Agrium Inc.
TSX : AGU
NYSE : AGU

Agrium Inc.

August 05, 2015 17:30 ET

Agrium Reports Strong Results Despite Challenging Market Conditions

CALGARY, ALBERTA--(Marketwired - Aug. 5, 2015) -

ALL AMOUNTS ARE STATED IN U.S.$

Agrium Inc. (TSX:AGU) (NYSE:AGU) announced today 2015 second quarter net earnings from continuing operations of $675-million ($4.71 diluted earnings per share), compared to $625-million ($4.34 diluted earnings per share) in the second quarter of 2014. The increase in earnings was supported by higher Wholesale volumes and lower production costs for most products. Retail results were impacted by lower crop prices, drought in Western Canada and wet conditions in the U.S. Corn Belt, which affected growers' decisions and limited the opportunities for use of certain crop inputs and services.

Highlights:

  • Second quarter adjusted net earnings of $701-million or $4.90 per share and $5.01 per share in the first half of 2015 on the same basis (see page 2 for adjusted net earnings reconciliation)(1).
  • Strong nitrogen operational performance contributed to Wholesale gross profit of $409-million compared to $227-million in the second quarter of 2014. Our total ammonia production for the first half of 2015 was the highest since 2000.
  • The Vanscoy potash facility continues to ramp-up production after completion of the expansion project and is hitting new daily production targets.
  • Retail gross profit of $1.3-billion was 6 percent lower than the second quarter of 2014. Results were primarily impacted by lower earnings in Canadian retail and the lower Canadian dollar, as well as compression of seed margins across all regions.
  • Repurchased $100-million or 952,053 shares since the beginning of April.
  • 2015 annual guidance range narrowed to $7.00 to $7.50 diluted earnings per share (see page 3 for further detail).
  • Revision to timeline and scope of Borger nitrogen expansion project.
  • Agrium has exceeded its 2017 Operational Excellence targets of $350-million of one-time savings and $125-million of recurring EBITDA value through primarily our portfolio review, utilization rates, distribution network synergies, and cost reductions.

"Agrium's solid second quarter earnings were supported by the strong competitive advantages across our product portfolio, the diversity of our product and geographic mix and our continued focus on operational excellence. Wholesale delivered impressive results across all products, supported by lower costs and higher volumes. Retail earnings held up well despite approximately a 5 percent decline in crop input expenditures across the North America market and the impact of the severe weather conditions across this region. We believe we outperformed against our U.S. retail peers achieving an increase in U.S. normalized comparable store sales in a down market, a demonstration of the strength of our business model and market position," commented Chuck Magro, Agrium's President and CEO.

"Agrium is committed to delivering on our capital allocation vision as we execute our Operational Excellence initiatives, optimize our portfolio and continue to return capital to shareholders through future dividend growth and share repurchases," added Mr. Magro.

(1) Forecasted annual effective tax rate of 28 percent used for adjusted net earnings and per share calculations. These are non-IFRS measures which represent net earnings adjusted for certain income (expenses) that are considered to be non-operational in nature. We believe these measures provide meaningful comparison to the earnings of other companies by eliminating share-based payments expense (recovery), gains (losses) on foreign exchange, gains (losses) on non-qualifying derivative hedges and other one-time adjustments. These should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS and may not be directly comparable to similar measures presented by other companies.

ADJUSTED NET EARNINGS RECONCILIATION

Three months ended Six months ended
June 30, 2015 June 30, 2015


(millions of U.S. dollars, except per share amounts)

Expense
Net earnings
impact
(post-tax)


Per share(1)

Expense
(income)
Net earnings
impact
(post-tax)


Per share(1)
675 4.71 689 4.78
Adjustments:
Share-based payments expense 6 4 0.03 51 37 0.27
Loss on derivatives net of foreign exchange 1 1 0.01 - - -
Gain on sale of Purchase for Resale assets - - - (38) (28) (0.19)
One-time tax adjustment(2) 21 21 0.15 21 21 0.15
Adjusted net earnings(3) 701 4.90 719 5.01

UPDATED ANNUAL 2015 GUIDANCE

Based on our Market Outlook, Agrium expects to achieve annual diluted earnings per share of $7.00 to $7.50 in 2015 compared to our previous estimate of $7.00 to $8.25 per share. We have narrowed the guidance range due primarily to the impact of low crop prices on grower decisions and lower expected potash and phosphate pricing in the second half of the year relative to our previous guidance. We are assuming a normal fall season, recognizing there is risk to fall nutrient applications in regions impacted by drought or a delay in the North American harvest. As a result, our Retail EBITDA(4) for 2015 is now expected to be from $1.00-billion to $1.05-billion. This incorporates challenges that our Canadian retail operations face in 2015 due to the drought and lower crop prices, while our U.S. Retail operations is expected to achieve earnings in-line with 2014 levels.

Our annual nitrogen and potash production targets remain unchanged. However, strong sales in the second quarter resulted in low beginning inventories to start the third quarter, which will impact sales volumes in this period.

We have updated our finance costs range for 2015 to $240-million to $255-million to reflect a higher than anticipated cost of financing for our customer pre-payment programs. Our estimates of the Canada and U.S. foreign exchange rates and NYMEX for 2015 have been narrowed from our previous estimates based on current market conditions.

We have also updated the range for our annual effective tax rate for 2015 to 28 percent to 29 percent to reflect the impact of the recently announced increase to the Alberta corporate income tax rate effective July 1, 2015, increasing from 10 percent to 12 percent. As a result, we had a one-time deferred tax liability charge in the second quarter, which contributed to the increase in our annual effective tax rate for 2015.

This guidance and updated additional measures and related assumptions are summarized in the table on page 3. Guidance excludes the impact of share-based payments expense (recovery), gains (losses) on foreign exchange and non-qualifying derivative hedges.(5)

(1) Represents diluted per share information attributable to equity holders of Agrium.

(2) One-time adjustment mainly relates to the increase in current and deferred taxes due to an increase in the Alberta corporate income tax rate.

(3) Forecasted annual effective tax rate of 28 percent used for adjusted net earnings and per share calculations.

(4) Earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization. This is a non-IFRS measure. Refer to section "Additional IFRS and non-IFRS Financial Measures" in the Management's Discussion and Analysis.

(5) For further assumptions related to our guidance, see disclosure in the section "Market Outlook" in our 2015 second quarter Management's Discussion and Analysis.

2015 ANNUAL GUIDANCE RANGE AND ASSUMPTIONS

Annual
Low High
Diluted EPS $7.00 $7.50
Guidance assumptions:
Wholesale:
Production tonnes:
Nitrogen (millions)(1) 3.5 3.7
Potash (millions) 1.9 2.2
Retail:
EBITDA (millions) $1,000 $1,050
Crop nutrient sales tonnes (millions) 9.7 10.2
Other:
Finance costs (millions) $255 $240
Tax rate 29% 28%
Sustaining capital expenditures (millions) $500 $550
Total capital expenditures (billions) $1.2 $1.3
Canada/U.S. foreign exchange rate 1.24 1.28
NYMEX gas price ($/MMBtu) $3.25 $2.75

(1) Nitrogen production tonnes reduced to reflect disposal of West Sacramento upgrade facility.

MANAGEMENT'S DISCUSSION AND ANALYSIS

August 5, 2015

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 2015 (three months ended June 30, 2015) and for the six months ended June 30, 2015 are against results for the second quarter of 2014 (three months ended June 30, 2014) and six months ended June 30, 2014. All dollar amounts refer to United States ("U.S.") dollars except where otherwise stated. The financial measures EBITDA, Adjusted EBITDA, and cash cost of product manufactured used in this MD&A are not prescribed by IFRS, or in the case of EBIT, is an Additional IFRS financial measure. Our method of calculation may not be directly comparable to that of other companies. We consider these non-IFRS and additional IFRS financial measures to provide useful information to both management and investors in measuring our financial performance and financial condition. These non-IFRS measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS. Please refer to the section entitled "Additional IFRS and Non-IFRS Financial Measures" of this MD&A for further details, including a reconciliation of such measures to their most directly comparable measure calculated in accordance with IFRS.

