SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: October 21, 1999
(Date of earliest event reported)
Commission File Number 1-10351
POTASH CORPORATION OF SASKATCHEWAN INC.
(Exact name of registrant as specified in its charter)
Saskatchewan, Canada N/A
(State or other jurisdiction (IRS Employer
of incorporation) Identification Number)
122 - 1st Avenue South, S7K 7G3
Saskatoon, Saskatchewan, Canada (Zip Code)
(Address of principal executive offices)
306-933-8500
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Materially Important Events
On October 21, 1999, the Registrant issued a press release, a copy of which
(excluding schedules) is attached hereto as Exhibit 99.1, announcing certain
one-time corporate charges, recorded in the Registrant's results for three and
nine month periods ending September 30, 1999.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits.
99.1 Press release of the Registrant, dated October 21, 1999 (together with
the accompanying unaudited consolidated financial statements).
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: October 21, 1999 POTASH CORPORATION OF SASKATCHEWAN INC.
By: /s/ John L.M. Hampton
---------------------
John L.M. Hampton
Senior Vice President
General Counsel and Secretary
<PAGE>
EXHIBIT INDEX
Exhibit
99.1 Press release of the Registrant, dated October 21, 1999 (together with the
accompanying unaudited financial statements).
For Immediate Release
October 21, 1999
Listed: TSE, ME, NYSE Symbol: POT
Potash Corporation of Saskatchewan Inc.
Announces Third Quarter Results
Saskatoon, Saskatchewan - Potash Corporation of Saskatchewan Inc. (PCS) earned
net income of $14.5 million in third-quarter 1999, or $0.27 per share, before
one-time corporate charges of $585.6 million ($538.8 million after taxes).
Including all one-time charges, the net loss for the third quarter was $(524.2)
million, or $(9.66) per share. This compares to $54.7 million, or $1.01 per
share, in the third quarter of 1998. Net sales revenue was $453.6 million in
this year's third quarter, compared to $521.4 million in the same quarter of
1998.
The one-time charges were driven 97 percent by the nitrogen business, with $50.3
million related to the permanent plant closures announced in August and $518.0
million related to the carrying value of the nitrogen assets, of which 85
percent was goodwill.
"Nitrogen, the last nutrient we acquired, is not performing well. The
acquisition came at an inopportune time but we are working on improving its
results," said William Doyle, President and CEO. "Our decision to shut down a
couple of the highest-cost operations will help drive down our cost profile as
we continue to explore ways to strengthen this and all of our businesses."
Cash generated from operations during the third quarter of 1999 was $56.7
million, or $1.04 per share. On a year-to-date basis, cash provided by operating
activities totalled $327.2 million, or $6.03 per share.
On a consolidated basis, gross margin was $66.3 million in the third quarter of
1999. Of that, $64.5 million came from potash and $25.1 million from phosphate,
while the persisting price weakness in nitrogen resulted in a negative gross
margin of $23.3 million. Strong offshore potash volumes were the highlight of
the quarter while DAP prices deteriorated and nitrogen remained weak.
Operations
PCS produced 1.069 million tonnes of potash during the quarter, 15 percent less
than in the same quarter of 1998 with 14 more shutdown weeks. More of the total
potash tonnes sold came from New Brunswick, which had the effect of lowering
provincial resource taxes, increasing cost of goods sold on a per-tonne basis
and improving average offshore prices.
In spite of a good sales quarter to offshore customers, lower domestic volumes
resulted in total potash sales volumes of 1.449 million tonnes, 5 percent less
than the 1.519 million tonnes sold in third-quarter 1998. PCS sold 0.669 million
tonnes into the domestic market during the quarter compared to 0.780 million
tonnes last year, as low grain prices continue to dampen fertilizer sales
prospects there. Offshore, third-quarter volumes were up 6 percent; sales to
Brazil improved after a slow start, and sales to India, Indonesia and Korea were
up over last year.
<PAGE>
Potash prices for the third quarter averaged 2 percent lower than last year.
Offshore prices were flat quarter-over-quarter, and up 5 percent over the
trailing quarter due to product mix. Domestic prices were down 6 percent from
third-quarter 1998 and 9 percent from the trailing quarter, reflecting market
pressures.
