Agrium Reports Strong Third Quarter Results, Expects Record Earnings Year
CALGARY, ALBERTA -- (Marketwire) -- 11/03/11 -- ALL AMOUNTS ARE STATED IN U.S.$
Agrium Inc. (TSX: AGU) (NYSE: AGU) announced today consolidated net earnings ('net earnings') of $293-million ($1.85 diluted earnings per share) for the third quarter of 2011, compared with the net earnings of $61-million in the third quarter of 2010 ($0.39 diluted earnings per share).
'Results from our Retail business were particularly strong this quarter, as we achieved record sales and our second highest earnings for a third quarter. Agrium's Wholesale results were also the second highest on record for a third quarter, due to yet another quarter of excellent margins supported by strong crop nutrient prices. We expect the strength in our business to extend through the fall application season and into 2012, due to the continuation of tight agricultural fundamentals providing economic incentive for growers to optimize crop acreage, yields and crop inputs (1),' said Mike Wilson, Agrium President and CEO.
'Despite the recent global economic uncertainty and volatility, we believe that the strong fundamental drivers supporting demand in agricultural and crop input markets remain firmly in place. Consequently, the outlook for Agrium's businesses and products is excellent. This will enable us to continue to capitalize on our unique competitive strengths and deliver value to our shareholders and customers alike,' added Mr. Wilson.
Agrium is providing guidance for the fourth quarter of 2011 of $1.80 to $2.30 diluted earnings per share. This excludes any estimates for hedging gains or losses or share-based payments expense in the fourth quarter.(1)
The 2011 third quarter results included a pre-tax gain of $1-million ($nil diluted earnings per share) on natural gas and other hedge positions and a pre-tax recovery of $46-million ($0.21 diluted earnings per share) on share-based payments expense.(2)
(1)See disclosure in the section 'Outlook, Key Risks and Uncertainties' in our 2011 third quarter MD&A and additional assumptions in the section 'Management's Discussion and Analysis'.
(2)Third quarter effective tax rate of 28 percent used for adjusted diluted earnings per share calculations.
MANAGEMENT'S DISCUSSION AND ANALYSIS
November 3, 2011
Unless otherwise indicated, the financial information presented and discussed in this Management's Discussion and Analysis ('MD&A') is prepared in accordance with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board ('IASB'), and all comparisons of results for the third quarter of 2011 (three months ended September 30, 2011) are against results for the third quarter of 2010 (three months ended September 30, 2010) and all comparisons of results for the first nine months of 2011 (nine months ended September 30, 2011) are against results for the first nine months of 2010 (nine months ended September 30, 2010). All dollar amounts refer to United States ('U.S.') dollars except where otherwise stated.
The following interim MD&A updates our annual MD&A included in our 2010 Annual Report to Shareholders, to which our readers are referred and is as of November 3, 2011. 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, pursuant to the authority delegated to it by the Board of Directors this disclosure. No update is provided where an item is not material or there has been no material change from the discussion in our annual MD&A. Forward-Looking Statements are outlined after the Outlook, Key Risks and Uncertainties section of this press release.
The major assumptions made in preparing our fourth quarter guidance on continuing operations are outlined below and include but are not limited to:
-- Wholesale fertilizer prices approximating current market prices through
the fourth quarter of 2011 with the exception of those volumes already
committed under pricing programs;
-- Wholesale North America fertilizer sales volumes consistent with the
same levels in the fourth quarter of 2010, with international and
product purchased for resale volumes slightly ahead of the same period
last year;
-- Retail North America fertilizer gross margin percentages consistent with
those realized in the fourth quarter of 2010 and chemical margin
percentages slightly below those realized in the same period last year;
-- Retail North America fertilizer sales volumes slightly below the
outstanding sales volumes experienced in the fourth quarter of 2010;
-- Average NYMEX gas pricing for the fourth quarter approximating $3.90 per
MMBtu;
-- The exclusion from the fourth quarter guidance range for the effect of:
-- share-based payments expense or recovery resulting from movement in
Agrium's share price;
-- mark-to-market gains or losses on hedge positions settling in future
periods; and,
-- results of discontinued operations.
2011 Third Quarter Operating Results
CONSOLIDATED NET EARNINGS
Agrium's 2011 third quarter consolidated net earnings ('net earnings') were $293-million, or $1.85 diluted earnings per share, compared to net earnings of $61-million, or $0.39 diluted earnings per share, for the same quarter of 2010. Net earnings for the first nine months of 2011 were approximately $1.2-billion, or $7.48 diluted earnings per share, compared to $578-million, or $3.65 diluted earnings per share for the same period in 2010.
Financial Overview
Three months ended September 30,
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(Millions of U.S. dollars, except per
share amounts and effective tax rate) 2011 2010 $ Change % Change
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Sales 3,141 2,066 1,075 52%
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Gross profit 888 498 390 78%
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Expenses 440 392 48 12%
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Earnings from continuing operations
before finance costs and income taxes
('EBIT') 448 106 342 323%
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Consolidated net earnings from
continuing operations(1) 293 61 232 380%
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Consolidated net earnings 293 61 232 380%
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Diluted earnings per share from
continuing operations 1.85 0.39 1.46 374%
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Diluted earnings per share 1.85 0.39 1.46 374%
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Effective tax rate 28% 24% N/A 4%
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Nine months ended September 30,
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(Millions of U.S. dollars, except per
share amounts and effective tax rate) 2011 2010 $ Change % Change
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Sales 12,293 8,345 3,948 47%
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Gross profit 3,288 1,923 1,365 71%
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Expenses 1,533 1,058 475 45%
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Earnings from continuing operations
before finance costs and income taxes
('EBIT') 1,755 865 890 103%
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Consolidated net earnings from
continuing operations(1) 1,181 578 603 104%
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Consolidated net earnings 1,182 578 604 104%
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Diluted earnings per share from
continuing operations 7.48 3.65 3.83 105%
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Diluted earnings per share 7.48 3.65 3.83 105%
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Effective tax rate 28% 26% N/A 2%
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(1) See 'Discontinued Operations' below for a discussion of our discontinued operations.
Our consolidated gross profit for the third quarter and first nine months of 2011 increased by $390-million and approximately $1.4-billion, respectively, primarily due to higher gross profit from all three of our strategic business units, with highlights as follows:
-- An increase in Wholesale's gross profit of $220-million and $757-million
for the third quarter and first nine months of 2011, respectively, as
higher crop pricing drove up demand and selling prices for all major
products.
-- The addition of the Landmark Australia Retail operations accounted for
an increase of $99-million and $315-million in Retail's gross profit for
the third quarter and first nine months of 2011, respectively, with over
half of the contribution coming from merchandise and other services.
Excluding Landmark, Retail's gross profit increased by $80-million in
the third quarter of 2011 and $319-million in the first nine months of
2011 due to higher sales volume and strong margins across our major
product lines.
The $48-million increase in expenses for the third quarter of 2011 was primarily driven by higher Retail selling and general and administrative expenses due to the addition of the Landmark business in the fourth quarter of 2010 and other recent acquisitions. These increases were partially offset by a $46-million recovery in share-based payments expense, which is a $124-million favourable change from the same period in 2010 (see section 'Other' for further discussion).
Our consolidated EBIT increased by $342-million for the third quarter of 2011.
The $475-million increase in expenses for the first nine months of 2011 was primarily driven by:
-- Higher Retail selling and general and administrative expenses due to the
addition of the Landmark business in the fourth quarter of 2010 and
other recent acquisitions.
-- A $78-million increase in other expenses for our Other non-operating
business unit (see section 'Other' for discussion on the drivers behind
this increase in expenses).
Our consolidated EBIT increased by $890-million for the first nine months of 2011.
Below is a summary of our other expenses (income) for the third quarter and first nine months of 2011 and 2010:
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------------------------------
(Millions of U.S.
dollars) 2011 2010 2011 2010
----------------------------------------------------------------------------
Realized loss on
derivative financial
instruments 1 6 76 34
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Unrealized (gain) loss
on derivative financial
instruments (2) (16) (47) 16
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Foreign exchange loss
(gain) - 8 (42) 3
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Potash profit and
capital tax 7 7 33 11
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Gain on disposal of
marketable securities - - - (52)
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Environmental
remediation and asset
retirement obligations 4 - 29 2
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Interest income (24) (15) (57) (36)
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Bad debt expense 6 4 33 28
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Other 8 7 32 4
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- 1 57 10
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The effective tax rate was 28 percent for the third quarter of 2011 compared to 24 percent for the same period last year. The effective tax rate was 28 percent for the first nine months of 2011 compared to 26 percent for the same period last year. The increase in the effective tax rate was due to the recognition of a previously unrecognized tax benefit in 2010.
Financial Overview
BUSINESS SEGMENT PERFORMANCE
Retail
Retail's 2011 third quarter sales were $2.0-billion, a significant increase over the $1.2-billion in sales for the third quarter of 2010. Strong demand for crop input products and services across our global retail operations contributed to record sales for a third quarter. Gross profit was $498-million this quarter, a 56 percent increase over the $319-million earned in the third quarter of 2010. We also achieved an EBIT of $92-million this quarter, compared to an EBIT of $70-million in the third quarter of 2010.
Crop nutrient sales increased to $692-million this quarter, compared to $411-million in the same quarter last year. This 68 percent increase in sales was due to a combination of higher nutrient prices and a 25 percent increase in volumes across our global Retail business, with most of the increase due to the addition of the Landmark business. North American fertilizer volumes were approximately 3 percent higher than the third quarter of 2010 due to the late seeding in parts of North America. Gross profit for crop nutrients was $124-million this quarter, up significantly from the $86-million reported in the third quarter of 2010. We anticipate strong crop nutrient demand from growers and solid margins to continue in the fourth quarter of 2011, despite the recent uncertainty across global economic markets.(1) Sales volumes and margins in our South American operations were also higher this quarter than the same period last year, supported by higher wheat prices and improved moisture conditions. Total crop nutrient margins were 18 percent in the third quarter of 2011, down 3 percent from the same quarter last year due to the inclusion of the Landmark business. Nutrient margins in North America were 22 percent this quarter, down 1 percent from the third quarter of 2010.
(1)See disclosure in the section 'Outlook, Key Risks and Uncertainties' in our 2011 third quarter MD&A and additional assumptions in the section 'Management's Discussion and Analysis'.
Crop protection sales were $943-million in the third quarter of 2011, a 32 percent increase over the $712-million in sales for the same period last year. The increase in sales and gross profit for crop protection products was evident across all three continents in which we operate due to strong industry fundamentals. Markets were particularly strong for plant health and insect control products. Gross profit this quarter was $226-million, a 31 percent increase over the $172-million recorded in the third quarter of 2010 due to both higher volumes and higher margins in North America. Crop protection product margins as a percentage of sales for total Retail were 24 percent for the third quarter of 2011, unchanged from the third quarter of 2010. However, margins in our North American operations were 1 percent higher than the same period last year.
Our seed sales reached $85-million this quarter, almost double the $44-million in sales in the third quarter of 2010. Gross profit increased to $30-million this quarter, compared to the $24-million for the third quarter of 2010. Higher sales were supported by late seeding in some regions this spring and re-planting of early flood areas.
Sales for application services and other were $157-million this quarter, almost three times higher than the $54-million reported in the third quarter of 2010. Gross profit was $99-million in the third quarter of 2011, compared to $35-million for the same period last year. The sizeable increase in sales and gross profit this year was due to the addition of the Australian Landmark business and to a significant increase in North American demand for application, resulting from the strength in agricultural fundamentals.
Sales of Merchandise this quarter were $134-million, compared to $23-million in the third quarter of 2010. Gross profit for this product line was $19-million, compared to $2-million in the third quarter of 2010. The increase in sales and gross profit was due to the addition of the Landmark retail business.
Retail selling expenses for the third quarter of 2011 were $390-million, which was $140-million higher than last year. The increase was due to a combination of increased operating expenses associated with the Landmark operations and higher fuel and incentive costs within our North American operations. Selling expenses as a percentage of sales were 19 percent in the third quarter of 2011, similar to the same period last year.
Wholesale
Wholesale's sales were $1.2-billion for the third quarter of 2011, a 36 percent increase from the $865-million achieved in the third quarter of 2010. Gross profit was $397-million in the third quarter of 2011, which is more than double the $177-million reported in the same period in 2010. Wholesale also reported third quarter EBIT of $393-million in 2011, the second highest third quarter on record and significantly higher than the $151-million earned in the third quarter of 2010. The significant increase in earnings was attributable to higher realized prices and margins across all three crop nutrients, resulting from the robust global demand and solid market fundamentals. Volumes were lower in the third quarter of 2011 than the same period last year, as strong sales in June 2011 resulted in lower beginning inventories in the quarter. Volumes were also impacted by subdued buying by some distributors and retailers and lower nitrogen production volumes in the third quarter of 2011.
Nitrogen gross profit was $177-million this quarter, more than double the $82-million reported in the same quarter last year due to higher realized prices, which more than offset lower sales volumes and higher production costs. Compared to the same period last year, prices for all nitrogen products were higher on average during the third quarter of 2011 for both benchmark and Agrium's realized prices due to favourable supply/demand dynamics. North American nitrogen sales volumes decreased as compared to the same period last year, primarily due to planned and unplanned outages this quarter. International urea sales volumes were higher this quarter than the same period last year due to higher operating rates at our Profertil facility. Nitrogen cost of product sold was $280 per tonne this quarter, which was higher than the $252 per tonne in the third quarter of last year partly due to the lower production volumes and to slightly higher average natural gas costs. Nitrogen margins averaged $217 per tonne this quarter, compared with $84 per tonne in the same period last year.
For the third quarter of 2011, Agrium's average natural gas cost in cost of product sold was $3.95/MMBtu ($4.13/MMBtu including the impact of realized losses on natural gas derivatives) compared to $3.73/MMBtu for the same period in 2010 ($4.01/MMBtu including the impact of realized losses on natural gas derivatives). Hedging gains or losses on all gas derivatives are reported below gross profit in other expenses and therefore not included in cost of product sold. The U.S. benchmark (NYMEX) natural gas price for the third quarter of 2011 was $4.19/MMBtu, compared to $4.41/MMBtu in the same quarter last year and $4.36/MMBtu in the second quarter of 2011. The AECO (Alberta) basis differential was a $0.33/MMBtu discount to NYMEX in the third quarter of 2011, which was narrower than the $0.86/MMBtu discount that existed in the third quarter of 2010.
Potash gross profit for the third quarter of 2011 was $102-million, compared to $60-million in the same quarter last year. The significant increase was due to stronger domestic and international pricing, driven by a combination of robust global demand and tight supply conditions. International sales volumes were 206,000 tonnes this quarter, higher than the 183,000 tonnes in the same period last year due to strong international demand and settlement of key contracts by Canpotex in July 2011. Domestic sales volumes were 141,000 tonnes this quarter, down from the 205,000 tonnes in the third quarter of 2010 due to supply constraints, resulting from lower beginning inventory levels in the third quarter of 2011 compared to the same period last year. Potash cost of product sold was $188 per tonne this quarter, similar to the $186 per tonne reported in the same period last year. Gross margin on a per tonne basis was $292 this quarter, which represents a significant increase over the gross margin of $154 per tonne realized during the same quarter in 2010.
Phosphate gross profit was $82-million this quarter, more than triple the $25-million reported for the third quarter of 2010. The increase was due to significantly higher realized sales prices, which averaged $784 per tonne for the quarter, compared to $563 per tonne for the third quarter of 2010. Increase in price was partially offset by an 8 percent decrease in sales volumes as a result of lower demand resulting from customer resistance due to pricing levels. Phosphate cost of product sold was $487 per tonne, marginally higher than $481 per tonne in the same period last year due to slightly higher sulphur costs. On a per tonne basis, gross margin was significantly higher this quarter at $297 per tonne, compared to $82 per tonne in the third quarter of 2010.
Gross profit for product purchased for resale was $21-million, more than double the $9-million reported in the third quarter of 2010. The substantial increase was due to stronger international market conditions, which have driven domestic prices higher. Gross margins in the third quarter of 2011 were $35 per tonne, which is $21 per tonne higher than the same quarter last year.
Wholesale's Other product category, which is primarily comprised of ammonium sulphate and Rainbow granulated products, achieved sales of $52-million this quarter, compared to $38-million in the third quarter of 2010. Gross profit was $15-million in the third quarter of 2011, significantly higher than the $1-million for the same period last year. The sizeable increase in gross profit was due to a combination of higher volumes for ammonium sulphate and higher prices for both product categories.
Wholesale expenses in the third quarter of 2011 were $4-million, $22-million lower than the same period last year. Decrease in expenses was primarily due to insurance recoveries of $17-million. Mark-to-market gains on natural gas and other derivatives were $6-million in the third quarter of 2011, compared to $4-million in gains for the same quarter in 2010. Realized losses on natural gas and power derivatives were $3-million, compared to a loss of $7-million in 2010.
Advanced Technologies
Advanced Technologies' ('AAT') gross profit was $24-million in the third quarter of 2011, significantly higher than the $15-million reported in the third quarter of 2010. The increase was attributable to both higher realized sales prices and margins for Environmentally Smart Nitrogen ('ESN'), as well as contributions to gross profit from recent acquisitions.
EBIT was a loss of $3-million in the third quarter of 2011, an improvement of $1-million compared to the same period last year, despite lower earnings from Hanfeng in the third quarter of 2011 versus last year. Earnings from continuing operations before finance costs, income taxes, depreciation and amortization ('EBITDA') was $3-million this quarter, which exceeded the $1-million reported in the third quarter of 2010. Stronger sales and gross profit were partly offset by higher selling and general and administrative costs in the third quarter of 2011, as compared to the same period last year. Selling and general and administrative costs for AAT were $8-million higher this quarter versus the same period in 2010, due primarily to acquisitions and continued efforts to support the expansion of AAT's retail sales footprint and presence in turf and ornamental markets in the U.S.
Other
EBIT for our Other non-operating business unit for the third quarter of 2011 was a loss of $34-million, compared to a loss of $111-million for the third quarter of 2010. This change was primarily driven by a $124-million favourable change in share-based payments expense, where we had a $46-million recovery due to a significant drop in share price during the third quarter of 2011, compared to an expense of $78-million due to a significant rise in share price in the third quarter of 2010. This change was partially offset by:
-- An $18-million decrease in gross profit reflecting higher amounts of
deferral of recognition of gross profit on Wholesale products sold to
Retail that have yet to be sold to external customers.
-- A $14-million unfavourable variance from foreign exchange derivatives
primarily as a result of unrealized gains on options entered into in
anticipation of the acquisition of AWB Limited ('AWB') in the third
quarter of 2010.
EBIT for Other for the first nine months of 2011 was a loss of $152-million, compared to a loss of $82-million for the same period of 2010. This change in EBIT reflected:
-- A $52-million gain realized from the sale of 1.2 million shares of CF
Industries Holdings, Inc. ('CF') in the first quarter of 2010.
-- A $49-million increase in general and administrative expense due to the
integration and transition costs driven by the addition of the AWB
business in the fourth quarter of 2010 and increases in labour costs and
legal and consulting fees.
-- A $42-million decrease in gross profit reflecting higher amounts of
deferral of recognition of gross profit on Wholesale products sold to
Retail that have yet to be sold to external customers.
