THE MOSAIC COMPANY 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, 2020 (the "10-K Report") and the material under Item 1 of Part I of this report. Throughout the discussion below, we measure units of production, sales and raw materials in metric tonnes, which are the equivalent of 2,205 pounds, unless we specifically state we mean long ton(s), which are the equivalent of 2,240 pounds. In the following tables, there are certain percentages that are not considered to be meaningful and are represented by "NM." Results of Operations The following table shows the results of operations for the three months endedMarch 31, 2021 andMarch 31, 2020 : Three
months ended
March 31, 2021-2020
(in millions, except per share data) 2021 2020 Change Percent
Net sales $ 2,297.1 $ 1,798.1 $ 499.0 28 %
Cost of goods sold 1,862.2 1,756.7 105.5 6 %
Gross margin 434.9 41.4 393.5 NM
Gross margin percentage 19 % 2 %
Selling, general and administrative expenses 101.7 67.9 33.8 50 %
Other operating expense 20.0 39.7 (19.7) (50) %
Operating earnings 313.2 (66.2) 379.4 NM
Interest expense, net (45.0) (41.1) (3.9) 9 %
Foreign currency transaction gain (loss) (45.8) (214.2) 168.4 (79) %
Other income 3.0 4.5 (1.5) (33) %
Earnings (loss) from consolidated companies before income taxes
225.4 (317.0) 542.4 NM
Provision for (benefit from) income taxes 59.7 (133.0) 192.7 NM
Earnings (loss) from consolidated companies 165.7 (184.0) 349.7 NM
Equity in net (loss) of nonconsolidated companies (7.5) (20.0) 12.5 (63) %
Net earnings (loss) including noncontrolling interests 158.2
(204.0) 362.2 NM
Less: Net earnings (loss) attributable to noncontrolling interests
1.5 (1.0) 2.5 NM
Net earnings (loss) attributable to Mosaic $ 156.7 $ (203.0) $ 359.7 NM
Diluted net earnings (loss) per share attributable to Mosaic
$ 0.41 $ (0.54) $ 0.95 NM Diluted weighted average number of shares outstanding 382.8
378.8
Overview of Consolidated Results for the three months endedMarch 31, 2021 and 2020 For the three months endedMarch 31, 2021 , Mosaic had net income of$156.7 million , or$0.41 per diluted share, compared to a net loss of$(203.0) million , or$(0.54) per diluted share, for the prior year period. The current period results were negatively impacted by a total of$77 million pre-tax, or$0.16 per diluted share, related to the following notable items: •Foreign currency transaction loss of$46 million , or$(0.09) per diluted share 27
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•Depreciation expense of$22 million , or$(0.04) 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$15 million , or$(0.03) per diluted share, related to maintaining closed and indefinitely idled facilities •Other operating income of$11 million , or$0.02 per diluted share related to recovery of a reserve for the Acquired Business (as defined below) •Unrealized loss on derivatives of$8 million , or$(0.02) per diluted share •Discrete income tax expense of$4 million , or$(0.01) per diluted share •Other non-operating income of$3 million , or$0.01 per diluted share, related to a realized gain on RCRA trust securities During the three months endedMarch 31, 2020 , our results included: •Foreign currency transaction loss of$214 million , or$(0.38) per diluted share •Unrealized loss on derivatives of$51 million , or$(0.09) per diluted share •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$16 million , or$(0.04) per diluted share, related to maintaining closed and indefinitely idled facilities •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) •Idle plant costs of$5 million , or$(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 •Discrete income tax benefit of$28 million , or$0.08 per diluted share •Other non-operating income of$5 million , or$0.01 per diluted share, related to a realized gain on RCRA trust securities 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 for the three months endedMarch 31, 2021 were favorably impacted in our Phosphates segment by significantly higher sales prices than the prior year period. Sales prices have continued to rise, after reaching a low in the first quarter of 2020, driven by tightness in global supply and demand, strong farmer economics and improved grain prices. The segment's operating results were also favorably impacted by higher sales volumes, driven by increased demand inNorth America , due to a strong spring season and decreased competitor shipments intoNorth America . Competitor shipments were impacted by import duties against producers inMorocco andRussia , which resulted from the countervailing duty investigations into imports of phosphate fertilizers discussed further below. The benefit from higher sales prices and volumes was partially offset by higher raw material costs, primarily sulfur, in the current year period compared to the prior year. Availability of molten sulfur has been impacted by refinery closures in 2020 and 2021, due to lower fuel demand and extreme cold weather in the first quarter of 2021 in the southernUnited States , where several