In phosphate, PCS produced 0.481 million tonnes of P2O5 during the third
quarter, 18 percent less than last year. Sulphur and ammonia costs were down
from both the trailing quarter and third-quarter 1998. However, hurricanes
caused disruptions in rail service and decreased production volumes, which
resulted in slightly higher costs on a per-unit basis than the third quarter
last year.
Third-quarter phosphate sales conditions mirrored those of potash. Offshore
sales were up 8 percent, whereas continued weak demand domestically resulted in
a 26-percent decline. In total, phosphate sales volumes were 0.987 million
tonnes, 14 percent below the 1.142 million tonnes sold in the third quarter last
year. North American sales volumes, 63 percent of the total in third-quarter
1998, were reduced to 54 percent this year.
While most phosphate prices were down, the largest contributor to decreased
phosphate gross margin was the solid fertilizer DAP, which had 12 percent lower
prices quarter-over-quarter. In spite of expectations that world DAP trade and
US export volumes may reach record levels in 1999, prices continue to slide.
Liquid prices, which tend to track DAP in a less volatile way, were also
affected and were 4 percent lower than in last year's third quarter.
Animal feed supplements also performed better offshore than domestically during
the third quarter, but for different reasons. Domestic volumes and prices were
down due to increased competition in the industry generally. This decrease was
somewhat countered by higher volumes and prices in offshore markets where Asian
demand continues to strengthen after the currency crisis there and Latin
American demand is growing. Overall, volumes were down 4 percent and prices 2
percent.
Prices for industrial phosphate products during the quarter were flat compared
to third-quarter 1998 while volumes were lower due to increased US imports.
In response to tough market conditions in nitrogen, PCS produced 17 percent
fewer ammonia tonnes during the third quarter by ceasing operations at two
facilities and reducing production at others. Natural gas costs were 4 percent
lower than in last year's third quarter. The lower natural gas costs were offset
by higher costs due to plant shutdowns and reduced production, which resulted in
per-unit manufactured costs being flat on a quarter-over-quarter basis.
When comparing third-quarter 1999 to the same quarter last year, nitrogen prices
were down 21 percent while volumes were up 15 percent, primarily due to
increased industrial sales. The Company increased its industrial volumes by 13
percent, bringing industrial sales to 60 percent of total quarterly nitrogen
volumes. On a year-to-date basis, sales to industrial customers represented 47
percent of total nitrogen sales as compared to 44 percent last year.
Ammonia sales volumes were up 13 percent due to increased industrial demand and
strong US DAP exports. Urea proved to be a competitive source of nitrogen for
fertilizer customers, and on the industrial side, the strong economy and growth
in both the lawn and garden and resin businesses led to higher urea volumes.
Overall, urea sales volumes were up 28 percent over the same quarter last year.
Nitrogen solutions sales volumes are historically weak in the third quarter and,
while they were higher than in third-quarter 1998, they were down 22 percent on
a year-to-date basis.
Financial
The continued weakness in nitrogen markets dictated a review of the Company's
nitrogen assets. As a result, it recorded a provision for asset impairment of
$518.0 million, of which $438.5 million related to goodwill and $79.5 million to
property, plant and equipment.
In addition, PCS recorded a provision for asset impairment for the Florida
Favorite Fertilizer operations in the amount of $7.1 million, of which $5.9
million related to property, plant and equipment and $1.2 million to
intangibles.
These writedowns will result in a reduction of amortization expense of
approximately $11.7 million and depreciation expense of approximately $4.9
million on an annualized basis.
The cost of the Company's decision to permanently close some of its facilities
during the quarter resulted in charges of $55.4 million, of which $34.4 million
related to the asset writedowns and $21.0 million was for one-time shutdown
costs. In addition to these items, there was a post-retirement charge of $6.0
million and income of $0.9 million relating to environmental accruals.
At September 30, 1999, the Company's debt-to-capital ratio was 29.3 percent
compared to 23.5 percent at June 30. The increase was due to a reduction in
shareholders' equity as a result of the writedowns taken in the quarter. Taking
into account its operating leases, the ratio would increase to approximately 38
percent. In spite of this increase, PCS believes it can accommodate additional
debt as corporate cash flows were not affected by the writedowns.
