<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
------------------------
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] 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)
------------------------
<TABLE>
<S> <C>
SASKATCHEWAN, CANADA N/A
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
122 - 1ST AVENUE SOUTH
SASKATOON, SASKATCHEWAN S7K 7G3
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
306-933-8500
(REGISTRANT'S 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 X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As at October 31, 1996
45,566,890 Shares.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
These interim consolidated financial statements do not include all
disclosure normally provided in annual financial statements. In management's
opinion, the unaudited financial information includes 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.
POTASH CORPORATION OF SASKATCHEWAN INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------- -----------------------
1996 1995 1996 1995
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Net sales..................................... $342,148 $214,609 $1,061,388 $555,033
Cost of goods sold............................ 251,193 152,408 766,931 334,362
-------- -------- ---------- --------
Gross Margin.................................. 90,955 62,201 294,457 220,671
-------- -------- ---------- --------
Research and development...................... 390 320 955 945
Selling and administrative.................... 15,142 14,054 43,985 35,498
Provincial mining and other taxes............. 8,596 8,752 29,497 32,625
Other expense (income)........................ 409 (2,079) (7,886) (6,519)
-------- -------- ---------- --------
24,537 21,047 66,551 62,549
-------- -------- ---------- --------
Operating Income.............................. 66,418 41,154 227,906 158,122
Interest Expense.............................. 11,038 13,821 36,784 26,265
-------- -------- ---------- --------
Income Before Income Taxes.................... 55,380 27,333 191,122 131,857
Income Taxes.................................. 8,608 4,256 28,274 9,561
-------- -------- ---------- --------
Net Income.................................... $ 46,772 $ 23,077 162,848 122,296
======== ========
Retained Earnings, Beginning of Period........ 277,689 164,037
Dividends..................................... (35,816) (33,997)
---------- --------
Retained Earnings, End of Period.............. $ 404,721 $252,336
========== ========
Net Income Per Share (Note 3)................. $ 1.03 $ 0.53 $ 3.58 $ 2.83
======== ======== ========== ========
Dividends Per Share (Note 4).................. $ 0.26 $ 0.27 $ 0.79 $ 0.79
======== ======== ========== ========
</TABLE>
(See Notes to the Consolidated Financial Statements)
1
<PAGE> 3
POTASH CORPORATION OF SASKATCHEWAN INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents........................................ $ 108,534 $ 40,497
Accounts receivable.............................................. 175,300 223,377
Inventories (Note 2)............................................. 189,457 221,911
Prepaid expenses................................................. 13,228 12,041
Other current assets............................................. 3,987 3,315
---------- ----------
490,506 501,141
Property, plant and equipment...................................... 1,983,780 2,032,339
Other assets....................................................... 46,212 48,337
---------- ----------
$2,520,498 $2,581,817
========== ==========
LIABILITIES
Current Liabilities
Accounts payable and accrued charges............................. $ 150,618 $ 199,222
Current portion of long-term debt................................ 88,755 164,971
Current obligations under capital leases......................... 265 870
---------- ----------
239,638 365,063
Long-term debt..................................................... 638,465 711,585
Obligations under capital leases................................... 1,268 2,913
Deferred income tax liability...................................... 19,478 4,743
Accrued post-retirement/post-employment benefits................... 96,042 89,570
Accrued reclamation costs.......................................... 148,386 151,531
Other non-current liabilities and deferred credits................. 6,060 14,537
---------- ----------
1,149,337 1,339,942
---------- ----------
SHAREHOLDERS' EQUITY
Share Capital...................................................... 629,954 627,700
Contributed Surplus................................................ 336,486 336,486
Retained Earnings.................................................. 404,721 277,689
---------- ----------
1,371,161 1,241,875
---------- ----------
$2,520,498 $2,581,817
========== ==========
</TABLE>
(See Notes to the Consolidated Financial Statements)
2
<PAGE> 4
POTASH CORPORATION OF SASKATCHEWAN INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------------
1996 1995
--------- ---------
<S> <C> <C>
Operating Activities
Net income........................................................... $ 162,848 $ 122,296
Items not affecting cash
Depreciation and amortization...................................... 67,242 44,108
Loss (gain) on disposal of property, plant and equipment........... 786 (7)
Provision for deferred income taxes................................ 14,735 1,576
Provision for post-retirement/post-employment benefits............. 6,472 762
--------- ---------
252,083 168,735
Changes in non-cash operating working capital
Accounts receivable................................................ 48,078 (35,727)
Inventories........................................................ 29,619 (4,705)
Prepaid expenses................................................... (1,188) 959
Other current assets............................................... (672) 7,579
Accounts payable and accrued charges............................... (48,604) 18,193
