Exhibit 99.3
NUTRIEN LTD.
INTERIM FINANCIAL STATEMENTS AND NOTES
AS AT AND FOR THE THREE MONTHS ENDED
MARCH 31, 2020
Unaudited | In millions of US dollars except as otherwise noted |
Condensed Consolidated Financial Statements
Condensed Consolidated Statements of (Loss) Earnings
Three Months Ended March 31 | ||||||||||
Note | 2020 | 2019 | ||||||||
Note 1 | ||||||||||
SALES | 2 | 4,186 | 3,719 | |||||||
Freight, transportation and distribution | 212 | 171 | ||||||||
Cost of goods sold | 3,101 | 2,573 | ||||||||
GROSS MARGIN | 873 | 975 | ||||||||
Selling expenses | 642 | 538 | ||||||||
General and administrative expenses | 104 | 95 | ||||||||
Provincial mining and other taxes | 57 | 65 | ||||||||
Share-based compensation (recovery) expense | 3 | (32 | ) | 57 | ||||||
Impairment of assets | - | 33 | ||||||||
Other expenses | 4 | 20 | 11 | |||||||
EARNINGS BEFORE FINANCE COSTS AND INCOME TAXES | 82 | 176 | ||||||||
Finance costs | 133 | 123 | ||||||||
(LOSS) EARNINGS BEFORE INCOME TAXES | (51 | ) | 53 | |||||||
Income tax (recovery) expense | 5 | (16 | ) | 12 | ||||||
NET (LOSS) EARNINGS | (35 | ) | 41 | |||||||
NET (LOSS) EARNINGS PER SHARE (“EPS”) | ||||||||||
Basic | (0.06 | ) | 0.07 | |||||||
Diluted | (0.06 | ) | 0.07 | |||||||
Weighted average shares outstanding for basic EPS | 571,168,000 | 602,266,000 | ||||||||
Weighted average shares outstanding for diluted EPS | 571,168,000 | 602,950,000 |
Condensed Consolidated Statements of Comprehensive (Loss) Income
Three Months Ended March 31 | ||||||||
(Net of related income taxes) | 2020 | 2019 | ||||||
NET (LOSS) EARNINGS | (35 | ) | 41 | |||||
Other comprehensive (loss) income | ||||||||
Items that will not be reclassified to net (loss) earnings: | ||||||||
Net actuarial gain on defined benefit plans | 3 | - | ||||||
Net fair value (loss) gain on investments | (19 | ) | 9 | |||||
Items that have been or may be subsequently reclassified to net (loss) earnings: | ||||||||
(Loss) gain on currency translation of foreign operations | (315 | ) | 19 | |||||
Other | (27 | ) | 4 | |||||
OTHER COMPREHENSIVE (LOSS) INCOME | (358 | ) | 32 | |||||
COMPREHENSIVE (LOSS) INCOME | (393 | ) | 73 |
(See Notes to the Condensed Consolidated Financial Statements)
20
Unaudited | In millions of US dollars except as otherwise noted |
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31 | ||||||||||||
Note | 2020 | 2019 | ||||||||||
Note 1 | ||||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net (loss) earnings | (35 | ) | 41 | |||||||||
Adjustments for: | ||||||||||||
Depreciation and amortization | 473 | 420 | ||||||||||
Share-based compensation (recovery) expense | (32 | ) | 57 | |||||||||
Impairment of assets | - | 33 | ||||||||||
Recovery of deferred income tax | (22 | ) | (3 | ) | ||||||||
Other long-term liabilities and miscellaneous | (40 | ) | 2 | |||||||||
Cash from operations before working capital changes | 344 | 550 | ||||||||||
Changes innon-cash operating working capital: | ||||||||||||
Receivables | (323 | ) | (146 | ) | ||||||||
Inventories | (1,428 | ) | (1,509 | ) | ||||||||
Prepaid expenses and other current assets | 766 | 455 | ||||||||||
Payables and accrued charges | 115 | 135 | ||||||||||
CASH USED IN OPERATING ACTIVITIES | (526 | ) | (515 | ) | ||||||||
INVESTING ACTIVITIES | ||||||||||||
Additions to property, plant and equipment | (363 | ) | (290 | ) | ||||||||
Additions to intangible assets | (32 | ) | (38 | ) | ||||||||
Business acquisitions, net of cash acquired | 10 | (57 | ) | (487 | ) | |||||||
Proceeds from disposal of discontinued operations, net of tax | - | 10 | ||||||||||
Purchase of investments | (37 | ) | (26 | ) | ||||||||
Other | 44 | 22 | ||||||||||
CASH USED IN INVESTING ACTIVITIES | (445 | ) | (809 | ) | ||||||||
FINANCING ACTIVITIES | ||||||||||||
Proceeds from short-term debt, net | 4,494 | 1,004 | ||||||||||
