Agrium Reports Third Quarter Results

Marketwired

CALGARY, ALBERTA--(Marketwire - Nov 7, 2012) -

ALL AMOUNTS ARE STATED IN U.S.$

Agrium Inc. (AGU.TO) (AGU) announced today consolidated net earnings ("net earnings") of $129-million ($0.80 diluted earnings per share) for the third quarter of 2012, compared to net earnings of $293-million reported in the third quarter of 2011 ($1.85 diluted earnings per share).

The 2012 third quarter results included a pre-tax share-based payment expense of $53-million ($0.23 diluted earnings per share). The third quarter results also included a non-recurring charge of $66-million ($0.29 diluted earnings per share) related to environmental remediation liabilities and a $5-million ($0.02 diluted earnings per share) charge associated with the closure of our Courtright facility announced on August 29, 2012. Excluding these items, net earnings would have been $215-million ($1.34 diluted earnings per share) for the third quarter of 2012.1

"Agrium''s third quarter results demonstrated our competitive strengths in nitrogen and the ability of our Retail business to deliver solid earnings, even given the early spring season and after experiencing one of the worst droughts in U.S. history. Gross profit from our nitrogen business was the highest for a third quarter in our history, while Retail EBITDA(2) nearly matched the outstanding results reported in the third quarter of 2011. Our results this quarter were impacted by the downtime at our potash operations associated with our substantial potash mine expansion and a weaker potash market stemming from uncertainties from ongoing negotiations with India and China," said Mike Wilson, Agrium President and CEO. "Looking ahead, we are in an excellent position to continue to benefit from the robust agricultural fundamentals, as growers strive to make the most of the attractive crop price environment by optimizing their use of Agrium''s line of crop inputs and services," added Mr. Wilson.

"Agrium has again recently demonstrated our commitment to returning capital to shareholders with a further doubling to our dividend and the successful completion of a significant share repurchase program. The increased dividend and Cdn$900-million substantial issuer bid are an indication of our confidence that the sector fundamentals and our integrated strategy will continue to deliver strong results for the benefit of shareholders. Agrium is committed to continuing to deliver value-added growth and we remain confident we can achieve our growth objectives while also continuing to grow our dividend over time," added Mr. Wilson.

Agrium is providing guidance for the fourth quarter of 2012 of $1.50 to $1.90 diluted earnings per share. This excludes hedging gains or losses and share-based payments expense in our estimated fourth quarter results.3

1 Third quarter effective tax rate of 31 percent used for adjusted diluted earnings per share calculations.

2 Earnings from continuing operations before finance costs, income taxes, depreciation and amortization. See disclosure under the heading "Non-IFRS Financial Measures" in the section "Management''s Discussion and Analysis".

3 See disclosure in the section "Outlook, Key Risks and Uncertainties" in our 2012 third quarter MD&A and additional assumptions in the section "Management''s Discussion and Analysis".

MANAGEMENT''S DISCUSSION AND ANALYSIS

November 7, 2012

Unless otherwise noted, all financial information in this Management''s Discussion and Analysis ("MD&A") is prepared using accounting policies in accordance with International Financial Reporting Standards ("IFRS") and is presented in accordance with International Accounting Standard 34 - Interim Financial Reporting. All comparisons of results for the third quarter of 2012 (three months ended September 30, 2012) are against results for the third quarter of 2011 (three months ended September 30, 2011). All dollar amounts refer to United States ("U.S.") dollars except where otherwise stated. Certain financial measures in this MD&A are not prescribed by IFRS, and are defined in the Non-IFRS Financial Measures section of this MD&A.

The following interim MD&A is as of November 7, 2012 and should be read in conjunction with the consolidated interim financial statements for the three and nine months ended September 30, 2012 and 2011, and the annual MD&A included in our 2011 Annual Report to Shareholders to which our readers are referred. The Board of Directors carries out its responsibility for review of this disclosure principally through its Audit Committee, comprised exclusively of independent directors. The Audit Committee reviews, and prior to publication, approves, pursuant to the authority delegated to it by the Board of Directors this disclosure. No update is provided where an item is not material or there has been no material change from the discussion in our annual MD&A. Forward-Looking Statements are outlined after the Outlook, Key Risks and Uncertainties section of this press release.

The major assumptions made in preparing our fourth quarter guidance are outlined below and include but are not limited to:

  • Wholesale realized selling prices through the fourth quarter of 2012 will approximate current benchmark prices except for selling prices on volumes already committed under programs;
  • Wholesale produced fertilizer sales volumes will approximate sales volumes in the fourth quarter of 2011;
  • Unfavourable weather patterns in Western Canada are expected to result in lower fourth quarter ammonia sales versus the same period last year;
  • Capacity utilization for Wholesale''s potash facility will be approximately 10 percent lower than the fourth quarter of 2011 reflecting weak international potash demand;
  • Retail North America fertilizer margin percentages will be slightly higher and chemical percentages slightly lower than the margin percentages realized in the fourth quarter of 2011;
  • Retail North America fertilizer sales volumes will be at or slightly below volumes in the fourth quarter of 2011;
  • The average North American realized gas price will not deviate significantly from approximately $3.40 per MMBtu;
  • The effective tax rate for the fourth quarter of 2012 will approximate 31 percent;
  • Guidance issued excluding the fourth quarter effects of :
    • Share-based payments expenses or recoveries
    • Gains or losses on hedge positions

2012 Third Quarter Operating Results

CONSOLIDATED NET EARNINGS

Agrium''s 2012 third quarter consolidated net earnings ("net earnings") were $129-million, or $0.80 diluted earnings per share, compared to net earnings of $293-million, or $1.85 diluted earnings per share, for the same quarter of 2011. Net earnings for the first nine months of 2012 were $1,144-million, or $7.21 diluted earnings per share, compared to $1,182-million, or $7.48 diluted earnings per share for the first nine months of 2011.

Financial Overview  
                                 
  Three months ended
 September 30,
    Nine months ended
 September 30,
 
(millions of U.S. dollars, except per share amounts and where noted) 2012 2011   Change   % Change     2012   2011   Change   % Change  
Sales 2,962 3,141   (179 ) (6 )   13,425   12,293   1,132   9  
Gross profit 798 888   (90 ) (10 )   3,468   3,288   180   5  
Expenses 580 440   140   32     1,780   1,533   247   16  
Net earnings from continuing operations before finance costs and income taxes ("EBIT") 218 448   (230 ) (51 )   1,688   1,755   (67 ) (4 )
Net earnings from continuing operations 129 293   (164 ) (56 )   1,144   1,181   (37 ) (3 )
Net earnings 129 293   (164 ) (56 )   1,144   1,182   (38 ) (3 )
Diluted earnings per share from continuing operations 0.80 1.85   (1.05 ) (57 )   7.21   7.48   (0.27 ) (4 )
Diluted earnings per share 0.80 1.85   (1.05 ) (57 )   7.21   7.48   (0.27 ) (4 )
Effective tax rate (%) 31 28   N/A   3     28   28   N/A   -  

Sales

Retail sales decreased by approximately 9 percent to $1.8-billion compared to the third quarter of 2011 and increased approximately 12 percent to $9.5-billion compared to the first nine months of 2011, respectively. 2012 third quarter sales decreased due to the early harvest and dry conditions throughout the U.S. versus the positive impact in 2011 of a late spring which pushed sales into the third quarter. Wholesale sales decreased slightly from 2011 to $1.1-billion and $4.1-billion, respectively, for the third quarter and the first nine months. Advanced Technologies ("AAT") sales during the third quarter and for the first nine months of 2012 remained steady at $125-million and increased 20 percent to $438-million, respectively, compared to the same periods last year. This is attributed to acquisition activity in the second half of 2011.

Gross Profit

Our consolidated gross profit for the third quarter of 2012 decreased by $90-million compared to the third quarter of 2011. Consolidated gross profit for the first nine months of 2012 increased by $180-million compared to the same period last year. Highlights for the third quarter and first nine months of 2012 include the following:

  • Retail''s gross profit decreased $60-million for the third quarter but increased $135-million for the first nine months of 2012, compared to 2011, respectively. Crop protection products experienced an 11 percent decrease for the quarter compared to 2011, due to lower sales volumes; and
  • Wholesale''s gross profit decreased 10 percent to $358-million for the third quarter of 2012, compared to the third quarter of 2011, which resulted from a combination of factors including potash fixed costs being recorded directly to cost of product sold due to lower production volumes, lower phosphate sales prices and offset by increased nitrogen sales volumes and prices.

