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Q1 - Apr 26, 2006
Financial Statement
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Financial Position
(in millions of US dollars except share amounts)
(unaudited)
March 31, December 31,
2006 2005
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Assets
Current assets
Cash and cash equivalents $ 172.7 $ 93.9
Accounts receivable 390.0 453.3
Inventories 513.4 522.5
Prepaid expenses and other current assets 68.1 41.1
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1,144.2 1,110.8
Property, plant and equipment 3,327.2 3,262.8
Other assets (Note 2) 989.8 852.8
Intangible assets 33.9 34.5
Goodwill 97.0 97.0
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$ 5,592.1 $ 5,357.9
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Liabilities
Current liabilities
Short-term debt $ 604.9 $ 252.2
Accounts payable and accrued charges 591.4 842.7
Current portion of long-term debt 1.2 1.2
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1,197.5 1,096.1
Long-term debt 1,257.3 1,257.6
Future income tax liability 561.5 543.3
Accrued pension and other post-retirement
benefits 213.0 213.9
Accrued environmental costs and asset
retirement obligations 100.1 97.3
Other non-current liabilities and deferred
credits 15.3 17.2
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3,344.7 3,225.4
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Shareholders' Equity
Share capital 1,383.0 1,379.3
Unlimited authorization of common shares
without par value; issued and outstanding
103,672,170 and 103,593,792 at March 31,
2006 and December 31, 2005, respectively
Contributed surplus 37.3 36.3
Retained earnings 827.1 716.9
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2,247.4 2,132.5
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$ 5,592.1 $ 5,357.9
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Operations and Retained Earnings
(in millions of US dollars except per-share amounts)
(unaudited)
Three Months Ended
March 31
2006 2005
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Sales (Note 6) $ 861.6 $ 921.4
Less: Freight 54.9 67.2
Transportation and distribution 31.2 28.9
Cost of goods sold 572.0 566.8
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Gross Margin 203.5 258.5
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Selling and administrative 30.8 29.3
Provincial mining and other taxes 14.2 38.4
Foreign exchange gain (2.4) (5.9)
Other income (Note 8) (31.2) (20.0)
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11.4 41.8
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Operating Income 192.1 216.7
Interest Expense 23.2 20.7
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Income Before Income Taxes 168.9 196.0
Income Taxes (Note 4) 43.4 64.7
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Net Income 125.5 131.3
Retained Earnings, Beginning of Period 716.9 701.5
Dividends (15.3) (16.8)
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Retained Earnings, End of Period $ 827.1 $ 816.0
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Net Income Per Share (Note 5)
Basic $ 1.21 $ 1.18
Diluted $ 1.19 $ 1.15
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Dividends Per Share $ 0.15 $ 0.15
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Cash Flow
(in millions of US dollars)
(unaudited)
Three Months Ended
March 31
2006 2005
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Operating Activities
Net income $ 125.5 $ 131.3
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Adjustments to reconcile net income to cash
(used in) provided by operating activities
Depreciation and amortization 58.8 59.6
Stock-based compensation 1.5 1.0
Loss on disposal of long-term assets 0.3 2.0
Foreign exchange on future income tax (0.2) (1.2)
Provision for future income tax 13.9 6.5
Undistributed earnings of equity investees (12.4) (13.1)
Other long-term liabilities 2.0 5.2
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Subtotal of adjustments 63.9 60.0
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Changes in non-cash operating working capital
Accounts receivable 63.3 (63.5)
Inventories 8.9 (1.7)
Prepaid expenses and other current assets (27.0) (6.2)
Accounts payable and accrued charges (247.1) 1.8
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Subtotal of changes in non-cash operating
working capital (201.9) (69.6)
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Cash (used in) provided by operating activities (12.5) 121.7
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Investing Activities
Additions to property, plant and equipment (120.0) (63.0)
Purchase of long-term investments (126.3) -
Proceeds from disposal of property,
plant and equipment 2.0 4.4
