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CALGARY, ALBERTA--(Marketwired - Aug. 6, 2014) -
ALL AMOUNTS ARE STATED IN U.S.$
Agrium Inc. AGU AGU announced today consolidated net earnings ("net earnings") from continuing operations of $625-million ($4.34 diluted earnings per share) for the second quarter of 2014, compared with net earnings from continuing operations of $744-million in the second quarter of 2013 ($5.00 diluted earnings per share).
The 2014 second quarter results included non-cash charges for future environmental remediation activities of $22-million ($0.11 diluted earnings per share). These were partially offset by a $16-million ($0.08 diluted earnings per share) share-based payments recovery. Excluding these items, net earnings from continuing operations would have been $629-million ($4.37 diluted earnings per share) versus our 2014 second quarter earnings guidance of $3.85 to $4.35 diluted earnings per share.(1)
"Agrium Retail operations delivered record results this quarter, with EBITDA(2) up 28 percent year-over-year supported by strong results from our recently acquired Canadian and Australian operations. We continue to drive synergies and operational improvements across our global retail network. As a result, we made significant progress towards all our key Retail operational metrics and remain focused on our 2015 financial targets," commented Chuck Magro, Agrium's President and CEO.
"Agrium has a unique strategic position to meet widespread agricultural demand, with over half a million customers globally, significant advantages in our nitrogen and potash businesses and a complimentary portfolio of products and services. Agrium continues to focus on maximizing operational and financial efficiencies across our complimentary portfolio of assets, including optimization of working capital and operating costs. Combined with Agrium's current growth projects, we believe these initiatives will drive higher free cash flow and subsequent shareholder returns," added Mr. Magro.
(1) Second quarter effective tax rate of 28 percent used for adjusted
diluted earnings per share calculation.
(2) EBITDA is defined as earnings from continuing operations before finance
costs, income taxes, depreciation and amortization. EBITDA is not a
recognized measure under IFRS. See "Additional IFRS and Non-IFRS
Financial Measures" in our 2014 second quarter Management's Discussion
and Analysis.
MANAGEMENT'S DISCUSSION AND ANALYSIS
August 6, 2014
Unless otherwise noted, all financial information in this Management's Discussion and Analysis ("MD&A") is prepared using accounting policies in accordance with International Financial Reporting Standards ("IFRS") and is presented in accordance with International Accounting Standard 34 - Interim Financial Reporting. All comparisons of results for the second quarter of 2014 (three months ended June 30, 2014) are against results for the second quarter of 2013 (three months ended June 30, 2013). All dollar amounts refer to United States ("U.S.") dollars except where otherwise stated. The financial measures EBITDA, Adjusted EBITDA and Retail operating coverage ratio used in this MD&A are not prescribed by IFRS, or in the case of EBIT is an Additional IFRS financial measure. Such measures are defined in the "Additional IFRS and Non-IFRS Financial Measures" section of this MD&A.
The following interim MD&A is as of August 6, 2014 and should be read in conjunction with the Consolidated Interim Financial Statements for the three and six months ended June 30, 2014 (the "Consolidated Financial Statements"), and the annual MD&A and financial statements for the year ended December 31, 2013 included in our 2013 Annual Report to Shareholders to which readers are referred. The Board of Directors carries out its responsibility for review of this disclosure principally through its Audit Committee, comprised exclusively of independent directors. The Audit Committee reviews, and prior to publication, approves this disclosure, pursuant to the authority delegated to it by the Board of Directors. No update is provided to the disclosure in our annual MD&A where an item is not material or there has been no material change from the discussion in our annual MD&A. In respect of Forward-Looking Statements, please refer to the section entitled "Forward-Looking Statements" after the "Outlook, Key Risks and Uncertainties" section of this MD&A.
2014 Second Quarter Operating Results
CONSOLIDATED NET EARNINGS
Agrium's 2014 second quarter net earnings from continuing operations were $625-million, or $4.34 diluted earnings per share from continuing operations, compared to net earnings from continuing operations of $744-million, or $5.00 diluted earnings per share from continuing operations, for the same quarter of 2013.
Financial Overview
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(millions of U.S.
dollars, except Three months ended June 30, Six months ended June 30,
per share amounts % %
and where noted) 2014 2013 Change Change 2014 2013 Change Change
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Sales 7,338 6,908 430 6 10,417 10,064 353 4
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Gross profit 1,599 1,699 (100) (6) 2,155 2,404 (249) (10)
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Expenses 704 635 69 11 1,207 1,101 106 10
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Earnings before
finance costs and
income taxes
("EBIT") 895 1,064 (169) (16) 948 1,303 (355) (27)
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Net earnings from
continuing
operations 625 744 (119) (16) 637 890 (253) (28)
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Net earnings 616 747 (131) (18) 619 888 (269) (30)
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Diluted earnings per
share from
continuing
operations 4.34 5.00 (0.66) (13) 4.42 5.97 (1.55) (26)
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Diluted earnings per
share 4.28 5.02 (0.74) (15) 4.29 5.96 (1.67) (28)
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Effective tax rate
(%) 28 27 N/A N/A 28 27 N/A N/A
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Sales and Gross Profit
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Quarter to date
change Year to date change
Gross Gross
(millions of U.S. dollars) Sales Profit Sales Profit
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Retail 834 207 927 218
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Wholesale (382) (276) (513) (448)
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Other (22) (31) (61) (19)
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430 (100) 353 (249)
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Retail sales and gross profit for the second quarter and first half of 2014 increased compared to the prior year primarily due to the inclusion of results from Viterra Inc. ("Viterra") retail centers further supported by improvements in gross profit in Australia and Argentina (see section "Retail" for further discussion).
Wholesale sales and gross profit for the second quarter and the first half of 2014 decreased compared to the prior year primarily as a result of lower realized sales prices consistent with benchmark pricing (see section "Wholesale" for further discussion).
Expenses
Expenses increased by $69-million and $106-million for the second quarter and first half of 2014, respectively, compared to the same periods last year. The difference is largely a result of an increase in Retail selling expenses of $65-million in the second quarter and $112-million in the first half of 2014, primarily driven by increased costs from the inclusion of results from Viterra retail centers in Western Canada.
The following table is a summary of our other expenses (income) for the second quarter and first half of 2014 and 2013, respectively.
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Three months ended Six months ended
June 30, June 30,
(millions of U.S. dollars) 2014 2013 2014 2013
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Realized and unrealized gain on
commodity derivatives not
designated as hedges - (1) (32) (9)
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Realized and unrealized loss (gain)
on foreign exchange derivatives not
designated as hedges 27 4 12 (9)
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Interest income (19) (16) (30) (31)
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Foreign exchange (gain) loss (29) 7 (17) 26
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Environmental remediation and asset
retirement obligations 22 3 20 4
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Bad debt expense 25 21 30 26
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Potash profit and capital tax 3 8 6 12
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Other 13 16 13 12
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42 42 2 31
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Effective Tax Rate
The effective tax rate on continuing operations was 28 percent for the second quarter and 28 percent for first half of 2014 and is higher than the effective tax rate of 27 percent and 27 percent, respectively, for the same periods last year due to a decrease in income earned in low tax jurisdictions.
BUSINESS SEGMENT PERFORMANCE
Retail
Retail's 2014 second quarter sales were a record $6.4-billion, a 15 percent increase compared to sales of $5.6-billion for the same period last year. Total gross profit was $1.3-billion in the second quarter of 2014, compared to the $1.1-billion achieved in the second quarter of 2013. The record results in sales and gross profit were due to a combination of the contribution from the acquired Viterra agri-retail operations, an improvement in international operations and continued earnings growth for the our legacy North American business. While the spring season was delayed in North America this year, growers were able to complete a majority of seeding and application of major crop inputs in a timely manner. Retail reported record EBITDA of $791-million in the second quarter of 2014, compared to $619-million in the second quarter of last year. The acquired Viterra operations accounted for over half of the $172-million increase in EBITDA in the current quarter. International Retail operations contributed $50-million in EBITDA this quarter, compared to $21-million in the second quarter of 2013. The increase in international Retail results was due to lower costs and an improved livestock market in Australia and improved growing conditions and margins in both Australia and South America.
Crop nutrient sales were $2.7-billion this quarter, compared to $2.5-billion in the second quarter of 2013. The increase was due to additional volumes from the acquired Viterra operations and an approximate 4 percent increase in U.S. sales volumes, as the impact of lower corn acreage was offset by stronger application rates. The increase in volumes more than offset lower global crop nutrient prices compared to the same period last year. Gross profit for crop nutrients was $505-million this quarter, up 19 percent from the $424-million reported in the second quarter of 2013. Total crop nutrient margins as a percentage of sales were 18.6 percent in the second quarter of 2014, compared to 17.1 percent in the same period last year.
Crop protection sales were $2.2-billion in the second quarter of 2014, compared to the $1.8-billion in sales reported in the same period last year. Total crop protection gross profit this quarter was $457-million, compared to $406-million reported in the second quarter of 2013. The increase in sales and gross profit was due to a combination of the contribution from the acquired Viterra operations and a shift in some sales from the first quarter of 2014 into the second quarter of this year. Total crop protection margins as a percentage of sales declined to 20.8 percent this quarter, compared to 22.0 percent in the same period last year. The reduction in margins this quarter was largely due to averaging in the lower margin product mix from the Viterra operations and from pricing pressures and product mix in the U.S. crop protection market this spring.
Seed sales were $1.0-billion in the second quarter of 2014, an increase from the $809-million achieved in the second quarter last year. Gross profit was $196-million this quarter, up 40 percent from the $140-million earned in the second quarter of 2013. The increase in seed sales and gross profit is attributed to contributions from Viterra's seed business and higher sales of cotton and soybean seed units in the U.S. Corn seed volumes remained flat this quarter versus the same period last year despite a reduction in U.S. corn acreage. Total seed margins as a percentage of sales were 18.9 percent in the second quarter of 2014, an increase of 1.6 percent from the same period in 2013. The increase in margins compared to last year was due to contributions from Viterra's higher margin proprietary canola seed business.
Merchandise sales in the second quarter of 2014 were $218-million, compared to $142-million in the same period last year. Gross profit for this product group was $24-million this quarter, which is similar to the $23-million reported in the second quarter of 2013. The increase in sales and gross profit is due to the addition of the Viterra fuel and equipment business lines, which were partially offset by decreased offerings of lower margin general merchandise in Australia.
Services and other sales were $234-million this quarter, compared to the $279-million reported in the second quarter of 2013. The decrease in sales was a result of the closure of the wool export business in Australia. Gross profit was $167-million in the second quarter of 2014, compared to $149-million for the same period last year. The higher gross profit is attributed to improved margins from the livestock markets and other services in Australia, the addition of the Viterra business and stronger margins for services at our legacy North America operations. Services and other sales margins as a percentage of sales were 71 percent this quarter versus 53 percent last year.
Retail selling expenses for the second quarter of 2014 were $603-million, an increase of $65-million compared to the $538-million reported in the second quarter of last year. The increase was due to the addition of the Viterra business and the associated payroll and depreciation expenses. Total selling expenses as a percentage of sales decreased to 9.4 percent in the second quarter of 2014, compared to 9.7 percent reported in the second quarter last year. The reduction in percentage selling expenses is due to improvements in international operations and the continued leveraging of size and scale of the North American operations. The operating coverage ratio (rolling four quarters as of June 30, 2014) is 69 percent compared to 72 percent as of June 30, 2013.
