| MOSAIC CO Item 1A Risk Factors Our business, financial condition or results of operations could be materially adversely affected by any of the risks and uncertainties described below |
| Additional risks not presently known to us, or that we currently deem immaterial, may also impair our business, financial condition or results of operations |
| Our operating results are highly dependent upon and fluctuate based upon business and economic conditions and governmental policies affecting the agricultural industry where we or our customers operate |
| These factors are outside of our control and may significantly affect our profitability |
| Our operating results are highly dependent upon conditions and governmental policies in the agricultural industry, which we cannot control |
| The agricultural products business can be affected by a number of factors, the 32 ______________________________________________________________________ [70]Table of Contents most important of which, for US markets, are weather patterns and field conditions (particularly during periods of traditionally high crop nutrients consumption), quantities of crop nutrients imported to and exported from North America and current and projected grain inventories and prices, which are heavily influenced by US exports and world-wide grain markets |
| US governmental policies may directly or indirectly influence the number of acres planted, the level of grain inventories, the mix of crops planted or crop prices |
| International market conditions, which are also outside of our control, may also significantly influence our operating results |
| The international market for crop nutrients is influenced by such factors as the relative value of the US dollar and its impact upon the cost of importing crop nutrients, foreign agricultural policies, the existence of, or changes in, import or foreign currency exchange barriers in certain foreign markets, changes in the hard currency demands of certain countries and other regulatory policies of foreign governments, as well as the laws and policies of the US affecting foreign trade and investment |
| Among the important policies that can significantly impact our business is the Indian government’s subsidy program for diammonium phosphate fertilizer |
| Under its current program, the Indian government places a uniform cap on the selling price of DAP to our customers that is below imported and domestic production costs |
| The Indian government then makes additional subsidy payments to the sellers |
| Because the Indian government does not make its final determination of the amount of the subsidy until after the sale has been made, we do not know our profitability on sales of DAP in India at the time of sale, and we may be required to refund estimated subsidy payments that we have received if the Indian government’s final determination of the subsidy is less than the estimated subsidies that we have received |
| Our crop nutrients and other products are subject to price and demand volatility resulting from periodic imbalances of supply and demand, which may cause our results of operations to fluctuate |
| Historically, the market for crop nutrients has been cyclical, and prices and demand for our products have fluctuated to a significant extent, particularly for phosphates and nitrogen and, to a lesser extent, potash |
| Periods of high demand, increasing profits and high capacity utilization tend to lead to new plant investment and increased production |
| This growth increases supply until the market is over-saturated, leading to declining prices and declining capacity utilization until the cycle repeats |
| This price and volume volatility may cause our results of operations to fluctuate and potentially deteriorate |
| The price at which we sell our crop nutrients products and our sales volumes could fall in the event of industry oversupply conditions, which could have a material adverse effect on our business, financial condition and results of operations |
| In contrast, high prices may lead our customers and farmers to delay purchasing decisions in anticipation of future lower prices, thus impacting our sales volumes |
| Due to reduced market demand and a depressed agricultural economy, we and our predecessors have at various times suspended production at some of our facilities |
| The extent to which we utilize available capacity at our facilities will cause fluctuations in our results of operations, as we will incur costs for any temporary or permanent shutdowns of our facilities and lower sales tends to lead to higher fixed costs as a percentage of sales |
| Our crop nutrient business is increasingly seasonal, which may result in carrying significant amounts of inventory and seasonal variations in working capital, and our inability to predict future seasonal crop nutrient demand accurately may result in excess inventory or product shortages |
| The strongest demand for our products typically occurs during the spring planting season, with a second period of strong demand following the fall harvest |
| We and/or our customers generally build inventories during the low demand periods of the year in order to ensure timely product availability during the peak sales seasons |
| The seasonality of crop nutrient demand results in our sales volumes and net sales typically being the highest during the North American spring season and our working capital requirements typically being the highest just prior to the start of the spring season |
| Our quarterly financial results can vary significantly from one year to the next due to weather-related shifts in planting schedules and purchasing patterns |
| 33 ______________________________________________________________________ [71]Table of Contents If seasonal demand exceeds our projections, our customers may acquire products from our competitors, and our profitability will be negatively impacted |
| If seasonal demand is less than we expect, we will be left with excess inventory and higher working capital and liquidity requirements |
| During the fiscal year ended May 31, 2006, we experienced a more pronounced level of seasonality in our business than in prior years |
