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 ofThe Mosaic Company filed with theSecurities and Exchange Commission for the year endedDecember 31, 2019 (the "10-K Report") and the material under Item 1 of Part I of this report. Throughout the discussion below, we measure units of production, sales and raw materials in metric tonnes, which are the equivalent of 2,205 pounds, unless we specifically state we mean long ton(s), which are the equivalent of 2,240 pounds. In the following tables, there are certain percentages that are not considered to be meaningful and are represented by "NM." Results of Operations The following table shows the results of operations for the three and six months endedJune 30, 2020 andJune 30, 2019 : Three months ended Six months endedJune 30 , 2020-2019June 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 Overview of Consolidated Results for the three months endedJune 30, 2020 and 2019 For the three months endedJune 30, 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, for the prior year period. The current period results were impacted by$50 million , or$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 30
-------------------------------------------------------------------------------- Table of Contents •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 ourEsterhazy, 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 onMarch 16, 2020 , of ourMiski Mayo phosphate rock mine inPeru 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 endedJune 30, 2019 , our results included: •Closure costs for ourPlant 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 inLouisiana •Asset retirement obligation costs of$3 million , or$(0.01) per diluted share, related to closed facilities 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 endedJune 30, 2020 , were unfavorably impacted in our Potash segment by lower average selling prices compared to the prior year period. Selling prices began declining in the first half of 2019 due to adverse weather conditions inNorth America . They have continued to decline in the current year due to lower export prices because ofChina andIndia contract prices settling lower than expected, and new suppliers entering the marketplace. Potash sales volumes increased inNorth 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 prior year, sales volumes were low as a result of adverse weather conditions inNorth America , which resulted in a late spring season, and a full product pipeline. Export sales volumes increased in the current year from the same period in the prior year, due to the settlement of theChina andIndia contracts, and strong shipments toBrazil in the current year period. Operating results for the three months endedJune 30, 2020 were favorably impacted by our Phosphates segment. Phosphates recorded increased sales volumes inNorth America due to a strong spring application season in the current period, compared to the prior year period, which was unfavorably impacted by rain and flooding. In addition, raw material costs, primarily sulfur and ammonia, were favorable in the 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. Although selling prices have risen from the low levels seen at the end of 2019, they are still below the same period of the prior year. The prior year was adversely impacted by increased supply, due to new capacity coming online, and reduced demand, due to adverse weather conditions in 31 -------------------------------------------------------------------------------- Table of ContentsNorth America . Phosphate selling prices have continued to strengthen into the third quarter of 2020, due to improved market sentiment. For the three months endedJune 30, 2020 , operating results were favorably impacted by our Mosaic Fertilizantes segment. Sales volumes increased compared to the same period in the prior year, due to better farmer economics, and market sentiment of increasing phosphate prices. Operating results were also favorably impacted by foreign currency impacts and lower raw material costs in the current year compared to the prior year period. Raw material costs were higher in the prior year, as we imported rock to meet production needs because three of our mines were temporarily idled as we worked during the prior year period to meet new legislation regarding tailing dams inBrazil . This resulted in higher idle plant costs in the prior year as well. Operating results were unfavorably impacted by lower average selling prices in the current year compared to the prior year period, driven by international pricing trends and the mix of products sold. Other Highlights •Ma'aden Wa'adAl 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 untilJune 30, 2022 , enhancing expected free cash flow. Mosaic's contractual commitment to make future cash contributions to MWSPC has been eliminated. •OnJune 26, 2020 , we filed petitions with theU.S. Department of Commerce and theU.S. International Trade Commission that request the initiation of countervailing duty investigations into imports of phosphate fertilizers fromMorocco andRussia . 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 operating facilities, employees, supply chain and logistics in the first quarter of 2020 as agriculture, including fertilizer production, has been deemed, by governments in each jurisdiction where we operating mines or facilities, an "essential business" because of the role 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 such orders, operations at ourMiski Mayo mine inPeru were closed onMarch 16, 2020 . Operations resumed onMay 13, 2020 . Our Patrocino operations inBrazil were also closed for ten days, restarting operations onApril 7, 2020 . These closures resulted in minimal disruptions to our operations. •In July, 2020, we extended the term and increased the limit of our revolving credit facility. As of the date of the agreement, we held a liquidity position, including cash and available committed lines of credit, in excess of$3 billion . Overview of Consolidated Results for the six months endedJune 30, 2020 and 2019 Net loss attributable to Mosaic for the six months endedJune 30, 2020 was$(155.6) million , or$(0.41) per diluted share, compared to a net loss of$(102.3) million , or$(0.27) per diluted share, for the same period a year ago. The net loss for the six months endedJune 30, 2020 was impacted by$362 million , or$(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 ourEsterhazy, 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 onMarch 16, 2020 , of ourMiski Mayo phosphate rock mine inPeru due to the Covid-19 outbreak 32 -------------------------------------------------------------------------------- Table of Contents •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 endedJune 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 movement at the Gypstack at our Uncle Sam facility inLouisiana •Discrete income tax expense of$10 million , or$(0.02) per diluted share Results for the six months endedJune 30, 2020 and 2019 reflected the factors discussed above in the discussion for the three months endedJune 30, 2020 and 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 endedJune 30, 2020 were unfavorably impacted by a decrease in the average selling price of potash compared to the prior year period partially offset by higher sales volumes. These results were driven by the factors mentioned above in the three-month discussion, as well as a strong winter fill program inNorth America , which resulted in higher sales volumes in the first quarter of 2020. Operating results in our Phosphates segment for the six months endedJune 30, 2020 were unfavorably impacted by lower phosphate average selling prices compared to the prior year period. These results were driven by the factors mentioned above in the three-month discussion. Operating results in the current year period were favorably impacted by higher finished product sales volumes. In addition to the factors mentioned above in the 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 endedJune 30, 2020 , operating results in our Mosaic Fertilizantes segment were favorably impacted by an increase in sales volumes in the current year compared to the prior year period, driven by the factors mentioned above in the three-month discussion. Operating 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 lower average sales prices, as discussed above in the three-month discussion. Other Highlights
•Cash on hand was
33 -------------------------------------------------------------------------------- Table of Contents •We continue to execute well and drive toward our 2021 operational targets. Mosaic Fertilizantes is on track to achieve the previously announced$50 million in transformational savings targeted for 2020. TheEsterhazy K3 mine development project continues to progress, with the third automated miner placed into service in the first quarter of 2020. PhosphatesNet Sales and Gross Margin The following table summarizes the Phosphates segment's net sales, gross margin, sales volume, selling prices and raw material prices: Three months ended Six months ended June 30, 2020-2019 June 30, 2020-2019 (in millions, except price per tonne or unit) 2020 2019 Change Percent 2020 2019 Change Percent Net sales: North America$ 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) % ____________________________
(a) Includes intersegment sales volumes. (b) Includes sales volumes of MicroEssentials® and animal feed ingredients.