Outlook
In potash, continuing strong offshore sales are expected; Canpotex could be
headed for a record year. Prices in the offshore market are expected to remain
firm but Company results are expected to be affected by customer and product
mix. At the end of the third quarter, industry potash inventories were tracking
the five-year average. To help maintain these improved levels, PCS is planning
more shutdowns than in last year's fourth quarter, which will affect costs. The
success of an announced fourth-quarter domestic price increase remains
uncertain.
Nitrogen pricing has been helped by North American rationalization but further
rationalization is required to gain significant pricing momentum going forward.
Recent increases in the price of natural gas could stimulate further plant
shutdowns. For the fourth quarter, the Company remains over 90 percent hedged
for natural gas in the US. It is currently in discussions for renewal of its gas
contracts for the 01 and 02 ammonia plants in Trinidad.
US producers ended the third quarter with nitrogen inventories in better shape.
Ammonia and urea inventories were lower than the five-year average and nitrogen
solutions was on the five-year average but considerably lower than it has been
all year. Based on these supply/demand dynamics, the fourth-quarter fill for
nitrogen products is anticipated to be similar to last year's.
Phosphate, primarily DAP, continues to be the nutrient with the most
uncertainty. At the end of the third quarter, DAP inventories of US producers
were 35 percent above the previous five-year average. This inventory overhang
and the market psychology of new supply coming on stream have put prices under
pressure. Short of any major industry announcement, DAP prices are expected to
decline further. The PCS production diversity is an advantage as the prices for
its other products are expected to be flat or down only slightly.
Volumes are expected to be stable in the non-fertilizer phosphate products.
Dealers' reluctance to over-buy in advance of spring season suggests a lower
fertilizer fill for both liquids and solids in this year's fourth quarter,
compared to fourth-quarter 1998.
<PAGE>
Conclusion
Current business conditions are expected to continue throughout fourth-quarter
1999 which will keep earnings under pressure. The Company believes
fourth-quarter results will be in the range of one-fifth of fourth-quarter 1998
earnings.
"In all three nutrients, our domestic exposure hurt us this quarter and reduced
our earnings," Doyle concluded. "We will need sound inventory management and
some recovery in North American consumption to improve basic industry
fundamentals. We see next spring as the first good prospect for increased
consumption. While the short-term outlook may be challenging for our industry,
we remain positive about the long-term prospects for our Company as we continue
to leverage our unique strengths for the benefit of our shareholders."
Potash Corporation of Saskatchewan Inc. is the world's largest potash company by
capacity, the third largest phosphate producer and the second largest nitrogen
producer. It pulls product from eight potash mines in Saskatchewan, New
Brunswick and Utah. Its phosphate facilities are located in Florida, North
Carolina and Louisiana and it has nitrogen facilities in four states plus
large-scale operations in Trinidad.
This release contains forward-looking statements, which involve risks and
uncertainties, including those referred to in the Company's annual report to
shareholders for 1998. A number of factors could cause actual results to differ
materially from those in the forward-looking statements, including, but not
limited to, fluctuation in supply and demand in fertilizer, sulphur and
petrochemical markets; changes in competitive pressures, including pricing
pressures; potential higher actual costs incurred in connection with
restructuring charges as compared to costs estimated for the purposes of
calculating such charges; uncertainty and variations in future undiscounted net
cash flows from use together with residual values estimated for purposes of
calculating restructuring charges; changes in capital markets; changes in
currency and exchange rates; unexpected geological or environmental conditions;
and government policy changes.
For further information please contact:
Betty-Ann Heggie
Senior Vice President, Corporate Relations
(306) 933-8521
Web site: www.potashcorp.com
<PAGE>
Potash Corporation of Saskatchewan Inc.
