Agrium Inc.
NYSE : AGU
TSX : AGU

Agrium Inc.

November 03, 2005 07:00 ET

Agrium Reports Strong Results from Retail and Wholesale Operations

CALGARY, ALBERTA--(CCNMatthews - Nov. 3, 2005) -

ALL AMOUNTS ARE STATED IN U.S.$

Agrium Inc. (TSX:AGU) (NYSE:AGU) announced today that net earnings for the third quarter of 2005 were $72-million ($0.54 diluted earnings per share), beating the previous third quarter record set last year at $58-million ($0.43 diluted earnings per share) excluding non-recurring Kenai-related benefits from 2004. Net earnings for the third quarter of 2004 including the non-recurring income were $83-million ($0.60 diluted earnings per share).

Net earnings for the first nine months of the year were a record $229-million ($1.71 diluted earnings per share), a more than 35 percent improvement over 2004 net earnings of $168-million ($1.20 diluted earnings per share) for the same period. Cash provided by operating activities for the first nine months of 2005 was a record $442-million, fueled by our strong performance in both our Wholesale and Retail businesses.

The nine-month Retail results surpassed the record-setting pace established in 2004. For the quarter, chemical revenues were up 21 percent over the prior year. This increase was due to insect pressure throughout our markets.

Wholesale continued its strong performance in the third quarter, with EBITDA increasing by 26 percent over the prior year excluding the non-recurring income in 2004. Year-over-year per tonne margins increased by over 60 percent for potash, almost 30 percent for nitrogen and were unchanged for phosphate.

"We generated almost as much cashflow in the first nine months of this year as we did in the entire year of 2004, which was an excellent year. We have been active in our share buyback program and continue to pursue growth opportunities," said Mike Wilson, Agrium President and CEO.

"We believe North American farmers will continue to apply nutrients and use other crop inputs near historical average levels in the 2005/06 fertilizer year. However with the current environment, growers may defer purchases until closer to the spring planting season. Fall nutrient demand is still likely to be better than last year when weather was a major factor", added Mr. Wilson. "We anticipate that our year-end results will come in near the low end of our previous guidance range at around $2.20 per share."

KEY DEVELOPMENTS

Potash prices, sales volumes, and margins all increased relative to the third quarter last year, with the latest North American price increase taking effect in September. Higher phosphate prices and sales volumes were offset by higher production costs, as a result of higher ammonia costs and planned facility turnarounds. Domestic nitrogen prices dipped initially during the seasonally slow third quarter, but have since more than recovered, in part reflecting recent production curtailments in the Gulf Coast region as a result of high gas prices.

- Our overall gas price for the third quarter increased by only $0.53/MMBtu over the second quarter of 2005 ($4.91/MMBtu versus $4.38/MMBtu) as our lower cost gas contracts and qualifying hedges offset the significant run-up in NYMEX gas prices. As at September 30th, the net unrealized loss on our non-qualifying derivatives contracts was $15-million, primarily due to the AECO basis widening above the terms within our outstanding AECO basis derivative contracts. Agrium's business benefits from the widening of the basis, which averaged $1.50/MMBtu in the third quarter.

- In October, we finalized the acquisition of Imperial Oil's Western Canadian fertilizer distribution assets.

- We were recently named one of Canada's Top 100 Employers. The 1,200 participating companies were evaluated in a number of key areas such as performance management; community involvement; training and skills development; employee communications; benefits; and the physical workplace.

- Governance Metrics International (GMI) has given Agrium's corporate governance practices their highest possible score of 10 out of 10. We were one of only 33 companies in the world to receive this rating, out of the over 3,200 global companies that were reviewed.

MANAGEMENT'S DISCUSSION AND ANALYSIS

November 3, 2005

The following interim management's discussion and analysis (MD&A) updates our annual MD&A included in our 2004 Annual Report to Shareholders, to which our readers are referred. No update is provided where an item is not material or there has been no material change from the discussion in our annual MD&A.

OVERVIEW OF CONSOLIDATED FINANCIAL HIGHLIGHTS

Net Earnings

Agrium's third quarter consolidated net earnings were $72-million compared with $83-million for the same quarter 2004. Diluted earnings per share for the third quarter of 2005 were $0.54 compared with $0.60 for the third quarter of 2004. The third quarter 2004 earnings included income of $41-million ($25-million after-tax) in Kenai-related damages resulting from the Arbitration Panel ruling. Excluding this income, third quarter earnings in 2005 were up 24 percent or $14-million over the same period last year.

Consolidated net earnings for the nine month period ended September 30, 2005 were $229-million, an increase of $61-million over net earnings of $168-million for the same period last year. Diluted earnings per share for the nine-month period ended 2005 were $1.71, an increase of $0.51 over diluted earnings per share of $1.20 in the same period last year. Comparative information has been restated for a change in accounting policy to reclassify preferred shares as debt (refer to note two of the financial statements).

Earnings before interest and taxes (EBIT) were $129-million for the third quarter of 2005 compared to EBIT of $141-million for the same period in 2004. EBIT for the nine month period ended September 30, 2005 were $405-million, an increase of $106-million over EBIT of $299-million reported in the first nine months of 2004.