34
-------------------------------------------------------------------------------- Table of Contents Three months endedJune 30, 2020 andJune 30, 2019 The Phosphates segment's net sales were$762.4 million for the three months endedJune 30, 2020 , compared to$917.4 million for the three months endedJune 30, 2019 . The decrease in net sales was primarily due to lower selling prices in the current year period, which impacted net sales by approximately$120 million . We also experienced lower sales volumes fromMiski 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$338 per tonne for the three months endedJune 30, 2020 , a decrease of 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 increased by 2% for the three months endedJune 30, 2020 , compared to the same period in the prior year, due to the factors discussed in the Overview. Gross margin for the Phosphates segment increased to$17.7 million for the three months endedJune 30, 2020 , from$(11.8) million for the three months endedJune 30, 2019 . The increase 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$120 million . The average consumed price for ammonia for our North American operations decreased to$289 per tonne for the three months endedJune 30, 2020 , from$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. The average consumed sulfur price for our North American operations decreased to$76 per long ton for the three months endedJune 30, 2020 , from$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 decreased to$61 per tonne for the three months endedJune 30, 2020 , compared to$63 per tonne for the three months endedJune 30, 2019 . For the three months endedJune 30, 2020 , our North American phosphate rock production increased to 3.3 million tonnes from 3.1 million tonnes for the same period of the prior year due to favorable performance at all of our North American mines. In the prior year period, production suffered due to operational challenges as we transitioned into new mining areas. The Phosphates segment's production of crop nutrient dry concentrates and animal feed ingredients remained steady at 2.1 million tonnes for the three months endedJune 30, 2020 , compared to the same period in the prior year. Our operating rate for processed phosphate production increased slightly to 85% for the three months endedJune 30, 2020 , from 84% for the same period in 2019. Six months endedJune 30, 2020 andJune 30, 2019 The Phosphates segment's net sales were$1.4 billion for the six months endedJune 30, 2020 , compared to$1.7 billion for the six months endedJune 30, 2019 . The decrease in net sales was due to lower selling prices in the current year period, which unfavorably impacted net sales by approximately$330 million , and lower sales volumes fromMiski 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$328 per tonne for the six months endedJune 30, 2020 , a decrease of 22% per tonne from the same period a year ago, due to the factors discussed in the Overview. The Phosphates segment's sales volumes of finished products increased by 5% for the six months endedJune 30, 2020 , compared to the same period in the prior year ago, due to the factors discussed in the Overview. Gross margin for the Phosphates segment decreased to$(65.2) million for the six months endedJune 30, 2020 , from$43.0 million for the six months endedJune 30, 2019 . The decrease in gross margin in the current year period was due to the impact of lower finished product prices of approximately$330 million . This was partially offset by lower raw material costs, primarily sulfur, as discussed below, impacting gross margin by approximately$170 million , and lower costs of approximately$50 million related to the timing of idle plant and turnaround costs in the current year period. 35 -------------------------------------------------------------------------------- Table of Contents The average consumed price for ammonia for our North American operations was$298 per tonne for the six months endedJune 30, 2020 , compared to$344 in the same period a year ago. The average consumed price for sulfur for our North American operations decreased to$77 per long ton for the six months endedJune 30, 2020 , from$145 in the same period a year ago. The purchase prices of these raw materials are driven by global supply and demand. The average consumed cost of purchased and produced phosphate rock was$61 per tonne for the six months endedJune 30, 2020 , compared to$62 per tonne for the prior year period. Our North American phosphate rock production increased to 6.7 million tonnes for the six months endedJune 30, 2020 , compared to 5.9 million for the six months endedJune 30, 2019 . The increase from the prior year is due to favorable performance across our North American mines. In the prior year period, production suffered due to operational challenges as we transitioned into new mining areas. The Phosphate segment's production of crop nutrient dry concentrates and animal feed ingredients was 3.98 million tonnes for the six months endedJune 30, 2020 , compared to 4.04 million tonnes in the prior year period. For the six months endedJune 30, 2020 , our operating rate for processed phosphate production decreased to 80%, compared to 83% in the same period of the prior year. PotashNet Sales and Gross Margin The following table summarizes the Potash segment's net sales, gross margin, sales volume and selling price: Three months ended Six months ended June 30, 2020-2019 June 30, 2020-2019 (in millions, except price per tonne or unit) 2020 2019 Change Percent 2020 2019 Change Percent Net sales: North America$ 315.2 $ 296.4 $ 18.8 6 %$ 597.7 $ 531.6 $ 66.1 12 % International 240.2 302.7 (62.5) (21) % 399.3 571.0 (171.7) (30) % Total 555.4 599.1 (43.7) (7) % 997.0 1,102.6 (105.6) (10) % Cost of goods sold 423.8 418.0 5.8 1 % 756.3 736.1 20.2 3 % Gross margin$ 131.6 $ 181.1 $ (49.5) (27) %$ 240.7 $ 366.5 $ (125.8) (34) % Gross margin as a percentage of net sales 24 % 30 % 24 33 % Sales volume(a) (in thousands of metric tonnes) MOP 2,282 1,919 363 19 % 3,991 3,648 343 9 % Performance and Other(b) 277 244 33 14 % 467 376 91 24 % Total Potash Segment Tonnes 2,559 2,163 396 18 % 4,458 4,024 434 11 % Realized prices ($/tonne) Average finished product selling price (destination)$ 217 $ 277 $ (60) (22) %$ 224 $ 274 $ (50) (18) % MOP selling price (fob mine)$ 180 $ 246 $ (66) (27) %$ 188 $ 244 $ (56) (23) % Production volume (in thousands of metric tonnes) 2,198 2,180 18 1 % 4,266 4,434 (168) (4) %