Accrued reclamation costs............................................ (3,147) (1,448)
Other non-current liabilities and deferred credits................... (8,477) (888)
--------- ---------
Cash provided by operating activities................................ 267,692 152,698
--------- ---------
Investing Activities
Additions to property, plant and equipment
-- Acquisition of PCS Phosphate.................................... -- (812,226)
-- Additions to property, plant and equipment...................... (37,101) (14,335)
Proceeds on disposal of property, plant and equipment................ 22,285 448
Disposals of (additions to) other assets............................. 309 (9,424)
--------- ---------
Cash used in investing activities.................................... (14,507) (835,537)
--------- ---------
Cash (deficiency) before financing activities........................ 253,185 (682,839)
--------- ---------
Financing Activities
(Repayment of) proceeds from long-term obligations................... (151,586) 759,105
Proceeds from short-term debt........................................ -- 22,947
Dividends............................................................ (35,816) (33,997)
Issuance of shares................................................... 2,254 2,079
--------- ---------
Cash (used in) provided by financing activities...................... (185,148) 750,134
--------- ---------
Increase in Cash..................................................... 68,037 67,295
Cash and Cash Equivalents, Beginning of Period....................... 40,497 16,576
--------- ---------
Cash and Cash Equivalents, End of Period............................. $ 108,534 $ 83,871
========= =========
Supplemental cash flow disclosure
Interest paid...................................................... $ 39,091 $ 22,491
Income taxes paid.................................................. $ 24,419 $ 9,375
</TABLE>
(See Notes to the Consolidated Financial Statements)
3
<PAGE> 5
POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting policies are in accordance with accounting
principles generally accepted in Canada. These policies are consistent with
accounting principles generally accepted in the United States except as outlined
in Note 5.
Basis of presentation
The consolidated financial statements include the accounts of Potash
Corporation of Saskatchewan Inc. and its subsidiaries.
2. INVENTORIES
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Finished product................................... $ 86,031 $115,491
Materials and supplies............................. 70,335 66,708
Raw materials...................................... 9,142 11,954
Work in process.................................... 23,949 27,758
-------- --------
$ 189,457 $221,911
======== ========
</TABLE>
3. EARNINGS PER SHARE
Year-to-date earnings per share are calculated on the weighted average
shares issued and outstanding during the nine months ended September 30, 1996 of
45,525,000 (1995 -- 43,202,000).
4. DIVIDENDS
The Company declares its dividends in Canadian dollars.
5. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
A description of the accounting principles which differ significantly in
certain respects from generally accepted accounting principles in the United
States (US GAAP) follows:
Earnings per share: In computing primary earnings per share, under US GAAP,
the stock options are included in the calculation to the extent that they are
exercisable.
Deferred income taxes: Deferred tax assets have been recognized only to the
extent of reducing deferred tax liabilities. US GAAP would require that deferred
tax assets be recorded when their realization is more likely than not.
4
<PAGE> 6
POTASH CORPORATION OF SASKATCHEWAN INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
The application of US GAAP, as described above, would have had the
following approximate effects on net income, net income per share, total assets
and shareholders' equity:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income as reported in the consolidated
statements of income and retained
earnings................................ $ 46,772 $ 23,077 $ 162,848 $ 122,296
Item decreasing reported net income
Deferred income taxes..................... 1,435 -- 5,753 --
---------- ---------- ---------- ----------
Approximate net income -- US GAAP......... $ 45,337 $ 23,077 $ 157,095 $ 122,296
========== ========== ========== ==========
Weighted average shares outstanding -- US
GAAP.................................... 46,028,000 43,834,000 45,989,000 43,589,000
========== ========== ========== ==========
Net income per share -- US GAAP........... $ 0.98 $ 0.52 $ 3.42 $ 2.80
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Total assets as reported in the consolidated statements of
financial position............................................... $ 2,520,498 $2,581,817
Item increasing reported total assets
Deferred income tax asset.......................................... 12,845 18,598
---------- ----------
Approximate total assets -- US GAAP................................ $ 2,533,343 $2,600,415
========== ==========
Shareholders' equity as reported in the consolidated statements of
financial position............................................... $ 1,371,161 $1,241,875
Item increasing reported shareholders' equity
Deferred income taxes.............................................. 12,845 18,598
---------- ----------
Approximate shareholders' equity -- US GAAP........................ $ 1,384,006 $1,260,473
========== ==========
</TABLE>
6. COMPARATIVE FIGURES
Certain of the prior period's comparative figures have been reclassified to
conform with the current period's presentation. Results for the first nine
months of 1995 do not include: (1) the results of White Springs which was
acquired October 31, 1995, and (2) the results of PCS Phosphate (formerly
Texasgulf Inc.) prior to April 10, 1995, the date of acquisition.
