Edgar Filing: MOSAIC CO

Form 8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 22, 2004

AMENDMENT NO. 1

THE MOSAIC COMPANY

(Exact name of registrant as specified in its charter)

Delaware

001-32327

20-0891589

(State or other jurisdiction

of incorporation)

(Commission File Number)

(IRS Employer

Identification No.)

12800 Whitewater Drive

Minnetonka, Minnesota

55343

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (952) 984-0316

Not applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

This Amendment No. 1 to Current Report on Form 8-K amends the registrant’s Current Report on Form 8-K filed on October 28, 2004.

Item 9.01 Financial Statements and Exhibits

(a) Financial statements of business acquired.

IMC Global Inc. (n/k/a Mosaic Global Holdings Inc. (“IMC”)):

The audited consolidated financial statements of IMC as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, found on pages 43 through 99 of IMC’s Annual Report on Form 10-K/A (Amendment No. 1), filed with the Securities and Exchange Commission on September 14, 2004, are incorporated herein by reference.

The unaudited consolidated financial statements of IMC for the quarter ended September 30, 2004, included in IMC’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, filed with the Securities and Exchange Commission on November 9, 2004, are incorporated herein by reference.

Cargill Fertilizer Businesses:

The audited consolidated financial statements of the Cargill Fertilizer Businesses as of and for the year ended May 31, 2004, found on pages F-4 through F-24 of The Mosaic Company’s Form S-4 Registration Statement (Amendment No. 4) (Registration No. 333-114300), filed with the Securities and Exchange Commission on September 17, 2004, are incorporated herein by reference.

The unaudited consolidated financial statements of the Cargill Fertilizer Businesses for the quarter ended August 31, 2004 appear on pages 3 through 20 of this Current Report on Form 8-K/A (Amendment No. 1).

The audited consolidated financial statements of Fertifos Administração e Participação S.A. as of December 31, 2003 and 2002 and for each of the years included in the three-year period ended December 31, 2003, and the unaudited consolidated financial statements as of and for the six months ended June 30, 2004 and 2003, appear on pages 21 through 55 of this Current Report on Form 8-K/A (Amendment No. 1).

The audited financial statements of Saskferco Products Inc. as of May 31, 2004 and 2003 and for each of the years included in the three-year period ended May 31, 2004, and the unaudited financial statements as of and for the three months ended August 31, 2004 and 2003, appear on pages 56 through 88 of this Current Report on Form 8-K/A (Amendment No. 1).

(b) Pro forma financial information.


			Page
The Mosaic Company:

	Unaudited Pro Forma Combined Condensed Financial Data		89

	Unaudited Pro Forma Combined Condensed Statement of Operations		90

	Unaudited Pro Forma Combined Condensed Balance Sheet		92

	Notes to Unaudited Pro Forma Financial Statements		93

(c)	Exhibits.

	2.1	Agreement and Plan of Merger and Contribution, dated as of January 26, 2004, by and among Mosaic, GNS Acquisition Corp., IMC, Cargill and Cargill Fertilizer, Inc., as amended by Amendment No. 1 to Agreement and Plan of Merger and Contribution, dated as of June 15, 2004, and as subsequently amended by Amendment No. 2 to Agreement and Plan of Merger and Contribution, dated as of October 18, 2004 (incorporated by reference to Exhibit 2.1 of Form 8-K filed on October 28, 2004)

Cargill Fertilizer Businesses

Consolidated Balance Sheets

(unaudited)


	August 31, 2004			May 31, 2004
	(in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	22,842		10,070
Short-term investments		—		121
Accounts receivable less allowances of $5,544 and $5,785		283,024		199,404
Trade accounts receivable due from Cargill, Inc. and affiliates		15,211		32,902
Inventories		378,171		343,490
Vendor prepayments		25,351		28,742
Prepaid expenses		36,753		39,242

TOTAL CURRENT ASSETS		761,352		653,971
OTHER ASSETS
Investments in nonconsolidated companies		266,992		259,123
Note receivable from Saskferco Products Inc.		42,568		27,216
Other		32,005		23,534
PROPERTY
Property, plant and equipment		1,548,311		1,495,701
Construction in progress		152,760		159,932

		1,701,071		1,655,633
Less accumulated depreciation and amortization		786,820		763,496

NET PROPERTY		914,251		892,127

TOTAL ASSETS	$	2,017,168		1,855,981

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	7,293		9,756
Accounts payable		133,185		90,764
Trade accounts payable due to Cargill, Inc. and affiliates		47,147		20,543
Customer prepayments		58,336		26,474
Accrued expenses		81,996		80,500
Accrued income taxes		17,110		22,071
Due to Cargill, Inc. and affiliates		199,007		202,915

TOTAL CURRENT LIABILITIES		544,074		453,023
OTHER LIABILITIES
Long-term debt		33,823		32,624
Due to Cargill, Inc. and affiliates		305,322		306,581
Deferred income taxes		93,037		84,771
Deferred asset retirement obligation		97,581		98,177
Other deferred liabilities		43,620		40,158

TOTAL LIABILITIES		1,117,457		1,015,334
MINORITY INTERESTS IN SUBSIDIARIES		9,201		7,639
STOCKHOLDER'S EQUITY
Equity		985,115		946,786
Accumulated other comprehensive income		(94,605	)	(113,778	)

TOTAL STOCKHOLDER'S EQUITY		890,510		833,008

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	2,017,168		1,855,981

The accompanying notes are an integral part of the consolidated financial statements.

Cargill Fertilizer Businesses

Consolidated Statements of Operations

(unaudited)


	Three Months Ended
	August 31, 2004			August 31, 2003
	(in thousands)
Net sales	$	724,775		547,432
Cost of sales		649,329		513,583

Gross profit		75,446		33,849
Selling, general and administrative		30,993		21,867
(Gain)/loss on sale of assets		232		(236	)
Other operating income		(6,000	)	—

Operating earnings		50,221		12,218
Interest on external debt		2,608		2,233
Interest on debt with Cargill, Inc. and affiliates		4,993		6,045
Foreign currency losses		1,601		86
Other income, net		(318	)	(994	)

Earnings from consolidated companies before income taxes		41,337		4,848
Income tax expense		11,222		860

Net earnings from consolidated companies		30,115		3,988
Add equity in net earnings of nonconsolidated companies		14,472		5,079
Deduct minority interests in net earnings of consolidated companies		(1,205	)	(839	)

NET EARNINGS	$	43,382		8,228

The accompanying notes are an integral part of the consolidated financial statements.

Cargill Fertilizer Businesses

Consolidated Statements of Cash Flows

(unaudited)


	Three Months Ended
	August 31, 2004			August 31, 2003
	August 31, 2004			August 31, 2003
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	43,382		8,228
Minority interests in net earnings of consolidated companies		1,205		839
Noncash items included in earnings:
Equity in net earnings of nonconsolidated companies, net of dividends		3,368		1,185
Depreciation and amortization of property		23,117		22,592
Recoveries of losses on accounts receivable		(241	)	(591	)
Deferred income taxes		5,868		1,154
Changes in current assets and liabilities, net of acquisitions:
Increase in accounts receivable		(83,379	)	(67,160	)
(Increase) decrease in trade receivable/payable with Cargill, Inc. and affiliates		44,295		(3,228	)
Increase in inventories		(34,681	)	(13,910	)
Increase in accounts payable and accrued expenses		41,216		15,712
Increase (decrease) in accrued income taxes		(4,961	)	963
Increase in other current assets and liabilities		35,687		66,287
Increase (decrease) in deferred asset retirement obligations		(596	)	1,264
Other, net		7,234		1,357

Net cash provided by operating activities, excluding effect of acquisitions		81,514		34,692

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property		(38,912	)	(18,823	)
Investments in business acquired and minority interests		—		(13,164	)
Investment in note of Saskferco Products Inc.		(15,352	)	—
Investments in nonconsolidated companies		—		(82	)
Net proceeds from property and business disposals		491		205
Other, net		(2,002	)	(590	)

Net cash used by investing activities		(55,775	)	(32,454	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (payments on) due to Cargill, Inc. and affiliates		(5,167	)	1,159
Payments on long-term debt		(4,122	)	(1,067	)
Proceeds from long-term debt		724		2,022
Net contributions from (dividends paid to) Cargill, Inc.		(5,053	)	2,241
Other, net		651		565

Net cash provided (used) by financing activities		(12,967	)	4,920

INCREASE IN CASH AND CASH EQUIVALENTS		12,772		7,158
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		10,070		7,781

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	22,842		14,939

The accompanying notes are an integral part of the consolidated financial statements.

Cargill Fertilizer Businesses

Consolidated Statements of Stockholder’s Equity

(unaudited)


	2004			2003
	(in thousands)
Balance at May 31	$	833,008		649,474

Comprehensive Income:
Net earnings		43,382		8,228
Other comprehensive income:
Foreign currency translation adjustments		20,373		(859	)
Unrealized loss on cash flow hedges		(1,200	)	(1,130	)

Comprehensive income		62,555		6,239

Net contributions from (dividends paid to) Cargill, Inc.		(5,053	)	2,241

Balance at August 31	$	890,510		657,954

The accompanying notes are an integral part of the consolidated financial statements.

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2004 and 2003

(Unaudited)

The unaudited consolidated financial statements reflect, in the opinion of the management of the Cargill Fertilizer Businesses, all normal recurring adjustments necessary for a fair statement of the financial position and results of operations and cash flows for the interim periods. The statements are condensed and, therefore, do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, refer to the audited consolidated financial statements and notes for the year ended May 31, 2004. The results of operations and cash flows for interim periods are not necessarily indicative of results for a full year.

(1) Summary of Significant Accounting Policies

(a) Organization and Nature of Business

Cargill Fertilizer Businesses (the Company) are comprised of wholly and majority owned subsidiaries of Cargill, Inc. (Cargill), divisions of Cargill, Inc. and subsidiaries, and investments accounted for by the equity method. The company is organized into the following four business units, which are engaged in phosphate production and the blending and global distribution of fertilizer products:

Cargill Phosphate Production operates mines and processing plants in Florida, which produce phosphate fertilizer and feed phosphate.

Cargill Fertilizantes, SA, is a leading producer and distributor of bulk and bag blended fertilizers in Brazil. It has blending plants that produce blended fertilizer and feed phosphate, a plant that granulates single super phosphate, and a port terminal. It also is a minority owner of Fertifos/Fosfertil, which operates phosphate and nitrogen chemical plants in Brazil.

Saskferco is a 50% owned joint venture between the Company and Crown Investments Corporation of Saskatchewan accounted for by the equity method, and is located in Saskatchewan, Canada. It produces granular urea and anhydrous ammonia for shipment to nitrogen fertilizer customers in western Canada and the northern tier of the United States.

Cargill Crop Nutrition markets fertilizer products and services to wholesalers, cooperatives, independent retailers and agents and other agricultural customers that, in turn, market these products and services to agricultural producers around the world. It operates fertilizer blending and bagging facilities, port terminals and warehouses in eight countries, and maintains a sales presence in six more countries in North and South America, Europe and Asia.

(b) Statement Presentation

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting. These financial statements do not necessarily reflect the financial position and results of operations of the Company in the future or what the financial position and results of operations would have been had the Company been an independent entity during the periods presented. Certain costs are charged to the Company by Cargill, Inc. and subsidiaries and are generally based on proportional allocations and in certain circumstances based on specific identification of applicable costs which management believes is reasonable.

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(c) Basis of Consolidation

The accompanying consolidated financial statements include the accounts of the Cargill Fertilizer Businesses. Investments in companies where the Company does not have control, but has the ability to exercise significant influence (generally 20-50% ownership), are accounted for by the equity method. Other investments where the Company is unable to exercise significant influence over operating and financial decisions are accounted for at cost.

