SOURCE: Agrium Inc.

Agrium Inc.

November 03, 2016 07:00 ET

Agrium Reports Third Quarter Earnings

November 3, 2016 - ALL AMOUNTS ARE STATED IN U.S.$

CALGARY, AB--(Marketwired - November 03, 2016) - Agrium Inc. (TSX: AGU) (NYSE: AGU) announced today its 2016 third quarter results, with a net loss attributable to equity holders of Agrium of $41-million ($0.29 diluted loss per share) compared to net earnings of $101-million ($0.72 diluted earnings per share) in the third quarter of 2015. The reduction in net earnings was driven by lower year-over-year nutrient pricing, low pest and disease pressure in the U.S. which limited the demand for crop protection products and application services this growing season, a delayed harvest across North America related to wet weather, and one-time costs primarily related to the proposed merger with PotashCorp.

Highlights:

  • Third quarter adjusted net loss was $17-million or $0.12 diluted loss per share. Adjusting for non-operational legal costs, guidance relevant earnings would be a loss of $4-million or $0.03 diluted loss per share (see page 2 for adjusted net earnings and guidance relevant earnings reconciliations)1.
  • We completed several larger retail acquisitions that added 37 locations in North America this quarter alone, bringing our year-to-date total to 70 locations and representing approximately $500-million of expected annual sales. These recent acquisitions added to our costs this quarter, with the benefits expected to be realized starting in 2017.
  • Agrium reported significant progress towards its Operational Excellence initiatives in the third quarter with Wholesale cash selling and general and administrative costs down 26 percent compared to the same period last year. Retail also achieved further cost reductions (excluding acquisitions in 2016) which increased Retail EBITDA2 to sales from 8 percent to 9 percent and decrease Retail's cash operating coverage ratio3 by 2 percentage points on a year-to-date basis.
  • Annual guidance range has been revised to $4.60 to $5.00 diluted earnings per share largely due to wet weather across Western Canada and the eastern U.S. (see page 3 for guidance assumptions and further details).

"Agrium continues to focus on what we can control during these times of market weakness," commented Chuck Magro, Agrium's President and CEO. "I am particularly pleased with the results of our operational excellence initiatives. Our focus on growing our Retail business continues, with 70 locations acquired year-to-date, representing approximately $500-million of expected incremental annual sales. Looking out for the rest of the year, we expect solid demand for crop nutrients; however, growers have experienced poor fall weather in Canada and pockets of the U.S. which has impacted harvest progress and ammonia applications," added Mr. Magro.

"Our proposed merger with PotashCorp is a transformational opportunity to create a world class integrated global supplier of crop inputs and services. This merger creates benefits and opportunities that neither company could achieve on its own and will unlock significant value for shareholders of both companies. By generating meaningful synergies, and producing significant combined cash flows, the new company will be positioned for further growth, while benefiting customers, suppliers, shareholders, communities and other stakeholders," concluded Mr. Magro.

1Effective tax rate of 27 percent for the third quarter and 28 percent for the first nine months of 2016 were used for the adjusted net earnings, guidance relevant 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 and our guidance by eliminating share-based payments expense (recovery), gains (losses) on foreign exchange and related gains (losses) on non-qualifying derivative hedges and significant non-operating, non-recurring items. 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.
2Earnings (loss) from operations before finance costs, income taxes, depreciation and amortization.
3This is a non-IFRS measure. Refer to section "Non-IFRS Measures".

ADJUSTED NET EARNINGS AND GUIDANCE RELEVANT EARNINGS RECONCILIATIONS

    Three months ended  Nine months ended
    September 30, 2016  September 30, 2016
(millions of U.S. dollars, except per share amounts)

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

Per share(a)
 

Expense
 Net earnings
 
impact
(post-tax)
 

Per share(a)
     (39 )(0.29 )   529  3.80
Adjustments:                 
  Share-based payments 5  4  0.03  22  16  0.12
  Foreign exchange loss  net of non-qualifying derivatives
2
 
1
 
0.01
 
10
 
7
 
0.05
  Merger and related costs 17  12  0.09  17  12  0.09
  IT outsourcing costs 7  5  0.04  7  5  0.04
Adjusted net earnings (b)    (17 )(0.12 )   569  4.10
Additional items not included in earnings guidance:                 
  Non-operational legal costs 18  13  0.09  18  13  0.09
Guidance relevant earnings (b)    (4 )(0.03 )   582  4.19
(a)Diluted per share information attributable to equity holders of Agrium
(b)Effective tax rates of 27 percent for the third quarter and 28 for the first nine months of 2016 were used for the adjusted net earnings, guidance relevant earnings and per share calculations.

MARKET OUTLOOK

Agricultural and Crop Input Fundamentals

  • For the third time in four years, the United States Department of Agriculture (USDA) projects record production for both global grain and oilseed production and for U.S. corn and soybeans.
  • Crop prices and grower margins weakened throughout much of the third quarter. While favorable weather supported high yields, growers have been conservative with crop input purchases, which has pressured demand and prices for most crop input products.
  • Despite the expected record production levels, U.S. corn prices have been supported in recent weeks by robust export demand as export sales of corn are up 85 percent compared to prior year levels.
  • U.S. harvest is progressing at a near-average pace signifying a wider fall application season versus the previous three years if weather cooperates. However, the Western Canadian harvest has been stalled by early snowfall and cool temperatures, which may negatively impact fall ammonia demand.

Nitrogen

  • Urea prices were relatively stable in the third quarter, whereas both UAN and ammonia prices declined.
  • In recent weeks urea prices have increased driven by sizeable Indian urea imports and lower than expected export availability out of China. Chinese urea producers' operating rates have been reduced due to lower global prices and higher costs, resulting from an almost 60 percent increase in Chinese bituminous coal prices.
  • U.S. offshore urea imports are down approximately 65 percent so far in the 2016/17 fertilizer year, as prices were below import parity throughout much of the third quarter. Domestic production has increased, and is expected to increase further in late 2016 and early 2017. However, the reduction in U.S. imports is expected to exceed the growth in domestic supply, and we anticipate a need for increased imports in late 2016 and early 2017.

Potash

  • The signing of potash contracts with buyers in India and China during the third quarter provided increased confidence to potash buyers globally and led to strong demand in order to refill depleted downstream inventories.
  • The emergence of pent-up demand over the past couple of months has tightened the available supply from producers for the remainder of 2016.
  • Brazilian potash imports were up 21 percent year-over-year in the third quarter and are now ahead of the record 2014 pace on a year-to-date basis.
  • We expect demand to continue to be strong for the remainder of 2016, particularly if fall weather allows for a normal fall application season in the U.S. as the past three years have all been below-average due to weather.

Phosphate

  • Weak Indian diammonium phosphate (DAP) imports and recent lack of demand from Brazil have maintained pressure on the phosphate market. While the pace of purchases from India and Pakistan increased in the second half of 2016, it has not been enough to provide support in phosphate markets.
  • While demand has been disappointing, the outlook for the remainder of 2016 and early 2017 is more positive due to reportedly tight phosphate inventories in Brazil and prospects for a year-over-year improvement in U.S. fall demand.

2016 ANNUAL GUIDANCE

Based on our Market Outlook, Agrium expects to achieve annual diluted earnings per share of $4.60 to $5.00 in 2016 compared to our previous forecast of $5.00 to $5.30. We have lowered our annual guidance range due to the persistent weakness in global nutrient prices, and low demand for crop protection products and application services during the third quarter. Notwithstanding the current weather issues in Western Canada, our outlook for the fourth quarter is predicated upon a strong North American fall season driving high fertilizer application rates.

The lower end of our nitrogen production guidance was increased to 3.6 million tonnes due to higher plant utilization rates while our estimate for potash production was lowered between 2.1 and 2.2 million tonnes.

We are reiterating the range for Retail crop nutrient sales tonnes at between 9.8 million to 10.2 million tonnes while lowering the Retail EBITDA range between $1.07-billion and $1.11-billion.

Our estimates for the Canada/U.S. foreign exchange rate and NYMEX for 2016 have been updated based on current market conditions.

This guidance and updated additional measures and related assumptions are summarized in the table below. Guidance excludes the impact of share-based payments expense (recovery), gains (losses) on foreign exchange and non-qualifying derivative hedges, and merger related costs. Volumetric and earnings estimates assume normal seasonal growing and harvest patterns in the geographies where Agrium operates.