The increase in year-over-year third quarter and year-to-date earnings, excluding the income related to Kenai damages recognized in the third quarter of 2004 is primarily attributable to higher per tonne margins for, with the exception of phosphate, all Wholesale product lines. This increase reflects higher prices in continuing tight global supply/demand environments. With strong nitrogen fundamentals, higher North American natural gas prices provided additional upward pressure on nitrogen prices. Higher prices for all Wholesale product lines offset increased cost of product sold due to higher natural gas costs and the stronger Canadian dollar. Sales volumes were relatively constant for the third quarter but are up two percent for the year-to-date compared to the same periods in 2004. Further analysis of gross profit is contained below in our discussion of business segment performance.

Consolidated expenses for the third quarter of 2005 were $159-million, up $69-million over the third quarter of 2004. The increase in 2005 third quarter expenses was primarily due to the following items:

- Natural Gas Derivative Contracts

-- In North America Wholesale, we recorded a net unrealized loss of $15-million on natural gas derivative contracts that did not qualify for hedge accounting treatment. This net loss represented $39-million of unrealized losses on natural gas basis swaps offset by $24-million of unrealized gains on natural gas consumer collars and call spreads. The losses on the natural gas basis swaps resulted from the widening of the AECO basis during the third quarter of 2005.

- Write-off of Deferred Financing Cost

-- Expenses for South America Wholesale for the third quarter of 2005 included $9-million related to recognition of deferred financing cost on early repayment of the balance of long-term project financing debt.

- 2004 Income from Liquidated Damages

-- Expenses for North America Wholesale for the third quarter of 2004 included income of $41-million in Kenai-related damages resulting from an Arbitration Panel ruling.

Cash Provided by Operating Activities

Operating activities during the third quarter of 2005 generated $158-million of cash compared to $125-million for the same quarter of 2004. Operating activities for the nine months ended September 30, 2005 provided cash of $442-million compared to $252-million for the same period of 2004. The majority of the increased cash provided from operating activities for both periods is due to a substantial increase in gross profit in all Wholesale product lines, with the exception of phosphate.

Financial Position

Our financial position continues to be strong. At the end of the third quarter of 2005, our cash balances totaled $415-million.

We used $111-million in cash for financing activities for the third quarter of 2005, compared to $9-million in the same period 2004. The major financing uses of cash during the quarter were to:

- Repay $76-million of long-term debt, which represented our share of Profertil's total project financing debt. Repayment of the debt decreased Profertil's borrowing costs and enhanced its financial flexibility by removing several restrictive covenants; and,

- Repurchase two million common shares at a cash cost of $43-million as part of our normal course issuer bid. From the date that we commenced the share buyback in May 2005, we have repurchased four million common shares at a cash cost of $83-million.

Our use of $59-million in cash for investing activities during the third quarter of 2005 compared to $13-million during the same period 2004 reflects our increased capital expenditures on the Redwater and Conda phosphate operations gypsum stack extensions, the controlled release nitrogen (ESN 150) expansion project and the Vanscoy potash operation expansion.

Consolidated inventory increased by $7-million compared to the same quarter last year. MAP and urea inventory held in North America Wholesale declined by $24-million reflecting higher MAP demand and lower production of urea. Retail inventory has increased by $28-million due to both accelerated purchasing of product for resale and higher fertilizer prices.

Consolidated accounts receivable has increased by $67-million compared to prior year, largely due to higher sales prices for all products and unrealized gains and deferred gains related to our natural gas derivative contracts.

Current liabilities are up $95-million compared to the prior year, primarily due to increased incentive accruals, plant utility costs, unrealized losses and deferred gains related to our natural gas derivative contracts. Other liabilities increased $70-million largely due to accruals in the fourth quarter of 2004 related to the future closure of our Kenai, Alaska nitrogen facility and deferred gains related to our natural gas derivative contracts.

BUSINESS SEGMENT PERFORMANCE

Retail

Retail third quarter 2005 EBIT reached $23-million, an increase of $6-million over the same period last year primarily due to increased chemical revenues. Wet spring conditions in the Western U.S. and high summer insect activity throughout the U.S. contributed to the increase in chemical revenues.

North America Wholesale

North America Wholesale EBIT for the third quarter of 2005 was relatively unchanged from the same period last year. Gross profit for this same time period improved $35-million over the $122-million of gross profit reported for the third quarter of 2004.

- Nitrogen contributed $18-million toward North America Wholesale's increased gross profit in the third quarter of 2005 including $9-million from growth in ammonia gross profit and $9-million from growth in urea gross profit.

-- Ammonia sales volumes increased substantially in all of our markets reflecting tight worldwide supply/demand balance and increased sales to the U.S. market due to shut-in U.S. producer capacity. Ammonia sales prices rose due to strong fundamentals and pressure from higher North America natural gas costs.

-- Similarly urea sales prices were up, but sales volumes decreased in all of our markets reflecting lower opening inventory balances and plant turnaround.