Expenses

The $140-million increase in expenses for the third quarter of 2012 compared to the third quarter of 2011 is mainly comprised of:

  • A $99-million unfavorable change in share-based payments expense, with $53-million in share-based payments expense in the third quarter of 2012 versus a recovery of $46-million in the third quarter of 2011, (see section "Other" for further discussion); and
  • An increase in environmental provisions of $61-million for legacy Canadian mines and our Conda sites.

These expense increases were partially offset by a $22-million decrease in Retail selling expenses (see section "Retail" for further discussion).

The following table is a summary of our other expenses (income) for the third quarter and first nine months of 2012 and 2011:

  Three months ended   Nine months ended  
  September 30,   September 30,  
(millions of U.S. dollars) 2012   2011   2012   2011  
Realized loss on derivative financial instruments 2   1   26   76  
Unrealized gain on derivative financial instruments (3 ) (2 ) (17 ) (47 )
Interest income (31 ) (24 ) (66 ) (57 )
Foreign exchange loss (gain) 4   -   16   (42 )
Environmental remediation and asset retirement obligations 66   5   78   29  
Bad debt expense 6   6   30   33  
Potash profit and capital tax -   7   13   33  
Other 2   7   2   32  
  46   -   82   57  

Effective Tax Rate

The effective tax rate was 31 percent for the third quarter of 2012 compared to 28 percent for the same period last year due to a higher proportion of income earned in higher taxed jurisdictions in 2012. The effective tax rate was 28 percent for the first nine months of 2012 and is comparable to the effective tax rate of 28 percent for the same period last year.

BUSINESS SEGMENT PERFORMANCE

Retail

Retail''s 2012 third quarter sales were $1.8-billion, compared with the record third quarter sales of $2.0-billion in the same period last year. The decrease was due to the early season and the severe drought in the U.S., which impacted late-season demand for some crop input products and services as compared to last year''s strong third quarter, which resulted from a late spring in 2011. On a year-to-date basis, sales reached $9.5-billion, an increase of $1.0-billion over the same period last year. Gross profit was the second highest on record for a third quarter at $438-million, behind the $498-million earned in the third quarter last year. Retail reported earnings from continuing operations before finance costs, income taxes, depreciation and amortization ("EBITDA") of $121-million in the third quarter of 2012, compared to $135-million in the third quarter of last year, as a result of lower earnings from our North American and South American operations. EBITDA from our Australian operations increased once again this quarter to $15-million, as compared to the $3-million reported in the same period last year, while EBITDA on a year-to-date basis has improved to $74-million, an increase of 91 percent over the first nine months last year.

Crop nutrient sales were $634-million this quarter, compared to $692-million in the third quarter of 2011. The $58-million decrease was mainly attributable to a 10 percent decline in total crop nutrient volumes across our Retail operations, which resulted from the early season as well as dry conditions that impacted fertilizer applications in key growing regions throughout the U.S. North American nutrient volumes were 11 percent lower this quarter, as compared to the same period last year. Gross profit for crop nutrients was $111-million this quarter, compared to the $124-million reported in the third quarter of 2011. Total crop nutrient margins were 18 percent in the third quarter of 2012, in-line with the same quarter last year.

Crop protection sales were $872-million in the third quarter of 2012, an 8 percent decrease from the $943-million in sales for the same period last year. Total crop protection gross profit this quarter was $202-million, compared to the $226-million reported in the third quarter of 2011. Similar to crop nutrients, the decrease in 2012 third quarter sales and gross profit was primarily due to the early spring season and dry conditions this year. Crop protection product margins as a percentage of sales were 23 percent for the third quarter of 2012, down 1 percent from the third quarter last year. Margins in our Australian operations improved to 20 percent this quarter, up 4 percent from the third quarter last year. 

Seed sales were $56-million in the third quarter of 2012, compared to $85-million in the third quarter last year. Gross profit was $28-million this quarter, compared to $30-million in the third quarter of 2011. The decrease in both sales and gross profit was partially due to the early spring season, which pulled third quarter seed sales into the first half of 2012. Dry conditions across much of the U.S. Corn belt also resulted in slightly lower double crop soybean acres, as well as some delayed wheat plantings in the Western Plains states during the third quarter.

Sales of merchandise in the third quarter of 2012 were $105-million, compared to $134-million in the same period last year. Gross profit for this product line was $17-million this quarter, slightly below the $19-million reported in the third quarter of 2011.

Services and other sales were $167-million this quarter, a $10-million increase over the $157-million reported in the third quarter of 2011. Gross profit was $80-million in the third quarter of 2012, compared to $99-million for the same period last year. The decrease in gross profit this quarter was partially attributable to a lower proportion of sales from higher-margin application services, as compared to the same period last year.

Retail selling expenses for the third quarter of 2012 were $368-million, down $22-million from the $390-million reported in the third quarter last year. The decrease was due mainly to lower payroll expenses and performance incentives, which resulted from lower sales this quarter, as compared to the same period in 2011. Selling expenses as a percentage of sales were 20 percent in the third quarter of 2012, up by 1 percent over the same period last year. On a year-to-date basis, selling expenses as a percentage of sales were 13 percent, 1 percent lower than the same period in 2011. 

Wholesale

Wholesale''s 2012 third quarter sales were $1.1-billion, slightly lower than the $1.2-billion reported in the same quarter last year. Gross profit for this quarter was $358-million, compared to $397-million for the third quarter of 2011. Wholesale''s EBITDA of $376-million in the third quarter of 2012 was 14 percent lower than the same period last year. The decline in earnings was primarily due to the previously announced eight week planned turnaround at the Vanscoy potash facility related to our brownfield expansion project and a longer than expected restart.

Nitrogen gross profit in the third quarter of 2012 was a record $271-million, an increase of 53 percent over the $177-million reported in the same quarter last year. These strong results were due to a combination of higher sales volumes, stronger realized sales prices, as well as lower input costs. Realized sales prices for ammonia were higher, while urea pricing remained relatively flat compared to the same period in 2011. Total nitrogen sales volumes were 1.1 million tonnes, up 30 percent from the same period last year due to higher operating rates and stronger demand for both domestic and South American urea as a result of attractive crop prices and favorable growing conditions in Canada and Argentina. Nitrogen cost of product sold was $261 per tonne this quarter, lower than the $280 per tonne reported in the third quarter of 2011 due primarily to lower natural gas costs this quarter. Our average nitrogen margins were $256 per tonne this quarter, compared to $217 per tonne in the same period last year. The MOPCO nitrogen facility, in which we have a 26 percent equity investment, was restarted in mid-September 2012, however there is a one quarter lag in reporting equity earnings from this investment. 

Agrium''s average natural gas cost in cost of product sold was $2.98/MMBtu this quarter ($3.21/MMBtu including the impact of realized losses on natural gas derivatives), compared to $3.95/MMBtu for the same period in 2011 ($4.13/MMBtu including the impact of realized losses on natural gas derivatives). The average natural gas cost this quarter was impacted by a $2/MMBtu surcharge on Argentine gas that the government imposed earlier this year. Hedging gains or losses on all gas derivatives are not taken into account for the calculation of gross profit and are included in other expenses and therefore not included in cost of product sold. The U.S. benchmark (NYMEX) natural gas price for the third quarter of 2012 was $2.81/MMBtu, compared to $4.19/MMBtu in the same quarter last year. The AECO (Alberta) basis differential was a $0.62/MMBtu discount to NYMEX in the third quarter of 2012, significantly higher than the $0.33/MMBtu differential that existed in the third quarter of 2011. 

Potash gross profit for the third quarter of 2012 was $23-million, compared to $102-million in the same quarter last year. The decrease was due primarily to lower sales volumes of 160,000 tonnes, compared to 347,000 tonnes in the third quarter of 2011, as well as lower realized sales prices in both domestic and international markets. The lower volumes were a result of the eight week planned turnaround at the Vanscoy facility related to our brownfield expansion project and some additional mining related challenges experienced this quarter. Production tonnes for the plant were 151,000 in the third quarter, compared to 372,000 in the third quarter of 2011. Domestic sales were constrained by supply, while international sales commitments were met with purchased potash product. International sales demand was lower than the same period last year, as a result of weaker demand from India and China. Potash cost of product sold was $363 per tonne this quarter, compared to $188 per tonne in the third quarter of 2011. The increase was due to the impact of fixed costs recorded directly to cost of product sold because of lower produced volumes. The resulting gross margin on a per tonne basis was $140 in the third quarter of 2012, compared to the $292 per tonne realized during the same quarter in 2011.

Phosphate gross profit was $47-million in the third quarter of 2012, compared to $82-million in the same quarter last year. This decrease was due primarily to lower realized sales prices, resulting from a more balanced market relative to the tight supply/demand situation that existed in the third quarter of 2011, as well as higher input costs. Realized sales prices were $703 per tonne this quarter compared to $784 per tonne in the same period last year. Phosphate cost of product sold was $519 per tonne in the third quarter of 2012, as compared to $487 per tonne in the same period last year. The increase in cost of product sold was due to higher rock and sulphur costs, compared to the same period last year. On a per tonne basis, gross margin in the third quarter of 2012 decreased to $184 per tonne, compared to $297 per tonne in the same period last year.