2016 ANNUAL GUIDANCE RANGE AND ASSUMPTIONS

  Annual  
  Low  High  
Diluted EPS (in U.S. dollars) $4.60  $5.00  
Guidance assumptions:       
Wholesale:       
 Production tonnes:       
  Nitrogen (millions) 3.6  3.7  
  Potash (millions) 2.1  2.2  
Retail:       
 EBITDA (millions of U.S. dollars) $1,070  $1,110  
 Crop nutrient sales tonnes (millions) 9.8  10.2  
Other:       
 Tax rate 28 %27 %
 Sustaining capital expenditures (millions of U.S. dollars) $400  $450  
 Total capital expenditures (millions of U.S. dollars) $750  $800  
 Canada/U.S. foreign exchange rate $1.31  $1.33  
 NYMEX gas price ($/MMBtu) $2.60  $2.40  

MANAGEMENT'S DISCUSSION AND ANALYSIS

November 3, 2016

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 third quarter of 2016 (three months ended September 30, 2016) and for the nine months ended September 30, 2016 are against results for the third quarter of 2015 (three months ended September 30, 2015) and nine months ended September 30, 2015. All dollar amounts refer to United States (U.S.) dollars except where otherwise stated. The financial measures cash operating coverage ratio, cash selling and general and administrative expenses and cash gross margin per tonne used in this MD&A is not prescribed by IFRS. Our method of calculation may not be directly comparable to that of other companies. We consider these non-IFRS financial measures to provide useful information to both management and investors in measuring our financial performance. These non-IFRS financial 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 "Non-IFRS Financial Measures" of this MD&A for further details, including a reconciliation of such measure to its most directly comparable measure calculated in accordance with IFRS.

The following interim MD&A is as of November 3, 2016 and should be read in conjunction with the Consolidated Interim Financial Statements for the three and nine months ended September 30, 2016 (the "Consolidated Financial Statements"), and the annual MD&A and financial statements for the year ended December 31, 2015 included in our 2015 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 except for material information since the date of our annual MD&A. In respect of Forward-Looking Statements, please refer to the section titled "Forward-Looking Statements" in this MD&A.

2016 Third Quarter Operating Results

CONSOLIDATED NET EARNINGS

Financial Overview  
                           
  Three months ended September 30,   Nine months ended September 30,  
(millions of U.S. dollars, except per share amounts and where noted) 2016  2015  Change  % Change   2016  2015  Change  % Change  
Sales 2,245  2,524  (279 )(11 ) 11,385  12,388  (1,003 )(8 )
Gross profit 568  696  (128 )(18 ) 2,647  2,988  (341 )(11 )
Expenses 555  505  50  10   1,711  1,696  15  1  
Earnings before finance costs and income taxes
13
 
191
 
(178
)
(93
)
936
 
1,292
 
(356
)
(28
)
Net (loss) earnings (39 )99  (138 )(139 ) 529  788  (259 )(33 )
Diluted (loss) earnings per share (0.29 )0.72  (1.01 )(140 ) 3.80  5.52  (1.72 )(31 )
Effective tax rate (%) 27  27  -  N/A   28  29  (1 )N/A  
Sales and Gross Profit        
                      
    Three months ended September 30,  Nine months ended September 30,  
(millions of U.S. dollars) 2016  2015  Change  2016  2015  Change  
Sales                   
  Retail 1,857  2,011  (154 )9,938  10,434  (496 )
  Wholesale 518  673  (155 )2,049  2,714  (665 )
  Other (130 )(160 )30  (602 )(760 )158  
    2,245  2,524  (279 )11,385  12,388  (1,003 )
                      
Gross profit                   
  Retail 482  494  (12 )2,163  2,129  34  
  Wholesale 84  218  (134 )438  861  (423 )
  Other 2  (16 )18  46  (2 )48  
    568  696  (128 )2,647  2,988  (341 )
  • Retail's sales decreased in the third quarter and first nine months of 2016 primarily as a result of lower crop nutrient selling prices despite increased sales volumes. Lower crop protection product sales in the U.S. also contributed to the decrease in the third quarter.
  • Despite lower sales, Retail's gross profit was higher for the first nine months of 2016 due to increases in higher-margin proprietary product sales and total crop protection products. Retail's gross profit for the third quarter of 2016 decreased due to lower crop protection product sales.
  • Wholesale's sales and gross profit decreased in the third quarter and first nine months compared to the same periods of last year primarily due to lower market prices for all products.

Expenses

  • Our share-based payments expense increased by $20-million and decreased by $14-million in the third quarter and first nine months of 2016, respectively, compared to the same periods last year due to the movements in our share price.
  • Earnings from associates and joint ventures increased in the third quarter and first nine months of 2016 compared to the same periods last year as a result of higher urea sales, increased plant efficiency in Profertil S.A. ("Profertil") and lower natural gas costs. For the first nine months of 2016, we also recorded an increase in earnings from our share of Profertil's reversal of a gas tariff provision of $21-million, which was partially offset by a $6-million loss related to our share of the losses in Canpotex Limited ("Canpotex") from its cancellation of a project to build an export terminal in British Columbia.
  • We incurred costs related to our proposed merger with Potash Corporation of Saskatchewan Inc. ("PotashCorp") and merger and related costs aggregating to $17-million and legal settlements and fees of $18-million. These were recorded in the third quarter of 2016.
  • We completed the sale of our non-core Purchase for Resale terminals resulting in a gain on sale of assets of $38-million in the first quarter of 2015.
  • For further breakdown on Other expenses see table provided below:
Other expenses breakdown                 
  Three months ended  Nine months ended  
  September 30,  September 30,  
(millions of U.S. dollars) 2016  2015  Change  2016  2015  Change  
Loss on foreign exchange and related derivatives 2  13  (11 )10  13  (3 )
Interest income (20 )(19 )(1 )(49 )(52 )3  
Gain on sale of assets -  -  -  -  (38 )38  
Environmental remediation and asset retirement obligations
4
 
6
 
(2
)
9
 
15
 
(6
)
Bad debt expense (recovery) 3  (4 )7  32  28  4  
Potash profit and capital tax 2  3  (1 )10  13  (3 )
Merger and related costs 17  6  11  17  17  -  
Litigation settlements and related fees 18  3  15  18  4  14  
Other 21  -  21  62  1  61  
  47  8  39  109  1  108  
Depreciation and Amortization                 
                            
Depreciation and amortization breakdown  
    Three months ended September 30,  
  2016  2015  
  
  
(millions of U.S. dollars)
Cost of
product
sold
 
 
 
 
 
Selling
 
 
 
General
and
administrative
 
 
 
 
 
Total
 
 
 
Cost of
product
sold
 
 
 
 
 
Selling
 
 
 
General
and
administrative
 
 
 
 
 
Total
 
Retail 2  67  2  71  2  62  1  65  
Wholesale                         
  Nitrogen 16  -  -  16  15  -  1  16  
  Potash 22  -  -  22  16  -  -  16  
  Phosphate 17  -  -  17  13  -  -  13  
  Wholesale Other (a) 2  -  -  2  2  -  -  2  
    57  -  -  57  46  -  1  47  
Other -  -  4  4  -  -  3  3  
Total 59  67  6  132  48  62  5  115  
    Nine months ended September 30,  
    2016  2015  
  
  
(millions of U.S. dollars)
Cost of
product
sold
 
 
 
 
 
Selling
 
 
 
General
and
administrative
 
 
 
 
 
Total
 
 
 
Cost of
product
sold
 
 
 
 
 
Selling
 
 
 
General
and
administrative
 
 
 
 
 
Total
 
Retail 5  197  4  206  5  180  3  188  
Wholesale                         
  Nitrogen 52  -  -  52  53  -  1  54  
  Potash 73  -  -  73  43  -  -  43  
  Phosphate 40  -  -  40  37  -  -  37  
  Wholesale Other (a) 9  -  1  10  10  -  2  12  
    174  -  1  175  143  -  3  146  
Other -  -  10  10  -  -  11  11  
Total 179  197  15  391  148  180  17  345  
(a) This includes product purchased for resale, ammonium sulfate, Environmentally Smart Nitrogen® (ESN) and other products.
  • Depreciation and amortization expense increased in third quarter and first nine months of 2016 as we increased our sales volumes from the ramp-up of production at our Vanscoy potash facility for which we calculate such expense on a units of production basis, and from additional depreciation and amortization from our Retail acquisitions.

Effective Tax Rate

  • The effective tax rate is 27 percent for both the third quarter of 2016 and 2015. The effective tax rate of 28 percent for the first nine months of 2016 is lower than the tax rate of 29 percent for the same period last year due to an increase in earnings from associates and joint ventures which are reported net of income tax.