| We believe that the more pronounced level of seasonality was due to: • high natural gas and raw material prices that affected the selling price of our products which led our domestic customers to delay purchases; and • some lessening in our international sales that has historically reduced to some extent the effects on us of the seasonality of North American agriculture |
| We believe that the lessening of international sales is, to a significant degree, due to China’s increasing self-sufficiency in phosphate fertilizers as well as ongoing weak farm economic conditions in Brazil |
| Important raw materials and energy used in our businesses in the past have been and may in the future be the subject of volatile pricing |
| In addition, in the event of a disruption to existing transportation or terminaling facilities, alternative transportation and terminaling facilities might not have sufficient capacity to fully serve all of our facilities |
| Changes in the price of our raw materials or disruptions to supply could have a material impact on our businesses |
| Natural gas, ammonia and sulfur are key raw materials used in the manufacture of phosphate crop nutrient products |
| Natural gas is used as both a chemical feedstock and a fuel to produce anhydrous ammonia, which is a raw material used in the production of diammonium phosphate (DAP) and monoammonium phosphate (MAP) |
| Natural gas is also a significant energy source used in the potash solution mining process |
| From time to time, our profitability has been and may in the future be impacted by the price and availability of these raw materials and other energy costs |
| In addition, in the event of a disruption of existing transportation or terminaling facilities for raw materials, alternative transportation and terminaling facilities might not have sufficient capacity to fully serve all of our facilities |
| A significant increase in the price of natural gas, ammonia, sulfur or energy costs that is not recovered through an increase in the price of our related crop nutrients products or an extended interruption in the supply of natural gas, ammonia or sulfur to our production facilities could have a material adverse effect on our business, financial condition or results of operations |
| We are subject to risks associated with our international operations, which could negatively affect our sales to customers in foreign countries as well as our operations and assets in foreign countries |
| For the year ended May 31, 2006, we derived approximately 70prca of our net sales from customers located outside of the United States |
| As a result, we are subject to numerous risks and uncertainties relating to international sales and operations, including: • difficulties and costs associated with complying with a wide variety of complex laws, treaties and regulations; • unexpected changes in regulatory environments; • increased government ownership and regulation of the economy in the markets we serve; • political and economic instability, including the possibility for civil unrest, inflation and adverse economic conditions resulting from governmental attempts to reduce inflation, such as imposition of higher interest rates and wage and price controls; • nationalization of properties by foreign governments; 34 ______________________________________________________________________ [72]Table of Contents • tax rates that may exceed those in the United States and earnings that may be subject to withholding requirements; • the imposition of tariffs, exchange controls, trade barriers or other restrictions; and • the impact of currency exchange rate fluctuations between the US dollar and foreign currencies, particularly the Brazilian real, the Canadian dollar and the Argentine peso |
| The occurrence of any of the events above in the markets in which we operate or in other developing markets could jeopardize or limit our ability to transact business in those markets and could adversely affect our revenues and operating results and the value of our assets located outside of the United States |
| Our international assets are located in countries with volatile conditions, which could subject us and our assets to significant risks |
| Mosaic is a global business with substantial assets located outside of the United States and Canada |
| Our operations in Brazil, Argentina, Chile, China and India are a fundamental part of our business |
| Volatile economic, political and market conditions in these and other emerging market countries may have a negative impact on our operations, operating results and financial condition |
| Adverse weather conditions, including the impact of potential hurricanes and excess rainfall, have in the past and may in the future adversely affect our operations, particularly our Phosphates business, and result in increased costs, deceased production and potential liabilities |
| Adverse weather conditions, including the impact of potential hurricanes and excess rainfall, have in the past and may in the future adversely affect our operations, particularly our Phosphates business |
| We experienced minor physical damage to our facilities in Florida and Louisiana from the hurricanes in 2004 and 2005 |
| In addition, we paid a civil fine of dlra0dtta3 million resulting from releases of phosphoric acid process wastewater at our Riverview, Florida facility, are involved in a class action lawsuit arising out of the releases, and governmental agencies have asserted claims for natural resource damages |
| More significantly, water treatment costs, particularly at our Florida operations, due to high water balances tend to increase significantly following excess rainfall from hurricanes and other adverse weather |
| Some of our Florida facilities continue to have high water levels that may, from time to time, require treatment |
| The high water balances at phosphate facilities in Florida has also resulted in adoption by the Florida Department of Environmental Protection of new rules requiring phosphate production facilities to meet more stringent process water management objectives within their phosphogypsum management systems |
| We are assessing the impact of the new rules; however, compliance with the rule could require us to take additional measures to manage process water, and such measures could potentially have a material effect on our business and financial condition |
