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

SASKATOON--(BUSINESS WIRE)-- Nutrien Ltd. (Nutrien) announced today fourth-quarter 2017 results for Agrium Inc. (Agrium) and Potash Corporation of Saskatchewan Inc. (PotashCorp) and provided financial guidance for 2018.

HIGHLIGHTS

  • Agrium fourth-quarter earnings from continuing operations, adjusted for items not included in guidance, of $0.781 per share(see page 5 for a reconciliation to net earnings from continuing operations of $0.19 per share)
  • PotashCorp fourth-quarter adjusted earnings of $0.06 per share (see page 11 for a reconciliation to net loss of $0.09 per share)
  • 2017 earnings for Agrium were supported by record Retail EBITDA3 of $1.2 billion and margins of 10 percent while stronger potash prices, sales volumes and lower cash costs per tonne benefited both companies
  • Nutrien full-year 2018 guidance of $2.10 to $2.60 earnings per share from continuing operations, excluding incremental depreciation and amortization related to purchase price allocation of $150 million to $300 million
  • Nutrien 2018 EBITDA of $3.2 billion to $3.7 billion
  • Nutrien sold its equity stake in Israel Chemicals Ltd. (ICL) in January 2018 for net proceeds of $685 million
  • Nutrien announced an agreement to purchase Agrichem, a leading Brazilian specialty plant nutrition company with total annual historical net sales of over $55 million
  • Nutrien achieved over $40 million in run-rate synergies year-to-date 2018

CEO COMMENTARY

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

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

MARKET OUTLOOK

Agriculture Fundamentals

                         
U.S. Planted Acres(millions)                  
                         
Crop           2016     2017     2018F
  Corn 94.0 90.2 89.0-91.0
Soybean 83.4 90.1 89.0-91.0
Wheat 50.2 46.0 45.0-47.0
  Cotton           10.1     12.6     12.5-13.0
Source: USDA
  • Despite historically high crop production in many key growing regions in 2017, the United States Department of Agriculture ("USDA") projects that global grain consumption will exceed production during the 2017/18 crop year. Global grain and oilseed demand has grown by 2.7 percent per year over the past five years, the highest five-year growth period since the early 1980s.
  • Major U.S. crop prices are currently similar to year-ago levels, leading us to expect minimal shifts in crop area in 2018. The development of the South American corn and soybean crops, particularly the second corn crop in Brazil, will be a driver of crop prices in the coming months and may influence U.S. planting decisions.
  • Nutrient prices remain affordable, which we expect will lead to robust applications in the North American spring season.
  • We anticipate that growers will continue to optimize crop input expenditures, similar to recent years. Record U.S. corn yields in the past two years provides evidence that growers continue to focus on increasing productivity by utilizing crop inputs and solutions.

Potash

 
Global Demand (millions of tonnes KCl)
             
Market 2016 2017E 2018F
  China 14.1 15.1 15.5-16.0
India 3.8 4.5 4.5-5.0
Other Asia 9.0 9.6 9.5-10.0
Latin America 11.7 12.2 12.0-12.5
North America 9.7 10.2 9.5-10.0
Other 12.0 12.4 12.5-13.0
World total shipments 60.3 64.0 64.0-66.0 *
*Forecast world total shipments range is narrower than the sum of individual market ranges
  • Global potash shipments set a new record of approximately 64 million tonnes in 2017 with significant growth achieved in all major markets. Downstream inventories ended 2017 at levels flat to lower than a year ago, meaning global shipments increased in response to rising consumption. We expect that demand will continue to be robust in 2018 and that annual global potash shipments will be between 64 and 66 million tonnes.
  • North American spring application rates are expected to remain normal supported by good affordability, and we anticipate shipments similar to the historical average but slightly below 2017.
  • Brazilian potash imports set a new record of 9.2 million tonnes in 2017 and inland inventories ended the year at historically low levels, indicating robust consumption and supportive of strong import demand in 2018.
  • Chinese and Indian potash demand was strong in 2017 and inventories ended the year flat to lower than 2016 levels. We expect continued demand growth in China and India in 2018 but at a slower pace than 2017 levels. Potash demand remains reasonably strong in other Asian countries amid stable and profitable prices for a wide range of key crops.
  • Most global potash producers have heavily committed sales volumes for the first quarter of 2018, leaving available supplies relatively tight. Greenfield potash capacity is anticipated to continue to ramp up in 2018, but we expect a portion of the new capacity will be offset by the closure of mines reaching end of life and product mix changes by some producers.

Nitrogen

  • Nitrogen prices have started 2018 firmer, with current benchmark nitrogen prices up between 15 to 40 percent from fourth quarter 2017 lows, depending on the product.
  • Global energy prices are expected to increase marginal production costs in 2018, as crude oil prices have increased approximately 20 percent year-over-year, supporting both formula-based gas contracts in Europe and LNG prices. Chinese production rates have been cut back by ongoing regulatory pressure, natural gas availability, significantly higher natural gas prices and continued strength in coal prices.
  • Indian urea inventories are very low, which should support import demand in the coming months, however import demand is expected to remain volatile as the country balances subsidy policy with changing market dynamics.
  • Net North American offshore imports of urea were down by 50 percent or 1.0 million tonnes from July through December 2017. The decrease in imports exceeded the increase in domestic production for the same period. As a result, North American offshore import requirements for first-half 2018 may approach similar levels as the first half of the prior year.

Phosphate

  • Higher input costs have lent support to phosphate prices but continue to weigh on margins. Sulfur prices have recently risen and remain approximately 50 percent above 2017 lows, while traded ammonia prices are up 50 to 70 percent from 2017 lows.
  • Production curtailments have reduced export availability from both the U.S. and China, which has provided some support to phosphate fertilizer prices.

FINANCIAL OUTLOOK AND GUIDANCE

     
2018 Annual Guidance Ranges Annual
Low   High
Earnings per share $2.10 $2.60
Consolidated EBITDA (billions) $3.2 $3.7
Retail EBITDA (billions) $1.2 $1.3
Potash EBITDA (billions) $1.1 $1.3
Nitrogen EBITDA (billions) $0.9 $1.1
Potash sales tonnes (millions) 11.8 12.4
Nitrogen sales tonnes (millions) (a) 10.0 10.4
Effective tax rate on continuing operations 24% 25%
Sustaining capital expenditures (billions) $1.0 $1.1
     
2018 Annual Assumptions & Sensitivities
     
FX rate CAD to USD $1.26
NYMEX natural gas ($US/MMBtu) $3.00
$20/tonne change in realized Potash selling prices ($/share) (b) $0.24
$20/tonne change in realized Ammonia selling prices ($/share) (b) $0.07
$20/tonne change in realized Urea selling prices ($/share) (b)   $0.09
(a) Excludes ESN ® , Rainbow and Europe sales.
(b) Sensitivities are calculated pre-synergies.
  • Purchase Price Allocation (PPA) impact – Our 2018 earnings per share guidance excludes the impact of incremental depreciation and amortization of approximately $150 million to $300 million resulting from the fair valuing of Agrium's assets and liabilities as of January 1, 2018 in accordance with purchase accounting.
  • Harmonization of Accounting Policies – Harmonization of Agrium accounting policies to the accounting policies of PotashCorp is expected to reduce Retail EBITDA by approximately $35 million due to the reclassification of items previously considered as other finance costs and is included in our annual Retail EBITDA guidance.
  • Synergies - In 2018, we expect to realize cash synergies of $175 million to $225 million and run rate synergies of $250 million by the end of 2018. We expect costs to achieve these ongoing synergies of $50to $70 million in 2018, which are excluded from our earnings per share and EBITDA guidance.
  • EPS - Based on the factors set out under the heading "Market Outlook" and the assumptions above, our full-year 2018 earnings per share guidance is $2.10 to $2.60. In addition to the PPA impact and costs of achieving synergies noted above, our guidance excludes share-based compensation expense (recovery). Equity earnings relating to investments now classified in discontinued operations are included in our earnings per share guidance.

AGRIUM RESULTS

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

AGRIUM ADJUSTED NET EARNINGS AND GUIDANCE RELEVANT EARNINGS RECONCILIATION
  Three months ended   Twelve months ended
  December 31, 2017 December 31, 2017
  Net earnings     Net earnings  
from continuing from continuing
operations operations
impact Expense impact
(millions of U.S. dollars, except per share amounts) Expense (post-tax) Per share (a) (Income) (post-tax) Per share (a)
    27 0.19   502 3.60
Adjustments:
Share-based payments 29 22 0.16 69 49 0.36
Foreign exchange loss net of
  non-qualifying derivatives 3 2 0.02 14 10 0.08
Merger and related costs 52 39 0.28 94 67 0.50
Impact of Egyptian pound devaluation
on investee earnings - - - (16) (11) (0.08)
  U.S. Tax Reform adjustment 9 9 0.07 9 9 0.07
Adjusted net earnings (b) 99 0.72 626 4.53
Environmental remediation liability
expense 11 8 0.06 11 8 0.06
  Gain on sale of assets - - - (7) (5) (0.04)
Guidance relevant earnings (b)   107 0.78   629 4.55
(a) Per share information attributable to equity holders of Agrium.
(b) Effective tax rates of 25 percent for the quarter and 29 percent for the year were used for the adjusted net
earnings, guidance relevant earnings, and per share calculations. These adjusted and guidance relevant earnings and
per share information are non-IFRS measures. Refer to Selected Non-IFRS Financial Measures and Reconciliations
and Supplemental Information.

Agrium Retail

             
          Three months ended December 31
(millions of U.S. dollars)           2017   2016   Change
Sales 2,089 1,828 261
Cost of product sold (1,394) (1,205) (189)
Gross profit 695 623 72
EBIT 4 174 134 40
EBITDA 248 202 46
Selling expenses           (517) (476) (41)
  • EBITDA - Retail reported record EBITDA in the fourth quarter of 2017, a 23 percent increase over the previous record achieved in the same period last year. Higher sales for all our crop input products and services were driven by organic growth, recent acquisitions and a 22 percent increase in proprietary product sales.
  • North American EBITDA increased by 17 percent this quarter compared to the same period last year, with higher nutrient and crop protection product demand in both the U.S. and Canada. International Retail operations achieved a record fourth quarter, with EBITDA up 40 percent year over year, supported by another record quarter for our Australian operations.
  • Selling expenses – Total Retail selling expenses increased by 9 percent this quarter compared to the same period in 2016 as a result of acquisitions made in 2017. Selling expenses as a percentage of sales decreased to 25 percent this quarter compared to 26 percent in the same period of 2016.

