Exhibit 99.2
Financials & Notes
(Unaudited)
Contents
Condensed Consolidated Statements of |
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53 | ||||||
54 | ||||||
55 | ||||||
56 | ||||||
57 | ||||||
Business and Environment |
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Description of Business | 59 | |||||
Basis of Presentation | 60 | |||||
Income, Expenses and Cash Flows |
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Business Combination | 61 | |||||
Segment Information | 63 | |||||
Provincial Mining and Other Taxes | 68 | |||||
Other Expenses | 68 | |||||
Finance Costs | 68 | |||||
Income Taxes | 69 | |||||
Net Earnings per Share | 71 | |||||
Consolidated Statements of Cash Flows | 72 | |||||
Operating Assets and Liabilities |
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Receivables | 73 | |||||
Inventories | 74 | |||||
Property, Plant and Equipment | 75 | |||||
Other Assets | 77 | |||||
Goodwill and Other Intangible Assets | 77 | |||||
Payables and Accrued Charges | 79 | |||||
Derivative Instruments | 79 | |||||
Asset Retirement Obligations and Accrued Environmental Costs | 81 | |||||
Investments, Financing and Capital Structure |
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Investments | 84 | |||||
Short-Term Debt | 87 | |||||
Long-Term Debt | 87 | |||||
Share Capital | 90 | |||||
Capital Management | 91 | |||||
Commitments | 92 | |||||
Guarantees | 93 | |||||
Personnel |
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Pension and Other Post-Retirement Benefits | 94 | |||||
Share-Based Compensation | 98 | |||||
Other |
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Related Party Transactions | 102 | |||||
103 | ||||||
Contingencies and Other Matters | 108 | |||||
109 | ||||||
Comparative Figures | 115 | |||||
52 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
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| Three Months Ended March 31 | ||||||||
2018 | 2017 | |||||||||
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| (Note 32) | |||||||
Sales | Note 4 | $ | 3,695 | $ | 1,112 | |||||
Freight, transportation and distribution | (208 | ) | (133 | ) | ||||||
Cost of goods sold | (2,640 | ) | (706 | ) | ||||||
Gross Margin | 847 | 273 | ||||||||
Selling expenses | (532 | ) | (9 | ) | ||||||
General and administrative expenses | (119 | ) | (41 | ) | ||||||
Provincial mining and other taxes | Note 5 | (48 | ) | (33 | ) | |||||
Earnings of equity-accounted investees | Note 19 | 7 | – | |||||||
Other expenses | Note 6 | (79 | ) | (15 | ) | |||||
Earnings before Finance Costs and Income Taxes | 76 | 175 | ||||||||
Finance costs | Note 7 | (119 | ) | (59 | ) | |||||
(Loss) Earnings Before Income Taxes | (43 | ) | 116 | |||||||
Income tax recovery (expense) | Note 8 | 42 | (10 | ) | ||||||
Net (Loss) Earnings from Continuing Operations | $ | (1 | ) | $ | 106 | |||||
Net earnings from discontinued operations | Note 19 | – | 43 | |||||||
Net (Loss) Earnings | $ | (1 | ) | $ | 149 | |||||
Net Earnings per Share from Continuing Operations | Note 9 | |||||||||
Basic | $ | – | $ | 0.13 | ||||||
Diluted | $ | – | $ | 0.13 | ||||||
Net Earnings per Share from Continuing and Discontinued Operations | Note 9 | |||||||||
Basic | $ | – | $ | 0.18 | ||||||
Diluted | $ | – | $ | 0.18 | ||||||
Weighted average shares outstanding for basic EPS | Note 9 | 642,690,000 | 839,911,000 | |||||||
Weighted average shares outstanding for diluted EPS | Note 9 | 643,218,000 | 840,211,000 | |||||||
(See Notes to the Condensed Consolidated Financial Statements)
• | Merger of Potash Corporation of Saskatchewan Inc. (“PotashCorp”) and Agrium Inc. (“Agrium”) occurred on January 1, 2018. |
• | 2017 figures throughout are the financial results of PotashCorp only, the accounting acquirer. |
• | Gross margin was earned in the retail segment – $408; potash segment – $295; nitrogen segment – $148 and phosphate and sulfate segment – $29. |
• | Earnings from Sociedad Quimica y Minera de Chile S.A. (“SQM”) and Arab Potash Company (“APC”) and income from Israel Chemicals Ltd. (“ICL”) are presented as discontinued operations for the periods presented to reflect required divestitures of these investments. The company sold its equity interest in ICL on January 24, 2018. |
Nutrien 2018 First Quarter Interim Report | 53 |
Unaudited | in millions of US dollars except as otherwise noted |
2018
HIGHLIGHTS
• | The company adopted IFRS 9, Financial Instruments, beginning January 1, 2018.Available-for-sale investments were reclassified as financial instruments measured at fair value through other comprehensive income (“FVTOCI”). |
Condensed Consolidated Statements of Comprehensive (Loss) Income
The condensed consolidated statements of comprehensive (loss) income present changes in net assets during the period other than transactions with shareholders. Amounts recorded in other comprehensive (loss) income may be subsequently reclassified to net (loss) earnings or may not pass through net (loss) earnings.
Three Months Ended March 31 | ||||||||
2018 | 2017 | |||||||
(net of related income taxes) | (Note 32) | |||||||
Net (Loss) Earnings | $ | (1 | ) | $ | 149 | |||
Other comprehensive (loss) income | ||||||||
Items that will not be reclassified to net (loss) earnings: | ||||||||
Net actuarial gain on defined benefit plans1 | 57 | – | ||||||
Financial instruments measured at FVTOCI2 | ||||||||
Net fair value (loss) gain on investments | (83 | ) | 33 | |||||
Items that have been or may be subsequently reclassified to net (loss) earnings: | ||||||||
Cash flow hedges | ||||||||
Net fair value loss during the period3 | (2 | ) | (5 | ) | ||||
Reclassification to earnings of net loss4 | – | 8 | ||||||
Foreign currency translation | ||||||||
Loss on translation of net foreign operations | (41 | ) | – | |||||
Equity-accounted investees | ||||||||
Share of comprehensive (loss) income | (1 | ) | 3 | |||||
Other Comprehensive (Loss) Income | (70 | ) | 39 | |||||
Comprehensive (Loss) Income | $ | (71 | ) | $ | 188 | |||
1 | Net of income taxes of $(17) (2017 – $NIL). |
2 | As at March 31, 2018, financial instruments measured at FVTOCI are comprised of shares in Sinofert Holdings Limited (“Sinofert”) and other (March 31, 2017 – ICL, 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 $1 (2017 – $3). |
4 | Net of income taxes of $NIL (2017 – $(5)). See Note 31 for impact of adoption of new standard. |
(See Notes to the Condensed Consolidated Financial Statements)
54 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Condensed Consolidated Statements of Cash Flows
The condensed consolidated statements of cash flows start with net (loss) earnings adjusted fornon-cash items affecting net (loss) earnings to arrive at cash flows from operating activities, and present cash provided by or used in investing and financing activities.
Three Months Ended March 31 | ||||||||||||
2018 | 2017 | |||||||||||
Operating Activities | ||||||||||||
Net (loss) earnings | $ | (1 | ) | $ | 149 | |||||||
Adjustments to reconcile net (loss) earnings to cash (used in) provided by operating activities | Note 10 | 401 | 144 | |||||||||
Changes innon-cash operating working capital | Note 10 | (740 | ) | (70 | ) | |||||||
Cash (used in) provided by operating activities | (340 | ) | 223 | |||||||||
Investing Activities | ||||||||||||
Business acquisitions, net of cash acquired | (185 | ) | – | |||||||||
Additions to property, plant and equipment | (238 | ) | (133 | ) | ||||||||
Cash acquired in Merger | Note 3 | 466 | – | |||||||||
Proceeds from disposal of discontinued operations | Note 19 | 752 | – | |||||||||
Other | 1 | 1 | ||||||||||
Cash provided by (used in) investing activities | 796 | (132 | ) | |||||||||
Financing Activities | ||||||||||||
Finance costs on long-term debt | (6 | ) | (1 | ) | ||||||||
Proceeds from short-term debt | 496 | 21 | ||||||||||
Dividends paid | (205 | ) | (82 | ) | ||||||||
Repurchase of common shares | Note 22 | (401 | ) | – | ||||||||
Issuance of common shares | 1 | 1 | ||||||||||
Cash used in financing activities | (115 | ) | (61 | ) | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 3 | – | ||||||||||
Increase in Cash and Cash Equivalents | 344 | 30 | ||||||||||
Cash and Cash Equivalents, Beginning of Period | 116 | 32 | ||||||||||
Cash and Cash Equivalents, End of Period | $ | 460 | $ | 62 | ||||||||
Cash and cash equivalents comprised of: | ||||||||||||
Cash | $ | 325 | $ | 44 | ||||||||
Short-term investments | 135 | 18 | ||||||||||
$ | 460 | $ | 62 | |||||||||
(See Notes to the Condensed Consolidated Financial Statements)
2018
HIGHLIGHTS
• | Cash provided by investing activitieswas impacted by net proceeds on the sale of the company’s shares in ICL ($685) and Conda and North Bend facilities ($67). |
• | Cash used in financing activitieswas primarily impacted by net disbursements on the repurchase of common shares through the company’s normal course issuer bid ($401) and payment of dividends ($205) partially offset by the proceeds from short-term debt ($496). |
Nutrien 2018 First Quarter Interim Report | 55 |
Unaudited | in millions of US dollars except as otherwise noted |
Condensed Consolidated Statements of Changes in Shareholders’ Equity
The condensed consolidated statements of changes in shareholders’ equity show the movements in shareholders’ equity.
Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||||||||||
Share Capital | Contributed Surplus | Net fair value loss on investments 1,2 | Net loss on derivatives designated as cash flow hedges | Net actuarial gain on defined benefit plans | Translation (Note 32) | Comprehensive (Note 32) | Total Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Equity 3 | |||||||||||||||||||||||||||||||
Balance – December 31, 2017 | $ | 1,806 | $ | 230 | $ | 73 | $ | (43 | ) | $ | – | 4 | $ | (2 | ) | $ | (3 | ) | $ | 25 | $ | 6,242 | $ | 8,303 | ||||||||||||||||
Merger impact (Note 3) | 15,898 | 7 | – | – | – | – | – | – | (1 | ) | 15,904 | |||||||||||||||||||||||||||||
Net loss | – | – | – | – | – | – | – | – | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||
Other comprehensive (loss) income | – | – | (83 | ) | (2 | ) | 57 | (41 | ) | (1 | ) | (70 | ) | – | (70 | ) | ||||||||||||||||||||||||
Shares repurchased | (256 | ) | (23 | ) | – | – | – | – | – | – | (178 | ) | (457 | ) | ||||||||||||||||||||||||||
Dividends declared | – | – | – | – | – | – | – | – | (258 | ) | (258 | ) | ||||||||||||||||||||||||||||
Effect of share-based compensation including issuance of common shares | 1 | – | – | – | – | – | – | – | – | 1 | ||||||||||||||||||||||||||||||
Transfer of net actuarial gain on defined benefit plans | – | – | – | – | (57 | ) | – | – | (57 | ) | 57 | – | ||||||||||||||||||||||||||||
Transfer of net loss on sale of investment | – | – | 19 | – | – | – | – | 19 | (19 | ) | – | |||||||||||||||||||||||||||||
Transfer of net loss on cash flow hedges 5 | – | – | – | 9 | – | – | – | 9 | – | 9 | ||||||||||||||||||||||||||||||
Balance – March 31, 2018 | $ | 17,449 | $ | 214 | $ | 9 | $ | (36 | ) | $ | – | 4 | $ | (43 | ) | $ | (4 | ) | $ | (74 | ) | $ | 5,842 | $ | 23,431 | |||||||||||||||
Balance – December 31, 2016 | $ | 1,798 | $ | 222 | $ | 43 | $ | (60 | ) | $ | – | 4 | $ | (2 | ) | $ | (6 | ) | $ | (25 | ) | $ | 6,204 | $ | 8,199 | |||||||||||||||
Net earnings | – | – | – | – | – | – | – | – | 149 | 149 | ||||||||||||||||||||||||||||||
Other comprehensive income | – | – | 33 | 3 | – | 1 | 2 | 39 | – | 39 | ||||||||||||||||||||||||||||||
Dividends declared | – | – | – | – | – | – | – | – | (84 | ) | (84 | ) | ||||||||||||||||||||||||||||
Effect of share-based compensation including issuance of common shares | 2 | 1 | – | – | – | – | – | – | – | 3 | ||||||||||||||||||||||||||||||
Shares issued for dividend reinvestment plan | 2 | – | – | – | – | – | – | – | – | 2 | ||||||||||||||||||||||||||||||
Balance – March 31, 2017 | $ | 1,802 | $ | 223 | $ | 76 | $ | (57 | ) | $ | – | 4 | $ | (1 | ) | $ | (4 | ) | $ | 14 | $ | 6,269 | $ | 8,308 | ||||||||||||||||
1 | The company adopted IFRS 9 in 2018 and reclassifiedavailable-for-sale investments as financial instruments measured at FVTOCI. |
2 | The company divested its equity interests in the investment in ICL on January 24, 2018. The loss on sale of ICL of $(19) was transferred to retained earnings at March 31, 2018. The cumulative net unrealized gain at March 31, 2017 was $44. |
3 | All equity transactions were attributable to common shareholders. |
4 | Any amounts incurred during a period were closed out to retained earnings at eachperiod-end. Therefore, no balance exists at the beginning or end of period. |
5 | Net of income taxes of $(2). |
(See Notes to the Condensed Consolidated Financial Statements)
56 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Condensed Consolidated Balance Sheets
The condensed consolidated balance sheets present assets, liabilities and shareholders’ equity.
March 31, 2018 | December 31, 2017 (Note 32) | |||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 460 | $ | 116 | ||||||||
Receivables | Note 11 | 3,230 | 489 | |||||||||
Inventories | Note 12 | 5,915 | 788 | |||||||||
Prepaid expenses and other current assets | 546 | 72 | ||||||||||
10,151 | 1,465 | |||||||||||
Assets held for sale | Note 19 | 1,150 | 1,858 | |||||||||
11,301 | 3,323 | |||||||||||
Non-current assets | ||||||||||||
Property, plant and equipment | Note 13 | 20,576 | 12,971 | |||||||||
Goodwill | Note 15 | 10,576 | 97 | |||||||||
Other intangible assets | Note 15 | 2,333 | 69 | |||||||||
Investments | Note 19 | 778 | 292 | |||||||||
Other assets | Note 14 | 474 | 246 | |||||||||
Total Assets | $ | 46,038 | $ | 16,998 | ||||||||
(See Notes to the Condensed Consolidated Financial Statements)
March 31, 2018 | December 31, 2017 (Note 32) | |||||||||||
Liabilities | ||||||||||||
Current liabilities | ||||||||||||
Short-term debt | Note 20 | $ | 2,091 | $ | 730 | |||||||
Current portion of long-term debt | Note 21 | 524 | – | |||||||||
Payables and accrued charges | Note 16 | 6,920 | 836 | |||||||||
9,535 | 1,566 | |||||||||||
Deferred income tax liabilities on assets held for sale | Note 19 | 36 | 36 | |||||||||
9,571 | 1,602 | |||||||||||
Non-current liabilities | ||||||||||||
Long-term debt | Note 21 | 8,091 | 3,711 | |||||||||
Deferred income tax liabilities | Note 8 | 2,762 | 2,205 | |||||||||
Pension and other post-retirement benefit liabilities | Note 26 | 519 | 440 | |||||||||
Asset retirement obligations and accrued environmental costs | Note 18 | 1,486 | 651 | |||||||||
Othernon-current liabilities | 178 | 86 | ||||||||||
Total Liabilities | 22,607 | 8,695 | ||||||||||
Shareholders’ Equity | ||||||||||||
Share capital | Note 22 | 17,449 | 1,806 | |||||||||
Contributed surplus | 214 | 230 | ||||||||||
Accumulated other comprehensive (loss) income | (74 | ) | 25 | |||||||||
Retained earnings | 5,842 | 6,242 | ||||||||||
Total Shareholders’ Equity | 23,431 | 8,303 | ||||||||||
Total Liabilities and Shareholders’ Equity | $ | 46,038 | $ | 16,998 | ||||||||
(See Notes to the Condensed Consolidated Financial Statements)
Nutrien 2018 First Quarter Interim Report | 57 |
Unaudited | in millions of US dollars except as otherwise noted |
2018
HIGHLIGHTS
Highlights to the condensed consolidated balance sheets
• | Increase in assets and liabilities primarily relates to theMerger of PotashCorp and Agrium, Inc. effective as of January 1, 2018, as well as, the fair value increase from the purchase price allocation. |
• | Thecurrent ratio1 was 1.18 as at March 31, 2018 (December 31, 2017 – 2.07). |
• | As at March 31, 2018, the company’sproperty, plant and equipmentaccounted for 45 percent of total assets (December 31, 2017 – 76 percent). |
• | Thetotaldebt-to-capital ratio2 was 31 percent as at March 31, 2018 (December 31, 2017 – 35 percent). |
• | Nutrien notes issued after March 31, 2018 in conjunction with the completion of an obligor exchange – no significant change in the economic terms of the consolidated notes outstanding as described in Note 20 and 21. |
1 | Current assets / current liabilities. |
2 | Total debt / (total debt + total shareholders’ equity). |
58 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Description of Business |
Nutrien Ltd. is a provider of crop nutrients, inputs and services and plays a critical role in helping growers around the globe increase food production in a sustainable manner. The company’s retail operations supply key products and services directly to growers – including crop nutrients, crop protection and seed, as well as agronomic and application services. The company produces the three essential nutrients – potash, nitrogen and phosphate – required to help farmers grow healthier, more abundant crops.
On January 1, 2018, after receiving all required regulatory approvals, Potash Corporation of Saskatchewan Inc. (“PotashCorp”) and Agrium Inc. (“Agrium”) combined their businesses in a transaction by way of a plan of arrangement (the “Merger”) by becoming wholly owned subsidiaries of a new parent company named Nutrien Ltd.
With its subsidiaries, Nutrien Ltd. (together known as “Nutrien” or “the company” except where the context otherwise requires) is the world’s largest provider of crop inputs and services. The company is a corporation organized under the laws of Canada and its registered head office is located at Suite 500, 122 – 1st Avenue South, Saskatoon, Saskatchewan, Canada. As at March 31, 2018, the company had assets as follows:
R Retail
• | approximately 1,600 retail facilities across the US, Canada, Australia and key areas of South America |
Production
(Owned)
KPotash
• | six operations in the province of Saskatchewan |
• | one operation in the province of New Brunswick (indefinitely suspended in early 2016 and placed incare-and-maintenance mode) |
NNitrogen
• | eight production facilities in North America, four in the province of Alberta and one located in each of the states of Texas, Georgia, Louisiana and Ohio |
• | one large-scale operation in the country of Trinidad |
• | seven upgrade facilities in North America, three in the province of Alberta and one in each of the states of Washington, Missouri, Georgia, and Alabama |
• | 50 percent investment in Profertil S.A. (“Profertil”), a nitrogen producer based in the country of Argentina |
• | 26 percent investment in Misr Fertilizers Production Company S.A.E. (“MOPCO”), a nitrogen producer based in the country of Egypt |
PPhosphate and Sulfate
• | two mines and processing plants, one in each of the states of North Carolina and Florida |
• | a production facility in the province of Alberta |
• | phosphate feed plants in the states of Illinois, Missouri, and Nebraska |
• | an industrial phosphoric acid plant in the state of Ohio |
Others
• | a processing plant in the state of Louisiana |
• | investment in Canpotex Ltd. (“Canpotex”), a Canadian potash export, sales and marketing company owned in equal shares by Nutrien and another potash producer |
• | investments in Sociedad Quimica y Minera de Chile S.A. (“SQM”), Chile and Arab Potash Company (“APC”), Jordan, each currently classified as held for sale |
• | investment in Sinofert Holdings Limited (“Sinofert”), China |
See Note 19 for additional information.
Transportation and Distribution (excluding Retail)
(Leased and Owned)
• | leased or owned 403 terminals and warehouses (543 multi-product distribution points) in North America |
• | leased or owned approximately 15,300 railcars in North America |
• | leased a warehouse in Malaysia |
• | ownership in a joint venture that leases a dry bulk fertilizer port terminal in Brazil |
• | leased four vessels for ammonia transportation |
• | owned one multi-purpose vessel used for molten sulfur and phosphoric acid transportation |
Nutrien 2018 First Quarter Interim Report | 59 |
Unaudited | in millions of US dollars except as otherwise noted |
Basis of Presentation |
These unaudited interim condensed consolidated financial statements (“interim financial statements”) are based on International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS), and have been prepared in accordance with International Accounting Standard (IAS) 34, “Interim Financial Reporting.” 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 PotashCorp’s, the accounting acquirer, 2017 annual consolidated financial statements, with the exception of IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers” which were adopted effective January 1, 2018. PotashCorp is the acquirer for accounting purposes, and as a result, figures for 2017 and
prior reflect the historical operations of PotashCorp. The financial statements and related notes of Nutrien in 2018 and beyond reflect the operations of Nutrien.
These interim financial statements include the accounts of Nutrien and its subsidiaries; however, they do not include all disclosures normally provided in annual consolidated financial statements. In management’s opinion, the interim financial statements include all adjustments necessary to fairly present such information in all material respects. Interim results are not necessarily indicative of the results expected for any other interim period or the fiscal year.
These interim financial statements were authorized by the audit committee of the Board of Directors for issue on May 7, 2018.
These interim financial statements were prepared under the historical cost convention, except for certain items as discussed in the applicable accounting policies.
Where an accounting policy is applicable to a specific note to the statements, the policy is described within that note, with the related financial disclosures by major caption as noted in the table below. Certain of the company’s accounting policies that relate to the financial statements as a whole, as well as estimates and judgments it has made and how they affect the amounts reported in the consolidated financial statements, are disclosed in Note 31. New standards and amendments or interpretations that were either effective and applied by the company during the first three months of 2018 or that were not yet effective are described in Note 31.
Note | Topic | Accounting Policies | Accounting Estimates and Judgments | Page | ||||||
3 | Business combination | X | X | 61 | ||||||
4 | Revenue recognition | X | X | 63 | ||||||
8 | Income taxes | X | X | 69 | ||||||
10 | Cash equivalents | X | 72 | |||||||
11 | Receivables | X | X | 73 | ||||||
12 | Inventories | X | X | 74 | ||||||
13 | Property, plant and equipment | X | X | 75 | ||||||
14 | Other assets | X | 77 | |||||||
15 | Goodwill and other intangible assets | X | X | 77 | ||||||
17 | Derivative instruments | X | X | 79 |
Note | Topic | Accounting Policies | Accounting Estimates and Judgments | Page | ||||||
18 | Asset retirement obligations and accrued environmental costs | X | X | 81 | ||||||
19 | Investments | X | X | 84 | ||||||
21 | Long-term debt | X | 87 | |||||||
24 | Commitments | X | X | 92 | ||||||
25 | Guarantees | X | 93 | |||||||
26 | Pension and other post-retirement benefits | X | X | 94 | ||||||
27 | Share-based compensation | X | X | 98 | ||||||
28 | Related party transactions | X | 102 | |||||||
29 | Fair value and offsetting of financial instruments | X | X | 103 | ||||||
30 | Contingencies | X | X | 108 |
60 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Business Combinations |
Accounting Policies | Accounting Estimates and Judgments | |||
Business combinations are recognized as follows:
• Acquisitions of subsidiaries and businesses are accounted for using the acquisition method.
• Consideration for each acquisition is measured at the aggregate of the fair values of assets given, liabilities incurred or assumed, and equity instruments issued in exchange for control of the acquiree at the acquisition date.
• The acquisition date is the date the company obtains control over the acquiree and is generally the day the purchase consideration transfers.
• At the acquisition date, the identifiable assets acquired and liabilities assumed are recognized at their fair values with the exception of contingent liabilities, deferred taxes, employee benefit arrangements, replaced acquiree share-based compensation awards and assets held for sale, where IFRS provides exceptions to recording amounts at fair value.
• Acquisition-related costs are recognized in net (loss) earnings as incurred.
• The excess of total consideration for each acquisition plusnon-controlling interest in the acquiree, over the fair value of the identifiable net assets acquired, is recorded as goodwill. If the total consideration plusnon-controlling interest is less than the fair value of the net assets acquired, a purchase gain is recognized in net (loss) earnings.
• If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, provisional amounts are recorded for the incomplete items. The measurement period is the period from the date of acquisition to the date complete information about facts and circumstances that existed as of the acquisition date is received, subject to a maximum of one year. Provisional amounts are retrospectively adjusted during the measurement period, or recognized as additional assets or liabilities to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date. | • Estimation is required to allocate the purchase consideration to the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed.
