PotashCorp Reports First-Quarter Earnings of $0.40 per Share

Symbol: POT
Listed: TSX, NYSE

Key Highlights

• First-quarter 2014 earnings of $0.40 per share¹
• Cash provided by operating activities of $539 million
• Repurchased 11.7 million shares during the first quarter at an average price of $34 per share
• Full-year 2014 guidance adjusted to $1.50-1.80 per share; second quarter set at $0.40-$0.45 per share

SASKATOON, April 24, 2014 /CNW/ - Potash Corporation of Saskatchewan Inc. (PotashCorp) today reported earnings of $0.40 per share ($340 million) for the first quarter of 2014, a total that included a $69 million ($0.06 per share) special dividend from our investment in Israel Chemicals Ltd. (ICL) as well as a $38 million ($0.04 per share) non-cash impairment charge related to our investment in Sinofert Holdings Limited (Sinofert). This result compares to the $0.63 per share ($556 million) earned in the same period last year.

Gross margin for the quarter totaled $565 million, below the $867 million generated during the first quarter of 2013. Despite an improving environment for both demand and pricing compared to the final quarter of 2013, realizations in all three nutrient segments lagged behind those of the first quarter last year and negatively impacted our earnings.

Adjusted earnings before finance costs, income taxes, depreciation and amortization and certain impairment charges² (adjusted EBITDA) of $745 million and cash from operating activities of $539 million declined 23 percent and 27 percent, respectively from first-quarter 2013.

Contributions from dividends and our share of equity earnings from investments in Arab Potash Company (APC), ICL and Sociedad Quimica y Minera de Chile S.A. (SQM) totaled $100 million for this year's first quarter, including the ICL special dividend. The market value of our investments in these publicly traded companies, as well as Sinofert, was approximately $5.4 billion or $6 per PotashCorp share at market close on April 23, 2014.

"After an especially challenging environment in the second half of 2013, greater demand and stability emerged early in the year," said PotashCorp President and Chief Executive Officer Bill Doyle. "We saw strong customer engagement ahead of the spring planting season, particularly in potash. Despite weather-related issues that impacted our results, especially in phosphate, we were able to deliver earnings above our quarterly guidance range."

Market Conditions
Potash demand and spot market pricing strengthened throughout the first quarter. In North America, demand was robust as fertilizer distributors worked to position product ahead of the spring planting season. Even as shipments from domestic producers climbed 48 percent above those during the same period last year, ongoing rail constraints - precipitated by difficult winter conditions and a record grain harvest in Canada - kept dealer supplies tight. Although demand from Brazil and Southeast Asian countries strengthened, North American producers' offshore shipments fell slightly below those of the same period last year as logistical challenges constrained their abilities to satisfy all demands for product. Offshore sales were further impacted by delayed supply contracts with Chinese and Indian buyers relative to 2013. Amidst strengthening market fundamentals, potash prices in all spot markets increased from the beginning of 2014 - most notably for granular product - but remained well below those of the comparative period in 2013.

In nitrogen, first-quarter ammonia production in the US reached its highest level in more than a decade as additional capacity came online and producers responded to strong agricultural and industrial demand. While ammonia prices trailed the historically high levels of 2013 - a period characterized by especially strong demand and supply challenges in key producing regions - they moved up sharply as the quarter came to a close. Demand for urea was also robust ahead of the North American spring planting season. With imports lower than those of the previous year, North American supply tightened and urea prices strengthened over the course of the quarter, although key benchmarks remained below those of the same period in 2013.

Production and logistical challenges also impacted global phosphate markets. This was especially true in North America where a combination of supply disruptions and an improved demand environment caused prices for all phosphate fertilizer products to strengthen during the quarter. Despite this move upward, weak market fundamentals through the second half of 2013 kept pricing levels for the quarter below those of the comparative period last year.

Potash
First-quarter 2014 potash gross margin of $300 million was below the $504 million generated during the comparable period last year as the favorable impact of lower per-tonne costs and slightly higher sales volumes was more than offset by lower prices.