7. PROPOSED ACQUISITIONS
On September 2, 1996 the Company entered into a definitive agreement to
acquire Arcadian Corporation, subject to approval by Arcadian shareholders and
other conditions. For each share of common stock of Arcadian (approximately 45.5
million on a fully diluted basis) the price is expected to be U.S. $25 to $27
per share -- $12.25 in cash and the remainder in common shares of the Company at
an exchange ratio of 0.17713 of a share of the Company (subject to adjustment)
for a share of Arcadian.
The Company is engaged in discussions with BASF AG to acquire for cash, a
51% interest in Kali und Salz AG (K&S AG). The holdings of K&S AG include a 51%
interest in Kali und Salz GmbH and a 50% interest in Potacan.
5
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Third quarter and year-to-date September 30 results for 1995 do not include
(1) the results of White Springs, which was acquired October 31, 1995, and (2)
the results of PCS Phosphate (formerly Texasgulf Inc.) prior to April 10, 1995,
the date of acquisition.
Net sales and net income for the three months ended September 30, 1996,
improved 59 percent and 103 percent, respectively, over the same period in 1995.
Net income for the three months ended September 30, 1996, was $46.8 million
(1995 -- $23.1 million) on net sales of $342.1 million (1995 -- $214.6 million),
or $1.03 per share (1995 -- $0.53 per share). For the third quarter of 1996,
gross margin and operating income were $91.0 million and $66.4 million,
respectively, compared to a gross margin of $62.2 million and an operating
income of $41.2 million for the same period in 1995 (increases of 46 percent and
61 percent, respectively).
For the three months ended September 30, 1996, North American and offshore
net sales revenue were $202.9 million (1995 -- $101.2 million) and $139.2
million (1995 -- $113.4 million), respectively. North American net sales revenue
represented 59 percent (1995 -- 47 percent) of total net sales revenue, whereas
offshore sales represented 41 percent of net sales revenue (1995 -- 53 percent).
Potash, phosphate and ammonia revenue for the quarter ended September 30,
1996 were $101.6 million (1995 -- $84.0 million), $217.4 million (1995 -- $130.6
million), and $23.1 million (1995 -- not applicable), respectively, an increase
of $17.6 million in potash revenue, an $86.8 million increase in phosphate
revenue and a $23.1 million increase in ammonia revenue, when compared to the
same period a year ago.
Gross margins for the third quarter of 1996 increased $28.8 million or 46
percent over the same quarter in 1995. Gross margin for potash was $44.9
million, an increase of $3.3 million when compared to the same quarter of 1995.
Gross margins for phosphate fertilizer, feed, industrial and ammonia products
were $27.3 million (1995 -- $9.5 million), $12.3 million (1995 -- $9.7 million),
$6.1 million (1995 -- $1.3 million) and $0.4 million (1995 -- not applicable),
respectively. Domestic fertilizer sales were strong in both potash and phosphate
nutrients as customers purchased during the summer fill program in anticipation
of a good fall application period.
The increase in net income of $23.7 million for the quarter ended September
30, 1996 is largely attributable to additional revenues from the phosphate
acquisitions, record third quarter potash sales volumes, improved phosphate
prices and lower interest expense. This was offset by an increase in cost of
goods sold, income taxes and selling and administrative expenses.
The phosphate acquisitions contributed an additional $110.0 million in
sales revenue and an additional $25.6 million in gross margin compared to the
comparable quarter in 1995. Potash revenues have increased in the quarter since
customers anticipated price increases in the fall which resulted in higher
volumes and lower prices. Costs of potash were up slightly because of the
shutdowns experienced in the second quarter. On the other hand the lower costs
of input in the phosphate process continued to improve costs and were further
improved by the completion of the maintenance at the White Springs operation.
Gross margins (as a percentage of sales) earned on potash have proven to be
higher than the various phosphate products. Ammonia gross margins represent
sales commissions for purchased ammonia which PCS resells.
Net sales and net income for the nine months ended September 30, 1996
improved 91 percent and 33 percent, respectively, over the same period in 1995.
Net income for the nine months ended September 30, 1996 was $162.8 million
(1995 -- $122.3 million) on net sales of $1,061.4 million (1995 -- $555.0
million), or $3.58 per share (1995 -- $2.83 per share). For the first nine
months of 1996, gross margin and operating income were $294.5 million and $227.9
million, respectively, compared to a gross margin of $220.7 million and
operating income of $158.1 million for the same period in 1995 (increases of 33
percent and 44 percent, respectively).
6
<PAGE> 8
For the nine months ended September 30, 1996, North American and offshore
net sales revenue were $638.2 million (1995 -- $246.1 million) and $423.2
million (1995 -- $309.0 million), respectively. North American net sales revenue
represented 60 percent (1995 -- 44 percent) of total net sales revenue, whereas
offshore sales represented 40 percent of net sales revenue (1995 -- 56 percent).