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(a) Includes intersegment sales volumes. (b) Includes sales volumes of K-mag, Aspire and animal feed ingredients. Three months endedJune 30, 2020 andJune 30, 2019 The Potash segment's net sales decreased to$555.4 million for the three months endedJune 30, 2020 , compared to$599.1 million in the same period a year ago. The decrease was due to lower 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$110 million . Our average finished product selling price was$217 per tonne for the three months endedJune 30, 2020 , compared to$277 per tonne for the same period a year ago, as a result of the factors described in the Overview. 36 -------------------------------------------------------------------------------- Table of Contents The Potash segment's sales volumes of finished products increased to 2.56 million tonnes for the three months endedJune 30, 2020 , compared to 2.16 million tonnes in the same period a year ago, due to early spring demand inNorth America , and an increase in the sales throughCanpotex in the current period. Gross margin for the Potash segment decreased to$131.6 million for the three months endedJune 30, 2020 , from$181.1 million in the same period of the prior year. The 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 positively impacted by approximately$25 million of lower 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 discussed below. We had expense of$52.1 million from Canadian resource taxes for the three months endedJune 30, 2020 , compared to$56.4 million in the same period a year ago. Canadian royalty expense decreased to$7.8 million for the three months endedJune 30, 2020 , compared to$11.0 million for the three months endedJune 30, 2019 . The fluctuations in Canadian resource taxes are a result of a decrease in average selling prices and margins, due to the factors discussed in the Overview. The decrease in royalties is due to the reduction in sales revenue. We incurred$26 million in brine inflow management expenses, including depreciation on brine assets, at ourEsterhazy mine during the three months endedJune 30, 2020 , compared to$36 million for the three months endedJune 30, 2019 . We have been effectively managing the brine inflows atEsterhazy 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. 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 shaft at ourEsterhazy mine. Once completed, this will provide us the opportunity to eliminate future brine inflow management costs by closing our K1 and K2 shafts in the future. Our operating rate for potash production was 91% for the current year period, compared to 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 ourColonsay, Saskatchewan mine in the fourth quarter of 2019. Six months endedJune 30, 2020 andJune 30, 2019 The Potash segment's net sales decreased to$1.0 billion for the six months endedJune 30, 2020 , compared to$1.1 billion in the same period a year ago. The decrease was due to lower 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$140 million . Our average selling price was$224 per tonne for the six months endedJune 30, 2020 , compared to$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 increased to 4.5 million tonnes for the six months endedJune 30, 2020 , compared to 4.0 million tonnes in the same period a year ago, due to the factors discussed in the Overview. Gross margin for the Potash segment decreased to$240.7 million for the six months endedJune 30, 2020 , from$366.5 million for the same period in the prior year. Gross margin was unfavorably impacted by approximately$240 million , due to the decrease in average selling prices, partially offset by approximately$50 million , due to the impact of higher sales volumes. Gross margin was also unfavorably impacted by$20 million of fixed 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 endedJune 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 and royalties, as discussed below. We incurred$83.8 million in Canadian resource taxes for the six months endedJune 30, 2020 , compared to$103.3 million in the same period a year ago. Canadian royalty expense decreased to$16.0 million for the six months endedJune 30, 2020 , compared to$22.2 million for the six months endedJune 30, 2019 . The fluctuations in Canadian resource taxes are due to the 37 -------------------------------------------------------------------------------- Table of Contents items discussed in the three-month discussion above. The decrease in Canadian resource taxes and royalties is due to lower average selling prices in the current year. We incurred expense of$59 million , including depreciation on brine assets, related to managing the brine inflows at ourEsterhazy mine during the six months endedJune 30, 2020 , compared to$72 million in the prior year period. Our operating rate was 88% for the current year period, compared to 84% in the prior year period. Mosaic Fertilizantes Net Sales and Gross Margin The following table summarizes the Mosaic Fertilizantes segment's net sales, gross margin, sales volume and selling price. Three months ended Six months endedJune 30 , 2020-2019June 30 , 2020-2019 (in millions, except price per tonne or unit) 2020 2019 Change Percent 2020 2019 Change Percent Net Sales$ 787.0 $ 832.7 $ (45.7) (5) %$ 1,518.1 $ 1,530.7 $ (12.6) (1) % Cost of goods sold 686.3 797.5 (111.2) (14) % 1,350.9 1,443.1 (92.2) (6) % Gross margin$ 100.7 $ 35.2 $ 65.5 186 %$ 167.2 $ 87.6 $ 79.6 91 % Gross margin as a percent of net sales 13 % 4 % 11 6 % Sales volume (in thousands of metric tonnes) Phosphate produced in Brazil 1,161 763 398 52 % 1,860 1,175 685 58 % Potash produced in Brazil 71 81 (10) (12) % 146 153 (7) (5) % Purchased nutrients for distribution 1,326 1,257 69 5 % 2,629 2,301 328 14 % Total Mosaic Fertilizantes Segment Tonnes 2,558 2,101 457 22 % 4,635 3,629 1,006 28 % Realized prices ($/tonne) Average finished product selling price (destination)$ 308 $ 396 $ (88) (22) %$ 328 $ 422 $ (94) (22) % Brazil MAP price (delivered price to third party)$ 314 $ 446 $ (132) (30) %$ 322 $ 464 $ (142) (31) % Purchases ('000 tonnes) DAP/MAP from Mosaic 193 301 (108) (36) % 347 463 (116) (25) % MicroEssentials® from Mosaic 407 356 51 14 % 524 558 (34) (6) % Potash from Mosaic/Canpotex 708 558 150 27 % 1,001 1,010 (9) (1) % Average cost per unit consumed in cost of goods sold: Ammonia (metric tonne)$ 327 $ 378 $ (51) (13) %$ 340 $ 394 $ (54) (14) % Sulfur (long ton)$ 100 $ 196 $ (96) (49) %$ 106 $ 203 $ (97) (48) %
Blended rock (metric tonne)
(37) %$ 71 $ 104 $ (33) (32) % Production volume (in thousands of metric tonnes) 1,078 687 391 57 % 2,032 1,576 456 29 %