Wholesale''s Other product category, which is primarily comprised of ammonium sulfate and Rainbow granulated products, achieved gross profit of $17-million in the third quarter of 2012, compared to $15-million in the same period last year.

Product purchased for resale gross profit was down $21-million this quarter, compared to the third quarter of 2011. The decrease in gross profit was due to a combination of lower year-over-year margins on regular purchase for resale business globally and the purchase of potash from third party suppliers in order to meet international shipments that are normally filled through manufactured product. These potash purchases allowed a greater proportion of our manufactured product to be directed toward higher return domestic sales. 

Wholesale expenses in the third quarter of 2012 were $46-million, compared to $4-million in the third quarter of 2011. A non-recurring environmental charge of $18-million was accrued in this quarter related to a recent review of environmental reclamation liabilities at our Conda facility. The year-over-year comparison was also impacted by a $17-million recovery in insurance in the third quarter of 2011.

Advanced Technologies

AAT gross profit was $28-million in the third quarter of 2012, an increase of $4-million over the $24-million reported in the same period last year. This was driven primarily by higher gross profit from stronger sales and margins from Environmentally Smart Nitrogen ("ESN"), attributable to increased demand resulting from the attractive crop price environment.

EBITDA was $4-million in the third quarter of 2012, exceeding the $3-million reported in the same period last year. EBITDA this quarter was impacted by a $5-million charge in other expenses associated with the closure of our Courtright facility during the third quarter of 2012.

Other

EBITDA for our Other non-operating business unit for the third quarter of 2012 was a loss of $157-million, compared to a loss of $30-million for the third quarter of 2011. The unfavorable change was primarily driven by:

  • A $99-million increase in share-based payments expense, where there was a $53-million charge in the third quarter of 2012 compared to a $46-million recovery in the same quarter of 2011. The increase in share-based payments expense was largely caused by appreciation of our share price during the third quarter of 2012 compared to a decline in the share price in the same period for 2011; and
  • A $47-million increase in environmental remediation and asset retirement obligation expenses due to changes to expected cash outflows.

EBITDA for Other in the first nine months of 2012 was a loss of $261-million, compared to a loss of $142-million for the first nine months of 2011. The unfavorable change was comprised of:

  • A $170-million increase in share-based payments expense, where there was $126-million in charges for the first nine months of 2012 compared to recoveries of $44-million in the same period in 2011; and
  • A $37-million increase in environmental remediation and asset retirement obligation expenses.

This was offset by a $73-million increase in gross profit recovery for the first nine months at September 30, 2012 compared to a gross profit elimination for the first nine months at September 30, 2011 reflecting less inter-segment inventory not yet sold to external customers.

FINANCIAL CONDITION

The following are changes to working capital on our Consolidated Balance Sheets in the nine-month period ended September 30, 2012.

As at
(millions of U.S. dollars)
 September 30,
2012
 December 31,
2011
 $ Change    % Change     Explanation of the change in balance
Current assets                
  Cash and cash equivalents 1,864 1,346 518   38 %   See discussion under the section "Liquidity and Capital Resources".
  Accounts receivable 3,082 1,984 1,098   55 %   Increased sales activities and higher prices in Q3 2012 in addition to higher Retail vendor rebates.
  Income taxes receivable 67 138 (71 ) (51 %)   Collection of the U.S. year end income tax receivable in Q1 2012 and an increase in the net U.S. income tax liability.
  Inventories 2,623 2,956 (333 ) (11 %)   Decreased purchases in Q3 2012 due to market conditions.
  Prepaid expenses and deposits 265 643 (378 ) (59 %)   Draw-down of prepaid inventory where typically Retail prepays for product at year end and takes possession of inventory throughout the year.
  Assets of discontinued operations - 70 (70 ) (100 %)   The entity remaining in discontinued operations at December 31, 2011 was sold in Q2 2012.
Current liabilities                
  Short-term debt 631 245 386   158 %   Cash management strategies to complete the upcoming acquisition of the Agri-products Business from Viterra Inc. ("Viterra") and for the share repurchase.
  Accounts payable 2,832 2,959 (127 ) (4 %)   Draw-down of customer prepayments during the year, where typically customers enter into prepay agreements during the fourth quarter ahead of the spring application season offset by a combination of increased trade payables due to timing and accrued liabilities due to capital projects.
  Income taxes payable 124 82 42   51 %   Increase in the Canadian net income tax liability.
  Current portion of long-term debt 522 20 502   2,510 %   Floating rate bank loans and South American long-term debt, due at various dates within the next 12 months, were classified as current.
  Current portion of other provisions 128 68 60   88 %   Increase in environmental remediation liabilities provisions in addition to movement of asset retirement obligations and environmental remediation liabilities from long-term to current.
  Liabilities of discontinued operations - 53 (53 ) (100 %)   The entity remaining in discontinued operations at December 31, 2011 was sold in Q2 2012.
Working capital 3,664 3,710 (46 ) (1 %)    

LIQUIDITY AND CAPITAL RESOURCES

Summary of Consolidated Statements of Cash Flows

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

  Nine months ended September 30,  
(millions of U.S. dollars) 2012   2011   Change  
Cash provided by operating activities 1,135   249   886  
Cash (used in) provided by investing activities (948 ) 119   (1,067 )
Cash provided by (used in) financing activities 281   (209 ) 490  
Effect of exchange rate changes on cash and cash equivalents 50   (9 ) 59  
Increase in cash and cash equivalents from continuing operations 518   150   368  
Cash and cash equivalents used in discontinued operations -   (30 ) 30  

The sources and uses of cash for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 are summarized below:

Cash provided by operating activities - Drivers behind the $886-million source of cash increase
Source of cash   - $797-million increase provided from changes in non-cash working capital. The increase was primarily driven by a reduction in inventory, a lower increase in receivables offset by a lower reduction in prepaid expenses and deposits for the first nine months of 2012 versus the first nine months of 2011.

- $102-million resulting from an increase in net earnings from continuing operations adjusted for changes in non-cash items primarily associated with a $170-million change in share-based payments expense where there was an expense of $126-million for the first nine months of 2012 compared to a recovery of $44-million for the first nine months of 2011.
Cash (used in) provided by investing activities - Drivers behind the $1,067-million use of cash increase
Source of cash   - $68-million decrease for acquisitions due to various small Retail acquisitions that occurred during the first nine months of 2012 versus more significant acquisitions including Evergro Canada, International Mineral Technologies, Cerealtoscana S.p.A. and Agroport during the first nine months of 2011.

- $36-million decrease in purchase of investments.

- $60-million increase provided from net change in non-cash working capital due to higher accounts payable related to capital expenditures.
Use of cash   - $721-million decrease in proceeds from disposal of discontinued operations as $694-million was received in May 2011 from the sale of the majority of the Commodity Management businesses to Cargill, originally acquired as part of AWB Limited.

- $435-million increase in capital expenditures primarily related to the Vanscoy potash expansion project.
Cash provided by (used in) financing activities - Drivers behind the $490-million source of cash increase
Source of cash   - A $125-million increase due to the repayment of $125-million debentures in 2011 and no corresponding debenture repayment in 2012.

- A $510-million increase in cash provided by short-term debt as $378-million was issued during the first nine months of 2012 versus a repayment of $132-million in the first nine months of 2011.
Use of cash   - $97-million increase in dividends paid during the first nine months of 2012 as compared to the first nine months of 2011 resulting from quadrupling the dividends declared in December 2011 and more than doubling the dividends declared in June 2012 as compared to December 2011.
     

Capital Expenditures

  September 30, September 30,
(millions of U.S. dollars) 2012 2011
Sustaining capital 390 252
Investing capital 475 178
Total 865 430

Our sustaining and investing capital expenditures increased in the first nine months of 2012 compared to the first nine months of 2011 due to continued activity on the Vanscoy potash expansion project.

Short-term Debt

Our short-term debt as at September 30, 2012 is summarized as follows:

       
(millions of U.S. dollars) Total Unutilized Utilized
       
Multi-jurisdictional facility expiring 2016 1,600 1,175 425
North American facility expiring 2013 100 100 -
European facilities expiring 2013 321 152 169
South American facilities expiring 2012 - 2013 70 33 37
  2,091 1,460 631
Outstanding letters of credit   (187)  
Remaining capacity available   1,273  

Capital Management

On October 1, 2012, we issued $500-million of 3.15 percent debentures due October 2022. The debentures were issued under our base shelf prospectus, which permits issuance in Canada and the U.S. of up to an additional $2.0-billion of common shares, preferred shares, subscription receipts, debt securities or units until April 2014. Issuance of further securities under the base shelf prospectus requires filing a prospectus supplement and is subject to availability of funding in capital markets.

