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2008 Financial Overview

This section provides an overview of our financial performance based on our consolidated financial statements. We report our results of operations in three business segments: potash, phosphate and nitrogen. These segments are differentiated by the chemical nutrient contained in the product that each produces. Our reporting structure reflects how we manage our business and how we classify our operations for planning and measuring performance.

We include net sales in our segment disclosures in the consolidated financial statements pursuant to Canadian generally accepted accounting principles (Canadian GAAP), which requires segmentation based upon our internal organization and reporting of revenue and profit measures derived from internal accounting methods. Net sales (and the related per-tonne amounts) are primary revenue measures we use and review in making decisions about operating matters on a business segment basis. These decisions include assessments about 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. Detailed financial analyses of our three business segments are set out for potash, for phosphate and for nitrogen. The following financial overview evaluates the company on a non-segment basis, except for fourth-quarter analysis.

All references to per-share amounts pertain to diluted net income per share (EPS). Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

Dollars (millions, except per-share amounts) % Increase
2008 2007 2006 2008 2007
Sales $ 9,446.5 $ 5,234.2 $ 3,766.7 80 39
Gross Margin 4,907.4 1,881.2 1,002.0 161 88
Operating Income 4,635.1 1,588.5 875.5 192 81
Net Income 3,495.2 1,103.6 631.8 217 75
Net Income per Share – Diluted 11.01 3.40 1.98 224 72
2008 Earnings Compared to Guidance
The company’s initial midpoint estimate for 2008 EPS, based on the Outlook and assumptions described in our 2007 Financial Review Annual Report, was approximately $6.75. The final result was $11.01. The primary causes of this variance from our guidance midpoint were:
Cause Effect on EPS
Potash offshore realized prices $2.21 
Potash North American realized prices 0.47 
Potash sales volumes (0.93)
Decreased potash costs due to foreign exchange 0.07 
Increased royalties and brine inflow costs (0.09)
Increased other potash costs (0.19)
Higher provincial mining taxes (0.53)
Subtotal potash 1.01 
Phosphate realized prices 2.21 
Phosphate sales volumes (0.43)
Increased input costs for sulfur (0.27)
Increased input costs for ammonia (0.09)
Increased input costs for rock (0.09)
Increased other phosphate costs (0.03)
Subtotal phosphate 1.30 
Nitrogen realized prices 1.20 
Manufactured nitrogen sales volumes (0.18)
Increased cost of natural gas (0.51)
Increased other nitrogen costs (exclusive of cost of natural gas) (0.21)
Subtotal nitrogen 0.30 
Increase in other income 0.33 
Decrease in selling and administrative 0.03 
Increase in interest expense (0.10)
Foreign exchange variance 0.27 
Subtotal other 0.53 
Subtotal of the above 3.14 
Reduction in weighted average number of shares outstanding 0.37 
Lower effective income tax rate 0.75 
Total variance from 2008 diluted EPS guidance $4.26 
2008 Earnings Compared to 2007
The company’s EPS for 2007 was $3.40. The final EPS for 2008 was $11.01. The primary causes of this increase from last year’s actuals were:
   
   
Cause Effect on EPS
Potash offshore realized prices $3.75 
Potash North American realized prices 1.69 
Potash sales volumes (0.25)
Increased potash costs due to foreign exchange (0.10)
Increased royalties (0.09)
Increased brine inflow costs (0.04)
Increased other potash costs (0.16)
Higher provincial mining taxes (0.91)
Subtotal potash 3.89 
Phosphate realized prices 3.50 
Phosphate sales volumes (0.42)
Increased input costs for sulfur (1.18)
Increased input costs for ammonia (0.12)
Increased input costs for rock (0.07)
Increased other phosphate costs (0.18)
Subtotal phosphate 1.53 
Nitrogen realized prices 1.84 
Manufactured nitrogen sales volumes (0.22)
Increased cost of natural gas (0.89)
Increased other nitrogen costs (exclusive of cost of natural gas) (0.28)
Subtotal nitrogen 0.45 
Increase in other income 0.48 
Decrease in selling and administrative 0.05 
Foreign exchange variance 0.44 
Subtotal other 0.97 
Subtotal of the above 6.84 
Reduction in weighted average number of shares outstanding 0.22 
Lower effective income tax rate 0.55 
Total variance from 2007 diluted EPS $7.61