(d) Revenue Recognition

Revenue is recognized upon the transfer of title to the customer, which is generally at the time the product is shipped. For certain export shipments, transfer of title occurs outside the United States. Shipping and handling costs are included as a component of cost of sales.

(e) Income Taxes

Cargill, Incorporated and substantially all of its domestic subsidiaries are members of a group which files a consolidated federal income tax return. Federal income taxes or tax benefits are allocated to each company on the basis of its individual taxable income or loss and tax credits included in the return. Deferred income taxes are recognized for temporary differences between income for financial reporting purposes and income for tax purposes. A valuation allowance is recognized against any portion of deferred tax assets when realization of the deferred tax asset is not considered more likely than not.

(f) Foreign Currency Translation

Gains and losses resulting from translating the financial statements of foreign subsidiaries, whose functional currency is the local currency, at the current rate are included directly in other comprehensive income. Translation gains and losses of foreign subsidiaries where the U.S. dollar is the functional currency are included in net earnings currently.

(g) Cash and Cash Equivalents

Cash equivalents consist of short-term, highly liquid investments with original maturities of 90 days or less.

(h) Short-Term Investments

Short-term investments include highly liquid investments with original maturities greater than 90 days, but less than one year.

(i) Inventories

Inventories are stated at the lower of cost or market. Cost includes materials and production labor and overhead, and is determined on a last-in, first-out (LIFO) basis for the Phosphate Production business unit and the weighted average cost basis for the remaining business units.

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(j) Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depletion expenses for mining operations, including mineral reserves, are determined using the units-of-production method based on estimates of recoverable reserves. Repairs and maintenance costs are expensed when incurred. Depreciation is computed principally using the straight-line method over the following useful lives:


Buildings		8–40 years
Machinery and equipment		4–20 years
Land improvements		12–40 years

(k) Recoverability of Long-Lived Assets

The Company periodically evaluates the carrying value of long-lived assets when events and circumstances indicate the carrying value may not be recoverable. Once an indication of a potential impairment exists, recoverability of the respective assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate, to the carrying amount of such operation. If the carrying value is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds fair value.

(l) Environmental Costs

Provisions for estimated costs are recorded when environmental remedial efforts are probable and the costs can be reasonably estimated. In determining the provisions, the Company uses the most current information available, including similar past experiences, available technology, regulations in effect, the timing of remediation and cost-sharing arrangements.

(m) Accounting Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(n) Derivative and Hedging Activities

The Company utilizes various types of derivative products (principally options, futures and currency swaps) to hedge currency and raw material cost risks arising from certain of its assets and liabilities. The Company recognizes all derivative instruments in the balance sheet at fair value, with changes in such fair values recognized immediately in earnings unless specific hedging criteria are met. Effective changes in the fair value of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive income. Amounts are reclassified from accumulated other comprehensive income when the underlying hedged item impacts net earnings and all ineffective changes in fair value are recorded currently in net earnings.

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(2) Inventories

The components of inventories are as follows:


	August 31, 2004		May 31, 2004
	(in thousands)
Raw materials	$	191,107	$	147,363
Work in process		22,106		23,085
Finished goods		127,109		136,390
Spare parts		35,328		34,144
Supplies		2,521		2,508

Total	$	378,171	$	343,490

(3) Segment Information

The Company has four reportable business segments described in Note 1 that are engaged in phosphate production and the blending and global distribution of fertilizer products. These business segments are differentiated by their products and the customers that they serve. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Inter-segment net sales are made under terms that approximate market value.


	Three months Ended August 31, 2004
	Phosphate		Brazil		Saskferco		Crop Nutrition			Elimination		Total
	(in thousands)
Net Sales – third party	$	296,399	$	197,000	—		$	231,376		—		$	724,775
Inter – segment sales		63,182		—	—			5,429		(68,611	)		—
Gross profit		26,860		29,508	—			19,357		(279	)		75,446
Total assets		1,123,056		505,725	106,217			320,280		(38,110	)		2,017,168
Depreciation and amortization		20,197		1,745				1,175					23,117
Equity in earnings		2,460		9,207	2,800			5		—			14,472

	Three months Ended August 31, 2003
	Phosphate		Brazil		Saskferco		Crop Nutrition			Elimination		Total
	(in thousands)
Net Sales – third party	$	203,720	$	150,653	—		$	193,059		—			547,432
Inter – segment sales		78,239		—	—			7,727		(85,966	)		—
Gross profit		4,937		13,621	—			15,297		(6	)		33,849
Total assets		976,182		367,871	89,432			263,301		(22,147	)		1,674,639
Depreciation and amortization		19,907		1,541				1,144					22,592
Equity in earnings (losses)		1,239		5,203	(1,333	)		(30	)	—			5,079

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Financial information relating to the Company’s operations by geographic area was as follows:


	Three months ended August 31,
	2004		2003
	(In thousands)
Net sales (a)
United States	$	329,916	$	234,201
Brazil		197,000		150,653
Other		197,859		162,578

Consolidated	$	724,775	$	547,432


	August 31, 2004		May 31, 2004
Long-lived assets
United States	$	842,757	$	829,507
Brazil		261,338		225,703
Other		151,721		146,800

Consolidated	$	1,255,816	$	1,202,010

(4) Marketing Agreement

The Company and Lifosa A.B. in Lithuania mutually agreed to terminate a marketing agreement effective July 2004. Under this agreement, the Crop Nutrition segment had previously marketed exported phosphate products produced by Lifosa in Lithuania. The Company received an early termination fee of $6.0 million in May 2004 since the agreement was originally scheduled to expire in August 2008. Certain contract termination provisions were not completed until the first quarter of the year ended May 31, 2005; therefore, income was recognized and included in other operating income on the consolidated statement of operations in fiscal 2005 related to the early termination. The after-tax gain on this contract termination of approximately $3.9 million was recognized in the three month period ended August 31, 2004.

(5) Condensed Consolidated Financial Statements

In conjunction with certain proposed amendments to the Indentures governing certain debt securities of Mosaic Global Holdings Inc. (formerly known as IMC Global Inc.) (IMC), The Mosaic Company (Mosaic), Mosaic Fertilizer, LLC and Mosaic Crop Nutrition, LLC (Mosaic Crop Nutrition) will become full and unconditional guarantors of the amended debt securities of IMC.

Prior to May 31, 2004, Cargill Fertilizer, Inc., a Delaware corporation and wholly-owned subsidiary of Cargill, Incorporated (Cargill), was a separate legal entity included in the Cargill Fertilizer Businesses and was primarily composed of Cargill’s phosphate production operations in Florida. Effective June 1, 2004, in anticipation of the then pending combination between Cargill’s crop nutrition business units and IMC, substantially all of the assets and liabilities of Cargill Fertilizer, Inc. were transferred and conveyed to Mosaic Fertilizer, LLC, a Delaware limited liability company and a then wholly-owned subsidiary of Cargill Fertilizer, Inc.

Prior to May 31, 2004, Cargill U.S. Crop Nutrition, a division of Cargill (United States Distribution), was comprised of a U.S. wholesale fertilizer distribution business. Effective June 1, 2004, in

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

anticipation of the then pending combination between Cargill’s crop nutrition business units and IMC, substantially all of the assets and liabilities of United States Distribution were transferred and conveyed to Mosaic Crop Nutrition, a Delaware limited liability company and a then wholly-owned subsidiary of Cargill.

On the closing of the Cargill merger, Mosaic Fertilizer, LLC and Mosaic Crop Nutrition, LLC were contributed to Mosaic by Cargill Fertilizer, Inc. and Cargill, respectively.

The following tables present condensed consolidating financial information for Cargill Fertilizer, Inc. and United States Distribution, individually and on a combined basis, as well as the non-guarantor entities of the Cargill Fertilizer Businesses. Condensed consolidating financial information is presented for Cargill Fertilizer, Inc., rather than for Mosaic Fertilizer, LLC, and for United States Distribution, rather than Mosaic Crop Nutrition, as planned full and unconditional guarantors of certain IMC debt, to conform to the earlier presentation of such financial information for the years ended May 31, 2004 and 2003 notwithstanding the fact that the transfer of assets described above were effective as of June 1, 2004. As part of the Cargill transactions, the net financing liability to Cargill was not transferred to Mosaic. The balance sheet line items entitled Cash Management Account with Cargill, Inc. and Due to Cargill, Inc. and affiliates (both current and long-term) will not be part of the new combined entity. The related statement of operations line item entitled Interest on debt with Cargill, Inc. and affiliates represents the interest expense (income) on the balances due to/(from) Cargill.

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Balance Sheet


	As of August 31, 2004
	Guarantor Entities						Total Non-Guarantor Entities		Eliminations		Consolidated
	Cargill Fertilizer Inc.		United States Distribution		Total		Total Non-Guarantor Entities		Eliminations		Consolidated
	(in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	—	1		1		22,841		—		22,842
Cash management account with Cargill, Inc.		348,753	—		348,753		—		(348,753	)	—
Accounts receivable less allowance of $5,544		60,054	31,496		91,550		191,474		—		283,024
Trade accounts receivable due from Cargill, Inc. and affiliates		38,137	3,926		42,063		11,258		(38,110	)	15,211
Inventories		151,035	12,584		163,619		214,552		—		378,171
Vendor prepayments		—	7,138		7,138		18,213		—		25,351
Other current assets		31,947	1,440		33,387		3,366		—		36,753

TOTAL CURRENT ASSETS		629,926	56,585		686,511		461,704		(386,863	)	761,352
OTHER ASSETS
Investments in nonconsolidated companies		1,576	2,028		3,604		263,388		—		266,992
Note receivable from Saskferco		—	—		—		42,568		—		42,568
Other		11,594	—		11,594		20,411		—		32,005
PROPERTY
Property, plant and equipment		1,353,222	35,469		1,388,691		159,620		—		1,548,311
Construction in progress		138,307	2,002		140,309		12,451		—		152,760

		1,491,529	37,471		1,529,000		172,071		—		1,701,071
Less accumulated depreciation and amortization		720,386	21,077		741,463		45,357		—		786,820

NET PROPERTY		771,143	16,394		787,537		126,714		—		914,251

TOTAL ASSETS	$	1,414,239	75,007		1,489,246		914,785		(386,863	)	2,017,168

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	2	—		2		7,291		—		7,293
Accounts payable		41,803	6,855		48,658		84,527		—		133,185
Trade accounts payable due to Cargill, Inc. and affiliates		10,156	31,343		41,499		43,758		(38,110	)	47,147
Customer prepayments		9,303	10,075		19,378		38,958		—		58,336
Accrued expenses		48,076	2,606		50,682		31,314		—		81,996
Accrued income taxes		8,136	—		8,136		8,974		—		17,110
Due to Cargill, Inc. and affiliates		—	(1,278	)	(1,278	)	549,038		(348,753	)	199,007

TOTAL CURRENT LIABILITIES		117,476	49,601		167,077		763,860		(386,863	)	544,074
OTHER LIABILITIES
Long-term debt		13,805	—		13,805		20,018		—		33,823
Due to Cargill, Inc. and affiliates		—	10,000		10,000		295,322		—		305,322
Deferred income taxes		61,138	1,406		62,544		30,493		—		93,037
Deferred asset retirement obligations		97,581	—		97,581		—		—		97,581
Other deferred liabilities		16,258	37		16,295		27,325		—		43,620

TOTAL LIABILITIES		306,258	61,044		367,302		1,137,018		(386,863	)	1,117,457
MINORITY INTERESTS IN SUBSIDIARIES		—			—		9,201		—		9,201
STOCKHOLDER'S EQUITY
Equity		1,107,981	13,963		1,121,944		(136,829	)	—		985,115
Accumulated other comprehensive income		—	—		—		(94,605	)	—		(94,605	)