-- North America nitrogen margins were also impacted by increased natural gas costs, resulting in higher cost of goods sold compared to the third quarter of 2004. Qualifying natural gas hedging gains contributed $5-million for the third quarter of 2005 to nitrogen gross profit and $12-million for the first nine months of 2005. During the third quarter of 2005, our natural gas derivative contracts were de-designated for hedge accounting treatment due to the recent lack of correlation between the AECO index and the NYMEX index. Gains in the amount of $40-million representing the fair value of natural gas derivative contracts on the date of de-designation were deferred. As at September 30, 2005, $34-million of these gains have not been recognized in cost of product. These gains will be recognized in cost of product when the originally hedged gas purchases occur. Overall, our cost of production reflects our lower cost of gas compared to U.S. nitrogen producers.

- Potash gross profit also grew significantly with a $17-million increase over the third quarter of 2004 due to higher prices, particularly in our North American market. Potash sales volumes remained relatively consistent with the same period last year.

- While phosphate gross profit was relatively consistent compared to the third quarter of 2004, net sales increased 16 percent, reflecting strong demand. Gross profit was negatively impacted by higher raw material costs and higher fixed costs per tonne, reflecting downtime due to extended turnaround.

South America Wholesale

South America Wholesale third quarter 2005 EBIT decreased by $2-million compared to the same period last year primarily due to a one-time write-off of $9-million of deferred financing charges. Gross profit for this same period was $44-million, an increase of $10-million over 2004 third quarter gross profit of $34-million. The increase was primarily related to both higher urea prices, consistent with tightened supply/demand balance, and increased volumes to the U.S. market, which more than offset decreases in volumes to the South American market. Demand in South America declined due to a combination of drought conditions in Argentina and Brazil and rising prices resulting in customers delaying purchases.

Other

EBIT for our 'Other' non-operating business segment for the third quarter of 2005 was down $15-million from the same period last year. The reduction was primarily due to increased long-term incentive plan and stock based compensation expenses, higher expenses related to investigating business development opportunities and reduced foreign exchange gains on the translation of our U.S. dollar working capital balances maintained in our Canadian dollar subsidiaries.



SELECTED QUARTERLY INFORMATION
(Unaudited, in millions of U.S. dollars, except per share
information)

2005 2004 (a) 2003 (a)
----------------- ---------------------- ---------
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
----------------- ---------------------- ---------

Net sales 807 1,180 537 720 672 1,011 435 637
Gross Profit 288 375 171 254 231 283 142 204
Net earnings
(loss) 72 133 24 98 83 74 11 (113)
Earnings (loss)
per share
-basic 0.54 1.01 0.18 0.75 0.63 0.56 0.08 (0.90)
-diluted 0.54 0.99 0.18 0.71 0.60 0.52 0.08 (0.90)

(a) Amounts have been restated to reflect the January 1, 2005
adoption of the revised Canadian accounting standards
reclassifying preferred shares to debt (see note two to the
financial statements).


NON-GAAP MEASURES

In the discussion of our performance for the quarter, in addition to the primary measures of earnings and earnings per share, we make reference to EBIT (earnings before interest expense and income taxes) and EBITDA (earnings before interest expense, income taxes, depreciation, amortization and asset impairment). We consider EBIT and EBITDA to be useful measures of performance because income tax jurisdictions and business segments are not synonymous, and we believe that allocation of income tax charges distorts the comparability of historical performance for the different business segments. Similarly, financing and related interest charges cannot be allocated to all business segments on a basis that is meaningful for comparison with other companies. EBIT and EBITDA measures are also used extensively in the covenants relating to our financing arrangements.

EBIT and EBITDA are not recognized measures under GAAP, and our method of calculation may not be comparable to other companies. EBIT should therefore not be used as an alternative to net earnings (loss) determined in accordance with GAAP as an indicator of our performance. Similarly, EBITDA should not be used as an alternative to cash provided by (used in) operating activities as determined in accordance with GAAP.

KEY RISKS AND UNCERTAINTIES

The outlook for nitrogen, phosphate, and potash prices remains positive as recent production curtailments, limited new capacity additions and higher input costs support international nutrient markets. There is a risk that nutrient demand may be impacted by lower crop margins, resulting from a combination of higher input costs and lower crop prices. Growers may reduce application rates and shift some acres to lower input intensive crops such as soybeans. Although above average Canadian and U.S. crop yields and good fall moisture conditions should partially offset these factors in North American markets.

High global energy prices will continue to support global nitrogen prices, partly due to lower margins and lower operating rates in regions such as Europe and North America. Higher nitrogen prices have not fully compensated for the rise in North American gas prices, which may continue to impact domestic operating rates and margins. Nitrogen producer margins in low cost regions should remain near record levels. China is expected to reduce its urea export tax from 30 percent to 15 percent in the fourth quarter of 2005, which could increase the amount of Chinese product on the market. However, we anticipate Chinese urea exports will remain well below levels in the fourth quarter 2004.

Global phosphate prices are expected to remain firm as rising ammonia and sulphur prices impact phosphate producer costs and margin. U.S. phosphate production is expected to be reduced in the fourth quarter of 2005 as a result of hurricane related damage, announced plant closures, and additional plant turnarounds. Poor crop economics in Brazil and the continued expansion of China's domestic phosphate industry remain a risk to global phosphate trade.

