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Nutrien Provides 2018 Guidance and Announces Agrium and PotashCorp Fourth-Quarter Earnings

06.02.2018  |  CNW

NYSE, TSX: NTR

SASKATOON, Feb. 5, 2018 /CNW/ - Nutrien Ltd. (Nutrien) announced today fourth-quarter 2017 results for Agrium Inc. (Agrium) and Potash Corporation of Saskatchewan Inc. (PotashCorp) and provided financial guidance for 2018.

HIGHLIGHTS

  • Agrium fourth-quarter earnings from continuing operations, adjusted for items not included in guidance, of $0.781 per share2 (see page 5 for a reconciliation to net earnings from continuing operations of $0.19 per share)

  • PotashCorp fourth-quarter adjusted earnings of $0.06 per share (see page 11 for a reconciliation to net loss of $0.09 per share)

  • 2017 earnings for Agrium were supported by record Retail EBITDA3 of $1.2 billion and margins of 10 percent while stronger potash prices, sales volumes and lower cash costs per tonne benefited both companies

  • Nutrien full-year 2018 guidance of $2.10 to $2.60 earnings per share from continuing operations, excluding incremental depreciation and amortization related to purchase price allocation of $150 million to $300 million

  • Nutrien 2018 EBITDA of $3.2 billion to $3.7 billion

  • Nutrien sold its equity stake in Israel Chemicals Ltd. (ICL) in January 2018 for net proceeds of $685 million

  • Nutrien announced an agreement to purchase Agrichem, a leading Brazilian specialty plant nutrition company with total annual historical net sales of over $55 million

  • Nutrien achieved over $40 million in run-rate synergies year-to-date 2018

CEO COMMENTARY

"Nutrien is a global integrated crop inputs provider focused on delivering yield-enhancing products and services to our customers in a sustainable manner, while maximizing shareholder value," said Nutrien President and CEO Chuck Magro. "Our significant positions in retail, potash and nitrogen provide multiple avenues to generate significant value and we remain focused on capturing half a billion dollars in annual merger synergies by the end of 2019. 

"We further expect to realize significant proceeds from the ongoing sale of equity positions and will continue to reinvest in growing our retail business and return cash to shareholders," added Mr. Magro.

MARKET OUTLOOK

Agriculture Fundamentals














U.S. Planted Acres (millions)


























Crop






2016



2017



2018F


Corn






94.0



90.2



89.0-91.0


Soybean






83.4



90.1



89.0-91.0


Wheat






50.2



46.0



45.0-47.0


Cotton                                   






10.1



12.6



12.5-13.0

Source: USDA













 

  • Despite historically high crop production in many key growing regions in 2017, the United States Department of Agriculture ("USDA") projects that global grain consumption will exceed production during the 2017/18 crop year. Global grain and oilseed demand has grown by 2.7 percent per year over the past five years, the highest five-year growth period since the early 1980s.

  • Major U.S. crop prices are currently similar to year-ago levels, leading us to expect minimal shifts in crop area in 2018. The development of the South American corn and soybean crops, particularly the second corn crop in Brazil, will be a driver of crop prices in the coming months and may influence U.S. planting decisions.

  • Nutrient prices remain affordable, which we expect will lead to robust applications in the North American spring season.

  • We anticipate that growers will continue to optimize crop input expenditures, similar to recent years. Record U.S. corn yields in the past two years provides evidence that growers continue to focus on increasing productivity by utilizing crop inputs and solutions.

Potash


Global Demand (millions of tonnes KCl)





Market

2016

2017E

2018F


China

14.1

15.1

15.5-16.0


India

3.8

4.5

4.5-5.0


Other Asia

9.0

9.6

9.5-10.0


Latin America

11.7

12.2

12.0-12.5


North America

9.7

10.2

9.5-10.0


Other

12.0

12.4

12.5-13.0

World total shipments                  

60.3

64.0

64.0-66.0*

*Forecast world total shipments range is narrower than the sum of individual market ranges

 

  • Global potash shipments set a new record of approximately 64 million tonnes in 2017 with significant growth achieved in all major markets.  Downstream inventories ended 2017 at levels flat to lower than a year ago, meaning global shipments increased in response to rising consumption. We expect that demand will continue to be robust in 2018 and that annual global potash shipments will be between 64 and 66 million tonnes.

  • North American spring application rates are expected to remain normal supported by good affordability, and we anticipate shipments similar to the historical average but slightly below 2017.

  • Brazilian potash imports set a new record of 9.2 million tonnes in 2017 and inland inventories ended the year at historically low levels, indicating robust consumption and supportive of strong import demand in 2018.

  • Chinese and Indian potash demand was strong in 2017 and inventories ended the year flat to lower than 2016 levels. We expect continued demand growth in China and India in 2018 but at a slower pace than 2017 levels. Potash demand remains reasonably strong in other Asian countries amid stable and profitable prices for a wide range of key crops.

  • Most global potash producers have heavily committed sales volumes for the first quarter of 2018, leaving available supplies relatively tight. Greenfield potash capacity is anticipated to continue to ramp up in 2018, but we expect a portion of the new capacity will be offset by the closure of mines reaching end of life and product mix changes by some producers.

Nitrogen

  • Nitrogen prices have started 2018 firmer, with current benchmark nitrogen prices up between 15 to 40 percent from fourth quarter 2017 lows, depending on the product.

  • Global energy prices are expected to increase marginal production costs in 2018, as crude oil prices have increased approximately 20 percent year-over-year, supporting both formula-based gas contracts in Europe and LNG prices. Chinese production rates have been cut back by ongoing regulatory pressure, natural gas availability, significantly higher natural gas prices and continued strength in coal prices.

  • Indian urea inventories are very low, which should support import demand in the coming months, however import demand is expected to remain volatile as the country balances subsidy policy with changing market dynamics.

  • Net North American offshore imports of urea were down by 50 percent or 1.0 million tonnes from July through December 2017. The decrease in imports exceeded the increase in domestic production for the same period. As a result, North American offshore import requirements for first-half 2018 may approach similar levels as the first half of the prior year.

Phosphate

  • Higher input costs have lent support to phosphate prices but continue to weigh on margins. Sulfur prices have recently risen and remain approximately 50 percent above 2017 lows, while traded ammonia prices are up 50 to 70 percent from 2017 lows.

  • Production curtailments have reduced export availability from both the U.S. and China, which has provided some support to phosphate fertilizer prices.

FINANCIAL OUTLOOK AND GUIDANCE



2018 Annual Guidance Ranges

Annual

Low  

High

Earnings per share

$2.10

$2.60

Consolidated EBITDA (billions)

$3.2

$3.7

Retail EBITDA (billions)

$1.2

$1.3

Potash EBITDA (billions)

$1.1

$1.3

Nitrogen EBITDA (billions)

$0.9

$1.1

Potash sales tonnes (millions)

11.8

12.4

Nitrogen sales tonnes (millions) (a)

10.0

10.4

Effective tax rate on continuing operations 

24%

25%

Sustaining capital expenditures (billions)

$1.0

$1.1




2018 Annual Assumptions & Sensitivities






FX rate CAD to USD


$1.26

NYMEX natural gas ($US/MMBtu)


$3.00

$20/tonne change in realized Potash selling prices ($/share)(b)


$0.24

$20/tonne change in realized Ammonia selling prices ($/share)(b)


$0.07

$20/tonne change in realized Urea selling prices ($/share)(b)


$0.09

(a) Excludes ESN®, Rainbow and Europe sales.



(b) Sensitivities are calculated pre-synergies.



 

  • Purchase Price Allocation (PPA) impact – Our 2018 earnings per share guidance excludes the impact of incremental depreciation and amortization of approximately $150 million to $300 million resulting from the fair valuing of Agrium's assets and liabilities as of January 1, 2018 in accordance with purchase accounting.

  • Harmonization of Accounting Policies – Harmonization of Agrium accounting policies to the accounting policies of PotashCorp is expected to reduce Retail EBITDA by approximately $35 million due to the reclassification of items previously considered as other finance costs and is included in our annual Retail EBITDA guidance.

  • Synergies - In 2018, we expect to realize cash synergies of $175 million to $225 million and run rate synergies of $250 million by the end of 2018. We expect costs to achieve these ongoing synergies of $50 to $70 million in 2018, which are excluded from our earnings per share and EBITDA guidance.

  • EPS - Based on the factors set out under the heading "Market Outlook" and the assumptions above, our full-year 2018 earnings per share guidance is $2.10 to $2.60. In addition to the PPA impact and costs of achieving synergies noted above, our guidance excludes share-based compensation expense (recovery).  Equity earnings relating to investments now classified in discontinued operations are included in our earnings per share guidance.

AGRIUM RESULTS

Agrium fourth-quarter earnings from continuing operations totaled $27 million, down from the $69 million earned in the fourth quarter of 2016. Full-year earnings from continuing operations were $502 million compared to $584 million earned in 2016. Results for the quarter and full year were supported by record Retail business unit performance and higher potash sales volumes and margins, but were more than offset by lower nitrogen sales volumes and margins related to plant outages in the second half of 2017.

AGRIUM ADJUSTED NET EARNINGS AND GUIDANCE RELEVANT EARNINGS RECONCILIATION


Three months ended

Twelve months ended


December 31, 2017

December 31, 2017



Net earnings



Net earnings




from continuing



from continuing




operations



operations




impact


Expense

impact


(millions of U.S. dollars, except per share amounts)

Expense

(post-tax)

Per share (a)

(Income)

(post-tax)

Per share (a)



27

0.19


502

3.60

Adjustments:








Share-based payments

29

22

0.16

69

49

0.36


Foreign exchange loss net of









non-qualifying derivatives

3

2

0.02

14

10

0.08


Merger and related costs

52

39

0.28

94

67

0.50


Impact of Egyptian pound devaluation









on investee earnings

-

-

-

(16)

(11)

(0.08)


U.S. Tax Reform adjustment

9

9

0.07

9

9

0.07

Adjusted net earnings (b)


99

0.72


626

4.53


Environmental remediation liability









expense

11

8

0.06

11

8

0.06


Gain on sale of assets

-

-

-

(7)

(5)

(0.04)

Guidance relevant earnings (b)


107

0.78


629

4.55

(a)

Per share information attributable to equity holders of Agrium.

(b)

Effective tax rates of 25 percent for the quarter and 29 percent for the year were used for the adjusted net


earnings, guidance relevant earnings, and per share calculations. These adjusted and guidance relevant earnings and


per share information are non-IFRS measures. Refer to Selected Non-IFRS Financial Measures and Reconciliations


and Supplemental Information.

 

Agrium Retail














Three months ended December 31

(millions of U.S. dollars)






2017

2016

Change

Sales






2,089

1,828

261

Cost of product sold






(1,394)

(1,205)

(189)

Gross profit






695

623

72

EBIT4






174

134

40

EBITDA






248

202

46

Selling expenses






(517)

(476)

(41)

 

  • EBITDA - Retail reported record EBITDA in the fourth quarter of 2017, a 23 percent increase over the previous record achieved in the same period last year. Higher sales for all our crop input products and services were driven by organic growth, recent acquisitions and a 22 percent increase in proprietary product sales.

  • North American EBITDA increased by 17 percent this quarter compared to the same period last year, with higher nutrient and crop protection product demand in both the U.S. and Canada. International Retail operations achieved a record fourth quarter, with EBITDA up 40 percent year over year, supported by another record quarter for our Australian operations.

  • Selling expenses – Total Retail selling expenses increased by 9 percent this quarter compared to the same period in 2016 as a result of acquisitions made in 2017. Selling expenses as a percentage of sales decreased to 25 percent this quarter compared to 26 percent in the same period of 2016.

Retail sales and gross profit by product line            



(millions of U.S. dollars, except 

Three months ended December 31

  where noted) 

Sales 


Gross profit


Gross profit (%)


2017

2016

Change


2017

2016

Change


2017

2016

Crop nutrients

890

779

111


168

147

21


19

19

Crop protection products

712

620

92


327

296

31


46

48

Seed

107

101

6


51

43

8


48

43

Merchandise

187

167

20


28

27

1


15

16

Services and other

193

161

32


121

110

11


63

68

 

  • Crop nutrients - Sales were 14 percent higher this quarter compared to the same period last year, due primarily to higher volumes, particularly with record ammonia applications in Canada and higher sales volumes in all other regions. Gross profit was 14 percent higher this quarter due to increased sales volumes, while gross profit margin per tonne remained relatively flat.

  • Crop protection – Fourth-quarter sales increased by 15 percent compared to the same period last year, due to increased sales in both North America and International operations. The U.S. experienced strong demand for herbicides and fall weed burn-down products this quarter. Proprietary product sales in the quarter increased by 25 percent compared to 2016's fourth quarter, with the largest increase in market penetration occurring in Australia. Gross profit for the quarter was up 10 percent over the same period last year, due to higher sales volumes across all regions and proprietary products. However, gross profit as a percentage of sales decreased 2 percentage points this quarter due to product mix considerations and a higher percentage of sales to wholesale customers.

