MOS_2014.09.30_10Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________
FORM 10-Q  
_______________________________________________________________________
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-32327  
_______________________________________________________________________
The Mosaic Company
(Exact name of registrant as specified in its charter)  
_______________________________________________________________________
 
Delaware
20-1026454
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3033 Campus Drive
Suite E490
Plymouth, Minnesota 55441
(800) 918-8270
(Address and zip code of principal executive offices and registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)  
_______________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):    Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: 336,965,333 shares of Common Stock and 34,352,114 shares of Class A Common Stock and 0 shares of Class B Common Stock as of October 27, 2014.
 


Table of Contents

Table of Contents
 
 
 
 
 
 
PART I.
FINANCIAL INFORMATION
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
PART II.
OTHER INFORMATION
 
 
Item 1.
 
Item 2.
 
Item 4.
 
Item 6.
 
 


Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE MOSAIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share amounts)
(Unaudited)
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Net sales
$
2,250.7

 
$
1,908.7

 
$
6,677.2

 
$
6,839.9

Cost of goods sold
1,836.0

 
1,521.8

 
5,329.7

 
5,146.0

Gross margin
414.7

 
386.9

 
1,347.5

 
1,693.9

Selling, general and administrative expenses
83.9

 
94.4

 
291.3

 
302.3

(Gain) loss on assets sold and to be sold
(31.7
)
 
122.8

 
(26.1
)
 
122.8

Carlsbad restructuring expense
67.0

 
—

 
67.0

 
—

Other operating expense
18.2

 
25.6

 
68.1

 
107.9

Operating earnings
277.3

 
144.1

 
947.2

 
1,160.9

Gain (loss) in value of share repurchase agreement
5.3

 
—

 
(60.2
)
 
—

Interest (expense) income, net
(25.2
)
 
1.8

 
(76.6
)
 
6.0

Foreign currency transaction gain (loss)
27.1

 
(29.6
)
 
31.8

 
9.6

Other income (expense)
0.1

 
0.4

 
(6.1
)
 
2.6

Earnings from consolidated companies before income taxes
284.6

 
116.7

 
836.1

 
1,179.1

Provision for (benefit from) income taxes
77.6

 
(6.6
)
 
157.7

 
253.4

Earnings from consolidated companies
207.0

 
123.3

 
678.4

 
925.7

Equity in net earnings (loss) of nonconsolidated companies
(4.1
)
 
2.5

 
(9.6
)
 
10.0

Net earnings including noncontrolling interests
202.9

 
125.8

 
668.8

 
935.7

Less: Net earnings attributable to noncontrolling interests
1.0

 
1.4

 
0.9

 
1.7

Net earnings attributable to Mosaic
$
201.9

 
$
124.4

 
$
667.9

 
$
934.0

Basic net earnings per share attributable to Mosaic
$
0.54

 
$
0.29

 
$
1.73

 
$
2.19

Diluted net earnings per share attributable to Mosaic
$
0.54

 
$
0.29

 
$
1.72

 
$
2.19

Basic weighted average number of shares outstanding
374.0

 
425.9

 
375.5

 
425.8

Diluted weighted average number of shares outstanding
375.9

 
427.1

 
377.0

 
427.1


See Notes to Condensed Consolidated Financial Statements
1


Table of Contents

THE MOSAIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Net earnings including noncontrolling interest
$
202.9

 
$
125.8

 
$
668.8

 
$
935.7

Other comprehensive income, net of tax
 
 
 
 
 
 
 
Foreign currency translation, net of tax
(353.8
)
 
140.9

 
(340.9
)
 
(267.4
)
Net actuarial (loss) gain and prior service cost, net of tax
1.1

 
2.4

 
4.0

 
(10.4
)
Amortization of loss on interest rate swap, net of tax
7.7

 
(1.0
)
 
9.0

 
(1.0
)
Other comprehensive income (loss)
(345.0
)
 
142.3

 
(327.9
)
 
(278.8
)
Comprehensive income (loss)
(142.1
)
 
268.1

 
340.9

 
656.9

Less: Comprehensive income (loss) attributable to noncontrolling interest
(0.7
)
 
1.4

 
0.1

 
0.5

Comprehensive income (loss) attributable to Mosaic
$
(141.4
)
 
$
266.7

 
$
340.8

 
$
656.4



See Notes to Condensed Consolidated Financial Statements
2


Table of Contents

THE MOSAIC COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
(Unaudited)
 
 
September 30,
2014
 
December 31,
2013
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
$
2,970.6

 
$
5,293.1

 
Receivables, net
573.9

 
543.1

 
Inventories
1,471.5

 
1,432.9

 
Deferred income taxes
171.8

 
129.9

 
Other current assets
470.7

 
706.8

 
Total current assets
5,658.5

 
8,105.8

 
Property, plant and equipment, net of accumulated depreciation of $4,456.2 million and $4,025.0 million, respectively
9,413.7

 
8,576.6

 
Investments in nonconsolidated companies
840.0

 
576.4

 
Goodwill
1,741.3

 
1,794.4

 
Deferred income taxes
187.5

 
152.2

 
Other assets
614.5

 
348.6

 
Total assets
$
18,455.5

 
$
19,554.0

 
Liabilities and Equity
 
 
 
 
Current liabilities:
 
 
 
 
Short-term debt
$
0.4

 
$
22.6

 
Current maturities of long-term debt
41.0

 
0.4

 
Accounts payable
762.2

 
570.2

 
Accrued liabilities
712.0

 
666.3

 
Contractual share repurchase liability
—

 
1,985.9

 
Deferred income taxes
19.5

 
20.5

 
Accrued income taxes
14.5

 
—

 
Total current liabilities
1,549.6

 
3,265.9

 
Long-term debt, less current maturities
3,774.2

 
3,008.9

 
Deferred income taxes
963.9

 
1,031.5

 
Other noncurrent liabilities
1,205.3

 
927.1

 
Equity:
 
 
 
 
Preferred Stock, $0.01 par value, 15,000,000 shares authorized, none issued and outstanding as of September 30, 2014 and December 31, 2013
—

 
—

 
Class A Common Stock, $0.01 par value, 211,380,055 shares authorized, 34,352,114 shares issued and outstanding as of September 30, 2014, 254,300,000 shares authorized, 128,759,772 shares issued and 85,839,827 shares outstanding as of December 31, 2013
0.3

 
1.3

 
Class B Common Stock, $0.01 par value, 87,008,602 shares authorized, none issued and outstanding as of September 30, 2014 and December 31, 2013
—

 
—

 
Common Stock, $0.01 par value, 1,000,000,000 shares authorized, 352,541,841 shares issued and 338,783,128 shares outstanding as of September 30, 2014, 352,204,571 shares issued and 340,166,109 shares outstanding as of December 31, 2013
3.4

 
3.0

 
Capital in excess of par value
0.5

 
1.6

 
Retained earnings
11,153.2

 
11,182.1

 
Accumulated other comprehensive income
(212.8
)
 
114.3

 
Total Mosaic stockholders' equity
10,944.6

 
11,302.3

 
Noncontrolling interests
17.9

 
18.3

 
Total equity
10,962.5

 
11,320.6

 
Total liabilities and equity
$
18,455.5

 
$
19,554.0


See Notes to Condensed Consolidated Financial Statements
3


Table of Contents

THE MOSAIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
 
Nine months ended
 
September 30,
2014
 
September 30,
2013
 
 
Cash Flows from Operating Activities:
 
 
 
 
Net earnings including noncontrolling interests
$
668.8

 
$
935.7

 
Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities:
 
 
 
 
Depreciation, depletion and amortization
558.2

 
488.8

 
Deferred income taxes
(97.4
)
 
205.3

 
Equity in net loss of nonconsolidated companies, net of dividends
11.1

 
36.3

 
Accretion expense for asset retirement obligations
29.8

 
26.6

 
Share-based compensation expense
49.2

 
19.7

 
Amortization of acquired inventory
39.7

 
—

 
Change in value of share repurchase agreement
60.2

 
—

 
(Gain) loss on assets sold and to be sold
(26.1
)
 
122.8

 
Carlsbad restructuring expense
67.0

 
—

 
Other
6.4

 
13.6

 
Changes in assets and liabilities, excluding effects of acquisition:
 
 
 
 
Receivables, net
(64.0
)
 
191.6

 
Inventories
38.3

 
20.3

 
Other current and noncurrent assets
216.7

 
(238.6
)
 
Accounts payable
272.3

 
(128.7
)
 
Accrued liabilities and income taxes
67.8

 
(65.1
)
 
Other noncurrent liabilities
13.9

 
(111.6
)
 
Net cash provided by operating activities
1,911.9

 
1,516.7

 
Cash Flows from Investing Activities:
 
 
 
 
Capital expenditures
(677.3
)
 
(1,074.0
)
 
Proceeds from sale of business
55.0

 
—

 
Acquisition of business
(1,375.8
)
 
—

 
Investments in nonconsolidated companies
(152.0
)
 
(156.3
)
 
Other
(2.6
)
 
4.7

 
Net cash used in investing activities
(2,152.7
)
 
(1,225.6
)
 
Cash Flows from Financing Activities:
 
 
 
 
Payments of short-term debt
(219.4
)
 
(219.0
)
 
Proceeds from issuance of short-term debt
186.0

 
204.8

 
Payments of long-term debt
(1.5
)
 
(1.5
)
 
Proceeds from issuance of long-term debt
807.2

 
3.4

 
Proceeds from stock option exercises
2.3

 
4.3

 
Repurchases of stock
(2,507.7
)
 
—

 
Cash dividends paid
(288.6
)
 
(320.0
)
 
Other
0.2

 
1.4

 
Net cash used in financing activities
(2,021.5
)
 
(326.6
)
 
Effect of exchange rate changes on cash
(60.2
)
 
(31.2
)
 
Net change in cash and cash equivalents
(2,322.5
)
 
(66.7
)
 
Cash and cash equivalents - December 31
5,293.1

 
3,405.3

 
Cash and cash equivalents - September 30
$
2,970.6

 
$
3,338.6

 
Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest (net of amount capitalized of $27.8 and $34.9 for the nine months ended September 30, 2014 and 2013, respectively)
$
59.0

