Agrium Inc.
TSX : AGU
NYSE : AGU

Agrium Inc.

August 06, 2014 18:35 ET

Agrium Announces Record Retail Second Quarter Results

CALGARY, ALBERTA--(Marketwired - Aug. 6, 2014) -

ALL AMOUNTS ARE STATED IN U.S.$

Agrium Inc. (TSX:AGU) (NYSE:AGU) announced today consolidated net earnings ("net earnings") from continuing operations of $625-million ($4.34 diluted earnings per share) for the second quarter of 2014, compared with net earnings from continuing operations of $744-million in the second quarter of 2013 ($5.00 diluted earnings per share).

The 2014 second quarter results included non-cash charges for future environmental remediation activities of $22-million ($0.11 diluted earnings per share). These were partially offset by a $16-million ($0.08 diluted earnings per share) share-based payments recovery. Excluding these items, net earningst from continuing operations would have been $629-million ($4.37 diluted earnings per share) versus our 2014 second quarter earnings guidance of $3.85 to $4.35 diluted earnings per share.1

"Agrium Retail operations delivered record results this quarter, with EBITDA2 up 28 percent year-over-year supported by strong results from our recently acquired Canadian and Australian operations. We continue to drive synergies and operational improvements across our global retail network. As a result, we made significant progress towards all our key Retail operational metrics and remain focused on our 2015 financial targets," commented Chuck Magro, Agrium's President and CEO.

"Agrium has a unique strategic position to meet widespread agricultural demand, with over half a million customers globally, significant advantages in our nitrogen and potash businesses and a complimentary portfolio of products and services. Agrium continues to focus on maximizing operational and financial efficiencies across our complimentary portfolio of assets, including optimization of working capital and operating costs. Combined with Agrium's current growth projects, we believe these initiatives will drive higher free cash flow and subsequent shareholder returns," added Mr. Magro.

1 Second quarter effective tax rate of 28 percent used for adjusted diluted earnings per share calculation.
2 EBITDA is defined as earnings from continuing operations before finance costs, income taxes, depreciation and amortization. EBITDA is not a recognized measure under IFRS. See "Additional IFRS and Non-IFRS Financial Measures" in our 2014 second quarter Management's Discussion and Analysis.

MANAGEMENT'S DISCUSSION AND ANALYSIS

August 6, 2014

Unless otherwise noted, all financial information in this Management's Discussion and Analysis ("MD&A") is prepared using accounting policies in accordance with International Financial Reporting Standards ("IFRS") and is presented in accordance with International Accounting Standard 34 - Interim Financial Reporting. All comparisons of results for the second quarter of 2014 (three months ended June 30, 2014) are against results for the second quarter of 2013 (three months ended June 30, 2013). All dollar amounts refer to United States ("U.S.") dollars except where otherwise stated. The financial measures EBITDA, Adjusted EBITDA and Retail operating coverage ratio used in this MD&A are not prescribed by IFRS, or in the case of EBIT is an Additional IFRS financial measure. Such measures are defined in the "Additional IFRS and Non-IFRS Financial Measures" section of this MD&A.

The following interim MD&A is as of August 6, 2014 and should be read in conjunction with the Consolidated Interim Financial Statements for the three and six months ended June 30, 2014 (the "Consolidated Financial Statements"), and the annual MD&A and financial statements for the year ended December 31, 2013 included in our 2013 Annual Report to Shareholders to which readers are referred. The Board of Directors carries out its responsibility for review of this disclosure principally through its Audit Committee, comprised exclusively of independent directors. The Audit Committee reviews, and prior to publication, approves this disclosure, pursuant to the authority delegated to it by the Board of Directors. No update is provided to the disclosure in our annual MD&A where an item is not material or there has been no material change from the discussion in our annual MD&A. In respect of Forward-Looking Statements, please refer to the section entitled "Forward-Looking Statements" after the "Outlook, Key Risks and Uncertainties" section of this MD&A.

2014 Second Quarter Operating Results

CONSOLIDATED NET EARNINGS

Agrium's 2014 second quarter net earnings from continuing operations were $625-million, or $4.34 diluted earnings per share from continuing operations, compared to net earnings from continuing operations of $744-million, or $5.00 diluted earnings per share from continuing operations, for the same quarter of 2013.

Financial Overview
(millions of U.S. dollars, except Three months ended June 30, Six months ended June 30,
per share amounts and where noted) 2014 2013 Change % Change 2014 2013 Change % Change
Sales 7,338 6,908 430 6 10,417 10,064 353 4
Gross profit 1,599 1,699 (100 ) (6 ) 2,155 2,404 (249 ) (10 )
Expenses 704 635 69 11 1,207 1,101 106 10
Earnings before finance costs and income taxes ("EBIT")
895

1,064

(169
)
(16
)
948

1,303

(355
)
(27
)
Net earnings from continuing operations 625 744 (119 ) (16 ) 637 890 (253 ) (28 )
Net earnings 616 747 (131 ) (18 ) 619 888 (269 ) (30 )
Diluted earnings per share from continuing operations
4.34

5.00

(0.66
)
(13
)
4.42

5.97

(1.55
)
(26
)
Diluted earnings per share 4.28 5.02 (0.74 ) (15 ) 4.29 5.96 (1.67 ) (28 )
Effective tax rate (%) 28 27 N/A N/A 28 27 N/A N/A
Sales and Gross Profit
Quarter to date change Year to date change
(millions of U.S. dollars) Sales Gross Profit Sales Gross Profit
Retail 834 207 927 218
Wholesale (382 ) (276 ) (513 ) (448 )
Other (22 ) (31 ) (61 ) (19 )
430 (100 ) 353 (249 )

Retail sales and gross profit for the second quarter and first half of 2014 increased compared to the prior year primarily due to the inclusion of results from Viterra Inc. ("Viterra") retail centers further supported by improvements in gross profit in Australia and Argentina (see section "Retail" for further discussion).

Wholesale sales and gross profit for the second quarter and the first half of 2014 decreased compared to the prior year primarily as a result of lower realized sales prices consistent with benchmark pricing (see section "Wholesale" for further discussion).

Expenses

Expenses increased by $69-million and $106-million for the second quarter and first half of 2014, respectively, compared to the same periods last year. The difference is largely a result of an increase in Retail selling expenses of $65-million in the second quarter and $112-million in the first half of 2014, primarily driven by increased costs from the inclusion of results from Viterra retail centers in Western Canada.

The following table is a summary of our other expenses (income) for the second quarter and first half of 2014 and 2013, respectively.

Three months ended Six months ended
June 30, June 30,
(millions of U.S. dollars) 2014 2013 2014 2013
Realized and unrealized gain on commodity derivatives not designated as hedges
-

(1
)
(32
)
(9
)
Realized and unrealized loss (gain) on foreign exchange derivatives not designated as hedges
27

4

12

(9
)
Interest income (19 ) (16 ) (30 ) (31 )
Foreign exchange (gain) loss (29 ) 7 (17 ) 26
Environmental remediation and asset retirement obligations 22 3 20 4
Bad debt expense 25 21 30 26
Potash profit and capital tax 3 8 6 12
Other 13 16 13 12
42 42 2 31

Effective Tax Rate

The effective tax rate on continuing operations was 28 percent for the second quarter and 28 percent for first half of 2014 and is higher than the effective tax rate of 27 percent and 27 percent, respectively, for the same periods last year due to a decrease in income earned in low tax jurisdictions.

BUSINESS SEGMENT PERFORMANCE

Retail

Retail's 2014 second quarter sales were a record $6.4-billion, a 15 percent increase compared to sales of $5.6-billion for the same period last year. Total gross profit was $1.3-billion in the second quarter of 2014, compared to the $1.1-billion achieved in the second quarter of 2013. The record results in sales and gross profit were due to a combination of the contribution from the acquired Viterra agri-retail operations, an improvement in international operations and continued earnings growth for the our legacy North American business. While the spring season was delayed in North America this year, growers were able to complete a majority of seeding and application of major crop inputs in a timely manner. Retail reported record EBITDA of $791-million in the second quarter of 2014, compared to $619-million in the second quarter of last year. The acquired Viterra operations accounted for over half of the $172-million increase in EBITDA in the current quarter. International Retail operations contributed $50-million in EBITDA this quarter, compared to $21-million in the second quarter of 2013. The increase in international Retail results was due to lower costs and an improved livestock market in Australia and improved growing conditions and margins in both Australia and South America.

