- Published: 22 January 2009
- Written by Editor
PotashCorp Triples Earnings in Fifth Consecutive Record Year
Potash Corporation of Saskatchewan Inc. (PotashCorp) today announced record fourth-quarter earnings of $2.56 per share(1) ($788.0 million), more than double the $1.16 per share ($376.8 million) earned in the same period last year. This represented our third-best quarter ever and pushed our 2008 earnings to $11.01 per share ($3.5 billion), more than triple the $3.40 per share ($1.1 billion) earned in 2007. This was PotashCorp's fifth consecutive year of record earnings, reflecting the global need for fertilizer and, specifically, the increasing value of potash, our core nutrient.
Although the global economic crisis led to slower demand for all three nutrients and lower prices for phosphate and nitrogen, our potash operations drove fourth-quarter gross margin to $873.1 million, 63 percent above the $535.0 million generated in the same period last year.
With all three nutrients achieving annual gross margin performance records, 2008 gross margin rose to $4.9 billion, a 161 percent increase over 2007's $1.9 billion. Included in these results is $88.9 million in writedowns of year-end nitrogen and phosphate inventory values, which reduced earnings by $0.22 per share in the quarter. Earnings before interest, taxes, depreciation and amortization(2) (EBITDA) grew to $955.8 million for the quarter (compared to $526.7 million in last year's fourth quarter) and raised full-year EBITDA to $5.0 billion, $3.1 billion higher than that of 2007. Fourth-quarter cash flow from operating activities prior to working capital changes(2) of $849.1 million was up from $431.9 million in the same period last year, raising the full-year total to $3.8 billion, compared to $1.5 billion in 2007.
Potash market conditions bolstered returns of 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 together contributed $105.8 million to other income in the fourth quarter and, along with our investment in Sinofert Holdings Limited (Sinofert) in China, $362.8 million for the year, almost triple the 2007 total. The market value of our investments in these publicly traded companies, as of market close on January 21, 2009, was $5.1 billion, which equates to approximately $16 per PotashCorp share.
"The unprecedented global economic challenges of the fourth quarter were a sharp contrast to the positive operating environment of the first three quarters of 2008," said PotashCorp President and Chief Executive Officer Bill Doyle. "Our success over the course of the year demonstrated the resilience and adaptability of our company, as well as the effectiveness of our strategies in rapidly changing conditions. Potash, our core nutrient, holds unique advantages that enable us to deliver strong performance, even in a very difficult economic climate."
Market Conditions
The economic crisis accelerated in the fourth quarter of 2008, affecting nearly every industry including global agriculture. Even after record harvests drew large volumes of nutrients from soils, fertilizer distributors and farmers suspended purchases in the face of the uncertainty of world markets. We believe this was largely a psychological barrier, as the economics of food production and fertilizer use remain very attractive. Although crop prices declined substantially amidst a widespread market and commodity sell-off, they rebounded to supportive levels by the end of the quarter. However, restricted access to credit due to the timing of the global financial crisis created more than a psychological barrier for farmers in South America, reducing fertilizer application rates during their primary planting season. This could have significant implications for crop production in this key exporting region.
In the US, the combination of a late harvest and uncertain economic conditions caused a deferral of fertilizer purchases. Against a backdrop of falling raw material prices and growing inventories, nitrogen and phosphate producers around the world - looking to move product or acquire cash - lowered prices. These factors contributed to farmers delaying purchases in anticipation of even lower prices. This put additional pressure on fertilizer distributors who were left holding large quantities of higher-cost inventories and in no position to purchase normal seasonal volumes.
Spot prices for nitrogen products fell sharply during the quarter. Demand for industrial nitrogen was severely impacted by the economic crisis, and with international nitrogen prices below cash production costs for many producers (including some in the US), significant worldwide capacity was shuttered by the end of the quarter. Solid phosphate fertilizers followed a similar pattern, with approximately 50 percent of world phosphate production reportedly curtailed by December 31.
Consistent with our long-held view, it was evident over the course of the quarter that the substantial lowering of prices in various key markets did not entice new demand or address farmers' uncertainty about financial conditions.
In this environment, major spot markets for potash - North America, Brazil and Southeast Asia - were largely inactive while contract volumes continued to move to China and India at prices agreed upon in the first half of 2008. Potash inventories did not reach excessive levels due to inherently tight supply that had customers on allocation for much of 2007 and 2008, a labor strike at three of our facilities and widespread production curtailments throughout the industry in response to the global demand slowdown. During the fourth quarter, potash prices remained firm.
Potash
Fourth-quarter potash gross margin of $744.8 million was almost three times higher than the $256.4 million generated in the same quarter last year. Potash full-year gross margin was a record $3.1 billion, more than triple the $912.3 million generated in 2007.
Total realized fourth-quarter prices climbed to $625 per tonne, a 235 percent increase over fourth-quarter 2007 levels. The offshore realized price of $583 per tonne was 242 percent higher than in last year's fourth quarter, and reflected a larger proportion of sales directed to contract markets with lower netbacks based on prices established earlier in the year. Fourth-quarter realized prices in the North American spot market reached $740 per tonne, up 246 percent from the same quarter last year and 32 percent from the trailing quarter, as a September 2008 price increase was realized.
Potash sales volumes of 1.4 million tonnes during the fourth quarter were 37 percent lower than in the same period last year and resulted in full-year 2008 potash volumes of 8.5 million tonnes, 9 percent below 2007 levels. Our offshore sales volumes of 1.1 million tonnes were down 27 percent compared to the same quarter last year, with full-year volumes of 5.6 million tonnes reflecting a 6 percent drop from 2007. During the quarter, Canpotex Limited (Canpotex), the offshore marketing company for Saskatchewan potash producers, shipped approximately 340,000 tonnes to China and 475,000 tonnes to India, the two largest contract markets. These totals were 45 percent lower and 107 percent higher, respectively, than shipments in the same quarter last year. Although spot market sales volumes declined abruptly in the fourth quarter of 2008 versus the same quarter last year, Brazil's full-year volumes were only 3 percent lower than the previous year, reflecting the strength of spot market demand earlier in 2008. Our North American potash volumes were down 54 percent from last year's fourth quarter, while full-year volumes of 3.0 million tonnes were 15 percent lower than 2007.