Retail sales and gross profit by product line

     
(millions of U.S. dollars, except Three months ended December 31
where noted) Sales       Gross profit       Gross profit (%)
  2017   2016   Change   2017   2016   Change   2017   2016
Crop nutrients 890 779 111 168 147 21 19 19
Crop protection products 712 620 92 327 296 31 46 48
Seed 107 101 6 51 43 8 48 43
Merchandise 187 167 20 28 27 1 15 16
Services and other 193 161 32   121 110 11   63 68
  • Crop nutrients - Sales were 14 percent higher this quarter compared to the same period last year, due primarily to higher volumes, particularly with record ammonia applications in Canada and higher sales volumes in all other regions. Gross profit was 14 percent higher this quarter due to increased sales volumes, while gross profit margin per tonne remained relatively flat.
  • Crop protection – Fourth-quarter sales increased by 15 percent compared to the same period last year, due to increased sales in both North America and International operations. The U.S. experienced strong demand for herbicides and fall weed burn-down products this quarter. Proprietary product sales in the quarter increased by 25 percent compared to 2016's fourth quarter, with the largest increase in market penetration occurring in Australia. Gross profit for the quarter was up 10 percent over the same period last year, due to higher sales volumes across all regions and proprietary products. However, gross profit as a percentage of sales decreased 2 percentage points this quarter due to product mix considerations and a higher percentage of sales to wholesale customers.
  • Seed – Gross profit in the fourth quarter increased 19 percent compared to the same period last year, due to purchases in the U.S. that were delayed from the third quarter of 2017. Gross profit as a percentage of sales increased to 48 percent from 43 percent in the fourth quarter of last year, due to a return to a higher sales mix to retail customers relative to wholesalers.
  • Merchandise – Sales increased 12 percent and gross profit was up 4 percent in the fourth quarter of this year relative to the same period last year. The increase in sales was due to higher sales in Australiarelated to animal health management and higher fuel prices in our Canadian operations.
  • Services and other – Sales increased by 20 percent and gross profit by 10 percent this quarter compared to the same period last year, due to higher livestock export shipments and wool commissions in Australia. It was also supported by higher sales in North America related to strong demand for fall nutrient and crop protection application services. Gross profit as a percentage of sales declined this quarter due to lower Australian cattle prices.

Agrium Wholesale

               
          Three months ended December 31
(millions of U.S. dollars)           2017   2016 5   Change
Sales 534 594 (60)
Sales tonnes (000's) 1,879 2,161 (282)
Cost of product sold (447) (459) 12
Gross profit 87 135 (48)
EBIT 76 151 (75)
EBITDA 134 208 (74)
Expenses           (11) 16 (27)
  • EBITDA – Wholesale gross profit and EBITDA this quarter were lower than the same period last year, as stronger results from our potash segment were more than offset by lower results for our nitrogen and phosphate segments. Downtime in our nitrogen and phosphate facilities impacted sales volumes and resulted in higher cost of product sold per tonne. Higher phosphate rock and sulfur input costs and unfavorable changes in the Canadian dollar exchange rate also increased the cost of product sold.

Agrium Potash

                       
          Three months ended December 31
(millions of U.S. dollars)           2017 2016 Change
Sales 137 105 32
Cost of product sold (97) (84) (13)
Gross profit 40 21 19
EBIT 33 13 20
EBITDA           64 39 25
  • Gross Profit – Potash gross profit was 90 percent higher than the fourth quarter of 2016, due to a combination of higher prices and sales volumes, which more than offset an increase in the cost of product sold per tonne.
                   
      Three months ended December 31
        2017 2016 Change
Sales tonnes (000's)
  North America 329 286 43
International 291 304 (13)
Selling price ($/tonne)
North America 269 211 58
International 168 148 20
Total 221 179 42
Cost of product sold ($/tonne) (157) (143) (14)
Margin ($/tonne)       64 36 28
  • Volumes – Agrium sold 5 percent higher volumes of potash in the fourth quarter of 2017 compared to the same period in 2016. Increased volumes sold domestically more than offset lower international sales, which were impacted by a reduction in Agrium's Canpotex6 allocation relative to the same period last year.
  • Price – Global benchmark potash prices were higher in the fourth quarter of 2017 compared to 2016, and this was reflected in Agrium's realized selling prices, which were 27 percent higher domestically and 14 percent higher on international sales.
  • Costs – Cost of product sold per tonne was 10 percent higher in this year's quarter versus the prior year's fourth quarter, due to unfavorable changes in the Canadian dollar exchange rate impacting production costs; higher freight costs; and a higher proportion of domestic sales than the comparable period (that include freight and distribution in the cost of product sold). Agrium's cash cost of product manufactured7this quarter was $72 per tonne, a $10 per tonne increase over the same period last year.

Agrium Nitrogen

                       
          Three months ended December 31
(millions of U.S. dollars)           2017 2016 Change
Sales 220 285 (65)
Cost of product sold (186) (200) 14
Gross profit 34 85 (51)
EBIT 26 76 (50)
EBITDA           46 99 (53)
  • Gross Profit - Total nitrogen gross profit was significantly reduced this quarter compared to the same period last year, due to planned and unplanned maintenance outages in the second half of 2017 that reduced product availability in the fourth quarter and resulted in higher cost per tonne. Gross profit was also impacted by slightly lower realized pricing relative to the fourth quarter of 2016.
                   
      Three months ended December 31
        2017 2016 Change
Sales tonnes (000's)
  Ammonia 261 334 (73)
Urea 300 439 (139)
Other 191 181 10
Selling price ($/tonne)
Ammonia 342 371 (29)
Urea 287 274 13
Other 234 222 12
Total 293 298 (5)
Cost of product sold ($/tonne) (248) (209) (39)
Margin ($/tonne)       45 89 (44)
  • Volumes - Total nitrogen sales volumes for the fourth quarter were 21 percent lower than the same period in 2016 due to lower production volumes.
  • Price - Agrium's fourth-quarter average realized price decreased compared to the prior year's fourth quarter, with price increases in urea and nitrogen solutions more than offset by lower ammonia pricing, a result of the timing of forward sales activity, and lower nitrate prices driven by lower Tampa ammonia-based contracts.
  • Costs – Total cost of product sold was 7 percent lower than the same period last year, due to lower sales volumes this quarter. However, on a cost of product sold per tonne basis, costs increased by 19 percent, primarily due to fixed costs being spread over lower sales volumes.
                 
Natural Gas Prices     Three months ended December 31
(U.S. dollars per MMBtu)     2017 2016 Change
Overall gas cost excluding realized
  derivative impact 1.77 2.52 (0.75)
Realized derivative impact 0.70 0.07 0.63
Overall gas cost 2.47 2.59 (0.12)
Average NYMEX 2.91 2.99 (0.08)
Average AECO     1.54 2.12 (0.58)

Agrium Phosphate

                       
          Three months ended December 31
(millions of U.S. dollars)           2017 2016 6 Change
Sales 47 81 (34)
Cost of product sold (49) (72) 23
Gross profit (2) 9 (11)
EBIT (1) 8 (9)
EBITDA           4 13 (9)
  • Gross Profit - Total phosphate gross profit was a loss of $2 million compared to a profit of $9 million in the same period last year. The lower earnings were driven primarily by higher rock and sulfur costs as well as an extended maintenance shutdown at our Redwater facility, which increased cost of product sold per tonne.
                   
      Three months ended December 31
        2017 2016 Change
Sales tonnes (000's) 107 191 (84)
Selling price ($/tonne) 436 420 16
Cost of product sold ($/tonne) (448) (379) (69)
Margin ($/tonne)       (12) 41 (53)
  • Volumes - Total phosphate volumes for the quarter were 44 percent lower than the same period last year due to lower production volumes.
  • Price – The average realized selling price for phosphate was 4 percent higher than the same period last year, due to market strength in our primary selling region in Western Canada.
  • Costs – Total cost of product sold was 32 percent lower than the comparable prior period, due to the lower sales volumes this quarter as a result of the extended maintenance shutdown. On a per-tonne basis, cost of product sold was 18 percent higher, due to higher input costs, including rock and sulfur, and fixed costs being spread over lower sales volumes.

Agrium Wholesale Other

                       
          Three months ended December 31
(millions of U.S. dollars)           2017 2016 Change
Sales 130 123 7
Cost of product sold (115) (103) (12)
Gross profit 15 20 (5)
EBIT 18 54 (36)
EBITDA           20 57 (37)
  • Gross Profit - Total Wholesale Other gross profit was 25 percent lower in 2017's fourth quarter compared to the same period last year, due to lower ammonium sulfate availability from our Redwater facility.
                   
      Three months ended December 31
        2017 2016 Change
Sales tonnes (000's)
  Ammonium sulfate 61 99 (38)
ESN ® and other 339 327 12
Selling price ($/tonne)
Ammonium sulfate 261 240 21
Cost of product sold ($/tonne) (173) (130) (43)
Margin ($/tonne)       88 110 (22)
  • Volumes – Fourth-quarter ESN ®  volumes were 16 percent lower than the comparable period in 2016 due to lower product availability related to an outage at our Carseland nitrogen facility. Ammonium sulfate sales volumes were 38 percent lower due to reduced production volumes.
  • Price – Stronger ESN ®  market conditions had a favorable impact on selling prices, while ammonium sulfate also saw higher prices due to higher nitrogen benchmark prices and strong demand in Western Canada.
  • Costs – Cost of product sold per tonne for ammonium sulfate was 33 percent higher during the quarter than the same period last year due to fixed costs being spread over lower sales volumes as a result of the above-noted outages and higher raw material prices.

Agrium Other

  • EBITDA - EBITDA for our Other non-operating business unit for the fourth quarter of 2017 was a net expense of $122 million, compared to a net expense of $115 million for the fourth quarter of 2016. The variance was primarily due to:
    • An increase of $38 million in merger and related costs.
    • An increase of $13 million in our environmental remediation provision, primarily as a result of a change in our estimated future cash outflows for our Idaho phosphate mining and processing sites.

This was partially offset by:

  • A $15 million impairment loss recorded on an international investment in 2016.
  • An increase of $11 million in our gross profit recovery as a result of lower intersegment inventories held by Retail at the end of the fourth quarter.
  • Tax - On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed into law. Included in Agrium's fourth-quarter earnings is a one-time net tax expense of $9 million related to the Act. The effective tax rate for the fourth quarter of 2017 remained the same with prior year (2017 and 2016: 25 percent).

