Record Third-Quarter Potash Volumes Lead to Largest-Ever Quarterly
Gross Margin for PotashCorp Listed: TSX, NYSE Symbol: POT
SASKATOON, SK, Oct. 21 /PRNewswire-FirstCall/ -- Potash Corporation
of Saskatchewan Inc. (PotashCorp) today reported third-quarter
earnings of $75.2 million, or $0.68 per share on a diluted basis,
more than four times the adjusted $0.15(1) per share ($1.78 loss
per share unadjusted) earned in the same quarter last year. The
$0.68 per share would have been $0.12 per share higher had the
Canadian dollar not strengthened during the quarter. Gross margin
was $189.4 million, the highest in the company's history and a 124-
percent increase over the third quarter of 2003. Cash from
operating activities rose to $168.6 million compared to $128.4
million quarter over quarter, and free cash flow(1) grew to $97.0
million from $28.3 million. Through the first nine months of 2004,
PotashCorp earned an adjusted $1.85(1) per diluted share, compared
to an adjusted $0.48(1) per share(2) ($1.47 loss per share
unadjusted) for the same period in 2003. The higher quarterly
earnings were primarily due to higher potash volumes and prices. It
was another record-breaking period with both third-quarter and
nine-months potash sales volumes at record levels. These volumes
were achieved at higher prices than have been realized in more than
20 years. Increased consumption is tightening supply/demand
fundamentals after more than two decades of oversupply in the
potash market. With the rest of the industry now operating at or
near capacity, PotashCorp, which currently holds 86 percent of the
world's unused capacity, is benefiting by increasing production and
capturing a significant share of global demand growth. "We have
worked diligently for many years to prepare our company for the
conditions that we see today," said PotashCorp President and CEO
Bill Doyle. "The world needs more potash and our focus over the
past seventeen years has set the stage for our current and future
success. We believe this is a new era of growth in the potash
industry and we are excited to showcase the real strength of our
company." Market Conditions While the third quarter is typically
slower for fertilizer movement, global demand, particularly for
potash, remained strong. Many countries in Asia and Latin America
are increasing potash consumption as higher GDP growth drives the
demand for more food and better diets. In phosphate, four
hurricanes effectively eliminated the production of excess
inventory and tightened supply/demand for DAP. In nitrogen,
continued high natural gas prices in the US and tight global
supply/demand fundamentals kept markets snug and prices rising.
Potash Operations With higher prices and volumes, potash provided
$120.8 million, or 64 percent, of total gross margin for the
quarter. This was more than double the $52.3 million gross margin
in the third quarter of 2003. The higher prices also increased the
gross margin percentage for potash to 54 percent of net sales from
36 percent, quarter over quarter. Offshore markets provided the
greatest growth during the quarter, with record sales volumes of
1.346 million tonnes, an increase of 51 percent over the previous
record of 0.889 million tonnes in the third quarter last year.
Brazil remained our largest offshore customer with 26 percent of
sales, while China represented 24 percent. Prices realized on
offshore sales rose to $111.55 per tonne, an increase of 43 percent
over last year's third quarter and 19 percent over the trailing
quarter. These gains were achieved even while filling China's
contract, which is still at old prices. As new contracts were
negotiated with other customers, the tight market conditions
enabled the company to more than cover increases in ocean freight
rates. On a year-to-date basis, Canpotex's ocean freight increased
by approximately $15 per tonne compared to year-to-date September
2003, while its potash sales prices for delivered sales have risen
by more than twice that. In North America, the pricing momentum
from the second quarter continued throughout the third quarter as
realized prices were up $7.84 per tonne or 7 percent. This allowed
the company to achieve a 41-percent improvement in prices ($32.68
per tonne) over last year's third quarter. As expected, volumes
were down due to timing issues on shipments. In anticipation of
continued growing demand, the company announced a fourth shift at
Allan to expand production capability. It will be up and running in
the fourth quarter. PotashCorp increased production by 22 percent
over last year's third quarter, utilizing some of its excess
capacity to fill the growing demand. The higher operating rate
improved efficiency and positively impacted potash cost of goods
sold per tonne by approximately $1.50 per tonne, despite an
increase in the Canadian dollar that negatively affected costs by
$1.27 per tonne. Phosphate Operations Phosphate gross margin
improved from a loss of $9.7 million in the third quarter of 2003
to a break-even position this quarter. Industrial products remained
the most profitable segment of phosphate, providing gross margin of
$13.8 million for the quarter, up from $6.7 million last year.
Solid fertilizer sales volumes were flat compared to the third
quarter of 2003, as we shifted tonnes from the offshore market to
the North American market where price realizations were higher.
Although solid fertilizer prices were up 19 percent quarter over
quarter, higher costs resulted in little margin improvement. Liquid
fertilizer volumes were up 3 percent quarter over quarter, while
prices fell 6 percent as a result of product mix. Feed sales
volumes rose 10 percent over the third quarter of 2003 and prices
dropped 2 percent as ocean freight increases negatively impacted
our offshore realized prices. Industrial phosphate volumes
increased by 11 percent and realized prices climbed 6 percent
quarter over quarter as a competitor shut down some production and
imports of purified and thermal phosphoric acid (P4) from China and
other sources declined, contributing to stronger fundamentals for
industrial phosphate. Higher input costs hurt the phosphate
division, as sulfur and ammonia prices increased 3 percent and 31
percent respectively over last year's same quarter, or a total of
$6.4 million. This was the primary reason for phosphate cost of
goods sold rising by approximately $4.00 per tonne. Nitrogen
Operations Gross margin in nitrogen grew to $68.0 million from
$41.9 million in the third quarter of 2003. Our large-scale
facility in Trinidad, where we have low-cost natural gas contracts,
provided 57 percent of our total nitrogen gross margin while our US
operations contributed 31 percent. The remainder of the margin was
achieved from our US gas hedging program. Overall sales volumes
were down 6 percent from last year's same quarter due to the
continued shutdown of production at Memphis and Geismar. The
greatest impact was for nitrogen solutions, which were down 63
percent quarter over quarter. Higher prices provided a
counterbalance, as ammonia prices were up 30 percent, urea 20
percent and nitrogen solutions 36 percent over the third quarter of
2003. During the quarter, high natural gas prices discouraged the
startup of previously shutdown capacity in the US. However, they
also affected the company's average gas costs, which rose 46
percent from last year's third quarter and resulted in nitrogen
cost of goods sold increasing by approximately $24.00 per tonne.