Wholesale
Wholesale's 2014 second quarter sales were $1.2-billion, down from the $1.6-billion reported in the same quarter last year. Gross profit was $227-million this quarter, compared to $503-million in the second quarter of 2013. Wholesale Adjusted EBITDA was $263-million in the second quarter of 2014 compared to $542-million reported in the same period last year. The reduction in earnings was primarily the result of lower global benchmark prices across all nutrients and a reduction in nitrogen sales volumes due to planned and unplanned plant outages this quarter.
Nitrogen gross profit in the second quarter of 2014 was $101-million compared to $294-million in the same quarter last year. Nitrogen sales volumes declined 18 percent to 906,000 tonnes. This was a result of an unplanned outage at the Carseland facility during the quarter accounting for 158,000 tonnes of lost production, and a planned turnaround at the Fort Saskatchewan facility. Realized sales prices for nitrogen were $464 per tonne this quarter compared to $582 per tonne in the second quarter of 2013 as a result of lower benchmark pricing. Nitrogen cost of product sold was $353 per tonne this quarter, an increase from the $315 per tonne reported in the second quarter of 2013, due to higher natural gas costs and higher costs resulting from planned and unplanned outages. Average nitrogen gross margins were $111 per tonne this quarter, compared to $267 per tonne in the same period last year.
Agrium's average natural gas cost included in cost of product sold (which includes transportation and administration costs) was $4.49/MMBtu this quarter ($4.51/MMBtu including the impact of realized losses on natural gas derivatives), compared to $3.67/MMBtu for the same period in 2013 ($3.73/MMBtu including the impact of realized losses on natural gas derivatives). Derivative gains or losses not designated as hedges are included in other expenses and not in cost of product sold, thus are not part of the calculation of gross profit. The average U.S. benchmark (NYMEX) natural gas price for the second quarter of 2014 was $4.56/MMBtu, compared to $4.09/MMBtu in the same quarter last year. The AECO (Alberta) basis differential was a $0.30/MMBtu discount to NYMEX in the second quarter of 2014, a decrease from the $0.56/MMBtu discount in the second quarter of 2013.
Potash gross profit for the second quarter of 2014 was $72-million, compared to $120-million reported in the same quarter last year. The decrease was driven by lower benchmark and realized sales prices. Sales volumes increased to 566,000 tonnes this quarter compared to 544,000 tonnes in the second quarter of 2013. Increased domestic demand resulted from a strong spring application season and an early fall fill program, which more than offset reduced international shipments due to a lower Canpotex allocation. Potash total cost of product sold was $182 per tonne this quarter, up from the $168 per tonne reported in the same quarter last year. The increase was due to the proportionately higher percentage of domestic sales, which unlike international sales include freight costs. The cost of production on a per tonne basis was slightly lower year over year, as both variable and fixed costs were reduced on a per tonne basis. Gross margin on a per tonne basis was $128 in the second quarter of 2014, compared to the $221 per tonne realized during the same quarter in 2013.
Phosphate gross profit was $6-million in the second quarter of 2014, compared to $27-million in the same quarter last year. The decrease was due to lower realized sales prices and sales volumes. Realized phosphate sales prices were $598 per tonne this quarter, a decrease from $667 per tonne in the same period last year as a result of lower benchmark prices. Phosphate sales volumes were 268,000 tonnes in the second quarter of 2014, down 49,000 tonnes compared to the same period last year. The primary causes of the lower sales volumes were production issues relating to imported rock quality at the Redwater facility and a planned turnaround at the Conda facility. Phosphate cost of product sold was $576 per tonne in the second quarter of 2014, slightly lower than the same period last year. Gross margin in the second quarter of 2014 was $22 per tonne compared to $83 per tonne in the same period last year.
Wholesale expenses in the second quarter of 2014 were $36-million compared to $38-million in the same period last year.
Other
EBITDA for our Other non-operating business unit for the second quarter of 2014 was a loss of $6-million, compared to income of $38-million for the second quarter of 2013. The $31-million unfavorable change in gross profit was due to more inter-segment inventory held in our Retail business unit not yet sold to external customers. Coupled with this was a $14-million lower share-based payments recovery resulting from less of a decrease of our share price during the second quarter of 2014 compared to the second quarter of 2013.
EBITDA for Other in the first half of 2014 was a loss of $74-million, compared to a loss of $24-million for the first half of 2013. The change was comprised of:
-- A $19-million unfavorable change in gross profit for the first half of
2014 compared to the first half of 2013 which reflected more inter-
segment inventory held in our Retail business unit not yet sold to
external customers; and
-- An increase in share-based payments expense of $29-million resulting
from a $15-million expense in the first half of 2014 compared to the
recovery of $14-million in the first half of 2013.
FINANCIAL CONDITION
The following are changes to working capital on our Consolidated Balance Sheets in the six-month period ended June 30, 2014 compared to December 31, 2013.
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(millions of
U.S. dollars,
except as June 30, December 31, $ % Explanation of the
noted) 2014 2013 Change Change change in balance
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Current assets
Cash and cash 759 801 (42) (5%) See discussion under
equivalents the section
"Liquidity and
Capital Resources".
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Accounts 3,542 2,105 1,437 68% Increased sales
receivable during the spring
season resulted in
higher Retail trade
and vendor rebates
receivable.
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Income taxes 4 78 (74) (95%) First half tax
receivable provision exceeded
tax installment
payments made
coupled with current
period tax receipts.
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Inventories 3,097 3,413 (316) (9%) Inventory drawdown
due to increased
seasonal sales
activity.
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Prepaid 157 805 (648) (80%) Drawdown of prepaid
expenses and inventory due to
deposits increased seasonal
sales activity in
the spring.
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Other current 124 104 20 19% Increase in the
assets amount of
investments.
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Assets held for 210 202 8 4% -
sale
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Current
liabilities
Short-term debt 1,202 764 438 57% Issuance of
commercial paper
used for working
capital and capital
expenditures.
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Accounts 4,263 3,985 278 7% Increased Retail
payable inventory purchases
due to increased
sales activity,
partially offset by
drawdown of customer
prepayments during
the spring
application season.
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Income taxes 179 2 177 8,850% First half provision
payable exceeded the first
half installments.
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Current portion 54 58 (4) (7%) -
of long-term
debt
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Current portion 116 112 4 4% -
of other
provisions
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Liabilities 55 44 11 25% Increase in accounts
held for sale payable during the
spring sales season.
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Working capital 2,024 2,543 (519) (20%)
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LIQUIDITY AND CAPITAL RESOURCES
Summary of Consolidated Statements of Cash Flows
Below is a summary of our cash provided by or used in operating, investing, and financing activities as reflected in the Consolidated Statements of Cash Flows:
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Six months ended June 30,
(millions of U.S. dollars) 2014 2013 Change
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Cash provided by operating
activities 798 295 503
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Cash (used in) provided by
investing activities (1,036) 117 (1,153)
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Cash provided by (used in)
financing activities 214 (548) 762
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Effect of exchange rate changes
on cash and cash equivalents (19) (33) 14
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Decrease in cash and cash
equivalents from continuing
operations (43) (169) 126
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Cash and cash equivalents
provided by discontinued
operations 1 5 (4)
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Analysis of cash flows for the six months ended June 30, 2014
Cash flows from operating activities increased primarily due to lower working capital requirements. Our sales increased in 2014, however we achieved lower receivable balances due to a faster collection period while increased accounts payable reflected later purchasing from delayed sales during the season attributed to wet weather. This was coupled with lower taxes paid for the period resulting from reduced earnings in 2013. Current period net earnings were reduced due to lower commodity selling prices.
Cash used in investing activities during the six months consisted of $1,002-million in capital expenditures, primarily for our Vanscoy potash facility expansion.
Cash was provided by financing activities through the issuance of short-term debt, primarily under our commercial paper facility.
Capital Expenditures
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Six months ended
June 30,
(millions of U.S. dollars) 2014 2013
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Sustaining capital 300 231
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Investing capital 702 519
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Total 1,002 750
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Our investing capital expenditures increased in the first half of 2014 compared to the first half of 2013 due to increased activity on the Vanscoy potash expansion project. Ongoing challenges with contractor productivity on the potash expansion project continues to place significant upward pressure on the total project cost. We anticipate second half 2014 total capital expenditures to be at, or above, the first half of 2014.
Short-term Debt
Our short-term debt of $1,202-million at June 30, 2014 is summarized in note 5 of our Consolidated Financial Statements.
OUTSTANDING SHARE DATA
Agrium had approximately 144 million outstanding shares at July 31, 2014. At that date, under our stock option plans, shares expected to be issued for options outstanding were negligible.
SELECTED QUARTERLY INFORMATION
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(millions of U.S.
dollars, except per 2014 2014 2013 2013 2013 2013 2012 2012
share amounts) Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
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Sales 7,338 3,079 2,867 2,796 6,908 3,156 3,093 2,768
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Gross profit 1,599 556 740 629 1,699 705 974 730
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Net earnings from
continuing
operations 625 12 110 80 744 146 358 140
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Net (loss) earnings
from discontinued
operations (9) (9) (11) (4) 3 (5) (4) (11)
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Net earnings 616 3 99 76 747 141 354 129
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Earnings per share
from continuing
operations
attributable to
equityholders of
Agrium:
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Basic 4.34 0.08 0.74 0.54 5.00 0.98 2.37 0.87
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Diluted 4.34 0.08 0.74 0.54 5.00 0.98 2.36 0.87
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(Loss) earnings per
share from
discontinued
operations
attributable to
equity holders of
Agrium:
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Basic (0.06) (0.06) (0.08) (0.02) 0.02 (0.04) (0.03) (0.07)
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Diluted (0.06) (0.06) (0.08) (0.02) 0.02 (0.04) (0.02) (0.07)
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Earnings per share
attributable to
equity holders of
Agrium:
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Basic 4.28 0.02 0.66 0.52 5.02 0.94 2.34 0.80
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Diluted 4.28 0.02 0.66 0.52 5.02 0.94 2.34 0.80
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The agricultural products business is seasonal in nature. Consequently, comparisons made on a year-over-year basis are more appropriate than quarter-over-quarter comparisons. Crop input sales are primarily concentrated in the spring and fall crop input application seasons, which are in the second quarter and fourth quarter. Crop nutrient inventories are normally accumulated leading up to each application season. Our cash collections generally occur after the application season is complete.
DISCONTINUED OPERATIONS
In December 2013, Agrium commenced with a divestment process for the AAT Direct Solutions and Turf and Ornamental businesses that were not transitioned to our Wholesale business unit. On July 2, 2014, Agrium announced the completion of the sale of the Turf and Ornamental business for approximately $94-million.
ADDITIONAL IFRS AND NON-IFRS FINANCIAL MEASURES
Certain financial measures in this press release and MD&A 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.
In general, an additional IFRS financial measure is a measure relevant to understanding a company's financial performance that is not a minimum financial statement measure mandated by IFRS. A non-IFRS financial measure generally either excludes or includes amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. Refer to the following tables for further discussion of how they are calculated and their usefulness to users including management. Non-IFRS financial measures are not recognized measures under IFRS and our method of calculation may not be directly comparable to that of other companies. 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 additional IFRS financial measures, their definitions and how management assesses each measure. As the measures set out below are presented in our consolidated financial statements included in this press release, they are classified as additional IFRS financial measures where they reflect consolidated Agrium, and are classified as non-IFRS financial measures where they do not reflect consolidated Agrium, including references to EBITDA when presented on an operating segment basis.