POTASHCORP RESULTS

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

POTASHCORP ADJUSTED NET EARNINGS RECONCILIATION
(millions of U.S. dollars, except per share amounts)   Three months ended
December 31, 2017
  Twelve months ended
December 31, 2017
  Dollars   Per Share (a) Dollars   Per Share (a)
Net (loss) income $ (76) $(0.09) $327 $0.39
  Adjustments:
Share-based compensation 4 - 18 0.02
Income tax recovery on US tax changes (187) (0.22) (187) (0.22)
Income tax expense on Saskatchewan tax changes 68 0.08 - -
Impairment of property, plant and equipment 213 0.25 236 0.28
  Transaction costs 37 0.04 61 0.07
Adjusted earnings 8 $ 59 $0.06 $455 $0.54
(a) Per share information attributable to equity holders of PotashCorp

PotashCorp Potash

                     
          Three months ended December 31
(millions of U.S. dollars)           2017 2016 Change
Net sales $ 347 $   349 (2)
Cost of goods sold (189) (229) 40
Gross margin           158 120 38
  • Gross margin – Potash gross margin of $158 million for the fourth quarter and $785 million for the year exceeded the respective totals of $120 million and $437 million generated in 2016, primarily due to higher prices and reduced per-tonne costs.
                   
      Three months ended December 31
        2017 2016 Change
Sales volumes (tonnes 000's)
  North America 568 720 (152)
Offshore 1,340 1,489 (149)
Average realized price ($/tonne)
North America 214 176 38
Offshore 169 148 21
Average 182 157 25
Cost of goods sold ($/tonne) (96) (101) 5
Gross margin ($/tonne)       86 56 30
  • Volumes – Following record third-quarter shipments, sales volumes for the fourth quarter of 1.9 million tonnes were below the 2.2 million tonnes sold in the same period last year. In North America, shipments were 21 percent below 2016's levels, while offshore shipments decreased by 10 percent. The majority of Canpotex's volumes for the quarter were sold to China (28 percent) and Other Asian markets outside of China and India (28 percent), while Latin America and India accounted for 25 percent and 11 percent, respectively.
  • Price – Our average realized potash price of $182 per tonne surpassed the $157 per tonne realized in the same period last year, as strong customer engagement in all key markets continued to support prices.
  • Costs – Inventory-related shutdowns reduced production volumes and resulted in manufactured cost of goods sold for the quarter of $96 per tonne. This amount was down from $101 per tonne in the same period last year, primarily due to an unfavorable adjustment to asset retirement obligations recorded in the fourth quarter of 2016.

PotashCorp Nitrogen

           
      Three months ended December 31
        2017   2016   Change
(millions of U.S. dollars)
Net sales $   316 $   289 27
Cost of goods sold (257) (239) (18)
Margin on inter-segment sales 11 5 6
Gross margin       70 55 15
  • Gross margin – Nitrogen gross margin of $70 million for the quarter surpassed the $55 million generated in 2016's fourth quarter as stronger prices more than offset higher per-tonne costs. Our U.S. and Trinidadoperations each accounted for 50 percent of the quarter's nitrogen gross margin. For the full-year, gross margin of $256 million was down from $361 million in 2016, predominantly due to lower prices and higher costs.
                 
    Three months ended December 31
      2017 2016 Change
Sales volumes (tonnes 000's)
  Ammonia 505 477 28
Urea 283 304 (21)
Solutions and Other 795 855 (60)
Average realized price ($/tonne)
Ammonia 270 213 57
Urea 288 245 43
Solutions and Other 138 142 (4)
Average 207 182 25
Cost of goods sold ($/tonne) (167) (151) (16)
Gross margin ($/tonne)     40 31 9
  • Volumes - Total sales volumes of 1.6 million tonnes for the quarter were down 3 percent compared to the same period in 2016, primarily due to lower availability of product related to a turnaround at our Augusta facility.
  • Price - Our average realized price of $207 per tonne during the quarter was up from $182 per tonne in the same period last year, primarily due to global pricing support from lower Chinese urea exports and ammonia production curtailments in key exporting regions.
  • Costs - Cost of goods sold for the quarter averaged $167 per tonne, up from $151 per tonne in 2016's fourth quarter primarily as a result of higher natural gas costs in Trinidad.

PotashCorp Phosphate

                   
      Three months ended December 31
(millions of U.S. dollars)       2017 2016 Change
Net sales $   302 $   290 12
Cost of goods sold (597) (297) (300)
Cost on inter-segment sales (11) (5) (6)
Gross margin       (306) (12) (294)
  • Gross margin – Negative phosphate gross margin of $306 million for the fourth quarter of 2017 was below the negative $12 million realized during the same period last year, primarily due to non-cash impairment charges of $276 million. For the full year, negative gross margin of $366 million – including non-cash impairment charges of $305 million – trailed the $32 million earned in 2016 when prices for nearly all our phosphate products were higher.
                 
    Three months ended December 31
      2017 2016 Change
Sales volumes (tonnes 000's)
  Fertilizer 534 472 62
Feed and Industrial 239 243 (4)
Average realized price ($/tonne)
Fertilizer 342 328 14
Feed and Industrial 483 551 (68)
Average 385 404 (19)
Cost of goods sold ($/tonne) (782) (420) (362)
Gross margin ($/tonne)     (397) (16) (381)
  • Volumes – Fourth-quarter sales volumes of 0.8 million tonnes surpassed last year's comparable total of 0.7 million tonnes, mainly due to higher availability of our fertilizer products.
  • Price - Our average realized phosphate price for the fourth quarter was $385 per tonne, down from $404per tonne in the same period last year, as higher prices for fertilizer products were more than offset by lower realizations for our feed and industrial products.
  • Costs – Cost of goods sold was $782 per tonne for the fourth quarter, significantly higher than $420 per tonne in 2016's fourth quarter, predominantly due to impairment charges at our White Springs and feed plant facilities.

PotashCorp Finance

  • Investments – Earnings from investments in Arab Potash Company (APC) in Jordan, Israel Chemicals Ltd. (ICL) in Israel and Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile – now classified as discontinued operations9 - were $44 million for the fourth quarter, exceeding the $33 million generated in the same period last year. Our earnings for the year from these investments totaled $173 million and surpassed the $124 million realized in 2016. Classified as continuing operations are dividends from Sinofert Holdings Limited (Sinofert) in China and a $10 million non-cash impairment charge related to this investment in 2016. Subsequent to the fourth quarter of 2017, we completed the sale of our investment in ICL, which generated net proceeds of $685 million.
  • Tax – Our income tax recovery of $153 million in the fourth quarter was larger than the $10 millionrecovery in 2016's fourth quarter, primarily due to the discrete $187 million non-cash deferred tax recovery resulting from a federal income tax rate decrease pursuant to U.S. tax reform legislation. This was partially offset by a non-cash discrete deferred tax expense of $68 million pertaining to a Saskatchewan income tax rate increase.
  • Transaction Costs - During the quarter, we incurred merger-related costs of $51 million, higher than the $10 million sustained in the same period last year.

Notes

1. All amounts are stated in U.S. dollars.

2. All references to per-share amounts pertain to diluted net income per share.

3. EBITDA is calculated as net earnings (loss) from continuing operations before finance costs, income tax (recovery) expense, and depreciation and amortization. This is a non-IFRS measure. Refer to Selected Non-IFRS Financial Measures and Reconciliation.

4. EBIT is calculated as net earnings (loss) from continuing operations before finance costs and income tax (recovery) expense.

5. Certain amounts have been restated as a result of discontinued operations.

6. Canpotex Limited ("Canpotex"), the offshore marketing company for Nutrien and one other Saskatchewanpotash producer.

7. This is a non-IFRS measure. Refer to Selected Non-IFRS Financial Measures and Reconciliation.

8. Generally, a non-IFRS financial measure is a numerical measure of a company's performance, cash flows or financial position that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. Adjusted earnings is not a measure of financial performance (nor does it have a standardized meaning) under IFRS. In evaluating this measure, investors should consider that the methodology applied in calculating such a measure may differ among companies and analysts. The company uses both IFRS and this non-IFRS measure to assess operational performance. Management believes this non-IFRS measure provides useful supplemental information to investors in order that they may evaluate PotashCorp's financial performance using the same measures as management. Management believes that, as a result, the investor is afforded greater transparency in assessing the financial performance of the company. This non-IFRS financial measure should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with IFRS. Adjusted earnings is calculated as net (loss) income before share-based compensation net of tax, certain non-cash income tax changes, certain impairment charges net of tax and Transaction costs net of tax. PotashCorp uses adjusted earnings to assess operational performance. Management believes adjusted earnings to be an important measure as it excludes the effects of non-operating items and share-based compensation, supporting a focus on the performance of the company's day-to-day operations, excluding share-based compensation. As compared to net (loss) income from continuing operations according to IFRS, this measure is limited in that it does not reflect the periodic costs of charges associated with share-based compensation, income tax rate changes, impairments or Transaction costs. Management evaluates such items through other financial measures such as cash flow provided by operating activities. The company believes that this measurement is useful as a valuation measurement.

9. PotashCorp's discontinued operations includes the following investments held for sale: Sociedad Quimica y Minera de Chile S.A. ("SQM"), Arab Potash Company ("APC") and Israel Chemicals Ltd. (ICL)

About Nutrien

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

Forward-Looking Statements

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

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

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

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

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

______________________________________________________________________________

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

Telephone Conference:   Dial-in numbers:
• From Canada and the U.S.

1-877-269-7756 or 1-201-689-7817

• No access code required. Please dial in 15 minutes prior to ensure you get on the call.
 
Live Audio Webcast: Visit www.nutrien.com/investors/events/2017-q4-earnings-conference-call

Agrium Inc.

Condensed Consolidated Interim Financial Statements

For the three and twelve months ended

December 31, 2017

AGRIUM INC.
Condensed Consolidated Interim Statements of Operations
(Unaudited)
           
 
Three months ended Twelve months ended
      December 31,   December 31,
(millions of U.S. dollars, unless otherwise stated) 2017 2016 2017 2016
          (restated)       (restated)
 
Sales 2,450 2,238 13,766 13,457
Cost of product sold 1,666   1,489   10,340   10,078
Gross profit 784 749 3,426 3,379
Expenses
Selling 519 480 2,014 1,913
General and administrative 71 64 247 240
Share-based payments 29 33 69 55
Earnings from associates and joint ventures (7) (35) (39) (66)
  Other expenses 50   43   119   147
Earnings before finance costs and income taxes 122 164 1,016 1,090
Finance costs related to long-term debt 55 51 210 204
  Other finance costs 30   21   101   74
Earnings before income taxes 37 92 705 812
  Income taxes 10   23   203   228
Net earnings from continuing operations 27 69 502 584
Net (loss) earnings from discontinued operations (9)   (2)   (187)   12
Net earnings 18   67   315   596
Attributable to
Equity holders of Agrium 17 67 310 592
  Non-controlling interests 1   -   5   4
Net earnings 18   67   315   596
 
Earnings per share attributable to equity holders of Agrium              
Basic and diluted earnings per share from continuing operations 0.19 0.50 3.60 4.20
Basic and diluted (loss) earnings per share from discontinued
    operations (0.06)   (0.01)   (1.36)   0.09
  Basic and diluted earnings per share 0.13   0.49   2.24   4.29
Weighted average number of shares outstanding for basic and
    diluted earnings per share (millions of common shares) 138   138   138   138
See accompanying notes.

