Attached files
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EX-32 - EX-32 - POTASH CORP OF SASKATCHEWAN INC | o72710exv32.htm |
EX-11 - EX-11 - POTASH CORP OF SASKATCHEWAN INC | o72710exv11.htm |
EX-31.B - EX-31.B - POTASH CORP OF SASKATCHEWAN INC | o72710exv31wb.htm |
EX-31.A - EX-31.A - POTASH CORP OF SASKATCHEWAN INC | o72710exv31wa.htm |
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Quarterly Period Ended June 30, 2011 | ||
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.
(Exact name of registrant as
specified in its charter)
Canada | N/A | |
(State or other jurisdiction
of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
122
1st
Avenue South Saskatoon, Saskatchewan, Canada (Address of principal executive offices) |
S7K 7G3 (Zip Code) |
306-933-8500
(Registrants telephone
number, including area code)
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer
þ
|
Accelerated filer o |
Non-accelerated
filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company
(as defined in Exchange Act
Rule 12b-2). Yes o No þ
As at July 31, 2011, Potash Corporation of Saskatchewan
Inc. had 855,851,141 Common Shares outstanding.
Table of Contents
Item 1. Financial
Statements
Potash
Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Financial Position
(in millions of US dollars)
(unaudited)
Condensed Consolidated Statements of Financial Position
(in millions of US dollars)
(unaudited)
June 30, |
December 31, |
|||||||||
2011 | 2010 | |||||||||
Assets
|
||||||||||
Current assets
|
||||||||||
Cash and cash equivalents
|
$ | 408 | $ | 412 | ||||||
Receivables
|
1,268 | 1,059 | ||||||||
Inventories (Note 2)
|
597 | 570 | ||||||||
Prepaid expenses and other current assets
|
43 | 54 | ||||||||
2,316 | 2,095 | |||||||||
Non-current assets
|
||||||||||
Property, plant and equipment
|
8,909 | 8,141 | ||||||||
Investments in equity-accounted investees
|
1,100 | 1,051 | ||||||||
Available-for-sale
investments
|
3,474 | 3,842 | ||||||||
Other assets
|
304 | 303 | ||||||||
Intangible assets
|
114 | 115 | ||||||||
Total Assets
|
$ | 16,217 | $ | 15,547 | ||||||
Liabilities
|
||||||||||
Current liabilities
|
||||||||||
Short-term debt and current portion of long-term debt
(Note 3)
|
$ | 1,117 | $ | 1,871 | ||||||
Payables and accrued charges
|
1,291 | 1,198 | ||||||||
Current portion of derivative instrument liabilities
|
54 | 75 | ||||||||
2,462 | 3,144 | |||||||||
Non-current liabilities
|
||||||||||
Long-term debt (Note 3)
|
3,704 | 3,707 | ||||||||
Derivative instrument liabilities
|
184 | 204 | ||||||||
Deferred income tax liabilities
|
901 | 737 | ||||||||
Accrued pension and other post-retirement benefits
|
483 | 468 | ||||||||
Asset retirement obligations and accrued environmental costs
|
520 | 455 | ||||||||
Other non-current liabilities and deferred credits
|
108 | 147 | ||||||||
Total Liabilities
|
8,362 | 8,862 | ||||||||
Shareholders Equity
|
||||||||||
Share capital (Note 4)
|
1,455 | 1,431 | ||||||||
Contributed surplus
|
342 | 308 | ||||||||
Accumulated other comprehensive income
|
2,054 | 2,394 | ||||||||
Retained earnings
|
4,004 | 2,552 | ||||||||
Total Shareholders Equity
|
7,855 | 6,685 | ||||||||
Total Liabilities and Shareholders Equity
|
$ | 16,217 | $ | 15,547 | ||||||
Contingencies (Note 10)
|
(See Notes to the Condensed
Consolidated Financial Statements)
1 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Potash
Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Income
(in millions of US dollars except per-share amounts)
(unaudited)
Condensed Consolidated Statements of Income
(in millions of US dollars except per-share amounts)
(unaudited)
Three Months Ended |
Six Months Ended |
|||||||||||||||||||
June 30 | June 30 | |||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||
Sales (Note 5)
|
$ | 2,325 | $ | 1,437 | $ | 4,529 | $ | 3,151 | ||||||||||||
Freight, transportation and distribution
|
(132 | ) | (99 | ) | (281 | ) | (254 | ) | ||||||||||||
Cost of goods sold
|
(1,025 | ) | (753 | ) | (1,984 | ) | (1,583 | ) | ||||||||||||
Gross Margin
|
1,168 | 585 | 2,264 | 1,314 | ||||||||||||||||
Selling and administrative expenses
|
(55 | ) | (33 | ) | (130 | ) | (93 | ) | ||||||||||||
Provincial mining and other taxes
|
(60 | ) | (17 | ) | (94 | ) | (40 | ) | ||||||||||||
Share of earnings of equity-accounted investees
|
66 | 45 | 117 | 71 | ||||||||||||||||
Dividend income
|
53 | 114 | 53 | 114 | ||||||||||||||||
Other income (expenses)
|
3 | (15 | ) | (10 | ) | (21 | ) | |||||||||||||
Operating Income
|
1,175 | 679 | 2,200 | 1,345 | ||||||||||||||||
Finance Costs
|
(38 | ) | (34 | ) | (88 | ) | (65 | ) | ||||||||||||
Income Before Income Taxes
|
1,137 | 645 | 2,112 | 1,280 | ||||||||||||||||
Income Taxes (Note 7)
|
(297 | ) | (165 | ) | (540 | ) | (356 | ) | ||||||||||||
Net Income
|
$ | 840 | $ | 480 | $ | 1,572 | $ | 924 | ||||||||||||
Net Income Attributable to Common Shareholders
|
$ | 840 | $ | 480 | $ | 1,572 | $ | 924 | ||||||||||||
Net Income per Share (Note 8)
|
||||||||||||||||||||
Basic
|
$ | 0.98 | $ | 0.54 | $ | 1.84 | $ | 1.04 | ||||||||||||
Diluted
|
$ | 0.96 | $ | 0.53 | $ | 1.79 | $ | 1.01 | ||||||||||||
Dividends per Share
|
$ | 0.07 | $ | 0.03 | $ | 0.14 | $ | 0.07 | ||||||||||||
(See Notes to the Condensed
Consolidated Financial Statements)
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 2
Table of Contents
Potash
Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in millions of US dollars)
(unaudited)
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in millions of US dollars)
(unaudited)
Three Months Ended |
Six Months Ended |
|||||||||||||||||||
June 30 | June 30 | |||||||||||||||||||
(Net of related income taxes) | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
Net Income
|
$ | 840 | $ | 480 | $ | 1,572 | $ | 924 | ||||||||||||
Other comprehensive loss
|
||||||||||||||||||||
Net decrease in unrealized gains on
available-for-sale
investments(1)
|
(97 | ) | (848 | ) | (368 | ) | (722 | ) | ||||||||||||
Net losses on derivatives designated as cash flow
hedges(2)
|
(13 | ) | (11 | ) | | (64 | ) | |||||||||||||
Reclassification to income of net losses on cash flow
hedges(3)
|
14 | 15 | 28 | 24 | ||||||||||||||||
Other
|
2 | (3 | ) | | (4 | ) | ||||||||||||||
Other Comprehensive Loss
|
(94 | ) | (847 | ) | (340 | ) | (766 | ) | ||||||||||||
Comprehensive Income (Loss)
|
$ | 746 | $ | (367 | ) | $ | 1,232 | $ | 158 | |||||||||||
Comprehensive Income (Loss) Attributable to Common
Shareholders
|
$ | 746 | $ | (367 | ) | $ | 1,232 | $ | 158 | |||||||||||
(1) | Available-for-sale investments are comprised of shares in Israel Chemicals Ltd. and Sinofert Holdings Limited. |
(2) | Cash flow hedges are comprised of natural gas derivative instruments, and are net of income taxes of $(8) (2010 $(7)) for the three months ended June 30, 2011 and $NIL (2010 $(39)) for the six months ended June 30, 2011. |
(3) | Net of income taxes of $8 (2010 $8) for the three months ended June 30, 2011 and $16 (2010 $14) for the six months ended June 30, 2011. |
(See Notes to the Condensed
Consolidated Financial Statements)
3 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Potash
Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Changes in Equity
(in millions of US dollars)
(unaudited)
Condensed Consolidated Statements of Changes in Equity
(in millions of US dollars)
(unaudited)
Equity Attributable to Common Shareholders | ||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income | ||||||||||||||||||||||||||||||||||||||
Net unrealized |
Actuarial |
|||||||||||||||||||||||||||||||||||||
Unrealized |
losses on |
gains |
Total |
|||||||||||||||||||||||||||||||||||
gains on |
derivatives |
(losses) on |
Accumulated |
|||||||||||||||||||||||||||||||||||
available-for- |
designated as |
defined |
Other |
|||||||||||||||||||||||||||||||||||
Share |
Contributed |
sale |
cash flow |
benefit |
Comprehensive |
Retained |
Total |
|||||||||||||||||||||||||||||||
Capital | Surplus | investments | hedges | plans | Other | Income | Earnings | Equity | ||||||||||||||||||||||||||||||
Balance January 1, 2011
|
$ | 1,431 | $ | 308 | $ | 2,563 | $ | (177 | ) | $ | | (1) | $ | 8 | $ | 2,394 | $ | 2,552 | $ | 6,685 | ||||||||||||||||||
Net income
|
| | | | | | | 1,572 | 1,572 | |||||||||||||||||||||||||||||
Other comprehensive (loss) income
|
| | (368 | ) | 28 | | | (340 | ) | | (340 | ) | ||||||||||||||||||||||||||
Effect of share-based compensation
|
| 34 | | | | | | | 34 | |||||||||||||||||||||||||||||
Dividends declared
|
| | | | | | | (120 | ) | (120 | ) | |||||||||||||||||||||||||||
Issuance of common shares
|
24 | | | | | | | | 24 | |||||||||||||||||||||||||||||
Balance
June 30, 2011
|
$ | 1,455 | $ | 342 | $ | 2,195 | $ | (149 | ) | $ | | (1) | $ | 8 | $ | 2,054 | $ | 4,004 | $ | 7,855 | ||||||||||||||||||
(1) | Any amounts incurred during a period are cleared out to retained earnings at each period end. Therefore, no balance exists in the reserve at beginning or end of period. |
Equity Attributable to Common Shareholders | ||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income | ||||||||||||||||||||||||||||||||||||||
Net unrealized |
Actuarial |
|||||||||||||||||||||||||||||||||||||
Unrealized |
losses on |
gains |
Total |
|||||||||||||||||||||||||||||||||||
gains on |
derivatives |
(losses) on |
Accumulated |
|||||||||||||||||||||||||||||||||||
available-for- |
designated as |
defined |
Other |
|||||||||||||||||||||||||||||||||||
Share |
Contributed |
sale |
cash flow |
benefit |
Comprehensive |
Retained |
Total |
|||||||||||||||||||||||||||||||
Capital | Surplus | investments | hedges | plans | Other | Income | Earnings | Equity | ||||||||||||||||||||||||||||||
Balance January 1, 2010
|
$ | 1,430 | $ | 273 | $ | 1,900 | $ | (111 | ) | $ | | (1) | $ | 9 | $ | 1,798 | $ | 2,804 | $ | 6,305 | ||||||||||||||||||
Net income
|
| | | | | | | 924 | 924 | |||||||||||||||||||||||||||||
Other comprehensive loss
|
| | (722 | ) | (40 | ) | | (4 | ) | (766 | ) | | (766 | ) | ||||||||||||||||||||||||
Effect of share-based compensation
|
| (21 | ) | | | | | | | (21 | ) | |||||||||||||||||||||||||||
Dividends declared
|
| | | | | | | (59 | ) | (59 | ) | |||||||||||||||||||||||||||
Issuance of common shares
|
19 | | | | | | | | 19 | |||||||||||||||||||||||||||||
Balance June 30, 2010
|
$ | 1,449 | $ | 252 | $ | 1,178 | $ | (151 | ) | $ | | (1) | $ | 5 | $ | 1,032 | $ | 3,669 | $ | 6,402 | ||||||||||||||||||
(1) | Any amounts incurred during a period are cleared out to retained earnings at each period end. Therefore, no balance exists in the reserve at beginning or end of period. |
(See Notes to the Condensed
Consolidated Financial Statements)
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 4
Table of Contents
Potash
Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Cash Flow
(in millions of US dollars)
(unaudited)
Condensed Consolidated Statements of Cash Flow
(in millions of US dollars)
(unaudited)
Three Months Ended |
Six Months Ended |
|||||||||||||||||||
June 30 | June 30 | |||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||
Operating Activities
|
||||||||||||||||||||
Net income
|
$ | 840 | $ | 480 | $ | 1,572 | $ | 924 | ||||||||||||
Adjustments to reconcile net income to cash provided by
operating activities
|
||||||||||||||||||||
Depreciation and amortization
|
128 | 109 | 252 | 219 | ||||||||||||||||
Share-based compensation
|
5 | 4 | 19 | 19 | ||||||||||||||||
Realized excess tax benefit related to share-based compensation
|
11 | 1 | 23 | 8 | ||||||||||||||||
Provision for deferred income tax
|
78 | 17 | 153 | 75 | ||||||||||||||||
Undistributed earnings of equity-accounted investees
|
1 | (2 | ) | (50 | ) | (28 | ) | |||||||||||||
Asset retirement obligations and accrued environmental costs
|
15 | 83 | 18 | 78 | ||||||||||||||||
Other
|
(8 | ) | 48 | (18 | ) | 78 | ||||||||||||||
Subtotal of adjustments
|
230 | 260 | 397 | 449 | ||||||||||||||||
Changes in non-cash operating working capital
|
||||||||||||||||||||
Receivables
|
24 | 296 | (189 | ) | 390 | |||||||||||||||
Inventories
|
6 | (72 | ) | (21 | ) | (30 | ) | |||||||||||||
Prepaid expenses and other current assets
|
12 | (17 | ) | 12 | (11 | ) | ||||||||||||||
Payables and accrued charges
|
(48 | ) | 49 | (17 | ) | 85 | ||||||||||||||
Subtotal of changes in non-cash operating working capital
|
(6 | ) | 256 | (215 | ) | 434 | ||||||||||||||
Cash provided by operating activities
|
1,064 | 996 | 1,754 | 1,807 | ||||||||||||||||
Investing Activities
|
||||||||||||||||||||
Additions to property, plant and equipment
|
(492 | ) | (498 | ) | (933 | ) | (955 | ) | ||||||||||||
Purchase of long-term investments
|
| | | (422 | ) | |||||||||||||||
Other assets and intangible assets
|
(3 | ) | (37 | ) | (3 | ) | (71 | ) | ||||||||||||
Cash used in investing activities
|
(495 | ) | (535 | ) | (936 | ) | (1,448 | ) | ||||||||||||
Cash before financing activities
|
569 | 461 | 818 | 359 | ||||||||||||||||
Financing Activities
|
||||||||||||||||||||
Proceeds from long-term debt obligations
|
| | | 400 | ||||||||||||||||
Repayment of long-term debt obligations
|
(600 | ) | (250 | ) | (600 | ) | (400 | ) | ||||||||||||
Proceeds from (repayments of) short-term debt obligations
|
94 | (118 | ) | (159 | ) | (333 | ) | |||||||||||||
Dividends
|
(60 | ) | (30 | ) | (88 | ) | (59 | ) | ||||||||||||
Issuance of common shares
|
7 | 5 | 25 | 15 | ||||||||||||||||
Cash used in financing activities
|
(559 | ) | (393 | ) | (822 | ) | (377 | ) | ||||||||||||
Increase (Decrease) in Cash and Cash Equivalents
|
10 | 68 | (4 | ) | (18 | ) | ||||||||||||||
Cash and Cash Equivalents, Beginning of Period
|
398 | 299 | 412 | 385 | ||||||||||||||||
Cash and Cash Equivalents, End of Period
|
$ | 408 | $ | 367 | $ | 408 | $ | 367 | ||||||||||||
Cash and cash equivalents comprised of:
|
||||||||||||||||||||
Cash
|
$ | 56 | $ | 55 | $ | 56 | $ | 55 | ||||||||||||
Short-term investments
|
352 | 312 | 352 | 312 | ||||||||||||||||
$ | 408 | $ | 367 | $ | 408 | $ | 367 | |||||||||||||
Supplemental cash flow disclosure
|
||||||||||||||||||||
Interest paid
|
$ | 92 | $ | 63 | $ | 133 | $ | 105 | ||||||||||||
Income taxes paid (recovered)
|
$ | 149 | $ | (162 | ) | $ | 324 | $ | (140 | ) | ||||||||||
(See Notes to the Condensed
Consolidated Financial Statements)
5 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Potash
Corporation of Saskatchewan Inc.
For the Three and Six Months Ended June 30, 2011
(in millions of US dollars except share, per-share,
percentage and ratio amounts)
(unaudited)
1. | Significant Accounting Policies |
Basis of
Presentation
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 previously prepared its financial statements in
accordance with Canadian generally accepted accounting
principles (Canadian GAAP) as set out in the
Handbook of the Canadian Institute of Chartered Accountants
(CICA Handbook). In 2010, the CICA Handbook was
revised to incorporate International Financial Reporting
Standards (IFRS), and required publicly accountable
enterprises to apply such standards effective for years
beginning on or after January 1, 2011, with early adoption
permitted. Accordingly, these unaudited interim condensed
consolidated financial statements are based on IFRS, as issued
by the International Accounting Standards Board
(IASB). In these unaudited interim condensed
consolidated financial statements, the term Canadian
GAAP refers to Canadian GAAP before the companys
adoption of IFRS.
These unaudited interim condensed consolidated financial
statements have been prepared in accordance with International
Accounting Standard (IAS) 34, Interim
Financial Reporting, and IFRS 1, First-Time Adoption
of International Financial Reporting Standards (IFRS
1). Subject to certain transition elections disclosed in
Note 13 to the financial statements included in Part I
Item 1 of the companys 2011 First Quarter Quarterly
Report on
Form 10-Q,
the company has consistently applied the same accounting
policies throughout all periods presented. Note 13 to the
financial statements included in Part I Item 1 of the
companys 2011 First Quarter Quarterly Report on
Form 10-Q
describes the impact of the transition to IFRS on the
companys reported financial position and financial
performance, including the nature and effect of significant
changes in accounting policies from those used in its Canadian
GAAP consolidated financial statements as at January 1,
2010 and December 31, 2010, and for the year ended
December 31, 2010. Note 13 describes the impact of the
transition to IFRS on the companys reported financial
position and financial performance as at and for the periods
ended June 30, 2010. Except as disclosed in Note 12,
these policies are consistent with accounting principles
generally accepted in the United States (US GAAP) in
all material respects.
These unaudited interim condensed consolidated financial
statements are as of August 5, 2011. The company will
ultimately prepare its opening statement of financial position
and financial statements for 2010 and 2011 by applying existing
IFRS with an effective date of December 31, 2011 or prior.
Accordingly, the financial statements for 2010 and 2011 may
differ from these unaudited interim condensed consolidated
financial statements.
These unaudited interim condensed consolidated financial
statements include the accounts of PCS and its wholly owned
subsidiaries; however, they do not include all disclosures
normally provided in annual consolidated financial statements
and should be read in conjunction with the 2010 annual
consolidated financial statements. Certain information and note
disclosures which are considered material to the understanding
of the companys unaudited interim condensed consolidated
financial statements and which are normally included in annual
consolidated financial statements prepared in accordance with
IFRS were provided in Part I Item 1, Notes 1 and
13 of the companys 2011 First Quarter Quarterly Report on
Form 10-Q,
along with reconciliations and descriptions of the effect of the
transition from Canadian GAAP to IFRS on financial performance
and financial position. In managements opinion, the
unaudited interim condensed consolidated financial statements
include all adjustments (consisting solely of normal recurring
adjustments) necessary to fairly present such information.
Interim results are not necessarily indicative of the results
expected for the fiscal year.
These unaudited interim condensed consolidated financial
statements were prepared under the historical cost convention,
except for certain items not carried at historical cost as
discussed in Note 1 to the financial statements included in
Part I Item 1 of the companys 2011 First Quarter
Quarterly Report on
Form 10-Q.
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 6
Table of Contents
Recent Accounting
Pronouncements
The following new standards and amendments or interpretations to
existing standards have been published and are mandatory for
periods beginning on or after January 1, 2011, or later:
IFRS
9, Financial Instruments
In November 2009, the IASB issued guidance relating to the
classification and measurement of financial assets. Under IFRS
9, financial assets will generally be measured initially at fair
value plus particular transaction costs, and subsequently at
either amortized cost or fair value. In October 2010, the IASB
issued additions to IFRS 9 relating to accounting for financial
liabilities. Under the new requirements, an entity choosing to
measure a financial liability at fair value will present the
portion of any change in its fair value due to changes in the
entitys own credit risk in other comprehensive income
(OCI), rather than within profit or loss. The
standard is to be applied retrospectively and is effective for
periods commencing on or after January 1, 2013. The company
is currently reviewing the standard to determine the potential
impact, if any, on its consolidated financial statements.
Amendments
to IFRIC 14, Prepayments of a Minimum Funding
Requirement
In November 2009, the International Financial Reporting
Interpretations Committee (IFRIC) issued amendments
to IFRIC 14 relating to the prepayments of a minimum funding
requirement for an employee defined benefit plan. The amendments
apply when an entity is subject to minimum funding requirements
and makes an early payment of contributions to cover those
requirements. The amendments permit such an entity to treat the
benefit of such an early payment as an asset. The amendment must
be applied from the beginning of the first comparative period
presented in the first financial statements in which the
amendment is applied and is effective for periods commencing on
or after January 1, 2011. The company has applied these
amendments, which had no effect on these unaudited interim
condensed consolidated financial statements.
Amendments
to IFRS 7, Financial Instruments: Disclosures
In May 2010, the IASB issued amendments to IFRS 7 as part of its
annual improvements process. The amendments addressed various
requirements relating to the disclosure of financial instruments
and are effective for annual periods commencing on or after
January 1, 2011.
Amendments
to IFRS 7, Disclosures Transfers of Financial
Assets
In October 2010, the IASB issued amendments to IFRS 7,
Financial Instruments: Disclosures. The amendments
require entities to provide additional disclosures to assist
users of financial statements in evaluating the risk exposures
relating to transfers of financial assets that are not
derecognized or for which the entity has a continuing
involvement in the transferred asset. As the company does not
typically retain any continuing involvement in financial assets
once transferred, these amendments are not expected to have a
significant impact. The amendments are effective for annual
periods beginning on or after July 1, 2011.
IFRS
10, Consolidated Financial Statements
In May 2011, the IASB issued guidance establishing principles
for the presentation and preparation of consolidated financial
statements when an entity controls one or more other entities.
IFRS 10 (which supersedes IAS 27 and Standing Interpretations
Committee (SIC) 12) builds on existing
principles by identifying the concept of control as the
determining factor in whether an entity should be included
within the consolidated financial statements of the parent
company. The standard provides additional guidance to assist in
the determination of control where this is difficult to assess.
The standard is to be applied retrospectively, in most
circumstances, and is effective for annual periods commencing on
or after January 1, 2013, with earlier application
permitted. The company is currently reviewing the standard to
determine the potential impact, if any, on its consolidated
financial statements.
IFRS
11, Joint Arrangements
In May 2011, the IASB issued guidance establishing principles
for financial reporting by parties to a joint arrangement. IFRS
11 (which supersedes IAS 31 and SIC 13) requires a party to
a joint arrangement to determine the type of joint arrangement
in which it is involved, either a joint operation or a joint
venture, by assessing its rights and obligations arising from
the arrangement. The existing policy choice of proportionate
consolidation for jointly controlled entities has been
eliminated and under IFRS 11, equity accounting is mandatory for
participants in joint ventures. The standard is to be applied
prospectively and is effective for annual periods commencing on
or after January 1, 2013, with earlier application
permitted. The company is currently reviewing the standard to
determine the potential impact, if any, on its consolidated
financial statements.
7 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
IFRS
12, Disclosure of Interest in Other Entities
In May 2011, the IASB issued guidance relating to the disclosure
requirements of interests in other entities. IFRS 12 is a new
and comprehensive standard on disclosure requirements for all
forms of interest in other entities, including subsidiaries,
joint arrangements, associates and unconsolidated structured
entities. The standard is to be applied prospectively and is
effective for annual periods commencing on or after
January 1, 2013, with earlier application permitted. The
company is currently reviewing the standard to determine the
potential impact, if any, on its consolidated financial
statements.
IFRS
13, Fair Value Measurement
In May 2011, the IASB issued guidance establishing a single
source for fair value measurement. IFRS 13 defines fair value,
sets out a framework for measuring fair value and introduces
consistent requirements for disclosures on fair value
measurements. It does not determine when an asset, a liability
or an entitys own equity instrument is measured at fair
value. Rather, the measurement and disclosure requirements of
IFRS 13 apply when another IFRS requires or permits the item to
be measured at fair value, with limited exceptions. The standard
is to be applied prospectively and is effective for annual
periods commencing on or after January 1, 2013, with
earlier application permitted. The company is currently
reviewing the standard to determine the potential impact, if
any, on its consolidated financial statements.
