PotashCorp Reports First-Quarter Earnings of $0.56 per Share

Key Performance and Outlook Highlights

• First-quarter earnings of $0.56 per share¹
• Record first-quarter nitrogen gross margin of $219 million
• Second-quarter 2012 earnings guidance of $0.90-$1.10 per share
• Revised full-year 2012 earnings guidance of $3.20-$3.60 per share

Symbol: POT
Listed:  TSX, NYSE

SASKATOON, April 26, 2012 /CNW/ - Potash Corporation of Saskatchewan Inc. (PotashCorp) today reported first-quarter earnings of $0.56 per share ($491 million), which trailed the $0.84 per share ($732 million) in earnings during a record first quarter last year. Gross margin for the quarter totaled $698 million, compared to the $1.1 billion generated in first-quarter 2011. The results largely reflected lower potash sales and production volumes, which resulted in higher costs. Buyers entered the year with the same cautious mindset they had when 2011 ended.

Earnings before finance costs, income taxes, and depreciation and amortization² (EBITDA) of $813 million fell below the $1.1 billion earned in the first quarter of 2011, while cash flow prior to working capital changes² of $625 million trailed the $899 million generated in the same period last year.

Our offshore investments in Arab Potash Company Ltd. (APC) in Jordan and Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile contributed $72 million to our first-quarter earnings. The market value of our investments in these publicly traded companies, along with our positions in Israel Chemicals Ltd. (ICL) in Israel and Sinofert Holdings Limited (Sinofert) in China, equated to approximately $8.5 billion, or $10 per PotashCorp share at market close on April 25, 2012.

"Fertilizer buyers continued to move cautiously at the beginning of the year, especially with potash purchases, which impacted our performance during the quarter," said PotashCorp President and Chief Executive Officer Bill Doyle. "Although we anticipated that an increase in global fertilizer purchasing would not take hold until the latter half of the first quarter, it took longer than we expected for demand to emerge. While the timing of that change was difficult to predict, the direction was not. We expect the acceleration in potash demand that began at the very end of the quarter will continue, supporting increased volumes through the remainder of the year."

Market Conditions
Buyers in all major potash markets were slow to commit to new purchases through most of the first quarter. Shipments from North American producers reflected this pause, declining 48 percent from the record level of last year's first quarter. While underlying consumption at the farm level was expected to be strong globally, most dealers chose to defer major purchasing decisions rather than build inventory. In North America, distributors felt little pressure to act quickly in light of elevated producer inventories and greater availability of offshore product. Offshore buyers slowed purchasing in the absence of new Chinese potash supply contracts and the deferral of shipments to India for previously contracted volumes with global suppliers. Although potash prices avoided the pricing volatility of solid phosphate fertilizer and nitrogen products in previous months, they pulled back slightly on limited demand and increased competitive pressures. In this environment, many buyers focused on consuming inventory and awaited greater certainty before committing to new purchases.

By quarter-end, the global potash market strengthened. China settled new supply contracts late in March - including a contract between Canpotex Limited (Canpotex), the offshore marketing organization for Saskatchewan potash producers, and Sinofert. After this development and the gathering momentum of the North American planting season, customers in most major markets were actively securing new supply to satisfy pent-up demand for potash.

The North American solid phosphate market was impacted by similar caution among dealers, as domestic shipments of solid fertilizers declined from first-quarter 2011 levels. Shipments to offshore markets more than offset weak North American demand, largely as a result of strong movement to India, which had been limited in the first quarter of last year due to the early completion of contract deliveries. The slower demand environment that carried over from late 2011 resulted in solid phosphate fertilizer prices lower than in the first quarter of last year.

In nitrogen, purchasing patterns were markedly better than those of the other nutrients. After the general slowdown in fertilizer markets late in 2011, nitrogen buyers moved quickly to place new orders - buoyed by the prospect of large US corn plantings and concerned about product availability given a reduction in North American import volumes and certain unplanned domestic plant outages. These tight supply/demand fundamentals were most pronounced in urea, which pushed prices higher during the quarter.

Potash
Lower potash sales volumes offset the positive impact of higher prices and resulted in potash gross margin of $327 million for first-quarter 2012, well below the first-quarter record of $743 million generated in 2011.