Basis of preparation and statement of compliance

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

AGRIUM INC.
Condensed Consolidated Interim Statements of Comprehensive Income
(Unaudited)
                 
 
Three months ended Twelve months ended
          December 31, December 31,
(millions of U.S. dollars) 2017 2016 2017   2016
 
Net earnings 18 67 315 596
Other comprehensive (loss) income
Items that are or may be reclassified to earnings
Cash flow hedges
Effective portion of changes in fair value (33) 19 (92) 7
Deferred income taxes 9 (5) 25 (1)
Associates and joint ventures
Share of comprehensive income (loss) 2 (36) (49) (34)
Deferred income taxes - - 10 -
Foreign currency translation
(Losses) gains (13) (94) 183 59
        Reclassifications to earnings - - 6   -
          (35) (116) 83   31
Items that will never be reclassified to earnings
Post-employment benefits
Actuarial (losses) gains (2) 15 (5) (10)
        Deferred income taxes 1 (4) 2   3
          (1) 11 (3)   (7)
  Other comprehensive (loss) income (36) (105) 80   24
Comprehensive (loss) income (18) (38) 395   620
Attributable to
Equity holders of Agrium (19) (38) 389 616
  Non-controlling interests 1 - 6   4
Comprehensive (loss) income (18) (38) 395   620
See accompanying notes.
AGRIUM INC.
Condensed Consolidated Interim Balance Sheets
(Unaudited)
   
 
      December 31,
(millions of U.S. dollars)     2017 2016
Assets
Current assets
Cash and cash equivalents 466 412
Accounts receivable 2,406 2,208
Income taxes receivable 18 33
Inventories 3,321 3,230
Prepaid expenses and deposits 1,004 855
Other current assets 120 123
    Assets held for sale     105 -
7,440 6,861
Property, plant and equipment 7,091 6,818
Intangibles 518 566
Goodwill 2,228 2,095
Investments in associates and joint ventures 522 541
Other assets 58 48
  Deferred income tax assets     85 34
        17,942 16,963
Liabilities and shareholders' equity
Current liabilities
Short-term debt 867 604
Accounts payable 5,206 4,662
Income taxes payable 27 17
Current portion of long-term debt 11 110
    Current portion of other provisions     63 59
6,174 5,452
Long-term debt 4,397 4,398
Post-employment benefits 142 141
Other provisions 522 322
Other liabilities 106 68
  Deferred income tax liabilities     473 408
        11,814 10,789
Shareholders' equity
Share capital 1,776 1,766
Retained earnings 5,461 5,634
    Accumulated other comprehensive loss     (1,116) (1,231)
Equity holders of Agrium 6,121 6,169
    Non-controlling interests     7 5
    Total equity     6,128 6,174
        17,942 16,963
See accompanying notes.
AGRIUM INC.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited)
             
 
Three months ended Twelve months ended
      December 31, December 31,
(millions of U.S. dollars) 2017 2016 2017 2016
          (restated)   (restated)
 
Operating
Net earnings from continuing operations 27 69 502 584
Adjustments for
Depreciation and amortization 138 131 530 493
Earnings from associates and joint ventures (7) (35) (39) (66)
Share-based payments 29 33 69 55
Unrealized loss on derivative financial instruments 2 - 1 36
Unrealized foreign exchange loss (gain) - 1 31 (19)
Interest income (16) (17) (59) (66)
Finance costs 85 72 311 278
Income taxes 10 23 203 228
Other 30 26 34 23
Interest received 16 16 61 66
Interest paid (68) (49) (308) (272)
Income taxes paid (7) (14) (20) (291)
Dividends from associates and joint ventures 7 68 18 116
  Net changes in non-cash working capital 1,338   1,101 (15) 472
Cash provided by operating activities 1,584   1,425 1,319 1,637
Investing
Business acquisitions, net of cash acquired (19) (26) (203) (342)
Capital expenditures (219) (170) (677) (701)
Capitalized borrowing costs - (6) (12) (24)
Purchase of investments (4) (16) (63) (77)
Proceeds from sale of investments 5 19 69 97
Proceeds from sale of property, plant and equipment 6 2 34 16
Other (8) 51 (19) 33
  Net changes in non-cash working capital -   10 (51) 5
Cash used in investing activities (239)   (136) (922) (993)
Financing
Short-term debt (1,011) (1,092) 258 (188)
Repayment of long-term debt (2) (1) (110) (17)
  Dividends paid (121)   (120) (483) (482)
Cash used in financing activities (1,134)   (1,213) (335) (687)
Effect of exchange rate changes on cash and cash equivalents (5)   (9) (12) (67)
Increase (decrease) in cash and cash equivalents from
continuing operations 206 67 50 (110)
Cash and cash equivalents provided by discontinued
operations 14 34 4 7
Cash and cash equivalents – beginning of period 246   311 412 515
Cash and cash equivalents – end of period 466   412 466 412
See accompanying notes.
AGRIUM INC.
Condensed Consolidated Interim Statements of Shareholders' Equity
(Unaudited)
               
 
Other comprehensive income (loss)
Millions Comprehensive
of Cash loss of Foreign Equity Non-
common Share Retained flow associates and currency holders of controlling Total
(millions of U.S. dollars, except per share data) shares capital earnings hedges joint ventures translation Total Agrium interests equity
December 31, 2015 138 1,757 5,533 (56) (17) (1,214) (1,287) 6,003 4 6,007
Net earnings - - 592 - - - - 592 4 596
Other comprehensive income (loss), net of tax
Post-employment benefits - - (7) - - - - (7) - (7)
    Other - - - 6 (34) 59 31 31 - 31
Comprehensive income (loss), net of tax - - 585 6 (34) 59 31 616 4 620
Dividends ($3.5 per share) - - (484) - - - - (484) - (484)
Non-controlling interest transactions - - - - - - - - (3) (3)
Share-based payment transactions - 9 - - - - - 9 - 9
  Reclassification of cash flow hedges, net of tax - - - 25 - - 25 25 - 25
December 31, 2016 138 1,766 5,634 (25) (51) (1,155) (1,231) 6,169 5 6,174
Net earnings - - 310 - - - - 310 5 315
Other comprehensive income (loss), net of tax
Post-employment benefits - - (3) - - - - (3) - (3)
    Other - - - (67) (39) 188 82 82 1 83
Comprehensive income (loss), net of tax - - 307 (67) (39) 188 82 389 6 395
Dividends ($3.5 per share) - - (483) - - - - (483) - (483)
Non-controlling interest transactions - - 3 - - (2) (2) 1 (4) (3)
Share-based payment transactions - 10 - - - - - 10 - 10
  Reclassification of cash flow hedges, net of tax - - - 35 - - 35 35 - 35
December 31, 2017 138 1,776 5,461 (57) (90) (969) (1,116) 6,121 7 6,128
See accompanying notes.

AGRIUM INC.

Summarized Notes to the Condensed Consolidated Interim Financial Statements

For the three and twelve months ended December 31, 2017

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

(Unaudited)

1. Corporate Management

Corporate information

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

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

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

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

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

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

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

Discontinued operations and assets held for sale

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

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

2. Operating Segments

      Three months ended December 31,
Segment information by business unit 2017   2016
      Retail Wholesale Other (a)   Total Retail Wholesale Other (a)   Total
Sales - external 2,076 374 - 2,450 1,816 422 -   2,238
    - inter-segment 13 160 (173)   - 12 172 (184)   -
Total sales 2,089 534 (173) 2,450 1,828 594 (184) 2,238
Cost of product sold 1,394 447 (175)   1,666 1,205 459 (175)   1,489
Gross profit 695 87 2   784 623 135 (9)   749
Gross profit (%) 33 16     32 34 23     33
Expenses
  Selling 517 6 (4) 519 476 9 (5) 480
General and administrative 26 8 37 71 26 6 32 64
Share-based payments - - 29 29 - - 33 33
Earnings from associates and joint ventures (1) (5) (1) (7) (1) (34) - (35)
  Other (income) expenses (21) 2 69   50 (12) 3 52   43
Earnings (loss) before finance costs and income taxes 174 76 (128) 122 134 151 (121) 164
  Finance costs - - 85   85 - - 72   72
Earnings (loss) before income taxes 174 76 (213) 37 134 151 (193) 92
Depreciation and amortization 74 58 6 138 68 57 6 131
  Finance costs - - 85   85 - - 72   72
EBITDA (b) 248 134 (122)   260 202 208 (115)   295
(a) Includes inter-segment eliminations
(b) EBITDA is net earnings (loss) before finance costs, income taxes, depreciation and amortization, and net earnings (loss) from discontinued operations.
 
