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Agrium Inc. has added a news release to its Investor Relations website. Title: Agrium Reports Record Second Quarter
Date(s): 3-Aug-2011 6:33 AM
For a complete listing of our news releases, please click here
CALGARY, ALBERTA, Aug 03, 2011 (MARKETWIRE via COMTEX) --
ALL AMOUNTS ARE STATED IN U.S.$
Agrium Inc. (TSX: AGU) (NYSE: AGU) announced today record
consolidated net earnings ("net earnings") of $718-million ($4.54
diluted earnings per share) for the second quarter of 2011, compared
with net earnings of $518-million in the second quarter of 2010
($3.28 diluted earnings per share). Net earnings from continuing
operations, which exclude earnings associated with the AWB Limited
("AWB") Commodity Management businesses, the majority of which was
sold to Cargill, Incorporated ("Cargill") on May 11, 2011, were
$728-million ($4.60 diluted earnings per share) for the second
quarter of 2011.
"Agrium's competitive advantages and strong global position across
our business units and products allowed us to fully capitalize on the
strengthening agricultural fundamentals and achieve record results
this quarter. Despite this spring being one of the wettest and latest
in history across much of North America, our diversity throughout the
value chain enabled us to deliver record earnings. Growers in the
Eastern U.S. corn belt and Western Canada in particular were not able
to plant all the acreage, or apply all the nutrients, they would have
liked to this spring. Global crop and crop nutrient markets remain
tight. The combination of all these factors is expected to bode well
for crop input demand this fall and Agrium will be there to provide
the products necessary for growers to maximize their yields and
returns," said Agrium President & CEO Mike Wilson.
"Agrium continued to deliver on its value-add growth objectives this
quarter. Our Wholesale business unit expanded its fertilizer
distribution capability in Europe with the acquisition of
Cerealtoscana and Agroport. Our Retail and Advanced Technologies
business units announced the purchase of Tetra Micronutrients, a
producer and distributor of custom liquid plant nutrition and dry
micro nutrient products. More recently, Advanced Techologies
announced the closing of the purchase for Evergro, a leading
manufacturer and distributor of horticultural and professional turf
products in Western Canada. Agrium also concluded the sale of the
majority of the AWB Commodity Management businesses to Cargill,
allowing us to focus our efforts on realizing the full potential of
the Landmark retail business in Australia," added Mr. Wilson.
The 2011 second quarter results include a pre-tax share-based payment
recovery of $10-million ($0.04 diluted earnings per share). Excluding
this item, net earnings from continuing operations would have been
$721-million ($4.56 diluted earnings per share from continuing
operations) for the second quarter of 2011.(1)
Consistent with our past practice, we intend to provide earnings
guidance for the second half of the year when we release our third
quarter results for 2011.
(1) Second quarter effective tax rate of 28 percent used for adjusted
diluted earnings per share calculations.
MANAGEMENT'S DISCUSSION AND ANALYSIS
August 3, 2011
Unless otherwise indicated, the financial information presented and
discussed in this Management's Discussion and Analysis ("MD&A") is
prepared in accordance with International Financial Reporting
Standards ("IFRS") as issued by the International Accounting
Standards Board ("IASB"), and all comparisons of results for the
second quarter of 2011 (three months ended June 30, 2011) are against
results for the second quarter of 2010 (three months ended June 30,
2010) and all comparisons of results for the first half of 2011 (six
months ended June 30, 2011) are against results for the first half of
2010 (six months ended June 30, 2010). All dollar amounts refer to
United States ("U.S.") dollars except where otherwise stated.
The following interim MD&A updates our annual MD&A included in our
2010 Annual Report to Shareholders, to which our readers are referred
and is as of August 3, 2011. 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.
2011 Second Quarter Operating Results
CONSOLIDATED NET EARNINGS
Agrium's 2011 second quarter consolidated net earnings ("net
earnings") were $718-million, or $4.54 diluted earnings per share,
compared to net earnings of $518-million, or $3.28 diluted earnings
per share, for the same quarter of 2010. Net earnings for the first
half of 2011 were $889-million, or $5.62 diluted earnings per share,
compared to $517-million, or $3.27 diluted earnings per share.
Financial Overview
Three months ended June 30,
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(Millions of U.S. dollars, except per
share amounts and effective tax $ %
rate) 2011 2010 Change Change
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Sales 6,198 4,431 1,767 40%
Gross profit 1,675 1,063 612 58%
Expenses 627 333 294 88%
Earnings from continuing operations
before finance costs and income
taxes ("EBIT") 1,048 730 318 44%
Consolidated net earnings from
continuing operations(1) 728 518 210 41%
Consolidated net earnings 718 518 200 39%
Diluted earnings per share from
continuing operations 4.60 3.28 1.32 40%
Diluted earnings per share 4.54 3.28 1.26 38%
Effective tax rate 28% 26% N/A 2%
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(1) See "Discontinued Operations" below for a discussion of our
discontinued operations.
Financial Overview
Six months ended June 30,
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(Millions of U.S. dollars, except per
share amounts and effective tax $ %
rate) 2011 2010 Change Change
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Sales 9,152 6,279 2,873 46%
Gross profit 2,400 1,425 975 68%
Expenses 1,093 666 427 64%
Earnings from continuing operations
before finance costs and income
taxes ("EBIT") 1,307 759 548 72%
Consolidated net earnings from
continuing operations(1) 888 517 371 72%
Consolidated net earnings 889 517 372 72%
Diluted earnings per share from
continuing operations 5.62 3.27 2.35 72%
Diluted earnings per share 5.62 3.27 2.35 72%
Effective tax rate 28% 26% N/A 2%
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(1) See "Discontinued Operations" below for a discussion of our
discontinued operations.
Our consolidated gross profit for the second quarter and first half of
2011 increased by $612-million and $975-million, respectively,
primarily due to higher gross profit from all three of our strategic
business units, with highlights as follows:
- An increase in Wholesale's gross profit of $346-million and
$537-million for the second quarter and first half of 2011,
respectively, as higher crop pricing drove up demand and selling
prices for all major products.
- The addition of the Landmark Retail operations accounted for an
increase of $116-million and $215-million in Retail's gross profit
for the second quarter and first half of 2011, respectively, with
over half of the contribution coming from merchandise and other
services.
- Excluding Landmark, Retail's gross profit increased by $161-million
in the second quarter of 2011 and $240-million in the first half of
2011 due to higher fertilizer pricing and higher sales volume for
crop protection products and seeds.
The $294-million increase in expenses for the second quarter of 2011
was primarily driven by:
- Higher Retail selling and general and administrative expenses due
to the addition of the Landmark business in the fourth quarter of
2010 and other recent acquisitions.
- An $81-million increase in expenses for our Other non-operating
business unit (see section "Other" for discussion on the drivers
behind this increase in expenses).
Our consolidated EBIT increased by $318-million for the second
quarter of 2011.
The $427-million increase in expenses for the first half of 2011 was
primarily driven by:
- Higher Retail selling and general and administrative expenses due
to the addition of the Landmark business in the fourth quarter of
2010 and other recent acquisitions.
- A $123-million increase in expenses for our Other non-operating
business unit (see section "Other" for discussion on the drivers
behind this increase in expenses).
Our consolidated EBIT increased by $548-million for the first half of
2011.
Below is a summary of our other expenses (income) for the second
quarter and first half of 2011 and 2010:
Three months Six months
ended June 30, ended June 30,
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(Millions of U.S. dollars) 2011 2010 2011 2010
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Realized loss on derivative financial
instruments 27 21 75 28
Unrealized (gain) loss on derivative financial
instruments (15) (29) (45) 32
Foreign exchange gain (17) (6) (42) (5)
Potash profit and capital tax 15 1 26 4
Gain on disposal of marketable securities - - - (52)
Environmental remediation and asset retirement
obligations 23 4 24 2
Interest income (19) (13) (33) (21)
Bad debt expense 22 18 27 24
Other 20 (7) 25 (3)
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56 (11) 57 9
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The effective tax rate was 28 percent for the second quarter and first
half of 2011 compared to the effective tax rate of 26 percent for the
same periods last year. The increase in the effective tax rate was
due to the recognition of a previously unrecognized tax benefit in
2010.
BUSINESS SEGMENT PERFORMANCE
Retail
Retail reported record second quarter results this year for sales,
gross profit, EBIT and EBITDA. Second quarter sales were
$4.6-billion, a 39 percent increase over the $3.3-billion in the
second quarter of 2010. Gross profit during the quarter was
$996-million, which is significantly greater than the $719-million
reported for the same period last year. EBIT also improved to
$486-million in the second quarter of 2011, an increase over the
$361-million from the second quarter of 2010. Retail's performance
this quarter was due to robust demand for all crop inputs and related
services globally, including strong benchmark prices for all major
nutrients. The strong second quarter results were achieved despite
extremely wet conditions across the U.S. Corn Belt and Western Canada
which delayed the spring season significantly.
Crop nutrient sales were $2.1-billion in the second quarter of 2011,
compared to $1.4-billion for the same period last year. The increase
was attributable to higher nutrient selling prices and sales volumes
during the quarter compared to the same period last year. Higher
sales volumes were due to the inclusion of the Landmark business
which offset slightly lower sales volumes in North America due to
challenging weather conditions this spring. Gross profit was
$377-million this quarter, compared to $252-million in the second
quarter of 2010. Total crop nutrient margins were 18 percent in the
second quarter of 2011, similar to the same quarter last year.
North American crop nutrient margins increased to 20 percent this
quarter versus 18 percent reported last year due to prudent inventory
management and purchases. We anticipate strong North American fall
demand as growers continue to focus on maximizing yields and acreage
to take advantage of high grain prices and attractive margins.
Crop protection sales were $1.5-billion in the second quarter of
2011, an 18 percent increase over the $1.2-billion in sales during
the same period last year. Gross profit this quarter was
$325-million, compared with $274-million in the second quarter of
2010. The increase in both sales and gross profit was due largely to
the inclusion of the Landmark business, as well as increased demand
for fungicide products related to the wet spring experienced in North
America this quarter. Crop protection product margins were 22 percent
for the second quarter of 2011, similar to the same period last year.
Seed sales were $687-million in the second quarter of 2011, compared
to $588-million in the same period last year. North American sales
accounted for almost 70 percent of the increase. Higher sales of corn
and cotton seed contributed to this increase in sales as growers
shifted acreage to these more profitable crops. Gross profit this
quarter was $132-million compared to $106-million in the second
quarter of 2010.
Merchandise sales totaled $208-million in the second quarter of 2011
compared to $29-million in the second quarter of 2010. Gross profit
from merchandise sales was $27-million in the current quarter
compared to $3-million in the same period last year. The increase in
sales and gross profit was due primarily to the addition of the
Landmark business.
Sales of application and other services were $180-million in the
second quarter of 2011 compared to $93-million in the second quarter
of 2010. Gross profit totaled $135-million this quarter, compared to
$84-million in the second quarter of 2010. The significant increase
in sales and gross profit over the previous year was due to the
addition of the Landmark livestock and other agency businesses, as
well as strong demand for crop application services in North America
as a result of high crop prices and a shortened spring planting
season.
Retail selling expenses for the second quarter of 2011 were
$473-million, compared to $329-million in the same quarter of 2010.
The increase was due primarily to the inclusion of the Landmark
retail business and recent acquisitions, as well as higher incentive
costs related to the current quarter's excellent results. Selling
expenses as a percentage of sales in the second quarter of 2011 were
10 percent, similar to the same period last year.
Wholesale
Wholesale's sales were $1.7-billion for the second quarter of 2011,
the highest second quarter on record, and 54 percent higher than the
$1.1-billion achieved in the second quarter of 2010. Gross profit
was a record $620-million in the second quarter of 2011, which is
more than double the $274-million reported in the same period in
2010. Wholesale also reported a second quarter EBIT of $569-million
in 2011, substantially higher than the $276-million earned in the
second quarter of 2010. The improvement in earnings was due to higher
realized crop nutrient prices and margins, as well as excellent
product demand which occurred later in the spring season. The strong
second quarter results were achieved despite extremely wet conditions
across the U.S. Corn Belt and Western Canada which significantly
delayed spring nutrient application.
Nitrogen gross profit was a record $324-million this quarter, more
than double the $138-million reported in the same quarter last year
due to a combination of higher prices and increased sales volumes.
Prices for all nitrogen products were higher on average than last
year for both benchmark and Agrium's realized prices due to strong
market fundamentals. Nitrogen sales volumes increased when compared
to the same period last year, as higher urea and UAN sales more than
offset lower domestic ammonia sales due to the late spring season in
North America. As well, higher utilization at the plants achieved an
11 percent average increase in production volumes compared to the
same quarter last year. Nitrogen cost of product sold was $274 per
tonne this quarter, similar to the $273 per tonne in the second
quarter of last year. Nitrogen margins averaged $226 per tonne this
quarter, compared with $109 per tonne in the second quarter of last
year.
For the second quarter of 2011, Agrium's average natural gas cost in
cost of product sold was $4.00/MMBtu ($4.11MMBtu including the impact
of realized losses on natural gas derivatives) compared to
$3.91/MMBtu for the same period in 2010 ($4.69/MMBtu including the
impact of realized losses on natural gas derivatives). Hedging gains
or losses on all gas derivatives are reported below gross profit in
other expenses and therefore not included in cost of product sold.
The U.S. benchmark (NYMEX) natural gas price for the second quarter
of 2011 was $4.36/MMBtu, compared to $4.07/MMBtu in the same quarter
last year and $4.14/MMBtu in the first quarter of 2011. The AECO
(Alberta) basis differential was a $0.46/MMBtu discount to NYMEX in
the second quarter of 2011, which was higher than the second quarter
of 2010.
Potash gross profit for the second quarter of 2011 was $165-million,
compared to $109-million in the same quarter last year. The
significant increase was due to the continued expansion in margins
driven by stronger domestic and international prices on tight global
supply/demand conditions. Sales volumes were 543,000 tonnes this
quarter, compared to 529,000 tonnes in the second quarter of 2010.
The increase was due entirely to higher international sales as a
result of increased global demand. Domestic sales tonnage was
slightly lower than the same period last year due to the delay in the
spring season. The cost of product sold was $173 per tonne this
quarter, slightly higher than the $161 reported in the same period
last year due to increased freight costs and higher labour and
maintenance costs. Gross margin on a per tonne basis was $304 this
quarter, which represents a substantial increase over the gross
margin of $205 per tonne realized during the same quarter in 2010.
Phosphate gross profit was $83-million this quarter, well above the
$9-million reported for the second quarter of 2010. The increase was
primarily due to higher realized sales prices which averaged $795 per
tonne for the quarter, compared to $553 per tonne for the second
quarter of 2010. Phosphate sales volumes were also slightly higher
than the same period last year. Additionally, our Redwater and Conda
plants achieved exceptionally higher production volumes (24 percent
and 35 percent respectively) versus the second quarter last year.
Phosphate cost of product sold was $475 per tonne, $39 per tonne
lower than the same period last year as a result of a major
turnaround completed at Agrium's Redwater, Alberta facility in the
second quarter of 2010. The resulting gross margin per tonne was
significantly higher at $320 per tonne, versus $39 per tonne in the
second quarter of 2010.
Gross profit for product purchased for resale was $22-million,
$18-million higher than the second quarter of 2010. This substantial
increase was due to significantly higher sales volumes and margins as
a result of strong global demand for all three nutrients. Gross
margins in the second quarter of 2011 of $22 per tonne were $17 per
tonne higher than the same quarter last year.
Second quarter Wholesale expenses were $51-million, $53-million
higher than the same period last year. Mark-to-market gains on
natural gas and other derivatives were $3-million in the second
quarter of 2011 compared to $31-million in gains for the same period
in 2010. Realized losses on natural gas and other derivatives were
$3-million compared to a loss of $18-million in 2010. Potash profit
and capital taxes were $14-million higher this quarter than the same
period last year due primarily to higher margins. In addition, higher
incentive accruals for this quarter increased Wholesale expenses
compared to the same period last year.
Advanced Technologies
Advanced Technologies'("AAT") second quarter 2011 gross profit was
$37-million compared to $31-million in the second quarter of 2010.
This increase in gross profit was due to substantially higher sales
volumes of Environmentally Smart Nitrogen ("ESN") this quarter as a
result of new ESN production that came on line during 2010 at our New
Madrid facility, which operated at near capacity for the current
quarter.
EBIT this quarter was $13-million versus $15-million in the second
quarter of 2010. Higher selling and general and administrative costs
offset improved sales and resulting gross profit in the second
quarter of 2011 compared to the same period last year. Selling and
general and administrative costs for AAT were $5-million higher this
quarter versus the same period in 2010 due primarily to the expansion
of the Direct Solutions sales force as part of our plan to grow our
retail sales to turf and ornamental customers, along with related
support costs. Other income decreased by $3-million in the second
quarter of 2011 compared to the same period last year due to foreign
exchange losses and other expense items offsetting higher earnings
from our equity ownership in Hanfeng Evergreen Inc.
Other
EBIT for our Other non-operating business unit for the second quarter
of 2011 was a loss of $20-million, compared to earnings of
$78-million for the second quarter of 2010. This change was
primarily driven by:
- A $47-million decrease in share-based payment recovery.
- An $18-million increase in provision for environmental remediation
and asset retirement obligations.
- A $17-million decrease in gross profit reflecting lower recognition
of gross profit on Wholesale products sold to Retail that have been
sold to external customers.
EBIT for Other for the first half of 2011 was a loss of $118-million,
compared to earnings of $29-million for the same period of 2010.
This change in EBIT reflected:
- A $52-million gain realized from the sale of 1.2 million shares of
CF Industries Holdings, Inc. ("CF") in the first quarter of 2010.
- A $68-million increase in general and administrative expense due to
a $23-million unfavourable change in share-based payment expense and
the addition of the AWB business.
- An increase in net realized and unrealized loss from foreign
exchange derivatives of $40-million which were entered into in
anticipation of the sale of the Commodity Management businesses to
Cargill. This was almost completely offset by a $39-million increase
in foreign exchange gain primarily from the remeasurement of
intercompany loans.
FINANCIAL CONDITION
The following are changes to working capital on our Condensed
Consolidated Balance Sheets in the six-month period ended June 30,
2011.
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As at June December $ %
(millions of 30, 31, Explanation of the
U.S. dollars) 2011 2010 Change Change change in balance
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Current assets
Cash and cash 966 635 331 52% See discussion under the
equivalents section "Liquidity and
Capital Resources".
Accounts
receivable 3,624 1,793 1,831 102% Increased sales
activities during the
spring, higher sales
prices and higher
Retail vendor rebates
receivable.
Inventories 2,409 2,502 (93) (4%) Inventory draw-down due
to increased sales
activities during the
spring, partially offset
by increased product
costs.
Prepaid
expenses
and deposits 197 848 (651) (77%) Drawdown of prepaid
inventory due to
increased sales
activities in the
spring.
Marketable
securities 1 3 (2) (67%) -
Assets of
discontinued 134 1,320 (1,186) (90%) The majority of the
operations Commodity Management
businesses of AWB was
divested in Q2 2011. See
discussion under
Discontinued Operations.
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Current
liabilities
Short-term debt 541 517 24 5% -
Accounts
payable 2,950 2,666 284 11% Increased Retail
inventory purchases,
in addition to an
increase in accrued
current income taxes
liability. Partially
offset by drawdown of
customer prepayments
during the spring
application.