Financial The Canadian dollar strengthened against the US dollar by
$0.08 during the quarter, resulting in a foreign exchange loss of
$21.4 million, which was partially offset by a $1.3 million gain
from entering into foreign exchange contracts to purchase Canadian
dollars. The net impact was a foreign exchange loss of $20.1
million compared to a loss of $2.2 million in the third quarter of
2003. The majority of this was a non-cash translation item. Selling
and administrative expenses were up $8.0 million or 33 percent
quarter over quarter, partially due to increased accruals relating
to short- and long-term incentive programs. These programs are tied
to company performance and total shareholder return and, given the
strength of PotashCorp's share price, adjustments to accruals were
necessary. Provincial mining and other taxes were up $10.9 million
or 89 percent from last year's same quarter due to significantly
higher profitability on the sale of potash tonnes as well as
increased sales volumes. Other income was up $13.9 million to $19.1
million for the quarter, primarily as a result of equity pickups
and dividends from our global potash investments in Arab Potash
Company, SQM and Israel Chemicals Limited. Interest expense was
down $3.8 million, or 15 percent, from last year's same quarter due
to a combination of interest savings from interest rate swaps that
were entered into early in the year and an increase in interest
income resulting from higher cash balances on hand. The company's
effective income tax rate was 33 percent for the quarter. The
current/future split for the year was revised to 65/35 compared to
our previous guidance of 60/40. The current tax provision increased
due to the greater profitability of our potash operations in
Canada. Outlook Inventories for all three nutrients are well below
the five-year average, creating tight supply/demand fundamentals.
According to The Fertilizer Institute (TFI), producers' inventories
of potash were 42 percent below the five-year average at the end of
September while DAP inventories were 33 percent below and urea was
44 percent below. Coupled with strong demand globally, the momentum
looks set to continue. While the record harvest has put near-term
pressure on grain prices, most farmers are enjoying excellent
yields at previously locked-in higher prices and are facing
nutrient depletion of their land. These nutrients will need to be
replenished before the next planting season. Even with a bumper
crop in most agricultural regions, the world's grain stocks-to-use
ratio is still projected to be 18.1 percent, according to the
United States Department of Agriculture. With the exception of last
year, that is the lowest ratio since 1975. The current low grain
prices have a closer correlation with phosphate, if anything, than
with potash or nitrogen, where capacity constraints and natural gas
are determining the market outlook. In potash, North American sales
volumes should increase from third-quarter levels as orders placed
earlier this year are filled and dealers ramp up for 2005. In fact,
second-half 2004 volumes to North American customers should equal
second-half 2003 volumes. In the offshore market, Canpotex now
expects to draw 8.0 million tonnes from its producers in 2004,
which will keep volumes healthy. PotashCorp currently supplies 54.2
percent of Canpotex sales. Prices in both markets are expected to
end the fourth quarter at higher levels than the third quarter.
Potash shipments to China will continue under contract pricing,
which is lower than current world prices, but negotiations for 2005
are expected to lead to significant price increases, providing good
momentum into the new year. Although ocean freight rates rose
throughout the quarter, Canpotex has locked in freight rates for
approximately half of delivered sales for the rest of the year, so
the exposure is lessened. In nitrogen, NYMEX natural gas prices
will likely remain high. With ammonia prices tracking gas prices,
this makes our Trinidad asset with its low-cost gas increasingly
valuable. Hence, the strong performance of this nutrient should
continue. In fact, we recently settled second-half October ammonia
contracts with DAP producers at $302 per tonne, an increase of $8
per tonne over the first half of October. In addition, we just
negotiated a sale for early November delivery at $319 per tonne in
Texas. For the fourth quarter, PotashCorp's natural gas
requirements are approximately 80 percent hedged at $3.35/MMBtu. At
current gas prices, the remaining 2004 hedge portfolio is valued at
approximately $10.0 million. For 2005, including Trinidad indexed
gas pricing, the company is approximately 70 percent hedged at
$2.65/MMBtu. Our US hedge position is subject to collared profits
from November 2004 through to March 2005. The market for solid
phosphate fertilizer remains tight. Prices, which began to edge up
by the end of the third quarter, should improve further as China is
expected to fulfill its PhosChem obligation in the fourth quarter.
Any margin improvement in phosphate could be tempered by higher
ammonia prices. While the feed business has been under pressure,
the company has recently announced a $30.00 price increase
effective December 1, 2004. Our industrial business is expected to
be our top achiever in phosphate, with gross margin approximating
25 percent of net sales. Given these conditions, the outlook for
the fourth quarter is positive. PotashCorp now expects 2004
earnings to be in the range of $2.40 to $2.50 per share, depending
on the Canadian dollar. This is up from the previous guidance of
$2.13 to $2.38 per share and assumes a Canadian dollar exchange
rate of 1.26 by the end of the year. Every one-cent change in the
Canadian dollar impacts our foreign exchange gain/loss line item by
approximately $3.0 million or $0.02 per share. We expect these
earnings would generate cash from operating activities of
approximately $600.0 million. This guidance is given on a
post-split basis as our shares were split during the quarter. The
overall effective income tax rate is still expected to approximate
33 percent for the year with a current/future split of 65/35.
Provincial mining and other taxes should approximate 21 percent of
potash gross margin for the fourth quarter, depending on sales mix.
Conclusion "The world is increasingly looking to our company to
fill the growing demand for potash," said Doyle. "With our excess
capacity and the strategic investments we have made in potash
production around the world, we are ready to accept that challenge.
Our industry and our products are essential to food production and
global development. We look forward to meeting the needs of our
customers, thereby creating benefits for the many stakeholders in
our company." 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". (2) For
periods in which there was a net loss attributable to common
shareholders, any outstanding stock options to purchase the
company's common shares with underlying exercise prices less than
the average market prices were excluded from the calculation of
diluted net loss per share, as inclusion of these securities would
have been anti-dilutive to the net loss per share. 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, fourth largest in
phosphate and third 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 2003
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 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.
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PotashCorp will host a conference call on Thursday, October 21,
2004 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.
