| (unaudited, in millions of US dollars except per-shared amounts) | |||||||||||||||||||||
| 2007 | 2006 | ||||||||||||||||||||
| Q1 | Q2 | Q3 | Q4 | Total | Q1 | Q2 | Q3 | Q4 | Total | ||||||||||||
| Sales | $ | 1,154.7 | $ | 1,353.1 | $ | 1,295.0 | $ | 1,431.4 | $ | 5,234.2 | $ | 861.6 | $ | 928.7 | $ | 953.5 | $ | 1,022.9 | $ | 3,766.7 | |
| Less: | Freight | 81.9 | 92.3 | 80.6 | 91.3 | 346.1 | 54.9 | 62.3 | 65.6 | 73.0 | 255.8 | ||||||||||
| Transportation and distribution | 31.0 | 32.6 | 31.0 | 29.5 | 124.1 | 31.2 | 35.8 | 37.6 | 29.5 | 134.1 | |||||||||||
| Cost of goods sold | 672.1 | 726.8 | 708.3 | 775.6 | 2,882.8 | 572.0 | 577.2 | 604.5 | 621.1 | 2,374.8 | |||||||||||
| Gross margin | 369.7 | 501.4 | 475.1 | 535.0 | 1,881.2 | 203.5 | 253.4 | 245.8 | 299.3 | 1,002.0 | |||||||||||
| Operating income | 308.3 | 422.3 | 406.2 | 451.7 | 1,588.5 | 192.1 | 194.7 | 223.2 | 265.5 | 875.5 | |||||||||||
| Net income | 198.0 | 285.7 | 243.1 | 376.8 | 1,103.6 | 125.5 | 175.1 | 145.2 | 186.0 | 631.8 | |||||||||||
| Net income per share – basic | 0.63 | 0.91 | 0.77 | 1.19 | 3.50 | 0.40 | 0.56 | 0.47 | 0.59 | 2.03 | |||||||||||
| Net income per share – diluted | 0.62 | 0.88 | 0.75 | 1.16 | 3.40 | 0.40 | 0.55 | 0.46 | 0.58 | 1.98 | |||||||||||
| Potash gross margin | 174.2 | 260.4 | 221.3 | 256.4 | 912.3 | 90.8 | 132.8 | 153.6 | 183.9 | 561.1 | |||||||||||
| Nitrogen gross margin | 131.3 | 144.2 | 123.9 | 136.7 | 536.1 | 79.4 | 91.7 | 62.4 | 82.1 | 315.6 | |||||||||||
| Phosphate gross margin | 64.2 | 96.8 | 129.9 | 141.9 | 432.8 | 33.3 | 28.9 | 29.8 | 33.3 | 125.3 | |||||||||||
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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; therefore, quarterly amounts may not add to the annual total. Per-share calculations are based on full dollar and share amounts.
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.
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With strong market conditions and rising prices for all three nutrients, gross margin for the quarter climbed to a record $535.0 million, up $235.7 million from last year's fourth quarter. Cash flow from operations of $531.6 million was the second highest quarterly total in our history, while the $1,688.9 million achieved for the year exceeded the 2005 record by 95 percent.
Highlights of our 2007 fourth quarter include:
- Potash gross margin of $256.4 million approached the record $260.4 million of this year's second quarter and was 39 percent higher than the $183.9 million of last year's fourth quarter. As a percentage of net sales, potash gross margin increased to 60 percent from 57 percent in last year's fourth quarter, and from 58 percent in the third quarter of 2007. Realized prices to offshore markets were up $36 per tonne over 2006, but the full benefit of announced offshore price increases was not captured because of higher ocean freight rates and locked-in contract pricing to China and India. In the North American spot market, our realized prices were $48 per tonne higher than in 2006 and $19 per tonne above last quarter. Total potash sales volumes of 2.3 million tonnes were 5 percent above last year, when offshore markets were actively restocking after purchasing delays earlier in 2006. Offshore, sales volumes of 1.5 million tonnes were 10 percent higher than in the previous year. Our North American sales volumes were just slightly lower than the previous year's very strong fourth-quarter sales. Our potash production reached a quarterly record of 2.5 million tonnes, 6 percent higher than in 2006 as we saw the benefit of additional tonnes after the completion of our Allan project in 2007. The stronger Canadian dollar raised potash cost of goods sold by about $8 per tonne compared to last year, while continuing higher brine inflow costs at New Brunswick and Esterhazy had a further negative impact of $6 per tonne.
