Quantcast
Last updated on April 21, 2014 at 7:50 EDT

PotashCorp Third-Quarter Earnings of $1.24 Billion Exceed 2007 Full-Year Record

October 23, 2008

SASKATOON, SK, Oct. 23 /PRNewswire-FirstCall/ — Potash Corporation of Saskatchewan Inc. (PotashCorp) today reported 2008 third-quarter earnings of $3.93 per share(1) ($1.24 billion), a five-fold increase over the $0.75 per share ($243.1ÃӚ“šÃƒÆ’“šÃƒ“š million) earned in the same period last year. This exceeded the $3.40 per share ($1.1 billion) earned in the full-year 2007. Fueled by significantly higher prices for all our potash, nitrogen and phosphate products, gross margin for the third quarter grew to a record $1.7 billion, up from $475.1ÃӚ“šÃƒÆ’“šÃƒ“š million in the third quarter of 2007. Year-to-date earnings reached $8.45 per share ($2.7 billion) and gross margin grew to $4.0 billion, substantially ahead of the $2.25 per share ($726.8 million) and $1.3 billion in gross margin in last year’s first nine months.

Cash flow from operating activities prior to working capital changes(2) was $1.3 billion, almost four times the $336.7 million generated in the same period last year. Through the first nine months of 2008, operating cash flow prior to working capital changes of $2.9 billion was 168 percent higher than the same period of 2007. Third-quarter earnings before interest, taxes, depreciation and amortization(2) (EBITDA) reached $1.8 billion, compared to $475.7 million in the third quarter of 2007. This raised EBITDA for the first nine months of 2008 to $4.0 billion, well ahead of the $1.4 billion earned in the first nine months of 2007.

Benefiting from strong market conditions, our offshore investments in Arab Potash Company Ltd. (APC) in Jordan, Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile and Israel Chemicals Ltd. (ICL) in Israel contributed $139.6 million to our earnings in the third quarter, almost six times the $24.2 million earned in the same quarter last year. Year to date, these investments, along with our investment in Sinofert Holdings Limited (Sinofert) in China, have contributed $257.0 million to our other income. The total market value of our investments in these publicly traded companies, at market close on October 22, was $4.9 billion, equivalent to $15.25 per PotashCorp share.

“The fundamentals of our business remained robust in the third quarter and continued to support demand and prices for our products, especially potash,” said PotashCorp President and Chief Executive Officer Bill Doyle. “Despite the recent onset of a global economic downturn, the need for food is not abating. That enabled us to utilize our unique strengths in each nutrient to achieve the best quarterly performance in our history, producing record cash flow and gross margin while also preparing our company for the expected growth in potash demand.”

Market Conditions

While grain and oilseed prices remained supportive through the third quarter, they were caught up in a broad decline in commodity prices initiated by concerns over the potential impact of inflation on world economic growth. The global financial crisis exacerbated these conditions, damaging investor confidence and sparking sales of liquid assets. By the end of the quarter, we believe lower crop prices no longer reflected the strong underlying global grain fundamentals, and fears about access to credit for agricultural buyers had a negative effect on the psychology of the sector as a whole.

In potash, producer inventories were at historically low levels entering the quarter. Reduced production due to seasonal maintenance turnarounds for all producers and ongoing strikes at three PotashCorp facilities limited the available supplies. As a result, potash fundamentals remained strong through the entire quarter.

The major markets for solid nitrogen and phosphate fertilizers – namely the US, Brazil and India – appeared cautious in light of uncertain global economic conditions. In the US, late spring planting pushed back the fall harvest and gave distributors time to replenish inventories. In Brazil, weather delays held back planting and enabled fertilizer inventories to reach healthy levels ahead of the spring season. With a late start in other key markets, India’s buyers delayed purchases, opting for low inventories in the hope that weakening global trade and a precipitous drop in sulfur prices would lower fertilizer prices. These trends were offset by the restriction of Chinese urea and phosphate trade due to the continuation of prohibitive export taxes on these products.

Potash

Potash generated a record $909.7 million of gross margin in third quarter 2008, up from $221.3 million in the same quarter last year. Extremely tight supply/demand fundamentals made fulfilling volume commitments to North American and offshore customers a challenge and led to significantly higher prices and gross margin. Year-to-date potash gross margin of $2.3 billion was 252 percent higher than the $655.9 million generated in the first nine months of 2007.

The upward trend for potash pricing continued in the third quarter, with the average realized price for offshore sales reaching $601 per tonne, a 262-percent increase from last year’s third quarter. Incremental spot market prices to Brazil and Southeast Asia each increased by approximately $700 per tonne since last year’s third quarter, while China paid an additional $400 per tonne and India $355 per tonne on their contracts with Canpotex Limited (Canpotex), the offshore marketing company for Saskatchewan potash producers. In North America, realized prices of $563 per tonne were 189 percent higher than in the same quarter last year, as we continued to recognize the benefit of approximately $370 per tonne of previously announced price increases since last year’s third quarter. By the end of this year’s third quarter, we began to realize an additional $275 per tonne increase introduced September 1, 2008.

Third-quarter sales volumes of 1.9 million tonnes were 14 percent below the same period last year, as potash availability was limited and our quarter-end inventories were reduced to 212,000 tonnes, the lowest in our history. Year-to-date total volumes of 7.1 million tonnes were flat compared to the same period last year. Our third-quarter offshore shipments of 1.3 million tonnes were 8 percent lower than the same quarter last year, primarily because of tight supply, but were flat on a year-to-date basis. The pattern of this year’s offshore shipments was altered by the late contract settlement between Canpotex and China. Canpotex shipped 585,000 tonnes to China in third quarter 2008, reflecting more traditional levels, although year-to-date volumes to that country were down 50 percent. India continued to benefit from China’s late entry to the market, receiving 336,000 tonnes from Canpotex in the quarter, an increase of 23 percent from the same period last year. For the first nine months of 2008, Canpotex shipments to India topped 1.0 million tonnes and were 43 percent higher than in the same period in 2007. Canpotex’s third-quarter shipments to Brazil (575,000 tonnes) were up 6 percent quarter over quarter and were 25 percent higher year to date. The 448,000 tonnes sent to Southeast Asian countries in third quarter 2008 were 16 percent below last year’s third quarter, as countries in that region bought earlier in the year while China was on the sidelines. For the first nine months of 2008, Canpotex shipped 2.1 million tonnes to Southeast Asia, an increase of 25 percent over the same period in 2007. North American potash volumes were down 25 percent quarter over quarter due to tight supply, while year-to-date figures were virtually flat.