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Potash Corporation of Saskatchewan Inc. Consolidated Statements of
Financial Position (in millions of US dollars except share amounts)
September 30, December 31, 2004 2003
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(unaudited) Assets Current assets Cash and cash equivalents $ 380.7
$ 4.7 Accounts receivable 312.5 305.0 Inventories 369.8 395.2
Prepaid expenses 40.6 29.0
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1,103.6 733.9 Property, plant and equipment 3,053.2 3,108.1 Other
assets 611.8 628.3 Goodwill 97.0 97.0
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$ 4,865.6 $ 4,567.3
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Liabilities Current liabilities Short-term debt $ 94.9 $ 176.2
Accounts payable and accrued charges 476.4 380.3 Current portion of
long-term debt 1.3 1.3
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572.6 557.8 Long-term debt 1,267.9 1,268.6 Future income tax
liability 503.4 484.2 Accrued post-retirement/post-employment
benefits 195.4 194.5 Accrued environmental costs and asset
retirement obligations 84.0 81.3 Other non-current liabilities and
deferred credits 5.2 7.1
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2,628.5 2,593.5
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Shareholders' Equity Share capital (Note 4) 1,345.4 1,245.8
Unlimited authorization of common shares without par value; issued
and outstanding 109,065,096 and 106,224,432 at September 30, 2004
and December 31, 2003, respectively Contributed surplus 273.6 265.2
Retained earnings 618.1 462.8
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2,237.1 1,973.8
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$ 4,865.6 $ 4,567.3
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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 Nine Months Ended
September 30 September 30 2004 2003 2004 2003
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Sales $ 815.7 $ 674.6 $ 2,377.8 $ 2,081.4 Less: Freight 51.2 55.9
178.2 180.8 Transportation and distribution 23.6 28.3 77.9 78.8
Cost of goods sold 551.5 505.9 1,637.6 1,533.9
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Gross Margin 189.4 84.5 484.1 287.9
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Selling and administrative 32.2 24.2 83.8 71.8 Provincial mining
and other taxes 23.1 12.2 67.5 45.1 Provision for plant shutdowns
(Note 5) - 121.5 - 123.7 Provision for PCS Yumbes S.C.M. (Note 6) -
140.5 5.9 140.5 Foreign exchange loss 20.1 2.2 2.0 41.5 Other
income (19.1) (5.2) (35.2) (21.6)
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56.3 295.4 124.0 401.0
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Operating Income (Loss) 133.1 (210.9) 360.1 (113.1) Interest
Expense 20.8 24.6 63.8 67.2
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Income (Loss) Before Income Taxes 112.3 (235.5) 296.3 (180.3)
Income Taxes (Note 7) 37.1 (49.6) 97.8 (27.5)
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Net Income (Loss) $ 75.2 $ (185.9) 198.5 (152.8)
----------------------- ----------------------- Retained Earnings,
Beginning of Period 462.8 641.4 Dividends (43.2) (39.1)
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Retained Earnings, End of Period $ 618.1 $ 449.5
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Net Income (Loss) Per Share (Notes 4 and 8) Basic $ 0.69 $ (1.78) $
1.85 $ (1.47) Diluted $ 0.68 $ (1.78) $ 1.82 $ (1.47)
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Dividends Per Share $ 0.15 $ 0.13 $ 0.40 $ 0.38
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Potash Corporation of Saskatchewan Inc. Consolidated Statements of
Cash Flow (in millions of US dollars) (unaudited) Three Months
Ended Nine Months Ended September 30 September 30 2004 2003 2004
2003
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Operating Activities Net income (loss) $ 75.2 $ (185.9) $ 198.5 $
(152.8)
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Items not affecting cash Depreciation and amortization 55.6 53.9
179.2 172.9 Stock-based compensation 2.8 - 8.4 - (Gain) loss on
disposal of property, plant and equipment (0.3) - (0.6) 0.3 Foreign
exchange on future income tax 13.6 1.2 5.8 26.3 Provision for
future income tax 9.9 (49.6) 34.2 (27.5) Share of earnings of
equity investees (12.0) (2.3) (19.7) (7.2) Provision for plant
shutdowns - 118.3 - 118.3 Provision for PCS Yumbes S.C.M. - 127.6
5.9 127.6 Provision for post-retirement/ post-employment benefits
(5.7) 2.2 0.9 11.3 Accrued environmental costs and asset retirement
obligations 0.8 - 2.7 1.1 Other non-current liabilities and
deferred credits 0.7 0.2 (1.9) 0.7
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Subtotal of items not affecting cash 65.4 251.5 214.9 423.8
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Changes in non-cash operating working capital Accounts receivable
(18.7) 10.4 (9.1) (25.1) Inventories 13.4 20.7 16.5 (31.2) Prepaid
expenses (18.5) 8.3 (11.6) 9.5 Accounts payable and accrued charges
39.0 22.6 30.9 27.8 Current income taxes 12.8 0.8 41.0 (12.6)
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Subtotal of changes in non-cash operating working capital 28.0 62.8
67.7 (31.6)
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Cash provided by operating activities 168.6 128.4 481.1 239.4
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Investing Activities Additions to property, plant and equipment
(43.9) (33.4) (93.3) (81.3) Proceeds from disposal of property,
plant and equipment 0.5 - 1.2 - Dividends received from equity
investees - - 4.6 4.0 Other assets 0.3 (3.9) 4.6 (14.7)
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Cash used in investing activities (43.1) (37.3) (82.9) (92.0)
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Cash before financing activities 125.5 91.1 398.2 147.4
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Financing Activities Proceeds from long-term debt - - - 250.0
Repayment of long-term debt (0.2) (0.3) (0.7) (0.8) Proceeds from
(repayment of) short-term debt 3.5 (88.0) (81.3) (329.6) Dividends
(12.8) (13.0) (39.8) (39.1) Issuance of shares 58.2 4.6 99.6 5.5
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Cash provided by (used in) financing activities 48.7 (96.7) (22.2)
(114.0)
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Increase (Decrease) in Cash and Cash Equivalents 174.2 (5.6) 376.0
33.4 Cash and Cash Equivalents, Beginning of Period 206.5 63.5 4.7
24.5
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Cash and Cash Equivalents, End of Period $ 380.7 $ 57.9 $ 380.7 $
57.9
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Supplemental cash flow disclosure Interest paid $ 11.4 $ 6.9 $ 55.0
$ 46.3 Income taxes paid $ 6.8 $ 3.5 $ 22.1 $ 23.6 Potash
Corporation of Saskatchewan Inc. Notes to the Consolidated
Financial Statements (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 2003 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. In 2003, the company approved
plans to restructure certain operations. Those plans required
significant estimates to be made of: (i) the recoverability of the
carrying value of certain assets based on their capacity to
generate future cash flows, and (ii) employee termination, contract
termination and other exit costs. Because restructuring activities
