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EX-31.A - EXHIBIT 31(A) - POTASH CORP OF SASKATCHEWAN INCd756568dex31a.htm
EX-4.M - EXHIBIT 4(M) - POTASH CORP OF SASKATCHEWAN INCd756568dex4m.htm
EX-31.B - EXHIBIT 31(B) - POTASH CORP OF SASKATCHEWAN INCd756568dex31b.htm
EX-32 - EXHIBIT 32 - POTASH CORP OF SASKATCHEWAN INCd756568dex32.htm
EX-95 - EXHIBIT 95 - POTASH CORP OF SASKATCHEWAN INCd756568dex95.htm
10-Q - FORM 10-Q COURTESY PDF - POTASH CORP OF SASKATCHEWAN INCd756568d10q1.pdf

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2014

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-10351

 

 

Potash Corporation of Saskatchewan Inc.

(Exact name of registrant as specified in its charter)

 

Canada    N/A

(State or other jurisdiction of

incorporation or organization)

  

(I.R.S. Employer

Identification No.)

122 — 1st Avenue South

Saskatoon, Saskatchewan, Canada

(Address of principal executive offices)

  

S7K 7G3

(Zip Code)

306-933-8500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

  Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

  Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  þ   Accelerated filer   ¨    Non-accelerated filer  ¨   Smaller reporting company  ¨
     (Do not check if a smaller reporting company)  

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

  Yes  ¨    No  þ

As at July 7, 2014, Potash Corporation of Saskatchewan Inc. had 829,282,715 Common Shares outstanding.

 

 

 


Part I. Financial Information

Item 1. Financial Statements

 

Potash Corporation of Saskatchewan Inc.

Condensed Consolidated Statements of Financial Position

(in millions of US dollars)

(unaudited)

 

As at       June 30,   
2014
     December 31,
2013
 

Assets

     

Current assets

     

Cash and cash equivalents

   $ 107       $ 628   

Receivables

     848         752   

Inventories (Note 2)

     708         728   

Prepaid expenses and other current assets

     57         81   
     1,720         2,189   

Non-current assets

     

Property, plant and equipment

     12,254         12,233   

Investments in equity-accounted investees

     1,284         1,276   

Available-for-sale investments (Note 3)

     1,719         1,722   

Other assets

     375         401   

Intangible assets

     139         137   

Total Assets

   $ 17,491       $ 17,958   

Liabilities

     

Current liabilities

     

Short-term debt and current portion of long-term debt (Note 4)

   $ 430       $ 967   

Payables and accrued charges

     976         1,104   

Current portion of derivative instrument liabilities

     40         42   
     1,446         2,113   

Non-current liabilities

     

Long-term debt (Note 4)

     3,711         2,970   

Derivative instrument liabilities

     111         129   

Deferred income tax liabilities

     2,115         2,013   

Pension and other post-retirement benefit liabilities

     424         410   

Asset retirement obligations and accrued environmental costs

     599         557   

Other non-current liabilities and deferred credits

     138         138   

Total Liabilities

     8,544         8,330   

Shareholders’ Equity

     

Share capital (Note 5)

     1,608         1,600   

Contributed surplus

     230         219   

Accumulated other comprehensive income

     724         673   

Retained earnings

     6,385         7,136   

Total Shareholders’ Equity

     8,947         9,628   

Total Liabilities and Shareholders’ Equity

   $ 17,491       $ 17,958   

(See Notes to the Condensed Consolidated Financial Statements)

 

1   PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q


Potash Corporation of Saskatchewan Inc.

Condensed Consolidated Statements of Income

(in millions of US dollars except per-share and share amounts)

(unaudited)

 

     Three Months Ended June 30      Six Months Ended June 30  
          2014              2013              2014              2013      

Sales (Note 6)

   $   1,892       $   2,144      $   3,572       $   4,244  

Freight, transportation and distribution

     (158      (147      (324      (296

Cost of goods sold

     (987      (1,018      (1,936      (2,102

Gross Margin

     747         979         1,312         1,846   

Selling and administrative expenses

     (55      (51      (123      (117

Provincial mining and other taxes

     (69      (81      (123      (144

Share of earnings of equity-accounted investees

     32         37         65         117   

Dividend income

     24         54         93         54   

Impairment of available-for-sale investment (Note 3)

                     (38        

Other income (expenses)

     7         (11      31         (12

Operating Income

     686         927         1,217         1,744   

Finance costs

     (48      (39      (95      (74

Income Before Income Taxes

     638         888         1,122         1,670   

Income taxes (Note 8)

     (166      (245      (310      (471

Net Income

   $ 472       $ 643       $ 812       $ 1,199   

Net Income per Share

           

Basic

   $ 0.56       $ 0.74       $ 0.96       $ 1.39   

Diluted

   $ 0.56       $ 0.73       $ 0.95       $ 1.37   

Dividends Declared per Share

   $ 0.35       $ 0.35       $ 0.70       $ 0.63   

Weighted Average Shares Outstanding

           

Basic

     840,342,000         865,991,000         846,596,000         865,526,000   

Diluted

     847,014,000         877,141,000         853,320,000         876,930,000   

(See Notes to the Condensed Consolidated Financial Statements)

 

 

LOGO

 

LOGO

 

 

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q   2


Potash Corporation of Saskatchewan Inc.

Condensed Consolidated Statements of Comprehensive Income

(in millions of US dollars)

(unaudited)

 

     Three Months Ended June 30      Six Months Ended June 30  
(Net of related income taxes)        2014               2013              2014              2013      

Net Income

   $    472       $    643      $    812       $ 1,199  

Other comprehensive (loss) income

           

Items that will not be reclassified to net income:

           

Net actuarial gain on defined benefit plans (1)

             150                 150   

Items that have been or may be subsequently reclassified to net income:

           

Available-for-sale investments (2)

           

Net fair value (loss) gain during the period

     (15      (656      35         (470 )

Cash flow hedges

           

Net fair value loss during the period (3)

                     (1       

Reclassification to income of net loss (4)

     7         8         13         19  

Other

     2         (2      4         (2

Other Comprehensive (Loss) Income

     (6      (500      51         (303

Comprehensive Income

   $ 466       $ 143       $ 863       $ 896   

 

(1) 

Net of income taxes of $NIL (2013 — $(87)) for the three and six months ended June 30, 2014.

(2) 

Available-for-sale investments are comprised of shares in Israel Chemicals Ltd. and Sinofert Holdings Limited.

(3) 

Cash flow hedges are comprised of natural gas derivative instruments and were net of income taxes of $NIL (2013 — $NIL) for the three months ended June 30, 2014 and $1 (2013 — $NIL) for the six months ended June 30, 2014.

(4) 

Net of income taxes of $(4) (2013 — $(4)) for the three months ended June 30, 2014 and $(8) (2013 — $(10)) for the six months ended June 30, 2014.

(See Notes to the Condensed Consolidated Financial Statements)

 

3   PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q


Potash Corporation of Saskatchewan Inc.

Condensed Consolidated Statements of Cash Flow

(in millions of US dollars)

(unaudited)

 

     Three Months Ended June 30      Six Months Ended June 30  
              2014                        2013                      2014                       2013          

Operating Activities

           

Net income

   $ 472       $ 643       $ 812       $ 1,199  

Adjustments to reconcile net income to cash provided by operating activities

           

Depreciation and amortization

     182         186         358         340   

Share-based compensation

     4         5         19         21   

Net distributed (undistributed) earnings of equity-accounted investees

     28         70         (3      (7

Impairment of available-for-sale investment (Note 3)

                     38           

Realized excess tax benefit related to share-based compensation

     2         9         2         10   

Provision for deferred income tax

     64         151         110         253   

Pension and other post-retirement benefits

     12         9         21         (22

Other long-term liabilities and miscellaneous

     1         34         10         49   

Subtotal of adjustments

     293         464         555         644   

Changes in non-cash operating working capital

           

Receivables

     54         170         (104      66   

Inventories

     (3      (6      17         41   

Prepaid expenses and other current assets

     9         12         27         13   

Payables and accrued charges

     (37      (81      20         (23

Subtotal of changes in non-cash operating working capital

     23         95         (40      97   

Cash provided by operating activities

     788         1,202         1,327         1,940   

Investing Activities

           

Additions to property, plant and equipment

     (199      (354      (423      (850

Other assets and intangible assets

     (8      (5      (10      (10

Cash used in investing activities

     (207      (359      (433      (860

Financing Activities

           

Proceeds from long-term debt obligations

                     737           

Repayment of and finance costs on long-term debt obligations

     (500      (4      (500      (254

Proceeds from (repayment of) short-term debt obligations

     429         (580      (41      (369

Dividends

     (283      (233      (576      (410

Repurchase of common shares

     (669              (1,065        

Issuance of common shares

     16         19         30         21   

Cash used in financing activities

     (1,007      (798      (1,415      (1,012

(Decrease) Increase in Cash and Cash Equivalents

     (426      45         (521      68   

Cash and Cash Equivalents, Beginning of Period

     533         585         628         562   

Cash and Cash Equivalents, End of Period

   $ 107       $ 630       $ 107       $ 630   

Cash and cash equivalents comprised of:

           

Cash

   $ 88       $ 40       $ 88       $ 40   

Short-term investments

     19         590         19         590   
     $ 107       $ 630       $ 107       $ 630   

Supplemental cash flow disclosure

           

Interest paid

   $ 68       $ 91       $ 92       $ 100   

Income taxes paid

   $ 120       $ 52       $ 170       $ 107   

(See Notes to the Condensed Consolidated Financial Statements)

 

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q   4


Potash Corporation of Saskatchewan Inc.