  • Seed – Gross profit in the fourth quarter increased 19 percent compared to the same period last year, due to purchases in the U.S. that were delayed from the third quarter of 2017. Gross profit as a percentage of sales increased to 48 percent from 43 percent in the fourth quarter of last year, due to a return to a higher sales mix to retail customers relative to wholesalers.

  • Merchandise – Sales increased 12 percent and gross profit was up 4 percent in the fourth quarter of this year relative to the same period last year. The increase in sales was due to higher sales in Australia related to animal health management and higher fuel prices in our Canadian operations.

  • Services and other – Sales increased by 20 percent and gross profit by 10 percent this quarter compared to the same period last year, due to higher livestock export shipments and wool commissions in Australia. It was also supported by higher sales in North America related to strong demand for fall nutrient and crop protection application services. Gross profit as a percentage of sales declined this quarter due to lower Australian cattle prices.

Agrium Wholesale














Three months ended December 31

(millions of U.S. dollars)






2017

20165

Change

Sales






534

594

(60)

Sales tonnes (000's)






1,879

2,161

(282)

Cost of product sold






(447)

(459)

12

Gross profit






87

135

(48)

EBIT






76

151

(75)

EBITDA






134

208

(74)

Expenses






(11)

16

(27)

 

  • EBITDA – Wholesale gross profit and EBITDA this quarter were lower than the same period last year, as stronger results from our potash segment were more than offset by lower results for our nitrogen and phosphate segments. Downtime in our nitrogen and phosphate facilities impacted sales volumes and resulted in higher cost of product sold per tonne. Higher phosphate rock and sulfur input costs and unfavorable changes in the Canadian dollar exchange rate also increased the cost of product sold.

Agrium Potash
















Three months ended December 31

(millions of U.S. dollars)






2017

2016

Change

Sales






137

105

32

Cost of product sold






(97)

(84)

(13)

Gross profit






40

21

19

EBIT






33

13

20

EBITDA






64

39

25

 

  • Gross Profit – Potash gross profit was 90 percent higher than the fourth quarter of 2016, due to a combination of higher prices and sales volumes, which more than offset an increase in the cost of product sold per tonne.











Three months ended December 31





2017

2016

Change

Sales tonnes (000's)








North America




329

286

43


International




291

304

(13)

Selling price ($/tonne)








North America




269

211

58


International




168

148

20


Total                                  




221

179

42

Cost of product sold ($/tonne)




(157)

(143)

(14)

Margin ($/tonne)




64

36

28

 

  • Volumes – Agrium sold 5 percent higher volumes of potash in the fourth quarter of 2017 compared to the same period in 2016. Increased volumes sold domestically more than offset lower international sales, which were impacted by a reduction in Agrium's Canpotex6 allocation relative to the same period last year.

  • Price – Global benchmark potash prices were higher in the fourth quarter of 2017 compared to 2016, and this was reflected in Agrium's realized selling prices, which were 27 percent higher domestically and 14 percent higher on international sales.

  • Costs – Cost of product sold per tonne was 10 percent higher in this year's quarter versus the prior year's fourth quarter, due to unfavorable changes in the Canadian dollar exchange rate impacting production costs; higher freight costs; and a higher proportion of domestic sales than the comparable period (that include freight and distribution in the cost of product sold). Agrium's cash cost of product manufactured7 this quarter was $72 per tonne, a $10 per tonne increase over the same period last year.

Agrium Nitrogen
















Three months ended December 31

(millions of U.S. dollars)






2017

2016

Change

Sales






220

285

(65)

Cost of product sold






(186)

(200)

14

Gross profit






34

85

(51)

EBIT






26

76

(50)

EBITDA






46

99

(53)

 

  • Gross Profit - Total nitrogen gross profit was significantly reduced this quarter compared to the same period last year, due to planned and unplanned maintenance outages in the second half of 2017 that reduced product availability in the fourth quarter and resulted in higher cost per tonne. Gross profit was also impacted by slightly lower realized pricing relative to the fourth quarter of 2016.











Three months ended December 31





2017

2016

Change

Sales tonnes (000's)








Ammonia




261

334

(73)


Urea




300

439

(139)


Other




191

181

10

Selling price ($/tonne)








Ammonia




342

371

(29)


Urea




287

274

13


Other




234

222

12


Total                                 




293

298

(5)

Cost of product sold ($/tonne)




(248)

(209)

(39)

Margin ($/tonne)




45

89

(44)

 

  • Volumes - Total nitrogen sales volumes for the fourth quarter were 21 percent lower than the same period in 2016 due to lower production volumes.

  • Price - Agrium's fourth-quarter average realized price decreased compared to the prior year's fourth quarter, with price increases in urea and nitrogen solutions more than offset by lower ammonia pricing, a result of the timing of forward sales activity, and lower nitrate prices driven by lower Tampa ammonia-based contracts.

  • Costs – Total cost of product sold was 7 percent lower than the same period last year, due to lower sales volumes this quarter. However, on a cost of product sold per tonne basis, costs increased by 19 percent, primarily due to fixed costs being spread over lower sales volumes.






Natural Gas Prices



Three months ended December 31

(U.S. dollars per MMBtu)



2017

2016

Change

Overall gas cost excluding realized







derivative impact                      



1.77

2.52

(0.75)

Realized derivative impact



0.70

0.07

0.63

Overall gas cost



2.47

2.59

(0.12)

Average NYMEX



2.91

2.99

(0.08)

Average AECO



1.54

2.12

(0.58)

 

Agrium Phosphate
















Three months ended December 31

(millions of U.S. dollars)






2017

20166

Change

Sales






47

81

(34)

Cost of product sold






(49)

(72)

23

Gross profit






(2)

9

(11)

EBIT






(1)

8

(9)

EBITDA






4

13

(9)

 

  • Gross Profit - Total phosphate gross profit was a loss of $2 million compared to a profit of $9 million in the same period last year. The lower earnings were driven primarily by higher rock and sulfur costs as well as an extended maintenance shutdown at our Redwater facility, which increased cost of product sold per tonne.











Three months ended December 31





2017

2016

Change

Sales tonnes (000's)




107

191

(84)

Selling price ($/tonne)




436

420

16

Cost of product sold ($/tonne)




(448)

(379)

(69)

Margin ($/tonne)




(12)

41

(53)

 

  • Volumes - Total phosphate volumes for the quarter were 44 percent lower than the same period last year due to lower production volumes.

  • Price – The average realized selling price for phosphate was 4 percent higher than the same period last year, due to market strength in our primary selling region in Western Canada.

  • Costs – Total cost of product sold was 32 percent lower than the comparable prior period, due to the lower sales volumes this quarter as a result of the extended maintenance shutdown. On a per-tonne basis, cost of product sold was 18 percent higher, due to higher input costs, including rock and sulfur, and fixed costs being spread over lower sales volumes.

Agrium Wholesale Other
















Three months ended December 31

(millions of U.S. dollars)






2017

2016

Change

Sales






130

123

7

Cost of product sold






(115)

(103)

(12)

Gross profit






15

20

(5)

EBIT






18

54

(36)

EBITDA






20

57

(37)

 

  • Gross Profit - Total Wholesale Other gross profit was 25 percent lower in 2017's fourth quarter compared to the same period last year, due to lower ammonium sulfate availability from our Redwater facility.











Three months ended December 31





2017

2016

Change

Sales tonnes (000's)








Ammonium sulfate




61

99

(38)


ESN® and other




339

327

12

Selling price ($/tonne)








Ammonium sulfate           




261

240

21

Cost of product sold ($/tonne)




(173)

(130)

(43)

Margin ($/tonne)




88

110

(22)

 

  • Volumes – Fourth-quarter ESN® volumes were 16 percent lower than the comparable period in 2016 due to lower product availability related to an outage at our Carseland nitrogen facility. Ammonium sulfate sales volumes were 38 percent lower due to reduced production volumes.

  • Price – Stronger ESN® market conditions had a favorable impact on selling prices, while ammonium sulfate also saw higher prices due to higher nitrogen benchmark prices and strong demand in Western Canada.

  • Costs – Cost of product sold per tonne for ammonium sulfate was 33 percent higher during the quarter than the same period last year due to fixed costs being spread over lower sales volumes as a result of the above-noted outages and higher raw material prices.

Agrium Other

  • EBITDA - EBITDA for our Other non-operating business unit for the fourth quarter of 2017 was a net expense of $122 million, compared to a net expense of $115 million for the fourth quarter of 2016. The variance was primarily due to:

    • An increase of $38 million in merger and related costs.

    • An increase of $13 million in our environmental remediation provision, primarily as a result of a change in our estimated future cash outflows for our Idaho phosphate mining and processing sites.

This was partially offset by:

  • A $15 million impairment loss recorded on an international investment in 2016.

  • An increase of $11 million in our gross profit recovery as a result of lower intersegment inventories held by Retail at the end of the fourth quarter.
  • Tax - On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law. Included in Agrium's fourth-quarter earnings is a one-time net tax expense of $9 million related to the Act. The effective tax rate for the fourth quarter of 2017 remained the same with prior year (2017 and 2016: 25 percent).

POTASHCORP RESULTS

PotashCorp reported a net loss of $76 million for the quarter, however, this included non-cash impairment charges in phosphate of $276 million and net tax recovery adjustments of $118 million. Adjusted earnings were $59 million for the quarter and $455 million for the year, supported by higher potash prices and lower costs.

POTASHCORP ADJUSTED NET EARNINGS RECONCILIATION

(millions of U.S. dollars, except per share amounts)

Three months ended
December 31, 2017

Twelve months ended
December 31, 2017


Dollars

Per Share(a)

Dollars

Per Share(a)

Net (loss) income

$ (76)

$(0.09)

$327

$0.39


Adjustments:






Share-based compensation

4

-

18

0.02


Income tax recovery on US tax changes

(187)

(0.22)

(187)

(0.22)


Income tax expense on Saskatchewan tax changes

68

0.08

-

-


Impairment of property, plant and equipment

213

0.25

236

0.28


Transaction costs

37

0.04

61

0.07

Adjusted earnings 8

$ 59

$0.06

$455

$0.54

(a) Per share information attributable to equity holders of PotashCorp

 

PotashCorp Potash
















Three months ended December 31

(millions of U.S. dollars)






2017

2016

Change

Net sales






$

347

$

349

(2)

Cost of goods sold






(189)

(229)

40

Gross margin






158

120

38

 

  • Gross margin – Potash gross margin of $158 million for the fourth quarter and $785 million for the year exceeded the respective totals of $120 million and $437 million generated in 2016, primarily due to higher prices and reduced per-tonne costs.











Three months ended December 31





2017

2016

Change

Sales volumes (tonnes 000's)








North America




568

720

(152)


Offshore




1,340

1,489

(149)

Average realized price ($/tonne)








North America




214

176

38


Offshore




169

148

21


Average                              




182

157

25

Cost of goods sold ($/tonne)




(96)

(101)

5

Gross margin ($/tonne)




86

56

30

 

  • Volumes – Following record third-quarter shipments, sales volumes for the fourth quarter of 1.9 million tonnes were below the 2.2 million tonnes sold in the same period last year. In North America, shipments were 21 percent below 2016's levels, while offshore shipments decreased by 10 percent. The majority of Canpotex's volumes for the quarter were sold to China (28 percent) and Other Asian markets outside of China and India (28 percent), while Latin America and India accounted for 25 percent and 11 percent, respectively.

  • Price – Our average realized potash price of $182 per tonne surpassed the $157 per tonne realized in the same period last year, as strong customer engagement in all key markets continued to support prices.

  • Costs – Inventory-related shutdowns reduced production volumes and resulted in manufactured cost of goods sold for the quarter of $96 per tonne. This amount was down from $101 per tonne in the same period last year, primarily due to an unfavorable adjustment to asset retirement obligations recorded in the fourth quarter of 2016.

PotashCorp Nitrogen










Three months ended December 31





2017

2016

Change

(millions of U.S. dollars)







Net sales




$

316

$

289

27

Cost of goods sold




(257)

(239)

(18)

Margin on inter-segment sales




11

5

6

Gross margin




70

55

15

 

  • Gross margin – Nitrogen gross margin of $70 million for the quarter surpassed the $55 million generated in 2016's fourth quarter as stronger prices more than offset higher per-tonne costs. Our U.S. and Trinidad operations each accounted for 50 percent of the quarter's nitrogen gross margin. For the full-year, gross margin of $256 million was down from $361 million in 2016, predominantly due to lower prices and higher costs.









Three months ended December 31




2017

2016

Change

Sales volumes (tonnes 000's)







Ammonia



505

477

28


Urea



283

304

(21)


Solutions and Other



795

855

(60)

Average realized price ($/tonne)







Ammonia



270

213

57


Urea



288

245

43


Solutions and Other



138

142

(4)


Average                              



207

182

25

Cost of goods sold ($/tonne)



(167)

(151)

(16)

Gross margin ($/tonne)



40

31

9

 

  • Volumes - Total sales volumes of 1.6 million tonnes for the quarter were down 3 percent compared to the same period in 2016, primarily due to lower availability of product related to a turnaround at our Augusta facility.

