PotashCorp Reports Third-Quarter Earnings of $0.74 per Share
PotashCorp Reports Third-Quarter Earnings of $0.74 per Share
PR Newswire
SASKATOON, Oct. 25, 2012
Key Performance and Outlook Highlights
* Third-quarter earnings of $0.74 per share^1; 21 percent lower than
third-quarter 2011
* Record third-quarter North American potash sales volumes offset by
offshore sales decline
* Nine-month cash flow prior to working capital changes^2 reached $2.7
billion; close to record levels
* Full-year 2012 earnings guidance lowered to $2.40-$2.60 per share
Symbol: POT
Listed: TSX, NYSE
SASKATOON, Oct. 25, 2012 /PRNewswire/ - Potash Corporation of Saskatchewan
Inc. (PotashCorp) today reported third-quarter earnings of $0.74 per share
($645 million), which compared to $0.94 per share ($826 million) in the same
period last year. Earnings for the first nine months reached $1.89 per share
($1.7 billion), a total that trailed the $2.73 per share ($2.4 billion) earned
during the same period in 2011.
Gross margin of $0.9 billion was the third highest third-quarter total in our
history, exceeded only by the $1.1 billion generated in 2011 and the record
performance of 2008. The decline from 2011's third quarter was primarily the
result of weaker phosphate margins and reduced offshore potash sales due to
the delay of new supply contracts with China and India. Our gross margin for
the first three quarters of 2012 reached $2.8 billion, which compared to $3.4
billion generated in the same period last year.
Earnings before finance costs, income taxes and depreciation and
amortization^2 (EBITDA) reached $1.1 billion for the quarter - down from $1.3
billion earned in third-quarter 2011 - and raised the total for the first nine
months to $2.9 billion. Although cash flow prior to working capital changes of
$0.8 billion trailed the $1.0 billion generated during the same quarter last
year, the nine-month total for 2012 grew to $2.7 billion, 8 percent below last
year's record levels.
Offshore investments in Arab Potash Company (APC) in Jordan, Israel Chemical
Ltd. (ICL) in Israel and Sociedad Quimica y Minera de Chile S.A. (SQM) in
Chile contributed $113 million to our earnings in the third quarter.
Contributions in the form of share of earnings of equity-accounted investments
and dividends from these investments for the first nine months of 2012 reached
a record $318 million - a total which also included a dividend from Sinofert
Holdings Limited (Sinofert). The market value of our investments in these
publicly traded companies equated to approximately $9.2 billion, or $10 per
PotashCorp share, at market close on October 24, 2012.
"Strong demand in North America and Latin America demonstrated the powerful
motivators in place for farmers today, although not all global potash markets
moved as quickly to capitalize on these favorable conditions," said PotashCorp
President and Chief Executive Officer Bill Doyle. "While Chinese and Indian
customers have not engaged consistently, their need for improved soil
fertility to increase food production has not subsided. Our diversified
fertilizer business and global footprint helped support our results for the
quarter and we believe position us well to drive improved results as demand
grows."
Market Conditions
Third-quarter potash demand was marked by varying degrees of engagement in key
markets around the world. Movement to China and India was limited following
the completion of existing supply contracts, while Brazil and North America
purchased aggressively to meet robust farmer demand. In North America,
fertilizer dealers began to prepare for their fall requirements upon the
announcement of new summer-fill pricing programs. This helped push
third-quarter shipments from domestic potash producers 26 percent above the
same period last year. By the end of the quarter, shipments accelerated as
fertilizer dealers responded to previously conservative fall application
estimates, especially in regions less severely impacted by drought. Demand was
further aided by a rapidly advancing harvest that was expected to create an
extended North American fall fertilizer application window. In offshore
markets, delays in closing new contracts with buyers in China and India more
than offset strong demand from Latin America (especially Brazil) and resulted
in a decrease in third-quarter shipments from North American producers to 1.9
million tonnes, 25 percent below the same period last year. As a result,
rising competitive pressures in certain offshore markets moved most
spot-market prices lower during the quarter.
In phosphate, strong demand and continuing supply challenges in the US kept
domestic markets for solid phosphate fertilizer tight. Weaker offshore demand
relative to 2011 levels resulted in lower prices on a comparative basis, but
tightness in North America caused prices to move up in this market by the end
of the quarter.
Nitrogen markets remained robust throughout the third quarter, driven by the
expectation of high US corn acreage for the upcoming spring planting season
and steady industrial demand. Continued delays in expected new capacity, as
well as ongoing production issues in key exporting regions, kept inventories
relatively low. The combination of strong demand and tight supply resulted in
prices for ammonia at historically high levels, well above those of the same
period last year.
