UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 40-F
(Check One)
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Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934 |
Or
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Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 |
For fiscal year ended: December 31, 2014
Commission file number: No. 001-14460
AGRIUM INC.
(Exact name of registrant as specified in its charter)
Canada
(Province or
other jurisdiction of incorporation or organization)
2870
(Primary standard industrial classification code number)
98-0346248
(I.R.S.
employer identification number)
13131 Lake Fraser Drive S.E.
Calgary, Alberta
T2J 7E8
Canada
(403) 225-7000
(Address and telephone number of registrant’s principal executive offices)
CT Corporation System
111 Eighth Avenue, 13th Floor
New York, New York 10011
U.S.A.
(212) 894-8940
(Name, address and telephone number of agent for service in the United States)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class: |
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Name of each exchange on which registered: |
| Common Shares |
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New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Not Applicable
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Not Applicable
For
annual reports, indicate by check mark the information filed with this form:
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| þ Annual Information Form |
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þ Audited Annual Financial Statements |
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual
report:
143,716,009 Common Shares outstanding as of December 31, 2014
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (s.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was
required to submit and post such files).
Yes ¨ No
¨
The Annual Report on Form 40-F shall be incorporated by reference into the registrant’s
Registration Statements on Form S-8 (File Nos. 333-11254, 333-114276, 333-132207, 333-143334, 333-149666, 333-161620 and 333-195968) and on Form F-10 (File No. 333-195266).
PRINCIPAL DOCUMENTS
The following documents have been filed as part of this Annual Report on Form 40-F:
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(1) |
Annual Information Form for the Year Ended December 31, 2014 (included as Exhibit 99.1 hereto); |
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(2) |
Management’s Discussion and Analysis from the 2014 Annual Report to Shareholders (included as Exhibit 99.2 hereto); and |
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(3) |
Audited Annual Financial Statements for the Year Ended December 31, 2014 (included as Exhibit 99.3 hereto). |
DISCLOSURE CONTROLS AND PROCEDURES
The required disclosure is included in
Exhibits 99.10 – 99.13 to this Annual Report on Form 40-F.
| B. |
Evaluation of Disclosure Controls and Procedures |
Agrium Inc. (the
“Registrant”) maintains disclosure controls and procedures and internal control over financial reporting designed to ensure that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of
1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”). The Registrant’s Chief
Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), after having evaluated the effectiveness of the Registrant’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of
the end of the period covered by this report have concluded that, as of such date, the Registrant’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Registrant in reports that the
Registrant files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to management, including its
principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. However, as recommended by the SEC in its adopting release, the Registrant will
continue to periodically evaluate its disclosure controls and procedures and will make modifications from time to time as deemed necessary to ensure that information is recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.
The Registrant’s disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives and, as indicated in the preceding paragraph, the CEO and CFO believe that the Registrant’s disclosure controls and procedures are effective at that reasonable assurance level, although the CEO
and CFO do not expect that the disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met.
| C. |
Management’s Annual Report on Internal Control Over Financial Reporting |
The required disclosure is included in the “Management’s Report” that accompanies the Registrant’s
Consolidated Financial Statements for fiscal year ended December 31, 2014, filed as part of this Annual Report on Form 40-F.
We completed the Viterra acquisition on October 1, 2013 and the operations were excluded from management’s evaluation
of the effectiveness of the Registrant’s internal control over financial reporting for 2013 due to the proximity of the acquisition to year-end. During 2014, we completed the integration of our Viterra control environment into our control
environment to ensure controls were operating effectively as at December 31, 2014.
| D. |
Attestation Report of the Independent Registered Public Accounting Firm |
The required disclosure is included in the “Report of Independent Registered Public Accounting Firm” that accompanies
the Registrant’s Consolidated Financial Statements for the fiscal year ended December 31, 2014, filed as part of this Annual Report on Form 40-F. See “Controls & Procedures” in Management’s Discussion and Analysis
for the fiscal year ended December 31, 2014 filed as part of this Annual Report on Form 40-F.
| E. |
Changes in Internal Control Over Financial Reporting |
Except as
disclosed in Management’s Discussion and Analysis for the fiscal year ended December 31, 2014, there was no change in the Registrant’s internal control over financial reporting that occurred during the period covered by this report
that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
AUDIT
COMMITTEE FINANCIAL EXPERT
The Registrant’s Board of Directors has determined that it has at least one “audit committee
financial expert” (as such term is defined in paragraph 8(b) of General Instruction B to Form 40-F) serving on its Audit Committee. Mr. John E. Lowe has been determined to be such audit committee financial expert and is
“independent” (as such term is defined in the New York Stock Exchange’s corporate governance standards).
Paragraph 8(d) of
General Instruction B to Form 40-F indicates that the designation of an individual as an audit committee financial expert does not make him an “expert” for any purpose, impose on him any duties, obligations or liability that are greater
than the duties, obligations or liability imposed on him as a member of the Audit Committee and the Board of Directors in absence of such designation, or affect the duties, obligations or liability of any other member of the Audit Committee or Board
of Directors.
CODE OF ETHICS
The Registrant has adopted a “code of ethics” (as that term is defined in Form 40-F), entitled Code of Business Conduct and Ethics
that applies to all directors, officers and employees of the Registrant. The Code of Business Conduct and Ethics has been posted on the Registrant’s website and may be viewed by visiting www.agrium.com and selecting the “Governance
Documents” tab within the section entitled “Governance”.
The Code of Ethics is available in print to any shareholder who
requests it. Requests for copies of the Code of Ethics should be made by contacting the Registrant in writing at 13131 Lake Fraser Drive S.E., Calgary, AB T2J 7E8, by telephone at (403) 225-7000, or on
the Registrant’s website at www.agrium.com.
In the past fiscal year, there have not been any amendments to the Code of Ethics
or waivers, including implicit waivers, from any provision of the Code of Ethics.
NOTICES PURSUANT TO REGULATION BTR
Not applicable.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The following table sets out the fees billed to the Registrant by KPMG LLP and its affiliates for
professional services in each of the years ended December 31, 2014 and 2013. During these years, KPMG LLP was the Registrant’s only external auditor.
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Year Ended December 31, |
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2014
CDN $ |
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2013
CDN $ |
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| Audit Fees(1) |
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4,157,900 |
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4,556,000 |
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| Audit-Related Fees(2) |
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NIL |
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15,000 |
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| Tax Fees(3) |
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369,700 |
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245,000 |
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| All Other Fees |
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NIL |
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NIL |
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| Total |
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4,527,600 |
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4,816,000 |
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For professional services rendered by KPMG LLP for the audit and review of the Registrant’s financial statements or services that are normally provided by KPMG LLP in connection with statutory and regulatory
filings or engagements. |
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For professional services rendered by KPMG LLP for specified audit procedures regarding financial assurances issued to certain government agencies, and services which are reasonably related to the performance of the
audit of the Registrant’s financial statements. |
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For professional services rendered by KPMG LLP for tax compliance, tax advice and tax planning with respect to Canadian, U.S. and key international jurisdictions; review of tax filings; assistance with the preparation
of tax filings; tax advice relating to potential asset and business acquisitions/combinations; and other tax planning, compliance, and transaction services. |
AUDIT COMMITTEE’S PRE-APPROVAL POLICIES AND PROCEDURES
The Registrant has adopted a written policy pursuant to which the Registrant’s Audit Committee pre-approves all audit services and
permitted non-audit services provided to the Registrant by the Registrant’s independent auditors. The pre-approved services specified in such policy are reviewed annually, and the audit and non-audit services to be provided by the
Registrant’s independent auditors, as well as the budgeted amounts for such services, are also pre-approved annually. The Audit Committee has also delegated to the Chair of the Audit Committee, who is independent, the authority to act on behalf
of the Audit Committee with respect to the pre-approval of all audit and permitted non-audit services provided by its external auditors from time to time. Any approvals by the Chair are reported to the full Audit Committee at its next meeting. None
of the services described in footnotes 2 and 3 under “Principal Accountant Fees and Services” above were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
OFF-BALANCE SHEET ARRANGEMENTS
The required disclosure is included on page 63 of Management’s Discussion and Analysis for the fiscal year ended December 31, 2014,
filed as part of this Annual Report on Form 40-F and in note 9 to the Registrant’s audited annual financial statements included as Exhibit 99.3 of this Annual Report on Form 40-F.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The required disclosure is included on page 61 of Management’s Discussion and Analysis for the fiscal year ended December 31, 2014,
filed as part of this Annual Report on Form 40-F.
IDENTIFICATION OF THE AUDIT COMMITTEE
The Registrant has a separately-designated standing audit committee established in accordance with section 3(a)(58)(A) of the Exchange Act.
The members of the Audit Committee are John E. Lowe (Chair), M. Marianne Harris, David C. Everitt, David J. Lesar, A. Anne McLellan, Derek G. Pannell and Mayo M. Schmidt.
RESERVE AND RESOURCE ESTIMATES
The
Registrant’s mineral reserves have been estimated in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”), as required by Canadian securities regulatory authorities. For
United States reporting purposes, Industry Guide 7 under the Securities Act of 1933, as amended, as interpreted by the Staff of the SEC, applies different standards in order to classify mineralization as a reserve. In addition, while the terms
“measured”, “indicated” and “inferred” mineral resource are required pursuant to NI 43-101, the SEC does not recognize such terms. Canadian standards differ significantly from the requirements of the SEC, and mineral
resource information contained in the documents incorporated into this Annual Report on Form 40-F by reference is not comparable to similar information regarding mineral reserves disclosed in accordance with the requirements of the SEC. Investors
should understand that “inferred” mineral resources have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. In addition, investors are cautioned not to assume that any part
or all of our mineral resources constitute or will be converted into reserves.
MINE SAFETY DISCLOSURE
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act and Item 16 of General Instruction B to Form 40-F is included in Exhibit 99.9 to this Annual Report on Form 40-F.
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
The Registrant undertakes to make available, in person or
by telephone, representatives to respond to inquiries made by the staff of the SEC, and to furnish promptly, when requested to do so by the SEC staff, information relating to the securities in relation to which the obligation to file an annual
report on Form 40-F arises or transactions in said securities.
| B. |
Consent to Service of Process |
The Registrant has previously filed with
the SEC a Form F-X in connection with the Common Shares.
Any change to the name or address of the Registrant’s agent
for service shall be communicated promptly to the SEC by amendment to the Form F-X referencing the file number of the Registrant.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.
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AGRIUM INC. |
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| Date: March 5, 2015 |
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By: |
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/s/ Charles V. Magro |
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Name: Charles V. Magro |
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Title: President & Chief Executive Officer |
EXHIBIT INDEX
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| Exhibits |
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Description |
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| 99.1 |
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Annual Information Form for the Year Ended December 31, 2014 |
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| 99.2 |
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Management’s Discussion and Analysis from the 2014 Annual Report to Shareholders |
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| 99.3 |
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Audited Annual Financial Statements for the Year Ended December 31, 2014 |
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| 99.4 |
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Consent of Independent Registered Public Accounting Firm |
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| 99.5 |
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Consent of A. Dave Mackintosh, B.Sc., P.Geo |
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| 99.6 |
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Consent of ADM Consulting Limited |
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| 99.7 |
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Consent of Michael Ryan Bartsch, P. Eng. |
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| 99.8 |
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Consent of Dennis William Aldo Grimm, P. Eng. |
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| 99.9 |
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Mine Safety Disclosure |
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| 99.10 |
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Chief Executive Officer’s Certification Required by Rule 13a-14(a) or Rule 15d-14(a) |
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| 99.11 |
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Chief Financial Officer’s Certification Required by Rule 13a-14(a) or Rule 15d-14(a) |
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| 99.12 |
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Chief Executive Officer’s Certification Required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code |
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| 99.13 |
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Chief Financial Officer’s Certification Required by Rule 13a-14(b) or Rule 15d-14(b)
and Section 1350 of Chapter 63 of Title 18 of the United States Code |
Exhibit 99.1
AGRIUM INC.
ANNUAL INFORMATION FORM
Year Ended December 31, 2014
February 24, 2015
TABLE OF CONTENTS
Following is a table of contents of the Annual Information Form (“AIF”) referencing the applicable requirements of Form 51-102F2 of the
Canadian Securities Administrators. Certain portions of this AIF are disclosed in Agrium Inc.’s Management’s Discussion & Analysis (“MD&A”) and Consolidated Financial Statements for the year ended December 31,
2014 (“2014 Financial Statements”) and are incorporated herein by reference as noted below and are available on the Canadian Securities Administrators’ SEDAR website at www.sedar.com and on the EDGAR section of the United
States Securities and Exchange Commission’s website at www.sec.gov.
2
3
ITEM 2 – ADVISORIES
2.1 FORWARD-LOOKING INFORMATION
Certain statements and other information included or incorporated by reference in this AIF constitute “forward-looking information” or “financial outlook” within the meaning of
applicable Canadian securities legislation or “forward-looking statements” within the meaning of applicable U.S. securities legislation (collectively herein referred to as “forward-looking statements”), including the “safe
harbour” provisions of provincial securities legislation and the U.S. Private Securities Litigation Reform Act of 1995, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, and Section 27A of the U.S. Securities Act of
1933, as amended. Forward-looking statements are typically identified by the words “believe”, “expect”, “anticipate”, “project”, “intend”, “estimate”, “outlook”,
“focus”, “potential”, “will”, “should”, “would”, “could” and other similar expressions.
Forward-looking statements in this document are intended to provide Agrium shareholders and potential investors with information regarding Agrium and its subsidiaries, including management’s
assessment of future financial and operational plans and outlook, and may not be appropriate for other purposes. These forward-looking statements include, but are not limited to: the anticipated expansion and growth of our business and operations;
estimates, forecasts and statements as to management’s expectations with respect to our expansion projects, including, among others, our Vanscoy Project (as defined herein), our Borger brownfield expansion project, the costs of such projects,
the impact of such projects on Agrium’s operations and production and Agrium’s expectations with respect to the sale and marketing of the additional product resulting therefrom; VPO (as defined herein) mineral resource and reserve
estimates; production rates at VPO including that we will produce approximately 2.1 million tonnes of potash in 2015; our expectation that as our Retail business expands its potash supply requirements will also increase; our expectation that
Canpotex (as defined herein) will grow as its ownership group expands its production capacities and volumes available for export outside of the North American market; VPO mine life estimates; economic analysis of the Vanscoy Project; our present
intention to pay regular dividends on our common shares; and our expectation that current legal and administrative proceedings in aggregate will not have a material effect on our consolidated financial position or results of operations.
These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends,
current conditions and expected future developments as well as other factors we believe are appropriate in the circumstances. Readers are cautioned not to place undue reliance on the forward-looking statements which involve known and unknown
material risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Refer to the
discussion under the heading “Key Assumptions and Risks in Respect of Forward-Looking Statements” in the MD&A, which is incorporated by reference in this AIF, with respect to the material assumptions and risks associated with the
forward-looking statements.
By their nature, forward-looking statements are subject to various risks and uncertainties, including those
material risks discussed in this AIF under “Risk Factors” and set forth under the headings “Financial Instruments – Risk Management” and “Material Business Risks” in our MD&A which are incorporated by reference
herein, which could cause Agrium’s actual results and experience to differ materially from the anticipated results or expectations expressed. Additional information on these and other risk factors are detailed from time to time in the reports
filed by Agrium with Canadian securities regulators and with the United States Securities and Exchange Commission (“SEC”).
All of
the forward-looking statements contained or incorporated by reference in this AIF are qualified by the cautionary statements contained or incorporated by reference herein and by stated or inherent assumptions and apply only as of the date of this
AIF. Except as required by law, Agrium disclaims any intention or obligation to update or revise any forward-looking statements as a result of new information or future events.
2.2 BASIS OF PRESENTATION
2014, 2013 and
2012 financial information presented and discussed in this AIF is prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.
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Unless otherwise specifically provided herein, the information contained in this AIF is presented as at December 31, 2014. 2012 financial results have been restated as a result of adopting
IFRS 11 Joint Arrangements whereby the classification and accounting of our investment in Profertil S.A. (“Profertil”) and other joint arrangements previously accounted for using the proportionate consolidation method are accounted
for using the equity method. 2013 financial results have been restated to reflect the discontinued operations of certain former Agrium Advanced Technologies (“AAT”) businesses as well as the change in segmentation of ESN®, or Environmentally Smart Nitrogen® (ESN®, hereinafter referred
to as “ESN”) from our former AAT business unit to our Wholesale business unit (“Wholesale”).
2.3 ADDITIONAL IFRS AND NON-IFRS FINANCIAL MEASURES
The financial measures earnings (loss) from continuing operations
before finance costs and income taxes (“EBIT”), earnings (loss) from continuing operations before finance costs, income taxes, depreciation and amortization (“EBITDA”) and EBITDA before finance costs, income taxes, depreciation
and amortization of joint ventures (“Adjusted EBITDA”) in this AIF are not prescribed by IFRS, or in the case of EBIT, is an additional IFRS financial measure.
EBITDA and Adjusted EBITDA are not recognized measures under IFRS and our method of calculation may not be comparable to other companies. Similarly, EBITDA and Adjusted EBITDA should not be used as an
alternative to EBIT. For more information and a reconciliation of EBITDA and Adjusted EBITDA to EBIT, please refer to page 76 of Agrium’s MD&A under the heading “Additional IFRS and Non-IFRS Financial Measures”.
ITEM 3 – CORPORATE STRUCTURE
In this AIF, unless otherwise specified, “Agrium”, “the Company”, “we”, “our”, “us” and similar expressions refer collectively to Agrium Inc. and its
subsidiaries, any partnerships involving Agrium Inc. or any of its subsidiaries, and our significant equity investments and joint ventures. References to “dollars”, “$”, and “U.S. $” are to United States dollars
and references to “CDN $” are to Canadian dollars.
3.1 NAME, ADDRESS AND
INCORPORATION
Agrium Inc. was incorporated by Articles of Incorporation under the Canada Business Corporations Act on
December 21, 1992. The Company’s head office, principal place of business, and registered office are located at 13131 Lake Fraser Drive S.E., Calgary, Alberta, T2J 7E8.
3.2 INTERCORPORATE RELATIONSHIPS
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Jurisdiction of Incorporation or Organization |
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Ownership |
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| AGRIUM, a general partnership |
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Alberta |
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100 |
% |
| Agrium U.S. Inc. |
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Colorado |
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100 |
% |
| Crop Production Services, Inc. |
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Delaware |
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100 |
% |
| Crop Production Services (Canada) Inc. |
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Canada |
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100 |
% |
| Landmark Operations Ltd. |
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Western Australia |
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100 |
% |
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Represents subsidiaries where total assets and/or sales exceed 10 percent of the consolidated total assets and/or sales as at and for the year ended December 31,
2014. In aggregate, the remaining subsidiaries accounted for less than 20 percent of the consolidated total assets and/or sales. |
In 2014, Agrium conducted business activities through two business units:
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Retail business unit (“Retail”), with sales of $13.0-billion in 2014, operates in North and South America and Australia, providing crop
inputs and services directly to farmers. |
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Wholesale, with sales of $4.0-billion in 2014, operates in North and South America and Europe, and produces, markets and distributes all major crop
nutrients for agricultural and industrial customers both domestically and around the world. |
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“Other” is a non-operating segment comprised of corporate and administrative functions that
provides support and governance to our operating business units. Other is also used to eliminate inter-business unit transactions so that each operating business unit can be evaluated independently. The eliminations relate to purchase and sale
transactions between our Retail and Wholesale business units.
ITEM 4 – GENERAL
DEVELOPMENT OF THE BUSINESS
4.1 THREE YEAR HISTORY
2012
Viterra
Acquisition
On March 19, 2012, we signed an agreement with Glencore International plc (“Glencore”) to
acquire certain Agri-products assets of Viterra Inc. (“Viterra”) (as amended, the “Support and Purchase Agreement”) (see “ – 2013 – Viterra Acquisition” below). The Agri-products assets consisted of two groups
of assets: (i) Viterra’s 34 percent interest in a nitrogen facility located at Medicine Hat, Canada; and (ii) approximately 210 Canadian farm centers and Australian distribution assets.
On August 2, 2012, Agrium and Glencore announced that CF Industries Holdings Inc. (“CF”), holder of a 66 percent interest
in the Medicine Hat facility, would acquire Viterra’s 34 percent interest in the Medicine Hat facility from Glencore for CDN $915-million, subject to certain adjustments. This transaction closed on April 30, 2013 (see “ – 2013
– Viterra Acquisition” below).
As partial funding for Glencore’s acquisition of Viterra, we advanced the CDN
$1.775-billion (U.S.$1.801-billion) purchase price to Glencore on December 12, 2012. The advance was guaranteed by Glencore, secured by shares of Viterra, and did not bear interest. The advance was repayable by: i) the transfer of the
Agri-products assets to us or to third parties designated by us, in amounts allocated to the assets under our agreement with Glencore; and ii) cash payments for an amount equal to the after-tax operating cash flows from these Agri-products assets
from March 31, 2012, until the applicable closing dates, working capital and other adjustments.
Glencore completed its
acquisition of Viterra on December 17, 2012.
Other Acquisitions & Investments
In 2012, we completed a significant number of Retail acquisitions, primarily in the United States. In total we acquired 59 Retail
locations, with 44 in North America, 14 in Australia and one in South America. The largest of these consisted of the acquisition of 27 locations through the acquisitions of West Texas Agri-Plex in Texas, Superior Deshler in Nebraska and Kansas, and
Ritter Crop Services in Northeast Arkansas.
We also expanded our footprint in South America in 2012 through the acquisition of
Utilfértil Indústria E Comércio De Fertilizantes Ltda. in Southern Brazil. The establishment of this foothold position in Brazil built upon our existing Retail presence in Argentina, Chile and Uruguay.
Total consideration for Retail 2012 acquisitions was $213-million.
Incremental Expansion
In 2012, we reached a significant project milestone with respect to our brownfield expansion project (the “Vanscoy Project”) of Agrium’s potash mine located in Vanscoy, Saskatchewan by
completing a planned eight week turnaround at the facility, the first of two that were necessary to facilitate bringing online the expansion.
The Egyptian-based expansion project to add two new trains to the existing single train at the Egyptian nitrogen facility (the “Egyptian Project”) was over 90 percent complete before civil
unrest resulted in a suspension of the expansion project and the facility in November 2011. The Egyptian Misr Fertilizers Production Company S.A.E. (“MOPCO”) was able to bring its existing nitrogen facility production back on line in the
third quarter of 2012.
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Profertil, a joint venture that owns a nitrogen facility in Bahia Blanca, Argentina in which
Agrium owns a 50 percent interest, finished construction of a terminal on the Parana River, near the city of Rosario, Argentina. This terminal includes a dedicated berth and two 100,000 tonne dry storage buildings in a key agricultural region of
Argentina. In 2012, we commenced a brownfield expansion and energy efficiency project at our Profertil facility (the “Profertil Project”) to increase the facility’s annual production capacity.
In the third quarter of 2012, we completed a second ESN line at the New Madrid, Missouri coating facility, and added an incremental
150,000 short tons (136,000 metric tonnes) of annual capacity to the New Madrid facility.
In 2012, we also moved forward with
evaluations of potential nitrogen expansion opportunities in North America. We identified two potential brownfield opportunities at our Redwater, Alberta and Borger, Texas production facilities, and commenced an early-stage evaluation of a
greenfield expansion project within the U.S. Corn Belt.
Securities Issuances
In April 2012, we filed a base shelf prospectus in Canada and the United States permitting the issuance of up to $2.5-billion of common
shares, preferred shares, subscription receipts, debt securities or units until May 2014 (the “2012 Base Shelf Prospectus”). The 2012 Base Shelf Prospectus was renewed following its expiry in May 2014. See “– 2014 –
Securities Issuances”.
On October 1, 2012, we issued $500-million of 3.15 percent debentures due October 2022
pursuant to a prospectus supplement under the 2012 Base Shelf Prospectus.
Substantial Issuer Bid
On October 25, 2012, Agrium took up and paid for 8.74 million of its common shares at a price of CDN $103.00 per share pursuant
to the Company’s substantial issuer bid to repurchase up to CDN $900-million of its shares. The shares taken up and paid for were subsequently cancelled.
2013
Viterra Acquisition
On April 30, 2013, Glencore completed the sale of Viterra’s 34 percent interest in the Medicine Hat facility to CF.
On September 5, 2013, we entered into a Consent Agreement with the Canadian Competition Bureau and thereby cleared the Canadian
competition review process in order to proceed with the acquisition of Viterra’s Canadian retail assets (herein referred to as the “Viterra acquisition”). On October 1, 2013, we completed the Viterra acquisition from Glencore.
Under the Consent Agreement, we acquired approximately 210 farm centers across Western Canada and Australian distribution assets. The Retail Agri-products assets ultimately transferred to Agrium consisted of net current assets (working capital)
and non-current assets (intangible assets and property, plant and equipment).
The cash purchase price at December 31,
2013 for the net assets acquired was $485-million. We engaged independent valuation experts to assist us in determining the fair value of the assets acquired and liabilities assumed. During March 2014, we finalized our purchase price allocation
without change to the fair value disclosed in our consolidated financial statements as at December 31, 2013.
Other
Acquisitions & Investments
In 2013, excluding the Viterra acquisition, we acquired 20 Retail locations through 14
completed transactions. Total consideration for the 2013 acquisitions, excluding the Viterra acquisition, was approximately $60-million.
Incremental Expansion
We continued work on the Vanscoy Project in 2013.
Tie-in of this project to the existing infrastructure was completed in 2014.
7
The Egyptian Project remained shut down throughout 2013 due to civil unrest; however, we
continued negotiations with the Egyptian government in respect of the resumption of the expansion project and work recommenced on the Egyptian Project in 2014.
The Profertil Project continued to proceed as anticipated. The construction for this project was completed in 2014.
During the fourth quarter of 2013, Neptune Bulk Terminals (Canada) Ltd. completed construction of Agrium’s import terminal on the West Coast of Canada. This terminal facilitates the handling and
delivery of imported phosphate rock from Morocco for production at our facility in Redwater, Alberta. The previous supply of phosphate rock from our mine at Kapuskasing, Ontario ceased in the second quarter of 2013 and the mine was closed due to
depletion of its economic resources.
Engineering and evaluation continued on the Borger, Texas brownfield expansion project.
Agrium’s nitrogen greenfield project assessment, slated for the Midwest Cornbelt of the U.S., continued in 2013 but due
to the risk of cost escalation, the focus shifted to finding a potential partner and long-term gas contract for the project. We are also evaluating a potential restart of our Kenai, Alaska nitrogen facility which would be dependent on the
availability and cost of natural gas.
Securities Issuances
On May 31, 2013, we issued $500-million of 3.5 percent debentures due June 1, 2023 and $500-million of 4.9 percent debentures
due June 1, 2043 pursuant to a prospectus supplement under the 2012 Base Shelf Prospectus.
On November 22, 2013, we
launched a commercial paper program (the “Commercial Paper Program”) pursuant to which we were able to issue up to $1-billion promissory notes or commercial paper maturing not more than one year from the date of issue in the United States.
Normal Course Issuer Bid
During 2013, we purchased 5,770,182 shares for total consideration of $498-million pursuant to a Normal Course Issuer Bid (which expired on May 20, 2014). The shares taken up and paid for were
subsequently cancelled.
Reorganization
In December 2013, Agrium’s Board of Directors approved the transition of the agricultural business of our former AAT business unit, consisting of ESN, to our Wholesale business unit.
2014
Leadership
Effective January 1, 2014, Chuck Magro succeeded Mike Wilson as our Chief Executive Officer. Prior thereto,
Mr. Magro held the position of Chief Operating Officer of Agrium. Chuck Magro also joined Agrium’s Board of Directors effective October 3, 2013.
Acquisitions & Investments
In 2014, we acquired 32 Retail
locations through 22 completed transactions. Of these, 29 locations are in North America and 3 are in Australia. The largest of these was the acquisition of Golden Furrow Fertilizer with 14 locations in Southeast Iowa and Missouri. Total
consideration for the 2014 acquisitions was approximately $180-million. Retail also had 4 equity investments or additional equity investments in 2014.
Incremental Expansion
In the third quarter of 2014, production at our
potash facility was shut down due to the tie-in of our Vanscoy Project to the existing infrastructure which was completed in December 2014, at which time
8
potash production recommenced. The Vanscoy Project is expected to increase our annual potash production capacity by one million tonnes and reduce our overall potash cash cost of production by
approximately $20 per tonne when total incremental production is fully operational by 2017. We expect to produce approximately 2.1 million tonnes of potash in 2015. See “Item 5 – Description of the Business – 5.3 Mineral Projects
– a) Vanscoy Potash Operations”.
In Egypt, work recommenced on the Egyptian Project and is currently on track for
the completion of two new production trains by mid-2015. Agrium holds a 26 percent share in the facility, which is located in Damietta. The facility has been operating one production train, with annual capacity of 650,000 tonnes, and will add
1.3 million tonnes of annual production capacity with the two additional trains. Agrium has the marketing rights to this production and will utilize its expansive global distribution network, particularly in Europe to market the additional
tonnes of product manufactured at the facility, with the majority of sales expected to be made in Europe.
In 2014,
construction was also completed on the Profertil Project which will increase Agrium’s share of annual production by approximately 70,000 tonnes, with no additional gas required. The tie-in of the new capacity will take place in the first
quarter of 2015. The Profertil nitrogen facility now has a total annual capacity of 1.4 million tonnes of urea and 70,000 tonnes of merchant ammonia. The Profertil Project focused on improving efficiency and debottlenecking the facility, and
achieved the increased production through higher gas utilization and conversion.
In 2014, the Borger brownfield nitrogen
expansion project commenced, and significant progress was made during the year with the expansion expected to be complete by the end of 2015. The additional 610,000 tonnes of annual urea production from the expansion is scheduled to come on line in
late 2015. The Borger expansion project will leverage Agrium’s distribution network in the region and be a competitive and low-cost producer of nitrogen, enhancing the long-term viability of the facility.
Securities Issuances
In April 2014, we filed a Base Shelf Prospectus in Canada and the United States permitting the issuance of up to $2.5-billion of common shares, preferred shares, subscription receipts, debt and other
securities over the 25 month period until May 2016 (the “2014 Base Shelf Prospectus”).
On May 15, 2014, we
increased the aggregate principal amount of securities issuable by Agrium Inc. and/or Agrium U.S. Inc., as applicable under the Commercial Paper Program from $1-billion to $2.5-billion.
On November 18, 2014, we issued $500-million of 5.25 percent debentures due January 15, 2045 pursuant to a prospectus supplement
under the 2014 Base Shelf Prospectus.
Disposals
In July 2014, we completed the sale of the Turf and Ornamental business of the former AAT business unit for $94-million. Also in 2014, the
decision was made to sell portions of Wholesale’s purchase for resale business in order to optimize working capital levels and to maintain focus on core product lines.
ITEM 5
– DESCRIPTION OF THE BUSINESS
5.1 BUSINESS OF AGRIUM
Agrium is a retailer of agricultural products and services in the United States, Canada, Australia, Argentina, Brazil, Chile and Uruguay and a
multi-national producer and wholesale marketer of nutrients for agricultural and industrial markets. Agrium’s strategy is to invest and operate across the agricultural inputs value chain (fertilizer, crop protection and seed), through
production, distribution and retail sales. This integrated strategy allows us to generate both strategic and operational synergies. For the fiscal year ended December 31, 2014, Agrium reported its business through two business units and a
non-operating segment for Corporate and inter-business unit eliminations. The two business units are Retail and Wholesale.
9
i) Products, Services and Markets
For additional information regarding the products, services and markets of
Agrium’s business, see the discussion under the headings “Retail” on pages 18 to 28; and “Wholesale” on pages 29 to 43 of Agrium’s 2014 MD&A, which is incorporated herein by reference.
Retail
Agrium’s Retail business unit markets crop nutrients, crop protection products, seed, merchandise, application and other agronomic
services through approximately 1,375 retail locations in the United States, Canada, Australia, Argentina, Brazil, Chile and Uruguay. North American Retail locations include approximately 870 branches, which are facilities supporting a specific
market area and customer base, and approximately 270 satellites, which are used to position equipment and product to specific markets and customers in support of a branch. Our branches are also differentiated between high and low service customers.
The Retail business unit’s market is primarily retail sales directly to farm customers, but also includes wholesale sales of crop protection products to other retail operations.
Crop nutrients sales accounted for approximately 40 percent of Retail’s total sales in 2014. Crop nutrients are generally mixed
in a custom blend to suit the particular nutrient requirements for each grower’s field based on soil fertility tests or plant tissue sampling. Agrium offers custom crop nutrient application services and employs a large fleet of application and
nurse equipment to custom-apply these nutrients at the prescribed rates. Many of the Company’s crop nutrient application rigs are also capable of precision application using global positioning system (“GPS”) technology, which allows
nutrient application rates to be adjusted when required based on GPS grid soil sample test results.
Crop protection sales were
approximately 36 percent of Retail’s total sales in 2014. Similar to crop nutrient application, Agrium employs a large fleet of crop protection application equipment. By its nature, Retail’s crop protection business operates within a
framework of government regulation and oversight. Agrium sells private label and proprietary crop protection products through Loveland Products, Inc. (“LPI”) in North and South America.
Seed sales accounted for approximately 11 percent of Retail’s total sales in 2014. Seed treatment is also a growing service that we
provide growers. This service involves applying chemical to seeds prior to planting to protect them from pests and disease. Due to the growth of crop yields and the associated increased demand for and price of genetically modified seed in North
America, Agrium’s Retail business unit has significantly grown its seed business with a sales growth rate of approximately 18 percent over last year; however, much of this growth is attributable to the addition of the Viterra seed business. Our
seed sales have been further supported by growth in our private label seed product line under the brand names Dyna-Gro and Proven. In addition to the Dyna-Gro and the Proven seed brands, Retail markets branded seed from large global seed companies
with proven genetics tailored to regional growing conditions.
Merchandise sales accounted for approximately 7 percent of
Retail’s total sales in 2014. In Australia, in addition to crop nutrient, crop protection and seed, Retail, through Landmark, also offers a wide variety of livestock-related merchandise, including fencing, animal identification merchandise and
various animal health products and services. Some of Landmark’s subsidiaries are also involved in the export of cattle.
Services and other sales accounted for approximately 6 percent of Retail’s total sales in 2014. Agrium’s Retail business unit
offers agronomic services in addition to the custom application services and soil and petiole testing previously mentioned. The Company owns and operates a laboratory in California where soil and petiole tests are performed. In the Western United
States, the Company uses a system of weather tracking stations to monitor crop disease conditions and irrigation requirements in high-value crops. Retail has a large group of qualified crop advisors throughout the organization who monitor
customers’ crops to maximize yields with cost-efficient fertility and pest control recommendations. Retail’s Echelon precision agriculture offering includes services such as yield data mapping, record keeping, soil fertility management,
variable rate fertility and variable rate seeding recommendations. In Australia, Retail offers various other services including wool sales and marketing, livestock auction services, insurance and real estate agency.
10
Wholesale
Agrium’s Wholesale business unit manufactures, mines and markets a full range of nutrients including nitrogen-based, potash and phosphate-based crop nutrient products.
Wholesale owns and operates five major North American nitrogen facilities, four located in Alberta, Canada and one in Borger, Texas,
United States. The majority of the nitrogen produced in Alberta is sold in Western Canada and the Northwestern and Northern Plains regions of the United States. Nitrogen products from Borger are sold in the Texas Panhandle area and ammonia is
sold by pipeline to the U.S. Corn Belt. Wholesale also has a 50 percent joint venture ownership in Profertil. Product from Profertil is sold within Argentina and to other South American destinations. The Company also owns and operates a number
of facilities that upgrade ammonia and urea to other products such as urea ammonium nitrate (“UAN”) solutions and nitric acid. These facilities have a combined annual nitrogen production capacity of approximately 5.5 million tonnes
(which includes our share of Profertil’s production). In addition, Agrium holds a 26 percent interest in a urea facility located in Egypt as discussed above under “General Development of the Business – Three Year History –
2014 – Incremental Expansion”.
Wholesale owns and operates a potash mine and production facility at Vanscoy,
Saskatchewan, Canada. Current nameplate capacity of this plant is just over two million product tonnes, and is expected to increase to approximately three million product tonnes when the incremental production from the Vanscoy Project is fully
operational by 2017 as discussed above under “General Development of the Business – Three Year History – 2014 – Incremental Expansion”.
The Company’s Redwater, Alberta facility produces sulfur and phosphate-based fertilizers. Our Redwater, Alberta facility previously obtained phosphate rock from our Kapuskasing, Ontario mine before
its closure in the second quarter of 2013 due to depletion of economic resources. The facility now sources rock from Morocco through a long term supply agreement with OCP S.A. (“OCP”). This agreement entails a minimum commitment to
purchase phosphate rock to 2018 with any potential subsequent volumes to be determined in 2016 that can extend to 2020. Purchase prices are based on a formula derived from the global price for finished phosphate products. A second phosphate-based
fertilizer production facility is located at Conda, Idaho, United States. Our Rasmussen Ridge rock mine in Caribou County, Idaho, United States supplies our Conda facility. Total annual capacity of these production facilities is approximately
1.2 million product tonnes. Products produced at these facilities are marketed within North America.
In addition to the
above production facilities, Wholesale operates several fertilizer granulation and blending plants in the United States.
The
transition of the controlled-release product ESN from the former AAT business unit to the Wholesale business unit occurred in 2014. ESN is produced in facilities located in the United States at New Madrid, Missouri, and in Canada at Carseland,
Alberta.
ii) Transportation, Storage and Distribution
Wholesale has an extensive storage and distribution network serving Western Canada and the Pacific Northwest, California,
U.S. Corn Belt, Great Plains, and southeast regions of the United States. In addition, Wholesale has European distribution capability via its 100 percent interest in Agrium Europe S.A. (“Agrium Europe”). In total, our global distribution
and storage capacity amounts to over 2.5 million tonnes.
A significant portion of delivered costs of crop nutrient
products to certain customers is attributable to transportation. Agrium has entered into various rail, pipeline and other transportation agreements to provide reliable and competitive transportation services. Agrium Wholesale leases approximately
4,600 railcars including both tank and hopper cars to transport fertilizer products. This fleet is supplemented by railroad-supplied cars as needed to meet peak-season transportation requirements. Agrium owns atmospheric and pressurized anhydrous
ammonia storage, dry product and liquid product facilities at locations in Western Canada, and throughout the United States. Wholesale has a network of over 100 distribution warehouses. In Europe, Agrium Europe owns and leases over 325,000
tonnes of dry and liquid storage capacity at both port and inland sites. In addition, Profertil completed construction of a new terminal in 2012 on the Parana River, near the city of Rosario, Argentina. This terminal includes a
11
dedicated berth and two 100,000 tonne dry storage buildings in a key agricultural region of Argentina. These locations, when combined with storage capability at the production facilities and
leased warehousing, provide a network of field and production site storage capacity sufficient to meet customer requirements.
Our North American Retail distribution assets include 57 terminals and 18 distribution centers to support distribution of crop nutrients,
crop protection products and seed. Terminals are major fertilizer storage facilities used to receive large quantities of fertilizer for redistribution to retail centers and to growers directly. Distribution centers are used to more effectively
distribute crop protection products and seed. These facilities are used to coordinate product supply to the retail centers and allow us to manage inventory levels across our distribution network.
Due to the bulk nature of our crop nutrient and seed products, delivery to end users through the supply chain can often take a significant
amount of time. Supply chain management utilizing our extensive storage and distribution network and transportation capabilities allows us to ensure that crop nutrient and seed product is available to customers at the necessary time as growers have
a short application and planting window, the precise timing of which is unpredictable due to both the seasonal nature of crop planting and the impact of weather.
iii) Selected Financial Information
Retail
2013
In 2013, Retail was able to offset lower nutrient prices, the cold, wet weather experienced in North America in the spring and fall, and
comparably compressed application seasons to achieve record sales and gross profit, at the time, across all product lines. The Viterra acquisition completed October 1, 2013 also contributed to the record sales and gross profit. Grower demand,
stable industry conditions, and favorable commodity prices drove Retail to record sales and gross profit, at that time, of $11.9-billion and $2.6-billion, respectively. Retail also achieved EBIT of $748-million in 2013. Record sales and margins, at
that time, were earned in North America in spite of lower fertilizer volume in the base business and acquisition related expenses. Australia underperformed, driven by the livestock business suffering lower cattle, sheep, and wool prices while higher
holding period costs and delayed shipments on exports adversely affected the business. South American Retail overcame continued economic uncertainty and the third quarter drought in Argentina to improve results compared to 2012.