Potash per-tonne cost of goods sold was approximately $28 per tonne higher quarter over quarter. This was the result of a stronger average Canadian/US dollar exchange rate compared to last year’s third quarter, increased royalties due to higher potash prices, increased brine inflow costs at New Brunswick and lower sales because of ongoing strikes at our Allan, Cory and Patience Lake potash facilities. The labor dispute at these three facilities led to 16 additional mine shutdown weeks compared to last year’s third quarter.

Nitrogen

Nitrogen operations contributed a record $324.1 million in the third quarter, up 162 percent from the $123.9 million in last year’s third quarter. High global energy prices and very tight world ammonia supplies mitigated the traditional seasonal weakening of nitrogen markets in the third quarter. This raised year-to-date segment gross margin to $719.5 million, 80 percent ahead of the first nine months of 2007. Trinidad generated a record $175.6 million in third-quarter gross margin, while our US operations contributed a record $148.0 million as we capitalized on lower US natural gas costs and optimized our mix of ammonia and downstream nitrogen products to maximize gross margin.

Ammonia realized prices reached record levels, increasing 147 percent from the third quarter last year, mainly because of strong demand and disruptions in the global supply of traded ammonia in major producing regions. China’s efforts to limit fertilizer exports contributed to realized urea prices rising 134 percent from last year’s third quarter and 46 percent from the robust second quarter of 2008. The higher value of upgraded ammonia pushed nitrogen solution prices 80 percent higher than those realized in the third quarter last year and 19 percent above the trailing quarter.

Ammonia sales volumes were down 6 percent quarter over quarter due to reduced availability of product caused by production issues at our Trinidad operations. A scheduled 28-day turnaround at our Trinidad urea plant contributed to a 21-percent reduction in urea sales volumes from last year’s third quarter, while nitrogen solutions sales volumes were 36 percent higher on strong demand and favorable production economics.

Our total average natural gas cost for the third quarter, including our hedge, was $9.36 per MMBtu, 138 percent higher than in the same quarter last year. This average was pushed higher because our Trinidad gas cost is indexed to Tampa ammonia prices, which ranged between $585-$931 per tonne in third quarter 2008 as compared to $295-$303 per tonne in the same quarter of 2007.

Phosphate

Record third-quarter phosphate gross margin of $507.2 million was almost four times the $129.9 million generated in last year’s third quarter, surpassing the full-year 2007 phosphate gross margin of $432.8 million. After several quarters of a lag in pricing compared to solid fertilizers, the increasing value of phosphoric acid was reflected in higher liquid fertilizer and feed phosphate prices. This resulted in liquid fertilizers contributing $198.9 million in gross margin in third quarter 2008, while solid fertilizers contributed $183.7 million. Feed phosphate added $81.5 million and industrial products, which are sold on longer-term contracts and have not yet fully captured the benefit of higher phosphoric acid value, generated $40.2 million. Our year-to-date phosphate gross margin grew to $1.0 billion, 245 percent higher than in the first nine months of 2007.

Liquid fertilizer realized prices reached $1,238 per tonne in third quarter 2008, a 293-percent increase from last year’s third quarter and 82 percent higher than in the trailing quarter. Prices for solid fertilizer ($1,085 per tonne) and feed ($1,040 per tonne) rose 171 percent and 196 percent, respectively, from the same quarter last year. Realized industrial prices of $825 per tonne rose 111 percent over the same quarter last year.

Our North American solid phosphate fertilizer sales volumes declined 38 percent from last year’s third quarter, as the late spring season resulted in higher dealer inventories entering the third quarter and the fall application season was delayed by the late harvest. Accordingly, we directed more phosphoric acid to higher-netback and higher-demand liquid fertilizers in North America, increasing sales volumes for this product 16 percent quarter over quarter. Total feed phosphate sales volumes declined 16 percent quarter over quarter as a result of weakening economics for beef, pork and poultry producers in the US and lower offshore demand. Industrial sales volumes remained strong, up 4 percent over the same quarter last year and 15 percent higher than the trailing quarter.

Quarter over quarter, phosphate cost of goods sold increased substantially in third quarter 2008 as sulfur costs rose 577 percent and ammonia costs were up 94 percent.

Financial

Provincial mining and other taxes were $172.0 million, six times higher than the same quarter last year due to the rapid increase in realized prices and profitability in our potash segment. Quarter-over-quarter selling and administrative expenses were lower due to reduced compensation accruals impacted by a reduction in share price during the third quarter. A $21.4ÃӚ“šÃƒÆ’“šÃƒ“š million gain on sale of assets of our Brazilian phosphate feed plant and inland warehouse was recognized in the quarter, and we also recorded a primarily non-cash foreign exchange gain of $37.4 million because of a weakened Canadian dollar at the quarter’s end. These gains were partially offset by an additional $27.5 million charge in the third quarter (included in other income) related to the further write-off of investments in certain auction rate securities.