Potash
Potash gross margin totaled $554 million for the third quarter, below the $700
million generated in the same period last year. This result brought potash
gross margin for the first nine months to $1.7 billion, trailing the $2.2
billion earned in the comparative period last year.
Sales volumes for the quarter totaled 2.1 million tonnes, slightly below the
2.2 million tonnes sold in the same period of 2011. While strong demand pushed
North American potash sales volumes to a third-quarter record of 1.0 million
tonnes, surpassing the 0.8 million tonnes sold in the same period last year,
offshore sales volumes fell to 1.1 million tonnes from 1.4 million tonnes in
2011. Shipments to Latin America outpaced last year's third quarter, but
strength from this market was more than offset by the decline in sales to
China and India. Shipments from Canpotex Limited (Canpotex) - the offshore
marketing company for Saskatchewan potash producers - during the third quarter
were heavily weighted towards Latin America and Other Asia (countries outside
of China and India), which accounted for 32 percent and 41 percent of tonnes,
respectively, while China represented 12 percent and India 5 percent. Total
sales for the year reached 5.9 million tonnes, trailing the record 7.5 million
tonnes sold through the first nine months of 2011.
Our third-quarter average realized potash price of $429 per tonne was
relatively flat compared to second quarter 2012, but declined 5 percent from
the same period last year on softening prices in spot markets.
Third-quarter potash production of 1.6 million tonnes reflected the impact of
scheduled maintenance shutdowns, capital-related work at our Allan facility
and inventory-related downtime at our Lanigan facility. Production for the
quarter was 18 percent below last year's third quarter, which did not include
any inventory-related downtime and contained fewer weeks of scheduled
maintenance. This lower level of production - along with a greater percentage
of production from higher-cost facilities, a rise in costs associated with
potash tonnes from Esterhazy and increased depreciation charges - negatively
impacted our cost of goods sold on a per-tonne basis.
Phosphate
Third-quarter phosphate gross margin of $122 million raised our nine-month
total to $370 million, with both results lagging the $169 million and the $485
million earned in the comparable periods last year. Fertilizer products
delivered $74 million in gross margin for the third quarter of 2012, while
feed and industrial contributed $43 million.
The impacts of tropical storm Debby, a turnaround at our Geismar facility and
challenging mining conditions in a new portion of our Aurora mine limited
production during the quarter. As a result, third-quarter sales volumes of 0.9
million tonnes were below the 1.1 million tonnes sold in the same quarter last
year, reflecting our decision to allocate a larger percentage of our limited
phosphoric acid production to higher-margin products.
Average realized phosphate prices for the quarter totaled $537 per tonne,
trailing the $602 per tonne achieved in the same quarter of 2011. This change
reflected lower prices for solid and liquid fertilizers, although the relative
strength of our diversified feed and industrial products - where pricing is
typically less volatile than products with agricultural exposure - helped
limit the overall decline.
Phosphate cost of goods sold on a per-tonne basis was positively impacted
during the third quarter by lower sulfur costs and a favorable adjustment to
our phosphate asset retirement obligations (due to an increase in the relative
discount rate) compared to the same period last year.
Nitrogen
Our ammonia-focused nitrogen business continued to benefit from higher prices,
increasing third-quarter gross margin to $251 million, and raised our total
for the year to a record $772 million. These results compared to $263 million
in gross margin generated in last year's third quarter and $675 million earned
during the first nine months of 2011. Trinidad generated $144 million of our
third-quarter 2012 gross margin, while our operations in the US (including the
impact of our hedge position) contributed $107 million.
Gas interruptions in Trinidad and expansion-related downtime at our Augusta
facility resulted in sales volumes for the third-quarter declining to 1.1
million tonnes from 1.3 million tonnes in the same period last year.
Average realized price for nitrogen reached $458 per tonne, up from $424 per
tonne in the third quarter of 2011, as tight ammonia market fundamentals
pushed prices higher relative to the same period last year.
Higher Tampa ammonia prices - the benchmark to which our Trinidad gas costs
are primarily indexed - were the primary driver of the increase in cost of
goods sold on a per-tonne basis in the third quarter.
Financial
In September 2012, we announced a 50 percent increase to our quarterly
dividend that raised it to $0.21 per share. This was our third dividend
increase since the beginning of 2011, with our quarterly dividend now more
than six times its level at the start of that year.
Third-quarter capital-related expenditures, primarily related to our potash
expansion projects, were $546 million, raising our total for the first nine
months of 2012 to $1.5 billion.
