SOURCE: Agrium Inc.

Agrium Inc.

November 07, 2017 18:19 ET

Agrium Reports Third Quarter Results

CALGARY, AB--(Marketwired - November 07, 2017) -

ALL AMOUNTS ARE STATED IN U.S.$

Agrium Inc. (TSX: AGU) (NYSE: AGU) announced today its 2017 third quarter results, with a net loss from continuing operations of $69-million ($0.52 diluted loss per share) compared to a net loss from continuing operations of $38-million ($0.28 diluted loss per share) in the third quarter of 2016. The third quarter results were driven by lower overall sales volumes and higher cost of product sold related to several scheduled maintenance turnarounds and higher share-based payments due to a year-to-date total shareholder return of 10 percent at September 30th.

Highlights:

  • 2017 third quarter loss from continuing operations, adjusted for items not included in guidance, was $27-million or $0.23 diluted loss per share (see page 2 for adjusted net earnings (loss) and guidance relevant earnings (loss) reconciliations).
  • Wholesale conducted a number of scheduled maintenance turnarounds this quarter, some of which took longer than expected, but operating rates are now back at normal levels.
  • The Retail business unit reported a 9 percent increase in EBITDA1 this quarter, despite the impact of severe dry weather in Australia and Canada. U.S. Retail earnings were up 22 percent as contributions from acquisitions and stronger proprietary sales more than offset the impact of severe hurricanes in the southern U.S.
  • Retail made additional acquisitions in the third quarter with Southern States Cooperative in Georgia and Florida (20 locations). Year-to-date, Retail has purchased 38 locations with estimated annual revenues of approximately $250-million.
  • Agrium has updated our 2017 annual guidance to a range of $4.65 to $4.80 diluted earnings per share from continuing operations, primarily reflecting lower volumes resulting from facility downtime (see page 4 for guidance assumptions and further details).
  • Agrium recently completed the sale of our Conda phosphate and North Bend nitric acid facilities and the merger recently received regulatory approval in China. The sale of the Agrium assets are being reviewed by the U.S. Federal Trade Commission and is the only remaining approval required on the merger. The parties still expect the close of the merger by the end of the fourth quarter of 2017.
  • A loss of $182-million, net of tax was recorded in discontinued operations associated with the sale of Conda.

"Our results this quarter were impacted by a particularly intense summer maintenance schedule, extreme dry weather in Canada and Australia and the two hurricanes in the southern U.S. Looking at the fall season and into 2018, we see solid grower demand for fertilizer and other crop inputs, and expect fertilizer markets to demonstrate continued strength," commented Chuck Magro, Agrium's President and CEO. "The sale of Conda and North Bend and China's recent regulatory approval are significant steps toward completing the merger with PotashCorp by year end and we are excited to move forward as Nutrien in 2018," added Mr. Magro.

1 Net earnings (loss) before finance costs, income taxes, depreciation and amortization, and net earnings (loss) from discontinued operations.

 
ADJUSTED NET EARNINGS (LOSS) AND GUIDANCE RELEVANT EARNINGS (LOSS) RECONCILIATIONS
  Three months ended
September 30, 2017
 Nine months ended
September 30, 2017
 
(millions of U.S. dollars, except per share amounts) Expense  Net earnings (loss)
from continuing
operations
impact
(post-tax)
 Per share (a)  Expense  Net earnings (loss)
from continuing
operations
impact
(post-tax)
 Per share (a)
      (69)  (0.52)     475  3.40
Adjustments:                  
 Share-based payments  40  29  0.21  40  29  0.21
 Foreign exchange loss (gain) net of non-qualifying derivatives  7  5  0.03  11  8  0.06
 Merger and related costs  11  8  0.05  42  30  0.22
 Impact of Egyptian pound devaluation on investee earnings  -  -  -  (16)  (11)  (0.08)
Adjusted net earnings (loss) (b)     (27)  (0.23)     531  3.81
 Gain on sale of assets  -  -  -  (7)  (5)  (0.04)
Guidance relevant earnings (loss) (b)     (27)  (0.23)     526  3.77
(a)  Diluted per share information attributable to equity holders of Agrium.
(b)  Forecasted annual tax rate of 28.5 percent was used for the adjusted net earnings (loss), guidance relevant earnings (loss) and per share calculations. These are non-IFRS measures which represent net earnings (loss) adjusted for certain income (expenses) that are considered to be non-operational in nature. We believe these measures provide meaningful comparison to 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. Our guidance is forward-looking information. We present guidance relevant earnings (loss) per share to provide an update to this previously disclosed forward-looking information. 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.
 

MARKET OUTLOOK

Agriculture and Crop Input Fundamentals

  • Mild temperatures and timely precipitation in key areas of the U.S. Corn Belt stabilized and improved U.S. corn and soybean crops, leading to increased yield forecasts and a seasonal decline in prices. The United States Department of Agriculture ("USDA") projects that national average U.S. corn yields will be just under 172 bushels per acre, which would be down from the record yields in 2016, but the second highest in history. Grower economics are similar to last year.
  • We expect a normal fall application season in North America, even though corn harvest is behind average levels for this time of year. There has been relatively widespread rain across dry areas of the U.S. Corn Belt over the past month, which is expected to support an average to above-average fall application season.
  • A key region to monitor in the months to come is the dryness in parts of Brazil which is delaying soybean planting. Drought has also been a problem in Australia, where the USDA projects wheat production will decline by 36 percent in 2017/18.

Nitrogen Outlook

  • Nitrogen prices have rallied in recent months, with benchmark urea prices increasing by more than 50 percent since July. This has been due largely to weak Chinese urea exports, which in combination with robust Indian import demand has significantly tightened the global supply and demand balance. Chinese urea exports were down 53 percent or close to four million tonnes year-over-year through the end of September. Chinese production rates remain at low levels, despite higher global urea prices, partly due to the substantial increase in coal prices.
  • Indian urea imports have been strong and the prospects for the remainder of 2017 are positive as there has been a significant drawdown in Indian urea inventories in 2017. Looking ahead to 2018, there are some risks to Indian demand, including the Direct Benefit Transfer program, which will provide the urea subsidy to the grower at the point of sale as opposed to being provided to the upstream distributor. In addition, the Indian government has indicated that the allowable urea bag size will be reduced from 50 kilograms to 45 kilograms, which may negatively impact urea application rates.
  • The U.S. urea trade balance turned positive from June to August 2017, as offshore urea exports exceeded offshore imports by 5 percent during the slower seasonal demand period. However, a seasonal urea deficit in the U.S. is expected in late 2017 and/or early 2018 which should lend support to prices. Taking into account all these factors we expect the nitrogen market to remain relatively tight through into the spring of 2018.

Potash Outlook

  • Global potash shipments have shown continued strength, which has led most global benchmarks to increase. Trade into key markets has remained at high levels as imports on a year-to-date basis are up 12 percent in Brazil, 36 percent in India and 28 percent in China over the same period last year.
  • Producers have increased production but have remained comfortably sold forward, which we expect to lead to relatively low producer potash inventories at the end of 2017. We expect there to be limited supplies available from new capacity for the remainder of 2017 and into the first half of 2018 and anticipate an annual average growth in potash demand of approximately 3 percent in 2018.
  • U.S. offshore imports of potash are also on a record pace, which is indicative of the strong demand in the market. While fall applications are always dependent on weather conditions and harvest pace, current prices are still affordable and are expected to support strong demand.

Phosphate Outlook

  • Phosphate export prices have strengthened due to tightened export availability from China and the impacts of Hurricane Irma on Florida production and inventories.
  • Finished phosphate import demand has been mixed as demand continues to be strong in Pakistan and is up year-over-year in Brazil, but Indian imports have continued to be lower than expected, which is expected to tighten domestic inventories and support imports in 2018 assuming import economics improve.
  • Key raw material costs have increased significantly in recent months as ammonia prices have increased between 40 and more than 70 percent, while sulfur prices have increased between 40 and more than 120 percent.

2017 ANNUAL GUIDANCE

Based on our assumptions set out under the heading "Market Outlook", Agrium expects to achieve annual diluted earnings per share from continuing operations of $4.65 to $4.80 in 2017 compared to our previous estimate of $4.75 to $5.25 per share. We have reduced our annual guidance range to reflect the lost production volumes in the third quarter and the impact of challenging weather conditions on our Retail operations, particularly those areas impacted by hurricanes. We have also narrowed the range width encompassing approximately $30-million of EBITDA variability.

We have updated our Retail EBITDA range between $1.160-billion to $1.190-billion compared to our previous guidance of $1.150-billion to $1.20-billion, while our estimate for Retail crop nutrient sales volumes has been reduced to between 9.9 million and 10.2 million tonnes in 2017.

Based on our expected utilization rate for our nitrogen assets, we are updating our nitrogen production range to between 3.3 and 3.4 million tonnes. Our earnings per share guidance assumes NYMEX gas prices will average between $2.95 and $3.15 per MMBtu for 2017.