TOTAL STOCKHOLDER'S EQUITY		1,107,981	13,963		1,121,944		(231,434	)	—		890,510

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	1,414,239	75,007		1,489,246		914,785		(386,863	)	2,017,168

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Balance Sheet


	As of May 31, 2004
	Guarantor Entities				Total Non- Guarantor Entities		Eliminations		Consolidated
	Cargill Fertilizer Inc.		United States Distribution	Total	Total Non- Guarantor Entities		Eliminations		Consolidated
	(in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	—	1	1	10,069		—		10,070
Cash management account with Cargill, Inc.		344,628	—	344,628	—		(344,628	)	—
Short-term investments		—	—	—	121		—		121
Accounts receivable less allowance of $5,785		42,772	31,596	74,368	125,036		—		199,404
Trade accounts receivable due from Cargill, Inc. and affiliates		26,464	4,986	31,450	22,589		(21,137	)	32,902
Inventories		188,683	9,342	198,025	145,465		—		343,490
Vendor prepayments		551	848	1,399	27,343		—		28,742
Other current assets		33,547	1,411	34,958	4,284		—		39,242

TOTAL CURRENT ASSETS		636,645	48,184	684,829	334,907		(365,765	)	653,971
OTHER ASSETS
Investments in nonconsolidated companies		1,602	2,207	3,809	255,314		—		259,123
Note receivable from Saskferco		—	—	—	27,216		—		27,216
Other		10,893	—	10,893	12,641		—		23,534
PROPERTY
Property, plant and equipment!		1,308,475	35,509	1,343,984	151,717		—		1,495,701
Construction in progress		150,428	1,654	152,082	7,850		—		159,932

		1,458,903	37,163	1,496,066	159,567		—		1,655,633
Less accumulated depreciation and amortization		701,301	20,741	722,042	41,454		—		763,496

NET PROPERTY		757,602	16,422	774,024	118,113		—		892,137

TOTAL ASSETS	$	1,406,742	66,813	1,473,555	748,191		(365,765	)	1,855,981

LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt	$	2	—	2	9,754		—		9,756
Accounts payable		55,824	8,014	63,838	26,926		—		90,764
Trade accounts payable due to Cargill, Inc. and affiliates		8,077	19,014	27,091	14,589		(21,137	)	20,543
Customer prepayments		321	4,761	5,082	21,392		—		26,474
Accrued expenses		48,769	6,335	55,104	25,396		—		80,500
Accrued income taxes		17,097	—	17,097	4,974		—		22,071
Due to Cargill, Inc. and affiliates		—	2,301	2,301	545,242		(344,628	)	202,915

TOTAL CURRENT LIABILITIES		130,090	40,425	170,515	648,273		(365,765	)	453,023
OTHER LIABILITIES
Long-term debt		13,805	—	13,805	18,819		—		32,624
Due to Cargill, Inc. and affiliates		—	10,000	10,000	296,581		—		306,581
Deferred income taxes		61,138	1,406	62,544	22,227		—		84,771
Deferred asset retirement obligations		98,177	—	98,177	—		—		98,177
Other deferred liabilities		16,075	—	16,075	24,083		—		40,158

TOTAL LIABILITIES		319,285	51,831	371,116	1,009,983		(365,765	)	1,015,334
MINORITY INTERESTS IN SUBSIDIARIES		—	—	—	7,639		—		7,639
STOCKHOLDER'S EQUITY
Equity		1,087,457	14,982	1,102,439	(155,653	)	—		946,786
Accumulated other comprehensive income		—	—	—	(113,778	)	—		(113,778	)

TOTAL STOCKHOLDER'S EQUITY		1,087,457	14,982	1,102,439	(269,431	)	—		833,008

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	1,406,742	66,813	1,473,555	748,191		(365,765	)	1,855,981

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Statement of Operations


	For the three months ended August 31, 2004
	Guarantor Entities							Total Non-Guarantor Entities		Eliminations		Consolidated
	Cargill Fertilizer Inc.			United States Distribution		Total		Total Non-Guarantor Entities		Eliminations		Consolidated
	(in thousands)
Net sales	$	359,005		47,163		406,168		387,218		(68,611	)	724,775
Cost of sales		332,080		42,832		374,912		342,749		(68,332	)	649,329

Gross profit		26,925		4,331		31,256		44,469		(279	)	75,446
Selling, general and administrative expenses		5,329		5,700		11,029		20,176		(212	)	30,993
Loss on sale of assets		30		—		30		202		—		232
Other operating income		—		—		—		(6,000	)	—		(6,000	)

Operating earnings (loss)		21,566		(1,369	)	20,197		30,091		(67	)	50,221
Interest on external debt		740		—		740		1,868		—		2,608
Interest on debt with Cargill, Inc. and affiliates		(1,261	)	162		(1,099	)	6,159		(67	)	4,993
Foreign currency losses		—		—		—		1,601		—		1,601
Other expense (income), net		150		—		150		(468	)	—		(318	)

Earnings (loss) from consolidated companies before income taxes		21,937		(1,531	)	20,406		20,931		—		41,337
Income tax expense (benefit)		(2,358	)	(558	)	(2,916	)	14,138		—		11,222

Net earnings (loss) from consolidated companies		24,295		(973	)	23,322		6,793		—		30,115
Add (deduct) equity in net earnings (losses) of nonconsolidated companies		(26	)	(50	)	(76	)	14,548		—		14,472
Deduct minority interests in net earnings of consolidated companies		—		—		—		(1,205	)	—		(1,205	)

NET EARNINGS (LOSS)	$	24,269		(1,023	)	23,246		20,136		—		43,382

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Statement of Operations


	For the three months ended August 31, 2003
	Guarantor Entities							Total Non-Guarantor Entities		Eliminations		Consolidated
	Cargill Fertilizer Inc.			United States Distribution		Total
	Cargill Fertilizer Inc.			United States Distribution		Total
	(in thousands)
Net sales	$	285,428		45,603		331,031		302,367		(85,966	)	547,432
Cost of sales		280,180		40,882		321,062		278,481		(85,960	)	513,583

Gross profit		5,248		4,721		9,969		23,886		(6	)	33,849
Selling, general and administrative expenses		4,625		3,925		8,550		13,317		—		21,867
Gain on sale of assets		(7	)	(41	)	(48	)	(188	)	—		(236	)

Operating earnings		630		837		1,467		10,757		(6	)	12,218
Interest on external debt		190		—		190		2,043		—		2,233
Interest on debt with Cargill, Inc. and affiliates		(969	)	143		(826	)	6,877		(6	)	6,045
Foreign currency losses		—		—		—		86		—		86
Other expense (income), net		172		(1,049	)	(877	)	(117	)	—		(994	)

Earnings from consolidated companies before income taxes		1,237		1,743		2,980		1,868		—		4,848
Income tax expense (benefit)		712		635		1,347		(487	)	—		860

Net earnings from consolidated companies		525		1,108		1,633		2,355		—		3,988
Add (deduct) equity in net earnings (losses) of nonconsolidated companies		(10	)	(26	)	(36	)	5,115		—		5,079
Deduct minority interests in net earnings of consolidated companies		—		—		—		(839	)	—		(839	)

NET EARNINGS	$	515		1,082		1,597		6,631		—		8,228

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Statement of Cash Flows


	For the Three Months Ended August 31, 2004
	Guarantor Entities							Total Non-Guarantor Entities		Eliminations	Consolidated
	Cargill Fertilizer Inc.			United States Distribution		Total		Total Non-Guarantor Entities		Eliminations	Consolidated
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)	$	24,269		(1,023	)	23,246		20,136		—	43,382
Minority interests in net earnings of consolidated companies		—		—		—		1,205		—	1,205
Noncash items included in earnings:
Equity in net earnings of nonconsolidated companies, net of dividends		17		150		167		3,201		—	3,368
Depreciation and amortization of property		19,823		375		20,198		2,919		—	23,117
Provision (recoveries) for losses on accounts receivable		—		3		3		(244	)	—	(241	)
Deferred income taxes		—		—		—		5,868		—	5,868
Changes in current assets and liabilities, excluding effect of acquisitions:
Decrease (increase) in accounts receivable		(17,282	)	97		(17,185	)	(66,194	)	—	(83,379	)
Decrease (increase) decrease in trade receivable/payable with Cargill, Inc. and affiliates		(9,594	)	13,389		3,795		40,500		—	44,295
(Increase) decrease in inventories		37,648		(3,242	)	34,406		(69,087	)	—	(34,681	)
Increase (decrease) in accounts payable and accrued expenses		(14,714	)	(4,888	)	(19,602	)	60,818		—	41,216
Increase (decrease) in accrued income taxes		(8,961	)	—		(8,961	)	4,000		—	(4,961	)
Decrease (increase) in other current assets and liabilities		11,133		(1,005	)	10,128		25,559		—	35,687
Increase in deferred asset retirement obligations		(596	)	—		(596	)	—		—	(596	)
Other, net		(518	)	37		(481	)	7,715		—	7,234

Net cash provided by operating activities, excluding effect of acquisitions		41,225		3,893		45,118		36,396		—	81,514

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property		(33,439	)	(347	)	(33,786	)	(5,126	)	—	(38,912	)
Investment in note of Saskferco		—		—		—		(15,352	)	—	(15,352	)
Net proceeds from property and business disposals		74		—		74		417		—	491
Other, net		10		29		39		(2,041	)	—	(2,002	)

Net cash used by investing activities		(33,355	)	(318	)	(33,673	)	(22,102	)	—	(55,775	)

CASH FLOWS FROM FINANCING ACTIVITIES								—
Net proceeds from (payments on) due to Cargill, Inc. and affiliates		(4,125	)	(3,579	)	(7,704	)	2,537		—	(5,167	)
Payments on long-term debt		—		—		—		(4,122	)	—	(4,122	)
Proceeds from long-term debt		—		—		—		724		—	724
Net contributions from Cargill, Inc.		(3,745	)	4		(3,741	)	(1,312	)	—	(5,053	)
Other, net		—		—		—		651		—	651

Net cash used by financing activities		(7,870	)	(3,575	)	(11,445	)	(1,522	)	—	(12,967	)

INCREASE IN CASH AND CASH EQUIVALENTS		—		—		—		12,772		—	12,772
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		—		1		1		10,069		—	10,070

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	—		1		1		22,841		—	22,842

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Consolidating Statement of Cash Flows


	For the Three Months Ended August 31, 2003
	Guarantor Entities							Total Non-Guarantor Entities		Eliminations	Consolidated
	Cargill Fertilizer Inc.			United States Distribution		Total		Total Non-Guarantor Entities		Eliminations	Consolidated
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	515		1,082		1,597		6,631		—	8,228
Minority interests in net earnings of consolidated companies		—		—		—		839		—	839
Noncash items included in earnings:
Equity in net earnings of nonconsolidated companies, net of dividends		10		26		36		1,149		—	1,185
Depreciation and amortization of property		19,576		356		19,932		2,660		—	22,592
Provision (recoveries) for losses on accounts receivable		—		1		1		(592	)	—	(591	)
Deferred income taxes		—		702		702		452		—	1,154
Changes in current assets and liabilities, excluding effect of acquisitions:
Increase in accounts receivable		(19,724	)	(13,872	)	(33,596	)	(33,564	)	—	(67,160	)
(Increase) decrease in trade receivable/payable with Cargill, Inc. and affiliates		(10,284	)	9,483		(801	)	(2,427	)	—	(3,228	)
Decrease (increase) in inventories		25,894		(7,384	)	18,510		(32,420	)	—	(13,910	)
Increase (decrease) in accounts payable and accrued expenses		(3,588	)	2,112		(1,476	)	17,188		—	15,712
Increase in accrued income taxes		694		—		694		269		—	963
Decrease in other current assets and liabilities		9,129		58		9,187		57,100		—	66,287
Increase in deferred asset retirement obligations		1,264		—		1,264		—		—	1,264
Other, net		235		(65	)	170		1,187		—	1,357