• Judgment is required to determine which entity is the acquirer in a merger of equals. PotashCorp is treated as the acquiring entity for accounting purposes. In identifying PotashCorp as the acquirer, the companies considered the voting rights of all equity instruments, the intended corporate governance structure of the combined company, the intended composition of senior management of the combined company and the size of each of the companies. In assessing the size of each of the companies, the companies evaluated various metrics. No single factor was the sole determinant in the overall conclusion that PotashCorp is the acquirer for accounting purposes; rather all factors were considered in arriving at the conclusion. | |||
Merger with Agrium
As described in Note 1, PotashCorp and Agrium combined their businesses in a merger of equals. Expected benefits of the acquisition include operating synergies, primarily from the distribution and retail integration, production and expense optimization, and procurement savings.
Agrium was a retail distributor of agricultural crop inputs, providing growers with fertilizer, crop protection products, seed, services and solutions. Agrium was also one of the largest manufacturers of fertilizer in the world producing and marketing all three major crop nutrients – nitrogen, potash and phosphate.
On January 2, 2018, the first day Nutrien began trading, 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 weighted average prices through that date. The outstanding share-based compensation awards of PotashCorp and Agrium were replaced by Nutrien share-based compensation awards with substantially equivalent terms after adjusting for the applicable exchange ratio (refer to Note 27). The purchase consideration was $16 billion. Merger and related costs of $66 for the three months ended March 31, 2018 are included in other expenses (2017 – $9). | The company has engaged independent valuation experts to assist in determining the fair value of certain assets acquired and liabilities assumed and related deferred income tax impacts. The purchase price allocation is not final as the company is continuing to obtain and verify information required to determine the fair value of certain assets and liabilities and the amount of deferred income taxes arising on their recognition. The company expects to finalize the amounts recognized as it obtains the information necessary to complete the analysis, not later than December 31, 2018. |
Nutrien 2018 First Quarter Interim Report | 61 |
Unaudited | in millions of US dollars except as otherwise noted |
Due to the inherent complexity associated with valuations and the timing of the acquisition, the numbers below are provisional. The preliminary value that was allocated to Agrium’s assets and liabilities based upon fair values is as follows:
January 1, 2018 | ||||||||||||||||
Cash and cash equivalents | $ | 466 | ||||||||||||||
Receivables1 | 2,424 | |||||||||||||||
Inventories | 3,321 | |||||||||||||||
Prepaid expenses and other current assets | 1,124 | |||||||||||||||
Assets held for sale2 | 105 | |||||||||||||||
Property, plant and equipment3 | 7,783 | |||||||||||||||
Goodwill 4 | 10,455 | |||||||||||||||
Other intangible assets 5 | 2,318 | |||||||||||||||
Investments | 522 | |||||||||||||||
Other assets | 123 | |||||||||||||||
Total assets | $ | 28,641 | ||||||||||||||
Short-term debt | $ | 867 | ||||||||||||||
Payables and accrued charges | 5,223 | |||||||||||||||
Long-term debt | 4,941 | |||||||||||||||
Deferred income tax liabilities | 498 | |||||||||||||||
Pension and other post-retirement benefit liabilities | 142 | |||||||||||||||
Asset retirement obligations and accrued environmental costs6 | 888 | |||||||||||||||
Othernon-current liabilities | 72 | |||||||||||||||
Total liabilities | $ | 12,631 | ||||||||||||||
Net assets (consideration for the merger) | $ | 16,010 | ||||||||||||||
1 | This includes trade receivables with gross contractual trade receivables of $2,247, of which $78 are considered to be uncollectible. |
2 | This relates to the assets held at Conda phosphate and North Bend nitric acid operations. The sale was completed on January 12, 2018. |
3 | Refer to Note 13 for detailed information of property, plant and equipment acquired. |
4 | Goodwill resulting from the acquisition is attributed to the strategic and financial benefits expected to be realized, including the increased post-acquisition scale of operations, purchasing and distribution capability, and the assembled workforce. The portion of goodwill deductible for income tax purposes, if any, will be determined when the purchase allocation is finalized. |
5 | Refer to Note 15 for detailed information of other intangible assets acquired. |
6 | Refer to Note 18 for detailed information of asset retirement obligations and accrued environmental costs acquired. Included in payables and accrued charges is $39 related to the current portion of asset retirement obligations and accrued environmental costs. |
The significant fair value considerations included in the preliminary allocation of purchase price are discussed below:
Property, plant and equipment
The preliminary estimated fair value was primarily determined using a market approach for land and certain types of personal property, and a replacement cost approach for the remainder. The market approach for land and certain types of personal property represents a sales comparison that measures the value of an asset through an analysis of sales and offerings of comparable assets. The replacement cost approach used for all other depreciable property, plant and equipment measures the value of an asset by estimating the cost to acquire or construct comparable assets and adjusts for age and condition of the asset.
Other intangible assets
Other intangible assets primarily consist of acquired customer relationships, brands, proprietary technology, trademarks and tradenames. The preliminary fair value of customer-related assets was determined using the excess earnings method, an income approach.
Long-term debt
The fair value of debentures was determined based on comparable debt instruments with similar maturities, adjusted where necessary to Agrium’s credit spread, based on information published by financial institutions.
Accrued environmental costs
The preliminary fair value for environmental costs was determined using a decision-tree approach of future costs and a risk premium to capture the compensation sought by risk-averse market participants for bearing the uncertainty inherent in the cash flows of the liability. Accrued environmental costs are expected to be paid over a period extending up to 30 years and were discounted using a credit adjusted risk free rate.
Financial information related to the acquired operations of Agrium
The following table provides “Gross sales” and “earnings (loss) from continuing operations before income taxes”:
Summary results of acquired operations of Agrium1 | ||||||
Gross sales | $ | 2,488 | ||||
Net loss | $ | (243 | ) | |||
1 | Results of acquired operations included in the company’s condensed consolidated statements of (loss) earnings for the period from January 1, 2018 to March 31, 2018. |
62 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Segment Information |
The company has four reportable operating segments: retail, potash, nitrogen and phosphate and sulfate. The retail segment distributes crop nutrients, crop protection products, seed and merchandise and provides services directly to growers through a network of farm centers in North and South America and Australia. The potash, nitrogen and phosphate and sulfate segments are differentiated by the chemical nutrient contained in the products that each produces.
Accounting Policies | Accounting Estimates and Judgments | |||
Operating Segments
Prior to the Merger, the company identified the Chief Executive Officer as the Chief Operating Decision Maker (“CODM”) and used gross margin to measure the segments’ profit or loss. The operating segments were limited to the following: potash, nitrogen, and phosphate. The changes in the structure of the company’s internal organization as a result of the Merger caused the composition of the operating segments to change as well as who the company has identified to be the CODM.
Post-Merger, the company identified the Executive Leadership Team (“ELT”) as the CODM. The CODM uses net (loss) earnings from continuing operations before finance costs, income tax (recovery) expense, and depreciation and amortization (“EBITDA”) to measure performance and allocate resources to the operating segments. The CODM believes EBITDA to be an important measure as it excludes 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.
Accounting policies of the segments are the same as those described in Note 2 and Note 31; and measured in a manner consistent with the financial statements.
Revenue
The company follows a policy of recognizing revenue when it satisfies the performance obligations in its contracts by transferring control of a product or service to a customer.
Retail
The company generates revenue through the sale of goods and the provision of services in the retail product lines which include crop protection products, crop nutrients, seed, merchandise and services throughout the US, Canada, Australia and South America.
Sales revenue consists primarily of:
• Crop Nutrients – sales of dry and liquid macronutrient products which include nitrogen, potash and phosphates, proprietary liquid micronutrient products and nutrient application services;
• Crop Protection products – sales of various third-party supplier and proprietary products designed to maintain crop quality and manage plant diseases, weeds, and other pests;
• Seed – various third-party supplier seed brands and proprietary seed product lines;
• Merchandise – sales of fencing, feed supplements, livestock-related animal health products, storage and irrigation equipment, and other products; and
• Services and other revenues – sales of product application, soil and leaf testing, crop scouting and precision agriculture services and financial services.
Sales revenue for the sale of goods is recognized at the point in time when the product is picked up by the customer at the company’s retail farm center or delivered to the customer’s farm. Sales revenue for the sale of services is recognized when the promised service is delivered. The company sells certain retail products to end customers with a right of return. A refund liability and a right to the returned goods (included in inventory) are recognized for the products expected to be returned. Provisions for returns, trade discounts and rebates are deducted from revenue. Returns and incentives are estimated based on historical and | Operating Segments
The ELT, comprised of officers at the Executive Vice President level and above, are responsible for strategic decision making, resource allocation and assessing financial performance and is identified as the company’s CODM for the purposes of reporting segment operations under IFRS. The CODM reviews the results of the company’s operations and financial position on consolidated and operating segment levels. The company’s operating segments are defined by the organization and reporting structure through which the company’s business operates.
Revenue
Accumulated experience is used to estimate and provide for product sales which contain volume rebates, using the most likely method, and revenue is recognized to the extent that it is highly probable that significant reversals will not occur. Estimates on rebates are described in Note 11. |
Nutrien 2018 First Quarter Interim Report | 63 |
Unaudited | in millions of US dollars except as otherwise noted |
Accounting Policies continued | Accounting Estimates and Judgments continued | |||
forecasted data, contractual terms and current conditions. Due to the nature of goods and services sold, any single estimate would have only a negligible impact on revenue recognition.
Potash, Nitrogen, and Phosphate and Sulfate
The company manufactures and sells potash, nitrogen and phosphate and sulfate products. While agriculture is the company’s primary market, it also produces products for animal nutrition and industrial uses. Sales from contracts with customers are recognized at the point in time when control of products have transferred to the customer, which is when the related goods are loaded for shipping or delivered to the customer, depending on the contractual terms. Indicators of transfer of control depend on the contractual terms with the company’s customers and include when the customer is obliged to pay for the products, has legal title of the products, has physical possession of the products, has assumed the significant risks and rewards of ownership of the products, has accepted the products and any other relevant indicators.
The company’s sales revenue is recorded and measured based on the freight on board mine, plant, warehouse or terminal price specified in the contract (except for certain vessel sales or specific product sales that are shipped and recorded on a delivered basis) which reflects the consideration the company expects to be entitled to in exchange for the goods or services, net of any variable consideration (e.g. any trade discounts or estimated volume rebates). Where volume rebates are provided for in customer contracts, the company estimates revenue at the earlier of the most likely amount of consideration expected to receive or when the consideration becomes fixed. The company’s customer contracts may provide certain product quality specification guarantees but do not generally provide for refunds or returns. No significant element of financing is deemed present due to the short-term nature of the company’s sales contracts.
Sales prices are based on North American and International benchmark market prices which are variable and subject to global supply and demand and competitive factors. Potash international prices are referenced at the mine site thereby excluding transportation and distributions costs while North American prices are referenced at delivered prices and include transportation and distribution costs. Nitrogen products primarily consist of urea, ammonia, urea ammonium nitrate, and industrial-grade ammonium nitrate where realized selling prices are impacted by global energy costs and supply. Phosphate products primarily consist of solid fertilizer, liquid fertilizer, industrial products and feed products where realized selling prices are impacted by global sulfur and ammonia costs and supply.
Other
The company does not provide general warranties. Intersegment sales are made under terms that approximate market value. Transportation costs are recovered from the customer through sales pricing.
Seasonality in the company’s business results from increased demand for products during planting season. Sales are generally higher in spring and fall. |
64 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Supporting Information
Financial information on each of these segments, consistent with the company’s disaggregated revenue information under IFRS 15, is summarized in the following tables:
Three Months Ended March 31, 2018 | ||||||||||||||||||||||||||||
Retail | Potash | Nitrogen | Phosphate and Sulfate | Others | Eliminations | Consolidated | ||||||||||||||||||||||
Sales – third party | $ | 2,088 | $ | 602 | $ | 624 | $ | 381 | $ | – | $ | – | $ | 3,695 | ||||||||||||||
– intersegment | 11 | 68 | 122 | 81 | – | (282 | ) | – | ||||||||||||||||||||
Sales – total | 2,099 | 670 | 746 | 462 | – | (282 | ) | 3,695 | ||||||||||||||||||||
Freight, transportation and distribution | – | (95 | ) | (74 | ) | (58 | ) | – | 19 | (208 | ) | |||||||||||||||||
Net sales | 2,099 | 575 | 672 | 404 | – | (263 | ) | |||||||||||||||||||||
Cost of goods sold | (1,691 | ) | (280 | ) | (524 | ) | (375 | ) | – | 230 | (2,640 | ) | ||||||||||||||||
Gross margin | 408 | 295 | 148 | 29 | – | (33 | ) | 847 | ||||||||||||||||||||
Selling expenses | (523 | ) | (3 | ) | (8 | ) | (3 | ) | 5 | – | (532 | ) | ||||||||||||||||
General and administrative expenses | (23 | ) | (3 | ) | (6 | ) | (3 | ) | (84 | ) | – | (119 | ) | |||||||||||||||
Provincial mining and other taxes | – | (48 | ) | – | – | – | – | (48 | ) | |||||||||||||||||||
Earnings of equity-accounted investees | 2 | – | 4 | – | 1 | – | 7 | |||||||||||||||||||||
Other income (expenses) | 3 | (4 | ) | (6 | ) | – | (72 | ) | – | (79 | ) | |||||||||||||||||
(Loss) Earnings before finance costs and income taxes | (133 | ) | 237 | 132 | 23 | (150 | ) | (33 | ) | 76 | ||||||||||||||||||
Depreciation and amortization | 123 | 91 | 129 | 51 | 17 | – | 411 | |||||||||||||||||||||
EBITDA1 | (10 | ) | 328 | 261 | 74 | (133 | ) | (33 | ) | 487 | ||||||||||||||||||
Assets2 | 13,709 | 13,360 | 5,615 | 2,493 | 10,861 | – | 46,038 | |||||||||||||||||||||
1 | EBITDA is a non-IFRS measure calculated as net (loss) earnings from continuing operations before finance costs, income taxes and depreciation and amortization. Nutrien uses EBITDA as a supplemental measure. 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 the company’s debt covenants. Generally, this measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. EBITDA 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 measures may differ among companies and analysts. The company uses both IFRS and certain non-IFRS measures to assess performance. Management believes the non-IFRS measures provide useful supplemental information to investors in order that they may evaluate Nutrien’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. |
2 | Included in the total assets relating to the others segment are $1,150 relating to the investments held for sale as described in Note 19. Goodwill related to the Merger is not allocated due to the timing of close and the provisional status of the purchase price allocation. |
$847
Gross Margin
Earned from all
nutrients
in the first quarter of 2018
Nutrien 2018 First Quarter Interim Report | 65 |
Unaudited | in millions of US dollars except as otherwise noted |
Three Months Ended March 31, 2017 | ||||||||||||||||||||||||
Potash | Nitrogen | Phosphate and Sulfate | Others | Eliminations | Consolidated | |||||||||||||||||||
Sales – third party | $ | 429 | $ | 375 | $ | 308 | $ | – | $ | – | $ | 1,112 | ||||||||||||
– intersegment | – | 22 | – | – | (22 | ) | – | |||||||||||||||||
Sales – total | 429 | 397 | 308 | – | (22 | ) | 1,112 | |||||||||||||||||
Freight, transportation and distribution | (64 | ) | (32 | ) | (37 | ) | – | – | (133 | ) | ||||||||||||||
Net sales | 365 | 365 | 271 | – | (22 | ) | ||||||||||||||||||
Cost of goods sold | (200 | ) | (268 | ) | (260 | ) | – | 22 | (706 | ) | ||||||||||||||
Gross margin | 165 | 97 | 11 | – | – | 273 | ||||||||||||||||||
Selling expenses | (2 | ) | (4 | ) | (2 | ) | (1 | ) | – | (9 | ) | |||||||||||||
General and administrative expenses | (2 | ) | (1 | ) | (1 | ) | (37 | ) | – | (41 | ) | |||||||||||||
Provincial mining and other taxes | (33 | ) | – | – | – | – | (33 | ) | ||||||||||||||||
Other expenses | (5 | ) | (2 | ) | (1 | ) | (7 | ) | – | (15 | ) | |||||||||||||
Earnings (loss) before finance costs and income taxes | 123 | 90 | 7 | (45 | ) | – | 175 | |||||||||||||||||
Depreciation and amortization | 55 | 50 | 58 | 9 | – | 172 | ||||||||||||||||||
EBITDA | 178 | 140 | 65 | (36 | ) | – | 347 | |||||||||||||||||
Assets1 | 9,784 | 2,510 | 2,324 | 2,693 | – | 17,311 | ||||||||||||||||||
1 | Included in the total assets relating to the others segment are $1,969 relating to the investments held for sale as described in Note 19. |
66 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
The company has disaggregated revenue from contracts with customers by product line or geographic location for each reportable segment, as it believes this best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Three Months Ended | ||||||||
Retail sales by product line | March 31, 2018 | March 31, 2017 | ||||||
Crop nutrients | $ | 684 | $ | – | ||||
Crop protection products | 774 | – | ||||||
Seed | 341 | – | ||||||
Merchandise | 149 | – | ||||||
Services and other | 151 | – | ||||||
$ | 2,099 | $ | – | |||||
Manufactured Potash sales by geography | ||||||||
North America | $ | 346 | $ | 231 | ||||
Offshore | 324 | 198 | ||||||
$ | 670 | $ | 429 | |||||
Nitrogen sales by product line | ||||||||
Manufactured Product | ||||||||
Ammonia | $ | 236 | $ | 169 | ||||
Urea | 232 | 97 | ||||||
Solutions and nitrates | 155 | 125 | ||||||
Other nitrogen and purchased products | 123 | 6 | ||||||
$ | 746 | $ | 397 | |||||
Phosphate and Sulfate sales by product line | ||||||||
Manufactured Product | ||||||||
Fertilizer | $ | 276 | $ | 161 | ||||
Feed and Industrial | 118 | 146 | ||||||
Ammonium sulfate | 20 | – | ||||||
Other phosphate and purchased products | 48 | 1 | ||||||
$ | 462 | $ | 308 | |||||
Nutrien 2018 First Quarter Interim Report | 67 |
Unaudited | in millions of US dollars except as otherwise noted |
Provincial Mining and Other Taxes |
Under Saskatchewan provincial legislation, the company is subject to resource taxes, including the potash production tax and the resource surcharge.
For the Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Potash production tax | $ | 28 | $ | 22 | ||||
Saskatchewan resource surcharge and other | 20 | 11 | ||||||
$ | 48 | $ | 33 | |||||
Other Expenses |
For the Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
(Note 32) | ||||||||
Foreign exchange gain | $ | 2 | $ | 1 | ||||
Merger and related costs | (66 | ) | (9 | ) | ||||
Other expenses | (15 | ) | (7 | ) | ||||
$ | (79 | ) | $ | (15 | ) | |||
Finance Costs |
Finance costs mainly arise from interest expense on long-term senior notes and debentures.
For the Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Interest expense on | ||||||||
Short-term debt | $ | 18 | $ | 1 | ||||
Long-term debt | 92 | 52 | ||||||
Interest on net defined benefit pension and other post-retirement plan obligations (Note 26) | 5 | 5 | ||||||
Unwinding of discount on asset retirement obligations (Note 18) | 7 | 4 | ||||||
Borrowing costs capitalized to property, plant and equipment | (2 | ) | (3 | ) | ||||
Other interest income | (1 | ) | – | |||||
$ | 119 | $ | 59 | |||||
Borrowing costs capitalized to property, plant and equipment during the three months ended March 31, 2018 were calculated by applying an average capitalization rate of 4.5 percent (2017 – 4.4 percent) to expenditures on qualifying assets.
See Note 10 for interest paid.
68 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Note 8 | Income Taxes |
This note explains the company’s income tax recovery (expense) andtax-related balances within the interim financial statements.
Accounting Policies |
The company operates in a specialized industry and in several tax jurisdictions. As a result, its income is subject to various rates of taxation. Taxation on items recognized in the condensed consolidated statements of (loss) earnings, other comprehensive income (“OCI”) or contributed surplus is recognized in the same location as those items.
Taxation on earnings is comprised of current and deferred income tax.
Current income tax is: | Deferred income tax is: | |
• the expected tax payable on the taxable earnings for the period;
• calculated using rates enacted or substantively enacted at the condensed consolidated balance sheet date in the countries where the company’s subsidiaries, held for sale investees and equity-accounted investees operate and generate taxable earnings; and
• inclusive of any adjustment to income tax payable or recoverable in respect of previous years. | • recognized using the liability method;
• based on temporary differences between financial statements’ carrying amounts of assets and liabilities and their respective income tax bases; and
• determined using tax rates that have been enacted or substantively enacted by the condensed consolidated balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. |
The realized and unrealized excess tax benefit from share-based compensation arrangements is recognized in contributed surplus as current and deferred tax, respectively.
Uncertain income tax positions are accounted for using the standards applicable to current income tax liabilities and assets; i.e., both liabilities and assets are recorded when probable and measured at the amount expected to be paid to (recovered from) the taxation authorities using the company’s best estimate of the amount.
Deferred income tax is not accounted for:
• | with respect to investments in subsidiaries and equity-accounted investees where the company is able to control the reversal of the temporary difference and that difference is not expected to reverse in the foreseeable future; and |
• | if arising from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. |
Deferred income tax assets are reviewed at each balance sheet date and amended to the extent that it is no longer probable that the related tax benefit will be realized.
Accounting Estimates and Judgments |
Estimates and judgments to determine the company’s taxes are impacted by:
• | the breadth of the company’s operations; and |
• | global complexity of tax regulations. |
The final taxes paid, and potential adjustments to tax assets and liabilities, are dependent upon many factors including:
• | negotiations with taxation authorities in various jurisdictions; |
• | outcomes of tax litigation; and |
• | resolution of disputes arising from federal, provincial, state and local tax audits. |
Estimates and judgments are used to recognize the amount of deferred tax assets, which:
• | includes the probability that future taxable profit will be available to use deductible temporary differences; and |
• | could be reduced if projected earnings are not achieved or increased if earnings previously not projected becomes probable. |
Nutrien 2018 First Quarter Interim Report | 69 |
Unaudited | in millions of US dollars except as otherwise noted |
Accounting Policies continued
Income tax assets and liabilities are offset when:
For current income taxes, the company has: | For deferred income taxes: | |
• a legally enforceable right 1 to offset the recognized amounts; and
• the intention to settle on a net basis or realize the asset and settle the liability simultaneously. | • the company has a legally enforceable right to set off current tax assets against current tax liabilities; and
• they relate to income taxes levied by the same taxation authority on either: (1) the same taxable entity; or (2) different taxable entities intending to settle current tax liabilities and assets on a net basis, or realize assets and settle liabilities simultaneously in each future period. 2 | |
1 For income taxes levied by the same taxation authority and the authority permits the company to make or receive a single net payment or receipt.
2 In which significant amounts of deferred tax liabilities or assets expected are to be settled or recovered. |
Accounting Estimates and Judgments continued
Supporting Information
A separate estimated average annual effective income tax rate was determined for each taxing jurisdiction and applied individually to the interim periodpre-tax income from continuing operations for each jurisdiction.
Three Months Ended March 31 | Ordinary earnings for the three months ended March 31, 2018 were negative as compared to positive earnings for the three months ended March 31, 2017. This produced very different weightings between jurisdictions on a quarter-over-quarter basis. This resulted in an increase in the actual effective tax rate on ordinary earnings. Compared to the same period last year, earnings were significantly lower in the United States and Canada and higher in lower-tax jurisdictions resulting in overall lower income taxes. | |||||||||
Income Tax Related to Continuing Operations | 2018 | 2017 | ||||||||
Income tax recovery (expense) | $ | 42 | $ | (10 | ) | |||||
Actual effective tax rate on ordinary earnings | 89 | % | 12 | % | ||||||
Actual effective tax rate including discrete items | 95 | % | 8 | % | ||||||
Discrete tax adjustments that impacted the tax rate | $ | 3 | $ | 5 |
Income Tax Balances
Income tax balances within the condensed consolidated balance sheet were comprised of the following:
Income Tax Assets (Liabilities) | Balance Sheet Location | March 31, 2018 | December 31, 2017 | |||||||
Current income tax assets | ||||||||||
Current | Receivables (Note 11) | $ | 152 | $ | 24 | |||||
Non-current | Other assets (Note 14) | 63 | 64 | |||||||
Deferred income tax assets | Other assets (Note 14) | 149 | 18 | |||||||
Total income tax assets | $ | 364 | $ | 106 | ||||||
Current income tax liabilities | ||||||||||
Current | Payables and accrued charges (Note 16) | $ | (57 | ) | $ | (16 | ) | |||
Non-current | Othernon-current liabilities | (81 | ) | (43 | ) | |||||
Deferred income tax liabilities | Deferred income tax liabilities | (2,762 | ) | (2,205 | ) | |||||
Total income tax liabilities | $ | (2,900 | ) | $ | (2,264 | ) | ||||
70 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Amounts and expiry dates of unused tax losses and unused tax credits as at January 1, 2018 were:
Amount | Expiry Date | Subsequent to March 31, 2018, capital losses totaling $675 were realized upon completion of a debt restructuring in Canada. Deferred tax assets will not be recognized for these capital losses. | ||||||
Unused operating losses | $ | 314 | 2018 – Indefinite | |||||
Unused tax credits | $ | 59 | 2018 – Indefinite | |||||
Unused capital losses | $ | 17 | None |
Net Earnings per Share |
Basic net earnings per share provides a measure of the interests of each ordinary common share in the company’s performance over the period.
