Mosaic(MOS) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. FINANCIAL STATEMENTS This section presents Mosaic's unaudited condensed consolidated financial statements and detailed notes for Q2 2023 and 2022 Condensed Consolidated Statements of Earnings This section presents the company's condensed consolidated statements of earnings for the three and six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Earnings (Three Months Ended June 30) | Metric | June 30, 2023 (Millions $) | June 30, 2022 (Millions $) | Change (Millions $) | Percent Change | | :----- | :------------------------- | :------------------------- | :------------------ | :------------- | Condensed Consolidated Statements of Earnings (Six Months Ended June 30) | Metric | June 30, 2023 (Millions $) | June 30, 2022 (Millions $) | Change (Millions $) | Percent Change | | :----- | :------------------------- | :------------------------- | :------------------ | :------------- | Condensed Consolidated Statements of Comprehensive Income This section presents the company's condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Comprehensive Income (Three Months Ended June 30) | Metric | June 30, 2023 (Millions $) | June 30, 2022 (Millions $) | | :----- | :------------------------- | :------------------------- | Condensed Consolidated Statements of Comprehensive Income (Six Months Ended June 30) | Metric | June 30, 2023 (Millions $) | June 30, 2022 (Millions $) | | :----- | :------------------------- | :------------------------- | Condensed Consolidated Balance Sheets This section presents the company's condensed consolidated balance sheets as of June 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (As of June 30, 2023 and December 31, 2022) | Account | June 30, 2023 (Millions $) | December 31, 2022 (Millions $) | | :------ | :------------------------- | :----------------------------- | Condensed Consolidated Statements of Cash Flows This section presents the company's condensed consolidated statements of cash flows for the six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Cash Flow Activity | June 30, 2023 (Millions $) | June 30, 2022 (Millions $) | | :----------------- | :------------------------- | :------------------------- | Supplemental Disclosure of Cash Flow Information (Six Months Ended June 30, 2023) | Item | Amount (Millions $) | | :--- | :------------------ | Condensed Consolidated Statements of Equity This section presents the company's condensed consolidated statements of equity for the three and six months ended June 30, 2023 Condensed Consolidated Statements of Equity (Three Months Ended June 30, 2023) | Account | Common Stock (Shares) | Common Stock (Dollars) | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive (Loss) | Noncontrolling Interests | Total Equity | | :------ | :-------------------- | :--------------------- | :----------------------------- | :---------------- | :------------------------------------- | :----------------------- | :----------- | Condensed Consolidated Statements of Equity (Six Months Ended June 30, 2023) | Account | Common Stock (Shares) | Common Stock (Dollars) | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive (Loss) | Noncontrolling Interests | Total Equity | | :------ | :-------------------- | :--------------------- | :----------------------------- | :---------------- | :------------------------------------- | :----------------------- | :----------- | Notes to Condensed Consolidated Financial Statements This section provides detailed notes explaining the accounting policies, financial data, and specific accounts for the financial statements 1. Organization and Nature of Business Mosaic produces and markets phosphate and potash crop nutrients through its Phosphate, Potash, and Mosaic Fertilizantes segments - Mosaic produces and markets concentrated phosphate and potash crop nutrients[21] - Business segments include Phosphate (Florida, Louisiana, Peru, Saudi Arabia JV), Potash (Canada, U.S.), and Mosaic Fertilizantes (Brazil, Paraguay)[23] 2. Summary of Significant Accounting Policies Unaudited Condensed Consolidated Financial Statements adhere to SEC interim reporting and GAAP, involving key estimates for assets, liabilities, and taxes - Financial statements are prepared on an accrual basis, in accordance with SEC rules for interim reporting and GAAP[23] - Significant accounting estimates involve fair value of acquired assets, recoverability of non-current assets (including goodwill), useful lives and net realizable values of long-lived assets, environmental and reclamation liabilities (ARO), and income tax accounts[25] 3. Recently Issued Accounting Guidance New FASB guidance on supplier financing programs