Capital expenditures of $336.2 million were up 132 percent from last year’s third quarter, as continued strong cash flow was reinvested in potash debottlenecking and expansion projects at our Lanigan, Patience Lake, Cory, New Brunswick and Rocanville potash facilities, and load-out expansions at Rocanville and Allan. An additional $1.0 billion was used in the quarter to complete the 15.82 million share repurchase initially announced in January 2008. While we generated $824.5 million of free cash flow(2) in the quarter, we utilized additional borrowings under our short-term credit facilities to accommodate accelerated share repurchase activity.

Outlook

While the rapid decline in investor confidence in global equity, debt and commodity markets has shifted political and public attention to issues of finance, it does not change the sound and solidly entrenched long-term fundamentals that underpin anticipated growth in the fertilizer industry. Although all sectors, including agriculture, have been impacted by the response to the accelerating global financial crisis and increased selling of liquid assets to attain and hold cash, the most basic drivers of our business remain intact. The growing world needs to produce more food and, to do that, it requires more fertilizer.

Global population is approximately 6.7 billion people and grows by an estimated 80 million each year. Research has estimated that approximately 40 percent of the world’s food could not be produced without the use of fertilizer, so the importance and value of our products increase on a continuing basis. Regardless of economic conditions, world grain consumption rarely declines and has, in fact, increased in 40 of the past 48 years. The most significant drop over this time was 3.7 percent during a year that saw a corresponding 4.6 percent drop in global grain production. In the remaining cases, grain consumption declined less than 1 percent and was typically caused by weather-related production issues constraining grain supplies.

With more people to feed and higher demand for protein from meat sources, which requires even more grain, the world’s farmers are challenged to improve crop yields and maximize production. Grain consumption remains at an all-time high and, despite record crops, global grain stocks-to-use levels are near historic lows. Despite these conditions, the impact of traders selling off crop futures contracts and lowering prices for financial rather than fundamental reasons could impact crop production patterns in the short term. If the world’s farmers choose to cut back on acreage or reduce crop inputs due to current economic uncertainty, we expect this would put substantial pressure on the already-tight global grain supplies and ultimately lead to much higher crop prices. Additionally, this year’s record world production drew an unprecedented amount of crop nutrients from the soil, creating an even greater need for fertilizer to protect and restore soil fertility. Our industry has witnessed many periods of temporary cash conservation in the past, where buyers deferred purchasing inputs and worked from inventories or mined residual nutrients in the soil. As this happens, the need to replace crop nutrient inventories grows, leading to tightened supply/demand fundamentals for fertilizers.

In the interim, potash supply is inherently tight, with limited productive capability supplying the needs of farmers in every country of the world. We expect that the industry will be challenged to meet demand in coming years. Potash production faces a number of constraints and even the most optimistic prospect of significant new greenfield production is at least five to seven years away.

Among the major potash markets, US farmers have enjoyed record farm income in four of the past six years and are operating with very strong balance sheets, averaging a debt-to-equity ratio of 11 percent. Their lenders are typically government-sponsored farm credit agencies or regional banks that understand farmers are among the lowest credit risk of any borrowers in the current environment. After receiving potash on an allocation basis for the past 18 months and functioning on available supply while growing record crops, potassium levels in US farmers’ soils have been reduced and must be restored to protect future fertility. This minimizes the downside risk for potash in North America and, given the late fall season and an expected rebound in crop prices, we anticipate that US demand will be strong in the coming spring season.

In China, the late settlement of 2008 potash contracts and increased demand from other major buying regions reduced imports by more than 3 million tonnes from 2007 levels. Seaborne shipments did not arrive until long after the spring application season, constraining field-level supplies and lowering potash consumption. After higher crop production this year removed large amounts of nutrients from soils, China will need to increase potash applications to restore low soil nutrient levels. Canpotex’s sales to China have not been impacted by the current global financial crisis and we expect Chinese buyers to settle 2009 contracts by the first quarter, with a provision for higher volumes than 2008 to ensure the replenishment of potassium for sufficient grain production next year. The financial crisis has reduced concerns about rapid inflation slowing China’s powerful economy. As has been demonstrated over the past two decades and discussed publicly again by its government officials this week, China continues to emphasize strong industrial and agricultural growth, which gives more people the desire and income necessary to purchase more readily available and nutritious food.

In India, soils are short of all nutrients, particularly potassium, and the historical under-application of potash relative to nitrogen and phosphate is severely limiting yield growth for crops in that country. India’s government is focused on improving yields and we expect solid potash demand growth again there in 2009.

Although Brazil has a great need for potassium in its soil, of all major potash markets its economy has experienced the most sensitivity to global credit issues. Now, as Brazil heads into its primary planting season, it will likely be impacted by the unfortunate timing of negative investor response to this crisis and the resulting decline in crop prices. We believe that crop prices are likely to rebound by harvest time, and that the Brazilian farmer will do well. However, in the current environment, caution may be exercised. This could mean a reduction of Brazil’s potash applications this fall and higher carryover of potash inventories into 2009. This could lower Brazil’s potash imports by as much as 300,000-500,000 tonnes next year as compared to 2008. However, in October, the Brazilian government stepped in to provide more than 10 billion reais (approximately US $5 billion) to Brazilian banks to provide credit for farmers to purchase crop inputs. With rising global consumption of soybeans and corn, the world needs Brazil to increase its crop production. Higher long-term crop prices are required to encourage Brazil to expand its acreage and increase fertilizer consumption to meet this demand.

While much of the attention is focused on other countries, Russia’s agricultural industry is also enjoying a quiet yet rapid resurgence that we expect will have far-reaching effects. The Russian government has indicated it will require its domestic fertilizer producers to direct significant volumes of nitrogen, phosphate and potash to its own farmers. This could remove several hundred thousand tonnes of potash from an already tight international market next year.

