07) per diluted share
•Other operating expenses of $27 million, or $(0.06) per diluted share, primarily related to the Acquisition
•Discrete income tax benefits of $13 million, or $0.04 per diluted share primarily related to the reversal of a valuation allowance associated with foreign tax credits
•Expenses of $10 million, $(0.02) per diluted share, related to a refinement of our weighted average inventory costing
•A sales tax refund of $6 million, or $0.01 per diluted share
Significant factors affecting our results of operations and financial condition are listed below. Certain of these factors are discussed in more detail in the following sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In addition to the items noted above, our operating results during the three months ended June 30, 2019,2020, were favorablyunfavorably impacted in our Potash segment by an increase inlower average selling prices compared to the prior year period. This was driven by stronger global demand for potash and tight supply,Selling prices began declining in the first half of 2019 due to a delayadverse weather conditions in competitors' new capacity ramping up. Operating results were unfavorably impacted by lower potash sales volumesNorth America. They have continued to decline in the current year due to lower export prices because of China and India contract prices settling lower than expected, and new suppliers entering the marketplace. Potash sales volumes increased in North America in the current year period due to strong in-season demand driven by an early spring, compared to the same period in the prior year. In the currentprior year, domestic sales volumes declinedwere low as a result of adverse weather conditions in North America, which resulted in a late spring season, and a full product pipelinepipeline. Export sales volumes increased in the current year from the same period in the prior year, due to the settlement of the China and India contracts, and strong shipments to Brazil in the current year period.
Operating results for the three months ended June 30, 2020 were favorably impacted by our Phosphates segment. Phosphates recorded increased sales volumes in North America due to a strong spring application season in the current period, compared to the prior year period, which had a strong summer fill program in North America.
Operating results werewas unfavorably impacted by rain and flooding. In addition, raw material costs, primarily sulfur and ammonia, were favorable in our Phosphates segment primarilythe second quarter of 2020, compared to the same period in the prior year. This was partially offset by a decrease in average selling prices compared to the same period in the prior year. PhosphateAlthough selling prices began to decrease inhave risen from the fourth quarterlow levels seen at the end of 20182019, they are still below the same period of the prior year. The prior year was adversely impacted by increased supply, due to the limited fall application season in North Americanew capacity coming online, and increased import activity. They have remained low in 2019 due to reduced demand, as a result of thedue to adverse weather conditions in North America throughout the first half of 2019, which significantly delayed planting. In addition, operating earnings in Phosphates were negatively impacted by a shift of sales from higher margin products in North America toward lower margin international sales, as well as higher ammonia and rock costs and increased idle plant and turnaround costs, in each case, compared to the prior year period.
North America. Phosphate selling prices have continued to strengthen into the third quarter of 2020, due to improved market sentiment.
For the three months ended June 30, 2019,2020, operating results were also unfavorablyfavorably impacted inby our Mosaic Fertilizantes segment by expenses relatedsegment. Sales volumes increased compared to the temporary idlingsame period in the prior year, due to better farmer economics, and market sentiment of operations at our phosphates minesincreasing phosphate prices. Operating results were also favorably impacted by foreign currency impacts and lower raw material costs in Brazilthe current year compared to the prior year period. Raw material costs were higher in the prior year, as we workimported rock to adheremeet production needs because three of our mines were temporarily idled as we worked during the prior year period to themeet new legislation regarding tailing dams in Brazil. This resulted in increased raw materialhigher idle plant costs in the prior year as we imported rock to meet our production needs, and increased idle plants costs. These expenseswell. Operating results were partially offsetunfavorably impacted by an increase inlower average selling prices in the current year compared to the prior year period. This increase wasperiod, driven by betterinternational pricing in Brazil due to a favorabletrends and the mix of products sold. Operating earnings were also positively impacted by an increase in sales volumes in 2019 compared to the prior year period; the 2018 period was negatively impacted as a result of logistical challenges driven by the nationwide truckers strike in Brazil.
Other Highlights
•InMa'aden Wa'ad Al Shamal Phosphate Company ("MWSPC"), a subsidiary of Saudi Arabian Mining Company (Ma'aden), in which Mosaic holds a 25 percent interest, refinanced its project level debt. The refinancing removes recourse to Mosaic by all lenders to MWSPC, and defers principal paydown until June 30, 2022, enhancing expected free cash flow. Mosaic's contractual commitment to make future cash contributions to MWSPC has been eliminated.
•On June 26, 2020, we filed petitions with the second quarter, we temporarily idledU.S. Department of Commerce and the U.S. International Trade Commission that request the initiation of countervailing duty investigations into imports of phosphate fertilizers from Morocco and Russia. The purpose of the petitions is to remedy the distortions that foreign subsidies are causing in the U.S. market for phosphate fertilizers, and thereby restore fair competition.
•We have experienced limited adverse financial and operational Covid-19 related impacts to our Tapiraoperating facilities, employees, supply chain and Catalão phosphate mines in Brazil to address new legislation which introduced rules regarding tailing dam safety, construction, environmental licenses and operations. We temporarily idled our Araxá phosphate minelogistics in the first quarter of 2019. The Catalão mine returned to full2020 as agriculture, including fertilizer production, has been deemed, by governments in May 2019. The Tapira mine resumed partial operations in July 2019, with full operations expected both at Tapira and Araxá by the endeach jurisdiction where we operating mines or facilities, an "essential business" because of the third quarter. We continuerole it plays in the production of food. The Company implemented measures that are intended to provide for the immediate health and safety of our employees, including working remotely and alternating work schedules in order to minimize the number of employees at one location. In an effort to contain the spread of the virus, many government authorities, at locations where we do business, have issued “social distancing or shelter in place” orders. In accordance with independent engineers and regulators, and expect to obtain dam safety certificates. Until fullsuch orders, operations resume, we plan to continue to process available rock inventory to maintain finished product sales. We are supplementing requirements with imported rock fromat our Miski Mayo mine in Peru and shipping finished phosphates fromwere closed on March 16, 2020. Operations resumed on May 13, 2020. Our Patrocino operations in Brazil were also closed for ten days, restarting operations on April 7, 2020. These closures resulted in minimal disruptions to our Florida operations to meet our Brazilian customers’ needs. The higher delivered cost of phosphate rock, combined with idle mine and chemical plant costs, are expected to increase expenses by up to $80 million in 2019. Subsequent to the quarter end, we received an operating permit for a new dam at the Araxá mine.
