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Press release from PR Newswire

Record Offshore Potash Volumes Drive PotashCorp's Second-Quarter Earnings

Thursday, July 26, 2012

Record Offshore Potash Volumes Drive PotashCorp's Second-Quarter Earnings06:00 EDT Thursday, July 26, 2012 Key Performance and Outlook Highlights Record second-quarter earnings prior to a non-cash impairment charge of $341 million ($0.39 per share1) Second-quarter earnings reported at $0.60 per share Offshore potash sales volumes of 2 million tonnes set a new quarterly record Third-quarter 2012 earnings guidance of $0.70-$0.90 per share Maintained full-year 2012 earnings guidance but revised to $2.80-$3.20 per share due to the adjustment for second-quarter impairment charge Symbol: POT Listed:  TSX, NYSE SASKATOON, July 26, 2012 /PRNewswire/ - Potash Corporation of Saskatchewan Inc. (PotashCorp) today reported second-quarter earnings of $0.60 per share ($522 million), which compared to $0.96 per share ($840 million) in the same period last year. While this year's second-quarter results reflected strong underlying performance, earnings were impacted by notable items, including a $341 million ($0.39 per share) impairment recorded on our investment in Sinofert Holdings Limited (Sinofert) and $29 million ($0.02 per share) in items related to our phosphate segment (included in cost of goods sold). Accelerating potash demand, including unprecedented offshore sales volumes, and record contribution from our nitrogen operations resulted in gross margin of $1.2 billion for the quarter, the third-best quarterly total in our history and slightly exceeding that of the same period last year. Gross margin for the first six months of 2012 reached $1.9 billion, which trailed the $2.3 billion generated in first-half 2011. Second-quarter adjusted earnings before finance costs, income taxes, depreciation and amortization, and impairment of available-for-sale investment (adjusted EBITDA) 2 of $1.4 billion and record cash flow prior to working capital changes2 of $1.3 billion were both above those generated in the same period last year, raising the respective six-month totals to $2.2 billion and $1.9 billion. Our investments in Arab Potash Company (APC) in Jordan, Israel Chemicals Ltd. (ICL) in Israel, Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile and Sinofert in China contributed $133 million to second-quarter earnings - excluding the impact of the Sinofert impairment charge - up from $119 million for the same quarter in 2011. The market value of our investments in these publicly traded companies equated to approximately $8.6 billion, or $10 per PotashCorp share at market close on July 25, 2012. "Although certain notable items reduced our reported earnings, the second quarter highlighted the underlying strength of our business," said PotashCorp President and Chief Executive Officer Bill Doyle. "The acceleration in potash demand that took hold at the end of the first quarter allowed us to deploy our capacity, delivering strong results and creating value for our shareholders." Market Conditions Significant agronomic need and strong crop economics led to increased potash demand during the second quarter. After drawing down existing inventories through the first quarter, all major markets accelerated purchases, with offshore shipments from North American producers setting a new quarterly record. Latin American buyers - most notably in Brazil - moved aggressively to keep pace with record movement to the farm level. Offshore demand was further supported by continued strong engagement from Southeast Asian markets as well as significant shipments to China to satisfy first-half contracted volume commitments. In North America, the spring planting season brought increased demand as dealers responded to immediate customer needs, although they continued to take a cautious approach to inventory management in an effort to end the season with minimal carryover. As a result, North American producer domestic sales volumes were 9 percent below last year's second quarter, while up 71 percent from first-quarter 2012. In phosphate, second-quarter shipments of solid fertilizer from US producers declined slightly from the same period last year, as improved North American demand largely offset weaker offshore shipments. Dealers in North America were motivated by strong spring demand and a late-season push to begin restocking in light of limited inventories and rising benchmark prices. The increased activity pushed North American second-quarter shipments from US producers 12 percent above those of the comparable period in 2011. Despite strong demand from Latin America, offshore shipments from US producers fell 22 percent from the same period last year as shipments to India dropped sharply in response to delayed contract settlements with major suppliers as well as limited product availability. While benchmark prices remained slightly below those of the previous year, tight US producer inventories resulted in upward movement late in the quarter. Nitrogen demand remained robust throughout the second quarter, driven by near-record corn plantings in the US - the highest acreage since 1937. This strong demand, in addition to reported production issues in key exporting regions and delays in expected new capacity, resulted in limited North American producer inventories. With tightening supply, prices for ammonia and urea remained strong through most of the quarter before urea markets began to reflect the typical seasonal weakness coming out of the North American planting season. Potash Higher prices more than offset the impact of increased production costs and helped push second-quarter potash gross margin to $801 million - slightly above the $793 million generated in the same period last year. This total approached a second-quarter record and raised potash gross margin for the first half to $1.1 billion, which compared to $1.5 billion earned in the first six months of 2011. Sales volumes for the quarter climbed to 2.6 million tonnes, up from the 2.5 million tonnes sold in the same period last year. Offshore sales volumes reached a record 2 million tonnes, well above the 1.7 million tonnes sold in second-quarter 2011. All markets were active - most notably Latin America, which represented 35 percent of shipments from Canpotex Limited (Canpotex), the offshore marketing company for Saskatchewan potash producers. China and India were more engaged during the quarter and represented 21 percent and 6 percent of Canpotex shipments, respectively, while markets in Other Asia (36 