The company's 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:
Cash Flow from Operating, Investing and Financing Activities
The following table presents summarized working capital information as at June 30, 2008 compared to December 31, 2007:
Summary of Working Capital
($ millions) – except ratio amounts
June 30,
December 31,
$
%
2008
2007
Change
Change
Current assets
$
2,119.1
$
1,811.3
$
307.8
17
Current liabilities
$
(2,409.1)
$
(1,001.9)
$
(1,407.2)
140
Working capital
$
(290.0)
$
809.4
$
(1,099.4)
n/m
Current ratio
0.88
1.81
(0.93)
(51)
n/m
not meaningful
Our liquidity needs can be met through a variety of sources, including: cash generated from operations, short-term borrowings against our lines of credit and commercial paper program, long-term debt issued under our US shelf registration statements, and long-term debt drawn down under our syndicated credit facility. Our primary uses of funds are operational expenses, sustaining and opportunity capital spending, intercorporate investments, dividends, interest and principal payments on our debt securities, and the repurchase of common shares.
Cash provided by operating activities
Cash provided by operating activities increased $368.5 million quarter over quarter, largely attributable to the $619.4 million increase in net income. Cash flow from working capital changes declined $213.2 million from second-quarter 2007, with the largest reductions coming from the higher balance of accounts receivable this year due to price and timing of the higher sales during the quarter (reducing cash flow from working capital changes compared to last year by $294.6 million) and the higher balance of inventories driven by increased input costs (reducing cash flow from working capital changes by $132.9 million versus last year). The increase in accounts payable and accrued charges contributed $228.1 million during second-quarter 2008 with higher hedging margin deposits and income taxes payable. In comparison, it contributed $2.7 million during the second quarter of 2007 as increased income taxes payable (which increased compared to December 2007, but did not increase as significantly as in the first six months of 2008) and compensation accruals related to our medium-term incentive plan were largely offset by higher amounts in accounts payable pertaining to property, plant and equipment reclassified from operating cash flows to investing activities (as acquiring or constructing property, plant and equipment by incurring a liability does not result in a cash outflow until the liability is paid; in the period the related liability is incurred, the change in operating accounts payable is reduced by such amount; in the period the liability is paid, the amount is reflected as a cash outflow for investing activities) and reclassification of amounts payable in respect of dividends from operating cash flows to financing activities. Year over year, cash provided by operating activities was up $491.2 million. The $987.4 million increase in net income was offset in part by a $433.0 million reduction in cash flow from working capital changes. The higher balance of accounts receivable and inventories at the end of June 2008 compared to December 2007 reduced cash flow from working capital changes by $494.9 million and $229.3 million, respectively. During the same six months in 2007, these balances were largely flat. Partially offsetting these outflows was cash inflow from the change in accounts payable and accrued charges, which increased cash flow from changes in non-cash operating working capital by $291.5 million compared to the first six months of 2007. Accounts payable and accrued charges increased during first-half 2008 with higher hedge margin deposits, income taxes payable, payables for share repurchases and raw material input costs. In the first half of 2007, accounts payable and accrued charges were up less in each of these areas, and no share repurchases were made as repurchases under our normal course issuer bid did not commence until 2008.
Cash used in investing activities
Cash used in investing activities increased $208.7 million quarter over quarter and $463.2 million year over year. The most significant cash outlays during the first six months of 2008 and 2007 included:
During the first three months of 2008, $173.7 million was paid to settle the company’s forward purchase contract for shares of Sinofert. During the second quarter of 2008, the company purchased an additional 102,128,000 shares in Sinofert for a total cost of $76.4 million. Net of the ownership interest dilution that resulted from the issuance of shares of Sinofert, the acquisitions increased the company’s ownership interest in Sinofert to approximately 21 percent. During the first three months of 2007, $9.7 million was paid to settle outstanding amounts related to the December 2006 purchase of additional shares in SQM.
Our spending on property, plant and equipment was $237.9 million in the second quarter of 2008 and $434.4 million in the first six months of 2008, an increase of $110.4 million and $197.9 million compared to the same periods in 2007, respectively. Approximately 76 percent (2007 – 52 percent) of our consolidated capital expenditures for the second quarter related to the potash segment and 69 percent (2007 – 55 percent) related to the potash segment in the first six months of 2008.
Cash used in financing activities
Cash used in financing activities rose $249.7 million during the second quarter and $601.6 million during the first half of 2008 compared to the corresponding periods in 2007. During second-quarter and first-half 2008, we paid $1,476.6 million and $1,897.1 million, respectively, to settle repurchases of common shares under our normal course issuer bid. Partially offsetting this outflow were proceeds from short-term debt obligations that were $828.9 million in the second quarter and $842.4 million in the first half, compared to $9.5 million of short-term debt being repaid during the second quarter of 2007 and $71.3 million repaid during the first half from cash provided by operating activities. In the second quarter of 2007, we repaid $400.0 million of 10-year bonds that matured in June.
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 in 2008, exclusive of any possible acquisitions, as was the case in 2007. 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.
