The Mosaic Company — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended February 28, 2013, compared with the periods ended February 29, 2012. Mosaic produces and markets phosphate and potash crop nutrients. The filing labels the quarter as fiscal 2013 Q3; the company planned to move to a calendar-year reporting cycle after completing its fiscal year on May 31, 2013.
Financial performance
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Three months ended Feb. 28, 2013 | Year-over-year change | Nine months ended Feb. 28, 2013 | Year-over-year change |
|---|---|---|---|---|
| Net sales | $2,240.6 | Up 2% | $7,281.9 | Down 12% |
| Gross margin | $568.4 | Up 9% | $1,991.6 | Down 12% |
| Gross margin percentage | 25% | Up from 24% | 27% | About flat |
| Operating earnings | $419.1 | Up 1% | $1,588.9 | Down 18% |
| Net earnings attributable to Mosaic | $344.6 | Up 26% | $1,402.8 | Down 1% |
| Diluted earnings per share | $0.81 | Up from $0.64 | $3.29 | Up from $3.24 |
- Quarterly performance: Higher potash volumes and lower phosphate input costs supported results. Quarterly earnings also benefited from a $32.3 million foreign-currency transaction gain, compared with a $44.0 million loss a year earlier. Lower selling prices and a $42 million potash-antitrust settlement charge partly offset these benefits.
- Nine-month performance: Phosphate sales and margins weakened, primarily with lower shipments to India and lower selling prices. Potash gross margin was broadly flat despite increased sales volumes, as lower prices and higher costs weighed on results. Net earnings included a $179.3 million tax benefit from resolution of certain tax matters; the reported 12.2% effective tax rate was below the prior-year 27.0%.
- Segment trends: In the quarter, Phosphates sales were $1,501.7 million, down 9%, while gross margin rose 3% to $266.3 million. Potash sales were $758.0 million, up 37%, and gross margin rose 14% to $308.4 million; potash volume increased 62% to 1.8 million tonnes, while its average selling price fell 15% to $385 per tonne. For the nine months, Phosphates sales fell 20% and gross margin fell 24%; Potash sales rose 10% and gross margin was up 1%.
Cash flow, liquidity and debt
- Cash and cash equivalents were $3,322.7 million at February 28, 2013, down from $3,811.0 million at May 31, 2012. Total current assets were $6,342.0 million and current liabilities were $1,536.6 million.
- Nine-month operating cash flow was $1,032.8 million, down 30% from $1,476.5 million. Capital expenditures were $1,240.4 million, including $396.7 million for potash expansion projects; operating cash flow less capital expenditures was approximately negative $207.6 million.
- Cash used in financing was $301.0 million, including $320.0 million of dividends. Cash declined by $488.3 million over the period.
- Short-term debt was $61.2 million and long-term debt, including current maturities, was $1,011.4 million. Cash exceeded reported debt by approximately $2.25 billion. The $750 million credit facility had $737.3 million available.
- Management said available cash and expected operating funds should be sufficient for operations, expansion plans, strategic initiatives and expected dividends through the remainder of fiscal 2013, while cautioning that future cash generation is not assured.
Changes, outlook and notable matters
- Management attributed the quarterly increase in potash shipments to supply contracts with customers in China and India and a domestic early-spring fill program. It described potash fundamentals and sentiment as improving, but noted prices remained below the prior-year period. Phosphate prices were also lower.
- No specific numerical earnings or sales guidance is provided in the supplied filing text. Management’s liquidity statement covers the remainder of fiscal 2013.
- The company reported Esterhazy mine brine inflows above average but within its estimated historical range. It said new remote injection and increased pumping capacity were helping reduce stored brine. Nine-month brine-management expense was $182.1 million and related capital expenditures were $114.3 million.
- A proposed resolution of EPA and DOJ phosphate-waste enforcement matters could require capital spending likely to exceed $150 million over several years and an estimated $625 million cash escrow or trust for financial assurance, plus civil penalties. Terms were not final; the company stated that failure to reach settlement could expose it to material costs.
- Mosaic agreed to settle potash antitrust cases for $43.8 million, funded subject to final court approval; it did not admit wrongdoing. Approximately $51 million of related charges were recorded in the first nine months.
- On March 19, 2013, Mosaic entered a nonbinding heads of agreement for a proposed Saudi phosphate joint venture. Its intended ownership is 25%, with a potential cash investment of up to $1 billion over four years, subject to definitive agreements and financing.
- Florida phosphate mine permitting, nutrient-discharge rules, environmental remediation obligations, tax audits, and a MicroEssentials patent case remain matters to monitor. The company reported no goodwill impairment in its annual review and said disclosure controls were effective.
Important facts for investors to verify
- How phosphate and potash prices, demand, shipment volumes, and customer inventories evolve after the quarter; in particular, whether stronger potash shipments persist.
- The final terms, approval, funding schedule, and balance-sheet treatment of any EPA/DOJ settlement and proposed financial-assurance escrow.
- The sustainability of reported nine-month earnings after separating the $179.3 million tax benefit and other unusual items, including antitrust charges and foreign-exchange gains or losses.
- Potash expansion spending, Esterhazy brine-management progress, and the effect of higher depreciation and operating costs on margins and cash flow.
- Whether the proposed Saudi joint venture reaches definitive agreements, secures acceptable financing, and requires the potential investment of up to $1 billion.
- Progress and potential financial exposure in environmental, permitting, water-quality, tax, and patent proceedings.