are complex processes that can take several months to complete,
they involve periodically reassessing estimates. As a result, the
company may have to change originally reported estimates as actual
payments are made or activities are completed. Please refer to Note
5 and Note 6. 2. Changes in Accounting Policy Sources of GAAP
Effective January 1, 2004, the company prospectively adopted new
accounting requirements of the Canadian Institute of Chartered
Accountants ("CICA") as issued in Section 1100, "Generally Accepted
Accounting Principles". This section establishes standards for
financial reporting in accordance with GAAP and provides guidance
on sources to consult when selecting accounting policies and
determining appropriate disclosures when a matter is not dealt with
explicitly in the primary sources of GAAP. In light of the new
Section 1100 provisions, the company reviewed the application of
its accounting policies and changed the consolidated financial
statement presentation of sales revenue, freight costs and
transportation and distribution expenses, without any effect on
gross margin or net income. All comparative information has been
appropriately reclassified. In prior years, the company reported
sales revenues (net of discounts, and including amounts recoverable
from customers for freight, transportation and distribution) net of
related freight, transportation and distribution expenses. The
company now reports sales revenues (net of discounts, and including
amounts recoverable from customers for freight, transportation and
distribution), freight costs, and transportation and distribution
expenses as separate line items on the Consolidated Statements of
Operations and Retained Earnings. Asset Retirement Obligations On
January 1, 2004, the company adopted CICA Section 3110, "Accounting
for Asset Retirement Obligations", which requires the company to
record an asset and related liability for the costs associated with
the retirement of long-lived tangible assets when a legal liability
to retire such assets exists. This includes obligations incurred as
a result of acquisition, construction, or normal operation of a
long-lived asset. The provisions of Section 3110 require the asset
retirement obligation to be recorded at fair value at the time the
liability is incurred. Accretion expense is recognized as an
operating expense using the credit-adjusted risk-free interest rate
in effect when the liability was recognized. The associated asset
retirement obligations are capitalized as part of the carrying
amount of the long-lived asset and depreciated over the estimated
remaining useful life of the asset. The company has recorded asset
retirement obligations primarily associated with certain closure,
reclamation, and restoration costs for its potash and phosphate
operations. The adoption of Section 3110 did not have a significant
effect on the results of operations or financial position of the
company. Had the provisions of Section 3110 been applied as of
January 1, 2003, the pro forma effects for the year ended December
31, 2003 on net loss would not have been material. As required
under the standard, the company will make periodic assessments as
to the reasonableness of its asset retirement obligation estimates
and revise those estimates accordingly. The respective asset and
liability balances will be adjusted, which will correspondingly
increase or decrease the amounts expensed in future periods.
Hedging Relationships Effective January 1, 2004, the company
adopted CICA Accounting Guideline 13, "Hedging Relationships". This
guideline sets out the criteria that must be met in order to apply
hedge accounting for derivatives and is based on many of the
principles outlined in the US standards relating to derivative
instruments and hedging activities. The guideline provides detailed
guidance on the identification, designation, documentation and
effectiveness of hedging relationships, for purposes of applying
hedge accounting, and the discontinuance of hedge accounting.
Income and expenses on derivative instruments designated and
qualifying as hedges under this guideline are recognized in
earnings in the same period as the related hedged item. Ineffective
hedging relationships and hedges not designated in a hedging
relationship are carried at fair value on the Consolidated
Statement of Financial Position, and subsequent changes in their
fair value are recorded in earnings. The adoption of this
accounting guideline did not have a material impact on the interim
consolidated financial statements. 3. Long-term Debt In January and
February 2004, the company entered into interest rate swap
contracts designated as fair value hedges that effectively
converted a notional amount of $300.0 of fixed rate debt (due 2011)
into floating rate debt based on six-month US dollar LIBOR rates.
Net settlements on the swap instruments are recorded as adjustments
to interest expense. The company did not enter into any interest
rate swap contracts in 2003. 4. Share Capital On July 21, 2004, the
Board of Directors of PCS approved a split of the company's
outstanding common shares on a two-for-one basis. The stock split
was effected in the form of a stock dividend of one additional
common share for each share owned by shareholders of record at the
close of business on August 11, 2004. The company's common shares
commenced trading on a split basis on August 9, 2004 on the Toronto
Stock Exchange and August 18, 2004 on the New York Stock Exchange.
All equity-based benefit plans have been adjusted to reflect the
stock split. All share and per-share data has been adjusted to
reflect the stock split effective with third quarter 2004
reporting. Information on an adjusted basis, showing the impact of
this split for the first two quarters of 2004, and by quarter and
total year for 2003 and 2002 follows. Quarterly Data First Second
Third Fourth (Post-Split Basis) Quarter Quarter Quarter Quarter
Year
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Basic net income (loss) per share 2004 $ 0.48 $ 0.68 2003 $ 0.03 $
0.29 $ (1.78) $ 0.25 $ (1.21) 2002 $ 0.12 $ 0.11 $ 0.14 $ 0.14 $
0.52 Diluted net income (loss) per share 2004 $ 0.47 $ 0.67 2003 $
0.03 $ 0.29 $ (1.78) $ 0.25 $ (1.21) 2002 $ 0.12 $ 0.11 $ 0.14 $
0.14 $ 0.51 Net income (loss) 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. Provision for Plant
Shutdowns Memphis and Geismar Nitrogen Operations - 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 plants have not been re-started since
that time. 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 the third quarter of 2003. The number of employees
terminated as a result of the shutdowns was 187, of which 186 had
left the company as of September 30, 2004. The company has made
payments relating to the terminations totaling $4.2. All remaining
workforce reduction costs pertaining to the 187 employees are
expected to be paid by December 31, 2004. In connection with the
shutdowns, management had determined that the carrying amounts of
the long-lived assets at the Memphis and Geismar nitrogen
facilities were not fully recoverable, and an impairment loss of
$101.6, equal to the amount by which the carrying amount of the
facilities' asset groups exceeded their respective fair values, was
recognized. Of the total impairment charge, $100.6 related to
property, plant and equipment and $1.0 related to other assets. As