We have also revised our expected potash production range for 2017 to between 2.4 and 2.5 million tonnes.

Total capital expenditures in 2017 are expected to be in the range of $650-million to $700-million, of which approximately $425-million to $475-million is expected to be sustaining capital expenditures.

Agrium's annual effective tax rate for 2017 on continuing operations is expected to range between 27 and 29 percent.

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. Except as described under the heading "Market Outlook", volumetric and earnings estimates assume normal seasonal growing and harvest patterns in the geographies where Agrium operates.

 
2017 ANNUAL GUIDANCE RANGE AND ASSUMPTIONS
                     Annual
  Low  High
Diluted EPS from continuing operations (in U.S. dollars) $4.65  $4.80
Guidance assumptions:     
Wholesale:     
 Production tonnes:     
  Nitrogen (millions) 3.3  3.4
  Potash (millions) 2.4  2.5
Retail:     
  EBITDA (millions of U.S. dollars) $1,160  $1,190
  Crop nutrient sales tonnes (millions) 9.9  10.2
Other:     
  Tax rate 29%  27%
  Sustaining capital expenditures (millions of U.S. dollars) $425  $475
  Total capital expenditures (millions of U.S. dollars) $650  $700
     

November 7, 2017

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) as issued by the International Accounting Standards Board and is presented in accordance with International Accounting Standard 34 - Interim Financial Reporting. All comparisons of results for the third quarter of 2017 (three months ended September 30, 2017) and for the nine months ended September 30, 2017 are against results for the third quarter of 2016 (three months ended September 30, 2016) and nine months ended September 30, 2016. All dollar amounts refer to United States (U.S.) dollars except where otherwise stated. The financial measure net earnings (loss) before finance costs, income taxes, depreciation and amortization and net earnings (loss) from discontinued operations (EBITDA) 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 this non-IFRS financial measure to provide useful information to both management and investors in measuring our financial performance. This non-IFRS financial measure 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 each such measure to its most directly comparable measure calculated in accordance with IFRS.

The following interim MD&A is as of November 7, 2017 and should be read in conjunction with the Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 2017 (the "Condensed Consolidated Financial Statements"), and the annual MD&A and consolidated financial statements for the year ended December 31, 2016 included in our 2016 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.

2017 Third Quarter Operating Results

 
CONSOLIDATED NET EARNINGS
 
Financial Overview
                         
(millions of U.S. dollars, except per share amounts  Three months ended September 30,  Nine months ended September 30,
and where noted)  2017  2016 (a)  Change  % Change  2017  2016 (a)  Change  % Change
Sales  2,382  2,192  190  9  11,316  11,219  97  1
Gross profit  557  568  (11)  (2)  2,642  2,630  12  -
Expenses  578  553  25  5  1,748  1,704  44  3
Net (loss) earnings before finance costs, income taxes and net earnings (loss) from discontinued operations  (21)  15  (36)  (240)  894  926  (32)  (3)
Net (loss) earnings from continuing operations  (69)  (38)  (31)  82  475  515  (40)  (8)
Net (loss) earnings from discontinued operations  (182)  (1)  (181)  18,100  (178)  14  (192)  (1,371)
Net (loss) earnings  (251)  (39)  (212)  544  297  529  (232)  (44)
Diluted (loss) earnings per share from continuing operations  (0.52)  (0.28)  (0.24)  86  3.40  3.70  (0.30)  (8)
Diluted (loss) earnings per share from discontinued operations  (1.32)  (0.01)  (1.31)  13,100  (1.29)  0.10  (1.39)  (1,390)
Diluted (loss) earnings per share  (1.84)  (0.29)  (1.55)  534  2.11  3.80  (1.69)  (44)
Effective tax rate (%)  30.3  27.4  3  N/A  28.9  28.4  1  N/A
(a)  Certain amounts have been restated as a result of discontinued operations.
     
Sales and Gross Profit      
                   
   Three months ended September 30,  Nine months ended September 30,
(millions of U.S. dollars)  2017  2016 (a)  Change  2017  2016 (a)  Change
Sales                  
 Retail  2,067  1,857  210  10,014  9,938  76
 Wholesale  443  445  (2)  1,825  1,834  (9)
 Other  (128)  (110)  (18)  (523)  (553)  30
   2,382  2,192  190  11,316  11,219  97
                   
Gross profit                  
 Retail  518  482  36  2,251  2,163  88
 Wholesale  46  84  (38)  384  421  (37)
 Other  (7)  2  (9)  7  46  (39)
   557  568  (11)  2,642  2,630  12
(a)  Certain amounts have been restated as a result of discontinued operations.
 
  • Retail's sales and gross profit primarily increased in the third quarter and first nine months of 2017 compared to the same periods last year as a result of higher crop protection product sales and related application services and recent acquisitions.
  • Wholesale's sales for the third quarter and first nine months of 2017 were flat compared to same periods last year, while gross profits were lower. Realized selling prices for nitrogen decreased while potash selling prices increased consistent with benchmark prices. Cost of product sold was higher due to several scheduled maintenance turnarounds in our production facilities and higher natural gas input costs.

Expenses

  • Selling expense as a percentage of sales was consistent for the third quarter and first nine months of 2017 compared to the same periods last year, while general and administrative expenses were flat.
  • Share-based payments expense was higher by $35-million in the third quarter and $18-million for the first nine months of 2017 due to increases in our share price.
  • Our earnings from associates and joint ventures were consistent for the third quarter and the first nine months of 2017. For the first nine months of 2017, we recognized a foreign exchange gain in Misr Fertilizers Production Company S.A.E. ("MOPCO") from the devaluation of the Egyptian pound in the first quarter of this year which was partially offset by a reversal of gas provision in Profertil S.A. ("Profertil") recorded in the prior year.
  • Other expenses decreased by $29-million for the third quarter and $35-million for the first nine months of 2017. This decrease is primarily due to lower legal settlements in 2017 and losses incurred in 2016 related to a termination of a distribution agreement and cancellation of a Canpotex terminal. This was partially offset by costs incurred related to our merger with Potash Corporation of Saskatchewan ("PotashCorp").

For further breakdown on Other expenses, see table below:

           
Other expenses breakdown               
   Three months ended  Nine months ended
   September 30,  September 30,
(millions of U.S. dollars)  2017  2016 (a)  Change  2017  2016 (a)  Change
Loss on foreign exchange and related derivatives  
7
 
2
 
5
 
11
 
10
 
1
Interest income  (17)  (20)  3  (43)  (49)  6
Environmental remediation andasset retirement obligations  
2
 
4
 
(2)
 
1
 
9
 
(8)
Bad debt expense  8  3  5  37  32  5
Potash profit and capital tax  3  2  1  9  10  (1)
Merger and related costs  11  17  (6)  42  17  25
Other  2  37  (35)  12  75  (63)
   16  45  (29)  69  104  (35)
(a) Certain amounts have been restated as a result of discontinued operations.
 
Depreciation and Amortiation
 
Depreciation and amortization breakdown
   Three months ended September 30,
   2017        2016 (a)   
   Cost of
product
sold
 

Selling
 General
and
administrative
 

Total
 Cost of
product
sold
 

Selling
 General
and
administrative
 

Total
   
(millions of U.S. dollars)  
Retail  3  69  1  73  2  67  2  71
Wholesale                        
 Nitrogen  16  -  1  17  16  -  -  16
 Potash  21  -  -  21  22  -  -  22
 Phosphate  3  -  -  3  4  -  -  4
 Wholesale Other (b)  3  -  -  3  2  -  -  2
   43  -  1  44  44  -  -  44
Other  -  -  4  4  -  -  4  4
Total  46  69  6  121  46  67  6  119
                         
                         
   Nine months ended September 30,
   2017        2016 (a)   
   Cost of
product
sold
 

Selling
 General
and
administrative
 

Total
 Cost of
product
sold
 

Selling
 General
and
administrative
 

Total
   
(millions of U.S. dollars)  
Retail  6  205  4  215  5  197  4  206
Wholesale                        
 Nitrogen  58  -  1  59  52  -  -  52
 Potash  82  -  -  82  73  -  -  73
 Phosphate  12  -  -  12  11  -  -  11
 Wholesale Other (b)  10  -  1  11  9  -  1  10
   162  -  2  164  145  -  1  146
Other  -  -  13  13  -  -  10  10
Total  168  205  19  392  150  197  15  362
(a)  Certain amounts have been restated as a result of discontinued operations.
(b)  This includes ammonium sulfate, Environmentally Smart Nitrogen® (ESN) and other products.
 
  • Depreciation and amortization expense increased in the third quarter and first nine months of 2017 primarily due to the completion of our Borger nitrogen facility expansion. This was partially offset by lower sales and production volumes in the third quarter due to planned and unplanned outages at our facilities for which we calculate such expense on a units-of-production basis.