Current
portion of 53 125 (72) (58%) Debentures of $125-
long-term million were repaid
debt February 15, 2011 while
South America Retail
line of credit of $53-
million is due in
October 2011.
Current portion
of other 209 198 11 6% -
provisions
Liabilities of 108 1,020 (912) (89%) The majority of the
discontinued Commodity Management
operations businesses of AWB was
divested in Q2 2011. See
discussion under
Discontinued Operations.
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Working capital 3,470 2,575 895 35%
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LIQUIDITY AND CAPITAL RESOURCES
Below is a summary of our cash provided by or used in operating,
investing, and financing activities as reflected in the Condensed
Consolidated Statements of Cash Flows:
Six months ended June 30,
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(Millions of U.S. dollars)
2011 2010 Change
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Cash provided by (used in) operating
activities 76 (77) 153
Cash provided by (used in) investing activities 407 (59) 466
Cash (used in) provided by financing
activities (153) 13 (166)
Effect of exchange rate changes on cash and
cash equivalents 12 (5) 17
Increase (decrease) in cash and cash
equivalents from continuing operations 342 (128) 470
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The sources and uses of cash for the six months ended June 30, 2011 are
summarized below:
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Cash provided by operating activities - Drivers behind the $153-million
increase in source of cash
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Source of cash - $464-million resulting from increase in consolidated
net earnings from continuing operations
adjusted for changes in non-cash items, primarily
associated with a $52-million gain on the sale of
CF shares in Q1 2010 and a $55-million increase in
deferred income taxes which were partially
offset by a $77-million adjustment related to
unrealized gain/loss on derivative financial
instruments.
Use of cash - $313-million increase in non-cash working capital.
The increase in non-cash working capital was
primarily driven by higher accounts receivable and
lower decrease in inventories, partially offset by
an increase in accounts payable (for further
discussion, see section "Financial Condition").
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Cash used in investing activities - Drivers behind the $466-million
increase in source of cash
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Source of cash - Proceeds of $694-million from the sale of the
majority of the Commodity Management businesses
to Cargill in May of 2011 (for further discussion,
see section "Discontinued Operations").
Use of cash - Proceeds of nil received on the sale of marketable
securities in the first half of 2011 versus
proceeds of $117-million received on the sale of our
shares in CF in the first half of 2010;
- $60-million increase in capital expenditures.
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Cash used in financing activities - Drivers behind the $166-million
increase in use of cash
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Use of cash - Repayment of $125-million aggregate principal amount
of debentures that were due February 15, 2011.
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Our short-term debt as at June 30, 2011 is summarized as follows:
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Short-term Debt Total Unutilized Utilized
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(millions of U.S. dollars)
North American facilities expiring 2012(a) 775 775 -
North American accounts receivable
securitization(b) 200 200 -
European facilities expiring in 2011 to 2012(c) 212 - 212
South American facilities expiring 2011 to 2012 151 48 103
Australian facilities expiring 2011 8 8 -
Australian accounts receivable securitization(b) 267 41 226
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1,613 1,072 541
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a) Outstanding letters of credit issued under our revolving credit
facilities at June 30, 2011 were $76-million, reducing credit available
under the facilities to $699-million.
b) For further information, see discussion under the section "Off Balance
Sheet Arrangements" on page 55 of our 2010 Annual Report.
c) Of the total facility, $6-million is secured by accounts receivable.
OUTSTANDING SHARE DATA
The number of Agrium's outstanding shares as at July 31, 2011 was
approximately 158 million. As at July 31, 2011, 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 0.4 million.
SELECTED QUARTERLY INFORMATION
(Unaudited, in millions of U.S. dollars, except per share information)
2011 2010 2009
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Q2 Q1 Q4 Q3 Q2 Q1 Q4 (a) Q3 (a) Q2 (a)
Sales 6,198 2,954 2,398 2,066 4,431 1,848 1,442 1,844 4,090
Gross profit 1,675 725 725 498 1,063 362 383 397 890
Consolidated net
earnings (loss)
from continuing
operations 728 160 152 61 518 (1) 30 26 370
Consolidated net
earnings (loss) 718 171 135 61 518 (1) 30 26 370
Earnings (loss) per
share from
continuing
operations
-basic 4.61 1.02 0.97 0.39 3.29 (0.01) 0.19 0.16 2.36
-diluted 4.60 1.02 0.97 0.39 3.28 (0.01) 0.19 0.16 2.35
Earnings (loss)
per share
-basic 4.55 1.09 0.86 0.39 3.29 (0.01) 0.19 0.16 2.36
-diluted 4.54 1.09 0.86 0.39 3.28 (0.01) 0.19 0.16 2.35
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a) Presented in accordance with previous Canadian generally accepted
accounting principles ("Canadian GAAP")
The agricultural products business is seasonal in nature.
Consequently, sales and gross profit 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. Our recent acquisition of AWB, which has a majority of
its earnings from the second and third quarters of the calendar year,
may have some impact on comparability.
Effective January 1, 2011, Agrium adopted IFRS as issued by the
International Accounting Standards Board. The selected quarterly
information for 2011 and 2010 are presented based on IFRS, while
those for 2009 are presented based on Canadian GAAP. As such, direct
comparison may not be appropriate.
BUSINESS ACQUISITIONS
On December 3, 2010, we acquired 100 percent of AWB, an agribusiness
operating in Australia, for $1.2-billion in cash and $37-million of
acquisition costs. On May 11, 2011, we completed the sale of the
majority of the Commodity Management businesses acquired from AWB, in
accordance with an agreement dated December 15, 2010 (for further
discussion, see section "Discontinued Operations"). Cash received
from the sale was $694-million. We retained the Landmark retail
operations, including over 200 company-owned retail locations and
over 140 retail franchise and wholesale customer locations in
Australia. The acquired business is included in the Retail operating
segment.
As part of the acquisition, we acquired a 50 percent interest in
Hi-Fert Pty. Ltd. ("Hi-Fert"), over which receivers and
administrators have been appointed. Previously recorded amounts have
been written off. AWB had provided guarantees for letters of credit
of approximately $62-million issued by lenders supporting operations
of Hi-Fert. The amount, if any, that we will be required to pay under
these guarantees, net of recoveries from a charge over related
assets, is not determinable, pending the outcome of bankruptcy and
litigation proceedings.
On May 2, 2011, we acquired 100 percent of Cerealtoscana S.p.A.
("CT"), and its subsidiary Agroport, for total consideration of
$27-million plus working capital. CT is a fertilizer distribution
company in Italy and Agroport is its subsidiary in Romania. The
acquired business is included in the Wholesale operating segment.
DISCONTINUED OPERATIONS
Discontinued operations include the operation of Commodity Management
businesses and AWB Harvest Finance Limited sold on May 11, 2011.
Also included are the operations and assets and liabilities of the
Commodity Management businesses not included in the sale. We have
agreed to various terms and conditions and indemnifications pursuant
to the sale of the Commodity Management business, including an
indemnity by AWB for litigation related to the Oil-For-Food
Programme, as described in note 2 of our Condensed Consolidated
Interim Financial Statements for the three and six months ended June
30, 2011.
Net loss from discontinued operations was $10-million for the second
quarter of 2011 and net earnings of $1-million for the first half of
2011, compared to nil in the same periods of 2010.
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 (earnings (loss)
from continuing operations before finance costs, income taxes,
depreciation and amortization). 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 calculated in accordance with
IFRS:
(millions of U.S. Three Months Ended June 30, 2011
dollars) -----------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Consolidated
----------------------------------------------------------------------------
EBITDA 529 617 18 (19) 1,145
Depreciation and
amortization 43 48 5 1 97
----------------------------------------------------------------------------
EBIT 486 569 13 (20) 1,048
----------------------------------------------------------------------------
Finance costs
related to long-
term debt (24)
Other finance
costs (12)
Income taxes (284)
----------------------------------------------------------------------------
Consolidated
net earnings
from
continuing
operations 728
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(millions of U.S. Three Months Ended June 30, 2010
dollars) -----------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Consolidated
----------------------------------------------------------------------------
EBITDA 388 339 20 80 827
Depreciation and
amortization 27 63 5 2 97
----------------------------------------------------------------------------
EBIT 361 276 15 78 730
----------------------------------------------------------------------------
Finance costs
related to long-
term debt (22)
Other finance
costs (7)
Income taxes (183)
----------------------------------------------------------------------------
Consolidated
net earnings
from
continuing
operations 518
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(millions of U.S. Six Months Ended June 30, 2011
dollars) -----------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Consolidated
----------------------------------------------------------------------------
EBITDA 554 1,029 19 (112) 1,490
Depreciation and
amortization 83 83 11 6 183
----------------------------------------------------------------------------
EBIT 471 946 8 (118) 1,307
----------------------------------------------------------------------------
Finance costs
related to long-
term debt (51)
Other finance
costs (25)
Income taxes (343)
----------------------------------------------------------------------------
Consolidated
net earnings
from
continuing
operations 888
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(millions of U.S. Six Months Ended June 30, 2010
dollars) -----------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Consolidated
----------------------------------------------------------------------------
EBITDA 347 521 23 33 924
Depreciation and
amortization 54 98 9 4 165
----------------------------------------------------------------------------
EBIT 293 423 14 29 759
----------------------------------------------------------------------------
Finance costs
related to long-
term debt (45)
Other finance
costs (14)
Income taxes (183)
----------------------------------------------------------------------------
Consolidated
net earnings
from
continuing
operations 517
----------------------------------------------------------------------------
ACCOUNTING STANDARDS AND CRITICAL ACCOUNTING ESTIMATES
Please refer to note 1 of our Condensed Consolidated Interim
Financial Statements for the three and six months ended June 30, 2011
for our significant accounting policies and critical accounting
estimates, which includes, among others, purchase price allocations
in business combinations; collectability of receivables; rebates; net
realizable value of inventory; estimated useful lives and impairment
of long-lived assets; goodwill impairment testing; allocation of
acquisition purchase prices; asset retirement obligations;
environmental remediation; employee future benefits; share-based
payments; income taxes; fair value of financial assets and
liabilities; and, amounts and likelihood of contingencies.
BUSINESS RISKS
The information presented on risk management and key business risks
on pages 70 - 79 in our 2010 Annual Report has not changed materially
since December 31, 2010.
CONTROLS & PROCEDURES
There have been no changes in our internal control over financial
reporting during the quarter ended June 30, 2011 that have materially
affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
OUTLOOK, KEY RISKS AND UNCERTAINTIES
Global agricultural fundamentals and markets were strong in the
second quarter of 2011. The FAO food price index reached an all-time
record in April 2011, not only showing very widespread strength among
crop prices, but also record meat prices and historically high dairy
prices. U.S. cash corn prices in the second quarter of 2011 were the
highest on record. Looking ahead, the outlook for agricultural
markets remains positive. Despite revisions upward in both corn
ending stocks and 2011 planted area, the United States Department of
Agriculture (USDA) projects that stocks of corn at the end of 2010/11
and 2011/12 will amount to less than 30 days consumption, which is
very tight by historical standards.
The global macroeconomic situation presents some risks which have the
potential to impact agricultural markets. Significant uncertainty
surrounds the outcome of sovereign debt problems in Greece and
Portugal, among other European nations and the record high U.S.
government debt levels.
Crop protection markets remain competitive, but margins have
stabilized in recent months. Demand for crop protection products in
North America has been strong due to attractive grower economics and
improving crop conditions in several areas of North America. We are
expecting strong 2011 winter wheat seed and 2012 corn and cotton seed
sales based on a favorable outlook for prices and seeded area.
Nitrogen markets rose throughout the second quarter of 2011 driven by
tight supplies and strong demand. The Chinese government imposed a
sliding scale export tax in place of the 7 percent flat tax applied
to exports during the low-tax period in 2010. The uncertainty around
the new punitive sliding scale export tax reduced the volume of
Chinese exports offered for sale prior to July 1, 2011. While it is
uncertain how much urea China will export in the July through October
export period, analysts project that full-year 2011 exports will be
about half of 2010 levels, when exports exceeded 7 million tonnes.
Global urea import demand was strong in the second quarter. In the
January through May 2011 period, Brazilian urea imports rose at a
record pace and were up 29 percent compared with 2010. Meanwhile,
Indian urea imports were up over 40 percent from 2010 levels during
January through May 2011. The outlook for nitrogen in the second half
of 2011 is positive, driven by the expectation of continued import
demand strength and lower exports from China than a year ago.
The global phosphate supply and demand balance tightened during the
second quarter, despite the onset of the Chinese DAP/MAP export
season beginning June 1. Similar to urea, the Chinese government
instituted a sliding scale export tax on DAP/MAP exports. China is
an important source of phosphate to India and the reduction in
available Chinese export supplies has contributed to a tightening in
global phosphate supplies. Global phosphate export supplies have also
been reduced by production shut-downs in Tunisia, where political
unrest has disrupted phosphate rock supply. Brazilian DAP/MAP
imports are up 75 percent in the January through May period in 2011
versus 2010 and have been a major driver of phosphate market strength
over the past couple of months. Looking ahead to the second half of
2011, India is expected to make significant purchases and South
American demand is normally the highest during the July through
October period. From a supply perspective, producers entered the
second half with low inventories according to The Fertilizer
Institute (TFI). U.S. DAP/MAP inventories were reported to be down
31 percent compared to June 2010 levels and 28 percent below the five
year average in June 2011. The Ma'aden Phosphate Company has started
producing small volumes of DAP at its Saudia Arabian phosphate plant.
The first vessel is expected to ship in August, but significant
export volumes are not expected until 2012.
The global potash market continued to strengthen in the second
quarter. Globally, current potash supplies are tight. North
American potash producers produced at 95 percent of previous monthly
peak production through the first half of 2011 according to TFI data.
High capacity utilization rates have not rebuilt potash inventories,
and TFI data for June 2011 showed North American potash inventories
were 14 percent below May 2011 levels and 27 percent below both June
2010 and five year average levels. Global demand for potash is
strong, with Brazilian imports of potash 48 percent higher in 2011
versus 2010 levels in the January through May period. China has
negotiated supply agreements for the second half of 2011 at
significantly higher prices than first half levels. The timing of an
Indian potash supply agreement remains uncertain, but analysts report
that domestic inventories are extremely tight and new supplies are
needed, which may be a challenge in the short term due to tight
global export supplies.
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. 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 acquisitions, including the acquisition
of retained AWB businesses.
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, 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.
Additionally, there are risks associated with Agrium's recent
acquisition of AWB, including: size and timing of expected synergies
could be less favourable than anticipated; AWB is subject to dispute
and litigation risk (including as a result of being named in
litigation commenced by the Iraqi Government relating to the United
Nations Oil-For-Food Programme), 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.
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 2011 2nd Quarter Conference Call will be
available in a listen-only mode beginning Wednesday, August 3, 2011
at 9:30 a.m. MT (11:30 a.m. ET). Please visit the following website:
www.agrium.com
AGRIUM INC.
Condensed Consolidated Statements of Operations
(Millions of U.S. dollars, except per share amounts)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Sales 6,198 4,431 9,152 6,279
Cost of product sold 4,523 3,368 6,752 4,854
----------------------------------------------------------------------------
Gross profit 1,675 1,063 2,400 1,425
----------------------------------------------------------------------------
Expenses
----------------------------------------------------------------------------
Selling 488 344 841 577
----------------------------------------------------------------------------
General and administrative 92 2 202 91
----------------------------------------------------------------------------
Earnings from associates (9) (2) (7) (11)
----------------------------------------------------------------------------
Other expenses (income) (note 4) 56 (11) 57 9
----------------------------------------------------------------------------
Earnings before finance costs and
income taxes 1,048 730 1,307 759
----------------------------------------------------------------------------
Finance costs related to long-term
debt (note 5) 24 22 51 45
----------------------------------------------------------------------------
Other finance costs (note 5) 12 7 25 14
----------------------------------------------------------------------------
Earnings before income taxes 1,012 701 1,231 700
Income taxes 284 183 343 183
----------------------------------------------------------------------------
Consolidated net earnings from
continuing operations 728 518 888 517
----------------------------------------------------------------------------
Consolidated net (loss) earnings
from discontinued operations (note 3) (10) - 1 -
----------------------------------------------------------------------------
Consolidated net earnings 718 518 889 517
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Attributable to:
----------------------------------------------------------------------------
Equity holders of Agrium 717 518 889 516
----------------------------------------------------------------------------
Non-controlling interest 1 - - 1
----------------------------------------------------------------------------
Consolidated net earnings 718 518 889 517
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share (note 7)
----------------------------------------------------------------------------
Basic earnings per share from
continuing operations 4.61 3.29 5.63 3.28
----------------------------------------------------------------------------
Basic (loss) earnings per share
from discontinued operations (0.06) - 0.01 -
----------------------------------------------------------------------------
Basic earnings per share 4.55 3.29 5.64 3.28
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Diluted earnings per share from
continuing operations 4.60 3.28 5.62 3.27
----------------------------------------------------------------------------
Diluted loss per share from
discontinued operations (0.06) - - -
----------------------------------------------------------------------------
Diluted earnings per share 4.54 3.28 5.62 3.27
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes.
AGRIUM INC.
Condensed Consolidated Statements of Comprehensive Income
(Millions of U.S.dollars)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Consolidated net earnings 718 518 889 517
----------------------------------------------------------------------------
Other comprehensive income (loss)
----------------------------------------------------------------------------
Available for sale financial
----------------------------------------------------------------------------
instruments (1) - (1) (29)
----------------------------------------------------------------------------
Foreign currency translation 17 (48) 37 (29)
----------------------------------------------------------------------------
Income (loss) of associates 8 (1) 1 (2)
----------------------------------------------------------------------------
24 (49) 37 (60)
----------------------------------------------------------------------------
Consolidated comprehensive income 742 469 926 457
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Attributable to:
----------------------------------------------------------------------------
Equity holders of Agrium 744 471 933 458
----------------------------------------------------------------------------
Non-controlling interest (2) (2) (7) (1)
----------------------------------------------------------------------------
Consolidated comprehensive income 742 469 926 457
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes.
AGRIUM INC.
