Listed: TSX, NYSE Symbol: POT SASKATOON, SK, Jan. 24
/PRNewswire-FirstCall/ -- Potash Corporation of Saskatchewan Inc.
(PotashCorp) today announced fourth-quarter earnings of $1.16 per
share(1), a 100-percent increase over the same period last year and
the highest quarterly earnings in company history. This raised 2007
earnings to $3.40 per share, 72 percent higher than the $1.98 per
share of 2006, marking the fourth consecutive year of record
earnings. Net income for the quarter reached $376.8 million, more
than double the $186.0 million reported for last year's fourth
quarter and raising full-year net income to a record $1.1 billion
compared to $631.8 million in 2006. With strong market conditions
and rising prices for all three nutrients, gross margin for the
quarter climbed to a record $535.0 million, up $235.7 million from
last year's fourth quarter, and raised total 2007 gross margin to
$1.9 billion, surpassing the previous high of $1.1 billion set in
2005. Adjusted earnings before interest, taxes, depreciation and
amortization (adjusted EBITDA) grew to a record $553.2 million(2)
for the quarter, compared to the $326.5 million in fourth-quarter
2006. Full-year adjusted EBITDA reached a record $1.9 billion, a
68-percent improvement over the previous high achieved in 2005.
Cash flow from operations of $531.6 million was the second-highest
quarterly total in our history, while the $1.7 billion achieved for
the year exceeded the 2005 record by 95 percent. Fourth-quarter
performance was enhanced by a reversal of the 3-percentage-point
upward adjustment to our 2007 consolidated effective income tax
rate reported in the third quarter. This rate returned to 30
percent for the year and reduced our income tax expense by $0.14
per share for the quarter. The reversal resulted partially from the
enactment of a Canadian federal corporate income tax rate reduction
in the fourth quarter rather than in 2008 as previously expected.
This corporate income tax rate reduction enacted during the quarter
resulted in a one-time decrease in our future income tax liability
of $0.11 per share, which was partially offset by a provision for
impaired investments of $0.06 per share. The market factors behind
this record quarter also contributed to the strong performance of
our offshore investments in Arab Potash Company Ltd. (APC) in
Jordan, Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile and
Israel Chemicals Ltd. (ICL) in Israel. These investments added
$28.6 million in other income to our fourth-quarter performance.
For the year, these offshore investments, along with Sinofert
Holdings Limited (Sinofert) in China, contributed $134.3 million to
our earnings. The total market value of our investments in these
publicly traded companies is now $5.7 billion and equates to almost
$17.50 per PotashCorp share. "Our record performance for the
quarter and the full year reflect the increasing potential of our
company," said PotashCorp President and Chief Executive Officer
Bill Doyle. "For nearly two decades we have carefully assembled and
managed our world-class assets with a long-term view. With growing
demand and strong market conditions, we have reached new heights in
each of the past four years. More important, we are looking ahead
and preparing ourselves for expected future growth that we believe
will continue to deliver greater value for our customers and
investors." Market Conditions Increasing demand for crops grown
around the world reduced the combined stocks-to-use ratio for grain
and soybeans - crops that compete with one another for planted
acres - to the lowest level in recorded history. As a result,
agricultural commodity prices continued to increase in the fourth
quarter, providing farmers with the means and motivation to
increase fertilizer use to achieve higher yields and protect soil
fertility. While the fourth quarter historically has allowed
fertilizer producers to build inventories in anticipation of the
coming planting season, strong demand reduced 2007 year-end
inventories of all three nutrients. Compared to previous five-year
averages, North American producer inventories at year-end were down
26 percent for potash, while urea inventories dropped 17 percent
and diammonium phosphate (DAP) was down 21 percent. With this tight
supply, the growth in demand led to price increase announcements,
especially in potash, which continued to sell on an allocation
basis. The phosphate market saw significant price increases in
response to tight inventories, strong demand and rising input
costs. In nitrogen, global agricultural demand growth more than
offset a significant increase in urea exports from China, and US
prices for that product remained high. Urea imports by India
continued to rise sharply, moving from 200,000 tonnes in 2003 to a
record 6.7 million tonnes in 2007. Ocean freight costs peaked at a
record high during the quarter due to strong global demand for
commodities and other products, as well as increased congestion
that lengthened loading/unloading times at certain ports. Potash
Potash gross margin of $256.4 million approached the record $260.4
million of this year's second quarter and was 39 percent higher
than the $183.9 million of last year's fourth quarter. This lifted
2007 potash gross margin to a record $912.3 million, 63 percent
higher than 2006 when offshore volumes were impacted by lengthy
price negotiations with China and India, and 29 percent above the
previous high of $707.4 million in 2005. Potash gross margin as a
percentage of net sales increased to 60 percent from 57 percent in
last year's fourth quarter, and from 58 percent in the third
quarter of 2007. Fourth-quarter realized prices to offshore markets
were up $36 per tonne over the same period in 2006, but the full
benefit of announced offshore price increases was not captured
because of higher ocean freight rates and locked-in contract
pricing to China and India. In the North American spot market, our
fourth-quarter realized prices were $48 per tonne higher than in
the fourth quarter of 2006 and $19 per tonne above last quarter.
Total fourth-quarter potash sales volumes of 2.3 million tonnes
were 5 percent above last year's fourth quarter, when offshore
markets were actively restocking after purchasing delays earlier in
2006. The full-year total of 9.4 million tonnes established a new
company record and was 31 percent higher than the total sales
volumes of 2006. Offshore, fourth-quarter sales volumes of 1.5
million tonnes were 10 percent higher than the same quarter in the
previous year, and full-year shipments were up 34 percent to 5.9
million tonnes. When considering our share of sales through
Canpotex Limited (Canpotex), the offshore marketing company for
Saskatchewan potash producers, and sales directly from our facility
in New Brunswick, Brazil was our largest market in 2007, taking 24
percent of our total offshore shipments. China was next at 23
percent and India followed at 9 percent, while Indonesia, Malaysia
and Vietnam combined to represent 16 percent. In the fourth quarter
alone, Brazil purchased approximately 470,000 tonnes from Canpotex,
as farmers worked to capitalize on record-high soybean and corn
prices and prepare for the upcoming winter corn (safrinha) planting
season while contending with third-quarter shipping delays and low
in-country inventories. This, along with approximately 625,000
tonnes shipped to China, 230,000 tonnes to India and 550,000 tonnes
to Southeast Asian countries, resulted in Canpotex surpassing its
previous fourth-quarter volume record by 14 percent. For the year,
Canpotex shipped 9.3 million tonnes, a 38-percent increase over the
abnormally low 2006 total and 14 percent higher than its previous
full-year shipping record set in 2005. Our North American sales
volumes for the fourth quarter were just slightly lower than the
previous year's very strong fourth-quarter sales, while full-year
2007 volumes of 3.5 million tonnes were up 25 percent over 2006.