 
$
1.1

 
Income taxes (net of refunds)
38.7

 
92.2


See Notes to Condensed Consolidated Financial Statements
4


Table of Contents

THE MOSAIC COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In millions, except per share amounts)
(Unaudited)
 
 
 
Mosaic Shareholders
 
 
 
 
 
Shares
 
Dollars
 
 
 
 
 
Capital in Excess of Par Value
 
 
 
Accumulated Other Comprehensive Income
 
 
 
 
 
Common Stock
 
Common Stock
 
 
Retained Earnings
 
 
Noncontrolling Interests
 
Total Equity
 
 
 
 
 
 
 
Balance as of May 31, 2013
425.8

 
$
4.3

 
$
1,491.3

 
$
11,603.4

 
$
326.4

 
$
17.5

 
$
13,442.9

Total comprehensive income (loss)
—

 
—

 
—

 
340.0

 
(212.1
)
 
1.2

 
129.1

Stock option exercises
0.1

 
—

 
1.1

 
—

 
—

 
—

 
1.1

Amortization of stock based compensation
—

 
—

 
23.3

 
—

 
—

 
—

 
23.3

Forward contract to repurchase Class A Common Stock
—

 
—

 
(1,511.3
)
 
(547.8
)
 
—

 
—

 
(2,059.1
)
Dividends ($0.50 per share)
—

 
—

 
—

 
(213.5
)
 
—

 
—

 
(213.5
)
Dividends for noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(0.4
)
 
(0.4
)
Tax shortfall related to share based compensation
—

 
—

 
(2.8
)
 
—

 
—

 
—

 
(2.8
)
Balance as of December 31, 2013
425.9

 
$
4.3

 
$
1.6

 
$
11,182.1

 
$
114.3

 
$
18.3

 
$
11,320.6

Total comprehensive income (loss)
—

 
—

 
—

 
667.9

 
(327.1
)
 
0.1

 
340.9

Stock option exercises
0.4

 
—

 
2.3

 
—

 
—

 
—

 
2.3

Amortization of stock based compensation
—

 
—

 
49.2

 
—

 
—

 
—

 
49.2

Forward contract and repurchases of stock
(53.2
)
 
(0.6
)
 
(53.3
)
 
(407.7
)
 
—

 
—

 
(461.6
)
Dividends ($0.75 per share)
—

 
—

 
—

 
(289.1
)
 
—

 
—

 
(289.1
)
Dividends for noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(0.5
)
 
(0.5
)
Tax benefit related to share based compensation
—

 
—

 
0.7

 
—

 
—

 
—

 
0.7

Balance as of September 30, 2014
373.1

 
$
3.7

 
$
0.5

 
$
11,153.2

 
$
(212.8
)
 
$
17.9

 
$
10,962.5



See Notes to Condensed Consolidated Financial Statements
5


Table of Contents

THE MOSAIC COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables in millions, except per share amounts and as otherwise designated)
(Unaudited)
1. Organization and Nature of Business
The Mosaic Company (“Mosaic”, and, with its consolidated subsidiaries, “we”, “us”, “our”, or the “Company”) produces and markets concentrated phosphate and potash crop nutrients. We conduct our business through wholly and majority owned subsidiaries as well as businesses in which we own less than a majority or a noncontrolling interest, including consolidated variable interest entities and investments accounted for by the equity method. We are organized into the following business segments:
Our Phosphates business segment owns and operates mines and production facilities in Florida which produce concentrated phosphate crop nutrients and phosphate-based animal feed ingredients, and processing plants in Louisiana which produce concentrated phosphate crop nutrients. Our Phosphates segment's results also include our international distribution activities. In fiscal 2011, the Phosphates segment acquired a 35% economic interest in a joint venture that owns the Miski Mayo Mine in Peru. On August 5, 2013, we entered into a Shareholders’ Agreement with Saudi Arabian Mining Company (“Ma’aden”) and Saudi Basic Industries Corporation (“SABIC”) under which the parties have formed a joint venture to develop, own and operate integrated phosphate production facilities in the Kingdom of Saudi Arabia (the “Northern Promise Joint Venture”). We own 25% of the joint venture and will market approximately 25% of its production. On March 17, 2014, we completed the acquisition of the Florida phosphate assets and assumption of certain related liabilities (“CF Phosphate Assets Acquisition”) of CF Industries, Inc. (“CF”). This transaction is further described in Note 17 to our Condensed Consolidated Financial Statements in this report.
Our Potash business segment owns and operates potash mines and production facilities in Canada and the U.S. which produce potash-based crop nutrients, animal feed ingredients and industrial products. Potash sales include domestic and international sales. We are a member of Canpotex, Limited (“Canpotex”), an export association of Canadian potash producers through which we sell our Canadian potash outside the U.S. and Canada.
Intersegment sales are eliminated within Corporate, Eliminations and Other. See Note 15 of our Condensed Consolidated Financial Statements in this report for segment results.
2. Share Repurchases
As previously reported, on May 25, 2011, we facilitated the exit by Cargill, Incorporated ("Cargill") from its equity interest in us through a split-off to its stockholders and a debt exchange with its debt holders, and initiated the first in a series of transactions (the “Cargill Transaction”) intended to result in the ongoing orderly disposition of the approximately 64% (285.8 million) of our shares that Cargill formerly held. Among other previously reported actions in furtherance of the Cargill Transaction, on December 6, 2013, we entered into a share repurchase agreement (the “MAC Trusts Share Repurchase Agreement”) with two former Cargill stockholders (the "MAC Trusts") to purchase all of the remaining shares of Class A Common Stock ("Class A Shares") held by the MAC Trusts through a series of eight purchases occurring from January 8, 2014 through July 30, 2014. During the nine months ended September 30, 2014, pursuant to the MAC Trusts Share Repurchase Agreement, all 21,647,007 Class A Shares, Series A-3, held by the MAC Trusts, and 21,647,008 Class A Shares, Series A-2, were repurchased for an aggregate of $2.0 billion, of which 6,184,863 shares were repurchased during the three months ended September 30, 2014 for an aggregate of approximately $300 million.
In February of 2014, our Board of Directors authorized a $1 billion share repurchase program (“Repurchase Program”), allowing the Company to repurchase Class A Shares or shares of our Common Stock ("Common Stock"), through direct buybacks or in open market transactions. This authorization is in addition to the MAC Trusts Share Repurchase Agreement described above. During the nine months ended September 30, 2014, under the Repurchase Program, 8,193,698 Class A Shares were repurchased under agreements we entered with certain Cargill family member trusts (the “Family Trusts Share Repurchase Agreements”, and together with the MAC Trusts Share Repurchase Agreement, the "Share Repurchase Agreements") and 1,720,251 shares of Common Stock were repurchased for an aggregate of $468.6 million, of which 1,565,251 shares of Common Stock were repurchased in the open market during the three months ended September 30, 2014 for an aggregate of approximately $74 million.
The Share Repurchase Agreements were accounted for as forward contracts with an initial liability established at fair value based on the average of the weighted average trading price for each of the preceding 20 trading days and a corresponding reduction of equity. The contracts were subsequently remeasured at the present value of the amount to be paid at settlement with the difference being recognized in the consolidated statement of earnings. We were required to exclude the Class A shares that remained to be repurchased in calculating basic and diluted earnings per share (“EPS”). Any amounts, including contractual (accumulated) dividends and participation rights in undistributed earnings, attributable to shares that remained to be repurchased that had not yet been recognized in the consolidated statement of earnings were deducted in computing income available to common shareholders, consistent with the two-class method. See the calculation of EPS in Note 6 of our Condensed Consolidated Financial Statements.

6
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Subsequent to September 30, 2014, through October 27, 2014, under the Repurchase Program, 1,926,349 shares have been repurchased in the open market for an aggregate of approximately $81 million.
3. Summary of Significant Accounting Policies
Statement Presentation and Basis of Consolidation
The accompanying unaudited Condensed Consolidated Financial Statements of Mosaic have been prepared on the accrual basis of accounting and in accordance with the requirements of the Securities and Exchange Commission (“SEC”) for interim financial reporting. As permitted under these rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States (“U.S. GAAP”) can be condensed or omitted. The Condensed Consolidated Financial Statements included in this document reflect, in the opinion of our management, all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the results for the interim periods presented. The following notes should be read in conjunction with the accounting policies and other disclosures in the Notes to the Consolidated Financial Statements included in our Transition Report on Form 10-K filed with the SEC for the transition period from June 1, 2013 to December 31, 2013 (the "10-K Report"). Sales, expenses, cash flows, assets and liabilities can and do vary during the year as a result of seasonality and other factors. Therefore, interim results are not necessarily indicative of the results to be expected for the full fiscal year.
The accompanying Condensed Consolidated Financial Statements include the accounts of Mosaic and its majority owned subsidiaries. Certain investments in companies where we do not have control but have the ability to exercise significant influence are accounted for by the equity method.
Accounting Estimates
Preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP 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 net sales and expenses during the reporting periods. The most significant estimates made by management relate to the estimates of fair value of acquired assets and liabilities, the recoverability of non-current assets including goodwill, the useful lives and net realizable values of long-lived assets, environmental and reclamation liabilities including asset retirement obligations (“ARO”), the costs of our employee benefit obligations for pension plans and postretirement benefits, income tax related accounts, including the valuation allowance against deferred income tax assets, inventory valuation and accruals for pending legal and environmental matters. Actual results could differ from these estimates.
4. Recently Issued Accounting Guidance
Recently Adopted Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which requires that an unrecognized tax benefit should be presented in the financial statements as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when settlement in this manner is available under the law. This guidance was effective for us beginning January 1, 2014 and was applied on a prospective basis to all unrecognized tax benefits that existed at the effective date. This guidance did not have a material impact on our results of operations or financial position.
Pronouncements Issued But Not Yet Adopted
In April 2014, the FASB issued ASU No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360):  Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity", which changes the criteria for reporting a discontinued operation.  Under this standard, a disposal of part of an organization that has a major effect on its operations and financial results is a discontinued operation.  This guidance is effective prospectively for us beginning January 1, 2015 with earlier application permitted, but only for disposals (or classifications as held for sale) that have not been reported previously.  We do not expect that this guidance will have a material impact on our results of operations or financial position.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which requires revenue to be recognized based on the amount an entity is expected to be entitled to for promised goods or services provided to customers. The standard also requires expanded disclosures regarding contracts with customers. The guidance in this standard supersedes the revenue recognition requirements in Topic 605, "Revenue Recognition", and most industry-specific guidance. This guidance is effective for us beginning January 1, 2017, with retrospective application required, subject to certain practical expedients. We are currently evaluating the requirements of this standard, and have not yet determined the impact on our results of operations or financial position.