Effective Tax Rate

  • The effective tax rates for the third quarter and first nine months of 2017 are higher than the tax rates compared to the similar periods in 2016. The increase in the effective tax rate for the quarter is primarily due to the recognition of a previously unrecognized tax benefit and the increase in the effective tax rate for the first nine months of 2017 is due to a decrease in certain U.S. manufacturing tax deductions.

BUSINESS SEGMENT PERFORMANCE

       
Retail         
          
          
   Three months ended September 30,
(millions of U.S. dollars, except where noted)  2017  2016  Change
Sales  2,067  1,857  210
Cost of product sold  1,549  1,375  174
Gross profit  518  482  36
EBIT  37  30  7
EBITDA  110  101  9
Selling and general and administrative expenses  489  469  20
Selling and general and administrative expenses as a % of sales (%)  23.7  25.3  (1.6)
       
  • Retail EBITDA increased by 9 percent compared to the same period last year, driven by higher sales volumes for crop protection products, nutrients and related application services; associated with organic growth and acquisitions. Total proprietary product sales as a percentage of total sales increased 1 percentage point compared to the same period last year.
  • Retail selling, general and administrative expenses were up slightly over last year due to acquisitions made in 2017 and in the prior year. Selling, general and administrative expenses as a percent of revenue were down year-over-year to 23.7 percent in the third quarter of 2017 compared to 25.3 percent for the same period last year.
  • Retail North American EBITDA increased 19 percent in the third quarter despite the impact from challenging weather conditions in the southern U.S. Year-to-date, the U.S. has seen a 5 percent increase in EBITDA and Canada a 3 percent increase. EBITDA for our International Retail operations decreased slightly this quarter compared to the same period last year, as Australia faced drought conditions which impacted crop protection sales in particular. South American results were also down slightly, primarily due to excessive moisture impacting nutrient applications.
         
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)  2017  2016  Change  2017  2016  Change  2017  2016
Crop nutrients  528  502  26  120  118  2  23  24
Crop protection products  1,117  983  134  243  226  17  22  23
Seed  59  59  -  21  22  (1)  36  37
Merchandise  187  175  12  29  29  -  16  17
Services and other  176  138  38  105  87  18  60  63
                 

Crop nutrients

  • Total crop nutrient sales increased by 5 percent compared to the prior year, due to higher sales volumes related largely to acquisitions. This was partially offset by marginally lower realized average sales prices for nutrients. Sales volumes were up 11 percent in North America this quarter due to the late application season in the U.S. and the acquisitions made over the past year.
  • Total nutrient gross profit increased by 2 percent due to higher sales volumes which were partially offset by lower global benchmark prices during the quarter.

Crop protection products

  • Total crop protection product sales increased by 14 percent compared to the same period last year due to higher volumes sold as the later summer application season saw solid demand for herbicide and fungicide products. Total proprietary crop protection sales as a percentage of total crop protection sales increased 1 percentage point compared to the same period in 2016.
  • Gross profit was 8 percent higher than the prior period due to higher sales volumes of both brand name and proprietary products. Gross margin as a percentage of sales decreased by 1 percent due to a product shift related to decreased field activity as a result of the two major hurricanes, dry weather in parts of the Corn Belt which decreased demand for some higher margin products and a slightly more competitive market environment.

Seed

  • Total seed sales were similar to the third quarter in 2016, while total gross profit was marginally lower. Seed gross profit as a percentage of sales declined to 36 percent this quarter from 37 percent same quarter last year. The marginal decline was attributed to increased replanting discounts and crop loss credits related to regional weather challenges.

Merchandise

  • Merchandise sales increased 7 percent this period with strong demand in Australia. Gross profit as a percentage of sales declined 1 percent compared to the third quarter of 2016 due to differences in product mix.

Services and other

  • Sales for services and other increased by 28 percent this quarter compared to last year due to higher livestock shipments in Australia and the later application season in the U.S. for both nutrients and crop protection products.
     
Wholesale    
         
   Three months ended September 30,
(millions of U.S. dollars, except where noted)  2017  2016 (a)  Change
Sales  443  445  (2)
Sales volumes (tonnes 000's)  1,614  1,657  (43)
Cost of product sold  397  361  36
Gross profit  46  84  (38)
EBIT  33  63  (30)
EBITDA  77  107  (30)
Expenses  13  21  (8)
(a)  Certain amounts have been restated as a result of discontinued operations.
 
  • Wholesale gross profit and EBITDA this quarter was lower than the same period last year due mainly to several major planned maintenance turnarounds and lower realized nitrogen prices. The scheduled outages along with a couple of minor unplanned production losses caused by both internal and external factors, resulted in lower production volumes and increased cost of product sold this quarter. Lower realized nitrogen prices reflected sales weakness in nitrogen fertilizer benchmarks during the second quarter and corresponding forward sales activity in the third quarter. This was partly offset by higher realized potash prices.
 
Wholesale NPK product information
   Three months ended September 30,
   Nitrogen  Potash  Phosphate
   2017  2016  Change  2017  2016  Change  2017  2016 (a)  Change
Gross profit (U.S. dollar millions)  28  59  (31)  10  1  9  (4)  11  (15)
Sales volumes (tonnes 000's)  668  739  (71)  462  496  (34)  140  143  (3)
Selling price ($/tonne)  270  291  (21)  216  178  38  436  418  18
Cost of product sold ($/tonne)  228  212  16  193  175  18  465  343  122
Gross margin ($/tonne)  42  79  (37)  23  3  20  (29)  75  (104)
(a) Certain amounts have been restated as a result of discontinued operations.
 

Nitrogen

  • Nitrogen gross profit was down 53 percent compared to the same period last year due to lower production volumes and higher cost of product sold per tonne. This was driven primarily by planned outages across several major production facilities and a number of unplanned outages caused by both internal and external factors.
  • Total sales volumes were down 10 percent due to lower product availability during the quarter. Ammonia sales volumes were 35 percent lower during the quarter due to reduced saleable product availability because of the Borger urea plant ramp-up, a shift in industrial sales timing, production turnaround activity and a later start to fall applications. Urea and other nitrogen product sales were in line with the prior year.
  • Realized selling prices per tonne were 7 percent lower compared to the same period last year due to lower global benchmark nitrogen prices through the late spring and early summer and the timing of forward sales activity.
  • Cost of product sold per tonne increased 8 percent due to turnarounds and lower production volumes, which spread fixed costs across fewer tonnes. Realized natural gas costs were also slightly higher than the same period in 2016.
   
Natural gas prices: North American indices and North American Agrium prices
  Three months ended September 30,
(U.S. dollars per MMBtu) 2017 2016
Overall gas cost excluding realized derivative impact 1.74 2.05
Realized derivative impact 0.72 0.28
Overall gas cost 2.46 2.33
Average NYMEX 2.97 2.78
Average AECO 1.61 1.69
   

Potash

  • Potash gross profit was higher than the prior year, due to higher selling prices, partially offset by a higher cost of product sold and lower sales volumes.
  • Sales volumes were 7 percent lower in the current period. International volumes were 29 percent lower than the third quarter of 2016 due to the timing of sales to Canpotex, while North American volumes increased 27 percent.
  • Average realized selling prices increased by 21 percent over the past year, with realized North American prices up 13 percent and International selling prices increasing 16 percent.
  • Our cost of product sold per tonne was 10 percent higher than the same period last year due to a stronger Canadian dollar and a higher percentage of domestic sales volumes, which include freight and distribution in the cost of product sold. In addition to the scheduled turnaround during the quarter, some temporary mechanical issues with the hoist resulted in lower production than planned.

Phosphate

  • Phosphate gross profit was lower than the same period last year, due to the planned turnaround at the Redwater plant in the quarter and a stronger Canadian dollar, which caused higher cost of product sold. The 2016 costs also benefited from a favorable freight expense adjustment.
  • Realized selling prices were 4 percent higher than the prior period, however, this was more than offset by higher cost of product sold and 2 percent lower sales volumes this quarter.
  • Overall gross margin per tonne this quarter was negative, as the higher cost of product sold per tonne was only partially offset by higher realized selling prices.

Wholesale Other

    
Wholesale Other: gross profit breakdown
   Three months ended September 30,
(millions of U.S. dollars)  2017  2016  Change
Ammonium sulfate  9  9  -
ESN  2  6  (4)
Other  1  (2)  3
   12  13  (1)
       
  • Gross profit from Wholesale Other was lower than the same period last year driven by reduced production and sales of ESN at Carseland.

Expenses

  • Wholesale expenses were 38 percent lower in the third quarter compared to the prior year, primarily due to lower selling, general and administrative costs associated with cost saving initiatives, lower other expenses and an increase in earnings from equity investments.