Proceeds from long-term debt | 6 | - | ||||||||||
Repayment of long-term debt | 8 | (501 | ) | (500 | ) | |||||||
Repayment of principal portion of lease liabilities | (64 | ) | (53 | ) | ||||||||
Dividends paid | 9 | (256 | ) | (264 | ) | |||||||
Repurchase of common shares | 9 | (160 | ) | (798 | ) | |||||||
Issuance of common shares | - | 2 | ||||||||||
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 3,519 | (609 | ) | |||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (37 | ) | (8 | ) | ||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| 2,511 | (1,941 | ) | ||||||||
CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD | 671 | 2,314 | ||||||||||
CASH AND CASH EQUIVALENTS – END OF PERIOD | 3,182 | 373 | ||||||||||
Cash and cash equivalents comprised of: | ||||||||||||
Cash | 389 | 247 | ||||||||||
Short-term investments | 2,793 | 126 | ||||||||||
3,182 | 373 | |||||||||||
SUPPLEMENTAL CASH FLOWS INFORMATION | ||||||||||||
Interest paid | 96 | 114 | ||||||||||
Income taxes paid (received) | 35 | (115 | ) | |||||||||
Total cash outflow for leases | 92 | 76 |
(See Notes to the Condensed Consolidated Financial Statements)
21
Unaudited | In millions of US dollars except as otherwise noted |
Condensed Consolidated Statements of Changes in Shareholders’ Equity
Accumulated Other Comprehensive (Loss) Income (“AOCI”) | ||||||||||||||||||||||||||||||||||||||||
Number of Common Share0 | Share Capital | Contributed Surplus | Net Fair Value (Loss) Gain on Investments | Net Actuarial | Loss on Currency Translation of Foreign Operations | Other | Total AOCI | Retained Earnings | Total Equity 2 | |||||||||||||||||||||||||||||||
BALANCE – DECEMBER 31, 2018 | 608,535,477 | 16,740 | 231 | (7 | ) | - | (251 | ) | (33 | ) | (291 | ) | 7,745 | 24,425 | ||||||||||||||||||||||||||
Net earnings | - | - | - | - | - | - | - | - | 41 | 41 | ||||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | 9 | - | 19 | 4 | 32 | - | 32 | ||||||||||||||||||||||||||||||
Shares repurchased (Note 9) | (15,476,202 | ) | (426 | ) | - | - | - | - | - | - | (376 | ) | (802 | ) | ||||||||||||||||||||||||||
Dividends declared | - | - | - | - | - | - | - | - | (1 | ) | (1 | ) | ||||||||||||||||||||||||||||
Effect of share-based compensation including issuance of common shares | 49,624 | 2 | 4 | - | - | - | - | - | - | 6 | ||||||||||||||||||||||||||||||
Transfer of net loss on sale of investment | - | - | - | 4 | - | - | - | 4 | (4 | ) | - | |||||||||||||||||||||||||||||
BALANCE – MARCH 31, 2019 | 593,108,899 | 16,316 | 235 | 6 | - | (232 | ) | (29 | ) | (255 | ) | 7,405 | 23,701 | |||||||||||||||||||||||||||
BALANCE – DECEMBER 31, 2019 | 572,942,809 | 15,771 | 248 | (29 | ) | - | (204 | ) | (18 | ) | (251 | ) | 7,101 | 22,869 | ||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | (35 | ) | (35 | ) | ||||||||||||||||||||||||||||
Other comprehensive (loss) income | - | - | - | (19 | ) | 3 | (315 | ) | (27 | ) | (358 | ) | - | (358 | ) | |||||||||||||||||||||||||
Shares repurchased (Note 9) | (3,832,580 | ) | (105 | ) | (55 | ) | - | - | - | - | - | - | (160 | ) | ||||||||||||||||||||||||||
Dividends declared | - | - | - | - | - | - | - | - | (254 | ) | (254 | ) | ||||||||||||||||||||||||||||
Effect of share-based compensation including issuance of common shares | 35,706 | 1 | 4 | - | - | - | - | - | - | 5 | ||||||||||||||||||||||||||||||
Transfer of net loss on cash flow hedges | - | - | - | - | - | - | 5 | 5 | - | 5 | ||||||||||||||||||||||||||||||
Transfer of net actuarial gain on defined benefit plans | - | - | - | - | (3 | ) | - | - | (3 | ) | 3 | - | ||||||||||||||||||||||||||||
BALANCE – MARCH 31, 2020 | 569,145,935 | 15,667 | 197 | (48 | ) | - | (519 | ) | (40 | ) | (607 | ) | 6,815 | 22,072 |
1 Any amounts incurred during a period were transferred to retained earnings at eachperiod-end. Therefore, no balance exists at the beginning or end of period.