7
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5. Other Financial Statement Data
The following provides additional information concerning selected balance sheet accounts:
 
(in millions)
September 30,
2014
 
December 31,
2013
 
 
Other current assets 
 
 
 
 
Final price deferred(a)
$
125.5

 
$
154.3

 
Income and other taxes receivable
140.0

 
272.6

 
Prepaid expenses
107.7

 
115.8

 
Assets held for sale(b)
41.9

 
111.9

 
Other
55.6

 
52.2

 
 
$
470.7

 
$
706.8

 
 
 
 
 
 
Accrued liabilities
 
 
 
 
Payroll and employee benefits
$
149.7

 
$
111.8

 
Asset retirement obligations
102.9

 
86.3

 
Customer prepayments
125.3

 
131.9

 
Other
334.1

 
336.3

 
 
$
712.0

 
$
666.3

 
 
 
 
 
 
Other noncurrent liabilities
 
 
 
 
Asset retirement obligations
$
757.8

 
$
637.6

 
Other
447.5

 
289.5

 
 
$
1,205.3

 
$
927.1

 
(a)Final price deferred is product that has shipped to customers, but the price has not yet been agreed upon. This has not been included in inventory as risk of loss has passed to our customers. Amounts in this account are based on inventory cost.
 
(b)See further description of assets held for sale in Note 16.
6. Earnings Per Share
We use the two-class method to compute basic and diluted EPS. Earnings for the period are allocated pro-rata between the common stockholders and the participating securities. Our only participating securities are related to the Share Repurchase Agreements. The numerator for basic and diluted EPS is net earnings for common stockholders. The denominator for basic EPS is the weighted-average number of shares outstanding during the period, excluding the effects of shares subject to forward contracts. The denominator for diluted EPS also includes the weighted average number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued, unless the shares are anti-dilutive, and excludes the effects of shares subject to forward contracts.

8
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following is a reconciliation of the numerator and denominator for the basic and diluted EPS computations:
 
Three months ended
 
Nine months ended
September 30,
 
September 30,
2014
 
2013
 
2014
 
2013
Net earnings attributed to Mosaic
$
201.9

 
$
124.4

 
$
667.9

 
$
934.0

Undistributed earnings attributable to participating securities
(0.5
)
 
—

 
(19.2
)
 
—

Numerator for basic and diluted earnings available to common stockholders
$
201.4

 
$
124.4

 
$
648.7

 
$
934.0

Basic weighted average number of shares outstanding
375.0

 
425.9

 
386.6

 
425.8

Shares subject to forward contract
(1.0
)
 
—

 
(11.1
)
 
—

Basic weighted average number of shares outstanding attributable to common stockholders
374.0

 
425.9

 
375.5

 
425.8

Dilutive impact of share-based awards
1.9

 
1.2

 
1.5

 
1.3

Diluted weighted average number of shares outstanding
375.9

 
427.1

 
377.0

 
427.1

Basic net earnings per share
$
0.54

 
$
0.29

 
$
1.73

 
$
2.19

Diluted net earnings per share
$
0.54

 
$
0.29

 
$
1.72

 
$
2.19

A total of 1.3 million shares of Common Stock subject to issuance upon exercise of stock options for the three and nine months ended September 30, 2014, and 1.1 million and 0.8 million shares for the three and nine months ended September 30, 2013, respectively, have been excluded from the calculation of diluted EPS as the effect would have been anti-dilutive.
7. Income Taxes
During the nine months ended September 30, 2014, gross unrecognized tax benefits increased by $11.4 million to $110.6 million. If recognized, approximately $100.0 million of the $110.6 million in unrecognized tax benefits would affect our effective tax rate in future periods. 
We recognize interest and penalties related to unrecognized tax benefits as a component of our income tax provision. We had accrued interest and penalties totaling $24.3 million and $28.8 million as of September 30, 2014 and December 31, 2013, respectively, that were included in other noncurrent liabilities in the Condensed Consolidated Balance Sheets.
Based upon the information available as of September 30, 2014, we anticipate that the amount of uncertain tax positions will change in the next twelve months; however, the change cannot reasonably be estimated.
It is reasonably possible that the Company could change the tax status of one of its non-U.S. subsidiaries within the next twelve months, which would result in a tax benefit to the Company in the period when the tax status changes. As of September 30, 2014, this tax benefit is estimated to be between $60 million and $100 million.
For the three months ended September 30, 2014, tax expense specific to the period included a benefit of $28.8 million, which is primarily related to the $67 million pre-tax charges resulting from the decision to permanently discontinue production of muriate of potash ("MOP") at our Carlsbad, New Mexico facility. For the nine months ended September 30, 2014, we recorded tax benefits specific to the period of $104.8 million, which is primarily related to the intended sale of our distribution business in Argentina, changes in estimates related to the filing of the December 31, 2013 tax returns for certain non-U.S. subsidiaries, and the pre-tax charges at our Carlsbad, New Mexico facility previously noted.
For the three and nine months ended September 30, 2013, tax expense specific to the period included benefits of $18.1 million related to the resolution of certain tax matters in various jurisdictions. Additionally, we recorded a $36.4 million benefit related to the $122.8 million write down of the distribution business in Argentina and Chile, the Hersey, Michigan mine assets, and other non-strategic assets.
8. Inventories
Inventories consist of the following:
 
 
September 30,
2014
 
December 31,
2013
 
 
Raw materials
$
39.2

 
$
34.0

 
Work in process
488.7

 
433.6

 
Finished goods
866.0

 
891.6

 
Operating materials and supplies
77.6

 
73.7

 
 
$
1,471.5

 
$
1,432.9


9
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

9. Goodwill
The changes in the carrying amount of goodwill, by reporting unit, are as follows:
 
Phosphates
 
Potash
 
Total
Balance as of December 31, 2013
$
535.8

 
$
1,258.6

 
$
1,794.4

Foreign currency translation
—

 
(53.4
)
 
(53.4
)
Reallocation of goodwill to assets held for sale
5.1

 
(4.8
)
 
0.3

Balance as of September 30, 2014
$
540.9

 
$
1,200.4

 
$
1,741.3

We review goodwill for impairment annually in October or at any time events or circumstances indicate that the carrying value may not be fully recoverable, which is based on our accounting policy and GAAP.
10. Financing Arrangements
Term Loan Facility
On March 20, 2014, Mosaic entered into an unsecured $800 million term loan facility (the “Term Loan Facility”) with certain financial institutions. The Term Loan Facility consists of $370 million Term A-1 Loans (the “Term A-1 Loans”) and $430 million Term A-2 Loans (“Term A-2 Loans,” and collectively with the Term A-1 Loans, “Loans”).
On September 18, 2014, Mosaic borrowed the entire amount available under the Term Loan Facility.
Final maturity of the Term A-1 Loans is September 18, 2017 and final maturity of the Term A-2 Loans is September 18, 2019. In addition, Mosaic is required to repay 5.00% of the Term A-1 loan balance on each of September 18, 2015 and 2016 and 5.00% of the Term A-2 loan balance on each of September 18, 2015 and 2016, 7.50% on September 18, 2017, and 10.00% on September 18, 2018. Mosaic may prepay outstanding Term A-1 Loans and Term A-2 Loans at any time and from time to time, without premium or penalty. The interest rate currently applicable to outstanding Loans is LIBOR plus 1.125%.
Net proceeds from borrowings under the Term Loan Facility replaced a portion of the cash that Mosaic used to fund its purchase on March 17, 2014 of the Florida phosphate assets and assumption of certain related liabilities of CF. Under the Term Loan Facility, proceeds of borrowings may also be used for working capital, capital expenditures, dividends, share repurchases, other acquisitions and other lawful corporate purposes.
The Term Loan Facility has cross-default provisions that, in general, provide that a failure to pay principal or interest under any one item of other indebtedness in excess of $50 million or $75 million for multiple items of other indebtedness, or breach or default under such indebtedness that permits the holders thereof to accelerate the maturity thereof, will result in a cross-default.
The Term Loan Facility requires Mosaic to maintain certain financial ratios, including a maximum ratio of Total Debt to EBITDA (as defined) of 3.5 to 1.0, as well as a minimum Interest Coverage Ratio (as defined) of not less than 3.0 to 1.0.
The Term Loan Facility also contains other events of default and covenants that limit various matters. These provisions include limitations on indebtedness, liens, investments and acquisitions (other than capital expenditures), certain mergers, certain sales of assets and other matters customary for credit facilities of this nature.
11. Contingencies
We have described below judicial and administrative proceedings to which we are subject.
We have contingent environmental liabilities that arise principally from three sources: (i) facilities currently or formerly owned by our subsidiaries or their predecessors; (ii) facilities adjacent to currently or formerly owned facilities; and (iii) third-party Superfund or state equivalent sites. At facilities currently or formerly owned by our subsidiaries or their predecessors, the historical use and handling of regulated chemical substances, crop and animal nutrients and additives and by-product or process tailings have resulted in soil, surface water and/or groundwater contamination. Spills or other releases of regulated substances, subsidence from mining operations and other incidents arising out of operations, including accidents, have occurred previously at these facilities, and could occur in the future, possibly requiring us to undertake or fund cleanup or result in monetary damage awards, fines, penalties, other liabilities, injunctions or other court or administrative rulings. In some instances, pursuant to consent orders or agreements with governmental agencies, we are undertaking certain remedial actions or investigations to determine whether remedial action may be required to address contamination. At other locations, we have entered into consent orders or agreements with appropriate governmental agencies to perform required remedial activities that will address identified site conditions. Taking into consideration established accruals of approximately $32.1 million and $31.3 million as of September 30, 2014 and December 31, 2013, respectively, expenditures for these known conditions currently are not expected, individually or in the aggregate, to have a material effect on our business or financial condition. However,