The outlook for the global potash market remains positive as limited new capacity and below average producer inventories support the market. North American potash inventories are currently above last year's level, but remain well below the 5-year average level. Growth in potash imports from regions such as China and India should continue to offset the short-term reduction in Brazilian import demand. Overall, global potash demand growth is expected to slow in 2005/06 after consecutive years of above average growth rates.

OTHER

Agrium Inc. is a leading global producer and marketer of agricultural nutrients and industrial products and a major retail supplier of agricultural products and services in both North and South America. Agrium produces and markets three primary groups of nutrients: nitrogen, phosphate and potash as well as controlled release fertilizers and micronutrients. Agrium's strategy is to grow through incremental expansion of its existing operations and acquisitions as well as the development, commercialization and marketing of new products and international opportunities.

Certain statements in this press release constitute forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties, including those referred to in the management discussion and analysis section of the Corporation's most recent annual report to shareholders, which may cause the actual results, performance or achievements of the Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. A number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to, weather conditions, the future supply, demand, price level and volatility of natural gas, future prices of nitrogen, phosphate and potash, the differential pricing of natural gas in various markets, the future gas prices and availability at Kenai, the exchange rates for U.S., Canadian and Argentine currencies, South American government policy, South American domestic fertilizer consumption, China's urea trade policies and volumes, future fertilizer inventory levels, future nitrogen, potassium and phosphate consumption in North America, future crop prices, future levels of nitrogen imports into North America and future additional fertilizer capacity and operating rates. Agrium disclaims any intention or obligation to update or revise any forward-looking information as a result of new information or future events.


A WEBSITE SIMULCAST of the 2005 3rd Quarter Conference Call will be available in a listen-only mode beginning Thursday, November 3rd at 1:30 p.m. MT (3:30 p.m. ET). Please visit the following website: www.agrium.com



AGRIUM INC.
Consolidated Statements of Operations and Retained Earnings
(Millions of U.S. dollars, except per share information)
(Unaudited)

Three months Nine months
ended ended
September 30, September 30,
------------- ---------------
2005 2004 2005 2004
Restated Restated
(note 2) (note 2)
Sales $ 859 $ 716 $ 2,674 $ 2,235
Direct freight 52 44 150 117
------------- ---------------
Net sales 807 672 2,524 2,118
Cost of product 519 441 1,690 1,462
------------- ---------------
Gross profit 288 231 834 656
------------- ---------------

Expenses
Selling, general and administrative 91 75 256 218
Depreciation and amortization 35 40 111 117
Royalties and other taxes 12 9 34 23
Income from liquidated damages (note 9) - (41) - (41)
Other expenses 21 7 28 40
------------- ---------------
159 90 429 357
------------- ---------------

Earnings before interest
expense and income taxes 129 141 405 299
Interest on long-term debt 12 15 37 48
Other interest - (1) 1 1
------------- ---------------
Earnings before income taxes 117 127 367 250
------------- ---------------
Current income taxes 23 38 98 75
Future income taxes 22 6 40 7
------------- ---------------
Income taxes 45 44 138 82
------------- ---------------
Net earnings 72 83 229 168
------------- ---------------
Retained earnings - beginning
of period (as reported) 512 221 398 145
Cumulative change in
accounting policy (note 2) - (3) (6) (5)
------------- ---------------
Retained earnings - beginning
of period (as restated) 512 218 392 140
Common share dividends declared - - (7) (7)
Common share repurchase (note 4) (36) - (66) -
------------- ---------------
Retained earnings - end of period $ 548 $ 301 $ 548 $ 301
------------- ---------------
------------- ---------------

Earnings per share (note 7)
Basic $0.54 $0.63 $ 1.73 $ 1.28
Diluted $0.54 $0.60 $ 1.71 $ 1.20

See accompanying notes




AGRIUM INC.
Consolidated Statements of Cash Flows
(Millions of U.S. dollars)
(Unaudited)

Three months Nine months
ended ended
September 30, September 30,
------------- ---------------
2005 2004 2005 2004
------------- ---------------

Restated Restated
Operating (note 2) (note 2)
Net earnings $ 72 $ 83 $ 229 $ 168
Items not affecting cash
Depreciation and amortization 35 40 111 117
(Gain) Loss on disposal
of assets and investments (1) (1) 1 (2)
Future income taxes 22 6 40 7
Foreign exchange (3) (1) (5) (4)
Other 10 3 21 9
Net change in non-cash working capital 23 (5) 45 (43)
------------- ---------------
Cash provided by operating activities 158 125 442 252
------------- ---------------

Investing
Capital expenditures (44) (13) (97) (48)
Increase in other assets (5) (2) (14) (7)
Proceeds from disposal of
assets and investments 1 1 3 3
Net change in non-cash
working capital 2 - (9) -
Other (13) 1 (13) 2
------------- ---------------
Cash used in investing activities (59) (13) (130) (50)
------------- ---------------

Financing
Common shares and stock
based compensation 21 5 47 8
Common share repurchase (43) - (83) -
Long-term debt (76) (7) (96) (98)
Bank indebtedness (6) - (1) 1
Common share dividends paid (7) (7) (14) (14)
Preferred securities repayment - - (175) -
------------- ---------------
Cash used in financing activities (111) (9) (322) (103)
------------- ---------------

