SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2002
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-10351
POTASH CORPORATION OF SASKATCHEWAN INC.
| Saskatchewan, Canada | N/A | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) | |
| 122 – 1st Avenue South | S7K 7G3 | |
| Saskatoon, Saskatchewan, Canada | (Zip Code) | |
| (Address of principal executive offices) | ||
306-933-8500
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO o
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As at October 31, 2002, Potash Corporation of Saskatchewan Inc. had 52,057,190 Common Shares outstanding.
PART I. FINANCIAL INFORMATION
These interim consolidated financial statements do not include all disclosures normally provided in annual financial statements and should be read in conjunction with the most recent annual 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.
Potash Corporation of Saskatchewan Inc.
Consolidated Statements of Income and Retained Earnings
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30 | September 30 | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
|
Net sales
|
$ | 455.2 | $ | 460.2 | $ | 1,405.7 | $ | 1,638.4 | |||||||||
|
Cost of goods sold
|
382.2 | 392.6 | 1,168.4 | 1,301.9 | |||||||||||||
|
Gross Margin
|
73.0 | 67.6 | 237.3 | 336.5 | |||||||||||||
|
Selling and administrative
|
21.8 | 23.9 | 68.6 | 72.8 | |||||||||||||
|
Provincial mining and other taxes
|
15.2 | 17.8 | 55.2 | 54.3 | |||||||||||||
|
Foreign exchange (gain) loss
|
(5.0 | ) | (10.0 | ) | 5.9 | (10.8 | ) | ||||||||||
|
Other income
|
(3.3 | ) | (3.9 | ) | (16.2 | ) | (20.5 | ) | |||||||||
| 28.7 | 27.8 | 113.5 | 95.8 | ||||||||||||||
|
Operating Income
|
44.3 | 39.8 | 123.8 | 240.7 | |||||||||||||
|
Interest Expense
|
21.5 | 22.4 | 62.5 | 58.4 | |||||||||||||
|
Income Before Income Taxes
|
22.8 | 17.4 | 61.3 | 182.3 | |||||||||||||
|
Income Taxes (Note 4)
|
8.3 | 6.3 | 22.1 | 65.6 | |||||||||||||
|
Net Income
|
$ | 14.5 | $ | 11.1 | 39.2 | 116.7 | |||||||||||
|
Retained Earnings, Beginning of
Period
|
639.8 | 570.5 | |||||||||||||||
|
Dividends
|
(39.0 | ) | (39.0 | ) | |||||||||||||
|
Retained Earnings, End of Period
|
$ | 640.0 | $ | 648.2 | |||||||||||||
|
Net Income Per Share (Note 5)
|
|||||||||||||||||
|
Basic
|
$ | 0.28 | $ | 0.21 | $ | 0.75 | $ | 2.25 | |||||||||
|
Diluted
|
$ | 0.28 | $ | 0.21 | $ | 0.75 | $ | 2.24 | |||||||||
|
Dividends Per Share
|
$ | 0.25 | $ | 0.25 | $ | 0.75 | $ | 0.75 | |||||||||
(See Notes to the Consolidated Financial Statements)
2
Potash Corporation of Saskatchewan Inc.
Consolidated Statements of Financial Position
| September 30, | December 31, | ||||||||
| 2002 | 2001 | ||||||||
| (unaudited) | |||||||||
|
Assets
|
|||||||||
|
Current Assets
|
|||||||||
|
Cash and cash equivalents
|
$ | 74.4 | $ | 45.3 | |||||
|
Accounts receivable
|
262.2 | 256.7 | |||||||
|
Inventories (Note 3)
|
476.5 | 481.1 | |||||||
|
Prepaid expenses
|
36.5 | 36.5 | |||||||
| 849.6 | 819.6 | ||||||||
|
Property, plant and equipment
|
3,253.0 | 3,245.6 | |||||||
|
Goodwill
|
97.0 | 97.0 | |||||||
|
Other assets
|
483.3 | 435.1 | |||||||
| $ | 4,682.9 | $ | 4,597.3 | ||||||
|
Liabilities
|
|||||||||
|
Current Liabilities
|
|||||||||
|
Short-term debt
|
$ | 495.6 | $ | 501.1 | |||||
|
Accounts payable and accrued charges
|
331.6 | 271.4 | |||||||
|
Current portion of long-term debt
|
1.0 | — | |||||||
| 828.2 | 772.5 | ||||||||
|
Long-term debt
|
1,022.6 | 1,013.7 | |||||||
|
Future income tax liability
|
462.5 | 457.6 | |||||||
|
Accrued post-retirement/post-employment benefits
|
190.8 | 177.3 | |||||||
|
Accrued reclamation costs
|
80.1 | 83.0 | |||||||
|
Other non-current liabilities and deferred credits
|
8.3 | 6.7 | |||||||
| 2,592.5 | 2,510.8 | ||||||||
|
Shareholders’ Equity
|
|||||||||
|
Share Capital
|
1,186.2 | 1,182.5 | |||||||
|
Unlimited authorization of common shares without
par value; issued and outstanding 52,050,590 and 51,952,482 at
September 30, 2002 and December 31, 2001, respectively
|
|||||||||
|
Contributed Surplus
|
264.2 | 264.2 | |||||||
|
Retained Earnings
|
640.0 | 639.8 | |||||||
| 2,090.4 | 2,086.5 | ||||||||
| $ | 4,682.9 | $ | 4,597.3 | ||||||
(See Notes to the Consolidated Financial Statements)
3
Potash Corporation of Saskatchewan Inc.