Retail results were impacted by a number of one-time adjustments that occurred in the fourth quarter of 2013. This included a $257-million
purchase gain related to the Viterra acquisition and $220-million of goodwill impairment recorded in the Australian Retail business as a result of reduced expectations for sales, gross margins and long-term growth in our Retail operations in
Australia.
2014
2014 was a record year for Retail, setting records for sales of $13-billion, gross profit of $2.9-billion, EBIT of $814-million and EBITDA of $1.1-billion. North America, with the addition of the Viterra
acquisition and other smaller acquisitions, overcame lower crop nutrient prices to achieve record sales and gross profit across all product lines. Excluding the one-time pick up of $257-million purchase gain related to the Viterra acquisition in
2013, record EBIT and EBITDA was also achieved in North America. Australia had its best year financially, assisted by improved livestock markets, an emphasis on cost reduction, and improved weather conditions compared to 2013. South America also
achieved better results, when compared to 2013, due to a functional currency change, improved weather conditions and a focus on expense reduction.
12
Wholesale
2013
Sales from Wholesale operations were $4.6-billion and gross profit
was $1.1-billion in 2013. Wholesale EBIT was $1.0-billion and Adjusted EBITDA was $1.3-billion in 2013. Sales and earnings were impacted primarily as a result of lower global nutrient prices across all three major nutrients, particularly in the
second half of 2013. Nitrogen volumes were also impacted by extended outages at our Redwater and Carseland facilities, leading to increased operating costs and lower production. However, we experienced an increase in our potash volumes both
domestically and internationally, as 2012 was impacted by a planned eight-week turnaround at the Vanscoy facility. Phosphate margins were impacted by a combination of softening global phosphate prices, higher rock input costs as we switched to
imported rock after the closure of our Kapuskasing, Ontario mine and higher ammonia costs, due to higher natural gas prices. Purchase for resale business gross profit was negatively impacted due to lower average global nutrient prices.
2014
Sales from Wholesale operations were $4.0-billion in 2014 and gross profit was $665-million in 2014. Wholesale EBIT was $553-million in
2014 and Adjusted EBITDA was $821-million in 2014. The decline in sales and earnings was largely due to lower year-over-year potash and nitrogen prices and volumes. Gross profit was also impacted by higher per tonne costs for potash and nitrogen
partly due to higher associated per tonne costs due to planned and unplanned downtime at our potash and nitrogen facilities in 2014. Outages at our nitrogen facilities included planned outages at Fort Saskatchewan and at Redwater and an unplanned
outage at Carseland relating to a failure in the auxiliary boiler. These outages increased cost of product sold per tonne, as fixed facility costs were spread over lower production tonnes. The maintenance and upgrades associated with these outages
are expected to allow for significantly increased utilization rates in the future at these facilities. Potash volumes were impacted by an extended outage at the Vanscoy mine to tie-in the Vanscoy Project. Phosphate margins were relatively unchanged
from 2013 due to increased sales volumes and a lower cost of production, partly offset by lower realized sales prices in 2014. Ammonium sulfate margins decreased due to lower realized sales prices consistent with benchmark pricing. ESN margins
decreased due to lower selling prices in line with overall weaker nitrogen fertilizer markets, as well as lower sales volumes due to the Carseland downtime. As part of a review undertaken to streamline Agrium’s portfolio, a decision was made to
sell portions of the purchase for resale business in order to optimize working capital levels and to maintain focus on core product lines.
Sales classified by business unit and by operating segment for the Company’s two most recently completed fiscal years are provided in note 25 to the 2014 Financial Statements, which are
incorporated herein by reference.
Production methods
for Agrium’s manufactured products are set out below.
Nitrogen-based fertilizers
Ammonia:
Ammonia is produced by taking nitrogen
from the air and reacting it with a hydrogen source, usually natural gas reformed with steam, to produce ammonia.
Urea and UAN:
Ammonia is the feedstock for the production of upgraded nitrogen products, including urea and UAN. Urea is produced by
combining ammonia with carbon dioxide (“CO2”) and
forming liquid urea, which can be further processed into a solid, granular form. UAN is a liquid fertilizer and is produced by combining liquid urea, liquid ammonium nitrate and water.
13
Potash
The Company produces potash using conventional mining methods from one kilometer deep ore bodies. The mined ore is a mixture of potash, salt and clay. Removing the clay and salt through a milling process
produces saleable potash.
Phosphate
The principal raw materials used in the production of phosphate fertilizers are phosphate ore, ammonia and sulfur (or sulfuric acid). The Company extracts phosphate ore using surface mining techniques
and, beginning in 2013, also commenced purchasing phosphate rock for use in our Redwater, Alberta facility under a long-term supply agreement. The ore is mixed with recycled water to form slurry and then screened to remove coarse materials, washed
to remove clay and floated to remove sand to produce phosphate rock. The phosphate rock is then reacted with sulfuric acid to produce phosphoric acid. The majority of the sulfuric acid used is produced from burning sulfur and reacting it with water.
The phosphoric acid is then reacted with ammonia to form a granular product or concentrated to form a liquid product.
Sulfate
Ammonium sulfate is produced by reacting ammonia and sulfuric acid and then granulated to form a solid granular product.
Fertilizer Technologies and Professional Products
We use a coating production method where various fertilizer substrates are encapsulated to provide a desired release profile.
| c) |
SPECIALIZED SKILL AND KNOWLEDGE |
Our
specialized coating processes require extensive research and development and precise engineering to consistently produce high quality product. In order to maintain competitive advantage in the controlled-release market, we consistently innovate and
test products in the field, which also requires thorough agronomic research.
The market for
Agrium’s nutrients and crop production inputs is highly competitive. The Company’s competitors include other large integrated fertilizer producers, cooperatives, divisions of agribusiness companies, regional distributors and independent
dealers.
Agrium Wholesale owns 16 production facilities in North and South America across the nitrogen, potash and phosphate spectrum; two
mines; and an extensive distribution and storage network throughout North America and internationally through Agrium Europe. Agrium Retail operates approximately 1,375 retail locations, 57 terminals, 8 plants and 18 distribution centers in North and
South America as well as Australia. Agrium is a major distributor of crop nutrients, crop protection products and seed in a highly competitive industry. The principal competitors in the distribution of crop production inputs include agricultural
co-operatives, national fertilizer producers and distributors, and independent distributors and brokers.
Nitrogen-based fertilizer is a global
commodity, and customers, including end-users, dealers and other fertilizer producers and distributors, base their purchasing decisions principally on the delivered price and availability of the product. The relative cost of, and availability of
transportation for, raw materials and finished products to manufacturing facilities are also important competitive factors. The Company competes with a number of producers in North America and other countries, including state-owned and
government-subsidized entities.
Competition in the phosphate and potash fertilizer markets is based largely on price, reliability and
deliverability. The relative cost and availability of phosphate and potash ore, and the efficiency of production facilities, are also important competitive factors. The global phosphate and potash markets are more concentrated on a production and
trade basis than for the global nitrogen market; however these markets remain highly competitive and prices are determined by global supply and demand factors.
Wholesale also produces and distributes our controlled-release nitrogen product, ESN, to agricultural markets.
14
| e) |
SOURCES OF RAW MATERIALS |
A discussion of
the Company’s sources of primary raw materials used in the manufacture of nitrogen-based fertilizers, potash and phosphate-based fertilizers is under the headings “Nitrogen [N] Products”, “Potash [K] Products”,
“Phosphate [P] Products”, and “Ammonium Sulfate, ESN and Other Wholesale Products”, on pages 35 to 37, 38 to 39, 40 to 41, and 41 to 42, respectively, of Agrium’s 2014 MD&A, which is incorporated herein by reference.
Agrium has
registered and pending trademarks in Canada, the United States and other countries where its products are sold. The following table summarizes its main trademarks:
|
|
|
| Trademark |
|
Countries |
| A® DESIGN |
|
Argentina, Canada, United States |
| ACCOMPLISH® |
|
Argentina, Canada, United States |
| ACCOMPLISH™ |
|
Brazil, Chile, Uruguay |
| AGRIUM® |
|
Algeria, Argentina, Australia, Austria, Belize, Belarus, Bolivia, Boznia-Herzegovina,
Brazil, Bulgaria, Canada, Chile, China, Colombia, Costa Rica, Croatia, Czech Republic, Denmark, El Salvador, Estonia, Finland, France, Germany, Great Britain, Greece, Guatemala, Honduras, Hong Kong, Hungary, Iceland, India, Indonesia, Italy,
Ireland, Japan, Kenya, Latvia, Lebanon, Lithuania, Macedonia, Malaysia, Mexico, Moldova, Montenegro, New Zealand, Nigeria, Nicaragua, Norway, Panama, Peru, Poland, Portugal, Serbia, Singapore, Slovakia, Slovenia, South Africa, Switzerland, Romania,
Russian Federation, Thailand, Taiwan, Turkey, Tunisia, Ukraine, United States, Venezuela, Vietnam |
| AGRIUM™ |
|
Albania, Ecuador, Israel, Pakistan, Paraguay, Uruguay |
| AGRIUM® and DESIGN |
|
Albania, Argentina, Australia, Austria, Belize, Belarus, Bolivia, Boznia-Herzegovina,
Brazil, Bulgaria, Canada, Chile, China, Colombia, Costa Rica, Croatia, Czech Republic, Denmark, El Salvador, Estonia, Finland, France, Germany, Great Britain, Greece, Guatemala, Honduras, Hong Kong, Hungary, Iceland, India, Indonesia, Israel, Italy,
Ireland, Japan, Kenya, Latvia, Lebanon, Lithuania, Macedonia, Malaysia, Mexico, Moldova, Montenegro, New Zealand, Nigeria, Nicaragua, Norway, Panama, Paraguay, Peru, Poland, Portugal, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, South
Africa, Switzerland, Romania, Taiwan, Thailand, Turkey, Tunisia, Ukraine, United States, Venezuela, Vietnam |
| AGRIUM™ and DESIGN |
|
Algeria, Ecuador, Pakistan, Uruguay |
| AGRIUM ADVANCED TECHNOLOGIES® |
|
Argentina, Australia, Benelux, Brazil, Canada, Costa Rica, Chile, China, France, Germany,
Great Britain, Ireland, Italy, Japan, Korea, Malaysia, Mexico, New Zealand, Singapore, South Africa, Taiwan, Thailand, United States |
| AGRIUM ADVANCED TECHNOLOGIES® and DESIGN |
|
Argentina, Australia, Benelux, Canada, Costa Rica, Chile, China, France, Germany, Great
Britain, Ireland, Italy, Japan, Korea, Malaysia, Mexico, New Zealand, Singapore, South Africa, Taiwan, Thailand, United States |
| AGRIUM WHERE THE FUTURE IS GROWING and DESIGN® |
|
Australia, Canada, New Zealand, United
States |
15
|
|
|
| Trademark |
|
Countries |
| AMP® |
|
Canada, United States |
| AMP and DESIGN® |
|
Australia, Canada, China, Hong Kong, Indonesia, Korea, Japan, Malaysia, Philippines,
Taiwan, Vietnam, United States |
| BLACK LABEL® |
|
Canada, United States |
| CHOICE® |
|
Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El
Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru, Paraguay, United States |
| CHOICE WEATHER MASTER® |
|
Australia, Canada |
| CROP PRODUCTION SERVICES AND DESIGN® |
|
Canada, United States |
| DALGETY® |
|
Australia, China, India |
| DIRECT SOLUTIONS® |
|
Canada, United States |
| DYNA-GRO® |
|
Australia, United States |
| DYNA-SHIELD® |
|
United States |
| ESN and DESIGN® |
|
Argentina, Australia, Canada, Chile, China, European Community (CTM), Croatia, Iceland,
India, Indonesia, Israel, Japan, Liechtenstein, Macedonia, Malaysia, Mexico, Monaco, New Zealand, Norway, Philippines, San Marino, South Africa, South Korea, Switzerland, Turkey, United States, Vietnam |
| ESN and DESIGN™ |
|
Brazil |
| ESN® |
|
Argentina, Australia, Canada, Chile, China, European Community (CTM), Croatia, Iceland,
India, Indonesia, Israel, Japan, Liechtenstein, Macedonia, Malaysia, Mexico, Monaco, New Zealand, Norway, Philippines, San Marino, South Africa, South Korea, Switzerland, Turkey, United States, Vietnam |
| ESN™ |
|
Brazil |
| FOOTHILLS® |
|
Canada |
| GENFARM® |
|
Australia |
| GROWING TOGETHER™ |
|
Canada, European Community (CTM) |
| GROWING TOGETHER® |
|
United States |
| GROWING TOGETHER and DESIGN® |
|
Australia, Canada, European Community (CTM), United States |
| HELIOS® |
|
Australia, United States |
| INTENSITY POST-EMERGENCE GRASS HERBICIDE® |
|
United States |
| LANDMARK® |
|
Australia |
| LECI-TECH® |
|
Australia, Canada, Chile, Mexico, New Zealand, Peru, United States,
Uruguay |
| LECI-TECH™ |
|
Argentina, Brazil |
| LI 700® |
|
Algeria, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Ecuador, El
Salvador, European Community (CTM), France, Guatemala, Honduras, Ireland, Israel, Mexico, New Zealand, Nicaragua, Panama, Paraguay, Peru, Poland, South Africa, Spain, Switzerland, Taiwan, United States,
Uruguay |
16
|
|
|
| Trademark |
|
Countries |
| LIBERATE® |
|
Australia, Bolivia, Brazil, Canada, Chile, Costa Rica, Dominican Republic, El Salvador,
European Community (CTM), Guatemala, Honduras, Mexico, Nicaragua, Morocco, Panama, Peru, Poland, Paraguay, South Africa, United States, Uruguay |
| LOVELAND PRODUCTS® |
|
Argentina, Australia, Canada, Chile, Colombia, Paraguay, United States,
Uruguay |
| LOVELAND PRODUCTS™ |
|
Brazil |
| LOVELAND PRODUCTS and DESIGN® |
|
Argentina, Australia, Canada, Chile, Colombia, Paraguay, United States,
Uruguay |
| LOVELAND PRODUCTS and DESIGN™ |
|
Brazil |
| MAKAZE® |
|
United States, Australia |
| MAKAZE™ |
|
Canada |
| MAKAZE YIELD PRO® |
|
United States |
| MAKAZE YIELD PRO™ |
|
Canada |
| MATADOR® |
|
United States |
| MSO® |
|
United States |
| N-PACT® |
|
Australia, Canada, United States, Uruguay |
| N-PACT™ |
|
Brazil |
| N-PHURIC® |
|
United States |
| NU-GRO® |
|
Australia, Benelux, Canada, China, Denmark, Finland, France, Great Britain, Ireland,
Italy, Hong Kong, Japan, Malaysia, Norway, Portugal, South Korea, Switzerland, Sweden, Taiwan, Vietnam |
| NU-GRO™ |
|
Chile |
| NU-SPEC® |
|
Canada, Chile, China, European Community (CTM), Hong Kong, Indonesia, Japan, Malaysia,
Philippines, South Korea, Taiwan, United States, Vietnam |
| PANZER® |
|
Australia |
| POTENZA® |
|
Argentina |
| PROFIT FROM OUR EXPERIENCE® |
|
United States |
| PROFIT FROM OUR EXPERIENCE™ |
|
Canada |
| RADIATE® |
|
Australia, United Kingdom, United States |
| RIFLE® |
|
United States |
| RISER® |
|
Canada, United States |
| RISER™ |
|
Brazil, Bulgaria |
| SALVO® |
|
Canada, United States |
| SNIPER® |
|
Canada, United States |
| STARTUP® |
|
Canada |
| TITAN® |
|
United States |
| ULTRAYIELD and DESIGN® |
|
Argentina, Australia, Canada, China, Croatia, European Community (CTM), Hong Kong,
Iceland, Japan, Liechtenstein, Mexico, New Zealand, Philippines, Switzerland, Taiwan, United States |
| ULTRAYIELD and DESIGN™ |
|
Indonesia, Malaysia |
| WEATHER GARD COMPLETE® |
|
Argentina, Australia, Uruguay |
17
It has been Agrium’s practice to seek patent protection for inventions and improvements that are likely
to be incorporated into its products and to protect the freedom to use its inventions in its manufacturing processes. Agrium considers several factors in assessing the materiality of its patents including but not limited to scope and breadth of
claims, sales volumes of products incorporating the technology, strategic importance and patent duration. Agrium has registered patents in Canada, the United States and other countries where its products are sold. The following table summarizes its
main patents:
|
|
|
|
|
| Title |
|
Patent Number |
|
Coverage |
| Controlled Release Plant Nutrients |
|
US 5 803 946 |
|
Canada, United States |
| Controlled Release Fertilizers and Methods of Production Thereof |
|
US 6 663 686 |
|
Canada, United States |
| Controlled Release fertilizer material and process for production thereof (MSO) |
|
US 7 713 326 |
|
United States |
| Controlled Release fertilizers Made from Cross Linked glyceride mixtures |
|
US 8 790 437 |
|
United States |
| Cross-linked polyols for controlled release fertilizers |
|
US 8 795 406 |
|
United States |
| Cross-linked modified waxes for controlled release fertilizers |
|
US 8 888 887 |
|
United States |
| Use of Seed Flour As Soil Pesticide. |
|
EU 1530421 |
|
Europe: France, Germany, Italy, Spain, United Kingdom |
| Neutral Metal Alkanoate Micronutrient Solutions and Method of Manufacturing Same |
|
US 5 681 366 |
|
Australia, Brazil, Canada, Egypt, United States |
| Neutral Metal Alkanoate Micronutrient Solutions and Method of Manufacturing Same |
|
US 5 759 226 |
|
Australia, Brazil, Canada, Egypt, United States |
| Method of Controlling Sprout Formation in Potatoes by Selective Application of Chlorpropham,
Carvone, Benzothiazole and Ethylene |
|
US 5 811 372 |
|
Australia, Canada, Egypt, Germany, New Zealand, United States |
| Seed Treatment Method |
|
US 6 386 126 |
|
United States |
| Real-time plant nutrition prescription |
|
US 6 549 851 |
|
United States |
| Seed Treatment Method |
|
US 6 591 767 |
|
United States |
| Lecithin-Containing Drift Reduction Composition For Use in Spraying Agricultural
Acreage |
|
US 6 797 673 |
|
United States |
| Herbicide Microemulsion-Forming-Concentrates, Microemulsions, and Methods |
|
US 6 803 345 |
|
Australia, Brazil, Canada, France, Germany, Italy, United Kingdom, United
States |
| Herbicide Composition Comprising Herbicide Compound in Acid Form and Acidifying
Agent |
|
US 6 906 004 |
|
Australia, Brazil, Canada, France, Germany, Italy, Japan, United Kingdom, United
States |
| Herbicide Microemulsion-Forming-Concentrates, Microemulsions, and Methods |
|
US 7 094 735 |
|
Australia, Brazil, Canada, France, Germany, Italy, United Kingdom, United
States |
18
|
|
|
|
|
| Title |
|
Patent Number |
|
Coverage |
| Herbicide Compositions Comprising Suspension Concentrate with Glyphosate Acid, Methods of
Preparation, and Methods Of Use |
|
US 7 776 790 |
|
United States |
| Brassica juncea lines bearing endogenous edible oils |
|
US 6 303 849 |
|
United States |
| Brassica juncea lines bearing endogenous edible
oils (additional claims) |
|
US 6 787 686
CA 2 253 984 |
|
United States
Canada (additional claims) |
| Brassica AHAS Genes and Gene Alleles that provide resistance to Imidazolinone
Herbicides |
|
US 7 355 098 |
|
United States |
| Plant fad2 coding sequence balancing for Fatty Acid Profiling in Edible Oils |
|
AU 2003204171 |
|
Australia |
| Brassica AHAS Genes and Gene Alleles that provide resistance to Imidazolinone
Herbicides |
|
AU 2005202636 |
|
Australia |
| Brassica AHAS Genes and Gene Alleles that provide resistance to Imidazolinone Herbicides
(additional claims) |
|
AU 2011204774 |
|
Australia |
While these trademarks and patents constitute valuable assets, Agrium does not regard any single trademark or patent as
being material to its operations as a whole.
g) SEASONALITY
The agricultural products business is seasonal in nature. Consequently, comparisons made on a year-over-year basis are more appropriate than
quarter-over-quarter comparisons. Crop input sales are primarily concentrated in the spring and fall crop input application seasons. Crop nutrient inventories are normally accumulated leading up to the application season. Our cash
collections generally occur after the application season is complete.
A further discussion of the seasonality of the Company’s business
by reportable segment is contained under the headings “Retail – Quarterly Results” and “Wholesale – Quarterly Results” on pages 28 and 42 to 43, respectively, of Agrium’s 2014 MD&A, which is incorporated herein
by reference.
h) ENVIRONMENTAL PROTECTION REQUIREMENTS
Agrium’s operations are subject to a variety of federal, provincial, state and local laws, regulations, licenses and permits, the purpose of which is
to protect the environment. These environmental protection requirements may apply during design and construction, operation or modification, at the time of plant or mine closure, and beyond.
The environmental requirements for new projects typically focus on baseline site conditions; ensuring that the design and equipment selection meet operating requirements; the satisfaction of permitting,
preconstruction studies, discharge and other operating requirements; and the use of appropriate safeguards during construction.
Licenses,
permits and approvals at operating sites are obtained in accordance with laws and regulations, which may limit or regulate operating conditions, rates and efficiency; land, water and raw material use and management; product storage, quality and
transportation; waste storage and disposal; and emissions and other discharges. Additional legal requirements may apply in circumstances where site contamination predates the current applicable regulatory framework where remediation is ongoing or
where there is otherwise evidence that historic remediation activities have not been successful in protecting the environment. These additional requirements may result in an environmental remediation liability that must be resolved.
Finally, the environmental protection requirements that may apply at the time of plant closure can be of two types: environmental remediation that did not
come due or arise until operations ceased; or asset retirement
19
obligations stipulated by contractual or constructive obligations or other legal requirements. Asset retirement obligations typically involve the removal of the asset, remediation of any
contamination resulting from the use of that asset and reclamation of the land.
We record provisions under IFRS for environmental remediation
and asset retirement. Provision amounts are provided in note 18 to our 2014 Financial Statements, which are incorporated herein by reference. If a matter does not meet the requirements for recognition as a provision under IFRS, it is classified as
an environmental contingency.
Environmental contingencies
We are responsible for environmental remediation of certain facilities and sites. Work at these sites is in various stages of
environmental management; we are assessing and investigating some sites and remediating or monitoring others. New information, including changes in regulations or results of investigations by regulatory bodies, could lead to reassessment of our
exposure related to these matters. In addition, we may revise our estimates of our future obligations because they are dependent on a number of uncertain factors, including the method and extent of the remediation and cost-sharing arrangements with
other parties involved.
In assessing whether we would accrue a provision, we undertake a provision review process at each
reporting period. Our process includes a review by technical staff in consultation with in-house legal counsel and internal accounting professionals to determine whether current information available to us supports our estimates of the financial
effect of these matters and our related disclosures. Where appropriate, in-house legal counsel consults with external counsel as to its analysis and conclusions about the facts of each case, the status of litigation, and discussions and
correspondence with third parties. We also review publicly available information for similar matters involving other companies. Our review includes previously assessed matters and an assessment as to whether any new matters require review.
Some remediation activities at our sites are subject to the U.S. Comprehensive Environmental Response, Compensation, and
Liability Act (“CERCLA”), the U.S. Resource Conservation and Recovery Act (“RCRA”) and similar federal, state, provincial and local environmental laws. CERCLA provides for phases of remediation (investigation, risk assessment,
remedy selection, remedial design and construction, maintenance and long-term monitoring, and closure) under regulatory oversight.
For the matters described below, at the date of issuance of our 2014 Financial Statements, we determined that we could not make a reliable estimate of the amount and timing of any financial effect in
excess of the amounts accrued. Reasons for this determination include complexity of the matters; early phases of most proceedings; lack of information on the nature and timing of future actions in the matters; dependency on the completion and
findings of investigations and assessments; and the lack of specific information as to the nature, extent, timing and cost of future remediation. Until we have greater clarity as to our liability and the extent of our financial exposure, it is not
practical to make a reliable estimate of the financial effect. As negotiations, discussions and assessments proceed, we may provide estimates. Events or factors that could alleviate our current inability to make reliable estimates for these matters
include further identification of allegations or demands; completion of remediation phases; a ruling by a court or other regulatory body having jurisdiction; or initiation of substantive settlement negotiations.
United States Environmental Protection Agency Phosphate Industry Initiative
In 2003, the United States Environmental Protection Agency (“EPA”) began investigating the phosphate industry as part of its
National Enforcement Initiative regarding the mineral processing industry. The purpose of the EPA’s National Enforcement Initiative is to ensure that waste resulting from mineral processing is managed in accordance with RCRA regulations. RCRA
is the federal statute that governs the generation, transportation, treatment, storage and disposal of hazardous wastes. The EPA is also evaluating the industry’s compliance with certain U.S. Clean Air Act (“CAA”) programs, including
Maximum Achievable Control Technology (“MACT”) and Prevention of Significant Deterioration, the U.S. Emergency Planning and Community Right to Know Act (“EPCRA”) and CERCLA.
20
In 2005, the EPA and the Idaho Department of Environmental Quality (“IDEQ”)
commenced an investigation of the Conda facility to evaluate compliance with CAA, CERCLA, EPCRA, RCRA and relevant state law. The EPA has notified Nu-West Industries, Inc. (“Nu-West”), a wholly owned subsidiary of Agrium, of potential
violations of CAA, CERCLA, EPCRA and RCRA, at the Conda facility.
In 2007, the EPA issued a Notice of Violation
(“NOV”) to Nu-West alleging certain violations of the CAA and MACT at phosphoric acid production facilities, primarily involving pollution control equipment as well as start-up, shut-down and malfunction procedures. Nu-West formally
responded to the EPA allegations; however, the NOV remains open. The EPA has yet to identify any further CAA allegations or demands.
In 2008, the EPA issued a NOV to Nu-West identifying certain alleged violations of RCRA, focusing principally on the government’s interpretation of the Bevill exemption, among other regulatory
standards. Nu-West is cooperating with the government’s inquiry and is in active discussion to resolve the EPA’s allegations. Among other activities designed to assist in obtaining resolution of the EPA’s claims, in 2009, Nu-West
entered into a voluntary consent order with the EPA to evaluate potential impacts on the environment from the Conda facility’s operations by means of an environmental assessment pursuant to section 3013 of RCRA. Nu-West is working cooperatively
with the EPA and the IDEQ to negotiate work scopes to advance this assessment. In 2014, Nu-West continued to perform site assessment activities, and we expect that the overall assessment will be substantially completed during 2015; however,
completion will be dependent on the results of the specific assessment activities.
Nu-West, along with other industry members
also being evaluated under the same National Enforcement Initiative, is involved in ongoing discussions with the EPA, the U.S. Department of Justice (“DOJ”) and various environmental agencies to resolve these matters. Due to the nature of
the allegations, Agrium is uncertain as to how the matters will be resolved or if litigation will ensue. Resolution of the government’s CAA, CERCLA, EPCRA and RCRA allegations may be by settlement. Potential settlement terms may include
requirements to pay certain penalties, which Agrium currently believes will not be material, modify certain operating practices and undertake certain capital improvement projects, provide financial assurance for the future closure, maintenance and
monitoring costs for the phosphogypsum stack system at the Conda facility, and resolve the RCRA section 3013 voluntary consent order site investigation findings. Nu-West is continuing to negotiate the terms of settlement with the EPA and DOJ.
In 2008, the EPA further notified Nu-West that the government had commenced investigation of phosphate industry compliance
with certain provisions of CERCLA and EPCRA. In March 2011, the EPA issued a NOV to Nu-West alleging violations of certain emissions reporting and related requirements under CERCLA and EPCRA. Nu-West is performing technical research and review in
coordination with industry members in support of developing industry reporting protocols and is in ongoing discussions with the EPA in response to these allegations.
Legacy environmental remediation activities: Idaho mining properties
Nu-West has performed, is performing, or in the future may perform site investigation and remediation activities at six closed phosphate
mine sites and one former mineral processing facility near Soda Springs, Idaho (“Idaho Legacy Sites”). These sites were mined and operated from as early as 1955 until as late as 1997. Selenium, a trace mineral essential for optimal human
health but which can be toxic at higher concentrations, was found to be leaching from reclaimed lands associated with historic phosphate mines owned, leased or operated by Nu-West or other parties. Nu-West, the U.S. government and other phosphate
producers have been working diligently to identify the sources of selenium contamination, to develop remedies for the closed mines and to implement best practices to ensure selenium issues do not become a concern for current and new mining
operations.
In 2013, the U.S. government and Nu-West reached an agreement for four Idaho Legacy Sites. Under the agreement,
the U.S. government will (a) pay 33 percent of past and future investigation and remediation costs; and (b) contribute, independent of its 33 percent share all the funds remaining from the government’s recoveries from a bankruptcy
proceeding involving Washington Group International, a past responsible
21
party at the closed mine sites. Remaining funds available for recovery are estimated to be approximately $2-million. Nu-West has not accrued any amounts for potential recoveries from third
parties. Since reaching this settlement with the U.S. government, Nu-West has executed subsequent agreements with federal and state environmental agencies under CERCLA, establishing the scope of preliminary work to be conducted at the four sites.
Nu-West expects to complete substantial remedial construction at one of these sites by 2016. IDEQ is overseeing remediation programs for the three other Idaho Legacy Sites under agreements with Nu-West signed in 2014 and in previous years.
For all seven of the Idaho Legacy Sites, Nu-West continued in 2014 to develop and perform the preliminary scope of work, which
it expects to be complete in one to three years. Completion of this preliminary work will enable Nu-West and the agencies to determine what, if any, further remediation work will be required.
Legacy environmental remediation activities: Manitoba mining properties
In 1996, Agrium acquired Viridian Inc. (“Viridian”), which is now a wholly owned Canadian subsidiary of Agrium. Viridian has
retained certain liabilities associated with the Fox Mine Site – a closed mineral processing site near Lynn Lake, Manitoba. Viridian is currently treating water draining from the site to meet downstream provincial water quality standards.
Viridian has substantially completed the investigation phase of remediation and is currently in discussions with the Province of Manitoba regarding remedial alternatives selection. Concurrence and approval from the province of a remedial design are
expected within the next 36 months. For this matter, we have not disclosed information about the amount accrued for site remediation because disclosure of such information would seriously prejudice our position in discussions with the Province.
Climate change and greenhouse gas emissions
Directly and indirectly, Agrium generates greenhouse gas (“GHG”) emissions through the production, distribution and use of its
products. These emissions may be subject to climate change policy and regulations being developed in North America. However, these policies are developing in a unique way within the various state, provincial and federal jurisdictions.
In Alberta, Specified Gas Emitters Regulation (“SGER”) has been enacted that applies to facilities
emitting greater than 100,000 tonnes of CO2 equivalent
(“CO2e”) per year. Existing facilities that exceed
this threshold are required to decrease their emissions intensity by 12 percent relative to their 2003–2005 average baseline. If a company is unable to decrease its emissions intensity through increases in operational efficiency, it is still
able to comply with the Alberta requirements by purchasing qualifying emission offsets from other sources in Alberta or by contributing to the Climate Change and Emissions Management Fund (“the Fund”). Historically, the contribution costs
to the Fund have been set at $15 per tonne of CO2e. The SGER
was originally set to be revised in September 2014; however, the Government of Alberta delayed any revisions until the end of June 2015. As such, the specific requirements of the SGER and the economic value of the contribution costs to the Fund may
change in 2015.
Agrium has three facilities in Alberta with CO2e emissions in excess of 100,000 tonnes per year. Those facilities are
Redwater Fertilizer Operations (total typical annual emissions of approximately 1,170,000 tonnes); Carseland Nitrogen Operations (total typical annual emissions of approximately 550,000 tonnes); and Fort Saskatchewan Nitrogen Operations (total
typical annual emissions of approximately 550,000 tonnes). Actual emissions in each case depend on operating time and conditions, which is influenced by market demand and supply factors. The annual impact of this legislation on Agrium is expected to
range from $1-million to $4-million a year going forward based on a valuation of $15 per tonne, depending on variations in production from year to year, which will directly impact CO2e emissions. These expected annual costs are lower than they otherwise could have been, due in part to Agrium’s
implementation of various efficiency and emissions reduction projects. These projects include overall efforts to increase operational efficiency, the purchase of emission offset credits, and the operation of a cogeneration facility in partnership
with TransCanada Energy Ltd. at Carseland that captures waste heat and produces emission offset credits. Agrium and the fertilizer industry have also been involved in the development and
22
implementation of the Nitrous Oxide Emissions Reduction Protocol (“NERP”), which is designed to generate emission offset credits for farmers who reduce their nitrous oxide
(“N2O”) emissions. N2O is a significant GHG with a global warming potential that is
approximately 300 times greater than CO2. NERP was approved
by Alberta Environment in October 2010. The implementation of NERP is expected to result in more effective farm application of nitrogen fertilizer, reduced GHG emissions at the farm level and the introduction of additional low-cost offsets to the
market.
Agrium will continue to take a leadership role in the fertilizer industry’s negotiations
with governments on fair and equitable air emission reduction targets in an effort to achieve a pragmatic and realistic compliance system that preserves the global competitiveness of the industry. To that end, Agrium and the Canadian fertilizer
industry are currently in discussions with the Government of Canada on the industry’s GHG reduction target to help meet Canada’s commitment pursuant to the Copenhagen Accord to reduce GHG emissions by 17 percent below 2005 levels by 2020.
In an effort to reduce CO2e emissions, Agrium has also
developed strategies to improve energy efficiency in our operations, capture and store carbon, reduce the amount of
N2O emissions from our nitric acid facilities and reduce
emissions in agriculture.
About 60 percent of the natural gas required to produce ammonia – the
basic building block of all nitrogen fertilizer – is used to provide the necessary hydrogen for the process. Given current economically viable technologies, the CO2 emissions related to this process are fixed by the laws of chemistry and cannot be reduced. Use of the remaining natural
gas may be managed through improvements in energy efficiency, which will reduce CO2 emissions. Significant early action has been implemented by the Company to achieve these improvements, and the Fort Saskatchewan facility is currently being used as a demonstration project for
implementing an additional energy efficiency program for our nitrogen operations. Independent government-sponsored studies estimate that a further 3 to 5 percent reduction in combustion emissions intensity may be theoretically attainable for the
Canadian industry, but this will be a challenging and potentially cost prohibitive target.
Where
feasible, Agrium is pursuing opportunities to capture CO2
from our nitrogen operations for enhanced oil recovery (“EOR”), industrial use or underground storage. At our Borger, Texas operation, approximately 300,710 tons of CO2 were captured in 2014 for EOR.
Agrium also has installed N2O reduction technology at two of our three operating U.S. nitric acid plants and has plans to install N2O reduction technology at our third plant during 2015 or beyond depending
on reduction technology performance currently under evaluation.
Agrium estimates that the production stage of its operations
accounts for roughly 95 percent of its overall emissions. In 2011, Agrium met its 2020 commitment to reduce North American GHG emissions intensity by 10 percent from 2005 levels. The GHG emissions intensity reduction target was met ahead of
schedule, primarily through the closure of less carbon-efficient facilities and increased production at more carbon-efficient facilities. Agrium has set a new target to reduce its GHG emissions intensity by 20 percent from 2005 levels by 2020.
In the U.S., the EPA issued GHG emissions regulations that establish a reporting program for emissions of
CO2, methane and other GHGs, as well as a permitting program
for large GHG emissions sources. While the U.S. Congress has considered various legislative initiatives to reduce or tax GHG emissions, to date it has not enacted any laws in that regard. However, if Congress undertakes comprehensive tax reform in
the coming year, it is possible that such reform could include a carbon tax. The EPA has also proposed regulations that limit GHG emissions from power plants and announced its intent to issue further regulations limiting GHG emissions with the goal
of reducing GHG emissions by 17 percent from 2005 levels by 2020 and by 30 percent from 2005 levels by 2030.
i) ENVIRONMENTAL PRACTICES AND POLICIES
Agrium has well-defined environmental, health, safety and security (“EHS&S”) programs and processes, committed leadership, and a responsible
workforce. In addition to a Corporate EHS&S Department, it has established an EHS&S organization in each business unit with clear lines of reporting and accountability. This has enabled Agrium to focus on both oversight and governance as
well as increasing management
23
involvement in its operations and activities. Agrium stewards to an integrated EHS&S management system, which includes a policy and system of documenting EHS&S management and performance
expectations applicable to Agrium’s facilities. Agrium’s business units and, where appropriate, individual facilities augment these requirements with system controls necessary to manage the risks unique to those operations.
Continuous improvement and performance monitoring of Agrium’s operations are effected in part through six technical committees, two management
committees and the Board EHS&S Committee (“BEC”), and also through various business unit initiatives. The six technical committees include Health and Safety, Security and Crisis Management, Environmental Management System and Auditing,
Environmental Liability (Asset Retirement Obligations and Environmental Remediation Liabilities), Product Stewardship and Performance Monitoring. These committees report through the Corporate EHS&S Department. The development of environmental
management systems standards, guidance documents and continuous improvement occur at the level of the six technical committees and the Corporate EHS&S Department. The Corporate EHS&S Department reports through the business unit level
EHS&S leaders’ committee, where performance and risk management issues are addressed. The EHS&S leaders’ committee reports through the Corporate EHS&S Committee (“CEC”), which in turn reports to the BEC. Policy and
strategy are reviewed annually at the CEC level for relevancy and modified as appropriate. The BEC is responsible for the general oversight of EHS&S governance. These committees meet on a recurring basis to monitor performance against annual and
longer term performance goals, to discuss plans and strategies relating to our processes, and to evaluate opportunities for improving our systems.
Technical support and compliance assurance for Agrium’s operations are managed at three levels within the organization: the facilities level, business unit level and corporate level. Self-audits are
performed annually at wholly-owned Agrium facilities and reported to business unit EHS&S departments. Audit findings are characterized as low, medium or high risks and a corrective action plan is implemented to correct identified deficiencies in
a timely manner. At the business unit level, business unit personnel conduct separate compliance and systems audits of facility locations. These business unit level audits can be of three types: EHS&S compliance audits, process safety and risk
management audits and EHS&S management system audits. The business unit performs one or more of these different types of audits on facilities at least once every three years. It is the responsibility of the business units to ensure that any
corrective action regarding the facility audits is implemented. At the corporate level, Corporate EHS&S staff are responsible for maintaining integrated systems, performance monitoring, providing technical expertise and conducting business unit
EHS&S audits. The use of a three-tiered compliance assurance program enables Agrium to achieve continuous improvement and consistent management practices at its facilities and in its operations.
Agrium maintains ongoing, close working relationships with industry associations and regulatory agencies. These relationships ensure that new or changing
regulations are known, understood, and communicated so risk management strategies can be developed to maintain compliance.
As of December 31, 2014,
Agrium employed approximately 15,500 people. The breakdown of employees is as follows:
|
|
|
|
|
|
Business Unit |
|
Number of Employees |
|
| Retail |
|
|
12,300 |
|
| Wholesale |
|
|
2,800 |
|
| Other |
|
|
400 |
|
| Total |
|
|
15,500 |
|
Wholesale hourly employees at the following sites are represented by labor unions with the contract expiration date for
each plant shown in parenthesis: Vanscoy, Saskatchewan (April 30, 2015); Americus, Georgia (June 30, 2015); and Florence, Alabama (July 14, 2015).
24
Retail hourly employees at the following sites are represented by labor unions with the
contract expiration date for each facility shown in parenthesis: Greenville, Mississippi (August 28, 2016); Mulberry, Florida (May 31, 2015); and legacy Viterra (now Crop Production Services (Canada) Inc.) at various locations (October 31,
2015).
A collective bargaining agreement at the Retail facility in Regina, Saskatchewan was ratified and accepted by the
Teamsters union on February 21, 2012 and expired on December 31, 2014. As of the date of this AIF, this collective bargaining agreement is still in the process of renegotiation.
In South America, there are a total of 358 union employees working at various ASP-Retail sites in Argentina and Uruguay.
If any event arising
from the risk factors set forth below occurs, our business, financial condition, results of operations, cash flow, the trading prices of our common shares, the value of our debt securities and, in certain cases, our reputation could be materially
adversely affected. When assessing the materiality of the following risk factors, we take into account a number of qualitative and quantitative factors, including, but not limited to, financial, operational, reputational and regulatory aspects of
the identified risk factor.