Diluted net earnings per share adjusts basic net earnings per share for the effects of all dilutive potential common shares.
For the Three Months Ended March 31, | ||||||||
20182 | 2017 | |||||||
Basic net earnings per share1 | ||||||||
Net (loss) earnings from continuing operations available to common shareholders | $ | (1 | ) | $ | 106 | |||
Net earnings from discontinued operations available to common shareholders | – | 43 | ||||||
Net (Loss) Earnings | $ | (1 | ) | $ | 149 | |||
Weighted average number of common shares | 642,690,000 | 839,911,000 | ||||||
Basic net earnings per share from continuing operations | $ | – | $ | 0.13 | ||||
Basic net earnings per share from discontinued operations | $ | – | $ | 0.05 | ||||
Basic net earnings per share from continuing and discontinued operations | $ | – | $ | 0.18 | ||||
Diluted net earnings per share1 | ||||||||
Net (loss) earnings from continuing operations available to common shareholders | $ | (1 | ) | $ | 106 | |||
Net earnings from discontinued operations available to common shareholders | – | 43 | ||||||
Net (Loss) Earnings | $ | (1 | ) | $ | 149 | |||
Weighted average number of common shares | 642,690,000 | 839,911,000 | ||||||
Dilutive effect of stock options | 521,000 | 251,000 | ||||||
Dilutive effect of share-settled performance share units (“PSUs”) | 7,000 | 49,000 | ||||||
Weighted average number of diluted common shares | 643,218,000 | 840,211,000 | ||||||
Diluted net earnings per share from continuing operations | $ | – | $ | 0.13 | ||||
Diluted net earnings per share from discontinued operations | $ | – | $ | 0.05 | ||||
Diluted net earnings per share from continuing and discontinued operations | $ | – | $ | 0.18 | ||||
1 | Net earnings per share calculations are based on dollar and share amounts each rounded to the nearest thousand. |
2 | The number of shares, stock options and share-settled PSUs reflect the Merger. Refer to Note 3 for details. |
Net earnings per share = net earnings available to common shareholders / weighted average number of common shares issued and outstanding during the period. Diluted net earnings per share incorporated the following adjustments. The denominator was:
Ù | increased by the total of the additional common shares that would have been issued assuming exercise of all stock options with exercise prices at or below the average market price for the period; |
Ù | increased by the total of the additional share-settled PSUs that could be issued if vesting criteria are achieved; and |
Ú | decreased by the number of shares that the company could have repurchased if it had used the assumed proceeds from the exercise of stock options to repurchase them on the open market at the average share price for the period. |
For performance-based stock option plans, the number of contingently issuable common shares included in the calculation was based on the number of shares, if any, that would be issuable if the end of the reporting period was the end of the performance period and the effect was dilutive.
Options excluded from the calculation of diluted net earnings per share due to the option exercise prices being greater than the average market price of common shares were as follows:
For the Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Number of options excluded | 7,472,060 | 13,151,912 | ||||||
Performance option plan years fully excluded |
| 2008 – 2015 | | 2008 – 2014, | | |||
Stock option plan years fully excluded | 2015, 2018 | – | ||||||
Nutrien 2018 First Quarter Interim Report | 71 |
Unaudited | in millions of US dollars except as otherwise noted |
Consolidated Statements of Cash Flows |
Accounting Policy | ||||||||
Highly liquid investments with a maturity of three months or less from the date of purchase are considered to be cash equivalents. |
For the Three Months Ended March 31 | 2018 | 2017 | ||||||||||||||
(Note 32) | ||||||||||||||||
Reconciliation of cash (used in) provided by operating activities | ||||||||||||||||
Net (loss) earnings | $ | (1 | ) | $ | 149 | |||||||||||
Adjustments to reconcile net (loss) earnings to cash (used in) provided by operating activities | ||||||||||||||||
Depreciation and amortization | 411 | 172 | ||||||||||||||
Net undistributed earnings of equity-accounted investees (Note 19) | (6 | ) | (37 | ) | ||||||||||||
Share-based compensation (Note 27) | 16 | 5 | ||||||||||||||
Recovery of deferred income tax (Note 8) | (8 | ) | (14 | ) | ||||||||||||
Asset retirement obligations and accrued environmental costs (Note 18) | (18 | ) | (1 | ) | ||||||||||||
Other long-term liabilities and miscellaneous | 6 | 19 | ||||||||||||||
|
|
|
| |||||||||||||
Subtotal of adjustments | 401 | 144 | ||||||||||||||
Changes innon-cash operating working capital | ||||||||||||||||
Receivables | (187 | ) | 15 | |||||||||||||
Inventories | (1,701 | ) | (49 | ) | ||||||||||||
Prepaid expenses and other current assets | 645 | (5 | ) | |||||||||||||
Payables and accrued charges | 503 | (31 | ) | |||||||||||||
|
|
|
| |||||||||||||
Subtotal of changes innon-cash operating working capital | (740 | ) | (70 | ) | ||||||||||||
Cash (used in) provided by operating activities | $ | (340 | ) | $ | 223 | |||||||||||
Supplemental cash flows disclosure | ||||||||||||||||
Interest paid | $ | 114 | $ | 29 | ||||||||||||
Income taxes paid | $ | 29 | $ | 15 | ||||||||||||
The following is a summary of changes in liabilities arising from financing activities:
Short-term debt and current portion of Long-term debt 1 | Long-term debt | Total | ||||||||||
Balance – December 31, 2017 | $ | 730 | $ | 3,711 | $ | 4,441 | ||||||
Cash flows1 | 494 | (4 | ) | 490 | ||||||||
Non-cash changes | (5 | ) | (27 | ) | (32 | ) | ||||||
Reclassifications | 518 | (518 | ) | – | ||||||||
Debt acquired in Merger (Note 3) | 878 | 4,930 | 5,808 | |||||||||
Foreign currency translation | – | (1 | ) | (1 | ) | |||||||
Balance – March 31, 2018 | $ | 2,615 | $ | 8,091 | $ | 10,706 | ||||||
Balance – December 31, 2016 | $ | 884 | $ | 3,707 | $ | 4,591 | ||||||
Cash flows1 | 21 | – | 21 | |||||||||
Balance – March 31, 2017 | $ | 905 | $ | 3,707 | $ | 4,612 | ||||||
1 | Cash inflows and cash outflows arising from short-term debt transactions are presented on a net basis. |
72 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Receivables |
Receivables represent amounts the company expects to collect from other parties. Trade receivables consist mainly of amounts owed to Nutrien by its customers, the largest individual customer being the related party, Canpotex.
Accounting Policies |
Trade receivables are recognized initially at fair value and subsequently measured at amortized cost less provision for impairment of trade accounts receivable. When a trade receivable is uncollectible, it is written off against the provision. Subsequent recoveries of amounts previously written off are credited to the condensed consolidated statements of (loss) earnings.
|
Vendors may offer various incentives to purchase products for resale. Vendor rebates and prepay discounts are accounted for as a reduction of the prices of the suppliers’ products. Rebates based on the amount of materials purchased reduce cost of goods as inventory is sold. Rebates are offset based on sales volume to cost of goods sold if the rebate has been earned based on sales volume of products.
|
Rebates that are probable and can be reasonably estimated are accrued. Rebates that are not probable or estimable are accrued when certain milestones are achieved. Rebates not covered by binding agreements or published vendor programs are accrued when conclusive documentation of right of receipt is obtained. |
Supporting Information
| March 31, 2018 | December 31, 2017 | ||||||
Trade accounts – third parties | $ | 2,494 | $ | 314 | ||||
– Canpotex (Note 28) | 171 | 82 | ||||||
Less provision for impairment of trade accounts receivable | (19 | ) | (6 | ) | ||||
2,646 | 390 | |||||||
Rebates | 271 | – | ||||||
Income taxes receivable (Note 8) | 152 | 24 | ||||||
Othernon-trade accounts | 161 | 75 | ||||||
$ | 3,230 | $ | 489 | |||||
Accounting Estimates and Judgments |
Determining when amounts are deemed uncollectible requires judgment.
Vendor arrangements are diverse and can be highly complex. When vendor rebates are probable and can be estimated, a rebate will be accrued by estimating the point at which performance has been completed under an agreement. The amount of the accrual is determined by analyzing and reviewing historical trends to apply negotiated rates to estimated and actual purchase volumes. Estimated amounts accrued throughout the year could be impacted if actual purchase volumes differ from projected volumes.
Nutrien 2018 First Quarter Interim Report | 73 |
Unaudited | in millions of US dollars except as otherwise noted |
Inventories |
Inventories consist of retail inventory (crop nutrients, crop protection products, seed and merchandise products) and products from the potash, nitrogen and phosphate and sulfate segment in varying stages of the production process.
Accounting Policies | ||
Inventories are valued monthly at the lower of cost and net realizable value. Costs, allocated to inventory using the weighted average cost method, include direct acquisition costs, direct costs related to units of production and a systematic allocation of fixed and variable production overhead, as applicable.
Net realizable value is based on:
|
For products for resale, finished goods and raw materials | For materials and supplies | |
• selling price of the finished product (in ordinary course of business); • less the estimated costs of completion; and • less the estimated costs to make the sale. | • replacement cost, considered to be the best available measure of net realizable value. |
A writedown is recognized if carrying amount exceeds net realizable value, and may be reversed if the circumstances which caused it no longer exist. | ||
Supporting Information
| March 31, 2018 | December 31, 2017 | ||||||
Purchased for resale | $ | 4,513 | $ | – | ||||
Finished products | 557 | 260 | ||||||
Intermediate products | 215 | 202 | ||||||
Raw materials | 248 | 62 | ||||||
Materials and supplies | 382 | 264 | ||||||
$ | 5,915 | $ | 788 | |||||
Accounting Estimates and Judgments |
Judgment involves determining:
• | the appropriate measure of net realizable value; |
• | inputs to the determination of net realizable value, consisting of a combination of interrelated demand and supply variables; and |
• | the allocation of production overhead to inventories. |
The carrying amount of inventory recorded at net realizable value was $55 as at March 31, 2018 (December 31, 2017 – $45), with the remaining inventory recorded at cost.
74 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Property, Plant and Equipment |
The majority of the company’s tangible assets are the buildings, machinery and equipment used to produce and/or distribute its products and services. These assets are depreciated over their estimated useful lives.
Accounting Policies |
Property, plant and equipment (which include certain mine development costs,pre-stripping costs and assets under construction) are carried at cost less accumulated depreciation and any recognized impairment loss.
Cost includes all expenditures directly attributable to bringing the asset to the location and installing it in working condition for its intended use, including:
• income or expenses;1
• a reduction for investment tax credits to which the company is entitled;
• additions, betterments and renewals; and
• borrowing costs during construction.2
Each component of an item of property, plant and equipment with a cost that is significant in relation to the item’s total cost is depreciated separately. When the cost of replacing part of an item of property, plant and equipment is capitalized, the carrying amount of the replaced part is derecognized. The cost of major inspections and overhauls is capitalized and depreciated over the period until the next major inspection or overhaul. Maintenance and repair expenditures that do not improve or extend productive life are expensed in the period incurred.
Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognized in earnings before finance costs and income taxes. |
1 Derived from the necessity to bring an asset under construction to the location and condition necessary to be capable of operating in the manner and location intended.
2 The capitalization rate is based on the weighted average interest rate on all of the company’s outstanding third-party debt. Capitalization ceases when assets are substantially ready for their intended use.
|
Accounting Estimates and Judgments |
Judgment involves determining:
• | which costs are directly attributable (e.g., labor, overhead) and when income or expenses derived from an asset under construction are recognized as part of the asset cost; |
• | appropriate timing for ceasing costcapitalization1, considering the circumstances and the industry in which the asset is to be operated, normally predetermined by management with reference to such factors as productive capacity; |
• | the appropriate level of componentization (for individual components for which different depreciation methods or rates are appropriate); |
• | which repairs and maintenance constitute major inspections and overhauls; and |
• | the appropriate life over which such costs should be amortized. |
Property, plant and equipment directly related to the potash, nitrogen and phosphate and sulfate operations are depreciated using theunits-of-production method based on the shorter of estimates of reserves or service lives.Pre-stripping costs are depreciated on aunits-of-production basis over the ore mined from the mineable acreage stripped. Land is not depreciated. Other asset classes are depreciated on a straight-line basis.
The following estimated useful lives have been applied to the majority of property, plant and equipment assets as at March 31, 2018:
Useful Life Range (years) | Weighted Average Useful Life (years) 3 | |||||||
Land improvements | 5 to 70 | 34 | ||||||
Buildings and improvements | 5 to 70 | 44 | ||||||
Machinery and equipment2 | 2 to 60 | 25 | ||||||
Asset residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the depreciation period or method, as appropriate, and are treated as changes in accounting estimates.
The company assesses its existing assets and their depreciable lives in connection with the review at the end of each reporting period. When it is determined that assigned asset lives do not reflect the expected remaining period of benefit, prospective changes are made to their depreciable lives. Uncertainties are inherent in estimating reserve quantities, particularly as they relate to assumptions regarding future prices, the geology of the company’s mines, the mining methods used, and the related costs incurred to develop and mine its reserves. Changes in these assumptions could result in material adjustments to reserve estimates, which could result in impairments or changes to depreciation expense in future periods, particularly if reserve estimates are reduced.
1 Generally when the asset or asset under construction is substantially complete and in the location and condition necessary for it to be capable of operating in the manner intended by management.
2 Comprised primarily of plant equipment.
3 Weighted by carrying amount as at March 31, 2018. Carrying amounts do not include preliminary fair value adjustments related to the Merger.
|
Nutrien 2018 First Quarter Interim Report | 75 |
Unaudited | in millions of US dollars except as otherwise noted |
Accounting policies, estimates and judgments related to impairment of long-lived assets are included within Note 31.
Supporting Information
Land and Improvements | Buildings and Improvements | Machinery and Equipment | Assets Under Construction | Total | ||||||||||||||||
Carrying amount – December 31, 2017 | $ | 1,591 | $ | 4,184 | $ | 6,744 | $ | 452 | $ | 12,971 | ||||||||||
Merger impact 1 | 452 | 2,947 | 3,988 | 396 | 7,783 | |||||||||||||||
Other acquisitions | 14 | (3 | ) | 40 | – | 51 | ||||||||||||||
Additions | 14 | 9 | 21 | 172 | 216 | |||||||||||||||
Disposals | (1 | ) | (1 | ) | (12 | ) | – | (14 | ) | |||||||||||
Transfers | 12 | 8 | 84 | (104 | ) | – | ||||||||||||||
Foreign currency translation | (2 | ) | (4 | ) | (5 | ) | (1 | ) | (12 | ) | ||||||||||
Other adjustments | (10 | ) | – | 4 | – | (6 | ) | |||||||||||||
Depreciation | (28 | ) | (70 | ) | (315 | ) | – | (413 | ) | |||||||||||
Carrying amount – March 31, 2018 | $ | 2,042 | $ | 7,070 | $ | 10,549 | $ | 915 | $ | 20,576 | ||||||||||
Balance as at March 31, 2018 comprised of: | ||||||||||||||||||||
Cost | $ | 3,204 | $ | 7,790 | $ | 16,131 | $ | 915 | $ | 28,040 | ||||||||||
Accumulated depreciation | (1,162 | ) | (720 | ) | (5,582 | ) | – | (7,464 | ) | |||||||||||
Carrying amount | $ | 2,042 | $ | 7,070 | $ | 10,549 | $ | 915 | $ | 20,576 | ||||||||||
1 | The company recorded $7,783 of acquired property, plant and equipment from Agrium, representing their preliminary fair values as at the acquisition date as described in Note 3. |
Depreciation of property, plant and equipment was included in the following:
March 31, 2018 | March 31, 2017 | |||||||
Cost of goods sold | $ | 272 | $ | 164 | ||||
Selling expenses | 64 | – | ||||||
General and administrative expenses | 12 | 2 | ||||||
348 | 166 | |||||||
Depreciation recorded in inventory | 76 | 7 | ||||||
$ | 424 | $ | 173 | |||||
Operating accounts payable incurred for additions to property, plant and equipment do not result in a cash outflow. When paid, the liabilities are reflected as a cash outflow within investing activities. The applicable net change in accounts payable relating to investing activities on the condensed consolidated statements of cash flow for the three months ended March 31, 2018 was $(24) (2017 – $(49)).
76 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Note 14 | Other Assets |
Accounting Estimates and Judgments |
The costs of certain ammonia catalysts are capitalized to other assets and are amortized, net of residual value, on a straight-line basis over their estimated useful lives of one to 12 years.
Upfront lease costs are capitalized to other assets and amortized over the life of the leases on a straight-line basis, the latest of which extends through 2037.
Supporting Information
Other assets were comprised of:
| March 31, 2018 | December 31, 2017 | ||||||
Deferred income taxes assets (Note 8) | $ | 149 | $ | 18 | ||||
Ammonia catalysts – net of accumulated amortization of $63 (2017 – $61) | 78 | 42 | ||||||
Long-term income taxes receivable (Note 8) | 63 | 64 | ||||||
Accrued pension benefit asset (Note 26) | 32 | 24 | ||||||
Investment tax credits receivable | 23 | 24 | ||||||
Margin deposits on derivative instruments | 16 | 17 | ||||||
Upfront lease costs – net of accumulated amortization of $12 (2017 – $12) | 15 | 15 | ||||||
Other – net of accumulated amortization of $23 (2017 – $23) | 98 | 42 | ||||||
$ | 474 | $ | 246 | |||||
Goodwill and Other Intangible Assets |
Intangible assets, including goodwill, are identifiable, represent future economic benefits and are controlled by the company. Goodwill is not amortized but is subject to annual impairment reviews.
Accounting Policies | Accounting Estimates and Judgments | |||||
All business combinations are accounted for using the acquisition method. Identifiable intangible assets are recognized separately from goodwill. Goodwill is carried at cost, is not amortized and represents the excess of the cost of an acquisition over the fair value of the company’s share of the net identifiable assets of the acquired subsidiary or equity method investee at the date of acquisition. Certain trade names have indefinite useful lives as there are no legal, regulatory, contractual, cooperative, economic or other factors that limit their useful lives. These are not amortized.
Separately recognized goodwill is carried at cost less accumulated amortization and impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
An intangible asset is recognized when it is:
• reliably measurable;
• identifiable (separable or arises from contractual rights);
• probable that expected future economic benefits will flow to the company; and
• controllable by the company.
Intangible assets are recorded initially at cost, including development and applicable employee costs, and relate primarily to:
• goodwill
• contractual customer relationships;
• production and technology rights; | Goodwill is allocated to CGUs or groups of CGUs for impairment testing based on the level at which it is monitored by management, and not at a level higher than an operating segment. The allocation is made to those CGUs or groups of CGUs expected to benefit from the business combination in which the goodwill arose.
Judgment is applied in determining when expenditures are eligible for capitalization as intangible assets.
Estimation is applied to determine expected useful lives used in the straight-line amortization of intangible assets with finite lives. Changes in accounting estimates can result from changes in useful life or the expected pattern of consumption of an asset (taken into account by changing the amortization period or method, as appropriate).
|
Nutrien 2018 First Quarter Interim Report | 77 |
Unaudited | in millions of US dollars except as otherwise noted |
Accounting Policies continued | Accounting Estimates and Judgments continued | |||||
• trade names; and
• computer software and other developed projects (internally generated).
The following expenses are never recognized as an asset in current or subsequent periods:
• costs to maintain software programs; and
• development costs previously recognized as an expense.
Amortization is recognized in net earnings as an expense related to the function of the intangible asset.
Useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. | The following estimated useful lives have been applied to
| |||||
Useful Life Range (years) | ||||||
Trade names | 10 to 20 | |||||
Customer relationships | 6 to 15 | |||||
Technology | 3 to 7 | |||||
Other | 1 to 30 | |||||
Supporting Information
Following is a reconciliation of intangible assets:
Goodwill | Trade names 2 | Customer relationships 3 | Technology | Other | Total other intangibles | |||||||||||||||||||
Carrying amount – December 31, 2017 | $ | 97 | $ | – | $ | – | $ | – | $ | 69 | $ | 69 | ||||||||||||
Merger impact1 | 10,455 | 27 | 2,091 | 96 | 104 | 2,318 | ||||||||||||||||||
Other acquisitions | 30 | – | – | – | 6 | 6 | ||||||||||||||||||
Additions developed internally | – | – | – | 5 | – | 5 | ||||||||||||||||||
Foreign currency translation | (6 | ) | – | (1 | ) | (1 | ) | (2 | ) | (4 | ) | |||||||||||||
Amortization | – | – | (43 | ) | (5 | ) | (13 | ) | (61 | ) | ||||||||||||||
Carrying amount – March 31, 2018 | $ | 10,576 | $ | 27 | $ | 2,047 | $ | 95 | $ | 164 | $ | 2,333 | ||||||||||||
Balance as at March 31, 2018 comprised of: | ||||||||||||||||||||||||
Cost | $ | 10,583 | $ | 27 | $ | 2,090 | $ | 100 | $ | 231 | $ | 2,448 | ||||||||||||
Accumulated amortization | (7 | ) | – | (43 | ) | (5 | ) | (67 | ) | (115 | ) | |||||||||||||
Carrying amount | $ | 10,576 | $ | 27 | $ | 2,047 | $ | 95 | $ | 164 | $ | 2,333 | ||||||||||||
1 | The company recorded $10,455 of preliminary goodwill, representing the excess of the purchase price of acquiring Agrium and the preliminary fair values of Agrium’s assets and liabilities. The company also recorded $2,318 of acquired intangible assets from Agrium, representing their preliminary fair values as at the acquisition date as described in Note 3. |
2 | Trade names with a net book value of $19 have indefinite useful lives for accounting purposes. |
3 | The remaining amortization period of customer relationships at March 31, 2018, is approximately 15 years. |
Amortization of intangible assets was included in the following:
March 31, 2018 | March 31, 2017 | |||||||
Cost of goods sold | $ | 1 | $ | – | ||||
Selling expenses | 56 | 2 | ||||||
General and administrative expenses | 4 | 2 | ||||||
$ | 61 | $ | 4 | |||||
78 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Payables and Accrued Charges |
Trade and other payables and accrued charges mainly consist of amounts owed to suppliers, contractors, employees and shareholders that have been invoiced or accrued.
Payables and accrued charges were comprised of:
March 31, 2018 | December 31, 2017 | 48% Total trade accounts included in payables and accrued charges at March 31, 2018
| ||||||||
Trade accounts | $ | 3,310 | $ | 255 | ||||||
Customer prepayments1 | 2,027 | – | ||||||||
Dividends | 258 | 84 | ||||||||
Accrued compensation | 220 | 98 | ||||||||
Current portion of asset retirement obligations and accrued environmental costs (Note 18) | 130 | 72 | ||||||||
Accrued interest | 106 | 33 | ||||||||
Current portion of share-based compensation (Note 27) | 84 | 13 | ||||||||
Current portion of derivatives | 81 | 29 | ||||||||
Income taxes (Note 8) | 57 | 16 | ||||||||
Accrued utilities | 53 | 51 | ||||||||
Property and other taxes | 52 | 8 | ||||||||
Current portion of pension and other post-retirement benefits (Note 26) | 38 | �� | 35 | |||||||
Deferred revenue | 18 | 51 | ||||||||
Accrued merger costs (Note 3) | 19 | 42 | ||||||||
Other payables and other accrued charges2 | 467 | 49 | ||||||||
$ | 6,920 | $ | 836 |
1 | Prepayments made by customers planning to purchase products for the upcoming planting and application season. |
2 | Includes employee termination accruals of $23 as at March 31, 2018 relating to the Merger. |
Derivative Instruments |
Nutrien enters into contracts with other parties primarily to fix the price of natural gas and the exchange rate for foreign currency transactions.
Accounting Policies | Accounting Estimates and Judgments | |||
Derivative financial instruments are used to lock in commodity prices and exchange rates. These are measured at fair value through profit or loss (“FVTPL”) unless classified as a designated and qualified cash flow hedge. Contracts to buy or sell a non-financial item1 are recognized at fair value on the condensed consolidated balance sheet where appropriate.
For designated and qualified cash flow hedges:
• the effective portion of the change in the fair value of the derivative is accumulated in OCI;
• when the hedged forecasted transaction occurs, the related gain or loss is removed from accumulated other comprehensive income (“AOCI”) and included in the cost of inventory;
• the hedging gain or loss included in the cost of inventory is recognized in earnings when the product containing the hedged item is sold or becomes impaired; and
• the ineffective portions of hedges are recorded in net earnings in the current period. | Uncertainties, estimates and use of judgment include the assessment of contracts as derivative instruments and for embedded derivatives, application of hedge accounting and valuation of derivatives at fair value (discussed further in Note 29).