-- An $18-million increase in provision for environmental remediation and
asset retirement obligations related to two sites.
-- An increase in net realized and unrealized loss from foreign exchange
derivatives of $55-million, the majority of which were entered into in
anticipation of the sale of the Commodity Management businesses of AWB
to Cargill, Incorporated. This was significantly offset by a $44-million
increase in foreign exchange gain primarily from the remeasurement of
intercompany loans.
These were partially offset by a $44-million recovery in share-based payments expense, which is a $101-million favourable change from the same period in 2010.
FINANCIAL CONDITION
The following are changes to working capital on our Condensed Consolidated Balance Sheets in the nine-month period ended September 30, 2011.
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As at (millions of Explanation of
U.S. dollars) September December $ % the change in
30, 2011 31, 2010 Change Change balance
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Current assets
See discussion
under the
section
'Liquidity and
Cash and cash Capital
equivalents 755 635 120 19% Resources'.
Increased
sales
activities and
higher prices
in Q3 vs.
lower
receivables
typically in
Q4; and higher
Accounts Retail vendor
receivable 2,925 1,793 1,132 63% rebates.
Comparable
inventories
balances
between Q3
2011 and Q4
2010 due to
increased cost
of product at
Q3 2011
consistent
with benchmark
Inventories 2,535 2,502 33 1% pricing.
Drawdown of
prepaid
inventory
where
typically
Retail prepays
for products
at year end
and takes
possession of
pre-bought
inventory
Prepaid expenses throughout the
and deposits 347 848 (501) (59%) year.
Marketable
securities - 3 (3) (100%) -
The majority
of the
Commodity
Management
businesses of
AWB was
divested in Q2
2011. See
discussion
under the
Assets of section
discontinued 'Discontinued
operations 99 1,320 (1,221) (93%) Operations'.
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Current liabilities
Write-off of
balances for
Hi-Fert Pty.
Ltd. ('Hi-
Fert'), which
has been sold
(50 percent
interest in
which we
acquired as
part of the
AWB
acquisition),
and pay down
of bank
Short-term debt 396 517 (121) (23%) borrowings.
Drawdown of
customer
prepayments
during the
year, where
typically
customers
enter into
prepay
agreements
during the
fourth quarter
ahead of the
spring
application
Accounts payable 2,382 2,666 (284) (11%) season.
Debentures of
$125-million
were repaid
February 15,
2011, while
South America
Retail line of
Current portion of credit is now
long-term debt 59 125 (66) (53%) current.
Related to
share-based
payments. See
section
'Other' for
Current portion of further
other provisions 165 198 (33) (17%) discussion.
The majority
of the
Commodity
Management
businesses of
AWB was
divested in Q2
2011. See
discussion
Liabilities of under
discontinued 'Discontinued
operations 80 1,020 (940) (92%) Operations'.
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Working capital 3,579 2,575 1,004 39%
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LIQUIDITY AND CAPITAL RESOURCES
Below is a summary of our cash provided by or used in operating, investing, and financing activities, as reflected in the Condensed Consolidated Statements of Cash Flows:
Nine months ended September 30,
----------------------------------------------------------------------------
(Millions of U.S. dollars) 2011 2010 Change
----------------------------------------------------------------------------
Cash provided by operating
activities 249 14 235
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Cash provided by (used in)
investing activities 119 (172) 291
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Cash (used in) provided by
financing activities (209) 118 (327)
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Effect of exchange rate
changes on cash and cash
equivalents (9) 4 (13)
Increase (decrease) in
cash and cash equivalents
from continuing
operations 150 (36) 186
Cash and cash equivalents
used in discontinued
operations (30) - (30)
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The sources and uses of cash for the nine months ended September 30, 2011 are summarized below:
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Cash provided by operating activities - Drivers behind the $235-million
increase in source of cash
----------------------------------------------------------------------------
Source of cash - $603-million resulting from increase in consolidated
net earnings from continuing operations adjusted for
changes in non-cash items, primarily associated with a
$85-million increase in deferred income taxes and a
$52-million gain on the sale of CF shares in Q1 2010,
which were partially offset by a $101-million change
in share-based payments expense where there was a
recovery of $44-million for the first nine months of
2011 compared to an expense of $57-million for the
first nine months of 2010.
Use of cash - $405-million increase in non-cash working capital.
The increase in non-cash working capital was primarily
driven by higher accounts receivable and inventories,
partially offset by a lower decrease in accounts
payable (for further discussion, see section
'Financial Condition').
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Cash used in investing activities - Drivers behind the $291-million increase
in source of cash
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Source of cash - Proceeds of $721-million from the disposal of
subsidiaries, of which $694-million was from the sale
of the majority of the Commodity Management businesses
of AWB to Cargill in May of 2011 (for further
discussion, see section 'Discontinued Operations').
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Use of cash - $145-million paid for acquisitions, net of cash
received, including Evergro Canada and International
Mineral Technologies (for further discussion, see
section 'Business Acquisitions').
-$124-million increase in capital expenditures.
-Proceeds of nil received on the sale of marketable
securities in 2011, compared to proceeds of $117-
million received on the sale of our shares in CF in
2010.
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Cash used in financing activities - Drivers behind the $327-million increase
in use of cash
----------------------------------------------------------------------------
Use of cash - Repayment of $125-million aggregate principal amount
of debentures that were due February 15, 2011.
- Repayment of short-term borrowings in 2011.
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Our short-term debt as at September 30, 2011 is summarized as follows:
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Short-term Debt Total Unutilized Utilized
----------------------------------------------------------------------------
(millions of U.S. dollars)
North American facilities
expiring 2012a) 775 775 -
North American accounts
receivable securitizationb) 200 200 -
European facilities expiring
in 2011 to 2012c) 186 49 137
South American facilities
expiring 2011 to 2012 138 50 88
Australian facilities
expiring 2011 8 8 -
Australian accounts
receivable securitizationb) 244 73 171
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1,551 1,155 396
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a) Outstanding letters of credit issued under our revolving credit facilities at September 30, 2011 were $77-million, reducing credit available under the facilities to $698-million.
b) For further information, see discussion under the section 'Off Balance Sheet Arrangements' on page 55 of our 2010 Annual Report.
c) Of the total facility, $4-million is secured by accounts receivable.
OUTSTANDING SHARE DATA
The number of Agrium's outstanding shares as at October 31, 2011 was approximately 158 million. As at October 31, 2011, the number of shares issuable pursuant to stock options outstanding (issuable assuming full conversion, where each option granted can be exercised for one common share) was approximately 0.3 million.
SELECTED QUARTERLY INFORMATION
(Unaudited, in millions of U.S. dollars, except per share information)
2011 2010 2009
----------------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 a) Q3 a)
Sales 3,141 6,198 2,954 2,398 2,066 4,431 1,848 1,442 1,844
Gross profit 888 1,675 725 725 498 1,063 362 383 397
Consolidated net
earnings (loss)
from continuing
operations 293 728 160 152 61 518 (1) 30 26
Consolidated net
earnings (loss) 293 718 171 135 61 518 (1) 30 26
Earnings (loss)
per share from
continuing
operations
-basic 1.86 4.61 1.02 0.97 0.39 3.29 (0.01) 0.19 0.16
-diluted 1.85 4.60 1.02 0.97 0.39 3.28 (0.01) 0.19 0.16
Earnings (loss)
per share
-basic 1.86 4.55 1.09 0.86 0.39 3.29 (0.01) 0.19 0.16
-diluted 1.85 4.54 1.09 0.86 0.39 3.28 (0.01) 0.19 0.16
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a) Presented in accordance with previous Canadian generally accepted accounting principles ('Canadian GAAP')
The agricultural products business is seasonal in nature. Consequently, sales and gross profit comparisons made on a year-over-year basis are more appropriate than quarter-over-quarter. 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 the application season. Cash collections generally occur after the application season is complete in the Americas and Australia. Our recent acquisition of AWB, which has a majority of its earnings from the first and second quarters of the calendar year, may have some impact on comparability.
Effective January 1, 2011, Agrium adopted IFRS as issued by the International Accounting Standards Board. The selected quarterly information for 2011 and 2010 are presented based on IFRS, while those for 2009 are presented based on Canadian GAAP. As such, direct comparison may not be appropriate.
BUSINESS ACQUISITIONS
On December 3, 2010, we acquired 100 percent of AWB, an agribusiness operating in Australia, for $1.2-billion in cash and $37-million of acquisition costs. On May 11, 2011, we completed the sale of the majority of the Commodity Management businesses acquired from AWB, in accordance with an agreement dated December 15, 2010 (for further discussion, see section 'Discontinued Operations'). Cash received from the sale was $694-million. We retained the Landmark retail operations, including over 200 company-owned retail locations and over 140 retail franchise and wholesale customer locations in Australia. The acquired business is included in the Retail operating segment.
As part of the acquisition, we acquired a 50 percent interest in Hi-Fert, over which receivers and administrators have been appointed. Previously recorded amounts have been written off. The company has been sold by the administrators. AWB had provided guarantees for letters of credit issued by lenders supporting operations of Hi-Fert. Our potential payment obligations under these guarantees, net of proceeds obtained to date from the sale of secured assets, are approximately $33-million. The amount, if any, that we will ultimately be required to pay under these guarantees, net of recoveries from a charge over related assets, is not determinable, pending the outcome of external administration and litigation processes.
On May 2, 2011, we acquired 100 percent of Cerealtoscana S.p.A. ('CT'), and its subsidiary Agroport, for total consideration of $27-million plus working capital. CT is a fertilizer distribution company in Italy and Agroport is its subsidiary in Romania. The acquired business is included in the Wholesale operating segment.
On July 4, 2011, we acquired certain assets and liabilities of Evergro Canada ('Evergro') for total consideration of $52-million. Evergro is a manufacturer and distributor of horticulture and professional turf products in Western Canada and operates seven distribution facilities throughout British Columbia and Alberta. The acquired net assets and related earnings are included in the Agrium Advanced Technologies operating segment.
On July 7, 2011, we acquired certain assets and liabilities of International Mineral Technologies ('Tetra Micronutrients') for total consideration of $44-million. Tetra Micronutrients is located in Nebraska and specializes in the production, marketing and distribution of custom liquid plant nutrition and dry micro nutrient products. The acquired net assets and related earnings are included in the Agrium Advanced Technologies and Retail operating segments.
DISCONTINUED OPERATIONS
Discontinued operations include the operation of Commodity Management businesses and AWB Harvest Finance Limited sold on May 11, 2011. Also included are the operations and assets and liabilities of the Commodity Management businesses not included in the sale. We have agreed to various terms and conditions and indemnifications pursuant to the sale of the Commodity Management business, including an indemnity by AWB for litigation related to the Oil-For-Food Programme, as described in note 2 of our Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2011.
Net earnings from discontinued operations was nil for the third quarter of 2011 and $1-million for the first nine months of 2011, compared to nil in the same periods of 2010.
NON-IFRS FINANCIAL MEASURES
In the discussion of our performance for the quarter, in addition to the primary measures of earnings and earnings per share reported in accordance with IFRS, we make reference to EBITDA (earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization). We consider EBITDA to be a useful measure of performance because income tax jurisdictions and business segments are not synonymous and we believe that allocation of income tax charges distorts the comparability of historical performance for the different business segments. Similarly, financing and related interest charges cannot be allocated to all business units on a basis that is meaningful for comparison with other companies.
EBITDA is not a recognized measure under IFRS, and our method of calculation may not be comparable to other companies. Similarly, EBITDA should not be used as an alternative to net earnings from continuing operations as determined in accordance with IFRS.
The following table is a reconciliation of EBITDA to consolidated net earnings from continuing operations as calculated in accordance with IFRS:
(millions of U.S. Three Months Ended September 30,
dollars)
2011
-------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Consolidated
----------------------------------------------------------------------------
EBITDA 135 438 3 (30) 546
Depreciation and
amortization 43 45 6 4 98
----------------------------------------------------------------------------
EBIT 92 393 (3) (34) 448
----------------------------------------------------------------------------
Finance costs
related to long- (25)
term debt
Other finance
costs (17)
Income taxes (113)
----------------------------------------------------------------------------
Consolidated net
earnings from
continuing 293
operations
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(millions of U.S. Three Months Ended September 30,
dollars)
2010
----------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Consolidated
----------------------------------------------------------------------------
EBITDA 98 206 1 (108) 197
Depreciation and
amortization 28 55 5 3 91
----------------------------------------------------------------------------
EBIT 70 151 (4) (111) 106
----------------------------------------------------------------------------
Finance costs
related to long- (20)
term debt
Other finance
costs (6)
Income taxes (19)
----------------------------------------------------------------------------
Consolidated net
earnings from
continuing 61
operations
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(millions of U.S. Nine Months Ended September 30,
dollars)
2011
-----------------------------------------------------
Advanced
Retail Wholesale Technologies Other Consolidated
----------------------------------------------------------------------------
EBITDA 689 1,467 22 (142) 2,036
Depreciation and
amortization 126 128 17 10 281
----------------------------------------------------------------------------
EBIT 563 1,339 5 (152) 1,755
----------------------------------------------------------------------------
Finance costs
related to long-
term debt (76)
Other finance costs (42)
Income taxes (456)
----------------------------------------------------------------------------
Consolidated net
earnings from
continuing
operations 1,181
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(millions of U.S. Nine Months Ended September 30,
dollars)
2010
--------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Consolidated
----------------------------------------------------------------------------
EBITDA 445 727 24 (75) 1,121
Depreciation and
amortization 82 153 14 7 256
----------------------------------------------------------------------------
EBIT 363 574 10 (82) 865
----------------------------------------------------------------------------
Finance costs
related to long-
term debt (65)
Other finance costs (20)
Income taxes (202)
----------------------------------------------------------------------------
Consolidated net
earnings from
continuing
operations 578
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ACCOUNTING STANDARDS AND CRITICAL ACCOUNTING ESTIMATES
Please refer to note 1 of our Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2011 for our significant accounting policies and critical accounting estimates, which includes, among others, purchase price allocations in business combinations; collectability of receivables; rebates; net realizable value of inventory; estimated useful lives and impairment of long-lived assets; goodwill impairment testing; allocation of acquisition purchase prices; asset retirement obligations; environmental remediation; employee future benefits; share-based payments; income taxes; fair value of financial assets and liabilities; and, amounts and likelihood of contingencies.
BUSINESS RISKS
The information presented on risk management and key business risks on pages 70 - 79 in our 2010 Annual Report has not changed materially since December 31, 2010.
CONTROLS & PROCEDURES
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
OUTLOOK, KEY RISKS AND UNCERTAINTIES
Strong agricultural fundamentals are expected to drive robust demand for crop inputs in the fourth quarter of 2011 and into 2012. The United States Department of Agriculture ('USDA') projects that despite record global harvested area of grains and oilseeds in 2011/12, global grain and oilseed production will fall short of consumption. Looking ahead to 2012, tighter crop ending stocks are expected to lead to higher planted area and competition between crops for acreage. Analysts project that U.S. corn area will increase in 2012 to between 92 and 94 million acres and that combined planted area of corn and soybeans in the U.S. will reach 170 million acres, exceeding the record set in 2011 by over 3 million acres. The increase in planted area is expected to lead to strong demand for seed, crop nutrients, crop protection products and services. However, some fertilizer distributors and retailers may delay purchases as late as possible to ensure they hold minimal inventories given the recent volatility in global economic markets.
The global economic situation continues to be a source of uncertainty and has driven significant volatility in commodity prices, including agricultural commodities. While agricultural supply and demand fundamentals are relatively immune to short-term macroeconomic events, the uncertainty has contributed to significant volatility as non-commercial traders have significantly lowered their positions in commodity markets.
Strong demand combined with a number of production outages globally supported nitrogen prices in the third quarter of 2011, a situation that is expected to continue in the fourth quarter. The merchant ammonia market has had supply shortfalls, notably in Trinidad, where natural gas supplies to domestic producers have been reduced significantly. New nitrogen supply is expected to come to the market from Qatar in late 2011 and Algeria in early 2012. The urea market has benefitted from strong demand from India, which has purchased over 2 million tonnes of urea in its most recent tenders. Industry analysts expect 2011 Chinese urea exports to be less than half of the 7 million tonnes exported in 2010 due to the trend to more restrictive export tax policies.
The resurgence of spot Indian phosphate demand has been a key driver in the global phosphate market. India is expected to import about 7 million tonnes of diammonium phosphate ('DAP') in the 2011/12 agricultural year, slightly lower than in 2010/11, but very strong considering year-over-year imports in the April through September 2011 period were down 33 percent. Chinese DAP exports are expected to be restricted due to the high tax rate until June 2012 and there are reports that this may be extended to compound and other phosphate products (Triple Super Phosphates and NP products). The Ma'aden phosphate project in Saudi Arabia is now expected to ramp up slowly in the first half of 2012 and industry analysts expect production of about 300,000 tonnes of DAP in 2011. Current finished phosphate prices are close to non-integrated producers' cost of production due to high global ammonia and sulphur prices, a tight global phosphate rock situation on inventory drawdown in the U.S. and lower production in some areas in the Middle East and North Africa.
The global potash market has remained firm over the past few months. Available supply is expected to limit global shipments of potash in 2011. North American potash capacity utilization rates in the first nine months of 2011 were the highest on record, as producers try to meet growing global potash demand. Brazilian potash demand from January through September exceeded the record 2008 pace. Through the first eight months of 2011, Chinese potash demand was 26 percent higher than the same period in 2010 and imports are expected to be at least 6 million tonnes in 2011. North American potash applications are expected to be supported this fall by higher forecasted crop acreage for 2012.
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. 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 listed below. 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 acquisitions, including the acquisition of retained AWB businesses.
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 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, 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. Additionally, there are risks associated with Agrium's recent acquisition of AWB, including: size and timing of expected synergies could be less favourable than anticipated; AWB is subject to dispute and litigation risk (including as a result of being named in litigation commenced by the Iraqi Government relating to the United Nations Oil-For-Food Programme), 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.
Agrium disclaims any intention or obligation to update or revise any forward-looking statements in this press release 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 through our Advanced Technologies business unit. Agrium's strategy is to grow across the value chain through acquisition, incremental expansion of its existing operations and through the development, commercialization and marketing of new products and international opportunities. Our strategy places particular emphasis on growth opportunities that both increase and stabilize our earnings profile in the continuing transformation of Agrium.
A WEBSITE SIMULCAST of the 2011 3rd Quarter Conference Call will be available in a listen-only mode beginning Thursday, November 3, 2011 at 9:30 a.m. MT (11:30 a.m. ET). Please visit the following website: www.agrium.com.
AGRIUM INC.