Risks Relating to Our Operations
Our business is cyclical, resulting in periods of industry oversupply during which our results of operations tend to be negatively
impacted.
Historically, selling prices for our products have fluctuated in response to periodic changes in supply and
demand conditions. Demand is affected by planted acreage and application rates, driven by population growth, changes in dietary habits, non-food usage of crops such as the production of ethanol and other biofuels, among other things. Supply is
affected by available capacity and operating rates, raw material costs and availability, government policies and global trade.
Periods of high demand, high capacity utilization and increasing operating margins tend to result in investment in production capacity,
which may cause supply to exceed demand and selling prices and capacity utilization to decline. Future growth in demand for our products may not be sufficient to absorb excess industry capacity.
During periods of industry oversupply, our results of operations tend to be affected negatively as the price at which we sell our products
typically declines, resulting in possible reduced profit margins, write-downs in the value of our inventory and temporary or permanent curtailments of production.
Adverse weather conditions may decrease demand for our products, increase the cost of natural gas or materially disrupt our operations.
Anomalies in regional weather patterns can have a significant and unpredictable impact on the demand for our products and services, and
may also have an impact on prices. Our customers have limited windows of opportunity to complete required tasks at each stage of crop cultivation. Should adverse weather occur during these seasonal windows, we could face the possibility of reduced
revenue in those seasons without the opportunity to recover until the following season. In addition, we face the significant risk of inventory carrying costs should our customers’ activities be curtailed during their normal seasons. We must
manufacture product throughout the year in order to meet peak season demand, as well as react quickly to changes in expected weather patterns that affect demand.
Weather conditions that delay or intermittently disrupt field work during the planting and growing seasons may cause agricultural customers to use different forms of crop nutrients and crop protection
products, which may adversely affect demand for the forms that we sell or may impede farmers from applying our crop nutrients and crop protection products until the following growing season, resulting in lower demand for our products.
Adverse weather conditions following harvest may delay or eliminate opportunities to apply crop nutrients and crop protection products in
the fall. Weather can also have an adverse effect on crop yields, which
25
could lower the income of growers and impair their ability to purchase our crop nutrients, crop protection and seed products and services. Our quarterly financial results may vary significantly
from one year to the next due to weather-related shifts in planting schedules and purchasing patterns.
Weather conditions or,
in certain cases, weather forecasts, can also affect the price of natural gas, the principal raw material used to make our nitrogen based fertilizers. Colder than normal winters and warmer than normal summers increase the demand for natural gas for
residential and industrial use which, in turn, increases the cost of natural gas (see “Risks Relating to Our Dependence on Raw Materials and Natural Gas – Our nitrogen fertilizer business is dependent on natural gas, the price of which
varies across jurisdictions and is subject to volatility, and the availability of which can be uncertain”).
We
face intense global competition from other crop nutrient producers.
We are subject to intense price competition from
both domestic and foreign sources. Crop nutrients, including nitrogen, potash and phosphate, are global commodities, with little or no product differentiation, and customers make their purchasing decisions principally on the basis of delivered price
and, to a lesser extent, on customer service and product quality. We compete with a number of domestic and foreign producers, including state-owned and government-subsidized entities.
Competitors and potential new entrants in the markets for nitrogen, concentrated phosphate crop nutrients and potash have in recent years
expanded capacity or begun, or announced plans, to expand capacity or build new facilities. The extent to which current global or local economic and financial conditions, changes in such conditions or other factors may cause delays or cancellation
of some of these ongoing or planned projects, or result in the acceleration of existing or new projects, is uncertain.
Some of
these competitors have greater total resources or are state supported, which make them less vulnerable to industry downturns and better positioned to pursue new expansion and development opportunities. Our competitive position could suffer to the
extent we are not able to expand our own resources either through investments in new or existing operations or through acquisitions, joint ventures or partnerships.
In particular, China, the world’s largest producer and consumer of fertilizers, is expected to continue expanding its fertilizer production capability. If Chinese policy encourages production and/or
exports, this expected increase in capacity could adversely affect the balance between global supply and demand and may put downward pressure on global fertilizer prices.
On July 30, 2013, Russia’s Uralkali, one of the world’s largest potash producers, quit one of the two largest potash marketing groups, Belarusian Potash Company (“BPC”), as it
could no longer cooperate with Belaruskali, the Belarusian state potash producer. Canpotex and BPC historically have been the two largest international marketers of potash, negotiating large shipments to countries like India and China, typically in
similar price ranges. The break-up of BPC initially resulted in aggressive marketing by both Uralkali and Belaruskali in order to boost market share, thus increasing competition among participants in the potash industry and exerting downward
pressure on potash prices. While the global potash supply/demand balance has tightened considerably over the past year, potash pricing is beyond our control, and events such as mine flooding, geopolitical unrest, crop price fluctuations and changes
in government policy can have a material impact on potash prices and demand.
We may not be able to complete our
capacity expansion projects on schedule, on budget or at all due to a number of factors, many of which are beyond our control.
We are currently in the process of advancing several large expansion projects, which are subject to various risks, many of which are beyond our control.
In December 2011, we commenced the Vanscoy Project. The project is expected to exceed previous spending estimates by approximately 25
percent, mainly due to certain challenges in the Canadian craft labour market. The Vanscoy Project is currently in the commission stage with production volumes planned to reach full rates in 2017; however, potential delays in commissioning and
startup could have a material adverse effect on our business.
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In 2010, we commenced the Egyptian Project. Due to civil unrest in Egypt, the construction
of the Egyptian Project, as well as the operations of the existing facility, were shut down in the fourth quarter of 2011. The existing facility resumed its operations in 2013. In 2014, construction of the Egyptian Project recommenced. It is planned
that construction of the new facility will be complete by mid-2015; however, due to ongoing instability in Egypt, we cannot predict whether the construction of the expansion project will be completed in 2015 or at all.
The potential start-up of our brownfield expansion project in Borger, Texas, currently anticipated for late 2015, depends on a number of
factors. A shortage of skilled labor and contractor productivity could result in increases in total project costs and/or potential delays in its completion.
In addition to the foregoing, we must also obtain numerous regulatory approvals and permits in order to construct and operate any additional facilities. These requirements may not be satisfied in a timely
manner or at all. Our financial exposure to permitting risks may be exacerbated because we have committed to purchase certain equipment that will result in substantial expenditures prior to obtaining all permits necessary to operate such facilities.
In the event that we ultimately fail to obtain all necessary permits, we would be forced to abandon the projects and lose the benefit of any construction costs already incurred. In addition, governmental requirements may increase our costs
substantially.
Our expansion plans may also result in other unanticipated adverse consequences, such as the diversion of
management’s attention from our existing plants and businesses and other opportunities.
Our transportation and
distribution activities rely on third party providers, which subjects us to risks and uncertainties beyond our control that may adversely affect our operations.
We rely on railroad, trucking, pipeline and other transportation service providers to transport raw materials to our manufacturing facilities, to coordinate and deliver finished products to our storage
and distribution system and our retail centres and to ship finished products to our customers. We also lease rail cars in order to ship raw materials and finished products. These transportation operations, equipment and services are subject to
various hazards, including adverse operating conditions on the inland transportation system, extreme weather conditions, system failures, work stoppages, delays, accidents such as spills and derailments and other accidents and operating hazards.
In the event of a disruption of existing transportation or terminaling facilities for our products or raw materials,
alternative transportation and terminaling facilities may not have sufficient capacity to fully serve all of our customers or facilities. An extended interruption in the delivery of our products to our customers or the supply of natural gas, ammonia
or sulfur to our production facilities could adversely affect sales volumes and margins.
These transportation operations,
equipment and services are also subject to environmental, safety, and regulatory oversight. Due to concerns related to accidents, terrorism or increasing concerns regarding transportation of potentially hazardous substances, local, provincial, state
and federal governments could implement new regulations affecting the transportation of raw materials or our finished products. If transportation of our products is delayed or we are unable to obtain raw materials as a result of any third
party’s failure to operate properly or the other hazards described above, or if new and more stringent regulatory requirements are implemented affecting transportation operations or equipment, or if there are significant increases in the cost
of these services or equipment, our revenues and cost of operations could be adversely affected. In addition, we may experience increases in our transportation costs, or changes in such costs relative to transportation costs incurred by our
competitors.
Future technological innovation could affect our business.
Future technological innovation, such as the development of seeds that require less crop nutrients, or developments in the application of
crop nutrients, if they occur, could have the potential to adversely affect the demand for our products.
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We may be adversely affected by changing antitrust laws to which we are subject.
We are subject to antitrust and competition laws in various countries throughout the world. We cannot predict how
these laws or their interpretation, administration and enforcement will change over time. Changes in antitrust laws globally, or in their interpretation, administration or enforcement, may limit our existing or future operations and growth, or the
operations of Canpotex. Increases in crop nutrient prices have in the past resulted in increased scrutiny of the crop nutrient industry under antitrust and competition laws and can increase the risk that these laws could be interpreted, administered
or enforced in a manner that is adverse to our interests.
We may fail to realize anticipated benefits of completed or
future acquisitions, strategic dispositions or internal re-organizations.
In the past several years, we have completed
a number of significant acquisitions, including the acquisition of AWB’s Landmark business in Australia in December 2010 and the Viterra acquisition in October 2013, as well as a number of other acquisitions. These acquisitions were completed
to strengthen our competitive position in the agricultural industry and to create the opportunity to realize certain economic benefits, including, among other things, potential cost savings. In achieving the benefits of these and future
acquisitions, we are dependent upon our ability to successfully consolidate functions and integrate operations, procedures and personnel in a timely and efficient manner and to realize the anticipated growth opportunities and synergies from
combining the acquired assets and operations with those of Agrium. The integration of acquired assets and operations requires the dedication of management effort, time and resources, which may divert management’s focus and resources from other
strategic opportunities and from operational matters during this process. The integration process may result in the disruption of ongoing business and customer relationships that may adversely affect our ability to achieve the anticipated benefits
of such acquisitions.
Inability to attract, retain, develop and motivate skilled employees could negatively affect our
performance.
Sustaining and growing our business depends on the recruitment, development and retention of qualified
and motivated employees. Although we strive to be an employer of choice in our industry, competition for skilled employees in certain geographical areas in which we operate can be significant and we may not be successful in attracting, retaining or
developing such skilled employees. In addition, we invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. The inability to attract, develop or retain quality employees
could negatively impact our ability to take on new projects and sustain our operations.
Risks Relating to Our Dependence
on Raw Materials and Natural Gas
Important raw materials used in our business in the past have been and may in the
future be the subject of volatile pricing and supply interruptions.
Changes in the price of raw materials required to
produce our products, such as phosphate rock, sulfur and ammonia, could have a material impact on our business. From time to time our profitability has been, and may in the future be, impacted by the price and availability of these raw materials.
Because most of our products are commodities, there can be no assurance that we will be able to pass through increased costs to our customers. In certain circumstances, significant increases in the price of ammonia, sulfur or phosphate rock may not
be able to be recovered through an increase in the price of our related crop nutrients products.
In addition, we rely on third
parties to supply raw materials for our Conda, Idaho and Redwater, Alberta facilities. In particular, our Redwater facility became dependent on phosphate rock from Morocco being supplied pursuant to a long-term agreement with OCP following the
closure of our Kapuskasing, Ontario mine. Any interruptions in supply of phosphate rock or any of the other raw materials would result in a decline in production from such facilities.
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Our nitrogen fertilizer business is dependent on natural gas, the price of which
varies across jurisdictions and is subject to volatility, and the availability of which can be uncertain.
Natural gas
is the principal raw material used to manufacture nitrogen and is the single largest purchased raw material for our Wholesale operation. North American natural gas prices are subject to price volatility. An increase in the price of natural gas
increases our nitrogen cost of production, and may negatively impact nitrogen margins for our North American nitrogen sales. This is particularly important for our nitrogen facilities in Western Canada and Borger, Texas where we purchase gas on the
open market. Higher production costs may be partially or fully reflected in higher domestic and international product prices, but these conditions do not always prevail.
In addition, the price for natural gas in North America can vary significantly compared to the price for natural gas in Europe and Asia. Significantly lower natural gas prices in Europe and/or Asia would
give our competitors in Europe and Asia a competitive advantage, which could, in turn, decrease international and domestic product prices and reduce our margins. Furthermore, in North America natural gas prices have declined and remained at
relatively lower levels over the past several years in response to increased supply from the development of production from shale gas formations. Future production of natural gas from shale gas formations could be reduced by regulatory changes that
restrict drilling or increase its costs for other reasons. If this were to occur, natural gas prices could rise.
There is also
a risk to production from the Profertil nitrogen facility concerning natural gas availability during the winter due to strains on distribution and residential demand in Argentina. The Argentine government has at times reduced the amount of natural
gas available to industrial users in favor of residential users during the peak winter demand season. In addition, Profertil may be unable to renew its long-term gas supply contracts at favorable rates or at all.
During periods when the price for concentrated phosphates is falling because of falling raw material prices, we may experience a
lag in realizing the benefits of the falling raw materials prices.
During some periods, changes in market prices for
raw materials can lead to changes in the global market prices for concentrated phosphate crop nutrients. In particular, the global market prices for concentrated phosphate crop nutrients can be affected by changes in the market prices for sulfur,
ammonia, phosphate rock and/or phosphoric acid. Increasing market prices for these raw materials tend to put upward pressure on the selling prices for concentrated phosphate crop nutrients, and decreasing market prices for these raw materials tend
to put downward pressure on selling prices for concentrated phosphate crop nutrients. When the market prices for these raw materials plunge rapidly, the selling prices for our concentrated phosphate crop nutrients can fall more rapidly than we are
able to consume our raw material inventory that we purchased or committed to purchase in the past at higher prices. As a result, our costs may not fall as rapidly as the selling prices of our products. Until we are able to consume the higher priced
raw materials, our gross margins and profitability will be adversely affected.
During periods when the prices for our
products are falling because of falling raw material prices, we could be required to write down the value of our inventories.
We carry our inventories at the lower of cost on a weighted average basis and net realizable value. In periods when the market prices for our products are falling rapidly in response to falling market
prices for raw materials, it is possible that we could be required to write down the value of our assets. Any such effect could be material.
Our estimates of future selling prices reflect, in part, the purchase commitments we have from our customers. As a result, defaults on these existing purchase commitments because of the global or local
economic and financial conditions or for other reasons could adversely affect our estimates of future selling prices and require additional inventory write-downs.
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Risks Relating to Our Financial Activities and Financial Condition, and the Financial
Condition of Our Customers and Counterparties
The decision to pay dividends and the amount of such dividends is
subject to the discretion of our Board of Directors based on numerous factors and may vary from time to time.
Although
we currently pay quarterly cash dividends to our shareholders (see “Item 6 – Dividends”), these cash dividends may be reduced or suspended. The amount of cash available to Agrium to pay dividends, if any, can vary significantly from
period to period for a number of reasons, including, among other things: our operational and financial performance; fluctuations in prices for our products and raw materials and natural gas utilized in the production thereof; the amount of cash
required or retained for debt service or repayment; amounts required to fund capital expenditures and working capital requirements; access to capital markets; foreign currency exchange rates and interest rates; and the other risk factors set forth
in this AIF.
The decision whether or not to pay dividends and the amount of any such dividends are subject to the discretion
of the Board of Directors of Agrium, which regularly evaluates our proposed dividend payments and the solvency test requirements of the Canada Business Corporations Act. In addition, the level of dividends per common share will be affected by
the number of outstanding common shares and other securities that may be entitled to receive cash dividends or other payments. Dividends may be increased, reduced or suspended depending on our operational success. The market value of the common
shares may deteriorate if Agrium is unable to meet dividend expectations in the future, and that deterioration may be material.
A lack of customers’ access to credit may adversely affect their ability to purchase our products.
Some of our customers require access to credit to purchase our products. A lack of available credit to customers in one or more countries,
due to global or local economic conditions or for other reasons, could adversely affect demand for crop nutrients.
We
are exposed to counterparty risk.
We are exposed to the risks associated with counterparty performance, including
credit risk and performance risk. We may experience material financial losses in the event of customer payment default for our products and/or financial derivative transactions. Our liquidity may also be adversely impacted if any lender under our
existing credit facilities is unable to fund its commitment. See also “– A downgrade in our credit rating could increase our cost of capital and limit our access to capital, suppliers or counterparties” and “– Our
business is subject to risks involving derivatives, including the risk that our hedging activities might not prevent losses”.
We have a material amount of indebtedness and may incur additional indebtedness, or need to refinance existing indebtedness, in the future, which may adversely affect our operations.
As of December 31, 2014, we had approximately $5.1-billion of total indebtedness, consisting primarily of
$3.6-billion of our debentures and $1.5-billion of short-term debt associated with our Commercial Paper Program and draws on our credit facilities. As at December 31, 2014, we had excess borrowing capacity for general corporate purposes under
our existing credit facilities of approximately $1.4-billion. The terms of our existing indebtedness allow us to incur significant additional debt in the future. Our existing indebtedness and any additional debt we may incur in the future could have
negative consequences on our business should operating cash flows be insufficient to cover our debt service requirements, which would adversely affect our operations and liquidity.
From time to time we consider our options to refinance our outstanding indebtedness. Our ability to obtain any financing, whether through
the issuance of new debt securities or otherwise, and the terms of any such financing are dependent on, among other things, our financial condition, financial market conditions within our industry and generally, credit ratings and numerous other
factors. Consequently, in the event that we need to access the credit markets, including refinancing our debt, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable timeframe, if at all. We
may be unable to obtain financing with acceptable terms when needed.
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A downgrade in our credit rating could increase our cost of capital and limit our
access to capital, suppliers or counterparties.
Rating agencies regularly evaluate us, basing their ratings of our
long-term and short-term debt on a number of factors. This includes our financial strength, as well as factors not entirely within our control, including conditions affecting the agricultural industry generally and the wider state of the economy.
There can be no assurance that one or more of our credit ratings will not be downgraded. See “Item 7 – General Description of Capital Structure – 7.3 – Debt Ratings”.
Our borrowing costs and ability to raise funds are directly impacted by our credit ratings. Credit ratings may be important to suppliers
or counterparties when they seek to engage in certain transactions, including transactions involving over-the-counter derivatives. A credit-rating downgrade could potentially impair our ability to enter into arrangements with suppliers or
counterparties, to engage in certain transactions, and could limit our access to private and public credit markets and increase the costs of borrowing under our existing credit facilities. A downgrade could also limit our access to short-term debt
markets, increase the cost of borrowing in the short-term and long-term debt markets, and trigger collateralization requirements related to physical and financial derivative liabilities.
In connection with certain over-the-counter derivatives contracts and other trading agreements, we could be required to provide additional
collateral or to terminate transactions with certain counterparties in the event of a downgrade of our credit rating. The occurrence of any of the foregoing could adversely affect our ability to execute portions of our business strategy, including
hedging, and could have a material adverse effect on our liquidity and capital position.
Our business is subject to
risks involving derivatives, including the risk that our hedging activities might not prevent losses.
We seek to
manage a portion of the risks relating to changes in commodity prices and foreign currency exchange rates using derivative instruments. Our business, financial condition, results of operations and cash flow could be adversely affected by changes
involving commodity price volatility, adverse correlation of commodity prices, or market liquidity issues.
In order to manage
financial exposure to commodity price and market fluctuations, we may utilize natural gas derivatives to hedge our exposure to the price volatility of natural gas, the principal raw material used in the production of nitrogen-based fertilizers. We
have used fixed-price, forward, physical purchase and sales contracts, futures, financial swaps and option contracts traded in the over-the-counter markets or on exchanges. In order to manage our exposure to changes in foreign currency exchange
rates, we use foreign currency derivatives, primarily forward exchange contracts. Hedging arrangements are imperfect and unhedged risks will always exist.
Our use of derivatives can result in volatility in reported earnings due to the unrealized mark-to-market adjustments that occur from changes in the value of the derivatives that do not qualify for or for
which we do not apply hedge accounting. To the extent that our derivative positions lose value, we may be required to post collateral with our counterparties, thereby negatively impacting our liquidity.
In addition, our hedging activities may themselves give rise to various risks that could adversely affect us. For example, we are exposed
to counterparty credit risk when our derivatives are in a net asset position. We monitor our derivative portfolio and the credit quality of our counterparties and adjust the level of activity we conduct with individual counterparties as necessary.
We also manage the credit risk through the use of multiple counterparties, established credit limits, cash collateral requirements and master netting arrangements. However, our liquidity could be negatively impacted by a counterparty default on
derivative settlements.
Our business is subject to risks involving fluctuations in foreign exchange rates.
A significant shift in the value of the Canadian dollar against the U.S. dollar could impact the earnings of our
Canadian operations, which earn revenues and incur expenses in both U.S. dollars and Canadian
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dollars. The major impact would be to our Canadian potash and to a lesser extent on phosphate operations, on a per-unit cost of product basis, as well as to our corporate overhead costs.
Significant changes in the Canadian dollar can also have a direct impact on our Canadian effective income tax rate.
A
significant shift in the value of the Australian dollar against the U.S. dollar could impact the reported earnings of our Australian operations, which earn revenues mainly in Australian dollars, but report in U.S. dollars.
Our business is subject to risks involving fluctuations in interest rates.
We may be exposed to fluctuations in interest rates as a result of the use of floating rate debt, floating rate credit facilities and
commercial paper. An increase in interest rates could increase our net interest expense and negatively impact our financial results. Additionally, we are exposed to changes in interest rates upon the refinancing of maturing long-term debt and
anticipated future financing needs at prevailing interest rates.
Our insurance coverage may not adequately cover our
losses.
Our operations are subject to hazards inherent in the manufacturing, transportation, storage and distribution
of chemical fertilizers, including ammonia, which is highly toxic and corrosive. These hazards include: explosions; fires; severe weather and natural disasters; train derailments, collisions, vessel groundings and other transportation and maritime
incidents; leaks and ruptures involving storage tanks, pipelines and rail cars; spills, discharges and releases of toxic or hazardous substances or gases; deliberate sabotage and terrorist incidents; mechanical failures; unscheduled downtime; labour
difficulties and other risks. Some of these hazards can cause bodily injury and loss of life, severe damage to or destruction of property and equipment and environmental damage, and may result in suspension of operations and the imposition of civil
or criminal penalties and liabilities.
We maintain property, business interruption, casualty and liability insurance policies,
but we are not fully insured against all potential hazards and risks pertaining to our business. As a result, we may incur significant liability for which we are not fully insured. We are subject to various self-retentions, deductibles and limits
under these insurance policies. The policies also contain exclusions and conditions that could have a material adverse impact on our ability to receive indemnification thereunder. Our policies are generally renewed annually. As a result of market
conditions, our premiums, self-retentions and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage. In addition,
significantly increased costs could lead us to decide to reduce, or possibly eliminate, coverage.
Deterioration of
global market and economic conditions could have a material adverse effect on our business, financial condition, results of operations and cash flow.
A slowdown of, or persistent weakness in, economic activity caused by a deterioration of global market and economic conditions could adversely affect our business in the following ways, among others:
conditions in the credit markets could impact the ability of our customers and their customers to obtain sufficient credit to support their operations; the failure of our customers to fulfill their purchase obligations could result in increases in
bad debts and impact our working capital; and the failure of certain key suppliers could increase our exposure to disruptions in supply or to financial losses. We also may experience declining demand and falling prices for some of our products due
to our customers’ reluctance to replenish inventories. The overall impact of a global economic downturn on us is difficult to predict, and our business could be materially adversely impacted.
In addition, conditions in the international market for nitrogen fertilizer significantly influence our operating results. The
international market for fertilizers is influenced by such factors as the relative value of the U.S. currency and its impact on the importation of fertilizers, foreign agricultural policies, the existence of, or changes in, import or foreign
currency exchange barriers in certain foreign markets and other regulatory policies of foreign governments, as well as the Canadian laws and policies affecting foreign trade and investment.
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Risks Relating to Our Mining Operations
Our Vanscoy mining operations are subject to general risks inherent in the mining industry.
Our Vanscoy, Saskatchewan mining operations are subject to risks and hazards inherent in the mining industry, including, but not limited
to, unanticipated variations in grade and other geological problems, water conditions, surface or underground conditions, mechanical equipment performance problems, the lack of availability of materials and equipment, the occurrence of accidents,
labour force disruptions, force majeure factors, unanticipated transportation costs, and weather conditions, any of which can materially and adversely affect, among other things, the development of mineral reserves, production quantities and rates,
and costs and expenditures.
Our reported mineral reserves and mineral resources are only estimates.
Our reported mineral reserves and mineral resources are only estimates. See “Item 5 – Description of the Business – 5.3
Mineral Projects”. The estimated mineral reserves and mineral resources may not be recovered or may not be recovered at the rates estimated. Mineral reserves and mineral resources estimates are based on limited sampling, and, consequently, are
uncertain because the samples may not be representative. Mineral reserves and mineral resources estimates may require revision (either up or down) based on actual production experience. Market fluctuations in the price of potash, as well as
increased production costs or reduced recovery rates, may render certain mineral reserves and mineral resources uneconomic and may ultimately result in a restatement of estimated resources and/or reserves.
Risks Relating to Our Operations in Foreign Countries
Our international assets are located in countries with volatile conditions, which could subject us and our assets to significant risks.
We are a global business with substantial assets located outside of the United States and Canada. We have operations in a number of South
American and European countries, we have business investments in Egypt and we are dependent on phosphate rock from Morocco. Our reporting currency is the U.S. dollar.
As a result, we are subject to numerous risks and uncertainties relating to international sales and operations, including: difficulties and costs associated with complying with a wide variety of complex
laws, treaties and regulations; abrupt or unexpected changes in regulatory environments; increased government ownership and regulation of the economy; political and economic instability, including the possibility for civil unrest, inflation and
adverse economic conditions resulting from governmental attempts to reduce inflation, such as imposition of higher interest rates and wage and price controls; nationalization of properties or assets by foreign governments; the imposition of tariffs,
exchange controls, trade barriers or other restrictions; and currency exchange rate fluctuations between the U.S. dollar and foreign currencies.
The occurrence of any of the above in the countries in which we operate or elsewhere could jeopardize or limit our ability to transact business there and could adversely affect our revenue and operating
results and the value of our assets located in such countries. In addition, tax regulations, currency exchange controls and other restrictions may also make it impracticable to repatriate cash generated by our foreign operations or utilize cash
generated by our operations in one country to fund our operations or repayments of indebtedness in another country or to support other corporate purposes.
We are exposed to risks associated with our investment in associates and joint ventures.
From time to time, we participate in joint ventures and hold significant investment in other companies. Our joint venture partners share a measure of control over the operations of our joint ventures, and
operations of other companies we invest in are not controlled by us. As a result, our investments in joint ventures and other companies involve risks that are different from the risks involved in owning facilities and operations independently.
These risks include the possibility that our joint ventures or our partners, or companies we invest in: have economic or
business interests or goals that are or become inconsistent with our business interests or goals; are in a position to take action contrary to our instructions, requests, policies or objectives; subject the joint
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venture to liabilities exceeding those contemplated; take actions that reduce our return on investment; or take actions that harm our reputation or restrict our ability to run our business. In
addition, we may become involved in disputes with our joint venture partners, which could lead to impasses or situations that could harm the joint venture, which could reduce our revenues or increase our costs.
We have a 50 percent ownership interest in Profertil, a joint venture with YPF S.A. (“YPF”), a corporation based in Argentina,
which operates the Profertil nitrogen facility. YPF was nationalized by the Argentine government in 2012 following the creation of the Profertil joint venture, and may have different business and economic interests or policy objectives under
government management than it did in the past. In addition, the Argentine government has imposed restrictions on allowing U.S.-dollar funds to leave Argentina in the form of dividends or loan payments. We will be adversely effected by any
significant difference in YPF’s objectives from ours in the operation of the Profertil nitrogen facility, limits on our ability to flow U.S.-dollar funds out of Argentina, as well as any other governmental restrictions on our ability to operate
the Profertil nitrogen facility (see “Risks Relating to Our Dependence on Raw Materials and Natural Gas – Our nitrogen fertilizer business is dependent on natural gas, the price of which varies across jurisdictions and is subject to
volatility, and the availability of which can be uncertain”).
We also hold a 26 percent interest in MOPCO, which
operates a nitrogen facility in Egypt. We have not been able to complete our expansion project at the MOPCO facility (see “Risks Relating to Our Operations – We may not be able to complete our capacity expansion projects on schedule, on
budget or at all due to a number of factors, many of which are beyond our control”) and, notwithstanding our representation on the board of directors and management of MOPCO, we may not be able to maintain significant influence over the
operations of MOPCO, including the decision to complete the Egyptian Project or start up production in the new facility.
Acts of terrorism and regulations to combat terrorism could negatively affect our business.
Similar to other companies with major industrial facilities, our facilities may be targets of terrorist activities. Many of these
facilities store significant quantities of ammonia and other materials that can be dangerous if mishandled. Any damage to infrastructure facilities, such as electric generation, transmission and distribution facilities, or injury to employees, who
could be direct targets or indirect casualties of an act of terrorism, may affect our operations. Any disruption of our ability to produce or distribute our products could result in a significant decrease in revenues and significant additional costs
to replace, repair or insure our assets.
In addition, due to concerns related to terrorism, local, state, federal and foreign
governments could implement new regulations impacting the security of our plants, terminals and warehouses or the transportation and use of fertilizers. These regulations could result in higher operating costs or limitations on the sale of our
products and could result in significant unanticipated costs, lower revenues and reduced profit margins. It is possible that the Canadian, U.S. or foreign governments could impose additional limitations on the use, sale or distribution of nitrogen
fertilizers, thereby limiting our ability to manufacture or sell those products.
Risks Relating to Compliance with
Environmental Laws and Regulations
Our operations are dependent on numerous required permits, approvals and meeting
financial assurance requirements from governmental authorities.
We hold numerous environmental, mining and other
governmental permits and approvals authorizing operations at each of our facilities. Expansion of our operations is dependent upon securing the necessary environmental or other permits or approvals. A decision by a government agency to deny or delay
issuing a new or renewed material permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our ability to continue operations at the affected facility.
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We are subject to numerous environmental and health and safety laws, regulations and
permitting requirements, as well as potential environmental liabilities, which may require us to make substantial expenditures.
We are subject to numerous environmental and health and safety laws and regulations in the United States and Canada, including laws and regulations relating to land reclamation; the generation, treatment,
storage, disposal and handling of hazardous substances and wastes; the clean-up of hazardous substance releases; and the demolition of existing plant sites upon permanent closure. In the United States, these laws include the Clean Air Act,
the Clean Water Act, RCRA, CERCLA, and various other federal and state statutes. See the discussion under the heading “Environmental Contingencies” in “Item 5 – Description of the Business – 5.1 Business of
Agrium – h. Environmental Protection Requirements”.
As a company working with chemicals and other hazardous
substances, our business is inherently subject to spills, discharges or other releases of hazardous substances into the environment. Certain environmental laws, including CERCLA, impose joint and several liability, without regard to fault, for
clean-up costs on persons who have disposed of or released hazardous substances into the environment. Given the nature of our business, we have incurred, are incurring currently, and are likely to incur periodically in the future, liabilities under
CERCLA and other environmental clean-up laws at our current or former facilities, adjacent or nearby third-party facilities or offsite disposal locations. See the discussion under the headings “Legacy Environmental Remediation Activities:
Idaho Mining Properties” and “Legacy Environmental Remediation Activities: Manitoba Mining Properties” in “Item 5 – Description of the Business – 5.1 Business of Agrium – h. Environmental Protection
Requirements”. The costs associated with future clean-up activities that we may be required to conduct or finance may be material. Additionally, we may become liable to third parties for damages, including personal injury and property damage,
resulting from the disposal or release of hazardous substances into the environment.
Violations of environmental and health
and safety laws can result in substantial penalties, court orders to install pollution-control equipment, civil and criminal sanctions, permit revocations and facility shutdowns. Environmental and health and safety laws change rapidly and have
tended to become more stringent over time. As a result, we have not always been and may not always be in compliance with all environmental and health and safety laws and regulations. Additionally, future environmental and health and safety laws and
regulations or reinterpretation of current laws and regulations may require us to make substantial expenditures. Additionally, our costs to comply with, or any liabilities under, these laws and regulations could be significant.
Future regulatory restrictions on greenhouse gas emissions in the jurisdictions in which we operate could materially adversely
affect our business, financial condition, results of operations and cash flows.
We are subject to
GHG regulations in Canada and the United States. There are substantial uncertainties as to the nature, stringency and timing of any future GHG regulations. More stringent GHG limitations, if they are enacted, are likely to have significant impacts
on the fertilizer industry due to the fact that our production facilities emit GHGs such as CO2 and N2O.
Increased regulation of GHGs may require us to make changes in our operating activities that would, among other things, increase our operating costs, reduce our efficiency, limit our output, require us to make capital improvements to our facilities,
or increase our costs for or limit the availability of energy, raw materials or transportation.
In addition, to the extent
that GHG restrictions are not imposed in countries where our competitors operate or are less stringent than in the United States or Canada, our competitors may have cost or other competitive advantages over us.
See discussion under the heading “Climate Change and Greenhouse Gas Issues” in “Item 5 – Description of the
Business – 5.1 Business of Agrium – h. Environmental Protection Requirements”.
Future climate change
could adversely affect us.
The prospective impact of potential climate change on our operations and those of our
customers and farmers remains uncertain. Some scientists have hypothesized that the impacts of climate change could
35
include changes in rainfall patterns, water shortages, changing sea levels, changing storm patterns and intensities, and changing temperature levels and that these changes could be severe. These
impacts could vary by geographic location. At the present time, we cannot predict the prospective impact of potential climate change on our results of operations, liquidity or capital resources, or whether any such effects could be materially
adverse to us.
We are subject to claims, litigation, administrative proceedings and regulatory actions.
We may be subject to claims, litigation, administrative proceedings and regulatory actions. The outcome of these
matters may be difficult to assess or quantify, and such matters may not be resolved in our favour. If we are unable to resolve such matters favourably, we or our directors, officers or employees may become involved in legal proceedings that could
result in an onerous or unfavourable decision, including fines, sanctions and monetary damages. The defence of such matters may also be costly and time consuming, and could divert the attention of management and key personnel from our operations.
Agrium may also be subject to adverse publicity associated with such matters, regardless of whether such allegations are valid or whether we are ultimately found liable. See “Item 12 – Legal Proceedings and Regulatory Actions”.
a) Vanscoy Potash Operations
Certain scientific and technical information regarding Vanscoy Potash Operations (“VPO”) is based on the technical report titled
“National Instrument 43-101 Technical Report on Vanscoy Potash Operations” dated effective October 31, 2014 (the “Technical Report”) prepared by Michael Ryan Bartsch, P. Eng., and Dennis Grimm, P. Eng., of Agrium, and A.
Dave Mackintosh, P. Geo., of ADM Consulting Limited, who are each a Qualified Person (collectively, the “Authors”) as defined in National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”).
The Technical Report updates the technical report titled “National Instrument 43-101 Technical Report on Vanscoy Potash Operations” dated February 15, 2012 and with an effective date of December 31, 2011. The economic analysis
set out under the heading “– Exploration and Development – Economic Analysis” below refers to the incremental one million metric tonne Vanscoy Project and not for VPO in its entirety. VPO is our only material property for
the purposes of NI 43-101. The Technical Report has been filed with the securities regulatory authorities in each of the provinces of Canada and furnished to the SEC. Portions of the following information are based on assumptions, qualifications and
procedures that are not fully described herein. References should be made to the full text of the Technical Report.
| i) |
Project Description and Location |
AGRIUM, a general partnership comprised of Agrium Inc., Agrium Products Inc. and Viridian Fertilizers Limited, all being wholly-owned subsidiaries of Agrium Inc., owns and operates VPO, a potash mining
and milling facility located in Vanscoy, Saskatchewan (southwest of Saskatoon). The operation has been in existence for 45 years and has produced over 49 million tonnes of muriate of potash.
The Saskatchewan Ministry of Energy and Resources (“SMER”) has granted Agrium the exclusive right to mine
potash on approximately 148,652 acres (601.6 km2) of crown
land pursuant to Subsurface Mineral Leases KL 114-A and KL 204, last revised August 2013. The lands subject to KL 114-A and KL 204, and that are the subject of the Technical Report, form a contiguous area in excess of 189,333 acres (766.2 km2) containing the lands subject to the Subsurface Mineral Leases KL
114-A and KL 204, lands owned by Agrium, and freehold mineral rights owned by others and leased by Agrium (the “VPO Lands”). Freehold mineral rights not leased by Agrium are not included in the Technical Report. For reporting purposes, the
VPO Lands have been divided into three areas: (1) the Unitized Area containing most of the mining to date; (2) the South Block to the south and east of the shafts (currently under development); and (3) the North Expansion Block north
of the Unitized Area.
36
The VPO Lands are located in the Province of Saskatchewan, Canada, in the rural
municipalities and National Topographic System of Canada (“NTS”) blocks indicated in the following table:
Municipal and NTS Block Locations
|
|
|
|
|
| R.M. Name |
|
R.M. Number |
|
NTS Block |
| Corman
Park |
|
344 |
|
073B03/02 |
| Vanscoy |
|
345 |
|
072O14/15 |
|
Montrose |
|
315 |
|
072O14/15 |
The lands subject to KL 114-A are located within townships 34 to 37 of ranges 7 to 9, west of the 3rd
meridian. The lands subject to KL 204 are located within townships 33 and 35 of ranges 6 to 8 west of the 3rd meridian.
Agrium
owns the surface rights to 7,200 acres (2,914 hectares (“Ha.”)) of land to accommodate the processing facility, tailings management area and provide a surrounding buffer. Useable farm land is rented to local farmers.
All operating licenses required by the provincial government, and permits to operate a tailings area or waste management facility, have
been obtained. Required permits for VPO include the Subsurface Mineral Lease Agreement, Potash Unitization Agreement, Mine Hoist Operating Certificate, Approval to Operate a Pollutant Control Facility, Approval to Dispose of Waste Brine and the
Approved Decommissioning and Reclamation Report.
Agrium has recently completed a material expansion of VPO, referred in this
AIF as the Vanscoy Project. The Vanscoy Project was tied into existing infrastructure by December 31, 2014 and has added 1.0 million tonnes per year of production capacity, with production ramp-up to full production rates occurring in
2017. Increased hoisting capacity, an increase to the underground mining fleet, a second parallel milling facility, additional compaction capacity and other enhancements to the site, support the increase.
| ii) |
Accessibility, Climate, Local Resources, Infrastructure and Physiography |
The VPO Lands are accessible by the Saskatchewan highway and municipal grid road system. Although grid roads may not have been built in all areas, a one chain (20 metres (“m”)) road allowance is
provided every one mile (1.6 kilometres (“km”)) in an east-west direction and every two miles (3.2 km) in the north-south direction. The mine site is serviced by both national railways through one common spur line from the north of the VPO
Lands.
VPO is located in the Saskatchewan Plains Region, which has elevations between 300 m and 600 m above sea level. Land
use is almost totally agricultural, largely in cropland with some unimproved pasture and southern woodland. Prairie winters are long and cold with short, warm summers. Average daily mean temperatures range between -16°C in January to +20°C
in July. Mean annual precipitation averages 430 millimetres (“mm”) with the majority occurring in the summer months. Winds are predominantly from the northwest throughout the year with mean annual wind speeds of 20 km per hour.
Mining and milling operations continue year round, utilizing a work force that commutes from nearby cities and towns or comes from the
local farming community. The closest major population center is Saskatoon, approximately 25 km northeast of the mine site.
Services are provided by Saskatchewan public utilities with a dedicated 138 KVA electrical power transmission service and natural gas
pipelines. Fresh water, provided by SaskWater, is delivered via pipeline from the South Saskatchewan River.
Imperial Oil
first discovered potash in south-eastern Saskatchewan in 1942 during oil exploration activity. In 1950, when oil exploration companies started routinely running gamma logs, the existence of potash rich beds over a vast area in southern Saskatchewan
was indicated.
37
Consolidated Mining and Smelting Company of Canada Limited,
subsequently Cominco Ltd. (“CM&S”), carried out an exploration program in 1964, drilling 23 holes in the vicinity of Vanscoy, Delisle, and Asquith, Saskatchewan. Of the 23 drill holes, one hole penetrated a major solution collapse
feature where, although the Prairie Evaporite Formation is present, the potash beds are not. The drilling identified a prospect averaging just over 25% K2O that was large enough to support a mining operation, and Stearns-Roger Canada Ltd. along with J.T. Boyd and Associates
carried out an engineering study in 1965 and a similar capital and operating cost estimate was also completed by Kilborn Engineering Ltd. in December 1965. The mine went into production under CM&S ownership in early 1969.
