PotashCorp Achieves Record First-Quarter Net Income Listed: TSX,
NYSE Symbol: POT SASKATOON, SK, April 27 /PRNewswire-FirstCall/ --
Reflecting continued growth in potash prices and volumes, Potash
Corporation of Saskatchewan Inc. (PotashCorp) today reported record
quarterly net income of $131.3 million, or $1.15 per diluted share.
This is 31 percent higher than the previous record, which was set
last quarter, and is more than double last year's $50.7 million, or
$0.47 per share. Gross margin of $258.5 million ($124.0 million in
the first quarter of 2004) hit a record for the third consecutive
quarter. First-quarter EBITDA(1) increased by 75 percent to $276.3
million compared to $157.5 million in last year's same quarter. The
strong performance in potash was supported by continued strength
from nitrogen and industrial phosphate, an improvement in feed
phosphate, and significant contributions from the company's equity
investments in offshore potash companies. "Our business is gaining
momentum," said PotashCorp President and CEO Bill Doyle. "During
the first quarter, we set a record for potash volumes at prices
more than 50 percent higher than in the same period last year. As
this quarter demonstrated, our excess capacity and offshore potash
investments uniquely position us to benefit from rising world
demand for this key nutrient, now and in the future." Market
Conditions Tight supply and demand continued in both potash and
nitrogen. Asian countries with accelerating economic growth
continued their above-trend potash demand. Potash prices rose
throughout the quarter, as did nitrogen prices after a brief
downturn in ammonia at the start of the year. Customers reacted to
these tight market conditions and focused their purchases on potash
and nitrogen while solid phosphate fertilizer sales volumes
suffered. Potash Operations Record quarterly volumes and higher
prices resulted in potash gross margin of $176.2 million. This was
up 164 percent from $66.7 million in last year's first quarter and
represented 68 percent of the company total. Gross margin as a
percentage of net sales rose to 58 percent from 37 percent, quarter
over quarter. PotashCorp exported 1.4 million tonnes, 20 percent
more than the same quarter last year, and set a first-quarter
record for offshore volumes. This was achieved in spite of reduced
shipments to Brazil, as Asian countries such as India and China
increased purchases from us by 268 percent and 58 percent
respectively. North American volumes also set a first-quarter
record, up 18 percent from last year's first quarter as competitors
were product-constrained, allowing PotashCorp to increase market
share. Prices continued to climb, with offshore realized prices up
58 percent ($123.35 per tonne compared to $78.29 per tonne in the
first quarter last year). North American realized prices rose 48
percent to $139.86 per tonne, up $45.10 quarter over quarter. The
company produced a record 2.4 million tonnes in the first three
months of 2005 as the expansion at Rocanville and additional shifts
at Lanigan and Allan raised production. Although increased
production improved efficiency, the stronger Canadian dollar
negatively impacted the cost of goods sold by over $3.50 per tonne.
The average exchange rate against the US dollar was 1.2280 in the
first quarter of 2005 compared to 1.3126 in first quarter 2004.
Phosphate Operations Phosphate had its best quarterly performance
since the first quarter of 2002, with $17.0 million in gross margin
compared to a loss of $0.9 million in the first quarter last year.
Sales product mix contributed to this result, as sales volumes in
the first quarter were strongest in liquid fertilizer, feed
phosphate and industrial acid products, where we are most
competitive. Industrial products remained the strongest area of the
phosphate business, with a 7 percent increase in both volumes and
prices quarter over quarter. The feed business showed the biggest
improvement, with prices and volumes both up 11 percent from last
year's first quarter as the company achieved North American price
increases and sold higher volumes to Latin America and Asia. Solid
fertilizer sales volumes were down 8 percent from first quarter
2004, primarily due to a decrease in sales of MAP to Brazil as an
inventory carryover from last year was worked through. Realized
prices were up 8 percent from the first quarter of last year, but
were down slightly from the trailing quarter as excess supply kept
market fundamentals weak. Liquid fertilizer sales volumes saw a
significant 84 percent increase from the first quarter of 2004 as
the company sold more phosphoric acid to India. These sales are
lower-priced than other liquid fertilizer products, resulting in
the 7 percent decrease in realized prices quarter over quarter.
