PotashCorp Reports Record Second-Quarter Earnings per Share
SASKATOON, SK, July 28, 2011 /CNW/ --
Symbol: POT
Listed: TSX, NYSE
Second-Quarter 2011 and Outlook Highlights:
-- Record second-quarter earnings of $0.96(1) per share; 81
percent above second-quarter 2010
-- Strong demand and pricing across potash, phosphate and nitrogen
-- Record second-quarter potash production of 2.6 million tonnes
-- Capital expenditures of $492 million for the quarter, primarily
related to potash expansion program
-- Third-quarter 2011 earnings guidance of $0.80-$1.00 per share
-- Full-year 2011 earnings guidance raised to $3.40-$3.80 per
share
SASKATOON, SK, July 28, 2011 /CNW/ - Potash Corporation of Saskatchewan
Inc. (PotashCorp) today reported record second-quarter earnings of
$0.96 per share ($840 million) - the second-highest total for any
quarter in our history and 81 percent above the $0.53 per share ($480
million) earned in the same period last year. This result raised
earnings for the first half of 2011 to a record $1.79 per share, 18
percent above the previous high set in 2008 and significantly above the
$1.01 per share earned in the first half of 2010.
Higher prices for all three nutrients and continuing strong demand,
especially for potash and phosphate, pushed second-quarter gross margin
to $1.2 billion, double the $0.6 billion generated in the same quarter
of 2010. Gross margin for the first six months of 2011 reached $2.3
billion, a substantial increase over the $1.3 billion earned in the
same period last year. Earnings before finance costs, income taxes and
depreciation and amortization (EBITDA)( 2) of $1.3 billion and cash flow prior to working capital changes(2) of $1.1 billion significantly exceeded totals for the same quarter in
2010, driving record results for the first six months of the year.
Our strategic offshore investments in Arab Potash Company Ltd. (APC) in
Jordan, Israel Chemicals Ltd. (ICL) in Israel, Sinofert Holdings
Limited (Sinofert) in China and Sociedad Química y Minera de Chile S.A.
(SQM) in Chile benefited from the same strong fertilizer market
conditions and contributed $119 million to our second-quarter earnings,
raising the total for the first half of the year to $170 million. This
compared to earnings contributions of $159 million in the second
quarter last year, when ICL paid a $70 million special dividend, and
$185 million for the first six months of 2010. The market value of our
investments in these publicly traded companies as at market close July
27, 2011 equated to approximately $10.3 billion or $12 per PotashCorp
share.
'The continuation of strong fertilizer demand combined with the
limitations of global production, especially in potash, resulted in
tight fertilizer markets and rising prices for our products,' said
PotashCorp President and Chief Executive Officer Bill Doyle. 'With
farmers committed to increasing yields and capitalizing on the
unprecedented economic opportunity, we worked to keep pace with growing
demand, which resulted in a record quarter for our company. We believe
our ongoing investment in expanding potash operational capability is
playing an integral role in the world's food story, and we demonstrated
our increased ability to deliver - for our customers and our
shareholders.'
Market Conditions
Despite volatility in commodity markets, crop economics remained
attractive throughout the second quarter, giving farmers the incentive
to improve nutrient applications, which resulted in rising fertilizer
demand and pricing.
During the quarter, key spot-market potash buyers moved aggressively to
secure sufficient volumes to fill immediate needs. With demand putting
pressure on global supply capabilities, producers operated at or near
record production levels in an attempt to keep pace. Offshore potash
shipments from North American producers for the second quarter were 23
percent higher than in the same period in 2010 and reached a record 5.9
million tonnes for the first half of 2011. This was achieved on the
strength of demand in Latin America and spot markets in Asia, which
more than offset the absence of India, where there has been no contract
since the end of the first quarter of 2011. Despite a late planting
season, domestic shipments from North American producers during the
quarter rose 39 percent from the same period last year. Combined with a
strong first quarter, first-half domestic shipments reached 4.6 million
tonnes, similar to totals for the same period last year. By the end of
the second quarter, North American producer inventories were reduced to
their lowest levels of the year - 26 percent below the average of the
last five years. Tightening supply/demand conditions continued to push
prices higher in most major markets, including China, which signed new
supply commitments late in the second quarter.
In phosphate, second-quarter solid fertilizer shipments from US
producers climbed 9 percent from the same quarter last year, buoyed by
strong export demand. Following the settlement of six-month commitments
with India in late March, exports from US producers rose 19 percent
compared to the second quarter of 2010. By the end of June, US solid
phosphate producer inventories were 28 percent below the previous
five-year average. The combination of strong demand, higher raw
material costs and the expectation of lower phosphate exports from
China exerted upward pressure on pricing.
In nitrogen, demand remained robust, with second-quarter US domestic
shipments of ammonia and urea comparable to 2010 levels. US producer
inventories for both products tightened in the quarter, pushing up
prices for all nitrogen products. After lagging ammonia through the
first quarter of 2011, prices for urea moved sharply higher on strong
agricultural demand and an expectation of lower urea exports from
China. Competitive US gas prices continued to support healthy margins
for domestic nitrogen producers.
Potash
Higher sales volumes and rising prices pushed second-quarter potash
gross margin to $793 million, nearly double the $411 million earned in
the same period of 2010. With consecutive strong quarters, our potash
gross margin for the first half of 2011 reached a record $1.5 billion.