Condensed Consolidated Statements of Cash Flows
(Millions of U.S. dollars)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating
----------------------------------------------------------------------------
Consolidated net earnings from
continuing operations 728 518 888 517
----------------------------------------------------------------------------
Items not affecting cash
----------------------------------------------------------------------------
Depreciation and amortization 97 97 183 165
----------------------------------------------------------------------------
Earnings from associates (9) (2) (7) (11)
----------------------------------------------------------------------------
Share-based payments (10) (57) 2 (21)
----------------------------------------------------------------------------
Unrealized (gain) loss on
derivative financial instruments (15) (29) (45) 32
----------------------------------------------------------------------------
Gain on disposal of marketable
securities - - - (52)
----------------------------------------------------------------------------
Unrealized foreign exchange loss
(gain) 8 (5) 8 1
----------------------------------------------------------------------------
Deferred income taxes 63 14 69 14
----------------------------------------------------------------------------
Other 27 13 33 22
----------------------------------------------------------------------------
Dividends from associates 16 14 16 14
----------------------------------------------------------------------------
Net changes in non-cash working
capital (1,231) (529) (1,071) (758)
----------------------------------------------------------------------------
Cash (used in) provided by
operating activities (326) 34 76 (77)
----------------------------------------------------------------------------
Investing
----------------------------------------------------------------------------
Acquisitions, net of cash acquired (27) - (27) -
----------------------------------------------------------------------------
Proceeds from disposal of
subsidiaries 694 - 694 -
----------------------------------------------------------------------------
Capital expenditures (136) (110) (246) (186)
----------------------------------------------------------------------------
Purchase of investments (4) - (40) -
----------------------------------------------------------------------------
Proceeds from disposal of
investments 36 - 36 25
----------------------------------------------------------------------------
Proceeds from disposal of
marketable securities - - - 117
----------------------------------------------------------------------------
Other 6 (9) (10) (15)
----------------------------------------------------------------------------
Cash provided by (used in)
investing activities 569 (119) 407 (59)
----------------------------------------------------------------------------
Financing
----------------------------------------------------------------------------
Short-term debt (48) (5) (23) 28
----------------------------------------------------------------------------
Long-term debt issued 10 - 10 -
----------------------------------------------------------------------------
Repayment of long-term debt (8) (7) (133) (8)
----------------------------------------------------------------------------
Dividends paid - - (9) (9)
----------------------------------------------------------------------------
Shares issued, net of issuance
costs 1 - 2 2
----------------------------------------------------------------------------
Cash (used in) provided by
financing activities (45) (12) (153) 13
----------------------------------------------------------------------------
Effect of exchange rate changes on
cash and cash equivalents 22 (5) 12 (5)
----------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents from
continuing operations 220 (102) 342 (128)
----------------------------------------------------------------------------
Cash and cash equivalents provided
by (used in) discontinued
operations(note 3) 299 - (11) -
----------------------------------------------------------------------------
Cash and cash equivalents -
beginning of period 447 907 635 933
----------------------------------------------------------------------------
Cash and cash equivalents - end of
period 966 805 966 805
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest paid 20 18 62 55
----------------------------------------------------------------------------
Interest received 19 13 33 21
----------------------------------------------------------------------------
Income taxes paid 82 47 113 340
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes.
AGRIUM INC.
Condensed Consolidated Balance Sheets
(Millions of U.S. dollars)
(Unaudited)
As at As at
As at June 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
ASSETS
----------------------------------------------------------------------------
Current assets
----------------------------------------------------------------------------
Cash and cash equivalents 966 805 635 933
----------------------------------------------------------------------------
Accounts receivable 3,624 2,380 1,793 1,247
----------------------------------------------------------------------------
Inventories (note 8) 2,409 1,789 2,502 2,137
----------------------------------------------------------------------------
Prepaid expenses and deposits 197 84 848 567
----------------------------------------------------------------------------
Marketable securities 1 4 3 114
----------------------------------------------------------------------------
Assets of discontinued
operations (note 3) 134 - 1,320 -
----------------------------------------------------------------------------
7,331 5,062 7,101 4,998
----------------------------------------------------------------------------
Property, plant and equipment
(note 9) 2,281 1,881 2,154 1,797
----------------------------------------------------------------------------
Intangibles (note 10) 583 596 619 617
----------------------------------------------------------------------------
Goodwill (note 10) 2,434 1,806 2,423 1,804
----------------------------------------------------------------------------
Investment in associates 367 349 389 370
----------------------------------------------------------------------------
Other financial assets (note 11) 72 54 48 88
----------------------------------------------------------------------------
Deferred income tax assets 58 - 52 -
----------------------------------------------------------------------------
Assets of discontinued operations
(note 3) 32 - 92 -
----------------------------------------------------------------------------
13,158 9,748 12,878 9,674
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
----------------------------------------------------------------------------
Current liabilities
----------------------------------------------------------------------------
Short-term debt (note 12) 541 119 517 106
----------------------------------------------------------------------------
Accounts payable 2,950 1,974 2,666 2,342
----------------------------------------------------------------------------
Current portion of long-term debt
(note 12) 53 125 125 -
----------------------------------------------------------------------------
Current portion of other
provisions (note 13) 209 124 198 148
----------------------------------------------------------------------------
Liabilities of discontinued
operations (note 3) 108 - 1,020 -
----------------------------------------------------------------------------
3,861 2,342 4,526 2,596
----------------------------------------------------------------------------
Long-term debt (note 12) 2,059 1,567 2,118 1,699
----------------------------------------------------------------------------
Provisions for post-employment
benefits 141 110 136 106
----------------------------------------------------------------------------
Other provisions (note 13) 355 300 366 308
----------------------------------------------------------------------------
Other financial liabilities
(note 14) 48 51 47 34
----------------------------------------------------------------------------
Deferred income tax liabilities 575 456 490 460
----------------------------------------------------------------------------
Liabilities of discontinued
operations (note 3) 2 - 2 -
----------------------------------------------------------------------------
7,041 4,826 7,685 5,203
----------------------------------------------------------------------------
Shareholders' equity
----------------------------------------------------------------------------
Share capital 1,989 1,980 1,982 1,977
----------------------------------------------------------------------------
Retained earnings 4,030 2,961 3,150 2,454
----------------------------------------------------------------------------
Accumulated other comprehensive
income (loss) 97 (29) 53 29
----------------------------------------------------------------------------
Equity holders of Agrium 6,116 4,912 5,185 4,460
----------------------------------------------------------------------------
Non-controlling interest 1 10 8 11
----------------------------------------------------------------------------
Total equity 6,117 4,922 5,193 4,471
----------------------------------------------------------------------------
13,158 9,748 12,878 9,674
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes.
AGRIUM INC.
Condensed Consolidated Statements of Shareholders' Equity
(Millions of U.S. dollars, except share data)
(Unaudited)
Accumulated
Millions of other
common Share Retained comprehensive
shares (a) capital earnings income (loss)
----------------------------------------------------------------------------
January 1, 2010 157 1,977 2,454 29
----------------------------------------------------------------------------
Consolidated net earnings 516
----------------------------------------------------------------------------
Other comprehensive loss (58)
----------------------------------------------------------------------------
Comprehensive income (loss)
----------------------------------------------------------------------------
Dividends (9)
----------------------------------------------------------------------------
Share-based payment
transactions 3
----------------------------------------------------------------------------
June 30, 2010 157 1,980 2,961 (29)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, 2010 158 1,982 3,150 53
----------------------------------------------------------------------------
Consolidated net earnings 889
----------------------------------------------------------------------------
Other comprehensive income
(loss) 44
----------------------------------------------------------------------------
Comprehensive income (loss)
----------------------------------------------------------------------------
Dividends (9)
----------------------------------------------------------------------------
Share-based payment
transactions 7
----------------------------------------------------------------------------
June 30, 2011 158 1,989 4,030 97
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Equity Non-
holders of controlling Total
Agrium interest equity
----------------------------------------------------------------------------
January 1, 2010 4,460 11 4,471
----------------------------------------------------------------------------
Consolidated net earnings 516 1 517
----------------------------------------------------------------------------
Other comprehensive loss (58) (2) (60)
----------------------------------------------------------------------------
Comprehensive income (loss) 458 (1) 457
----------------------------------------------------------------------------
Dividends (9) (9)
----------------------------------------------------------------------------
Share-based payment
transactions 3 3
----------------------------------------------------------------------------
June 30, 2010 4,912 10 4,922
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, 2010 5,185 8 5,193
----------------------------------------------------------------------------
Consolidated net earnings 889 - 889
----------------------------------------------------------------------------
Other comprehensive income
(loss) 44 (7) 37
----------------------------------------------------------------------------
Comprehensive income (loss) 933 (7) 926
----------------------------------------------------------------------------
Dividends (9) (9)
----------------------------------------------------------------------------
Share-based payment
transactions 7 7
----------------------------------------------------------------------------
June 30, 2011 6,116 1 6,117
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) Our authorized share capital consists of unlimited common shares without
par value.
Accumulated Other Comprehensive Income (Loss) of Equity Holders of Agrium
Available for Foreign
sale financial Actuarial currency
instruments losses translation
----------------------------------------------------------------------------
January 1, 2010 29 - -
----------------------------------------------------------------------------
Losses - - (27)
----------------------------------------------------------------------------
Reclassification adjustments (48) - -
----------------------------------------------------------------------------
Deferred income taxes 19 - -
----------------------------------------------------------------------------
June 30, 2010 - - (27)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, 2010 - (16) 69
----------------------------------------------------------------------------
Gains 1 - 67
----------------------------------------------------------------------------
Reclassification adjustments (2) - (23)
----------------------------------------------------------------------------
June 30, 2011 (1) (16) 113
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total
Comprehensive accumulated
(loss) income other
of comprehensive
associates income (loss)
----------------------------------------------------------------------------
January 1, 2010 - 29
----------------------------------------------------------------------------
Losses (2) (29)
----------------------------------------------------------------------------
Reclassification adjustments - (48)
----------------------------------------------------------------------------
Deferred income taxes - 19
----------------------------------------------------------------------------
June 30, 2010 (2) (29)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, 2010 - 53
----------------------------------------------------------------------------
Gains 1 69
----------------------------------------------------------------------------
Reclassification adjustments - (25)
----------------------------------------------------------------------------
June 30, 2011 1 97
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes.
AGRIUM INC.
Summarized Notes to the Condensed Consolidated Financial Statements
For the six months ended June 30, 2011
(Millions of U.S. dollars, except per share amounts)
(Unaudited)
1. CORPORATE INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Corporate information
Agrium Inc. is incorporated under the laws of Canada with common
shares listed under the symbol "AGU" on the New York Stock Exchange
and the Toronto Stock Exchange. Agrium is a major retail supplier of
agricultural products and services in North and South America and
Australia 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.
Basis of preparation and statement of compliance
These condensed consolidated interim financial statements ("interim
financial statements") of Agrium Inc. were approved for issuance by
the Audit Committee on August 2, 2011. We prepared the interim
financial statements in accordance with IAS 34 Interim Financial
Reporting using accounting policies consistent with International
Financial Reporting Standards ("IFRS") issued by the International
Accounting Standards Board ("IASB"). We prepared our first interim
financial statements for our first quarter of 2011 as part of the
period covered by our first consolidated annual financial statements
prepared in accordance with IFRS for the year ending December 31,
2011. Disclosures concerning the transition from Canadian generally
accepted accounting principles to IFRS are provided in note 19. These
interim financial statements do not include all disclosures normally
provided in consolidated annual financial statements and should be
read in conjunction with our audited consolidated financial
statements for the year ended December 31, 2010.
Seasonality in our business results from the increased demand for our
products during planting seasons. Sales are generally higher in the
spring and fall.
These interim financial statements are presented in U.S. dollars,
which is our presentation and functional currency. We have prepared
these interim financial statements using the historical cost basis
except for certain financial instruments and non-current assets,
liabilities for cash-settled share-based payment arrangements, and
assets and obligations of post-employment benefit plans. Our policies
for these items are set out in the notes below.
Significant accounting policies
a) Key accounting estimates and judgments
The preparation of financial statements requires management to make
judgments, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities,
income and expenses. Estimates are used when accounting for items
such as collectability of receivables, rebates, net realizable value
of inventory, estimated useful lives and impairment of long-lived
assets, goodwill impairment testing, allocation of acquisition
purchase prices, asset retirement obligations, environmental
remediation, employee future benefits, share-based payments, income
taxes, fair value of financial assets and liabilities and amounts and
likelihood of contingencies. Actual results may differ from these
estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized in the period
in which the estimates are revised and in any future periods
affected.
b) Principles of consolidation
Subsidiaries
These consolidated financial statements include the accounts of
Agrium Inc., its subsidiaries, and its proportionate share of
revenues, expenses, assets and liabilities of joint ventures, which
are the entities over which Agrium has control. Control exists when
the company has the power, directly or indirectly, to govern the
financial and operating policies of an entity so as to obtain benefit
from its activities. In these interim financial statements, we, us,
our and Agrium mean Agrium Inc., its subsidiaries and joint ventures.
All intercompany transactions and balances have been eliminated.
Associates
Associates are those entities in which we have significant influence,
but not control, over the financial and operating policies.
Significant influence is presumed to exist when we hold between 20
and 50 percent of the voting power of another entity, but can also
arise if we hold less than 20 percent of an entity if we have the
power to be actively involved and influential in policy decisions
affecting the entity.
Investments in associates are accounted for using the equity method
and are recognized initially at cost. Our investment includes
goodwill identified on acquisition, net of any accumulated impairment
losses. The consolidated financial statements include our share of
the income and expenses and equity movements of equity accounted
investees from the date that significant influence commences until
the date that it ceases.
Joint ventures
Joint ventures are those entities over whose activity we have joint
control, established by contractual agreement and requiring unanimous
consent for strategic financial and operating decisions. Jointly
controlled entities are accounted for using proportionate
consolidation. Our share of the assets, liabilities, income and
expenses of jointly controlled entities are combined with the
equivalent items in the consolidated financial statements on a line
by line basis. Where we transact with our jointly controlled
entities, unrealized profits and losses are eliminated to the extent
of our interest in the joint venture.
c) Business combinations
Acquisitions of subsidiaries and businesses are accounted for using
the acquisition method. The consideration for each acquisition is
measured at the aggregate of the fair values at the date of exchange
of assets given, liabilities incurred or assumed, and equity
instruments we issued in exchange for control of the acquiree.
Acquisition-related costs are recognized in net earnings as incurred.
The interest of non-controlling shareholders in the acquiree is
initially measured at the non-controlling shareholders' proportion of
the net fair value of the assets, liabilities and contingent
liabilities recognized.
d) Foreign currency translation
The functional currency for each of our subsidiaries, jointly
controlled entities and associates is the currency of the primary
economic environment in which they operate, which is the U.S. dollar,
the Canadian dollar, the Australian dollar, the New Zealand dollar
and the Euro. Determining the primary economic environment in which
an entity operates requires management to consider several factors
and use judgment.
All transactions that are not denominated in an entity's functional
currency are foreign currency transactions. These transactions are
initially recorded in the functional currency by applying the
appropriate monthly average rate which best approximates the actual
rate of the transaction. Monetary assets and liabilities denominated
in foreign currencies are re-measured at the functional currency rate
of exchange at the balance sheet date. All differences are recognized
in the consolidated statement of operations. Non monetary items
measured at historical cost are not re-measured - they remain at the
exchange rate from the date of the transaction. Non monetary items
measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined.
The assets and liabilities of foreign operations that are not
denominated in the presentation currency, including goodwill and fair
value adjustments arising on acquisition, are translated to our
presentation currency at exchange rates at the reporting date.
Income, expenses and capital transactions are translated at the
average exchange rate for the month. Foreign currency differences are
recognized directly in equity. When a foreign operation is disposed
of, the relevant amount of foreign currency translation in equity is
reclassified to net earnings.
e) Revenue recognition
Revenue is measured at the fair value of the consideration received
or receivable. We recognize revenue based on individual contractual
terms when all of the following criteria are met: the significant
risks and rewards of ownership of the goods have been transferred to
the customer; we retain neither continuing managerial involvement to
the degree usually associated with ownership nor effective control
over the goods sold; the amount of revenue and costs incurred or to
be incurred can be measured reliably; and, it is probable that the
economic benefits associated with the transaction will flow to us.
These conditions are generally satisfied when title passes to the
customer according to the sales agreement which in most cases, is
when product is picked up by the customer or delivered to the
destination specified by the customer, which is typically a
customer's premises, the vessel on which the product will be shipped,
or the destination port. Revenue is reported net of sales taxes,
returns, discounts and rebates.
f) Rebates
We enter into agreements with suppliers providing for vendor rebates
typically based on the achievement of specified purchase volumes or
sales levels. We account for rebates and prepay discounts as a
reduction of the prices of the suppliers' products. Rebates that are
probable and can be reasonably estimated are accrued based on total
estimated crop year performance. Rebates that are not probable or
estimable are accrued when certain milestones are achieved. Rebates
not covered by binding agreements or published vendor programs are
accrued when conclusive documentation of right of receipt is
obtained.
Rebates based on the amount of materials purchased reduce cost of
product as inventory is sold. Rebates that are based on sales volume
are offset to cost of product when we determine that they have been
earned based on sales volume of related products.
g) Income taxes
Income tax expense comprises current and deferred tax. Income tax
expense is recognized in net earnings except to the extent that it
relates to items recognized directly in equity, in which case it is
recognized directly in equity or in other comprehensive income.
Current income tax is the expected tax payable (recoverable) on the
taxable income for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable
(recoverable) in respect of previous years.
Deferred income tax is recognized on temporary differences between
the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of
taxable income. Deferred income tax liabilities are generally
recognized for all taxable temporary differences. Deferred income tax
assets are generally recognized for all deductible temporary
differences to the extent that it is probable that taxable income
will be available against which those deductible temporary
differences can be utilized.
The carrying amount of deferred income tax assets is reviewed at the
end of each reporting period and reduced to the extent that it is no
longer probable that sufficient taxable income will be available to
allow all or part of the asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax
rates that are expected to apply in the period in which the liability
is settled or the asset realized, based on tax rates (and tax laws)
that have been enacted or substantively enacted by the end of the
reporting period.
Deferred income tax assets and liabilities are offset when there is a
legally enforceable right to set off current income tax assets
against current income tax liabilities and when they relate to income
taxes levied by the same taxation authority.
h) Financial instruments
All financial assets and financial liabilities are initially
recognized at fair value. The subsequent measurement of financial
instruments depends on their classification as follows:
Financial instrument Subsequent measurement of gains or losses at
classification each period-end
----------------------------------------------------------------------------
Fair value through profit or Fair value; unrealized gains or losses
loss (assets and recognized in net earnings
liabilities)
----------------------------------------------------------------------------
Available for sale (assets) Fair value; unrealized gains and losses
recognized in other comprehensive income;
recognized in net earnings on sale of the
asset or when asset is written down as
impaired
----------------------------------------------------------------------------
Held to maturity investments Amortized cost using the effective interest
rate method; recognized in net earnings if
------------------------------ asset/liability is derecognized or asset
Loans and receivables is impaired
------------------------------
Other financial liabilities
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Where commodity derivative contracts under master netting arrangements
include both asset and liability positions, we offset the fair value
amounts recognized for multiple similar derivative instruments
executed with the same counterparty, including any related cash
collateral asset or obligation. Transaction costs of financial
instruments are recorded as a reduction of the cost of the
instruments except for costs of financial instruments classified as
fair value through profit or loss, which are expensed as incurred.
i) Cash and cash equivalents
Cash equivalents are carried at fair value, and consist of short-term
investments with an original maturity of three months or less.
j) Accounts receivable and allowance for doubtful accounts
We evaluate collectability of specific customer receivables depending
on the nature of the sale. Collectability of receivables is reviewed
and the allowance for doubtful accounts is adjusted on an ongoing
basis. Account balances are charged to net earnings when we determine
that it is probable that the receivable will not be collected.
Interest accrues on all trade receivables from the due date, which
may vary with certain geographic or seasonal programs.
We have facilities in the U.S. and Australia that enable us to sell
certain short-term trade accounts receivable to third parties on an
ongoing basis. We continue to service the sold accounts receivable;
amounts associated with the servicing liability are not material. We
record sales and derecognize accounts receivable when the arrangement
transfers substantially all the risks and rewards of ownership of the
receivables to a third party. Where this does not occur, the
arrangements are recorded as secured borrowings.
k) Inventories
Wholesale inventories, consisting primarily of crop nutrients,
operating supplies and raw materials, include both direct and
indirect production and purchase costs, depreciation and amortization
on assets employed directly in production, and freight to transport
the product to the storage facilities. Crop nutrients include our
produced products and products purchased for resale. Operating
supplies include catalysts used in the production process, materials
used for repairs and maintenance and other supplies. Inventories are
valued at the lower of cost on a weighted-average basis and net
realizable value.