Net cash provided (used) by operating activities, excluding effect of acquisitions		23,721		(7,501	)	16,220		18,472		—	34,692

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property		(17,043	)	(120	)	(17,163	)	(1,660	)	—	(18,823	)
Investments in businesses acquired		—		—		—		(13,164	)	—	(13,164	)
Investments in nonconsolidated companies		(82	)	—		(82	)	—		—	(82	)
Net proceeds from property and business disposals		6		—		6		199		—	205
Other, net		5		—		5		(595	)	—	(590	)

Net cash used by investing activities		(17,114	)	(120	)	(17,234	)	(15,220	)	—	(32,454	)

CASH FLOWS FROM FINANCING ACTIVITIES								—
Net proceeds from (payments on) due to Cargill, Inc. and affiliates		(8,590	)	6,535		(2,055	)	3,214		—	1,159
Payments on long-term debt		—		—		—		(1,067	)	—	(1,067	)
Proceeds from long-term debt		—		—		—		2,022		—	2,022
Net contributions from Cargill, Inc.		1,983		1,086		3,069		(828	)	—	2,241
Other, net		—		—		—		565		—	565

Net cash provided (used) by financing activities		(6,607	)	7,621		1,014		3,906		—	4,920

INCREASE IN CASH AND CASH EQUIVALENTS		—		—		—		7,158		—	7,158
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		—		1		1		7,780		—	7,781

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	—		1		1		14,938		—	14,939

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(5) Guarantees

The Company issued guarantees to financial institutions in Brazil related to amounts owed the institutions by certain of its customers. The terms of the guarantees are approximately equal to the terms of the related financing arrangements. In the event that the customers default on their payments to the institutions and the Company would be required to perform under the guarantees, the Company has obtained collateral from the customers. As of August 31, 2004, the maximum potential future payment under the guarantees was $41.8 million.

(6) Subsequent Events

On October 22, 2004, pursuant to the Agreement and Plan of Merger and Contribution dated as of January 26, 2004, by and among IMC Global Inc. (now known as Mosaic Global Holdings Inc.), Global Nutrition Solutions, Inc. (now known as The Mosaic Company) (“Mosaic”), GNS Acquisition Corp., Cargill, Incorporated (“Cargill”) and Cargill Fertilizer, Inc., as amended by Amendment No. 1 to Agreement and Plan of Merger and Contribution, dated as of June 15, 2004, and as subsequently amended by Amendment No. 2 to Agreement and Plan of Merger and Contribution, dated as of October 18, 2004 (the “Merger and Contribution Agreement”), (i) GNS Acquisition Corp., a wholly owned subsidiary of Mosaic, merged with and into IMC (the “Merger”), with IMC surviving the Merger and (ii) Cargill and certain of its affiliates (the “Cargill Contributing Corporations”) contributed equity interests in certain entities owning all or substantially all of Cargill’s fertilizer businesses (the “Contribution” and, together with the Merger, the “Cargill Transactions”). At the effective time of the Merger, IMC’s corporate name was changed from IMC Global Inc. to Mosaic Global Holdings Inc.

Pursuant to the Merger, each outstanding share of IMC’s common stock, par value $1.00 per share, was converted into and became the right to receive one share of common stock, par value $.01 per share, of Mosaic (“Mosaic Common Stock”). In addition, in the Merger each outstanding share of IMC’s 7.50% Mandatory Convertible Preferred Shares, par value $1.00 per share, was converted into and became the right to receive one share of Mosaic’s 7.50% Mandatory Convertible Preferred Shares, par value $.01 per share. As consideration for the Contribution, the Cargill Contributing Corporations received shares of Mosaic Common Stock representing approximately 66.5% of the outstanding shares of Mosaic Common Stock (after giving effect to the Cargill Transactions), in addition to 5,458,955 shares of Mosaic’s Class B common stock, par value $.01 per share. Immediately following the consummation of the Cargill Transactions, the former holders of IMC’s Common Stock owned approximately 33.5% of the outstanding shares of Mosaic Common Stock.

In connection with the execution of the Merger and Contribution Agreement, Cargill and Mosaic also entered into an Investor Rights Agreement, dated as of January 26, 2004 (the “Investor Rights Agreement”), which was amended on October 22, 2004 to add as parties thereto the Cargill Contributing Corporations other than Cargill. The Investor Rights Agreement provides for, among other things, Cargill and IMC to designate seven and four director nominees, respectively, with respect to each election of Mosaic’s board of directors during the four-year period following completion of the Cargill Transactions.

The Cargill Fertilizer Businesses suffered property damage during Hurricanes Charley, Frances and Jeanne in August and September 2004. In particular, on September 5, 2004, a breach of the active phosphogypsum stack at Mosaic’s Riverview facility occurred due to excessive winds from Hurricane Frances, resulting in approximately 65 million gallons of partially-treated fertilizer process water being released into nearby Archie Creek. In addition, the recent hurricanes resulted in lost

Cargill Fertilizer Businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

production at Mosaic and IMC of approximately 182,000 and 140,000 tons, respectively, of granulated product (DAP/MAP/TSP/MicroEssentials), as well as expenses relating to the handling and treatment of water resulting from massive rainfall that resulted in raised water levels in certain gypsum stacks and water retention ponds. The release described above could result in potential enforcement actions from governmental authorities, claims from private parties and future regulatory challenges. Within several days following the impact of Hurricane Frances, the phosphogypsum stack was repaired and Mosaic’s Riverview facility is expected to be able to operate at full capacity without ongoing effects resulting from this hurricane. Although Mosaic does not expect that this release will be material to the ongoing operations of the Cargill Fertilizer Businesses, it may affect future regulatory and permitting requirements for Mosaic.

These hurricanes are also expected to affect the Cargill Fertilizer Businesses’ results of operations for the second quarter of 2004 due in part to an anticipated decrease in revenue as a result of lost production and in part to charges associated with certain water treatment, repair and related cleanup efforts. In particular, the Cargill Fertilizer Businesses’ second quarter results will include an estimated loss due to the impact from these hurricanes that resulted in lost production of the approximately 182,000 tons of granulated product (DAP/MAP/MicroEssentials) described above. The second quarter results also include a charge for the handling and treatment of water resulting from excessive rainfall from the hurricanes, as described above. While Mosaic’s assessment of the total costs of such water handling is ongoing, the current estimated cost is approximately $7 million.

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of

Fertifos Administração e Participação S.A. and Subsidiaries

São Paulo—SP—Brazil

1. We have audited the accompanying consolidated balance sheets of Fertifos Administração e Participação S.A. (the “Company”) and Subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2003, all expressed in United States dollars. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

2. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

3. The accompanying financial statements have been translated from Brazilian reais into United States dollars in accordance with the standards set forth in Statement of Financial Accounting Standards No. 52, for the purposes of consolidation and the equity method of accounting by the Company’s investors.

4. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Fertifos Administração e Participação S.A. and Subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

5. As discussed in Note 2 to the accompanying consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for scheduled maintenance costs. In addition, as also discussed in Note 2 to the accompanying consolidated financial statements, effective January 1, 2003, the Company adopted the provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations.”

/s/ Deloitte Touche Tohmatsu

Auditores Independentes

São Paulo, Brazil

June 2, 2004

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of United States dollars)


	At December 31
	2003	2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents	192,388	152,390
Marketable securities	10,926	11,112
Trade accounts receivable (including related parties, $1,007 in 2003 and $1,306 in 2002)	20,531	15,059
Inventories (Note 5)	62,044	43,465
Recoverable taxes (Note 6)	1,794	2,270
Other current assets	4,151	2,637

Total current assets	291,834	226,933

PROPERTY, PLANT AND EQUIPMENT, NET (Note 7)	254,296	205,798

OTHER ASSETS
Deferred income taxes (Note 9)	21,179	11,636
Recoverable taxes (Note 6)	24,071	16,347
Other noncurrent assets (Note 8)	54,815	34,837

Total other assets	100,065	62,820

TOTAL ASSETS	646,195	495,551

The notes are an integral part of the consolidated financial statements.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of United States dollars)


	At December 31
	2003		2002
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term debt (Note 10)	2,605		2,934
Current portion of long-term debt (Note 11)	56,433		37,571
Trade accounts payable	79,777		37,080
Accrued payroll and wages	16,327		10,446
Income taxes payable	13,573		7,668
Other current liabilities (including related parties, $4,772 in 2003 and $3,410 in 2002)	18,019		8,878

Total current liabilities	186,734		104,577

LONG-TERM LIABILITIES
Long-term debt (Note 11)	135,323		156,439
Accrual for pension liability (Note 14)	8,365		8,533
Accrual for claims and lawsuits (Note 16)	43,514		26,546
Other long-term liabilities	4,602		—

Total long-term liabilities	191,804		191,518

MINORITY INTEREST	116,347		89,241

SHAREHOLDERS’ EQUITY
Common stock, no par value, 19,129,409,453 authorized and outstanding shares	122,857		122,857
Legal reserve	17,634		14,714
Retained earnings	91,834		77,500
Accumulated other comprehensive loss	(81,015	)	(104,856	)

Total shareholders’ equity	151,310		110,215

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	646,195		495,551

The notes are an integral part of the consolidated financial statements.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Expressed in thousands of United States dollars)


	Year ended December 31,
	2003		2002		2001
NET SALES (including related parties, $329,740 in 2003, $243,381 in 2002 and $247,554 in 2001)	630,533		477,878		484,620
COST OF SALES	(447,345	)	(290,790	)	(335,398	)

Gross profit	183,188		187,088		149,222
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	(43,657	)	(30,916	)	(36,799	)

Operating income	139,531		156,172		112,423

NONOPERATING INCOME (EXPENSES)
Interest income	34,106		18,745		12,799
Interest expense	(25,235	)	(40,026	)	(34,643	)
Foreign exchange	(8,058	)	(14,930	)	(32,050	)
Other, net	478		3,802		(328	)

Nonoperating income (expenses), net	1,291		(32,409	)	(54,222	)

INCOME BEFORE INCOME TAX AND MINORITY INTEREST	140,822		123,763		58,201
Income tax expense (Note 9)	(39,448	)	(36,791	)	(16,335	)

INCOME BEFORE MINORITY INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE	101,374		86,972		41,866
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (net of tax of $416 in 2003 and $4,683 in 2002)	(807	)	(9,092	)	—
Minority interest	(44,900	)	(37,394	)	(22,235	)

NET INCOME	55,667		40,486		19,631

The notes are an integral part of the consolidated financial statements.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Expressed in thousands of United States dollars)


	Year Ended December 31,
	2003	2002		2001
NET INCOME	55,667	40,486		19,631
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment	23,841	(44,615	)	(16,838	)

COMPREHENSIVE INCOME (LOSS)	79,508	(4,129	)	2,793

The notes are an integral part of the consolidated financial statements.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Expressed in thousands of United States dollars)


	Common stock and additional paid-in capital	Legal reserve	Retained earnings		Accumulated other comprehensive loss		Total
BALANCES JANUARY 1, 2001	121,776	11,673	33,025		(43,403	)	123,071
Net income	—	—	19,631		—		19,631
Transfer to legal reserve	—	1,152	(1,152	)	—		—
Net translation adjustment	—	—	—		(16,838	)	(16,838	)