Second-quarter sales volumes totaled 2.5 million tonnes - 32 percent
higher than in the same period of 2010 - and boosted first-half potash
sales to 5.3 million tonnes, a company record. Canpotex Limited
(Canpotex), the offshore marketing company for Saskatchewan potash
producers, shipped at near-record levels, which helped push our
offshore sales volumes to 1.7 million tonnes, significantly above the
1.3 million tonnes sold in the second quarter of 2010. The strongest
demand came from Asian countries (other than China and India) and from
Latin America. Shipments to these regions accounted for 51 percent and
32 percent, respectively, of Canpotex's shipments during the quarter,
while China represented 14 percent. Second-quarter North American sales
volumes of 0.8 million tonnes were up from 0.6 million tonnes in the
same period last year and raised our first-half North American
shipments to 1.9 million tonnes.
Prices continued to move higher as previously announced increases began
to be reflected in results, with our average second-quarter realized
price climbing to $416 per tonne, up $107 per tonne from last year's
second quarter and $50 per tonne from first-quarter 2011.
Even as we achieved record second-quarter production of 2.6 million
tonnes, inventories remained low because of the ongoing strength in
potash demand. While higher production had favorable impacts on our
per-tonne cost of goods sold, the benefits were largely offset by
higher depreciation costs, increased royalty payments (due to higher
potash prices) and the translation of Canadian production costs to a
weaker US dollar.
Phosphate
Robust fertilizer markets resulted in second-quarter phosphate gross
margin of $166 million, more than triple the $49 million earned in the
same period last year. While all phosphate products benefited from
improved sales volumes and prices, solid fertilizer ($61 million) and
liquid fertilizer ($50 million) were the largest contributors.
Industrial and feed products contributed $28 million and $23 million,
respectively. Gross margin for the first six months of 2011 rose to
$316 million, significantly above the first-half 2010 total of $113
million.
Phosphate sales volumes grew to 1.0 million tonnes in the second
quarter, significantly ahead of the 0.7 million tonnes sold in the same
period last year. Strong agricultural fundamentals drove higher demand
for fertilizer products - both liquids and solids - resulting in a
larger allocation of sales volumes to these products.
Our average realized phosphate price of $578 per tonne in the second
quarter was 26 percent higher than in the same quarter last year.
Realized prices for liquid and solid fertilizer were up 42 percent and
29 percent, respectively, as the prices of these products reflected the
strength in global demand and the tight supply. Prices for feed
products were up 16 percent, responding less rapidly as a result of
challenging livestock economics, while industrial prices, influenced by
certain longer-term contracts that lag current conditions, rose 15
percent.
Higher ammonia and sulfur input costs more than offset the favorable
impacts that higher operating levels had on per-tonne cost of goods
sold.
Nitrogen
Rising prices for all nitrogen products drove second-quarter nitrogen
gross margin of $209 million, 67 percent above the $125 million earned
in the same period last year and nearly equal to the second-quarter
record achieved in 2008. Through the first six months of 2011, our
nitrogen segment generated $412 million in gross margin, substantially
above the first-half 2010 total of $260 million. Our US nitrogen
operations delivered $105 million in gross margin during the second
quarter, while our Trinidad operations contributed $104 million.
Nitrogen sales volumes of 1.3 million tonnes were relatively flat
compared to the second quarter last year. Strong industrial and
agricultural demand for ammonia resulted in a larger share of
production being allocated to this higher-margin product, limiting
production of other downstream products.
Our second-quarter average realized nitrogen price was $400 per tonne,
39 percent higher than in the same period last year. Ammonia prices
rose 42 percent, and realized prices for urea increased 33 percent.
Prices for other nitrogen products were up by 23 percent.
The total average natural gas cost for second-quarter 2011, including
our hedge position, was $6.21 per MMBtu, an increase of 30 percent over
the same period last year. Most of the increase was the result of
higher Trinidad gas costs, which are primarily indexed to the Tampa
ammonia price.
Financial
Selling and administrative expenses for the second quarter of 2011
increased quarter-over-quarter, from $33 million to $55 million,
primarily due to higher compensation expense accruals. Higher earnings
raised income tax expense for the quarter to $297 million, up from $165
million in second-quarter 2010.
Ongoing expansion projects at our Allan, Cory, Rocanville and New
Brunswick facilities accounted for the majority of the $492 million in
quarterly capital expenditures on property, plant and equipment. At the
end of second-quarter 2011, approximately two-thirds of the capital
required for our estimated $7.5 billion potash expansion program had
been spent.
During the quarter, $600 million in bonds matured and were repaid out of
operating cash flow and proceeds from our commercial paper program.
Outlook
Even with uncertainty around macroeconomic issues - including US and
European sovereign debt concerns - weighing on equity markets and
investors' tolerance for risk, the strength of agricultural
fundamentals continues to provide a highly favorable environment for
our business. The pursuit of higher crop yields is essential to meeting
the world's immediate and long-term food needs and is driving strong
demand for all three nutrients, especially potash.
While no industry is fully immune to external economic forces, the need
to meet the world's ever-increasing food supply requirements is an
important challenge and a powerful force. We see evidence of this
today. When investors back away from agricultural commodities,
commercial buyers quickly step in to secure a share of the world's crop
production. Although crop prices are likely to fluctuate, we anticipate
they will remain at levels that provide farmers with the motivation to
maximize production and the confidence to invest in their most
important asset --- their soil.