Retail inventories, consisting primarily of crop nutrients, crop
protection products, seed and merchandise include the cost of
delivery to move the product to storage facilities. Inventories are
recorded at the lower of cost on a weighted-average basis and net
realizable value.
Advanced Technologies inventories, consisting primarily of raw
materials and controlled-release products, include both direct and
indirect production costs and depreciation on assets employed
directly in production. Inventories are recorded at the lower of cost
determined on a first-in, first-out basis and net realizable value.
l) Property, plant and equipment
Property, plant and equipment are measured at historical cost less
accumulated depreciation and accumulated impairment loss. The cost of
property, plant and equipment comprises its purchase price and any
costs directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner
intended by management. If a legal or constructive obligation exists
to decommission property, plant and equipment, the discounted value
of the obligation is included in the carrying value of the assets
when the obligation arises.
Expenses in connection with day-to-day maintenance and repairs are
recognized in the statement of operations as they are incurred.
Expenses incurred in connection with major replacements, plant
turnarounds and renewals that materially extend the life of property,
plant and equipment or result in future economic benefits are
capitalized and depreciated on a systematic basis. The carrying
amount of replaced components is expensed.
If the construction or preparation for use of property, plant or
equipment extends over a period of longer than twelve months, the
borrowing costs incurred on borrowed capital up to the date of
completion are capitalized as part of the cost of acquisition or
construction.
Property, plant and equipment are depreciated on a straight-line
basis using the following estimated useful lives:
Buildings and improvements 3 - 25 years
Machinery and equipment 3 - 25 years
Other 3 - 25 years
If the cost of an individual part of property, plant and equipment is
significant relative to the total cost of the item, the individual
part is accounted for and depreciated separately. Expected useful
life and residual value is re-assessed annually.
m) Goodwill and intangible assets
Goodwill represents the difference between the fair value of the
consideration transferred in a business combination and the fair
value of the identifiable net assets acquired at the date of
acquisition. Goodwill is initially determined based on provisional
fair values. Fair values are finalized within 12 months of the
acquisition date. Goodwill on acquisition of subsidiaries and jointly
controlled entities is separately disclosed and goodwill on
acquisitions of associates is included within investments in equity
accounted units. Goodwill, including goodwill in equity accounted
units, is not amortized; rather it is tested annually for impairment
or when there is an indication of impairment.
Intangible assets acquired as part of an acquisition of a business
are capitalized separately from goodwill if the asset is separable or
arises from contractual or legal rights, and the fair value can be
measured reliably on initial recognition.
Purchased intangible assets are initially recorded at cost and
finite-lived intangible assets are amortized over their useful
economic lives on a straight-line basis. Intangible assets having
indefinite lives and intangible assets that are not yet ready for use
are not amortized and are tested annually for impairment or when
there is an indication of impairment.
Intangible assets are considered to have indefinite lives when, based
on an analysis of all of the relevant factors, there is no
foreseeable limit to the period over which the asset is expected to
generate cash flows for us. The factors considered in making this
determination include the existence of contractual rights for
unlimited terms; or evidence that renewal of the contractual rights
without significant incremental cost can be expected for indefinite
periods into the future in view of our future investment intentions.
The life cycles of the products and processes that depend on the
asset are also considered.
The following useful lives, which are re-assessed annually, have been
determined for classes of finite-lived intangible assets:
Trade names 5 - 15 years
Customer relationships 5 - 15 years
Technology 7 - 10 years
Other 3 - 20 years
n) Impairment
The carrying amounts of non-current assets are reviewed at each
reporting date to determine whether there is any indication of
impairment. If any indication of impairment exists, then the asset's
recoverable amount is estimated. For goodwill and intangible assets
that have indefinite lives or that are not yet available for use, the
recoverable amount is estimated each year during the third quarter.
The recoverable amount of an asset or cash generating unit is the
greater of its value in use and its fair value less costs to sell. In
assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and
the risks specific to the asset. For the purpose of impairment
testing, assets are grouped together into the smallest group of
assets that have the ability to generate cash inflows from continuing
use that are largely independent of the cash inflows of other assets
or groups of assets (the "cash generating unit"). The goodwill
acquired in a business combination, for the purpose of impairment
testing, is allocated to cash generating units or groups of cash
generating units that are expected to benefit from the synergies of
the combination and reflects the lowest level at which goodwill is
monitored for internal reporting purposes. If there is an indication
of an impairment of an asset or cash generating unit below the level
to which goodwill has been allocated, the asset or cash generating
unit is tested for impairment first and any impairment loss for that
asset or cash generating unit is recognized before testing at the
level to which goodwill has been allocated.
An impairment loss is recognized if the carrying amount of an asset
or its cash generating unit exceeds its estimated recoverable amount.
Impairment losses are recognized in net earnings. Impairment losses
recognized in respect of cash generating units are allocated first to
reduce the carrying amount of any goodwill allocated to the units and
then to reduce the carrying amounts of the other assets in the unit
on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect
of other assets, impairment losses recognized in prior periods are
assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment loss is reversed if
there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent
that the asset's carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortization,
if no impairment loss had been recognized.
Goodwill that forms part of the carrying amount of an investment in
an associate is not recognized separately, and therefore is not
tested for impairment separately. Instead, the entire amount of the
investment in an associate is tested for impairment as a single asset
when there is objective evidence that the investment in an associate
may be impaired.
o) Leases
Leases whereby we assume substantially all the risks and rewards of
ownership are classified as finance leases. Upon initial recognition
the leased asset is measured at an amount equal to the lower of its
fair value and the present value of the minimum lease payments.
Subsequent to initial recognition, the asset is accounted for in
accordance with the accounting policy applicable to that asset.
Minimum lease payments made under finance leases are apportioned
between the finance cost and the reduction of the outstanding
liability. The finance cost is allocated to each period during the
lease term so as to produce a constant periodic rate of interest on
the remaining balance of the liability.
Other leases are operating leases and are not recognized on our
balance sheet. Payments made under operating leases are recognized in
net earnings over the term of the lease.
p) Post-employment benefits
We maintain contributory and non-contributory defined benefit and
defined contribution pension plans in Canada and the United States.
The majority of employees are members of defined contribution pension
plans. We also maintain health care plans and life insurance benefits
for retired employees. Benefits from defined benefit plans are based
on either a percentage of final average earnings and years of service
or a flat dollar amount for each year of service. Pension plan and
post-retirement benefit costs are determined annually by independent
actuaries and include current service costs, interest cost of
projected benefits, return on plan assets and actuarial gains or
losses. We also have non-contributory defined benefit and defined
contribution plans which provide supplementary pension benefits for
senior management.
Post-employment benefits are funded by us and obligations are
determined using the projected unit credit method of actuarial
valuation prorated over the expected length of employee service.
Post-employment benefit costs for current service, interest costs and
return on plan assets are charged to net earnings in the year
incurred. Actuarial gains or losses are recognized immediately in
other comprehensive income. Past service costs and the effects of
changes in plan assumptions are amortized on a straight-line basis
over the average period until the benefits become vested, or
immediately if the benefits have already vested. Our contributions to
defined contribution post-employment benefit plans are expensed as
incurred.
Short-term employee benefit obligations are measured on an
undiscounted basis and are expensed as the related service is
provided. Liabilities for bonuses and profit-sharing are recognized
based on a formula that takes into consideration the profit
attributable to our shareholders after certain adjustments. We
recognize a liability when we have a present legal or constructive
obligation to pay this amount as a result of past service provided by
the employee, and the obligation can be estimated reliably.
q) Provisions
A provision is recognized if, as a result of a past event, we have a
present legal or constructive obligation that can be estimated
reliably, and it is more likely than not that an outflow of economic
benefits will be required to settle the obligation. Where the effect
of discounting is material, the expected future cash flows associated
with a provision are discounted at a pre-tax rate that reflects
current market assessments of the time value of money. The unwinding
of the discount is recognized as a finance cost.
Environmental remediation
Environmental expenditures that relate to existing conditions caused
by past operations that do not contribute to current or future
revenue generation are expensed. Environmental expenditures that
extend the life of the property, increase its capacity or mitigate or
prevent contamination from future operations are capitalized. Costs
are recorded when environmental remediation efforts are probable and
the costs can be reliably estimated based on current law and existing
technologies. Estimated costs are based on management's best estimate
of undiscounted future costs.
Decommissioning and restoration
Provisions for decommissioning and restoration costs (asset
retirement obligations) are measured based on current requirements,
technology and price levels and the present value is calculated using
amounts discounted over the useful economic life of the assets. The
liability is recognized in the period when there is a legal or
constructive obligation and a reasonable estimate can be made. A
corresponding item of property, plant and equipment of an amount
equivalent to the provision is also recognized and is subsequently
depreciated as part of the asset. The effects of changes resulting
from revisions to the timing or the amount of the original estimate
of the provision are reflected on a prospective basis, by adjustment
to the carrying amount of the related property, plant and equipment.
r) Share-based payments
Cash-settled plans are accounted for as liabilities where the fair
value of the award is determined at the grant date using a valuation
model which includes an estimated forfeiture rate. A Black-Scholes
option pricing model is used for plans with a service condition and a
Monte Carlo simulation model is used for plans with service and
market conditions. Compensation expense is accrued, and recognized
over the vesting period of the award. The fair value is re-measured
at each balance sheet date and fluctuations in the fair value are
recognized in the period in which the fluctuation occurs.
Equity-settled plans are accounted for using a fair value-based
method. The fair value of the share-based award is determined at the
grant date using a market-based option valuation model which includes
an estimated forfeiture rate. The fair value of the award is recorded
as compensation expense amortized over the vesting period of the
award, with a corresponding increase to share capital. On exercise of
the award, the proceeds are recorded as share capital.
If an employee is eligible to retire during the vesting period, we
recognize compensation expense over the period from the date of grant
to the retirement eligibility date. If an employee is eligible to
retire on the date of grant, compensation expense is recognized on
the grant date.
s) Non-current assets held for sale and discontinued operations
Non-current assets and disposal groups classified as held for sale
are measured at the lower of carrying amount and fair value less
costs to sell. Non-current assets and disposal groups are classified
as held for sale if their carrying amounts will be recovered through
a sale transaction rather than through continuing use. This condition
is regarded as met only when the sale is highly probable and the
asset or disposal group is available for immediate sale in its
present condition. Management must be committed to the sale, which
should be expected to qualify for recognition as a completed sale
within one year from the date of classification.
In the consolidated statements of operations of the reporting period,
and of the comparable period of the previous year, income and
expenses from discontinued operations are reported separate from
income and expenses from continuing activities, down to the level of
profit after taxes.
Once classified as held for sale, property, plant and equipment and
intangible assets are not depreciated and are recognized at fair
value less cost to sell. We cease using the equity method of
accounting on the date from which an investment in an associate
becomes held for sale.
t) Recent accounting pronouncements not yet adopted
We are in the process of assessing the impact of adopting the
following new standards.
Date and method Impact
Description of adoption
----------------------------------------------------------------------------
IFRS 9 Financial Instruments introduces January 1, 2013 We do not
new requirements for the or earlier; expect a
classification, measurement and retrospectively significant
disclosure of financial assets, impact from
whereby subsequent measurement of adoption.
financial assets is either at
amortized cost or fair value through
profit or loss. This new approach is
based on how an entity manages its
financial assets and the contractual
cash flow characteristics of those
financial assets.
----------------------------------------------------------------------------
IFRS 10 Consolidated Financial January 1, 2013 We do not
Statements establishes principles for or earlier; expect a
the presentation and preparation of retrospectively significant
consolidated financial statements when impact from
an entity controls another entity. The adoption.
standard implements a single model
based on control and introduces a new
definition of control, requiring:
power over the investee; exposure, or
rights, to variable returns from
involvement with the investee; and the
ability to use power over the investee
to affect the amount of investor
returns. All three elements must exist
in order for an investor to determine
that it has control of an investee.
----------------------------------------------------------------------------
IFRS 11 Joint Arrangements establishes January 1, 2013 We are a party
a principles-based approach to or earlier; in to joint
accounting for joint arrangements that accordance with arrangements
requires a party to a joint IFRS 11 and
arrangement to recognize its rights application of
and obligations arising from the the standard
arrangement. Under IFRS 11, an entity could have a
will classify its interest in a joint material
arrangement either as a joint impact on our
operation, accounted for by balance sheet
recognizing the entity's share of the and statement
assets, liabilities, revenue and of operations.
expenses of the joint operation; or a
joint venture, accounted for using
equity accounting. This differs from
existing IFRS which allows a choice
between proportionate consolidation or
equity accounting for interests in
jointly controlled entities.
----------------------------------------------------------------------------
IFRS 12 Disclosure of Interests in January 1, 2013 We do not
Other Entities establishes disclosure or earlier expect a
requirements for entities that have an significant
interest in a subsidiary, a joint impact from
arrangement, an associate or an adoption.
unconsolidated structured entity.
Under IFRS 12, entities are required
to disclose information that allows
users to evaluate the nature of, and
risks associated with, an entity's
interests in other entities; and the
effects of those interests on the
entity's financial position, financial
performance and cash flows.
----------------------------------------------------------------------------
IFRS 13 Fair Value Measurement provides January 1, 2013 We do not
a single set of requirements to be or earlier; expect a
applied to all fair value prospectively significant
measurements; replacing the existing impact from
guidance which is dispersed across adoption.
many standards. IFRS 13 defines fair
value as the price that would be
received to sell an asset or paid to
transfer a liability in an orderly
transaction between market
participants at the measurement date.
This definition emphasizes that fair
value is a market-based measurement,
not an entity-specific measurement.
IFRS 13 also enhances the disclosure
requirements regarding fair value
measurements.
----------------------------------------------------------------------------
IAS 27 Separate Financial Statements January 1, 2013 We do not
and IAS 28 Investments in Associates or earlier expect a
and Joint Ventures have been amended significant
as a result of new standards IFRS 10 impact from
through IFRS 13, as described above. adoption.
----------------------------------------------------------------------------
2. BUSINESS ACQUISITIONS
AWB Limited
On December 3, 2010, we acquired 100 percent of AWB Limited ("AWB"),
an agribusiness operating in Australia, for $1.2-billion in cash and
$37-million of acquisition costs. On May 11, 2011, we completed the
sale of the majority of the Commodity Management businesses acquired
from AWB, in accordance with an agreement dated December 15, 2010.
Cash received from the sale was $694-million.
We retained the Landmark retail operations, including over 200
company-operated retail locations and over 140 retail franchise and
wholesale customer locations in Australia. The acquired business is
included in the Retail operating segment.
Preliminary estimated fair values of assets
acquired and liabilities assumed on December As at
3, 2010 As at June 30, December 31,
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2011 2010
----------------------------------------------------------------------------
Continuing operations
----------------------------------------------------------------------------
Working capital 736 736
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Property, plant and equipment 81 81
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Intangibles 41 41
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Goodwill 672 589
----------------------------------------------------------------------------
Other financial assets 69 69
----------------------------------------------------------------------------
Debt and other financial liabilities (742) (744)
----------------------------------------------------------------------------
Assets of discontinued operations 1,086 1,128
----------------------------------------------------------------------------
Liabilities of discontinued operations (734) (691)
----------------------------------------------------------------------------
1,209 1,209
----------------------------------------------------------------------------
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The primary drivers that generate goodwill are the acquisition of a
talented workforce and the value of synergies between Agrium and AWB,
including expansion of geographical coverage for the sale of crop
inputs and cost savings opportunities. We expect to allocate the
majority of goodwill to the Retail business unit. We do not expect
goodwill to be deductible for income tax purposes.
We have not completed our determination of the fair value of the
assets acquired, liabilities assumed (including contingent
liabilities), or related deferred income tax impacts due to the
timing of the acquisition and the inherent complexity associated with
the valuations. The preliminary purchase price allocation is based on
carrying amounts of AWB, as adjusted for information obtained
subsequent to the acquisition. Accordingly, in applying the
acquisition method of accounting, the excess of the purchase price
over the estimated fair value of the net assets acquired has been
allocated to goodwill. We expect that some of the purchase price
allocated to goodwill will be allocated to property, plant and
equipment, intangibles, and related deferred income tax balances. We
expect that the actual amounts assigned to the fair values of the
identifiable assets and liabilities acquired will differ materially
from the preliminary purchase price allocation, and that some
acquired property, plant and equipment and intangibles are expected
to be finite-lived and accordingly subject to depreciation and
amortization.
Unaudited pro forma consolidated summary results of For the twelve
operations (prepared as if the acquisition of AWB months ended
had occurred on January 1, 2010) December 31, 2010
----------------------------------------------------------------------------
Sales 15,604
----------------------------------------------------------------------------
Net earnings 668
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sales of AWB for the six months ended June 30, 2011 were $760-million.
It is impracticable to provide net earnings information of AWB for
the same period because corporate overheads of AWB are integrated
with those of Agrium.
As part of the acquisition, we acquired a 50% interest in Hi-Fert
Pty. Ltd. ("Hi-Fert"), over which receivers and administrators have
been appointed. Previously recorded amounts have been written off. We
have provided guarantees for letters of credit of approximately
$62-million issued by lenders supporting operations of Hi-Fert. The
amount, if any, that we will be required to pay under these
guarantees, net of recoveries from a charge over related assets, is
not determinable pending the outcome of bankruptcy and litigation
proceedings.
Oil-For-Food Programme
On April 14, 1995 the United Nations established the Oil-For-Food
Programme ("OFFP"), whereby the Iraqi government was allowed to raise
money through the sale of oil. The revenue from the sale of oil was
placed into an escrow account, with the Iraqi government allowed to
use these funds to purchase food, medical supplies and other
humanitarian supplies.
On June 27, 2008 the Iraqi government filed a civil lawsuit in the
U.S. District Court for the Southern District of New York against AWB
and 92 other companies who participated in the OFFP, alleging that
the defendants participated in an illegal conspiracy with the "former
Saddam Hussein regime" to divert funds from the United Nations OFFP
escrow account. The lawsuit seeks total damages in excess of
$10-billion from the defendants, jointly and severally, as well as
treble damages under the U.S. Racketeer Influenced and Corrupt
Organizations Act. As to AWB specifically, the lawsuit alleges that
AWB unlawfully diverted to the former Saddam Hussein regime more than
$232-million from the escrow account established under the OFFP. AWB
and a number of other defendants filed a motion to dismiss the
complaint in January 2010. Although the outcome cannot be predicted,
as of August 3, 2011, Agrium does not expect any material financial
impact from the lawsuit.
As the outcome of the lawsuit and any impact on the operations of AWB
arising from this legal action cannot be predicted, there is
uncertainty as to the resultant impact, if any, on the financial
position, financial performance and cash flows of AWB arising
directly or indirectly from transactions under the OFFP. If the case
against AWB is not dismissed, a possible adverse decision on the
merits could have a material adverse effect on AWB and on Agrium's
consolidated financial position and results.
Cerealtoscana S.p.A. and Agroport
On May 2, 2011, we acquired 100 percent of Cerealtoscana S.p.A.
("CT"), and its subsidiary Agroport, for total consideration of
$27-million plus working capital. CT is a fertilizer distribution
company in Italy and Agroport is its subsidiary in Romania. The
acquired business is included in the Wholesale operating segment.