BUSINESS SEGMENT PERFORMANCE

Retail            
             
  Three months ended September 30,  
(millions of U.S. dollars) 2016   2015   Change  
Sales 1,857   2,011   (154 )
Cost of product sold 1,375   1,517   (142 )
Gross profit 482   494   (12 )
EBITDA 101   129   (28 )
Selling and general and administrative expenses 469   462   7  
  • Retail reported lower gross profit and EBITDA1 than the prior year period. Most of the reduction was due to reduced demand for crop protection products and associated application services in the U.S. due to minimal pest pressure from insects or disease and the excellent crop conditions. Results were also impacted by wet weather across much of North America towards the end of the quarter which delayed harvest and impacted nutrient applications in some regions.
  • Total Retail selling and general and administrative expenses were up $7-million from the third quarter of last year; however, such expenses were down by $5-million on a cash basis, after adjusting for costs associated with the acquired retail locations in 2016. Our cash operating coverage ratio also improved by two percentage points on a rolling four quarter basis over the same period last year due to our continued focus on cost reduction.
  • In North America, U.S. operations experienced challenging market conditions during the quarter, with tight grower economics, high crop yields and minimal pest pressure resulting in substantially less crop protection products used. U.S. EBITDA was down $66-million in the third quarter over the same period last year. Our Canadian operations reported stronger results this quarter as EBITDA improved by $13-million due to solid demand for crop protection products and reduced selling and general and administrative expenses.
  • Internationally, South American EBITDA increased by $9-million due to strong crop nutrient and crop protection product gross profit as the improved political and economic environment in Argentina continues to support the agriculture industry. In Australia, EBITDA more than doubled compared to the same period last year primarily on strong gross profit from crop protection products and application services.
1Earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization.
Retail sales and gross profit by product line                 
  Three months ended September 30,
  Sales  Gross profit  Gross profit (%)  
(millions of U.S. dollars, except where noted) 2016   2015   Change  2016   2015   Change  2016   2015  
Crop nutrients 502   582   (80 )118   113   5  24   19  
Crop protection products 983   1,040   (57 )226   234   (8 )23   23  
Seed 59   60   (1 )22   26   (4 )37   43  
Merchandise 175   166   9  29   25   4  17   15  
Services and other 138   163   (25 )87   96   (9 )63   59  

Crop nutrients

  • Total crop nutrient sales were 14 percent lower this quarter compared to the same period last year due to significantly lower prices across all nutrients.
  • Total crop nutrient volumes were higher by 4 percent this quarter compared to the same period last year as higher volumes in South America and Canada more than offset lower volumes in the U.S. Wet weather across much of North America towards the end of the quarter delayed harvest and impacted nutrient applications in some regions. On a year-to-date basis, total crop nutrient volumes were slightly higher than last year with increased volumes in South America and the U.S.
  • Total crop nutrient gross profit was 4 percent higher this quarter due to lower costs per tonne in all jurisdictions, which more than offset the lower selling prices. North American nutrient margin per tonne was comparable to the same period last year, despite average nutrient selling prices being 18 percent lower this year. As a result, gross profit as a percentage of sales rose to 24 percent this period compared to 19 percent in the third quarter of 2015.

Crop protection products

  • Total crop protection product sales were down 5 percent in the quarter, as historically high crop condition ratings and high yields in North America, as well as limited pest and disease pressures combined to reduce the demand for crop protection products.
  • Crop protection product margins as a percentage of sales this quarter were consistent with last year's levels, supported by lower cost of goods sold, and an increase in the proportion of proprietary product sales this period.
  • Proprietary crop protection product sales as a percentage of total crop protection product sales reached 24 percent this quarter, up 2 percentage points over the same period last year.

Seed

  • Seed sales were comparable to the same period last year, although seed sales are generally low in the third quarter as few major crops are being planted during the period.
  • Total seed margins as a percentage of sales this quarter decreased 6 percentage points compared to the same period last year. The decrease was primarily due to a shift in regional mix in sales, with lower sales in the U.S. and an increase in lower margin sales in our International operations, as well as timing of rebates.

Merchandise

  • Merchandise sales increased 5 percent and gross profit as a percentage of sales increased 2 percent compared to the same period last year, primarily due to an increase in higher margin ag-equipment sales in Canada.

Services and other

  • Sales for services and other was down 15 percent this quarter due to the reduced demand for crop protection products, and the subsequent reduction in demand for application services.
Wholesale            
             
  Three months ended September 30,  
(millions of U.S. dollars, except where noted) 2016   2015   Change  
Sales 518   673   (155 )
Sales volumes (tonnes 000's) 1,792   1,667   125  
Cost of product sold 434   455   (21 )
Gross profit 84   218   (134 )
EBITDA 118   221   (103 )
Expenses 23   44   (21 )
  • Lower global fertilizer prices across all nutrients resulted in total sales being down year-over-year.

Lower sales were partially offset by a reduction in fixed costs as a result of our ongoing cost review process and lower natural gas costs this quarter compared to the same period last year.

Wholesale NPK product information  
  Three months ended September 30,  
  Nitrogen  Potash  Phosphate  
  2016   2015   Change  2016   2015   Change  2016   2015   Change  
Gross profit (U.S. dollar millions) 59   130   (71 )1   42   (41 )11   31   (20 )
Sales volumes (tonnes 000's) 739   760   (21 )496   384   112  278   269   9  
Selling price ($/tonne) 291   388   (97 )178   279   (101 )478   629   (151 )
Cost of product sold ($/tonne) 212   217   (5 )175   171   4  439   514   (75 )
Gross margin ($/tonne) 79   171   (92 )3   108   (105 )39   115   (76 )

Nitrogen

  • Nitrogen gross profit was down 55 percent compared to the same period last year primarily due to significantly lower benchmark nitrogen prices, partially offset by lower overall fixed costs and input costs.
  • Sales volumes were lower than the same period last year primarily due to delayed ammonia fall applications this quarter and outages at our Redwater and Carseland nitrogen facilities.
  • Realized selling prices per tonne were down 25 percent compared to the same period last year due to lower global benchmark nitrogen prices.
  • Cost of product sold per tonne was 2 percent lower than the same period last year due to lower overall fixed costs and lower natural gas prices.
Natural gas prices: North American indices and North American Agrium prices  
  Three months ended September 30,  
(U.S. dollars per MMBtu) 2016   2015  
Overall gas cost excluding realized derivative impact 2.05   2.43  
Realized derivative impact 0.28   (0.04 )
Overall gas cost 2.33   2.39  
Average NYMEX 2.78   2.77  
Average AECO 1.69   2.16  

Potash

  • Potash gross profit in the third quarter declined 98 percent compared to the same period last year due to downward pressure on potash benchmark prices. As a result, gross margin was $3 per tonne for the quarter and on a cash-basis, margins were $47 per tonne.
  • Lower realized selling prices were partly offset by higher sales volumes this year. Sales volumes in the third quarter were 29 percent higher than the same period last year as prior year volumes were reduced as the ramp-up of our Vanscoy potash facility expansion was not fully operational. International sales volumes were 26 percent higher than the third quarter of last year primarily due to Agrium's higher Canpotex allocation in 2016.
  • Realized selling prices have contracted sharply over the past year with international selling prices down 39 percent period-over-period and a decline of 35 percent in North American markets.
  • Cost of product sold per tonne was slightly higher than the same period last year due to a longer than usual turnaround this quarter.

Phosphate

  • Phosphate gross profit was 65 percent lower than the same period last year primarily due to significantly lower selling prices. Higher sales volumes and lower cost of product sold per tonne partially offset the impact from the decline in prices.
  • Cost of product sold per tonne was down 15 percent compared to the same period last year due to favorable freight expense adjustments and lower ammonia input costs.

Wholesale Other

Wholesale Other: gross profit breakdown  
  Three months ended September 30,  
(millions of U.S. dollars) 2016  2015  Change  
Ammonium sulfate 9  10  (1 )
ESN 6  6  -  
Product purchased for resale -  2  (2 )
Other (2 )(3 )1  
  13  15  (2 )
  • Gross profit from Wholesale Other was slightly lower than the same period last year primarily due to lower realized selling prices for all Other products, partially offset by lower input costs.

Expenses

  • Wholesale expenses decreased by $21-million in the current quarter due to reduced selling and general and administrative costs and increased earnings from our equity investments. Selling and general and administrative costs were $6-million lower, or a 30 percent reduction compared to the same period last year as a result of on-going operational excellence initiatives.
  • Earnings from equity investments increased $14-million compared to the same period last year, primarily relating to our investment in Profertil. The increase was driven by a more positive agricultural environment in Argentina, lower production costs resulting from plant efficiencies and lower natural gas costs.

Other

EBITDA for our Other non-operating business unit for the third quarter of 2016 had a net expense of $74-million, compared to net expense of $44-million for the third quarter of 2015. The variance was primarily due to:

  • merger and related costs of $17-million
  • an increase of $20-million in share-based payments expense as a result of an increase in our share price
  • litigation settlements and related fees of $18-million
  • partially offset by an $18-million increase in gross profit recovery as a result of higher intersegment inventory held at the end of the third quarter of 2016

FINANCIAL CONDITION

The following are changes to working capital on our Consolidated Balance Sheets for the nine months ended September 30, 2016 compared to December 31, 2015.