However, these increased volumes allowed the company to run at a
higher operating rate, which helped reduce costs and is part of the
company's strategy for returning profitability to the phosphate
division. Phosphate cost of goods sold declined $6.00 per tonne
quarter over quarter due to a decline in sulfur and ammonia costs
as well as the higher production levels. Nitrogen Operations
Nitrogen generated $65.3 million in gross margin, 12 percent higher
than the $58.2 million earned in the same quarter last year.
Trinidad provided 66 percent of this margin, with US operations
contributing 21 percent and US natural gas hedges the remaining 13
percent. During the quarter, the company liquidated its remaining
2005 US natural gas hedge positions for approximately $40.0
million. Coupled with gains realized in the first quarter, our
estimated 2005 hedge gain is $48.0 million, compared to a hedge
gain of $43.0 million in 2004. These liquidation gains will be
recognized over the course of 2005, when the related inventory is
ultimately sold. Nitrogen sales volumes were up slightly quarter
over quarter, although the product mix shifted as urea tonnes
increased by 41 percent while purchased tonnes, primarily ammonia,
declined by 39 percent. The company chose to produce and sell more
urea than in last year's same quarter due to strong market
fundamentals for this product. After a short-term drop in January,
ammonia prices largely recovered; however, the average price for
the quarter was still down 10 percent from last year's same
quarter. Urea realized prices were up 16 percent and overall
nitrogen prices were flat quarter over quarter. Financial
PotashCorp's equity investments in offshore potash companies
generated additional income during the quarter, demonstrating that
the company's earnings leverage in potash extends beyond its unused
capacity. Other income increased by $13.1 million quarter over
quarter, primarily as a result of an increase of $9.3 million of
equity pickups from investments in SQM and APC, in addition to $3.1
million of dividends received from ICL. In total, equity earnings
and dividends from these investments contributed 8 percent of the
total net income for the quarter. The full value to PotashCorp of
these investments is reflected in the current market values of
their publicly traded stock. Our holdings now total $1.26 billion,
compared to the book value of $545.7 million. Provincial mining and
other taxes were $23.3 million more than in the same quarter last
year, driven by higher profits taxes resulting from increases in
potash margins. The company's effective consolidated income tax
rate was 33 percent for the quarter, with a current/future split of
90/10. Outlook Supply/demand fundamentals in potash remain tight as
demand continues to grow and the industry, excluding PotashCorp, is
operating at or near its capacity. Record shipments should continue
as offshore customers increase imports and Brazil plays catch-up on
its consumption. With other companies shipping more of their potash
production offshore, PotashCorp has opportunities to capture higher
volumes in North America, where spring planting is now going
strong. To meet this demand, we plan to increase production
accordingly. Previously announced North American potash price
increases should be fully realized by the end of this year's second
quarter. Two further $10 per short ton price increases have been
announced for implementation on June 1 and September 1, 2005.
Offshore prices are also expected to rise. In phosphate, solid
fertilizers will likely remain challenged by oversupply in the
world market, while industrial products will continue to provide
the majority of gross margin in this segment. Feed is expected to
continue providing positive gross margin as the Aurora DFP plant is
now operating smoothly. The second quarter should show higher
proportional solid fertilizer sales volumes, which generate lower
margins for the company, and will put pressure on the overall
phosphate gross margin. In nitrogen, tight supply/demand
fundamentals are expected to continue at least through 2005, which
should keep prices for all nitrogen products firm throughout the
rest of the year. In addition, the expansion of the No. 3 plant in
Trinidad was completed late in the quarter and is expected to
result in increased production of approximately 50,000 tonnes for
the remainder of the year and 75,000 tonnes annually. As a result,
nitrogen 2005 earnings now look set to match or surpass the record
set in 2004. As previously announced, PotashCorp will be returning
1.9 million tonnes of its idle capacity to production at Lanigan
and Allan. These projects, along with expansions at the Aurora
purified acid plant and in Trinidad, will raise 2005 capital
expenditures to an estimated $400.0 million, of which $135.0
million is related to sustaining capital. On April 11, 2005, the
Government of Saskatchewan announced new provincial mining tax
incentives for potash capital projects. While the company's
announced plans at Lanigan and Allan will qualify, the benefit
relating to these incentives will not be recognized until the
regulations have been enacted, which is expected to occur in the
third quarter of 2005. Given the continued positive industry
fundamentals, the company is now expecting 2005 net income to be in
the range of $4.00 to $4.50 per diluted share, with second quarter
net income of $1.00 to $1.25 per share, assuming a continued flat
Canadian dollar of 1.20. Conclusion "Our company is realizing the
benefits of our triple leverage in potash," said Doyle. "With
increased volumes, better efficiency and higher prices, we are
generating greater returns and increased value for our
shareholders. We're excited not only by what we can do today, but
by what we can do in the future as we seamlessly bring on our
excess capacity in a timely manner at a fraction of the cost of new
greenfield capacity." Notes The company's accounting policies are
in accordance with accounting principles generally accepted in
Canada. All amounts are expressed in US dollars. (1) 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 one of only three
North American suppliers of industrial phosphates. This release
contains forward-looking statements, which involve risks and
uncertainties, including those referred to in the company's annual
report to shareholders for 2004 and in filings with the U.S.