2 All equity transactions were attributable to common shareholders.
(See Notes to the Condensed Consolidated Financial Statements)
22
Unaudited | In millions of US dollars except as otherwise noted |
Condensed Consolidated Balance Sheets
March 31 | December 31 | |||||||||||||||||||
As at | Note | 2020 | 2019 | 2019 | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | 3,182 | 373 | 671 | |||||||||||||||||
Receivables | 3,837 | 3,446 | 3,542 | |||||||||||||||||
Inventories | 6,290 | 6,560 | 4,975 | |||||||||||||||||
Prepaid expenses and other current assets | 716 | 688 | 1,477 | |||||||||||||||||
14,025 | 11,067 | 10,665 | ||||||||||||||||||
Non-current assets | ||||||||||||||||||||
Property, plant and equipment | 20,209 | 19,834 | 20,335 | |||||||||||||||||
Goodwill | 10 | 11,893 | 11,817 | 11,986 | ||||||||||||||||
Other intangible assets | 2,379 | 2,184 | 2,428 | |||||||||||||||||
Investments | 810 | 800 | 821 | |||||||||||||||||
Other assets | 552 | 564 | 564 | |||||||||||||||||
TOTAL ASSETS | 49,868 | 46,266 | 46,799 | |||||||||||||||||
LIABILITIES | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Short-term debt | 7 | 5,498 | 1,652 | 976 | ||||||||||||||||
Current portion of long-term debt | 8 | - | 1,001 | 502 | ||||||||||||||||
Current portion of lease liabilities | 221 | 196 | 214 | |||||||||||||||||
Payables and accrued charges | 7,362 | 6,602 | 7,437 | |||||||||||||||||
13,081 | 9,451 | 9,129 | ||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||
Long-term debt | 8 | 8,544 | 7,080 | 8,553 | ||||||||||||||||
Lease liabilities | 848 | 837 | 859 | |||||||||||||||||
Deferred income tax liabilities | 5 | 3,130 | 2,955 | 3,145 | ||||||||||||||||
Pension and other post-retirement benefit liabilities | 426 | 405 | 433 | |||||||||||||||||
Asset retirement obligations and accrued environmental costs | 1,620 | 1,675 | 1,650 | |||||||||||||||||
Othernon-current liabilities | 147 | 162 | 161 | |||||||||||||||||
TOTAL LIABILITIES | 27,796 | 22,565 | 23,930 | |||||||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Share capital | 9 | 15,667 | 16,316 | 15,771 | ||||||||||||||||
Contributed surplus | 197 | 235 | 248 | |||||||||||||||||
Accumulated other comprehensive loss | (607 | ) | (255 | ) | (251 | ) | ||||||||||||||
Retained earnings | 6,815 | 7,405 | 7,101 | |||||||||||||||||
TOTAL SHAREHOLDERS’ EQUITY | 22,072 | 23,701 | 22,869 | |||||||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 49,868 | 46,266 | 46,799 |
(See Notes to the Condensed Consolidated Financial Statements)
23
Unaudited | In millions of US dollars except as otherwise noted |
Notes to the Condensed Consolidated Financial Statements
As at and for the Three Months Ended March 31, 2020
NOTE 1 BASIS OF PRESENTATION
Nutrien Ltd. (collectively with its subsidiaries, known as “Nutrien”, “we”, “us, “our” or the “Company”) is the world’s largest provider of crop inputs and services. Nutrien plays a critical role in helping growers around the globe increase food production in a sustainable manner.
These unaudited interim condensed consolidated financial statements (“interim financial statements”) are based on International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and have been prepared in accordance with International Accounting Standard (“IAS”) 34, “Interim Financial Reporting”. The accounting policies and methods of computation used in preparing these interim financial statements are consistent with those used in the preparation of our 2019 annual consolidated financial statements. These interim financial statements include the accounts of Nutrien and its subsidiaries; however, they do not include all disclosures normally provided in annual consolidated financial statements and should be read in conjunction with our 2019 annual consolidated financial statements.
Certain immaterial 2019 figures have been reclassified in the condensed consolidated statements of (loss) earnings, condensed consolidated statements of cash flows and segment information.
In management’s opinion, the interim financial statements include all adjustments necessary to fairly present such information in all material respects. Interim results are not necessarily indicative of the results expected for any other interim period or the fiscal year. On March 11, 2020, the World Health Organization declared the novel strain of coronavirus(“COVID-19”) a global pandemic. We have assessed our accounting estimates and other matters that require the use of forecasted financial information for the impact of the COVID-19 pandemic. The assessment included estimates of the unknown future impacts of the pandemic using information that is reasonably available at this time. Accounting estimates and other matters assessed include the allowance for expected credit losses of receivables from customers, inventory valuation, goodwill and other long-lived assets, financial assets, tax assets, pension obligation and assets, and revenue recognition. Based on the current assessment, there was not a material impact to these interim financial statements. As additional information becomes available, the future assessment of these estimates, including expectations about the severity, duration and scope of the pandemic, could differ materially in future reporting periods.