OUTSTANDING SHARE DATA

The number of Agrium''s outstanding shares as at October 31, 2012 was approximately 149 million. On October 22, 2012 we purchased and cancelled 8.74 million Agrium shares tendered under an issuer bid for a total purchase price of Cdn$900-million. As at October 31, 2012, 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 0.1 million.

SELECTED QUARTERLY INFORMATION
                 
(millions of U.S. dollars, 2012 2012 2012 2011 2011 2011 2011 2010
except per share amounts) Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
Sales 2,962 6,834 3,629 3,177 3,141 6,198 2,954 2,398
Gross profit 798 1,870 800 1,045 888 1,675 725 725
Net earnings from continuing operations 129 860 155 327 293 728 160 152
Net earnings 129 860 155 193 293 718 171 135
Earnings per share from                
continuing operations                
  -basic 0.80 5.44 0.97 2.05 1.86 4.61 1.02 0.97
  -diluted 0.80 5.44 0.97 2.04 1.85 4.60 1.02 0.97
Earnings per share                
  -basic 0.80 5.44 0.97 1.20 1.86 4.55 1.09 0.86
  -diluted 0.80 5.44 0.97 1.20 1.85 4.54 1.09 0.86
                 

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

BUSINESS ACQUISITION

On March 19, 2012, we signed an agreement to acquire the majority of the Agri-products business of Viterra, consisting of approximately 90 percent of Viterra''s 258 Canadian farm centres; 17 Australian retail farm centres; a 34 percent interest in a nitrogen facility in Medicine Hat, Canada; storage and distribution assets; and other assets and liabilities (collectively the "Agri-products Business"). The purchase price is expected to be approximately Cdn$1.65-billion, including estimated working capital of Cdn$500-million. For further information on this agreement, please refer to Form 51-102F3, Material Change Report, dated March 20, 2012 filed on SEDAR at www.sedar.com. Agrium will acquire the Agrium Assets from Glencore International plc ("Glencore") after Glencore acquires Viterra. Both Glencore''s acquisition of Viterra and Agrium''s acquisition of the Agri-products Business are subject to obtaining any required consents to transfers and regulatory clearances. Shareholders of Viterra approved the acquisition by Glencore on May 29, 2012. Glencore has received approval of its acquisition of Viterra under the Investment Canada Act on July 15, 2012, however other regulatory approvals remain outstanding.

On August 2, 2012, Agrium and Glencore announced that CF Industries Holdings Inc. ("CF"), owner of a 66 percent interest in the Medicine Hat nitrogen facility, will acquire Viterra''s 34 percent interest for Cdn$915-million. Accordingly, Agrium will not acquire an interest in the Medicine Hat facility. The agreement between Glencore and CF is subject to regulatory approval. Agrium will continue to receive the benefit of Viterra''s operating cash flow on the Medicine Hat nitrogen facility from March 31, 2012 to October 15, 2012.

NON-IFRS FINANCIAL MEASURES

In the discussion of our performance for the quarter, in addition to the primary measures of earnings and earnings per share reported in accordance with IFRS, we make reference to EBITDA. We consider EBITDA to be a useful measure of performance because income tax jurisdictions and business segments are not synonymous and we believe that allocation of income tax charges distorts the comparability of historical performance for the different business segments. Similarly, financing and related interest charges cannot be allocated to all business units on a basis that is meaningful for comparison with other companies.

EBITDA is not a recognized measure under IFRS, and our method of calculation may not be comparable to other companies. Similarly, EBITDA should not be used as an alternative to net earnings from continuing operations as determined in accordance with IFRS.

The following table is a reconciliation of EBITDA to consolidated net earnings from continuing operations as determined in accordance with IFRS:

                                 
  Three months ended   Three months ended  
  September 30, 2012   September 30, 2011  
(millions of U.S. dollars) Retail Wholesale AAT   Other   Consolidated   Retail Wholesale AAT   Other   Consolidated  
EBITDA 121 376 4   (157 ) 344   135 438 3   (30 ) 546  
Depreciation and amortization 52 64 7   3   126   43 45 6   4   98  
EBIT 69 312 (3 ) (160 ) 218   92 393 (3 ) (34 ) 448  
Finance costs related to long-term debt             (23 )             (25 )
Other finance costs             (9 )             (17 )
Income taxes             (57 )             (113 )
Net earnings from continuing operations             129               293  
                             
  Nine months ended   Nine months ended  
  September 30, 2012   September 30, 2011  
(millions of U.S. dollars) Retail Wholesale AAT Other   Consolidated   Retail Wholesale AAT Other   Consolidated  
EBITDA 827 1,424 26 (261 ) 2,016   689 1,467 22 (142 ) 2,036  
Depreciation and amortization 145 152 20 11   328   126 128 17 10   281  
EBIT 682 1,272 6 (272 ) 1,688   563 1,339 5 (152 ) 1,755  
Finance costs related to long-term debt           (67 )           (76 )
Other finance costs           (29 )           (42 )
Income taxes           (448 )           (456 )
Net earnings from continuing operations           1,144             1,181  

Schedule 5 "Schedule of Selected Retail and Consolidated information" also provides ratios and balances that are not recognized measures under IFRS and our method of calculation may not be comparable to other companies. Ratio definitions are provided on Schedule 5. We consider these non-IFRS measures to provide useful information to both management and investors in measuring our financial performance and financial condition.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

We prepare our financial statements in accordance with IFRS, which requires us to make assumptions and estimates about future events and apply significant judgments. We base our assumptions, estimates and judgments on our historical experience, current trends and all available information that we believe is relevant at the time we prepare the financial statements. However future events and their effects cannot be determined with certainty. Accordingly, as confirming events occur, actual results could ultimately differ from our assumptions and estimates. Such differences could be material. For further information on the Company''s critical accounting estimates, please refer to the "Critical Accounting Estimates" section of our 2011 annual Management''s Discussion and Analysis, which is contained in our 2011 Annual Report. Since the date of our 2011 annual Management''s Discussion and Analysis, there have not been any significant changes to our critical accounting estimates and judgments.

CHANGES IN ACCOUNTING POLICIES

For information regarding changes in accounting policies, please refer to the "Accounting Standards and Policy Changes Not Yet Implemented" section of our 2011 annual Management''s Discussion and Analysis, which is contained in our 2011 Annual Report.

BUSINESS RISKS

The information presented on Enterprise Risk Management and Key Business Risks on pages 68 - 71 in our 2011 Annual Report has not changed materially since December 31, 2011.

CONTROLS AND PROCEDURES

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2012 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 2011 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.

OUTLOOK, KEY RISKS AND UNCERTAINTIES

Grain production problems in some of the world''s most important growing regions are expected to result in global grain ending stocks being drawn down to their lowest levels since 2007/08. As a result, new crop 2013 Chicago corn and wheat futures contracts in October averaged $6.32 per bushel and $8.56 per bushel respectively, 7 percent and 19 percent higher than previous records set in 2011. Global grain prices have responded in order to attract increased production through higher planted area, and weather-permitting, boosting yields through higher levels of crop inputs globally. 

We expect that demand for top quality seed will be strong for the 2013 growing season. A combination of reduced seed supply due to the U.S. drought, high crop prices and improved genetic offerings should support higher seed prices and demand. The U.S. corn harvest is progressing at a record pace, which is expected to allow for an extended fall application season. 

Crop nutrient prices are very attractive relative to crop prices and budgets, which should be supportive of strong crop input demand in most regions of the world. Strong demand, combined with reduced pipeline inventories should support producer shipments. Despite these robust fundamentals, the impact of global macroeconomic uncertainty will remain a consideration. The International Monetary Fund recently downgraded its 2013 global economic growth forecast and emphasized the potential risks to the economy. Economic risks may keep buyers and traders mindful of inventory risks, resulting in low buffer stocks and increased price volatility, particularly during periods of strong demand.

Nitrogen prices have been relatively stable in recent months, although U.S. Gulf and international urea prices recently took a step down. The ammonia market has been supported by gas restrictions in Trinidad as well as less net ammonia available from new projects than expected. The urea market has been largely balanced, as recent strong demand from India and the U.S. has offset new capacity in Qatar and higher Chinese export supplies during the low export tax window this year. The fundamentals for nitrogen demand moving into 2013 should remain positive. The wheat market is sending a strong signal to increase Northern Hemisphere winter wheat area. So far in its April to March fertilizer year, Indian urea imports are down 10 percent in 2012/13 compared to 2011/12, but a strong finish to the monsoon season is expected to support import demand for the next few months. Brazilian urea demand in the fourth quarter should be supported by the potential for an increased second corn crop and a higher sugarcane renewal rate than has been the case for the past few years.

