Listed: TSX, NYSE Symbol: POT SASKATOON, SK, April 26
/PRNewswire-FirstCall/ -- Potash Corporation of Saskatchewan Inc.
(PotashCorp) today announced the highest quarterly earnings in
company history, with first-quarter net income of $198.0 million,
or $1.85 per share(1). This surpassed the record of $1.74 per share
($186.0 million) set in the previous quarter, reflecting increased
volumes and prices for our products. First-quarter per-share
earnings were 55 percent higher than the $1.19 per share ($125.5
million) earned in the same quarter last year, when potash
shipments slowed due to prolonged price negotiations with key
offshore customers. Excellent farm economics supported strong
growth in world fertilizer demand and tight supply fundamentals
provided the foundation for a second consecutive quarter of record
earnings. First-quarter gross margin of $369.7 million was also a
company record, improving upon the $203.5 million in the same
quarter last year and the previous high of $344.8 million from the
second quarter of 2005. Cash flow prior to working capital changes
of $283.0 million(2) was up from $189.4 million quarter over
quarter, a 49-percent increase. Earnings before interest, income
taxes, depreciation and amortization reached a record $381.0
million(2), 17 percent higher than the record set in the previous
quarter. "Back-to-back record quarters illustrate the pattern of
growth for our company and the rising value of our products," said
PotashCorp President and CEO Bill Doyle. "Our world-class assets
and strategies are well-suited to this environment and our ability
to execute led to excellent first-quarter results." Market
Conditions Farmers around the world are increasing plantings and
using more fertilizer in an effort to capture favorable prices for
many major crops. The USDA's March 30th Prospective Plantings
report predicted that American farmers will plant 90.5 million
acres of corn, a 15-percent increase from last year for a crop that
is a heavy fertilizer user. The emphasis on corn is expected to
displace other crops in the US, raising prices and creating
opportunities for producers of those crops in other agricultural
regions. After suffering for two years with higher energy costs and
lower crop prices that led to reduced fertilizer applications,
farmers have made a strong return to the market for all three
nutrients to restore soil fertility. As potash fundamentals
tightened through the first quarter, we achieved an $11-per-tonne
increase for North American customers in mid-February. The
completion of pricing contracts with China in early February 2007,
unlike the late July settlement in 2006, kept offshore potash
volumes moving and further tightened supply. This had an impact on
spot pricing in key offshore markets. Brazil, where prices lagged
through most of 2006, saw an increase of $25 per tonne in each of
February and April 2007, and Canpotex has announced a third
increase for June. Through two increases, prices in Southeast Asia
rose by $20 per tonne in the first quarter. Spot market rates for
dry bulk ocean freight were roughly 75 percent higher than a year
ago, adding to the need for price increases. In nitrogen and
phosphate, rising demand for solid fertilizers combined with
production curtailments in recent years has put extreme pressure on
supply. At the end of February, urea imports into the US were 22
percent below prior-year levels, while at quarter end, producer
inventories were 19 percent below the five-year average. In
phosphate fertilizers, North American DAP producer inventories were
51 percent below the five-year average by the end of the quarter.
As a result, spot prices for both urea and DAP reached record
levels in the quarter. Potash Strong demand and rising prices
resulted in first-quarter potash gross margin of $174.2 million.
This surpassed the $90.8 million of gross margin in the first
quarter of 2006, when shipments were constrained during extended
price negotiations with China and India, and was just short of our
record first-quarter potash gross margin of $176.2 million, set in
2005. While first- quarter 2007 shipments did not face the same
challenges as a year ago, there were a couple of smaller issues: a
Canadian rail strike disrupted our North American deliveries and
Canpotex's ability to move product to its Vancouver export
terminal, and severe winter weather in some regions that adversely
impacted rail transportation performance. These factors delayed
shipments of up to 200,000 tonnes into future quarters. Offshore
prices were flat compared to the trailing quarter and last year's
first quarter. While higher prices were being achieved in China and
Southeast Asia, increases in the Brazilian market did not take hold
until late in the quarter. In addition, higher shipping costs
impacted offshore realized prices by approximately $7 per tonne in
the quarter, even though Canpotex Limited (Canpotex), the offshore
marketing company for Saskatchewan potash producers, has locked in
about 40 percent of its CFR shipments under long-term freight
agreements. In North America, our $7-per-tonne potash price
increase announced late in 2006 was in effect for the full first
quarter, and our $11-per-tonne increase in mid-February 2007 has
now taken hold. Our offshore volumes were up 74 percent quarter
over quarter, as Canpotex increased its shipments by 92 percent
from last year's first quarter. Canpotex began shipping to China in
late February after the price settlement and delivered more than
400,000 tonnes during the quarter, compared to virtually none in
the same quarter last year. Shipments to Brazil rose to over
450,000 tonnes from approximately 50,000 tonnes; India took 200,000
tonnes compared to 50,000 tonnes; and Southeast Asian countries
combined to purchase over 550,000 tonnes, a 9-percent increase from
the same quarter of 2006. Our North American volumes were up 69
percent quarter over quarter. To meet this increasing global
demand, we raised our production to 2.3 million tonnes, compared to
1.3 million tonnes in the first quarter of 2006. With 30 fewer
shutdown weeks than in the same quarter last year, our total potash
cost of goods sold dropped by almost $11 per tonne despite
additional costs of roughly $5 per tonne for our share of brine
inflow management at Esterhazy, $2 per tonne higher brine
management costs at New Brunswick, and general cost escalations of
production inputs throughout 2006. Nitrogen Nitrogen gross margin
of $131.3 million was 65 percent higher than the $79.4 million
generated in last year's first quarter and 32 percent above our
previous record of $99.4 million, set in the second quarter of
2005. In this year's first quarter, our Trinidad operations, which
benefit from lower-cost, long-term natural gas contracts,
contributed $80.1 million, 61 percent of this segment's total gross
margin. Our facilities in the US added $34.0 million in gross
margin, while hedging gains contributed another $17.2 million.