(millions of U.S. dollars, except where noted) September 30,2016  December 31, 2015  $ Change  % Change   Explanation of the change in the balance
Current assets               
 Cash and cash equivalents 311  515  (204 )(40 %) See discussion under the section "Liquidity and Capital Resources".
 Accounts receivable 2,962  2,053  909  44 % Seasonal sales activity for Retail resulted in higher Retail trade and vendor rebates receivable.
 Income taxes receivable 52  4  48  1,200 % Canadian tax installments paid exceeded the Canadian tax provision for the first nine months.
 Inventories 2,666  3,314  (648 )(20 %) Inventory drawdown due to seasonal sales activity.
 Prepaid expenses and deposits 133  688  (555 )(81 %) Drawdown of prepaid inventory where Retail typically prepays for product at year end and takes possession of inventory throughout the year.
 Other current assets 132  144  (12 )(8 %) -
Current liabilities               
 Short-term debt 1,740  835  905  108 % Increased financing for working capital requirements.
 Accounts payable 2,938  3,919  (981 )(25 %) Drawdown in customer prepayments during the spring application season and reductions in trade payables as the third quarter is typically a low point for product purchasing.
 Income taxes payable 3  82  (79 )(96 %) 2015 tax accrual was paid.
 Current portion of long-term debt 110  8  102  1,275 % Increase relates to $100-million 7.7 percent debentures due in 2017.
 Current portion of other provisions 67  85  (18 )(21 %) -
Working capital 1,398  1,789  (391 )(22 %)  

LIQUIDITY AND CAPITAL RESOURCES

Agrium generally expects that it will be able to meet its working capital requirements, capital resource needs and shareholder returns through a variety of sources, including available cash on hand, cash provided by operations, short-term borrowings from the issuance of commercial paper, and borrowings from our credit facilities, as well as long-term debt and equity capacity from the capital markets.

As of September 30, 2016, we have sufficient current assets to meet our current liabilities.

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:

  Nine months ended September 30,  
(millions of U.S. dollars) 2016  2015  Change  
Cash provided by operating activities 205  570  (365 )
Cash used in investing activities (877 )(1,182 )305  
Cash provided by financing activities 526  484  42  
Effect of exchange rate changes on cash and cash equivalents (58 )33  (91 )
Decrease in cash and cash equivalents (204 )(95 )(109 )
Cash provided by operating activities Lower net earnings primarily due to lower realized selling prices for all products in our Wholesale business unit, partially offset by lower cost of crop nutrient inventory purchases in our Retail business unit.
 $196-million decrease in cash resulting from larger amount of taxes paid in the first nine months of 2016 compared to 2015.
 $62-million decrease in cash due to higher interest payments made in the first nine months of 2016 resulting from the timing of interest paid on debt.
Cash used in investing activities Lower capital expenditures compared to the first nine months of 2015 due to decreased spending on our Vanscoy potash facility and Borger expansion project.
Cash provided by financing activities Higher cash provided by financing as a result of not undertaking any share repurchase activity in the first nine months of 2016 versus $559-million cash outflow for share repurchases made in the first nine months of 2015. The increase in cash flows resulting from the reduction in share repurchase activity was partially offset by $514-million reduction in cash inflows related to short-term and long-term financing draws in the first nine months of 2016.
Capital Spending and Expenditures (a)          
    Three months ended   Nine months ended  
    September 30,   September 30,  
(millions of U.S. dollars) 2016   2015   2016   2015  
Retail                
  Sustaining 13   11   88   103  
  Investing 10   8   29   25  
    23   19   117   128  
  Acquisitions (b) 141   1   316   85  
  164   20   433   213  
Wholesale                
  Sustaining 55   72   206   199  
  Investing 67   77   222   578  
    122   149   428   777  
Other                
  Sustaining 1   1   3   3  
  Investing 1   1   3   2  
    2   2   6   5  
Total                
  Sustaining 69   84   297   305  
  Investing 78   86   254   605  
    147   170   551   910  
  Acquisitions (b) 141   1   316   85  
  288   171   867   995  
(a)This excludes capitalized borrowing costs.
(b)This represents business acquisitions and includes acquired working capital; property, plant and equipment; intangibles; goodwill; and investments in associates and joint ventures.
  • Our investing capital expenditures decreased in the third quarter and first nine months of 2016 compared to the same periods last year due to the ramp-up of our Vanscoy potash facility in the third quarter and first nine months of 2015 combined with decreased spending on the Borger project in 2016.
  • We completed the acquisitions of 16 farm centers located in the provinces of Alberta and Saskatchewan from Andrukow Group Solutions Inc. and 18 farm centers located across the northern U.S. Cornbelt region from Cargill AgHorizons (U.S.) in September 2016.
  • We expect Agrium's capital expenditures for the remainder of 2016 to approximate $200-million to $250-million. 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 $2-billion at September 30, 2016 is outlined in note 5 of our Summarized Notes to the Consolidated Financial Statements.
  • Our short-term debt increased by $905-million during the first nine months of 2016, which in turn contributed to a decrease in our unutilized short-term financing capacity to $1.1-billion at September 30, 2016.

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 September 30, 2016. Our ability to comply with these covenants has not changed since December 31, 2015.

PROPOSED MERGER WITH POTASHCORP

Agrium and PotashCorp entered into an arrangement agreement dated September 11, 2016 (the "Agreement"), under which the companies will combine in a merger of equals into a newly incorporated parent entity to be formed to manage and hold the combined businesses of both Agrium and PotashCorp. The Agreement will be implemented by a proposed plan of arrangement (the "Arrangement"). The Arrangement is anticipated to be completed in mid-2017, subject to customary closing conditions, including receipt of regulatory and court approvals and approvals by Agrium securityholders and PotashCorp shareholders.

Refer to note 6 of our Summarized Notes to the Consolidated Financial Statements and Agrium and PotashCorp's joint proxy circular, dated October 3, 2016 filed on SEDAR on October 6, 2016 (the "Joint Proxy Circular") for further information.

SHARE REPURCHASES

We have approval from the Toronto Stock Exchange (TSX) to purchase for cancellation on the TSX or New York Stock Exchange an aggregate of 6,908,450 common shares (5 percent) of our outstanding shares. Repurchases may be made under a Normal Course Issuer Bid (NCIB) approved by the TSX until February 18, 2017. Pursuant to the Agreement we are restricted from purchasing our outstanding shares prior to completion of the Arrangement.

There were no shares repurchased under the NCIB for the first nine months of 2016 or the period from October 1, 2016 to November 2, 2016.

Shareholders can obtain a copy of the NCIB notice submitted to the TSX from Agrium without charge upon request.

OUTSTANDING SHARE DATA

Agrium had 138,175,400 outstanding shares at October 28, 2016. At October 28, 2016, the number of shares issuable pursuant to stock options outstanding (issuable assuming full conversion, where each option granted can be exercised for one common share) was approximately 937,528.

SELECTED QUARTERLY INFORMATION  
                                
(millions of U.S. dollars, except per share amounts) 2016
Q3
 2016
Q2
 2016
Q1
 2015
Q4
  2015
Q3
  2015
Q2
  2015
Q1
  2014
Q4
 
Sales 2,245  6,415  2,725  2,407   2,524   6,992   2,872   2,705  
Gross profit 568  1,525  554  900   696   1,708   584   732  
Net earnings (loss) from continuing operations (39 )565  3  200   99   675   14   70  
Net loss from discontinued operations -  -  -  -   -   -   -   (19 )
Net earnings (loss) (39 )565  3  200   99   675   14   51  
Earnings (loss) per share from continuing operations attributable to equity holders of Agrium:                             
  Basic and diluted (0.29 )4.08  0.02  1.45   0.72   4.71   0.08   0.46  
Loss per share from discontinued operations attributable to equity holders of Agrium:                             
  Basic and diluted -  -  -  -   -   -   -   (0.13 )
Earnings (loss) per share attributable to equity holders of Agrium:                             
  Basic and diluted (0.29 )4.08  0.02  1.45   0.72   4.71   0.08   0.33  
Dividends declared 120  122  121  121   120   125   112   112  
Dividends declared per share 0.875  0.875  0.875  0.875   0.875   0.875   0.780   0.780  

The agricultural products business is seasonal. Consequently, year-over-year comparisons 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 concentrated in December and January.

NON-IFRS FINANCIAL MEASURES

Financial measures that are not specified, defined or determined under IFRS are non-IFRS measures unless they are presented in our Consolidated Financial Statements. The following table outlines our non-IFRS financial measures, their definitions and why management uses the measures.

Non-IFRS financial measure  Definition  Why we use the measure and why it is useful to investors
Cash operating coverage ratio  Cash operating coverage ratio represents gross profit excluding depreciation and amortization less EBITDA, divided by gross profit excluding depreciation and amortization.  Assists management and investors in understanding the costs and underlying economics of our operations and in assessing our operating performance and our ability to generate free cash flow from our business units and overall as a company.
Cash gross margin per tonne, cash selling and general and administrative expenses Selected financial measures excluding depreciation and amortization  
Retail cash operating coverage ratio      
  Rolling four quarters ended September 30,  
(millions of U.S. dollars, except as noted) 2016   2015  
Gross profit 2,762   2,743  
Depreciation and amortization in cost of product sold 6   6  
Gross profit excluding depreciation and amortization 2,768   2,749  
EBITDA 1,088   1,015  
Operating expenses excluding depreciation and amortization 1,680   1,734  
Cash operating coverage ratio (%) 61   63  
Wholesale potash cash gross margin per tonne    
  Three months ended  
  September 30, 2016  
(millions of U.S. dollars)    
Potash gross margin per tonne 3  
Depreciation and amortization in cost of product sold per tonne 44  
Potash cash gross margin per tonne 47  
Cash selling and general and administrative expenses
     
  Three months ended September 30,  
  2016   2015   2016   2015   2016   2015  
(millions of U.S. dollars) Retail Wholesale Consolidated
Selling 443   437   7   9   446   441  
Depreciation and amortization in selling expense 67   62   -   -   67   62  
Cash selling 376   375   1   9   379   379  
General and administrative 26   25   7   11   60   61  
Depreciation and amortization in general and administrative 2   1   -   1   6   5  
Cash general and administrative 24   24   2   10   54   56  

CRITICAL ACCOUNTING ESTIMATES

We prepare our Consolidated 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 2015 annual MD&A, which is contained in our 2015 Annual Report. Since the date of our 2015 annual MD&A, there have not been any material changes to our critical accounting estimates.