Crop nutrient sales were $2.7-billion this quarter, compared to $2.5-billion in the second quarter of 2013. The increase was due to additional volumes from the acquired Viterra operations and an approximate 4 percent increase in U.S. sales volumes, as the impact of lower corn acreage was offset by stronger application rates. The increase in volumes more than offset lower global crop nutrient prices compared to the same period last year. Gross profit for crop nutrients was $505-million this quarter, up 19 percent from the $424-million reported in the second quarter of 2013. Total crop nutrient margins as a percentage of sales were 18.6 percent in the second quarter of 2014, compared to 17.1 percent in the same period last year.

Crop protection sales were $2.2-billion in the second quarter of 2014, compared to the $1.8-billion in sales reported in the same period last year. Total crop protection gross profit this quarter was $457-million, compared to $406-million reported in the second quarter of 2013. The increase in sales and gross profit was due to a combination of the contribution from the acquired Viterra operations and a shift in some sales from the first quarter of 2014 into the second quarter of this year. Total crop protection margins as a percentage of sales declined to 20.8 percent this quarter, compared to 22.0 percent in the same period last year. The reduction in margins this quarter was largely due to averaging in the lower margin product mix from the Viterra operations and from pricing pressures and product mix in the U.S. crop protection market this spring.

Seed sales were $1.0-billion in the second quarter of 2014, an increase from the $809-million achieved in the second quarter last year. Gross profit was $196-million this quarter, up 40 percent from the $140-million earned in the second quarter of 2013. The increase in seed sales and gross profit is attributed to contributions from Viterra's seed business and higher sales of cotton and soybean seed units in the U.S. Corn seed volumes remained flat this quarter versus the same period last year despite a reduction in U.S. corn acreage. Total seed margins as a percentage of sales were 18.9 percent in the second quarter of 2014, an increase of 1.6 percent from the same period in 2013. The increase in margins compared to last year was due to contributions from Viterra's higher margin proprietary canola seed business.

Merchandise sales in the second quarter of 2014 were $218-million, compared to $142-million in the same period last year. Gross profit for this product group was $24-million this quarter, which is similar to the $23-million reported in the second quarter of 2013. The increase in sales and gross profit is due to the addition of the Viterra fuel and equipment business lines, which were partially offset by decreased offerings of lower margin general merchandise in Australia.

Services and other sales were $234-million this quarter, compared to the $279-million reported in the second quarter of 2013. The decrease in sales was a result of the closure of the wool export business in Australia. Gross profit was $167-million in the second quarter of 2014, compared to $149-million for the same period last year. The higher gross profit is attributed to improved margins from the livestock markets and other services in Australia, the addition of the Viterra business and stronger margins for services at our legacy North America operations. Services and other sales margins as a percentage of sales were 71 percent this quarter versus 53 percent last year.

Retail selling expenses for the second quarter of 2014 were $603-million, an increase of $65-million compared to the $538-million reported in the second quarter of last year. The increase was due to the addition of the Viterra business and the associated payroll and depreciation expenses. Total selling expenses as a percentage of sales decreased to 9.4 percent in the second quarter of 2014, compared to 9.7 percent reported in the second quarter last year. The reduction in percentage selling expenses is due to improvements in international operations and the continued leveraging of size and scale of the North American operations. The operating coverage ratio (rolling four quarters as of June 30, 2014) is 69 percent compared to 72 percent as of June 30, 2013.

Wholesale

Wholesale's 2014 second quarter sales were $1.2-billion, down from the $1.6-billion reported in the same quarter last year. Gross profit was $227-million this quarter, compared to $503-million in the second quarter of 2013. Wholesale Adjusted EBITDA was $263-million in the second quarter of 2014 compared to $542-million reported in the same period last year. The reduction in earnings was primarily the result of lower global benchmark prices across all nutrients and a reduction in nitrogen sales volumes due to planned and unplanned plant outages this quarter.

Nitrogen gross profit in the second quarter of 2014 was $101-million compared to $294-million in the same quarter last year. Nitrogen sales volumes declined 18 percent to 906,000 tonnes. This was a result of an unplanned outage at the Carseland facility during the quarter accounting for 158,000 tonnes of lost production, and a planned turnaround at the Fort Saskatchewan facility. Realized sales prices for nitrogen were $464 per tonne this quarter compared to $582 per tonne in the second quarter of 2013 as a result of lower benchmark pricing. Nitrogen cost of product sold was $353 per tonne this quarter, an increase from the $315 per tonne reported in the second quarter of 2013, due to higher natural gas costs and higher costs resulting from planned and unplanned outages. Average nitrogen gross margins were $111 per tonne this quarter, compared to $267 per tonne in the same period last year.

Agrium's average natural gas cost included in cost of product sold (which includes transportation and administration costs) was $4.49/MMBtu this quarter ($4.51/MMBtu including the impact of realized losses on natural gas derivatives), compared to $3.67/MMBtu for the same period in 2013 ($3.73/MMBtu including the impact of realized losses on natural gas derivatives). Derivative gains or losses not designated as hedges are included in other expenses and not in cost of product sold, thus are not part of the calculation of gross profit. The average U.S. benchmark (NYMEX) natural gas price for the second quarter of 2014 was $4.56/MMBtu, compared to $4.09/MMBtu in the same quarter last year. The AECO (Alberta) basis differential was a $0.30/MMBtu discount to NYMEX in the second quarter of 2014, a decrease from the $0.56/MMBtu discount in the second quarter of 2013.

Potash gross profit for the second quarter of 2014 was $72-million, compared to $120-million reported in the same quarter last year. The decrease was driven by lower benchmark and realized sales prices. Sales volumes increased to 566,000 tonnes this quarter compared to 544,000 tonnes in the second quarter of 2013. Increased domestic demand resulted from a strong spring application season and an early fall fill program, which more than offset reduced international shipments due to a lower Canpotex allocation. Potash total cost of product sold was $182 per tonne this quarter, up from the $168 per tonne reported in the same quarter last year. The increase was due to the proportionately higher percentage of domestic sales, which unlike international sales include freight costs. The cost of production on a per tonne basis was slightly lower year over year, as both variable and fixed costs were reduced on a per tonne basis. Gross margin on a per tonne basis was $128 in the second quarter of 2014, compared to the $221 per tonne realized during the same quarter in 2013.

Phosphate gross profit was $6-million in the second quarter of 2014, compared to $27-million in the same quarter last year. The decrease was due to lower realized sales prices and sales volumes. Realized phosphate sales prices were $598 per tonne this quarter, a decrease from $667 per tonne in the same period last year as a result of lower benchmark prices. Phosphate sales volumes were 268,000 tonnes in the second quarter of 2014, down 49,000 tonnes compared to the same period last year. The primary causes of the lower sales volumes were production issues relating to imported rock quality at the Redwater facility and a planned turnaround at the Conda facility. Phosphate cost of product sold was $576 per tonne in the second quarter of 2014, slightly lower than the same period last year. Gross margin in the second quarter of 2014 was $22 per tonne compared to $83 per tonne in the same period last year.

Wholesale expenses in the second quarter of 2014 were $36-million compared to $38-million in the same period last year.

Other

EBITDA for our Other non-operating business unit for the second quarter of 2014 was a loss of $6-million, compared to income of $38-million for the second quarter of 2013. The $31-million unfavorable change in gross profit was due to more inter-segment inventory held in our Retail business unit not yet sold to external customers. Coupled with this was a $14-million lower share-based payments recovery resulting from less of a decrease of our share price during the second quarter of 2014 compared to the second quarter of 2013.

EBITDA for Other in the first half of 2014 was a loss of $74-million, compared to a loss of $24-million for the first half of 2013. The change was comprised of:

  • A $19-million unfavorable change in gross profit for the first half of 2014 compared to the first half of 2013 which reflected more inter-segment inventory held in our Retail business unit not yet sold to external customers; and
  • An increase in share-based payments expense of $29-million resulting from a $15-million expense in the first half of 2014 compared to the recovery of $14-million in the first half of 2013.

FINANCIAL CONDITION

The following are changes to working capital on our Consolidated Balance Sheets in the six-month period ended June 30, 2014 compared to December 31, 2013.