•During the second quarter of 2019, we announced the permanent closure of the Plant City, Florida phosphate facility that was previously idled in late 2017, reaffirming our commitment to low-cost operations. For the three months ended June 30, 2019, Plant City closure costs were approximately $369 million.
•In April 2019,July, 2020, we purchasedextended the Pine Bend distribution facility in Rosemount, Minnesota, nearterm and increased the northern endlimit of our revolving credit facility. As of the Mississippi River for $55 million. The large facility significantly improves our ability to serve customers in the U.S., allows us to capture time-place premiums, and reduces our logistics risk.
Subsequent to the quarter end, on August 6, 2019, we announced the temporary idling of our Colonsay, Saskatchewan potash mine. We plan to use potash production resulting from accelerationdate of the Esterhazy K3 mine shaftsagreement, we held a liquidity position, including cash and existing inventories to meet customers’ demand. We expect this action to lower our costavailable committed lines of production, accelerate inventory depletion, and increase our leverage to strengthening markets into 2020.credit, in excess of $3 billion.
Overview of Consolidated Results for the six months ended June 30, 20192020 and 20182019
Net loss attributable to Mosaic for the six months ended June 30, 20192020 was $(102.3)$(155.6) million, or $(0.27)$(0.41) per diluted share, compared to a net earningsloss of $110.2$(102.3) million, or $0.29$(0.27) per diluted share, for the same period a year ago. Net earningsThe net loss for the six months ended June 30, 2019 were2020 was impacted by $305$362 million, or $(0.63)$(0.47) per diluted share, due to the following notable items:
•Foreign currency transaction loss of $180 million, or ($0.33) per diluted share
•Asset retirement obligation costs of $50 million, or $(0.07) per diluted share, related to new regulations
•Depreciation expense of $44 million, or $(0.06) per diluted share, related to the acceleration of the closure of our K1 and K2 mine shafts at our Esterhazy, Saskatchewan mine as we ramp up K3
•Unrealized loss on derivatives of $42 million, or ($0.08) per diluted share
•Other operating expenses of $35 million, or $(0.07) per diluted share, related to maintaining closed and indefinitely idled facilities
•Idle plant costs of $13 million, or $(0.02) per diluted share, related to the government-mandated shutdown on March 16, 2020, of our Miski Mayo phosphate rock mine in Peru due to the Covid-19 outbreak
•Other operating expenses of $9 million, or $(0.02) per diluted share, related to an increase in reserves for legal contingencies of the Acquired Business (as defined below)
•Write-down of assets of $4 million, or $(0.01) per diluted share
•A change in the effective annual tax rate, creating a benefit of $32 million, or $0.08 per diluted share
•Discrete income tax benefit of $31 million, or $0.09 per diluted share
•Other non-operating income of $8 million, or $0.01 per diluted share, related to a realized gain on RCRA trust securities
•Other operating income of $7 million, or $0.01 per diluted share, related to a legal settlement
During the six months ended June 30, 2019, our results included:
•Plant City closing costs of $369 million, or $(0.73) per diluted share
•Foreign currency transaction gains of $44 million, or $0.09 per diluted share
•Unrealized gains on derivatives of $32 million, or $0.06 per diluted share
•Other operating income of $8 million, or $0.02 per diluted share, related to insurance proceeds for the 2017 flooding at the Miski Mayo mine
•Other operating expenses of $15 million, or $(0.04) per diluted share, related to the Acquisition, partially offset by income of $12 million, or $0.03 per diluted share, related to the reversal of our previously estimated and accrued earn-out obligation to Vale
•Expenses of $14 million, or $(0.03) per diluted share, related to repairing the lateral movmentmovement at the Gypstack at our Uncle Sam facility in Louisiana
•Discrete income tax expense of $10 million, or $(0.02) per diluted share
•Other operating income of $8 million, or $0.02 per diluted share, related to insurance proceeds for the 2017 flooding at the Miski Mayo mine
During the six months ended June 30, 2018, our results included:
• Foreign currency transaction losses of $111 million, or $(0.22) per diluted share
•Other operating expense of $73 million, or $(0.15) per diluted share, primarily related to the Acquisition
•Discrete income tax benefits of $61 million, or $0.17 per diluted share, primarily related to the reversal of a valuation allowance associated with foreign tax credits
•Unrealized losses on derivatives of $46 million, or $(0.09) per diluted share
•Expenses of $30 million related to a refinement of our weighted average inventory costing, or $(0.06) per diluted share
Results for the six months ended June 30, 20192020 and 20182019 reflected the factors discussed above in the discussion for the three months ended June 30, 20192020 and 2018,2019, in addition to those noted below. Certain of these factors are discussed in more detail in the following sections of this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Operating results in our Potash segment for the six months ended June 30, 20192020 were favorablyunfavorably impacted by an increasea decrease in the average selling price of potash compared to the prior year period partially offset by lowerhigher sales volumes,volumes. These results were driven by the factors mentioned above in the three-month discussion.discussion, as well as a strong winter fill program in North America, which resulted in higher sales volumes in the first quarter of 2020.
Operating results in our Phosphates segment for the six months ended June 30, 20192020 were unfavorably impacted by lower phosphate average selling prices and sales volumes, compared to the prior year period,period. These results were driven by the factors mentioned above in the three-month discussion. Operating earningsresults in the current year period were also negativelyfavorably impacted by higher raw material costs, primarily sulfur and ammonia, duefinished product sales volumes. In addition to the tightening of the global supply and demand market, and costs related to the permanent closure of Plant Cityfactors mentioned above in the current-year period.three month discussion, North America experienced a late fall application season which drove increased sales volumes in the first quarter of 2020. Current year operating results were also favorably impacted by lower idle plant and turnaround costs that occurred in the prior year.
For the six months ended June 30, 2019,2020, operating results in our Mosaic Fertilizantes segment were favorably impacted by an increase in average selling prices and sales volumes in the current year compared to the prior year period, driven by the factors mentioned above in the three-month discussion. This wasOperating results were also favorably impacted by foreign currency impacts, lower raw material costs and lower idle plant costs, as discussed above in the three-month discussion. These results were offset by the unfavorable impact of the expenses related to the temporary idling of our phosphate mineslower average sales prices, as discussed above in the three-month discussion.