Securities and Exchange Commission and Canadian provincial
securities commissions. A number of factors could cause actual
results to differ materially from those in the forward- looking
statements, including, but not limited to: fluctuation 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;
and government policy changes.
-------------------------------------------------------------------------
PotashCorp will host a conference call on Wednesday, April 27,
2005, at 1:00 p.m. Eastern Time. To join the call, dial (706)
643-3329 at least 10 minutes prior to the start time.
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. Consolidated Statements of
Financial Position (in millions of US dollars except share amounts)
(unaudited) March 31, December 31, 2005 2004
-------------------------------------------------------------------------
Assets Current assets Cash and cash equivalents $ 479.0 $ 458.9
Accounts receivable 409.2 352.6 Inventories 402.9 396.8 Prepaid
expenses and other current assets 41.5 35.3
-------------------------------------------------------------------------
1,332.6 1,243.6 Property, plant and equipment 3,094.5 3,098.9 Other
assets 652.0 650.2 Intangible assets 36.1 37.1 Goodwill 97.0 97.0
-------------------------------------------------------------------------
$ 5,212.2 $ 5,126.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities Current liabilities Short-term debt $ 94.3 $ 93.5
Accounts payable and accrued charges 593.7 599.9 Current portion of
long-term debt 10.2 10.3
-------------------------------------------------------------------------
698.2 703.7 Long-term debt 1,258.5 1,258.6 Future income tax
liability 504.6 499.4 Accrued post-retirement/post-employment
benefits 212.1 193.4 Accrued environmental costs and asset
retirement obligations 82.0 81.2 Other non-current liabilities and
deferred credits 6.6 4.9
-------------------------------------------------------------------------
2,762.0 2,741.2
-------------------------------------------------------------------------
Shareholders' Equity Share capital (Note 3) 1,441.6 1,408.4
Unlimited authorization of common shares without par value; issued
and outstanding 110,748,102 and 110,630,503 at March 31, 2005 and
December 31, 2004, respectively Contributed surplus 192.6 275.7
Retained earnings 816.0 701.5
-------------------------------------------------------------------------
2,450.2 2,385.6
-------------------------------------------------------------------------
$ 5,212.2 $ 5,126.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See Notes to the Consolidated Financial Statements) Potash
Corporation of Saskatchewan Inc. Consolidated Statements of
Operations and Retained Earnings (in millions of US dollars except
per-share amounts) (unaudited) Three Months Ended March 31 2005
2004
-------------------------------------------------------------------------
Sales (Note 7) $ 921.4 $ 728.4 Less: Freight 67.2 58.1
Transportation and distribution 28.9 23.0 Cost of goods sold 566.8
523.3
-------------------------------------------------------------------------
Gross Margin 258.5 124.0
-------------------------------------------------------------------------
Selling and administrative 29.3 26.2 Provincial mining and other
taxes 38.4 15.1 Foreign exchange gain (5.9) (8.2) Other income
(Note 10) (20.0) (6.9)
-------------------------------------------------------------------------
41.8 26.2
-------------------------------------------------------------------------
Operating Income 216.7 97.8 Interest Expense 20.7 22.1
-------------------------------------------------------------------------
Income Before Income Taxes 196.0 75.7 Income Taxes (Note 5) 64.7
25.0
-------------------------------------------------------------------------
Net Income 131.3 50.7 Retained Earnings, Beginning of Period 701.5
462.8 Dividends (16.8) (13.5)
-------------------------------------------------------------------------
Retained Earnings, End of Period $ 816.0 $ 500.0
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net Income Per Share (Note 6) Basic $ 1.18 $ 0.48 Diluted $ 1.15 $
0.47
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Dividends Per Share $ 0.15 $ 0.12
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See Notes to the Consolidated Financial Statements) Potash
Corporation of Saskatchewan Inc. Consolidated Statements of Cash
Flow (in millions of US dollars) (unaudited) Three Months Ended
March 31 2005 2004
-------------------------------------------------------------------------
Operating Activities Net income $ 131.3 $ 50.7