During the first three quarters of 2006, North American customers
backed away from the market due mainly to low crop commodity
prices. Once crop prices started moving sharply upward, customers
responded with record potash purchases in the fourth quarter of
2006. Our potash production reached a quarterly record of 2.5
million tonnes, 6 percent higher than in the fourth quarter of the
previous year as we saw the benefit of additional tonnes after the
completion of our Allan project in 2007. Still, our potash
inventories of roughly 680,000 tonnes were 27 percent below 2006
year-end levels and represented our second-lowest year-end
inventory since 1991. The stronger Canadian dollar raised our
potash cost of goods sold by about $8 per tonne compared to last
year's fourth quarter, while continuing higher brine inflow costs
at New Brunswick and Esterhazy had a further negative impact of $6
per tonne. Excluding the impact of currency, brine inflow and
period costs related to the substantially higher number of mine
shutdown weeks in 2006, record production volumes in 2007 drove
potash operating costs down by more than $5 per tonne compared to
the previous year. Nitrogen Fourth-quarter 2007 nitrogen gross
margin of $136.7 million was the second-highest quarterly total in
company history, 67 percent above the same quarter in 2006 and
trailing only the second quarter of 2007, on the foundation of
continuing strong agricultural demand and higher global natural gas
prices. Our Trinidad operation, which benefits from lower-cost,
long-term natural gas contracts, generated $73.9 million in gross
margin during the quarter, while our US operations added $45.1
million and natural gas hedging gains contributed $17.7 million.
For the full year, nitrogen generated gross margin of $536.1
million, surpassing the previous record of $318.7 million set in
2005. With the continuation of tight supply/demand fundamentals,
realized prices for ammonia and urea were up 9 percent (+$25 per
tonne) and 46 percent (+$120 per tonne), respectively, from
fourth-quarter 2006. The significant price improvements for these
products were achieved since the third quarter of 2007, with
ammonia 11 percent higher (+$31 per tonne) and urea up 14 percent
(+$46 per tonne). Prices for nitrogen solutions were up 52 percent
quarter over quarter. Total nitrogen sales volumes of 1.4 million
tonnes were up 19 percent from fourth-quarter 2006 levels, built on
strong US agricultural demand. This was achieved even though
production was flat, as our Augusta facility took a planned 35-day
turnaround during the quarter. As a result, our year-end
inventories were 48 percent lower for ammonia, and down 50 percent
for urea and 32 percent for nitrogen solutions. We again
opportunistically produced nitrogen solutions at our Geismar
facility from imported ammonia and purchased carbon dioxide,
enabling us to increase total sales volumes for this product by 160
percent quarter over quarter. Our average natural gas cost for the
quarter, including the benefit of our hedge and our lower-cost
Trinidad gas contracts, was $4.41 per MMBtu, 19 percent higher than
the same quarter a year ago and 12 percent higher than in the third
quarter of 2007. Phosphate Driven by continued strong sales volumes
and higher pricing in all major product categories, phosphate
generated record quarterly gross margin of $141.9 million in the
fourth quarter of 2007, exceeding the total in the same quarter of
2006 by $108.6 million. For the year, phosphate gross margin
reached $432.8 million, surpassing the previous record of $230.1
million set in 1998. Solid phosphate fertilizers continued their
strong turnaround, generating $70.3 million in gross margin during
the quarter, while liquid fertilizer ($31.5 million), feed ($22.3
million) and industrial products ($14.9 million) were consistent
contributors. Our fourth-quarter realized prices were up from the
same period a year earlier in all major product categories, in part
because of strong agricultural demand and in part due to the global
impact of higher costs for inputs such as sulfur, phosphate rock
and ammonia. As producers around the world allocated more
phosphoric acid - the intermediate feedstock for all downstream
products - to manufacturing solid fertilizers, markets for liquid,
feed and industrial products were squeezed. Pricing for phosphate
products sold on spot markets moved dramatically upward, while
certain industrial products rose on a delayed basis. Our solid
fertilizer realized prices were up 82 percent (+$192 per tonne)
compared to the same quarter in 2006, while liquid fertilizer rose
37 percent (+$86 per tonne), feed 22 percent (+$67 per tonne) and
industrial product 6 percent (+$22 per tonne). North American sales
volumes for liquid fertilizer were up 9 percent and solid
fertilizers were 22 percent higher than the previous year's fourth
quarter, as we focused on these markets ahead of lower-netback
offshore regions. Total fourth-quarter liquid and solid fertilizer
sales volumes were 2 percent higher and 3 percent lower than in the
same quarter in 2006, respectively. Feed sales volumes rose 12
percent quarter over quarter, driven by a 32-percent increase in
sales to offshore markets, primarily in Latin America.
Fourth-quarter industrial volumes were 17 percent higher than the
fourth quarter of 2006 as a result of stronger demand for
phosphoric acid and retail technical grade purified acid. Sulfur
production disruptions and greater demand from the phosphate sector
continued to challenge global sulfur supply in the quarter,
particularly in the international market. The impact of this
continued to be felt in North America and, as a result, our
fourth-quarter sulfur costs rose 49 percent from the same quarter
in 2006 and 30 percent from the trailing quarter. Ammonia costs
were 8 percent higher quarter over quarter and compared to the
previous quarter. In November 2007, we began a $260-million
debottlenecking project at our Aurora facility that will add
180,000 tonnes of annual phosphoric acid production. The majority
of the cost involves constructing a new sulfuric acid plant, which
is scheduled for completion in late 2009. Financial Reductions to
the Canadian federal corporate income tax rate between 2008 and
2012 were enacted in the fourth quarter, which decreased our future
income tax liability and income tax expense by $35.4 million and
contributed to the reduction in our consolidated effective income
tax rate from the previous 33-percent estimate back down to 30
percent. This was supplemented by more permanent deductions
generated in the US than previously forecast and a reduction in our
US blended state income tax rate. While these factors are expected
to be present on an ongoing basis, the potential tax recovery due
to a favorable income tax decision related to prior years'
deductions discussed in the third quarter did not occur in the
fourth quarter, but may be realized in 2008. Fourth-quarter
performance was impacted by our decision to take a $26.5-million
charge related to investments in certain auction rate securities
assessed as being other-than-temporarily impaired, and this charge
is included in other income. We have commenced an arbitration
proceeding against the investment firm that purchased the
securities for our account, and we intend to pursue our claim
vigorously. Selling and administrative expenses were substantially
higher for the 2007 fourth quarter and full year, due primarily to
higher medium-term incentive plan accruals and valuation of
deferred share units that were directly impacted by the significant
upward movement in our share price. Capital expenditures on
property, plant and equipment reached $225.6 million in the fourth
quarter, with the majority of this spent on continued
debottlenecking and expansion projects at our Lanigan, Patience
Lake, Cory and New Brunswick facilities. Total capital expenditures
on property, plant and equipment for 2007 were $607.2 million.