Potash, phosphate and ammonia net sales revenue for the first nine months
of 1996 were $309.4 million (1995 -- $329.3 million), $663.5 million
(1995 -- $225.8 million), and $88.4 million (1995 -- not applicable),
respectively, a decrease of $19.8 million in potash net sales revenue, a $437.8
million increase in phosphate net sales revenue and an $88.4 million increase in
ammonia net sales revenue, when compared to the same period a year ago.
Gross margins for the first nine months of 1996 increased $73.8 million or
33 percent over the same period in 1995. Gross margin for potash was $148.7
million, a decrease of $31.9 million when compared to the first nine months of
1995. This decrease was more than offset by a gross margin of $145.8 million for
phosphate and ammonia. Of this $145.8 million gross margin, $91.9 million
(1995 -- $18.3 million) is attributable to phosphate fertilizer products, $32.1
million (1995 -- $12.9 million) is attributable to feed products, $19.7 million
(1995 -- $8.8 million) is attributable to industrial products, and $2.1 million
(1995 -- not applicable) is attributable to ammonia.
The increase in net income of $40.6 million for the nine months ended
September 30, 1996, is largely attributable to additional revenues from the
phosphate acquisitions, improved phosphate prices and a decrease in Saskatchewan
provincial mining and other taxes. This was offset by an increase in interest
expense of $10.5 million relating to debt financing of $878.8 million incurred
to purchase PCS Phosphate and White Springs, a $432.6 million increase in cost
of sales, an $18.7 million increase in income taxes, and an increase in selling
and administrative expenses of $8.5 million.
Although the Company had increased earnings in the first nine months of
1996 when compared to the same period in 1995, market conditions did not live up
to the expectations for the fertilizer industry in general. Inclement spring
weather put a damper on the domestic market, resulting in a delayed seeding and
harvest season. In the export market, large purchases at the end of 1995, and
subsidy issues resulted in fewer sales to China and India during the first nine
months of 1996 when compared to the first nine months of 1995. After a slow
start, shipments to Brazil picked up and have remained strong in 1996.
The Company is engaged in discussions with BASF AG to acquire from BASF AG,
for cash, a 51 percent interest in the German publicly traded company, K&S AG.
The holdings of K&S AG include a 51 percent interest in Kali und Salz GmbH which
is the owner and operator of Germany's potash mines. The remaining 49 percent
interest in Kali und Salz GmbH is held by Beteiligungs-Management-Gesellschaft
Berlin mbH (BMGB), an agency of the German government. Potacan is a joint
venture between K&S AG and Enterprise Miniere et Chimique of Paris, France.
Potacan, through a subsidiary, owns and operates a potash mine near Sussex, New
Brunswick. The agreement of purchase and sale, if concluded, will be subject to
necessary regulatory approval.
The Company and Arcadian Corporation (NYSE: ACA; ACA PRA) jointly announced
that they have entered into a definitive merger agreement. The Company is to
acquire all the outstanding common stock of Arcadian (approximately 45.5 million
shares on a fully diluted basis) at a price of U.S. $25 to U.S. $27 per share,
providing U.S. $12.25 per share in cash and the remainder in common stock of the
Company at an exchange of 0.17713 shares of the Company (subject to adjustment)
for every share of Arcadian.
The merger agreement contemplates that Arcadian's outstanding shares of
Mandatorily Convertible Preferred Stock, Series A, will be converted into shares
of Arcadian common stock immediately prior to the merger date and will be
treated identically to all other shares of Arcadian common stock in the merger.
The merger agreement includes certain conditions, including, among other things,
the approval by the Arcadian stockholders. The terms of the transaction,
including the offering of the Company's common shares, will be set forth by
means of a proxy statement/prospectus.
7
<PAGE> 9
POTASH REVENUE
Potash net sales revenue for the quarter ended September 30, 1996 increased
by $17.6 million or 21 percent as compared to the same period in 1995
(1996 -- $101.6 million; 1995 -- $84.0 million). The Company sold 1.437 million
tonnes of potash in the third quarter of 1996, compared to 1.138 million tonnes
sold in the same period last year, an increase of .299 million tonnes or 26
percent. Potash prices decreased by 4 percent for the third quarter of 1996 when
compared to the third quarter of 1995.
In the third quarter of 1996, North American and offshore potash sales
volumes increased 60 percent and 3 percent, respectively, over the same period
in 1995. Domestic customers bought mainly during the summer prior to announced
price increases. Exclusive of sales to another producer, prices received from
domestic customers were down slightly which is often the case during a summer
fill. Potash prices increased 5 percent in the offshore market. There was a
greater proportion of higher priced New Brunswick tonnes sold in the export
market compared to the same period a year ago. Price realizations in the
domestic market were down by 9 percent from the third quarter a year ago.