The global phosphate market has shown signs of softness over the past month, however we still expect strong global demand in first half of 2013. Chinese phosphate exports have been approximately 30 percent lower in 2012 than last year, which has been largely offset by reduced Indian purchases and increased supply from Saudi Arabia. India is an important importer of phosphates and domestic fertilizer policy changes have led to reduced demand. Analysts expect Indian phosphate demand to stabilize and improve modestly in 2013, but the impacts of the current policy, weather and currency fluctuations in India remain an uncertainty.

Global potash demand has been weaker than the other two major nutrients, which has also impacted potash pricing. This is primarily due to uncertainty with respect to the timing and volume of new supply agreements with China and India, and is expected to have a significant impact on international shipment volumes in the fourth quarter. There are indications that Brazilian potash demand has been strong during the planting season and inventory levels have been drawn down. Domestic producer shipments into North American markets in the third quarter of 2012 were higher than the same quarter last year but concerns remain over the impact that the U.S. drought might have on fall application rates in the hardest hit drought areas. 

Forward-Looking Statements

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

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

Events or circumstances that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: general economic, market and business conditions, weather conditions including impacts from regional flooding and/or drought conditions; crop prices; the supply and demand and price levels for our major products; governmental and regulatory requirements and actions by governmental authorities, including changes in government policy, government ownership requirements, changes in environmental, tax and other laws or regulations and the interpretation thereof, and political risks, including civil unrest, actions by armed groups or conflict, as well as counterparty and sovereign risk; and other risk factors detailed from time to time in Agrium reports filed with the Canadian securities regulators and the Securities and Exchange Commission in the United States. There is a risk that the Egyptian Misr Fertilizers Production Company S.A.E. ("MOPCO") nitrogen facility in Egypt may not be allowed to proceed with the completion of the two new facilities. Additionally, there are risks associated with Agrium''s acquisition of AWB, including litigation risk resulting from AWB having been named in litigation commenced by the Iraqi Government relating to the United Nations Oil-For-Food Programme. Furthermore, there are risks associated with the proposed acquisition of the Agri-products Business of Viterra, and the proposed transaction whereby Viterra''s 34 percent interest in the Medicine Hat Nitrogen Facility is acquired by CF, including: completion of the acquisition of Viterra by Glencore and the subsequent acquisition of the assets proposed to be purchased by Agrium, and the sale of Agri-products Business assets to CF, as well as the timing thereof; the receipt of the necessary regulatory approvals in respect of the assets proposed to be purchased by Agrium and CF and the satisfaction of other conditions precedent to closing; potential liabilities associated with the assets proposed to be assumed by Agrium, which may not be known to Agrium at this time, due in part, to the fact that the nature of the transaction did not allow for Agrium to complete customary due diligence prior to entering into the agreement to purchase the assets. The intention to increase the Corporation''s dividend in the future and ultimate decision to do so is subject to Corporate requirements being met as well as business and market fundamentals remaining positive.

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

OTHER

Agrium Inc. is a major Retail supplier of agricultural products and services in North America, South America and Australia and a leading global Wholesale producer and marketer of all three major agricultural nutrients and the premier supplier of specialty fertilizers in North America through our Advanced Technologies business unit. Agrium''s strategy is to grow across the value chain through acquisition, incremental expansion of its existing operations and through the development, commercialization and marketing of new products and international opportunities. Our strategy places particular emphasis on growth opportunities that both increase and stabilize our earnings profile in the continuing transformation of Agrium.

A WEBSITE SIMULCAST of the 2012 3rd Quarter Conference Call will be available in a listen-only mode beginning Wednesday, November 7, 2012 at 9:30 a.m. MT (11:30 a.m. ET). Please visit the following website: www.agrium.com.

AGRIUM INC. 
Consolidated Statements of Operations 
(Millions of U.S. dollars, except per share amounts) 
(Unaudited) 
  
 Three months ended Nine months ended 
 September 30, September 30, 
 20122011 2012 2011 
  
Sales2,9623,141 13,425 12,293 
Cost of product sold2,1642,253 9,957 9,005 
Gross profit798888 3,468 3,288 
Expenses       
 Selling389409 1,300 1,250 
 General and administrative14539 408 241 
 Earnings from associates-(8)(10)(15)
 Other expenses (note 3)46- 82 57 
Earnings before finance costs and income taxes218448 1,688 1,755 
 Finance costs related to long-term debt2325 67 76 
 Other finance costs917 29 42 
Earnings before income taxes186406 1,592 1,637 
 Income taxes57113 448 456 
Net earnings from continuing operations129293 1,144 1,181 
Net earnings from discontinued operations-- - 1 
Net earnings129293 1,144 1,182 
Attributable to:       
 Equity holders of Agrium127293 1,140 1,182 
 Non-controlling interest2- 4 - 
Net earnings129293 1,144 1,182 
  
Earnings per share attributable to equity holders of Agrium (note 4) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Basic earnings per share from continuing operations0.801.86 7.22 7.49 
 Basic earnings per share from discontinued operations-- - - 
 Basic earnings per share0.801.86 7.22 7.49 
 Diluted earnings per share from continuing operations0.801.85 7.21 7.48 
 Diluted earnings per share from discontinued operations-- - - 
 Diluted earnings per share0.801.85 7.21 7.48 
See accompanying notes.       
  
AGRIUM INC. 
Consolidated Statements of Comprehensive Income 
(Millions of U.S. dollars) 
(Unaudited) 
  
  
 Three months ended Nine months ended 
 September 30, September 30, 
 20122011 2012 2011 
  
Net earnings129293 1,144 1,182 
Other comprehensive income (loss)       
 Items that may be reclassified to earnings       
  Available for sale financial instruments       
   Gains-- - 1 
   Reclassifications to earnings-- - (2)
  Foreign currency translation       
   Gains (losses)110(181)97 (121)
   Reclassifications to earnings-- - (23)
  Other comprehensive income (loss) of associates1(1)(1)- 
  111(182)96 (145)
 Items that will not be reclassified to earnings       
  Actuarial losses on post-employment benefit plans       
   Losses-(26)(22)(26)
   Deferred income taxes-7 6 7 
  -(19)(16)(19)
 Other comprehensive income (loss)111(201)80 (164)
Comprehensive income24092 1,224 1,018 
Attributable to:       
 Equity holders of Agrium23692 1,219 1,025 
 Non-controlling interest4- 5 (7)
Comprehensive income24092 1,224 1,018 
See accompanying notes.       
  
AGRIUM INC. 
Consolidated Statements of Cash Flows 
(Millions of U.S. dollars) 
(Unaudited) 
  
  
 Three months ended Nine months ended 
 September 30, September 30, 
 2012 2011 2012 2011 
  
Operating        
 Net earnings from continuing operations129 293 1,144 1,181 
 Items not affecting cash        
  Depreciation and amortization126 98 328 281 
  Earnings from associates- (8)(10)(15)
  Share-based payments53 (46)126 (44)
  Unrealized gain on derivative financial instruments(3)(2)(17)(47)
  Unrealized foreign currency translation loss (gain)- 3 (7)11 
  Deferred income taxes(31)28 (44)97 
  Other73 10 89 43 
 Dividends from associates- - 3 16 
 Net changes in non-cash working capital(332)(203)(477)(1,274)
Cash provided by operating activities15 173 1,135 249 
Investing        
 Acquisitions, net of cash acquired(5)(118)(77)(145)
 Proceeds from disposal of discontinued operations- 27 - 721 
 Capital expenditures(351)(184)(865)(430)
 Investments in associates(20)(15)(10)(15)
 Purchase of investments(4)(3)(7)(43)
 Proceeds from disposal of investments- - - 36 
 Other(3)5 (49)(5)
 Net changes in non-cash working capital31 - 60 - 
Cash (used in) provided by investing activities(352)(288)(948)119 
Financing        
 Short-term debt285 (109)378 (132)
 Long-term debt issued- 60 21 70 
 Transaction costs on long-term debt(1)- (1)- 
 Repayment of long-term debt(6)(1)(9)(134)
 Dividends paid (a)(79)(9)(115)(18)
 Shares issued, net of issuance costs- 3 7 5 
Cash provided by (used in) financing activities199 (56)281 (209)
Effect of exchange rate changes on cash and cash equivalents56 (21)50 (9)
(Decrease) increase in cash and cash equivalents from continuing operations 
(82
 
)
 
(192
 
)
 
518
 
 
 
150
 
 
Cash and cash equivalents used in discontinued operations- (19)- (30)
Cash and cash equivalents - beginning of period1,946 966 1,346 635 
Cash and cash equivalents - end of period1,864 755 1,864 755 
  
Included in operating activities        
 Interest paid44 55 102 115 
 Interest received30 25 65 58 
 Income taxes paid226 150 407 263 
  
Included in investing activities        
 Interest paid8 4 17 6 
(a)Dividends of $0.225 per share were paid January 19, 2012 to shareholders of record on January 1, 2012. Dividends of $0.50 per share were paid July 12, 2012 to shareholders of record on July 1, 2012.
 