Proceeds from sale of long-term investments - 5.2
Other assets and intangible assets (4.5) 3.0
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Cash used in investing activities (248.8) (50.4)
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Cash before financing activities (261.3) 71.3
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Financing Activities
Repayment of long-term debt obligations (0.3) (0.2)
Proceeds from short-term debt obligations 352.7 0.8
Dividends (15.3) (16.5)
Repurchase of common shares - (82.3)
Issuance of common shares 3.0 47.0
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Cash provided by (used in) financing activities 340.1 (51.2)
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Increase in Cash and Cash Equivalents 78.8 20.1
Cash and Cash Equivalents, Beginning of Period 93.9 458.9
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Cash and Cash Equivalents, End of Period $ 172.7 $ 479.0
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Supplemental cash flow disclosure
Interest paid $ 16.3 $ 11.2
Income taxes paid $ 142.0 $ 75.5
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(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Notes to the Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2006
(in millions of US dollars except share and per-share amounts)
(unaudited)
1. Significant Accounting Policies
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's accounting policies
are in accordance with accounting principles generally accepted in Canada
("Canadian GAAP"). The accounting policies used in preparing these
interim condensed consolidated financial statements are consistent with
those used in the preparation of the 2005 annual consolidated financial
statements, except as described below.These interim condensed consolidated financial statements include the accounts of PCS and its subsidiaries; however, they do not include all disclosures normally provided in annual consolidated financial statements and should be read in conjunction with the 2005 annual consolidated financial statements. In management's opinion, the unaudited financial statements include all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly such information. Interim results are not necessarily indicative of the results expected for the fiscal year. Implicit Variable Interests
In January 2006, the company adopted Emerging Issues Committee Abstract
No. 157, "Implicit Variable Interests Under AcG-15" ("EIC-157"). This EIC
addresses whether a company has an implicit variable interest in a VIE or
potential VIE when specific conditions exist. An implicit variable
interest acts the same as an explicit variable interest except that it
involves the absorbing and/or receiving of variability indirectly from
the entity (rather than directly). The identification of an implicit
variable interest is a matter of judgment that depends on the relevant
facts and circumstances. The implementation of this EIC did not have a
material impact on the company's condensed consolidated financial
statements.2. Other Assets
In February 2006, the company acquired an additional 10.01-percent
interest in the ordinary shares of Sinochem Hong Kong Holdings Limited
("Sinofert") for cash consideration of $126.3. The purchase price was
financed by short-term debt. The additional investment increased the
company's interest in Sinofert to 20 percent.In April 2006, the company purchased an additional 220,100 shares of Arab Potash Company Inc. ("APC") for cash consideration of $3.7. The company's ownership interest in APC is approximately 28 percent. 3. Plant Shutdowns - 2003
In 2003, the company indefinitely shut down its Memphis, Tennessee plant
and suspended production of certain products at its Geismar, Louisiana
facilities due to high US natural gas costs and low product margins. The
company recorded certain employee termination costs and asset impairment
charges in connection with the shutdowns at that time. Management expects
to incur other shutdown-related costs of approximately $10.3 should
applicable facilities be dismantled, and nominal annual expenditures for
site security and other maintenance costs. The other shutdown-related
costs have not been recorded in the consolidated financial statements as
of March 31, 2006. Such costs will be recognized and recorded in the
period in which they are incurred.4. Income Taxes
The company's consolidated effective income tax rate for the three month
period ended March 31, 2006 is approximately 26 percent (2005 - 33
percent). The reduction in the effective rate for the quarter was due to
the receipt of income tax refunds relating to a recent Canadian appeals
court decision in the case of a uranium producer. The refunds related