percent) continued their strong pace. In North America, sales volumes of 0.7 million tonnes significantly exceeded the first-quarter 2012 total but trailed the 0.8 million tonnes sold in the second quarter last year as dealers were determined to exit the planting season with limited inventory. Sales volumes for the first half reached 3.9 million tonnes, below the record 5.3 million tonnes sold in the first six months of 2011 largely because of buyer destocking during the first quarter of this year. Our average realized potash price of $433 per tonne was 4 percent above the same period last year. Despite 11 weeks of downtime during the quarter, primarily due to weather-related pond issues at our Patience Lake facility, we achieved a quarterly potash production record that enabled us to keep pace with demand and build inventory in advance of scheduled maintenance and capital downtime in the second half. Increased production had a favorable impact on our per-tonne cost of goods sold for the quarter, but this was more than offset by a greater percentage of production coming from higher-cost facilities, a rise in costs associated with tonnes from Esterhazy and increased depreciation charges. Phosphate Second-quarter phosphate gross margin totaled $96 million, compared to $166 million in the same period last year. Strong performance from feed and industrial products (which contributed $53 million in gross margin) was more than offset by lower sales volumes and prices for fertilizer products (which contributed $39 million in gross margin). Our gross margin for the first half of 2012 totaled $248 million, down from $316 million in the same period last year. Phosphate sales volumes of 0.9 million tonnes were less than the 1 million tonnes sold in the second quarter last year, due to slightly lower production and timing of vessel loadings. Our average realized phosphate price of $552 per tonne in the second quarter - down from $578 per tonne in the same period of 2011- reflected lower prices for both solid and liquid fertilizers. The decline was partially offset by higher realizations for our feed and industrial products, which typically benefit from more stable pricing. Per-tonne cost of goods sold for the quarter increased compared to the same period last year. The unfavorable variance was largely due to an $18 million charge for changes to phosphate asset retirement obligations due to a reduction in the discount rate (which compared to an $11 million charge in the second quarter of 2011), an $11 million accrual in second-quarter 2012 for expected costs associated with a workforce reduction at our Aurora facility, and higher costs for purchased rock at Geismar. Nitrogen Buoyed by strong demand and pricing, nitrogen contributed a record $302 million in gross margin during the second quarter, surpassing the $209 million generated in the same period last year. Our US operations contributed $176 million to the quarterly total while Trinidad generated $126 million. Totals for the first half of the year reached a record $521 million, significantly above the $412 million in the first six months of 2011. With sales volumes for the second quarter (1.3 million tonnes) and first half of the year (2.6 million tonnes) relatively flat compared to those periods of 2011, higher realized prices drove improved performance. Strength in urea pricing helped push the average realized price for the second quarter to $436 per tonne, above the $400 per tonne in the same period last year. Lower natural gas prices in the US were the primary driver of a reduction in nitrogen production costs and helped push our total average natural gas cost for the second quarter, including our hedge, 14 percent below that of the comparable period last year. Financial During the second quarter, a $341 million non-tax deductible, non-cash charge related to the impairment of our investment in Sinofert was recorded against net income. This was incurred due to the significant amount by which fair value was below our cost. After a review of the capital spending requirements for our potash expansion program, we increased the estimate of the remaining cost to complete our New Brunswick project by approximately CDN $500 million. Total cost estimates have now moved from CDN $1.7 billion to CDN $2.2 billion. This project, which includes developing a new ore body and more closely resembles a greenfield development than our other potash expansions, remains on schedule to reach its estimated operational capability of 1.8 million tonnes per year by 2015. The adjusted cost estimate reflects our expectations for remaining work at New Brunswick and does not impact our estimates for other projects. Total costs for our expansion program are now projected to be CDN $8.2 billion, compared to our previous estimate of CDN $7.7 billion. General Outlook Recent weather events have again served as a reminder of the challenge of producing healthy and abundant crops on a sustained basis to meet increasing global needs. With the current drought conditions in the US affecting production, projections for world grain and oilseed supplies have tightened and prices for many crop commodities have moved higher. While weather is a significant factor in crop production, it is not the sole determinant of success or failure. Proper soil fertility is vital to the production of healthy crops, in good conditions and, more importantly, in less-than-ideal circumstances. Potash, specifically, is essential for plant health during periods of crop stress. Difficult weather conditions in certain parts of the world are proving that nature doesn't provide a free lunch and appropriate steps must be taken to enhance productivity in order to supply enough food. Even with agricultural advancements and changing technology, addressing the basics of soil science remains one of the most controllable factors in food production. Today, commodity markets are responding to the pressure on global supplies of crops such as corn and soybeans, driving up prices in an effort to encourage increased planting or ration demand. While focus has been on the US crop, a shortfall in any region has far-reaching effects on global food and fertilizer markets. The importance of soil fertility and crop nutrition is being reinforced in countries like Brazil, where farmers see an opportunity in higher crop prices as they approach their primary planting season, and also in grain-importing countries around the globe which recognize that it is more cost-effective to improve their own yields than import food at higher prices. We believe the farm