Other

EBITDA for our Other non-operating business unit for the third quarter of 2017 was a net expense of $87-million, compared to a net expense of $74-million for the third quarter of 2016. The variance was primarily due to:

  • An increase of $9-million gross profit elimination as a result of a higher intersegment inventories held by Retail at the end of the third quarter.
  • An increase of $35-million in share-based payments expense primarily due to an increase in Agrium's share price.

This was partially offset by:

  • A decrease of $18-million in litigation and related fees.
  • A decrease of $6-million in merger and related costs.

FINANCIAL CONDITION

The following are changes to working capital on our Consolidated Balance Sheets for the nine months ended September 30, 2017 compared to December 31, 2016.

           
   September 30, 
2017
 December 31,
2016
 $ Change  % Change  Explanation of the change in the balance
(millions of U.S. dollars, except where noted)  
Current assets               
 Cash and cash equivalents  246  412  (166)  (40%)  See discussion under the section "Liquidity and Capital Resources".
 Accounts receivable  3,375  2,208  1,167  53%  Seasonal sales activity for Retail resulted in higher Retail trade and vendor rebates receivable.
 Income taxes receivable  30  33  (3)  (9%)  -
 Inventories  2,657  3,230  (573)  (18%)  Inventory drawdown due to increased seasonal sales activity.
 Prepaid expenses and deposits  150  855  (705)  (82%)  Drawdown of prepaid inventory where Retail typically prepays for product at year end and takes possession of inventory throughout the year.
 Other current assets  122  123  (1)  (1%)  -
 Assets held for sale  126  -  126  100%  In September 2017, we reclassified certain assets of Conda phosphate operations as held for sale. See "Discontinued Operations" section for further details.
Current liabilities               
 Short-term debt  1,882  604  1,278  212%  Increased financing for working capital requirements.
 Accounts payable  3,257  4,662  (1,405)  (30%)  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  14  17  (3)  (18%)  -
 Current portion of long-term debt  11  110  (99)  (90%)  Decrease relates to $100-million 7.7 percent senior notes repaid in 2017.
 Current portion of other provisions  54  59  (5)  (8%)  -
Working capital  1,488  1,409  79  6%   
           

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, 2017, we had 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)  2017  2016 (a)  Change
Cash (used in) provided by operating activities  (265)  212  (477)
Cash used in investing activities  (683)  (857)  174
Cash provided by financing activities  799  526  273
Effect of exchange rate changes on cash and cash equivalents  (7)  (58)  51
Decrease in cash and cash equivalents from continuing operations  (156)  (177)  21
Cash and cash equivalents used in discontinued operations  (10)  (27)  17
(a) Certain amounts have been restated as a result of discontinued operations.
     
Cash (used in) provided by operating activities  
 Lower cash provided by operating activities from net changes in non-cash working capital, primarily due to the timing of collections from customers as well as payments to our suppliers. This was partially offset by lower final tax payments and current tax payments made in comparison to the prior year.
Cash used in investing activities  
 Lower cash used in investing activities due primarily to completion of our Borger expansion project and reduced business acquisition activity in our Retail business unit.
Cash provided by financing activities  
 Higher cash provided by financing activities from increased commercial paper drawings to meet working capital needs partially offset by repayment of our senior notes in February 2017.
     
    
Capital Spending and Expenditures (b)     
  Three months ended  Nine months ended
  September 30,  September 30,
(millions of U.S. dollars) 2017 2016 (a)  2017 2016 (a)
Retail         
 Sustaining 23 13  107 88
 Investing 19 10  61 29
  42 23  168 117
 Acquisitions (b) 110 141  184 316
  152 164  352 433
Wholesale         
 Sustaining 96 51  167 186
 Investing 15 67  107 222
  111 118  274 408
Other         
 Sustaining 1 1  3 3
 Investing 7 1  13 3
  8 2  16 6
Total         
 Sustaining 120 65  277 277
 Investing 41 78  181 254
  161 143  458 531
 Acquisitions (b) 110 141  184 316
  271 284  642 847
(a) Certain amounts have been restated as a result of discontinued operations.
(b) This excludes capitalized borrowing costs and capital expenditures related to our discontinued operations.
(c) This represents business acquisitions and includes acquired working capital; property, plant and equipment; intangibles; goodwill; and investments in associates and joint ventures.
 
  • Our total capital expenditures increased in the third quarter due to turnarounds and decreased in the first nine months of 2017 compared to the same period last year as we completed the construction of our Borger expansion project at the end of 2016. In 2017, pre-commissioning and commissioning costs were incurred related to this project.
  • We expect Agrium's capital expenditures for the remainder of 2017 to approximate $175-million to $225-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 $1.9-billion at September 30, 2017 is outlined in note 5 of our Summarized Notes to the Condensed Consolidated Financial Statements.
  • Our short-term debt increased by $1.3-billion during the first nine months of 2017, which in turn contributed to a decrease in our unutilized short-term financing capacity to $1.6-billion at September 30, 2017.

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, 2017. Our ability to comply with these covenants has not changed since December 31, 2016.

OUTSTANDING SHARE DATA

Agrium had 138,164,264 outstanding shares at November 3, 2017. At November 3, 2017, 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 1,380,868.

 
SELECTED QUARTERLY INFORMATION
                         
(millions of U.S. dollars,  2017  2017 (a)  2017 (a)  2016 (a)  2016 (a)  2016 (a)  2016 (a)  2015
except per share amounts)  Q3  Q2  Q1  Q4  Q3  Q2  Q1  Q4
Sales  2,382  6,271  2,663  2,238  2,192  6,361  2,666  2,407
Gross profit  557  1,527  558  749  568  1,523  539  900
Net earnings (loss) from
continuing operations
                       
 (69)  553  (9)  69  (38)  558  (5)  200
Net earnings (loss) from                        
discontinued operations  (182)  5  (1)  (2)  (1)  7  8  -
Net earnings (loss)  (251)  558  (10)  67  (39)  565  3  200
Earnings (loss) per share from continuing
operations attributable to equity
holders of Agrium:
                       
                       
                       
 Basic  (0.52)  4.00  (0.07)  0.50  (0.28)  4.03  (0.04)  1.45
 Diluted  (0.52)  4.00  (0.07)  0.50  (0.28)  4.03  (0.04)  1.45
Earnings (loss) per share from
discontinued operations attributable
to equity holders of Agrium:
                       
                       
                       
 Basic  (1.32)  0.03  (0.01)  (0.01)  (0.01)  0.05  0.06  -
 Diluted  (1.32)  0.03  (0.01)  (0.01)  (0.01)  0.05  0.06  -
Earnings (loss) per share attributable to
equity holders of Agrium:
                       
                       
 Basic  (1.84)  4.03  (0.08)  0.49  (0.29)  4.08  0.02  1.45
 Diluted  (1.84)  4.03  (0.08)  0.49  (0.29)  4.08  0.02  1.45
Dividends declared  122  121  120  121  120  122  121  121
Dividends declared per share  0.875  0.875  0.875  0.875  0.875  0.875  0.875  0.875
(a) Certain amounts have been restated as a result of discontinued operations. 
                 

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.

DISCONTINUED OPERATIONS

On September 7, 2017, Agrium and PotashCorp provided an update on the regulatory approval process related to the proposed merger indicating that they are working to resolve final issues in superphosphoric acid and nitric acid. A potential remedy to outstanding issues is the disposition of our Conda phosphate operations (CPO) and North Bend nitrogen facilities. A sale of assets of CPO and North Bend assets by September 2018 is considered highly probable as management has committed to a sale and has begun to actively market the assets. In November 2017, we entered into an agreement with a third party to dispose of our CPO and North Bend assets, subject to the approval of the Federal Trade Commission.

We have reclassified the results of operations of CPO as discontinued and recorded the assets held for sale at fair value less costs to sell, which resulted in a write-down of $295-million before taxes. We have restated our 2016 financial information to also reflect this change. For further information, refer to note 6 of our Consolidated Financial Statements.

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 measure, its definition and why management uses the measure.

   

Non-IFRS financial measure

Definition
Why we use the measure and why it is useful to investors
EBITDA Net earnings (loss) before finance costs, income taxes, depreciation and amortization, and net earnings (loss) from discontinued operations
EBITDA is frequently used by investors and analysts for valuation purposes when multiplied by a factor to estimate the enterprise value of a company. EBITDA is also used in determining annual incentive compensation for certain management employees and in calculating certain of our debt covenants.
   