Other Highlights
•Cash on hand was $1.1 billion at June 30, 2020, an increase of over $500 million from December 31, 2019. We are diligently managing working capital requirements and capital expenditures, which are approximately $90 million lower than the prior year period. We also retired approximately $500 million of short-term debt and structured accounts payables in the second quarter of 2020.
•We continue to execute well and drive toward our 2021 operational targets. Mosaic Fertilizantes is on track to achieve the previously announced $50 million in transformational savings targeted for 2020.The Esterhazy K3 mine development project continues to progress, with the third automated miner placed into service in the first quarter of 2020.
Phosphates Net Sales and Gross Margin
The following table summarizes the Phosphates segment’s net sales, gross margin, sales volume, selling prices and raw material prices:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | | | Six months ended | | | | | | |
| June 30, | | | | 2020-2019 | | | | June 30, | | | | 2020-2019 | | |
(in millions, except price per tonne or unit) | 2020 | | 2019 | | Change | | Percent | | 2020 | | 2019 | | Change | | Percent |
Net sales: | | | | | | | | | | | | | | | |
North America | $ | 383.0 | | | $ | 444.3 | | | $ | (61.3) | | | (14) | % | | $ | 764.7 | | | $ | 842.5 | | | $ | (77.8) | | | (9) | % |
International | 379.4 | | | 473.1 | | | (93.7) | | | (20) | % | | 617.1 | | | 880.9 | | | (263.8) | | | (30) | % |
Total | 762.4 | | | 917.4 | | | (155.0) | | | (17) | % | | 1,381.8 | | | 1,723.4 | | | (341.6) | | | (20) | % |
Cost of goods sold | 744.7 | | | 929.2 | | | (184.5) | | | (20) | % | | 1,447.0 | | | 1,680.4 | | | (233.4) | | | (14) | % |
Gross margin | $ | 17.7 | | | $ | (11.8) | | | $ | 29.5 | | | NM | | $ | (65.2) | | | $ | 43.0 | | | $ | (108.2) | | | NM |
Gross margin as a percentage of net sales | 2 | % | | (1) | % | | | | | | (5) | % | | 2 | % | | | | |
Sales volumes(a) (in thousands of metric tonnes) | | | | | | | | | | | | | | | |
DAP/MAP | 1,166 | | | 1,275 | | | (109) | | | (9) | % | | 2,498 | | | 2,416 | | | 82 | | | 3 | % |
Performance and Other(b) | 1,069 | | | 909 | | | 160 | | | 18 | % | | 1,656 | | | 1,558 | | | 98 | | | 6 | % |
Total finished product tonnes | 2,235 | | | 2,184 | | | 51 | | | 2 | % | | 4,154 | | | 3,974 | | | 180 | | | 5 | % |
Rock | 119 | | | 673 | | | (554) | | | (82) | | | 288 | | | 865 | | | (577) | | | (67) | % |
Total Phosphates Segment Tonnes(a) | 2,354 | | | 2,857 | | | (503) | | | (18) | % | | 4,442 | | | 4,839 | | | (397) | | | (8) | % |
Realized prices ($/tonne) | | | | | | | | | | | | | | | |
Average finished product selling price (destination)(a) | $ | 338 | | | $ | 398 | | | $ | (60) | | | (15) | % | | $ | 328 | | | $ | 418 | | | $ | (90) | | | (22) | % |
DAP selling price (fob mine) | $ | 287 | | | $ | 345 | | | $ | (58) | | | (17) | % | | $ | 281 | | | $ | 359 | | | $ | (78) | | | (22) | % |
Average rock selling price (destination)(a) | $ | 61 | | | $ | 71 | | | $ | (10) | | | (14) | % | | $ | 60 | | | $ | 72 | | | $ | (12) | | | (17) | % |
Average cost per unit consumed in cost of goods sold: | | | | | | | | | | | | | | | |
Ammonia (metric tonne) | $ | 289 | | | $ | 337 | | | $ | (48) | | | (14) | % | | $ | 298 | | | $ | 344 | | | $ | (46) | | | (13) | % |
Sulfur (long ton) | $ | 76 | | | $ | 138 | | | $ | (62) | | | (45) | % | | $ | 77 | | | $ | 145 | | | $ | (68) | | | (47) | % |
Blended rock (metric tonne) | $ | 61 | | | $ | 63 | | | $ | (2) | | | (3) | % | | $ | 61 | | | $ | 62 | | | $ | (1) | | | (2) | % |
Production volume (in thousands of metric tonnes) - North America | 2,117 | | | 2,050 | | | 67 | | | 3 | % | | 3,978 | | | 4,042 | | | (64) | | | (2) | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended | | | | | | Six months ended | | | | |
| June 30, | | 2019-2018 | | June 30, | | 2019-2018 |
(in millions, except price per tonne or unit) | 2019 | | 2018 | | Change | | Percent | | 2019 | | 2018 | | Change | | Percent |
Net sales: | | | | | | | | | | | | | | | |
North America | $ | 444.3 |
| | $ | 601.4 |
| | $ | (157.1 | ) | | (26 | )% | | $ | 842.5 |
| | $ | 1,064.9 |
| | $ | (222.4 | ) | | (21 | )% |
International | 473.1 |
| | 451.8 |
| | 21.3 |
| | 5 | % | | 880.9 |
| | 854.2 |
| | 26.7 |
| | 3 | % |
Total | 917.4 |
| | 1,053.2 |
| | (135.8 | ) | | (13 | )% | | 1,723.4 |
| | 1,919.1 |
| | (195.7 | ) | | (10 | )% |
Cost of goods sold | 929.2 |
| | 899.4 |
| | 29.8 |
| | 3 | % | | 1,680.4 |
| | 1,668.8 |
| | 11.6 |
| | 1 | % |
Gross margin | $ | (11.8 | ) | | $ | 153.8 |
| | $ | (165.6 | ) | | NM |
| | $ | 43.0 |
| | $ | 250.3 |
| | $ | (207.3 | ) | | (83 | )% |
Gross margin as a percentage of net sales | (1 | )% | | 15 | % | | | | | | 2 | % | | 13 | % | | | | |
Sales volumes(a) (in thousands of metric tonnes) | | | | | | | | | | | | | | | |
DAP/MAP | 1,275 |
| | 1,332 |
| | (57 | ) | | (4 | )% | | 2,416 |
| | 2,627 |
| | (211 | ) | | (8 | )% |
Specialty(b) | 909 |
| | 970 |
| | (61 | ) | | (6 | )% | | 1,558 |
| | 1,620 |
| | (62 | ) | | (4 | )% |
Total finished product tonnes | 2,184 |
| | 2,302 |
| | (118 | ) | | (5 | )% | | 3,974 |
| | 4,247 |
| | (273 | ) | | (6 | )% |
Rock | 673 |
| | 209 |
| | 464 |
| | NM |
| | 865 |
| | 569 |
| | 296 |
| | 52 | % |
Total Phosphates Segment Tonnes(a) | 2,857 |
| | 2,511 |
| | 346 |
| | 14 | % | | 4,839 |
| | 4,816 |
| | 23 |
| | 0 | % |
Realized prices ($/tonne) | | | | | | | | | | | | | | | |
Average finished product selling price (destination) | $ | 398 |
| | $ | 451 |
| | $ | (53 | ) | | (12 | )% | | $ | 418 |
| | $ | 442 |
| | $ | (24 | ) | | (5 | )% |
Average rock selling price (destination)(a) | $ | 71 |
| | $ | 72 |
| | $ | (1 | ) | | (1 | )% | | $ | 72 |