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Three months endedJune 30, 2020 andJune 30, 2019 The Mosaic Fertilizantes segment's net sales decreased to$787.0 million for the three months endedJune 30, 2020 , from$832.7 million in the same period a year ago. The decrease in net sales was due to lower sales prices, which unfavorably impacted net sales by approximately$200 million , partially offset by higher sales volumes in the current year period, which favorably impacted net sales by approximately$170 million . Net sales were also unfavorably impacted by foreign currency impacts of approximately$20 million . 38 -------------------------------------------------------------------------------- Table of Contents Our average finished product selling price was$308 per tonne for the three months endedJune 30, 2020 , compared to$396 per tonne for the same period a year ago, due to the decline in global prices described in the Overview. The Mosaic Fertilizantes segment's sales volumes of finished products increased to 2.6 million tonnes for the three months endedJune 30, 2020 , compared to 2.1 million tonnes in the same period a year ago, as a result of the factors described in the Overview. Gross margin for the Mosaic Fertilizantes segment increased to$100.7 million for the three months endedJune 30, 2020 , from$35.2 million in the same period of the prior year. Gross margin increased approximately$65 million in the current year period compared to the current year primarily due to the favorable impact of lower turnaround and idle costs of approximately$50 million due to timing of when these occurred, a favorable impact from foreign currency changes of approximately$40 million , lower raw materials costs of approximately$30 million , and high sales volumes which resulted in a favorable change of approximately$20 million . These were partially offset by the negative impact of approximately$70 million from lower sales prices compared to the prior year period. The Mosaic Fertilizantes segment's production of crop nutrient dry concentrates and animal feed ingredients increased 57%, to 1.1 million tonnes, for the three months endedJune 30, 2020 , from 0.7 million tonnes in the prior year period. For the three months endedJune 30, 2020 , our operating rate increased to 86%, compared to 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. For the three months endedJune 30, 2020 , our Brazilian phosphate rock production increased to 1.1 million tonnes from 0.2 million tonnes for the prior year period. The lower production in the prior year was due to the idling of three of our mines. Six months endedJune 30, 2020 and 2019 The Mosaic Fertilizantes segment's net sales were$1.52 billion for the six months endedJune 30, 2020 , compared to$1.53 billion in the prior year period. Net sales were unfavorably impacted by lower sales prices of approximately$340 million , and foreign currency changes of approximately$50 million partially offset by the favorable impact of higher sales volumes of approximately$380 million . The average finished product selling price decreased$94 per tonne to$328 per tonne for the six months endedJune 30, 2020 , compared to$422 per tonne in the prior year period, primarily due to factors mentioned above in the Overview. The Mosaic Fertilizantes segment's sales volume increased to 4.6 million tonnes for the six months endedJune 30, 2020 , from 3.6 million tonnes in the same period a year ago, due to factors mentioned above in the Overview. Total gross margin for the six months endedJune 30, 2020 , increased to$167.2 million from$87.6 million in the same period in the prior year. In the current year period, gross margin was favorably impacted by foreign currency impacts of approximately$60 million , lower raw materials costs of approximately$50 million , favorable sales volumes of approximately$40 million , and lower turnaround and idle costs of approximately$40 million due to the timing of when these occurred and having returned to normal levels of production. These increases were partially offset by lower sales prices of approximately$110 million in the current year period as compared to the prior year. The Mosaic Fertilizantes segment's production of crop nutrient dry concentrates and animal feed ingredients increased 29% to 2.0 million tonnes for the six months endedJune 30, 2020 , from 1.6 million tonnes in the prior year period. For the six months endedJune 30, 2020 , our operating rate was 63%, the same rate as the prior year period. For the six months endedJune 30, 2020 , our Brazilian phosphate rock production increased to 2.1 million tonnes from 1.0 million tonnes for the same period of the prior year, due to the temporary idling of our mines in the prior year period as discussed in the three month discussion. Corporate, Eliminations and Other In addition to our three operating segments, we assign certain costs to Corporate, Eliminations and Other, which is presented separately in Note 17 to our Notes to Condensed Consolidated Financial Statements. Corporate, Eliminations and Other includes the results of theChina andIndia distribution businesses, intersegment eliminations, including profit on intersegment sales, unrealized mark-to-market gains and losses on derivatives, debt expenses and Streamsong Resort® results of operations. 39 -------------------------------------------------------------------------------- Table of Contents For the three months endedJune 30, 2020 , gross margin for Corporate, Eliminations and Other was$7.0 million , compared to$22.7 million for the same period in the prior year. The change was driven by a net unrealized gain of$9.2 million in the current year period, primarily on foreign currency derivatives, compared to a net unrealized gain of$7.1 million in the prior year period. Results were also impacted by a higher elimination of profit on intersegment sales in the current year period, which contributed to the change from the prior year by approximately$24.8 million . Distribution operations inIndia andChina had revenue of$161.5 million and gross margin of$20.0 million in the current year period, compared to revenue of$133.3 million and gross margin of$10.2 million in the prior year period. The increase in revenue during the current year period compared to the prior year was due to the timing of settlement of certain supply agreements. For the six months endedJune 30, 2020 , gross margin for Corporate, Eliminations and Other was$(44.3) million , compared to$39.6 million for the same period in the prior year. The change was driven by a net unrealized loss of$41.6 million in the current year period, primarily on foreign currency derivatives, compared to a net unrealized gain of$32.0 million in the prior year period. Results were also impacted by a lower elimination of profit on intersegment sales in the