Potash Corp's Q2 net income down 37.9% year-over-year to US$522M, affected by US$341M impairment on investment in Sinofert Holdings, US$29M in items related to phosphate segment; sales up 3% to US$2.4B

Andrew Rogers

Andrew Rogers

Jul 26, 2012 – PRNewswire

SASKATOON, Saskatchewan , July 26, 2012 (press release) – 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

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 yearas 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
                              -            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,       December 31,
                                                                                                                         2012           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    Six Months Ended
                                                                 June 30               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                      341         -          341        -
                         available-for-sale investment (Note 2)
                         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      Contributed    Net unrealized     Net                  Net                  Other     Total            Retained    Total
                                                                 Capital    Surplus        gain on            loss on              actuarial                      Accumulated      Earnings    Equity
                                                                                           available-         derivatives          loss                           Other
                                                                                           for-sale           designated as        on defined                     Comprehensive
                                                                                           investments        cash flow hedges     benefit plans(1)               Income
        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      Six Months Ended
                                                                                                                     June 30                 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    Six Months Ended
                                                                                  June 30               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
                                         </

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