Restructuring moves Mosaic into loss column in 4Q, fiscal ’06; Corrigan says company ready for 2007

A $287.6 million pre-tax restructuring charge in its phosphate business helped push The Mosaic Co. into a fourth quarter and fiscal year loss. The company had a net loss of $180.9 million ($.48 per share) on sales of $1.33 billion for the quarter ending May 31, compared to a year-ago net income of $94.1 million ($.22 per share) and sales of $1.45 billion.

Mosaic had other events impacting results during the quarter – a $34.1 million foreign currency transaction loss, and an $81 million tax benefit due to lower Canadian taxes.

For fiscal year 2006, Mosaic had a net loss of $121.4 million ($.35 per share) on sales of $5.3 billion, compared to the prior year’s net income of $165.6 million ($.46 per share) and $4.4 billion.

“Fiscal 2006 was a transition year for Mosaic, and we look forward with confidence to 2007 and beyond,” said President and CEO Fritz Corrigan. “We took aggressive strategic action to restructure our phosphates business at the end of the fiscal year to make us more cost competitive in the global marketplace. In the potash business, while markets have been weak, we expect volumes to improve during the second half of calendar 2006 now that a supply contract has been entered between Canpotex and Sinofert in China.”

Potash sales volumes were off 31 percent during the quarter, due to the slow North American market and the stalemate in China negotiations. Phosphate net sales were off just 1 percent in the quarter, but saw a 10 percent increase in the costs of producing DAP.

Corrigan told analysts that he had four key points: Mosaic has moved decisively to meet its challenges in phosphates by restructuring; the Canpotex-China deal means stronger volumes for potash; Mosaic has long-term confidence, with five of the last six years seeing grain production short of consumption; and the company will focus on execution and discipline in fiscal 2007. Corrigan said new COO Jim Prokopanko will focus on execution and day-to-day operations, while he – Corrigan – concentrates on strategic long-term value.

Corrigan said fiscal 2007 sales volumes are expected to range from 9.5-9.9 million mt, including .9 million mt of feed phosphates. Mosaic can expect to earn some $100 million in ’07 as a result of the ’06 restructuring. He expects phosphate margins will improve due to lower raw material prices. Potash sales volumes for fiscal 2007 are expected to be between 7.7-8.1 million mt.

Corrigan told analysts that both phosphates and potash were off 8-10 percent in North America in ’06. However, corn acreage of 82.5 million acres and soybeans of 73 million acres are currently eyed for ’07, with Corrigan noting burgeoning biofuels demand. With that would come a 6-8 percent increase in DAP/MAP sales to dealers and a 15-20 percent increase in potash, said Corrigan.

Mosaic expects a tax benefit of $45-$50 million in the first quarter as a result of a reduction in Canadian federal taxes. Capital spending is expected to drop to $250-$290 million from ’06’s $389.5 million.

Mosaic told analysts that debt stands at $2.6 billion, and one of its primary goals is to begin paying it down in ’07. Debt refinancing or restructuring may be forthcoming. On the accounting side, Mosaic said it had identified weaknesses in financial reporting that are being addressed.

Mosaic noted that in July, its single super phosphate plant in Quebracho, Argentina, began production and is expected to produce up to 240,000 mt of granular SSP per year.