These interim financial statements were authorized by the audit committee of the Board of Directors for issue on May 6, 2020.
NOTE 2 SEGMENT INFORMATION
The Company has four reportable operating segments: Retail, Potash, Nitrogen and Phosphate. The Retail segment distributes crop nutrients, crop protection products, seed and merchandise, and provides services directly to growers through a network of farm centers in North and South America and Australia. The Potash, Nitrogen and Phosphate segments are differentiated by the chemical nutrient contained in the products that each produces. Sales reported under our Corporate and Others segment primarily relates to ournon-core Canadian business.
24
Unaudited | In millions of US dollars except as otherwise noted |
Three Months Ended March 31, 2020 | ||||||||||||||||||||||||||||
Retail | Potash | Nitrogen | Phosphate | Corporate and Others | Eliminations | Consolidated | ||||||||||||||||||||||
Sales – third party | 2,640 | 547 | 646 | 326 | 27 | - | 4,186 | |||||||||||||||||||||
– intersegment | 9 | 64 | 132 | 57 | - | (262 | ) | - | ||||||||||||||||||||
Sales – total | 2,649 | 611 | 778 | 383 | 27 | (262 | ) | 4,186 | ||||||||||||||||||||
Freight, transportation and distribution | - | 94 | 100 | 70 | - | (52 | ) | 212 | ||||||||||||||||||||
Net sales | 2,649 | 517 | 678 | 313 | 27 | (210 | ) | 3,974 | ||||||||||||||||||||
Cost of goods sold | 2,120 | 265 | 581 | 320 | 25 | (210 | ) | 3,101 | ||||||||||||||||||||
Gross margin | 529 | 252 | 97 | (7 | ) | 2 | - | 873 | ||||||||||||||||||||
Selling expenses | 635 | 3 | 7 | 2 | (5 | ) | - | 642 | ||||||||||||||||||||
General and administrative expenses | 38 | 2 | 2 | 2 | 60 | - | 104 | |||||||||||||||||||||
Provincial mining and other taxes | - | 57 | - | - | - | - | 57 | |||||||||||||||||||||
Share-based compensation recovery | - | - | - | - | (32 | ) | - | (32 | ) | |||||||||||||||||||
Other expenses | 4 | 1 | 2 | 6 | 7 | - | 20 | |||||||||||||||||||||
(Loss) earnings before finance costs and income taxes | (148 | ) | 189 | 86 | (17 | ) | (28 | ) | - | 82 | ||||||||||||||||||
Depreciation and amortization | 155 | 96 | 150 | 63 | 9 | - | 473 | |||||||||||||||||||||
EBITDA1 | 7 | 285 | 236 | 46 | (19 | ) | - | 555 | ||||||||||||||||||||
Assets – at March 31, 2020 | 20,455 | 11,836 | 10,946 | 2,170 | 4,720 | (259 | ) | 49,868 |
1 EBITDA is calculated as net (loss) earnings before finance costs, income taxes, and depreciation and amortization.
Three Months Ended March 31, 2019 | ||||||||||||||||||||||||||||
Retail | Potash | Nitrogen | Phosphate | Corporate and Others | Eliminations | Consolidated | ||||||||||||||||||||||
Sales – third party | 2,030 | 707 | 612 | 342 | 28 | - | 3,719 | |||||||||||||||||||||
– intersegment | 9 | 63 | 137 | 57 | - | (266 | ) | - | ||||||||||||||||||||
Sales – total | 2,039 | 770 | 749 | 399 | 28 | (266 | ) | 3,719 | ||||||||||||||||||||
Freight, transportation and distribution | - | 73 | 72 | 50 | - | (24 | ) | 171 | ||||||||||||||||||||
Net sales | 2,039 | 697 | 677 | 349 | 28 | (242 | ) | 3,548 | ||||||||||||||||||||
Cost of goods sold | 1,630 | 272 | 511 | 335 | 28 | (203 | ) | 2,573 | ||||||||||||||||||||
Gross margin | 409 | 425 | 166 | 14 | - | (39 | ) | 975 | ||||||||||||||||||||
Selling expenses | 532 | 4 | 7 | 1 | (6 | ) | - | 538 | ||||||||||||||||||||
General and administrative expenses | 27 | - | 2 | 2 | 64 | - | 95 | |||||||||||||||||||||
Provincial mining and other taxes | - | 63 | 1 | - | 1 | - | 65 | |||||||||||||||||||||
Share-based compensation expense | - | - | - | - | 57 | - | 57 | |||||||||||||||||||||
Impairment of assets | - | - | - | - | 33 | - | 33 | |||||||||||||||||||||
Other expenses (income) | 12 | (3 | ) | (5 | ) | 3 | 4 | - | 11 | |||||||||||||||||||
(Loss) earnings before finance costs and income taxes | (162 | ) | 361 | 161 | 8 | (153 | ) | (39 | ) | 176 | ||||||||||||||||||
Depreciation and amortization | 136 | 100 | 113 | 60 | 11 | - | 420 | |||||||||||||||||||||
EBITDA | (26 | ) | 461 | 274 | 68 | (142 | ) | (39 | ) | 596 | ||||||||||||||||||
Assets – at December 31, 2019 | 19,990 | 11,696 | 10,991 | 2,198 | 2,129 | (205 | ) | 46,799 |
25
Unaudited | In millions of US dollars except as otherwise noted |
Presented below is revenue from contracts with customers disaggregated by product line or geographic location for each reportable segment to show how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Three Months Ended March 31 | ||||||||
2020 | 2019 | |||||||
Retail sales by product line | ||||||||
Crop nutrients | 785 | 687 | ||||||
Crop protection products | 1,010 | 744 | ||||||
Seed | 394 | 356 | ||||||