was adopted on January 1, 2023, requiring annual disclosures without impacting balance sheet presentation - Adopted new FASB guidance on supplier financing programs as of January 1, 2023, requiring annual disclosures on key terms and outstanding amounts[26] - The adoption did not impact balance sheet presentation or footnote disclosures due to prior similar reporting practices[26] 4. Other Financial Statement Data This section details changes in selected balance sheet accounts, including other current assets, accrued liabilities, and noncurrent liabilities Other Current Assets (Millions $) | Account | June 30, 2023 | December 31, 2022 | | :------ | :------------ | :---------------- | Other Assets (Millions $) | Account | June 30, 2023 | December 31, 2022 | | :------ | :------------ | :---------------- | Accrued Liabilities (Millions $) | Account | June 30, 2023 | December 31, 2022 | | :------ | :------------ | :---------------- | Other Noncurrent Liabilities (Millions $) | Account | June 30, 2023 | December 31, 2022 | | :------ | :------------ | :---------------- | 5. Earnings Per Share This note reconciles basic and diluted EPS, detailing net earnings and weighted average shares, and noting anti-dilutive share exclusions EPS Reconciliation (Three Months Ended June 30) | Metric | 2023 | 2022 | | :----- | :--- | :--- | EPS Reconciliation (Six Months Ended June 30) | Metric | 2023 | 2022 | | :----- | :--- | :--- | - 0.7 million and 0.4 million shares for the three and six months ended June 30, 2023, respectively, were excluded from diluted EPS calculation as they were anti-dilutive[31] 6. Inventories This section details inventory composition as of June 30, 2023, and December 31, 2022, including raw materials and finished goods Inventories Composition (Millions $) | Category | June 30, 2023 | December 31, 2022 | | :------- | :------------ | :---------------- | - Final price deferred inventory represents product shipped to customers where the price has not yet been agreed upon[32] 7. Goodwill Mosaic's goodwill remained at $1.1 billion as of June 30, 2023, with the next impairment review scheduled for October 31, 2023 - Goodwill was $1.1 billion as of June 30, 2023, and December 31, 2022[33] Changes in Goodwill by Reporting Unit (Millions $) | Reporting Unit | Balance as of Dec 31, 2022 | Foreign Currency Translation | Balance as of June 30, 2023 | | :------------- | :------------------------- | :--------------------------- | :-------------------------- | - The next annual goodwill impairment analysis is scheduled for October 31, 2023[34] 8. Marketable Securities Held in Trusts Mosaic holds available-for-sale marketable debt securities in RCRA Trusts for Gypstack Closure Costs, valued using a fair value hierarchy - RCRA Trusts hold investments for Gypstack Closure Costs, classified as available-for-sale marketable debt securities[35][36] - Fair value hierarchy (Level 1, 2, 3) is used for valuation, with most investments classified as Level 2 (corporate debt, municipal bonds, U.S. government bonds)[37][38][39][41] Estimated Fair Value of RCRA Trusts Investments (June 30, 2023) | Category | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | :------- | :------------- | :--------------------- | :---------------------- | :--------- | Estimated Fair Value of RCRA Trusts Investments (December 31, 2022) | Category | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | :------- | :------------- | :--------------------- | :---------------------- | :--------- | Gross Unrealized Losses and Fair Values of Available-for-Sale Securities (June 30, 2023) | Category | Fair Value | Gross Unrealized Losses | | :------- | :--------- | :---------------------- | Gross Unrealized Losses and Fair Values of Available-for-Sale Securities (December 31, 2022) | Category | Fair Value | Gross Unrealized Losses | | :------- | :--------- | :---------------------- | Contractual Maturity of Available-for-Sale Debt Securities (June 30, 2023) | Maturity Period | Amount (Millions $) | | :-------------- | :------------------ | - For the six months ended June 30, 2023, realized gains were $9.1 million and realized losses were $15.2 million[44] 9. Financing Arrangements Mosaic uses diverse financing, including inventory and receivable agreements, Brazilian structured payables, commercial paper, and an undrawn $700 million term loan - Inventory financing arrangement allows selling up to $625 million of inventory; no outstanding balance as of June 30, 2023[45] - Receivable Purchasing Agreement (RPA) allows selling up to $600 million of receivables; $1.1 billion sold for the six months ended June 30, 2023[46][47] - Structured accounts payable arrangements in Brazil totaled $592.5 million as of June 30, 2023[48] - Commercial paper program had $199.7 million outstanding as of June 30, 2023, with a weighted average interest rate of 5.37%[49] - Entered into a $700 million 10-year senior unsecured term loan facility in May 2023, with no amounts drawn as of June 30, 2023[50] 10. Asset Retirement Obligations Mosaic recognizes AROs at fair value for legal obligations like Gypstack closure, primarily in Florida and Louisiana, with financial assurance - AROs are recognized at fair value for legal obligations such as land reclamation, Gypstack closure, and facility decommissioning[51][52][53] Reconciliation of Asset Retirement Obligations (Millions $) | Item | June 30, 2023 | December 31, 2022 | | :--- | :------------ | :---------------- | - A majority of AROs relate to Gypstack Closure Costs in Florida and Louisiana, with financial assurance provided through RCRA Trusts and surety bonds[55][56][58][60] - As of June 30, 2023, aggregate AROs for Plant City and Bonnie Facility Gypstack closure costs were $328.9 million[61] 11. Income Taxes Gross unrecognized tax benefits increased to $28.9 million, with effective tax rates of 22.8% and 22.2% for the three and six months ended June 30, 2023 - Gross unrecognized tax benefits increased by $3.5 million to $28.9 million for the six months ended June 30, 2023[62] Income Tax Provision and Effective Tax Rate | Period | Effective Tax Rate | Provision for Income Taxes (Millions $) | | :----- | :----------------- | :-------------------------------------- | - Discrete tax items provided a benefit of approximately $9.9 million for the three months and $23.8 million for the six months ended June 30, 2023[65][67] - The company is assessing the financial statement impact of the Treasury Department's Notice 2023-55 regarding temporary relief for foreign tax credits[68] 12. Derivative Instruments and Hedging Activities Mosaic uses derivatives to manage foreign currency, interest rate, and commodity price risks, recorded at fair value without hedge accounting for most contracts - Derivatives are used to mitigate foreign currency, interest rate, and commodity price risks, recorded at fair value[69] - No hedge accounting is applied to foreign currency, commodity, or freight contracts; fixed-to-floating interest rate contracts use fair value hedge accounting, but none were in effect as of June 30, 2023[70][71] Total Absolute Notional Volume of Outstanding Derivative Instruments (Millions of Units) | Derivative Instrument | Derivative Category | Unit of Measure | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------------ | :-------------- | :------------ | :---------------- | - The aggregate fair value of derivative instruments with credit-risk-related contingent features in a liability position was $10.9 million as of June 30, 2023[73] 13. Fair Value Measurements This note details fair value measurement techniques for recurring assets and liabilities, including derivatives and other financial instruments - Foreign currency derivatives are primarily Level 2, with some Level 1, and had a gross asset position of $39.7 million and gross liability of $15.3 million as of June 30, 2023[75] - Commodity derivatives (natural gas) are Level 2, with a gross asset position of $6.3 million and gross liability of $0.8 million as of June 30, 2023[76] - No interest rate derivative positions were held as of June 30, 2023[77] Carrying Amounts and Estimated Fair Values of Financial Instruments (Millions $) | Instrument | June 30, 2023 (Carrying Amount) | June 30, 2023 (Fair Value) | December 31, 2022 (Carrying Amount) | December 31, 2022 (Fair Value) | | :--------- | :------------------------------ | :------------------------- | :---------------------------------- | :----------------------------- | 14. Share Repurchases Mosaic's Board approved $3.0 billion in share repurchases, with $448.0 million executed in the first six months of 2023 - Board approved $3.0 billion in share repurchase programs in 2022[79] - For the six months ended June 30, 2023, 8,690,936 shares were repurchased for approximately $448.0 million (average price $51.55/share)[81] - No share repurchases occurred in the three months ended June 30, 2023[81] - For the six months ended June 30, 2022, 17,733,984 shares were repurchased for approximately $1.0 billion (average price $64.37/share)[83][82] 15. Accumulated Other Comprehensive Income (Loss) ("AOCI") This note details changes in AOCI, net of tax, by component for the three and six months ended June 30, 2023 and 2022 Changes in AOCI, Net of Tax (Three Months Ended June 30, 2023) | Component | Balance at March 31, 2023 | Other Comprehensive Income (Loss) | Tax (Expense) Benefit | Other Comprehensive Income (Loss), Net of Tax | Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest | Balance as of June 30, 2023 | | :-------- | :------------------------ | :-------------------------------- | :-------------------- | :-------------------------------------------- | :---------------------------------------------------------------------- | :-------------------------- | Changes in AOCI, Net of Tax (Six Months Ended June 30, 2023) | Component | Balance at December 31, 2022 | Other Comprehensive Income (Loss) | Tax (Expense) Benefit | Other Comprehensive Income (Loss), Net of Tax | Other Comprehensive Income (Loss) Attributable to Noncontrolling Interest | Balance as of June 30, 2023 | | :-------- | :--------------------------- | :-------------------------------- | :-------------------- | :-------------------------------------------- | :---------------------------------------------------------------------- | :-------------------------- | 16. Related Party Transactions Mosaic engages in related party transactions, with $408.3 million due to non-consolidated companies as of June 30, 2023 - Net amount due to non-consolidated companies was $408.3 million as of June 30, 2023, up from $56.8 million at December 31, 2022[86] Related Party Transactions in Condensed Consolidated Statements of Earnings (Millions $) | Transaction Type | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | - Net sales to related parties primarily from Potash segment to Canpotex. Cost of goods sold from related parties primarily from Canpotex and MWSPC to Mosaic Fertilizantes and distribution businesses[87] 17. Contingencies Mosaic faces environmental, coastal zone, and Brazilian legal contingencies, with accruals for probable losses and potential future expenditures - Contingent environmental liabilities arise from current/former facilities, adjacent facilities, and third-party Superfund sites, with accruals of $174.4 million as of June 30, 2023[89] - A reserve of $53.9 million was established for estimated repairs at the New Wales Phase II East Stack due to a cavity and liner tear[91] - Louisiana coastal zone cases are expected to be resolved through a memorandum of understanding with funding from third-party indemnitors/insurers[96] - Brazilian subsidiaries face judicial/administrative proceedings with aggregate damages/fines of approximately $868.4 million, with a probable aggregate loss of $74.5 million accrued[97] - Brazilian tax contingencies have a maximum potential liability of approximately $586.5 million, with $220.2 million subject to an indemnification agreement with Vale S.A[99] 18. Business Segments Mosaic's Phosphate, Potash, and Mosaic Fertilizantes segments are evaluated by operating earnings, with detailed financial and sales data provided Segment Information (Three Months Ended June 30, 2023) | Metric | Phosphate | Potash | Mosaic Fertilizantes | Corporate, Eliminations and Other | Total | | :----- | :-------- | :----- | :------------------- | :-------------------------------- | :---- | Segment Information (Six Months Ended June 30, 2023) | Metric | Phosphate | Potash | Mosaic Fertilizantes | Corporate, Eliminations and Other | Total | | :----- | :-------- | :----- | :------------------- | :-------------------------------- | :---- | Net Sales by Geographic Area (Millions $) | Country/Region | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | Net Sales by Product Type (Millions $) | Product Type | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section analyzes Mosaic's financial performance for Q2 2023, highlighting declines in sales and earnings due to lower prices, segment performance, liquidity, and forward-looking statements Results of Operations Overview Mosaic's net income and sales significantly declined in Q2 2023 due to lower selling prices and market softening, despite foreign currency gains Consolidated Results of Operations (Three Months Ended June 30) | Metric | 2023 (Millions $) | 2022 (Millions $) | Change (Millions $) | Percent Change | | :----- | :---------------- | :---------------- | :------------------ | :------------- | Consolidated Results of Operations (Six Months Ended June 30) | Metric | 2023 (Millions $) | 2022 (Millions $) | Change (Millions $) | Percent Change | | :----- | :---------------- | :---------------- | :------------------ | :------------- | - Net income attributable to Mosaic decreased by 64% to $369.0 million for the three months ended June 30, 2023, and by 64% to $803.8 million for the six months ended June 30, 2023, compared to prior year periods[112][113][121] - Net sales decreased by 37% for the three months and 25% for the six months ended June 30, 2023, primarily due to lower average selling prices[112][113] - Foreign currency transaction gain positively impacted net income by $148.5 million (3 months) and $199.9 million (6 months) in 2023[113][121] - Key highlights include entering a $700 million term loan facility (undrawn), sale of Streamsong Resort for $158 million gain, full ownership of Gulf Sulphur Services, $300 million accelerated share repurchase, and a special dividend of $0.25 per share[120][128] Segment Performance All segments experienced lower sales prices and reduced gross margins due to market softening, despite some volume increases and lower raw material costs Phosphate Segment Phosphate segment net sales and gross margin decreased due to lower selling prices, partially offset by higher volumes and reduced raw material costs Phosphate Segment Performance (Three Months Ended June 30) | Metric | 2023 | 2022 | Change | Percent Change | | :----- | :--- | :--- | :----- | :------------- | Phosphate Segment Performance (Six Months Ended June 30) | Metric | 2023 | 2022 | Change | Percent Change | | :----- | :--- | :--- | :----- | :------------- | - Average finished product selling price decreased 40% to $634/tonne (3 months) and 30% to $674/tonne YoY (6 months)[129][131][137] - Finished product sales volumes increased 15% (3 months) and 13% (6 months) YoY[129][131][137] - Gross margin decreased by 66% to $216.2 million (3 months) and 59% to $475.5 million (6 months) YoY, primarily due to lower sales prices[129][132][138] - Average consumed ammonia price decreased 25% (3 months) and 12% (6 months) YoY; sulfur price decreased 49% (3 months) and 30% (6 months) YoY[129][133][139] Potash Segment Potash segment net sales and gross margin declined significantly due to lower selling prices, reduced volumes, and increased idle plant costs Potash Segment Performance (Three Months Ended June 30) | Metric | 2023 | 2022 | Change | Percent Change | | :----- | :--- | :--- | :----- | :------------- | Potash Segment Performance (Six Months Ended June 30) | Metric | 2023 | 2022 | Change | Percent Change | | :----- | :--- | :--- | :----- | :------------- | - Average finished product selling price decreased 43% to $392/tonne (3 months) and 33% to $431/tonne YoY (6 months)[142][144][150] - Sales volumes decreased 6% (3 months) and 1% (6 months) YoY[142][145][150] - Gross margin decreased by 64% to $336.0 million (3 months) and 50% to $749.3 million (6 months) YoY, primarily due to lower selling prices and volumes[142][146][151] - Canadian resource taxes decreased by $179.5 million (3 months) and $215.9 million (6 months) YoY[147][152] - Operating rate for potash production decreased to 69% (3 months) and 69% (6 months) YoY, reflecting temporary idling of Colonsay mine and maintenance turnarounds[148][153] Mosaic Fertilizantes Segment Mosaic Fertilizantes segment saw significant decreases in net sales and gross margin due to lower selling prices, despite increased sales volumes Mosaic Fertilizantes Segment Performance (Three Months Ended June 30) | Metric | 2023 | 2022 | Change | Percent Change | | :----- | :--- | :--- | :----- | :------------- | Mosaic Fertilizantes Segment Performance (Six Months Ended June 30) | Metric | 2023 | 2022 | Change | Percent Change | | :----- | :--- | :--- | :----- | :------------- | - Average finished product selling price decreased 39% to $595/tonne (3 months) and 32% to $619/tonne YoY (6 months)[156][158][165] - Finished product sales volumes increased 3% (3 months) and 8% (6 months) YoY[156][158][165] - Gross margin decreased by 97% to $12.8 million (3 months) and 98% to $11.7 million (6 months) YoY, primarily due to lower selling prices[156][159][166] - Lower product costs and raw material costs (sulfur and ammonia) favorably impacted gross margin by $370 million (3 months) and $470 million (6 months)[160][166] Corporate, Eliminations and Other Corporate, Eliminations and Other segment's gross margin improved due to derivative gains and lower intersegment profit elimination, despite unfavorable product costs - Gross margin for Corporate, Eliminations and Other was $6.1 million (3 months) and $5.0 million (6 months) in 2023, compared to $(173.1) million and $(59.9) million in 2022[170][171] - Gross margin was favorably impacted by a net unrealized gain on derivatives of approximately $34 million (3 months) and $33 million (6 months) in 2023[170][171] - Lower elimination of profit on intersegment sales favorably impacted gross margin by approximately $215 million (3 months) and $313 million (6 months)[170][171] - Unfavorable product costs in China and India distribution businesses negatively impacted gross margin[170][171] Other Income Statement Items SG&A expenses increased, other operating expenses were impacted by AROs and a resort sale gain, and foreign currency transaction gains were significant Other Income Statement Items (Millions $) | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change | Percent Change | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change | Percent Change | | :--- | :------------------------------- | :------------------------------- | :----- | :------------- | :----------------------------- | :----------------------------- | :----- | :------------- | - Selling, general and administrative expenses increased by $21.7 million (3 months) and $17.0 million (6 months) YoY, driven by consulting services and compensation[173][174] - Other operating expense for the six months ended June 30, 2023, included a $57 million gain on the sale of Streamsong Resort and $21 million in insurance proceeds, partially offset by increased ARO closure costs[177] - Foreign currency transaction gain was $148.5 million (3 months) and $199.9 million (6 months) in 2023, primarily due to the weakening U.S. dollar against the Brazilian real and Canadian dollar[178][179] - Equity in net earnings of nonconsolidated companies decreased by 64% (3 months) and 34% (6 months) YoY, mainly due to lower selling prices for MWSPC products[181] Liquidity and Capital Resources Mosaic reported $626.1 million cash, $3.4 billion long-term debt, and a $3.0 billion liquidity target, with operating cash flow decreasing to $1.2 billion - As of June 30, 2023: Cash and cash equivalents: $626.1 million; Short-term debt: $229.0 million; Long-term debt (including current maturities): ~$3.4 billion; Stockholders' equity: ~$12.6 billion[187] - Target liquidity buffer of up to $3.0 billion, including cash and available credit lines[187] - Available credit: $2.49 billion under $2.50 billion revolving credit facility, ~$1.0 billion under uncommitted facilities, and $2.3 billion under $2.5 billion commercial paper program[188] Net Cash Flow Comparison (Six Months Ended June 30) | Cash Flow Activity | 2023 (Millions $) | 2022 (Millions $) | Change (Millions $) | Percent Change | | :----------------- | :---------------- | :---------------- | :------------------ | :------------- | - Net cash provided by operating activities was $1.2 billion for the six months ended June 30, 2023, a 42% decrease YoY[191][192] - Net cash used in investing activities was $532.9 million, including $631.8 million in capital expenditures and $158.4 million from the sale of the Resort[191][194] - Net cash used in financing activities was $815.6 million, including $456.0 million in share repurchases and $220.1 million in dividends[191][195] Financial Assurance Requirements Mosaic is subject to financial assurance requirements in Florida and Louisiana for its Phosphate segment, requiring credit support for environmental obligations - Subject to financial assurance requirements in Florida and Louisiana for Phosphate segment operations[197] - Required to pass a financial strength test or provide credit support (surety bonds, letters of credit, certificates of deposit, or trust funds)[197] Environmental, Health, Safety and Security Matters The Supreme Court's Sackett v EPA ruling narrowed "Waters of the United States" (WOTUS), invalidating EPA's 2023 definition, with a new regulation expected - U.S. Supreme Court's Sackett v EPA decision significantly limits the scope of "Waters of the United States" (WOTUS) under the Clean Water Act[199] - The ruling requires wetlands to have a continuous surface connection to relatively permanent bodies of water to be considered WOTUS[199] - The EPA's 2023 regulatory definition of WOTUS was invalidated, and a new regulation is expected by September 1, 2023[200] Off-Balance Sheet Arrangements and Obligations Off-balance sheet arrangements and obligations are incorporated by reference from the 10-K Report and Note 17 Contingencies Contingencies information is incorporated by reference from Note 17 to the Condensed Consolidated Financial Statements Forward-Looking Statements This section cautions that forward-looking statements are subject to risks and uncertainties, including economic conditions, market volatility, and regulatory changes - All statements not of historical fact are forward-looking and subject to risks and uncertainties[204] - Factors influencing results include economic conditions, government policies, market volatility, geopolitical instability (Brazil, Saudi Arabia, Peru), COVID-19 impact, oil demand, changes in application rates, market consolidation, competitor actions, product innovations, seasonality, raw material/energy costs, transportation issues, trade policies, foreign exchange rates, international operations risks, weather, regulatory approvals, environmental regulations (WOTUS, GHG emissions), financial resources of competitors, customer defaults, liquidity, strategic initiatives, actual costs differing from estimates, legal/administrative proceedings, labor relations, brine inflows, accidents, terrorism, and cybersecurity risks[205][211] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Mosaic faces market risks from currency, interest rates, commodity prices, and freight, using derivatives to mitigate these non-speculative exposures - Exposed to market risks from currency, interest rates, commodity prices (natural gas, ammonia, sulfur), and freight costs[212] - Uses derivatives to mitigate risks, not for speculation[212] - Primary foreign currency exposures are the Canadian dollar and Brazilian real, hedged up to 18 months and 12 months, respectively[213] Foreign Currency Exchange Contracts This section details the fair value and notional volumes of foreign currency exchange derivatives used to manage currency risk - Fair value of major foreign currency exchange contracts was $24.4 million as of June 30, 2023, compared to $(27.3) million as of December 31, 2022[214] Foreign Currency Exchange Derivatives (Millions US$) | Currency | Notional (2023) | Notional (2024) | Fair Value (June 30, 2023) | Notional (2023) | Notional (2024) | Fair Value (Dec 31, 2022) | | :------- | :-------------- | :-------------- | :------------------------- | :-------------- | :-------------- | :------------------------ | Commodities This section details the fair value and notional volumes of natural gas commodity derivatives used to manage price risk - Fair value of natural gas commodities contracts was $5.9 million as of June 30, 2023, compared to $18.7 million as of December 31, 2022[216] Natural Gas Derivatives (Millions) | Metric | Notional (2023) | Notional (2024) | Fair Value (June 30, 2023) | Notional (2023) | Notional (2024) | Fair Value (Dec 31, 2022) | | :----- | :-------------- | :-------------- | :------------------------- | :-------------- | :-------------- | :------------------------ | ITEM 4. CONTROLS AND PROCEDURES Management concluded disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2023[219] - No material changes in internal control over financial reporting were identified during the three months ended June 30, 2023[220] PART II. OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, equity sales, mine safety, and other disclosures ITEM 1. LEGAL PROCEEDINGS Mosaic is involved in legal proceedings including countervailing duty investigations, settled reclamation litigation, a class action, and an EPA violation notice - Countervailing duty orders are in place against phosphate fertilizer imports from Morocco and Russia, with cash deposit rates ranging from 9% to 47%[221] - Litigation regarding reclamation deadlines at the South Pasture Mine Extension was settled, with a waiver of deadlines until end of 2023 and a civil penalty payment of $249,000[228] - A class action lawsuit (Cruz Litigation) alleges elevated radiation levels at manufactured housing communities on reclaimed mining land; Mosaic intends to vigorously defend the matter[230][232] - EPA Region 6 issued a Notice of Potential Violation to the Faustina Plant regarding compliance with the Risk Management Plan Rule, with ongoing settlement discussions[233] ITEM 1A. RISK FACTORS Key risk factors are incorporated by reference from Item 1A of the company's Annual Report on Form 10-K - Key risk factors are incorporated by reference from the Annual Report on Form 10-K[235] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No options to purchase Common Stock were exercised using already-owned shares as payment during the reporting periods - No options to purchase Common Stock were exercised using already-owned shares as payment during the reporting periods[236] ITEM 4. MINE SAFETY DISCLOSURES Mine safety disclosures, as required by Dodd-Frank and Regulation S-K, are provided in Exhibit 95 of this report - Mine safety disclosures are provided in Exhibit 95 of the report[237] ITEM 5. OTHER INFORMATION No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the quarter[238] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including agreements, plans, certifications, and disclosures Exhibit Index | Exhibit No | Description | Incorporated Herein by Reference to | Filed with Electronic Submission | | :--------- | :---------- | :---------------------------------- | :------------------------------- | Signatures The report is signed by Russell A. Flugel, Vice President and Controller, on behalf of The Mosaic Company on August 2, 2023 - Report signed by Russell A. Flugel, Vice President and Controller, on August 2, 2023[243]