Condensed Consolidated Statements of Changes in Equity

(in millions of US dollars)

(unaudited)

 

                Accumulated Other Comprehensive Income              
     Share
Capital
    Contributed
Surplus
    Net
unrealized
gain  on
available-for-
sale
investments
    Net loss on
derivatives
designated as
cash flow
hedges
    Net
actuarial
gain on
defined
benefit
plans
    Other     Total
Accumulated
Other
Comprehensive
Income
    Retained
Earnings
    Total
Equity (1)
 

Balance — December 31, 2013

  $ 1,600      $ 219      $ 780      $ (105   $  (2)    $ (2   $ 673      $ 7,136      $ 9,628   

Net income

                                                     812        812   

Other comprehensive income

                  35        12               4        51               51   

Share repurchase (Note 5)

    (53     (2                                        (976     (1,031

Dividends declared

                                                     (587     (587

Effect of share-based compensation including issuance of common shares

    40        13                                                  53   

Shares issued for dividend reinvestment plan

    21                                                         21   

Balance — June 30, 2014

  $ 1,608      $ 230      $ 815      $ (93   $  (2)    $ 2      $ 724      $ 6,385      $ 8,947   

Balance — December 31, 2012

  $ 1,543      $ 299      $ 1,539      $ (138   $  (2)    $ (2   $ 1,399      $ 6,671      $ 9,912   

Net income

                                                     1,199        1,199   

Other comprehensive (loss) income

                  (470     19        150        (2     (303            (303

Dividends declared

                                                     (544     (544

Effect of share-based compensation including issuance of common shares

    29        11                                                  40   

Shares issued for dividend reinvestment plan

    13                                                         13   

Transfer of net actuarial gain on defined benefit plans

                                (150            (150     150          

Balance — June 30, 2013

  $ 1,585      $ 310      $ 1,069      $ (119   $   (2)    $ (4   $ 946      $ 7,476      $ 10,317   

 

(1) 

All equity transactions were attributable to common shareholders.

 

(2) 

Any amounts incurred during a period are closed out to retained earnings at each period-end. Therefore, no balance exists at the beginning or end of period.

(See Notes to the Condensed Consolidated Financial Statements)

 

5   PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q


Potash Corporation of Saskatchewan Inc.

Notes to the Condensed Consolidated Financial Statements

For the Three and Six Months Ended June 30, 2014

(in millions of US dollars except as otherwise noted)

(unaudited)

 

1. Significant Accounting Policies

Basis of Presentation

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. These unaudited interim condensed consolidated financial statements are based on International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IFRS”), and have been prepared in accordance with International Accounting Standard (“IAS”) 34, “Interim Financial Reporting.” The accounting policies and methods of computation used in preparing these unaudited interim condensed consolidated financial statements are consistent with those used in the preparation of the company’s 2013 annual consolidated financial statements, except as described below.

These unaudited 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 company’s 2013 annual consolidated financial statements. In management’s opinion, the unaudited interim condensed consolidated financial statements include all adjustments necessary to fairly present such information. Interim results are not necessarily indicative of the results expected for the fiscal year.

These unaudited interim condensed consolidated financial statements were authorized by the audit committee of the Board of Directors for issue on July 29, 2014.

 

 

Standards, amendments and interpretations effective and applied

The International Accounting Standards Board (“IASB”) and International Financial Reporting Interpretations Committee (“IFRIC”) have issued the following standards and amendments or interpretations to existing standards that were effective and applied by the company.

 

Standard    Description    Impact
Amendments to IAS 32, Offsetting Financial Assets and Financial Liabilities    Issued as part of the IASB’s offsetting project, amendments clarify certain items regarding offsetting financial assets and financial liabilities.    Adopted retrospectively effective January 1, 2014 with no change to the company’s consolidated financial statements.
Amendments to IAS 36, Recoverable Amount Disclosures for Non-Financial Assets    Amendments were issued that clarify disclosure requirements for the recoverable amount of an asset or CGU.    Adopted retrospectively effective January 1, 2014 with no change to the company’s consolidated financial statements.
IFRIC 21, Levies    Provides guidance on when to recognize a liability for a levy imposed by a government.    Adopted retrospectively effective January 1, 2014 with no change to the company’s consolidated financial statements.

Standards, amendments and interpretations not yet effective and not applied

The IASB and IFRIC have issued the following standards and amendments or interpretations to existing standards that were not yet effective and not applied at June 30, 2014. The company does not anticipate early adoption of these standards at this time.

 

 

Standard    Description    Impact   

Effective

Date (1)

Amendments to IAS 19, Employee Benefits    Issued to simplify the accounting for employee or third-party contributions to defined benefit plans that are independent of the number of years of employee service.    The company is reviewing the standard to determine the potential impact, if any; however, no significant impact is anticipated.    July 1, 2014, applied retrospectively.

 

(1) 

Effective date for annual periods beginning on or after the stated date.

 

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q   6


Standard    Description    Impact   

Effective

Date (1)

Amendments to IAS 16, Property, Plant and Equipment and IAS 38, Intangible Assets    Issued to clarify acceptable methods of depreciation and amortization.    The company is reviewing the standard to determine the potential impact, if any; however, no significant impact is anticipated.    January 1, 2016, applied prospectively.
Amendments to IFRS 11, Joint Arrangements    Issued to provide additional guidance on accounting for the acquisition of an interest in a joint operation.    The company is reviewing the standard to determine the potential impact, if any; however, no significant impact is anticipated.    January 1, 2016, applied prospectively.
IFRS 15, Revenue From Contracts With Customers    Issued to provide guidance on the recognition of revenue from contracts with customers including multiple-element arrangements and transactions not previously addressed comprehensively, and enhance disclosures about revenue.    The company is reviewing the standard to determine the potential impact, if any.    January 1, 2017, applied retrospectively with certain limitations.
IFRS 9, Financial Instruments    Issued to replace IAS 39, providing guidance on the classification, measurement and disclosure of financial instruments and introducing a new hedge accounting model.    The company is reviewing the standard to determine the potential impact, if any.    January 1, 2018, applied retrospectively with certain exceptions.

 

(1) 

Effective date for annual periods beginning on or after the stated date.

2. Inventories

 

 

         June 30,   
2014
     December 31,
2013
 

Finished products

   $ 315       $ 340   

Intermediate products

     84         85   

Raw materials

     94         101   

Materials and supplies

     215         202   
     $ 708       $ 728   

3. Available-for-Sale Investments

The company assesses at the end of each reporting period whether there is objective evidence of impairment. A significant or prolonged decline in the fair value of the investment below its cost would be evidence that the asset is impaired. If objective evidence of impairment exists, the impaired amount (i.e., the unrealized loss) is recognized in net income; any subsequent reversals would be recognized in other comprehensive income (“OCI”) and would not flow back into net income. Any subsequent decline in fair value below the carrying amount at the impairment date would represent a further impairment to be recognized in net income.

During 2012, the company concluded its investment in Sinofert Holdings Limited (“Sinofert”) was impaired due to the significance by which fair value was below cost. As a result, an impairment loss of $341 was recognized in net income during 2012. At March 31, 2014, the company concluded its investment in Sinofert was further impaired due to the fair value declining below the carrying amount of $238 at the previous impairment date. As a result, an impairment loss of $38 was recognized in net income during the three months ended March 31, 2014. The fair value was determined through the market value of Sinofert shares on the Hong Kong Stock Exchange.

 

7   PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q


Changes in fair value, and related accounting, for the company’s investment in Sinofert since December 31, 2013 were as follows:

 

                   Impact of Unrealized Loss on:  
      Fair Value     

Unrealized

Loss

     OCI and AOCI      Net Income and
Retained Earnings
 

Balance — December 31, 2013

   $ 254       $ (325    $ 16       $ (341

Decrease in fair value and recognition of impairment

     (54      (54      (16      (38

Balance — March 31, 2014

   $ 200       $ (379    $       $ (379

Increase in fair value subsequent to recognition of impairment

     10         10         10           

Balance — June 30, 2014

   $ 210       $ (369    $ 10       $ (379

4. Long-Term Debt

On March 7, 2014, the company closed the issuance of $750 of 3.625 percent senior notes due March 15, 2024. The senior notes were issued under a US shelf registration statement.

On March 7, 2014, the company issued a notice of redemption for all of its outstanding $500 of 5.250 percent senior notes due May 15, 2014. On April 7, 2014, the company completed the redemption of all $500 of the senior notes at a redemption price of 100.497 percent of the principal amount of the notes redeemed plus accrued interest.