General Outlook
The economic motivators for farmers to increase food production remain strong
- a situation that, combined with the basic principles of agronomy and the
need to improve crop yields around the world, typically drives fertilizer
demand. Yet, as this situation unfolds, the speed and magnitude of response
has varied by market. In the US and Brazil, farmers are responding more
quickly to the opportunities and driving strong demand for all fertilizers,
while regions with more government involvement and less-developed agricultural
economies - and lagging yields - have moved more slowly. This current
dichotomy has disrupted typical demand patterns and caused potash shipment
expectations to fall below previously forecast levels, which are now
anticipated to be in the range of 50-52 million tonnes for the year.
These conditions are not unprecedented, as growth has often occurred in uneven
waves, with increases in demand sometimes punctuated by periods of
contraction. PotashCorp has successfully navigated through these challenges in
the past, following strategies designed to minimize the impact during periods
of slower demand while delivering long-term growth.
Potash Market Update
In North America, we have witnessed improved sentiment among farmers and
fertilizer dealers that is translating into rising demand to meet fall
application needs. While farmers work to address their soil nutrient needs as
they seek to capitalize on supportive crop economics - driven by strong crop
prices and the affordability of fertilizer - we believe dealers will
cautiously manage purchases through the remainder of the year in an effort to
minimize inventory positions. We anticipate fourth-quarter demand in this
market will be above that of the same period last year and still see the
potential for second-half shipments to reach record levels.
Latin American distributors are working to keep pace with significant grower
demand. Soybean and corn planting is well underway in key producing regions,
which is drawing down potash supplies. We anticipate demand in this region
will remain strong for the balance of the year as distributors prepare for
Brazil's Safrina crop (February/March corn planting) and attempt to take
advantage of the typically slower import period to help alleviate port
congestion. Potash shipments for full-year 2012 are forecast to remain strong
and we believe could approach last year's record levels.
Demand in Other Asia (countries outside of China and India) remains relatively
strong, despite volatility in prices for oil palm, a key crop in this part of
the world. We expect full-year demand to fall below that of 2011, but
anticipate this market will end the year with lower inventories than a year
ago.
While demand for potash in China is expected to be equal to that of 2011,
delays in new contract commitments have reduced seaborne supply expectations
for 2012. Demand in this market is currently being met from internal
production, inventory withdrawals and tonnage via rail, but additional
requirements are anticipated. We do expect a resolution prior to the end of
2012 and believe reduced Chinese inventory levels by year-end could lead to
increased requirements in 2013.
In India, a number of near-term challenges are continuing to create
uncertainty. High food inflation, crop yields that are well below many other
countries in the developing world and the significant under-application of
potash are well documented, but the path India will follow to address these
critical issues remains unclear. India faces significant challenges in
improving, or even maintaining, current crop production levels given existing
fertility practices. The need to address this situation - along with mounting
internal pressure on the government from its local fertilizer industry - fuels
our confidence that policies will ultimately be modified and demand will
improve. We believe an increase in demand will begin to unfold in 2013,
although the extent to which that happens remains uncertain at this time.
Financial Outlook
In this environment, we now estimate our 2012 potash segment gross margin will
be in the range of $2.1 billion to $2.3 billion. This revised estimate
primarily reflects a reduction in our shipments estimate for 2012, which is
now anticipated to be in the range of 7.6-8.3 million tonnes. The wide ranges
on these estimates primarily reflect our varied timing assumptions on new
supply contracts.
Inventory-related downtime at our lower-cost Lanigan and Rocanville
facilities, in addition to increased depreciation charges and the impact of
higher costs associated with potash tonnes from Esterhazy, is expected to
result in a per-tonne cost of goods sold for the fourth quarter above those
compared to the same period last year.
In phosphate, tight North American phosphoric acid markets are expected to
contribute to relatively stable markets through the balance of the year,
although this may be offset by higher per-tonne cost of goods sold - a product
of higher rock and ammonia costs - and result in margin contraction from
third-quarter 2012 levels.
The expectation of record or near-record corn plantings in 2013, along with
healthy industrial demand, is likely to lead to relatively tight markets -
particularly for ammonia - through the balance of 2012. We expect higher
per-tonne cost of goods sold for the fourth quarter, reflecting the recent
rise in North American spot gas prices and the lagging impact of sales from
inventory produced with higher-cost Trinidad gas during the third quarter. We
expect that our expansion project at Augusta will begin producing during the
fourth quarter, and that our ammonia plant restart at Geismar will commence in
January 2013.
We now forecast our combined phosphate and nitrogen gross margin for full-year
2012 to be in the range of $1.3 billion to $1.5 billion.
PotashCorp now forecasts full-year earnings between $2.40 and $2.60 per share
which includes the impacts of the $0.39 per share adjustment for a Sinofert
impairment charge recognized in the second-quarter of 2012.