Sales volumes of 1.2 million tonnes fell below the record 2.8 million tonnes sold in the same quarter last year. Offshore shipments totaled 0.8 million tonnes, compared to 1.7 million tonnes sold in the first quarter of 2011. This change reflected slower movement to all major markets, including China, which did not settle its new contract with Canpotex until late March, and India, which delayed shipments of most remaining tonnage on existing contracts until the second quarter of 2012. Shipments to these markets were a smaller portion of Canpotex's quarterly sales volumes, 7 percent and 4 percent, respectively. While demand in other Asian markets slowed compared to the record first quarter of 2011, it remained a region of relative strength, taking 70 percent of Canpotex shipments. Buyers in Latin America worked through inventories to meet continued strong consumption and accounted for 12 percent of Canpotex shipments; this was in addition to PotashCorp sales there from our New Brunswick facility. In North America, where distributors deferred major purchasing ahead of the spring planting season, our sales volumes totaled 0.4 million tonnes, well below the seasonally strong 1.1 million tonnes sold in first-quarter 2011.

Our average realized potash price of $435 per tonne was up 19 percent from last year's first quarter, reflecting price gains in spot and contract markets achieved throughout 2011. Although prices in most major spot markets declined slightly from fourth-quarter 2011, our average realized price moved higher and reflected a lower percentage of sales shipped to offshore contract markets.

Slower sales led to reduced production, which resulted in a total of 29 inventory-related downtime weeks at our Lanigan, Rocanville and Allan facilities. During this downtime, we opted to allocate resources to non-production activities rather than lay off employees, which resulted in higher shutdown costs. These factors, along with a larger allocation of tonnes coming from higher-cost facilities and increased brine inflow and depreciation charges related to our Esterhazy tolling agreement, led to higher per-tonne cost of goods sold.

Phosphate
First-quarter phosphate gross margin totaled $152 million, slightly above the $150 million generated in the same quarter last year. The strength of our diversified product offering offset general weakness in the solid fertilizer segment. Fueled primarily by strong margins for liquid products, our fertilizer segment generated $98 million in gross margin for the quarter, while feed and industrial products contributed $50 million.

Phosphate sales volumes totaled 0.9 million tonnes, up slightly from last year's first quarter. A larger percentage of sales allocated to meet offshore fertilizer demand, combined with strong feed and industrial volumes, helped offset weakness in North American fertilizer markets.

Our average realized phosphate price climbed to $607 per tonne for the quarter, 9 percent above that of the same period last year. Results were supported by the typically more stable pricing environment in feed and industrial products, combined with the ability of liquid fertilizer products to attract a premium relative to solid fertilizers and the benefit of a time lag on quarterly contract sales.

Increased input costs - primarily sulfur - as well as slightly lower operating levels during the first quarter relative to the same period last year negatively impacted our per-tonne cost of phosphate goods sold.

Nitrogen
Nitrogen gross margin climbed to a first-quarter record of $219 million, exceeding the $203 million earned in the same period last year. Our US operations delivered $129 million in gross margin, while our Trinidad operation contributed $90 million.

Sales volumes of 1.3 million tonnes were slightly below the same period last year, largely as a result of reduced production at Geismar.

Average realized prices for nitrogen products rose to $383 per tonne, 4 percent above the same period last year. Strong demand for urea, nitrogen solutions, nitric acid and ammonium nitrate, combined with limited supply, pushed prices for these products higher. While ammonia prices strengthened towards the end of the quarter, key benchmark prices were below that of the same period last year.

Total average natural gas cost in production for the quarter, including our hedge position, fell 19 per cent from last year's first quarter to $4.75 per MMBtu. Declines in US spot prices for natural gas and a lower Trinidad gas cost - a result of the decline in Tampa ammonia prices, the benchmark to which our Trinidad gas costs are primarily indexed - were the main contributors.

Financial
Selling and administration expenses for the quarter were reduced to $57 million from $75 million in first-quarter 2011, primarily as a result of lower incentive accruals.

With lower quarterly earnings, income tax expense declined to $160 million from $243 million in the same period last year. Our provincial mining and other taxes also fell compared to first-quarter 2011, dropping 18 percent to $28 million with our reduced potash sales revenues.

Our potash expansion projects continued during the quarter, with expenditures in Saskatchewan and New Brunswick accounting for much of the $476 million in capital spending on property, plant and equipment.

Outlook
The most basic driver of global fertilizer demand is fundamental soil science, as a commitment to proper soil fertility is necessary for the ongoing production of healthy, abundant crops. While the science is indisputable, the timing of fertilizer purchasing can vary, leading to short-term fluctuations in global demand. Supply-chain stocking and destocking provide a snapshot of near-term market trends, but the more accurate measure of fertilizer demand is the underlying consumption required to meet the world's food production needs. In a global marketplace with hundreds of millions of farmers, this is difficult to measure on a real-time basis, but we believe that the powerful economic drivers behind agriculture and the importance of crop fertility are continuing to support increased fertilizer consumption in most major markets.

