PotashCorp Reports Third-Quarter Earnings of $0.82 per Share
Symbol: POT Listed: TSX, NYSE
SASKATOON,
Our offshore investments in Arab Potash Company Ltd. (APC) in
"This quarter was a reminder of the contrast between long-term fundamentals and short-term uncertainties," said PotashCorp President and Chief Executive Officer
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,
In phosphate, US producer solid fertilizer domestic sales volumes moved closer to historical levels, while offshore volumes rose slightly as
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
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
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
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
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
Financial
In the third quarter, we capitalized on favorable interest rates available in the debt market and issued
Capital expenditures on property, plant and equipment totaled
Other income in the third quarter of 2009 decreased
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
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
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
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
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
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
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 ----- 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
------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- $ 12,003.6 $ 10,248.8 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- 6,149.6 5,659.9 ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- 5,854.0 4,588.9 ------------------------------------------------------------------------- $ 12,003.6 $ 10,248.8 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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 ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- Gross Margin 346.2 1,741.0 746.4 4,034.3 ------------------------------------------------------------------------- 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) ------------------------------------------------------------------------- (12.2) 26.3 (116.2) 274.6 ------------------------------------------------------------------------- Operating Income 358.4 1,714.7 862.6 3,759.7 Interest Expense (Note 6) 31.1 15.3 80.8 42.2 ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- Net Income $ 248.8 $ 1,236.1 744.2 2,707.2 ---------------------- ---------------------- Retained Earnings, Beginning of Period 2,402.3 2,279.6 Repurchase of Common Shares - (2,829.1) Dividends (88.7) (92.5) ------------------------------------------------------------------------- Retained Earnings, End of Period $ 3,057.8 $ 2,065.2 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net Income Per Share (Note 8) Basic $ 0.84 $ 4.07 $ 2.52 $ 8.73 Diluted $ 0.82 $ 3.93 $ 2.45 $ 8.45 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Dividends Per Share $ 0.10 $ 0.10 $ 0.30 $ 0.30 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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 ------------------------------------------------------------------------- Operating Activities Net income $ 248.8 $ 1,236.1 $ 744.2 $ 2,707.2 ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- Subtotal of adjustments 111.0 14.6 103.2 224.4 ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- Subtotal of 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 ------------------------------------------------------------------------- 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) ------------------------------------------------------------------------- Cash used in investing activities (450.0) (394.9) (1,077.9) (1,092.3) ------------------------------------------------------------------------- Cash before financing activities (129.2) 518.1 (722.1) 1,157.6 ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- Cash provided by (used in) financing activities 149.1 (288.5) 836.5 (1,377.6) ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- Cash and Cash Equivalents, End of Period $ 391.2 $ 499.5 $ 391.2 $ 499.5 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- $ 391.2 $ 499.5 $ 391.2 $ 499.5 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- (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 ------------------------------------------------------------------------- Net income $ 248.8 $ 1,236.1 $ 744.2 $ 2,707.2 ------------------------------------------------------------------------- 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) ------------------------------------------------------------------------- Other comprehensive income (loss) 123.9 (1,638.1) 565.4 (479.1) ------------------------------------------------------------------------- Comprehensive income (loss) $ 372.7 $ (402.0) $ 1,309.6 $ 2,228.1 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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 ------------------------------------------------------------------------- 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) ------------------------------------------------------------------------- Accumulated other comprehensive income $ 1,223.3 $ 657.9 Retained earnings 3,057.8 2,402.3 ------------------------------------------------------------------------- Accumulated Other Comprehensive Income and Retained Earnings $ 4,281.1 $ 3,060.2 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (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 ------------------------------------------------------------------------- Trade accounts $ 476.7 $ 1,033.9 Less allowance for doubtful accounts (8.5) (7.7) ------------------------------------------------------------------------- 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 ------------------------------------------------------------------------- $ 1,138.5 $ 1,189.9 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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.
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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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