Merchandise | 216 | 108 | ||||||
Services and other | 244 | 144 | ||||||
2,649 | 2,039 | |||||||
Potash sales by geography | ||||||||
Manufactured product | ||||||||
North America | 319 | 318 | ||||||
Offshore1 | 292 | 451 | ||||||
Other potash and purchased products | - | 1 | ||||||
611 | 770 | |||||||
Nitrogen sales by product line | ||||||||
Manufactured product | ||||||||
Ammonia | 156 | 187 | ||||||
Urea | 262 | 231 | ||||||
Solutions, nitrates and sulfates | 196 | 191 | ||||||
Other nitrogen and purchased products | 164 | 140 | ||||||
778 | 749 | |||||||
Phosphate sales by product line | ||||||||
Manufactured product | ||||||||
Fertilizer | 221 | 240 | ||||||
Industrial and feed | 120 | 124 | ||||||
Other phosphate and purchased products | 42 | 35 | ||||||
383 | 399 |
1 Relates to Canpotex Limited. (“Canpotex”) (Note 12).
NOTE 3 SHARE-BASED COMPENSATION
The following table summarizes the awards granted under our existing share-based compensation plans described in Note 6 of our 2019 annual consolidated financial statements:
Three Months Ended March 31 | ||||||||
2020 | 2019 | |||||||
Stock options: | ||||||||
Granted (number of units) | 2,293,802 | 1,376,533 | ||||||
Weighted average grant date fair value (US dollars) | 6.93 | 11.27 | ||||||
Cash-settled share-based awards granted (number of units) | 1,278,324 | 1,129,263 |
26
Unaudited | In millions of US dollars except as otherwise noted |
NOTE 4 OTHER EXPENSES (INCOME)
Three Months Ended March 31 | ||||||||
2020 | 2019 | |||||||
Merger and related costs | - | 11 | ||||||
Acquisition and integration related costs | 10 | - | ||||||
Foreign exchange (gain) loss, net of related derivatives | (31 | ) | 7 | |||||
Earnings of equity-accounted investees | (10 | ) | (17) | |||||
Bad debts | 6 | 6 | ||||||
COVID-19 related expenses | 2 | - | ||||||
Other expenses | 43 | 4 | ||||||
20 | 11 |
NOTE 5 INCOME TAXES
A separate estimated average annual effective income tax rate was determined for each taxing jurisdiction and applied individually to the interim periodpre-tax earnings for each jurisdiction.
Three Months Ended March 31 | ||||||||
2020 | 2019 | |||||||
Income tax (recovery) expense | (16 | ) | 12 | |||||
Actual effective tax rate on loss/earnings (%) | 37 | (5) | ||||||
Actual effective tax rate including discrete items (%) | 32 | 23 | ||||||
Discrete tax adjustments that impacted the tax rate | 2 | 15 |
Income tax balances within the condensed consolidated balance sheets were comprised of the following:
Income Tax Assets and Liabilities | Balance Sheet Location | As at March 31, 2020 | As at December 31, 2019 | |||||||
Income tax assets | ||||||||||
Current | Receivables | 156 | 104 | |||||||
Non-current | Other assets | 34 | 36 | |||||||
Deferred income tax assets | Other assets | 271 | 249 | |||||||
Total income tax assets | 461 | 389 | ||||||||
Income tax liabilities | ||||||||||
Current | Payables and accrued charges | 46 | 43 | |||||||
Non-current | Othernon-current liabilities | 44 | 44 | |||||||
Deferred income tax liabilities | Deferred income tax liabilities | 3,130 | 3,145 | |||||||
Total income tax liabilities | 3,220 | 3,232 |
27
Unaudited | In millions of US dollars except as otherwise noted |
NOTE 6 FINANCIAL INSTRUMENTS
Cash Flow Hedges
During the three months ended March 31, 2020, we entered into the following derivative contracts, which we designated as cash flow hedges:
Risk Managed | Hedging Instrument | Objective | Effective Portion | Ineffective Portion | ||||
Foreign exchange risk | • Forward contracts | To manage the risk resulting from foreign exchange rate fluctuations related to forecasted costs denominated in Canadian dollars | Change in fair value: Other comprehensive income (loss) (“OCI”)
Occurrence of hedged forecast transaction: inventory, related liability or net earnings, issuance of debt, repayment of interest | Net earnings | ||||
Interest rate risk | • Swap • Collar • Treasury lock | To limit our exposure to future interest rate changes and the impact on probable forecasted transactions
|
We assess whether these derivatives used in hedging transactions are expected to be or were highly effective both at the inception of the hedges and on an ongoing basis. Potential sources of ineffectiveness are changes in timing or amounts of forecasted cash flows, embedded optionality, and changes in our credit risk or the credit risk of a counterparty. Measurement of ineffectiveness is based on a comparison of the cumulative changes in fair value of the hedging instrument and the cumulative change in the fair value of a hypothetical derivative with terms based on the hedged forecast cash flows.