| | $ | 76 |
| | $ | (4 | ) | | (5 | )% |
Average cost per unit consumed in cost of goods sold: | | | | | | | | | | | | | | | |
Ammonia (metric tonne) | $ | 337 |
| | $ | 325 |
| | $ | 12 |
| | 4 | % | | $ | 344 |
| | $ | 334 |
| | $ | 10 |
| | 3 | % |
Sulfur (long ton) | $ | 138 |
| | $ | 139 |
| | $ | (1 | ) | | (1 | )% | | $ | 145 |
| | $ | 134 |
| | $ | 11 |
| | 8 | % |
Blended rock (metric tonne) | $ | 63 |
| | $ | 59 |
| | $ | 4 |
| | 7 | % | | $ | 62 |
| | $ | 57 |
| | $ | 5 |
| | 9 | % |
Production volume (in thousands of metric tonnes) - North America | 2,050 |
| | 2,081 |
| | (31 | ) | | (1 | )% | | 4,042 |
| | 4,126 |
| | (84 | ) | | (2 | )% |
____________________________(a) Includes intersegment sales volumes.
(b) Includes sales volumes of MicroEssentials® and animal feed ingredients.
Three months ended June 30, 20192020 and 2018June 30, 2019
The Phosphates segment’s net sales were $762.4 million for the three months ended June 30, 2020, compared to $917.4 million for the three months ended June 30, 2019, compared to $1.1 billion for the three months ended June 30, 2018.2019. The decrease in net sales was primarily due to lower selling prices and sales volumes in the current year period, which unfavorably impacted net sales by approximately $95 million and $40 million, respectively.$120 million. We also experienced lower sales volumes from Miski Mayo, which was under a government-mandated shut down for part of the current period due to Covid-19, impacting net sales by approximately $30 million.
Our average finished product selling price was $398$338 per tonne for the three months ended June 30, 2019,2020, a decrease of 12%15% from the same period a year ago, due to the factors discussed in the Overview.
The Phosphates segment’s sales volumes of finished products decreasedincreased by 5%2% for the three months ended June 30, 2019,2020, compared to the same period in the prior year, due to the factorfactors discussed in the Overview. The significantly higher sales volumes of rock were due to Mosaic Fertilizantes purchasing rock from the Miski Mayo mine in Peru (included in our Phosphates segment) to supplement their production requirements, as their mines were temporarily idled during the current year quarter as discussed in the Overview.
Gross margin for the Phosphates segment decreasedincreased to $17.7 million for the three months ended June 30, 2020, from $(11.8) million for the three months ended June 30, 2019, from $153.8 million for the three months ended June 30, 2018.2019. The decreaseincrease in gross margin in the current year period was primarily due to significantly lower raw materials costs, as discussed below, which impacted gross margin by approximately $105 million, and lower idle plant and turnaround costs of approximately $40 million. These benefits were partially offset by the impact of lower finished product prices of approximately $95 million, and higher raw material costs, primarily rock, of approximately $25$120 million. In addition, gross margin in the current year period was negatively impacted by higher costs of approximately $30 million related to the timing of maintenance turnarounds and higher idle costs related to the South Pasture, Florida mine, which was temporarily idled in the third quarter of 2018. Also, the prior year period included an unfavorable impact of approximately $6 million related to a refinement of our weighted average inventory costing.
The average consumed price for ammonia for our North American operations increaseddecreased to $337$289 per tonne for the three months ended June 30, 2019,2020, from $325$337 in the same period a year ago. We typically purchase approximately one-third of our ammonia from various suppliers in the spot market, with the remaining two-thirds either purchased through an ammonia supply agreement or produced internally at our Faustina, Louisiana location. In the current year quarter we purchased a higher percentage through the supply agreement to meet our requirements as our internal production was lower due to a maintenance turnaround. The average consumed sulfur price for our North American operations decreased to $138$76 per long ton for the three months ended June 30, 2019,2020, from $139$138 in the same period a year ago. The purchase prices of these raw materials are driven by global supply and demand. The consumed ammonia and sulfur prices also include transportation, transformation, and storage costs.
The average consumed cost of purchased and produced phosphate rock increaseddecreased to $61 per tonne for the three months ended June 30, 2020, compared to $63 per tonne for the three months ended June 30, 2019, compared to $59 per tonne for2019. For the three months ended June 30, 2018. Our2020, our North American phosphate rock costsproduction increased to 3.3 million tonnes from 3.1 million tonnes for the same period of the prior year due to lowerfavorable performance at all of our North American mines. In the prior year period, production in the current year,suffered due to operational challenges as discussed below, impacting the mix of rock being used.we transitioned into new mining areas.
The Phosphates segment's production of crop nutrient dry concentrates and animal feed ingredients decreased slightly to 2.05remained steady at 2.1 million tonnes for the three months ended June 30, 2019, from 2.08 million tonnes2020, compared to the same period in the prior year period. Foryear. Our operating rate for processed phosphate production increased slightly to 85% for the three months ended June 30, 2019, our operating rate for processed phosphate production was 85%, compared to 86% in the same period of the prior year.