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Additional IFRS Definition Management's assessment
financial measures
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EBIT Earnings (loss) from EBIT provides a
continuing operations supplemental measure
before finance costs used by management to:
and income taxes. (1) evaluate the
effectiveness of our
businesses; (2)
evaluate our ability to
service debt; and (3)
determine resource
allocations. We believe
EBIT is useful to
investors, securities
analysts and
management, as the
measure allows for an
evaluation of segment
performance exclusive
of capital structure
and income taxes, both
of which are not a
direct result of the
efficiency of each
business and are
generally accounted for
and evaluated on a
consolidated basis.
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The following table outlines our non-IFRS financial measures, their
definitions and usefulness, and how management assesses each measure.
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Non-IFRS financial Definition Management's assessment
measures
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EBITDA Earnings (loss) from Refer to EBIT. This
continuing operations measure is also used by
before finance costs, investors and
income taxes, securities analysts as
depreciation and a valuation metric and
amortization. as an alternative to
cash provided by
operating activities.
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Adjusted EBITDA EBITDA before finance Refer to EBIT and
costs, income taxes, EBITDA. Management
depreciation and believes that this
amortization of joint metric provides useful
ventures. comparative information
on our profitability by
adding back finance
costs, income taxes,
depreciation and
amortization of joint
ventures.
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Retail operating Retail gross profit less Metric used by
coverage ratio earnings (loss) from management to evaluate
continuing operations our Retail business. We
before finance costs believe this metric is
and income taxes, also useful to
divided by gross investors and
profit. securities analysts in
evaluating operating
performance of our
Retail business.
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RECONCILIATIONS OF ADDITIONAL IFRS AND NON-IFRS FINANCIAL MEASURES
Adjusted EBITDA and EBITDA to EBIT
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Three months ended
June 30, 2014
(millions of U.S. dollars) Retail Wholesale Other Consolidated
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Adjusted EBITDA 791 263 (6) 1,048
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Equity accounted joint ventures:
Finance costs and income taxes - 8 - 8
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Depreciation and amortization - 3 - 3
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EBITDA 791 252 (6) 1,037
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Depreciation and amortization 77 61 4 142
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EBIT 714 191 (10) 895
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Three months ended
June 30, 2013
(millions of U.S. dollars) Retail Wholesale Other Consolidated
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Adjusted EBITDA 619 542 38 1,199
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Equity accounted joint ventures:
Finance costs and income taxes - 7 - 7
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Depreciation and amortization - 1 - 1
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EBITDA 619 534 38 1,191
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Depreciation and amortization 57 69 1 127
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EBIT 562 465 37 1,064
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Six months ended
June 30, 2014
(millions of U.S. dollars) Retail Wholesale Other Consolidated
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Adjusted EBITDA 808 500 (74) 1,234
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Equity accounted joint ventures:
Finance costs and income taxes - 12 - 12
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Depreciation and amortization - 5 - 5
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EBITDA 808 483 (74) 1,217
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Depreciation and amortization 149 114 6 269
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EBIT 659 369 (80) 948
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Six months ended
June 30, 2013
(millions of U.S. dollars) Retail Wholesale Other Consolidated
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Adjusted EBITDA 644 935 (24) 1,555
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Equity accounted joint ventures:
Finance costs and income taxes - 14 - 14
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Depreciation and amortization - 3 - 3
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EBITDA 644 918 (24) 1,538
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Depreciation and amortization 110 119 6 235
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EBIT 534 799 (30) 1,303
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CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES
We prepare our financial statements in accordance with IFRS, which requires us to make assumptions and estimates about future events and apply significant judgments. We base our assumptions, estimates and judgments on our historical experience, current trends and all available information that we believe is relevant at the time we prepare the financial statements. However, future events and their effects cannot be determined with certainty. Accordingly, as confirming events occur, actual results could ultimately differ from our assumptions and estimates. Such differences could be material. For further information on the Company's critical accounting judgments and estimates, refer to the section "Critical Accounting Judgments and Estimates" of our 2013 annual Management's Discussion and Analysis, which is contained in our 2013 Annual Report. Since the date of our 2013 annual Management's Discussion and Analysis, there have not been any significant changes to our critical accounting judgments and estimates.
CHANGES IN ACCOUNTING POLICIES
The accounting policies applied in our Consolidated Financial Statements are the same as those applied in our audited annual financial statements in our 2013 Annual Report, with the exception of the adoption of IFRS 9 Financial Instruments and other accounting changes described in note 10 of our Consolidated Interim Financial Statements for the quarter ended March 31, 2014.
For information regarding changes in accounting policies, refer to the section "Accounting Standards and Policy Changes Not Yet Implemented" of our 2013 annual Management's Discussion and Analysis, which is contained in our 2013 Annual Report.
BUSINESS RISKS
The information presented on Enterprise Risk Management and Key Business Risks on pages 74 - 77 in our 2013 Annual Report and under the heading "Risk Factors" on pages 29 - 40 in our 2013 Annual Information Form has not changed materially since December 31, 2013.
CONTROLS AND PROCEDURES
There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PUBLIC SECURITIES FILINGS
Additional information about our company, including our 2013 Annual Information Form is filed with the Canadian securities regulatory authorities through SEDAR at www.sedar.com and with the U.S. securities regulatory authorities through EDGAR at www.sec.gov.
MARKET OUTLOOK
Favorable growing conditions in most major agriculture regions have boosted global crop production prospects in recent months. Growers in the U.S. Corn Belt have particularly benefitted from advantageous growing conditions. The United States Department of Agriculture ("USDA") recently reported the U.S. corn crop in the best condition since 1999 and the soybean crop in the best condition since 1994. In response to these robust growing conditions, prices of most major grains and oilseeds have declined and analysts are projecting that 2014/15 prices will be the lowest they have been since 2009/10. Grower margins are more sensitive to changes in crop prices than any other variable, so lower crop prices would result in lower per acre cash margins; however, strong crop yields will offset some of the crop price decline. While the financial benefit of applying crop inputs does not change significantly at current crop prices versus the prices earlier in the year, some precautionary applications of crop protection and plant health products may be impacted.
Wet conditions throughout many areas of North America delayed herbicide application early in the growing season. These conditions were conducive to disease development, which has supported fungicide demand; however, there have been some areas in the Northern U.S. and Western Canada that have continued to struggle to get equipment into wet fields. In general, we expect that growers will continue to promote optimal plant health through application of crop protection products and nutritionals in order to maintain yield potential.
Crop nutrient demand in the third quarter to date has been steady, despite lower crop prices. With 2013/14 logistical constraints fresh in the memories of buyers, the retail chain has sought to re-fill the empty North American supply chain following strong demand in the first half of 2014. The global nitrogen market has been relatively stable, as prices have been supported by Chinese urea costs and low availability out of the Ukraine. At current international urea prices, we expect that Chinese urea exports in the second half of 2014 will be below the same period in 2013. Buyer confidence in the potash market has supported firm demand for the second half of 2014 and Canpotex recently reported that it was sold out of potash for the third quarter. Firm demand has also supported the phosphate market, but the Indian market remains a source of uncertainty in the second half of 2014 as the Indian monsoon rains were historically low in June.
Forward-Looking Statements
Certain statements and other information included in this MD&A constitute "forward-looking information" within the meaning of applicable Canadian securities legislation or constitute "forward-looking statements" within the meaning of applicable U.S. securities legislation (collectively, the "forward-looking statements"). All statements in this MD&A other than those relating to historical information or current conditions, are forward-looking statements, including, but not limited to, statements as to management's expectations with respect to: future crop and crop input volumes, demand, margins, prices and sales; business and financial prospects; and other plans, strategies, objectives and expectations, including with respect to future operations of Agrium and divestitures and the growth and stability of our earnings. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such 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 in this MD&A. Although Agrium 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 key assumptions that have been made in connection with the forward-looking statements include Agrium's ability to successfully integrate and realize the anticipated benefits of its already completed and future acquisitions.
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 economic, market and business conditions, weather conditions including impacts from regional flooding and/or drought conditions; crop yield and prices; the supply and demand and price levels for our major 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, and political risks, including civil unrest, actions by armed groups or conflict, as well as counterparty and sovereign risk; and other risk factors detailed from time to time in Agrium reports filed with the Canadian securities regulators and the Securities and Exchange Commission in the United States. There is a risk that the Egyptian Misr Fertilizer Production Company nitrogen facility in Egypt may not be allowed to proceed with the completion of the two new facilities. There is risk regarding the size and timing of expected synergies related to our acquisition of certain Retail Agri-products assets of Viterra; and there is a risk of additional capital expenditure cost escalation on the potash expansion project; and other risk factors detailed from time to time in Agrium reports filed with the Canadian securities regulators and the Securities and Exchange Commission in the United States. Furthermore, the potential divestiture of the Direct Solutions business and any potential financial gains or losses resulting from the completion of the strategic review process may differ materially from those in the forward-looking statements.
Agrium disclaims any intention or obligation to update or revise any forward-looking statements in this MD&A 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.
OTHER
Agrium Inc. is a major Retail supplier of agricultural products and services in North America, South America and Australia and a leading global Wholesale producer and marketer of all three major agricultural nutrients and the premier supplier of specialty fertilizers in North America. Agrium's strategy is to provide the crop inputs and services needed to feed a growing world. We focus on maximizing shareholder returns by driving continuous improvements to our base businesses, pursuing value-added growth opportunities across the crop input value chain and returning capital to shareholders.
A WEBSITE SIMULCAST of the 2014 2nd Quarter Conference Call will be available in a listen-only mode beginning Thursday, August 7th, 2014 at 7:30 a.m. MST (9:30 a.m. EST). Please visit the following website: www.agrium.com.
AGRIUM INC.
Consolidated Statements of Operations
(Millions of U.S. dollars, except per share amounts)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
2014 2013 (1) 2014 2013 (1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sales 7,338 6,908 10,417 10,064
----------------------------------------------------------------------------
Cost of product sold 5,739 5,209 8,262 7,660
----------------------------------------------------------------------------
Gross profit 1,599 1,699 2,155 2,404
----------------------------------------------------------------------------
Expenses
----------------------------------------------------------------------------
Selling 609 546 1,053 942
----------------------------------------------------------------------------
General and administrative
(note 3) 66 62 166 156
----------------------------------------------------------------------------
Earnings from associates and
joint ventures (13) (15) (14) (28)
----------------------------------------------------------------------------
Other expenses (note 3) 42 42 2 31
----------------------------------------------------------------------------
Earnings before finance costs
and income taxes 895 1,064 948 1,303
----------------------------------------------------------------------------
Finance costs related to long-
term debt 9 21 28 43
----------------------------------------------------------------------------
Other finance costs 18 21 35 39
----------------------------------------------------------------------------
Earnings before income taxes 868 1,022 885 1,221
----------------------------------------------------------------------------
Income taxes 243 278 248 331
----------------------------------------------------------------------------
Net earnings from continuing
operations 625 744 637 890
----------------------------------------------------------------------------
Net (loss) earnings from
discontinued operations (note
2) (9) 3 (18) (2)
----------------------------------------------------------------------------
Net earnings 616 747 619 888
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Attributable to:
----------------------------------------------------------------------------
Equity holders of Agrium 615 749 617 890
----------------------------------------------------------------------------
Non-controlling interest 1 (2) 2 (2)
----------------------------------------------------------------------------
Net earnings 616 747 619 888
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share attributable
to equity holders of Agrium
(note 4)
----------------------------------------------------------------------------
Basic and diluted earnings per
share from continuing
operations 4.34 5.00 4.42 5.97
----------------------------------------------------------------------------
Basic and diluted (loss)
earnings per share from
discontinued operations (0.06) 0.02 (0.13) (0.01)
----------------------------------------------------------------------------
Basic and diluted earnings per
share 4.28 5.02 4.29 5.96
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Certain amounts have been reclassified as a result of discontinued
operations. See note 2, Discontinued Operations, Assets and Liabilities
Held for Sale.