to the 2002-2004 taxation years. The company also expects income tax
refunds in connection with the 1999-2001 taxation years. These refunds
are currently under review and have not been reflected in these interim
condensed consolidated financial statements.In April 2006, the Province of Saskatchewan announced changes to the corporation income tax and the capital tax resource surcharge. The corporate income tax rate will be reduced from 17 percent to 12 percent over the next three years, with a 3 percentage point reduction (to 14 percent) effective July 1, 2006 and further 1 percentage point reductions on July 1, 2007 and July 1, 2008. The capital tax resource surcharge will be reduced from 3.6 percent to 3.0 percent over this same period, with a reduction to 3.3 percent on July 1, 2006, 3.1 percent on July 1, 2007 and 3.0 percent on July 1, 2008. The company would only recognize the benefit of these announced changes should they become substantively enacted. 5. Net Income Per Share
Basic net income per share for the quarter is calculated on the weighted
average shares issued and outstanding for the three months ended
March 31, 2006 of 103,641,000 (2005 - 111,110,000).Diluted net income per share is calculated based on the weighted average number of shares issued and outstanding during the period. The denominator is: (i) increased by the total of the additional common shares that would have been issued assuming exercise of all stock options with exercise prices at or below the average market price for the period; and (ii) 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. The weighted average number of shares outstanding for the diluted net income per share calculation for the three months ended March 31, 2006 was 105,825,000 (2005 - 114,265,000). 6. Segment Information
The company has three reportable business segments: potash, nitrogen and
phosphate. These business 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 March 31, 2006
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All Consoli
Potash Nitrogen Phosphate Others -dated
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Sales $ 225.8 $ 331.9 $ 303.9 $ - $ 861.6
Freight 25.0 9.6 20.3 - 54.9
Transportation and
distribution 7.4 13.3 10.5 - 31.2
Net sales - third party 193.4 309.0 273.1 -
Cost of goods sold 102.6 229.6 239.8 - 572.0
Gross margin 90.8 79.4 33.3 - 203.5
Depreciation and
amortization 11.8 19.3 24.3 3.4 58.8
Inter-segment sales 4.0 31.9 2.2 - -
Three Months Ended March 31, 2005
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All Consoli
Potash Nitrogen Phosphate Others -dated
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Sales $ 352.1 $ 304.8 $ 264.5 $ - $ 921.4
Freight 37.2 10.2 19.8 - 67.2
Transportation and
distribution 9.1 11.7 8.1 - 28.9
Net sales - third party 305.8 282.9 236.6 -
Cost of goods sold 129.6 217.6 219.6 - 566.8
Gross margin 176.2 65.3 17.0 - 258.5
Depreciation and
amortization 18.1 16.9 22.3 2.3 59.6
Inter-segment sales 2.0 19.8 4.2 - -
7. Pension and Other Post-Retirement Expenses
Defined Benefit Pension Plans Three Months Ended
March 31
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2006 2005
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Service cost $ 3.6 $ 3.6
Interest cost 8.4 7.8
Expected return on plan assets (9.6) (8.9)
Net amortization 2.9 1.7
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Net expense $ 5.3 $ 4.2
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Other Post-Retirement Plans Three Months Ended
March 31
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2006 2005
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Service cost $ 1.2 $ 1.4
Interest cost 3.0 3.3
Net amortization (0.1) 0.4
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Net expense $ 4.1 $ 5.1
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For the three months ended March 31, 2006, the company contributed $6.8
to its defined benefit pension plans, $6.0 to its defined contribution
pension plans and $2.1 to its other post-retirement plans. Total 2006
contributions to these plans are not expected to differ significantly
from the amounts previously disclosed in the consolidated financial
statements for the year ended December 31, 2005.8. Other Income
Three Months Ended
March 31
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2006 2005
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Share of earnings of equity investees $ 12.4 $ 13.1
Dividend income 9.1 3.1
Other 9.7 3.8
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$ 31.2 $ 20.0
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9. Comparative Figures
Certain of the prior period's figures have been reclassified to conform
with the current period's presentation.
Potash Corporation of Saskatchewan Inc.