5. Share Capital

Authorized

The company is authorized to issue an unlimited number of common shares without par value and an unlimited number of first preferred shares. The common shares are not redeemable or convertible. The first preferred shares may be issued in one or more series with rights and conditions to be determined by the Board of Directors. No first preferred shares have been issued.

Issued

 

      Number of
Common Shares
     Consideration  

Balance — December 31, 2013

     856,116,325       $ 1,600   

Issued under option plans

     1,759,100         40   

Issued for dividend reinvestment plan

     608,182         21   

Repurchased

     (29,200,892      (53

Balance — June 30, 2014

     829,282,715       $ 1,608   

Share Repurchase Program

On July 24, 2013, the company’s Board of Directors authorized a share repurchase program of up to 5 percent of PotashCorp’s outstanding common shares (up to $2,000 of its outstanding common shares) through a normal course issuer bid. Shares could be repurchased from time to time on the open market commencing August 2, 2013 through August 1, 2014 at prevailing market prices. The timing and amount of purchases under the program were dependent upon the availability and alternative uses of capital, market conditions, applicable US and Canadian regulations and other factors. The company completed the repurchase program by June 30, 2014.

Under this program, the company repurchased for cancellation 17,478,892 common shares during the three months ended June 30, 2014, at a cost of $632 and an average price per share of $36.19. The repurchase resulted in a reduction of share capital of $32, and the excess of net cost over the average book value of the shares was recorded as a reduction of contributed surplus of $1 and a reduction of retained earnings of $599. During the six months ended June 30, 2014, a total of 29,200,892 common shares were repurchased at a cost of $1,031 and an average price per share of $35.31, resulting in a reduction of share capital of $53, a reduction of contributed surplus of $2 and a reduction of retained earnings of $976.

 

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q   8


6. Segment Information

The company has three reportable operating segments: potash, nitrogen and phosphate. These reportable operating 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 and are measured in a manner consistent with that of the financial statements. The company’s operating segments have been determined based on reports reviewed by the Chief Executive Officer, its chief operating decision-maker, that are used to make strategic decisions.

 

     Three Months Ended June 30, 2014  
      Potash      Nitrogen      Phosphate      All Others      Consolidated  

Sales — third party

   $ 747       $ 656       $ 489       $       $ 1,892   

Freight, transportation and distribution — third party

     (79      (28      (51              (158

Net sales — third party

     668         628         438              

Cost of goods sold — third party

     (273      (342      (372              (987

Margin (cost) on inter-segment sales (1)

             18         (18                

Gross margin

     395         304         48                 747   

Depreciation and amortization

     (44      (44      (90      (4      (182

Assets

     9,365         2,258         2,385         3,483         17,491   

Cash flows for additions to property, plant and equipment

     103         48         45         3         199   

 

(1) 

Inter-segment net sales were $33.

 

     Three Months Ended June 30, 2013  
      Potash      Nitrogen      Phosphate      All Others      Consolidated  

Sales — third party

   $ 975      $ 629      $ 540      $       $ 2,144  

Freight, transportation and distribution — third party

     (68      (27      (52              (147

Net sales — third party

     907         602         488              

Cost of goods sold — third party

     (294      (333      (391              (1,018

Margin (cost) on inter-segment sales (1)

             7        (7               

Gross margin

     613         276         90                 979   

Depreciation and amortization

     (67      (42      (74      (3      (186

Assets

     8,914         2,198         2,485         4,428         18,025   

Cash flows for additions to property, plant and equipment

     264         27         57         6         354   

 

(1) 

Inter-segment net sales were $35.

 

     Six Months Ended June 30, 2014  
      Potash      Nitrogen      Phosphate      All Others      Consolidated  

Sales — third party

   $ 1,418       $ 1,237       $ 917       $       $ 3,572   

Freight, transportation and distribution — third party

     (165      (59      (100              (324

Net sales — third party

     1,253         1,178         817              

Cost of goods sold — third party

     (558      (665      (713              (1,936

Margin (cost) on inter-segment sales (1)

             30         (30                

Gross margin

     695         543         74                 1,312   

Depreciation and amortization

     (96      (86      (168      (8      (358

Assets

     9,365         2,258         2,385         3,483         17,491   

Cash flows for additions to property, plant and equipment

     227         115         76         5         423   

 

(1) 

Inter-segment net sales were $58.

 

9   PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q


     Six Months Ended June 30, 2013  
      Potash      Nitrogen      Phosphate      All Others      Consolidated  

Sales — third party

   $ 1,860       $ 1,288      $ 1,096      $  —       $ 4,244   

Freight, transportation and distribution — third party

     (139      (52 )      (105              (296

Net sales — third party

     1,721         1,236         991              

Cost of goods sold — third party

     (604      (714      (784              (2,102 )

Margin (cost) on inter-segment sales (1)

            25         (25               

Gross margin

     1,117         547         182                 1,846  

Depreciation and amortization

     (108      (80      (145      (7      (340

Assets

     8,914         2,198         2,485         4,428         18,025   

Cash flows for additions to property, plant and equipment

     613         72         122         43         850   

 

(1) 

Inter-segment net sales were $80.

7. Share-Based Compensation

On May 15, 2014, the company’s shareholders approved the 2014 Performance Option Plan under which the company may, after February 20, 2014 and before January 1, 2015, grant options to acquire up to 3,500,000 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 the 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 June 30, 2014, options to purchase a total of 2,547,900 common shares had been granted under the plan. The weighted average fair value of options granted was $9.42 per share, estimated as of the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions:

 

Exercise price per option

  $ 37.15   

Expected annual dividend per share

  $          1.40   

Expected volatility

    39%   

Risk-free interest rate

    1.67%   

Expected life of options

    5.4 years   

8. Income Taxes

A separate estimated average annual effective tax rate was determined for each taxing jurisdiction and applied individually to the interim period pre-tax income of each jurisdiction.

 

     Three Months Ended June 30      Six Months Ended June 30  
      2014      2013      2014      2013  

Income tax expense

   $ 166       $ 245      $ 310       $ 471  

Actual effective tax rate on ordinary earnings

     27%         25%         27%         26%   

Actual effective tax rate including discrete items

     26%         28%         28%         28%   

Discrete tax adjustments that impacted the tax rate

   $ (6    $ 18       $ (4    $ 37   

Significant items to note include the following:

 

Ÿ  

The actual effective tax rate on ordinary earnings for the three and six months ended June 30, 2014 increased compared to the same periods last year due to different income weightings between jurisdictions.

Ÿ  

In first-quarter 2014, a non-tax deductible impairment of the company’s available-for-sale investment in Sinofert was recorded. This increased the actual effective tax rate including discrete items for the six months ended June 30, 2014 by 1 percent.

Ÿ  

In the first six months of 2013, a tax expense of $16 ($1 in the second quarter) was recorded to adjust the 2012 income tax provision.

Ÿ  

In second-quarter 2013, a deferred tax expense of $11 was recorded as a result of a Canadian income tax rate increase.

 

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q   10


Income tax balances within the condensed consolidated statements of financial position were comprised of the following:

 

Income Tax Assets (Liabilities)   Statements of Financial Position Location       June 30,    
2014
    December 31,
2013
 

Current income tax assets

     

Current

  Receivables   $ 83      $ 90   

Non-current

  Other assets     128        126   

Deferred income tax assets

  Other assets     9        21   

Total income tax assets

      $ 220      $ 237   

Current income tax liabilities

     

Current

  Payables and accrued charges   $ (28   $ (3

Non-current

  Other non-current liabilities and deferred credits     (135     (135

Deferred income tax liabilities

  Deferred income tax liabilities     (2,115     (2,013

Total income tax liabilities

      $ (2,278   $ (2,151

9. Financial Instruments

Fair Value

Estimated fair values for financial instruments are designed to approximate amounts at which the instruments could be exchanged in a current arm’s-length transaction between knowledgeable willing parties. The valuation policies and procedures for financial reporting purposes are determined by the company’s finance department.

Due to their short-term nature, the fair value of cash and cash equivalents, receivables, short-term debt, and payables and accrued charges was assumed to approximate carrying value. The company’s derivative instruments and investments in Israel Chemicals Ltd. (“ICL”) and Sinofert were carried at fair value. The fair value of derivative instruments that are not traded in an active market (such as natural gas swaps and foreign currency derivatives) was determined using valuation techniques. The company used a variety of methods and made assumptions that were based on market conditions existing at each reporting date.

The fair value of foreign currency derivatives was determined using quoted forward exchange rates (Level 2) at the statements of financial position dates.

Natural gas swap valuations were based on a discounted cash flow model. The inputs used in the model included contractual cash flows based on prices for natural gas futures contracts, fixed prices and notional volumes specified by the swap contracts, the time value of money, liquidity risk, the company’s own credit risk (related to instruments in a liability position) and counterparty credit risk (related to instruments in an asset position). Certain of the futures contract prices used as inputs in the model were supported by prices quoted in an active market and others were not based on observable market data.