Amendments
to IAS 1, Presentation of Financial Statements
In June 2011, the IASB issued amendments to IAS 1 requiring
items within OCI that may be reclassified to the profit or loss
section of the income statement to be grouped together. The
amendments are to be applied retrospectively and are effective
for annual periods commencing on or after July 1, 2012,
with earlier application permitted. The company is currently
reviewing these amendments to determine the potential impact, if
any, on its consolidated financial statements.
Amendments
to IAS 19, Employee Benefits
In June 2011, the IASB issued amendments to IAS 19 relating to
the recognition and measurement of post-employment defined
benefit expense and termination benefits, and to the disclosures
for all employee benefits. The amendments are to be applied
retrospectively, except for changes to the carrying value of
assets that include capitalized employee benefit costs, which
are to be applied prospectively. The amendments are effective
for annual periods commencing on or after January 1, 2013,
with earlier application permitted. The company is currently
reviewing these amendments to determine the potential impact, if
any, on its consolidated financial statements.
2. | Inventories |
June 30, |
December 31, |
|||||||||
2011 | 2010 | |||||||||
Finished products
|
$ | 267 | $ | 255 | ||||||
Intermediate products
|
117 | 127 | ||||||||
Raw materials
|
83 | 65 | ||||||||
Materials and supplies
|
130 | 123 | ||||||||
$ | 597 | $ | 570 | |||||||
3. | Long-Term Debt |
On May 31, 2011, the company fully repaid $600 of
7.750 percent
10-year
senior notes.
4. | Share Capital |
Authorized
The company is authorized to issue an unlimited number of common
shares without par value and an unlimited number of first
preferred shares. The common shares are not redeemable or
convertible. The first preferred shares may be issued in one or
more series with rights and conditions to be determined by the
Board of Directors. No first preferred shares have been issued.
Issued
Number of |
||||||||
Common Shares | Consideration | |||||||
Balance December 31, 2010
|
853,122,693 | $ | 1,431 | |||||
Issued under option plans
|
2,397,153 | 23 | ||||||
Issued for dividend reinvestment plan
|
19,065 | 1 | ||||||
Balance
June 30, 2011
|
855,538,911 | $ | 1,455 | |||||
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 8
Table of Contents
5. | Segment Information |
The companys operating segments have been determined based
on reports reviewed by the Chief Executive Officer, the
companys chief operating decision maker, that are used to
make strategic decisions. The company has three reportable
operating segments: potash, phosphate and nitrogen. These
operating segments are differentiated by the chemical nutrient
contained in the product that each produces. Inter-segment sales
are made under terms that approximate market value. The
accounting policies of the segments are the same as those
described in Note 1.
Three Months Ended June 30, 2011 | ||||||||||||||||||||
Potash | Phosphate | Nitrogen | All Others | Consolidated | ||||||||||||||||
Sales
|
$ | 1,121 | $ | 633 | $ | 571 | $ | | $ | 2,325 | ||||||||||
Freight, transportation and distribution
|
(70 | ) | (40 | ) | (22 | ) | | (132 | ) | |||||||||||
Net sales third party
|
1,051 | 593 | 549 | | ||||||||||||||||
Cost of goods sold
|
(258 | ) | (427 | ) | (340 | ) | | (1,025 | ) | |||||||||||
Gross margin
|
793 | 166 | 209 | | 1,168 | |||||||||||||||
Depreciation and amortization
|
(37 | ) | (57 | ) | (32 | ) | (2 | ) | (128 | ) | ||||||||||
Inter-segment sales
|
| | 39 | | | |||||||||||||||
Three Months Ended June 30, 2010 | ||||||||||||||||||||
Potash | Phosphate | Nitrogen | All Others | Consolidated | ||||||||||||||||
Sales
|
$ | 641 | $ | 364 | $ | 432 | $ | | $ | 1,437 | ||||||||||
Freight, transportation and distribution
|
(51 | ) | (28 | ) | (20 | ) | | (99 | ) | |||||||||||
Net sales third party
|
590 | 336 | 412 | | ||||||||||||||||
Cost of goods sold
|
(179 | ) | (287 | ) | (287 | ) | | (753 | ) | |||||||||||
Gross margin
|
411 | 49 | 125 | | 585 | |||||||||||||||
Depreciation and amortization
|
(29 | ) | (48 | ) | (30 | ) | (2 | ) | (109 | ) | ||||||||||
Inter-segment sales
|
| | 28 | | | |||||||||||||||
Six Months Ended June 30, 2011 | ||||||||||||||||||||
Potash | Phosphate | Nitrogen | All Others | Consolidated | ||||||||||||||||
Sales
|
$ | 2,230 | $ | 1,182 | $ | 1,117 | $ | | $ | 4,529 | ||||||||||
Freight, transportation and distribution
|
(153 | ) | (83 | ) | (45 | ) | | (281 | ) | |||||||||||
Net sales third party
|
2,077 | 1,099 | 1,072 | | ||||||||||||||||
Cost of goods sold
|
(541 | ) | (783 | ) | (660 | ) | | (1,984 | ) | |||||||||||
Gross margin
|
1,536 | 316 | 412 | | 2,264 | |||||||||||||||
Depreciation and amortization
|
(79 | ) | (104 | ) | (65 | ) | (4 | ) | (252 | ) | ||||||||||
Inter-segment sales
|
| | 77 | | | |||||||||||||||
Six Months Ended June 30, 2010 | ||||||||||||||||||||
Potash | Phosphate | Nitrogen | All Others | Consolidated | ||||||||||||||||
Sales
|
$ | 1,533 | $ | 765 | $ | 853 | $ | | $ | 3,151 | ||||||||||
Freight, transportation and distribution
|
(147 | ) | (63 | ) | (44 | ) | | (254 | ) | |||||||||||
Net sales third party
|
1,386 | 702 | 809 | | ||||||||||||||||
Cost of goods sold
|
(445 | ) | (589 | ) | (549 | ) | | (1,583 | ) | |||||||||||
Gross margin
|
941 | 113 | 260 | | 1,314 | |||||||||||||||
Depreciation and amortization
|
(59 | ) | (96 | ) | (60 | ) | (4 | ) | (219 | ) | ||||||||||
Inter-segment sales
|
| | 54 | | | |||||||||||||||
9 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Assets | Potash | Phosphate | Nitrogen | All Others | Consolidated | |||||||||||||||
Assets at June 30, 2011
|
$ | 6,675 | $ | 2,583 | $ | 1,847 | $ | 5,112 | $ | 16,217 | ||||||||||
Assets at December 31, 2010
|
$ | 5,773 | $ | 2,395 | $ | 1,808 | $ | 5,571 | $ | 15,547 | ||||||||||
Change in assets
|
$ | 902 | $ | 188 | $ | 39 | $ | (459 | ) | $ | 670 | |||||||||
Additions to property, plant and equipment
(six months ended June 30, 2011)
|
$ | 745 | $ | 92 | $ | 64 | $ | 32 | $ | 933 | ||||||||||
6. | Share-Based Compensation |
On May 12, 2011, the companys shareholders approved
the 2011 Performance Option Plan under which the company may,
after February 22, 2011 and before January 1, 2012,
issue options to acquire up to 3,000,000 common shares. Under
the plan, the exercise price shall not be less than the quoted
market closing price of the companys common shares on the
last trading day immediately preceding the date of the grant,
and an options maximum term is 10 years. In general,
options will vest, if at all, according to a schedule based on
the three-year average excess of the companys consolidated
cash flow return on investment over weighted average cost of
capital. As of June 30, 2011, options to purchase a total
of 1,144,100 common shares had been granted under the plan. The
weighted average fair value of options granted was $23.64 per
share, estimated as of the date of grant using the
Black-Scholes-Merton option-pricing model with the following
weighted average assumptions:
Expected dividend
|
$ | 0.28 | ||
Expected volatility
|
52% | |||
Risk-free interest rate
|
2.29% | |||
Expected life of options
|
5.5 years |
7. | Income Taxes |
A separate estimated average annual effective tax rate is
determined for each taxing jurisdiction and applied individually
to the interim period pre-tax income of each jurisdiction.
For the three months ended June 30, 2011, the
companys income tax expense was $297 (2010
$165). For the six months ended June 30, 2011, its income
tax expense was $540 (2010 $356). The actual
effective tax rate including discrete items for the three and
six months ended June 30, 2011 was 26 percent
(2010 26 percent and 28 percent,
respectively). Total discrete tax adjustments that impacted the
rate in the three months ended June 30, 2011 resulted in an
income tax recovery of $1 compared to an income tax expense of
$14 in the same period last year. Total discrete tax adjustments
that impacted the rate in the six months ended June 30,
2011 resulted in an income tax recovery of $24 compared to an
income tax expense of $25 in the same period last year.
Significant items recorded included the following:
| In first-quarter 2011, a current tax recovery of $21 for previously paid withholding taxes; |
| To adjust the 2009 income tax provision to the income tax return filed, a current income tax expense of $18 was recorded in first-quarter 2010 along with a current income tax expense of $20 and a deferred income tax recovery of $11 in second-quarter 2010; |
| In first-quarter 2010, a current tax recovery of $10 for an anticipated refund of taxes paid related to forward exchange contracts. |
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 10
Table of Contents
Income tax balances within the consolidated statements of
financial position were comprised of the following:
June 30, |
December 31, |
||||||||||
Income tax assets (liabilities) | Statements of Financial Position Location | 2011 | 2010 | ||||||||
Current income tax assets:
|
|||||||||||
Current
|
Receivables | $ | 50 | $ | 46 | ||||||
Non-current
|
Other assets | 123 | 122 | ||||||||
Deferred income tax assets
|
Other assets | 29 | 38 | ||||||||
Total income tax assets
|
$ | 202 | $ | 206 | |||||||
Current income tax liabilities:
|
|||||||||||
Current
|
Payables and accrued charges | $ | (226 | ) | $ | (167 | ) | ||||
Non-current
|
Other non-current liabilities and deferred credits | (102 | ) | (142 | ) | ||||||
Deferred income tax liabilities
|
Deferred income tax liabilities | (901 | ) | (737 | ) | ||||||
Total income tax liabilities
|
$ | (1,229 | ) | $ | (1,046 | ) | |||||
8. | Net Income per Share |
Basic net income per share for the quarter is calculated on the
weighted average number of shares issued and outstanding for the
three months ended June 30, 2011 of 854,997,000
(2010 889,128,000). Basic net income per share for
the six months ended June 30, 2011 is calculated based on
the weighted average number of shares issued and outstanding for
the period of 854,518,000 (2010 888,744,000).
Diluted net income per share is calculated based on the weighted
average number of shares issued and outstanding during the
period. The denominator is: (1) increased by the total of
the additional common shares that would have been issued
assuming the exercise of all stock options with exercise prices
at or below the average market price for the period; and
(2) decreased by the number of shares that the company
could have repurchased if it had used the assumed proceeds from
the exercise of stock options to repurchase them on the open
market at the average share price for the period. For
performance-based stock option plans, the number of contingently
issuable common shares included in the calculation is based on
the number of shares, if any, that would be issuable if the end
of the reporting period were the end of the performance period
and the effect is dilutive. The weighted average number of
shares outstanding for the diluted net income per share
calculation for the three months ended June 30, 2011 was
876,527,000 (2010 913,387,000) and for the six
months ended June 30, 2011 was 876,612,000
(2010 913,785,000).
Excluded from the calculation of diluted net income per share
were weighted average options outstanding of 1,417,350 relating
to the 2008 Performance Option Plan, as the options
exercise prices were greater than the average market price of
common shares for the period.
9. | Seasonality |
The companys sales of fertilizer can be seasonal.
Typically, the second quarter of the year is when fertilizer
sales will be highest, due to the North American spring planting
season. However, planting conditions and the timing of customer
purchases will vary each year and sales can be expected to shift
from one quarter to another.
10. | Contingencies |
Canpotex
PCS is a shareholder in Canpotex Limited (Canpotex),
which markets potash offshore. Should any operating losses or
other liabilities be incurred by Canpotex, the shareholders have
contractually agreed to reimburse it for such losses or
liabilities in proportion to their productive capacity. Through
June 30, 2011, there were no such operating losses or other
liabilities.
Mining
Risk
As is typical with other companies in the industry, the company
is unable to acquire insurance for underground assets.
Legal and Other
Matters
Significant environmental site assessment
and/or
remediation matters of note include the following:
| The company, along with other parties, has been notified by the US Environmental Protection Agency (USEPA) of potential liability under the US Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) with respect to certain soil and groundwater conditions at a site in Lakeland, Florida that includes a former PCS Joint Venture fertilizer blending facility and certain surrounding properties. A Record of Decision (ROD) was issued in September 2007 and provides for a remedy |
11 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
that requires excavation of impacted soils and interim treatment of groundwater. The total remedy cost is estimated in the ROD to be $9. In September 2010, the USEPA approved the Remedial Design Report to address the soil contamination. While subject to final construction inspection by the USEPA, the soil remediation has been performed. |
| The USEPA has identified PCS Nitrogen, Inc. (PCS Nitrogen) as a potentially responsible party with respect to a former fertilizer blending operation in Charleston, South Carolina known as the Planters Property or Columbia Nitrogen site, formerly owned by a company from which PCS Nitrogen acquired certain other assets. The USEPA has requested reimbursement of $3 of previously incurred response costs and the performance or financing of future site investigation and response activities from PCS Nitrogen and other named potentially responsible parties. In September 2005, Ashley II of Charleston, L.L.C., the current owner of the Planters Property, filed a complaint in the United States District Court for the District of South Carolina seeking a declaratory judgment that PCS Nitrogen is liable to pay environmental response costs that Ashley II of Charleston, L.L.C. alleges it has incurred and will incur in connection with response activities at the site. After the Phase II trial, the district court allocated 30 percent of the liability for response costs at the site to PCS Nitrogen, as well as a proportional share of any costs that cannot be recovered from another responsible party. PCS Nitrogen and other responsible parties filed motions for amendment of the decision, and the Court ruled on those motions in May 2011. The Courts amended judgment did not alter the 30 percent allocation of liability to PCS but did award relief to PCS under a contractual indemnification claim. PCS and another responsible party have since submitted post-judgment motions to the Court, which are pending, and PCS filed a notice of appeal to the United States Court of Appeals for the Fourth Circuit. The notice of appeal was subsequently stayed by the Fourth Circuit pending resolution of the post-judgment motions. The ultimate amount of liability for PCS Nitrogen, if any, depends upon the amount needed for remedial activities, the ability of other parties to pay and the availability of insurance. |
| PCS Phosphate has agreed to participate, on a non-joint and several basis, with parties to an Administrative Settlement Agreement with the USEPA (Settling Parties) in the performance of a removal action and the payment of certain other costs associated with PCB soil contamination at the Ward Superfund Site in Raleigh, North Carolina (Site), including reimbursement of the USEPAs past costs. The removal activities commenced at the Site in August 2007. The cost of performing the removal action at the Site is estimated at $75. The Settling Parties have initiated CERCLA contribution litigation against PCS Phosphate and more than 100 other entities. PCS Phosphate filed crossclaims and counterclaims seeking cost recovery. In addition to the removal action at the Site, investigation of sediments downstream of the Site in what is called Operable Unit 1 has occurred. In September 2008, the USEPA issued a final remedy for Operable Unit 1, with an estimated cost of $6. In response to a special notice letter from the USEPA, PCS Phosphate and the Settling Parties made a good-faith offer to perform and/or pay for certain actions described in the special notice letter. At this time, the company is unable to evaluate the extent of any exposure that it may have for the matters addressed in the special notice letter. |
| Pursuant to the 1996 Corrective Action Consent Order (the Order) executed between PCS Nitrogen Fertilizer, L.P., formerly known as Arcadian Fertilizer, L.P. (PCS Nitrogen Fertilizer) and Georgia Department of Natural Resources, Environmental Protection Division (GEPD) in conjunction with PCS Nitrogen Fertilizers purchase of real property located in Augusta, Georgia from the entity from which PCS Nitrogen Fertilizer previously leased such property, PCS Nitrogen Fertilizer agreed to perform certain activities to investigate and, if necessary, perform a corrective action for substances in soil and groundwater. The investigation has proceeded and various corrective measures for substances in groundwater have been proposed to GEPD. PCS Nitrogen Fertilizer expects that it will implement corrective measures for substances in groundwater, but until GEPD approves the investigation results and a final corrective action plan, PCS Nitrogen Fertilizer is unable to estimate with reasonable certainty the total cost of its corrective action obligations under the Order. |
| In December 2009, during a routine inspection of a gypsum stack at the White Springs, Florida facility, a sinkhole was discovered that resulted in the loss of approximately 82 million gallons of water from the stack. The company is sampling production and monitoring wells on its property and drinking water wells on neighboring property to assess impacts. The company incurred costs of $17 to address the sinkhole between the time of discovery and June 30, 2011. In December 2010, the company entered into a consent order with the Florida Department of Environmental Protection pursuant to which the company agreed to, among other things, remediate the sinkhole and perform additional monitoring of the groundwater quality and hydrogeologic conditions related to the sinkhole collapse. The company also entered into an order on consent with the USEPA. In May 2011, the USEPA and the Board of Directors approved the companys proposal to implement certain mitigation measures to meet the goals of the USEPA order on consent. The company remeasured the asset retirement obligation (ARO) for the White Springs gypsum stacks to account for the measures identified in the proposal. This remeasurement resulted in a $39 adjustment to the ARO, of which $33 was capitalized as an addition to the related long-lived asset and $6 was expensed in the first quarter of 2011. |
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 12
Table of Contents
The company is also engaged in ongoing site assessment
and/or
remediation activities at a number of other facilities and
sites. Based on current information, it does not believe that
its future obligations with respect to these facilities and
sites are reasonably likely to have a material adverse effect on
its consolidated financial position or results of operations.
Other significant matters of note include the following:
| The USEPA has an ongoing initiative to evaluate implementation within the phosphate industry of a particular exemption for mineral processing wastes under the hazardous waste program. In connection with this industry-wide initiative, the USEPA conducted inspections at numerous phosphate operations and notified the company of various alleged violations of the US Resource Conservation and Recovery Act (RCRA) at its plants in Aurora, North Carolina; Geismar, Louisiana; and White Springs, Florida. The company has entered into RCRA 3013 Administrative Orders on Consent and has performed certain site assessment activities at all three plants. At this time, the company does not know the scope of corrective action, if any, that may be required. The company continues to participate in settlement discussions with the USEPA but is uncertain if any resolution will be possible without litigation, or, if litigation occurs, what the outcome would be. At this time, the company is unable to evaluate the extent of any exposure that it may have in these matters. |
| The USEPA has also begun an initiative to evaluate compliance with the Clean Air Act at sulfuric acid and nitric acid plants. In connection with this industry-wide initiative, the USEPA has sent requests for information to numerous facilities, including the companys plants in Augusta, Georgia; Aurora, North Carolina; Geismar, Louisiana; Lima, Ohio; and White Springs, Florida. The USEPA has notified the company of various alleged violations of the Clean Air Act at its Geismar, Louisiana plant. The government has demanded process changes and penalties that would cost a total of approximately $27, but the company denies that it has any liability for the Geismar, Louisiana matter. Although the company is proceeding with planning and permitting for the process changes demanded by the government, the company is uncertain if any resolution will be possible without litigation, or, if litigation occurs, what the outcome would be. In July 2010, without alleging any specific violation of the Clean Air Act, the USEPA requested that the company meet and demonstrate compliance with the Clean Air Act for specified projects undertaken at the White Springs, Florida sulfuric acid plants. The company participated in such meeting but, at this time, is unable to evaluate if it has any exposure. |
| Significant portions of the companys phosphate reserves in Aurora, North Carolina are located in wetlands. Under the Clean Water Act, the company must obtain a permit from the US Army Corps of Engineers (the Corps) before mining in the wetlands. In January 2009, the Division of Water Quality of the North Carolina Department of Natural Resources issued a certification under Section 401 of the Clean Water Act that mining of phosphate in excess of 30 years from lands owned or controlled by the company, including some wetlands, would not degrade water quality. Thereafter, in June 2009, the Corps issued the company a permit that will allow the company to mine the phosphate deposits identified in the Section 401 certification. The USEPA decided not to seek additional review of the permit. In March 2009, four environmental organizations (Pamlico-Tar River Foundation, North Carolina Coastal Federation, Environmental Defense Fund and Sierra Club) filed a Petition for a Contested Case Hearing before the North Carolina Office of Administrative Hearings (OAH) challenging the Section 401 certification. The company has intervened in this proceeding. Cross motions for summary judgment by the Petitioners and the company have been filed, briefed and argued. The OAH has not issued a decision on them. At this time, the company is unable to evaluate the extent of any exposure that it may have in this matter. |
| In May 2009, the Canadian government announced that its new industrial greenhouse gas emissions policies will be coordinated with policies that may be implemented in the US. The Province of Saskatchewan is considering the adoption of greenhouse gas emission control requirements. Regulations pursuant to the Management and Reduction of Greenhouse Gases Act in Saskatchewan, which impose a type of carbon tax to achieve a goal of a 20 percent reduction in greenhouse gas emissions by 2020 compared to 2006 levels, may become effective in 2012. There is no certainty as to the scope or timing of any final, effective provincial requirements. Although the US Congress has not passed any greenhouse gas emission control laws, the USEPA has adopted several rules to control greenhouse gas emissions using authority under existing environmental laws. In January 2011, the USEPA began phasing in requirements for all stationary sources, such as the companys plants, to obtain permits incorporating the best available control technology for greenhouse gas emissions at a source if it is a new source that could emit 100,000 tons of greenhouse gases per year or if it is a modified source that increases such emissions by 75,000 tons per year. The company is not currently aware of any projects at its facilities that would be subject to these requirements. The company is monitoring these developments, and, except as indicated above, their effect on its operations cannot be determined with certainty at this time. |
13 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
| In December 2010, the USEPA issued a final rule to restrict nutrient concentrations in surface waters in Florida to levels below those currently permitted at the companys White Springs, Florida plant. The revised nutrient criteria will become part of Floridas water quality standards in March 2012. Projected capital costs resulting from the rule could be in excess of $100 for the companys White Springs, Florida plant, and there is no guarantee that controls can be implemented that are capable of achieving compliance with the revised nutrient standards under all flow conditions. This estimate assumes that the rule survives court challenges and that none of the site-specific mechanisms for relief from the revised nutrient criteria are available to the White Springs, Florida plant. Various judicial challenges to the rule have been filed, including one lawsuit by The Fertilizer Institute (TFI) and White Springs. On June 15, 2011, TFI, White Springs and additional parties filed a Motion for Summary Judgment seeking, among other things, to vacate the USEPA rule. The prospects for a rule to be implemented as issued by the USEPA and the availability of the site-specific mechanisms are uncertain. |
| The company, having been unable to agree with Mosaic Potash Esterhazy Limited Partnership (Mosaic) on the remaining amount of potash that the company is entitled to receive from Mosaic pursuant to the mining and processing agreement in respect of the companys rights at the Esterhazy mine, issued a Statement of Claim in the Saskatchewan Court of Queens Bench (Court) against Mosaic on May 27, 2009 and the claim was amended on January 19, 2010. In the Amended Statement of Claim, the company has asserted that it has the right under the mining and processing agreement to receive potash from Mosaic until at least 2012 and potentially much later, and seeks an order from the Court declaring the amount of potash which the company has the right to receive. Mosaic, in its Statement of Defence, asserts that at a delivery rate of 1.24 million tons of product per year, the companys entitlement to receive potash under the mining and processing agreement would terminate August 30, 2010. |
In addition, at the time of filing its Statement of Defence,
Mosaic commenced a counterclaim against the company, asserting
that the company has breached the mining and processing
agreement due to its refusal to take delivery of potash product
under the agreement based on an event of force majeure.
The company was notified on May 2, 2011 that Mosaic
believes that it has satisfied its obligation to produce potash
at the Esterhazy mine for the company under the mining and
processing agreement and as such it has no further obligation to
deliver potash to the company from the Esterhazy mine, other
than the companys remaining inventory. The company
disagreed and sought relief from the Court. On June 30,
2011, an injunction order was issued by the Court requiring
delivery pursuant to the terms of the mining and processing
agreement pending trial or a further order of the Court
(Injunction Order). The trial is currently scheduled
to commence in January 2012. Like every applicant for injunctive
relief, the company was required to provide an undertaking to
pay any damages that may be occasioned to Mosaic as a result of
the granting of the injunction should it later be shown that
Mosaic had, by reason of the injunction, sustained any damages
which the company ought to pay. The company does not believe
that Mosaic will be entitled to any damages arising from the
issuance of the Injunction Order. On July 18, 2011, Mosaic
filed a Notice of Appeal with the Court of Appeal for
Saskatchewan appealing the Injunction Order and seeking to set
it aside.
The company will continue to assert its position in this
litigation vigorously and it denies liability to Mosaic in
connection with its counterclaim.
| Between September and October 2008, the company and PCS Sales (USA), Inc. were named as defendants in eight similar antitrust complaints filed in US federal courts. Other potash producers are also defendants in these cases. Each of the separate complaints alleges conspiracy to fix potash prices, to divide markets, to restrict supply and to fraudulently conceal the conspiracy, all in violation of Section 1 of the Sherman Act. The company and PCS Sales (USA), Inc. believe each of these eight private antitrust lawsuits is without merit and intend to defend them vigorously. |
In addition, various other claims and lawsuits are pending
against the company in the ordinary course of business. While it
is not possible to determine the ultimate outcome of such
actions at this time, and inherent uncertainties exist in
predicting such outcomes, it is the companys belief that
the ultimate resolution of such actions is not reasonably likely
to have a material adverse effect on its consolidated financial
position or results of operations.