CHANGES IN ACCOUNTING POLICIES

The accounting policies applied in our Consolidated Financial Statements for the three and nine months ended September 30, 2016 are the same as those applied in our audited annual financial statements in our 2015 Annual Report.

BUSINESS RISKS

The information presented in the "Enterprise Risk Management" section on pages 63 - 66 in our 2015 annual MD&A and under the heading "Risk Factors" on pages 23 - 34 in our Annual Information Form for the year ended December 31, 2015 has not changed materially since December 31, 2015. There are various risks associated with the Arrangement. See the heading "Risk Factors Related to the Arrangement" in the Joint Proxy Circular.

CONTROLS AND PROCEDURES

There have been no changes in our internal control over financial reporting during the three months ended September 30, 2016 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 2015 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.

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 news release 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: updated 2016 annual guidance, including expectations regarding our diluted earnings per share; capital spending expectations for the remainder of 2016; expectations regarding performance of our business segments in 2016; expectations regarding completion of previously announced acquisitions; our market outlook for the remainder of 2016, including nitrogen, potash and phosphate outlook and including anticipated supply and demand for our products and services, expected market and industry conditions with respect to crop nutrient application rates, planted acres, crop mix, prices and the impact of currency fluctuations and import and export volumes; and the proposed Arrangement, including timing of completion thereof. 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.

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, including 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 2016 and in the future; 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; the 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 projects' approach; the receipt, on a timely basis, of regulatory, stock exchange, shareholder and Canadian final court approval in respect of the proposed Arrangement and satisfaction of other closing conditions relating to the Arrangement. Also refer to the discussion under the heading "Key Assumptions and Risks in Respect of Forward-Looking Statements" in our 2015 annual MD&A and under the heading "Market Outlook" in this document, 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 global economic, market and business conditions; weather conditions, including impacts from regional flooding and/or drought conditions; crop planted acreage, 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; gas supply interruptions at the Egyptian Misr Fertilizers Production Company S.A.E. nitrogen facility expansion in Egypt; 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 tie-in of our Vanscoy potash expansion project; the risks that are inherent in the nature of the Arrangement, including the failure to satisfy all regulatory conditions or obtain required regulatory, court and securityholder approvals (or to do so in a timely manner) and failure to satisfy all other closing conditions in accordance with the terms of the Agreement, in a timely manner and on favourable terms or at all; 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, 2015 and under the headings "Enterprise Risk Management" and "Key Assumptions and Risks in respect of Forward-Looking Statements" in our 2015 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 global producer and distributor of agricultural products, services and solutions. Agrium produces nitrogen, potash and phosphate fertilizers, with a combined wholesale nutrient capacity of over nine million tonnes and with significant competitive advantages across our product lines. We supply key products and services directly to growers, including crop nutrients, crop protection, seed, as well as agronomic and application services, thereby helping growers to meet the ever growing global demand for food and fiber. Agrium retail-distribution has an unmatched network of over 1,400 facilities and over 3,800 crop consultants who provide advice and products to our grower customers to help them increase their yields and returns on hundreds of 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 2016 3rd Quarter Conference Call will be available in a listen-only mode beginning Thursday, November 3rd, 2016 at 8:00 a.m. MT (10:00 a.m. ET). Please visit the following website: www.agrium.com.

AGRIUM INC.
Consolidated Statements of Operations
(Unaudited)
                  
      Three months ended  Nine months ended
      September 30,  September 30,
(millions of U.S. dollars, unless otherwise stated) Notes 2016  2015  2016  2015  
            
Sales   2,245  2,524  11,385  12,388  
Cost of product sold   1,677  1,828  8,738  9,400  
Gross profit   568  696  2,647  2,988  
Expenses               
  Selling   446  441  1,434  1,456  
  General and administrative   60  61  177  194  
  Share-based payments   5  (15 )22  36  
  (Earnings) loss from associates and joint ventures   (3 )10  (31 )9  
  Other expenses 4 47  8  109  1  
Earnings before finance costs and income taxes   13  191  936  1,292  
  Finance costs related to long-term debt   51  41  153  128  
  Other finance costs   15  14  53  51  
(Loss) earnings before income taxes   (53 )136  730  1,113  
  Income taxes   (14 )37  201  325  
Net (loss) earnings   (39 )99  529  788  
Attributable to               
  Equity holders of Agrium   (41 )101  525  787  
  Non-controlling interest   2  (2 )4  1  
Net (loss) earnings   (39 )99  529  788  
                  
Earnings per share attributable to equity holders of Agrium              
  Basic and diluted (loss) earnings per share   (0.29 )0.72  3.80  5.52  
  Weighted average number of shares outstanding for basic and diluted earnings per share (millions of common shares) 
138
 
141
 
138
 
143
 
See accompanying notes.

Basis of preparation and statement of compliance

These consolidated interim financial statements ("interim financial statements") were approved for issuance by the Audit Committee on November 2, 2016. We prepared these interim financial statements in accordance with International Accounting Standard 34 Interim Financial Reporting. These interim financial 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 2015 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 2015 Annual Report.

AGRIUM INC.  
Consolidated Statements of Comprehensive Income  
(Unaudited)  
                        
            Three months ended  Nine months ended  
            September 30,  September 30,  
(millions of U.S. dollars) Notes 2016  2015  2016  2015  
                        
Net (loss) earnings   (39 )99  529  788  
  Other comprehensive (loss) income               
    Items that are or may be reclassified to earnings               
      Cash flow hedges 3             
        Effective portion of changes in fair value   (6 )(10 )(12 )(30 )
        Deferred income taxes   1  3  4  8  
      Share of comprehensive income (loss) of associates and joint ventures  
1
 
(2
)
2
 
(7
)
      Foreign currency translation               
        (Losses) gains   -  (294 )153  (532 )
        Reclassifications to earnings   -  -  -  1  
            (4 )(303 )147  (560 )
    Items that will never be reclassified to earnings               
      Post-employment benefits               
        Actuarial losses   (1 )-  (25 )-  
        Deferred income taxes   -  -  7  1  
            (1 )-  (18 )1  
  Other comprehensive (loss) income   (5 )(303 )129  (559 )
Comprehensive (loss) income   (44 )(204 )658  229  
Attributable to               
  Equity holders of Agrium   (46 )(205 )654  226  
  Non-controlling interest   2  1  4  3  
Comprehensive (loss) income   (44 )(204 )658  229  
See accompanying notes.  
AGRIUM INC.  
Consolidated Balance Sheets  
(Unaudited)  
                   
        September 30,    December 31,  
(millions of U.S. dollars) Notes 2016  2015    2015  
Assets              
  Current assets              
    Cash and cash equivalents   311  753    515  
    Accounts receivable   2,962  2,927    2,053  
    Income taxes receivable   52  12    4  
    Inventories   2,666  2,759    3,314  
    Prepaid expenses and deposits   133  165    688  
    Other current assets   132  148    144  
        6,256  6,764    6,718  
  Property, plant and equipment   6,935  6,274    6,333  
  Intangibles   638  635    632  
  Goodwill   2,033  1,995    1,980  
  Investments in associates and joint ventures   624  574    607  
  Other assets   56  65    54  
  Deferred income tax assets   38  55    53  
      16,580  16,362    16,377  
Liabilities and shareholders' equity              
  Current liabilities              
    Short-term debt 5 1,740  1,782    835  
    Accounts payable   2,938  2,923    3,919  
    Income taxes payable   3  59    82  
    Current portion of long-term debt   110  11    8  
    Current portion of other provisions   67  82    85  
      4,858  4,857    4,929  
  Long-term debt   4,400  4,517    4,513  
  Post-employment benefits   163  139    124  
  Other provisions   332  342    336  
  Other liabilities   64  81    85  
  Deferred income tax liabilities   434  420    383  
      10,251  10,356    10,370  
  Shareholders' equity              
    Share capital   1,764  1,756    1,757  
    Retained earnings   5,677  5,444    5,533  
    Accumulated other comprehensive loss   (1,118 )(1,198 )  (1,287 )
    Equity holders of Agrium   6,323  6,002    6,003  
    Non-controlling interest   6  4    4  
    Total equity   6,329  6,006    6,007  
      16,580  16,362    16,377  
See accompanying notes.              
AGRIUM INC.  
Consolidated Statements of Cash Flows  
(Unaudited)  
                  