Conclusion
"The agricultural fundamentals that drive our business - rising food demand,
supportive crop prices and the scientific need to replenish nutrients - remain
strong despite some disruption in deliveries to offshore potash markets." said
Doyle. "We intend to follow a business strategy designed to protect the value
of our enterprise while remaining steadfast in our commitment to deliver on
future growth. We believe the nature of food production necessitates that
fertilizer demand will return in all major markets. When it does we will be
ready to meet the needs of our customers and deliver the best possible
long-term returns for stakeholders."
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."
PotashCorp is the world's largest crop nutrient company and plays an integral
role in global food production. The company produces the three essential
nutrients required to help farmers grow healthier, more abundant crops. With
global population rising and diets improving in developing countries, these
nutrients offer a responsible and practical solution to meeting the long-term
demand for food. PotashCorp is the largest producer, by capacity, of potash
and third largest producer of nitrogen and phosphate. While agriculture is its
primary market, the company also produces products for animal nutrition and
industrial uses. Common shares of Potash Corporation of Saskatchewan Inc. are
listed on the Toronto Stock Exchange and the New York Stock Exchange.
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; economic and political uncertainty around the world, including
the European sovereign debt crisis; 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, October 25, 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)
September 30, December 31,
As at 2012 2011
Assets
Current assets
Cash and cash equivalents $ 461 $ 430
Receivables 1,360 1,195
Inventories 681 731
Prepaid expenses and other current
assets 69 52
2,571 2,408
Non-current assets
Property, plant and equipment 10,962 9,922
Investments in equity-accounted
investees 1,279 1,187
Available-for-sale investments
(Note 2) 2,435 2,265
Other assets 323 360
Intangible assets 121 115
Total Assets $ 17,691 $ 16,257
Liabilities
Current liabilities
Short-term debt and current portion
of long-term debt $ 573 $ 832
Payables and accrued charges 1,129 1,295
Current portion of derivative
instrument liabilities 58 67
1,760 2,194
Non-current liabilities
Long-term debt 3,465 3,705
Derivative instrument liabilities 178 204
Deferred income tax liabilities 1,392 1,052
Pension and other post-retirement
benefit liabilities 612 552
Asset retirement obligations and
accrued environmental costs 607 615
Other non-current liabilities and
deferred credits 101 88
Total Liabilities 8,115 8,410
Shareholders' Equity
Share capital 1,508 1,483
Unlimited authorization of common
shares without par value; issued
and outstanding 861,506,786
and 858,702,991 at September 30,
2012 and December 31, 2011,
respectively
Contributed surplus 316 291
Accumulated other comprehensive
income 1,344 816
Retained earnings 6,408 5,257
Total Shareholders' Equity 9,576 7,847
Total Liabilities and Shareholders'
Equity $ 17,691 $ 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 Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Sales (Note 3) $ 2,143 $ 2,321 $ 6,285 $ 6,850
Freight,
transportation and
distribution (154) (129) (381) (410)
Cost of goods sold (1,062) (1,060) (3,080) (3,044)
Gross Margin 927 1,132 2,824 3,396
Selling and
administrative
expenses (53) (46) (166) (176)
Provincial mining
and other taxes (62) (53) (162) (147)
Share of earnings
of
equity-accounted
investees 77 68 220 185
Dividend income 39 41 106 94
Impairment of
available-for-sale
investment (Note
2) - - (341) -
Other expenses (10) - (21) (10)
Operating Income 918 1,142 2,460 3,342
Finance costs (24) (37) (89) (125)
Income Before
Income Taxes 894 1,105 2,371 3,217
Income taxes (Note
4) (249) (279) (713) (819)
Net Income $ 645 $ 826 $ 1,658 $ 2,398
Net Income per
Share (Note 5)
Basic $ 0.75 $ 0.96 $ 1.93 $ 2.80
Diluted $ 0.74 $ 0.94 $ 1.89 $ 2.73
Dividends Declared
per Share $ 0.21 $ 0.07 $ 0.49 $ 0.21
(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in millions of US dollars)
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
(Net of related 2012 2011 2012 2011
income taxes)
Net Income $ 645 $ 826 $ 1,658 $ 2,398
Other comprehensive
income (loss)
Net increase
(decrease) in net
unrealized gain on
available-for-sale
investments ^(1) 303 (983) 169 (1,351)
Reclassification
to income of
unrealized loss on
impaired
available-for-sale
investment (Note
2) - - 341 -
Net actuarial loss
on defined benefit
plans ^(2) - (125) (84) (125)
Net loss on
derivatives
designated as cash
flow hedges ^(3) (1) (18) (16) (18)
Reclassification
to income of net
loss on cash flow
hedges ^(4) 11 10 36 38
Other - (5) (2) (5)
Other Comprehensive
Income (Loss) 313 (1,121) 444 (1,461)
Comprehensive Income
(Loss)
$ 958 $ (295) $ 2,102 $ 937
^(1) Available-for-sale investments are comprised of shares in Israel
Chemicals Ltd. and Sinofert Holdings Limited.