See accompanying notes.
AGRIUM INC.
Consolidated Statements of Comprehensive Income
(Millions of U.S. dollars)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
2014 2013 2014 2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings 616 747 619 888
----------------------------------------------------------------------------
Other comprehensive income (loss)
----------------------------------------------------------------------------
Items that are or may be reclassified
to earnings
----------------------------------------------------------------------------
Cash flow hedges
----------------------------------------------------------------------------
Effective portion of changes in fair
value (4) - (4) -
----------------------------------------------------------------------------
Deferred income taxes 1 - 1 -
----------------------------------------------------------------------------
Share of comprehensive income of
associates and joint ventures 1 - 2 1
----------------------------------------------------------------------------
Available for sale financial
instruments
----------------------------------------------------------------------------
Gains - 1 - 1
----------------------------------------------------------------------------
Foreign currency translation
differences
----------------------------------------------------------------------------
Gains (losses) 102 (219) (4) (243)
----------------------------------------------------------------------------
100 (218) (5) (241)
----------------------------------------------------------------------------
Items that will never be reclassified
to earnings
----------------------------------------------------------------------------
Post-employment benefits
----------------------------------------------------------------------------
Actuarial losses (20) - (20) -
----------------------------------------------------------------------------
Deferred income taxes 6 - 6 -
----------------------------------------------------------------------------
(14) - (14) -
----------------------------------------------------------------------------
Other comprehensive income (loss) 86 (218) (19) (241)
----------------------------------------------------------------------------
Comprehensive income 702 529 600 647
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Attributable to:
----------------------------------------------------------------------------
Equity holders of Agrium 701 531 598 649
----------------------------------------------------------------------------
Non-controlling interest 1 (2) 2 (2)
----------------------------------------------------------------------------
Comprehensive income 702 529 600 647
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes.
AGRIUM INC.
Consolidated Statements of Cash Flows
(Millions of U.S. dollars)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
2014 2013 (1) 2014 2013 (1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating
----------------------------------------------------------------------------
Net earnings from continuing
operations 625 744 637 890
----------------------------------------------------------------------------
Adjustments for
----------------------------------------------------------------------------
Depreciation and amortization 142 127 269 235
----------------------------------------------------------------------------
Earnings from associates and
joint ventures (13) (15) (14) (28)
----------------------------------------------------------------------------
Share-based payments (16) (30) 15 (14)
----------------------------------------------------------------------------
Unrealized loss (gain) on
derivative financial
instruments 9 3 (5) (4)
----------------------------------------------------------------------------
Unrealized foreign exchange
(gain) loss (17) (12) (19) 4
----------------------------------------------------------------------------
Interest income (19) (16) (30) (31)
----------------------------------------------------------------------------
Finance costs 27 42 63 82
----------------------------------------------------------------------------
Income taxes 243 278 248 331
----------------------------------------------------------------------------
Other 15 9 27 14
----------------------------------------------------------------------------
Interest received 19 16 31 31
----------------------------------------------------------------------------
Interest paid (21) (18) (53) (74)
----------------------------------------------------------------------------
Income taxes paid (32) (200) (68) (455)
----------------------------------------------------------------------------
Dividends from associates and
joint ventures 6 14 7 15
----------------------------------------------------------------------------
Net changes in non-cash working
capital (931) (1,007) (310) (701)
----------------------------------------------------------------------------
Cash provided by (used in)
operating activities 37 (65) 798 295
----------------------------------------------------------------------------
Investing
----------------------------------------------------------------------------
Acquisitions, net of cash
acquired (2) (15) (18) (49)
----------------------------------------------------------------------------
Repayment of advance on
acquisition of Viterra Inc. - 932 - 932
----------------------------------------------------------------------------
Capital expenditures (543) (413) (1,002) (750)
----------------------------------------------------------------------------
Capitalized borrowing costs (30) (13) (53) (22)
----------------------------------------------------------------------------
Purchase of investments (39) - (65) (8)
----------------------------------------------------------------------------
Proceeds from disposal of
investments 32 - 44 -
----------------------------------------------------------------------------
Other 19 (22) (3) (32)
----------------------------------------------------------------------------
Net changes in non-cash working
capital 10 32 61 46
----------------------------------------------------------------------------
Cash (used in) provided by
investing activities (553) 501 (1,036) 117
----------------------------------------------------------------------------
Financing
----------------------------------------------------------------------------
Short-term debt 793 (881) 444 (816)
----------------------------------------------------------------------------
Long-term debt issued - 1,000 - 1,010
----------------------------------------------------------------------------
Transaction costs on long-term
debt - (14) - (14)
----------------------------------------------------------------------------
Repayment of long-term debt (5) (478) (15) (519)
----------------------------------------------------------------------------
Dividends paid (108) (74) (216) (149)
----------------------------------------------------------------------------
Shares issued 1 - 1 2
----------------------------------------------------------------------------
Shares repurchased - (62) - (62)
----------------------------------------------------------------------------
Cash provided by (used in)
financing activities 681 (509) 214 (548)
----------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents (16) (26) (19) (33)
----------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents from
continuing operations 149 (99) (43) (169)
----------------------------------------------------------------------------
Cash and cash equivalents
provided by discontinued
operations (note 2) 18 8 1 5
----------------------------------------------------------------------------
Cash and cash equivalents -
beginning of period 592 585 801 658
----------------------------------------------------------------------------
Cash and cash equivalents - end
of period 759 494 759 494
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Certain amounts have been reclassified as a result of discontinued
operations. See note 2, Discontinued Operations, Assets and Liabilities
Held for Sale.
See accompanying notes.
AGRIUM INC.
Consolidated Balance Sheets
(Millions of U.S. dollars)
(Unaudited)
June 30, December 31,
------------------------------------------------------------- --------------
2014 2013 2013
------------------------------------------------------------- --------------
Assets
------------------------------------------------------------- --------------
Current assets
------------------------------------------------------------- --------------
Cash and cash equivalents 759 494 801
------------------------------------------------------------- --------------
Accounts receivable 3,542 3,845 2,105
------------------------------------------------------------- --------------
Income taxes receivable 4 11 78
------------------------------------------------------------- --------------
Inventories 3,097 2,913 3,413
------------------------------------------------------------- --------------
Advance on acquisition of Viterra Inc. - 762 -
------------------------------------------------------------- --------------
Prepaid expenses and deposits 157 114 805
------------------------------------------------------------- --------------
Other current assets 124 - 104
------------------------------------------------------------- --------------
Assets held for sale (note 2) 210 - 202
------------------------------------------------------------- --------------
7,893 8,139 7,508
------------------------------------------------------------- --------------
Property, plant and equipment (note 7) 5,788 3,940 4,960
------------------------------------------------------------- --------------
Intangibles 712 649 738
------------------------------------------------------------- --------------
Goodwill 1,970 2,250 1,958
------------------------------------------------------------- --------------
Investments in associates and joint
ventures 627 628 639
------------------------------------------------------------- --------------
Other assets 95 120 99
------------------------------------------------------------- --------------
Deferred income tax assets 75 81 75
------------------------------------------------------------- --------------
17,160 15,807 15,977
------------------------------------------------------------- --------------
------------------------------------------------------------- --------------
Liabilities and shareholders' equity
------------------------------------------------------------- --------------
Current liabilities
------------------------------------------------------------- --------------
Short-term debt (note 5) 1,202 459 764
------------------------------------------------------------- --------------
Accounts payable 4,263 3,615 3,985
------------------------------------------------------------- --------------
Income taxes payable 179 57 2
------------------------------------------------------------- --------------
Current portion of long-term debt 54 - 58
------------------------------------------------------------- --------------
Current portion of other provisions 116 71 112
------------------------------------------------------------- --------------
Liabilities held for sale (note 2) 55 - 44
------------------------------------------------------------- --------------
5,869 4,202 4,965
------------------------------------------------------------- --------------
Long-term debt 3,060 3,066 3,066
------------------------------------------------------------- --------------
Post-employment benefits 157 177 135
------------------------------------------------------------- --------------
Other provisions 416 449 426
------------------------------------------------------------- --------------
Other liabilities 37 67 59
------------------------------------------------------------- --------------
Deferred income tax liabilities 441 517 530
------------------------------------------------------------- --------------
9,980 8,478 9,181
------------------------------------------------------------- --------------
Shareholders' equity
------------------------------------------------------------- --------------
Share capital 1,821 1,880 1,820
------------------------------------------------------------- --------------
Retained earnings 5,632 5,618 5,253
------------------------------------------------------------- --------------
Accumulated other comprehensive loss (276) (170) (279)
------------------------------------------------------------- --------------
Equity holders of Agrium 7,177 7,328 6,794
------------------------------------------------------------- --------------
Non-controlling interest 3 1 2
------------------------------------------------------------- --------------
7,180 7,329 6,796
------------------------------------------------------------- --------------
17,160 15,807 15,977
------------------------------------------------------------- --------------
------------------------------------------------------------- --------------
See accompanying notes.
AGRIUM INC.