After remaining on the sidelines through the end of 2011 and the beginning of this year, fertilizer dealers are now beginning to secure products to meet strong demand at the farm level. While the initial focus for many was on acquiring nitrogen to meet their immediate requirements, purchasing of potash and phosphate products accelerated as we entered the second quarter.

Dealers have largely worked through existing potash inventories and are purchasing additional volumes for immediate needs - an important transition with key growing regions in the midst of their primary planting seasons and farmers motivated to capture the economic incentives of proper fertilization. While the degree of caution experienced in the first quarter exceeded our expectations (especially in North America), all key markets are now engaged and we continue to believe that demand will be more robust as 2012 progresses. Operating rates for global potash producers have increased to meet the strength in demand, a measure of growing confidence following significant production curtailments in the first quarter.

In North America, we anticipate improved demand through the remainder of 2012. This should be evident in the second quarter, although it may not match the level of demand experienced in the same period last year when dealers moved earlier to begin restocking for fall. We believe that dealers will attempt to finish the spring planting season with limited inventory and begin the process of restocking in the third quarter. With the prospect of an early harvest and the expectation of limited dealer inventory, we anticipate a strong second half and total 2012 demand in the range of 8.5-9.0 million tonnes.

Healthy farm economics and the expansion of crop acreage continue to support strong consumption of all fertilizers in Latin America. Dealers are now moving aggressively to secure potash supply and are committing to significant new purchases. We estimate total demand in this region will be between 9.8 million and 10.3 million tonnes in 2012, similar to the record level of 2011.

A new supply contract between Sinofert and Canpotex, signed in March, will result in significant shipments to China during the second quarter. With its increasing internal needs, we anticipate 2012 global potash demand in this market will be in the range of 10.5-11 million tonnes, including imports of approximately 6.5 million tonnes.

India's potash situation remains complex. The drivers of long-term potash demand are clear - rising food requirements, nutrient-deficient soils and lagging crop yields - yet near-term challenges remain. Fertilizer subsidy changes are leading to higher retail prices, reducing demand in the short term. Given the delays of shipments for contracted volumes through to the end of the second quarter, we now estimate that Indian demand is unlikely to exceed the levels of 2011. We anticipate total 2012 demand in this market will be in the range of 3.5-4.5 million tonnes.

Other Asian countries - those outside China and India - used the first quarter to draw down inventories built by record 2011 shipments. This drawdown disguised the strength of underlying consumption created by the excellent returns for a wide range of crops grown in this region. We estimate total demand will be between 8.2 million and 8.7 million tonnes in 2012, down slightly from record purchases in 2011.

In this environment, we now forecast total global potash demand will approximate 53-56 million tonnes in 2012 and expect PotashCorp sales volumes for the year to be in the range of 8.8-9.2 million tonnes. We estimate our 2012 potash segment gross margin will be in the range of $2.6-$2.9 billion. Given our large order book - including what we believe could represent a second-quarter sales volumes record - we do not anticipate any inventory-related downtime in the current quarter.

Relatively stable realizations on phosphoric acid industrial contracts, which are time-lagged to input costs, and phosphate feed products should support stable margins for this segment throughout 2012. In nitrogen, strong agricultural demand and tight supply have raised key benchmark prices that are expected to support higher realized prices through the second quarter. PotashCorp nitrogen sales volumes for full-year 2012 are anticipated to be slightly lower than the previous year as we now expect our Geismar ammonia plant restart will not have significant production available until January 2013. We now forecast our combined phosphate and nitrogen gross margin for 2012 to be in the range of $1.3-$1.5 billion.

We anticipate the 2012 contribution from our equity investments (comprised of dividend income and our share of equity-accounted investee earnings) to approximate $375-$425 million. Our 2012 annual effective tax rate is forecast to be 24-26 percent while we expect provincial mining and other taxes to be in the range of 9-10 percent of total potash gross margin.

PotashCorp expects record or near-record second-quarter earnings, with net income per share to approximate $0.90-$1.10. We now forecast earnings for the full year to be in the range of $3.20-$3.60 per share.

All of our other previous guidance ranges remain in place, including selling and administrative expenses (forecast to be $225-$245 million); finance costs (forecast to be $100-$120 million); and capital expenditures excluding capitalized interest (forecast to be approximately $2.1 billion).