BALANCES DECEMBER 31, 2001	121,776	12,825	51,504		(60,241	)	125,864
Net income	—	—	40,486		—		40,486
Transfer to legal reserve	—	1,889	(1,889	)	—		—
Dividends	—	—	(11,353	)	—		(11,353	)
Net translation adjustment	—	—	—		(44,615	)	(44,615	)
Repurchased under stock repurchase plan	—	—	(167	)	—		(167	)
Capital increase	1,081	—	(1,081	)	—		—

BALANCES DECEMBER 31, 2002	122,857	14,714	77,500		(104,856	)	110,215
Net income	—	—	55,667		—		55,667
Transfer to legal reserve	—	2,920	(2,920	)	—		—
Dividends	—	—	(38,413	)	—		(38,413	)
Net translation adjustment	—	—	—		23,841		23,841

BALANCES DECEMBER 31, 2003	122,857	17,634	91,834		(81,015	)	151,310

The notes are an integral part of the consolidated financial statements.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in thousands of United States dollars)


	Year Ended December 31,
	2003		2002		2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	55,667		40,486		19,631
ADJUSTMENTS TO CASH PROVIDED BY OPERATIONS
Unrealized foreign exchange	(12,564	)	32,012		18,621
Monetary variation of debt	9,173		31,423		40,424
Depreciation and amortization	28,709		25,980		32,201
Cumulative effect of accounting change	807		9,092		—
Gain on sale of investments	—		(4,572	)	—
Write-off of property, plant and equipment	982		538		—
Deferred income taxes	(6,195	)	4,998		(4,348	)
Minority interest participation	44,900		37,394		22,235
CHANGES IN OPERATING ASSETS AND LIABILITIES
Marketable securities	2,500		(8,142	)	47,301
Trade accounts receivable	(1,985	)	(7,119	)	(1,529	)
Inventories	(8,444	)	(7,198	)	10,709
Recoverable taxes	3,581		6,919		(22,933	)
Other assets	(13,926	)	(171	)	(13,975	)
Trade accounts payable	32,328		13,239		(18,662	)
Income taxes payable	3,939		(7,696	)	7,508
Accrued payroll and wages	3,335		1,879		2,816
Other liabilities	18,753		834		17,934

Net cash provided by operating activities	161,560		169,896		157,933

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment	(29,066	)	(30,733	)	(58,724	)
Sale of investment	—		9,592		—
Acquisition of minority interests	—		—		(23,919	)

Net cash used in investing activities	(29,066	)	(21,141	)	(82,643	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) of short-term debt	(531	)	(100	)	(37,065	)
Proceeds from long-term debt	1,644		27,612		36,991
Repayments of long-term debt	(37,345	)	(34,038	)	(48,817	)
Dividends paid to shareholders	(38,413	)	(11,353	)	—
Dividends paid to minority interests in subsidiaries	(36,099	)	(167	)	(13,364	)

Net cash used in financing activities	(110,744	)	(18,046	)	(62,255	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	18,248		(52,932	)	(20,863	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	39,998		77,777		(7,828	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR	152,390		74,613		82,441

CASH AND CASH EQUIVALENTS, END OF YEAR	192,388		152,390		74,613

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest	12,502		13,823		19,661
Income taxes	19,499		19,817		17,624

The notes are an integral part of the consolidated financial statements.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States dollars, unless otherwise stated)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business—Fertifos Administração e Participação S.A. (“Fertifos” or the “Company”), a privately held company, was formed in 1992 to participate in the Brazilian government auction and privatization of its controlling interest in its phosphate mining resources in Brazil. Fertifos was successful in the privatization, acquiring a controlling interest in Fertilizantes Fosfatados S.A. Fosfertil (“Fosfertil”) and its subsidiary Ultrafertil S.A. (“Ultrafertil”).

Fertifos and subsidiaries are engaged principally in the production of mineral nutrients, including phosphate, which are used in the production of fertilizers, as well as in the manufacture and sale of fertilizers with nitrogen and chemical products and in the operation of its own multiuse port terminal. Fertifos’ operations are located in Brazil.

Basis of Presentation—The accompanying consolidated financial statements include the accounts of the Company’s majority-owned subsidiaries, Fertilizantes Fosfatados S.A. Fosfertil, Ultrafertil S.A. and UF Distribuidora de Combustíveis Ltda. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates—The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. In the preparation of these consolidated financial statements, estimates and assumptions have been made by management concerning, among others, the selection of useful lives of property, plant and equipment, provisions necessary for the allowance for doubtful accounts receivable, provisions for contingent liabilities, determination of asset retirement obligations, deferred income tax valuation allowances, and the Company’s pension plan obligations. Actual results may vary from those estimates.

Translation of Foreign Currency Financial Statements—The functional currency of Fertifos and its subsidiaries is the Brazilian real and, as such, amounts included in the statements of income are translated at rates which approximate actual exchange rates at the date of the related transaction. Assets and liabilities are translated at exchange rates in effect as of the date of the balance sheet. The resulting translation adjustments are recorded as a component of accumulated other comprehensive loss, a separate component of shareholders’ equity.

Foreign Currency Transactions—Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses that are reflected in the consolidated statement of income as foreign exchange.

Cash and Cash Equivalents—Cash and cash equivalents include time deposits and readily marketable securities with original maturity dates of three months or less.

Marketable Securities—Investments in marketable securities denominated in United States dollars are classified as trading and are reported at fair value based on quoted market prices with unrealized gains and losses included in nonoperating income. The Company recorded unrealized holding gains of $87, $89, and $28 for the years ended December 31, 2003, 2002 and 2001, respectively, on its portfolio of trading securities.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

Trade Accounts Receivable—Accounts receivable are stated net of an allowance for doubtful accounts, which is recorded in an amount considered by management to be sufficient to absorb probable future losses related to uncollectible accounts. The allowance for doubtful accounts was $2,740 and $2,301 at December 31, 2003 and 2002, respectively.

Derivatives—Fertifos enters into various derivative financial instruments to limit exposure to changes in foreign currency fluctuations and interest rates. The Company does not enter into derivative financial instruments for speculative purposes. Effective January 1, 2001, Fertifos adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 133 and 138, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133 and No. 138 established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities. The adoption of SFAS No. 133 did not have a material effect on the Company.

The Company’s derivative instruments are recorded at fair value in the balance sheet based on quoted market prices or based on the present value of discounted cash flows. The Company’s derivative financial instruments have not been designated as accounting hedges under SFAS No. 133 and, as such, changes in the fair value are recognized currently in operations as a part of foreign exchange in the statements of income.

Inventories—Inventories are stated at the lower of weighted average cost or market.

Recoverable Taxes—Recoverable taxes include prepaid and recoverable income and social contribution taxes, as well as value-added taxes paid on the acquisition of raw materials and other services which can be used to offset future similar tax liabilities. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion of the recoverable taxes will not be realized.

Maintenance Programs—Prior to January 1, 2002 expenses for scheduled plant maintenance and related shutdowns were deferred and amortized using the straight-line method over the estimated period of benefit, generally to the date of next scheduled shutdown. Effective January 1, 2002, all related scheduled plant maintenance expenses are expensed as incurred (see Note 2).

Spare Parts—The Company maintains spare parts for its machinery and equipment in quantities deemed sufficient to support operations and maintenance programs. Such quantities are generally in excess of quantities expected to be used or capitalized within one year, given the specialty nature of the parts and their availability. As spare parts are eventually used, they are either capitalized as part of property, plant or equipment and subsequently depreciated over their remaining useful lives, or expensed as part of operating expenses. Based on the nature of these spare parts and historical usage patterns, spare parts destined for eventual capitalization or held in quantities not expected to be utilized within the next year are classified as other noncurrent assets and are subject to impairment analysis along with the Company’s other long-lived assets.

Property, Plant and Equipment—Property, plant and equipment, including mining rights, is stated at cost less accumulated depreciation and amortization. Major renewals and improvements that extend the useful lives of the assets are capitalized, while routine maintenance and repairs are

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

expensed as incurred. Depreciation and amortization is computed using the straight-line method based on the estimated useful lives of assets. Useful lives for property, plant and equipment are as follows:


		Estimated useful lives
Buildings		25
Machinery and equipment		4-25
Furniture, fixtures and other		4-10
Mining rights		50

Mining rights are being amortized using the straight-line method over a period of 50 years, which represents the estimated weighted-average remaining life of the Company’s mining properties based on estimated proven and probable mineral reserves. Mining exploration and development costs are expensed as incurred.

Fertifos capitalizes interest on borrowings during the construction period of major capital projects. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life (see Note 7).

Impairment of Long-lived Assets—Effective January 1, 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets”. Long-lived assets deemed held for sale are stated at the lower of cost or fair value. Long-lived assets held for use are subject to an impairment assessment if the carrying value is no longer deemed recoverable based upon an analysis of undiscounted future cash flows of the asset, or groups of assets for which the related identifiable cash flows are largely independent of other groups of assets. The amount of the impairment, if any, is the difference between the carrying amount and the fair value of the asset. The adoption of this statement in 2002 did not have a material effect on the Company’s financial position or results of operations.

Income Taxes—The Company provides for income taxes using the liability method under which deferred income taxes are recognized for the estimated future tax effects attributable to temporary differences and carryforwards that result from events that have been recognized either in the financial statements or the income tax returns, but not both. The measurement of current and deferred income tax liabilities and assets is based on provisions of enacted tax laws. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion of the deferred tax assets will not be realized.

Revenue Recognition—Sales of mineral products are recognized when revenue is realized or realizable, and has been earned. Revenue is recognized when risk and title to the product transfer to the customer, which generally occurs at the time the shipment is made. Gross sales are reduced by discounts related to promotional programs and sales taxes to arrive at net sales.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

adopted the provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs, including those final site restoration and reclamation costs associated with the Company’s mining rights and operating facilities (see Note 2).

Comprehensive Income (Loss)—The components of comprehensive income include gains and losses on foreign currency translation adjustments, which are reported net of tax.

New Accounting Pronouncements—In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others” (FIN 45). FIN 45 requires additional disclosures by guarantors about obligations under guarantees that it has issued. This statement also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of obligations undertaken in issuing guarantees. The disclosure requirements were effective for financial statements of interim and annual periods ending after December 15, 2002. The initial recognition and initial measurement requirements were applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The adoption of FIN 45 in 2003 did not have a material impact on the Company’s consolidated financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46, “An interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements (ARB 51).” In December 2003, the FASB revised FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) and codified certain FASB Staff Positions (FSPs) previously issued for FIN 46 in FASB Interpretation No. 46, Revised (FIN 46R). FIN 46 as originally issued and as revised by FIN46R, establishes consolidation criteria for entities for which control is not easily discernable under ARB 51. The adoption of FIN 46 and FIN 46R in 2003 did not have a material impact on the Company’s consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (SFAS No. 149). SFAS No. 149 amends and clarifies accounting for derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is applied prospectively and is effective for contracts entered into or modified after June 30, 2003, except for provisions related to SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, and certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist. The adoption of SFAS No. 149 did not have a material impact on the Company’s consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS No.150). SFAS No. 150 establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that a company classify a financial instrument which is within the scope of SFAS No. 150 as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and to certain other instruments that existed prior to May 31, 2003 as of the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on the Company’s consolidated financial statements.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

Reclassifications—Certain reclassifications have been made to conform the December 31, 2002 and 2001 financial statements to the 2003 presentation, for comparative purposes.

