Item 1A. Risk Factors.
Our business, financial condition or results of operations could be materially adversely affected by any of the risks and uncertainties described below.
Operational Risks
Our Esterhazy mine has had an inflow of salt saturated brine for more than 30 years.
Since December 1985, we have had inflows of salt saturated brine into our Esterhazy, Saskatchewan mine. Over the past century, several potash mines experiencing water inflow problems have flooded. In order to control brine inflows at Esterhazy, we have incurred, and will continue to incur, expenditures, certain of which, due to their nature, have been capitalized, while others have been charged to expense.
At various times, we experience changing amounts and patterns of brine inflows at the Esterhazy mine. Periodically, some of these inflows have exceeded available pumping capacity. If that were to continue for several months without abatement, it could exceed our available storage capacity and ability to effectively manage the brine inflow. This could adversely affect production at the Esterhazy mine. The brine inflow is variable, resulting in both net inflows (the rate of inflow is more than the amount we are pumping out of the mine) and net outflows (when we are pumping more brine out of the mine than the rate of inflow). Our mines at Colonsay, Saskatchewan, and Carlsbad, New Mexico, are also subject to the risks of inflow of water as a result of our shaft mining operations.
It is possible that the brine inflows risk to employees or management costs may increase to a level which would cause us to change our mining processes or abandon the mines. See the “Key Factors that can Affect Results of Operations and Financial Condition” and “Potash Net Sales and Gross Margin” sections of our Management’s Analysis, which sections are incorporated herein by reference, for a discussion of costs, risks and other information relating to the brine inflows.
The Covid-19 pandemic may materially adversely affect our business operations and financial condition
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus Covid-19 that spread across the globe a pandemic. 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” or similar orders, which generally direct individuals to remain at their places of residence. The Covid-19 pandemic could significantly disrupt our operations, key suppliers or third-party logistics providers, customers and ultimate end-users due to the spread of the virus, shelter in place orders, quarantines or other measures implemented to prevent the spread of the virus. In some instances, the pandemic has impacted our business. As part of government mandates, our Patrocinio operations in Brazil and Miski Mayo operations in Peru were temporarily suspended at the onset of the pandemic. Patrocinio restarted operations on April 7, 2020, and Miski Mayo resumed operations on May 13, 2020. We also delayed planned maintenance at certain locations until the fourth quarter of 2020 which resulted in increased costs.
At this time, the Company has only experienced limited adverse financial and operational Covid-19 related conditions, as the production and sale of fertilizer has been deemed by government agencies to be an "essential business" because of the role it plays in the production of food.Farmers are receiving substantial governmental support globally, which could mitigate the potential negative impact on fertilizer demand. We continue to see Covid-19 related risks to logistics, and isolated demand pockets impacted in part by the significant decline in oil prices.
The occurrence of any of these events or an increase in severity to our employees, customers, vendors or supply chain or renewed or stronger "shelter in place" orders, could have a material adverse effect on our business, financial condition and/or results of operations. The extent to which the Covid-19 pandemic impacts our operations and financial results will depend on future developments that are highly uncertain, including new information concerning the severity of the virus and the cost, time and actions taken to contain its impact.
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Other cascading effects of the Covid-19 pandemic that are not currently foreseeable could materially increase our costs, negatively impact our revenue and/or adversely impact our results of operations and liquidity, possibly to a significant degree. We cannot predict the severity or duration of any such impacts. The Covid-19 pandemic could also have the effect of heightening many of the other risks described in this Item 1A of this 2020 10-K Report.
Our operating results are highly dependent upon and fluctuate based upon business and economic conditions and governmental policies affecting the agricultural industry in which we or our customers operate. These factors are outside of our control and may significantly affect our profitability.
The most important of these factors are:
•weather and field conditions (particularly during periods of traditionally high crop nutrients consumption);
•quantities of crop nutrients imported and exported;
•current and projected inventories and prices, which are heavily influenced by U.S. exports and world-wide markets; and
•Governmental policies, including farm and biofuel policies, which may directly or indirectly influence the number of acres planted, the level of inventories, the mix of crops planted or crop prices or otherwise negatively affect our operating results.
International market conditions, which are also outside of our control, may also significantly influence our operating results. The international market for crop nutrients is influenced by such factors as the relative value of the U.S. dollar and its impact upon the cost of importing crop nutrients, foreign agricultural policies, including subsidy policies, the existence of, or changes in, import or foreign currency exchange barriers in certain foreign markets, changes in the hard currency demands of certain countries and other regulatory policies of foreign governments, as well as the laws and policies of the United States affecting foreign trade and investment, including use of tariffs. On June 26, 2020, we filed petitions with the U.S. Department of Commerce and the U.S. International Trade Commission (ITC) that requested the initiation of countervailing duty investigations into imports of phosphate fertilizers from Morocco and Russia. The purpose of the petitions is to remedy the distortions that foreign subsidies are causing in the U.S. market for phosphate fertilizers, and thereby restore fair competition. The U.S. Department of Commerce and the ITC conducted investigations in response to Mosaic’s petitions. On February 9, 2021, the U.S. Department of Commerce determined final subsidy rates. A final determination by the ITC as to whether these subsidized imports has harmed or threatens to harm the U.S. phosphate industry is expected in March 2021. If Mosaic is not successful in its petitions, it could have an adverse effect on our business, and/or our financial condition or operating results.
Our crop nutrient business is seasonal and varies based on application rates, which may result in carrying significant amounts of inventory and seasonal variations in working capital, and our inability to predict future seasonal crop nutrient demand accurately may result in excess inventory or product shortages.
The use of crop nutrients is seasonal and varies based on application rates. Farmers tend to apply crop nutrients during two short application periods, the strongest one in the spring, before planting, and the other in the fall, after harvest. As a result, the strongest demand for our products typically occurs during the spring planting season, with a second period of strong demand following the fall harvest. In contrast, we and other crop nutrient producers generally produce our products throughout the year. As a result, we and/or our customers generally build inventories during the low demand periods of the year in order to ensure timely product availability during the peak sales seasons. The seasonality of crop nutrient demand results in our sales volumes and net sales typically being the highest during the North American spring season and our working capital requirements typically being the highest just prior to the start of the spring season. Our quarterly financial results can vary significantly from one year to the next due to weather-related shifts in planting schedules and purchasing patterns.
If seasonal demand exceeds our projections, we will not have enough product and our customers may acquire products from our competitors, which would negatively impact our profitability. If seasonal demand is less than we expect, we will be left with excess inventory and higher working capital and liquidity requirements. The degree of seasonality of our business can change significantly from year to year due to conditions in the agricultural industry and other factors.
Changes in transportation costs can affect our sales volumes and selling prices.
The cost of delivery is a significant factor in the total cost to customers and farmers of crop nutrients. As a result, changes in
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transportation costs, or in customer expectations about them, can affect our sales volumes and prices.
A disruption to our production, distribution or terminaling facilities could have a material adverse impact on our business. The risk of material disruption increases when demand for our products results in high operating rates at our facilities.
We conduct our operations through a limited number of key production, distribution and terminaling facilities. These facilities include our phosphate mines and concentrates plants; our potash mines; and the ports and other distribution facilities through which we, Canpotex and the other joint ventures in which we participate, conduct our respective businesses, as well as other commercial arrangements with unrelated third parties. Any disruption of operations at any one of these facilities has the possibility of significantly negatively affecting our production or our ability to distribute our products.
Examples of the types of events that could result in a disruption at one of these facilities include: adverse weather; strikes or other work stoppages; deliberate, malicious acts, including acts of terrorism; political or economic instability; cyberattacks; changes in permitting, financial assurance or certain environmental, health and safety laws or other changes in the regulatory environment in which we operate; legal and regulatory proceedings; our relationships with the other member of Canpotex and the other joint ventures in which we participate and their or our exit from participation in such joint ventures; other changes in our commercial arrangements with unrelated third parties; brine inflows at our Esterhazy, Saskatchewan, mine or our other shaft mines; mechanical failure and accidents or other failures occurring in the course of operating activities, including at our gypstacks, clay settling areas and tailing dams; accidents occurring in the course of operating activities; lack of truck, rail, barge or ship transportation; and other factors.
Reduced oil refinery operating rates in the United States could have a material adverse impact on our business, financial condition or operating results.
Reduced oil refinery operating rates in the U.S. could result in decreased availability of molten sulfur, which could increase costs of sulfur procurement or decrease availability of sulfur needed in our phosphate fertilizer production operations. While we have not yet become subject to such results in the sulfur procurement markets, if it becomes necessary to procure sulfur at higher costs, and if we are unable to pass those costs on in our product prices, or if we are unable to procure sulfur at volumes necessary for our operations, such events could have a material adverse effect on our phosphate business, and/or our financial condition or operating results.
Important raw materials and energy used in our businesses in the past have been and may in the future be the subject of volatile pricing. Changes in the price of our raw materials have had, and could again have, a material impact on our businesses.
Natural gas, ammonia and sulfur are key raw materials used in the manufacture of phosphate crop nutrient products. Natural gas is used as both a chemical feedstock and a fuel to produce anhydrous ammonia, which is a raw material used in the production of concentrated phosphate products. Natural gas is also a significant energy source used in the potash solution mining process. From time to time, our profitability has been and may in the future be impacted by the price and availability of these raw materials and other energy costs. Because most of our products are commodities, there can be no assurance that we will be able to pass through increased costs to our customers. A significant increase in the price of natural gas, ammonia, sulfur or energy costs that is not recovered through an increase in the price of our related crop nutrients products could have a material adverse impact on our business. In addition, under our long-term CF Ammonia Supply Agreement we have agreed to purchase approximately 545,000 to 725,000 tonnes of ammonia per year during a term that may extend until December 31, 2032, and at a price to be determined by a formula based on the prevailing price of U.S. natural gas. If the price of natural gas rises or the market price for ammonia falls outside of the range anticipated at execution of this agreement, we may not realize a cost benefit from the natural gas-based pricing over the term of the agreement, or the cost of our ammonia under the agreement could become a competitive disadvantage. At times, we have paid considerably more for ammonia under the agreement than what we would have paid had we purchased it in the spot market.
We are subject to risks associated with our international sales and operations, which could negatively affect our sales to customers in foreign countries as well as our operations and assets in foreign countries. Some of these factors may also make it less attractive to distribute cash generated by our operations outside the United States to our stockholders, or to utilize cash generated by our operations in one country to fund our operations or repayments of
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indebtedness in another country or to support other corporate purposes.
For 2020, we derived approximately 70% of our net sales from customers located outside of the United States. As a result, we are subject to numerous risks and uncertainties relating to international sales and operations, including:
•difficulties and costs associated with complying with a wide variety of complex laws, treaties and regulations;
•unexpected changes in regulatory environments;
•increased government ownership and regulation of the economy in the countries we serve;
•political and economic instability, including the possibility for civil unrest, inflation and adverse economic conditions resulting from governmental attempts to reduce inflation, such as imposition of higher interest rates and wage and price controls;
•unpredictable tax audit practices of various governments;
•nationalization of properties by foreign governments;
•the imposition of tariffs, exchange controls, trade barriers or other restrictions, or government-imposed increases in the cost of resources and materials necessary for the conduct of our operations or the completion of strategic initiatives, including with respect to our joint ventures; and
•currency exchange rate fluctuations between the U.S. dollar and foreign currencies, particularly the Brazilian real and the Canadian dollar.
The occurrence of any of the above in the countries in which we operate or elsewhere could jeopardize or affect our ability to transact business there and could adversely affect our revenues and operating results and the value of our assets located outside of the United States.
In addition, tax regulations and tax audit practices, currency exchange controls and other restrictions may also make it economically unattractive to:
•distribute cash generated by our operations outside the United States to our stockholders; or
•utilize cash generated by our operations in one country to fund our operations or repayments of indebtedness in another country or to support other corporate purposes.
Our assets outside of North America are located in countries with volatile conditions, which could subject us and our assets to significant risks.
We are a global business with substantial assets located outside of the United States and Canada. Our operations in Brazil, China, India and Paraguay are a fundamental part of our business. We have a majority interest in the joint venture entity operating the Miski Mayo mine in Peru that supplies phosphate rock to us. We also have a joint venture investment in MWSPC, which operates a mine and chemical complexes that produce phosphate fertilizers and other downstream products in the Kingdom of Saudi Arabia. Volatile economic, political and market conditions in these and other emerging market countries may have a negative impact on our operations, operating results and financial condition. In addition, unfavorable changes in trade protection laws, policies and measures, or governmental actions and policies and other regulatory requirements affecting trade and the pricing and sourcing of our raw materials, may also have a negative impact on our operations, operating results and financial condition.
Natural resource extraction is an important part of the economy in Peru, and, in the past, there have been protests against other natural resource operations in Peru. There remain numerous social conflicts that exist within the natural resource sector in Peru. As a result, there is potential for active protests against natural resource companies. If the Government of Peru’s proactive efforts to address the social and environmental issues surrounding natural resource activities are not successful, protests could extend to or impact the Miski Mayo mine and adversely affect our interest in the Miski Mayo joint venture or the supply of phosphate rock to us from the mine.
Adverse weather conditions, including the impact of hurricanes, and excess heat, cold, snow, rainfall and drought, have in the past, and may in the future, adversely affect our operations, and result in increased costs, decreased sales or production and potential liabilities.
Adverse weather conditions, including the impact of hurricanes and excess heat, cold, snow, rainfall and drought, have in the
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past and may in the future adversely affect our operations, particularly our Phosphates business. In the past, hurricanes have resulted in physical damage to our facilities in Florida and Louisiana.