The breadth of the companys operations and the global
complexity of tax regulations require assessments of
uncertainties and judgments in estimating the taxes it will
ultimately pay. The final taxes paid are dependent upon many
factors, including negotiations with taxing authorities in
various jurisdictions, outcomes of tax litigation and resolution
of disputes arising from federal, provincial, state and local
tax audits. The resolution of these uncertainties and the
associated final taxes may result in adjustments to the
companys tax assets and tax liabilities.
The company owns facilities that have been either permanently or
indefinitely shut down. It expects to incur nominal annual
expenditures for site security and other maintenance costs at
certain of these facilities. Should the facilities be
dismantled, certain other shutdown-related costs may be
incurred. Such costs are not expected to have a material adverse
effect on the companys consolidated financial position or
results of operations and would be recognized and recorded in
the period in which they are incurred.
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 14
Table of Contents
11. | Related Party Transactions |
The company sells potash from its Saskatchewan mines for use
outside of North America exclusively to Canpotex, a potash
export, sales and marketing company owned in equal shares by the
three potash producers in the Province of Saskatchewan. Sales to
Canpotex for the three months ended June 30, 2011 were $559
(2010 $323) and six months ended June 30, 2011
were $1,040 (2010 $591). At June 30, 2011, $358
(December 31, 2010 $298) was owing from
Canpotex. Sales to Canpotex are at prevailing market prices and
account balances resulting from the Canpotex transactions are
settled on normal trade terms.
12. | Reconciliation of IFRS and US GAAP |
IFRS vary in certain significant respects from US GAAP. As
required by the United States Securities and Exchange
Commission, the effect of these principal differences on the
companys unaudited interim condensed consolidated
financial statements is described and quantified below.
(a) Inventories: Under IFRS, when the
circumstances that previously caused inventories to be written
down below cost no longer exist or when there is clear evidence
of an increase in net realizable value because of changed
economic circumstances, the amount of the writedown is reversed.
The reversal is limited to the amount of the original writedown.
Under US GAAP, the reversal of a writedown is not permitted
unless the reversal relates to a writedown recorded in a prior
interim period during the same fiscal year.
Under IFRS, interim price, efficiency, spending and volume
variances of a manufacturing entity are recognized in income at
interim reporting dates to the same extent that those variances
are recognized in income at year-end. Deferral of variances that
are expected to be absorbed by year-end is not appropriate
because such deferrals could result in reporting inventory at
the interim date at more or less than its portion of the actual
cost of manufacture. Under US GAAP, variances that are planned
and expected to be absorbed by the end of the year are
ordinarily deferred at the end of an interim period.
(b) Long-term investments: Certain of the
companys investments in international entities are
accounted for under the equity method. Accounting principles
generally accepted in those foreign jurisdictions may vary in
certain respects from US GAAP. The companys share of
earnings of these equity-accounted investees under IFRS has been
adjusted for the significant effects of conforming to US GAAP.
(c) Property, plant and equipment: The net book
value of property, plant and equipment under IFRS differs from
that under US GAAP in certain respects, including the following:
Major repairs and maintenance, including turnarounds, are
capitalized under IFRS and expensed under US GAAP unless costs
represent a betterment, in which case capitalization under US
GAAP is appropriate.
Borrowing costs under IFRS are capitalized to property, plant
and equipment based on the weighted average interest rate on all
of the companys outstanding third-party debt; under US
GAAP, only the weighted average interest rate on third-party
long-term debt is used to determine the capitalized amount.
(d) Impairment of assets: Upon adopting IFRS,
the company elected not to restate past business combinations,
which resulted in the carrying amount of goodwill under IFRS
being the same amount as it had been under previous Canadian
GAAP at the date of transition to IFRS. Because past provisions
for asset impairment were based on undiscounted cash flows from
use under Canadian GAAP and on fair value under US GAAP, the
carrying amount of goodwill is lower under US GAAP.
In respect of oil and gas assets, US GAAP requires that
writedowns be based on discounted cash flows, a prescribed
discount rate and the unweighted average
first-day-of-the-month
resource prices for the prior 12 months; IFRS requires
discounted cash flows using estimated future resource prices
based on the best information available to the company.
Assets, except goodwill, that were previously impaired can be
reversed in subsequent periods, under IFRS, if the conditions
that led to the original impairment reversed. Reversals of asset
impairments are prohibited under US GAAP.
(e) Depreciation and amortization: Depreciation
and amortization under IFRS differ from that under US GAAP, as a
result of differences in the carrying amounts of property, plant
and equipment under IFRS and US GAAP, as described above.
(f) Exploration costs: Under IFRS, capitalized
exploration costs are classified as exploration and evaluation
assets. For US GAAP, these costs are generally expensed until
such time as a final feasibility study has confirmed the
existence of a commercially mineable deposit.
(g) Pension and other post-retirement
benefits: Under US GAAP, the company recognizes the
difference between the benefit obligation and the fair value of
plan assets in the consolidated statements of financial position
with the offset to OCI. Amounts in OCI are amortized to net
income. Under IFRS, actuarial gains and losses are recognized
directly in OCI without ever being amortized to net income.
Unrecognized prior service costs are not recognized in OCI, but
are amortized to net income over the average remaining vesting
period.
15 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
(h) Offsetting of certain amounts: US GAAP
requires an entity to adopt a policy of either offsetting or not
offsetting fair value amounts recognized for derivative
instruments and for the right to reclaim cash collateral or the
obligation to return cash collateral against fair value amounts
recognized for derivative instruments executed with the same
counterparty under the same master netting arrangement. The
company adopted a policy to offset such amounts. Under IFRS,
offsetting of the margin deposits is not permitted.
(i) Share-based compensation: Under IFRS, stock
options are recognized over the service period, which for
PotashCorp is established by the option performance period.
Under US GAAP, stock options are recognized over the requisite
service period, which does not commence until the option plan is
approved by the companys shareholders and options are
granted thereunder.
Performance |
Service Period Commenced | ||||||||
Option Plan Year | IFRS | US GAAP | |||||||
2008
|
January 1, 2008 | May 8, 2008 | |||||||
2009
|
January 1, 2009 | May 7, 2009 | |||||||
2010
|
January 1, 2010 | May 6, 2010 | |||||||
2011
|
January 1, 2011 | May 12, 2011 | |||||||
This difference impacts the share-based compensation cost
recorded and may impact diluted earnings per share.
Further, under IFRS the company recognized an estimate of
compensation cost in relation to performance options for which
service commenced but which had not yet been granted.
Specifically, an estimate of compensation cost was recognized at
the end of the first quarter of 2011 in relation to the 2011
Performance Option Plan, which was approved by the
companys shareholders at the companys annual meeting
held on May 12, 2011, for which service commenced but for
which performance options had not yet been granted. The
compensation cost recognized was reconciled in the second
quarter once options were granted. Under US GAAP, no
compensation cost is recognized until the option plans are
approved.
(j) Stripping costs: Under IFRS, the company
capitalizes and amortizes costs associated with the activity of
removing overburden and other mine waste minerals in the
production phase. US GAAP requires such stripping costs to be
attributed to ore produced in that period as a component of
inventory and recognized in cost of sales in the same period as
related revenue.
(k) Provisions: Asset retirement obligations
under IFRS are measured and remeasured each reporting period
using a current risk-free discount rate. Under US GAAP, the
obligation is initially measured using a credit-adjusted
risk-free discount rate. Subsequent upward revisions are
measured using the current discount rate while downward
revisions are valued using the historical discount rate. Under
IFRS, obligations incurred through the production of inventory
are included in the cost of that inventory. Under US GAAP,
obligations incurred through the production of inventory are
added to the carrying amount of the related long-lived asset or
charged to expense as incurred. Under IFRS, provisions for asset
retirement obligations include constructive obligations. Under
US GAAP, only legal obligations are recognized.
Under IFRS, a provision is recognized for either a legal or
constructive obligation when the applicable criteria are
otherwise met. Under US GAAP, constructive obligations are
recognized only when required under a specific standard.
(l) Income taxes related to the above
adjustments: The income tax adjustment reflects the
impact on income taxes of the US GAAP adjustments described
above. Accounting for income taxes under IFRS and US GAAP is
similar, except that income tax rates of enacted or
substantively enacted tax law must be used to calculate deferred
income tax assets and liabilities under IFRS, whereas only
income tax rates of enacted tax law can be used under US GAAP.
(m) Income taxes related to US GAAP effective income tax
rate: As it relates to interim periods, under IFRS a
separate estimated average annual effective income tax rate is
determined for each taxing jurisdiction and applied individually
to the interim period pre-tax income of each jurisdiction,
whereas under US GAAP a weighted average of the annual rates
expected across all jurisdictions is applied.
(n) Income tax consequences of share-based employee
compensation: Under IFRS, the income tax benefit
attributable to share-based compensation that is deductible in
computing taxable income but is not recorded in the consolidated
financial statements as an expense of any period includes the
amount realized in the period (the realized excess
benefit), as well as the amount of future tax deductions
that the company expects to receive based on the current market
price of the shares (the unrealized excess benefit).
The unrealized excess benefit is recognized as a deferred income
tax asset with the offset recorded in contributed surplus. Under
US GAAP, only the realized excess benefit is recorded, in
additional paid-in capital.
Under IFRS, the income tax benefit associated with share-based
compensation that is recorded in the consolidated financial
statements as an expense in the current or previous period is
reviewed at each statement of financial position date and
amended to the extent that it is no longer probable that the
related tax benefit will be realized. Under US GAAP, this income
tax benefit is calculated without estimating the income tax
effects of anticipated share-based payment transactions.
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 16
Table of Contents
(o) Uncertain income tax positions: US GAAP
prescribes a comprehensive model for how a company should
recognize, measure, present and disclose in its consolidated
financial statements uncertain income tax positions that it has
taken or expects to take on a tax return (including a decision
whether to file or not to file a return in a particular
jurisdiction). IFRS have no similar requirements related to
uncertain income tax positions. The company accounts for
uncertain income tax positions under IFRS using the standards
applicable to current income tax assets and liabilities, i.e.,
both liabilities and assets are recorded when probable at the
companys best estimate of the amount.
(p) Income taxes related to intragroup
transactions: Under IFRS, unrealized profits resulting
from intragroup transactions are eliminated from the carrying
amount of assets, but no equivalent adjustment is made for tax
purposes. The difference between the tax rates of the two
entities will result in an impact on net income. This differs
from US GAAP, where the current tax payable in relation to such
profits is recorded as a current asset until the transaction is
realized by the group.
(q) Classification of deferred income
taxes: Under IFRS, deferred income taxes are classified
as long-term. Under US GAAP, deferred income taxes are separated
between current and long-term on the consolidated statements of
financial position.
(r) Cash flow statements: US GAAP requires the
disclosure of income taxes paid. IFRS require the disclosure of
income tax cash flows, which would include any income taxes
recovered during the period. For the three months ended
June 30, 2011, income taxes paid under US GAAP were $163
(2010 $49) and for the six months ended
June 30, 2011, income taxes paid under US GAAP were $358
(2010 $71). Under IFRS, interest paid is not reduced
for the effects of capitalized interest whereas under US GAAP
this amount is net of capitalized interest. Interest paid under
US GAAP for the three months ended June 30, 2011 was $69
(2010 $30) and for the six months ended
June 30, 2011, interest paid under US GAAP was $91
(2010 $54).
17 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
The application of US GAAP, as described above, would have
had the following effects on net income, net income per share,
total assets and shareholders equity.
Three Months Ended |
Six Months Ended |
||||||||||||||||||
June 30 | June 30 | ||||||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||||||
Net income as reported IFRS
|
$ | 840 | $ | 480 | $ | 1,572 | $ | 924 | |||||||||||
Items increasing (decreasing) reported net income
|
|||||||||||||||||||
Inventory valuation(a) | | 1 | | 1 | |||||||||||||||
Manufacturing cost variances(a) | 7 | (6 | ) | (14 | ) | (15 | ) | ||||||||||||
Share of earnings of equity-accounted investees(b) | (1 | ) | 1 | (1 | ) | | |||||||||||||
Major repairs and maintenance(c) | 2 | (8 | ) | (12 | ) | (8 | ) | ||||||||||||
Borrowing costs(c) | 3 | 3 | 7 | 6 | |||||||||||||||
Asset impairment, writedowns and recoveries(d) | | (31 | ) | (1 | ) | (32 | ) | ||||||||||||
Depreciation and amortization(e) | 3 | 2 | 5 | 4 | |||||||||||||||
Exploration costs(f) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | |||||||||||
Pension and other post-retirement benefits(g) | (5 | ) | (6 | ) | (10 | ) | (12 | ) | |||||||||||
Share-based compensation(i) | (11 | ) | (11 | ) | 2 | 1 | |||||||||||||
Stripping costs(j) | 1 | (6 | ) | 5 | (15 | ) | |||||||||||||
Asset retirement obligations(k) | 4 | 24 | 11 | 25 | |||||||||||||||
Deferred income taxes relating to the above adjustments(l) | (1 | ) | 7 | 2 | 10 | ||||||||||||||
Income taxes related to US GAAP effective income tax rate(m) | (6 | ) | 6 | 2 | 2 | ||||||||||||||
Uncertain income tax positions(o) | 1 | (23 | ) | 6 | (9 | ) | |||||||||||||
Income taxes related to intragroup transactions(p) | (8 | ) | 9 | (3 | ) | 18 | |||||||||||||
Net income US GAAP
|
$ | 828 | $ | 441 | $ | 1,570 | $ | 899 | |||||||||||
Basic weighted average shares outstanding US GAAP
|
854,997,000 | 889,128,000 | 854,518,000 | 888,744,000 | |||||||||||||||
Diluted weighted average shares outstanding US
GAAP(i)
|
876,516,000 | 913,377,000 | 876,600,000 | 913,768,000 | |||||||||||||||
Basic net income per share US GAAP
|
$ | 0.97 | $ | 0.50 | $ | 1.84 | $ | 1.01 | |||||||||||
Diluted net income per share US GAAP
|
$ | 0.94 | $ | 0.48 | $ | 1.79 | $ | 0.98 | |||||||||||
References relate to differences between IFRS and US GAAP
described above.
June 30, |
December 31, |
|||||||||
2011 | 2010 | |||||||||
Total assets as reported IFRS
|
$ | 16,217 | $ | 15,547 | ||||||
Items increasing (decreasing) reported total assets
|
||||||||||
Investment in equity-accounted
investees(b)
|
43 | 40 | ||||||||
Property, plant and
equipment(d,
e)
|
(104 | ) | (109 | ) | ||||||
Major repairs and
maintenance(c)
|
(64 | ) | (52 | ) | ||||||
Borrowing
costs(c)
|
32 | 25 | ||||||||
Goodwill(d)
|
(47 | ) | (47 | ) | ||||||
Asset impairment, writedowns and
recoveries(d)
|
(6 | ) | (5 | ) | ||||||
Exploration
costs(f)
|
(15 | ) | (14 | ) | ||||||
Margin deposits associated with derivative
instruments(h)
|
(162 | ) | (198 | ) | ||||||
Stripping
costs(j)
|
(57 | ) | (62 | ) | ||||||
Asset retirement
obligations(k)
|
(46 | ) | (46 | ) | ||||||
Uncertain income tax
positions(o)
|
(122 | ) | (122 | ) | ||||||
Income taxes related to intragroup
transactions(p)
|
27 | 15 | ||||||||
Deferred income tax asset due to US GAAP adjustments
|
(13 | ) | (13 | ) | ||||||
Reclassification of deferred income
taxes(q)
|
18 | 28 | ||||||||
Total assets US GAAP
|
$ | 15,701 | $ | 14,987 | ||||||
References relate to differences between IFRS and US GAAP
described above.
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 18
Table of Contents
June 30, |
December 31, |
|||||||||
2011 | 2010 | |||||||||
Total shareholders equity as reported IFRS
|
$ | 7,855 | $ | 6,685 | ||||||
Items increasing (decreasing) reported shareholders equity
|
||||||||||
Manufacturing cost
variances(a)
|
(14 | ) | | |||||||
Share of earnings of equity-accounted
investees(b)
|
41 | 42 | ||||||||
Major repairs and
maintenance(c)
|
(64 | ) | (52 | ) | ||||||
Borrowing
costs(c)
|
32 | 25 | ||||||||
Asset impairment, writedowns and
recoveries(d)
|
(257 | ) | (256 | ) | ||||||
Depreciation and
amortization(e)
|
100 | 95 | ||||||||
Exploration
costs(f)
|
(15 | ) | (14 | ) | ||||||
Pension and other post-retirement
benefits(g)
|
13 | 13 | ||||||||
Stripping
costs(j)
|
(57 | ) | (62 | ) | ||||||
Asset retirement
obligations(k)
|
90 | 79 | ||||||||
Constructive
obligations(k)
|
5 | 5 | ||||||||
Deferred income taxes relating to the above
adjustments(l)
|
14 | 12 | ||||||||
Income taxes related to US GAAP effective income tax
rate(m)
|
(45 | ) | (47 | ) | ||||||
Deferred income taxes on share-based
compensation(n)
|
(143 | ) | (148 | ) | ||||||
Uncertain income tax
positions(o)
|
39 | 33 | ||||||||
Income taxes related to intragroup
transactions(p)
|
3 | 6 | ||||||||
Shareholders equity US GAAP
|
$ | 7,597 | $ | 6,416 | ||||||
References relate to differences
between IFRS and US GAAP described above.
Supplemental US
GAAP Disclosures
Disclosures
About Derivative Instruments and Hedging Activities
Derivative financial instruments are used by the company to
manage its exposure to commodity price, exchange rate and
interest rate fluctuations. Further information, including
strategies, is provided in Note 12 to the consolidated
financial statements in the companys 2010 Financial Review
Annual Report.
Fair Values of
Derivative Instruments in the Condensed Consolidated Statements
of Financial Position
June 30, |
December 31, |
||||||||||
Derivative Instrument Assets (Liabilities)(1) | Statements of Financial Position Location | 2011 | 2010 | ||||||||
Derivatives designated as hedging instruments:
|
|||||||||||
Natural gas derivatives
|
Prepaid expenses and other current assets | $ | 1 | $ | | ||||||
Natural gas derivatives
|
Other assets | 1 | | ||||||||
Natural gas derivatives
|
Current portion of derivative instrument liabilities | (54 | ) | (75 | ) | ||||||
Natural gas derivatives
|
Derivative instrument liabilities | (184 | ) | (204 | ) | ||||||
Total derivatives designated as hedging instruments
|
(236 | ) | (279 | ) | |||||||
Derivatives not designated as hedging instruments:
|
|||||||||||
Foreign currency derivatives
|
Prepaid expenses and other current assets | 5 | 5 | ||||||||
Total derivatives not designated as hedging instruments
|
$ | 5 | $ | 5 | |||||||
(1) All
fair value amounts are gross and exclude netted cash collateral
balances.
19 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
The Effect of
Derivative Instruments on the Condensed Consolidated Statements
of Income for the Three Months Ended June 30
Amount of Loss |
||||||||||||||||||||||||||||||
Amount of Loss |
Recognized in |
|||||||||||||||||||||||||||||
Reclassified |
Income |
|||||||||||||||||||||||||||||
from |
(Ineffective |
|||||||||||||||||||||||||||||
Amount of Loss |
Accumulated |
Location of Loss |
Portion |
|||||||||||||||||||||||||||
Recognized in |
Location of |
OCI |
Recognized in Income |
and Amount |
||||||||||||||||||||||||||
OCI |
Loss Reclassified |
into Income |
(Ineffective Portion |
Excluded from |
||||||||||||||||||||||||||
Derivatives in Cash |
(Effective |
from Accumulated |
(Effective |
and Amount |
Effectiveness |
|||||||||||||||||||||||||
Flow Hedging |
Portion) |
OCI into Income |
Portion) |
Excluded from |
Testing) | |||||||||||||||||||||||||
Relationships | 2011 | 2010 | (Effective Portion) | 2011 | 2010 | Effectiveness Testing) | 2011 | 2010 | ||||||||||||||||||||||
Natural gas derivatives
|
$ | (21 | ) | $ | (18 | ) | Cost of goods sold | $ | (22 | ) | $ | (23 | ) | Cost of goods sold | $ | | $ | | ||||||||||||
Amount of Gain (Loss) |
|||||||||||
Recognized in |
|||||||||||
Income | |||||||||||
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income | 2011 | 2010 | ||||||||
Foreign currency derivatives
|
Other income (expenses) | $ | 8 | $ | (7 | ) | |||||
The Effect of
Derivative Instruments on the Condensed Consolidated Statements
of Income for the Six Months Ended June 30
Amount of Loss |
||||||||||||||||||||||||||||||
Amount of Loss |
Recognized in |
|||||||||||||||||||||||||||||
Reclassified |
Income |
|||||||||||||||||||||||||||||
from |
(Ineffective |
|||||||||||||||||||||||||||||
Amount of Loss |
Accumulated |
Location of Loss |
Portion |
|||||||||||||||||||||||||||
Recognized in |
Location of |
OCI |
Recognized in Income |
and Amount |
||||||||||||||||||||||||||
OCI |
Loss Reclassified |
into Income |
(Ineffective Portion |
Excluded from |
||||||||||||||||||||||||||
Derivatives in Cash |
(Effective |
from Accumulated |
(Effective |
and Amount |
Effectiveness |
|||||||||||||||||||||||||
Flow Hedging |
Portion) |
OCI into Income |
Portion) |
Excluded from |
Testing) | |||||||||||||||||||||||||
Relationships | 2011 | 2010 | (Effective Portion) | 2011 | 2010 | Effectiveness Testing) | 2011 | 2010 | ||||||||||||||||||||||
Natural gas derivatives
|
$ | | $ | (103 | ) | Cost of goods sold | $ | (44 | ) | $ | (38 | ) | Cost of goods sold | $ | | $ | | |||||||||||||
Amount of Gain (Loss) |
|||||||||||
Recognized in |
|||||||||||
Income | |||||||||||
Derivatives Not Designated as Hedging Instruments | Location of Gain (Loss) Recognized in Income | 2011 | 2010 | ||||||||
Foreign currency derivatives
|
Other income (expenses) | $ | 11 | $ | (9 | ) | |||||
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 20
Table of Contents
Financial
Instruments and Related Risk Management
Financial
Risks
The company is exposed in varying degrees to a variety of
financial risks from its use of financial instruments: credit
risk, liquidity risk and market risk. The source of risk
exposure and how each is managed is described in Note 25 to
the consolidated financial statements in the companys 2010
Financial Review Annual Report.
Credit
Risk
The company is exposed to credit risk on its cash and cash
equivalents, receivables and derivative instrument assets. The
maximum exposure to credit risk is represented by the carrying
amount of the financial assets.
The company sells potash from its Saskatchewan mines for use
outside Canada and the US exclusively to Canpotex. Sales to
Canpotex are at prevailing market prices and are settled on
normal trade terms. There were no amounts past due or impaired
relating to amounts owing to the company from Canpotex.
Liquidity
Risk
Liquidity risk arises from the companys general funding
needs and in the management of its assets, liabilities and
optimal capital structure. It manages its liquidity risk to
maintain sufficient liquid financial resources to fund its
operations and meet its commitments and obligations in a
cost-effective manner. In managing its liquidity risk, the
company has access to a range of funding options.
Certain derivative instruments of the company contain provisions
that require its debt to maintain specified credit ratings from
two major credit rating agencies. If the companys debt
were to fall below the specified ratings, it would be in
violation of these provisions, and the counterparties to the
derivative instruments could request immediate payment or demand
immediate and ongoing full overnight collateralization on
derivative instruments in net liability positions. The aggregate
fair value of all derivative instruments with credit
risk-related contingent features that were in a liability
position on June 30, 2011 was $238, for which the company
has posted collateral of $162 in the normal course of business.
If the credit risk-related contingent features underlying these
agreements had been triggered on June 30, 2011, the company
would have been required to post an additional $73 of collateral
to its counterparties.
Market
Risk
Market risk is the risk that financial instrument fair values
will fluctuate due to changes in market prices. The significant
market risks to which the company is exposed are foreign
exchange risk and price risk (related to natural gas used in
operations).
Foreign Exchange
Risk
At June 30, 2011, the company had entered into foreign
currency forward contracts to sell US dollars and receive
Canadian dollars in the notional amount of $270
(December 31, 2010 $170) at an average exchange
rate of 0.9832 (December 31, 2010 1.0170) per
US dollar with maturities in 2011. At June 30, 2011, the
company had foreign currency swaps to sell US dollars and
receive Canadian dollars in the notional amount of $NIL
(December 31, 2010 $69) at an average exchange
rate of NIL (December 31, 2010 1.0174) per US
dollar.
Price
Risk
At June 30, 2011, the company had natural gas derivatives
qualifying for hedge accounting in the form of swaps for which
it has price risk exposure; derivatives represented a notional
amount of 56 million MMBtu with maturities in 2011 through
2019. At December 31, 2010, the notional amount of swaps
was 103 million MMBtu with maturities in 2011 through 2019.
