PotashCorp Reports Third-Quarter Earnings of $0.82 per Share
Symbol: POT
Listed: TSX, NYSE
SASKATOON, Oct. 22 /CNW/ - Potash Corporation of Saskatchewan Inc. (PotashCorp) today reported third-quarter earnings of $0.82 per share(1), or $248.8 million, compared to $3.93 per share, or $1.2 billion, in the same period last year. This result raised year-to-date earnings to $2.45 per share, or $744.2 million. The quarter-over-quarter decline reflects the continuing caution among fertilizer buyers around the world, which has negatively affected sales volumes and prices for all three nutrients. Despite substantially lower volumes, potash generated 73 percent of our total third-quarter gross margin of $346.2 million, compared to 52 percent of $1.7 billion in the same period last year, and raised our year-to-date total to $746.4 million. Earnings before interest, taxes, depreciation and amortization(2) (EBITDA) of $441.8 million and cash flow prior to working capital changes(2) of $359.8 million were both significantly lower on a quarter-over-quarter basis. EBITDA for the first nine months of 2009 reached $1.1 billion and cash flow prior to working capital changes totaled $847.4 million.
Our offshore investments in Arab Potash Company Ltd. (APC) in Jordan, Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile and Israel Chemicals Ltd. (ICL) in Israel, which were impacted by the same challenging conditions, contributed $43.9 million in other income this quarter compared to $139.6 million in the third quarter of 2008. These investments, as well as our position in Sinofert Holdings Limited (Sinofert) in China, continue to provide PotashCorp with significant strategic and financial value. The market value of our investments in these publicly traded companies was $7.0 billion as of market close on October 21, 2009, equating to approximately $23 per PotashCorp share.
"This quarter was a reminder of the contrast between long-term fundamentals and short-term uncertainties," said PotashCorp President and Chief Executive Officer Bill Doyle. "Even though the science of food production and fundamentals of global development dictate that more fertilizer, especially potash, is needed around the world, the impact of the global financial crisis remained a difficult hurdle in the third quarter. The uncertainty among fertilizer buyers has lasted far longer than we anticipated, but cannot continue indefinitely. Our focus is on preparing for the demand rebound that we believe will inevitably follow. We will be ready to serve our customers and deliver returns for our investors."
Market Conditions
While fertilizer buyers remained cautious in the wake of economic uncertainty, growth in demand for food continued unabated and concerns over global grain supplies were reflected in rallying prices for crop commodities toward the end of the quarter. Issues related to grain and oilseed production began to emerge as the combination of low potash and phosphate levels in the soil and less-than-ideal growing conditions in key agricultural regions muted crop yields. Although a record corn yield is predicted in the US, this is one of the few regions that is expected to experience yield growth in 2009.
North American potash producer shipments improved from the previous quarter, but third-quarter volumes were still more than 50 percent below the same quarter in 2008 and year-to-date totals were nearly 70 percent lower than in the first nine months of last year. In July, India signed new contracts with global potash producers, which we believed would inspire buyer confidence in other markets. This failed to materialize, as potash buyers appeared to respond instead to their perception of market conditions and risks, including healthy producer inventories, lack of engagement by Chinese buyers and a late US harvest. Moreover, large inventory writedowns in nitrogen and phosphate taken by dealers over the past year limited the appetite for additional inventory risk. As a result, dealers and farmers continued to buy potash only on an as-needed basis, putting pressure on spot market pricing.
In phosphate, US producer solid fertilizer domestic sales volumes moved closer to historical levels, while offshore volumes rose slightly as India continued to import significant quantities and shipments to Brazil increased in advance of its key planting season. In nitrogen, lower domestic natural gas costs allowed North American producers to be more competitive, contributing to a 24 percent decline in ammonia imports to the US compared to last year's third quarter. Lower winter wheat plantings and continued deferral by fertilizer buyers reduced urea demand and prices in the quarter.
Potash
Potash remained a strong gross margin business, although a decline in third-quarter sales volumes - from 1.9 million tonnes in 2008 to 1.0 million tonnes this year - brought this quarter's gross margin to $251.4 million compared to $909.7 million in the same period last year. Our year-to-date potash gross margin totaled $524.2 million, compared to $2.3 billion for the first nine months of 2008. This decline was primarily driven by slower potash movement, and, to a lesser extent, by lower realized prices and higher per-tonne cost of goods sold.
Offshore shipments in the third quarter fell to 0.7 million tonnes from 1.3 million tonnes in the same period last year, bringing our year-to-date total to 1.3 million tonnes in 2009 versus 4.5 million tonnes in the same period of 2008. Following the July contract settlement between India and Canpotex Limited, the offshore marketing company for Saskatchewan potash producers, 39 percent of total offshore volumes for the quarter were directed to this market. Brazil and Southeast Asia - two major spot markets - accounted for 14 percent and 23 percent of Canpotex's third-quarter volumes, respectively. North American sales volumes of 0.3 million tonnes in the third quarter compared to 0.5 million tonnes in the same period last year, bringing our nine-month total in 2009 to 0.6 million tonnes, compared to 2.6 million tonnes in this market in 2008.
Realized potash prices for the quarter were 34 percent below third-quarter 2008 levels and 18 percent behind this year's second quarter, as declines in offshore contract prices led to a recalibration of spot market prices. Additionally, fixed transportation and distribution costs allocated over substantially fewer sales tonnes continued to impact 2009 realized prices.
In response to slow product movement, we continued to match our production to market demand. We produced 0.6 million tonnes during the third quarter compared to 1.7 million tonnes in the same period last year, when production was limited by a strike at three Saskatchewan facilities. Potash per-tonne cost of goods sold in the third quarter continued to be impacted by the allocation of shutdown and other fixed costs over greatly reduced volumes.