In 1993, Cominco Fertilizers Ltd. was formed as a separate entity from Cominco Ltd. In 1995, all Cominco involvement in Cominco
Fertilizers Ltd. ceased and shares were transferred to the new entity, Agrium Inc.
In the site history, lease expansions
occurred in 1993 and 2005 to enlarge the total area available for extraction. This brought three additional drill holes into the lease area. The three exploration wells were completed in 1955 and 1957.
In the past 45 years of operating life, 14 additional drill holes and numerous two-dimensional (“2D”) and three dimensional
(“3D”) seismic programs have contributed to the understanding of the Prairie Evaporite Formation. Production from the VPO Lands to October 31, 2014 was 49.3 million tonnes of muriate of potash from 145.6 million tonnes
hoisted.
Canadian potash deposits are estimated to be among the largest in the world, stretching some 720 km (450 miles) across
Saskatchewan. The deposits lie diagonally across the southern plains of Saskatchewan gently dipping from approximately 1,000 m depth along a northwest line through Rocanville, Esterhazy and Saskatoon to more than 1,600 m depth at Belle Plaine and up
to 3,000 m depth in North Dakota. The deposit is unique in the world in that the mineralization covers such a vast area. The same beds mined on the west side of Saskatoon are mined over 100 km to the east and can be traced into Manitoba, North
Dakota and Montana.
The Prairie Evaporite Formation forms part of the Elk Point Basin, a sub-basin of the Williston Basin
centered on the northwest corner of North Dakota. The Prairie Evaporite Formation, deposited on the Winnipegosis Formation (limestone), varies in thickness from 120 m (400 feet (“ft”)) to over 210 m (700 ft) and is overlain by the
2nd Red Bed unit, the lower shale member of the Dawson Bay Formation (limestone).
There are four main potash layers in
Saskatchewan. The first to be deposited was the Esterhazy Member, which is the bed mined at Mosaic Esterhazy and PCS Rocanville. Above this is the White Bear Marker which is not thick enough, or of sufficient grade, to be of commercial value. This
is followed by the Belle Plaine and finally the Lower and Upper Patience Lake. The Lower Patience Lake is mined by Lanigan and the Upper Patience Lake is mined by all other Saskatoon area mines. The Esterhazy Member, being the first potash bearing
bed to be deposited, is stratigraphically the deepest. However, the Rocanville/Esterhazy area mines are shallower than the younger Patience Lake Member mines (Saskatoon area) because of their proximity to the basin edge.
The salt cover between the ore zone and the overlying 2nd Red Beds and Dawson Bay Formation varies from no cover near the evaporite
edge in Manitoba to over 45 m (150 ft) in south-central Saskatchewan. Salt cover is relied upon to isolate the mining level from potential water-bearing limestone formations above the 2nd Red Beds. Similarly, the depth increases to the
southwest from just over 800 m (2,600 ft) in Manitoba to over 1,200 m (4,000 ft) in south-central Saskatchewan.
The local
geology of VPO characteristically mirrors the regional geology. The Upper and Lower Patience Lake and Belle Plaine Members exist throughout the VPO Lands. The Esterhazy Member does not exist in the area but is evidenced by a thin (5 centimetres
(“cm”) thick) seam containing minor potash values. The mining zone dips gently (less than 0.5°) to the southwest from approximately 500 m to 600 m below sea level. The depth below surface ranges from approximately 1,000 m (3,300 ft) in
the northeast to over 1,130 m (3,700 ft) in the southwest. The salt cover ranges from 12 m (40 ft) to just under 20 m (65 ft) across the lease area.
38
Exploration
work other than drilling has consisted of numerous 2D and 3D seismic programs and underground channel sampling. Seismic exploration has been used to try and delineate solution collapse features to be avoided when mine planning. Initial 2D
acquisition programs, on relatively sporadic time intervals, have been replaced by annual 3D programs that have recently been expanded to shoot the entire areas of interest en masse. Programs have confirmed the continuity of the Prairie Evaporite
Formation and identified features to be avoided, greatly improving the successful completion of mine development entries. In the opinion of the Authors, in order to be categorized as a Measured Mineral Resource, both 3D seismic coverage and
adequately spaced drillhole or assay data points are required.
In addition to drill holes and seismic programs, Agrium
utilizes an underground sampling program to confirm thickness, grade and insolubles. Samples are cut by geologists employed by Agrium and delivered to the Saskatchewan Research Council’s (“SRC”) Geoanalytical Laboratory. The SRC
issues a “Sample Shipment Receipt Notification” followed soon after by a “Sample Receipt Report” indicating a complete sample listing, including total numbers and sample labels.
The
potash deposit is generally a flat-lying, bedded deposit dipping slightly to the southwest. It is amenable to mining using track mounted boring machines, floor or roof mounted conveyor systems and ancillary wheel mounted mining and transport
equipment.
The potash beds at the VPO site are entirely composed of sylvinite, a mixture of KCl and NaCl, and are within a
stratigraphic sequence of halite beds. The same beds mined on the west side of Saskatoon are mined over 100 km to the east. These same beds can be traced into Manitoba, Montana and North Dakota. Despite this remarkable continuity, potash deposits
are not without interruption. Solution activity over geological time has resulted in barren or collapse features that have the potential to introduce water from formations above to the mining level.
Original
CM&S Drill Holes
All drilling was carried out following SMER regulations. Drilling was originally carried out by
Canamerican Drilling Corporation. The initial CM&S program set a 10.75” (273 mm) diameter surface casing in a 15” (381 mm) diameter hole to a depth of 450 ft (137 m). From there, a 9” (228 mm) diameter hole was
drilled to a core point just above the Prairie Evaporite Formation. Then, a 7” (177.8 mm) diameter intermediate casing was pinned into the Dawson Bay Formation. Coring was completed in a 6.125” (155 mm) diameter hole. Once complete,
abandonment consisted of cementing the hole from the total depth to 150 ft (45 m) into the intermediate casing. The casing was cut off 40 ft (12 m) above the cement top and retrieved. Subsequent plugs were run from the cement top to
approximately 65 ft (20 m) into the surface casing. The surface casing was then cut off 3 ft (1 m) below the surface, a cap was welded on, and the area was backfilled. A full suite of geophysical logs were run on each hole from
surface to total depth.
Recent VPO Drill Holes
In 1989, hole 2-16-36-8-W3 in the Unitized Area was drilled by Sebco Drilling on behalf of Agrium. A 244.5 mm diameter surface casing was
cemented in at 146 m depth in a 349 mm diameter drill hole. From there, a long string 177.8 mm diameter casing was cemented the full length to 979 m depth in a 222 mm diameter hole. The hole confirmed the VPO mining zone was present at a depth
of 1,021 m.
In 1999, hole 1-24-34-8-W3 in the South Block was completed by Ensign Drilling Services Inc. on behalf of Agrium.
A 244.5 mm diameter surface casing was installed to 150 m depth in a 349 mm diameter hole. From there, a 222.3 mm diameter well was then completed “open hole” (without casings) to 1,229 m depth with inverted oil emulsion drilling mud. Hole
1-24-34-8-W3 confirmed the potash beds mined at VPO existed at a depth of 1,110 m.
39
In 2007, hole 4-3-35-7-W3 in the South Block was drilled by Akita Drilling Ltd. on behalf of
Agrium. A 244.5 mm diameter surface casing in a 349 mm diameter hole was cemented to 145 m depth. A 177.8 mm diameter intermediate casing in a 222 mm diameter hole was pinned into the Dawson Bay Formation at 1,092 m depth. The well confirmed the
presence of the mining zone at a depth of 1,112 m.
In 2010 and 2011, 14 drill holes were completed on the VPO Lands in the
south block. A 349.0 mm hole was drilled to 165 m where a 244.5 mm surface casing was set and cemented. The main hole was drilled with a 222.0 mm diameter bit to the top of the Dawson Bay Formation at depths ranging from 1,045 m to 1,075 m. The
Dawson Bay was cored to the middle of the 2nd Red Beds, providing a 101 mm diameter core from a 199 mm diameter hole. A drill stem test was then carried over the complete Dawson Bay. The mud system was changed from brine water to invert mud in order
to core the Prairie Evaporite. A 200 mm diameter hole was then drilled to final depth, approximately 15 m into the underlying Winnipegosis Formation. The hole was geophysically logged from total depth to surface casing. Holes were plugged back to
surface with a total of 5 cement plugs. After required gas checks, the surface casing was cut off approximately 1.5 m below ground level, a cap welded on, and the site restored to pre-drilling condition.
Drilling cutting samples were collected on 5 m intervals from approximately 350 m depth to total depth with one set retained by Agrium and
two sets delivered to the SMER. The evaporite core was logged and sampled on site by ADM Consulting Limited. A quarter core was delivered by ADM Consulting Limited to the SRC Geoanalytical laboratory in Saskatoon for assay, and the remaining three
quarters core delivered to the SMER subsurface laboratory in Regina by Blackie’s Coring.
Composite grades of all the
drill holes over the 3.35 m mining interval are shown in the table below. These intervals represent true thickness.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Drill Hole ID |
|
Composite
From (ft) |
|
|
Composite
To (ft) |
|
|
Comp. %
NaCl |
|
|
Comp. %
KCl |
|
|
Comp. %
Insolubles |
|
|
Comp. %
K2O |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| D15-32-34-8 |
|
|
1,121.0 |
|
|
|
1,124.4 |
|
|
|
82.2 |
|
|
|
10.3 |
|
|
|
5.9 |
|
|
|
6.5 |
|
| D16-28-34-8 |
|
|
1,114.0 |
|
|
|
1,117.3 |
|
|
|
48.4 |
|
|
|
46.5 |
|
|
|
4.3 |
|
|
|
29.4 |
|
| E04-11-35-9 |
|
|
1,140.0 |
|
|
|
1,143.4 |
|
|
|
52.1 |
|
|
|
38.8 |
|
|
|
7.1 |
|
|
|
24.5 |
|
| E04-12-35-9 |
|
|
1,132.3 |
|
|
|
1,135.7 |
|
|
|
48.2 |
|
|
|
43.4 |
|
|
|
6.7 |
|
|
|
27.4 |
|
| E04-24-35-9 |
|
|
1,096.9 |
|
|
|
1,100.3 |
|
|
|
45.5 |
|
|
|
46.2 |
|
|
|
7.0 |
|
|
|
29.2 |
|
| E04-36-35-9 |
|
|
1,083.6 |
|
|
|
1,087.0 |
|
|
|
43.6 |
|
|
|
46.0 |
|
|
|
7.8 |
|
|
|
29.1 |
|
| E16-22-35-9 |
|
|
1,115.4 |
|
|
|
1,118.8 |
|
|
|
46.4 |
|
|
|
47.4 |
|
|
|
5.0 |
|
|
|
29.9 |
|
| V04-10-35-8 |
|
|
1,076.9 |
|
|
|
1,080.2 |
|
|
|
50.4 |
|
|
|
41.6 |
|
|
|
6.4 |
|
|
|
26.3 |
|
| V04-18-35-8 |
|
|
1,090.7 |
|
|
|
1,094.0 |
|
|
|
52.1 |
|
|
|
40.8 |
|
|
|
5.6 |
|
|
|
25.8 |
|
| V04-20-35-8 |
|
|
1,076.8 |
|
|
|
1,080.1 |
|
|
|
50.6 |
|
|
|
41.6 |
|
|
|
4.8 |
|
|
|
26.3 |
|
| V04-22-35-8 |
|
|
1,081.6 |
|
|
|
1,085.0 |
|
|
|
48.8 |
|
|
|
47.0 |
|
|
|
3.5 |
|
|
|
29.7 |
|
| V04-24-35-8 |
|
|
1,079.8 |
|
|
|
1,083.2 |
|
|
|
94.4 |
|
|
|
2.5 |
|
|
|
5.2 |
|
|
|
1.6 |
|
| V04-28-35-8 |
|
|
1,043.7 |
|
|
|
1,047.0 |
|
|
|
51.9 |
|
|
|
44.5 |
|
|
|
2.7 |
|
|
|
28.1 |
|
| V04-34-35-8 |
|
|
1,052.8 |
|
|
|
1,056.2 |
|
|
|
51.7 |
|
|
|
42.4 |
|
|
|
4.4 |
|
|
|
26.8 |
|
| V11-16-35-8 |
|
|
1,077.9 |
|
|
|
1,081.3 |
|
|
|
51.5 |
|
|
|
41.3 |
|
|
|
5.6 |
|
|
|
26.1 |
|
| V13-01-35-8 |
|
|
1,096.0 |
|
|
|
1,099.4 |
|
|
|
47.3 |
|
|
|
45.7 |
|
|
|
5.8 |
|
|
|
28.9 |
|
| V13-11-35-8 |
|
|
1,069.9 |
|
|
|
1,073.3 |
|
|
|
47.7 |
|
|
|
45.3 |
|
|
|
5.5 |
|
|
|
28.6 |
|
| V13-16-35-8 |
|
|
1,074.7 |
|
|
|
1,078.0 |
|
|
|
50.6 |
|
|
|
42.0 |
|
|
|
6.0 |
|
|
|
26.5 |
|
| V13-23-35-8 |
|
|
1,050.1 |
|
|
|
1,053.4 |
|
|
|
49.5 |
|
|
|
45.8 |
|
|
|
3.9 |
|
|
|
28.9 |
|
| V14-29-35-8 |
|
|
1,048.0 |
|
|
|
1,051.3 |
|
|
|
53.4 |
|
|
|
41.0 |
|
|
|
4.3 |
|
|
|
25.9 |
|
| V16-06-35-8 |
|
|
1,095.4 |
|
|
|
1,098.8 |
|
|
|
50.8 |
|
|
|
43.4 |
|
|
|
4.3 |
|
|
|
27.4 |
|
| V16-08-35-8 |
|
|
1,083.8 |
|
|
|
1,087.2 |
|
|
|
47.6 |
|
|
|
44.3 |
|
|
|
6.3 |
|
|
|
28.0 |
|
40
|
|
|
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|
|
|
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|
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|
|
|
|
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|
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|
|
|
|
|
|
| Drill Hole ID |
|
Composite
From (ft) |
|
|
Composite
To (ft) |
|
|
Comp. %
NaCl |
|
|
Comp. %
KCl |
|
|
Comp. %
Insolubles |
|
|
Comp. %
K2O |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2-16-36-8 |
|
|
1,022.48 |
|
|
|
1,025.81 |
|
|
|
52.3 |
|
|
|
42.2 |
|
|
|
5.4 |
|
|
|
26.7 |
|
| 1-24-34-8 |
|
|
1,110.57 |
|
|
|
1,114.13 |
|
|
|
55.1 |
|
|
|
40.6 |
|
|
|
4.3 |
|
|
|
25.7 |
|
| 4-3-35-7 |
|
|
1,119.06 |
|
|
|
1,122.41 |
|
|
|
49.6 |
|
|
|
44.2 |
|
|
|
6.2 |
|
|
|
27.9 |
|
| 1-21-34-7 |
|
|
1,106.61 |
|
|
|
1,109.96 |
|
|
|
50.7 |
|
|
|
43.8 |
|
|
|
5.5 |
|
|
|
27.7 |
|
| 1-11-35-7 |
|
|
1,100.38 |
|
|
|
1,103.73 |
|
|
|
49.5 |
|
|
|
46.5 |
|
|
|
4 |
|
|
|
29.4 |
|
| 1-15-35-7 |
|
|
1,075.48 |
|
|
|
1,078.83 |
|
|
|
64.4 |
|
|
|
28.8 |
|
|
|
6.8 |
|
|
|
18.2 |
|
| 1-29-34-7 |
|
|
1,110.55 |
|
|
|
1,113.9 |
|
|
|
81.4 |
|
|
|
14.4 |
|
|
|
4.2 |
|
|
|
9.1 |
|
| 8-7-34-7 |
|
|
1,124.55 |
|
|
|
1,127.9 |
|
|
|
66.4 |
|
|
|
30.2 |
|
|
|
3.4 |
|
|
|
19.1 |
|
| 8-11-35-7 |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
| 13-9-34-7 |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
| 13-23-34-7 |
|
|
1,105.44 |
|
|
|
1,108.79 |
|
|
|
50.8 |
|
|
|
42.4 |
|
|
|
6.8 |
|
|
|
26.8 |
|
| 15-28-34-8 |
|
|
1,116.69 |
|
|
|
1,120.04 |
|
|
|
51.6 |
|
|
|
43.4 |
|
|
|
5 |
|
|
|
27.4 |
|
| 16-26-34-7 |
|
|
1,098.31 |
|
|
|
1,101.66 |
|
|
|
47.4 |
|
|
|
46.4 |
|
|
|
6.2 |
|
|
|
29.3 |
|
| 4-5-34-7 |
|
|
1,122.66 |
|
|
|
1,126.01 |
|
|
|
50.9 |
|
|
|
43.1 |
|
|
|
6 |
|
|
|
27.2 |
|
| 6-3-34-7 |
|
|
1,110.85 |
|
|
|
1,114.2 |
|
|
|
55.2 |
|
|
|
39.6 |
|
|
|
5.2 |
|
|
|
25 |
|
| 12-31-34-7 |
|
|
1,093.65 |
|
|
|
1,097.00 |
|
|
|
57.6 |
|
|
|
38.8 |
|
|
|
3.6 |
|
|
|
24.5 |
|
| 13-35-33-8 |
|
|
1,138.22 |
|
|
|
1,141.57 |
|
|
|
51.8 |
|
|
|
42.3 |
|
|
|
5.9 |
|
|
|
26.7 |
|
| 16-6-37-8 |
|
|
1,023.27 |
|
|
|
1,026.62 |
|
|
|
58 |
|
|
|
38.8 |
|
|
|
3.2 |
|
|
|
24.5 |
|
| 13-22-36-8 |
|
|
1,020.69 |
|
|
|
1,024.04 |
|
|
|
53.9 |
|
|
|
43.7 |
|
|
|
2.4 |
|
|
|
27.6 |
|
North Expansion Wildcat Drill Holes
North Expansion Wildcat Drill Holes were drilled between 1955 and 1957. Canamerican Drilling Company completed two of the holes and Rio
Palmer drilled one. Typically, a 10.75” diameter surface casing was installed in a 13.75” or 15” diameter hole to between 360 and 400 ft depth. From there, a 5.5” or 7” diameter intermediate casing was installed in either a
7” or 9” diameter hole into the 2nd Red Beds near 3,300 ft depth with either cement or an anchor packer. These three holes confirmed the presence of the mining zone within the Prairie Evaporite Formation.
| viii) |
Sampling and Analysis |
The 2010 and 2011 holes were all logged and sampled at the well site by ADM Consulting Limited in a lab trailer provided by Blackie’s
Coring of Estevan, Saskatchewan. In general, the core was logged, depth corrected using geophysical logs, convenient sample lengths of 0.25 m to 0.5 m were chosen based on geological changes and existing core breaks, and the intervals measured.
Sample intervals were chosen by ADM Consulting Limited and a quarter core was removed either by cutting the core in half along the length of the sample, and one half cut into quarters, or a quarter cut out using a diamond bladed cut-off saw. The
quarter core was numbered, bagged and tagged for assay purposes by an employee of Agrium and checked by ADM Consulting Limited. The remaining three quarters were returned to the core box.
Before transport, a packing slip was filled out identifying the drill hole and sample numbers being transported. Samples were transported
to SRC’s Geoanalytical Laboratories in Saskatoon, Saskatchewan. SRC is accredited by the Standards Council of Canada. Transport was carried out by ADM Consulting Limited on behalf of Agrium.
Upon receiving the samples, SRC acknowledged that the samples had been received and issued a “Sample Shipment Receipt
Notification” followed soon after by a “Sample Receipt Report” indicating a complete sample listing, including total numbers and sample labels. The samples were at all times in the possession of a responsible person.
41
Underground Samples
Underground channel sampling programs are carried out by employees of Agrium. Samples are obtained by cutting two slots in the mine wall,
approximately five centimeters apart and three centimeters deep, from approximately 15 cm above the normal mining zone down to below the normal mining height of 3.35 m. Horizontal slots are then cut across the verticals to isolate mud seams and
noticeable changes in mineralogy to create blocks that are typically 7.5 to 10 cm long. The blocks are removed from the wall with a hammer and chisel. Often, a number of blocks (typically up to three) are combined into one sample interval. The mass
of material obtained for assay is very similar to that obtained from a quarter core.
Samples are transported to the SRC
Geoanalytical Laboratory by an employee of Agrium and subject to the same documentation procedures as described above.
All VPO
drilled hole and underground samples received by the SRC are then crushed, split, and a portion pulverized in a grinding mill. The remainder of the split is returned to Agrium. As part of their Quality Assurance and Quality Control procedures, one
in every 20 samples is repeated. A prepared standard sample is also submitted with each batch of client samples. This is done to ensure repeatability of the analyses. The range in results is within the acceptable tolerance.
| ix) |
Mineral Resource and Mineral Reserve Estimates |
The table below summarizes the mineral resource estimates regarding VPO as of August 8, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Area |
|
Grade
Est. % K2O |
|
|
% Insolubles |
|
|
Measured
Mineral
Resources
(million tonnes) |
|
|
Indicated
Mineral
Resources
(million tonnes) |
|
|
Inferred
Mineral
Resources
(million tonnes) |
|
| South Block |
|
|
23.4 |
|
|
|
5.0 |
|
|
|
687.0 |
|
|
|
– |
|
|
|
– |
|
| South Block |
|
|
25.4 |
|
|
|
5.2 |
|
|
|
– |
|
|
|
214.9 |
|
|
|
– |
|
| South Block |
|
|
24.9 |
|
|
|
5.2 |
|
|
|
– |
|
|
|
– |
|
|
|
962.1 |
|
| North Expansion Block |
|
|
26.8 |
|
|
|
3.9 |
|
|
|
– |
|
|
|
– |
|
|
|
79.2 |
|
Notes:
(1) Grades are based on the block model estimate.
(2) Insolubles are a deleterious material affecting mineral processing.
(3) Mineral resources that are not mineral reserves do not have demonstrated economic viability.
The table below summarizes the mineral reserves estimates regarding VPO as of August 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Area |
|
Grade
Est. % K2O |
|
|
% Insolubles |
|
|
Mineral Reserves – Proven
(million tonnes) |
|
|
Mineral Reserves – Probable
(million tonnes) |
|
| South
Block |
|
|
25.8 |
|
|
|
4.8 |
|
|
|
122.9 |
|
|
|
– |
|
| South
Block |
|
|
24.3 |
|
|
|
4.8 |
|
|
|
– |
|
|
|
56.4 |
|
| Unitized
Area |
|
|
25.2 |
|
|
|
4.9 |
|
|
|
52.8 |
|
|
|
– |
|
Note:
| (1) |
Grades determined using Vulcan block model. |
For a complete description of key assumptions and parameters associated with the information above, reference should be made to the full text of the Technical Report.
In the
mine, borer style miners are used to mechanically excavate the rock and load it directly onto a series of interconnected conveyor belts. The broken ore is then transported to a shaft where it is hoisted from underground to surface at a capacity of
1,800 tonnes per hour and fed to the mill. The mine is accessed using a fleet of 4x4 trucks and a network of roads that stretches 11 km north, 11 km south and 14 km east of the shaft. The borer miners are 3.35 m high, 5.5 m wide and use two, three
armed rotors to cut the rock. The miners can advance at about 30 cm (1 ft) per minute and will mine tunnels up to 2,200 m long and 10.2 m wide. The potash ore being mined contains about 40% potassium chloride (potash), 55% sodium chloride
(common salt) and 5% insolubles.
42
Production Forecast
Significant changes to the processing facility have been introduced by the Vanscoy Project. The annual production
rate will be increased to 2,800,000 tonnes from the existing 1,800,000 tonnes of product. The circuit is designed to process a range of ore grades between 22.0% K2O to 25.5% K2O, with an average expected grade of 24.6% K2O. The nominal milling rate will be 1,084 tonnes per hour (operating 24 hours per day). VPO produces an agricultural grade
muriate of potash with an average product grade of 60.6% K2O
(the product grade must exceed 60.0% K2O to achieve the
product specification). The design product split will be 75% Premium (2,100,000 tonnes per annum) and 25% Non-Premium (700,000 tonnes per annum). The amenability of the VPO ore body to recover and concentrate potash has been well established by the
long processing history of the plant. Given the remarkable continuity of the Prairie Evaporite Formation potash beds the relative ease of concentration is not expected to change. The process improvements introduced by the Vanscoy Project are
supported by bench and pilot scale test work. Furthermore, industry proven technology with a minimum of one year of successful use within the potash industry has been used in the design to improve the recovery to 87%.
The increased production and recovery will be accomplished through modifications to the existing circuits by installation of new crushing,
attrition scrubbing, slimes separation, scavenger flotation and brine handling circuits and the installation of additional flotation and compaction circuit capacity. There have also been enhancements to the existing ore storage, crystallization and
loadout circuits.
Markets
Agrium is North America’s third largest producer of potash. Global potash deposits are highly concentrated in only a few specific regions in the world. The world’s largest known potash deposits
are located in Saskatchewan, Canada, and Canada accounted for approximately 35 percent of the global potash trade in 2014.
Agrium is a major wholesale distributor of crop nutrition products with demonstrated capabilities to transport and store large product
volumes in the United States and Canada and is well positioned to market increased potash sales volumes in North America. Agrium also is the largest retail supplier of crop input products and services to farmers in North America. As our Retail
business expands, we expect its potash supply requirements will also increase.
Contracts
VPO is an established production facility and as such has established contracts in numerous areas to support the operation.
Long term transportation agreements with Canada’s two major railways (Canadian National Railway and Canadian Pacific Railway) are in
place and managed through a centralized marketing and distribution team within the Wholesale business unit. Truck transport is arranged by the customer, but coordination can be provided by Agrium.
Significant sales agreements do exist and are continuously monitored and negotiated internally. International sales (outside the United
States and Canada) of potash produced by Agrium are distributed through the export marketing consortium, Canpotex, which is equally owned by Potash Corporation of Saskatchewan, the Mosaic Company and Agrium. Canpotex has a long history of being a
reliable supplier to international markets and of proven marketing capabilities that will grow as its ownership group expands its production capacities and volumes available for export outside the North American market. Other major potash exporting
countries include Russia, Belarus and Germany.
Agrium’s existence throughout the value chain is a significant competitive
advantage. Access to significant retail customers solidifies North American sales which is especially important during periods of market disruption. Closer to the operation, supply contracts for critical operating supplies and reagents are
continuously reviewed to maintain optimal supply and to optimize pricing.
43
Environmental Considerations
The by-products of potash extraction are insoluble fine tailings (clay) and salt tailings. The Tailings Management Area (“TMA”)
is the final destination for these tailings. With an increase in potash production, there will be a corresponding increase in tailings deposition rates. Agrium has conducted a review of its TMA and developed a plan to extend the current tailings
operations through 2077 in the currently approved footprint. As part of the Vanscoy Project, the following scope was completed: relocated and increased the size of its brine pond, relocated and increased the size of the fine tailings management
area, and planned for significantly higher salt pile heights.
A slope stability study is underway to fully understand the
sensitivities of containment dyke geometries, deposition rates and duration, and brine mound effect on pore water pressures in the underlying soils. Additional slope inclinometers and pore water pressure transmitters will be installed in key areas
of the pile to monitor pile stability.
Salt deposition is partly offset by excess brine injection into the Deadwood Formation
and a road salt operation actively removing tailings from the pile.
Agrium is in compliance with all environmental permitting
requirements. The site is currently permitted by the Saskatchewan Ministry of the Environment pursuant to The Environmental Management and Protection Act, 2002 and the Clean Air Act.
The operating potash mines have agreed to provide the Province of Saskatchewan with financial assurances in the form of an irrevocable
trust, whereby each producer has agreed to contribute a total of CDN $25-million to their respective trusts for the purpose of decommissioning, restoring and rehabilitating their mines site(s). Agrium has
funded approximately CDN $1.9-million as of July 1, 2014 and will continue to fund this trust over the next 12 years.
Taxes
Royalties are paid to the Province of Saskatchewan, which holds most of the mineral rights in the lease area, and royalties from non-Crown lands are paid to various freeholders of mineral rights in the
area. The royalty rate calculation is governed by the Subsurface Minerals Regulations, 1960 (Saskatchewan) and varies as a function of selling price, mineral grade, exchange rate, source of ore tonnes, plus other factors.
Municipal taxes are paid based on site property values to the Rural Municipality of Vanscoy. VPO also pays a “potash production
tax” to the Province of Saskatchewan following a formula based on sales and profits from Saskatchewan operations. In addition to this, VPO pays corporate income taxes based on corporate profits from all operations.
Mine Life
After 45 years of production, VPO has a Mineral Reserve remaining of 232.1 million tonnes (Proven Mineral Reserve of 175.7 million tonnes grading 25.6% K2O and Probable Mineral Reserve of 56.4 million tonnes grading 24.3%
K2O). The Proven and Probable Reserve estimation is
sufficient for approximately 29 years of mining life at the expanded rate of 2.8 million tonnes of product per year.
Measured Mineral Resources of 687.0 million tonnes grading 23.4%
K2O and Indicated Mineral Resource of 214.9 million
tonnes grading 25.4% K2O has the potential to add a further
32 years.
| xi) |
Exploration and Development |
It is reasonable to expect that a significant portion of the Inferred Mineral Resources will be upgraded to Indicated Mineral Resources and Measured Mineral Resources as exploration programs are
undertaken in the North Expansion Block and South Block. This has the potential to significantly increase mine life.
Capital and Operating Cost Estimates
The VPO site has been in operation since 1969. In the years immediately preceding this, major capital investment was made to bring the mine into production. Since then, capital expenditures have been made
44
on a regular and ongoing basis to sustain and expand production. The Vanscoy Project was announced in 2011 whereby VPO would be expanded to increase operational capacity to a total of
2.8 million tonnes muriate of potash product per year. The Vanscoy Project cost is approximately U.S.$2.33-billion. Engineering commenced in 2010 and initial early work construction started in 2011. It is estimated that full production will be
achieved in 2017. A summary of the expansion costs is outlined in the table below:
|
|
|
| Capital Costs |
|
(billions U.S.$) |
| Shaft headframe and above ground mining buildings |
|
0.19 |
| Surface ore handing |
|
0.23 |
| Ancillary buildings (offices/shops etc.) |
|
0.02 |
| Underground equipment and
development |
|
0.14 |
| Process plants |
|
1.05 |
| Compaction |
|
0.40 |
| Infrastructure |
|
0.23 |
| Product loadout |
|
0.07 |
| Total: |
|
2.33(1) |
Note:
| (1) |
Excludes investigation costs and engineering studies completed prior to our board of directors’ approval of the Vanscoy Project. |
Operating costs for the facility are largely driven by labor requirements. As we expand production, more equipment and manpower resources
are required in both the mine and mill facilities to cover production, maintenance and administrative requirements. Additionally, as the mine transitions into deeper sections of the ore body in the South Block, and eventually into KL 204, mine
rehabilitation costs are expected to increase to deal with the impact of increased ground pressure. These costs are expected to manifest themselves in both equipment and manpower and have been included in forecast projections. These and other
adjustments, such as reagent usage, have been reflected in operating cost estimates that are updated annually for a forward looking period of 20 years. These projections result in cost per tonne projections that are expected to peak during the
period of intense ramp-up before decreasing and levelling off at a more normalized level once full production rates are attained.
Economic Analysis
In developing the economic
analysis, a discounted cash flow (“DCF”) model was employed to determine the net present value (“NPV”) and internal rate of return (“IRR”) of the one million metric tonne Vanscoy Project. The discounted cash flow model
yields a NPV for the Vanscoy Project of U.S.$126-million at a discount rate of 9% and an IRR of 9.51%. It is assumed that the Vanscoy Project has been financed with internally generated cash flow and no allowance has been made for debt financing in
this analysis. The economic analysis of the Vanscoy Project was performed on an after-tax basis. Agrium pays federal and provincial income taxes based on profits from operations. Royalties are paid to the province of Saskatchewan based on muriate
tonnes produced, the raw ore grade and the weighted average net selling price of potash for the production month in question. In addition, Agrium pays a potash production tax and a resource surcharge to the Government of Saskatchewan. The potash
production tax is calculated based on profit per K2O tonne at
a rate of 15% up to CDN $40 per tonne indexed to 1989 GDP (approximately CDN $65 per tonne for 2013) and 35% on the remainder of the profits. As part of the potash production tax, Agrium may be subject to a base payment. The base payment amount is
CDN $11.00 to CDN $12.33 per K2O tonne. Allowable deductions
include royalties and 1% of gross revenue for the year. In 2013, the base payment amount was zero. Property taxes are paid according to property values and were CDN $3.8-million in 2013. Currently,
Saskatchewan provincial sales tax is 5%.
A DCF model requires the use of forecasts for economic inputs and the impact of
economic inputs on model results can vary significantly. A sensitivity analysis was performed to determine the impact of changes in the key assumptions on the resulting incremental NPV of the expansion. The sensitivity ranges
45
chosen were: price of +/- $50 per tonne Brazil cost and freight, foreign exchange rate of +/- $10 U.S/CDN and production ramp-up (2016) at +/- 200 thousand metric tonnes. Model
assumptions including a production schedule and economic metrics are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| Year |
|
Production
KCI |
|
|
FX |
|
Investment
capital(1) |
| |
|
(million tonnes) |
|
|
(U.S.$ – CDN $) |
|
(millions U.S.$) |
| 2012 |
|
|
1.4 |
|
|
1.00 |
|
$471 |
| 2013 |
|
|
1.7 |
|
|
1.03 |
|
$782 |
| 2014 |
|
|
1.1 |
|
|
1.10 |
|
$875 |
| 2015 |
|
|
2.1 |
|
|
1.12 |
|
$210 |
| 2016 |
|
|
2.4 |
|
|
1.11 |
|
$ – |
| 2017 and
thereafter |
|
|
2.8 |
|
|
1.11 |
|
$ – |
| Notes: (1) Includes shaft
and headframe, ore handling, buildings, underground equipment, process plants, compaction, infrastructure and loadout. (2) Mine life of 61 years at expansion production rates. |
| Vanscoy Project Economics |
|
|
|
|
|
|
|
|
| NPV 9% |
|
U.S.$126-million |
|
|
|
|
|
|
|
|
| IRR |
|
9.51% |
|
|
|
|
|
|
|
|
| Simple payback (from 2015) |
|
10.4 years |
|
|
|
|
|
|
|
|
| Notes: (1) Valuation date of December 31, 2011. (2) Potash revenue from 2015 through 2025 is based on the potash price forecast published by FERTECON Limited, an independent consulting agency. Potash revenue for 2026 and beyond
is based on potash prices that are reflective of a break-even replacement cost economics for a generic Saskatchewan potash project. (3) Annual cash flows derived from the Vanscoy Project result in a 9.51% IRR. |
| |
|
|
|
|
| Price Sensitivity |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| |
|
-$50/tonne |
|
|
base |
|
|
+$50/tonne |
|
|
| NPV 9% (millions U.S.$) |
|
-$309 |
|
|
$– |
|
|
$302 |
|
|
| |
|
|
|
|
| Foreign Exchange Sensitivity |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| |
|
-$.10 U.S.$-CDN $ |
|
|
base |
|
|
+$.10 U.S.$-CDN $ |
|
|
| NPV 9% (millions U.S.$) |
|
-$61 |
|
|
$– |
|
|
$48 |
|
|
| |
|
|
|
|
| Production Ramp-up Sensitivity |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| |
|
-200 kmt in 2016 |
|
|
base |
|
|
+200 kmt in 2016 |
|
|
| NPV 9% (millions U.S.$) |
|
-$26 |
|
|
$– |
|
|
$26 |
|
|
The
principal raw materials used in the production of phosphate fertilizers are phosphate ore, ammonia and sulfur (or sulfuric acid). Agrium produces final saleable phosphate fertilizers at two separate operations: (i) the Conda Phosphate Operation
(“CPO”) located outside of Soda Springs, Idaho, USA; and (ii) the Redwater Phosphate Operation (“RPO”) located outside of Edmonton, Alberta, Canada. CPO and RPO are not material to the Company for the purposes of NI 43-101.
The CPO facility consists of a beneficiation mill to produce the rock concentrate as well as the fertilizer plant. The
phosphate ore for CPO is supplied by a number of Agrium’s mines located northeast of the CPO plant while the rock concentrate for RPO is currently supplied through a long-term phosphate rock supply agreement with OCP which extends to 2020.
Agrium’s minimum commitment is to purchase 800,000
46
tonnes in 2015 and 798,000 tonnes from 2016 to 2018, with any potential subsequent volumes to be determined in 2016. To facilitate the import of phosphate rock, Agrium entered into a freight
contract extending to 2018, with a total commitment of $126-million at December 31, 2014. In the fourth quarter of 2013, an import terminal to facilitate handling and delivery of this phosphate rock supply was completed on the West Coast of
Canada. See “General Development of the Business – Three Year History – 2013”.
Agrium’s Kapuskasing
Phosphate Operation (“KPO”) ceased supplying rock concentrate to RPO in June 2013 upon economic exhaustion of remaining ore and the mine was permanently closed. It is currently in the remediation phase with the intent to relinquish mining
leases back to the crown upon completion. At December 31, 2014, our provision for remediation costs at KPO is $19-million.
During 2014, Agrium updated its Rasmussen Valley Reserve estimate based on new drilling information and an optimized mine plan. This
updated information increased the reserves at Rasmussen Valley from 6.4 million tonnes to 10.1 million tonnes. Agrium’s updated total Mineral Reserves for CPO are summarized in the Total Reserve Estimates table below. The Total
Resource Estimates table is a summary for CPO only. This is due to the fact that KPO was completely mined out in 2013, and therefore has no associated resources remaining.
The table below summarizes the mineral reserves estimates regarding CPO as at December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mining Operation |
|
Ore Tons
(metric)(1)
|
|
|
%
P2O5 |
|
|
Mine Life
(years)(2)
|
|
| CPO Proven & Probable Reserves |
|
|
19,978,364 |
|
|
|
25.0 |
|
|
|
9.3 |
|
| (1) |
The concentration of recoverable mined ore tonnes 2.04 million wet tonnes mined to 1.28 million dry tonnes of beneficiated rock at 29.6% P2O5 is 62.8% for CPO (three-year running averages). |
| (2) |
Estimates are based upon proven and probable reserves and average annual mining rates of approximately 2.15 million tonnes for CPO. |
The table below summarizes the mineral resources estimates regarding CPO as at December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mining Operation |
|
Resource
Classification |
|
|
Ore Tons
(metric) |
|
|
%
P2O5 |
|
|
Mine Life
(years) |
|
| CPO |
|
|
Inferred |
|
|
|
18,000,000 |
|
|
|
25.10 |
|
|
|
7.3 |
|
ITEM 6 – DIVIDENDS
Agrium’s present intention is to pay regular dividends on its common shares. We commenced payment of a semi-annual cash dividend of U.S. $0.055
per share in 1996. In December 2011, the Company approved a quadrupling of the semi-annual cash dividend to U.S. $0.225 per share. In June 2012, Agrium approved more than doubling the semi-annual cash dividend to U.S. $0.50 per share and in December
2012 the Company announced the move to a quarterly dividend payment schedule and doubled the cash dividend again to quarterly dividends of U.S. $0.50 per share. In September 2013, Agrium approved increasing the quarterly dividend to U.S. $0.75 per
share. In December 2014, the Board of Directors approved increasing the quarterly dividend to U.S. $0.78 per share. The declaration, amount and date of payment of dividends are determined by the Board of Directors from time to time and will be
subject to earnings and financial requirements, and other conditions prevailing at that time.
The following table sets forth the dividends
per share declared on the Company’s common shares in each of the last three most recently completed fiscal years:
|
|
|
|
|
| Dividends per Share
Declared |
|
| |
|
Per Common Share |
|
| 2012 |
|
$ |
1.00 |
|
| 2013 |
|
$ |
2.50 |
|
| 2014 |
|
$ |
3.03 |
|
Our dividend policy is provided in note 24 to the 2014 Financial Statements, which are incorporated herein by
reference.
47
ITEM 7 – DESCRIPTION OF CAPITAL STRUCTURE
7.1 GENERAL DESCRIPTION OF CAPITAL STRUCTURE
Authorized Capital
The following sets
forth the terms and provisions of our existing capital. Agrium’s authorized capital consists of an unlimited number of common shares and an unlimited number of preferred shares, issuable in series. As at December 31, 2014, 143,716,009
common shares were issued and outstanding, and no preferred shares were outstanding.
