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

NYSE, TSX: NTR

SASKATOON, Feb. 5, 2018 /PRNewswire/ – 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 Limited (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.

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 Limited (“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.

Related Links

www.nutrien.com

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