(Decrease) Increase in cash and
cash equivalents (12) 103 (10) 99

Cash and cash equivalents -
beginning of period 427 196 425 200
------------- ---------------
Cash and cash equivalents -
end of period $ 415 $ 299 $ 415 $ 299
------------- ---------------
------------- ---------------

See accompanying notes



AGRIUM INC.
Consolidated Balance Sheet
(Millions of U.S. dollars)
(Unaudited)

As at As at
September 30, December 31,
--------------- ------------
2005 2004 2004
------- ------- ------------
Restated Restated
ASSETS (note 2) (note 2)
Current assets
Cash and cash equivalents $ 415 $ 299 $ 425
Accounts receivable 521 454 388
Inventories 432 425 447
Prepaid expenses 63 44 56
------- ------- ------------
1,431 1,222 1,316
Property, plant and equipment 1,256 1,214 1,239
Other assets 101 78 82
Future income tax assets 29 - 24
------- ------- ------------
$ 2,817 $ 2,514 $ 2,661
------- ------- ------------
------- ------- ------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Bank indebtedness $ 4 $ - $ -
Accounts payable and
accrued liabilities 618 510 472
Current portion of
long-term debt 30 47 60
------- ------- ------------
652 557 532
Long-term debt
Recourse debt 471 499 471
Non-recourse debt - 91 69
Preferred securities (note 2, 3) - 175 175
------- ------- ------------
471 765 715
Other liabilities 284 214 257
Future income tax liabilities 261 148 209
------- ------- ------------
1,668 1,684 1,713
------- ------- ------------

Shareholders' equity
Share capital
Authorized: unlimited common shares
Issued: common shares:
2005 - 131 million
(September 2004 - 131 million,
December 2004 - 132 million)
(note 4) 583 548 553
Contributed surplus 3 2 2
Retained earnings 548 301 392
Cumulative translation adjustment 15 (21) 1
------- ------- ------------
1,149 830 948
------- ------- ------------
$ 2,817 $ 2,514 $ 2,661
------- ------- ------------
------- ------- ------------

See accompanying notes


AGRIUM INC.
Summarized Notes to the Consolidated Financial Statements
For the nine months ended September 30, 2005
(Millions of U.S. dollars, except per share amounts)
(Unaudited)


1. SIGNIFICANT ACCOUNTING POLICIES

The Corporation's accounting policies are in accordance with accounting principles generally accepted in Canada and are consistent with those outlined in the annual audited financial statements except where stated below. These interim consolidated financial statements do not include all disclosures normally provided in annual financial statements and should be read in conjunction with the Corporation's audited consolidated financial statements for the year ended December 31, 2004. In management's opinion, the interim consolidated financial statements include all adjustments necessary to present fairly such information.

Certain comparative figures have been reclassified to conform to the current year's presentation.

2. CHANGE IN ACCOUNTING POLICY

Effective January 1, 2005, the Corporation adopted the revised Canadian accounting standards for disclosure and presentation of financial instruments. The amendment requires obligations that must or could be settled with a variable number of the entity's own equity instruments to be classified as liabilities. Consequently, the Corporation reclassified from equity to liabilities its eight percent preferred securities, redeemed February 14, 2005 and its six percent preferred securities, converted to common shares in January 2004. This change was applied retroactively with restatement of prior periods. The effect of the adoption on prior periods and the cumulative impact of retroactive restatement as at the date of adoption are presented below as increases (decreases):



As at As at
September 30, December 31,
------------------------------
2004 2004
------------------------------
Balance Sheet
Other assets $ 5 $ 5
Long term debt 175 175
Future income tax liabilities 6 8
Preferred securities (172) (172)
Retained earnings (4) (6)


Three months Nine months
ended ended
September 30, September 30,
------------------------------
2004 2004
------------------------------
Income Statement
Interest on long term debt $ 3 $ 10
Future income tax expense 1 (4)

Earnings per share
Net earnings available for
basic earnings per share (4) (6)
Basic earnings per share (0.02) -
Diluted earnings per share - -


3. PREFERRED SECURITIES

On February 14, 2005, the Corporation redeemed the $175-million, eight percent redeemable preferred securities for cash. The redemption price was equal to the principal amount of the securities plus accrued and unpaid interest to the date of redemption.

In January 2004, pursuant to the Corporation's plan to redeem the six percent preferred securities, all holders of the convertible, redeemable preferred securities elected to convert the securities into common shares at the stated conversion price of $11.9677 per share, resulting in the issuance of an additional 4.18 million common shares.

4. SHARE CAPITAL

On April 28, 2005, the Board of Directors of the Corporation authorized a share repurchase program of up to 13 million common shares (approximately 10 percent of the Corporation's issued and outstanding common shares) through a normal course issuer bid. Shares may be repurchased from time to time on the open market through to May 2, 2006 at prevailing market prices.

During the three months ended September 30, 2005, the Corporation repurchased for cancellation 1,958,100 common shares under the program, at a net cost of $43-million and an average price of $22.31. The repurchase resulted in a reduction of share capital of $7-million and the excess net cost over the average book value of the shares of $36-million has been recorded as a reduction of retained earnings. During the nine months ended September 30, 2005, a total of 4,004,500 shares have been repurchased at a net cost of $83-million and an average price per share of $20.79, resulting in a reduction of share capital of $17-million and a reduction of retained earnings of $66-million.