| If additional excess rainfall or hurricanes continue to occur in coming years, the facilities may be required to take additional measures to manage process water and these measures could potentially have a material effect on our business and financial condition |
| Adverse weather may also cause a loss of production due to disruptions in our supply chain |
| For example, following the impact of Hurricane Katrina in Louisiana in 2005, oil refineries that supply sulfur to us were closed and incoming shipments of ammonia were delayed, disrupting production at our Louisiana facilities |
| Our operations are dependent on having received the required permits and approvals from governmental authorities |
| A decision by a government agency to deny any of our permits and approvals or to impose restrictive conditions on us with respect to these permits and approvals may impair our business and operations |
| We hold numerous governmental environmental, mining and other permits and approvals authorizing operations at each of our facilities |
| Expansion of our operations also is predicated upon securing the necessary environmental or other permits or approvals |
| A decision by a government agency to deny or delay issuing a new 35 ______________________________________________________________________ [73]Table of Contents or renewed permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue operations at the affected facility |
| Over the next several years, we and our subsidiaries will be continuing our efforts to obtain permits in support of our anticipated Florida mining operations at certain of our properties |
| In Florida, local community participation has become an important factor in the permitting process for mining companies |
| A denial of these permits or the issuance of permits with cost-prohibitive conditions could prevent us from mining at these properties and thereby have a material adverse effect on our business, financial condition or results of operations |
| In many cases, as a condition to procuring permits and approvals, we are required to comply with financial assurance regulatory requirements |
| The purpose of these requirements is to provide comfort to the government that sufficient company funds will be available for the ultimate closure, post-closure care and/or reclamation of our facilities |
| These financial assurance requirements can be satisfied without the need for any expenditure of corporate funds to the extent our financial statements meet certain balance sheet/income statement criteria, referred to as the financial tests |
| In the event that we are unable to satisfy these financial tests, we must utilize alternative methods of complying with the financial assurance requirements or could be subject to enforcement proceedings brought by relevant governmental agencies |
| This may require negotiation of a consent decree that imposes alternative financial assurance or other conditions |
| Alternatively, we may need to provide credit support in the form of surety bonds from insurance companies, letters of credit from banks, or other forms of financial instruments or collateral to satisfy the financial assurance requirements |
| Use of these alternative means of financial assurance imposes additional expense on us |
| Other alternative means of financial assurance, such as surety bonds, in some cases require collateral and generally require us to obtain a discharge of the bonds or to post additional collateral (typically in the form of cash or letters of credit) at the request of the issuer of the bonds |
| Collateral that is required may be in many forms including letters of credit or other financial instruments that utilize a portion of our available liquidity, or in the form of assets such as real estate, which reduces our flexibility to manage or sell assets |
| In the future, there can be no assurance that we will be able to pass the applicable tests of financial strength, negotiate consent decrees, or obtain letters of credit, surety bonds or other financial instruments on acceptable terms and conditions or at a reasonable cost |
| It is possible that we will not be able to comply with such regulations in the future or that the costs of compliance could increase, which could materially adversely affect our business, results of operations or financial condition |
| Currently, because of a change in our corporate structure resulting from the Combination, we do not meet the financial responsibility tests under Louisiana’s applicable regulations |
| After consulting with the Louisiana Department of Environmental Quality, we requested an exemption |
| The exemption would include an alternate financial responsibility test with revised tangible net worth and US asset requirements |
| Our request for an exemption was initially denied in May 2006 |
| We have reopened discussions on the subject with the Louisiana Department of Environmental Quality |
| There can be no assurance that the Louisiana Department of Environmental Quality will grant the exemption or that we will be able to meet its terms |
| If we do not receive an exemption, we may be required to enter into a consent order with the agency or may need to provide credit support, such as surety bonds or letters of credit, to fulfill our financial responsibility obligations in Louisiana |
| Some of our competitors have greater resources than we do, which may place us at a competitive disadvantage and adversely affect our sales and profitability |
| These competitors include state-owned and government subsidized entities in other countries |
| We compete with a number of producers in North America and throughout the world, including state-owned and government subsidized entities |
| Some of these entities are less highly leveraged than we are, may have greater total resources than we do, may have investment grade bond ratings, and may be less dependent on earnings from crop nutrients sales than we are |
| In addition, some of these entities may have access to lower cost or government-subsidized natural gas supplies, placing us at a competitive disadvantage |
| Furthermore, governments as owners of some of our competitors may be willing to accept lower prices and profitability on their products in order to 36 ______________________________________________________________________ [74]Table of Contents support domestic employment or other political or social goals |