Phosphate
Of the $44.2 million in third-quarter phosphate gross margin (compared to $507.2 million in the same quarter last year), industrial products generated $40.5 million. Year-to-date phosphate gross margin totaled $73.5 million compared to $1.0 billion in the first nine months of 2008. Industrial products benefited from cost-plus and market-index contract provisions, which supported gross margin even as sales volumes declined 21 percent quarter over quarter. Although the decline in sales volumes for solid and liquid fertilizers was less significant, a sharp drop in prices resulted in negative gross margin in these product categories.
Phosphate cost of goods sold was reduced dramatically in third-quarter 2009, as input costs for sulfur and ammonia were 80 percent and 29 percent lower, respectively, than in the same period last year.
Nitrogen
Nitrogen generated $50.6 million of gross margin in the third quarter of 2009 compared to $324.1 million in last year's third quarter. Our Trinidad operation, where we produce under long-term, lower-cost natural gas contracts, generated $33.2 million in gross margin - almost two-thirds of our third-quarter total. Our US operations, which benefited from lower natural gas prices, provided $17.4 million of gross margin in the quarter. Year-to-date nitrogen gross margin of $148.7 million compared to $719.5 million in the same period in 2008.
Realized average nitrogen prices in the third quarter were 63 percent lower than in the same period last year. Natural gas prices declined significantly and netbacks for ammonia, urea and nitrogen solutions were down 65-67 percent quarter over quarter. Nitrogen sales volumes were relatively flat compared to the same period last year. Our total average cost for natural gas used in production, including our hedge, was $3.70 per MMBtu, 60 percent lower than in the same quarter of 2008.
Financial
In the third quarter, we capitalized on favorable interest rates available in the debt market and issued $500.0 million of senior notes bearing interest of 3.75 percent due September 30, 2015, and $500.0 million of senior notes bearing interest of 4.875 percent due March 30, 2020. The net proceeds from the offering were primarily used to repay outstanding indebtedness under our revolving credit facilities and for general corporate purposes.
Capital expenditures on property, plant and equipment totaled $424.5 million in the third quarter, with the majority allocated to our potash expansion projects. The combination of lower potash sales volumes and prices reduced our mining and other taxes for the quarter to $2.1 million, compared to $172.0 million for the same quarter last year.
Other income in the third quarter of 2009 decreased $98.8 million from the same period last year, primarily as a result of lower equity earnings and dividends from our offshore potash investments.
Outlook
While the global recession has severely impacted the fertilizer industry over the past year, the science of food production has not changed. The significant volumes of potash and phosphate that have been mined from the soil for crop production must be replaced. Historically, potash has been under-applied in nearly every major offshore market and a proper nutrient balance in soils has never been attained. In more mature markets like the US and Western Europe, farmers have generated large harvests in recent years that have removed more nutrients from the soil than fertilizer applications have replaced. While the negative impacts of these practices can be masked in the short term by excellent growing conditions - near-perfect weather and lower insect or disease pressure - crop science has proven that continuing a pattern of under-application ultimately lowers yields.
PotashCorp has consistently focused on the world's long-term needs and followed strategies designed to protect and enhance the value of our assets, particularly potash, over time. Convinced that this is the right approach, we will not chase short-term solutions in response to the unprecedented temporary decline in fertilizer demand. Even as we curtailed our 2009 production rather than force product into the current market, we continued to work on our capacity expansions in Saskatchewan and New Brunswick, building not for the months ahead but for decades to come. The impact of events like the economic crisis and resulting caution among fertilizer buyers continues to be difficult to accurately predict, but we believe the long-term opportunity is clear.
The rationale behind our approach is supported by decades of rising food consumption. According to the Food and Agriculture Organization of the United Nations, global population is forecast to grow from its current 6.8 billion to more than 9 billion by 2050, which will necessitate a 70 percent increase in world food production, including doubling of production in developing countries. Cereal crop production will need to grow from approximately 2 billion tonnes per year today to 3 billion tonnes in 2050, while meat production needs to rise from less than 270 million tonnes to 470 million tonnes annually over the same time period. An estimated 90 percent of the increase in food production will need to be achieved by increasing yields on existing arable land - a considerable challenge given that the average annual rate of yield growth declined from 2.3 percent in the 1960s to 1.3 percent this decade. It is estimated that more than 40 percent of the world's current food production can be attributed to adequate fertilization, so the importance - and future value - of our products is clear.
Advancing agricultural production and fertilization practices, however, is a process of continuous improvement, not one that is addressed in a single growing season or financial quarter. Similarly, growth in demand for food - or fertilizer - is best measured over time. For example, global consumption of cereal grains and oilseeds over the past decade has risen by 320 million tonnes (equivalent to the size of the current US corn crop) and 112 million tonnes (1.3 times the size of the current US soybean crop), respectively. We believe this pattern of growth is unlikely to change. Even as the world works through the economic crisis, the International Monetary Fund is projecting 2010 economic growth of 5.1 percent in emerging countries, led by China (9.0 percent) and India (6.4 percent). We expect this growth will continue to drive demand for more high-quality food in many countries.
As this global story evolves, we believe fertilizer distributors and farmers around the world are closely watching current crop yields and prices, assessing potash producer inventories and waiting for a clearer signal of demand and price levels - including new contracts between China and producers - before committing to their own purchases. While this situation has led to significant declines in potash inventories throughout the distribution chain and in the world's soils, those declines must inevitably reverse.
We expect that one of the catalysts of increased fertilizer demand will be supportive crop prices coming into the spring season. With lower yields in many parts of the world putting pressure on global grain supplies, and frost and poor weather negatively impacting the US harvest, we believe that crop prices are likely to remain well above historical levels through the fall and winter. The return of other major markets in advance of their spring planting seasons and settlement of a potash contract in China should also give buyers the motivation to begin rebuilding potash inventories. We are not far removed from the potash shortages that had customers on allocation through much of 2007 and 2008. As a result, we may see buyers move quickly when the process of restocking begins.