In the third quarter of 2005, 1,420,950 common shares were issued on the exercise of stock options resulting in an increase in share capital of $19-million. During the nine months ended September 30, 2005, 3,461,257 common shares were issued on the exercise of stock options resulting in an increase in share capital of $47-million.

5. EMPLOYEE FUTURE BENEFITS

The total net employee future benefits expense for the Corporation's pension and post-retirement benefit plans are computed as follows:



Three months Nine months
ended ended
September 30, September 30,
-------------------------------
2005 2004 2005 2004
-------------------------------
Defined benefit pension plans $ 2 $ 2 $ 6 $ 6
Post-retirement benefit plans 1 1 4 4
Defined contribution pension plans 2 1 9 8
-------------------------------
Total expense $ 5 $ 4 $ 19 $ 18
-------------------------------
-------------------------------


6. STOCK-BASED COMPENSATION

The Corporation began prospectively expensing the fair value of stock options granted in 2003 over their vesting period. In accordance with the prospective method of adoption, the Corporation has recorded no compensation expense for stock options granted prior to January 1, 2003 and will continue to provide pro forma disclosure of the effect on net earnings and earnings per share had the fair value been expensed. The following table summarizes the pro forma disclosure for stock options granted prior to 2003 that have not been expensed.



Three months ended September 30,
---------------------------------------------------
2005 2004
------------------------ ------------------------
As Reported Pro forma As Reported Pro forma
---------------------------------------------------
Restated Restated
(note 2) (note 2)

Net earnings $ 72 $ 71 $ 83 $ 82
Earnings per share
Basic $ 0.54 $ 0.54 $ 0.63 $ 0.62
Diluted $ 0.54 $ 0.53 $ 0.60 $ 0.60


Nine months ended September 30,
---------------------------------------------------
2005 2004
------------------------ ------------------------
As Reported Pro forma As Reported Pro forma
---------------------------------------------------
Restated Restated
(note 2) (note 2)

Net earnings $ 229 $ 228 $ 168 $ 165
Earnings per share
Basic $ 1.73 $ 1.72 $ 1.28 $ 1.26
Diluted $ 1.71 $ 1.70 $ 1.20 $ 1.18


7. EARNINGS PER SHARE

The following table summarizes the computation of net earnings per share:



Three months ended Nine months ended
September 30, September 30,
-------------------------------------------
2005 2004 2005 2004
-------------------------------------------
Restated Restated
Numerator: (note 2) (note 2)
Net earnings and
numerator for basic
earnings per share $ 72 $ 83 $ 229 $ 168
-------------------------------------------

Preferred securities
charges (net of tax) - 4 - 6
-------------------------------------------
Numerator for diluted
earnings per share $ 72 $ 87 $ 229 $ 174
-------------------------------------------
-------------------------------------------

Denominator - weighted
average common shares
outstanding:
For basic earnings
per share 132 131 132 131
-------------------------------------------

Dilutive instruments:
Stock options (a) 2 1 2 1
Preferred securities:
$175-million, eight
percent (note 3)(a) - 12 - 12
-------------------------------------------
For diluted earnings
per share 134 144 134 144
-------------------------------------------
-------------------------------------------

Basic earnings per share $ 0.54 $ 0.63 $ 1.73 $ 1.28
Diluted earnings per share $ 0.54 $ 0.60 $ 1.71 $ 1.20

(a) For diluted earnings per share, these dilutive instruments are
added back only when the impact of the instrument is dilutive to
basic earnings per share.


There were 131 million common shares outstanding at September 30, 2005 (2004 - 131 million). As at September 30, 2005, the Corporation has outstanding approximately six million (2004 - nine million) options and options with tandem stock appreciation rights to acquire common shares.

8. FINANCIAL INSTRUMENTS

De-designated Financial Instruments

At September 30, 2005, the Corporation's previously qualifying natural gas derivative contracts were determined to no longer qualify for hedge accounting effective July 1, 2005 due to reduced correlation between AECO based natural gas purchase contracts and NYMEX based derivative contracts. Accordingly, these derivative contracts have been recorded on the balance sheet at fair value effective July 1, 2005 with subsequent changes in fair value recognized through other expenses.

The fair value of these derivative contracts at July 1, 2005, an unrealized gain of $40-million, was deferred and will be recognized as cost of product purchased in the same periods during which the originally hedged gas purchases occur between 2006 and 2009. During the third quarter of 2005, $5-million and $1-million of the deferred gain were recognized as cost of product sold and inventory, respectively. At September 30, 2005, the current and long-term portions of the remaining deferred gain of $17-million and $17-million were included in accounts payable and accrued liabilities and other liabilities, respectively. The change in fair value of these non-qualifying derivative contracts subsequent to July 1, 2005, a gain of $24-million, was recognized as a reduction to other expenses.

Other Financial Instruments

At September 30, 2005, the Corporation had 13-million MMBtu notional amount of natural gas AECO basis swap contracts maturing in 2005 and 26-million MMBtu maturing in 2006-2007 that did not qualify for hedge accounting treatment. During the third quarter of 2005, other expenses included unrealized losses in the amount of $39-million primarily related to these AECO basis swaps. At September 30, 2005, accounts payable included $37-million and other liabilities included $2-million representing the fair value of the contracts.