  • Price - Our average realized price of $207 per tonne during the quarter was up from $182 per tonne in the same period last year, primarily due to global pricing support from lower Chinese urea exports and ammonia production curtailments in key exporting regions.

  • Costs - Cost of goods sold for the quarter averaged $167 per tonne, up from $151 per tonne in 2016's fourth quarter primarily as a result of higher natural gas costs in Trinidad.

PotashCorp Phosphate












Three months ended December 31

(millions of U.S. dollars)




2017

2016

Change

Net sales




$

302

$

290

12

Cost of goods sold




(597)

(297)

(300)

Cost on inter-segment sales




(11)

(5)

(6)

Gross margin




(306)

(12)

(294)

 

  • Gross margin – Negative phosphate gross margin of $306 million for the fourth quarter of 2017 was below the negative $12 million realized during the same period last year, primarily due to non-cash impairment charges of $276 million. For the full year, negative gross margin of $366 million – including non-cash impairment charges of $305 million – trailed the $32 million earned in 2016 when prices for nearly all our phosphate products were higher.









Three months ended December 31




2017

2016

Change

Sales volumes (tonnes 000's)







Fertilizer



534

472

62


Feed and Industrial



239

243

(4)

Average realized price ($/tonne)







Fertilizer



342

328

14


Feed and Industrial



483

551

(68)


Average                              



385

404

(19)

Cost of goods sold ($/tonne)



(782)

(420)

(362)

Gross margin ($/tonne)



(397)

(16)

(381)

 

  • Volumes – Fourth-quarter sales volumes of 0.8 million tonnes surpassed last year's comparable total of 0.7 million tonnes, mainly due to higher availability of our fertilizer products.

  • Price - Our average realized phosphate price for the fourth quarter was $385 per tonne, down from $404 per tonne in the same period last year, as higher prices for fertilizer products were more than offset by lower realizations for our feed and industrial products.

  • Costs – Cost of goods sold was $782 per tonne for the fourth quarter, significantly higher than $420 per tonne in 2016's fourth quarter, predominantly due to impairment charges at our White Springs and feed plant facilities.

PotashCorp Finance

  • Investments – Earnings from investments in Arab Potash Company (APC) in Jordan, Israel Chemicals Ltd. (ICL) in Israel and Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile – now classified as discontinued operations9 - were $44 million for the fourth quarter, exceeding the $33 million generated in the same period last year. Our earnings for the year from these investments totaled $173 million and surpassed the $124 million realized in 2016. Classified as continuing operations are dividends from Sinofert Holdings Ltd. (Sinofert) in China and a $10 million non-cash impairment charge related to this investment in 2016. Subsequent to the fourth quarter of 2017, we completed the sale of our investment in ICL, which generated net proceeds of $685 million.

  • Tax – Our income tax recovery of $153 million in the fourth quarter was larger than the $10 million recovery in 2016's fourth quarter, primarily due to the discrete $187 million non-cash deferred tax recovery resulting from a federal income tax rate decrease pursuant to U.S. tax reform legislation. This was partially offset by a non-cash discrete deferred tax expense of $68 million pertaining to a Saskatchewan income tax rate increase.

  • Transaction Costs - During the quarter, we incurred merger-related costs of $51 million, higher than the $10 million sustained in the same period last year.

Notes
1. All amounts are stated in U.S. dollars.
2. All references to per-share amounts pertain to diluted net income per share.
3. EBITDA is calculated as net earnings (loss) from continuing operations before finance costs, income tax (recovery) expense, and depreciation and amortization. This is a non-IFRS measure. Refer to Selected Non-IFRS Financial Measures and Reconciliation.
4. EBIT is calculated as net earnings (loss) from continuing operations before finance costs and income tax (recovery) expense.
5. Certain amounts have been restated as a result of discontinued operations.
6. Canpotex Limited ("Canpotex"), the offshore marketing company for Nutrien and one other Saskatchewan potash producer.
7. This is a non-IFRS measure. Refer to Selected Non-IFRS Financial Measures and Reconciliation.
8. Generally, a non-IFRS financial measure is a numerical measure of a company's performance, cash flows or financial position 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. Adjusted earnings is not a measure of financial performance (nor does it have a standardized meaning) under IFRS. In evaluating this measure, investors should consider that the methodology applied in calculating such a measure may differ among companies and analysts. The company uses both IFRS and this non-IFRS measure to assess operational performance. Management believes this non-IFRS measure provides 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. This non-IFRS financial measure should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with IFRS. Adjusted earnings is calculated as net (loss) income before share-based compensation net of tax, certain non-cash income tax changes, certain impairment charges net of tax and Transaction costs net of tax. PotashCorp uses adjusted earnings to assess operational performance. Management believes adjusted earnings to be an important measure as it excludes the effects of non-operating items and share-based compensation, supporting a focus on the performance of the company's day-to-day operations, excluding share-based compensation. As compared to net (loss) income from continuing operations according to IFRS, this measure is limited in that it does not reflect the periodic costs of charges associated with share-based compensation, income tax rate changes, impairments or Transaction costs. Management evaluates such items through other financial measures such as cash flow provided by operating activities. The company believes that this measurement is useful as a valuation measurement.
9. PotashCorp's discontinued operations includes the following investments held for sale: Sociedad Quimica y Minera de Chile S.A. ("SQM"), Arab Potash Company ("APC") and Israel Chemicals Ltd. (ICL)

About Nutrien

Nutrien is the world's largest provider of crop inputs and services, playing a critical role in helping growers increase food production in a sustainable manner. We produce and distribute over 25 million tonnes of potash, nitrogen and phosphate products world-wide. With this capability and our leading agriculture retail network, we are well positioned to supply the needs of our customers. We operate with a long-term view and are committed to working with our stakeholders as we address our economic, environmental and social priorities. The scale and diversity of our integrated portfolio provides a stable earnings base, multiple avenues for growth and the opportunity to return capital to shareholders. For further information visit us at www.nutrien.com.  

Forward-Looking Statements

Certain statements and other information included in this news release constitute "forward-looking information" or "forward-looking statements" (collectively, "forward-looking statements") under applicable securities laws (such statements are often accompanied by words such as "anticipate", "forecast", "expect", "believe", "may", "will", "should", "estimate", "intend" or other similar words). All statements in this news release, other than those relating to historical information or current conditions, are forward-looking statements, including, but not limited to: Nutrien's 2018 annual guidance, including expectations regarding our diluted earnings per share and EBITDA (both consolidated and Retail); expectations regarding net proceeds to be realized from the on-going sale of equity interests; capital spending expectations for 2018; expectations regarding performance of our business segments in 2018; our market outlook for 2018, including potash, nitrogen and phosphate outlook and including anticipated supply and demand for our products and services, expected market and industry conditions with respect to crop nutrient application rates, planted acres, crop mix, prices and the impact of currency fluctuations and import and export volumes; expectations regarding completion of previously announced expansion projects (including timing and volumes of production associated therewith) and acquisitions and divestitures; and the expected synergies associated with the merger of Agrium and PotashCorp, including timing thereof. These forward-looking statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such forward-looking statements. As such, undue reliance should not be placed on these forward-looking statements.

All of the forward-looking statements are qualified by the assumptions that are stated or inherent in such forward-looking statements, including the assumptions referred to below and elsewhere in this document. Although Nutrien believes that these assumptions are reasonable, this list is not exhaustive of the factors that may affect any of the forward-looking statements and the reader should not place an undue reliance on these assumptions and such forward-looking statements. The additional key assumptions that have been made include, among other things, assumptions with respect to Nutrien's ability to successfully integrate and realize the anticipated benefits of its already completed (including the merger of Agrium and PotashCorp) and future acquisitions, and that we will be able to implement our standards, controls, procedures and policies at any acquired businesses to realize the expected synergies; that future business, regulatory and industry conditions will be within the parameters expected by Nutrien, including with respect to prices, margins, demand, supply, product availability, supplier agreements, availability and cost of labor and interest, exchange and effective tax rates; the completion of our expansion projects on schedule, as planned and on budget; assumptions with respect to global economic conditions and the accuracy of our market outlook expectations for 2018 and in the future (including as outlined under "Market Outlook"); the adequacy of our cash generated from operations and our ability to access our credit facilities or capital markets for additional sources of financing; our ability to identify suitable candidates for acquisitions and divestitures and negotiate acceptable terms; ability to maintain investment grade rating and achieve our performance targets; assumptions in respect of our ability to sell equity positions, including the ability to find suitable buyers at expected prices and successfully complete such transactions in a timely manner; the receipt, on time, of all necessary permits, utilities and project approvals with respect to our expansion projects and that we will have the resources necessary to meet the projects' approach.  

Events or circumstances that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: general global economic, market and business conditions; the failure to successfully integrate and realize the expected synergies associated with the merger of Agrium and PotashCorp, including within the expected timeframe; weather conditions, including impacts from regional flooding and/or drought conditions; crop planted acreage, yield and prices; the supply and demand and price levels for our products; governmental and regulatory requirements and actions by governmental authorities, including changes in government policy, government ownership requirements, changes in environmental, tax and other laws or regulations and the interpretation thereof; political risks, including civil unrest, actions by armed groups or conflict and malicious acts including terrorism; the occurrence of a major environmental or safety incident; innovation and security risks related to our systems; the inability to find suitable buyers for our equity positions and counterparty and transaction risk associated therewith; regional natural gas supply restrictions; counterparty and sovereign risk; delays in completion of turnarounds at our major facilities; gas supply interruptions at our Egyptian and Argentinian facilities; any significant impairment of the carrying value of certain assets; risks related to reputational loss; certain complications that may arise in our mining processes; the ability to attract, engage and retain skilled employees and strikes or other forms of work stoppages; and other risk factors detailed from time to time in Agrium, PotashCorp and Nutrien reports filed with the Canadian securities regulators and the Securities and Exchange Commission in the United States,  including those disclosed in Agrium's annual information form for the year ended December 31, 2016 and its 2016 annual management's discussion and analysis, as well as PotashCorp's Form 10-K for the year ended December 31, 2016.

The purpose of our expected diluted earnings per share, consolidated EBITDA and Retail EBITDA guidance range is to assist readers in understanding our expected and targeted financial results, and this information may not be appropriate for other purposes.

Nutrien disclaims any intention or obligation to update or revise any forward-looking statements in this document as a result of new information or future events, except as may be required under applicable U.S. federal securities laws or applicable Canadian securities legislation.

FOR FURTHER INFORMATION:

Investor and Media Relations:
Richard Downey
Vice President, Investor & Corporate Relations
(403) 225-7357
Investors@nutrien.com

Investor Relations:
Jeff Holzman
Senior Director, Investor Relations
(306) 933-8545

Todd Coakwell
Director, Investor Relations
(403) 225-7437

Contact us at: www.nutrien.com  

______________________________________________________________________________

Nutrien will host a Conference Call on Tuesday, February 6, 2018 at 10:00 am Eastern Time.

Telephone Conference:

Dial-in numbers:


• From Canada and the U.S. 1-877-269-7756 or 1-201-689-7817


• No access code required. Please dial in 15 minutes prior to ensure you get on the call.



Live Audio Webcast:

Visit www.nutrien.com/investors/events/2017-q4-earnings-conference-call

 

Agrium Inc.

Condensed Consolidated Interim Financial Statements

For the three and twelve months ended

December 31, 2017

 

AGRIUM INC.

Condensed Consolidated Interim Statements of Operations

(Unaudited)
























Three months ended


Twelve months ended




December 31,


December 31,

(millions of U.S. dollars, unless otherwise stated)

2017


2016


2017


2016






(restated)




(restated)







Sales

2,450


2,238


13,766


13,457

Cost of product sold

1,666


1,489


10,340


10,078

Gross profit

784


749


3,426


3,379

Expenses









Selling

519


480


2,014


1,913


General and administrative

71


64


247


240


Share-based payments

29


33


69


55


Earnings from associates and joint ventures

(7)


(35)


(39)


(66)


Other expenses

50


43


119


147

Earnings before finance costs and income taxes

122


164


1,016


1,090


Finance costs related to long-term debt

55


51


210


204


Other finance costs

30


21


101


74

Earnings before income taxes

37


92


705


812


Income taxes

10


23


203


228

Net earnings from continuing operations

27


69


502


584

Net (loss) earnings from discontinued operations

(9)


(2)


(187)


12

Net earnings

18


67


315


596

Attributable to









Equity holders of Agrium

17


67


310


592


Non-controlling interests

1


-


5


4

Net earnings

18


67


315


596











Earnings per share attributable to equity holders of Agrium









Basic and diluted earnings per share from continuing operations

0.19


0.50


3.60


4.20


Basic and diluted (loss) earnings per share from discontinued










operations

(0.06)


(0.01)


(1.36)


0.09


Basic and diluted earnings per share

0.13


0.49


2.24


4.29


Weighted average number of shares outstanding for basic and










diluted earnings per share (millions of common shares)

138


138


138


138

See accompanying notes.