Additionally, water treatment costs due to high water balances, tend to increase significantly following excess rainfall from hurricanes or other adverse weather. Some of our Florida and Louisiana facilities have had, and others could have, high water levels that have required, or may require, treatment. High water balances in the past at phosphate facilities in Florida also led the Florida Department of Environmental Protection (“FDEP”) to adopt rules requiring phosphate production facilities to meet more stringent process water management objectives for phosphogypsum stack systems.
If excess rainfall or hurricanes occur in coming years, our facilities may be required to take additional measures to manage process water to comply with existing or future requirements and these measures could potentially have a material effect on our business and financial condition.
Adverse weather may also cause a loss of production due to disruptions in our supply chain or adversely affect delivery of our products to our customers. For example, oil refineries that supply sulfur to us may suspend operations as a result of a hurricane, and incoming shipments of ammonia can be delayed, disrupting production at our Florida or Louisiana facilities and delivery of our products.
Excess rainfall and drought have in the past, and may in the future adversely affect us. For example, in 2019, we experienced the wettest year in North America in nearly 50 years which reduced fertilizer applications by farmers. Excess rainfall also resulted in higher river levels which adversely affected delivery of our products. Drought can reduce farmers’ crop yields and the uptake of phosphates and potash, reducing the need for application of additional phosphates and potash for the next planting season. Drought can also lower river levels, adversely affecting delivery of our products to our customers.
We do not own a controlling equity interest in our non-consolidated companies, some of which are foreign companies, and therefore our operating results and cash flow may be materially affected by how the governing boards and majority owners operate such businesses. There may also be limitations on monetary distributions from these companies that are outside of our control. Together, these factors may lower our equity earnings or cash flow from such businesses and negatively impact our results of operations.
In 2013, we entered into an agreement to form MWSPC, a joint venture in which we hold a 25% interest, to develop a mine and chemical complexes for an estimated $8.0 billion that produces phosphate fertilizers and other downstream products in the Kingdom of Saudi Arabia. The success of MWSPC will depend on, among other matters, the completion of development and full commencement of operations of production facilities in the Kingdom of Saudi Arabia, the future success of current plans for completion of the development and for the operation of MWSPC, including the availability and affordability of necessary resources and materials and access to appropriate infrastructure, and any future changes in those plans, as well as the general economic and political stability of the region.
We also hold minority ownership interests in other companies that are not controlled by us. We expect that the operations and results of MWSPC will be, and the operations or results of some of the other companies are, significant to us, and their operations can affect our earnings. Because we do not control these companies either at the board or stockholder levels and because local laws in foreign jurisdictions and contractual obligations may place restrictions on monetary distributions by these companies, we cannot ensure that these companies will operate efficiently pay dividends, or generally follow the desires of our management by virtue of our board or stockholder representation. As a result, these companies may contribute less than anticipated to our earnings and cash flow, negatively impacting our results of operations and liquidity.
Strikes or other forms of work stoppage or slowdown could disrupt our business and lead to increased costs.
Our financial performance is dependent on a reliable and productive work force. A significant portion of our workforce, and that of the joint ventures in which we participate, is covered by collective bargaining agreements with unions. Unsuccessful contract negotiations or adverse labor relations could result in strikes or slowdowns. Any disruption may decrease our production and sales or impose additional costs to resolve disputes. The risk of adverse labor relations may increase as our profitability increases because labor unions’ expectations and demands generally rise at those times.
Accidents occurring in the course of our operating activities could result in significant liabilities, interruptions or
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shutdowns of facilities or the need for significant safety or other expenditures.
We engage in mining and industrial activities that can result in serious accidents. If our safety procedures are not effective, or if an accident occurs, we could be subject to liabilities arising out of property damage, personal injuries or death, our operations could be interrupted and we might have to shut down or abandon affected facilities. Accidents could cause us to expend significant amounts to remediate safety issues or to repair damaged facilities and could result in significant liabilities and/or impact on the financial performance of our Company, including material adverse effect on our results of operations, liquidity or financial condition. For example:
•Some of our facilities are subject to potential damage from seismic activity.
The excavation of mines in some parts of the world can result in potential seismic events or can increase the likelihood or potential severity of a seismic event. Our Esterhazy mine and southern Louisiana facilities have experienced minor seismic events from time to time. A significant seismic event at one our facilities or mines could result in serous injuries or death, or damage to or flooding operations, or damage to adjoining properties or facilities of unrelated third parties.
•Our underground potash shaft mines are subject to risk from fire. In addition, fire at one of our underground shaft mines could halt our operations at the affected mine while we investigate the origin of the fire or for longer periods for remedial work or otherwise.
Our underground potash shaft mines at Esterhazy and Colonsay, Saskatchewan, Carlsbad, New Mexico and Taquari-Vassouras, Brazil are subject to risk from fire. In the event of a fire, if our emergency procedures are not successful, we could have significant injuries or deaths,or shutdowns of our facilities, or could cause us to expend significant amounts to remediate safety issues or repair damaged facilities.
•We handle significant quantities of ammonia at several of our facilities. If our safety procedures are not effective, an accident involving our ammonia operations could result in serious injuries or death, or result in the shutdown of our facilities.
We produce ammonia at our Faustina, Louisiana phosphate concentrates plant, use ammonia in significant quantities at all of our Florida and Louisiana phosphates concentrates plants and store ammonia at some of our distribution facilities. In Florida, ammonia is received at terminals in Tampa and transported by pipelines and trucks to our facilities. We also use ammonia in our Brazil phosphate operations. Our ammonia is generally stored and transported at high pressures or cryogenically.
•We also use or produce other hazardous or volatile chemicals at some of our facilities. If our safety procedures are not effective, an accident involving these other hazardous or volatile chemicals could result in serious injuries or death, or result in the shutdown of our facilities.
We use sulfuric acid in the production of concentrated phosphates in our Florida and Louisiana U.S. operations and our Brazil operations. We also use or produce other hazardous or volatile chemicals at some of our facilities. An accident involving any of these chemicals could result in serious injuries or death, or evacuation of areas near an accident. An accident could also result in property damage or shutdown of our facilities, or cause us to expend significant amounts to remediate safety issues or to repair damaged facilities.
Regulatory Risks
The environmental, health and safety regulations and permitting requirements to which we are subject may have a material adverse effect on our business, financial condition and results of operations.
We are subject to numerous environmental, health and safety laws and regulations in the U.S., Canada, China, Brazil and other countries in which we operate. These laws and regulations govern a wide range of matters, including environmental controls, land reclamation, discharges to air and water, remediation of hazardous substance releases permitting requirements and in some cases, demonstration of financial assurance. They significantly affect our operating activities as well as the level
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of our operating costs and capital expenditures. In some jurisdictions, environmental laws change frequently and it may be difficult for us to determine if we are in compliance with all material environmental laws at any given time. If we are not in compliance, we may be subject to enforcement or third-party claims, and may require new investment in our business. In those circumstances, our financial condition and results of operations may be materially adversely affected.
The U.S. Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) imposes liability, including for cleanup costs, without regard to fault or to the legality of a party’s conduct, on certain categories of persons, including current and former owners and operators of a site and parties who are considered to have contributed to the release of “hazardous substances” into the environment. Under CERCLA, or various U.S. state analogues, a party may, under certain circumstances, be required to bear more than its proportional share of cleanup costs at a site where it has liability if payments cannot be obtained from other responsible parties. As a crop nutrient company producing and managing chemicals, we periodically have incurred and may incur liabilities and cleanup costs, under CERCLA and other environmental laws, with regard to our current or former facilities, adjacent or nearby third-party facilities or offsite disposal locations.
Our operations, including our mines, are dependent on having the required permits and approvals from governmental authorities. Denial or delay by a government agency in issuing, modifying or renewing any of our permits and approvals or imposition of restrictive or cost prohibitive conditions on us with respect to these permits and approvals may impair our business and operations and could have a material adverse effect on our business, financial condition or results of operations.
We have included additional discussion about permitting for our phosphate mines in Florida under “Environmental, Health, Safety and Security Matters—Operating Requirements and Impacts—Permitting” in our Management’s Analysis.
We are, and may in the future be, involved in legal and regulatory proceedings that could be material to us.
We have in the past been, are currently and, in the future may be, subject to legal and regulatory proceedings that could be material to our business, results of operations, liquidity or financial condition. Joint ventures in which we participate could also become subject to these sorts of proceedings. These proceedings may be brought by the government or private parties and may arise out of a variety of matters, including:
•Allegations that we have violated environmental, health and safety laws and regulations or that we are responsible for nuisance or other conditions on nearby properties. We are currently involved in proceedings alleging that, or to review whether, we have violated environmental laws in the United States and Brazil.
•Allegations by private parties that our operations have resulted in personal injury, property damage or damage to business operations.
•Antitrust, commercial, tax (including tax audits) and other disputes.
The legal and regulatory proceedings to which we are currently or may in the future be subject may, depending on the circumstances, result in monetary damage awards, fines, penalties, other liabilities, injunctions or other court or administrative rulings that interrupt, impede or otherwise materially affect our business operations or criminal sanctions.
We have included additional information with respect to pending legal and regulatory proceedings in Note 24 of our Notes to Consolidated Financial Statements and in this Form 10-K Report in Part I, Item 3, “Legal Proceedings”.
Environmental, health and safety and food and crop laws and regulations to which we are subject may become more stringent over time. This could increase the effects on us of these laws and regulations, and the increased effects could be materially adverse to our business, operations, liquidity and/or results of operations.
Heightened regulation on food and crop inputs (including crop nutrients) and environmental, health and safety issues in the United States, Canada, China, Brazil, Paraguay and other countries where we operate can be expected to result in requirements that apply to us and our operations that may be more stringent than those described elsewhere in this report. These requirements may include;
•Increased levels of future investments and expenditures for environmental controls at ongoing operations, which will be charged against income from future operations; increased levels of the financial assurance requirements to which we are subject, and increased efforts or costs to obtain permits or denial of permits.
•New or interpretations of existing statutes or regulations that impose new or more stringent standards, restrictions or
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liabilities related to elevated levels of naturally-occurring radiation that arise on formerly mined land; and other matters that could increase our expenses, capital requirements or liabilities or adversely affect our business, liquidity or financial condition.
In addition, to the extent restrictions imposed in countries where our competitors operate, such as China, India, Former Soviet Union countries or Morocco, are less stringent than in the countries where we operate, our competitors could gain cost or other competitive advantages over us. These effects could be material.
We are subject to financial assurance requirements as part of our routine business operations. If we were unable to satisfy financial assurance requirements, we might not be able to obtain or maintain permits we need to operate our business as we have in the past. In addition, our compliance with these requirements could materially affect our business, results of operations or financial condition.
In many cases, as a condition to obtaining or maintaining permits and approvals or otherwise, we are required to comply with financial assurance requirements of governmental authorities. The purpose of these requirements is to provide comfort to the government that sufficient funds will be available for the ultimate closure, post-closure care or reclamation of our facilities.
In some cases, we are able to comply through the satisfaction of applicable state financial strength tests. But, if we are unable to do so, we must utilize alternative methods of complying with these requirements; if we do not,we would be prevented from continuing our mining operations and also could be subject to enforcement proceedings brought by relevant government agencies. Potential alternative methods of compliance include providing credit support in the form of cash escrows or trusts, surety bonds from surety or insurance companies, letters of credit from banks, or other forms of financial instruments or collateral to satisfy the financial assurance requirements.In addition, we could negotiate a consent agreement that establishes a different form of financial assurance. Use of alternative means of financial assurance imposes additional expense on us. Some of them, such as letters of credit, also use a portion of our available liquidity. Other alternative means of financial assurance, such as surety bonds, generally require us to obtain a discharge of the bonds or to post additional collateral (typically in the form of cash or letters of credit) at the request of the issuer of the bonds. Collateral that is required may be in forms that utilize a portion of our available liquidity, or in the form of assets such as real estate, which reduces our flexibility to manage or sell assets.
We have included additional discussion about financial assurance requirements under “Off Balance Sheet Arrangements and Obligations—Other Commercial Commitments” in our Management’s Analysis.
Regulatory restrictions on greenhouse gas emissions and climate change regulations in the United States, Canada or elsewhere could adversely affect us, and these effects could be material.
Various governmental initiatives to limit greenhouse gas emissions are under way or under consideration around the world. These initiatives could restrict our operating activities, require us to make changes in our operating activities that would increase our operating costs, reduce our efficiency or limit our output, require us to make capital improvements to our facilities, increase our energy, raw material and transportation costs or limit their availability, or otherwise adversely affect our results of operations, liquidity or capital resources, and these effects could be material to us.
Governmental greenhouse gas emission initiatives include, among others, the December 2015 agreement (the “Paris Agreement” which was the outcome of the 21st session of the Conference of the Parties under the United Nations Framework Convention on Climate Change (“UNFCCC”). The Paris Agreement, which was signed by nearly 200 nations, including the United States and Canada, entered into force in late 2016 and sets out a goal of limiting the average rise in temperatures for this century to below 2 degrees Celsius. Each signatory is expected to develop its own plan (referred to as a Nationally Determined Contribution, or “NDC”) for reaching that goal.