Potash cost of goods sold was approximately $33 per tonne higher quarter over quarter. This was primarily the result of increased royalties paid in Saskatchewan and New Brunswick, and strike and other labor costs that mainly resulted from work stoppages. A total of 24 mine shutdown weeks were taken in the quarter as a result of strikes at our Allan, Cory and Patience Lake facilities.
Nitrogen
Nitrogen contributed $17.9 million of gross margin in the fourth quarter, compared to $136.7 million in the fourth quarter of 2007. This reflected the rapid decline in volumes, along with a $36.0 million writedown of inventories produced with higher cost natural gas early in the quarter. Our Trinidad operation generated $11.4 million in fourth-quarter gross margin, while our US operations added $6.5 million. Despite the weak fourth quarter, the strong global demand and pricing environment drove full-year nitrogen gross margin to a record $737.4 million, compared to $536.1 million in 2007.
Market prices for nitrogen products fell dramatically over the quarter. However, with most of our fourth-quarter nitrogen volumes sold early in the quarter when prices were at their peak, realized prices for ammonia were 42 percent above the same quarter last year. Urea prices were flat compared to last year's fourth quarter while prices for nitrogen solutions rose 78 percent quarter over quarter on early fourth-quarter business.
The international ammonia market weakened considerably during the fourth quarter as large-scale cutbacks were made to operating rates in the phosphate and industrial sectors, which account for a significant portion of global ammonia import demand. This led to sizable curtailments in ammonia export supply (including a portion of our Trinidad operation). Our ammonia sales volumes for the quarter fell 23 percent from the same period last year and full-year ammonia sales volumes dropped 16 percent compared to 2007. Urea sales volumes were 14 percent lower than last year's fourth quarter and contributed to full-year volumes declining 11 percent from 2007 levels. Sales volumes for nitrogen solutions were down 59 percent from the fourth quarter of 2007, pushing full-year volumes 11 percent lower than in 2007.
Our total average natural gas cost in the fourth quarter, including our hedge, was $6.16 per MMBtu, a 40 percent increase from the same quarter last year.
Phosphate
Due to substantially lower sales volumes, fourth-quarter phosphate gross margin of $110.4 million was 22 percent below the $141.9 million of last year's fourth quarter. However, our unique ability to allocate phosphoric acid feedstock to a broad range of higher-netback downstream products proved beneficial to us in the quarter's difficult market conditions. Liquid fertilizers generated $92.9 million of quarterly phosphate gross margin, industrial products added $20.0 million and feed phosphate $18.2 million. With rapidly deteriorating market demand and prices, solid fertilizers incurred a loss of $21.8 million, inclusive of a writedown of $52.9 million of inventory on hand at year-end that was produced earlier in the quarter with high-cost sulfur and ammonia. Notwithstanding the slow fourth quarter, robust demand and prices in the first three quarters led full-year phosphate gross margin to a record $1.1 billion, compared to $432.8 million in 2007.
Higher-priced sales early in the quarter led to increases in quarter-over-quarter realized prices for liquid fertilizer (+220 percent), solid fertilizers (+145 percent), feed (+153 percent) and industrial products (+91 percent). By the end of the quarter, prices for all products were negatively affected by market conditions, including rapidly declining spot prices for raw material inputs. This weakening was especially evident in the solid fertilizer sector, demonstrating the importance of our diverse phosphate product mix.
Solid fertilizer sales volumes fell 81 percent from the fourth quarter of 2007, while liquid fertilizer sales volumes dropped 42 percent. Feed sales volumes declined 53 percent as the beef, pork and poultry industries continued to suffer and many feed mills remained shut down. Sales volumes for industrial products, traditionally a more stable area of the phosphate business, declined a comparatively small 17 percent from the same quarter last year.
Although spot market prices for sulfur and ammonia, both key inputs for phosphate production, fell dramatically during the quarter, we will not realize the full benefit of these reductions until these inputs are consumed in 2009.
Financial
With higher potash prices and profitability in our potash segment, fourth-quarter provincial mining and other taxes rose to $109.0 million, or 15 percent of total potash gross margin. This was a $68.9 million increase from the same quarter last year. For the year, these taxes reached $543.4 million or 18 percent of total potash gross margin, a $408.0 million increase over 2007. Our selling and administrative expenses were $24.8 million lower quarter over quarter due to reduced compensation accruals because of a lower average share price over the period. The weakening Canadian dollar resulted in the recognition of a primarily non-cash foreign exchange gain of $62.8 million. We incurred an additional $17.5 million charge in the fourth quarter (included in other income) related to further writedowns of investments in certain auction rate securities.
Additions to property, plant and equipment were $427.7 million in the fourth quarter, a 90 percent increase over the same quarter last year, with the majority of capital spending on potash debottlenecking and expansion projects at Patience Lake, Cory, New Brunswick and Rocanville and load-out expansions at Rocanville and Allan. We repurchased for cancellation approximately 7 million common shares for $453.5 million, using additional borrowings under our credit facilities.
Outlook
The duration and depth of the global economic crisis are impossible to predict, with governments, industries and individuals trying to understand and react to the current environment. This, however, does not alter the underlying fundamentals that drive long-term growth in demand for fertilizers. With world population now in excess of 6.7 billion and growing by 75 million people annually, the need to increase food production is real and immediate. In order to meet the growing necessity of sustaining and improving crop yields, proper fertilization is imperative. Successive record crops in both 2007 and 2008 did little to improve the global grain stocks-to-use ratio, which currently sits at 18.8 percent - substantially below historical levels. This concern was at the forefront early in 2008 as the potential for food shortages became evident. While attention shifted to financial issues in the second half of the year, potential food shortages remain a concern, and the problem could worsen as the economic crisis impacts farmers' fertilizer buying patterns. This appears to be something other than an economic response, because crop prices continue to generate excellent returns for farmers. In the current environment, the payback on an appropriate fertilizer investment continues to be attractive, typically generating a return of $3 or more for every $1 invested. If farmers do not plant sufficient acreage or do not apply enough fertilizer - even for a single season - the impact on world food supply could be severe. Production decreases are already expected to occur in the exporting region of South America as a result of reduced fertilizer applications and drier weather. As farmers and dealers around the world return to more normal fertilizer purchasing practices in efforts to optimize yields and capitalize on the opportunity for strong returns, the potential exists for extremely tight supply/demand conditions.