-------------------------------------------------------------------------
Items not affecting cash Depreciation and amortization 59.6 59.7
Stock-based compensation 1.0 2.8 Loss on disposal of long-term
assets 2.0 - Foreign exchange on future income tax (1.2) (2.9)
Provision for future income tax 6.5 15.0 Share of earnings of
equity investees (13.1) (3.8) Other long-term liabilities 5.2 5.4
-------------------------------------------------------------------------
Subtotal of items not affecting cash 60.0 76.2
-------------------------------------------------------------------------
Changes in non-cash operating working capital Accounts receivable
(63.5) 32.9 Inventories (1.7) (26.6) Prepaid expenses and other
current assets (6.2) (11.3) Accounts payable and accrued charges
7.4 9.5 Current income taxes (11.8) 2.9
-------------------------------------------------------------------------
Subtotal of changes in non-cash operating working capital (75.8)
7.4
-------------------------------------------------------------------------
Cash provided by operating activities 115.5 134.3
-------------------------------------------------------------------------
Investing Activities Additions to property, plant and equipment
(56.8) (16.4) Proceeds from disposal of long-term assets 7.5 -
Proceeds from sale of shares of PCS Yumbes S.C.M. 5.2 - Other
assets and intangible assets (0.1) 0.8
-------------------------------------------------------------------------
Cash used in investing activities (44.2) (15.6)
-------------------------------------------------------------------------
Cash before financing activities 71.3 118.7
-------------------------------------------------------------------------
Financing Activities Repayment of long-term debt obligations (0.2)
(0.2) Proceeds from (repayment of) short-term debt obligations 0.8
(118.3) Dividends (16.5) (13.5) Repurchase of common shares (82.3)
- Issuance of common shares 47.0 19.8
-------------------------------------------------------------------------
Cash used in financing activities (51.2) (112.2)
-------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 20.1 6.5 Cash and Cash
Equivalents, Beginning of Period 458.9 4.7
-------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 479.0 $ 11.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow disclosure Interest paid $ 11.2 $ 13.4
Income taxes paid $ 75.5 $ 6.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(See Notes to the Consolidated Financial Statements) Potash
Corporation of Saskatchewan Inc. Notes to the Consolidated
Financial Statements For the Three Months Ended March 31, 2005 (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 consolidated
financial statements are consistent with those used in the
preparation of the 2004 annual consolidated financial statements,
except as disclosed in Note 2. These interim 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 most recent annual consolidated financial
statements. In management's opinion, the unaudited financial
information includes 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. 2. Change in Accounting
Policy Consolidation of Variable Interest Entities Effective
January 1, 2005, the company adopted revised CICA Accounting
Guideline 15 ("AcG-15"), "Consolidation of Variable Interest
Entities". AcG-15 is harmonized in all material respects with US
GAAP and provides guidance for applying consolidation principles to
certain entities (defined as VIEs) that are subject to control on a
basis other than ownership of voting interests. An entity is a VIE
when, by design, one or both of the following conditions exist: (a)
total equity investment at risk is insufficient to permit that
entity to finance its activities without additional subordinated
support from other parties; (b) as a group, the holders of the
equity investment at risk lack certain essential characteristics of
a controlling financial interest. AcG-15 requires consolidation by
a business of VIEs in which it is the primary beneficiary. The
primary beneficiary is defined as the party that has exposure to
the majority of the expected losses and/or expected residual
returns of the VIE. The adoption of this guideline did not have a
material impact on the consolidated financial statements. 3. Share
Capital On January 25, 2005, the Board of Directors of PCS
authorized a share repurchase program of up to 5.5 million common
shares (approximately 5 percent of the company's issued and
outstanding common shares) through a normal course issuer bid.