In May 2017, the United States President announced that the United States would withdraw from the Paris Agreement. The country’s withdrawal was effective November 2020. On January 20, 2021, the current U.S. President signed an order to rejoin the Paris Agreement. Previously, the United States had submitted an NDC aiming to achieve, by 2025, an economy-wide target of reducing greenhouse gas emissions by 26-28% below its 2005 level. The NDC also aims to use best efforts to reduce emissions by 28%. The U.S. target covers all greenhouse gases that were a part of the 2014 Inventory ofGreenhouse Gas Emissions and Sinks. While the extent of the U.S.'s involvement in the Paris Agreement and the status of this NDC is unclear, various legislative or regulatory initiatives relating to greenhouse gases have been adopted or considered by the U.S. Congress, the EPA or various states and those initiatives already adopted may be used to implement a U.S. NDC. Additionally, more stringent laws and regulations may be enacted to accomplish the goals set out in the NDC.
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Brazil ratified the Paris Agreement on September 21, 2016, committing to an NDC that includes an economy-wide target of 1.3 GtCO2e by 2025 and 1.2 GtCO2e by 2030. In 2020 Brazil submitted a new NDC, which reaffirms the country’s commitment to reducing total net greenhouse gas emissions by 37% in 2025 and by 43% in 2030. The NDC further commits to achieving climate neutrality in 2060. Complete details surrounding Brazil’s plan for achieving the greenhouse gas emissions reductions and climate neutrality are uncertain. The government of Brazil may intervene with new or different policy instruments to meet the goals set out in the 2020 NDC.
Canada’s intended NDC aims to achieve, by 2030, an economy-wide target of reducing greenhouse gas emissions by 30% below 2005 levels. The Canadian Government has also introduced legislation establishing a long-term target of “net-zero” Greenhouse Gas Emissions by 2050. More stringent laws and regulations may be enacted to accomplish the goals set out in Canada’s NDC and Canada’s own long-term emissions reduction targets.
It is possible that future legislation or regulation addressing climate change, including in response to the Paris Agreement or any new international agreements, could adversely affect our operating activities, energy, raw material and transportation costs, results of operations, liquidity or capital resources, and these effects could be material or adversely impact our competitive advantage. In addition, to the extent climate change restrictions imposed in countries where our competitors operate, such as India, Former Soviet Union countries or Morocco, are less stringent than in the United States or Canada, our competitors could gain cost or other competitive advantages over us.
Future climate change could adversely affect us.
The prospective impact of climate change on our operations and those of our customers and farmers remains uncertain. Scientists have hypothesized that the impacts of climate change could include changes in rainfall patterns, water shortages, changing sea levels, changing storm patterns and intensities, and changing temperature levels and that these changes could be severe. These impacts could vary by geographic location. Severe climate change could impact our costs and operating activities, the location and cost of global grain and oilseed production, and the supply and demand for grains and oilseeds. At the present time, we cannot predict the prospective impact of climate change on our results of operations, liquidity or capital resources, or whether any such effects could be material to us.
We use tailings, sediments and water dams to manage residual materials generated by our Brazilian mining operations. If our safety procedures are not effective, an accident involving these impoundments could result in serious injuries or death, damage to property or the environment, or result in the shutdown of our facilities, any of which could materially adversely affect our results of operations in Brazil.
Mining and processing of potash and phosphate generate residual materials that must be managed both during the operation of the facility and upon facility closure. Potash tailings, consisting primarily of salt and clay, are stored in surface disposal sites. Phosphate clay residuals from mining in Brazil are deposited in large tailing dams. They are regularly monitored to evaluate structural stability and for leaks. The failure of any of our 11 tailings dams and other impoundments at any of our Brazilian mining operations could cause severe property and environmental damage and loss of life.
Legislation at both Brazilian federal and state levels has introduced new rules regarding tailings dam safety, construction, licensing and operations. We cannot predict the full impact of these legislative or potentially related judicial actions, or future actions, or whether or how it would affect our Brazilian operations or customers.
Any accident involving our Brazilian tailings or other dams, or any shutdown or idling of our related mines, could have a material adverse effect on our results of operations.
Competitive Risks
Our competitive position could be adversely affected if we are unable to participate in continuing industry consolidation.
Most of our products are readily available from a number of competitors, and price and other competition in the crop nutrient industry is intense. In addition, crop nutrient production facilities and distribution activities frequently benefit from
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economies of scale. As a result, particularly during pronounced cyclical troughs, the crop nutrient industry has a long history of consolidation. Mosaic itself is the result of a number of industry consolidations. We expect consolidation among crop nutrient producers could continue. Our competitive position could suffer to the extent we are not able to expand our own resources either through consolidations, acquisitions, joint ventures or partnerships. In the future, we may not be able to find suitable companies to combine with, assets to purchase or joint venture or partnership opportunities to pursue. Even if we are able to locate desirable opportunities, we may not be able to enter into transactions on economically acceptable terms. If we do not successfully participate in continuing industry consolidation, our ability to compete successfully could be adversely affected and result in the loss of customers or an uncompetitive cost structure, which could adversely affect our sales and profitability.
Our strategy for managing market and interest rate risk may not be effective.
Our businesses are affected by fluctuations in market prices for our products, the purchase price of natural gas, ammonia and sulfur consumed in operations, freight and shipping costs, foreign currency exchange rates and interest rates. We periodically enter into derivatives and forward purchase contracts to mitigate some of these risks. However, our strategy may not be successful in minimizing our exposure to these fluctuations. See “Market Risk” in our Management’s Analysis and Note 16 of our Notes to Consolidated Financial Statements that is incorporated by reference in this report in Part II, Item 8.
A shortage or unavailability of railcars, tugs, barges and ships for carrying our products and the raw materials we use in our business could result in customer dissatisfaction, loss of production or sales and higher transportation or equipment costs.
We rely heavily upon truck, rail, tug, barge and ocean freight transportation to obtain the raw materials we need to distribute raw materials between our mines and concentrates facilities and to deliver our products to our customers. In addition, the cost of transportation is an important part of the final sale price of our products. Finding affordable and dependable transportation is important in obtaining our raw materials and to supply our customers. Higher costs for these transportation services or an interruption or slowdown due to factors including high demand, high fuel prices, labor disputes, layoffs or other factors affecting the availability of qualified transportation workers, adverse weather or other environmental events, or changes to rail, barge or ocean freight systems, could negatively affect our ability to produce our products or deliver them to our customers, which could affect our performance and results of operations.
Strong demand for grain and other products and a strong world economy increase the demand for and reduce the availability of transportation, both domestically and internationally. Shortages of railcars, barges and ocean transport for carrying product and increased transit time may result in customer dissatisfaction, loss of sales and higher equipment and transportation costs. In addition, during periods when the shipping industry has a shortage of ships, the substantial time needed to build new ships prevents rapid market response. Delays and missed shipments due to transportation shortages, including vessels, barges, railcars and trucks, could result in customer dissatisfaction or loss of sales potential, which could negatively affect our performance and results of operations.
Our success will continue to depend on our ability to attract and retain highly qualified and motivated employees.
We believe our continued success depends on the collective abilities and efforts of our employees. Like many businesses, a significant number of our employees, including some of our most highly skilled employees with specialized expertise in general corporate matters, potash and phosphates operations, will be approaching retirement age throughout the next decade and beyond. In addition, we compete for a talented workforce with other businesses, particularly within the mining and chemicals industries, in general, and the crop nutrients industry, in particular. Our expansion plans are highly dependent on our ability to attract, retain and train highly qualified and motivated employees who are essential to the success of our ongoing operations as well as to our expansion plans. If we were to be unsuccessful in attracting, retaining and training the employees we require, our ongoing operations and expansion plans could be materially and adversely affected.
Our most important products are global commodities, and we face intense global competition from other crop nutrient producers that can affect our prices and volumes.
Our most important products are concentrated phosphate crop nutrients, including diammonium phosphate, or DAP, monoammonium phosphate, or MAP, MicroEssentials® and muriate of potash, or MOP. We sell most of our DAP, MAP and
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MOP in the form of global commodities. Our sales of these products face intense global competition from other crop nutrient producers.
Changes in competitors’ production or shifts in their marketing focus have in the past significantly affected both the prices at which we sell our products and the volumes that we sell, and are likely to continue to do so in the future. Increases in the global supply of DAP, MAP and MOP or competitors’ increased sales into regions in which we have significant sales could adversely affect our prices and volumes.
Competitors and new entrants in the markets for both concentrated phosphate crop nutrients and potash have in recent years expanded capacity, or begun, or announced plans, to expand capacity or build new facilities. The extent to which current global or local economic and financial conditions, changes in global or local economic and financial conditions, or other factors may cause delays or cancellation of some of these ongoing or planned projects, or result in the acceleration of existing or new projects, is unclear. In addition, certain of our products sold to China may be subject to additional tariffs due to ongoing trade tensions between China and the United States. The level of exports by Chinese producers of concentrated phosphate crop nutrients depends to a significant extent on Chinese government actions to curb exports through, among other measures, prohibitive export taxes at times when the government believes it desirable to assure ample domestic supplies of concentrated phosphate crop nutrients to stimulate grain and oilseed production.
In addition, the other member of Canpotex is among our competitors who may, in the future, independently expand its potash production capacity at a time when each Canpotex member's respective shares of Canpotex sales is based upon that member's respective proven peaking capacity for producing potash. When a Canpotex member expands its production capacity, the new capacity is added to that member’s proven peaking capacity based on a proving run at the maximum production level. Alternatively, Canpotex members may elect to rely on an independent engineering firm and approved protocols to calculate their proven peaking capacity. Antitrust and competition laws prohibit the members of Canpotex from coordinating their production decisions, including the timing of their respective proving runs. Worldwide potash production levels could exceed then-current market demand, resulting in an oversupply of potash and lower potash prices.
All of the foregoing events are beyond our control. The effects of any of these events occurring could be materially adverse to our results of operations.
Some of our competitors and potential competitors have greater resources than we do, which may place us at a competitive disadvantage and adversely affect our sales and profitability. These competitors include state-owned and government-subsidized entities in other countries.
We compete with a number of producers throughout the world, including state-owned and government-subsidized entities. Some of these entities have greater total resources than we do, and may be less dependent on earnings from crop nutrients sales than we are. In addition, some of these entities have access to lower cost or government-subsidized natural gas supplies, mining rights and reserves, financing, transportation and tax incentives, placing us at a competitive disadvantage. Furthermore, certain governments as owners of some of our competitors may be willing to accept lower prices and profitability on their products in order to support domestic employment or other political or social goals. To the extent other producers of crop nutrients enjoy competitive advantages or are willing to accept lower profit levels, the price of our products, our sales volumes and our profits may be adversely affected.
Industry Risks
Future product or technological innovation could affect our business.
Future product or technological innovations by third parties, such as the development of seeds that require less crop nutrients, the development of substitutes for our products or developments in the application of crop nutrients, if they occur, could have the potential to adversely affect the demand for our products and our results of operations, liquidity and capital resources.
The success of our strategic initiatives depends on our ability to effectively manage these initiatives, and to successfully integrate and grow acquired businesses.
We have significant ongoing strategic initiatives, including our plans to expand the annual production capacity of our potash
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business and MWSPC. These strategic initiatives involve capital and other expenditures and require effective project management and, in the case of potential strategic acquisitions, successful integration. To the extent the processes we (or, for our joint venture, we together with our joint venture partners) put in place to manage these initiatives or integrate and grow acquired businesses are not effective, our capital expenditure and other costs may exceed our expectations or the benefits we expect from these initiatives might not be fully realized, or both, thereby resulting in adverse effects on our operating results and financial condition.
Cyberattacks could disrupt our operations and have a material adverse impact on our business.
As a global company, we utilize and rely upon information technology systems in many aspects of our business, including internal and external communications and the management of our accounting, financial, production and supply chain functions. As we become more dependent on information technologies to conduct our operations, and as the number and sophistication of cyberattacks increase, the risks associated with cyber security increase. These risks apply to us, our employees, and to third parties on whose systems we rely for the conduct of our business. We have experienced cyberattacks but to our knowledge, we have not experienced any material breaches of our technology systems. Failure to effectively anticipate, prevent, detect and recover from the increasing number and sophistication of cyberattacks could result in theft, loss or misuse of, or damage or modification of our information, and cause disruptions or delays in our business, reputational damage and third-party claims, which could have a material adverse effect on our results of operations or financial condition.
Our crop nutrients and other products are subject to price and demand volatility resulting from periodic imbalances of supply and demand, which may cause our results of operations to fluctuate.
Historically, the market for crop nutrients has been cyclical, and prices and demand for our products have fluctuated to a significantly. Periods of high demand, increasing profits and high capacity utilization tend to lead to new plant investment and increased production in the industry. This growth increases supply until the market is over-saturated, leading to declining prices and declining capacity utilization until the cycle repeats.
As a result, crop nutrient prices and volumes have been, and are expected to continue to be, volatile. This price and volume volatility may cause our results of operations to fluctuate and potentially deteriorate. The price at which we sell our crop nutrient products and our sales volumes could fall in the event of industry oversupply conditions, which could have a material adverse effect on our business, financial condition and results of operations. In contrast, high prices may lead our customers and farmers to delay purchasing decisions in anticipation of future lower prices, thus impacting our sales volumes.
Due to reduced market demand, depressed agricultural economic conditions and other factors, we and our predecessors have at various times suspended or curtailed production at some of our facilities. The extent to which we utilize available capacity at our facilities will cause fluctuations in our results of operations, as we will incur costs for any temporary or indefinite shutdowns of our facilities. In addition, lower sales tend to lead to higher fixed costs as a percentage of sales.
Financial Risks
During periods when the prices for our products are falling because of falling raw material prices,we could be required to write-down the value of our inventories. Any such write-down could adversely affect our results of operations and the value of our assets.