Condensed Consolidated Statements of Operations
(Millions of U.S. dollars, except per share amounts)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sales 3,141 2,066 12,293 8,345
----------------------------------------------------------------------------
Cost of product sold 2,253 1,568 9,005 6,422
----------------------------------------------------------------------------
Gross profit 888 498 3,288 1,923
----------------------------------------------------------------------------
Expenses
----------------------------------------------------------------------------
Selling 409 264 1,250 841
----------------------------------------------------------------------------
General and administrative 39 135 241 226
----------------------------------------------------------------------------
Earnings from associates (8) (8) (15) (19)
----------------------------------------------------------------------------
Other expenses (note 4) - 1 57 10
----------------------------------------------------------------------------
Earnings before finance costs and
income taxes 448 106 1,755 865
----------------------------------------------------------------------------
Finance costs related to long-term
debt (note 5) 25 20 76 65
----------------------------------------------------------------------------
Other finance costs (note 5) 17 6 42 20
----------------------------------------------------------------------------
Earnings before income taxes 406 80 1,637 780
----------------------------------------------------------------------------
Income taxes 113 19 456 202
----------------------------------------------------------------------------
Consolidated net earnings from
continuing operations 293 61 1,181 578
----------------------------------------------------------------------------
Consolidated net earnings from
discontinued
operations (note 3) - - 1 -
----------------------------------------------------------------------------
Consolidated net earnings 293 61 1,182 578
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Attributable to:
----------------------------------------------------------------------------
Equity holders of Agrium 293 61 1,182 577
----------------------------------------------------------------------------
Non-controlling interest - - - 1
----------------------------------------------------------------------------
Consolidated net earnings 293 61 1,182 578
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share (note 7)
----------------------------------------------------------------------------
Basic earnings per share from
continuing operations 1.86 0.39 7.49 3.66
----------------------------------------------------------------------------
Basic earnings per share from
discontinued operations - - - -
----------------------------------------------------------------------------
Basic earnings per share 1.86 0.39 7.49 3.66
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Diluted earnings per share from
continuing operations 1.85 0.39 7.48 3.65
----------------------------------------------------------------------------
Diluted earnings per share from
discontinued operations - - - -
----------------------------------------------------------------------------
Diluted earnings per share 1.85 0.39 7.48 3.65
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes.
AGRIUM INC.
Condensed Consolidated Statements of Comprehensive Income
(Millions of U.S. dollars)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated net earnings 293 61 1,182 578
----------------------------------------------------------------------------
Other comprehensive (loss) income
----------------------------------------------------------------------------
Available for sale financial
instruments - - (1) (29)
----------------------------------------------------------------------------
Net actuarial losses on post-
employment benefits (19) - (19) -
----------------------------------------------------------------------------
Foreign currency translation (181) 23 (144) (6)
----------------------------------------------------------------------------
(Loss) income of associates (1) 2 - -
----------------------------------------------------------------------------
(201) 25 (164) (35)
----------------------------------------------------------------------------
Consolidated comprehensive income 92 86 1,018 543
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Attributable to:
----------------------------------------------------------------------------
Equity holders of Agrium 92 96 1,025 554
----------------------------------------------------------------------------
Non-controlling interest - (10) (7) (11)
----------------------------------------
Consolidated comprehensive income 92 86 1,018 543
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes.
AGRIUM INC.
Condensed Consolidated Statements of Cash Flows
(Millions of U.S. dollars)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating
----------------------------------------------------------------------------
Consolidated net earnings from
continuing operations 293 61 1,181 578
----------------------------------------------------------------------------
Items not affecting cash
----------------------------------------------------------------------------
Depreciation and amortization 98 91 281 256
----------------------------------------------------------------------------
Earnings from associates (8) (8) (15) (19)
----------------------------------------------------------------------------
Share-based payments (46) 78 (44) 57
----------------------------------------------------------------------------
Unrealized (gain) loss on
derivative financial instruments (2) (16) (47) 16
----------------------------------------------------------------------------
Gain on disposal of marketable
securities - - - (52)
----------------------------------------------------------------------------
Unrealized foreign currency
translation loss (gain) 3 (2) 11 (1)
----------------------------------------------------------------------------
Deferred income taxes 28 (2) 97 12
----------------------------------------------------------------------------
Other 10 - 43 22
----------------------------------------------------------------------------
Dividends from associates - - 16 14
----------------------------------------------------------------------------
Net changes in non-cash working
capital (203) (111) (1,274) (869)
----------------------------------------------------------------------------
Cash provided by operating
activities 173 91 249 14
----------------------------------------------------------------------------
Investing
----------------------------------------------------------------------------
Acquisitions, net of cash acquired (118) - (145) -
----------------------------------------------------------------------------
Proceeds from disposal of
subsidiaries 27 - 721 -
----------------------------------------------------------------------------
Capital expenditures (184) (120) (430) (306)
----------------------------------------------------------------------------
Investment in associates (15) - (15) -
----------------------------------------------------------------------------
Purchase of investments (3) - (43) -
----------------------------------------------------------------------------
Proceeds from disposal of
investments - - 36 25
----------------------------------------------------------------------------
Proceeds from disposal of
marketable securities - - - 117
----------------------------------------------------------------------------
Other 5 7 (5) (8)
----------------------------------------------------------------------------
Cash (used in) provided by investing
activities (288) (113) 119 (172)
----------------------------------------------------------------------------
Financing
----------------------------------------------------------------------------
Short-term debt (109) 64 (132) 92
----------------------------------------------------------------------------
Long-term debt issued 60 48 70 48
----------------------------------------------------------------------------
Repayment of long-term debt (1) (2) (134) (10)
----------------------------------------------------------------------------
Dividends paid (9) (8) (18) (17)
----------------------------------------------------------------------------
Shares issued, net of issuance
costs 3 3 5 5
----------------------------------------------------------------------------
Cash (used in) provided by financing
activities (56) 105 (209) 118
----------------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents (21) 9 (9) 4
----------------------------------------------------------------------------
(Decrease) increase in cash and cash
equivalents from
continuing operations (192) 92 150 (36)
----------------------------------------------------------------------------
Cash and cash equivalents used in
discontinued
operations (note 3) (19) - (30) -
----------------------------------------------------------------------------
Cash and cash equivalents -
beginning of period 966 805 635 933
----------------------------------------------------------------------------
Cash and cash equivalents - end of
period 755 897 755 897
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest paid 59 35 121 90
----------------------------------------------------------------------------
Interest received 25 15 58 36
----------------------------------------------------------------------------
Income taxes paid 150 111 263 451
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes.
AGRIUM INC.
Condensed Consolidated Balance Sheets
(Millions of U.S. dollars)
(Unaudited)
September 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
ASSETS
----------------------------------------------------------------------------
Current assets
----------------------------------------------------------------------------
Cash and cash equivalents 755 897 635 933
----------------------------------------------------------------------------
Accounts receivable 2,925 2,104 1,793 1,247
----------------------------------------------------------------------------
Inventories (note 8) 2,535 1,758 2,502 2,137
----------------------------------------------------------------------------
Prepaid expenses and deposits 347 184 848 567
----------------------------------------------------------------------------
Marketable securities - 17 3 114
----------------------------------------------------------------------------
Assets of discontinued
operations (note 3) 99 - 1,320 -
----------------------------------------------------------------------------
6,661 4,960 7,101 4,998
----------------------------------------------------------------------------
Property, plant and equipment
(note 9) 2,298 1,959 2,154 1,797
----------------------------------------------------------------------------
Intangibles (note 10) 586 584 619 617
----------------------------------------------------------------------------
Goodwill (note 10) 2,419 1,816 2,423 1,804
----------------------------------------------------------------------------
Investment in associates 390 358 389 370
----------------------------------------------------------------------------
Other financial assets (note 11) 97 45 48 88
----------------------------------------------------------------------------
Deferred income tax assets 63 - 52 -
----------------------------------------------------------------------------
Assets of discontinued operations
(note 3) 11 - 92 -
----------------------------------------------------------------------------
12,525 9,722 12,878 9,674
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
----------------------------------------------------------------------------
Current liabilities
----------------------------------------------------------------------------
Short-term debt (note 12) 396 188 517 106
----------------------------------------------------------------------------
Accounts payable 2,382 1,657 2,666 2,342
----------------------------------------------------------------------------
Current portion of long-term
debt (note 12) 59 125 125 -
----------------------------------------------------------------------------
Current portion of other
provisions (note 13) 165 171 198 148
----------------------------------------------------------------------------
Liabilities of discontinued
operations (note 3) 80 - 1,020 -
----------------------------------------------------------------------------
3,082 2,141 4,526 2,596
----------------------------------------------------------------------------
Long-term debt (note 12) 2,118 1,621 2,118 1,699
----------------------------------------------------------------------------
Provisions for post-employment
benefits 158 113 136 106
----------------------------------------------------------------------------
Other provisions (note 13) 326 324 366 308
----------------------------------------------------------------------------
Other financial liabilities (note
14) 46 51 47 34
----------------------------------------------------------------------------
Deferred income tax liabilities 580 461 490 460
----------------------------------------------------------------------------
Liabilities of discontinued
operations (note 3) 2 - 2 -
----------------------------------------------------------------------------
6,312 4,711 7,685 5,203
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shareholders' equity
----------------------------------------------------------------------------
Share capital 1,993 1,982 1,982 1,977
----------------------------------------------------------------------------
Retained earnings 4,323 3,023 3,150 2,454
----------------------------------------------------------------------------
Accumulated other comprehensive
(loss) income (104) 6 53 29
----------------------------------------------------------------------------
Equity holders of Agrium 6,212 5,011 5,185 4,460
----------------------------------------------------------------------------
Non-controlling interest 1 - 8 11
----------------------------------------------------------------------------
Total equity 6,213 5,011 5,193 4,471
----------------------------------------------------------------------------
12,525 9,722 12,878 9,674
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes.
AGRIUM INC.
Condensed Consolidated Statements of Shareholders' Equity
(Millions of U.S. dollars, except share data)
(Unaudited)
Accumulated
Millions of other
common Share Retained comprehensive
shares (a) capital earnings income (loss)
----------------------------------------------------------------------------
January 1, 2010 157 1,977 2,454 29
----------------------------------------------------------------------------
Consolidated net earnings - - 577 -
----------------------------------------------------------------------------
Other comprehensive loss - - - (23)
----------------------------------------------------------------------------
Comprehensive income (loss) - - 577 (23)
----------------------------------------------------------------------------
Dividends - - (8) -
----------------------------------------------------------------------------
Share-based payment
transactions 1 5 - -
----------------------------------------------------------------------------
September 30, 2010 158 1,982 3,023 6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, 2010 158 1,982 3,150 53
----------------------------------------------------------------------------
Consolidated net earnings - - 1,182 -
----------------------------------------------------------------------------
Other comprehensive loss - - - (157)
----------------------------------------------------------------------------
Comprehensive income (loss) - - 1,182 (157)
----------------------------------------------------------------------------
Dividends - - (9) -
----------------------------------------------------------------------------
Share-based payment
transactions - 11 - -
----------------------------------------------------------------------------
September 30, 2011 158 1,993 4,323 (104)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) Authorized share capital consists of unlimited common shares without par
value.
AGRIUM INC.
Condensed Consolidated Statements of Shareholders' Equity
(Millions of U.S. dollars, except share data)
(Unaudited)
Equity Non-
holders of controlling Total
Agrium interest equity
----------------------------------------------------------------------------
January 1, 2010 4,460 11 4,471
----------------------------------------------------------------------------
Consolidated net earnings 577 1 578
----------------------------------------------------------------------------
Other comprehensive loss (23) (12) (35)
----------------------------------------------------------------------------
Comprehensive income (loss) 554 (11) 543
----------------------------------------------------------------------------
Dividends (8) - (8)
----------------------------------------------------------------------------
Share-based payment
transactions 5 - 5
----------------------------------------------------------------------------
September 30, 2010 5,011 - 5,011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, 2010 5,185 8 5,193
----------------------------------------------------------------------------
Consolidated net earnings 1,182 - 1,182
----------------------------------------------------------------------------
Other comprehensive loss (157) (7) (164)
----------------------------------------------------------------------------
Comprehensive income (loss) 1,025 (7) 1,018
----------------------------------------------------------------------------
Dividends (9) - (9)
----------------------------------------------------------------------------
Share-based payment
transactions 11 - 11
----------------------------------------------------------------------------
September 30, 2011 6,212 1 6,213
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) Authorized share capital consists of unlimited common shares without
par value.
Accumulated Other Comprehensive Income (Loss) of Equity Holders of Agrium
Net actuarial
Available for losses on post- Foreign
sale financial employment currency
instruments benefits translation
----------------------------------------------------------------------------
January 1, 2010 29 - -
----------------------------------------------------------------------------
Gains - - 6
----------------------------------------------------------------------------
Reclassification to
income (48) - -
----------------------------------------------------------------------------
Deferred income taxes 19 - -
----------------------------------------------------------------------------
September 30, 2010 - - 6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, 2010 - (16) 69
----------------------------------------------------------------------------
Gains (losses) 1 (26) (114)
----------------------------------------------------------------------------
Reclassification to
income (2) - (23)
----------------------------------------------------------------------------
Deferred income taxes - 7 -
----------------------------------------------------------------------------
September 30, 2011 (1) (35) (68)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes.
Accumulated Other Comprehensive Income (Loss) of Equity Holders of Agrium
Total accumulated
Comprehensive other
(loss) income of comprehensive
associates income (loss)
----------------------------------------------------------------------------
January 1, 2010 - 29
----------------------------------------------------------------------------
Gains - 6
----------------------------------------------------------------------------
Reclassification to
income - (48)
----------------------------------------------------------------------------
Deferred income taxes - 19
----------------------------------------------------------------------------
September 30, 2010 - 6
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, 2010 - 53
----------------------------------------------------------------------------
Gains (losses) - (139)
----------------------------------------------------------------------------
Reclassification to
income - (25)
----------------------------------------------------------------------------
Deferred income taxes - 7
----------------------------------------------------------------------------
September 30, 2011 - (104)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes.
AGIRUM INC.
Summarized Notes to the Condensed Consolidated Financial Statements
For the nine months ended September 30, 2011
(Millions of U.S. dollars, except per share amounts)
(Unaudited)
1. CORPORATE INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Corporate information
Agrium Inc. is incorporated under the laws of Canada with common shares listed under the symbol 'AGU' on the New York Stock Exchange and the Toronto Stock Exchange. Agrium Inc. (with its subsidiaries) is a major retail supplier of agricultural products and services in North and South America and Australia and a leading global producer and marketer of agricultural nutrients and industrial products. We produce and market three primary groups of nutrients: nitrogen, phosphate and potash as well as controlled-release crop nutrients and micronutrients. Our Corporate head office is located at 13131 Lake Fraser Drive S.E. Calgary, Alberta, Canada. Our operations are conducted globally from our Wholesale head office in Calgary, and our Retail and Advanced Technologies head offices in Loveland, Colorado, U.S.
Basis of preparation and statement of compliance
These condensed consolidated interim financial statements ('interim financial statements') of Agrium Inc. were approved for issuance by the Audit Committee on November 2, 2011. We prepared the interim financial statements in accordance with IAS 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards ('IFRS') issued by the International Accounting Standards Board ('IASB'). We prepared our first interim financial statements for our first quarter of 2011 as part of the period covered by our first consolidated annual financial statements prepared in accordance with IFRS for the year ending December 31, 2011. Disclosures concerning the transition from Canadian generally accepted accounting principles to IFRS are provided in note 19. These interim financial statements do not include all disclosures normally provided in consolidated annual financial statements and should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2010.
Seasonality in our business results from the increased demand for our products during planting seasons. Sales are generally higher in the spring and fall.
These interim financial statements are presented in U.S. dollars, which is our presentation and functional currency. We have prepared these interim financial statements using the historical cost basis, with the exception of certain financial instruments and non-current assets, liabilities for cash-settled share-based payment arrangements, and assets and obligations of post-employment benefit plans. Our policies for these items are set out in the notes below.
Significant accounting policies
a) Key accounting estimates and judgments
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Estimates are used when accounting for items such as collectability of receivables, rebates, net realizable value of inventory, estimated useful lives and impairment of long-lived assets, goodwill impairment testing, allocation of acquisition purchase prices, asset retirement obligations, environmental remediation, employee future benefits, share-based payments, income taxes, fair value of financial assets and liabilities and amounts and likelihood of contingencies. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
b) Principles of consolidation
Subsidiaries
These consolidated financial statements include the accounts of Agrium Inc., its subsidiaries, and its proportionate share of revenues, expenses, assets and liabilities of joint ventures, which are the entities over which Agrium has control. Control exists when the company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefit from its activities. In these interim financial statements, we, us, our and Agrium mean Agrium Inc., its subsidiaries and joint ventures. All intercompany transactions and balances have been eliminated.
Associates
Associates are those entities in which we have significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when we hold between 20 and 50 percent of the voting power of another entity, but can also arise if we hold less than 20 percent of an entity if we have the power to be actively involved and influential in policy decisions affecting the entity.
Investments in associates are accounted for using the equity method and are recognized initially at cost. Our investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include our share of the income and expenses and equity movements of equity accounted investees from the date that significant influence commences until the date that it ceases.
Joint ventures
Joint ventures are those entities over whose activity we have joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Jointly controlled entities are accounted for using proportionate consolidation. Our share of the assets, liabilities, income and expenses of jointly controlled entities are combined with the equivalent items in the consolidated financial statements on a line by line basis. Where we transact with our jointly controlled entities, unrealized profits and losses are eliminated to the extent of our interest in the joint venture.
c) Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments we issued in exchange for control of the acquiree. Acquisition-related costs are recognized in net earnings as incurred.
The interest of non-controlling shareholders in the acquiree is initially measured at the non-controlling shareholders' proportion of the net fair value of the assets, liabilities and contingent liabilities recognized.
d) Foreign currency translation
The functional currency for each of our subsidiaries, jointly controlled entities and associates is the currency of the primary economic environment in which they operate, which is the U.S. dollar, the Canadian dollar, the Australian dollar, the New Zealand dollar and the Euro. Determining the primary economic environment in which an entity operates requires management to consider several factors and use judgment.
All transactions that are not denominated in an entity's functional currency are foreign currency transactions. These transactions are initially recorded in the functional currency by applying the appropriate monthly average rate which best approximates the actual rate of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-measured at the functional currency rate of exchange at the balance sheet date. All differences are recognized in the consolidated statement of operations. Non monetary items measured at historical cost are not re-measured - they remain at the exchange rate from the date of the transaction. Non monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
The assets and liabilities of foreign operations that are not denominated in the presentation currency, including goodwill and fair value adjustments arising on acquisition, are translated to our presentation currency at exchange rates at the reporting date. Income, expenses and capital transactions are translated at the average exchange rate for the month. Foreign currency differences are recognized directly in equity. When a foreign operation is disposed of, the relevant amount of foreign currency translation in equity is reclassified to net earnings.
e) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. We recognize revenue based on individual contractual terms when all of the following criteria are met: the significant risks and rewards of ownership of the goods have been transferred to the customer; we retain neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue and costs incurred or to be incurred can be measured reliably; and, it is probable that the economic benefits associated with the transaction will flow to us. These conditions are generally satisfied when title passes to the customer according to the sales agreement which in most cases, is when product is picked up by the customer or delivered to the destination specified by the customer, which is typically a customer's premises, the vessel on which the product will be shipped, or the destination port. Revenue is reported net of sales taxes, returns, discounts and rebates.
f) Rebates
We enter into agreements with suppliers providing for vendor rebates typically based on the achievement of specified purchase volumes or sales levels. We account for rebates and prepay discounts as a reduction of the prices of the suppliers' products. Rebates that are probable and can be reasonably estimated are accrued based on total estimated crop year performance. Rebates that are not probable or estimable are accrued when certain milestones are achieved. Rebates not covered by binding agreements or published vendor programs are accrued when conclusive documentation of right of receipt is obtained.