(millions of U.S. dollars, except as noted) June 30,
2014
December 31,
2013
$ Change % Change Explanation of the change in balance
Current assets
Cash and cash equivalents 759 801 (42 ) (5 %) See discussion under the section "Liquidity and Capital Resources".
Accounts receivable 3,542 2,105 1,437 68 % Increased sales during the spring season resulted in higher Retail trade and vendor rebates receivable.
Income taxes receivable 4 78 (74 ) (95 %) First half tax provision exceeded tax installment payments made coupled with current period tax receipts.
Inventories 3,097 3,413 (316 ) (9 %) Inventory drawdown due to increased seasonal sales activity.
Prepaid expenses and deposits 157 805 (648 ) (80 %) Drawdown of prepaid inventory due to increased seasonal sales activity in the spring.
Other current assets 124 104 20 19 % Increase in the amount of investments.
Assets held for sale 210 202 8 4 % -
Current liabilities
Short-term debt 1,202 764 438 57 % Issuance of commercial paper used for working capital and capital expenditures.
Accounts payable 4,263 3,985 278 7 % Increased Retail inventory purchases due to increased sales activity, partially offset by drawdown of customer prepayments during the spring application season.
Income taxes payable 179 2 177 8,850 % First half provision exceeded the first half installments.
Current portion of long-term debt 54 58 (4 ) (7 %) -
Current portion of other provisions 116 112 4 4 % -
Liabilities held for sale 55 44 11 25 % Increase in accounts payable during the spring sales season.
Working capital 2,024 2,543 (519 ) (20 %)

LIQUIDITY AND CAPITAL RESOURCES

Summary of Consolidated Statements of Cash Flows

Below is a summary of our cash provided by or used in operating, investing, and financing activities as reflected in the Consolidated Statements of Cash Flows:

Six months ended June 30,
(millions of U.S. dollars) 2014 2013 Change
Cash provided by operating activities 798 295 503
Cash (used in) provided by investing activities (1,036 ) 117 (1,153 )
Cash provided by (used in) financing activities 214 (548 ) 762
Effect of exchange rate changes on cash and cash equivalents (19 ) (33 ) 14
Decrease in cash and cash equivalents from continuing operations (43 ) (169 ) 126
Cash and cash equivalents provided by discontinued operations 1 5 (4 )

Analysis of cash flows for the six months ended June 30, 2014

Cash flows from operating activities increased primarily due to lower working capital requirements. Our sales increased in 2014, however we achieved lower receivable balances due to a faster collection period while increased accounts payable reflected later purchasing from delayed sales during the season attributed to wet weather. This was coupled with lower taxes paid for the period resulting from reduced earnings in 2013. Current period net earnings were reduced due to lower commodity selling prices.

Cash used in investing activities during the six months consisted of $1,002-million in capital expenditures, primarily for our Vanscoy potash facility expansion.

Cash was provided by financing activities through the issuance of short-term debt, primarily under our commercial paper facility.

Capital Expenditures
Six months ended
June 30,
(millions of U.S. dollars) 2014 2013
Sustaining capital 300 231
Investing capital 702 519
Total 1,002 750

Our investing capital expenditures increased in the first half of 2014 compared to the first half of 2013 due to increased activity on the Vanscoy potash expansion project. Ongoing challenges with contractor productivity on the potash expansion project continues to place significant upward pressure on the total project cost. We anticipate second half 2014 total capital expenditures to be at, or above, the first half of 2014.

Short-term Debt

Our short-term debt of $1,202-million at June 30, 2014 is summarized in note 5 of our Consolidated Financial Statements.

OUTSTANDING SHARE DATA

Agrium had approximately 144 million outstanding shares at July 31, 2014. At that date, under our stock option plans, shares expected to be issued for options outstanding were negligible.

SELECTED QUARTERLY INFORMATION
(millions of U.S. dollars, except per share amounts) 2014
Q2

2014
Q1

2013
Q4

2013
Q3

2013
Q2

2013
Q1

2012
Q4

2012
Q3

Sales 7,338 3,079 2,867 2,796 6,908 3,156 3,093 2,768
Gross profit 1,599 556 740 629 1,699 705 974 730
Net earnings from continuing operations 625 12 110 80 744 146 358 140
Net (loss) earnings from discontinued operations
(9
)
(9
)
(11
)
(4
)
3

(5
)
(4
)
(11
)
Net earnings 616 3 99 76 747 141 354 129
Earnings per share from continuing operations attributable to equityholders of Agrium:
Basic 4.34 0.08 0.74 0.54 5.00 0.98 2.37 0.87
Diluted 4.34 0.08 0.74 0.54 5.00 0.98 2.36 0.87
(Loss) earnings per share from discontinued operations attributable to equity holders of Agrium:
Basic (0.06 ) (0.06 ) (0.08 ) (0.02 ) 0.02 (0.04 ) (0.03 ) (0.07 )
Diluted (0.06 ) (0.06 ) (0.08 ) (0.02 ) 0.02 (0.04 ) (0.02 ) (0.07 )
Earnings per share attributable to equity holders of Agrium:
Basic 4.28 0.02 0.66 0.52 5.02 0.94 2.34 0.80
Diluted 4.28 0.02 0.66 0.52 5.02 0.94 2.34 0.80

The agricultural products business is seasonal in nature. Consequently, comparisons made on a year-over-year basis are more appropriate than quarter-over-quarter comparisons. Crop input sales are primarily concentrated in the spring and fall crop input application seasons, which are in the second quarter and fourth quarter. Crop nutrient inventories are normally accumulated leading up to each application season. Our cash collections generally occur after the application season is complete.

DISCONTINUED OPERATIONS

In December 2013, Agrium commenced with a divestment process for the AAT Direct Solutions and Turf and Ornamental businesses that were not transitioned to our Wholesale business unit. On July 2, 2014, Agrium announced the completion of the sale of the Turf and Ornamental business for approximately $94-million.

ADDITIONAL IFRS AND NON-IFRS FINANCIAL MEASURES

Certain financial measures in this press release and MD&A are not prescribed by IFRS. We consider these financial measures discussed herein to provide useful information to both management and investors in measuring our financial performance and financial condition.

In general, an additional IFRS financial measure is a measure relevant to understanding a company's financial performance that is not a minimum financial statement measure mandated by IFRS. A non-IFRS financial measure generally either excludes or includes amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. Refer to the following tables for further discussion of how they are calculated and their usefulness to users including management. Non-IFRS financial measures are not recognized measures under IFRS and our method of calculation may not be directly comparable to that of other companies. These non-IFRS measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS.

The following table outlines our additional IFRS financial measures, their definitions and how management assesses each measure. As the measures set out below are presented in our consolidated financial statements included in this press release, they are classified as additional IFRS financial measures where they reflect consolidated Agrium, and are classified as non-IFRS financial measures where they do not reflect consolidated Agrium, including references to EBITDA when presented on an operating segment basis.

Additional IFRS financial measures Definition Management's assessment
EBIT Earnings (loss) from continuing operations before finance costs and income taxes. EBIT provides a supplemental measure used by management to: (1) evaluate the effectiveness of our businesses; (2) evaluate our ability to service debt; and (3) determine resource allocations. We believe EBIT is useful to investors, securities analysts and management, as the measure allows for an evaluation of segment performance exclusive of capital structure and income taxes, both of which are not a direct result of the efficiency of each business and are generally accounted for and evaluated on a consolidated basis.
The following table outlines our non-IFRS financial measures, their definitions and usefulness, and how management assesses each measure.
Non-IFRS financial measures Definition Management's assessment
EBITDA Earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization. Refer to EBIT. This measure is also used by investors and securities analysts as a valuation metric and as an alternative to cash provided by operating activities.
Adjusted EBITDA EBITDA before finance costs, income taxes, depreciation and amortization of joint ventures. Refer to EBIT and EBITDA. Management believes that this metric provides useful comparative information on our profitability by adding back finance costs, income taxes, depreciation and amortization of joint ventures.
Retail operating coverage ratio Retail gross profit less earnings (loss) from continuing operations before finance costs and income taxes, divided by gross profit. Metric used by management to evaluate our Retail business. We believe this metric is also useful to investors and securities analysts in evaluating operating performance of our Retail business.
RECONCILIATIONS OF ADDITIONAL IFRS AND NON-IFRS FINANCIAL MEASURES
Adjusted EBITDA and EBITDA to EBIT
Three months ended Three months ended
June 30, 2014 June 30, 2013
(millions of U.S. dollars) Retail Wholesale Other Consolidated Retail Wholesale Other Consolidated
Adjusted EBITDA 791 263 (6 ) 1,048 619 542 38 1,199
Equity accounted joint ventures:
Finance costs and income taxes - 8 - 8 - 7 - 7
Depreciation and amortization - 3 - 3 - 1 - 1
EBITDA 791 252 (6 ) 1,037 619 534 38 1,191
Depreciation and amortization 77 61 4 142 57 69 1 127
EBIT 714 191 (10 ) 895 562 465 37 1,064
Six months ended Six months ended
June 30, 2014 June 30, 2013
(millions of U.S. dollars) Retail Wholesale Other Consolidated Retail Wholesale Other Consolidated
Adjusted EBITDA 808 500 (74 ) 1,234 644 935 (24 ) 1,555
Equity accounted joint ventures:
Finance costs and income taxes - 12 - 12 - 14 - 14
Depreciation and amortization - 5 - 5 - 3 - 3
EBITDA 808 483 (74 ) 1,217 644 918 (24 ) 1,538
Depreciation and amortization 149 114 6 269 110 119 6 235
EBIT 659 369 (80 ) 948 534 799 (30 ) 1,303

CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES

We prepare our financial statements in accordance with IFRS, which requires us to make assumptions and estimates about future events and apply significant judgments. We base our assumptions, estimates and judgments on our historical experience, current trends and all available information that we believe is relevant at the time we prepare the financial statements. However, future events and their effects cannot be determined with certainty. Accordingly, as confirming events occur, actual results could ultimately differ from our assumptions and estimates. Such differences could be material. For further information on the Company's critical accounting judgments and estimates, refer to the section "Critical Accounting Judgments and Estimates" of our 2013 annual Management's Discussion and Analysis, which is contained in our 2013 Annual Report. Since the date of our 2013 annual Management's Discussion and Analysis, there have not been any significant changes to our critical accounting judgments and estimates.