We carry our inventories at the lower of cost or market. In periods when the market prices for our products are falling rapidly, including in response to falling market prices for raw materials, it is possible that we could be required to write-down the value of our inventories if market prices fall below our costs. Any such write-down could adversely affect our results of operations and the value of our assets. Any such effect could be material.
Our estimates of future selling prices reflect in part the purchase commitments we have from our customers. As a result, defaults on these existing purchase commitments because of the global or local economic and financial conditions or for other reasons could adversely affect our estimates of future selling prices and require additional inventory write-downs.
We may incur significant non-cash charges if our goodwill or long-lived assets become impaired in the future.
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Under GAAP, we review goodwill for impairment on an annual basis or more frequently if events or circumstances indicate that their carrying value may not be recoverable. Other long-lived assets, including property, plant and equipment, are reviewed if events or circumstances indicate that their carrying value may not be recoverable. The process of impairment testing involves a number of judgments and estimates made by management, including the fair values of assets and liabilities, future cash flows, our interpretation of current economic indicators and market conditions, overall economic conditions and our strategic operational plans with regards to our business units. If the judgments and estimates used in our analysis are not realized or change due to external factors, then actual results may not be consistent with these judgments and estimates, and our goodwill and intangible assets may become impaired in future periods. If our goodwill or long-lived assets are determined to be impaired in the future, we may be required to record non-cash charges to earnings during the period in which the impairment is determined, which could be significant and have an adverse effect on our financial condition and results of operations. We have, in the past, and may in the future, be required to write down the value of our goodwill or other long-lived assets, and such future write downs could be material. See Note 11, Goodwill and Note 27, Plant City and Colonsay Closure Costs, in the accompanying consolidated financial statements for further information related to charges incurred in 2019.
Changes in tax laws or regulations or their interpretation, or exposure to additional tax liabilities, could materially adversely affect our operating results and financial condition.
We are subject to taxes, including income taxes, resource taxes and royalties, and non-income based taxes in the United States, Canada, China, Brazil and other countries where we operate. Changes in tax laws or regulations or their interpretation could result in higher taxes, which could materially adversely affect our operating results and financial condition.
In 2018, U.S. federal tax law changes took effect. This was a significant change to the U.S. system of taxation resulting in numerous areas open to interpretation given the newness and breadth of changes to the rules. As a result, risk exists related to developing interpretation and application of the new rules that could result in higher taxes which could materially adversely affect our operating results and financial condition.
We are subject to periodic audits by various levels of tax authorities in all countries where we have meaningful operations. The due process, audit and appeal practices and procedures of such authorities may vary significantly by jurisdiction, may be unpredictable (and unreliable) in nature and may result in significant risk to us. For various reasons, some governments may issue significant reassessments on audit based positions not fully grounded in law or fact, even though, upon disputing the reassessments, a great many are overturned on administrative appeal and through the court system. Certain systems involve tax litigation as a common practice. In certain countries, there are requirements to pay a reassessment (even though the matter has not been finally decided by the tax administration or a court of law) while the taxpayer has a well-supported objection and appeals administratively or in court. This may result in tying up significant funds and/or creating adverse treasury and credit risks that may interrupt, impede or otherwise materially affect our business operations.
We extend trade credit to our customers and guarantee the financing that some of our customers use to purchase our products. Our results of operations may be adversely affected if these customers are unable to repay the trade credit from us or financing from their banks. Increases in prices for crop nutrient, other agricultural inputs and grain may increase this risk.
We extend trade credit to our customers in the United States and throughout the world, in some cases for extended periods of time. In Brazil, where there are fewer third-party financing sources available to farmers, we also have several programs under which we guarantee customers’ financing from financial institutions that they use to purchase our products. As our exposure to longer trade credit extended throughout the world and use of guarantees in Brazil increases, we are increasingly exposed to the risk that some of our customers will not pay us or the amounts we have guaranteed. Additionally, we become increasingly exposed to risk due to weather and crop growing conditions, fluctuations in crop nutrient prices, commodity prices or foreign currencies, and other factors that influence the price, supply and demand for agricultural commodities. Significant defaults by our customers could adversely affect our financial condition and results of operations.
Due to the global nature of our operations, we are exposed to currency exchange rate changes, which may cause fluctuations in earnings and cash flows.
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Our primary foreign currency exposures are the Canadian dollar and Brazilian real. The functional currency for our Brazilian subsidiaries is the Brazilian real. However, we finance our Brazilian inventory purchases with U.S. dollar-denominated liabilities. The functional currency of several of our Canadian entities is the Canadian dollar. For those entities, sales are primarily denominated in U.S. dollars, but the costs are paid principally in Canadian dollars. Canadian entities have significant U.S. dollar denominated intercompany loans and US entities, with U.S. dollar as functional currency, have Brazilian real denominated loans. During periods of local or global economic crises, local currencies may be devalued significantly against the U.S dollar. During times of a strengthening dollar, our net earnings can be reduced due to transaction currency losses arising from these exposures of U.S. Dollar denominated liabilities held in the Brazilian and Canadian entities and Brazilian Real denominated assets held in US entities. To reduce economic risk and volatility on expected cash flows that are denominated in the Canadian dollar and Brazilian real, we use financial instruments that may include forward contracts, options or collars when unable to naturally offset the exposures.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Information regarding our plant and properties is included in Part I, Item 1, “Business,” of this report.
Item 3. Legal Proceedings.
We have included information about legal and environmental proceedings in Note 24 of our Notes to Consolidated Financial Statements. That information is incorporated herein by reference.
We are also subject to the following legal and environmental proceedings in addition to those described in Note 24 of our Consolidated Financial Statements included in this report:
Waters of the United States. In June 2015, EPA and the U.S. Army Corps of Engineers (the “Corps”) jointly issued a final rule that proposed to clarify, but may actually expand, the scope of waters regulated under the federal Clean Water Act. The final rule (the “2015 Clean Water Rule”) became effective in August 2015, but has been challenged through numerous lawsuits. In October 2015, the U.S. Court of Appeals for the Sixth Circuit issued an order staying the effectiveness of the final rule nationwide pending adjudication of substantive challenges to the rule.In early 2017, the U.S. President issued an Executive Order directing EPA and the Corps to publish a proposed rule rescinding or revising the new rule.In June 2017, EPA and the Corps issued a proposed rule that would rescind the 2015 Clean Water Rule and re-codify regulatory text that existed prior to enactment of the 2015 Clean Water Rule. In November 2017, EPA issued a rule notice proposing to extend the applicability date of the 2015 Clean Water Rule for two years from the date of final action on the proposed rule, to provide continuity and regulatory certainty while agencies proceed to consider potential changes to the 2015 Clean Water Rule.
In January 2018, the U.S. Supreme Court unanimously held all challenges to the 2015 Clean Water Rule must be heard in federal district courts rather than in the federal courts of appeal, overruling a decision by the Sixth Circuit's Court of Appeals. With the Sixth Circuit Court of Appeals no longer having jurisdiction, that court lifted its 2015 nationwide stay in February 2018.After the nationwide stay was lifted, a number of U.S. District Courts revived dormant litigation that challenged the 2015 Clean Water Rule.In June 2018, the U.S. District Court for the Southern District of Georgia entered an injunction against implementation of the 2015 Clean Water Rule covering 11 states, including Florida. As of September 2018, federal district courts have put the 2015 Clean Water Rule on hold in 28 states, the District of Columbia and the U.S. territories.
On December 11, 2018, EPA and the Corps issued a proposed rule to replace the 2015 Clean Water Rule, referred to as the “Navigable Waters Protection Rule”.The agencies’ stated interpretation for the proposed rule is to provide clarity, predictability and consistency so that the regulated community can better understand where the Clean Water Act applies and where it does not.EPA and the Corps received over 600,000 public comments on the proposed rule.
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On September 12, 2019, EPA and the Corps jointly issued a final regulation that repealed the 2015 Clean Water Rule and restored the previous regulatory regime.This regulation reestablished national consistency by returning all jurisdictions to the longstanding regulatory framework that existed prior to the 2015 Clean Water Rule.The final rule and repeal of the 2015 Clean Water Rule took effect sixty (60) days after publication in the Federal Register.
The September 12, 2019 repeal of the 2015 Clean Water Rule was the first step in a two-step rulemaking process to define the scope of “waters of the United States” that are regulated under the Clean Water Act.The second step was completed in April 2020, when EPA and the Corps jointly issued the “Navigable Waters Protection Rule” published on April 21, 2020 (85 Fed. Reg. 22,250).By defining what constitutes “waters of the United States” under the federal Clean Water Act (“CWA”), the new rule distinguishes between federal waters and waters under the sole control of the States.It also clarifies the types of connections to perennial and intermittent tributaries that make lakes and ponds jurisdictional and clarifies the factors that determine when wetlands are considered “adjacent”.
The new “Navigable Waters Protection Rule” revised the definition of “waters of the United States” (WOTUS) under the CWA to include: (i) territorial seas and traditional navigable waters; (ii) perennial and intermittent tributaries to those waters; (iii) certain lakes, ponds, and impoundments; (iv) and wetlands adjacent to jurisdictional waters. According to EPA, “Congress, in the Clean Water Act, explicitly directed the Agencies to protect ‘navigable waters.’ The Navigable Waters Protection Rule regulates the nation’s navigable waters and the core tributary systems that provide perennial or intermittent flow into them.”
The new Navigable Waters Protection Rule is in effect in every state except for Colorado. The U.S. District of Colorado blocked implementation of the Navigable Waters Protection Rule in Colorado, holding that the Supreme Court’s decision in Rapanos v.United States foreclosed the interpretation the U.S. EPA and Corps had incorporated into the new regulation. On the same day, the U.S. District Court for the Northern District of California reached the opposite conclusion, instead denying a motion by a group of states and cities to block the rule’s nationwide implementation. Similar requests for relief have been made in other federal district courts, including Arizona, Washington and New Mexico, with more appeals expected in late 2020. To date, there have been 13 complaints filed in 11 different U.S. District Courts seeking to challenge final rule.
In August 2020, the Justice Department, an industry coalition, and individual landowners filed a Notice of Appeal with the U.S. Court of Appeals for the 10th Circuit to challenge the injunction entered by the Colorado District Court. Although oral argument was held, there has been no final ruling by the Court of Appeals, to date. (Note:Under the new Biden Administration, there could be administrative or legal actions that affect the future enforceability of the Navigable Waters Protection Rule, e.g. voluntary remand to reconsider the rule, issuance of an Executive Order directing EPA and Corps to reconsider the rule, or formal joint rulemaking to repeal Navigable Waters Protection Rule.)
Countervailing Duty Petitions. On June 26, 2020, we filed petitions with the U.S. Department of Commerce (“DOC”) and the U.S. International Trade Commission (“ITC”) that requested the initiation of countervailing duty investigations into imports of phosphate fertilizers from Morocco and Russia. The purpose of the petitions is to remedy the distortions that we believe foreign subsidies have caused or are causing in the U.S. market for phosphate fertilizers, and thereby restore fair competition. On August 7, 2020, the ITC preliminarily determined that there is a reasonable indication that the U.S. phosphate industry is materially injured by reason of imports of phosphate fertilizers that are allegedly subsidized by the governments of Morocco and Russia. On November 23, 2020, the DOC preliminarily determined that counteravailable subsidies were being provided by those governments and on February 9, 2021 the DOC determined final counteravailable subsidy rates. A final determination by the ITC as to whether these subsidized imports has harmed or threatens to harm the U.S. phosphate industry is expected in March 2021.
The South Pasture Extension Mine Litigation.On January 8, 2020, the Hardee County Mining Coordinator issued a Notice of Violation (“NOV”)for the failure by Mosaic to proceed with reclamation of two designated Reclamation Units within the South Pasture Mine footprint. These two Reclamation Units comprise 166 acres of mined lands. The NOV cites noncompliance with the County Land Development Regulations and with the conditions of Development of Regional Impact (“DRI”) Development Order 12-21 that was issued in 2012 to authorize continued mining at the South Pasture Mine, continued operation of the South Pasture beneficiation plant, and mining at the
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South Pasture Mine Extension.Through the NOV, the County requested that Mosaic submit a revised reclamation plan and schedule to demonstrate when initial reclamation activities would be completed for the two Reclamation Units identified in the NOV.
The delay in meeting the required reclamation schedule at the two Reclamation Units is tied to the idling and eventual shutdown of the Plant City fertilizer plant and the idling of the South Pasture Mine beneficiation plant.The Plant City facility was first idled in late 2017. In June 2019, Mosaic announced that the Plant City facility would be closed permanently.
Given the relationship between the Plant City fertilizer plant and the South Pasture beneficiation plant, and facing adverse market conditions, Mosaic idled the South Pasture beneficiation plant in September 2018. Idling of the South Pasture Mine beneficiation plant in September 2018 resulted in no tailings sand being produced by the processing of phosphate matrix. As a result, there was no tailings sand available for use in sand backfilling reclamation at the South Pasture Mine, and specifically, the two Reclamation Units identified in the County’s January 8th NOV.
On March 10, 2020, Mosaic filed an “Application for Waiver and Reclamation Schedule Extension” to secure Board of County Commissioners (“BOCC”) approval of extended reclamation deadlines for the South Pasture Mine. To obtain waiver relief from the BOCC, a quasi-judicial hearing will be required.