 

Basis of preparation and statement of compliance

The accounting policies used in the preparation of these interim financial statements are those set out in Agrium's audited consolidated financial statements as at and for the year ended December 31, 2016, which were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board, and were approved for issuance by the Agrium Inc. Audit Committee on February 5, 2018. These interim financial statements do not include all information and disclosures normally provided in annual or quarterly financial statements and should be read in conjunction with our audited annual financial statements and related notes, prepared in accordance with IFRS, contained in our 2016 Annual Report, available at www.nutrien.com.

AGRIUM INC.

Condensed Consolidated Interim Statements of Comprehensive Income

(Unaudited)







































Three months ended


Twelve months ended









December 31,


December 31,

(millions of U.S. dollars)




2017


2016


2017


2016
















Net earnings




18


67


315


596


Other comprehensive (loss) income













Items that are or may be reclassified to earnings














Cash flow hedges















Effective portion of changes in fair value




(33)


19


(92)


7





Deferred income taxes




9


(5)


25


(1)




Associates and joint ventures















Share of comprehensive income (loss)




2


(36)


(49)


(34)





Deferred income taxes




-


-


10


-




Foreign currency translation















(Losses) gains




(13)


(94)


183


59





Reclassifications to earnings




-


-


6


-









(35)


(116)


83


31



Items that will never be reclassified to earnings














Post-employment benefits















Actuarial (losses) gains




(2)


15


(5)


(10)





Deferred income taxes




1


(4)


2


3









(1)


11


(3)


(7)


Other comprehensive (loss) income




(36)


(105)


80


24

Comprehensive (loss) income




(18)


(38)


395


620

Attributable to












Equity holders of Agrium




(19)


(38)


389


616


Non-controlling interests




1


-


6


4

Comprehensive (loss) income




(18)


(38)


395


620

See accompanying notes.











 

AGRIUM INC.

Condensed Consolidated Interim Balance Sheets

(Unaudited)















































December 31,

(millions of U.S. dollars)












2017


2016

Assets
















Current assets

















Cash and cash equivalents












466


412



Accounts receivable












2,406


2,208



Income taxes receivable












18


33



Inventories












3,321


3,230



Prepaid expenses and deposits












1,004


855



Other current assets












120


123



Assets held for sale












105


-















7,440


6,861


Property, plant and equipment












7,091


6,818


Intangibles












518


566


Goodwill












2,228


2,095


Investments in associates and joint ventures












522


541


Other assets












58


48


Deferred income tax assets












85


34














17,942


16,963

Liabilities and shareholders' equity
















Current liabilities

















Short-term debt












867


604



Accounts payable












5,206


4,662



Income taxes payable












27


17



Current portion of long-term debt












11


110



Current portion of other provisions












63


59














6,174


5,452


Long-term debt












4,397


4,398


Post-employment benefits












142


141


Other provisions












522


322


Other liabilities












106


68


Deferred income tax liabilities












473


408














11,814


10,789


Shareholders' equity

















Share capital












1,776


1,766



Retained earnings












5,461


5,634



Accumulated other comprehensive loss












(1,116)


(1,231)



Equity holders of Agrium












6,121


6,169



Non-controlling interests












7


5



Total equity












6,128


6,174














17,942


16,963

See accompanying notes.















 

AGRIUM INC.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited)
























Three months ended


Twelve months ended




December 31,


December 31,

(millions of U.S. dollars)

2017


2016


2017


2016






(restated)




(restated)











Operating









Net earnings from continuing operations

27


69


502


584


Adjustments for










Depreciation and amortization

138


131


530


493



Earnings from associates and joint ventures

(7)


(35)


(39)


(66)



Share-based payments

29


33


69


55



Unrealized loss on derivative financial instruments

2


-


1


36



Unrealized foreign exchange loss (gain)

-


1


31


(19)



Interest income

(16)


(17)


(59)


(66)



Finance costs

85


72


311


278



Income taxes

10


23


203


228



Other

30


26


34


23


Interest received

16


16


61


66


Interest paid

(68)


(49)


(308)


(272)


Income taxes paid

(7)


(14)


(20)


(291)


Dividends from associates and joint ventures

7


68


18


116


Net changes in non-cash working capital

1,338


1,101


(15)


472

Cash provided by operating activities

1,584


1,425


1,319


1,637

Investing









Business acquisitions, net of cash acquired

(19)


(26)


(203)


(342)


Capital expenditures

(219)


(170)


(677)


(701)


Capitalized borrowing costs

-


(6)


(12)


(24)


Purchase of investments

(4)


(16)


(63)


(77)


Proceeds from sale of investments

5


19


69


97


Proceeds from sale of property, plant and equipment

6


2


34


16


Other

(8)


51


(19)


33


Net changes in non-cash working capital

-


10


(51)


5

Cash used in investing activities

(239)


(136)


(922)


(993)

Financing









Short-term debt

(1,011)


(1,092)


258


(188)


Repayment of long-term debt

(2)


(1)


(110)


(17)


Dividends paid

(121)


(120)


(483)


(482)

Cash used in financing activities

(1,134)


(1,213)


(335)


(687)

Effect of exchange rate changes on cash and cash equivalents

(5)


(9)


(12)


(67)

Increase (decrease) in cash and cash equivalents from









continuing operations

206


67


50


(110)

Cash and cash equivalents provided by discontinued









operations

14


34


4


7

Cash and cash equivalents – beginning of period

246


311


412


515

Cash and cash equivalents – end of period

466


412


466


412

See accompanying notes.








 

AGRIUM INC.

Condensed Consolidated Interim Statements of Shareholders' Equity

(Unaudited)

































Other comprehensive income (loss)







Millions




Comprehensive









of



Cash

loss of

Foreign


Equity

Non-





common

Share

Retained

flow

associates and

currency


holders of

controlling

Total

(millions of U.S. dollars, except per share data)

shares

capital

earnings

hedges

joint ventures

translation

Total

Agrium

interests

equity

December 31, 2015

138

1,757

5,533

(56)

(17)

(1,214)

(1,287)

6,003

4

6,007


Net earnings

-

-

592

-

-

-

-

592

4

596


Other comprehensive income (loss), net of tax













Post-employment benefits

-

-

(7)

-

-

-

-

(7)

-

(7)



Other

-

-

-

6

(34)

59

31

31

-

31


Comprehensive income (loss), net of tax

-

-

585

6

(34)

59

31

616

4

620


Dividends ($3.5 per share)

-

-

(484)

-

-

-

-

(484)

-

(484)


Non-controlling interest transactions

-

-

-

-

-

-

-

-

(3)

(3)


Share-based payment transactions

-

9

-

-

-

-

-

9

-

9


Reclassification of cash flow hedges, net of tax

-

-

-

25

-

-

25

25

-

25

December 31, 2016

138

1,766

5,634

(25)

(51)

(1,155)

(1,231)

6,169

5

6,174


Net earnings

-

-

310

-

-

-

-

310

5

315


Other comprehensive income (loss), net of tax













Post-employment benefits

-

-

(3)

-

-

-

-

(3)

-

(3)



Other

-

-

-

(67)

(39)

188

82

82

1

83


Comprehensive income (loss), net of tax

-

-

307

(67)

(39)

188

82

389

6

395


Dividends ($3.5 per share)

-

-

(483)

-

-

-

-

(483)

-

(483)


Non-controlling interest transactions

-

-

3

-

-

(2)

(2)

1

(4)

(3)


Share-based payment transactions

-

10

-

-

-

-

-

10

-

10


Reclassification of cash flow hedges, net of tax

-

-

-

35

-

-

35

35

-

35

December 31, 2017

138

1,776

5,461

(57)

(90)

(969)

(1,116)

6,121

7

6,128

See accompanying notes.












 

Agrium Inc.
Summarized Notes to the Condensed Consolidated Interim Financial Statements
For the three and twelve months ended December 31, 2017
(millions of U.S. dollars, unless otherwise stated)
(Unaudited)

1.  Corporate Management

Corporate information

Agrium Inc. ("Agrium") is incorporated under the laws of Canada. Our Corporate head office is located at 13131 Lake Fraser Drive S.E., Calgary, Canada. We conduct our operations globally from our Wholesale head office in Calgary and our Retail head office in Loveland, Colorado, United States.

Agrium completed a merger with Potash Corporation of Saskatchewan Inc., on January 1, 2018 ("the Merger"). After that date, shares of Agrium no longer trade publicly. The merged companies began trading on the Toronto Stock Exchange and New York Stock Exchange as Nutrien Ltd. ("Nutrien"), under the symbol NTR on January 2, 2018. Further information about the Merger is available in Nutrien's press release of January 2, 2018, and other documents at www.sedar.com.

In these financial statements, "we", "us", "our" and "Agrium" mean Agrium Inc., its subsidiaries and its joint arrangements.

We categorize our operating segments within the Retail and Wholesale business units as follows:

  • Retail: Distributes crop nutrients, crop protection products, seed and merchandise and provides financial and other services directly to growers through a network of farm centers in two geographical segments:
    • North America including the United States and Canada
    • International including Australia and South America
  • Wholesale: Produces, markets and distributes crop nutrients and industrial products as follows:
    • Nitrogen: Manufacturing in Alberta and Texas
    • Potash: Mining and processing in Saskatchewan
    • Phosphate: Production facilities in Alberta and prior to the Conda Phosphate operations disposition as described below, mining facilities in Idaho
    • Wholesale Other: Producing blended crop nutrients and Environmentally Smart Nitrogen® (ESN) polymer-coated nitrogen crop nutrients, and operating joint ventures and associates

Additional information on our operating segments is included in note 2.

Seasonality in our business results from increased demand for our products during planting seasons. Sales are generally higher in spring and fall.

Discontinued operations and assets held for sale

On January 12, 2018, we completed the agreements with third parties to dispose of our Conda phosphate operations ("CPO") and North Bend nitrogen assets ("North Bend"). The sale of CPO and North Bend are the subject of a consent order proposed to the United States Federal Trade Commission (FTC) as remedies to resolve issues in superphosphoric acid and nitric acid related to the Merger. On December 27, 2017, the FTC published related documents, including a proposed consent order, which were open for public comment until January 29, 2018, after which the FTC will decide whether to make the proposed consent order final.

These assets were previously classified as held for sale, as FTC approval and completion of the sales of CPO and North Bend assets is considered highly probable. Additionally, as CPO comprises operations and cash flows that can be clearly distinguished operationally and for financial reporting purposes, its operating results and the impact of re-measurement to the selling price are included in discontinued operations for the quarter and year ended December 31, 2017, and in the comparative quarter and year ended December 31, 2016. Discontinued operations exclude elimination of intercompany transactions.

2.  Operating Segments




Three months ended December 31,

Segment information by business unit

2017


2016




Retail

Wholesale

Other (a)


Total


Retail

Wholesale

Other (a)


Total

Sales

- external

2,076

374

-


2,450


1,816

422

-


2,238



- inter-segment

13

160

(173)


-


12

172

(184)


-

Total sales

2,089

534

(173)


2,450


1,828

594

(184)


2,238

Cost of product sold

1,394

447

(175)


1,666


1,205

459

(175)


1,489

Gross profit

695

87

2


784


623

135

(9)


749

Gross profit (%)

33

16



32


34

23



33

Expenses













Selling

517

6

(4)


519


476

9

(5)


480


General and administrative

26

8

37


71


26

6

32


64


Share-based payments

-

-

29


29


-

-

33


33


Earnings from associates and joint ventures

(1)

(5)

(1)


(7)


(1)

(34)

-


(35)


Other (income) expenses

(21)

2

69


50


(12)

3

52


43

Earnings (loss) before finance costs and income taxes

174

76

(128)


122


134

151

(121)


164


Finance costs

-

-

85


85


-

-

72


72

Earnings (loss) before income taxes

174

76

(213)


37


134

151

(193)


92


Depreciation and amortization

74

58

6


138


68

57

6


131


Finance costs

-

-

85


85


-

-

72


72

EBITDA (b)

248

134

(122)


260


202

208

(115)


295

(a)  Includes inter-segment eliminations

(b)  EBITDA is net earnings (loss) before finance costs, income taxes, depreciation and amortization, and net earnings (loss) from discontinued operations.





