Consolidated Statements of Financial Position
<TABLE>
<CAPTION>
(in thousands of US dollars)
September 30, December 31,
1999 1998
(unaudited)
Assets
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 23,265 $ 67,971
Accounts receivable 252,920 302,974
Inventories 354,137 364,397
Prepaid expenses 37,232 38,839
------------ -------------
667,554 774,181
Property, plant and equipment 2,867,741 3,003,443
Goodwill 110,117 559,621
Other assets 210,712 197,012
------------ -------------
$ 3,856,124 $ 4,534,257
============ =============
Liabilities
Current Liabilities
Short-term debt $ 379,074 $ 94,940
Accounts payable and accrued charges 359,649 349,684
Current portion of long-term debt 786 386
------- -------
739,509 445,010
Long-term debt 444,322 933,294
Deferred income tax liability 402,675 417,853
Accrued post-retirement /
post-employment benefits 149,096 131,179
Accrued reclamation costs 110,998 129,399
Other non-current liabilities and deferred credits 17,051 23,761
------------ -------------
1,863,651 2,080,496
Shareholders' Equity
Share Capital 1,229,142 1,227,599
Contributed Surplus 336,486 336,486
Retained Earnings 426,845 889,676
------------ -------------
1,992,473 2,453,761
------------ -------------
$ 3,856,124 $ 4,534,257
============ =============
</TABLE>
<PAGE>
Potash Corporation of Saskatchewan Inc.
Consolidated Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
(in thousands of US dollars)
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 453,578 $ 521,368 $ 1,567,402 $ 1,765,622
Cost of goods sold 387,235 381,180 1,238,299 1,288,130
------------- ----------- ------------ -----------
Gross Margin 66,343 140,188 329,103 477,492
------------- ----------- ------------ -----------
Selling and administrative 32,034 28,247 89,848 86,547
Provincial mining and other taxes 13,194 23,517 60,863 68,288
Provision for Plant Closures (Note 5) 55,403 - 55,403 -
Provision for Asset Impairment (Note 6) 525,118 - 525,118 -
Other income (7,480) (7,151) (22,083) (29,617)
------------- ----------- ------------ -----------
618,269 44,613 709,149 125,218
------------- ----------- ------------ -----------
Operating (Loss) Income (551,926) 95,575 (380,046) 352,274
Interest Expense 12,954 15,831 40,110 52,940
------------- ----------- ------------ -----------
(Loss) Income Before Income Taxes (564,880) 79,744 (420,156) 299,334
Income Taxes (Recovery) (40,636) 25,040 2,781 92,504
------------- ----------- ------------ -----------
Net (Loss) Income $ (524,244) $ 54,704 (422,937) 206,830
============= ===========
Retained Earnings, Beginning of Period 889,676 680,356
Dividends (39,894) (38,817)
------------ -----------
Retained Earnings, End of Period $ 426,845 $ 848,369
============ ===========
Net (Loss) Income Per Share (Note 3) $ (9.66) $ 1.01 $ (7.79) $ 3.82
============= =========== ============ ===========
Dividends Per Share $ 0.25 $ 0.22 $ 0.74 $ 0.72
============= =========== ============ ===========
</TABLE>
<PAGE>
Potash Corporation of Saskatchewan Inc.
Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
(in thousands of US dollars)
Nine Months Ended
September 30
1999 1998
----------- -----------
(unaudited) (unaudited)
Operating Activities
<S> <C> <C>
Net (loss) income $ (422,937) $ 206,830
Items not affecting cash
Depreciation and amortization 148,205 145,810
(Gain) loss on disposal of property, plant and equipment (84) 45
Provision for plant closures 28,953 -
Provision for asset impairment 525,118 -
Provision for deferred income tax (12,251) 74,708
Provision for post-retirement /
post-employment benefits 8,068 5,233
------------- ----------
275,072 432,626
Changes in non-cash operating working capital
Accounts receivable 50,123 66,255
Inventories 12,702 5,219
Prepaid expenses 1,645 (12,785)
Accounts payable and accrued charges (1,426) (24,111)
Current income taxes 11,839 723
Accrued reclamation costs (20,200) (5,737)
Other non-current liabilities and deferred credits (2,592) (1,291)
------------- ----------
Cash provided by operating activities 327,163 460,899
------------- ----------
Investing Activities
Additions to property, plant and equipment (65,751) (89,959)
Acquisition of Minera Yolanda S.C.M. (Note 4) (36,943) -
Proceeds from disposal of property, plant and equipment 1,131 1,312
Additions to other assets (26,762) (3,014)
------------- ----------
Cash used in investing activities (128,325) (91,661)
------------- ----------
Cash before financing activities 198,838 369,238
------------- ----------
Financing Activities
Repayment of long-term obligations (489,327) (325,739)
Proceeds from short-term debt 284,134 5,982
Dividends (39,894) (38,817)
Issuance of shares 1,543 16,262
------------- ----------
Cash used in financing activities (243,544) (342,312)
------------- ----------
(Decrease) Increase in Cash and Cash Equivalents (44,706) 26,926
Cash and Cash Equivalents,
Beginning of Period 67,971 8,726
------------- ----------
Cash and Cash Equivalents, End of Period $ 23,265 $ 35,652
============= ==========
Supplemental cash flow disclosure
Interest paid $ 38,584 $ 46,221
Income taxes paid $ 5,361 $ 17,358
------------- ----------
</TABLE>
<PAGE>
Potash Corporation of Saskatchewan Inc.