Extensive negotiations between Mosaic and County legal and technical staff resulted in an agreement that involved two separate but related actions: (1) secure a Waiver and Reclamation Schedule Extension through formal action by the BOCC at a quasi-judicial public hearing; and (2) enter into a Settlement Agreement that would require payment of a civil penalty by Mosaic for the non-compliance in meeting the required reclamation deadlines of the South Pasture Mine Development Order and the County Mining Ordinance.The Settlement Agreement would also be presented and acted upon at a formal public hearing before the BOCC.
On May 7, 2020, a quasi-public judicial hearing was held before the Hardee County BOCC.At that hearing, the BOCC voted unanimously to issue a Waiver of the applicable reclamation deadlines of the South Pasture Development Order and the County Ordinance for three specific reclamation areas of the South Pasture Mine.The Waiver also included a negotiated Alternative Reclamation Schedule that extends the deadline for completion of reclamation until the end of 2023.At that same hearing, the BOCC approved a Settlement Agreement that resolved all outstanding non-compliance associated with reclamation obligations at the South Pasture Mine and requires Mosaic to pay an agreed settlement amount of $249,000.
Mosaic has satisfied the payment obligation of the Settlement Agreement and continues to implement the Alternative Reclamation Schedule, as required.Monitoring programs have been put in place to ensure continued compliance with the Waiver and Settlement Agreement.
Cruz Litigation.On August 27, 2020, a putative class action complaint was filed in Circuit Court of the Thirteenth Judicial Circuit in Hillsborough County, FL against our wholly owned subsidiary, Mosaic Global Operations Inc. and two co-defendants. The complaint alleges claims related to elevated levels of radiation at two manufactured housing communities located on reclaimed mining land in Mulberry, Polk County, Florida, due to phosphate mining and reclamation activities occurring decades ago. Plaintiffs seek monetary damages, including punitive damages, injunctive relief requiring remediation of their properties, and a medical monitoring program funded by the defendants.We will vigorously defend this matter.
Item 4. Mine Safety Disclosures.
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this report.
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PART II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
We have included information about the market price of, dividends on and the number of holders of our common stock under “Quarterly Results (Unaudited)” in the financial information that is incorporated by reference in this report in Part II, Item 8, “Financial Statements and Supplementary Data.”
The principal stock exchange on which our common stock is traded is The New York Stock Exchange under the symbol "MOS."
The following provides information related to equity compensation plans:
Equity compensation plans not approved by stockholders — — —
______________________________
(a)Includes grants of stock options, time-based restricted stock units and total shareholder return (“TSR”) performance units. For purposes of the table above, the number of shares to be issued under a performance unit award reflects the maximum number of shares of our common stock that may be issued pursuant to such performance award. The actual number of shares to be issued under a TSR performance unit award will depend on the change in the market price of our common stock over a three-year vesting period, with no shares issued if the market price of a share of our common stock at the vesting date plus dividends thereon is less than 50% of its market price on the date of grant and the maximum number issued only if the market price of a share of our common stock at the vesting date plus dividends thereon is at least twice its market price on the date of grant.
(b)Includes weighted average exercise price of stock options only.
Pursuant to our equity compensation plans, we have granted and may in the future grant employee stock options to purchase shares of common stock of Mosaic for which the purchase price may be paid by means of delivery to us by the optionee of shares of common stock of Mosaic that are already owned by the optionee (at a value equal to market value on the date of the option exercise). During the period covered by this report, no options to purchase shares of common stock of Mosaic were exercised for which the purchase price was so paid.
On May 14, 2015, we announced our 2015 Repurchase Program, which allows us to repurchase up to $1.5 billion of our Common Stock through open market purchases, accelerated share repurchase arrangements, privately negotiated transactions or otherwise. The 2015 Repurchase Program has no set expiration date. During the quarter ended December 31, 2020, no repurchases were made under this program. At December 31, 2020, we had approximately $700 million of repurchase authorization remaining under the program.
Item 6. Selected Financial Data.
We have included selected financial data for calendar years 2020, 2019, 2018, 2017, and 2016 under “Five Year Comparison,” in the financial information that is included in this report in Part II, Item 8, “Financial Statements and Supplementary Data.” This information is incorporated herein by reference.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The Management’s Discussion and Analysis of Financial Condition and Results of Operations listed in the Financial Table of Contents included in this report is incorporated herein by reference.
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We have included a discussion about market risks under “Market Risk” in the Management’s Analysis that is included in this report in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. This information is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
Our Consolidated Financial Statements, the Notes to Consolidated Financial Statements, the report of our Independent Registered Public Accounting Firm, and the information under “Quarterly Results” listed in the Financial Table of Contents included in this report are incorporated herein by reference. All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related instructions or are inapplicable, and therefore, have been omitted.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
None.
Item 9A. Controls and Procedures.
(a)Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 (the “Exchange Act”) is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to management, including our principal executive officer and our principal financial officer, to allow timely decisions regarding required disclosures. Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K. Our principal executive officer and our principal financial officer have concluded, based on such evaluations, that our disclosure controls and procedures were effective for the purpose for which they were designed as of the end of such period.
(b)Management’s Report on Internal Control Over Financial Reporting
We have included management’s report on internal control over financial reporting under “Management’s Report on Internal Control Over Financial Reporting” listed in the Financial Table of Contents included in this report.
We have included our registered public accounting firm’s attestation report on our internal controls over financial reporting under “Report of Independent Registered Public Accounting Firm” listed in the Financial Table of Contents included in this report.
This information is incorporated herein by reference.
(c)Changes in Internal Control Over Financial Reporting
Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated any change in internal control over financial reporting that occurred during the quarter ended December 31, 2020 in accordance with the requirements of Rule 13a-15(d) promulgated by the SEC under the Exchange Act. There were no changes in internal control over financial reporting identified in connection with management’s evaluation that occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
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PART III.
Item 10. Directors, Executive Officers and Corporate Governance.
The information contained under the headings “Proposal No. 1—Election of Directors,” “Corporate Governance—Committees of the Board of Directors,” and “ Beneficial Ownership of Securities” included in our definitive proxy statement for our 2021 annual meeting of stockholders and the information contained under “Information About our Executive Officers” in Part I, Item 1, “Business,” in this report is incorporated herein by reference.
We have a Code of Business Conduct and Ethics within the meaning of Item 406 of Regulation S-K adopted by the SEC under the Exchange Act that applies to our principal executive officer, principal financial officer and principal accounting officer. Our Code of Business Conduct and Ethics is available on Mosaic’s website (www.mosaicco.com), and we intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendment to, or waiver from, a provision of our code of ethics by posting such information on our website. The information contained on Mosaic’s website is not being incorporated herein.
Item 11. Executive Compensation.
The information under the headings “Director Compensation” and “Executive Compensation” included in our definitive proxy statement for our 2021 annual meeting of stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information under the headings “Beneficial Ownership of Securities” and “Certain Relationships and Related Transactions” included in our definitive proxy statement for our 2021 annual meeting of stockholders is incorporated herein by reference. The table containing information related to equity compensation plans, set forth in Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” of this report is also incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information under the headings “Corporate Governance—Board Independence,” “Corporate Governance—Committees of the Board of Directors,” “Corporate Governance—Other Policies Relating to the Board of Directors—Policy and Procedures Regarding Transactions with Related Persons,” and “Certain Relationships and Related Transactions” included in our definitive proxy statement for our 2021 annual meeting of stockholders is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information included under “Audit Committee Report and Payment of Fees to Independent Registered Public Accounting Firm—Fees Paid to Independent Registered Public Accounting Firm” and “Audit Committee Report and Payment of Fees to Independent Registered Public Accounting Firm—Pre-approval of Independent Registered Public Accounting Firm Services” included in our definitive proxy statement for our 2021 annual meeting of stockholders is incorporated herein by reference.
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PART IV.
Item 15. Exhibits and Financial Statement Schedules.
(3) Reference is made to the Exhibit Index in (b) below.
(b) Exhibits
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10.iii.b(3) Description of Mosaic Management Incentive Program X
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51
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52
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21 Subsidiaries of the Registrant X
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24 Power of Attorney X
31.1 Certification of Chief Executive Officer Required by Rule 13a-14(a) X
31.2 Certification of Chief Financial Officer Required by Rule 13a-14(a) X
95 Mine Safety Disclosures X
101 Interactive Data Files X
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(3) Denotes management contract or compensatory plan.
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Item 16. Form 10-K Summary.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE MOSAIC COMPANY
(Registrant)
/s/ James “Joc” C. O’Rourke
James “Joc” C. O’Rourke
Chief Executive Officer and President
Date: February 22, 2021
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Name Title Date
James “Joc” C. O’Rourke
Clint C. Freeland
* Chairman of the Board of Directors February 22, 2021
Gregory L. Ebel
Cheryl K. Beebe
Oscar P. Bernardes
Nancy E. Cooper
Timothy S. Gitzel
Denise C. Johnson
Emery N Koenig
Luciano Siani Pires
David T. Seaton
Steven M. Seibert
Gretchen H. Watkins
Kelvin R. Westbrook
*By:
/s/ Mark J. Isaacson
Mark J. IsaacsonAttorney-in-Fact
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Financial Table of Contents
Page
Introduction F-2
Key Factors that can Affect Results of Operations and Financial Condition F-2
Results of Operations F-4
Overview F-5
Phosphates F-9
Potash F-11
Mosaic Fertilizantes F-12
Corporate, Elimination and Other F-13
Other Income Statement Items F-14
Impairment, Restructuring and Other F-14
Selling, General and Administrative Expenses F-14
Other Operating Expenses F-14
Interest Expense, Net F-14
Foreign Currency Transaction Gain (Loss) F-14
Other Income/Expense F-15
Equity in Net (Loss) Earnings of Nonconsolidated Companies F-15
Provision for (Benefit from) Income Taxes F-15
Critical Accounting Estimates F-15
Liquidity and Capital Resources F-17
Off-Balance Sheet Arrangements and Obligations F-19
Market Risk F-22
Environmental, Health, Safety and Security Matters F-25
Contingencies F-32
Related Parties F-32
Recently Issued Accounting Guidance F-32
Forward-Looking Statements F-32
Reports of Independent Registered Public Accounting Firm F-35
Consolidated Statements of Earnings (Loss) F-39
Consolidated Statements of Comprehensive Income (Loss) F-40
Consolidated Balance Sheets F-41
Consolidated Statements of Cash Flows F-42
Consolidated Statements of Equity F-44
Notes to Consolidated Financial Statements F-45
Quarterly Results (Unaudited) F-92
Five Year Comparison F-93
Schedule II - Valuation and Qualifying Accounts F-95
Management’s Report on Internal Control Over Financial Reporting F-96
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The Mosaic Company (before or after the Cargill Transaction, as defined below, “Mosaic”, and with its consolidated subsidiaries, “we”, “us”, “our”, or the “Company”) is the parent company of the business that was formed through the business combination (“Combination”) of IMC Global Inc. and the Cargill Crop Nutrition fertilizer businesses of Cargill, Incorporated and its subsidiaries (collectively, “Cargill”) on October 22, 2004. In May 2011, Cargill divested its approximately 64% equity interest in us in a split-off to its stockholders and a debt exchange with certain Cargill debt holders.
We produce and market concentrated phosphate and potash crop nutrients. We conduct our business through wholly and majority owned subsidiaries as well as businesses in which we own less than a majority or a non-controlling interest, including consolidated variable interest entities and investments accounted for by the equity method.
On January 8, 2018, we completed our acquisition (the “Acquisition”) of Vale Fertilizantes S.A. (now known as Mosaic Fertilizantes P&K S.A. or the “Acquired Business”). Upon completion of the Acquisition, we became the leading fertilizer producer and distributor in Brazil.
We are organized into the following business segments:
•Our Phosphates business segment owns and operates mines and production facilities in Florida, which produce concentrated phosphate crop nutrients and phosphate-based animal feed ingredients, and processing plants in Louisiana, which produce concentrated phosphate crop nutrients for sale domestically and internationally. As part of the Acquisition, we acquired an additional 40% economic interest in the Miski Mayo Phosphate Mine in Peru, which increased our aggregate interest to 75%. These results are consolidated in the Phosphates segment. The Phosphates segment also includes our 25% interest in the Ma'aden Wa'ad Al Shamal Phosphate Company (“MWSPC”), a joint venture to develop, own and operate integrated phosphate production facilities in the Kingdom of Saudi Arabia. We market approximately 25% of the MWSPC phosphate production. We recognize our equity in the net earnings or losses relating to MWSPC on a one-quarter reporting lag in our Consolidated Statements of Earnings (Loss).
•Our Potash business segment owns and operates potash mines and production facilities in Canada and the U.S. which produce potash-based crop nutrients, animal feed ingredients and industrial products. Potash sales include domestic and international sales. We are a member of Canpotex, Limited (“Canpotex”), an export association of Canadian potash producers through which we sell our Canadian potash outside the U.S. and Canada.
•Our Mosaic Fertilizantes business segment consists of the assets in Brazil that we acquired in the Acquisition, which include five phosphate rock mines, four phosphate chemical plants and a potash mine in Brazil. The segment also includes our legacy distribution business in South America which, consists of sales offices, crop nutrient blending and bagging facilities, port terminals and warehouses in Brazil and Paraguay. We also have a majority interest in Fospar S.A., which owns and operates a single superphosphate granulation plant and a deep-water crop nutrition port and throughput warehouse terminal facility in Brazil.
Intersegment eliminations, unrealized mark-to-market gains/losses on derivatives, debt expenses, Streamsong Resort® results of operations, and the results of the China and India distribution businesses are included within Corporate, Eliminations and Other. As of January 1, 2019, certain selling, general and administrative costs that are not controllable by the business segments are no longer allocated to segments and are included within Corporate, Eliminations and Other. Our operating results for the year ended 2018 were recast to reflect this change. See Note 26 of the Consolidated Financial Statements in this report for segment results.