Tight fundamentals pushed ammonia prices up 13 percent from the
trailing quarter, although they were down 4 percent from last
year's first quarter when higher natural gas costs were driving
nitrogen prices. Similarly, urea prices benefited from rising
demand and reduced imports into the US, as extremely tight
supply/demand raised prices to record levels - up 16 percent
quarter over quarter and 29 percent from the fourth quarter of
2006. First-quarter 2007 ammonia sales volumes were up 43 percent
from the same quarter last year, as we had more tonnes to sell. In
the first quarter of 2006, our Trinidad 02 plant was down for over
a month for turnarounds and debottlenecking projects. We gained the
full benefit of higher throughput from our debottlenecking projects
at the Trinidad 01 and 02 plants as well as increased production at
our Lima facility, which was shut down by high natural gas prices
in first-quarter 2006. Urea and nitrogen solutions sales volumes
increased by 21 percent and 177 percent, respectively, quarter over
quarter on the strength of agricultural demand. Our average gas
cost of $4.41 per MMBtu, including our hedge, was slightly higher
than the same quarter last year. Phosphate Phosphate gross margin
of $64.2 million was almost double the $33.3 million in gross
margin from last year's first quarter and was the second best in
our history, trailing only the $67.2 million generated in the
fourth quarter of 1998. Solid and liquid fertilizers contributed
$18.4 million and $15.3 million of gross margin, respectively,
while our stable base of higher-margin industrial and feed products
combined to deliver $28.0 million. Extremely tight fundamentals in
North America pushed up realized prices for solid and liquid
fertilizers by 14 percent and 7 percent, respectively, quarter over
quarter. Solid fertilizer volumes were up 13 percent from the same
period last year, including a 36-percent increase in North America,
while liquid fertilizer volumes rose 3 percent from the first
quarter of 2006. Feed prices fell 5 percent from last year's first
quarter, due to greater offshore volumes. Feed volumes were 26
percent higher than the same quarter last year, with a 96-percent
increase in offshore sales, primarily to Latin America. Industrial
product prices and volumes were flat quarter over quarter. Costs
for sulfur fell 20 percent from last year's first quarter when the
effects of Hurricane Katrina were still being felt, while our
ammonia costs were flat. Our rock costs were 5 percent higher in
the first quarter due to planned turnarounds at our mines.
Financial Our investments in Arab Potash Company (APC) in Jordan
and Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile
contributed $13.0 million to our overall performance in the
quarter, slightly higher than the $12.4 million realized in the
first quarter of 2006. Total other income, however, is less than
the $31.2 million of last year's first quarter, in part because a
$28 million dividend declared from Israel Chemicals Ltd. (ICL) in
Israel - $19 million more than was received in the first quarter
last year - will be recorded in our second quarter rather than the
first quarter as it was in 2006. The total market value of our
offshore investments, including our stake in Sinofert Holdings
Limited (Sinofert) in China, now equates to more than $31.00 per
PotashCorp share and exceeds our acquisition cost by $2.4 billion.
Provincial mining and other taxes more than doubled quarter over
quarter, reflecting the 92-percent increase in potash gross margin.
Selling and administrative expenses were $9.8 million higher than
in the same quarter last year, due to higher incentive plan
accruals given the higher share price quarter over quarter. We
spent $109.0 million in the quarter for capital expenditures on
property, plant and equipment, 60 percent of which was primarily
related to completing the potash compaction facility at Allan and
continuing work at bringing back idled potash capacity at Lanigan.
Outlook Many of the conditions that drive growth in the fertilizer
industry are becoming entrenched, including the increasing demand
for crops used in food, animal feed, fiber and fuels. The United
Nations recently raised its estimate of global population to 9.2
billion by 2050 - representing growth of 40 percent in just over 40
years. Most of this increase is expected in developing countries,
where people are benefiting from strong economic growth and are
able to purchase more and better food. The challenge comes from a
decline in the land available on a per-capita basis for
agricultural production, making maximization of crop yields
crucial. Added to this are concerns over the world's oil supply and
the environment that have sparked a surge of interest in biofuels,
raising the competition for crops and the prices paid for them.