Shares may be repurchased from time to time on the open market
through February 14, 2006 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. During the quarter, the
company repurchased for cancellation 1,134,200 common shares under
the program, at an average price per share of $86.28. 4. Plant
Shutdowns - 2003 In June 2003, the company indefinitely shut down
its Memphis, Tennessee plant and suspended production of ammonia
and nitrogen solutions at its Geismar, Louisiana facilities due to
high US natural gas costs and low product margins. The operations
have not been restarted. The company determined that all employee
positions pertaining to the affected operations would be
eliminated, and recorded $4.8 in connection with costs of special
termination benefits in 2003. No significant payments relating to
the terminations remain to be made. Management expects to incur
other shutdown-related costs of approximately $12.1 and nominal
annual expenditures for site security and other maintenance costs
in relation to these nitrogen facilities. The other
shutdown-related costs have not been recorded in the consolidated
financial statements as of March 31, 2005. Such costs will be
recognized and recorded in the period in which they are incurred.
The company also ceased operations at its phosphate feed plant at
Kinston, North Carolina in 2003. The Kinston property was sold in
2004 for nominal proceeds. No additional significant costs were
incurred in connection with the plant shutdowns in the first three
months of 2005. The following table summarizes, by reportable
segment, the total costs incurred to date and the total costs
expected to be incurred in connection with the plant shutdowns
described above: Cumulative Costs Total Costs Incurred Expected to
to Date be Incurred
-------------------------------------------------------------------------
Nitrogen Segment Employee termination and related benefits $ 4.8 $
4.8 Writedown of parts inventory 12.4 12.4 Asset impairment charges
101.6 101.6 Other related exit costs - 12.1
-------------------------------------------------------------------------
118.8 130.9
-------------------------------------------------------------------------
Phosphate Segment Employee termination and related benefits 0.6 0.6
Writedown of parts inventory 0.3 0.3 Asset impairment charges 4.0
4.0
-------------------------------------------------------------------------
4.9 4.9
-------------------------------------------------------------------------
$ 123.7 $ 135.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
5. Income Taxes The company's consolidated income tax rate for the
three month period ended March 31, 2005 approximates 33 percent
(2004 - 33 percent). 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 March 31, 2005 of
111,110,000 (2004 - 106,686,000). Diluted net income per share is
calculated based on the weighted average number of shares issued
and outstanding during the period. The denominator is: (i)
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 (ii) 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. Weighted average shares
outstanding for the diluted net income per share calculation for
the three months ended March 31, 2005 were 114,265,000 (2004 -
108,046,000). 7. Segment Information The company has three
reportable business segments: potash, phosphate and nitrogen. These
business segments are differentiated by the chemical nutrient
contained in the product that each produces. Inter-segment sales
are made under terms that approximate market value. The accounting
policies of the segments are the same as those described in Note 1.