      Three months ended  Nine months ended  
      September 30,  September 30,  
(millions of U.S. dollars) 2016  2015  2016  2015  
                  
Operating             
  Net (loss) earnings (39 )99  529  788  
  Adjustments for             
    Depreciation and amortization 132  115  391  345  
    (Earnings) loss from associates and joint ventures (3 )10  (31 )9  
    Share-based payments 5  (15 )22  36  
    Unrealized loss (gain) on derivative financial instruments 14  (6 )36  7  
    Unrealized foreign exchange loss (gain) 21  (13 )(20 )(23 )
    Interest income (20 )(19 )(49 )(52 )
    Finance costs 66  55  206  179  
    Income taxes (14 )37  201  325  
    Other (2 )(3 )(3 )(22 )
  Interest received 21  21  50  54  
  Interest paid (83 )(71 )(223 )(161 )
  Income taxes paid (112 )(92 )(277 )(81 )
  Dividends from associates and joint ventures 46  -  48  2  
  Net changes in non-cash working capital (265 )(344 )(675 )(836 )
Cash (used in) provided by operating activities (233 )(226 )205  570  
Investing             
  Business acquisitions, net of cash acquired (141 )(1 )(316 )(85 )
  Capital expenditures (147 )(170 )(551 )(910 )
  Capitalized borrowing costs (6 )(14 )(18 )(37 )
  Purchase of investments (20 )(25 )(61 )(110 )
  Proceeds from sale of investments 14  20  78  65  
  Proceeds from sale of property, plant and equipment 4  23  14  77  
  Other (10 )(4 )(18 )7  
  Net changes in non-cash working capital 3  (97 )(5 )(189 )
Cash used in investing activities (303 )(268 )(877 )(1,182 )
Financing             
  Short-term debt 682  1,156  904  418  
  Long-term debt issued -  -  -  1,000  
  Transaction costs on long-term debt -  -  -  (14 )
  Repayment of long-term debt (10 )(2 )(16 )(17 )
  Dividends paid (121 )(122 )(362 )(345 )
  Shares issued -  -  -  1  
  Shares repurchased -  (459 )-  (559 )
Cash provided by financing activities 551  573  526  484  
Effect of exchange rate changes on cash and cash equivalents (11 )27  (58 )33  
Increase (decrease) in cash and cash equivalents 4  106  (204 )(95 )
Cash and cash equivalents - beginning of period 307  647  515  848  
Cash and cash equivalents - end of period 311  753  311  753  
See accompanying notes.             
AGRIUM INC.
Consolidated Statements of Shareholders' Equity
(Unaudited)
                                    
               Other comprehensive income (loss)           
(millions of U.S. dollars, except per share data) Millions
of
common
shares
 

Share
capital
 

Retained
earnings
 
Cash
flow
hedges
 Comprehensive
loss of
associates and
joint ventures
 
Foreign
currency
translation
 


Total
 
Equity
holders of
Agrium
 
Non-
controlling
interest
 

Total
equity
 
December 31, 2014 144  1,821  5,502  (27 )(11 )(605 )(643 )6,680  7  6,687  
  Net earnings -  -  787  -  -  -  -  787  1  788  
  Other comprehensive income (loss), net of tax                               
    Post-employment benefits -  -  1  -  -  -  -  1  -  1  
    Other -  -  -  (22 )(7 )(533 )(562 )(562 )2  (560 )
  Comprehensive income (loss), net of tax -  -  788  (22 )(7 )(533 )(562 )226  3  229  
  Dividends ($2.53 per share) -  -  (357 )-  -  -  -  (357 )-  (357 )
  Non-controlling interest transactions -  -  -  -  -  -  -  -  (6 )(6 )
  Shares repurchased (6 )(70 )(489 )-  -  -  -  (559 )-  (559 )
  Share-based payment transactions -  5  -  -  -  -  -  5  -  5  
  Reclassification of cash flow hedges, net of tax -  -  -  7  -  -  7  7  -  7  
September 30, 2015 138  1,756  5,444  (42 )(18 )(1,138 )(1,198 )6,002  4  6,006  
                                    
December 31, 2015 138  1,757  5,533  (56 )(17 )(1,214 )(1,287 )6,003  4  6,007  
  Net earnings -  -  525  -  -  -  -  525  4  529  
  Other comprehensive income (loss), net of tax                               
    Post-employment benefits -  -  (18 )-  -  -  -  (18 )-  (18 )
    Other -  -  -  (8 )2  153  147  147  -  147  
  Comprehensive income (loss), net of tax -  -  507  (8 )2  153  147  654  4  658  
  Dividends ($2.625 per share) -  -  (363 )-  -  -  -  (363 )-  (363 )
  Non-controlling interest transactions -  -  -  -  -  -  -  -  (2 )(2 )
  Share-based payment transactions -  7  -  -  -  -  -  7  -  7  
  Reclassification of cash flow hedges, net of tax -  -  -  22  -  -  22  22  -  22  
September 30, 2016 138  1,764  5,677  (42 )(15 )(1,061 )(1,118 )6,323  6  6,329  
See accompanying notes.  

AGRIUM INC.
Summarized Notes to the Consolidated Financial Statements
For the three and nine months ended September 30, 2016
(millions of U.S. dollars, unless otherwise stated)
(Unaudited)

1. Corporate Management

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.

We categorize our operating segments within the Retail and Wholesale business units as follows:

  • Retail: Distributes crop nutrients, crop protection products, seed and merchandise and provides financial and other services directly to growers through a network of farm centers in two geographical segments:
    • North America: including the United States and Canada
    • International: including Australia and South America
  • Wholesale: Produces, markets and distributes crop nutrients and industrial products through the following businesses:
    • Nitrogen: Manufacturing in Alberta and Texas
    • Potash: Mining and processing in Saskatchewan
    • Phosphate: Mining and production facilities in Alberta and Idaho
    • Wholesale Other: Purchasing and reselling crop nutrient products from other suppliers to customers in the Americas and Europe; producing blended crop nutrients and Environmentally Smart Nitrogen® (ESN) polymer-coated nitrogen crop nutrients; and operations of joint ventures and associates

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.

2. Operating Segments

Segment information by business unit Three months ended September 30,  
      2016   2015  
      Retail  Wholesale  Other(a)  Total   Retail  Wholesale  Other(a)  Total  
Sales - external 1,849  396  -  2,245   2,006  518  -  2,524  
    - inter-segment 8  122  (130 )-   5  155  (160 )-  
Total sales 1,857  518  (130 )2,245   2,011  673  (160 )2,524  
Cost of product sold 1,375  434  (132 )1,677   1,517  455  (144 )1,828  
Gross profit 482  84  2  568   494  218  (16 )696  
Gross profit (%) 26  16     25   25  32     28  
Expenses                          
  Selling 443  7  (4 )446   437  9  (5 )441  
  General and administrative 26  7  27  60   25  11  25  61  
  Share-based payments -  -  5  5   -  -  (15 )(15 )
  Loss (earnings) from associates and joint ventures 2  (5 )-  (3 ) 1  9  -  10  
  Other (income) expenses (19 )14  52  47   (33 )15  26  8  
Earnings (loss) before finance costs and income taxes 30  61  (78 )13   64  174  (47 )191  
  Finance costs -  -  66  66   -  -  55  55  
Earnings (loss) before income taxes 30  61  (144 )(53 ) 64  174  (102 )136  
  Depreciation and amortization 71  57  4  132   65  47  3  115  
  Finance costs -  -  66  66   -  -  55  55  
EBITDA(b) 101  118  (74 )145   129  221  (44 )306  
(a) Includes inter-segment eliminations.
(b) EBITDA is earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization.
Segment information by business unit Nine months ended September 30,  
      2016  2015  
      Retail  Wholesale  Other(a)  Total  Retail  Wholesale  Other(a)  Total  
Sales - external 9,907  1,478  -  11,385  10,410  1,978  -  12,388  
    - inter-segment 31  571  (602 )-  24  736  (760 )-  
Total sales 9,938  2,049  (602 )11,385  10,434  2,714  (760 )12,388  
Cost of product sold 7,775  1,611  (648 )8,738  8,305  1,853  (758 )9,400  
Gross profit 2,163  438  46  2,647  2,129  861  (2 )2,988  
Gross profit (%) 22  21     23  20  32     24  
Expenses                         
  Selling 1,423  23  (12 )1,434  1,440  29  (13 )1,456  
  General and administrative 76  23  78  177  83  27  84  194  
  Share-based payments -  -  22  22  -  -  36  36  
  (Earnings) loss from associates and joint ventures (5 )(27 )1  (31 )(3 )12  -  9  
  Other (income) expenses (14 )59  64  109  (37 )7  31  1  
Earnings (loss) before finance costs and income taxes 683  360  (107 )936  646  786  (140 )1,292  
  Finance costs -  -  206  206  -  -  179  179  
Earnings (loss) before income taxes 683  360  (313 )730  646  786  (319 )1,113  
  Depreciation and amortization 206  175  10  391  188  146  11  345  
  Finance costs -  -  206  206  -  -  179  179  
EBITDA 889  535  (97 )1,327  834  932  (129 )1,637  
(a) Includes inter-segment eliminations.
Segment information - Retail Three months ended September 30,  
      2016   2015  
      North         North        
      America  International  Retail(a)   America  International  Retail  
Sales - external 1,398  451  1,849   1,582  424  2,006  
    - inter-segment 8  -  8   5  -  5  
Total sales 1,406  451  1,857   1,587  424  2,011  
Cost of product sold 1,047  328  1,375   1,184  333  1,517  
Gross profit 359  123  482   403  91  494  
Expenses                    
  Selling 358  85  443   362  75  437  
  General and administrative 19  7  26   17  8  25  
  Loss from associates and joint ventures 2  -  2   1  -  1  
  Other income (14 )(5 )(19 ) (30 )(3 )(33 )
(Loss) earnings before income taxes (6 )36  30   53  11  64  
  Depreciation and amortization 65  6  71   59  6  65  
EBITDA 59  42  101   112  17  129  
(a)Included within the Retail business unit is a separate Financial Services operating segment with total sales of $5-million and EBITDA of $5-million.
Segment information - Retail Nine months ended September 30,  
      2016  2015  
      North        North        
      America  International  Retail(a)  America  International  Retail  
Sales - external 8,233  1,674  9,907  8,760  1,650  10,410  
    - inter-segment 31  -  31  24  -  24  
Total sales 8,264  1,674  9,938  8,784  1,650  10,434  
Cost of product sold 6,446  1,329  7,775  6,973  1,332  8,305  
Gross profit 1,818  345  2,163  1,811  318  2,129  
Expenses                   
  Selling 1,179  244  1,423  1,196  244  1,440  
  General and administrative 54  22  76  57  26  83  
  Earnings from associates and joint ventures (4 )(1 )(5 )(2 )(1 )(3 )
  Other expenses (income) 8  (22 )(14 )(18 )(19 )(37 )
Earnings before income taxes 581  102  683  578  68  646  
  Depreciation and amortization 189  17  206  168  20  188  
EBITDA 770  119  889  746  88  834  
(a) Included within the Retail business unit is a separate Financial Services operating segment with total sales of $9-million and EBITDA of $9-million.
Segment information - Wholesale Three months ended September 30,
      2016  2015  
     