For derivatives or embedded derivatives, the most significant area of judgment is whether the contract can be settled net, one of the criteria in determining whether a contract for a non-financial asset is considered a derivative and accounted for as such. Judgment is also applied in determining whether an embedded derivative is closely related to the host contract, in |
Nutrien 2018 First Quarter Interim Report | 79 |
Unaudited | in millions of US dollars except as otherwise noted |
Accounting Policies continued | Accounting Estimates and Judgments continued | |||
The change in fair value of derivative instruments, not designated or not qualified as hedges, is recorded in net earnings in the current period.
The company’s policy is not to use derivative instruments for trading or speculative purposes. The company may choose not to designate a qualifying derivative instrument in an economic hedging relationship as an accounting hedge.
For natural gas derivative instruments designated as accounting hedges, the company formally documents:
• all relationships between hedging instruments and hedged items;
• its risk management objective and strategy for undertaking the hedge transaction; and
• the linkage of derivatives to specific assets and liabilities or to specific firm commitments or forecast transactions.
The company also assesses whether the natural gas derivatives used in hedging transactions are expected to be or were highly effective, both at the hedge’s inception and on an ongoing basis, in offsetting changes in fair values of hedged items. Hedge effectiveness related to the company’s NYMEX natural gas hedges is assessed on a prospective and retrospective basis using regression analyses. The company’s AECO natural gas hedges are assessed using a qualitative assessment. Potential sources of ineffectiveness are changes in timing of forecast transactions, changes in volume delivered or changes in credit risk of the company or the counterparty.
A hedging relationship is terminated if:
• the hedge ceases to be effective;
• the underlying asset or liability being hedged is derecognized; or
• the derivative instrument is no longer designated as a hedging instrument.
In such instances, the difference between the fair value and the accrued value of the hedging derivatives upon termination is deferred and recognized in net earnings on the same basis that gains, losses, revenue and expenses of the previously hedged item are recognized. If a cash flow hedging relationship is terminated because it is no longer probable that the anticipated transaction will occur, then the net gain or loss accumulated in OCI is recognized in current period net earnings. | which case bifurcation and separate accounting are not necessary.
The process to test effectiveness and meet stringent documentation standards requires the application of judgment and estimation. | |||
1 Can be settled net in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were financial instruments (except contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with expected purchase, sale or usage requirements). |
Supporting Information
Significant derivatives include the following:
• | natural gas swap agreements to manage the cost of natural gas, generally designated as cash flow hedges of anticipated transactions; and |
• | foreign currency forward contracts, used by the company to reduce volatility in net earnings and to limit exposure to exchange rate fluctuations relating to expenditures denominated in currencies other than the US dollar, not designated as hedging instruments for accounting purposes. |
Derivatives were comprised of:
March 31, 2018 | December 31, 2017 | |||||||||||||||||||||||
Assets | Liabilities | Net | Assets | Liabilities | Net | |||||||||||||||||||
Natural gas derivatives – designated cash flow hedges | $ | 8 | $ | 103 | $ | (95 | ) | $ | – | $ | 35 | $ | (35 | ) | ||||||||||
Natural gas derivatives | 8 | 21 | (13 | ) | 9 | 29 | (20 | ) | ||||||||||||||||
Foreign currency derivatives | 4 | 6 | (2 | ) | 1 | – | 1 | |||||||||||||||||
Total | 20 | 130 | (110 | ) | 10 | 64 | (54 | ) | ||||||||||||||||
Less current portion | (18 | ) | (81 | ) | 63 | (7 | ) | (29 | ) | 22 | ||||||||||||||
Long-term portion | $ | 2 | $ | 49 | $ | (47 | ) | $ | 3 | $ | 35 | $ | (32 | ) | ||||||||||
80 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Natural gas derivatives outstanding:
March 31, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||
Notional 1 | Maturities | Average contract price 2 | Fair value of assets (liabilities) | Notional 1 | Maturities | Average contract price 2 | Fair value of assets (liabilities) | |||||||||||||||||||||||
Natural gas | ||||||||||||||||||||||||||||||
NYMEX swaps | 26 | 2018 – 2022 | $ | 4.68 | (46 | ) | 27 | 2018 – 2022 | $ | 4.89 | (54 | ) | ||||||||||||||||||
AECO swaps3 | 53 | 2018 – 2019 | $ | 2.31 | (62 | ) | – | – | – | – | ||||||||||||||||||||
1 | In millions of metric British Thermal units (MMBtu). |
2 | US dollars per MMBtu. |
3 | AECO swaps are only included in 2018 as a result of the Merger. |
Asset Retirement Obligations and Accrued Environmental Costs |
A provision is an estimated liability with uncertainty over the timing or amount that will be paid. The most significant asset retirement and environmental restoration provisions relate to costs to restore potash and phosphate sites to their original, or another specified, condition.
Accounting Policies | Accounting Estimates and Judgments | |||||||||||
Provisions are recognized when:
• there is a present legal or constructive obligation as a result of past events;
• it is probable an outflow of resources will be required to settle the obligation; and
• the amount has been reliably estimated.
Provisions are not recognized for costs that need to be incurred to operate in the future or expected future operating losses.
The company recognizes provisions for termination benefits at the earlier of when it can no longer withdraw the offer of the termination benefits and when it recognizes any related restructuring costs.
Provisions are measured at the present value of the cash flow 1 expected to be required to settle the obligation.
As a result of the Merger, the company recognized additional environmental costs that are present obligations of the company though cash outflows of resources are not probable. These are subsequently measured at the higher of the amount initially recognized and the best estimate of the expenditures to be incurred.
Environmental costs related to current operations are:
| Estimates for provisions take into account:
• most provisions will not be settled for a number of years;
• environmental laws and regulations and interpretations by regulatory authorities could change or circumstances affecting the company’s operations could change, either of which could result in significant changes to current plans; and
• the nature, extent and timing of current and proposed reclamation and closure techniques in view of present environmental laws and regulations.
It is reasonably possible that the ultimate costs could change in the future and that changes to these estimates could have a material effect on the company’s interim financial statements.
Estimates for asset retirement obligation costs depend on the development of environmentally acceptable closure and post-closure plans. In some cases, this may require significant research and development to identify preferred methods for such plans that are economically sound and that, in most cases, may not be implemented for several decades. The company uses appropriate technical resources, including outside consultants, to develop specific site closure and post-closure plans in accordance with the requirements of the various jurisdictions in which it operates. Other than certain land reclamation programs, settlement of the obligations is typically correlated with mine life estimates.
Employee termination activities are complex processes that can take months to complete and involve making and reassessing estimates. | |||||||||||
Capitalized as an asset, if | Expensed, if | Recorded as a provision, when | ||||||||||
• property life is extended;
• capacity is increased;
• contamination from future operations is mitigated or prevented; or
• related to legal or constructive asset retirement obligations. |
• related to existing conditions caused by past operations; and
• they do not contribute to current or future revenue generation. |
• environmental remedial efforts are likely;
• the costs can be reasonably estimated; and
• the company uses the most current information available, including similar past experiences, available technology, regulations in effect, the timing of remediation, and cost-sharing arrangements.
| ||||||||||
1 Using apre-tax risk-free discount rate that reflects current market assessments of the time value of money and the risks specific to the timing and jurisdiction of the obligation. |
Nutrien 2018 First Quarter Interim Report | 81 |
Unaudited | in millions of US dollars except as otherwise noted |
Accounting Policies continued | ||||||||
The company recognizes provisions for decommissioning obligations (also known as asset retirement obligations) primarily related to mining and mineral activities. The major categories of asset retirement obligations are:
• reclamation and restoration costs at its potash and phosphate mining operations, including management of materials generated by mining and mineral processing, such as various mine tailings and gypsum;
• land reclamation and revegetation programs;
• decommissioning of underground and surface operating facilities;
• general cleanup activities aimed at returning the areas to an environmentally acceptable condition; and
• post-closure care and maintenance.
The present value of a liability for a decommissioning obligation is recognized in the period in which it is incurred if a reasonable estimate can be made and it is probable that there will be an outflow of resources. The associated costs are:
• capitalized as part of the carrying amount of any related long-lived asset and then amortized over its estimated remaining useful life;
• recorded as inventory; or
• expensed in the period.
The best estimate of the amount required to settle the obligation is reviewed at the end of each reporting period and updated for any changes in the discount and foreign exchange rates and the amount or timing of the underlying cash flows. When there is a change in the best estimate, an adjustment is recorded against the carrying amount of the provision and any related asset, and the effect is then recognized in net earnings over the remaining life of the asset. The increase in the provision due to the passage of time is recognized as a finance cost. A gain or loss may be incurred upon settlement of the liability | ||||||||
Accounting Estimates and Judgments continued
The risk-free rate and expected cash flow payments for asset retirement obligations and accrued environmental costs at March 31, 2018 were as follows:
Risk-Free Rate | Cash Flow Payments 1 | |||||||
Asset retirement obligations | ||||||||
Potash | 3.64% - 5.00% | 40 - 431 years | ||||||
Phosphate | 1.60% - 3.15% | 1 - 484 years | ||||||
Other segments | 1.22% - 6.50% | 1 - 87 years | ||||||
Accrued environmental costs | 0.65% - 4.27% | 1 - 30 years | ||||||
1 | Timeframe in which payments are expected to principally occur from March 31, 2018, with the majority of phosphate payments taking place over the next 80 years. Changes in years can result from changes to the mine life and/or changes in the rate in tailing volumes. |
Sensitivity of asset retirement obligations and accrued environmental costs to changes in the discount rate on the recorded liability as at March 31, 2018 is as follows:
Discount Rate | ||||||||||||||||
Undiscounted Cash Flows | Discounted Cash Flows | +0.5% | -0.5% | |||||||||||||
Asset retirement obligations | $ (92 | ) | $ | 101 | ||||||||||||
Potash | $ | 797 | 1 | $ | 106 | |||||||||||
Phosphate | 1,333 | 948 | ||||||||||||||
Other segments | 85 | 24 | ||||||||||||||
Accrued environmental costs | 710 | 538 | (28 | ) | 31 | |||||||||||
1 | Represents total undiscounted cash flows in the first year of decommissioning. Excludes subsequent years of tailings dissolution, fine tails capping, tailings management area reclamation, post reclamation activities and monitoring, and final decommissioning, which are estimated to take an additional 92-373 years. |
82 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Supporting Information
Following is a reconciliation of asset retirement and environmental restoration obligations:
Asset Retirement Obligations | Accrued Costs | Total | ||||||||||
Balance – December 31, 2017 | $ | 702 | $ | 21 | $ | 723 | ||||||
Merger impact1 | 407 | 520 | 927 | |||||||||
Recorded in (loss) earnings | ||||||||||||
New obligations | 1 | – | 1 | |||||||||
Change in discount rate | (11 | ) | – | (11 | ) | |||||||
Change in other estimates | 1 | – | 1 | |||||||||
Unwinding of discount | 7 | – | 7 | |||||||||
Capitalized to property, plant and equipment | ||||||||||||
Change in discount rate | (10 | ) | – | (10 | ) | |||||||
Settled during period | (11 | ) | (3 | ) | (14 | ) | ||||||
Other adjustments | – | 2 | 2 | |||||||||
Foreign currency translation | (8 | ) | (2 | ) | (10 | ) | ||||||
Balance – March 31, 2018 | $ | 1,078 | $ | 538 | $ | 1,616 | ||||||
Balance as at March 31, 2018 comprised of: | ||||||||||||
Current liabilities | ||||||||||||
Payables and accrued charges (Note 16) | $ | 99 | $ | 31 | $ | 130 | ||||||
Non-current liabilities | ||||||||||||
Asset retirement obligations and accrued environmental costs | $ | 979 | $ | 507 | $ | 1,486 |
1 | The company recorded $927 of assumed asset retirement and environmental restoration obligations from Agrium, representing their preliminary fair values as at the acquisition date as discussed in Note 3. |
Environmental Operating and Capital Expenditures
The company’s operations are subject to numerous environmental requirements under federal, provincial, state and local laws and regulations in the countries in which it operates. These laws and regulations govern matters such as air emissions, wastewater discharges, land use and reclamation, and solid and hazardous waste management. Many of these laws, regulations and permit requirements are becoming increasingly stringent, and the cost of compliance can be expected to rise over time.
Other Environmental Obligations
Other environmental obligations generally relate to regulatory compliance, environmental management practices associated with ongoing operations other than mining, site assessment and remediation of environmental contamination related to the activities of the company and its predecessors, including waste disposal practices and ownership and operation of real property and facilities.
Nutrien 2018 First Quarter Interim Report | 83 |
Unaudited | in millions of US dollars except as otherwise noted |
Investments |
Nutrien holds interests in associates and joint ventures, the most significant being Canpotex, MOPCO and Profertil. The company’s most significant investment accounted for as FVTOCI is Sinofert. The company’s significant investments in SQM and APC are classified as held for sale.
Investments Held for Sale and Discontinued Operations
Accounting Policies | Accounting Estimates and Judgments | |||
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.
Discontinued operations represent 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 singleco-ordinated plan to dispose of a separate major line of business or geographical area of operations.
The company’s significant policies include:
• cessation of equity accounting for associates and joint ventures at the date the investments were classified as held for sale;
• measurement of assets at the lower of carrying amount and fair value less costs to sell, with the exception of financial assets (measured at FVTOCI);
• unrealized gains and losses on remeasurement of investments measured at FVTOCI are recorded, net of related income taxes, to OCI; and
• dividends received are recorded on the condensed consolidated statement of (loss) earnings.
| Estimation is used to determine fair value less cost to sell.
Judgment is used to assess whether the highly probable standard is met and the date when equity accounting ceases.
Judgment is also used in determining if the discontinued operations are a component of the company. |
The company’s investments in SQM and APC were classified as held for sale and as discontinued operations in December 2017, due to regulatory requirements to dispose of these investments in connection with the Merger. Share of earnings, dividend income and income tax recovery (expense) pertaining to these investments were reclassified from (loss) earnings before income taxes and income tax recovery (expense) to net earnings from discontinued operations on the condensed consolidated statements of (loss) earnings. 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 recorded through AOCI, net of income taxes of $NIL.
Supporting Information
Assets and liabilities held for sale were comprised of:
March 31,
| December 31,
| |||||||
Assets | ||||||||
Investment in SQM and APC | $ | 1,146 | $ | 1,146 | ||||
Investment in ICL | – | 708 | ||||||
Current tax asset | 4 | 4 | ||||||
Assets held for sale | $ | 1,150 | $ | 1,858 | ||||
Liabilities | ||||||||
Deferred income tax liabilities | $ | 36 | $ | 36 | ||||
Net earnings from discontinued operations was comprised of:
For the Three Months Ended March 31, | ||||||||
2018
| 2017
| |||||||
Share in earnings of SQM and APC | $ | – | $ | 38 | ||||
Dividend income | – | 8 | ||||||
Income tax expense | – | (3 | ) | |||||
Net earnings from discontinued operations | $ | – | $ | 43 | ||||
Net earnings per share from discontinued operations | ||||||||
Basic | $ | – | $ | 0.05 | ||||
Diluted | $ | – | $ | 0.05 |
84 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Principal Activity
| Principal Place of Business and Incorporation
| Proportion of Ownership Interest and Voting Rights Held | Quoted Fair Value1 | Carrying Amount | ||||||||||||||||||||||||||
Name
| March 31,
| December 31,
| March 31,
| December 31, 2017
| March 31,
| December 31,
| ||||||||||||||||||||||||
SQM | Chemicals & Mining | Chile | 32 | % 2 | 32 | % 2 | $ | 3,807 | $ | 4,645 | $ | 784 | $ | 784 | ||||||||||||||||
APC | Mining | Jordan | 28 | % | 28 | % | 558 | 543 | 362 | 362 | ||||||||||||||||||||
ICL | Fertilizer & Specialty Chemicals | Israel | 0 | % | 14 | % | – | 708 | – | 708 | ||||||||||||||||||||
$ | 1,146 | $ | 1,854 | |||||||||||||||||||||||||||
1 | The quoted market value (fair value) was based on unadjusted quoted prices in active markets (Level 1). |
2 | Due to provisions in SQM’s bylaws, the company holds proportional voting rights of 28 percent. |
Investments in Equity-Accounted Investees
Accounting Policies | Accounting Estimates and Judgments | |||||
Investments in which the company exercises significant influence (but does not control) are accounted for using the equity method. Significant influence is the power to participate in the financial and operating policy decisions of the investee. Such investees that are not jointly controlled are referred to as associates. All investees the company jointly controls are classified and accounted for as joint ventures, which are also accounted for using the equity method.
The company’s significant policies include:
• its proportionate share of any net earnings or losses from investees, and any gain or loss on disposal, are recorded in net earnings adjusted for any fair value adjustment at acquisition date and differences in accounting policies;
• its proportionate share of post-acquisition movements in OCI is recognized in the company’s OCI;
• the cumulative post-acquisition movements in net earnings and OCI are adjusted against the carrying amount of the investment; dividends received reduce the carrying amount of the company’s investment;
• an impairment test is performed when there is objective evidence of impairment, such as significant adverse changes in the environment in which the equity-accounted investee operates or a significant or prolonged decline in the fair value of the investment below its carrying amount. An impairment loss is recorded when the recoverable amount1 becomes lower than the carrying amount; and
• impairment losses are reversed if the recoverable amount subsequently exceeds the carrying amount.
| Judgment is necessary in determining when significant influence (power to participate in the financial and operating policy decisions of the investee but not control or jointly control over those policies) exists.
Judgment is also used in determining if objective evidence of impairment exists, and if so, the amount of impairment. | |||||
1 The higher of value in use and fair value less costs to sell. |
Nutrien 2018 First Quarter Interim Report | 85 |
Unaudited | in millions of US dollars except as otherwise noted |
Supporting Information
Equity-accounted investees were comprised of:
Proportion of Ownership Interest and Voting Rights Held | Carrying Amount | |||||||||||||||||||||||
Name | Principal Activity | Principal Place of Business and Incorporation | March 31, 2018 | December 31, 2017 | March 31, 2018 | December 31, 2017 | ||||||||||||||||||
MOPCO1 | Nitrogen Producer | Egypt | 26% | 0% | 3 | $ | 242 | $ | – | |||||||||||||||
Profertil | Nitrogen Producer | Argentina | 50% | 0% | 3 | 173 | – | |||||||||||||||||
Canpotex | Marketing & Logistics | Canada | 50% | 2 | 33% | – | – | |||||||||||||||||
Other associates and joint ventures | 161 | 30 | ||||||||||||||||||||||
Total equity-accounted investees | $ | 576 | $ | 30 | ||||||||||||||||||||
1 | The company recorded the shares of MOPCO’s earnings on aone-quarter lag as the financial statements of MOPCO are not available on the date of issuance of the company’s interim financial statements. Future conditions, including those related to MOPCO in Egypt, which has been subject to political instability and civil unrest, may restrict the company’s ability to obtain dividends from MOPCO. The company is also exposed to currency risk related to fluctuations in the Egyptian pound against the US dollar. |
2 | Upon closing of the Merger on January 1, 2018 as described in Note 3, the company’s interest in Canpotex is a 50% voting interest and the classification of the investment changed from an associate to a joint venture. The equity method is required for both associates and joint ventures, therefore, there is no change in the accounting for Canpotex. |
3 | Investments in MOPCO and Profertil are only included in 2018 as a result of the Merger. |
Investments at FVTOCI
Accounting Policies | Accounting Estimates and Judgments | |||
The fair value of investments designated as FVTOCI is recorded in the condensed consolidated balance sheet, with unrealized gains and losses, net of related income taxes, recorded in AOCI.
The company’s significant policies include:
• the cost of investments sold is based on the weighted average method; and
• realized gains and losses on these investments remain in OCI, but the cumulative balance can be transferred to another equity reserve, such as retained earnings.
See Note 29 for a description of how the company determines fair value for its investments. | The company’s 22 percent ownership of Sinofert does not constitute significant influence and its investment is therefore accounted for as FVTOCI. |
Supporting Information
Investments at FVTOCI were as follows:
Principal Activity | Principal Place of Business and Incorporation | Proportion of Ownership Interest and Voting Rights Held | Fair Value and Carrying Amount | |||||||||||||||||||||
Name | March 31, 2018 | December 31, 2017 | March 31, 2018 | December 31, 2017 | ||||||||||||||||||||
Sinofert1 | Fertilizer Supplier & Distributor | China/Bermuda | 22 | % | 22 | % | $ | 197 | $ | 258 | ||||||||||||||
Other | 5 | 4 | ||||||||||||||||||||||
$ | 202 | $ | 262 | |||||||||||||||||||||
1 | The quoted market value (fair value) was based on unadjusted quoted prices in active markets (Level 1). |
86 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
As at March 31, 2018, the net unrealized loss on these investments was $380 (March 31, 2017 – $313).
Changes in fair value, and related accounting, for the company’s investment in Sinofert since December 31, 2017 were as follows:
Impact of Unrealized Loss on: | ||||||||||||||||
Fair Value | Unrealized (Loss) Gain | OCI and AOCI | Net Earnings and Retained Earnings | |||||||||||||
Balance – December 31, 2017 | $ | 258 | $ | (321 | ) | $ | 68 | $ | (389 | ) | ||||||
Decrease in fair value during the period | (61 | ) | (61 | ) | (61 | ) | – | |||||||||
Balance – March 31, 2018 | $ | 197 | $ | (382 | ) | $ | 7 | $ | (389 | ) | ||||||
Short-Term Debt |
The company uses its $5 billion commercial paper programs for its short-term cash requirements. The commercial paper program is backstopped by a long-term credit facility. Short-term facilities are renegotiated periodically.
Short-term debt was comprised of:
March 31, 2018 | December 31, 2017 | |||||||
Commercial paper | $ | 1,851 | $ | 730 | ||||
Credit facilities1 | 240 | – | ||||||
$ | 2,091 | $ | 730 | |||||
1 | Is unsecured and consists of US dollar-denominated debt of $69, euro-denominated debt of $34 and debt of $137 in other currency denominations. |
The amount available under the commercial paper program is limited to the availability of backup funds under the credit facility. As at March 31, 2018, the company was authorized
to issue commercial paper up to $5,000 (2017 – $2,500), pursuant to the legacy commercial paper programs of PotashCorp and Agrium. The company also had other facilities, mostly denominated in foreign currencies, of $509, a line of credit of $75, and an accounts receivable securitization program of $300 available from which they could draw other short-term debt.
Principal covenants and events of default under the line of credit are the same as those under the $3,500 credit facility described in Note 21.
Under the accounts receivable securitization program, the company sells certain trade receivables to a special purchase vehicle, which is a consolidated entity within
Nutrien. The company controls and retains substantially all the risks and rewards of the receivables sold to the special purchase vehicle. Should the company wish to draw funds under the program, the sold accounts receivable balances may be used as capacity for collateralized borrowings from a third party financial institution. At March 31, 2018, the company had not drawn down on the capacity made available under this program.
Subsequent to March 31, 2018, the company launched a commercial paper program having an aggregate authorized amount of $4,500 (“Nutrien Commercial Paper Facility”). Concurrent with the launch, Nutrien has discontinued new issuances under the legacy commercial paper programs of PotashCorp and Agrium.
Long-Term Debt |
The company’s sources of borrowing for funding and liquidity purposes are primarily senior notes, debentures and a long-term credit facility that provides for unsecured borrowings and backstops its commercial paper program. The company has access to the capital markets through its base shelf prospectus.