Common Shares
Each common share of Agrium entitles the holder to receive notice of and to attend all meetings of our shareholders, other than meetings at which only the
holders of a specified class or series of shares are entitled to vote. Each common share entitles the holder to one vote, except at meetings at which only holders of preferred shares of one or more series are entitled to vote. The holders of common
shares are entitled to participate ratably in any dividends that may be declared by the Board of Directors of Agrium on the common shares. If Agrium is liquidated, dissolved or wound-up or makes any other distribution of its assets for the purpose
of winding up its affairs, the holders of common shares are entitled to a pro rata share of the assets of Agrium after payment of all liabilities, obligations and amounts payable in those circumstances to the holders of our preferred shares. There
are no pre-emptive or conversion rights attaching to the common shares and the common shares are not subject to redemption. All common shares currently outstanding and to be outstanding upon exercise of outstanding options and warrants are, or will
be, fully paid and non-assessable.
Preferred Shares
Preferred shares may be issued at any time and from time to time in one or more series, and the Board of Directors of Agrium may by resolution determine for any such series, its designation, number of
shares and respective rights, privileges, restrictions and conditions. The preferred shares of each series rank on a parity with the preferred shares of every other series, and are entitled to preference over the common shares and any other shares
ranking junior to the preferred shares with respect to the payment of dividends, the repayment of capital and the distribution of assets of Agrium in the event of a liquidation, dissolution or winding up of Agrium.
Except as provided by the Canada Business Corporations Act, the holders of preferred shares are not entitled to receive notice of or to attend or
to vote at any meeting of the shareholders of Agrium unless and until Agrium fails to pay in the aggregate eight cumulative dividends on that series of preferred shares for any period as may be so determined by the directors, whether or not those
dividends are consecutive and whether or not there are any moneys of Agrium properly applicable to their payment.
The provisions attaching to
the preferred shares as a class may be added to, changed or removed, and the Board of Directors of Agrium may create shares ranking prior to the preferred shares, only with the approval of the holders of the preferred shares as a class, any such
approval to be given by the holders of not less than 66 2/3 percent of the preferred shares in writing by the registered holders or by resolution at a meeting of such holders.
Shareholder Rights Plan
Agrium is a party to an amended and restated shareholder rights
plan agreement dated April 9, 2013 (the “Rights Plan”) with CIBC Mellon Trust Company as rights agent, designed to encourage the equal and fair treatment of all shareholders in connection with an unsolicited take-over bid for Agrium.
Under the Rights Plan, one right (a “Right”) has been issued and attached to each common share of Agrium outstanding and will be attached to each common share subsequently issued.
Each Right entitles the holder thereof to purchase from us one common share at an exercise price equal to three times the market price per common share subject to adjustments (the “Exercise
Price”). However, if a person becomes the beneficial owner of 20 percent or more of the outstanding common shares, other than pursuant to a
48
Permitted Bid or a Competing Permitted Bid or certain other exceptions, or announces the intent to commence a take-over bid, each Right (other than Rights beneficially owned by the offeror and
certain related parties) shall constitute the right to purchase from us that number of common shares that have a market value at the date of occurrence equal to twice the Exercise Price for an amount in cash equal to the Exercise Price (i.e. at a 50
percent discount).
A “Permitted Bid” under the Rights Plan is a take-over bid (within the meaning of Canadian law) made by way of a
take-over bid circular that satisfies all of the following conditions:
| |
• |
|
the bid is made to all owners of common shares on the books of Agrium; |
| |
• |
|
the bid must remain open for at least 60 days and more than 50 percent of the outstanding common shares (other than common shares beneficially owned on
the date of the bid by the offeror and certain related parties) must be deposited under the bid and not withdrawn before any common shares may be taken up and paid for; in addition, if 50 percent of the common shares are so deposited and not
withdrawn, the offeror must make an announcement to that effect, and must leave the bid open for an additional ten business days; and |
| |
• |
|
under the terms of the bid, common shares may be deposited at any time between the date of the bid and the date common shares are taken up and paid
for, and any common shares so deposited may be withdrawn until taken up and paid for. |
A “Competing Permitted Bid”
is a take-over bid that is made after a Permitted Bid has been made but prior to its expiry, termination or withdrawal and that satisfies all the requirements of a Permitted Bid as described above, except that a Competing Permitted Bid is only
required to remain open until a date that is not less than the later of (i) 35 days after the date of the take-over bid constituting the Competing Permitted Bid, and (ii) 60 days after the date on which the earliest Permitted Bid or
Competing Permitted Bid which preceded the Competing Permitted Bid was made.
A copy of the Rights Plan has been filed with the securities
commission or similar regulatory authority in each of the provinces of Canada at www.sedar.com and with the SEC at www.sec.gov.
7.2 CONSTRAINTS
There are no constraints imposed on the ownership of Agrium’s securities to ensure that the
Company has a required level of Canadian ownership.
7.3 DEBT RATINGS
The following information relating to Agrium’s credit ratings is provided as it relates to Agrium’s financing costs, liquidity and operations,
and to satisfy disclosure requirements under Canadian securities rules. Specifically, credit ratings affect Agrium’s ability to obtain short-term and long-term financing and the cost of such financing. A reduction in the current ratings on
Agrium’s debt by its rating agencies, or a negative change in Agrium’s ratings outlook could adversely affect Agrium’s cost of financing and its access to sources of liquidity and capital. In addition, credit ratings may be important
to customers or counterparties when we compete in certain markets and when we seek to engage in certain transactions.
Credit ratings on
specific obligations are intended to provide investors with an independent measure of credit quality of an issue of securities and are indicators of the likelihood of payment and of the capacity and willingness of a company to meet its financial
commitment on an obligation in accordance with the terms of an obligation.
There is no assurance that any rating will remain in effect for any
given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future if in its judgment circumstances so warrant.
The credit ratings afforded the debt securities by the rating agencies are not recommendations to purchase, hold, or sell the debt securities inasmuch as such ratings do not comment on market price or
suitability for a particular investor.
49
The following table sets out ratings the Company has received in respect of its outstanding debt securities
from the ratings agencies as at the date of issuance of this AIF.
|
|
|
|
|
|
|
| |
|
Standard & Poor’s
Ratings
Services |
|
Moody’s Investors
Service |
|
DBRS
Limited |
| Senior Unsecured Notes and
Debentures |
|
BBB |
|
Baa2 |
|
BBB |
| US$ Commercial
Paper |
|
A-2 |
|
P-2 |
|
N/A |
|
Ratings Outlook |
|
Stable |
|
Stable |
|
Stable |
Standard & Poor’s Ratings Services (“S&P”)
The BBB rating assigned by S&P is the fourth highest rating of S&P’s ten rating categories for long-term debt which range from AAA to D.
Issues of debt securities rated BBB are judged by S&P to exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation. The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. The A-2 rating assigned by S&P is the second highest
rating of S&P’s rating categories for short-term debt which range from A-1 to D. Issues of debt securities rated A-2 are judged by S&P to exhibit adequate protection parameters. A rating of A-2 by S&P means the obligor has
satisfactory capacity to meet its financial commitments. However, it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in the highest rating category.1
On May 20, 2014, Standard & Poor’s assigned an A-2 short-term credit rating to Agrium’s $2.5-billion Commercial Paper Program and affirmed its BBB long-term corporate credit rating
and stable outlook on Agrium.
Moody’s Investors Service (“Moody’s”)
The Baa2 rating assigned by Moody’s is the fourth highest rating of Moody’s nine rating categories for long-term debt, which range from Aaa to
C. Moody’s appends numerical modifiers from one to three on its long-term debt ratings from Aa to Caa to indicate where the obligation ranks within a particular ranking category, with the 2 modifier indicating a mid-range ranking. Obligations
rated Baa are defined by Moody’s as being subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics. The P-2 rating assigned by Moody’s is the second highest rating of
Moody’s four rating categories for short term debt, which range from P-1 to NP. Issuers rated P-2 are defined by Moody’s as having a strong ability to repay short-term debt obligations.2
On, May 20, 2014, Moody’s assigned a P-2 short-term credit rating to the Commercial Paper Program, and affirmed its Baa2 long-term corporate credit rating and stable outlook on Agrium.
DBRS Limited (“DBRS”)
The BBB rating assigned by DBRS is the fourth highest of 10 rating categories for long-term debt, which range from AAA to D. DBRS uses “high” and “low” designations on ratings from AA
to C to indicate the relative standing of securities being rated within a particular rating category. The absence of a “high” or “low” designation indicates that a rating is in the “middle” of the category. The BBB
rating indicates that, in DBRS’ view, the rated securities are of adequate credit quality. The capacity for payment is considered acceptable, but the entity may be vulnerable to future events.3
| 1 |
Standard & Poor’s, Standard & Poor’s Ratings Definitions, November 20, 2014 |
| 2 |
Moody’s Investors Service, Rating Symbols and definitions, August 2014 |
| 3 |
DBRS, Limited, Rating Scales, effective July 25, 2013 |
50
On March 26, 2014, DBRS affirmed its BBB long-term corporate credit rating and stable outlook on
Agrium.
During the last two years, Agrium has paid Moody’s and S&P their customary fees in connection with the provision of the above
ratings and has not made any other payments for services unrelated to the provision of such ratings to DBRS, Moody’s or S&P.
ITEM 8
– MARKET FOR SECURITIES
8.1 TRADING PRICE AND VOLUME
The Company’s common shares trade on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”) under the symbol
“AGU”.
The following table sets out the high, low and closing prices and trading volume of the common shares on the TSX for 2014 on
a monthly basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Month (2014) |
|
High Price
(CDN $) |
|
|
Low Price
(CDN $) |
|
|
Closing Price
(CDN $) |
|
|
Volume |
|
|
January |
|
|
105.00 |
|
|
|
95.53 |
|
|
|
97.11 |
|
|
|
9,650,182 |
|
|
February |
|
|
102.95 |
|
|
|
93.60 |
|
|
|
101.99 |
|
|
|
7,844,588 |
|
|
March |
|
|
108.15 |
|
|
|
101.16 |
|
|
|
107.73 |
|
|
|
9,313,028 |
|
|
April |
|
|
108.28 |
|
|
|
100.20 |
|
|
|
105.27 |
|
|
|
5,962,152 |
|
|
May |
|
|
105.88 |
|
|
|
96.78 |
|
|
|
97.36 |
|
|
|
10,414,297 |
|
|
June |
|
|
101.75 |
|
|
|
97.60 |
|
|
|
97.75 |
|
|
|
6,814,524 |
|
|
July |
|
|
100.74 |
|
|
|
93.91 |
|
|
|
99.40 |
|
|
|
7,882,011 |
|
|
August |
|
|
103.65 |
|
|
|
97.33 |
|
|
|
102.82 |
|
|
|
6,654,252 |
|
|
September |
|
|
105.23 |
|
|
|
99.09 |
|
|
|
99.56 |
|
|
|
8,530,033 |
|
|
October |
|
|
110.47 |
|
|
|
92.81 |
|
|
|
110.27 |
|
|
|
18,582,544 |
|
|
November |
|
|
117.56 |
|
|
|
107.80 |
|
|
|
110.38 |
|
|
|
8,046,044 |
|
|
December |
|
|
112.45 |
|
|
|
105.68 |
|
|
|
110.00 |
|
|
|
9,431,054 |
|
The following table sets out the high, low and closing prices and trading volume of the common shares on the NYSE for 2014
on a monthly basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Month (2014) |
|
High Price
(U.S. $) |
|
|
Low Price
(U.S. $) |
|
|
Closing Price
(U.S. $) |
|
|
Volume |
|
|
January |
|
|
95.79 |
|
|
|
85.92 |
|
|
|
87.10 |
|
|
|
15,934,935 |
|
|
February |
|
|
92.92 |
|
|
|
84.30 |
|
|
|
92.28 |
|
|
|
14,714,205 |
|
|
March |
|
|
97.92 |
|
|
|
91.40 |
|
|
|
97.52 |
|
|
|
14,183,384 |
|
|
April |
|
|
97.97 |
|
|
|
91.40 |
|
|
|
96.07 |
|
|
|
12,052,582 |
|
|
May |
|
|
96.45 |
|
|
|
89.04 |
|
|
|
89.89 |
|
|
|
12,806,755 |
|
|
June |
|
|
94.07 |
|
|
|
89.42 |
|
|
|
91.63 |
|
|
|
11,241,954 |
|
|
July |
|
|
92.90 |
|
|
|
88.08 |
|
|
|
91.08 |
|
|
|
12,101,224 |
|
|
August |
|
|
94.95 |
|
|
|
88.77 |
|
|
|
94.63 |
|
|
|
13,054,531 |
|
|
September |
|
|
95.10 |
|
|
|
88.43 |
|
|
|
89.00 |
|
|
|
12,730,412 |
|
|
October |
|
|
98.00 |
|
|
|
82.02 |
|
|
|
97.82 |
|
|
|
27,666,936 |
|
|
November |
|
|
103.93 |
|
|
|
95.00 |
|
|
|
97.42 |
|
|
|
14,419,133 |
|
|
December |
|
|
98.43 |
|
|
|
90.92 |
|
|
|
94.72 |
|
|
|
10,550,599 |
|
51
8.2 PRIOR SALES
On November 18, 2014, Agrium issued $500-million aggregate principal amount of 5.25 percent debentures due January 15, 2045.
ITEM 9 – ESCROWED SECURITIES AND SECURITIES
SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER
To the knowledge of the Company, none of the securities of the Company are subject to escrow or contractual restriction on transfer.
ITEM 10 – DIRECTORS AND OFFICERS
10.1 NAME, OCCUPATION AND SECURITY HOLDING
Information is given below with respect to each of the current directors and officers, including all current positions held with the Company, present
principal occupation and principal occupations during the last five years. The term of office of each director expires at the end of the annual general meeting of the shareholders of Agrium to be held on May 6, 2015.
|
|
|
|
|
|
|
| Directors
(Name and Municipality of
Residence) |
|
Director
Since |
|
Present principal occupation or
employment |
|
Prior principal occupation or
employment within the preceding
five
years |
| Victor J.
Zaleschuk(3)
Calgary, Alberta, Canada |
|
2002 |
|
Corporate Director. Board Chair of Agrium (part-time basis) |
|
Same as present |
| David
Everitt (1)(3)
Marco Island, Florida, United States |
|
2013 |
|
Corporate Director |
|
Former interim CEO of Harsco Corporation; President, Agriculture and Turf Division –
North America, Asia, Australia, Sub-Saharan and South Africa, and Global Tractor and Turf Products, Deere & Company |
| Russell
K. Girling(3)(4)
Calgary, Alberta, Canada |
|
2006 |
|
President and Chief Executive Officer and Director of TransCanada Corporation, a diversified energy and pipeline
company |
|
Chief Operating Officer of TransCanada Corporation, President, Pipelines of TransCanada
Corporation, Chairman and Chief Executive Officer of TC Pipelines GP, Inc. |
| M.
Marianne Harris(1)(2)
Toronto, Ontario, Canada |
|
2014 |
|
Corporate Director |
|
President Corporate and Investment Banking, Merrill Lynch Canada Inc. |
| Susan A.
Henry(2)(3)(4)
Ithaca, New York, United States |
|
2001 |
|
Professor of Molecular Biology and Genetics and Dean Emerita of the College of Agriculture and Life Sciences at
Cornell University, Ithaca, New York |
|
Dean of the College of Agriculture and Life Sciences at Cornell University |
| Russell
J. Horner(2)(3)
Vancouver, British Columbia, Canada |
|
2004 |
|
Corporate Director |
|
Same as present |
| David J.
Lesar(1)(4)
Houston, Texas, United States |
|
2010 |
|
Board Chair, President and Chief Executive Officer of Halliburton Company, a global oilfield service
company |
|
Same as present |
| John E. Lowe(1)(2) Houston, Texas, United States |
|
2010 |
|
Special Executive Advisor to Tudor, Pickering, Holt & Co., an energy
investment and merchant banking firm |
|
Assistant to the Chief Executive Officer of ConocoPhillips,
Executive Vice President of Exploration & Production, Executive Vice President of Commercial of ConocoPhillips |
52
|
|
|
|
|
|
|
| Directors
(Name and Municipality of
Residence) |
|
Director
Since |
|
Present principal occupation or
employment |
|
Prior principal occupation or
employment within the preceding
five
years |
| Charles
V. Magro DeWinton, Alberta, Canada |
|
2013 |
|
President & Chief Executive Officer of Agrium |
|
Executive Vice President & Chief Operating Officer, Executive Vice President, Corporate
Development & Chief Risk Officer, Vice President & Chief Risk Officer and, prior thereto, Vice President, Manufacturing, Agrium and, prior thereto, Vice President, Feedstocks, Nova Chemicals Corporation; Vice President, Investor Relations,
Nova Chemicals Corporation; Director of Polyethylene, Nova Chemicals Corporation |
| A. Anne
McLellan, P.C.(1)(4)
Edmonton, Alberta, Canada |
|
2006 |
|
Corporate Director |
|
Same as present |
| Derek G.
Pannell(1)(2)
Saint John, New Brunswick, Canada |
|
2008 |
|
Corporate Director |
|
Managing Partner, Brookfield Asset Management, Inc. (part-time basis) |
| Mayo Schmidt(1)(2) Las Vegas, Nevada, United States |
|
2013 |
|
Corporate Director |
|
President and Chief Executive Officer, Viterra
Inc. |
| |
(1) |
Member of the Audit Committee |
| |
(2) |
Member of the Human Resources & Compensation Committee |
| |
(3) |
Member of the Corporate Governance & Nominating Committee |
| |
(4) |
Member of the Environment, Health, Safety & Security Committee |
Officers
|
|
|
|
|
| Officers (Name and Municipality of Residence) |
|
Present position with the
Company and Principal Occupation |
|
Prior
principal occupation or employment within the preceding five years |
| Charles V.
Magro DeWinton, Alberta, Canada |
|
President & Chief Executive Officer |
|
Executive Vice President & Chief Operating Officer, Executive Vice President,
Corporate Development & Chief Risk Officer, Vice President & Chief Risk Officer and, prior thereto, Vice President, Manufacturing, Agrium and, prior thereto, Vice President, Feedstocks, Nova Chemicals Corporation; Vice President, Investor
Relations, Nova Chemicals Corporation; Director of Polyethylene, Nova Chemicals Corporation |
| Gary J.
Daniel Calgary, Alberta, Canada |
|
Corporate Secretary & Senior Legal Counsel |
|
Assistant Corporate Secretary &
Senior Legal Counsel, Agrium |
| Steven J.
Douglas Calgary, Alberta, Canada |
|
Senior Vice President & Chief Financial Officer |
|
Senior Managing Partner, Chief Financial Officer, Brookfield Property Group; Chief
Financial Officer, General Growth Properties; Senior Managing Partner, Brookfield Asset Management and President, Brookfield Properties |
| Stephen G.
Dyer Ft. Collins, Colorado, United States |
|
Senior Vice President and President, Retail Business Unit |
|
Executive Vice President & Chief Financial Officer, Agrium; Vice President, Retail
West Region, Agrium; Manager, Western Retail Crop Production Services, Inc. (a wholly-owned subsidiary of Agrium) and, prior thereto, Vice President, Manufacturing, Agrium |
| Patrick J.
Freeman Calgary, Alberta, Canada |
|
Vice President, Corporate Development & Strategy |
|
Vice President & Treasurer, Agrium |
| Kevin R.
Helash High River, Alberta, Canada |
|
Vice President, Canadian Retail |
|
Vice President, Retail Canada/Pacific North West Region, Vice President, Marketing &
Distribution and, prior thereto, Senior Director, NAW Sales, Agrium |
53
|
|
|
|
|
| Officers (Name and Municipality of Residence) |
|
Present position with the
Company and Principal Occupation |
|
Prior
principal occupation or employment within the preceding five years |
| Susan C.
Jones Calgary, Alberta, Canada |
|
Vice President, Marketing & Distribution |
|
Managing Director and Vice President, Agrium Europe and, prior thereto, Senior Director,
Wholesale Strategy & Business Development, Agrium |
| Angela S.
Lekatsas Calgary, Alberta, Canada |
|
Vice President & Treasurer |
|
Vice President, Corporate Controller & Chief Risk Officer and, prior thereto, Vice
President & Controller, Agrium |
| Eric B.
Miller Calgary, Alberta, Canada |
|
Senior Vice President & Chief Legal Officer |
|
Senior Vice President, General Counsel and Secretary, Nexen Inc.; Vice President, General
Counsel and Secretary, Nexen Inc.; Division Vice President and Chief Legal Counsel, Nexen Inc. |
| Leslie A.
O’Donoghue Calgary, Alberta, Canada |
|
Executive Vice President, Corporate Development & Strategy & Chief Risk Officer |
|
Executive Vice President, Operations, Chief Legal Officer & Senior Vice President,
Business Development and, prior thereto, Senior Vice President, General Counsel & Corporate Secretary, Agrium |
| Fredrick R.
Thun Calgary, Alberta, Canada |
|
Vice President & Corporate Controller |
|
Senior Director, Corporate Planning & Analysis, Agrium |
| Thomas E.
Warner Rio, Illinois, United States |
|
Vice President, U.S. Retail |
|
Vice President, Retail Distribution, Agrium; President of Crop Production Services, Inc.,
Vice President of Crop Production Services, Inc. |
| Michael R.
Webb Calgary, Alberta, Canada |
|
Senior Vice President, Human Resources |
|
Senior Vice President, Head of Human Resources, HSBC Bank Canada, Vancouver; Global Head
of Human Resources, HSBC Amanah, HSBC Markets (Asia) Limited, Hong Kong; Head of Human Resources, Global Banking, Principal Investments, Equity Research and Leveraged & Acquisition Finance, HSBC Markets (Asia) Limited, Hong Kong |
| Ron A.
Wilkinson Bragg Creek, Alberta, Canada |
|
Senior Vice President and President,
Wholesale Business Unit |
|
Same as present |
Directors and officers as a group beneficially owned, or controlled or directed, directly or indirectly, 98,757 common
shares of the Company or 0.07 percent of the common shares of the Company outstanding as at December
31, 2014.
10.2 CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS
Except as set out below, no director or executive officer of the Company was, as at February 24, 2015, or has been within the ten years prior to
February 24, 2015, a director, chief executive officer or chief financial officer of any company (including the Company), that:
| |
• |
|
was subject to an order that was issued while the director or executive officer was acting in the capacity as director, chief executive officer or
chief financial officer; or |
| |
• |
|
was subject to an order that was issued after the director or executive officer ceased to be a director, chief executive officer or chief financial
officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer. |
For the purposes of the above, “order” means any of the following that was in effect for a period of more than 30 consecutive days:
| |
• |
|
an order similar to a cease trade order; or |
| |
• |
|
an order that denied the relevant company access to an exemption under securities legislation. |
54
Except as set out below, no director or executive officer of the Company, or a shareholder holding a
sufficient number of securities of the Company to affect materially the control of the Company:
| |
• |
|
was, as at February 24, 2015, or has been within the ten years prior to February 24, 2015, a director or executive officer of any company
(including the Company) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject
to or instituted any proceedings, arrangement or compromise with creditors or had a receiver manager or trustee appointed to hold its assets; or |
| |
• |
|
has, within the ten years before February 24, 2015, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency,
or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder.
|
In May 2004, Saskatchewan Wheat Pool Inc. (“SWP”), the predecessor of Viterra, disposed of its hog operations,
which had been carried on through certain of its subsidiaries, through a court-supervised process under the Companies’ Creditors Arrangement Act (Canada). On April 12, 2005, the Saskatchewan Financial Services Commission issued a
cease trade order against four of these subsidiaries of SWP for failing to file the required annual continuous disclosure documents. The cease trade order was revoked on October 18, 2010 pursuant to Viterra’s application to effect a
reorganization of the entities in question. Mr. Schmidt served as an officer and/or director of these entities.
Mr. Lesar served on
the Board of Directors of Mirant Corporation (“Mirant”) commencing in 2000. In July 2003, Mirant filed for Chapter 11 bankruptcy proceedings in In re Mirant Corporation, et al., Case #03-46590 (DML) United States Bankruptcy Court of the
Northern District of Texas, Ft. Worth Division. The Court approved Mirant’s Plan of Reorganization in December 2005, with an effective date of January 2006. As part of the Plan of Reorganization, Mirant’s management retained a new
Board of Directors. Mr. Lesar did not join the new Board of Directors of Mirant, which resulted in his resignation in January 2006.
10.3 CONFLICTS OF INTEREST
To the knowledge of the Company, no director or officer of the Company has an existing or potential material conflict of interest with the Company or any of its subsidiaries, joint ventures or
partnerships.
ITEM 11 – PROMOTERS
During the two most recently completed financial years, no person or company has been a promoter of the Company.
ITEM 12 – LEGAL PROCEEDINGS AND REGULATORY ACTIONS
From time to time we become involved in legal or administrative proceedings in the normal conduct of our business. Our assessment of the likely outcome of
these matters is based on our judgment of a number of factors, including experience with similar matters, past history, precedents, relevant financial, scientific and other evidence, and facts specific to the matter. We do not believe that these
matters in aggregate will have a material effect on our consolidated financial position or results of operations.
Our assessment of specific
litigation matters at February 24, 2015 is set out below.
Oil-for-Food Programme
On June 27, 2008, the Iraqi government filed a civil lawsuit in the U.S. against AWB, a subsidiary we acquired in 2010, and 92 other parties, in a
lawsuit alleging that the defendants participated in an illegal conspiracy to divert funds from the United Nations Oil-for-Food Programme (“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 more than $232-million from the OFFP escrow
account. AWB and a number of other
55
defendants filed motions to dismiss the complaint in June 2010. The court dismissed the lawsuit in 2013. In 2014, the dismissal was upheld on appeal and the court refused the
plaintiff’s request to reconsider the dismissal. Plaintiffs have until March 2015, to seek leave to appeal the decision. Although we believe that the possibility of a material financial effect from this matter is remote, an adverse decision
could have a material adverse effect on Agrium’s consolidated financial position and results of operations. We have not accrued a liability for damages for this matter.
Mine Sites in Idaho and Manitoba
Refer to discussion on pages 21 and 22. We are actively
seeking to resolve these matters. Resolution may require us to undertake various remediation or other actions or to pay penalties; however ultimate resolution depends on the outcome of investigations, discussions and evaluations and possibly
settlement or litigation.
ITEM 13 – INTEREST OF MANAGEMENT AND OTHERS IN
MATERIAL TRANSACTIONS
To the knowledge of the Company, the Company confirms that, as of February 24, 2015, there were no directors or
executive officers of the Company or any associate or affiliate of a director or executive officer of the Company with any material interest, direct or indirect, in any transaction within the three most recently completed financial years or during
the current financial year that has materially affected or is reasonably expected to materially affect the Company.
ITEM 14 – TRANSFER AGENT, REGISTRAR, AND TRUSTEES
|
|
|
| * The
Company’s registrar and transfer agent is CST
Trust Company, at its principal offices in Calgary,
Alberta, Montreal, Quebec, Toronto, Ontario, Vancouver, British Columbia and Halifax, Nova
Scotia |
|
The trustee for the Company’s unsecured notes
and
debentures: |
| P.O. Box 700 |
|
The Bank of New York Mellon |
| Station B |
|
Bondholder Relations |
| Montreal, Quebec, Canada H3B 3K3 |
|
111 Sanders Creek Parkway |
| Telephone |
|
East Syracuse, NY, USA, 13057 |
| Outside North America (416) 682-3860 |
|
1-800-254-2826 |
| Inside North America
(800) 387-0825 |
|
|
ITEM 15 – MATERIAL CONTRACTS
To the knowledge of the Company, material contracts requiring disclosure under this Item include the Support and Purchase Agreement, including the
amendments thereto dated August 2, 2012 and February 5, 2013, in respect of the Viterra acquisition, as described herein under the heading “Item 4 – General Description of the Business – 4.1 Three Year History – 2012
– Viterra Acquisition”.
ITEM 16 – INTEREST OF EXPERTS
16.1 NAMES OF EXPERTS
The Consolidated Financial Statements of the Company as at and for the year ended December 31, 2014 have been audited by KPMG LLP.
A. Dave Mackintosh, P. Geo., of ADM Consulting Limited, Michael Ryan Bartsch, P.Eng. and Dennis William Aldo Grimm P.Eng., both employees of the Company, each prepared certain sections of the Technical
Report in accordance with NI 43-101 on behalf of the Company.
A. Dave Mackintosh, P. Geo., of ADM Consulting Limited, Michael Ryan Bartsch,
P.Eng. and Dennis William Aldo Grimm P.Eng., both employees of the Company, are qualified persons under NI 43-101 and have reviewed and approved the scientific and technical information within this AIF relating to VPO.
56
16.2 INTERESTS OF EXPERTS
As of February 24, 2015, KPMG LLP, the auditors of the Company, have confirmed that they are independent with respect to the Company (and its
associates or affiliates) within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulations. KPMG LLP are independent accountants with respect
to the Company under all relevant United States professional and regulatory standards.
As of February 24, 2015, A. Dave Mackintosh,
P.Geo., ADM Consulting Limited and the partners, employees and consultants of ADM Consulting Limited, did not hold any registered or beneficial interests, directly or indirectly, in the securities of the Company or its associates or affiliates.
Dennis William Aldo Grimm, P.Eng., is an employee of Agrium and holds beneficially, directly or indirectly, less than one percent of any class
of the Company’s securities.
Michael Ryan Bartsch, P.Eng., is an employee of Agrium and holds beneficially, directly or indirectly, less
than one percent of any class of the Company’s securities.
ITEM 17 –
AUDIT COMMITTEE
17.1 AUDIT COMMITTEE CHARTER
Attached, as Schedule 17.1, is the Charter for the Company’s Audit Committee.
17.2 COMPOSITION OF THE AUDIT COMMITTEE
Members of the Audit Committee are John E. Lowe (Chair), David C. Everitt, M. Marianne Harris, David J. Lesar, A. Anne McLellan, Derek G. Pannell and Mayo
M. Schmidt. Each member of the Audit Committee is independent and financially literate.
57
17.3 RELEVANT EDUCATION AND EXPERIENCE OF MEMBERS OF THE
AUDIT COMMITTEE
|
|
|
| Name |
|
|
| (Director Since) |
|
Principal Occupation and Full Biography |
| Mr. John E. Lowe (Audit Committee Chair)
B.Sc. (Finance & Accounting)
Houston, Texas, U.S.A.
(May 12, 2010)
Other Public Directorships
• Phillips 66 Company, a downstream energy company (NYSE)
• Apache Corporation, an oil and gas company (NYSE)
|
|
Mr. Lowe is currently Senior Executive Advisor at Tudor,
Pickering, Holt & Co. (an energy investment and merchant banking firm), after having been Assistant to the Chief Executive Officer of ConocoPhillips (an integrated energy company) from October 2008 to April 2012, and has held various executive
and managerial positions with ConocoPhillips for more than 25 years. He is currently a director of Phillips 66 Company (an energy manufacturing and logistics company) and non-executive chairman of Apache Corporation (an oil and gas company). He is a
former director of DCP Midstream, LLC (a midstream energy company), DCP Midstream Partners L.P. (a midstream energy partnership), and Chevron Phillips Chemical Co. LLC (a global petrochemicals company). Mr. Lowe is a member of the Board of Trustees
for the Houston Museum of Natural Science, the Kelce Business School of Pittsburg State University Advisory Board, and the Katy ISD Foundation Board. Mr. Lowe is also a former member of the Texas Children’s Hospital West Campus Advisory
Council, and a former director of the National Association of Manufacturers. |
|
|
|
| Mr. David C. Everitt
B. Sc. (Engineering)
Marco Island, Florida, U.S.A.
(February 10, 2013)
Other Public Directorships
• Harsco Corporation, a worldwide industrial company (NYSE)
• Brunswick Corporation, a worldwide manufacturing company (NYSE)
• Allison Transmission Holdings, Inc., a worldwide manufacturing company,
(NYSE) |
|
Mr. Everitt is the Chair of the Board and former interim
CEO of Harsco Corporation, a worldwide industrial company. Mr. Everitt is the former President, Agriculture and Turf Division – North America, Asia, Australia, and Sub-Saharan and South Africa, and Global Tractor and Turf Products of Deere
& Company. Mr. Everitt served as President of Deere’s Ag Division from 2001 until his retirement in September 2012. During that time, he led significant growth in overseas markets as well as streamlining the North American and European
distribution footprint. Since joining Deere & Company in 1975, Mr. Everitt held a variety of management positions in the areas of industrial engineering, production engineering, mechanical services and sales throughout the company. Mr. Everitt
also serves on the Board of the National Business Aviation Association located in Washington, D.C. |
58
|
|
|
| Name |
|
|
| (Director Since) |
|
Principal Occupation and Full Biography |
| Ms. M. Marianne Harris
M.B.A., J.D. Toronto, Ontario, Canada (September 1, 2014)
Other Public Directorships
• Sun Life
Financial Inc., a financial services organization (TSX, NYSE, PSE) |
|
Ms. Harris was Managing Director at the Bank of America
Merrill Lynch and President of Corporate and Investment Banking at Merrill Lynch Canada Inc. Before joining Merrill Lynch, Ms. Harris was Head of the Financial Institutions Group at RBC Capital Markets. Ms. Harris is on the Board of Directors for
Sun Life Financial Inc. and Sun Life Assurance Company of Canada and is Chair of the Board and a member of the Finance and Audit Committee of the Investment Industry Regulatory Organization of Canada. Ms. Harris is a member of the Dean’s
Advisory Council for the Schulich School of Business and the Advisory Council for The Hennick Centre for Business and Law. She is also a director and Chair of the Investment Committee for the Princess Margaret Cancer Foundation. |
|
|
|
| Mr. David J. Lesar
B.Sc., M.B.A., C.P.A.
Houston, Texas, U.S.A.
(May 12, 2010)
Other Public Directorships
• Halliburton Company, a global oilfield service company (NYSE) |
|
Mr. Lesar is, and has been since 2000, Chairman,
President and Chief Executive Officer of Halliburton Company (a global oilfield service company). Mr. Lesar serves on the Board of Directors of the American Petroleum Institute, and is a former director of Lyondell Chemical Company (a chemical
manufacturing company), and Mirant Corporation (a power company). |
|
|
|
| Ms. A. Anne McLellan, P.C.
B.A., LL.B, LL.M Edmonton, Alberta, Canada (September 28, 2006)
Other Public Directorships
• Cameco
Corporation, a uranium company (TSX, NYSE) |
|
Ms. McLellan is Senior Advisor with Bennett Jones LLP (a
Canadian law firm) and was the Distinguished Scholar in Residence at the Institute for United States Policy Studies at the University of Alberta. Ms. McLellan is a director of the Edmonton Regional Airports Authority, where she is Vice-Chair and the
Edmonton Community Foundation, where she chairs the Governance Committee. She is also a member of various charitable and community boards. Ms. McLellan is a former four-term Member of Parliament for Edmonton Centre from October 25, 1993 –
January 23, 2006. She served as Deputy Prime Minister from December 2003 to January 2006 and throughout her career has held numerous ministerial posts, including Minister of Natural Resources, Minister of Justice and Attorney General, Minister of
Health and the first Minister of Public Safety and Emergency Preparedness. Before her political career, Ms. McLellan taught law at the Universities of New Brunswick and Alberta. Ms. McLellan holds a Bachelor of Arts and a Bachelor of Laws degree
from Dalhousie University and a Masters of Law degree from King’s College, University of London. |
|
|
|
59
|
|
|
| Name |
|
|
| (Director Since) |
|
Principal Occupation and Full Biography |
| Mr. Derek G. Pannell
B.Sc. (Engineering), P.Eng., FCAE
Saint John, New Brunswick, Canada
(February 27, 2008)
Other Public Directorships
• Brookfield Infrastructure Partners Limited, the general partner of Brookfield
Infrastructure Partners L.P., an infrastructure asset operating company (NYSE) |
|
Mr. Pannell is Board Chair of Brookfield Infrastructure
Partners Limited. He is former Acting Chairman of African Barrick Gold plc. (a mining company), former Managing Partner of Brookfield Asset Management Inc. (an asset management company) and a former director of Major Drilling Group International
Inc. (a metals and minerals drilling service company). He was President and Chief Executive Officer of Noranda Inc. and Falconbridge Limited from 2001 to August 2006 and Vice President, Operations of Compaia Minera Antamina from 1998 to 2001. Mr.
Pannell is a graduate of Imperial College in London, England and the Royal School of Mines, London, England (ARSM) and an engineer registered in Quebec and Peru. |
|
|
|
| Mr. Mayo M. Schmidt
B.B.A. Las Vegas, Nevada, U.S.A. (February 10, 2013)
Other Public Directorships
• None |
|
Mr. Schmidt was the President and Chief Executive Officer
of Viterra Inc. from 2000 until 2012. Mr. Schmidt is an active participant in business and industry organizations. He is a member of Washburn University’s Board of Trustees and the Lincoln Society, and a contributor to Harvard University’s
Private and Public, Scientific, Academic and Consumer Food Policy Group. He also serves on the Board of Directors of the Global Transportation Hub Authority. |
17.4 PRE-APPROVAL POLICIES AND PROCEDURES
The Company has adopted a written policy pursuant to which the Company’s Audit Committee pre-approves all audit services and permitted non-audit
services provided to the Company by the Company’s independent auditors. The pre-approved services specified in such policy are reviewed annually, and the audit and non-audit services to be provided by the Company’s independent auditors, as
well as the budgeted amounts for such services, are also pre-approved annually. The Audit Committee has also delegated to the Chair of the Audit Committee, who is independent, the authority to act on behalf of the Audit Committee with respect to the
pre-approval of all audit and permitted non-audit services provided by its external auditors from time to time. Any approvals by the Chair are reported to the full Audit Committee at its next meeting.
60
17.5 EXTERNAL AUDITOR SERVICE FEES (BY CATEGORY)
The following table sets out the fees billed to us by KPMG LLP and its affiliates for professional services in each of the years ended
December 31, 2014 and 2013. During these years, KPMG LLP was the Company’s only external auditor.
|
|
|
|
|
|
|
|
|
| Category |
|
Year Ended December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| |
|
CDN $ |
|
|
CDN $ |
|
| Audit Fees(1) |
|
|
4,157,900 |
|
|
|
4,556,000 |
|
| Audit-Related
Fees(2) |
|
|
NIL |
|
|
|
15,000 |
|
| Tax Fees(3) |
|
|
369,700 |
|
|
|
245,000 |
|
| All Other Fees |
|
|
NIL |
|
|
|
NIL |
|
| Total |
|
|
4,527,600 |
|
|
|
4,816,000 |
|
| (1) |
For professional services rendered by KPMG LLP for the audit and review of the Company’s financial statements or services that are normally provided by KPMG LLP in
connection with statutory and regulatory filings or engagements. |
| (2) |
For professional services rendered by KPMG LLP for specified audit procedures regarding financial assurances issued to certain government agencies, and services which
are reasonably related to the performance of the audit of the Company’s financial statements. |
| (3) |
For professional services rendered by KPMG LLP for tax compliance, tax advice and tax planning with respect to Canadian, U.S. and key international jurisdictions;
review of tax filings; assistance with the preparation of tax filings; tax advice relating to potential asset and business acquisitions/combinations; and other tax planning, compliance, and transaction services. |
ITEM 18 – ADDITIONAL INFORMATION
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities,
and securities authorized for issuance under equity compensation plans, where applicable, is provided in the Company’s information circular for its most recent annual meeting of shareholders that involved the election of directors, and
additional financial information is provided in the Company’s consolidated financial statements and MD&A for its most recently completed financial year.
Additional information relating to Agrium may be found on the Company’s website at www.agrium.com, on the Canadian Securities Administrators’ website at www.sedar.com and on the
EDGAR section of the United States Securities and Exchange Commission’s website at www.sec.gov.
61
SCHEDULE 17.1
AGRIUM INC.
AUDIT COMMITTEE
CHARTER
PART I
Establishment of Committee
The
Audit Committee (the “Committee”) is established by the Board of Directors primarily for the purpose of overseeing the accounting and financial reporting processes of the Corporation and the reviews and audits of the financial statements
of the Corporation.