China, India and other Southeast Asian countries need assistance in
meeting their demand for grains and oil-producing crops. Even as
these countries work to maximize domestic crop production, they are
still expected to import larger volumes of crop commodities,
leading to higher prices. Global potash supply/demand fundamentals
are extremely tight. Due to the combination of strong potash demand
in the US - where the spring season got off to a good start in the
south and saw only slight weather-related delays in the Midwest -
and offshore market growth, we now expect world potash demand to
increase by 12-16 percent in 2007. Volumes to Brazil have rebounded
and could approach the 2004 record of 6.4 million tonnes at prices
that could be at least $75 per tonne higher than last year. China
is expected to import more than 8 million tonnes, while India is
likely to have a significant presence in the potash market in the
second half in order to balance its increasing urea and phosphate
fertilizer applications. Strong demand from other Southeast Asian
countries is expected to continue. Canpotex announced a
$35-per-tonne price increase there in early April, the third
increase this year. US potash demand could be as much as 20 percent
higher than in calendar year 2006. Strong nitrogen fertilizer
demand is also expected to continue. High global prices for natural
gas and ocean transportation and delayed purchasing decisions
contributed to reduced nitrogen imports to the US, our primary
market for this nutrient. While we expect normal seasonal
fluctuations in gas and product pricing after the 2007 spring
season, they could be short-lived as preparation for the fall
season approaches. Rising construction costs around the world have
also led to the delay or abandonment of greenfield nitrogen
projects and, as a result, supply/demand fundamentals should remain
tight for the foreseeable future. These market conditions are
positive for our operations in Trinidad and the US. We now expect
our nitrogen gross margin to be about $100 million higher than our
previous expectations. We expect to recognize roughly $40 million
of hedging gains through the remainder of 2007 as product related
to the gas being hedged is sold. Phosphate, especially the solid
fertilizer DAP, has recovered strongly after an eight-year lag.
High demand has created shortages in some US growing regions and
Tampa spot DAP prices have risen from the mid-$200 range to more
than $430 per tonne since the beginning of the year. Only a portion
of the benefit of these rapid price increases was realized in the
quarter, and higher average prices are expected as new sales are
booked. We sold 1.6 million tonnes of solid fertilizers in 2006, so
this price turnaround significantly increases our earnings
potential in phosphate. Demand for liquid fertilizer and feed is
also expected to remain strong. These products have considerable
upside as producers direct a greater percentage of phosphoric acid
to DAP and MAP production, tightening liquid fertilizer and feed
supply. In this environment, we expect our phosphate segment gross
margin to be at least $100 million higher than we previously
forecast. In anticipation of expected long-term growth in potash
consumption, in March we announced plans to return 360,000 tonnes
of idled capacity to production at our Patience Lake division over
the next 18 months. As a result, our 2007 capital expenditures,
including capitalized interest, are expected to be approximately
$450 million, of which $165 million will relate to sustaining
capital. Our expected consolidated effective income tax rate
continues to be 30 percent through 2007, with the current/future
split expected to be 70/30 subject to sources of income. Provincial
mining and other taxes are forecast to approximate 17 percent of
total potash gross margin in the year. In light of the favorable
market conditions for all our fertilizer products, our range for
full-year net income, based on a $1.12 Canadian dollar, has been
increased from $6.25-$7.25 per share to $7.50-$8.50 per share. At
the same Canadian/US dollar exchange rate, we expect second-quarter
net income per diluted share to be in the range of $2.00-$2.50. In
the current trading range of the Canadian dollar relative to the US
dollar, each one-cent change in the Canadian dollar will typically
have an impact of approximately $4.0 million on the
foreign-exchange line, or $0.03 per share on an after-tax basis,
although this is primarily a non-cash item. Conclusion "We believe
we are at the front end of a period of significant consumption
growth and strong prices for all our products," said Doyle. "While
nitrogen and phosphate have already made considerable gains, potash
is only beginning its climb. With our plan to increase our potash
capacity to 15.7 million tonnes by 2015, we have significant gross
margin potential. This makes us very positive about the outlook for
our company and our ability to deliver strong returns for our
shareholders." Notes: ------ 1. All references to per-share amounts
pertain to per share - diluted. 2. See reconciliation and
description of non-GAAP measures in the attached section titled
"Selected Non-GAAP Financial Measures and Reconciliations."
PotashCorp is the world's largest fertilizer enterprise producing
the three primary plant nutrients and a leading supplier to three
distinct market categories: agriculture, with the largest capacity
in the world in potash, third largest in phosphate and fourth
largest in 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 as
set forth in this release, including foreign exchange rates,
expected growth, results of operations, performance and business
prospects and opportunities. While the company considers these
factors and assumptions to be reasonable, based on information
currently available, they may prove to be incorrect. A number of
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; risks associated with
natural gas and other hedging activities; changes in capital
markets; changes in currency and exchange rates; unexpected
geological or environmental conditions, including water inflow; and
government policy changes. Additional risks and uncertainties can
be found in our 2006 financial review annual report and in filings
with the U.S. Securities and Exchange Commission and Canadian
provincial securities commissions. Forward-looking statements are
given only as at the date of this release and the company disclaims
any obligation to update or revise the forward-looking statements,
whether as a result of new information, future events or otherwise.