Accounting Policy |
Issue costs of long-term debt obligations are capitalized to long-term obligations and are amortized to expense over the term of the related liability using the effective interest method. |
Nutrien 2018 First Quarter Interim Report | 87 |
Unaudited | in millions of US dollars except as otherwise noted |
Supporting Information
Long-term debt was held at the subsidiary level and was comprised of:
Rate of Interest | Maturity | March 31, 2018 | December 31, 2017 | |||||||||||
Senior notes 1 | ||||||||||||||
Notes issued 2009 | 6.500% | May 15, 2019 | $ | 500 | $ | 500 | ||||||||
Notes issued 2009 | 4.875% | March 30, 2020 | 500 | 500 | ||||||||||
Notes issued 2014 | 3.625% | March 15, 2024 | 750 | 750 | ||||||||||
Notes issued 2015 | 3.000% | April 1, 2025 | 500 | 500 | ||||||||||
Notes issued 2016 | 4.000% | December 15, 2026 | 500 | 500 | ||||||||||
Notes issued 2006 | 5.875% | December 1, 2036 | 500 | 500 | ||||||||||
Notes issued 2010 | 5.625% | December 1, 2040 | 500 | 500 | ||||||||||
Debentures1 | ||||||||||||||
Debentures issued 2008 | 6.750% | January 15, 2019 | 500 | – | ||||||||||
Debentures issued 2012 | 3.150% | October 1, 2022 | 500 | – | ||||||||||
Debentures issued 2013 | 3.500% | June 1, 2023 | 500 | – | ||||||||||
Debentures issued 2015 | 3.375% | March 15, 2025 | 550 | – | ||||||||||
Debentures issued 1997 | 7.800% | February 1, 2027 | 125 | – | ||||||||||
Debentures issued 2015 | 4.125% | March 15, 2035 | 450 | – | ||||||||||
Debentures issued 2006 | 7.125% | May 23, 2036 | 300 | – | ||||||||||
Debentures issued 2010 | 6.125% | January 15, 2041 | 500 | – | ||||||||||
Debentures issued 2013 | 4.900% | June 1, 2043 | 500 | – | ||||||||||
Debentures issued 2014 | 5.250% | January 15, 2045 | 500 | – | ||||||||||
Other | 29 | – | ||||||||||||
8,204 | 3,750 | |||||||||||||
Add net unamortized fair value adjustments2 | 474 | – | ||||||||||||
Less net unamortized debt issue costs | (63 | ) | (43 | ) | ||||||||||
8,615 | 3,707 | |||||||||||||
Less current maturities | (510 | ) | – | |||||||||||
Less current net unamortized fair value adjustments2 |
| (18 | ) | – | ||||||||||
Add current portion of amortization | 4 | 4 | ||||||||||||
$ 8,091 | $ | 3,711 | ||||||||||||
1 | Each series of senior notes and debentures is unsecured and has no sinking fund requirements prior to maturity. Each series is redeemable and have various provisions that allow redemption prior to maturity, at the company’s option, at specified prices. |
2 | Associated with the Merger on January 1, 2018. |
Under the senior notes and debentures, the company is not subject to any financial test covenants, but is subject to certain customary covenants and events of default. The company was in compliance with these covenants as at March 31, 2018. Subsequent to March 31, 2018, other than in respect of the 7.800% debentures due 2027 (the “2027 debentures”), these covenants were replaced with the covenants described below in conjunction with the debt exchange.
During the first quarter of 2018, the company commenced offers to exchange the senior notes and debentures for new notes issued by Nutrien (the “Nutrien Notes”). The Nutrien Notes have interest rates and maturities identical to those of the applicable exchanged series of senior notes or debentures. Subsequent to March 31, 2018, approximately $7,578 of senior notes and debentures were tendered and accepted in exchange for $7,578 of Nutrien Notes.
A small portion of senior notes and debentures, excluding the 2027 debentures, were not exchanged and remained outstanding with the issuing subsidiary. In accordance with the amended terms of the senior notes and debentures, the company is not required to provide additional financial reporting at the issuing subsidiary level. The indentures governing these remaining senior notes and debentures have been amended to eliminate certain covenants and events of default provisions. In addition, none of the 2027 debentures were exchanged, but debt holders have consented to amend certain covenants of the indenture governing this series such that the financial reporting of Nutrien rather than the issuing subsidiary will satisfy any financial reporting requirements.
The Nutrien Notes have various provisions that allow for redemption prior to maturity, at the company’s option, at specified prices. The company is not subject to any financial test covenants but is subject to certain customary covenants including limitation on liens of 15% of consolidated net tangible assets, merger and change of control covenants and customary events of default.
The debt exchange is accounted for as a modification of debt as the financial terms of the Nutrien Notes were identical to senior notes and debentures and there is no substantial difference between the present value of cash flows under the Nutrien Notes compared to the notes and debentures. The transaction costs from the debt exchange of approximately $18 were recorded to the carrying amount of the long-term debt and will be amortized over the life of the Nutrien Notes.
88 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
The company has long-term revolving credit facilities at the subsidiary level that provide for unsecured borrowings and also backstops its commercial paper programs. The availability of borrowings is reduced by the amount of commercial paper outstanding. Details of the company’s credit facilities were as follows:
March 31, 2018 | December 31, 2017 | |||||||||||
Credit Facility | | $3,250 – maturity May 31, 2021 $250 – maturity | | | $2,500 – maturity December 21, 2020 | | | $3,250 – maturity May 31, 2021 $250 – maturity | | |||
Borrowings outstanding | $ | NIL | $ | NIL | $ | NIL | ||||||
Commercial paper outstanding, backstopped by the credit facility (Note 20) | $ | 1,736 | $ | 115 | $ | 730 | ||||||
Amounts borrowed and repaid during the period ended | $ | NIL | $ | NIL | $ | NIL | ||||||
Principal covenants and events of default under the $3,500 revolving credit facility include a debt to capital ratio of less than or equal to 0.65:1, net book value of disposed assets not to exceed 25 percent of the prior year-end’s total assets, debt of subsidiaries not to exceed $1,000 and a $300 permitted lien basket. Other customary covenants and events of default for non-payment of other debt in excess of the greater of $100 or two percent of shareholders’ equity. Non-compliance with such covenants could result in accelerated payment of amounts due under the credit facility, and its termination.
Principal covenants and events of default under the $2,500 revolving credit facility include an interest coverage ratio of greater than or equal 2.5:1, debt to capital ratio of less than or equal to 0.65:1, debt of subsidiaries not to exceed 15% of consolidated tangible assets, and non-payment of other debt in excess of the greater of $100 or two percent of shareholders’ equity. Non-compliance with such covenants could result in accelerated payment of amounts due under the credit facility, and its termination.
Subsequent to March 31, 2018, these covenants were replaced with the covenants described below in conjunction with the credit facility replacement.
The company was in compliance with the covenants identified above as at March 31, 2018.
Subsequent to March 31, 2018, the company replaced the existing $3,500 unsecured revolving credit facility and the $2,500 multi-jurisdictional unsecured revolving credit facility with a new Nutrien $4,500 unsecured revolving credit facility (“Nutrien Credit Facility”). The Nutrien Credit Facility matures April 10, 2023, subject to extension at the request of Nutrien provided that the resulting maturity date shall not exceed five years from the date specified in the request. Principal covenants and events of default under the Nutrien Credit Facility include a debt to capital ratio of less than or equal to 0.65:1 and other customary events of default and covenant provisions. Non-compliance with such covenants could result in accelerated repayment and/or termination of the credit facility.
Long-term debt obligations as at March 31, 2018 will mature between April 1 and March 31 in the years indicated as follows 1:
2019 | $ | 510 | ||
2020 | 1,008 | |||
2021 | 5 | |||
2022 | – | |||
2023 | 500 | |||
Subsequent years | 6,181 | |||
$ | 8,204 | |||
1 | Actual amounts and timing may differ depending on prepayments or refinancing prior to or at maturity. |
Nutrien 2018 First Quarter Interim Report | 89 |
Unaudited | in millions of US dollars except as otherwise noted |
Share Capital |
Share capital represents amounts associated with issued common shares.
Authorized
The company is authorized to issue an unlimited number of common shares without par value and an unlimited number of preferred shares. The common shares are not redeemable or convertible. The preferred shares may be issued in one or more series with rights and conditions to be determined by the Board of Directors. No preferred shares have been issued.
Share repurchase program
On February 20, 2018, the company’s Board of Directors approved a share repurchase program of up to five percent of the company’s outstanding common shares over aone-year period through a normal course issuer bid. Purchases under the normal course issuer bid will be made through open market purchases at market price, as well as by other means as may be permitted by applicable securities regulatory authorities, including private agreements. Any purchases made by private agreement under an issuer bid exemption order issued by a securities regulatory authority will be at a discount to the prevailing market price as provided in any exemption order. Purchases of common shares commenced on February 23, 2018 and will expire on the earlier of February 22, 2019, the date on which the company has acquired the maximum number of common shares allowable or the date the company announces that it has otherwise decided not to make any further repurchases.
The company repurchased for cancellation 9,321,587 common shares during the three months ended March 31, 2018, at a cost of $457 and an average price per share of $49.02. The repurchase resulted in a reduction of share capital of $256, and the excess of net cost over the average book value of the shares was recorded as a reduction of contributed surplus of $23 and a reduction of retained earnings of $178.
Issued
Number of Common Shares (Pre-Merger) | Number of Common Shares (Post-Merger) | Consideration | ||||||||||
Balance – December 31, 2017(Pre-Merger) | 840,223,041 | |||||||||||
Conversion ratio | 0.40 | |||||||||||
PotashCorp shares converted to Nutrien shares | 336,089,216 | $ | 1,806 | |||||||||
Agrium shares – December 31, 2017(Pre-Merger) | 138,165,765 | |||||||||||
Conversion ratio | 2.23 | |||||||||||
Agrium shares converted to Nutrien shares | 308,109,656 | 15,898 | ||||||||||
Fractional shares cancelled1 | (1,399 | ) | – | |||||||||
Balance – January 1, 2018(Post-Merger) | 644,197,473 | $ | 17,704 | |||||||||
Issued under option plans and share-settled plans | 35,849 | 1 | ||||||||||
Repurchased | (9,321,587 | ) | (256 | ) | ||||||||
Balance – March 31, 2018 | 634,911,735 | $ | 17,449 | |||||||||
1 | No fractional shares of Nutrien were issued. Each PotashCorp shareholder and Agrium shareholder that would otherwise have been entitled to receive a fraction of a Nutrien share received, in lieu thereof, a cash amount, without interest, determined by reference to the volume weighted average trading price of Nutrien shares on the Toronto Stock Exchange on the first five trading days on which such shares trade on such exchange following January 2, 2018. |
Dividends declared
During the three months ended March 31, 2018, the company declared a quarterly dividend of $0.40 per share (2017 – $0.10).
90 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Capital Management |
The objective of Nutrien’s capital allocation policy is to balance between the return of capital to shareholders, improvement in the efficiency of the company’s existing assets, and delivery on the company’s growth opportunities, while maintaining a strong balance sheet and flexible capital structure to optimize the cost of capital at an acceptable level of risk. Nutrien’s goal is to pay a stable and modestly growing dividend with a target payout that represents 40 to 60 percent of free cash flow after sustaining capital through the agricultural cycle.
The company monitors its capital structure and, based on changes in economic conditions, may adjust the structure by adjusting the amount of dividends paid to shareholders, repurchasing shares, issuing new shares, issuing new debt or retiring existing debt.
The company uses a combination of short-term and long-term debt to finance its operations. It typically pays floating rates of interest on short-term debt and credit facilities, and fixed rates on senior notes and debentures.
Net debt and adjusted shareholders’ equity are included as components of the company’s capital structure. The calculation of net debt, adjusted shareholders’ equity and adjusted capital is set out in the following table:
March 31, 2018 | December 31, 2017 | |||||||
Short-term debt | $ | 2,091 | $ | 730 | ||||
Current portion of long-term debt1 | 510 | – | ||||||
Long-term debt1 | 7,694 | 3,750 | ||||||
Net unamortized debt issue costs | (59 | ) 2 | (39 | ) 1 | ||||
Total debt | 10,236 | 4,441 | ||||||
Cash and cash equivalents | (460 | ) | (116 | ) | ||||
Net debt | 9,776 | 4,325 | ||||||
Total shareholders’ equity | 23,431 | 8,303 | ||||||
Accumulated other comprehensive loss (income) | 74 | (25 | ) | |||||
Adjusted shareholders’ equity | 23,505 | 8,278 | ||||||
Adjusted capital 3 | $ | 33,281 | $ | 12,603 | ||||
1 | Excludes unamortized fair value adjustments |
2 | Comprised of net unamortized debt issue costs less current portion of amortization included in prepaid expenses and other current assets. |
3 | Adjusted capital = (total debt – cash and cash equivalents) + (total shareholders’ equity – accumulated other comprehensive (income) loss). |
The company monitors capital on the basis of a number of ratios, including net debt to EBITDA, interest coverage and debt to capital.
The company maintains a base shelf prospectus, which permit issuance through April 2020 in Canada and the United States, of common shares, debt, and other securities up to $11,000. Issuance of securities under the base shelf prospectus requires filing a prospectus supplement and is subject to the availability of funding in capital markets. During the first quarter of 2018, the company filed a prospectus supplement to exchange $8,175 of the senior notes of PotashCorp and debentures of Agrium, for the Nutrien Notes issued by the company, as discussed in Note 21.
Nutrien 2018 First Quarter Interim Report | 91 |
Unaudited | in millions of US dollars except as otherwise noted |
Commitments |
A commitment is an agreement that is enforceable and legally binding to make a payment in the future for the purchase of goods or services. These amounts are not recorded in the condensed consolidated balance sheet since the company has not yet received the goods or services from the supplier. The amounts below are what the company is committed to pay based on current expected contract prices.
Accounting Policies | Accounting Estimates and Judgments | |||
Leases entered into are classified as either finance or operating leases. Leases that transfer substantially all of the risks and rewards of ownership of property to the company are accounted for as finance leases. They are capitalized at the commencement of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. Property acquired under a finance lease is depreciated over the shorter of the period of expected use on the same basis as other similar property, plant and equipment and the lease term.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Rental payments under operating leases are expensed in net earnings on a straight-line basis over the period of the lease.
| The company is party to various leases, including leases for railcars and vessels. Judgment is required in considering a number of factors to ensure that leases to which the company is party are classified appropriately as operating or financing. Such factors include whether the lease term is for the major part of the asset’s economic life and whether the present value of minimum lease payments amounts to substantially all of the fair value of the leased asset.
Substantially all of the leases to which the company is party have been classified as operating leases. | |||
Supporting Information
Lease Commitments
The company has various long-term operating lease agreements for land, buildings, port and distribution facilities, equipment, ocean-going transportation vessels, railcars, vehicles and application equipment. The majority of lease agreements are renewable at the end of the lease period at market rates. Rental expenses for operating leases for the three months ended March 31, 2018 were $75 (2017 – $20).
Purchase Commitments
The company has entered into long-term natural gas contracts with the National Gas Company of Trinidad and Tobago Limited, the latest of which expires in 2018. The contracts provide for prices that vary primarily with ammonia market prices, escalating floor prices and minimum purchase quantities. The commitments included in the following table are based on floor prices and minimum purchase quantities. The company is in ongoing negotiations with the National Gas Company of Trinidad and Tobago Limited for the renewal of the natural gas contracts. Contract negotiations are expected to be complete by the end of 2018.
Profertil has long-term gas contracts denominated in US dollars and expiring in 2019, which account for
approximately 100 percent of Profertil’s gas requirements. YPF S.A., the company’s joint venture partner in Profertil, supplies approximately 70 percent of the gas under these contracts. Commitments include the company’s proportionate share of this joint venture.
The Carseland facility has a powerco-generation agreement, expiring on December 31, 2026, for which the company can purchase 60 megawatt-hours of power per hour. The price for the power is based on a fixed charge adjusted for inflation and a variable charge based on the cost of natural gas provided to the facility for power generation.
The company has a phosphate rock supply agreement that includes a minimum commitment to purchase phosphate rock until December 2018. The purchase price is based on a formula that tracks finished product pricing and key published phosphate input costs. The company entered into a freight contract to import phosphate rock extending to 2019.
Agreements for the purchase of sulfur for use in the production of phosphoric acid provide for specified purchase quantities, and prices based on market rates at the time of delivery. The commitments included in the following table are based on expected contract prices.
As part of the agreement to sell Conda Phosphate operations (“CPO”), the company entered into long-term strategic supply and offtake agreements which extend to 2023. Under the terms of the supply and offtake agreements, the company will supply 100 percent of the ammonia requirements of CPO and purchase 100 percent of the monoammonium phosphate (“MAP”) product produced at CPO. The MAP production is estimated at 330,000 tonnes per year.
Capital Commitments
The company has various long-term contractual commitments related to the acquisition of property, plant and equipment, the latest of which expires in 2022. The commitments included in the following table are based on expected contract prices.
Other Commitments
Other commitments consist principally of pipeline capacity, throughput and various rail and vessel freight contracts, the latest of which expires in 2026, and mineral lease commitments, the latest of which expires in 2038.
92 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Minimum future commitments under these contractual arrangements were as follows at March 31, 2018:
Operating Leases | Purchase Commitments | Capital Commitments | Other Commitments | Total | ||||||||||||||||
Within 1 year | $ | 197 | $ | 950 | $ | 28 | $ | 80 | $ | 1,255 | ||||||||||
1 to 3 years | 350 | 499 | 26 | 101 | 976 | |||||||||||||||
3 to 5 years | 232 | 383 | 10 | 65 | 690 | |||||||||||||||
Over 5 years | 334 | 327 | – | 33 | 694 | |||||||||||||||
Total | $ | 1,113 | $ | 2,159 | $ | 64 | $ | 279 | $ | 3,615 | ||||||||||
Guarantees |
General guarantees are not recognized in the condensed consolidated balance sheet but are disclosed.
Accounting Policies
General guarantees are not recognized in the condensed consolidated balance sheet but are disclosed and include:
• | contracts or indemnifications that contingently require the guarantor to make payments based on changes in an underlying; |
• | contracts that contingently require payments to a guaranteed party based on another entity’s failure to perform under an agreement; and |
• | an indirect guarantee of the indebtedness of another party. |
A financial guarantee contract requires the issuer to make payments to reimburse the holder for a loss it incurs because a debtor fails to make payment when due. A financial guarantee contract is recognized as a financial instrument in the condensed consolidated balance sheet when the company becomes party to the contract.
Supporting Information
The company provides indemnifications, which are often standard contractual terms, to counterparties in transactions such as purchase and sale contracts, service agreements, director/officer contracts and leasing transactions. Indemnification agreements:
• | may require the company to compensate counterparties for costs incurred as a result of various events, including environmental liabilities and changes in (or in the interpretation of) laws and regulations, or as a result of |
litigation claims or statutory sanctions that may be suffered by a counterparty as a consequence of the transaction; |
• | will vary based upon the contract, the nature of which prevents the company from making a reasonable estimate of the maximum potential amount that it could be required to pay to counterparties; and |
• | have not historically required the company to make any significant payments and no amounts have been accrued in the condensed consolidated financial statements (except for accruals relating to the underlying potential liabilities). |
Various debt obligations (such as overdrafts, lines of credit with counterparties for derivatives andback-to-back loan arrangements) and other commitments (such as railcar leases) related to certain subsidiaries and investees have been directly guaranteed by the company under certain agreements with third parties. It would be required to perform on these guarantees in the event of default by the guaranteed parties. No material loss is anticipated by reason of such agreements and guarantees. As at March 31, 2018, the maximum potential amount of future (undiscounted) payments under significant guarantees provided to third parties approximated $503. It is unlikely these guarantees will be drawn upon and, since the maximum potential amount of future payments does not consider the possibility of recovery under recourse or collateral provisions, this amount is not indicative of future cash requirements or the company’s expected losses from these arrangements.
As at March 31, 2018, no subsidiary balances subject to guarantees were outstanding in connection with the company’s cash management facilities, and it had no liabilities recorded for other guarantee obligations.
The company has guaranteed the gypsum stack capping, closure and post-closure obligations of PCS Phosphate Company, Inc (“PCS Phosphate”) in White Springs, Florida and PCS Nitrogen Inc. (“PCS Nitrogen”) in Geismar, Louisiana, respectively, pursuant to the financial assurance regulatory requirements in those states. In addition to the foregoing guarantees associated with US mining operations, the company has guaranteed the performance of certain remediation obligations of PCS Joint Venture, Ltd. at the Lakeland, Florida and Moultrie, Georgia sites.
The environmental regulations of the Province of Saskatchewan require each potash mine to have decommissioning and reclamation plans, and financial assurances for these plans, approved by the responsible provincial minister. The next scheduled review of the decommissioning and reclamation plans is to be completed by June 30, 2021. With respect to the financial assurances for these plans, the Minister of the Environment for Saskatchewan (“MOE”) approved the established trust funds of CDN $50 to be funded by the company in equal annual payments. The company has two trust funds held at the subsidiary level. As at March 31, 2018, the total balance in the trust funds was CDN $22.
The company has met its financial assurance responsibilities as at March 31, 2018. Costs associated with
Nutrien 2018 First Quarter Interim Report | 93 |
Unaudited | in millions of US dollars except as otherwise noted |
the retirement of long-lived tangible assets have been accrued in the interim financial statements to the extent that a legal or constructive liability to retire such assets exists.
During the period, the company entered into various other commercial letters of credit in the normal course of operations. As at March 31, 2018, $164 of letters of credit were outstanding.
The company expects that it will be able to satisfy all applicable credit support requirements without disrupting normal business operations.
Pension and Other Post-Retirement Benefits |
The company offers pension and other post-retirement benefits to qualified employees: defined benefit pension plans; defined contribution pension plans; and health, disability, dental and life insurance (referred to as other defined benefit) plans. Substantially all employees participate in at least one of these plans.
Defined Benefit Plans
Accounting Policies
| Accounting Estimates and Judgments
| |||
For employee retirement and other defined benefit plans:
• accrued liabilities are recorded net of plan assets;
• costs1 are actuarially determined on a regular basis using the projected unit credit method;
• net interest is based on the discount rate used to measure plan obligations or assets at the beginning of the annual period;
• past service cost is recognized in net earnings at the earlier of when i) a plan amendment or curtailment occurs; or ii) related restructuring costs or termination benefits are recognized;
• net interest is presented within finance costs; and
• other components of costs are presented within cost of goods sold, selling or general and administrative expenses, as applicable.
| Estimates and judgments are required to determine discount rates, health care cost trend rates, projected salary increases, retirement age, longevity and termination rates. These assumptions are determined by management and are reviewed annually by the company’s independent actuaries.
The company’s discount rate assumption is impacted by:
• the weighted average interest rate at which each pension and other post-retirement plan liability could be effectively settled at the measurement date;
• country specific rates; and
• the use of a yield curve approach.2
| |||
2 Based on the respective plans’ demographics, expected future pension benefits and medical claims, payments are measured and discounted to determine the present value of the expected future cash flows. The cash flows are discounted using yields on high-quality AA-rated non-callable bonds with cash flows of similar timing where there is a deep market for such bonds. Where the company does not believe there is a deep market for such bonds (such as for terms in excess of 10 years in Canada), the cash flows are discounted using a yield curve derived from yields on provincial bonds rated AA or better to which a spread adjustment is added to reflect the additional risk of corporate bonds. For Trinidad plans, the cash flows are discounted using yields on local market government bonds with cash flows of similar timing. The resulting rates are used by the company to determine the final discount rate. |
94 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Accounting Policies continued | Accounting Estimates and Judgments continued | |||
Remeasurements, recognized immediately in OCI in the period they occur, are comprised of actuarial gains and losses, return on plan assets (excluding amounts included in net interest) and the effect of the asset ceiling (if applicable). | ||||
When a plan amendment occurs before a settlement, the company recognizes past service cost before any gain or loss on settlement.
| ||||
1 Including service costs, past service costs, gains and losses on curtailments and settlements, net interest and remeasurements
|
The significant assumptions used to determine the benefit obligations and expense for the company’s significant plans were as follows:
Pension | Other | |||||||
2018 | 2018 | |||||||
Assumptions used to determine benefit obligations as at March 31 | ||||||||
Discount rate, % | 3.93 | 3.87 | ||||||
Assumptions used to determine benefit expense for the three months ended March 31 | ||||||||
Discount rate, % | 3.67 | 3.60 | ||||||
Assumptions used to determine both the benefit obligations as at March 31 and expense for the three months ended March 31 | ||||||||
Rate of increase in compensation levels, % | 4.74 | n/a | ||||||
Medical cost trend rate – assumed, % | n/a | 5.60-4.50 | 1 | |||||
Medical cost trend rate – year reaches ultimate trend rate | n/a | 2037 | ||||||
Mortality assumptions2 | ||||||||
Life expectancy at 65 for a male member currently at age 65 | 20.6 | 20.4 | ||||||
Life expectancy at 65 for a female member currently at age 65 | 22.8 | 22.8 | ||||||
Average remaining service period of active employees (years) | 9.2 | 12.3 | ||||||
Average duration of the defined benefit obligations3 (years) | 15.4 | 18.8 |
1 | The company assumed a graded medical cost trend rate starting at 5.60 percent in 2018, moving to 4.50 percent by 2037. |
2 | Based on actuarial advice in accordance with the latest available published tables, adjusted where appropriate to reflect future longevity improvements for each country. |
3 | Weighted average length of the underlying cash flows. |
n/a = not applicable
Of the most significant assumptions, a change in discount rates has the greatest potential impact on the company’s pension and other post-retirement benefit plans, with sensitivity to change as follows:
March 31, 2018 | For the Three Months Ended March 31, 2018 | These sensitivities are hypothetical, should be used with caution and cannot be extrapolated because the relationship of the change in assumption to the change in amounts may not be linear. The sensitivities have been calculated independently of changes in other key variables. Changes in one factor may result in changes in another, which could amplify or reduce certain sensitivities. | ||||||||||||||
Change in Assumption | Benefit Obligations | Expense in Earnings Before Income Taxes | ||||||||||||||
As reported | $ | 2,074 | $ 21 | |||||||||||||
Discount rate | 1.0 percentage point decrease | 384 | 6 | |||||||||||||
1.0 percentage point increase | (299 | ) | (5 | ) |
Nutrien 2018 First Quarter Interim Report | 95 |
Unaudited | in millions of US dollars except as otherwise noted |
Supporting Information
Description of Defined Benefit Pension Plans
The company sponsors defined benefit pension plans as follows:
Plan Type | Contributions | |||
United States | • Non-contributory; | • Made to meet or exceed minimum funding requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”) and associated Internal Revenue Service regulations and procedures.
| ||
• guaranteed annual pension payments for life; | ||||
• benefits generally depend on years of service and compensation level in the final years leading up to age 65;
• benefits available starting at age 55 at a reduced rate; and
• plans provide for maximum pensionable salary and maximum annual benefit limits. | ||||
Canada | • Made to meet or exceed minimum funding requirements based on provincial statutory requirements and associated federal taxation rules. | |||
Trinidad | • Contributory;
• guaranteed annual pension payments for life;
• benefits depend on years of service, compensation level in the final years leading up to age 60 and additional voluntary contributions, if any;
• benefits available with at least five years of pensionable service at age 50 at a reduced rate; and
• plan provides for pensionable salary and maximum annual benefit limits. | • Made to meet or exceed minimum funding requirements based on local statutory requirements; and
• any company contributions must meet or exceed any required employee contributions. | ||
Supplemental Plans in US and Canada for Senior Management | • Non-contributory;
• unfunded; and
• supplementary pension benefits. | • Provided for by charges to earnings sufficient to meet the projected benefit obligations; and
• payments to plans are made as plan payments to retirees occur. | ||
PotashCorp and Agrium did not combine their pension and post-retirement benefit plans as a result of the Merger. There have been no significant changes in the agreements or structure of these individual plans. The following discussions incorporate both companies’ plans. The company’s defined benefit pension plans discussed above are funded with separate funds that are legally separated from the company and administered through an employee benefits or management committee in each country, which is composed of employees of the company. The employee benefits or management committee is required by law to act in the best interests of the plan participants and in the US and Canada is responsible for the governance of the plans, including setting certain policies (e.g., investment and contribution) of the funds. In Trinidad, the plan’s trustee has these responsibilities and the management committee assists the trustee to administer the plan. The current investment policy for each country’s plans generally does not include any asset/liability matching strategies or currency hedging strategies. Plan assets held in trusts are governed by local regulations and practice in each country, as is the nature of the relationship between the company and the trustees and their composition.