refineries are located. We expect availability to be tight throughout 2021, recovering as refinery performance improves. Our operating results during the three months endedMarch 31, 2021 , were favorably impacted in our Potash segment by higher sales volumes compared to the prior year period. Volumes were driven by strong global demand and strong farmer economics. Our Potash segment was also favorably impacted by higher average sales prices inNorth America . Prices began to strengthen inNorth America andBrazil in the fourth quarter of 2020, due to increased demand and tight supply. They have continued to increase in 2021, but have not yet returned to levels seen prior to 2020. This increase has been offset by a decrease in international sales prices. For the three months endedMarch 31, 2021 , operating results were favorably impacted by our Mosaic Fertilizantes segment. Sales prices increased compared to the same period in the prior year, due to the increase in global sales prices and strengthening 28
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market conditions inBrazil , including strong farmer economics that were driven by improved commodity prices and weaker foreign currency rates. Other Highlights •In 2020, we filed petitions with theU.S. Department of Commerce ("DOC") and theU.S. International Trade Commission ("ITC") that requested the initiation of countervailing duty investigations into imports of phosphate fertilizers fromMorocco andRussia . The purpose of the petitions was to remedy the distortions that we believe foreign subsidies have caused or are causing in the U.S. market for phosphate fertilizers, and thereby restore fair competition. OnFebruary 16, 2021 , the DOC made final affirmative determinations that countervailable subsidies were being provided by those governments. OnMarch 11, 2021 , the ITC made final affirmative determinations that theU.S. phosphate fertilizer industry is materially injured by reason of subsidized phosphate fertilizer imports fromMorocco andRussia . As a result of these determinations, the DOC issued countervailing duty orders on phosphate fertilizer imports fromRussia andMorocco , which are scheduled to remain in place for at least five years. currently, the cash deposit rates for such imports are approximately 20 percent for Moroccan producer OCP, 9 percent and 47 percent for Russian producers PhosAgro andEurochem , respectively, and 17 percent for all other Russian producers. The final determinations in the DOC and ITC investigations are subject to possible challenges beforeU.S. federal courts and theWorld Trade Organization , and Mosaic has initiated actions at theU.S. Court of International Trade contesting certain aspects of the DOC's final determinations that, we believe, failed to capture the full extent of Moroccan and Russian phosphate fertilizer subsidies. Further, the cash deposit rates and the amount of countervailing duties owed by importers on such imports could change based on the results of the DOC's annual administrative review proceedings. •InMarch 2021 , we announced an increase in our annual dividend target to$0.30 from$0.20 per share. 29
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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
March 31, 2021-2020
(in millions, except price per tonne or unit) 2021 2020 Change Percent
Net sales:
North America $ 725.7 $ 381.7 $ 344.0 90 %
International 275.3 237.7 37.6 16 %
Total 1,001.0 619.4 381.6 62 %
Cost of goods sold 828.4 702.3 126.1 18 %
Gross margin $ 172.6 $ (82.9) $ 255.5 NM
Gross margin as a percentage of net sales 17 % (13) %
Sales volumes(a) (in thousands of metric tonnes)
DAP/MAP 1,210 1,332 (122) (9) %
Performance and Other(b) 852 587 265 45 %
Total finished product tonnes 2,062 1,919 143 7 %
Rock 265 169 96 57 %
Total Phosphates Segment Tonnes(a) 2,327 2,088 239 11 %
Realized prices ($/tonne)
Average finished product selling price (destination)(a) $ 477 $ 317 $ 160 50 %
DAP selling price (fob mine) $ 426 $ 274 $ 152 55 %
Average cost per unit consumed in cost of goods sold:
Ammonia (metric tonne) $ 316 $ 309 $ 7 2 %
Sulfur (long ton) $ 119 $ 78 $ 41 53 %
Blended rock (metric tonne) $ 61 $ 62 $ (1) (2) %
Production volume (in thousands of metric tonnes) - North
America 1,911 1,861 50 3 %
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(a) Includes intersegment sales volumes.
(b) Includes sales volumes of MicroEssentials® and animal feed ingredients.
Three months ended March 31, 2021 and March 31, 2020
The Phosphates segment's net sales were $1.0 billion for the three months ended
March 31, 2021 , compared to $0.6 billion for the three months ended March 31,
2020 . The increase in net sales in the current year period was primarily due to
favorable sales prices, which had an impact of approximately $300 million
compared to the prior year period. Net sales were also favorably impacted in the
current year by approximately $60 million due to increased sales volumes
compared to the prior year period.