9. INCOME FROM LIQUIDATED DAMAGES

In the third quarter of 2004, an Arbitration Panel awarded the Corporation damages for Union Oil Company of California's failure to deliver gas under its supply obligations to our Kenai, Alaska nitrogen facility. During the third quarter of 2004, $41-million of income from liquidated damages was recorded related to the award.

10. SUBSEQUENT EVENT

Subsequent to September 30, 2005, the Corporation closed its acquisition of Imperial Oil's Western Canadian fertilizer distribution assets for total cash consideration of $22-million, subject to closing adjustments. The acquisition will be recorded as at October 12, 2005.

11. SEASONALITY

The fertilizer and agricultural retail businesses are seasonal in nature. Sales are concentrated in the spring and fall planting seasons while produced inventories are accumulated throughout the year. Cash collections generally occur after the planting seasons in North and South America.

12. SEGMENTED INFORMATION

The Corporation's primary activity is the production and wholesale marketing of nitrogen, potash and phosphate and the retail sales of fertilizers, chemicals and other agricultural inputs and services. The Corporation operates principally in Canada, the United States and South America.

Net sales between segments are accounted for at prices, which approximate fair market value and are eliminated on consolidation. The reportable segment entitled "Other" includes Corporate functions and inter-segment eliminations.



Schedule 1
AGRIUM INC.
Segmentation
(Unaudited - millions of U.S. dollars)

Three Months Ended September 30
-----------------------------------------------------
Wholesale
---------------------------------
Retail North America South America
-----------------------------------------------------
2005 2004 2005 2004 2005 2004
-----------------------------------------------------

Net sales
- external $ 283 $ 250 $ 463 $ 381 $ 61 $ 41
- inter-segment - - 27 31 - 6
-----------------------------------------------------
Total net sales 283 250 490 412 61 47
Cost of product 196 172 333 290 17 13
-----------------------------------------------------
Gross profit 87 78 157 122 44 34
Gross profit % 31% 31% 32% 30% 72% 72%
-----------------------------------------------------
-----------------------------------------------------

Selling Expenses $ 60 $ 56 $ 5 $ 4 $ - $ 1

EBITDA (1) $ 28 $ 22 $ 122 $ 129 $ 31 $ 33

EBIT (2) $ 23 $ 17 $ 98 $ 99 $ 27 $ 29



Three Months Ended September 30
-----------------------------------------------------
Other Total
-----------------------------------------------------
2005 2004 2005 2004
-----------------------------------------------------

Net sales
- external $ - $ - $ 807 $ 672
- inter-segment (27) (37) - -
-----------------------------------------------------
Total net sales (27) (37) 807 672
Cost of product (27) (34) 519 441
-----------------------------------------------------
Gross profit - (3) 288 231
Gross profit % 0% 8% 36% 34%
-----------------------------------------------------
-----------------------------------------------------

Selling Expenses $ (2) $ (1) $ 63 $ 60

EBITDA (1) $ (17) $ (3) $ 164 $ 181

EBIT (2) $ (19) $ (4) $ 129 $ 141


Nine Months Ended September 30
-----------------------------------------------------
Wholesale
---------------------------------
Retail North America South America
-----------------------------------------------------
2005 2004 2005 2004 2005 2004
-----------------------------------------------------

Net sales
- external $ 975 $ 895 $ 1,429 $ 1,129 $ 120 $ 94
- inter-segment - - 89 74 5 10
-----------------------------------------------------
Total net sales 975 895 1,518 1,203 125 104
Cost of product 718 652 1,028 862 37 30
-----------------------------------------------------
Gross profit 257 243 490 341 88 74
Gross profit % 26% 27% 32% 28% 70% 71%
-----------------------------------------------------
-----------------------------------------------------

Selling Expenses $ 173 $ 165 $ 14 $ 12 $ - $ 1

EBITDA (1) $ 84 $ 78 $ 422 $ 296 $ 73 $ 71

EBIT (2) $ 71 $ 64 $ 341 $ 209 $ 61 $ 60


Nine Months Ended September 30
-----------------------------------------------------
Other Total
-----------------------------------------------------
2005 2004 2005 2004
-----------------------------------------------------

Net sales
- external $ - $ - $ 2,524 $ 2,118
- inter-segment (94) (84) - -
-----------------------------------------------------
Total net sales (94) (84) 2,524 2,118
Cost of product (93) (82) 1,690 1,462
-----------------------------------------------------
Gross profit (1) (2) 834 656
Gross profit % 1% 2% 33% 31%
-----------------------------------------------------
-----------------------------------------------------

Selling Expenses $ (3) $ (2) $ 184 $ 176

EBITDA (1) $ (63) $ (29) $ 516 $ 416

EBIT (2) $ (68) $ (34) $ 405 $ 299



(1) Earnings (loss) before interest expense, income taxes,
depreciation, amortization and asset impairment.
(2) Earnings (loss) before interest expense and income taxes.