North American net sales revenue from potash operations represented 42
percent of the potash sales revenue of the Company during the third quarter of
1996 (1995 -- 35 percent). In the third quarter of 1996, the increase in North
American potash sales volumes and the decrease in North American prices resulted
in a $13.4 million increase in North American potash net sales revenue over the
same period in 1995. North American potash sales volumes for the third quarter
of 1996 increased .279 million tonnes (1996 -- .745 million tonnes; 1995 -- .466
million tonnes) compared to the third quarter of 1995. Sales volumes of .084
million tonnes to another producer increased North American volumes.
In the third quarter of 1996, offshore net sales revenue from potash
operations represented 58 percent of potash net sales revenue of the Company
(1995 -- 65 percent). In the third quarter of 1996, the increase in offshore
sales volumes and the increase in overall offshore selling price resulted in a
$4.2 million increase in offshore potash net sales revenue over the same period
in 1995. In the offshore market, the Company sold .691 million potash tonnes
during the third quarter of 1996 (1995 -- .672 million tonnes), an increase of 3
percent. Of the .691 million tonnes, .502 million tonnes were sold through
Canpotex and the remaining .189 million tonnes were produced by PCS New
Brunswick and sold and delivered to offshore markets, such as Brazil, by PCS
Sales.
Potash net sales revenue for the first nine months of 1996 decreased by
$19.9 million or 6 percent as compared to the first nine months of 1995
(1996 -- $309.4 million; 1995 -- $329.3 million). The Company sold 4.324 million
tonnes of potash in the first nine months of 1996, compared to 4.590 million
tonnes sold in the same period last year, a decrease of .266 million tonnes or 6
percent. Overall potash prices were flat in the first nine months of 1996 as
compared to the first nine months of 1995.
In the first nine months of 1996, North American and offshore potash sales
volumes increased 20 percent and decreased 21 percent, respectively, over the
same period in 1995.
North American net sales revenue from potash operations represented 40
percent of the potash net sales revenue of the Company during this year's first
nine months. In the first nine months of 1996, the increase in North American
potash sales volumes and a decrease in North American prices resulted in a $12.9
million increase in North American potash net sales revenue over the same period
in 1995. North American potash sales volumes for the first nine months of 1996
increased .346 million tonnes (1996 -- 2.066 million tonnes; 1995 -- 1.720
million tonnes) compared to the first nine months of 1995.
In the first nine months of 1996, offshore net sales revenue from potash
operations represented 60 percent of potash net sales revenue of the Company. In
the first nine months of 1996, the decrease in offshore sales volumes and the
increase in overall offshore selling price resulted in a $32.7 million decrease
in offshore potash net sales revenue over the same period in 1995. In the
offshore market, the Company sold 2.257 million potash tonnes during the first
nine months of 1996 (1995 -- 2.870 million tonnes), a decrease of 21 percent. Of
the 2.257 million tonnes, 1.729 million tonnes were sold through Canpotex and
the remaining .528 million tonnes were produced by PCS New Brunswick and sold
and delivered to offshore markets.
8
<PAGE> 10
PHOSPHATE REVENUE
For the quarter ended September 30, 1996, phosphate net sales revenue was
$217.4 million; phosphate fertilizer $151.7 million (70 percent); non-fertilizer
products $63.6 million (29 percent); and phosphate rock $2.1 million (1
percent). For the same quarter in 1995 net sales revenue was $130.6 million;
phosphate fertilizer $83.4 million (64 percent); non-fertilizer products $45.2
million (35 percent); and phosphate rock $2.0 million (1 percent).
During the third quarter of 1996, the Company sold .783 million tonnes of
phosphate fertilizer (.382 million tonnes in North America; .401 million tonnes
in the offshore market); .223 million tonnes of non-fertilizer products (.205
million tonnes in North America; .018 million tonnes in the offshore market);
and .059 million tonnes of phosphate rock (.001 million tonnes in North America
and the remaining .058 million tonnes in the offshore market). For the
comparable period in 1995, the Company sold .461 million tonnes of phosphate
fertilizer (.156 million tonnes in North America; .305 million tonnes in the
offshore market); .178 million tonnes of non-fertilizer products (.155 million
tonnes in North America; .023 million tonnes in the offshore market); and .085
million tonnes of phosphate rock (.013 million tonnes in North America and the
remaining .072 million tonnes in the offshore market).