Consolidated Statements of Shareholders' Equity
(Millions of U.S. dollars, except share data)
(Unaudited)
Other comprehensive income
--------------------------
Comprehensive
Millions of loss of
common Share Retained Cash flow associates and
shares capital earnings hedges joint ventures
----------------------------------------------------------------------------
December 31,
2012 149 1,890 4,955 - (3)
----------------------------------------------------------------------------
Net earnings
(loss) - - 890 - -
----------------------------------------------------------------------------
Other
comprehensive
income
(loss), net
of tax
----------------------------------------------------------------------------
Other - - - - 1
----------------------------------------------------------------------------
Comprehensive
income
(loss), net
of tax - - 890 - 1
----------------------------------------------------------------------------
Dividends - - (149) - -
----------------------------------------------------------------------------
Non-
controlling
interest
transactions - - (2) - -
----------------------------------------------------------------------------
Shares
repurchased (1) (12) (76) - -
----------------------------------------------------------------------------
Share-based
payment
transactions - 2 - - -
----------------------------------------------------------------------------
June 30, 2013 148 1,880 5,618 - (2)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31,
2013 144 1,820 5,253 - (7)
----------------------------------------------------------------------------
Net earnings - - 617 - -
----------------------------------------------------------------------------
Other
comprehensive
income
(loss), net
of tax
----------------------------------------------------------------------------
Post-
employment
benefits - - (14) - -
----------------------------------------------------------------------------
Other - - - (3) 2
----------------------------------------------------------------------------
Comprehensive
income
(loss), net
of tax - - 603 (3) 2
----------------------------------------------------------------------------
Dividends - - (216) - -
----------------------------------------------------------------------------
Non-
controlling
interest
transactions - - - - -
----------------------------------------------------------------------------
Share-based
payment
transactions - 1 - - -
----------------------------------------------------------------------------
Impact of
adopting IFRS
9 at January
1, 2014 - - (8) - -
----------------------------------------------------------------------------
June 30, 2014 144 1,821 5,632 (3) (5)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other comprehensive income
--------------------------------
Available Equity
for sale Foreign holders Non-
financial currency of controlling Total
instruments translation Total Agrium interest equity
----------------------------------------------------------------------------
December 31,
2012 - 74 71 6,916 4 6,920
----------------------------------------------------------------------------
Net earnings
(loss) - - - 890 (2) 888
----------------------------------------------------------------------------
Other
comprehensive
income
(loss), net
of tax
----------------------------------------------------------------------------
Other 1 (243) (241) (241) - (241)
----------------------------------------------------------------------------
Comprehensive
income
(loss), net
of tax 1 (243) (241) 649 (2) 647
----------------------------------------------------------------------------
Dividends - - - (149) - (149)
----------------------------------------------------------------------------
Non-
controlling
interest
transactions - - - (2) (1) (3)
----------------------------------------------------------------------------
Shares
repurchased - - - (88) - (88)
----------------------------------------------------------------------------
Share-based
payment
transactions - - - 2 - 2
----------------------------------------------------------------------------
June 30, 2013 1 (169) (170) 7,328 1 7,329
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31,
2013 (8) (264) (279) 6,794 2 6,796
----------------------------------------------------------------------------
Net earnings - - - 617 2 619
----------------------------------------------------------------------------
Other
comprehensive
income
(loss), net
of tax
----------------------------------------------------------------------------
Post-
employment
benefits - - - (14) - (14)
----------------------------------------------------------------------------
Other - (4) (5) (5) - (5)
----------------------------------------------------------------------------
Comprehensive
income
(loss), net
of tax - (4) (5) 598 2 600
----------------------------------------------------------------------------
Dividends - - - (216) - (216)
----------------------------------------------------------------------------
Non-
controlling
interest
transactions - - - - (1) (1)
----------------------------------------------------------------------------
Share-based
payment
transactions - - - 1 - 1
----------------------------------------------------------------------------
Impact of
adopting IFRS
9 at January
1, 2014 8 - 8 - - -
----------------------------------------------------------------------------
June 30, 2014 - (268) (276) 7,177 3 7,180
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes.
AGRIUM INC.
Summarized Notes to the Consolidated Financial Statements
For the six months ended June 30, 2014
(Millions of U.S. dollars, unless otherwise stated)
(Unaudited)
1. Corporate Information
Corporate information
Agrium Inc. ("Agrium") is incorporated under the laws of Canada with common shares listed under the symbol "AGU" on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX). 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. In these financial statements, "we", "us", "our" and "Agrium" mean Agrium Inc., its subsidiaries and joint arrangements.
Agrium operates two core strategic business units:
- Retail: Distributes crop nutrients, crop protection products, seed,
merchandise and services directly to growers through a network of farm
centers in two geographical segments:
- North America, including the United States and Canada; and
- International, including Australia and South America.
- Wholesale: Operates in North and South America and Europe, and produces,
markets and distributes crop nutrients and industrial products through
the following businesses:
- Nitrogen: Manufacturing in Alberta, Texas and Argentina;
- Potash: Mining and processing in Saskatchewan;
- Phosphate: Owning and operating mines and production facilities in
Alberta and Idaho;
- Product purchased for resale: Marketing nutrient products from other
suppliers in North and South America and Europe; and
- Ammonium sulfate, ESN and other: Producing blended crop nutrients,
ESN(R), (Environmentally Smart Nitrogen) polymer-coated nitrogen crop
nutrients, and micronutrients.
Additional information on our operating segments is included in note 8.
Basis of preparation and statement of compliance
These consolidated interim financial statements ("interim financial statements") were approved for issuance by the Audit Committee on August 6, 2014. We prepared these interim financial statements in accordance with International Accounting Standard 34 Interim Financial Reporting. These statements do not include all information and disclosures normally provided in annual financial statements and should be read in conjunction with our audited annual financial statements and related notes contained in our 2013 Annual Report, available at www.agrium.com.
The accounting policies applied in these interim financial statements are the same as those applied in our audited annual financial statements in our 2013 Annual Report, with the exception of the adoption of IFRS 9 Financial Instruments and other accounting changes described in note 10 to our consolidated interim financial statements for the three months ended March 31, 2014.
Seasonality in our business results from increased demand for our products during planting seasons. Sales are generally higher in spring and fall.
2. Discontinued Operations, Assets and Liabilities Held for Sale
Assets and liabilities held for sale and related discontinued operations consist of components of our former Advanced Technologies business unit. In July 2014, we completed the sale of the Turf and Ornamental portion of the assets held for sale for approximately $94-million. The transaction is subject to customary closing conditions and final purchase price adjustments.
Three months Six months
ended ended
Condensed information of discontinued operations June 30, June 30,
----------------------------------------------------------------------------
2014 2013 2014 2013
----------------------------------------------------------------------------
Operating information
----------------------------------------------------------------------------
Discontinued operations of assets held for sale
----------------------------------------------------------------------------
Sales 112 108 172 176
----------------------------------------------------------------------------
Expenses 124 105 195 180
----------------------------------------------------------------------------
(Loss) earnings before income taxes (12) 3 (23) (4)
----------------------------------------------------------------------------
Income tax recovery (3) - (5) (2)
----------------------------------------------------------------------------
Net (loss) earnings from discontinued operations (9) 3 (18) (2)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash provided by operating activities 18 8 1 5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
June
Balance sheet information 30,
---------------------------------------------------------------------
2014
---------------------------------------------------------------------
Accounts receivable 80
---------------------------------------------------------------------
Inventories 77
---------------------------------------------------------------------
Property, plant and equipment 27
---------------------------------------------------------------------
Intangibles 26
---------------------------------------------------------------------
Assets held for sale 210
---------------------------------------------------------------------
---------------------------------------------------------------------
Accounts payable 55
---------------------------------------------------------------------
Liabilities held for sale 55
---------------------------------------------------------------------
---------------------------------------------------------------------
3. Expenses
Three months ended Six months ended
General and administrative June 30, June 30,
----------------------------------------------------------------------------
2014 2013 2014 2013
----------------------------------------------------------------------------
Share-based payments (16) (30) 15 (14)
----------------------------------------------------------------------------
Depreciation and amortization 8 12 15 27
----------------------------------------------------------------------------
Other general and administrative 74 80 136 143
----------------------------------------------------------------------------
66 62 166 156
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Six months ended
Other expenses June 30, June 30,
----------------------------------------------------------------------------
2014 2013 2014 2013
----------------------------------------------------------------------------
Realized and unrealized gain on
commodity derivatives not
designated as hedges - (1) (32) (9)
----------------------------------------------------------------------------
Realized and unrealized loss (gain)
on foreign exchange derivatives not
designated as hedges 27 4 12 (9)
----------------------------------------------------------------------------
Foreign exchange (gain) loss (29) 7 (17) 26
----------------------------------------------------------------------------
Interest income (19) (16) (30) (31)
----------------------------------------------------------------------------
Environmental remediation and asset
retirement obligations 22 3 20 4
----------------------------------------------------------------------------
Bad debt expense 25 21 30 26
----------------------------------------------------------------------------
Potash profit and capital tax 3 8 6 12
----------------------------------------------------------------------------
Other 13 16 13 12
----------------------------------------------------------------------------
42 42 2 31
----------------------------------------------------------------------------
----------------------------------------------------------------------------
4. Earnings per Share
Three months Six months
ended ended
Attributable to equity holders of Agrium June 30, June 30,
----------------------------------------------------------------------------
2014 2013 2014 2013
----------------------------------------------------------------------------
Numerator
----------------------------------------------------------------------------
Net earnings from continuing operations 624 746 635 892
----------------------------------------------------------------------------
Net loss (earnings) from discontinued
operations (9) 3 (18) (2)
----------------------------------------------------------------------------
Net earnings 615 749 617 890
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Denominator (millions)
----------------------------------------------------------------------------
Weighted average number of shares
outstanding for basic and diluted earnings
per share 144 149 144 149
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. Debt
June 30, December 31,
------------------------------------------------------------- --------------
2014 2013
------------------------------------------------------------- --------------
Maturity Rate
------------------------------------------------------------- --------------
Short-term debt
------------------------------------------------------------- --------------
Commercial paper 2014 0.35 973 503
------------------------------------------------------------- --------------
Credit facilities 2.02 229 261
------------------------------------------------------------- --------------
1,202 764
------------------------------------------------------------- --------------
------------------------------------------------------------- --------------
6. Financial Instruments
Natural gas derivatives outstanding June 30,
---------------------------------------------------------------------------
2014
---------------------------------------------------------------------------
Fair value of
assets
Notional Maturities (liabilities)
---------------------------------------------------------------------------
Not designated as hedges
---------------------------------------------------------------------------
AECO Swaps (millions MMBtu) 1 2014 -
---------------------------------------------------------------------------
Designated as hedges
----------------------------------------------------------------------------
AECO Swaps (millions MMBtu) 51 2015 - 2018 8
---------------------------------------------------------------------------
52 8
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Natural gas derivatives outstanding December 31,
---------------------------------------------------------------------------
2013
---------------------------------------------------------------------------
Fair value of
assets
Notional Maturities (liabilities)
---------------------------------------------------------------------------
Not designated as hedges
---------------------------------------------------------------------------
AECO Swaps (millions MMBtu) 8 2014 -
---------------------------------------------------------------------------
Designated as hedges
---------------------------------------------------------------------------
AECO Swaps (millions MMBtu) - - -
---------------------------------------------------------------------------
8 -
---------------------------------------------------------------------------
---------------------------------------------------------------------------
We hold all derivative financial instruments for risk management purposes only. In addition to the natural gas derivatives listed above, we hold foreign exchange derivative contracts not designated as hedges. The fair value of foreign exchange derivatives at June 30, 2014 was a net liability of $7-million (December 31, 2013 - net liability of $1-million).