Notes to the Consolidated Financial Statements
(in thousands of US dollars)
(unaudited)
1. Significant Accounting Policies
The Company's accounting policies are in accordance with accounting
principles generally accepted in Canada.
The consolidated financial statements include the accounts of Potash
Corporation of Saskatchewan Inc. and its subsidiaries.
2. Change in Accounting Policy
The Company has adopted the provisions of Section 1540 of the Canadian
Institute of Chartered Accountants Handbook "Cash Flow Statements". Under this
accounting policy, cash flows are classified as either operating, investing, or
financing activities. Major classes of gross cash receipts and gross cash
payments arising from investing and financing activities are separately
disclosed. Investing and financing transactions that do not require the use of
cash or cash equivalents are excluded from the cash flow statement and disclosed
supplementally. The effect of this change on the current and prior period cash
flow statement is not significant.
3. Net (Loss) Income per Share (Earnings per Share)
Year-to-date (loss) earnings per share is calculated on the weighted
average shares issued and outstanding for the nine months ended September 30,
1999 of 54,259,000 (1998 - 54,155,000). Third-quarter (loss) earnings per share
is calculated on the weighted average shares issued and outstanding for the
three months ended September 30, 1999 of 54,269,000 (1998 - 54,235,000).
4. Acquisition of Minera Yolanda S.C.M.
On July 1, 1999, the Company acquired all of the outstanding shares of
Minera Yolanda S.C.M. for cash of $37,000 (which was funded from operations).
Minera Yolanda S.C.M. is a Chilean sodium nitrate and potassium nitrate producer
which holds mining concessions on certain sodium nitrate reserves in the Atacama
desert in northern Chile. Subsequent to the acquisition, the name Minera Yolanda
S.C.M. was changed to PCS Yumbes S.C.M. ("PCS Yumbes").
The acquisition has been accounted for by the purchase method of accounting
and, accordingly, the results of operations of PCS Yumbes have been included in
the consolidated financial statements from July 1, 1999.
Net assets acquired were:
Working capital $ 282
Property, plant and equipment and other assets 31,990
Deferred tax asset 6,370
--------
38,642
Long-term liabilities 1,642
--------
Net assets acquired 37,000
Less: cash acquired 57
--------
Net cash acquisition cost $ 36,943
========
Due to the fact that PCS Yumbes was not in full commercial production prior
to the acquisition, no pro forma information is being provided.
5. Provision for Plant Closures
In the third quarter of 1999, the Board of Directors of the Company
approved a plan to close nitrogen plants at Clinton, Iowa and LaPlatte,
Nebraska; a phosphate feed plant at Saltville, Virginia and a phosphate terminal
at Jacksonville, Florida. The Clinton and LaPlatte closures result from these
plants being high-cost producers due to their size and technology employed. Due
to the high production costs these plants are unprofitable at both current and
projected future prices. The closure of the Saltville plant is primarily due to
higher transportation costs for raw materials and waste products which make this
plant a high-cost production facility. The terminal at Jacksonville is being
closed as the Company intends to solely utilize the more efficient terminal at
Morehead City.
The plants at Clinton and LaPlatte were indefinitely shutdown effective
August 12, 1999. The decision to permanently close both facilities was made and
announced on August 31, 1999. Dismantling of these plants will commence once the
on-site inventory has been sold which is expected to be by year end. The
dismantling procedures include decommissioning the ammonia storage, mothballing
certain plant facilities and demolition of certain plant facilities. It is
expected that the dismantling process will be completed at both plants by the
end of 2000. Environmental procedures have commenced but cannot be completed
until the dismantling of the plants is complete. The environmental remediation
includes ground water monitoring, asbestos removal and remediation of ponds.