21 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Fair
Value
Fair value represents
point-in-time
estimates that may change in subsequent reporting periods due to
market conditions or other factors.
Presented below is a comparison of the fair value of each
financial instrument to its carrying value.
June 30, 2011 | December 31, 2010 | |||||||||||||||||
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
|||||||||||||||
of Asset (Liability) | of Asset (Liability) | of Asset (Liability) | of Asset (Liability) | |||||||||||||||
Derivative instrument assets
|
||||||||||||||||||
Natural gas derivatives
|
$ | 2 | $ | 2 | $ | | $ | | ||||||||||
Foreign currency derivatives
|
5 | 5 | 5 | 5 | ||||||||||||||
Investments in ICL and Sinofert
|
3,474 | 3,474 | 3,842 | 3,842 | ||||||||||||||
Derivative instrument liabilities
|
||||||||||||||||||
Natural gas derivatives
|
(238 | ) | (238 | ) | (279 | ) | (279 | ) | ||||||||||
Long-term debt
|
||||||||||||||||||
Senior notes
|
(3,750 | ) | (3,983 | ) | (4,350 | ) | (4,525 | ) | ||||||||||
Other
|
(7 | ) | (7 | ) | (8 | ) | (8 | ) | ||||||||||
Due to their short-term nature, the fair value of cash and cash
equivalents, receivables, short-term debt, and payables and
accrued charges is assumed to approximate carrying value. The
fair value of the companys senior notes at June 30,
2011 reflected the yield valuation based on observed market
prices. Yield on senior notes ranged from 0.98 percent to
5.62 percent (December 31, 2010
1.08 percent to 5.66 percent). The fair value of the
companys other long-term debt instruments approximated
carrying value.
Interest rates used to discount estimated cash flows related to
derivative instruments that were not traded in an active market
at June 30, 2011 were between 0.35 percent and
4.98 percent (December 31, 2010 between
0.47 percent and 4.31 percent) depending on the
settlement date.
The following table presents the companys fair value
hierarchy for those financial assets and financial liabilities
carried at fair value at June 30, 2011.
Fair Value Measurements at Reporting Date Using: | |||||||||||||||||||
Quoted Prices in |
Significant |
||||||||||||||||||
Active Markets for |
Significant Other |
Unobservable |
|||||||||||||||||
Carrying Amount of |
Identical Assets |
Observable Inputs |
Inputs |
||||||||||||||||
Description | Asset (Liability) | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||
June 30, 2011
|
|||||||||||||||||||
Derivative instrument assets
|
|||||||||||||||||||
Natural gas derivatives
|
$ | 2 | $ | | $ | | $ | 2 | (1) | ||||||||||
Foreign currency derivatives
|
5 | | 5 | (1) | | ||||||||||||||
Investments in ICL and Sinofert
|
3,474 | 3,474 | (1) | | | ||||||||||||||
Derivative instrument liabilities
|
|||||||||||||||||||
Natural gas derivatives
|
(238 | ) | | (33 | )(1) | (205 | )(1) | ||||||||||||
December 31, 2010
|
|||||||||||||||||||
Derivative instrument assets
|
|||||||||||||||||||
Foreign currency derivatives
|
$ | 5 | $ | | $ | 5 | $ | | |||||||||||
Investments in ICL and Sinofert
|
3,842 | 3,842 | | | |||||||||||||||
Derivative instrument liabilities
|
|||||||||||||||||||
Natural gas derivatives
|
(279 | ) | | (55 | ) | (224 | ) | ||||||||||||
(1) During
the period ending June 30, 2011, there were no transfers
between Level 1 and Level 2, or into or out of
Level 3. Company policy is to recognize transfers at the
end of the reporting period.
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 22
Table of Contents
Fair
Value Measurements Using Significant Unobservable Inputs
(Level 3)
Natural Gas Hedging Derivatives | ||||||||||
Six Months |
Twelve Months |
|||||||||
Ended |
Ended |
|||||||||
June 30, |
December 31, |
|||||||||
2011 | 2010 | |||||||||
Balance, beginning of period
|
$ | (224 | ) | $ | (119 | ) | ||||
Total losses (realized and unrealized) before income taxes
|
||||||||||
Included in earnings (cost of goods sold)
|
(13 | ) | (36 | ) | ||||||
Included in other comprehensive income
|
17 | (126 | ) | |||||||
Settlements
|
17 | 46 | ||||||||
Transfers out of Level 3
|
| 11 | ||||||||
Balance, end of period
|
$ | (203 | ) | $ | (224 | ) | ||||
Pension
and Other Post-Retirement Expenses
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||
Defined Benefit Pension Plans | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
Service cost
|
$ | 6 | $ | 5 | $ | 12 | $ | 10 | ||||||||||||
Interest cost
|
12 | 11 | 24 | 23 | ||||||||||||||||
Expected return on plan assets
|
(13 | ) | (11 | ) | (26 | ) | (23 | ) | ||||||||||||
Net amortization
|
6 | 6 | 12 | 13 | ||||||||||||||||
Net expense
|
$ | 11 | $ | 11 | $ | 22 | $ | 23 | ||||||||||||
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||
Other Post-Retirement Plans | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
Service cost
|
$ | 2 | $ | 2 | $ | 4 | $ | 4 | ||||||||||||
Interest cost
|
4 | 4 | 8 | 8 | ||||||||||||||||
Net amortization
|
| | (1 | ) | (1 | ) | ||||||||||||||
Net expense
|
$ | 6 | $ | 6 | $ | 11 | $ | 11 | ||||||||||||
For the three months ended June 30, 2011, the company
contributed $3 to its defined benefit pension plans, $6 to its
defined contribution pension plans and $3 to its other
post-retirement plans. Contributions for the six months ended
June 30, 2011 were $5 to its defined benefit pension plans,
$16 to its defined contribution pension plans and $5 to its
other post-retirement plans. Total 2011 contributions to these
plans are not expected to differ significantly from the amounts
previously disclosed in Note 14 to the consolidated
financial statements in the companys 2010 Financial Review
Annual Report.
Uncertainty
in Income Taxes
During the three and six months ended June 30, 2011,
unrecognized income tax adjustments decreased $34 and $35,
respectively. It is reasonably possible that a reduction in the
range of $31 to $33 of unrecognized income tax adjustments may
occur within 12 months as a result of projected resolutions
of worldwide income tax disputes.
23 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Guarantees
In the normal course of operations, the company provides
indemnifications, which are often standard contractual terms, to
counterparties in transactions such as purchase and sale
contracts, service agreements, director/officer contracts and
leasing transactions. These indemnification agreements may
require the company to compensate the counterparties for costs
incurred as a result of various events, including environmental
liabilities and changes in (or in the interpretation of) laws
and regulations, or as a result of litigation claims or
statutory sanctions that may be suffered by the counterparty as
a consequence of the transaction. The terms of these
indemnification agreements will vary based upon the contract,
the nature of which prevents the company from making a
reasonable estimate of the maximum potential amount that it
could be required to pay to counterparties. Historically, the
company has not made any significant payments under such
indemnifications and no amounts have been accrued in the
accompanying unaudited interim condensed consolidated financial
statements with respect to these indemnification guarantees
(apart from any appropriate accruals relating to the underlying
potential liabilities).
The company enters into agreements in the normal course of
business that may contain features which meet the definition of
a guarantee. Various debt obligations (such as overdrafts, lines
of credit with counterparties for derivatives and
back-to-back
loan arrangements) and other commitments (such as railcar
leases) related to certain subsidiaries and investees have been
directly guaranteed by the company under such agreements with
third parties. The company would be required to perform on these
guarantees in the event of default by the guaranteed parties. No
material loss is anticipated by reason of such agreements and
guarantees. At June 30, 2011, the maximum potential amount
of future (undiscounted) payments under significant guarantees
provided to third parties approximated $558. It is unlikely that
these guarantees will be drawn upon, and since the maximum
potential amount of future payments does not consider the
possibility of recovery under recourse or collateral provisions,
this amount is not indicative of future cash requirements or the
companys expected losses from these arrangements. At
June 30, 2011, no subsidiary balances subject to guarantees
were outstanding in connection with the companys cash
management facilities, and it had no liabilities recorded for
other obligations other than subsidiary bank borrowings of
approximately $6.
The company has guaranteed the gypsum stack capping, closure and
post-closure obligations of White Springs and PCS Nitrogen in
Florida and Louisiana, respectively, pursuant to the financial
assurance regulatory requirements in those states. In addition,
it has guaranteed the performance of certain remediation
obligations of PCS Joint Venture and PCS Nitrogen at the
Lakeland, Florida and Augusta, Georgia sites, respectively. The
USEPA has announced that it plans to adopt rules requiring
financial assurance from a variety of mining operations,
including phosphate rock mining. It is too early in the
rulemaking process to determine what the impact, if any, on the
companys facilities will be when these rules are issued.
The environmental regulations of the Province of Saskatchewan
require each potash mine to have decommissioning and reclamation
plans, along with financial assurances for these plans, approved
by the responsible provincial minister. The Minister of the
Environment for Saskatchewan (MOE) has approved the
plans previously submitted by the company. The company had
previously provided a CDN $2 irrevocable letter of credit and a
payment of CDN $3 into the
agreed-upon
trust fund. Under the regulations, the decommissioning and
reclamation plans and financial assurances are to be reviewed at
least once every five years, or as required by the MOE. The next
scheduled review for the decommissioning and reclamation plans
and financial assurances was to be completed by June 30,
2011. The company submitted its decommissioning and reclamation
plans and its financial assurances proposal in May 2011 and is
awaiting a response. The MOE has advised that it considers the
company in compliance with the regulations until the review is
finalized and a response is provided. The MOE had previously
indicated that it would be seeking an increase of the amount
paid into the trust fund by the company for this submission.
Based on current information, the company does not believe that
its financial assurance requirements or future obligations with
respect to this matter are reasonably likely to have a material
impact on its consolidated financial position or results of
operations.
The company has met its financial assurance responsibilities as
of June 30, 2011. Costs associated with the retirement of
long-lived tangible assets have been accrued in the accompanying
unaudited interim condensed consolidated financial statements to
the extent that a legal or constructive liability to retire such
assets exists.
During the period, the company entered into various other
commercial letters of credit in the normal course of operations.
As at June 30, 2011, $52 of letters of credit were
outstanding.
The company expects that it will be able to satisfy all
applicable credit support requirements without disrupting normal
business operations.
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 24
Table of Contents
Recent Accounting
Pronouncements
Fair
Value Measurements
In May 2011, the Financial Accounting Standards Board
(FASB) issued amendments to its fair value
measurement standard to substantially converge the guidance in
US GAAP and IFRS on fair value measurements and disclosures. The
amendments will be effective for interim and annual periods
beginning after December 15, 2011. The company is currently
reviewing the impact, if any, on its consolidated financial
statements.
Comprehensive
Income
In June 2011, the FASB amended the standard for Comprehensive
Income whereby total comprehensive income, the components of net
income and the components of other comprehensive income can
either be presented in a single continuous statement or in two
separate but consecutive statements. Regardless of which option
is chosen, items that are reclassified from other comprehensive
income to net income should be presented on the face of the
financial statements. The amendments will be effective for
fiscal years, and interim periods within those years, beginning
after December 15, 2011. The company is currently reviewing
the impact, if any, on its consolidated financial statements.
13. | Transition to IFRS |
The company adopted IFRS on January 1, 2011 with effect
from January 1, 2010. Its financial statements for the year
ending December 31, 2011 will be the first annual
consolidated financial statements that comply with IFRS. These
unaudited interim condensed consolidated financial statements
were prepared as described in Note 1, including the
application of IFRS 1. Accordingly, the company will make an
unreserved statement of compliance with IFRS beginning with its
2011 annual consolidated financial statements.
Changes in
Accounting Policies
The key areas where the company has identified that accounting
policies will differ or where accounting policy decisions were
necessary that may impact its consolidated financial statements
and the impact of transition policy choices made under IFRS 1
are described in Note 13 to financial statements in
Part I Item 1 of the companys 2011 First Quarter
Quarterly Report on
Form 10-Q.
The following table outlines some of these key areas related to
the reconciliations from Canadian GAAP to IFRS. Since accounting
policies and standards may change in the period between these
unaudited interim condensed consolidated financial statements
and our first annual consolidated financial statements that
comply with IFRS, the table below reflects the differences
between IFRS and previous Canadian GAAP we expect to apply. See
Note 13 to financial statements in Part I Item 1
of the companys 2011 First Quarter Quarterly Report on
Form 10-Q
for further details.
Accounting |
|||
Policy Area |
Differences from Previous Canadian GAAP |
||
(a) Employee Benefits
|
Actuarial gains and losses will be recognized directly in other comprehensive income rather than through profit or loss. | ||
IAS 19 requires the past service
cost element of defined benefit plans to be expensed on an
accelerated basis, with vested past service costs expensed
immediately and unvested past service costs recognized on a
straight-line basis until the benefits become vested. Under
Canadian GAAP, past service costs were generally amortized on a
straight-line basis over the average remaining service period of
active employees expected under the plan.
|
|||
Under Canadian GAAP, certain gains
and losses which were unrecognized at the time of adopting the
current Canadian accounting standard were permitted to be
amortized over a period under transitional provisions of the
current standards. Those amounts must be recognized on
transition to IFRS.
|
|||
25 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Accounting |
|||
Policy Area |
Differences from Previous Canadian GAAP |
||
(b) Provisions (including
Asset Retirement Obligations)
|
IAS 37, Provisions, Contingent Liabilities and Contingent Assets, requires a provision to be recognized when: there is a present obligation (legal or constructive) as a result of a past transaction or event; it is probable that an outflow of resources will be required to settle the obligation; and a reliable estimate can be made of the obligation. Probable in this context means more likely than not. Under Canadian GAAP, constructive obligations were recognized only if required by a specific standard, and the criterion for recognition in the financial statements was likely, which is a higher threshold than probable. Therefore, it is possible that there may be some contingent liabilities not recognized under Canadian GAAP which would require a provision under IFRS. | ||
Other differences between IFRS and
Canadian GAAP exist in relation to the measurement of
provisions, such as the methodology for determining the best
estimate where there is a range of equally possible outcomes
(IFRS uses the mid-point of the range whereas Canadian GAAP used
the low end), and the requirement under IFRS for provisions to
be discounted where material.
|
|||
In relation to asset retirement
obligations, measurement under IFRS will be based on
managements best estimate, while measurement under
Canadian GAAP was based on the fair value of the obligation
(which takes market assumptions into account). Under IFRS, the
full asset retirement obligation will be remeasured each period
using the current discount rate. Under Canadian GAAP, cash flow
estimates associated with asset retirement obligations were
discounted using historical discount rates. Changes in the
discount rate alone did not result in a remeasurement of the
liability. Changes in estimates that decreased the liability
were discounted using the discount rate applied upon initial
recognition of the liability. When changes in estimates
increased the liability, the additional liability was discounted
using the current discount rate.
|
|||
IFRS require the companys
asset retirement obligations to be discounted using a risk-free
rate. Under Canadian GAAP, asset retirement obligations were
discounted using a credit-adjusted risk-free rate.
|
|||
Under IFRS, the increase in the
measurement of an asset retirement obligation due to the passage
of time (unwinding of the discount) will be classified as a
finance expense. Under Canadian GAAP, this amount was classified
as an operating expense.
|
|||
(c) Investments
|
Under IFRS, jointly controlled entities will be accounted for using the equity method. Under Canadian GAAP, joint ventures were accounted for using proportionate consolidation. | ||
Certain of the companys
equity-accounted investees adopted IFRS earlier than PotashCorp,
resulting in certain IFRS 1 elections being made, particularly
related to use of fair value as deemed cost on certain items of
property, plant and equipment and related to the use of the
business combinations exemption. As a result, the company will
recognize its share of such elections as an adjustment to its
opening retained earnings and its investments in
equity-accounted investees.
|
|||
(d) Property, Plant and Equipment
|
Under IFRS, where part of an item of property, plant and equipment has a cost that is significant in relation to the cost of the item as a whole, it must be depreciated separately from the remainder of the item. Canadian GAAP was similar in this respect; however, the componentization concept was not often applied to the same extent due to practicality and/or materiality. | ||
Under IFRS, the cost of major
overhauls on items of property, plant and equipment will be
capitalized as a component of the related item of property,
plant and equipment and amortized over the period until the next
major overhaul. Under Canadian GAAP, these costs were expensed
in the year incurred.
|
|||
(e) Borrowing Costs
|
Under IFRS, borrowing costs will be capitalized to assets which take a substantial time to develop or construct using a capitalization rate based on the weighted average interest rate on all of the companys outstanding third-party debt. Under the companys Canadian GAAP policy, the interest capitalization rate was based only on the weighted average interest rate on third-party long-term debt. | ||
(f) Inventories
|
Under IFRS, at interim periods, price, efficiency, spending and volume variances of a manufacturing entity will be recognized in income to the same extent that those variances will be recognized in income at financial year-end. Under IFRS, deferral of variances that are expected to be absorbed by year-end is not appropriate because it could result in reporting inventory at the interim date at more or less than its portion of the actual cost of manufacture. Under Canadian GAAP, variances that were planned and expected to be absorbed by the end of the year were ordinarily deferred at the end of an interim period. Net income and equity for annual periods will not be affected. | ||
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 26
Table of Contents
Accounting |
|||
Policy Area |
Differences from Previous Canadian GAAP |
||
(g) Impairment of
Assets |
IAS 36, Impairment of Assets, uses a one-step approach for both testing for and measurement of impairment, with asset carrying values compared directly with the higher of fair value less costs to sell and value in use (which uses discounted future cash flows). Canadian GAAP generally used a two-step approach to impairment testing, first comparing asset carrying values with undiscounted future cash flows to determine whether impairment exists, and then measuring any impairment by comparing asset carrying values with fair values. This difference may potentially result in more impairments where carrying values of assets were previously supported under Canadian GAAP on an undiscounted cash flow basis, but could not be supported on a discounted cash flow basis. | ||
In addition, IAS 36 requires the
reversal of any previous impairment losses (to the amounts the
assets would now be carried at had depreciation continued) where
circumstances have changed such that the impairments have been
reduced. Canadian GAAP prohibited reversal of impairment losses.
|
|||
(h) Share-Based Payments
|
IFRS 2, Share-Based Payments, requires that cash-settled share-based payments to employees be measured (both initially and at each reporting date) based on fair value of the awards. Canadian GAAP required that such payments be measured based on intrinsic value of the awards. This difference is expected to impact the accounting measurement of some of the companys cash-settled employee incentive plans, such as its performance unit incentive plan. | ||
IFRS 2 requires an estimate of
compensation cost to be recognized in relation to performance
options for which service has commenced but which have not yet
been granted. The compensation cost recognized would then be
trued up once options have been granted. Under Canadian GAAP,
compensation cost was first recognized when the options were
granted. This will create a timing difference between IFRS and
Canadian GAAP in terms of when compensation cost relating to
employee service provided in the first quarter of the year is
recognized. In relation to stock option costs in 2010, net
income will decrease in the first quarter and increase in the
second quarter by $13. Net income and equity for annual periods
will not be affected.
|
|||
(i) Income Taxes
|
Under IFRS, the guidance in IAS 12, Income Taxes, will be used to determine the benefit to be received in relation to uncertain tax positions. This differs from the methodology used under Canadian GAAP. | ||
Under IFRS, deferred tax assets
recognized in relation to share-based payment arrangements (for
example, the companys employee stock option plan in the
US) will be adjusted each period to reflect the amount of future
tax deductions that the company expects to receive in excess of
stock-based compensation recorded in the consolidated financial
statements based on the current market price of the shares. The
benefit of such amounts will be recognized in contributed
surplus and never impacts net income. Under the companys
Canadian GAAP policy, tax deductions for its employee stock
option plan in the US were recognized as reductions to tax
expense, within net income, in the period that the deduction was
allowed.
|
|||
Under IFRS, deferred tax assets
associated with share-based compensation recorded in the
consolidated financial statements as an expense in the current
or previous period should be reviewed at each statement of
financial position date and amended to the extent that it is no
longer probable that the related tax benefit will be realized.
Under Canadian GAAP, this income tax benefit was calculated
without estimating the income tax effects of anticipated
share-based payment transactions.
|
|||
Under IFRS, adjustments relating to
a change in tax rates will be recognized in the same category of
comprehensive income in which the original amounts were
recognized. Under Canadian GAAP, such adjustments were
recognized in net income, regardless of the category in which
the original amounts were recognized. In addition, foreign
exchange gains on deferred income tax liabilities would be
recorded in other comprehensive income under IFRS, but were
recorded in net income under Canadian GAAP.
|
|||
Under IFRS, deferred income taxes
will be classified as long-term. Under Canadian GAAP, future
income taxes were separated between current and long-term on the
statement of financial position.
|
|||
Under IFRS, unrealized profits
resulting from intragroup transactions will be eliminated from
the carrying amount of assets, but no equivalent adjustment will
be made for tax purposes. The difference between the tax rates
of the two entities will impact net income. This differs from
Canadian GAAP, where the current tax payable in relation to such
profits was recorded as a current asset until the transaction
was realized by the group.
|
|||
27 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Reconciliations
from Canadian GAAP to IFRS
Reconciliation
of Net Income
Three Months |
Six Months |
||||||||
Ended |
Ended |
||||||||
June 30, |
June 30, |
||||||||
2010 | 2010 | ||||||||
Net Income Canadian GAAP
|
$ | 472 | $ | 921 | |||||
IFRS adjustments to net income:
|
|||||||||
Policy choices
|
|||||||||
Employee benefits Actuarial gains and
losses(a)
|
7 | 13 | |||||||
Other
|
|||||||||
Provisions Changes in asset retirement
obligations(b)
|
(24 | ) | (25 | ) | |||||
Property, plant and
equipment(d)
|
8 | 8 | |||||||
Borrowing
costs(e)
|
(4 | ) | (6 | ) | |||||
Manufacturing cost variances at interim
periods(f)
|
6 | 15 | |||||||
Employee benefits Past service
costs(a)
|
(1 | ) | (1 | ) | |||||
Impairment of
assets(g)
|
(2 | ) | (1 | ) | |||||
Share-based
payments(h)
|
14 | (1 | ) | ||||||
Income taxes Tax effect of above differences
|
1 | 1 | |||||||
Income tax-related
differences(i)
|
3 | | |||||||
Net Income IFRS
|
$ | 480 | $ | 924 | |||||
References relate to items
described in the Changes in Accounting Policies table above.
Reconciliation
of Shareholders Equity
June 30, |
|||||||||||||
2010 | |||||||||||||
Shareholders Equity Canadian GAAP
|
$ | 6,569 | |||||||||||
IFRS adjustments to shareholders equity:
|
|||||||||||||
Policy choices
|
|||||||||||||
Employee benefits Actuarial gains and
losses(a)
|
(352 | ) | |||||||||||
Other
|
|||||||||||||
Provisions Changes in asset retirement
obligations(b)
|
(90 | ) | |||||||||||
Investments(c)
|
(45 | ) | |||||||||||
Property, plant and
equipment(d)
|
27 | ||||||||||||
Borrowing
costs(e)
|
(20 | ) | |||||||||||
Manufacturing cost variances at interim
periods(f)
|
15 | ||||||||||||
Employee benefits Past service costs and Canadian
GAAP transition
amounts(a)
|
12 | ||||||||||||
Impairment of
assets(g)
|
6 | ||||||||||||
Constructive
obligations(b)
|
(2 | ) | |||||||||||
Share-based
payments(h)
|
1 | ||||||||||||
Income taxes Tax effect of above differences
|
153 | ||||||||||||
Income tax-related
differences(i)
|
128 | ||||||||||||
Shareholders Equity IFRS
|
$ | 6,402 | |||||||||||
References relate to items
described in the Changes in Accounting Policies table above.
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 28
Table of Contents
Reconciliation
of Comprehensive Income
Three Months |
Six Months |
||||||||
Ended |
Ended |
||||||||
June 30, |
June 30, |
||||||||
2010 | 2010 | ||||||||
Comprehensive Income Canadian GAAP
|
$ | (375 | ) | $ | 155 | ||||
IFRS adjustments to comprehensive income:
|
|||||||||
Differences in net income
|
8 | 3 | |||||||
Comprehensive Income IFRS
|
$ | (367 | ) | $ | 158 | ||||
References relate to items
described in the Changes in Accounting Policies table above.
29 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Item 2. Managements
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis are the responsibility of
management and are as of August 5, 2011. The Board of
Directors carries out its responsibility for review of this
disclosure principally through its audit committee, comprised
exclusively of independent directors. The audit committee
reviews and, prior to its publication, approves this disclosure,
pursuant to the authority delegated to it by the Board of
Directors. The term PCS refers to Potash Corporation
of Saskatchewan Inc. and the terms we,
us, our, PotashCorp and
the company refer to PCS and, as applicable, PCS and
its direct and indirect subsidiaries as a group. Additional
information relating to the company, including our Annual Report
on
Form 10-K,
can be found on SEDAR at www.sedar.com and on EDGAR at
www.sec.gov/edgar.shtml. The company is a foreign private issuer
under the rules and regulations of the US Securities and
Exchange Commission (the SEC); however, the company
currently files voluntarily on the SECs domestic forms.