Consolidated and business unit EBITDA  Three months ended September 30,
(millions of U.S. dollars)  Retail  Wholesale  Other  Consolidated
2017            
Net loss           (251)
Finance costs related to long-term debt           56
Other finance costs           24
Income taxes           (32)
Net loss from discontinued operations           182
EBIT  37  33  (91)  (21)
Depreciation and amortization  73  44  4  121
EBITDA  110  77  (87)  100
2016 (a)            
Net loss           (39)
Finance costs related to long-term debt           51
Other finance costs           15
Income taxes           (13)
Net loss from discontinued operations           1
EBIT  30  63  (78)  15
Depreciation and amortization  71  44  4  119
EBITDA  101  107  (74)  134
             
   Nine months ended September 30,
(millions of U.S. dollars)  Retail  Wholesale  Other  Consolidated
2017            
Net earnings           297
Finance costs related to long-term debt           155
Other finance costs           71
Income taxes           193
Net loss from discontinued operations           178
EBIT  716  341  (163)  894
Depreciation and amortization  215  164  13  392
EBITDA  931  505  (150)  1,286
2016 (a)            
Net earnings           529
Finance costs related to long-term debt           153
Other finance costs           53
Income taxes           205
Net earnings from discontinued operations           (14)
EBIT  683  350  (107)  926
Depreciation and amortization  206  146  10  362
EBITDA  889  496  (97)  1,288
(a) Certain amounts have been restated as a result of discontinued operations.
 

CRITICAL ACCOUNTING ESTIMATES

We prepare our Condensed 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 2016 annual MD&A, which is contained in our 2016 Annual Report. Since the date of our 2016 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 Condensed Consolidated Financial Statements for the nine months ended September 30, 2017 are the same as those applied in our audited annual financial statements in our 2016 Annual Report. We are currently assessing the impact of IFRS 15 and 16 and preparing for implementation. We expect that our financial statements will include expanded disclosures about revenues from contracts with customers while IFRS 16 will have a material impact on our assets and liabilities and reclassifications within our statement of operations. Refer to note 6 of our Condensed Consolidated Financial Statements for details.

BUSINESS RISKS

The information presented in the "Enterprise Risk Management" section on pages 52 - 56 in our 2016 annual MD&A and under the heading "Risk Factors" on pages 23 - 38 in our Annual Information Form for the year ended December 31, 2016 has not changed materially since December 31, 2016. For risks associated with our proposed merger with PotashCorp, see "Part I - The Arrangement Risk Factors Related to the Arrangement" in the joint information circular of Agrium and PotashCorp dated October 3, 2016.

CONTROLS AND PROCEDURES

There have been no changes in our internal control over financial reporting during the three months ended September 30, 2017 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 2016 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: 2017 updated annual guidance, including expectations regarding our diluted earnings per share and Retail EBITDA; capital spending expectations for 2017; expectations regarding performance of our business segments in 2017; expectations regarding completion of previously announced expansion projects (including timing and volumes of production associated therewith) and acquisitions and divestitures; our market outlook for 2017, 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 merger with PotashCorp, 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 2017 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 divestitures 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 approvals in respect of the proposed merger with PotashCorp and satisfaction of other closing conditions relating thereto. Also refer to the discussion under the heading "Key Assumptions and Risks in Respect of Forward-Looking Statements" in our 2016 annual MD&A and under the heading "Market Outlook" herein, 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 in Egypt; the risks that are inherent in the nature of the proposed merger with PotashCorp, including the failure to obtain required regulatory approvals and failure to satisfy all other closing conditions in accordance with the terms of the proposed merger with PotashCorp, in a timely manner 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, 2016 and under the headings "Enterprise Risk Management" and "Key Assumptions and Risks in respect of Forward-Looking Statements" in our 2016 annual MD&A. For risks associated with our proposed merger with PotashCorp, see "Part I - The Arrangement Risk Factors Related to the Arrangement" in the joint information circular of Agrium and PotashCorp dated October 3, 2016. Furthermore, the potential divestitures of the Conda phosphate operations and any potential financial gains or losses resulting from the completion of the sale may differ materially from those in the forward-looking statements.

The purpose of our expected diluted earnings per share and Retail EBITDA 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 close to 11 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 approximately 1,500 facilities and over 3,300 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 2017 3rd Quarter Conference Call will be available in a listen-only mode beginning Wednesday, November 8, 2017 at 8:00 a.m. MT (10:00 a.m. ET). Please visit the following website: www.agrium.com.

 
AGRIUM INC.
Condensed Consolidated Interim Statements of Operations
(Unaudited)
           
                
    Three months ended  Nine months ended  
    September 30,  September 30,  
(millions of U.S. dollars, unless otherwise stated) Notes 2017  2016 (a )2017  2016 (a )
          
Sales   2,382  2,192  11,316  11,219  
Cost of product sold   1,825  1,624  8,674  8,589  
Gross profit   557  568  2,642  2,630  
Expenses               
 Selling   470  446  1,495  1,433  
 General and administrative   56  60  176  176  
 Share-based payments   40  5  40  22  
 Earnings from associates and joint ventures   (4 )(3 )(32 )(31 )
 Other expenses 4 16  45  69  104  
(Loss) earnings before finance costs and income taxes   (21 )15  894  926  
 Finance costs related to long-term debt   56  51  155  153  
 Other finance costs   24  15  71  53  
(Loss) earnings before income taxes   (101 )(51 )668  720  
 Income taxes   (32 )(13 )193  205  
Net (loss) earnings from continuing operations   (69 )(38 )475  515  
Net (loss) earnings from discontinued operations 6 (182 )(1 )(178 )14  
Net (loss) earnings   (251 )(39 )297  529  
Attributable to               
 Equity holders of Agrium   (253 )(41 )293  525  
 Non-controlling interests   2  2  4  4  
Net (loss) earnings   (251 )(39 )297  529  
                
Earnings per share attributable to equity holders of Agrium              
 Basic (loss) earnings per share from continuing operations   (0.52 )(0.28 )3.41  3.70  
 Basic (loss) earnings per share from discontinued operations   (1.32 )(0.01 )(1.29 )0.10  
 Basic (loss) earnings per share   (1.84 )(0.29 )2.12  3.80  
 Diluted (loss) earnings per share from continuing operations   (0.52 )(0.28 )3.40  3.70  
 Diluted (loss) earnings per share from discontinued operations   (1.32 )(0.01 )(1.29 )0.10  
 Diluted (loss) earnings per share   (1.84 )(0.29 )2.11  3.80  
 Weighted average number of shares outstanding for basic and diluted (loss) earnings per share (millions of common shares)  138  138  138  138  
(a) Certain amounts have been restated as a result of discontinued operations. See note 6, Additional Information.  
                
See accompanying notes.               
                

Basis of preparation and statement of compliance

These condensed consolidated interim financial statements ("interim financial statements") were approved for issuance by the Audit Committee on November 7, 2017. 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 2016 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 2016 Annual Report.

 
AGRIUM INC.
Condensed Consolidated Interim Statements of Comprehensive Income
(Unaudited)
                
                
    Three months ended  Nine months ended  
    September 30,  September 30,  
(millions of U.S. dollars) Notes 2017  2016  2017  2016  
                
Net (loss) earnings   (251 )(39 )297  529  
 Other comprehensive income (loss)               
  Items that are or may be reclassified to earnings               
   Cash flow hedges 3             
    Effective portion of changes in fair value   (29 )(6 )(59 )(12 )
    Deferred income taxes   8  1  16  4  
   Associates and joint ventures               
    Share of comprehensive income (loss)   -  1  (51 )2  
    Deferred income taxes   -  -  10  -  
   Foreign currency translation               
    Gains   31  -  196  153  
    Reclassifications to earnings   -  -  6  -  
    10  (4 )118  147  
  Items that will never be reclassified to earnings               
   Post-employment benefits               
    Actuarial losses   -  (1 )(3 )(25 )
    Deferred income taxes   -  -  1  7  
    -  (1 )(2 )(18 )
 Other comprehensive income (loss)   10  (5 )116  129  
Comprehensive (loss) income   (241 )(44 )413  658  
Attributable to               
 Equity holders of Agrium   (243 )(46 )408  654  
 Non-controlling interests   2  2  5  4  
Comprehensive (loss) income   (241 )(44 )413  658  
See accompanying notes.               
                
 
AGRIUM INC.
Condensed Consolidated Interim Balance Sheets
(Unaudited)
              
              
      September 30,   December 31,  
(millions of U.S. dollars) Notes 2017  2016   2016  
Assets             
 Current assets             
  Cash and cash equivalents   246  311   412  
  Accounts receivable   3,375  2,962   2,208  
  Income taxes receivable   30  52   33  
  Inventories   2,657  2,666   3,230  
  Prepaid expenses and deposits   150  133   855  
  Other current assets   122  132   123  
  Assets held for sale 6 126  -   -  
    6,706  6,256   6,861  
 Property, plant and equipment   6,833  6,935   6,818  
 Intangibles   536  638   566  
 Goodwill   2,195  2,033   2,095  
 Investments in associates and joint ventures   516  624   541  
 Other assets   59  56   48  
 Deferred income tax assets   24  38   34  
    16,869  16,580   16,963  
Liabilities and shareholders' equity             
 Current liabilities             
  Short-term debt 5 1,882  1,740   604  
  Accounts payable   3,257  2,938   4,662  
  Income taxes payable   14  3   17  
  Current portion of long-term debt 5 11  110   110  
  Current portion of other provisions   54  67   59  
    5,218  4,858   5,452  
 Long-term debt 5 4,399  4,400   4,398  
 Post-employment benefits   140  163   141  
 Other provisions   341  332   322  
 Other liabilities   67  64   68  
 Deferred income tax liabilities   455  434   408  
    10,620  10,251   10,789  
 Shareholders' equity             
  Share capital   1,773  1,764   1,766  
  Retained earnings   5,565  5,677   5,634  
  Accumulated other comprehensive loss   (1,095 )(1,118 ) (1,231 )
  Equity holders of Agrium   6,243  6,323   6,169  
  Non-controlling interests   6  6   5  
  Total equity   6,249  6,329   6,174  
    16,869  16,580   16,963  
See accompanying notes.             
              