CHANGES IN ACCOUNTING POLICIES

The accounting policies applied in our Consolidated Financial Statements are the same as those applied in our audited annual financial statements in our 2013 Annual Report, with the exception of the adoption of IFRS 9 Financial Instruments and other accounting changes described in note 10 of our Consolidated Interim Financial Statements for the quarter ended March 31, 2014.

For information regarding changes in accounting policies, refer to the section "Accounting Standards and Policy Changes Not Yet Implemented" of our 2013 annual Management's Discussion and Analysis, which is contained in our 2013 Annual Report.

BUSINESS RISKS

The information presented on Enterprise Risk Management and Key Business Risks on pages 74 - 77 in our 2013 Annual Report and under the heading "Risk Factors" on pages 29 - 40 in our 2013 Annual Information Form has not changed materially since December 31, 2013.

CONTROLS AND PROCEDURES

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PUBLIC SECURITIES FILINGS

Additional information about our company, including our 2013 Annual Information Form is filed with the Canadian securities regulatory authorities through SEDAR at www.sedar.com and with the U.S. securities regulatory authorities through EDGAR at www.sec.gov.

MARKET OUTLOOK

Favorable growing conditions in most major agriculture regions have boosted global crop production prospects in recent months. Growers in the U.S. Corn Belt have particularly benefitted from advantageous growing conditions. The United States Department of Agriculture ("USDA") recently reported the U.S. corn crop in the best condition since 1999 and the soybean crop in the best condition since 1994. In response to these robust growing conditions, prices of most major grains and oilseeds have declined and analysts are projecting that 2014/15 prices will be the lowest they have been since 2009/10. Grower margins are more sensitive to changes in crop prices than any other variable, so lower crop prices would result in lower per acre cash margins; however, strong crop yields will offset some of the crop price decline. While the financial benefit of applying crop inputs does not change significantly at current crop prices versus the prices earlier in the year, some precautionary applications of crop protection and plant health products may be impacted.

Wet conditions throughout many areas of North America delayed herbicide application early in the growing season. These conditions were conducive to disease development, which has supported fungicide demand; however, there have been some areas in the Northern U.S. and Western Canada that have continued to struggle to get equipment into wet fields. In general, we expect that growers will continue to promote optimal plant health through application of crop protection products and nutritionals in order to maintain yield potential.

Crop nutrient demand in the third quarter to date has been steady, despite lower crop prices. With 2013/14 logistical constraints fresh in the memories of buyers, the retail chain has sought to re-fill the empty North American supply chain following strong demand in the first half of 2014. The global nitrogen market has been relatively stable, as prices have been supported by Chinese urea costs and low availability out of the Ukraine. At current international urea prices, we expect that Chinese urea exports in the second half of 2014 will be below the same period in 2013. Buyer confidence in the potash market has supported firm demand for the second half of 2014 and Canpotex recently reported that it was sold out of potash for the third quarter. Firm demand has also supported the phosphate market, but the Indian market remains a source of uncertainty in the second half of 2014 as the Indian monsoon rains were historically low in June.

Forward-Looking Statements

Certain statements and other information included in this MD&A constitute "forward-looking information" within the meaning of applicable Canadian securities legislation or constitute "forward-looking statements" within the meaning of applicable U.S. securities legislation (collectively, the "forward-looking statements"). All statements in this MD&A other than those relating to historical information or current conditions, are forward-looking statements, including, but not limited to, statements as to management's expectations with respect to: future crop and crop input volumes, demand, margins, prices and sales; business and financial prospects; and other plans, strategies, objectives and expectations, including with respect to future operations of Agrium and divestitures and the growth and stability of our earnings. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such forward-looking statements.

All of the forward-looking statements are qualified by the assumptions that are stated or inherent in such forward-looking statements, including the assumptions referred to below in this MD&A. Although Agrium believes that these assumptions are reasonable, this list is not exhaustive of the factors that may affect any of the forward-looking statements and the reader should not place an undue reliance on these assumptions and such forward-looking statements. The key assumptions that have been made in connection with the forward-looking statements include Agrium's ability to successfully integrate and realize the anticipated benefits of its already completed and future acquisitions.

Events or circumstances that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: general economic, market and business conditions, weather conditions including impacts from regional flooding and/or drought conditions; crop yield and prices; the supply and demand and price levels for our major products; governmental and regulatory requirements and actions by governmental authorities, including changes in government policy, government ownership requirements, changes in environmental, tax and other laws or regulations and the interpretation thereof, and political risks, including civil unrest, actions by armed groups or conflict, as well as counterparty and sovereign risk; and other risk factors detailed from time to time in Agrium reports filed with the Canadian securities regulators and the Securities and Exchange Commission in the United States. There is a risk that the Egyptian Misr Fertilizer Production Company nitrogen facility in Egypt may not be allowed to proceed with the completion of the two new facilities. There is risk regarding the size and timing of expected synergies related to our acquisition of certain Retail Agri-products assets of Viterra; and there is a risk of additional capital expenditure cost escalation on the potash expansion project; and other risk factors detailed from time to time in Agrium reports filed with the Canadian securities regulators and the Securities and Exchange Commission in the United States. Furthermore, the potential divestiture of the Direct Solutions business and any potential financial gains or losses resulting from the completion of the strategic review process may differ materially from those in the forward-looking statements.

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

OTHER

Agrium Inc. is a major Retail supplier of agricultural products and services in North America, South America and Australia and a leading global Wholesale producer and marketer of all three major agricultural nutrients and the premier supplier of specialty fertilizers in North America. Agrium's strategy is to provide the crop inputs and services needed to feed a growing world. We focus on maximizing shareholder returns by driving continuous improvements to our base businesses, pursuing value-added growth opportunities across the crop input value chain and returning capital to shareholders.

A WEBSITE SIMULCAST of the 2014 2nd Quarter Conference Call will be available in a listen-only mode beginning Thursday, August 7th, 2014 at 7:30 a.m. MST (9:30 a.m. EST). Please visit the following website: www.agrium.com.