Rebates based on the amount of materials purchased reduce cost of product as inventory is sold. Rebates that are based on sales volume are offset to cost of product when we determine that they have been earned based on sales volume of related products.
g) Income taxes
Income tax expense comprises current and deferred tax. Income tax expense is recognized in net earnings except to the extent that it relates to items recognized directly in equity, in which case it is recognized directly in equity or in other comprehensive income.
Current income tax is the expected tax payable (recoverable) on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable (recoverable) in respect of previous years.
Deferred income tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable income. Deferred income tax liabilities are generally recognized for all taxable temporary differences. Deferred income tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable income will be available against which those deductible temporary differences can be utilized.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current income tax assets against current income tax liabilities and when they relate to income taxes levied by the same taxation authority.
h) Financial instruments
All financial assets and financial liabilities are initially recognized at fair value. The subsequent measurement of financial instruments depends on their classification as follows:
Financial instrument Subsequent measurement of gains or losses at
classification each period-end
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Fair value through profit or Fair value; unrealized gains or losses
loss (assets and liabilities)recognized in net earnings
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Available for sale (assets) Fair value; unrealized gains and losses
recognized in other comprehensive
income; recognized in net earnings on sale of
the asset or when asset is
written down as impaired
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Held to maturity investments Amortized cost using the effective interest
rate method; recognized in net earnings if
asset/liability is derecognized or asset is
impaired
------------------------------
Loans and receivables
------------------------------
Other financial liabilities
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Where commodity derivative contracts under master netting arrangements include both asset and liability positions, we offset the fair value amounts recognized for multiple similar derivative instruments executed with the same counterparty, including any related cash collateral asset or obligation. Transaction costs of financial instruments are recorded as a reduction of the cost of the instruments except for costs of financial instruments classified as fair value through profit or loss, which are expensed as incurred.
i) Cash and cash equivalents
Cash equivalents are carried at fair value, and consist of short-term investments with an original maturity of three months or less.
j) Accounts receivable and allowance for doubtful accounts
We evaluate collectability of specific customer receivables depending on the nature of the sale. Collectability of receivables is reviewed and the allowance for doubtful accounts is adjusted on an ongoing basis. Account balances are charged to net earnings when we determine that it is probable that the receivable will not be collected. Interest accrues on all trade receivables from the due date, which may vary with certain geographic or seasonal programs.
We have facilities in the U.S. and Australia that enable us to sell certain short-term trade accounts receivable to third parties on an ongoing basis. We continue to service the sold accounts receivable; amounts associated with the servicing liability are not material. We record sales and derecognize accounts receivable when the arrangement transfers substantially all the risks and rewards of ownership of the receivables to a third party. Where this does not occur, the arrangements are recorded as secured borrowings.
k) Inventories
Wholesale inventories, consisting primarily of crop nutrients, operating supplies and raw materials, include both direct and indirect production and purchase costs, depreciation and amortization on assets employed directly in production, and freight to transport the product to the storage facilities. Crop nutrients include our produced products and products purchased for resale. Operating supplies include catalysts used in the production process, materials used for repairs and maintenance and other supplies. Inventories are valued at the lower of cost on a weighted-average basis and net realizable value.
Retail inventories, consisting primarily of crop nutrients, crop protection products, seed and merchandise include the cost of delivery to move the product to storage facilities. Inventories are recorded at the lower of cost on a weighted-average basis and net realizable value.
Advanced Technologies inventories, consisting primarily of raw materials and controlled-release products, include both direct and indirect production costs and depreciation on assets employed directly in production. Inventories are recorded at the lower of cost determined on a first-in, first-out basis and net realizable value.
l) Property, plant and equipment
Property, plant and equipment are measured at historical cost less accumulated depreciation and accumulated impairment loss. The cost of property, plant and equipment comprises its purchase price and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. If a legal or constructive obligation exists to decommission property, plant and equipment, the discounted value of the obligation is included in the carrying value of the assets when the obligation arises.
Expenses in connection with day-to-day maintenance and repairs are recognized in the statement of operations as they are incurred. Expenses incurred in connection with major replacements, plant turnarounds and renewals that materially extend the life of property, plant and equipment or result in future economic benefits are capitalized and depreciated on a systematic basis. The carrying amount of replaced components is expensed.
If the construction or preparation for use of property, plant or equipment extends over a period of longer than twelve months, the borrowing costs incurred on borrowed capital up to the date of completion are capitalized as part of the cost of acquisition or construction.
Property, plant and equipment are depreciated on a straight-line basis using the following estimated useful lives:
Buildings and improvements 3 - 25 years
Machinery and equipment 3 - 25 years
Other 3 - 25 years
If the cost of an individual part of property, plant and equipment is significant relative to the total cost of the item, the individual part is accounted for and depreciated separately. Expected useful life and residual value is re-assessed annually.
m) Goodwill and intangible assets
Goodwill represents the difference between the fair value of the consideration transferred in a business combination and the fair value of the identifiable net assets acquired at the date of acquisition. Goodwill is initially determined based on provisional fair values. Fair values are finalized within 12 months of the acquisition date. Goodwill on acquisition of subsidiaries and jointly controlled entities is separately disclosed and goodwill on acquisitions of associates is included within investments in equity accounted units. Goodwill, including goodwill in equity accounted units, is not amortized; rather it is tested annually for impairment or when there is an indication of impairment.
Intangible assets acquired as part of an acquisition of a business are capitalized separately from goodwill if the asset is separable or arises from contractual or legal rights, and the fair value can be measured reliably on initial recognition.
Purchased intangible assets are initially recorded at cost and finite-lived intangible assets are amortized over their useful economic lives on a straight-line basis. Intangible assets having indefinite lives and intangible assets that are not yet ready for use are not amortized and are tested for impairment annually or when there is an indication of impairment.
Intangible assets are considered to have indefinite lives when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate cash flows for us. The factors considered in making this determination include the existence of contractual rights for unlimited terms; or evidence that renewal of the contractual rights without significant incremental cost can be expected for indefinite periods into the future in view of our future investment intentions. The life cycles of the products and processes that depend on the asset are also considered.
The following estimated useful lives, which are re-assessed annually, have been determined for classes of finite-lived intangible assets:
Trade names 5 - 15 years
Customer relationships 5 - 15 years
Technology 7 - 10 years
Other 3 - 20 years
n) Impairment
The carrying amounts of non-current assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any indication of impairment exists, then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated each year during the third quarter.
The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that have the ability to generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the 'cash generating unit'). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash generating units or groups of cash generating units that are expected to benefit from the synergies of the combination and reflects the lowest level at which goodwill is monitored for internal reporting purposes. If there is an indication of an impairment of an asset or cash generating unit below the level to which goodwill has been allocated, the asset or cash generating unit is tested for impairment first and any impairment loss for that asset or cash generating unit is recognized before testing at the level to which goodwill has been allocated.
An impairment loss is recognized if the carrying amount of an asset or its cash generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in net earnings. Impairment losses recognized in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the unit on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
Goodwill that forms part of the carrying amount of an investment in an associate is not recognized separately, and therefore is not tested for impairment separately. Instead, the entire amount of the investment in an associate is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired.
o) Leases
Leases whereby we assume substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Minimum lease payments made under finance leases are apportioned between the finance cost and the reduction of the outstanding liability. The finance cost is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Other leases are operating leases and are not recognized on our balance sheet. Payments made under operating leases are recognized in net earnings over the term of the lease.
p) Post-employment benefits
We maintain contributory and non-contributory defined benefit and defined contribution pension plans in Canada and the United States. The majority of employees are members of defined contribution pension plans. We also maintain health care plans and life insurance benefits for retired employees. Benefits from defined benefit plans are based on either a percentage of final average earnings and years of service or a flat dollar amount for each year of service. Pension plan and post-retirement benefit costs are determined annually by independent actuaries and include current service costs, interest cost of projected benefits, return on plan assets and actuarial gains or losses. We also have non-contributory defined benefit and defined contribution plans which provide supplementary pension benefits for senior management.
Post-employment benefits are funded by us and obligations are determined using the projected unit credit method of actuarial valuation prorated over the expected length of employee service. Post-employment benefit costs for current service, interest costs and return on plan assets are charged to net earnings in the year incurred. Actuarial gains or losses are recognized immediately in other comprehensive income. Past service costs and the effects of changes in plan assumptions are amortized on a straight-line basis over the average period until the benefits become vested, or immediately if the benefits have already vested. Our contributions to defined contribution post-employment benefit plans are expensed as incurred.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. Liabilities for bonuses and profit-sharing are recognized based on a formula that takes into consideration the profit attributable to our shareholders after certain adjustments. We recognize a liability when we have a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
q) Provisions
A provision is recognized if, as a result of a past event, we have a present legal or constructive obligation that can be estimated reliably, and it is more likely than not that an outflow of economic benefits will be required to settle the obligation. Where the effect of discounting is material, the expected future cash flows associated with a provision are discounted at a pre-tax rate that reflects current market assessments of the time value of money. The unwinding of the discount is recognized as a finance cost.
Environmental remediation
Environmental expenditures that relate to existing conditions caused by past operations that do not contribute to current or future revenue generation are expensed. Environmental expenditures that extend the life of the property, increase its capacity or mitigate or prevent contamination from future operations are capitalized. Costs are recorded when environmental remediation efforts are probable and the costs can be reliably estimated based on current law and existing technologies. Estimated costs are based on management's best estimate of undiscounted future costs.
Decommissioning and restoration
Provisions for decommissioning and restoration costs (asset retirement obligations) are measured based on current requirements, technology and price levels and the present value is calculated using amounts discounted over the useful economic life of the assets. The liability is recognized in the period when there is a legal or constructive obligation and a reasonable estimate can be made. A corresponding item of property, plant and equipment of an amount equivalent to the provision is also recognized and is subsequently depreciated as part of the asset. The effects of changes resulting from revisions to the timing or the amount of the original estimate of the provision are reflected on a prospective basis, by adjustment to the carrying amount of the related property, plant and equipment.
r) Share-based payments
Cash-settled plans are accounted for as liabilities where the fair value of the award is determined at the grant date using a valuation model which includes an estimated forfeiture rate. A Black-Scholes option pricing model is used for plans with a service condition and a Monte Carlo simulation model is used for plans with service and market conditions. Compensation expense is accrued and recognized over the vesting period of the award. The fair value is re-measured at each balance sheet date and fluctuations in the fair value are recognized in the period in which the fluctuation occurs.
Equity-settled plans are accounted for using a fair value-based method. The fair value of the share-based award is determined at the grant date using a market-based option valuation model which includes an estimated forfeiture rate. The fair value of the award is recorded as compensation expense amortized over the vesting period of the award, with a corresponding increase to share capital. On exercise of the award, the proceeds are recorded as share capital.
If an employee is eligible to retire during the vesting period, we recognize compensation expense over the period from the date of grant to the retirement eligibility date. If an employee is eligible to retire on the date of grant, compensation expense is recognized on the grant date.
s) Non-current assets held for sale and discontinued operations
Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
In the consolidated statements of operations of the reporting period, and of the comparable period of the previous year, income and expenses from discontinued operations are reported separate from income and expenses from continuing activities, down to the level of profit after taxes.
Once classified as held for sale, property, plant and equipment and intangible assets are not depreciated and are recognized at fair value less cost to sell. We cease using the equity method of accounting on the date from which an interest in an associate becomes held for sale.
t) Recent accounting pronouncements not yet adopted
We are in the process of assessing the impact of adopting the following new standards:
Date and method
Description of adoption Impact
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IFRS 7 Financial Instruments: July 1, 2011 or We do not
Disclosures was amended to enhance earlier; expect a
disclosure requirements for transfers of prospectively significant
financial assets that result in impact from
derecognition. adoption.
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IFRS 9 Financial Instruments is the January 1, 2013 We do not
first phase of a multi-phase project to or earlier; expect a
replace IAS 39 Financial Instruments: retrospectively significant
Recognition and Measurement, and applies impact from
to the classification and measurement of adoption.
financial assets and liabilities. IFRS 9
replaces the current multiple
classification and measurement models
for financial assets and liabilities
with a single model that has only two
classifications: amortized cost and fair
value. In addition, for financial
liabilities that are measured at fair
value, IFRS 9 requires that an entity
present the portion of any change in its
fair value that is due to changes in the
entity's own credit risk in other
comprehensive income, rather than
through profit or loss. Phases to
address impairment methodology and hedge
accounting remain under development.
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IFRS 10 Consolidated Financial January 1, 2013 We do not
Statements establishes principles for or earlier; expect a
the presentation and preparation of retrospectively significant
consolidated financial statements when impact from
an entity controls another entity. The adoption.
standard implements a single model based
on control and introduces a new
definition of control, requiring: power
over the investee; exposure, or rights,
to variable returns from involvement
with the investee; and the ability to
use power over the investee to affect
the amount of investor returns. All
three elements must exist in order for
an investor to determine that it has
control of an investee.
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IFRS 11 Joint Arrangements establishes a January 1, 2013 We are a party
principles-based approach to accounting or earlier; in to joint
for joint arrangements that requires a accordance with arrangements
party to a joint arrangement to IFRS 11 and application
recognize its rights and obligations of the standard
arising from the arrangement. Under IFRS could have a
11, an entity will classify its interest material impact
in a joint arrangement either as a joint on our balance
operation, accounted for by recognizing sheet and
the entity's share of the assets, statement of
liabilities, revenue and expenses of the operations.
joint operation; or as a joint venture,
accounted for using equity accounting.
This differs from existing IFRS which
allows a choice between proportionate
consolidation or equity accounting for
interests in jointly controlled
entities.
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IFRS 12 Disclosure of Interests in Other January 1, 2013 We do not
Entities establishes disclosure or earlier expect a
requirements for entities that have an significant
interest in a subsidiary, a joint impact from
arrangement, an associate or an adoption.
unconsolidated structured entity. Under
IFRS 12, entities are required to
disclose information that allows users
to evaluate the nature of, and risks
associated with, an entity's interests
in other entities; and the effects of
those interests on the entity's
financial position, financial
performance and cash flows.
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IFRS 13 Fair Value Measurement provides January 1, 2013 We do not
a single set of requirements to be or earlier; expect a
applied to all fair value measurements; prospectively significant
replacing the existing guidance which is impact from
dispersed across many standards. IFRS adoption.
13 defines fair value as the price that
would be received to sell an asset or
paid to transfer a liability in an
orderly transaction between market
participants at the measurement date.
This definition emphasizes that fair
value is a market-based measurement, not
an entity-specific measurement. IFRS 13
also enhances the disclosure
requirements regarding fair value
measurements.
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IAS 27 Separate Financial Statements and January 1, 2013 We do not
IAS 28 Investments in Associates and or earlier expect a
Joint Ventures have been amended as a significant
result of changes to IFRS 10 through impact from
IFRS 13, as described above. adoption.
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IAS 1 Presentation of Financial July 1, 2012 or We are
Statements was amended to improve the earlier currently
consistency and clarity of the assessing these
presentation of items of other amendments to
comprehensive income by adding the determine the
requirement to group items on the basis potential
of whether they may be reclassified impact.
subsequently in profit or loss.
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IAS 19 Employee Benefits was amended to January 1, 2013 We are
provide users with a clearer picture of or earlier currently
the commitments resulting from defined assessing these
benefit plans. Amendments include the amendments to
elimination of the corridor approach, determine the
requirement to present gains and losses potential
related to defined benefits plans in impact.
other comprehensive income, and the
addition of disclosure requirements to
better show the characteristics of the
defined benefit plans and risks arising
from those plans.
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2. BUSINESS ACQUISITIONS
AWB Limited
On December 3, 2010, we acquired 100 percent of AWB Limited ('AWB'), an agribusiness operating in Australia, for $1.2-billion in cash and $37-million of acquisition costs. On May 11, 2011, we completed the sale of the majority of the Commodity Management business acquired from AWB, in accordance with an agreement dated December 15, 2010. Cash received from the sale was $694-million.
We retained the Landmark retail operations, including over 200 company-operated retail locations and over 140 retail franchise and wholesale customer locations in Australia. The acquired business is included in the Retail operating segment.
Preliminary estimated fair values of assets
acquired and liabilities assumed on December
3, 2010 September 30, December 31,
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2011 2010
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Continuing operations
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Current assets 736 736
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Property, plant and equipment 81 81
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Intangibles 41 41
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Goodwill 672 589
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Other financial assets 69 69
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Debt and other financial liabilities (742) (744)
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Assets of discontinued operations 1,086 1,128
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Liabilities of discontinued operations (734) (691)
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1,209 1,209
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The primary drivers that generate goodwill are the acquisition of a talented workforce and the value of synergies between Agrium and AWB, including expansion of geographical coverage for the sale of crop inputs and cost savings opportunities. We expect to allocate the majority of goodwill to the Retail business unit. We do not expect goodwill to be deductible for income tax purposes.
We have not completed our determination of the fair value of the assets acquired, liabilities assumed (including contingent liabilities), or related deferred income tax impacts due to the timing of the acquisition and the inherent complexity associated with the valuations. The preliminary purchase price allocation is based on carrying amounts of AWB, as adjusted for information obtained subsequent to the acquisition. Accordingly, in applying the acquisition method of accounting, the excess of the purchase price over the estimated fair value of the net assets acquired has been allocated to goodwill. We expect that some of the purchase price allocated to goodwill will be allocated to property, plant and equipment, intangibles, and related deferred income tax balances. We expect that the actual amounts assigned to the fair values of the identifiable assets and liabilities acquired will differ materially from the preliminary purchase price allocation, and that some acquired property, plant and equipment and intangibles are expected to be finite-lived and accordingly subject to depreciation and amortization.
Unaudited pro forma consolidated summary results of For the twelve
operations (prepared as if the acquisition of AWB had months ended
occurred on January 1, 2010) December 31, 2010
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Sales 15,604
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Net earnings 668
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Sales of AWB for the nine months ended September 30, 2011 were $1,746-million. It is impracticable to provide net earnings information of AWB for the same period because corporate overheads of AWB are integrated with those of Agrium.
As part of the acquisition, we acquired a 50 percent interest in Hi-Fert Pty. Ltd. ('Hi-Fert'), over which receivers and administrators have been appointed. Previously recorded amounts have been written off. The company has been sold by the administrators. AWB had provided guarantees for letters of credit issued by lenders supporting operations of Hi-Fert. Our potential payment obligations under these guarantees, net of proceeds obtained to date from the sale of secured assets, are approximately $33-million. The amount, if any, that we will ultimately be required to pay under these guarantees, net of recoveries from a charge over related assets, is not determinable pending the outcome of external administration and litigation processes.
Oil-For-Food Programme
On April 14, 1995 the United Nations established the Oil-For-Food Programme ('OFFP'), whereby the Iraqi government was allowed to raise money through the sale of oil. The revenue from the sale of oil was placed into an escrow account, with the Iraqi government allowed to use these funds to purchase food, medical supplies and other humanitarian supplies.