The following interim MD&A is as of August 5, 2015 and should be read in conjunction with the Consolidated Interim Financial Statements for the three and six months ended June 30, 2015 (the "Consolidated Financial Statements"), and the annual MD&A and financial statements for the year ended December 31, 2014 included in our 2014 Annual Report to Shareholders. 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 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 "Market Outlook" section of this MD&A.

2015 Second Quarter Operating Results

CONSOLIDATED NET EARNINGS

Agrium's 2015 second quarter net earnings from continuing operations were $675-million or $4.71 diluted earnings per share from continuing operations compared to net earnings from continuing operations of $625-million or $4.34 diluted earnings per share from continuing operations for the same quarter of 2014.

Financial Overview
Three months ended June 30, Six months ended June 30,
(millions of U.S. dollars, except per share amounts and where noted) 2015 2014 Change % Change 2015 2014 Change % Change
Sales 6,992 7,338 (346 ) (5 ) 9,864 10,417 (553 ) (5 )
Gross profit 1,708 1,599 109 7 2,292 2,155 137 6
Expenses 682 704 (22 ) (3 ) 1,191 1,207 (16 ) (1 )
Earnings before finance costs and income taxes ("EBIT") 1,026 895 131 15 1,101 948 153 16
Net earnings from continuing operations 675 625 50 8 689 637 52 8
Net loss from discontinued operations - (9 ) 9 (100 ) - (18 ) 18 (100 )
Net earnings 675 616 59 10 689 619 70 11
Diluted earnings per share from continuing operations 4.71 4.34 0.37 9 4.78 4.42 0.36 8
Diluted loss per share from discontinued operations - (0.06 ) 0.06 (100 ) - (0.13 ) 0.13 (100 )
Diluted earnings per share 4.71 4.28 0.43 10 4.78 4.29 0.49 11
Effective tax rate (%) 30 28 N/A N/A 29 28 N/A N/A
Sales and Gross Profit
Three months ended June 30, Six months ended June 30,
(millions of U.S. dollars) 2015 2014 Change 2015 2014 Change
Sales
Retail 6,160 6,397 (237 ) 8,423 8,629 (206 )
Wholesale 1,174 1,212 (38 ) 2,041 2,273 (232 )
Other (342 ) (271 ) (71 ) (600 ) (485 ) (115 )
6,992 7,338 (346 ) 9,864 10,417 (553 )
Gross profit
Retail 1,264 1,349 (85 ) 1,635 1,736 (101 )
Wholesale 409 227 182 643 398 245
Other 35 23 12 14 21 (7 )
1,708 1,599 109 2,292 2,155 137

Sales and gross profit

  • Retail sales and gross profit decreased for the second quarter and first half of 2015 compared to the same periods last year primarily due to unfavorable weather conditions and competitive pricing pressure as a result of lower crop prices and reduced U.S. corn acreage which impacted our crop nutrients and seed sales and margins.
  • Wholesale's nitrogen and phosphate sales and gross profit increased for the second quarter and first half of 2015 compared to the same periods last year as a result of higher nitrogen volumes, higher ammonia and phosphate realized selling prices, lower natural gas costs and manufacturing cost efficiencies. Product purchased for resale had lower sales and gross profit as a result of the 2014 strategic review that led to Agrium exiting portions of this business. Overall, Wholesale had higher gross profit for the second quarter and first half of 2015 compared to the same periods last year.

Expenses

  • General and administrative expense decreased by $16-million for the second quarter and $18-million for the first half of 2015 compared to the same periods last year as a result of reduced payroll and office expense costs as we began to realize reductions related to our Operational Excellence program.

Share-based payments

  • Due primarily to Agrium's share price increases in 2015, our share-based payments expense increased by $22-million for the second quarter and $36-million for the first half of 2015 compared to the same periods last year.

Other Expenses (Income)

Three months ended Six months ended
June 30, June 30,
(millions of U.S. dollars) 2015 2014 2015 2014
Loss (gain) on derivatives not designated as hedges net of foreign exchange 1 (2 ) - (37 )
Interest income (16 ) (19 ) (33 ) (30 )
Gain on sale of assets - - (38 ) -
Environmental remediation and asset retirement obligations - 22 9 20
Bad debt expense 25 25 32 30
Potash profit and capital tax 5 3 10 6
Other 11 13 13 13
26 42 (7 ) 2
  • We began to designate all of our natural gas derivatives as qualifying hedges for accounting purposes beginning January 1, 2015 and, accordingly, we no longer have natural gas derivatives not designated as hedges. The related gains or losses are recorded as part of cost of product sold when we sell the related product and unrealized gains or losses are recorded in equity. Previously, we recorded these natural gas derivative gains and losses directly to other expenses, resulting in natural gas derivative gains of $32-million in the first half of 2014.
  • We completed the sale of our Niota and Meredosia storage and distribution facilities in the first quarter of 2015 resulting in a gain on sale of assets of $38-million.
  • Environmental remediation and asset retirement obligations expense decreased for the second quarter and first half of 2015 compared to the same periods last year as higher provisions were recorded for our plant and mine sites in 2014.

Effective Tax Rate

  • The effective tax rates on continuing operations were 30 percent for the second quarter and 29 percent for the first half of 2015 and are higher than the effective tax rate of 28 percent for both the second quarter and first half of last year due to an increase in deferred taxes relating to the increase in the Alberta corporate income tax rate.

BUSINESS SEGMENT PERFORMANCE

Retail

Three months ended June 30,
(millions of U.S. dollars, except where noted) 2015 2014 Change
Sales 6,160 6,397 (237 )
Cost of product sold 4,896 5,048 (152 )
Gross profit 1,264 1,349 (85 )
EBITDA 713 791 (78 )
Selling expense as a percentage of sales (%) 9 9 -
  • Retail sales and gross profit were lower than the same period last year due to lower prices for all crops this spring and reduced corn acreage in the U.S. North American operations were also impacted by the drought in Western Canada and California and excessive moisture across the U.S. Corn Belt and the southern and northeastern states during June. The wet conditions in the U.S. Corn Belt impacted total seeded acreage and the ability of growers to apply nutrients and crop protection products in late spring.
  • Regionally, the U.S. EBITDA contribution was lower by $12-million over the same period last year, while South America was also lower. Canadian results accounted for the majority of the variance in EBITDA compared to the second quarter of 2014, while Australia was the only region to report an increase in EBITDA this quarter.
  • Retail selling expenses as a percentage of sales were unchanged year-over-year on realization of Operational Excellence initiatives.
Three months ended June 30,
Sales Gross profit Margin (%)
(millions of U.S. dollars, except where noted) 2015 2014 Change 2015 2014 Change 2015 2014
Crop nutrients 2,608 2,708 (100 ) 454 505 (51 ) 17.4 18.6
Crop protection products 2,169 2,199 (30 ) 457 457 - 21.1 20.8
Seed 982 1,038 (56 ) 164 196 (32 ) 16.7 18.9
Merchandise 174 218 (44 ) 27 24 3 15.5 11.0
Service and other 227 234 (7 ) 162 167 (5 ) 71.4 71.4

Crop nutrients

  • Total nutrient sales were 4 percent lower compared to the same period last year, primarily due to lower average nutrient selling prices.
  • Total nutrient volumes were 1 percent lower this quarter across our Retail operations compared to the same period last year. Virtually all of the reduction was due to lower demand in Canada related to drought conditions and lower crop prices. Nutrient sales volumes in the U.S. were up 2 percent this quarter, despite lower corn and total seeded acreage this year. Nutrient sales volumes were marginally lower in our international markets due to dry conditions and lower planted wheat acreage in both our South American and Australian markets.
  • Nutrient margins on a per tonne basis were lower across all regions, with the largest decline in Canada, but only a 4 percent reduction in the U.S. and Australia compared to the same quarter last year. The significant weakening in the Canadian dollar in 2015 had an estimated $10/tonne negative impact on nutrient margins in our Canadian operations.