In potash, growth in demand has exceeded increases in new supply, consuming all available potash production in recent years and leaving major markets short and on allocation through much of 2007 and 2008. While nitrogen and phosphate prices have fallen precipitously, the long-term underlying fundamentals for potash remain strong. The world's ability to depend on continued brownfield expansions - additions of new capacity by debottlenecking or expanding existing sites - for significant new production is limited. However, the economic viability of a greenfield project depends in large part on a potash pricing environment that supports its development. A new potash facility carries financial challenges: the cost is measured in billions of dollars and the timeline for first production and any positive cash flow is at least five to seven years with subsequent lengthy ramp-up after construction completion. There are also significant qualitative issues such as the rarity of good deposits, difficulty in obtaining financing in the current credit environment, geological and geopolitical risks involved in this type of long-term project and the world's limited amount of expertise and specialized equipment needed to successfully execute a potash project. Numerous mines have been damaged or destroyed by water inflow, an uninsurable hazard that can wash away investment capital. Despite increases, current potash prices still represent a challenge in justifying a greenfield investment.
This challenge underscores the importance and value of our Potash First strategy, as we believe the 6.2 million tonnes of brownfield operational capacity we are adding over the next four years is even more valuable today than when we announced the projects. Certain competitive potash projects in other regions have been delayed due to increased geopolitical risk and inability to secure financing. Our potash capacity expansions, which we have funded and expect to continue to fund through our strong cash flow, are progressing on schedule. We expect those at Lanigan and Patience Lake will be operational as demand returns. If for any reason demand does not materialize on the anticipated timelines, we will continue to follow our strategy of matching production to market demand to reduce volatility in our financial performance.
While we expect slow demand in all major potash markets early in 2009, the pace of sales should intensify in the second quarter. In North America, because farmers deferred fertilizer purchases in the fall when at least 40 percent of potash applications traditionally occur, we expect above-normal spring applications. This should draw inventories substantially lower by the end of the spring season and lead to considerable restocking of the system in the second half of the year.
Similarly, China produced a record crop in 2008, but was short on potash because of its late entry to the market last year. This creates a very strong agronomic need, as below-normal application rates for a second year could significantly affect yields. China entered 2009 without a contract in place and is not receiving any potash from Canpotex - a situation that could carry on through at least the first quarter. We expect China will require total imports of at least 7 million tonnes in 2009, substantially more than the 5.5 million tonnes imported in 2008. India's contract extends to March 31, 2009 and its demand is expected to approximate 2008 levels.
In Brazil, the recent weakening of the real and the rise in soybean prices are positive for agricultural exports, but cannot correct the fertilizer applications missed during their spring planting season. Demand in this spot market is likely to be limited in the first quarter of 2009, although we expect Brazil to be largely de-stocked in the second quarter and back in the market near 2008 levels. Southeast Asian countries are now benefiting from an improvement in palm oil prices and are expected to maintain stable potash demand in 2009.
We expect 2009 gross margin for potash to be in the range of $4.5 billion to $5.5 billion, with total shipments flat to slightly below 2008 levels. With sales expected to be more heavily weighted to the last three quarters of the year, we are curtailing production from our 2009 operational capability early in the year by more than 2 million tonnes.
In nitrogen, ammonia demand is expected to remain soft due to economic conditions, with industrial demand likely to be slow at least through the first half. However, with substantial capacity offline and questions about natural gas reliability in some key producing regions, conditions could improve more quickly. For example, urea prices rose substantially in early January and, with the spring season approaching, could improve further. Until the market improves, we intend to operate our US plants at approximately 70 percent of capacity. Trinidad, with its lower-cost gas contracts, is expected to operate at full capacity for the foreseeable future.
Despite high levels of solid phosphate fertilizer inventories worldwide, phosphate rock prices have been in the $250-$290 per tonne range early in 2009, while phosphoric acid prices remain above $1,000 per tonne. We expect that the combination of significant capacity curtailments occurring around the world and strong underlying rock and acid prices will strengthen solid fertilizer markets once demand returns. Until then, we plan to curtail all production of finished phosphates at our White Springs facility through the first half of 2009, and will run Aurora at reduced rates through the first quarter.
We expect capital expenditures, excluding capitalized interest, to approximate $1.8 billion in 2009, of which $250 million will be sustaining capital. Depreciation and amortization expense is expected to be 8 percent higher than 2008 levels. We expect our consolidated reported income tax rate to be in the 27-29 percent range in 2009, with a projected current/future split of 95/5. Provincial mining and other taxes are forecast within a range of 16-20 percent of total potash gross margin, depending on potash price realizations, the Canadian/US exchange rate and the timing and amount of capital spending on potash projects in Saskatchewan. We expect other income to exceed 2008 levels by more than $100 million, while total selling and administrative expenses are forecast to be slightly above 2008 levels.
As it is difficult to predict performance in this environment, we currently estimate first-quarter net income will be in the range of $0.70-$1.00 per share, based on a $1.15 Canadian dollar relative to the US dollar. As we expect demand to return in major fertilizer markets in the second quarter, our full-year earnings are currently estimated to be in the range of $10.00-$12.00 per share, weighted heavily toward the second half, based on an average $1.10 exchange rate. In the current trading range of the Canadian dollar relative to the US dollar, each one-cent change in the Canadian dollar typically impacts our foreign exchange line by approximately $9 million, or $0.02 per share on an after-tax basis, which is primarily a non-cash item.
Conclusion
"Our long-held strategies, especially in potash, have been tested through periods of demand fluctuation in the past and have proven effective in leading to long-term sustainable growth," said Doyle. "With our focus on potash, the nutrient with the strongest fundamentals, we anticipate even greater opportunities ahead and will continue to build capacity to meet future growth in demand. The world needs to produce more per acre and, as global economic stability returns, we will be ready to meet the needs of our customers and deliver even stronger performance for our shareholders."
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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 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, second largest in nitrogen and third largest in phosphate; 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 and India; 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, 2007 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 presentation 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, January 22, 2009 at 1:00 p.m. Eastern Time.
To join the call, dial (412) 317-6040 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 this same website.