10
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

material expenditures could be required in the future to remediate the contamination at known sites or at other current or former sites or as a result of other environmental, health and safety matters. Below is a discussion of the more significant environmental matters.
EPA RCRA Initiative. In 2003, the U.S. Environmental Protection Agency (“EPA”) Office of Enforcement and Compliance Assurance announced that it would be targeting facilities in mineral processing industries, including phosphoric acid producers, for a thorough review under the U.S. Resource Conservation and Recovery Act (“RCRA”) and related state laws. Mining and processing of phosphates generate residual materials that must be managed both during the operation of a facility and upon a facility’s closure. Certain solid wastes generated by our phosphate operations may be subject to regulation under RCRA and related state laws. The EPA rules exempt “extraction” and “beneficiation” wastes, as well as 20 specified “mineral processing” wastes, from the hazardous waste management requirements of RCRA. Accordingly, certain of the residual materials which our phosphate operations generate, as well as process wastewater from phosphoric acid production, are exempt from RCRA regulation. However, the generation and management of other solid wastes from phosphate operations may be subject to hazardous waste regulation if the waste is deemed to exhibit a “hazardous waste characteristic.” As part of its initiative, we understand that EPA has inspected all or nearly all facilities in the U.S. phosphoric acid production sector to ensure compliance with applicable RCRA regulations and to address any “imminent and substantial endangerment” found by the EPA under RCRA. We have provided the EPA with substantial amounts of information regarding the process water recycling practices and the hazardous waste handling practices at our phosphate production facilities in Florida and Louisiana, and the EPA has inspected all of our currently operating processing facilities in the U.S. In addition to the EPA’s inspections, our phosphates concentrates facilities have entered into consent orders to perform analyses of existing environmental data, to perform further environmental sampling as may be necessary, and to assess whether the facilities pose a risk of harm to human health or the surrounding environment.
We have received Notices of Violation (“NOVs”) from the EPA related to the handling of hazardous waste at our Riverview (September 2005), New Wales (October 2005), Mulberry (June 2006), Green Bay (August 2006) and Bartow (September 2006) facilities in Florida. The EPA issued similar NOVs to our competitors, including with respect to the Plant City Facility acquired in the CF Phosphate Assets Acquisition as described in Note 17, and referred the NOVs to the U.S. Department of Justice (“DOJ”) for further enforcement. We currently are engaged in discussions with the DOJ and EPA with respect to our facilities (excluding the Plant City Facility). We believe we have substantial defenses to the allegations in the NOVs, including but not limited to previous EPA regulatory interpretations and inspection reports finding that the process water handling practices in question comply with the requirements of the exemption for extraction and beneficiation wastes. We intend to evaluate various alternatives and continue discussions to determine if a negotiated resolution can be reached. If it cannot, we intend to vigorously defend these matters in any enforcement actions that may be pursued.
We are negotiating the terms of a possible settlement with the EPA, the DOJ, the Florida Department of Environmental Protection and the Louisiana Department of Environmental Quality (collectively, the “Government”) and the final terms are not yet agreed upon or approved. If a settlement can be achieved, in all likelihood our commitments would be multi-faceted with key elements including, in general and among other elements, the following:
•
Incurring future capital expenditures likely to exceed $150 million in the aggregate over a period of several years.
•
Providing meaningful additional financial assurance for the estimated costs of closure and post-closure care (“Gypstack Closure Costs”) of our phosphogypsum management systems ("Gypstacks"). For financial reporting purposes, we recognize our estimated ARO, including Gypstack Closure Costs, at their present value. This present value determined for financial reporting purposes is reflected on our Consolidated Balance Sheets in accrued liabilities and other noncurrent liabilities. As of December 31, 2013, the undiscounted amount of our ARO, determined using the assumptions used for financial reporting purposes, was approximately $1.5 billion and the present value of our Gypstack Closure Costs reflected in our Consolidated Balance Sheet was approximately $465 million. Currently, financial assurance requirements in Florida and Louisiana for Gypstack Closure Costs can be satisfied through a variety of methods, including satisfaction of financial tests. In the context of a potential settlement of the Government’s enforcement action, we expect that we would agree to pre-fund a material portion of our Gypstack Closure Costs, primarily by depositing cash, currently estimated to be in the amount of approximately $625 million, into a trust fund which would increase over time with reinvestment of earnings. Amounts held in any such trust fund (including reinvested earnings) would be classified as restricted cash included in other assets on our Consolidated Balance Sheets. We expect that any final settlement of this matter would resolve substantially all of our financial assurance obligations to the Government for Gypstack Closure Costs. Our actual Gypstack Closure Costs are generally expected to be paid by us in the normal course of our Phosphates business over a period that may not end until three decades or more after a Gypstack has been closed.
•
We have also established accruals to address the estimated cost of civil penalties in connection with this matter, which we do not believe, in light of the relevant regulatory history, would be material to our results of operations, liquidity or capital resources.
In light of our strong operating cash flows, liquidity and capital resources, we believe that we have sufficient liquidity and capital resources to be able to fund such capital expenditures, financial assurance requirements and civil penalties as part of a settlement. If a settlement cannot be agreed upon, we cannot predict the outcome of any litigation or estimate the potential amount or range of loss; however, we would face potential exposure to material costs should we fail in the defense of an enforcement action.

11
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

See Note 17 for a discussion of how the EPA's RCRA Initiative and Florida financial assurance requirements affect the facilities we acquired in the CF Phosphate Assets Acquisition.
EPA EPCRA Initiative. In July 2008, the DOJ sent a letter to major U.S. phosphoric acid manufacturers, including us, stating that the EPA’s ongoing investigation indicates apparent violations of Section 313 of the Emergency Planning and Community Right-to-Know Act (“EPCRA”) at their phosphoric acid manufacturing facilities. Section 313 of EPCRA requires annual reports to be submitted with respect to the use or presence of certain toxic chemicals. DOJ and EPA also stated that they believe that a number of these facilities have violated Section 304 of EPCRA and Section 103 of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") by failing to provide required notifications relating to the release of hydrogen fluoride from the facilities. The letter did not identify any specific violations by us or assert a demand for penalties against us. We cannot predict at this time whether the EPA and DOJ will initiate an enforcement action over this matter, what its scope would be, or what the range of outcomes of such a potential enforcement action might be.
Florida Sulfuric Acid Plants. On April 8, 2010, the EPA Region 4 submitted an administrative subpoena to us under Section 114 of the Federal Clean Air Act (the “CAA”) regarding compliance of our Florida sulfuric acid plants with the “New Source Review” requirements of the CAA. The request received by Mosaic appears to be part of a broader EPA national enforcement initiative focusing on sulfuric acid plants. We cannot predict at this time whether the EPA and DOJ will initiate an enforcement action over this matter, what its scope would be, or what the range of outcomes of such a potential enforcement action might be.
Other Environmental Matters. Superfund and equivalent state statutes impose liability without regard to fault or to the legality of a party’s conduct on certain categories of persons who are considered to have contributed to the release of “hazardous substances” into the environment. Under Superfund, or its various state analogues, one party may, under certain circumstances, be required to bear more than its proportionate share of cleanup costs at a site where it has liability if payments cannot be obtained from other responsible parties. Currently, certain of our subsidiaries are involved or concluding involvement at several Superfund or equivalent state sites. Our remedial liability from these sites, alone or in the aggregate, currently is not expected to have a material effect on our business or financial condition. As more information is obtained regarding these sites and the potentially responsible parties involved, this expectation could change.
We believe that, pursuant to several indemnification agreements, our subsidiaries are entitled to at least partial, and in many instances complete, indemnification for the costs that may be expended by us or our subsidiaries to remedy environmental issues at certain facilities. These agreements address issues that resulted from activities occurring prior to our acquisition of facilities or businesses from parties including, but not limited to, ARCO (BP); Beatrice Fund for Environmental Liabilities; Conoco; Conserv; Estech, Inc.; Kaiser Aluminum & Chemical Corporation; Kerr-McGee Inc.; PPG Industries, Inc.; The Williams Companies; CF; and certain other private parties. Our subsidiaries have already received and anticipate receiving amounts pursuant to the indemnification agreements for certain of their expenses incurred to date as well as future anticipated expenditures. We record potential indemnifications as an offset to the established accruals when they are realizable or realized.
MicroEssentials® Patent Lawsuit
On January 9, 2009, John Sanders and Specialty Fertilizer Products, LLC filed a complaint against Mosaic, Mosaic Fertilizer, LLC, Cargill, Incorporated and Cargill Fertilizer, Inc. in the United States District Court for the Western District of Missouri (the “Missouri District Court”). The complaint alleges that our production of MicroEssentials® SZ, one of several types of the MicroEssentials® value-added ammoniated phosphate crop nutrient products that we produce, infringes on a patent held by the plaintiffs since 2001. Plaintiffs have since asserted that other MicroEssentials® products also infringe the patent. Plaintiffs seek to enjoin the alleged infringement and to recover an unspecified amount of damages and attorneys’ fees for past infringement. Our answer to the complaint responds that the plaintiffs’ patent is not infringed, is invalid and is unenforceable because the plaintiffs engaged in inequitable conduct during the prosecution of the patent.
The Missouri District Court stayed the lawsuit pending an ex parte reexamination of plaintiffs’ patent claims by the U.S. Patent and Trademark Office (the “PTO”). That ex parte reexamination has now ended. On September 12, 2012, however, Shell Oil Company (“Shell”) filed an additional reexamination request which in part asserted that the claims as amended and added in connection with the ex parte reexamination are unpatentable. On October 4, 2012, the PTO issued an Ex Parte Reexamination Certificate in which certain claims of the plaintiffs’ patent were cancelled, disclaimed and amended, and new claims were added. Following the PTO’s grant of Shell’s request for an inter parties reexamination, on December 11, 2012, the PTO issued an initial rejection of all of plaintiffs’ remaining patent claims. On September 12, 2013, the PTO reversed its initial rejection of the plaintiffs’ remaining patent claims and allowed them to stand. Shell has appealed the PTO’s decision. A successful appeal by Shell could limit or eliminate the claims the plaintiffs can assert against us.
We believe that the plaintiffs’ allegations are without merit and intend to defend vigorously against them. At this stage of the proceedings, we cannot predict the outcome of this litigation, estimate the potential amount or range of loss or determine whether it will have a material effect on our results of operations, liquidity or capital resources.