current year period, which contributed to the change from the prior year by approximately($11.4) million . Distribution operations inIndia andChina had revenue of$238.3 million and gross margin of$22.0 million in the current year period, compared to revenue of$226.5 million and gross margin of$19.2 million in the prior year period. Other Income Statement Items Three months ended Six months ended June 30, 2020-2019 June 30, 2020-2019 (in millions) 2020 2019 Change Percent 2020 2019 Change Percent Selling, general and administrative expenses$ 95.1 $ 78.1 $ 17.0 22 %$ 163.0 $ 171.6 $ (8.6) (5) % Impairment, restructuring and other expenses - 369.4 (369.4) (100) % - 369.4 (369.4) NM Other operating expense 76.1 21.6 54.5 NM 115.8 35.5 80.3 NM Interest expense (57.0) (53.1) (3.9) 7 % (107.8) (108.0) 0.2 0 % Interest income 7.7 7.1 0.6 8 % 17.4 15.0 2.4 16 % 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 Benefit from income taxes (2.7) (51.7) 49.0 (95) % (135.7) (5.1) (130.6) NM Equity in net loss of nonconsolidated companies (29.8) (11.2) (18.6) 166 % (49.8) (11.3) (38.5) NM Selling, General and Administrative Expenses Selling, general and administrative expenses were$95.1 million for the three months endedJune 30, 2020 , compared to$78.1 million in the same period of the prior year. The increase was due to approximately$17 million of higher incentive compensation related expense compared to the prior year period. Selling, general and administrative expenses were$163.0 million for the six months endedJune 30, 2020 , compared to$171.6 million in the same period of the prior year. The decrease from the prior year period was due to the reversal of compensation expense of approximately$14 million related to lower total shareholder return-based long-term incentive awards, as the Company did not meet the performance hurdles for vesting in 2019. Other compensation related expense was also approximately$13 million lower for the six months endedJune 30, 2020 , compared to the prior year period. These decreases were partially offset by an increase of approximately$10 million in professional services and higher incentive compensation of approximately$10 million compared to the prior year period. Other Operating Expense For the three months endedJune 30, 2020 , we had other operating expenses of$76.1 million , compared to$21.6 million for the same period in the prior year. The three months endedJune 30, 2020 include approximately$50 million related to asset retirement obligation expense for our closedPlant City, Florida , facility compared to$3 million in the same period of the prior 40 -------------------------------------------------------------------------------- Table of Contents year due to new regulations. The current year period also includes approximately$19 million related to costs for closed and indefinitely idled facilities, partially offset by approximately$7 million received for a legal settlement. For the six months endedJune 30, 2020 , we had other operating expenses of$115.8 million , compared to$35.5 million for the same period in the prior year. In addition to the asset retirement obligation expense and legal settlement received mentioned above, the six months endedJune 30, 2020 include approximately$30 million related to costs for closed and indefinitely idled facilities and an increase of approximately$10 million related to reserves for legal matters. Foreign Currency Transaction Gain (Loss) We recorded a foreign currency transaction gain of$34.1 million and a loss of$180.1 million for the three and six months endedJune 30, 2020 , compared to gains of$20.8 million and$43.4 million for the three and six months endedJune 30, 2019 , respectively. For the three months endedJune 30, 2020 , the gain was primarily the result of the effect of the weakening of theU.S. dollar relative to the Canadian dollar on significantU.S. dollar-denominated intercompany loans, partially offset by the strengthening of theU.S. dollar relative to the Brazilian real on significantU.S. dollar-denominated payables held by our Brazilian subsidiaries. For the six months endedJune 30, 2020 , the loss is primarily the result of the effect of the strengthening of theU.S. dollar relative to the Canadian dollar on significantU.S. dollar-denominated intercompany loans and the strengthening of theU.S. dollar relative to the Brazilian real on significantU.S. dollar-denominated payables held by our Brazilian subsidiaries. A portion of these foreign currency gains and losses recorded in the Condensed Consolidated Statement of (Loss) Earnings are offset in Accumulated Other Comprehensive Income (Loss) in equity. Equity in Net (Loss) Earnings of Nonconsolidated Companies For the three and six months endedJune 30, 2020 , we had equity in net loss of nonconsolidated companies of$29.8 million and$49.8 million , respectively, compared to equity in net loss of nonconsolidated companies of$11.2 million and$11.3 million for the same periods in the prior year. This loss is primarily related to operations at MWSPC, which had lower production caused by a temporary shutdown at the beneficiation plant during the current year quarter. Provision for (Benefit from) Income Taxes Three months ended Effective Tax Rate Provision for (Benefit from) Income Taxes June 30, 2020 (3.7) % $ (2.7) June 30, 2019 19.1 % $ (51.7) Six months ended Effective Tax Rate Provision for (Benefit from) Income Taxes June 30, 2020 55.6 % $ (135.7) June 30, 2019 5.4 % $ (5.1) Income tax expense was a benefit of$2.7 million and the effective tax rate was (3.7)% for the three months endedJune 30, 2020 . For the three months endedJune 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 theU.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 41