The defined benefit pension plans expose the company to broadly similar actuarial risks. The most significant risks as
discussed below include: investment risk, interest rate risk, longevity risk and salary risk. These plans are not exposed to any other significant, unusual or specific risks.
Investment Risk
A deficit will be created if plan assets underperform the discount rate used in the defined benefit obligation valuation. To mitigate investment risk, the company employs:
• | a total return on investment approach whereby a mix of equities and fixed income investments is used to maximize long-term return for a prudent level of risk; |
• | risk tolerance established through careful consideration of plan liabilities, plan funded status and corporate financial condition; and |
• | a diversified mix of equity and fixed income investments. |
For plans in the US and Canada, equity investments are diversified across US andnon-US stocks, as well as growth, value and small and large capitalization investments. US equities are also diversified across actively managed and passively invested portfolios. Other assets such as private equity and hedge funds are not used at this time. Investment risk is measured and
monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements and periodic asset/liability studies.
The investment strategy in Trinidad is largely dictated by local investment restrictions (maximum of 50 percent in equities and 20 percent in assets originating from outside of Trinidad) and asset availability since the local equity market is small and there is little secondary market activity in debt securities.
Interest Rate Risk
A decrease in bond interest rates will increase the pension liability; however, this is generally expected to be partially offset by an increase in the return on the plan’s debt investments.
Longevity Risk
An increase in life expectancy of plan participants will increase the plan’s liability.
Salary Risk
An increase in the salary of the plan’s participants will increase the plan’s liability.
Description of Other Post-Retirement Plans
The company provides health care plans for certain eligible retired employees in the US, Canada and Trinidad. Eligibility
96 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
for these benefits is generally based on a combination of age and years of service at retirement. Certain terms of the plans include:
• | coordination with government-provided medical insurance in each country; |
• | certain unfunded cost-sharing features such asco-insurance, deductibles andco-payments – benefits subject to change; |
• | for certain plans, maximum lifetime benefits; |
• | at retirement, the employee’s spouse and certain dependent children may be eligible for coverage; |
• | benefits are self-insured and are administered through third-party providers; and |
• | generally, retirees contribute towards annual cost of the plans. |
The company providesnon-contributory life insurance plans for certain US, Canadian and Trinidadian retired employees who meet specific age and service eligibility requirements.
The company’s other post-retirement plans expose it to similar risks as discussed above related to the defined benefit plans. These plans are not exposed to any other unusual or specific risks.
There were no significant plan amendments, settlements or curtailments during the three months ended March 31, 2018.
Financial Information
Movements in the pension and other post-retirement benefit assets (liabilities) as at and for the period ended March 31, 2018
Pension | Other | |||||||||||||||||||||||||||
Obligation | Plan Assets | Net | Obligation | Plan assets | Net | Total | ||||||||||||||||||||||
Balance – December 31, 2017 | $ | (1,445 | ) | $ | 1,380 | $ | (65 | ) | $ | (386 | ) | $ | – | $ | (386 | ) | $ | (451 | ) | |||||||||
Merger impact1 | (258 | ) | 205 | (53 | ) | (89 | ) | – | (89 | ) | (142 | ) | ||||||||||||||||
Components of defined benefit expense recognized in earnings | ||||||||||||||||||||||||||||
Current service cost for benefits earned during the three months ended March 31, 2018 | (13 | ) | – | (13 | ) | (4 | ) | – | (4 | ) | (17 | ) | ||||||||||||||||
Interest (expense) income | (15 | ) | 14 | (1 | ) | (4 | ) | – | (4 | ) | (5 | ) | ||||||||||||||||
Past service cost, including curtailment gains and settlements | 2 | – | 2 | – | – | – | 2 | |||||||||||||||||||||
Foreign exchange rate changes and other | 6 | (8 | ) | (2 | ) | 1 | – | 1 | (1 | ) | ||||||||||||||||||
(20 | ) | 6 | (14 | ) | (7 | ) | – | (7 | ) | (21 | ) | |||||||||||||||||
Remeasurements of the net defined benefit liability recognized in other comprehensive income during the three months ended March 31, 2018 2 | ||||||||||||||||||||||||||||
Actuarial gain arising from: | ||||||||||||||||||||||||||||
Changes in financial assumptions | 74 | – | 74 | 29 | – | 29 | 103 | |||||||||||||||||||||
Changes in demographic assumptions | – | – | – | 1 | – | 1 | 1 | |||||||||||||||||||||
Loss on plan assets (excluding amounts included in net interest) | – | (30 | ) | (30 | ) | – | – | – | (30 | ) | ||||||||||||||||||
74 | (30 | ) | 44 | 30 | – | 30 | 74 | |||||||||||||||||||||
Cash flows | ||||||||||||||||||||||||||||
Contributions by plan participants | – | – | – | (1 | ) | 1 | – | – | ||||||||||||||||||||
Employer contributions | – | 13 | 13 | – | 2 | 2 | 15 | |||||||||||||||||||||
Benefits paid | 25 | (25 | ) | – | 3 | (3 | ) | – | – | |||||||||||||||||||
25 | (12 | ) | 13 | 2 | – | 2 | 15 | |||||||||||||||||||||
Balance – March 31, 2018 | $ | (1,624 | ) | $ | 1,549 | $ | (75 | ) | $ | (450 | ) | $ | – | $ | (450 | ) | $ | (525 | ) | |||||||||
Arising from: | ||||||||||||||||||||||||||||
Funded plans | (1,598 | ) | – | (1,598 | ) | |||||||||||||||||||||||
Unfunded plans | (26 | ) | (450 | ) | (476 | ) | ||||||||||||||||||||||
Balance – March 31, 2018 | $ | (1,624 | ) | $ | (450 | ) | $ | (2,074 | ) | |||||||||||||||||||
Balance comprised of: | ||||||||||||||||||||||||||||
Non-current assets | ||||||||||||||||||||||||||||
Other assets (Note 14) | $ | 32 | $ | – | $ | 32 | ||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||
Payables and accrued charges (Note 16) | (26 | ) | (12 | ) | $ | (38 | ) | |||||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||||||
Pension and other post-retirement benefit liabilities | $ | (81 | ) | $ | (438 | ) | $ | (519 | ) | |||||||||||||||||||
1 | The company acquired Agrium’s pension and post-retirement benefit liabilities, representing the preliminary fair values at the acquisition date as described in Note 3. |
2 | Total net of income taxes was $57. |
Nutrien 2018 First Quarter Interim Report | 97 |
Unaudited | in millions of US dollars except as otherwise noted |
Plan Assets
The fair value of plan assets of the company’s defined benefit pension plans, by asset category, was as follows as at March 31:
2018 | ||||
Cash and cash equivalents | $ | 54 | ||
Equity securities | 858 | |||
Debt securities | 559 | |||
International balanced funds | 66 | |||
Other | 12 | |||
Total pension plan assets | $ | 1,549 | ||
Letters of credit secured certain of the Canadian unfunded defined benefit plan liabilities as at March 31, 2018.
Defined Contribution Plans
Accounting Policy
Defined contribution plan costs are recognized in net earnings for services rendered by employees during the period. |
Supporting Information
Total contributions recognized as expense under all defined contribution plans for the three months ended March 31, 2018 was $35 (2017 – $5).
Cash Payments to All Plans
Total cash payments for pensions and other post-retirement benefits for the three months ended March 31, 2018 were $50 (2017 – $8). The company expects to contribute approximately $75 to all pension and post-retirement plans during the remainder of 2018.
Share-Based Compensation |
The company has share-based compensation plans for eligible employees and directors as part of their remuneration package, including Stock Options, Performance Share Units (“PSU”), Restricted Share Units (“RSU”) and Director Deferred Share Units (“DSU”). In addition, in connection with the completion of the Merger, the company assumed the legacy compensation plans and outstanding awards of PotashCorp and Agrium, which include Stock Options, PSUs, RSUs and Stock Appreciation Rights (“SAR”), as well as and the former PotashCorp CEO multi-year incentive plan.
Accounting Policies | Accounting Estimates and Judgments | |||
The accounting for share-based compensation plans is fair value-based.
The grant date is the date the company and the employee have a shared understanding of the terms and conditions of the arrangement, at which time the company confers on the employee the right to cash equity instruments, provided the specified vesting conditions, if any, are met.
For those awards with performance conditions that determine the number of options or units to which employees will be entitled, measurement of compensation cost is based on the company’s best estimate of the outcome of the performance conditions.
For plans settled through the issuance of equity:
• fair value for stock options is determined on grant date using the Black-Scholes-Merton option-pricing model;
• fair value for performance share units is determined on grant date by projecting the outcome of performance conditions;
• compensation expense is recorded over the period the plans vest (corresponding increase to contributed surplus);
• forfeitures are estimated throughout the vesting period based on past experience and future expectations, and adjusted upon actual vesting; and
• when exercised, the proceeds and amounts recorded in contributed surplus are recorded in share capital. | Judgment involves determining:
• at which date the company and employee agree to a share-based compensation award, and, hence, what the grant date is; and
• the fair value of share-based compensation awards at the grant date.
Estimation involves determining:
• stock option pricing model assumptions described in the weighted average assumptions table below;
• the number of stock option awards expected to be forfeited;
• the projected outcome of performance conditions for PSUs, including the relative ranking of the company’s total shareholder return, including expected dividends, compared with a specified peer group using a Monte Carlo simulation option-pricing model and the outcome of the company’s synergies relative to the target. Actual results may significantly differ from these estimates; and
• the number of dividend equivalent units expected to be earned.
PSUs vest based on the achievement of performance conditions over a three-year performance cycle. Changes to vesting assumptions may change based onnon-market vesting conditions at the end of each reporting period.
RSUs are not subject to performance conditions and vest at the end of the three-year vesting period. | |||
98 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Accounting Policies continued | Accounting Estimates and Judgments continued | |||
For plans settled in cash:
• a liability is recorded based on the fair value of the awards each period;
• expense accrues from the grant date over the vesting period; and
• fluctuations in fair value of the award and related compensation expense are recognized in the period the fluctuation occurs. | Changes to vesting assumptions are reflected in earnings immediately for compensation cost already recognized. | |||
Supporting Information
During the three months ended March 31, 2018, the company issued stock options under a new stock option plan (the “2018 Stock Option Plan”) and PSUs and RSUs under a new PSU/RSU plan (the “2018 PSU/RSU Plan”), in each case to eligible employees. Stock options granted during the three months ended March 31, 2018 are subject to shareholder approval. In connection with the completion of the Merger, the outstanding legacy share-based compensation plans of PotashCorp and Agrium were assumed by, and are now settled in or with reference to shares of, Nutrien on the basis of the exchange ratios described in Note 3.
As at March 31, 2018, the company had the following awards available to be granted under the 2018 Stock Option Plan, the 2018 PSU/RSU Plan and a new director deferred share unit plan:
Plan Features | ||||||||||
Form of payment | Eligibility | Granted | Vesting period | Maximum term | Settlement | |||||
Stock Options | Officers and eligible employees | Annually | 25% per year over four years | 10 years | Shares | |||||
PSUs | Officers and other eligible employees | Annually | On third anniversary of grant date | N/A | Cash | |||||
RSUs | Eligible employees | Annually | On third anniversary of grant date | N/A | Cash | |||||
DSUs | Non-executive directors | At the discretion of the Board of Directors | Fully vest upon grant | N/A | In cash on director’s departure from Board of Directors | |||||
In addition, as at March 31, 2018, the company had the following awards outstanding under one or more assumed legacy plans of PotashCorp and/or Agrium (under which no new awards will be granted):
Plan Features | ||||||||||
Form of payment | Eligibility | Granted | Vesting period | Maximum term | Settlement | |||||
Stock Options | N/A | N/A | • 25% per year over four years 1 • On third anniversary of grant date 2 | 10 years | Shares | |||||
PSUs | N/A | N/A | On third anniversary of grant date | N/A | Cash / Shares | |||||
RSUs | N/A | N/A | On third anniversary of grant date | N/A | Cash | |||||
SARs3 | N/A | N/A | 25% per year over four years | 10 years | Cash | |||||
1 | Under the assumed legacy Agrium stock option plan. |
2 | Under the assumed legacy PotashCorp long term incentive plan and performance option plans. |
3 | Under the assumed legacy Agrium SARs plan, effective January 1, 2015, tandem stock appreciation rights (TSARs) were no longer issued to eligible officers and employees. TSARs granted in Canada prior to January 1, 2015 have similar terms and vesting conditions to SARs and also provide the holder with the ability to choose between (a) receiving the price of the company’s shares on the date of exercise in excess of the exercise price of the right and (b) receiving common shares by paying the exercise price of the right. The company’s past experience and future expectation is that substantially all option holders will elect to exercise their options as a SAR, surrendering their options and receiving settlement in cash. TSARs are included with the SARs disclosure. |
Nutrien 2018 First Quarter Interim Report | 99 |
Unaudited | in millions of US dollars except as otherwise noted |
The weighted average fair value of stock options granted was estimated as of the date of the grant using the Black-Scholes-Merton option-pricing model. The weighted average grant date fair value of stock options per unit granted in the three months ended March 31, 2018 was $9.71. The weighted average assumptions for both legacy companies by year of grant that impact the current period results are as follows:
Year of Grant | ||||||||||||||||||
2018 | 2017 | 2016 | 2015 | |||||||||||||||
Assumptions | Based On | |||||||||||||||||
Exercise price per option | Quoted market closing price 1 | $ | 44.50 | $ | 46.47 | $ | 48.46 | $ | 51.96 | |||||||||
Expected annual dividend yield | Annualized dividend rate 2 | 3.58 | % | 2.93 | % | 6.14 | % | 2.69 | % | |||||||||
Expected volatility | Historical volatility3 | 29 | % | 28 | % | 39 | % | 38 | % | |||||||||
Risk-free interest rate | Zero-coupon government issues4 | 2.79 | % | 1.95 | % | 1.59 | % | 1.66 | % | |||||||||
Average expected life of options | Historical experience | 7.5 years | 6.2 years | 7.6 years | 6.4 years | |||||||||||||
1 | Of common shares on the last trading day immediately preceding the date of the grant. |
2 | As of the date of grant. |
3 | Of the company’s stock over a period commensurate with the expected life of the option. |
4 | Implied yield available on equivalent remaining term at the time of the grant. |
The aggregate grant-date fair value of all stock options granted in the three months ended March 31, 2018 was $18. The average share price during the three months ended March 31, 2018 was $50.08 per share.
As at March 31, 2018, the outstanding number of stock options that vest between three and four years and settle in shares was:
2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||||||||||||||||
1,875,162 | 1,570,419 | 2,337,022 | 1,629,585 | 1,056,366 | 656,800 | 465,040 | 324,720 | 322,440 | 455,400 | 338,100 | ||||||||||||||||||||||||||||||
The exercise price is not less than the quoted market closing price of the company’s common shares on the last trading day immediately preceding the date of the grant, and an option’s maximum term is 10 years. In general, options granted under assumed legacy PotashCorp performance option plans vest, if at all, according to a schedule based on the three-year average excess of the company’s consolidated cash flow return on investment over the weighted average cost of capital.
100 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
The following table summarizes information about stock options outstanding as at March 31, 2018:
Options Outstanding | Options Exercisable | |||||||||||||||||||
Range of Exercise Prices | Number | Weighted Remaining Life | Weighted Average Exercise Price | Number | Weighted Exercise Price | |||||||||||||||
$37.00 to $41.00 | 2,337,022 | 8 | $ 39.16 | 829,740 | $ 38.39 | |||||||||||||||
$44.00 to $52.00 | 4,388,308 | 9 | 46.86 | 1,181,834 | 49.96 | |||||||||||||||
$67.00 to $79.00 | 964,597 | 5 | 75.83 | 964,597 | 75.83 | |||||||||||||||
$80.00 to $110.00 | 2,784,587 | 5 | 91.47 | 2,784,587 | 91.47 | |||||||||||||||
$129.00 to $131.00 | 311,080 | 2 | 130.27 | 311,080 | 130.27 | |||||||||||||||
$165.00 to $166.00 | 245,460 | 1 | 165.65 | 245,460 | 165.65 | |||||||||||||||
11,031,054 | 7 | $ 64.02 | 6,317,298 | $ 79.14 | ||||||||||||||||
The foregoing options have expiry dates ranging from May 2018 to February 2028.
PSUs and RSUs
PSUs granted under the 2018 PSU/RSU Plan vest based on total shareholder return over a three-year performance cycle, compared to the average total shareholder return of a peer group of companies over the same period. The value of each such PSU granted is based on the average closing price of the company’s common shares on the NYSE during the last month of the three-year cycle. RSUs granted under the 2018 PSU/RSU Plan are not subject to performance conditions and vest at the end of the three-year period.
PSUs granted in 2016 and 2017 under the assumed legacy PotashCorp long term incentive plan were comprised of three tranches, with each tranche vesting based on the achievement of a combination of performance metrics over separate performance periods ranging from one to three years and such PSUs will be settled in shares for grantees who are subject to the company’s share ownership guidelines and in cash for all other grantees. PSUs granted in 2016 and 2017 under the assumed Agrium long term incentive plan vest over a three-year performance cycle based on the achievement of performance metrics and such PSUs will be settled in cash. RSUs granted under the assumed Agrium long term incentive plan are not subject to performance conditions, vest at the end of the three-year period, and will be settled in cash.
Other Plans
The company offers a deferred share unit plan tonon-employee directors, which allows each to choose to receive, in the form of DSUs, all or a percentage of the director’s fees, which would otherwise be payable in cash. Each DSU fully vests upon award, but is distributed only when the director has ceased to be a member of the Board. Vested units are settled in cash based on the common share price at that time. As at March 31, 2018, the total number of DSUs held by participating directors was 402,341.
The company offered a multi-year incentive plan to the former CEO of PotashCorp for the period July 1, 2014 through December 31, 2015, which provided for an award of DSUs. Dividends on outstanding units result in additional units being issued. The units awarded under the former CEO’s multi-year incentive plan were 50 percent vested on July 1, 2017 based on performance criteria (company and individual CEO performance) through December 31, 2015. Vested units are settled in cash when employment is terminated. As at March 31, 2018, the total number of DSUs held by the former CEO was 42,935.
For all plans, share-based awards granted for the three months ended March 31, 2018 and outstanding at March 31, 2018 were:
For the Three Months Ended March 31, | As of March 31, | |||||||
2018 | 2018 | |||||||
Granted | Outstanding | |||||||
Stock Options | 1,875,162 | 11,031,054 | ||||||
PSUs | 623,643 | 2,045,769 | ||||||
RSUs | 444,001 | 969,620 | ||||||
DSUs | 15,248 | 445,276 | ||||||
SARs | – | 2,742,288 | ||||||
Nutrien 2018 First Quarter Interim Report | 101 |
Unaudited | in millions of US dollars except as otherwise noted |
Compensation expense by plan for the three months ended March 31:
2018 | 2017 | |||||||
Stock Options | $ | 3 | $ | 3 | ||||
PSUs | 15 | 3 | ||||||
RSUs | 4 | – | ||||||
DSUs | (2 | ) | – | |||||
SARs | (4 | ) | – | |||||
$ | 16 | $ | 6 | |||||
Related Party Transactions |
The company has a number of related parties with the most significant being Canpotex and post-employment benefit plans.
Accounting Policies |
A person or entity is considered a related party if it is:
• an associate or joint venture of Nutrien;
• a member of key management personnel (and their families), which are the company’s directors and executive;
• a post-employment benefit plan for the benefit of Nutrien employees; or
• a person that has significant influence over Nutrien. |
Supporting Information
Sale of Goods
The company sells potash from its Canadian mines for use outside Canada and the US exclusively to Canpotex. Sales are at prevailing market prices and are settled on normal trade terms. Sales to Canpotex for the period ended March 31, 2018 were $282 (2017 – $198).
The receivable outstanding from Canpotex is shown in Note 11 and arose from sale transactions described above. It is unsecured and bears no interest. There are no provisions held against this receivable.
Transactions with Post-Employment Benefit Plans
Disclosures related to the company’s post-employment benefit plans are shown in Note 26.
102 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Financial Instruments and Related Risk Management |
Outlined below are the company’s financial instruments, related risk management objectives, policies and exposure, sensitivity and monitoring strategies to financial risks.
Accounting Policies | Accounting Estimates and Judgments | |||||||||||
The company classifies and measures financial assets and liabilities on initial recognition as either amortized cost or fair value. Amortized costs is applied if the objective of the business model for the instrument or group of instruments is to hold the asset to collect the contractual cash flows and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest. Fair value is applied for all financial instruments that are not measured at amortized cost. | Judgment is required to determine whether the right to offset is legally enforceable. |
FVTPL | FVTOCI | Financial assets and liabilities at amortized cost | ||||||
Instrument type | Cash and cash equivalents and derivatives | Equity investments not held for trading | Receivables, short-term debt, payables and accrued charges, long-term debt, other long-term debt instruments | |||||
Measurement | Fair value | Fair value | Amortized cost3 | |||||
Fair value gains and losses | Profit or loss | OCI 1,2 | – | |||||
Interest and dividends | Profit or loss | Profit or loss | Profit or loss: effective interest rate | |||||
Impairment | Profit or loss (assets) | OCI2 | Profit or loss (assets) | |||||
Foreign exchange | Profit or loss | OCI2 | Profit or loss | |||||
Transaction costs | Profit or loss | Included in cost of instrument | Included in cost of instrument |
1 For equity investments not held for trading, the company may make an irrevocable election at initial recognition to recognize changes in fair value through OCI rather than profit or loss. The company made this election for its investments in ICL, Sinofert and other. The company’s investment in ICL was disposed of on January 24, 2018.
2 If the company elects to present unrealized and realized fair value gains and losses on equity investments in other comprehensive income, there is no subsequent recycling of fair value gains and losses to profit or loss. The company would recognize dividends from such investments in profit or loss as long as they represent a return on investment.
3 The company may make an election under certain circumstances to irrevocably designate a financial asset or financial liability as measured at fair value. The company did not make any such elections.
The company recognizes purchases and sales of financial assets on the trade date, which is the date on which the company commits to purchase or sell the asset. The company derecognizes financial assets when the rights to receive cash flows from the investments have expired or the company has transferred them, and all the risks and rewards of ownership has been substantially transferred.
Financial assets and financial liabilities are recognized as follows:
• initially in the condensed consolidated balance sheets at fair value (normally the transaction price) and adjusted for transaction costs (recognized immediately in net earnings for financial instruments at FVTPL);
• regular way purchases and sales of financial assets are accounted for on the trade date; and
• financial instruments recorded at fair value on an ongoing basis are remeasured at each reporting date and changes in the fair value are recorded in either net earnings or OCI.