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Financial Position
(in millions of US dollars except share amounts)
(unaudited)
December 31, December 31,
2008 2007
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Assets
Current assets
Cash and cash equivalents $ 276.8 $ 719.5
Accounts receivable 1,189.9 596.2
Inventories 714.9 428.1
Prepaid expenses and other current assets 79.2 36.7
Current portion of derivative instrument
assets 6.4 30.8
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2,267.2 1,811.3
Derivative instrument assets 11.5 104.2
Property, plant and equipment 4,812.2 3,887.4
Investments (Note 2) 2,750.7 3,581.5
Other assets 288.7 210.7
Intangible assets 21.5 24.5
Goodwill 97.0 97.0
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$ 10,248.8 $ 9,716.6
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Liabilities
Current liabilities
Short-term debt $ 1,323.9 $ 90.0
Accounts payable and accrued charges 1,183.6 911.5
Current portion of derivative instrument
liabilities 108.1 0.2
Current portion of long-term debt 0.2 0.2
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2,615.8 1,001.9
Long-term debt 1,739.5 1,339.4
Derivative instrument liabilities 120.4 -
Future income tax liability 794.2 988.1
Accrued pension and other post-retirement
benefits 253.4 244.8
Accrued environmental costs and asset
retirement obligations 133.4 121.0
Other non-current liabilities and
deferred credits 3.2 2.7
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5,659.9 3,697.9
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Shareholders' Equity
Share capital 1,402.5 1,461.3
Unlimited authorization of common shares
without par value; issued and outstanding
295,200,987 and 316,411,209 at December 31,
2008 and December 31, 2007, respectively
Contributed surplus 126.2 98.9
Accumulated other comprehensive income 657.9 2,178.9
Retained earnings 2,402.3 2,279.6
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4,588.9 6,018.7
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$ 10,248.8 $ 9,716.6
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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 Twelve Months Ended
December 31 December 31
2008 2007 2008 2007
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Sales (Note 6) $ 1,870.6 $ 1,431.4 $ 9,446.5 $ 5,234.2
Less: Freight 37.7 91.3 324.9 346.1
Transportation and
distribution 35.2 29.5 132.4 124.1
Cost of goods sold 924.6 775.6 4,081.8 2,882.8
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Gross Margin 873.1 535.0 4,907.4 1,881.2
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Selling and administrative 29.8 54.6 188.4 212.6
Provincial mining and
other taxes 109.0 40.1 543.4 135.4
Foreign exchange (gain)
loss (62.8) 2.8 (126.0) 70.2
Other income (Note 9) (78.3) (14.2) (333.5) (125.5)
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(2.3) 83.3 272.3 292.7
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Operating Income 875.4 451.7 4,635.1 1,588.5
Interest Expense 20.6 9.7 62.8 68.7
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Income Before Income Taxes 854.8 442.0 4,572.3 1,519.8
Income Taxes (Note 4) 66.8 65.2 1,077.1 416.2
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Net Income $ 788.0 $ 376.8 3,495.2 1,103.6
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Retained Earnings,
Beginning of Year 2,279.6 1,286.4
Repurchase of Common
Shares (Note 3) (3,250.3) -
Change in Accounting
Policy - 0.2
Dividends (122.2) (110.6)
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Retained Earnings, End
of Year $ 2,402.3 $ 2,279.6
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Net Income Per Share
(Note 5)
Basic $ 2.63 $ 1.19 $ 11.37 $ 3.50
Diluted $ 2.56 $ 1.16 $ 11.01 $ 3.40
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Dividends Per Share $ 0.10 $ 0.10 $ 0.40 $ 0.35
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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 Twelve Months Ended
December 31 December 31
2008 2007 2008 2007
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Operating Activities
Net income $ 788.0 $ 376.8 $ 3,495.2 $ 1,103.6
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Adjustments to reconcile
net income to cash provided
by operating activities
Depreciation and
amortization 80.4 75.0 327.5 291.3
Stock-based compensation 4.1 3.9 36.2 38.6
Loss (gain) on disposal
of property, plant and
equipment and long-term
investments 1.2 2.3 (27.1) 7.9
Provision for auction
rate securities 17.5 26.5 88.8 26.5
Foreign exchange on
future income tax (82.5) 4.9 (106.4) 52.4
Provision for future
income tax 6.7 (0.2) 82.2 119.6
Undistributed earnings
of equity investees (32.9) (18.0) (166.7) (35.6)
Loss (gain) on derivative
instruments 67.1 (2.7) 48.7 (21.1)
Other long-term liabilities (0.5) (36.6) 2.3 (57.9)
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Subtotal of adjustments 61.1 55.1 285.5 421.7
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Changes in non-cash
operating working capital
Accounts receivable 183.1 (14.7) (593.7) (154.6)
Inventories 36.1 8.7 (324.4) 60.3
Prepaid expenses and
other current assets 10.4 5.7 (23.7) 7.0
Accounts payable and
accrued charges (315.4) 100.0 174.3 250.9
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Subtotal of changes in
non-cash operating
working capital (85.8) 99.7 (767.5) 163.6
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Cash provided by operating
activities 763.3 531.6 3,013.2 1,688.9
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Investing Activities
Additions to property,
plant and equipment (427.7) (225.6) (1,198.3) (607.2)
Purchase of long-term
investments (116.1) - (445.6) (30.7)
Purchase of auction rate
securities - - - (132.5)
Proceeds from disposal of
property, plant and
equipment and long-term
investments 2.3 0.3 43.2 4.5
Other assets and
intangible assets (13.5) (2.0) (46.6) 7.8
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Cash used in investing
activities (555.0) (227.3) (1,647.3) (758.1)
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Cash before financing
activities 208.3 304.3 1,365.9 930.8
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Financing Activities
Proceeds from (repayment of)
long-term and short-term
debt obligations 47.6 (0.6) 1,633.7 (470.0)
Dividends (30.3) (31.0) (122.6) (93.6)
Repurchase of common shares (453.5) - (3,356.4) -
Issuance of common shares 5.2 4.3 36.7 26.6
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Cash used in financing
activities (431.0) (27.3) (1,808.6) (537.0)
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(Decrease) Increase in
Cash and Cash Equivalents (222.7) 277.0 (442.7) 393.8
Cash and Cash Equivalents,
Beginning of Period 499.5 442.5 719.5 325.7
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Cash and Cash Equivalents,
End of Period $ 276.8 $ 719.5 $ 276.8 $ 719.5
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Cash and cash equivalents
comprised of:
Cash $ 29.9 $ 23.1 $ 29.9 $ 23.1