Three Months Ended March 31, 2005
-------------------------------------------------------------------------
All Consol- Potash Phosphate Nitrogen Others idated
-------------------------------------------------------------------------
Sales $ 352.1 $ 264.5 $ 304.8 $ - $ 921.4 Freight 37.2 19.8 10.2 -
67.2 Transportation and distribution 9.1 8.1 11.7 - 28.9 Net sales
- third party 305.8 236.6 282.9 - Cost of goods sold 129.6 219.6
217.6 - 566.8 Gross margin 176.2 17.0 65.3 - 258.5 Depreciation and
amortization 18.1 22.1 17.1 2.3 59.6 Inter-segment sales 2.0 4.2
19.8 - - Three Months Ended March 31, 2004
-------------------------------------------------------------------------
All Consol- Potash Phosphate Nitrogen Others idated
-------------------------------------------------------------------------
Sales $ 223.7 $ 217.6 $ 287.1 $ - $ 728.4 Freight 33.5 15.7 8.9 -
58.1 Transportation and distribution 8.7 5.3 9.0 - 23.0 Net sales -
third party 181.5 196.6 269.2 - Cost of goods sold 114.8 197.5
211.0 - 523.3 Gross margin 66.7 (0.9) 58.2 - 124.0 Depreciation and
amortization 16.9 20.5 19.9 2.4 59.7 Inter-segment sales 2.9 3.1
21.8 - - 8. Stock-Based Compensation The company has two stock
option plans. Prior to 2003, the company applied the intrinsic
value based method of accounting for the plans. Effective December
15, 2003, the company adopted the fair value based method of
accounting for stock options prospectively to all employee awards
granted, modified or settled after January 1, 2003. Since the
company's stock option awards vest over two years, the compensation
cost included in the determination of net income for the first
quarter of 2004 is less than that which would have been recognized
if the fair value based method had been applied to all awards since
the original effective date of CICA Section 3870, "Stock-based
Compensation and Other Stock- based Payments". The following table
illustrates the effect on net income and the related per-share
amount if the fair value based method had been applied to all
outstanding and unvested awards in each period. Three Months Ended
March 31
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
Net Income - as reported $ 131.3 $ 50.7 Add: Stock-based employee
compensation expense included in reported net income, net of
related tax effects 0.7 2.2 Less: Total stock-based employee
compensation expense determined under fair value based method for
all option awards, net of related tax effects (0.7) (3.2)
-------------------------------------------------------------------------
Net Income - pro forma(1) $ 131.3 $ 49.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Compensation expense under the fair value method is recognized
over the vesting period of the related stock options. Accordingly,
the pro forma results of applying this method may not be indicative
of future results. Basic Net Income Per Share - as reported $ 1.18
$ 0.48 Basic Net Income Per Share - pro forma $ 1.18 $ 0.47 Diluted
Net Income Per Share - as reported $ 1.15 $ 0.47 Diluted Net Income
Per Share - pro forma $ 1.15 $ 0.46 In calculating the foregoing
pro forma amounts, the fair value of each option grant was
estimated as of the date of grant using the Modified Black-Scholes
option-pricing model with the following weighted average
assumptions: Year of Grant
-------------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------------
Expected dividend $ 0.50 $ 0.50 Expected volatility 27% 32%
Risk-free interest rate 4.06% 4.13% Expected life of options 8
years 8 years Expected forfeitures 16% 10% The company did not
grant any stock options during 2004 or in the first quarter of
2005. 9. Post-Retirement/Post-Employment Expenses Defined Benefit
Pension Plans Three Months Ended March 31
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
Service cost $ 3.6 $ 3.5 Interest cost 7.8 7.5 Expected return on
plan assets (8.9) (8.4) Net amortization 1.7 1.1
-------------------------------------------------------------------------
Net expense $ 4.2 $ 3.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other Post-Retirement Plans Three Months Ended March 31
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
Service cost $ 1.4 $ 1.4 Interest cost 3.3 3.5 Net amortization 0.4
0.4
-------------------------------------------------------------------------
Net expense $ 5.1 $ 5.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended March 31, 2005, the company contributed
$2.8 to its defined benefit pension plans and $2.3 to its other
post-retirement plans. Total 2005 contributions to these and the
company's defined contribution savings plans are not expected to
differ significantly from the amounts previously disclosed in the
consolidated financial statements for the year ended December 31,
2004. 10. Other Income Three Months Ended March 31
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
Share of earnings of equity investees $ 13.1 $ 3.8 Dividend income
3.1 - Other 3.8 3.1
-------------------------------------------------------------------------
$ 20.0 $ 6.9
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. Comparative Figures In the third quarter of 2004, the Board of
Directors of PCS approved a split of the company's outstanding
common shares on a two-for-one basis in the form of a stock