Strong buyer engagement in key markets pushed our total sales volumes for the first quarter to 2.3 million tonnes, slightly above the 2.2 million tonnes sold during the first three months of 2013. North American totals reached 1.0 million tonnes, 24 percent higher than the same period last year as we leveraged our extensive warehousing and distribution capabilities to meet strong demand. Our offshore sales volumes of 1.3 million tonnes fell below 2013's first-quarter total of 1.4 million tonnes as delayed Chinese and Indian contracts and rail constraints limited shipments. The majority of Canpotex³ sales for the quarter were to Other Asian countries (47 percent) and Latin America (27 percent), while China and India accounted for 16 percent and 3 percent, respectively.

Potash prices began to trend upward in key markets as the quarter progressed, but the sharp decline during the second half of 2013 weighed on realizations. As a result, our first-quarter average realized potash price of $250 per tonne was well below the $363 per tonne of the same period last year.

With improved demand, potash production reached 2.4 million tonnes, exceeding the 2.0 million tonnes produced in 2013's first quarter. Higher operating rates, savings from workforce changes, optimization of tonnage from our lower-cost facilities and a favorable impact from a weakened Canadian dollar improved our per-tonne costs by 13 percent compared to the same period last year.

Nitrogen
In nitrogen, gross margin for the first quarter totaled $239 million compared to $271 million in the same period of 2013 as the positive impact of increased sales volumes was more than offset by weaker price realizations. Our US operations generated $146 million of gross margin for the quarter, while our facility in Trinidad contributed $93 million.

First-quarter sales volumes of 1.6 million tonnes exceeded the 1.5 million tonnes sold during the same period of 2013. Strong operating rates across all our nitrogen facilities and the benefit of a full quarter of production at our Geismar ammonia plant (which was restarted in late-February 2013) were the primary contributors.

Prices for all three nitrogen product categories declined as weaker market fundamentals kept benchmark prices (and our realizations) below those of first-quarter 2013. As a result, our average realized price of $344 per tonne in the first quarter was below the $436 per tonne earned last year.

The total average cost of natural gas used in production for the first quarter, including the impact of our hedge position, was $5.40 per MMBtu, an 11 percent decrease from the same period last year. Our diversified production profile helped contribute to a 22 percent improvement in our per-tonne cost of goods sold compared to last year's first quarter as lower gas costs in Trinidad - the result of pricing linked largely to ammonia - helped offset higher spot prices in the US.

Phosphate
First-quarter phosphate gross margin totaled $26 million, generated almost entirely from our feed and industrial business. Beyond the market and operating headwinds we faced, other accounting items recognized in our costs of goods sold totaled $29 million, including those related to accelerated depreciation and asset retirement obligations. As a result, first-quarter gross margin was well below the $92 million earned in the comparable period last year.

Weather-related production issues reduced operating rates across all our facilities and constrained our sales for the quarter. Sales volumes totaled 0.8 million tonnes in this year's first quarter, below the 0.9 million tonnes sold during the comparative period in 2013.

Our average realized phosphate price for the quarter was $484 per tonne, down from the $549 per tonne realized in the same period last year. Weaker fertilizer market conditions through the second half of 2013 weighed on our first-quarter realizations and led to a 17 percent decline compared to last year, while our historically more stable feed and industrial products fell by 4 percent.

Per-tonne cost of goods sold remained relatively flat compared to the first quarter of last year as the favorable impact of lower input costs for sulfur and ammonia - as well as efficiencies achieved through our previously announced workforce and operational changes - were offset by lower production volumes and accelerated depreciation and asset retirement obligation adjustments noted above.

Financial
First-quarter provincial mining and other taxes totaled $54 million, below the $63 million during the same period last year because of weaker potash gross margin. Due to lower earnings, our first-quarter income tax expense of $144 million was down from $226 million in the comparative period last year.

Capital-related cash expenditures totaled $224 million for the quarter compared to $496 million in the same period last year as spending related to our multi-year potash expansion program nears completion.

Through our previously announced share repurchase program, we repurchased a total of 11.7 million common shares during the first quarter at an average price of $34.00 per share. This program - which expires on August 1, 2014 - is now approximately 60 percent complete.

In March, we issued $750 million in 10-year notes at a rate of 3.625 percent. The proceeds were used to redeem $500 million of 5.25 percent notes (in April) which were due in May 2014, as well as for general corporate purposes.