The ability to meet the anticipated increase in potash needs of the
world's farmers is made more challenging by a void in the supply chain
that was triggered by demand deferrals amidst the economic downturn.
Inventories at the distributor level remain limited, as purchased
tonnes are moving quickly to farmers for use on their crops.
Inventories of North American producers are also well below historical
levels as we enter the traditional period for maintenance-related
shutdowns. Many potash buyers globally are recognizing the tightness of
world supply and are moving to secure product - a trend that we expect
to continue in 2012, especially with the anticipated return of India
and China to the market in a more substantial way.
These are some of the conditions we anticipated when we launched our
potash expansion program in 2003. While some competitors are still
working through the planning and feasibility of potential expansions,
several of our projects - largely initiated and advanced during a
period of lower construction and materials costs - are now completed or
in advanced stages of construction. We believe they will give us the
ability to increase production in a time of rising demand and higher
prices and expect our expanded operational capability to be a
competitive advantage for years to come.
While seldom considered by those outside the potash business, operating
facilities at full capability can be a challenge as disruptions from
logistical, operational and geological issues are common. We continue
to estimate global demand will approximate 55-60 million tonnes in
2011, but now anticipate that meeting the upper end of the range will
be constrained by what we estimate is the industry's ability to
produce.
In North America, we anticipate that robust potash demand will continue
through the second half of 2011, with the majority of our product
already committed for the third quarter at the previously announced
price of $560 per short ton ($617 per tonne) FOB US Midwest warehouses.
We expect the $30 per short ton price increase announced at the end of
June will begin to be reflected in our realizations during the fourth
quarter. Shipments to North American customers from all suppliers are
expected to approximate 10-10.5 million tonnes for the full year.
Latin American distributors continue to move aggressively to secure
potash supplies to meet strong farmer demand, with the majority of
third-quarter sales volumes booked at a delivered price of $550 per
tonne. We anticipate total demand in this market will reach 10-10.5
million tonnes for 2011 (including 7-7.5 million tonnes of imports to
Brazil), with record consumption expected to result in low distributor
inventories after its primary planting season.
Ongoing strength in demand from Asian markets outside of China and India
is likely to continue as growers strive to capitalize on historically
high returns for key crops such as oil palm, sugar, rice and rubber. We
expect potash sales for the third quarter to reflect the previously
announced price of $510 per tonne on a delivered basis and demand in
this region to approximate 7.7-8.2 million tonnes this year.
China's second-half 2011 contract with Canpotex, which included a
$70-per-tonne price increase from previous contract levels, is expected
to provide a steady flow of potash to this market. We anticipate
China's consumption will approximate 10.5 million tonnes this year,
including imports of approximately 6-6.5 million tonnes. With limited
product available to satisfy its pent-up demand through the remainder
of 2011, we expect this market will end the year with reduced
inventories.
India has a high agronomic need for potash and its inventories have been
reduced to critically low levels, which is creating strong pressure
from commercial buyers and farmers to secure new supply. Given the
delay in settling new contracts and limited product availability in the
second half of 2011, we now anticipate India's annual imports will
total 4-4.5 million tonnes. With its pressing need to increase crop
productivity and restock depleted inventories, we expect significant
Indian demand requirements in 2012.
In this environment, we forecast our 2011 potash segment gross margin
will be in the range of $2.9 billion to $3.2 billion and our total
shipments within the range of 9.6-10 million tonnes. Scheduled summer
maintenance shutdowns and extended expansion-related downtime at our
Allan facility will limit our supply of product in the second half of
the year. Although we experienced a longer than expected ramp-up at our
new Cory mill in the first half of 2011, we expect to begin operating
at improved rates during the third quarter.
Phosphate markets are projected to remain strong through 2011, given
robust fertilizer demand, the expectation of reduced Chinese exports
and higher prices for phosphate rock and phosphoric acid. We anticipate
improved margins for all downstream phosphate products although higher
prices for input costs are expected to limit margin upside. In nitrogen, we anticipate that strong agricultural and industrial
demand will support higher prices through the remainder of 2011. Given
these conditions, we expect our combined phosphate and nitrogen gross
margin for 2011 to be in the range of $1.4 billion to $1.6 billion.
In addition, we believe the strength of global potash market
fundamentals will increase other sources of income for 2011 to a range
of $330-$360 million. We now expect capital expenditures (excluding
capitalized interest) for 2011 to approximate $2.2 billion, with $1.6
billion relating to our ongoing potash expansion projects.
We expect third-quarter net income per share to approximate $0.80-$1.00
per share and have raised our full-year earnings guidance to the range
of $3.40-$3.80 per share.
Conclusion
'As we look ahead, we see unprecedented opportunities to fulfill our
mission of helping the world's farmers meet the growing global demand
for food,' said Doyle. 'Our expansion projects are improving our
ability to meet the growth in potash demand and enhancing our strong
position in the industry. Our long-term approach, supported by the
patience and capital of our investors, is enabling us to play a
meaningful role in the global food chain and we look forward to
delivering on our potential for our customers, investors and other
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.'