dividend. All comparative share and per-share data have been
retroactively adjusted to reflect the stock split. Certain of the
prior period's figures have been reclassified to conform with the
current period's presentation. Potash Corporation of Saskatchewan
Inc. Selected Operating and Revenue Data (unaudited) Three Months
Ended March 31 2005 2004
-------------------------------------------------------------------------
Potash Operating Data Production (KCl Tonnes - thousands) 2,389
2,102 Shutdown weeks - 3.2 Sales (tonnes - thousands) North America
922 782 Offshore 1,401 1,166
-------------------------------------------------------------------------
2,323 1,948
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Net Sales (US $ millions) Sales $352.1 $223.7 Less: Freight
37.2 33.5 Transportation and distribution 9.1 8.7
-------------------------------------------------------------------------
Net Sales $305.8 $181.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
North America $128.9 $74.1 Offshore 172.8 91.3
-------------------------------------------------------------------------
Potash Subtotal 301.7 165.4 Miscellaneous 4.1 16.1
-------------------------------------------------------------------------
$305.8 $181.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Average Net Sales Price per MT North America $139.86 $94.76
Offshore $123.35 $78.29
-------------------------------------------------------------------------
$129.90 $84.91
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Phosphate Operating Data Production (P(2)O(5) Tonnes - thousands)
502 443 P(2)O(5) Operating Rate 80% 78% Sales (tonnes - thousands)
Fertilizer - Liquid Phosphates 250 136 Fertilizer - Solid
Phosphates 327 355 Feed 230 207 Industrial 155 145
-------------------------------------------------------------------------
962 843
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Corporation of Saskatchewan Inc. Selected Operating and
Revenue Data (unaudited) Three Months Ended March 31 2005 2004
-------------------------------------------------------------------------
Phosphate Net Sales (US $ millions) Sales $264.5 $217.6 Less:
Freight 19.8 15.7 Transportation and distribution 8.1 5.3
-------------------------------------------------------------------------
Net Sales $236.6 $196.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer - Liquid Phosphates $52.6 $30.7 Fertilizer - Solid
Phosphates 71.3 71.4 Feed 55.1 44.4 Industrial 54.7 47.8
Miscellaneous 2.9 2.3
-------------------------------------------------------------------------
$236.6 $196.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Phosphate Average Net Sales Price per MT Fertilizer - Liquid
Phosphates $210.61 $225.36 Fertilizer - Solid Phosphates $217.89
$200.91 Feed $239.25 $215.18 Industrial $353.44 $329.71
-------------------------------------------------------------------------
$245.87 $233.31
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Operating Data Production (N Tonnes - thousands) 638 635
Average Natural Gas Cost per MMBtu $3.72 $3.69 Sales (tonnes -
thousands) Manufactured Product Ammonia 406 412 Urea 359 255
Nitrogen solutions/Nitric acid/Ammonium nitrate 450 433
-------------------------------------------------------------------------
Manufactured Product 1,215 1,100 Purchased Product 93 153
-------------------------------------------------------------------------
1,308 1,253
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer sales tonnes 463 491 Feed/Industrial sales tonnes 845
762
-------------------------------------------------------------------------
1,308 1,253
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Corporation of Saskatchewan Inc. Selected Operating and
Revenue Data (unaudited) Three Months Ended March 31 2005 2004
-------------------------------------------------------------------------
Nitrogen Net Sales (US $ millions) Sales $304.8 $287.1 Less:
Freight 10.2 8.9 Transportation and distribution 11.7 9.0
-------------------------------------------------------------------------
Net Sales $282.9 $269.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Manufactured Product Ammonia $98.9 $111.7 Urea 90.3 55.0 Nitrogen
solutions/Nitric acid/Ammonium nitrate 65.2 57.3 Miscellaneous 5.3
4.7
-------------------------------------------------------------------------
Net Sales Manufactured Product 259.7 228.7 Net Sales Purchased
Product 23.2 40.5
-------------------------------------------------------------------------
$282.9 $269.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer net sales $105.8 $104.3 Feed/Industrial net sales 177.1
164.9
-------------------------------------------------------------------------
$282.9 $269.2
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Average Net Sales Price per MT Ammonia $243.78 $270.77
Urea $251.43 $215.84 Nitrogen solutions/Nitric acid/Ammonium
nitrate $144.76 $132.28
-------------------------------------------------------------------------
Manufactured Product $213.70 $207.78 Purchased Product $250.68
$265.65
-------------------------------------------------------------------------
$216.31 $214.82
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer average price per MT $228.85 $212.27 Feed/Industrial
average price per MT $209.45 $216.46