We anticipate global potash demand in 2010 will approximate 50 million tonnes. Continued strong crop economics and significant engagement of all key markets by early next year could raise demand above our forecast. Weaker crop prices and slower buyer engagement could keep it below this level. However, we view the return of markets as only a timing issue and will continue to adjust our operating rate to any demand scenario that unfolds. This strategy necessitates that we balance production curtailments with labor contract commitments which can result in small short-term potash inventory builds, as we anticipate in fourth-quarter 2009. This global forecast reflects the expectation of a sizable rebound in demand next year, but with our expected annual operating capacity in 2010 of about 12 million tonnes, continued curtailments are anticipated.
We now expect our 2009 potash gross margin to fall within the range of $0.7-$0.9 billion and total shipments to be 3.0-3.2 million tonnes.
With lower forecast potash volumes, we now anticipate our 2009 annual effective tax rate will be in the range of 10-12 percent, with the fourth quarter at approximately 26-27 percent. Provincial mining and other taxes are forecast within a range of 3-4 percent of total potash gross margin in the year as a result of lower volumes and pricing.
PotashCorp expects fourth-quarter net income per share to be in the range of $0.65-0.85, bringing our net income per share for the full year at the low end of the annual guidance range we previously provided.
Conclusion
"Challenging times are a test of our strategies and our commitment," said Doyle. "The fertilizer business - and potash in particular - may look like an easy business, but it requires patience and resolve during periods of short-term volatility. Throughout our history, we have demonstrated that we will make decisions that protect and enhance long-term shareholder value. We will not stray from that approach, rewarding those who share our interest in maximizing the value of our assets over time."
Notes
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1. All references to per-share amounts pertain to diluted net income per
share.
2. See reconciliation and description of non-GAAP measures in the
attached section titled "Selected Non-GAAP Financial Measures and
Reconciliations."
Potash Corporation of Saskatchewan Inc. is the world's largest fertilizer enterprise by capacity producing the three primary plant nutrients and a leading supplier to three distinct market categories: agriculture, with the largest capacity in the world in potash, third largest in phosphate and nitrogen; animal nutrition, with the world's largest capacity in phosphate feed ingredients; and industrial chemicals, as the largest global producer of industrial nitrogen products and the world's largest capacity for production of purified industrial phosphoric acid.
This release contains forward-looking statements. These statements are based on certain factors and assumptions including foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities and effective income tax rates. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Several factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to: fluctuations in supply and demand in fertilizer, sulfur, transportation and petrochemical markets; changes in competitive pressures, including pricing pressures; the current global financial crisis and conditions and changes in credit markets; the results of negotiations with China; timing and amount of capital expenditures; risks associated with natural gas and other hedging activities; changes in capital markets and corresponding effects on the company's investments; changes in currency and exchange rates; unexpected geological or environmental conditions, including water inflow; strikes and other forms of work stoppage or slowdowns; changes in and the effects of, government policy and regulations; and earnings, exchange rates and the decisions of taxing authorities, all of which could affect our effective tax rates. Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2008 under captions "Forward-Looking Statements" and "Item 1A - Risk Factors" and in our other filings with the US Securities and Exchange Commission and Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this release and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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PotashCorp will host a conference call on Thursday, October 22, 2009,
at 1:00 p.m. Eastern Time.
To join the call, dial (412) 317-6578 at least 10 minutes prior to
the start time.
No reservation ID is required.
Alternatively, visit www.potashcorp.com for a live webcast of the
conference call.
Webcast participants can submit questions to management online from
their audio player pop-up window.
This news release is also available at our website.
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Financial Position
(in millions of US dollars except share amounts)
(unaudited)
September 30, December 31,
2009 2008
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Assets
Current assets
Cash and cash equivalents $ 391.2 $ 276.8
Accounts receivable (Note 2) 1,138.5 1,189.9
Inventories 639.9 714.9
Prepaid expenses and other current assets 161.4 85.6
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2,331.0 2,267.2
Property, plant and equipment 5,890.7 4,812.2
Investments 3,322.5 2,750.7
Other assets 342.4 300.2
Intangible assets 20.0 21.5
Goodwill 97.0 97.0
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$ 12,003.6 $ 10,248.8
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Liabilities
Current liabilities
Short-term debt and current portion
of long-term debt $ 489.5 $ 1,324.1
Accounts payable and accrued charges 704.0 1,183.6
Current portion of derivative
instrument liabilities 58.7 108.1
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1,252.2 2,615.8
Long-term debt (Note 3) 3,499.0 1,739.5
Derivative instrument liabilities 104.2 120.4
Future income tax liability 881.1 794.2
Accrued pension and other
post-retirement benefits 274.5 253.4
Accrued environmental costs and asset
retirement obligations 135.0 133.4
Other non-current liabilities and
deferred credits 3.6 3.2
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6,149.6 5,659.9
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Shareholders' Equity
Share capital 1,425.9 1,402.5
Unlimited authorization of common
shares without par value; issued
and outstanding 295,832,782 and
295,200,987 at September 30, 2009
and December 31, 2008, respectively
Contributed surplus 147.0 126.2
Accumulated other comprehensive income 1,223.3 657.9
Retained earnings 3,057.8 2,402.3
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5,854.0 4,588.9
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$ 12,003.6 $ 10,248.8