Fair value
------------------------------
Maturities of natural gas derivative contracts 2015 2016 2017 2018 2019
----------------------------------------------------------------------------
Designated as hedges 1 2 2 3 -
----------------------------------------------------------------------------
1 2 2 3 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural gas derivatives
outstanding June 30, December 31,
------------------------------------------------- --------------------------
2014 2013
------------------------------------------------- --------------------------
Balance sheet Gross Carrying Gross Carrying
presentation amount Netting amount amount Netting amount
------------------------------------------------- --------------------------
Not designated as
hedges
------------------------------------------------- --------------------------
Accounts receivable 4 (4) - 26 (26) -
------------------------------------------------- --------------------------
Accounts payable (4) 4 - (26) 26 -
------------------------------------------------- --------------------------
Designated as hedges
------------------------------------------------- --------------------------
Other assets 195 (187) 8 - - -
------------------------------------------------- --------------------------
Other liabilities (187) 187 - - - -
------------------------------------------------- --------------------------
8 - 8 - - -
------------------------------------------------- --------------------------
------------------------------------------------- --------------------------
Impact of change in fair value of natural gas
derivative financial instruments June 30, December 31,
------------------------------------------------------------ ---------------
2014 2013
------------------------------------------------------------ ---------------
A $10-million increase in net earnings requires
an increase in gas prices per MMBtu 0.26 1.87
------------------------------------------------------------ ---------------
A $10-million decrease in net earnings requires a
decrease in gas prices per MMBtu (0.26) (1.87)
------------------------------------------------------------ ---------------
------------------------------------------------------------ ---------------
Commodity price risk management and cash flow hedges
Natural gas is a significant component of our cost of product sold for nitrogen-based fertilizers. We use physical contracts and financial forward contracts to manage the risk of market fluctuations in natural gas prices and to reduce the variability of cash flows from our planned purchases of natural gas used in our fertilizer production facilities. Our Board of Directors has established limits on risk management activities, including the following:
Use of derivatives to hedge exposure to natural gas market prices risk
----------------------------------------------------------------------------
Term (gas year - twelve months ending
October 31) 2014 2015 2016 2017 2018
----------------------------------------------------------------------------
Maximum allowable (% of forecasted gas
requirements) 75 75 75 25(1) 25(1)
----------------------------------------------------------------------------
Forecasted average monthly purchases
(millions MMBtu) - - 9 9 9
----------------------------------------------------------------------------
Gas requirements hedged using derivatives
designated as hedges (%) - - 17 17 17
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Maximum monthly hedged volume may not exceed 90 percent of planned
monthly requirements.
During the three months ended June 30, 2014, we designated natural gas forward contracts as hedges of highly probable purchases of natural gas. The contracts settle in the months hedged, using AECO futures price indexes, which we use to determine fair value. The contracts are denominated in Canadian dollars for purchases of gas in Canadian dollars. We forecast that the contracted purchases and related delivery of natural gas will occur beginning November 2015 until October 2018. At the inception of each designated forward contract, we prepare formal designation and documentation of the hedging relationship and our risk management objective and strategy for undertaking the hedge. Documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how we will assess whether the hedging relationship meets the hedge effectiveness requirements, including our analysis of the sources of hedge ineffectiveness and how we determine the hedge ratio. For derivatives designated as hedges, we record the effective portion of changes in fair value to other comprehensive income. We record any ineffective portion to earnings.
The underlying risk of the forward contracts is identical to the hedged risk, and accordingly we have established a ratio of 1:1 for all natural gas hedges. Due to a strong correlation between AECO future contract prices and our delivered cost, we did not experience any ineffectiveness on our hedges, and accordingly we have recorded the full change in the fair value of the natural gas forward contracts designated as hedges to other comprehensive income.
We use quoted market prices from AECO to determine the fair value of natural gas derivatives. If these market prices are adjusted by a forward yield curve, we classify the fair value of the financial instruments within Level 2.
June 30,
------------------------------
2014
------------------------------
Fair value
--------------------
Classification of financial instruments Carrying
measured at fair value Level 1 Level 2 value
----------------------------------------------------------------------------
Accounts receivable - derivatives 1 - 1
----------------------------------------------------------------------------
Other current financial assets - marketable
securities 19 89 108
----------------------------------------------------------------------------
Other financial assets - derivatives 8 - 8
----------------------------------------------------------------------------
Accounts payable - derivatives 8 - 8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Classification of fair value of long-term debt
----------------------------------------------------------------------------
Debentures - 3,355 2,990
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31,
------------------------------
2013
------------------------------
Fair value Carrying
--------------------
Classification of financial instruments
measured at fair value Level 1 Level 2 value
----------------------------------------------------------------------------
Cash and cash equivalents - 801 801
----------------------------------------------------------------------------
Accounts receivable - derivatives 1 - 1
----------------------------------------------------------------------------
Other current financial assets
----------------------------------------------------------------------------
Available for sale - equities 14 - 14
----------------------------------------------------------------------------
Available for sale - fixed income - 90 90
----------------------------------------------------------------------------
Other financial assets
----------------------------------------------------------------------------
Available for sale 12 - 12
----------------------------------------------------------------------------
Accounts payable - derivatives - 2 2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Classification of fair value of long-term debt
----------------------------------------------------------------------------
Debentures - 3,124 2,989
----------------------------------------------------------------------------
----------------------------------------------------------------------------
There have been no transfers between Level 1 and Level 2 fair value measurements in the three or six months ended June 30, 2014 or June 30, 2013. We do not measure any of our financial instruments using Level 3 inputs.
7. Additional Information
Property, plant and equipment
During the six months ended June 30, 2014, we added $652-million to assets under construction at our Vanscoy Potash facility.
Dividends
June 30,
----------------------------------------------------------------------------
2014
----------------------------------------------------------------------------
Declared
-----------------------------------------------
Paid to
Effective Per share Total Shareholders Total
----------------------------------------------------------------------------
December 12, 2013 0.75 108 January 16, 2014 108
----------------------------------------------------------------------------
February 21, 2014 0.75 108 April 17, 2014 108
----------------------------------------------------------------------------
May 7, 2014 0.75 108 July 17, 2014 NA
----------------------------------------------------------------------------
----------------------------------------------------------------------------
8. Operating Segments
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
Segment operations 2014 2013 2014 2013
----------------------------------------------------------------------------
Sales
----------------------------------------------------------------------------
Retail
----------------------------------------------------------------------------
North America 5,513 4,660 7,234 6,250
----------------------------------------------------------------------------
International 884 903 1,395 1,452
----------------------------------------------------------------------------
Total Retail 6,397 5,563 8,629 7,702
----------------------------------------------------------------------------
Wholesale
----------------------------------------------------------------------------
Nitrogen 421 641 757 1,023
----------------------------------------------------------------------------
Potash 175 212 303 364
----------------------------------------------------------------------------
Phosphate 161 211 328 373
----------------------------------------------------------------------------
Product purchased for resale 285 329 579 681
----------------------------------------------------------------------------
Ammonium sulfate, ESN and other 170 201 306 345
----------------------------------------------------------------------------
Total Wholesale 1,212 1,594 2,273 2,786
----------------------------------------------------------------------------
Other (271) (249) (485) (424)
----------------------------------------------------------------------------
7,338 6,908 10,417 10,064
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Inter-segment sales
----------------------------------------------------------------------------
Retail 5 7 10 11
----------------------------------------------------------------------------
Wholesale 266 242 475 413
----------------------------------------------------------------------------
271 249 485 424
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings before income taxes
----------------------------------------------------------------------------
Retail
----------------------------------------------------------------------------
North America 673 550 591 527
----------------------------------------------------------------------------
International 41 12 68 7
----------------------------------------------------------------------------
Total Retail 714 562 659 534
----------------------------------------------------------------------------
Wholesale
----------------------------------------------------------------------------
Nitrogen 101 294 191 467
----------------------------------------------------------------------------
Potash 72 120 118 204
----------------------------------------------------------------------------
Phosphate 6 27 8 64
----------------------------------------------------------------------------
Product purchased for resale 12 8 16 14
----------------------------------------------------------------------------
Ammonium sulfate, ESN and other 36 54 65 97
----------------------------------------------------------------------------
227 503 398 846
----------------------------------------------------------------------------
Unallocated expenses 36 38 29 47
----------------------------------------------------------------------------
Total Wholesale 191 465 369 799
----------------------------------------------------------------------------
Other (10) 37 (80) (30)
----------------------------------------------------------------------------
Earnings before finance costs and
income taxes 895 1,064 948 1,303
----------------------------------------------------------------------------
Finance costs related to long-term
debt 9 21 28 43
----------------------------------------------------------------------------
Other finance costs 18 21 35 39
----------------------------------------------------------------------------
Earnings before income taxes 868 1,022 885 1,221
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
2014 2013 2014 2013
----------------------------------------------------------------------------
Retail sales
----------------------------------------------------------------------------
Crop nutrients 2,708 2,485 3,604 3,287
----------------------------------------------------------------------------
Crop protection products 2,199 1,848 2,929 2,634
----------------------------------------------------------------------------
Seed 1,038 809 1,336 1,094
----------------------------------------------------------------------------
Merchandise 218 142 404 262
----------------------------------------------------------------------------
Services and other 234 279 356 425
----------------------------------------------------------------------------
6,397 5,563 8,629 7,702
----------------------------------------------------------------------------
----------------------------------------------------------------------------
AGRIUM INC.
Supplemental Information 1a
Results by Business Unit
(Millions of U.S. dollars)
(Unaudited)
Three months ended June 30,
----------------------------------------------------------------------------
2014
----------------------------------------------------------------------------
Retail Wholesale Other Total
----------------------------------------------------------------------------
Sales - external 6,392 946 - 7,338
- inter-segment 5 266 (271) -
----------------------------------------------------------------------------
Total sales 6,397 1,212 (271) 7,338
Cost of product sold 5,048 985 (294) 5,739
----------------------------------------------------------------------------
Gross profit 1,349 227 23 1,599
----------------------------------------------------------------------------
Gross profit (%) 21 19 22
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Selling 603 10 (4) 609
General and administrative 35 13 18 66
(Earnings) loss from associates and
joint ventures (4) (10) 1 (13)
Other expenses 1 23 18 42
----------------------------------------------------------------------------
EBIT (1) 714 191 (10) 895
EBITDA (2) 791 252 (6) 1,037
Adjusted EBITDA (2) 791 263 (6) 1,048
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended June 30,
----------------------------------------------------------------------------
2013
----------------------------------------------------------------------------
Wholesale Other Total
Retail (3) (4) (4)
----------------------------------------------------------------------------
Sales - external 5,556 1,352 - 6,908
- inter-segment 7 242 (249) -
----------------------------------------------------------------------------
Total sales 5,563 1,594 (249) 6,908
Cost of product sold 4,421 1,091 (303) 5,209
----------------------------------------------------------------------------
Gross profit 1,142 503 54 1,699
----------------------------------------------------------------------------
Gross profit (%) 21 32 25
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Selling 538 9 (1) 546
General and administrative 31 26 5 62
Earnings from associates and joint
ventures (3) (12) - (15)
Other expenses 14 15 13 42
----------------------------------------------------------------------------
EBIT (1) 562 465 37 1,064
EBITDA (2) 619 534 38 1,191
Adjusted EBITDA (2) 619 542 38 1,199
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Earnings (loss) from continuing operations before finance costs and
income taxes.
(2) Certain measures presented in this table are not recognized measures
under IFRS. Refer to Supplemental Information 6.
(3) Restated for the results of ESN and Micronutrients businesses that have
transitioned to our Wholesale business unit.
(4) Restated for reclassifications resulting from discontinued operations.
AGRIUM INC.