Key Factors that can Affect Results of Operations and Financial Condition
Our primary products, phosphate and potash crop nutrients, are, to a large extent, global commodities that are also available from a number of domestic and international competitors, and are sold by negotiated contracts or by reference to published market prices. The markets for our products are highly competitive, and the most important competitive factor for our products is delivered price. Business and economic conditions and governmental policies affecting the agricultural industry and customer sentiment are the most significant factors affecting worldwide demand for crop nutrients. The profitability of
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our businesses is heavily influenced by worldwide supply and demand for our products, which affects our sales prices and volumes. Our costs per tonne to produce our products are also heavily influenced by fixed costs associated with owning and operating our major facilities, significant raw material costs in our Phosphates and Mosaic Fertilizantes businesses, and fluctuations in currency exchange rates.
Our products are generally sold based on the market prices prevailing at the time the sales contract is signed or through contracts which are priced at the time of shipment based on a formula. Additionally, in certain circumstances the final price of our products is determined after shipment based on the current market at the time the price is agreed to with the customer. Forward sales programs at fixed prices increase the lag between prevailing market prices and our average realized selling prices. The mix and parameters of these sales programs vary over time based on our marketing strategy, which considers factors that include, among others, optimizing our production and operating efficiency within warehouse limitations, as well as customer requirements. The use of forward sales programs and the level of customer prepayments may vary from period to period due to changing supply and demand environments, seasonality, and market sentiments.
World prices for the key raw material inputs for concentrated phosphate products, including ammonia, sulfur and phosphate rock, have an effect on industry-wide phosphate prices and production costs. The primary feedstock for producing ammonia is natural gas, and costs for ammonia are generally highly dependent on the supply and demand balance for ammonia. In North America, we purchase approximately one-third of our ammonia from various suppliers in the spot market with the remaining two-thirds either purchased through a long-term ammonia supply agreement (the “CF Ammonia Supply Agreement”) with an affiliate of CF Industries, Inc. (“CF”) or produced internally at our Faustina, Louisiana location. The CF Ammonia Supply Agreement provides for U.S. natural gas-based pricing that is intended to lessen pricing volatility. We entered into the agreement in late 2013, and we began purchasing under it in the second half of 2017. If the price of natural gas rises or the market price for ammonia falls outside of the range anticipated at execution of the agreement, we may not realize a cost benefit from the natural gas-based pricing over the term of the agreement, or the cost of our ammonia under the agreement could be a competitive disadvantage. At times, we have paid considerably more for ammonia under the agreement than what we would have paid had we purchased it in the spot market. However, we continue to expect the agreement will provide us a competitive advantage over its term, including by providing a reliable long-term ammonia supply. In Brazil, we purchase all of our ammonia from a single supplier.
Sulfur is a global commodity that is primarily produced as a by-product of oil refining. The market price is based primarily on the supply and demand balance for sulfur. There is currently tightness in the sulfur market which we are monitoring. At this time, we do not expect this to have a material impact on our business. We believe our current and future investments in sulfur transformation and transportation assets will enhance our competitive advantage. We produce and procure most of our phosphate rock requirements through either wholly or partly owned mines. In addition to producing phosphate rock, Mosaic Fertilizantes purchases phosphates, potash and nitrogen products which are either used to produce blended crop nutrients (“Blends”) or for resale.
Our per tonne selling prices for potash are affected by shifts in the product mix, geography and customer mix. Our Potash business is significantly affected by Canadian resource taxes and royalties that we pay to the Province of Saskatchewan in order for us to mine and sell our potash products. In addition, cost of goods sold is affected by a number of factors, including: fluctuations in the Canadian dollar; the level of periodic inflationary pressures on resources in western Canada, where we produce most of our potash; natural gas costs for operating our potash solution mine at Belle Plaine, Saskatchewan; and the operating costs we incur to manage salt saturated brine inflows at our potash mine at Esterhazy, Saskatchewan, which have been decreasing as we ramp up the K3 shaft. Production mining activities at the K3 shaft at our Esterhazy mine began in December 2018 with six four-rotor miners being commissioned and operational in 2020. K3 is expected to reach full capacity in 2022. As production continues to ramp up at the K3 shaft, this will provide us the opportunity to eliminate future brine inflow management costs.
Our results of operations are also affected by changes in currency exchange rates due to our international footprint. The most significant currency impacts are generally from the Canadian dollar and the Brazilian real.
A discussion of these and other factors that affected our results of operations and financial condition for the periods covered by this Management’s Discussion and Analysis of Financial Condition and Results of Operations is set forth in further detail below. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should also be read in conjunction with the narrative description of our business in Item 1, and the risk factors described in Item 1A, of Part I of this annual report on Form 10-K, and our Consolidated Financial Statements, accompanying notes and other information listed in the accompanying Financial Table of Contents.
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This section of this Form 10-K discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's annual report on Form 10-K for the year ended December 31, 2019 and are incorporated by reference herein.
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 that we mean short or long ton(s), which are the equivalent of 2,000 pounds and 2,240 pounds, respectively. In addition, we measure natural gas, a raw material used in the production of our products, in MMBTU, which stands for one million British Thermal Units (“BTU”). One BTU is equivalent to 1.06 Joules.
In the following table, 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 years ended December 31, 2020, 2019, and 2018:
Diluted weighted average number of shares outstanding 381.3 383.8 386.4
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Overview of the Years ended December 31, 2020 and 2019
Net earnings (loss) attributable to Mosaic for the year ended December 31, 2020 was $666.1 million, or $1.75 per diluted share, compared to $(1.1) billion, or $(2.78) per diluted share for 2019.
In 2020, net earnings were positively impacted by $341 million, net of tax, or $0.88 per diluted share, related to notable items of which the significant items as follows (noted on a pre-tax basis with the exception of discrete income tax):
•Discrete income tax benefit of $609 million, or $1.60 per diluted share, which included the reversal of a tax valuation reserve established with the Acquisition
•Asset retirement obligation costs of $134 million, or $(0.21) per diluted share, related to revisions in the estimated costs of our asset retirement obligations
•Depreciation expense of $79 million, or $(0.12) per diluted share, related to the acceleration of the closure of our K1 and K2 mine shafts at our Esterhazy, Saskatchewan mine as we ramp up K3
•Other operating expenses of $69 million, or $(0.14) per diluted share, related to maintaining closed and indefinitely idled facilities
•Foreign currency transaction loss of $64 million, or ($0.10) per diluted share
•A change in the effective annual tax rate, creating a negative impact of $41 million, or ($0.11) per diluted share
•Other operating expenses of $35 million, or $(0.05) per diluted share related to an increase in an environmental remediation reserve at our New Wales, FL facility
•Unrealized gain on derivatives of $22 million, or $0.03 per diluted share
•Other non-operating income of $14 million, or $0.02 per diluted share, related to a realized gain on RCRA trust securities
•Idle plant costs of $13 million, or $(0.02) per diluted share, related to the government-mandated shutdown on March 16, 2020, of our Miski Mayo phosphate rock mine in Peru due to the Covid-19 outbreak, which reopened on May 13, 2020
•Other operating expenses of $20 million, or $(0.03) per share, related to an increase in reserves for legal contingencies of the Acquired Business, integration costs of our North American business operations and a write-down of assets in our Mosaic Fertilizantes segment
•Other operating income of $7 million, or $0.01 per diluted share, related to a legal settlement
Net earnings (loss) for 2019 included:
•Goodwill impairment write-off of $589 million, or $(1.34) per diluted share. There was a discrete income tax benefit of $80 million associated with this
•Expenses of $530 million, or $(0.71) per diluted share related to the indefinite idling of our Colonsay, Saskatchewan mine. There was a discrete income tax benefit of $263 million related to this action
•Plant City closing costs of $341 million, or $(0.67) per diluted share. There was a discrete income tax benefit of $81 million associated with this action
•Discrete income tax expense of $67 million, or $(0.18) per diluted share
•Unrealized gains on derivatives of $40 million, or $0.06 per diluted share
•Depreciation expense of $34 million, or $(0.04) per diluted share, related to the acceleration of the closure of our K1 and K2 mine shafts at our Esterhazy, Saskatchewan mine as we ramp up K3
•Asset retirement obligation costs of $32 million, or $(0.06) per diluted share, related to revisions in the estimated costs of our asset retirement obligations
•Other operating expenses of $31 million, or $(0.03) per diluted share, related to an increase in reserves for legal contingencies of the Acquired Business
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•Expenses of $23 million, or $(0.04) per diluted share, related to repairing the lateral movement at the Gypstack at our Uncle Sam facility in Louisiana
•Other operating expenses of $21 million, or $(0.04) per diluted share, related to the Acquisition and fixed asset write-offs, 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
•Foreign currency transaction gains of $21 million, or $0.02 per diluted share
•Expense of $14 million, or $(0.01) per share, related to the write-down of phosphate finished goods inventory to market value
•Non-operating income of $13 million related to a realized gain on RCRA trust securities, 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
Additional significant factors that affected our results of operations and financial condition in 2020 and 2019 are listed below. 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.
Year ended December 31, 2020
Phosphates operating results for the year ended December 31, 2020 were favorably impacted by an increase in sales volumes compared to the prior year. Increased sales volumes were driven by strong spring and fall application seasons, as well as decreased competitor shipments into North America. Competitor shipments were impacted by anticipation of potential import duties against producers in Morocco and Russia which may result from the countervailing duty investigations, instituted by us in the United States, into imports of phosphate fertilizers. The benefit of increased sales volumes was partially offset by a decrease in phosphates average selling prices in the current year compared to the prior year. Although selling prices have risen from the low levels seen at the end of 2019, the average selling price is still below that of the prior year average. Prices have risen throughout 2020 due to tightness in global supply and demand. The increase in demand has been partially mitigated by suppliers, including Mosaic, increasing production in the second half of 2020 and carrying into the first quarter of 2021. Operating earnings in the current year also benefited from lower raw material costs, primarily sulfur and ammonia, which are driven by global supply and demand.
Potash operating results were unfavorably impacted by decreases in the average selling price in 2020 compared to the prior year, partially offset by higher sales volumes. Selling prices began declining in the first half of 2019 due to adverse weather conditions in North America. They continued to decline in the first half of 2020, due to lower export prices, as China and India contract prices set a floor for the market, and to new suppliers entering the marketplace. Prices began to strengthen in North America and Brazil in the fourth quarter of 2020, due to increased demand and tight supply; however, they are still below levels seen in the prior year. Operating results were favorably impacted by higher potash sales volumes in 2020 compared to 2019. Sales volumes were higher than the prior year as prior year demand was low due to adequate inventories, delayed contract settlements, and adverse weather conditions throughout North America.
Mosaic Fertilizantes operating results in 2020 were favorably impacted by increased sales volumes. Sales volumes increased compared to the prior year, due to strong market demand and efforts to grow our market share in the current year. Operating results were also favorably impacted by lower raw material costs in the current year compared to the prior year, driven by global supply and demand and the impact of foreign currency changes. The current year was also favorably impacted by lower production costs as the prior year was impacted by new tailings dam legislation, which resulted in higher idle and turnaround costs. Lower average selling prices, driven by international pricing trends, unfavorably impacted operating earnings in the current year compared to the prior year.
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Other highlights in 2020:
•We continue to transform our cost structure. Mosaic Fertilizantes exceeded the previously announced $50 million of transformational savings targeted for 2020. The Esterhazy K3 mine development project continues to progress, with the sixth automated miner commissioned during the year. We produced 1.3 million tonnes of MOP from the Esterhazy K3 mine in 2020. After achieving five of seven 2021 company cost targets in the second quarter of 2020, we announced new targets for 2023 in September.
•During the second quarter, MWSPCrefinanced its project level debt. The refinancing removes recourse to Mosaic by all lenders to MWSPC, and defers principal paydown until June 30, 2022, enhancing expected free cash flow. Mosaic's contractual commitment to make future cash contributions to MWSPC has also been eliminated.
•On June 26, 2020, we filed petitions with the U.S. Department of Commerce (“DOC”) and the U.S. International Trade Commission (“ITC”) that requested the initiation of countervailing duty investigations into imports of phosphate fertilizers from Morocco and Russia. The purpose of the petitions is to remedy the distortions that we believe foreign subsidies have caused or are causing in the U.S. market for phosphate fertilizers, and thereby restore fair competition. On August 7, 2020, the ITC preliminarily determined that there is a reasonable indication that the U.S. phosphate industry is materially injured by reason of imports of phosphate fertilizers that are allegedly subsidized by the governments of Morocco and Russia. On November 23, 2020, the DOC preliminarily determined that counteravailable subsidies were being provided by those governments and on February 9, 2021 the DOC determined final counteravailable subsidy rates. A final determination by the ITC as to whether these subsidized imports has harmed or threatens to harm the U.S. phosphate industry is expected in March 2021.
•In July, 2020, we extended the term and increased the limit of our revolving credit facility. As of December 31, 2020, we held a liquidity position in excess of $3.3 billion, including cash and available committed and uncommitted lines of credit, of $574 million, $2.2 billion and $600 million , respectively.
