MOS

Business Context and Reporting Period

Company: The Mosaic Company (Mosaic)
Filing Type: Form 8-K (Current Report)
Report Date: December 27, 2006
Context: This filing discloses the entry into a Material Definitive Agreement involving multiple related-party transactions between Mosaic and Cargill, Incorporated. Cargill owns approximately 65.2% of Mosaic's outstanding common stock. The transactions were approved by Mosaic's Special Transactions Committee (STC) to ensure arm's length terms.

Key Financial Metrics and Agreements

This filing details specific contractual arrangements rather than consolidated financial performance metrics (revenue, profit, cash flow). Key financial terms within the agreements include:

• Fee Structure: For supplier credit financing in Brazil, Mosaic agreed to pay Cargill 0.25% per annum on the amount of drafts negotiated.
• Profit/Risk Sharing: For customer credit financing in Brazil, Mosaic and Banco Cargill will equally share profits (after administrative costs) and credit risk for nonpayment.
• Volume Estimates: Mosaic estimates delivering 625,000 boxes of oranges to Cargill Juice during each growing season for the 2006/2007 and 2007/2008 seasons.
• Pricing Mechanism: Most supply agreements (fertilizer, fruit, salt) utilize market-based or competitively negotiated prices at the time of sale, with no fixed minimum purchase or supply obligations in most instances.

Material Changes and New Agreements

During the three-day period beginning December 27, 2006, Mosaic and Cargill entered into the following new or renewed agreements:

1. Master Services Agreement: Cargill to provide various services globally (including Australia, Brazil, China, USA, etc.) until October 22, 2009.
2. Work Orders: Three specific work orders established under the Master Services Agreement covering:
   • Accounts receivable/payable and travel processing (expires Sept 30, 2009).
   • Supplier credit financing in Brazil (expires May 31, 2007).
   • Human resource shared services (annual review, 90-day termination notice).
3. Services Agreement (Brazil): Cargill Agricola to provide IT, procurement, HR, and treasury services to Mosaic subsidiaries in Brazil (expires May 31, 2007).
4. Supply Agreements: Spot sales of MAP, DAP, and MicroEssentials S-15 to Cargill subsidiaries in Uruguay, Argentina, and Paraguay. These agreements generally lack minimum quantity obligations and expire between May and December 2007.
5. Customer Financial Solutions: Banco Cargill to provide credit financing to Mosaic's customers in Brazil, with shared profit and risk.
6. Fruit Purchase Contract: Sale of oranges and grapefruits from Florida groves to Cargill Juice for the 2006/2007 and 2007/2008 seasons.
7. Salt Storage and Handling: Cargill to store deicing salt at Mosaic's Pekin, Illinois facility (expires April 30, 2007).

Guidance, Risks, and Contingencies

Management Commentary: The filing emphasizes that the Special Transactions Committee (STC) oversees these transactions to ensure they are fair, reasonable, and conducted at arm's length. The STC has delegated approval for smaller transactions to an internal management committee but retains approval for agreements exceeding $2 million annually, multi-year commitments, evergreen contracts, and intellectual property licenses.

Risks and Contingencies:

• Related Party Risk: Significant portion of business transactions are with a majority shareholder (Cargill), requiring strict governance to prevent conflicts of interest.
• Market Price Volatility: Most supply agreements rely on market prices negotiated at the time of sale, exposing both parties to commodity price fluctuations.
• Credit Risk: In the Brazilian customer financing arrangement, Mosaic shares equally in the credit risk for nonpayment by customers.

Investor Verification Checklist

• Verify the total annual value of services and transactions with Cargill to determine if they exceed the $2 million threshold requiring STC approval.
• Confirm the impact of the 0.25% fee on supplier credit financing in Brazil on Mosaic's cost of goods sold or operating expenses.
• Assess the exposure to credit risk in Brazil given the 50/50 profit and loss sharing arrangement with Banco Cargill.
• Review future 10-K filings to track the actual volume of fruit sales and fertilizer spot sales executed under these new agreements.
• Monitor the expiration dates of the various agreements (ranging from April 2007 to October 2009) for potential renewal terms or renegotiation risks.