 
AGRIUM INC.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited)
                
                
    Three months ended  Nine months ended  
    September 30,  September 30,  
(millions of U.S. dollars) Notes 2017  2016 (a )2017  2016 (a )
                
Operating               
 Net (loss) earnings from continuing operations   (69 )(38 )475  515  
 Adjustments for               
  Depreciation and amortization   121  119  392  362  
  Earnings from associates and joint ventures   (4 )(3 )(32 )(31 )
  Share-based payments   40  5  40  22  
  Unrealized (gain) loss on derivative financial instruments  (8 )14  (1 )36  
  Unrealized foreign exchange loss (gain)   31  21  31  (20 )
  Interest income   (17 )(20 )(43 )(49 )
  Finance costs   80  66  226  206  
  Income taxes   (32 )(13 )193  205  
  Other   11  (2 )4  (3 )
 Interest received   18  21  45  50  
 Interest paid   (93 )(83 )(240 )(223 )
 Income taxes received (paid)   41  (112 )(13 )(277 )
 Dividends from associates and joint ventures   2  46  11  48  
 Net changes in non-cash working capital   (435 )(232 )(1,353 )(629 )
Cash (used in) provided by operating activities   (314 )(211 )(265 )212  
Investing               
 Business acquisitions, net of cash acquired   (110 )(141 )(184 )(316 )
 Capital expenditures   (161 )(143 )(458 )(531 )
 Capitalized borrowing costs   -  (6 )(12 )(18 )
 Purchase of investments   (9 )(20 )(59 )(61 )
 Proceeds from sale of investments   15  14  64  78  
 Proceeds from sale of property, plant and equipment   7  4  28  14  
 Other   (3 )(10 )(11 )(18 )
 Net changes in non-cash working capital   -  3  (51 )(5 )
Cash used in investing activities   (261 )(299 )(683 )(857 )
Financing               
 Short-term debt 5 654  682  1,269  904  
 Repayment of long-term debt 5 (3 )(10 )(108 )(16 )
 Dividends paid   (121 )(121 )(362 )(362 )
Cash provided by financing activities   530  551  799  526  
Effect of exchange rate changes on cash and cash equivalents  (14 )(11 )(7 )(58 )
(Decrease) increase in cash and cash equivalents from continuing operations   (59 )30  (156 )(177 )
Cash and cash equivalents used in discontinued operations 6 (14 )(26 )(10 )(27 )
Cash and cash equivalents - beginning of period   319  307  412  515  
Cash and cash equivalents - end of period   246  311  246  311  
(a) Certain amounts have been restated as a result of discontinued operations. See note 6, Additional Information.  
                
See accompanying notes.               
          
 
AGRIUM INC.
Condensed Consolidated Interim 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
interests
 

Total
equity
 
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  
                                
December 31, 2016  138 1,766 5,634  (25 )(51 )(1,155 )(1,231 ) 6,169  5  6,174  
 Net earnings  - - 293  -  -  -  -   293  4  297  
 Other comprehensive income (loss), net of tax                               
  Post-employment benefits  - - (2 )-  -  -  -   (2 )-  (2 )
  Other  - - -  (43 )(41 )201  117   117  1  118  
 Comprehensive income (loss), net of tax  - - 291  (43 )(41 )201  117   408  5  413  
 Dividends ($2.625 per share)  - - (363 )-  -  -  -   (363 )-  (363 )
 Non-controlling interest transactions  - - 3  -  -  (2 )(2 ) 1  (4 )(3 )
 Share-based payment transactions  - 7 -  -  -  -  -   7  -  7  
 Reclassification of cash flow hedges, net of tax  - - -  21  -  -  21   21  -  21  
September 30, 2017  138 1,773 5,565  (47 )(92 )(956 )(1,095 ) 6,243  6  6,249  
See accompanying notes.  
                                
 
AGRIUM INC.
Summarized Notes to the Condensed Consolidated Interim Financial Statements
For the three and nine months ended September 30, 2017
(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 as follows:
    • Nitrogen: Manufacturing in Alberta and Texas
    • Potash: Mining and processing in Saskatchewan
    • Phosphate: Production facilities in Alberta
    • Wholesale Other: Producing blended crop nutrients and Environmentally Smart Nitrogen® (ESN) polymer-coated nitrogen crop nutrients, and operating 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.

Discontinued operations and assets held for sale

During the quarter, we classified the results of our Conda phosphate operations (CPO) as assets held for sale as described in note 6. The operating results of CPO, previously included in our Phosphate operating segment, are presented in discontinued operations for the periods ended September 30, 2017, and have been restated for the comparative periods ended September 30, 2016. Amounts shown in our operating segments note represent results from continuing operations.

2. Operating Segments

                    
Segment information by business unit Three months ended September 30,
    2017   2016  
    Retail  Wholesale  Other (a )Total   Retail  Wholesale (b )Other (a)(b )Total  
Sales - external 2,059  323  -  2,382   1,849  343  -  2,192  
  - inter-segment 8  120  (128 )-   8  102  (110 )-  
Total sales 2,067  443  (128 )2,382   1,857  445  (110 )2,192  
Cost of product sold 1,549  397  (121 )1,825   1,375  361  (112 )1,624  
Gross profit 518  46  (7 )557   482  84  2  568  
Gross profit (%) 25  10     23   26  19     26  
Expenses                          
 Selling 468  6  (4 )470   443  7  (4 )446  
 General and administrative 21  6  29  56   26  7  27  60  
 Share-based payments -  -  40  40   -  -  5  5  
 Loss (earnings) from associates and joint ventures 2  (6 )-  (4 ) 2  (5 )-  (3 )
 Other (income) expenses (10 )7  19  16   (19 )12  52  45  
Earnings (loss) before finance costs and income taxes 37  33  (91 )(21 ) 30  63  (78 )15  
 Finance costs -  -  80  80   -  -  66  66  
Earnings (loss) before income taxes 37  33  (171 )(101 ) 30  63  (144 )(51 )
 Depreciation and amortization 73  44  4  121   71  44  4  119  
 Finance costs -  -  80  80   -  -  66  66  
EBITDA (c) 110  77  (87 )100   101  107  (74 )134  
(a)  Includes inter-segment eliminations     
(b)  Certain amounts have been restated as a result of discontinued operations. See note 6, Additional Information.
(c)  EBITDA is net earnings (loss) before finance costs, income taxes, depreciation and amortization, and net earnings (loss) from discontinued operations.
                    
Segment information by business unit Nine months ended September 30,
    2017  2016
    Retail  Wholesale  Other (a )Total   Retail  Wholesale (b )Other (a)(b )Total  
Sales - external 9,980  1,336  -  11,316   9,907  1,312  -  11,219  
  - inter-segment 34  489  (523 )-   31  522  (553 )-  
Total sales 10,014  1,825  (523 )11,316   9,938  1,834  (553 )11,219  
Cost of product sold 7,763  1,441  (530 )8,674   7,775  1,413  (599 )8,589  
Gross profit 2,251  384  7  2,642   2,163  421  46  2,630  
Gross profit (%) 22  21     23   22  23     23  
Expenses                          
 Selling 1,490  18  (13 )1,495   1,423  22  (12 )1,433  
 General and administrative 74  18  84  176   76  22  78  176  
 Share-based payments -  -  40  40   -  -  22  22  
 (Earnings) loss from associates and joint ventures (8 )(25 )1  (32 ) (5 )(27 )1  (31 )
 Other (income) expenses (21 )32  58  69   (14 )54  64  104  
Earnings (loss) before finance costs and income taxes 716  341  (163 )894   683  350  (107 )926  
 Finance costs -  -  226  226   -  -  206  206  
Earnings (loss) before income taxes 716  341  (389 )668   683  350  (313 )720  
 Depreciation and amortization 215  164  13  392   206  146  10  362  
 Finance costs -  -  226  226   -  -  206  206  
EBITDA 931  505  (150 )1,286   889  496  (97 )1,288  
(a)  Includes inter-segment eliminations
(b)  Certain amounts have been restated as a result of discontinued operations. See note 6, Additional Information.
                