Segment information by business unit

Twelve months ended December 31,




2017


2016




Retail

Wholesale

Other (a)


Total


Retail

Wholesale

Other (a)


Total

Sales

- external

12,056

1,710

-


13,766


11,723

1,734

-


13,457



- inter-segment

47

649

(696)


-


43

694

(737)


-

Total sales

12,103

2,359

(696)


13,766


11,766

2,428

(737)


13,457

Cost of product sold

9,157

1,888

(705)


10,340


8,980

1,872

(774)


10,078

Gross profit

2,946

471

9


3,426


2,786

556

37


3,379

Gross profit (%)

24

20



25


24

23



25

Expenses













Selling

2,007

24

(17)


2,014


1,899

31

(17)


1,913


General and administrative

100

26

121


247


102

28

110


240


Share-based payments

-

-

69


69


-

-

55


55


(Earnings) loss from associates and joint ventures

(9)

(30)

-


(39)


(6)

(61)

1


(66)


Other (income) expenses

(42)

34

127


119


(26)

57

116


147

Earnings (loss) before finance costs and income taxes

890

417

(291)


1,016


817

501

(228)


1,090


Finance costs

-

-

311


311


-

-

278


278

Earnings (loss) before income taxes

890

417

(602)


705


817

501

(506)


812


Depreciation and amortization

289

222

19


530


274

203

16


493


Finance costs

-

-

311


311


-

-

278


278

EBITDA

1,179

639

(272)


1,546


1,091

704

(212)


1,583

(a)  Includes inter-segment eliminations












 

Segment information – Retail



Three months ended December 31,






2017


2016






North








North











America


International



Retail



America


International



Retail

Sales

- external



1,510


566



2,076



1,332


484



1,816



- inter-segment



13


-



13



12


-



12

Total sales



1,523


566



2,089



1,344


484



1,828

Cost of product sold



990


404



1,394



860


345



1,205

Gross profit



533


162



695



484


139



623

Expenses


















Selling



419


98



517



376


100



476


General and administrative



18


8



26



18


8



26


Earnings from associates and joint ventures



-


(1)



(1)



-


(1)



(1)


Other income



(16)


(5)



(21)



(5)


(7)



(12)

Earnings before income taxes



112


62



174



95


39



134


Depreciation and amortization



70


4



74



60


8



68

EBITDA



182


66



248



155


47



202







































Segment information – Retail



Twelve months ended December 31,






2017


2016






North








North











America


International



Retail



America


International



Retail

Sales

- external



9,874


2,182



12,056



9,565


2,158



11,723



- inter-segment



47


-



47



43


-



43

Total sales



9,921


2,182



12,103



9,608


2,158



11,766

Cost of product sold



7,513


1,644



9,157



7,306


1,674



8,980

Gross profit



2,408


538



2,946



2,302


484



2,786

Expenses


















Selling



1,652


355



2,007



1,555


344



1,899


General and administrative



71


29



100



72


30



102


Earnings from associates and joint ventures



(7)


(2)



(9)



(4)


(2)



(6)


Other (income) expenses



(24)


(18)



(42)



3


(29)



(26)

Earnings before income taxes



716


174



890



676


141



817


Depreciation and amortization



273


16



289



249


25



274

EBITDA



989


190



1,179



925


166



1,091

 

Segment information – Wholesale

Three months ended December 31,




2017


2016







Wholesale






Wholesale





Nitrogen

Potash

Phosphate

Other (a)

Wholesale


Nitrogen

Potash

Phosphate

Other (a)

Wholesale

Sales

- external

156

101

19

98

374


218

74

40

90

422



- inter-segment

64

36

28

32

160


67

31

41

33

172

Total sales

220

137

47

130

534


285

105

81

123

594

Cost of product sold

186

97

49

115

447


200

84

72

103

459

Gross profit

34

40

(2)

15

87


85

21

9

20

135

Expenses













Selling

3

1

1

1

6


4

2

1

2

9


General and administrative

5

3

(1)

1

8


4

2

-

-

6


Earnings from associates and joint ventures

-

-

-

(5)

(5)


-

-

-

(34)

(34)


Other expenses (income)

-

3

(1)

-

2


1

4

-

(2)

3

Earnings (loss) before income taxes

26

33

(1)

18

76


76

13

8

54

151


Depreciation and amortization

20

31

5

2

58


23

26

5

3

57

EBITDA

46

64

4

20

134


99

39

13

57

208

(a)  Includes ammonium sulfate, ESN and other products














Segment information – Wholesale

Twelve months ended December 31,




2017


2016







Wholesale






Wholesale





Nitrogen

Potash

Phosphate

Other (a)

Wholesale


Nitrogen

Potash

Phosphate

Other (a)

Wholesale

Sales

- external

755

386

115

454

1,710


860

280

148

446

1,734



- inter-segment

254

133

122

140

649


284

139

141

130

694

Total sales

1,009

519

237

594

2,359


1,144

419

289

576

2,428

Cost of product sold

757

390

228

513

1,888


757

367

261

487

1,872

Gross profit

252

129

9

81

471


387

52

28

89

556

Expenses













Selling

12

5

2

5

24


14

7

2

8

31


General and administrative

13

6

-

7

26


13

7

1

7

28


Earnings from associates and joint ventures

-

-

-

(30)

(30)


-

-

-

(61)

(61)


Other expenses (income)

18

13

3

-

34


31

28

2

(4)

57

Earnings before income taxes

209

105

4

99

417


329

10

23

139

501


Depreciation and amortization

79

113

17

13

222


75

99

16

13

203

EBITDA

288

218

21

112

639


404

109

39

152

704

(a)  Includes ammonium sulfate, ESN and other products










 

Gross profit by product line

Three months ended December 31,


Twelve months ended December 31,



2017


2016


2017


2016




Cost of




Cost of




Cost of




Cost of





product

Gross



product

Gross



product

Gross



product

Gross



Sales

sold

profit


Sales

sold

profit


Sales

sold

profit


Sales

sold

profit

Retail

















Crop nutrients

890

722

168


779

632

147


4,121

3,273

848


4,310

3,478

832


Crop protection products

712

385

327


620

324

296


4,937

3,752

1,185


4,684

3,570

1,114


Seed

107

56

51


101

58

43


1,628

1,303

325


1,462

1,165

297


Merchandise

187

159

28


167

140

27


683

577

106


621

518

103


Services and other (a)

193

72

121


161

51

110


734

252

482


689

249

440



2,089

1,394

695


1,828

1,205

623


12,103

9,157

2,946


11,766

8,980

2,786

Wholesale

















Nitrogen

220

186

34


285

200

85


1,009

757

252


1,144

757

387


Potash

137

97

40


105

84

21


519

390

129


419

367

52


Phosphate

47

49

(2)


81

72

9


237

228

9


289

261

28


Ammonium sulfate, ESN and other

130

115

15


123

103

20


594

513

81


576

487

89



534

447

87


594

459

135


2,359

1,888

471


2,428

1,872

556

Other inter-segment eliminations

(173)

(175)

2


(184)

(175)

(9)


(696)

(705)

9


(737)

(774)

37

Total

2,450

1,666

784


2,238

1,489

749


13,766

10,340

3,426


13,457

10,078

3,379


















Wholesale share of joint ventures

















Nitrogen

68

47

21


65

53

12


216

167

49


196

164

32

Total Wholesale including proportionate

















share in joint ventures

602

494

108


659

512

147


2,575

2,055

520


2,624

2,036

588

(a)  Includes financial services products
















 

Selected volumes and per tonne information

Three months ended December 31,






2017


2016










Cost of








Cost of








Sales


Selling


product




Sales


Selling


product








tonnes


price


sold


Margin


tonnes


price


sold


Margin






(000's)


($/tonne)


($/tonne)


($/tonne)


(000's)


($/tonne)


($/tonne)


($/tonne)

Retail


















Crop nutrients



















North America


1,791


404


328


76


1,593


395


317


78



International


429


386


311


75


395


381


321


60


Total crop nutrients


2,220


401


325


76


1,988


392


318


74





















Wholesale


















Nitrogen



















North America




















Ammonia


261


342






334


371








Urea


300


287






439


274








Other                              


191


234






181


222






Total nitrogen


752


293


248


45


954


298


209


89






















Potash



















North America


329


269






286


211







International


291


168






304


148






Total potash


620


221


157


64


590


179


143


36






















Phosphate


107


436


448


(12)


191


420


379


41


Ammonium sulfate


61


261


173


88


99


240


130


110


ESN and other


339








327







Total Wholesale


1,879


284


238


46


2,161


275


213


62





















Wholesale share of joint ventures


















Nitrogen


200


339


234


105


222


293


235


58

Total Wholesale including proportionate share


















in joint ventures


2,079


289


237


52


2,383


276


215


61









































Selected volumes and per tonne information

Twelve months ended December 31,






2017


2016










Cost of








Cost of








Sales


Selling


product




Sales


Selling


product








tonnes


price


sold


Margin


tonnes


price


sold


Margin






(000's)


($/tonne)


($/tonne)


($/tonne)


(000's)


($/tonne)


($/tonne)


($/tonne)

Retail


















Crop nutrients



















North America


8,373


414


323


91


8,003


446


351


95



International


1,829


356


311


45


1,956


379


341


38


Total crop nutrients


10,202


404


321


83


9,959


433


349


84





















Wholesale


















Nitrogen



















North America




















Ammonia


1,035


378






1,165


402








Urea


1,475


283






1,620


294








Other 


863


231






817


244






Total nitrogen


3,373


299


224


75


3,602


318


211


107






















Potash



















North America


1,335


256






1,187


217







International


1,097


162






1,052


154






Total potash


2,432


213


160


53


2,239


187


164


23






















Phosphate


551


429


414


15


640


450


408


42


Ammonium sulfate


345


267


132


135


341


268


122


146


ESN and other


1,516








1,439







Total Wholesale


8,217


287


230


57


8,261


294


227


67





















Wholesale share of joint ventures


















Nitrogen


713


303


234


69


669


293


245


48

Total Wholesale including proportionate share


















in joint ventures


8,930


288


230


58


8,930


294


228


66

 

Agrium Inc. SELECTED NON-IFRS FINANCIAL MEASURES AND RECONCILIATIONS

Certain financial measures in our Press Release are not prescribed by IFRS. We consider these financial measures discussed herein to provide useful information to both management and investors in measuring our financial performance and financial condition.

IFRS requires that we provide and include subtotals and other financial measures in our Consolidated Financial Statements. Such measures become IFRS measures by virtue of being included in the Consolidated Financial Statements. Other measures that are not specifically defined under IFRS and may not be comparable to similar measures used by other issuers are non-IFRS measures. These non-IFRS measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS.

The following table outlines our non-IFRS financial measures, their definitions and why management uses each measure.

Non-IFRS financial measure

Definition

Why we use the measure and why it is useful to investors

EBITDA

Net earnings (loss) before finance costs, income taxes, depreciation and amortization, and net earnings (loss) from discontinued operations

EBITDA is frequently used by investors and analysts for valuation purposes when multiplied by a factor to estimate the enterprise value of a company. EBITDA is also used in determining annual incentive compensation for certain management employees and in calculating certain of our debt covenants.

Adjusted and guidance EPS

Net earnings (loss) adjusted for certain income (expenses) that are considered to be non-operational in nature.

These measures provide meaningful comparison to our guidance by eliminating share-based payments expense (recovery), gains (losses) on foreign exchange and related gains (losses) on non-qualifying derivative hedges and significant non-operating, non-recurring items. Our guidance is forward-looking information. We present guidance relevant earnings (loss) per share to provide an update to this previously disclosed forward-looking information.

Cash cost of production manufactured (COPM)

All fixed and variable costs are accumulated in cash COPM excluding depreciation and amortization expense and direct freight.

Enables investors to better understand the performance of our manufactured operations compared to other crop nutrient producers.

When cash COPM costs are divided by the production tonnes for the period, the result is actual cash COPM per tonne, which is compared to the standard cash COPM per tonne – a calculation of fixed and variable costs for a standard or typical period of production. The standard cash COPM per tonne is multiplied by the production tonnes for the period, and the resulting dollar amount is transferred to inventory. Any remaining costs are recorded directly to cost of product sold as production volume or cost efficiency variances.

 

Direct freight is a transportation cost to move the product from an Agrium location to the point of sale.

 

There is no directly comparable IFRS measure for cash COPM.

 

Consolidated and business unit EBITDA

Three months ended December 31,

(millions of U.S. dollars)

Retail

Wholesale

Other

Consolidated

2017





Net earnings




18

Finance costs related to long-term debt




55

Other finance costs




30

Income taxes




10

Net loss from discontinued operations




9

EBIT

174

76

(128)

122

Depreciation and amortization

74

58

6

138

EBITDA

248

134

(122)

260

2016





Net earnings




67

Finance costs related to long-term debt




51

Other finance costs




21

Income taxes




23

Net loss from discontinued operations




2

EBIT

134

151

(121)

164

Depreciation and amortization

68

57

6

131

EBITDA

202

208

(115)

295

 

Potash Corporation of Saskatchewan Inc.

Condensed Consolidated Interim Financial Statements

For the three and twelve months ended

December 31, 2017

 

Potash Corporation of Saskatchewan Inc.