Short-term investments 246.9 696.4 246.9 696.4
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$ 276.8 $ 719.5 $ 276.8 $ 719.5
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Supplemental cash flow
disclosure
Interest paid $ 31.4 $ 22.4 $ 82.8 $ 93.9
Income taxes paid $ 74.2 $ 92.8 $ 669.9 $ 221.0
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(in millions of US dollars)
(unaudited)
Three Months Ended
December 31, 2008
Before Net of
Income Income Income
Taxes Taxes Taxes
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Net income $ 854.8 $ 66.8 $ 788.0
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Other comprehensive income (loss)
Net decrease in unrealized gains on
available-for-sale securities(1) (1,053.2) (118.5) (934.7)
Net losses on derivatives designated
as cash flow hedges(2) (182.0) (76.2) (105.8)
Reclassification to income of net
losses (gains) on cash flow hedges(2) 7.4 1.1 6.3
Unrealized foreign exchange losses
on translation of self-sustaining
foreign operations (7.7) - (7.7)
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Other comprehensive loss (1,235.5) (193.6) (1,041.9)
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Comprehensive (loss) income $ (380.7) $ (126.8) $ (253.9)
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Twelve Months Ended
December 31, 2008
Before Net of
Income Income Income
Taxes Taxes Taxes
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Net income $ 4,572.3 $ 1,077.1 $ 3,495.2
-------------------------------------------------------------------------
Other comprehensive income (loss)
Net decrease in unrealized gains on
available-for-sale securities(1) (1,398.4) (61.5) (1,336.9)
Net losses on derivatives designated
as cash flow hedges(2) (266.8) (100.8) (166.0)
Reclassification to income of net
losses (gains) on cash flow hedges(2) (12.9) (4.8) (8.1)
Unrealized foreign exchange losses
on translation of self-sustaining
foreign operations (10.0) - (10.0)
-------------------------------------------------------------------------
Other comprehensive loss (1,688.1) (167.1) (1,521.0)
-------------------------------------------------------------------------
Comprehensive (loss) income $ 2,884.2 $ 910.0 $ 1,974.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Ended
December 31, 2007
Before Net of
Income Income Income
Taxes Taxes Taxes
-------------------------------------------------------------------------
Net income $ 442.0 $ 65.2 $ 376.8
-------------------------------------------------------------------------
Other comprehensive income
Net increase in unrealized gains on
available-for-sale securities(1) 551.5 29.7 521.8
Net gains on derivatives designated
as cash flow hedges(2) 35.5 10.2 25.3
Reclassification to income of net
gains on cash flow hedges(2) (18.0) (4.2) (13.8)
Unrealized foreign exchange gains
on translation of self-sustaining
foreign operations 0.8 - 0.8
-------------------------------------------------------------------------
Other comprehensive income 569.8 35.7 534.1
-------------------------------------------------------------------------
Comprehensive income $ 1,011.8 $ 100.9 $ 910.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Twelve Months Ended
December 31, 2007
Before Net of
Income Income Income
Taxes Taxes Taxes
-------------------------------------------------------------------------
Net income $ 1,519.8 $ 416.2 $ 1,103.6
-------------------------------------------------------------------------
Other comprehensive income
Net increase in unrealized gains on
available-for-sale securities(1) 1,396.2 87.1 1,309.1
Net gains on derivatives designated
as cash flow hedges(2) 49.4 14.8 34.6
Reclassification to income of net
gains on cash flow hedges(2) (57.8) (17.3) (40.5)
Unrealized foreign exchange gains
on translation of self-sustaining
foreign operations 6.7 - 6.7
-------------------------------------------------------------------------
Other comprehensive income 1,394.5 84.6 1,309.9
-------------------------------------------------------------------------
Comprehensive income $ 2,914.3 $ 500.8 $ 2,413.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Available-for-sale securities are comprised of shares in Israel
Chemicals Ltd. and Sinofert Holdings Limited and investments in
auction rate securities.
(2) Cash flow hedges are comprised of natural gas derivative instruments.
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statement of
Accumulated Other Comprehensive Income (Loss)
(in millions of US dollars)
(unaudited)
Unrealized Unrealized
gains foreign
Net (losses) exchange
unrealized on gains
gains derivatives (losses)
(losses) on designated on self-
available- as sustaining
(Net of related for-sale cash flow foreign
income taxes) securities hedges operations Total
-------------------------------------------------------------------------
Accumulated other
comprehensive income,
December 31, 2007 $ 2,098.7 $ 73.5 $ 6.7 $ 2,178.9
Decrease for the
twelve months ended
December 31, 2008 (1,336.9) (174.1) (10.0) (1,521.0)
-------------------------------------------------------------------------
Accumulated other
comprehensive income
(loss), December 31,
2008 $ 761.8 $ (100.6) $ (3.3) $ 657.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Notes to the Condensed Consolidated Financial Statements
For the Three and Twelve Months Ended December 31, 2008
(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
condensed consolidated financial statements are consistent with those
used in the preparation of the 2007 annual consolidated financial
statements, except as described below.
These 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 2007 annual consolidated financial
statements. In management's opinion, the unaudited financial statements
include all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly such information.
Inventories
In June 2007, the CICA issued Section 3031, "Inventories", which replaces
Section 3030 and harmonizes the Canadian standard related to inventories
with International Financial Reporting Standards. This standard provides
more extensive guidance on the determination of cost, including
allocation of overhead; narrows the permitted cost formulas; restricts
the classification of spare and replacement parts as inventory; requires
impairment testing; and expands the disclosure requirements to increase
transparency. This standard applies to interim and annual financial
statements relating to fiscal years beginning on or after January 1,
2008.
This standard has been applied prospectively; accordingly comparative
amounts for prior periods have not been restated. The adoption of this
standard resulted in a reclassification of certain spare and replacement
parts to property, plant and equipment. The effects of the adjustment
were to decrease inventory by $21.5 at January 1, 2008 and increase
property, plant and equipment in the same amount. Since there was no
difference in the measurement of the assets, no adjustment to opening
retained earnings was necessary.