Outlook The growth in global population and strengthening of world
economies that is driving demand for agricultural products and
fertilizers is expected to continue. China has seen strong
increases in its gross domestic product annually for over 15 years
and double-digit growth in the past five, while India, Southeast
Asia, Brazil and Latin America have more recently been experiencing
excellent economic growth. An increasing number of people in these
areas now have the money and the desire for a higher standard of
living, and are developing appetites for the protein-rich diets
that westerners have enjoyed for decades. Rather than leveling off,
this trend is gaining momentum. The world has been enjoying
unsustainably low grain prices for many years by drawing down
inventories. Grain consumption has exceeded production in seven of
the past eight years (and the USDA 2007/08 crop year forecast is
expected to extend this further), so this decline in grain stocks
began before biofuels became much of an additional draw on global
crop production. The world's wheat and coarse grains stocks-to-use
ratio is at a record low after being adjusted downward again in
January 2008 to 14.1 percent, just a 1.7-month supply. This is
resulting in further significant increases in crop prices around
the world. With agricultural land declining on a per capita basis,
farmers are working to improve yields to meet rising global food
demand. With rising prices for crops and crop nutrients, $1
invested in appropriate fertilization can generate approximately a
$3 return through higher yields. Expectations for this type of
return can vary depending on many factors such as type of crop,
climate, soil quality or access to water. For some crops, such as
Brazilian sugar cane and Malaysian oil palm, the payback - with
current crop and fertilizer prices - is typically much greater than
the 3 to 1 relationship. This environment makes the economics of
the fertilizer business, especially potash, very attractive. For a
US corn farmer, average farmgate corn prices have increased by
$2.00 per bushel over the past two years, which roughly translates
into a $300-per-acre boost in farm returns on a yield of 150
bushels/acre. By comparison, a $100-per-short-ton increase in North
American potash prices adds only $0.03 per bushel, or $4.50 per
acre, to the cost of producing corn. A similar economic model
exists for soybeans and wheat. This relative inelasticity to price
leaves demand undamaged, even in the face of fertilizer price
increases. In potash, our North American customers are on
allocation through the first half of 2008, a function of an empty
pipeline dating back to the spring of 2007. We anticipate this
allocation could continue through at least the second half of 2008.
A $30-per-short-ton price increase that took effect on December 1,
2007 and an additional $50-per-ton increase that went into effect
on January 1, 2008 are expected to be fully realized in the first
quarter of 2008. The recently announced price increase of an
additional $80 per ton is set to take effect on March 1, 2008.
Delivered spot pricing to Brazil and Southeast Asia has risen above
$500 per tonne and could climb higher, based on extremely tight
potash market fundamentals and record soybean, corn and palm oil
prices. The gap between contract market prices in China and India
and spot market prices has widened, but is expected to close
considerably in each respective negotiation for 2008 pricing. While
the 2007 price agreement between Canpotex and Sinofert ended
December 31, 2007, Indian pricing runs through March 31, 2008.
Historically, it has been difficult to predict when negotiations
with the Chinese will conclude. Existing customer allocations to
higher-netback markets will fully consume Canpotex's available
potash supply through the first quarter of 2008 and, given the
robust global agricultural economy, extremely low potash
inventories and record crop commodity prices, the world's farmers
appear anxious to take whatever potash might become available
during negotiations with China. As a result, Canpotex has
communicated to Sinofert that it cannot deliver a full 2008 potash
allocation without a full year to ship it and will prorate volumes
depending on the timing of completion of 2008 pricing. Although
ocean freight rates have dropped more than a third from their peak
in November 2007, we anticipate that robust offshore economies will
keep the cost of shipping at relatively high - but not record -
levels through 2008. However, in the event that ocean freights are
meaningfully lower, a large portion of our realized prices on sales
shipped to customers on a delivered basis would improve. Prices for
potash remain strong and we expect that our 2008 shipments will
rise by 7 percent to both North American and offshore potash
markets. As a result, we expect our 2008 potash segment gross
margin to be approximately 2.5 times that of 2007. In nitrogen, we
expect high global costs for natural gas and ammonia transportation
combined with strong industrial and agricultural demand to underlie
higher US ammonia prices through 2008. Robust agricultural
fundamentals are expected to keep urea markets tight and, with
estimated US corn plantings of 88-90 million acres, nitrogen
solutions markets should remain strong as well. Assuming similar
nitrogen product sales volumes as 2007, we are currently
forecasting another record year for our nitrogen segment. Strong
demand and higher input costs are rapidly pushing prices for
phosphate end-products to record highs. Global producers that
import sulfur and/or phosphate rock are faced with costs nearly
five times higher than a year ago, necessitating high end-product
prices. Our company is the world's third-largest producer of
phosphates and second-largest seller of phosphoric acid and, with
our high-quality, low-cost phosphate rock and access to lower-cost
North American sulfur, we are well positioned in these
unprecedented phosphate market conditions. Over the first half of
2008, we expect the gap between spot prices for solid fertilizers
and various-term contracts for liquid and feed products to close
considerably. Given where published spot prices for phosphoric acid
are today, the next round of negotiations with India could see
dramatic price increases for our liquid phosphate products.
Additionally, PotashCorp recently announced significant price
increases for our primary domestic feed products of $250 per short
ton for monocal and dical, and $200 per short ton for DFP. The
increases are effective March 1, 2008 and are expected to be
realized in the second quarter. Overall, as a result of these
conditions, we expect 2008 to be another year of record gross
margin in our phosphate segment. We expect combined gross margin
for nitrogen and phosphate to exceed 2007 levels by 20-25 percent.