We note that the fair value of our investment in Sinofert as at March 31, 2012 was below its originally recorded cost. While there was not any objective evidence of impairment, it will be assessed again in future reporting periods. Although not included in our guidance, if the decline in fair value becomes significant or prolonged, the unrealized loss would be recognized in net income.

Conclusion
"Despite a just-in-time buying pattern that slowed demand over recent months, fertilizer buyers are now fully engaged and demand for our products, especially potash, is expected to improve as the year progresses," said Doyle. "We are prepared not only to meet that demand as we have in the past, but to showcase our increasing capability to fulfill the needs of a growing potash market in the years to come."

Notes
1. All references to per-share amounts pertain to diluted net income per share.
2. See reconciliation and description of non-IFRS measures in the attached section titled "Selected Non-IFRS Financial Measures and Reconciliations."

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Toronto

This release contains forward-looking statements or forward-looking information (forward-looking statements). These statements can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical fact. These statements are based on certain factors and assumptions including with respect to foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities and effective 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 expressed in the forward-looking statements, including, but not limited to: variations from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, and effective tax rates; fluctuations in supply and demand in the fertilizer, sulfur, transportation and petrochemical markets; costs and availability of transportation and distribution for our raw materials and products, including railcars and ocean freight; changes in competitive pressures, including pricing pressures; adverse or uncertain economic conditions and changes in credit and financial markets; the results of sales contract negotiations with major markets; the European sovereign debt crisis and the recent downgrade of US sovereign debt and political concerns over budgetary matters; timing and impact of capital expenditures; risks associated with natural gas and other hedging activities; changes in capital markets and corresponding effects on the company's investments; unexpected or adverse weather conditions; changes in currency and exchange rates; unexpected geological or environmental conditions, including water inflows; imprecision in reserve estimates; adverse developments in new and pending legal proceedings or government investigations; acquisitions we may undertake; strikes or other forms of work stoppage or slowdowns; changes in and the effects of, government policies and regulations; security risks related to our information technology systems; 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, 2011 under the captions "Forward-Looking Statements" and "Item 1A - Risk Factors" and in our other filings with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this release and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

PotashCorp will host a Conference Call on Thursday, April 26, 2012 at 1:00 pm Eastern Time.

Telephone Conference:	Dial-in numbers:
	-	From Canada and the US: 1-877-881-1303
	-	From Elsewhere: 1-412-902-6510
Live Webcast:	Visit www.potashcorp.com
	-	Webcast participants can submit questions to management online from their audio player pop-up window.

Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Financial Position
(in millions of US dollars except share amounts)
(unaudited)
					March 31,		December 31,
As at					2012		2011
Assets
		Current assets
			Cash and cash equivalents	$	417	$	430
			Receivables		1,218		1,195
			Inventories		728		731
			Prepaid expenses and other current assets		62		52
					2,425		2,408
		Non-current assets
			Property, plant and equipment		10,150		9,922
			Investments in equity-accounted investees		1,259		1,187
			Available-for-sale investments (Note 2)		2,387		2,265
			Other assets		303		360
			Intangible assets		118		115
Total Assets				$	16,642	$	16,257
Liabilities
		Current liabilities
			Short-term debt and current portion of long-term debt (Note 3)	$	1,250	$	832
			Payables and accrued charges		978		1,295
			Current portion of derivative instrument liabilities		75		67
					2,303		2,194
		Non-current liabilities
			Long-term debt (Note 3)		3,457		3,705
			Derivative instrument liabilities		198		204
			Deferred income tax liabilities		1,094		1,052
			Pension and other post-retirement benefit liabilities		576		552
			Asset retirement obligations and accrued environmental costs		560		615
			Other non-current liabilities and deferred credits		94		88
Total Liabilities					8,282		8,410
Shareholders' Equity
		Share capital			1,486		1,483
			Unlimited authorization of common shares without par value; issued and outstanding 858,921,647 and 858,702,991 at March 31, 2012 and December 31, 2011, respectively
		Contributed surplus			320		291
		Accumulated other comprehensive income			937		816
		Retained earnings			5,617		5,257
Total Shareholders' Equity					8,360		7,847
Total Liabilities and Shareholders' Equity				$	16,642	$	16,257
(See Notes to the Condensed Consolidated Financial Statements)

 

Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Income
(in millions of US dollars except per-share amounts)
(unaudited)
					Three Months Ended
					March 31
						2012		2011
Sales (Note 4)					$	1,746	$	2,204
Freight, transportation and distribution						(104)		(149)
Cost of goods sold						(944)		(959)
Gross Margin						698		1,096
Selling and administrative expenses						(57)		(75)
Provincial mining and other taxes						(28)		(34)
Share of earnings of
equity-accounted investees						75		51
Other expenses						(3)		(13)
Operating Income						685		1,025
Finance Costs						(34)		(50)
Income Before Income Taxes						651		975
Income Taxes (Note 5)						(160)		(243)
Net Income					$	491	$	732
Net Income per Share (Note 6)
	Basic				$	0.57	$	0.86
	Diluted				$	0.56	$	0.84
Dividends Declared per Share					$	0.14	$	0.07
(See Notes to the Condensed Consolidated Financial Statements)

 

Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Comprehensive Income
(in millions of US dollars)
(unaudited)
				Three Months Ended
				March 31
(Net of related income taxes)				2012		2011
Net Income			$	491	$	732
Other comprehensive income (loss)
		Net increase (decrease) in net unrealized gain on available-for-sale investments ^(1)(Note 2)		122		(271)
		Net actuarial loss on defined benefit plans ^(2)		(11)		-
		Net (loss) gain on derivatives designated as cash flow hedges ^(3)		(13)		13
		Reclassification to income of net loss on cash flow hedges ^(4)		12		14
		Other		-		(2)
Other Comprehensive Income (Loss)				110		(246)
Comprehensive Income			$	601	$	486
^(1) Available-for-sale investments are comprised of shares in Israel Chemicals Ltd. and Sinofert Holdings Limited.
^(2) Net of income taxes of $4 (2011 - $NIL).
^(3) Cash flow hedges are comprised of natural gas derivative instruments and are net of income taxes of $8 (2011 - $(8)).
^(4) Net of income taxes of $(8) (2011 - $(8)).
(See Notes to the Condensed Consolidated Financial Statements)

Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statement of Changes in Equity
(in millions of US dollars)
(unaudited)
							Accumulated Other Comprehensive Income
							Net unrealized		Net		Net				Total
							gain on		loss on		actuarial				Accumulated
							available-		derivatives		loss				Other
			Share		Contributed		for-sale		designated as		on defined				Comprehensive		Retained		Total
			Capital		Surplus		investments		cash flow hedges		benefit plans^(1)		Other		Income		Earnings		Equity
Balance - December 31, 2011		$	1,483	$	291	$	982	$	(168)	$	-	$	2	$	816	$	5,257	$	7,847
Net income			-		-		-		-		-		-		-		491		491
Other comprehensive income (loss)			-		-		122		(1)		(11)		-		110		-		110
Effect of share-based
compensation			-		30		-		-		-		-		-		-		30
Dividends declared			-		-		-		-		-		-		-		(120)		(120)
Issuance of common shares			3		(1)		-		-		-		-		-		-		2
Transfer of actuarial losses on
defined benefit plans			-		-		-		-		11		-		11		(11)		-
Balance - March 31, 2012		$	1,486	$	320	$	1,104	$	(169)	$	-	$	2	$	937	$	5,617	$	8,360
^(1) Any amounts incurred during a period are closed out to retained earnings at each period-end. Therefore, no balance exists in the reserve at beginning or end of period.
(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
			March 31
			2012		2011
Operating Activities
Net income		$	491	$	732
Adjustments to reconcile net income to cash
provided by operating activities
	Depreciation and amortization		128		124
	Share-based compensation		16		14
	Realized excess tax benefit related to share-based compensation		2		12
	Provision for deferred income tax		52		75
	Undistributed earnings of equity-accounted investees		(73)		(51)
	Other long-term liabilities and miscellaneous		9		(7)
	Subtotal of adjustments		134		167
	Changes in non-cash operating working capital
	Receivables		49		(213)
	Inventories		26		(27)
	Prepaid expenses and other current assets		(14)		-
	Payables and accrued charges		(314)		31
	Subtotal of changes in non-cash operating working capital		(253)		(209)
Cash provided by operating activities			372		690
Investing Activities
Additions to property, plant and equipment			(476)		(441)
Purchase of non-current investments			(1)		-
Other assets and intangible assets			(19)		-
Cash used in investing activities			(496)		(441)
Financing Activities
Proceeds from (repayment of) short-term debt obligations			168		(253)
Dividends			(59)		(28)
Issuance of common shares			2		18
Cash provided by (used in) financing activities			111		(263)
Decrease in Cash Position			(13)		(14)
Cash Position, Beginning of Period			430		412
Cash Position, End of Period		$	417	$	398
Cash position comprised of:
	Cash	$	37	$	82
	Short-term investments		380		391
	Cash and cash equivalents		417		473
	Bank overdraft (included in short-term debt)		-		(75)
		$	417	$	398
Supplemental cash flow disclosure
	Interest paid	$	38	$	41
	Income taxes paid	$	316	$	175
(See Notes to the Condensed Consolidated Financial Statements)