For valuations that included both observable and unobservable data, if the unobservable input was determined to be significant to the overall inputs, the entire valuation was categorized in Level 3. For natural gas swaps, the primary input into the valuation model was natural gas futures prices, which were based on delivery at the Henry Hub and were observable only for up to three years in the future. The unobservable futures price range at June 30, 2014 was $4.31 to $5.02 per MMBtu (December 31, 2013 — $4.00 to $4.54 per MMBtu). Changes in the unobservable natural gas futures prices would not result in significantly higher or lower fair values as any price change would be counterbalanced by offsetting derivative positions for the majority of the company’s derivatives. Interest rates used to discount estimated cash flows at June 30, 2014 were between 0.16 percent and 3.02 percent (December 31, 2013 — between 0.17 percent and 3.59 percent) depending on the settlement date.

Fair value of investments designated as available-for-sale was based on the closing bid price of the common shares (Level 1) as of the statements of financial position dates.

 

11   PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q


The fair value of the company’s senior notes at June 30, 2014 reflected the yield valuation based on observed market prices (Level 1), which ranged from 0.56 percent to 4.47 percent (December 31, 2013 — 0.50 percent to 5.25 percent). The fair value of the company’s other long-term debt instruments approximated carrying value. Presented below is a comparison of the fair value of the company’s senior notes to their carrying values.

 

     June 30, 2014      December 31, 2013  
     

Carrying Amount of

Liability

    

Fair Value of

Liability

    

Carrying Amount of

Liability

    

Fair Value of

Liability

 

Long-term debt senior notes

   $ 3,750       $ 4,160       $ 3,500       $ 3,791   

The following table presents the company’s fair value hierarchy for financial assets and financial liabilities carried at fair value on a recurring basis.

 

            Fair Value Measurements at Reporting Date Using:  
      Carrying Amount
of Asset
(Liability)
     Quoted Prices in
Active Markets for
Identical Assets
(Level 1) (1)
    

Significant Other
Observable
Inputs

(Level 2) (1,2)

    

Significant
Unobservable
Inputs

(Level 3) (2)

 

June 30, 2014

           

Derivative instrument assets

           

Natural gas derivatives

   $ 9       $       $ (1    $ 10   

Foreign currency derivatives

     1                 1           

Investments in ICL and Sinofert

     1,719         1,719                   

Derivative instrument liabilities

           

Natural gas derivatives

     (151              (15      (136
           

December 31, 2013

           

Derivative instrument assets

           

Natural gas derivatives

   $ 8       $       $       $ 8   

Investments in ICL and Sinofert

     1,722         1,722                   

Derivative instrument liabilities

           

Natural gas derivatives

     (170              (21      (149

Foreign currency derivatives

     (1              (1        

 

(1) 

During the six months ended June 30, 2014 and twelve months ended December 31, 2013, there were no transfers between Level 1 and Level 2.

(2) 

During the six months ended June 30, 2014, there were no transfers into or out of Level 3. During the twelve months ended December 31, 2013, there were no transfers into Level 3 and $14 of losses was transferred out of Level 3 into Level 2 as (due to the passage of time) the terms of certain natural gas derivatives now matured within 36 months. The company’s policy is to recognize transfers at the end of the reporting period.

 

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q   12


The following table presents a reconciliation of the beginning and ending balances of the company’s fair value measurements using significant unobservable inputs (Level 3):

 

 

     Natural Gas Derivatives  
      Six Months Ended
June 30, 2014
     Twelve Months Ended
December 31, 2013
 

Balance, beginning of period

   $ (141    $ (191

Total (losses) gains (realized and unrealized) before income taxes

     

Included in net income (cost of goods sold)

     (10      (27

Included in other comprehensive income

     9         27   

Purchases

               

Sales

               

Issues

               

Settlements

     16         36   

Transfers of losses out of Level 3

             14   

Balance, end of period

   $ (126    $ (141

Gains (losses) for the period included in net income (cost of goods sold) were:

     

Change in unrealized gains (losses) relating to instruments still held at the reporting date

   $       $   

Total losses (realized and unrealized)

     (10      (27

 

10. Seasonality

The company’s sales of fertilizer can be seasonal. Typically, fertilizer sales are highest in the second quarter of the year, due to the North American spring planting season. However, planting conditions and the timing of customer purchases will vary each year and sales can be expected to shift from one quarter to another.

11. Contingencies and Other Matters

Canpotex

PCS is a shareholder in Canpotex Limited (“Canpotex”), which markets Saskatchewan potash offshore. Should any operating losses or other liabilities be incurred by Canpotex, the shareholders have contractually agreed to reimburse it for such losses or liabilities in proportion to each shareholder’s productive capacity. Through June 30, 2014, there were no such operating losses or other liabilities.

Mining Risk

The risk of underground water inflows, as with other underground risks, is currently not insured.

Legal and Other Matters

The company is engaged in ongoing site assessment and/or remediation activities at a number of facilities and sites, and anticipated costs associated with these matters are added to accrued environmental costs in the manner previously described in Note 14 to the company’s 2013 annual consolidated financial statements. This includes matters related to investigation of potential brine migration at certain of the potash sites. The following environmental site assessment and/or remediation

matters have uncertainties that may not be fully reflected in the amounts accrued for those matters:

Nitrogen and phosphate

 

Ÿ  

The US Environmental Protection Agency (“USEPA”) has identified PCS Nitrogen, Inc. (“PCS Nitrogen”) as a potentially responsible party at the Planters Property or Columbia Nitrogen site in Charleston, South Carolina. The current owner of the Planters Property filed a complaint against PCS Nitrogen in the US District Court for the District of South Carolina seeking environmental response costs. The district court allocated 30 percent of the liability for response costs at the site to PCS Nitrogen, as well as a proportional share of any costs that cannot be recovered from another responsible party. The district court’s judgment is now final as all appeals have been exhausted. In December 2013, the USEPA issued an order to PCS Nitrogen and four other respondents requiring them jointly and severally to conduct certain cleanup work at the site and reimburse the USEPA’s costs for overseeing that work. The USEPA also has requested reimbursement of $4 of previously incurred response costs. The ultimate amount of liability for PCS Nitrogen depends upon the final outcome of separate litigation to impose liability on additional parties, the amount needed for remedial activities, the ability of other parties to pay and the availability of insurance.

 

Ÿ  

PCS Phosphate Company, Inc. (“PCS Phosphate”) has agreed to participate, on a non-joint and several basis, with parties to an Administrative Settlement Agreement with the USEPA (“Settling Parties”) in a removal action and the payment of certain other costs associated with PCB soil contamination at the Ward Transformer Superfund Site in Raleigh, North Carolina (“Site”),

 

 

13   PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q


   

including reimbursement of past USEPA costs. The removal activities commenced in August 2007 and are believed to be nearly complete. In September 2013, PCS Phosphate and other parties entered into an Administrative Order on Consent with the USEPA, pursuant to which a supplemental remedial investigation and focused feasibility study will be performed on the portion of the Site that was subject to the removal action. The completed and anticipated work on the Site is estimated to cost a total of $75. PCS Phosphate is a party to ongoing Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) contribution and cost recovery litigation for the recovery of costs of the removal activities. The USEPA has also issued an order to a number of entities requiring remediation downstream of the area subject to the removal action (“Operable Unit 1”). PCS Phosphate did not receive this order. At this time, the company is unable to evaluate the extent of any exposure that it may have for the matters addressed in the CERCLA litigation or for Operable Unit 1.

 

Ÿ  

In 1996, PCS Nitrogen Fertilizer, L.P. (“PCS Nitrogen Fertilizer”), then known as Arcadian Fertilizer, L.P., entered into a Consent Order (the “Order”) with the Georgia Environmental Protection Division (“GEPD”) in conjunction with PCS Nitrogen Fertilizer’s acquisition of real property in Augusta, Georgia. Under the Order, PCS Nitrogen Fertilizer is required to perform certain activities to investigate and, if necessary, implement corrective measures for substances in soil and groundwater. The investigation has proceeded and the results have been presented to GEPD. Two interim corrective measures for substances in groundwater have been proposed by PCS Nitrogen Fertilizer and approved by GEPD. PCS Nitrogen Fertilizer is implementing the approved interim corrective measures but it is unable to estimate with reasonable certainty the total cost of its corrective action obligations under the Order at this time.

Based on current information and except for the uncertainties described in the preceding paragraphs, the company does not believe that its future obligations with respect to these facilities and sites are reasonably likely to have a material adverse effect on its consolidated financial position or results of operations.

Other legal matters with significant uncertainties include the following:

Nitrogen and phosphate

 

Ÿ  

The USEPA has an ongoing initiative to evaluate implementation within the phosphate industry of a particular exemption for mineral processing wastes under the hazardous waste program. In connection with this industry-wide initiative, the USEPA conducted inspections at numerous phosphate operations and notified the company of alleged violations of the US Resource Conservation and Recovery Act (“RCRA”) at its plants in Aurora, North Carolina; Geismar, Louisiana; and White Springs, Florida;

   

and one alleged Clean Air Act (“CAA”) violation at its Geismar, Louisiana plant. The company has entered into RCRA 3013 Administrative Orders on Consent and has performed certain site assessment activities at all of these plants. At this time, the company does not know the scope of action, if any, that may be required. As to the alleged RCRA violations, the company continues to participate in settlement discussions with the USEPA but is uncertain if any resolution will be possible without litigation, or, if litigation occurs, what the outcome would be.