 
Segment information by business unit Twelve months ended December 31,
      2017 2016
      Retail Wholesale Other (a)   Total Retail Wholesale Other (a)   Total
Sales - external 12,056 1,710 - 13,766 11,723 1,734 - 13,457
    - inter-segment 47 649 (696)   - 43 694 (737)   -
Total sales 12,103 2,359 (696) 13,766 11,766 2,428 (737) 13,457
Cost of product sold 9,157 1,888 (705)   10,340 8,980 1,872 (774)   10,078
Gross profit 2,946 471 9   3,426 2,786 556 37   3,379
Gross profit (%) 24 20     25 24 23     25
Expenses
Selling 2,007 24 (17) 2,014 1,899 31 (17) 1,913
General and administrative 100 26 121 247 102 28 110 240
Share-based payments - - 69 69 - - 55 55
(Earnings) loss from associates and joint ventures (9) (30) - (39) (6) (61) 1 (66)
  Other (income) expenses (42) 34 127   119 (26) 57 116   147
Earnings (loss) before finance costs and income taxes 890 417 (291) 1,016 817 501 (228) 1,090
  Finance costs - - 311   311 - - 278   278
Earnings (loss) before income taxes 890 417 (602) 705 817 501 (506) 812
Depreciation and amortization 289 222 19 530 274 203 16 493
  Finance costs - - 311   311 - - 278   278
EBITDA 1,179 639 (272)   1,546 1,091 704 (212)   1,583
(a) Includes inter-segment eliminations
Segment information – Retail     Three months ended December 31,
          2017   2016
      North   North    
          America   International     Retail   America   International     Retail
Sales - external 1,510 566 2,076 1,332 484 1,816
    - inter-segment     13   -     13   12   -     12
Total sales 1,523 566 2,089 1,344 484 1,828
Cost of product sold     990   404     1,394   860   345     1,205
Gross profit 533 162 695 484 139 623
Expenses
Selling 419 98 517 376 100 476
General and administrative 18 8 26 18 8 26
Earnings from associates and joint ventures - (1) (1) - (1) (1)
  Other income     (16)   (5)     (21)   (5)   (7)     (12)
Earnings before income taxes 112 62 174 95 39 134
  Depreciation and amortization     70   4     74   60   8     68
EBITDA     182   66     248   155   47     202
 
 
Segment information – Retail     Twelve months ended December 31,
          2017 2016
North North
          America   International     Retail   America   International     Retail
Sales - external 9,874 2,182 12,056 9,565 2,158 11,723
    - inter-segment     47   -     47   43   -     43
Total sales 9,921 2,182 12,103 9,608 2,158 11,766
Cost of product sold     7,513   1,644     9,157   7,306   1,674     8,980
Gross profit 2,408 538 2,946 2,302 484 2,786
Expenses
Selling 1,652 355 2,007 1,555 344 1,899
General and administrative 71 29 100 72 30 102
Earnings from associates and joint ventures (7) (2) (9) (4) (2) (6)
  Other (income) expenses     (24)   (18)     (42)   3   (29)     (26)
Earnings before income taxes 716 174 890 676 141 817
  Depreciation and amortization     273   16     289   249   25     274
EBITDA     989   190     1,179   925   166     1,091
Segment information – Wholesale Three months ended December 31,
      2017   2016
  Wholesale Wholesale
      Nitrogen Potash Phosphate Other (a) Wholesale Nitrogen Potash Phosphate Other (a) Wholesale
Sales - external 156 101 19 98 374 218 74 40 90 422
    - inter-segment 64 36 28 32 160 67 31 41 33 172
Total sales 220 137 47 130 534 285 105 81 123 594
Cost of product sold 186 97 49 115 447 200 84 72 103 459
Gross profit 34 40 (2) 15 87 85 21 9 20 135
Expenses
Selling 3 1 1 1 6 4 2 1 2 9
General and administrative 5 3 (1) 1 8 4 2 - - 6
Earnings from associates and joint ventures - - - (5) (5) - - - (34) (34)
  Other expenses (income) - 3 (1) - 2 1 4 - (2) 3
Earnings (loss) before income taxes 26 33 (1) 18 76 76 13 8 54 151
  Depreciation and amortization 20 31 5 2 58 23 26 5 3 57
EBITDA 46 64 4 20 134 99 39 13 57 208
(a) Includes ammonium sulfate, ESN and other products
 
 
Segment information – Wholesale Twelve months ended December 31,
      2017 2016
Wholesale Wholesale
      Nitrogen Potash Phosphate Other (a) Wholesale Nitrogen Potash Phosphate Other (a) Wholesale
Sales - external 755 386 115 454 1,710 860 280 148 446 1,734
    - inter-segment 254 133 122 140 649 284 139 141 130 694
Total sales 1,009 519 237 594 2,359 1,144 419 289 576 2,428
Cost of product sold 757 390 228 513 1,888 757 367 261 487 1,872
Gross profit 252 129 9 81 471 387 52 28 89 556
Expenses
Selling 12 5 2 5 24 14 7 2 8 31
General and administrative 13 6 - 7 26 13 7 1 7 28
Earnings from associates and joint ventures - - - (30) (30) - - - (61) (61)
  Other expenses (income) 18 13 3 - 34 31 28 2 (4) 57
Earnings before income taxes 209 105 4 99 417 329 10 23 139 501
  Depreciation and amortization 79 113 17 13 222 75 99 16 13 203
EBITDA 288 218 21 112 639 404 109 39 152 704
(a) Includes ammonium sulfate, ESN and other products
Gross profit by product line Three months ended December 31, Twelve months ended December 31,
    2017 2016 2017 2016
Cost of Cost of Cost of Cost of
product Gross product Gross product Gross product Gross
    Sales sold profit Sales sold profit Sales sold profit Sales sold profit
Retail
Crop nutrients 890 722 168 779 632 147 4,121 3,273 848 4,310 3,478 832
Crop protection products 712 385 327 620 324 296 4,937 3,752 1,185 4,684 3,570 1,114
Seed 107 56 51 101 58 43 1,628 1,303 325 1,462 1,165 297
Merchandise 187 159 28 167 140 27 683 577 106 621 518 103
  Services and other (a) 193 72 121 161 51 110 734 252 482 689 249 440
    2,089 1,394 695 1,828 1,205 623 12,103 9,157 2,946 11,766 8,980 2,786
Wholesale
Nitrogen 220 186 34 285 200 85 1,009 757 252 1,144 757 387
Potash 137 97 40 105 84 21 519 390 129 419 367 52
Phosphate 47 49 (2) 81 72 9 237 228 9 289 261 28
  Ammonium sulfate, ESN and other 130 115 15 123 103 20 594 513 81 576 487 89
    534 447 87 594 459 135 2,359 1,888 471 2,428 1,872 556
Other inter-segment eliminations (173) (175) 2 (184) (175) (9) (696) (705) 9 (737) (774) 37
Total 2,450 1,666 784 2,238 1,489 749 13,766 10,340 3,426 13,457 10,078 3,379
 
Wholesale share of joint ventures
  Nitrogen 68 47 21 65 53 12 216 167 49 196 164 32
Total Wholesale including proportionate
  share in joint ventures 602 494 108 659 512 147 2,575 2,055 520 2,624 2,036 588
(a) Includes financial services products
Selected volumes and per tonne information Three months ended December 31,
          2017   2016
      Cost of       Cost of  
Sales Selling product Sales Selling product
tonnes price sold Margin tonnes price sold Margin
          (000's)   ($/tonne)   ($/tonne)   ($/tonne) (000's)   ($/tonne)   ($/tonne)   ($/tonne)
Retail
Crop nutrients
North America 1,791 404 328 76 1,593 395 317 78
    International   429   386   311   75 395   381   321   60
  Total crop nutrients   2,220   401   325   76 1,988   392   318   74
 
Wholesale
Nitrogen
North America
Ammonia 261 342 334 371
Urea 300 287 439 274
      Other   191   234         181   222        
  Total nitrogen   752   293   248   45 954   298   209   89
 
Potash
North America 329 269 286 211
    International   291   168         304   148        
  Total potash   620   221   157   64 590   179   143   36
 
Phosphate 107 436 448 (12) 191 420 379 41
Ammonium sulfate 61 261 173 88 99 240 130 110
  ESN and other   339             327            
Total Wholesale   1,879   284   238   46 2,161   275   213   62
 
Wholesale share of joint ventures
  Nitrogen   200   339   234   105 222   293   235   58
Total Wholesale including proportionate share
  in joint ventures   2,079   289   237   52 2,383   276   215   61
 
 
Selected volumes and per tonne information Twelve months ended December 31,
          2017 2016
Cost of Cost of
Sales Selling product Sales Selling product
tonnes price sold Margin tonnes price sold Margin
          (000's)   ($/tonne)   ($/tonne)   ($/tonne) (000's)   ($/tonne)   ($/tonne)   ($/tonne)
Retail
Crop nutrients
North America 8,373 414 323 91 8,003 446 351 95
    International   1,829   356   311   45 1,956   379   341   38
  Total crop nutrients   10,202   404   321   83 9,959   433   349   84
 
Wholesale
Nitrogen
North America
Ammonia 1,035 378 1,165 402
Urea 1,475 283 1,620 294
      Other   863   231         817   244        
  Total nitrogen   3,373   299   224   75 3,602   318   211   107
 
Potash
North America 1,335 256 1,187 217
    International   1,097   162         1,052   154        
  Total potash   2,432   213   160   53 2,239   187   164   23
 
Phosphate 551 429 414 15 640 450 408 42
Ammonium sulfate 345 267 132 135 341 268 122 146
  ESN and other   1,516             1,439            
Total Wholesale   8,217   287   230   57 8,261   294   227   67
 
Wholesale share of joint ventures
  Nitrogen   713   303   234   69 669   293   245   48
Total Wholesale including proportionate share
  in joint ventures   8,930   288   230   58 8,930   294   228   66

AGRIUM INC. SELECTED NON-IFRS FINANCIAL MEASURES AND RECONCILIATIONS

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

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

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

Non-IFRS financial measure Definition Why we use the measure and why it is useful to investors
EBITDA Net earnings (loss) before finance costs, income taxes, depreciation and amortization, and net earnings (loss) from discontinued operations EBITDA is frequently used by investors and analysts for valuation purposes when multiplied by a factor to estimate the enterprise value of a company. EBITDA is also used in determining annual incentive compensation for certain management employees and in calculating certain of our debt covenants.
Adjusted and guidance EPS Net earnings (loss) adjusted for certain income (expenses) that are considered to be non-operational in nature. These measures provide meaningful comparison to our guidance by eliminating share-based payments expense (recovery), gains (losses) on foreign exchange and related gains (losses) on non-qualifying derivative hedges and significant non-operating, non-recurring items. Our guidance is forward-looking information. We present guidance relevant earnings (loss) per share to provide an update to this previously disclosed forward-looking information.
Cash cost of production manufactured (COPM) All fixed and variable costs are accumulated in cash COPM excluding depreciation and amortization expense and direct freight. Enables investors to better understand the performance of our manufactured operations compared to other crop nutrient producers.
When cash COPM costs are divided by the production tonnes for the period, the result is actual cash COPM per tonne, which is compared to the standard cash COPM per tonne – a calculation of fixed and variable costs for a standard or typical period of production. The standard cash COPM per tonne is multiplied by the production tonnes for the period, and the resulting dollar amount is transferred to inventory. Any remaining costs are recorded directly to cost of product sold as production volume or cost efficiency variances.

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

There is no directly comparable IFRS measure for cash COPM.