See accompanying notes.
 
AGRIUM INC.
Consolidated Balance Sheets
(Millions of U.S. dollars)
(Unaudited)
 
 
  September 30,December 31,
 20122011 (a)2011
ASSETS   
Current assets   
 Cash and cash equivalents1,8647551,346
 Accounts receivable3,0822,9081,984
 Income taxes receivable67-138
 Inventories2,6232,5312,956
 Prepaid expenses and deposits265347643
 Assets of discontinued operations-20070
 7,9016,7417,137
Property, plant and equipment (note 5)3,3542,3172,533
Intangibles628660678
Goodwill2,2982,2802,277
Investments in associates414406355
Other assets559797
Deferred income tax assets773363
 14,72712,53413,140
LIABILITIES AND SHAREHOLDERS'' EQUITY   
Current liabilities   
 Short-term debt (note 6)631396245
 Accounts payable2,8322,4762,959
 Income taxes payable1243482
 Current portion of long-term debt (note 6)5225920
 Current portion of other provisions (note 5)1283968
 Liabilities of discontinued operations-8353
 4,2373,0873,427
Long-term debt (note 6)1,6072,1182,098
Provisions for post-employment benefits202158192
Other provisions (note 5)425306299
Other liabilities757259
Deferred income tax liabilities605580637
 7,1516,3216,712
Shareholders'' equity   
 Share capital2,0011,9931,994
 Retained earnings5,4654,2884,420
 Accumulated other comprehensive income (loss) (note 8)105(69)10
 Equity holders of Agrium7,5716,2126,424
 Non-controlling interest514
 Total equity7,5766,2136,428
 14,72712,53413,140
(a)Certain amounts have been restated to reflect adjustments from the finalization of the AWB Limited acquisition. 
 
See accompanying notes.   
  
AGRIUM INC. 
Consolidated Statements of Shareholders'' Equity 
(Millions of U.S. dollars, except share data) 
(Unaudited) 
  
 
Millions
of
common
shares (a)



Share
capital



Retained
earnings
 Accumulated
other
comprehensive
income (loss)
(note 8)
 

Equity
holders of
Agrium
 

Non-
controlling
interest
 


Total
equity
 
December 31, 20101581,9823,134 69 5,185 8 5,193 
Net earnings--1,182 - 1,182 - 1,182 
Other comprehensive income (loss)            
 Available for sale financial instruments--- (1)(1)- (1)
 Actuarial loss on post-employment benefit plans
-

-

(19
)
-
 
(19
)
-
 
(19
)
 Foreign currency translation--- (137)(137)(7)(144)
Comprehensive income (loss)--1,163 (138)1,025 (7)1,018 
Dividends ($0.055 per share)--(9)- (9)- (9)
Share-based payment transactions-11- - 11 - 11 
September 30, 20111581,9934,288 (69)6,212 1 6,213 
  
December 31, 20111581,9944,420 10 6,424 4 6,428 
Net earnings--1,140 - 1,140 4 1,144 
 Actuarial loss on post-employment benefit plans
-

-

(16
)
-
 
(16
)
-
 
(16
)
 Foreign currency translation--- 96 96 1 97 
 Other comprehensive loss of associates--- (1)(1)- (1)
Comprehensive income--1,124 95 1,219 5 1,224 
Dividends ($0.50 per share)--(79)- (79)- (79)
Dividends of non-controlling interest--- - - (4)(4)
Share-based payment transactions-7- - 7 - 7 
September 30, 20121582,0015,465 105 7,571 5 7,576 
(a)Authorized share capital consists of unlimited common shares without par value and unlimited preferred shares.
  
See accompanying notes. 

AGRIUM INC.

Summarized Notes to the Consolidated Financial Statements

For the nine months ended September 30, 2012

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

(Unaudited)

1. Corporate Information

Corporate information

Agrium Inc. ("Agrium") is incorporated under the laws of Canada with common shares listed under the symbol "AGU" on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX). Agrium (with its subsidiaries) is a major retail supplier of agricultural products and services in North and South America, Australia and Europe and a leading global producer and marketer of agricultural nutrients and industrial products. We produce and market three primary groups of nutrients: nitrogen, phosphate and potash as well as controlled-release crop nutrients and micronutrients. Our Corporate head office is located at 13131 Lake Fraser Drive S.E. Calgary, Alberta, Canada. Our operations are conducted globally from our Wholesale head office in Calgary, and our Retail and Advanced Technologies head offices in Loveland, Colorado, U.S.

Agrium operates three strategic business units:

  • Retail operates in North and South America and Australia and sells crop nutrients, crop protection products, seed and services directly to growers.
  • Wholesale operates in North and South America and Europe producing, marketing and distributing three primary groups of crop nutrients: nitrogen, potash and phosphate for agricultural and industrial customers around the world.
  • Advanced Technologies produces and markets controlled-release crop nutrients and micronutrients in the broad-based agriculture, specialty agriculture, professional turf, horticulture, and consumer lawn and garden markets worldwide.

Basis of preparation and statement of compliance

These consolidated interim financial statements ("interim financial statements") were approved for issuance by the Audit Committee on November 6, 2012. We prepared these interim financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, including International Accounting Standard 34 Interim Financial Reporting. They 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 2011 Annual Report, available at www.agrium.com. We prepared these interim financial statements using the same accounting policies and critical accounting estimates we applied in our 2011 Annual Report.

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

2. Business Acquisition

On March 19, 2012, we signed an agreement with Glencore International plc ("Glencore") to acquire the majority of the Agri-products business of Viterra Inc. ("Viterra"), consisting of approximately 90 percent of Viterra''s 258 Canadian farm centres; 17 Australian retail farm centres; a 34 percent interest in a nitrogen facility in Medicine Hat, Canada; storage and distribution assets; and other assets and liabilities (collectively the "Agri-products Business").

Key features of the acquisition:

  1. Agrium will acquire the Agri-products Business from Glencore after Glencore acquires Viterra. Both Glencore''s acquisition of Viterra and Agrium''s acquisition of the Agri-products Business are subject to obtaining required consents to transfers and regulatory clearances. Shareholders of Viterra approved the acquisition by Glencore on May 29, 2012. Glencore has received approval of its acquisition of Viterra under the Investment Canada Act, however regulatory approval remains outstanding from the Ministry of Commerce, China. Agrium is responsible for obtaining regulatory clearances for its acquisition of the Agri-products Business. Should Agrium not obtain regulatory clearance within the maximum time frames specified in the agreement, the Agri-products Business may be sold or transferred to Agrium or a third party under a hold separate arrangement. Accordingly, Agrium is exposed to the risk that the proceeds of any such sale may be for an amount less than the portion of the purchase price allocated to such assets. Agrium will not own or operate the assets until acquisition of the Agri-products Business closes.
  2. The acquisition price is subject to various terms and conditions including adjustments for: approximately 10 percent of Viterra''s farm centres excluded from the purchase; working capital; and the accrual to Agrium of Viterra''s operating cash flow on the Agri-products assets from March 31, 2012 to October 15, 2012. Following adjustment for the excluded farm centres, and before adjustment for operating cash flows, the purchase price for the Agri-products Business is expected to be approximately Cdn$1.65-billion, including estimated working capital of Cdn$500-million.
  3. On August 2, 2012, Agrium and Glencore announced that CF Industries Holdings Inc. ("CF"), owner of a 66 percent interest in the Medicine Hat nitrogen facility, will acquire Viterra''s 34 percent interest for Cdn$915-million, subject to certain adjustments. Accordingly, Agrium will not acquire an interest in the Medicine Hat facility. The agreement between Glencore and CF is subject to regulatory approval.
  4. Agrium has agreed to advance Cdn$1.775-billion to Glencore at the time Glencore is first required to pay for Viterra shares. The advance will be guaranteed by Glencore, secured by shares of Viterra and will not bear interest. The advance will be repayable in cash from proceeds of Glencore''s sale of the Medicine Hat facility or other assets, or by the transfer of Agri-products Business assets to Agrium, or other purchase adjustments. Should Agrium not obtain regulatory clearances or otherwise not be entitled to acquire any portion of the Agri-products Business within the 19-month period from Glencore''s acquisition of Viterra, Glencore will repay Agrium cash equal to the purchase price allocated by the agreement to any assets not acquired. In support of its obligations, Agrium has provided a letter of credit for Cdn$85-million.
3. Expenses 
 Three months ended Nine months ended 
Other expensesSeptember 30, September 30, 
 2012 2011 2012 2011 
Realized loss on derivative financial instruments2 1 26 76 
Unrealized gain on derivative financial instruments(3)(2)(17)(47)
Interest income(31)(24)(66)(57)
Foreign exchange loss (gain)4 - 16 (42)
Environmental remediation and asset retirement obligations66 5 78 29 
Bad debt expense6 6 30 33 
Potash profit and capital tax- 7 13 33 
Other2 7 2 32 
 46 - 82 57 

The Board of Directors granted 250,831 Performance Share Units on January 1, 2012 and 258,132 Tandem Stock Appreciation Rights with a grant price of $88.27 on March 20, 2012 to officers and employees.