12
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Brazil Tax Contingencies
Our Brazilian subsidiary is engaged in a number of judicial and administrative proceedings relating to various non-income tax matters. We estimate that our maximum potential liability with respect to these matters is approximately $100 million. Approximately $54 million of the maximum potential liability relates to PIS and Cofins tax credit cases; while the majority of the remaining amount relates to various other non-income tax cases such as value-added taxes. In the event that the Brazilian government were to prevail in connection with all judicial and administrative matters involving us and considering the amount of judicial deposits made, our maximum cash tax liability with respect to these matters would be approximately $99 million. Based on the current status of similar tax cases involving unrelated taxpayers, we believe we have recorded adequate accruals, which are immaterial, for the probable liability with respect to these Brazilian judicial and administrative proceedings.
Other Claims
We also have certain other contingent liabilities with respect to judicial, administrative and arbitration proceedings and claims of third parties, including tax matters, arising in the ordinary course of business. We do not believe that any of these contingent liabilities will have a material adverse impact on our business or financial condition, results of operations, and cash flows.
12. Accounting for Derivative Instruments and Hedging Activities
We periodically enter into derivatives to mitigate our exposure to foreign currency risks and the effects of changing commodity and freight prices. We record all derivatives on the Consolidated Balance Sheets at fair value. The fair value of these instruments is determined by using quoted market prices, third party comparables, or internal estimates. We net our derivative asset and liability positions when we have a master netting arrangement in place. Changes in the fair value of the foreign currency, commodity, and freight derivatives are immediately recognized in earnings because we do not apply hedge accounting treatment to these instruments. As of September 30, 2014 and December 31, 2013, the gross asset position of our derivative instruments was $11.0 million and $7.9 million, respectively, and the gross liability position of our liability instruments was $20.8 million and $20.4 million, respectively.
 Unrealized gains and (losses) on foreign currency exchange contracts used to hedge cash flows related to the production of our products are included in cost of goods sold in the Consolidated Statements of Earnings. Unrealized gains and (losses) on commodities contracts and certain forward freight agreements are also recorded in cost of goods sold in the Consolidated Statements of Earnings. Unrealized gains or (losses) on foreign currency exchange contracts used to hedge cash flows that are not related to the production of our products are included in the foreign currency transaction gain/(loss) line in the Consolidated Statements of Earnings.
As of September 30, 2014 and December 31, 2013, the following is the total absolute notional volume associated with our outstanding derivative instruments:
(in millions of Units)
 
 
 
 
 
September 30,
2014
 
December 31,
2013
Derivative Instrument
Derivative Category
Unit of Measure
Foreign currency derivatives
 
Foreign currency
 
US Dollars
 
1,105.1

 
940.2
Natural gas derivatives
 
Commodity
 
MMbtu
 
14.0

 
8.2
Credit-Risk-Related Contingent Features
Certain of our derivative instruments contain provisions that are governed by International Swap and Derivatives Association agreements with the counterparties. These agreements contain provisions that allow us to settle for the net amount between payments and receipts, and also state that if our debt were to be rated below investment grade, certain counterparties could request full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position as of September 30, 2014 and December 31, 2013, was $15.7 million and $12.3 million, respectively. We have no cash collateral posted in association with these contracts. If the credit-risk-related contingent features underlying these agreements were triggered on September 30, 2014, we would be required to post $15.1 million of collateral assets, which are either cash or U.S. Treasury instruments, to the counterparties.
Counterparty Credit Risk
We enter into foreign exchange and certain commodity and interest rate derivatives, primarily with a diversified group of highly rated counterparties. We continually monitor our positions and the credit ratings of the counterparties involved and limit the amount of credit exposure to any one party. While we may be exposed to potential losses due to the credit risk of non-performance by these counterparties, material losses are not anticipated. We closely monitor the credit risk associated with our counterparties and customers and to date have not experienced material losses.

13
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

13. Fair Value Measurements
Following is a summary of the valuation techniques for assets and liabilities recorded in our Consolidated Balance Sheets at fair value on a recurring basis:
Foreign Currency Derivatives-The foreign currency derivative instruments that we currently use are forward contracts, zero-cost collars, and futures, which typically expire within eighteen months. Valuations are based on exchange-quoted prices, which are classified as Level 1. Some of the valuations are adjusted by a forward yield curve or interest rates. In such cases, these derivative contracts are classified within Level 2. Changes in the fair market values of these contracts are recognized in the Condensed Consolidated Financial Statements as a component of cost of goods sold or foreign currency transaction gain (loss). As of September 30, 2014 and December 31, 2013, the gross asset position of our foreign currency derivative instruments was $6.2 million and $0.6 million, respectively, and the gross liability position of our foreign currency derivative instruments was $20.7 million and $18.1 million, respectively.
Commodity Derivatives-The commodity contracts primarily relate to natural gas. The commodity derivative instruments that we currently use are forward purchase contracts, swaps, and three-way collars. The natural gas contracts settle using NYMEX futures or AECO price indexes, which represent fair value at any given time. The contracts’ maturities are for future months and settlements are scheduled to coincide with anticipated gas purchases during those future periods. Quoted market prices from NYMEX and AECO are used to determine the fair value of these instruments. These market prices are adjusted by a forward yield curve and are classified within Level 2. Changes in the fair market values of these contracts are recognized in the Condensed Consolidated Financial Statements as a component of cost of goods sold. As of September 30, 2014 and December 31, 2013, the gross asset position of our commodity derivative instruments was $4.5 million and $6.0 million, respectively, and the gross liability position of our commodity instruments was $0 and $2.0 million, respectively.
Freight Derivatives-The freight derivatives that we currently use are forward freight agreements. We estimate fair market values based on exchange-quoted prices, adjusted for differences in local markets. These differences are generally valued using inputs from broker quotations. Therefore, these contracts are classified in Level 2. Certain ocean freight derivatives are traded in less active markets with less availability of pricing information and require internally-developed inputs that might not be observable in or corroborated by the market. These contracts are classified within Level 3. Changes in the fair market values of these contracts are recognized in the Condensed Consolidated Financial Statements as a component of cost of goods sold. As of September 30, 2014 and December 31, 2013, the gross asset position of our freight derivative instruments was $0.3 million and $1.3 million, respectively, and the gross liability position of our freight derivative instruments was $0.1 million and $0.3 million, respectively.
Financial Instruments
The carrying amounts and estimated fair values of our financial instruments are as follows:
 
 
September 30, 2014
 
December 31, 2013
 
Carrying Amount
 
Fair Value
Carrying Amount
 
Fair Value
 
 
Cash and cash equivalents
$
2,970.6

 
$
2,970.6

 
$
5,293.1

 
$
5,293.1

 
Receivables, net
573.9

 
573.9

 
543.1

 
543.1

 
Accounts payable
762.2

 
762.2

 
570.2

 
570.2

 
Short-term debt
0.4

 
0.4

 
22.6

 
22.6

 
Long-term debt, including current portion
3,815.2

 
4,058.7

 
3,009.3

 
3,059.6

For cash and cash equivalents, receivables, net, accounts payable and short-term debt, the carrying amount approximates fair value because of the short-term maturity of those instruments. The fair value of long-term debt, including the current portion, is estimated using quoted market prices for the publicly registered notes and debentures, classified as Level 1 and Level 2, respectively, within the fair value hierarchy, depending on the market liquidity of the debt.
14. Related Party Transactions
We enter into transactions and agreements with certain of our non-consolidated companies from time to time. As of September 30, 2014 and December 31, 2013, the net amount due from our non-consolidated companies totaled $1.1 million and $52.6 million, respectively.

14
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The Condensed Consolidated Statements of Earnings included the following transactions with our non-consolidated companies:
 
Three months ended
 
Nine months ended
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Transactions with non-consolidated companies included in net sales
$
178.2

 
$
191.8

 
$
690.9

 
$
994.6

Transactions with non-consolidated companies included in cost of goods sold
109.6

 
76.1

 
398.2

 
390.5

15. Business Segments
The reportable segments are determined by management based upon factors such as products and services, production processes, technologies, market dynamics, and for which segment financial information is available for our chief operating decision maker. For a description of our business segments see Note 1 to the Condensed Consolidated Financial Statements in this report. We evaluate performance based on the operating earnings of the respective business segments, which includes certain allocations of corporate selling, general and administrative expenses. The segment results may not represent the actual results that would be expected if they were independent, stand-alone businesses. Corporate, Eliminations and Other primarily represents unallocated corporate office activities and eliminations. All intersegment transactions are eliminated within Corporate, Eliminations and Other. Segment information for the three and nine months ended September 30, 2014 and 2013 was as follows:

15
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

 
Phosphates
 
Potash
 
Corporate, Eliminations and Other
 
Total
Three months ended September 30, 2014
 
 
 
 
 
 
 
Net sales to external customers
$
1,657.8

 
$
590.3

 
$
2.6

 
$
2,250.7

Intersegment net sales
—

 
2.7

 
(2.7
)
 
—

Net sales
1,657.8

 
593.0

 
(0.1
)
 
2,250.7

Gross margin
294.4

 
131.3

 
(11.0
)
 
414.7

Carlsbad restructuring expense
—

 
67.0

 
—

 
67.0

Operating earnings
238.7

 
46.0

 
(7.4
)
 
277.3

Capital expenditures
92.6

 
91.7

 
4.1

 
188.4

Depreciation, depletion and amortization expense
93.6

 
89.4

 
6.5

 
189.5

 
 
 
 
 
 
 
 
Three months ended September 30, 2013
 
 
 
 
 
 
 
Net sales to external customers
$
1,418.8

 
$
488.5

 
$
1.4

 
$
1,908.7

Intersegment net sales
—

 
34.7

 
(34.7
)
 
—

Net sales
1,418.8

 
523.2

 
(33.3
)
 
1,908.7

Gross margin
193.3

 
184.4

 
9.2

 
386.9

Operating earnings
57.6

 
91.8

 
(5.3
)
 
144.1

Capital expenditures
119.9

 
199.2

 
13.4

 
332.5

Depreciation, depletion and amortization expense
75.6

 
85.5

 
5.0

 
166.1

 
 