-------------------------------------------------------------------------
$216.31 $214.82
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Exchange Rate (Cdn$/US$) 2005 2004
-------------------------------------------------------------------------
December 31 1.2036 March 31 1.2096 1.3105 First-quarter average
conversion rate 1.2280 1.3126 Potash Corporation of Saskatchewan
Inc. Selected Non-GAAP Financial Measures and Reconciliations (in
millions of US dollars) (unaudited) The following information is
included for convenience only. Generally, a non-GAAP financial
measure is a numerical measure of a company's performance,
financial position or cash flows that either excludes or includes
amounts that are not normally excluded or included in the most
directly comparable measure calculated and presented in accordance
with generally accepted accounting principles ("GAAP"). EBITDA,
cash flow prior to working capital changes and free cash flow are
not measures of financial performance (nor do they have
standardized meanings) under either Canadian GAAP or US GAAP. In
evaluating these measures, investors should consider that the
methodology applied in calculating such measures may differ among
companies and analysts. The company uses both GAAP and certain
non-GAAP measures to assess performance. The company's management
believes these non-GAAP measures provide useful supplemental
information to investors in order that they may evaluate
PotashCorp's financial performance using the same measures as
management. PotashCorp's management believes that, as a result, the
investor is afforded greater transparency in assessing the
financial performance of the company. These non-GAAP financial
measures should not be considered as a substitute for, nor superior
to, measures of financial performance prepared in accordance with
GAAP. A. EBITDA --------- Set forth below is a reconciliation of
"EBITDA" to net income, the most directly comparable financial
measure calculated and presented in accordance with Canadian GAAP.
Three Months Ended March 31 2005 2004
-------------------------------------------------------------------------
Net income $ 131.3 $ 50.7 Income taxes 64.7 25.0 Interest expense
20.7 22.1 Depreciation and amortization 59.6 59.7
-------------------------------------------------------------------------
EBITDA $ 276.3 $ 157.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA is calculated as earnings before interest, income taxes,
depreciation and amortization. PotashCorp uses EBITDA as a
supplemental financial measure of its operational performance.
Management believes EBITDA to be an important measure as it
excludes the effects of items which primarily reflect the impact of
long-term investment decisions, rather than the performance of the
company's day-to-day operations. As compared to net income
according to GAAP, this measure is limited in that it does not
reflect the periodic costs of certain capitalized tangible and
intangible assets used in generating revenues in the company's
business. Management evaluates such items through other financial
measures such as capital expenditures and cash flow provided by
operating activities. The company believes that this measurement is
useful to measure a company's ability to service debt and to meet
other payment obligations or as a valuation measurement. Potash
Corporation of Saskatchewan Inc. Selected Non-GAAP Financial
Measures and Reconciliations (in millions of US dollars)
(unaudited) B. CASH FLOW ------------ Set forth below is a
reconciliation of "cash flow prior to working capital changes" and
"free cash flow" to cash provided by operating activities, the most
directly comparable financial measure calculated and presented in
accordance with Canadian GAAP. Three Months Ended March 31 2005
2004
-------------------------------------------------------------------------
Cash flow prior to working capital changes(1) $ 191.3 $ 126.9
-------------------------------------------------------------------------
Changes in non-cash operating working capital Accounts receivable
(63.5) 32.9 Inventories (1.7) (26.6) Prepaid expenses and other
current assets (6.2) (11.3) Accounts payable and accrued charges
7.4 9.5 Current income taxes (11.8) 2.9
-------------------------------------------------------------------------
Changes in non-cash operating working capital (75.8) 7.4
-------------------------------------------------------------------------
Cash provided by operating activities $ 115.5 $ 134.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Free cash flow(2) $ 134.4 $ 111.3 Additions to property, plant and
equipment 56.8 16.4 Other assets and intangible assets 0.1 (0.8)
Changes in non-cash operating working capital (75.8) 7.4
-------------------------------------------------------------------------
Cash provided by operating activities $ 115.5 $ 134.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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, 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. DATASOURCE: Potash
Corporation of Saskatchewan Inc. CONTACT: Betty-Ann Heggie, Senior
Vice President, Corporate Relations, Phone: (306) 933-8521, Fax:
(306) 933-8844, E-mail: , Web Site: http://www.potashcorp.com/
Copyright