Market Outlook
Recent potash contracts in China and India as well as a strong order book in key spot markets are expected to create an environment that should support robust shipment levels through at least the next two quarters. While we are beginning to see an improvement in rail deliveries help address the backlog of orders from the first quarter, significant product demands are expected to keep pressure on North American carriers. We continue to work closely with our transportation partners to minimize disruptions although these conditions are expected to result in ongoing tight global market fundamentals. For the full year, we maintain our view that global potash shipments could be in the range of 55-57 million tonnes.

In North America, we expect strong demand at the farm level to continue and securing potash to remain a top priority for distributors. With rail carrier backlogs limiting producers' ability to recharge warehouse systems, sales volumes for the second quarter could be constrained - although the delayed start to the spring planting season is expected to provide some relief. For the full year, we maintain our view that total shipments to North America could approximate 9-9.5 million tonnes.

Potash demand in Latin America is expected to remain strong as farmers strive to increase crop production by planting more acres and enhancing soil fertility. We anticipate imports to this market will accelerate through the second quarter and remain robust through the seasonally strong July to October period. For the year, we forecast potash shipments to Latin America of approximately 10.5 million tonnes, including what could be record demand from Brazil.

With first-half Chinese contracts in place for all major global potash suppliers - including Canpotex - shipments to this market are expected to accelerate through the second quarter. First-half volume commitments are likely to meet a significant portion of China's estimated import needs for 2014, and we anticipate a modest level of additional seaborne imports will be required during the second half. For the full year, we forecast total demand will approximate 11.5 million tonnes.

In India, the recent settlement of new supply contracts - including a 1 million tonne agreement with Canpotex - is expected to provide a base load of tonnage through the remaining three quarters of 2014. While fertilizer subsidies continue to remain a near-term challenge in achieving more robust demand levels, we expect 2014 shipments to India will approximate 3.5-4.0 million tonnes, exceeding the 2013 total.

In Other Asian countries (outside of China and India), low inventories and supportive crop prices are expected to help generate stronger demand in 2014. We forecast total potash shipments in the range of 8.0-8.3 million tonnes, exceeding those of 2013.

Financial Outlook
Given a slightly improved potash pricing and demand outlook, we have increased our annual estimate for potash gross margin to $1.1-$1.3 billion and sales volumes to 8.3-8.7 million tonnes.

Our estimates include the benefit of our Canpotex allocation run at Allan, which is nearing completion. With results to this point surpassing our initial expectations, we anticipate our Canpotex entitlement will exceed 53 percent for the second half of 2014. Additionally, operational changes at our potash facilities have begun to reduce our per-tonne cost of goods sold and we anticipate further improvement during the second quarter. While we expect slightly elevated per-tonne costs in the third quarter due to our planned maintenance shutdowns, we remain on track to achieve our targeted $15-$20 per-tonne reduction in cash costs from 2013 levels.

In nitrogen, recent pricing strength has improved the near-term outlook. We anticipate typical seasonal trends will result in slightly weaker margins through the second half of 2014, although our higher sales volumes expectations should partially offset this impact. For the full year, we anticipate total gross margin will remain historically high but trail 2013's total.

In phosphate, we expect prices for all products to be below those of 2013. While the weather-related operating challenges we recently faced appear to be behind us, weaker gross margin contributions during the first quarter have lowered our full-year expectations. The planned closure of a chemical plant at our White Springs operation is anticipated to result in slightly lower sales volumes in the second half of the year (approximately 0.1 million tonnes of P₂O₅) and keep our non-cash costs elevated as we accelerate depreciation for these assets (anticipated at $43 million for full-year 2014).

We have increased our annual estimate of income from offshore investments to a range of $230-$240 million to include the special dividend received from ICL during the first quarter.

Based on these factors, we have adjusted our full-year 2014 guidance to $1.50-$1.80, which includes second-quarter net income in the range of $0.40-$0.45 per share. Other annual guidance numbers are outlined in the table below:

* Does not include capitalized interest
** As a percentage of potash gross margin
*** Represents income from dividends and share of equity earnings

Conclusion
"We see steady improvements taking hold in the potash industry," said Doyle. "These are encouraging trends and supportive of our long-term view for the business. With our growth capability combined with a focus on efficiency, we are positioned to help our customers capitalize on future opportunities while operating a company with the flexibility and competitiveness to generate strong results."