Our average finished product selling price increased 50% to $477 per tonne for
the three months ended March 31, 2021 , compared to $317 per tonne in the prior
year period, due to the factors discussed in the Overview.
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The Phosphates segment's sales volumes of finished products increased by 7% for the three months endedMarch 31, 2021 , 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$172.6 million for the three months endedMarch 31, 2021 , from$(82.9) million for the three months endedMarch 31, 2020 . The increase in gross margin in the current year period was primarily due to significantly higher sales prices, which favorably impacted gross margin by approximately$300 million , compared to the prior year period. This was partially offset by the unfavorable impact of approximately$40 million from increased raw material prices, largely driven by sulfur as discussed in the Overview. The average consumed price for ammonia for our North American operations increased to$316 per tonne for the three months endedMarch 31, 2021 , from$309 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 increased by more than 50% to$119 per long ton for the three months endedMarch 31, 2021 , from$78 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 endedMarch 31, 2021 , compared to$62 per tonne for the three months endedMarch 31, 2020 . For the three months endedMarch 31, 2021 , our North American phosphate rock production decreased to 3.0 million tonnes from 3.4 million tonnes for the same period of the prior year, 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 flat at 1.9 million tonnes for the three months endedMarch 31, 2021 andMarch 31, 2020 . Production volume reflects turnaround activity during the current year period. As a result, we expect sales to remain constrained in the second quarter of 2021 due to limited inventory levels. Our operating rate for processed phosphate production increased to 77% for the three months endedMarch 31, 2021 , from 75% for the same period in 2020. 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
March 31, 2021-2020
(in millions, except price per tonne or unit) 2021 2020 Change Percent
Net sales:
North America $ 313.9 $ 282.5 $ 31.4 11 %
International 163.5 159.1 4.4 3 %
Total 477.4 441.6 35.8 8 %
Cost of goods sold 337.2 332.5 4.7 1 %
Gross margin $ 140.2 $ 109.1 $ 31.1 29 %
Gross margin as a percentage of net sales 29 % 25 %
Sales volume(a) (in thousands of metric tonnes) MOP 1,747 1,709 38 2 % Performance and Other(b) 233 190 43 23 % Total Potash Segment Tonnes 1,980 1,899 81 4 % Realized prices ($/tonne) Average finished product selling price (destination)$ 241 $ 233 $ 8 3 % MOP selling price (fob mine)$ 200 $ 200 $ - 0 % Production volume (in thousands of metric tonnes) 2,285 2,068 217 10 %
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(a) Includes intersegment sales volumes. (b) Includes sales volumes of K-mag, Aspire and animal feed ingredients. Three months endedMarch 31, 2021 andMarch 31, 2020 The Potash segment's net sales increased to$477.4 million for the three months endedMarch 31, 2021 , compared to$441.6 million in the same period a year ago. The increase was due to higher sales volumes, as a result of the factors described in the Overview. The higher sales volumes had a favorable impact on net sales of approximately$35 million . Our average finished product selling price was$241 per tonne for the three months endedMarch 31, 2021 , compared to$233 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 increased to 2.0 million tonnes for the three months endedMarch 31, 2021 , compared to 1.9 million tonnes in the same period a year ago. Gross margin for the Potash segment increased to$140.2 million for the three months endedMarch 31, 2021 , from$109.1 million in the same period of the prior year. The increase in gross margin in the current year period is primarily due to approximately$25 million of higher sales volumes, compared to the prior year period. In addition, the current year period was favorably impacted by approximately$5 million from lower fixed cost absorption, due to higher production, and lower brine inflow costs, partially offset by foreign currency impacts, compared to the prior year period. We had expense of$35.0 million from Canadian resource taxes for the three months endedMarch 31, 2021 , compared to$31.7 million in the same period a year ago. Canadian royalty expense increased to$8.5 million for the three months endedMarch 31, 2021 , compared to$8.2 million for the three months endedMarch 31, 2020 . The fluctuations in Canadian resource taxes are a result of an increase in sales volumes and margins, due to the factors discussed in the Overview. The increase in royalties is due to the increase in sales revenue. We incurred$23 million in brine inflow management expenses, including depreciation on brine assets, at ourEsterhazy mine during the three months endedMarch 31, 2021 , compared to$33 million for the three months endedMarch 31, 2020 . The reduced costs in 2021 are a reflection of our management of brine inflow expense and the accelerated closure of the K1 and K2 shafts atEsterhazy . We remain on track in our development of the K3 shaft at ourEsterhazy mine, which is expected to reach full operational capacity by mid-2022. The completion of K3 will provide us the opportunity to eliminate future brine inflow management costs, which are expected to drop to an immaterial level by the end of 2021. Our operating rate for potash production was 94% for the current year period, compared to 85% in the prior year period. The increased operating rate in the current year period reflects the need to meet strong demand. 32