Nitrogen
 
Potash
 
Phosphate
  Wholesale
Other(a)
 
Wholesale
 
Nitrogen
 
Potash
 
Phosphate
  Wholesale
Other(a)
 
Wholesale
 
Sales - external 173   73  84   66  396  226   90   116   86  518  
    - inter-segment 42   15  49   16  122  69   17   53   16  155  
Total sales 215   88  133   82  518  295   107   169   102  673  
Cost of product sold 156   87  122   69  434  165   65   138   87  455  
Gross profit 59   1  11   13  84  130   42   31   15  218  
Expenses                                    
  Selling 3   1  -   3  7  4   1   1   3  9  
  General and administrative 2   2  -   3  7  5   2   1   3  11  
  (Earnings) loss from associates and joint ventures -   -  -   (5 )(5 )-   -   -   9  9  
  Other expenses (income) 8   4  4   (2 )14  6   7   3   (1 )15  
Earnings (loss) before income taxes 46   (6 )7   14  61  115   32   26   1  174  
  Depreciation and amortization 16   22  17   2  57  16   16   13   2  47  
EBITDA 62   16  24   16  118  131   48   39   3  221  
(a) Includes product purchased for resale, ammonium sulfate, ESN and other products.
Segment information - Wholesale Nine months ended September 30,
      2016  2015  
     
Nitrogen
 
Potash
 
Phosphate
  Wholesale
Other(a)
 
Wholesale
 
Nitrogen
 
Potash
 
Phosphate
  Wholesale
Other(a)
 
Wholesale
 
Sales - external 642   206  274   356  1,478  859   227   344   548  1,978  
    - inter-segment 217   108  149   97  571  304   113   198   121  736  
Total sales 859   314  423   453  2,049  1,163   340   542   669  2,714  
Cost of product sold 557   283  387   384  1,611  620   223   437   573  1,853  
Gross profit 302   31  36   69  438  543   117   105   96  861  
Expenses                                    
  Selling 10   5  2   6  23  12   4   3   10  29  
  General and administrative 9   5  2   7  23  10   5   4   8  27  
  (Earnings) loss from associates and joint ventures -   -  -   (27 )(27 )-   -   -   12  12  
  Other expenses (income) 30   24  7   (2 )59  12   18   16   (39 )7  
Earnings (loss) before income taxes 253   (3 )25   85  360  509   90   82   105  786  
  Depreciation and amortization 52   73  40   10  175  54   43   37   12  146  
EBITDA 305   70  65   95  535  563   133   119   117  932  
(a) Includes product purchased for resale, ammonium sulfate, ESN and other products.
Gross profit by product line Three months ended September 30,   Nine months ended September 30,  
    2016 2015   2016 2015  
   

Sales
 Cost of
product
sold
 
Gross
profit
 

Sales
 Cost of
product
sold
 
Gross
profit
 

Sales
 Cost of
product
sold
 
Gross
profit
 

Sales
 Cost of
product
sold
 
Gross
profit
 
Retail                                        
  Crop nutrients 502  384  118   582  469  113   3,531  2,846  685   4,101  3,408  693  
  Crop protection products 983  757  226   1,040  806  234   4,064  3,246  818   4,002  3,203  799  
  Seed 59  37  22   60  34  26   1,361  1,107  254   1,350  1,120  230  
  Merchandise 175  146  29   166  141  25   454  378  76   482  410  72  
  Services and other (a) 138  51  87   163  67  96   528  198  330   499  164  335  
    1,857  1,375  482   2,011  1,517  494   9,938  7,775  2,163   10,434  8,305  2,129  
Wholesale                                        
  Nitrogen 215  156  59   295  165  130   859  557  302   1,163  620  543  
  Potash 88  87  1   107  65  42   314  283  31   340  223  117  
  Phosphate 133  122  11   169  138  31   423  387  36   542  437  105  
  Product purchased for resale 29  29  -   49  47  2   178  174  4   345  335  10  
  Ammonium sulfate, ESN and other 53  40  13   53  40  13   275  210  65   324  238  86  
    518  434  84   673  455  218   2,049  1,611  438   2,714  1,853  861  
Other inter-segment eliminations (130 )(132 )2   (160 )(144 )(16 ) (602 )(648 )46   (760 )(758 )(2 )
Total 2,245  1,677  568   2,524  1,828  696   11,385  8,738  2,647   12,388  9,400  2,988  
                                           
Wholesale share of joint ventures                                       
  Nitrogen 66  53  13   57  58  (1 ) 131  111  20   123  119  4  
  Product purchased for resale -  -  -   -  -  -   -  -  -   38  37  1  
    66  53  13   57  58  (1 ) 131  111  20   161  156  5  
Total Wholesale including proportionate share in joint ventures
584
 
487
 
97
 
730
 
513
 
217
 
2,180
 
1,722
 
458
 
2,875
 
2,009
 
866
 
(a) Includes financial services products.
Selected volumes and per tonne information Three months ended September 30,  
        2016 2015  
       
Sales
tonnes
(000's)
 
Selling
price
($/tonne)
  Cost of
product
sold
($/tonne)
 

Margin
($/tonne)
 
Sales
tonnes
(000's)
 
Selling
price
($/tonne)
  Cost of
product
sold
($/tonne)
 

Margin
($/tonne)
 
Retail                                
  Crop nutrients                                
    North America 757   458   332   126   777   557   429   128  
    International 406   384   327   57   342   437   395   42  
  Total crop nutrients 1,163   432   331   101   1,119   520   418   102  
                                       
Wholesale                                
  Nitrogen                                
    North America                                
      Ammonia 207   378           219   476          
      Urea 359   269           378   380          
      Other 173   234           163   289          
  Total nitrogen 739   291   212   79   760   388   217   171  
                                       
  Potash                                
    North America 198   223           147   341          
    International 298   148           237   241          
  Total potash 496   178   175   3   384   279   171   108  
                                       
  Phosphate 278   478   439   39   269   629   514   115  
  Product purchased for resale 107   274   268   6   111   444   424   20  
  Ammonium sulfate 71   242   120   122   62   296   134   162  
  ESN and other 101               81              
Total Wholesale 1,792   289   242   47   1,667   404   273   131  
                                       
Wholesale share of joint ventures                                
  Nitrogen 231   286   231   55   142   401   413   (12 )
  Product purchased for resale -   -   -   -   -   -   -   -  
    231   286   231   55   142   401   413   (12 )
Total Wholesale including proportionate share in joint ventures
2,023
 
289
 
241
 
48
 
1,809
 
404
 
284
 
120
 
Selected volumes and per tonne information Nine months ended September 30,  
        2016 2015  
       
Sales
tonnes
(000's)
 
Selling
price
($/tonne)
  Cost of
product
sold
($/tonne)
 

Margin
($/tonne)
 
Sales
tonnes
(000's)
 