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Operations and Retained Earnings
(in millions of US dollars except per-share amounts)
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
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Sales (Note 4) $ 1,099.1 $ 3,064.3 $ 2,877.6 $ 7,575.9
Less: Freight 53.7 81.4 130.2 287.2
Transportation and
distribution 36.3 31.6 101.0 97.2
Cost of goods sold 662.9 1,210.3 1,900.0 3,157.2
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Gross Margin 346.2 1,741.0 746.4 4,034.3
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Selling and administrative 35.9 31.7 132.7 158.6
Provincial mining and
other taxes 2.1 172.0 17.0 434.4
Foreign exchange gain (9.0) (37.4) (1.3) (63.2)
Other income (Note 5) (41.2) (140.0) (264.6) (255.2)
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(12.2) 26.3 (116.2) 274.6
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Operating Income 358.4 1,714.7 862.6 3,759.7
Interest Expense (Note 6) 31.1 15.3 80.8 42.2
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Income Before Income Taxes 327.3 1,699.4 781.8 3,717.5
Income Taxes (Note 7) 78.5 463.3 37.6 1,010.3
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Net Income $ 248.8 $ 1,236.1 744.2 2,707.2
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Retained Earnings,
Beginning of Period 2,402.3 2,279.6
Repurchase of Common Shares - (2,829.1)
Dividends (88.7) (92.5)
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Retained Earnings,
End of Period $ 3,057.8 $ 2,065.2
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Net Income Per Share
(Note 8)
Basic $ 0.84 $ 4.07 $ 2.52 $ 8.73
Diluted $ 0.82 $ 3.93 $ 2.45 $ 8.45
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Dividends Per Share $ 0.10 $ 0.10 $ 0.30 $ 0.30
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Cash Flow
(in millions of US dollars)
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
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Operating Activities
Net income $ 248.8 $ 1,236.1 $ 744.2 $ 2,707.2
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Adjustments to reconcile net
income to cash provided by
operating activities
Depreciation and
amortization 83.4 83.3 227.5 247.1
Stock-based compensation 3.6 4.2 26.2 32.1
Loss (gain) on disposal
of property, plant and
equipment 7.0 (21.5) 8.4 (28.3)
Provision for (gain on
disposal of) auction
rate securities - 27.5 (115.3) 71.3
Foreign exchange on
future income tax 1.1 (14.6) (1.0) (23.9)
Provision for future
income tax 140.9 48.7 65.8 75.5
Undistributed earnings
of equity investees (32.5) (109.3) (1.3) (133.8)
Derivative instruments (28.2) 0.6 (70.0) (18.4)
Other long-term liabilities (64.3) (4.3) (37.1) 2.8
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Subtotal of adjustments 111.0 14.6 103.2 224.4
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Changes in non-cash
operating working capital
Accounts receivable (139.0) (281.9) 52.9 (776.8)
Inventories 9.4 (131.2) 70.5 (360.5)
Prepaid expenses and
other current assets 44.4 (10.7) (9.2) (34.1)
Accounts payable and
accrued charges 46.2 86.1 (605.8) 489.7
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Subtotal of changes in
non-cash operating
working capital (39.0) (337.7) (491.6) (681.7)
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Cash provided by operating
activities 320.8 913.0 355.8 2,249.9
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Investing Activities
Additions to property,
plant and equipment (424.5) (336.2) (1,190.2) (770.6)
Purchase of long-term
investments - (78.3) - (329.5)
Proceeds from disposal of
property, plant and equipment 0.1 31.3 15.9 40.9
Proceeds from disposal of
auction rate securities - - 132.5 -
Other assets and intangible
assets (25.6) (11.7) (36.1) (33.1)
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Cash used in investing
activities (450.0) (394.9) (1,077.9) (1,092.3)
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Cash before financing
activities (129.2) 518.1 (722.1) 1,157.6
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Financing Activities
Proceeds from long-term
debt obligations 1,478.7 - 4,033.7 -
Repayments and finance
costs of long-term debt
obligations (1,062.2) - (3,291.4) (0.2)
(Repayments of) proceeds from
short-term debt obligations (246.2) 743.9 165.3 1,586.3
Dividends (29.2) (29.8) (87.9) (92.3)
Repurchase of common shares - (1,005.8) - (2,902.9)
Issuance of common shares 8.0 3.2 16.8 31.5
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Cash provided by (used in)
financing activities 149.1 (288.5) 836.5 (1,377.6)
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Increase (Decrease) in
Cash and Cash Equivalents 19.9 229.6 114.4 (220.0)
Cash and Cash Equivalents,
Beginning of Period 371.3 269.9 276.8 719.5
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Cash and Cash Equivalents,
End of Period $ 391.2 $ 499.5 $ 391.2 $ 499.5
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Cash and cash equivalents
comprised of:
Cash $ 98.5 $ 62.5 $ 98.5 $ 62.5
Short-term investments 292.7 437.0 292.7 437.0
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$ 391.2 $ 499.5 $ 391.2 $ 499.5
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Supplemental cash flow
disclosure
Interest paid $ 10.1 $ 14.3 $ 56.1 $ 51.4
Income taxes paid $ 3.0 $ 210.1 $ 739.2 $ 595.7
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statement of Comprehensive Income (Loss)
(in millions of US dollars)
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
(Net of related income taxes) 2009 2008 2009 2008
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Net income $ 248.8 $ 1,236.1 $ 744.2 $ 2,707.2
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Other comprehensive income
Net increase (decrease)
in unrealized gains on
available-for-sale
securities(1) 115.8 (1,371.8) 553.4 (402.2)
Net losses on derivatives
designated as cash flow
hedges(2) (11.1) (258.9) (39.9) (60.2)
Reclassification to income
of net losses (gains) on
cash flow hedges(3) 14.5 (0.2) 39.9 (14.4)
Unrealized foreign
exchange gains (losses)
on translation of
self-sustaining foreign
operations 4.7 (7.2) 12.0 (2.3)
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Other comprehensive income
(loss) 123.9 (1,638.1) 565.4 (479.1)
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Comprehensive income (loss) $ 372.7 $ (402.0) $ 1,309.6 $ 2,228.1
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(1) Available-for-sale securities are comprised of shares in Israel
Chemicals Ltd. and Sinofert Holdings Limited and investments in
auction rate securities. The amounts are net of income taxes of $NIL
(2008 - $(129.2)) for the three months ended September 30, 2009 and
$26.5 (2008 - $57.0) for the nine months ended September 30, 2009.