Potash Corporation of Saskatchewan Inc. is the world's largest
fertilizer enterprise by capacity producing the three primary plant
nutrients and a leading supplier to three distinct market categories:
agriculture, with the largest capacity in the world in potash, third
largest in each of nitrogen and phosphate; animal nutrition, with the
world's largest capacity in phosphate feed ingredients; and industrial
chemicals, as the largest global producer of industrial nitrogen
products and the world's largest capacity for production of purified
industrial phosphoric acid. PotashCorp's common shares 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 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: fluctuations in supply and demand in
fertilizer, sulfur, transportation and petrochemical markets; changes
in competitive pressures, including pricing pressures; adverse or
uncertain economic conditions and changes in credit markets; the
results of sales contract negotiations with major markets; timing and
amount of capital expenditures; risks associated with natural gas and
other hedging activities; changes in capital markets and corresponding
effects on the company's investments; changes in currency and exchange
rates; unexpected geological or environmental conditions, including
water inflow; strikes and other forms of work stoppage or slowdowns;
changes in, and the effects of, government policies and regulations;
and earnings, exchange rates and the decisions of taxing authorities,
all of which could affect our effective tax rates. Additional risks and
uncertainties can be found in our Form 10-K for the fiscal year ended
December 31, 2010 under the captions 'Forward-Looking Statements' and
'Item 1A - Risk Factors' and in our other filings with the US
Securities and Exchange Commission and Canadian provincial securities
commissions. Forward-looking statements are given only as at the date
of this 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, July 28, 2011 at 1:00 pm Eastern Time.
Telephone Dial-in numbers:
Conference:
- From Canada and the US: 1-877-881-1303
- From Elsewhere: 1-412-902-6510
Live Visit
Webcast: 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)
June 30, December 31,
2011 2010
Assets
Current assets
Cash and cash equivalents $ 408 $ 412
Receivables 1,268 1,059
Inventories 597 570
Prepaid expenses and other current 43 54
assets
2,316 2,095
Non-current assets
Property, plant and equipment 8,909 8,141
Investments in equity-accounted 1,100 1,051
investees
Available-for-sale investments 3,474 3,842
Other assets 304 303
Intangible assets 114 115
Total Assets $ 16,217 $ 15,547
Liabilities
Current liabilities
Short-term debt and current portion of $ 1,117 $ 1,871
long-term debt (Note 2)
Payables and accrued charges 1,291 1,198
Current portion of derivative 54 75
instrument liabilities
2,462 3,144
Non-current liabilities
Long-term debt (Note 2) 3,704 3,707
Derivative instrument liabilities 184 204
Deferred income tax liabilities 901 737
Accrued pension and other 483 468
post-retirement benefits
Asset retirement obligations and 520 455
accrued environmental costs
Other non-current liabilities and 108 147
deferred credits
Total Liabilities 8,362 8,862
Shareholders' Equity
Share capital 1,455 1,431
Unlimited authorization of common
shares without par value; issued and
outstanding 855,538,911 and 853,122,693
at June 30, 2011 and December 31, 2010,
respectively
Contributed surplus 342 308
Accumulated other comprehensive income 2,054 2,394
Retained earnings 4,004 2,552
Total Shareholders' Equity 7,855 6,685
Total Liabilities and Shareholders' Equity $ 16,217 $ 15,547
(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 Six Months Ended
June 30 June 30
2011 2010 2011 2010
Sales (Note 3) $ 2,325 $ 1,437 $ 4,529 $ 3,151
Freight, transportation (132) (99) (281) (254)
and distribution
Cost of goods sold (1,025) (753) (1,984) (1,583)
Gross Margin 1,168 585 2,264 1,314
Selling and (55) (33) (130) (93)
administrative expenses
Provincial mining and (60) (17) (94) (40)
other taxes
Share of earnings of
equity-accounted 66 45 117 71
investees
Dividend income 53 114 53 114
Other income (expenses) 3 (15) (10) (21)
Operating Income 1,175 679 2,200 1,345
Finance Costs (38) (34) (88) (65)
Income Before Income 1,137 645 2,112 1,280
Taxes
Income Taxes (Note 5) (297) (165) (540) (356)
Net Income $ 840 $ 480 $ 1,572 $ 924
Net Income Per Share
(Note 6)
Basic $ 0.98 $ 0.54 $ 1.84 $ 1.04
Diluted $ 0.96 $ 0.53 $ 1.79 $ 1.01
Dividends Per Share $ 0.07 $ 0.03 $ 0.14 $ 0.07
(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 Six Months Ended
June 30 June 30
(Net of related income 2011 2010 2011 2010
taxes)
Net Income $ 840 $ 480 $ 1,572 $ 924
Other comprehensive
loss
Net decrease in
unrealized gains on (97) (848) (368) (722)
available-for-sale
investments ((1))
Net losses on
derivatives (13) (11) - (64)
designated as cash
flow hedges ((2))
Reclassification to
income of net losses 14 15 28 24
on cash flow hedges (
(3))
Other 2 (3) - (4)
Other Comprehensive (94) (847) (340) (766)
Loss
Comprehensive Income $ 746 $ (367) $ 1,232 $ 158
(Loss)
((1)) Available-for-sale investments are comprised of shares in Israel
Chemicals Ltd. and Sinofert Holdings Limited.
((2)) Cash flow hedges are comprised of natural gas derivative
instruments, and are net of income taxes of $(8) (2010 - $(7)) for the
three months ended June 30, 2011 and $NIL (2010 - $(39)) for the six
months ended June 30, 2011.
((3)) Net of income taxes of $8 (2010 - $8) for the three months ended
June 30, 2011 and $16 (2010 - $14) for the six months ended June 30,
2011.