Selling
price
($/tonne)
  Cost of
product
sold
($/tonne)
 

Margin
($/tonne)
 
Retail                                
  Crop nutrients                                
    North America 6,410   459   360   99   6,356   542   441   101  
    International 1,561   378   345   33   1,516   432   399   33  
  Total crop nutrients 7,971   443   357   86   7,872   521   433   88  
                                       
Wholesale                                
  Nitrogen                                
    North America                                
      Ammonia 831   414           835   544          
      Urea 1,181   302           1,197   407          
      Other 636   250           712   310          
  Total nitrogen 2,648   325   211   114   2,744   424   226   198  
                                       
  Potash                                
    North America 901   218           630   369          
    International 748   157           448   240          
  Total potash 1,649   191   172   19   1,078   316   208   108  
                                       
  Phosphate 803   527   482   45   841   645   520   125  
  Product purchased for resale 596   299   292   7   941   366   356   10  
  Ammonium sulfate 242   279   119   160   240   345   146   199  
  ESN and other 516               501              
Total Wholesale 6,454   318   250   68   6,345   428   292   136  
                                       
Wholesale share of joint ventures                                
  Nitrogen 447   293   249   44   308   400   388   12  
  Product purchased for resale -   -   -   -   117   321   309   12  
    447   293   249   44   425   378   366   12  
Total Wholesale including proportionate share in joint ventures
6,901
 
316
 
250
 
66
 
6,770
 
425
 
297
 
128
 

3. Risk Management

Commodity price risk            
                       
Natural gas derivative financial instruments outstanding (notional amounts in millions of MMBtu)  
    September 30,   December 31,  
    2016   2015  
   

Notional
 Average
contract
price(a)
 Fair value
of assets
(liabilities)
 

Notional
 Average
contract
price(a)
 Fair value
of assets
(liabilities)
 
Designated as hedges                    
  AECO swaps 54  2.96  (44 ) 74  2.78  (56 )
          (44 )       (56 )
(a)U.S. dollars per MMBtu.
  Fair value of assets (liabilities)  
Maturities of natural gas derivative contracts 2016  2017  2018  
Designated as hedges (5 )(20 )(19 )
Impact of change in fair value of natural gas derivative financial instruments September 30,    December 31,  
  2016    2015  
A $10-million impact to other comprehensive income requires movement in gas prices per MMBtu 0.25    0.28  
Use of derivatives to hedge exposure to natural gas market price risk      
Term (gas year - 12 months ending October 31) 2016  2017  2018  2019   
Maximum allowable (% of forecast gas requirements) 75  75  75  25  (a)
Forecast average monthly natural gas consumption (millions of MMBtu) 9  9  9  9   
Gas requirements hedged using derivatives designated as hedges (%) 29  24  20  -   
(a)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 derivative contracts is identical to the hedged risk, and accordingly we have established a ratio of 1:1 for all natural gas hedges. Due to a strong correlation between AECO future contract prices and our delivered cost, we did not experience any ineffectiveness on our hedges, and accordingly we have recorded the full change in the fair value of natural gas derivative contracts designated as hedges to other comprehensive income.

Currency risk                         
                              
Foreign exchange derivative financial instruments outstanding (notional amounts in millions of U.S. dollars)  
  September 30,  December 31,  
      2016  2015  
Sell/Buy

Notional
 

Maturities
 Average
contract
price(a)
 Fair value
of assets
(liabilities)
 

Notional
 

Maturities
 Average
contract
price(a)
 Fair value
of assets
(liabilities)
 
  Forwards                         
    USD/CAD 47  2016  1.32  -  190  2016  1.38  (1 )
    CAD/USD 2,062  2016  1.31  (1 )1,805  2016  1.35  45  
    USD/AUD 52  2016 - 2017  1.40  4  73  2016  1.42  2  
    AUD/USD 74  2016 - 2017  1.38  (4 )143  2016  1.43  (3 )
  Options                         
    USD/CAD - buy USD puts 28  2016  1.30  1  -  -  -  -  
    USD/CAD - sell USD calls 48  2016  1.40  -  -  -  -  -  
    USD/AUD - buy USD puts -  -  -  -  59  2016  1.38  (1 )
               -           42  
(a)Foreign currency per U.S. dollar.
      September 30,   December 31,
      2016   2015
      Fair value         Fair value      
      Level 1  Level 2   Carrying value     Level 1  Level 2   Carrying value  
Financial instruments measured at fair value on a recurring basis                        
  Cash and cash equivalents -  311   311     -  515   515  
  Accounts receivable - derivatives -  13   13     -  48   48  
  Other current financial assets - marketable securities
25
 
104
 
129
   
20
 
122
 
142
 
  Accounts payable - derivatives -  32   32     -  29   29  
  Other financial liabilities - derivatives -  25   25     -  33   33  
Financial instruments measured at amortized cost                        
  Current portion of long-term debt                        
    Debentures -  102   100     -  -   -  
    Fixed and floating rate debt -  10   10     -  8   8  
  Long-term debt                        
    Debentures -  4,893   4,371     -  4,464   4,469  
    Fixed and floating rate debt -  29   29     -  44   44  

There have been no transfers between Level 1 and Level 2 fair value measurements in the nine months ended September 30, 2016 or September 30, 2015. We do not measure any of our financial instruments using Level 3 inputs.

4. Expenses

  Three months ended  Nine months ended  
Other expenses September 30,  September 30,  
  2016  2015  2016  2015  
Loss on foreign exchange and related derivatives 2  13  10  13  
Interest income (20 )(19 )(49 )(52 )
Gain on sale of assets -  -  -  (38 )
Environmental remediation and asset retirement obligations 4  6  9  15  
Bad debt expense (recovery) 3  (4 )32  28  
Potash profit and capital tax 2  3  10  13  
Merger and related costs 17  6  17  17  
Litigation settlements and related fees 18  3  18  4  
Other 21  -  62  1  
  47  8  109  1  

5. Debt

         September 30,     December 31,
          2016     2015
    Maturity  Rate (%)(a)         
Short-term debt              
  Commercial paper 2016  0.94  1,609     632
  Credit facilities    7.02  131     203
          1,740     835
(a)Weighted average rates at September 30, 2016.

6. Business Acquisitions

In September 2016, our Retail business unit acquired 16 farm centers located in the provinces of Alberta and Saskatchewan from Andrukow Group Solutions Inc. and 18 farm centers located across the northern U.S. Corn-Belt region from Cargill AgHorizons (U.S.) for preliminary purchase consideration of $165-million, subject to working capital adjustments. Benefits of the acquisitions include expansion of geographical coverage for the sale of crop inputs in Canada and the U.S., acquisition of existing customer base and workforce, the value of synergies between Agrium and the acquired businesses and cost savings opportunities.

We have engaged an independent valuation firm to assist in determining the fair value of assets acquired, liabilities assumed, including contingent liabilities and provisions, and related deferred income tax impacts. The valuations are in progress and are not complete due to the timing of the transactions' closing dates.

Proposed Merger with Potash Corporation of Saskatchewan Inc. ("PotashCorp")

Agrium and PotashCorp entered into an agreement dated September 11, 2016 (the "Agreement"), under which the companies will combine in a merger of equals into a newly incorporated parent entity ("New Parent") to be formed to manage and hold the combined businesses of both Agrium and PotashCorp. The Agreement will be implemented by a proposed plan of arrangement (the "Arrangement"). Under the Arrangement, Agrium shareholders will receive 2.23 New Parent shares for each Agrium share held and PotashCorp shareholders will receive 0.40 of a New Parent share for each PotashCorp share held. Following the completion of the Agreement, Agrium and PotashCorp will become wholly-owned subsidiaries of New Parent and New Parent will continue the operations of Agrium and PotashCorp on a combined basis. Each of the share-based payment awards for each of Agrium and PotashCorp, whether vested or unvested, that are outstanding immediately prior to the completion of the Arrangement will convert into a New Parent award.

The Arrangement is anticipated to be completed in mid-2017, subject to customary closing conditions including receipt of regulatory and court approvals and approval by Agrium securityholders and PotashCorp shareholders. Each of Agrium and PotashCorp have scheduled a special meeting of their securityholders and shareholders on November 3, 2016 to consider, among other things, a resolution to approve the Arrangement.

The estimated costs to be incurred by Agrium and PotashCorp with respect to the Arrangement and related matters are expected to aggregate approximately $140-million.

The Agreement contains provisions that restrict Agrium's and PotashCorp's ability to pursue alternatives to the Arrangement and, in specified circumstances, Agrium or PotashCorp could be required to pay the other party a non-completion fee of $485-million plus $50-million as reimbursement for related expenses.

Additional information and the full text of the Agreement and the Arrangement are included in Agrium and PotashCorp's joint proxy circular filed on SEDAR on October 6, 2016.

Contact Information

  • FOR FURTHER INFORMATION:
    Investor/Media Relations:
    Richard Downey, Vice President, Investor & Corporate Relations
    (403) 225-7357

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

    Louis Brown, Analyst, Investor Relations
    (403) 225-7761

    Contact us at: www.agrium.com