part of its review, management also wrote-down certain parts
inventories at these plants in the amount of $12.4. In addition to
the costs described above, management expects to incur other
shutdown-related costs of approximately $11.1 and nominal annual
expenditures for site security and other maintenance costs. The
other shutdown-related costs have not been recorded in the
consolidated financial statements as of September 30, 2004. Such
costs will be recognized and recorded in the period in which they
are incurred. Kinston Phosphate Feed Plant - 2003 The phosphate
feed plant at Kinston, North Carolina ceased operations in the
first quarter of 2003. In that quarter, the company recorded $0.6
for costs of special termination benefits for Kinston employees,
$0.3 for parts inventory writedowns, and $1.3 for long-lived asset
impairment charges. In lieu of full plant closure, the company
continued to operate the facility as a warehouse. In the third
quarter of 2003, company management determined that the cost of
operating Kinston as a stand-alone warehouse was uneconomical. This
decision triggered a further review by management of the carrying
amounts of the plant's long-lived assets. As a result of this
review, management determined that the carrying amounts of the
long-lived assets were not recoverable, and an additional
impairment charge of $2.7, equal to the amount by which the
carrying amount of the plant's long-lived assets exceeded their
fair value, was recognized. The Kinston property was sold in the
third quarter of 2004 for nominal proceeds. There was no
significant gain or loss on sale. No additional costs were incurred
in connection with the plant shutdowns in the first nine months of
2004. The following table summarizes, by reportable segment, the
total amount of 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 - 11.1 ------------------------- 118.8 129.9
------------------------- 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 $ 134.8 -------------------------
------------------------- The following table summarizes, by
reportable segment, the costs accrued as of September 30, 2004 in
connection with the plant shutdowns described above: Accrued
Accrued Balance Balance December Cash September 31, 2003 Payments
30, 2004 ----------------------------- Nitrogen Segment Employee
termination and related benefits $ 2.1 $ (1.5) $ 0.6 Phosphate
Segment Employee termination and related benefits 0.5 (0.2) 0.3
----------------------------- $ 2.6 $ (1.7) $ 0.9
----------------------------- ----------------------------- The
accrued balance is included in accounts payable and accrued charges
in the Consolidated Statement of Financial Position as of September
30, 2004. 6. Provision for PCS Yumbes S.C.M. 2003 In November 2003,
the company entered into a share purchase agreement with Sociedad
Quimica y Minera de Chile S.A. ("SQM"), whereby SQM is to acquire
the shares of PCS Yumbes for an aggregate purchase price of $35.0,
subject to adjustments. Under the terms of the share purchase
agreement, and prior to the sale closing, PCS Yumbes will continue
to operate the facility and expeditiously liquidate the inventory
of nitrates. All other working capital is to be fully realized or
discharged (as applicable) by the company prior to the close. It is
expected that closing will occur no later than the end of 2004. In
2003, management conducted an assessment of the recoverability of
the long-lived assets of the PCS Yumbes operations. As a result of
its review, management determined that the carrying amounts of PCS
Yumbes' long-lived assets were not recoverable and recorded an
impairment charge of $77.4, equal to the amount by which the
carrying amount of the asset group exceeded fair value. Of the
total impairment charge, $13.0 related to property, plant and
equipment, $63.9 related to deferred pre- production costs, and
$0.5 related to deferred acquisition costs. As part of the review,
management also wrote-down certain non-parts inventory by $50.2 due
to the need to liquidate all inventories that would not be
transferred to SQM under the agreement. The company plans to
eliminate all employee positions at PCS Yumbes by December 31, 2004
and has recorded a provision of $1.8 pertaining to contractual
termination benefits to be paid, primarily under Chilean law. As of
September 30, 2004, 148 of the employees had left the company. The
remaining 76 employees are expected to leave the company by
December 31, 2004, and all remaining workforce reduction costs are
expected to be paid by that date. The company had incurred early
termination penalties in respect of certain PCS Yumbes contractual
arrangements. The company recorded a provision of $11.1 in the
third quarter of 2003 for these contract termination costs and $0.1
remained to be paid at September 30, 2004. 2004 During the second
quarter of 2004, the company recorded an additional writedown of
$5.9, relating primarily to certain mining machinery and equipment
that will not be transferred to SQM under the terms of the
agreement and that management plans to sell prior to the end of the
year. As of September 30, 2004, the fair value and carrying amount
of the machinery and equipment that remains to be sold was $1.1.
For measurement purposes, fair value was determined in reference to
market prices for similar assets. The following table summarizes
the total amount of costs incurred for the nine month period ended
September 30, 2004, the total amount of costs incurred to date and
the total costs expected to be incurred in connection with PCS
Yumbes: Cumulative Costs Costs Cumulative Total Costs Incurred to
Incurred to Costs Expected December September Incurred to be 31,
2003 30, 2004 to Date Incurred
----------------------------------------------- Potash Segment
Contract termination costs $ 11.1 $ - $ 11.1 $ 11.1 Employee
termination and related benefits 1.8 - 1.8 1.8 Writedown of
non-parts inventory 50.2 - 50.2 50.2 Asset impairment charges 77.4
5.9 83.3 83.3 ----------------------------------------------- $
140.5 $ 5.9 $ 146.4 $ 146.4
-----------------------------------------------
----------------------------------------------- The following table
summarizes the costs accrued as of September 30, 2004 in connection
with PCS Yumbes as described above: Accrued Costs Cash Accrued
Balance Incurred to Payments Balance December September and
Non-cash September 31, 2003 30, 2004 Adjustments Settlements 30,
2004 -----------------------------------------------------------
Potash Segment Contract termination costs $ 0.6 $ - $ (0.5) $ - $
0.1 Employee termination and related benefits 1.2 - (0.5) - 0.7
Asset impairment charges - 5.9 - (5.9) -
----------------------------------------------------------- $ 1.8 $
5.9 $ (1.0) $ (5.9) $ 0.8
-----------------------------------------------------------
----------------------------------------------------------- The
accrued balance is included in accounts payable and accrued charges
in the Consolidated Statement of Financial Position as of September
30, 2004. 7. Income Taxes The company's consolidated income tax
rate for the three month and nine month periods ended September 30,
2004 approximates 33 percent (2003 - 40 percent, exclusive of the
charges relating to PCS Yumbes as described in Note 6). The
decrease in rate is due primarily to the impact of Saskatchewan