In the case of guidance, should subsequent events show that the
forward-looking statements released herein may be materially
off-target, the company will evaluate whether to issue and, if
appropriate following such review, issue a news release updating
guidance or explaining reasons for the difference.
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PotashCorp will host a conference call on Thursday, April 26, 2007,
at 1:00 p.m. Eastern Time. To join the call, dial (416) 640-1907 at
least 10 minutes prior to the start time. Use reservation ID No.
21213529. Alternatively, visit http://www.potashcorp.com/ for a
live webcast of the conference call in a listen-only mode. This
news release is also available at this same website. Potash
Corporation of Saskatchewan Inc. Condensed Consolidated Statements
of Financial Position (in millions of US dollars except share
amounts) (unaudited) March 31, December 31, 2007 2006
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Assets Current assets Cash and cash equivalents $ 454.5 $ 325.7
Accounts receivable 493.4 442.3 Inventories 498.4 501.3 Prepaid
expenses and other current assets 52.3 40.9 Current portion of
derivative instrument assets 62.4 -
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1,561.0 1,310.2 Derivative instrument assets 82.3 - Property, plant
and equipment 3,568.8 3,525.8 Investments 2,294.6 1,148.9 Other
assets 78.3 105.8 Intangible assets 28.2 29.3 Goodwill 97.0 97.0
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$ 7,710.2 $ 6,217.0
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Liabilities Current liabilities Short-term debt $ 96.1 $ 157.9
Accounts payable and accrued charges 610.7 545.2 Current portion of
long-term debt 399.9 400.4
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1,106.7 1,103.5 Long-term debt (Note 2) 1,337.6 1,357.1 Future
income tax liability 835.1 632.1 Accrued pension and other
post-retirement benefits 224.0 219.6 Accrued environmental costs
and asset retirement obligations 110.8 110.3 Other non-current
liabilities and deferred credits 1.8 14.1
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3,616.0 3,436.7
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Shareholders' Equity Share capital 1,442.8 1,431.6 Unlimited
authorization of common shares without par value; issued and
outstanding 105,065,022 and 104,801,049 at March 31, 2007 and
December 31, 2006, respectively Contributed surplus 64.1 62.3
Retained earnings 1,468.9 1,286.4 Accumulated other comprehensive
income (Note 3) 1,118.4 -
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4,094.2 2,780.3
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$ 7,710.2 $ 6,217.0
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc. Condensed Consolidated
Statements of Operations and Retained Earnings (in millions of US
dollars except per-share amounts) (unaudited) Three Months Ended
March 31 2007 2006
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Sales (Note 6) $ 1,154.7 $ 861.6 Less: Freight 81.9 54.9
Transportation and distribution 31.0 31.2 Cost of goods sold 672.1
572.0
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Gross Margin 369.7 203.5
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Selling and administrative 40.6 30.8 Provincial mining and other
taxes 32.5 14.2 Foreign exchange loss (gain) 2.0 (2.4) Other income
(Note 8) (13.7) (31.2)
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61.4 11.4
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Operating Income 308.3 192.1 Interest Expense 25.5 23.2
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Income Before Income Taxes 282.8 168.9 Income Taxes (Note 4) 84.8
43.4
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Net Income 198.0 125.5 Retained Earnings, Beginning of Period
1,286.4 716.9 Change in Accounting Policy (Note 1) 0.2 - Dividends
(15.7) (15.3)
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Retained Earnings, End of Period $ 1,468.9 $ 827.1
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Net Income Per Share (Note 5) Basic $ 1.89 $ 1.21 Diluted $ 1.85 $
1.19
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Dividends Per Share $ 0.15 $ 0.15
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc. Condensed Consolidated
Statements of Cash Flow (in millions of US dollars) (unaudited)
Three Months Ended March 31 2007 2006
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Operating Activities Net income $ 198.0 $ 125.5
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Adjustments to reconcile net income to cash provided by (used in)
operating activities Depreciation and amortization 72.7 58.8
Stock-based compensation 2.7 1.5 (Gain) loss on disposal of
property, plant and equipment (0.1) 0.3 Foreign exchange on future
income tax 2.7 (0.2) Provision for future income tax 25.4 13.9
Undistributed earnings of equity investees (13.0) (12.4) Unrealized
gain on derivative instruments (6.3) - Other long-term liabilities
0.9 2.0
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Subtotal of adjustments 85.0 63.9
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Changes in non-cash operating working capital Accounts receivable
(50.8) 63.3 Inventories (10.6) 8.9 Prepaid expenses and other
current assets (11.4) (27.0) Accounts payable and accrued charges
109.4 (247.1)
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Subtotal of changes in non-cash operating working capital 36.6
(201.9)
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Cash provided by (used in) operating activities 319.6 (12.5)
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Investing Activities Additions to property, plant and equipment
(109.0) (120.0) Purchase of long-term investments (9.7) (126.3)
Proceeds from disposal of property, plant and equipment 0.3 2.0
Other assets and intangible assets (1.8) (4.5)
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Cash used in investing activities (120.2) (248.8)
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Cash before financing activities 199.4 (261.3)
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Financing Activities Repayment and issue costs of long-term debt
obligations (3.4) (0.3) (Repayment of) proceeds from short-term
debt obligations (61.8) 352.7 Dividends (15.7) (15.3) Issuance of