| To the extent other producers of crop nutrients enjoy competitive advantages or are willing to accept lower profit levels, the price of our products, our sales volumes and our profits may be adversely affected |
| The environmental regulations to which we are subject, as well as our potential environmental liabilities, may have a material adverse effect on our business, financial condition and results of operations |
| We are subject to numerous environmental, health and safety laws and regulations in the US, Canada, China, Brazil and other international jurisdictions where we operate, including laws and regulations relating to land reclamation and remediation of hazardous substance releases |
| For example, the US Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, imposes liability, without regard to fault or to the legality of a party’s conduct, on certain categories of persons (known as “potentially responsible parties”) who are considered to have contributed to the release of “hazardous substances” into the environment |
| As a crop nutrient company working with chemicals and other hazardous substances, we will periodically incur liabilities, under CERCLA and other environmental cleanup laws, with regard to our current or former facilities, adjacent or nearby third party facilities or offsite disposal locations |
| In addition to liabilities arising out of our current and future operations for which we have ongoing processes to manage compliance with environmental obligations, we are subject to liabilities for past operations at current facilities and in some cases to liabilities for past operations by us, our predecessor companies and subsidiaries that our predecessors have sold at facilities that we and our subsidiaries no longer own or operate |
| Under CERCLA, or various state analogues, one party may, under certain circumstances, be required to bear more than its proportional share of cleanup costs at a site where it has liability if payments cannot be obtained from other responsible parties |
| Liability under these laws involves inherent uncertainties |
| Violations of environmental, health and safety laws are subject to civil, and, in some cases, criminal sanctions |
| Laws similar to those in the United States may be applicable to international jurisdictions where we operate |
| In some international jurisdictions, environmental laws change rapidly and it may be difficult for us to determine if we are in compliance with all material environmental laws at any given time |
| As a result of these uncertainties, we may incur unexpected interruptions to operations, fines, penalties or other reductions in income which would negatively impact our financial condition and results of operations |
| Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at ongoing operations, which will be charged against income from future operations |
| Present and future environmental laws and regulations applicable to our operations may require substantial capital expenditures and may have a material adverse effect on our business, financial condition and results of operations |
| We have identified material weaknesses in our internal control over financial reporting for our fiscal year ended May 31, 2006 |
| The material weaknesses in internal control over financial reporting could result in a material error in our financial statements |
| As discussed more fully in Item 9A of Part I of this report, we have identified material weaknesses in our internal control over financial reporting |
| The material weaknesses are: • Management did not sufficiently monitor the internal control over financial reporting at the Phosphates business segment to ensure they were operating effectively |
| • The Company had inadequate segregation of duties related to North American computer software applications |
| • The Company did not maintain adequate oversight and review of our accounting for income taxes |
| The material weaknesses in our internal control over financial reporting could result in a material error in our financial statements |
| A more detailed description of these material weaknesses is included in Item 9A, “Controls and Procedures,” of this report |
| 37 ______________________________________________________________________ [75]Table of Contents We are implementing a new enterprise resource planning system with additional controls |
| Failure to fully implement the new system in an effective and a timely fashion will delay our ability to fully correct the material weaknesses we have identified in our internal controls |
| We are implementing a new enterprise resource planning system |
| The new system includes additional controls that are part of our efforts to remediate the material weakness in our internal controls |
| Failure to fully implement the new system in an effective and a timely fashion will delay our ability to fully correct the material weakness we have identified in our internal controls |
| In addition, the new system includes implementation of improved business processes that we expect to improve our efficiency and our ability to manage our business, realize synergies from the Combination and reduce our costs |
| Failure to fully implement the new system in an effective and timely fashion could adversely affect our implementation of these improved business processes and the achievement of our goals |
| In some cases, the current business processes that are being replaced or improved will no longer be operational once the new system is implemented, and any failure of the new system to function effectively upon initial implementation could adversely affect our ongoing business processes and efficiency |
| For example, we will depend on the new system for functions such as order entry, invoicing and logistics, and a failure of the new system to perform these functions effectively could materially adversely affect our sales to customers, receipt of payment for our sales or other matters that could materially adversely affect our results of operations |
| Our indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under our outstanding indebtedness |