^(2) Net of income taxes of $NIL (2011 - $71) for the three months ended
September 30, 2012 and $48 (2011 - $71) for the nine months ended September
30, 2012.
^(3) Cash flow hedges are comprised of natural gas derivative instruments and
are net of income taxes of $1 (2011 - $11) for the three months ended
September 30, 2012 and $11 (2011 - $11) for the nine months ended September
30, 2012.
^(4) Net of income taxes of $(8) (2011 - $(7)) for the three months ended
September 30, 2012 and $(24) (2011 - $(23)) for the nine months ended
September 30, 2012.
(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
designated on
Share Contributed for-sale as defined Comprehensive Retained Total
cash flow benefit
Capital Surplus investments hedges plans^(1) Other Income Earnings Equity
Balance -
December 31,
2011 $ 1,483 $ 291 $ 982 $ (168) $ - $ 2 $ 816 $ 5,257 $ 7,847
Net income - - - - - - - 1,658 1,658
Other
comprehensive
income (loss) - - 510 20 (84) (2) 444 - 444
Effect of
share-based
compensation - 27 - - - - - - 27
Dividends
declared - - - - - - - (423) (423)
Issuance of
common shares 25 (2) - - - - - - 23
Transfer of
actuarial
losses on
defined
benefit plans - - - - 84 - 84 (84) -
Balance -
September 30,
2012 $ 1,508 $ 316 $ 1,492 $ (148) $ - $ - $ 1,344 $ 6,408 $ 9,576
^(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 Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Operating Activities
Net income $ 645 $ 826 $ 1,658 $ 2,398
Adjustments to
reconcile net income
to cash provided by
operating activities
Depreciation and
amortization 149 122 434 374
Share-based
compensation 3 3 21 22
Impairment of
available-for-sale
investment (Note
2) - - 341 -
Realized excess
tax benefit
related to
share-based
compensation 4 6 7 29
Provision for
deferred income
tax 162 189 366 342
Net undistributed
earnings of
equity-accounted
investees (74) (68) (90) (118)
Pension and other
post-retirement
benefits (86) (145) (71) (131)
Asset retirement
obligations and
accrued
environmental
costs (6) 22 4 40
Other long-term
liabilities and
miscellaneous 7 9 33 (23)
Subtotal of
adjustments 159 138 1,045 535
Changes in
non-cash operating
working capital
Receivables (90) (88) (84) (277)
Inventories 19 7 63 (14)
Prepaid expenses
and other current
assets (5) - (21) 12
Payables and
accrued charges 31 (18) (308) (35)
Subtotal of
changes in
non-cash operating
working capital (45) (99) (350) (314)
Cash provided by
operating activities 759 865 2,353 2,619
Investing Activities
Additions to
property, plant and
equipment (546) (590) (1,505) (1,523)
Other assets and
intangible assets (23) (8) (37) (11)
Cash used in
investing activities (569) (598) (1,542) (1,534)
Financing Activities
Repayment of
long-term debt
obligations - - (2) (600)
Repayment of
short-term debt
obligations (117) (236) (501) (395)
Dividends (116) (60) (293) (148)
Issuance of common
shares 13 15 16 40
Cash used in
financing activities (220) (281) (780) (1,103)
(Decrease) Increase
in Cash and Cash
Equivalents (30) (14) 31 (18)
Cash and Cash
Equivalents,
Beginning of Period 491 408 430 412
Cash and Cash
Equivalents, End of
Period $ 461 $ 394 $ 461 $ 394
Cash and cash
equivalents
comprised of:
Cash $ 69 $ 78 $ 69 $ 78
Short-term
investments 392 316 392 316
$ 461 $ 394 $ 461 $ 394
Supplemental cash
flow disclosure
Interest paid $ 12 $ 35 $ 114 $ 168
Income taxes paid $ 91 $ 91 $ 583 $ 415
(See Notes to the
Condensed
Consolidated
Financial
Statements)
Potash Corporation of Saskatchewan Inc.
Notes to the Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 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 October 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. When objective evidence of impairment exists, the impaired amount
(i.e., the unrealized loss) is recognized in net income; any subsequent
reversals would be recognized in OCI and would not flow back into net income.