resource tax incentives, changes to the Canadian federal resource
allowance, and the scheduled Canadian federal statutory rate
reduction. 8. Net Income (Loss) Per Share Basic net income (loss)
per share for the quarter is calculated on the weighted average
shares issued and outstanding for the three months ended September
30, 2004 of 108,232,000 (2003 - 104,258,000). Basic net income
(loss) per share for the year-to-date is calculated on the weighted
average shares issued and outstanding for the nine months ended
September 30, 2004 of 107,325,000 (2003 - 104,212,000). Diluted net
income (loss) per share is calculated based on the weighted average
shares issued and outstanding during the period, adjusted 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. For periods in which
there was a loss attributable to common shares, stock options with
exercise prices at or below the average market price for the period
were excluded for the calculations of diluted net loss per share,
as inclusion of these securities would have been anti-dilutive to
the net loss per share. Weighted average shares outstanding for the
diluted net income (loss) per share calculation for the quarter
were 111,174,000 (2003 - 104,258,000) and for the year-to-date were
109,340,000 (2003 - 104,212,000). 9. 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 which approximate market
prices. Three Months Ended September 30, 2004
-------------------------------------------------------------------------
Consol- Potash Phosphate Nitrogen All Others idated
-------------------------------------------------------------------------
Sales $ 251.8 $ 257.7 $ 306.2 $ - $ 815.7 Freight 23.0 19.7 8.5 -
51.2 Transportation and distribution 5.6 8.8 9.2 - 23.6 Net sales -
third party 223.2 229.2 288.5 - Cost of goods sold 102.4 228.6
220.5 - 551.5 Gross margin 120.8 0.6 68.0 - 189.4 Depreciation and
amortization 13.4 21.3 18.5 2.4 55.6 Inter-segment sales 1.0 3.3
20.8 - - Three Months Ended September 30, 2003
-------------------------------------------------------------------------
Consol- Potash Phosphate Nitrogen All Others idated
-------------------------------------------------------------------------
Sales $ 180.2 $ 229.7 $ 264.7 $ - $ 674.6 Freight 28.0 17.6 10.3 -
55.9 Transportation and distribution 8.2 7.8 12.3 - 28.3 Net sales
- third party 144.0 204.3 242.1 - Cost of goods sold 91.7 214.0
200.2 - 505.9 Gross margin 52.3 (9.7) 41.9 - 84.5 Depreciation and
amortization 9.1 18.0 23.4 3.4 53.9 Inter-segment sales 1.2 1.5
18.6 - - Nine Months Ended September 30, 2004
-------------------------------------------------------------------------
Consol- Potash Phosphate Nitrogen All Others idated
-------------------------------------------------------------------------
Sales $ 791.9 $ 712.2 $ 873.7 $ - $2,377.8 Freight 97.7 51.5 29.0 -
178.2 Transportation and distribution 26.8 21.5 29.6 - 77.9 Net
sales - third party 667.4 639.2 815.1 - Cost of goods sold 358.5
633.8 645.3 - 1,637.6 Gross margin 308.9 5.4 169.8 - 484.1
Depreciation and amortization 50.2 63.2 58.7 7.1 179.2
Inter-segment sales 4.6 9.8 64.9 - - Nine Months Ended September
30, 2003
-------------------------------------------------------------------------
Consol- Potash Phosphate Nitrogen All Others idated
-------------------------------------------------------------------------
Sales $ 601.1 $ 635.1 $ 845.2 $ - $2,081.4 Freight 91.0 53.0 36.8 -
180.8 Transportation and distribution 24.5 19.7 34.6 - 78.8 Net
sales - third party 485.6 562.4 773.8 - Cost of goods sold 323.2
571.2 639.5 - 1,533.9 Gross margin 162.4 (8.8) 134.3 - 287.9
Depreciation and amortization 40.0 56.2 69.5 7.2 172.9
Inter-segment sales 4.8 7.0 47.4 - - 10. 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. Prospective application of the fair value method did not have
an impact on the first three fiscal quarters of 2003 since the
company did not grant any options during those periods. Since the
company's stock option awards vest over two years, the compensation
cost included in the determination of net income (loss) for the
three month and nine month periods ended September 30, 2004 and
2003 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 (loss) and net income (loss)
per share if the fair value based method had been applied to all
outstanding and unvested awards in each period. Three Months Ended
Nine Months Ended September 30 September 30
-------------------------------------------------------------------------
2004 2003 2004 2003
-------------------------------------------------------------------------
Net income (loss) - as reported $ 75.2 $ (185.9) $ 198.5 $ (152.8)
Add: Stock-based employee compensation expense included in reported
net income (loss), net of related tax effects 2.2 - 6.6 - Less:
Total stock-based employee compensation expense determined under
fair value based method for all option awards, net of related tax
effects (3.2) (3.7) (9.6) (11.1)
----------------------------------------------- Net income (loss) -
pro forma(1) $ 74.2 $ (189.6) $ 195.5 $ (163.9)
-----------------------------------------------
----------------------------------------------- (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 (loss) per share - as reported $ 0.69 $
(1.78) $ 1.85 $ (1.47) Basic net income (loss) per share - pro
forma $ 0.69 $ (1.82) $ 1.82 $ (1.57) Diluted net income (loss) per
share - as reported $ 0.68 $ (1.78) $ 1.82 $ (1.47) Diluted net
income (loss) per share - pro forma $ 0.67 $ (1.82) $ 1.79 $ (1.57)
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: 2003 2002 2001
-------------------------------------------------------------------------
Expected dividend $ 0.50 $ 0.50 $ 0.50 Expected volatility 27% 32%
32% Risk-free interest rate 4.06% 4.13% 4.54% Expected life of
options 8 years 8 years 8 years Expected forfeitures 16% 10% 10%
11. Post-Retirement/Post-Employment Expenses Three Months Ended
Nine Months Ended Pension Plans September 30 September 30
-------------------------------------------------------------------------
2004 2003 2004 2003
-------------------------------------------------------------------------
Service cost $ 3.5 $ 3.0 $ 10.5 $ 9.0 Interest cost 7.5 7.4 22.5
22.2 Expected return on plan assets (8.4) (7.6) (25.2) (22.8) Net
amortization 1.1 1.3 3.3 3.9
----------------------------------------------- Net expense $ 3.7 $
4.1 $ 11.1 $ 12.3 -----------------------------------------------
----------------------------------------------- Other
Post-Retirement Three Months Ended Nine Months Ended Plans
September 30 September 30
-------------------------------------------------------------------------
2004 2003 2004 2003
-------------------------------------------------------------------------
Service cost $ 1.1 $ 1.4 $ 3.9 $ 4.2 Interest cost 3.0 3.2 10.0 9.6
Net amortization (0.3) 0.5 0.5 1.5
----------------------------------------------- Net expense $ 3.8 $
5.1 $ 14.4 $ 15.3 -----------------------------------------------
----------------------------------------------- For the nine months
ended September 30, 2004, we contributed $19.1 to our pension
plans. Total pension plan contributions for the year are expected
to approximate $19.7. 12. Comparative Figures Certain of the prior
periods' figures have been reclassified to conform with the current
periods' presentation. Potash Corporation of Saskatchewan Inc.
Selected Operating and Revenue Data (unaudited) Three Months Ended
Nine Months Ended September 30 September 30 2004 2003 2004 2003
-------------------------------------------------------------------------
Potash Operating Data Production (KCl Tonnes - thousands) 1,623
1,332 5,924 5,311 Shutdown weeks 8.7 12.3 18.9 25.1 Sales (tonnes -
thousands) North America 557 768 2,458 2,422 Offshore 1,346 889
3,986 3,216
-------------------------------------------------------------------------
1,903 1,657 6,444 5,638
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Net Sales (US $ millions) Sales $251.8 $180.2 $791.9 $601.1
Less: Freight 23.0 28.0 97.7 91.0 Transportation and distribution
5.6 8.2 26.8 24.5
-------------------------------------------------------------------------
Net Sales $223.2 $144.0 $667.4 $485.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
North America $62.8 $61.5 $254.4 $190.9 Offshore 150.1 69.4 379.6
257.8
-------------------------------------------------------------------------
Potash Subtotal 212.9 130.9 634.0 448.7 Miscellaneous 10.3 13.1
33.4 36.9
-------------------------------------------------------------------------
$223.2 $144.0 $667.4 $485.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Average Price per MT North America $112.83 $80.15 $103.51
$78.80 Offshore $111.55 $77.98 $95.25 $80.17
-------------------------------------------------------------------------
$111.92 $78.98 $98.40 $79.58
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Phosphate Operating Data Production (P2O5 Tonnes - thousands) 469
475 1,413 1,378 P2O5 Operating Rate 75% 75% 73% 73% Sales (tonnes -
thousands) Fertilizer - Liquid Phosphates 194 188 473 533
Fertilizer - Solid Phosphates 439 434 1,221 1,022 Feed 232 211 645
650 Industrial 156 140 455 400
-------------------------------------------------------------------------
1,021 973 2,794 2,605
-------------------------------------------------------------------------
-------------------------------------------------------------------------
North America sales tonnes 728 696 2,059 2,074 Offshore sales
tonnes 293 277 735 531
-------------------------------------------------------------------------
1,021 973 2,794 2,605
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Corporation of Saskatchewan Inc. Selected Operating and
Revenue Data (unaudited) Three Months Ended Nine Months Ended
September 30 September 30 2004 2003 2004 2003
-------------------------------------------------------------------------
Phosphate Net Sales (US $ millions) Sales $257.7 $229.7 $712.2
$635.1 Less: Freight 19.7 17.6 51.5 53.0 Transportation and
distribution 8.8 7.8 21.5 19.7
-------------------------------------------------------------------------
Net Sales $229.2 $204.3 $639.2 $562.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer - Liquid Phosphates $38.9 $40.0 $100.4 $119.6 Fertilizer
- Solid Phosphates 85.7 71.3 243.1 170.3 Feed 49.5 46.1 137.6 138.0
Industrial 52.5 44.6 150.6 128.7 Miscellaneous 2.6 2.3 7.5 5.8
-------------------------------------------------------------------------
$229.2 $204.3 $639.2 $562.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
North America net sales $177.0 $159.2 $504.1 $475.0 Offshore net
sales 52.2 45.1 135.1 87.4
-------------------------------------------------------------------------
$229.2 $204.3 $639.2 $562.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Phosphate Average Price per MT Fertilizer - Liquid Phosphates
$200.73 $212.69 $212.04 $224.31 Fertilizer - Solid Phosphates
$194.97 $164.46 $199.04 $166.76 Feed $213.52 $218.50 $213.25
$212.37 Industrial $337.11 $318.87 $331.34 $321.82
-------------------------------------------------------------------------
$224.54 $210.06 $228.75 $215.94
-------------------------------------------------------------------------
-------------------------------------------------------------------------
North America average price per MT $243.24 $228.60 $244.85 $229.04
Offshore average price per MT $178.11 $163.34 $183.69 $164.74
-------------------------------------------------------------------------
$224.54 $210.06 $228.75 $215.94
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Operating Data Production (N Tonnes - thousands) 652 591
1,908 2,027 Average Natural Gas Cost per MMBtu $3.76 $2.57 $3.53
$2.96 Sales (tonnes - thousands) Manufactured Product Ammonia 392
406 1,308 1,356 Urea 324 361 887 1,122 Nitrogen Solutions 60 161
254 597 Nitric acid/Ammonium nitrate 359 360 1,091 1,065
-------------------------------------------------------------------------
Manufactured Product 1,135 1,288 3,540 4,140 Purchased Product 204
131 461 450
-------------------------------------------------------------------------
1,339 1,419 4,001 4,590
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer sales tonnes 476 644 1,557 2,108 Feed/Industrial sales
tonnes 863 775 2,444 2,482
-------------------------------------------------------------------------
1,339 1,419 4,001 4,590
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Potash Corporation of Saskatchewan Inc. Selected Operating and
Revenue Data (unaudited) Three Months Ended Nine Months Ended
September 30 September 30 2004 2003 2004 2003
-------------------------------------------------------------------------
Nitrogen Net Sales (US $ millions) Sales $306.2 $264.7 $873.7
$845.2 Less: Freight 8.5 10.3 29.0 36.8 Transportation and
distribution 9.2 12.3 29.6 34.6
-------------------------------------------------------------------------
Net Sales $288.5 $242.1 $815.1 $773.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Manufactured Product Ammonia $104.7 $83.2 $325.2 $270.1 Urea 72.2
66.9 188.0 205.4 Nitrogen Solutions 9.9 19.7 37.1 68.9 Nitric
acid/Ammonium nitrate 45.9 42.4 138.4 122.0 Miscellaneous 6.4 5.6
16.9 15.6
-------------------------------------------------------------------------
Net Sales Manufactured Product 239.1 217.8 705.6 682.0 Net Sales
Purchased Product 49.4 24.3 109.5 91.8
-------------------------------------------------------------------------
$288.5 $242.1 $815.1 $773.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer net sales $102.8 $107.7 $316.1 $344.5 Feed/Industrial
net sales 185.7 134.4 499.0 429.3
-------------------------------------------------------------------------
$288.5 $242.1 $815.1 $773.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Nitrogen Average Price per MT Ammonia $266.96 $204.83 $248.63
$199.19 Urea $222.72 $184.96 $211.87 $183.02 Nitrogen Solutions
$165.97 $122.22 $146.11 $115.38 Nitric acid/Ammonium nitrate
$128.08 $117.54 $127.02 $114.52
-------------------------------------------------------------------------
Manufactured Product $210.78 $169.05 $199.38 $164.71 Purchased
Product $241.90 $186.28 $237.31 $204.16
-------------------------------------------------------------------------
$215.52 $170.63 $203.75 $168.57
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fertilizer average price per MT $216.04 $167.26 $203.05 $163.41
Feed/Industrial average price per MT $215.24 $173.43 $204.20
$172.96
-------------------------------------------------------------------------
$215.52 $170.63 $203.75 $168.57
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Exchange Rate (Cdn$/US$) 2004 2003
-------------------------------------------------------------------------
December 31 1.2924 September 30 1.2639 1.3504 Third-quarter average
conversion rate 1.3305 1.3765 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, free cash flow, cash flow prior to working capital
changes and net income adjusted to exclude impairment charges and
shutdown related costs (and the related per-share amount excluding
such items) 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's management believes these
non-GAAP measures provide useful supplemental information to
investors in order that they may evaluate the company's financial
performance using the same measures used by the company's
management. The company'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 (loss), the most directly comparable financial
measure calculated and presented in accordance with Canadian GAAP.