Subsequent to the dismantling and environmental remediation the Company will
attempt to sell the plant sites. Annual expenditures for site security and other
maintenance costs will approximate $400 until such time that the sites are
disposed of. The number of employees terminated as a result of these closures
will be 155 hourly and 75 salaried, of which 91 have left the Company as of
September 30, 1999. The majority of the remaining employees are expected to
leave the Company during the last quarter of 1999. Eligible hourly employees
will receive severance of two hundred dollars per year of service up to a
maximum of 30 years of service and the salaried employees will receive severance
based on number of years of service. From January 1, 1999 to the date of
closure, these plants incurred operating losses of approximately $12,000
(including depreciation and amortization of approximately $3,000).
The phosphate feed plant at Saltville was closed effective September 1,
1999. This property may be sold or may be turned over to the municipal
authorities. Annual expenditures for plant security and other maintenance costs
until such time will approximate $154. The number of employees terminated as a
result of this closure will be 49, of which 28 have left the Company as of
September 30, 1999. Four employees will transfer to other facilities on January
1, 2000 and the remaining employees are expected to leave the Company during the
last quarter of 1999. The employees are entitled to severance based on number of
years of service. The severance payments will range from one to seven months'
salary. From January 1, 1999 to the date of closure, this plant incurred
operating losses of approximately $6,000 (including depreciation and
amortization of approximately $400).
The phosphate terminal at Jacksonville was closed effective August 15,
1999. Dismantling of the terminal and environmental remediation procedures have
commenced and are expected to be completed by year end. The number of employees
terminated as a result of this closure will be nine, of which five will transfer
to other facilities by the end of the year. The remaining employees are expected
to leave during the last quarter of 1999. From January 1, 1999 to the date of
closure, this terminal incurred operating losses of approximately $2,000
(including depreciation and amortization of approximately $800).
The decision to close these facilities triggered an assessment of the fair
value of these assets, with fair value being determined based on estimated sales
proceeds less costs to sell.
5. Provision for Plant Closures (continued)
Charges associated with these closures are as follows:
<TABLE>
<CAPTION>
Reserve Balance
Provision Amount Paid Utilized September 30
--------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Severance $ 5,764 $ 638 $ - $ 5,126
Decommissioning 2,902 529 - 2,373
Environmental remediation 2,000 15 - 1,985
Contractual commitments 10,337 442 - 9,895
Non-cash parts inventory write-down 5,447 - 254 5,193
Non-cash write-down of property, plant and equipment 28,953 - - 28,953
-------- ------- ----- --------
$ 55,403 $ 1,624 $ 254 $ 53,525
======== ======= ===== ========
</TABLE>
Of the $55,403 provision, $50,253 pertains to the nitrogen business segment
and $5,150 pertains to the phosphate business segment.
After the writedown of the assets, the carrying amount of the remaining
assets affected by the closures is $8,690.
These closures will require cash expenditures of approximately $21,003, all
of which is expected to be funded from operations.
6. Provision for Asset Impairment
Due to the operating losses primarily caused by reduced product prices and
increased gas costs, the Company assessed the recoverability of the tangible and
intangible assets related to the nitrogen operations. The Company projected the
undiscounted future net cash flows from use together with the residual value of
these assets and determined that in certain cases they were less than the
carrying amount. Third party forecasts of future nitrogen prices indicate that
nitrogen prices will not reach the levels experienced in 1997 when the nitrogen
operations were purchased. This results in a permanent impairment in the value
of certain nitrogen assets. Accordingly, the Company recorded a provision for
asset impairment of $518,001, of which $438,498 relates to goodwill, and $79,503
of which relates to property, plant and equipment at the Memphis, Tennessee
plant. The provision for asset impairment for the nitrogen operations was
calculated as the difference between the carrying amount and the undiscounted
future net cash flows from use together with residual values. Estimates of such
undiscounted future net cash flows from use together with residual values are
subject to significant uncertainties and assumptions. Accordingly, actual
results could vary significantly from such estimates.
Due to a history of operating losses and a projection of continuing
operating losses, the Company assessed the recoverability of the tangible and
intangible assets related to the Florida Favorite Fertilizer (FFF) operations.