Changes in fair value, and related accounting, for the company's investment in
Sinofert Holdings Limited ("Sinofert") since December 31, 2011 were as
follows:
Impact of Unrealized
Holding Loss on:
Net
Income
Unrealized OCI and
Fair Holding and Retained
Value Loss AOCI Earnings
Balance - $ 439 $ (140) $ (140) $ -
December 31,
2011
Decrease in (61) (61) (61) -
fair value
Balance - $ 378 $ (201) $ (201) $ -
March 31, 2012
Decrease in (140) (140) (140) -
fair value
prior to
recognition of
impairment
Recognition of 341 (341)
impairment - -
Balance - June $ 238 $ (341) $ - $ (341)
30, 2012
Increase in 66 66 66 -
fair value
subsequent to
recognition of
impairment
Balance - $ 304 $ (275) $ 66 $ (341)
September 30,
2012
3. 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 September 30, 2012
All
Potash Phosphate Nitrogen Others Consolidated
Sales $ 963 $ 568 $ 612 $ - $ 2,143
Freight,
transportation
and
distribution (76) (55) (23) - (154)
Net sales -
third party 887 513 589 -
Cost of goods
sold (333) (391) (338) - (1,062)
Gross margin 554 122 251 - 927
Depreciation
and
amortization (49) (64) (33) (3) (149)
Inter-segment
sales - - 72 - -
Cash flows for
additions to
property,
plant and
equipment 348 73 106 19 546
Three Months Ended September 30, 2011
All
Potash Phosphate Nitrogen Others Consolidated
Sales $ 1,035 $ 690 $ 596 $ - $ 2,321
Freight,
transportation
and
distribution (59) (46) (24) - (129)
Net sales -
third party 976 644 572 -
Cost of goods
sold (276) (475) (309) - (1,060)
Gross margin 700 169 263 - 1,132
Depreciation
and
amortization (33) (55) (32) (2) (122)
Inter-segment
sales - - 56 - -
Cash flows for
additions to
property,
plant and
equipment 493 41 53 3 590
Nine Months Ended September 30, 2012
All
Potash Phosphate Nitrogen Others Consolidated
Sales $ 2,731 $ 1,750 $ 1,804 $ - $ 6,285
Freight,
transportation
and
distribution (165) (140) (76) - (381)
Net sales -
third party 2,566 1,610 1,728 -
Cost of goods
sold (884) (1,240) (956) - (3,080)
Gross margin 1,682 370 772 - 2,824
Depreciation
and
amortization (135) (188) (103) (8) (434)
Inter-segment
sales - - 164 - -
Cash flows for
additions to
property,
plant and
equipment 1,029 172 261 43 1,505
Nine Months Ended September 30, 2011
All
Potash Phosphate Nitrogen Others Consolidated
Sales $ 3,265 $ 1,872 $ 1,713 $ - $ 6,850
Freight,
transportation
and
distribution (212) (129) (69) - (410)
Net sales -
third party 3,053 1,743 1,644 -
Cost of goods
sold (817) (1,258) (969) - (3,044)
Gross margin 2,236 485 675 - 3,396
Depreciation
and
amortization (112) (159) (97) (6) (374)
Inter-segment
sales - - 133 - -
Cash flows for
additions to
property,
plant and
equipment 1,238 133 117 35 1,523
4. 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.
Three Months Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Income tax expense $ 249 $ 279 $ 713 $ 819
Actual effective tax rate on 26% 26% 26% 26%
ordinary earnings
Actual effective tax rate 28% 25% 30% 25%
including discrete items
The impairment of the company's available-for-sale investment in Sinofert is
not deductible for tax purposes. Total discrete tax adjustments that impacted
the rate in the three months ended September 30, 2012 resulted in an income
tax expense of $14 compared to an income tax recovery of $5 in the same period
last year. Total discrete tax adjustments that impacted the rate in the nine
months ended September 30, 2012 resulted in an income tax expense of $17
compared to an income tax recovery of $29 in the same period last year.
Significant items recorded included the following:
* In the first nine months of 2012, a tax expense of $17 (of which $12 was
recorded in the third quarter) to adjust the 2011 tax provision to the
income tax returns filed for that year.
* In first-quarter 2011, a current tax recovery of $21 for previously paid
withholding taxes.
* In third-quarter 2011, a current tax recovery of $12 due to income tax
losses in a foreign jurisdiction.
5. Net Income Per Share
Net income per share was calculated on the following weighted average number
of shares:
Three Months Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
859,573,000 856,022,000 859,118,000 855,024,000
Basic
876,026,000 876,959,000 875,885,000 876,844,000
Diluted
Diluted net income per share was calculated based on the weighted average
number of shares issued and outstanding during the period, incorporating the
following adjustments. The denominator was: (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 was 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.
Potash Corporation of Saskatchewan Inc.