 

Potash Corporation of Saskatchewan Inc.
Notes to the Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2012
(in millions of US dollars except 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 International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). The accounting policies used in preparing these unaudited interim condensed consolidated financial statements are consistent with those used in the preparation of the 2011 annual consolidated financial statements.

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 2011 annual consolidated financial statements. Further, while the financial figures included in this preliminary interim results announcement have been computed in accordance with IFRS applicable to interim periods, this announcement does not contain sufficient information to constitute an interim financial report as that term is defined in International Accounting Standard ("IAS") 34, "Interim Financial Reporting". The company expects to publish an interim financial report that complies with IAS 34 in its Quarterly Report on Form 10-Q in May 2012.

In management's opinion, the unaudited interim condensed consolidated financial statements include all adjustments necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the fiscal year.

2.  Available-for-Sale Investments

The company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity instruments classified as available-for-sale, for which unrealized gains and losses are generally recognized in Other Comprehensive Income ("OCI"), a significant or prolonged decline in the fair value of the investment below its cost may be evidence that the asset is impaired. If objective evidence of impairment were to exist, the impaired amount (i.e., the unrealized loss) would be recognized in net income; any subsequent reversals would be recognized in OCI and would not flow back into net income. 

At March 31, 2012, the company assessed whether there was objective evidence that its investment in Sinofert Holdings Limited ("Sinofert") was impaired. The fair value of the investment, recorded in the consolidated statements of financial position, was $378 compared to the cost of $579. Factors considered in assessing impairment included the length of time and extent to which fair value had been below cost, volatility, and current conditions specific to Sinofert and the Chinese equity markets. The company concluded that objective evidence of impairment did not exist as at March 31, 2012 and, as a result, the unrealized holding loss of $201 was included in accumulated OCI. Impairment will be assessed again in future reporting periods if the fair value is below cost.

3.  Long-Term Debt

At March 31, 2012, the company classified as current the $250 aggregate principal amount of 4.875 percent senior notes due March 1, 2013.

4.  Segment Information

The company has three reportable operating segments: potash, phosphate and nitrogen. 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 March 31, 2012
		Potash		Phosphate		Nitrogen		All Others		Consolidated
Sales	$	583	$	613	$	550	$	-	$	1,746
Freight, transportation and distribution		(34)		(41)		(29)		-		(104)
Net sales - third party		549		572		521		-
Cost of goods sold		(222)		(420)		(302)		-		(944)
Gross margin		327		152		219		-		698
Depreciation and amortization		(30)		(60)		(35)		(3)		(128)
Inter-segment sales		-		-		42		-		-
	Three Months Ended March 31, 2011
		Potash		Phosphate		Nitrogen		All Others		Consolidated
Sales	$	1,109	$	549	$	546	$	-	$	2,204
Freight, transportation and distribution		(83)		(43)		(23)		-		(149)
Net sales - third party		1,026		506		523		-
Cost of goods sold		(283)		(356)		(320)		-		(959)
Gross margin		743		150		203		-		1,096
Depreciation and amortization		(42)		(47)		(33)		(2)		(124)
Inter-segment sales		-		-		38		-		-

5. Income Taxes

A separate estimated average annual effective tax rate is determined for each taxing jurisdiction and applied individually to the interim period pre-tax income of each jurisdiction.

For the three months ended March 31, 2012, the company's income tax expense was $160 (2011 — $243). The actual effective tax rate including discrete items for the three months ended March 31, 2012 was 25 percent (2011 — 25 percent). Total discrete tax adjustments that impacted the rate in the three months ended March 31, 2012 resulted in an income tax recovery of $2 compared to an income tax recovery of $23 in the same period last year. The significant item recorded in first-quarter 2011 was a current tax recovery of $21 for previously paid withholding taxes.

6.  Net Income Per Share

Basic net income per share for the quarter is calculated on the weighted average number of shares issued and outstanding for the three months ended March 31, 2012 of 858,788,000 (2011 — 854,033,000). 