 
 
 
 
 
 
Nine months ended September 30, 2014
 
 
 
 
 
 
 
Net sales to external customers
$
4,583.0

 
$
2,076.8

 
$
17.4

 
$
6,677.2

Intersegment net sales
—

 
11.7

 
(11.7
)
 
—

Net sales
4,583.0

 
2,088.5

 
5.7

 
6,677.2

Gross margin
785.1

 
593.9

 
(31.5
)
 
1,347.5

Carlsbad restructuring expense
—

 
67.0

 
—

 
67.0

Operating earnings
583.0

 
425.1

 
(60.9
)
 
947.2

Capital expenditures
331.0

 
329.4

 
16.9

 
677.3

Depreciation, depletion and amortization expense
269.9

 
268.2

 
20.1

 
558.2

 
 
 
 
 
 
 
 
Nine months ended September 30, 2013
 
 
 
 
 
 
 
Net sales to external customers
$
4,565.2

 
$
2,265.5

 
$
9.2

 
$
6,839.9

Intersegment net sales
—

 
56.2

 
(56.2
)
 
—

Net sales
4,565.2

 
2,321.7

 
(47.0
)
 
6,839.9

Gross margin
725.7

 
970.3

 
(2.1
)
 
1,693.9

Operating earnings
433.2

 
744.3

 
(16.6
)
 
1,160.9

Capital expenditures
360.4

 
649.9

 
63.7

 
1,074.0

Depreciation, depletion and amortization expense
221.6

 
253.0

 
14.2

 
488.8

 
 
 
 
 
 
 
 
Total assets as of September 30, 2014
$
10,134.7

 
$
9,938.7

 
$
(1,617.9
)
 
$
18,455.5

Total assets as of December 31, 2013
9,945.1

 
9,597.4

 
11.5

 
19,554.0

16. Disposal and Exit Activities
In 2013, we decided to exit our distribution businesses in Argentina and Chile and in connection with this decision, we wrote down the related assets by approximately $50 million, pre-tax, to their estimated fair value in 2013. This amount was included in loss on write down of assets in the Consolidated Statement of Earnings in our 10-K Report. As a result of new information regarding the

16
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

structure of the intended disposition of Argentina’s distribution business as an asset sale, during the nine months ended September 30, 2014, we recorded a $53.6 million tax benefit. We have reached an agreement to sell our Argentina assets and recorded a pre-tax gain of $18.2 million during the third quarter of 2014 to adjust these net assets to their estimated fair value. Additionally, the decision was made in the second quarter of 2014 to close the Chile business and sell the remaining fixed assets. We recorded a pre-tax loss of $5.6 million related to the decision. The assets related to Argentina’s distribution businesses and the fixed assets related to Chile’s distribution businesses qualify for asset held for sale accounting. At September 30, 2014, we included $41.9 million in other current assets and $7.3 million in accrued liabilities in our Condensed Consolidated Balance Sheet as assets held for sale. We expect to continue to sell our products in these countries by using other distribution channels. Completion of these exit activities is expected during the fourth quarter of 2014.
In 2013, we also decided to sell the salt operations of our Hersey, Michigan mine and close the related potash operations. In connection with the planned sale of this mine, we wrote down the related assets by approximately $48 million pre-tax, to their estimated fair value during the three months ended September 30, 2013, and recorded a corresponding tax benefit of approximately $17 million, which is reflected in the Consolidated Statement of Earnings in our 10-K Report. The sale of the salt operations was completed on July 29, 2014 for $55 million, resulting in a pre-tax gain of $13.5 million in the third quarter of 2014.
On July 21, 2014, we decided to permanently discontinue production of MOP at our Carlsbad, New Mexico facility. The final date for production is expected to be December 31, 2014. The decision was based on the quality of the ore in the Carlsbad basin and the age of the facility’s infrastructure. Our larger potash production facilities at Esterhazy, Belle Plaine and Colonsay in Saskatchewan, Canada will continue to produce MOP.
We plan to transition the Carlsbad facility to exclusive production of our highly valued K-Mag® product line. We currently estimate that the discontinued MOP production will result in total pre-tax charges in the range of $125 million to $140 million (primarily in the form of non-cash accelerated depreciation and depletion charges of approximately $105 million to $125 million. The third quarter pre-tax charges were $67 million, of which approximately $50 million related to accelerated depreciation and depletion, approximately $5 million related to ARO costs, approximately $4 million related to write off of spare parts inventory and approximately $8 million were employee related costs which are accrued at September 30, 2014. We also recorded a tax benefit of approximately $28 million related to these costs in the quarter ended September 30, 2014. The majority of the remaining expected total costs will be recorded in the fourth quarter.
During 2014, we recorded severance charges and other personnel related costs of approximately $11 million in connection with the previously announced closing of our Hookers Prairie phosphate mine and certain cost saving initiatives. During the quarter ended September 30, 2014, we paid approximately $8 million related to these costs, with the remaining amounts to be paid through March 31, 2015.
17. CF Acquisition
On March 17, 2014, we completed the CF Phosphate Assets Acquisition. The purchase price was $1,172.1 million plus an additional $203.7 million (all in cash) to fund CF’s asset retirement obligation trust and escrow. We acquired CF's phosphate mining and production operations in Central Florida and terminal and warehouse facilities in Tampa, Florida. This acquisition allows us to take advantage of synergies associated with combining our phosphate operations and logistical capabilities in Central Florida with those of CF. In addition, we will be able to forego the construction of a beneficiation plant at Ona and the construction of an ammonia plant. The results of the CF phosphates operations have been included in our condensed consolidated financial statements for the period from March 17, 2014 through September 30, 2014.
As part of the CF Phosphate Assets Acquisition, we assumed certain ARO related to Gypstack Closure Costs at both the Plant City, Florida phosphate concentrates facility (the "Plant City Facility") and a closed Florida phosphate concentrates facility in Bartow, Florida (the “Bonnie Facility”) that we acquired. Associated with these assets are two related financial assurance arrangements for which we became responsible and that place into trust the estimated Gypstack Closure Costs for these facilities, pursuant to federal or state law, which the government can draw against in the event we cannot perform such closure activities. One is a trust (the “Plant City Trust”) established to meet the requirements under a consent decree with the EPA and the FDEP with respect to RCRA compliance at Plant City (the “Plant City Consent Decree”) that also satisfies Florida financial assurance requirements at that site. The other is a trust fund (the “Bonnie Facility Trust”) established to meet the requirements under Florida financial assurance regulations (the “Florida Financial Assurance Requirement”) that apply to the Bonnie Facility. In the CF Phosphate Assets Acquisition, we deposited $189.2 million into the Plant City Trust as a substitute for funds that CF had deposited into trust. Based on our most recent closure cost estimates, an additional $7 million will be added to the Plant City Trust in the fourth quarter of 2014 to attain full funding status. In addition, in July 2014, the FDEP approved our funding of $14.5 million into the Bonnie Facility Trust, which substituted funds that CF had deposited into an escrow account. We expect we will be required to deposit up to an additional $4 million in the Bonnie Facility Trust near the end of 2015. Both financial assurance funding obligations require estimates of future expenditures that could be impacted by refinements in scope, technological developments, cost inflation, changes in regulations, discount rates and the timing of activities. Additional funding would be required in the future if increases in cost estimates exceed investment earnings in the Plant City Trust or the Bonnie Facility Trust. The deposits into the Plant City Trust and the Bonnie Facility Trust are reflected in the Statement of Cash Flows components of the $1,375.8 million cash used in the CF Phosphate Assets Acquisition.

17
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

At September 30, 2014, the aggregate amount of AROs associated with the Plant City Facility and the Bonnie Facility included in our consolidated balance sheet was $101.7 million. The aggregate amount held in the Plant City Trust and the Bonnie Facility Trust exceeds the aggregate amount of AROs associated with the Plant City Facility and the Bonnie Facility because the amount required to be held in the Plant City Trust represents the aggregate undiscounted estimated amount to be paid by us in the normal course of our Phosphates business over a period that may not end until three decades or more after the Gypstack has been closed, while the ARO included in our Condensed Consolidated Balance Sheet reflect the discounted present value of those estimated amounts. As part of the acquisition we also acquired ARO related to land reclamation.
The following table summarizes the amounts of the assets acquired and liabilities assumed as recognized with the acquisition.
            
(in millions)
 
Inventory
$
144.1

Other current assets
0.5

Mineral properties and rights
499.7

Property, plant and equipment
627.1

Funds for asset retirement obligations (1)
203.7

Other assets
56.8

Current liabilities
(1.5
)
Other liabilities
(9.0
)
Asset retirement obligation
(145.6
)
 
$
1,375.8

(1) Included with other assets in the Condensed Consolidated Balance Sheet as of September 30, 2014
We also signed two strategic supply agreements with CF under which CF will provide Mosaic with ammonia for its production purposes (“CF Ammonia Supply Agreements”). Under one agreement, which is expected to commence prior to January 1, 2017, Mosaic will purchase approximately 545,000 to 725,000 tonnes annually for up to fifteen years at a price tied to the prevailing price of U.S. natural gas. The execution of this agreement was not contingent upon the completion of the acquisition; therefore, no corresponding asset or liability was recorded as part of the acquisition accounting.
Under the second agreement, which became effective on the acquisition date, Mosaic will purchase approximately 270,000 tonnes annually for three years from CF’s Trinidad operations at CFR Tampa market-based pricing.  The effectiveness of this agreement was a condition to the acquisition and included in the acquisition accounting, but its impacts were not material.
We recognized approximately $1 million and $8 million of acquisition and integration costs that were expensed during the three and nine months ended September 30, 2014, respectively. These costs are included within selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings.
The CF phosphates operations contributed revenues of $434.3 million and net earnings of $22.3 million from March 17, 2014 through September 30, 2014, excluding the effects of the acquisition and integration costs described above.
The unaudited pro-forma consolidated results presented below include the effects of the acquisition as if it had been consummated as of January 1, 2013. The pro-forma results below include adjustments related to depreciation and amortization to reflect the fair value of acquired property, plant and equipment and identifiable intangible assets, depletion of acquired mineral rights, and the associated income tax impacts. The pro-forma information does not necessarily reflect the actual results of operations had the acquisition been consummated at the beginning of the fiscal reporting period indicated nor is it indicative of future operating results. The pro-forma information does not include any adjustment for potential revenue enhancements, cost synergies or other operating efficiencies that could result from the acquisition or transaction or integration costs relating to the acquisition.
(in millions)
Three months ended
 