common shares 10.3 3.0
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Cash (used in) provided by financing activities (70.6) 340.1
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Increase in Cash and Cash Equivalents 128.8 78.8 Cash and Cash
Equivalents, Beginning of Period 325.7 93.9
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Cash and Cash Equivalents, End of Period $ 454.5 $ 172.7
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Cash and cash equivalents comprised of: Cash $ 17.7 $ (2.3)
Short-term investments 436.8 175.0
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$ 454.5 $ 172.7
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Supplemental cash flow disclosure Interest paid $ 14.2 $ 16.3
Income taxes paid $ 32.1 $ 142.0
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc. Condensed Consolidated
Statement of Comprehensive Income (in millions of US dollars)
(unaudited) Three Months Ended March 31, 2007 Before Net of Income
Taxes Income Taxes Income Taxes
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Net income $ 282.8 $ 84.8 $ 198.0
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Other comprehensive income Change in unrealized holding gains on
available-for-sale securities(1) 245.0 12.7 232.3 Change in gains
and losses on derivatives designated as cash flow hedges(2) 35.1
10.5 24.6 Reclassification to income of gains and losses on cash
flow hedges(2) (17.2) (5.1) (12.1) Unrealized foreign exchange
gains on translation of self-sustaining foreign operations 4.6 -
4.6
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Other comprehensive income 267.5 18.1 249.4
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Comprehensive income $ 550.3 $ 102.9 $ 447.4
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(1) Available-for-sale securities are comprised of shares in Israel
Chemicals Ltd. and Sinofert Holdings Limited (2) Natural gas
derivative instruments
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(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, 2007 (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 interim condensed
consolidated financial statements are consistent with those used in
the preparation of the 2006 annual consolidated financial
statements, except as described below. These 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 2006 annual consolidated
financial statements. In management's opinion, the unaudited
financial statements include all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly such
information. Interim results are not necessarily indicative of the
results expected for the fiscal year. Comprehensive Income, Equity,
Financial Instruments and Hedges Effective January 1, 2007, the
company adopted Canadian Institute of Chartered Accountants
("CICA") Section 1530, "Comprehensive Income", Section 3251,
"Equity", Section 3855, "Financial Instruments - Recognition and
Measurement" and Section 3865, "Hedges". These pronouncements
increase harmonization with US GAAP. Under the standards: -
Financial assets are classified as loans and receivables,
held-to-maturity, held-for-trading or available-for-sale. Loans and
receivables include all loans and receivables except debt
securities and are accounted for at amortized cost.
Held-to-maturity classification is restricted to fixed maturity
instruments that the company intends and is able to hold to
maturity and are accounted for at amortized cost. Held-for-trading
instruments are recorded at fair value with realized and unrealized
gains and losses reported in net income. The remaining financial
assets are classified as available-for-sale. These are recorded at
fair value with unrealized gains and losses reported in a new
category of the Consolidated Statement of Financial Position under
shareholders' equity called accumulated other comprehensive income
("AOCI"); - Financial liabilities are classified as either
held-for-trading or other. Held-for-trading instruments are
recorded at fair value with realized and unrealized gains and
losses reported in net income. Other instruments are accounted for
at amortized cost with gains and losses reported in net income in
the period that the liability is derecognized; and - Derivative
instruments ("derivatives") are classified as held-for-trading
unless designated as hedging instruments. All derivatives are
recorded at fair value on the Consolidated Statement of Financial
Position. For derivatives that hedge the changes in fair value of
an asset or liability, changes in the derivatives' fair value are
reported in net income and are substantially offset by changes in
the fair value of the hedged asset or liability attributable to the
risk being hedged. For derivatives that hedge variability in cash
flows, the effective portion of the changes in the derivatives'
fair value are initially recognized in other comprehensive income
("OCI") and the ineffective portion are recorded in net income.
Amounts temporarily recorded in AOCI will subsequently be
reclassified to net income in the periods when net income is
affected by the variability in the cash flows of the hedged item.
These standards have been applied prospectively; accordingly
comparative amounts for prior periods have not been restated. The
adoption of these standards resulted in the following adjustments
as of January 1, 2007 in accordance with the transition provisions:
(1) Available-for-sale securities - The company's investments in
Israel Chemicals Ltd. ("ICL") and Sinofert Holdings Limited
("Sinofert") have been classified as available-for-sale and
recorded at fair value in the Consolidated Statement of Financial
Position, resulting in an increase in investments of $887.8, an
increase to AOCI of $789.6 and an increase in future income tax
liability of $98.2; (2) Deferred debt costs - Bond issue costs were
reclassified from other assets to long-term debt and deferred swap
gains were reclassified from other non-current liabilities to
long-term debt, resulting in a reduction in other assets of $23.9,
a reduction in other non-current liabilities of $6.6 and a
reduction in long-term debt of $17.3; (3) Natural gas derivatives -
The company employs futures, swaps and option agreements to
establish the cost of a portion of its natural gas requirements.