On June 27, 2008 the Iraqi government filed a civil lawsuit in the U.S. District Court for the Southern District of New York against AWB and 92 other companies who participated in the OFFP, alleging that the defendants participated in an illegal conspiracy with the 'former Saddam Hussein regime' to divert funds from the United Nations OFFP escrow account. The lawsuit seeks total damages in excess of $10-billion from the defendants, jointly and severally, as well as treble damages under the U.S. Racketeer Influenced and Corrupt Organizations Act. As to AWB specifically, the lawsuit alleges that AWB unlawfully diverted to the former Saddam Hussein regime more than $232-million from the escrow account established under the OFFP. AWB and a number of other defendants filed a motion to dismiss the complaint in January 2010. Although the outcome cannot be predicted, as of November 2, 2011, Agrium does not expect any material financial impact from the lawsuit.
As the outcome of the lawsuit and any impact on the operations of AWB arising from this legal action cannot be predicted, there is uncertainty as to the resultant impact, if any, on the financial position, financial performance and cash flows of AWB arising directly or indirectly from transactions under the OFFP. If the case against AWB is not dismissed, a possible adverse decision on the merits could have a material adverse effect on AWB and on Agrium's consolidated financial position and results.
Cerealtoscana S.p.A. and Agroport
On May 2, 2011, we acquired 100 percent of Cerealtoscana S.p.A. ('CT'), and its subsidiary Agroport, for total consideration of $27-million plus working capital. CT is a fertilizer distribution company in Italy and Agroport is its subsidiary in Romania. The acquired business is included in the Wholesale operating segment.
Evergro Canada
On July 4, 2011, we acquired certain assets and liabilities of Evergro Canada ('Evergro') for total consideration of $52-million. Evergro is a manufacturer and distributor of horticulture and professional turf products in Western Canada and operates seven distribution facilities throughout British Columbia and Alberta. The acquired net assets and related earnings are included in the Agrium Advanced Technologies operating segment.
International Mineral Technologies
On July 7, 2011, we acquired certain assets and liabilities of International Mineral Technologies ('Tetra Micronutrients') for total consideration of $44-million. Tetra Micronutrients is located in Nebraska and specializes in the production, marketing and distribution of custom liquid plant nutrition and dry micro nutrient products. The acquired net assets and related earnings are included in the Agrium Advanced Technologies and Retail operating segments.
3. DISCONTINUED OPERATIONS
Discontinued operations include the operations of Commodity Management businesses and AWB Harvest Finance Limited sold on May 11, 2011. Also included are the operations and assets and liabilities of the Commodity Management business not included in the sale.
We have agreed to various terms and conditions and indemnifications pursuant to the sale of the Commodity Management business, including an indemnity by AWB for litigation related to the OFFP, as described in note 2, Business Acquisitions.
Condensed information of discontinued
operations September 30, December 31,
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2011 2010
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Operating information
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Sales (a) 1,570 313
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Consolidated net earnings (loss) from
discontinued operations (b) 1 (17)
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Cash (used in) provided by
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Operating activities (119) (252)
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Investing activities (1) (1)
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Financing activities 90 298
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(30) 45
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Accounts receivable 17 743
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Inventories 70 551
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Prepaid expenses and deposits - 14
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Other current assets 12 12
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Current assets 99 1,320
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Property, plant and equipment 11 81
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Other financial assets - 2
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Deferred income tax assets - 9
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Non-current assets 11 92
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110 1,412
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Short-term debt 52 471
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Accounts payable 28 549
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Current liabilities 80 1,020
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Deferred income tax liabilities 2 2
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Non-current liabilities 2 2
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82 1,022
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(a) Includes revenue from related parties (Pools) of $365-million (December
31, 2010 - $59-million).
(b) Net of income taxes of $20-million (December 31, 2010 - $3-million).
4. OTHER EXPENSES
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Realized loss on derivative
financial instruments 1 6 76 34
----------------------------------------------------------------------------
Unrealized (gain) loss on derivative
financial instruments (2) (16) (47) 16
----------------------------------------------------------------------------
Gain on disposal of marketable
securities - - - (52)
----------------------------------------------------------------------------
Potash profit and capital tax 7 7 33 11
----------------------------------------------------------------------------
Bad debt expense 6 4 33 28
----------------------------------------------------------------------------
Interest income (24) (15) (57) (36)
----------------------------------------------------------------------------
Foreign currency translation (gain) - 8 (42) 3
----------------------------------------------------------------------------
Other 12 7 61 6
----------------------------------------------------------------------------
- 1 57 10
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. FINANCE COSTS
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Finance costs related to long-term
debt 25 20 76 65
----------------------------------------------------------------------------
Other finance costs
----------------------------------------------------------------------------
Environmental remediation and asset
retirement obligations 4 2 8 7
----------------------------------------------------------------------------
Other interest expense 13 4 34 13
----------------------------------------------------------------------------
17 6 42 20
----------------------------------------------------------------------------
42 26 118 85
----------------------------------------------------------------------------
----------------------------------------------------------------------------
6. PERSONNEL COSTS
Three months ended Nine months ended
Total personnel expenses September 30, September 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Short-term employee benefits 254 216 846 606
----------------------------------------------------------------------------
Post-employment benefits 14 17 47 37
----------------------------------------------------------------------------
Share-based payments (46) 78 (44) 57
----------------------------------------------------------------------------
222 311 849 700
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Compensation of key management Three months ended Nine months ended
personnel September 30, September 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Short-term employee benefits 1 1 10 7
----------------------------------------------------------------------------
Post-employment benefits 1 3 2 4
----------------------------------------------------------------------------
Share-based payments (30) 32 (32) 21
----------------------------------------------------------------------------
(28) 36 (20) 32
----------------------------------------------------------------------------
----------------------------------------------------------------------------
7. EARNINGS PER SHARE
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Numerator
----------------------------------------------------------------------------
Consolidated net earnings from
continuing operations for the
period attributable to equity
holders of Agrium 293 61 1,181 577
----------------------------------------------------------------------------
Consolidated net earnings from
discontinued operations for the
period attributable to equity
holders of Agrium - - 1 -
----------------------------------------------------------------------------
Consolidated net earnings for the
period attributable to equity
holders of Agrium 293 61 1,182 577
----------------------------------------------------------------------------
Denominator
----------------------------------------------------------------------------
Weighted-average number of shares
outstanding for basic earnings per
share 158 157 158 157
----------------------------------------------------------------------------
Dilutive instruments - stock options
(a)(b) - 1 - 1
----------------------------------------------------------------------------
Weighted-average number of shares
outstanding for diluted earnings
per share 158 158 158 158
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings per share from
continuing operations 1.86 0.39 7.49 3.66
----------------------------------------------------------------------------
Basic earnings per share from
discontinued operations - - - -
----------------------------------------------------------------------------
Basic earnings per share 1.86 0.39 7.49 3.66
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Diluted earnings per share from
continuing operations 1.85 0.39 7.48 3.65
----------------------------------------------------------------------------
Diluted earnings per share from
discontinued operations - - - -
----------------------------------------------------------------------------
Diluted earnings per share 1.85 0.39 7.48 3.65
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) For diluted earnings per share, conversion or exercise is assumed only
if the effect is dilutive to basic earnings per share.
(b) Using the treasury stock method, stock options with an average grant
price less than or equal to the average share price during the period
are considered dilutive and potential common share equivalents are
considered outstanding.
8. INVENTORIES
September 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Raw materials 292 274 267 231
----------------------------------------------------------------------------
Finished goods 309 187 268 338
----------------------------------------------------------------------------
Product for resale 1,934 1,297 1,967 1,568
----------------------------------------------------------------------------
2,535 1,758 2,502 2,137
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Depreciation and amortization
recorded in inventory 15 9 16 16
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Nine months ended
Recorded in cost of product sold September 30, September 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Depreciation and amortization 49 61 139 164
----------------------------------------------------------------------------
Direct freight 47 57 161 171
----------------------------------------------------------------------------
Inventory 2,157 1,450 8,705 6,087
----------------------------------------------------------------------------
2,253 1,568 9,005 6,422
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Our determination of net realizable value of inventories requires
considerable judgment to estimate forecasted selling prices, including
assumptions about demand and supply variables.
9. PROPERTY, PLANT AND EQUIPMENT
Machinery
Buildings and and Assets under
September 30, 2011 Land improvements equipment construction Other Total
----------------------------------------------------------------------------
Cost
----------------------------------------------------------------------------
December 31, 2010 84 927 3,003 335 87 4,436
----------------------------------------------------------------------------
Additions 3 26 166 245 1 441
----------------------------------------------------------------------------
Acquisitions - 6 11 2 - 19
----------------------------------------------------------------------------
Disposals (1) (22) (46) - - (69)
----------------------------------------------------------------------------
Other adjustments 2 6 31 (43) 4 -
----------------------------------------------------------------------------
Foreign currency
translation 2 (20) (86) (23) (3) (130)
----------------------------------------------------------------------------
September 30, 2011 90 923 3,079 516 89 4,697
----------------------------------------------------------------------------
Accumulated
depreciation
----------------------------------------------------------------------------
December 31, 2010 - (390) (1,841) - (51) (2,282)
----------------------------------------------------------------------------
Depreciation - (44) (163) - (6) (213)
----------------------------------------------------------------------------
Disposals - 11 20 - - 31
----------------------------------------------------------------------------
Other adjustments - (5) 2 - 1 (2)
----------------------------------------------------------------------------
Foreign currency
translation - 9 56 - 2 67
----------------------------------------------------------------------------
September 30, 2011 - (419) (1,926) - (54) (2,399)
----------------------------------------------------------------------------
Net book value 90 504 1,153 516 35 2,298
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Machinery
Buildings and and Assets under
December 31, 2010 Land improvements equipment construction Other Total
----------------------------------------------------------------------------
Cost
----------------------------------------------------------------------------
January 1, 2010 73 702 2,888 274 78 4,015
----------------------------------------------------------------------------
Additions 11 150 228 110 7 506
----------------------------------------------------------------------------
Acquisitions 2 31 37 11 - 81
----------------------------------------------------------------------------
Disposals (5) (34) (260) - (2) (301)
----------------------------------------------------------------------------
Other adjustments 2 63 31 (73) (2) 21
----------------------------------------------------------------------------
Foreign currency
translation 1 15 79 13 6 114
----------------------------------------------------------------------------
December 31, 2010 84 927 3,003 335 87 4,436
----------------------------------------------------------------------------
Accumulated
depreciation
----------------------------------------------------------------------------
January 1, 2010 - (338) (1,833) - (47) (2,218)
----------------------------------------------------------------------------
Depreciation - (48) (202) - (5) (255)
----------------------------------------------------------------------------
Disposals - 22 235 - 1 258
----------------------------------------------------------------------------
Other adjustments - (18) 12 - 4 (2)
----------------------------------------------------------------------------
Foreign currency
translation - (8) (53) - (4) (65)
----------------------------------------------------------------------------
December 31, 2010 - (390) (1,841) - (51) (2,282)
----------------------------------------------------------------------------
Net book value 84 537 1,162 335 36 2,154
----------------------------------------------------------------------------
----------------------------------------------------------------------------
10. INTANGIBLES AND GOODWILL
September 30, Trade Customer Total
2011 names relationships Technology Other Intangibles Goodwill
----------------------------------------------------------------------------
Cost
----------------------------------------------------------------------------
December 31,
2010 31 553 64 148 796 2,423
----------------------------------------------------------------------------
Additions
developed
internally - - 5 - 5 -
----------------------------------------------------------------------------
Acquisitions - 24 - 8 32 70
----------------------------------------------------------------------------
Adjustments to
purchase price
allocation - - - - - 83
----------------------------------------------------------------------------
Disposals - - - (1) (1) (135)
----------------------------------------------------------------------------
Other
adjustments - - 8 - 8 (2)
----------------------------------------------------------------------------
Foreign currency
translation - (2) (2) (1) (5) (20)
----------------------------------------------------------------------------
September 30,
2011 31 575 75 154 835 2,419
----------------------------------------------------------------------------
Accumulated
amortization
----------------------------------------------------------------------------
December 31,
2010 (7) (108) (14) (48) (177) -
----------------------------------------------------------------------------
Amortization (1) (29) (10) (26) (66) -
----------------------------------------------------------------------------
Other
adjustments - - (8) - (8) -
----------------------------------------------------------------------------
Foreign currency
translation - - 1 1 2 -
----------------------------------------------------------------------------
September 30,
2011 (8) (137) (31) (73) (249) -
----------------------------------------------------------------------------
Net book value 23 438 44 81 586 2,419
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Trade Customer Total
December 31, 2010 names relationships Technology Other Intangibles Goodwill
----------------------------------------------------------------------------
Cost
----------------------------------------------------------------------------
January 1, 2010 31 537 24 138 730 1,804
----------------------------------------------------------------------------
Acquisitions - 6 35 - 41 589
----------------------------------------------------------------------------
Disposals - - - (1) (1) -
----------------------------------------------------------------------------
Other adjustments - 10 4 11 25 3
----------------------------------------------------------------------------
Foreign currency
translation - - 1 - 1 27
----------------------------------------------------------------------------
December 31, 2010 31 553 64 148 796 2,423
----------------------------------------------------------------------------
Accumulated
amortization
----------------------------------------------------------------------------
January 1, 2010 (5) (69) (9) (30) (113) -
----------------------------------------------------------------------------
Amortization (2) (38) (3) (19) (62) -
----------------------------------------------------------------------------
Disposals - - - 1 1 -
----------------------------------------------------------------------------
Other adjustments - - (1) - (1) -
----------------------------------------------------------------------------
Foreign currency
translation - (1) (1) - (2) -
----------------------------------------------------------------------------
December 31, 2010 (7) (108) (14) (48) (177) -
----------------------------------------------------------------------------
Net book value 24 445 50 100 619 2,423
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Amortization of finite-lived Three months ended Nine months ended
intangibles September 30, September 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Cost of product sold 1 1 3 2
----------------------------------------------------------------------------
Selling 17 11 51 34
----------------------------------------------------------------------------
General and administrative 4 2 12 6
----------------------------------------------------------------------------
22 14 66 42
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Certain of our trade names with a cost of $17-million (September 30, 2010 -
$17-million, December 31, 2010 - $17-million, January 1, 2010 - $17-million)
have indefinite lives for accounting purposes and accordingly are not
amortized.
11. OTHER FINANCIAL ASSETS
September 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Investments 7 - 2 25
----------------------------------------------------------------------------
Receivables 58 36 34 22
----------------------------------------------------------------------------
Derivative financial instruments 5 2 3 3
----------------------------------------------------------------------------
Other 27 7 9 38
----------------------------------------------------------------------------
97 45 48 88
----------------------------------------------------------------------------
----------------------------------------------------------------------------
12. DEBT
September 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010
----------------------------------------------------------------------------
Total Unutilized Utilized Utilized Utilized
----------------------------------------------------------------------------
Short-term debt
----------------------------------------------------------------------------
North American
facilities expiring
2012 (a) 775 775 - - -
----------------------------------------------------------------------------
North American
accounts receivable
securitization (b) 200 200 - - -
----------------------------------------------------------------------------
European facilities
expiring 2011 to
2012 (c) 186 49 137 142 74
----------------------------------------------------------------------------
South American
facilities expiring
2011 to 2012 138 50 88 55 32
----------------------------------------------------------------------------
Australian facilities
expiring 2011 8 8 - 100 -
----------------------------------------------------------------------------
Australian accounts
receivable
securitization (b) 244 73 171 220 -
----------------------------------------------------------------------------
1,551 1,155 396 517 106
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Current portion of
long-term debt 59 125 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term debt
----------------------------------------------------------------------------
Floating rate bank
loans due 2012 to
2016 41 14 26
----------------------------------------------------------------------------
Floating rate bank
loans due May 5,
2013 460 460 460
----------------------------------------------------------------------------
6.125% debentures
due January 15,
2041 500 500 -
----------------------------------------------------------------------------
6.75% debentures due
January 15, 2019 500 500 500
----------------------------------------------------------------------------
7.125% debentures
due May 23, 2036 300 300 300
----------------------------------------------------------------------------
7.7% debentures due
February 1, 2017 100 100 100
----------------------------------------------------------------------------
7.8% debentures due
February 1, 2027 125 125 125
----------------------------------------------------------------------------
8.25% debentures due
February 15, 2011 - - 125
----------------------------------------------------------------------------
Other 113 141 73
----------------------------------------------------------------------------
2,139 2,140 1,709
----------------------------------------------------------------------------
Unamortized
transaction costs (21) (22) (10)
----------------------------------------------------------------------------
2,118 2,118 1,699
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) Outstanding letters of credit issued under our revolving credit
facilities at September 30, 2011 were $77-million reducing credit
available under the facilities to $698-million.
(b) We have revolving purchase and sale agreements to sell, with limited
recourse, accounts receivable to a maximum of $200-million and AUD$250-
million (December 31, 2010 - $200-million and AUD$250-million, January
1, 2010 - $200-million).
(c) Of the total facility, $4-million is secured by accounts receivable.
13. OTHER PROVISIONS
Cash-
settled
September 30, Environmental Asset share-based Legal
2011 remediation(a) retirement(b) payments(c) contingencies Total
----------------------------------------------------------------------------
December 31,
2010 119 181 235 29 564
----------------------------------------------------------------------------
Additional
provisions
or changes
in estimates 13 17 (44) 14 -
----------------------------------------------------------------------------
Draw-downs (14) (8) (32) (6) (60)
----------------------------------------------------------------------------
Accretion 2 6 - - 8
----------------------------------------------------------------------------
Other
adjustments - - (2) (8) (10)
----------------------------------------------------------------------------
Foreign
currency
translation - (6) (5) - (11)
----------------------------------------------------------------------------
September 30,
2011 120 190 152 29 491
----------------------------------------------------------------------------
Current
portion 10 - 126 29 165
----------------------------------------------------------------------------
Non-current
portion 110 190 26 - 326
----------------------------------------------------------------------------
120 190 152 29 491
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash-
settled
December 31, Environmental Asset share-based Legal
2010 remediation(a) retirement(b) payments(c) contingencies Total
----------------------------------------------------------------------------
January 1, 2010 122 139 149 46 456
----------------------------------------------------------------------------
Additional
provisions or
changes in
estimates 10 56 111 16 193
----------------------------------------------------------------------------
Draw-downs (19) (7) (35) (15) (76)
----------------------------------------------------------------------------
Reversals (2) (15) - (20) (37)
----------------------------------------------------------------------------
Accretion 3 6 - - 9
----------------------------------------------------------------------------
Other
adjustments 3 (1) 4 2 8
----------------------------------------------------------------------------
Foreign
currency
translation 2 3 6 - 11
----------------------------------------------------------------------------
December 31,
2010 119 181 235 29 564
----------------------------------------------------------------------------
Current portion 10 - 159 29 198
----------------------------------------------------------------------------
Non-current
portion 109 181 76 - 366
----------------------------------------------------------------------------
119 181 235 29 564
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) We estimate that environmental remediation liabilities will be settled
between 2011 and 2038.
(b) Our asset retirement obligations generally relate to dismantlement and
site restoration for nitrogen, potash and phosphate production
facilities, marketing and distribution facilities, and potash and
phosphate mine assets. Cash payments for the obligations are expected to
occur over the next 30 years with the exception of potash operations,
which are expected to occur after 100 years.