(2) Cash flow hedges are comprised of natural gas derivative instruments,
and are net of income taxes of $(6.8) (2008 - $(105.8)) for the three
months ended September 30, 2009 and $(24.3) (2008 - $(24.6)) for the
nine months ended September 30, 2009.
(3) Net of income taxes of $8.9 (2008 - $(0.1)) for the three months
ended September 30, 2009 and $24.3 (2008 - $(5.9)) for the nine
months ended September 30, 2009.
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statement of Accumulated
Other Comprehensive Income
(in millions of US dollars)
(unaudited)
September 30, December 31,
(Net of related income taxes) 2009 2008
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Net unrealized gains on available-for-sale
securities(1) $ 1,315.2 $ 761.8
Net unrealized losses on derivatives
designated as cash flow hedges(2) (100.6) (100.6)
Unrealized foreign exchange gains (losses)
on translation of self-sustaining
foreign operations 8.7 (3.3)
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Accumulated other comprehensive income $ 1,223.3 $ 657.9
Retained earnings 3,057.8 2,402.3
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Accumulated Other Comprehensive Income
and Retained Earnings $ 4,281.1 $ 3,060.2
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(1) $1,465.5 before income taxes (2008 - $885.7).
(2) $(160.2) before income taxes (2008 - $(160.2)).
(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 2009
(in millions of US dollars except share and per-share amounts)
(unaudited)
1. Significant Accounting Policies
With its subsidiaries, Potash Corporation of Saskatchewan Inc. ("PCS") -
together known as "PotashCorp" or "the company" except to the extent the
context otherwise requires - forms an integrated fertilizer and related
industrial and feed products company. The company's accounting policies
are in accordance with accounting principles generally accepted in Canada
("Canadian GAAP"). The accounting policies used in preparing these
unaudited interim condensed consolidated financial statements are
consistent with those used in the preparation of the 2008 annual
consolidated financial statements, except as described below.
These unaudited interim condensed consolidated financial statements
include the accounts of PCS and its subsidiaries; however, they do not
include all disclosures normally provided in annual consolidated
financial statements and should be read in conjunction with the 2008
annual consolidated financial statements. In management's opinion, the
unaudited interim condensed consolidated financial statements include all
adjustments (consisting solely of normal recurring adjustments) necessary
to present fairly such information. Interim results are not necessarily
indicative of the results expected for the fiscal year.
Change in Accounting Policy
Effective January 1, 2009, the company adopted amended accounting
standards on goodwill and intangible assets as well as amendments to
standards which previously permitted the deferral of costs that did not
meet the definition of an asset. The implementation of these standards
did not have a material impact on the company's consolidated financial
statements.
2. Accounts Receivable
September 30, December 31,
2009 2008
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Trade accounts $ 476.7 $ 1,033.9
Less allowance for doubtful accounts (8.5) (7.7)
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468.2 1,026.2
Taxes receivable 511.1 -
Margin deposits on derivative instruments 89.9 91.1
Other non-trade accounts 69.3 72.6
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$ 1,138.5 $ 1,189.9
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3. Long-Term Debt
On May 1, 2009, the company closed the issuance of $500.0 of 5.250
percent senior notes due May 15, 2014 and $500.0 of 6.500 percent senior
notes due May 15, 2019. In addition, on September 28, 2009, the company
closed the issuance of $500.0 of 3.750 percent senior notes due
September 30, 2015 and $500.0 of 4.875 percent senior notes due March 30,
2020. The debt securities were issued under the company's US shelf
registration statement filed on December 12, 2007. The company used the
net proceeds from the September offering to repay outstanding indebtness
under its revolving credit facilities and for general corporate purposes.
During the three months ended September 30, 2009, the company received
proceeds from its long-term credit facilities of $500.0, and made
repayments of $1,070.0 under these facilities. During the nine months
ended September 30, 2009, the company received proceeds of $2,055.0 and
made repayments of $3,275.0 under these facilities. At September 30, 2009
amounts outstanding under the credit facilities were $180.0.
4. Segment Information
The company has three reportable business segments: potash, phosphate and
nitrogen. These business segments are differentiated by the chemical
nutrient contained in the product that each produces. Inter-segment sales
are made under terms that approximate market value. The accounting
policies of the segments are the same as those described in Note 1.