For the three months ended June 30, 2019, our North American phosphate rock production decreased to 3.1 million tonnes2020, from 3.9 million tonnes84% for the same period of the prior year, primarily due to the idling of our South Pasture, Florida mine in August of 2018 and operational challenges as we transitioned into new mining areas in the current year.2019.
Six months ended June 30, 20192020 and 2018June 30, 2019
The Phosphates segment’s net sales were $1.4 billion for the six months ended June 30, 2020, compared to $1.7 billion for the six months ended June 30, 2019, compared to $1.9 billion for the six months ended June 30, 2018.2019. The decrease in net sales was due to lower sales volumes, which unfavorably impacted net sales by approximately $120 million and lower selling prices in the current year period, which unfavorably impacted net sales by $80approximately $330 million, and lower sales volumes from Miski Mayo, which unfavorably impacted net sales by approximately $30 million. That facility was subject to a government mandated shutdown for a portion of the current year period. This was partially offset by higher sales volumes of approximately $20 million.
Our average finished product selling price was $418$328 per tonne for the six months ended June 30, 2019,2020, a decrease of 5%22% per tonne from the same period a year ago, due to the factors discussed in the Overview.
The Phosphates segment’s sales volumes of finished products decreasedincreased by 6%5% for the six months ended June 30, 2019,2020, compared to the same period in the prior year ago, due to the factorfactors discussed in the Overview.
Gross margin for the Phosphates segment decreased to $43$(65.2) million for the six months ended June 30, 2019,2020, from $250.3$43.0 million for the six months ended June 30, 2018.2019. The decrease in gross margin in the current year period was due to the impact of lower finished product prices of approximately $80 million,$330 million. This was partially offset by lower sales volumes of approximately $30 million and higher raw material costs, of approximately $60 million. In addition,primarily sulfur, as discussed below, impacting gross margin in the current year period was negatively impacted by higherapproximately $170 million, and lower costs of approximately $55 million. These costs primarily$50 million related to the timing of turnarounds, higher idle plant and turnaround costs forin the South Pasture mine and costs related to repairing the lateral movement at the Gypstack at our Uncle Sam facility in Louisiana. The priorcurrent year period also included an unfavorable impactperiod.
The average consumed price for ammonia for our North American operations was $344$298 per tonne for the six months ended June 30, 2019,2020, compared to $334$344 in the same period a year ago. The average consumed price for sulfur for our North American operations increaseddecreased to $145$77 per long ton for the six months ended June 30, 2019,2020, from $134$145 in the same period a year ago,ago. The purchase prices of these raw materials are driven by the factors discussed above in the three-month discussion. global supply and demand.
The average consumed cost of purchased and produced phosphate rock was $62$61 per tonne for the six months ended June 30, 2019,2020, compared to $57$62 per tonne for the prior year period. Our North American phosphate rock production increased to 6.7 million tonnes for the six months ended June 30, 2020, compared to 5.9 million for the six months ended June 30, 2019. The increase in rock costsfrom the prior year is due to favorable performance across our North American mines. In the factors discussed above in the three-month discussion.
prior year period, production suffered due to operational challenges as we transitioned into new mining areas.
The Phosphate segment's production of crop nutrient dry concentrates and animal feed ingredients decreased 2% to 4.0was 3.98 million tonnes for the six months ended June 30, 2019, from 4.12020, compared to 4.04 million tonnes in the prior year period. For the six months ended June 30, 2019,2020, our operating rate for processed phosphate production decreased to 83%80%, compared to 85%83% in the same period of the prior year.
Our North American phosphate rock production decreased to 5.9 million tonnes for the six months ended June 30, 2019, compared to 8.0 million for the six months ended June 30, 2018. The decrease from the prior year was primarily due to the idling of our South Pasture, Florida mine in August of 2018 and operational challenges as we transitioned into new mining areas in the current year.
Potash Net Sales and Gross Margin
The following table summarizes the Potash segment’s net sales, gross margin, sales volume and selling price:
| | | Three months ended | | | | | | Six months ended | | | | | | Three months ended | | | Six months ended | | |
| June 30, | | 2019-2018 | | June 30, | | 2019-2018 | | June 30, | | | 2020-2019 | | | June 30, | | | 2020-2019 | |
(in millions, except price per tonne or unit) | 2019 | | 2018 | | Change | | Percent | | 2019 | | 2018 | | Change | | Percent | (in millions, except price per tonne or unit) | 2020 | | 2019 | | Change | | Percent | | 2020 | | 2019 | | Change | | Percent |
Net sales: | | | | | | | | | | | | | | | | Net sales: | | | | | | | | | | | | | | | |
North America | $ | 296.4 |
| | $ | 350.8 |
| | $ | (54.4 | ) | | (16 | )% | | $ | 531.6 |
| | $ | 631.0 |
| | $ | (99.4 | ) | | (16 | )% | North America | $ | 315.2 | | | $ | 296.4 | | | $ | 18.8 | | | 6 | % | | $ | 597.7 | | | $ | 531.6 | | | $ | 66.1 | | | 12 | % |
International | 302.7 |
| | 218.7 |
| | 84.0 |
| | 38 | % | | 571.0 |
| | 342.2 |
| | 228.8 |
| | 67 | % | International | 240.2 | | | 302.7 | | | (62.5) | | | (21) | % | | 399.3 | | | 571.0 | | | (171.7) | | | (30) | % |
Total | 599.1 |
| | 569.5 |
| | 29.6 |
| | 5 | % | | 1,102.6 |
| | 973.2 |
| | 129.4 |
| | 13 | % | Total | 555.4 | | | 599.1 | | | (43.7) | | | (7) | % | | 997.0 | | | 1,102.6 | | | (105.6) | | | (10) | % |
Cost of goods sold | 418.0 |
| | 437.3 |
| | (19.3 | ) | | (4 | )% | | 736.1 |
| | 738.6 |
| | (2.5 | ) | | 0 | % | Cost of goods sold | 423.8 | | | 418.0 | | | 5.8 | | | 1 | % | | 756.3 | | | 736.1 | | | 20.2 | | | 3 | % |
Gross margin | $ | 181.1 |
| | $ | 132.2 |
| | $ | 48.9 |
| | 37 | % | | $ | 366.5 |
| | $ | 234.6 |
| | $ | 131.9 |
| | 56 | % | Gross margin | $ | 131.6 | | | $ | 181.1 | | | $ | (49.5) | | | (27) | % | | $ | 240.7 | | | $ | 366.5 | | | $ | (125.8) | | | (34) | % |