Crop protection products

  • Total crop protection sales were down 1 percent year-over-year, mostly as a result of dry conditions in Australia and South America and foreign exchange differences in the businesses outside of the U.S.
  • North American crop protection sales increased slightly compared to last year, despite significant industry headwinds this spring. The increase was a result of higher herbicide and insecticide sales in our U.S. operations despite the wet conditions during June across the U.S. Corn Belt.
  • Crop protection margins as a percentage of sales increased year-over-year, largely due to the strength of the performance from our Loveland proprietary product line, which registered over a 10 percent increase in sales this quarter and gained a further 2 percentage points increase in the proportion of Loveland's sales out of our total crop protection sales.

Seed

  • The lower crop price environment this spring had the largest impact on the seed business. Seed sales and margins were negatively impacted by competitive pressures between suppliers and some trading down by growers in terms of seed genetics. The reduction was also due to a shift in crop mix from corn and cotton to soybeans, as well as significant unseeded soybean acreage in the U.S. due to the wet weather later this spring.
  • Seed margins as a percentage of sales decreased by 2 percent from the second quarter of 2014; however, higher margin Dyna-Gro seed sales showed a year-over-year increase in sales which helped mitigate some of the impact on seed results.

Merchandise

  • Merchandise sales decreased compared to the same period last year as a result of lower fuel prices and lower equipment sales in Canadian retail and lower merchandise sales in Australia as part of our stock keeping unit ("SKU") rationalization, which has had a positive impact on Australian working capital leverage.
  • Gross profit and gross margin as a percentage of sales were higher this quarter due to a decrease in lower margin Canadian fuel sales and higher overall product prices in the Australian business which consistently has higher margin products.

Services and other

  • Sales and gross profit for application services and other were both down 3 percent compared to the same period last year. The decline was due to reduction in the Canadian and Australian markets related to dry weather conditions.

Wholesale

Three months ended June 30,
(millions of U.S. dollars, except where noted) 2015 2014 Change
Sales 1,174 1,212 (38 )
Sales volumes (tonnes 000's) 2,644 2,780 (136 )
Cost of product sold 765 985 (220 )
Gross profit 409 227 182
Adjusted EBITDA 438 263 175
Expenses 29 36 (7 )
  • Wholesale sales this quarter were slightly lower than the same period last year due primarily to our decision to scale back the majority of our product purchased for resale business and lower prices for nitrogen products. However, Adjusted EBITDA increased 67 percent over the same period last year primarily due to strong nitrogen results stemming from higher production volumes, a significant decline in cost of product sold and a 35 percent increase in sales volumes.
Three months ended June 30,
Nitrogen Potash Phosphate
2015 2014 Change 2015 2014 Change 2015 2014 Change
Gross profit (U.S. dollars millions) 270 101 169 68 72 (4 ) 29 6 23
Sales volumes (tonnes 000's) 1,223 906 317 509 566 (57 ) 290 268 22
Selling price ($/tonne) 451 464 (13 ) 327 310 17 665 598 67
Cost of product sold ($/tonne) 231 353 (122 ) 193 182 11 563 576 (13 )
Gross margin ($/tonne) 220 111 109 134 128 6 102 22 80

Nitrogen

  • Nitrogen gross profit increased 167 percent compared to the same period last year due to higher sales volumes and lower cost of product sold. This was partially offset by lower urea and UAN prices in the current quarter.
  • Sales volumes increased by 35 percent over the same period last year due to stronger operating rates and a greater draw-down in inventories this year.
  • Cost of product sold for nitrogen decreased from the second quarter of 2014. The reduction in per tonne costs was primarily due to significantly lower natural gas prices, stronger operating rates and the weaker Canadian dollar.
  • Nitrogen margins reached $220 per tonne this quarter, almost double last year's level.

Natural gas prices: North American indices and North American Agrium prices

Three months ended June 30,
(U.S. dollars per MMBtu) 2015 2014
Overall gas cost excluding realized derivative impact $2.34 $4.49
Overall gas cost $2.39 $4.51
Average NYMEX $2.67 $4.56
Average AECO $2.16 $4.26

As of January 1, 2015, we have designated all of our natural gas derivatives as hedges(1), with realized gains and losses now recorded to cost of product sold (which also includes transportation and administration costs).

(1) In the prior year, unrealized and realized gains and losses on derivatives not designated as hedges were included in other expenses.

Potash

  • Potash gross profit decreased in the current quarter due to lower total sales tonnes than the same period last year, partially offset by higher realized sales prices.
  • Sales volumes were 10 percent lower this quarter due to low opening inventories as the Vanscoy facility gradually ramps up to full production after the completion of the expansion project at the end of 2014. Vanscoy's production this quarter was 460,000 tonnes, in line with the targeted level.
  • Realized sales prices were higher than the same period last year. Overall potash prices rose in both domestic and international markets, but with a stronger increase in international markets.
  • Cost of product sold was higher than the same period last year due to lower production volumes and higher maintenance costs associated with the planned turnaround at Vanscoy in June this quarter. As a result, cash cost of product manufactured was $110 per tonne this quarter compared to last year at $92 per tonne.

Phosphate

  • Phosphate gross profit increased due to a combination of higher volumes, lower costs and an improvement in sales price relative to the previous year.
  • Sales volumes increased by 8 percent due to higher product availability and sales prices were $67 per tonne higher than the same quarter last year as a result of tight regional supply and demand fundamentals. Overall phosphate margins were $102 per tonne this quarter, an $80 per tonne increase over the same period last year.

Wholesale Other

Wholesale Other: gross profit breakdown
Three months ended June 30,
(millions of U.S. dollars) 2015 2014 Change
Product purchased for resale 1 12 (11)
Ammonium sulfate 21 21 -
Environmentally Smart Nitrogen ("ESN®") 14 5 9
Other 6 10 (4)
42 48 (6)
  • Gross profit for Wholesale's Other product category decreased this quarter primarily due to lower sales volumes and margins in the product purchased for resale business as these operations were significantly scaled back as part of our portfolio review.
  • ESN® gross profit increased this quarter due to higher sales volumes and lower cost of product sold.

Other

EBITDA for our Other non-operating business unit for the second quarter of 2015 had net earnings of $3-million, compared to a net expense of $6-million for the second quarter of 2014. The variance was due to the following:

  • A $12-million higher gross profit recovery for the second quarter of 2015 compared to the second quarter of 2014. This is a result of lower inter-segment inventory held at the end of the second quarter;
  • A $12-million decrease in environmental remediation liability expense as higher provisions were recorded for our plant and mine sites in 2014; and,
  • A $22-million increase in share-based payments expense related to a strengthening in the fair value of our share-based payment plans against our peer group.

FINANCIAL CONDITION

The following are changes to working capital on our Consolidated Balance Sheets for the six-month period ended June 30, 2015 compared to December 31, 2014.

(millions of U.S. dollars, except where noted) June 30,
2015
December 31,
2014
$ Change % Change Explanation of the change in balance
Current assets
Cash and cash equivalents 647 848 (201 ) (24 %) See discussion under the section "Liquidity and Capital Resources".
Accounts receivable 3,556 2,075 1,481 71 % Sales during the spring season resulted in higher Retail trade and vendor rebates receivable.
Income taxes receivable 3 138 (135 ) (98 %) First half tax provision exceeded tax installment payments made net of current period tax refunds.
Inventories 2,868 3,505 (637 ) (18 %) Inventory drawdown due to increased seasonal sales activity.
Prepaid expenses and deposits 119 710 (591 ) (83 %) Drawdown of prepaid inventory due to increased seasonal sales activity in the spring.
Other current assets 138 122 16 13 % -
Current liabilities
Short-term debt 681 1,527 (846 ) (55 %) Proceeds from the issuance of debentures were used to repay commercial paper and credit facilities, partially offset by new drawings for cash needs.
Accounts payable 4,038 4,197 (159 ) (4 %) Reductions in customer prepayments during the spring application season and reductions in accruals related to Wholesale capital expansion projects more than offset increased Retail balances related to seasonal inventory purchases.
Income taxes payable 110 5 105 2,100 % First half provision exceeded the first half installments largely in the U.S.
Current portion of long-term debt 1 11 (10 ) (91 %) -
Current portion of other provisions 88 113 (25 ) (22 %) -
Working capital 2,413 1,545 868 56 %