Condensed Consolidated Statements of (Loss) Income

(in millions of US dollars except as otherwise noted)

(unaudited)












Three Months Ended

Twelve Months Ended


December 31

December 31


2017

2016 (1)

2017

2016 (1)






Sales (Note 2)

$

1,081

$

1,058

$

4,547

$

4,456

Freight, transportation and distribution

(116)

(130)

(537)

(535)

Cost of goods sold (Note 2)

(1,043)

(765)

(3,335)

(3,091)

Gross Margin

(78)

163

675

830

Selling and administrative expenses

(60)

(45)

(214)

(212)

Provincial mining and other taxes

(26)

(36)

(151)

(124)

Transaction costs (Note 3)

(51)

(10)

(84)

(18)

Other expenses (Note 4)

-

(14)

(17)

(17)

Operating (Loss) Income

(215)

58

209

459

Finance costs

(58)

(55)

(238)

(216)

(Loss) Income Before Income Taxes

(273)

3

(29)

243

Income tax recovery (expense) (Note 5)

153

10

183

(44)

Net (Loss) Income from Continuing Operations

(120)

13

154

199

Net Income from Discontinued Operations (Note 6)

44

33

173

124

Net (Loss) Income

$

(76)

$

46

$

327

$

323






Net (Loss) Income per Share from Continuing Operations






Basic

$

(0.14)

$

0.02

$

0.18

$

0.24


Diluted

$

(0.14)

$

0.02

$

0.18

$

0.24






Net (Loss) Income per Share from Continuing and Discontinued Operations




Basic

$

(0.09)

$

0.05

$

0.39

$

0.39


Diluted

$

(0.09)

$

0.05

$

0.39

$

0.38






Dividends Declared per Share

$

0.10

$

0.10

$

0.40

$

0.70






Weighted Average Shares Outstanding






Basic

840,203,000

839,721,000

840,079,000

838,928,000


Diluted

840,606,000

840,142,000

840,316,000

839,459,000

(1) Certain amounts have been reclassified as a result of discontinued operations described in Note 6.

(See Notes to the Condensed Consolidated Financial Statements)

 

Potash Corporation of Saskatchewan Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(in millions of US dollars)

(unaudited)















Three Months Ended

Twelve Months Ended



December 31

December 31

(Net of related income taxes)


2017

2016

2017

2016







Net (Loss) Income


$

(76)

$

46

$

327

$

323

Other comprehensive (loss) income








Items that will not be reclassified to net income:









Net actuarial gain on defined benefit plans (1)


46

119

46

16



Items that have been or may be subsequently reclassified to









net income:









Available-for-sale investments (2)









Net fair value (loss) gain during the period


(98)

54

30

(34)




Cash flow hedges









Net fair value (loss) gain during the period (3)


(9)

9

(17)

7




Reclassification to income of net loss (4)


6

11

34

50




Other


1

-

3

2

Other Comprehensive (Loss) Income


(54)

193

96

41

Comprehensive (Loss) Income


$

(130)

$

239

$

423

$

364

(1) Net of income taxes of $(20) (2016 - $(76)) for the three months ended December 31, 2017, and $(20) (2016 – $(16)) for the twelve months ended December 31, 2017.

(2) Available-for-sale investments are comprised of shares in Israel Chemicals Ltd. ("ICL"), Sinofert Holdings Ltd. ("Sinofert") and other. The company's investment in ICL was classified as held for sale at December 31, 2017 and the divestiture of all equity interests in ICL was completed on January 24, 2018.

(3) Cash flow hedges are comprised of natural gas derivative instruments and were net of income taxes of $(7) (2016 - $(4)) for the three months ended December 31, 2017 and $(3) (2016 - $(4)) for the twelve months ended December 31, 2017. In the fourth quarter of 2017, related deferred income tax assets were reduced by $8 due to a US federal income tax rate decrease.

(4) Net of income taxes of $(5) (2016 - $(6)) for the three months ended December 31, 2017 and $(20) (2016 - $(28)) for the twelve months ended December 31, 2017.

(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

Twelve Months Ended





December 31

December 31





2017

2016

2017

2016









Operating Activities








Net (loss) income




$

(76)

$

46

$

327

$

323

Adjustments to reconcile net income to cash provided by









operating activities (Note 7)




294

246

826

877

Changes in non-cash operating working capital (Note 7)




163

61

72

60

Cash provided by operating activities




381

353

1,225

1,260









Investing Activities








Additions to property, plant and equipment




(220)

(245)

(651)

(893)

Other assets and intangible assets




-

8

(1)

(2)

Cash used in investing activities




(220)

(237)

(652)

(895)









Financing Activities








Proceeds from long-term debt obligations




-

496

-

496

Repayment of, and finance costs on, long-term debt obligations




(500)

(4)

(501)

(8)

Proceeds from (repayment of) short-term debt obligations




440

(647)

341

(128)

Dividends




(82)

(82)

(330)

(809)

Issuance of common shares




-

-

1

25

Cash used in financing activities




(142)

(237)

(489)

(424)

Increase (Decrease) in Cash and Cash Equivalents




19

(121)

84

(59)

Cash and Cash Equivalents, Beginning of Period




97

153

32

91

Cash and Cash Equivalents, End of Period




$

116

$

32

$

116

$

32









Cash and cash equivalents comprised of:









Cash




$

14

$

13

$

14

$

13


Short-term investments




102

19

102

19





$

116

$

32

$

116

$

32

(See Notes to the Condensed Consolidated Financial Statements)

 

Potash Corporation of Saskatchewan Inc.

Condensed Consolidated Statement of Changes in Shareholders' Equity

(in millions of US dollars)

(unaudited)



















Accumulated Other Comprehensive (Loss) Income







Net unrealized


Net


Total







gain on

Net (loss) gain

actuarial


Accumulated







available-

on derivatives

gain on


Other





Share

Contributed

for-sale

designated as

defined


Comprehensive

Retained

Total



Capital

Surplus

investments (1)

cash flow hedges

benefit plans (2)

Other

(Loss) Income

Earnings

Equity












Balance - December 31, 2016

$

1,798

$

222

$

43

$

(60)

$

-

$

(8)

$

(25)

$

6,204

$

8,199

Net income

-

-

-

-

-

-

-

327

327

Other comprehensive income

-

-

30

17

46

3

96

-

96

Dividends declared

-

-

-

-

-

-

-

(335)

(335)

Effect of share-based compensation











including issuance of common shares

2

8

-

-

-

-

-

-

10

Shares issued for dividend











reinvestment plan

6

-

-

-

-

-

-

-

6

Transfer of net actuarial gain on











defined benefit plans

-

-

-

-

(46)

-

(46)

46

-

Balance - December 31, 2017

$

1,806

$

230

$

73

$

(43)

$

-

$

(5)

$

25

$

6,242

$

8,303

(1) The cumulative net unrealized gain on the available-for-sale investment in ICL, classified as held for sale as described in Note 6, was $4 at December 31, 2017.

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

(See Notes to the Condensed Consolidated Financial Statements)

 

Potash Corporation of Saskatchewan Inc.

Condensed Consolidated Statements of Financial Position

(in millions of US dollars except share amounts)

(unaudited)











December 31

December 31

As at


2017

2016








Assets







Current assets







Cash and cash equivalents


$

116

$

32



Receivables


489

545



Inventories


788

768



Prepaid expenses and other current assets


72

49





1,465


1,394



Assets held for sale (Note 6)


1,858

-





3,323


1,394


Non-current assets






Property, plant and equipment


12,971

13,318



Investments in equity-accounted investees (Note 6)


30

1,173



Available-for-sale investments (Note 6)


262

940



Other assets


246

250



Intangible assets


166

180

Total Assets


$

16,998

$

17,255













Liabilities








Current liabilities






Short-term debt and current portion of long-term debt


$730

$884



Payables and accrued charges


807

772



Current portion of derivative instrument liabilities


29

41




1,566


1,697



Deferred income tax liabilities on assets held for sale (Note 6)


36

-





1,602


1,697


Non-current liabilities








Long-term debt


3,711

3,707



Derivative instrument liabilities


35

56



Deferred income tax liabilities


2,205

2,463



Pension and other post-retirement benefit liabilities


440

443



Asset retirement obligations and accrued environmental costs


651

643



Other non-current liabilities and deferred credits


51

47

Total Liabilities



8,695


9,056







Shareholders' Equity







Share capital


1,806

1,798



Unlimited authorization of common shares without par value;






issued and outstanding 840,223,041 and 839,790,379 at






December 31, 2017 and December 31, 2016, respectively





Contributed surplus


230

222


Accumulated other comprehensive income (loss)


25

(25)


Retained earnings


6,242

6,204

Total Shareholders' Equity


8,303

8,199

Total Liabilities and Shareholders' Equity


$

16,998

$

17,255

(See Notes to the Condensed Consolidated Financial Statements)

 

Potash Corporation of Saskatchewan Inc.
Notes to the Condensed Consolidated Financial Statements
For the Three and Twelve Months Ended December 31, 2017
(in millions of US dollars except as otherwise noted)
(unaudited)

1. Significant Accounting Policies

With its subsidiaries, Potash Corporation of Saskatchewan Inc. ("PCS") — together known as "PotashCorp" or "the company" except to the extent the context otherwise requires — forms a crop nutrient and related industrial and feed products company. The company's accounting policies are in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS"). The accounting policies and methods of computation used in preparing these unaudited interim condensed consolidated financial statements are consistent with those used in the preparation of the company's 2016 annual consolidated financial statements, with the exception of investments held for sale and discontinued operations included in Note 6 of these unaudited condensed consolidated financial statements, which were not previously disclosed.

These unaudited condensed consolidated financial statements include the accounts of PCS and its subsidiaries; however, they do not include all disclosures normally provided in annual consolidated financial statements and should be read in conjunction with the company's 2016 annual consolidated financial statements. The company's 2017 annual consolidated financial statements will include additional information under IFRS in its Annual Report in February 2018.

In management's opinion, the unaudited condensed consolidated financial statements include all adjustments necessary to present fairly such information.

2. Segment Information

The company has three reportable operating segments: potash, nitrogen and phosphate. The accounting policies of the segments are the same as those described in Note 1. Inter-segment sales are made under terms that approximate market value.




Three Months Ended December 31, 2017





Potash

Nitrogen

Phosphate

All Others

Consolidated











Sales - third party

$

383

$

348

$

350

$

-

$

1,081


Freight, transportation and distribution - third party

(36)

(32)

(48)

-

(116)


Net sales - third party

347

316

302

-



Cost of goods sold - third party

(189)

(257)

(597)

-

(1,043)


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

-

11

(11)

-

-


Gross margin

158

70

(306)

-

(78)











Items included in cost of goods sold,








selling and administrative or other expenses:









Depreciation and amortization

(49)

(59)

(54)

(10)

(172)




Impairment of property, plant and equipment (2)

-

-

(276)

-

(276)











Cash outflows for additions to property,








plant and equipment

82

96

40

2

220


(1) Inter-segment net sales were $20.

(2) During the fourth quarter of 2017, the company recognized an impairment loss of $250 associated with its White Springs and Feed Plants

cash generating unit ("CGU"). At December 31, 2017, the recoverable amount of this CGU was $96 based on value in use. Remaining impairment
losses relate to phosphate property, plant and equipment at Aurora as a result of a mining method the company will no longer use. 
Recoverable amount was based on fair value less costs to sell.













Three Months Ended December 31, 2016





Potash

Nitrogen

Phosphate

All Others

Consolidated











Sales - third party

$

403

$

323

$

332

$

-

$

1,058


Freight, transportation and distribution - third party

(54)

(34)

(42)

-

(130)


Net sales - third party

349

289

290

-



Cost of goods sold - third party

(229)

(239)

(297)

-

(765)


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

-

5

(5)

-

-


Gross margin

120

55

(12)

-

163











Items included in cost of goods sold,








selling and administrative or other expenses:









Depreciation and amortization

(57)

(54)

(58)

(8)

(177)




Impairment of property, plant and equipment

-

-

(20)

-

(20)











Cash outflows for additions to property,








plant and equipment

83

85

74

3

245


(1) Inter-segment net sales were $14.





Twelve Months Ended December 31, 2017





Potash

Nitrogen

Phosphate

All Others

Consolidated











Sales - third party

$

1,868

$

1,395

$

1,284

$

-

$

4,547


Freight, transportation and distribution - third party

(235)

(129)

(173)

-

(537)


Net sales - third party

1,633

1,266

1,111

-



Cost of goods sold - third party

(848)

(1,046)

(1,441)

-

(3,335)


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

-

36

(36)

-

-


Gross margin

785

256

(366)

-

675











Items included in cost of goods sold,








selling and administrative or other expenses:









Depreciation and amortization

(232)

(203)

(220)

(37)

(692)




Impairment of property, plant and equipment (2)

-

-

(305)

-

(305)











Cash outflows for additions to property,








plant and equipment

219

239

185

8

651


(1) Inter-segment net sales were $74.