Gross margin as a percentage of net sales | 30 | % | | 23 | % | | | | | | 33 | % | | 24 | % | | | | | Gross margin as a percentage of net sales | 24 | % | | 30 | % | | | | | | 24 | | | 33 | % | | | | |
| Sales volume(a) (in thousands of metric tonnes) | | | | | | | | | | | | | | | | Sales volume(a) (in thousands of metric tonnes) | |
MOP | 1,919 |
| | 2,169 |
| | (250 | ) | | (12 | )% | | 3,648 |
| | 3,720 |
| | (72 | ) | | (2 | )% | MOP | 2,282 | | | 1,919 | | | 363 | | | 19 | % | | 3,991 | | | 3,648 | | | 343 | | | 9 | % |
Specialty(b) | 244 |
| | 195 |
| | 49 |
| | 25 | % | | 376 |
| | 334 |
| | 42 |
| | 13 | % | |
Performance and Other(b) | | Performance and Other(b) | 277 | | | 244 | | | 33 | | | 14 | % | | 467 | | | 376 | | | 91 | | | 24 | % |
Total Potash Segment Tonnes | 2,163 |
| | 2,364 |
| | (201 | ) | | (9 | )% | | 4,024 |
| | 4,054 |
| | (30 | ) | | (1 | )% | Total Potash Segment Tonnes | 2,559 | | | 2,163 | | | 396 | | | 18 | % | | 4,458 | | | 4,024 | | | 434 | | | 11 | % |
Realized prices ($/tonne) | | | | | | | | | | | | | | | | Realized prices ($/tonne) | | | | | | | | | | | | | | | |
Average finished product selling price (destination) | $ | 277 |
| | $ | 241 |
| | $ | 36 |
| | 15 | % | | $ | 274 |
| | $ | 240 |
| | $ | 34 |
| | 14 | % | Average finished product selling price (destination) | $ | 217 | | | $ | 277 | | | $ | (60) | | | (22) | % | | $ | 224 | | | $ | 274 | | | $ | (50) | | | (18) | % |
MOP selling price (fob mine) | | MOP selling price (fob mine) | $ | 180 | | | $ | 246 | | | $ | (66) | | | (27) | % | | $ | 188 | | | $ | 244 | | | $ | (56) | | | (23) | % |
Production volume (in thousands of metric tonnes) | 2,180 |
| | 2,151 |
| | 29 |
| | 1 | % | | 4,434 |
| | 4,426 |
| | 8 |
| | 0 | % | Production volume (in thousands of metric tonnes) | 2,198 | | | 2,180 | | | 18 | | | 1 | % | | 4,266 | | | 4,434 | | | (168) | | | (4) | % |
(a) Includes intersegment sales volumes.
(b) Includes sales volumes of K-mag, Aspire and animal feed ingredients.
Three months ended June 30, 20192020 and 2018June 30, 2019
The Potash segment’s net sales increaseddecreased to $599.1$555.4 million for the three months ended June 30, 2019,2020, compared to $569.5$599.1 million in the same period a year ago. The increasedecrease was due to higherlower selling prices, which had an unfavorable impact on net sales of approximately $155 million, partially offset by higher sales volumes, which had a favorable impact on net sales of approximately $90 million, partially offset by lower sales volumes, which had an unfavorable impact on net sales of approximately $60$110 million.
Our average finished product selling price was $277$217 per tonne for the three months ended June 30, 2019,2020, compared to $241$277 per tonne for the same period a year ago, as a result of the factors described in the Overview.
The Potash segment’s sales volumes of finished products decreasedincreased to 2.22.56 million tonnes for the three months ended June 30, 2019,2020, compared to 2.42.16 million tonnes in the same period a year ago. Inago, due to early spring demand in North America, and an increase in the sales through Canpotex in the current year period, our sales volumes to International locations increased, while we saw a decrease in North American sales volumes, due to the factors discussed in the Overview.period.
Gross margin for the Potash segment increaseddecreased to $181.1$131.6 million for the three months ended June 30, 2019,2020, from $132.2$181.1 million in the same period of the prior year. GrossThe decrease in gross margin in the current year period is primarily due to approximately $155 million of lower selling prices, partially offset by a favorable sales volume impact of approximately $40 million. In addition, gross margin was favorablypositively impacted by approximately $90 million, due to the increase in average selling prices. This was partially offset by approximately $25 million of higherlower turnaround costs due to timing of when the turnarounds occurred, lower plant spending of approximately $30 million, and lower Canadian resource taxes of approximately $4 million as described below, $20 million in lower sales volumes and $10 million in higher plant spending from the ramp-up of ore production at the Esterhazy K3 mineshaft.discussed below.
We had expense of $56.4$52.1 million from Canadian resource taxes for the three months ended June 30, 2019,2020, compared to $33.7$56.4 million in the same period a year ago. Canadian royalty expense increaseddecreased to $7.8 million for the three months ended June 30, 2020, compared to $11.0 million for the three months ended June 30, 2019, compared to $8.7 million for the three months ended June 30, 2018.2019. The fluctuations in Canadian resource taxes and royalty expense are a result of higher margins from increaseda decrease in average selling prices and margins, due to the factors discussed in the Overview andOverview. The decrease in royalties is due to the passing of Canadian resource tax law changes, which became effective on April 1, 2019.
reduction in sales revenue.
We incurred $35.6$26 million in brine inflow management expenses, including depreciation on brine assets, at our Esterhazy mine during the three months ended June 30, 2019,2020, compared to $38.9$36 million for the three months ended June 30, 2018.2019. We have been effectively managing the brine inflows at Esterhazy since 1985, and from time to time we experience changes to the amounts and patterns of brine inflows. Inflows continue to be within the range of our historical experience. Brine inflow expenditures continue to reflect the cost of addressing changing inflow patterns, including inflows from below our mine workings, which can be more complex and costly to manage. The mine has significant brine storage capacity. Depending on inflow rates, pumping and disposal rates, and other variables, the volume of brine stored in the mine may change significantly from period to period. In general, the higher the level of brine stored in the mine, the less time available to mitigate new or increased inflows that exceed our capacity for pumping or disposal of brine outside the mine, and therefore the less time to avoid flooding and/or loss of the mine. Our past investments in remote injection and increased pumping capacities facilitate our management of the brine inflows and the amount of brine stored in the mine. We are continuing the expansion of capacity in our Potash segment with the K3 shaftsshaft at our Esterhazy mine. Once completed, we expect this towill provide us the opportunity to reduce or eliminate future brine inflow management costs by closing our K1 and risks.K2 shafts in the future.