•In response to Covid-19, we implemented measures in 2020 that were 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 a single location. In an effort to contain the spread of the virus, many government authorities, at locations where we do business, issued “social distancing or shelter-in-place” orders. In accordance with such orders, operations at our Miski Mayo mine in Peru were closed on March 16, 2020 and resumed on May 13, 2020. Our Patrocino operations in Brazil were also closed for ten days, restarting operations on April 7, 2020. We also delayed planned maintenance at certain locations until the fourth quarter of 2020 which resulted in increased costs. These events resulted in minimal disruptions to our operations. Our response to the pandemic was effective throughout the year in limiting the impacts on our operating facilities, employees, supply chain and logistics.
Year ended December 31, 2019
Phosphates operating results for the year ended December 31, 2019 were unfavorably impacted by a decrease in phosphates selling prices compared to 2018. Phosphate prices began to decrease in the fourth quarter of 2018 due to the limited fall application season in North America and increased import activity that continued through the first half of 2019. Selling prices remained low throughout 2019 due to reduced demand as a result of the adverse weather conditions in North America throughout 2019, which significantly delayed planting and harvest as well as increased supply due to new capacity coming online. These factors also unfavorably impacted finished product sales volumes in 2019. Operating results were also negatively impacted by higher costs related to the temporary idling of the South Pasture, Florida mine in August 2018 and the Louisiana facility in the second half of 2019, operational challenges as we transitioned to new mining areas, and costs related to the permanent closure of our Plant City, Florida phosphate facility, announced in the second quarter of 2019. In December 2019, prices began increasing as demand began strengthening against supply in reaction to lower China exports and production curtailments, which resulted in a more constructive supply and demand balance as we moved in 2020.
Potash operating results were favorably impacted by increases in the average selling price in 2019 compared to 2018, though this benefit was primarily featured in the first half of the year. Potash prices in 2019 were at their highest at the outset of the year, and then declined through December and into the first several weeks of 2020. The decline in market prices was a function of weak demand in key markets, including North America, which was impacted by adverse weather conditions throughout 2019 and increased risks of a delay in the Chinese contract settlement. In response to this weaker demand and
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falling prices, many potash producers announced production curtailments in the second half of 2019. These actions resulted in a better balance of supply and demand at the start of 2020. Operating results were unfavorably impacted by lower potash sales volumes in 2019 compared to 2018. In 2019, domestic sales volumes declined due to the adverse weather conditions discussed above, that resulted in delayed plantings and harvest, as well as missed fertilizer applications. Operating results were also negatively impacted by higher fixed cost absorption due to lower production, as we idled the Colonsay mine and reduced production at the Esterhazy mine to control inventory, and higher Canadian resource taxes as a result of tax law changes that became effective in 2019.
Mosaic Fertilizantes operating results in 2019 were unfavorably impacted by expenses related to the temporary idling of three of our Brazilian phosphate mines for a large portion of the year, as we worked to comply with new legislation regarding tailings dams in Brazil. This resulted in increased raw material costs, as we imported rock to meet our production needs, increased conversion costs and idle plants costs. Operating results were favorably impacted by an increase in sales volumes in 2019 compared to 2018, driven by an increase in business-to-consumer sales in Brazil. Sales volumes also benefited from an increase in Brazilian trade with China in 2019.
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Phosphates Net Sales and Gross Margin
The following table summarizes the Phosphates segment’s net sales, gross margin, sales volume, selling prices and raw material prices:
Net sales:
Gross margin as a percentage of net sales 4.0 % (2.5) % 15.0 %
Sales volumes(a) (in thousands of metric tonnes)
Realized prices ($/tonne)
Average cost per unit consumed in cost of goods sold:
Blended rock (metric tonne) $ 61 $ 62 $ 58 $ (1) (2) % $ 4 7 %
(a)Includes intersegment sales volumes.
(b)Includes sales volumes of MicroEssentials® and animal feed ingredients.
(c) Sales volumes of rock are presented on a wet tonne basis based on average moisture levels of 3.5% to 4.5% as it exits the drying process and is prepared for shipping.
Year Ended 2020 compared to Year Ended December 31, 2019
The Phosphates segment’s net sales were $3.1 billion for the year ended December 31, 2020, compared to $3.2 billion for the same period a year ago. The decrease in net sales was primarily due to lower average selling prices, which resulted in a decrease in net sales of approximately $140 million. This was partially offset by higher sales volumes, which increased net sales by approximately $20 million.
Our average finished product selling price decreased 5%, to $360 per tonne for the year ended December 31, 2020, compared to $379 per tonne for the same period a year ago, due to the factors discussed in the Overview.
The Phosphates segment’s sales volumes of finished products increased to 8.5 million tonnes for the year ended December 31, 2020, compared to 8.2 million tonnes in 2019, due to the factors discussed in the Overview. The 62% decrease in the sales volumes of rock, shown in the table above,was due to the Miski Mayo mine being temporarily idled for a portion of the current year due to COVID-19. In addition, in the prior year, Mosaic Fertilizantes purchased rock from the Miski Mayo mine (included in our Phosphates segment) to supplement their production requirements, as Mosaic Fertilizantes' mines were temporarily idled for a portion of the prior year.
Gross margin for the Phosphates segment increased to $125.5 million in the current year compared with $(82.3) million for the prior year. The increase was primarily driven by the impact of lower raw material prices (primarily sulfur, ammonia, and
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blended rock) of approximately $260 million compared to the prior-year period. Gross margin was also favorably impacted in the current year by lower idle plant and turnaround costs of approximately $80 million. This was partially offset by unfavorable sales prices, which negatively impacted gross margin by approximately $140 million.
Our average consumed price for ammonia in our North American operations decreased to $287 per tonne in 2020 from $324 a year ago. The average consumed price for sulfur for our North American operations decreased to $83 per long ton for the year ended December 31, 2020 from $128 in the prior-year period. The purchase price of these raw materials is 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 rock decreased to $61 per tonne in the current year, from $62 a year ago.
The Phosphates segment’s production of crop nutrient dry concentrates and animal feed ingredients increased to 8.2 million tonnes for the year ended December 31, 2020, compared to 8.1 million in 2019. For the year ended December 31, 2020, our operating rate for processed phosphate production decreased to 82%, compared to 83% in the same period of the prior year.
Our North American phosphate rock production was 12.8 million tonnes in the current year compared with 12.2 million tonnes in the same period a year ago. In the prior year, production suffered due to challenges caused by weather, and operational challenges as we transitioned into new mining areas.
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Potash Net Sales and Gross Margin
The following table summarizes the Potash segment’s net sales, gross margin, sales volume and selling price:
Net sales:
Gross margin as a percentage of net sales 23.2 % 29.2 % 27.5 %
Sales volume(a) (in thousands of metric tonnes)
Realized prices ($/tonne)
(a)Includes intersegment sales volumes.
(b)Includes sales volumes of K-Mag, Aspire and animal feed ingredients.
Year Ended 2020 compared to Year Ended December 31, 2019
The Potash segment’s net sales decreased to $2.0 billion for the year ended December 31, 2020, compared to $2.1 billion in the same period a year ago. The decrease in net sales was driven by an unfavorable impact from lower sales prices of approximately $520 million, partially offset by favorable sales volumes of approximately $430 million.
Our average finished product selling price was $215 per tonne for the year ended December 31, 2020, a decrease of $55 per tonne compared with the prior year period, due to the factors discussed in the Overview.
The Potash segment’s sales volumes increased to 9.4 million tonnes for the year ended December 31, 2020, compared to 7.8 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 $468.3 million in the current year, from $616.8 million in the prior year period. Gross margin was negatively impacted by $520 million related to the decrease in selling prices, partially offset by approximately $240 million due to higher sales volumes. Gross margin was also favorably impacted by lower fixed cost absorption and plant spending of approximately $140 million, due to higher production and decreased length of maintenance turnarounds compared to the prior year. Canadian resource taxes and other costs affecting gross margin are discussed in more detail below.
We had expense of $146.1 million from Canadian resource taxes for the year ended December 31, 2020, compared to $174.6 million in the prior year. Royalty expense decreased to $30.0 million for the year ended December 31, 2020, from $37.3 in the prior year. The fluctuations in Canadian resource taxes and royalties are due to lower average selling prices and margins in the current year, compared to the prior year.
We incurred $108.0 million in brine management expenses, including depreciation on brine assets, at our Esterhazy mine in 2020, compared to $137.6 million in 2019. The reduced costs in 2020 are a reflection of our management of brine inflow expense. We remain on track in our development of the K3 shaft at our Esterhazy mine, which is expected to reach full
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operational capacity by mid-2022. The completion of K3 will provide us the opportunity to eliminate future brine inflow management costs which are expected to drop to an immaterial level by the end of 2021.
For the year ended December 31, 2020, potash production increased to 8.4 million tonnes, compared to 7.9 million tonnes in the prior year period, and an operating rate of 87% for 2020, compared to 75% for 2019. Increased production in 2020 is primarily due to the ramp up at our Esterhazy K3 mine. Our production and operating rate in 2019 reflect the impact of timing and length of maintenance turnarounds, the temporary idling of the Colonsay mine during 2019, and inventory control downtime at our Esterhazy mine.
Mosaic Fertilizantes Net Sales and Gross Margin
The following table summarizes the Mosaic Fertilizantes segment’s net sales, gross margin, sales volume and selling price.
Gross margin as a percent of net sales 12.1 % 7.7 % 10.2 %
Sales volume (in thousands of metric tonnes)
Realized prices ($/tonne)
Purchases ('000 tonnes)
Average cost per unit consumed in cost of goods sold:
Year Ended December 31, 2020 compared to Year Ended December 31, 2019
The Mosaic Fertilizantes segment’s net sales were $3.5 billion for the year ended December 31, 2020, compared to $3.8 billion for 2019. The decrease in net sales was due to lower sales prices, which unfavorably impacted net sales by approximately $720 million. This was partially offset by an increase in sales volumes, favorably impacting net sales by approximately $590 million. Net sales were also negatively impacted by foreign currency impacts of approximately $170 million.
The overall average finished product selling price decreased $79 per tonne to $330 per tonne for 2020 due to the decline in global prices described in the Overview.
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The Mosaic Fertilizantes segment’s sales volume increased to 10.6 million tonnes for the year ended December 31, 2020, compared to 9.2 million tonnes for the prior year period, due to the factors discussed in the Overview.
Gross margin for the Mosaic Fertilizantes segment increased to $419.6 million for the year ended December 31, 2020, from $290.1 million in the prior year. The increase was driven by approximately $120 million of lower raw material and production costs and a benefit of $80 million related to higher sales volumes in the current year compared to the prior year. Gross margin was also favorably impacted by approximately $50 million due to lower idle costs in the current year. Idle and production costs were higher in 2019 as we temporarily idled our mines in Brazil to enable us to take steps to comply with new legislation regarding tailings dams. Gross margin also benefited from favorable foreign currency changes of approximately $130 million. These were partially offset by approximately $250 million, due to lower sales prices in 2020 compared to 2019.
The average consumed price for ammonia for our Brazilian operations was $336 per tonne for the year ended December 31, 2020, compared to $369 per ton in the prior year. The average consumed sulfur price for our Brazilian operations was $108 per long ton for the year ended December 31, 2020, compared to $181 in the prior year. The purchase price of these raw materials is driven by global supply and demand, and also include transportation, transformation, and storage costs.
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 26 to our Notes to Consolidated Financial Statements. The Corporate, Eliminations and Other category includes, intersegment eliminations, including profit on intersegment sales, unrealized mark-to-market gains and losses on derivatives, debt expenses, Streamsong Resort® results of operations, and the results of the China and India distribution businesses. As of January 1, 2019, certain selling, general and administrative costs that are not controllable by the business segments were no longer allocated to segments and are included within Corporate, Eliminations and Other. Our operating results for 2018 have been recast to reflect this change.
Gross margin for Corporate, Eliminations and Other was a gain of $51.5 million for the year ended December 31, 2020, compared to a gain of $72.7 million in the same period a year ago. The change was driven by eliminations of losses on intersegment sales of $3.4 million in the current year period, compared to elimination of losses on intersegment sales of $38.2 million in the prior year period. Contributing to the change was a net unrealized gain of $22.0 million in the current year period, primarily on foreign currency derivatives for Canada, compared to a net unrealized gain of $39.9 million in the prior year period. Distribution operations in India and China had revenues and gross margin of $639.4 million and $58.7 million, respectively, for the year ended December 31, 2020, compared to revenues and gross margin of $575.6 million and $27.3 million, respectively, for the year ended December 31, 2019. The increase was primarily due to increased sales volumes in the current year compared to the prior year period. Sales volumes of finished products were 2.0 million tonnes and 1.5 million tonnes for the years ended December 31, 2020 and 2019, respectively.
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Other Income Statement Items
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $371.5 million for the year ended December 31, 2020, compared to $354.1 million for the same period a year ago. The increase was due to approximately $20 million of higher consulting and professional service expenses related to executing on our strategic priorities, and approximately $20 million of higher incentive compensation expense in the current year. These increases were partially offset by favorable foreign currency impacts of approximately $22 million, primarily driven by the Brazilian real.
Impairment, Restructuring and Other Expenses
Restructuring and other expenses include costs associated with asset impairments, employee severance and pension expense, and other exit costs to close or indefinitely idle facilities. In 2019, we recognized pre-tax costs of $341.3 million related to the permanent closure of our Plant City phosphates manufacturing facility in Hillsborough County, Florida and pre-tax costs of $529.7 million related to the indefinite idling of our Colonsay, Saskatchewan potash facility. We also recognized a goodwill impairment charge of $589 million in our Phosphates reporting unit in 2019.