AGRIUM INC.
Consolidated Statements of Operations
(Millions of U.S. dollars, except per share amounts)
(Unaudited)
Three months endedSix months ended
June 30,June 30,
2014 2013 (1) 2014 2013 (1)
Sales7,338 6,908 10,417 10,064
Cost of product sold5,739 5,209 8,262 7,660
Gross profit1,599 1,699 2,155 2,404
Expenses
Selling609 546 1,053 942
General and administrative (note 3)66 62 166 156
Earnings from associates and joint ventures(13)(15)(14)(28)
Other expenses (note 3)42 42 2 31
Earnings before finance costs and income taxes895 1,064 948 1,303
Finance costs related to long-term debt9 21 28 43
Other finance costs18 21 35 39
Earnings before income taxes868 1,022 885 1,221
Income taxes243 278 248 331
Net earnings from continuing operations625 744 637 890
Net (loss) earnings from discontinued operations (note 2)(9)3 (18)(2)
Net earnings616 747 619 888
Attributable to:
Equity holders of Agrium615 749 617 890
Non-controlling interest1 (2)2 (2)
Net earnings616 747 619 888
Earnings per share attributable to equity holders of Agrium (note 4)
Basic and diluted earnings per share from continuing operations4.34 5.00 4.42 5.97
Basic and diluted (loss) earnings per share from discontinued operations(0.06)0.02 (0.13)(0.01)
Basic and diluted earnings per share4.28 5.02 4.29 5.96
(1)Certain amounts have been reclassified as a result of discontinued operations. See note 2, Discontinued Operations, Assets and Liabilities Held for Sale.
See accompanying notes.
AGRIUM INC.
Consolidated Statements of Comprehensive Income
(Millions of U.S. dollars)
(Unaudited)
Three months endedSix months ended
June 30,June 30,
2014 2013 2014 2013
Net earnings616 747 619 888
Other comprehensive income (loss)
Items that are or may be reclassified to earnings
Cash flow hedges
Effective portion of changes in fair value(4)- (4)-
Deferred income taxes1 - 1 -
Share of comprehensive income of associates and joint ventures1 - 2 1
Available for sale financial instruments
Gains- 1 - 1
Foreign currency translation differences
Gains (losses)102 (219)(4)(243)
100 (218)(5)(241)
Items that will never be reclassified to earnings
Post-employment benefits
Actuarial losses(20)- (20)-
Deferred income taxes6 - 6 -
(14)- (14)-
Other comprehensive income (loss)86 (218)(19)(241)
Comprehensive income702 529 600 647
Attributable to:
Equity holders of Agrium701 531 598 649
Non-controlling interest1 (2)2 (2)
Comprehensive income702 529 600 647
See accompanying notes.
AGRIUM INC.
Consolidated Statements of Cash Flows
(Millions of U.S. dollars)
(Unaudited)
Three months endedSix months ended
June 30,June 30,
2014 2013 (1) 2014 2013 (1)
Operating
Net earnings from continuing operations625 744 637 890
Adjustments for
Depreciation and amortization142 127 269 235
Earnings from associates and joint ventures(13)(15)(14)(28)
Share-based payments(16)(30)15 (14)
Unrealized loss (gain) on derivative financial instruments9 3 (5)(4)
Unrealized foreign exchange (gain) loss(17)(12)(19)4
Interest income(19)(16)(30)(31)
Finance costs27 42 63 82
Income taxes243 278 248 331
Other15 9 27 14
Interest received19 16 31 31
Interest paid(21)(18)(53)(74)
Income taxes paid(32)(200)(68)(455)
Dividends from associates and joint ventures6 14 7 15
Net changes in non-cash working capital(931)(1,007)(310)(701)
Cash provided by (used in) operating activities37 (65)798 295
Investing
Acquisitions, net of cash acquired(2)(15)(18)(49)
Repayment of advance on acquisition of Viterra Inc.- 932 - 932
Capital expenditures(543)(413)(1,002)(750)
Capitalized borrowing costs(30)(13)(53)(22)
Purchase of investments(39)- (65)(8)
Proceeds from disposal of investments32 - 44 -
Other19 (22)(3)(32)
Net changes in non-cash working capital10 32 61 46
Cash (used in) provided by investing activities(553)501 (1,036)117
Financing
Short-term debt793 (881)444 (816)
Long-term debt issued- 1,000 - 1,010
Transaction costs on long-term debt- (14)- (14)
Repayment of long-term debt(5)(478)(15)(519)
Dividends paid(108)(74)(216)(149)
Shares issued1 - 1 2
Shares repurchased- (62)- (62)
Cash provided by (used in) financing activities681 (509)214 (548)
Effect of exchange rate changes on cash and cash equivalents(16)(26)(19)(33)
Increase (decrease) in cash and cash equivalents from continuing operations149 (99)(43)(169)
Cash and cash equivalents provided by discontinued operations (note 2)18 8 1 5
Cash and cash equivalents - beginning of period592 585 801 658
Cash and cash equivalents - end of period759 494 759 494
(1)Certain amounts have been reclassified as a result of discontinued operations. See note 2, Discontinued Operations, Assets and Liabilities Held for Sale.
See accompanying notes.
AGRIUM INC.
Consolidated Balance Sheets
(Millions of U.S. dollars)
(Unaudited)
June 30, December 31,
2014 2013 2013
Assets
Current assets
Cash and cash equivalents759 494 801
Accounts receivable3,542 3,845 2,105
Income taxes receivable4 11 78
Inventories3,097 2,913 3,413
Advance on acquisition of Viterra Inc.- 762 -
Prepaid expenses and deposits157 114 805
Other current assets124 - 104
Assets held for sale (note 2)210 - 202
7,893 8,139 7,508
Property, plant and equipment (note 7)5,788 3,940 4,960
Intangibles712 649 738
Goodwill1,970 2,250 1,958
Investments in associates and joint ventures627 628 639
Other assets95 120 99
Deferred income tax assets75 81 75
17,160 15,807 15,977
Liabilities and shareholders' equity
Current liabilities
Short-term debt (note 5)1,202 459 764
Accounts payable4,263 3,615 3,985
Income taxes payable179 57 2
Current portion of long-term debt54 - 58
Current portion of other provisions116 71 112
Liabilities held for sale (note 2)55 - 44
5,869 4,202 4,965
Long-term debt3,060 3,066 3,066
Post-employment benefits157 177 135
Other provisions416 449 426
Other liabilities37 67 59
Deferred income tax liabilities441 517 530
9,980 8,478 9,181
Shareholders' equity
Share capital1,821 1,880 1,820
Retained earnings5,632 5,618 5,253
Accumulated other comprehensive loss(276)(170) (279)
Equity holders of Agrium7,177 7,328 6,794
Non-controlling interest3 1 2
7,180 7,329 6,796
17,160 15,807 15,977
See accompanying notes.
AGRIUM INC.
Consolidated Statements of Shareholders' Equity
(Millions of U.S. dollars, except share data)
(Unaudited)
Other comprehensive income
Millions of common shares Share capital Retained earnings Cash flow hedges Comprehensive loss of associates and joint ventures Available for sale financial instruments Foreign currency translation Total Equity holders of Agrium Non-controlling interest Total equity
December 31, 2012149 1,890 4,955 - (3)- 74 71 6,916 4 6,920
Net earnings (loss)- - 890 - - - - - 890 (2)888
Other comprehensive income (loss), net of tax
Other- - - - 1 1 (243)(241)(241)- (241)
Comprehensive income (loss), net of tax- - 890 - 1 1 (243)(241)649 (2)647
Dividends- - (149)- - - - - (149)- (149)
Non-controlling interest transactions- - (2) - - - - - (2)(1)(3)
Shares repurchased(1)(12)(76)- - - - - (88)- (88)
Share-based payment transactions- 2 - - - - - - 2 - 2
June 30, 2013148 1,880 5,618 - (2)1 (169)(170)7,328 1 7,329
December 31, 2013144 1,820 5,253 - (7)(8)(264)(279)6,794 2 6,796
Net earnings- - 617 - - - - - 617 2 619
Other comprehensive income (loss), net of tax
Post-employment benefits- - (14)- - - - - (14)- (14)
Other- - - (3)2 - (4)(5)(5)- (5)
Comprehensive income (loss), net of tax- - 603 (3)2 - (4)(5)598 2 600
Dividends- - (216)- - - - - (216)- (216)
Non-controlling interest transactions- - - - - - - - - (1)(1)
Share-based payment transactions- 1 - - - - - - 1 - 1
Impact of adopting IFRS 9 at January 1, 2014- - (8)- - 8 - 8 - - -
June 30, 2014144 1,821 5,632 (3)(5)- (268)(276)7,177 3 7,180
See accompanying notes.
AGRIUM INC.
Summarized Notes to the Consolidated Financial Statements
For the six months ended June 30, 2014
(Millions of U.S. dollars, unless otherwise stated)
(Unaudited)

1. Corporate Information

Corporate information

Agrium Inc. ("Agrium") is incorporated under the laws of Canada with common shares listed under the symbol "AGU" on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX). Our Corporate head office is located at 13131 Lake Fraser Drive S.E., Calgary, Canada. We conduct our operations globally from our Wholesale head office in Calgary and our Retail head office in Loveland, Colorado, United States. In these financial statements, "we", "us", "our" and "Agrium" mean Agrium Inc., its subsidiaries and joint arrangements.

Agrium operates two core strategic business units:

Retail: Distributes crop nutrients, crop protection products, seed, merchandise and services directly to growers through a network of farm centers in two geographical segments:
-North America, including the United States and Canada; and
-International, including Australia and South America.
Wholesale: Operates in North and South America and Europe, and produces, markets and distributes crop nutrients and industrial products through the following businesses:
-Nitrogen: Manufacturing in Alberta, Texas and Argentina;
-Potash: Mining and processing in Saskatchewan;
-Phosphate: Owning and operating mines and production facilities in Alberta and Idaho;
-Product purchased for resale: Marketing nutrient products from other suppliers in North and South America and Europe; and
-Ammonium sulfate, ESN and other: Producing blended crop nutrients, ESN®, (Environmentally Smart Nitrogen) polymer-coated nitrogen crop nutrients, and micronutrients.

Additional information on our operating segments is included in note 8.

Basis of preparation and statement of compliance

These consolidated interim financial statements ("interim financial statements") were approved for issuance by the Audit Committee on August 6, 2014. We prepared these interim financial statements in accordance with International Accounting Standard 34 Interim Financial Reporting. These statements do not include all information and disclosures normally provided in annual financial statements and should be read in conjunction with our audited annual financial statements and related notes contained in our 2013 Annual Report, available at www.agrium.com.