(c) We estimate the fair value of liabilities for cash-settled share-based
payment compensation plan awards using a Black-Scholes option pricing
model for awards with a service condition, and a Monte Carlo simulation
model for awards with service and market conditions.
Assumptions used to calculate
fair value of cash-settled
share-based payments using a
Black-Scholes option pricing
model September 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Risk-free interest rate (%) 1.0 1.6 2.2 3.8
----------------------------------------------------------------------------
Expected annual volatility (%) 51.01 52.79 53.46 43.04
----------------------------------------------------------------------------
Expected annual dividend yield
(%) 0.17 0.15 0.12 0.18
----------------------------------------------------------------------------
Expected term of grant (in
years) 10 10 10 10
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Provisions are recognized in the period when it becomes probable that there will be a future outflow of funds resulting from past operations or events that can be reasonably estimated. The timing of recognition requires the application of judgment to existing facts and circumstances, which can be subject to change. Estimates of the amounts of provisions recognized are based on current legal and constructive requirements, technology and price levels. Actual outflows can differ from estimates due to changes in laws, regulations, public expectations, technology, prices and conditions, and can take place many years in the future. Our provisions for environmental remediation and asset retirement depend on a number of uncertain factors, such as the extent and type of remediation and/or abandonment required and the cost of these activities.
14. OTHER FINANCIAL LIABILITIES
September 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Derivative financial instruments 19 38 33 25
----------------------------------------------------------------------------
Other 27 13 14 9
----------------------------------------------------------------------------
46 51 47 34
----------------------------------------------------------------------------
----------------------------------------------------------------------------
15. OPERATING LEASES
Operating lease commitments consist primarily of leases for rail cars and contractual commitments at distribution facilities in Wholesale, vehicles and application equipment in Retail, and office equipment and property leases throughout our operations. Commitments represent minimum payments under each agreement in each of the next five years. For the nine months ended September 30, 2011, expenses for operating leases were $181-million (nine months ended September 30, 2010 - $135-million).
The future minimum lease payments related to our operating leases are as follows:
Future minimum lease payments for operating leases September 30, 2011
----------------------------------------------------------------------------
2011 139
----------------------------------------------------------------------------
2012 - 2015 294
----------------------------------------------------------------------------
after 2015 90
----------------------------------------------------------------------------
523
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The classification of our leases as finance leases or operating leases is based on the extent to which the risks and rewards of ownership of a leased asset have been transferred. Making this determination requires the use of management's judgment in assessing the substance of the lease transaction.
16. FINANCIAL INSTRUMENTS
In the normal course of business, our balance sheet, results of operations and cash flows are exposed to various risks. Sensitivity analysis to risk is provided where the effect on net earnings or shareholders' equity could be material. Sensitivity analysis is performed by relating the reasonably possible changes in the risk variable at September 30, 2011 to financial instruments outstanding on that date while assuming all other variables remain constant.
Market risk
a) Currency risk
U.S. dollar denominated transactions in our Canadian operations generate foreign exchange gains and losses on outstanding balances which are recognized in net earnings.
Impact of U.S. dollar changes on
net earnings September 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Net U.S. dollar denominated asset
balance in Canadian operations 888 497 625 254
----------------------------------------------------------------------------
A $10-million impact requires a
strengthening or weakening in the
U.S. dollar against the Canadian
dollar 0.02 0.03 0.02 0.06
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balances in non-U.S. dollar subsidiaries generate foreign currency
translation gains and losses which are included in comprehensive income.
Balances in non-U.S.
dollar subsidiaries September 30,
----------------------------------------------------------------------------
(in U.S. dollar
equivalent) 2011 2010
----------------------------------------------------------------------------
CAD Euro AUD CAD Euro
----------------------------------------------------------------------------
Cash and cash equivalents 131 7 150 482 30
----------------------------------------------------------------------------
Accounts receivable 266 131 411 201 105
----------------------------------------------------------------------------
Short-term debt - (123) (171) - (139)
----------------------------------------------------------------------------
Accounts payable (355) (64) (284) (301) (44)
----------------------------------------------------------------------------
Current portion of other
provisions (104) - (8) (100) -
----------------------------------------------------------------------------
(62) (49) 98 282 (48)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balances in non-U.S.
dollar subsidiaries December 31, January 1,
----------------------------------------------------------------------------
(in U.S. dollar
equivalent) 2010 2010
----------------------------------------------------------------------------
CAD Euro AUD CAD Euro
----------------------------------------------------------------------------
Cash and cash equivalents 40 6 165 (2) 5
----------------------------------------------------------------------------
Accounts receivable 126 141 447 69 65
----------------------------------------------------------------------------
Short-term debt - (142) (308) - (31)
----------------------------------------------------------------------------
Accounts payable (540) (86) (308) (183) (38)
----------------------------------------------------------------------------
Current portion of other
provisions (128) - - (80) -
----------------------------------------------------------------------------
(502) (81) (4) (196) 1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Impact of U.S. dollar
changes on comprehensive
income September 30,
----------------------------------------------------------------------------
2011 2010
----------------------------------------------------------------------------
CAD Euro AUD CAD Euro
----------------------------------------------------------------------------
A $10-million increase
requires a strengthening
(weakening) against the
U.S. dollar (0.20) (0.20) 0.10 0.04 (0.19)
----------------------------------------------------------------------------
A $10-million decrease
requires a strengthening
(weakening) against the
U.S. dollar 0.15 0.13 (0.12) (0.04) 0.13
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Foreign exchange derivative financial instruments outstanding
September 30, 2011
----------------------------------------------------------------------------
Notional Fair value
(millions, buy assets
Sell/Buy currency) Maturities (liabilities)
----------------------------------------------------------------------------
USD/CAD forwards CAD 75 2011 (2)
----------------------------------------------------------------------------
USD/AUD forwards USD 90 2011 - 2012 (5)
----------------------------------------------------------------------------
AUD/CAD forwards CAD 20 2011 -
----------------------------------------------------------------------------
USD/CAD put options purchased CAD 37 2011 -
----------------------------------------------------------------------------
USD/AUD put options purchased - - -
----------------------------------------------------------------------------
USD/CAD call options sold CAD 77 2011 (2)
----------------------------------------------------------------------------
USD/AUD call options sold - - -
----------------------------------------------------------------------------
(9)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Foreign exchange derivative financial instruments outstanding
September 30, 2010
----------------------------------------------------------------------------
Notional Fair value
(millions, buy assets
Sell/Buy currency) Maturities (liabilities)
----------------------------------------------------------------------------
USD/CAD forwards CAD 87 2010 - 2011 2
----------------------------------------------------------------------------
USD/AUD forwards - - -
----------------------------------------------------------------------------
AUD/CAD forwards - - -
----------------------------------------------------------------------------
USD/CAD put options purchased - - -
----------------------------------------------------------------------------
USD/AUD put options purchased AUD 450 2010 11
----------------------------------------------------------------------------
USD/CAD call options sold - - -
----------------------------------------------------------------------------
USD/AUD call options sold AUD 450 2010 (2)
----------------------------------------------------------------------------
11
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Foreign exchange derivative financial instruments outstanding
December 31, 2010
----------------------------------------------------------------------------
Notional Fair value
(millions, buy assets
Sell/Buy currency) Maturities (liabilities)
----------------------------------------------------------------------------
USD/CAD forwards CAD 40 2011 3
----------------------------------------------------------------------------
CAD/USD forwards USD 370 2011 (7)
----------------------------------------------------------------------------
AUD/USD forwards USD 381 2011 (24)
----------------------------------------------------------------------------
EUR/USD forwards - - -
----------------------------------------------------------------------------
GBP/USD forwards - - -
----------------------------------------------------------------------------
(28)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Foreign exchange derivative financial instruments outstanding
January 1, 2010
----------------------------------------------------------------------------
Notional Fair value
(millions, buy assets
Sell/Buy currency) Maturities (liabilities)
----------------------------------------------------------------------------
USD/CAD forwards CAD 46 2010 1
----------------------------------------------------------------------------
CAD/USD forwards - - -
----------------------------------------------------------------------------
AUD/USD forwards - - -
----------------------------------------------------------------------------
EUR/USD forwards USD 9 2010 -
----------------------------------------------------------------------------
GBP/USD forwards USD 2 2010 -
----------------------------------------------------------------------------
1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
b) Commodity price risk
Natural gas, power and nutrient derivative financial instruments outstanding
----------------------------------------------------------------------------
September 30, 2011
----------------------------------------------------------------------------
Fair value
assets
Notional Maturities (liabilities)
----------------------------------------------------------------------------
Natural gas (BCF)
NYMEX contracts
----------------------------------------------------------------------------
Swaps - bought 24 2011 - 2013 (69)
----------------------------------------------------------------------------
Swaps - sold (24) 2011 - 2013 33
----------------------------------------------------------------------------
Collars (swap with options) 4 2011 - 2012 (1)
----------------------------------------------------------------------------
El Paso swaps - - -
----------------------------------------------------------------------------
AECO contracts
----------------------------------------------------------------------------
Swaps 8 2011 1
----------------------------------------------------------------------------
12 (36)
----------------------------------------------------------------------------
Power - Swaps (GWh) 307 2011 - 2013 10
----------------------------------------------------------------------------
Nutrient - Urea swaps (short
tons) 3,000 2011 -
----------------------------------------------------------------------------
(26)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
b) Commodity price risk
Natural gas, power and nutrient derivative financial instruments
outstanding
----------------------------------------------------------------------------
September 30, 2010
----------------------------------------------------------------------------
Fair value
assets
Notional Maturities (liabilities)
----------------------------------------------------------------------------
Natural gas (BCF)
NYMEX contracts
----------------------------------------------------------------------------
Swaps - bought 39 2010 - 2013 (90)
----------------------------------------------------------------------------
Swaps - sold (39) 2010 - 2013 33
----------------------------------------------------------------------------
Collars (swap with options) 14 2010 - 2012 (1)
----------------------------------------------------------------------------
El Paso swaps 2 2010 - 2011 (1)
----------------------------------------------------------------------------
AECO contracts
----------------------------------------------------------------------------
Swaps 9 2010 - 2011 (3)
----------------------------------------------------------------------------
25 (62)
----------------------------------------------------------------------------
Power - Swaps (GWh) 447 2010 - 2013 3
----------------------------------------------------------------------------
Nutrient - Urea swaps (short
tons) - - -
----------------------------------------------------------------------------
(59)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural gas, power and nutrient derivative financial instruments outstanding
----------------------------------------------------------------------------
December 31, 2010
----------------------------------------------------------------------------
Fair value
assets
Notional Maturities (liabilities)
----------------------------------------------------------------------------
Natural gas (BCF)
NYMEX contracts
----------------------------------------------------------------------------
Swaps 33 2011 - 2013 (50)
----------------------------------------------------------------------------
Collars (swap with options) 12 2011 - 2012 (1)
----------------------------------------------------------------------------
El Paso swaps 2 2011 -
----------------------------------------------------------------------------
AECO contracts
----------------------------------------------------------------------------
Swaps 7 2011 (2)
----------------------------------------------------------------------------
54 (53)
----------------------------------------------------------------------------
Power - Swaps (GWh) 412 2011 - 2013 4
----------------------------------------------------------------------------
Nutrient - Urea swaps (short
tons) - - -
----------------------------------------------------------------------------
(49)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural gas, power and nutrient derivative financial instruments
outstanding
----------------------------------------------------------------------------
January 1, 2010
----------------------------------------------------------------------------
Fair value
assets
Notional Maturities (liabilities)
----------------------------------------------------------------------------
Natural gas (BCF)
NYMEX contracts
----------------------------------------------------------------------------
Swaps 67 2010 - 2013 (35)
----------------------------------------------------------------------------
Collars (swap with options) 23 2010 - 2012 5
----------------------------------------------------------------------------
El Paso swaps - - -
----------------------------------------------------------------------------
AECO contracts
----------------------------------------------------------------------------
Swaps - - -
----------------------------------------------------------------------------
90 (30)
----------------------------------------------------------------------------
Power - Swaps (GWh) 552 2010 - 2013 (2)
----------------------------------------------------------------------------
Nutrient - Urea swaps (short
tons) 24,500 2010 1
----------------------------------------------------------------------------
(31)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Impact of change in fair value of natural gas
derivative financial instruments September 30,
----------------------------------------------------------------------------
2011 2010
----------------------------------------------------------------------------
A $10-million increase in net earnings
requires an increase in gas prices per MMBtu 1.46 1.44
----------------------------------------------------------------------------
A $10-million decrease in net earnings
requires a decrease in gas prices per MMBtu 1.51 1.50
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Credit risk
We manage credit risk through rigorous credit approval and monitoring practices. Geographic and industry diversity also mitigate credit risk. The Wholesale business unit sells mainly to large agribusinesses and other industrial users. Letters of credit and credit insurance are used to mitigate risk. The Retail business unit sells to a large customer base dispersed over wide geographic areas in the United States, Canada, Argentina, Chile and Australia. The Advanced Technologies business unit sells to a diversified customer base including large suppliers in the North American professional turf application market.
Aging of trade accounts receivable September 30,
----------------------------------------------------------------------------
2011 2010
----------------------------------------------------------------------------
Allowance Allowance
for for
doubtful doubtful
Gross accounts Gross accounts
----------------------------------------------------------------------------
Not past due 1,880 (18) 1,230 (11)
----------------------------------------------------------------------------
Less than 30 days 206 (3) 122 (2)
----------------------------------------------------------------------------
30 - 90 days 189 (19) 150 (11)
----------------------------------------------------------------------------
91 - 180 days 131 (20) 105 (19)
----------------------------------------------------------------------------
Greater than 180 days 27 (4) 30 (7)
----------------------------------------------------------------------------
2,433 (64) 1,637 (50)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Aging of trade accounts receivable December 31, January 1,
----------------------------------------------------------------------------
2010 2010
----------------------------------------------------------------------------
Allowance Allowance
for for
doubtful doubtful
Gross accounts Gross accounts
----------------------------------------------------------------------------
Not past due 1,256 (13) 716 (6)
----------------------------------------------------------------------------
Less than 30 days 241 (3) 155 (2)
----------------------------------------------------------------------------
30 - 90 days 107 (6) 76 (7)
----------------------------------------------------------------------------
91 - 180 days 90 (15) 97 (16)
----------------------------------------------------------------------------
Greater than 180 days 54 (16) 48 (15)
----------------------------------------------------------------------------
1,748 (53) 1,092 (46)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Twelve months
Nine months ended ended
Allowance for doubtful accounts September 30, December 31,
----------------------------------------------------------------------------
2011 2010 2010
----------------------------------------------------------------------------
Balance, beginning of period 53 46 46
----------------------------------------------------------------------------
Additions 61 44 55
----------------------------------------------------------------------------
Write-offs (50) (40) (48)
----------------------------------------------------------------------------
Balance, end of period 64 50 53
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance as a percent of trade
accounts receivable (%) 3 3 4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
We may be exposed to certain losses in the event that counterparties to short-term investments and derivative financial instruments are unable to meet their contractual obligations. We manage this counterparty credit risk with policies requiring that counterparties to short-term investments and derivative financial instruments have an investment grade credit rating and policies that limit the investing of excess funds to liquid instruments with a maximum term of one year and limit the maximum exposure to any one counterparty. We also enter into master netting agreements that mitigate our exposure to counterparty credit risk. At September 30, 2011, all counterparties to derivative financial instruments have maintained an investment grade rating and there is no indication that any counterparty will be unable to meet their obligations under derivative financial contracts. The carrying amount of financial assets represents the maximum credit exposure.
Maximum exposure to credit risk September 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Cash and cash equivalents 755 897 635 933
----------------------------------------------------------------------------
Accounts receivable 2,925 2,104 1,793 1,247
----------------------------------------------------------------------------
Marketable securities - 17 3 114
----------------------------------------------------------------------------
Other financial assets 97 45 48 88
----------------------------------------------------------------------------
3,777 3,063 2,479 2,382
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fair values
Financial instrument Category Measurement
----------------------------------------------------------------------------
Cash and cash Held for trading Fair value
equivalents
----------------------------------------------------------------------------
Accounts receivable (a) Loans and receivables Amortized cost
----------------------------------------------------------------------------
Accounts receivable - Held for trading Fair value
derivative financial
instruments (b)
----------------------------------------------------------------------------
Marketable securities Available for sale or Fair value
(b) held for trading
----------------------------------------------------------------------------
Other financial assets Loans and receivables Amortized cost
----------------------------------------------------------------------------
Other financial assets Available for sale Fair value
----------------------------------------------------------------------------
Other financial assets - Held for trading Fair value
derivative financial
instruments (b)
----------------------------------------------------------------------------
Short-term debt (a) Financial liabilities Amortized cost
----------------------------------------------------------------------------
Accounts payable (a) Financial liabilities Amortized cost
----------------------------------------------------------------------------
Accounts payable - Held for trading Fair value
derivative financial
instruments (b)
----------------------------------------------------------------------------
Long-term debt (c) Financial liabilities Amortized cost
----------------------------------------------------------------------------
Other financial Financial liabilities Amortized cost
liabilities
----------------------------------------------------------------------------
Other financial Held for trading Fair value
liabilities -
derivative financial
instruments (b)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) Carrying value approximates fair value due to the short-term nature of
the instruments.
(b) Fair value is recorded at the estimated amount we would receive or pay
to terminate the contracts determined based on our assessment of
available market information and valuation methodologies based on
industry accepted third-party models using assumptions about discount
rates and the timing of future cash flows, based on observable market
inputs such as interest yield curves.
(c) Fair value of floating-rate loans approximates carrying value.