 

Ÿ  

The USEPA has pursued an initiative to evaluate compliance with the CAA at sulfuric acid and nitric acid plants. In connection with this industry-wide initiative, it has sent requests for information to numerous facilities, including the company’s plants in Augusta, Georgia; Aurora, North Carolina; Geismar, Louisiana; Lima, Ohio; and White Springs, Florida. The USEPA and the Louisiana Department of Environmental Quality have notified the company of various alleged violations of the CAA at its Geismar, Louisiana plant. In May 2012, the USEPA issued to the company’s White Springs, Florida plant a Notice of Violation alleging that certain specified projects at the sulfuric acid plants were undertaken in violation of the CAA. While the company disputes the alleged violations, in May 2013, the company reached a tentative agreement to resolve the alleged violations without admitting any liability. The tentative agreement is subject to a variety of conditions, including the approval of the company’s Board of Directors and the negotiation of acceptable final agreements. The tentative agreement involves capital improvements, process changes and penalties for the company’s sulfuric acid plants in Aurora, North Carolina; Geismar, Louisiana; and White Springs, Florida that are currently estimated to cost at least $51, but the company is uncertain if a final agreement can be concluded. If a final agreement cannot be concluded and litigation subsequently occurs, the company is uncertain what the outcome would be.

 

Ÿ  

In December 2010, the USEPA issued a final rule to numerically restrict nutrient concentrations in certain surface waters in Florida to levels below those currently permitted to be discharged from the company’s White Springs, Florida plant. The USEPA took this step because it had determined that Florida’s longstanding narrative criteria for nutrients were not protecting Florida’s waters and a new standard using numeric nutrient criteria was necessary. In November 2012, the USEPA shifted course, finding that not all water bodies in Florida require numeric nutrient criteria to meet Clean Water Act requirements. The USEPA has approved Florida’s new set of water quality standards, which apply numeric nutrient criteria to the majority of water bodies in the state, but also provide avenues for site-specific relief. To prevent overlapping federal and state water quality standards, in April 2014, the USEPA published a proposed rule to withdraw its 2010 rule. The comment period has closed and the company will track whether

 

 

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q   14


   

the USEPA publishes a final rule withdrawing the 2010 rule so Florida’s nutrient criteria can take effect. If the federal rule is withdrawn and the state rules become the governing rules, the company believes the White Springs plant meets the criteria for site-specific relief and expects to apply for relief. In the meantime, the company is monitoring a 2013 lawsuit filed by the Florida Wildlife Federation against the USEPA. The complaint asserts that the USEPA’s little used antidegradation regulation under the Clean Water Act requires new water quality standards in Florida. This litigation is currently in mediation and the judge has not acted on any motions to intervene filed by the State of Florida and some industry stakeholders. The Fertilizer Institute, a trade association of which the company is a member, is poised to seek to intervene in the lawsuit at the appropriate time. The company will continue to assess whether it should seek to intervene to protect the interests of the White Springs plant. Due to the Florida Wildlife Federation litigation and the possibility that the state water quality standards could change once again, it is unclear at this time whether the company will need to expend capital costs at the White Springs plant to meet numeric nutrient water quality standards.

General

 

Ÿ  

The scope or timing of any final, effective requirements to control the company’s greenhouse gas emissions in the US or Canada is uncertain. Canada has withdrawn from participation in the Kyoto Protocol, and the Canadian government has announced its intention to coordinate greenhouse gas policies with the US. Although the US Congress has not passed any greenhouse gas emission control laws, the USEPA has adopted several rules to control such emissions using authority under existing environmental laws. Some Canadian provinces and US states are considering the adoption of greenhouse gas emission control requirements. In Saskatchewan, provincial regulations pursuant to the Management and Reduction of Greenhouse Gases Act, which impose a type of carbon tax to achieve a goal of a 20 percent reduction in greenhouse gas emissions by 2020 compared to 2006 levels, may become effective in 2014. None of these regulations has resulted in material limitations on greenhouse gas emissions at the company’s facilities. The company is monitoring these developments and their future effect on its operations cannot be determined with certainty at this time.

In addition, various other claims and lawsuits are pending against the company in the ordinary course of business. While it is not possible to determine the ultimate outcome of such actions at this time, and inherent uncertainties exist in predicting such outcomes,

it is the company’s belief that the ultimate resolution of such actions is not reasonably likely to have a material adverse effect on its consolidated financial position or results of operations.

The breadth of the company’s operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating the taxes it will ultimately pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, provincial, state and local tax audits. The resolution of these uncertainties and the associated final taxes may result in adjustments to the company’s tax assets and tax liabilities.

The company owns facilities that have been either permanently or indefinitely shut down. It expects to incur nominal annual expenditures for site security and other maintenance costs at certain of these facilities. Should the facilities be dismantled, certain other shutdown-related costs may be incurred. Such costs are not expected to have a material adverse effect on the company’s consolidated financial position or results of operations and would be recognized and recorded in the period in which they are incurred.

12. Related Party Transactions

The company sells potash from its Saskatchewan mines for use outside Canada and the US exclusively to Canpotex, a potash export, sales and marketing company owned in equal shares by the three producers in Saskatchewan. Sales are at prevailing market prices and are settled on normal trade terms. Sales to Canpotex for the three months ended June 30, 2014 were $342 (2013 — $495) and the six months ended June 30, 2014 were $591 (2013 — $870). At June 30, 2014, $164 (December 31, 2013 — $166) was owing from Canpotex.

13. Comparative Figures

Prior periods’ figures within Note 6 have been reclassified to disclose the impact of the margin (cost) on inter-segment sales separate from third-party transactions. Previously, these amounts were included as additions or reductions to cost of goods sold in each segment. There was no change in gross margin, by segment or in total. The company believes these reclassifications provide more succinct information. Additionally, comparative figures related to nitrogen inter-segment sales in Note 6 have been reduced by $3 for the three months ended June 30, 2013 and $29 for the six months ended June 30, 2013, to exclude sales within the same operating segment. These adjustments had no effect on any other amounts within the unaudited interim condensed consolidated financial statements.

 

 

15   PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is the responsibility of management and is as of July 29, 2014. The Board of Directors carries out its responsibility for review of this disclosure principally through its audit committee, comprised exclusively of independent directors. The audit committee reviews and, prior to its publication, approves this disclosure, pursuant to the authority delegated to it by the Board of Directors. The term “PCS” refers to Potash Corporation of Saskatchewan Inc. and the terms “we,” “us,” “our,” “PotashCorp” and “the company” refer to PCS and, as applicable, PCS and its direct and indirect subsidiaries as a group. Additional information relating to PotashCorp, including our Annual Report on Form 10-K for the year ended December 31, 2013 (Form 10-K), can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. The company is a foreign private issuer under the rules and regulations of the US Securities and Exchange Commission (the SEC); however, it currently files voluntarily on the SEC’s domestic forms.

PotashCorp and Our Business Environment

PotashCorp is an integrated producer of fertilizer, industrial and animal feed products. We are the world’s largest fertilizer company by capacity, producing the three primary crop nutrients: potash (K), nitrogen (N) and phosphate (P). As the world’s largest potash producer by capacity, we are responsible for nearly one-fifth of global capacity through our Canadian operations. To enhance our global footprint, we have investments in four potash-related businesses in South America, the Middle East and Asia. We complement our potash assets with focused positions in nitrogen and phosphate.

A detailed description of our market and customers can be found on pages 54 and 55 (potash), 65 (nitrogen) and 73 (phosphate) in our 2013 Annual Integrated Report.

 

PotashCorp Strategy

Our business strategy is detailed on pages 20 to 23 in our 2013 Annual Integrated Report. Key strategies, risks and mitigation are outlined for each of our nutrients on pages 52 (potash), 63 (nitrogen) and 71 (phosphate) in our 2013 Annual Integrated Report.

 

 

Key Performance Drivers — Performance Compared to Targets

Through our integrated value model, we set, evaluate and refine our goals and priorities to drive improvements that benefit all those impacted by our business. We demonstrate our accountability by tracking and reporting our progress against targets related to each goal. Our long-term goals and 2014 targets are set out on pages 40 to 50 of our 2013 Annual Integrated Report. A summary of our progress against selected goals and representative annual targets is set out below.