Supplemental Information 1b
Results by Business Unit
(Millions of U.S. dollars)
(Unaudited)
Six months ended June 30,
----------------------------------------------------------------------------
2014
----------------------------------------------------------------------------
Retail Wholesale Other Total
----------------------------------------------------------------------------
Sales - external 8,619 1,798 - 10,417
- inter-segment 10 475 (485) -
----------------------------------------------------------------------------
Total sales 8,629 2,273 (485) 10,417
Cost of product sold 6,893 1,875 (506) 8,262
----------------------------------------------------------------------------
Gross profit 1,736 398 21 2,155
----------------------------------------------------------------------------
Gross profit (%) 20 18 21
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Selling 1,039 21 (7) 1,053
General and administrative 63 23 80 166
(Earnings) loss from associates and
joint ventures (5) (10) 1 (14)
Other (income) expenses (20) (5) 27 2
----------------------------------------------------------------------------
EBIT (1) 659 369 (80) 948
EBITDA (2) 808 483 (74) 1,217
Adjusted EBITDA (2) 808 500 (74) 1,234
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30,
----------------------------------------------------------------------------
2013
----------------------------------------------------------------------------
Wholesale Other Total
Retail (3) (4) (4)
----------------------------------------------------------------------------
Sales - external 7,691 2,373 - 10,064
- inter-segment 11 413 (424) -
----------------------------------------------------------------------------
Total sales 7,702 2,786 (424) 10,064
Cost of product sold 6,184 1,940 (464) 7,660
----------------------------------------------------------------------------
Gross profit 1,518 846 40 2,404
----------------------------------------------------------------------------
Gross profit (%) 20 30 24
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Selling 927 20 (5) 942
General and administrative 56 46 54 156
(Earnings) loss from associates and
joint ventures (4) (25) 1 (28)
Other expenses 5 6 20 31
----------------------------------------------------------------------------
EBIT (1) 534 799 (30) 1,303
EBITDA (2) 644 918 (24) 1,538
Adjusted EBITDA (2) 644 935 (24) 1,555
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Earnings (loss) from continuing operations before finance costs and
income taxes.
(2) Certain measures presented in this table are not recognized measures
under IFRS. Refer to Supplemental Information 6.
(3) Restated for the results of ESN and Micronutrients businesses that have
transitioned to our Wholesale business unit.
(4) Restated for reclassifications resulting from discontinued operations.
AGRIUM INC.
Supplemental Information 2
Product Lines
(Millions of U.S. dollars)
(Unaudited)
Three months ended June 30,
--------------------------------------------------------------------------
2014 2013
------------------------------------------------ -------------------------
Cost of Cost of
product Gross product Gross
Sales sold (1) profit Sales sold (1) profit
------------------------------------------------ -------------------------
Retail (2)
Crop nutrients 2,708 2,203 505 2,485 2,061 424
Crop protection
products 2,199 1,742 457 1,848 1,442 406
Seed 1,038 842 196 809 669 140
Merchandise 218 194 24 142 119 23
Services and other 234 67 167 279 130 149
------------------------------------------------ -------------------------
6,397 5,048 1,349 5,563 4,421 1,142
------------------------------------------------ -------------------------
Wholesale (3)
Nitrogen 421 320 101 641 347 294
Potash 175 103 72 212 92 120
Phosphate 161 155 6 211 184 27
Product purchased for
resale 285 273 12 329 321 8
Ammonium sulfate, ESN
and other 170 134 36 201 147 54
------------------------------------------------ -------------------------
1,212 985 227 1,594 1,091 503
------------------------------------------------ -------------------------
Other inter-segment
eliminations (4) (271) (294) 23 (249) (303) 54
------------------------------------------------ -------------------------
Total (4) 7,338 5,739 1,599 6,908 5,209 1,699
------------------------------------------------ -------------------------
------------------------------------------------ -------------------------
Wholesale equity
accounted joint
ventures:
Nitrogen 49 35 14 50 36 14
Product purchased for
resale 17 16 1 32 30 2
------------------------------------------------ -------------------------
66 51 15 82 66 16
------------------------------------------------ -------------------------
Total Wholesale
including equity
accounted joint
ventures (3) 1,278 1,036 242 1,676 1,157 519
------------------------------------------------ -------------------------
------------------------------------------------ -------------------------
AGRIUM INC.
Supplemental Information 2
Product Lines
(Millions of U.S. dollars)
(Unaudited)
Six months ended June 30,
----------------------------------------------------------------------------
2014 2013
------------------------------------------------- --------------------------
Cost of Cost of
product Gross product Gross
Sales sold (1) profit Sales sold (1) profit
------------------------------------------------- --------------------------
Retail (2)
Crop nutrients 3,604 2,971 633 3,287 2,742 545
Crop protection
products 2,929 2,367 562 2,634 2,100 534
Seed 1,336 1,094 242 1,094 910 184
Merchandise 404 356 48 262 217 45
Services and other 356 105 251 425 215 210
------------------------------------------------- --------------------------
8,629 6,893 1,736 7,702 6,184 1,518
------------------------------------------------- --------------------------
Wholesale (3)
Nitrogen 757 566 191 1,023 556 467
Potash 303 185 118 364 160 204
Phosphate 328 320 8 373 309 64
Product purchased for
resale 579 563 16 681 667 14
Ammonium sulfate, ESN
and other 306 241 65 345 248 97
------------------------------------------------- --------------------------
2,273 1,875 398 2,786 1,940 846
------------------------------------------------- --------------------------
Other inter-segment
eliminations (4) (485) (506) 21 (424) (464) 40
------------------------------------------------- --------------------------
Total (4) 10,417 8,262 2,155 10,064 7,660 2,404
------------------------------------------------- --------------------------
------------------------------------------------- --------------------------
Wholesale equity
accounted joint
ventures:
Nitrogen 76 53 23 89 60 29
Product purchased for
resale 38 36 2 63 60 3
------------------------------------------------- --------------------------
114 89 25 152 120 32
------------------------------------------------- --------------------------
Total Wholesale
including equity
accounted joint
ventures (3) 2,387 1,964 423 2,938 2,060 878
------------------------------------------------- --------------------------
------------------------------------------------- --------------------------
(1) Includes depreciation and amortization.
(2) International Retail sales were $884-million (2013 - $903-million) and
gross profit was $149-million (2013 - $131-million) for the three months
ended June 30. International Retail sales were $1,395-million (2013 -
$1,452-million) and gross profit was $253-million (2013 - $228-million)
for the six months ended June 30.
(3) Restated for the results of ESN and Micronutrients businesses that have
transitioned to our Wholesale business unit.
(4) Restated for reclassifications resulting from discontinued operations.
AGRIUM INC.
Supplemental Information 3a
Selected Volumes and Sales Prices
(Unaudited)
Three months ended June 30,
----------------------------------------------------------------------------
2014
---------------------------------------------------------------------------
Cost of
Sales Selling product
tonnes price sold Margin
(000's) ($/tonne) ($/tonne) ($/tonne)
---------------------------------------------------------------------------
Retail
Crop nutrients
North America 4,161 558
International 758 512
---------------------------------------------------------------------------
Total crop nutrients 4,919 551 448 103
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Wholesale (1)
Nitrogen
North America
Ammonia 323 577
Urea 243 474
Other 340 351
---------------------------------------------------------------------------
Total nitrogen 906 464 353 111
---------------------------------------------------------------------------
Potash
North America 372 358
International 194 218
---------------------------------------------------------------------------
Total potash 566 310 182 128
---------------------------------------------------------------------------
Phosphate 268 598 576 22
Product purchased for resale 683 418 400 18
Ammonium sulfate 106 360 169 191
ESN and Other 251
---------------------------------------------------------------------------
Total Wholesale 2,780 436 354 82
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Wholesale equity accounted joint
ventures:
Nitrogen 147 336 244 92
Product purchased for resale 90 188 171 17
---------------------------------------------------------------------------
237 280 216 64
---------------------------------------------------------------------------
Total Wholesale including joint
ventures (1) 3,017 424 344 80
---------------------------------------------------------------------------
---------------------------------------------------------------------------
AGRIUM INC.
Supplemental Information 3a
Selected Volumes and Sales Prices
(Unaudited)
Three months ended June 30,
---------------------------------------------------------------------------
2013
---------------------------------------------------------------------------
Cost of
Sales Selling product
tonnes price sold Margin
(000's) ($/tonne) ($/tonne) ($/tonne)
---------------------------------------------------------------------------
Retail
Crop nutrients
North America 3,407 616
International 684 566
---------------------------------------------------------------------------
Total crop nutrients 4,091 607 504 103
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Wholesale (1)
Nitrogen
North America
Ammonia 419 743
Urea 377 547
Other 307 406
---------------------------------------------------------------------------
Total nitrogen 1,103 582 315 267
---------------------------------------------------------------------------
Potash
North America 243 470
International 301 324
---------------------------------------------------------------------------
Total potash 544 389 168 221
---------------------------------------------------------------------------
Phosphate 317 667 584 83
Product purchased for resale 710 462 451 11
Ammonium sulfate 98 451 198 253
ESN and Other 242
---------------------------------------------------------------------------
Total Wholesale 3,014 529 362 167
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Wholesale equity accounted joint
ventures:
Nitrogen 110 455 328 127
Product purchased for resale 84 381 357 24
---------------------------------------------------------------------------
194 423 341 82
---------------------------------------------------------------------------
Total Wholesale including joint
ventures (1) 3,208 522 360 162
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Restated for the results of ESN and Micronutrients businesses that have
transitioned to our Wholesale business unit.
AGRIUM INC.
Supplemental Information 3b
Selected Volumes and Sales Prices
(Unaudited)
Six months ended June 30,
----------------------------------------------------------------------------
2014
---------------------------------------------------------------------------
Cost of
Sales Selling product
tonnes price sold Margin
(000's) ($/tonne) ($/tonne) ($/tonne)
---------------------------------------------------------------------------
Retail
Crop nutrients
North America 5,561 544
International 1,184 491
---------------------------------------------------------------------------
Total crop nutrients 6,745 534 440 94
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Wholesale (1)
Nitrogen
North America
Ammonia 502 549
Urea 625 454
Other 571 346
---------------------------------------------------------------------------
Total nitrogen 1,698 446 334 112
---------------------------------------------------------------------------
Potash
North America 664 351
International 330 213
---------------------------------------------------------------------------
Total potash 994 305 186 119
---------------------------------------------------------------------------
Phosphate 576 569 555 14
Product purchased for resale 1,488 389 378 11
Ammonium sulfate 198 335 171 164
ESN and Other 462
---------------------------------------------------------------------------
Total Wholesale 5,416 420 347 73
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Wholesale equity accounted joint
ventures:
Nitrogen 209 365 256 109
Product purchased for resale 154 246 232 14
---------------------------------------------------------------------------
363 315 246 69
---------------------------------------------------------------------------
Total Wholesale including joint
ventures (1) 5,779 413 340 73
---------------------------------------------------------------------------
---------------------------------------------------------------------------
AGRIUM INC.
Supplemental Information 3b
Selected Volumes and Sales Prices
(Unaudited)
Six months ended June 30,
---------------------------------------------------------------------------
2013
---------------------------------------------------------------------------
Cost of
Sales Selling product
tonnes price sold Margin
(000's) ($/tonne) ($/tonne) ($/tonne)
---------------------------------------------------------------------------
Retail
Crop nutrients
North America 4,468 607
International 1,031 557
---------------------------------------------------------------------------
Total crop nutrients 5,499 598 499 99
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Wholesale (1)
Nitrogen
North America
Ammonia 612 700
Urea 699 545
Other 538 397
---------------------------------------------------------------------------
Total nitrogen 1,849 553 301 252
---------------------------------------------------------------------------
Potash
North America 441 471
International 481 325
---------------------------------------------------------------------------
Total potash 922 395 174 221
---------------------------------------------------------------------------
Phosphate 549 680 564 116
Product purchased for resale 1,473 462 453 9
Ammonium sulfate 170 444 193 251
ESN and Other 429
---------------------------------------------------------------------------
Total Wholesale 5,392 517 360 157
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Wholesale equity accounted joint
ventures:
Nitrogen 188 473 319 154
Product purchased for resale 163 387 369 18
---------------------------------------------------------------------------
351 433 342 91
---------------------------------------------------------------------------
Total Wholesale including joint
ventures (1) 5,743 512 359 153
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Restated for the results of ESN and Micronutrients businesses that have
transitioned to our Wholesale business unit.