3. DISCONTINUED OPERATIONS
Discontinued operations include the operations of Commodity
Management businesses and AWB Harvest Finance Limited sold on May 11,
2011. Also included are the operations and assets and liabilities of
the Commodity Management businesses not included in the sale.
We have agreed to various terms and conditions and indemnifications
pursuant to the sale of the Commodity Management business, including
an indemnity by AWB for litigation related to the OFFP, as described
in note 2, Business Acquisitions.
Condensed information of discontinued As at As at
operations June 30, December 31,
----------------------------------------------------------------------------
2011 2010
----------------------------------------------------------------------------
Operating information
----------------------------------------------------------------------------
Sales (a) 1,504 313
----------------------------------------------------------------------------
Consolidated net earnings (loss) from
discontinued operations (b) 1 (17)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash (used in) provided by
----------------------------------------------------------------------------
Operating activities (104) (252)
----------------------------------------------------------------------------
Investing activities (2) (1)
----------------------------------------------------------------------------
Financing activities 95 298
----------------------------------------------------------------------------
(11) 45
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance sheet information
----------------------------------------------------------------------------
Accounts receivable 58 743
----------------------------------------------------------------------------
Inventories 76 551
----------------------------------------------------------------------------
Prepaid expenses and deposits - 14
----------------------------------------------------------------------------
Other current assets - 12
----------------------------------------------------------------------------
Current assets 134 1,320
----------------------------------------------------------------------------
Property, plant and equipment 20 81
----------------------------------------------------------------------------
Goodwill 7 -
----------------------------------------------------------------------------
Investment in associates 4 -
----------------------------------------------------------------------------
Other financial assets - 2
----------------------------------------------------------------------------
Deferred income tax assets 1 9
----------------------------------------------------------------------------
Non-current assets 32 92
----------------------------------------------------------------------------
166 1,412
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Short-term debt 60 471
----------------------------------------------------------------------------
Accounts payable 48 549
----------------------------------------------------------------------------
Current liabilities 108 1,020
----------------------------------------------------------------------------
Deferred income tax liabilities 2 2
----------------------------------------------------------------------------
Non-current liabilities 2 2
----------------------------------------------------------------------------
110 1,022
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) Includes revenue from related parties (Pools) of $365-million (December
31, 2010 - $59-million).
(b) Net of income taxes of $20-million (December 31, 2010 - $3-million)
4. OTHER EXPENSES
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Realized loss on derivative
financial instruments 27 21 75 28
----------------------------------------------------------------------------
Unrealized (gain) loss on
derivative financial instruments (15) (29) (45) 32
----------------------------------------------------------------------------
Gain on disposal of marketable
securities - - - (52)
----------------------------------------------------------------------------
Potash profit and capital tax 15 1 26 4
----------------------------------------------------------------------------
Bad debt expense 22 18 27 24
----------------------------------------------------------------------------
Interest income (19) (13) (33) (21)
----------------------------------------------------------------------------
Foreign exchange gain (17) (6) (42) (5)
----------------------------------------------------------------------------
Other 43 (3) 49 (1)
----------------------------------------------------------------------------
56 (11) 57 9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. FINANCE COSTS
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Finance costs related to
long-term debt 24 22 51 45
----------------------------------------------------------------------------
Other finance costs
----------------------------------------------------------------------------
Environmental remediation and
asset retirement obligations 2 2 4 5
----------------------------------------------------------------------------
Other interest expense 10 5 21 9
----------------------------------------------------------------------------
12 7 25 14
----------------------------------------------------------------------------
36 29 76 59
----------------------------------------------------------------------------
----------------------------------------------------------------------------
6. PERSONNEL COSTS
Three months ended Six months ended
Total personnel expenses June 30, June 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Short-term employee benefits 388 239 592 390
----------------------------------------------------------------------------
Post-employment benefits 20 9 33 20
----------------------------------------------------------------------------
Share-based payments (10) (57) 2 (21)
----------------------------------------------------------------------------
398 191 627 389
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Compensation of key management Three months ended Six months ended
personnel June 30, June 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Short-term employee benefits 8 2 9 6
----------------------------------------------------------------------------
Post-employment benefits - - 1 1
----------------------------------------------------------------------------
Share-based payments (7) (32) (2) (11)
----------------------------------------------------------------------------
1 (30) 8 (4)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
7. EARNINGS PER SHARE
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Numerator
----------------------------------------------------------------------------
Consolidated net earnings from
continuing operations for the
period attributable to
equity holders of Agrium 727 518 888 516
----------------------------------------------------------------------------
Consolidated net (loss)
earnings from discontinued
operations for the period
attributable to equity
holders of Agrium (10) - 1 -
----------------------------------------------------------------------------
Consolidated net earnings for
the period attributable to
equity holders of Agrium 717 518 889 516
----------------------------------------------------------------------------
Denominator
----------------------------------------------------------------------------
Weighted-average number of
shares outstanding for
basic earnings per
share 158 157 158 157
----------------------------------------------------------------------------
Dilutive instruments - stock
options (a)(b) - 1 - 1
----------------------------------------------------------------------------
Weighted-average number of
shares outstanding for
diluted earnings per
share 158 158 158 158
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Basic earnings per share from
continuing operations 4.61 3.29 5.63 3.28
----------------------------------------------------------------------------
Basic (loss) earnings per share
from discontinued operations (0.06) - 0.01 -
----------------------------------------------------------------------------
Basic earnings per share 4.55 3.29 5.64 3.28
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Diluted earnings per share from
continuing operations 4.60 3.28 5.62 3.27
----------------------------------------------------------------------------
Diluted loss per share from
discontinued operations (0.06) - - -
----------------------------------------------------------------------------
Diluted earnings per share 4.54 3.28 5.62 3.27
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) For diluted earnings per share, conversion or exercise is assumed only
if the effect is dilutive to basic earnings per share.
(b) Using the treasury stock method, stock options with an average grant
price less than or equal to the average share price during the period
are considered dilutive and potential common share equivalents are
considered outstanding.
8. INVENTORIES
As at As at
As at June 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Raw materials 265 256 267 231
----------------------------------------------------------------------------
Finished goods 240 244 268 338
----------------------------------------------------------------------------
Product for resale 1,904 1,289 1,967 1,568
----------------------------------------------------------------------------
2,409 1,789 2,502 2,137
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Depreciation and amortization
recorded in inventory 21 14 16 16
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months
ended Six months ended
Recorded in cost of product sold June 30, June 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Depreciation and amortization 51 67 90 103
----------------------------------------------------------------------------
Direct freight 65 64 114 114
----------------------------------------------------------------------------
Inventory 4,407 3,237 6,548 4,637
----------------------------------------------------------------------------
4,523 3,368 6,752 4,854
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Our determination of net realizable value of inventories requires
considerable judgment to estimate forecasted selling prices, including
assumptions about demand and supply variables.
9. PROPERTY, PLANT AND EQUIPMENT
Buildings Machinery
and and Assets under
June 30, 2011 Land improvements equipment construction Other Total
----------------------------------------------------------------------------
Cost
----------------------------------------------------------------------------
December 31,
2010 84 927 3,003 335 87 4,436
----------------------------------------------------------------------------
Additions 2 18 107 128 1 256
----------------------------------------------------------------------------
Acquisitions - 1 3 - - 4
----------------------------------------------------------------------------
Disposals (1) (17) (32) (1) (1) (52)
----------------------------------------------------------------------------
Other
adjustments (1) 7 14 (31) 5 (6)
----------------------------------------------------------------------------
Foreign
exchange
translation 7 7 61 10 2 87
----------------------------------------------------------------------------
June 30, 2011 91 943 3,156 441 94 4,725
----------------------------------------------------------------------------
Accumulated
depreciation
----------------------------------------------------------------------------
December 31,
2010 - (390) (1,841) - (51) (2,282)
----------------------------------------------------------------------------
Depreciation - (30) (107) - (4) (141)
----------------------------------------------------------------------------
Disposals - 8 12 - 1 21
----------------------------------------------------------------------------
Other
adjustments - (2) 5 - 1 4
----------------------------------------------------------------------------
Foreign
exchange
translation - (6) (39) - (1) (46)
----------------------------------------------------------------------------
June 30, 2011 - (420) (1,970) - (54) (2,444)
----------------------------------------------------------------------------
Net book value 91 523 1,186 441 40 2,281
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Buildings Machinery
December 31, and and Assets under
2010 Land improvements equipment construction Other Total
----------------------------------------------------------------------------
Cost
----------------------------------------------------------------------------
January 1, 2010 73 702 2,888 274 78 4,015
----------------------------------------------------------------------------
Additions 11 150 228 110 7 506
----------------------------------------------------------------------------
Acquisitions 2 31 37 11 - 81
----------------------------------------------------------------------------
Disposals (5) (34) (260) - (2) (301)
----------------------------------------------------------------------------
Other
adjustments 2 63 31 (73) (2) 21
----------------------------------------------------------------------------
Foreign
exchange
translation 1 15 79 13 6 114
----------------------------------------------------------------------------
December 31,
2010 84 927 3,003 335 87 4,436
----------------------------------------------------------------------------
Accumulated
depreciation
----------------------------------------------------------------------------
January 1, 2010 - (338) (1,833) - (47) (2,218)
----------------------------------------------------------------------------
Depreciation - (48) (202) - (5) (255)
----------------------------------------------------------------------------
Disposals - 22 235 - 1 258
----------------------------------------------------------------------------
Other
adjustments - (18) 12 - 4 (2)
----------------------------------------------------------------------------
Foreign
exchange
translation - (8) (53) - (4) (65)
----------------------------------------------------------------------------
December 31,
2010 - (390) (1,841) - (51) (2,282)
----------------------------------------------------------------------------
Net book value 84 537 1,162 335 36 2,154
----------------------------------------------------------------------------
----------------------------------------------------------------------------
10. INTANGIBLES AND GOODWILL
Trade Customer
June 30, 2011 names relationships Technology
----------------------------------------------------------------------------
Cost
----------------------------------------------------------------------------
December 31, 2010 31 553 64
----------------------------------------------------------------------------
Additions developed internally - - 1
----------------------------------------------------------------------------
Acquisitions - 3 -
----------------------------------------------------------------------------
Adjustments to purchase price
allocation - - -
----------------------------------------------------------------------------
Disposals - - (4)
----------------------------------------------------------------------------
Other adjustments - - 2
----------------------------------------------------------------------------
Foreign exchange translation - - 2
----------------------------------------------------------------------------
June 30, 2011 31 556 65
----------------------------------------------------------------------------
Accumulated amortization
----------------------------------------------------------------------------
December 31, 2010 (7) (108) (14)
----------------------------------------------------------------------------
Amortization (1) (19) (7)
----------------------------------------------------------------------------
Disposals - - 3
----------------------------------------------------------------------------
Other adjustments - - -
----------------------------------------------------------------------------
Foreign exchange translation - - -
----------------------------------------------------------------------------
June 30, 2011 (8) (127) (18)
----------------------------------------------------------------------------
Net book value 23 429 47
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total
June 30, 2011 Other Intangibles Goodwill
----------------------------------------------------------------------------
Cost
----------------------------------------------------------------------------
December 31, 2010 148 796 2,423
----------------------------------------------------------------------------
Additions developed internally - 1 -
----------------------------------------------------------------------------
Acquisitions 2 5 17
----------------------------------------------------------------------------
Adjustments to purchase price
allocation - - 83
----------------------------------------------------------------------------
Disposals (1) (5) (123)
----------------------------------------------------------------------------
Other adjustments 1 3 (2)
----------------------------------------------------------------------------
Foreign exchange translation 1 3 36
----------------------------------------------------------------------------
June 30, 2011 151 803 2,434
----------------------------------------------------------------------------
Accumulated amortization
----------------------------------------------------------------------------
December 31, 2010 (48) (177) -
----------------------------------------------------------------------------
Amortization (17) (44) -
----------------------------------------------------------------------------
Disposals - 3 -
----------------------------------------------------------------------------
Other adjustments (1) (1) -
----------------------------------------------------------------------------
Foreign exchange translation (1) (1) -
----------------------------------------------------------------------------
June 30, 2011 (67) (220) -
----------------------------------------------------------------------------
Net book value 84 583 2,434
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Trade Customer
December 31, 2010 names relationships Technology
----------------------------------------------------------------------------
Cost
----------------------------------------------------------------------------
January 1, 2010 31 537 24
----------------------------------------------------------------------------
Acquisitions - 6 35
----------------------------------------------------------------------------
Disposals - - -
----------------------------------------------------------------------------
Other adjustments - 10 4
----------------------------------------------------------------------------
Foreign exchange translation - - 1
----------------------------------------------------------------------------
December 31, 2010 31 553 64
----------------------------------------------------------------------------
Accumulated amortization
----------------------------------------------------------------------------
January 1, 2010 (5) (69) (9)
----------------------------------------------------------------------------
Amortization (2) (38) (3)
----------------------------------------------------------------------------
Disposals - - -
----------------------------------------------------------------------------
Other adjustments - - (1)
----------------------------------------------------------------------------
Foreign exchange translation - (1) (1)
----------------------------------------------------------------------------
December 31, 2010 (7) (108) (14)
----------------------------------------------------------------------------
Net book value 24 445 50
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total
December 31, 2010 Other Intangibles Goodwill
----------------------------------------------------------------------------
Cost
----------------------------------------------------------------------------
January 1, 2010 138 730 1,804
----------------------------------------------------------------------------
Acquisitions - 41 589
----------------------------------------------------------------------------
Disposals (1) (1) -
----------------------------------------------------------------------------
Other adjustments 11 25 3
----------------------------------------------------------------------------
Foreign exchange translation - 1 27
----------------------------------------------------------------------------
December 31, 2010 148 796 2,423
----------------------------------------------------------------------------
Accumulated amortization
----------------------------------------------------------------------------
January 1, 2010 (30) (113) -
----------------------------------------------------------------------------
Amortization (19) (62) -
----------------------------------------------------------------------------
Disposals 1 1 -
----------------------------------------------------------------------------
Other adjustments - (1) -
----------------------------------------------------------------------------
Foreign exchange translation - (2) -
----------------------------------------------------------------------------
December 31, 2010 (48) (177) -
----------------------------------------------------------------------------
Net book value 100 619 2,423
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Amortization of finite-lived Three months ended Six months ended
intangibles June 30, June 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Cost of product sold 1 - 2 1
----------------------------------------------------------------------------
Selling 16 12 34 23
----------------------------------------------------------------------------
General and administrative 5 2 8 4
----------------------------------------------------------------------------
22 14 44 28
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Certain of our trade names with a cost of $17-million (June 30, 2010 -
$17-million, December 31, 2010 - $17-million, January 1, 2010 -
$17-million) have indefinite lives for accounting purposes and
accordingly are not amortized.
11. OTHER FINANCIAL ASSETS
As at As at
As at June 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Investments 5 5 2 25
----------------------------------------------------------------------------
Receivables 33 29 34 22
----------------------------------------------------------------------------
Derivative financial instruments 5 2 3 3
----------------------------------------------------------------------------
Other 29 18 9 38
----------------------------------------------------------------------------
72 54 48 88
----------------------------------------------------------------------------
----------------------------------------------------------------------------
12. DEBT
As at As at
As at June 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010
----------------------------------------------------------------------------
Total Unutilized Utilized Utilized Utilized
----------------------------------------------------------------------------
Short-term debt
----------------------------------------------------------------------------
North American
facilities expiring
2012 (a) 775 775 - - -
----------------------------------------------------------------------------
North American accounts
receivable
securitization (b) 200 200 - - -
----------------------------------------------------------------------------
European facilities
expiring 2011 to
2012 (c) 212 - 212 142 74
----------------------------------------------------------------------------
South American
facilities expiring 2011
to 2012 151 48 103 55 32
----------------------------------------------------------------------------
Australian facilities
expiring 2011 8 8 - 100 -
----------------------------------------------------------------------------
Australian accounts
receivable
securitization (b) 267 41 226 220 -
----------------------------------------------------------------------------
1,613 1,072 541 517 106
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Current portion of
long-term debt 53 125 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Long-term debt
----------------------------------------------------------------------------
Floating rate bank
loans due in 2012 - 14 26
----------------------------------------------------------------------------
Floating rate bank
loans due May 5, 2013 460 460 460
----------------------------------------------------------------------------
6.125% debentures due
January 15, 2041 500 500 -
----------------------------------------------------------------------------
6.75% debentures due
January 15, 2019 500 500 500
----------------------------------------------------------------------------
7.125% debentures due
May 23, 2036 300 300 300
----------------------------------------------------------------------------
7.7% debentures due
February 1, 2017 100 100 100
----------------------------------------------------------------------------
7.8% debentures due
February 1, 2027 125 125 125
----------------------------------------------------------------------------
8.25% debentures due
February 15, 2011 - - 125
----------------------------------------------------------------------------
Other 95 141 73
----------------------------------------------------------------------------
2,080 2,140 1,709
----------------------------------------------------------------------------
Unamortized transaction
costs (21) (22) (10)
----------------------------------------------------------------------------
2,059 2,118 1,699
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) Outstanding letters of credit issued under our revolving credit
facilities at June 30, 2011 were $76-million reducing credit available
under the facilities to $699-million.
(b) We have revolving purchase and sale agreements to sell, with limited
recourse, accounts receivable to a maximum of $200-million and
AUD$250-million (December 31, 2010 - $200-million and AUD$250-million,
January 1, 2010 - $200-million).
Accounts receivable As at As at As at
securitization June 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010
----------------------------------------------------------------------------
Cumulative proceeds from
securitization, beginning of
period 220 - 200
----------------------------------------------------------------------------
Acquisitions through business
combinations - 205 -
----------------------------------------------------------------------------
Proceeds from sale of
receivables 1,413 225 400
----------------------------------------------------------------------------
Securitization reduction
payments (1,415) (210) (600)
----------------------------------------------------------------------------
Foreign currency translation 8 - -
----------------------------------------------------------------------------
Cumulative proceeds from
securitization, end of period 226 220 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(c) Of the total facility, $6-million is secured by accounts receivable.
13. OTHER PROVISIONS
Cash-settled
June 30, Environmental Asset share-based Legal
2011 remediation(a) retirement(b) payments(c) contingencies Total
----------------------------------------------------------------------------
December
31, 2010 119 181 235 29 564
----------------------------------------------------------------------------
Additional
provisions
or changes
in
estimates 14 16 2 9 41
----------------------------------------------------------------------------
Draw-downs (7) (4) (29) (4) (44)
----------------------------------------------------------------------------
Reversals (3) - - - (3)
----------------------------------------------------------------------------
Accretion 1 3 - - 4
----------------------------------------------------------------------------
Other
adjustments 1 2 2 (8) (3)
----------------------------------------------------------------------------
Foreign
currency
translation 1 4 - - 5
----------------------------------------------------------------------------
June 30,
2011 126 202 210 26 564
----------------------------------------------------------------------------
Current
portion 10 - 173 26 209
----------------------------------------------------------------------------
Non-current
portion 116 202 37 - 355
----------------------------------------------------------------------------
126 202 210 26 564
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash-settled
December Environmental Asset share-based Legal
31, 2010 remediation(a) retirement(b) payments(c) contingencies Total
----------------------------------------------------------------------------
January 1,
2010 122 139 149 46 456
----------------------------------------------------------------------------
Additional
provisions
or changes
in
estimates 10 56 111 16 193
----------------------------------------------------------------------------
Draw-downs (19) (7) (35) (15) (76)
----------------------------------------------------------------------------
Reversals (2) (15) - (20) (37)
----------------------------------------------------------------------------
Accretion 3 6 - - 9
----------------------------------------------------------------------------
Other
adjustments 3 (1) 4 2 8
----------------------------------------------------------------------------
Foreign
currency
translation 2 3 6 - 11
----------------------------------------------------------------------------
December
31, 2010 119 181 235 29 564
----------------------------------------------------------------------------
Current
portion 10 - 159 29 198
----------------------------------------------------------------------------
Non-current
portion 109 181 76 - 366
----------------------------------------------------------------------------
119 181 235 29 564
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) We estimate that environmental remediation liabilities will be settled
between 2011 and 2038.