production shortfalls expected this year will support an extended period of crop prices at levels that encourage high-yield agriculture, as these deficits are never made up in a single growing season. While economic incentives act as a catalyst for farmers to increase production, higher yields and healthier crops cannot be achieved without proper soil fertility. We anticipate that these factors will encourage rising demand for our products, specifically potash, in the years ahead. Although we believe the push to improve soil fertility will be significant, replenishing nutrients in the soil - like responding to the challenge of rebuilding global grain inventories - does not occur over a single growing season or within the confines of one calendar year. We see this beginning to unfold through the balance of the year, and anticipate strong second-half potash shipments. We maintain our global demand estimate of 53-56 million tonnes for 2012, but our expectation of weaker Indian demand is likely to result in totals at the lower end of this range. Potash Market Update In North America, potash inventories are limited throughout the distribution chain as dealers worked to end the spring planting season with near-empty bins. The significant under-application of potash on this current crop, along with the expectation of an early harvest, is likely to result in strong demand at the farm level. Although drought conditions in many parts of the US are keeping some dealers from committing too far in advance of their order books, we anticipate record domestic potash shipments in the second half of the year. Potash demand in Latin America has accelerated after a slow start to 2012. Soybean and corn acreage are expected to increase in response to strong economic motivators and, with potassium-deficient soils in this region, more potash will be required to support higher yields. We believe shipments to this market will remain robust through its typical heavy import season (April through October) and, given the strength of corn economics, anticipate demand could remain at elevated levels even late in the year as farmers prepare for increased corn plantings. Shipments to China under a first-half potash supply contract between Canpotex and Sinofert were largely completed by the end of June and discussions for a second-half agreement are currently underway. China's internal demand remains strong and we expect an increased emphasis on addressing nutrient shortfalls to enhance crop productivity as a means of reducing its reliance on imported commodities such as soybeans and corn. We continue to forecast significant potash requirements through the balance of the year, rising as we move into 2013. Changes in India's nutrient subsidy policies have contributed to higher retail potash prices and continue to impair near-term potash demand. While food inflation remains a major concern in India, fertilizer subsidy policies continue to impede the improvements to nutrient balance necessary to improve yields. Shipments under Canpotex's existing potash contracts are now complete and we do not anticipate new contracts will be settled until late in the third quarter of this year, at the earliest. For 2012, we estimate India will likely import at the low end of our previous demand estimate (3.5-4.5 million tonnes), but anticipate a significant return to the market in 2013. Demand for potash in Asian countries outside of China and India remains strong, with tremendous agronomic need and supportive farmer economics for key crops grown in the region. While demand in the first half declined due to inventories carried over from record shipments last year, we expect robust potash shipments through the remainder of 2012. Financial Outlook In this environment, we estimate our 2012 potash segment gross margin will be in the range of $2.6 billion to $2.8 billion. While total shipments for the year are still expected to be in the range of 8.8-9.2 million tonnes, higher production costs - along with slightly lower realizations in the second half - are the primary drivers of the revised gross margin range. With our potash production expected to decline in the third quarter as a result of significant scheduled maintenance and capital downtime, we anticipate a higher per-tonne cost of goods sold compared to the second quarter. Based on our estimated annual operational capability of 11.8 million tonnes, and the sales volumes guidance noted above, we anticipate additional downtime may be required in the latter part of the year. Relatively tight global supply and strong demand in the US and Latin America are expected to support improved phosphate margins throughout the balance of 2012.  We expect volumes and pricing to remain relatively similar to those achieved in the first half of 2012, with our fertilizer segment anticipated to benefit from the strengthening of solid phosphate fertilizer prices that began late in the second quarter. In nitrogen, the likelihood of another historically large planting year for corn is expected to support significant fall fertilizer applications. While we anticipate ongoing volatility in nitrogen markets due to fluctuating import levels and uncertainty around the availability of new capacity, we expect urea and ammonia prices to remain high through the second half of the year. In this environment, we estimate our combined phosphate and nitrogen gross margin for 2012 will be in the range of $1.4 billion to $1.6 billion. For 2012, we now anticipate capital expenditures (excluding capitalized interest and major repairs and maintenance) to be $2.2 billion, with the majority of the increased cost estimate for our New Brunswick project likely to be reflected in 2013. Based on these conditions, we expect third-quarter net income per share to be in the range of $0.70 to $0.90. We have revised our 2012 full-year earnings estimates to $2.80 to $3.20 per share, reflecting the adjustment for the second-quarter Sinofert impairment charge and other factors noted above. Based on this annual guidance, we anticipate operating cash flow prior to working capital changes will reach record levels for the year. Conclusion "We enter the second half of 2012 with a reminder that food production - and proper crop nutrition - cannot be taken for granted," said Doyle. "Over the past several years, we have continued to anticipate and prepare for the needs of an increasing global population, investing in potash capacity that can support improved crop yields around the world. With our potash expansions well on their way to completion and the majority of related capital spending behind us, we expect to deliver - for the customers and farmers who rely on our products, the investors who provide the capital to make it possible and the many stakeholders who are helping us lay the foundation for an even stronger future." Notes All references to per-share amounts pertain to diluted net income per share. See reconciliation and description of non-IFRS measures in the attached section titled "Selected Non-IFRS Financial Measures and Reconciliations." 