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 the 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. For performance-based stock option plans, the number of contingently issuable common shares included in the calculation is based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the performance period and the effect were dilutive. The weighted average number of shares outstanding for the diluted net income per share calculation for the three months ended March 31, 2012 was 876,098,000 (2011 — 876,467,000).

Potash Corporation of Saskatchewan Inc.
Selected Financial Data
(unaudited)
		Three Months Ended
		March 31
		2012	2011
Potash Sales (tonnes - thousands)
Manufactured Product
	North America	400	1,092
	Offshore	849	1,696
Manufactured Product		1,249	2,788
Potash Net Sales
(US $ millions)
	Sales	$583	$1,109
	Freight, transportation and distribution	(34)	(83)
	Net Sales	$549	$1,026
Manufactured Product
	North America	$199	$466
	Offshore	344	555
Other miscellaneous and purchased product		6	5
Net Sales		$549	$1,026
Manufactured Product
Average Realized Sales Price per MT
	North America	$497	$427
	Offshore	$406	$327
	Average	$435	$366
Cost of Goods Sold per MT		$(175)	$(100)
Gross Margin per MT		$260	$266
Potash Corporation of Saskatchewan Inc.
Selected Financial Data
(unaudited)
		Three Months Ended
		March 31
		2012	2011
Phosphate Sales (tonnes - thousands)
Manufactured Product
	Fertilizer	637	604
	Feed and Industrial	293	289
Manufactured Product		930	893
Phosphate Net Sales
(US $ millions)
	Sales	$613	$549
	Freight, transportation and distribution	(41)	(43)
	Net Sales	$572	$506
Manufactured Product
	Fertilizer	$363	$327
	Feed and Industrial	201	172
Other miscellaneous and purchased product		8	7
Net Sales		$572	$506
Manufactured Product
Average Realized Sales Price per MT
	Fertilizer	$570	$542
	Feed and Industrial	$686	$594
	Average	$607	$559
Cost of Goods Sold per MT		$(447)	$(395)
Gross Margin per MT		$160	$164
Potash Corporation of Saskatchewan Inc.
Selected Financial Data
(unaudited)
		Three Months Ended
		March 31
		2012	2011
Average Natural Gas Production Cost per MMBtu		$4.75	$5.84
Nitrogen Sales (tonnes - thousands)
Manufactured Product
	Ammonia	516	514
	Urea	334	331
	Nitrogen solutions/Nitric acid/Ammonium nitrate	440	495
Manufactured Product		1,290	1,340
Fertilizer sales tonnes		375	388
Industrial/Feed sales tonnes		915	952
Manufactured Product		1,290	1,340
Nitrogen Net Sales
(US $ millions)
	Sales	$550	$546
	Freight, transportation and distribution	(29)	(23)
	Net Sales	$521	$523
Manufactured Product
	Ammonia	$230	$244
	Urea	154	138
	Nitrogen solutions/Nitric acid/Ammonium nitrate	110	112
Other miscellaneous and purchased product		27	29
Net Sales		$521	$523
Fertilizer net sales		$155	$144
Industrial/Feed net sales		339	350
Other miscellaneous and purchased product		27	29
Net Sales		$521	$523
Manufactured Product
Average Realized Sales Price per MT
	Ammonia	$447	$474
	Urea	$462	$416
	Nitrogen solutions/Nitric acid/Ammonium nitrate	$249	$226
	Average	$383	$368
	Fertilizer average price per MT	$413	$371
	Industrial/Feed average price per MT	$371	$367
	Average	$383	$368
Cost of Goods Sold per MT		$(223)	$(223)
Gross Margin per MT		$160	$145
Potash Corporation of Saskatchewan Inc.
Selected Additional Data
(unaudited)
		Three Months Ended
		March 31
		2012	2011
Production
Potash production (KCl Tonnes - thousands)		1,575	2,592
Potash shutdown weeks ^(1)		29	-
Phosphate production (P2O5 Tonnes - thousands)		486	532
Phosphate P2O5 operating rate		82%	90%
Nitrogen production (N Tonnes - thousands)		681	686
Exchange Rate (Cdn$/US$)
December 31			1.0170
March 31		0.9991	0.9718
First-quarter average conversion rate		1.0112	0.9964
Shareholders
PotashCorp's shareholder return		11%	14%
Customers
Product tonnes involved in customer complaints vs three-year average (for first quarter of prior three years)		(68)%	N/A
Community
Taxes and royalties ($ millions)^(2)		88	226
Employees
Annualized turnover rate (excluding retirements)		4%	4%
Environment
Environmental incidents^(3)		7	3
Safety
Total site severity injury rate (per 200,000 work hours)^(4)		0.47	0.72
		March 31,	December 31,
As at		2012	2011
Number of employees
	Potash	2,611	2,520
	Phosphate	1,958	1,975
	Nitrogen	789	775
	Other	430	433
	Total	5,788	5,703
^(1) Excludes planned routine annual maintenance shutdowns.
^(2) Includes current income taxes, potash production tax, resource surcharge, royalties, municipal taxes and other miscellaneous taxes less investment tax credits calculated on an accrual basis.
^(3) Total of reportable quantity releases, permit excursions and provincial reportable spills (as defined in our 2011 Annual Report).
^(4) Total of lost-time injuries and modified work injuries (as defined in our 2011 Annual Report). Total site includes PotashCorp employees, contractors and all others on site.