 

Goal  

Representative

2014 Annual Target

 

Performance

to June 30, 2014

Create superior long-term shareholder value.   Exceed total shareholder return performance for our sector and the DAXglobal Agribusiness Index.   PotashCorp’s total shareholder return was 17 percent in the first six months of 2014 compared to our sector’s weighted average return (based on market capitalization) of 5 percent and the DAXglobal Agribusiness Index weighted average return (based on market capitalization) of 5 percent.
Be the supplier of choice to the markets we serve.   Reduce domestic potash net rail cycle time through the Chicago corridor by 10 percent in 2014, compared to 2011 levels.   The domestic potash net rail cycle time through the Chicago corridor during the second quarter of 2014 showed improvement over a very difficult 2014 first quarter performance. Persistent congestion created from an increase in North American rail volumes and a backlog of shipments due to severe winter conditions resulted in net rail cycle times higher in the 2014 second quarter than each of the previous three second quarter periods. Our second quarter net rail cycle time was 35 percent above the benchmark 2011 second quarter and 25 percent above the average of the prior three second quarters. For the first six months of 2014 our performance was 50 percent above our targeted net rail cycle time through the Chicago corridor. With continued rail congestion and resource shortages in the North American rail network we do not anticipate reaching our corporate goal of reducing the cycle time by 10 percent below the 2011 benchmark number. We continue to work with our carriers to prioritize our shipments.
Attract and retain talented, motivated and productive employees who are committed to our long-term goals.   Fill 75 percent of senior staff openings with qualified internal candidates.   The percentage of senior staff positions filled internally in the first six months of 2014 was 89 percent.
Achieve no harm to people.   Achieve zero life-altering injuries at our sites.   Tragically, we had a fatality at our Cory potash facility during the first quarter of 2014.
   

 

Reduce total site recordable injury rate to 0.95 (per 200,000 hours worked) or lower.

 

 

During the first six months of 2014, total site recordable injury rate was 1.16.

Achieve no damage to the environment.   Reduce total reportable incidents (releases, permit excursions and spills) by 15 percent from 2013 levels.   Annualized total reportable incidents were up 29 percent during the first six months of 2014 compared to 2013 annual levels. Compared to the first six months of 2013, total reportable incidents were up 10 percent.

 

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q   16


Share Repurchase Program

In the second quarter of 2014, the company completed a share repurchase program as described in Note 5 to the financial statements in this Form 10-Q. During the program a total of 43,345,992 common shares were repurchased for cancellation at a cost of $1,476 million and an average price per share of $34.05.

Performance Overview

This discussion and analysis are based on the company’s unaudited interim condensed consolidated financial statements included in

Item 1 of this Quarterly Report on Form 10-Q (financial statements in this Form 10-Q) based on International Financial Reporting Standards, as issued by the International Accounting Standards Board (IFRS), unless otherwise stated. All references to per-share amounts pertain to diluted net income per share.

For an understanding of trends, events, uncertainties and the effect of critical accounting estimates on our results and financial condition, this Form 10-Q should be read carefully, together with our 2013 Annual Integrated Report.

 

 

Earnings Guidance — Second Quarter 2014

 

 

      Company Guidance    Actual Results  

Earnings per share

   $    0.40 –$    0.45    $ 0.56   

Overview of Actual Results

 

 

    Three Months Ended June 30     Six Months Ended June 30  
Dollars (millions) — except per-share amounts   2014     2013     Change     % Change     2014     2013     Change     % Change  

Sales

  $ 1,892      $ 2,144      $ (252     (12   $ 3,572      $ 4,244      $ (672     (16

Gross margin

    747        979        (232     (24     1,312        1,846        (534     (29

Operating income

    686        927        (241     (26     1,217        1,744        (527     (30

Net income

    472        643        (171     (27     812        1,199        (387     (32

Net income per share — diluted

    0.56        0.73        (0.17     (23     0.95        1.37        (0.42     (31

Other comprehensive (loss) income

    (6     (500     494        (99     51        (303     354        n/m   

 

n/m = not meaningful

 

LOGO    LOGO

 

Earnings and gross margin in the second quarter and first half of 2014 were lower than the same periods in 2013 due mostly to lower potash prices. Lower sales prices in nitrogen were more than offset by higher sales volumes quarter over quarter. Year over year, lower sales prices in nitrogen were nearly offset by higher sales volumes and cost savings from lower natural gas costs and certain costs in 2013 that did not repeat in 2014. Phosphate was impacted by both lower prices and sales volumes quarter over quarter and year over year.

With all key potash markets engaged, global shipments accelerated through the second quarter. In North America, demand at the farm level was very strong through the spring planting season. Second-quarter shipments from domestic producers exceeded those of the prior year by 28 percent, with shipments for the first six months of 2014 approaching record totals. Shipments by North American producers to offshore markets increased from the first quarter as rail constraints began to improve and customers in all key markets actively secured

 

 

17   PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q


supply. Totals for both the quarter and year were relatively in line with prior period levels. Improving fundamentals – most notably for granular product – resulted in positive spot market pricing trends relative to the first quarter, although potash prices remained well below those of the comparative period in 2013.

In nitrogen, prices reflected typical seasonal patterns and moved lower as the quarter progressed. While offshore prices for ammonia and urea softened during the quarter relative to the same period last year, key North American benchmarks remained comparatively strong due to healthy demand and reduced imports.

After phosphate markets rebounded early in 2014, demand and pricing remained relatively stable through the second quarter. Continuing slow demand in India during first-half 2014 was largely offset by the strength of demand in other regions, in particular Brazil and North America. Increased availability of product from offshore competitors limited exports for US producers, but was offset by healthy domestic demand and lower output due to reported production challenges.

Other significant factors that affected earnings quarter over quarter were lower income taxes (due to decreased ordinary earnings before taxes and discrete tax adjustments) and lower dividends received from Israel Chemicals Ltd. (ICL). Year over year, earnings were impacted by lower income taxes (due to decreased ordinary earnings before taxes and discrete tax adjustments), a reduced share of earnings of equity-accounted investees, a special dividend received from ICL (none in the first half of 2013) and a non-tax deductible charge related to the impairment of our investment in Sinofert Holdings Limited (Sinofert) in the first half of 2014 (none in 2013).

Other comprehensive loss for the second quarter of 2014 mainly resulted from a decrease in the fair value of our investment in ICL. For the first half of 2014 other comprehensive income mainly resulted from an increase in the fair value of our investment in ICL. Other comprehensive loss for the second quarter and first half of 2013 was mainly the result of a decrease in the fair value of our investments in ICL and Sinofert, partially offset by a net actuarial gain resulting from a remeasurement of our defined benefit plans.

 

 

Statement of Financial Position

 

LOGO

 

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q   18


The most significant contributors to the changes in our statements of financial position were as follows (direction of arrows refers to increase or decrease):

 

Assets   Liabilities

i   Cash and cash equivalents held in certain foreign subsidiaries were $24 million at June 30, 2014, down from $480 million at December 31, 2013 as a result of a repatriation of funds in the first quarter of 2014. There are no current plans to repatriate the funds at June 30, 2014 in a taxable manner.

 

i   Short-term debt and current portion of long-term debt declined due to the repayment of $500 million in senior notes in the second quarter of 2014.

 

i   Payables and accrued charges were lower largely due to reduced capital spending and timing of share repurchases outstanding at December 31, 2013.

 

h   Long-term debt was higher as a result of the issuance of $750 million in senior notes in the first quarter of 2014.

Equity

i   Equity was mainly impacted by net income (discussed in more detail above), dividends declared and common shares repurchased for cancellation (see Note 5 to the financial statements in this Form 10-Q) during the first six months of 2014.

 

 

Operating Segment Review

We report our results (including gross margin) in three business segments: potash, nitrogen and phosphate as described in Note 6 to the financial statements in this Form 10-Q. Our reporting structure reflects how we manage our business and how we classify our operations for planning and measuring performance. We include net sales in segment disclosures in the financial statements in this Form 10-Q pursuant to IFRS, which require segmentation based upon our internal organization and reporting of revenue and profit measures. As a component of gross margin, net sales (and the related per-tonne amounts) are the primary revenue measures we use and review in making decisions about operating matters on a business segment basis. These decisions

include assessments about potash, nitrogen and phosphate performance and the resources to be allocated to these segments. We also use net sales (and the related per-tonne amounts) for business planning and monthly forecasting. Net sales are calculated as sales revenues less freight, transportation and distribution expenses. Realized prices refer to net sales prices. Certain of the prior years’ figures within the nitrogen segment have been reclassified to conform with the current year’s presentation as disclosed in Note 13 to the financial statements in this Form 10-Q.

Our discussion of segment operating performance is set out below and includes nutrient product and/or market performance results, where applicable, to give further insight into these results.

 

 

LOGO

 

19   PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q


Potash

Potash Financial Performance

 

 

    Three Months Ended June 30  
    Dollars (millions)     Tonnes (thousands)     Average per Tonne (1)  
     2014     2013     % Change     2014     2013     % Change     2014     2013     % Change  

Manufactured product

                 

Net sales

                 

North America

  $ 303      $ 352        (14     943        834        13      $ 321      $ 421        (24

Offshore

    362        554        (35     1,582        1,711        (8   $ 229      $ 324        (29
    665        906        (27     2,525        2,545        (1   $ 263      $ 356        (26

Cost of goods sold

    (261     (290     (10                           $ (102   $ (114     (11

Gross margin

    404        616        (34         $ 161      $ 242        (33

Other miscellaneous and purchased product gross margin (2)

    (9     (3     200                                                   

Gross Margin

  $ 395      $ 613        (36                           $ 156      $ 241        (35

 

(1) 

Rounding differences may occur due to the use of whole dollars in per-tonne calculations.