Schedule 2a

AGRIUM INC.
Product Lines
Three Months Ended September 30, 2005
(Unaudited - millions of U.S. dollars)

2005
---------------------------------------------------
Sales Selling
Net Gross Tonnes Price Margin
Sales Profit (000's) ($/Tonne) ($/Tonne)
---------------------------------------------------
North America
Wholesale
Nitrogen (1)
Ammonia $ 129 $ 38 426 $ 302 $ 89
Urea 147 47 513 287 92
Nitrate,
Sulphate
and Other 57 13 282 202 46
---------------------------------------------------
Total Nitrogen 333 98 1,221 273 80
Phosphate 92 17 315 293 54
Potash (2) 65 42 394 165 106
---------------------------------------------------
490 157 1,930 254 81


South America
Wholesale (1) 61 44 223 274 197

Retail (3)
Fertilizers 125 29
Chemicals 125 36
Other 33 22
-------------------
283 87

Other inter-segment
eliminations (27) -
-------------------

Total $ 807 $ 288
-------------------
-------------------



2004 (Restated (note 2))
---------------------------------------------------
Sales Selling
Net Gross Tonnes Price Margin
Sales Profit (000's) ($/Tonne) ($/Tonne)
---------------------------------------------------
North America
Wholesale
Nitrogen (1)
Ammonia $ 87 $ 29 325 $ 268 $ 89
Urea 128 38 579 221 66
Nitrate,
Sulphate
and Other 70 13 396 177 33
---------------------------------------------------
Total Nitrogen 285 80 1,300 219 62
Phosphate 79 17 311 254 55
Potash (2) 48 25 382 126 65
---------------------------------------------------
412 122 1,993 207 61


South America
Wholesale (1) 47 34 191 246 178


Retail (3)
Fertilizers 119 29
Chemicals 103 30
Other 28 19
-------------------
250 78

Other inter-segment
eliminations (37) (3)
-------------------

Total $ 672 $ 231
-------------------
-------------------

(1) International nitrogen sales were 583,000 tonnes (2004 - 586,000
tonnes); net sales were $146-million (2004 - $129-million) and
gross profit was $89-million (2004 - $72-million).
(2) International potash sales were 179,000 tonnes (2004 - 173,000
tonnes); net sales were $24-million (2004 - $19-million) and
gross profit was $16-million (2004 - $12-million).
(3) International Retail net sales were $55-million (2004 -
$42-million) and gross profit was $9-million (2004 - $8-million).


Schedule 2b

AGRIUM INC.
Product Lines
Nine Months Ended September 30, 2005
(Unaudited - millions of U.S. dollars)

2005
---------------------------------------------------

Sales Selling
Net Gross Tonnes Price Margin
Sales Profit (000's) ($/Tonne) ($/Tonne)
---------------------------------------------------
North America
Wholesale
Nitrogen (1)
Ammonia $ 416 $ 114 1,381 $ 301 $ 83
Urea 445 145 1,619 275 90
Nitrate,
Sulphate
and Other 226 59 1,069 211 55
---------------------------------------------------
Total Nitrogen 1,087 318 4,069 267 78
Phosphate 233 49 815 286 60
Potash (2) 198 123 1,264 157 97
---------------------------------------------------
1,518 490 6,148 247 80


South America
Wholesale (1) 125 88 462 271 190

Retail (3)
Fertilizers 464 107
Chemicals 382 90
Other 129 60
-------------------
975 257

Other inter-segment
eliminations (94) (1)
-------------------

Total $2,524 $ 834
-------------------
-------------------


2004 (Restated (note 2))
---------------------------------------------------
Sales Selling
Net Gross Tonnes Price Margin
Sales Profit (000's) ($/Tonne) ($/Tonne)
---------------------------------------------------
North America
Wholesale
Nitrogen (1)
Ammonia $ 297 $ 88 1,113 $ 267 $ 79
Urea 333 81 1,562 213 52
Nitrate,
Sulphate
and Other 214 52 1,159 185 45
---------------------------------------------------
Total Nitrogen 844 221 3,834 220 58
Phosphate 207 47 810 256 58
Potash (2) 152 73 1,331 114 55
---------------------------------------------------
1,203 341 5,975 201 57


South America
Wholesale (1) 104 74 485 214 153


Retail (3)
Fertilizers 445 110
Chemicals 341 81
Other 109 52
-------------------
895 243

Other inter-segment
eliminations (84) (2)
-------------------

Total $2,118 $ 656
-------------------
-------------------


(1) International nitrogen sales were 1,384,000 tonnes (2004 -
1,444,000 tonnes); net sales were $337-million (2004 -
$283-million) and gross profit was $196-million (2004 -
$144-million).
(2) International potash sales were 607,000 tonnes (2004 - 530,000
tonnes); net sales were $78-million (2004 - $49-million) and
gross profit was $52-million (2004 - $28-million).
(3) International Retail net sales were $96-million (2004 -
$81-million) and gross profit was $16-million (2004 -
$17-million).



Contact Information

  • Agrium Inc.
    Richard Downey
    Director, Investor Relations
    (403) 225-7357
    or
    Agrium Inc.
    Christine Gillespie
    Investor Relations Manager
    (403) 225-7437
    Website: www.agrium.com