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 third largest producer 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. 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 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. Several factors could cause actual results to differ materially from those expressed in the forward-looking statements, including, but not limited to: variations from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, and effective tax rates; 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; changes in competitive pressures, including pricing pressures; adverse or uncertain economic conditions and changes in credit and financial markets; the results of sales contract negotiations with major markets; the European sovereign debt crisis and the recent downgrade of US sovereign debt and political concern over budgetary matters; timing and impact of capital expenditures; risks associated with natural gas and other hedging activities; changes in capital markets and corresponding effects on the company's investments; unexpected or adverse weather conditions; changes in currency and exchange rates; unexpected geological or environmental conditions, including water inflow; imprecision in reserve estimates; adverse developments in new and pending legal proceedings or government investigations; acquisitions we may undertake; strikes or other forms of work stoppage or slowdowns; changes in and the effects of, government policies and regulations; security risks related to our information technology systems and earnings, exchange rates and the decisions of taxing authorities, all of which could affect our effective tax rates. Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2011 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 the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. PotashCorp will host a Conference Call on Thursday, July 26, 2012 at 1:00 pm Eastern Time. Telephone Conference:  Dial-in numbers:   - From Canada and the US: 1-877-881-1303   - From Elsewhere: 1-412-902-6510   Live Webcast:   Visit www.potashcorp.com   - Webcast participants can submit questions to management online from their audio player pop-up window.     Potash Corporation of Saskatchewan Inc. Condensed Consolidated Statements of Financial Position (in millions of US dollars except share amounts) (unaudited)               As at     June 30, 2012     December 31, 2011             Assets             Current assets               Cash and cash equivalents $ 491   $ 430     Receivables    1,254     1,195     Inventories    721     731     Prepaid expenses and other current assets   66     52     2,532     2,408   Non-current assets               Property, plant and equipment    10,522     9,922     Investments in equity-accounted investees   1,204     1,187     Available-for-sale investments (Note 2)   2,132     2,265     Other assets   318     360     Intangible assets   116     115 Total Assets $ 16,824   $ 16,257                         Liabilities             Current liabilities               Short-term debt and current portion of long-term debt  $ 690   $ 832     Payables and accrued charges    979     1,295     Current portion of derivative instrument liabilities   69     67     1,738     2,194   Non-current liabilities               Long-term debt    3,464     3,705     Derivative instrument liabilities   190     204     Deferred income tax liabilities   1,222     1,052     Pension and other post-retirement benefit liabilities   698     552     Asset retirement obligations and accrued environmental costs   638     615     Other non-current liabilities and deferred credits    93     88 Total Liabilities   8,043     8,410             Shareholders' Equity             Share capital    1,490     1,483     Unlimited authorization of common shares without par value; issued and outstanding 859,137,360 and 858,702,991 at June 30, 2012 and December 31, 2011, respectively              Contributed surplus    315     291   Accumulated other comprehensive income    1,031     816   Retained earnings    5,945     5,257 Total Shareholders' Equity   8,781     7,847 Total Liabilities and Shareholders' Equity $ 16,824   $ 16,257 (See Notes to the Condensed Consolidated Financial Statements)             Potash Corporation of Saskatchewan Inc. Condensed Consolidated Statements of Income (in millions of US dollars except per-share amounts) (unaudited)        Three Months Ended June 30    Six Months Ended June 30     2012   2011   2012   2011                   Sales (Note 3) $ 2,396 $ 2,325 $ 4,142 $ 4,529 Freight, transportation and distribution   (123)   (132)   (227)   (281) Cost of goods sold   (1,074)   (1,025)   (2,018)   (1,984) Gross Margin   1,199   1,168   1,897   2,264 Selling and administrative expenses   (56)   (55)   (113)   (130) Provincial mining and other taxes   (72)   (60)   (100)   (94) Share of earnings of equity-accounted investees   68   66   143   117 Dividend income   67   53   67   53 Impairment of available-for-sale investment (Note 2)   (341)   -   (341)   - Other (expenses) income   (8)   3   (11)   (10) Operating Income   857   1,175   1,542   2,200 Finance costs   (31)   (38)   (65)   (88) Income Before Income Taxes   826   1,137   1,477   2,112 Income taxes (Note 5)   (304)   (297)   (464)   (540) Net Income  $ 522 $ 840 $ 1,013 $ 1,572                   Net Income per Share (Note 6)                   Basic           $ 0.61 $ 0.98 $ 1.18 $ 1.84   Diluted           $ 0.60 $ 0.96 $ 1.16 $ 1.79                   Dividends Declared per Share  $ 0.14 $ 0.07 $ 0.28 $ 0.14 (See Notes to the Condensed Consolidated Financial Statements)  Potash Corporation of Saskatchewan Inc. Condensed Consolidated Statements of Comprehensive Income (in millions of US dollars) (unaudited)     Three Months Ended    Six Months Ended   June 30   June 30 (Net of related income taxes)   2012   2011   2012     2011                       Net Income $ 522   $ 840   $ 1,013 $ 1,572 Other comprehensive income (loss)                       Net decrease in net unrealized gain on available-for-sale investments (1)    (256)     (97)     (134)   (368)   Reclassification to income of unrealized loss on impaired available-for-sale investment (Note 2)   341     -     341   -   Net actuarial loss on defined benefit plans (2)   (73)     -     (84)   -   Net loss on derivatives designated as cash flow hedges (3)   (2)     (13)     (15)   -   Reclassification to income of net loss on cash flow hedges (4)   13     14     25   28   Other   (2)     2     (2)   - Other Comprehensive Income (Loss)   21     (94)     131   (340) Comprehensive Income $ 543   $ 746   $ 1,144 $ 1,232 (1) Available-for-sale investments are comprised of shares in Israel Chemicals Ltd. and Sinofert Holdings Limited. (2) Net of income taxes of $44 (2011 - $NIL) for the three months ended June 30, 2012 and $48 (2011 - $NIL) for the six months ended June 30, 2012. (3) Cash flow hedges are comprised of natural gas derivative instruments and are net of income taxes of $2 (2011 - $8) for the three months ended June 30, 2012 and $10 (2011 - $NIL) for the six months ended June 30, 2012. (4) Net of income taxes of $(8) (2011 - $(8)) for the three months ended June 30, 2012 and $(16) (2011 - $(16)) for the six months ended June 30, 2012. (See Notes to the Condensed Consolidated Financial Statements) Potash Corporation of Saskatchewan Inc. Condensed Consolidated Statement 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 loss on defined benefit plans(1) Other Total Accumulated Other Comprehensive Income   Retained Earnings   Total Equity                                                         Balance - December 31, 2011   $ 1,483   $ 291   $ 982   $ (168)   $ -   $ 2   $ 816   $ 5,257   $ 7,847 Net income     -     -     -     -     -     -     -     1,013     1,013 Other comprehensive income (loss)     -     -     207     10     (84)     (2)     131     -     131 Effect of share-based compensation     -     25      -     -     -     -     -     -     25 Dividends declared     -     -     -     -     -     -     -     (241)     (241) Issuance of common shares     7     (1)     -     -     -     -     -     -     6 Transfer of actuarial losses on defined benefit plans     -     -     -     -     84     -     84     (84)     - Balance - June 30, 2012   $ 1,490   $ 315   $ 1,189   $ (158)   $ -   $ -   $ 1,031   $ 5,945   $ 8,781 (1) Any amounts incurred during a period are closed out to retained earnings at each period-end. Therefore, no balance exists in the reserve at beginning or end of period. (See Notes to the Condensed Consolidated Financial Statements)                                 Potash Corporation of Saskatchewan Inc. Condensed Consolidated Statements of Cash Flow (in millions of US dollars) (unaudited)        Three Months Ended June 30    Six Months Ended June 30     2012   2011   2012   2011                   Operating Activities                 Net income $ 522 $ 840 $ 1,013 $ 1,572                   Adjustments to reconcile net income to cash provided by operating activities                   Depreciation and amortization   157   128   285   252   Share-based compensation   2   5   18   19   Impairment of available-for-sale investment (Note 2)   341   -   341   -   Realized excess tax benefit related to share-based compensation   1   11   3   23   Provision for deferred income tax   152   78   204   153   Net distributed (undistributed) earnings of equity-accounted investees   57   1   (16)   (50)   Asset retirement obligations and accrued environmental costs   23   15   10   18   Other long-term liabilities and miscellaneous   19   (8)   41   (18)   Subtotal of adjustments   752   230   886   397                     Changes in non-cash operating working capital                   Receivables   (43)   24   6   (189)   Inventories   18   6   44   (21)   Prepaid expenses and other current assets   (2)   12   (16)   12   Payables and accrued charges   (25)   (48)   (339)   (17)   Subtotal of changes in non-cash operating working capital   (52)   (6)   (305)   (215) Cash provided by operating activities   1,222   1,064   1,594   1,754                   Investing Activities                 Additions to property, plant and equipment   (483)   (492)   (959)   (933) Purchase of non-current investments   -   -   (1)   - Other assets and intangible assets   6   (3)   (13)   (3) Cash used in investing activities   (477)   (495)   (973)   (936)                   Financing Activities                 Repayment of long-term debt obligations   (2)   (600)   (2)   (600) (Repayment of) proceeds from short-term debt obligations   (552)   94   (384)   (159) Dividends   (118)   (60)   (177)   (88) Issuance of common shares   1   7   3   25 Cash used in financing activities   (671)   (559)   (560)   (822) Increase (Decrease) in Cash and Cash Equivalents   74   10   61   (4) Cash and Cash Equivalents, Beginning of Period   417   398   430   412 Cash and Cash Equivalents, End of Period $ 491 $ 408 $ 491 $ 408                   Cash and cash equivalents comprised of:                   Cash $ 86 $ 56 $ 86 $ 56   Short-term investments   405   352   405   352   $ 491 $ 408 $ 491 $ 408                   Supplemental cash flow disclosure                   Interest paid $ 64 $ 92 $ 102 $ 133   Income taxes paid  $ 176 $ 149 $ 492 $ 324 (See Notes to the Condensed Consolidated Financial Statements)                   Potash Corporation of Saskatchewan Inc. Notes to the Condensed Consolidated Financial Statements For the Three and Six Months Ended June 30, 2012 (in millions of US dollars except share and per-share amounts) (unaudited)   1. Significant Accounting Policies                               With its subsidiaries, Potash Corporation of Saskatchewan Inc. ("PCS") ? together known as "PotashCorp" or "the company" except to the extent the context otherwise requires ? forms an integrated fertilizer and related industrial and feed products company. The company's accounting policies are in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). The accounting policies used in preparing these unaudited interim condensed consolidated financial statements are consistent with those used in the preparation of the 2011 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 2011 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 August 2012.                 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 that a financial asset or group of financial assets is impaired. In the case of equity instruments classified as available-for-sale, for which unrealized gains and losses are generally recognized in Other Comprehensive Income ("OCI"), a significant or prolonged decline in the fair value of the investment below its cost may be evidence that the asset is impaired. When 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 OCI and would not flow back into net income.                  