Adoption
of International Financial Reporting Standards (IFRS)
The unaudited interim condensed consolidated financial
statements included in Item 1 of this Quarterly Report on
Form 10-Q
reflect the adoption of IFRS, with effect from January 1,
2010. Periods prior to January 1, 2010 have not been
restated and were in accordance with Canadian GAAP which, as
discussed in Item 1 of this Quarterly Report on
Form 10-Q,
was applied during the periods prior to the effective date of
the companys adoption of IFRS. As a foreign private issuer
under the rules and regulations of the SEC, the company is
permitted to use IFRS.
Our unaudited interim condensed consolidated financial
statements included in Part I Item 1 of our 2011 First
Quarter Quarterly Report on
Form 10-Q
contain a detailed description of our conversion to IFRS,
including a reconciliation of key components of our financial
statements previously prepared under Canadian GAAP to those
under IFRS as at January 1 and December 31, 2010, and for
the year ended December 31, 2010. Note 13 to the
unaudited interim condensed consolidated financial statements
included in Item 1 of this Quarterly Report on
Form 10-Q
contains a reconciliation of key components of our financial
statements previously prepared under Canadian GAAP to those
under IFRS as at and for the three months and six months ended
June 30, 2010.
Although the adoption of IFRS resulted in adjustments to our
financial statements, it did not materially impact the
underlying cash flows or profitability trends of our operating
performance, debt covenants or compensation arrangements.
PotashCorp
and Our Business Environment
PotashCorp is an integrated producer of fertilizer, industrial
and animal feed products. We are the worlds largest
fertilizer enterprise by capacity, producing the three primary
plant nutrients: potash, phosphate and nitrogen. We sell
fertilizer to North American retailers, cooperatives and
distributors that provide storage and application services to
farmers, the end users. Our offshore customers are government
agencies and private importers that buy under contract and on
the spot market; spot market sales are more prevalent in North
America, South America and Southeast Asia. Fertilizers are sold
primarily for spring and fall application in both Northern and
Southern hemispheres.
Transportation is an important part of the final purchase price
for fertilizer so producers usually sell to the closest
customers. In North America, we sell mainly on a delivered basis
via rail, barge, truck and pipeline. Offshore customers purchase
product either at the port where it is loaded or delivered with
freight included directly to a specified location.
Potash, phosphate and nitrogen are also used as inputs for the
production of animal feed and industrial products. Most feed and
industrial sales are by contract and are more evenly distributed
throughout the year than fertilizer sales.
PotashCorp
Strategy
To provide our stakeholders with long-term value, our strategy
focuses on generating growth while striving to minimize
fluctuations in an upward-trending earnings line. We apply this
strategy by concentrating on our highest margin products. Such
analysis dictates our Potash First strategy, focusing our
capital internally and through
investments on our world-class potash assets to meet
the rising global demand for this vital nutrient. By investing
in potash capacity while producing to meet market demand, we
seek to create the opportunity for significant growth while
limiting downside risk. We complement our potash operations with
focused phosphate and nitrogen businesses that emphasize the
production of higher-margin products with stable and sustainable
earnings potential.
We strive to enhance our position as supplier of choice to our
customers, delivering the highest quality products at market
prices when they are needed. We seek to be the preferred
supplier to high-volume, high-margin customers with the lowest
credit risk. It is critical to our success that our customers
recognize our ability to create value for them based on the
price they pay for our products.
As we plan for our future, we carefully weigh our choices for
use of our cash flow. We base investment decisions on cash flow
return materially exceeding cost of capital, evaluating the best
prospects for return on investment that match our Potash First
strategy. Most of our recent capital expenditures have gone to
investments in our own potash capacity, and we look to increase
our existing offshore potash investments and seek other merger
and acquisition opportunities related to this nutrient. We also
consider share repurchases and increased dividends as ways to
maximize shareholder value over the long term.
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 30
Table of Contents
Key
Performance Drivers Performance Compared to Goals
Each year we set targets to advance our long-term goals and
drive results. Our long-term goals and 2011 targets are set out
on pages 41 and 42 of our 2010 Financial Review Annual Report. A
summary of our progress against selected goals and
representative annual targets is set out below.
Representative |
Performance |
|||||
Goal | 2011 Annual Target | to June 30, 2011 | ||||
Achieve no harm to people.
|
Reduce total site severity injury rate by 35 percent from 2008 levels by the end of 2012. | Total site severity injury rate was 40 percent below the 2008 annual level for the first six months of 2011. It was 58 percent below the 2008 annual level for the first six months of 2010 and 62 percent below the 2008 annual level by the end of 2010. | ||||
Achieve no damage to the environment. | Reduce total reportable releases, permit excursions and spills by 10 percent from 2010 levels. | Annualized total reportable releases, permit excursions and spills were down 20 percent during the first six months of 2011 compared to 2010 annual levels. Compared to the first six months of 2010, total reportable releases, permit excursions and spills during the same period of 2011 were down 33 percent. | ||||
Create superior long-term shareholder value. | Exceed total shareholder return performance for our sector and the DAXglobal Agribusiness Index for 2011. | PotashCorps total shareholder return was 11 percent in the first six months of 2011 compared to our sectors weighted average return (based on market capitalization) of 1 percent and the DAXglobal Agribusiness Index weighted average return (based on market capitalization) of NIL percent. | ||||
Financial
Overview
This discussion and analysis are based on the companys
unaudited interim condensed consolidated financial statements
reported under IFRS, unless otherwise stated. These principles
differ in certain significant respects from accounting
principles generally accepted in the United States. These
differences are described and quantified in Note 12 to the
unaudited interim condensed consolidated financial statements
included in Item 1 of this Quarterly Report on
Form 10-Q.
All references to per-share amounts pertain to diluted net
income per share.
For an understanding of trends, events, uncertainties and the
effect of critical accounting estimates on our results and
financial condition, the entire document should be read
carefully, together with our 2010 Financial Review Annual Report
and our 2011 First Quarter Quarterly Report on
Form 10-Q.
Earnings
Guidance Second Quarter 2011
Company Guidance | Actual Results | ||||
Earnings per share
|
$0.70 $0.90 | $0.96 | |||
Overview of
Actual Results
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||||||||||||
Dollars (millions)
|
% |
% |
|||||||||||||||||||||||||||||||
except per-share amounts | 2011 | 2010 | Change | Change | 2011 | 2010 | Change | Change | |||||||||||||||||||||||||
Sales
|
$ | 2,325 | $ | 1,437 | $ | 888 | 62 | $ | 4,529 | $ | 3,151 | $ | 1,378 | 44 | |||||||||||||||||||
Gross Margin
|
1,168 | 585 | 583 | 100 | 2,264 | 1,314 | 950 | 72 | |||||||||||||||||||||||||
Operating Income
|
1,175 | 679 | 496 | 73 | 2,200 | 1,345 | 855 | 64 | |||||||||||||||||||||||||
Net Income
|
840 | 480 | 360 | 75 | 1,572 | 924 | 648 | 70 | |||||||||||||||||||||||||
Net Income per Share Diluted
|
0.96 | 0.53 | 0.43 | 81 | 1.79 | 1.01 | 0.78 | 77 | |||||||||||||||||||||||||
Other Comprehensive Loss
|
(94 | ) | (847 | ) | 753 | (89 | ) | (340 | ) | (766 | ) | 426 | (56 | ) | |||||||||||||||||||
31 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Record earnings in the second quarter and first half of 2011
were higher than the same periods of 2010 due to higher sales
prices for all nutrients and increased demand for potash,
phosphate and ammonia. Attractive economics for goods that use
our products continued to increase our customers
consumption of our products. Strong demand coupled with our low
inventories put upward pressure on pricing for most products.
Second-quarter potash gross margin represented 68 percent
of total second-quarter gross margin (70 percent in
2010) and 68 percent of first six months gross margin
(72 percent in 2010). Sales prices for phosphate fertilizer
products and all nitrogen products increased significantly
during the second quarter and first six months of 2011 compared
to the same periods in 2010.
Despite volatility in commodity markets, crop economics remained
attractive throughout the second quarter, giving farmers the
incentive to improve nutrient applications, which resulted in
rising fertilizer demand and pricing. During the quarter, key
spot-market potash buyers moved aggressively to secure
sufficient volumes to fill immediate needs. With demand putting
pressure on global supply capabilities, producers operated at or
near record production levels in an attempt to keep pace.
Offshore potash shipments from North American producers for the
second quarter were 23 percent higher than in the same
period in 2010 and reached a record 5.9 million tonnes for
the first half of 2011. This was achieved on the strength of
demand in Latin America and spot markets in Asia, which more
than offset the absence of India, where there has been no
contract since the end of the first quarter of 2011. Despite a
late planting season, domestic shipments from North American
producers during the quarter rose 39 percent from the same
period last year. Combined with a strong first quarter,
first-half domestic shipments reached 4.6 million tonnes,
similar to totals for the same period last year. By the end of
the second quarter, North American producer inventories were
reduced to their lowest levels of the year
26 percent below the average of the last five years.
Tightening supply/demand conditions continued to push prices
higher in most major markets, including China, which signed new
supply commitments late in the second quarter.
In phosphate, second-quarter solid fertilizer shipments from US
producers climbed 9 percent from the same quarter last
year, buoyed by strong export demand. Following the settlement
of six-month commitments with India in late March, exports from
US producers rose 19 percent compared to the second quarter
of 2010. By the end of June, US solid phosphate producer
inventories were 28 percent below the previous five-year
average. The combination of strong demand, higher raw material
costs and the expectation of lower phosphate exports from China
exerted upward pressure on pricing. In nitrogen, demand remained
robust, with second-quarter US domestic shipments of ammonia and
urea comparable to 2010 levels. US producer inventories for both
products tightened in the quarter, pushing up prices for all
nitrogen products. After lagging ammonia through the first
quarter of 2011, prices for urea moved sharply higher on strong
agricultural demand and an expectation of lower urea exports
from China. Competitive US gas prices continued to support
healthy margins for domestic nitrogen producers.
Other significant factors that affected earnings in the second
quarter and first half of 2011 compared to the same periods in
2010 were: (1) higher income taxes due to increased
earnings; (2) lower dividend income from Israel Chemicals
Ltd. (ICL); (3) more earnings from
equity-accounted investees; (4) higher selling and
administrative expenses due to certain compensation arrangements
(quarter over quarter, 2010 results were impacted by a lower
share price, while year over year, our share price rose in 2011
but fell in 2010); and (5) increased provincial mining and
other taxes as a result of escalating potash sales revenue and
profits. Other comprehensive loss for the second quarter of 2011
was due to a decline in the fair value of our investment in ICL.
The fair value decline of our investments in ICL and Sinofert
Holdings Limited (Sinofert) during the first half of
2011 led to other comprehensive loss for that period. In 2010,
other comprehensive loss for the second quarter and first half
were the result of even larger declines in the fair values of
both ICL and Sinofert.
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 32
Table of Contents
Balance
Sheet
Property, plant and equipment increased primarily
(80 percent) due to our previously announced potash
capacity expansions and other potash projects.
Available-for-sale
investments declined due to the fair value of our investments in
ICL and Sinofert falling. Receivables were mainly impacted by
higher trade receivables (consistent with higher sales) and
partially offset by declines in hedge margin deposits on our
natural gas derivatives. As at June 30, 2011,
$321 million of our cash and cash equivalents were held in
certain foreign subsidiaries. There are no current plans to
repatriate these funds in a taxable manner.
Short-term debt decreased in the first half of 2011 as a result
of repaying
10-year
senior notes in the second quarter and commercial paper
repayments exceeding advances. Deferred income tax liabilities
increased primarily due to tax depreciation exceeding accounting
depreciation.
Significant changes in equity were primarily the result of net
income being partially offset by other comprehensive losses for
the first six months of 2011, as discussed in more detail above.
Operating Segment
Review
Note 5 to the unaudited interim condensed consolidated
financial statements provides information pertaining to our
operating segments. Management includes net sales in segment
disclosures in the unaudited interim condensed consolidated
financial statements pursuant to IFRS, which requires
segmentation based upon our internal organization and reporting
of revenue and profit measures derived from internal accounting
methods. As a component of gross margin, net sales (and the
related per-tonne amounts) are the primary revenue measures we
use and review in making decisions about operating matters on a
business segment basis. These decisions include assessments
about potash, phosphate and nitrogen performance and the
resources to be allocated to these segments. We also use net
sales (and the related per-tonne amounts) for business planning
and monthly forecasting. Net sales are calculated as sales
revenues less freight, transportation and distribution expenses.
33 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Our discussion of segment operating performance is set out below
and includes nutrient product
and/or
market performance results where applicable to give further
insight into these results.
Potash
Three Months Ended June 30 | ||||||||||||||||||||||||||||||||||||
Dollars (millions) | Tonnes (thousands) | Average per Tonne(1) | ||||||||||||||||||||||||||||||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | 2011 | 2010 | % Change | ||||||||||||||||||||||||||||
Sales
|
$ | 1,121 | $ | 641 | 75 | |||||||||||||||||||||||||||||||
Freight, transportation and distribution
|
(70 | ) | (51 | ) | 37 | |||||||||||||||||||||||||||||||
Net sales
|
$ | 1,051 | $ | 590 | 78 | |||||||||||||||||||||||||||||||
Manufactured product
|
||||||||||||||||||||||||||||||||||||
Net sales
|
||||||||||||||||||||||||||||||||||||
North America
|
$ | 409 | $ | 213 | 92 | 831 | 575 | 45 | $ | 492 | $ | 370 | 33 | |||||||||||||||||||||||
Offshore
|
640 | 375 | 71 | 1,690 | 1,329 | 27 | $ | 379 | $ | 282 | 34 | |||||||||||||||||||||||||
1,049 | 588 | 78 | 2,521 | 1,904 | 32 | $ | 416 | $ | 309 | 35 | ||||||||||||||||||||||||||
Cost of goods sold
|
(256 | ) | (185 | ) | 38 | $ | (101 | ) | $ | (97 | ) | 4 | ||||||||||||||||||||||||
Gross margin
|
793 | 403 | 97 | $ | 315 | $ | 212 | 49 | ||||||||||||||||||||||||||||
Other miscellaneous and purchased product
|
||||||||||||||||||||||||||||||||||||
Net sales
|
2 | 2 | | |||||||||||||||||||||||||||||||||
Cost of goods sold
|
(2 | ) | 6 | n/m | ||||||||||||||||||||||||||||||||
Gross margin
|
| 8 | (100 | ) | ||||||||||||||||||||||||||||||||
Gross Margin
|
$ | 793 | $ | 411 | 93 | $ | 315 | $ | 216 | 46 | ||||||||||||||||||||||||||
(1) | Rounding differences may occur due to the use of whole dollars in per-tonne calculations. |
n/m = not meaningful
Six Months Ended June 30 | ||||||||||||||||||||||||||||||||||||
Dollars (millions) | Tonnes (thousands) | Average per Tonne(1) | ||||||||||||||||||||||||||||||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | 2011 | 2010 | % Change | ||||||||||||||||||||||||||||
Sales
|
$ | 2,230 | $ | 1,533 | 45 | |||||||||||||||||||||||||||||||
Freight, transportation and distribution
|
(153 | ) | (147 | ) | 4 | |||||||||||||||||||||||||||||||
Net sales
|
$ | 2,077 | $ | 1,386 | 50 | |||||||||||||||||||||||||||||||
Manufactured product
|
||||||||||||||||||||||||||||||||||||
Net sales
|
||||||||||||||||||||||||||||||||||||
North America
|
$ | 875 | $ | 663 | 32 | 1,923 | 1,841 | 4 | $ | 455 | $ | 360 | 26 | |||||||||||||||||||||||
Offshore
|
1,195 | 717 | 67 | 3,386 | 2,527 | 34 | $ | 353 | $ | 284 | 24 | |||||||||||||||||||||||||
2,070 | 1,380 | 50 | 5,309 | 4,368 | 22 | $ | 390 | $ | 316 | 23 | ||||||||||||||||||||||||||
Cost of goods sold
|
(536 | ) | (445 | ) | 20 | $ | (101 | ) | $ | (102 | ) | (1 | ) | |||||||||||||||||||||||
Gross margin
|
1,534 | 935 | 64 | $ | 289 | $ | 214 | 35 | ||||||||||||||||||||||||||||
Other miscellaneous and purchased product
|
||||||||||||||||||||||||||||||||||||
Net sales
|
7 | 6 | 17 | |||||||||||||||||||||||||||||||||
Cost of goods sold
|
(5 | ) | | n/m | ||||||||||||||||||||||||||||||||
Gross margin
|
2 | 6 | (67 | ) | ||||||||||||||||||||||||||||||||
Gross Margin
|
$ | 1,536 | $ | 941 | 63 | $ | 289 | $ | 215 | 34 | ||||||||||||||||||||||||||
(1) | Rounding differences may occur due to the use of whole dollars in per-tonne calculations. |
n/m = not meaningful
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 34
Table of Contents
Potash gross margin
variance attributable to:
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||||||||||||||||||||||||||
2011 vs. 2010 | 2011 vs. 2010 | |||||||||||||||||||||||||||||||||||||||
Change in |
Change in |
|||||||||||||||||||||||||||||||||||||||
Prices/Costs | Prices/Costs | |||||||||||||||||||||||||||||||||||||||
Change in |
Net |
Cost of |
Change in |
Net |
Cost of |
|||||||||||||||||||||||||||||||||||
Dollars (millions) | Sales Volumes | Sales | Goods Sold | Total | Sales Volumes | Sales | Goods Sold | Total | ||||||||||||||||||||||||||||||||
Manufactured product
|
||||||||||||||||||||||||||||||||||||||||
North America
|
$ | 75 | $ | 105 | $ | (3 | ) | $ | 177 | $ | 24 | $ | 183 | $ | 11 | $ | 218 | |||||||||||||||||||||||
Offshore
|
79 | 164 | (29 | ) | 214 | 186 | 235 | (39 | ) | 382 | ||||||||||||||||||||||||||||||
Change in market mix
|
| (1 | ) | | (1 | ) | 27 | (25 | ) | (3 | ) | (1 | ) | |||||||||||||||||||||||||||
Total manufactured product
|
$ | 154 | $ | 268 | $ | (32 | ) | $ | 390 | $ | 237 | $ | 393 | $ | (31 | ) | $ | 599 | ||||||||||||||||||||||
Other miscellaneous and purchased product
|
(8 | ) | (4 | ) | ||||||||||||||||||||||||||||||||||||
Total
|
$ | 382 | $ | 595 | ||||||||||||||||||||||||||||||||||||
35 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Canpotex sales to major markets, by percentage of sales volumes,
were as follows:
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||||||||||||||||||||
2011 | 2010 | Change | % Change | 2011 | 2010 | Change | % Change | |||||||||||||||||||||||||||||||||
Asia (excluding China and India)
|
51 | 47 | 4 | 9 | 48 | 49 | (1 | ) | (2 | ) | ||||||||||||||||||||||||||||||
Latin America
|
32 | 18 | 14 | 78 | 30 | 18 | 12 | 67 | ||||||||||||||||||||||||||||||||
China
|
14 | 8 | 6 | 75 | 15 | 12 | 3 | 25 | ||||||||||||||||||||||||||||||||
India
|
| 20 | (20 | ) | (100 | ) | 3 | 14 | (11 | ) | (79 | ) | ||||||||||||||||||||||||||||
Oceania, Europe and Other
|
3 | 7 | (4 | ) | (57 | ) | 4 | 7 | (3 | ) | (43 | ) | ||||||||||||||||||||||||||||
100 | 100 | 100 | 100 | |||||||||||||||||||||||||||||||||||||
The most significant contributors to the change in total gross
margin quarter over quarter were as
follows(1):
(1) | Direction of arrows refers to impact on gross margin. |
Net Sales Prices
|
Sales Volumes
|
Cost of Goods Sold
|
||||||||
á
|
Prices continued to move higher as previously announced increases began to be reflected in results, with our average second-quarter realized price climbing $107 and up $50 per tonne from first-quarter 2011. |
á
á á |
Strong sales were due to highly supportive agricultural economics around the world.
Canpotex shipments were higher to almost all offshore markets with the exception of India, which did not have a contract in the second quarter of 2011. The strongest demand came from Asian countries (other than China and India) and from Latin America. North American volumes were up on strong farmer demand and a lower comparative figure in the second quarter of 2010 as shipments slowed following record demand in the first quarter of 2010. |
á
â â â â |
No shutdown costs incurred in 2011 (five weeks taken in 2010) as facilities operated at or near their full capabilities.
The Canadian dollar strengthened relative to the US dollar. Royalty costs rose due to higher sales prices. Personnel costs higher due to additional staffing. Offshore cost of goods sold negative variance was greater than North America due to relatively high offshore product coming from our higher-cost mines. |
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 36
Table of Contents
The most significant contributors to the change in total gross
margin year over year were as
follows(1):
(1)
Direction of arrows refers to impact on gross margin.
Net Sales Prices
|
Sales Volumes
|
Cost of Goods Sold
|
||||||||
á
á |
Higher average realized prices reflected new pricing levels announced in late 2010 and early 2011 in both offshore and North American spot markets.
Canpotex signed an agreement with China for the first half of 2011 at prices approximately $50 per tonne higher than the 2010 China contract. |
á
á |
Record Canpotex shipments to offshore markets were the result of strong demand for potash due to high crop commodity prices and limited customer inventories at the start of the year.
Canpotexs increased shipments to Latin America, Asia (excluding China and India) and China exceeded the decline in sales to India, which did not have a contract in the second quarter of 2011. |
á
â â á â á â |
No shutdown costs incurred in 2011 (18 weeks taken in 2010) as facilities operated at or near their full capabilities.
The Canadian dollar strengthened relative to the US dollar. Saskatchewan royalties increased due to higher prices. New Brunswick royalties were lower as inventories sold in 2010 included royalties based on higher 2009 average sales prices. Depreciation costs increased due to higher asset levels associated with our mine expansion activity. North American cost of goods sold variance was positive as a relatively higher percentage of products produced at lower-cost mines, or using lower-cost processes, was sold. Offshore cost of goods sold variance was negative due to more of that product coming from our higher-cost mines as compared to last year. |
North American customers generally prefer premium priced
granular product over standard product more typically consumed
offshore.
The change in market mix produced a favorable variance of
$27 million related to sales volumes and an unfavorable
variance of $25 million in sales prices due to the majority
of lower-priced standard product being sold to the offshore
market whereas last year, higher-priced granular sales to North
America comprised a larger proportion of total sales.
On July 20, 2011, three new collective agreements were
ratified by unions representing employees in Saskatchewan at the
Allan, Cory and Patience Lake mines. These collective agreements
expire April 30, 2014.