The following table presents our significant foreign currency derivatives that existed at:
March 31, 2020 | December 31, 2019 | |||||||||||||||||||||||
Sell/buy | Notional | Maturities | Average contract rate | Notional | Maturities | Average contract rate | ||||||||||||||||||
Derivatives not designated as hedges | ||||||||||||||||||||||||
Forwards | ||||||||||||||||||||||||
USD/CDN | 350 | 2020 | 1.3993 | 337 | 2020 | 1.3096 | ||||||||||||||||||
CDN/USD | 135 | 2020 | 1.4003 | 120 | 2020 | 1.3138 | ||||||||||||||||||
USD/AUD1 | 110 | 2020 | 1.4846 | 78 | 2020 | 1.4593 | ||||||||||||||||||
AUD/USD | 54 | 2020 | 1.5862 | 47 | 2020 | 1.4563 | ||||||||||||||||||
Derivatives designated as hedges | ||||||||||||||||||||||||
Forwards | ||||||||||||||||||||||||
USD/CDN | 296 | 2020 | 1.3420 | - | - | - |
1 Australian Dollar
As at March 31, 2020, our interest rate derivative contracts we designated as hedges had a total notional amount of $680.
Fair Value
Estimated fair values for financial instruments are designed to approximate amounts for which the instruments could be exchanged in a currentarm’s-length transaction between knowledgeable, willing parties. The valuation policies and procedures for financial reporting purposes are determined by our finance department. There have been no changes to our valuation methods presented in Note 12 of the 2019 annual consolidated financial statements and those valuation methods have been applied in these interim financial statements.
28
Unaudited | In millions of US dollars except as otherwise noted |
The following table presents our fair value hierarchy for financial instruments carried at fair value on a recurring basis or measured at amortized cost:
March 31, 2020 | December 31, 2019 | |||||||||||||||||||||||
Financial assets (liabilities) measured at | Carrying Amount | Level 11 | Level 21 | Carrying Amount | Level 11 | Level 21 | ||||||||||||||||||
Fair value on a recurring basis | ||||||||||||||||||||||||
Cash and cash equivalents | 3,182 | - | 3,182 | 671 | - | 671 | ||||||||||||||||||
Derivative instrument assets | 20 | - | 20 | 5 | - | 5 | ||||||||||||||||||
Other current financial assets - marketable securities2 | 187 | 21 | 166 | 193 | 27 | 166 | ||||||||||||||||||
Investments at FVTOCI3 | 141 | 141 | - | 161 | 161 | - | ||||||||||||||||||
Derivative instrument liabilities | (80 | ) | - | (80 | ) | (33 | ) | - | (33 | ) | ||||||||||||||
Amortized cost | ||||||||||||||||||||||||
Current portion of long-term debt | ||||||||||||||||||||||||
Notes and debentures | - | - | - | (494 | ) | - | (503 | ) | ||||||||||||||||
Fixed and floating rate debt | - | - | - | (8 | ) | - | (8 | ) | ||||||||||||||||
Long-term debt | ||||||||||||||||||||||||
Notes and debentures | (8,519 | ) | (4,112 | ) | (4,960 | ) | (8,528 | ) | (1,726 | ) | (7,440 | ) | ||||||||||||
Fixed and floating rate debt | (25 | ) | - | (25 | ) | (25 | ) | - | (25 | ) |
1 During the period ended March 31, 2020, there were no transfers between Level 1 and Level 2 for financial instruments measured at fair value on a recurring basis. Our policy is to recognize transfers at the end of the reporting period.
2 Marketable securities consist of equity and fixed income securities. We determine the fair value of equity securities based on the bid price of identical instruments in active markets. We value fixed income securities using quoted prices of instruments with similar terms and credit risk.