At June 30, 2012, the company assessed whether there was objective evidence that its available-for-sale investment in Sinofert Holdings Limited ("Sinofert") was impaired. The fair value of the investment, recorded in the consolidated statements of financial position, was $238 compared to the cost of $579. Factors considered in assessing impairment included the length of time and extent to which fair value had been below cost. The company concluded that objective evidence of impairment existed as at June 30, 2012 due to the significance by which fair value was below cost. As a result, the company recognized an impairment loss of $341 in net income for the three and six months ended June 30, 2012 (2011 - $NIL). The recoverable amount was based on fair value less costs to sell which was determined through the value of Sinofert on the Hong Kong Stock Exchange.                 3. Segment Information                                 The company has three reportable operating segments: potash, phosphate and nitrogen. Inter-segment sales are made under terms that approximate market value. The accounting policies of the segments are the same as those described in Note 1.         Three Months Ended June 30, 2012       Potash Phosphate Nitrogen All Others Consolidated                           Sales     $ 1,185  $ 569  $ 642  $ -  $ 2,396 Freight, transportation and distribution       (55)   (44)   (24)   -   (123) Net sales - third party       1,130   525   618   -     Cost of goods sold       (329)   (429)   (316)   -   (1,074) Gross margin       801   96   302   -   1,199 Depreciation and amortization        (56)   (64)   (35)   (2)   (157) Inter-segment sales       -   -   50   -   - Cash flows for additions to property,                          plant and equipment       338   49   82   14   483                                 Three Months Ended June 30, 2011       Potash Phosphate Nitrogen All Others Consolidated                           Sales     $ 1,121  $ 633  $ 571  $ -  $ 2,325 Freight, transportation and distribution       (70)   (40)   (22)   -   (132) Net sales - third party       1,051   593   549   -     Cost of goods sold       (258)   (427)   (340)   -   (1,025) Gross margin       793   166   209   -   1,168 Depreciation and amortization        (37)   (57)   (32)   (2)   (128) Inter-segment sales       -   -   39   -   - Cash flows for additions to property,                          plant and equipment       398   45   46   3   492                                     Six Months Ended June 30, 2012       Potash Phosphate Nitrogen All Others Consolidated                           Sales     $ 1,768 $ 1,182  $ 1,192 $ - $ 4,142 Freight, transportation and distribution       (89)   (85)   (53)   -   (227) Net sales - third party       1,679   1,097   1,139   -     Cost of goods sold       (551)   (849)   (618)   -   (2,018) Gross margin       1,128   248   521   -   1,897 Depreciation and amortization        (86)   (124)   (70)   (5)   (285) Inter-segment sales       -   -   92   -   - Cash flows for additions to property,                          plant and equipment       681   99   155   24   959                                 Six Months Ended June 30, 2011       Potash Phosphate Nitrogen All Others Consolidated                           Sales     $ 2,230 $ 1,182 $ 1,117 $ - $ 4,529 Freight, transportation and distribution       (153)   (83)   (45)   -   (281) Net sales - third party       2,077   1,099   1,072   -     Cost of goods sold       (541)   (783)   (660)   -   (1,984) Gross margin       1,536   316   412   -   2,264 Depreciation and amortization        (79)   (104)   (65)   (4)   (252) Inter-segment sales       -   -   77   -   - Cash flows for additions to property,                          plant and equipment       745   92   64   32   933   4. Share-Based Compensation                               On May 17, 2012, the company's shareholders approved the 2012 Performance Option Plan under which the company may, after February 21, 2012 and before January 1, 2013, grant options to acquire up to 3,000,000 common shares. Under the plan, the exercise price shall not be less than the quoted market closing price of the company's common shares on the last trading day immediately preceding the date of 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, 2012, options to purchase a total of 1,499,300 common shares had been granted under the plan. The weighted average fair value of options granted was $16.33 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          $ 39.36 Expected dividend per share          $ 0.56 Expected volatility           53% Risk-free interest rate           1.06% Expected life of options           5.5 years                 5. Income Taxes                             A separate estimated average annual effective tax rate is determined for each taxing jurisdiction and applied individually to the interim period pre-tax income of each jurisdiction.                  For the three months ended June 30, 2012, the company's income tax expense was $304 (2011 ? $297). For the six months ended June 30, 2012, the company's income tax expense was $464 (2011 ? $540). The actual effective tax rates on ordinary earnings for the three and six months ended June 30, 2012 were 26 percent and 25 percent, respectively (2011 ? 26 percent and 27 percent, respectively).The actual effective tax rates including discrete items for the three and six months ended June 30, 2012 were 37 percent and 31 percent, respectively (2011 ? 26 percent for both periods). The impairment of the company's available-for-sale investment in Sinofert is not deductible for tax purposes. Total discrete tax adjustments that impacted the rate in the three months ended June 30, 2012 resulted in an income tax expense of $5. Total discrete tax adjustments that impacted the rate in the six months ended June 30, 2012 resulted in an income tax expense of $3 compared to an income tax recovery of $24 in the same period last year. A significant item recorded in first-quarter 2011 was a current tax recovery of $21 for previously paid withholding taxes.                 6.  Net Income Per Share                             Basic net income per share for the quarter was calculated on the weighted average shares issued and outstanding for the three months ended June 30, 2012 of 858,988,000 (2011 ? 