For the third quarter of 1996, North American phosphate net sales revenue
accounted for $136.9 million (63 percent) of total phosphate net sales revenue
of $217.4 million. In the quarter ended September 30, 1996, 56 percent of the
Company's North American phosphate net sales revenue was earned from phosphate
fertilizer products which represented 65 percent of the Company's North American
phosphate sales volumes. Offshore sales accounted for 37 percent of total
phosphate product net sales revenue for the third quarter of 1996 and 44 percent
of volumes. In the quarter ended September 30, 1996, 92 percent of the Company's
offshore phosphate net sales revenue was earned from phosphate fertilizer
products which represented 84 percent of the Company's offshore phosphate sales
volumes.
Third quarter 1996 net sales revenue from liquid and solid fertilizer was
$151.6 million (1995 -- $83.3 million) with sales volumes of .783 million tonnes
(1995 -- .461 million tonnes). Solid phosphate fertilizer (substantially all
DAP) accounted for 62 percent or $94.3 million of the total. Offshore net sales
revenue of DAP accounted for 57 percent of solid fertilizer net sales revenue
while North American net sales revenue of liquid fertilizer accounted for 59
percent of liquid fertilizer net sales revenue. The average net sales price for
liquid and solid fertilizer improved by 14 percent and 4 percent, respectively.
DAP prices were down for the third quarter of 1996 when compared to the second
quarter of 1996. Export liquid and solid fertilizer sales prices improved by 13
percent and 5 percent, respectively, compared to the same period a year ago.
North American liquid fertilizer sales prices improved 5 percent while solid
fertilizer sales prices increased slightly when compared to the same period in
1995.
Net sales revenue from non-fertilizer products (animal feed and industrial)
during the quarter ended September 30, 1996, were $63.6 million (1995 -- $45.2
million) with sales volumes of .223 million tonnes (1995 -- .178 million
tonnes). For the third quarter of 1996, feed sales tonnage was .176 million
tonnes (1995 -- .120 million tonnes) with 10 percent sold offshore while the
remaining .047 million tonnes were industrial products sold to North American
customers. Feed product prices for the quarter ended September 30, 1996,
improved by 13 percent when compared to the same period a year ago. North
American industrial selling prices increased by 28 percent for the third quarter
of 1996 when compared to the same period in 1995.
Phosphate net sales revenue for the nine months ended September 30, 1996
was $663.5 million. The distribution of this revenue was as follows: phosphate
fertilizer $462.4 million (70 percent); non-fertilizer products (animal feed and
industrial products) $195.8 million (29 percent); and phosphate rock $5.3
million (1 percent).
During the nine months ended September 30, 1996, the Company sold 2.313
million tonnes of phosphate fertilizer (1.138 million tonnes in North America;
1.175 million tonnes in the offshore market); .741 million tonnes of
non-fertilizer products (.681 million tonnes in North America; .060 million
tonnes in the offshore market); and .166 million tonnes of phosphate rock (.003
million tonnes in North America and the remaining .163 million tonnes in the
offshore market). For the comparable period in 1995, the Company sold
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.761 million tonnes of phosphate fertilizer (.270 million tonnes in North
America; .491 million tonnes in the offshore market); .334 million tonnes of
non-fertilizer products (.304 million tonnes in North America; .030 million
tonnes in the offshore market); and .187 million tonnes of phosphate rock (.024
million tonnes in North America and the remaining .163 million tonnes in the
offshore market).
For the first nine months of 1996, North American phosphate net sales
revenue accounted for $426.1 million (64 percent) of total phosphate net sales
revenue of $663.5 million. In the nine months ended September 30, 1996, 57
percent of the Company's North American phosphate net sales revenue was earned
from phosphate fertilizer products which represented 62 percent of the Company's
North American phosphate sales volumes. Offshore sales accounted for 36 percent
of total phosphate product net sales revenue for the first nine months of 1996
and 43 percent of volumes. In the nine months ended September 30, 1996, 92
percent of the Company's offshore phosphate net sales revenue was earned from
phosphate fertilizer products which represented 84 percent of the Company's
offshore phosphate sales volumes.
For the first nine months of 1996 net sales revenue from liquid and solid
fertilizers was $462.4 million (1995 -- $136.5 million) with sales volumes of
2.313 million tonnes (1995 -- .761 million tonnes). Solid phosphate fertilizer
(substantially all DAP) accounted for 62 percent or $286.4 million of the total.
Offshore net sales revenue of DAP accounted for 56 percent of solid fertilizer
net sales revenue while North American net sales revenue of liquid fertilizer
accounted for 67 percent of liquid fertilizer net sales revenue. The average net
sales price for liquid and solid fertilizer improved by 13 percent and 10
percent, respectively. Export liquid and solid fertilizer sales prices improved
by 9 percent and 12 percent, respectively, compared to the same period a year
ago. North American liquid and solid fertilizer sales prices improved 4 percent
and 6 percent, respectively, when compared to the same period in 1995.