                
Segment information - Retail Three months ended September 30,
    2017  2016
    North
America
 
International

Retail
  North
America
 
International
 
Retail
 
Sales - external 1,575  484 2,059   1,398  451  1,849  
  - inter-segment 8  - 8   8  -  8  
Total sales 1,583  484 2,067   1,406  451  1,857  
Cost of product sold 1,196  353 1,549   1,047  328  1,375  
Gross profit 387  131 518   359  123  482  
Expenses                   
 Selling 383  85 468   358  85  443  
 General and administrative 14  7 21   19  7  26  
 Loss from associates and joint ventures 2  - 2   2  -  2  
 Other (income) expenses (12 )2 (10 ) (14 )(5 )(19 )
Earnings (loss) before income taxes -  37 37   (6 )36  30  
 Depreciation and amortization 70  3 73   65  6  71  
EBITDA 70  40 110   59  42  101  
             
                       
Segment information - Retail Nine months ended September 30,  
    2017   2016  
    North
America
 
International
 
Retail
  North
America
 
International
 
Retail
 
Sales - external 8,364  1,616  9,980   8,233  1,674  9,907  
  - inter-segment 34  -  34   31  -  31  
Total sales 8,398  1,616  10,014   8,264  1,674  9,938  
Cost of product sold 6,523  1,240  7,763   6,446  1,329  7,775  
Gross profit 1,875  376  2,251   1,818  345  2,163  
Expenses                    
 Selling 1,233  257  1,490   1,179  244  1,423  
 General and administrative 53  21  74   54  22  76  
 Earnings from associates and joint ventures (7 )(1 )(8 ) (4 )(1 )(5 )
 Other (income) expenses (8 )(13 )(21 ) 8  (22 )(14 )
Earnings before income taxes 604  112  716   581  102  683  
 Depreciation and amortization 203  12  215   189  17  206  
EBITDA 807  124  931   770  119  889  
              
                        
Segment information - Wholesale Three months ended September 30,
    2017  2016
   
Nitrogen

Potash

Phosphate
 Wholesale
Other (a

)

Wholesale
  
Nitrogen

Potash
 
Phosphate (b

)
Wholesale
Other (a

)

Wholesale
 
Sales - external 140 79 25  79  323   173 73  31  66  343  
  - inter-segment 41 21 35  23  120   42 15  29  16  102  
Total sales 181 100 60  102  443   215 88  60  82  445  
Cost of product sold 153 90 64  90  397   156 87  49  69  361  
Gross profit 28 10 (4 )12  46   59 1  11  13  84  
Expenses                             
  Selling 3 1 -  2  6   3 1  -  3  7  
  General and administrative 3 1 -  2  6   2 2  -  3  7  
  Earnings from associates and joint ventures - - -  (6 )(6 ) - -  -  (5 )(5 )
  Other expenses (income) 3 3 -  1  7   8 4  2  (2 )12  
Earnings (loss) before income taxes 19 5 (4 )13  33   46 (6 )9  14  63  
  Depreciation and amortization 17 21 3  3  44   16 22  4  2  44  
EBITDA 36 26 (1 )16  77   62 16  13  16  107  
(a) Includes ammonium sulfate, ESN and other products
(b) Certain amounts have been restated as a result of discontinued operations. See note 6, Additional Information.
                        
Segment information - Wholesale Nine months ended September 30,
    2017   2016  
   
Nitrogen

Potash

Phosphate
Wholesale
Other (a
)
Wholesale
  
Nitrogen

Potash
 
Phosphate (b
)Wholesale
Other (a
)
Wholesale
 
Sales - external 599 285 96 356  1,336   642 206  108  356  1,312  
  - inter-segment 190 97 94 108  489   217 108  100  97  522  
Total sales 789 382 190 464  1,825   859 314  208  453  1,834  
Cost of product sold 571 293 179 398  1,441   557 283  189  384  1,413  
Gross profit 218 89 11 66  384   302 31  19  69  421  
Expenses                            
  Selling 9 4 1 4  18   10 5  1  6  22  
  General and administrative 8 3 1 6  18   9 5  1  7  22  
  Earnings from associates and joint ventures - - - (25 )(25 ) - -  -  (27 )(27 )
  Other expenses (income) 18 10 4 -  32   30 24  2  (2 )54  
Earnings (loss) before income taxes 183 72 5 81  341   253 (3 )15  85  350  
  Depreciation and amortization 59 82 12 11  164   52 73  11  10  146  
EBITDA 242 154 17 92  505   305 70  26  95  496  
(a) Includes ammonium sulfate, ESN and other products
(b) Certain amounts have been restated as a result of discontinued operations. See note 6, Additional Information.
                           
Gross profit by product line Three months ended September 30,  Nine months ended September 30,
  2017 2016  2017  2016
 

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 528  408  120  502  384  118  3,231  2,551  680  3,531  2,846  685
 Crop protection products 1,117  874  243  983  757  226  4,225  3,367  858  4,064  3,246  818
 Seed 59  38  21  59  37  22  1,521  1,247  274  1,361  1,107  254
 Merchandise 187  158  29  175  146  29  496  418  78  454  378  76
 Services and other (a) 176  71  105  138  51  87  541  180  361  528  198  330
  2,067  1,549  518  1,857  1,375  482  10,014  7,763  2,251  9,938  7,775  2,163
Wholesale                                   
 Nitrogen 181  153  28  215  156  59  789  571  218  859  557  302
 Potash 100  90  10  88  87  1  382  293  89  314  283  31
 Phosphate (b) 60  64  (4 )60  49  11  190  179  11  208  189  19
 Ammonium sulfate, ESN and other 102  90  12  82  69  13  464  398  66  453  384  69
  443  397  46  445  361  84  1,825  1,441  384  1,834  1,413  421
Other inter-segment eliminations (b) (128 )(121 )(7 )(110 )(112 )2  (523 )(530 )7  (553 )(599 )46
Total 2,382  1,825  557  2,192  1,624  568  11,316  8,674  2,642  11,219  8,589  2,630
                                    
Wholesale share of joint ventures                                  
 Nitrogen 78  65  13  66  53  13  148  120  28  131  111  20
Total Wholesale including proportionate                                  
share in joint ventures 521  462  59  511  414  97  1,973  1,561  412  1,965  1,524  441
(a) Includes financial services products
(b) Certain amounts have been restated as a result of discontinued operations. See note 6, Additional Information.
                  
                  
Selected volumes and per tonne information Three months ended September 30,
  2017   2016  
 
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 843  444  329  115   757  458  332  126  
  International 400  384  329  55   406  384  327  57  
 Total crop nutrients 1,243  425  329  96   1,163  432  331  101  
                           
Wholesale                          
 Nitrogen                          
  North America                          
   Ammonia 134  364         207  378        
   Urea 355  256         359  269        
   Other 179  229         173  234        
 Total nitrogen 668  270  228  42   739  291  212  79  
                           
 Potash                          
  North America 251  253         198  223        
  International 211  171         298  148        
 Total potash 462  216  193  23   496  178  175  3  
                           
 Phosphate (a) 140  436  465  (29 ) 143  418  343  75  
 Ammonium sulfate 85  251  144  107   71  242  120  122  
 ESN and other 259            208           
Total Wholesale 1,614  274  246  28   1,657  268  217  51  
                           
Wholesale share of joint ventures                          
 Nitrogen 277  283  234  49   231  286  231  55  
                           
Total Wholesale including proportionate share in joint ventures 1,891  276  245  31   1,888  271  220  51  
(a) Certain amounts have been restated as a result of discontinued operations. See note 6, Additional Information.  
  
                  
Selected volumes and per tonne information Nine months ended September 30,
  2017   2016  
 
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 6,582  417  321  96   6,410  459  360  99  
  International 1,400  347  311  36   1,561  378  345  33  
 Total crop nutrients 7,982  405  320  85   7,971  443  357  86  
                           
Wholesale                          
 Nitrogen                          
  North America                          
   Ammonia 774  390         831  414        
   Urea 1,175  282         1,181  302        
   Other 672  230         636  250        
 Total nitrogen 2,621  301  218  83   2,648  325  211  114  
                           
 Potash                          
  North America 1,006  252         901  218        
  International 806  160         748  157        
 Total potash 1,812  211  162  49   1,649  191  172  19  
                           
 Phosphate (a) 444  427  405  22   449  463  420  43  
 Ammonium sulfate 284  269  124  145   242  279  119  160  
 ESN and other 1,177            1,112           
Total Wholesale 6,338  288  228  60   6,100  301  232  69  
                           
Wholesale share of joint ventures                          
 Nitrogen 513  289  234  55   447  293  249  44  
Total Wholesale including proportionate share in joint ventures 6,851  288  228  60   6,547  300  233  67  
(a) Certain amounts have been restated as a result of discontinued operations. See note 6, Additional Information.  
  