In the fourth quarter, we expect previously announced potash price increases to take hold and raise our total realized price by approximately $100 per tonne. Looking ahead, limited new potash capacity is scheduled to come on stream in 2009, even as producers are reporting record-low inventories. With global sales growth estimates ranging from a scenario of flat to a 5-percent increase, we expect potash fundamentals to remain tight. In the event of temporary demand weakness in this current economic environment, we will follow our long-held practice of matching our production to meet market demand, reducing volatility in our financial performance. This could also significantly minimize the downside of production lost during ongoing strikes at our Allan, Cory and Patience Lake potash operations. We expect our full-year 2008 potash gross margin to exceed the 2007 level by approximately 250 percent.

Longer-term, over the next five to seven years we expect demand growth to meet or exceed the availability of new supply. We continue to move forward on announced potash debottlenecking and expansion projects that will raise our operating capability from approximately 10 million tonnes to 18 million tonnes over this time frame.

Among the other nutrients, the fundamentals for nitrogen products face the greatest immediate-term challenge from temporary deferrals of purchases. With major buyers waiting on the sidelines due to delayed application seasons in key areas and lack of confidence from the global financial crisis, urea prices have dropped dramatically. Ammonia prices achieved record levels in September/October, but have come under pressure in the fourth quarter. Due to these falling prices, we now expect 2008 nitrogen gross margin to be lower than our previous forecast but still exceed 2007 by approximately 60 percent.

Rapidly falling international sulfur costs, which have dropped from a high of approximately $800 per tonne to well below $200 per tonne, are putting downward pressure on phosphate prices. However, we expect minimal impact on phosphate profitability as raw material costs and ocean freight rates decline. Additionally, announced production cutbacks in the phosphate industry should minimize the effect of the current market situation on phosphate gross margins. As a result, 2008 phosphate segment gross margin is now expected to be higher than previously forecasted, exceeding 2007 by over 250 percent.

Our 2008 capital expenditures, excluding capitalized interest, are expected to be approximately $1.2 billion, of which $260 million will relate to sustaining capital. Our consolidated reported income tax rate for the year is anticipated to be 27 percent. Due to higher expected potash prices and margins, provincial mining taxes are forecast to be 19 percent of total potash gross margin for the year, but could land within a range of 17-19 percent depending on potash price realizations, the Canadian/US exchange rate, and the timing and amount of capital spending on potash projects in Saskatchewan.

In the $12.00-$13.00 per share guidance range we previously provided for 2008, the low end of that range fully considered the risk of a lengthy strike at our three affected potash sites. Now, the global financial crisis is creating short-term uncertainty, while falling fourth-quarter nitrogen prices are expected to be offset somewhat by improving margins in our phosphate segment as raw material costs drop precipitously. Using a locked in Canadian/US dollar exchange rate of $1.10, we expect 2008 net income per share to be at the low end of our previously provided guidance range, with a possible variance of 2 percent in either direction.

Conclusion

“Although we are not immune to the global financial crisis, we believe we are uniquely sheltered by the immutable long-term need for higher global food production and the key role that potash plays in helping meet this demand,” said Doyle. “The gains in crop production must be protected just to maintain the current supplies and more fertilizer will be needed to ensure food security in the future. Despite the economic turmoil, governments and farmers cannot sit on the sidelines while people wait for food. While we anticipate a recovery in crop prices in 2009, we will continue to follow the long-term strategies that have guided our company for 20 years, using our agility and production flexibility to maximize earnings growth while minimizing volatility in our performance. We also view this as an opportunity to look for additional ways to increase the strength of our potash business which will reward our long-term shareholders in the future.”

   Notes   -----   1.  All references to per-share amounts pertain to diluted net income per       share.   2.  See reconciliation and description of non-GAAP measures in the       attached section titled "Selected Non-GAAP Financial Measures and       Reconciliations."

Potash Corporation of Saskatchewan Inc. is the world’s largest fertilizer enterprise producing the three primary plant nutrients and a leading supplier to three distinct market categories: agriculture, with the largest capacity in the world in potash, second largest in nitrogen and third largest in phosphate; animal nutrition, with the world’s largest capacity in phosphate feed ingredients; and industrial chemicals, as the largest global producer of industrial nitrogen products and the world’s largest capacity for production of purified industrial phosphoric acid.

This release contains forward-looking statements. These statements are based on certain factors and assumptions including foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities and effective income tax rates. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Several factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to: fluctuations in supply and demand in fertilizer, sulfur, transportation and petrochemical markets; changes in competitive pressures, including pricing pressures; timing and amount of capital expenditures; risks associated with natural gas and other hedging activities; changes in capital markets and corresponding effects on the company’s investments; changes in currency and exchange rates; the current global financial crisis and changes in credit markets; unexpected geological or environmental conditions, including water inflow; strikes and other forms of work stoppage or slowdowns including work stoppages at our Allan, Cory and Patience Lake facilities; changes in and the effects of, government policy and regulations; and earnings, exchange rates and the decisions of taxing authorities, all of which could affect our effective tax rates. Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2007 under captions “Forward-Looking Statements” and “Item 1A – Risk Factors” and in our filings with the US Securities and Exchange Commission and Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this release and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