(b) Our asset retirement obligations generally relate to dismantlement and
site restoration for nitrogen, potash and phosphate production
facilities, marketing and distribution facilities, and potash and
phosphate mine assets. We estimate these obligations will be settled
between 2011 and 2040, with the exception of obligations related to
potash operations, which are expected to occur after 100 years.
(c) We estimate the fair value of liabilities for cash-settled share-based
payment compensation plan awards using a Black-Scholes option pricing
model for awards with a service condition, and a Monte Carlo simulation
model for awards with service and market conditions.
Assumptions used to calculate fair
value of cash settled share-based
payments using a
Black-Scholes option As at As at As at
pricing model June 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Risk-free interest rate (%) 1.9 2.1 2.2 3.8
----------------------------------------------------------------------------
Expected annual volatility (%) 51.90 51.90 53.46 43.04
----------------------------------------------------------------------------
Expected annual dividend yield (%) 0.13 0.23 0.12 0.18
----------------------------------------------------------------------------
Expected term of grant (in years) 10 10 10 10
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Provisions are recognized in the period when it becomes probable that
there will be a future outflow of funds resulting from past
operations or events that can be reasonably estimated. The timing of
recognition requires the application of judgment to existing facts
and circumstances, which can be subject to change. Estimates of the
amounts of provisions recognized are based on current legal and
constructive requirements, technology and price levels. Actual
outflows can differ from estimates due to changes in laws,
regulations, public expectations, technology, prices and conditions,
and can take place many years in the future. Our provisions for
environmental remediation and asset retirement depend on a number of
uncertain factors, such as the extent and type of remediation and/or
abandonment required and the cost of these activities.
14. OTHER FINANCIAL LIABILITIES
As at As at As at
June 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Derivative financial instruments 24 40 33 25
----------------------------------------------------------------------------
Other 24 11 14 9
----------------------------------------------------------------------------
48 51 47 34
----------------------------------------------------------------------------
----------------------------------------------------------------------------
15. OPERATING LEASES
Operating lease commitments consist primarily of leases for rail cars
and contractual commitments at distribution facilities in Wholesale,
vehicles and application equipment in Retail, and office equipment
and property leases throughout our operations. Commitments represent
minimum payments under each agreement in each of the next five years.
For the six months ended June 30, 2011, expenses for operating leases
were $116-million (six months ended June 30, 2010 -
$91-million).
The future minimum lease payments related to our operating leases are as
follows:
Future minimum lease payments for operating leases June 30, 2011
----------------------------------------------------------------------------
2011 159
----------------------------------------------------------------------------
2012 - 2015 289
----------------------------------------------------------------------------
after 2015 75
----------------------------------------------------------------------------
523
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The classification of our leases as finance leases or operating leases
is based on the extent to which the risks and rewards of ownership of
a leased asset have been transferred. Making this determination
requires the use of management's judgment in assessing the substance
of the lease transaction.
16. FINANCIAL INSTRUMENTS
In the normal course of business, our financial position, results of
operations and cash flows are exposed to various risks. Sensitivity
analysis to risk is provided where the effect on net earnings or
shareholders' equity could be material. Sensitivity analysis is
performed by relating the reasonably possible changes in the risk
variable at June 30, 2011 to financial instruments outstanding on
that date while assuming all other variables remain constant.
Market risk
a) Currency risk
U.S. dollar denominated transactions in our Canadian operations
generate foreign exchange gains and losses on outstanding balances
which are recognized in net earnings.
Impact of U.S. dollar changes on As at As at As at
net earnings June 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Net U.S. dollar denominated
balance in Canadian operations 585 305 625 254
----------------------------------------------------------------------------
A $10-million impact requires a
strengthening or weakening in
the U.S. dollar against the
Canadian dollar 0.02 0.05 0.02 0.06
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balances in non-U.S. dollar subsidiaries generate foreign currency
translation gains and losses which are included in comprehensive income.
Balances in non-U.S.
dollar subsidiaries As at June 30,
----------------------------------------------------------------------------
(in U.S. dollar
equivalent) 2011 2010
----------------------------------------------------------------------------
CAD Euro AUD CAD Euro
----------------------------------------------------------------------------
Cash and cash equivalents 60 31 248 333 11
----------------------------------------------------------------------------
Accounts receivable 256 238 513 200 66
----------------------------------------------------------------------------
Short-term debt - (199) (226) - (79)
----------------------------------------------------------------------------
Accounts payable (377) (115) (352) (283) (30)
----------------------------------------------------------------------------
Current portion of other
provisions (143) - (5) (60) -
----------------------------------------------------------------------------
(204) (45) 178 190 (32)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balances in non-U.S. As at As at
dollar subsidiaries December 31, January 1,
----------------------------------------------------------------------------
(in U.S. dollar
equivalent) 2010 2010
----------------------------------------------------------------------------
CAD Euro AUD CAD Euro
----------------------------------------------------------------------------
Cash and cash equivalents 40 6 165 (2) 5
----------------------------------------------------------------------------
Accounts receivable 126 141 447 69 65
----------------------------------------------------------------------------
Short-term debt - (142) (308) - (31)
----------------------------------------------------------------------------
Accounts payable (540) (86) (308) (183) (38)
----------------------------------------------------------------------------
Current portion of other
provisions (128) - - (80) -
----------------------------------------------------------------------------
(502) (81) (4) (196) 1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Impact of U.S. dollar
changes on comprehensive
income As at June 30,
----------------------------------------------------------------------------
2011 2010
----------------------------------------------------------------------------
CAD Euro AUD CAD Euro
----------------------------------------------------------------------------
A $10-million increase
requires a strengthening
(weakening) against the
U.S. dollar (0.05) (0.02) 0.06 0.05 (0.37)
----------------------------------------------------------------------------
A $10-million decrease
requires a strengthening
(weakening) against the
U.S. dollar 0.05 0.13 (0.05) (0.06) 0.19
----------------------------------------------------------------------------
----------------------------------------------------------------------------
June 30, 2011
----------------------------------------------------------------------------
Notional Fair value
(millions, buy assets
Sell/Buy currency) Maturities (liabilities)
----------------------------------------------------------------------------
USD/CAD forwards CAD 34 2011 1
----------------------------------------------------------------------------
USD/AUD forwards AUD 69 2011 1
----------------------------------------------------------------------------
USD/EUR forwards - - -
----------------------------------------------------------------------------
AUD/USD forwards USD 100 2011 (2)
----------------------------------------------------------------------------
AUD/CAD forwards CAD 26 2011 -
----------------------------------------------------------------------------
EUR/USD forwards USD 43 2011 -
----------------------------------------------------------------------------
NZD/AUD swaps AUD 37 2011 (1)
----------------------------------------------------------------------------
USD/CAD put
options purchased CAD 74 2011 2
----------------------------------------------------------------------------
USD/CAD call
options sold CAD 153 2011 (1)
----------------------------------------------------------------------------
-
----------------------------------------------------------------------------
----------------------------------------------------------------------------
June 30, 2010
----------------------------------------------------------------------------
Notional Fair value
(millions, buy assets
Sell/Buy currency) Maturities (liabilities)
----------------------------------------------------------------------------
USD/CAD forwards CAD 131 2010 - 2011 -
----------------------------------------------------------------------------
USD/AUD forwards - - -
----------------------------------------------------------------------------
USD/EUR forwards EUR 8 2010 (1)
----------------------------------------------------------------------------
AUD/USD forwards - - -
----------------------------------------------------------------------------
AUD/CAD forwards - - -
----------------------------------------------------------------------------
EUR/USD forwards - - -
----------------------------------------------------------------------------
NZD/AUD swaps - - -
----------------------------------------------------------------------------
USD/CAD put
options purchased - - -
----------------------------------------------------------------------------
USD/CAD call
options sold - - -
----------------------------------------------------------------------------
(1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, 2010
----------------------------------------------------------------------------
Notional Fair value
(millions, buy assets
Sell/Buy currency) Maturities (liabilities)
----------------------------------------------------------------------------
USD/CAD forwards CAD 40 2011 3
----------------------------------------------------------------------------
CAD/USD forwards USD 370 2011 (7)
----------------------------------------------------------------------------
AUD/USD forwards USD 381 2011 (24)
----------------------------------------------------------------------------
EUR/USD forwards - - -
----------------------------------------------------------------------------
GBP/USD forwards - - -
----------------------------------------------------------------------------
(28)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
January 1, 2010
----------------------------------------------------------------------------
Notional Fair value
(millions, buy assets
Sell/Buy currency) Maturities (liabilities)
----------------------------------------------------------------------------
USD/CAD forwards CAD 46 2010 1
----------------------------------------------------------------------------
CAD/USD forwards - - -
----------------------------------------------------------------------------
AUD/USD forwards - - -
----------------------------------------------------------------------------
EUR/USD forwards USD 9 2010 -
----------------------------------------------------------------------------
GBP/USD forwards USD 2 2010 -
----------------------------------------------------------------------------
1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
b) Commodity price risk
Natural gas, power and nutrient derivative financial instruments outstanding
----------------------------------------------------------------------------
June 30, 2011
----------------------------------------------------------------------------
Fair value
assets
Notional Maturities (liabilities)
----------------------------------------------------------------------------
Natural gas (BCF)
NYMEX contracts
----------------------------------------------------------------------------
Swaps - bought 27 2011 - 2013 (67)
----------------------------------------------------------------------------
Swaps - sold (27) 2011 - 2013 24
----------------------------------------------------------------------------
Collars (swap with options) 7 2011 - 2012 (1)
----------------------------------------------------------------------------
El Paso swaps 1 2011 -
----------------------------------------------------------------------------
AECO contracts
----------------------------------------------------------------------------
Swaps 1 2011 (1)
----------------------------------------------------------------------------
9 (45)
----------------------------------------------------------------------------
Power - Swaps (GWh) 343 2011 - 2013 10
----------------------------------------------------------------------------
Nutrient - Urea swaps (short
tons) 5,000 2011 1
----------------------------------------------------------------------------
(34)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
June 30, 2010
----------------------------------------------------------------------------
Fair value
assets
Notional Maturities (liabilities)
----------------------------------------------------------------------------
Natural gas (BCF)
NYMEX contracts
----------------------------------------------------------------------------
Swaps - bought 44 2010 - 2013 (69)
----------------------------------------------------------------------------
Swaps - sold (44) 2010 - 2013 4
----------------------------------------------------------------------------
Collars (swap with options) 22 2010 - 2012 -
----------------------------------------------------------------------------
El Paso swaps - - -
----------------------------------------------------------------------------
AECO contracts
----------------------------------------------------------------------------
Swaps
----------------------------------------------------------------------------
22 (65)
----------------------------------------------------------------------------
Power - Swaps (GWh) 483 2010 - 2013 3
----------------------------------------------------------------------------
Nutrient - Urea swaps (short
tons) 6,000 2010 -
----------------------------------------------------------------------------
(62)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural gas, power and nutrient derivative financial instruments outstanding
----------------------------------------------------------------------------
December 31, 2010
----------------------------------------------------------------------------
Fair value
assets
Notional Maturities (liabilities)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural gas (BCF)
NYMEX contracts
----------------------------------------------------------------------------
Swaps 33 2011 - 2013 (50)
----------------------------------------------------------------------------
Collars (swap with options) 12 2011 - 2012 (1)
----------------------------------------------------------------------------
El Paso swaps 2 2011 -
----------------------------------------------------------------------------
AECO contracts
----------------------------------------------------------------------------
Swaps 7 2011 (2)
----------------------------------------------------------------------------
54 (53)
----------------------------------------------------------------------------
Power - Swaps (GWh) 412 2011 - 2013 4
----------------------------------------------------------------------------
Nutrient - Urea swaps (short
tons) - - -
----------------------------------------------------------------------------
(49)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
January 1, 2010
----------------------------------------------------------------------------
Fair value
assets
Notional Maturities (liabilities)
----------------------------------------------------------------------------
Natural gas (BCF)
NYMEX contracts
----------------------------------------------------------------------------
Swaps 67 2010 - 2013 (35)
----------------------------------------------------------------------------
Collars (swap with options) 23 2010 - 2012 5
----------------------------------------------------------------------------
El Paso swaps - - -
----------------------------------------------------------------------------
AECO contracts
----------------------------------------------------------------------------
Swaps - - -
----------------------------------------------------------------------------
90 (30)
----------------------------------------------------------------------------
Power - Swaps (GWh) 552 2010 - 2013 (2)
----------------------------------------------------------------------------
Nutrient - Urea swaps (short
tons) 24,500 2010 1
----------------------------------------------------------------------------
(31)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Impact of change in fair value of natural gas As at June 30,
derivative financial instruments 2011 2010
----------------------------------------------------------------------------
A $10-million increase in net earnings
requires an increase in gas prices per MMBtu 2.61 4.55
----------------------------------------------------------------------------
A $10-million decrease in net earnings
requires a decrease in gas prices per MMBtu (4.37) (4.62)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Credit risk
We manage credit risk through rigorous credit approval and monitoring
practices. Geographic and industry diversity also mitigate credit
risk. The Wholesale business unit sells mainly to large
agribusinesses and other industrial users. Letters of credit and
credit insurance are used to mitigate risk. The Retail business unit
sells to a large customer base dispersed over wide geographic areas
in the United States, Canada, Argentina, Chile, Australia and New
Zealand. The Advanced Technologies business unit sells to a
diversified customer base including large suppliers in the North
American professional turf application market.
Aging of trade accounts
receivable June 30,
----------------------------------------------------------------------------
2011 2010
----------------------------------------------------------------------------
Allowance for Allowance for
doubtful doubtful
Gross accounts Gross accounts
----------------------------------------------------------------------------
Not past due 2,417 (28) 1,600 (21)
----------------------------------------------------------------------------
Less than 30 days 417 (8) 264 (5)
----------------------------------------------------------------------------
30 - 90 days 153 (13) 111 (10)
----------------------------------------------------------------------------
91 - 180 days 65 (7) 35 (6)
----------------------------------------------------------------------------
Greater than 180 days 25 (5) 32 (10)
----------------------------------------------------------------------------
3,077 (61) 2,042 (52)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Aging of trade accounts
receivable December 31, January 1,
----------------------------------------------------------------------------
2010 2010
----------------------------------------------------------------------------
Allowance for Allowance for
doubtful doubtful
Gross accounts Gross accounts
----------------------------------------------------------------------------
Not past due 1,256 (13) 716 (6)
----------------------------------------------------------------------------
Less than 30 days 241 (3) 155 (2)
----------------------------------------------------------------------------
30 - 90 days 107 (6) 76 (7)
----------------------------------------------------------------------------
91 - 180 days 90 (15) 97 (16)
----------------------------------------------------------------------------
Greater than 180 days 54 (16) 48 (15)
----------------------------------------------------------------------------
1,748 (53) 1,092 (46)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Twelve months
Six months ended ended
Allowance for doubtful accounts June 30, December 31,
----------------------------------------------------------------------------
2011 2010 2010
----------------------------------------------------------------------------
Balance, beginning of period 53 46 46
----------------------------------------------------------------------------
Additions 51 35 55
----------------------------------------------------------------------------
Write-offs (43) (29) (48)
----------------------------------------------------------------------------
Balance, end of period 61 52 53
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance as a percent of trade
accounts receivable (%) 2 3 4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
We may be exposed to certain losses in the event that counterparties to
short-term investments and derivative financial instruments are
unable to meet their contractual obligations. We manage this
counterparty credit risk with policies requiring that counterparties
to short-term investments and derivative financial instruments have
an investment grade or higher credit rating and policies that limit
the investing of excess funds to liquid instruments with a maximum
term of one year and limit the maximum exposure to any one
counterparty. We also enter into master netting agreements that
mitigate our exposure to counterparty credit risk. At June 30, 2011,
all counterparties to derivative financial instruments have
maintained an investment grade or higher credit rating and there is
no indication that any counterparty will be unable to meet their
obligations under derivative financial contracts. The carrying amount
of financial assets represents the maximum credit exposure.
As at As at
Maximum exposure to credit risk As at June 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Cash and cash equivalents 966 805 635 933
----------------------------------------------------------------------------
Accounts receivable 3,624 2,380 1,793 1,247
----------------------------------------------------------------------------
Marketable securities 1 4 3 114
----------------------------------------------------------------------------
Other financial assets 72 54 48 88
----------------------------------------------------------------------------
4,663 3,243 2,479 2,382
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fair values
Financial instrument Category Measurement
----------------------------------------------------------------------------
Cash and cash equivalents Held for trading Fair value
----------------------------------------------------------------------------
Accounts receivable (a) Loans and receivables Amortized cost
----------------------------------------------------------------------------
Accounts receivable - Held for trading Fair value
derivative financial
instruments (b)
----------------------------------------------------------------------------
Marketable securities (b) Available for sale or held Fair value
for trading
----------------------------------------------------------------------------
Other financial assets Loans and receivables Amortized cost
----------------------------------------------------------------------------
Other financial assets Available for sale Fair value
----------------------------------------------------------------------------
Other financial assets - Held for trading Fair value
derivative financial
instruments (b)
----------------------------------------------------------------------------
Short-term debt (a) Financial liabilities Amortized cost
----------------------------------------------------------------------------
Accounts payable (a) Financial liabilities Amortized cost
----------------------------------------------------------------------------
Accounts payable - derivative Held for trading Fair value
financial instruments (b)
----------------------------------------------------------------------------
Long-term debt (c) Financial liabilities Amortized cost
----------------------------------------------------------------------------
Other financial liabilities Financial liabilities Amortized cost
----------------------------------------------------------------------------
Other financial liabilities Held for trading Fair value
- derivative financial
instruments (b)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) Carrying value approximates fair value due to the short-term nature of
the instruments.
(b) Fair value is recorded at the estimated amount we would receive or pay
to terminate the contracts determined based on our assessment
of available market information and valuation methodologies based on
industry accepted third-party models using assumptions about
discount rates and the timing of future cash flows, based on observable
market inputs such as interest yield curves.
(c) Fair value of floating-rate loans approximates carrying value.