The accounting policies applied in these interim financial statements are the same as those applied in our audited annual financial statements in our 2013 Annual Report, with the exception of the adoption of IFRS 9 Financial Instruments and other accounting changes described in note 10 to our consolidated interim financial statements for the three months ended March 31, 2014.

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

2. Discontinued Operations, Assets and Liabilities Held for Sale

Assets and liabilities held for sale and related discontinued operations consist of components of our former Advanced Technologies business unit. In July 2014, we completed the sale of the Turf and Ornamental portion of the assets held for sale for approximately $94-million. The transaction is subject to customary closing conditions and final purchase price adjustments.

Three months ended Six months ended
Condensed information of discontinued operations June 30, June 30,
2014 2013 2014 2013
Operating information
Discontinued operations of assets held for sale
Sales112 108 172 176
Expenses124 105 195 180
(Loss) earnings before income taxes(12)3 (23)(4)
Income tax recovery(3)- (5)(2)
Net (loss) earnings from discontinued operations(9)3 (18)(2)
Cash provided by operating activities18 8 1 5
Balance sheet information June 30,
2014
Accounts receivable 80
Inventories 77
Property, plant and equipment 27
Intangibles 26
Assets held for sale 210
Accounts payable 55
Liabilities held for sale 55

3. Expenses

Three months ended Six months ended
General and administrativeJune 30, June 30,
2014 2013 2014 2013
Share-based payments(16)(30)15 (14)
Depreciation and amortization8 12 15 27
Other general and administrative74 80 136 143
66 62 166 156
Three months ended Six months ended
Other expensesJune 30, June 30,
2014 2013 2014 2013
Realized and unrealized gain on commodity derivatives not designated as hedges- (1)(32)(9)
Realized and unrealized loss (gain) on foreign exchange derivatives not designated as hedges27 4 12 (9)
Foreign exchange (gain) loss(29)7 (17)26
Interest income(19)(16)(30)(31)
Environmental remediation and asset retirement obligations22 3 20 4
Bad debt expense25 21 30 26
Potash profit and capital tax3 8 6 12
Other13 16 13 12
42 42 2 31

4. Earnings per Share

Three months ended Six months ended
Attributable to equity holders of AgriumJune 30, June 30,
2014 2013 2014 2013
Numerator
Net earnings from continuing operations624 746 635 892
Net loss (earnings) from discontinued operations(9)3 (18)(2)
Net earnings615 749 617 890
Denominator (millions)
Weighted average number of shares outstanding for basic and diluted earnings per share144 149 144 149

5. Debt

June 30, December 31,
2014 2013
MaturityRate
Short-term debt
Commercial paper20140.35973 503
Credit facilities 2.02229 261
1,202 764

6. Financial Instruments

Natural gas derivatives outstandingJune 30, December 31,
2014 2013
NotionalMaturitiesFair value of assets (liabilities) NotionalMaturitiesFair value of assets (liabilities)
Not designated as hedges
AECO Swaps (millions MMBtu)12014- 82014-
Designated as hedges
AECO Swaps (millions MMBtu)512015 - 20188 ---
52 8 8 -

We hold all derivative financial instruments for risk management purposes only. In addition to the natural gas derivatives listed above, we hold foreign exchange derivative contracts not designated as hedges. The fair value of foreign exchange derivatives at June 30, 2014 was a net liability of $7-million (December 31, 2013 - net liability of $1-million).

Fair value
Maturities of natural gas derivative contracts20152016201720182019
Designated as hedges1223-
1223-
Natural gas derivatives outstandingJune 30, December 31,
2014 2013

Balance sheet presentation
Gross
amount


Netting

Carrying
amount

Gross
amount


Netting

Carrying
amount
Not designated as hedges
Accounts receivable4 (4)- 26 (26)-
Accounts payable(4)4 - (26)26 -
Designated as hedges
Other assets195 (187)8 - - -
Other liabilities(187)187 - - - -
8 - 8 - - -
Impact of change in fair value of natural gas derivative financial instrumentsJune 30, December 31,
2014 2013
A $10-million increase in net earnings requires an increase in gas prices per MMBtu0.26 1.87
A $10-million decrease in net earnings requires a decrease in gas prices per MMBtu(0.26) (1.87)

Commodity price risk management and cash flow hedges

Natural gas is a significant component of our cost of product sold for nitrogen-based fertilizers. We use physical contracts and financial forward contracts to manage the risk of market fluctuations in natural gas prices and to reduce the variability of cash flows from our planned purchases of natural gas used in our fertilizer production facilities. Our Board of Directors has established limits on risk management activities, including the following:

Use of derivatives to hedge exposure to natural gas market prices risk
Term (gas year - twelve months ending October 31)20142015201620172018
Maximum allowable (% of forecasted gas requirements)75757525(1)25(1)
Forecasted average monthly purchases (millions MMBtu)--999
Gas requirements hedged using derivatives designated as hedges (%)--171717
(1)Maximum monthly hedged volume may not exceed 90 percent of planned monthly requirements.

During the three months ended June 30, 2014, we designated natural gas forward contracts as hedges of highly probable purchases of natural gas. The contracts settle in the months hedged, using AECO futures price indexes, which we use to determine fair value. The contracts are denominated in Canadian dollars for purchases of gas in Canadian dollars. We forecast that the contracted purchases and related delivery of natural gas will occur beginning November 2015 until October 2018. At the inception of each designated forward contract, we prepare formal designation and documentation of the hedging relationship and our risk management objective and strategy for undertaking the hedge. Documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how we will assess whether the hedging relationship meets the hedge effectiveness requirements, including our analysis of the sources of hedge ineffectiveness and how we determine the hedge ratio. For derivatives designated as hedges, we record the effective portion of changes in fair value to other comprehensive income. We record any ineffective portion to earnings.

The underlying risk of the forward contracts is identical to the hedged risk, and accordingly we have established a ratio of 1:1 for all natural gas hedges. Due to a strong correlation between AECO future contract prices and our delivered cost, we did not experience any ineffectiveness on our hedges, and accordingly we have recorded the full change in the fair value of the natural gas forward contracts designated as hedges to other comprehensive income.

We use quoted market prices from AECO to determine the fair value of natural gas derivatives. If these market prices are adjusted by a forward yield curve, we classify the fair value of the financial instruments within Level 2.

June 30,
2014
Fair value
Classification of financial instruments measured at fair valueLevel 1Level 2 Carrying
value
Accounts receivable - derivatives1-1
Other current financial assets - marketable securities1989108
Other financial assets - derivatives8-8
Accounts payable - derivatives8-8
Classification of fair value of long-term debt
Debentures-3,3552,990
December 31,
2013
Fair valueCarrying
Classification of financial instruments measured at fair valueLevel 1Level 2value
Cash and cash equivalents-801801
Accounts receivable - derivatives1-1
Other current financial assets
Available for sale - equities14-14
Available for sale - fixed income-9090
Other financial assets
Available for sale12-12
Accounts payable - derivatives-22
Classification of fair value of long-term debt
Debentures-3,1242,989

There have been no transfers between Level 1 and Level 2 fair value measurements in the three or six months ended June 30, 2014 or June 30, 2013. We do not measure any of our financial instruments using Level 3 inputs.

7. Additional Information

Property, plant and equipment

During the six months ended June 30, 2014, we added $652-million to assets under construction at our Vanscoy Potash facility.