Selected Financial Data
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Potash Sales (tonnes - thousands)
Manufactured Product
North America 951 769 2,002 2,692
Offshore 1,107 1,387 3,911 4,773
Manufactured Product 2,058 2,156 5,913 7,465
Potash Net Sales
(US $ millions)
Sales $ 963 $ 1,035 $ 2,731 $ 3,265
Freight, transportation
and distribution (76) (59) (165) (212)
Net Sales $ 887 $ 976 $ 2,566 $ 3,053
Manufactured Product
North America $ 443 $ 410 $ 968 $ 1,285
Offshore 441 563 1,588 1,758
Other miscellaneous and
purchased product 3 3 10 10
Net Sales $ 887 $ 976 $ 2,566 $ 3,053
Manufactured Product
Average Realized Sales Price
per MT
North America $ 466 $ 533 $ 484 $ 477
Offshore $ 398 $ 406 $ 406 $ 368
Average $ 429 $ 451 $ 432 $ 408
Cost of Goods Sold per MT $ (160) $ (127) $ (148) $ (109)
Gross Margin per MT $ 269 $ 324 $ 284 $ 299
Potash Corporation of Saskatchewan Inc.
Selected Financial Data
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Phosphate Sales (tonnes -
thousands)
Manufactured Product
Fertilizer 676 780 1,932 2,080
Feed and Industrial 263 278 873 884
Manufactured Product 939 1,058 2,805 2,964
Phosphate Net Sales
(US $ millions)
Sales $ 568 $ 690 $ 1,750 $ 1,872
Freight, transportation
and distribution (55) (46) (140) (129)
Net Sales $ 513 $ 644 $ 1,610 $ 1,743
Manufactured Product
Fertilizer $ 333 $ 454 $ 1,004 $ 1,173
Feed and Industrial 172 182 581 548
Other miscellaneous and
purchased product 8 8 25 22
Net Sales $ 513 $ 644 $ 1,610 $ 1,743
Manufactured Product
Average Realized Sales Price
per MT
Fertilizer $ 493 $ 582 $ 520 $ 564
Feed and Industrial $ 654 $ 659 $ 666 $ 620
Average $ 537 $ 602 $ 565 $ 581
Cost of Goods Sold per MT $ (413) $ (445) $ (438) $ (421)
Gross Margin per MT $ 124 $ 157 $ 127 $ 160
Potash Corporation of Saskatchewan Inc.
Selected Financial Data
(unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Average Natural Gas Cost in
Production per MMBtu $ 6.76 $ 6.13 $ 5.58 $ 6.06
Nitrogen Sales (tonnes -
thousands)
Manufactured Product
Ammonia 466 475 1,499 1,503
Urea 241 325 870 972
Nitrogen
solutions/Nitric
acid/Ammonium nitrate 438 492 1,371 1,456
Manufactured Product 1,145 1,292 3,740 3,931
Fertilizer sales tonnes 301 445 1,108 1,281
Industrial/Feed sales tonnes 844 847 2,632 2,650
Manufactured Product 1,145 1,292 3,740 3,931
Nitrogen Net Sales
(US $ millions)
Sales $ 612 $ 596 $ 1,804 $ 1,713
Freight, transportation
and distribution (23) (24) (76) (69)
Net Sales $ 589 $ 572 $ 1,728 $ 1,644
Manufactured Product
Ammonia $ 299 $ 250 $ 794 $ 774
Urea 121 174 456 442
Nitrogen
solutions/Nitric
acid/Ammonium nitrate 104 124 338 346
Other miscellaneous and
purchased product 65 24 140 82
Net Sales $ 589 $ 572 $ 1,728 $ 1,644
Fertilizer net sales $ 137 $ 209 $ 525 $ 544
Industrial/Feed net sales 387 339 1,063 1,018
Other miscellaneous and
purchased product 65 24 140 82
Net Sales $ 589 $ 572 $ 1,728 $ 1,644
Manufactured Product
Average Realized Sales Price
per MT
Ammonia $ 641 $ 526 $ 530 $ 515
Urea $ 504 $ 534 $ 525 $ 455
Nitrogen
solutions/Nitric
acid/Ammonium nitrate $ 238 $ 254 $ 246 $ 238
Average $ 458 $ 424 $ 425 $ 397
Fertilizer average
price per MT $ 455 $ 469 $ 474 $ 425
Industrial/Feed average
price per MT $ 459 $ 401 $ 404 $ 384
Average $ 458 $ 424 $ 425 $ 397
Cost of Goods Sold per MT $ (254) $ (232) $ (233) $ (234)
Gross Margin per MT $ 204 $ 192 $ 192 $ 163
Potash Corporation of Saskatchewan Inc.