Nine months ended
September 30,
 
September 30,
2014
 
2013
 
2014
 
2013
Net sales
$
2,250.7

 
$
2,129.4

 
$
6,822.3

 
$
7,543.2

Net earnings attributable to Mosaic
$
201.9

 
$
133.3

 
$
657.4

 
$
929.6

18. Investment in Northern Promise Joint Venture
As of September 30, 2014, our investment in Northern Promise Joint Venture is approximately $445.9 million and is accounted for as an equity method investment. We currently estimate that the cost to develop and construct the integrated phosphate production facilities (the “Project”) will approximate $7.5 billion, which we expect to be funded primarily through investments by us, Ma’aden

18
THE MOSAIC COMPANY
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

and SABIC and through borrowing arrangements and other external project financing facilities (“Funding Facilities”). We currently estimate that our cash investment in the Project, including the amount we have invested to date together with the amounts discussed below, will approximate $850 million. We own a 25% equity interest in the Northern Promise Joint Venture.
On June 30, 2014, the Northern Promise Joint Venture entered into Funding Facilities with a consortium of 20 financial institutions for a total amount of approximately $5.0 billion.
Also on June 30, 2014, in support of the Funding Facilities, we, together with Ma’aden and SABIC, agreed to provide our respective proportionate shares of the funding necessary for the Northern Promise Joint Venture by:
(a)
Contributing equity or making shareholder subordinated loans of up to $2.4 billion to fund project costs to complete and commission the Project (the “Equity Commitments”).
(b)
Through the earlier of Project completion or June 30, 2020, contributing equity, making shareholder subordinated loans or providing bank subordinated loans, to fund cost overruns on the Project (the “Additional Cost Overrun Commitment”).
(c)
Through the earlier of Project completion or June 30, 2020, contributing equity, making shareholder loans or providing bank subordinated loans, to fund scheduled debt service (excluding accelerated amounts) payable under the Funding Facilities and certain other amounts (such commitment, the “DSU Commitment” and such scheduled debt service and other amounts, “Scheduled Debt Service”). Our proportionate share of amounts covered by the DSU Commitment is not presently anticipated to exceed approximately $200 million. The fair value of the DSU Commitment at September 30, 2014 is not material.
(d)
To the extent that, by December 31, 2016, the Northern Promise Joint Venture has not received payment of certain governmental funding that has been allocated for the development of infrastructure assets to be utilized for the Project in the amount of at least $260 million, providing subordinated bridge loans to the Northern Promise Joint Venture (the “IFA Bridge Loan”).
(e)
From the earlier of the project completion date or June 30, 2020, to the extent there is a shortfall in the amounts available to pay Scheduled Debt Service, depositing for the payment of Scheduled Debt Service an amount up to the respective amount of certain shareholder tax amounts, and severance fees under the Northern Promise Joint Venture’s mining license, paid within the prior 36 months by the Northern Promise Joint Venture on behalf of us, Ma’aden and SABIC, if any.
The Northern Promise Joint Venture has not yet entered into definitive agreements for certain of the planned Funding Facilities (the “Future Funding Facilities”) for the Project, and the definitive terms with respect to these Future Funding Facilities have not been established. To the extent that the Northern Promise Joint Venture does not obtain definitive commitments for certain of these Future Finance Facilities in the amount of approximately $560 million aggregate principal amount by June 30, 2016, we, together with Ma’aden and SABIC, have agreed to either arrange for other Future Funding Facilities or provide funding in the form of financial indebtedness to the Northern Promise Joint Venture in the amount of our respective proportionate shares of the shortfall.
We anticipate that, in connection with the Future Finance Facilities, we and the Northern Promise Joint Venture will undertake obligations in addition to the current Equity Commitments, the Additional Cost Overrun Commitment, the DSU Commitment and the IFA Bridge Loan.

19
Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the material under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Transition Report on Form 10-K of The Mosaic Company filed with the Securities and Exchange Commission for the transition period from June 1, 2013 to December 31, 2013 (the “10-K Report”) and the material under Item 1 of Part I of this report.
Throughout the discussion below, we measure units of production, sales and raw materials in metric tonnes, which are the equivalent of 2,205 pounds, unless we specifically state we mean long ton(s), which are the equivalent of 2,240 pounds. In the following tables, there are certain percentages that are not considered to be meaningful and are represented by “NM.”
Results of Operations
The following table shows the results of operations for the three and nine months ended September 30, 2014 and 2013:

 
Three months ended
 
 
 
 
 
Nine months ended
 
 
 
 
 
September 30,
 
2014-2013
 
September 30,
 
2014-2013
(in millions, except per share data)
2014
 
2013
 
Change
 
Percent
 
2014
 
2013
 
Change
 
Percent
Net sales
$
2,250.7

 
$
1,908.7

 
$
342.0

 
18
 %
 
$
6,677.2

 
$
6,839.9

 
$
(162.7
)
 
(2
)%
Cost of goods sold
1,836.0

 
1,521.8

 
314.2

 
21
 %
 
5,329.7

 
5,146.0

 
183.7

 
4
 %
Gross margin
414.7

 
386.9

 
27.8

 
7
 %
 
1,347.5

 
1,693.9

 
(346.4
)
 
(20
)%
Gross margin percentage
18
%
 
20
%
 
 
 
 
 
20
%
 
25
%
 
 
 


Selling, general and administrative expenses
83.9

 
94.4

 
(10.5
)
 
(11
)%
 
291.3

 
302.3

 
(11.0
)
 
(4
)%
(Gain) loss on assets sold and to be sold
(31.7
)
 
122.8

 
(154.5
)
 
(126
)%
 
(26.1
)
 
122.8

 
(148.9
)
 
(121
)%
Carlsbad restructuring expense
67.0

 
—

 
67.0

 
NM

 
67.0

 
—

 
67.0

 
NM

Other operating expense
18.2

 
25.6

 
(7.4
)
 
(29
)%
 
68.1

 
107.9

 
(39.8
)
 
(37
)%
Operating earnings
277.3

 
144.1

 
133.2

 
92
 %
 
947.2

 
1,160.9

 
(213.7
)
 
(18
)%
Gain (loss) in value of share repurchase agreement
5.3

 
—

 
5.3

 
NM

 
(60.2
)
 
—

 
(60.2
)
 
NM

Interest (expense) income, net
(25.2
)
 
1.8

 
(27.0
)
 
NM

 
(76.6
)
 
6.0

 
(82.6
)
 
NM

Foreign currency transaction gain (loss)
27.1

 
(29.6
)
 
56.7

 
(192
)%
 
31.8

 
9.6

 
22.2

 
NM

Other income (expense)
0.1

 
0.4

 
(0.3
)
 
(75
)%
 
(6.1
)
 
2.6

 
(8.7
)
 
NM

Earnings from consolidated companies before income taxes
284.6

 
116.7

 
167.9

 
144
 %
 
836.1

 
1,179.1

 
(343.0
)
 
(29
)%
Provision for (benefit from) income taxes
77.6

 
(6.6
)
 
84.2

 
NM

 
157.7

 
253.4

 
(95.7
)
 
(38
)%
Earnings from consolidated companies
207.0

 
123.3

 
83.7

 
68
 %
 
678.4

 
925.7

 
(247.3
)
 
(27
)%
Equity in net earnings (loss) of nonconsolidated companies
(4.1
)
 
2.5

 
(6.6
)
 
NM

 
(9.6
)
 
10.0

 
(19.6
)
 
(196
)%
Net earnings including noncontrolling interests
202.9

 
125.8

 
77.1

 
61
 %
 
668.8

 
935.7

 
(266.9
)
 
(29
)%
Less: Net earnings attributable to noncontrolling interests
1.0

 
1.4

 
(0.4
)
 
(29
)%
 
0.9

 
1.7

 
(0.8
)
 
(47
)%
Net earnings attributable to Mosaic
$
201.9

 
$
124.4

 
$
77.5

 
62
 %
 
$
667.9

 
$
934.0

 
$
(266.1
)
 
(28
)%
Diluted net earnings per share attributable to Mosaic
$
0.54

 
$
0.29

 
$
0.25

 
86
 %
 
$
1.72

 
$
2.19

 
$
(0.47
)
 
(21
)%
Diluted weighted average number of shares outstanding
375.9

 
427.1

 
 
 
 
 
377.0

 
427.1

 
 
 
 
Overview of Consolidated Results for the three months ended September 30, 2014 and 2013
Net sales increased to $2.3 billion for the three months ended September 30, 2014, compared to $1.9 billion in the prior year period. Net earnings attributable to Mosaic for the three months ended September 30, 2014 were $201.9 million, or $0.54 per diluted share, compared to $124.4 million, or $0.29 per diluted share, for the period a year ago. Our earnings per share were positively impacted by a 12% lower average share count in the current year period. Significant factors affecting our results of operations and financial condition are listed below. Certain of these factors are discussed in more detail in the following sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Operating earnings for the three months ended September 30, 2014, reflected net costs of approximately $35 million related to strategic decisions to reposition our asset portfolio, including our decision to permanently discontinue production of MOP at our Carlsbad,