2. CHANGES IN ACCOUNTING PRINCIPLE

Asset Retirement Obligations—Effective January 1, 2003, the Company adopted the provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations”, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs, including those site restoration and reclamation costs associated with the Company’s mining rights and operating facilities. The Company’s asset retirement obligations primarily include final site restoration and reclamation costs associated with the Company’s mining rights and operating facilities. In accordance with SFAS No. 143, these asset retirement obligations are recorded at their present value when incurred, with a corresponding amount capitalized as part of property, plant and equipment. The related asset retirement obligations will be accreted to their estimated future values on the estimated date that such obligations will be paid, while the asset will subsequently be depreciated over the remaining estimated useful life.

As a result of the adoption, the Company recorded a charge of $807, net of tax of $416, as a cumulative effect of a change in accounting principle, as follows:


Balance sheet:
Property, plant and equipment (asset, net of accumulated amortization of $131)	637
Deferred tax (asset)	416
Asset retirement obligation (liability)	(1,860	)

Cumulative effect of accounting change (net of tax of $416)	(807	)

At December 31, 2003, the carrying amount of the asset retirement obligation was $2,108, which is recorded as part of other long-term liabilities. There were no significant changes in the components of the liability during 2003. The associated amount capitalized as part of the Company’s property, plant and equipment, including mining rights, was $726 at December 31, 2003, net of accumulated depreciation and amortization of $161.

Scheduled Plant Maintenance—Prior to January 1, 2002 expenses for scheduled plant maintenance and related shutdowns were deferred and amortized using the straight-line method over the estimated period of benefit, generally to the date of the next scheduled shutdown. Effective January 1, 2002, all related scheduled plant maintenance costs are expended as incurred. The Company believes that the new method better reflects the nature of the expenses and that it is in line with the guidance provided by Emerging Issues Task Force Topic D-88, “Planned Major Maintenance Expense”, and industry practice. As a result of the change, the Company recorded a charge of $9,092, net of tax of $4,683, as a cumulative effect of accounting change related to plant maintenance in 2002.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

The pro forma effects on net income showing retroactive application of the accounting changes are as follows:


	Year Ended December 31
	2003		2002		2001
Net income before minority interest and cumulative effect of accounting change as reported	101,374		86,972		41,866
Adjustment for plant maintenance	—		—		(3,941	)
Adjustment for asset retirement obligations	—		(82	)	(84	)

Pro forma net income before minority interest	101,374		86,890		37,841
Adjusted minority interest	(45,408	)	(38,614	)	(17,174	)

Pro forma net income	55,966		48,276		20,667

3. ACQUISITIONS OF MINORITY INTERESTS

On February 15, 2001, Fertifos acquired 3,602,223,939 shares of common stock of Fosfertil (approximately 3.328%) from an existing minority interest for a total purchase price of $21,294. Fertifos paid $21,294 immediately upon consummation of the transaction and simultaneously entered into a real denominated note payable due in eight installments through January 2004, with interest at 6%, monetarily adjusted by IGP-M, swapped to United States dollars. On August 7, 2001, Fertifos acquired an additional 0.557% of the outstanding common stock of Fosfertil over the counter for approximately $3,100. In November 2001, Fosfertil’s Board of Directors authorized the 2001 Preferred Stock Repurchase Plan, which provided for the reacquisition of up to 3,000,000 shares of Fosfertil’s preferred stock. During December 2001, 994,700 shares of preferred stock (approximately 0.0048%) were repurchased at a total cost of $2,338.

The above share acquisitions have been accounted for as acquisitions of minority interests using the purchase method of accounting. The excess of the purchase price paid over the historical book value of the equity in net assets acquired from minority interests as a result of theses acquisitions, totaling $16,095, was allocated to property, plant and equipment, including mining rights, based on independent appraisals and internal and external valuation reports.

On April 19, 2002, the cancellation of 1,495,800 lots of one thousand preferred shares of Fosfertil held in treasury, without capital reduction, was approved. In July 2002, Fosfertil’s Board of Directors authorized the acquisition of up to 400,000 lots of one thousand common shares and up to 3,000,000 lots of one thousand preferred shares, all without par value, for cancellation or to be held in treasury for subsequent sale, this acquisition not implying a capital reduction. As of December 31, 2002, Fosfertil had 137,900 lots of one thousand shares held in treasury, which were subsequently cancelled in 2003. At December 31, 2003, no shares remained in treasury.

4. GAIN ON SALE OF INVESTMENTS

The amount refers to the 4.7% investment held by Ultrafertil S.A. in MRS Logística S.A., which was transferred to current assets in 2001 and sold at the beginning of 2002. The Company realized proceeds from the sale of $9,592 and recognized a gain on sale of $4,572.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

5. INVENTORIES


	At December 31
	2003	2002
Current assets:
Raw materials	28,374	17,337
Finished goods	33,670	26,128

Total	62,044	43,465

6. RECOVERABLE TAXES


	At December 31
	2003		2002
Income tax receivable	1,323		1,727
Recoverable taxes (ICMS)	25,913		13,654
Recoverable taxes (PIS)	4,686		3,236

	31,922		18,617
Less valuation allowance	(6,057	)	—

Total	25,865		18,617

Current	1,794		2,270
Noncurrent	24,071		16,347

In December 2001, Fertifos recognized approximately $10,602 in a tax credit related to the payment of PIS (Social Integration Contribution on Revenue) per Decrees No. 2,445/88 and No. 2,449/88, for the period from January 1989 to October 1995. The Brazilian Supreme Court declared such Decrees unconstitutional and they were legally eliminated through Resolution No. 49/95 of the Federal Senate. The Company recorded the credit based on the opinion of its legal counsel, supported by decisions of the Board of Tax Appeals of the Ministry of Finance. The remaining balance of the unused and available credit is recorded in other long-term assets and will be utilized to offset future tax liabilities of the same nature.

During the year ended December 31, 2003, Fertifos recorded a valuation allowance in the amount of $6,057 to reduce the balance of recoverable ICMS taxes (a value added tax) to an amount which management believes is more likely than not to be realized.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

7. PROPERTY, PLANT AND EQUIPMENT, NET


	At December 31
	2003		2002
Buildings	168,115		138,784
Machinery and equipment	434,509		312,722
Furniture, fixtures and other	40,232		49,777

	642,856		501,283
Less—Accumulated depreciation and amortization	(430,060	)	(327,664	)

Subtotal	212,796		173,619
Land	14,164		11,306
Mining rights, net of amortization of $829 and $491 at December 31, 2003 and 2002, respectively	10,895		9,096
Construction in progress	16,441		11,777

Total	254,296		205,798

Fertifos capitalized interest on construction in progress in the amounts of $2,047, $2,200, and $7,181 for the years ended December 31, 2003, 2002 and 2001, respectively. Depreciation expense was $28,489, $25,748 and $31,984 for the years ended December 31, 2003, 2002 and 2001, respectively. Amortization expense amounted to $220, $232 and $217 for the years ended December 31, 2003, 2002 and 2001, respectively.

8. OTHER NONCURRENT ASSETS


	At December 31
	2003	2002
Spare parts	34,650	26,286
Judicial deposits	16,865	6,739
Fiscal incentives and others	3,300	1,812

Total	54,815	34,837

9. INCOME TAXES

The components of the provision for income taxes are as follows:


	Year Ended December 31
	2003		2002		2001
Current	(45,643	)	(31,793	)	(20,683	)
Deferred	6,195		(4,998	)	4,348

Income tax expense	(39,448	)	(36,791	)	(16,335	)

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

Reconciliation of the income tax expense at the Brazilian statutory rate to the effective rate is as follows:


	Year Ended December 31
	2003		2002		2001
Income before income tax and minority interests	140,822		123,763		58,201
Statutory income tax rate	34	%	34	%	34	%

Income tax expense at statutory rate	47,879		42,079		19,788
Adjustments to derive effective rate:
Income tax effect of interest on shareholders’ equity	(6,270	)	(2,593	)	(2,092	)
Other	(2,161	)	(2,695	)	(1,361	)

Income tax expense	39,448		36,791		16,335

Brazilian corporations are permitted to determine a tax-deductible notional interest expense associated with shareholders’ equity, which could either be paid in cash, in the form of a dividend, or used to increase capital stock in the statutory records. The amount of any such notional interest expense is generally determined by the product of the Brazilian corporate law shareholders’ equity at the beginning of the year, less revaluation reserves, multiplied by the Brazilian long-term interest rate (TJLP), which is the official rate for government long-term loans, limited to the higher of 50% of net income or 50% of retained earnings at the beginning of the year. For financial reporting purposes, interest attributed to shareholders’ equity is reflected as a dividend and charged to retained earnings.

The components of deferred income taxes are as follows:


	At December 31
	2003		2002
Deferred income tax assets:
Accruals and reserves not currently deductible for tax purposes	14,527		9,629
Excess of tax basis over financial statement basis of property, plant and equipment	(529	)	(32	)
Maintenance program	7,181		2,039

Total deferred income taxes	21,179		11,636

10. SHORT-TERM DEBT

Fertifos’s short-term debt, predominately held with commercial banks and denominated in United States dollars, is generally used to fund working capital requirements. The weighted average interest rate on short-term debt outstanding as of December 31, 2003 and 2002 was 4.2% and 5.3%, respectively.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

11. LONG-TERM DEBT

Long-term debt obligations are summarized below:


	At December 31
	2003		2002
Due in Brazilian currency (real):
Long-term debt, collateralized by land, property, plant and equipment interest indexed to IGP-M (1) plus 6.5%, payable through 2007	108,754		95,362
Long-term debt, interest indexed to TJLP (2) plus 9.5 % to 10.0%, payable through 2006	5,460		6,522
Long-term debt, interest indexed to IGP-M (1) plus 6.0%, swapped to dollars, payable through 2004	5,349		10,729
Other	9,780		7,855
Due in foreign currency (US dollar):
Long-term debt, interest rates indexed to LIBOR (3) plus 3.75% to 3.87%, payable through 2008.	38,055		49,134
Long-term debt, interest rates indexed to LIBOR plus 4.2%, payable through 2007	24,358		24,408

	191,756		194,010
Less—Current portion	(56,433	)	(37,571	)

Total long-term debt	135,323		156,439

(1)	IGP-M is the Brazilian inflation index published by Fundação Getúlio Vargas. The annualized rate for the years ended December 31, 2003, 2002 and 2001 were 8.7%, 25.3% and 10.4%, respectively.

(2)	TJLP is a long-term interest rate reset by the Brazilian government on a quarterly basis. The annualized rate for the years ended December 31, 2003, 2002 and 2001 were 11.5%, 9.9% and 9.5%, respectively.

(3)	The annualized LIBOR interest rates paid by the Company for the years ended December 31, 2003, 2002 and 2001 were 1.3%, 2.3% and 4.7%, respectively.

As of December 31, 2003, certain land, property, plant and equipment having a net carrying value of approximately $106,900 have been mortgaged or otherwise encumbered against long-term debt.

A portion of the Company’s long-term debt is with the International Finance Corporation—IFC. Such financing contains certain restrictive covenants, which include restrictions as to the payments of dividends, as well as limits on capital expenditures and debt levels, among others. The Company was in compliance with all such covenants at December 31, 2003. Furthermore, these covenants have not restricted the Company’s ability to conduct its normal business or incur additional debt to fund its working capital or capital expenditure needs.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

Principal maturities of long-term debt as of December 31, 2003 are as follows:


2004		56,433
2005		49,531
2006		47,963
2007		34,211
2008 and thereafter		3,618

		191,756

12. FINANCIAL INSTRUMENTS

Risk Management—Fertifos, as a result of its operating and financing activities, is exposed to changes in Brazilian interest rates and foreign currency exchange rates, which may affect its results of operations and financial position. Fertifos uses derivative financial instruments for the purpose of minimizing the risks and/or costs associated with fluctuations in foreign exchange rates. While these hedging instruments are subject to fluctuations in value, such fluctuations are generally offset by the value of the underlying exposures being hedged. The counterparties to these contractual arrangements are a small group of major financial institutions with which Fertifos also has other financial relationships. As such, credit risk arising from these contracts is not significant and Fertifos does not anticipate any significant losses. The net cash requirements arising from risk management activities are not expected to be material. Fertifos is not a party to leveraged derivatives.