(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
losses on
Unrealized derivatives Total
gains on designated Accumulated
available- as Other
Share Contributed for-sale cash flow Comprehensive Retained Total
Capital Surplus investments hedges Other Income Earnings Equity
Balance -
January 1, $ 1,431 $ 308 $ 2,563 $ (177) $ 8 $ 2,394 $ 2,552 $ 6,685
2011
Net income - - - - - - 1,572 1,572
Other
comprehensive - - (368) 28 - (340) - (340)
(loss) income
Effect of
share-based - 34 - - - - - 34
compensation
Dividends - - - - - - (120) (120)
declared
Issuance of 24 - - - - - - 24
common shares
Balance - $ 1,455 $ 342 $ 2,195 $ (149) $ 8 $ 2,054 $ 4,004 $ 7,855
June 30, 2011
(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 Six Months Ended
June 30 June 30
2011 2010 2011 2010
Operating Activities
Net income $ 840 $ 480 $ 1,572 $ 924
Adjustments to reconcile net
income to cash provided by
operating activities
Depreciation and 128 109 252 219
amortization
Share-based compensation 5 4 19 19
Realized excess tax
benefit related to 11 1 23 8
share-based compensation
Provision for deferred 78 17 153 75
income tax
Undistributed earnings of 1 (2) (50) (28)
equity-accounted investees
Asset retirement
obligations and accrued 15 83 18 78
environmental costs
Other (8) 48 (18) 78
Subtotal of adjustments 230 260 397 449
Changes in non-cash
operating working capital
Receivables 24 296 (189) 390
Inventories 6 (72) (21) (30)
Prepaid expenses and other 12 (17) 12 (11)
current assets
Payables and accrued (48) 49 (17) 85
charges
Subtotal of changes in
non-cash operating working (6) 256 (215) 434
capital
Cash provided by operating 1,064 996 1,754 1,807
activities
Investing Activities
Additions to property, plant (492) (498) (933) (955)
and equipment
Purchase of long-term - - - (422)
investments
Other assets and intangible (3) (37) (3) (71)
assets
Cash used in investing (495) (535) (936) (1,448)
activities
Cash before financing 569 461 818 359
activities
Financing Activities
Repayment of long-term debt (600) (250) (600) -
obligations
Proceeds from (repayments
of) short-term debt 94 (118) (159) (333)
obligations
Dividends (60) (30) (88) (59)
Issuance of common shares 7 5 25 15
Cash used in financing (559) (393) (822) (377)
activities
Increase (Decrease) in Cash 10 68 (4) (18)
and Cash Equivalents
Cash and Cash Equivalents, 398 299 412 385
Beginning of Period
Cash and Cash Equivalents, $ 408 $ 367 $ 408 $ 367
End of Period
Cash and cash equivalents
comprised of:
Cash $ 56 $ 55 $ 56 $ 55
Short-term investments 352 312 352 312
$ 408 $ 367 $ 408 $ 367
Supplemental cash flow
disclosure
Interest paid $ 92 $ 63 $ 133 $ 105
Income taxes paid $ 149 $ (162) $ 324 $ (140)
(recovered)
(See Notes to the Condensed
Consolidated Financial
Statements)
Potash Corporation of Saskatchewan Inc.
Notes to the Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2011
(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 previously prepared its financial statements in accordance with
Canadian generally accepted accounting principles ('Canadian GAAP') as set out
in the Handbook of the Canadian Institute of Chartered Accountants ('CICA
Handbook'). The company adopted International Financial Reporting Standards
('IFRS'), which were incorporated into the CICA Handbook, on January 1, 2011
with effect from January 1, 2010. Accordingly, these unaudited interim
condensed consolidated financial statements are based on IFRS, as issued by the
International Accounting Standards Board ('IASB'). In these unaudited interim
condensed consolidated financial statements, the term 'Canadian GAAP' refers to
Canadian GAAP before the company's adoption of IFRS.
These unaudited interim condensed consolidated financial statements include the
accounts of PCS and its wholly owned subsidiaries; however, they do not include
all disclosures normally provided in 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,
'Interim Financial Reporting', and will include additional information under
IFRS 1, 'First-time Adoption of International Financial Reporting Standards',
in its Quarterly Report on Form 10-Q in August 2011.
These unaudited interim condensed consolidated financial statements should be
read in conjunction with the following sources:
-- 2010 annual consolidated financial statements, for additional annual
disclosures presented under Canadian GAAP;
-- 2011 First Quarter Quarterly Report on Form 10-Q, for additional
information under IFRS 1, 'First-time Adoption of International
Financial Reporting Standards' and descriptions of significant
differences in the company's IFRS and Canadian GAAP policies and
transition impact; and
-- Note 7 to these unaudited interim condensed consolidated financial
statements, for the adjustments between IFRS and Canadian GAAP as at
and for the periods ended June 30, 2010.
In management's opinion, the unaudited interim condensed consolidated financial
statements include all adjustments (consisting solely of normal recurring
adjustments) necessary to fairly present such information. Interim results are
not necessarily indicative of the results expected for the fiscal year.
2. Long-Term
Debt
On May 31, 2011, the company fully repaid $600 of 7.75 percent 10-year senior
notes.