Three Months Ended September 30, 2009
-------------------------------------------------------------------------
Potash Phosphate Nitrogen All Others Consolidated
-------------------------------------------------------------------------
Sales $ 423.4 $ 357.4 $ 318.3 $ - $ 1,099.1
Freight 16.8 24.3 12.6 - 53.7
Transportation
and distribution 9.2 13.9 13.2 - 36.3
Net sales -
third party 397.4 319.2 292.5 -
Cost of goods
sold 146.0 275.0 241.9 - 662.9
Gross margin 251.4 44.2 50.6 - 346.2
Depreciation and
amortization 13.2 43.1 25.1 2.0 83.4
Inter-segment
sales - - 23.3 - -
Three Months Ended September 30, 2008
-------------------------------------------------------------------------
Potash Phosphate Nitrogen All Others Consolidated
-------------------------------------------------------------------------
Sales $ 1,145.2 $ 1,080.2 $ 838.9 $ - $ 3,064.3
Freight 36.0 27.3 18.1 - 81.4
Transportation
and distribution 9.9 8.8 12.9 - 31.6
Net sales -
third party 1,099.3 1,044.1 807.9 -
Cost of goods
sold 189.6 536.9 483.8 - 1,210.3
Gross margin 909.7 507.2 324.1 - 1,741.0
Depreciation and
amortization 18.9 36.1 26.2 2.1 83.3
Inter-segment
sales - 7.7 62.8 - -
Nine Months Ended September 30, 2009
-------------------------------------------------------------------------
Potash Phosphate Nitrogen All Others Consolidated
-------------------------------------------------------------------------
Sales $ 903.3 $ 1,012.0 $ 962.3 $ - $ 2,877.6
Freight 34.1 58.3 37.8 - 130.2
Transportation
and distribution 24.4 34.8 41.8 - 101.0
Net sales -
third party 844.8 918.9 882.7 -
Cost of goods
sold 320.6 845.4 734.0 - 1,900.0
Gross margin 524.2 73.5 148.7 - 746.4
Depreciation and
amortization 26.6 120.0 74.3 6.6 227.5
Inter-segment
sales - - 44.1 - -
Nine Months Ended September 30, 2008
-------------------------------------------------------------------------
Potash Phosphate Nitrogen All Others Consolidated
-------------------------------------------------------------------------
Sales $ 3,135.9 $ 2,375.4 $ 2,064.6 $ - $ 7,575.9
Freight 151.6 89.2 46.4 - 287.2
Transportation
and distribution 35.2 25.2 36.8 - 97.2
Net sales -
third party 2,949.1 2,261.0 1,981.4 -
Cost of goods
sold 638.4 1,256.9 1,261.9 - 3,157.2
Gross margin 2,310.7 1,004.1 719.5 - 4,034.3
Depreciation and
amortization 65.7 104.4 71.1 5.9 247.1
Inter-segment
sales - 22.4 145.4 - -
5. Other Income
Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Share of earnings of
equity investees $ 32.5 $ 109.3 $ 100.2 $ 193.0
Dividend income 11.4 30.3 51.8 64.0
(Provision for) gain on disposal
of auction rate securities - (27.5) 115.3 (71.3)
Other (2.7) 27.9 (2.7) 44.2
Gain on forward purchase
contract for shares in
Sinofert - - - 25.3
-------------------------------------------------------------------------
$ 41.2 $ 140.0 $ 264.6 $ 255.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In April 2009, the company recognized a gain on the disposal of auction
rate securities of $115.3 due to the settlement of a claim the company
filed in an arbitration proceeding against an investment firm that
purchased auction rate securities with a par value of $132.5 for the
company's account without the company's authorization. The investment
firm paid the company the full par value of $132.5 in exchange for the
transfer of the auction rate securities to the investment firm. The
company retained all interest paid and accrued on these securities
through the date of the transfer of the securities to the investment
firm. The company was also reimbursed by the investment firm for $3.0 of
the company's legal costs. Prior to the settlement, the company had
recognized in net income a loss of $115.3 related to these unauthorized
securities placed in its account.
6. Interest Expense
Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Interest expense on
Short-term debt $ 3.6 $ 10.7 $ 17.3 $ 17.0
Long-term debt 46.0 23.9 119.8 71.2
Interest capitalized to
property, plant and equipment (16.8) (13.2) (46.8) (32.1)
Interest income (1.7) (6.1) (9.5) (13.9)
-------------------------------------------------------------------------
$ 31.1 $ 15.3 $ 80.8 $ 42.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. Income Taxes
The company's income tax provision was $78.5 for the three months ended
September 30, 2009 as compared to $463.3 for the same period last year.
For the nine months ended September 30, 2009, the company's income tax
provision was $37.6 (2008 - $1,010.3). The effective tax rate for the
three and nine months ended September 30, 2009 was 24 percent and
5 percent respectively compared to 27 percent for the three and nine
months ended September 30, 2008.
The provision for the nine months ended September 30, 2009 included:
- A future income tax recovery of $119.2 for a tax rate reduction
resulting from an internal restructuring during the first quarter.
- A current income tax recovery of $47.6 recorded in the first quarter
that related to an increase in permanent deductions in the US from
prior years. The recovery will have a positive impact on cash.
- A future income tax provision of $24.4 related to a second-quarter
functional currency election by the parent company for Canadian
income tax purposes.
- The benefit of a lower percentage of consolidated income earned in
higher-tax jurisdictions.
The provision for the nine months ended September 30, 2008 included:
- The benefit of a scheduled one and a half percentage point reduction
in the Canadian federal income tax rate applicable to resource
companies along with the elimination of the one percent surtax that
became effective at the beginning of the year.
- In the third quarter of 2008, a current income tax recovery of $29.1
was recorded that related to an increase in permanent deductions in
the US from prior years. This is in addition to the future income tax
recovery of $42.0 recorded during the first quarter of 2008 that
related to an increase in permanent deductions in the US from prior
years.
- No tax expense on the $25.3 gain recognized in the first quarter that
resulted from the change in fair value of the forward purchase
contract for shares in Sinofert Holdings Limited ("Sinofert") as the
gain was not taxable.
8. Net Income Per Share
Basic net income per share for the quarter is calculated on the weighted
average shares issued and outstanding for the three months ended
September 30, 2009 of 295,721,000 (2008 - 304,017,000). Basic net income
per share for the nine months ended September 30, 2009 is calculated on
the weighted average shares issued and outstanding for the period of
295,467,000 (2008 - 310,076,000).
Diluted net income per share is calculated based on the weighted average
number of shares issued and outstanding during the period. The
denominator is: (1) increased by the total of the additional common
shares that would have been issued assuming exercise of all stock options
with exercise prices at or below the average market price for the period;
and (2) decreased by the number of shares that the company could have
repurchased if it had used the assumed proceeds from the exercise of
stock options to repurchase them on the open market at the average share
price for the period. The weighted average number of shares outstanding
for the diluted net income per share calculation for the three months
ended September 30, 2009 was 303,927,000 (2008 - 314,132,000) and for the
nine months ended September 30, 2009 was 303,802,000 (2008 -
320,484,000).
9. Comparative Figures
Certain of the prior periods' figures have been reclassified to conform
with the current period's presentation.
Potash Corporation of Saskatchewan Inc.