Capital expenditures in 2008 are expected to exceed $1.3 billion,
plus capitalized interest, of which $200 million will relate to
sustaining capital. A significant portion of these funds will be
used to finance our previously announced potash projects, including
our 1.5-million-tonne debottleneck at Lanigan, 360,000-tonne
debottleneck at Patience Lake, 1.2-million-tonne
debottleneck/expansion at Cory, 1.2-million-tonne expansion at New
Brunswick and 2-million-tonne expansion at Rocanville.
Additionally, we are undertaking rail and loadout expansions at
Allan and Rocanville. Depreciation and amortization expense is
expected to be 7 percent higher than 2007 levels. Our consolidated
effective income tax rate is projected to be 29 percent in 2008,
but could fall within our expected range of 27-30 percent, with an
expected current/future split of 85/15. Provincial mining and other
taxes are forecast to be 12 percent of total potash gross margin in
the year, but could fall within a range of 10-15 percent depending
on price realizations, Canadian/US exchange rate, and the timing
and amount of capital spending on potash projects in Saskatchewan.
Other income is expected to exceed 2007 levels by approximately $60
million while total selling and administrative expenses are
forecast to remain consistent with 2007 levels. Given these
conditions and assuming a Canadian dollar at parity with the US
dollar, PotashCorp is expecting first-quarter net income to be in
the range of $1.30-$1.60 per share and net income for the full year
in the range of $6.25 to $7.25 per share. In the current trading
range of the Canadian dollar relative to the US dollar, each
one-cent change in the Canadian dollar typically impacts our
foreign exchange line by approximately $5.7 million, or $0.01 per
share on an after-tax basis, which is primarily a non-cash item.
Conclusion "One of the biggest challenges our world now faces is
how to feed hundreds of millions of new consumers in China, India
and other emerging countries where people are developing appetites
for more and better food," said Doyle. "PotashCorp's world-class
assets and long-term strategies have been built to serve these
customers, both today and in the years ahead. Our attention remains
focused on growing our business to meet the need for our essential
products - particularly potash. Along the way, we look forward to
demonstrating our gross margin potential through expanding volumes,
higher prices and lower per-tonne costs, thereby rewarding our
shareholders." Notes: ------ (1) All references to per-share
amounts pertain to diluted net income per share. (2) See
reconciliation and description of non-GAAP measures in the attached
section titled "Selected Non-GAAP 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,
second largest in nitrogen and third largest in 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.
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, business prospects and opportunities,
and effective income tax rates. 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; the results of negotiations
with China and India; 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; government
policy changes; 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 2006
financial review annual report and in filings with the U.S.
Securities and Exchange Commission and Canadian provincial
securities commissions. Forward-looking statements are given only
as at the date of this release and the company disclaims any
obligation to update or revise the forward-looking statements,
whether as a result of new information, future events or otherwise,
except as required by law.
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PotashCorp will host a conference call on Thursday, January 24,
2008, 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 # 21257504. Alternatively, visit
http://www.potashcorp.com/ for a live webcast of the conference
call. 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) December 31, December 31, 2007 2006
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Assets Current assets Cash and cash equivalents $ 719.5 $ 325.7
Accounts receivable 596.2 442.3 Inventories 428.1 501.3 Prepaid
expenses and other current assets 36.7 40.9 Current portion of
derivative instrument assets 30.8 -
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1,811.3 1,310.2 Derivative instrument assets 104.2 - Property,
plant and equipment 3,887.4 3,525.8 Investments (Note 2) 3,581.5
1,148.9 Other assets 210.7 105.8 Intangible assets 24.5 29.3
Goodwill 97.0 97.0
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$ 9,716.6 $ 6,217.0
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Liabilities Current liabilities Short-term debt $ 90.0 $ 157.9
Accounts payable and accrued charges 911.7 545.2 Current portion of
long-term debt 0.2 400.4
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1,001.9 1,103.5 Long-term debt (Note 3) 1,339.4 1,357.1 Future
income tax liability 988.1 632.1 Accrued pension and other
post-retirement benefits 244.8 219.6 Accrued environmental costs
and asset retirement obligations 121.0 110.3 Other non-current
liabilities and deferred credits 2.7 14.1
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3,697.9 3,436.7
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Shareholders' Equity Share capital 1,461.3 1,431.6 Unlimited
authorization of common shares without par value; issued and
outstanding 316,411,209 and 314,403,147 at December 31, 2007 and
December 31, 2006, respectively Contributed surplus 98.9 62.3
Accumulated other comprehensive income (Note 5) 2,178.9 - Retained
earnings 2,279.6 1,286.4
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6,018.7 2,780.3
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$ 9,716.6 $ 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
Twelve Months Ended December 31 December 31 2007 2006 2007 2006
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Sales (Note 8) $ 1,431.4 $ 1,022.9 $ 5,234.2 $ 3,766.7 Less:
Freight 91.3 73.0 346.1 255.8 Transportation and distribution 29.5
29.5 124.1 134.1 Cost of goods sold 775.6 621.1 2,882.8 2,374.8
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Gross Margin 535.0 299.3 1,881.2 1,002.0
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Selling and administrative 54.6 43.8 212.6 158.4 Provincial mining
and other taxes 40.1 25.3 135.4 66.5 Foreign exchange loss (gain)
2.8 (13.6) 70.2 (4.4) Other income (Note 11) (14.2) (21.7) (125.5)
(94.0)
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83.3 33.8 292.7 126.5
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Operating Income 451.7 265.5 1,588.5 875.5 Interest Expense 9.7
16.5 68.7 85.6
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Income Before Income Taxes 442.0 249.0 1,519.8 789.9 Income Taxes
(Note 6) 65.2 63.0 416.2 158.1
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Net Income $ 376.8 $ 186.0 1,103.6 631.8 ----------------------
---------------------- Retained Earnings, Beginning of Year 1,286.4
716.9 Change in Accounting Policy (Note 1) 0.2 - Dividends (110.6)
(62.3)
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Retained Earnings, End of Year $ 2,279.6 $ 1,286.4
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Net Income Per Share (Note 7) Basic $ 1.19 $ 0.59 $ 3.50 $ 2.03
Diluted $ 1.16 $ 0.58 $ 3.40 $ 1.98
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Dividends Per Share $ 0.10 $ 0.05 $ 0.35 $ 0.20
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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 Twelve Months Ended December 31 December 31 2007