Three Months Ended Nine Months Ended September 30 September 30 2004
2003 2004 2003
-------------------------------------------------------------------------
Net income (loss) $ 75.2 $ (185.9) $ 198.5 $ (152.8) Income taxes
37.1 (49.6) 97.8 (27.5) Interest expense 20.8 24.6 63.8 67.2
Depreciation and amortization 55.6 53.9 179.2 172.9
-------------------------------------------------------------------------
EBITDA $ 188.7 $ (157.0) $ 539.3 $ 59.8 Impairment charges and non-
cash shutdown related costs - 243.7 5.9 245.9
-------------------------------------------------------------------------
Adjusted EBITDA $ 188.7 $ 86.7 $ 545.2 $ 305.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
EBITDA is calculated as earnings (loss) before interest, income
taxes, depreciation and amortization. Adjusted EBITDA is calculated
as earnings (loss) before interest, income taxes, depreciation and
amortization and impairment charges and non-cash shutdown related
costs. The company 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 (loss) 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 and shutdown related costs. Management evaluates such
charges and costs through other financial measures such as capital
expenditures, and cash flow provided by operating activities. The
company also believes that these measurements are used by certain
investors and analysts to measure a company's ability to service
debt and to meet other payment obligations or as a valuation
measurement. Certain of the prior periods' figures have been
reclassified to conform with the current periods' presentation.
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 Nine Months Ended
September 30 September 30 2004 2003 2004 2003
-------------------------------------------------------------------------
Cash flow prior to working capital changes(1) $ 140.6 $ 65.6 $
413.4 $ 271.0
-------------------------------------------------------------------------
Changes in non-cash operating working capital Accounts receivable
(18.7) 10.4 (9.1) (25.1) Inventories 13.4 20.7 16.5 (31.2) Prepaid
expenses (18.5) 8.3 (11.6) 9.5 Accounts payable and accrued charges
39.0 22.6 30.9 27.8 Current income taxes 12.8 0.8 41.0 (12.6)
-------------------------------------------------------------------------
Changes in non-cash operating working capital 28.0 62.8 67.7 (31.6)
-------------------------------------------------------------------------
Cash provided by operating activities $ 168.6 $ 128.4 $ 481.1 $
239.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Free cash flow(2) $ 97.0 $ 28.3 $ 324.7 $ 175.0 Additions to
property, plant and equipment 43.9 33.4 93.3 81.3 Other assets
(0.3) 3.9 (4.6) 14.7 Changes in non-cash operating working capital
28.0 62.8 67.7 (31.6)
-------------------------------------------------------------------------
Cash provided by operating activities $ 168.6 $ 128.4 $ 481.1 $
239.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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 used by certain investors
and analysts 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. Management also
believes that this measurement is used by certain investors and
analysts 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.
Potash Corporation of Saskatchewan Inc. Selected Non-GAAP Financial
Measures and Reconciliations (in millions of US dollars except
share and per-share amounts) (unaudited) C. NET INCOME ADJUSTED TO
EXCLUDE IMPAIRMENT CHARGES AND SHUTDOWN RELATED COSTS
-------------------------------------------------------------- Set
forth below is a reconciliation of "net income adjusted to exclude
impairment charges and shutdown related costs" to net income (loss)
and the related per-share amounts, the most directly comparable
financial measures calculated and presented in accordance with
Canadian GAAP. All share and per-share data has been adjusted to
reflect the stock split described in Note 4 to the unaudited
interim consolidated financial statements. Three Months Ended Nine
Months Ended September 30 September 30 2004 2003 2004 2003
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Net income (loss) $ 75.2 $ (185.9) $ 198.5 $ (152.8)
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Provision for plant shutdowns $ - $ 121.5 $ - $ 123.7 Provision for
PCS Yumbes - 140.5 5.9 140.5
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Subtotal - 262.0 5.9 264.2 Tax effect - (60.2) (1.9) (61.1)
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Subtotal - 201.8 4.0 203.1
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Net income adjusted to exclude impairment charges and shutdown
related costs $ 75.2 $ 15.9 $ 202.5 $ 50.3
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Net income (loss) per share - diluted $ 0.68 $ (1.78) $ 1.82 $
(1.47) After tax effect per share of provisions for plant shutdowns
and PCS Yumbes - 1.93 0.03 1.95
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Net income per share adjusted to exclude impairment charges and
shutdown related costs - diluted $ 0.68 $ 0.15 $ 1.85 $ 0.48
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Weighted average number of shares outstanding (Net income (loss)
per share - diluted)(1): 111,174,000 104,258,000 109,340,000
104,212,000
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Weighted average number of shares outstanding (Net income per share
adjusted to exclude impairment charges and shutdown related costs -
diluted)(1): 111,174,000 105,078,000 109,340,000 104,772,000
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The company's management uses net income adjusted to exclude
impairment charges and shutdown related costs and diluted net
income per share excluding such items as supplemental financial
measures to evaluate the company's operating performance and to
compare such performance with the company's historical operating
results and the operating results of other companies. The company's
management believes that these measures allow management to
consider the on-going financial performance of the company with
respect to short-term patterns and long-term trends without the
potentially obscuring effects of current period (and year-to-date)
impairment charges and shutdown related costs. As compared to net
income (loss) according to GAAP, these measures are limited by the
exclusion of items that have been identified by the company's
impairment and shutdown related analysis. The company's management
compensates for these limitations by applying the specific
recognition, measurement, presentation and disclosure provisions
for such charges and costs as required under GAAP. Management also
evaluates such charges and costs through other financial measures
such as cash flow provided by operating activities. (1) For periods
in which there was a net loss attributable to common shareholders,
any outstanding stock options to purchase the company's common
shares with underlying exercise prices less than the average market
prices were excluded from the calculation of diluted net loss per
share, as inclusion of these securities would have been anti-
dilutive to the net loss per share. 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/
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