Our operating rate for potash production was 83%91% for the current year period, comparablecompared to 82%83% in the prior year period. The change in our operating rate from the prior year period is primarily due to a change in our capacities as we indefinitely idled our Colonsay, Saskatchewan mine in the fourth quarter of 2019.
Six months ended June 30, 20192020 and 2018June 30, 2019
The Potash segment’s net sales increaseddecreased to $1.1$1.0 billion for the six months ended June 30, 2019,2020, compared to $1.0$1.1 billion in the same period a year ago. The increasedecrease was due to higherlower selling prices, which had an unfavorable impact on net sales of approximately $240 million, partially offset by higher sales volumes, which had a favorable impact on net sales of approximately $185 million, partially offset by lower sales volumes, which had an unfavorable impact on net sales of approximately $55$140 million.
Our average selling price was $274$224 per tonne for the six months ended June 30, 2019,2020, compared to $240$274 per tonne for the same period a year ago, due to the factors discussed above in the Overview.
The Potash segment’s sales volumes decreasedincreased to 4.04.5 million tonnes for the six months ended June 30, 2019,2020, compared to 4.14.0 million tonnes in the same period a year ago, due to the factors discussed in the Overview. In the prior year period, our sales volumes were unfavorably impacted by a change in the Canpotex revenue recognition policy.
Gross margin for the Potash segment increaseddecreased to $366.5$240.7 million for the six months ended June 30, 2019,2020, from $234.6$366.5 million for the same period in the prior year. Gross margin was favorablyunfavorably impacted by approximately $185$240 million, due to the increasedecrease in average selling prices. We also saw favorable foreign exchange impacts due to the strengthening of the U.S. Dollar against the Canadian Dollar. This wasprices, partially offset by approximately $45$50 million, due to the impact of higher sales volumes. Gross margin was also unfavorably impacted by $20 million of higherfixed cost absorption due to lower production volumes and inventory unit values in the current year period. We saw a favorable impact from lower turnaround costs of approximately $30 million due to the timing of when turnarounds occurred, and approximately $30 million of lower plant spending for the six months ended June 30, 2020 compared to the prior year period. Gross margin was also favorably impacted in the current period by approximately $20 million due to lower Canadian resource taxes $15 million in higher plant spending and fixed cost absorption, depreciation expense from the start-up of ore production at the Esterhazy K3 mineshaft and $5 million in lower sales volumes.royalties, as discussed below.
We incurred $103.3$83.8 million in Canadian resource taxes for the six months ended June 30, 2019,2020, compared to $60.0$103.3 million in the same period a year ago. Canadian royalty expense increaseddecreased to $16.0 million for the six months ended June 30, 2020, compared to $22.2 million for the six months ended June 30, 2019, compared2019. The fluctuations in Canadian resource taxes are due to $17.0 million forthe
items discussed in the six months ended June 30, 2018.three-month discussion above. The fluctuationsdecrease in Canadian resource taxes and royalties is due to the items discussedlower average selling prices in the three-month discussion above.current year.
We incurred expense of $71.9$59 million, including depreciation on brine assets, related to managing the brine inflows at our Esterhazy mine during the six months ended June 30, 2019,2020, compared to $78.1$72 million in the prior year period.
Our operating rate was 84%88% for the current andyear period, compared to 84% in the prior year periods.period.
Mosaic Fertilizantes Net Sales and Gross Margin
The following table summarizes the Mosaic Fertilizantes segment’s net sales, gross margin, sales volume and selling price.
| | | Three months ended | | | | | | Six months ended | | | | | | Three months ended | | | Six months ended | | |
| June 30, | | 2019-2018 | | June 30, | | 2019-2018 | | June 30, | | | 2020-2019 | | | June 30, | | | 2020-2019 | |
(in millions, except price per tonne or unit) | 2019 | | 2018 | | Change | | Percent | | 2019 | | 2018 | | Change | | Percent | (in millions, except price per tonne or unit) | 2020 | | 2019 | | Change | | Percent | | 2020 | | 2019 | | Change | | Percent |
Net Sales | $ | 832.7 |
| | $ | 712.7 |
| | $ | 120.0 |
| | 17 | % | | $ | 1,530.7 |
| | $ | 1,378.0 |
| | $ | 152.7 |
| | 11 | % | Net Sales | $ | 787.0 | | | $ | 832.7 | | | $ | (45.7) | | | (5) | % | | $ | 1,518.1 | | | $ | 1,530.7 | | | $ | (12.6) | | | (1) | % |
Cost of goods sold | 797.5 |
| | 659.7 |
| | 137.8 |
| | 21 | % | | 1,443.1 |
| | 1,265.8 |
| | 177.3 |
| | 14 | % | Cost of goods sold | 686.3 | | | 797.5 | | | (111.2) | | | (14) | % | | 1,350.9 | | | 1,443.1 | | | (92.2) | | | (6) | % |
Gross margin | $ | 35.2 |
| | $ | 53.0 |
| | $ | (17.8 | ) | | (34 | )% | | $ | 87.6 |
| | $ | 112.2 |
| | $ | (24.6 | ) | | (22 | )% | Gross margin | $ | 100.7 | | | $ | 35.2 | | | $ | 65.5 | | | 186 | % | | $ | 167.2 | | | $ | 87.6 | | | $ | 79.6 | | | 91 | % |