2006 2007 2006
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Operating Activities Net income $ 376.8 $ 186.0 $ 1,103.6 $ 631.8
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Adjustments to reconcile net income to cash provided by operating
activities Depreciation and amortization 75.0 61.0 291.3 242.4
Stock-based compensation 3.9 2.7 38.6 29.5 Loss (gain) on disposal
of property, plant and equipment and long-term investments 2.3
(4.7) 7.9 (8.6) Provision for auction rate securities 26.5 - 26.5 -
Provision for plant shutdowns - phosphate segment - - - 6.3 Foreign
exchange on future income tax 4.9 (11.6) 52.4 0.5 (Recovery of)
provision for future income tax (0.2) 46.1 119.6 50.0 Undistributed
earnings of equity investees (18.0) (15.4) (35.6) (24.5) Unrealized
gain on derivative instruments (2.7) - (21.1) - Other long-term
liabilities (36.6) 1.5 (57.9) 13.4
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Subtotal of adjustments 55.1 79.6 421.7 309.0
-------------------------------------------------------------------------
Changes in non-cash operating working capital Accounts receivable
(14.7) 12.1 (154.6) 11.0 Inventories 8.7 (7.9) 60.3 13.9 Prepaid
expenses and other current assets 5.7 23.5 7.0 0.2 Accounts payable
and accrued charges 100.0 49.9 250.9 (269.1)
-------------------------------------------------------------------------
Subtotal of changes in non-cash operating working capital 99.7 77.6
163.6 (244.0)
-------------------------------------------------------------------------
Cash provided by operating activities 531.6 343.2 1,688.9 696.8
-------------------------------------------------------------------------
Investing Activities Additions to property, plant and equipment
(225.6) (123.7) (607.2) (508.6) Purchase of long-term investments -
(222.5) (30.7) (352.5) Purchase of investments in auction rate
securities - - (132.5) - Proceeds from disposal of property, plant
and equipment and long-term investments 0.3 12.0 4.5 22.0 Other
assets and intangible assets (2.0) (2.9) 7.8 (0.6)
-------------------------------------------------------------------------
Cash used in investing activities (227.3) (337.1) (758.1) (839.7)
-------------------------------------------------------------------------
Cash before financing activities 304.3 6.1 930.8 (142.9)
-------------------------------------------------------------------------
Financing Activities Proceeds from long-term debt obligations 1.5
483.9 1.5 483.9 Repayment and issue costs of long-term debt
obligations - (0.3) (403.6) (1.3) Repayment of short-term debt
obligations (2.1) (372.1) (67.9) (94.3) Dividends (31.0) (15.2)
(93.6) (60.9) Issuance of common shares 4.3 31.9 26.6 47.3
-------------------------------------------------------------------------
Cash (used in) provided by financing activities (27.3) 128.2
(537.0) 374.7
-------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 277.0 134.3 393.8 231.8 Cash
and Cash Equivalents, Beginning of Period 442.5 191.4 325.7 93.9
-------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 719.5 $ 325.7 $ 719.5 $
325.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash and cash equivalents comprised of: Cash $ 23.1 $ 7.9 $ 23.1 $
7.9 Short-term investments 696.4 317.8 696.4 317.8
-------------------------------------------------------------------------
$ 719.5 $ 325.7 $ 719.5 $ 325.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow disclosure Interest paid $ 22.4 $ 32.3 $
93.9 $ 106.8 Income taxes paid (recovered) $ 92.8 $ (16.4) $ 221.0
$ 226.8
-------------------------------------------------------------------------
(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc. Condensed Consolidated
Statement of Comprehensive Income (in millions of US dollars)
(unaudited) Three Months Ended December 31, 2007 Before Net of
Income Income Income Taxes Taxes Taxes
-------------------------------------------------------------------------
Net income $ 442.0 $ 65.2 $ 376.8
-------------------------------------------------------------------------
Other comprehensive income Net increase in unrealized gains on
available-for-sale securities(1) 551.5 29.7 521.8 Net gains on
derivatives designated as cash flow hedges(2) 35.5 10.2 25.3
Reclassification to income of net gains on cash flow hedges(2)
(18.0) (4.2) (13.8) Unrealized foreign exchange gains on
translation of self-sustaining foreign operations 0.8 - 0.8
-------------------------------------------------------------------------
Other comprehensive income 569.8 35.7 534.1
-------------------------------------------------------------------------
Comprehensive income $ 1,011.8 $ 100.9 $ 910.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Twelve Months Ended December 31, 2007 Before Net of Income Income
Income Taxes Taxes Taxes
-------------------------------------------------------------------------
Net income $ 1,519.8 $ 416.2 $ 1,103.6
-------------------------------------------------------------------------
Other comprehensive income Net increase in unrealized gains on
available-for-sale securities(1) 1,396.2 87.1 1,309.1 Net gains on
derivatives designated as cash flow hedges(2) 49.4 14.8 34.6
Reclassification to income of net gains on cash flow hedges(2)
(57.8) (17.3) (40.5) Unrealized foreign exchange gains on
translation of self-sustaining foreign operations 6.7 - 6.7
-------------------------------------------------------------------------
Other comprehensive income 1,394.5 84.6 1,309.9
-------------------------------------------------------------------------
Comprehensive income $ 2,914.3 $ 500.8 $ 2,413.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Available-for-sale securities are comprised of shares in Israel
Chemicals Ltd., Sinofert Holdings Limited and investments in
auction rate securities (2) Natural gas derivative instruments
-------------------------------------------------------------------------
(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc. Notes to the Condensed
Consolidated Financial Statements For the Three and Twelve Months
Ended December 31, 2007 (in millions of US dollars except share and
per-share amounts) (unaudited) 1. Significant Accounting Policies
With its subsidiaries, Potash Corporation of Saskatchewan Inc.
("PCS") - together known as "PotashCorp" or "the company" except to
the extent the context otherwise requires - forms an integrated
fertilizer and related industrial and feed products company. The
company's accounting policies are in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP"). The
accounting policies used in preparing these 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. 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 include all derivative financial
instruments not included in a hedging relationship and any
designated instruments and 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 is
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
instrument assets of $50.9, an increase in derivative instrument
assets (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 # 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. Investments
During July 2007, the company's ownership interest in Sinofert was
diluted from 20 percent to approximately 19 percent due to issuance
of shares of Sinofert. Also during July 2007, the company purchased
an additional 1,011,062 shares of Sociedad Quimica y Minera de
Chile S.A. ("SQM") for cash consideration of $16.8. The company's
ownership interest in SQM remains at approximately 32 percent.