-------------------------------------------------------------------------------- Table of Contents than including them in the consolidated effective tax rate. For the three months endedJune 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. For the six months endedJune 30, 2020 , tax expense specific to the period was a benefit of approximately$30.8 million . This consisted primarily of a 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 theU.S. , including foreign tax credits for various taxes incurred. Critical Accounting Estimates The Condensed Consolidated Financial Statements are prepared in conformity with GAAP. In preparing the Condensed Consolidated Financial Statements, we are required to make various judgments, estimates and assumptions that could have a significant impact on the results reported in the Condensed Consolidated Financial Statements. We base these estimates on historical experience and other assumptions believed to be reasonable by management under the circumstances. Changes in these estimates could have a material effect on our Condensed Consolidated Financial Statements. The basis for our financial statement presentation, including our significant accounting estimates, is summarized in Note 2 to the Condensed Consolidated Financial Statements in this report. A summary description of our significant accounting policies is included in Note 2 to the Consolidated Financial Statements in our 10-K Report. Further detailed information regarding our critical accounting estimates is included in Management's Discussion and Analysis of Results of Operations and Financial Condition in our 10-K Report. Liquidity and Capital Resources As ofJune 30, 2020 , we had cash and cash equivalents of$1.1 billion , short-term debt of$0.6 billion , long-term debt, including current maturities, of approximately$4.6 billion , and stockholders' equity of approximately$8.7 billion . We have a target liquidity buffer of up to$3.0 billion , including cash and available committed credit lines. We expect our liquidity to fluctuate from time to time, especially in the first quarter of each year, to manage through the seasonality of our business. We also target debt leverage ratios that are consistent with investment grade credit ratings. Our capital allocation priorities include maintaining our investment grade ratings and financial strength, sustaining our assets, including ensuring the safety and reliability of our assets, investing to grow our business, either through organic growth or taking advantage of strategic opportunities, and returning excess cash to shareholders, including paying our dividend. During the six months endedJune 30, 2020 , we invested$520.7 million in capital expenditures. Funds generated by operating activities, available cash and cash equivalents, and our credit facilities continue to be our most significant sources of liquidity. We believe funds generated from the expected results of operations and available cash, cash equivalents and borrowings under our credit facilities, as needed, will be sufficient to finance our operations, including our capital expenditures, existing strategic initiatives and expected dividend payments, for the next 12 months. There can be no assurance, however, that we will continue to generate cash flows at or above current levels. As ofJune 30, 2020 , we had$1.99 billion available under our$2.0 billion revolving credit facility. Our credit facilities, including the revolving credit facility and our term loans, require us to maintain certain financial ratios, as discussed in Note 10 of our Notes to Consolidated Financial Statements in our 10-K Report. We were in compliance with these ratios as ofJune 30, 2020 . All of our cash and cash equivalents are diversified in highly rated investment vehicles. Our cash and cash equivalents are held either in theU.S. or held by non-U.S. subsidiaries and are not subject to significant foreign currency exposures, as the majority are held in investments denominated inU.S. dollars as ofJune 30, 2020 . These funds may create foreign currency transaction gains or losses, however, depending on the functional currency of the entity holding the cash. In addition, there are no significant restrictions that would preclude us from bringing these funds back to theU.S. , aside from withholding taxes. 42
-------------------------------------------------------------------------------- Table of Contents The following table represents a comparison of the net cash provided by operating activities, net cash provided by or used in investing activities, and net cash used in or provided by financing activities for the six months endedJune 30, 2020 andJune 30, 2019 : Six months ended (in millions) June 30, 2020 2020-2019 Cash Flow 2020 2019 Change Percent Net cash provided by operating activities$ 1,003.6 $ 331.8 $ 671.8 NM Net cash used in investing activities (527.6) (687.6) 160.0 (23) Net cash provided by (used in) financing activities 167.6 (121.5) 289.1 NM Operating Activities During the six months endedJune 30, 2020 , net cash provided by operating activities was$1,003.6 million , compared to$331.8 million for the six months endedJune 30, 2019 . Our results of operations, after non-cash adjustments to net earnings, contributed$546 million to cash flows from operating activities during the six months endedJune 30, 2020 , compared to a contribution of$729.9 million as computed on the same basis for the prior year period. During the six months endedJune 30, 2020 , we had a favorable working capital change of$457.6 million , compared to an unfavorable change of$398.1 million during the six months endedJune 30, 2019 . The change in working capital for the six months endedJune 30, 2020 , was primarily driven by an increase in accounts payable and accrued expenses of$391.0 million , a decrease in accounts receivables of$42.8 million and a decrease in other current and noncurrent assets of$55.0 million , partially offset by an increase in inventories of$70.6 million . The increase in accounts payable was primarily due to an increase in product purchases by our international locations, as they build for their high seasons. Accrued expenses increased due to liabilities associated with customer prepayments inBrazil , as they prepare for their high season. The decrease in accounts receivables was driven primarily by lower selling prices and timing of receipts, as we had fewer days outstanding atJune 30, 2020 . The decrease in other current and noncurrent assets is due to the receipt of tax refunds in the current period. The increase in inventories was primarily due to building inventory volumes in our international locations. Investing Activities Net cash used in investing activities was$527.6 million for the six months endedJune 30, 2020 , compared to$687.6 million for the same period a year ago. We had capital expenditures of$520.7 million for the six months endedJune 30, 2020 , compared to$608.8 million in the prior year period. The decrease was due to deferring certain capital projects until later in the year and the timing of payments. Financing Activities Net cash provided by financing activities for the six months endedJune 30, 2020 , was$167.6 million , compared to$121.5 million for the same period in the prior year. For the six months endedJune 30, 2020 , we had net proceeds from borrowings on short-term debt of$573.5 million , compared to$81.8 million in the prior year. During the current year, to increase available cash on hand, we entered into short-term inventory and accounts receivable financing agreements under which we borrowed$101.5 million and$350.3 million , respectively, and had other short-term net borrowings of$121 million . In response to the economic uncertainty created by the Covid-19 outbreak, we drew$400 million on our revolving credit facility in the first quarter of 2020, which was repaid in the current quarter. We had net payments on structured accounts payable of$336.3 million , compared to$152.7 million in the prior year period. We also paid dividends of$37.9 million in the current year period. We have not made any repurchases of our Common Stock during the six months of 2020. 43