Foreign Currency Risk Management—Fertifos enters into foreign currency exchange swap and forward contracts to hedge foreign currency exposures. Generally, the Company hedges only the net exposure of assets and liabilities denominated in the same currency. The related derivative contracts are not designated as accounting hedges under SFAS No. 133. The fair value gains or losses from these foreign currency derivatives are recognized directly in earnings, and generally offset foreign exchange gains or losses on the related assets and liabilities being hedged. Maturities of these instruments generally are between three and six months.

As of December 31, 2003 and 2002, Fertifos had cross-currency swaps outstanding with notional principal amounts of $42,700 and $35,000 and mark-to-market losses of $576 and $5, respectively, which were recognized in foreign exchange in the statements of income and offset the gains and losses from the assets and liabilities being hedged.

As of December 31, 2003 and 2002, Fertifos had forward contracts outstanding with notional principal amounts of $44,684 and $42,004 and mark-to-market losses of $1,196 and $333, respectively, which were recognized in foreign exchange in the statements of income and offset the gains and losses from the assets and liabilities being hedged.

As of December 31, 2003 and 2002, Fertifos had foreign exchange interbank certificates of deposits (“CDI”) to dollar swaps outstanding with notional principal amounts of $27,914 and $14,212, respectively, and mark-to-market losses of $6,664 and $71, respectively, which were recognized in foreign exchange in the statements of income and offset the gains and losses from the assets and liabilities being hedged.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

Fair Value of Financial Instruments—The carrying amount of cash and cash equivalents approximates the fair value because of the short maturity of those instruments. The fair value of marketable securities was determined based on similar instruments currently available to Fertifos. The carrying value of short-term debt approximates fair value because of the short maturity of those instruments. The carrying value of long-term debt approximates fair value and was calculated based on interest rates currently available to Fertifos for similar borrowings.

13. SHAREHOLDERS’ EQUITY

Capital Structure—At December 31, 2003 and 2002, Fertifos had 19,129,409,453 of authorized and outstanding common stock. At the Extraordinary General Meeting held on April 29, 2002, the shareholders approved an increase of the Company’s capital stock in the amount of $1,081 through a reduction of retained earnings. This is an act permitted by the Brazilian corporate law. During 2002, 14,954 lots of one thousand shares of common stock were repurchased at a total cost of $167 and cancelled without capital reduction.

Legal Reserves—As per paragraph 1 of article 193 of Law No. 6,404/76, 5% of statutory net income is attributed to a legal reserve of up to 20% of total statutory paid-in capital.

Dividends—Dividends are payable in Brazilian reais based on retained earnings determined for Brazilian statutory purposes. Dividends may be converted to United States dollars and remitted to shareholders abroad provided that the nonresident shareholder’s capital is registered with the Brazilian Central Bank.

14. ACCRUAL FOR PENSION LIABILITY

Employee Defined Benefit Plan and Postretirement Benefit Plan—A Fertifos subsidiary, Ultrafertil S.A. (“Ultrafertil”) participates in a multiemployer defined benefit pension plan and other postretirement benefit plans administered by the Fundação Petrobras de Seguridade Social (“Petros”).

At December 31, 2003, Petros had 1,756 participants from Ultrafertil. Ultrafertil contributed $764 and $921 to the plan for the years ended December 31, 2003 and 2002, respectively.

In April 2001, Fosfertil, together with Petros, commenced the process of separating the multiemployer plan assets into seven individual, respective single-employer plans for Ultrafertil and the other participants. As management intended to withdraw from the plan and it was likely that the Company would incur its proportionate share of the pension and other post-retirement obligations related to Ultrafertil, at December 31, 2001 the Company recorded its estimated withdrawal obligation to the plan for the unfunded benefit obligation based on an actuarial estimate. The Company recorded additional pre-tax pension expense of $12,821, with approximately $4,359 recorded as a deferred tax asset.

The separation process was completed on August 29, 2002. Beginning January 1, 2002, the Company began accounting for the related pension and other post-retirement benefits in accordance with SFAS No. 87, “Employers Accounting for Pensions” and is presenting the required disclosures of SFAS No. 132, “Employers Disclosures about Pensions and Other Post-retirement Benefits.”

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

The following table shows information related to the Company’s defined benefit pension and post-retirement benefit plans as of and for the years ended December 31:


	Year Ended December 31				Year Ended December 31
	2003				2002
	Pension benefits		Other benefits		Pension benefits		Other benefits
Accumulated benefit obligation at December 31	131,912		180		92,810		142
Change in benefit obligation:
Benefit obligation at beginning of year	94,141		142		124,249		219
Service cost	715		8		693		15
Interest cost	6,244		10		5,716		10
Actuarial (gain) loss	18,329		(12	)	16,479		(26	)
Benefits paid	(7,996	)	—		(7,799	)	—
Cumulative translation adjustment	22,004		32		(45,197	)	(76	)

Benefit obligation at end of year	133,437		180		94,141		142

Change in plan assets:
Fair value of plans assets at beginning of year	87,454		—		111,644		—
Actual return on plan assets	25,020		—		23,658		—
Contributions received	1,139		—		1,161		—
Benefits paid	(7,996	)	—		(7,799	)	—
Cumulative translation adjustment	20,603		—		(41,210	)	—

Fair value of plans assets at end of year	126,220		—		87,454		—

Funded status	7,217		180		6,687		142
Unrecognized net actuarial gain (loss)	956		12		1,682		22

Accrual for pension obligations	8,173		192		8,369		164

The following summarizes the components of the net periodic benefit cost recognized in the statements of income:


	Year Ended December 31
	2003		2002		2001
Service cost	723		708		—
Interest cost	6,254		5,726		—
Expected return on plan assets	(5,811	)	(5,297	)	—
Amortization of actuarial gains/losses	511		—		—
Recognized actuarial loss	—		—		—
Contributions to multiemployer plan	—		—		879
Withdrawal obligation	—		(216	)	12,821

Total net periodic benefit cost	1,677		921		13,700

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

The weighted average assumptions used in determining the actuarial present value of the projected benefit obligations and the net periodic benefit cost under the defined benefit plans are as follows:


	At December 31
	2003		2002
Discount rate (inflation adjusted)	15.30	%	18.53	%
Expected long-term rate of return on plan assets (inflation adjusted)	15.30	%	18.53	%
Increase in future compensation levels (inflation adjusted)	11.30	%	14.53	%
Inflation	9.30	%	12.53	%

The expected long-term rate of return on assets is based in consultation with the plan’s investment advisors and actuaries. These rates are intended to reflect the average rates of earnings expected to be earned on the funds invested or to be invested to provide required plan benefits. The plan is assumed to continue in effect as long as assets are expected to be invested. In estimating the expected long-term rate of return on assets, appropriate consideration is given to historical performance for the major asset classes held or anticipated to be held by the plan and to current forecasts of future rates of return for those asset classes, considering such factors as projected long-term inflation rates, future interest yield curves and other economic projection data available in the market. Cash flow and expenses are taken into consideration to the extent that the expected returns would be affected by them.

The pension plan’s weighted-average actual asset allocations, including plan target allocations, at the end of the plan year for 2003 and 2002, by category are as follows:


	At December 31
	Plan Target	2003		2002
Fixed income investments	45%–85%	49.8	%	55.6	%
Variable rate investments	10%–35%	31.3	%	24.6	%
Real estate	5%–13%	9.0	%	10.2	%
Loans and other	2%–10%	9.9	%	9.6	%

The plan’s investment policies and strategies are aimed to reduce investment risk through diversification, considering such factors as the liquidity needs and funded status of plan liabilities, types and availability of financial instruments in the local market, general economic conditions and forecasts as well as the requirements under local pension plan law. Assets are sufficiently diversified to maintain a reasonable level of risk without imprudently sacrificing return, with target asset allocations based on expectations of asset performance over a time horizon of 12 months, considering defined actuarial targets and considering alternative scenarios. Specific investments within asset categories are based on analyses of risk and return of the portfolio as a whole.

Fertifos expects to contribute approximately $700 to its defined benefit plans in 2004.

Employee Defined Contribution Plan—In October 2001, the Company and Ultrafertil implemented a defined contribution plan for employees not covered under the multiemployer defined benefit pension plan and other post-retirement benefit plans administered by Petros. In 2003, 2002 and 2001, the expenses related to Bradesco Previdência e Seguros S.A. were $334, $327 and $109, respectively. The participants’ contribution is based on their compensation at the rate of 2.7% for Fosfertil, and 2.0% for Ultrafertil.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

15. RELATED-PARTY TRANSACTIONS AND BALANCES

Fertifos provides phosphate and nitrogenous materials principally to the fertilizer industry in Brazil. Many of Fertifos’ shareholders are engaged in this industry and buy a majority of Fertifos’ production. The Company recorded net sales of $329,740, $243,381 and $247,554 for the years ended December 31, 2003, 2002 and 2001, respectively, to its shareholders. Sales to two related parties accounted for approximately 45%, 43% and 41% of net sales for the years ended December 31, 2003, 2002 and 2001, respectively. Accounts receivable from shareholders were $1,007 and $1,306 at December 31, 2003 and 2002, respectively. Other current liabilities to shareholders were $4,772 and $3,410 at December 31, 2003 and 2002, respectively.

16. COMMITMENTS AND CONTINGENCIES

Fertifos is party to a number of claims and lawsuits arising out of the normal course of business with respect to commercial matters, including various tax and labor claims. Accruals for claims and lawsuits of $43,514 and $26,546 at December 31, 2003 and 2002, respectively, are summarized as follows:


	At December 31
	2003	2002
Labor matters	11,594	8,398
Tax matters
Disputed taxes	24,080	13,064
Other	7,840	5,084

Total	43,514	26,546

Labor matters—The Company is a party to various labor claims made by its former employees, which are in various stages of litigation. Based on the advice of its legal counsel, the Company has accrued amounts representing management’s estimate of probable losses related to these claims.

Disputed taxes—The Company has filed injunctions disputing certain aspects of the tax legislation related to federal income and social contribution taxes as well as changes to the legislation regarding PIS and COFINS tax (revenue taxes). Such taxes continue to be accrued in accordance with applicable legislation; however, the Company has suspended payment while these matters are being contested.

Other tax matters—The Company is also party to a number of tax claims and assessments in the normal course of business for which provisions have been recorded representing management’s best estimate of probable losses, based on the advice of its legal counsel and tax advisors.

After taking into account liabilities recorded for all of the foregoing matters, management believes that the ultimate resolution of such matters will not have a material adverse effect on Fertifos’ financial condition, results of operations or liquidity. The Company recorded $9,145, $7,466 and $4,404 of expense for contingencies during the years ended December 31, 2003, 2002 and 2001, respectively.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

17. SUBSEQUENT EVENTS

On February 27, 2004, Fosfertil entered into an export prepayment financing arrangement with a bank in the amount of $15,000. This debt bears interest at 5.56% and is repayable in three annual principal commencing on February 16, 2007.

On March 25, 2004, Fosfertil entered into a pre-export financing arrangement with a bank in the amount of $30,000. This debt bears interest at 5.56% with maturity at January 30, 2009.