37 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Phosphate
Three Months Ended June 30 | ||||||||||||||||||||||||||||||||||||
Dollars (millions) | Tonnes (thousands) | Average per Tonne(1) | ||||||||||||||||||||||||||||||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | 2011 | 2010 | % Change | ||||||||||||||||||||||||||||
Sales
|
$ | 633 | $ | 364 | 74 | |||||||||||||||||||||||||||||||
Freight, transportation and distribution
|
(40 | ) | (28 | ) | 43 | |||||||||||||||||||||||||||||||
Net sales
|
$ | 593 | $ | 336 | 76 | |||||||||||||||||||||||||||||||
Manufactured product
|
||||||||||||||||||||||||||||||||||||
Net sales
|
||||||||||||||||||||||||||||||||||||
Fertilizer liquids
|
$ | 158 | $ | 81 | 95 | 298 | 219 | 36 | $ | 529 | $ | 372 | 42 | |||||||||||||||||||||||
Fertilizer solids
|
234 | 98 | 139 | 398 | 215 | 85 | $ | 588 | $ | 456 | 29 | |||||||||||||||||||||||||
Feed
|
82 | 68 | 21 | 153 | 146 | 5 | $ | 536 | $ | 464 | 16 | |||||||||||||||||||||||||
Industrial
|
112 | 82 | 37 | 164 | 139 | 18 | $ | 682 | $ | 591 | 15 | |||||||||||||||||||||||||
586 | 329 | 78 | 1,013 | 719 | 41 | $ | 578 | $ | 458 | 26 | ||||||||||||||||||||||||||
Cost of goods sold
|
(423 | ) | (284 | ) | 49 | $ | (417 | ) | $ | (395 | ) | 6 | ||||||||||||||||||||||||
Gross margin
|
163 | 45 | 262 | $ | 161 | $ | 63 | 156 | ||||||||||||||||||||||||||||
Other miscellaneous and purchased product
|
||||||||||||||||||||||||||||||||||||
Net sales
|
7 | 7 | | |||||||||||||||||||||||||||||||||
Cost of goods sold
|
(4 | ) | (3 | ) | 33 | |||||||||||||||||||||||||||||||
Gross margin
|
3 | 4 | (25 | ) | ||||||||||||||||||||||||||||||||
Gross Margin
|
$ | 166 | $ | 49 | 239 | $ | 164 | $ | 68 | 141 | ||||||||||||||||||||||||||
(1) | Rounding differences may occur due to the use of whole dollars in per-tonne calculations. |
Six Months Ended June 30 | ||||||||||||||||||||||||||||||||||||
Dollars (millions) | Tonnes (thousands) | Average per Tonne(1) | ||||||||||||||||||||||||||||||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | 2011 | 2010 | % Change | ||||||||||||||||||||||||||||
Sales
|
$ | 1,182 | $ | 765 | 55 | |||||||||||||||||||||||||||||||
Freight, transportation and distribution
|
(83 | ) | (63 | ) | 32 | |||||||||||||||||||||||||||||||
Net sales
|
$ | 1,099 | $ | 702 | 57 | |||||||||||||||||||||||||||||||
Manufactured product
|
||||||||||||||||||||||||||||||||||||
Net sales
|
||||||||||||||||||||||||||||||||||||
Fertilizer liquids
|
$ | 328 | $ | 162 | 102 | 647 | 467 | 39 | $ | 507 | $ | 349 | 45 | |||||||||||||||||||||||
Fertilizer solids
|
391 | 224 | 75 | 653 | 508 | 29 | $ | 598 | $ | 440 | 36 | |||||||||||||||||||||||||
Feed
|
153 | 139 | 10 | 288 | 313 | (8 | ) | $ | 531 | $ | 444 | 20 | ||||||||||||||||||||||||
Industrial
|
213 | 164 | 30 | 318 | 291 | 9 | $ | 669 | $ | 565 | 18 | |||||||||||||||||||||||||
1,085 | 689 | 57 | 1,906 | 1,579 | 21 | $ | 569 | $ | 437 | 30 | ||||||||||||||||||||||||||
Cost of goods sold
|
(776 | ) | (584 | ) | 33 | $ | (407 | ) | $ | (371 | ) | 10 | ||||||||||||||||||||||||
Gross margin
|
309 | 105 | 194 | $ | 162 | $ | 66 | 145 | ||||||||||||||||||||||||||||
Other miscellaneous and purchased product
|
||||||||||||||||||||||||||||||||||||
Net sales
|
14 | 13 | 8 | |||||||||||||||||||||||||||||||||
Cost of goods sold
|
(7 | ) | (5 | ) | 40 | |||||||||||||||||||||||||||||||
Gross margin
|
7 | 8 | (13 | ) | ||||||||||||||||||||||||||||||||
Gross Margin
|
$ | 316 | $ | 113 | 180 | $ | 166 | $ | 72 | 131 | ||||||||||||||||||||||||||
(1) | Rounding differences may occur due to the use of whole dollars in per-tonne calculations. |
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 38
Table of Contents
Phosphate gross margin variance attributable to:
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||||||||||||||||||||||||||
2011 vs. 2010 | 2011 vs. 2010 | |||||||||||||||||||||||||||||||||||||||
Change in |
Change in |
|||||||||||||||||||||||||||||||||||||||
Prices/Costs | Prices/Costs | |||||||||||||||||||||||||||||||||||||||
Change in |
Net |
Cost of |
Change in |
Net |
Cost of |
|||||||||||||||||||||||||||||||||||
Dollars (millions) | Sales Volumes | Sales | Goods Sold | Total | Sales Volumes | Sales | Goods Sold | Total | ||||||||||||||||||||||||||||||||
Manufactured product
|
||||||||||||||||||||||||||||||||||||||||
Fertilizer liquids
|
$ | 17 | $ | 46 | $ | (23 | ) | $ | 40 | $ | 37 | $ | 102 | $ | (59 | ) | $ | 80 | ||||||||||||||||||||||
Fertilizer solids
|
39 | 56 | (30 | ) | 65 | 30 | 104 | (44 | ) | 90 | ||||||||||||||||||||||||||||||
Feed
|
2 | 12 | (7 | ) | 7 | (5 | ) | 25 | (7 | ) | 13 | |||||||||||||||||||||||||||||
Industrial
|
9 | 15 | (18 | ) | 6 | 11 | 33 | (23 | ) | 21 | ||||||||||||||||||||||||||||||
Change in market mix
|
3 | (2 | ) | (1 | ) | | 12 | (11 | ) | (1 | ) | | ||||||||||||||||||||||||||||
Total manufactured product
|
$ | 70 | $ | 127 | $ | (79 | ) | $ | 118 | $ | 85 | $ | 253 | $ | (134 | ) | $ | 204 | ||||||||||||||||||||||
Other miscellaneous and purchased product
|
(1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||
Total
|
$ | 117 | $ | 203 | ||||||||||||||||||||||||||||||||||||
39 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
The most significant contributors to the change in total gross
margin quarter over quarter were as
follows(1):
(1)
Direction of arrows refers to impact on gross margin.
Net Sales Prices
|
Sales Volumes
|
Cost of Goods Sold
|
||||||||
á
á á |
Realized prices for liquid and solid fertilizers were up as the prices of these products reflected the strength in global demand and the tight supply.
Prices for feed products were up, responding less rapidly than fertilizer prices as a result of challenging livestock economics. Industrial prices rose, but not as much as fertilizers, as they are influenced by certain longer-term contracts that lag market conditions. |
á
á á |
Strong agricultural fundamentals drove higher demand for fertilizer products both liquids and solids resulting in a larger allocation of sales volumes to these products.
Solid products were further supported by increased spot sales. Industrial demand reflected increased US manufacturing activity. |
â
â |
Costs were impacted by higher sulfur costs (up 56 percent).
Solid fertilizer costs also reflected higher ammonia costs (up 47 percent). |
|||||
The most significant contributors to the change in total gross
margin year over year were as
follows(1):
(1)
Direction of arrows refers to impact on gross margin.
Net Sales Prices
|
Sales Volumes
|
Cost of Goods Sold
|
||||||||
á
á |
Prices for phosphate products were higher due to strong crop economics, historically low inventories at the start of 2011 and higher input prices.
The largest price increases were evident in liquid and solid fertilizers, which rose on strong agricultural fundamentals and higher input costs. |
á
â |
Fertilizer volumes grew as we allocated more production to capitalize on the higher-margin opportunity in these product lines.
Demand for feed products was impacted by higher grain prices which increased the use of substitute feed ingredients. |
â
â â |
Costs were impacted by higher sulfur costs (up 62 percent).
Solid fertilizer costs also reflected higher ammonia costs (up 35 percent). Fertilizer costs were higher than feed and industrial costs due to a higher allocation of fixed costs (a result of fertilizer production volumes increasing more significantly than volumes for the other products). |
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 40
Table of Contents
Nitrogen
Three Months Ended June 30 | ||||||||||||||||||||||||||||||||||||
Dollars (millions) | Tonnes (thousands) | Average per Tonne(1) | ||||||||||||||||||||||||||||||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | 2011 | 2010 | % Change | ||||||||||||||||||||||||||||
Sales
|
$ | 571 | $ | 432 | 32 | |||||||||||||||||||||||||||||||
Freight, transportation and distribution
|
(22 | ) | (20 | ) | 10 | |||||||||||||||||||||||||||||||
Net sales
|
$ | 549 | $ | 412 | 33 | |||||||||||||||||||||||||||||||
Manufactured product
|
||||||||||||||||||||||||||||||||||||
Net sales
|
||||||||||||||||||||||||||||||||||||
Ammonia
|
$ | 280 | $ | 177 | 58 | 514 | 461 | 11 | $ | 545 | $ | 383 | 42 | |||||||||||||||||||||||
Urea
|
130 | 100 | 30 | 316 | 324 | (2 | ) | $ | 413 | $ | 310 | 33 | ||||||||||||||||||||||||
Nitrogen solutions/Nitric acid/Ammonium nitrate
|
110 | 101 | 9 | 469 | 532 | (12 | ) | $ | 234 | $ | 190 | 23 | ||||||||||||||||||||||||
520 | 378 | 38 | 1,299 | 1,317 | (1 | ) | $ | 400 | $ | 287 | 39 | |||||||||||||||||||||||||
Cost of goods sold
|
(322 | ) | (258 | ) | 25 | $ | (248 | ) | $ | (196 | ) | 27 | ||||||||||||||||||||||||
Gross margin
|
198 | 120 | 65 | $ | 152 | $ | 91 | 67 | ||||||||||||||||||||||||||||
Other miscellaneous and purchased product
|
||||||||||||||||||||||||||||||||||||
Net sales
|
29 | 34 | (15 | ) | ||||||||||||||||||||||||||||||||
Cost of goods sold
|
(18 | ) | (29 | ) | (38 | ) | ||||||||||||||||||||||||||||||
Gross margin
|
11 | 5 | 120 | |||||||||||||||||||||||||||||||||
Gross Margin
|
$ | 209 | $ | 125 | 67 | $ | 161 | $ | 95 | 69 | ||||||||||||||||||||||||||
(1) | Rounding differences may occur due to the use of whole dollars in per-tonne calculations. |
Six Months Ended June 30 | ||||||||||||||||||||||||||||||||||||
Dollars (millions) | Tonnes (thousands) | Average per Tonne(1) | ||||||||||||||||||||||||||||||||||
2011 | 2010 | % Change | 2011 | 2010 | % Change | 2011 | 2010 | % Change | ||||||||||||||||||||||||||||
Sales
|
$ | 1,117 | $ | 853 | 31 | |||||||||||||||||||||||||||||||
Freight, transportation and distribution
|
(45 | ) | (44 | ) | 2 | |||||||||||||||||||||||||||||||
Net sales
|
$ | 1,072 | $ | 809 | 33 | |||||||||||||||||||||||||||||||
Manufactured product
|
||||||||||||||||||||||||||||||||||||
Net sales
|
||||||||||||||||||||||||||||||||||||
Ammonia
|
$ | 524 | $ | 324 | 62 | 1,028 | 891 | 15 | $ | 510 | $ | 364 | 40 | |||||||||||||||||||||||
Urea
|
268 | 221 | 21 | 647 | 668 | (3 | ) | $ | 414 | $ | 331 | 25 | ||||||||||||||||||||||||
Nitrogen solutions/Nitric acid/Ammonium nitrate
|
222 | 200 | 11 | 964 | 1,080 | (11 | ) | $ | 230 | $ | 185 | 24 | ||||||||||||||||||||||||
1,014 | 745 | 36 | 2,639 | 2,639 | | $ | 384 | $ | 282 | 36 | ||||||||||||||||||||||||||
Cost of goods sold
|
(621 | ) | (497 | ) | 25 | $ | (235 | ) | $ | (188 | ) | 25 | ||||||||||||||||||||||||
Gross margin
|
393 | 248 | 58 | $ | 149 | $ | 94 | 59 | ||||||||||||||||||||||||||||
Other miscellaneous and purchased product
|
||||||||||||||||||||||||||||||||||||
Net sales
|
58 | 64 | (9 | ) | ||||||||||||||||||||||||||||||||
Cost of goods sold
|
(39 | ) | (52 | ) | (25 | ) | ||||||||||||||||||||||||||||||
Gross margin
|
19 | 12 | 58 | |||||||||||||||||||||||||||||||||
Gross Margin
|
$ | 412 | $ | 260 | 58 | $ | 156 | $ | 99 | 58 | ||||||||||||||||||||||||||
(1) | Rounding differences may occur due to the use of whole dollars in per-tonne calculations. |
41 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Nitrogen gross margin variance attributable to:
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||||||||||||||||||||
2011 vs. 2010 | 2011 vs. 2010 | |||||||||||||||||||||||||||||||||
Change in |
Change in |
|||||||||||||||||||||||||||||||||
Prices/Costs | Prices/Costs | |||||||||||||||||||||||||||||||||
Change in |
Net |
Cost of |
Change in |
Net |
Cost of |
|||||||||||||||||||||||||||||
Dollars (millions) | Sales Volumes | Sales | Goods Sold | Total | Sales Volumes | Sales | Goods Sold | Total | ||||||||||||||||||||||||||
Manufactured product
|
||||||||||||||||||||||||||||||||||
Ammonia
|
$ | 12 | $ | 83 | $ | (39 | ) | $ | 56 | $ | 28 | $ | 150 | $ | (70 | ) | $ | 108 | ||||||||||||||||
Urea
|
(1 | ) | 32 | (13 | ) | 18 | (4 | ) | 54 | (19 | ) | 31 | ||||||||||||||||||||||
Solutions, NA, AN
|
(3 | ) | 20 | (14 | ) | 3 | (3 | ) | 43 | (26 | ) | 14 | ||||||||||||||||||||||
Hedge
|
| | 1 | 1 | | | (8 | ) | (8 | ) | ||||||||||||||||||||||||
Change in market mix
|
(12 | ) | 12 | | | (22 | ) | 22 | | | ||||||||||||||||||||||||
Total manufactured product
|
$ | (4 | ) | $ | 147 | $ | (65 | ) | $ | 78 | $ | (1 | ) | $ | 269 | $ | (123 | ) | $ | 145 | ||||||||||||||
Other miscellaneous and purchased product
|
6 | 7 | ||||||||||||||||||||||||||||||||
Total
|
$ | 84 | $ | 152 | ||||||||||||||||||||||||||||||
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 42
Table of Contents
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||||||||||||||
Sales Tonnes (thousands) | Price per Tonne | Sales Tonnes (thousands) | Price per Tonne | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||
Fertilizer
|
448 | 527 | $ | 428 | $ | 283 | 836 | 1,025 | $ | 401 | $ | 271 | ||||||||||||||||||||||
Feed
|
8 | 6 | $ | 502 | $ | 380 | 16 | 14 | $ | 496 | $ | 402 | ||||||||||||||||||||||
Industrial
|
843 | 784 | $ | 385 | $ | 290 | 1,787 | 1,600 | $ | 375 | $ | 289 | ||||||||||||||||||||||
1,299 | 1,317 | $ | 400 | $ | 287 | 2,639 | 2,639 | $ | 384 | $ | 282 | |||||||||||||||||||||||
The most significant contributors to the change in total gross
margin quarter over quarter were as
follows(1):
(1) Direction
of arrows refers to impact on gross margin.
Net Sales Prices
|
Sales Volumes
|
Cost of Goods Sold
|
||||||||
á | Nitrogen fertilizer prices increased as a result of strong agricultural margins and limited global supplies of ammonia, urea and nitrogen solutions. Prices also continue to be affected by higher production costs in key producing regions. |
á
â |
Strong industrial and agricultural demand for ammonia resulted in a larger share of production being allocated to this higher-margin product.
More production being allocated to ammonia limited production of nitrogen downstream products. |
â | Average natural gas costs in production, including hedge, increased 30 percent. Natural gas costs in Trinidad production rose 55 percent (contract price indexed, in part, to ammonia prices) while our US spot costs for natural gas used in production increased 6 percent. Including hedge losses, US gas prices increased 1 percent. |
The most significant contributors to the change in total gross
margin year over year were as
follows(1):
(1)
Direction of arrows refers to impact on gross margin.
Net Sales Prices
|
Sales Volumes
|
Cost of Goods Sold
|
||||||||
á | Realized prices increased as a result of tight global supplies for ammonia, urea and nitrogen solutions, higher production costs in Ukraine and Western Europe and stronger agricultural and industrial demand than in 2010. | á | Ammonia sales rose as a greater percentage of our production was allocated to this higher-margin product to meet strong industrial and agricultural demand, limiting production of downstream products. | â | Average natural gas costs in production, including hedge, increased 24 percent. Natural gas costs in Trinidad production rose 48 percent while our US spot costs for natural gas used in production decreased 10 percent. Including hedge losses, US gas prices decreased 2 percent. |
Expenses and
Other Income
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||||||||||||||
Dollars (millions) | 2011 | 2010 | Change | % Change | 2011 | 2010 | Change | % Change | ||||||||||||||||||||||||||
Selling and administrative expenses
|
$ | (55 | ) | $ | (33 | ) | $ | (22 | ) | 67 | $ | (130 | ) | $ | (93 | ) | $ | (37 | ) | 40 | ||||||||||||||
Provincial mining and other taxes
|
(60 | ) | (17 | ) | (43 | ) | 253 | (94 | ) | (40 | ) | (54 | ) | 135 | ||||||||||||||||||||
Share of earnings of equity-accounted investees
|
66 | 45 | 21 | 47 | 117 | 71 | 46 | 65 | ||||||||||||||||||||||||||
Dividend income
|
53 | 114 | (61 | ) | (54 | ) | 53 | 114 | (61 | ) | (54 | ) | ||||||||||||||||||||||
Other income (expenses)
|
3 | (15 | ) | 18 | n/m | (10 | ) | (21 | ) | 11 | (52 | ) | ||||||||||||||||||||||
Finance costs
|
(38 | ) | (34 | ) | (4 | ) | 12 | (88 | ) | (65 | ) | (23 | ) | 35 | ||||||||||||||||||||
Income taxes
|
(297 | ) | (165 | ) | (132 | ) | 80 | (540 | ) | (356 | ) | (184 | ) | 52 | ||||||||||||||||||||
n/m = not meaningful
Selling and administrative expenses were up quarter over quarter
due to increased donations and expenses associated with our
medium-term incentive plan and deferred share units (both were
primarily impacted by our declining share price in 2010). Year
over year, selling and
43 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
administrative expenses were impacted by higher accruals for
deferred share units and our medium-term incentive plan (our
share price increased during the first six months of 2011 and
decreased for the same period in 2010) and increased
community investments.
Provincial mining and other taxes are comprised mainly of the
Saskatchewan Potash Production Tax (PPT) and a
resource surcharge. The PPT is comprised of a base tax per tonne
of product sold and an additional tax based on mine profit,
which is reduced by potash capital expenditures. The resource
surcharge is a percentage of the value of the companys
Saskatchewan resource sales. The resource surcharge rose as a
result of higher potash sales revenues in the second quarter and
first half of 2011. The PPT expense in the first six months of
2011 increased as a result of higher potash profitability. There
was no PPT in the first six months of 2010 due to lower
profitability and loss carryforwards.
Share of earnings of equity-accounted investees, Arab Potash
Company Ltd. and Sociedad Quimica y Minera de Chile S.A., was
higher than last year due to increased earnings by these
companies. Fewer dividends were received from ICL in 2011
compared to last year when a special dividend was received.
Finance costs were affected by senior notes being issued in the
fourth quarter of 2010, the repayment of
10-year
senior notes during the second quarter of 2011 and higher
average outstanding commercial paper balances in 2011 compared
to the same periods in 2010. Weighted average debt obligations
outstanding and the associated interest rates were as follows:
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||||||||||||||
Dollars (millions) except percentage amounts | 2011 | 2010 | Change | % Change | 2011 | 2010 | Change | % Change | ||||||||||||||||||||||||||
Long-term debt obligations, including current portion
|
||||||||||||||||||||||||||||||||||
Weighted average outstanding
|
$ | 4,258 | $ | 3,430 | $ | 828 | 24 | $ | 4,308 | $ | 3,477 | $ | 831 | 24 | ||||||||||||||||||||
Weighted average effective interest rate
|
5.4% | 5.8% | (0.4)% | (7) | 5.5% | 5.7% | (0.2)% | (4) | ||||||||||||||||||||||||||
Short-term debt obligations
|
||||||||||||||||||||||||||||||||||
Weighted average outstanding
|
$ | 954 | $ | 451 | $ | 503 | 112 | $ | 1,029 | $ | 532 | $ | 497 | 93 | ||||||||||||||||||||
Weighted average effective interest rate
|
0.4% | 0.5% | (0.1)% | (20) | 0.3% | 0.5% | (0.2)% | (40) | ||||||||||||||||||||||||||
Total debt obligations
|
||||||||||||||||||||||||||||||||||
Weighted average outstanding
|
$ | 5,212 | $ | 3,881 | $ | 1,331 | 34 | $ | 5,337 | $ | 4,009 | $ | 1,328 | 33 | ||||||||||||||||||||
Weighted average effective interest rate
|
4.5% | 5.2% | (0.7)% | (14) | 4.5% | 5.0% | (0.5)% | (10) | ||||||||||||||||||||||||||
Income taxes rose due to increased income before taxes. The
effective tax rate including discrete items was 26 percent
(no change quarter over quarter) and decreased to
26 percent from 28 percent year over year. The income
tax expense for the first half of 2011 was impacted by a current
tax recovery of $21 million for previously paid withholding
taxes. The income tax expense in the second quarter of 2010 was
impacted by a current income tax expense ($20 million) and
a deferred income tax recovery ($11 million) to adjust the
2009 income tax provision to income tax returns filed in that
quarter. The income tax expense for the first half of 2010 was
also impacted by a current tax expense of $18 million to
adjust the 2009 income tax provision to the income tax return
filed in first-quarter 2010 and a current tax recovery of
$10 million for an anticipated refund of taxes paid related
to forward exchange contracts. Excluding discrete items, for the
first six months of 2011, 75 percent of the effective tax
rate pertained to current income taxes and 25 percent
related to deferred income taxes. For the first six months of
2010, the split was 76 percent current and 24 percent
deferred.
Liquidity
and Capital Resources
Cash
Requirements
Contractual
Obligations and Other Commitments
Our contractual obligations and other commitments detailed on
pages 55 and 56 of our 2010 Financial Review Annual Report
summarize our short- and long-term liquidity and capital
resource requirements but exclude obligations with original
maturities of less than one year and planned (but not legally
committed) capital expenditures. The repayment of
$600 million of
10-year
senior notes during the second quarter of 2011 reduced the
amount of long-term debt obligations as compared to those
disclosed in our contractual obligations and other commitments
table on page 64 in Part I Item 1 of our 2011
First Quarter Quarterly Report on
Form 10-Q.
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 44
Table of Contents
Capital
Expenditures
Page 21 of our 2010 Financial Review Annual Report outlines
key potash construction projects and their expected cost and
capacity expansion/debottlenecking. During 2011, we expect to
incur capital expenditures, including capitalized interest, of
approximately $1,900 million for opportunity capital,
approximately $320 million to sustain operations at
existing levels, approximately $110 million for major
repairs and maintenance (including plant turnarounds) and
approximately $70 million for site improvements.
The most significant potash
projects(1)
on which funds are expected to be spent in 2011, excluding
capitalized interest, are outlined in the table below:
Forecasted |
|||||||||||||||||||
Expected
Completion(2) |
Remaining Spending |
||||||||||||||||||
CDN Dollars (millions) | 2011 Forecast | Total Forecast | Started | (Description) | (after 2011) | ||||||||||||||
Allan, Saskatchewan
|
$ | 260 | $ | 550 | 2008 | 2012 (general expansion) | $ | 50 | |||||||||||
Cory, Saskatchewan
|
$ | 190 | $ | 1,630 | 2007 | 2012 (general expansion) | $ | 50 | |||||||||||
Picadilly, New Brunswick
|
$ | 370 | $ | 1,660 | 2007 | 2013 (mine shaft and mill) | $ | 300 | |||||||||||
Rocanville, Saskatchewan
|
$ | 750 | $ | 2,800 | 2008 | 2014 (mine shaft and mill) | $ | 1,230 | |||||||||||
(1) | The expansion at each of these projects is discussed in the technical report for such project filed on SEDAR in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects. |
(2) | Excludes ramp-up time. We expect these projects will be fully ramped up by the end of 2015, provided market conditions warrant. |
We anticipate that all capital spending will be financed by
internally generated cash flows supplemented, if and as
necessary, by borrowing from existing financing sources.
Sources and Uses
of Cash
The companys cash flows from operating, investing and
financing activities, as reflected in the unaudited interim
Condensed Consolidated Statements of Cash Flow, are summarized
in the following table:
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||||||||||||||
Dollars (millions) | 2011 | 2010 | Change | % Change | 2011 | 2010 | Change | % Change | ||||||||||||||||||||||||||
Cash provided by operating activities | $ | 1,064 | $ | 996 | $ | 68 | 7 | $ | 1,754 | $ | 1,807 | $ | (53 | ) | (3 | ) | ||||||||||||||||||
Cash used in investing activities | (495 | ) | (535 | ) | 40 | (7 | ) | (936 | ) | (1,448 | ) | 512 | (35 | ) | ||||||||||||||||||||
Cash used in financing activities | (559 | ) | (393 | ) | (166 | ) | 42 | (822 | ) | (377 | ) | (445 | ) | 118 | ||||||||||||||||||||
The following table presents summarized working capital
information as at June 30, 2011 compared to
December 31, 2010:
Dollars (millions) except ratio amounts | June 30, 2011 | December 31, 2010 | Change | % Change | |||||||||||||
Current assets
|
$ | 2,316 | $ | 2,095 | $ | 221 | 11 | ||||||||||
Current liabilities
|
$ | (2,462 | ) | $ | (3,144 | ) | $ | 682 | (22 | ) | |||||||
Working capital
|
$ | (146 | ) | $ | (1,049 | ) | $ | 903 | (86 | ) | |||||||
Current ratio
|
0.94 | 0.67 | 0.27 | 40 | |||||||||||||
Liquidity needs can be met through a variety of sources,
including: cash generated from operations, drawdowns under our
long-term revolving credit facilities, issuance of commercial
paper and short-term borrowings under our line of credit. Our
primary uses of funds are operating expenses, sustaining and
opportunity capital spending, intercorporate investments,
dividends, interest and principal payments on our debt
securities.
Cash provided by operating activities grew quarter over quarter
as the rise in net income exceeded the decline of changes in
non-cash operating working capital (trade receivables declined
slightly in 2011, while taxes and trade receivables declined
significantly in 2010). Cash provided by operating activities
fell year over year, despite increased net income, due primarily
to changes in non-cash operating working capital, which was
impacted by increased receivables during the period (reduced
during 2010 due to lower
45 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
taxes receivable) and reduced payables and accrued charges
during the period (increased during 2010).