   -------------------------------------------------------------------------   PotashCorp will host a conference call on Thursday, October 23, 2008, at                          1:00 p.m. Eastern Time.        To join the call, dial (412) 317-6040 at least 10 minutes prior to                              the start time.                       No reservation ID is required.        Alternatively, visit http://www.potashcorp.com/ for a live webcast of                            the conference call.       Webcast participants can submit questions to management online from                     their audio player pop-up window.          This news release is also available at this same website.                     Potash Corporation of Saskatchewan Inc.          Condensed Consolidated Statements of Financial Position             (in millions of US dollars except share amounts)                                (unaudited)                                                  September 30,  December 31,                                                     2008          2007   -------------------------------------------------------------------------    Assets    Current assets     Cash and cash equivalents                    $     499.5   $     719.5     Accounts receivable                              1,373.0         596.2     Inventories                                        743.9         428.1     Prepaid expenses and other current assets           68.8          36.7     Current portion of derivative instrument assets      5.0          30.8   -------------------------------------------------------------------------                                                      2,690.2       1,811.3     Derivative instrument assets                         50.3         104.2    Property, plant and equipment                     4,429.8       3,887.4    Investments (Note 2)                              3,670.8       3,581.5    Other assets                                        267.2         210.7    Intangible assets                                    22.2          24.5    Goodwill                                             97.0          97.0   -------------------------------------------------------------------------                                                  $  11,227.5   $   9,716.6   -------------------------------------------------------------------------   -------------------------------------------------------------------------    Liabilities    Current liabilities     Short-term debt                              $   1,676.3   $      90.0     Accounts payable and accrued charges             1,468.3         911.7     Current portion of long-term debt                    0.2           0.2   -------------------------------------------------------------------------                                                      3,144.8       1,001.9     Long-term debt                                    1,339.4       1,339.4    Future income tax liability                       1,020.7         988.1    Accrued pension and other post-retirement     benefits                                           255.2         244.8    Accrued environmental costs and asset     retirement obligations                             124.2         121.0    Other non-current liabilities and deferred     credits                                             26.6           2.7   -------------------------------------------------------------------------                                                      5,910.9       3,697.9   -------------------------------------------------------------------------    Shareholders' Equity    Share capital                                     1,429.0       1,461.3     Unlimited authorization of common shares     without par value; issued and outstanding     301,850,331 and 316,411,209 at September 30,     2008 and December 31, 2007, respectively    Contributed surplus                                 122.6          98.9    Accumulated other comprehensive income            1,699.8       2,178.9    Retained earnings                                 2,065.2       2,279.6   -------------------------------------------------------------------------                                                      5,316.6       6,018.7   -------------------------------------------------------------------------                                                  $  11,227.5   $   9,716.6   -------------------------------------------------------------------------   -------------------------------------------------------------------------   (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    Nine Months Ended                                      September 30          September 30                                    2008       2007       2008       2007   -------------------------------------------------------------------------    Sales (Note 6)                $ 3,064.3  $ 1,295.0  $ 7,575.9  $ 3,802.8   Less: Freight                      81.4       80.6      287.2      254.8         Transportation and          distribution                31.6       31.0       97.2       94.6         Cost of goods sold        1,210.3      708.3    3,157.2    2,107.2   -------------------------------------------------------------------------   Gross Margin                    1,741.0      475.1    4,034.3    1,346.2   -------------------------------------------------------------------------   Selling and administrative         31.7       43.9      158.6      158.0   Provincial mining and other    taxes                            172.0       28.2      434.4       95.3   Foreign exchange (gain) loss      (37.4)      25.9      (63.2)      67.4   Other income (Note 9)            (140.0)     (29.1)    (255.2)    (111.3)   -------------------------------------------------------------------------                                      26.3       68.9      274.6      209.4   -------------------------------------------------------------------------   Operating Income                1,714.7      406.2    3,759.7    1,136.8   Interest Expense                   15.3       12.7       42.2       59.0   -------------------------------------------------------------------------   Income Before Income Taxes      1,699.4      393.5    3,717.5    1,077.8   Income Taxes (Note 4)             463.3      150.4    1,010.3      351.0   -------------------------------------------------------------------------   Net Income                    $ 1,236.1  $   243.1    2,707.2      726.8                                ----------------------                                ----------------------   Retained Earnings, Beginning    of Period                                            2,279.6    1,286.4   Repurchase of Common Shares    (Note 3)                                            (2,829.1)         -   Change in Accounting Policy                                 -        0.2   Dividends                                               (92.5)     (79.0)   -------------------------------------------------------------------------   Retained Earnings, End of Period                    $ 2,065.2  $ 1,934.4   -------------------------------------------------------------------------   -------------------------------------------------------------------------   Net Income Per Share (Note 5)     Basic                       $    4.07  $    0.77  $    8.73  $    2.30     Diluted                     $    3.93  $    0.75  $    8.45  $    2.25   -------------------------------------------------------------------------   -------------------------------------------------------------------------   Dividends Per Share           $    0.10  $    0.10  $    0.30  $    0.25   -------------------------------------------------------------------------   -------------------------------------------------------------------------   (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    Nine Months Ended                                      September 30          September 30                                    2008       2007       2008       2007   -------------------------------------------------------------------------    Operating Activities   Net income                    $ 1,236.1  $   243.1  $ 2,707.2  $   726.8   -------------------------------------------------------------------------    Adjustments to reconcile net    income to cash provided by    operating activities     Depreciation and amortization    83.3       69.5      247.1      216.3     Stock-based compensation          4.2        4.2       32.1       