| As of May 31, 2006, we had outstanding indebtedness of approximately dlra2dtta6 billion |
| Our indebtedness, which is a significant factor leading to our current non-investment grade credit rating, could have important consequences |
| For example, it could: • make it difficult for us to satisfy our obligations with respect to outstanding indebtedness; • increase our vulnerability to general adverse economic and industry conditions; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of cash flow to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes; • make it difficult for us to optimally capitalize and manage the cash flow for our businesses; • limit our flexibility in planning for, or reacting to, changes in our businesses and the markets in which we operate; • place us at a competitive disadvantage compared to our competitors that have less debt; and • limit our ability to borrow additional funds |
| In addition, it is possible that we may need to incur additional indebtedness in the future in the ordinary course of business |
| The terms of our credit facilities and other agreements governing our indebtedness allow us to incur additional debt subject to certain limitations |
| If new debt is added to current debt levels, the risks described above could intensify |
| Furthermore, if future debt financing is not available to us when required or is not available on acceptable terms, we may be unable to grow our business, take advantage of business opportunities, respond to competitive pressures or refinance maturing debt, any of which could have a material adverse effect on our operating results and financial condition |
| 38 ______________________________________________________________________ [76]Table of Contents We need significant amounts of cash to service our indebtedness |
| If we are unable to generate a sufficient amount of cash to service our indebtedness, our financial condition and results of operations could be negatively impacted |
| We need significant amounts of cash in order to service and repay our indebtedness |
| Our ability to generate cash in the future will be, to a certain extent, subject to general economic, financial, competitive and other factors that may be beyond our control |
| If we are not able to generate cash flow from operations in an amount sufficient to enable us to service and repay our indebtedness, we will need to refinance our indebtedness or be in default under the agreements governing our indebtedness |
| Such refinancing may not be available on favorable terms or at all |
| The inability to service, repay and/or refinance our indebtedness could negatively impact our financial condition and results of operations |
| The agreements governing our indebtedness contain various covenants that limit our discretion in the operation of our business and also require us to meet financial maintenance tests and other covenants |
| The failure to comply with such tests and covenants could have a material adverse effect on us |
| The agreements governing our indebtedness contain various covenants, including those that restrict our ability to: • borrow money, and guarantee or provide other support for indebtedness of third parties including guarantees to finance purchases of our products; • pay dividends on, redeem or repurchase our capital stock; • make monetary acquisitions of new subsidiaries; • make investments in entities that we do not control, including joint ventures; • fund our Offshore business segment from our North American operations; • make capital expenditures in excess of certain annual amounts; • transact business with Cargill except under certain circumstances; • engage in transactions, particularly outside of the ordinary course of business, between Mosaic Global Holdings (formerly IMC) and its subsidiaries, on the one hand, and us and our other subsidiaries, on the other hand; • use assets as security in other transactions; • sell assets, other than sales of inventory in the ordinary course of business, except in compliance with specified limits and up to specified dollar amounts, or merge with or into other companies; • enter into sale and leaseback transactions; and • enter into unrelated businesses |
| These covenants may limit our ability to effectively operate our businesses, including our ability to operate the predecessor businesses of IMC and fertilizer businesses of Cargill Crop Nutrition involved in the Combination in an integrated manner |
| In addition, our credit facilities require that we meet certain financial tests, including an interest expense coverage ratio test and a leverage ratio test |
| The financial tests become more stringent over time pursuant to the terms of the Credit Agreement |
| During periods in which product prices or volumes, raw material prices or 39 ______________________________________________________________________ [77]Table of Contents availability, or other conditions reflect the adverse impact of cyclical market trends or other factors (including trends and factors disclosed in the risk factors discussed in this Item 1A), or when the financial tests become more stringent, we may not be able to comply with the applicable financial covenants |
| In addition, an Event of Default would occur under our senior secured bank credit facility unless, prior to November 30, 2007, one of the following occurs: • the Mosaic Global Holdings 10dtta875prca Senior Notes due 2008 have been refinanced on specified terms, repurchased or redeemed; or • the Company meets a specified financial “leverage” ratio; or • our senior secured credit facility has been fully repaid |
| A more detailed description of the events summarized above is incorporated by reference to Note 13 of our Consolidated Financial Statements included in this report in Part II, Item 8, “Financial Statements and Supplementary Data |
| ” There can be no assurance that one of these events will occur prior to November 30, 2007 |
| Any failure to comply with the restrictions of our credit facilities or any agreement governing our other indebtedness may result in an event of default under those agreements |
| Such default may allow the creditors to accelerate the related debt, which acceleration may trigger cross-acceleration or cross-default provisions in other debt |