Notes

1. All references to per-share amounts pertain to diluted net income per share.
2. See reconciliation and description of non-IFRS measures in the attached section titled "Selected Non-IFRS Financial Measures and Reconciliations."
3. Canpotex Limited (Canpotex), the offshore marketing company for Saskatchewan potash producers.

PotashCorp is the world's largest crop nutrient company and plays an integral role in global food production. The company produces the three essential nutrients required to help farmers grow healthier, more abundant crops. With global population rising and diets improving in developing countries, these nutrients offer a responsible and practical solution to meeting the long-term demand for food. PotashCorp is the largest producer, by capacity, of potash and one of the largest producers of nitrogen and phosphate. While agriculture is its primary market, the company also produces products for animal nutrition and industrial uses. Common shares of Potash Corporation of Saskatchewan Inc. are listed on the Toronto Stock Exchange and the New York Stock Exchange.

Website: www.potashcorp.com

This release contains forward-looking statements or forward-looking information (forward-looking statements). These statements can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical fact. These statements often contain words such as "should", "could", "expect", "may", "anticipate", "believe", "intend", "estimates", "plans" and similar expressions. These statements are based on certain factors and assumptions including with respect to: foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities and effective tax rates. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Forward-looking statements are subject to risks and uncertainties that are difficult to predict. The results or events set forth in forward-looking statements may differ materially from actual results or events. Several factors could cause actual results or events to differ materially from those expressed in forward-looking statements, including, but not limited to, the following: variations from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities and effective tax rates; risks and uncertainties related to operating and workforce changes made in response to our industry and the markets we serve; changes in competitive pressures, including pricing pressures; risks and uncertainties related to our international operations and assets; fluctuations in supply and demand in the fertilizer, sulfur, transportation and petrochemical markets; costs and availability of transportation and distribution for our raw materials and products, including railcars and ocean freight; adverse or uncertain economic conditions and changes in credit and financial markets; the results of sales contract negotiations within major markets; unexpected geological or environmental conditions, including water inflows; economic and political uncertainty around the world; risks associated with natural gas and other hedging activities; changes in capital markets; unexpected or adverse weather conditions; changes in currency and exchange rates; imprecision in reserve estimates; adverse developments in new and pending legal proceedings or government investigations; acquisitions we may undertake; increases in the price or reduced availability of the raw materials that we use; strikes or other forms of work stoppage or slowdowns; timing and impact of capital expenditures; rates of return on, and the risks associated with, our investments and capital expenditures; changes in, and the effects of, government policies and regulations; security risks related to our information technology systems; risks related to reputational loss; and earnings and the decisions of taxing authorities which could affect our effective tax rates. Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2013 under the captions "Forward-Looking Statements" and "Item 1A - Risk Factors" and in our other filings with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this release and the company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

PotashCorp will host a Conference Call on Thursday April 24, 2014 at 1:00 pm Eastern Time.

Potash Corporation of Saskatchewan Inc.
Notes to the Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2014
(in millions of US dollars except as otherwise noted)
(unaudited)

1. Significant Accounting Policies

With its subsidiaries, Potash Corporation of Saskatchewan Inc. ("PCS") - together known as "PotashCorp" or "the company" except to the extent the context otherwise requires - forms an integrated fertilizer and related industrial and feed products company. The company's accounting policies are in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board ("IFRS"). The accounting policies 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.

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. Further, while the financial figures included in this preliminary interim results announcement have been computed in accordance with IFRS applicable to interim periods, this announcement does not contain sufficient information to constitute an interim financial report as that term is defined in International Accounting Standard ("IAS") 34, "Interim Financial Reporting". The company expects to publish an interim financial report that complies with IAS 34 in its Quarterly Report on Form 10-Q in April 2014.

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

2. 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.

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

3. 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.

4. Share Capital

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 may 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 are dependent upon the availability and alternative uses of capital, market conditions, applicable US and Canadian regulations and other factors.

Under this program, the company repurchased for cancellation 11,722,000 common shares during the three months ended March 31, 2014, at a cost of $399 and an average price per share of $34.00. The repurchase resulted in a reduction of share capital of $21, 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 $377.

5. Segment Information

The company has three reportable operating segments: potash, nitrogen and phosphate. 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.

6. 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.

Significant items to note include the following:

• 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 by 2 percent.

• In first-quarter 2013, a tax expense of $15 was recorded to adjust the 2012 income tax provision.