Financial assets and financial liabilities are offset and the net amount is presented in the condensed consolidated balance sheets when the company:
• currently has a legally enforceable right to offset the recognized amounts; and
• intends either to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. |
Nutrien 2018 First Quarter Interim Report | 103 |
Unaudited | in millions of US dollars except as otherwise noted |
See Note 31 for discussion related to the policies, estimates and judgments for fair value measurements.
Supporting Information
Financial Risks
The company is exposed in varying degrees to a variety of financial risks from its use of financial instruments: credit risk, liquidity risk and market risk. The source of risk exposure and how each is managed are outlined below.
Credit Risk
The company’s exposure to credit risk on its cash and cash equivalents, receivables (excluding taxes) and derivative instrument assets is the carrying amount of each instrument on the condensed consolidated balance sheets.
Maximum exposure to credit risk:
March 31, 2018 | December 31, 2017 | |||||||
Cash and cash equivalents | $ | 460 | $ | 116 | ||||
Receivables | 3,078 | 465 | ||||||
Other current assets – derivatives | 18 | 7 | ||||||
Othernon-current assets – derivatives | 2 | 3 | ||||||
$ | 3,558 | $ | 591 | |||||
Credit risk is managed through policies applicable to the following assets:
Acceptable minimum counterparty credit ratings | Exposure thresholds by counterparty | Daily counterparty settlement based on prescribed credit thresholds | Counterparties to contracts are investment-grade quality | |||||||||||||
Cash and Cash Equivalents | X | X | ||||||||||||||
Natural Gas Derivatives | X | X | X | |||||||||||||
Foreign Currency Derivatives | X |
The company’s trade accounts receivable include a concentration in retail operations in Australia for advances to the customers to purchase crop inputs and livestock. The company mitigates risk in these receivables by obtaining security over livestock. In the retail operations in Western Canada, the company mitigates credit risk in accounts receivable through an agency agreement with a Canadian financial institution wherein the financial institution provides credit to qualifying customers to assist in financing their crop input purchases. Through the agency agreement, customers have loans directly with the institution while the company has only a limited recourse involvement to the extent of an indemnification of the institution for 50 percent of its future bad debts to a maximum of 5 percent of the qualified customer loans. Historical indemnification losses on this arrangement have been negligible, and the average aging of the customer loans with the financial institution is current.
Credit risk on trade receivables for the company’s potash, nitrogen, and phosphate and sulfate segments is managed through a credit management program whereby:
• | credit approval policies and procedures are in place to guide the granting of credit to new customers as well as its continued extension to existing customers; |
• | existing customer accounts are reviewed every12-18 months; |
• | credit is extended to international customers based upon an evaluation of both customer and country risk |
• | the credit period on sales is generally 15 and 30 days for fertilizer customers, 30 days for industrial and feed customers and up to 180 days for select export sales customers; and |
• | credit agency reports, where available, and an assessment of other relevant information such as current financial statements and/or credit references are used before assigning credit limits to customers. Those that fail to meet specified benchmark creditworthiness may transact with the company on a prepayment basis or provide another form of credit support that the company approves. |
March 31, 2018 | December 31, 2017 | |||||||
Not past due | $ | 2,186 | $ | 325 | ||||
30 days or less | 216 | 58 | ||||||
31-60 days | 77 | 1 | ||||||
Greater than 60 days | 186 | 12 | ||||||
Gross trade receivables | 2,665 | 396 | ||||||
Less provision for impairment of trade accounts receivable | (19 | ) | (6 | ) | ||||
Net trade receivables | $ | 2,646 | $ | 390 | ||||
Liquidity Risk
Liquidity risk arises from the company’s general funding needs and in the management of its assets, liabilities and optimal capital structure. It manages its liquidity risk to maintain sufficient liquid financial resources to fund its operations and meet its commitments and obligations in a cost-effective manner. In managing its liquidity risk, the company has access to a range of funding options. It has established an external borrowing policy with the following objectives:
• | maintain an optimal capital structure; |
• | maintain investment-grade credit ratings that provide ease of access to the debt capital and commercial paper markets; |
• | maintain sufficient short-term credit availability; and |
• | maintain long-term relationships with a sufficient number of high-quality and diverse lenders. |
The following maturity analysis of the company’s financial liabilities and gross settled derivative contracts (for which the cash flows are settled simultaneously) is based on the expected undiscounted contractual cash flows from the date of the condensed consolidated balance sheets to the contractual maturity date.
104 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Carrying Amount as at March 31, | Contractual Flows | Within 1 Year | 1 to 3 Years | 3 to 5 Years | Over 5 Years | |||||||||||||||||||
Short-term debt1 | $ | 2,091 | $ | 2,091 | $ | 2,091 | $ | – | $ | – | $ | – | ||||||||||||
Payables and accrued charges2 | 4,476 | 4,476 | 4,476 | – | – | – | ||||||||||||||||||
Current portion of long-term debt | 524 | 510 | 510 | – | – | – | ||||||||||||||||||
Long-term debt | 8,091 | 12,587 | 342 | 1,664 | 1,105 | 9,476 | ||||||||||||||||||
Foreign currency derivatives | 2 | |||||||||||||||||||||||
Outflow | 17 | 17 | – | – | – | |||||||||||||||||||
Inflow | (15 | ) | (15 | ) | – | – | – | |||||||||||||||||
Natural gas derivatives | 124 | 116 | 65 | 37 | 14 | – | ||||||||||||||||||
$ | 15,308 | $ | 19,782 | $ | 7,486 | $ | 1,701 | $ | 1,119 | $ | 9,476 | |||||||||||||
1 | Contractual cash flows include contractual interest payments related to debt obligations. Interest rates on variable rate debt are based on prevailing rates as at March 31, 2018. Disclosures regarding offsetting of certain debt obligations are provided below. |
2 | Excludes taxes, accrued interest, customer prepayments and current portions of asset retirement obligations and accrued environmental costs, pension and other post-retirement benefits, and other non-financial liabilities. |
Market Risk
Market risks, where financial instrument fair values can fluctuate due to changes in market prices, include foreign exchange risk, interest rate risk and price risk (related to commodity and equity securities).
Foreign Exchange Risk
To manage foreign exchange risk (primarily related to Canadian operating and capital expenditures, certain subsidiaries denominated in currencies other than the functional currency of an operation, taxes and dividends), the company may enter into foreign currency derivatives. Treasury risk management policies allow such exposures to be hedged within certain prescribed limits for both forecast operating and capital expenditures. The risk management policy relating to certain subsidiaries denominated in currencies other than the function currency of an operation is to offset substantially all of the earnings impact from the translation of the underlying financial instruments that could occur from a reasonably possible strengthening or weakening of the US dollar. The foreign currency derivatives are not currently designated as hedging instruments for accounting purposes.
The company has certain investments listed on foreign stock exchanges and denominated in currencies other than the US dollar for which it is exposed to foreign exchange risk. These investments are held for long-term strategic purposes.
Exposure to reasonably possible changes in relevant foreign currencies on the company’s financial instruments and the pre-tax effects on net earnings and OCI include the following:
Carrying amount of Asset (Liability) | Foreign Exchange Risk | |||||||||||||||||||
5% decrease in US$ | 5% increase in US$ | |||||||||||||||||||
March 31, 2018 | Net Earnings | OCI | Net Earnings | OCI | ||||||||||||||||
FVTOCI | ||||||||||||||||||||
Sinofert (Hong Kong dollars) | $ | 197 | $ | – | $ | 10 | $ | – | $ | (10 | ) | |||||||||
Payables (CDN) | (39 | ) | (2 | ) | – | 2 | – | |||||||||||||
Foreign currency derivatives | – | 1 | – | (1 | ) | – | ||||||||||||||
2017 | ||||||||||||||||||||
FVTOCI | ||||||||||||||||||||
ICL (New Israeli shekels)1 | $ | 708 | $ | – | $ | 35 | $ | – | $ | (35 | ) | |||||||||
Sinofert (Hong Kong dollars) | 258 | – | 13 | – | (13 | ) | ||||||||||||||
Payables (CDN) | (75 | ) | (4 | ) | – | 4 | – | |||||||||||||
Foreign currency derivatives | 1 | 2 | – | (2 | ) | – | ||||||||||||||
1 | Sold on January 24, 2018 (Note 19). |
Refer to Note17 for details of forward and option contracts the company enters into.
Interest Rate Risk
Fluctuations in interest rates impact the future cash flows and fair values of various financial instruments.
Interest rate risk on debt is addressed by:
• | using a portfolio of fixed and floating rate instruments; |
• | aligning current and long-term assets with demand and fixed-term debt; |
• | monitoring the effects of market changes in interest rates; and |
• | using interest rate swaps, if desired. |
Related to interest rate risk on investments in marketable securities, the company’s primary objectives are to:
• | ensure the security of principal amounts invested; |
• | provide for an adequate degree of liquidity; and |
• | achieve a satisfactory return. |
Treasury risk management policies specify investment parameters including eligible types of investment, maximum maturity dates, maximum exposure by counterparty and minimum credit ratings.
The company had no significant exposure to interest rate risk on its financial instruments as at March 31, 2018 and December 31, 2017.
Price Risk
Commodity price risk exists on the company’s natural gas derivative instruments. Its natural gas strategy is to diversify its forecast gas volume requirements, including a portion of annual requirements purchased at spot market prices, a portion at fixed prices (up to 10 years) and a portion indexed to the market price of ammonia. Its objective is to acquire a reliable supply of natural gas feedstock and fuel on a location-adjusted, cost-competitive basis.
Price risk also exists for exchange-traded equity securities measured at FVTOCI.
Nutrien 2018 First Quarter Interim Report | 105 |
Unaudited | in millions of US dollars except as otherwise noted |
Exposure to reasonably possible changes in price for a relevant commodity or security and thepre-tax effects on net earnings and OCI include the following:
Carrying Amount of Asset (Liability) | Price Risk | |||||||||||||||||||
Effect of 10% decrease in prices | Effect of 10% increase in prices | |||||||||||||||||||
March 31, 2018 | Net Earnings | OCI | Net Earnings | OCI | ||||||||||||||||
Investments at FVTOCI | ||||||||||||||||||||
Sinofert | $ | 197 | $ | – | $ | (20 | ) | $ | – | $ | 20 | |||||||||
Natural gas derivatives | (108 | ) | – | (12 | ) | 1 | 11 | |||||||||||||
December 31, 2017 | ||||||||||||||||||||
Investments at FVTOCI | ||||||||||||||||||||
ICL 1 | $ | 708 | $ | – | $ | (71 | ) | $ | – | $ | 71 | |||||||||
Sinofert | 258 | – | (26 | ) | – | 26 | ||||||||||||||
Natural gas derivatives | (55 | ) | – | (7 | ) | – | 7 | |||||||||||||
1 | Sold on January 24, 2018 (Note 19). |
The sensitivity analyses included in the tables above should be used with caution as the changes are hypothetical and not predictive of future performance. The sensitivities are calculated with reference toperiod-end balances and will change due to fluctuations in the balances throughout the year. In addition, for the purpose of the sensitivity analyses, the effect of a variation in a particular assumption on the fair value of the financial instrument was calculated independently of any change in another assumption. Actual changes in one factor may contribute to changes in another factor, which may magnify or counteract the effect on the fair value of the financial instrument.
Fair Value
Estimated fair values for financial instruments are designed to approximate amounts for which the instruments could be exchanged in a currentarm’s-length transaction between knowledgeable, willing parties. The valuation policies and procedures for financial reporting purposes are determined by the company’s finance department.
Financial instruments included in the condensed consolidated balance sheets are measured either at fair value or amortized cost. The tables below explain the valuation methods used to determine the fair value of each financial instrument and its associated level in the fair value hierarchy.
Financial Instruments Measured at Fair Value | Fair Value Method | |
Cash and cash equivalents | Carrying amount (approximation to fair value assumed due to short-term nature). | |
Equity securities | Closing bid price of the common shares (Level 1) as at the balance sheet date. | |
Debt securities | Closing bid price of the debt (Level 2) as at the balance sheet date. | |
Foreign currency derivatives not traded in an active market | Quoted forward exchange rates (Level 2) as at the balance sheet date. | |
Foreign exchange forward contracts, swaps and options | A discounted cash flow model.1 | |
Natural gas swaps not traded in an active market | A discounted cash flow model. 1 | |
Natural gas swaps traded in an active market | Market comparison.2 | |
1 | Inputs included contractual cash flows based on prices for natural gas futures contracts, fixed prices and notional volumes specified by the swap contracts, the time value of money, liquidity risk, the company’s own credit risk (related to instruments in a liability position) and counterparty credit risk (related to instruments in an asset position). Futures contract prices used as inputs in the model were supported by prices quoted in an active market and therefore categorized in Level 2. |
2 | Inputs include current market and contractual prices, forward pricing curves, quoted forward prices, basis differentials, volatility factors and interest rates. |
Financial Instruments Measured at Amortized Cost | Fair Value Method | |
Receivables, short-term debt and payables and accrued charges | Carrying amount (approximation to fair value assumed due to short-term nature). | |
Long-term debt | Quoted market prices (Level 1 or 2 depending on the market liquidity of the debt). | |
Other long-term debt instruments | Carrying amount. | |
106 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
The following table presents the company’s fair value hierarchy for financial assets and financial liabilities carried at fair value on a recurring basis:
Fair Value Measurements at Reporting Dates Using: | ||||||||||||
March 31, 2018 | Carrying Amount of Asset (Liability) | Quoted Prices in Active Markets for Identical Assets (Level 1)1 | Significant Other Observable Inputs (Level 2) 1 | |||||||||
Financial instruments measured at fair value on a recurring basis | ||||||||||||
Derivative instrument assets | ||||||||||||
Natural gas derivatives | $ | 16 | $ | – | $ | 16 | ||||||
Foreign currency derivatives | 4 | – | 4 | |||||||||
Other current financial assets - marketable securities2 | 115 | 18 | 97 | |||||||||
Investments at FVTOCI3 | 202 | 202 | – | |||||||||
Derivative instrument liabilities | ||||||||||||
Natural gas derivatives | (124 | ) | – | (124 | ) | |||||||
Foreign currency derivatives | (6 | ) | – | (6 | ) | |||||||
Financial instruments measured at amortized cost | ||||||||||||
Cash and cash equivalents | $ | 460 | $ | – | $ | 460 | ||||||
Current portion of long-term debt | ||||||||||||
Senior notes and debentures4 | (514 | ) | – | (514 | ) | |||||||
Fixed and floating rate debt | (10 | ) | – | (10 | ) | |||||||
Long-term debt | ||||||||||||
Senior notes and debentures4 | (8,072 | ) | – | (8,101 | ) | |||||||
Fixed and floating rate debt | (19 | ) | – | (19 | ) | |||||||
December 31, 2017 | ||||||||||||
Derivative instrument assets | ||||||||||||
Natural gas derivatives | $ | 9 | $ | – | $ | 9 | ||||||
Investments at FVTOCI3 | 970 | 970 | – | |||||||||
Derivative instrument liabilities | ||||||||||||
Natural gas derivatives | (64 | ) | – | (64 | ) | |||||||
Long-term debt | ||||||||||||
Senior notes4 | (3,707 | ) | – | (4,045 | ) | |||||||
1 | During the period ended March 31, 2018, there were no transfers between Level 1 and Level 2. The company’s policy is to recognize transfers at the end of the reporting period. |
2 | Marketable securities consist of equity and fixed income securities. The company determines the fair value of equity securities based on the bid price of identical instruments in active markets. The company values fixed income securities using quoted prices of instruments with similar terms and credit risk. |
3 | Investments at FVTOCI are comprised of shares in ICL, Sinofert and other. ICL was sold on January 24, 2018 (Note 19). |
4 | Carrying amount of liability includes net unamortized debt issue costs. |
Amounts Not Offset | ||||||||||||||||||||||||
Financial assets (liabilities) | Gross | Offset | Net Presented | Included in Gross | Related To Cash Margin Deposits Placed | Net Amounts Presented Less Amounts Not Offset | ||||||||||||||||||
March 31, 2018 | ||||||||||||||||||||||||
Derivative instrument assets | ||||||||||||||||||||||||
Natural gas derivatives | $ | 70 | $ | (54 | ) | $ | 16 | $ | – | $ | – | 1 | $ | 16 | ||||||||||
Derivative instrument liabilities | ||||||||||||||||||||||||
Natural gas derivatives | (182 | ) | 58 | (124 | ) | (26 | ) | 32 | 2 | (118 | ) | |||||||||||||
Other long-term debt instruments3 | (150 | ) | 150 | – | – | – | – | |||||||||||||||||
$ | (262 | ) | $ | 154 | $ | (108 | ) | $ | (26 | ) | $ | 32 | $ | (102 | ) | |||||||||
December 31, 2017 | ||||||||||||||||||||||||
Derivative instrument assets | ||||||||||||||||||||||||
Natural gas derivatives | $ | 11 | $ | (2 | ) | $ | 9 | $ | – | $ | (1 | ) 1 | $ | 8 | ||||||||||
Derivative instrument liabilities | ||||||||||||||||||||||||
Natural gas derivatives | (74 | ) | 10 | (64 | ) | (27 | ) | 38 | 2 | (53 | ) | |||||||||||||
Other long-term debt instruments3 | (150 | ) | 150 | – | – | – | – | |||||||||||||||||
$ | (213 | ) | $ | 158 | $ | (55 | ) | $ | (27 | ) | $ | 37 | $ | (45 | ) | |||||||||
1 | Cash margin deposits held related to legally enforceable master netting arrangements for natural gas derivatives. |
2 | Cash margin deposits placed with counterparties related to legally enforceable master netting arrangements for natural gas derivatives. |
3 | Back-to-back loan arrangements that are not subject to any financial test covenants but are subject to certain customary covenants and events of default, including, for other long-term debt, an event of default fornon-payment or other debt in excess of $25.Non-compliance with such covenants could result in accelerated payment of the related debt. The company was in compliance with these covenants as at March 31, 2018. |
Nutrien 2018 First Quarter Interim Report | 107 |
Unaudited | in millions of US dollars except as otherwise noted |
Contingencies and Other Matters |
Contingent liabilities, which are not recognized in the interim financial statements but may be disclosed, are possible obligations as a result of uncertain future events outside the control of the company, or present obligations not recognized because the amount cannot be sufficiently measured or payment is not probable.
Accounting Policies | Accounting Estimates and Judgments | |||
Generally, a contingent liability arises from past events and is:
• a possible obligation whose existence will be confirmed only by one or more uncertain future events ornon-events outside the control of the company; or
• a present obligation not recognized because it is not probable an outflow of resources embodying economic benefits will be required to settle the obligation, or the amount of the obligation cannot be measured with sufficient reliability.
Contingent liabilities are not recognized in the financial statements but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Where the company is jointly and severally liable for an obligation, the part of the obligation that is expected to be met by other parties is treated as a contingent liability.
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence ornon-occurrence of one or more uncertain future events not wholly within the control of the company. Contingent assets are not recognized in the financial statements and are only disclosed where an inflow of economic benefits is probable. | The following judgments are required to determine the company’s exposure to possible losses and gains related to environmental matters and other various claims and lawsuits pending:
• prediction of the outcome of uncertain events (i.e., being virtually certain, probable, remote or undeterminable);
• determination of whether recognition or disclosure in the consolidated financial statements is required; and
• estimation of potential financial effects.
Where no amounts are recognized, such amounts are contingent and disclosure may be appropriate. While the amount disclosed in the consolidated financial statements may not be material, the potential for large liabilities exists and therefore these estimates could have a material impact on the company’s consolidated financial statements. |
Supporting Information
Canpotex
Nutrien is a shareholder in Canpotex, which markets Canadian potash offshore. Should any operating losses or other liabilities be incurred by Canpotex, the shareholders have contractually agreed to reimburse it for such losses or liabilities in proportion to each shareholder’s productive capacity. Through March 31, 2018, there were no such operating losses or other liabilities.
Mining Risk
The risk of underground water inflows, as with most other underground risks, is currently not insured.
Legal and Other Matters
The company is engaged in ongoing site assessment and/or remediation activities at a number of facilities and sites, and anticipated costs associated with these matters are added to accrued environmental costs in the manner described in Note 18.
Environmental Remediation
The company has established provisions for environmental site assessment and/or remediation matters to the extent that expenses associated with those matters are considered likely to be incurred by the company. Except for the uncertainties described below, the company does not believe that its future obligations with respect to these matters are reasonably likely to have a material adverse effect on its consolidated financial statements.
• | The US Environmental Protection Agency (“USEPA”) has identified PCS Nitrogen as a potentially responsible party at the Planters Property or Columbia Nitrogen site in Charleston, South Carolina (the “Charleston Site”). Litigation and administrative proceedings are ongoing to establish the amount of costs and cleanup work for which PCS Nitrogen will ultimately be responsible. The ultimate amount of liability for PCS Nitrogen cannot be determined with certainty at this time and may not be fully reflected in the provision for the Charleston Site. |
Other legal matters with significant uncertainties include the following:
• | The United States Environmental Protection Agency (“USEPA”) has an ongoing enforcement initiative directed at the phosphate industry related to the scope of an exemption for mineral processing wastes under the US Resource Conservation and Recovery Act (“RCRA”). This initiative affects the Conda phosphate plant owned by Nu-West Industries, Inc. (“Nu-West”), a wholly owned subsidiary of Agrium, and the Nutrien phosphoric acid facilities in Aurora, North Carolina; Geismar, Louisiana; and White Springs, Florida. All four of these facilities received USEPA notices of violation (“NOVs”) that remain outstanding for alleged violations of RCRA and various other environmental laws. Notwithstanding the sale of the Conda phosphate plant in January of 2018, Nu-West remains responsible for environmental liabilities attributable to its historic activities and for resolution of the NOVs. All of the facilities have been and continue to be involved in ongoing discussions with the USEPA, the US Department of Justice (“DOJ”) and the related state |
108 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
agencies to resolve these matters. Due to the nature of the allegations, Nutrien is uncertain as to how the matters will be resolved. Based on settlements with other members of the phosphate industry, Nutrien expects that a resolution could involve any or all of the following: (1) penalties, which Nutrien currently believes will not be material; (2) modification of certain operating practices; (3) capital improvement projects; (4) providing financial assurance for the future closure, maintenance and monitoring costs for the phosphogypsum stack system; and, (5) addressing findings resulting from RCRA section 3013 site investigations undertaken voluntarily in response to the NOVs. |
• | In August 2015, the USEPA finalized amendments to the hazardous air pollutant emission standards for phosphoric acid manufacturing and phosphate fertilizer production (“Final Rule”). Required emissions testing at the company’s Aurora facility in 2016 indicated alleged exceedances of the mercury emission limits that were established by the Final Rule. The company has communicated with the relevant agencies about this issue and petitioned the USEPA to reconsider the mercury emission limits. The facility also entered into an agreed order with the North Carolina Department of |
Environmental Quality in November 2016 to resolve the alleged mercury exceedances and provide a plan and schedule for evaluating alternative compliance strategies. Given the pending legal issues and the company’s evaluation of alternative compliance strategies, the resulting cost of compliance with the various provisions of the Final Rule cannot be predicted with reasonable certainty at this time. |
• | The countries where the company operates are parties to the Paris Agreement adopted in December 2015 pursuant to the United Nations Framework Convention on Climate Change. Each country that is a party to the Paris Agreement submitted an Intended Nationally Determined Contribution (“INDC”) toward the control of greenhouse gas emissions. The impacts on the company’s operations of these INDCs and other national and local efforts to limit or tax greenhouse gas emissions cannot be determined with any certainty at this time. |
In addition, various other claims and lawsuits are pending against the company in the ordinary course of business. While it is not possible to determine the ultimate outcome of such actions at this time, and inherent uncertainties exist in predicting such outcomes, it is the company’s belief that the ultimate resolution of such actions is not reasonably likely to
have a material adverse effect on its consolidated financial statements.
The breadth of the company’s operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating the taxes it will ultimately pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, provincial, state and local tax audits. The resolution of these uncertainties and the associated final taxes may result in adjustments to the company’s tax assets and tax liabilities.
The company owns facilities that have been either permanently or indefinitely shut down. It expects to incur nominal annual expenditures for site security and other maintenance costs at certain of these facilities. Should the facilities be dismantled, certain other shutdown-related costs may be incurred. Such costs are not expected to have a material adverse effect on the company’s consolidated financial statements and would be recognized and recorded in the period in which they are incurred.
Accounting Policies, Estimates and Judgments |
Accounting Policies, Estimates and Judgments
The following table discusses the accounting policies, estimates, judgments and assumptions in addition to those disclosed elsewhere in these interim financial statements, that the company has adopted and made and how they affect the amounts reported in the interim financial statements.