The Audit Committee shall assist the Board of Directors in fulfilling the Board’s oversight
responsibilities by monitoring, among other things:
| |
(a) |
the quality and integrity of the financial statements and related disclosure of the Corporation; |
| |
(b) |
compliance by the Corporation with legal and regulatory requirements that could have a material effect upon the financial position of the Corporation and that are not
subject to the oversight of another committee of the Board; |
| |
(c) |
the independent auditor’s qualifications and independence; and |
| |
(d) |
the performance of the Corporation’s internal audit function and independent auditor. |
| 2. |
Composition of Committee |
The Committee shall consist of as many members as the Board shall determine, but in any event not fewer than three directors, provided that each member of the Committee shall be determined by the Board to
be:
| |
(a) |
an independent director for the purposes of and pursuant to the Corporation’s Corporate Governance Guidelines; |
| |
(b) |
an “independent” director as defined in and for the purposes of any applicable governance guidelines or listing standards of any stock or securities exchange
upon which the securities of the Corporation are from time to time listed; |
| |
(c) |
an “independent” director for the purposes of any applicable corporate, securities or other legislation or any rule, regulation, instrument, policy, guideline
or interpretation under such legislation; and |
| |
(d) |
financially literate. |
At least
one member of the Committee shall have accounting or related financial management experience or expertise. The Committee shall be entitled to take any action at a meeting of the Committee in the absence of such member or members.
No member of the Committee shall serve on the audit committees of more than two other public companies, unless the Board determines that
such simultaneous service would not impair the ability of such member to effectively serve on the Corporation’s Audit Committee and discloses such determination in the Corporation’s annual management proxy circular.
| 3. |
Appointment of Committee Members |
The members of the Committee shall be appointed by the Board on the recommendation of the Corporate Governance & Nominating Committee. The members of the Committee shall be appointed at the time
of each annual meeting of Shareholders, and shall hold office until the next annual meeting, or until they are removed by the Board or until they cease to be directors of the Corporation.
62
PART II
Committee Procedure
Where a
vacancy occurs at any time in the membership of the Committee, it may be filled by the Board on the recommendation of the Corporate Governance & Nominating Committee and shall be filled by the Board if the membership of the Committee is
fewer than three directors. The Board may remove and replace any member of the Committee.
The Board shall appoint a Chair for the Committee. The Chair may be removed and replaced by the Board.
If the Chair is not present at any meeting of the Committee, one of the other members of the Committee present at the meeting shall be
chosen by the Committee to preside at the meeting.
| 7. |
Secretary of Committee |
The Corporate Secretary or such other person acceptable to the members shall act as Secretary to the Committee.
The Chair, in consultation with the Committee members, shall determine the schedule and frequency of the Committee meetings, provided that
the Committee shall meet at least quarterly. The Committee at any time may, and at each regularly scheduled Committee meeting shall, meet alone without management present, and shall meet separately with each of senior management, the independent
auditor, the Director, Internal Audit, and the Chief Legal Officer (or such individuals in similar capacities or positions who perform substantially similar functions). The Committee shall also meet separately with the independent auditor at every
regularly scheduled meeting of the Committee at which the independent auditor is present. Any member of the Committee may move the Committee in camera at any time during the course of a meeting, and a record of any decisions made in camera shall be
maintained by the Committee Chair.
The Chair, any two members of the Committee, the Director, Internal Audit (or such individual in a similar capacity or position who
performs a substantially similar function), the independent auditor or the Chief Executive Officer may call a special meeting of the Committee.
Three
members of the Committee, present in person or by telephone or other telecommunication device that permits all persons participating in the meeting to speak to each other, shall constitute a quorum.
Notice of the time and place of every meeting shall be given in writing or by e-mail or facsimile communication to each member of the
Committee at least 24 hours prior to the time fixed for such meeting; provided, however, that a member may in any manner waive notice of a meeting and attendance of a member at a meeting is a waiver of notice of the meeting, except where a member
attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called.
The Chair
shall develop and set the Committee’s agenda, in consultation with other members of the Committee, the Board and management. The agenda and information concerning the business to be
63
conducted at each Committee meeting shall, to the extent practical, be communicated to the members of the Committee sufficiently in advance of each meeting to permit meaningful review.
The
Committee shall have the power to delegate its authority and duties to subcommittees or individual members of the Committee as it deems appropriate.
In
discharging its responsibilities, the Committee shall have full access to all books, records, facilities and personnel of the Corporation.
| 15. |
Attendance of Officers at a Meeting |
At the invitation of the Chair of the Committee, one or more officers or employees of the Corporation may, and if required by the Committee shall, attend a meeting of the Committee.
| 16. |
Procedure, Records and Reporting |
The Committee shall fix its own procedure at meetings, keep records of its proceedings and report to the Board when the Committee may deem appropriate (but not later than the next meeting of the Board).
Without limiting the foregoing, the Committee shall report to the Board any issues that arise with respect to the quality or integrity of the Corporation’s financial statements, the Corporation’s compliance with legal or regulatory
requirements within the Committee’s purview, the performance and independence of the Corporation’s independent auditors, or the performance of the internal audit function.
| 17. |
Outside Consultants or Advisors |
The Committee when it considers it necessary or advisable, may retain, at the Corporation’s expense, outside consultants or advisors to assist or advise the Committee independently on any matter
within its mandate. The Committee shall have the sole authority to retain or terminate such consultants or advisors, including the sole authority to approve the fees and other retention terms for such persons.
PART III
Mandate of Committee
| 18. |
Oversight in Respect of Financial Disclosure and Accounting Practices |
The Committee, to the extent required by applicable laws or rules, or otherwise considered by the Committee to be necessary or
appropriate, shall:
| |
(a) |
meet with management and the independent auditor to review and discuss, and to recommend to the Board for approval prior to public disclosure, the audited annual
financial statements, including reviewing the specific disclosures in management’s discussion and analysis of financial condition and results of operations; |
| |
(b) |
review, discuss with management and the independent auditor, and recommend to the Board for approval prior to public disclosure: |
| |
(i) |
the annual information form; |
| |
(ii) |
the portions of the management proxy circular, for any annual or special meeting of shareholders, containing significant information within the Committee’s
mandate; |
| |
(iii) |
all financial statements included in prospectuses or other offering documents; |
| |
(iv) |
all prospectuses and all documents which may be incorporated by reference in a prospectus, other than any pricing supplement issued pursuant to a shelf prospectus; and
|
64
| |
(v) |
any significant financial information respecting the Corporation contained in a material change report. |
| |
(c) |
meet with management and the independent auditor to review and discuss, and to approve prior to public disclosure, the unaudited quarterly financial statements,
including reviewing the specific disclosures in management’s discussion and analysis of financial condition and results of operations, and the quarterly interim reports; |
| |
(d) |
review, discuss with management and the independent auditor, and approve prior to public disclosure: |
| |
(i) |
any unaudited interim financial statements, other than quarterly statements; and |
| |
(ii) |
any audited financial statements, other than annual statements, required to be prepared regarding the Corporation or its subsidiaries or benefit plans if required to be
made publicly available or filed with a regulatory agency; |
| |
(e) |
review and discuss with management and the independent auditor prior to public disclosure: |
| |
(i) |
each press release that contains significant financial information respecting the Corporation or contains estimates or information regarding the Corporation’s
future financial performance or prospects; |
| |
(ii) |
the type and presentation of information to be included in such press releases (in particular, the use of “pro forma” or “adjusted”
non-International Financial Reporting Standards information); and |
| |
(iii) |
financial information and earnings guidance provided to analysts and rating agencies; |
provided, however, that such discussion may be done generally (consisting of discussing the types of information to be disclosed and the
types of presentations to be made) and that the Committee need not discuss in advance each instance in which the Corporation may provide earnings guidance or presentations to rating agencies;
| |
(f) |
receive and review reports from the Corporation’s Disclosure Committee; |
| |
(g) |
review with management and the independent auditor major issues regarding accounting principles and financial statement presentations, including any significant changes
in the Corporation’s selection or application of accounting principles, and major issues as to the adequacy of the Corporation’s internal controls and any special audit steps adopted in light of material control deficiencies;
|
| |
(h) |
based on its review with management and the independent auditor, satisfy itself as to the adequacy of the Corporation’s procedures that are in place for the review
of the Corporation’s public disclosure of financial information that is extracted or derived from the Corporation’s financial statements, and periodically assess the adequacy of those procedures; |
| |
(i) |
review with management and the independent auditor (including those of the following that are contained in any report of the independent auditor): (1) any analyses
prepared by management or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative International
Financial Reporting Standards (IFRS) methods on the financial statements; (2) all critical accounting policies and practices to be used by the Corporation in preparing its financial statements, (3) all material alternative treatments of
financial information within IFRS that have been discussed with management, ramifications of the use of these alternative treatments, and the treatment preferred by the independent auditor, and (4) other material communications between the
independent auditor and management, such as any management letter or schedule of unadjusted differences; |
| |
(j) |
review with management and the independent auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures and transactions on the
Corporation’s financial statements; |
| |
(k) |
review the plans of management, the independent auditor and Internal Audit regarding any significant changes in accounting practices or policies and the financial and
accounting impact thereof; |
65
| |
(l) |
review with management, the independent auditor and, if necessary, legal counsel, any litigation, claim or contingency, including tax assessments, that could have a
material effect upon the financial position of the Corporation, and the manner in which these matters have been disclosed in the financial statements; |
| |
(m) |
review disclosures by the Corporation’s Chief Executive Officer and Chief Financial Officer during their certification process about any significant deficiencies
in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Corporation’s internal controls; |
| |
(n) |
discuss with management the Corporation’s material financial risk exposures and the steps management has taken to monitor and control such exposures, including the
Corporation’s financial risk assessment and financial risk management policies; and |
| |
(o) |
periodically meet with management separately from the Sr. Director, Internal Audit & Enterprise Risk Management (or such individual in a similar capacity or
position who performs a substantially similar function), and the independent auditor to discuss matters within the Committee’s purview. |
| 19. |
Oversight in Respect of the Independent Auditor |
Subject to confirmation by the independent auditor of its compliance with Canadian and U.S. regulatory registration requirements, the Committee shall be directly responsible (subject to Board
confirmation) for the appointment of the independent auditor for the purpose of preparing or issuing any audit report or performing other audit, review or attest services for the Corporation, such appointment to be confirmed by the
Corporation’s shareholders at each annual meeting. The Committee shall also be directly responsible (subject to Board confirmation) for the approval of fees to be paid to the independent auditor for audit services, and shall pre-approve the
retention of the independent auditor for any permitted non-audit service. The Committee shall also be directly responsible for the retention and oversight of the services of the independent auditor (including resolution of disagreements between
management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Corporation. The independent auditor shall report directly to
the Committee.
The Committee, to the extent required by applicable laws or rules, or otherwise considered by the Committee to
be necessary or appropriate, shall:
| |
(a) |
review at least annually the independence of the independent auditor, including the independent auditor’s formal written statement of independence delineating all
relationships between itself and the Corporation, review all such relationships, and consider applicable auditor independence standards; |
| |
(b) |
consider whether, in order to assure continuing auditor independence, there should be regular rotation of the auditing firm itself; |
| |
(c) |
ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as
required by law; |
| |
(d) |
review at least annually the independent auditor’s written report on its own internal quality control procedures; any material issues raised by the most recent
internal quality control review, or peer review, of the independent auditor, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years respecting one or more independent audits carried out by the
independent auditor, and any steps taken to deal with such issues; |
| |
(e) |
review and evaluate the experience, qualifications and performance of the senior members of the audit team of the independent auditor; |
| |
(f) |
evaluate annually the performance of the independent auditor, including the lead partner, taking into account the opinions of management and the Sr. Director, Internal
Audit & Enterprise Risk Management (or such individual in a similar capacity or position who performs a substantially similar function), and report to the Board on its conclusions regarding the independent auditor and its recommendation for
appointment of the independent auditor for the purpose of preparing or issuing any report or performing other audit, review, or attest services for the Corporation; |
66
| |
(g) |
meet with the independent auditor prior to the annual audit to review the planning and staffing of the audit; |
| |
(h) |
review with the independent auditor the adequacy and appropriateness of the accounting policies used in preparation of the financial statements;
|
| |
(i) |
periodically meet separately with the independent auditor to review any problems or difficulties that the independent auditor may have encountered and management’s
response, specifically: |
| |
(i) |
any difficulties encountered in the course of the audit work, including any restrictions on the scope of activities or access to requested information, and any
significant disagreements with management; and |
| |
(ii) |
any changes required in the planned scope of the audit; and |
| |
(iii) |
the responsibilities, budget, and staffing of the internal audit function; and report to the Board on such meetings; |
| |
(j) |
when applicable, review the annual post-audit or management letter from the independent auditor and management’s response and follow-up in respect of any
identified weakness; |
| |
(k) |
inquire regularly of management and the independent auditor whether there have been any significant issues between them regarding financial reporting or other matters
and how they have been resolved, and intervene in the resolution if required; |
| |
(l) |
receive and review annually the independent auditor’s report on management’s evaluation of internal controls and procedures for financial reporting;
|
| |
(m) |
review the engagement reports of the independent auditor on unaudited financial statements of the Corporation; and |
| |
(n) |
review and approve the Corporation’s hiring policies regarding partners and employees and former partners and employees of the present and former independent
auditor, (as more particularly described in Exhibit “A” attached hereto, as may be amended from time to time), including those policies that may have a material impact on the financial statements, pre-approve the hiring of any partner or
employee or former partner or employee of the independent auditor who was a member of the Corporation’s audit team during the preceding three fiscal years and, in addition, pre-approve the hiring of any partner or employee or former partner or
employee of the independent auditor (within the preceding three fiscal years) for senior positions within the Corporation, regardless whether that person was a member of the Corporation’s audit team. |
| 20. |
Oversight in Respect of Audit and Non-Audit Services |
The Committee, to the extent required by applicable laws or rules, or otherwise considered by the Committee to be necessary or appropriate, shall:
| |
(a) |
have the sole authority to pre-approve all audit services (which may entail providing comfort letters in connection with securities underwritings) and all permitted
non-audit services, provided that the Committee need not approve in advance non-audit services where: |
| |
(i) |
the aggregate amount of all such non-audit services provided to the Corporation constitutes not more than 5% of the total amount of revenues paid by the Corporation to
the independent auditor during the fiscal year in which the non-audit services are provided; and |
| |
(ii) |
such services were not recognized by the Corporation at the time of the engagement to be non-audit services; and |
| |
(iii) |
such services are promptly brought to the attention of the Committee and approved prior to the completion of the audit by the Committee or by one or more members of the
Committee to whom authority to grant such approvals has been delegated by the Committee; |
| |
(b) |
disclose, through the Corporation’s periodic reports filed with applicable regulatory agencies, the approval by the Committee of a non-audit service to be
performed by the independent auditor; and |
67
| |
(c) |
if the Committee so chooses, delegate to one or more designated members of the Committee the authority to grant pre-approvals required by this section, provided that
the decision of any member to whom authority is delegated to pre-approve a service shall be presented to the Committee at its next scheduled meeting. |
If the Committee approves an audit service within the scope of the engagement of the independent auditor, such audit service shall be deemed to have been pre-approved for purposes of this section.
| 21. |
Oversight in Respect of the Internal Audit Function |
The Committee, to the extent required by applicable laws or rules, or otherwise considered by the Committee to be necessary or appropriate, shall:
| |
(a) |
review the annual audit plans of Internal Audit; |
| |
(b) |
review the significant findings prepared by Internal Audit and recommendations issued by any external party relating to internal audit issues, together with
management’s response thereto; |
| |
(c) |
monitor compliance with the Corporation’s conflicts-of-interest policies that may have a material impact on the financial statements; |
| |
(d) |
review the adequacy of the resources of Internal Audit to ensure the objectivity and independence of the internal audit function; |
| |
(e) |
consult with management on management’s appointment, replacement, reassignment or dismissal of Internal Audit; |
| |
(f) |
periodically review executive officers’ expenses and aircraft usage reports; and |
| |
(g) |
ensure that the Sr. Director, Internal Audit & Enterprise Risk Management (or such individual in a similar capacity or position who performs a substantially
similar function) has access to the Chair, the Chair of the Board, the Chief Executive Officer, and the Chief Financial Officer, and periodically meet separately with the Sr. Director, Internal Audit & Enterprise Risk Management (or such
individual in a similar capacity or position who performs a substantially similar function) to review any problems or difficulties he or she may have encountered and specifically: |
| |
(i) |
any difficulties that were encountered in the course of the audit work, including restrictions on the scope of activities or access to required information, and any
disagreements with management; |
| |
(ii) |
any changes required in the planned scope of the internal audit; and |
| |
(iii) |
the internal audit function’s responsibilities, budget and staffing; |
and report to the Board on such meetings.
| 22. |
Oversight in Respect of Legal and Regulatory Compliance |
The Committee, to the extent required by applicable laws or rules, or otherwise considered by the Committee to be necessary or appropriate, shall:
| |
(a) |
review with the Chief Legal Officer (or such individual in a similar capacity or position who performs a substantially similar function) the Corporation’s
compliance policies, legal matters, and any reports or inquiries received from regulators or governmental agencies that could have a material effect upon the financial position of the Corporation and that are not subject to the oversight of another
committee of the Board; |
| |
(b) |
establish procedures for (i) the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or
auditing matters and (ii) the confidential, anonymous submissions by employees of the Corporation of concerns regarding questionable accounting or auditing matters; and |
| |
(c) |
periodically review the Corporation’s public disclosure policy. |
68
| 23. |
Limitations on Oversight Function |
While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Corporation’s financial
statements are complete and accurate or are in accordance with IFRS. These are the responsibilities of management and the independent auditor. The Committee, its Chair, and any of its members who have accounting or related financial management
experience or expertise are members of the Board of the Corporation appointed to the Committee to provide broad oversight of the financial risk and control related activities of the Corporation, and are specifically not accountable nor responsible
for the day-to-day operation or performance of such activities. A member or members having accounting or related financial management experience or expertise, or being designated as an “audit committee financial expert,” does not impose a
higher degree of individual responsibility or obligation on such member. Rather, the role of any such members, like the role of all Committee members, is to oversee the accounting and financial reporting processes and not to certify or guarantee the
accuracy or completeness of the internal or external audit of the Corporation’s financial information or public disclosure.
| 24. |
Funding for Audit and Oversight Functions |
The Committee shall have the sole authority to determine (subject to Board confirmation as required), and to require the Corporation to fund, (a) appropriate compensation to the independent auditor
engaged for the purpose of preparing or issuing an audit report or performing other audit, review, or attest services; (b) appropriate compensation to any advisors to the Committee; and (c) administrative expenses necessary or appropriate
to carrying out the Committee’s duties.
The Committee’s performance shall be evaluated regularly, in accordance with a process developed by the Corporate Governance & Nominating Committee and approved by the Board, and the results
of that evaluation shall be reported to the Corporate Governance & Nominating Committee and to the Board.
| 26. |
Review of Committee’s Charter |
The Committee shall assess the adequacy of this Charter on an annual basis and recommend any changes to the Board.
The foregoing list of duties is not exhaustive, and the Committee may, in addition, perform such other functions as may be necessary or
appropriate for the performance of its oversight responsibilities.
69
EXHIBIT “A”
Hiring Policies regarding Partners and Employees of the Independent Auditor
and Certain of Their Family Members
The hiring of current partners and employees or former partners and employees of the Corporation’s independent auditor or certain of their family members shall be subject to Committee approval in
advance of hiring in the following circumstances:
| |
(a) |
the hiring, for any position within the Corporation, of anyone who has served as a partner or employee of the independent auditor and who was a member of the
Corporation’s audit team during any of the preceding three fiscal years; or |
| |
(b) |
the hiring, for a senior position within the Corporation (including any accounting or financial reporting oversight role), of anyone who (i) has served as a
partner or employee of the independent auditor during any of the preceding three fiscal years, regardless whether that person was a member of the Corporation’s audit team, or (ii) has served as a partner or employee of the independent
auditor and (A) continues to influence the independent auditor’s operations or financial policies, (B) has capital balances in the independent auditor, or (C) has financial arrangements with the independent auditor other than a
fully funded retirement plan providing the regular payment of fixed sums; or |
| |
(c) |
the hiring, for any accounting or financial reporting oversight role within the Corporation, of the spouse or spousal equivalent, parent, dependent, nondependent child,
or sibling of anyone who, during any of the preceding three fiscal years, has served as a partner or employee of the independent auditor and who (i) was a member of the Corporation’s audit team, (ii) supervised or had direct
management responsibility for the audit (including at all successively senior levels through the independent auditor’s chief executive), (iii) evaluated the performance or recommended the compensation of the audit engagement partner,
(iv) provided quality control or other oversight of the audit, (v) provided 10 or more hours of non-audit services to the Corporation (or expects so to provide), or (vi) served in the office of the independent auditor in which the
lead audit engagement partner primarily practiced in connection with the audit. |
In considering whether to approve a proposed
hiring under any of the foregoing circumstances, the Committee may take into account any advice by the Chief Legal Officer or the Corporate Secretary (or such officers in similar capacities or positions who performs substantially similar functions)
of the Corporation that a proposed hiring is not barred by the independence standards applicable to independent auditors of issuers of securities listed on the Toronto Stock Exchange or the New York Stock Exchange.
The Chief Financial Officer shall report to the Committee annually, if applicable, any hiring during the preceding fiscal year of partners and employees
of the Corporation’s independent auditor not falling within the foregoing circumstances, including the identity and position within the Corporation of such hired persons.
70
EXHIBIT 99.2
AGRIUM INC.
2014
MANAGEMENT’S DISCUSSION & ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION
MANAGEMENT’S DISCUSSION AND ANALYSIS
FEBRUARY 24, 2015
14 AGRIUM 2014 ANNUAL REPORT
This Management’s Discussion and Analysis (“MD&A”) of operations and financial condition focuses on
Agrium’s long-term vision, strategy and growth opportunities as well as its historical performance for the two years ended December 31, 2014. The Board of Directors of Agrium (the “Board”) carried out its responsibility for
review of this disclosure and, prior to publication, approved this disclosure.
Throughout this MD&A, unless otherwise specified, “Agrium”, “the
Company”, “we”, “our”, “us” and similar expressions refer collectively to Agrium Inc. and its subsidiaries, any partnerships involving Agrium Inc. or any of its subsidiaries, its significant equity investments and
Agrium Inc.’s share of its joint ventures.
Additional information relating to the Company, including its consolidated quarterly and annual financial information
and its Annual Information Form (“AIF”) for the year ended December 31, 2014, is available under Agrium’s corporate profile on SEDAR (www.sedar.com). The Company’s reports are also filed with the U.S. Securities and Exchange
Commission on EDGAR (www.sec.gov).
All dollar amounts refer to U.S. dollars, except where otherwise stated. 2014 and 2013 financial information presented and
discussed in this MD&A is prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Certain financial measures in this MD&A, listed in the table below, are not prescribed by IFRS. Our method of calculation of the non-IFRS financial measures may not
be directly comparable to that of other companies. We consider these non-IFRS financial measures to provide useful information to both management and investors in measuring our financial performance and financial condition. These non-IFRS financial
measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS. Refer to page 76, “Additional IFRS and Non-IFRS Financial Measures” for further details, including a
reconciliation of the non-IFRS financial measures to their most directly comparable measure calculated in accordance with IFRS.
Non-IFRS Financial
Measures:
Earnings Before Interest, Tax, Depreciation and Amortization (“EBITDA”), Adjusted EBITDA, EBITDA to sales, debt to EBITDA
Retail: North America, International and Total Retail
Measures: return on operating capital employed (“ROOCE”), return on capital employed (“ROCE”), average non-cash working capital to sales, operating coverage ratio, cash operating coverage ratio and Earnings Before Interest and
Tax (“EBIT”)
Comparable store sales
and normalized comparable store sales
Capital
expenditures – sustaining and investing
Cost of product manufactured, debt-to-capital ratio
FORWARD-LOOKING
STATEMENTS
Certain statements and other information included in this MD&A constitute “forward-looking information” and/or “financial
outlook” within the meaning of applicable Canadian securities legislation or “forward-looking statements” within the meaning of applicable U.S. securities legislation (collectively herein referred to as “forward-looking
statements”), including the “safe harbour” provisions of provincial securities legislation and the U.S. Private Securities Litigation Reform Act of 1995, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, and
Section 27A of the U.S. Securities Act of 1933, as amended. Forward-looking statements are typically identified by the words “believe”, “expect”, “anticipate”, “project”, “intend”,
“estimate”, “outlook”, “focus”, “potential”, “will”, “should”, “would”, “could” and other similar expressions.
Forward-looking statements in this MD&A are intended to provide Agrium shareholders and potential investors with information regarding Agrium, including
management’s assessment of future financial and operational plans and outlook, and may not be appropriate for other purposes. These forward-looking statements are subject to a number of assumptions, risks and uncertainties, many of which are
beyond our control and which could cause actual results to differ materially from such forward-looking statements. As such, undue reliance should not be placed on these forward-looking statements. Refer to page 85, “Key Assumptions and Risks in
Respect of Forward-looking Statements”, for further details.
AGRIUM 2014 ANNUAL
REPORT 15
EXECUTIVE SUMMARY – A YEAR OF INVESTMENT AND REFINEMENT FOR THE FUTURE
2014 | CONSOLIDATED AND BUSINESS UNIT FINANCIAL PERFORMANCE
In 2014, Agrium’s net earnings from continuing operations were $798-million, compared to $1.1-billion in 2013. Our 2014 EBITDA was $1.7-billion compared to
$2.1-billion in 2013 with the decline primarily due to lower nutrient prices in 2014 and extended downtime at our potash mine required to tie-in the one million tonne capacity expansion. Our Retail business unit achieved record EBITDA of
$1.1-billion in 2014, compared to $957-million1 in 2013. The increase was a result of a full year of operational results from the highly successful Viterra acquisition in 2014. Results were also
supported by a significant improvement in international Retail business margins. Our Wholesale business unit reported Adjusted EBITDA of $821-million in 2014, compared to $1.3-billion in 2013. The decline reflects lower potash and nitrogen
gross profit in 2014. For potash, the decrease was due to lower global benchmark prices and the impact of reduced volumes and higher costs in 2014 related to the extended turnaround associated with the tie-in of our potash expansion project that was
completed in the fourth quarter of 2014. For nitrogen, the reduction in gross profit was due to a combination of lower realized prices and slightly higher cost of production as a result of higher natural gas prices and planned turnarounds during the
year.
2014 IN REVIEW
Lower crop prices and reduced crop acreage in the U.S. had a dampening impact on demand for crop inputs in 2014. Grower purchases of agricultural inputs and
services were impacted by a shift of five million planted acres from corn to soybeans in the U.S., as crop input expenditures on corn are almost twice as much as on soybeans. Crop prices were further pressured in the second half of 2014 by record
high corn and soybean yields in the U.S. and globally this summer. In addition, the fall application window was much shorter than usual in 2014 due to the combination of a late harvest and an early start to winter across most of the U.S. As a
result, a portion of the nutrient volumes expected to be applied in the fall of 2014 are expected to be pushed into the spring of 2015.
Global nutrient
markets were mixed in 2014, with most nitrogen prices down slightly year-over-year. Potash prices were significantly lower following the August 2013 breakup of the Belarusian Potash Company (“BPC”) marketing agency. Global nutrient demand
is estimated to have risen about 2 to 3 percent in 2014, in line with longer-term growth trends, despite lower global crop prices and a reduction in U.S. corn acreage in 2014. In nitrogen, Chinese urea exports reached record levels this year, which
kept global nitrogen prices trading in a fairly narrow range. The potash market worked through the BPC breakup and prices started to recover in mid-2014 as inventories began to tighten, especially after a Russian mine closed due to flooding in the
fall of 2014.
2014 was a year of investment to grow Agrium’s future earnings potential, particularly with respect to expanding our Wholesale capacity.
Growth in our Retail earnings this year was due largely to the successful Western Canadian Viterra acquisition and a significant improvement in the earnings of our international business, particularly in our Australian operations. We expect to
continue to grow Retail earnings through our focus on continuous improvement initiatives, including growing our market share and expanding our product lines for our proprietary products in seed, crop protection and nutrients, and through gaining
efficiencies across our facility network and equipment optimization. We also expect to continue to expand Retail through numerous tuck-in acquisitions as part of our growth strategy and expansion of our proprietary Loveland product lines. Retail
completed 22 transactions in 2014, adding 32 retail locations as well as several equity investments in agricultural technology operations that add to our proprietary product capabilities.
| 1 |
Excluding a $257-million purchase gain for the Viterra transaction and adjustments of $8-million in integration costs, partly offset by a goodwill impairment of $220-million for our Australia operations.
|
16 AGRIUM 2014 ANNUAL REPORT
For our Wholesale operations, we advanced expansion projects in our potash and nitrogen operations in 2014. We completed the
tie-in for our one million tonne potash expansion at the Vanscoy facility and restarted the facility at the end of 2014. We made good progress on a number of nitrogen expansion projects at existing facilities, including Borger, Texas, and facilities
in which we have equity positions in Argentina and Egypt. We also completed major upgrades and repairs at a number of our other existing facilities in Western Canada this year, particularly at our Redwater, Fort Saskatchewan and Carseland nitrogen
production facilities. These upgrades and repairs are expected to allow the facilities to operate at higher rates in 2015 and beyond.
A key focus for Agrium in 2014
was the implementation of Operational Excellence initiatives and continuation of our portfolio review, which we initiated in late 2013. As part of the portfolio review, the Agrium Advanced Technologies (“AAT”) business unit was dissolved
in 2013. The Environmentally Smart Nitrogen (“ESN®” herein after referred to as “ESN”) results have been re-integrated into the Wholesale business unit starting in 2014,
and the Turf and Ornamental operations were sold for $94-million. We also recently agreed to sell assets associated with Wholesale’s North American Purchase for Resale business for $50-million. Agrium set new targets for Operational Excellence
in 2014 and made progress toward realizing many of these targets this year. Improved average non-cash working capital to sales levels were realized across the organization and Retail exceeded its 18-percent target ratio for 2015, ahead of schedule
and continued to demonstrate improvement toward all other key operational targets in 2014.
Agrium made numerous changes to its capital allocation policy over the
past year. We increased our target dividend payout ratio to 40 to 50 percent of our free cash flow from the previous target of 25 to 35 percent. We also increased our dividend by 4 percent in 2014 to its current annual level of $3.12 per share
– the fourth increase in the past three years. We increased our minimum hurdle rate on new investment projects and announced a share repurchase program. This will provide flexibility to repurchase shares, particularly as our capital
expenditures wind down and seasonal cash flow increases in the second half of 2015.
The significant capital expenditures and associated downtime required in 2014 for
our expansion projects resulted in a rise in Agrium’s debt to EBITDA ratio to 3.0X as of the end of 2014. We expect our future free cash flow to benefit from the higher earnings potential and lower future investment capital expenditure once
these Wholesale expansion projects are complete in 2015 as well as from anticipated continued growth in our Retail earnings. As we look forward, we expect to be in a position to reduce the debt to EBITDA ratio and continue to increase the dividend
and other returns of capital to shareholders over time in-line with growing free cash flow while continuing to grow the business.
AGRIUM 2014 ANNUAL
REPORT 17
Our Retail distribution and services business provides growers with leading products, technologies and extensive agronomic experience,
all backed by a commitment to sound environmental practices. Our more than 3,000 agronomists and field experts work directly with growers to help them maximize the productivity of their farms by implementing the best management practices based on a
thorough understanding of soils, climate conditions and crop requirements. To further meet growers’ needs, we provide the latest precision agriculture and application services for the products we sell under our platform known as Echelon. We
also provide innovative proprietary nutritionals and crop protection product offerings under Loveland Products, seed products under the brand names Dyna-Gro and Proven, and animal health products under the brand name Dalgety. These leading inputs
not only provide growers with highly effective and profitable options to produce and protect their crops, but also deliver higher margins for Agrium. In certain regions, we also provide other rural services. In Australia, we provide livestock
marketing and auction services and facilitate real estate and insurance services to our broad customer base. In Canada, we also market crop storage bins, provide fuel sales and services, and offer financial services to our customers.
Our Retail distribution business provides earning stability for Agrium given that retail margins tend to be more stable than wholesale margins. This stability is further
supported by our extensive geographic and crop diversity and by the fact that demand for crop inputs and services is mostly driven by planted crop acreages which are relatively consistent.
RETAIL – KEY DEVELOPMENTS
OPERATIONAL EXCELLENCE
Agrium’s
Retail distribution remains focused on Operational Excellence, by striving to reach our operational and financial targets through various means. These include increasing the sales and earnings from our base business by continuing to focus on growing
our proprietary product line; developing new services such as our precision agriculture offering; maximizing our purchasing power across geographies and products; and optimizing our facility footprint and equipment utilization rates. Additional
areas of focus include capturing further synergies and improvements across our latest acquisitions in North America and Australia, while continuing to deliver on accretive acquisitions.
We achieved yet another year of improvement across all of our identified Retail metrics in 2015. Average non-cash working capital to sales declined to 17 percent by the
end of 2014, already exceeding our 2015 target of 18 percent and down from 20 percent in 2013. The reduction was due to a combination of factors, including the lower working capital requirements for the acquired Viterra operations, enhanced focus on
accounts receivable collections from customers, disciplined inventory management and continued facility
18 AGRIUM 2014 ANNUAL REPORT
AGRIUM 2014 ANNUAL
REPORT 19
optimization. We will continue to strive to achieve further reductions in our average non-cash working capital to sales
ratio in 2015 and beyond. In November 2014, we stated that we are targeting another $150-million reduction in Retail working capital by the end of 2017. Return metrics of ROCE and EBITDA to sales both improved by approximately 1 percent over last
year, largely as a result of better performance from our international Retail businesses and strong performance from the acquired Viterra Agri-products operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Retail metrics |
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015
Targets |
|
| Average non-cash working capital to sales |
|
|
20 |
% |
|
|
20 |
% |
|
|
17 |
% |
|
|
18 |
% |
| Operating coverage ratio (a) |
|
|
69 |
% |
|
|
73 |
% |
|
|
72 |
% |
|
|
67 |
% |
| Cash operating coverage ratio (a)(b) |
|
|
62 |
% |
|
|
64 |
% |
|
|
61 |
% |
|
|
60 |
% |
| EBITDA to sales |
|
|
8 |
% |
|
|
8 |
% |
|
|
9 |
% |
|
|
10 |
% |
| EBITDA ($-millions) |
|
|
951 |
|
|
|
986 |
|
|
|
1,119 |
|
|
|
1,300 |
|
| ROCE |
|
|
9 |
% |
|
|
9 |
% |
|
|
10 |
% |
|
|
13 |
% |
| ROOCE |
|
|
18 |
% |
|
|
17 |
% |
|
|
18 |
% |
|
|
22 |
% |
| (a) |
2013 metrics adjusted to exclude the impacts of the Viterra purchase gain of $257-million and a $220-million goodwill impairment for the Australia operations. |
| (b) |
Cash operating coverage ratio represents gross profit excluding depreciation and amortization less EBITDA, divided by gross profit excluding depreciation and amortization. |
Our Australian Retail operations made significant improvements in 2014, with EBITDA reaching $90-million compared to $52-million in 2013, excluding the 2013 goodwill
impairment. The significant year-over-year improvement reflects a combination of factors, including additional emphasis on cost-reduction, significant improvement in the livestock markets, both domestically and abroad, and improved weather
conditions.
We also continue to optimize our network of facilities through further implementation of our “hub and spoke” model. As farm size continues to
expand and modern equipment has delivered increased efficiency, fewer retail facilities are required to service the remaining farms. With this in mind, Retail continues to optimize its facility footprint, which includes converting some farm centers
to supercenters, shifting other facilities to satellites or un-manned warehouses, and closing facilities whose customers can be served effectively by other existing sites. In 2014, Retail consolidated 46 locations.
Our Retail distribution operation provides more stable margins than our Wholesale business, due to an inherent cost-plus mark up on products, our proprietary product
offerings and custom application services, as well as our diverse base of customers and crops. We serve more than 50 different crops through our globally diversified footprint.
Another Operational Excellence priority is improving the utilization and efficiency of the equipment we use to provide application services. Crop Production Services
operates one of the largest fleets of agricultural equipment in North America consisting of more than 55,000 units (excluding salespersons’ vehicles). Through the use of technology such as GPS tracking and big-data analytics, we have identified
optimization opportunities for the deployment and usage of this fleet. We have also made adjustments to our approach to purchasing of equipment to gain further efficiencies and leverage our scale.
Agrium has been offering precision agriculture services to U.S. grower customers for more than 10 years. Precision agriculture is a broad term that refers to agricultural
practices that use information technology, global positioning systems, and related data and production practices to recognize variance in a field’s yield potential. This information is then utilized to better match crop input use to field and
crop conditions in order to optimize yields and profits, as well as to reduce loss to the environment. To obtain the greatest value from precision agriculture, providers help growers analyze massive amounts of information, including yield maps,
detailed field analysis, and soil and foliar nutrient analysis to create specific product recommendations that can be precisely applied to fields. This typically includes variable-rate application of crop inputs as well as monitoring of crop, soil
and yield conditions. In addition, the technology provides recordkeeping and mapping benefits to the grower. Precision agriculture also has the potential to deliver significant environmental benefits, as better measurement and placement tends to
lead to improved efficiency of crop input use and a subsequent reduction in loss to the environment. Echelon is our precision agriculture technology platform. We currently provide this multi-crop service offering to an estimated 31,000 growers and
are on more than 19 million acres across the U.S. alone.
20 AGRIUM 2014 ANNUAL REPORT
In recent years, there has been increased focus on precision agriculture products and services, stemming from improved
analytical capabilities, accuracy, connectivity and synthesis of the associated data. With our custom-built Echelon platform, our goal is to ensure that our trusted agronomic advisors also become trusted technological advisors. It strengthens our
crop advisors’ relationships with existing customers and provides an opportunity to bring in new customers. It also allows our crop advisors to better analyze and illustrate the effectiveness of new products and practices. Echelon generates
value for Retail primarily through direct charge services such as soil sampling, through product bundling opportunities and through product pull for our extensive propriety product offering. Furthermore, Echelon is integrated with our Enterprise
Resource Planning (“ERP”) sales system, which leads to efficiencies from a Retail work order and inventory management perspective.
FOCUSED GROWTH
A major area of growth in 2014 was the addition and integration of the acquired Viterra Agri-products operations. This
was completed successfully during the year, and we see opportunities for additional synergies to be captured in 2015, including moving more of our higher margin proprietary Loveland products into the Canadian operations and continuing to expand
sales of our proprietary canola seed known as Proven. Proven is a leading canola seed, and we will continue to evaluate opportunities to market it in other regions in which we operate, including Australia.
In addition to integrating the Viterra acquisition, we completed a number of acquisitions of independent retail operations in 2014. This included 22 different
transactions with the addition of 32 new retail facilities as well as several equity investments in agricultural technology operations. These transactions represent incremental annual EBITDA of approximately $30-million. The majority of these
acquisitions took place in the U.S., where we continue to see the best opportunities for consolidation. We believe the opportunity for additional acquisitions remains robust and we will continue to actively pursue potentially valuable transactions.
Retail completed several back-integration investments this year in Advanced Microbial Solutions, LLC (“Agricen”), CH Biotech R&D Co., Ltd and Cache River Valley Seed, LLC. By taking an interest in or furthering our ownership of these
organizations we enable our Retail organization to be at the forefront of new plant protection and nutrition technologies, while driving global expansion and adoption of our portfolio of proprietary products.
AGRIUM 2014 ANNUAL
REPORT 21
RETAIL – FINANCIAL RESULTS
Retail sales reached a record $13.0-billion in 2014, compared to $11.9-billion in 2013, while gross profit rose to $2.9-billion from $2.6-billion in 2013. Total EBIT in
2014 was a record $814-million, compared to $719-million1 in 2013. EBITDA reached another record of $1.1-billion in 2014, compared to
$957-million1 in 2013.
Despite significant market headwinds, Agrium’s Retail business achieved record
sales, gross profit and EBITDA in 2014 through various Operational Excellence initiatives, which include continued growth in proprietary products and improvements in our international operations, and the successful integration of the acquired
Viterra Agri-products operations and other smaller acquisitions. Total crop inputs expenditures in the U.S. decreased due to the crop shift of approximately five million planted acres of corn to soybeans compared to 2013. As soybeans require
significantly lower inputs than corn, this reduced sales opportunities for U.S. agricultural retailers this year. Growers faced significantly weaker crop prices in 2014, particularly during the second half of the year due to record crop yields
across the U.S. Ideal growing conditions and a lack of pest pressure not only boosted yields but also lowered the demand for certain crop protection products this year. Furthermore, the sector experienced a comparatively late and compressed fall
application season this year, which limited nutrient volumes applied in the fall of 2014.