AGRIUM INC.
Supplemental Information 4
Depreciation and Amortization
(Millions of U.S. dollars)
(Unaudited)
Three months ended June 30,
----------------------------------------------------------------------------
2014
---------------------------------------------------------------------------
Cost of General
product and
sold Selling administrative Total
---------------------------------------------------------------------------
Retail 2 72 3 77
Wholesale (1)
Nitrogen 22
Potash 18
Phosphate 13
Product purchased for resale 1
Ammonium sulfate, ESN and other 6
---------------------------------------------------------------------------
60 - 1 61
Other - - 4 4
---------------------------------------------------------------------------
Total (2) 62 72 8 142
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Three months ended June 30,
---------------------------------------------------------------------------
2013
---------------------------------------------------------------------------
Cost of General
product and
sold Selling administrative Total
---------------------------------------------------------------------------
Retail 2 52 3 57
Wholesale (1)
Nitrogen 21
Potash 17
Phosphate 17
Product purchased for resale -
Ammonium sulfate, ESN and other 6
---------------------------------------------------------------------------
61 - 8 69
Other - - 1 1
---------------------------------------------------------------------------
Total (2) 63 52 12 127
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Six months ended June 30,
----------------------------------------------------------------------------
2014
---------------------------------------------------------------------------
Cost of General
product and
sold Selling administrative Total
---------------------------------------------------------------------------
Retail 3 140 6 149
Wholesale (1)
Nitrogen 42
Potash 31
Phosphate 26
Product purchased for resale 1
Ammonium sulfate, ESN and other 11
---------------------------------------------------------------------------
111 - 3 114
Other - - 6 6
---------------------------------------------------------------------------
Total (2) 114 140 15 269
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Six months ended June 30,
---------------------------------------------------------------------------
2013
---------------------------------------------------------------------------
Cost of General
product and
sold Selling administrative Total
---------------------------------------------------------------------------
Retail 3 101 6 110
Wholesale (1)
Nitrogen 36
Potash 28
Phosphate 31
Product purchased for resale -
Ammonium sulfate, ESN and other 9
---------------------------------------------------------------------------
104 - 15 119
Other - - 6 6
---------------------------------------------------------------------------
Total (2) 107 101 27 235
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Restated for the results of ESN and Micronutrients businesses that have
transitioned to our Wholesale business unit.
(2) Restated for reclassifications resulting from discontinued operations.
AGRIUM INC.
Supplemental Information 5 (1)
Selected Financial Measures
(Millions of U.S. dollars, unless stated otherwise)
(Unaudited)
Retail and consolidated
Agrium measures Rolling four quarters ended June 30,
----------------------------------------------------------------------------
2014 2013
--------------------------------------------------- ------------------------
Consolidated Consolidated
Retail Agrium Retail Agrium (2)
--------------------------------------------------- ------------------------
Return on operating capital
employed (%) (3a) 19 11 15 21
Return on capital employed
(%) (3b) 11 9 8 15
Average non-cash working
capital to sales (%) 17 14 20 17
Operating coverage ratio
(%) (3c) 69 64 72 50
EBITDA to sales (%) (3d) 9 11 8 16
June 30,
----------------------------------------------------------------------------
2014 2013
--------------------------------------------------- ------------------------
Consolidated Consolidated
Retail Agrium Retail Agrium
--------------------------------------------------- ------------------------
Non-cash working capital 2,562 2,242 2,737 3,140
Retail comparable store
measures Six months ended June 30,
----------------------------------------------------------------------------
2014 2013
------------------------------------- ----------
Retail Retail
------------------------------------- ----------
Comparable store sales (%) (3) (3)
Normalized comparable store
sales (%) - 1
Retail North America
measures Rolling four quarters ended June 30,
----------------------------------------------------------------------------
2014 2013
------------------------------------- ----------
Retail Retail
------------------------------------- ----------
Return on operating capital
employed (%) (3a) 29 21
Return on capital employed
(%) (3b) 15 10
EBITDA to sales (%) (3d) 12 9
Wholesale production tonnes Three months ended June Six months ended June
(000's) 30, 30,
----------------------------------------------------------------------------
2014 2013 2014 2013
--------------------------------------------------- ------------------------
Ammonia (gross) 525 592 1,134 1,259
Urea (gross) 292 352 751 808
Monoammonium phosphate 146 150 299 317
Potash 479 449 902 910
(1) Certain measures presented in this table are not recognized measures
under IFRS. Refer to Supplemental Information 6.
(2) Restated for reclassifications resulting from discontinued operations.
(3) Adjusted 2014 amounts removing the impact of the purchase gain and
goodwill impairment.
(a) Retail 19%, Retail - North America 21%, Consolidated Agrium 11%.
(b) Retail 10%, Retail - North America 11%, Consolidated Agrium 8%.
(c) Retail 70%, Consolidated Agrium 65%.
(d) Retail 9%, Retail - North America 10%, Consolidated Agrium 11%.
AGRIUM INC.
Supplemental Information 6 (1)
Accompanying Notes to Supplemental Information
----------------------------------------------------------------------------
----------------------------------------------------------------------------
IFRS Financial
Measure Definition
----------------------------------------------------------------------------
Average non- Rolling four quarter average non-cash working capital
cash working divided by sales.
capital to
sales (2)
Operating Gross profit less earnings (loss) from continuing operations
coverage ratio before finance costs and income taxes, divided by gross
(2) profit.
Non-cash Current assets less current liabilities, excluding cash and
working cash equivalents, other current assets, short-term debt,
capital (2) current portion of long-term debt and current assets and
liabilities held for sale.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Usefulness of
Additional or Non-IFRS
Definition Financial Measure
----------------------------------------------------------------------------
Additional IFRS Financial Measure (As defined in
Canadian Securities Administrators' Staff Notice
52-306 (Revised))
----------------------------------------------------------------------------
EBIT Earnings (loss) from continuing Used to measure
operations before finance costs and operating performance
income taxes. exclusive of capital
structure and income
taxes.
Return on Last 12 months' EBIT less income Used to measure
operating taxes at a tax rate of 27 percent operating performance
capital (2013 - 27 percent) divided by and efficiency of our
employed (2) rolling four quarter average capital allocation
operating capital employed. process.
Operating capital employed includes
non-cash working capital, property,
plant and equipment, investments in
associates and joint ventures and
other assets.
Return on Last 12 months' EBIT less income Used to measure
capital taxes at a tax rate of 27 percent operating performance
employed (2) (2013 - 27 percent) divided by and efficiency of our
rolling four quarter average capital capital allocation
employed. Capital employed includes process.
operating capital employed,
intangibles and goodwill.
----------------------------------------------------------------------------
Non-IFRS Financial Measure
----------------------------------------------------------------------------
EBITDA Earnings (loss) from continuing Refer to EBIT. Also
operations before finance costs, used as a valuation
income taxes, depreciation and metric and as an
amortization. alternative to cash
provided by operating
activities.
Adjusted EBITDA EBITDA before finance costs, income Refer to EBIT and
taxes, depreciation and amortization EBITDA. Provides useful
of joint ventures. information on our
profitability by adding
back finance costs,
income taxes,
depreciation and
amortization of joint
ventures.
EBITDA to sales EBITDA divided by sales. Used to measure
operating performance
earnings and cash flow
we generate from each
dollar of sales.
Comparable We include a location in the Used to measure the
store sales comparable store base once it is in performance of our
operation or owned for over 12 existing stores by
months. If we close a store, we measuring the change in
retain the sales of the closed sales for such stores
location in the comparable store over the comparable
base if the closed location is in period.
close geographical proximity to an
existing location, unless we plan to
exit the market area or are unable
to economically or logistically
serve it. We do not make adjustments
for temporary closures, expansions
or renovations of stores.
Normalized Comparable store sales normalized by Used to measure the
comparable using published nitrogen, phosphate performance of our
store sales and potash ("NPK") benchmark prices existing stores by
and adjusting current year prices to measuring the change in
reflect pricing from the previous sales for such stores
year based on our percent of NPK over the comparable
utilization by product. period.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Our definitions and our method of calculation for these measures may not
be directly comparable to similar measures presented by other companies.
(2) These measures are IFRS measures or additional IFRS measures when
calculated using information included in our consolidated financial
statements. They are classified as non-IFRS measures when calculated
using information from our Retail or Wholesale segments because the
specific components are not included in our financial statements or
notes.
AGRIUM INC.
Supplemental Information 7
Reconciliation of Selected Additional and Non-IFRS Financial Measures
(Millions of U.S. dollars, unless stated otherwise)
(Unaudited)
Rolling four quarters ended June 30,
----------------------------------------------------------------------------
2014 2013
---------------------------------------------- -----------------------------
Retail - Retail -
North Consolidated North Consolidated
America Retail Agrium America Retail Agrium
---------------------------------------------- -----------------------------
EBIT less income
taxes
EBIT 1,003 873 1,275 659 678 2,045
Income taxes 271 236 344 179 185 560
---------------------------------------------- -----------------------------
732 637 931 480 493 1,485
---------------------------------------------- -----------------------------
Average operating
capital employed
Average non-cash
working capital 1,676 2,219 2,297 1,650 2,325 2,671
Average
property, plant
and equipment 841 963 5,078 645 770 3,568
Average
investments in
associates and
joint ventures 32 78 629 32 87 635
Average other
assets 4 10 106 3 15 76
---------------------------------------------- -----------------------------
2,553 3,270 8,110 2,330 3,197 6,950
---------------------------------------------- -----------------------------
Return on
operating
capital employed
(%) 29 19 11 21 15 21
---------------------------------------------- -----------------------------
---------------------------------------------- -----------------------------
Average capital
employed
Average
operating
capital
employed 2,553 3,270 8,110 2,330 3,197 6,950
Average
intangibles 614 686 703 498 580 632
Average goodwill 1,779 1,989 2,039 1,806 2,218 2,313
---------------------------------------------- -----------------------------
4,946 5,945 10,852 4,634 5,995 9,895
---------------------------------------------- -----------------------------
Return on capital
employed (%) 15 11 9 10 8 15
---------------------------------------------- -----------------------------
---------------------------------------------- -----------------------------
Comparable store sales
and normalized
comparable store sales Six months ended June 30,
----------------------------------------------------------------------------
2014 2013
--------------------------------- --------
Sales from
comparable base
Current period 7,437 7,460
Prior period 7,702 7,670
--------------------------------- --------
Comparable store
sales (%) (3) (3)
--------------------------------- --------
Current period
normalized for
benchmark
prices 7,716 7,769
--------------------------------- --------
Normalized
comparable
store sales (%) - 1
--------------------------------- --------
--------------------------------- --------
FOR FURTHER INFORMATION PLEASE CONTACT:
Investor/Media Relations:
Agrium Inc.
Richard Downey
Vice President, Investor & Corporate Relations
(403) 225-7357
Agrium Inc.
Todd Coakwell
Director, Investor Relations
(403) 225-7437
Agrium Inc.
Louis Brown
Analyst, Investor Relations
(403) 225-7761
www.agrium.com
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