2. Investments
In January 2008, the company settled its forward purchase contract, which
was denominated in Hong Kong dollars, to acquire an additional
194,290,175 shares of Sinofert Holdings Limited ("Sinofert") for cash
consideration of $173.7. A tax-exempt gain of $25.3 was recognized during
2008 as a result of the change in fair value of the contract from
December 31, 2007 to the settlement date. During the year ended
December 31, 2008, the company purchased an additional 191,620,000 shares
of Sinofert for cash consideration of $145.3. Net of the ownership
interest dilution that resulted from the issuance of shares of Sinofert,
the acquisitions increased the company's ownership interest in Sinofert
to approximately 22 percent. Also, in October 2008, the company purchased
an additional 14,288,605 shares of Israel Chemicals Ltd. for cash
consideration of $116.4, which increased the company's ownership interest
to 11%.
Investments include auction rate securities that are classified as
available-for-sale. The company has determined that the fair value of the
auction rate securities was $17.2 at December 31, 2008 (face value
$132.5), representing an impairment of $115.3 which was all considered to
be other-than-temporary. This represents a decline in fair value of $17.5
and $38.8 for the three and twelve months ended December 31, 2008,
respectively. For the three and twelve months ended December 31, 2008 net
income was reduced by $17.5 and $88.8, respectively, and unrealized
losses in accumulated other comprehensive income were reduced by $NIL and
$50.0 in the same periods, respectively. The current financial credit
crisis continues to cause these investments to be illiquid. The company
is able to hold these investments until liquidity improves, but does not
expect this to occur in the next 12 months.
3. Share Repurchase
On January 23, 2008, the Board of Directors of PCS authorized a share
repurchase program of up to 15,820,000 common shares (approximately
5 percent of the company's issued and outstanding common shares) through
a normal course issuer bid. As of September 9, 2008, the company had
repurchased the maximum allowable number of shares under the program. On
September 11, 2008, the Board of Directors of PCS approved an increase in
the share repurchase program of an additional 15,680,000 common shares
(approximately 5 percent of the company's issued and outstanding common
shares). If considered advisable, shares may be repurchased from time to
time on the open market through January 30, 2009 at prevailing market
prices. The timing and amount of purchases, if any, under the program
will be dependent upon the availability and alternative uses of capital,
market conditions and other factors.
During the three months ended December 31, 2008, the company repurchased
for cancellation 7,029,200 common shares under the program, at a cost of
$453.5 and an average price per share of $64.51. The repurchase resulted
in a reduction of share capital of $32.3, and the excess of cost over the
average book value of the shares of $421.2 has been recorded as a
reduction of retained earnings. During the twelve months ended
December 31, 2008, a total of 22,849,200 shares were repurchased at a
cost of $3,356.4 and an average price per share of $146.89, resulting in
a reduction of share capital of $106.1 and a reduction in retained
earnings of $3,250.3.
4. Income Taxes
The company's consolidated reported income tax rate for the three months
ended December 31, 2008 was 8 percent (2007 - 15 percent) due to the
cumulative adjustment for the reduction in the consolidated effective
income tax rate. For the twelve months ended December 31, 2008, the
reported income tax rate was 24 percent (2007 - 27 percent). For the
three and twelve months ended December 31, 2008, the consolidated
effective income tax rate was 25 percent (2007 - 30 percent).
Items to note include the following:
- 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 became
effective at the beginning of 2008. In addition, there was a
significant increase in permanent deductions in the US.
- 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 that was recorded in the first quarter of 2008.
- Future income tax assets were written down by $11.0 during the second
quarter of 2008.
- The $25.3 gain that was recognized in the first quarter of 2008 as a
result of the change in fair value of the forward purchase contract
for shares in Sinofert was not taxable.
5. 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
December 31, 2008 of 299,819,000 (2007 - 316,227,000). Basic net income
per share for the year is calculated based on the weighted average shares
issued and outstanding for the twelve months ended December 31, 2008 of
307,480,000 (2007 - 315,641,000).
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 December 31, 2008 was 307,511,000 (2007 - 325,727,000) and for the
twelve months ended December 31, 2008 was 317,438,000 (2007 -
324,308,000).
6. Segment Information
The company has three reportable business segments: potash, nitrogen and
phosphate. 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 December 31, 2008
-------------------------------------------------------------------------
All
Potash Nitrogen Phosphate Others Consolidated
-------------------------------------------------------------------------
Sales $ 932.2 $ 433.1 $ 505.3 $ - $ 1,870.6
Freight 15.7 10.1 11.9 - 37.7
Transportation and
distribution 6.9 14.1 14.2 - 35.2
Net sales - third
party 909.6 408.9 479.2 -
Cost of goods sold 164.8 391.0 368.8 - 924.6
Gross margin 744.8 17.9 110.4 - 873.1
Depreciation and
amortization 16.3 26.0 36.1 2.0 80.4
Inter-segment sales - 28.2 0.7 - -
Three Months Ended December 31, 2007
-------------------------------------------------------------------------
All
Potash Nitrogen Phosphate Others Consolidated
-------------------------------------------------------------------------
Sales $ 479.1 $ 463.1 $ 489.2 $ - $ 1,431.4
Freight 43.1 15.6 32.6 - 91.3
Transportation and
distribution 8.2 12.5 8.8 - 29.5
Net sales - third
party 427.8 435.0 447.8 -
Cost of goods sold 171.4 298.3 305.9 - 775.6
Gross margin 256.4 136.7 141.9 - 535.0
Depreciation and