Dividends

June 30,
2014
Declared
Paid to
EffectivePer shareTotalShareholdersTotal
December 12, 20130.75108January 16, 2014108
February 21, 20140.75108April 17, 2014108
May 7, 20140.75108July 17, 2014NA

8. Operating Segments

Three months ended Six months ended
June 30, June 30,
Segment operations2014 2013 2014 2013
Sales
Retail
North America5,513 4,660 7,234 6,250
International884 903 1,395 1,452
Total Retail6,397 5,563 8,629 7,702
Wholesale
Nitrogen421 641 757 1,023
Potash175 212 303 364
Phosphate161 211 328 373
Product purchased for resale285 329 579 681
Ammonium sulfate, ESN and other170 201 306 345
Total Wholesale1,212 1,594 2,273 2,786
Other(271)(249)(485)(424)
7,338 6,908 10,417 10,064
Inter-segment sales
Retail5 7 10 11
Wholesale266 242 475 413
271 249 485 424
Earnings before income taxes
Retail
North America673 550 591 527
International41 12 68 7
Total Retail714 562 659 534
Wholesale
Nitrogen101 294 191 467
Potash72 120 118 204
Phosphate6 27 8 64
Product purchased for resale12 8 16 14
Ammonium sulfate, ESN and other36 54 65 97
227 503 398 846
Unallocated expenses36 38 29 47
Total Wholesale191 465 369 799
Other(10)37 (80)(30)
Earnings before finance costs and income taxes895 1,064 948 1,303
Finance costs related to long-term debt9 21 28 43
Other finance costs18 21 35 39
Earnings before income taxes868 1,022 885 1,221
Three months ended Six months ended
June 30, June 30,
2014 2013 2014 2013
Retail sales
Crop nutrients2,708 2,485 3,604 3,287
Crop protection products2,199 1,848 2,929 2,634
Seed1,038 809 1,336 1,094
Merchandise218 142 404 262
Services and other234 279 356 425
6,397 5,563 8,629 7,702
AGRIUM INC.
Supplemental Information 1a
Results by Business Unit
(Millions of U.S. dollars)
(Unaudited)
Three months ended June 30,
2014
Retail Wholesale Other Total
Sales- external6,392 946 - 7,338
- inter-segment5 266 (271)-
Total sales6,397 1,212 (271)7,338
Cost of product sold5,048 985 (294)5,739
Gross profit1,349 227 23 1,599
Gross profit (%)21 19 22
Selling603 10 (4)609
General and administrative35 13 18 66
(Earnings) loss from associates and joint ventures(4)(10)1 (13)
Other expenses1 23 18 42
EBIT (1)714 191 (10)895
EBITDA (2)791 252 (6)1,037
Adjusted EBITDA (2)791 263 (6)1,048
Three months ended June 30,
2013
Retail Wholesale (3) Other (4) Total (4)
Sales- external5,556 1,352 - 6,908
- inter-segment7 242 (249)-
Total sales5,563 1,594 (249)6,908
Cost of product sold4,421 1,091 (303)5,209
Gross profit1,142 503 54 1,699
Gross profit (%)21 32 25
Selling538 9 (1)546
General and administrative31 26 5 62
Earnings from associates and joint ventures(3)(12)- (15)
Other expenses14 15 13 42
EBIT (1)562 465 37 1,064
EBITDA (2)619 534 38 1,191
Adjusted EBITDA (2)619 542 38 1,199
(1)Earnings (loss) from continuing operations before finance costs and income taxes.
(2)Certain measures presented in this table are not recognized measures under IFRS. Refer to Supplemental Information 6.
(3)Restated for the results of ESN and Micronutrients businesses that have transitioned to our Wholesale business unit.
(4)Restated for reclassifications resulting from discontinued operations.
AGRIUM INC.
Supplemental Information 1b
Results by Business Unit
(Millions of U.S. dollars)
(Unaudited)
Six months ended June 30,
2014
Retail Wholesale Other Total
Sales- external8,619 1,798 - 10,417
- inter-segment10 475 (485)-
Total sales8,629 2,273 (485)10,417
Cost of product sold6,893 1,875 (506)8,262
Gross profit1,736 398 21 2,155
Gross profit (%)20 18 21
Selling1,039 21 (7)1,053
General and administrative63 23 80 166
(Earnings) loss from associates and joint ventures(5)(10)1 (14)
Other (income) expenses(20)(5)27 2
EBIT (1)659 369 (80)948
EBITDA (2)808 483 (74)1,217
Adjusted EBITDA (2)808 500 (74)1,234
Six months ended June 30,
2013
Retail Wholesale (3) Other (4) Total (4)
Sales- external7,691 2,373 - 10,064
- inter-segment11 413 (424)-
Total sales7,702 2,786 (424)10,064
Cost of product sold6,184 1,940 (464)7,660
Gross profit1,518 846 40 2,404
Gross profit (%)20 30 24
Selling927 20 (5)942
General and administrative56 46 54 156
(Earnings) loss from associates and joint ventures(4)(25)1 (28)
Other expenses5 6 20 31
EBIT (1)534 799 (30)1,303
EBITDA (2)644 918 (24)1,538
Adjusted EBITDA (2)644 935 (24)1,555
(1)Earnings (loss) from continuing operations before finance costs and income taxes.
(2)Certain measures presented in this table are not recognized measures under IFRS. Refer to Supplemental Information 6.
(3)Restated for the results of ESN and Micronutrients businesses that have transitioned to our Wholesale business unit.
(4)Restated for reclassifications resulting from discontinued operations.
AGRIUM INC.
Supplemental Information 2
Product Lines
(Millions of U.S. dollars)
(Unaudited)
Three months ended June 30, Six months ended June 30,
2014 2013 2014 2013
Cost of Cost of Cost of Cost of
product Gross product Gross product Gross product Gross
Sales sold (1) profit Sales sold (1) profit Sales sold (1) profit Sales sold (1) profit
Retail (2)
Crop nutrients2,708 2,203 505 2,485 2,061 424 3,604 2,971 633 3,287 2,742 545
Crop protection products2,199 1,742 457 1,848 1,442 406 2,929 2,367 562 2,634 2,100 534
Seed1,038 842 196 809 669 140 1,336 1,094 242 1,094 910 184
Merchandise218 194 24 142 119 23 404 356 48 262 217 45
Services and other234 67 167 279 130 149 356 105 251 425 215 210
6,397 5,048 1,349 5,563 4,421 1,142 8,629 6,893 1,736 7,702 6,184 1,518
Wholesale (3)
Nitrogen421 320 101 641 347 294 757 566 191 1,023 556 467
Potash175 103 72 212 92 120 303 185 118 364 160 204
Phosphate161 155 6 211 184 27 328 320 8 373 309 64
Product purchased for resale285 273 12 329 321 8 579 563 16 681 667 14
Ammonium sulfate, ESN and other170 134 36 201 147 54 306 241 65 345 248 97
1,212 985 227 1,594 1,091 503 2,273 1,875 398 2,786 1,940 846
Other inter-segment eliminations (4)(271)(294)23 (249)(303)54 (485)(506)21 (424)(464)40
Total (4)7,338 5,739 1,599 6,908 5,209 1,699 10,417 8,262 2,155 10,064 7,660 2,404
Wholesale equity accounted joint ventures:
Nitrogen49 35 14 50 36 14 76 53 23 89 60 29
Product purchased for resale17 16 1 32 30 2 38 36 2 63 60 3
66 51 15 82 66 16 114 89 25 152 120 32
Total Wholesale including equity
accounted joint ventures (3)1,278 1,036 242 1,676 1,157 519 2,387 1,964 423 2,938 2,060 878
(1)Includes depreciation and amortization.
(2)International Retail sales were $884-million (2013 - $903-million) and gross profit was $149-million (2013 - $131-million) for the three months ended June 30. International Retail sales were $1,395-million (2013 - $1,452-million) and gross profit was $253-million (2013 - $228-million) for the six months ended June 30.
(3)Restated for the results of ESN and Micronutrients businesses that have transitioned to our Wholesale business unit.
(4)Restated for reclassifications resulting from discontinued operations.
AGRIUM INC.
Supplemental Information 3a
Selected Volumes and Sales Prices
(Unaudited)
Three months ended June 30,
2014 2013
Cost of Cost of
SalesSellingproduct SalesSellingproduct
tonnespricesoldMargin tonnespricesoldMargin
(000's)($/tonne)($/tonne)($/tonne) (000's)($/tonne)($/tonne)($/tonne)
Retail
Crop nutrients
North America4,161558 3,407616
International758512 684566
Total crop nutrients4,919551448103 4,091607504103
Wholesale (1)
Nitrogen
North America
Ammonia323577 419743
Urea243474 377547
Other340351 307406
Total nitrogen906464353111 1,103582315267
Potash
North America372358 243470
International194218 301324
Total potash566310182128 544389168221
Phosphate26859857622 31766758483
Product purchased for resale68341840018 71046245111
Ammonium sulfate106360169191 98451198253
ESN and Other251 242
Total Wholesale2,78043635482 3,014529362167
Wholesale equity accounted joint ventures:
Nitrogen14733624492 110455328127
Product purchased for resale9018817117 8438135724
23728021664 19442334182
Total Wholesale including joint ventures (1)3,01742434480 3,208522360162
(1)Restated for the results of ESN and Micronutrients businesses that have transitioned to our Wholesale business unit.
AGRIUM INC.
Supplemental Information 3b
Selected Volumes and Sales Prices
(Unaudited)
Six months ended June 30,
2014 2013
Cost of Cost of
SalesSellingproduct SalesSellingproduct
tonnespricesoldMargin tonnespricesoldMargin
(000's)($/tonne)($/tonne)($/tonne) (000's)($/tonne)($/tonne)($/tonne)
Retail
Crop nutrients
North America5,561544 4,468607
International1,184491 1,031557
Total crop nutrients6,74553444094 5,49959849999
Wholesale (1)
Nitrogen
North America
Ammonia502549 612700
Urea625454 699545
Other571346 538397
Total nitrogen1,698446334112 1,849553301252
Potash
North America664351 441471
International330213 481325
Total potash994305186119 922395174221
Phosphate57656955514 549680564116
Product purchased for resale1,48838937811 1,4734624539
Ammonium sulfate198335171164 170444193251