3. Segment
Information
The company has three reportable operating segments: potash, phosphate and
nitrogen. These operating 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 June 30, 2011
All
Potash Phosphate Nitrogen Others Consolidated
Sales $1,121 $ 633 $ 571 $ - $ 2,325
Freight,
transportation (70) (40) (22) - (132)
and
distribution
Net sales - 1,051 593 549 -
third party
Cost of goods (258) (427) (340) - (1,025)
sold
Gross margin 793 166 209 - 1,168
Depreciation
and (37) (57) (32) (2) (128)
amortization
Inter-segment - - 39 - -
sales
Three Months Ended June 30, 2010
All
Potash Phosphate Nitrogen Others Consolidated
Sales $ 641 $ 364 $ 432 $ - $ 1,437
Freight,
transportation (51) (28) (20) - (99)
and
distribution
Net sales - 590 336 412 -
third party
Cost of goods (179) (287) (287) - (753)
sold
Gross margin 411 49 125 - 585
Depreciation
and (29) (48) (30) (2) (109)
amortization
Inter-segment - - 28 - -
sales
Six Months Ended June 30, 2011
Potash Phosphate Nitrogen All Consolidated
Others
Sales $2,230 $ $1,117 $ - $ 4,529
1,182
Freight,
transportation (153) (83) (45) - (281)
and
distribution
Net sales - 2,077 1,099 1,072 -
third party
Cost of goods (541) (783) (660) - (1,984)
sold
Gross margin 1,536 316 412 - 2,264
Depreciation
and (79) (104) (65) (4) (252)
amortization
Inter-segment - - 77 - -
sales
Six Months Ended June 30, 2010
Potash Phosphate Nitrogen All Consolidated
Others
Sales $1,533 $ 765 $ 853 $ - $ 3,151
Freight,
transportation (147) (63) (44) - (254)
and
distribution
Net sales - 1,386 702 809 -
third party
Cost of goods (445) (589) (549) - (1,583)
sold
Gross margin 941 113 260 - 1,314
Depreciation
and (59) (96) (60) (4) (219)
amortization
Inter-segment - - 54 - -
sales
4. Share-Based Compensation
On May 12, 2011, the company's shareholders approved the 2011
Performance Option Plan under which the company may, after
February 22, 2011 and before January 1, 2012, issue options to
acquire up to 3,000,000 common shares. Under the plan, the
exercise price shall not be less than the quoted market closing
price of the company's common shares on the last trading day
immediately preceding the date of the grant, and an option's
maximum term is 10 years. In general, options will vest, if at
all, according to a schedule based on the three-year average
excess of the company's consolidated
cash flow return on investment over weighted average cost of
capital. As of June 30, 2011, options to purchase a total of
1,144,100 common shares had been granted under the plan. The
weighted average fair value of options granted was $23.64 per
share, estimated as of the date of grant using the
Black-Scholes-Merton option-pricing model with the following
weighted average assumptions:
Expected dividend $ 0.28
Expected volatility 52%
Risk-free interest rate 2.29%
Expected life of options 5.5 years
5. Income Taxes
A separate estimated average annual effective tax rate
is determined for each taxing jurisdiction and applied
individually to the interim period pre-tax income of
each jurisdiction.
For the three months ended June 30, 2011, the company's
income tax expense was $297 (2010 — $165). For
the six months ended June 30, 2011, the company's
income tax expense was $540 (2010 — $356). The
actual effective tax rate including discrete items for
the three and six months ended June 30, 2011 was 26
percent (2010 — 26 percent and 28 percent,
respectively). Total discrete tax adjustments that
impacted the rate in the three months ended June 30,
2011, resulted in an income tax recovery of $1 compared
to an income tax expense of $14 in the same period last
year. Total discrete tax adjustments that impacted the
rate in the six months ended June 30, 2011, resulted in
an income tax recovery of $24 compared to an income tax
expense of $25 in the same period last year.
Significant items recorded included the following:
-- In first-quarter 2011, a current tax recovery
of $21 for previously paid withholding taxes.
-- To adjust the 2009 income tax provision to the
income tax returns filed, a current income tax
expense of $18 was recorded in first-quarter
2010 along with a current income tax expense of
$20 and a deferred income tax recovery of $11
in second-quarter 2010.
-- In first-quarter 2010, a current tax recovery
of $10 for an anticipated refund of taxes paid
related to forward exchange contracts.
6. 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 June 30, 2011 of 854,997,000 (2010
— 889,128,000). Basic net income per share for the
six months ended June 30, 2011 is calculated based on the
weighted average shares issued and outstanding for the
period of 854,518,000 (2010 — 888,744,000).
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. For performance-based stock
option plans, the number of contingently issuable common
shares included in the calculation is based on the number
of shares, if any, that would be issuable if the end of
the reporting period were the end of the performance
period and the effect is dilutive. The weighted average
number of shares outstanding for the diluted net income
per share calculation for the three months ended June 30,
2011 was 876,527,000 (2010 — 913,387,000) and for
the six months ended June 30, 2011 was 876,612,000 (2010
— 913,785,000).
7. Transition to IFRS
The company adopted IFRS on January 1, 2011 with effect
from January 1, 2010. The company's financial statements
for the year ending December 31, 2011 will be the first
annual consolidated financial statements that comply with
IFRS. These unaudited interim condensed consolidated
financial statements were prepared as described in Note
1.