(2) 

Comprised of net sales of $3 million (2013 — $1 million) less cost of goods sold of $12 million (2013 — $4 million).

 

 

    Six Months Ended June 30  
    Dollars (millions)     Tonnes (thousands)     Average per Tonne (1)  
     2014     2013     % Change     2014     2013     % Change     2014     2013     % Change  

Manufactured product

                 

Net sales

                 

North America

  $ 594      $ 683        (13     1,931        1,628        19      $ 307      $ 419        (27

Offshore

    649        1,031        (37     2,905        3,143        (8   $ 223      $ 328        (32
    1,243        1,714        (27     4,836        4,771        1      $ 257      $ 359        (28

Cost of goods sold

    (535     (594     (10                           $ (111   $ (124     (10

Gross margin

    708        1,120        (37         $ 146      $ 235        (38

Other miscellaneous and purchased product gross margin (2)

    (13     (3     333                                                   

Gross Margin

  $ 695      $ 1,117        (38                           $ 144      $ 234        (38

 

(1) 

Rounding differences may occur due to the use of whole dollars in per-tonne calculations.

(2) 

Comprised of net sales of $10 million (2013 — $7 million) less cost of goods sold of $23 million (2013 — $10 million).

Potash gross margin variance attributable to:

 

 

    Three Months Ended June 30
2014 vs. 2013
    Six Months Ended June 30
2014 vs. 2013
 
          Change in
Prices/Costs
                Change in
Prices/Costs
       
Dollars (millions)  

Change in

Sales Volumes

   

Net

Sales

   

Cost of

Goods Sold

    Total    

Change in

Sales Volumes

   

Net

Sales

   

Cost of

Goods Sold

    Total  

Manufactured product

                 

North America

  $ 37      $ (95   $ (2   $ (60   $ 101      $ (216   $ 9      $ (106

Offshore

    (30     (152     30        (152     (57     (304     55        (306

Change in market mix

    (14     13        1               (27     25        2          

Total manufactured product

  $ (7   $ (234   $ 29        (212   $ 17      $ (495   $ 66        (412

Other miscellaneous and purchased product

                            (6                             (10

Total

                          $ (218                           $ (422

 

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q   20


LOGO    LOGO

Offshore sales to major markets, by percentage of sales volumes, were as follows:

 

 

    Three Months Ended June 30     Six Months Ended June 30  
    By Canpotex (1)     From New Brunswick     By Canpotex (1)     From New Brunswick  
     2014     2013     % Change     2014     2013     % Change     2014     2013     % Change     2014     2013     % Change  

Other Asian countries (2)

    42        44        (5                          44        42        5                        

Latin America

    29        26        12        100        100               28        26        8        100        100          

China

    13        15        (13                          14        19        (26                     

India

    10        12        (17                          7        8        (13                     

Oceania, Europe and Other

    6        3        100                             7        5        40                        
      100        100                100        100                100        100                100        100           

 

(1) 

Canpotex Limited (Canpotex).

(2) 

All Asian countries except China and India.

The most significant contributors to the change in total gross margin quarter over quarter were as follows (direction of arrows refers to impact on gross margin):

 

Net Sales Prices   Sales Volumes   Cost of Goods Sold

i   Our average realized potash price was down significantly due to price erosion during the second half of 2013. Improving market fundamentals through the first half – most notably in granular markets in North America and Brazil – resulted in our average realized price increasing relative to first-quarter 2014.

 

h   Strong customer engagement in all key potash markets and improving rail logistics supported increased shipments from earlier in the year.

 

h   Continued strength in North America led to sales volumes significantly exceeding those of the comparative period in 2013.

 

i   Although rail challenges began to abate, offshore sales volumes for the quarter were impacted by backlogs and trailed 2013 comparative totals.

 

h   Costs were lower due to our workforce reduction and operational changes announced in December 2013 along with our decision to optimize production at our lowest cost facilities.

 

h   The Canadian dollar weakened relative to the US dollar, reducing cost of goods sold.

 

h   More product from our lower-cost mines was sold to offshore customers resulting in a positive cost of goods sold variance.

 

i   Costs were incurred due to a review of potash mining practices.

 

21   PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q


The most significant contributors to the change in total gross margin year over year were as follows (direction of arrows refers to impact on gross margin):

 

Net Sales Prices   Sales Volumes   Cost of Goods Sold

i   Potash prices were lower as the sharp decline during the second half of 2013 weighed on realizations, though prices rose compared to the trailing quarter due to tighter granular supplies and logistical constraints.

 

h   North American totals were up due to low distributor inventories at the start of the year and higher acreage and application rates.

 

i   Our offshore sales volumes fell as rail constraints limited shipments.

 

h   5 shutdown weeks were taken in 2014 mainly as a result of a fatality at Cory and logistical constraints at Patience Lake while 20 shutdown weeks were taken in 2013 mainly as a result of our strategy to match production with demand and weather-related pond issues at our Patience Lake facility.

 

h   The Canadian dollar weakened relative to the US dollar, reducing cost of goods sold.

 

h   More product from our lower-cost mines was sold to offshore customers resulting in a higher cost of goods sold variance.

The change in market mix produced an unfavorable variance of $27 million related to sales volumes and a favorable variance of $25 million in sales prices, due primarily to more higher-priced granular product being sold in North America in 2014.  

Potash Non-Financial Performance

 

            Three Months Ended June 30      Six Months Ended June 30  
              2014      2013      % Change      2014      2013      % Change  

Production

    

KCl tonnes produced (thousands)

     2,321         2,677         (13      4,716         4,702           

Safety

    

Total site recordable injury rate

     2.09         1.18         77         1.71         1.30         32   
    

Life-altering injuries

                             1                 n/m   

Employee

    

Percentage of senior staff positions filled internally

     100%         100%                 100%         100%           

Environmental

    

Waste (000’s tonnes)

     4,860         5,790         (16      9,360         10,295         (9
      

Environmental incidents

     5         2         150         9         8         13   

 

n/m = not meaningful

 

Production

During the first half of 2014, we successfully completed a safe Canpotex entitlement run at Allan, which increased our proportion of Canpotex sales to offshore markets from approximately 49 percent to approximately 54 percent commencing July 1, 2014.

Potash production fell quarter over quarter due to our operational changes announced in December 2013. Year over year, the impact of our operational changes was offset by a reduction in shutdown weeks as discussed above.

Safety

Tragically, we had a fatality at our Cory potash facility during the first quarter of 2014. Total site recordable injury rate increased among non-nested contractors, largely on the New Brunswick and Rocanville expansion projects as there were fewer recordable injuries on both projects, but there were fewer hours worked during the second quarter and first half of 2014.

 

Employee

During the second quarter of 2014, we rescinded previously announced layoff notices at our Penobsquis, New Brunswick facility (impacting 56 employees) and began a recall process at our Lanigan facility to reinstate 47 permanent employees due to ongoing tightness in the granular potash market.

Environmental

Waste is comprised of byproducts including coarse and fine tailings and salt as brine to injection wells. Waste decreased quarter over quarter and year over year due to lower mining waste per tonne (higher recovery and/or ore quality) combined with decreased mining activity at certain sites.

Of the five reportable environmental incidents in potash in the second quarter of 2014, three were due to brine and slurry pipe failures.

 

 

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q   22


Nitrogen

Nitrogen Financial Performance

 

 

    Three Months Ended June 30  
    Dollars (millions)     Tonnes (thousands)     Average per Tonne (1)  
     2014     2013     % Change     2014     2013     % Change     2014     2013     % Change  

Manufactured product (2)

                 

Net sales

                 

Ammonia

  $ 360      $ 318        13        665        549        21      $ 542      $ 578        (6

Urea

    114        120        (5     258        277        (7   $ 441      $ 432        2   

Solutions, Nitric acid, Ammonium nitrate

    180        170        6        740        656        13      $ 243      $ 259        (6
    654        608        8        1,663        1,482        12      $ 393      $ 410        (4

Cost of goods sold

    (355     (335     6                              $ (213   $ (227     (6

Gross margin

    299        273        10            $ 180      $ 183        (2

Other miscellaneous and purchased product gross margin (3)

    5        3        67                                                   

Gross Margin

  $ 304      $ 276        10                              $ 183      $ 186        (2

 

(1) 

Rounding differences may occur due to the use of whole dollars in per-tonne calculations.

(2) 

Includes inter-segment ammonia sales, comprised of: net sales $31 million, cost of goods sold $14 million and 52,000 sales tonnes (2013 — net sales $19 million, cost of goods sold $11 million and 33,000 sales tonnes). Inter-segment profits are eliminated on consolidation.

(3) 

Comprised of third-party and inter-segment sales, including: third-party net sales $5 million less cost of goods sold $1 million (2013 — net sales $13 million less cost of goods sold $9 million) and inter-segment net sales $2 million less cost of goods sold $1 million (2013 — net sales $16 million less cost of goods sold $17 million). Inter-segment profits are eliminated on consolidation.