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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
March 31, 2021-2020
(in millions, except price per tonne or unit) 2021 2020 Change Percent
Net Sales $ 763.4 $ 731.1 $ 32.3 4 %
Cost of goods sold 660.3 664.6 (4.3) (1) %
Gross margin $ 103.1 $ 66.5 $ 36.6 55 %
Gross margin as a percent of net sales 14 % 9 %
Sales volume (in thousands of metric tonnes)
Phosphate produced in Brazil 536 699 (163) (23) %
Potash produced in Brazil 63 75 (12) (16) %
Purchased nutrients for distribution 1,465 1,303 162 12 %
Total Mosaic Fertilizantes Segment Tonnes 2,064 2,077 (13) (1) %
Realized prices ($/tonne)
Average finished product selling price (destination) $ 370 $ 352 $ 18 5 %
Brazil MAP price (delivered price to third party)
$ 330 $ 91 28 % Purchases ('000 tonnes) DAP/MAP from Mosaic 64 154 (90) (58) % MicroEssentials® from Mosaic 203 117 86 74 % Potash from Mosaic/Canpotex 489 293 196 67 %
Average cost per unit consumed in cost of goods sold:
Ammonia (metric tonne)$ 381 $ 352 $ 29 8 % Sulfur (long ton)$ 124 $ 117 $ 7 6 % Blended rock (metric tonne)$ 73 $ 75 $ (2) (3) % Production volume (in thousands of metric tonnes) 885 954 (69) (7) %
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Three months endedMarch 31, 2021 andMarch 31, 2020 The Mosaic Fertilizantes segment's net sales increased to$763.4 million for the three months endedMarch 31, 2021 , from$731.1 million in the same period a year ago. The increase in net sales was due to higher sales prices, which favorably impacted net sales by approximately$30 million . Our average finished product selling price was$370 per tonne for the three months endedMarch 31, 2021 , compared to$352 per tonne for the same period a year ago, due to the increase in global sales prices, favorable market conditions and the mix of products sold. The Mosaic Fertilizantes segment's sales volumes of finished products decreased slightly for the three months endedMarch 31, 2021 , compared to the same period a year ago. Gross margin for the Mosaic Fertilizantes segment increased to$103.1 million for the three months endedMarch 31, 2021 , from$66.5 million in the same period of the prior year. The increase in gross margin was primarily due to a favorable impact of approximately$60 million related to the increase in selling prices during the current year period compared to the prior year period. This was partially offset by an increase in raw material costs, primarily ammonia and sulfur, of approximately$20 million , compared to the prior year period. The purchase prices of these raw materials are driven by global supply and demand. 33
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Gross margin was also negatively impacted by higher production costs of approximately$20 million in the current year period, due to inflationary pressure, higher maintenance costs and lower production volumes compared to the prior year period. In addition, gross margin was favorably impacted from foreign currency changes of approximately$15 in the current year period. The Mosaic Fertilizantes segment's production of crop nutrient dry concentrates and animal feed ingredients decreased 7%, to 0.9 million tonnes, for the three months endedMarch 31, 2021 , from 1.0 million tonnes in the prior year period. For the three months endedMarch 31, 2021 , our operating rate decreased to 73%, compared to 77% in the same period of the prior year. Current year production was impacted by unplanned downtime and lower quality ore. For the three months endedMarch 31, 2021 , our Brazilian phosphate rock production increased to 1.1 million tonnes from 1.0 million tonnes in the prior year period. 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 16 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. For the three months endedMarch 31, 2021 , gross margin for Corporate, Eliminations and Other was$19.0 million , compared to a loss of$51.3 million for the same period in the prior year. The change was driven by distribution operations inIndia andChina , which had revenue of$159.6 million and gross margin of$30.3 million in the current year period, compared to revenue of$76.5 million and gross margin of$2.0 million in the prior year period. The increases in revenue and gross margin during the current year period was due to an increase in sales volumes over the prior year period, primarily inChina , due to strong demand and due high agriculture commodity prices. Gross margin was negatively impacted by a net unrealized loss of$8.1 million in the current year period, primarily on foreign currency derivatives, compared to a net unrealized loss of$50.8 million in the prior year period.
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