Consolidated and business unit EBITDA Three months ended December 31,
(millions of U.S. dollars) Retail Wholesale Other Consolidated
2017
Net earnings 18
Finance costs related to long-term debt 55
Other finance costs 30
Income taxes 10
Net loss from discontinued operations       9
EBIT 174 76 (128) 122
Depreciation and amortization 74 58 6 138
EBITDA 248 134 (122) 260
2016
Net earnings 67
Finance costs related to long-term debt 51
Other finance costs 21
Income taxes 23
Net loss from discontinued operations       2
EBIT 134 151 (121) 164
Depreciation and amortization 68 57 6 131
EBITDA 202 208 (115) 295

Potash Corporation of Saskatchewan Inc.

Condensed Consolidated Interim Financial Statements

For the three and twelve months ended

December 31, 2017

Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of (Loss) Income
(in millions of US dollars except as otherwise noted)
(unaudited)
 
 
Three Months Ended Twelve Months Ended
December 31 December 31
  2017 2016 (1) 2017 2016 (1)
 
Sales (Note 2) $ 1,081 $ 1,058 $ 4,547 $ 4,456
Freight, transportation and distribution (116) (130) (537) (535)
Cost of goods sold (Note 2) (1,043) (765) (3,335) (3,091)
Gross Margin (78) 163 675 830
Selling and administrative expenses (60) (45) (214) (212)
Provincial mining and other taxes (26) (36) (151) (124)
Transaction costs (Note 3) (51) (10) (84) (18)
Other expenses (Note 4) - (14) (17) (17)
Operating (Loss) Income (215) 58 209 459
Finance costs (58) (55) (238) (216)
(Loss) Income Before Income Taxes (273) 3 (29) 243
Income tax recovery (expense) (Note 5) 153 10 183 (44)
Net (Loss) Income from Continuing Operations (120) 13 154 199
Net Income from Discontinued Operations (Note 6) 44 33 173 124
Net (Loss) Income $ (76) $ 46 $ 327 $ 323
 
Net (Loss) Income per Share from Continuing Operations
  Basic $ (0.14) $ 0.02 $ 0.18 $ 0.24
  Diluted $ (0.14) $ 0.02 $ 0.18 $ 0.24
 
Net (Loss) Income per Share from Continuing and Discontinued Operations
Basic $ (0.09) $ 0.05 $ 0.39 $ 0.39
  Diluted $ (0.09) $ 0.05 $ 0.39 $ 0.38
 
Dividends Declared per Share $ 0.10 $ 0.10 $ 0.40 $ 0.70
 
Weighted Average Shares Outstanding
Basic 840,203,000 839,721,000 840,079,000 838,928,000
  Diluted 840,606,000 840,142,000 840,316,000 839,459,000
(1) Certain amounts have been reclassified as a result of discontinued operations described in Note 6.
(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income
(in millions of US dollars)
(unaudited)
 
 
Three Months Ended Twelve Months Ended
December 31 December 31
(Net of related income taxes)   2017 2016 2017 2016
 
Net (Loss) Income   $ (76) $ 46 $ 327 $ 323
Other comprehensive (loss) income
    Items that will not be reclassified to net income:
  Net actuarial gain on defined benefit plans (1) 46 119 46 16
Items that have been or may be subsequently reclassified to
net income:
Available-for-sale investments (2)
Net fair value (loss) gain during the period (98) 54 30 (34)
Cash flow hedges
Net fair value (loss) gain during the period (3) (9) 9 (17) 7
Reclassification to income of net loss (4) 6 11 34 50
      Other   1 - 3 2
Other Comprehensive (Loss) Income   (54) 193 96 41
Comprehensive (Loss) Income   $ (130) $ 239 $ 423 $ 364
(1) Net of income taxes of $(20) (2016 - $(76)) for the three months ended December 31, 2017, and $(20) (2016 – $(16)) for the twelve months ended December 31, 2017.
(2) Available-for-sale investments are comprised of shares in Israel Chemicals Ltd. ("ICL"), Sinofert Holdings Limited ("Sinofert") and other. The company's investment in ICL was classified as held for sale at December 31, 2017 and the divestiture of all equity interests in ICL was completed on January 24, 2018.
(3) Cash flow hedges are comprised of natural gas derivative instruments and were net of income taxes of $(7) (2016 - $(4)) for the three months ended December 31, 2017 and $(3) (2016 - $(4)) for the twelve months ended December 31, 2017. In the fourth quarter of 2017, related deferred income tax assets were reduced by $8 due to a US federal income tax rate decrease.
(4) Net of income taxes of $(5) (2016 - $(6)) for the three months ended December 31, 2017 and $(20) (2016 - $(28)) for the twelve months ended December 31, 2017.
(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Cash Flow
(in millions of US dollars)
(unaudited)
     
 
Three Months Ended Twelve Months Ended
December 31 December 31
        2017 2016 2017 2016
 
Operating Activities
Net (loss) income $ (76) $ 46 $ 327 $ 323
Adjustments to reconcile net income to cash provided by
operating activities (Note 7) 294 246 826 877
Changes in non-cash operating working capital (Note 7)       163 61 72 60
Cash provided by operating activities       381 353 1,225 1,260
 
Investing Activities
Additions to property, plant and equipment (220) (245) (651) (893)
Other assets and intangible assets       - 8 (1) (2)
Cash used in investing activities       (220) (237) (652) (895)
 
Financing Activities
Proceeds from long-term debt obligations - 496 - 496
Repayment of, and finance costs on, long-term debt obligations (500) (4) (501) (8)
Proceeds from (repayment of) short-term debt obligations 440 (647) 341 (128)
Dividends (82) (82) (330) (809)
Issuance of common shares       - - 1 25
Cash used in financing activities       (142) (237) (489) (424)
Increase (Decrease) in Cash and Cash Equivalents 19 (121) 84 (59)
Cash and Cash Equivalents, Beginning of Period       97 153 32 91
Cash and Cash Equivalents, End of Period       $ 116 $ 32 $ 116 $ 32
 
Cash and cash equivalents comprised of:
Cash $ 14 $ 13 $ 14 $ 13
  Short-term investments       102 19 102 19
        $ 116 $ 32 $ 116 $ 32
(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statement of Changes in Shareholders' Equity
(in millions of US dollars)
(unaudited)
 
 
Accumulated Other Comprehensive (Loss) Income
Net unrealized Net Total
gain on Net (loss) gain actuarial Accumulated
available- on derivatives gain on Other
Share Contributed for-sale designated as defined Comprehensive Retained Total
    Capital Surplus investments (1) cash flow hedges benefit plans (2) Other (Loss) Income Earnings Equity
 
Balance - December 31, 2016 $ 1,798 $ 222 $ 43 $ (60) $ - $ (8) $ (25) $ 6,204 $ 8,199
Net income - - - - - - - 327 327
Other comprehensive income - - 30 17 46 3 96 - 96
Dividends declared - - - - - - - (335) (335)
Effect of share-based compensation
including issuance of common shares 2 8 - - - - - - 10
Shares issued for dividend
reinvestment plan 6 - - - - - - - 6
Transfer of net actuarial gain on
defined benefit plans - - - - (46) - (46) 46 -
Balance - December 31, 2017 $ 1,806 $ 230 $ 73 $ (43) $ - $ (5) $ 25 $ 6,242 $ 8,303
(1) The cumulative net unrealized gain on the available-for-sale investment in ICL, classified as held for sale as described in Note 6, was $4 at December 31, 2017.
(2) Any amounts incurred during a period are closed out to retained earnings at each period-end. Therefore, no balance exists at the beginning or end of period.
(See Notes to the Condensed Consolidated Financial Statements)
Potash Corporation of Saskatchewan Inc.
Condensed Consolidated Statements of Financial Position
(in millions of US dollars except share amounts)
(unaudited)
 
December 31 December 31
As at   2017 2016
 
Assets
  Current assets
Cash and cash equivalents $ 116 $ 32
Receivables 489 545
Inventories 788 768
    Prepaid expenses and other current assets   72 49
1,465 1,394
    Assets held for sale (Note 6)   1,858 -
3,323 1,394
Non-current assets
Property, plant and equipment 12,971 13,318
Investments in equity-accounted investees (Note 6) 30 1,173
Available-for-sale investments (Note 6) 262 940
Other assets 246 250
    Intangible assets   166 180
Total Assets   $ 16,998 $ 17,255
 
 
Liabilities
Current liabilities
Short-term debt and current portion of long-term debt $730 $884
Payables and accrued charges 807 772
    Current portion of derivative instrument liabilities   29 41
1,566 1,697
    Deferred income tax liabilities on assets held for sale (Note 6)   36 -
1,602 1,697
Non-current liabilities
Long-term debt 3,711 3,707
Derivative instrument liabilities 35 56
Deferred income tax liabilities 2,205 2,463
Pension and other post-retirement benefit liabilities 440 443
Asset retirement obligations and accrued environmental costs 651 643
    Other non-current liabilities and deferred credits   51 47
Total Liabilities     8,695   9,056
 
Shareholders' Equity
Share capital 1,806 1,798
Unlimited authorization of common shares without par value;
issued and outstanding 840,223,041 and 839,790,379 at
December 31, 2017 and December 31, 2016, respectively
Contributed surplus 230 222
Accumulated other comprehensive income (loss) 25 (25)
  Retained earnings   6,242 6,204
Total Shareholders' Equity   8,303 8,199
Total Liabilities and Shareholders' Equity   $ 16,998 $ 17,255
(See Notes to the Condensed Consolidated Financial Statements)

Potash Corporation of Saskatchewan Inc.

Notes to the Condensed Consolidated Financial Statements

For the Three and Twelve Months Ended December 31, 2017

(in millions of US dollars except as otherwise noted)

(unaudited)

1. Significant Accounting Policies

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

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

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

2. Segment Information

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

        Three Months Ended December 31, 2017
      Potash   Nitrogen   Phosphate   All Others   Consolidated
   
Sales - third party $   383 $   348 $   350 $   - $   1,081
Freight, transportation and distribution - third party (36) (32) (48) - (116)
Net sales - third party 347 316 302 -
Cost of goods sold - third party (189) (257) (597) - (1,043)
Margin (cost) on inter-segment sales (1) - 11 (11) - -
Gross margin 158 70 (306) - (78)
 
Items included in cost of goods sold,
selling and administrative or other expenses:
Depreciation and amortization (49) (59) (54) (10) (172)
Impairment of property, plant and equipment (2) - - (276) - (276)
 
Cash outflows for additions to property,
  plant and equipment 82 96 40 2 220
(1) Inter-segment net sales were $20.
(2) During the fourth quarter of 2017, the company recognized an impairment loss of $250 associated with its White Springs and Feed Plants

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

 
      Three Months Ended December 31, 2016
      Potash Nitrogen Phosphate All Others Consolidated
 
Sales - third party $ 403 $ 323 $ 332 $ - $ 1,058
Freight, transportation and distribution - third party (54) (34) (42) - (130)
Net sales - third party 349 289 290 -
Cost of goods sold - third party (229) (239) (297) - (765)
Margin (cost) on inter-segment sales (1) - 5 (5) - -
Gross margin 120 55 (12) - 163
 
Items included in cost of goods sold,
selling and administrative or other expenses:
Depreciation and amortization (57) (54) (58) (8) (177)
Impairment of property, plant and equipment - - (20) - (20)
 
Cash outflows for additions to property,
  plant and equipment 83 85 74 3 245
(1) Inter-segment net sales were $14.
 