Gross margin as a percent of net sales | 4 | % | | 7 | % | | | | | | 6 | % | | 8 | % | | | | | Gross margin as a percent of net sales | 13 | % | | 4 | % | | | | | | 11 | | | 6 | % | | | | |
Sales volume (in thousands of metric tonnes) | Sales volume (in thousands of metric tonnes) | | | | | | | | | | | | | Sales volume (in thousands of metric tonnes) | | |
Phosphate produced in Brazil | 763 |
| | 636 |
| | 127 |
| | 20 | % | | 1,175 |
| | 1,063 |
| | 112 |
| | 11 | % | Phosphate produced in Brazil | 1,161 | | | 763 | | | 398 | | | 52 | % | | 1,860 | | | 1,175 | | | 685 | | | 58 | % |
Potash produced in Brazil | 81 |
| | 66 |
| | 15 |
| | 23 | % | | 153 |
| | 165 |
| | (12 | ) | | (7 | )% | Potash produced in Brazil | 71 | | | 81 | | | (10) | | | (12) | % | | 146 | | | 153 | | | (7) | | | (5) | % |
Purchased nutrients for distribution | 1,257 |
| | 1,144 |
| | 113 |
| | 10 | % | | 2,301 |
| | 2,202 |
| | 99 |
| | 4 | % | Purchased nutrients for distribution | 1,326 | | | 1,257 | | | 69 | | | 5 | % | | 2,629 | | | 2,301 | | | 328 | | | 14 | % |
Total Mosaic Fertilizantes Segment Tonnes | 2,101 |
| | 1,846 |
| | 255 |
| | 14 | % | | 3,629 |
| | 3,430 |
| | 199 |
| | 6 | % | Total Mosaic Fertilizantes Segment Tonnes | 2,558 | | | 2,101 | | | 457 | | | 22 | % | | 4,635 | | | 3,629 | | | 1,006 | | | 28 | % |
Realized prices ($/tonne) |
| |
|
| |
| |
| | | | | | | | | Realized prices ($/tonne) | | | | | | | | | | | | | | | |
Average finished product selling price (destination) | $ | 396 |
| | $ | 386 |
| | $ | 10 |
| | 3 | % | | $ | 422 |
| | $ | 402 |
| | $ | 20 |
| | 5 | % | Average finished product selling price (destination) | $ | 308 | | | $ | 396 | | | $ | (88) | | | (22) | % | | $ | 328 | | | $ | 422 | | | $ | (94) | | | (22) | % |
Brazil MAP price (delivered price to third party) | | Brazil MAP price (delivered price to third party) | $ | 314 | | | $ | 446 | | | $ | (132) | | | (30) | % | | $ | 322 | | | $ | 464 | | | $ | (142) | | | (31) | % |
Purchases ('000 tonnes) |
| |
|
| |
|
| |
|
| | | | | | | | | Purchases ('000 tonnes) | | | | | | | | |
DAP/MAP from Mosaic | 301 |
| | 216 |
| | 85 |
| | 39 | % | | 463 |
| | 286 |
| | 177 |
| | 62 | % | DAP/MAP from Mosaic | 193 | | | 301 | | | (108) | | | (36) | % | | 347 | | | 463 | | | (116) | | | (25) | % |
MicroEssentials® from Mosaic | 356 |
| | 392 |
| | (36 | ) | | (9 | )% | | 558 |
| | 574 |
| | (16 | ) | | (3 | )% | MicroEssentials® from Mosaic | 407 | | | 356 | | | 51 | | | 14 | % | | 524 | | | 558 | | | (34) | | | (6) | % |
Potash from Mosaic/Canpotex | 558 |
| | 770 |
| | (212 | ) | | (28 | )% | | 1,010 |
| | 1,159 |
| | (149 | ) | | (13 | )% | Potash from Mosaic/Canpotex | 708 | | | 558 | | | 150 | | | 27 | % | | 1,001 | | | 1,010 | | | (9) | | | (1) | % |
Average cost per unit consumed in cost of goods sold: | | | | | | | | | | | | | | | | Average cost per unit consumed in cost of goods sold: | |
Ammonia (metric tonne) | $ | 378 |
| | $ | 368 |
| | $ | 10 |
| | 3 | % | | $ | 394 |
| | $ | 386 |
| | $ | 8 |
| | 2 | % | Ammonia (metric tonne) | $ | 327 | | | $ | 378 | | | $ | (51) | | | (13) | % | | $ | 340 | | | $ | 394 | | | $ | (54) | | | (14) | % |
Sulfur (long ton) | $ | 196 |
| | $ | 200 |
| | $ | (4 | ) | | (2 | )% | | $ | 203 |
| | $ | 203 |
| | $ | — |
| | 0 | % | Sulfur (long ton) | $ | 100 | | | $ | 196 | | | $ | (96) | | | (49) | % | | $ | 106 | | | $ | 203 | | | $ | (97) | | | (48) | % |
Blended rock (metric tonne) | $ | 106 |
| | $ | 102 |
| | $ | 4 |
| | 4 | % | | $ | 104 |
| | $ | 108 |
| | $ | (4 | ) | | (4 | )% | Blended rock (metric tonne) | $ | 67 | | | $ | 106 | | | $ | (39) | | | (37) | % | | $ | 71 | | | $ | 104 | | | $ | (33) | | | (32) | % |
Production volume (in thousands of metric tonnes) | 687 |
| | 822 |
| | (135 | ) | | (16 | )% | | 1,576 |
| | 1,809 |
| | (233 | ) | | (13 | )% | Production volume (in thousands of metric tonnes) | 1,078 | | | 687 | | | 391 | | | 57 | % | | 2,032 | | | 1,576 | | | 456 | | | 29 | % |
The Mosaic Fertilizantes segment's production of crop nutrient dry concentrates and animal feed ingredients decreased 16%increased 57%, to 0.71.1 million tonnes, for the three months ended June 30, 2019,2020, from 0.80.7 million tonnes in the prior year period. This decrease was primarily due to temporarily idling of three of our mines in Brazil, as discussed in the Overview. For the three months ended June 30, 2019,2020, our operating rate decreasedincreased to 56%86%, compared to 67%56% in the same period of the prior year. In the prior year period, three of our mines were temporarily idled to address legislation which introduced new rules regarding tailing dam safety, construction, environmental licenses and operations.
The Mosaic Fertilizantes segment's production of crop nutrient dry concentrates and animal feed ingredients decreased 13%increased 29% to 1.62.0 million tonnes for the six months ended June 30, 2019,2020, from 1.81.6 million tonnes in the prior year period. The decline in production is due to the factors discussed in the three-month discussion. For the six months ended June 30, 2019,2020, our operating rate decreased to 64%was 63%, compared to 74% in the same period ofrate as the prior year.year period.