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) 2015 2014 Change
Cash provided by operating activities 796 798 (2 )
Cash used in investing activities (914 ) (1,036 ) 122
Cash (used in) provided by financing activities (89 ) 214 (303 )
Effect of exchange rate changes on cash and cash equivalents 6 (19 ) 25
Decrease in cash and cash equivalents from continuing operations (201 ) (43 ) (158 )
Cash and cash equivalents provided by discontinued operations - 1 (1 )
Cash provided by operating activities - Drivers behind the $2-million decrease
Source of cash - $79-million change related to tax refunds of $11-million in the first half of 2015 compared to taxes paid of $68-million in the first half of 2014.
Use of cash - Collections were lower in the first half of 2015 due to a slight decrease in sales, with trade receivable turnover remaining consistent but other non-trade receivables increasing as a result of insurance and rebates receivable. Reduced cash inflows compared to 2014 as reduced sales were more than offset by lower cash cost of product sold during the first half of 2015 due to lower costs of natural gas and operating efficiencies in our nitrogen plants. This resulted in lower outstanding payables and inventory which was reduced because of our exit from the product purchased for resale business. A decrease in accounts payable also resulted from the timing of payments.
Cash used in investing activities - Drivers behind the $122-million decrease
Use of cash - Lower capital expenditures of $262-million in the first half of 2015 due to the completion of the tie-in of our Vanscoy potash mine expansion at the end of 2014.

- Acquired more retail businesses during the first half of 2015.
Cash (used in) provided by financing activities - Drivers behind the $303-million increase
Source of cash - Received $1-billion proceeds from issuance of long-term debt in the first six months of 2015.
Use of cash - Paid down short-term debt from proceeds of issuance of long-term debt in the first half of 2015 compared to draws on commercial paper facilities in the first half of 2014.

- Repurchased common shares for $100-million in the first half of 2015; no similar activity in the same period in 2014.
Capital Expenditures
Six months ended June 30,
(millions of U.S. dollars) 2015 2014
Sustaining capital 221 300
Investing capital 519 702
Total 740 1,002
  • Our investing capital expenditures decreased in the first half of 2015 compared to the first half of 2014 due to the completion of the tie-in of our Vanscoy potash facility expansion in the fourth quarter of 2014, partially offset by increased expenditures relating to the Borger nitrogen expansion project. We incurred investing capital expenditures amounting to $192-million for the expansion of the Borger nitrogen facility.
  • The timeline and scope of the Borger nitrogen expansion project have been revised. The refresh of the existing ammonia facility and the new 610,000 tonne urea facility will be completed as planned; however, the completion date has been extended to the end of 2016 in order to manage costs, and the 145,000 tonne ammonia expansion portion of the project has been cancelled to minimize project risk. The total capital expenditure for the revised scope is expected to be within 5 percent of the $720-million estimate.
  • We expect Agrium's remaining capital spending to approximate $500-million to $600-million in 2015. We anticipate that we will be able to finance the announced projects through a combination of cash provided from operating activities and existing credit facilities.

Short-term Debt

  • Our short-term debt of $681-million at June 30, 2015 is outlined in note 5 of our Summarized Notes to the Consolidated Financial Statements.
  • Our short-term debt increased by $416-million during the three months ended June 30, 2015, which in turn contributed to a decrease in our unutilized short-term financing capacity to $2.2-billion as at June 30, 2015.

Capital Management

  • 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 our credit agreements. We were in compliance with all covenants at June 30, 2015.

NORMAL COURSE ISSUER BID

In January 2015, the Toronto Stock Exchange ("TSX") accepted Agrium's notice of intention to make a normal course issuer bid ("NCIB") whereby Agrium may purchase up to 7,185,866 common shares on the TSX and New York Stock Exchange during the period from January 26, 2015 to January 25, 2016. During the six months ended June 30, 2015, we purchased 952,053 shares at an average share price of $104.99 for total consideration of $100-million. There were no share repurchases subsequent to June 30, 2015. Shareholders can obtain a copy of the NCIB notice submitted to the TSX from Agrium without charge upon request.

OUTSTANDING SHARE DATA

Agrium had 142,791,278 outstanding shares at July 31, 2015. 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) 2015
Q2
2015
Q1
2014
Q4
2014
Q3
2014
Q2
2014
Q1
2013
Q4
2013
Q3
Sales 6,992 2,872 2,705 2,920 7,338 3,079 2,867 2,796
Gross profit 1,708 584 732 665 1,599 556 740 629
Net earnings from continuing operations 675 14 70 91 625 12 110 80
Net (loss) earnings from discontinued operations - - (19 ) (41 ) (9 ) (9 ) (11 ) (4 )
Net earnings 675 14 51 50 616 3 99 76
Earnings per share from continuing operations attributable to equity holders of Agrium:
Basic and diluted 4.71 0.08 0.46 0.63 4.34 0.08 0.74 0.54
Loss per share from discontinued operations attributable to equity holders of Agrium:
Basic and diluted - - (0.13 ) (0.28 ) (0.06 ) (0.06 ) (0.08 ) (0.02 )
Earnings per share attributable to equity holders of Agrium:
Basic and diluted 4.71 0.08 0.33 0.35 4.28 0.02 0.66 0.52

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. Crop nutrient inventories are normally accumulated leading up to each application season. Our cash collections from accounts receivables generally occur after the application season is complete and our customer prepayments are mostly concentrated in December and January.

ADDITIONAL IFRS AND NON-IFRS FINANCIAL MEASURES

Certain financial measures in this 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 not excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. Non-IFRS financial measures are not recognized measures under IFRS and our method of calculation is unlikely to 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 measure, its definition and why management uses such measure.

Additional IFRS financial measure
Definition
Why We Use the Measure and Why it is Useful to Investors
EBIT Earnings (loss) from continuing operations before finance costs and income taxes. Provides management and investors with information for comparison of our operating results to the operating results of other companies. This measure eliminates the impact of finance and tax structure variables that exist between entities.

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


Non-IFRS financial measures

Definition
Why We Use the Measure and Why it is Useful to Investors
EBITDA Earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization. Refer to EBIT. EBITDA is also frequently used by investors and analysts for valuation purposes when multiplied by a factor to estimate the enterprise value of a company. EBITDA is also a component in the determination of annual incentive compensation for certain management employees, and in calculation of certain of our debt covenants.
Adjusted EBITDA EBITDA before finance costs, income taxes, depreciation and amortization of joint ventures. Useful in evaluating our business performance by including our proportionate share of joint ventures in operating results.
Cash cost of product manufactured ("Cash COPM") All fixed and variable costs are accumulated in cost of product manufactured ("COPM"). Cash COPM excludes depreciation and amortization expense. Fixed costs per tonne will fluctuate as production tonnage fluctuates. Fixed costs will remain constant whether or not tonnes are produced. Variable costs per tonne remain constant as production tonnage fluctuates. Variable costs fluctuate as production tonnage fluctuates. Direct freight is a transportation cost to move the product from an Agrium location to the point of sale. It is not a component of COPM. Enables investors to better understand the performance of our manufacturing operations in comparison to other crop nutrient producers.

When COPM costs are divided by the production tonnes for the period, the result is actual COPM per tonne, which is compared to the standard COPM per tonne - a calculation of fixed and variable costs for a standard or typical period of production. The standard COPM per tonne is multiplied by the production tonnes for the period, and the resulting dollar amount is transferred to inventory. Any remaining costs are recorded directly to cost of product sold as production volume or cost efficiency variances. There is no directly comparable IFRS measure for cash cost of product manufactured.