The Company estimated the undiscounted future net cash flows from use together
with the residual value of these assets and determined that in certain cases
they were less than the carrying amount. Accordingly, the Company recorded a
provision for asset impairment of $7,117, of which $5,875 relates to property,
plant and equipment primarily at the Lakeland, Florida and Moultrie, Georgia
locations and $1,242 relates to intangibles. The provision for asset impairment
for the FFF operations was calculated as the difference between third party
sales offers and the carrying amount of the various properties. The above
relates to the phosphate segment.
These writedowns will result in a reduction of amortization expense of
approximately $11,700 and a reduction of depreciation expense of approximately
$4,900 on an annualized basis.
7. Comparative Figures
Certain of the prior period's figures have been reclassified to conform
with the current period's presentation.
8. Segmented Information
The Company has three reportable business segments: potash, phosphate and
nitrogen. These business segments are differentiated by the chemical nutrient
contained in the product that each produces with the exception of phosphate
products produced at Geismar, which are included in the nitrogen business
segment.
<TABLE>
<CAPTION>
Business Segment
Three Months Ended September 30, 1999
(unaudited)
Potash Phosphate Nitrogen All Others Consolidated
------ --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 128,145 $ 178,525 $ 146,908 $ - $ 453,578
Inter-segment sales 1,005 181 10,255 - -
Gross Margin 64,556 24,005 (22,218) - 66,343
Provision for plant closures - (5,150) (50,253) - (55,403)
Provision for asset impairment - (7,117) (518,001) - (525,118)
Operating Income (Loss) 50,474 10,799 (597,374) (15,825) (551,926)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
(unaudited)
Potash Phosphate Nitrogen All Others Consolidated
------ --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 136,850 $ 220,269 $ 164,249 $ - $ 521,368
Inter-segment sales 2,302 103 15,821 - -
Gross Margin 79,510 45,140 15,538 - 140,188
Operating Income (Loss) 55,013 42,189 10,349 (11,976) 95,575
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
(unaudited)
Potash Phosphate Nitrogen All Others Consolidated
------ --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 448,051 $ 570,691 $ 548,660 $ - $ 1,567,402
Inter-segment sales 7,284 1,356 35,229 - -
Gross Margin 242,365 105,850 (19,112) - 329,103
Provision for plant closures - (5,150) (50,253) - (55,403)
Provision for asset impairment - (7,117) (518,001) - (525,118)
Operating Income (Loss) 178,892 91,834 (604,257) (46,515) (380,046)
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
(unaudited)
Potash Phosphate Nitrogen All Others Consolidated
------ --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 441,738 $ 670,259 $ 653,625 $ - $ 1,765,622
Inter-segment sales 9,024 1,056 51,427 - -
Gross Margin 255,792 148,190 73,510 - 477,492
Operating Income (Loss) 184,601 145,421 57,759 (35,507) 352,274
</TABLE>
8. Segmented Information (continued)
The following information has been prepared on a nutrient basis (the
phosphate products produced at Geismar are included with phosphate data rather
than nitrogen).
<TABLE>
<CAPTION>
Nutrient Segment
Three Months Ended September 30, 1999
(unaudited)
Potash Phosphate Nitrogen Consolidated
------ --------- -------- ------------
<S> <C> <C> <C> <C>
Net Sales $ 128,145 $ 199,206 $ 126,227 $ 453,578
Gross Margin 64,556 25,094 (23,307) 66,343
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
(unaudited)
Potash Phosphate Nitrogen Consolidated
------ --------- -------- ------------
<S> <C> <C> <C> <C>
Net Sales $ 136,850 $ 244,982 $ 139,536 $ 521,368
Gross Margin 79,510 48,132 12,546 140,188
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
(unaudited)
Potash Phosphate Nitrogen Consolidated
------ --------- -------- ------------
<S> <C> <C> <C> <C>
Net Sales $ 448,051 $ 637,496 $ 481,855 $ 1,567,402
Gross Margin 242,365 114,481 (27,743) 329,103
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
(unaudited)
Potash Phosphate Nitrogen Consolidated
------ --------- -------- ------------
<S> <C> <C> <C> <C>
Net Sales $ 441,738 $ 741,698 $ 582,186 $ 1,765,622
Gross Margin 255,792 161,081 60,619 477,492
</TABLE>