34.7     (Gain) loss on disposal of      property, plant and      equipment and long-term      investments                    (21.5)       0.2      (28.3)       5.6     Provision for auction rate      securities                      27.5          -       71.3          -     Foreign exchange on future      income tax                     (14.6)      21.4      (23.9)      47.5     Provision for future      income tax                      48.7       52.6       75.5      119.8     Undistributed earnings of      equity investees              (109.3)     (15.7)    (133.8)     (17.6)     Loss (gain) on derivative      instruments                      0.6      (13.0)     (18.4)     (18.4)     Other long-term liabilities      (4.3)     (25.6)       2.8      (21.3)   -------------------------------------------------------------------------     Subtotal of adjustments          14.6       93.6      224.4      366.6   -------------------------------------------------------------------------      Changes in non-cash      operating working capital     Accounts receivable            (281.9)    (100.2)    (776.8)    (139.9)     Inventories                    (131.2)      35.5     (360.5)      51.6     Prepaid expenses and      other current assets           (10.7)       0.8      (34.1)       1.3     Accounts payable and      accrued charges                 86.1       38.8      489.7      150.9   -------------------------------------------------------------------------     Subtotal of changes in      non-cash operating      working capital               (337.7)     (25.1)    (681.7)      63.9   -------------------------------------------------------------------------   Cash provided by operating    activities                       913.0      311.6    2,249.9    1,157.3   -------------------------------------------------------------------------    Investing Activities   Additions to property, plant    and equipment                   (336.2)    (145.1)    (770.6)    (381.6)   Purchase of long-term    investments                      (78.3)     (21.0)    (329.5)     (30.7)   Purchase of auction rate    securities                           -     (132.5)         -     (132.5)   Proceeds from disposal of    property, plant and equipment    and long-term investments         31.3        2.9       40.9        4.2   Other assets and intangible    assets                           (11.7)      (0.9)     (33.1)       9.8   -------------------------------------------------------------------------   Cash used in investing    activities                      (394.9)    (296.6)  (1,092.3)    (530.8)   -------------------------------------------------------------------------   Cash before financing    activities                       518.1       15.0    1,157.6      626.5   -------------------------------------------------------------------------    Financing Activities   Repayment and issue costs of    long-term debt obligations           -          -       (0.2)    (403.6)   Proceeds from (repayment of)    short-term debt obligations      743.9        5.5    1,586.3      (65.8)   Dividends                         (29.8)     (31.3)     (92.3)     (62.6)   Repurchase of common shares    (1,005.8)         -   (2,902.9)         -   Issuance of common shares           3.2        3.6       31.5       22.3   -------------------------------------------------------------------------   Cash used in financing    activities                      (288.5)     (22.2)  (1,377.6)    (509.7)   -------------------------------------------------------------------------   Increase (Decrease) in Cash    and Cash Equivalents             229.6       (7.2)    (220.0)     116.8   Cash and Cash Equivalents,    Beginning of Period              269.9      449.7      719.5      325.7   -------------------------------------------------------------------------   Cash and Cash Equivalents,    End of Period                $   499.5  $   442.5  $   499.5  $   442.5   -------------------------------------------------------------------------   -------------------------------------------------------------------------    Cash and cash equivalents    comprised of:     Cash                        $    62.5  $    11.3  $    62.5  $    11.3     Short-term investments          437.0      431.2      437.0      431.2   -------------------------------------------------------------------------                                 $   499.5  $   442.5  $   499.5  $   442.5   -------------------------------------------------------------------------   -------------------------------------------------------------------------    Supplemental cash flow    disclosure     Interest paid               $    14.3  $    15.7  $    51.4  $    71.5     Income taxes paid           $   210.1  $    59.1  $   595.7  $   128.2   -------------------------------------------------------------------------   (See Notes to the Condensed Consolidated Financial Statements)                     Potash Corporation of Saskatchewan Inc.      Condensed Consolidated Statement of Comprehensive (Loss) Income                        (in millions of US dollars)                                (unaudited)                                                   Three Months Ended                                                  September 30, 2008                                              Before                Net of                                             Income     Income     Income                                              Taxes      Taxes      Taxes   -------------------------------------------------------------------------    Net income                               $ 1,699.4  $   463.3  $ 1,236.1   -------------------------------------------------------------------------   Other comprehensive income     Net decrease in unrealized gains on      available-for-sale securities(1)       (1,501.0)    (129.2)  (1,371.8)     Net losses on derivatives designated      as cash flow hedges(2)                   (364.7)    (105.8)    (258.9)     Reclassification to income of net gains      on cash flow hedges(2)                     (0.3)      (0.1)      (0.2)     Unrealized foreign exchange losses      on translation of self-sustaining      foreign operations                         (7.2)         -       (7.2)   -------------------------------------------------------------------------   Other comprehensive loss                  (1,873.2)    (235.1)  (1,638.1)   -------------------------------------------------------------------------   Comprehensive (loss) income              $  (173.8) $   228.2  $  (402.0)   -------------------------------------------------------------------------   -------------------------------------------------------------------------                                                    Nine Months Ended                                                  September 30, 2008                                              Before                Net of                                             Income     Income     Income                                              Taxes      Taxes      Taxes   -------------------------------------------------------------------------    Net income                               $ 3,717.5  $ 1,010.3  $ 2,707.2   -------------------------------------------------------------------------   Other comprehensive income     Net decrease in unrealized gains on      available-for-sale securities(1)         (345.2)      57.0     (402.2)     Net losses on derivatives designated      as cash flow hedges(2)                    (84.8)     (24.6)     (60.2)     Reclassification to income of net gains      on cash flow hedges(2)                    (20.3)      (5.9)     (14.4)     Unrealized foreign exchange losses      on translation of self-sustaining      foreign operations                         (2.3)         -       (2.3)   -------------------------------------------------------------------------   Other comprehensive loss                    (452.6)      26.5     (479.1)   -------------------------------------------------------------------------   Comprehensive (loss) income              $ 3,264.9  $ 1,036.8  $ 2,228.1   -------------------------------------------------------------------------   -------------------------------------------------------------------------                                                     Three Months Ended                                                  September 30, 2007                                              Before                Net