 

 

    Six Months Ended June 30  
    Dollars (millions)     Tonnes (thousands)     Average per Tonne (1)  
     2014     2013     % Change     2014     2013     % Change     2014     2013     % Change  

Manufactured product (2)

                 

Net sales

                 

Ammonia

  $ 606      $ 660        (8     1,248        1,108        13      $ 486      $ 596        (18

Urea

    264        265               606        582        4      $ 436      $ 455        (4

Solutions, Nitric acid, Ammonium nitrate

    344        331        4        1,438        1,278        13      $ 239      $ 259        (8
    1,214        1,256        (3     3,292        2,968        11      $ 369      $ 423        (13

Cost of goods sold

    (679     (715     (5                           $ (206   $ (241     (15

Gross margin

    535        541        (1         $ 163      $ 182        (10

Other miscellaneous and purchased product gross margin (3)

    8        6        33                                                   

Gross Margin

  $ 543      $ 547        (1                           $ 165      $ 184        (10

 

(1) 

Rounding differences may occur due to the use of whole dollars in per-tonne calculations.

(2) 

Includes inter-segment ammonia sales, comprised of: net sales $56 million, cost of goods sold $26 million and 100,000 sales tonnes (2013 — net sales $50 million, cost of goods sold $25 million and 79,000 sales tonnes). Inter-segment profits are eliminated on consolidation.

(3) 

Comprised of third-party and inter-segment sales, including: third-party net sales $20 million less cost of goods sold $12 million (2013 — net sales $30 million less cost of goods sold $24 million) and inter-segment net sales $2 million less cost of goods sold $2 million (2013 — net sales $30 million less cost of goods sold $30 million). Inter-segment profits are eliminated on consolidation.

 

23   PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q


Nitrogen gross margin variance attributable to:

 

 

    Three Months Ended June 30
2014 vs. 2013
    Six Months Ended June 30
2014 vs. 2013
 
          Change in
Prices/Costs
                Change in
Prices/Costs
       
Dollars (millions)  

Change in

Sales Volumes

   

Net

Sales

   

Cost of

Goods Sold

    Total    

Change in

Sales Volumes

   

Net

Sales

   

Cost of

Goods Sold

    Total  

Manufactured product

                 

Ammonia

  $ 42      $ (27   $ 9      $ 24      $ 55      $ (138   $ 42      $ (41

Urea

    (6     4               (2     6        (11     4        (1

Solutions, NA, AN

    15        (13     2        4        15        (30     44        29   

Hedge

                                              7        7   

Change in product mix

    (7     7                                             

Total manufactured product

  $ 44      $ (29   $ 11        26      $ 76      $ (179   $ 97        (6

Other miscellaneous and purchased product

                            2                                2   

Total

                          $ 28                              $ (4

 

LOGO   LOGO

 

     Three Months Ended June 30      Six Months Ended June 30  
     Sales Tonnes
(thousands)
     Price per Tonne      Sales Tonnes
(thousands)
     Price per Tonne  
      2014      2013      2014      2013      2014      2013      2014      2013  

Fertilizer

     551         488      $ 424       $ 463         1,128         898      $ 396       $ 458   

Industrial and Feed

     1,112         994       $ 379       $ 384         2,164         2,070       $ 355       $ 408   
       1,663         1,482       $ 393       $ 410         3,292         2,968       $ 369       $ 423   

 

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q   24


The most significant contributors to the change in total gross margin quarter over quarter were as follows (direction of arrows refers to impact on gross margin):

 

 

Net Sales Prices   Sales Volumes   Cost of Goods Sold

i   Our average realized price declined primarily due to slightly weaker benchmark prices contributing to lower realizations for our ammonia fertilizer products.

 

h   Improved production levels across all of our facilities increased nitrogen sales volumes.

 

h   Cost of goods sold variance was impacted by lower costs at Trinidad associated with fewer gas interruptions in 2014 and costs at Augusta in 2013 that did not repeat in 2014.

 

i   Average costs, including our hedge position, for natural gas used as feedstock in production increased 4 percent. Costs for natural gas used as feedstock in Trinidad production rose 1 percent (contract price indexed, in part, to Tampa ammonia prices) while our US spot costs for natural gas increased 10 percent. Including losses on our hedge position, US gas prices rose 9 percent.

The most significant contributors to the change in total gross margin year over year were as follows (direction of arrows refers to impact on gross margin):

 

 

Net Sales Prices   Sales Volumes   Cost of Goods Sold

i   Ammonia prices fell from higher levels in the first half of 2013 as strong demand and supply challenges in key producing regions were more prevalent in 2013 than 2014.

 

h   Ammonia volumes were up due to the availability of production at Geismar and Augusta in 2014 (both projects began producing part-way through the first half of 2013) and fewer gas interruptions in Trinidad compared to the same period in 2013, all of which also led to an increase in saleable downstream products.

 

h   Average costs, including our hedge position, for natural gas used as feedstock in production decreased 4 percent. Costs for natural gas used as feedstock in Trinidad production fell 15 percent (contract price indexed, in part, to Tampa ammonia prices) while our US spot costs for natural gas increased 24 percent. Including losses on our hedge position, US gas prices rose 15 percent.

 

h   The cost of goods sold variance for ammonia mainly reflected decreased costs for natural gas used as feedstock in Trinidad production exceeding increased US natural gas costs, but to a greater extent in ammonia than in urea.

 

h   The cost of goods sold variance was better for solutions, nitric acid and ammonium nitrate due mainly to the impact of costs associated with Geismar in 2013 that did not repeat in 2014.

 

25   PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q


Nitrogen Non-Financial Performance

 

         Three Months Ended June 30     Six Months Ended June 30  
           2014     2013     % Change     2014     2013     % Change  

Production

  

N tonnes produced (thousands)

    830        726        14        1,663        1,449        15   

Safety

  

Total site recordable injury rate

    0.28        0.63        (56     0.38        0.56        (32

Employee

  

Percentage of senior staff positions filled internally

    100%        100%               100%        100%          

Environmental

  

Greenhouse gas emissions (CO2 equivalent tonnes/tonne of product)

    2.2        2.5        (12     2.2        2.3        (4
    

Environmental incidents

                         1        1          

Production

The increase in production was mainly due to the availability of production at Geismar and Augusta as discussed above.

Safety

The total site recordable injury rate was affected by two recordable injuries among employees in the second quarter and first half of 2014 compared to four in the second quarter of 2013 and five in the first half of 2013.

Phosphate

Phosphate Financial Performance

 

 

    Three Months Ended June 30  
    Dollars (millions)     Tonnes (thousands)     Average per Tonne (1)  
     2014     2013     % Change     2014     2013     % Change     2014     2013     % Change  

Manufactured product

                 

Net sales

                 

Fertilizer

  $ 245      $ 288        (15     539        635        (15   $ 455      $ 454          

Feed and Industrial

    187        193        (3     310        295        5      $ 603      $ 654        (8
    432        481        (10     849        930        (9   $ 509      $ 517        (2

Cost of goods sold

    (387     (395     (2                           $ (457   $ (422     8   

Gross margin

    45        86        (48         $ 52      $ 95        (45

Other miscellaneous and purchased product gross margin (2)

    3        4        (25                                                

Gross Margin

  $ 48      $ 90        (47                           $ 57      $ 97        (41

 

(1) 

Rounding differences may occur due to the use of whole dollars in per-tonne calculations.

(2) 

Comprised of net sales of $6 million (2013 — $7 million) less cost of goods sold of $3 million (2013 — $3 million).

 

 

    Six Months Ended June 30  
    Dollars (millions)     Tonnes (thousands)     Average per Tonne (1)  
     2014     2013     % Change     2014     2013     % Change     2014     2013     % Change  

Manufactured product

                 

Net sales

                 

Fertilizer

  $ 455      $ 585        (22     1,041        1,225        (15   $ 437      $ 478        (9

Feed and Industrial

    352        392        (10     582        608        (4   $ 605      $ 644        (6
    807        977        (17     1,623        1,833        (11   $ 497      $ 533        (7

Cost of goods sold

    (738     (802     (8                           $ (455   $ (437     4   

Gross margin

    69        175        (61         $ 42      $ 96        (56

Other miscellaneous and purchased product gross margin (2)

    5        7        (29                                                

Gross Margin

  $ 74      $ 182        (59                           $ 46      $ 99        (54

 

(1) 

Rounding differences may occur due to the use of whole dollars in per-tonne calculations.

(2) 

Comprised of net sales of $10 million (2013 — $14 million) less cost of goods sold of $5 million (2013 — $7 million).

 

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q   26


Phosphate gross margin variance attributable to:

 

 

    Three Months Ended June 30
2014 vs. 2013
    Six Months Ended June 30
2014 vs. 2013
 
          Change in
Prices/Costs
                Change in
Prices/Costs
       
Dollars (millions)  

Change in

Sales Volumes

   

Net

Sales

   

Cost of

Goods Sold

    Total    

Change in

Sales Volumes

   

Net

Sales

   

Cost of

Goods Sold

    Total  

Manufactured product

                 

Fertilizer

  $ (25   $ 2      $ (12   $ (35   $ (50   $ (42   $ 11      $ (81

Feed and Industrial

    8        (14            (6     (10     (22     7        (25

Change in product mix

    (4