(2) During the fourth quarter of 2017, the company recognized an impairment loss of $250 associated with its White Springs and Feed Plants CGU.

At December 31, 2017, the recoverable amount of this CGU was $96 based on value in use. Remaining impairment losses relate to phosphate

property, plant and equipment at Aurora as a result of a feed product the company will no longer produce and a mining method the company will
no longer use.
Recoverable amounts were based on fair value less costs to sell.










Twelve Months Ended December 31, 2016



Potash

Nitrogen

Phosphate

All Others

Consolidated









Sales - third party

$

1,630

$

1,467

$

1,359

$

-

$

4,456


Freight, transportation and distribution - third party

(250)

(122)

(163)

-

(535)


Net sales - third party

1,380

1,345

1,196

-



Cost of goods sold - third party

(943)

(1,016)

(1,132)

-

(3,091)


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

-

32

(32)

-

-


Gross margin

437

361

32

-

830







Items included in cost of goods sold,








selling and administrative or other expenses           









Depreciation and amortization

(216)

(213)

(223)

(43)

(695)




Share of Canpotex's (2) Prince Rupert










project exit costs

(33)

-

-

-

(33)




Termination benefit costs

(32)

-

-

-

(32)




Impairment of property, plant and equipment

-

-

(47)

-

(47)









Cash outflows for additions to property,








plant and equipment

342

263

216

72

893


(1) Inter-segment net sales were $62.






(2) Canpotex Limited ("Canpotex").






 

3. Transaction Relating to the Merger of Equals with Agrium Inc. ("Agrium") and Acquisition of Agrichem

On January 1, 2018, after receiving all required regulatory approvals, the company and Agrium combined their businesses in a merger of equals by becoming wholly owned subsidiaries of a new parent company named Nutrien Ltd. ("Nutrien"). On January 2, 2018, the merged entity began trading on the Toronto Stock Exchange and New York Stock Exchange ("NYSE") under the symbol NTR, and the shares of PotashCorp and Agrium were delisted.

Shareholders of PotashCorp received 0.400 common shares of Nutrien for each PotashCorp share held and shareholders of Agrium received 2.230 common shares of Nutrien for each Agrium share held. The exchange ratios represent the respective closing share prices of each company's common shares at market close on the NYSE on August 29, 2016, the last trading day prior to when the companies announced that they were in preliminary discussions regarding a merger of equals, which is consistent with the approximate 10-day and 60-day volume weighted average prices through that date.

PotashCorp is the acquirer for accounting purposes, and as a result, the financial statements and related notes of Nutrien in 2018 and beyond will reflect the operations of Nutrien. Figures for 2017 and prior will reflect the operations of PotashCorp. The purchase consideration is approximately $16 billion. Valuations to determine the fair value of assets acquired and liabilities assumed are not yet complete due to the recent closing date of the Merger.

Key dates of the Merger:

  • September 11, 2016 - The company entered into an agreement with Agrium to combine their businesses under the Canada Business Corporation Act.
  • November 3, 2016 - The plan of arrangement was approved by the shareholders of both companies.
  • November 7, 2016 - The Ontario Superior Court of Justice issued a final order approving the plan of arrangement.
  • October 18, 2017 - Conditional approval was received from the Competition Commission of India, requiring PotashCorp to divest minority shareholdings in Sociedad Quimica y Minera de Chile S.A. ("SQM"), Arab Potash Company ("APC") and ICL within a period of 18 months from November 2017, the issuance of the order.
  • November 6, 2017 - Agrium signed definitive asset sales agreements to divest its Conda phosphate and North Bend nitric acid operations intended to address United States regulatory concerns.
  • November 7, 2017 - Approval was received from China's Ministry of Commerce, conditioned on the divestiture of PotashCorp's minority shareholdings in SQM and APC within 18 months, and ICL within 9 months, from the closing of the Merger.
  • December 27, 2017 - Clearance was received from the United States' Federal Trade Commission conditional on certain divestitures by Agrium.

The sale of PotashCorp's interest in ICL closed on January 24, 2018. Agrium completed the dispositions of certain operations on January 12, 2018, as a condition of approval of the Merger from the United States' Federal Trade Commission.

The companies had previously received unconditional regulatory clearance from Canada, Brazil and Russia.

For additional information with respect to the plan of arrangement, please refer to the Joint Management Information Circular of PotashCorp and Agrium dated October 3, 2016, a copy of which has been filed on SEDAR under PotashCorp's profile at www.sedar.com.

On January 29, 2018, Nutrien announced the planned acquisition of Agrichem, a leading Brazilian specialty plant nutrition and plant health product company. The acquisition will be made in two tranches, with 80 percent of the business expected to be acquired by the end of March 2018. The remaining 20 percent of the business is expected to be acquired in 2019, with the price being based on 2018 earnings before interest, taxes, depreciation and amortization levels. Closing of the transaction is subject to regulatory approvals and satisfaction of customary conditions precedent.

4. Other Expenses


Three Months Ended

Twelve Months Ended


December 31

December 31


2017

2016

2017

2016

Foreign exchange gain (loss)

$

1

$

5

$

(21)

$

(9)

Share of earnings of equity-accounted investees

1

2

7

3

Dividend Income

-

-

-

2

Impairment of available-for-sale investment

-

-

-

(10)

Other expenses

(2)

(21)

(3)

(3)


$

-

$

(14)

$

(17)

$

(17)

 

5. Income Tax Recovery (Expense)

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


Three Months Ended

Twelve Months Ended


December 31

December 31

Income Tax Related to Continuing Operations

2017

2016

2017

2016

Income tax recovery (expense)

$

153

$

10

$

183

$

(44)

Actual effective tax rate on ordinary earnings

13%

n/m

-7%

24%

Actual effective tax rate including discrete items

56%

n/m

n/m

18%

Discrete tax adjustments that impacted the tax rate

$

118

$

6

$

185

$

17

 

Significant items to note include the following:

  • Ordinary earnings for the three months ended December 31, 2017 were negative. When combined with an income tax recovery, this created a positive actual effective tax rate. Compared to the same period last year, earnings were significantly lower in the United States and only slightly offset by increased earnings in Trinidad.

  • The actual effective tax rate on ordinary earnings for the twelve months ended December 31, 2017 decreased compared to the same period last year due to different weightings between jurisdictions, most notably substantially lower earnings in the United States partially offset by higher earnings in Canada and Trinidad.

  • In the fourth quarter of 2017, a deferred tax recovery of $187 was recorded as a result of a federal income tax rate decrease pursuant to US tax reform legislation.

  • In the fourth quarter of 2017, a deferred tax expense of $68 was recorded to reflect Saskatchewan government legislation that reversed a provincial income tax rate decrease legislated earlier in the year. A $68 deferred tax recovery had been recorded in the second quarter of 2017 to reflect that rate decrease.

  • In 2016, a current tax recovery of $16 ($3 in the fourth quarter of 2016) was recorded to adjust accruals after tax authority examinations.

6. Investments Held for Sale and Discontinued Operations

The company classifies assets and liabilities as held for sale if it is highly probable that the carrying value will be recovered through a sale transaction within one year rather than through continuing use. Assets that are classified as held for sale are measured at the lower of the carrying amount and the fair value less costs to sell, with the exception of financial assets (including investments classified as available-for-sale) and therefore measured in accordance with Note 19 of the company's 2016 annual consolidated financial statements. For equity-accounted investments, the equity accounting ceases the date the investments were classified as held for sale. The company considers a discontinued operation to be a component of the company's business that either has been disposed of, or is classified as held for sale, and represents a separate major line of business or geographic area of operations or is a part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations.

The company's investments in SQM at December 1, 2017, and ICL and APC at December 31, 2017 were classified as held for sale and as discontinued operations, due to regulatory requirements to dispose of these investments, as discussed in Note 3. Share of earnings, dividend income and associated income taxes pertaining to these investments were reclassified from operating (loss) income to net income from discontinued operations. The company is actively seeking buyers for its investments in SQM and APC and expects to complete the sales in 2018. On January 24, 2018, the company completed the sale of its equity interests in ICL through a private secondary offering for net proceeds of $685, resulting in a loss on disposal of $19, net of income taxes of $NIL.

Assets Held for Sale


December 31

December 31

As at

2017

2016

Assets





Equity-accounted investees (1)

$

1,146

$

-

Available-for-sale investment (2)

708

-

Current income tax assets

4

-

Assets held for sale

$

1,858

$

-




Liabilities



Deferred income tax liabilities

$

36

$

-

(1) SQM and APC.
(2) ICL.

 

Net Income from Discontinued Operations



Three Months Ended

Twelve Months Ended



December 31

December 31



2017

2016

2017

2016

Share of earnings of equity-accounted investees

$

36

$

19

$

151

$

92

Dividend income


7

9

24

31

Income tax recovery (expense)

1

5

(2)

1

Net income from discontinued operations

$

44

$

33

$

173

$

124






Net Income per Share from Discontinued Operations






Basic

$ 0.05

$ 0.03

$ 0.21

$ 0.15


Diluted

$ 0.05

$ 0.03

$ 0.21

$ 0.14






Cash Flows from Discontinued Operations






Three Months Ended

Twelve Months Ended


December 31

December 31


2017

2016

2017

2016

Dividends from discontinued operations (1)

$

43

$

78

$

176

$

195

(1) Dividends from discontinued operations continue to be classified as cash provided by operating activities.

 

7. Consolidated Statements of Cash Flow



Three Months Ended

Twelve Months Ended



December 31

December 31



2017

2016

2017

2016

Reconciliation of cash provided by operating activities





Net (loss) income

$

(76)

$

46

$

327

$

323

Adjustments to reconcile net income to cash provided by operating activities






Depreciation and amortization

172

177

692

695


Impairment of property, plant and equipment

276

20

305

47


Net distributed (undistributed) earnings of equity-accounted investees

-

49

(1)

70


Share-based compensation

2

(6)

11

2


Recovery of deferred income tax

(174)

(27)

(273)

(22)


Pension and other post-retirement benefits

14

10

64

46


Asset retirement obligations and accrued environmental costs

4

16

7

29


Other long-term liabilities and miscellaneous

-

7

21

10


Subtotal of adjustments

294

246

826

877








Changes in non-cash operating working capital






Receivables

135

35

47

114


Inventories

(24)

(41)

(10)

(21)


Prepaid expenses and other current assets

(10)

8

(13)

17


Payables and accrued charges

62

59

48

(50)


Subtotal of changes in non-cash operating working capital

163

61

72

60

Cash provided by operating activities

$

381

$

353

$

1,225

$

1,260







Supplemental cash flow disclosure






Interest paid


$

65

$

65

$

198

$

189


Income taxes paid


$

16

$

7

$

83

$

50

 

8. Share-Based Compensation

During the three and twelve months ended December 31, 2017, the company issued stock options and performance share units ("PSUs") to eligible employees under the 2016 Long-Term Incentive Plan ("LTIP"). Information on stock options and PSUs is summarized below:


LTIP

Expense (Recovery) for all Employee Share-Based Compensation
Plans



Units
Outstanding as
at December 31,
2017






Three Months Ended

Twelve Months Ended


Units Granted

December 31

December 31


in 2017

2017

2016

2017

2016

Stock options

1,482,829

4,469,182

$

1

$

(10)

$

7

$

(2)

Share-settled PSUs

555,918

935,570

-

-

4

3

Cash-settled PSUs

883,546

1,556,980

4

2

12

9




$

5

$

(8)

$

23

$

10

 

Weighted average grant date fair value per unit for stock options and share-settled PSUs granted during 2017 was $4.36 and $19.93, respectively.

Stock Options

Under the LTIP, stock options generally vest and become exercisable on the third anniversary of the grant date, subject to continuous employment or retirement, and have a maximum term of 10 years. The weighted average fair value of stock options granted was 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

$

18.71

Expected annual dividend per share

$

0.40

Expected volatility


29%

Risk-free interest rate


1.67%

Expected life of options


5.7 years

 

Performance Share Units

PSUs granted under the LTIP in 2017 vest based on the achievement of performance metrics, over three years, comprising 1) the relative ranking of the company's total shareholder return compared with a specified peer group using a Monte Carlo simulation and 2) the outcome of the company's cash flow return on investment compared with its weighted average cost of capital. Compensation cost is measured based on 1) the grant date fair value of the units, adjusted for the company's best estimate of the outcome of non-market vesting conditions (1) at the end of each period for share-settled PSUs and 2) period-end fair value of the awards for cash-settled PSUs. PSUs granted under the LTIP settle in shares for grantees who are subject to the company's share ownership guidelines and in cash for all other grantees.

(1) The company's cash flow return on investment compared with its weighted average cost of capital is a non-market vesting condition as performance is not tied to the company's share price or relative share price.