RECONCILIATIONS OF ADDITIONAL IFRS AND NON-IFRS FINANCIAL MEASURES

Adjusted EBITDA and EBITDA to EBIT
Three months ended Three months ended
June 30, 2015 June 30, 2014
(millions of U.S. dollars) Retail Wholesale Other Consolidated Retail Wholesale Other Consolidated
Adjusted EBITDA 713 438 3 1,154 791 263 (6 ) 1,048
Equity accounted joint ventures:
Finance costs and income taxes - 4 - 4 - 8 - 8
Depreciation and amortization - 5 - 5 - 3 - 3
EBITDA 713 429 3 1,145 791 252 (6 ) 1,037
Depreciation and amortization 66 49 4 119 77 61 4 142
EBIT 647 380 (1 ) 1,026 714 191 (10 ) 895
Six months ended Six months ended
June 30, 2015 June 30, 2014
(millions of U.S. dollars) Retail Wholesale Other Consolidated Retail Wholesale Other Consolidated
Adjusted EBITDA 705 724 (85 ) 1,344 808 500 (74 ) 1,234
Equity accounted
joint ventures:
Finance costs and income taxes - 5 - 5 - 12 - 12
Depreciation and amortization - 8 - 8 - 5 - 5
EBITDA 705 711 (85 ) 1,331 808 483 (74 ) 1,217
Depreciation and amortization 123 99 8 230 149 114 6 269
EBIT 582 612 (93 ) 1,101 659 369 (80 ) 948

CRITICAL ACCOUNTING ESTIMATES

We prepare our financial statements in accordance with IFRS, which requires us to make judgments, assumptions and estimates in applying accounting policies. For further information on the Company's critical accounting estimates, refer to the section "Critical Accounting Estimates" in our 2014 annual MD&A, which is contained in our 2014 Annual Report. Since the date of our 2014 annual MD&A, there have not been any material changes to our critical accounting estimates.

BUSINESS RISKS

The information presented in the "Enterprise Risk Management" section on pages 64 - 68 in our 2014 Annual Report and under the heading "Risk Factors" on pages 22 - 31 in our 2014 Annual Information Form has not changed materially since December 31, 2014.

CONTROLS AND PROCEDURES

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2015 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 2014 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

Prospects for global crop prices have improved since June due to less than ideal weather conditions across a number of geographies. Excessive moisture in the U.S. Corn Belt has led to the deterioration in crops and led to lower than anticipated planted acreage in some areas. Severe drought across much of Western Canada has also reduced yield expectations. While new crop futures prices have recently declined, the rally in crop prices in late June and early July is evidence of how sensitive global crop supply and demand is to relatively small changes in yield expectations.

In areas with excessive moisture, it has been difficult to get equipment into the fields to apply crop nutrients and crop protection products, which in some cases has led to missed applications. In drought areas growers have in some cases sought to reduce crop nutrient and crop protection applications on struggling crops. The prospects outside of drought impacted areas are more positive for the remainder of 2015 as stronger prices in early July offered growers higher priced selling opportunities and improved grower sentiment. Furthermore, in areas with excess moisture, the wet conditions tend to lead to increased disease pressure, supporting fungicide demand.

Following the end of the northern hemisphere's spring application season, crop nutrient prices have generally weakened, driven by the seasonal slow-down in demand. Tightened Chinese urea export supplies and seasonal demand fuelled an increase in urea prices in-season. However, the expectation of a return of increased Chinese supply to the export market, combined with new exportable supply in Algeria, Saudi Arabia and the U.S. in the second half of the year have pressured global prices. We expect Chinese anthracite-based urea costs to continue to provide a floor to the urea market in the second half of 2015, and that Indian import demand will be strong, particularly in light of the strong start to the monsoon season.

Potash shipments to China and India have been robust in recent months and are expected to provide a solid base to global demand in the second half of 2015. In contrast, Brazilian demand has been relatively slow, down 21 percent year-over-year in the first half of 2015. However, we expect the pace of demand to improve in the third quarter, in advance of the domestic planting season. Following the spring season, North American potash prices declined, significantly narrowing the premium relative to other major global markets. The phosphate market has been relatively stable, with robust Indian demand offset by relatively weak Brazilian import demand and record Chinese DAP/MAP exports.

Forward-Looking Statements

Certain statements and other information included in this document constitute "forward-looking information" and/or "financial outlook" 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 document 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: 2015 annual guidance, including diluted earnings per share and Retail EBITDA; estimated 2015 nitrogen and potash production volumes; capital spending expectations in 2015; and our market outlook for the remainder of 2015, including anticipated supply and demand for our products and services, expected market and industry conditions with respect to planted acres, prices and the impact of currency fluctuations and import and export volumes. These forward-looking statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such forward-looking statements. As such, undue reliance should not be placed on these forward-looking statements. The purpose of the outlook provided herein is to assist readers in understanding our expected and targeted financial and operating results, and this information may not be appropriate for other purposes.

All of the forward-looking statements are qualified by the assumptions that are stated or inherent in such forward-looking statements, including the assumptions referred to below and elsewhere in this document. Although 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 additional key assumptions that have been made include, among other things assumptions with respect to Agrium's ability to successfully integrate and realize the anticipated benefits of its already completed and future acquisitions and that we will be able to implement our standards, controls, procedures and policies at any acquired businesses to realize the expected synergies; that future business, regulatory and industry conditions will be within the parameters expected by Agrium, with respect to prices, margins, product availability and supplier agreements; the completion of our expansion projects on schedule, as planned and on budget; assumptions with respect to global economic conditions and the accuracy of our market outlook expectations for the remainder of 2015; the adequacy of our cash generated from operations and our ability to access our credit facilities or capital markets for additional sources of financing; our ability to identify suitable candidates for acquisitions and negotiate acceptable terms; our ability to maintain our investment grade rating and achieve our performance targets; and our receipt, on time, of all necessary permits, utilities and project approvals with respect to our expansion projects and that we will have the resources necessary to meet the project's approach. Also refer to the discussion under the heading "Key Assumptions and Risks in Respect of Forward-Looking Statements" in our 2014 annual MD&A, with respect to further material assumptions associated with our forward-looking statements.

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 may vary from what we currently anticipate; 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, regional natural gas supply restrictions, as well as counterparty and sovereign risk; delays in completion of turnarounds at our major facilities; the risk that work on the Egyptian Misr Fertilizers Production Company S.A.E. nitrogen facility expansion in Egypt may be interrupted again and may not be completed on the timelines currently anticipated or at all; the risk of additional capital expenditure cost escalation or delays in respect of our Borger nitrogen expansion project and the ramp-up of production following the recent tie-in of our Vanscoy 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 U.S. including those disclosed under the heading "Risk Factors" in our Annual Information Form for the year ended December 31, 2014 and under the headings "Enterprise Risk Management" and "Key Assumptions and Risks in respect of Forward-Looking Statements" in our 2014 annual MD&A.

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

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

OTHER

Agrium Inc. is a major producer and distributor of agricultural products and services in North America, South America, Australia and Egypt through its agricultural retail-distribution and wholesale nutrient businesses. Agrium supplies growers with key products and services such as crop nutrients, crop protection, seed, and agronomic and application services, thereby helping to meet the ever growing global demand for food and fiber. Agrium produces nitrogen, potash and phosphate fertilizers, with a combined wholesale nutrient capacity of over nine million tonnes and with competitive advantages across all product lines. Agrium retail-distribution has an unmatched network of over 1,300 facilities and over 3,000 crop consultants. We partner with over half a million grower customers globally to help them increase their yields and returns on more than 50 different crops. With a focus on sustainability, the company strives to improve the communities in which it operates through safety, education, environmental improvement and new technologies such as the development of precision agriculture and controlled release nutrient products. Agrium is focused on driving operational excellence across our businesses, pursuing value-enhancing growth opportunities and returning capital to shareholders. For more information visit: www.agrium.com.

A WEBSITE SIMULCAST of the 2015 2nd Quarter Conference Call will be available in a listen-only mode beginning Thursday, August 6, 2015 at 7:30 a.m. MST (9:30 a.m. EST). Please visit the following website: www.agrium.com.