4.  Earnings Per Share
 
 
Attributable to equity holders of Agrium
Three months ended
September 30,
Nine months ended
September 30,
 2012201120122011
Numerator    
 Net earnings from continuing operations1272931,1401,181
 Net earnings from discontinued operations---1
 Net earnings for the period1272931,1401,182
 Denominator (millions)    
 Weighted average number of shares outstanding for basic earnings per share
158

158

158

158
 Dilutive instruments - stock options----
 Weighted average number of shares outstanding for diluted earnings per share
158

158

158

158

On October 22, 2012 we purchased and cancelled 8.74 million Agrium shares tendered under an issuer bid for a total purchase price of Cdn$900-million.

5. Property, Plant and Equipment

During the nine months ended September 30, 2012, we added $515-million to assets under construction at our Vanscoy Potash facility.

In March 2012, we recorded an asset retirement obligation for the phosphogypsum stack system at our Conda, Idaho phosphate facility. Included in the provision of $139-million are costs to address phosphogypsum stack decommissioning at the Conda facility, including post-closure monitoring. The provision was based on negotiations with government authorities, which are ongoing. Timing of the expenditures is contingent on, among other things, the completion of negotiations with government authorities, completion of engineering and planning for the work, and approval of engineering and planning by government authorities. Because various circumstances may affect the timing and amount of expenditures, we may change our provision as new information becomes available.

6.   Debt
  
  
 September 30,   December 31, 
  2012   2011 
 TotalUnutilized Utilized Utilized 
Short-term debt       
Multi-jurisdictional facility expiring 20161,6001,175 425 - 
North American facility expiring 2013100100 - - 
European facilities expiring 2013321152 169 178 
South American facilities expiring 2012 - 20137033 37 67 
 2,0911,460 631 245 
Outstanding letters of credit (187)    
Remaining capacity available 1,273     
  
Long-term debt       
Floating rate bank loans due 2013 - 2016   33 35 
Fixed and floating rate bank loans due 2012 - 2014   110 95 
Floating rate bank loans due 2013   460 460 
6.125% debentures due 2041   500 500 
6.75% debentures due 2019   500 500 
7.125% debentures due 2036   300 300 
7.7% debentures due 2017   100 100 
7.8% debentures due 2027   125 125 
Other   22 23 
    2,150 2,138 
Unamortized transaction costs   (21)(20)
Current portion of long-term debt   (522)(20)
    1,607 2,098 

On October 1, 2012, we issued $500-million of 3.15 percent debentures due October 2022. The debentures were issued under our base shelf prospectus, which permits issuance in Canada and the U.S. of up to an additional $2.0-billion of common shares, preferred shares, subscription receipts, debt securities or units until April 2014. Issuance of further securities under the base shelf prospectus requires filing a prospectus supplement and is subject to availability of funding in capital markets.

7.  Financial Instruments
  
  
Fair value of financial instrumentsLevel 1 Level 2 Total 
September 30, 2012      
Fair value through profit or loss      
 Cash and cash equivalents1,864 - 1,864 
 Gas, power and nutrient derivative financial instruments(20)8 (12)
Available for sale33 - 33 
September 30, 2011      
Fair value through profit or loss      
 Cash and cash equivalents755 - 755 
 Foreign exchange derivative financial instruments- (9)(9)
 Gas, power and nutrient derivative financial instruments(37)11 (26)
Available for sale16 - 16 
December 31, 2011      
Fair value through profit or loss      
 Cash and cash equivalents1,346 - 1,346 
 Foreign exchange derivative financial instruments- (1)(1)
 Gas, power and nutrient derivative financial instruments(38)12 (26)
Available for sale10 - 10 

We do not measure any of our financial instruments using Level 3 inputs. There have been no transfers between Level 1 and Level 2 fair value measurements in the reporting period ended September 30, 2012.

8.  Accumulated Other Comprehensive Income
  
 
 
 
Available for
sale financial
instruments
 
 
 
Foreign
currency
translation
 
 
 
Comprehensive
loss of
associates
 
 
 
Total accumulated
other comprehensive
income (loss)
 
 
 
December 31, 2010- 69 - 69 
Gains (losses)1 (114)- (113)
Reclassification to earnings(2)(23)- (25)
September 30, 2011(1)(68)- (69)
  
December 31, 2011(1)11 - 10 
Gains (losses)- 96 (1)95 
September 30, 2012(1)107 (1)105 
 
9. Operating Segments
  
 Three months ended Nine months ended 
 September 30, September 30, 
 2012 2011 2012 2011 
Sales        
Retail        
 Crop nutrients634 692 4,028 3,507 
 Crop protection products872 943 3,433 3,046 
 Seed56 85 1,084 1,002 
 Merchandise105 134 392 486 
 Services and other167 157 567 440 
 1,834 2,011 9,504 8,481 
Wholesale        
 Nitrogen548 405 1,675 1,456 
 Potash80 167 465 621 
 Phosphate183 217 596 661 
 Product purchased for resale281 335 1,111 1,195 
 Other45 52 219 189 
 1,137 1,176 4,066 4,122 
Advanced Technologies125 125 438 364 
Other(134)(171)(583)(674)
 2,962 3,141 13,425 12,293 
Inter-segment sales        
 Retail3 3 18 21 
 Wholesale121 153 506 589 
 Advanced Technologies10 15 59 64 
 134 171 583 674 
Net earnings        
 Retail69 92 682 563 
 Wholesale312 393 1,272 1,339 
 Advanced Technologies(3)(3)6 5 
 Other(160)(34)(272)(152)
 Earnings before finance costs and income taxes218 448 1,688 1,755 
 Finance costs related to long-term debt23 25 67 76 
 Other finance costs9 17 29 42 
 Earnings before income taxes186 406 1,592 1,637 
 Income taxes57 113 448 456 
Net earnings from continuing operations129 293 1,144 1,181 
Net earnings from discontinued operations- - - 1 
Net earnings129 293 1,144 1,182 
  
   September 30, December 31, 
     2012 2011 
Total assets        
 Retail    8,183 7,685 
 Wholesale    3,999 2,997 
 Advanced Technologies    512 474 
 Other    2,033 1,914 
 Discontinued operations    - 70 
     14,727 13,140 
 
AGRIUM INC.
Results by Segment
(Unaudited - millions of U.S. dollars)
Schedule 1a
 
Three months ended September 30,
    2012
 
 
 
 
 
Retail
 
Wholesale
Advanced
Technologies
 
 
 
Other
 
 
 
Total
 
Sales- external1,8311,016115 - 2,962
 - inter-segment312110 (134)-
Total sales1,8341,137125 (134)2,962
Cost of product sold1,39677997 (108)2,164
Gross profit43835828 (26)798
Gross profit (%)243122   27
 
Selling expenses3681014 (3)389
EBITDA (1)1213764 (157)344
EBIT (2)69312(3)(160)218
 
Three months ended September 30,
2011
    Advanced    
  RetailWholesaleTechnologies Other Total
 
Sales- external2,0081,023110 - 3,141
 - inter-segment315315 (171)-
Total sales 2,0111,176125 (171)3,141
Cost of product sold1,513779101 (140)2,253
Gross profit49839724 (31)888
Gross profit (%)253419   28
 
Selling expenses3901014 (5)409
EBITDA (1) 1354383 (30)546
EBIT (2) 92393(3)(34)448
  
(1)Earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization.
(2)Earnings (loss) from continuing operations before finance costs and income taxes.
 