Selected Operating and Revenue Data
(unaudited)
Three Months Ended
March 31
2006 2005
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Potash Operating Data
Production (KCl Tonnes - thousands) 1,295 2,389
Shutdown weeks 31.7 -
Sales (tonnes - thousands)
North America 527 922
Offshore 732 1,401
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1,259 2,323
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Potash Net Sales
(US $ millions)
Sales $ 225.8 $ 352.1
Less: Freight 25.0 37.2
Transportation and distribution 7.4 9.1
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Net Sales $ 193.4 $ 305.8
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North America $ 91.9 $ 128.9
Offshore 97.2 172.8
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Potash Subtotal 189.1 301.7
Miscellaneous 4.3 4.1
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$ 193.4 $ 305.8
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Potash Average Net Sales Price per MT
North America $ 174.31 $ 139.86
Offshore $ 132.90 $ 123.35
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$ 150.24 $ 129.90
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Phosphate Operating Data
Production (P2O5 Tonnes - thousands) 513 502
P2O5 Operating Rate 86% 80%
Sales (tonnes - thousands)
Fertilizer - Liquid Phosphates 260 250
Fertilizer - Solid Phosphates 377 327
Feed 165 230
Industrial 173 155
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975 962
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Potash Corporation of Saskatchewan Inc.
Selected Operating and Revenue Data
(unaudited)
Three Months Ended
March 31
2006 2005
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Phosphate Net Sales
(US $ millions)
Sales $ 303.9 $ 264.5
Less: Freight 20.3 19.8
Transportation and distribution 10.5 8.1
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Net Sales $ 273.1 $ 236.6
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Fertilizer - Liquid Phosphates $ 61.9 $ 52.6
Fertilizer - Solid Phosphates 93.1 71.3
Feed 52.3 55.1
Industrial 63.2 54.7
Miscellaneous 2.6 2.9
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$ 273.1 $ 236.6
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Phosphate Average Net Sales Price per MT
Fertilizer - Liquid Phosphates $ 238.13 $ 210.61
Fertilizer - Solid Phosphates $ 246.86 $ 217.89
Feed $ 317.20 $ 239.25
Industrial $ 364.04 $ 353.44
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$ 279.94 $ 245.87
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Nitrogen Operating Data
Production (N Tonnes - thousands) 559 638
Average Natural Gas Cost per MMBtu $ 4.34 $ 3.72
Sales (tonnes - thousands)
Manufactured Product
Ammonia 364 406
Urea 281 359
Nitrogen solutions/Nitric acid/Ammonium nitrate 382 450
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Manufactured Product 1,027 1,215
Purchased Product 54 93
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1,081 1,308
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Fertilizer sales tonnes 322 463
Feed/Industrial sales tonnes 759 845
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1,081 1,308
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Potash Corporation of Saskatchewan Inc.
Selected Operating and Revenue Data
(unaudited)
Three Months Ended
March 31
2006 2005
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Nitrogen Net Sales
(US $ millions)
Sales $ 331.9 $ 304.8
Less: Freight 9.6 10.2
Transportation and distribution 13.3 11.7
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Net Sales $ 309.0 $ 282.9
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Manufactured Product
Ammonia $ 123.0 $ 98.9
Urea 81.4 90.3
Nitrogen solutions/Nitric acid/Ammonium nitrate 81.0 65.2
Miscellaneous 6.6 5.3
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Net Sales Manufactured Product 292.0 259.7
Net Sales Purchased Product 17.0 23.2
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$ 309.0 $ 282.9
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Fertilizer net sales $ 88.1 $ 105.8
Feed/Industrial net sales 220.9 177.1
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$ 309.0 $ 282.9
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Nitrogen Average Net Sales Price per MT
Ammonia $ 337.69 $ 243.78
Urea $ 289.81 $ 251.43
Nitrogen solutions/Nitric acid/Ammonium nitrate $ 211.96 $ 144.76
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Manufactured Product $ 284.19 $ 213.70
Purchased Product $ 316.85 $ 250.68
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$ 285.81 $ 216.31
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Fertilizer average price per MT $ 273.66 $ 228.85
Feed/Industrial average price per MT $ 290.97 $ 209.45
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$ 285.81 $ 216.31
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Exchange Rate (Cdn$/US$)
2006 2005
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December 31 1.1659
March 31 1.1671 1.2096
First-quarter average conversion rate 1.1557 1.2280
Potash Corporation of Saskatchewan Inc.