20
Table of Contents

New Mexico facility, sell our Hersey salt operations and exit our distribution businesses in Argentina and Chile compared to approximately $123 million for charges as described below for the three months ended September 30, 2013. In addition, operating earnings were impacted by higher phosphates and potash sales volumes compared to the same period in the prior year. The increase in Phosphates sales volumes was primarily due to additional tonnes from the CF Phosphates Assets Acquisition. In the prior year Potash sales volumes were constrained by sentiments in the market driving customers to purchase fertilizer only as needed, combined with delayed purchases in anticipation of the signing of supply contracts in China.
Despite strong demand this quarter, and the fact that potash selling prices have been strengthening each quarter in 2014, potash selling prices have not recovered to levels in the comparable prior year period. Potash selling prices began to decrease in the prior year period due to uncertainty in the potash market and weak customer sentiment, which was exacerbated in July 2013, when one of our global competitors announced its intention to increase production volumes and corresponding sales volumes.
Other Highlights
During the three months ended September 30, 2014:
•
We maintained a strong financial position with cash and cash equivalents of $3.0 billion as of September 30, 2014.
•
We continued to execute on our strategic plans and other priorities:
◦
During the quarter we repurchased 6,184,863 Class A Shares, Series A-2 for approximately $300 million which completed our commitment under the MAC Trust Share Repurchase Agreement. Following this, during open trading periods consistent with our insider trading policy, we repurchased 1,565,251 shares of Common Stock in the open market under our Repurchase Program for approximately $74 million. Subsequent to September 30, 2014 through October 27, 2014, we have purchased an additional 1,926,349 shares of Common Stock in the open market for approximately $81 million.
◦
The Esterhazy K3 mine development remained on track, with both shafts more than 1,700 feet below surface.
◦
On July 29, 2014, we completed the sale of our salt operations at our Hersey, Michigan mine for approximately $55 million, resulting in a pre-tax gain of $13.5 million.
◦
On July 23, 2014, we announced our decision to permanently discontinue production of MOP at our Carlsbad, New Mexico facility. The final date for production is expected to be December 31, 2014. We currently estimate that the discontinued production will result in total pre-tax charges in the range of $125 million to $140 million, primarily in the form of non-cash accelerated depreciation and depletion charges and cash severance charges. The third quarter pre-tax charges were approximately $67 million, with the majority of the remaining expected total costs to be recorded in the fourth quarter. We recorded a corresponding tax benefit of approximately $28 million in the quarter ended September 30, 2014.
◦
On September 30, 2014, we announced a reduction in our phosphate fertilizer production, primarily due to high raw material prices, in particular ammonia prices. Global prices of these products are increasing due to constrained supply and firm demand. This curtailment will limit inventory build-up during the seasonally-slow part of the year.
◦
We have reached an agreement to sell our Argentina assets. In connection with the agreement we wrote up the assets, classified as held for sale, to their estimated fair value which resulted in a gain of $18.2 million during the third quarter of 2014.
•
We recorded a foreign currency transaction gain of $27.1 million for the three months ended September 30, 2014 compared with a loss of $29.6 million for the same period a year ago.
•
We recorded net unrealized mark-to-market losses of $24.4 million for the three months ended September 30, 2014 compared with gains of $23.2 million for the same period in the prior year.
During the three months ended September 30, 2013:
•
In connection with signing the CF Ammonia Supply Agreements under which CF will supply us with ammonia, we decided to forego our proposed ammonia manufacturing plant at our Faustina, Louisiana facility, wrote off our initial investment in the project of approximately $25 million and recorded a corresponding tax benefit of approximately $9 million.
•
We made the decision to exit our Argentina and Chile distribution businesses. In connection with this decision, we wrote down the related assets by approximately $50 million. There was no tax benefit recorded related to this write down.
•
We decided to close the Hersey, Michigan potash business and sell the related salt operations. In connection with the planned sale, we wrote down the related assets by approximately $48 million, to their estimated fair value, and recorded a corresponding tax benefit of approximately $17 million.
Overview of Consolidated Results for the nine months ended September 30, 2014 and 2013
Net earnings attributable to Mosaic for the nine months ended September 30, 2014 were $667.9 million, or $1.72 per diluted share, compared to $934.0 million, or $2.19 per diluted share, for the same period a year ago. Our earnings per share were positively impacted

21
Table of Contents

by a 12% lower average share count in the current year period compared to the prior year. Included in current year net earnings is a charge of $60 million, or $0.15 per diluted share, related to the change in value of our Share Repurchase Agreements, and discrete income tax benefits of approximately $105 million, or $0.29 per diluted share. On March 17, 2014, we completed the CF Phosphate Assets Acquisition and have included the results in our condensed consolidated financial statements from that date. Results for the nine months ended September 30, 2014 and 2013 reflected the factors discussed above for the three months ended September 30, 2014 and 2013 in addition to those noted below. Certain of these factors are discussed in more detail in the following sections of this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Operating earnings for the nine months ended September 30, 2014, reflected net costs of approximately $41 million related to strategic decisions to reposition our asset portfolio, including our decision to permanently discontinue production of MOP at our Carlsbad, New Mexico facility, sell our Hersey salt operations and exit our distribution businesses in Argentina and Chile, compared to approximately $123 million for charges as described above for the three months ended September 30, 2013. In addition, operating earnings for the nine months ended September 30, 2014, were impacted by lower potash and phosphate selling prices compared to the same period in the prior year, partially offset by increased sales volumes for both potash and phosphates, and by lower raw material costs for our phosphate products.
Potash selling prices reflected the impact discussed above for the three months ended September 30, 2014. Potash sales volumes increased in the current period compared to the same period in the prior year due to the factors described above in the three month discussion and a strong spring application season in North America. Also, the signing of supply contracts with customers in China in the first quarter of 2014 helped establish a price floor in the market, leading customers to resume purchasing product.
Phosphates selling prices were also lower than the same period of the prior year. Phosphates selling prices were decreasing in the prior year, in part due to softer global demand caused by higher producer inventories and a decline in India's import demand. This decline continued until the fourth quarter of 2013, when prices hit a floor. In December 2013, we began to see phosphate selling prices increase, which has continued in 2014, due to several factors, including strong demand, production outages by other global producers and rail and barge logistical challenges in the U.S. in the first quarter of 2014 from extended cold weather.
Phosphates sales volumes for the nine months ended September 30, 2014, were higher than those from the same period in the prior year, primarily due to more tonnes available from the CF Phosphates Asset Acquisition.
Other noteworthy matters during the nine months ended September 30, 2014 included:
•
We purchased 43.3 million Class A Shares, Series A-2 and A-3 under the MAC Trusts Share Repurchase Agreement for approximately $2.0 billion. In addition, under the Repurchase Program, we purchased 8,193,698 Class A shares held by certain Cargill family member trusts, and 1,720,251 shares of Common Stock in the open market, for an aggregate of $468.6 million.
•
On April 15, 2014, we signed definitive agreements with Archer Daniels Midland Company ("ADM") to acquire its fertilizer distribution business and working capital in Brazil and Paraguay for approximately $350 million. This acquisition is expected to significantly accelerate our previously announced growth plans in Brazil, as well as replace a substantial amount of planned internal investments in that country. Under the terms of the agreements, we would acquire four blending and warehousing facilities in Brazil, one in Paraguay and additional warehousing and logistics service capabilities. We expect this acquisition to increase our annual distribution in the region from approximately four million metric tonnes to about six million metric tonnes of crop nutrients. We have received anti-trust approval in Brazil. We expect the acquisition to close by the end of 2014.
The parties have also negotiated the terms of five-year fertilizer supply agreements providing for us to supply ADM's fertilizer needs in Brazil and Paraguay.
•
On June 30, 2014, the Northern Promise Joint Venture entered into funding facilities with a consortium of 20 financial institutions for a total amount of $5.0 billion. We estimate the cost to develop and construct the integrated phosphate production facilities will approximate $7.5 billion, which we expect to be funded through external funding facilities, including the one mentioned above, and investments by the joint venture members.
During the nine months ended September 30, 2013:
•
We recorded a pre-tax charge of approximately $42 million for the settlement and related costs of the potash antitrust litigation, which was included in other operating expenses.
•
On August 5, 2013, we entered into a Shareholders’ Agreement with Ma’aden and SABIC under which the parties have formed the Northern Promise Joint Venture to develop, own and operate integrated phosphate production facilities in the Kingdom of Saudi Arabia.



22
Table of Contents

Phosphates Net Sales and Gross Margin
The following table summarizes the Phosphates segment’s net sales, gross margin, sales volume, selling prices and raw material prices:
 
Three months ended
 
 
 
 
 
Nine months ended
 
 
 
 
 
September 30,
 
2014-2013
 
September 30,
 
2014-2013
(in millions, except price per tonne or unit)  
2014
 
2013
 
Change
 
Percent
 
2014
 
2013
 
Change
 
Percent
Net sales:  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North America  
$
635.9

 
$
417.1

 
$
218.8

 
52
 %
 
$
1,918.8

 
$
1,555.1

 
$
363.7

 
23
 %
International  
1,021.9

 
1,001.7

 
20.2

 
2
 %
 
2,664.2

 
3,010.1

 
(345.9
)
 
(11
)%
Total  
1,657.8

 
1,418.8

 
239.0

 
17
 %
 
4,583.0

 
4,565.2

 
17.8

 
—
 %
Cost of goods sold  
1,363.4

 
1,225.5

 
137.9

 
11
 %
 
3,797.9

 
3,839.5

 
(41.6
)
 
(1
)%
Gross margin  
$
294.4

 
$
193.3

 
$
101.1

 
52
 %
 
$
785.1

 
$
725.7

 
$
59.4

 
8
 %
Gross margin as a percent of net sales
18
%
 
14
%
 
 
 
 
 
17
%
 
16
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales volume (in thousands of metric tonnes)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Crop Nutrients:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North America(a)
805

 
515

 
290

 
56
 %
 
2,499

 
1,834

 
665

 
36
 %
International(a)
812

 
677

 
135

 
20
 %
 
2,285

 
2,345

 
(60
)
 
(3
)%
MicroEssentials®
302

 
233

 
69

 
30
 %
 
1,034

 
903

 
131

 
15
 %
Crop Nutrient Blends  
838

 
837

 
1

 
—
 %
 
2,185

 
1,981

 
204

 
10
 %
     Total  
2,757

 
2,262

 
495

 
22
 %
 
8,003

 
7,063

 
940

 
13
 %
Feed Phosphates  
144

 
152

 
(8
)
 
(5
)%
 
460

 
416

 
44

 
11
 %
Other(b)
351

 
325

 
26

 
8
 %
 
858

 
850

 
8

 
1
 %
Total Phosphates Segment Tonnes
3,252

 
2,739

 
513

 
19
 %
 
9,321

 
8,329

 
992

 
12
 %
Average selling price per tonne:  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DAP (FOB plant)  
$
461

 
$
436

 
$
25

 
6
 %
 
$
450

 
$
471

 
$
(21
)
 
(4
)%
Crop Nutrient Blends (FOB destination)
470