Fair value and carrying value of As at As at
financial instruments June 30, 2011 June 30, 2010
----------------------------------------------------------------------------
Fair Carrying Fair Carrying
value value value value
----------------------------------------------------------------------------
Cash and cash equivalents - held
for trading 966 966 805 805
----------------------------------------------------------------------------
Accounts receivable
----------------------------------------------------------------------------
Loans and receivables 3,616 3,616 2,377 2,377
----------------------------------------------------------------------------
Fair value through profit or loss 8 8 3 3
----------------------------------------------------------------------------
3,624 3,624 2,380 2,380
----------------------------------------------------------------------------
Marketable securities - held for
trading 1 1 4 4
----------------------------------------------------------------------------
Other financial assets
----------------------------------------------------------------------------
Loans and receivables 67 67 52 52
----------------------------------------------------------------------------
Fair value through profit or loss 5 5 2 2
----------------------------------------------------------------------------
72 72 54 54
----------------------------------------------------------------------------
Short-term debt - amortized cost 541 541 119 119
----------------------------------------------------------------------------
Accounts payable
----------------------------------------------------------------------------
Amortized cost 2,927 2,927 1,946 1,946
----------------------------------------------------------------------------
Fair value through profit or loss 23 23 28 28
----------------------------------------------------------------------------
2,950 2,950 1,974 1,974
----------------------------------------------------------------------------
Current portion of long-term debt
----------------------------------------------------------------------------
Debentures - amortized cost - - 131 125
----------------------------------------------------------------------------
Floating rate debt - amortized
cost 53 53 - -
----------------------------------------------------------------------------
53 53 131 125
----------------------------------------------------------------------------
Long-term debt
----------------------------------------------------------------------------
Debentures - amortized cost 1,723 1,525 1,216 1,025
----------------------------------------------------------------------------
Floating rate debt - amortized
cost 534 534 542 542
----------------------------------------------------------------------------
2,257 2,059 1,758 1,567
----------------------------------------------------------------------------
Other financial liabilities
----------------------------------------------------------------------------
Amortized cost 24 24 11 11
----------------------------------------------------------------------------
Fair value through profit or loss 24 24 40 40
----------------------------------------------------------------------------
48 48 51 51
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Fair value and carrying value of As at As at
financial instruments December 31, 2010 January 1, 2010
----------------------------------------------------------------------------
Fair Carrying Fair Carrying
value value value value
----------------------------------------------------------------------------
Cash and cash equivalents - held
for trading 635 635 933 933
----------------------------------------------------------------------------
Accounts receivable
----------------------------------------------------------------------------
Loans and receivables 1,789 1,789 1,241 1,241
----------------------------------------------------------------------------
Fair value through profit or loss 4 4 6 6
----------------------------------------------------------------------------
1,793 1,793 1,247 1,247
----------------------------------------------------------------------------
Marketable securities
----------------------------------------------------------------------------
Available for sale - - 113 113
----------------------------------------------------------------------------
Held for trading 3 3 1 1
----------------------------------------------------------------------------
3 3 114 114
----------------------------------------------------------------------------
Other financial assets
----------------------------------------------------------------------------
Loans and receivables 43 43 60 60
----------------------------------------------------------------------------
Available for sale 2 2 25 25
----------------------------------------------------------------------------
Fair value through profit or loss 3 3 3 3
----------------------------------------------------------------------------
48 48 88 88
----------------------------------------------------------------------------
Short-term debt - amortized cost 517 517 106 106
----------------------------------------------------------------------------
Accounts payable
----------------------------------------------------------------------------
Amortized cost 2,615 2,615 2,328 2,328
----------------------------------------------------------------------------
Fair value through profit or loss 51 51 14 14
----------------------------------------------------------------------------
2,666 2,666 2,342 2,342
----------------------------------------------------------------------------
Current portion of long-term debt
----------------------------------------------------------------------------
Debentures - amortized cost 126 125 - -
----------------------------------------------------------------------------
126 125 - -
----------------------------------------------------------------------------
Long-term debt
----------------------------------------------------------------------------
Debentures - amortized cost 1,724 1,525 1,246 1,150
----------------------------------------------------------------------------
Floating rate debt - amortized cost 593 593 549 549
----------------------------------------------------------------------------
2,317 2,118 1,795 1,699
----------------------------------------------------------------------------
Other financial liabilities
----------------------------------------------------------------------------
Amortized cost 14 14 9 9
----------------------------------------------------------------------------
Fair value through profit or loss 33 33 25 25
----------------------------------------------------------------------------
47 47 34 34
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The weighted-average effective interest rate on long-term debt at June 30,
2011 is 5% (June 30, 2010 - 6%, December 31, 2010 - 6%, January 1, 2010 -
6%). The fair value of long-term debt is determined using information
classified as Level 2.
Fair value of financial
instruments Level 1 Level 2 Total
----------------------------------------------------------------------------
June 30, 2011
----------------------------------------------------------------------------
Fair value through profit or loss
----------------------------------------------------------------------------
Cash and cash equivalents 966 - 966
----------------------------------------------------------------------------
Gas, power and nutrient
derivative financial
instruments (44) 10 (34)
----------------------------------------------------------------------------
Marketable securities 1 - 1
----------------------------------------------------------------------------
June 30, 2010
----------------------------------------------------------------------------
Fair value through profit or loss
----------------------------------------------------------------------------
Cash and cash equivalents 805 - 805
----------------------------------------------------------------------------
Foreign exchange derivative
financial instruments - (1) (1)
----------------------------------------------------------------------------
Gas, power and nutrient
derivative financial
instruments (65) 3 (62)
----------------------------------------------------------------------------
Marketable securities 4 - 4
----------------------------------------------------------------------------
December 31, 2010
----------------------------------------------------------------------------
Fair value through profit or loss
----------------------------------------------------------------------------
Cash and cash equivalents 635 - 635
----------------------------------------------------------------------------
Foreign exchange derivative
financial instruments - (28) (28)
----------------------------------------------------------------------------
Gas, power and nutrient
derivative financial
instruments (52) 3 (49)
----------------------------------------------------------------------------
Marketable securities 3 - 3
----------------------------------------------------------------------------
Available for sale 2 - 2
----------------------------------------------------------------------------
January 1, 2010
----------------------------------------------------------------------------
Fair value through profit or loss
----------------------------------------------------------------------------
Cash and cash equivalents 933 - 933
----------------------------------------------------------------------------
Foreign exchange derivative
financial instruments - 1 1
----------------------------------------------------------------------------
Gas, power and nutrient
derivative financial
instruments (30) (1) (31)
----------------------------------------------------------------------------
Marketable securities 1 - 1
----------------------------------------------------------------------------
Available for sale 138 - 138
----------------------------------------------------------------------------
----------------------------------------------------------------------------
17. CAPITAL MANAGEMENT
Our primary objectives when managing capital are to provide for: a) a
prudent capital structure for raising capital at a reasonable cost
for the funding of ongoing operations, capital expenditures, and new
growth initiatives; and b) an appropriate rate of return to
shareholders in relation to the risks underlying our assets.
We monitor the ratios outlined in the table below to manage our capital.
As at As at
As at June 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Net debt to net debt plus
equity (%) (a) 22 17 29 16
----------------------------------------------------------------------------
Interest coverage (multiple) (b) 14.8 N/A (c) 12.2 N/A (c)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) Net debt includes short-term debt and long-term debt, net of cash and
cash equivalents. Equity consists of shareholders' equity.
(b) Interest coverage is the last twelve months net earnings from continuing
operations before finance costs, income taxes, depreciation,
amortization and asset impairment divided by interest, which includes
interest on long-term debt plus other interest.
(c) Twelve months of consolidated net earnings from continuing operations
before interest expense, income taxes, depreciation, amortization and
asset impairment is not available as a result of the transition to IFRS
on January 1, 2010.
(d) The measures of debt, equity and consolidated net earnings from
continuing operations described above are non-GAAP financial measures
which do not have a standardized meaning prescribed by IFRS and
therefore may not be comparable to similar measures presented by other
issuers.
(e) Our strategy for managing capital is unchanged from December 31, 2010.
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 the debt agreement. We were in
compliance with all covenants at June 30, 2011.
We have filed a base shelf prospectus in Canada and the U.S. which
potentially allows issuance of up to $1.5-billion of debt, equity or
other securities until December 2011. Issuance of securities requires
filing a prospectus supplement and is subject to availability of
funding in capital markets.
18. SEGMENTATION
Three months ended Six months ended
June 30, June 30,
2011 2010 2011 2010
----------------------------------------------------------------------------
Consolidated sales
----------------------------------------------------------------------------
Retail
----------------------------------------------------------------------------
Crop nutrients 2,108 1,392 2,815 1,763
----------------------------------------------------------------------------
Crop protection products 1,465 1,238 2,103 1,700
----------------------------------------------------------------------------
Seed 687 588 917 779
----------------------------------------------------------------------------
Merchandise 208 29 352 50
----------------------------------------------------------------------------
Services and other 180 93 283 108
----------------------------------------------------------------------------
4,648 3,340 6,470 4,400
----------------------------------------------------------------------------
Wholesale
----------------------------------------------------------------------------
Nitrogen 717 481 1,051 742
----------------------------------------------------------------------------
Potash 259 195 454 386
----------------------------------------------------------------------------
Phosphate 206 134 444 261
----------------------------------------------------------------------------
Product purchased for resale 449 228 860 444
----------------------------------------------------------------------------
Other 82 73 137 126
----------------------------------------------------------------------------
1,713 1,111 2,946 1,959
----------------------------------------------------------------------------
Advanced Technologies 158 141 239 205
----------------------------------------------------------------------------
Other (a)(b) (321) (161) (503) (285)
----------------------------------------------------------------------------
6,198 4,431 9,152 6,279
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated inter-segment sales (b)
----------------------------------------------------------------------------
Retail 12 4 18 9
----------------------------------------------------------------------------
Wholesale 275 141 436 249
----------------------------------------------------------------------------
Advanced Technologies 34 16 49 27
----------------------------------------------------------------------------
321 161 503 285
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated net earnings
----------------------------------------------------------------------------
Retail 486 361 471 293
----------------------------------------------------------------------------
Wholesale 569 276 946 423
----------------------------------------------------------------------------
Advanced Technologies 13 15 8 14
----------------------------------------------------------------------------
Other (a) (20) 78 (118) 29
----------------------------------------------------------------------------
Earnings before finance costs and
income taxes 1,048 730 1,307 759
----------------------------------------------------------------------------
Finance costs related to long-term
debt 24 22 51 45
----------------------------------------------------------------------------
Other finance costs 12 7 25 14
----------------------------------------------------------------------------
Earnings before income taxes 1,012 701 1,231 700
----------------------------------------------------------------------------
Income taxes 284 183 343 183
----------------------------------------------------------------------------
Consolidated net earnings from
continuing operations 728 518 888 517
----------------------------------------------------------------------------
Consolidated net (loss) earnings
from discontinued operations (10) - 1 -
----------------------------------------------------------------------------
Consolidated net earnings 718 518 889 517
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) The Other segment is a non-operating segment for inter-segment
eliminations and corporate functions.
(b) Sales between segments are accounted for at prices that approximate
fair market value.
As at As at
As at June 30, December 31, January 1,
----------------------------------------------------------------------------
2011 2010 2010 2010
----------------------------------------------------------------------------
Total assets
----------------------------------------------------------------------------
Retail 8,177 6,079 6,854 5,389
----------------------------------------------------------------------------
Wholesale 2,853 2,122 2,602 3,175
----------------------------------------------------------------------------
Advanced Technologies 456 453 460 418
----------------------------------------------------------------------------
Other 1,506 1,094 1,550 692
----------------------------------------------------------------------------
Discontinued operations 166 - 1,412 -
----------------------------------------------------------------------------
13,158 9,748 12,878 9,674
----------------------------------------------------------------------------
----------------------------------------------------------------------------
19. TRANSITION TO IFRS
The accounting policies set out in note 1 have been applied in
preparing the financial statements for the six months ended June 30,
2011, the comparative information presented in these financial
statements for the six months ended June 30, 2010, for the year ended
December 31, 2010 and in the preparation of an opening IFRS balance
sheet at January 1, 2010 (the "transition date").
In preparing our opening IFRS balance sheet, we have adjusted amounts
reported previously in financial statements prepared in accordance
with previous Canadian GAAP. An explanation of how the transition
from previous Canadian GAAP to IFRS has affected our financial
performance, cash flows and financial position is set out in the
following tables and the notes that accompany the tables.
Three months Six months Twelve months
Reconciliation of net earnings ended ended ended
and comprehensive income June 30, June 30, December 31,
----------------------------------------------------------------------------
2010 2010 2010
----------------------------------------------------------------------------
Net earnings as reported under
previous Canadian GAAP 506 499 714
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported net
earnings:
----------------------------------------------------------------------------
Share-based payments - (3) (1)
----------------------------------------------------------------------------
Incentive accrual 3 9 -
----------------------------------------------------------------------------
Acquisition-related costs - 45 5
----------------------------------------------------------------------------
Environmental remediation and
asset retirement obligations (4) (9) (6)
----------------------------------------------------------------------------
Reclassification of
non-controlling interest - 1 -
----------------------------------------------------------------------------
Income tax effect of
reconciling items 17 (24) 1
----------------------------------------------------------------------------
Other (4) (1) -
----------------------------------------------------------------------------
Consolidated net earnings as
reported under IFRS 518 517 713
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Comprehensive income as
reported under previous
Canadian GAAP 454 441 763
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported net
earnings 12 18 (1)
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported other
comprehensive Income 3 (2) (28)
----------------------------------------------------------------------------
Consolidated comprehensive
income as reported under
IFRS 469 457 734
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months Six months Twelve months
ended ended ended
Reconciliation of cash flows June 30, June 30, December 31,
----------------------------------------------------------------------------
2010 2010 2010
----------------------------------------------------------------------------
Cash provided by (used in)
operating activities as
reported under
previous Canadian GAAP 38 (76) 575
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported cash
provided by operating
activities:
----------------------------------------------------------------------------
Consolidated net earnings 12 18 4
----------------------------------------------------------------------------
Share-based payments - 3 1
----------------------------------------------------------------------------
Acquisition-related costs - (45) (45)
----------------------------------------------------------------------------
Income tax effect of
reconciling items (8) 19 (1)
----------------------------------------------------------------------------
Reclassification of
non-controlling interest - (1) -
----------------------------------------------------------------------------
Consolidation of special
purpose entity - - 45
----------------------------------------------------------------------------
Other (8) 5 10
----------------------------------------------------------------------------
Cash provided by (used in)
operating activities as
reported under IFRS 34 (77) 589
----------------------------------------------------------------------------
Cash used in investing
activities as reported under
previous Canadian GAAP (119) (59) (1,546)
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported cash
provided by investing
activities:
----------------------------------------------------------------------------
Acquisition-related costs - - 37
----------------------------------------------------------------------------
Other - - 1
----------------------------------------------------------------------------
Cash used in investing
activities as reported under
IFRS (119) (59) (1,508)
----------------------------------------------------------------------------
Cash (used in) provided by
financing activities as
reported under previous
Canadian GAAP (12) 13 518
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported cash
provided by
financing activities:
----------------------------------------------------------------------------
Consolidation of special
purpose entity - - 50
----------------------------------------------------------------------------
Cash (used in) provided by
financing activities as
reported under IFRS (12) 13 568
----------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents as
reported under previous
Canadian GAAP (9) (6) 15
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported effect of
exchange rate
changes on cash 4 1 (7)
----------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents as
reported under IFRS (5) (5) 8
----------------------------------------------------------------------------
Cash and cash equivalents - end
of period as reported under
Canadian GAAP 805 805 540
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported cash and
cash equivalents:
----------------------------------------------------------------------------
Consolidation of special
purpose entity - - 95
----------------------------------------------------------------------------
Cash and cash equivalents - end
of period as reported under
IFRS 805 805 635
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of assets As at
----------------------------------------------------------------------------
June 30, December 31, January 1,
----------------------------------------------------------------------------
2010 2010 2010
----------------------------------------------------------------------------
Total assets as reported under
previous Canadian GAAP 9,795 12,717 9,785
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported total
assets:
----------------------------------------------------------------------------
Exemption for post employment
benefits under IFRS 1 (7) (7) (7)
----------------------------------------------------------------------------
Acquisition-related costs - (45) (45)
----------------------------------------------------------------------------
Consolidation of special
purpose entity - 221 -
----------------------------------------------------------------------------
Provisions for asset
retirement 47 55 15
----------------------------------------------------------------------------
Reclassification of deferred
income taxes (95) (75) (77)
----------------------------------------------------------------------------
Other 8 12 3
----------------------------------------------------------------------------
Total assets as reported under
IFRS 9,748 12,878 9,674
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Reconciliation of liabilities
and equity As at
----------------------------------------------------------------------------
June 30, December 31, January 1,
----------------------------------------------------------------------------
2010 2010 2010
----------------------------------------------------------------------------
Total liabilities as reported
under previous Canadian GAAP 4,768 7,370 5,193
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported total
liabilities:
----------------------------------------------------------------------------
Exemption for post employment
benefits under IFRS 1 38 38 38
----------------------------------------------------------------------------
Post-employment benefits - 16 -
----------------------------------------------------------------------------
Provisions for share-based
payments 40 38 37
----------------------------------------------------------------------------
Incentive accrual (9) - -
----------------------------------------------------------------------------
Consolidation of special
purpose entity - 221 -
----------------------------------------------------------------------------
Provisions for environmental
remediation and asset
retirement 55 60 14
----------------------------------------------------------------------------
Reclassification of
non-controlling interest (10) (8) (11)
----------------------------------------------------------------------------
Income tax effect of
reconciling items 40 15 16
----------------------------------------------------------------------------
Reclassification of deferred
income taxes (95) (75) (77)
----------------------------------------------------------------------------
Other (1) 10 (7)
----------------------------------------------------------------------------
Total liabilities as reported
under IFRS 4,826 7,685 5,203
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total shareholders' equity as
reported under previous
Canadian GAAP 5,027 5,347 4,592
----------------------------------------------------------------------------
Adjustments to increase
(decrease) reported total
shareholders' equity:
----------------------------------------------------------------------------
Exemption for post employment
benefits under IFRS 1 (45) (45) (45)
----------------------------------------------------------------------------
Post-employment benefits - (16) -
----------------------------------------------------------------------------
Provisions for share-based
payments (40) (38) (37)
----------------------------------------------------------------------------
Incentive accrual 9 - -
----------------------------------------------------------------------------
Acquisition-related costs - (45) (45)
----------------------------------------------------------------------------
Provisions for environmental
remediation and asset
retirement (8) (5) 1
----------------------------------------------------------------------------
Reclassification of
non-controlling interest 10 8 11
----------------------------------------------------------------------------
Income tax effect of
reconciling items (40) (15) (16)
----------------------------------------------------------------------------
Other 9 2 10
----------------------------------------------------------------------------
Total shareholders' equity as
reported under IFRS 4,922 5,193 4,471
----------------------------------------------------------------------------
----------------------------------------------------------------------------
First-time adoption of IFRS
Our adoption of IFRS requires that we apply IFRS 1 - First-time
Adoption of International Financial Reporting Standards. We have
restated comparative information in compliance with IFRS for periods
after the transition date. A number of new standards, and amendments
to standards and interpretations, are not yet effective for the year
ended December 31, 2011, and have not been applied in preparing these
interim financial statements. If there are any subsequent changes to
IFRS that affect the first annual IFRS financial statements, these
financial statements may have to be restated.
IFRS 1 requires certain mandatory exceptions and permits certain
optional exemptions from this general requirement. We prepared our
opening balance sheet using the following elections under IFRS
1:
IFRS Exemption Options Summary of Policy Selection
----------------------------------------------------------------------------
Business Combinations
We may elect, on transition to IFRS, We have elected, on transition to
to either restate all past business IFRS, to apply the exemption such
combinations in accordance with IFRS that transactions entered into prior
3 Business Combinations or to apply to the transition date will not be
an elective exemption from applying restated. Because we did not adopt
IFRS 3 to business combinations CICA Handbook section 1582 in 2010,
completed before the transition date. we restated business combinations
completed in 2010.