      Twelve Months Ended December 31, 2017
      Potash Nitrogen Phosphate All Others Consolidated
 
Sales - third party $ 1,868 $ 1,395 $ 1,284 $ - $ 4,547
Freight, transportation and distribution - third party (235) (129) (173) - (537)
Net sales - third party 1,633 1,266 1,111 -
Cost of goods sold - third party (848) (1,046) (1,441) - (3,335)
Margin (cost) on inter-segment sales (1) - 36 (36) - -
Gross margin 785 256 (366) - 675
 
Items included in cost of goods sold,
selling and administrative or other expenses:
Depreciation and amortization (232) (203) (220) (37) (692)
Impairment of property, plant and equipment (2) - - (305) - (305)
 
Cash outflows for additions to property,
  plant and equipment 219 239 185 8 651
(1) Inter-segment net sales were $74.
(2) During the fourth quarter of 2017, the company recognized an impairment loss of $250 associated with its White Springs and Feed Plants CGU.

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

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

 
      Twelve Months Ended December 31, 2016
  Potash Nitrogen Phosphate All Others Consolidated
 
Sales - third party $ 1,630 $ 1,467 $ 1,359 $ - $ 4,456
Freight, transportation and distribution - third party (250) (122) (163) - (535)
Net sales - third party 1,380 1,345 1,196 -
Cost of goods sold - third party (943) (1,016) (1,132) - (3,091)
Margin (cost) on inter-segment sales (1) - 32 (32) - -
Gross margin 437 361 32 - 830
 
Items included in cost of goods sold,
selling and administrative or other expenses
Depreciation and amortization (216) (213) (223) (43) (695)
Share of Canpotex's (2) Prince Rupert
  project exit costs (33) - - - (33)
Termination benefit costs (32) - - - (32)
Impairment of property, plant and equipment - - (47) - (47)
 
Cash outflows for additions to property,
  plant and equipment 342 263 216 72 893
(1) Inter-segment net sales were $62.
(2) Canpotex Limited ("Canpotex").

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

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

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

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

Key dates of the Merger:

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

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

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

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

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

4. Other Expenses

  Three Months Ended   Twelve Months Ended
December 31 December 31
  2017   2016 2017   2016
Foreign exchange gain (loss) $ 1 $ 5 $ (21) $ (9)
Share of earnings of equity-accounted investees 1 2 7 3
Dividend Income - - - 2
Impairment of available-for-sale investment - - - (10)
Other expenses (2) (21) (3) (3)
  $ - $ (14) $ (17) $ (17)

5. Income Tax Recovery (Expense)

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

  Three Months Ended   Twelve Months Ended
December 31 December 31
Income Tax Related to Continuing Operations 2017   2016 2017   2016
Income tax recovery (expense) $ 153 $ 10 $ 183 $ (44)
Actual effective tax rate on ordinary earnings 13% n/m -7% 24%
Actual effective tax rate including discrete items 56% n/m n/m 18%
Discrete tax adjustments that impacted the tax rate $ 118 $ 6 $ 185 $ 17

Significant items to note include the following:

  • Ordinary earnings for the three months ended December 31, 2017 were negative. When combined with an income tax recovery, this created a positive actual effective tax rate. Compared to the same period last year, earnings were significantly lower in the United States and only slightly offset by increased earnings in Trinidad.
  • The actual effective tax rate on ordinary earnings for the twelve months ended December 31, 2017decreased compared to the same period last year due to different weightings between jurisdictions, most notably substantially lower earnings in the United States partially offset by higher earnings in Canada and Trinidad.
  • In the fourth quarter of 2017, a deferred tax recovery of $187 was recorded as a result of a federal income tax rate decrease pursuant to US tax reform legislation.
  • In the fourth quarter of 2017, a deferred tax expense of $68 was recorded to reflect Saskatchewangovernment legislation that reversed a provincial income tax rate decrease legislated earlier in the year. A $68 deferred tax recovery had been recorded in the second quarter of 2017 to reflect that rate decrease.
  • In 2016, a current tax recovery of $16 ($3 in the fourth quarter of 2016) was recorded to adjust accruals after tax authority examinations.

6. Investments Held for Sale and Discontinued Operations

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

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

Assets Held for Sale

  December 31   December 31
As at 2017 2016
Assets
Equity-accounted investees (1) $ 1,146 $ -
Available-for-sale investment (2) 708 -
Current income tax assets 4 -
Assets held for sale $ 1,858 $ -
 
Liabilities    
Deferred income tax liabilities $ 36 $ -
(1) SQM and APC.
(2) ICL.

Net Income from Discontinued Operations

    Three Months Ended   Twelve Months Ended
December 31 December 31
    2017   2016 2017   2016
Share of earnings of equity-accounted investees $ 36 $ 19 $ 151 $ 92
Dividend income 7 9 24 31
Income tax recovery (expense) 1 5 (2) 1
Net income from discontinued operations $ 44 $ 33 $ 173 $ 124
 
Net Income per Share from Discontinued Operations
Basic $ 0.05 $ 0.03 $ 0.21 $ 0.15
  Diluted $ 0.05 $ 0.03 $ 0.21 $ 0.14
 
Cash Flows from Discontinued Operations
Three Months Ended Twelve Months Ended
December 31 December 31
  2017 2016 2017 2016
Dividends from discontinued operations(1) $ 43 $ 78 $ 176 $ 195
(1) Dividends from discontinued operations continue to be classified as cash provided by operating activities.

7. Consolidated Statements of Cash Flow

    Three Months Ended   Twelve Months Ended
December 31 December 31
    2017   2016 2017   2016
Reconciliation of cash provided by operating activities
Net (loss) income $ (76) $ 46 $ 327 $ 323
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization 172 177 692 695
Impairment of property, plant and equipment 276 20 305 47
Net distributed (undistributed) earnings of equity-accounted investees - 49 (1) 70
Share-based compensation 2 (6) 11 2
Recovery of deferred income tax (174) (27) (273) (22)
Pension and other post-retirement benefits 14 10 64 46
Asset retirement obligations and accrued environmental costs 4 16 7 29
  Other long-term liabilities and miscellaneous - 7 21 10
  Subtotal of adjustments 294 246 826 877
 
Changes in non-cash operating working capital
Receivables 135 35 47 114
Inventories (24) (41) (10) (21)
Prepaid expenses and other current assets (10) 8 (13) 17
  Payables and accrued charges 62 59 48 (50)
  Subtotal of changes in non-cash operating working capital 163 61 72 60
Cash provided by operating activities $ 381 $ 353 $ 1,225 $ 1,260
 
Supplemental cash flow disclosure
Interest paid $ 65 $ 65 $ 198 $ 189
  Income taxes paid   $ 16 $ 7 $ 83 $ 50

8. Share-Based Compensation

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

  LTIP   Expense (Recovery) for all Employee Share-Based Compensation
Plans
  Units
Outstanding as
at December 31,
2017
 
Three Months Ended   Twelve Months Ended
Units Granted December 31 December 31
  in 2017 2017   2016 2017 2016
Stock options 1,482,829 4,469,182 $ 1 $ (10) $ 7 $ (2)
Share-settled PSUs 555,918 935,570 - - 4 3
Cash-settled PSUs 883,546 1,556,980 4 2 12 9
      $ 5 $ (8) $ 23 $ 10

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

Stock Options

Under the LTIP, stock options generally vest and become exercisable on the third anniversary of the grant date, subject to continuous employment or retirement, and have a maximum term of 10 years. The weighted average fair value of stock options granted was estimated as of the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions:

Exercise price per option $ 18.71
Expected annual dividend per share $ 0.40
Expected volatility 29%
Risk-free interest rate 1.67%
Expected life of options 5.7 years

Performance Share Units

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

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

9. Comparative Figures

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

Potash Corporation of Saskatchewan Inc.
Selected Financial Data
(unaudited)
   
Three Months Ended Twelve Months Ended
December 31 December 31
      2017 2016 2017 2016
 
Potash Sales (tonnes - thousands)
Manufactured Product
North America 568 720 3,201 3,367
    Offshore 1,340 1,489 6,096 5,277
  Manufactured Product 1,908 2,209 9,297 8,644
 
Potash Net Sales
(US $ millions)
Sales $ 383 $ 403 $ 1,868 $ 1,630
    Freight, transportation and distribution (36) (54) (235) (250)
    Net Sales $ 347 $ 349 $ 1,633 $ 1,380
 
Manufactured Product
North America $ 121 $ 126 $ 639 $ 589
Offshore 225 220 989 781
  Other miscellaneous and purchased product 1 3 5 10
  Net Sales $ 347 $ 349 $ 1,633 $ 1,380
 
Manufactured Product
Average Realized Sales Price per Tonne
North America $ 214 $ 176 $ 200 $ 175
    Offshore $ 169 $ 148 $ 162 $ 148
Average $ 182 $ 157 $ 175 $ 158
  Cost of Goods Sold per Tonne $ (96) $ (101) $ (89) $ (105)
  Gross Margin per Tonne $ 86 $ 56 $ 86 $ 53
 
Potash Corporation of Saskatchewan Inc.
Selected Financial Data
(unaudited)
 
Three Months Ended Twelve Months Ended
December 31 December 31
      2017 2016 2017 2016
 
Average Natural Gas Cost in Production per MMBtu $ 3.40 $ 3.07 $ 3.39 $ 3.26
Nitrogen Sales (tonnes - thousands)
Manufactured Product
Ammonia (1) 505 477 2,205 2,197
Urea 283 304 1,166 1,161
    Solutions/Nitric acid/Ammonium nitrate 795 855 2,946 3,015
  Manufactured Product 1,583 1,636 6,317 6,373
 
Fertilizer sales tonnes (1) 667 700 2,564 2,455
  Industrial/Feed sales tonnes 916 936 3,753 3,918
  Manufactured Product 1,583 1,636 6,317 6,373
 