| In addition, lenders may be able to terminate any commitments they had made to supply us with further funds (including periodic rollovers of existing borrowings) |
| We do not own a controlling equity interest in our non-consolidated companies, some of which are foreign companies, and therefore our operating results and cash flow may be materially affected by how the governing boards and majority owners operate such businesses |
| There may also be limitations on monetary distributions from these companies that are outside of our control |
| Together, these factors may lower our equity earnings or cash flow from such businesses and negatively impact our results of operations |
| We hold several ownership interests in fertilizer manufacturing or distribution companies that are not controlled by Mosaic, whether through less than majority representation on the applicable governing board or though a minority equity ownership interest in such entities |
| As these companies are significant to Mosaic, their results of operations materially affect our equity earnings |
| Because we do not control these companies either at the board or shareholder level and because local laws in foreign jurisdictions may place restrictions on monetary distributions by these companies, we cannot ensure that these companies will operate efficiently, pay dividends, or generally follow the desires of our management by virtue of our board or shareholder representation |
| As a result, these companies may contribute significantly less than anticipated to our equity earnings and cash flow, negatively impacting our results of operations and liquidity |
| Strikes or other forms of work stoppage or slowdown could disrupt our business and lead to increased costs |
| Our financial performance is dependent on a reliable and productive work force |
| A significant portion of our workforce is covered by collective bargaining agreements with unions |
| Unsuccessful contract negotiations or adverse labor relations could result in strikes or slowdowns |
| Any disruptions may decrease our production and sales or impose additional costs to resolve disputes |
| The risk of adverse labor relations may increase as our profitability increases because labor unions’ expectations and demands generally rise at those times |
| We are not insured against the risk of floods and water inflow at that mine and the costs to control the water inflow could increase in future years |
| The water inflow, risk to employees or remediation costs could also cause us to change our mining process or abandon the mines, which in turn could significantly negatively impact our results of operations |
| Since December 1985, we have experienced an inflow of water into one of our two interconnected potash mines at Esterhazy, Saskatchewan |
| In order to control inflow, we have incurred expenditures, certain of which, due to their nature, have been capitalized, while others have been charged to expense |
| Because procedures utilized to control the water inflow have proven successful to date, we will likely continue conventional shaft mining at Esterhazy |
| It is possible that the costs of remedial efforts at Esterhazy may increase in future years or that the water inflow, risk to employees or remediation costs may increase to a level which would cause us to change our mining process or abandon the mines |
| Due to the ongoing water inflow problem at Esterhazy, underground operations at this facility are currently not insurable for water incursion problems |
| Our Colonsay mine is also subject to the risks of inflow of water as a result of our shaft mining operations |
| Deliberate, malicious acts, including terrorism, could damage our facilities, disrupt our operations or injure employees, contractors, customers or the public and result in liability to us |
| Intentional acts of destruction could hinder our sales or production and disrupt our supply chain |
| Our facilities could be damaged or destroyed, reducing our operational production capacity and requiring us to repair or replace our facilities at substantial cost |
| Employees, contractors and the public could suffer substantial physical injury for which we could be liable |
| Governmental authorities may impose security or other requirements that could make our operations more difficult or costly |
| The consequences of any such actions could adversely affect our operating results and financial condition |
| We may be adversely affected by changing antitrust laws to which we are subject |
| We are subject to antitrust and competition laws in various countries throughout the world |
| We cannot predict how these laws or their interpretation, administration and enforcement will change over time |
| Changes in antitrust laws globally, or the interpretation, administration or enforcement thereof, may limit our existing or future operations and growth, or the operations of Canpotex and PhosChem, which serve as export associations for our Potash and Phosphates businesses |
| Our competitive position could be adversely affected if we are unable to participate in continuing industry consolidation |
| Most of our products are readily available from a number of competitors, and price and other competition in the fertilizer industry is intense |
| In addition, fertilizer production facilities and distribution activities frequently benefit from economies of scale |
| As a result, particularly during pronounced cyclical troughs, the fertilizer industry has a long history of consolidation |
| Mosaic itself is the result of a number of industry consolidations |
| We expect consolidation among fertilizer producers could continue |
| Our competitive position could suffer to the extent we are not able to expand our own resources either through consolidations, acquisitions, joint ventures or partnerships |
| In the future, we may not be able to find suitable companies to combine with, assets to purchase or joint venture or partnership opportunities to pursue |
| Even if we are able to locate desirable opportunities, we may not be able to enter into transactions on economically acceptable terms |
| If we do not successfully participate in continuing industry consolidation, our ability to compete successfully could be adversely affected and result in the loss of customers or an uncompetitive cost structure, which could adversely affect our sales and profitability |