 

Potash Corporation of Saskatchewan Inc.
Selected Non-IFRS Financial Measures and Reconciliations
(in millions of US dollars except percentage amounts)
(unaudited)

The following information is included for convenience only. Generally, a non-IFRS 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 IFRS. EBITDA, EBITDA margin, cash flow prior to working capital changes and free cash flow are not measures of financial performance (nor do they have standardized meanings) under IFRS. 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 IFRS and certain non-IFRS measures to assess performance. Management believes these non-IFRS measures provide useful supplemental information to investors in order that they may evaluate PotashCorp's financial performance using the same measures as management. Management believes that, as a result, the investor is afforded greater transparency in assessing the financial performance of the company. These non-IFRS financial measures should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with IFRS.

A. EBITDA AND EBITDA MARGIN

Set forth below is a reconciliation of "EBITDA" to net income and "EBITDA margin" to net income as a percentage of sales, the most directly comparable financial measures calculated and presented in accordance with IFRS.

														Three Months Ended
														March 31
														2012		2011
Net income														$	491	$	732
Finance costs															34		50
Income taxes															160		243
Depreciation and amortization															128		124
EBITDA														$	813	$	1,149

EBITDA is calculated as earnings before finance costs, income taxes and depreciation and amortization. PotashCorp uses EBITDA as a supplemental financial measure of its operational performance. Management believes EBITDA to be an important measure as it excludes the effects of items which primarily reflect the impact of long-term investment and financing decisions, rather than the performance of the company's day-to-day operations. As compared to net income according to IFRS, this measure is limited in that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues. 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.

									Three Months Ended
									March 31
										2012		2011
Sales									$	1,746	$	2,204
Freight, transportation and distribution										(104)		(149)
Net sales									$	1,642	$	2,055
Net income as a percentage of sales										28%		33%
EBITDA margin										50%		56%

EBITDA margin is calculated as EBITDA divided by net sales (sales less freight, transportation and distribution). Management believes comparing the company's operations (excluding the impact of long-term investment decisions) to net sales earned (net of costs to deliver product) is an important indicator of efficiency. In addition to the limitations given above in using EBITDA as compared to net income, EBITDA margin as compared to net income as a percentage of sales is also limited in that freight, transportation and distribution costs are incurred and valued independently of sales; EBITDA also includes earnings from equity investees whose sales are not included in consolidated sales. Management evaluates these expenses individually on the consolidated statements of income.

Potash Corporation of Saskatchewan Inc.
Selected Non-IFRS 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 IFRS.

				Three Months Ended
				March 31
					2012		2011
Cash flow prior to working capital changes				$	625	$	899
Changes in non-cash operating working capital
	Receivables				49		(213)
	Inventories				26		(27)
	Prepaid expenses and other current assets				(14)		-
	Payables and accrued charges				(314)		31
Changes in non-cash operating working capital					(253)		(209)
Cash provided by operating activities				$	372	$	690
Additions to property, plant and equipment					(476)		(441)
Other assets and intangible assets					(19)		-
Changes in non-cash operating working capital					253		209
Free cash flow				$	130	$	458

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.

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 its 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. 

 

 

 

 

 

 

Investors
Denita Stann
Vice President, Investor and Public Relations
Phone: [phone]
Fax: [phone]
Email: [email protected]

Media 
Bill Johnson
Senior Director, Public Affairs
Phone: [phone]
Fax: [phone]
Email: [email protected]

Web Site: www.potashcorp.com