Nitrogen Net Sales
(US $ millions)
Sales - third party $ 348 $ 323 $ 1,395 $ 1,467
    Freight, transportation and distribution - third party (32) (34) (129) (122)
Net sales - third party 316 289 1,266 1,345
    Inter-segment net sales 20 14 74 62
    Net Sales $ 336 $ 303 $ 1,340 $ 1,407
 
Manufactured Product
Ammonia (2) $ 136 $ 102 $ 584 $ 612
Urea 82 74 302 297
Solutions/Nitric acid/Ammonium nitrate 110 122 421 477
  Other miscellaneous and purchased product (3) 8 5 33 21
  Net Sales $ 336 $ 303 $ 1,340 $ 1,407
 
Fertilizer net sales (2) $ 144 $ 128 $ 551 $ 530
Industrial/Feed net sales 184 170 756 856
  Other miscellaneous and purchased product (3) 8 5 33 21
  Net Sales $ 336 $ 303 $ 1,340 $ 1,407
 
Manufactured Product
Average Realized Sales Price per Tonne
Ammonia $ 270 $ 213 $ 265 $ 278
Urea $ 288 $ 245 $ 259 $ 256
    Solutions/Nitric acid/Ammonium nitrate $ 138 $ 142 $ 143 $ 158
    Average $ 207 $ 182 $ 207 $ 217
Fertilizer average price per Tonne $ 215 $ 182 $ 215 $ 216
    Industrial/Feed average price per Tonne $ 201 $ 181 $ 201 $ 218
Average $ 207 $ 182 $ 207 $ 217
  Cost of Goods Sold per Tonne $ (167) $ (151) $ (169) $ (163)
  Gross Margin per Tonne $ 40 $ 31 $ 38 $ 54
 
(1) Includes inter-segment ammonia sales (tonnes - thousands) 50 44 191 160
(2) Includes inter-segment ammonia net sales $ 19 $ 14 $ 73 $ 61
(3) Includes inter-segment other miscellaneous and purchased product net sales $ 1 $ - $ 1 $ 1
 
Potash Corporation of Saskatchewan Inc.
Selected Financial Data
(unaudited)
 
Three Months Ended Twelve Months Ended
December 31 December 31
      2017 2016 2017 2016
 
Phosphate Sales (tonnes - thousands)
Manufactured Product
Fertilizer 534 472 1,809 1,720
    Feed and Industrial 239 243 1,002 993
  Manufactured Product 773 715 2,811 2,713
 
Phosphate Net Sales
(US $ millions)
Sales $ 350 $ 332 $ 1,284 $ 1,359
    Freight, transportation and distribution (48) (42) (173) (163)
    Net Sales $ 302 $ 290 $ 1,111 $ 1,196
 
Manufactured Product
Fertilizer $ 182 $ 155 $ 609 $ 622
Feed and Industrial 116 134 494 569
  Other miscellaneous and purchased product 4 1 8 5
  Net Sales $ 302 $ 290 $ 1,111 $ 1,196
 
Manufactured Product
Average Realized Sales Price per Tonne
Fertilizer $ 342 $ 328 $ 337 $ 362
    Feed and Industrial $ 483 $ 551 $ 493 $ 573
Average $ 385 $ 404 $ 393 $ 439
  Cost of Goods Sold per Tonne $ (782) $ (420) $ (523) $ (428)
  Gross Margin per Tonne $ (397) $ (16) $ (130) $ 11
 
Potash Corporation of Saskatchewan Inc.
Selected Additional Data
(unaudited)
 
Exchange Rate (Cdn$/US$)
        2017 2016
 
December 31 1.2545 1.3427
Fourth-quarter average conversion rate 1.2552 1.3266
 
 
 
Three Months Ended Twelve Months Ended
December 31 December 31
    2017 2016 2017 2016
 
Production
Potash production (KCl Tonnes - thousands) 2,419 2,544 9,795 8,604
Potash shutdown weeks (1) 15 11 39 32
Nitrogen production (N Tonnes - thousands) 765 788 3,013 3,147
Ammonia operating rate 84% 88% 83% 88%
Phosphate production (P2O5 Tonnes - thousands) 435 397 1,541 1,504
Phosphate P2O5 operating rate 91% 85% 81% 79%
 
Shareholders
PotashCorp's total shareholder return 8% 12% 17% 12%
 
Customers
Product tonnes involved in customer complaints (thousands) 26 23 58 106
 
Community
Taxes and royalties ($ millions) (2) 69 57 335 256
 
Employees
Annualized employee turnover rate 2% 3% 3% 3%
 
Safety
Total recordable injury rate (3) 0.79 0.74 0.85 0.87
 
Environment
Environmental incidents (4) 3 1 9 18
 
 
December 31 December 31
As at     2017 2016
 
Number of employees
Potash 2,241 2,331
Nitrogen 856 823
Phosphate 1,559 1,515
Other 448 461
Total 5,104 5,130
 
(1) Represents weeks of full production shutdown; excludes the impact of any periods of reduced operating rates and planned routine annual maintenance shutdowns and announced workforce reductions.
(2) Taxes and royalties = current income tax expense from continuing and discontinued operations - investment tax credits - realized excess tax benefit related to share-based compensation + potash production tax + resource surcharge + royalties + municipal taxes + other miscellaneous taxes (calculated on an accrual basis).
(3) Total recordable injuries for every 200,000 hours worked for all PotashCorp employees, contractors and others on site. Calculated as the total recordable injuries multiplied by 200,000 hours worked divided by the actual number of hours worked.
(4) Number of incidents, includes reportable quantity releases, permit non-compliance and Canadian reportable releases. Calculated as: reportable quantity releases (a release whose quantity equals or exceeds the US Environmental Protection Agency's notification level and is reportable to the National Response Center (NRC)) + permit non-compliance (an exceedance of a federal, state, provincial or local permit condition or regulatory limit) + Canadian reportable releases (an unconfined spill or release into the environment).

Potash Corporation of Saskatchewan Inc.

Selected Non-IFRS Financial Measures and Reconciliations and Supplemental Information

(in millions of US dollars except percentage amounts)

(unaudited)

The following information is included for convenience only. Generally, a non-IFRS financial measure is a numerical measure of a company's performance, cash flows or financial position that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. EBITDA, adjusted EBITDA, adjusted EBITDA margin, cash flow prior to working capital changes and free cash flow are not measures of financial performance (nor do they have standardized meanings) under IFRS. In evaluating these measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts.

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

A.  EBITDA, ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN

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

  Three Months Ended   Twelve Months Ended
December 31 December 31
  2017   2016 2017   2016
Net (loss) income from continuing operations $   (120) $   13 $   154 $   199
Finance costs 58 55 238 216
Income tax (recovery) expense (153) (10) (183) 44
Depreciation and amortization 172 177 692 695
EBITDA $ (43) $ 235 $ 901 $ 1,154
Share of Canpotex's Prince Rupert project exit costs - - - 33
Termination benefit costs - - - 32
Impairment of property, plant and equipment 276 20 305 47
Impairment of available-for-sale investment - - - 10
Transaction costs 51 10 84 18
Adjusted EBITDA $ 284 $ 265 $ 1,290 $ 1,294

EBITDA is calculated as net (loss) income from continuing operations before finance costs, income tax (recovery) expense, and depreciation and amortization. Adjusted EBITDA is calculated as net (loss) income from continuing operations before finance costs, income tax (recovery) expense, depreciation and amortization, exit costs, termination benefit costs, certain impairment charges and Transaction costs. PotashCorp uses EBITDA as a supplemental financial measure of its operational performance. Management believes EBITDA and adjusted EBITDA to be important measures as they exclude the effects of items that primarily reflect the impact of long-term investment and financing decisions, rather than the performance of the company's day-to-day operations. As compared to net (loss) income from continuing operations according to IFRS, these measures are limited in that they do not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the company's business, the charges associated with impairments, exit costs, termination costs, or Transaction costs. Management evaluates such items through other financial measures such as capital expenditures and cash flow provided by operating activities. The company believes that these measurements are useful to measure a company's ability to service debt and to meet other payment obligations or as a valuation measurement.

  Three Months Ended   Twelve Months Ended
December 31 December 31
  2017   2016 2017   2016
Sales $   1,081 $   1,058 $   4,547 $   4,456
Freight, transportation and distribution (116) (130) (537) (535)
Net sales $ 965 $ 928 $ 4,010 $ 3,921
 
Net (loss) income from continuing operations
as a percentage of sales -11% 1% 3% 4%
Adjusted EBITDA margin 29% 29% 32% 33%

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

B.  CASH FLOW

Set forth below is a reconciliation of "cash flow prior to working capital changes" and "free cash flow" to cash provided by operating activities, the most directly comparable financial measure calculated and presented in accordance with IFRS.

    Three Months Ended   Twelve Months Ended
December 31 December 31
    2017   2016 2017   2016
Cash flow prior to working capital changes $   218 $   292 $   1,153 $   1,200
Changes in non-cash operating working capital
Receivables 135 35 47 114
Inventories (24) (41) (10) (21)
Prepaid expenses and other current assets (10) 8 (13) 17
  Payables and accrued charges 62 59 48 (50)
Changes in non-cash operating working capital 163 61 72 60
Cash provided by operating activities $ 381 $ 353 $ 1,225 $ 1,260
Additions to property, plant and equipment (220) (245) (651) (893)
Other assets and intangible assets - 8 (1) (2)
Dividends from discontinued operations (43) (78) (176) (195)
Changes in non-cash operating working capital (163) (61) (72) (60)
Free cash flow $ (45) $ (23) $ 325 $ 110

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

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

C.  ITEMS INCLUDED IN GROSS MARGIN

      Three Months Ended December 31, 2017
    Potash   Nitrogen   Phosphate   Consolidated
Gross margin $   158 $   70 $   (306) $   (78)
Items included in the above:
  Impairment of property, plant and equipment - - (276) (276)
 
    Three Months Ended December 31, 2016
    Potash Nitrogen Phosphate Consolidated
Gross margin $ 120 $ 55 $ (12) $ 163
Items included in the above:
  Impairment of property, plant and equipment - - (20) (20)
 
    Twelve Months Ended December 31, 2017
    Potash Nitrogen Phosphate Consolidated
Gross margin $ 785 $ 256 $ (366) $ 675
Items included in the above:
  Impairment of property, plant and equipment - - (305) (305)
 
    Twelve Months Ended December 31, 2016
    Potash Nitrogen Phosphate Consolidated
Gross margin $ 437 $ 361 $ 32 $ 830
Items included in the above:
Share of Canpotex's Prince Rupert project exit costs (33) - - (33)
Termination benefit costs (32) - - (32)
  Impairment of property, plant and equipment - - (47) (47)