Investments include auction rate securities that are classified as
available-for-sale. The company has determined that the fair value
of the auction rate securities was $56.0 at December 31, 2007 (face
value $132.5). Of the $76.5 unrealized loss, $50.0 was considered
temporary and $26.5 was considered other-than-temporary. Due to the
current lack of liquidity for the auction rate securities, these
investments are now considered non-current and were reclassified
from Other Short-term Investments, where they were recorded at
September 30, 2007. The company is able and willing to hold these
investments until liquidity improves, but does not expect this to
occur in the upcoming year. In periods prior to third-quarter 2007,
auction rate securities were included with cash and cash
equivalents. The company has not reclassified prior periods as the
adjustments are not considered material. 3. 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 an additional $195.0 of
financial assets and financial liabilities on a net basis related
to this arrangement 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 are being
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%. 4. 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 the second, third and fourth
quarters of 2007 and the 2007 year 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 $ 0.77 $ 1.19 $ 3.50
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 $ 0.75
$ 1.16 $ 3.40 2006 $ 0.40 $ 0.55 $ 0.46 $ 0.58 $ 1.98 2005 $ 0.38 $
0.49 $ 0.39 $ 0.36 $ 1.63 Net income per share for each quarter has
been computed based on the weighted average number of shares issued
and outstanding during the respective quarter; therefore, quarterly
amounts may not add to the annual total. 5. Accumulated Other
Comprehensive Income The balances related to each component of
accumulated other comprehensive income, net of related income
taxes, are as follows: December 31, 2007
-------------------------------------------------------------------------
Net unrealized holding gains on available-for-sale securities $
2,098.7 Net unrealized gains on derivatives designated as cash flow
hedges 73.5 Unrealized foreign exchange gains on translation of
self-sustaining foreign operations 6.7
-------------------------------------------------------------------------
Accumulated other comprehensive income $ 2,178.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
6. Income Taxes The company's consolidated reported income tax rate
for the three months ended December 31, 2007 was approximately 15
percent (2006 - 25 percent) and for the twelve months ended
December 31, 2007 was approximately 27 percent (2006 - 20 percent).
For the three and twelve months ended December 31, 2007, the
consolidated effective income tax rate was 30 percent (2006 - 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, and a reduction of the future income tax rates enacted
during the fourth quarter of 2007 were offset by a higher
percentage of consolidated income earned in higher-tax
jurisdictions during the three and twelve months ended December 31,
2007, compared to the same periods in 2006. As a result of the
increasing proportion of consolidated income earned in higher-tax
jurisdictions, during the third quarter of 2007 it was determined
that the consolidated effective rate for the year had increased
from 30 percent to 33 percent. This reverted back to 30 percent
during the fourth quarter of 2007 due to enacted changes in the
Canadian federal income tax rate as discussed below and higher
permanent deductions in the United States than originally
anticipated. The reported income tax rate for the fourth quarter of
2007 is lower than the effective rate as the impact of this change
on prior periods, as applicable, was reflected during the quarter.
- During the fourth quarter of 2007, the Government of Canada
enacted a reduction of the federal corporate income tax rate from
21.0 percent in 2007 to 15.0 percent by 2012. This was in addition
to a small change enacted in the second quarter of 2007. These
changes reduced the company's future income tax liability by $40.1
($4.7 in the second quarter and $35.4 in the fourth quarter). In
the second quarter of 2006, changes were enacted by the Government
of Canada to reduce the federal corporate income tax rate and the
federal corporate surtax. These changes reduced the company's
future income tax liability by $22.9 in 2006. - During the second
quarter of 2006, 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 in that year. - In 2006,
income tax refunds totaling $34.1 for the 1999 through 2005
taxation years were recorded, $11.7 of which was recognized during
the fourth 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. 7. 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 December 31, 2007 of
316,227,000 (2006 - 313,469,000). Basic net income per share for
the twelve months ended December 31, 2007 is calculated based on
the weighted average shares issued and outstanding of 315,641,000
(2006 - 311,880,000). 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 December 31, 2007 was 325,727,000 (2006
- 321,084,000) and for the twelve months ended December 31, 2007
was 324,308,000 (2006 - 318,689,000). 8. 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 December 31, 2007
-------------------------------------------------------------------------
All Consoli- Potash Nitrogen Phosphate Others dated
-------------------------------------------------------------------------
Sales $ 479.1 $ 463.1 $ 489.2 $ - $ 1,431.4 Freight 43.1 15.6 32.6
- 91.3 Transportation and distribution 8.2 12.5 8.8 - 29.5 Net
sales - third party 427.8 435.0 447.8 - Cost of goods sold 171.4
298.3 305.9 - 775.6 Gross margin 256.4 136.7 141.9 - 535.0
Depreciation and amortization 17.3 22.7 32.5 2.5 75.0 Inter-segment
sales - 28.2 - - - Three Months Ended December 31, 2006
-------------------------------------------------------------------------
All Consoli- Potash Nitrogen Phosphate Others dated
-------------------------------------------------------------------------
Sales $ 371.0 $ 317.2 $ 334.7 $ - $ 1,022.9 Freight 39.1 8.7 25.2 -
73.0 Transportation and distribution 9.9 11.9 7.7 - 29.5 Net sales
- third party 322.0 296.6 301.8 - Cost of goods sold 138.1 214.5
268.5 - 621.1 Gross margin 183.9 82.1 33.3 - 299.3 Depreciation and
amortization 15.1 19.8 24.1 2.0 61.0 Inter-segment sales 0.7 26.6
1.7 - - Twelve Months Ended December 31, 2007
-------------------------------------------------------------------------
All Consoli- Potash Nitrogen Phosphate Others dated
-------------------------------------------------------------------------
Sales $ 1,797.2 $ 1,799.9 $ 1,637.1 $ - $ 5,234.2 Freight 178.1
55.6 112.4 - 346.1 Transportation and distribution 39.1 51.6 33.4 -