Selected Operating and Revenue Data
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Potash Operating Data
Production (KCl Tonnes -
thousands) 626 1,731 2,292 6,618
Shutdown weeks 28.1 24.3 116.7 26.3
Sales (tonnes - thousands)
Manufactured Product
North America 266 530 599 2,583
Offshore 748 1,325 1,283 4,527
-------------------------------------------------------------------------
Manufactured Product 1,014 1,855 1,882 7,110
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Net Sales
(US $ millions)
Sales $423.4 $1,145.2 $903.3 $3,135.9
Less: Freight 16.8 36.0 34.1 151.6
Transportation
and distribution 9.2 9.9 24.4 35.2
-------------------------------------------------------------------------
Net Sales $397.4 $1,099.3 $844.8 $2,949.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Manufactured Product
North America $111.0 $298.0 $311.5 $1,027.1
Offshore 283.7 796.7 522.9 1,909.5
Other miscellaneous and
purchased product 2.7 4.6 10.4 12.5
-------------------------------------------------------------------------
Net Sales $397.4 $1,099.3 $844.8 $2,949.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Average Price per MT
North America $417.38 $561.70 $519.95 $397.54
Offshore $379.24 $601.34 $407.57 $421.84
-------------------------------------------------------------------------
Manufactured Product $389.24 $590.01 $443.34 $413.01
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Corporation of Saskatchewan Inc.
Selected Operating and Revenue Data
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Phosphate Operating Data
Production (P2O5 Tonnes -
thousands) 479 555 1,092 1,592
P2O5 Operating Rate 89% 94% 68% 90%
Sales (tonnes - thousands)
Manufactured Product
Fertilizer - Liquid
phosphates 255 271 528 720
Fertilizer - Solid
phosphates 334 352 877 989
Feed 143 155 396 552
Industrial 150 191 400 549
-------------------------------------------------------------------------
Manufactured Product 882 969 2,201 2,810
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Phosphate Net Sales
(US $ millions)
Sales $357.4 $1,080.2 $1,012.0 $2,375.4
Less: Freight 24.3 27.3 58.3 89.2
Transportation
and distribution 13.9 8.8 34.8 25.2
-------------------------------------------------------------------------
Net Sales $319.2 $1,044.1 $918.9 $2,261.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Manufactured Product
Fertilizer - Liquid
phosphates $68.1 $335.2 $155.8 $558.9
Fertilizer - Solid
phosphates 89.6 382.4 262.5 913.7
Feed 60.5 160.7 201.2 396.1
Industrial 95.7 157.7 286.5 354.1
Other miscellaneous and
purchased product 5.3 8.1 12.9 38.2
-------------------------------------------------------------------------
Net Sales $319.2 $1,044.1 $918.9 $2,261.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Phosphate Average Price per MT
Fertilizer - Liquid
phosphates $267.58 $1,238.35 $295.20 $776.74
Fertilizer - Solid
phosphates $267.71 $1,084.98 $299.01 $923.62
Feed $424.69 $1,040.00 $508.70 $717.95
Industrial $640.06 $825.00 $717.47 $644.71
-------------------------------------------------------------------------
Manufactured Product $356.24 $1,069.38 $411.72 $791.11
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Corporation of Saskatchewan Inc.
Selected Operating and Revenue Data
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Nitrogen Operating Data
Production (N Tonnes -
thousands) 658 741 1,938 2,163
Average Natural Gas Production
Cost per MMBtu $3.70 $9.36 $3.72 $7.95
Sales (tonnes - thousands)
Manufactured Product
Ammonia 457 494 1,386 1,400
Urea 367 280 1,092 907
Nitrogen solutions/Nitric
acid/Ammonium nitrate 553 613 1,357 1,680
-------------------------------------------------------------------------
Manufactured Product 1,377 1,387 3,835 3,987
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer sales tonnes 584 504 1,638 1,441
Industrial/Feed sales tonnes 793 883 2,197 2,546
-------------------------------------------------------------------------
Manufactured Product 1,377 1,387 3,835 3,987
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Net Sales
(US $ millions)
Sales $318.3 $838.9 $962.3 $2,064.6
Less: Freight 12.6 18.1 37.8 46.4
Transportation
and distribution 13.2 12.9 41.8 36.8
-------------------------------------------------------------------------
Net Sales $292.5 $807.9 $882.7 $1,981.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Manufactured Product
Ammonia $104.2 $344.4 $319.0 $823.0
Urea 100.7 219.7 315.2 528.5
Nitrogen solutions/Nitric
acid/Ammonium nitrate 75.7 193.4 217.9 469.7
Other miscellaneous and
purchased product 11.9 50.4 30.6 160.2
-------------------------------------------------------------------------
Net Sales $292.5 $807.9 $882.7 $1,981.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer net sales $121.7 $295.5 $387.9 $689.7
Industrial/Feed net sales 158.9 462.0 464.2 1,131.5
Other miscellaneous and
purchased product 11.9 50.4 30.6 160.2
-------------------------------------------------------------------------
Net Sales $292.5 $807.9 $882.7 $1,981.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Average Price per MT
Ammonia $228.26 $697.82 $230.17 $588.04
Urea $274.14 $783.79 $288.58 $582.79
Nitrogen solutions/Nitric
acid/Ammonium nitrate $136.78 $315.46 $160.60 $279.52
-------------------------------------------------------------------------
Manufactured Product $203.73 $546.17 $222.19 $456.81
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer average price
per MT $208.31 $586.86 $236.82 $478.59
Industrial/Feed average
price per MT $200.36 $522.98 $211.28 $444.48
-------------------------------------------------------------------------
Manufactured Product $203.73 $546.17 $222.19 $456.81
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Exchange Rate (Cdn$/US$)
2009 2008
-------------------------------------------------------------------------
December 31 1.2246
September 30 1.0722 1.0599
Third-quarter average conversion rate 1.1123 1.0279
Potash Corporation of Saskatchewan Inc.