- On the foundation of continuing strong agricultural demand and higher natural gas prices, nitrogen gross margin of $136.7 million was the second highest quarterly total in company history, 67 percent above the same quarter in 2006 and trailing only the second quarter of 2007. Our Trinidad operation generated $73.9 million in gross margin, while our US operations added $45.1 million and natural gas hedging gains contributed $17.7 million. With the continuation of tight supply/demand fundamentals, realized prices for manufactured ammonia and urea were up 9 percent (+$25 per tonne) and 46 percent (+$120 per tonne), respectively, from 2006. The significant price improvements for these products were achieved since the third quarter of 2007, with ammonia 11 percent higher (+$31 per tonne) and urea up 14 percent (+$46 per tonne). Prices for nitrogen solutions were up 52 percent quarter over quarter. Total manufactured nitrogen sales volumes of 1.4 million tonnes were up 19 percent from 2006 levels, built on strong US agricultural demand. This was achieved even though production was flat, as our Augusta facility took a planned 35-day turnaround during the quarter. We again opportunistically produced nitrogen solutions at our Geismar facility from imported ammonia and purchased carbon dioxide, enabling us to increase total manufactured sales volumes for this product by 160 percent quarter over quarter and add an extra $13.6 million to the gross margin increase.
- Driven by continued strong sales volumes and higher pricing in all major product categories, phosphate generated record quarterly gross margin of $141.9 million in the fourth quarter of 2007, exceeding the total in the same quarter of 2006 by $108.6 million. Solid phosphate fertilizers continued their strong turnaround, generating $70.3 million in gross margin, while liquid fertilizer at $31.5 million, feed at $22.3 million and industrial products at $14.9 million were consistent contributors. Our realized prices were up from a year earlier in all major product categories, in part because of strong agricultural demand and in part due to the global impact of higher costs for inputs such as sulfur, phosphate rock and ammonia. Pricing for phosphate products sold on spot markets moved dramatically upward, while certain industrial products rose on a delayed basis. Our manufactured solid fertilizer realized prices were up 82 percent (+$192 per tonne) compared to the same quarter in 2006, while liquid fertilizer rose 37 percent (+$86 per tonne), feed 22 percent (+$67 per tonne) and industrial products 6 percent (+$22 per tonne). North American manufactured sales volumes for liquid fertilizer were up 9 percent and solid fertilizers were 22 percent higher than the previous year's fourth quarter, as we focused on these markets ahead of lower-netback offshore regions. Total liquid and solid fertilizer manufactured sales volumes were 2 percent higher and 3 percent lower than in 2006, respectively. Manufactured feed sales volumes rose 12 percent quarter over quarter, driven by a 32 percent increase in sales to offshore markets, primarily in Latin America. Manufactured industrial sales volumes were 17 percent higher than the fourth quarter of 2006 as a result of stronger demand for phosphoric acid and retail technical grade purified acid. Our sulfur costs rose 49 percent from the fourth quarter of 2006 and 30 percent from the trailing quarter.
- Selling and administrative expenses were substantially higher in 2007, due largely to valuation of deferred share units that were directly impacted by the significant upward movement in our share price.
- The Canadian dollar strengthened slightly against the US dollar during the fourth quarter of 2007 and the translation of Canadian dollar-denominated monetary items contributed to a $2.8 million foreign exchange loss during this period. This compared to a gain of $13.6 million during last year's fourth quarter when the US dollar's strengthening had a significant effect.
- Other income declined $7.5 million despite dividend income increasing $10.6 million and our share of earnings from equity investees contributing an additional $2.6 million, as a $26.5 million provision for other-than-temporary impairment of investments in auction rate securities held within our trading account was recognized during the quarter.
- Reductions to the Canadian federal corporate income tax rate between 2008 and 2012 were enacted in the quarter, which decreased our future income tax liability and income tax expense by $35.4 million and contributed to the reduction in our consolidated effective income tax rate from the previous 33 percent estimate back down to 30 percent. This was supplemented by more permanent deductions generated in the US than previously forecast and a reduction in our US blended state income tax rate.