3 Investments at fair value through other comprehensive income (“FVTOCI”) are comprised of shares in Sinofert Holdings Ltd.
The following table presents the carrying amounts of recognized financial instruments that are subject to master netting or similar agreements:
March 31, 2020 | December 31, 2019 | |||||||||||||||||||||||
Financial assets (liabilities) | Gross | Offset | Net Amounts Presented | Gross | Offset | Net Amounts Presented | ||||||||||||||||||
Derivative instrument assets | ||||||||||||||||||||||||
Natural gas derivatives | 1 | - | 1 | - | - | - | ||||||||||||||||||
Foreign currency forwards | 19 | - | 19 | 5 | - | 5 | ||||||||||||||||||
Derivative instrument liabilities | ||||||||||||||||||||||||
Natural gas derivatives1 | (30 | ) | - | (30 | ) | (30 | ) | - | (30 | ) | ||||||||||||||
Foreign currency forwards | (29 | ) | - | (29 | ) | (3 | ) | - | (3 | ) | ||||||||||||||
Interest rate derivatives | (21 | ) | - | (21 | ) | - | - | - | ||||||||||||||||
Other long-term debt instruments2 | (150 | ) | 150 | - | (150 | ) | 150 | - | ||||||||||||||||
(210 | ) | 150 | (60 | ) | (178 | ) | 150 | (28 | ) |
1 Cash margin deposits of $16 (December 31, 2019 – $17) were placed with counterparties related to legally enforceable master netting arrangements.
2Back-to-back loan arrangements that are not subject to any financial test covenants but are subject to certain customary covenants and events of default. We were in compliance with these covenants as at March 31, 2020.
29
Unaudited | In millions of US dollars except as otherwise noted |
NOTE 7 SHORT-TERM DEBT
Short-term debt was comprised of:
Rate of Interest (%) | Total Facility Limit 1 | March 31, 2020 | December 31, 2019 | |||||||||||||
Credit facilities | ||||||||||||||||
Unsecured revolving term credit facility | 2.0 - 2.4 | 4,500 | 3,050 | - | ||||||||||||
Uncommitted revolving demand facility | 2.7 - 2.8 | 500 | 450 | - | ||||||||||||
Committed revolving credit facilities | Nil | 300 | - | - | ||||||||||||
Other credit facilities2 | 1.3 - 10.4 | 710 | 347 | 326 | ||||||||||||
Commercial paper | 1.4 - 2.8 | 1,651 | 650 | |||||||||||||
5,498 | 976 |
1 As at March 31, 2020.
2 Other credit facilities are unsecured and consist of South American facilities with debt of $150 (December 31, 2019 – $149) and interest rates ranging from 2.8 percent to 10.4 percent, Australian facilities with debt of $155 (December 31, 2019 – $157) and interest rates ranging from 1.9 percent to 2.2 percent, and Other facilities with debt of $42 (December 31, 2019 – $20) and interest rates ranging from 1.3 percent to 2.5 percent.
The amount available under the commercial paper program is limited to the availability of backup funds under the $4,500 unsecured revolving term credit facility and excess cash invested in highly liquid securities.
Subsequent to March 31, 2020, and in addition to the $300 new committed revolving credit facilities entered into during the first quarter, we entered into new committed revolving credit facilities totaling approximately $1.2 billion, all with the same principal covenants and events of default as our existing credit facilities. At May 5, 2020, our short-term debt balance decreased by approximately $2.4 billion from March 31, 2020, as a result of repayments on our unsecured revolving term credit facility and commercial paper settlements net of drawdowns with a corresponding decrease in cash and cash equivalents.
NOTE 8 LONG-TERM DEBT
The following tables summarize our long-term debt repayment activities during the three months ended March 31, 2020:
Rate of interest (%) | Maturity | Amount | ||||||||||
Notes repaid 2020 | 4.875 | March 30, 2020 | 500 |
In March 2020, we filed a base shelf prospectus in Canada and the US qualifying the issuance of up to $5 billion of common shares, debt and other securities during a period of 25 months from March 16, 2020. Issuance of securities requires us to file a prospectus supplement and is subject to availability of funding in capital markets.
NOTE 9 SHARE CAPITAL
Share repurchase programs
Board of Directors Approval | Expiry | Maximum Shares for Repurchase | ||||||
2019 Normal Course Issuer Bid1 | February 20, 2019 | February 26, 2020 | 42,164,420 | |||||
2020 Normal Course Issuer Bid2 | February 18, 2020 | February 26, 2021 | 28,572,458 |
1 The 2019 normal course issuer bid permitted the repurchase of up to 7 percent of our outstanding common shares for cancellation. As of the expiry date, we had repurchased 33,256,668 of the maximum shares for repurchase.
2 The 2020 normal course issuer bid permits the repurchase of up to 5 percent of our outstanding common shares for cancellation and can expire earlier than the date above if we acquire the maximum number of common shares allowable or otherwise decide not to make any further repurchases.
