PCS suffers massive third-quarter loss

A writedown relating to its nitrogen business combined with an overall decline in production and sales resulted in a massive third-quarter loss for Potash Corp. of Saskatchewan (POT-T).

For the three months ended Sept. 30, PCS recorded a net loss of US$524 million (US$9.66 per share) on sales of US$454 million derived from PCS’s three main products: potash (28% of sales), phosphate (44%) and nitrogen (28%). By comparison, the company earned US$55 million (US$1.01 per share) on sales of US$521 million in the corresponding period last year.

The hefty loss is attributable to a one-time charge of US$586 million (or US$539 million after tax). Before the charge, PCS’s net income for the third quarter amounted to US$14.5 million.

Nitrogen prices have fallen 21% since last year. Some US$50 million of the charge is related to permanent plant closures announced in August, whereas US$518 million is related to a writedown of the carrying value of the nitrogen business.

Of the latter writedown, US$440 million is classified as “goodwill,” representing what PCS overpaid for its 1997 acquisition of Arcadian Corp., a nitrogen producer based in Memphis, Tenn. To acquire all of Arcadian’s shares, PCS spent US$564 million in cash and issued 8 million shares valued at US$573 million.

On Sept. 30, PCS still had US$110 million listed in its books as goodwill, down from US$560 million at the end of 1998.

“Nitrogen, the last nutrient we acquired, is not performing well,” says PCS President William Doyle. “The acquisition came at an inopportune time, but we are working on improving its results.”

PCS’s share price nosedived on news of the weak quarter, dropping to $65 from about $76 — a low not seen since mid-1995. In early 1998, the shares traded as high as $130.

During the third quarter of 1999, PCS produced 1.1 million tonnes of potash (compared with 1.3 million tonnes a year ago), 481,066 tonnes of P2O5 (584,553 tonnes) and 650,369 tonnes of nitrogen (781,155 tonnes).

For the first nine months of the year, PCS posted a net loss of $423 million (US$7.79 per share) on sales of US$1.6 billion, compared with a profit of US$206 million (US$3.82 per share) on sales of US$1.8 billion in the year-ago period.

PCS expects fourth-quarter earnings to be 20-25% of the US$54-million profit posted for the corresponding period of 1998.