Consolidated Statements of Cash Flow
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30 | September 30 | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
|
Operating activities
|
|||||||||||||||||
|
Net income
|
$ | 14.5 | $ | 11.1 | $ | 39.2 | $ | 116.7 | |||||||||
|
Items not affecting cash
|
|||||||||||||||||
|
Depreciation and amortization
|
54.4 | 49.2 | 165.4 | 140.9 | |||||||||||||
|
Loss on disposal of assets
|
0.3 | 0.3 | 0.6 | 0.2 | |||||||||||||
|
Foreign exchange on future income tax
|
(6.9 | ) | (5.7 | ) | 0.4 | (7.0 | ) | ||||||||||
|
Provision for future income tax
|
1.6 | 4.7 | 4.4 | 49.2 | |||||||||||||
|
Provision for post-retirement/post-employment
benefits
|
3.7 | (0.1 | ) | 13.6 | (0.6 | ) | |||||||||||
| 67.6 | 59.5 | 223.6 | 299.4 | ||||||||||||||
|
Changes in non-cash operating working
capital
|
|||||||||||||||||
|
Accounts receivable
|
(14.2 | ) | 3.1 | (5.5 | ) | 37.1 | |||||||||||
|
Inventories
|
(0.8 | ) | 10.5 | 4.6 | (59.7 | ) | |||||||||||
|
Prepaid expenses
|
2.8 | 3.4 | — | (6.0 | ) | ||||||||||||
|
Accounts payable and accrued charges
|
16.0 | (36.5 | ) | 22.8 | (187.7 | ) | |||||||||||
|
Current income taxes
|
13.5 | 10.2 | 18.3 | (30.8 | ) | ||||||||||||
|
Accrued reclamation costs
|
(1.4 | ) | 1.3 | (3.0 | ) | (2.6 | ) | ||||||||||
|
Other non-current liabilities and deferred credits
|
1.8 | 1.0 | 1.9 | 0.7 | |||||||||||||
|
Cash provided by operating
activities
|
85.3 | 52.5 | 262.7 | 50.4 | |||||||||||||
|
Investing Activities
|
|||||||||||||||||
|
Additions to property, plant and equipment
|
(57.6 | ) | (33.5 | ) | (151.1 | ) | (455.2 | ) | |||||||||
|
Additions to other assets
|
(12.7 | ) | (14.4 | ) | (51.6 | ) | (43.3 | ) | |||||||||
|
Cash used in investing activities
|
(70.3 | ) | (47.9 | ) | (202.7 | ) | (498.5 | ) | |||||||||
|
Cash (deficiency) before financing
activities
|
15.0 | 4.6 | 60.0 | (448.1 | ) | ||||||||||||
|
Financing Activities
|
|||||||||||||||||
|
Proceeds from long-term obligations
|
0.9 | — | 11.2 | 600.0 | |||||||||||||
|
Repayment of long-term obligations
|
(0.7 | ) | — | (1.3 | ) | — | |||||||||||
|
Proceeds from (repayment of) short-term
obligations
|
39.1 | 17.8 | (5.5 | ) | (154.0 | ) | |||||||||||
|
Dividends
|
(12.9 | ) | (13.0 | ) | (39.0 | ) | (39.0 | ) | |||||||||
|
Issuance of shares
|
0.5 | 0.4 | 3.7 | 2.5 | |||||||||||||
|
Cash provided by (used in) financing
activities
|
26.9 | 5.2 | (30.9 | ) | 409.5 | ||||||||||||
|
Increase (Decrease) in Cash and Cash
Equivalents
|
41.9 | 9.8 | 29.1 | (38.6 | ) | ||||||||||||
|
Cash and Cash Equivalents, Beginning of
Period
|
32.5 | 51.6 | 45.3 | 100.0 | |||||||||||||
|
Cash and Cash Equivalents, End of
Period
|
$ | 74.4 | $ | 61.4 | $ | 74.4 | $ | 61.4 | |||||||||
|
Supplemental cash flow disclosure
|
|||||||||||||||||
|
Interest paid
|
$ | 1.5 | $ | 0.3 | $ | 43.4 | $ | 33.4 | |||||||||
|
Income taxes (refunded) paid
|
$ | (7.3 | ) | $ | 2.8 | $ | 1.5 | $ | 52.2 | ||||||||
(See Notes to the Consolidated Financial Statements)
4
Potash Corporation of Saskatchewan Inc.
Notes to the Consolidated Financial Statements
1. Significant Accounting Policies
The company’s accounting policies are in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”). These policies are consistent with accounting principles generally accepted in the United States (“US GAAP”) except as outlined in Note 9. The accounting policies used in preparing these interim financial statements are consistent with those used in the preparation of the annual financial statements, except as disclosed in Note 2.
Basis of Presentation
The consolidated financial statements include the accounts of Potash Corporation of Saskatchewan Inc. and its principal operating subsidiaries (the “company” except to the extent the context otherwise requires):
— PCS Sales (Canada) Inc.
2. Change in Accounting Policy
The company has adopted the provisions of section 3062 of the Canadian Institute of Chartered Accountants Handbook “Goodwill and Other Intangible Assets”. This pronouncement is being applied on a prospective basis and requires that goodwill be subject to an impairment test at least annually rather than be amortized. On an annual basis, the adoption of this pronouncement will reduce amortization expense by approximately $3.0 million ($0.75 million per quarter). The company has completed its annual assessment of goodwill and there is no impairment.
The company has also adopted the provisions of section 3870 of the Canadian Institute of Chartered Accountants Handbook “Stock-Based Compensation and Other Stock-Based Payments”. This pronouncement requires that all non-employee stock-based compensation be accounted for using the fair value method which would recognize the fair value of the compensation cost in the financial statements. Employee stock-based compensation must be accounted for using the fair value method for plans that are direct awards of stock or that call for settlement in cash or other assets. The company’s stock option plans are not this type and therefore the company is not required to account for them using the fair value method. As the exercise price of the stock options granted is the market value the day immediately prior to the grant date, no compensation cost is recorded. The adoption of this pronouncement has not had any effect on the company’s results of operations or financial position for any of the periods presented.
5
3. Inventories
| September 30, | December 31, | |||||||
| 2002 | 2001 | |||||||
| (unaudited) | ||||||||
|
Finished product
|
$ | 153.8 | $ | 144.7 | ||||
|
Materials and supplies
|
118.7 | 113.9 | ||||||
|
Raw materials
|
45.8 | 65.6 | ||||||
|
Work in process
|
158.2 | 156.9 | ||||||
| $ | 476.5 | $ | 481.1 | |||||
4. Income Taxes
The company’s effective consolidated income tax rate approximates 36 percent for all periods presented.
5. 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 September 30, 2002 of 52,039,000 (2001 — 51,875,000). Basic net income per share for the year-to-date is calculated on the weighted average shares issued and outstanding for the nine months ended September 30, 2002 of 52,006,000 (2001 — 51,867,000). Diluted net income 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. Weighted average shares outstanding for the diluted net income per share calculation for the quarter were 52,262,000 (2001 — 52,166,000) and for the year-to-date were 52,291,000 (2001 — 52,183,000).
6. 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 net sales are made under terms which approximate market prices. Potash segment data for 2002 includes the Chilean nitrate operations which commenced commercial production in February 2002.
| Three Months Ended September 30, 2002 | ||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Potash | Phosphate | Nitrogen | All Others | Consolidated | ||||||||||||||||
|
Net sales — third party
|
$ | 119.0 | $ | 159.9 | $ | 176.3 | $ | — | $ | 455.2 | ||||||||||
|
Inter-segment net sales
|
0.9 | 0.9 | 5.7 | — | — | |||||||||||||||
|
Gross margin
|
48.1 | 8.5 | 16.4 | — | 73.0 | |||||||||||||||
|
Depreciation and amortization
|
9.7 | 21.2 | 21.7 | 1.8 | 54.4 | |||||||||||||||
| Three Months Ended September 30, 2001 | ||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Potash | Phosphate | Nitrogen | All Others | Consolidated | ||||||||||||||||
|
Net sales — third party
|
$ | 123.7 | $ | 145.9 | $ | 190.6 | $ | — | $ | 460.2 | ||||||||||
|
Inter-segment net sales
|
0.6 | 0.9 | 7.5 | — | — | |||||||||||||||
|
Gross margin
|
57.7 | 10.0 | (0.1 | ) | — | 67.6 | ||||||||||||||
|
Depreciation and amortization
|
8.0 | 18.4 | 21.5 | 1.3 | 49.2 | |||||||||||||||
6
| Nine Months Ended September 30, 2002 | ||||||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Potash | Phosphate | Nitrogen | All Others | Consolidated | ||||||||||||||||
|
Net sales — third party
|
$ | 422.8 | $ | 462.3 | $ | 520.6 | $ | — | $ | 1,405.7 | ||||||||||
|
Inter-segment net sales
|
5.2 | 4.8 | 17.3 | — | — | |||||||||||||||
|
Gross margin
|
174.4 | 42.2 | 20.7 | — | 237.3 | |||||||||||||||