These derivative instruments generally qualify for hedge
accounting. Derivative instruments were recorded on the
Consolidated Statement of Financial Position at fair value
resulting in an increase in current portion of derivative
instruments of $50.9, an increase in derivative instruments
(non-current asset) of $69.4, an increase in future income tax
liability of $45.6 and an increase in AOCI of $74.7; - Hedge
ineffectiveness on these derivative instruments was recorded as a
cumulative effect adjustment to opening retained earnings, net of
tax, resulting in an increase in retained earnings of $0.2 and a
decrease in AOCI of $0.2; and - Deferred realized hedging gains
were reclassified from inventory to AOCI resulting in an increase
in inventory of $8.0, an increase in future income tax liability of
$3.1 and an increase in AOCI of $4.9. Stripping Costs Incurred in
the Production Phase of a Mining Operation In March 2006, the
Emerging Issues Committee issued Abstract No. 160, "Stripping Costs
Incurred in the Production Phase of a Mining Operation"
("EIC-160"). EIC-160 discusses the treatment of costs associated
with the activity of removing overburden and other mine waste
minerals in the production phase of a mining operation. It
concludes that such stripping costs should be accounted for
according to the benefit received by the entity and recorded as
either a component of inventory or a betterment to the mineral
property, depending on the benefit received. The implementation of
EIC-160, effective January 1, 2007, resulted in a decrease in
inventory of $21.1, a decrease in other assets of $7.4 and an
increase in property, plant and equipment of $28.5. 2. Long-term
Debt In February 2007, the company entered into a back-to-back loan
arrangement involving certain financial assets and financial
liabilities. The company has presented $195.0 of financial assets
and financial liabilities on a net basis because a legal right to
set-off exists, and it intends to settle with the same party on a
net basis. The company incurred $3.2 of debt issue costs as a
result of this arrangement which were included as a reduction to
long-term debt and will be amortized using the effective interest
rate method over the term of the related liability. 3. Accumulated
Other Comprehensive Income The balances related to each component
of accumulated other comprehensive income, net of related taxes,
are as follows: March 31 2007
-------------------------------------------------------------------------
Unrealized holding gains on available-for-sale securities $ 1,021.9
Gains and losses on derivatives designated as cash flow hedges 91.9
Unrealized foreign exchange gains on translation of self-sustaining
foreign operations 4.6
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Accumulated other comprehensive income $ 1,118.4
-------------------------------------------------------------------------
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4. Income Taxes The company's consolidated reported income tax rate
for the three months ended March 31, 2007 was approximately 30
percent (2006 - 26 percent). The change in the consolidated
reported income tax rate was due to the following: - The
consolidated effective income tax rate for the three months ended
March 31, 2007 was 30 percent compared to 33 percent for the three
months ended March 31, 2006. The change was primarily attributable
to lower Canadian income tax rates partially offset by a higher
percentage of consolidated income earned in the higher-tax
jurisdictions during the three months ended March 31, 2007 compared
to the three months ended March 31, 2006. A scheduled two
percentage point reduction in the Canadian federal income tax rate
applicable to resource companies became effective at the beginning
of 2007. In addition, during the three months ended June 30, 2006,
the Province of Saskatchewan reduced the corporate income tax rate
3 percentage points to 14 percent effective July 1, 2006 with
further 1 percentage point reductions scheduled for July 1, 2007
and July 1, 2008. - Income tax refunds totaling $12.3 for the
2002-2004 taxation years were recorded during the three months
ended March 31, 2006 relating to a Canadian appeal court decision
(pertaining to a uranium producer) which affirmed the deductibility
of the Saskatchewan capital tax resource surcharge. 5. Net Income
Per Share Basic net income per share for the quarter is calculated
on the weighted average shares issued and outstanding for the three
months ended March 31, 2007 of 104,965,000 (2006 - 103,641,000).
Diluted net income per share is calculated based on the weighted
average number of shares issued and outstanding during the period.