Net sales revenue from animal feed and industrial products during the nine
months ended September 30, 1996, were $195.8 million (1995 -- $85.1 million)
with sales volumes of .741 million tonnes (1995 -- .334 million tonnes). For the
first nine months of 1996, feed sales tonnage was .569 million tonnes (1995 --
.226 million tonnes) with 11 percent sold offshore while the remaining .173
million tonnes were industrial products (1995 -- .108 million tonnes) sold to
North American customers. Feed product prices for the nine months ended
September 30, 1996, improved by 8 percent when compared to the same period a
year ago. North American industrial selling prices increased by 8 percent for
the first nine months of 1996 when compared to the same period in 1995.
AMMONIA REVENUE
For the quarter ended September 30, 1996, ammonia sales contributed $23.2
million to net sales revenue with sales volumes of .128 million tonnes. Ammonia
sales for the nine months ended September 30, 1996 contributed $88.4 million to
net sales revenue with sales volumes of .451 million tonnes.
COST OF GOODS SOLD
During the third quarter of 1996 the Company produced .748 million
potassium chloride (KCl) tonnes, a 3 percent decrease from the .770 million
tonnes produced in the third quarter of 1995, due to lower demand. During the
third quarter of 1996 the Company produced .533 million phosphoric acid (P2O5)
tonnes (1995 -- .283 million tonnes), an increase of 88 percent, due principally
to the addition of White Springs.
Shutdown weeks were similar but potash unit cost of sales increased by 6
percent in the third quarter of 1996 compared to the same period in 1995 as the
Company sold product from higher cost inventory produced during the second
quarter of 1996.
In the third quarter of 1996, lower input cost for both sulfur and ammonia
reduced phosphate cost of goods sold as compared to the second quarter of 1996.
Lower feed costs were the result of improved operations at White Springs.
Depreciation expense for the third quarter of 1996 was $21.1 million
compared to $11.1 million in 1995, an increase of $10 million or 90 percent. The
increase is a result of an increase of $9.2 million in depreciation expense from
the acquired phosphate operations. Depreciation expense for the potash
operations increased by
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$.8 million as a result of higher sales tonnage in the third quarter of 1996
when compared to the same period in 1995.
For the nine months ended September 30, 1996, the Company produced 3.959
million potassium chloride (KCl) tonnes, compared to 4.701 million tonnes in the
first nine months of 1995, a decrease of .742 million tonnes (16 percent)
compared to 1995. For the nine months ended September 30, 1996, the Company
produced 1.553 million phosphoric acid (P2O5) tonnes from its phosphate
operations, compared to .554 million tonnes in 1995.
Potash unit cost of sales increased by 15 percent in the first nine months
of 1996 compared to the same period in 1995 due in part to 16.4 additional
shutdown weeks and a greater proportion of higher cost New Brunswick product in
the mix.
Depreciation expense for the first nine months of 1996 was $67.2 million
compared to $44.1 million in 1995, an increase of $23.1 million or 52 percent.
The increase is a result of $26.7 million additional depreciation from the
acquired phosphate operations. Depreciation expense for the potash operations
decreased by $3.6 million as a result of additional shutdown weeks in the first
nine months of 1996 when compared to the same period in 1995.
SELLING AND ADMINISTRATIVE
Selling and administrative expenses during the third quarter of 1996 were
$15.1 million as compared to $14.1 million in 1995, an increase of $1.0 million.
During the first nine months of 1996, selling and administrative expenses were
$44.0 million as compared to $35.5 million in 1995, an increase of $8.5 million.
The increase is attributable to the acquisitions of PCS Phosphate and White
Springs and to general increases in supplies, compensation and benefits.
PROVINCIAL MINING AND OTHER TAXES
Saskatchewan's potash production tax is comprised of a base tax per tonne
of product sold and an additional tax based on mine-by-mine profits. The New
Brunswick division and the Saskatchewan divisions pay a provincial crown
royalty, which is accounted for under cost of goods sold.
Increased profitability at certain of the mines increased the rate of taxes
paid to the Saskatchewan government but total taxes were reduced by lower prices
and potash sales volumes from Saskatchewan. For the third quarter of 1996,
Saskatchewan provincial mining and other taxes were $8.6 million as compared to
$8.8 million in the third quarter of 1995, a decrease of 2 percent. Potash
production tax for the third quarter of 1996 was $5.6 million compared to $6.4
million in the same period in 1995, a decrease of 12 percent. Saskatchewan
capital tax was $3.0 million in the third quarter ended September 30, 1996
compared to $2.4 million in the same period in 1995, an increase of 27 percent.