Selected Non-GAAP Financial Measures and Reconciliations
(in millions of US dollars)
(unaudited)
The following information is included for convenience only. Generally, a
non-GAAP financial measure is a numerical measure of a company's
performance, financial position or cash flows that either excludes or
includes amounts that are not normally excluded or included in the most
directly comparable measure calculated and presented in accordance with
generally accepted accounting principles ("GAAP"). EBITDA, cash flow
prior to working capital changes and free cash flow are not measures of
financial performance (nor do they have standardized meanings) under
either Canadian GAAP or US GAAP. In evaluating these measures, investors
should consider that the methodology applied in calculating such measures
may differ among companies and analysts.The company uses both GAAP and certain non-GAAP measures to assess performance. The company's management believes these non-GAAP measures provide useful supplemental information to investors in order that they may evaluate PotashCorp's financial performance using the same measures as management. PotashCorp's management believes that, as a result, the investor is afforded greater transparency in assessing the financial performance of the company. These non-GAAP financial measures should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with GAAP.
A. EBITDA
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Set forth below is a reconciliation of "EBITDA" to net income, the most
directly comparable financial measure calculated and presented in
accordance with Canadian GAAP. Three Months Ended
March 31
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2006 2005
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Net income $ 125.5 $ 131.3
Income taxes 43.4 64.7
Interest expense 23.2 20.7
Depreciation and amortization 58.8 59.6
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EBITDA $ 250.9 $ 276.3
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EBITDA is calculated as earnings before interest, income taxes,
depreciation and amortization. PotashCorp uses EBITDA as a supplemental
financial measure of its operational performance. Management believes
EBITDA to be an important measure as it excludes the effects of items
which primarily reflect the impact of long-term investment decisions,
rather than the performance of the company's day-to-day operations. As
compared to net income according to GAAP, this measure is limited in that
it does not reflect the periodic costs of certain capitalized tangible
and intangible assets used in generating revenues in the company's
business. Management evaluates such items through other financial
measures such as capital expenditures and cash flow provided by operating
activities. The company believes that this measurement is useful to
measure a company's ability to service debt and to meet other payment
obligations or as a valuation measurement. Potash Corporation of Saskatchewan Inc.
Selected Non-GAAP Financial Measures and Reconciliations
(in millions of US dollars)
(unaudited)
B. CASH FLOW
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Set forth below is a reconciliation of "cash flow prior to working
capital changes" and "free cash flow" to cash provided by operating
activities, the most directly comparable financial measure calculated
and presented in accordance with Canadian GAAP. Three Months Ended
March 31
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2006 2005
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Cash flow prior to working capital changes(1) $ 189.4 $ 191.3
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Changes in non-cash operating working capital
Accounts receivable 63.3 (63.5)
Inventories 8.9 (1.7)
Prepaid expenses and other current assets (27.0) (6.2)
Accounts payable and accrued charges (247.1) 1.8
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Changes in non-cash operating working capital (201.9) (69.6)
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Cash (used in) provided by operating activities $ (12.5) $ 121.7
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Free cash flow(2) $ 64.9 $ 131.3
Additions to property, plant and equipment 120.0 63.0
Other assets and intangible assets 4.5 (3.0)
Changes in non-cash operating working capital (201.9) (69.6)
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Cash (used in) provided by operating activities $ (12.5) $ 121.7
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