On May 24, 2004 and June 2, 2004 the Company paid dividends of $3,085 and $9,473, respectively.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of United States dollars)

(Unaudited)


	At June 30,
	2004	2003
ASSETS

CURRENT ASSETS
Cash and cash equivalents	119,415	144,465
Marketable securities	8,170	11,052
Trade accounts receivable (including related parties, $ 2,339 in 2004 and $5,833 in 2003)	29,408	29,357
Inventories (Note 3)	130,633	70,899
Recoverable taxes	2,105	2,448
Other current assets	4,530	3,410

Total current assets	294,261	261,631

PROPERTY, PLANT AND EQUIPMENT, NET	236,492	255,142

OTHER ASSETS
Deferred income taxes	22,809	19,127
Recoverable taxes	26,681	25,643
Other noncurrent assets (Note 4)	56,957	44,560

Total other assets	106,447	89,330

TOTAL ASSETS	637,200	606,103

The notes are an integral part of the consolidated financial statements.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of United States dollars)

(Unaudited)


	At June 30,
	2004		2003
LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES
Current portion of long-term debt (Note 6)	57,165		51,641
Trade accounts payable	38,692		51,407
Accrued payroll and wages	14,297		12,847
Income taxes payable	11,920		15,124
Other current liabilities (Note 5)	36,281		27,571

Total current liabilities	158,355		158,590

LONG-TERM LIABILITIES
Long-term debt (Note 6)	154,647		160,910
Accrual for pension liability	8,114		10,850
Accrual for claims and lawsuits	46,402		38,203
Other long term liabilities	2,230		8,400

Total long-term liabilities	211,393		218,363

MINORITY INTEREST	114,275		100,239

SHAREHOLDERS’ EQUITY
Common stock; no par value, 19,129,409,453 authorized and outstanding shares	122,857		122,857
Legal reserve	17,634		16,190
Retained earnings	105,478		70,879
Accumulated other comprehensive loss	(92,792	)	(81,015	)

Total shareholders’ equity	153,177		128,911

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	637,200		606,103

The notes are an integral part of the consolidated financial statements.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Expressed in thousands of United States dollars)

(Unaudited)


	Six Months Ended
	June 30,
	2004		2003
NET SALES (including related parties, $147,896 in 2004 and $162,083 in 2003)	263,825		260,007
COST OF SALES	(160,183	)	(175,530	)

Gross profit	103,642		84,477
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES	(22,129	)	(17,943	)

Operating income	81,513		66,534

NONOPERATING INCOME (EXPENSES)
Interest income	14,149		15,779
Interest expense	(17,069	)	(14,444	)
Foreign exchange	(9,785	)	344
Other, net	(382	)	(799	)

Nonoperating income (expenses), net	(13,087	)	880

INCOME BEFORE INCOME TAX AND MINORITY INTEREST	68,426		67,414
Income tax expense	(20,313	)	(20,715	)

INCOME BEFORE MINORITY INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE	48,113		46,699
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (net of tax of $416 in 2003)	—		(807	)
Minority interest	(21,908	)	(19,851	)

NET INCOME	26,205		26,041

The notes are an integral part of the consolidated financial statements.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Expressed in thousands of United States dollars)

(Unaudited)


	Six Months Ended June 30,
	2004		2003
NET INCOME	26,205		26,041
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment	(11,777	)	23,841

COMPREHENSIVE INCOME	14,428		49,882

The notes are an integral part of the consolidated financial statements.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Expressed in thousands of United States dollars)

(Unaudited)

SIX MONTHS ENDED JUNE 30, 2004


	Common stock and additional paid-in capital	Legal reserve	Retained earnings		Accumulated other comprehensive loss		Total
BALANCES JANUARY 1, 2004	122,857	17,634	91,834		(81,015	)	151,310
Net income	—	—	26,205		—		26,205
Dividends	—	—	(12,561	)	—		(12,561	)
Net translation adjustment	—	—	—		(11,777	)	(11,777	)

BALANCES JUNE 30, 2004	122,857	17,634	105,478		(92,792	)	153,177

SIX MONTHS ENDED JUNE 30, 2003


	Common stock and additional paid-in capital	Legal reserve	Retained earnings		Accumulated other comprehensive loss		Total
BALANCES JANUARY 1, 2003	122,857	14,714	77,500		(104,856	)	110,215
							—
Net income	—	—	26,041		—		26,041
Transfer to legal reserve	—	1,476	(1,476	)	—		—
Dividends	—	—	(31,186	)	—		(31,186	)
Net translation adjustment	—	—	—		23,841		23,841

BALANCES JUNE 30, 2003	122,857	16,190	70,879		(81,015	)	128,911

The notes are an integral part of the consolidated financial statements.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in thousands of United States dollars)

(Unaudited)


	Six Months Ended June 30,
	2004		2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	26,205		26,041
ADJUSTMENTS TO RECONCILE CASH PROVIDED BY (USED IN) OPERATING ACTIVITES
Unrealized foreign exchange	6,752		(16,958	)
Monetary variation of debt	7,466		5,897
Depreciation and amortization	15,095		13,318
Cumulative effect of accounting change	—		807
Write-off of property, plant and equipment	589		18
Deferred income taxes	(3,261	)	(4,266	)
Minority interest participation	21,908		19,851
CHANGES IN OPERATING ASSETS AND LIABILITIES
Marketable securities	2,080		2,321
Trade accounts receivable	(10,794	)	(9,603	)
Inventories	(76,307	)	(17,824	)
Recoverable taxes	(4,956	)	(4,600	)
Other assets	(6,970	)	(1,743	)
Trade accounts payable	(37,115	)	5,133
Income taxes payable	(732	)	5,045
Accrued payroll and wages	(924	)	(3	)
Other liabilities	24,854		25,900

Net cash provided by (used in) operating activities	(36,110	)	49,334

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment	(15,747	)	(12,612	)

Net cash used in investing activities	(15,747	)	(12,612	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) of short-term debt	(2,575	)	1,733
Proceeds from long-term debt	45,000		7,247
Repayments of long-term debt	(23,438	)	(24,292	)
Dividends paid to shareholders	(12,561	)	(31,186	)
Dividends paid to minority interests in subsidiaries	(15,594	)	(28,093	)

Net cash used in financing activities	(9,168	)	(74,591	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(11,948	)	29,944
NET DECREASE IN CASH AND CASH EQUIVALENTS	(72,973	)	(7,925	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	192,388		152,390

CASH AND CASH EQUIVALENTS, END OF PERIOD	119,415		144,465

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest	5,915		6,114
Income taxes	13,926		16,708

The notes are an integral part of the consolidated financial statements.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States dollars, unless otherwise stated)

(Unaudited)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—The accompanying unaudited consolidated interim financial statements have been prepared in accordance with the accounting policies described in the audited consolidated financial statements of the Company as of and for the three years in the period ended December 31, 2003, and should be read in conjunction with the disclosures therein. In the opinion of management, these interim financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. Results of operations and cash flows for the first six months of the year are not necessarily indicative of full year results.

The consolidated financial statements include the accounts of the Company’s majority-owned subsidiaries, Fertilizantes Fosfatados S.A. Fosfertil, Ultrafertil S.A. and UF Distribuidora de Combustíveis Ltda. Intercompany transactions and balances have been eliminated in consolidation.

Certain reclassifications have been made to prior-year amounts to conform with the current year presentation.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States dollars, unless otherwise stated)

(Unaudited)

Foreign Currency Transactions—Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transactions gains and losses that are reflected in the consolidated statement of income as foreign exchange.

Trade Accounts Receivable—Accounts receivable are stated net of an allowance for doubtful accounts, which is recorded in an amount considered by management to be sufficient to absorb probable future losses related to uncollectible accounts. The allowance for doubtful accounts was $2,553 and $2,842 at June 30, 2004 and 2003, respectively.

Derivatives—Fertifos enters into various derivative financial instruments to limit exposure to changes in foreign currency fluctuations and interest rates. The Company does not enter into derivative financial instruments for speculative purposes. Effective January 1, 2001, Fertifos adopted Financial Accounting Standards Board—FASB Statement of Financial Accounting Standard—SFAS No. 133 and No. 138, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133 and No. 138 established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and hedging activities.

Environmental, Site and Restoration Costs—Expenditures related to ongoing compliance with environmental regulations are charged to expense as incurred. These ongoing programs are designed to minimize the environmental impact of the Company’s activities. Prior to January 1, 2003, liabilities for final site reclamation and restoration costs associated with the Company’s mining properties were recorded when the respective reclamation and restoration strategies were able to be reasonably determined and the related costs reasonably estimated. Effective January 1, 2003, the Company adopted the provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations”, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs, including those final site restoration and reclamation costs associated with the Company’s mining rights and operating facilities (see Note 2).

2. CHANGES IN ACCOUNTING PRINCIPLE

Asset Retirement Obligations—Effective January 1, 2003, the Company adopted the provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations”, which addresses financial, accounting and reporting standards for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs, including those site restoration and reclamation costs associated with the Company’s mining rights and operating facilities. The Company’s asset retirement obligations primarily include site restoration and reclamation costs associated with the Company’s mining rights and operating facilities. In accordance with SFAS No. 143, these asset retirement obligations are recorded at their present value when incurred, with a corresponding amount capitalized as part of property, plant and equipment. The related asset retirement obligations will be accreted to their estimated future values on the estimated date when such obligations will be paid, while the asset will subsequently be depreciated over the remaining estimated useful life.

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of United States dollars, unless otherwise stated)

(Unaudited)

As a result of the adoption, the Company recorded a charge of $807, net of tax of $416, as a cumulative effect of a change in accounting principle, as follows:


Property, plant and equipment (asset, net of accumulated amortization of $131)	637
Deferred tax (asset)	416
Asset retirement (obligation)	(1,860	)

Cumulative effect of accounting change (net of tax of $416)	(807	)

At June 30, 2004, the carrying amount of the asset retirement obligation was $2,043, which is recorded as part of other long-term liabilities. There were no significant changes in the components of the liability during the six months ended June 30, 2004 and 2003. The associated amount capitalized as part of the Company’s property, plant and equipment, including mining assets, was $666 at June 30, 2004, net of accumulated depreciation and amortization of $159.

3. INVENTORIES


	At June 30,
	2004	2003
Raw materials	30,825	24,806
Finished goods	99,808	46,093

Total	130,633	70,899

4. OTHER NONCURRENT ASSETS


	At June 30,
	2004	2003
Spare parts	38,016	31,047
Judicial deposits	16,433	11,230
Fiscal incentives and others	2,508	2,283

Total	56,957	44,560

5. OTHER CURRENT LIABILITIES


	At June 30,
	2004	2003
Advances from customers
Related parties	19,234	10,633
Other customers	9,364	4,611
Unrealized losses on derivative contracts	3,664	7,637
Other	4,019	4,690

Total	36,281	27,571

FERTIFOS ADMINISTRAÇÃO E PARTICIPAÇÃO S.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Expressed in thousands of United States dollars, unless otherwise stated)

(Unaudited)

6. LONG-TERM DEBT

Long-term debt obligations are summarized below:


	At June 30,
	2004		2003
Due in Brazilian currency (real):
Long-term debt, collateralized by land, property, plant and equipment interest indexed to IGP-M (a) plus 6.5%, payable through 2007	94,425		115,483
Long-term debt, interest indexed to TJLP (b) plus 9.5 % to 10.0%, payable through 2006	4,099		6,789
Long-term debt, interest indexed to IGP-M (a) plus 6.0%, swapped to U.S. dollars, payable through 2004	2,675		8,036
Other	7,984		14,317
Due in foreign currency (U.S. dollar):
Long-term debt, interest rates indexed to LIBOR (c) plus 3.75% to 3.87%, payable through 2008	32,556		43,546
Long-term debt, interest rates indexed to LIBOR plus 4.2%, payable through 2007	24,357		24,380
Long-term debt, interest 5.56%, payable through 2009	45,716		—

	211,812		212,551
Less—current portion	(57,165	)	(51,641	)