 

9. Comparative Figures

In 2016 and 2017, prior period amounts classified as share of earnings of equity-accounted investees, dividend income and income tax recovery (expense) relating to discontinued operations, as described in Note 6, were reclassified from operating income to net income from discontinued operations on the statement of (loss) income. The remaining immaterial amounts associated with continuing operations for share of earnings of equity-accounted investees, dividend income and impairment of available-for-sale investment were aggregated in other expenses in Note 4.  Transactions costs that were previously included in other expenses were reported as a separate line item in the statement of (loss) income given their significance in Note 7. Impairment for available-for-sale investment of $10 in 2016 was combined with other long-term liabilities and miscellaneous in Note 7 as the amount was not considered significant.

Potash Corporation of Saskatchewan Inc.

Selected Financial Data

(unaudited)










Three Months Ended

Twelve Months Ended




December 31

December 31




2017

2016

2017

2016








Potash Sales (tonnes - thousands)






Manufactured Product







North America

568

720

3,201

3,367



Offshore

1,340

1,489

6,096

5,277


Manufactured Product

1,908

2,209

9,297

8,644








Potash Net Sales






(US $ millions)







Sales

$

383

$

403

$

1,868

$

1,630



Freight, transportation and distribution

(36)

(54)

(235)

(250)



Net Sales

$

347

$

349

$

1,633

$

1,380









Manufactured Product







North America

$

121

$

126

$

639

$

589



Offshore

225

220

989

781


Other miscellaneous and purchased product

1

3

5

10


Net Sales

$

347

$

349

$

1,633

$

1,380








Manufactured Product






Average Realized Sales Price per Tonne







North America

$

214

$

176

$

200

$

175



Offshore

$

169

$

148

$

162

$

148



Average

$

182

$

157

$

175

$

158


Cost of Goods Sold per Tonne

$

(96)

$

(101)

$

(89)

$

(105)


Gross Margin per Tonne

$

86

$

56

$

86

$

53


Potash Corporation of Saskatchewan Inc.

Selected Financial Data

(unaudited)










Three Months Ended

Twelve Months Ended




December 31

December 31




2017

2016

2017

2016








Average Natural Gas Cost in Production per MMBtu

$

3.40

$

3.07

$

3.39

$

3.26

Nitrogen Sales (tonnes - thousands)






Manufactured Product







Ammonia (1)

505

477

2,205

2,197



Urea

283

304

1,166

1,161



Solutions/Nitric acid/Ammonium nitrate

795

855

2,946

3,015


Manufactured Product

1,583

1,636

6,317

6,373








Fertilizer sales tonnes (1)

667

700

2,564

2,455


Industrial/Feed sales tonnes

916

936

3,753

3,918


Manufactured Product

1,583

1,636

6,317

6,373







Nitrogen Net Sales






(US $ millions)







Sales - third party

$

348

$

323

$

1,395

$

1,467



Freight, transportation and distribution - third party

(32)

(34)

(129)

(122)



Net sales - third party

316

289

1,266

1,345



Inter-segment net sales

20

14

74

62



Net Sales

$

336

$

303

$

1,340

$

1,407







Manufactured Product







Ammonia (2)

$

136

$

102

$

584

$

612



Urea

82

74

302

297



Solutions/Nitric acid/Ammonium nitrate

110

122

421

477


Other miscellaneous and purchased product (3)

8

5

33

21


Net Sales

$

336

$

303

$

1,340

$

1,407









Fertilizer net sales (2)

$

144

$

128

$

551

$

530


Industrial/Feed net sales

184

170

756

856


Other miscellaneous and purchased product (3)

8

5

33

21


Net Sales

$

336

$

303

$

1,340

$

1,407







Manufactured Product






Average Realized Sales Price per Tonne







Ammonia

$

270

$

213

$

265

$

278



Urea

$

288

$

245

$

259

$

256



Solutions/Nitric acid/Ammonium nitrate

$

138

$

142

$

143

$

158



Average

$

207

$

182

$

207

$

217



Fertilizer average price per Tonne

$

215

$

182

$

215

$

216



Industrial/Feed average price per Tonne

$

201

$

181

$

201

$

218



Average

$

207

$

182

$

207

$

217


Cost of Goods Sold per Tonne

$

(167)

$

(151)

$

(169)

$

(163)


Gross Margin per Tonne

$

40

$

31

$

38

$

54







(1) Includes inter-segment ammonia sales (tonnes - thousands)

50

44

191

160

(2) Includes inter-segment ammonia net sales

$

19

$

14

$

73

$

61

(3) Includes inter-segment other miscellaneous and purchased product net sales

$

1

$

-

$

1

$

1


Potash Corporation of Saskatchewan Inc.

Selected Financial Data

(unaudited)










Three Months Ended

Twelve Months Ended




December 31

December 31




2017

2016

2017

2016








Phosphate Sales (tonnes - thousands)






Manufactured Product







Fertilizer

534

472

1,809

1,720



Feed and Industrial

239

243

1,002

993


Manufactured Product

773

715

2,811

2,713








Phosphate Net Sales






(US $ millions)







Sales

$

350

$

332

$

1,284

$

1,359



Freight, transportation and distribution

(48)

(42)

(173)

(163)



Net Sales

$

302

$

290

$

1,111

$

1,196









Manufactured Product







Fertilizer

$

182

$

155

$

609

$

622



Feed and Industrial

116

134

494

569


Other miscellaneous and purchased product

4

1

8

5


Net Sales

$

302

$

290

$

1,111

$

1,196








Manufactured Product






Average Realized Sales Price per Tonne







Fertilizer

$

342

$

328

$

337

$

362



Feed and Industrial

$

483

$

551

$

493

$

573



Average

$

385

$

404

$

393

$

439


Cost of Goods Sold per Tonne

$

(782)

$

(420)

$

(523)

$

(428)


Gross Margin per Tonne

$

(397)

$

(16)

$

(130)

$

11

 


Potash Corporation of Saskatchewan Inc.

Selected Additional Data

(unaudited)






Exchange Rate (Cdn$/US$)









2017

2016







December 31



1.2545

1.3427

Fourth-quarter average conversion rate



1.2552

1.3266



















Three Months Ended

Twelve Months Ended



December 31

December 31



2017

2016

2017

2016







Production





Potash production (KCl Tonnes - thousands)

2,419

2,544

9,795

8,604

Potash shutdown weeks (1)

15

11

39

32

Nitrogen production (N Tonnes - thousands)

765

788

3,013

3,147

Ammonia operating rate

84%

88%

83%

88%

Phosphate production (P2O5 Tonnes - thousands)

435

397

1,541

1,504

Phosphate P2O5 operating rate 

91%

85%

81%

79%







Shareholders





PotashCorp's total shareholder return

8%

12%

17%

12%







Customers





Product tonnes involved in customer complaints (thousands)

26

23

58

106







Community





Taxes and royalties ($ millions) (2)

69

57

335

256







Employees





Annualized employee turnover rate

2%

3%

3%

3%







Safety





Total recordable injury rate (3)

0.79

0.74

0.85

0.87







Environment





Environmental incidents (4)

3

1

9

18
















December 31

December 31

As at



2017

2016







Number of employees






Potash



2,241

2,331


Nitrogen



856

823


Phosphate



1,559

1,515


Other



448

461


Total



5,104

5,130


(1) Represents weeks of full production shutdown; excludes the impact of any periods of reduced operating rates and planned routine annual maintenance shutdowns and announced workforce reductions.

(2) Taxes and royalties = current income tax expense from continuing and discontinued operations - investment tax credits - realized excess tax benefit related to share-based compensation + potash production tax + resource surcharge + royalties + municipal taxes + other miscellaneous taxes (calculated on an accrual basis).

(3) Total recordable injuries for every 200,000 hours worked for all PotashCorp employees, contractors and others on site. Calculated as the total recordable injuries multiplied by 200,000 hours worked divided by the actual number of hours worked.

(4) Number of incidents, includes reportable quantity releases, permit non-compliance and Canadian reportable releases. Calculated as: reportable quantity releases (a release whose quantity equals or exceeds the US Environmental Protection Agency's notification level and is reportable to the National Response Center (NRC)) + permit non-compliance (an exceedance of a federal, state, provincial or local permit condition or regulatory limit) + Canadian reportable releases (an unconfined spill or release into the environment).

 

Potash Corporation of Saskatchewan Inc.
Selected Non-IFRS Financial Measures and Reconciliations and Supplemental Information
(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, cash flows or financial position that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. EBITDA, adjusted EBITDA, adjusted EBITDA margin, cash flow prior to working capital changes and free cash flow are not measures of financial performance (nor do they have standardized meanings) under IFRS. In evaluating these measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts.

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

A. EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN

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


Three Months Ended

Twelve Months Ended


December 31

December 31


2017

2016

2017

2016

Net (loss) income from continuing operations

$

(120)

$

13

$

154

$

199

Finance costs

58

55

238

216

Income tax (recovery) expense

(153)

(10)

(183)

44

Depreciation and amortization

172

177

692

695

EBITDA

$

(43)

$

235

$

901

$

1,154

Share of Canpotex's Prince Rupert project exit costs

-

-

-

33

Termination benefit costs

-

-

-

32

Impairment of property, plant and equipment

276

20

305

47

Impairment of available-for-sale investment

-

-

-

10

Transaction costs

51

10

84

18

Adjusted EBITDA

$

284

$

265

$

1,290

$

1,294

 

EBITDA is calculated as net (loss) income from continuing operations before finance costs, income tax (recovery) expense, and depreciation and amortization. Adjusted EBITDA is calculated as net (loss) income from continuing operations before finance costs, income tax (recovery) expense, depreciation and amortization, exit costs, termination benefit costs, certain impairment charges and Transaction costs. PotashCorp uses EBITDA as a supplemental financial measure of its operational performance. Management believes EBITDA and adjusted EBITDA to be important measures as they exclude the effects of items that 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 (loss) income from continuing operations according to IFRS, these measures are limited in that they do not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the company's business, the charges associated with impairments, exit costs, termination costs, or Transaction costs. 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

Twelve Months Ended


December 31

December 31


2017

2016

2017

2016

Sales

$

1,081

$

1,058

$

4,547

$

4,456

Freight, transportation and distribution

(116)

(130)

(537)

(535)

Net sales

$

965

$

928

$

4,010

$

3,921






Net (loss) income from continuing operations





as a percentage of sales

-11%

1%

3%

4%

Adjusted EBITDA margin

29%

29%

32%

33%

 

Adjusted EBITDA margin is calculated as adjusted EBITDA divided by net sales (sales less freight, transportation and distribution). Management believes comparing adjusted EBITDA to net sales earned (net of costs to deliver product) is an important indicator of efficiency. In addition to the limitations given above in using adjusted EBITDA as compared to net (loss) income from continuing operations, adjusted EBITDA margin as compared to net (loss) income from continuing operations 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 from continuing operations whose sales are not included in consolidated sales. Management evaluates these items individually on the consolidated statements of (loss) income.

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

Twelve Months Ended



December 31

December 31



2017

2016

2017

2016

Cash flow prior to working capital changes 

$

218

$

292

$

1,153

$

1,200

Changes in non-cash operating working capital






Receivables

135

35

47

114


Inventories

(24)

(41)

(10)

(21)


Prepaid expenses and other current assets

(10)

8

(13)

17


Payables and accrued charges

62

59

48

(50)

Changes in non-cash operating working capital

163

61

72

60

Cash provided by operating activities

$

381

$

353

$

1,225

$

1,260

Additions to property, plant and equipment

(220)

(245)

(651)

(893)

Other assets and intangible assets

-

8

(1)

(2)

Dividends from discontinued operations

(43)

(78)

(176)

(195)

Changes in non-cash operating working capital

(163)

(61)

(72)

(60)

Free cash flow

$

(45)

$

(23)

$

325

$

110

 

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

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

C. ITEMS INCLUDED IN GROSS MARGIN



Three Months Ended December 31, 2017



Potash

Nitrogen

Phosphate

Consolidated

Gross margin

$

158

$

70

$

(306)

$

(78)

Items included in the above:






Impairment of property, plant and equipment

-

-

(276)

(276)









Three Months Ended December 31, 2016



Potash

Nitrogen

Phosphate

Consolidated

Gross margin

$

120

$

55

$

(12)

$

163

Items included in the above:






Impairment of property, plant and equipment

-

-

(20)

(20)









Twelve Months Ended December 31, 2017



Potash

Nitrogen

Phosphate

Consolidated

Gross margin

$

785

$

256

$

(366)

$

675

Items included in the above:






Impairment of property, plant and equipment

-

-

(305)

(305)









Twelve Months Ended December 31, 2016



Potash

Nitrogen

Phosphate

Consolidated

Gross margin

$

437

$

361

$

32

$

830

Items included in the above:






Share of Canpotex's Prince Rupert project exit costs

(33)

-

-

(33)


Termination benefit costs

(32)

-

-

(32)


Impairment of property, plant and equipment

-

-

(47)

(47)

 

SOURCE Nutrien Ltd.


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A2DWB8
CA67077M1086
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