Cash used in investing activities was primarily for additions to
property, plant and equipment, of which approximately
81 percent (2010 73 percent) in the second
quarter and 80 percent (2010 78 percent)
in the first half of 2011 related to the potash segment. Also in
the first half of 2010, additional shares in ICL were purchased.
Cash used in financing activities in the second quarter and
first six months of 2011 primarily reflected repayment of
10-year
senior notes at maturity. We continued to issue commercial paper
in the second quarter of 2011 and repayments exceeded issuances
in the first half of 2011 as a result of strong net cash
inflows. In the second quarter and first half of 2010, cash used
in financing activities was to repay long-term and short-term
debt obligations (draws on credit facilities in the first
quarter of 2010 were repaid during the first and second quarters
of 2010).
We believe that internally generated cash flow, supplemented by
borrowing from existing financing sources, if necessary, will be
sufficient to meet our anticipated capital expenditures and
other cash requirements for at least the next 12 months,
exclusive of any acquisitions the company may consider from time
to time. At this time, we do not reasonably expect any presently
known trend or uncertainty to affect our ability to access our
historical sources of cash.
Principal Debt
Instruments
June 30, 2011 | |||||||||||||
Total |
Amount Outstanding |
Amount |
|||||||||||
Dollars (millions) | Amount | and Committed | Available | ||||||||||
Credit
facilities(1)
|
$ | 3,250 | $ | 1,115 | $ | 2,135 | |||||||
Line of credit
|
75 | 23 | (2) | 52 | |||||||||
(1) | In March 2011, the company established a commercial paper program in the US. The authorized amount under the companys commercial paper programs in Canada and the US is $1,500 million in the aggregate. The amounts available under the commercial paper programs are limited to the availability of backup funds under the credit facilities. Included in the amount outstanding and committed is $1,115 million of commercial paper. Per the terms of the agreements, the commercial paper outstanding and committed, as applicable under the Canadian program, is based on the US dollar balance or equivalent thereof in lawful money of other currencies at the time of issue; therefore, subsequent changes in the exchange rate applicable to Canadian dollar-denominated commercial paper have no impact on this balance. | |
(2) | Letters of credit committed. |
We use a combination of short-term and long-term debt to finance
our operations. We effectively pay floating rates of interest on
our commercial paper and credit facilities, and fixed rates on
our senior notes. As of June 30, 2011, interest rates
ranged from 0.31 percent to 0.47 percent on
outstanding commercial paper denominated in US dollars.
Our two syndicated credit facilities provide for unsecured
advances up to the total facilities amount less direct
borrowings and amounts committed in respect of commercial paper
outstanding. The $2,500 million and $750 million
credit facilities mature December 11, 2012 and May 31,
2013, respectively. We also have a $75 million short-term
line of credit that is available through August 2012 and an
uncommitted $30 million letter of credit facility that is
due on demand. Direct borrowings and outstanding letters of
credit reduce the amounts available under these facilities. The
line of credit and credit facilities have financial tests and
other covenants (detailed in Note 10 to the 2010 annual
consolidated financial statements) with which we must comply at
each quarter-end. Non-compliance with any such covenants could
result in accelerated payment of amounts borrowed and
termination of lenders further funding obligations under
the credit facilities and line of credit. We were in compliance
with all covenants as of June 30, 2011.
Our ability to access reasonably priced debt in the capital
markets is dependent, in part, on the quality of our credit
ratings. We continue to maintain investment grade credit ratings
for our long-term debt. A downgrade of the credit rating of our
long-term debt by Standard & Poors would
increase the interest rates applicable to borrowings under our
syndicated credit facilities and our line of credit.
Commercial paper markets are normally a source of
same-day
cash for the company. Our access to the Canadian and US
commercial paper markets primarily depends on maintaining our
current short-term credit ratings as well as general conditions
in the money markets.
Long-term Debt | Short-term Debt | ||||||||
Jun 30, |
Dec 31, |
Jun 30, |
Dec 31, |
||||||
Rating (outlook) | 2011 | 2010 | 2011 | 2010 | |||||
Moodys
|
Baa1 (positive) | Baa1 (positive) | P-2 | n/a | |||||
Standard & Poors | A- (stable) | A- (negative) | A-2(1) | A-2 | |||||
DBRS
|
n/a | n/a | R1 low | R1 low | |||||
(1) | S&P assigned a global commercial paper rating of A-2, but rated our commercial paper A-1 (low) on a Canadian scale. |
n/a = not applicable
A security rating is not a recommendation to buy, sell or hold
securities. Such rating may be subject to revision or withdrawal
at any time by the respective credit rating agency and each
rating should be evaluated independently of any other rating.
Our $3,750 million of outstanding senior notes were issued
under US shelf registration statements.
As at June 30, 2011, our weighted average cost of capital
was 10.4 percent (2010 10.1 percent), of
which 90 percent represented equity (2010
89 percent).
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 46
Table of Contents
Outstanding
Share Data
We had 855,538,911 common shares issued and outstanding at
June 30, 2011 compared to 853,122,693 at December 31,
2010. During the second quarter and first six months of 2011,
the company issued 776,528 and 2,416,218 common shares,
respectively, pursuant to the exercise of stock options and
under our dividend reinvestment plan. At June 30, 2011,
30,871,641 options to purchase common shares were outstanding
under the companys nine stock option plans, as compared to
32,121,309 under eight stock option plans at December 31,
2010.
Off-Balance
Sheet Arrangements
In the normal course of operations, PotashCorp engages in a
variety of transactions that, under IFRS, are either not
recorded on our Consolidated Statements of Financial Position or
are recorded there in amounts that differ from the full contract
amounts. Such principal off-balance sheet activities we
undertake include operating leases, agreement to reimburse
losses of Canpotex, issuance of guarantee contracts, certain
derivative instruments and long-term contracts. We do not
reasonably expect any presently known trend or uncertainty to
affect our ability to continue using these arrangements. Refer
to Notes 10 and 12 to the unaudited interim condensed
consolidated financial statements included in Item 1 of
this Quarterly Report on
Form 10-Q
for contingencies related to Canpotex and information on our
guarantees, respectively. Refer to page 59 of our 2010
Financial Review Annual Report for information on derivative
instruments. See Cash Requirements above and our
2010 Financial Review Annual Report for obligations related to
operating leases and certain of our long-term raw materials
agreements which contain fixed price components.
Quarterly
Financial Highlights
Dollars (millions) |
June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
March 31, |
December 31, |
September 30, |
|||||||||||||||||||||||||||
except per-share amounts | 2011 | 2011 | 2010 | 2010 | 2010 | 2010 | 2009(1) | 2009(1) | |||||||||||||||||||||||||||
Sales
|
$ | 2,325 | $ | 2,204 | $ | 1,813 | $ | 1,575 | $ | 1,437 | $ | 1,714 | $ | 1,099 | $ | 1,099 | |||||||||||||||||||
Gross margin
|
1,168 | 1,096 | 826 | 550 | 585 | 729 | 273 | 345 | |||||||||||||||||||||||||||
Net income
|
840 | 732 | 508 | 343 | 480 | 444 | 239 | 248 | |||||||||||||||||||||||||||
Net income per share basic
|
0.98 | 0.86 | 0.58 | 0.39 | 0.54 | 0.50 | 0.27 | 0.28 | |||||||||||||||||||||||||||
Net income per share diluted
|
0.96 | 0.84 | 0.56 | 0.38 | 0.53 | 0.49 | 0.26 | 0.27 | |||||||||||||||||||||||||||
(1) | As we adopted IFRS with effect from January 1, 2010, our 2009 quarterly information is presented on a Canadian GAAP basis. Accordingly, our quarterly information for 2011 and 2010 may not be comparable to that for 2009. |
Net income per share for each quarter has been computed based on
the weighted average number of shares issued and outstanding
during the respective quarter, including the dilutive number of
shares assumed for the diluted earnings per share computation;
therefore, as the number of shares varies each period, quarterly
amounts may not add to the annual total.
Certain aspects of our business can be impacted by seasonal
factors. Fertilizers are sold primarily for spring and fall
application in both Northern and Southern hemispheres. However,
planting conditions and the timing of customer purchases will
vary each year and fertilizer sales can be expected to shift
from one quarter to another. Most feed and industrial sales are
by contract and are more evenly distributed throughout the year.
Related
Party Transactions
Refer to Note 11 to the unaudited interim condensed
consolidated financial statements included in Item 1 of
this Quarterly Report on
Form 10-Q
for information pertaining to transactions with related parties.
Critical
Accounting Estimates
Our discussion and analysis of our financial condition and
results of operations are based upon our unaudited interim
condensed consolidated financial statements, which comply with
IFRS. These principles differ in certain significant respects
from accounting principles generally accepted in the United
States. These differences are described and quantified in
Note 12 to the unaudited interim condensed consolidated
financial statements included in Item 1 of this Quarterly
Report on
Form 10-Q.
The accounting policies used in preparing the unaudited interim
condensed consolidated financial statements are consistent with
those described in Notes 1 and 13 to Part I
Item 1 of our 2011 First Quarter Quarterly Report on
Form 10-Q.
Certain of these policies involve critical accounting estimates
because they require us to make particularly subjective or
complex judgments about matters that are inherently uncertain
and because of the likelihood that materially different amounts
could be reported under different conditions or using different
assumptions. There have been no material changes to our critical
accounting estimate policies in the first six months of 2011.
47 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
We discussed the development, selection and application of our
key accounting policies, and the critical accounting estimates
and assumptions they involve, with the audit committee of the
Board of Directors, and the committee reviewed the disclosures
described in this section.
Recent
Accounting Changes
Refer to Note 1 to the unaudited interim condensed
consolidated financial statements included in Item 1 of
this Quarterly Report on
Form 10-Q
for information pertaining to accounting changes effective in
2011, and Notes 1 and 12 to the unaudited interim condensed
consolidated financial statements for information on issued
accounting pronouncements that will be effective in future
periods.
We applied IFRS as of January 1, 2010 and retrospectively
applied all effective IFRS, meaning that the comparative
financial information provided uses the same accounting policies
throughout all periods. We also applied certain optional and
mandatory exemptions as outlined in Note 13 in Part I
Item 1 of our 2011 First Quarter Quarterly Report on
Form 10-Q.
The changes in our reported results were the result of our
adoption of IFRS and not an underlying change in our business.
Risk
Management
Execution of our corporate strategy requires an effective
program to manage the associated risks. The PotashCorp Risk
Management Framework (the Framework) is applied to
identify and manage such risks. The Framework consists of a
comprehensive risk universe, with six corporate risk categories,
and corresponding identification of risk events. The major
corporate categories of risks are: markets/business,
distribution, operational, financial, compliance and
organizational. Separately and in combination, these risks
potentially threaten our strategies and could affect our ability
to deliver long-term shareholder value.
The Framework establishes an entity-wide risk ranking
methodology. Risk events are evaluated against the criteria of
likelihood or frequency of occurrence and the consequential
magnitude or severity of the event. Mitigation activities are
identified that will reduce the likelihood
and/or
severity of the occurrence of a risk event. The residual risk
that results from identified mitigation activities is also
evaluated using the same criteria. Management identifies the
most significant risks to our strategy and reports to the Board
of Directors on the mitigation plans.
The companys Risk Management Process of identification,
management and reporting of risk is continuous and dynamic.
Changes to corporate risk that result from changing internal and
external factors are evaluated on a quarterly basis and
significant changes in risks and corresponding mitigation
activities are reported quarterly to the audit committee.
Detailed discussion of the PotashCorp Risk Management Process
can be found on pages 45 and 46 of our 2010 Financial Review
Annual Report as well as in our 2010 Annual Report on
Form 10-K.
Risk management discussions specific to potash, phosphate and
nitrogen operations can be found on pages 25, 31 and 37,
respectively, of the 2010 Financial Review Annual Report.
The company recognizes damage to reputation as one of its most
severe risk consequences, which is mitigated by ongoing and
transparent communication with stakeholders, commitment to
sustainability, and best practices in corporate governance.
Moreover, significant investments and operations in a number of
countries subject the company to business risks which could be
exaggerated by differences in domestic culture, political and
economic conditions, policies, laws and regulations. The company
may also be adversely affected by changing anti-trust laws in
operating jurisdictions worldwide.
The risks of greatest potential impact to potash reported in the
2010 Financial Review Annual Report include market supply
imbalances which may result from fluctuations in global demand
for product or from new competitor supply in the form of
greenfield mines, inadequacy of the transportation and
distribution infrastructure to timely accommodate volume
delivery demands, and physical risks particular to underground
mines (such as unexpected underground rock falls and water
inflow from underground water-bearing strata). We mitigate the
market imbalance risks by managing production to meet market
demand. The company mitigates transportation and distribution
risks both directly and through Canpotex by working with rail
carriers and undertaking sufficient capital investment in
transportation infrastructure and railcars. Underground mine
risk mitigation activities include advanced geoseismic
monitoring. At Lanigan, Saskatchewan, mitigation includes ground
penetrating radar development and the installation of protective
canopies on mining machines.
Similar risks of cyclicality and market imbalance exist in
phosphate and nitrogen, largely due to competitive costs,
availability of supply and government involvement. The company
mitigates these risks by focusing on less cyclical markets,
maintaining a diversified sulfur supply portfolio and employing
natural gas price risk hedging strategies where appropriate.
Outlook
Even with uncertainty around macroeconomic issues
including US and European sovereign debt concerns
weighing on equity markets and investors tolerance for
risk, the strength of agricultural fundamentals continues to
provide a highly favorable environment for our business. The
pursuit of higher crop yields is essential to meeting the
worlds immediate and long-term food needs and is driving
strong demand for all three nutrients, especially potash.
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 48
Table of Contents
While no industry is fully immune to external economic forces,
the need to meet the worlds ever-increasing food supply
requirements is an important challenge and a powerful force. We
see evidence of this today. When investors back away from
agricultural commodities, commercial buyers quickly step in to
secure a share of the worlds crop production. Although
crop prices are likely to fluctuate, we anticipate they will
remain at levels that provide farmers with the motivation to
maximize production and the confidence to invest in their most
important asset - their soil.
The ability to meet the anticipated increase in potash needs of
the worlds farmers is made more challenging by a void in
the supply chain that was triggered by demand deferrals amidst
the economic downturn. Inventories at the distributor level
remain limited, as purchased tonnes are moving quickly to
farmers for use on their crops. Inventories of North American
producers are also well below historical levels as we enter the
traditional period for maintenance-related shutdowns. Many
potash buyers globally are recognizing the tightness of world
supply and are moving to secure product a trend that
we expect to continue in 2012, especially with the anticipated
return of India and China to the market in a more substantial
way.
These are some of the conditions we anticipated when we launched
our potash expansion program in 2003. While some competitors are
still working through the planning and feasibility of potential
expansions, several of our projects largely
initiated and advanced during a period of lower construction and
materials costs are now completed or in advanced
stages of construction. We believe they will give us the ability
to increase production in a time of rising demand and higher
prices and expect our expanded operational capability to be a
competitive advantage for years to come.
While seldom considered by those outside the potash business,
operating facilities at full capability can be a challenge as
disruptions from logistical, operational and geological issues
are common. We continue to estimate global demand will
approximate
55-60 million
tonnes in 2011, but now anticipate that meeting the upper end of
the range will be constrained by what we estimate is the
industrys ability to produce.
In North America, we anticipate that robust potash demand will
continue through the second half of 2011, with the majority of
our product already committed for the third quarter at the
previously announced price of $560 per short ton ($617 per
tonne) FOB US Midwest warehouses. We expect the $30 per short
ton price increase announced at the end of June will begin to be
reflected in our realizations during the fourth quarter.
Shipments to North American customers from all suppliers are
expected to approximate
10-10.5 million
tonnes for the full year.
Latin American distributors continue to move aggressively to
secure potash supplies to meet strong farmer demand, with the
majority of third-quarter sales volumes booked at a delivered
price of $550 per tonne. We anticipate total demand in this
market will reach
10-10.5 million
tonnes for 2011 (including 7-7.5 million tonnes of imports
to Brazil), with record consumption expected to result in low
distributor inventories after its primary planting season.
Ongoing strength in demand from Asian markets outside of China
and India is likely to continue as growers strive to capitalize
on historically high returns for key crops such as oil palm,
sugar, rice and rubber. We expect potash sales for the third
quarter to reflect the previously announced price of $510 per
tonne on a delivered basis and demand in this region to
approximate 7.7-8.2 million tonnes this year.
Chinas second-half 2011 contract with Canpotex, which
included a $70-per-tonne price increase from previous contract
levels, is expected to provide a steady flow of potash to this
market. We anticipate Chinas consumption will approximate
10.5 million tonnes this year, including imports of
approximately 6-6.5 million tonnes. With limited product
available to satisfy its
pent-up
demand through the remainder of 2011, we expect this market will
end the year with reduced inventories.
India has a high agronomic need for potash and its inventories
have been reduced to critically low levels, which is creating
strong pressure from commercial buyers and farmers to secure new
supply. Given the delay in settling new contracts and limited
product availability in the second half of 2011, we now
anticipate Indias annual imports will total
4-4.5 million tonnes. With its pressing need to increase
crop productivity and restock depleted inventories, we expect
significant Indian demand requirements in 2012.
In this environment, we forecast our 2011 potash segment gross
margin will be in the range of $2.9 billion to
$3.2 billion and our total shipments within the range of
9.6-10 million tonnes. Scheduled summer maintenance
shutdowns and extended expansion-related downtime at our Allan
facility will limit our supply of product in the second half of
the year. Although we experienced a longer than expected
ramp-up at
our new Cory mill in the first half of 2011, we expect to begin
operating at improved rates during the third quarter.
Phosphate markets are projected to remain strong through 2011,
given robust fertilizer demand, the expectation of reduced
Chinese exports and higher prices for phosphate rock and
phosphoric acid. We anticipate improved margins for all
downstream phosphate products although higher prices for input
costs are expected to limit margin upside. In nitrogen, we
anticipate that strong agricultural and industrial demand will
support higher prices through the remainder of 2011. Given these
conditions, we expect our combined phosphate and nitrogen gross
margin for 2011 to be in the range of $1.4 billion to
$1.6 billion.
49 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
In addition, we believe the strength of global potash market
fundamentals will increase other sources of income for 2011 to a
range of $330-$360 million. We now expect capital
expenditures (excluding capitalized interest) for 2011 to
approximate $2.2 billion, with $1.6 billion relating
to our ongoing potash expansion projects.
We expect third-quarter net income per share to approximate
$0.80-$1.00 per share and have raised our full-year earnings
guidance to the range of $3.40-$3.80 per share.
Forward-Looking
Statements
Certain statements in this Quarterly Report on
Form 10-Q,
including those in the Outlook section of
Managements Discussion and Analysis of Financial Condition
and Results of Operations relating to the period after
June 30, 2011 are forward-looking statements or
forward-looking information (forward-looking
statements). These statements can be identified by
expressions of belief, expectation or intention, as well as
those statements that are not historical fact. These statements
are based on certain factors and assumptions as set forth in
this
Form 10-Q,
including with respect to: foreign exchange rates; expected
growth, results of operations, performance, business prospects
and opportunities; and effective tax rates. While the company
considers these factors and assumptions to be reasonable based
on information currently available, they may prove to be
incorrect. Several factors could cause actual results to differ
materially from those expressed in the forward-looking
statements, including, but not limited to: fluctuations in
supply and demand in the fertilizer, sulfur, transportation and
petrochemical markets; changes in competitive pressures,
including pricing pressures; adverse or uncertain economic
conditions and changes in credit markets; the results of sales
contract negotiations with major markets; timing and amount of
capital expenditures; risks associated with natural gas and
other hedging activities; changes in capital markets and
corresponding effects on the companys investments; changes
in currency and exchange rates; unexpected geological or
environmental conditions, including water inflow; strikes or
other forms of work stoppage or slowdowns; changes in, and the
effects of, government policies and regulations; and earnings,
exchange rates and the decisions of taxing authorities, all of
which could affect our effective tax rates. Additional risks and
uncertainties can be found in our
Form 10-K
for the fiscal year ended December 31, 2010 under the
captions Forward-Looking Statements and
Item 1A Risk Factors and in our
other filings with the US Securities and Exchange Commission and
the Canadian provincial securities commissions. Forward-looking
statements are given only as at the date of this report and the
company disclaims any obligation to update or revise the
forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
Item 3. Quantitative
and Qualitative Disclosures About Market Risk
Market risk is the potential for loss from adverse changes in
the market value of financial instruments. The level of market
risk to which we are exposed varies depending on the composition
of our derivative instrument portfolio, as well as current and
expected market conditions. A discussion of enterprise-wide risk
management can be found in our 2010 Financial Review Annual
Report, pages 45 to 46, and risk management discussion specific
to potash, phosphate and nitrogen operations can be found on
pages 25, 31 and 37, respectively, of that report. A discussion
of commodity risk, foreign exchange risk, credit risk and
liquidity risk can be found in Note 12 to the unaudited
interim condensed consolidated financial statements included in
Item 1 of this Quarterly Report on
Form 10-Q.
Item 4. Controls
and Procedures
As of June 30, 2011, we carried out an evaluation under the
supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. There are inherent
limitations to the effectiveness of any system of disclosure
controls and procedures, including the possibility of human
error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving
their control objectives. Based upon that evaluation and as of
June 30, 2011, the Chief Executive Officer and Chief
Financial Officer concluded that the disclosure controls and
procedures were effective to provide reasonable assurance that
information required to be disclosed in the reports the company
files and submits under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported as and when
required and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
There has been no change in our internal control over financial
reporting during the quarter ended June 30, 2011 that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 50
Table of Contents
Part II.
Other Information
Item 1.
Legal Proceedings
For a description of certain other legal and environmental
proceedings, see Note 10 to the unaudited interim condensed
consolidated financial statements included in Part I of
this Quarterly Report on
Form 10-Q.
Item 5.
Other Information
Mine Safety
Practices
Safety is the companys top priority and we are committed
to providing a healthy and safe work environment for our
employees, contractors and all others at our sites to help meet
our company-wide goal of achieving no harm to people.
The operations at the companys Aurora, Weeping Water and
White Springs facilities are subject to the Federal Mine Safety
and Health Act of 1977, as amended by the Mine Improvement and
New Emergency Response Act of 2006 (the Act), and
the implementing regulations, which impose stringent health and
safety standards on numerous aspects of mineral extraction and
processing operations, including the training of personnel,
operating procedures, operating equipment and other matters. Our
Senior Safety Leadership Team is responsible for managing
compliance with applicable government regulations, as well as
implementing and overseeing the elements of our safety program
as outlined in our Safety, Health and Environment Manual. The
Weeping Water facility achieved a significant milestone on
September 26, 2010, completing six years without a Lost
Time Incident.
Section 1503
of Dodd-Frank Wall Street Reform and Consumer Protection Act:
Reporting Requirements Regarding Coal or Other Mine
Safety
Section 1503(a) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act requires us to include certain safety
information in the periodic reports we file with the United
States Securities and Exchange Commission. The table below
presents the following information for our Aurora,
Weeping Water and White Springs facilities for the three
months ended June 30, 2011:
Aurora, |
Weeping |
White |
||||||||||||
North |
Water, |
Springs, |
||||||||||||
Three Months Ended June 30, 2011 | Carolina | Nebraska | Florida | |||||||||||
(a)
|
the total number of alleged violations of mandatory health or safety standards that could significantly or substantially contribute to the cause and effect of a coal or other mine safety or health hazard under Section 104 of the Mine Safety and Health Act of 1977 (Act) for which a citation was received from the Mine Safety and Health Administration (MSHA); | 3 | 1 | 0 | ||||||||||
(b)
|
the total number of orders issued under section 104(b) of the Act; | 0 | 0 | 0 | ||||||||||
(c)
|
the total number of citations received and orders issued under section 104(d) of the Act for alleged unwarrantable failures of the company to comply with mandatory health or safety standards; | 0 | 0 | 0 | ||||||||||
(d)
|
the total number of alleged flagrant violations under section 110(b)(2) of the Act; | 0 | 0 | 0 | ||||||||||
(e)
|
the total number of imminent danger orders issued under section 107(a) of the Act; | 1 | 0 | 0 | ||||||||||
(f)
|
the total dollar value of proposed assessments from the MHSA under the Act; | $ | 13,306 | $ | 2,901 | * | $ | 1,113 | ** | |||||
(g)
|
the total number of mining-related fatalities; and | 0 | 0 | 0 | ||||||||||
(h)
|
the total number of legal actions pending before the Federal Mine Safety and Health Review Commission as of June 30, 2011. | 1 | 1 | 0 | ||||||||||
During the three months ended June 30, 2011, the company
did not receive any written notice from the MSHA of (a) a
pattern of violations of mandatory health or safety standards
that are of such a nature as could have significantly and
substantially contributed to the cause and effect of coal or
other mine health or safety hazards under section 104(e) of
the Act or (b) the potential to have such a pattern.
The table above does not include any citation, order or
assessment that was both issued and vacated by the MSHA during
the three months ended June 30, 2011.
* | The company has challenged this assessment in a legal action pending before the Federal Mine Safety and Health Review Commission. | |
** | In the second quarter, two citations at White Springs were settled for $1,743. |
51 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Item 6.