Fair value and carrying value of
financial instruments September 30, 2011 September 30, 2010
----------------------------------------------------------------------------
Fair Carrying Fair Carrying
value value value value
----------------------------------------------------------------------------
Cash and cash equivalents - held for
trading 755 755 897 897
----------------------------------------------------------------------------
Accounts receivable
----------------------------------------------------------------------------
Loans and receivables 2,919 2,919 2,092 2,092
----------------------------------------------------------------------------
Fair value through profit or loss 6 6 12 12
----------------------------------------------------------------------------
2,925 2,925 2,104 2,104
----------------------------------------------------------------------------
Marketable securities - held for
trading - - 17 17
----------------------------------------------------------------------------
Other financial assets
----------------------------------------------------------------------------
Loans and receivables 76 76 43 43
----------------------------------------------------------------------------
Available for sale 16 16 - -
----------------------------------------------------------------------------
Fair value through profit or loss 5 5 2 2
----------------------------------------------------------------------------
97 97 45 45
----------------------------------------------------------------------------
Short-term debt - amortized cost 396 396 188 188
----------------------------------------------------------------------------
Accounts payable
----------------------------------------------------------------------------
Amortized cost 2,355 2,355 1,633 1,633
----------------------------------------------------------------------------
Fair value through profit or loss 27 27 24 24
----------------------------------------------------------------------------
2,382 2,382 1,657 1,657
----------------------------------------------------------------------------
Current portion of long-term debt
----------------------------------------------------------------------------
Debentures - amortized cost - - 129 125
----------------------------------------------------------------------------
Floating rate debt - amortized cost 59 59 - -
----------------------------------------------------------------------------
59 59 129 125
----------------------------------------------------------------------------
Long-term debt
----------------------------------------------------------------------------
Debentures - amortized cost 1,889 1,525 1,235 1,025
----------------------------------------------------------------------------
Floating rate debt - amortized cost 593 593 596 596
----------------------------------------------------------------------------
2,482 2,118 1,831 1,621
----------------------------------------------------------------------------
Other financial liabilities
----------------------------------------------------------------------------
Amortized cost 27 27 13 13
----------------------------------------------------------------------------
Fair value through profit or loss 19 19 38 38
----------------------------------------------------------------------------
46 46 51 51
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fair value and carrying value of
financial instruments December 31, 2010 January 1, 2010
----------------------------------------------------------------------------
Fair Carrying Fair Carrying
value value value value
----------------------------------------------------------------------------
Cash and cash equivalents - held for
trading 635 635 933 933
----------------------------------------------------------------------------
Accounts receivable
----------------------------------------------------------------------------
Loans and receivables 1,789 1,789 1,241 1,241
----------------------------------------------------------------------------
Fair value through profit or loss 4 4 6 6
----------------------------------------------------------------------------
1,793 1,793 1,247 1,247
----------------------------------------------------------------------------
Marketable securities
----------------------------------------------------------------------------
Available for sale - - 113 113
----------------------------------------------------------------------------
Held for trading 3 3 1 1
----------------------------------------------------------------------------
3 3 114 114
----------------------------------------------------------------------------
Other financial assets
----------------------------------------------------------------------------
Loans and receivables 43 43 60 60
----------------------------------------------------------------------------
Available for sale 2 2 25 25
----------------------------------------------------------------------------
Fair value through profit or loss 3 3 3 3
----------------------------------------------------------------------------
48 48 88 88
----------------------------------------------------------------------------
Short-term debt - amortized cost 517 517 106 106
----------------------------------------------------------------------------
Accounts payable
----------------------------------------------------------------------------
Amortized cost 2,615 2,615 2,328 2,328
----------------------------------------------------------------------------
Fair value through profit or loss 51 51 14 14
----------------------------------------------------------------------------
2,666 2,666 2,342 2,342
----------------------------------------------------------------------------
Current portion of long-term debt
----------------------------------------------------------------------------
Debentures - amortized cost 126 125 - -
----------------------------------------------------------------------------
126 125 - -
----------------------------------------------------------------------------
Long-term debt
----------------------------------------------------------------------------
Debentures - amortized cost 1,724 1,525 1,246 1,150
----------------------------------------------------------------------------
Floating rate debt - amortized cost 593 593 549 549
----------------------------------------------------------------------------
2,317 2,118 1,795 1,699
----------------------------------------------------------------------------
Other financial liabilities
----------------------------------------------------------------------------
Amortized cost 14 14 9 9
----------------------------------------------------------------------------
Fair value through profit or loss 33 33 25 25
----------------------------------------------------------------------------
47 47 34 34
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The weighted-average effective interest rate on long-term debt at September
30, 2011 is 5% (September 30, 2010 - 6%, December 31, 2010 - 6%, January 1,
2010 - 6%). The fair value of long-term debt is determined using information
classified as Level 2.
Fair value of financial
instruments Level 1 Level 2 Total
----------------------------------------------------------------------------
September 30, 2011
----------------------------------------------------------------------------
Fair value through profit or
loss
----------------------------------------------------------------------------
Cash and cash equivalents 755 - 755
----------------------------------------------------------------------------
Foreign exchange derivative
financial instruments - (9) (9)
----------------------------------------------------------------------------
Gas, power and nutrient
derivative financial
instruments (37) 11 (26)
----------------------------------------------------------------------------
Available for sale 16 - 16
----------------------------------------------------------------------------
September 30, 2010
----------------------------------------------------------------------------
Fair value through profit or
loss
----------------------------------------------------------------------------
Cash and cash equivalents 897 - 897
----------------------------------------------------------------------------
Foreign exchange derivative
financial instruments - 11 11
----------------------------------------------------------------------------
Gas, power and nutrient
derivative financial
instruments (58) (1) (59)
----------------------------------------------------------------------------
Marketable securities 17 - 17
----------------------------------------------------------------------------
December 31, 2010
----------------------------------------------------------------------------
Fair value through profit or
loss
----------------------------------------------------------------------------
Cash and cash equivalents 635 - 635
----------------------------------------------------------------------------
Foreign exchange derivative
financial instruments - (28) (28)
----------------------------------------------------------------------------
Gas, power and nutrient
derivative financial
instruments (52) 3 (49)
----------------------------------------------------------------------------
Marketable securities 3 - 3
----------------------------------------------------------------------------
Available for sale 2 - 2
----------------------------------------------------------------------------
January 1, 2010
----------------------------------------------------------------------------
Fair value through profit or
loss
----------------------------------------------------------------------------
Cash and cash equivalents 933 - 933
----------------------------------------------------------------------------
Foreign exchange derivative
financial instruments - 1 1
----------------------------------------------------------------------------
Gas, power and nutrient
derivative financial
instruments (30) (1) (31)
----------------------------------------------------------------------------
Marketable securities 1 - 1
----------------------------------------------------------------------------
Available for sale 138 - 138
----------------------------------------------------------------------------
----------------------------------------------------------------------------
17. CAPITAL MANAGEMENT
Our primary objectives when managing capital are to provide for: a) a prudent capital structure for raising capital at a reasonable cost for the funding of ongoing operations, capital expenditures, and new growth initiatives; and b) an appropriate rate of return to shareholders in relation to the risks underlying our assets.
We monitor the ratios outlined in the table below to manage our capital.
September 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Net debt to net debt plus equity
(%) (a) 23 17 29 16
----------------------------------------------------------------------------
Interest coverage (multiple) (b) 15.5 N/A (c) 12.2 N/A (c)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) Net debt includes short-term debt and long-term debt, net of cash and
cash equivalents. Equity consists of shareholders' equity.
(b) Interest coverage is the last twelve months net earnings from continuing
operations before finance costs, income taxes, depreciation, amortization
and asset impairment divided by interest, which includes interest on long-
term debt plus other interest.
(c) Twelve months of consolidated net earnings from continuing operations
before interest expense, income taxes, depreciation, amortization and asset
impairment is not available as a result of the transition to IFRS on
January 1, 2010.
(d) The measures of debt, equity and consolidated net earnings from
continuing operations described above are non-GAAP financial measures which
do not have a standardized meaning prescribed by IFRS and therefore may not
be comparable to similar measures presented by other issuers.
(e) Our strategy for managing capital is unchanged from December 31, 2010.
Our revolving credit facilities require that we maintain specific interest coverage and debt to capital ratios as well as other non-financial covenants as defined in the debt agreement. We were in compliance with all covenants at September 30, 2011.
We have filed a base shelf prospectus in Canada and the U.S. which potentially allows issuance of up to $1.5-billion of debt, equity or other securities until December 2011. Issuance of securities requires filing a prospectus supplement and is subject to availability of funding in capital markets.
18. SEGMENTATION
Three months ended Nine months ended
September 30, September 30,
2011 2010 2011 2010
----------------------------------------------------------------------------
Consolidated sales
----------------------------------------------------------------------------
Retail
----------------------------------------------------------------------------
Crop nutrients 692 411 3,507 2,174
----------------------------------------------------------------------------
Crop protection products 943 712 3,046 2,412
----------------------------------------------------------------------------
Seed 85 44 1,002 823
----------------------------------------------------------------------------
Merchandise 134 23 486 73
----------------------------------------------------------------------------
Services and other 157 54 440 162
----------------------------------------------------------------------------
2,011 1,244 8,481 5,644
----------------------------------------------------------------------------
Wholesale
----------------------------------------------------------------------------
Nitrogen 405 319 1,456 1,061
----------------------------------------------------------------------------
Potash 167 131 621 517
----------------------------------------------------------------------------
Phosphate 217 170 661 431
----------------------------------------------------------------------------
Product purchased for resale 335 207 1,195 651
----------------------------------------------------------------------------
Other 52 38 189 164
----------------------------------------------------------------------------
1,176 865 4,122 2,824
----------------------------------------------------------------------------
Advanced Technologies 125 93 364 298
----------------------------------------------------------------------------
Other (a)(b) (171) (136) (674) (421)
----------------------------------------------------------------------------
3,141 2,066 12,293 8,345
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated inter-segment sales(b)
----------------------------------------------------------------------------
Retail 3 3 21 12
----------------------------------------------------------------------------
Wholesale 153 121 589 370
----------------------------------------------------------------------------
Advanced Technologies 15 12 64 39
----------------------------------------------------------------------------
171 136 674 421
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated net earnings
----------------------------------------------------------------------------
Retail 92 70 563 363
----------------------------------------------------------------------------
Wholesale 393 151 1,339 574
----------------------------------------------------------------------------
Advanced Technologies (3) (4) 5 10
----------------------------------------------------------------------------
Other (a) (34) (111) (152) (82)
----------------------------------------------------------------------------
Earnings before finance costs and
income taxes 448 106 1,755 865
----------------------------------------------------------------------------
Finance costs related to long-term
debt 25 20 76 65
----------------------------------------------------------------------------
Other finance costs 17 6 42 20
----------------------------------------------------------------------------
Earnings before income taxes 406 80 1,637 780
----------------------------------------------------------------------------
Income taxes 113 19 456 202
----------------------------------------------------------------------------
Consolidated net earnings from
continuing operations 293 61 1,181 578
----------------------------------------------------------------------------
Consolidated net earnings from
discontinued operations - - 1 -
----------------------------------------------------------------------------
Consolidated net earnings 293 61 1,182 578
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) The Other segment is a non-operating segment for inter-segment
eliminations and corporate functions.
(b) Sales between segments are accounted for at prices that approximate fair
market value.
September 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Total assets
----------------------------------------------------------------------------
Retail 7,734 5,708 6,854 5,389
----------------------------------------------------------------------------
Wholesale 2,911 2,305 2,602 3,175
----------------------------------------------------------------------------
Advanced Technologies 522 453 460 418
----------------------------------------------------------------------------
Other 1,248 1,256 1,550 692
----------------------------------------------------------------------------
Discontinued operations 110 - 1,412 -
----------------------------------------------------------------------------
12,525 9,722 12,878 9,674
----------------------------------------------------------------------------
----------------------------------------------------------------------------
19. TRANSITION TO IFRS
The accounting policies set out in note 1 have been applied in preparing the financial statements for the nine months ended September 30, 2011, the comparative information presented in these financial statements for the nine months ended September 30, 2010, for the year ended December 31, 2010 and in the preparation of an opening IFRS balance sheet at January 1, 2010 (the 'transition date').
In preparing our opening IFRS balance sheet, we have adjusted amounts reported previously in financial statements prepared in accordance with previous Canadian GAAP. An explanation of how the transition from previous Canadian GAAP to IFRS has affected our financial performance, cash flows and financial position is set out in the following tables and the notes that accompany the tables.
Three months Nine months Twelve months
Reconciliation of net earnings ended ended ended
and comprehensive income September 30, September 30, December 31,
----------------------------------------------------------------------------
2010 2010 2010
----------------------------------------------------------------------------
Net earnings as reported under
previous Canadian GAAP 57 556 714
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported net
earnings:
----------------------------------------------------------------------------
Share-based payments 7 4 (1)
----------------------------------------------------------------------------
Incentive accrual (9) - -
----------------------------------------------------------------------------
Acquisition-related costs (2) 43 5
----------------------------------------------------------------------------
Environmental remediation and
asset retirement obligations 4 (5) (6)
----------------------------------------------------------------------------
Reclassification of non-
controlling interest - 1 -
----------------------------------------------------------------------------
Income tax effect of
reconciling items 3 (21) 1
----------------------------------------------------------------------------
Other 1 - -
----------------------------------------------------------------------------
Consolidated net earnings as
reported under IFRS 61 578 713
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Comprehensive income as
reported under previous
Canadian GAAP 94 535 763
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported net
earnings 4 22 (1)
----------------------------------------------------------------------------
Adjustments to decrease
reported other comprehensive
income (12) (14) (28)
----------------------------------------------------------------------------
Consolidated comprehensive
income as reported under IFRS 86 543 734
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months Nine months Twelve months
ended ended ended
Reconciliation of cash flows September 30, September 30, December 31,
----------------------------------------------------------------------------
2010 2010 2010
----------------------------------------------------------------------------
Cash provided by operating
activities as reported under
previous Canadian GAAP 88 12 575
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported cash
provided by operating
activities:
----------------------------------------------------------------------------
Consolidated net earnings 4 22 4
----------------------------------------------------------------------------
Share-based payments (7) (4) 1
----------------------------------------------------------------------------
Acquisition-related costs - (45) (45)
----------------------------------------------------------------------------
Income tax effect of
reconciling items (4) 15 (1)
----------------------------------------------------------------------------
Reclassification of non-
controlling interest - (1) -
----------------------------------------------------------------------------
Consolidation of special
purpose entity - - 45
----------------------------------------------------------------------------
Other 10 15 10
----------------------------------------------------------------------------
Cash provided by operating
activities as reported under
IFRS 91 14 589
----------------------------------------------------------------------------
Cash used in investing
activities as reported under
previous Canadian GAAP (113) (172) (1,546)
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported cash
provided by investing
activities:
----------------------------------------------------------------------------
Acquisition-related costs - - 37
----------------------------------------------------------------------------
Other - - 1
----------------------------------------------------------------------------
Cash used in investing
activities as reported under
IFRS (113) (172) (1,508)
----------------------------------------------------------------------------
Cash provided by financing
activities as reported under
previous Canadian GAAP 105 118 518
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported cash
provided by financing
activities:
----------------------------------------------------------------------------
Consolidation of special
purpose entity - - 50
----------------------------------------------------------------------------
Cash provided by financing
activities as reported under
IFRS 105 118 568
----------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents
as reported under previous
Canadian GAAP 12 6 15
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported effect of
exchange rate changes on cash (3) (2) (7)
----------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents
as reported under IFRS 9 4 8
----------------------------------------------------------------------------
Cash and cash equivalents - end
of period as reported under
Canadian GAAP 897 897 540
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported cash and
cash equivalents:
----------------------------------------------------------------------------
Consolidation of special
purpose entity - - 95
----------------------------------------------------------------------------
Cash and cash equivalents - end
of period as reported under
IFRS 897 897 635
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of assets
----------------------------------------------------------------------------
September 30, December 31, January 1,
----------------------------------------------------------------------------
2010 2010 2010
----------------------------------------------------------------------------
Total assets as reported under
previous Canadian GAAP 9,778 12,717 9,785
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported total
assets:
----------------------------------------------------------------------------
Exemption for post employment
benefits under IFRS 1 (7) (7) (7)
----------------------------------------------------------------------------
Acquisition-related costs (2) (45) (45)
----------------------------------------------------------------------------
Consolidation of special
purpose entity - 221 -
----------------------------------------------------------------------------
Provisions for asset
retirement 38 55 15
----------------------------------------------------------------------------
Reclassification of deferred
income taxes (95) (75) (77)
----------------------------------------------------------------------------
Other 10 12 3
----------------------------------------------------------------------------
Total assets as reported under
IFRS 9,722 12,878 9,674
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of liabilities
and equity
----------------------------------------------------------------------------
September 30, December 31, January 1,
----------------------------------------------------------------------------
2010 2010 2010
----------------------------------------------------------------------------
Total liabilities as reported
under previous Canadian GAAP 4,654 7,370 5,193
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported total
liabilities:
----------------------------------------------------------------------------
Exemption for post employment
benefits under IFRS 1 38 38 38
----------------------------------------------------------------------------
Post-employment benefits - 16 -
----------------------------------------------------------------------------
Provisions for share-based
payments 33 38 37
----------------------------------------------------------------------------
Consolidation of special
purpose entity - 221 -
----------------------------------------------------------------------------
Provisions for environmental
remediation and asset
retirement 42 60 14
----------------------------------------------------------------------------
Reclassification of non-
controlling interest - (8) (11)
----------------------------------------------------------------------------
Income tax effect of
reconciling items 37 15 16
----------------------------------------------------------------------------
Reclassification of deferred
income taxes (95) (75) (77)
----------------------------------------------------------------------------
Other 2 10 (7)
----------------------------------------------------------------------------
Total liabilities as reported
under IFRS 4,711 7,685 5,203
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total shareholders' equity as
reported under previous
Canadian GAAP 5,124 5,347 4,592
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported total
shareholders' equity:
----------------------------------------------------------------------------
Exemption for post employment
benefits under IFRS 1 (45) (45) (45)
----------------------------------------------------------------------------
Post-employment benefits - (16) -
----------------------------------------------------------------------------
Provisions for share-based
payments (33) (38) (37)
----------------------------------------------------------------------------
Acquisition-related costs (2) (45) (45)
----------------------------------------------------------------------------
Provisions for environmental
remediation and asset
retirement (4) (5) 1
----------------------------------------------------------------------------
Reclassification of non-
controlling interest - 8 11
----------------------------------------------------------------------------
Income tax effect of
reconciling items (37) (15) (16)
----------------------------------------------------------------------------
Other 8 2 10
----------------------------------------------------------------------------
Total shareholders' equity as
reported under IFRS 5,011 5,193 4,471
----------------------------------------------------------------------------
----------------------------------------------------------------------------
First-time adoption of IFRS
Our adoption of IFRS requires that we apply IFRS 1 - First-time Adoption of International Financial Reporting Standards. We have restated comparative information in compliance with IFRS for periods after the transition date. A number of new standards, and amendments to standards and interpretations, are not yet effective for the year ended December 31, 2011, and have not been applied in preparing these interim financial statements. If there are any subsequent changes to IFRS that affect the first annual IFRS financial statements, these financial statements may have to be restated.
IFRS 1 requires certain mandatory exceptions and permits certain optional exemptions from this general requirement. We prepared our opening balance sheet using the following elections under IFRS 1:
----------------------------------------------------------------------------
IFRS Exemption Options Summary of Policy Selection
----------------------------------------------------------------------------
Business Combinations
We may elect, on transition to IFRS, We have elected, on transition to
to either restate all past business IFRS, to apply the exemption such
combinations in accordance with IFRS that transactions entered into prior
3 Business Combinations or to apply to the transition date will not be
an elective exemption from applying restated. Because we did not adopt
IFRS 3 to business combinations CICA Handbook section 1582 in 2010,
completed before the transition date. we restated business combinations
completed in 2010.
----------------------------------------------------------------------------
Share-Based Payments
We may elect not to apply IFRS 2, We have elected not to apply IFRS 2
Share-based Payments, to equity to equity instruments granted on or
instruments granted on or before before November 7, 2002, or which
November 7, 2002, or which vested vested before our transition date. We
before our transition date. We may have also elected not to apply IFRS 2
also elect not to apply IFRS 2 to to liabilities arising from share-
liabilities arising from share-based based payment transactions that
payment transactions that settled settled before the transition date.
before the transition date.
----------------------------------------------------------------------------
Employee Benefits
We may elect to recognize all We have elected to recognize all
cumulative actuarial gains and losses cumulative actuarial gains and losses
through opening retained earnings at at the date of transition as an
the transition date. Actuarial gains adjustment to retained earnings.
and losses would have to be
recalculated under IFRS from the
inception of each of our defined
benefit plans to separate recognized
and unrecognized cumulative actuarial
gains and losses if the exemption is
not taken.