854,997,000). Basic net income per share for the six months ended June 30, 2012 was calculated based on the weighted average shares issued and outstanding for the period of 858,888,000 (2011 ? 854,518,000).                 Diluted net income per share was calculated based on the weighted average number of shares issued and outstanding during the period. The denominator was: (1) increased by the total of the additional common shares that would have been issued assuming the 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. The weighted average number of shares outstanding for the diluted net income per share calculation for the three months ended June 30, 2012 was 875,507,000 (2011 ? 876,527,000) and for the six months ended June 30, 2012 was 875,813,000 (2011 ? 876,612,000).   Potash Corporation of Saskatchewan Inc. Selected Financial Data (unaudited)     Three Months Ended June 30   Six Months Ended June 30   2012   2011   2012   2011                         Potash Sales (tonnes - thousands)                         Manufactured Product                           North America   651     831     1,051     1,923     Offshore   1,955     1,690     2,804     3,386   Manufactured Product   2,606     2,521     3,855     5,309                         Potash Net Sales                          (US $ millions)                           Sales $ 1,185   $ 1,121   $ 1,768   $ 2,230     Freight, transportation and distribution   (55)     (70)     (89)     (153)     Net Sales $ 1,130   $ 1,051    $ 1,679   $ 2,077                           Manufactured Product                           North America $ 326   $ 409   $ 525   $ 875     Offshore   803     640     1,147     1,195   Other miscellaneous and purchased product   1     2     7     7   Net Sales $ 1,130   $ 1,051   $ 1,679   $ 2,077                         Manufactured Product                         Average Realized Sales Price per MT                           North America $ 502   $ 492   $ 500   $ 455     Offshore $ 411   $ 379   $ 409   $ 353     Average  $ 433   $ 416   $ 434   $ 390 Cost of Goods Sold per MT $ (125)   $ (101)   $ (142)   $ (101) Gross Margin per MT $ 308   $ 315   $ 292   $ 289        Potash Corporation of Saskatchewan Inc. Selected Financial Data (unaudited)                                       Three Months Ended       Six Months Ended       June 30       June 30       2012       2011       2012       2011                                 Phosphate Sales (tonnes - thousands)                                 Manufactured Product                                   Fertilizer     619       696       1,256       1,300     Feed and Industrial     317       317       610       606   Manufactured Product     936       1 013       1,866       1,906                                 Phosphate Net Sales                                  (US $ millions)                                   Sales   $   569     $   633     $   1,182     $   1,182     Freight, transportation and distribution     (44)       (40)       (85)       (83)     Net Sales   $   525     $   593     $   1,097     $   1,099                                   Manufactured Product                                   Fertilizer   $   308     $   392     $   671     $   719     Feed and Industrial     208       194       409       366   Other miscellaneous and purchased product     9       7       17       14   Net Sales   $   525     $   593     $   1,097     $   1,099                                   Manufactured Product                                 Average Realized Sales Price per MT                                   Fertilizer   $   498     $   562     $   534     $   553     Feed and Industrial   $   656     $   611     $   670     $   603     Average    $   552     $   578     $   579     $   569   Cost of Goods Sold per MT   $   (454)     $   (417)     $   (450)     $   (407)   Gross Margin per MT   $   98     $   161     $   129     $   162       Potash Corporation of Saskatchewan Inc. Selected Financial Data (unaudited)                                       Three Months Ended       Six Months Ended       June 30       June 30       2012       2011       2012       2011                                 Average Natural Gas Production Cost per MMBtu   $ 5.31     $   6.21     $   5.03     $   6.02 Nitrogen Sales (tonnes - thousands)                                 Manufactured Product                                   Ammonia     517       514       1,033       1,028     Urea     295       316       629       647     Nitrogen solutions/Nitric acid/Ammonium nitrate     493       469       933       964   Manufactured Product     1,305       1,299       2,595       2,639                                   Fertilizer sales tonnes     432       448       807       836   Industrial/Feed sales tonnes     873       851       1,788       1,803   Manufactured Product     1,305       1,299       2,595       2,639                                 Nitrogen Net Sales                                  (US $ millions)                                   Sales   $   642     $   571     $   1,192     $   1,117     Freight, transportation and distribution     (24)       (22)       (53)       (45)     Net Sales   $   618     $   549     $   1,139     $   1,072                                   Manufactured Product                                   Ammonia   $   265     $   280     $   495     $   524     Urea     181       130       335       268     Nitrogen solutions/Nitric acid/Ammonium nitrate     124       110       234       222   Other miscellaneous and purchased product     48       29       75       58   Net Sales    $   618     $   549     $   1,139     $   1,072                                   Fertilizer net sales    $   233     $   191     $   388     $   335   Industrial/Feed net sales      337       329       676       679   Other miscellaneous and purchased product     48       29       75       58   Net Sales    $   618     $   549     $   1,139     $   1,072                                 Manufactured Product                                 Average Realized Sales Price per MT                                   Ammonia   $   512     $   545     $   480     $   510     Urea   $   613     $   413     $   533     $   414     Nitrogen solutions/Nitric acid/Ammonium nitrate   $   251     $   234     $   250     $   230     Average    $   436     $   400     $   410     $   384     Fertilizer average price per MT   $   541     $   428     $   481     $   401     Industrial/Feed average price per MT   $   385     $   386     $   378     $   376     Average    $   436     $   400     $   410     $   384   Cost of Goods Sold per MT   $   (222)     $   (248)     $   (223)     $   (235)   Gross Margin per MT   $   214     $   152     $   187     $   149       Potash Corporation of Saskatchewan Inc. Selected Additional Data (unaudited)                           Exchange Rate (Cdn$/US$)                                           2012     2011                           December 31                       1.0170 June 30                 1.0191     0.9643 Second-quarter average conversion rate                 0.9988     0.9676                                 Three Months Ended     Six Months Ended       June 30     June 30       2012     2011     2012     2011                           Production                         Potash production (KCl Tonnes - thousands)     2,807     2,570     4,382     5,162 Potash shutdown weeks (1)     11     -     40     - Phosphate production (P2O5 Tonnes - thousands)     500     552     986     1,084 Phosphate P2O5 operating rate      84%     93%     83%     91% Nitrogen production (N Tonnes - thousands)     697     705     1,378     1,391                           Shareholders                          PotashCorp's shareholder return     -4%     -3%     7%     11%                           Customers                         Product tonnes involved in customer complaints vs three-year average (for second quarter/first half of prior three years, as applicable)     41%      N/A      -32%      N/A                            Community                         Taxes and royalties ($ millions) (2)     262     305     350     531                           Employees                         Annualized turnover rate (excluding retirements)     4%     4%     4%     4%                           Safety                         Total site severity injury rate (per 200,000 work hours) (3)     0.44     0.49     0.47     0.61                           Environment                         Environmental incidents (4)     5     5     12     8                                                                       June 30,     December 31, As at                 2012     2011                           Number of employees                           Potash                 2,685     2,520   Phosphate                 1,946     1,975   Nitrogen                 779     775   Other                 429     433   Total                 5,839     5,703 (1) Excludes planned routine annual maintenance shutdowns. (2) Includes current income taxes, potash production tax, resource surcharge, royalties, municipal taxes and other miscellaneous taxes less investment tax credits calculated on an accrual basis. (3) Total of lost-time injuries and modified work injuries (as defined in our 2011 Annual Report). Total site includes PotashCorp employees, contractors and all others on site. (4) Total of reportable quantity releases, permit excursions and provincial reportable spills (as defined in our 2011 Annual Report). N/A = Not applicable   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, 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 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.       Three Months Ended       Six Months Ended       June 30       June 30       2012       2011       2012       2011 Net income   $   522     $   840     $   1,013     $   1,572 Finance costs     31       38       65       88 Income taxes     304       297       464       540 Depreciation and amortization      157       128       285       252 EBITDA   $   1,014     $   1,303     $   1,827     $   2,452 Impairment of available-for-sale investment     341       -       341       - Adjusted EBITDA   $   1,355     $   1,303     $   2,168     $   2,452 EBITDA is calculated as earnings before finance costs, income taxes and depreciation and amortization. Adjusted EBITDA is calculated as earnings before finance costs, income taxes, depreciation and amortization, certain gains and losses on disposal of assets 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. 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.       Three Months Ended       Six Months Ended       June 30       June 30       2012       2011       2012       2011 Sales   $   2,396     $   2,325     $   4,142     $   4,529 Freight, transportation and distribution     (123)       (132)       (227)       (281) Net sales   $   2,273     $   2,193     $   3,915     $   4,248                                 Net income as a percentage of sales     22%       36%       24%       35% Adjusted EBITDA margin     60%       59%       55%       58%   Adjusted EBITDA margin is calculated as adjusted EBITDA divided by net sales (sales less freight, transportation and distribution). Management believes comparing the company's operations (excluding the impact of long-term investment decisions) 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 expenses 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.       Three Months Ended       Six Months Ended       June 30       June 30         2012       2011       2012       2011 Cash flow prior to working capital changes    $ 1,274     $ 1,070     $ 1,899     $ 1,969 Changes in non-cash operating working capital                                 Receivables     (43)       24       6       (189)   Inventories     18       6       44       (21)   Prepaid expenses and other current assets     (2)       12       (16)       12   Payables and accrued charges     (25)       (48)       (339)       (17) Changes in non-cash operating working capital     (52)       (6)       (305)       (215) Cash provided by operating activities   $   1,222     $   1,064     $   1,594     $   1,754 Additions to property, plant and equipment     (483)       (492)       (959)       (933) Other assets and intangible assets     6       (3)       (13)       (3) Changes in non-cash operating working capital     52       6       305       215 Free cash flow    $   797     $   575     $   927     $   1,033   The company 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.  The company 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.For further information: <p> <b><u>Investors</u></b><br/> <b>Denita Stann</b><br/> Vice President, Investor and Public Relations<br/> <b>Phone: (306) 933-8521</b><br/> <b>Fax: (306) 933-8844</b><br/> <b>Email: </b><a href="mailto:ir@potashcorp.com">ir@potashcorp.com</a><br/> <br/> <b><u>Media</u> </b><br/> <b>Bill Johnson</b><br/> Senior Director, Public Affairs<br/> <b>Phone: (306) 933-8849</b><br/> <b>Fax: (306) 933-8844</b><br/> <b>Email: </b><a href="mailto:pr@potashcorp.com">pr@potashcorp.com</a><br/> </p> <p> <b>Web Site: </b><a href="http://www.potashcorp.com">www.potashcorp.com</a> </p>