of                                             Income     Income     Income                                              Taxes      Taxes      Taxes   -------------------------------------------------------------------------    Net income                               $   393.5  $   150.4  $   243.1   -------------------------------------------------------------------------   Other comprehensive income     Net increase in unrealized gains on      available-for-sale securities(1)          281.5       23.4      258.1     Net (losses) gains on derivatives      designated as cash flow hedges(2)         (17.0)      (4.7)     (12.3)     Reclassification to income of net      gains on cash flow hedges(2)               (8.5)      (3.7)      (4.8)     Unrealized foreign exchange gains on      translation of self-sustaining      foreign operations                          1.0          -        1.0   -------------------------------------------------------------------------   Other comprehensive income                   257.0       15.0      242.0   -------------------------------------------------------------------------   Comprehensive income                     $   650.5  $   165.4  $   485.1   -------------------------------------------------------------------------   -------------------------------------------------------------------------                                                    Nine Months Ended                                                  September 30, 2007                                              Before                Net of                                             Income     Income     Income                                              Taxes      Taxes      Taxes   -------------------------------------------------------------------------    Net income                               $ 1,077.8  $   351.0  $   726.8   -------------------------------------------------------------------------   Other comprehensive income     Net increase in unrealized gains on      available-for-sale securities(1)          844.7       57.4      787.3     Net (losses) gains on derivatives      designated as cash flow hedges(2)          13.9        4.6        9.3     Reclassification to income of net      gains on cash flow hedges(2)              (39.8)     (13.1)     (26.7)     Unrealized foreign exchange gains on      translation of self-sustaining      foreign operations                          5.9          -        5.9   -------------------------------------------------------------------------   Other comprehensive income                   824.7       48.9      775.8   -------------------------------------------------------------------------   Comprehensive income                     $ 1,902.5  $   399.9  $ 1,502.6   -------------------------------------------------------------------------   -------------------------------------------------------------------------   (1) Available-for-sale securities are comprised of shares in Israel       Chemicals Ltd. and Sinofert Holdings Limited and investments in       auction rate securities.   (2) Cash flow hedges are comprised of natural gas derivative instruments.                     Potash Corporation of Saskatchewan Inc.              Condensed Consolidated Statement of Accumulated                        Other Comprehensive Income                        (in millions of US dollars)                                (unaudited)                                            Unrealized  Unrealized                                             gains      foreign                                   Net      (losses)    exchange                                unrealized     on        gains                                  gains    derivatives  (losses)                               (losses) on  designated  on self-                                available-     as      sustaining   (Net of related               for-sale   cash flow   foreign    income taxes)               securities    hedges   operations   Total   -------------------------------------------------------------------------    Accumulated other    comprehensive income,    December 31, 2007            $ 2,098.7  $    73.5  $     6.7  $ 2,178.9   Decrease for the nine months    ended September 30, 2008        (402.2)     (74.6)      (2.3)    (479.1)   -------------------------------------------------------------------------   Accumulated other    comprehensive income    (loss), September 30, 2008   $ 1,696.5  $    (1.1) $     4.4  $ 1,699.8   -------------------------------------------------------------------------   -------------------------------------------------------------------------   (See Notes to the Condensed Consolidated Financial Statements)                     Potash Corporation of Saskatchewan Inc.         Notes to the Condensed Consolidated Financial Statements          For the Three and Nine Months Ended September 30, 2008      (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   condensed consolidated financial statements are consistent with those   used in the preparation of the 2007 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 2007 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.    Inventories    In June 2007, the CICA issued Section 3031, "Inventories", which replaces   Section 3030 and harmonizes the Canadian standard related to inventories   with International Financial Reporting Standards. This standard provides   more extensive guidance on the determination of cost, including   allocation of overhead; narrows the permitted cost formulas; restricts   the classification of spare and replacement parts as inventory; requires   impairment testing; and expands the disclosure requirements to increase   transparency. This standard applies to interim and annual financial   statements relating to fiscal years beginning on or after January 1,   2008.    This standard has been applied prospectively; accordingly comparative   amounts for prior periods have not been restated. The adoption of this   standard resulted in a reclassification of certain spare and replacement   parts to property, plant and equipment. The effects of the adjustment   were to decrease inventory by $21.5 at January 1, 2008, and increase   property, plant and equipment in the same amount. Since there was no   difference in the measurement of the assets, no adjustment to opening   retained earnings was necessary.    2.  Investments    In January 2008, the company settled its forward purchase contract, which   was denominated in Hong Kong dollars, to acquire an additional   194,290,175 shares of Sinofert Holdings Limited ("Sinofert") for cash   consideration of $173.7. A tax-exempt gain of $25.3 was recognized during   2008 as a result of the change in fair value of the contract from   December 31, 2007, to the settlement date. During the nine months ended   September 30, 2008, the company purchased an additional 191,620,000   shares of Sinofert for cash consideration of $145.3. Net of the ownership   interest dilution that resulted from the issuance of shares of Sinofert,   the acquisitions increased the company's ownership interest in Sinofert   to approximately 22 percent.    Investments include auction rate securities that are classified as   available-for-sale. The company has determined that the fair value of the   auction rate securities was $34.7 at September 30, 2008 (face value   $132.5), representing an impairment of $97.8 which was all considered to   be other-than-temporary. This represents a decline in fair value of $12.2   and $21.3 for the three and nine months ended September 30, 2008,   respectively. For the three and nine months ended September 30, 2008,   net income was reduced by $27.5 and $71.3, respectively, and unrealized   losses in accumulated other comprehensive income were reduced by $15.3   and $50.0 in the same periods, respectively. The current financial credit   crisis continues to cause these investments to be illiquid. The company   is able to hold these investments until liquidity improves, but does not   expect this to occur in the next 12 months.    3.  