AGRIUM INC.
Results by Segment
(Unaudited - millions of U.S. dollars)
Schedule 1b
 
Nine months ended September 30,
2012
    Advanced   
  RetailWholesaleTechnologiesOther Total
 
Sales- external9,4863,560379- 13,425
 - inter-segment1850659(583)-
Total sales9,5044,066438(583)13,425
Cost of product sold7,5352,676353(607)9,957
Gross profit1,9691,3908524 3,468
Gross profit (%)213419  26
 
Selling expenses1,2383041(9)1,300
EBITDA (1) 8271,42426(261)2,016
EBIT (2) 6821,2726(272)1,688
 
Nine months ended September 30,
2011
    Advanced   
  RetailWholesaleTechnologiesOther Total
 
Sales- external8,4603,533300- 12,293
 - inter-segment2158964(674)-
Total sales 8,4814,122364(674)12,293
Cost of product sold6,6472,696287(625)9,005
Gross profit1,8341,42677(49)3,288
Gross profit (%)223521  27
 
Selling expenses1,1982933(10)1,250
EBITDA (1) 6891,46722(142)2,036
EBIT (2) 5631,3395(152)1,755
  
(1)Earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization.
(2)Earnings (loss) from continuing operations before finance costs and income taxes.
  
AGRIUM INC. 
Product Lines 
(Unaudited - millions of U.S. dollars) 
                      Schedule 2
  
   Three months ended September 30,   Nine months ended September 30, 
   2012     2011     2012    2011   
   Cost of     Cost of     Cost of    Cost of   
   product Gross   product Gross   product Gross  product Gross 
 Sales sold(1) profit Sales sold(1) profit Sales sold(1) profitSales sold(1) profit 
Retail(2)                       
 Crop nutrients634 523 111 692 568 124 4,028 3,362 6663,507 2,891 616 
 Crop protection products872 670 202 943 717 226 3,433 2,708 7253,046 2,393 653 
 Seed56 28 28 85 55 30 1,084 887 1971,002 805 197 
 Merchandise105 88 17 134 115 19 392 320 72486 423 63 
 Services and other167 87 80 157 58 99 567 258 309440 135 305 
 1,834 1,396 438 2,011 1,513 498 9,504 7,535 1,9698,481 6,647 1,834 
Wholesale                       
 Nitrogen548 277 271 405 228 177 1,675 806 8691,456 804 652 
 Potash80 57 23 167 65 102 465 202 263621 229 392 
 Phosphate183 136 47 217 135 82 596 444 152661 401 260 
 Product purchased for resale281 281 - 335 314 21 1,111 1,082 291,195 1,136 59 
 Other45 28 17 52 37 15 219 142 77189 126 63 
 1,137 779 358 1,176 779 397 4,066 2,676 1,3904,122 2,696 1,426 
Advanced Technologies                       
 Turf and ornamental67 57 10 87 71 16 251 210 41230 187 43 
 Agriculture58 40 18 38 30 8 187 143 44134 100 34 
 125 97 28 125 101 24 438 353 85364 287 77 
Other inter-segment eliminations(134)(108)(26)(171)(140)(31)(583)(607)24(674)(625)(49)
Total2,962 2,164 798 3,141 2,253 888 13,425 9,957 3,46812,293 9,005 3,288 
(1)Includes depreciation and amortization.
(2)International Retail net sales were $602-million (2011 - $611-million) and gross profit was $114-million (2011 - $121-million) for the three months ended September 30. International Retail net sales were $2,001-million (2011 - $2,044-million) and gross profit was $353-million (2011 - $370-million) for the nine months ended September 30.
AGRIUM INC.
Selected Volumes and Sales Prices
(Unaudited)
Schedule 3a
 
 Three months ended September 30, Three months ended September 30, 
   2012      2011    
      Cost of        Cost of   
 Sales Selling  product   Sales Selling  product   
 tonnes price  sold Margin tonnes price  sold Margin 
 (000''s)($/tonne) ($/tonne)($/tonne)(000''s)($/tonne) ($/tonne)($/tonne)
  
Retail                  
 Crop nutrients                  
  Domestic677 612      763 594      
  International349 634      378 630      
 Total crop nutrients1,026 619  509 110 1,141 606  498 108 
  
Wholesale                  
 Nitrogen                  
  Domestic                  
   Ammonia214 560      207 505      
   Urea391 574      228 582      
   Other214 372      222 384      
  Total domestic819 517      657 491      
  International241 517      160 521      
 Total nitrogen1,060 517  261 256 817 497  280 217 
  
 Potash                  
  Domestic117 564      141 597      
  International43 333      206 401      
 Total potash160 503  363 140 347 480  188 292 
  
 Phosphate260 703  519 184 277 784  487 297 
  
 Product purchased for resale714 393  393 - 599 559  524 35 
  
 Other                  
  Ammonium sulfate73 393  200 193 93 366  219 147 
  Other32        39        
 Total other105        132        
                    
Total Wholesale2,299 495  339 156 2,172 541  358 183 
                   
                   
AGRIUM INC.
Selected Volumes and Sales Prices
(Unaudited)
Schedule 3b
 
 Nine months ended September 30, Nine months ended September 30, 
   2012      2011    
      Cost of        Cost of   
 Sales Selling  product   Sales Selling  product   
 tonnes price  sold Margin tonnes price  sold Margin 
 (000''s)($/tonne) ($/tonne)($/tonne)(000''s)($/tonne) ($/tonne)($/tonne)
  
Retail                  
 Crop nutrients                  
  Domestic5,267 625      4,823 563      
  International1,208 612      1,379 574      
 Total crop nutrients6,475 622  519 103 6,202 565  466 99 
  
Wholesale                  
 Nitrogen                  
  Domestic                  
   Ammonia860 608      775 560      
   Urea1,080 590      1,036 525      
   Other823 375      811 365      
  Total domestic2,763 531      2,622 486      
  International399 519      377 485      
 Total nitrogen3,162 530  255 275 2,999 486  269 217 
  
 Potash                  
  Domestic564 553      669 549      
  International387 395      698 362      
 Total potash951 489  213 276 1,367 454  167 287 
  
 Phosphate816 730  543 187 842 785  476 309 
  
 Product purchased for resale2,469 450  438 12 2,524 473  450 23 
  
 Other                  
  Ammonium sulfate244 420  214 206 270 359  191 168 
  Other230        206        
 Total other474        476        
                    
Total Wholesale7,872 517  340 177 8,208 502  328 174 
                   
                   
AGRIUM INC.
Depreciation and Amortization in Cost of Product Sold
(Unaudited - millions of U.S. dollars)
Schedule 4
 
 Three months ended Nine months ended
 September 30, September 30,
 20122011 20122011
 
Retail11 44
 
Wholesale     
 Nitrogen19235760
 Potash1193029
 Phosphate29135634
 Product purchased for resale--1-
 Other2- 42
 6145 148125
 
Advanced Technologies43 1110
 
Total6649 163139
      
      
AGRIUM INC.
Schedule of Selected Retail and Consolidated Information
(Unaudited - millions of U.S. dollars, unless otherwise stated)
 
Schedule 5
 
 Rolling four quarters ended September 30,
 2012 2011
 
 Retail(4)Total Agrium Retail(4)Total Agrium
 
Return on operating capital employed (%) (1)1725 1526
 
Return on capital employed (%) (2)917 817
 
Average non-cash working capital to sales (%)2016 2418
 
Operating coverage ratio (%) (3)7052 7250
      
EBITDA to sales (%)(5) 816  8 16
 
 
 September 30,
 2012  2011 
 
 Retail(4)Total Agrium Retail(4)Total Agrium
 
Non-cash working capital2,6882,953 2,8163,237
      
(1)Last twelve months EBIT less income taxes at a tax rate of 29 percent divided by rolling four quarter average operating capital employed. Operating capital employed includes non-cash working capital; property, plant and equipment; investments in associates and other assets. Retail domestic return on operating capital employed was 21 percent (2011 - 18 percent).
(2)Last twelve months EBIT less income taxes at a tax rate of 29 percent divided by rolling four quarter average capital employed. Capital employed includes operating capital employed, intangibles and goodwill. Retail domestic return on capital employed was 11 percent (2011 - 9 percent).
(3)Selling, general and administrative, earnings from associates and other expenses, divided by gross profit.
(4)The ratios presented for Retail are not recognized measures under IFRS. Total Agrium non-cash working capital less Retail non-cash working capital equals non-cash working capital for the remaining business units.
(5)Retail domestic EBITDA to sales was 9 percent (2011 – 9 percent). 
Contact:
Agrium Inc.
Richard Downey
Vice President, Investor & Corporate Relations
(403) 225-7357
Agrium Inc.
Todd Coakwell
Manager, Investor Relations
(403) 225-7437
Agrium Inc.
Mark Thompson
Analyst, Investor Relations
(403) 225-7761
www.agrium.com

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