amortization 17.3 22.7 32.5 2.5 75.0
Inter-segment sales - 28.2 - - -
Twelve Months Ended December 31, 2008
-------------------------------------------------------------------------
All
Potash Nitrogen Phosphate Others Consolidated
-------------------------------------------------------------------------
Sales $ 4,068.1 $ 2,497.7 $ 2,880.7 $ - $ 9,446.5
Freight 167.3 56.5 101.1 - 324.9
Transportation and
distribution 42.1 50.9 39.4 - 132.4
Net sales - third
party 3,858.7 2,390.3 2,740.2 -
Cost of goods sold 803.2 1,652.9 1,625.7 - 4,081.8
Gross margin 3,055.5 737.4 1,114.5 - 4,907.4
Depreciation and
amortization 82.0 97.1 140.5 7.9 327.5
Inter-segment sales - 173.6 23.1 - -
Twelve Months Ended December 31, 2007
-------------------------------------------------------------------------
All
Potash Nitrogen Phosphate Others Consolidated
-------------------------------------------------------------------------
Sales $ 1,797.2 $ 1,799.9 $ 1,637.1 $ - $ 5,234.2
Freight 178.1 55.6 112.4 - 346.1
Transportation and
distribution 39.1 51.6 33.4 - 124.1
Net sales - third
party 1,580.0 1,692.7 1,491.3 -
Cost of goods sold 667.7 1,156.6 1,058.5 - 2,882.8
Gross margin 912.3 536.1 432.8 - 1,881.2
Depreciation and
amortization 71.7 88.2 121.1 10.3 291.3
Inter-segment sales - 112.3 1.9 - -
7. Stock-Based Compensation
On May 8, 2008, the company's shareholders approved the 2008 Performance
Option Plan under which the company may, after February 20, 2008 and
before January 1, 2009, issue options to acquire up to 1,000,000 common
shares. Under the plan, the exercise price shall not be less than the
quoted market closing price of the company's common shares on the last
trading day immediately preceding the date of grant and an option's
maximum term is 10 years. In general, options will vest, if at all,
according to a schedule based on the three-year average excess of the
company's consolidated cash flow return on investment over weighted
average cost of capital. As of December 31, 2008, options to purchase a
total of 486,450 common shares have been granted under the plan. The
weighted average fair value of options granted was $74.76 per share,
estimated as of the date of grant using the Black-Scholes-Merton
option-pricing model with the following weighted average assumptions:
Expected dividend $0.40
Expected volatility 34%
Risk-free interest rate 3.30%
Expected life of options 5.8 years
8. Pension and Other Post-Retirement Expenses
Defined Benefit Pension Plans
Three Months Ended Twelve Months Ended
December 31 December 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Service cost $ 3.8 $ 3.8 $ 15.1 $ 15.3
Interest cost 9.9 9.2 39.9 36.5
Expected return on plan
assets (12.6) (10.7) (51.1) (42.8)
Net amortization and
change in valuation
allowance 1.4 0.4 9.0 10.0
-------------------------------------------------------------------------
Net expense $ 2.5 $ 2.7 $ 12.9 $ 19.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other Post-Retirement Plans
Three Months Ended Twelve Months Ended
December 31 December 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Service cost $ 1.4 $ 1.7 $ 5.7 $ 6.1
Interest cost 3.9 4.3 15.9 14.9
Net amortization 0.1 1.3 0.6 1.7
-------------------------------------------------------------------------
Net expense $ 5.4 $ 7.3 $ 22.2 $ 22.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended December 31, 2008, the company contributed
$8.8 to its defined benefit pension plans, $3.8 to its defined
contribution pension plans and $2.4 to its other post-retirement plans.
Contributions for the twelve months ended December 31, 2008 were $28.4 to
its defined benefit pension plans, $19.8 to its defined contribution
pension plans and $8.0 to its other post-retirement plans.
9. Other Income
Three Months Ended Twelve Months Ended
December 31 December 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Share of earnings of
equity investees $ 62.8 $ 18.0 $ 255.8 $ 76.2
Dividend income 43.0 10.6 107.0 58.1
Gain on forward purchase
contract for shares in
Sinofert (Note 2) - - 25.3 -
Other (10.0) 12.1 34.2 17.7
Provision for auction
rate securities (Note 2) (17.5) (26.5) (88.8) (26.5)
-------------------------------------------------------------------------
$ 78.3 $ 14.2 $ 333.5 $ 125.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Included in the Other category for the twelve months ended December 31,
2008, is a gain on sale of the assets of the company's Brazilian
phosphate feed plant and inland potash and feed warehouse in the amount
of $21.4.
10. Comparative Figures
Certain of the prior periods' figures have been reclassified to conform
with the current periods' presentation.
Potash Corporation of Saskatchewan Inc.
Selected Operating and Revenue Data
(unaudited)
Three Months Ended Twelve Months Ended
December 31 December 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Potash Operating Data
Production (KCl Tonnes
- thousands) 2,079 2,542 8,697 9,160
Shutdown weeks 23.6 1.1 49.9 18.7
Sales (tonnes - thousands)
Manufactured Product
North America 379 818 2,962 3,471
Offshore 1,058 1,452 5,585 5,929
-------------------------------------------------------------------------
Manufactured Product 1,437 2,270 8,547 9,400
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Net Sales
(US $ millions)
Sales $932.2 $479.1 $4,068.1 $1,797.2
Less: Freight 15.7 43.1 167.3 178.1
Transportation and
distribution 6.9 8.2 42.1 39.1
-------------------------------------------------------------------------
Net Sales $909.6 $427.8 $3,858.7 $1,580.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Manufactured Product
North America $280.4 $174.9 $1,307.5 $656.9
Offshore 617.3 247.8 2,526.8 909.6
Other miscellaneous and
purchased product 11.9 5.1 24.4 13.5
-------------------------------------------------------------------------
Net Sales $909.6 $427.8 $3,858.7 $1,580.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Average Price per MT
North America $740.48 $214.03 $441.38 $189.26
Offshore $583.27 $170.63 $452.43 $153.41
-------------------------------------------------------------------------
Manufactured Product $624.70 $186.26 $448.60 $166.65
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Corporation of Saskatchewan Inc.