AGRIUM INC.
Consolidated Statements of Operations
(Millions of U.S. dollars, except per share amounts)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2015 2014 2015 2014
Sales6,992 7,338 9,864 10,417
Cost of product sold5,284 5,739 7,572 8,262
Gross profit1,708 1,599 2,292 2,155
Expenses
Selling585 609 1,015 1,053
General and administrative66 82 133 151
Share-based payments6 (16)51 15
Earnings from associates and joint ventures(1)(13)(1)(14)
Other expenses (income) (note 3)26 42 (7)2
Earnings before finance costs and income taxes1,026 895 1,101 948
Finance costs related to long-term debt50 9 87 28
Other finance costs18 18 37 35
Earnings before income taxes958 868 977 885
Income taxes283 243 288 248
Net earnings from continuing operations675 625 689 637
Net loss from discontinued operations- (9)- (18)
Net earnings675 616 689 619
Attributable to:
Equity holders of Agrium674 615 686 617
Non-controlling interest1 1 3 2
Net earnings675 616 689 619
Earnings per share attributable to equity holders of
Agrium (note 4)
Basic and diluted earnings per share from continuing operations4.71 4.34 4.78 4.42
Basic and diluted loss per share from discontinued operations- (0.06)- (0.13)
Basic and diluted earnings per share4.71 4.28 4.78 4.29
See accompanying notes.
AGRIUM INC.
Consolidated Statements of Comprehensive Income
(Millions of U.S. dollars)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2015 2014 2015 2014
Net earnings675 616 689 619
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)(20)(4)
Deferred income taxes on changes in fair value1 1 5 1
Share of comprehensive income (loss) of associates and joint ventures
-

1

(5
)
2
Foreign currency translation
Gains (losses)57 102 (238)(4)
Reclassifications to earnings1 - 1 -
55 100 (257)(5)
Items that will never be reclassified to earnings
Post-employment benefits
Actuarial losses- (20)- (20)
Deferred income taxes1 6 1 6
1 (14)1 (14)
Other comprehensive income (loss)56 86 (256)(19)
Comprehensive income731 702 433 600
Attributable to:
Equity holders of Agrium730 701 431 598
Non-controlling interest1 1 2 2
Comprehensive income731 702 433 600
See accompanying notes.
AGRIUM INC.
Consolidated Balance Sheets
(Millions of U.S. dollars)
(Unaudited)
June 30, December 31,
2015 2014 2014
Assets
Current assets
Cash and cash equivalents647 759 848
Accounts receivable3,556 3,542 2,075
Income taxes receivable3 4 138
Inventories2,868 3,097 3,505
Prepaid expenses and deposits119 157 710
Other current assets138 124 122
Assets held for sale- 210 -
7,331 7,893 7,398
Property, plant and equipment (note 7)6,506 5,788 6,272
Intangibles669 712 695
Goodwill2,004 1,970 2,014
Investments in associates and joint ventures603 627 576
Other assets68 95 78
Deferred income tax assets65 75 75
17,246 17,160 17,108
Liabilities and shareholders' equity
Current liabilities
Short-term debt (note 5)681 1,202 1,527
Accounts payable4,038 4,263 4,197
Income taxes payable110 179 5
Current portion of long-term debt1 54 11
Current portion of other provisions88 116 113
Liabilities held for sale- 55 -
4,918 5,869 5,853
Long-term debt (note 5)4,533 3,060 3,559
Post-employment benefits146 157 151
Other provisions329 416 367
Other liabilities81 37 69
Deferred income tax liabilities446 441 422
10,453 9,980 10,421
Shareholders' equity
Share capital1,812 1,821 1,821
Retained earnings5,864 5,632 5,502
Accumulated other comprehensive loss(891)(276)(643)
Equity holders of Agrium6,785 7,177 6,680
Non-controlling interest8 3 7
Total equity6,793 7,180 6,687
17,246 17,160 17,108
See accompanying notes.
AGRIUM INC.
Consolidated Statements of Cash Flows
(Millions of U.S. dollars)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
2015 2014 2015 2014
Operating
Net earnings from continuing operations675 625 689 637
Adjustments for
Depreciation and amortization119 142 230 269
Earnings from associates and joint ventures(1)(13)(1)(14)
Share-based payments6 (16)51 15
Unrealized (gain) loss on derivative financial instruments(13)9 13 (5)
Unrealized foreign exchange gain(51)(17)(10)(19)
Interest income(16)(19)(33)(30)
Finance costs68 27 124 63
Income taxes283 243 288 248
Other6 15 (19)27
Interest received16 19 33 31
Interest paid(48)(21)(90)(53)
Income taxes (paid) received(7)(32)11 (68)
Dividends from associates and joint ventures1 6 2 7
Net changes in non-cash working capital(947)(931)(492)(310)
Cash provided by operating activities91 37 796 798
Investing
Acquisitions, net of cash acquired(24)(2)(84)(18)
Capital expenditures(341)(543)(740)(1,002)
Capitalized borrowing costs(8)(30)(23)(53)
Purchase of investments(43)(39)(85)(65)
Proceeds from sale of investments27 32 45 44
Proceeds from sale of property, plant and equipment4 - 54 -
Other6 19 11 (3)
Net changes in non-cash working capital(74)10 (92)61
Cash used in investing activities(453)(553)(914)(1,036)
Financing
Short-term debt422 793 (738)444
Long-term debt issued- - 1,000 -
Transaction costs on long-term debt- - (14)-
Repayment of long-term debt(2)(5)(15)(15)
Dividends paid(114)(108)(223)(216)
Shares issued- 1 1 1
Shares repurchased(100)- (100)-
Cash provided by (used in) financing activities206 681 (89)214
Effect of exchange rate changes on cash and cash equivalents23 (16)6 (19)
(Decrease) increase in cash and cash equivalents from continuing operations
(133

)

149

(201

)

(43

)
Cash and cash equivalents provided by discontinued operations- 18 - 1
Cash and cash equivalents - beginning of period780 592 848 801
Cash and cash equivalents - end of period647 759 647 759
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, 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
December 31, 2014144 1,821 5,502 (27)(11)- (605)(643)6,680 7 6,687
Net earnings- - 686 - - - - - 686 3 689
Other comprehensive income (loss), net of tax
Post-employment benefits- - 1 - - - - - 1 - 1
Other- - - (15)(5)- (236)(256)(256)(1)(257)
Comprehensive income (loss), net of tax- - 687 (15)(5)- (236)(256)431 2 433
Dividends- - (237)- - - - - (237)- (237)
Non-controlling interest transactions- - - - - - - - - (1)(1)
Shares repurchased(1)(12)(88)- - - - - (100)- (100)
Share-based payment transactions- 3 - - - - - - 3 - 3
Reclassification of cash flow hedges- - - 8 - - - 8 8 - 8
June 30, 2015143 1,812 5,864 (34)(16)- (841)(891)6,785 8 6,793
See accompanying notes.

AGRIUM INC.

Summarized Notes to the Consolidated Financial Statements

For the six months ended June 30, 2015

(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 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 producing, marketing and distributing crop nutrients and industrial products through the following businesses:
    • Nitrogen: Manufacturing in Alberta, Texas and Argentina;
    • Potash: Mining and processing in Saskatchewan;
    • Phosphate: Mining and production facilities in Alberta and Idaho; and
    • Other: Marketing nutrient-based products from other suppliers in North and South America and Europe, and producing blended crop nutrients and ESN® (Environmentally Smart Nitrogen) polymer-coated nitrogen crop nutrients.

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

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

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 5, 2015. 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 2014 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 2014 Annual Report, with the exception of the accounting changes described in note 8 to our interim financial statements for the six months ended June 30, 2015.