Reconciliations from Canadian GAAP
to IFRS
Reconciliation of Net Income
Three Months Six Months
Ended Ended
June 30, June 30,
2010 2010
Net Income - Canadian GAAP $ 472 $ 921
IFRS adjustments to net income:
Policy choices
Employee benefits - Actuarial 7 13
gains and losses
Other
Provisions - Changes in asset (24) (25)
retirement obligations
Property, plant and equipment 8 8
Borrowing costs (4) (6)
Manufacturing cost variance at 6 15
interim periods
Employee benefits - Past service (1) (1)
costs
Impairment of assets (2) (1)
Share-based payments 14 (1)
Income taxes - Tax effect of 1 1
above differences
Income tax-related differences 3 -
Net Income - IFRS $ 480 $ 924
Reconciliation of Shareholders'
Equity
June 30, December 31,
2010 2010
Shareholders' Equity - Canadian $ 6,569 $ 6,804
GAAP
IFRS adjustments to shareholders'
equity:
Policy choices
Employee benefits - Actuarial (352) (375)
gains and losses
Other
Provisions - Changes in asset (90) (79)
retirement obligations
Investments (Equity investee
adoption of IFRS earlier than (45) (45)
PotashCorp)
Property, plant and equipment 27 52
Borrowing costs (20) (25)
Manufacturing cost variance at 15 -
interim periods
Employee benefits - Past
service costs and Canadian 12 10
GAAP transition amounts
Impairment of assets 6 5
Constructive obligations (2) (5)
Share-based payments 1 1
Income taxes - Tax effect of 153 154
above differences
Income tax-related differences 128 188
Shareholders' Equity - IFRS $ 6,402 $ 6,685
Potash Corporation of Saskatchewan Inc.
Selected Operating and Revenue Data
(unaudited)
Three Months Six Months
Ended Ended
June 30 June 30
2011 2010 2011 2010
Potash Operating Data
Production (KCl Tonnes - 2,570 2,232 5,162 4,187
thousands)
Shutdown weeks ((1)) - 4.6 - 18.0
Sales (tonnes - thousands)
Manufactured Product
North America 831 575 1,923 1,841
Offshore 1,690 1,329 3,386 2,527
Manufactured Product 2,521 1,904 5,309 4,368
Potash Net Sales
(US $ millions)
Sales $1,121 $641 $2,230 $1,533
Freight, transportation and (70) (51) (153) (147)
distribution
Net Sales $1,051 $590 $2,077 $1,386
Manufactured Product
North America $409 $213 $875 $663
Offshore 640 375 1,195 717
Other miscellaneous and 2 2 7 6
purchased product
Net Sales $1,051 $590 $2,077 $1,386
Potash Average Price per MT
North America $492 $370 $455 $360
Offshore $379 $282 $353 $284
Manufactured Product $416 $309 $390 $316
((1)) Excludes planned routine annual maintenance shutdowns.
Potash Corporation of Saskatchewan Inc.
Selected Operating and Revenue Data
(unaudited)
Three Months Six Months
Ended Ended
June 30 June 30
2011 2010 2011 2010
Phosphate Operating Data
Production (P(2)O(5 )Tonnes - 552 491 1,084 939
thousands)
P(2)O(5) Operating Rate( ) 93% 83% 91% 79%
Sales (tonnes - thousands)
Manufactured Product
Fertilizer - Liquid 298 219 647 467
phosphates
Fertilizer - Solid 398 215 653 508
phosphates
Feed 153 146 288 313
Industrial 164 139 318 291
Manufactured Product 1,013 719 1,906 1,579
Phosphate Net Sales
(US $ millions)
Sales $633 $364 $1,182 $765
Freight, transportation and (40) (28) (83) (63)
distribution
Net Sales $593 $336 $1,099 $702
Manufactured Product
Fertilizer - Liquid $158 $81 $328 $162
phosphates
Fertilizer - Solid 234 98 391 224
phosphates
Feed 82 68 153 139
Industrial 112 82 213 164
Other miscellaneous and 7 7 14 13
purchased product
Net Sales $593 $336 $1,099 $702
Phosphate Average Price per MT
Fertilizer - Liquid $529 $372 $507 $349
phosphates
Fertilizer - Solid $588 $456 $598 $440
phosphates
Feed $536 $464 $531 $444
Industrial $682 $591 $669 $565
Manufactured Product $578 $458 $569 $437
Potash Corporation of Saskatchewan Inc.
Selected Operating and Revenue Data
(unaudited)
Three Months Six Months
Ended Ended
June 30 June 30
2011 2010 2011 2010
Nitrogen Operating Data
Production (N Tonnes - thousands) 705 713 1,391 1,451
Average Natural Gas Production $6.21 $4.77 $6.02 $4.84
Cost per MMBtu
Sales (tonnes - thousands)
Manufactured Product
Ammonia 514 461 1,028 891
Urea 316 324 647 668
Nitrogen solutions/Nitric 469 532 964 1,080
acid/Ammonium nitrate
Manufactured Product 1,299 1,317 2,639 2,639
Fertilizer sales tonnes 448 527 836 1,025
Industrial/Feed sales tonnes 851 790 1,803 1,614
Manufactured Product 1,299 1,317 2,639 2,639
Nitrogen Net Sales
(US $ millions)
Sales $571 $432 $1,117 $853
Freight, transportation and (22) (20) (45) (44)
distribution
Net Sales $549 $412 $1,072 $809
Manufactured Product
Ammonia $280 $177 $524 $324
Urea 130 100 268 221
Nitrogen solutions/Nitric 110 101 222 200
acid/Ammonium nitrate
Other miscellaneous and 29 34 58 64
purchased product
Net Sales $549 $412 $1,072 $809
Fertilizer net sales $191 $149 $335 $278
Industrial/Feed net sales 329 229 679 467
Other miscellaneous and 29 34 58 64
purchased product
Net Sales $549 $412 $1,072 $809
Nitrogen Average Price per MT
Ammonia $545 $383 $510 $364
Urea $413 $310 $414 $331
Nitrogen solutions/Nitric $234 $190 $230 $185
acid/Ammonium nitrate
Manufactured Product $400 $287 $384 $282
Fertilizer average price per $428 $283 $401 $271
MT
Industrial/Feed average price $386 $290 $376 $289
per MT
Manufactured Product $400 $287 $384 $282
Exchange Rate (Cdn$/US$)
2011 2010
December 31 0.9946
June 30 0.9643 1.0606
Second-quarter average conversion 0.9676 1.0227
rate
Potash Corporation of Saskatchewan Inc.