The denominator is: (1) increased by the total of the additional
common shares that would have been issued assuming exercise of all
stock options with exercise prices at or below the average market
price for the period; and (2) decreased by the number of shares
that the company could have repurchased if it had used the assumed
proceeds from the exercise of stock options to repurchase them on
the open market at the average share price for the period. The
weighted average number of shares outstanding for the diluted net
income per share calculation for the three months ended March 31,
2007 was 107,258,000 (2006 - 105,825,000). 6. Segment Information
The company has three reportable business segments: potash,
nitrogen and phosphate. These business segments are differentiated
by the chemical nutrient contained in the product that each
produces. Inter-segment sales are made under terms that approximate
market value. The accounting policies of the segments are the same
as those described in Note 1. Three Months Ended March 31, 2007
-------------------------------------------------------------------------
Consol- Potash Nitrogen Phosphate All Others idated
-------------------------------------------------------------------------
Sales $ 380.5 $ 419.6 $ 354.6 $ - $1,154.7 Freight 43.5 11.3 27.1 -
81.9 Transportation and distribution 9.6 13.6 7.8 - 31.0 Net sales
- third party 327.4 394.7 319.7 - Cost of goods sold 153.2 263.4
255.5 - 672.1 Gross margin 174.2 131.3 64.2 - 369.7 Depreciation
and amortization 17.9 21.7 29.6 3.5 72.7 Inter-segment sales - 33.0
0.9 - - Three Months Ended March 31, 2006
-------------------------------------------------------------------------
Consol- Potash Nitrogen Phosphate All Others idated
-------------------------------------------------------------------------
Sales $ 225.8 $ 331.9 $ 303.9 $ - $ 861.6 Freight 25.0 9.6 20.3 -
54.9 Transportation and distribution 7.4 13.3 10.5 - 31.2 Net sales
- third party 193.4 309.0 273.1 - Cost of goods sold 102.6 229.6
239.8 - 572.0 Gross margin 90.8 79.4 33.3 - 203.5 Depreciation and
amortization 11.8 19.3 24.3 3.4 58.8 Inter-segment sales 4.0 31.9
2.2 - - 7. Pension and Other Post-Retirement Expenses Defined
Benefit Pension Plans Three Months Ended March 31 2007 2006
-------------------------------------------------------------------------
Service cost $ 3.8 $ 3.6 Interest cost 9.1 8.4 Expected return on
plan assets (10.7) (9.6) Net amortization and change in valuation
allowance 3.2 3.5
-------------------------------------------------------------------------
Net expense $ 5.4 $ 5.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other Post-Retirement Plans Three Months Ended March 31 2007 2006
-------------------------------------------------------------------------
Service cost $ 1.4 $ 1.2 Interest cost 3.5 3.0 Net amortization 0.2
(0.1)
-------------------------------------------------------------------------
Net expense $ 5.1 $ 4.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended March 31, 2007, the company contributed
$8.2 to its defined benefit pension plans, $6.6 to its defined
contribution pension plans and $2.1 to its other post-retirement
plans. Total 2007 contributions to these plans are not expected to
differ significantly from the amounts previously disclosed in the
consolidated financial statements for the year ended December 31,
2006. 8. Other Income Three Months Ended March 31 2007 2006
-------------------------------------------------------------------------
Share of earnings of equity investees $ 13.0 $ 12.4 Dividend income
- 9.1 Other 0.7 9.7
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$ 13.7 $ 31.2
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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 March 31
2007 2006
-------------------------------------------------------------------------
Potash Operating Data Production (KCl Tonnes - thousands) 2,303
1,295 Shutdown weeks 2.0 31.7 Sales (tonnes - thousands) North
America 892 527 Offshore 1,273 732
-------------------------------------------------------------------------
2,165 1,259
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Net Sales (US $ millions) Sales $380.5 $225.8 Less: Freight
43.5 25.0 Transportation and distribution 9.6 7.4
-------------------------------------------------------------------------
Net Sales $327.4 $193.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
North America $152.7 $ 91.9 Offshore 171.0 97.2
-------------------------------------------------------------------------
Potash Subtotal 323.7 189.1 Miscellaneous products 3.7 4.3
-------------------------------------------------------------------------
$327.4 $193.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Average Net Sales Price per MT North America $171.15 $174.31
Offshore $134.28 $132.90
-------------------------------------------------------------------------
$149.47 $150.24
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Potash Corporation of Saskatchewan Inc. Selected Operating and
Revenue Data (unaudited) Three Months Ended March 31 2007 2006
-------------------------------------------------------------------------
Nitrogen Operating Data Production (N Tonnes - thousands) 747 559
Average Natural Gas Cost per MMBtu $4.41 $4.34 Sales (tonnes -
thousands) Manufactured Product Ammonia 520 364 Urea 339 281
Nitrogen solutions/Nitric acid/ Ammonium nitrate 478 382
-------------------------------------------------------------------------
Manufactured Product 1,337 1,027 Purchased Product 49 54
-------------------------------------------------------------------------
1,386 1,081
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer sales tonnes 454 322 Industrial/Feed sales tonnes 932
759
-------------------------------------------------------------------------
1,386 1,081
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Net Sales (US $ millions) Sales $419.6 $331.9 Less:
Freight 11.3 9.6 Transportation and distribution 13.6 13.3
-------------------------------------------------------------------------
Net Sales $394.7 $309.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Manufactured Product Ammonia $169.4 $123.0 Urea 113.9 81.4 Nitrogen
solutions/Nitric acid/ Ammonium nitrate 86.4 81.0 Miscellaneous
products 7.3 6.6
-------------------------------------------------------------------------
Net Sales Manufactured Product 377.0 292.0 Net Sales Purchased
Product 17.7 17.0
-------------------------------------------------------------------------
$394.7 $309.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer net sales $132.8 $88.1 Industrial/Feed net sales 261.9