Share Repurchase    On January 23, 2008, the Board of Directors of PCS authorized a share   repurchase program of up to 15,820,000 common shares (approximately   5 percent of the company's issued and outstanding common shares) through   a normal course issuer bid. As of September 9, 2008, the company had   repurchased the maximum allowable number of shares under the program. On   September 11, 2008, the Board of Directors of PCS approved an increase in   the share repurchase program to authorize the purchase of up to an   additional 15,680,000 common shares (approximately 5 percent of the   company's issued and outstanding common shares). If considered advisable,   shares may be repurchased from time to time on the open market through   January 30, 2009, at prevailing market prices. The timing and amount of   purchases, if any, under the program will be dependent upon the   availability and alternative uses of capital, market conditions and   other factors.    During the three months ended September 30, 2008, the company repurchased   for cancellation 4,964,500 common shares under the program, at a cost of   $870.7 and an average price per share of $175.38. The repurchase resulted   in a reduction of share capital of $23.3, and the excess of cost over the   average book value of the shares of $847.4 has been recorded as a   reduction of retained earnings. During the nine months ended   September 30, 2008, a total of 15,820,000 shares were repurchased at a   cost of $2,902.9 and an average price per share of $183.50, resulting in   a reduction of share capital of $73.8 and a reduction in retained   earnings of $2,829.1.    4.  Income Taxes    The company's consolidated reported income tax rate for the three months   ended September 30, 2008, was approximately 27 percent (2007 - 38   percent) and for the nine months ended September 30, 2008, was   approximately 27 percent (2007 - 33 percent). For the three and nine   months ended September 30, 2008, the consolidated effective income tax   rate was 29 percent (2007 - 33 percent). Items to note include the   following:    -   A scheduled one and a half percentage point reduction in the Canadian       federal income tax rate applicable to resource companies along with       the elimination of the one percent surtax became effective at the       beginning of 2008. In addition, there was an increase in permanent       deductions in the US.    -   In the third quarter of 2008, a current income tax recovery of $29.1       was recorded that related to an increase in permanent deductions in       the US from prior years. This is in addition to the future income       tax recovery of $42.0 that was recorded in the first quarter of 2008.    -   Future income tax assets were written down by $11.0 during the second       quarter of 2008.    -   The $25.3 gain recognized in first-quarter 2008 as a result of the       change in fair value of the forward purchase contract for shares in       Sinofert was not taxable.    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 September 30, 2008, of 304,017,000 (2007 - 315,962,000). Basic   net income per share for the year to date is calculated based on the   weighted average shares issued and outstanding for the nine months   ended September 30, 2008, of 310,076,000 (2007 - 315,444,000).    Diluted net income per share is calculated based on the weighted average   number of shares issued and outstanding during the period. The   denominator is: (1) 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 (2) 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 September 30, 2008, was 314,132,000 (2007 - 324,741,000) and for   the nine months ended September 30, 2008, was 320,484,000 (2007 -   323,580,000).    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 September 30, 2008   -------------------------------------------------------------------------                                                                     Consol-                            Potash  Nitrogen  Phosphate  All Others  idated   -------------------------------------------------------------------------    Sales                   $1,145.2  $  838.9  $1,080.2  $      -  $3,064.3   Freight                     36.0      18.1      27.3         -      81.4   Transportation and    distribution                9.9      12.9       8.8         -      31.6   Net sales - third party  1,099.3     807.9   1,044.1         -   Cost of goods sold         189.6     483.8     536.9         -   1,210.3   Gross margin               909.7     324.1     507.2         -   1,741.0   Depreciation and    amortization               18.9      26.2      36.1       2.1      83.3   Inter-segment sales            -      62.8       7.7         -         -                                  Three Months Ended September 30, 2007   -------------------------------------------------------------------------                                                                     Consol-                            Potash  Nitrogen  Phosphate  All Others  idated   -------------------------------------------------------------------------    Sales                   $  427.4  $  436.0  $  431.6  $      -  $1,295.0   Freight                     38.3      15.4      26.9         -      80.6   Transportation and    distribution                8.7      12.9       9.4         -      31.0   Net sales - third party    380.4     407.7     395.3         -   Cost of goods sold         159.1     283.8     265.4         -     708.3   Gross margin               221.3     123.9     129.9         -     475.1   Depreciation and    amortization               15.5      22.2      29.3       2.5      69.5   Inter-segment sales            -      25.0         -         -         -                                   Nine Months Ended September 30, 2008   -------------------------------------------------------------------------                                                                     Consol-                            Potash  Nitrogen  Phosphate  All Others  idated   -------------------------------------------------------------------------    Sales                   $3,135.9  $2,064.6  $2,375.4  $      -  $7,575.9   Freight                    151.6      46.4      89.2               287.2   Transportation and    distribution               35.2      36.8      25.2                97.2   Net sales - third    party                   2,949.1   1,981.4   2,261.0         -   Cost of goods sold         638.4   1,261.9   1,256.9         -   3,157.2   Gross margin             2,310.7     719.5   1,004.1         -   4,034.3   Depreciation and    amortization               65.7      71.1     104.4       5.9     247.1   Inter-segment sales            -     145.4      22.4         -         -                                   Nine Months Ended September 30, 2007   -------------------------------------------------------------------------                                                                     Consol-                            Potash  Nitrogen  Phosphate  All Others  idated   -------------------------------------------------------------------------    Sales                   $1,318.1  $1,336.8  $1,147.9  $      -  $3,802.8   Freight                    135.0      40.0      79.8         -     254.8   Transportation and    distribution               30.9      39.1      24.6         -      94.6   Net sales - third    party                   1,152.2   1,257.7   1,043.5         -   Cost of goods sold         496.3     858.3     752.6         -   2,107.2   Gross margin               655.9     399.4     290.9         -   1,346.2   Depreciation and    amortization               54.4      65.5      88.6       7.8     216.3   Inter-segment sales            -      84.1       1.9         -         -     7.  Stock-Based Compensation    On May 8, 2008, the company's shareholders approved the 2008 Performance   Option Plan under which the company may, after February 20, 2008 and   before January 1, 2009, issue options to acquire up to 1,000,000 common   shares. Under the plan, the exercise price shall not be less than the   quoted market closing price of the company's common shares on the last   trading day immediately preceding the date of grant and an option's   maximum term is 10 years. In general, options will vest, if at all,   according to a schedule based on the three-year average excess of the   company's consolidated cash flow return on investment over weighted   average cost of capital. As of September 30, 2008, options to purchase a   total of 486,450 common shares have been granted under the plan. The   weighted average fair value of options granted was $74.76 per share,   estimated as of the date of grant using the Black-Scholes-Merton option-   pricing model with the following weighted average assumptions:    Expected dividend                                                  $0.40   Expected volatility