7. Net Income Per Share

Net income per share was calculated on the following weighted average number of shares:

Diluted net income per share was calculated based on the weighted average number of shares issued and outstanding during the period, incorporating the following adjustments. The denominator was: (1) increased by the total of the additional common shares that would have been issued assuming exercise of all stock options with exercise prices at or below the average market price for the period; and (2) decreased by the number of shares that the company could have repurchased if it had used the assumed proceeds from the exercise of stock options to repurchase them on the open market at the average share price for the period. For performance-based stock option plans, the number of contingently issuable common shares included in the calculation was based on the number of shares, if any, that would be issuable if the end of the reporting period were the end of the performance period and the effect were dilutive.

Potash Corporation of Saskatchewan Inc.
Selected Non-IFRS Financial Measures and Reconciliations
(in millions of US dollars except percentage amounts)
(unaudited)

The following information is included for convenience only. Generally, a non-IFRS financial measure is a numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. EBITDA, adjusted EBITDA, adjusted EBITDA margin, cash flow prior to working capital changes and free cash flow are not measures of financial performance (nor do they have standardized meanings) under IFRS. In evaluating these measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts.

The company uses both IFRS and certain non-IFRS measures to assess performance. Management believes these non-IFRS measures provide useful supplemental information to investors in order that they may evaluate PotashCorp's financial performance using the same measures as management. Management believes that, as a result, the investor is afforded greater transparency in assessing the financial performance of the company. These non-IFRS financial measures should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with IFRS.

A. EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN

Set forth below is a reconciliation of "EBITDA" and "adjusted EBITDA" to net income and "adjusted EBITDA margin" to net income as a percentage of sales, the most directly comparable financial measures calculated and presented in accordance with IFRS.

EBITDA is calculated as net income before finance costs, income taxes and depreciation and amortization. Adjusted EBITDA is calculated as net income before finance costs, income taxes, depreciation and amortization and certain impairment charges. PotashCorp uses EBITDA and adjusted EBITDA as supplemental financial measures of its operational performance. Management believes EBITDA and adjusted EBITDA to be important measures as they exclude the effects of items which primarily reflect the impact of long-term investment and financing decisions, rather than the performance of the company's day-to-day operations. As compared to net income according to IFRS, these measures are limited in that they do not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the company's business, or the charges associated with impairments. Management evaluates such items through other financial measures such as capital expenditures and cash flow provided by operating activities. The company believes that these measurements are useful to measure a company's ability to service debt and to meet other payment obligations or as a valuation measurement.

Adjusted EBITDA margin is calculated as adjusted EBITDA divided by net sales (sales less freight, transportation and distribution). Management believes comparing EBITDA to net sales earned (net of costs to deliver product) is an important indicator of efficiency. In addition to the limitations given above in using adjusted EBITDA as compared to net income, adjusted EBITDA margin as compared to net income as a percentage of sales is also limited in that freight, transportation and distribution costs are incurred and valued independently of sales; adjusted EBITDA also includes earnings from equity investees whose sales are not included in consolidated sales. Management evaluates these items individually on the consolidated statements of income.

Potash Corporation of Saskatchewan Inc.
Selected Non-IFRS Financial Measures and Reconciliations
(in millions of US dollars)
(unaudited)

B. CASH FLOW

Set forth below is a reconciliation of "cash flow prior to working capital changes" and "free cash flow" to cash provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with IFRS.

Management uses cash flow prior to working capital changes as a supplemental financial measure in its evaluation of liquidity. Management believes that adjusting principally for the swings in non-cash working capital items due to seasonality or other timing issues assists management in making long-term liquidity assessments. The company also believes that this measurement is useful as a measure of liquidity or as a valuation measurement.

The company uses free cash flow as a supplemental financial measure in its evaluation of liquidity and financial strength. Management believes that adjusting principally for the swings in non-cash operating working capital items due to seasonality or other timing issues, additions to property, plant and equipment, and changes to other assets assists management in the long-term assessment of liquidity and financial strength. Management also believes that this measurement is useful as an indicator of its ability to service its debt, meet other payment obligations and make strategic investments. Readers should be aware that free cash flow does not represent residual cash flow available for discretionary expenditures.

SOURCE Potash Corporation of Saskatchewan Inc.