124.1 Net sales - third party 1,580.0 1,692.7 1,491.3 - Cost of
goods sold 667.7 1,156.6 1,058.5 - 2,882.8 Gross margin 912.3 536.1
432.8 - 1,881.2 Depreciation and amortization 71.7 88.2 121.1 10.3
291.3 Inter-segment sales - 112.3 1.9 - - Twelve Months Ended
December 31, 2006
-------------------------------------------------------------------------
All Consoli- Potash Nitrogen Phosphate Others dated
-------------------------------------------------------------------------
Sales $ 1,227.5 $ 1,284.1 $ 1,255.1 $ - $ 3,766.7 Freight 130.5
36.8 88.5 - 255.8 Transportation and distribution 38.8 52.2 43.1 -
134.1 Net sales - third party 1,058.2 1,195.1 1,123.5 - Cost of
goods sold 497.1 879.5 998.2 - 2,374.8 Gross margin 561.1 315.6
125.3 - 1,002.0 Depreciation and amortization 58.3 77.6 94.6 11.9
242.4 Inter-segment sales 5.7 112.4 7.2 - - 9. 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 December 31, 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 10. Pension and Other Post-Retirement Expenses
Defined Benefit Pension Plans Three Months Ended Twelve Months
Ended December 31 December 31 2007 2006 2007 2006
-------------------------------------------------------------------------
Service cost $ 3.8 $ 3.4 $ 15.3 $ 14.2 Interest cost 9.2 8.2 36.5
33.5 Expected return on plan assets (10.7) (9.3) (42.8) (38.2) Net
amortization and change in valuation allowance 0.4 4.6 10.0 13.2
-------------------------------------------------------------------------
Net expense $ 2.7 $ 6.9 $ 19.0 $ 22.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other Post-Retirement Plans Three Months Ended Twelve Months Ended
December 31 December 31 2007 2006 2007 2006
-------------------------------------------------------------------------
Service cost $ 1.7 $ 1.2 $ 6.1 $ 4.7 Interest cost 4.3 3.1 14.9
12.4 Net amortization 1.3 (0.1) 1.7 (0.4)
-------------------------------------------------------------------------
Net expense $ 7.3 $ 4.2 $ 22.7 $ 16.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended December 31, 2007, the company
contributed $44.0 to its defined benefit pension plans, $3.7 to its
defined contribution pension plans and $2.0 to its other
post-retirement plans. Contributions for the twelve months ended
December 31, 2007 were $100.2 to its defined benefit pension plans,
$16.9 to its defined contribution pension plans and $8.2 to its
other post-retirement plans. 11. Other Income Three Months Ended
Twelve Months Ended December 31 December 31 2007 2006 2007 2006
-------------------------------------------------------------------------
Share of earnings of equity investees $ 18.0 $ 15.4 $ 76.2 $ 54.4
Dividend income 10.6 - 58.1 21.1 Other 12.1 6.3 17.7 18.5 Provision
for auction rate securities (Note 2) (26.5) - (26.5) -
-------------------------------------------------------------------------
$ 14.2 $ 21.7 $ 125.5 $ 94.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
12. Comparative Figures Certain of the prior periods' figures have
been reclassified to conform with the current periods'
presentation. 13. Subsequent Events In January 2008 the company
settled its forward purchase contract, that was denominated in Hong
Kong dollars, to acquire an additional 194,290,175 shares of
Sinofert for cash consideration of $173.7. A gain of $25.3 and a
pre-tax foreign exchange translation loss of $0.2 were recognized
during 2008 as a result of the change in fair value of the contract
from December 31, 2007 to the settlement date. The acquisition
increases the company's ownership interest in Sinofert to
approximately 20 percent. On January 23, 2008, the Board of
Directors of PCS authorized, subject to regulatory approval, a
share repurchase program of up to 15.82 million common shares
(approximately 5 percent of the company's issued and outstanding
common shares) through a normal course issuer bid. If considered
advisable, shares may be repurchased from time to time on the open
market for a one year period from commencement of the program at
prevailing market prices. The timing and amount of purchases, if
any, under the program will be dependent upon the availability and
alternative uses of capital, market conditions and other factors.
Potash Corporation of Saskatchewan Inc. Selected Operating and
Revenue Data (unaudited) Three Months Ended Twelve Months Ended
December 31 December 31 2007 2006 2007 2006
-------------------------------------------------------------------------
Potash Operating Data Production (KCl Tonnes - thousands) 2,542
2,392 9,160 7,018 Shutdown weeks 1.1 3.0 18.7 65.9 Sales (tonnes -
thousands) Manufactured Product North America 818 846 3,471 2,785
Offshore 1,452 1,318 5,929 4,411
-------------------------------------------------------------------------
Manufactured Product 2,270 2,164 9,400 7,196
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Net Sales (US $ millions) Sales $479.1 $371.0 $1,797.2
$1,227.5 Less: Freight 43.1 39.1 178.1 130.5 Transportation and
distribution 8.2 9.9 39.1 38.8
-------------------------------------------------------------------------
Net Sales $427.8 $322.0 $1,580.0 $1,058.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Manufactured Product North America $174.9 $140.6 $656.9 $470.5
Offshore 247.8 177.4 909.6 576.0 Other miscellaneous and purchased
product 5.1 4.0 13.5 11.7
-------------------------------------------------------------------------
Net Sales $427.8 $322.0 $1,580.0 $1,058.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Average Price per MT North America $214.03 $166.26 $189.26
$168.95 Offshore $170.63 $134.52 $153.41 $130.56
-------------------------------------------------------------------------
Manufactured Product $186.26 $146.92 $166.65 $145.42
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Corporation of Saskatchewan Inc. Selected Operating and
Revenue Data (unaudited) Three Months Ended Twelve Months Ended
December 31 December 31 2007 2006 2007 2006
-------------------------------------------------------------------------
Nitrogen Operating Data Production (N Tonnes - thousands) 704 709
2,986 2,579 Average Natural Gas Cost per MMBtu $4.41 $3.70 $4.30
$3.83 Sales (tonnes - thousands) Manufactured Product Ammonia 510
451 2,132 1,695 Urea 325 300 1,333 1,199 Nitrogen solutions/Nitric
acid/Ammonium nitrate 573 428 2,266 1,781
-------------------------------------------------------------------------
Manufactured Product 1,408 1,179 5,731 4,675
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer sales tonnes 523 368 2,054 1,474 Industrial/Feed sales
tonnes 885 811 3,677 3,201
-------------------------------------------------------------------------
1,408 1,179 5,731 4,675
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Net Sales (US $ millions) Sales $463.1 $317.2 $1,799.9
$1,284.1 Less: Freight 15.6 8.7 55.6 36.8 Transportation and