Purchases under the normal course issuer bids were, or may be, made through open market purchases at market prices as well as by other means permitted by applicable securities regulatory authorities, including private agreements.
30
Unaudited | In millions of US dollars except as otherwise noted |
The following table summarizes our share repurchase activities during the period:
Three Months Ended March 31 | ||||||||
2020 | 2019 | |||||||
Number of common shares repurchased for cancellation | 3,832,580 | 15,476,202 | ||||||
Average price per share (US dollars) | 41.96 | 51.80 | ||||||
Total cost | 160 | 802 |
Dividends declared
We declared dividends per share of $0.45 (2019 – $Nil) during the three months ended March 31, 2020, payable on April 16, 2020 to shareholders of record on March 31, 2020.
Subsequent to March 31, 2020, our Board of Directors declared a quarterly dividend of $0.45 per share payable on July 17, 2020 to shareholders of record on June 30, 2020. The total estimated dividend to be paid is $256.
Anti-dilutive shares
As we recorded a net loss for the three months ended March 31, 2020, all stock options had an anti-dilutive effect. If we had net earnings, the diluted weighted average shares calculation would have included 66,806 stock options for the three months ended March 31, 2020.
NOTE 10 BUSINESS ACQUISITIONS
On September 30, 2019, we acquired Ruralco Holdings Limited (“Ruralco”) for a purchase price, net of cash and cash equivalents acquired, of $330 million. We have engaged independent valuation experts to assist in determining the fair value of certain assets acquired and liabilities assumed.
The preliminary values allocated to the acquired assets and assumed liabilities based upon fair values were as follows:
March 31, 2020 | ||||||||||||
Ruralco (Estimate) | ||||||||||||
Preliminary 1 | Adjustments 2 | Revised Fair Value | ||||||||||
Receivables | 289 | 29 | 318 | 3 | ||||||||
Inventories | 117 | (2 | ) | 115 | ||||||||
Prepaid expenses and other current assets | 8 | - | 8 | |||||||||
Property, plant and equipment | 136 | - | 136 | |||||||||
Goodwill | 202 | (13 | ) | 189 | ||||||||
Other intangible assets | 165 | 45 | 210 | |||||||||
Investments | 15 | - | 15 | |||||||||
Other assets | 16 | - | 16 | |||||||||
Total assets | 948 | 59 | 1,007 | |||||||||
Short-term debt | 112 | 55 | 167 | |||||||||
Payables and accrued charges | 345 | (3 | ) | 342 | ||||||||
Lease liabilities, including current portion | 110 | - | 110 | |||||||||
Deferred income tax liabilities | 38 | 7 | 45 | |||||||||
Othernon-current liabilities | 13 | - | 13 | |||||||||
Total liabilities | 618 | 59 | 677 | |||||||||
Total consideration | 330 | - | 330 |
1 Preliminary value as previously reported in our 2019 annual consolidated financial statements. The purchase price allocation is not final as we continue to obtain and verify information required to determine the fair value of certain assets and liabilities and the amount of deferred income taxes arising on their recognition. We estimated the preliminary purchase price allocation as of the date of the acquisition based on information that was available and continue to adjust those estimates as new information that existed at the date of acquisition becomes available. We expect to finalize the amounts recognized when we obtain the information necessary to complete the analysis, and in any event, not later than September 30, 2020.
2 We recorded adjustments to the preliminary fair value to reflect facts and circumstances in existence as of the date of acquisition. These adjustments primarily related to changes in the preliminary valuation assumptions, including refinement of intangible assets. All measurement period adjustments were offset against goodwill.
3 Includes receivables from customers with gross contractual amounts of $260, of which $5 are considered to be uncollectible.
31
Unaudited | In millions of US dollars except as otherwise noted |
NOTE 11 SEASONALITY
Seasonality in our business results from increased demand for products during planting season. Crop input sales are generally higher in spring and fall application seasons. Crop input inventories are normally accumulated leading up to each application season. The results of this seasonality have a corresponding effect on receivables from customers and rebates receivables, inventories, prepaid expenses and other current assets and trade payables. Our short-term debt also fluctuates during the year to meet working capital needs. Our cash collections generally occur after the application season is complete, while customer prepayments made to us are typically concentrated in December and January and inventory prepayments paid to our vendors are typically concentrated in the period from November to January. Feed and industrial sales are more evenly distributed throughout the year.
NOTE 12 RELATED PARTY TRANSACTIONS
We sell potash from our Canadian mines for use outside Canada and the United States exclusively to Canpotex. Sales are at prevailing market prices and are settled on normal trade terms. Sales to Canpotex for the three months ended March 31, 2020 were $292 (2019 – $451). At March 31, 2020, the related receivables owing from Canpotex was $251 (December 31, 2019 – $194).
32