2. Operating Segments

Segment information by business unitThree months ended June 30,
2015 2014
Retail Wholesale Other (1) Total Retail Wholesale Other (1) Total
Sales- external6,144 848 - 6,992 6,392 946 - 7,338
- inter-segment16 326 (342)- 5 266 (271)-
Total sales6,160 1,174 (342)6,992 6,397 1,212 (271)7,338
Cost of product sold4,896 765 (377)5,284 5,048 985 (294)5,739
Gross profit1,264 409 35 1,708 1,349 227 23 1,599
Gross profit (%)21 35 24 21 19 22
Expenses
Selling580 9 (4)585 603 10 (4)609
General and administrative32 6 28 66 35 13 34 82
Share-based payments- - 6 6 - - (16)(16)
(Earnings) loss from associates and joint ventures(3)- 2 (1)(4)(10)1 (13)
Other expenses8 14 4 26 1 23 18 42
Earnings (loss) before finance costs and income taxes647 380 (1)1,026 714 191 (10)895
Finance costs- - 68 68 - - 27 27
Earnings (loss) before income taxes647 380 (69)958 714 191 (37)868
Depreciation and amortization66 49 4 119 77 61 4 142
Finance costs- - 68 68 - - 27 27
EBITDA (2)713 429 3 1,145 791 252 (6)1,037
Share of joint ventures
Finance costs and income taxes- 4 - 4 - 8 - 8
Depreciation and amortization- 5 - 5 - 3 - 3
Adjusted EBITDA713 438 3 1,154 791 263 (6)1,048
(1)Includes inter-segment eliminations.
(2)Earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization.
Segment information by business unitSix months ended June 30,
2015 2014
Retail Wholesale Other (1) Total Retail Wholesale Other (1) Total
Sales- external8,404 1,460 - 9,864 8,619 1,798 - 10,417
- inter-segment19 581 (600)- 10 475 (485)-
Total sales8,423 2,041 (600)9,864 8,629 2,273 (485)10,417
Cost of product sold6,788 1,398 (614)7,572 6,893 1,875 (506)8,262
Gross profit1,635 643 14 2,292 1,736 398 21 2,155
Gross profit (%)19 32 23 20 18 21
Expenses
Selling1,003 20 (8)1,015 1,039 21 (7)1,053
General and administrative58 16 59 133 63 23 65 151
Share-based payments- - 51 51 - - 15 15
(Earnings) loss from associates and joint ventures(4)3 - (1)(5)(10)1 (14)
Other (income) expenses(4)(8)5 (7)(20)(5)27 2
Earnings (loss) before finance costs and income taxes582 612 (93)1,101 659 369 (80)948
Finance costs- - 124 124 - - 63 63
Earnings (loss) before income taxes582 612 (217)977 659 369 (143)885
Depreciation and amortization123 99 8 230 149 114 6 269
Finance costs- - 124 124 - - 63 63
EBITDA (2)705 711 (85)1,331 808 483 (74)1,217
Share of joint ventures
Finance costs and income taxes- 5 - 5 - 12 - 12
Depreciation and amortization- 8 - 8 - 5 - 5
Adjusted EBITDA705 724 (85)1,344 808 500 (74)1,234
(1)Includes inter-segment eliminations.
(2)Earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization.
Segment information - RetailThree months ended June 30,
20152014
North North
AmericaInternational Retail America International Retail
Sales- external5,405739 6,144 5,508 884 6,392
- inter-segment16- 16 5 - 5
Total sales5,421739 6,160 5,513 884 6,397
Cost of product sold4,286610 4,896 4,313 735 5,048
Gross profit1,135129 1,264 1,200 149 1,349
Expenses
Selling48991 580 502 101 603
General and administrative239 32 23 12 35
Earnings from associates and joint ventures(2)(1)(3)(3)(1)(4)
Other expenses (income)15(7)8 5 (4)1
Earnings before income taxes61037 647 673 41 714
Depreciation and amortization579 66 69 8 77
EBITDA66746 713 742 49 791
Adjusted EBITDA66746 713 742 49 791
Segment information - RetailSix months ended June 30,
20152014
North North
AmericaInternational Retail America International Retail
Sales- external7,1781,226 8,404 7,224 1,395 8,619
- inter-segment19- 19 10 - 10
Total sales7,1971,226 8,423 7,234 1,395 8,629
Cost of product sold5,789999 6,788 5,751 1,142 6,893
Gross profit1,408227 1,635 1,483 253 1,736
Expenses
Selling834169 1,003 851 188 1,039
General and administrative4018 58 40 23 63
Earnings from associates and joint ventures(3)(1)(4)(3)(2)(5)
Other expenses (income)12(16)(4)4 (24)(20)
Earnings before income taxes52557 582 591 68 659
Depreciation and amortization10914 123 132 17 149
EBITDA63471 705 723 85 808
Adjusted EBITDA63471 705 723 85 808
Segment information - WholesaleThree months ended June 30,
20152014
Wholesale Wholesale
NitrogenPotashPhosphateOther (1)WholesaleNitrogenPotashPhosphate Other (1)Wholesale
Sales- external415112118203 848301123110 412 946
- inter-segment138547460 3261205251 43 266
Total sales553166192263 1,174421175161 455 1,212
Cost of product sold28398163221 765320103155 407 985
Gross profit270682942 409101726 48 227
Expenses
Selling4212 9322 3 10
General and administrative2112 6433 3 13
Earnings from associates and joint ventures---- ---- (10)(10)
Other expenses (income)861(1)149510 (1)23
Earnings (loss) before income taxes256592639 3808562(9)53 191
Depreciation and amortization2013115 49221813 8 61
EBITDA276723744 429107804 61 252
Share of joint ventures
Finance costs and income taxes4--- 48-- - 8
Depreciation and amortization5--- 53-- - 3
Adjusted EBITDA285723744 438118804 61 263
(1)Includes product purchased for resale, ammonium sulfate, ESN and other products.
Segment information - WholesaleSix months ended June 30,
2015 2014
Wholesale Wholesale
NitrogenPotashPhosphateOther (1) Wholesale Nitrogen PotashPhosphate Other (1) Wholesale
Sales- external633137228462 1,460 556 206222 814 1,798
- inter-segment23596145105 581 201 97106 71 475
Total sales868233373567 2,041 757 303328 885 2,273
Cost of product sold455158299486 1,398 566 185320 804 1,875
Gross profit413757481 643 191 1188 81 398
Expenses
Selling8327 20 6 43 8 21
General and administrative5335 16 6 55 7 23
Loss (earnings) from associates and joint ventures---3 3 - -- (10)(10)
Other expense (income)61113(38)(8)(24)119 (1)(5)
Earnings (loss) before income taxes3945856104 612 203 98(9)77 369
Depreciation and amortization38272410 99 42 3126 15 114
EBITDA4328580114 711 245 12917 92 483
Share of joint ventures
Finance costs and income taxes5--- 5 12 -- - 12
Depreciation and amortization8--- 8 5 -- - 5
Adjusted EBITDA4458580114 724 262 12917 92 500
(1)Includes product purchased for resale, ammonium sulfate, ESN and other products.
Gross profit by product line Three months ended June 30,Six months ended June 30,
2015 2014 2015 2014
Cost of Cost of Cost of Cost of
product Gross product Gross product Gross product Gross
Sales sold profit Sales sold profitSales sold profit Sales sold profit
Retail
Crop nutrients 2,608 2,154 454 2,708 2,203 5053,519 2,939 580 3,604 2,971 633
Crop protection products 2,169 1,712 457 2,199 1,742 4572,962 2,397 565 2,929 2,367 562
Seed 982 818 164 1,038 842 1961,290 1,086 204 1,336 1,094 242
Merchandise 174 147 27 218 194 24316 269 47 404 356 48
Services and other 227 65 162 234 67 167336 97 239 356 105 251
6,160 4,896 1,264 6,397 5,048 1,3498,423 6,788 1,635 8,629 6,893 1,736
Wholesale
Nitrogen 553 283 270 421 320 101868 455 413 757 566 191
Potash 166 98 68 175 103 72233 158 75 303 185 118
Phosphate 192 163 29 161 155 6373 299 74 328 320 8
Product purchased for resale 104 103 1 285 273 12296 288 8 579 563 16
Ammonium sulfate, ESN and other 159 118 41 170 134 36271 198 73 306 241 65
1,174 765 409 1,212 985 2272,041 1,398 643 2,273 1,875 398
Other inter-segment eliminations (342)(377)35 (271)(294)23(600)(614)14 (485)(506)21
Total 6,992 5,284 1,708 7,338 5,739 1,5999,864 7,572 2,292 10,417 8,262 2,155
Wholesale share of joint ventures
Nitrogen 45 39 6 49 35 1466 61 5 76 53 23
Product purchased for resale 12 12 - 17 16 138 37 1 38 36 2
57 51 6 66 51 15104 98 6 114 89 25
Total Wholesale including proportionate share in joint ventures
1,231