Exhibits
(a) | Exhibits |
Incorporated by Reference | |||||||||||||||
Exhibit |
Filing Date/Period |
Exhibit Number |
|||||||||||||
Number | Description of Document | Form | End Date | (if different) | |||||||||||
3(a)
|
Articles of Continuance of the registrant dated May 15, 2002. | 10-Q | 6/30/2002 | ||||||||||||
3(b)
|
Bylaws of the registrant effective May 15, 2002. | 10-Q | 6/30/2002 | ||||||||||||
4(a)
|
Term Credit Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated September 25, 2001. | 10-Q | 9/30/2001 | ||||||||||||
4(b)
|
Syndicated Term Credit Facility Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 23, 2003. | 10-Q | 9/30/2003 | ||||||||||||
4(c)
|
Syndicated Term Credit Facility Second Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 21, 2004. | 8-K | 9/24/2004 | ||||||||||||
4(d)
|
Syndicated Term Credit Facility Third Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 20, 2005. | 8-K | 9/22/2005 | 4 | (a) | ||||||||||
4(e)
|
Syndicated Term Credit Facility Fourth Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 27, 2006. | 10-Q | 9/30/2006 | ||||||||||||
4(f)
|
Syndicated Term Credit Facility Fifth Amending Agreement between the Bank of Nova Scotia and other financial institutions and the registrant dated as of October 19, 2007. | 8-K | 10/22/2007 | 4 | (a) | ||||||||||
4(g)
|
Indenture dated as of February 27, 2003, between the registrant and The Bank of Nova Scotia Trust Company of New York. | 10-K | 12/31/2002 | 4 | (c) | ||||||||||
4(h)
|
Form of Note relating to the registrants offering of $250,000,000 principal amount of 4.875% Notes due March 1, 2013. | 8-K | 2/28/2003 | 4 | |||||||||||
4(i)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 5.875% Notes due December 1, 2036. | 8-K | 11/30/2006 | 4 | (a) | ||||||||||
4(j)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 5.25% Notes due May 15, 2014. | 8-K | 5/1/2009 | 4 | (a) | ||||||||||
4(k)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 6.50% Notes due May 15, 2019. | 8-K | 5/1/2009 | 4 | (b) | ||||||||||
4(l)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 3.75% Notes due September 30, 2015. | 8-K | 9/25/2009 | 4 | (a) | ||||||||||
4(m)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 4.875% Notes due March 30, 2020. | 8-K | 9/25/2009 | 4 | (b) | ||||||||||
4(n)
|
Revolving Term Credit Facility Agreement between the Bank of Nova Scotia and other financial institutions and the registrant dated December 11, 2009. | 8-K | 12/15/2009 | 4 | (a) | ||||||||||
4(o)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 3.25% Notes due December 1, 2017. | 8-K | 11/29/2010 | 4 | (a) | ||||||||||
4(p)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 5.625% Notes due December 1, 2040. | 8-K | 11/29/2010 | 4 | (b) |
The registrant hereby undertakes to file with the Securities and
Exchange Commission, upon request, copies of any constituent
instruments defining the rights of holders of long-term debt of
the registrant or its subsidiaries that have not been filed
herewith because the amounts represented thereby are less than
10% of the total assets of the registrant and its subsidiaries
on a consolidated basis.
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 52
Table of Contents
Incorporated By Reference | |||||||||||||
Exhibit |
Filing Date/Period |
Exhibit Number |
|||||||||||
Number | Description of Document | Form | End Date | (if different) | |||||||||
10(a)
|
Sixth Voting Agreement dated April 22, 1978, between Central Canada Potash, Division of Noranda, Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales and Texasgulf Inc. |
F-1 (File No. 33-31303) |
9/28/1989 | 10(f | ) | ||||||||
10(b)
|
Canpotex Limited Shareholders Seventh Memorandum of Agreement effective April 21, 1978, between Central Canada Potash, Division of Noranda Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales, Texasgulf Inc. and Canpotex Limited as amended by Canpotex S&P amending agreement dated November 4, 1987. |
F-1 (File No. 33-31303) |
9/28/1989 | 10(g | ) | ||||||||
10(c)
|
Producer Agreement dated April 21, 1978, between Canpotex Limited and PCS Sales. |
F-1 (File No. 33-31303) |
9/28/1989 | 10(h | ) | ||||||||
10(d)
|
Canpotex/PCS Amending Agreement, dated as of October 1, 1992. | 10-K | 12/31/1995 | 10(f | ) | ||||||||
10(e)
|
Canpotex PCA Collateral Withdrawing/PCS Amending Agreement, dated as of October 7, 1993. | 10-K | 12/31/1995 | 10(g | ) | ||||||||
10(f)
|
Canpotex Producer Agreement amending agreement dated as of July 1, 2002. | 10-Q | 6/30/2004 | 10(g | ) | ||||||||
10(g)
|
Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, between International Minerals & Chemical Corporation (Canada) Limited and the registrants predecessor. |
F-1 (File No. 33-31303) |
9/28/1989 | 10(e | ) | ||||||||
10(h)
|
Agreement dated December 21, 1990, between International Minerals & Chemical Corporation (Canada) Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978. | 10-K | 12/31/1990 | 10(p | ) | ||||||||
10(i)
|
Agreement effective August 27, 1998, between International Minerals & Chemical (Canada) Global Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended). | 10-K | 12/31/1998 | 10(l | ) | ||||||||
10(j)
|
Agreement effective August 31, 1998, among International Minerals & Chemical (Canada) Global Limited, International Minerals & Chemical (Canada) Limited Partnership and the registrant assigning the interest in the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended) held by International Minerals & Chemical (Canada) Global Limited to International Minerals & Chemical (Canada) Limited Partnership. | 10-K | 12/31/1998 | 10(m | ) | ||||||||
10(k)
|
Potash Corporation of Saskatchewan Inc. Stock Option Plan Directors, as amended. | 10-K | 12/31/2006 | 10(l | ) | ||||||||
10(l)
|
Potash Corporation of Saskatchewan Inc. Stock Option Plan Officers and Employees, as amended. | 10-K | 12/31/2006 | 10(m | ) | ||||||||
10(m)
|
Short-Term Incentive Plan of the registrant effective January 1, 2000, as amended. | 10-Q | 9/30/2009 | ||||||||||
10(n)
|
Resolution and Forms of Agreement for Supplemental Executive Retirement Income Plan, for officers and key employees of the registrant. | 10-K | 12/31/1995 | 10(o | ) | ||||||||
10(o)
|
Amending Resolution and revised forms of agreement regarding Supplemental Retirement Income Plan of the registrant. | 10-Q | 6/30/1996 | 10(x | ) | ||||||||
10(p)
|
Amended and restated Supplemental Executive Retirement Income Plan of the registrant and text of amendment to existing supplemental income plan agreements. | 10-Q | 9/30/2000 | 10(mm | ) | ||||||||
10(q)
|
Amendment, dated February 23, 2009, to the amended and restated Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2008 | 10(r | ) |
53 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Incorporated By Reference | |||||||||||||
Exhibit |
Filing Date/Period |
Exhibit Number |
|||||||||||
Number | Description of Document | Form | End Date | (if different) | |||||||||
10(r)
|
Amendment, dated December 29, 2010, to the amended and restated Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2010 | ||||||||||
10(s)
|
Form of Letter of amendment to existing supplemental income plan agreements of the registrant. | 10-K | 12/31/2002 | 10(cc | ) | ||||||||
10(t)
|
Amended and restated agreement dated February 20, 2007, between the registrant and William J. Doyle concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2006 | 10(s | ) | ||||||||
10(u)
|
Amendment, dated December 24, 2008, to the amended and restated agreement, dated February 20, 2007, between the registrant and William J. Doyle concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2008 | ||||||||||
10(v)
|
Amendment, dated February 23, 2009, to the amended and restated agreement, dated February 20, 2007, between the registrant and William J. Doyle concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2008 | ||||||||||
10(w)
|
Amendment, dated February 23, 2009, to the amended and restated agreement dated August 2, 1996, between the registrant and Wayne R. Brownlee concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2008 | ||||||||||
10(x)
|
Amendment, dated February 23, 2009, to the amended and restated agreement, dated August 2, 1996, between the registrant and Garth W. Moore concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2008 | ||||||||||
10(y)
|
Amendment, dated December 29, 2010, to the amended and restated agreement, dated February 20, 2007, between the registrant and William J. Doyle concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2010 | ||||||||||
10(z)
|
Amendment, dated December 29, 2010, to the amended and restated agreement, dated August 2, 1996, between the registrant and Wayne R. Brownlee concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2010 | ||||||||||
10(aa)
|
Amendment, dated December 29, 2010, to the amended and restated agreement, dated August 2, 1996, between the registrant and Garth W. Moore concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2010 | ||||||||||
10(bb)
|
Supplemental Retirement Benefits Plan for U.S. Executives dated effective January 1, 1999. | 10-Q | 6/30/2002 | 10(aa | ) | ||||||||
10(cc)
|
Amendment No. 1, dated December 24, 2008, to the Supplemental Retirement Plan for U.S. Executives. | 10-K | 12/31/2008 | 10(z | ) | ||||||||
10(dd)
|
Amendment No. 2, dated February 23, 2009, to the Supplemental Retirement Plan for U.S. Executives. | 10-K | 12/31/2008 | 10(aa | ) | ||||||||
10(ee)
|
Forms of Agreement dated December 30, 1994, between the registrant and certain officers of the registrant. | 10-K | 12/31/1995 | 10(p | ) | ||||||||
10(ff)
|
Amendment, dated December 31, 2010, to the Agreement, dated December 30, 1994 between the registrant and William J. Doyle. | 10-K | 12/31/2010 | ||||||||||
10(gg)
|
Form of Agreement of Indemnification dated August 8, 1995, between the registrant and certain officers and directors of the registrant. | 10-K | 12/31/1995 | 10(q | ) | ||||||||
10(hh)
|
Resolution and Form of Agreement of Indemnification dated January 24, 2001. | 10-K | 12/31/2000 | 10(ii | ) | ||||||||
10(ii)
|
Resolution and Form of Agreement of Indemnification July 21, 2004. | 10-Q | 6/30/2004 | ||||||||||
10(jj)
|
Chief Executive Officer Medical and Dental Benefits. | 10-K | 12/31/2010 | ||||||||||
10(kk)
|
Deferred Share Unit Plan for Non-Employee Directors, as amended. | 10-Q | 3/31/2008 | 10(bb | ) | ||||||||
10(ll)
|
U.S. Participant Addendum No. 1 to the Deferred Share Unit Plan for Non-Employee Directors. | 10-K | 12/31/2008 | 10(jj | ) |
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 54
Table of Contents
Incorporated By Reference | |||||||||||||
Exhibit |
Filing Date/Period |
Exhibit Number |
|||||||||||
Number | Description of Document | Form | End Date | (if different) | |||||||||
10(mm)
|
Potash Corporation of Saskatchewan Inc. 2005 Performance Option Plan and Form of Option Agreement, as amended. | 10-K | 12/31/2006 | 10(cc | ) | ||||||||
10(nn)
|
Potash Corporation of Saskatchewan Inc. 2006 Performance Option Plan and Form of Option Agreement, as amended. | 10-K | 12/31/2006 | 10(dd | ) | ||||||||
10(oo)
|
Potash Corporation of Saskatchewan Inc. 2007 Performance Option Plan and Form of Option Agreement. | 10-Q | 3/31/2007 | 10(ee | ) | ||||||||
10(pp)
|
Potash Corporation of Saskatchewan Inc. 2008 Performance Option Plan and Form of Option Agreement. | 10-Q | 3/31/2008 | 10(ff | ) | ||||||||
10(qq)
|
Potash Corporation of Saskatchewan Inc. 2009 Performance Option Plan and Form of Option Agreement. | 10-Q | 3/31/2009 | 10(mm | ) | ||||||||
10(rr)
|
Potash Corporation of Saskatchewan Inc. 2010 Performance Option Plan and Form of Option Agreement. | 8-K | 5/7/2010 | 10.1 | |||||||||
10(ss)
|
Potash Corporation of Saskatchewan Inc. 2011 Performance Option Plan and Form of Option Agreement. | 8-K | 5/13/2011 | 10(a | ) | ||||||||
10(tt)
|
Medium-Term Incentive Plan of the registrant effective January 1, 2009. | 10-K | 12/31/2008 | 10(qq | ) | ||||||||
11
|
Statement re Computation of Per Share Earnings. | ||||||||||||
31(a)
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||||||
31(b)
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||||||
32
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
55 PotashCorp
2011 Second Quarter Quarterly Report on Form 10-Q
Table of Contents
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
POTASH CORPORATION OF SASKATCHEWAN INC.
August 5, 2011
By: |
/s/ JOSEPH
PODWIKA
|
Joseph Podwika
Senior Vice President, General Counsel and Secretary
August 5, 2011
By: |
/s/ WAYNE
R. BROWNLEE
|
Wayne R. Brownlee
Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
PotashCorp 2011 Second Quarter
Quarterly Report on Form 10-Q 56
Table of Contents
EXHIBIT INDEX
Incorporated by Reference | |||||||||||||||
Exhibit |
Filing Date/Period |
Exhibit Number |
|||||||||||||
Number | Description of Document | Form | End Date | (if different) | |||||||||||
3(a)
|
Articles of Continuance of the registrant dated May 15, 2002. | 10-Q | 6/30/2002 | ||||||||||||
3(b)
|
Bylaws of the registrant effective May 15, 2002. | 10-Q | 6/30/2002 | ||||||||||||
4(a)
|
Term Credit Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated September 25, 2001. | 10-Q | 9/30/2001 | ||||||||||||
4(b)
|
Syndicated Term Credit Facility Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 23, 2003. | 10-Q | 9/30/2003 | ||||||||||||
4(c)
|
Syndicated Term Credit Facility Second Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 21, 2004. | 8-K | 9/24/2004 | ||||||||||||
4(d)
|
Syndicated Term Credit Facility Third Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 20, 2005. | 8-K | 9/22/2005 | 4 | (a) | ||||||||||
4(e)
|
Syndicated Term Credit Facility Fourth Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 27, 2006. | 10-Q | 9/30/2006 | ||||||||||||
4(f)
|
Syndicated Term Credit Facility Fifth Amending Agreement between the Bank of Nova Scotia and other financial institutions and the registrant dated as of October 19, 2007. | 8-K | 10/22/2007 | 4 | (a) | ||||||||||
4(g)
|
Indenture dated as of February 27, 2003, between the registrant and The Bank of Nova Scotia Trust Company of New York. | 10-K | 12/31/2002 | 4 | (c) | ||||||||||
4(h)
|
Form of Note relating to the registrants offering of $250,000,000 principal amount of 4.875% Notes due March 1, 2013. | 8-K | 2/28/2003 | 4 | |||||||||||
4(i)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 5.875% Notes due December 1, 2036. | 8-K | 11/30/2006 | 4 | (a) | ||||||||||
4(j)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 5.25% Notes due May 15, 2014. | 8-K | 5/1/2009 | 4 | (a) | ||||||||||
4(k)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 6.50% Notes due May 15, 2019. | 8-K | 5/1/2009 | 4 | (b) | ||||||||||
4(l)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 3.75% Notes due September 30, 2015. | 8-K | 9/25/2009 | 4 | (a) | ||||||||||
4(m)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 4.875% Notes due March 30, 2020. | 8-K | 9/25/2009 | 4 | (b) | ||||||||||
4(n)
|
Revolving Term Credit Facility Agreement between the Bank of Nova Scotia and other financial institutions and the registrant dated December 11, 2009. | 8-K | 12/15/2009 | 4 | (a) | ||||||||||
4(o)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 3.25% Notes due December 1, 2017. | 8-K | 11/29/2010 | 4 | (a) | ||||||||||
4(p)
|
Form of Note relating to the registrants offering of $500,000,000 principal amount of 5.625% Notes due December 1, 2040. | 8-K | 11/29/2010 | 4 | (b) |
The registrant hereby undertakes to file with the Securities and
Exchange Commission, upon request, copies of any constituent
instruments defining the rights of holders of long-term debt of
the registrant or its subsidiaries that have not been filed
herewith because the amounts represented thereby are less than
10% of the total assets of the registrant and its subsidiaries
on a consolidated basis.
Table of Contents
Incorporated By Reference | |||||||||||||
Exhibit |
Filing Date/Period |
Exhibit Number |
|||||||||||
Number | Description of Document | Form | End Date | (if different) | |||||||||
10(a)
|
Sixth Voting Agreement dated April 22, 1978, between Central Canada Potash, Division of Noranda, Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales and Texasgulf Inc. |
F-1 (File No. 33-31303) |
9/28/1989 | 10(f | ) | ||||||||
10(b)
|
Canpotex Limited Shareholders Seventh Memorandum of Agreement effective April 21, 1978, between Central Canada Potash, Division of Noranda Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales, Texasgulf Inc. and Canpotex Limited as amended by Canpotex S&P amending agreement dated November 4, 1987. |
F-1 (File No. 33-31303) |
9/28/1989 | 10(g | ) | ||||||||
10(c)
|
Producer Agreement dated April 21, 1978, between Canpotex Limited and PCS Sales. |
F-1 (File No. 33-31303) |
9/28/1989 | 10(h | ) | ||||||||
10(d)
|
Canpotex/PCS Amending Agreement, dated as of October 1, 1992. | 10-K | 12/31/1995 | 10(f | ) | ||||||||
10(e)
|
Canpotex PCA Collateral Withdrawing/PCS Amending Agreement, dated as of October 7, 1993. | 10-K | 12/31/1995 | 10(g | ) | ||||||||
10(f)
|
Canpotex Producer Agreement amending agreement dated as of July 1, 2002. | 10-Q | 6/30/2004 | 10(g | ) | ||||||||
10(g)
|
Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, between International Minerals & Chemical Corporation (Canada) Limited and the registrants predecessor. |
F-1 (File No. 33-31303) |
9/28/1989 | 10(e | ) | ||||||||
10(h)
|
Agreement dated December 21, 1990, between International Minerals & Chemical Corporation (Canada) Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978. | 10-K | 12/31/1990 | 10(p | ) | ||||||||
10(i)
|
Agreement effective August 27, 1998, between International Minerals & Chemical (Canada) Global Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended). | 10-K | 12/31/1998 | 10(l | ) | ||||||||
10(j)
|
Agreement effective August 31, 1998, among International Minerals & Chemical (Canada) Global Limited, International Minerals & Chemical (Canada) Limited Partnership and the registrant assigning the interest in the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended) held by International Minerals & Chemical (Canada) Global Limited to International Minerals & Chemical (Canada) Limited Partnership. | 10-K | 12/31/1998 | 10(m | ) | ||||||||
10(k)
|
Potash Corporation of Saskatchewan Inc. Stock Option Plan Directors, as amended. | 10-K | 12/31/2006 | 10(l | ) | ||||||||
10(l)
|
Potash Corporation of Saskatchewan Inc. Stock Option Plan Officers and Employees, as amended. | 10-K | 12/31/2006 | 10(m | ) | ||||||||
10(m)
|
Short-Term Incentive Plan of the registrant effective January 1, 2000, as amended. | 10-Q | 9/30/2009 | ||||||||||
10(n)
|
Resolution and Forms of Agreement for Supplemental Executive Retirement Income Plan, for officers and key employees of the registrant. | 10-K | 12/31/1995 | 10(o | ) | ||||||||
10(o)
|
Amending Resolution and revised forms of agreement regarding Supplemental Retirement Income Plan of the registrant. | 10-Q | 6/30/1996 | 10(x | ) | ||||||||
10(p)
|
Amended and restated Supplemental Executive Retirement Income Plan of the registrant and text of amendment to existing supplemental income plan agreements. | 10-Q | 9/30/2000 | 10(mm | ) | ||||||||
10(q)
|
Amendment, dated February 23, 2009, to the amended and restated Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2008 | 10(r | ) |
Table of Contents
Incorporated By Reference | |||||||||||||
Exhibit |
Filing Date/Period |
Exhibit Number |
|||||||||||
Number | Description of Document | Form | End Date | (if different) | |||||||||
10(r)
|
Amendment, dated December 29, 2010, to the amended and restated Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2010 | ||||||||||
10(s)
|
Form of Letter of amendment to existing supplemental income plan agreements of the registrant. | 10-K | 12/31/2002 | 10(cc | ) | ||||||||
10(t)
|
Amended and restated agreement dated February 20, 2007, between the registrant and William J. Doyle concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2006 | 10(s | ) | ||||||||
10(u)
|
Amendment, dated December 24, 2008, to the amended and restated agreement, dated February 20, 2007, between the registrant and William J. Doyle concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2008 | ||||||||||
10(v)
|
Amendment, dated February 23, 2009, to the amended and restated agreement, dated February 20, 2007, between the registrant and William J. Doyle concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2008 | ||||||||||
10(w)
|
Amendment, dated February 23, 2009, to the amended and restated agreement dated August 2, 1996, between the registrant and Wayne R. Brownlee concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2008 | ||||||||||
10(x)
|
Amendment, dated February 23, 2009, to the amended and restated agreement, dated August 2, 1996, between the registrant and Garth W. Moore concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2008 | ||||||||||
10(y)
|
Amendment, dated December 29, 2010, to the amended and restated agreement, dated February 20, 2007, between the registrant and William J. Doyle concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2010 | ||||||||||
10(z)
|
Amendment, dated December 29, 2010, to the amended and restated agreement, dated August 2, 1996, between the registrant and Wayne R. Brownlee concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2010 | ||||||||||
10(aa)
|
Amendment, dated December 29, 2010, to the amended and restated agreement, dated August 2, 1996, between the registrant and Garth W. Moore concerning the Supplemental Executive Retirement Income Plan. | 10-K | 12/31/2010 | ||||||||||
10(bb)
|
Supplemental Retirement Benefits Plan for U.S. Executives dated effective January 1, 1999. | 10-Q | 6/30/2002 | 10(aa | ) | ||||||||
10(cc)
|
Amendment No. 1, dated December 24, 2008, to the Supplemental Retirement Plan for U.S. Executives. | 10-K | 12/31/2008 | 10(z | ) | ||||||||
10(dd)
|
Amendment No. 2, dated February 23, 2009, to the Supplemental Retirement Plan for U.S. Executives. | 10-K | 12/31/2008 | 10(aa | ) | ||||||||
10(ee)
|
Forms of Agreement dated December 30, 1994, between the registrant and certain officers of the registrant. | 10-K | 12/31/1995 | 10(p | ) | ||||||||
10(ff)
|
Amendment, dated December 31, 2010, to the Agreement, dated December 30, 1994 between the registrant and William J. Doyle. | 10-K | 12/31/2010 | ||||||||||
10(gg)
|
Form of Agreement of Indemnification dated August 8, 1995, between the registrant and certain officers and directors of the registrant. | 10-K | 12/31/1995 | 10(q | ) | ||||||||
10(hh)
|
Resolution and Form of Agreement of Indemnification dated January 24, 2001. | 10-K | 12/31/2000 | 10(ii | ) | ||||||||
10(ii)
|
Resolution and Form of Agreement of Indemnification July 21, 2004. | 10-Q | 6/30/2004 | ||||||||||
10(jj)
|
Chief Executive Officer Medical and Dental Benefits. | 10-K | 12/31/2010 | ||||||||||
10(kk)
|
Deferred Share Unit Plan for Non-Employee Directors, as amended. | 10-Q | 3/31/2008 | 10(bb | ) | ||||||||
10(ll)
|
U.S. Participant Addendum No. 1 to the Deferred Share Unit Plan for Non-Employee Directors. | 10-K | 12/31/2008 | 10(jj | ) |
Table of Contents
Incorporated By Reference | |||||||||||||
Exhibit |
Filing Date/Period |
Exhibit Number |
|||||||||||
Number | Description of Document | Form | End Date | (if different) | |||||||||
10(mm)
|
Potash Corporation of Saskatchewan Inc. 2005 Performance Option Plan and Form of Option Agreement, as amended. | 10-K | 12/31/2006 | 10(cc | ) | ||||||||
10(nn)
|
Potash Corporation of Saskatchewan Inc. 2006 Performance Option Plan and Form of Option Agreement, as amended. | 10-K | 12/31/2006 | 10(dd | ) | ||||||||
10(oo)
|
Potash Corporation of Saskatchewan Inc. 2007 Performance Option Plan and Form of Option Agreement. | 10-Q | 3/31/2007 | 10(ee | ) | ||||||||
10(pp)
|
Potash Corporation of Saskatchewan Inc. 2008 Performance Option Plan and Form of Option Agreement. | 10-Q | 3/31/2008 | 10(ff | ) | ||||||||
10(qq)
|
Potash Corporation of Saskatchewan Inc. 2009 Performance Option Plan and Form of Option Agreement. | 10-Q | 3/31/2009 | 10(mm | ) | ||||||||
10(rr)
|
Potash Corporation of Saskatchewan Inc. 2010 Performance Option Plan and Form of Option Agreement. | 8-K | 5/7/2010 | 10.1 | |||||||||
10(ss)
|
Potash Corporation of Saskatchewan Inc. 2011 Performance Option Plan and Form of Option Agreement. | 8-K | 5/13/2011 | 10(a | ) | ||||||||
10(tt)
|
Medium-Term Incentive Plan of the registrant effective January 1, 2009. | 10-K | 12/31/2008 | 10(qq | ) | ||||||||
11
|
Statement re Computation of Per Share Earnings. | ||||||||||||
31(a)
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||||||
31(b)
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||||||||
32
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |