Listed: TSX, NYSE Symbol: POT SASKATOON, SK, July 26
/PRNewswire-FirstCall/ -- Potash Corporation of Saskatchewan Inc.
(PotashCorp) today announced the best quarterly earnings in the
history of the company of US $0.88 per share(1) ($285.7 million) in
the second quarter. These earnings, which would have been $0.09 per
share higher if not for the strengthening Canadian dollar, were 42
percent above the previous best of $0.62 per share ($198.0 million)
achieved in this year's first quarter and 60 percent more than the
$0.55 per share ($175.1 million) earned in the second quarter of
2006, when we recorded certain tax-related benefits of $0.17 per
share. These results reflect strengthening price and volume
performance in all three nutrients, including a significant
increase in potash volumes from last year's second quarter, when
China and India delayed purchasing during extended price
negotiations. Earnings of $1.50 per share for the first six months
of 2007 were 58 percent ahead of the $0.95 per share earned in the
first half of 2006. Record quarterly gross margin in all three
nutrients combined to generate total second-quarter gross margin of
$501.4 million, almost doubling the $253.4 million from the same
period last year and 36 percent above the previous high set in the
first quarter of 2007. Year-to-date gross margin of $871.1 million
is 91 percent ahead of that generated in the first half of 2006.
Cash flow prior to working capital changes of $473.7 million(2) and
earnings before interest, taxes, depreciation and amortization
(EBITDA) of $496.4 million(2) were also quarterly records. Year to
date, our EBITDA of $877.4 million is 73 percent higher than in
last year's first half. Offshore investments in Arab Potash Company
Ltd. (APC) in Jordan, Sociedad Quimica y Minera de Chile (SQM) in
Chile, Israel Chemicals Ltd. (ICL) in Israel and Sinofert Holdings
Limited (Sinofert) in China all enhanced our performance. APC and
SQM together contributed equity earnings of $29.8 million in the
quarter, while dividend income received from ICL and Sinofert
totaled $38.7 million. Year to date, these investments have
contributed $81.5 million to our other income line, more than
double the same period last year. The total market value of our
investment in these publicly traded companies equates to
approximately $12.00 per PotashCorp share and exceeds our total
acquisition cost by almost $2.8 billion. "The fundamentals that
drive our business have aligned for the foreseeable future, and we
are well positioned to capitalize on the growing global need for
all three primary nutrients," said PotashCorp President and CEO
Bill Doyle. "Fertilizer applications have increased as farmers
around the world strive to keep pace with the rising demand for
crops. Our world-class assets and focused long-term strategies,
especially our Potash First approach, have positioned us for strong
performance in these market conditions as we demonstrated again
this quarter." Market Conditions With prices for many major global
crops at or near historically high levels, the world's farmers
purchased more fertilizer to increase yields, tightening supply and
pushing up prices for all three nutrients. In North America, a June
29 report from the United States Department of Agriculture
estimated that US farmers increased 2007 corn plantings by 19
percent to 92.9 million acres, the highest level since 1944. While
this led to a decline in near-term corn prices, they have remained
approximately 75 percent higher than one year ago and longer-term
futures are still near $4 per bushel. The focus on corn resulted in
North American soybean acreage falling by 15 percent from 2006
levels, underpinning higher soybean prices and encouraging farmers
in other regions, particularly Brazil, to increase plantings and
fertilizer use. Globally, a similar pattern was evident in crops
used for food, animal feed, fiber and fuels. North American potash
producer inventories at the end of June were 44 percent below the
same time in 2006, while high demand drew down customer inventories
and made supply very tight by the end of the quarter. US demand for
ammonia, urea and nitrogen solutions for field application was very
strong this spring and, even with increased imports in the quarter,
supply was tight and prices remained at historical seasonal highs.
In phosphate, strong US and global demand for solid and liquid
fertilizers continued to reduce inventories and shrink available
supplies, while the need for phosphoric acid (P2O5) to make solid
fertilizers created a positive pricing environment for other
downstream phosphate products. In both phosphate and nitrogen,
robust demand for liquid fertilizer continues to differentiate
North America from other global agricultural markets. Potash Potash
gross margin reached a record $260.4 million in the second quarter,
reflecting strong volumes and prices. This was almost double the
$132.8 million gross margin in the second quarter of 2006, although
that total was impacted by extended price negotiations with China
and India and purchasing delays in North America and other major
markets due to weak crop prices. For the first six months of 2007,
potash gross margin of $434.6 million was 94 percent higher than
last year and 9 percent ahead of the previous first-half record set
in 2005. Tightening supply/demand fundamentals led to higher North
American and offshore prices. An $11-per-tonne North American
increase announced in the first quarter was fully realized in the
second quarter and we began to capture a further $15-per-tonne
increase that took effect June 1. Overall, our North American
netbacks were up over $10 per tonne from the first quarter and $15
per tonne from fourth-quarter 2006. Offshore, our realized prices
were up over $8 per tonne from the previous quarter and over $14
per tonne from the second quarter of 2006, as price increases to
Brazil, Southeast Asia and India began to take hold. Year-to-date,
higher ocean freight rates had a negative impact of about $12 per
tonne on all delivered (CFR) sales, as Canpotex Limited (Canpotex),
the offshore marketing company for Saskatchewan producers, sells
approximately 60 percent of its volumes on a CFR basis. However,
Canpotex has locked in about 40 percent of its CFR shipments under
long-term freight agreements which, compared to shipping entirely
at spot rates, are expected to save it over $50 million in ocean
freight costs in 2007. Our total quarterly potash sales volumes of
2.8 million tonnes surpassed the previous record of 2.6 million
tonnes set in the second quarter of 2004. This raised our
first-half volumes to 5.0 million tonnes, ahead of the record 4.7
million tonnes sold in the first half of 2005. Our second-quarter
volumes included 1.0 million tonnes to North American customers, a
42-percent increase over last year's second quarter, and 1.8
million tonnes to offshore markets, 85 percent higher quarter over
quarter. Canpotex's record second-quarter volumes of 2.7 million
tonnes were 112 percent above the same period last year, reflecting
strong demand in most offshore markets. China took almost 800,000
tonnes from Canpotex in the second quarter, as shipments rebounded
following a railway strike and adverse weather earlier in the year.
India bought 245,000 tonnes and Southeast Asian purchases remained
strong. Brazil took 490,000 tonnes in the second quarter compared
to 210,000 tonnes in the same quarter last year. We produced 2.5
million tonnes of potash during the quarter compared to 1.9 million
tonnes in the same period of 2006 and took only seven shutdown
weeks compared to 19 last year. This helped to reduce our per-tonne
potash cost of goods sold by about $8 quarter over quarter, but was
offset by an increase of approximately $3 per tonne due to higher
brine inflow management costs at New Brunswick and Esterhazy.
Nitrogen Nitrogen generated a record $144.2 million of gross margin
in the second quarter, 57 percent higher than the $91.7 million in
the same quarter last year and 10 percent ahead of the previous
record of $131.3 million set in first-quarter 2007. Trinidad, where
we have long-term, lower-cost natural gas contracts, contributed
$77.2 million, or 54 percent, of this segment's total, and our US
operations added $52.9 million, including a $21.3-million
improvement in nitrogen solutions compared to the same quarter last
year. Hedging gains added another $14.1 million to segment gross
margin in the quarter. In the first six months of 2007, nitrogen
generated $275.5 million in gross margin, up 61 percent from the
first half of 2006. Due to strong North American demand, realized
prices for ammonia rose 5 percent quarter over quarter. A tight
market pushed up urea prices 34 percent above last year's second
quarter and 6 percent higher than the robust first quarter. Prices
for nitrogen solutions were up 42 percent quarter over quarter due
to increased corn acreage and product characteristics that make
solutions an increasingly preferred nitrogen source. Ammonia sales
volumes increased 30 percent quarter over quarter, as more product
was available from our Trinidad 01 plant, which reduced production
during a turnaround and debottleneck last year, and our Lima
facility, which was shut down for 25 days in the second quarter of
2006. Urea volumes fell by 5 percent from last year's second
quarter, primarily because customers bought greater volumes in the
first quarter. Nitrogen solutions volumes were up 174 percent as we
capitalized on our production flexibility by importing ammonia and
purchasing carbon dioxide to feed Geismar's UAN capability, giving
us additional product to meet strong US demand. Our total average
gas cost for the quarter, including our hedge, was $4.41 per MMBtu
- 14 percent higher than in the same quarter last year, but flat
compared to the trailing quarter. Phosphate Buoyed by the strength
of the solid fertilizer market, phosphate delivered its highest
quarterly gross margin ever at $96.8 million. This is more than
triple the $28.9 million in last year's second quarter and 51
percent higher than the first quarter of 2007. Solid fertilizers
generated $51.4 million this quarter, after just breaking even
during the second quarter of 2006. Quarterly gross margin from
liquid fertilizers ($13.0 million), industrial products ($16.6
million) and feed phosphate supplements ($14.0 million) remained
strong. Phosphate had already generated more gross margin in the
first six months of 2007 ($161.0 million) than in any full year
since 1998. Extremely tight fundamentals for fertilizer products in
North America extended pricing momentum during the quarter. After
lagging feed and industrial product pricing for several years,
solid fertilizers rose to $392 per tonne, a 61-percent jump from
the second quarter of 2006 and 39 percent higher than in the first
quarter. Liquid fertilizer netbacks were up 17 percent quarter over
quarter, while feed and industrial realized prices were relatively
flat. Solid fertilizer volumes were down 9 percent from last year's
second quarter, in part because of higher sales for spring season
application in the first quarter of 2007. Our liquid phosphate
fertilizer capability allowed us to capitalize on significantly
higher US demand, selling 23 percent more there than in the same
quarter last year, but this was partially offset by lower offshore
sales. Total liquid fertilizer sales volumes increased 12 percent
quarter over quarter. Feed volumes rose 4 percent from last year's
second quarter on stronger North American demand, while industrial
volumes were 19 percent higher quarter over quarter due to
increased utilization at Geismar and our newest Aurora purified
acid plant. Sulfur costs were 20 percent lower than in last year's
second quarter, as price contracts at that time still reflected the
impact of Hurricane Katrina. Ammonia costs rose 7 percent quarter
over quarter, consistent with the change in the Tampa ammonia
reference price. Our phosphate portfolio now includes silicon
tetrafluoride (STF), a product used in manufacturing silicon wafers
for the growing solar energy market. This stable, high-return
industrial product is made from hydrofluorosilicic acid (HFSA)
recovered from the evaporators when P2O5 is produced. We completed
construction and commissioned a 7,500-short-ton-per- year plant at
Aurora during the first half of 2007 and signed a contract in the
second quarter for construction of three additional STF plants of
that size. The total cost for all four plants is approximately $130
million. Financial The Canadian dollar strengthened against the US
dollar in the quarter, entering at $1.1529 and ending at $1.0634.
This resulted in a pre-tax, primarily non-cash, foreign exchange
loss of $39.5 million. Provincial mining and other taxes were up
$20.1 million from last year's second quarter, as potash gross
margin increased by 96 percent and our 2006 results reflected a
higher per-tonne reduction of these taxes due to potash capital
expenditures. In the second quarter of 2006 we recorded a
$44.8-million tax benefit related to Province of Saskatchewan and
Government of Canada corporate income tax rate reductions, in
addition to a $3.5-million income tax refund. Selling and
administrative expenses were $25.6 million higher than in the same
quarter last year, largely due to the impact of substantial share
price increases on the medium-term incentive plan accrual. We spent
$127.5 million this quarter for capital expenditures on property,
plant and equipment, with over half of that related to ongoing
potash capital projects. On June 15, upon maturity, we repaid $400
million of outstanding long-term debt. Outlook The long-term trends
of global population growth along with economic expansion in many
developing nations are increasing the demand for crops used in
food, animal feed, fiber and fuel. China, for example, experienced
GDP growth of 11.9 percent in the second quarter and 11.5 percent
for the first half of 2007, putting it on pace for its highest
annual growth rate since 1994. As a result, an increasing
percentage of the world's growing population has more money to
spend on better-quality, protein-rich diets. These contain higher
levels of protein from beef, pork and poultry, which require
increased volumes of grains to produce. This, combined with a
significant surge of interest in ethanol and biodiesel, is driving
the rising demand for crops. Global grain supplies have not been
able to keep up and inventories have dropped to extremely low
levels. In response, farmers around the world are increasing
plantings and fertilizer applications to increase crop yields.
Futures prices for major US crops, including corn, wheat and
soybeans, remain favorable for the long term. Large offshore grain
consumers such as China, India and the countries of Southeast Asia
are expected to increase their purchases of grain from other
countries and are also working to produce more internally. This is
expected to require significant increases in application rates for
all three nutrients, especially potash, and is leading to strong
pricing for fertilizer products. In Brazil, agriculture and
fertilizer consumption are rebounding strongly after two
challenging years of low soybean prices and a rapidly strengthening
currency which resulted in distributor and farm credit issues.
Potash supply is very tight, as global customers attempt to rebuild
inventories in the face of extremely high consumption. Today, we
are allocating product to customers based on available supply and,
with production slowed by scheduled annual summer maintenance
shutdowns, global inventories are expected to remain tenuous
through 2007 and into 2008. Our North American potash shipments for
the 2007 fertilizer year were 38 percent higher than in 2006 and
are expected to be about 25 percent higher on a calendar
year-over-year basis. We anticipate our 2007 North American volumes
will be over 3.4 million tonnes, with offshore volumes expected to
exceed 5.9 million tonnes. PotashCorp has announced a $22-per-tonne
price increase to North American customers for October 1. Offshore,
Brazil could surpass the record 6.4 million tonnes of potash it
imported in 2004. Canpotex has announced and implemented price
increases in Brazil that total $100 per tonne so far in 2007. A
further $25-per-tonne increase is scheduled to take effect on
October 1. Buyers in India are expected to raise their total
purchases to 4.6 million tonnes from 3.6 million tonnes last year,
with a $50- per-tonne price increase taking effect on second-half
imports. We anticipate that Southeast Asian customers will also buy
more potash than in 2006, and pay $300 per tonne CFR, reflecting a
total of $95 in price increases so far in 2007. Positive
agricultural conditions are also raising global demand for
nitrogen, which has supported prices and limited the seasonal
decline traditionally caused by a lull in demand and lower summer
natural gas prices. Concerned about supply availability, US
customers are planning purchases in advance of the fall season. We
now anticipate that our 2007 gross margin in this segment will
exceed our previous record by over 50 percent, including roughly
$50 million of hedging gains. In phosphate, North American and
global supply/demand fundamentals for phosphate rock, phosphoric
acid and solid fertilizers are extremely tight and are expected to
support continued high prices. Tampa reference prices for offshore
DAP are expected to remain above the $400-per-tonne level, while
North American liquid fertilizer prices are expected to be
approximately $100 per tonne higher in the third quarter of 2007
than the same quarter last year. We have announced North American
price increases of $50 per tonne on monocal and dical feed
phosphate products starting July 1, 2007. In this environment, our
phosphate segment could triple the gross margin levels it generated
in 2006. Our 2007 capital expenditures, including spending on the
new mine at New Brunswick, continuing projects at Lanigan, Patience
Lake and Cory, the Aurora STF project and capitalized interest, are
expected to be approximately $640 million, of which $180 million
will relate to sustaining capital. Our consolidated effective
marginal income tax rate is expected to remain at 30 percent
through 2007, while provincial mining and other taxes are now
forecast to approximate 15 percent of total potash gross margin in
the year. Based on performance above previous expectations in all
three nutrients, we are increasing our range for full-year net
income from $2.50-$2.83 per diluted share to $3.00-$3.25 per
diluted share. We expect third-quarter net income to be in the
range of $0.70-$0.80 per diluted share, based on a $1.05 Canadian
dollar. In the current trading range of the Canadian dollar
relative to the US dollar, each one-cent change in the Canadian
dollar will typically have an impact of approximately $4.6 million
on the foreign exchange line, or $0.01 per share on an after-tax
basis, although this is primarily a non-cash item. Conclusion "We
are only just beginning to realize the benefits of our leverage in
potash, the foundation of our business," said Doyle. "With greater
volumes, higher prices and lower unit costs, we are delivering
record returns and increased value for our shareholders. As we look
ahead, we expect the next five years to be the greatest in our
history. Our continued focus is on preparing PotashCorp for the
opportunities that lie ahead while remaining true to our long-term
strategy of a disciplined approach to both capital allocation and
markets which will continue to reward our shareholders." Notes:
------ 1. All references to per-share amounts pertain to diluted
net income per share on a post-three-for-one-split (May 2007)
basis. 2. See reconciliation and description of non-GAAP measures
in the attached section titled "Selected Non-GAAP Financial
Measures and Reconciliations." Potash Corporation of Saskatchewan
Inc. is the world's largest fertilizer enterprise producing the
three primary plant nutrients and a leading supplier to three
distinct market categories: agriculture, with the largest capacity
in the world in potash, third largest in phosphate and fourth
largest in nitrogen; animal nutrition, with the world's largest
capacity in phosphate feed ingredients; and industrial chemicals,
as the largest global producer of industrial nitrogen products and
the world's largest capacity for production of purified industrial
phosphoric acid. This release contains forward-looking statements.
These statements are based on certain factors and assumptions as
set forth in this release, including foreign exchange rates,
expected growth, results of operations, performance and business
prospects and opportunities. While the company considers these
factors and assumptions to be reasonable, based on information
currently available, they may prove to be incorrect. A number of
factors could cause actual results to differ materially from those
in the forward-looking statements, including, but not limited to:
fluctuations in supply and demand in fertilizer, sulfur,
transportation and petrochemical markets; changes in competitive
pressures, including pricing pressures; risks associated with
natural gas and other hedging activities; changes in capital
markets; changes in currency and exchange rates; unexpected
geological or environmental conditions, including water inflow; and
government policy changes. Additional risks and uncertainties can
be found in our 2006 financial review annual report and in filings
with the 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.
PotashCorp will host a conference call on Thursday, July 26, 2007,
at 1:00 p.m. Eastern Time. To join the call, dial (416) 640-1907 at
least 10 minutes prior to the start time. Use reservation ID No.
21213530. Alternatively, visit http://www.potashcorp.com/ for a
live webcast of the conference call in a listen-only mode. This
news release is also available at this same website. Potash
Corporation of Saskatchewan Inc. Condensed Consolidated Statements
of Financial Position (in millions of US dollars except share
amounts) (unaudited) June 30, December 31, 2007 2006
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Assets Current assets Cash and cash equivalents $ 449.7 $ 325.7
Accounts receivable 481.2 442.3 Inventories 469.0 501.3 Prepaid
expenses and other current assets 40.4 40.9 Current portion of
derivative instrument assets 44.0 -
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1,484.3 1,310.2 Derivative instrument assets 84.0 - Property, plant
and equipment 3,641.7 3,525.8 Investments 2,589.5 1,148.9 Other
assets 82.0 105.8 Intangible assets 27.1 29.3 Goodwill 97.0 97.0
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$ 8,005.6 $ 6,217.0
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Liabilities Current liabilities Short-term debt $ 86.6 $ 157.9
Accounts payable and accrued charges 674.0 545.2 Current portion of
long-term debt 0.2 400.4
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760.8 1,103.5 Long-term debt (Note 2) 1,337.4 1,357.1 Future income
tax liability 893.1 632.1 Accrued pension and other post-retirement
benefits 230.7 219.6 Accrued environmental costs and asset
retirement obligations 112.0 110.3 Other non-current liabilities
and deferred credits 2.6 14.1
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3,336.6 3,436.7
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Shareholders' Equity Share capital (Note 3) 1,451.9 1,431.6
Unlimited authorization of common shares without par value; issued
and outstanding 315,879,318 and 314,403,147 at June 30, 2007 and
December 31, 2006, respectively Contributed surplus 91.3 62.3
Accumulated other comprehensive income (Note 4) 1,402.8 - Retained
earnings 1,723.0 1,286.4
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4,669.0 2,780.3
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$ 8,005.6 $ 6,217.0
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc. Condensed Consolidated
Statements of Operations and Retained Earnings (in millions of US
dollars except per-share amounts) (unaudited) Three Months Ended
Six Months Ended June 30 June 30 2007 2006 2007 2006
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Sales (Note 7) $ 1,353.1 $ 928.7 $ 2,507.8 $ 1,790.3 Less: Freight
92.3 62.3 174.2 117.2 Transportation and distribution 32.6 35.8
63.6 67.0 Cost of goods sold 726.8 577.2 1,398.9 1,149.2
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Gross Margin 501.4 253.4 871.1 456.9
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Selling and administrative 73.5 47.9 114.1 78.7 Provincial mining
and other taxes 34.6 14.5 67.1 28.7 Foreign exchange loss 39.5 16.3
41.5 13.9 Other income (Note 10) (68.5) (20.0) (82.2) (51.2)
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79.1 58.7 140.5 70.1
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Operating Income 422.3 194.7 730.6 386.8 Interest Expense 20.8 20.7
46.3 43.9
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Income Before Income Taxes 401.5 174.0 684.3 342.9 Income Taxes
(Note 5) 115.8 (1.1) 200.6 42.3
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Net Income $ 285.7 $ 175.1 483.7 300.6 ----------------------
---------------------- Retained Earnings, Beginning of Period
1,286.4 716.9 Change in Accounting Policy (Note 1) 0.2 - Dividends
(47.3) (30.9)
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Retained Earnings, End of Period $ 1,723.0 $ 986.6
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Net Income Per Share (Note 6) Basic $ 0.91 $ 0.56 $ 1.53 $ 0.97
Diluted $ 0.88 $ 0.55 $ 1.50 $ 0.95
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Dividends Per Share $ 0.10 $ 0.05 $ 0.15 $ 0.10
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc. Condensed Consolidated
Statements of Cash Flow (in millions of US dollars) (unaudited)
Three Months Ended Six Months Ended June 30 June 30 2007 2006 2007
2006
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Operating Activities Net income $ 285.7 $ 175.1 $ 483.7 $ 300.6
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Adjustments to reconcile net income to cash provided by operating
activities Depreciation and amortization 74.1 60.4 146.8 119.2
Stock-based compensation 27.8 22.5 30.5 24.0 Loss on disposal of
property, plant and equipment 5.5 - 5.4 0.3 Foreign exchange on
future income tax 23.4 12.3 26.1 12.1 Provision for (recovery of)
future income tax 41.8 (27.8) 67.2 (13.9) Undistributed earnings of
equity investees 11.1 13.9 (1.9) 1.5 Unrealized loss (gain) on
derivative instruments 0.9 - (5.4) - Other long-term liabilities
3.4 0.6 4.3 2.6
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Subtotal of adjustments 188.0 81.9 273.0 145.8
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Changes in non-cash operating working capital Accounts receivable
11.1 (11.8) (39.7) 51.5 Inventories 26.7 (10.4) 16.1 (1.5) Prepaid
expenses and other current assets 11.9 (6.7) 0.5 (33.7) Accounts
payable and accrued charges 2.7 (86.9) 112.1 (334.0)
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Subtotal of changes in non-cash operating working capital 52.4
(115.8) 89.0 (317.7)
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Cash provided by operating activities 526.1 141.2 845.7 128.7
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Investing Activities Additions to property, plant and equipment
(127.5) (131.1) (236.5) (251.1) Purchase of long-term investments -
(3.7) (9.7) (130.0) Proceeds from disposal of property, plant and
equipment 1.0 0.2 1.3 2.2 Other assets and intangible assets 12.5
7.5 10.7 3.0
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Cash used in investing activities (114.0) (127.1) (234.2) (375.9)
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Cash before financing activities 412.1 14.1 611.5 (247.2)
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Financing Activities Repayment and issue costs of long-term debt
obligations (400.2) (0.4) (403.6) (0.7) (Repayment of) proceeds
from short-term debt obligations (9.5) (48.4) (71.3) 304.3
Dividends (15.6) (15.2) (31.3) (30.5) Issuance of common shares 8.4
6.9 18.7 9.9
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Cash (used in) provided by financing activities (416.9) (57.1)
(487.5) 283.0
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(Decrease) Increase in Cash and Cash Equivalents (4.8) (43.0) 124.0
35.8 Cash and Cash Equivalents, Beginning of Period 454.5 172.7
325.7 93.9
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Cash and Cash Equivalents, End of Period $ 449.7 $ 129.7 $ 449.7 $
129.7
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Cash and cash equivalents comprised of: Cash $ 2.6 $ 17.1 $ 2.6 $
17.1 Short-term investments 447.1 112.6 447.1 112.6
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$ 449.7 $ 129.7 $ 449.7 $ 129.7
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Supplemental cash flow disclosure Interest paid $ 41.6 $ 33.8 $
55.8 $ 50.1 Income taxes paid $ 37.0 $ 82.5 $ 69.1 $ 224.5
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc. Condensed Consolidated
Statements of Comprehensive Income (in millions of US dollars)
(unaudited) Three Months Ended June 30, 2007 Before Net of Income
Income Income Taxes Taxes Taxes
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Net income $ 401.5 $ 115.8 $ 285.7
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Other comprehensive income Increase in unrealized gains on
available-for-sale securities(1) 318.2 21.3 296.9 Net gains
(losses) on derivatives designated as cash flow hedges(2) (4.2)
(1.2) (3.0) Reclassification to income of (gains) losses on cash
flow hedges(2) (14.1) (4.3) (9.8) Unrealized foreign exchange gains
on translation of self-sustaining foreign operations 0.3 - 0.3
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Other comprehensive income 300.2 15.8 284.4
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Comprehensive income $ 701.7 $ 131.6 $ 570.1
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Six Months Ended June 30, 2007 Before Net of Income Income Income
Taxes Taxes Taxes
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Net income $ 684.3 $ 200.6 $ 483.7
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Other comprehensive income Increase in unrealized gains on
available-for-sale securities(1) 563.2 34.0 529.2 Net gains
(losses) on derivatives designated as cash flow hedges(2) 30.9 9.3
21.6 Reclassification to income of (gains) losses on cash flow
hedges(2) (31.3) (9.4) (21.9) Unrealized foreign exchange gains on
translation of self-sustaining foreign operations 4.9 - 4.9
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Other comprehensive income 567.7 33.9 533.8
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Comprehensive income $ 1,252.0 $ 234.5 $ 1,017.5
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(1) Available-for-sale securities are comprised of shares in Israel
Chemicals Ltd. and Sinofert Holdings Limited (2) Natural gas
derivative instruments
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc. Notes to the Condensed
Consolidated Financial Statements For the Three and Six Months
Ended June 30, 2007 (in millions of US dollars except share and
per-share amounts) (unaudited) 1. Significant Accounting Policies
With its subsidiaries, Potash Corporation of Saskatchewan Inc.
("PCS") - together known as "PotashCorp" or "the company" except to
the extent the context otherwise requires - forms an integrated
fertilizer and related industrial and feed products company. The
company's accounting policies are in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP"). The
accounting policies used in preparing these interim condensed
consolidated financial statements are consistent with those used in
the preparation of the 2006 annual consolidated financial
statements, except as described below. These interim condensed
consolidated financial statements include the accounts of PCS and
its subsidiaries; however, they do not include all disclosures
normally provided in annual consolidated financial statements and
should be read in conjunction with the 2006 annual consolidated
financial statements. In management's opinion, the unaudited
financial statements include all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly such
information. Interim results are not necessarily indicative of the
results expected for the fiscal year. Comprehensive Income, Equity,
Financial Instruments and Hedges Effective January 1, 2007, the
company adopted Canadian Institute of Chartered Accountants
("CICA") Section 1530, "Comprehensive Income", Section 3251,
"Equity", Section 3855, "Financial Instruments - Recognition and
Measurement" and Section 3865, "Hedges". These pronouncements
increase harmonization with US GAAP. Under the standards: -
Financial assets are classified as loans and receivables, held-to-
maturity, held-for-trading or available-for-sale. Loans and
receivables include all loans and receivables except debt
securities and are accounted for at amortized cost.
Held-to-maturity classification is restricted to fixed maturity
instruments that the company intends and is able to hold to
maturity and are accounted for at amortized cost. Held- for-trading
instruments are recorded at fair value with realized and unrealized
gains and losses reported in net income. The remaining financial
assets are classified as available-for-sale. These are recorded at
fair value with unrealized gains and losses reported in a new
category of the Consolidated Statement of Financial Position under
shareholders' equity called accumulated other comprehensive income
("AOCI"); - Financial liabilities are classified as either
held-for-trading or other. Held-for-trading instruments are
recorded at fair value with realized and unrealized gains and
losses reported in net income. Other instruments are accounted for
at amortized cost with gains and losses reported in net income in
the period that the liability is derecognized; and - Derivative
instruments ("derivatives") are classified as held-for- trading
unless designated as hedging instruments. All derivatives are
recorded at fair value on the Consolidated Statement of Financial
Position. For derivatives that hedge the changes in fair value of
an asset or liability, changes in the derivatives' fair value are
reported in net income and are substantially offset by changes in
the fair value of the hedged asset or liability attributable to the
risk being hedged. For derivatives that hedge variability in cash
flows, the effective portion of the changes in the derivatives'
fair value are initially recognized in other comprehensive income
("OCI") and the ineffective portion are recorded in net income.
Amounts temporarily recorded in AOCI will subsequently be
reclassified to net income in the periods when net income is
affected by the variability in the cash flows of the hedged item.
These standards have been applied prospectively; accordingly
comparative amounts for prior periods have not been restated. The
adoption of these standards resulted in the following adjustments
as of January 1, 2007 in accordance with the transition provisions:
(1) Available-for-sale securities - The company's investments in
Israel Chemicals Ltd. ("ICL") and Sinofert Holdings Limited
("Sinofert") have been classified as available-for-sale and
recorded at fair value in the Consolidated Statement of Financial
Position, resulting in an increase in investments of $887.8, an
increase to AOCI of $789.6 and an increase in future income tax
liability of $98.2; (2) Deferred debt costs - Bond issue costs were
reclassified from other assets to long-term debt and deferred swap
gains were reclassified from other non-current liabilities to
long-term debt, resulting in a reduction in other assets of $23.9,
a reduction in other non-current liabilities of $6.6 and a
reduction in long-term debt of $17.3; (3) Natural gas derivatives -
The company employs futures, swaps and option agreements to
establish the cost of a portion of its natural gas requirements.
These derivative instruments generally qualify for hedge
accounting. Derivative instruments were recorded on the
Consolidated Statement of Financial Position at fair value
resulting in an increase in current portion of derivative
instruments of $50.9, an increase in derivative instruments
(non-current asset) of $69.4, an increase in future income tax
liability of $45.6 and an increase in AOCI of $74.7; - Hedge
ineffectiveness on these derivative instruments was recorded as a
cumulative effect adjustment to opening retained earnings, net of
tax, resulting in an increase in retained earnings of $0.2 and a
decrease in AOCI of $0.2; and - Deferred realized hedging gains
were reclassified from inventory to AOCI resulting in an increase
in inventory of $8.0, an increase in future income tax liability of
$3.1 and an increase in AOCI of $4.9. Stripping Costs Incurred in
the Production Phase of a Mining Operation In March 2006, the
Emerging Issues Committee issued Abstract No. 160, "Stripping Costs
Incurred in the Production Phase of a Mining Operation"
("EIC-160"). EIC-160 discusses the treatment of costs associated
with the activity of removing overburden and other mine waste
minerals in the production phase of a mining operation. It
concludes that such stripping costs should be accounted for
according to the benefit received by the entity and recorded as
either a component of inventory or a betterment to the mineral
property, depending on the benefit received. The implementation of
EIC-160, effective January 1, 2007, resulted in a decrease in
inventory of $21.1, a decrease in other assets of $7.4 and an
increase in property, plant and equipment of $28.5. 2. Long-term
Debt In February 2007, the company entered into a back-to-back loan
arrangement involving certain financial assets and financial
liabilities. The company has presented $195.0 of financial assets
and financial liabilities on a net basis because a legal right to
set-off exists, and it intends to settle with the same party on a
net basis. The company incurred $3.2 of debt issue costs as a
result of this arrangement which were included as a reduction to
long-term debt and will be amortized using the effective interest
rate method over the term of the related liability. In June 2007,
the company repaid 10-year notes issued under one of the company's
shelf registration statements in the principal amount of $400.0.
The stated interest rate on the notes was 7.125%. 3. Share Capital
On May 2, 2007, the Board of Directors of PCS approved a split of
the company's outstanding common shares on a three-for-one basis.
The stock split was effected in the form of a stock dividend of two
additional common shares for each share owned by shareholders of
record at the close of business on May 22, 2007. All equity-based
benefit plans have been adjusted to reflect the stock split. All
share and per-share data have been adjusted to reflect the stock
split effective with second-quarter 2007 reporting. Information on
an adjusted basis, showing the impact of this split for the first
quarter of 2007, and by quarter and total year for 2006 and 2005
follows. Comparative results for second-quarter 2007 are also
included. Quarterly Data First Second Third Fourth (Post Split
Basis) Quarter Quarter Quarter Quarter Year
-------------------------------------------------------------------------
Basic net income per share 2007 $ 0.63 $ 0.91 2006 $ 0.40 $ 0.56 $
0.47 $ 0.59 $ 2.03 2005 $ 0.39 $ 0.50 $ 0.40 $ 0.37 $ 1.67 Diluted
net income per share 2007 $ 0.62 $ 0.88 2006 $ 0.40 $ 0.55 $ 0.46 $
0.58 $ 1.98 2005 $ 0.38 $ 0.49 $ 0.39 $ 0.36 $ 1.63 4. Accumulated
Other Comprehensive Income The balances related to each component
of accumulated other comprehensive income, net of related income
taxes, are as follows: June 30, 2007
-------------------------------------------------------------------------
Unrealized holding gains on available-for-sale securities $ 1,318.8
Net unrealized gains on derivatives designated as cash flow hedges
79.1 Unrealized foreign exchange gains on translation of
self-sustaining foreign operations 4.9
-------------------------------------------------------------------------
Accumulated other comprehensive income $ 1,402.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
5. Income Taxes The company's consolidated reported income tax rate
for the three and six months ended June 30, 2007 was approximately
29 percent (2006 - negative 1 percent and 12 percent,
respectively). For the three and six months ended June 30, 2007 and
2006, the consolidated effective income tax rate was 30 percent.
Items to note include the following: - A scheduled 2-percentage
point reduction in the Canadian federal income tax rate applicable
to resource companies, effective at the beginning of 2007, was
offset by a higher percentage of consolidated income earned in the
higher-tax jurisdictions during the three and six months ended June
30, 2007, compared to the same periods in 2006. - During the second
quarter of 2007 and 2006, the Government of Canada enacted changes
to the federal corporate income tax rate. The rate is being reduced
from 23 percent in 2006 to 18.5 percent by 2011. The federal
corporate surtax will be reduced from the current 1.12 percent to
nil in 2008 (a second-quarter 2006 enactment). These changes
reduced the company's future income tax liability by $4.7 in the
second quarter of 2007 and $22.9 in the second quarter of 2006. -
During the quarter ended June 30, 2006, the company reduced its
consolidated effective income tax rate from 33 percent to 30
percent for the 2006 year. The $5.1 benefit of this change on prior
periods, as applicable, was reflected during the quarter ended June
30, 2006. The change was primarily attributable to two factors.
First, in addition to the federal changes noted above, the Province
of Saskatchewan enacted changes to the corporate income tax,
reducing the rate from 17 percent to 12 percent by 2009. These
changes resulted in a $21.9 reduction in the company's future
income tax liability. Second, the company revised its estimated
allocation of annual earnings before income taxes by jurisdiction
as a result of a decrease in expected potash operating income in
Canada. - Income tax refunds totaling $15.8 for the 2001-2004
taxation years were recorded during the six months ended June 30,
2006, $3.5 of which was recognized during the second quarter of
2006. The refunds related to a Canadian appeal court decision
(pertaining to a uranium producer) which affirmed the deductibility
of the Saskatchewan capital tax resource surcharge. 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, 2007 of 315,458,000 (2006 - 311,382,000).
Basic net income per share for the year to date is calculated based
on the weighted average shares issued and outstanding for the six
months ended June 30, 2007 of 315,180,000 (2006 - 311,153,000).
Diluted net income per share is calculated based on the weighted
average number of shares issued and outstanding during the period.
The denominator is: (1) increased by the total of the additional
common shares that would have been issued assuming exercise of all
stock options with exercise prices at or below the average market
price for the period; and (2) decreased by the number of shares
that the company could have repurchased if it had used the assumed
proceeds from the exercise of stock options to repurchase them on
the open market at the average share price for the period. The
weighted average number of shares outstanding for the diluted net
income per share calculation for the three months ended June 30,
2007 was 323,674,000 (2006 - 317,760,000) and for the six months
ended June 30, 2007 was 323,139,000 (2006 - 317,637,000). 7.
Segment Information The company has three reportable business
segments: potash, nitrogen and phosphate. These business segments
are differentiated by the chemical nutrient contained in the
product that each produces. Inter-segment sales are made under
terms that approximate market value. The accounting policies of the
segments are the same as those described in Note 1. Three Months
Ended June 30, 2007
-------------------------------------------------------------------------
Consol- Potash Nitrogen Phosphate All Others idated
-------------------------------------------------------------------------
Sales $ 510.2 $ 481.2 $ 361.7 $ - $ 1,353.1 Freight 53.2 13.3 25.8
- 92.3 Transportation and distribution 12.6 12.6 7.4 - 32.6 Net
sales - third party 444.4 455.3 328.5 - Cost of goods sold 184.0
311.1 231.7 - 726.8 Gross margin 260.4 144.2 96.8 - 501.4
Depreciation and amortization 21.0 21.6 29.7 1.8 74.1 Inter-segment
sales - 26.1 1.0 - - Three Months Ended June 30, 2006
-------------------------------------------------------------------------
Consol- Potash Nitrogen Phosphate All Others idated
-------------------------------------------------------------------------
Sales $ 296.4 $ 342.4 $ 289.9 $ - $ 928.7 Freight 32.8 9.1 20.4 -
62.3 Transportation and distribution 11.0 13.6 11.2 - 35.8 Net
sales - third party 252.6 319.7 258.3 - Cost of goods sold 119.8
228.0 229.4 - 577.2 Gross margin 132.8 91.7 28.9 - 253.4
Depreciation and amortization 15.0 19.0 22.9 3.5 60.4 Inter-segment
sales 0.8 28.5 2.4 - - Six Months Ended June 30, 2007
-------------------------------------------------------------------------
Consol- Potash Nitrogen Phosphate All Others idated
-------------------------------------------------------------------------
Sales $ 890.7 $ 900.8 $ 716.3 $ - $ 2,507.8 Freight 96.7 24.6 52.9
- 174.2 Transportation and distribution 22.2 26.2 15.2 - 63.6 Net
sales - third party 771.8 850.0 648.2 - Cost of goods sold 337.2
574.5 487.2 - 1,398.9 Gross margin 434.6 275.5 161.0 - 871.1
Depreciation and amortization 38.9 43.3 59.3 5.3 146.8
Inter-segment sales - 59.1 1.9 - - Six Months Ended June 30, 2006
-------------------------------------------------------------------------
Consol- Potash Nitrogen Phosphate All Others idated
-------------------------------------------------------------------------
Sales $ 522.2 $ 674.3 $ 593.8 $ - $ 1,790.3 Freight 57.8 18.7 40.7
- 117.2 Transportation and distribution 18.4 26.9 21.7 - 67.0 Net
sales - third party 446.0 628.7 531.4 - Cost of goods sold 222.4
457.6 469.2 - 1,149.2 Gross margin 223.6 171.1 62.2 - 456.9
Depreciation and amortization 26.8 38.3 47.2 6.9 119.2
Inter-segment sales 4.8 60.4 4.6 - - 8. Stock-Based Compensation On
May 3, 2007, the company's shareholders approved the 2007
Performance Option Plan under which the company may, after February
20, 2007 and before January 1, 2008, 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 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, 2007, options to purchase a total of 1,730,550 common
shares have been granted under the plan. The weighted average fair
value of options granted was $22.68 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
$0.40 Expected volatility 29% Risk-free interest rate 4.48%
Expected life of options 6.4 years 9. Pension and Other
Post-Retirement Expenses Defined Benefit Three Months Ended Six
Months Ended Pension Plans June 30 June 30 2007 2006 2007 2006
-------------------------------------------------------------------------
Service cost $ 3.8 $ 3.6 $ 7.6 $ 7.2 Interest cost 9.1 8.4 18.2
16.8 Expected return on plan assets (10.7) (9.6) (21.4) (19.2) Net
amortization and change in valuation allowance 3.2 3.4 6.4 6.9
-------------------------------------------------------------------------
Net expense $ 5.4 $ 5.8 $ 10.8 $ 11.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other Post-Retirement Plans Three Months Ended Six Months Ended
June 30 June 30 2007 2006 2007 2006
-------------------------------------------------------------------------
Service cost $ 1.5 $ 1.2 $ 2.9 $ 2.4 Interest cost 3.5 3.1 7.0 6.1
Net amortization 0.1 (0.1) 0.3 (0.2)
-------------------------------------------------------------------------
Net expense $ 5.1 $ 4.2 $ 10.2 $ 8.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended June 30, 2007, the company contributed
$8.6 to its defined benefit pension plans, $6.2 to its defined
contribution pension plans and $2.1 to its other post-retirement
plans. Contributions for the six months ended June 30, 2007 were
$16.8 to its defined benefit pension plans, $12.8 to its defined
contribution pension plans and $4.2 to its other post-retirement
plans. Total 2007 contributions to these plans are not expected to
differ significantly from the amounts previously disclosed in the
consolidated financial statements for the year ended December 31,
2006. 10. Other Income Three Months Ended Six Months Ended June 30
June 30 2007 2006 2007 2006
-------------------------------------------------------------------------
Share of earnings of equity investees $ 29.8 $ 16.0 $ 42.8 $ 28.4
Dividend income 38.7 3.0 38.7 12.1 Other - 1.0 0.7 10.7
-------------------------------------------------------------------------
$ 68.5 $ 20.0 $ 82.2 $ 51.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. Comparative Figures Certain of the prior periods' figures have
been reclassified to conform with the current periods'
presentation. Potash Corporation of Saskatchewan Inc. Selected
Operating and Revenue Data (unaudited) Three Months Ended Six
Months Ended June 30 June 30 2007 2006 2007 2006
-------------------------------------------------------------------------
Potash Operating Data Production (KCl Tonnes - thousands) 2,491
1,894 4,794 3,189 Shutdown weeks 7.4 18.7 9.4 50.4 Sales (tonnes -
thousands) North America 1,051 739 1,943 1,266 Offshore 1,762 951
3,035 1,683
-------------------------------------------------------------------------
2,813 1,690 4,978 2,949
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Net Sales (US $ millions) Sales $510.2 $296.4 $890.7 $522.2
Less: Freight 53.2 32.8 96.7 57.8 Transportation and distribution
12.6 11.0 22.2 18.4
-------------------------------------------------------------------------
Net Sales $444.4 $252.6 $771.8 $446.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
North America $190.9 $129.2 $343.6 $221.1 Offshore 251.1 122.0
422.1 219.2
-------------------------------------------------------------------------
Potash Subtotal 442.0 251.2 765.7 440.3 Miscellaneous products 2.4
1.4 6.1 5.7
-------------------------------------------------------------------------
$444.4 $252.6 $771.8 $446.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Average Net Sales Price per MT North America $181.62 $174.65
$176.81 $174.51 Offshore $142.56 $128.24 $139.08 $130.27
-------------------------------------------------------------------------
$157.16 $148.54 $153.81 $149.27
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Corporation of Saskatchewan Inc. Selected Operating and
Revenue Data (unaudited) Three Months Ended Six Months Ended June
30 June 30 2007 2006 2007 2006
-------------------------------------------------------------------------
Nitrogen Operating Data Production (N Tonnes - thousands) 777 622
1,524 1,181 Average Natural Gas Cost per MMBtu $4.41 $3.86 $4.41
$4.08 Sales (tonnes - thousands) Manufactured Product Ammonia 576
442 1,096 806 Urea 312 328 651 609 Nitrogen solutions/Nitric
acid/Ammonium nitrate 647 468 1,125 850
-------------------------------------------------------------------------
Manufactured Product 1,535 1,238 2,872 2,265 Purchased Product 45
15 94 69
-------------------------------------------------------------------------
1,580 1,253 2,966 2,334
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer sales tonnes 619 415 1,073 737 Industrial/Feed sales
tonnes 961 838 1,893 1,597
-------------------------------------------------------------------------
1,580 1,253 2,966 2,334
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Net Sales (US $ millions) Sales $481.2 $342.4 $900.8
$674.3 Less: Freight 13.3 9.1 24.6 18.7 Transportation and
distribution 12.6 13.6 26.2 26.9
-------------------------------------------------------------------------
Net Sales $455.3 $319.7 $850.0 $628.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Manufactured Product Ammonia $186.7 $135.7 $356.1 $258.7 Urea 111.9
87.4 225.8 168.8 Nitrogen solutions/Nitric acid/Ammonium nitrate
132.4 83.9 218.8 164.9 Miscellaneous products 8.6 8.1 15.9 14.7
-------------------------------------------------------------------------
Net Sales Manufactured Product 439.6 315.1 816.6 607.1 Net Sales
Purchased Product 15.7 4.6 33.4 21.6
-------------------------------------------------------------------------
$455.3 $319.7 $850.0 $628.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer net sales $191.2 $105.9 $324.0 $194.0 Industrial/Feed
net sales 264.1 213.8 526.0 434.7
-------------------------------------------------------------------------
$455.3 $319.7 $850.0 $628.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Average Net Sales Price per MT Ammonia $323.86 $307.27
$324.78 $321.02 Urea $357.73 $266.34 $346.71 $277.16 Nitrogen
solutions/Nitric acid/Ammonium nitrate $204.79 $178.98 $194.56
$193.80
-------------------------------------------------------------------------
Manufactured Product $286.23 $254.41 $284.29 $267.91 Purchased
Product $352.21 $312.29 $355.98 $315.86
-------------------------------------------------------------------------
$288.09 $255.10 $286.56 $269.32
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer average price per MT $308.84 $254.82 $301.87 $263.05
Industrial/Feed average price per MT $274.73 $255.23 $277.88
$272.22
-------------------------------------------------------------------------
$288.09 $255.10 $286.56 $269.32
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Corporation of Saskatchewan Inc. Selected Operating and
Revenue Data (unaudited) Three Months Ended Six Months Ended June
30 June 30 2007 2006 2007 2006
-------------------------------------------------------------------------
Phosphate Operating Data Production (P2O5 Tonnes - thousands) 483
471 1,008 984 P2O5 Operating Rate 85% 83% 88% 87% Sales (tonnes -
thousands) Fertilizer - Liquid phosphates 207 185 476 445
Fertilizer - Solid phosphates 350 385 777 762 Feed 204 197 412 362
Industrial 185 156 358 329
-------------------------------------------------------------------------
946 923 2,023 1,898
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Phosphate Net Sales (US $ millions) Sales $361.7 $289.9 $716.3
$593.8 Less: Freight 25.8 20.4 52.9 40.7 Transportation and
distribution 7.4 11.2 15.2 21.7
-------------------------------------------------------------------------
Net Sales $328.5 $258.3 $648.2 $531.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer - Liquid phosphates $55.7 $42.6 $124.4 $104.5 Fertilizer
- Solid phosphates 137.1 93.8 257.5 186.9 Feed 63.5 60.0 126.4
112.3 Industrial 68.7 58.7 131.9 121.9 Miscellaneous products 3.5
3.2 8.0 5.8
-------------------------------------------------------------------------
$328.5 $258.3 $648.2 $531.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Phosphate Average Net Sales Price per MT Fertilizer - Liquid
phosphates $269.53 $230.34 $261.42 $234.89 Fertilizer - Solid
phosphates $392.41 $244.11 $331.67 $245.47 Feed $310.48 $305.46
$306.65 $310.82 Industrial $369.89 $376.46 $367.94 $369.92
-------------------------------------------------------------------------
$347.10 $280.25 $320.41 $280.09
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Exchange Rate (Cdn$/US$) 2007 2006
-------------------------------------------------------------------------
December 31 1.1653 June 30 1.0634 1.1150 Second-quarter average
conversion rate 1.1325 1.1369 Potash Corporation of Saskatchewan
Inc. Selected Non-GAAP Financial Measures and Reconciliations (in
millions of US dollars) (unaudited) The following information is
included for convenience only. Generally, a non-GAAP financial
measure is a numerical measure of a company's performance,
financial position or cash flows that either excludes or includes
amounts that are not normally excluded or included in the most
directly comparable measure calculated and presented in accordance
with generally accepted accounting principles ("GAAP"). EBITDA,
cash flow prior to working capital changes and free cash flow are
not measures of financial performance (nor do they have
standardized meanings) under either Canadian GAAP or US GAAP. In
evaluating these measures, investors should consider that the
methodology applied in calculating such measures may differ among
companies and analysts. The company uses both GAAP and certain
non-GAAP measures to assess performance. The company's management
believes these non-GAAP measures provide useful supplemental
information to investors in order that they may evaluate
PotashCorp's financial performance using the same measures as
management. PotashCorp's management believes that, as a result, the
investor is afforded greater transparency in assessing the
financial performance of the company. These non-GAAP financial
measures should not be considered as a substitute for, nor superior
to, measures of financial performance prepared in accordance with
GAAP. A. EBITDA ------ Set forth below is a reconciliation of
"EBITDA" to net income, the most directly comparable financial
measure calculated and presented in accordance with Canadian GAAP.
Three Months Ended Six Months Ended June 30 June 30 2007 2006 2007
2006
-------------------------------------------------------------------------
Net income $ 285.7 $ 175.1 $ 483.7 $ 300.6 Income taxes 115.8 (1.1)
200.6 42.3 Interest expense 20.8 20.7 46.3 43.9 Depreciation and
amortization 74.1 60.4 146.8 119.2
-------------------------------------------------------------------------
EBITDA $ 496.4 $ 255.1 $ 877.4 $ 506.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA is calculated as earnings before interest, income taxes,
depreciation and amortization. PotashCorp uses EBITDA as a
supplemental financial measure of its operational performance.
Management believes EBITDA to be an important measure as it
excludes the effects of items which primarily reflect the impact of
long-term investment decisions, rather than the performance of the
company's day-to-day operations. As compared to net income
according to GAAP, this measure is limited in that it does not
reflect the periodic costs of certain capitalized tangible and
intangible assets used in generating revenues in the company's
business. Management evaluates such items through other financial
measures such as capital expenditures and cash flow provided by
operating activities. The company believes that this measurement is
useful to measure a company's ability to service debt and to meet
other payment obligations or as a valuation measurement. Potash
Corporation of Saskatchewan Inc. Selected Non-GAAP Financial
Measures and Reconciliations (in millions of US dollars)
(unaudited) B. CASH FLOW --------- Set forth below is a
reconciliation of "cash flow prior to working capital changes" and
"free cash flow" to cash provided by operating activities, the most
directly comparable financial measure calculated and presented in
accordance with Canadian GAAP. Three Months Ended Six Months Ended
June 30 June 30 2007 2006 2007 2006
-------------------------------------------------------------------------
Cash flow prior to working capital changes(1) $ 473.7 $ 257.0 $
756.7 $ 446.4
-------------------------------------------------------------------------
Changes in non-cash operating working capital Accounts receivable
11.1 (11.8) (39.7) 51.5 Inventories 26.7 (10.4) 16.1 (1.5) Prepaid
expenses and other current assets 11.9 (6.7) 0.5 (33.7) Accounts
payable and accrued charges 2.7 (86.9) 112.1 (334.0)
-------------------------------------------------------------------------
Changes in non-cash operating working capital 52.4 (115.8) 89.0
(317.7)
-------------------------------------------------------------------------
Cash provided by operating activities $ 526.1 $ 141.2 $ 845.7 $
128.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Free cash flow(2) $ 358.7 $ 129.7 $ 521.2 $ 68.3 Additions to
property, plant and equipment 127.5 131.1 236.5 251.1 Purchase of
long-term investments - 3.7 9.7 130.0 Other assets and intangible
assets (12.5) (7.5) (10.7) (3.0) Changes in non-cash operating
working capital 52.4 (115.8) 89.0 (317.7)
-------------------------------------------------------------------------
Cash provided by operating activities $ 526.1 $ 141.2 $ 845.7 $
128.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The company uses cash flow prior to working capital changes as
a supplemental financial measure in its evaluation of liquidity.
Management believes that adjusting principally for the swings in
non-cash working capital items due to seasonality assists
management in making long-term liquidity assessments. The company
also believes that this measurement is useful as a measure of
liquidity or as a valuation measurement. (2) The company uses free
cash flow as a supplemental financial measure in its evaluation of
liquidity and financial strength. Management believes that
adjusting principally for the swings in non-cash operating working
capital items due to seasonality, additions to property, plant and
equipment, purchases of long-term investments, and changes to other
assets assists management in the long-term assessment of liquidity
and financial strength. The company also believes that this
measurement is useful as an indicator of the company's ability to
service its debt, meet other payment obligations and make strategic
investments. Readers should be aware that free cash flow does not
represent residual cash flow available for discretionary
expenditures. Certain of the prior periods' figures have been
reclassified to conform with the current periods' presentation.
DATASOURCE: Potash Corporation of Saskatchewan Inc. CONTACT:
Investors, Denita Stann, Director, Investor Relations, Phone: (847)
849-4277, Fax: (847) 849-4663, Email: ; Media, Rhonda Speiss,
Manager, Public Relations, Phone: (306) 933-8544, Fax: (306)
933-8844, ; Web Site: http://www.potashcorp.com/
Copyright