Other Operating Expenses
Other operating expenses were $280.5 million for the year ended December 31, 2020, compared to $176.0 million for the prior-year period. Other operating expenses typically relate to five major categories: 1) Asset Retirement Obligations (“AROs”), 2) environmental and legal reserves, 3) idle facility costs, 4) insurance reimbursements and 5) gain/loss on sale or disposal of fixed assets. The current year includes $134 million of ARO expenses and adjustments, $69 million related to closed and indefinitely idled facility costs, and $35 million of costs related to an increase in an environmental reserve. The current year also includes $19 million of losses on fixed asset disposals and $10 million of costs related to transformation initiatives in our North America operations.
Interest Expense, Net
Net interest expense decreased to $180.6 million for the year ended December 31, 2020, compared to $182.9 million in 2019.
Foreign Currency Transaction (Loss) Gain
In 2020, we recorded a foreign currency transaction loss of $64.3 million, compared to a gain of $20.2 million in 2019. The loss was the result of the effect of the strengthening of the U.S. dollar relative to the Brazilian real on significant U.S. dollar-denominated payables held by our Brazilian subsidiaries, partially offset by the weakening of the U.S. dollar relative to the Canadian dollar on significant U.S. dollar-denominated intercompany loans and gains of foreign currency derivative positions related to the hedging of Brazilian real cash flows.
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Other Income/Expense
For the year ended December 31, 2020, we had other income of $12.9 million compared to expense of $1.5 million in the prior year. The change from the prior year is primarily related to a realized gain of $14 million on investments held in two financial assurance trust funds created in 2016 to provide additional financial assurance for the estimated costs of closure and long-term care of our Florida and Louisiana phosphogypsum management systems (the “RCRA Trusts”).
Equity in Net (Loss) Earnings of Nonconsolidated Companies
For the year ended December 31, 2020, we had a loss from equity of nonconsolidated companies of $93.8 million, net of tax, compared to a loss of $59.4 million, net of tax, for the prior year. The current year loss was primarily related to the operations of MWSPC, which resulted in a net loss of $97.3 million. This is because MWSPC is not yet operating at full capacity, and was also impacted by lower phosphate selling prices.
Provision for (Benefit from) Income Taxes
EffectiveTax Rate Provision forIncome Taxes
For all years, our income tax is impacted by the mix of earnings across jurisdictions in which we operate, by a benefit associated with depletion and by the impact of certain entities being taxed in both their foreign jurisdiction and the U.S., including foreign tax credits for various taxes incurred.
In the year ended December 31, 2020, tax expense specific to the period included a net benefit of ($609.0) million. The net benefit relates to the following: ($582.6) million for changes to valuation allowances in the U.S. and foreign jurisdictions, primarily related to Brazil, ($23.6) million related to certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), $5.5 million related to release of the sequestration on AMT and miscellaneous tax expense of $2.7 million. The change to the valuation allowance in Brazil related to the Acquired Business. As of December 31, 2020, the successful integration of the Acquired Business has resulted in cumulative income therefore we were able to rely on future forecasts of taxable income which support realization of its deferred tax assets.
In the year ended December 31, 2019, tax expense specific to the period included a benefit of ($355.6) million. This relates to various items, including benefits from the following pretax notable items: ($263.4) million related to the indefinite idle of the Colonsay mine, ($81.0) million related to the Plant City closure costs and ($79.6) million related to the phosphates goodwill impairment. These tax benefits are partially offset by tax expense of: $21.2 million for changes in certain provisions of the U.S. Tax Cuts and Jobs Act (“The Act”), $15.9 million for valuation allowances in the U.S. and foreign jurisdictions, $14.0 million related state tax rate changes; $12.5 million related to changes in estimates related to prior years (including changes in certain provisions of the Act), and miscellaneous tax expense of $4.8 million. The tax benefit of $21.2 million related to certain provisions of The Act is the reversal of the benefit recorded in December 31, 2018 that pertained to the one-time “deemed” repatriation.
Critical Accounting Estimates
We prepare our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America which requires us to make various judgments, estimates and assumptions that could have a significant impact on our reported results and disclosures. We base these estimates on historical experience and other assumptions we believe to be reasonable at the time we prepare our financial statements. Changes in these estimates could have a material effect on our Consolidated Financial Statements.
Our significant accounting policies can be found in Note 2 of our Notes to Consolidated Financial Statements. We believe the following accounting policies include a higher degree of judgment and complexity in their application and are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations.
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Recoverability of Goodwill
Goodwill is the excess of the purchase price consideration over the estimated fair value of net assets of acquired businesses. The carrying value of goodwill in our reporting units is tested annually as of October 31 for possible impairment. We typically use an income approach valuation model, representing present value of future cash flows, to determine the fair value of a reporting unit. Growth rates for sales and profits are determined using inputs from our annual strategic and long range planning process. The rates used to discount projected future cash flows reflect a weighted average cost of capital based on the Company’s industry, capital structure and risk premiums, including those reflected in the current market capitalization. When preparing these estimates, management considers each reporting unit’s historical results, current operating trends, and specific plans in place. These estimates are impacted by various factors, including inflation, the general health of the economy and market competition. In addition, events and circumstances that might be indicators of possible impairment are assessed during other interim periods. As of October 31, 2020, the date of our annual impairment testing, the Company concluded that the fair values of the reporting units which included goodwill were in excess of their respective carrying values and the goodwill for those units was not impaired. However, we determined that our Potash reporting unit had an estimated fair value that was not in significant excess of its carrying value. As a result, the goodwill assigned to the Potash reporting unit could be at risk of future impairment. Our Mosaic Fertilizantes reporting unit has substantial fair value in excess of its carrying value.
See Note 11 of our Notes to Consolidated Financial Statements for additional information regarding the goodwill impairment analysis, including the methodologies and assumptions used in estimating the fair values of our reporting units. As of December 31, 2020, we had $1.2 billion of goodwill.
Environmental Liabilities and Asset Retirement Obligations
We record accrued liabilities for various environmental and reclamation matters including the demolition of former operating facilities, and asset retirement obligations (“AROs”).
Contingent environmental liabilities are described in Note 24 of our Notes to Consolidated Financial Statements. Accruals for environmental matters are based primarily on third-party estimates for the cost of remediation at previously operated sites and estimates of legal costs for ongoing environmental litigation. We regularly assess the likelihood of material adverse judgments or outcomes, the effects of potential indemnification, as well as potential ranges or probability of losses. We determine the amount of accruals required, if any, for contingencies after carefully analyzing each individual matter. Estimating the ultimate settlement of environmental matters requires us to develop complex and interrelated assumptions based on experience with similar matters, our history, precedents, evidence, and facts specific to each matter. Actual costs incurred in future periods may vary from the estimates, given the inherent uncertainties in evaluating environmental exposures. As of December 31, 2020, and 2019, we had accrued $61.4 million and $39.3 million, respectively, for environmental matters.
As indicated in Note 15 of our Notes to Consolidated Financial Statements, we recognize AROs in the period in which we have an existing legal obligation, and the amount of the liability can be reasonably estimated. We utilize internal engineering experts as well as third-party consultants to assist in determining the costs of retiring certain of our long-term operating assets. Assumptions and estimates reflect our historical experience and our best judgments regarding future expenditures. The assumed costs are inflated based on an estimated inflation factor and discounted based on a credit-adjusted risk-free rate. For active facilities, fluctuations in the estimated costs (including those resulting from a change in environmental regulations), inflation rates and discount rates can have a significant impact on the corresponding assets and liabilities recorded in the Consolidated Balance Sheets. However, changes in the assumptions for our active facilities would not have a significant impact on the Consolidated Statements of Earnings in the year they are identified. For closed facilities, fluctuations in the estimated costs, inflation, and discount rates have an impact on the Consolidated Statements of Earnings in the year they are identified as there is no asset related to these items. Phosphate land reclamation activities in North America generally occur concurrently with mining operations; as such, we accrue and expense reclamation costs as we mine. As of December 31, 2020, and 2019, $1.4 billion and $1.3 billion, respectively, was accrued for AROs (current and noncurrent amounts) in North and South America. In August 2016, Mosaic deposited $630 million into two trust funds as financial assurance to support certain estimated future asset retirement obligations. See Note 15 of our Notes to Consolidated Financial Statements for additional information regarding the EPA RCRA Initiative.
Income Taxes
We make estimates for income taxes in three major areas: uncertain tax positions, valuation allowances, and U.S. deferred income taxes on our non-U.S. subsidiaries’ undistributed earnings.
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Due to Mosaic’s global operations, we assess uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions. Future changes in judgment related to the expected ultimate resolution of uncertain tax positions will affect earnings in the quarter of such change. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, our liabilities for income taxes reflect what we believe to be the more likely than not outcome. We adjust these liabilities, as well as the related interest, in light of changing facts and circumstances, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation, and resolution of disputes arising from tax audits in the normal course of business. Settlement of any particular position may require the use of cash. Based upon an analysis of tax positions taken on prior year returns and expected positions to be taken on the current year return, management has identified gross uncertain income tax positions of $36.9 million as of December 31, 2020.
A valuation allowance is provided for deferred tax assets for which it is more likely than not that the related tax benefits will not be realized. Significant judgment is required in evaluating the need for and magnitude of appropriate valuation allowances. The realization of the Company’s deferred tax assets is dependent on generating certain types of future taxable income, using both historical and projected future operating results, the source of future income, the reversal of existing taxable temporary differences, taxable income in prior carry-back years (if permitted) and the availability of tax planning strategies. As of December 31, 2020, and 2019, we had a valuation allowance of $0.7 billion and $1.5 billion, respectively. Changes in tax laws, assumptions with respect to future taxable income, tax planning strategies, resolution of matters under tax audit and foreign currency exchange rates could result in adjustment to these allowances.
Any dividends from controlled foreign corporations are tax-free from a U.S. income tax perspective. Additionally, there will not be any foreign tax credits associated with foreign dividends. Therefore, there are no federal U.S. implications of future repatriations on non-U.S. subsidiaries’ undistributed earnings. However, since there are no U.S. foreign tax credits associated with foreign dividends, any foreign withholding tax associated with a future repatriation will need to be accrued if the earnings are not permanently reinvested.
We have included a further discussion of income taxes in Note 14 of our Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
We define liquidity as the ability to generate or access adequate amounts of cash to meet current cash needs. We assess our liquidity in terms of our ability to fund working capital requirements, fund sustaining and opportunity capital projects, pursue strategic opportunities and make capital management decisions, which include making payments on and issuing indebtedness and making distributions to our shareholders, either in the form of share repurchases or dividends. Our liquidity is subject to general economic, financial, competitive and other factors that are beyond our control.
As of December 31, 2020, we had cash and cash equivalents of $0.6 billion, marketable securities held in trusts to fund future obligations of $0.7 billion, long-term debt including current maturities of $4.6 billion, short-term debt of $0.1 million and stockholders’ equity of $9.8 billion. In addition, we had $640.0 million of financing for certain customer purchases in Brazil through structured payable arrangements, as discussed in Note 12 of our Notes to Consolidated Financial Statements. We have a target liquidity buffer of up to $3.0 billion, including cash and available credit facilities. 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 metrics. Our capital allocation priorities include maintaining our target investment grade metrics 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 2020, we invested $1.2 billion in capital expenditures and returned cash to shareholders through cash dividends of $75.8 million.
All of our cash and cash equivalents are diversified in highly rated investment vehicles. Our cash and cash equivalents are held either in the U.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 in U.S. dollars as of December 31, 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 funds held by non-U.S. subsidiaries back to the U.S., aside from withholding taxes.
We have certain contractual obligations that require us to make cash payments on a scheduled basis. These include, among other things, long-term debt payments, interest payments, operating leases, unconditional purchase obligations and funding
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requirements of pension and postretirement obligations. Our long-term debt has maturities ranging from one year to 23 years. Unconditional purchase obligations are our largest contractual cash obligations. These include obligations for capital expenditures related to our expansion projects, contracts to purchase raw materials such as sulfur, ammonia, phosphate rock and natural gas, obligations to purchase raw materials for our international distribution activities and equity contributions for or loans to nonconsolidated investments. Other large cash obligations are our AROs and other environmental obligations primarily related to our Phosphates and Mosaic Fertilizantes segments. We expect to fund our AROs, purchase obligations, long-term debt and capital expenditures with a combination of operating cash flows, cash and cash equivalents and borrowings. See Off-Balance Sheet Arrangements and Obligations below for the amounts owed by Mosaic under Contractual Cash Obligations and for more information on other environmental obligations, for more information on this matter.
Sources and Uses of Cash
The following table represents a comparison of the net cash provided by operating activities, net cash used in investing activities and net cash used in financing activities for calendar years 2020, 2019 and 2018:
Years Ended December 31,
As of December 31, 2020, we had cash and cash equivalents and restricted cash of $0.6 billion. Funds generated by operating activities, available cash and cash equivalents and our revolving credit facility 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 either under our revolving credit facility or through long-term borrowings will be sufficient to finance our operations, including our expansion plans, 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. At December 31, 2020, we had $2.19 billion available under our $2.20 billion revolving credit facility.
Operating Activities
Net cash flow from operating activities has provided us with a significant source of liquidity. For the year ended December 31, 2020, net cash provided by operating activities was $1.6 billion, compared to $1.1 billion in the prior year. Our results of operations, after non-cash adjustments to net earnings, contributed $1.1 billion to cash flows from operating activities during 2020, compared to $1.2 billion during 2019. During 2020, we had a favorable working capital change of $526.9 million, compared to an unfavorable change of $69.2 million during 2019.