Topic | Accounting Policies | Accounting Estimates and Judgments 1 | ||
Principles of Consolidation | These interim financial statements include the accounts of the company and entities controlled by it (its subsidiaries). Control is achieved by having each of:
• power over the investee via existing rights that give the company the current ability to direct the relevant activities of the investee;
• exposure, or rights, to variable returns from involvement with the investee; and
• the ability for the company to use its power over the investee to affect the amount of the company’s returns.
The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the company controls another entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the company. They are deconsolidated from the date that control ceases. | Judgment involves:
• assessing control, including if the company has the power to direct the relevant activities of the investee; and
• determining the relevant activities and which party controls them. |
Nutrien 2018 First Quarter Interim Report | 109 |
Unaudited | in millions of US dollars except as otherwise noted |
Topic | Accounting Policies | Accounting Estimates and Judgments 1 | ||||||
Principles of Consolidation continued | Principal (wholly owned) Operating Subsidiaries: | Location | Principal Activity | Consideration is given to:
• voting rights;
• the relative size and dispersion of the voting rights held by other shareholders;
• the extent of participation by those shareholders in appointing key management personnel or board members;
• the right to direct the investee to enter into transactions for the company’s benefit; and
• the exposure, or rights, to variability of returns from the company’s involvement with the investee. | ||||
• Agrium Canada Partnership | Canada | Manufacturer and distributor of crop nutrients | ||||||
• Agrium Potash Ltd. | Canada | Manufacturer and distributor of crop nutrients | ||||||
• Agrium U.S. Inc. | United States | Manufacturer and distributor of crop nutrients | ||||||
• Agroservices Pampeanos S.A. | Argentina | Crop input retailer | ||||||
• Cominco Fertilizer Partnership | United States | Manufacturer and distributor of crop nutrients | ||||||
• Crop Production Services, Inc. | United States | Crop input retailer | ||||||
• Crop Production Services (Canada) Inc. | Canada | Crop input retailer | ||||||
• Landmark Operations Ltd. | Australia | Crop input retailer | ||||||
• Loveland Products Inc. | United States | Crop input developer and retailer | ||||||
• PCS Cassidy Lake Company | Canada | Brine pumping operations for the company’s New Brunswick operation | ||||||
• PCS Sales (Canada) Inc. | Canada | Marketing and sales of the company’s products | ||||||
• PCS Sales (USA), Inc. | United States | Marketing and sales of the company’s products | ||||||
• PCS Phosphate Company, Inc. – PCS Purified Phosphates | United States | Mining and/or processing of phosphate products in the states of North Carolina, Illinois, Missouri and Nebraska | ||||||
• PCS Nitrogen Fertilizer, L.P. | United States | Production of nitrogen products in the states of Georgia and Louisiana, and of phosphate products in the state of Louisiana | ||||||
• PCS Nitrogen Ohio, L.P. | United States | Production of nitrogen products in the state of Ohio | ||||||
• PCS Nitrogen Trinidad Limited | Trinidad | Production of nitrogen products in Trinidad | ||||||
• White Springs Agricultural Chemicals, Inc. (“White Springs”) | United States | Mining and processing of phosphate products in the state of Florida | ||||||
Intercompany balances and transactions are eliminated on consolidation. | ||||||||
Long-Lived Asset Impairment | At the end of each reporting period, the company reviews conditions potentially impacting the carrying amounts of both its long-lived assets to be held and used and its identifiable intangible assets with finite lives to determine whether there is any indication that they have suffered an impairment loss. When such indicators exist, impairment testing is performed. Regardless, goodwill is tested at least annually (as at September 30).
For assessing impairment, assets are grouped at the smallest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (this can be at the asset or CGU level).
Where impairment indicators exist for the asset or CGU:
• the recoverable amount is estimated (the recoverable amount is the higher of fair value less costs to sell and value in use);
• to assess value in use, the estimated future cash flows are discounted to their present value (using apre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU for which the estimates of future cash flows have not been adjusted);
• the impairment loss is the amount by which the carrying amount exceeds its recoverable amount; and
• the impairment loss is allocated first to reduce the carrying amount of any related goodwill and then pro rata to each asset in the unit (on the basis of the carrying amount).
Non-financial assets, other than goodwill, that previously suffered an impairment loss are reviewed at each reporting date for possible reversal of the impairment. | Judgment involves:
• identifying the appropriate asset or CGU;
• determining the appropriate discount rate for assessing value in use; and
• making assumptions about future sales, margins and market conditions over the long-term life of the assets or CGUs.
The company cannot predict if an event that triggers impairment will occur, when it will occur or how it will affect reported asset amounts. It is reasonably possible that the amounts reported for asset impairments could be different if different assumptions were used or if market and other conditions change. The changes could result innon-cash charges that could materially affect the company’s interim financial statements. |
110 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Topic | Accounting Policies | Accounting Estimates and Judgments 1 | ||||||
Fair Value Measurements | Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.
Fair value measurements are categorized into levels based on the degree to which inputs are observable and their significance:
| Fair value estimates:
• are at apoint-in-time and may change in subsequent reporting periods due to market conditions or other factors;
• can be determined using multiple methods, which can cause values (or a range of reasonable values) to differ; and
• may require assumptions about costs/prices over time, discount and inflation rates, defaults and other relevant variables.
| ||||||
Level 1 | Level 2 | Level 3 | ||||||
Unadjusted quoted prices (in active markets accessible at the measurement date for identical assets or liabilities). | Quoted prices (in markets that are not active or based on inputs that are observable for substantially the full term of the asset or liability). | Prices or valuation techniques that require inputs that are both unobservable and significant to the overall measurement. | ||||||
Determination of the level hierarchy is based on the company’s assessment of the lowest level input that is significant to the fair value measurement and is subject to estimation and judgment. | ||||||||
Restructuring Charges | Plant shutdowns, sales of business units or other corporate restructurings may trigger restructuring costs. Incremental costs for employee termination, contract termination and other exit costs are recognized as a liability and an expense when:
• a detailed formal plan for restructuring has been demonstrably committed to;
• withdrawal is without realistic possibility; and
• a reliable estimate can be made. | Restructuring activities are complex, can take several months to complete and usually involve reassessing estimates throughout the process.
Details of accrued restructuring charges can be found in Note 18. | ||||||
Foreign Currency Transactions | Items included in the interim financial statements of the company and each of its subsidiaries are measured using the currency of the primary economic environment in which the individual entity operates (“the functional currency”).
Foreign exchange gains and losses resulting from the settlement of foreign currency transactions, and from the translation atperiod-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognized and presented in the condensed consolidated statements of (loss) earnings within other expenses, as applicable, in the period in which they arise.
Translation differences fromnon-monetary assets and liabilities carried at fair value are recognized as part of changes in fair value. Translation differences onnon-monetary financial assets such as investments in equity securities classified as FVTOCI are included in OCI.Non-monetary assets measured at historical cost are translated at the average monthly exchange rate prevailing at the time of the transaction, unless the exchange rate in effect on the date that the transaction occurred is available and it is apparent that such rate is a more suitable measurement. | The interim financial statements are presented in United States dollars (“US dollars”), which was determined to be the functional currency of the company and the majority of its subsidiaries. | ||||||
1 | Certain of the company’s policies involve accounting estimates and judgments because they require the company to make subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts could be reported under different conditions or using different assumptions. |
Nutrien 2018 First Quarter Interim Report | 111 |
Unaudited | in millions of US dollars except as otherwise noted |
Standards, Amendments and Interpretations Effective and Applied
The International Accounting Standards Board (“IASB”) and IFRS Interpretations Committee (“IFRIC”) have issued the following standards and amendments or interpretations to existing standards that were effective and applied by the company.
Standard | Description | Impact | ||
IFRS 15, Revenue from Contracts With Customers | Issued to provide guidance on the recognition of revenue from contracts with customers, including multiple-element arrangements and transactions not previously addressed comprehensively, and enhance disclosures about revenue. | Adopted using the modified retrospective method effective January 1, 2018, with required disclosures included in Note 4. No cumulative adjustment is required to the opening balance of retained earnings.
The company elected to use the practical expedient related to the adjustment of the promised consideration for the effects of a significant financing component as the expected period between when control over a promised good or service and when the customer pays for that good or service is less than 12 months.
The company’s sells certain retail products to end customers with a right of return. Therefore, a refund liability and a right to the returned goods (included in inventory) are now recognized for the products expected to be returned. | ||
IFRS 9, Financial Instruments | Issued to replace IAS 39, providing guidance on the classification, measurement and disclosure of financial instruments and introducing a new hedge accounting model. | On adoption of IFRS 9, in accordance with its transitional provisions, the company has not restated prior periods but has reclassified the financial assets held at January 1, 2018, retrospectively, based on the new classification requirements and the characteristics of each financial instrument as the transition date. For financial liabilities, IFRS 9 retains most of the IAS 39 requirements. The company did not choose the option of designating any financial liabilities at fair value through profit or loss as such, the adoption of IFRS 9 did not impact the company’s accounting policies for financial liabilities. |
As a result of the adoption of IFRS 9, there was no change in the classification of the derivative instruments. The company adopted the new general hedge accounting model in IFRS 9. This requires the company to ensure that the hedge accounting relationships are aligned with its risk management objective and strategy and to apply a more qualitative and forward-looking approach to assess hedge effectiveness. The company also reclassified realized cash flow hedges as a basis adjustment to finished goods inventory, recorded directly through accumulated other comprehensive income (net of income taxes).
112 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Change in classification as a result of IFRS 9
Financial instrument | Category under IAS 39 | Category under IFRS 9 | ||||||
Financial assets | ||||||||
Cash and cash equivalents | Loans and receivables | Amortized cost | ||||||
Receivables | Loans and receivables | Amortized cost | ||||||
Prepaid expenses and other current assets – derivatives | FVTPL | FVTPL | ||||||
Prepaid expenses and other current assets – derivatives designated as hedges | FV – hedging instrument | FV – hedging instrument | ||||||
Prepaid expenses and other current assets – marketable securities | FVTPL | FVTPL | ||||||
Investments – equity securities | Available-for-sale | FVTOCI | ||||||
Investments – equity securities | FVTPL | FVTPL | ||||||
Other assets – derivatives | FVTPL | FVTPL | ||||||
Other assets – derivatives designated as hedges | FV – hedging instrument | FV – hedging instrument | ||||||
Financial liabilities | ||||||||
Short-term and long-term debt | Amortized cost | Amortized cost | ||||||
Payables and accrued charges | Amortized cost | Amortized cost | ||||||
Payables and accrued charges – derivatives | FVTPL | FVTPL | ||||||
Payables and accrued charges – derivatives designated as hedges | FVTPL | FVTPL | ||||||
Othernon-current liabilities – derivatives | FVTPL | FVTPL | ||||||
Othernon-current liabilities – derivatives designated as hedges | FV – hedging instrument | FV – hedging instrument | ||||||
IFRS 9 replaces the incurred loss model in IAS 39 with an expected credit loss (“ECL”) model. This applies to financial assets measured at amortized cost. Under IFRS 9, credit losses are recognized earlier than under IAS 39. This change did not have a material impact to the company’s receivables. | ||||
Amendments to IFRS 2, Share-Based Payment | Issued to provide clarification on the classification and measurement of share-based transactions. Specifically, accounting for cash-settled share-based transactions, share-based payment transactions with a net settlement feature and modifications of share-based payment transactions that change classification from cash-settled toequity-settled. | Adopted retrospectively effective January 1, 2018, with no material change to these interim financial statements. | ||
IFRIC 22, Foreign Currency Transactions and Advance Consideration | Issued to provide clarification on the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. | Adopted prospectively effective January 1, 2018, with no material change to these interim financial statements. |
Nutrien 2018 First Quarter Interim Report | 113 |
Unaudited | in millions of US dollars except as otherwise noted |
Standards, Amendments and Interpretations Not Yet Effective and Not Applied
The IASB and IFRIC have issued the following standards and amendments or interpretations to existing standards that were not yet effective and not applied as at March 31, 2018. The company does not anticipate early adoption of these standards at this time.
Standard | Description | Expected Impact | Effective Date 1 | |||
IFRS 16, Leases | Issued to supersede IAS 17, IFRIC 4,SIC-15 andSIC-27, providing the principles for the recognition, measurement, presentation and disclosure of leases. Lessees would be required to recognize assets and liabilities for the rights and obligations created by leases. Lessors would continue to classify leases using a similar approach to that of the superseded standards but with enhanced disclosure to improve information about a lessor’s risk exposure, particularly to residual value risk. | The company has completed a preliminary lease inventory and review of existing lease agreements and consideration has been given to other agreements that could contain leases. Current evaluations of transition and implementation impacts are ongoing and it is expected that adoption will result in a material increase in assets and liabilities and will result in material reclassifications of interest and depreciation expense within the condensed consolidated statement of (loss) earnings. However, a precise estimate of the impact cannot be made at this time. Once further phases of the review are complete, a quantitative estimate of the impact on the consolidated financial statements will be made. The company expects to (a) adopt the standard using the modified retrospective approach; (b) to apply recognition exemptions across its complete portfolio of leased assets forshort-term leases and leases of low value items; and (c) to grandfather the assessment of which transactions are leases in transition. | January 1, 2019, applied retrospectively with certain practical expedients available. | |||
IFRIC 23, Uncertainty Over Income Tax Treatments | Issued to provide guidance on recognition and measurement of uncertain income tax treatments. | The company is reviewing the standard to determine the potential impact, if any. | January 1, 2019, applied retrospectively with certain practical expedients available. | |||
Amendments to IAS 28, Long-term Interests in Associates and Joint Ventures | Issued to clarify that IFRS 9, including its impairment requirements, applies to long-term interests in associates and joint ventures that form part of an entity’s net investment in these investees. | The company is reviewing the standard to determine the potential impact, if any. | January 1, 2019, applied retrospectively. | |||
Amendments to IAS 19, Employee Benefits | Issued to require the use of updated assumptions when determining current service cost and net interest for the remainder of the period after a plan amendment, curtailment or settlement. Also required is any reduction in surplus, even amounts not previously recognized due to an asset ceiling limitation, to be recognized in profit or loss as part of past service cost or a gain or loss on settlement. | The company is reviewing the standard to determine the potential impact, if any. | January 1, 2019, applied prospectively. | |||
IFRS 17, Insurance Contracts | Issued to replace IFRS 4, providing guidance for the recognition, measurement, presentation and disclosure of insurance contracts giving consideration to: substantive rights and obligations arising from a contract, law or regulation; enforceable rights and obligations in a contract; and whether contracts are written, oral or implied by customary business practices. | Although the company does not underwrite insurance contracts, all significant contracts will be reviewed under the scope of the standard to determine the potential impact, if any. | January 1, 2021, applied retrospectively with certain practical expedients available. |
1 | Effective date for annual periods beginning on or after the stated date. |
114 | Nutrien 2018 First Quarter Interim Report |
Unaudited | in millions of US dollars except as otherwise noted |
Comparative Figures |
As described in Note 1, the comparative figures are PotashCorp only. To conform with Nutrien’s new method of presentation and as a result of discontinued operations described in Note 19, comparative figures were reclassified as follows, with no impact to net (loss) earnings.
Condensed Consolidated Statement of (Loss) Earnings
Previously Reported at March 31, 2017 | Reclassification Amounts | Reported after Reclassifications | ||||||||||
Cost of goods sold | $ | (711 | ) | $ | 5 | $ | (706 | ) | ||||
Other expenses | (10 | ) | (5 | ) | (15 | ) | ||||||
$ | (721 | ) | $ | – | $ | (721 | ) | |||||
Selling and administrative expenses | $ | (50 | ) | $ | 50 | $ | – | |||||
Selling expenses | – | (9 | ) | (9 | ) | |||||||
General and administrative expenses | – | (41 | ) | (41 | ) | |||||||
$ | (50 | ) | $ | – | $ | (50 | ) | |||||
Earnings of equity-accounted investees | $ | 39 | $ | (39 | ) 1 | $ | – | |||||
Provincial, mining and other taxes | (34 | ) | 1 | (33 | ) | |||||||
Dividend income | 8 | (8 | ) 1 | – | ||||||||
Income taxes | (13 | ) | 3 | 1 | (10 | ) | ||||||
Net earnings from discontinued operations | – | 43 | 1 | 43 | ||||||||
$ | – | – | $ | – | ||||||||
1 | Reclassified as a result of discontinued operations described in Note 19. |
Condensed Consolidated Statement of Comprehensive Income
Previously Reported at March 31, 2017 | Reclassification Amounts | Reported after Reclassifications | ||||||||||
Other | $ | 3 | $ | (3 | ) | $ | – | |||||
Comprehensive income of equity-accounted investees | – | 3 | 3 | |||||||||
$ | 3 | $ | – | $ | 3 | |||||||
Condensed Consolidated Statement of Cash Flows
Previously Reported at March 31, 2017 | Reclassification Amounts | Reported after Reclassifications | ||||||||||
Pension and other post-retirement benefits | $ | 15 | $ | (15 | ) | $ | – | |||||
Other long-term liabilities and deferred credits | 4 | 15 | 19 | |||||||||
$ | 19 | $ | – | $ | 19 | |||||||
Condensed Consolidated Statement of Shareholders’ Equity
Previously Reported at December 31, 2017 | Reclassification Amounts | Reported after Reclassifications | ||||||||||
Other | $ | (5 | ) | $ | 5 | $ | – | |||||
Translation loss of net foreign operations | – | (2 | ) | (2 | ) | |||||||
Comprehensive loss of equity-accounted investees | – | (3 | ) | (3 | ) | |||||||
$ | (5 | ) | $ | – | $ | (5 | ) | |||||
Previously Reported at March 31, 2017 | Reclassification Amounts | Reported after Reclassifications | ||||||||||
Other | $ | (5 | ) | $ | 5 | $ | – | |||||
Translation loss of net foreign operations | – | (1 | ) | (1 | ) | |||||||
Comprehensive loss of equity-accounted investees | – | (4 | ) | (4 | ) | |||||||
�� | ||||||||||||
$ | (5 | ) | $ | – | $ | (5 | ) | |||||
Nutrien 2018 First Quarter Interim Report | 115 |
Unaudited | in millions of US dollars except as otherwise noted |
Condensed Consolidated Statement of Shareholders’ Equity (continued)
Previously Reported at December 31, 2016 | Reclassification Amounts | Reported after Reclassifications | ||||||||||
Other | $ | (8 | ) | $ | 8 | $ | – | |||||
Translation loss of net foreign operations | – | (2 | ) | (2 | ) | |||||||
Comprehensive loss of equity-accounted investees | – | (6 | ) | (6 | ) | |||||||
$ | (8 | ) | $ | – | $ | (8 | ) | |||||
Condensed Consolidated Balance Sheet
Previously Reported at December 31, 2017 | Reclassification Amounts | Reported after Reclassifications | ||||||||||
Intangible assets | $ | 166 | $ | (166 | ) | $ | – | |||||
Goodwill | – | 97 | 97 | |||||||||
Other intangible assets | – | 69 | 69 | |||||||||
$ | 166 | $ | – | $ | 166 | |||||||
Investments in equity-accounted investees | $ | 30 | $ | (30 | ) | $ | – | |||||
Available-for-sale investments | 262 | (262 | ) | – | ||||||||
Investments | – | 292 | 292 | |||||||||
$ | 292 | $ | – | $ | 292 | |||||||
Short-term debt and current portion of long-term debt | $ | 730 | $ | (730 | ) | $ | – | |||||
Short-term debt | – | 730 | 730 | |||||||||
$ | 730 | $ | – | $ | 730 | |||||||
Payables and accrued charges | $ | 807 | $ | 29 | $ | 836 | ||||||
Current portion of derivative instrument liabilities | 29 | (29 | ) | – | ||||||||
$ | 836 | $ | – | $ | 836 | |||||||
Othernon-current liabilities | $ | 51 | $ | 35 | $ | 86 | ||||||
Derivative instrument liabilities | 35 | (35 | ) | – | ||||||||
$ | 86 | $ | – | $ | 86 | |||||||
116 | Nutrien 2018 First Quarter Interim Report |
Appendix
Abbreviated Company Names and Sources
Name | Source | |
Agrium | Agrium Inc., Canada | |
APC | Arab Potash Company (Amman: ARPT), Jordan | |
Belaruskali | PA Belaruskali, Belarus | |
Canpotex | Canpotex Limited, Canada | |
CF Industries | CF Industries Holdings, Inc. (NYSE: CF), USA | |
CHS | CHS Inc. | |
CRU | CRU International Limited, UK | |
CVR | CVR Partners, L.P., USA | |
Fertecon | Fertecon Limited, UK | |
GROWMARK | GROWMARK, Inc. | |
Helena Chemical | Helena Agri-Enterprises, LLC | |
ICL | Israel Chemicals Ltd. (Tel Aviv: ICL), Israel | |
Innophos | Innophos Holdings, Inc. (NASDAQ: IPHS), USA | |
Intrepid | Intrepid Potash, Inc. (NYSE: IPI), USA | |
K+S | K+S Group (Xetra: SDF), Germany | |
Koch | Koch Industries, Inc., USA | |
LSB | LSB Industries, Inc. (NYSE:LXU), USA | |
Moody’s | Moody’s Corporation (NYSE: MCO), USA | |
MOPCO | Misr Fertilizers Production Company S.A.E. | |
Name | Source | |
Mosaic | The Mosaic Company (NYSE: MOS), USA | |
Nutrien | Nutrien Ltd. (TSX and NYSE: NTR), Canada | |
NYMEX | New York Mercantile Exchange, USA | |
NYSE | New York Stock Exchange, USA | |
OCI | OCI N.V., (NYSE Euronext: OCI), The Netherlands | |
Pinnacle Agriculture Holdings | Pinnacle Agriculture Distribution, Inc. | |
PotashCorp | Potash Corporation of Saskatchewan Inc. | |
Profertil | Profertil S.A. | |
Simplot Grower Solutions | J.R. Simplot Company | |
Sinofert | Sinofert Holdings Limited (HKSE: 0297.HK), China | |
SQM | Sociedad Química y Minera de Chile S.A. (Santiago Bolsa de Comercio Exchange, NYSE: SQM), Chile | |
S&P | Standard & Poor’s Financial Services LLC, USA | |
TSX | Toronto Stock Exchange, Canada | |
USDA | United States Department of Agriculture | |
Uralkali | JSC Uralkali (LSE and RTS: URKA), Russia | |
Wilbur-Ellis | Wilbur-Ellis Holdings, Inc. | |
Yara | Yara International ASA (Oslo: YAR), Norway | |
Nutrien 2018 First Quarter Interim Report | 117 |
Terms and Measures
Scientific Terms | ||||
Nitrogen | NH3 | ammonia (anhydrous), 82.2% N | ||
HNO3 | nitric acid, 22% N (liquid) | |||
UAN | nitrogen solutions,28-32% N (liquid) | |||
Phosphate | MGA | merchant grade acid, 54% P2O5(liquid) | ||
DAP | diammonium phosphate, 46% P2O5(solid) | |||
MAP | monoammonium phosphate, 52% P2O5(solid) | |||
SPA | superphosphoric acid, 70% P2 O5 (liquid) | |||
Monocal | monocalcium phosphate, 48.1% P2 O5 (solid) | |||
Dical | dicalcium phosphate, 42.4% P2O5(solid) | |||
DFP | defluorinated phosphate, 41.2% P2O5(solid) | |||
Purified Phosphoric Acid | food and technical grade acid 75% & 85% H3PO4 (liquid) | |||
DFMGA | defluorinated MGA 54% P2O5 (liquid) | |||
LOMAG | low magnesium super phosphoric Acid 70% P2O5 (liquid) | |||
POLY11 | ammonium poly phosphate solution (11-37-0 liquid) | |||
AS | ammonium sulfate (solid) | |||
Potash | KCI | potassium chloride,60-63.2% K2O (solid) | ||
Product Measures | ||||
K2O tonne | Measures the potassium content of products having different chemical analyses | |||
N tonne | Measures the nitrogen content of products having different chemical analyses | |||
P2O5tonne | Measures the phosphorus content of products having different chemical analyses | |||
Product tonne | Standard measure of the weights of all types of potash, nitrogen and phosphate products | |||
Currency Abbreviations | ||||
CDN | Canadian dollar | |||
USD | United States dollar | |||
Exchange Rates | ||||
CDN per USD at March 31, 2018 – 1.2894 | ||||
General Terms | ||
Canpotex | An export company owned by all Saskatchewan producers of potash (Nutrien and Mosaic) | |
Consumption vs demand | Product applied vs product purchased | |
Greenfield capacity | New operation built on undeveloped site | |
Latin America | South America, Central America, Caribbean and Mexico | |
MMBtu | Million British thermal units | |
MMT | Million metric tonnes | |
NAFTA | North American Free Trade Agreement | |
Nameplate capacity | Estimated theoretical capacity based on design specifications or Canpotex entitlements – does not necessarily represent operational capability | |
North America | The North American market includes Canada and the US | |
Offshore | Offshore markets include all markets except Canada and the US | |
Operational capability | Estimated annual achievable production level | |
118 | Nutrien 2018 First Quarter Interim Report |