3. Risk Management

Commodity price risk

                  
Natural gas derivative financial instruments outstanding (notional amounts in millions of MMBtu)
  September 30,   December 31,  
  2017   2016  
 

Notional


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

Notional


Maturities
Average
contract
price (a
)Fair value
of assets
(liabilities
)
Designated as hedges                      
AECO swaps 55 2017 - 2019 2.48  (54 ) 48 2017 - 2018 2.90  (21 )
         (54 )        (21 )
(a) U.S. dollars per MMBtu
           
  Fair value of assets (liabilities)  
Maturities of natural gas derivative contracts 2017  2018  2019  
AECO swaps (15 )(32 )(7 )
       
      
Impact of change in fair value of natural gas derivative financial instruments September 30,  December 31,
  2017  2016
A $10-million impact to other comprehensive income requires movement in gas prices per MMBtu 0.18  0.29
    

The underlying risk of the derivative contracts is identical to the hedged risk; 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,  
  2017   2016  
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 342 2017 1.25  -   - - -  -  
 CAD/USD 109 2017 1.23  1   180 2017 1.34  -  
 USD/AUD 20 2017 1.29  -   14 2017 1.32  (1 )
 AUD/USD 41 2017 - 2018 1.29  (1 ) 22 2017 1.34  1  
 CNY/AUD 42 2017 - 2018 6.72  -   23 2017 7.16  -  
Options                      
 USD/CAD - buy USD puts 58 2017 1.25  1   - - -  -  
 USD/CAD - sell USD calls 67 2017 1.31  -   - - -  -  
 CAD/USD - buy USD calls 16 2017 1.34  -   - - -  -  
 CAD/USD - sell USD puts 4 2017 1.17  -   - - -  -  
         1          -  
(a) Foreign currency per U.S. dollar
      
  September 30,  December 31,
  2017  2016
  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 - 246 246  - 412 412
 Accounts receivable - derivatives - 3 3  - 2 2
 Other current financial assets - marketable securities 18 102 120  22 99 121
 Other non-current financial assets - derivatives - 4 4  - - -
 Accounts payable - derivatives - 45 45  - 7 7
 Other financial liabilities - derivatives - 15 15  - 16 16
Financial instruments measured at amortized cost             
 Current portion of long-term debt             
  Debentures - - -  - 101 100
  Fixed and floating rate debt - 11 11  - 10 10
 Long-term debt             
  Debentures - 4,874 4,375  - 4,600 4,373
  Fixed and floating rate debt - 24 24  - 25 25
         

There have been no transfers between Level 1 and Level 2 fair value measurements in the nine months ended September 30, 2017. 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,  
  2017  2016 (a )2017  2016 (a )
Loss on foreign exchange and related derivatives 7  2  11  10  
Interest income (17 )(20 )(43 )(49 )
Environmental remediation and asset retirement obligations 2  4  1  9  
Bad debt expense 8  3  37  32  
Potash profit and capital tax 3  2  9  10  
Merger and related costs 11  17  42  17  
Other 2  37  12  75  
  16  45  69  104  
(a) Certain amounts have been restated as a result of discontinued operations. See note 6, Additional Information.  
  
 
5. Debt
          
    September 30,  December 31,
      2017  2016
  Maturity Rate (%) (a)     
Short-term debt         
 Commercial paper 2017 1.56 1,698  306
 Credit facilities   7.53 184  298
      1,882  604
(a) Weighted average rates at September 30, 2017     
 
     
  Short-term debt Long-term debt (a)
December 31, 2016 604 4,508
 Cash flows reported as financing activities 1,269 (108)
 Non-cash changes    
  Other adjustments - 9
  Foreign currency translation 9 1
September 30, 2017 1,882 4,410
(a) Includes current portion
 

6. Additional Information

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

Agrium and PotashCorp entered into an agreement dated September 11, 2016 (the "Arrangement Agreement"), under which the companies will combine in a merger of equals into a newly incorporated parent entity, which will be named Nutrien, to be formed to manage and hold the combined businesses of both Agrium and PotashCorp. The Arrangement Agreement will be implemented by a proposed plan of arrangement (the "Arrangement"). Under the Arrangement, Agrium shareholders will receive 2.23 Nutrien shares for each Agrium share held, and PotashCorp shareholders will receive 0.40 of a Nutrien share for each PotashCorp share held. On November 3, 2016, shareholders of both Agrium and PotashCorp approved the Arrangement.

Subsequent to September 30, 2017, regulators in India and China approved the merger, subject to conditions including the divestment of certain of PotashCorp's minority shareholdings in Arab Potash Company, Israel Chemicals Ltd., Sociedad Quimica y Minera de Chile S.A., and Sinofert Holdings Limited within certain specified time periods over the 18 months following the merger.

Agrium and PotashCorp are working to resolve outstanding regulatory approvals in the U.S. and we anticipate the Arrangement will be completed by the end of the fourth quarter of 2017.

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

Discontinued Operations and Assets Held for Sale

On September 7, 2017, Agrium and PotashCorp provided an update on the regulatory approval process related to the proposed merger indicating that they are working to resolve final issues in superphosphoric acid and nitric acid. A potential remedy to outstanding issues is the disposition of our CPO and North Bend nitrogen facilities. A sale of CPO and North Bend assets by September 2018 is considered highly probable as management has committed to a sale and has begun to actively market the assets. As a result, we have classified these assets as held for sale and have re-measured them to fair value less costs to sell (FVLCS). FVLCS was determined primarily based on expressions of interest received from potential third-party buyers, and was corroborated by discounted cash flows derived from our forecasts. Because we did not base the inputs of our fair value measurement on observable market transactions, we classified the fair value as a Level 3 measurement. In November 2017, we entered into an agreement with a third party to dispose of our CPO and North Bend assets, subject to the approval of the Federal Trade Commission.

As CPO comprises operations and cash flows that can be clearly distinguished operationally and for financial reporting purposes, its operating results and the impact of re-measurement to FVLCS is included in discontinued operations for the three and nine months ended September 30, 2017, and restated for the comparative periods ended September 30, 2016. Amounts shown exclude elimination of intercompany transactions.

The majority of the remaining value of assets held for sale is assigned to inventories.

              
  Three months ended  Nine months ended  
Condensed information of discontinued operations (a) September 30,  September 30,  
  2017  2016  2017  2016  
Operating information             
Discontinued operations of assets held for sale             
 Sales 77  73  219  215  
 Expenses 83  75  227  205  
 (Loss) earnings before income taxes (6 )(2 )(8 )10  
 Income tax recovery 2  1  8  4  
 Loss before measurement of assets held for sale (4 )(1 )-  14  
 Loss on measurement of assets held for sale (295 )-  (295 )-  
 Income tax recovery on loss on measurement of assets held for sale 117  -  117  -  
Net (loss) earnings from discontinued operations (182 )(1 )(178 )14  
Cash flow information             
 Operating activities (4 )(22 )10  (7 )
 Investing activities (10 )(4 )(20 )(20 )
 Cash used in discontinued operations (14 )(26 )(10 )(27 )
(a) There are no cumulative income or expenses included in other comprehensive income relating to CPO.  
  

Business Acquisitions

During the quarter, our Retail business unit acquired 25 farm centers located in the U.S. for preliminary purchase consideration of $110-million, subject to working capital adjustments. We anticipate that the majority of the fair value of the acquired assets will be comprised of property, plant and equipment, and goodwill. Valuations of the acquired businesses are in progress and are not complete due to the timing of the closing dates.

Recent Accounting Pronouncements

Our cross-functional project team has been working since September of 2016 to assess the impact of IFRS 15 and 16 and prepare for implementation. The new standards will not have any cash impact and accordingly will not affect the economics of our underlying customer contracts or our leases. We expect to implement changes to our internal control over financial reporting on adoption of each standard, including new policies, training and ongoing contract review requirements.

  • IFRS 15 Revenue from Contracts with Customers - Beginning in 2017, we initiated the second phase of our planned review of our contracts with customers. This included reviewing our significant revenue portfolios in detail, determining and documenting changes to our business processes and internal controls, and validating our conclusions as to the impact to our consolidated financial statements. Similar to our assessment in 2016, we expect this standard will not have a material impact to our revenues as the majority of our contracts with customers are short-term in nature. We expect that our financial statements will include expanded disclosures about revenues from contracts with customers upon adoption of IFRS 15. We will adopt this standard effective January 1, 2018.
  • IFRS 16 Leases - We have reviewed our existing lease agreements and considered other agreements that could contain leases. We estimate that IFRS 16 will have a material impact on our assets and liabilities and will result in material reclassifications of interest and depreciation expenses within our statement of operations. We will adopt this standard effective January 1, 2019.

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

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