For the first nine months of 1996, Saskatchewan provincial mining and other
taxes were $29.5 million as compared to $32.6 million in the first nine months
of 1995, a decrease of 10 percent. Potash production tax for the first nine
months of 1996 was $19.8 million compared to $22.1 million in the same period in
1995, a decrease of 10 percent. Saskatchewan capital tax was $9.7 million in the
nine months ended September 30, 1996 compared to $10.5 million in the same
period in 1995, a decrease of 8 percent.
INTEREST EXPENSE
For the third quarter of 1996, interest expense was $11.0 million as
compared to $13.8 million in the same period in 1995. For the first nine months
of 1996, interest expense was $36.8 million as compared to $26.3 million in the
same period in 1995. The 1996 amount includes the debt incurred with the
acquisition of the phosphate properties acquired last year in April and October
while the 1995 amount includes only the April acquisition.
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INCOME TAXES
Income taxes in the third quarter of 1996 were $8.6 million, compared to
$4.3 million in the same period of 1995, an increase of $4.3 million. Income
taxes in the first nine months of 1996 were $28.3 million, compared to $9.6
million in the same period of 1995, an increase of $18.7 million. The increase
is largely attributable to US withholding taxes, alternative minimum taxes and
deferred income tax, relating to the Company's acquired phosphate operations.
The tax rate applicable to the U.S. operations for the first nine months of 1996
and for the first nine months of 1995 is approximately 21 percent of income
before taxes.
ANALYSIS OF FINANCIAL CONDITION AND CASH FLOW
Working capital for the first nine months of 1996 increased by $114.8
million. Cash flow from operations was $267.7 million. Quick and current ratios
were 1.18 and 2.05 at September 30, 1996 (.72 and 1.37 respectively at December
31, 1995). The Company paid down its debt by $151.6 million (of which $36.0
million was voluntary) and paid dividends of $35.8 million. At the end of the
first nine months of 1996, the debt to capital ratio was at 34.7 percent (41.5
percent at December 31, 1995) and the interest coverage ratio was 6.20:1 (6.02:1
at December 31, 1995). The net debt to market capitalization at September 30,
1996 was 18.6 percent (57.4 percent at December 31, 1995).
OUTLOOK
The statements in this "Management Discussion and Analysis" in this
"Outlook" section, relating to the period after September 30, 1996, are
forward-looking statements subject to uncertainties. The Company's financial
performance continues to be affected by price, worldwide state of supply and
demand for potash and phosphate products, application rates, government
assistance programs, weather conditions, exchange rates and availability and
agricultural and trade policies of producing and consuming nations which, among
other things, are influenced by domestic political conditions. The Company sells
to a diverse group of customers both by geography and by end product. Market
conditions by country will vary on a year-over-year basis and sales shift from
one period to another.
The rising world population and the demand for better diets in developing
nations are expected to continue to drive consumption for fertilizer products
over the long-term. Over the short-term, there should be increased fertilizer
usage over the next few years as world grain stocks are at historically low
levels, crop prices remain strong, and governments around the world focus on
food production. The Company expects to be an important supplier to these
markets. While the consumption trend line is expected to continue to climb over
the long-term, there will be, at times, fluctuations in demand.
The long-term outlook for PCS products continues to be optimistic. In the
short term, the offshore DAP market is improving which should support increased
prices. Prices remain firm in liquid phosphates. The health of the DAP market
depends on continued shipments to China while phosphoric acid is influenced by
shipments to India, which remain on schedule. In Brazil, the phosphate market
has improved in the second half of 1996. Brazil has been a large purchaser in
the potash market in 1996 as well. Subsidy issues in China and India have
affected potash shipments there but both countries are using internal
inventories and the prospects for 1997 shipments are promising. The feed
phosphate business tends to be strongest in the winter months.
PCS continues to operate its potash mines by matching production to sales
demand. Shutdowns at potash mines for inventory correction will influence potash
production costs on a quarter over quarter comparative basis. Natural gas costs
are expected to be reduced by approximately 15 percent in the Saskatchewan
operations based on existing contracts for 1996. Sulphur and ammonia prices have
moderated and are expected to impact favourably upon phosphate processing input
costs for 1996.
Capital expenditures in 1996 will exceed those in 1995 primarily due to a
full year of phosphate ownership and operation. Plans for such expenditures are
limited to sustaining capital.
The narrative, included under this Management Discussion and Analysis, has
been prepared with reference to the financial statements reported under Canadian
Generally Accepted Accounting Principles.
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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.
<TABLE>
<S> <C>
January 10, 1997 By: /s/ BARRY E. HUMPHREYS
-------------------------------------------
Barry E. Humphreys
Sr. Vice President, Finance and Treasurer
January 10, 1997 By: /s/ BARRY E. HUMPHREYS
-------------------------------------------
Barry E. Humphreys
Sr. Vice President, Finance and Treasurer
(Principal Financial and Accounting Officer)
</TABLE>
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