----------------------------------------------------------------------------
Share-Based Payments
We may elect not to apply IFRS 2, We have elected not to apply IFRS 2
Share-based Payments, to equity to equity instruments granted on or
instruments granted on or before before November 7, 2002, or which
November 7, 2002, or which vested vested before our transition date. We
before our transition date. We may have also elected not to apply IFRS 2
also elect not to apply IFRS 2 to to liabilities arising from share-
liabilities arising from share-based based payment transactions that
payment transactions that settled settled before the transition date.
before the transition date.
----------------------------------------------------------------------------
Employee Benefits
We may elect to recognize all We have elected to recognize all
cumulative actuarial gains and losses cumulative actuarial gains and losses
through opening retained earnings at at the date of transition as an
the transition date. Actuarial gains adjustment to retained earnings.
and losses would have to be
recalculated under IFRS from the
inception of each of our defined
benefit plans to separate recognized
and unrecognized cumulative actuarial
gains and losses if the exemption is
not taken.
----------------------------------------------------------------------------
Foreign Exchange
On transition, cumulative translation We have elected to apply the
gains or losses in accumulated other exemption and reclassify the balance
comprehensive income can be of cumulative foreign exchange
reclassified to retained earnings at translation gains or losses from
our election. If not elected, all other comprehensive income to
cumulative translation differences retained earnings at the transition
must be recalculated under IFRS from date, with no resulting change to
inception. total shareholders' equity.
----------------------------------------------------------------------------
Asset Retirement Obligations
IFRS requires changes in obligations We have elected to apply the
to dismantle, remove and restore exemption from full retrospective
items of property, plant and application at the transition date.
equipment to be added to or deducted
from the cost of the asset. The
adjusted depreciable amount of the
asset is then depreciated over its
remaining useful life. Rather than
recalculating the effect of all such
changes throughout the life of the
obligation, we may elect to measure
the liability and the related
depreciation effects at the
transition date.
Estimates are a mandatory exception in IFRS 1 applied in the conversion
from Canadian GAAP to IFRS. Hindsight is not used to create or revise
estimates. The estimates we previously made under Canadian GAAP were
not revised for application of IFRS except where necessary to reflect
any differences in accounting policies.
Significant Differences Between IFRS Impact
and Canadian GAAP
----------------------------------------------------------------------------
Employee Benefits
IFRS permits the recognition of Transition date impact: none
actuarial gains and losses
immediately in equity, immediately to Future impact: greater variability in
earnings, or on a deferred basis to shareholders' equity within
earnings. Canadian GAAP does not accumulated other comprehensive
permit immediate recognition in income
equity. Further, IFRS requires
expensing of vested past service
costs immediately while unvested
costs are amortized on a straight-
line basis over the vesting period.
Canadian GAAP requires amortization
of past service costs over the
expected average remaining service
life of active employees and
amortization of costs over the
average life expectancy of former
employees.
----------------------------------------------------------------------------
Share-Based Payments
IFRS requires measurement of cash- Transition date impact: reduction in
settled, share-based awards at fair shareholders' equity and an increase
value, while Canadian GAAP allows in liabilities
measurement of these awards at
intrinsic value. In addition, Agrium Future impact: a continued
used straight-line depreciation to measurement difference between the
recognize graded vesting stock based intrinsic value and the fair value of
instruments under Canadian GAAP, cash-settled share based awards
while IFRS requires accounting for
each installment as a separate
arrangement.
----------------------------------------------------------------------------
Income Taxes
Classification of future income tax Transition date impact: reclassifying
under IFRS is non-current whereas all future income taxes to non-
Canadian GAAP splits future income current results in a decrease in
taxes between current and non-current current assets and a decrease in non-
components. current income tax liabilities
Future impact: remains a
classification difference
IFRS requires recognition of the Transition date impact: increase in
deferred tax impact for temporary deferred tax liabilities and a
differences arising on translation of corresponding decrease in retained
certain foreign denominated non- earnings
monetary assets or liabilities.
Canadian GAAP does not allow similar Future impact: continued recognition
treatment. of the deferred tax impact with
respect to the translation of foreign
denominated non-monetary assets or
liabilities
----------------------------------------------------------------------------
Provisions
IFRS requires discounting of Transition date impact: decrease in
provisions where the effect of the environmental liabilities and a
discounting is material. Provisions corresponding increase to retained
are not discounted under Canadian earnings
GAAP unless specifically required or
when a provision is required to be Future impact: each period there will
measured at fair value. be a charge to earnings for accretion
of the discount
The specific provisions for asset Transition date impact: increase to
retirement obligations under IFRS are asset retirement obligations and a
measured based on management's best corresponding decrease to retained
estimate. The discount rate used in earnings
calculating the present value of the
cash flow estimates is to be based on Future impact: decrease in charge to
risks specific to the liability earnings each period for accretion of
unless these risks have been discount
incorporated into the cash flow
estimates. Canadian GAAP measures
asset retirement obligations at fair
value incorporating market
assumptions. The discount rate used
is a credit-adjusted risk-free rate.
----------------------------------------------------------------------------
Impairment of Assets
Under IFRS, the impairment of assets, Transition date impact: none
excluding financial assets, is tested
and measured by comparing the Future impact: increased potential
carrying value of an asset or cash for impairment losses and reversal of
generating unit to its recoverable previously recorded losses
amount. Recoverable amount is
measured as the higher of fair value
less cost to sell or value-in-use
(discounted future cash flows). IFRS
permits impairment reversals for
assets (excluding goodwill). The IFRS
approach has the potential to
increase income statement volatility
due to the potential for increased
write-downs and reversals of write-
downs.
----------------------------------------------------------------------------
Business Combinations
IFRS does not include acquisition- Transition date impact: decrease in
related costs within consideration shareholders' equity and total assets
transferred in a business combination
whereas the cost of acquisition does Future impact: potential increase in
include direct, incremental charges to earnings in the amount of
acquisition-related costs under acquisition-related costs for
Canadian GAAP. business combinations
----------------------------------------------------------------------------
Non-Controlling Interest
IFRS requires non-controlling Transition date impact: increase in
interest to be presented as a shareholders' equity
component of shareholders' equity
separate from the parent's equity Future impact: non-controlling
while Canadian GAAP presents non- interest will continue to be
controlling interest as a separate presented within shareholders' equity
component between liabilities and
equity.
----------------------------------------------------------------------------
Consolidation of Special Purpose
Entities and Transfers of Financial
Assets
Under Canadian GAAP, a qualified On transition (and continuing as a
special purpose entity ("QSPE") that future impact), we consolidated a
met certain conditions was not special purpose entity acquired in
consolidated by a party that was a the AWB acquisition to which we
transferor of assets to the QSPE. transferred accounts receivable.
Under IFRS, an entity that has Assets transferred that did not meet
transactions with a QSPE may in the IFRS criteria were not recorded
substance control the entity, as sales as the arrangement did not
requiring consolidation. In transfer substantially all the risks
determining whether or not financial and rewards of ownership of the
assets should be derecognized on receivables to a third party.
transfer, for example in an accounts Accordingly, we recorded cash
receivable securitization, IFRS received on sale of receivables as
focuses on evaluation of whether a secured borrowings.
qualifying transfer has taken place,
whether risks and rewards have been
transferred, and in some cases
whether control over the assets has
been transferred. Canadian GAAP
focused on an evaluation of the
transfer of control.
----------------------------------------------------------------------------
20. PRINCIPAL SUBSIDIARIES AND ASSOCIATED COMPANIES
Ownership
----------------------------------------------------------------------------
Agrium, a general partnership 100%
Agrium U.S. Inc. 100%
Crop Production Services, Inc. 100%
Landmark Rural Holdings Limited 100%
Profertil S.A. 50%
----------------------------------------------------------------------------
AGRIUM INC.
Results by Segment
(Unaudited - millions of U.S. dollars)
Schedule 1a
Three months ended June 30,
----------------------------------------------------------------------------
2011
----------------------------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Total
Sales - external 4,636 1,438 124 - 6,198
- inter-segment 12 275 34 (321) -
----------------------------------------------------------------------------
Total sales 4,648 1,713 158 (321) 6,198
Cost of product sold 3,652 1,093 121 (343) 4,523
----------------------------------------------------------------------------
Gross profit 996 620 37 22 1,675
----------------------------------------------------------------------------
Gross profit (%) 21 36 23 27
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Selling expenses 473 8 10 (3) 488
EBITDA(1) 529 617 18 (19) 1,145
EBIT(2) 486 569 13 (20) 1,048
Three months ended June 30,
----------------------------------------------------------------------------
2010
----------------------------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Total
----------------------------------------------------------------------------
Sales - external 3,336 970 125 - 4,431
- inter-segment 4 141 16 (161) -
----------------------------------------------------------------------------
Total sales 3,340 1,111 141 (161) 4,431
Cost of product sold 2,621 837 110 (200) 3,368
----------------------------------------------------------------------------
Gross profit 719 274 31 39 1,063
----------------------------------------------------------------------------
Gross profit (%) 22 25 22 24
----------------------------------------------------------------------------
Selling expenses 329 9 8 (2) 344
EBITDA(1) 388 339 20 80 827
EBIT(2) 361 276 15 78 730
(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.
(3) All schedules have been restated to conform to International Financial
Reporting Standards.
AGRIUM INC.
Results by Segment
(Unaudited - millions of U.S. dollars)
Schedule 1b
Six months ended June 30,
----------------------------------------------------------------------------
2011
----------------------------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Total
----------------------------------------------------------------------------
Sales - external 6,452 2,510 190 - 9,152
- inter-segment 18 436 49 (503) -
----------------------------------------------------------------------------
Total sales 6,470 2,946 239 (503) 9,152
Cost of product sold 5,134 1,917 186 (485) 6,752
----------------------------------------------------------------------------
Gross profit 1,336 1,029 53 (18) 2,400
----------------------------------------------------------------------------
Gross profit (%) 21 35 22 26
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Selling expenses 808 19 19 (5) 841
EBITDA(1) 554 1,029 19 (112) 1,490
EBIT(2) 471 946 8 (118) 1,307
Six months ended June 30,
----------------------------------------------------------------------------
2010
----------------------------------------------------------------------------
Advanced
Retail Wholesale Technologies Other Total
----------------------------------------------------------------------------
Sales - external 4,391 1,710 178 - 6,279
- inter-segment 9 249 27 (285) -
----------------------------------------------------------------------------
Total sales 4,400 1,959 205 (285) 6,279
Cost of product sold 3,519 1,467 159 (291) 4,854
----------------------------------------------------------------------------
Gross profit 881 492 46 6 1,425
----------------------------------------------------------------------------
Gross profit (%) 20 25 22 23
----------------------------------------------------------------------------
Selling expenses 551 18 14 (6) 577
EBITDA(1) 347 521 23 33 924
EBIT(2) 293 423 14 29 759
(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.
(3) All schedules have been restated to conform to International Financial
Reporting Standards.
AGRIUM INC.
Product Lines
(Unaudited - millions of U.S. dollars)
Schedule 2
Three months ended June 30,
----------------------------------------------------------------------------
2011 2010
----------------------------------------------------------------------------
Cost of Cost of
product Gross product Gross
Sales sold(1)(2) profit Sales sold(1)(2) profit
----------------------------------------------------------------------------
Retail(3)(4)
Crop nutrients 2,108 1,731 377 1,392 1,140 252
Crop protection
products 1,465 1,140 325 1,238 964 274
Seed 687 555 132 588 482 106
Merchandise 208 181 27 29 26 3
Services and other 180 45 135 93 9 84
----------------------------------------------------------------------------
4,648 3,652 996 3,340 2,621 719
----------------------------------------------------------------------------
Wholesale(4)
Nitrogen 717 393 324 481 343 138
Potash 259 94 165 195 86 109
Phosphate 206 123 83 134 125 9
Product purchased
for resale 449 427 22 228 224 4
Other 82 56 26 73 59 14
----------------------------------------------------------------------------
1,713 1,093 620 1,111 837 274
----------------------------------------------------------------------------
Advanced
Technologies(4)
Turf and ornamental 91 75 16 97 76 21
Agriculture 67 46 21 44 34 10
----------------------------------------------------------------------------
158 121 37 141 110 31
----------------------------------------------------------------------------
Other inter-segment
eliminations(4) (321) (343) 22 (161) (200) 39
----------------------------------------------------------------------------
Total(4) 6,198 4,523 1,675 4,431 3,368 1,063
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Schedule 2
Six months ended June 30,
----------------------------------------------------------------------------
2011 2010
----------------------------------------------------------------------------
Cost of Cost of
product Gross product Gross
Sales sold(1)(2) profit Sales sold(1)(2) profit
----------------------------------------------------------------------------
Retail(3)(4)
Crop nutrients 2,815 2,323 492 1,763 1,448 315
Crop protection
products 2,103 1,676 427 1,700 1,357 343
Seed 917 750 167 779 658 121
Merchandise 352 308 44 50 46 4
Services and other 283 77 206 108 10 98
----------------------------------------------------------------------------
6,470 5,134 1,336 4,400 3,519 881
----------------------------------------------------------------------------
Wholesale(4)
Nitrogen 1,051 576 475 742 532 210
Potash 454 164 290 386 171 215
Phosphate 444 266 178 261 234 27
Product purchased
for resale 860 822 38 444 428 16
Other 137 89 48 126 102 24
----------------------------------------------------------------------------
2,946 1,917 1,029 1,959 1,467 492
----------------------------------------------------------------------------
Advanced
Technologies(4)
Turf and ornamental 143 116 27 141 110 31
Agriculture 96 70 26 64 49 15
----------------------------------------------------------------------------
239 186 53 205 159 46
----------------------------------------------------------------------------
Other inter-segment
eliminations(4) (503) (485) (18) (285) (291) 6
----------------------------------------------------------------------------
Total(4) 9,152 6,752 2,400 6,279 4,854 1,425
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Wholesale includes inventory and purchase commitment write-downs.
(2) Includes depreciation and amortization.
(3) International Retail net sales were $858-million (2010 - $59-million)
and gross profit was $141-million (2010 - $12-million) for the three
months ended June 30. International Retail net sales were $1.4 -billion
(2010 - $86-million) and gross profit was $249-million (2010 -
$17-million) for the six months ended June 30.
(4) Comparative figures have been reclassified to conform to the current
year's revised categories.
AGRIUM INC.
Selected Wholesale Volumes and Sales Prices
(Unaudited)
Schedule 3a
Three months ended June 30,
----------------------------------------------------------------------------
2011
----------------------------------------------------------------------------
Cost of
Sales Selling product
tonnes price sold Margin
(000's) ($/tonne) ($/tonne) ($/tonne)
----------------------------------------------------------------------------
Nitrogen
Domestic
Ammonia 410 620
Urea 508 516
Other 381 367
--------------------------------------------------------
Total domestic 1,299 504
International 134 463
----------------------------------------------------------------------------
Total nitrogen 1,433 500 274 226
----------------------------------------------------------------------------
Potash
Domestic 316 547
International 227 374
----------------------------------------------------------------------------
Total potash 543 477 173 304
----------------------------------------------------------------------------
Phosphate 259 795 475 320
Product purchased for resale 1,014 443 421 22
Other
Ammonium sulfate 89 382 180 202
Other 99
----------------------------------------------------------------------------
Total other 188
----------------------------------------------------------------------------
Total Wholesale 3,437 499 319 180
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended June 30,
----------------------------------------------------------------------------
2010
----------------------------------------------------------------------------
Cost of
Sales Selling product
tonnes price sold Margin
(000's) ($/tonne) ($/tonne) ($/tonne)
----------------------------------------------------------------------------
Nitrogen
Domestic
Ammonia 451 441
Urea 401 406
Other 299 272
--------------------------------------------------------
Total domestic 1,151 385
International 105 354
----------------------------------------------------------------------------
Total nitrogen 1,256 382 273 109
----------------------------------------------------------------------------
Potash
Domestic 329 419
International 200 279
----------------------------------------------------------------------------
Total potash 529 366 161 205
----------------------------------------------------------------------------
Phosphate 243 553 514 39
Product purchased for resale 759 301 296 5
Other
Ammonium sulfate 102 280 179 101
Other 121
----------------------------------------------------------------------------
Total other 223
----------------------------------------------------------------------------
Total Wholesale 3,010 369 278 91
----------------------------------------------------------------------------
----------------------------------------------------------------------------
AGRIUM INC.
Selected Wholesale Volumes and Sales Prices
(Unaudited)
Schedule 3b
Six months ended June 30,
----------------------------------------------------------------------------
2011
----------------------------------------------------------------------------
Cost of
Sales Selling product
tonnes price sold Margin
(000's) ($/tonne) ($/tonne) ($/tonne)
----------------------------------------------------------------------------
Nitrogen
Domestic
Ammonia 568 581
Urea 808 509
Other 589 358
--------------------------------------------------------
Total domestic 1,965 484
International 217 456
----------------------------------------------------------------------------
Total nitrogen 2,182 482 264 218
----------------------------------------------------------------------------
Potash
Domestic 528 536
International 492 346
----------------------------------------------------------------------------
Total potash 1,020 445 161 284
----------------------------------------------------------------------------
Phosphate 565 786 471 315
Product purchased for resale 1,925 447 427 20
Other
Ammonium sulfate 177 356 175 181
Other 167
----------------------------------------------------------------------------
Total other 344
----------------------------------------------------------------------------
Total Wholesale 6,036 488 318 170
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30,
----------------------------------------------------------------------------
2010
----------------------------------------------------------------------------
Cost of
Sales Selling product
tonnes price sold Margin
(000's) ($/tonne) ($/tonne) ($/tonne)
----------------------------------------------------------------------------
Nitrogen
Domestic
Ammonia 594 426
Urea 722 400
Other 477 270
--------------------------------------------------------
Total domestic 1,793 374
International 195 362
----------------------------------------------------------------------------
Total nitrogen 1,988 373 267 106
----------------------------------------------------------------------------
Potash
Domestic 678 417
International 385 265
----------------------------------------------------------------------------
Total potash 1,063 362 160 202
----------------------------------------------------------------------------
Phosphate 493 529 474 55
Product purchased for resale 1,436 309 298 11
Other
Ammonium sulfate 192 259 176 83
Other 205
----------------------------------------------------------------------------
Total other 397
----------------------------------------------------------------------------
Total Wholesale 5,377 365 273 92
----------------------------------------------------------------------------
----------------------------------------------------------------------------
AGRIUM INC.
Depreciation and Amortization in Cost of Product Sold
(Unaudited - millions of U.S. dollars)
Schedule 4
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------------------------------
2011 2010 2011 2010
----------------------------------------------------------------------------
Retail 2 - 3 -
----------------------------------------------------------------------------
Wholesale
Nitrogen 25 19 37 37
Potash 11 18 20 22
Phosphate 9 23 21 34
Other 1 2 2 3
----------------------------------------------------------------------------
46 62 80 96
----------------------------------------------------------------------------
Advanced Technologies 3 5 7 7
----------------------------------------------------------------------------
Total 51 67 90 103
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Contacts:
Agrium Inc.
Richard Downey, Vice President, Investor/Corporate Relations
and Market Research
(403) 225-7357
Agrium Inc.
Todd Coakwell
Manager, Investor Relations
(403) 225-7437
www.agrium.com
SOURCE: Agrium Inc.
http://www.agrium.com
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