-------------------------------------------------------------------------------- Table of Contents Debt Instruments, Guarantees and Related Covenants See Notes 12 and 18 to the Consolidated Financial Statements in our 10-K Report. Financial Assurance Requirements In addition to various operational and environmental regulations related to our Phosphates segment, we are subject to financial assurance requirements. In various jurisdictions in which we operate, particularlyFlorida andLouisiana , we are required to pass a financial strength test or provide credit support, typically in the form of surety bonds, letters of credit, certificates of deposit or trust funds. Further information regarding financial assurance requirements is included in Management's Discussion and Analysis of Results of Operations and Financial Condition in our 10-K Report, under "EPA RCRA Initiative," and in Note 8 to our Condensed Consolidated Financial Statements in this report. Off-Balance Sheet Arrangements and Obligations Information regarding off-balance sheet arrangements and obligations is included in Management's Discussion and Analysis of Results of Operations and Financial Condition in our 10-K Report and Note 15 to our Condensed Consolidated Financial Statements in this report. Contingencies Information regarding contingencies is hereby incorporated by reference to Note 16 to our Condensed Consolidated Financial Statements in this report. 44 -------------------------------------------------------------------------------- Table of Contents Forward-Looking Statements Cautionary Statement Regarding Forward Looking Information All statements, other than statements of historical fact, appearing in this report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements include, among other things, statements about our expectations, beliefs, intentions or strategies for the future, including statements about proposed or pending future transactions or strategic plans, statements concerning our future operations, financial condition and prospects, statements regarding our expectations for capital expenditures, statements concerning our level of indebtedness and other information, and any statements of assumptions regarding any of the foregoing. In particular, forward-looking statements may include words such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "potential", "predict", "project" or "should". These statements involve certain risks and uncertainties that may cause actual results to differ materially from expectations as of the date of this filing. Factors that could cause reported results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following: •business and economic conditions and governmental policies affecting the agricultural industry where we or our customers operate, including price and demand volatility resulting from periodic imbalances of supply and demand; •the impact of the recent outbreak of the novel coronavirus Covid-19 on the global economy and our business, suppliers, customers, employee and the communities in which we operate, as further described in Part II, Item 1A of this 10-Q Report; •the sudden and severe drop in oil demand, which could lead to a significant decline in production, and its impact on the availability and price of sulfur, a key raw material input for our Phosphate, segment operations; •because of political and economic instability inBrazil or changes in government policy inBrazil , our operations could be disrupted as higher costs of doing business could result, including those associated with implementation of new freight tables and new mining legislation; •changes in farmers' application rates for crop nutrients; •changes in the operation of world phosphate or potash markets, including continuing consolidation in the crop nutrient industry, particularly if we do not participate in the consolidation; •the expansion or contraction of production capacity or selling efforts by competitors or new entrants in the industries in which we operate, including the effects of actions by members ofCanpotex to prove the production capacity of potash expansion projects, through proving runs or otherwise; •political and economic instability in theKingdom of Saudi Arabia , and in general the future success of current plans for the MWSPC joint venture and any future changes in those plans; •build-up of inventories in the distribution channels for our products that can adversely affect our sales volumes and selling prices; •the effect of future product innovations or development of new technologies on demand for our products; •seasonality in our business that results in the need to carry significant amounts of inventory and seasonal peaks in working capital requirements, and may result in excess inventory or product shortages; •changes in the costs, or constraints on supplies, of raw materials or energy used in manufacturing our products, or in the costs or availability of transportation for our products; •declines in our selling prices or significant increases in costs that can require us to write down our inventories to the lower of cost or market, or require us to impair goodwill or other long-lived assets, or establish a valuation allowance against deferred tax assets; •the effects on our customers of holding high cost inventories of crop nutrients in periods of rapidly declining market prices for crop nutrients; 45 -------------------------------------------------------------------------------- Table of Contents •the lag in realizing the benefit of falling market prices for the raw materials we use to produce our products that can occur while we consume raw materials that we purchased or committed to purchase in the past at higher prices; •customer expectations about future trends in the selling prices and availability of our products and in farmer economics; •disruptions to existing transportation or terminaling facilities, including those ofCanpotex or any joint venture in which we participate; •shortages or other unavailability of