Selected Non-GAAP Financial Measures and Reconciliations
(in millions of US dollars)
(unaudited)
The following information is included for convenience only. Generally, a
non-GAAP financial measure is a numerical measure of a company's
performance, financial position or cash flows that either excludes or
includes amounts that are not normally excluded or included in the most
directly comparable measure calculated and presented in accordance with
generally accepted accounting principles ("GAAP"). EBITDA, adjusted
EBITDA, cash flow prior to working capital changes and free cash flow are
not measures of financial performance (nor do they have standardized
meanings) under either Canadian GAAP or US GAAP. In evaluating these
measures, investors should consider that the methodology applied in
calculating such measures may differ among companies and analysts.
The company uses both GAAP and certain non-GAAP measures to assess
performance. The company's management believes these non-GAAP measures
provide useful supplemental information to investors in order that they
may evaluate PotashCorp's financial performance using the same measures
as management. PotashCorp's management believes that, as a result, the
investor is afforded greater transparency in assessing the financial
performance of the company. These non-GAAP financial measures should not
be considered as a substitute for, nor superior to, measures of financial
performance prepared in accordance with GAAP.
A. EBITDA AND ADJUSTED EBITDA
--------------------------
Set forth below is a reconciliation of "EBITDA" and "adjusted EBITDA" to
net income, the most directly comparable financial measure calculated and
presented in accordance with Canadian GAAP.
Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Net income $ 248.8 $ 1,236.1 $ 744.2 $ 2,707.2
Income taxes 78.5 463.3 37.6 1,010.3
Interest expense 31.1 15.3 80.8 42.2
Depreciation and amortization 83.4 83.3 227.5 247.1
-------------------------------------------------------------------------
EBITDA 441.8 1,798.0 1,090.1 4,006.8
Provision for (gain on disposal
of) auction rate securities - 27.5 (115.3) 71.3
-------------------------------------------------------------------------
Adjusted EBITDA $ 441.8 $ 1,825.5 $ 974.8 $ 4,078.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA is calculated as earnings before interest, income taxes,
depreciation and amortization. Adjusted EBITDA is calculated as earnings
before interest, income taxes, depreciation and amortization, certain
gains and losses on disposal of assets, and certain impairment charges.
PotashCorp uses EBITDA and adjusted EBITDA as supplemental financial
measures of its operational performance. Management believes EBITDA and
adjusted EBITDA to be important measures as they exclude the effects of
items which primarily reflect the impact of long-term investment
decisions, rather than the performance of the company's day-to-day
operations. As compared to net income according to GAAP, these measures
are limited in that they do not reflect the periodic costs of certain
capitalized tangible and intangible assets used in generating revenues in
the company's business, or the non-cash charges associated with
impairments and certain gains and losses on disposal of assets.
Management evaluates such items through other financial measures such as
capital expenditures and cash flow provided by operating activities. The
company believes that these measurements are useful to measure a
company's ability to service debt and to meet other payment obligations
or as a valuation measurement.
Potash Corporation of Saskatchewan Inc.
Selected Non-GAAP Financial Measures and Reconciliations
(in millions of US dollars)
(unaudited)
B. CASH FLOW
---------
Set forth below is a reconciliation of "cash flow prior to working
capital changes" and "free cash flow" to cash provided by operating
activities, the most directly comparable financial measure calculated and
presented in accordance with Canadian GAAP.
Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
-------------------------------------------------------------------------
Cash flow prior to working
capital changes(1) $ 359.8 $ 1,250.7 $ 847.4 $ 2,931.6
-------------------------------------------------------------------------
Changes in non-cash
operating working capital
Accounts receivable (139.0) (281.9) 52.9 (776.8)
Inventories 9.4 (131.2) 70.5 (360.5)
Prepaid expenses and
other current assets 44.4 (10.7) (9.2) (34.1)
Accounts payable and
accrued charges 46.2 86.1 (605.8) 489.7
-------------------------------------------------------------------------
Changes in non-cash
operating working capital (39.0) (337.7) (491.6) (681.7)
-------------------------------------------------------------------------
Cash provided by operating
activities $ 320.8 $ 913.0 $ 355.8 $ 2,249.9
Additions to property,
plant and equipment (424.5) (336.2) (1,190.2) (770.6)
Other assets and intangible
assets (25.6) (11.7) (36.1) (33.1)
Changes in non-cash
operating working capital 39.0 337.7 491.6 681.7
-------------------------------------------------------------------------
Free cash flow(2) $ (90.3) $ 902.8 $ (378.9) $ 2,127.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The company uses cash flow prior to working capital changes as a
supplemental financial measure in its evaluation of liquidity.
Management believes that adjusting principally for the swings in
non-cash working capital items due to seasonality or other timing
issues assists management in making long-term liquidity assessments.
The company also believes that this measurement is useful as a
measure of liquidity or as a valuation measurement.
(2) The company uses free cash flow as a supplemental financial measure
in its evaluation of liquidity and financial strength. Management
believes that adjusting principally for the swings in non-cash
operating working capital items due to seasonality or other timing
issues, additions to property, plant and equipment, and changes to
other assets assists management in the long-term assessment of
liquidity and financial strength. The company also believes that this
measurement is useful as an indicator of the company's ability to
service its debt, meet other payment obligations and make strategic
investments. Readers should be aware that free cash flow does not
represent residual cash flow available for discretionary
expenditures.
Certain of the prior periods' figures have been reclassified to conform
with the current period's presentation.
%SEDAR: 00001608E
For further information: Investors: Denita Stann, Senior Director, Investor Relations, Phone: (847) 849-4277, Email: [email protected]; Media: Bill Johnson, Director, Public Affairs, Phone: (306) 933-8849, Email: [email protected]; Web Site: www.potashcorp.com
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