----------------------------------------------------------------------------
Foreign Exchange
On transition, cumulative translation We have elected to apply the
gains or losses in accumulated other exemption and reclassify the balance
comprehensive income can be of cumulative foreign exchange
reclassified to retained earnings at translation gains or losses from
our election. If not elected, all other comprehensive income to
cumulative translation differences retained earnings at the transition
must be recalculated under IFRS from date, with no resulting change to
inception. total shareholders' equity.
----------------------------------------------------------------------------
Asset Retirement Obligations
IFRS requires changes in obligations We have elected to apply the
to dismantle, remove and restore exemption from full retrospective
items of property, plant and application at the transition date.
equipment to be added to or deducted
from the cost of the asset. The
adjusted depreciable amount of the
asset is then depreciated over its
remaining useful life. Rather than
recalculating the effect of all such
changes throughout the life of the
obligation, we may elect to measure
the liability and the related
depreciation effects at the
transition date.
----------------------------------------------------------------------------
Estimates are a mandatory exception in IFRS 1 applied in the conversion from
Canadian GAAP to IFRS. Hindsight is not used to create or revise estimates.
The estimates we previously made under Canadian GAAP were not revised for
application of IFRS except where necessary to reflect any differences in
accounting policies.
----------------------------------------------------------------------------
Significant Differences Between IFRS Impact
and Canadian GAAP
----------------------------------------------------------------------------
Employee Benefits
IFRS permits the recognition of Transition date impact: none
actuarial gains and losses
immediately in equity, immediately to Future impact: greater variability in
earnings, or on a deferred basis to shareholders' equity within
earnings. Canadian GAAP does not accumulated other comprehensive
permit immediate recognition in income
equity. Further, IFRS requires
expensing of vested past service
costs immediately while unvested
costs are amortized on a straight-
line basis over the vesting period.
Canadian GAAP requires amortization
of past service costs over the
expected average remaining service
life of active employees and
amortization of costs over the
average life expectancy of former
employees.
----------------------------------------------------------------------------
Share-Based Payments
IFRS requires measurement of cash- Transition date impact: reduction in
settled, share-based awards at fair shareholders' equity and an increase
value, while Canadian GAAP allows in liabilities
measurement of these awards at
intrinsic value. In addition, Agrium Future impact: a continued
used straight-line depreciation to measurement difference between the
recognize graded vesting stock based intrinsic value and the fair value of
instruments under Canadian GAAP, cash-settled share based awards
while IFRS requires accounting for
each installment as a separate
arrangement.
----------------------------------------------------------------------------
Income Taxes
Classification of future income tax Transition date impact: reclassifying
under IFRS is non-current whereas all future income taxes to non-
Canadian GAAP splits future income current results in a decrease in
taxes between current and non-current current assets and a decrease in non-
components. current income tax liabilities
Future impact: remains a
classification difference
IFRS requires recognition of the Transition date impact: increase in
deferred tax impact for temporary deferred tax liabilities and a
differences arising on translation of corresponding decrease in retained
certain foreign denominated non- earnings
monetary assets or liabilities.
Canadian GAAP does not allow similar Future impact: continued recognition
treatment. of the deferred tax impact with
respect to the translation of foreign
denominated non-monetary assets or
liabilities
----------------------------------------------------------------------------
Provisions
IFRS requires discounting of Transition date impact: decrease in
provisions where the effect of the environmental liabilities and a
discounting is material. Provisions corresponding increase to retained
are not discounted under Canadian earnings
GAAP unless specifically required or
when a provision is required to be Future impact: each period there will
measured at fair value. be a charge to earnings for accretion
of the discount
The specific provisions for asset Transition date impact: increase to
retirement obligations under IFRS are asset retirement obligations and a
measured based on management's best corresponding decrease to retained
estimate. The discount rate used in earnings
calculating the present value of the
cash flow estimates is to be based on Future impact: decrease in charge to
risks specific to the liability earnings each period for accretion of
unless these risks have been discount
incorporated into the cash flow
estimates. Canadian GAAP measures
asset retirement obligations at fair
value incorporating market
assumptions. The discount rate used
is a credit-adjusted risk-free rate.
----------------------------------------------------------------------------
Impairment of Assets
Under IFRS, the impairment of assets, Transition date impact: none
excluding financial assets, is tested
and measured by comparing the Future impact: increased potential
carrying value of an asset or cash for impairment losses and reversal of
generating unit to its recoverable previously recorded losses
amount. Recoverable amount is
measured as the higher of fair value
less cost to sell or value-in-use
(discounted future cash flows). IFRS
permits impairment reversals for
assets (excluding goodwill). The IFRS
approach has the potential to
increase income statement volatility
due to the potential for increased
write-downs and reversals of write-
downs.
----------------------------------------------------------------------------
Business Combinations
IFRS does not include acquisition- Transition date impact: decrease in
related costs within consideration shareholders' equity and total assets
transferred in a business combination
whereas the cost of acquisition does Future impact: potential increase in
include direct, incremental charges to earnings in the amount of
acquisition-related costs under acquisition-related costs for
Canadian GAAP. business combinations
----------------------------------------------------------------------------
Non-Controlling Interest
IFRS requires non-controlling Transition date impact: increase in
interest to be presented as a shareholders' equity
component of shareholders' equity
separate from the parent's equity Future impact: non-controlling
while Canadian GAAP presents non- interest will continue to be
controlling interest as a separate presented within shareholders' equity
component between liabilities and
equity.
----------------------------------------------------------------------------
Consolidation of Special Purpose
Entities and Transfers of Financial
Assets
Under Canadian GAAP, a qualified On transition (and continuing as a
special purpose entity ('QSPE') that future impact), we consolidated a
met certain conditions was not special purpose entity acquired in
consolidated by a party that was a the AWB acquisition to which we
transferor of assets to the QSPE. transferred accounts receivable.
Under IFRS, an entity that has Assets transferred that did not meet
transactions with a QSPE may in the IFRS criteria were not recorded
substance control the entity, as sales as the arrangement did not
requiring consolidation. In transfer substantially all the risks
determining whether or not financial and rewards of ownership of the
assets should be derecognized on receivables to a third party.
transfer, for example in an accounts Accordingly, we recorded cash
receivable securitization, IFRS received on sale of receivables as
focuses on evaluation of whether a secured borrowings.
qualifying transfer has taken place,
whether risks and rewards have been
transferred, and in some cases
whether control over the assets has
been transferred. Canadian GAAP
focused on an evaluation of the
transfer of control.
----------------------------------------------------------------------------
20. PRINCIPAL SUBSIDIARIES AND ASSOCIATED COMPANIES
Ownership
percent
----------------------------------------------------------------------------
Agrium, a general partnership 100
----------------------------------------------------------------------------
Agrium U.S. Inc. 100
----------------------------------------------------------------------------
Crop Production Services, Inc. 100
----------------------------------------------------------------------------
Landmark Rural Holdings Limited 100
----------------------------------------------------------------------------
Profertil S.A. 50
----------------------------------------------------------------------------
----------------------------------------------------------------------------
AGRIUM INC.
Results by Segment
(Unaudited - millions of U.S. dollars)
Schedule 1a
Three months ended September 30,
----------------------------------------------------------------------------
2011
----------------------------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Total
----------------------------------------------------------------------------
Sales - external 2,008 1,023 110 - 3,141
- inter-segment 3 153 15 (171) -
----------------------------------------------------------------------------
Total sales 2,011 1,176 125 (171) 3,141
Cost of product sold 1,513 779 101 (140) 2,253
----------------------------------------------------------------------------
Gross profit 498 397 24 (31) 888
----------------------------------------------------------------------------
Gross profit (%) 25 34 19 28
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Selling expenses 390 10 14 (5) 409
EBITDA(1) 135 438 3 (30) 546
EBIT(2) 92 393 (3) (34) 448
Three months ended September 30,
----------------------------------------------------------------------------
2010
----------------------------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Total
----------------------------------------------------------------------------
Sales - external 1,241 744 81 - 2,066
- inter-segment 3 121 12 (136) -
----------------------------------------------------------------------------
Total sales 1,244 865 93 (136) 2,066
Cost of product sold 925 688 78 (123) 1,568
----------------------------------------------------------------------------
Gross profit 319 177 15 (13) 498
----------------------------------------------------------------------------
Gross profit (%) 26 20 16 24
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Selling expenses 250 8 8 (2) 264
EBITDA(1) 98 206 1 (108) 197
EBIT(2) 70 151 (4) (111) 106
(1) Earnings (loss) from continuing operations before finance costs, income
taxes, depreciation and amortization.
(2) Earnings (loss) from continuing operations before finance costs and
income taxes.
(3) All schedules have been restated to conform to International Financial
Reporting Standards.
AGRIUM INC.
Results by Segment
(Unaudited - millions of U.S. dollars)
Schedule 1b
Nine months ended September 30,
----------------------------------------------------------------------------
2011
----------------------------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Total
----------------------------------------------------------------------------
Sales - external 8,460 3,533 300 - 12,293
- inter-segment 21 589 64 (674) -
----------------------------------------------------------------------------
Total sales 8,481 4,122 364 (674) 12,293
Cost of product sold 6,647 2,696 287 (625) 9,005
----------------------------------------------------------------------------
Gross profit 1,834 1,426 77 (49) 3,288
----------------------------------------------------------------------------
Gross profit (%) 22 35 21 27
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Selling expenses 1,198 29 33 (10) 1,250
EBITDA(1) 689 1,467 22 (142) 2,036
EBIT(2) 563 1,339 5 (152) 1,755
Nine months ended September 30,
----------------------------------------------------------------------------
2010
----------------------------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Total
----------------------------------------------------------------------------
Sales - external 5,632 2,454 259 - 8,345
- inter-segment 12 370 39 (421) -
----------------------------------------------------------------------------
Total sales 5,644 2,824 298 (421) 8,345
Cost of product sold 4,444 2,155 237 (414) 6,422
----------------------------------------------------------------------------
Gross profit 1,200 669 61 (7) 1,923
----------------------------------------------------------------------------
Gross profit (%) 21 24 20 23
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Selling expenses 801 26 22 (8) 841
EBITDA(1) 445 727 24 (75) 1,121
EBIT(2) 363 574 10 (82) 865
(1) Earnings (loss) from continuing operations before finance costs, income
taxes, depreciation and amortization.
(2) Earnings (loss) from continuing operations before finance costs and
income taxes.
(3) All schedules have been restated to conform to International Financial
Reporting Standards.
AGRIUM INC.
Product Lines
(Unaudited - millions of U.S. dollars)
Schedule 2
Three months ended September 30,
----------------------------------------------------------------------------
2011 2010
----------------------------------------------------------------------------
Cost of Cost of
product Gross product Gross
Sales sold(1) profit Sales sold(1) profit
----------------------------------------------------------------------------
Retail(2)(3)
Crop nutrients 692 568 124 411 325 86
Crop protection
products 943 717 226 712 540 172
Seed 85 55 30 44 20 24
Merchandise 134 115 19 23 21 2
Services and
other 157 58 99 54 19 35
----------------------------------------------------------------------------
2,011 1,513 498 1,244 925 319
----------------------------------------------------------------------------
Wholesale(3)
Nitrogen 405 228 177 319 237 82
Potash 167 65 102 131 71 60
Phosphate 217 135 82 170 145 25
Product
purchased for
resale 335 314 21 207 198 9
Other 52 37 15 38 37 1
----------------------------------------------------------------------------
1,176 779 397 865 688 177
----------------------------------------------------------------------------
Advanced
Technologies(3)
Turf and
ornamental 87 71 16 62 52 10
Agriculture 38 30 8 31 26 5
----------------------------------------------------------------------------
125 101 24 93 78 15
----------------------------------------------------------------------------
Other inter-
segment
eliminations(3) (171) (140) (31) (136) (123) (13)
----------------------------------------------------------------------------
Total(3) 3,141 2,253 888 2,066 1,568 498
----------------------------------------------------------------------------
----------------------------------------------------------------------------
AGRIUM INC.
Product Lines
(Unaudited - millions of U.S. dollars)
Schedule 2
Nine months ended September 30,
----------------------------------------------------------------------------
2011 2010
----------------------------------------------------------------------------
Cost of Cost of
product Gross product Gross
Sales sold(1) profit Sales sold(1) profit
----------------------------------------------------------------------------
Retail(2)(3)
Crop nutrients 3,507 2,891 616 2,174 1,773 401
Crop protection
products 3,046 2,393 653 2,412 1,897 515
Seed 1,002 805 197 823 678 145
Merchandise 486 423 63 73 67 6
Services and
other 440 135 305 162 29 133
----------------------------------------------------------------------------
8,481 6,647 1,834 5,644 4,444 1,200
----------------------------------------------------------------------------
Wholesale(3)
Nitrogen 1,456 804 652 1,061 769 292
Potash 621 229 392 517 242 275
Phosphate 661 401 260 431 379 52
Product
purchased for
resale 1,195 1,136 59 651 626 25
Other 189 126 63 164 139 25
----------------------------------------------------------------------------
4,122 2,696 1,426 2,824 2,155 669
----------------------------------------------------------------------------
Advanced
Technologies(3)
Turf and
ornamental 230 187 43 203 162 41
Agriculture 134 100 34 95 75 20
----------------------------------------------------------------------------
364 287 77 298 237 61
----------------------------------------------------------------------------
Other inter-
segment
eliminations(3) (674) (625) (49) (421) (414) (7)
----------------------------------------------------------------------------
Total(3) 12,293 9,005 3,288 8,345 6,422 1,923
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Includes depreciation and amortization.
(2) International Retail net sales were $611-million (2010 - $106-million)
and gross profit was $121-million (2010 - $17-million) for the three
months ended September 30. International Retail net sales were $2.0-
billion (2010 - $192-million) and gross profit was $370-million (2010 -
$34-million) for the nine months ended September 30.
(3) Comparative figures have been reclassified to conform to the current
year's revised categories.
AGRIUM INC.
Selected Wholesale Volumes and Sales Prices
(Unaudited)
Schedule 3a
Three months ended September 30,
----------------------------------------------------------------------------
2011
----------------------------------------------------------------------------
Cost of
Sales Selling product
tonnes price sold Margin
(000's) ($/tonne) ($/tonne) ($/tonne)
----------------------------------------------------------------------------
Nitrogen
Domestic
Ammonia 207 505
Urea 228 582
Other 222 384
--------------------------------------------------------
Total domestic 657 491
International 160 521
----------------------------------------------------------------------------
Total nitrogen 817 497 280 217
----------------------------------------------------------------------------
Potash
Domestic 141 597
International 206 401
----------------------------------------------------------------------------
Total potash 347 480 188 292
----------------------------------------------------------------------------
Phosphate 277 784 487 297
Product purchased for resale 599 559 524 35
Other
Ammonium sulfate 93 366 219 147
Other 39
----------------------------------------------------------------------------
Total other 132
----------------------------------------------------------------------------
Total Wholesale 2,172 541 358 183
----------------------------------------------------------------------------
----------------------------------------------------------------------------
AGRIUM INC.
Selected Wholesale Volumes and Sales Prices
(Unaudited)
Schedule 3a
Three months ended September 30,
----------------------------------------------------------------------------
2010
----------------------------------------------------------------------------
Cost of
Sales Selling product
tonnes price sold Margin
(000's) ($/tonne) ($/tonne) ($/tonne)
----------------------------------------------------------------------------
Nitrogen
Domestic
Ammonia 217 398
Urea 361 340
Other 246 259
--------------------------------------------------------
Total domestic 824 331
International 126 372
----------------------------------------------------------------------------
Total nitrogen 950 336 252 84
----------------------------------------------------------------------------
Potash
Domestic 205 403
International 183 270
----------------------------------------------------------------------------
Total potash 388 340 186 154
----------------------------------------------------------------------------
Phosphate 302 563 481 82
Product purchased for resale 620 335 321 14
Other
Ammonium sulfate 77 235 192 43
Other 55
----------------------------------------------------------------------------
Total other 132
----------------------------------------------------------------------------
Total Wholesale 2,392 361 287 74
----------------------------------------------------------------------------
----------------------------------------------------------------------------
AGRIUM INC.
Selected Wholesale Volumes and Sales Prices
(Unaudited)
Schedule 3b
Nine months ended September 30,
----------------------------------------------------------------------------
2011
----------------------------------------------------------------------------
Cost of
Sales Selling product
tonnes price sold Margin
(000's) ($/tonne) ($/tonne) ($/tonne)
----------------------------------------------------------------------------
Nitrogen
Domestic
Ammonia 775 560
Urea 1,036 525
Other 811 365
--------------------------------------------------------
Total domestic 2,622 486
International 377 485
----------------------------------------------------------------------------
Total nitrogen 2,999 486 269 217
----------------------------------------------------------------------------
Potash
Domestic 669 549
International 698 362
----------------------------------------------------------------------------
Total potash 1,367 454 167 287
----------------------------------------------------------------------------
Phosphate 842 785 476 309
Product purchased for resale 2,524 473 450 23
Other
Ammonium sulfate 270 359 191 168
Other 206
----------------------------------------------------------------------------
Total other 476
----------------------------------------------------------------------------
Total Wholesale 8,208 502 328 174
----------------------------------------------------------------------------
----------------------------------------------------------------------------
AGRIUM INC.
Selected Wholesale Volumes and Sales Prices
(Unaudited)
Schedule 3b
Nine months ended September 30,
----------------------------------------------------------------------------
2010
----------------------------------------------------------------------------
Cost of
Sales Selling product
tonnes price sold Margin
(000's) ($/tonne) ($/tonne) ($/tonne)
----------------------------------------------------------------------------
Nitrogen
Domestic
Ammonia 811 419
Urea 1,083 380
Other 723 266
--------------------------------------------------------
Total domestic 2,617 361
International 321 366
----------------------------------------------------------------------------
Total nitrogen 2,938 361 262 99
----------------------------------------------------------------------------
Potash
Domestic 883 414
International 568 267
----------------------------------------------------------------------------
Total potash 1,451 356 166 190
----------------------------------------------------------------------------
Phosphate 795 542 476 66
Product purchased for resale 2,056 317 305 12
Other
Ammonium sulfate 269 252 180 72
Other 260
----------------------------------------------------------------------------
Total other 529
----------------------------------------------------------------------------
Total Wholesale 7,769 363 277 86
----------------------------------------------------------------------------
----------------------------------------------------------------------------
AGRIUM INC.
Depreciation and Amortization in Cost of Product Sold
(Unaudited - millions of U.S. dollars)
Schedule 4
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Retail 1 4 4 4
----------------------------------------------------------------------------
Wholesale
Nitrogen 23 20 60 57
Potash 9 8 29 30
Phosphate 13 24 34 58
Product purchased for resale - 1 - 1
Other - 1 2 4
----------------------------------------------------------------------------
45 54 125 150
----------------------------------------------------------------------------
Advanced Technologies 3 3 10 10
----------------------------------------------------------------------------
Total 49 61 139 164
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Contacts:
Agrium Inc.
Richard Downey
Vice President, Investor & Corporate Relations
(403) 225-7357
Agrium Inc.
Todd Coakwell
Manager, Investor Relations
(403) 225-7437
Agrium Inc.
Mark Thompson
Analyst, Investor Relations
(403) 225-7761
www.agrium.com