railcars, tugs, barges and ships for carrying our products and raw materials; •the effects of and change in trade, monetary, environmental, tax and fiscal policies, laws and regulations; •foreign exchange rates and fluctuations in those rates; •tax regulations, currency exchange controls and other restrictions that may affect our ability to optimize the use of our liquidity; •other risks associated with our international operations, including any potential and actual adverse effects related to the Miski Mayo mine; •adverse weather conditions affecting our operations, including the impact of potential hurricanes, excessive heat, cold, snow, rainfall or drought; •difficulties or delays in receiving, challenges to, increased costs of obtaining or satisfying conditions of, or revocation or withdrawal of required governmental and regulatory approvals, including permitting activities; •changes in the environmental and other governmental regulation that applies to our operations, including federal legislation or regulatory action expanding the types and extent of water resources regulated under federal law and the possibility of further federal or state legislation or regulatory action affecting or related to greenhouse gas emissions, including carbon taxes or other measures that may be implemented inCanada or other jurisdictions in which we operate, or of restrictions or liabilities related to elevated levels of naturally-occurring radiation that arise from disturbing the ground in the course of mining activities or possible efforts to reduce the flow of nutrients into theGulf of Mexico , theMississippi River basin or elsewhere; •the potential costs and effects of implementation of federal or state water quality standards for the discharge of nitrogen and/or phosphorus intoFlorida waterways; •the financial resources of our competitors, including state-owned and government-subsidized entities in other countries; •the possibility of defaults by our customers on trade credit that we extend to them or on indebtedness that they incur to purchase our products and that we guarantee, particularly when we are exiting our business operations or locations that produced or sold the products to that customer; •any significant reduction in customers' liquidity or access to credit that they need to purchase our products; •the effectiveness of the processes we put in place to manage our significant strategic priorities, including the expansion of our Potash business and our investment in MWSPC, and to successfully integrate and grow acquired businesses; •actual costs of various items differing from management's current estimates, including, among others, asset retirement, environmental remediation, reclamation or other environmental obligations and Canadian resource taxes and royalties, or the costs of MWSPC, its existing or future funding and our commitments in support of such funding; •the costs and effects of legal and administrative proceedings and regulatory matters affecting us, including environmental, tax or administrative proceedings, complaints that our operations are adversely impacting nearby farms, businesses, other property uses or properties, settlements thereof and actions taken by courts with respect to approvals of settlements, costs related to defending and resolving global audit, appeal or court activity, and other, and other further developments in legal proceedings and regulatory matters; •the success of our efforts to attract and retain highly qualified and motivated employees; 46
-------------------------------------------------------------------------------- Table of Contents •strikes, labor stoppages or slowdowns by our work force or increased costs resulting from unsuccessful labor contract negotiations, and the potential costs and effects of compliance with new regulations affecting our workforce, which increasingly focus on wages and hours, healthcare, retirement and other employee benefits; •brine inflows at ourEsterhazy, Saskatchewan potash mine, as well as potential inflows at our other shaft mines; •accidents or other incidents involving our properties or operations, including potential fires, explosions, seismic events, sinkholes, unsuccessful tailings management, ineffective mine safety procedures, or releases of hazardous or volatile chemicals; •terrorism or other malicious intentional acts, including cybersecurity risks such as attempts to gain unauthorized access to, or disable, our information technology systems, or our costs of addressing malicious intentional acts; •other disruptions of operations at any of our key production and distribution facilities, particularly when they are operating at high operating rates; •changes in antitrust and competition laws or their enforcement; •actions by the holders of controlling equity interests in businesses in which we hold a noncontrolling interest; •changes in our relationships with other members ofCanpotex or any joint venture in which we participate or their or our exit from participation inCanpotex or any such export association or joint venture, and other changes in our commercial arrangements with unrelated third parties; •the adequacy of our property, business interruption and casualty insurance policies to cover potential hazards and risks incident to our business, and our willingness and ability to maintain current levels of insurance coverage as a result of market conditions, our loss experience and other factors; •difficulties in realizing benefits under our long-term natural gas based pricing ammonia supply agreement withCF Industries, Inc. , including the risks that the cost savings initially anticipated from the agreement may not be fully realized over the term of the agreement or that the price of natural gas or the market price for ammonia during the agreement's term are at levels at which the agreement's natural gas based pricing is disadvantageous to us, compared with purchases in the spot market; and •other risk factors reported from time to time in ourSecurities and Exchange Commission reports. Material uncertainties and other factors known to us are discussed in Item 1A, "Risk Factors," of our 10-K Report for the year endedDecember 31, 2019 and incorporated by reference herein as if fully stated herein. We base our forward-looking statements on information currently available to us, and we undertake no obligation to update or revise any of these statements, whether as a result of changes in underlying factors, new information, future events or other developments. 47 --------------------------------------------------------------------------------
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