816

415

1,278

1,036

242

2,145

1,496

649

2,387

1,964

423
Selected volumes and per tonne information Three months ended June 30,
2015 2014
Cost of Cost of
SalesSellingproduct Sales Selling product
tonnespricesoldMargintonnes price soldMargin
(000's)($/tonne)($/tonne)($/tonne)(000's) ($/tonne)($/tonne)($/tonne)
Retail
Crop nutrients
North America4,1445504461044,161 558 443115
International72245442133758 512 47537
Total crop nutrients4,866536443934,919 551 448103
Wholesale
Nitrogen
North America
Ammonia441584 323 577
Urea471419 243 474
Other311313 340 351
Total nitrogen1,223451231220906 464 353111
Potash
North America334371 372 358
International175243 194 218
Total potash509327193134566 310 182128
Phosphate290665563102268 598 57622
Product purchased for resale2823693672683 418 40018
Ammonium sulfate96386164222106 360 169191
ESN and other244 251
Total Wholesale2,6444442891552,780 436 35482
Wholesale share of joint ventures
Nitrogen11439533857124 399 290109
Product purchased for resale323513411088 193 17518
14638633947212 313 24271
Total Wholesale including proportionate share in joint ventures2,7904412921492,992 427 34681
Selected volumes and per tonne informationSix months ended June 30,
2015 2014
Cost of Cost of
SalesSellingproduct SalesSellingproduct
tonnespricesoldMargintonnespricesoldMargin
(000's)($/tonne)($/tonne)($/tonne)(000's)($/tonne)($/tonne)($/tonne)
Retail
Crop nutrients
North America5,579540442985,561544438106
International1,174431400311,18449145536
Total crop nutrients6,753521435866,74553444094
Wholesale
Nitrogen
North America
Ammonia616569 502549
Urea819420 625454
Other549316 571346
Total nitrogen1,9844372292081,698446334112
Potash
North America483378 664351
International211240 330213
Total potash694336228108994305186119
Phosphate57265252213057656955514
Product purchased for resale83035634791,48838937811
Ammonium sulfate178362150212198335171164
ESN and other420 462
Total Wholesale4,6784362991375,41642034773
Wholesale share of joint ventures
Nitrogen16639936732186410287123
Product purchased for resale1173213091215225023614
2833673432433833826474
Total Wholesale including proportionate sharein joint ventures
4,961

432

301

131

5,754
415
342

73

3. Expenses
Three months ended Six months ended
Other expensesJune 30, June 30,
2015 2014 2015 2014
Loss (gain) on derivatives not designated as hedges, net of foreign exchange
1


(2

)

-


(37

)
Interest income(16)(19)(33)(30)
Gain on sale of assets- - (38)-
Environmental remediation and asset retirement obligations- 22 9 20
Bad debt expense25 25 32 30
Potash profit and capital tax5 3 10 6
Other11 13 13 13
26 42 (7)2
4. Earnings per Share
Three months ended Six months ended
Attributable to equity holders of AgriumJune 30, June 30,
20152014 20152014
Numerator
Net earnings from continuing operations674624 686635
Net loss from discontinued operations-(9)-(18)
Net earnings674615 686617
Denominator (millions)
Weighted average number of shares outstanding for basic and diluted earnings per share
143

144

143

144
5. Debt
June 30,December 31,
20152014
MaturityRate (%) (1)
Short-term debt
Commercial paper20150.525351,117
Credit facilities 4.43146410
6811,527
(1)Weighted average rates at June 30, 2015.

Debentures issued during the three months ended March 31, 2015

MaturityRate (%)Principal
March 15, 20253.375550
March 15, 20354.125450

6. Financial Instruments

Commodity price risk

Natural gas derivative financial instruments outstanding (notional amounts in millions of MMBtu)

June 30, December 31,
2015 2014
AverageFair value AverageFair value
contractof assets contractof assets
NotionalMaturitiesprice (1)(liabilities)NotionalMaturitiesprice (1)(liabilities)
Not designated as hedges
NYMEX swaps----120153.83(1)
AECO swaps----1020153.40(10)
- (11)
Designated as hedges
AECO swaps902015 - 20182.96(43)692015 - 20183.32(25)
(43) (25)
(1) USD per MMBtu.
Fair value of assets (liabilities)
Maturities of natural gas derivative contracts2015201620172018
Designated as hedges(3)(16)(13)(11)
Impact of change in fair value of natural gas derivative financial instrumentsJune 30,December 31,
20152014
A $10-million impact to net earnings requires movement in gas prices per MMBtu-1.23
A $10-million impact to other comprehensive income requires movement in gas
prices per MMBtu1.180.19
Use of derivatives to hedge exposure to natural gas market price risk
Term (gas year - 12 months ending October 31)2015201620172018
Maximum allowable (% of forecasted gas requirements)75757525(1)
Forecasted average monthly natural gas consumption
(millions of MMBtu)8999
Gas requirements hedged using derivatives designated as hedges (%)37252517
(1)Maximum monthly hedged volume may not exceed 90 percent of planned monthly requirements.

For our natural gas derivatives designated in hedging relationships, the underlying risk of the forward contracts is identical to the hedged risk, and accordingly we have established a hedge ratio of 1:1. 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 natural gas forward contracts designated as hedges to other comprehensive income.

Currency risk

Foreign exchange derivative financial instruments outstanding (notional amounts in millions of U.S. dollars)

June 30, December 31,
2015 2014
Fair value Fair value
of assets of assets
Sell/BuyNotionalMaturities(liabilities)NotionalMaturities(liabilities)
Not designated as hedges
Forwards
USD/CAD552015----
CAD/USD1,0832015111,675201531
USD/AUD42015-332015(3)
Swaps
USD/AUD122015-262015(1)
AUD/USD82015-2120152
Options
USD/CAD - buy USD puts15520151---
USD/CAD - sell USD calls (1)1552015(1)---
11 29
(1)Includes 75M notional of enhanced collars.
June 30,December 31,
20152014
Fair valueCarryingFair valueCarrying
Financial instruments measured at fair value on a recurring basisLevel 1Level 2valueLevel 1Level 2value
Cash and cash equivalents-647647-848848
Accounts receivable - derivatives-1212-3333
Other current financial assets -marketable securities
20

113

133

20

70

90
Accounts payable - derivatives-1212-1818
Other financial liabilities - derivatives-3232-2222
Other financial instruments
Current portion of long-term debt
Floating rate debt - amortized cost-11-1111
Long-term debt
Debentures - amortized cost-4,6404,468-3,8793,483
Fixed and floating rate debt - amortized cost
-

65

65

-

76

76

There have been no transfers between Level 1 and Level 2 fair value measurements in the six months ended June 30, 2015 or June 30, 2014. We do not measure any of our financial instruments using Level 3 inputs.

7. Additional Information

Property, plant and equipment

At the end of 2014, we completed a major turnaround to tie in the expansion project at our Vanscoy potash facility and the assets related to the expansion project became available for use in 2015. During the six months ended June 30, 2015 we transferred $2.6-billion related to the Vanscoy expansion project from assets under construction to buildings and improvements, and machinery and equipment.

During the six months ended June 30, 2015, we added $192-million to assets under construction related to the expansion project at our Borger Nitrogen facility.

Dividends
June 30,
2015
Declared
EffectivePer shareTotalPaid to
Shareholders
Total
December 11, 20140.78112January 21, 2015109
February 24, 20150.78112April 16, 2015114
May 5, 20150.875125July 16, 2015N/A

In May 2015, our Board of Directors approved an increase to our dividend to $3.50 U.S. per common share on an annualized basis.

Normal course issuer bid

In January 2015, the Toronto Stock Exchange accepted our Normal Course Issuer Bid ("NCIB"). Under the NCIB, we may purchase for cancellation up to 5 percent of our currently issued and outstanding common shares until January 25, 2016. The actual number of shares purchased will be at Agrium's discretion and will depend on market conditions, share prices, Agrium's cash position and other factors. During the six months ended June 30, 2015, we purchased 952,053 shares at an average share price of $104.99 for total consideration of $100-million.

8. Recent Accounting Pronouncements

The International Accounting Standards Board deferred the effective date of IFRS 15 Revenue from Contracts with Customers by one year. Accordingly, Agrium expects to apply IFRS 15 for the annual reporting period beginning on January 1, 2018. We are continuing to evaluate the impact on adoption.

Contact Information

  • Agrium Inc.
    Investor/Media Relations:
    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