distribution 12.5 11.9 51.6 52.2
-------------------------------------------------------------------------
Net Sales $435.0 $296.6 $1,692.7 $1,195.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Manufactured Product Ammonia $159.9 $129.9 $664.3 $499.7 Urea 123.6
78.1 468.6 317.8 Nitrogen solutions/Nitric acid/Ammonium nitrate
114.0 65.4 437.8 305.4 Other miscellaneous and purchased product
37.5 23.2 122.0 72.2
-------------------------------------------------------------------------
Net Sales $435.0 $296.6 $1,692.7 $1,195.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer net sales $164.3 $85.8 $620.7 $352.6 Industrial/Feed net
sales 233.2 187.6 950.0 770.3 Other miscellaneous and purchased
product 37.5 23.2 122.0 72.2
-------------------------------------------------------------------------
Net Sales $435.0 $296.6 $1,692.7 $1,195.1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Average Price per MT Ammonia $313.41 $288.14 $311.55
$294.84 Urea $380.41 $260.14 $351.63 $264.97 Nitrogen
solutions/Nitric acid/Ammonium nitrate $198.91 $152.87 $193.21
$171.45
-------------------------------------------------------------------------
Manufactured Product $282.28 $231.92 $274.07 $240.16
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer average price per MT $314.05 $233.36 $302.23 $239.12
Industrial/Feed average price per MT $263.49 $231.27 $258.35
$240.64
-------------------------------------------------------------------------
Manufactured Product $282.28 $231.92 $274.07 $240.16
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Corporation of Saskatchewan Inc. Selected Operating and
Revenue Data (unaudited) Three Months Ended Twelve Months Ended
December 31 December 31 2007 2006 2007 2006
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Phosphate Operating Data Production (P2O5 Tonnes - thousands) 536
528 2,086 2,021 P2O5 Operating Rate 94% 93% 91% 89% Sales (tonnes -
thousands) Manufactured Product Fertilizer - Liquid phosphates 296
291 983 911 Fertilizer - Solid phosphates 430 444 1,623 1,634 Feed
218 195 814 778 Industrial 190 162 731 647
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Manufactured Product 1,134 1,092 4,151 3,970
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Phosphate Net Sales (US $ millions) Sales $489.2 $334.7 $1,637.1
$1,255.1 Less: Freight 32.6 25.2 112.4 88.5 Transportation and
distribution 8.8 7.7 33.4 43.1
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Net Sales $447.8 $301.8 $1,491.3 $1,123.5
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Manufactured Product Fertilizer - Liquid phosphates $94.4 $67.6
$283.4 $206.6 Fertilizer - Solid phosphates 183.0 103.5 607.5 391.6
Feed 81.5 60.0 272.7 238.4 Industrial 74.1 59.6 277.4 239.7 Other
miscellaneous and purchased product 14.8 11.1 50.3 47.2
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Net Sales $447.8 $301.8 $1,491.3 $1,123.5
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Phosphate Average Price per MT Fertilizer - Liquid phosphates
$318.71 $232.47 $288.37 $226.89 Fertilizer - Solid phosphates
$425.30 $233.24 $374.22 $239.64 Feed $374.98 $307.68 $335.03
$306.63 Industrial $389.39 $367.42 $379.47 $370.33
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Manufactured Product $381.79 $266.26 $347.14 $271.14
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Exchange Rate (Cdn$/US$) 2007 2006
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December 31 0.9881 1.1653 Fourth-quarter average conversion rate
0.9892 1.1270 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, adjusted 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 AND ADJUSTED EBITDA -------------------------- Set
forth below is a reconciliation of "EBITDA" and "adjusted EBITDA"
to net income, the most directly comparable financial measure
calculated and presented in accordance with Canadian GAAP. Three
Months Ended Twelve Months Ended December 31 December 31 2007 2006
2007 2006
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Net income $ 376.8 $ 186.0 $ 1,103.6 $ 631.8 Income taxes 65.2 63.0
416.2 158.1 Interest expense 9.7 16.5 68.7 85.6 Depreciation and
amortization 75.0 61.0 291.3 242.4
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EBITDA $ 526.7 $ 326.5 $ 1,879.8 $ 1,117.9 Provision for auction
rate securities 26.5 - 26.5 - Provision for plant shutdowns -
phosphate segment - - - 6.3
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Adjusted EBITDA $ 553.2 $ 326.5 $ 1,906.3 $ 1,124.2
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EBITDA is calculated as earnings before interest, income taxes,
depreciation and amortization. Adjusted EBITDA is calculated as
earnings before interest, income taxes, depreciation and
amortization, and impairment charges. PotashCorp uses EBITDA and
adjusted EBITDA as supplemental financial measures of its
operational performance. Management believes EBITDA and adjusted
EBITDA to be important measures as they exclude the effects of
items which primarily reflect the impact of long-term investment
decisions, rather than the performance of the company's day-to-day
operations. As compared to net income according to GAAP, these
measures are limited in that they do not reflect the periodic costs
of certain capitalized tangible and intangible assets used in
generating revenues in the company's business, or the non-cash
charges associated with impairments. 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. 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 Twelve Months Ended December 31 December 31 2007 2006
2007 2006
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Cash flow prior to working capital changes(1) $ 431.9 $ 265.6 $
1,525.3 $ 940.8
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Changes in non-cash operating working capital Accounts receivable
(14.7) 12.1 (154.6) 11.0 Inventories 8.7 (7.9) 60.3 13.9 Prepaid
expenses and other current assets 5.7 23.5 7.0 0.2 Accounts payable
and accrued charges 100.0 49.9 250.9 (269.1)
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Changes in non-cash operating working capital 99.7 77.6 163.6
(244.0)
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Cash provided by operating activities $ 531.6 $ 343.2 $ 1,688.9 $
696.8
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Free cash flow(2) $ 204.3 $ (83.5) $ 895.2 $ 79.1 Additions to
property, plant and equipment 225.6 123.7 607.2 508.6 Purchase of
long-term investments - 222.5 30.7 352.5 Other assets and
intangible assets 2.0 2.9 (7.8) 0.6 Changes in non-cash operating
working capital 99.7 77.6 163.6 (244.0)
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Cash provided by operating activities $ 531.6 $ 343.2 $ 1,688.9 $
696.8
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(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