Our proprietary products sales continued to deliver strong results in 2014,
with proprietary crop protection and seed sales growing by 6 and 10 percent respectively over 2013 sales2. Overall, our proprietary product sales increased by $68-million in 2014 relative to 20132. Proprietary product sales represented 21 percent of total seed sales and 19 percent of total crop protection product sales in 2014, both increasing from 19 percent and 18 percent respectively in
2013.
Normalized comparable store sales (normalized for changes in commodity nutrient prices) decreased by 2 percent in 2014, compared to a 5 percent increase in
2013. The decrease in 2014 was primarily due to significantly lower corn acreage in the U.S., a more challenging crop protection market due to lower crop prices, and minimal pest pressure in the 2014 growing season. Smaller acquisitions completed
late in 2013 and in 2014 contributed approximately $75-million in sales. Depreciation and amortization increased to $305-million in 2014, compared to $238-million in 2013, due to the impact of the addition of the Viterra operations. Sales increased
by more than $1.0-billion in 2014, while cost of product sold increased by $0.8-billion relative to 2013. Total non-cash working capital was $2.0-billion at the end of 2014, compared to $2.1-billion at the end of 2013. The reduction in total
non-cash working capital resulted from numerous initiatives including enhanced focus on accounts receivable collections, disciplined inventory management and the lower working capital profile of the acquired Viterra Agri-products operations. As a
result, average non-cash working capital as a percentage of sales dropped to 17 percent in 2014, compared to 20 percent in 2013.
| 1 |
Excluding the 2013 Viterra purchase gain of $257-million, integration costs of approximately $8-million and a $220-million goodwill impairment for the Australia operations. |
| 2 |
Excluding acquired Viterra proprietary products. |
22 AGRIUM 2014 ANNUAL REPORT
RETAIL – EXPENSES
Retail selling expenses increased by 10 percent to $2.0-billion in 2014, compared to $1.8-billion in 2013. The increase was due to the addition of Viterra and the
associated payroll and operating expenses. Total selling expenses as a percentage of sales were 15.6 percent in 2014, largely in line with the 15.5 percent reported in 2013. The increase in depreciation and amortization related to the acquired
Viterra assets was largely offset by cash expense improvements in international operations and the continued leveraging of the size and scale of our North American operations. These factors improved the cash operating coverage ratio(b) from 62 percent in 2013 to 61 percent this year, which is approaching our target of 60 percent for 2015. In 2014, EBITDA as a percentage of sales was 9 percent compared to 8 percent in 2013, with
the increase largely due to improved margins and operational cost rationalization in our international retail businesses and the continued development of size and scale in our North American operations.
Retail performance
|
|
|
|
|
|
|
|
|
| |
|
Years ended December 31, |
|
| (millions of U.S. dollars, except as noted) |
|
2014 |
|
|
2013 |
|
| Sales |
|
|
12,981 |
|
|
|
11,913 |
|
| Cost of product sold |
|
|
10,089 |
|
|
|
9,298 |
|
| Gross profit |
|
|
2,892 |
|
|
|
2,615 |
|
| Expenses |
|
|
|
|
|
|
|
|
| Selling |
|
|
2,023 |
|
|
|
1,847 |
|
| General and administrative |
|
|
124 |
|
|
|
116 |
|
| Earnings from associates and joint ventures |
|
|
(6 |
) |
|
|
(9 |
) |
| Purchase gain |
|
|
— |
|
|
|
(257 |
) |
| Goodwill impairment |
|
|
— |
|
|
|
220 |
|
| Other income |
|
|
(63 |
) |
|
|
(50 |
) |
| EBIT |
|
|
814 |
|
|
|
748 |
|
| EBITDA |
|
|
1,119 |
|
|
|
986 |
|
| EBITDA to sales (%) |
|
|
8.6 |
|
|
|
8.3 |
|
| Operating coverage ratio (%)
(a) |
|
|
72 |
|
|
|
73 |
|
| Cash operating coverage ratio (%) (a)(b) |
|
|
61 |
|
|
|
64 |
|
| Comparable store sales (%) |
|
|
(4 |
) |
|
|
(2 |
) |
| Normalized comparable store sales (%) |
|
|
(2 |
) |
|
|
5 |
|
| Average non-cash working capital to sales (%) |
|
|
17 |
|
|
|
20 |
|
| (a) |
2013 metrics adjusted to exclude the impacts of the Viterra purchase gain of $257-million and a $220-million goodwill impairment for the Australia operations |
| (b) |
Cash operating coverage ratio represents gross profit excluding depreciation and amortization less EBITDA, divided by gross profit excluding depreciation and amortization |
CROP NUTRIENTS: PRODUCTS AND SERVICES
Retail supplies the crop
nutrients essential to growing healthy plants, including dry and liquid nitrogen and phosphates, potash, sulfur and micronutrients. Retail acquires crop nutrient products from a wide variety of suppliers at market prices, including purchases from
Wholesale. Approximately 30 percent of Retail’s North American nutrient purchases come from Wholesale, although in certain regions and with certain products the share is over 50 percent. These crop nutrient products are typically blended at
Retail branches or applied using variable-rate technology equipment at the field site. Retail delivers additional value to growers through its application services, which are provided on a fee-for-service basis. Our Retail branches work closely with
growers to understand their goals and customize our delivery of products, agronomic advice and product application services to help achieve those goals. Our Retail agronomists use the 4R nutrient stewardship system as well as our Echelon precision
agriculture platform to help determine the right nutrient source, applied at the right time, at the right rate and in the right place. The precision agriculture service provides our agronomists with highly sophisticated tools that help growers to
better recognize the differences in yield potential within a field and adjust crop inputs accordingly, thereby increasing their productivity and returns while reducing impact on the environment.
AGRIUM 2014 ANNUAL
REPORT 23
CROP NUTRIENTS: FINANCIAL RESULTS
Our crop nutrient sales were $5.2-billion in 2014 compared to $5.0-billion in 2013. The increase was due to the additional sales from the acquired Viterra Agri-products
operations. This was mostly offset by lower average sales-to-grower pricing compared to 2013. Retail nutrient sales volumes increased by 13 percent, reaching 9.7 million tonnes in 2014 compared to 8.6 million tonnes in 2013. The increase
in sales volumes was due to the addition of Viterra’s Agri-products operations and higher Australian volumes. Cost of product sold increased slightly to $4.3-billion in 2014 compared to $4.2-billion in 2013 due to the higher overall volumes;
however, this was largely offset by the lower average cost to procure nutrients. Gross profit reached $931-million this year, compared to $839-million in 2013. Crop nutrient margins of $96 per tonne in 2014 were similar to the $97 per tonne achieved
in 2013. Crop nutrient gross profit as a percentage of sales was 17.8 percent in 2014 compared to 16.8 percent in 2013, which is significant considering the downward pressure on global crop prices in 2014. Agrium continued to grow sales of its
proprietary nutritional products, which achieve higher margins than traditional commodity nutrients and helped support Agrium’s overall nutrient margins again in 2014.
CROP PROTECTION PRODUCTS: PRODUCTS AND SERVICES
Retail’s crop protection business markets a broad spectrum of herbicide, fungicide, insecticide and adjuvant products that help growers minimize yield losses and
protect crops from weeds, diseases and insects. Our Retail business serves as both a retailer of crop protection products and, to a lesser extent, a wholesaler to other retail operators. We are the largest independent distributor of crop protection
products in North America. As part of our proprietary Loveland crop protection operations, we own and operate numerous blending and formulation facilities including major production facilities in Greeley, Colorado; Billings, Montana; Greenville,
Mississippi; Casilda, Argentina; Buenos Aires, Argentina; and two formulation facilities in Western Australia and Victoria, Australia. We also have an investment in a formulation plant in Winnipeg, Manitoba. Retail also owns significant interests in
several agricultural biotechnology companies through its Loveland Products, Inc. business, which allows us to be at the forefront of developing new crop protection products for our customers.
CROP PROTECTION PRODUCTS: FINANCIAL RESULTS
The crop protection product category delivered solid results in 2014. Product sales increased to $4.6-billion in 2014 compared to $4.2-billion in 2013, while cost of
product sold increased to $3.6-billion compared to $3.2-billion in 2013. Gross profit for crop protection products reached $1.1-billion in 2014 compared to $987-million in 2013. The increase in sales and gross profit was primarily due to the
contribution of the acquired Viterra Agri-products operations. Gross margin for crop protection products was 22.9 percent in 2014 compared to 23.5 percent in 2013. The lower gross margin was due to a shift in product mix from higher-margin to
lower-margin products and geographies. On a product basis, this was partly due to a lack of pest pressure during critical times
24 AGRIUM 2014 ANNUAL REPORT
in plant development in the U.S. this year and the fact that growers were reducing input costs to maintain profit margins
with lower crop prices in the second half of 2014. Demand for higher-margin products such as fungicides and insecticides declined in the U.S. due to exceptionally good growing conditions this season and because early season herbicide applications
produced better-than-average results this year. Our proprietary crop protection products accounted for approximately 18.8 percent of our total crop protection product sales, compared to approximately 18.2 percent in 2013, and they continued to
contribute margins significantly higher than other crop protection products. Sales growth for our proprietary crop protection products rose 6 percent over last year, excluding the contributions from the Viterra operations.
SEED: PRODUCTS AND SERVICES
Retail’s network provides seed, and
seed-related information, to growers across key agricultural regions. We offer our own proprietary Dyna-Gro and Proven branded seed and also procure seed from top global suppliers. Our Dyna-Gro seed specialists license leading seed traits from major
seed suppliers and match seed characteristics to local soil and growing conditions to support the best results for growers in each area. Increases in seed market share, combined with continued technological advances in seed genetics, and our focus
on delivering high-quality seed products to our customers, provide significant potential for continued strong growth in this key area of our business. The Viterra acquisition brought with it a significant canola seed research and development
program. With laboratories in Saskatoon, Saskatchewan, and Horsham, Australia, as well as vast germplasm bank and research farms in Saskatchewan, we have acquired significant plant breeding capabilities that will allow us to continue developing
improved canola seed varieties that are marketed under the brand name Proven. These proprietary product lines add significant margin value to our overall seed sales. Proprietary seed sales represented just over 20 percent of total seed sales in
2014. Agrium also provides seed treatment products and related services at our retail locations, which involve applying crop protection products that are specifically designed to promote healthy seed germination and early stage plant growth directly
to the seed prior to planting.
SEED: FINANCIAL RESULTS
Seed sales reached $1.5-billion in 2014 compared to $1.3-billion in 2013. The increase was due primarily to contributions from Viterra’s canola seed operations,
improved sales volumes from soybeans, and continued growth in our Dyna-Gro proprietary seed sales in the U.S. Cost of product sold for seed also increased to $1.2-billion in 2014 from $984-million in 2013. Gross profit from seed was $319-million
compared to $274-million in 2013. At 21.5 percent, gross margin for 2014 was largely in-line with the 21.8 percent reported in 2013, though it was slightly influenced by the crop shift to soybeans from corn. In 2014, Agrium’s proprietary seed
sales increased by 10 percent to $258-million, excluding Viterra’s proprietary seed sales. Proprietary seed sales accounted for 20.6 percent of our total seed sales compared to 18.7 percent in 2013.
AGRIUM 2014 ANNUAL
REPORT 25
MERCHANDISE: PRODUCTS AND SERVICES
The merchandise product category includes fencing, feed supplements, livestock-related animal health products, irrigation equipment and other products. The fuel and
equipment businesses acquired from Viterra in Canada are also included in the merchandise category. This product line is a much larger component of our Australian and Canadian operations than our U.S. and South American Retail operations.
MERCHANDISE: FINANCIAL RESULTS
Merchandise
sales totaled $871-million in 2014 compared to $612-million in 2013. Gross profit reached $114-million in the current year compared to $94-million in 2013. The increase in sales was mainly due to the addition of the Viterra fuel and equipment
operating lines. The increase in gross profit reflects higher margins as a percentage of sales in Australia (as an improvement in the global livestock sector supported demand for animal health products) and actions taken to improve returns from this
line of business such as rationalizing the number of product lines and stock keeping units (“SKUs”) to focus on the most profitable products. The increase in margins in Australia was offset by the addition of the Viterra fuel operations,
which return relatively low margins. Overall margins were 13.1 percent in 2014 compared to 15.4 percent in 2013.
SERVICES AND OTHER: PRODUCTS AND
SERVICES
Agrium delivers value to growers and earns customer loyalty through services such as product application, soil and leaf testing, crop scouting and
precision agriculture services. We maintain a large fleet of application equipment and other rolling stock to ensure timely applications of both nutrients and crop protection products at optimal rates. Another service we provide to growers is seed
treatment, which involves applying products to seeds to protect them from pests and disease. Our Australian operations also offer livestock marketing as well as various insurance and real estate services.
Retail also offers tissue and soil sampling services aimed at optimizing yields. Our Echelon precision agriculture offering includes services such as yield data mapping,
record-keeping, soil fertility management, variable-rate fertilizer application and variable-rate seeding recommendations, along with agronomic advice and proprietary product considerations. Agrium’s precision agriculture service is being used
on more than 22 million acres of growers’ land in the U.S. and Canada. Retail currently captures much of the value from these precision agricultural services through three positions: the bundling of products and application services,
indirect sales of proprietary and non-proprietary products, and a per-acre charge for soil and tissue sampling resulting from the Echelon platform recommendations.
SERVICES AND OTHER: FINANCIAL RESULTS
Sales of services and other were $794-million in 2014 compared to $846-million in 2013. This decrease was due primarily to lower sales in Australia – specifically
the export of wool, which has been discontinued due to low returns on investment and high working capital. Despite the lower sales, gross profit increased to $474-million in 2014 compared to $421-million in the previous year. Gross margins improved
to 59.7 percent in 2014 from 49.8 percent in 2013. The higher gross profit reflects improved margins from Australian and international livestock markets and stronger margins for services at our legacy North American operations.
Product line performance
|
|
|
|
|
|
|
|
|
| |
|
Years ended December 31, |
|
| (millions of U.S. dollars, except as noted) |
|
2014 |
|
|
2013 |
|
| Crop nutrients |
|
|
|
|
|
|
|
|
| Sales |
|
|
5,222 |
|
|
|
4,993 |
|
| Cost of product sold |
|
|
4,291 |
|
|
|
4,154 |
|
| Gross profit |
|
|
931 |
|
|
|
839 |
|
| Gross profit (%) |
|
|
17.8 |
|
|
|
16.8 |
|
| Crop protection products |
|
|
|
|
|
|
|
|
| Sales |
|
|
4,613 |
|
|
|
4,204 |
|
| Cost of product sold |
|
|
3,559 |
|
|
|
3,217 |
|
| Gross profit |
|
|
1,054 |
|
|
|
987 |
|
| Gross profit (%) |
|
|
22.9 |
|
|
|
23.5 |
|
| Seed |
|
|
|
|
|
|
|
|
| Sales |
|
|
1,481 |
|
|
|
1,258 |
|
| Cost of product sold |
|
|
1,162 |
|
|
|
984 |
|
| Gross profit |
|
|
319 |
|
|
|
274 |
|
| Gross profit (%) |
|
|
21.5 |
|
|
|
21.8 |
|
| Merchandise |
|
|
|
|
|
|
|
|
| Sales |
|
|
871 |
|
|
|
612 |
|
| Cost of product sold |
|
|
757 |
|
|
|
518 |
|
| Gross profit |
|
|
114 |
|
|
|
94 |
|
| Gross profit (%) |
|
|
13.1 |
|
|
|
15.4 |
|
| Services and other |
|
|
|
|
|
|
|
|
| Sales |
|
|
794 |
|
|
|
846 |
|
| Cost of product sold |
|
|
320 |
|
|
|
425 |
|
| Gross profit |
|
|
474 |
|
|
|
421 |
|
| Gross profit (%) |
|
|
59.7 |
|
|
|
49.8 |
|
| Total sales |
|
|
12,981 |
|
|
|
11,913 |
|
| Total cost of product sold |
|
|
10,089 |
|
|
|
9,298 |
|
| Total gross profit |
|
|
2,892 |
|
|
|
2,615 |
|
| Total gross profit (%) |
|
|
22.3 |
|
|
|
22.0 |
|
26 AGRIUM 2014 ANNUAL REPORT
Regional performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| (millions of U.S. dollars, except as noted) |
|
North
America |
|
|
International |
|
|
North
America |
|
|
International |
|
| Sales |
|
|
10,463 |
|
|
|
2,518 |
|
|
|
9,329 |
|
|
|
2,584 |
|
| Cost of product sold |
|
|
8,080 |
|
|
|
2,009 |
|
|
|
7,175 |
|
|
|
2,123 |
|
| Gross profit |
|
|
2,383 |
|
|
|
509 |
|
|
|
2,154 |
|
|
|
461 |
|
| Gross profit (%) |
|
|
22.8 |
|
|
|
20.2 |
|
|
|
23.1 |
|
|
|
17.8 |
|
| Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling |
|
|
1,622 |
|
|
|
401 |
|
|
|
1,450 |
|
|
|
397 |
|
| General and administrative |
|
|
80 |
|
|
|
44 |
|
|
|
64 |
|
|
|
52 |
|
| Earnings from associates and joint ventures |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(6 |
) |
| Purchase gain |
|
|
— |
|
|
|
— |
|
|
|
(257 |
) |
|
|
— |
|
| Goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
220 |
|
| Other income |
|
|
(39 |
) |
|
|
(24 |
) |
|
|
(40 |
) |
|
|
(10 |
) |
| EBIT |
|
|
723 |
|
|
|
91 |
|
|
|
940 |
|
|
|
(192 |
) |
| EBITDA |
|
|
980 |
|
|
|
139 |
|
|
|
1,142 |
|
|
|
(156 |
) |
Retail gross profit from our North American operations improved in 2014, supported by particularly strong results for crop nutrients,
seed, and services and other due to the addition of Viterra Agri-product operations. International margins also increased as a result of ongoing operational improvements and stronger results in Australia due to an improved regional agricultural
market and improvements in the overall livestock sector.
North American EBIT declined in 2014 relative to 2013, as a result of the $257-million purchase gain
recorded in 2013 associated with the highly successful Viterra acquisition. Results for the North American operations, excluding the acquisition of the Viterra Agri-product operations, were challenged somewhat by lower crop prices and a relatively
narrow nutrient application window in both the spring and fall seasons in 2014. International EBIT increased in 2014 due to improved volumes and margins in both Australia and South America, even after adjusting for a $220-million goodwill impairment
of Australian assets in 2013.
AGRIUM 2014 ANNUAL
REPORT 27
RETAIL – QUARTERLY RESULTS
Our Retail business is seasonal and is strongly influenced by the second quarter, which includes the spring application and planting season in North America and the early
fall application season in Australia that takes place ahead of the winter wheat seeding season.
North America experienced a relatively late spring and early winter
in 2014, which delayed harvest and shortened the nutrient application window in the fall.
As a result, a portion of fourth quarter 2014 sales volumes are expected to
be pushed into the first half of 2015. Furthermore, according to the United States Department of Agriculture, crop conditions for corn and soybeans in the U.S. were some of the best in history, which led to unusually high yields and a significant
reduction in grain and oilseed prices. Despite these challenges, Agrium’s quarterly Retail results improved year-over-year, primarily due to the addition of the Viterra operations.
Retail quarterly results*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| (millions of U.S. dollars, except as noted) |
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
| Sales – North America* |
|
|
1,482 |
|
|
|
1,738 |
|
|
|
5,511 |
|
|
|
1,717 |
|
|
|
1,538 |
|
|
|
1,531 |
|
|
|
4,657 |
|
|
|
1,587 |
|
| Sales – International* |
|
|
575 |
|
|
|
557 |
|
|
|
886 |
|
|
|
515 |
|
|
|
564 |
|
|
|
578 |
|
|
|
906 |
|
|
|
552 |
|
| Total sales |
|
|
2,057 |
|
|
|
2,295 |
|
|
|
6,397 |
|
|
|
2,232 |
|
|
|
2,102 |
|
|
|
2,109 |
|
|
|
5,563 |
|
|
|
2,139 |
|
| Cost of product sold |
|
|
1,443 |
|
|
|
1,753 |
|
|
|
5,048 |
|
|
|
1,845 |
|
|
|
1,516 |
|
|
|
1,598 |
|
|
|
4,421 |
|
|
|
1,763 |
|
| Gross profit |
|
|
614 |
|
|
|
542 |
|
|
|
1,349 |
|
|
|
387 |
|
|
|
586 |
|
|
|
511 |
|
|
|
1,142 |
|
|
|
376 |
|
| Gross profit (%) |
|
|
30 |
|
|
|
24 |
|
|
|
21 |
|
|
|
17 |
|
|
|
28 |
|
|
|
24 |
|
|
|
21 |
|
|
|
18 |
|
| Gross profit by product |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Crop nutrients |
|
|
156 |
|
|
|
142 |
|
|
|
505 |
|
|
|
128 |
|
|
|
178 |
|
|
|
116 |
|
|
|
424 |
|
|
|
121 |
|
| Crop protection products |
|
|
260 |
|
|
|
232 |
|
|
|
457 |
|
|
|
105 |
|
|
|
205 |
|
|
|
248 |
|
|
|
406 |
|
|
|
128 |
|
| Seed |
|
|
50 |
|
|
|
27 |
|
|
|
196 |
|
|
|
46 |
|
|
|
60 |
|
|
|
30 |
|
|
|
140 |
|
|
|
44 |
|
| Merchandise |
|
|
30 |
|
|
|
36 |
|
|
|
24 |
|
|
|
24 |
|
|
|
30 |
|
|
|
19 |
|
|
|
23 |
|
|
|
22 |
|
| Services and other |
|
|
118 |
|
|
|
105 |
|
|
|
167 |
|
|
|
84 |
|
|
|
113 |
|
|
|
98 |
|
|
|
149 |
|
|
|
61 |
|
| EBIT |
|
|
104 |
|
|
|
51 |
|
|
|
714 |
|
|
|
(55 |
) |
|
|
123 |
|
|
|
91 |
|
|
|
562 |
|
|
|
(28 |
) |
| EBITDA |
|
|
181 |
|
|
|
130 |
|
|
|
791 |
|
|
|
17 |
|
|
|
195 |
|
|
|
147 |
|
|
|
619 |
|
|
|
25 |
|
| |
|
|
| |
|
2014 |
|
|
2013 |
|
| (in percentages) |
|
Dec 31 |
|
|
Sept 30 |
|
|
June 30 |
|
|
March 31 |
|
|
Dec 31 |
|
|
Sept 30 |
|
|
June 30 |
|
|
March 31 |
|
| Average non-cash working capital to sales (a) |
|
|
17 |
|
|
|
17 |
|
|
|
17 |
|
|
|
19 |
|
|
|
20 |
|
|
|
20 |
|
|
|
20 |
|
|
|
20 |
|
| Operating coverage ratio (a)(b) |
|
|
72 |
|
|
|
72 |
|
|
|
70 |
|
|
|
74 |
|
|
|
73 |
|
|
|
72 |
|
|
|
72 |
|
|
|
72 |
|
| Cash operating coverage ratio (a)(b) |
|
|
61 |
|
|
|
62 |
|
|
|
61 |
|
|
|
64 |
|
|
|
64 |
|
|
|
64 |
|
|
|
64 |
|
|
|
64 |
|
| Comparable store sales (c) |
|
|
(4 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
| Normalized comparable store sales (c) |
|
|
(2 |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
| Return on operating capital employed (a) |
|
|
18 |
|
|
|
18 |
|
|
|
19 |
|
|
|
16 |
|
|
|
17 |
|
|
|
16 |
|
|
|
15 |
|
|
|
15 |
|
| Return on capital employed (a) |
|
|
10 |
|
|
|
10 |
|
|
|
11 |
|
|
|
9 |
|
|
|
9 |
|
|
|
8 |
|
|
|
8 |
|
|
|
8 |
|
| (a) |
These measures are based on rolling four quarters ended. |
| (b) |
Adjusted to exclude the impacts of the 2013 Viterra purchase gain of $257-million and a $220-million goodwill impairment for the Australia operations. |
| (c) |
These measures are based on six months ended for June 30 results and 12 months ended for December 31 results. |
| * |
Sales by location of third-party customers. |
28 AGRIUM 2014 ANNUAL REPORT
Our Wholesale operations have numerous competitive advantages that help ensure profitability even under challenging market conditions.
One key advantage is that the majority of our production capacity and distribution capability is located close to our key end-markets, allowing us to leverage lower freight costs and logistical synergies. Wholesale also benefits from leveraging
Retail’s position as the largest agriculture retail distribution business in North America. Our nitrogen facilities have access to some of the lowest cost natural gas globally, due to their locations in Alberta, Canada, the U.S. and Egypt. Our
potash reserves in Saskatchewan, Canada, represent some of the highest quality and lowest cost reserves in the world. Our potash expansion project is expected to significantly lower our per-tonne cost of production over the next few years as we
ramp-up the new incremental capacity. Our phosphate business benefits from an in-market transportation advantage, a competitive cost position in sulfur and an integrated ammonia supply from our nitrogen facilities.
AGRIUM 2014 ANNUAL
REPORT 29
30 AGRIUM 2014 ANNUAL REPORT
GROWERS USE THE FOLLOWING THREE KEY CROP NUTRIENTS TO HELP REPLENISH SOIL NUTRIENT BALANCE
AND ENHANCE CROP YIELDS AND QUALITY.
|
|
|
|
|
|
|
|
|
|
|
| Role of nutrient |
| Improves crop growth, yield and protein levels. |
|
Stimulates root development and flowering and encourages early crop development. |
|
Regulates plant growth processes and helps protect crops from drought and disease. |
| Our products |
| Ammonia, urea, urea ammonium nitrate (“UAN”) solutions, ammonium nitrate. |
|
Monoammonium phosphate (“MAP”), superphosphoric acid (“SPA”) products. |
|
Muriate of potash (“MOP” or “potash”). |
| Our advantages |
| Ÿ |
|
Overall low North American natural gas prices and a further Western Canadian AECO gas advantage relative to NYMEX; and |
|
Ÿ Competitive cost position for sulfur and
ammonia; |
|
Ÿ |
|
World-scale, high-quality and low-cost advantage; |
|
|
Ÿ In-market freight advantage;
and |
|
Ÿ |
|
High historical operating rate due to integration with Retail
and a balanced geographic sales mix; |
| Ÿ |
|
Facilities located near key end-markets in the Americas and Europe. |
|
Ÿ Integrated Conda rock
supply. |
|
|
|
|
|
|
|
|
Ÿ |
|
Capacity expansion initiative; and |
| |
|
|
|
|
|
|
|
Ÿ |
|
Partner in a major
international marketing and logistics company (Canpotex). |
AGRIUM 2014 ANNUAL
REPORT 31
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2014 Wholesale capacity, production and sales |
|
|
|
|
|
|
|
|
|
| (thousands of metric product tonnes) |
|
Capacity (c) |
|
|
Production (a)(c) |
|
|
Sales (b) |
|
| Nitrogen volumes |
|
|
|
|
|
|
|
|
|
|
|
|
| North America |
|
|
|
|
|
|
|
|
|
|
|
|
| Canada |
|
|
3,515 |
|
|
|
2,348 |
|
|
|
1,581 |
|
| U.S. |
|
|
1,333 |
|
|
|
1,189 |
|
|
|
1,731 |
|
| Total nitrogen |
|
|
4,848 |
|
|
|
3,537 |
|
|
|
3,312 |
|
| Potash volumes |
|
|
|
|
|
|
|
|
|
|
|
|
| North America |
|
|
|
|
|
|
|
|
|
|
|
|
| Canada (f) |
|
|
2,035 |
|
|
|
1,058 |
|
|
|
124 |
|
| U.S. |
|
|
— |
|
|
|
— |
|
|
|
697 |
|
| International |
|
|
— |
|
|
|
— |
|
|
|
443 |
|
| Total potash |
|
|
2,035 |
|
|
|
1,058 |
|
|
|
1,264 |
|
| Phosphate volumes |
|
|
|
|
|
|
|
|
|
|
|
|
| North America |
|
|
|
|
|
|
|
|
|
|
|
|
| Canada |
|
|
660 |
|
|
|
594 |
|
|
|
650 |
|
| U.S. |
|
|
510 |
|
|
|
539 |
|
|
|
492 |
|
| Total phosphate |
|
|
1,170 |
|
|
|
1,133 |
|
|
|
1,142 |
|
| Ammonium sulfate, ESN and other volumes |
|
|
|
|
|
|
|
|
|
|
|
|
| North America |
|
|
|
|
|
|
|
|
|
|
|
|
| Canada |
|
|
546 |
|
|
|
485 |
|
|
|
530 |
|
| U.S. |
|
|
559 |
|
|
|
430 |
|
|
|
533 |
|
| Total ammonium sulfate, ESN and other |
|
|
1,105 |
|
|
|
915 |
|
|
|
1,063 |
|
| Total produced product |
|
|
9,158 |
|
|
|
6,643 |
|
|
|
6,781 |
|
| Product purchased for resale volumes (d) |
|
|
|
|
|
|
|
|
|
|
|
|
| North America |
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. |
|
|
— |
|
|
|
— |
|
|
|
913 |
|
| International |
|
|
— |
|
|
|
— |
|
|
|
1,577 |
|
| Total product purchased for resale |
|
|
|
|
|
|
|
|
|
|
2,490 |
|
| Total Wholesale |
|
|
9,158 |
|
|
|
6,643 |
|
|
|
9,271 |
|
| Wholesale equity accounted joint ventures: |
|
|
|
|
|
|
|
|
|
|
|
|
| International nitrogen (e) |
|
|
635 |
|
|
|
471 |
|
|
|
454 |
|
| International product purchased for resale |
|
|
— |
|
|
|
— |
|
|
|
287 |
|
| (a) |
Production, net of transfers. |
| (b) |
Sales represent country of sales destination, not country of production. |
| (c) |
Aqua ammonia and nitrates, SPA and Merchant Grade Phosphoric Acid (“MGA”) are reported by cargo weight. |
| (d) |
Product purchased for resale includes sales of all the major crop nutrient products. |
| (e) |
Primarily represents our 50 percent joint venture interest in the capacity of Profertil S.A. (“Profertil”), which is accounted for using the equity method. |
| (f) |
2014 potash capacity of 2.035 million tonnes excludes the recently completed potash expansion project which is expected to increase our effective potash capacity by approximately one million tonnes.
|
32 AGRIUM 2014 ANNUAL REPORT
WHOLESALE – KEY DEVELOPMENTS
In 2014, Wholesale took significant steps in identifying Operational Excellence initiatives and targets and progressed toward our identified growth projects. During the
year, we had three nitrogen projects and one major potash growth project underway. As a result, we expect our aggregate production capacity to increase by at least 20 percent over 2014 name plate capacity by the end of 2015. We also have programs in
place and targets set to increase operating rates over the same timeframe.
OPERATIONAL EXCELLENCE
In 2014, Wholesale increased its focus on Operational Excellence and has identified savings of approximately $60-million, which are expected to be fully achieved by the
end of 2017. Significant progress was made in 2014 on these initiatives, which include workforce reductions, procurement initiatives and operational improvements as well as an ongoing company-wide portfolio review.
In late 2013, the AAT business unit was dissolved and in 2014, ESN results were re-integrated into the Wholesale business unit, which achieved significant synergies.
A further action taken as a result of the portfolio review was to discontinue the purchase for resale business in North America and scale back the operations in Europe.
In early 2015, agreements were signed to sell certain storage assets related to Agrium’s purchase for resale business in North America, which will generate approximately $50-million in sale proceeds.
FOCUSED GROWTH
The Vanscoy potash
expansion project was tied-in to the existing infrastructure in late December 2014, at which time potash production recommenced. Our current production capacity is 2.04 million tonnes and the expansion project will increase annual potash
production capacity to approximately 3 million tonnes. We will be ramping up production of the expansion volumes over the next 2 1⁄2 years. We expect to
produce 2.1 million tonnes in 20151. Due to Agrium’s distribution network in domestic markets, the expanded mine is expected to run at higher operating rates than peer averages. The
expansion project is also expected to reduce cost of production across all produced tonnes from the mine by approximately $20 per tonne by the end of 2017.
The
Borger nitrogen expansion project, which commenced construction in 2014 and made significant progress during the year and is expected to be complete by the end of 2015. The expansion will add approximately 145,000 tonnes of gross ammonia and 610,000
tonnes of urea production. The Borger expansion project will help ensure the long-term viability of the facility as a low-cost producer and will leverage Agrium’s distribution network.
The energy efficiency debottleneck project at the Profertil nitrogen facility in Bahia Blanca, Argentina, was also mechanically completed in 2014, with commissioning and
start-up expected to be completed in the first quarter of 2015. This will increase Agrium’s share of production by approximately 70,000 tonnes with no additional gas required. Agrium holds a 50 percent interest in the facility, which now has a
total capacity of 1.4 million tonnes of urea and 70,000 tonnes of merchant ammonia. The expansion project was focused on improving efficiency and debottlenecking the facility, and achieved the increased production through higher gas utilization
and conversion.
In Egypt, work recommenced on the Egyptian Misr Fertilizers Production Company S.A.E. (“MOPCO”) nitrogen facility expansion and is on track
for completion of two new production trains by the middle of 2015. Agrium holds a 26 percent share in the facility, which is located in Damietta. The facility has been operating one production train with capacity of 650,000 tonnes and will add
1.3 million tonnes of production with the two additional trains. Agrium will utilize its global distribution network to market all 1.3 million additional tonnes of product manufactured at the facility, with a significant portion of sales
expected to be made into Europe.
| 1 |
Certain scientific and technical information regarding Vanscoy Potash Operations is based on the technical report entitled “National Instrument 43-101 Technical Report on Vanscoy Potash Operations” effective
October 31, 2014 (the “Technical Report”) prepared by Michael Ryan Bartsch, P. Eng. and Dennis Grimm, P. Eng. of the Company, and A. Dave Mackintosh, P Geo. of ADM Consulting Limited, each of whom is a Qualified Person as defined in
National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”). The Technical Report updates the technical report titled “National Instrument 43-101 Technical Report on Vanscoy Potash Operations”
dated February 15, 2012 and with an effective date of December 31, 2011. The Technical Report has been filed with the securities regulatory authorities in each of the provinces of Canada and with the U.S. Securities and Exchange
Commission. Portions of the above information are based on assumptions, qualifications and procedures that are not fully described herein. Reference should be made to the full text of the Technical Report, which is available for review on SEDAR at
www.sedar.com and on EDGAR at www.sec.gov. The technical contents of this MD&A have been reviewed by A. Dave Mackintosh, P Geo. of ADM Consulting Limited and Michael R. Bartsh and Dennis Grimm of the Company, all of whom are Qualified Persons
pursuant to NI 43-101. |
AGRIUM 2014 ANNUAL
REPORT 33
Also in 2014, we set top-quartile operating rate targets for Wholesale assets. We undertook numerous projects and
initiatives to significantly improve the on-stream time of our nitrogen production assets, including replacing end-of-life equipment at our Carseland, Fort Saskatchewan and Redwater facilities. Additional improvements included new systems designed
to protect critical equipment, improved turnaround process management and new training tools for operators. These measures are expected to significantly increase operating rates at our production facilities.
The ongoing integration of the recent Viterra acquisition in Canada presents an opportunity for Wholesale to increase net returns by placing more product in Western
Canada near our primary production facilities, resulting in higher netbacks. This integration of our production and Retail operations improves returns due to reduced freight costs and greater logistics efficiencies.
WHOLESALE – FINANCIAL RESULTS
Sales from Wholesale operations were $4.0-billion in 2014 compared to $4.6-billion in 2013. Gross profit was $655-million in 2014 compared to $1.1-billion in 2013.
Wholesale EBIT was $553-million in 2014 compared to $1.0-billion in 2013. Adjusted EBITDA decreased to $821-million in 2014 from $1.3-billion in 2013. The decline in sales and earnings was largely due to lower year-over-year potash and nitrogen
prices and potash volumes. Gross profit was also impacted by higher per-tonne costs for potash and nitrogen due to higher natural gas costs in addition to planned and unplanned downtime at our potash and nitrogen facilities in 2014.
WHOLESALE – EXPENSES
Wholesale
expenses were $102-million in 2014, compared to $97-million in 2013. The higher expenses this year were due to a reduction in earnings from associates and joint ventures pertaining to our interests in the nitrogen facilities in Egypt and Argentina,
which are included in this line item. Excluding earnings from associates and joint ventures, actual Wholesale expenses declined to $120-million compared to $157-million in 2013. The reduction was a result of lower general and administrative and
other expenses related to Agrium’s Operational Excellence initiatives during the year.
Earnings from associates and joint ventures in 2014 were $18-million
compared to $60-million in 2013. Our 26-percent interest in the MOPCO nitrogen facility in Egypt reported a $1-million equity loss in 2014 compared to $17-million of equity earnings in 2013. The decrease was due to a production outage in the second
half of 2014 as a result of gas supply issues and slightly lower urea prices out of the Middle East in 2014. Earnings from our 50-percent interest in the Profertil nitrogen facility in Argentina also declined in 2014 to $18-million from $43-million
in 2013 due to lower selling prices for urea, consistent with global benchmark pricing. Furthermore, the Profertil facility was shut down for four weeks in 2014 to tie-in the debottleneck expansion project and also experienced some unplanned
downtime in the second half of the year.
34 AGRIUM 2014 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
| Wholesale performance |
|
|
|
|
|
|
| |
|
Years ended December 31, |
|
| (millions of U.S. dollars, except as noted) |
|
2014 |
|
|
2013 |
|
| Nitrogen |
|
|
|
|
|
|
|
|
| Sales |
|
|
1,482 |
|
|
|
1,724 |
|
| Gross profit |
|
|
381 |
|
|
|
672 |
|
| Potash |
|
|
|
|
|
|
|
|
| Sales |
|
|
391 |
|
|
|
564 |
|
| Gross profit |
|
|
70 |
|
|
|
270 |
|
| Phosphate |
|
|
|
|
|
|
|
|
| Sales |
|
|
701 |
|
|
|
654 |
|
| Gross profit |
|
|
76 |
|
|
|
67 |
|
| Ammonium sulfate, ESN and other |
|
|
|
|
|
|
|
|
| Sales |
|
|
478 |
|
|
|
529 |
|
| Gross profit |
|
|
103 |
|
|
|
124 |
|
| Product purchased for resale |
|
|
|
|
|
|
|
|
| Sales |
|
|
921 |
|
|
|
1,131 |
|
| Gross profit |
|
|
25 |
|
|
|
9 |
|
| Total sales |
|
|
3,973 |
|
|
|
4,602 |
|
| Total gross profit |
|
|
655 |
|
|
|
1,142 |
|
| Expenses |
|
|
|
|
|
|
|
|
| Selling |
|
|
44 |
|
|
|
43 |
|
| General and administrative |
|
|
48 |
|
|
|
81 |
|
| Earnings from associates and joint ventures |
|
|
(18 |
) |
|
|
(60 |
) |
| Other expenses |
|
|
28 |
|
|
|
33 |
|
| EBIT |
|
|
553 |
|
|
|
1,045 |
|
| EBITDA |
|
|
783 |
|
|
|
1,262 |
|
| EBITDA to sales (%) |
|
|
19.7 |
|
|
|
27.4 |
|
| Adjusted EBITDA |
|
|
821 |
|
|
|
1,316 |
|
NITROGEN
PRODUCTS
Nitrogen is the largest, most important crop nutrient in terms of global use and trade, representing approximately 60
percent of the total volume of crop nutrients used globally. It is also the one crop nutrient most likely to result in an immediate adverse impact on most crops’ yield if application rates are reduced within the growing season. Nitrogen is
Agrium’s most important nutrient in terms of capacity, production and sales, accounting for approximately 60 percent of our nutrient capacity. The base for virtually all nitrogen products is ammonia, which can be applied directly as a
fertilizer or upgraded to products such as urea, UAN solutions or ammonium nitrate.
Agrium owns and operates five major nitrogen production facilities in North
America and has a 50 percent joint venture interest in Profertil’s South American nitrogen facility, along with five additional facilities in North America that upgrade ammonia to other nitrogen products such as UAN and nitric acid. These
facilities have a combined annual nitrogen production capacity of approximately 5.5 million tonnes. MOPCO’s Egyptian nitrogen facility has a total annual production capacity of 650,000 tonnes of urea, of which approximately 170,000 tonnes
are attributable to Agrium through our 26-percent equity ownership in the facility. Collectively, these global production assets place Agrium among the world’s top four publicly traded nitrogen producers.