ESN and Other462 429
Total Wholesale5,41642034773 5,392517360157
Wholesale equity accounted joint ventures:
Nitrogen209365256109 188473319154
Product purchased for resale15424623214 16338736918
36331524669 35143334291
Total Wholesale including joint ventures (1)5,77941334073 5,743512359153
(1)Restated for the results of ESN and Micronutrients businesses that have transitioned to our Wholesale business unit.
AGRIUM INC.
Supplemental Information 4
Depreciation and Amortization
(Millions of U.S. dollars)
(Unaudited)
Three months ended June 30,
2014 2013
Cost of General Cost of General
product and product and
soldSellingadministrativeTotal soldSellingadministrativeTotal
Retail272377 252357
Wholesale (1)
Nitrogen22 21
Potash18 17
Phosphate13 17
Product purchased for resale1 -
Ammonium sulfate, ESN and other6 6
60-161 61-869
Other--44 --11
Total (2)62728142 635212127
Six months ended June 30,
2014 2013
Cost of General Cost of General
product and product and
soldSellingadministrativeTotal soldSellingadministrativeTotal
Retail31406149 31016110
Wholesale (1)
Nitrogen42 36
Potash31 28
Phosphate26 31
Product purchased for resale1 -
Ammonium sulfate, ESN and other11 9
111-3114 104-15119
Other--66 --66
Total (2)11414015269 10710127235
(1)Restated for the results of ESN and Micronutrients businesses that have transitioned to our Wholesale business unit.
(2)Restated for reclassifications resulting from discontinued operations.
AGRIUM INC.
Supplemental Information 5 (1)
Selected Financial Measures
(Millions of U.S. dollars, unless stated otherwise)
(Unaudited)
Retail and consolidated Agrium measuresRolling four quarters ended June 30,
2014 2013
Retail Consolidated Agrium Retail Consolidated Agrium (2)
Return on operating capital employed (%) (3a)19 11 15 21
Return on capital employed (%) (3b)11 9 8 15
Average non-cash working capital to sales (%)17 14 20 17
Operating coverage ratio (%) (3c)69 64 72 50
EBITDA to sales (%) (3d)9 11 8 16
June 30,
2014 2013
Retail Consolidated Agrium Retail Consolidated Agrium
Non-cash working capital2,562 2,242 2,737 3,140
Retail comparable store measuresSix months ended June 30,
2014 2013
Retail Retail
Comparable store sales (%)(3) (3)
Normalized comparable store sales (%)- 1
Retail North America measuresRolling four quarters ended June 30,
2014 2013
Retail Retail
Return on operating capital employed (%) (3a)29 21
Return on capital employed (%) (3b)15 10
EBITDA to sales (%) (3d)12 9
Wholesale production tonnes (000's)Three months ended June 30, Six months ended June 30,
2014 2013 2014 2013
Ammonia (gross)525 592 1,134 1,259
Urea (gross)292 352 751 808
Monoammonium phosphate146 150 299 317
Potash479 449 902 910
(1)Certain measures presented in this table are not recognized measures under IFRS. Refer to Supplemental Information 6.
(2)Restated for reclassifications resulting from discontinued operations.
(3)Adjusted 2014 amounts removing the impact of the purchase gain and goodwill impairment.
(a) Retail 19%, Retail - North America 21%, Consolidated Agrium 11%.
(b) Retail 10%, Retail - North America 11%, Consolidated Agrium 8%.
(c) Retail 70%, Consolidated Agrium 65%.
(d) Retail 9%, Retail - North America 10%, Consolidated Agrium 11%.
AGRIUM INC.
Supplemental Information 6 (1)
Accompanying Notes to Supplemental Information
IFRS Financial Measure Definition
Average non-cash working capital to sales (2) Rolling four quarter average non-cash working capital divided by sales.
Operating coverage ratio (2) Gross profit less earnings (loss) from continuing operations before finance costs and income taxes, divided by gross profit.
Non-cash working capital (2) Current assets less current liabilities, excluding cash and cash equivalents, other current assets, short-term debt, current portion of long-term debt and current assets and liabilities held for sale.
Definition Usefulness of Additional or Non-IFRS Financial Measure
Additional IFRS Financial Measure (As defined in Canadian Securities Administrators' Staff Notice 52-306 (Revised))
EBIT Earnings (loss) from continuing operations before finance costs and income taxes. Used to measure operating performance exclusive of capital structure and income taxes.
Return on operating capital employed (2) Last 12 months' EBIT less income taxes at a tax rate of 27 percent (2013 - 27 percent) divided by rolling four quarter average operating capital employed. Operating capital employed includes non-cash working capital, property, plant and equipment, investments in associates and joint ventures and other assets. Used to measure operating performance and efficiency of our capital allocation process.
Return on capital employed (2) Last 12 months' EBIT less income taxes at a tax rate of 27 percent (2013 - 27 percent) divided by rolling four quarter average capital employed. Capital employed includes operating capital employed, intangibles and goodwill. Used to measure operating performance and efficiency of our capital allocation process.
Non-IFRS Financial Measure
EBITDA Earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization. Refer to EBIT. Also used as a valuation metric and as an alternative to cash provided by operating activities.
Adjusted EBITDA EBITDA before finance costs, income taxes, depreciation and amortization of joint ventures. Refer to EBIT and EBITDA. Provides useful information on our profitability by adding back finance costs, income taxes, depreciation and amortization of joint ventures.
EBITDA to sales EBITDA divided by sales. Used to measure operating performance earnings and cash flow we generate from each dollar of sales.
Comparable store sales We include a location in the comparable store base once it is in operation or owned for over 12 months. If we close a store, we retain the sales of the closed location in the comparable store base if the closed location is in close geographical proximity to an existing location, unless we plan to exit the market area or are unable to economically or logistically serve it. We do not make adjustments for temporary closures, expansions or renovations of stores. Used to measure the performance of our existing stores by measuring the change in sales for such stores over the comparable period.
Normalized comparable store sales Comparable store sales normalized by using published nitrogen, phosphate and potash ("NPK") benchmark prices and adjusting current year prices to reflect pricing from the previous year based on our percent of NPK utilization by product. Used to measure the performance of our existing stores by measuring the change in sales for such stores over the comparable period.
(1)Our definitions and our method of calculation for these measures may not be directly comparable to similar measures presented by other companies.
(2)These measures are IFRS measures or additional IFRS measures when calculated using information included in our consolidated financial statements. They are classified as non-IFRS measures when calculated using information from our Retail or Wholesale segments because the specific components are not included in our financial statements or notes.
AGRIUM INC.
Supplemental Information 7
Reconciliation of Selected Additional and Non-IFRS Financial Measures
(Millions of U.S. dollars, unless stated otherwise)
(Unaudited)
Rolling four quarters ended June 30,
2014 2013
Retail - Retail -
North Consolidated North Consolidated
AmericaRetail Agrium AmericaRetail Agrium
EBIT less income taxes
EBIT1,003873 1,275 659678 2,045
Income taxes271236 344 179185 560
732637 931 480493 1,485
Average operating capital employed
Average non-cash working capital1,6762,219 2,297 1,6502,325 2,671
Average property, plant and equipment841963 5,078 645770 3,568
Average investments in associates and joint ventures3278 629 3287 635
Average other assets410 106 315 76
2,5533,270 8,110 2,3303,197 6,950
Return on operating capital employed (%)2919 11 2115 21
Average capital employed
Average operating capital employed2,5533,270 8,110 2,3303,197 6,950
Average intangibles614686 703 498580 632
Average goodwill1,7791,989 2,039 1,8062,218 2,313
4,9465,945 10,852 4,6345,995 9,895
Return on capital employed (%)1511 9 108 15
Comparable store sales and normalized comparable store salesSix months ended June 30,
2014 2013
Sales from comparable base
Current period 7,437 7,460
Prior period 7,702 7,670
Comparable store sales (%) (3) (3)
Current period normalized for benchmark prices 7,716 7,769
Normalized comparable store sales (%) - 1

Contact Information

  • Investor/Media Relations:
    Agrium Inc.
    Richard Downey
    Vice President, Investor & Corporate Relations
    (403) 225-7357

    Agrium Inc.
    Todd Coakwell
    Director, Investor Relations
    (403) 225-7437

    Agrium Inc.
    Louis Brown
    Analyst, Investor Relations
    (403) 225-7761
    www.agrium.com