Selected Operating and Revenue Data
(unaudited)
Three Months Ended Twelve Months Ended
December 31 December 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Nitrogen Operating Data
Production (N Tonnes
- thousands) 617 704 2,780 2,986
Average Natural Gas Cost
per MMBtu $6.16 $4.41 $7.54 $4.30
Sales (tonnes - thousands)
Manufactured Product
Ammonia 395 510 1,794 2,132
Urea 279 325 1,186 1,333
Nitrogen solutions/
Nitric acid/Ammonium
nitrate 381 573 2,062 2,266
-------------------------------------------------------------------------
Manufactured Product 1,055 1,408 5,042 5,731
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer sales tonnes 353 523 1,794 2,054
Industrial/Feed sales
tonnes 702 885 3,248 3,677
-------------------------------------------------------------------------
Manufactured Product 1,055 1,408 5,042 5,731
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Net Sales
(US $ millions)
Sales $433.1 $463.1 $2,497.7 $1,799.9
Less: Freight 10.1 15.6 56.5 55.6
Transportation and
distribution 14.1 12.5 50.9 51.6
-------------------------------------------------------------------------
Net Sales $408.9 $435.0 $2,390.3 $1,692.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Manufactured Product
Ammonia $176.4 $160.3 $999.5 $664.9
Urea 104.6 123.6 633.1 468.6
Nitrogen solutions/
Nitric acid/Ammonium
nitrate 108.3 114.1 577.9 438.1
Other miscellaneous and
purchased product 19.6 37.0 179.8 121.1
-------------------------------------------------------------------------
Net Sales $408.9 $435.0 $2,390.3 $1,692.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer net sales $119.9 $164.3 $809.6 $620.7
Industrial/Feed net
sales 269.4 233.7 1,400.9 950.9
Other miscellaneous and
purchased product 19.6 37.0 179.8 121.1
-------------------------------------------------------------------------
Net Sales $408.9 $435.0 $2,390.3 $1,692.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Average Price
per MT
Ammonia $447.13 $314.19 $557.05 $311.84
Urea $374.54 $380.41 $533.77 $351.64
Nitrogen solutions/
Nitric acid/Ammonium
nitrate $283.95 $199.15 $280.34 $193.32
-------------------------------------------------------------------------
Manufactured Product $368.95 $282.66 $438.43 $274.22
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer average price
per MT $339.39 $314.05 $451.19 $302.23
Industrial/Feed average
price per MT $383.83 $264.10 $431.37 $258.58
-------------------------------------------------------------------------
Manufactured Product $368.95 $282.66 $438.43 $274.22
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Corporation of Saskatchewan Inc.
Selected Operating and Revenue Data
(unaudited)
Three Months Ended Twelve Months Ended
December 31 December 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Phosphate Operating Data
Production (P2O5 Tonnes
- thousands) 338 536 1,873 2,086
P2O5 Operating Rate 59% 94% 82% 91%
Sales (tonnes - thousands)
Manufactured Product
Fertilizer - Liquid
phosphates 173 296 893 983
Fertilizer - Solid
phosphates 80 430 1,069 1,623
Feed 102 218 654 814
Industrial 157 190 706 731
-------------------------------------------------------------------------
Manufactured Product 512 1,134 3,322 4,151
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Phosphate Net Sales
(US $ millions)
Sales $505.3 $489.2 $2,880.7 $1,637.1
Less: Freight 11.9 32.6 101.1 112.4
Transportation and
distribution 14.2 8.8 39.4 33.4
-------------------------------------------------------------------------
Net Sales $479.2 $447.8 $2,740.2 $1,491.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Manufactured Product
Fertilizer - Liquid
phosphates $175.7 $94.2 $734.6 $283.2
Fertilizer - Solid
phosphates 83.1 183.0 996.8 607.5
Feed 96.8 81.5 492.9 272.7
Industrial 116.9 74.1 471.0 277.4
Other miscellaneous and
purchased product 6.7 15.0 44.9 50.5
-------------------------------------------------------------------------
Net Sales $479.2 $447.8 $2,740.2 $1,491.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Phosphate Average Price
per MT
Fertilizer - Liquid
phosphates $1,016.58 $317.82 $823.17 $288.13
Fertilizer - Solid
phosphates $1,041.79 $425.33 $932.44 $374.23
Feed $948.20 $374.98 $753.90 $335.03
Industrial $744.85 $389.32 $666.97 $379.46
-------------------------------------------------------------------------
Manufactured Product $923.51 $381.56 $811.50 $347.08
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Exchange Rate (Cdn$/US$)
2008 2007
-------------------------------------------------------------------------
December 31 1.2246 0.9881
Fourth-quarter average conversion rate 1.1538 0.9892
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 Twelve Months Ended
December 31 December 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Net income $ 788.0 $ 376.8 $ 3,495.2 $ 1,103.6
Income taxes 66.8 65.2 1,077.1 416.2
Interest expense 20.6 9.7 62.8 68.7
Depreciation and
amortization 80.4 75.0 327.5 291.3
-------------------------------------------------------------------------
EBITDA 955.8 526.7 4,962.6 1,879.8
Provision for auction
rate securities 17.5 26.5 88.8 26.5
-------------------------------------------------------------------------
Adjusted EBITDA $ 973.3 $ 553.2 $ 5,051.4 $ 1,906.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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, and
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. 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 Twelve Months Ended
December 31 December 31
2008 2007 2008 2007
-------------------------------------------------------------------------
Cash flow prior to
working capital
changes(1) $ 849.1 $ 431.9 $ 3,780.7 $ 1,525.3
-------------------------------------------------------------------------
Changes in non-cash
operating working
capital
Accounts receivable 183.1 (14.7) (593.7) (154.6)
Inventories 36.1 8.7 (324.4) 60.3
Prepaid expenses and
other current assets 10.4 5.7 (23.7) 7.0
Accounts payable and
accrued charges (315.4) 100.0 174.3 250.9
-------------------------------------------------------------------------
Changes in non-cash
operating working
capital (85.8) 99.7 (767.5) 163.6
-------------------------------------------------------------------------
Cash provided by
operating activities $ 763.3 $ 531.6 $ 3,013.2 $ 1,688.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Free cash flow(2) $ 291.8 $ 204.3 $ 2,090.2 $ 895.2
Additions to property,
plant and equipment 427.7 225.6 1,198.3 607.2
Purchase of long-term
investments 116.1 - 445.6 30.7
Other assets and
intangible assets 13.5 2.0 46.6 (7.8)
Changes in non-cash
operating working
capital (85.8) 99.7 (767.5) 163.6
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Cash provided by
operating activities $ 763.3 $ 531.6 $ 3,013.2 $ 1,688.9
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(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 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, additions to
property, plant and equipment, purchases of long-term investments,
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.
>>
%SEDAR: 00001608EF
SOURCE: Potash Corporation of Saskatchewan Inc.
Investors: Denita Stann, Senior Director, Investor Relations, Phone: (847) 849-4277, Fax: (847) 849-4691, Email: This email address is being protected from spambots. You need JavaScript enabled to view it.; Media: Bill Johnson, Director, Public Relations, Phone: (306) 933-8849, Fax: (306) 933-8844, Email: This email address is being protected from spambots. You need JavaScript enabled to view it.; Web Site: www.potashcorp.com