| Our risk management strategy may not be effective |
| Our businesses are affected by fluctuations in market prices for our products, the purchase price of natural gas, ammonia and sulfur consumed in operations, freight and shipping costs, interest rates and foreign currency 41 ______________________________________________________________________ [79]Table of Contents exchange rates |
| We periodically enter into derivatives to mitigate these risks |
| However, our derivatives strategy may not be successful in minimizing our exposure to these fluctuations |
| See Note 17 of our Consolidated Financial Statements that are included in this report in Part II, Item 8, “Financial Statements and Supplementary Data |
| ” Our recent closures of several facilities in our Florida Phosphates operations may cost more than we estimate, result in less benefits than we expect or require us to obtain waivers of financial assurance requirements from governmental regulatory agencies |
| On May 31, 2006, we closed indefinitely our South Pierce and Green Bay phosphate fertilizer production plants and Fort Green phosphate mine in central Florida |
| Our financial statements include charges reflecting our estimates of the costs of closure |
| Like other estimates of events that will occur in the future, our estimates are based upon judgments about uncertain future events that may prove to be different than our estimates |
| These differences could result in the need to revise our estimates, affecting our results of operations, financial condition or cash flows |
| In addition, we anticipate that the closures of these facilities will reduce our raw material and operating costs, reduce our capital expenditures and improve our cash flows |
| A failure to substantially realize our expectations about the benefits of the closures could materially affect our future results of operations |
| In addition, the recent closures could require us to obtain waivers of financial assurance requirements from governmental regulatory agencies, and any failure to obtain any required waivers or conditions imposed by the regulatory agencies in connection with any such waivers could adversely affect the benefits we expect from the closures and our results of operations or financial condition |
| Cargill’s status as a significant stockholder and its representation on our Board of Directors may create conflicts of interest with our other stockholders and could cause us to take actions that our other stockholders do not support |
| Cargill owns 65dtta3prca of the outstanding shares of our common stock |
| In addition, seven Cargill nominees are members of our Board of Directors |
| Accordingly, Cargill effectively controls our strategic direction and significant corporate transactions, and its interests in these matters may conflict with the interests of other stockholders of Mosaic |
| As a result, Cargill could cause us to take actions that our other stockholders do not support |
| Cargill’s significant ownership interest in Mosaic and our classified Board of Directors and other anti-takeover provisions could deter an acquisition proposal for Mosaic that other stockholders may consider favorable |
| As the owner of a majority of the shares of our common stock, a third party will not be able to acquire control of us without Cargill’s consent because Cargill could vote its shares of our common stock against any takeover proposal submitted for stockholder approval |
| In addition, we have a classified Board of Directors and other takeover defenses in our certificate of incorporation and bylaws |
| Cargill’s ownership interest in us and these other anti-takeover provisions could discourage potential acquisition proposals for us and could delay or prevent a change of control of Mosaic |
| These deterrents could make it very difficult for non-Cargill holders to remove or replace members of our Board of Directors or management, which could be detrimental to our other stockholders |
| Our stockholders may be adversely affected by the expiration of the lockup and standstill restrictions in our Investor Rights Agreement with Cargill, which would enable Cargill to, among other things, transfer all or a significant percentage of its interest in our common stock to a third party, increase its ownership percentage of the our common stock above 65dtta3prca or seek additional representation on our Board of Directors, any of which could have an impact on the price of our common stock |
| Standstill provisions in our Investor Rights Agreement with Cargill restrict Cargill from acquiring additional shares of our common stock from our public stockholders and taking other specified actions as a stockholder of 42 ______________________________________________________________________ [80]Table of Contents Mosaic |
| These restrictions will expire on October 22, 2008 |
| Following the expiration of the standstill period, Cargill will be free to increase its ownership interest in our common stock |
| Purchases of additional shares of our common stock by Cargill could result in lower trading volumes for our common stock and make it difficult for stockholders to sell shares of our common stock |
| In addition, the Investor Rights Agreement prohibits Cargill from transferring or selling its shares of Mosaic common stock until October 22, 2007 |
| Once this transfer restriction is terminated, Cargill will be permitted to sell its shares of our common stock |
| Cargill’s sale or transfer of a significant number of shares of our common stock could create a decline in the price of our common stock |
| Furthermore, if Cargill’s sales or transfers were made to a single buyer or group of buyers, it could result in a third party acquiring effective control of Mosaic |
| Until the end of the standstill period, the Investor Rights Agreement also requires that Cargill vote its shares of Mosaic common stock for the slate of director nominees recommended by the Mosaic Board of Directors, and that Cargill cause its nominees on the Mosaic Board of Directors to recommend the four directors designated by the former representatives of IMC After the standstill period, Cargill will be free to seek to increase its representation on the Mosaic Board of Directors above seven members |