Selected Additional Data
(unaudited)
Exchange Rate (Cdn$/US$)
2012 2011
December 31 1.0170
September 30 0.9837 1.0389
Third-quarter average conversion rate 1.0114 0.9716
Three
Months Nine Months Ended
Ended
September September 30
30
2012 2011 2012 2011
Production
Potash production (KCl Tonnes - thousands) 1,579 1,937 5,961 7,099
Potash shutdown weeks ^(1) 15 9 55 9
Phosphate production (P[2]O[5 ]Tonnes - thousands) 493 565 1,479 1,649
Phosphate P[2]O[5] operating rate [ ] 83% 95% 83% 93%
Nitrogen production (N Tonnes - thousands) 651 724 2,029 2,115
Shareholders
PotashCorp's shareholder return 0% -24% 6% -16%
Customers
Product tonnes involved in customer complaints vs three-
year average (for third quarter/first nine months of prior
three years, as applicable) -71% N/A -43% N/A
Community
Taxes and royalties ($ millions) ^ (2) 171 175 521 706
Employees
Annualized turnover rate (excluding retirements) 8% 4% 6% 4%
Safety
Total site severity injury rate (per 200,000 work hours) ^ (3) 0.63 0.49 0.53 0.57
Environment
Environmental incidents ^ (4) 6 3 18 11
September December
30, 31,
As at 2012 2011
Number of employees
Potash 2,709 2,520
Phosphate 1,802 1,975
Nitrogen 770 775
Other 435 433
Total 5,716 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 lost-time injuries and modified work injuries (as defined in our
2011 Annual Report). Total site includes PotashCorp employees, contractors
and others on site.
(4) Total of reportable quantity releases, permit excursions and provincial
reportable spills (as defined in our 2011 Annual Report).
N/A = Not applicable
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, adjusted EBITDA,
adjusted 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, ADJUSTED EBITDA AND EBITDA MARGIN
Set forth below is a reconciliation of "EBITDA" and "adjusted EBITDA" to net
income and "adjusted 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 Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Net income $ 645 $ 826 $ 1,658 $ 2,398
Finance costs 24 37 89 125
Income taxes 249 279 713 819
Depreciation and amortization 149 122 434 374
EBITDA $ 1,067 $ 1,264 $ 2,894 $ 3,716
Impairment of available-for-sale
investment - - 341 -
Adjusted EBITDA $ 1,067 $ 1,264 $ 3,235 $ 3,716
EBITDA is calculated as earnings before finance costs, income taxes and
depreciation and amortization. Adjusted EBITDA is calculated as earnings
before finance costs, income taxes, depreciation and amortization, certain
gains and losses on disposal of assets and certain impairment charges.
PotashCorp uses EBITDA and adjusted EBITDA as supplemental financial measures
of its operational performance. Management believes EBITDA and adjusted EBITDA
to be important measures as they exclude the effects of items which primarily
reflect the impact of long-term investment and financing decisions, rather
than the performance of the company's day-to-day operations. As compared to
net income according to IFRS, these measures are limited in that they do 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 Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Sales $ 2,143 $ 2,321 $ 6,285 $ 6,850
Freight, transportation and distribution (154) (129) (381) (410)
Net sales $ 1,989 $ 2,192 $ 5,904 $ 6,440
Net income as a percentage of sales 30% 36% 26% 35%
Adjusted EBITDA margin 54% 58% 55% 58%
Adjusted EBITDA margin is calculated as adjusted 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 adjusted EBITDA as compared to net income, adjusted 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; adjusted EBITDA also includes earnings from equity
investees whose sales are not included in consolidated sales. Management
evaluates these items 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 Nine Months Ended
September 30 September 30
2012 2011 2012 2011
Cash flow prior to working
capital changes ^ $ 804 $ 964 $ 2,703 $ 2,933
Changes in non-cash operating
working capital
Receivables (90) (88) (84) (277)
Inventories 19 7 63 (14)
Prepaid expenses and other
current assets (5) - (21) 12
Payables and accrued charges 31 (18) (308) (35)
Changes in non-cash operating
working capital (45) (99) (350) (314)
Cash provided by operating
activities $ 759 $ 865 $ 2,353 $ 2,619
Additions to property, plant and
equipment (546) (590) (1,505) (1,523)
Other assets and intangible
assets (23) (8) (37) (11)
Changes in non-cash operating
working capital 45 99 350 314
Free cash flow $ 235 $ 366 $ 1,161 $ 1,399
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.
SOURCE Potash Corporation of Saskatchewan Inc.
Contact:
Investors
Denita Stann
Vice President, Investor and Public Relations
Phone: (306) 933-8521
Fax: (306) 933-8844
Email: ir@potashcorp.com
Media
Bill Johnson
Senior Director, Public Affairs
Phone: (306) 933-8849
Fax: (306) 933-8844
Email: pr@potashcorp.com
Web Site: www.potashcorp.com
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