220.9
-------------------------------------------------------------------------
$394.7 $309.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Average Net Sales Price per MT Ammonia $325.79 $337.69
Urea $336.54 $289.81 Nitrogen solutions/Nitric acid/ Ammonium
nitrate $180.73 $211.96
-------------------------------------------------------------------------
Manufactured Product $282.07 $284.19 Purchased Product $359.41
$316.85
-------------------------------------------------------------------------
$284.81 $285.81
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer average price per MT $292.37 $273.66 Industrial/Feed
average price per MT $281.12 $290.97
-------------------------------------------------------------------------
$284.81 $285.81
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Corporation of Saskatchewan Inc. Selected Operating and
Revenue Data (unaudited) Three Months Ended March 31 2007 2006
-------------------------------------------------------------------------
Phosphate Operating Data Production (P2O5 Tonnes - thousands) 525
513 P2O5 Operating Rate 92% 86% Sales (tonnes - thousands)
Fertilizer - Liquid phosphates 269 260 Fertilizer - Solid
phosphates 427 377 Feed 208 165 Industrial 173 173
-------------------------------------------------------------------------
1,077 975
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Phosphate Net Sales (US $ millions) Sales $354.6 $303.9 Less:
Freight 27.1 20.3 Transportation and distribution 7.8 10.5
-------------------------------------------------------------------------
Net Sales $319.7 $273.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer - Liquid phosphates $68.7 $61.9 Fertilizer - Solid
phosphates 120.4 93.1 Feed 62.9 52.3 Industrial 63.2 63.2
Miscellaneous products 4.5 2.6
-------------------------------------------------------------------------
$319.7 $273.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Phosphate Average Net Sales Price per MT Fertilizer - Liquid
phosphates $255.20 $238.13 Fertilizer - Solid phosphates $281.98
$246.86 Feed $302.87 $317.20 Industrial $365.85 $364.04
-------------------------------------------------------------------------
$296.95 $279.94
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Exchange Rate (Cdn$/US$) 2007 2006
-------------------------------------------------------------------------
December 31 1.1653 March 31 1.1529 1.1671 First-quarter average
conversion rate 1.1665 1.1557 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,
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 ------ Set forth below is a reconciliation of
"EBITDA" to net income, the most directly comparable financial
measure calculated and presented in accordance with Canadian GAAP.
Three Months Ended March 31 2007 2006
-------------------------------------------------------------------------
Net income $ 198.0 $ 125.5 Income taxes 84.8 43.4 Interest expense
25.5 23.2 Depreciation and amortization 72.7 58.8
-------------------------------------------------------------------------
EBITDA $ 381.0 $ 250.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA is calculated as earnings before interest, income taxes,
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 decisions, rather than the performance of the
company's day-to-day operations. As compared to net income
according to GAAP, this measure is limited in that it does not
reflect the periodic costs of certain capitalized tangible and
intangible assets used in generating revenues in the company's
business. Management evaluates such items through other financial
measures such as capital expenditures and cash flow provided by
operating activities. The company believes that this measurement is
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 March 31 2007
2006
-------------------------------------------------------------------------
Cash flow prior to working capital changes(1) $ 283.0 $ 189.4
-------------------------------------------------------------------------
Changes in non-cash operating working capital Accounts receivable
(50.8) 63.3 Inventories (10.6) 8.9 Prepaid expenses and other
current assets (11.4) (27.0) Accounts payable and accrued charges
109.4 (247.1)
-------------------------------------------------------------------------
Changes in non-cash operating working capital 36.6 (201.9)
-------------------------------------------------------------------------
Cash provided by (used in) operating activities $ 319.6 $ (12.5)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Free cash flow(2) $ 162.5 $ (61.4) Additions to property, plant and
equipment 109.0 120.0 Purchase of long-term investments 9.7 126.3
Other assets and intangible assets 1.8 4.5 Changes in non-cash
operating working capital 36.6 (201.9)
-------------------------------------------------------------------------
Cash provided by (used in) operating activities $ 319.6 $ (12.5)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The company uses cash flow prior to working capital changes as
a supplemental financial measure in its evaluation of liquidity.
Management believes that adjusting principally for the swings in
non-cash working capital items due to seasonality assists
management in making long-term liquidity assessments. The company
also believes that this measurement is useful as a measure of
liquidity or as a valuation measurement. (2) The company uses free
cash flow as a supplemental financial measure in its evaluation of
liquidity and financial strength. Management believes that
adjusting principally for the swings in non-cash operating working
capital items due to seasonality, additions to property, plant and
equipment, purchases of long-term investments, and changes to other
assets assists management in the long-term assessment of liquidity
and financial strength. The company also believes that this
measurement is useful as an indicator of the company's ability to
service its debt, meet other payment obligations and make strategic
investments. Readers should be aware that free cash flow does not
represent residual cash flow available for discretionary
expenditures. Certain of the prior periods' figures have been
reclassified to conform with the current period's presentation.
DATASOURCE: Potash Corporation of Saskatchewan Inc. CONTACT:
Investors: Denita Stann, Director, Investor Relations, Phone: (847)
849-4277, Fax: (847) 849-4691, Email: ; Media: Rhonda Speiss,
Manager, Public Relations, Phone: (306) 933-8544, Fax: (306)
933-8844, , Web Site: http://www.potashcorp.com/
Copyright