| This action could further increase Cargill’s control over Mosaic and deter or delay an acquisition of Mosaic thereby having a negative impact on the price of our common stock |
| We may experience difficulty in establishing a separate brand identity from Cargill, which could negatively affect our sales and operating results |
| Our results of operations will be impacted by our ability to establish our own brand identity and our ability to ensure that our products are recognized in the marketplace |
| To that end, Cargill has licensed its brand to Mosaic on a royalty-free basis until October 2009 in conjunction with the sale of fertilizers, including in certain international jurisdictions where Cargill traditionally attracted premiums from customers |
| It is important for our management to develop a brand identity for our products and services separate from the Cargill brand while the license remains in effect |
| Our failure to do so could result in lower sales and negatively affect our revenues and operating results if Cargill did not extend the license |
| There can be no assurance that Cargill would extend the license if we requested it to do so |
| Our success will depend on key personnel, the loss of whom could harm our businesses |
| We believe our continued success depends on the collective abilities and efforts of our senior management |
| The loss of one or more key personnel could have a material adverse effect on our results of operations |
| Additionally, if we are unable to find, hire and retain needed key personnel in the future, our results of operations could be materially and adversely affected |
| A shortage of railcars, barges and ships for carrying our products and the raw materials we use in our business could result in customer dissatisfaction, loss of production or sales, and higher transportation or equipment costs |
| We rely heavily upon truck, rail, barge and ocean freight transportation to obtain the raw materials we need and to deliver our products to our customers |
| In addition, the cost of transportation is an important part of the final sale price of our products |
| Finding affordable and dependable transportation is important in obtaining our raw materials and to supply our customers |
| Higher costs for these transportation services or an interruption or slowdown due to factors including high demand, labor disputes, adverse weather or other environmental events, or changes to rail, barge or ocean freight systems, could negatively affect our ability to produce our products or deliver them to our customers, which could affect our performance and results of operations |
| Strong demand for grain and other products and a strong world economy increase the demand for and reduce the availability of transportation, both domestically and internationally |
| Shortages of railcars, barges and ocean transport for carrying product and increased transit time may result in customer dissatisfaction, loss of sales and 43 ______________________________________________________________________ [81]Table of Contents higher equipment and transportation costs |
| The shipping industry has a shortage of ships and the substantial time frame needed to build new ships prevents rapid market response |
| Delays and missed shipments due to transportation shortages, including vessels, barges, railcars and trucks, could result in customer dissatisfaction or loss of sales potential, which could negatively affect our performance and results of operations |
| We extend trade credit to our customers and guarantee the financing that some of our customers use to purchase our products |
| Our results of operations may be adversely affected if these customers are unable to repay the trade credit from us or their financing from their banks |
| We extend trade credit to our customers in the United States and throughout the world, in some cases for extended periods of time |
| In Brazil, where there are fewer third-party financing sources available to farmers, we also have several programs under which we guarantee customers’ financing from financial institutions that they use to purchase our products |
| As our exposure to longer trade credit extended throughout the world and use of guarantees in Brazil increases, we will be increasingly exposed to the risk that some of our customers will not pay us or the amounts we have guaranteed, and we become increasingly exposed to risk due to weather and crop growing conditions, fluctuations in commodity prices or foreign currencies, and other factors that influence the price, supply and demand for agricultural commodities |
| Significant defaults by our customers could adversely affect our financial condition and results of operations |
| Our current corporate organizational structure results in a high effective tax rate and does not optimize our ability to utilize cash generated by our profitable Canadian potash operations |
| We generate the largest portion of our net income and cash flow from our successful Canadian potash business |
| In contrast, The Mosaic Company and Mosaic Global Holdings Inc, which are the primary obligors on most of our outstanding indebtedness, are organized under the laws of the State of Delaware in the United States |
| We historically have not obtained a deduction for Canadian income tax purposes for the interest expense of The Mosaic Company or Mosaic Global Holdings Inc, nor are we permitted to deduct any losses in the rest of our businesses for purposes of Canadian income taxes |
| As a result, we have incurred a high reported effective tax rate on our pre-tax income |
| Moreover, because of potential taxes or tax withholding, it may be economically unattractive to distribute or transfer cash generated by our Canadian potash operations to The Mosaic Company or Mosaic Global Holdings Inc |
| in order to make payments on our indebtedness or for other corporate purposes |
| We may not be readily able to restructure or take other actions that would reduce our high effective tax rate or improve our ability to use cash generated by our Canadian potash operations, or might incur significant costs in order to achieve a more efficient structure |