Selected Non-IFRS Financial Measures and Reconciliations
(in millions of US dollars except percentage amounts)
(unaudited)
The following information is included for convenience only. Generally,
a non-IFRS financial measure is a numerical measure of a company's
performance, financial position or cash flows that either excludes or
includes amounts that are not normally excluded or included in the most
directly comparable measure calculated and presented in accordance with
IFRS. EBITDA, EBITDA margin, cash flow prior to working capital
changes and free cash flow are not measures of financial performance
(nor do they have standardized meanings) under IFRS. In evaluating
these measures, investors should consider that the methodology applied
in calculating such measures may differ among companies and analysts.
The company uses both IFRS and certain non-IFRS measures to assess
performance. Management believes these non-IFRS measures provide
useful supplemental information to investors in order that they may
evaluate PotashCorp's financial performance using the same measures as
management. Management believes that, as a result, the investor is
afforded greater transparency in assessing the financial performance of
the company. These non-IFRS financial measures should not be considered
as a substitute for, nor superior to, measures of financial performance
prepared in accordance with IFRS.
A. EBITDA AND EBITDA MARGIN
Set forth below is a reconciliation of 'EBITDA' to net income and
'EBITDA margin' to net income as a percentage of sales, the most
directly comparable financial measures calculated and presented in
accordance with IFRS.
Three Months Ended Six Months Ended
June 30 June 30
2011 2010 2011 2010
Net income $ 840 $ 480 $1,572 $ 924
Finance costs 38 34 88 65
Income taxes 297 165 540 356
Depreciation and amortization 128 109 252 219
EBITDA $1,303 $ 788 $2,452 $1,564
EBITDA is calculated as earnings before finance costs, income taxes and
depreciation and amortization. PotashCorp uses EBITDA as a supplemental
financial measure of its operational performance. Management believes
EBITDA to be an important measure as it excludes the effects of items
which primarily reflect the impact of long-term investment decisions,
rather than the performance of the company's day-to-day operations. As
compared to net income according to IFRS, this measure is limited in
that it does not reflect the periodic costs of certain capitalized
tangible and intangible assets used in generating revenues 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 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 Six Months Ended
June 30 June 30
2011 2010 2011 2010
Sales $2,325 $1,437 $4,529 $3,151
Freight, transportation and (132) (99) (281) (254)
distribution
Net sales $2,193 $1,338 $4,248 $2,897
Net income as a percentage of 36% 33% 35% 29%
sales
EBITDA margin 59% 59% 58% 54%
EBITDA margin is calculated as EBITDA divided by net sales (sales less
freight, transportation and distribution). Management believes
comparing the company's operations (excluding the impact of long-term
investment decisions) to net sales earned (net of costs to deliver
product) is an important indicator of efficiency. In addition to the
limitations given above in using EBITDA as compared to net income,
EBITDA margin as compared to net income as a percentage of sales is
also limited in that freight, transportation and distribution costs are
incurred and valued independently of sales. Management evaluates these
expenses individually on the consolidated statements of income.
Potash Corporation of Saskatchewan Inc.
Selected Non-IFRS Financial Measures and Reconciliations
(in millions of US dollars)
(unaudited)
B. CASH FLOW
Set forth below is a reconciliation of 'cash flow prior to working
capital changes' and 'free cash flow' to cash provided by operating
activities, the most directly comparable financial measure calculated
and presented in accordance with IFRS.
Three Months Ended Six Months Ended
June 30 June 30
2011 2010 2011 2010
Cash flow prior to working capital $1,070 $ 740 $1,969 $1,373
changes( )
Changes in non-cash operating
working capital
Receivables 24 296 (189) 390
Inventories 6 (72) (21) (30)
Prepaid expenses and other 12 (17) 12 (11)
current assets
Payables and accrued charges (48) 49 (17) 85
Changes in non-cash operating (6) 256 (215) 434
working capital
Cash provided by operating $1,064 $ 996 $1,754 $1,807
activities
Additions to property, plant and (492) (498) (933) (955)
equipment
Other assets and intangible assets (3) (37) (3) (71)
Changes in non-cash operating 6 (256) 215 (434)
working capital
Free cash flow $ 575 $ 205 $1,033 $ 347
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 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.
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| Investors | Media | ||
| Denita Stann | Bill Johnson | ||
| Vice President, Investor and Public Relations | Senior Director, Public Affairs | ||
| Phone: (306) 933-8521 | Phone: (306) 933-8849 | ||
| Fax: (306) 933-8844 | Fax: (306) 933-8844 | ||
| Email: ir@potashcorp.com | Email: pr@potashcorp.com |
Web Site: www.potashcorp.com