Our extensive North American nitrogen facilities benefit from the development of long-term, low-cost, non-conventional (shale) natural gas, which has positioned North
America – and Alberta in particular – among the lowest-cost gas regions in the world. Furthermore, Agrium’s numerous production facilities and ability to leverage our extensive North American Retail distribution operations to optimize
operating rates and netbacks are key competitive advantages. Much of our key nitrogen and phosphate product volumes are supplied to our core markets in Western Canada and the U.S. Pacific Northwest where nitrogen prices are generally higher than in
the other regions of North America. Profertil’s nitrogen facility also benefits from similar in-market advantages related to its position in Argentina’s large domestic fertilizer market. The MOPCO Egyptian facility, in which we have an
equity position, also benefits from competitively priced natural gas and direct access to tidewater for international exports.
Annually, approximately 68 percent of
our North American nitrogen sales are directed to agricultural markets, with the remaining 32 percent sold to industrial customers. Agricultural customer demand is seasonal, while industrial demand is more evenly distributed throughout the year. A
high proportion of our industrial
AGRIUM 2014 ANNUAL
REPORT 35
ammonia sales are priced on a gas index-plus margin basis, thereby contributing to stability in sales and earnings throughout the year. As a result, our average sales price for ammonia in a given
quarter will be influenced by the relative weighting of sales to industrial customers compared to sales to the generally higher-return agricultural markets. Industrial ammonia sales volumes were approximately 498,000 tonnes in 2014, compared to
467,000 tonnes in 2013.
NITROGEN – FINANCIAL RESULTS
|
|
|
|
|
|
|
|
|
| Nitrogen performance |
|
|
|
|
|
|
| |
|
Years ended December 31, |
|
| (millions of U.S. dollars, except as noted) |
|
2014 |
|
|
2013 |
|
| Nitrogen |
|
|
|
|
|
|
|
|
| Sales |
|
|
1,482 |
|
|
|
1,724 |
|
| Cost of product sold |
|
|
1,101 |
|
|
|
1,052 |
|
| Gross profit |
|
|
381 |
|
|
|
672 |
|
| Tonnes sold (’000) |
|
|
|
|
|
|
|
|
| Ammonia |
|
|
1,042 |
|
|
|
1,219 |
|
| Urea |
|
|
1,287 |
|
|
|
1,270 |
|
| Other |
|
|
983 |
|
|
|
903 |
|
| Total North American tonnes sold (’000) |
|
|
3,312 |
|
|
|
3,392 |
|
| Selling price per tonne |
|
|
|
|
|
|
|
|
| Ammonia |
|
|
553 |
|
|
|
627 |
|
| Urea |
|
|
443 |
|
|
|
490 |
|
| Other |
|
|
341 |
|
|
|
374 |
|
| Selling price per tonne |
|
|
447 |
|
|
|
508 |
|
| Margin per tonne |
|
|
115 |
|
|
|
198 |
|
| Equity accounted joint ventures: |
|
|
|
|
|
|
|
|
| Nitrogen |
|
|
|
|
|
|
|
|
| Sales |
|
|
197 |
|
|
|
234 |
|
| Cost of product sold |
|
|
149 |
|
|
|
173 |
|
| Gross profit |
|
|
48 |
|
|
|
61 |
|
| Tonnes sold (’000) |
|
|
454 |
|
|
|
540 |
|
| Selling price per tonne |
|
|
433 |
|
|
|
433 |
|
| Margin per tonne |
|
|
105 |
|
|
|
113 |
|
| Total nitrogen including equity accounted joint ventures |
|
|
|
|
|
|
|
|
| Sales |
|
|
1,679 |
|
|
|
1,958 |
|
| Cost of product sold |
|
|
1,250 |
|
|
|
1,225 |
|
| Gross profit |
|
|
429 |
|
|
|
733 |
|
| Tonnes sold (’000) |
|
|
3,766 |
|
|
|
3,932 |
|
| Selling price per tonne |
|
|
446 |
|
|
|
498 |
|
| Cost of product sold per tonne |
|
|
332 |
|
|
|
310 |
|
| Margin per tonne |
|
|
114 |
|
|
|
186 |
|
NITROGEN GROSS PROFIT
Nitrogen gross profit was $381-million in 2014, compared to $672-million in 2013. The decrease was due to lower realized selling prices for all nitrogen products, higher
cost of product sold and a slight reduction in sales volumes. Our nitrogen facilities had three major outages in 2014, including a planned outage at Fort Saskatchewan for regular maintenance and a major planned outage at our Redwater facility to
tie-in a new waste heat boiler – a major piece of equipment that had reached end of life. There was also an unplanned outage at the Carseland nitrogen facility related to a failure in the auxiliary boiler. These outages increased cost of
product sold per tonne, as fixed facility costs were spread over lower sales volumes. The maintenance and upgrades associated with these outages are expected to allow for significantly increased utilization rates at these facilities in the future.
Our average margins per tonne were $115 in 2014, compared to $198 in 2013 due to lower sales prices and higher average cost of product sold per tonne.
NITROGEN PRICES
Agrium’s average realized nitrogen sales price was $447 per tonne in 2014 compared to $508 per tonne in 2013. This decrease reflects lower benchmark nitrogen prices,
particularly in the first quarter of 2014 relative to the same period in 2013. Benchmark prices for international urea and North American ammonia and UAN solutions were down between 5 to 8 percent in 2014 compared to 2013 levels.
36 AGRIUM 2014 ANNUAL REPORT
NITROGEN SALES VOLUMES AND OPERATING RATES
Nitrogen sales volumes from North American operations were 3.3 million tonnes in 2014 compared to 3.4 million tonnes in 2013. Our nitrogen product category
primarily consists of urea, ammonia, UAN and industrial-grade ammonium nitrate. Urea – the highest volume nitrogen product sold globally – accounted for 39 percent of Agrium’s nitrogen sales in 2014. Total production volumes at our
North American facilities were 3.5 million tonnes in 2014, compared to 3.6 million tonnes in 2013. Production volumes were 1.5 million tonnes of gross urea and 2.3 million tonnes gross ammonia in 2014, compared to
1.5 million tonnes and 2.4 million tonnes respectively in 2013.
Cost of product manufactured excluding depreciation was $205 per tonne for urea and $242
per tonne for ammonia in 2014 compared to $178 per tonne and $206 per tonne respectively in 2013.
NITROGEN PRODUCT AND GAS COST
Nitrogen cost of product sold was $1.1-billion in 2014 compared to $1.1-billion in 2013. Per tonne cost of product sold averaged $332 in 2014 compared to
$310 in 2013. The increase in per tonne cost of product sold was due to higher input costs for natural gas in 2014 and higher fixed costs related to the planned and unplanned outages. Production asset depreciation and amortization expense of $26 per
tonne in 2014 (compared to $23 per tonne in 2013) is included in cost of product sold.
Gas volumes purchased in 2014 were 108 billion cubic feet, down from 113
billion cubic feet in 2013. Agrium’s gas cost represented in nitrogen cost of product sold for 2014 was $4.26 per MMBtu (overall gas cost of $4.06 per MMBtu, including the impact of realized gains on natural gas derivatives), compared to $3.32
per MMBtu in 2013 (overall gas cost of $3.45 per MMBtu, including the impact of realized losses on natural gas derivatives). Derivative gains or losses on all gas derivatives are included in other expenses and therefore not included in cost of
product sold. The average U.S. benchmark (NYMEX) natural gas price for 2014 was $4.38 per MMBtu, compared to $3.67 per MMBtu in 2013. The Alberta (AECO) basis differential was a $0.51 per MMBtu discount to NYMEX in 2014, lower than the $0.60
discount per MMBtu differential in 2013.
Agrium took steps to benefit from the significant reduction in North American natural gas prices in early 2015. As of
February, 2015, we have hedged approximately 50 percent of our total North American natural gas needs for the coming year at highly attractive gas prices, after accounting for our industrial business, which represents about 17 percent of our
nitrogen sales.
|
|
|
|
|
|
|
|
|
| Natural gas prices: North American indices and |
|
| North American Agrium prices |
|
|
|
|
|
|
| (U.S. dollars per MMBtu) |
|
2014 |
|
|
2013 |
|
| NYMEX |
|
|
4.38 |
|
|
|
3.67 |
|
| AECO |
|
|
3.87 |
|
|
|
3.07 |
|
| Basis |
|
|
0.51 |
|
|
|
0.60 |
|
| Wholesale |
|
|
|
|
|
|
|
|
| Overall gas cost excluding realized derivative impact |
|
|
4.26 |
|
|
|
3.32 |
|
| Realized derivative impact |
|
|
(0.20 |
) |
|
|
0.13 |
|
| Overall gas cost (a) |
|
|
4.06 |
|
|
|
3.45 |
|
| (a) Weighted average gas price of all
gas purchases, excluding our 50 percent share of the Profertil facility. |
|
|
|
|
|
|
|
|
| Natural gas use |
|
|
|
|
|
|
| (BCF) |
|
2014 |
|
|
2013 |
|
| Western Canada |
|
|
74 |
|
|
|
78 |
|
| U.S. (Borger, Texas) |
|
|
20 |
|
|
|
19 |
|
| International (Profertil) |
|
|
13 |
|
|
|
14 |
|
| Potash and other |
|
|
1 |
|
|
|
2 |
|
| Total |
|
|
108 |
|
|
|
113 |
|
AGRIUM 2014 ANNUAL
REPORT 37
POTASH
PRODUCTS
Agrium is North America’s third largest producer of potash. Global potash deposits are highly concentrated in only a
few specific regions in the world. The world’s largest known potash deposits are located in Saskatchewan, Canada, and Canada accounted for approximately 35 percent of the global potash trade in 2014. Agrium produces potash at our facility in
Vanscoy, Saskatchewan and exports international sales through our interest in Canpotex – an industry association owned by the three major Canadian potash producers, tasked with marketing potash sold outside of Canada and the U.S. Our share of
Canpotex total sales was 9.1 percent in 2013, averaged 7.7 percent in 2014 and is expected to be 7.3 percent at the start of 2015. The downward trend is a result of recent capacity expansions by the other Canpotex producers. However, we anticipate
our Canpotex allocation will rise back up above the 2013 figure once the proving-run associated with our one million tonne capacity expansion at Vanscoy is completed in the second half of 2015. This will determine our new prospective allocation of
Canpotex export volumes.
POTASH – FINANCIAL RESULTS
|
|
|
|
|
|
|
|
|
| Potash performance |
|
|
|
|
|
|
| |
|
Years ended December 31, |
|
| (millions of U.S. dollars, except as noted) |
|
2014 |
|
|
2013 |
|
| Potash North America |
|
|
|
|
|
|
|
|
| Sales |
|
|
295 |
|
|
|
369 |
|
| Cost of product sold |
|
|
238 |
|
|
|
201 |
|
| Gross profit |
|
|
57 |
|
|
|
168 |
|
| Tonnes sold (’000) |
|
|
821 |
|
|
|
877 |
|
| Selling price per tonne |
|
|
359 |
|
|
|
421 |
|
| Margin per tonne |
|
|
70 |
|
|
|
192 |
|
| Potash international |
|
|
|
|
|
|
|
|
| Sales |
|
|
96 |
|
|
|
195 |
|
| Cost of product sold |
|
|
83 |
|
|
|
93 |
|
| Gross profit |
|
|
13 |
|
|
|
102 |
|
| Tonnes sold (’000) |
|
|
443 |
|
|
|
654 |
|
| Selling price per tonne |
|
|
217 |
|
|
|
298 |
|
| Margin per tonne |
|
|
29 |
|
|
|
156 |
|
| Total potash |
|
|
|
|
|
|
|
|
| Sales |
|
|
391 |
|
|
|
564 |
|
| Cost of product sold |
|
|
321 |
|
|
|
294 |
|
| Gross profit |
|
|
70 |
|
|
|
270 |
|
| Tonnes sold (’000) |
|
|
1,264 |
|
|
|
1,531 |
|
| Selling price per tonne |
|
|
309 |
|
|
|
369 |
|
| Cost of product sold per tonne |
|
|
253 |
|
|
|
193 |
|
| Margin per tonne |
|
|
56 |
|
|
|
176 |
|
POTASH GROSS PROFIT
Our potash gross profit in 2014 was $70-million compared to $270-million in 2013. This decrease was due to a combination of lower potash prices globally and the extended
outage at the Vanscoy mine to tie-in the expansion project, which significantly reduced sales volumes and increased cost per tonne produced. As a result, our potash margins averaged $56 per tonne in 2014 compared to $176 per tonne in 2013.
38 AGRIUM 2014 ANNUAL REPORT
POTASH PRICES
North American and international sales prices for potash declined in 2014 compared to 2013 and were particularly weak during the first half of the year. Global benchmark
prices were affected by weaker crop prices, the breakup of the BPC marketing agency in the second half of 2013 and capacity additions by a number of key producers. Benchmark prices in the U.S. Corn Belt trended lower for most of 2014, averaging $428
per tonne in 2014 compared to $471 per tonne in 2013 and ending 2014 at $452 per tonne. Our realized North American selling price declined by 15 percent to $359 per tonne in 2014 compared to $421 per tonne in 2013. Our average realized international
sales price was $217 per tonne in 2014 – a 27 percent decline from the $298 per tonne realized in 2013. International prices are referenced at the mine site, thereby excluding transportation and distribution costs, while North American sales
are referenced at delivered prices and include transportation and distribution costs. North American sales volumes accounted for 65 percent of total potash sales in 2014 compared to 57 percent in 2013. Agrium’s realized selling price for total
potash sales was $309 per tonne in 2014 compared to $369 per tonne in 2013.
POTASH SALES VOLUMES AND OPERATING RATES
Potash sales volumes were 1.3 million tonnes in 2014 compared to 1.5 million tonnes in 2013. The decrease in sales volumes was due to the extended downtime to
tie-in the expansion project at the Vanscoy mine. Sales of produced product into the North American market were 821,000 tonnes in 2014, down from 877,000 tonnes in 2013. International potash sales volumes accounted for 443,000 tonnes of product
sales in 2014, significantly lower than the 654,000 tonnes sold in 2013 due to lower production volumes in the current year. As a result of the lower production volumes, we purchased potash in 2014 in order to maintain Agrium’s allotted potash
volumes with Canpotex. Production volumes in 2014 were 1.1 million tonnes, compared to 1.7 million tonnes in 2013.
Cost of product manufactured excluding
depreciation was $157 per tonne compared to $112 per tonne in 2013.
POTASH PRODUCT COST
Potash cost of product sold in 2014 was $321-million compared to $294-million in 2013. On a per tonne basis, the average cost of product sold in 2014 was $253 compared to
$193 in 2013. This increase was due to higher per tonne fixed costs associated with the expansion tie-in at Vanscoy and a higher percentage of domestic sales, which include freight costs. Production asset depreciation and amortization expense of $51
per tonne in 2014 (compared to $33 per tonne in 2013) is included in the cost of product sold.
With the Vanscoy expansion, our annual production rate is expected to
increase to 2.8 million tonnes, requiring 24.6 percent K2O and a milling recovery rate of 87 percent. Our Technical Report1 gives an
expected mine life of 29 years when considering Proven and Probable Mineral Reserves and Measured and Indicated Mineral Resources, with an additional 32 years estimated to be contained in Inferred Mineral Resources at our higher forecasted
post-expansion rate. This is based on the estimate of 175.7 million tonnes of Proven Mineral Reserves (25.6 percent K2O), 56.4 million tonnes of Probable Mineral Reserves (24.3
percent K2O), 687.0 million tonnes of Measured Mineral Resources (23.4 percent K2O) and 214.9 million tonnes of Indicated
Mineral Resources (25.4 percent K2O) as described in the Technical Report. Mineral resources that are not mineral reserves have not demonstrated economic viability.
| 1 |
Certain scientific and technical information regarding Vanscoy Potash Operations is based on the Technical Report. The Technical Report has been filed with the securities regulatory authorities in each of the provinces
of Canada and with the U.S. Securities and Exchange Commission. Portions of the above information are based on assumptions, qualifications and procedures that are not fully described herein. Reference should be made to the full text of the Technical
Report, which is available for review on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. The technical contents of this MD&A have been reviewed by A. Dave Mackintosh, P Geo. of ADM Consulting Limited and Michael R. Bartsh and Dennis Grimm of
the Company, all of whom are Qualified Persons pursuant to NI 43-101. |
AGRIUM 2014 ANNUAL
REPORT 39
PHOSPHATE
PRODUCTS
Agrium is North America’s fourth largest producer of phosphate, representing over 7 percent of North American
production. Collectively, Agrium’s two phosphate facilities have the capacity to produce approximately 1.2 million tonnes of phosphate-based fertilizer products annually. At our facility in Conda, Idaho, we produce MAP, SPA and MGA
products, which are sold primarily in the Northwestern U.S. Our Redwater, Alberta, facility – the only phosphate production site in Canada – produces MAP primarily for distribution in Western Canada.
Three primary raw materials are required to produce granular ammonium phosphates: phosphate rock, sulfur and ammonia. Our Conda, Idaho, facility obtains rock from our
Rasmussen Ridge rock mine located in the region. Our Redwater, Alberta, facility sources rock from Morocco in a long-term supply agreement with OCP S.A. (“OCP”). This agreement covers rock supply up to 2020, with purchase prices based on a
formula derived from the global price of finished phosphate products. The agreement also enables Agrium to continue benefiting from our Redwater phosphate facility’s competitive sulfur and ammonia cost positions as well as our in-market
delivered pricing advantage in Western Canada.
Our Redwater facility produces ammonia on-site and sources sulfur locally. Given the abundant supply of sulfur in the
region due to the presence of oil and gas producers, we obtain sulfur at highly favorable prices relative to global benchmark prices. Our Conda facility sources sulfur and sulfuric acid domestically while obtaining the majority of its ammonia from
our Alberta nitrogen facilities. Our competitive cost position for sulfur and ammonia is a major advantage. An additional competitive strength is our transportation cost advantage for local customers in Western Canada and the Western U.S. relative
to the major phosphate producers based in Florida.
PHOSPHATE – FINANCIAL RESULTS
|
|
|
|
|
|
|
|
|
| Phosphate performance |
|
|
|
|
|
|
| |
|
Years ended December 31, |
|
| (millions of U.S. dollars, except as noted) |
|
2014 |
|
|
2013 |
|
| Phosphate |
|
|
|
|
|
|
|
|
| Sales |
|
|
701 |
|
|
|
654 |
|
| Cost of product sold |
|
|
625 |
|
|
|
587 |
|
| Gross profit |
|
|
76 |
|
|
|
67 |
|
| Tonnes sold (’000) |
|
|
1,142 |
|
|
|
1,026 |
|
| Selling price per tonne |
|
|
614 |
|
|
|
638 |
|
| Cost of product sold per tonne |
|
|
548 |
|
|
|
573 |
|
| Margin per tonne |
|
|
66 |
|
|
|
65 |
|
PHOSPHATE GROSS PROFIT
Phosphate gross profit was $76-million in 2014 compared to $67-million in 2013. The increase was due to a combination of increased sales volumes and lower cost of
production, partly offset by lower realized sales prices in 2014. On a per tonne basis, our phosphate margins were $66 in 2014 compared to $65 in 2013.
PHOSPHATE PRICES
Central Florida MAP prices averaged $457 per tonne in 2014 compared to $462 per tonne in 2013. Our realized phosphate price represents a blend of phosphate products, with
over 84 percent of our sales made up of MAP in 2014 and the remainder being higher-value SPA and MGA. Our average realized phosphate sales price was $614 per tonne in 2014 compared to $638 per tonne in 2013, with the decline due to a change in
product mix in 2014 and weaker prices at the start of 2014 compared to the same period in 2013. Phosphate prices are higher in Western Canada than in the Southern U.S. or U.S. Corn Belt, as pricing in this region reflects the cost of transportation
associated with Western Canada’s position as a net importer of phosphates from the Southeastern U.S.
40 AGRIUM 2014 ANNUAL REPORT
PHOSPHATE SALES VOLUMES AND OPERATING RATES
Phosphate product sales volumes were 1.1 million tonnes in 2014 compared to 1.0 million tonnes in 2013. This increase was due to higher capacity utilization at
our Redwater facility in the second half of 2014. Operating rates at our Redwater and Conda facilities reached 89 percent and 102 percent respectively in 2014, and production volumes totaled 1.1 million tonnes on par with production volumes in
2013. Production volumes of MAP were 0.9 million tonnes in both 2013 and 2014.
For MAP, cost of product manufactured excluding depreciation was $423 per tonne
compared to $458 per tonne in 2013 as a result of lower fixed costs and higher production volumes.
PHOSPHATE PRODUCT COST
Phosphate cost of product sold was $625-million in 2014, compared to $587-million in 2013. The increase was due to higher sales volumes. Per tonne, cost
of product sold was $548 in 2014 compared to $573 in 2013. The year-over-year reduction in per tonne cost of product sold was due to improved manufacturing efficiency at the Redwater facility and lower costs at both facilities. Furthermore, costs
were slightly elevated in 2013 due to the closure of the Kapuskasing mine as it approached the end of its economic reserve life. Production asset depreciation and amortization expense of $46 per tonne in 2014 (compared to $52 per tonne in 2013) is
included in the cost of product sold.
AMMONIUM SULFATE, ESN AND OTHER WHOLESALE PRODUCTS
Our Other Wholesale products are primarily comprised of ESN and ammonium sulfate products produced in Western Canada. Ammonium sulfate fertilizer contains both nitrogen
and sulfur, resulting in one of the most effective methods of supplying sulfur to soils in an immediately available form. Agrium produces ammonium sulfate at our Redwater facility, where we have competitive advantages from in-market selling price
premiums and logistical advantages as well as lower priced sulfur, which is a byproduct from the oil and gas industry. ESN is a leading controlled release nitrogen fertilizer product that provides growers with significant economic and environmental
benefits. ESN was previously reported under the AAT business unit, which was discontinued at the end of 2013. Moving the ESN business into Wholesale has generated operational synergies through a sharing of resources.
Our Rainbow® Plant Food (“Rainbow”) operations produces nitrogen, phosphate and potash
(“NPK”) products in the Southeastern U.S. The Rainbow product line offers homogeneous distribution of NPK products, with a specific combination of nutrients and additional micronutrients contained in each granule. In contrast to the more
common practice of blending different nutrient granules at a farm center, this alternative offers the advantages of reduced product segregation and a more unified distribution of nutrients. Rainbow products are produced at our facilities in
Americus, Georgia, and Florence, Alabama, and are often used on high-value crops such as cotton, peanuts, vegetables and tobacco. They also have limited use on row crops.
AMMONIUM SULFATE, ESN AND OTHER WHOLESALE PRODUCTS – FINANCIAL RESULTS
Gross profit for ammonium sulfate, ESN and other was $103-million in 2014 compared to $124-million in 2013. The decrease reflects lower realized sales prices for both
ammonium sulfate and our Rainbow product line, consistent with benchmark pricing. ESN also saw lower selling prices in-line with overall weaker nitrogen fertilizer prices, as well as slightly lower sales volumes of ESN manufactured at Carseland due
to downtime at the facility in 2014.
AGRIUM 2014 ANNUAL
REPORT 41
|
|
|
|
|
|
|
|
|
| Ammonium sulfate, ESN and other performance |
|
| |
|
Years ended December 31, |
|
| (millions of U.S. dollars, except as noted) |
|
2014 |
|
|
2013 |
|
| Ammonium sulfate, ESN and other |
|
|
|
|
|
|
|
|
| Sales |
|
|
478 |
|
|
|
529 |
|
| Cost of product sold |
|
|
375 |
|
|
|
405 |
|
| Gross profit |
|
|
103 |
|
|
|
124 |
|
| Tonnes sold (’000) |
|
|
|
|
|
|
|
|
| Ammonium sulfate |
|
|
349 |
|
|
|
328 |
|
| ESN |
|
|
330 |
|
|
|
339 |
|
| Rainbow/Other |
|
|
384 |
|
|
|
332 |
|
| Total tonnes sold (’000) |
|
|
1,063 |
|
|
|
999 |
|
| Selling price per tonne |
|
|
|
|
|
|
|
|
| Ammonium sulfate |
|
|
332 |
|
|
|
383 |
|
| Cost of product sold per tonne |
|
|
|
|
|
|
|
|
| Ammonium sulfate |
|
|
175 |
|
|
|
191 |
|
| Margin per tonne |
|
|
|
|
|
|
|
|
| Ammonium sulfate |
|
|
157 |
|
|
|
192 |
|
PRODUCT PURCHASED FOR RESALE
In
addition to selling our manufactured products, our Wholesale business unit purchases crop nutrient products from other suppliers for resale to customers in the Americas and Europe. This business enables us to leverage our distribution and marketing
network beyond what is possible through the sale of our manufactured products alone. In 2014, as part of Agrium’s Operational Excellence program, the Company conducted a portfolio review to streamline its portfolio and evaluate lower-margin
businesses. The decision was made to sell portions of the Purchase for Resale business in order to maintain focus on core business lines and to further optimize working capital levels.
Sales of product purchased for resale were $921-million in 2014 compared to $1.1-billion in 2013. Total sales volumes for this business were lower at 2.5 million
tonnes in 2014 compared to 2.7 million tonnes in 2013. The breakdown of sales volumes by geographic region was 1.6 million tonnes in Europe, and 0.9 million tonnes in North America.
Gross profit from our product purchased for resale business was $25-million in 2014 compared to $9-million in 2013. Our average selling price was $370 per tonne in 2014
compared to $421 per tonne in 2013. Our average per tonne margins were $10 in 2014, up from $3 in 2013. The increase in gross profit was due to higher realized margins.
WHOLESALE – DISTRIBUTION AND STORAGE
Wholesale has an extensive
transportation, storage and warehousing network to optimize deliverability of product to our agricultural customers in the highly seasonal peak demand periods. In total, our global distribution and storage capacity amounts to more than
2.5 million tonnes. This is in addition to the extensive distribution and warehousing available through our Retail business; and in some cases, warehousing facilities are shared between the business units. We expect to have approximately 5,600
railcars under long-term operating leases by the end of 2015. We also use barges, pipelines and ocean vessels to transport our product. Agrium Europe owns and leases more than 325,000 tonnes of dry and liquid storage capacity at both port and inland
sites.
WHOLESALE – QUARTERLY RESULTS
The agricultural sector
is the primary market for our Wholesale business unit. As a result, the timing of sales fluctuates based on seasonal factors. The second quarter, which coincides with the spring application season in North America, is typically Wholesale’s most
important quarter from a sales volume and EBIT perspective. The fourth quarter is also important in terms of sales volumes and EBIT, as it encompasses the fall fertilizer application season in the northern hemisphere and the spring application
season in Argentina. The first quarter is generally the weakest, as application and sales volumes are light in the winter months.
42 AGRIUM 2014 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Wholesale quarterly results |
|
| |
|
2014 |
|
|
2013 |
|
| (millions of U.S. dollars, except as noted) |
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
| Sales – external |
|
|
651 |
|
|
|
626 |
|
|
|
946 |
|
|
|
852 |
|
|
|
768 |
|
|
|
690 |
|
|
|
1,352 |
|
|
|
1,021 |
|
| Sales – inter-segment |
|
|
246 |
|
|
|
177 |
|
|
|
266 |
|
|
|
209 |
|
|
|
262 |
|
|
|
96 |
|
|
|
242 |
|
|
|
171 |
|
| Total sales |
|
|
897 |
|
|
|
803 |
|
|
|
1,212 |
|
|
|
1,061 |
|
|
|
1,030 |
|
|
|
786 |
|
|
|
1,594 |
|
|
|
1,192 |
|
| Cost of product sold |
|
|
767 |
|
|
|
676 |
|
|
|
985 |
|
|
|
890 |
|
|
|
858 |
|
|
|
662 |
|
|
|
1,091 |
|
|
|
849 |
|
| Gross profit |
|
|
130 |
|
|
|
127 |
|
|
|
227 |
|
|
|
171 |
|
|
|
172 |
|
|
|
124 |
|
|
|
503 |
|
|
|
343 |
|
| Gross profit (%) |
|
|
14 |
|
|
|
16 |
|
|
|
19 |
|
|
|
16 |
|
|
|
17 |
|
|
|
16 |
|
|
|
32 |
|
|
|
29 |
|
| Nitrogen |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sales |
|
|
404 |
|
|
|
321 |
|
|
|
421 |
|
|
|
336 |
|
|
|
415 |
|
|
|
286 |
|
|
|
641 |
|
|
|
382 |
|
| Cost of product sold |
|
|
291 |
|
|
|
244 |
|
|
|
320 |
|
|
|
246 |
|
|
|
286 |
|
|
|
210 |
|
|
|
347 |
|
|
|
209 |
|
| Gross profit |
|
|
113 |
|
|
|
77 |
|
|
|
101 |
|
|
|
90 |
|
|
|
129 |
|
|
|
76 |
|
|
|
294 |
|
|
|
173 |
|
| Tonnes sold (’000) |
|
|
879 |
|
|
|
735 |
|
|
|
906 |
|
|
|
792 |
|
|
|
907 |
|
|
|
636 |
|
|
|
1,103 |
|
|
|
746 |
|
| Selling price (per tonne) |
|
|
459 |
|
|
|
438 |
|
|
|
464 |
|
|
|
424 |
|
|
|
458 |
|
|
|
450 |
|
|
|
582 |
|
|
|
511 |
|
| Margin (per tonne) |
|
|
128 |
|
|
|
105 |
|
|
|
111 |
|
|
|
113 |
|
|
|
144 |
|
|
|
119 |
|
|
|
267 |
|
|
|
224 |
|
| Potash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sales |
|
|
9 |
|
|
|
79 |
|
|
|
175 |
|
|
|
128 |
|
|
|
107 |
|
|
|
93 |
|
|
|
212 |
|
|
|
152 |
|
| Cost of product sold |
|
|
59 |
|
|
|
77 |
|
|
|
103 |
|
|
|
82 |
|
|
|
68 |
|
|
|
66 |
|
|
|
92 |
|
|
|
68 |
|
| Gross profit |
|
|
(50 |
) |
|
|
2 |
|
|
|
72 |
|
|
|
46 |
|
|
|
39 |
|
|
|
27 |
|
|
|
120 |
|
|
|
84 |
|
| Tonnes sold (’000) |
|
|
19 |
|
|
|
251 |
|
|
|
566 |
|
|
|
428 |
|
|
|
344 |
|
|
|
265 |
|
|
|
544 |
|
|
|
378 |
|
| Selling price (per tonne) |
|
|
482 |
|
|
|
313 |
|
|
|
310 |
|
|
|
298 |
|
|
|
313 |
|
|
|
349 |
|
|
|
389 |
|
|
|
404 |
|
| Margin (per tonne) |
|
|
(2,510 |
) |
|
|
9 |
|
|
|
128 |
|
|
|
107 |
|
|
|
112 |
|
|
|
103 |
|
|
|
221 |
|
|
|
221 |
|
| Phosphate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sales |
|
|
200 |
|
|
|
173 |
|
|
|
161 |
|
|
|
167 |
|
|
|
159 |
|
|
|
122 |
|
|
|
211 |
|
|
|
162 |
|
| Cost of product sold |
|
|
163 |
|
|
|
142 |
|
|
|
155 |
|
|
|
165 |
|
|
|
163 |
|
|
|
115 |
|
|
|
184 |
|
|
|
125 |
|
| Gross profit |
|
|
37 |
|
|
|
31 |
|
|
|
6 |
|
|
|
2 |
|
|
|
(4 |
) |
|
|
7 |
|
|
|
27 |
|
|
|
37 |
|
| Tonnes sold (’000) |
|
|
305 |
|
|
|
261 |
|
|
|
268 |
|
|
|
308 |
|
|
|
285 |
|
|
|
192 |
|
|
|
317 |
|
|
|
232 |
|
| Selling price (per tonne) |
|
|
656 |
|
|
|
663 |
|
|
|
598 |
|
|
|
544 |
|
|
|
560 |
|
|
|
633 |
|
|
|
667 |
|
|
|
698 |
|
| Margin (per tonne) |
|
|
122 |
|
|
|
117 |
|
|
|
22 |
|
|
|
8 |
|
|
|
(16 |
) |
|
|
38 |
|
|
|
83 |
|
|
|
161 |
|
| Ammonium sulfate, ESN and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sales |
|
|
107 |
|
|
|
65 |
|
|
|
170 |
|
|
|
136 |
|
|
|
109 |
|
|
|
75 |
|
|
|
201 |
|
|
|
144 |
|
| Cost of product sold |
|
|
80 |
|
|
|
54 |
|
|
|
134 |
|
|
|
107 |
|
|
|
95 |
|
|
|
62 |
|
|
|
147 |
|
|
|
101 |
|
| Gross profit |
|
|
27 |
|
|
|
11 |
|
|
|
36 |
|
|
|
29 |
|
|
|
14 |
|
|
|
13 |
|
|
|
54 |
|
|
|
43 |
|
| Tonnes sold (’000) |
|
|
249 |
|
|
|
154 |
|
|
|
357 |
|
|
|
303 |
|
|
|
241 |
|
|
|
159 |
|
|
|
340 |
|
|
|
259 |
|
| Product purchased for resale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sales |
|
|
177 |
|
|
|
165 |
|
|
|
285 |
|
|
|
294 |
|
|
|
240 |
|
|
|
210 |
|
|
|
329 |
|
|
|
352 |
|
| Cost of product sold |
|
|
174 |
|
|
|
159 |
|
|
|
273 |
|
|
|
290 |
|
|
|
246 |
|
|
|
209 |
|
|
|
321 |
|
|
|
346 |
|
| Gross profit |
|
|
3 |
|
|
|
6 |
|
|
|
12 |
|
|
|
4 |
|
|
|
(6 |
) |
|
|
1 |
|
|
|
8 |
|
|
|
6 |
|
| Tonnes sold (’000) |
|
|
547 |
|
|
|
455 |
|
|
|
683 |
|
|
|
805 |
|
|
|
648 |
|
|
|
566 |
|
|
|
710 |
|
|
|
763 |
|
| Selling price (per tonne) |
|
|
326 |
|
|
|
361 |
|
|
|
418 |
|
|
|
365 |
|
|
|
370 |
|
|
|
372 |
|
|
|
462 |
|
|
|
462 |
|
| Margin (per tonne) |
|
|
5 |
|
|
|
12 |
|
|
|
18 |
|
|
|
5 |
|
|
|
(9 |
) |
|
|
1 |
|
|
|
11 |
|
|
|
8 |
|
| EBIT |
|
|
84 |
|
|
|
100 |
|
|
|
191 |
|
|
|
178 |
|
|
|
159 |
|
|
|
87 |
|
|
|
465 |
|
|
|
334 |
|
| EBITDA |
|
|
142 |
|
|
|
158 |
|
|
|
252 |
|
|
|
231 |
|
|
|
213 |
|
|
|
131 |
|
|
|
534 |
|
|
|
384 |
|
| Adjusted EBITDA |
|
|
150 |
|
|
|
171 |
|
|
|
263 |
|
|
|
237 |
|
|
|
237 |
|
|
|
144 |
|
|
|
542 |
|
|
|
393 |
|
AGRIUM 2014 ANNUAL
REPORT 43
OTHER
“Other” is a non-operating segment comprising corporate and administrative functions that provide support and governance to our operating business units. Other
is also used to eliminate purchase and sale transactions between our Retail and Wholesale business units so that each business unit can be evaluated independently.
Expenses included in EBIT of our non-operating segment primarily comprise general and administrative costs at our headquarters in Calgary, Alberta, share-based payments,
and other expenses such as regulatory compliance, and foreign exchange gains and losses.
Other EBIT was a $207-million net expense in 2014 compared to a $163-million
net expense in 2013.
Excluding the effect of share-based payments, net expense decreased by $13-million in 2014. The decrease was primarily related to lower payroll
expense of $8-million in 2014 and greater non-recurring expenses of $30-million in 2013, related to Viterra acquisition costs and proxy defense costs. This decrease was partially offset by $23-million foreign exchange losses net of gains from
derivative contracts due to weakening of the Canadian dollar versus the U.S. dollar.
As our share performance improved relative to our peers, share-based payments
expenses increased from a recovery of $7-million in 2013 to an expense of $50-million in 2014.
44 AGRIUM 2014 ANNUAL REPORT
2015 AGRICULTURAL AND CROP INPUT MARKET OUTLOOK
Global grain consumption growth set a record of close to 110 million tonnes in 2013/14; a 4.7-percent increase over 2012/13 and the highest year-over-year rate of
growth since 1976/77. The significant increase in consumption in 2013/14 following some major global crop production problems in 2012/13 was an indication of the insatiable global demand for food.
If historical consumption trends continue, global crop production may have to increase by approximately 55 percent from 2013 levels by 2050. The increase in production
will primarily have to be achieved through continued increases in crop yield, in addition to increases in cropping area and intensity. Historically, agricultural productivity has continuously improved, driven by agronomic innovations and technology
and we expect that trend to continue.
From year to year, global crop production remains dependent on weather conditions. Over the past two growing seasons, weather
has cooperated in most major growing regions, producing crop yields above the long-term trend and leading to record crop production and increased inventories. While this has pressured the prices of most crops in the short-term, we expect that the
combination of reduced planted area and the return to trend yield levels in 2015 could tighten the global crop supply/demand balance.
| • |
|
Global production of grains and oilseeds set a record of three billion tonnes in 2014/15, 1 percent above the very high levels reached in 2013/14 and 9 percent above the five-year average.
|
| • |
|
Global grain yields set a record for the second consecutive year. The positive deviation from trend yields in 2013/14 and 2014/15 was unprecedented for consecutive years. |
| • |
|
U.S. corn yields set a record high, surpassing the previous record level by over 5 percent and surpassing the trend yield by the highest margin since 1994. |
| • |
|
Despite the second consecutive year of record crop production, global crop prices finished 2014 on a positive note due to robust demand coupled with supply uncertainty from Russia.
|
KEY CROP PROTECTION MARKET DRIVERS
| • |
|
The combination of declining crop prices and ideal growing conditions decreased pest and disease pressure and contributed to lower U.S. crop protection product demand for some products in 2014.
|
| • |
|
We expect that total North American crop area will be down by about 1 to 2 percent and corn area down by about 1 to 3 percent in 2015, depending on the final size of the South American crop which may put some pressure
on crop protection demand. |
| • |
|
Demand for fungicides and insecticides will be partially dependent on weather conditions, related pest pressure and crop prices in 2015. |
KEY SEED PROTECTION DRIVERS
| • |
|
Overall seed demand is expected to be down slightly in 2015 due to reduced crop area, particularly for corn and cotton. |
| • |
|
We expect demand for top genetic seed offerings to continue to be strong in 2015, as history has shown that growers tend to continue using top genetic offerings even under tighter crop production margins. However, lower
crop prices may limit potential price realizations in 2015. |
|
| AGRIUM 2014 ANNUAL REPORT 45 |
NITROGEN MARKET OUTLOOK
| • |
Global nitrogen demand is estimated to have increased by approximately 1.5 to 2 percent in 2014 and is expected to increase by about the same amount in 2015. International nitrogen prices traded in a relatively narrow
range in 2014, and this is expected to continue in 2015 (depending on the impact of Chinese exports). |
| • |
Chinese urea exports set a record at 13.6 million tonnes in 2014 accounting for over 25 percent of global exports and up from 8.3 million tonnes in 2013. The Chinese government further loosened its export
restrictions for 2015, which we expect will lead to a more even distribution of exports throughout the year. |
| • |
Natural gas restrictions, geopolitical conflict and technical problems in key geographies were important drivers of global nitrogen markets in 2014, as nitrogen production was constrained from important producers such
as Ukraine, Egypt, Algeria and Trinidad, tightening global nitrogen supplies in general and ammonia supplies in particular. |
| • |
New nitrogen capacity is expected to be added in Algeria and Russia in 2015, while new urea capacity is scheduled to come on-stream in Saudi Arabia and Egypt in the first half of 2015 and in the U.S. in late 2015. China
is expected to continue to expand its urea capacity. In recent years, project delays have resulted in lower than expected production from new projects. |
| • |
We expect the combination of more adequate urea supplies in North America and increased first half export supplies from China will lead to less volatility in urea prices. |
| • |
Following a relatively slow start in 2014, Indian urea import demand was unseasonably strong in late 2014 and the first quarter of 2015. Indian urea imports in the 2014/15 agricultural year are projected to total
approximately 7.5 million tonnes, compared to 7.1 million tonnes in 2013/14. There is a risk that Indian urea imports will be negatively impacted by policy changes in the 2015/16 agricultural year. |
| • |
Due to delayed harvest and the early onset of winter weather in the U.S., the fall ammonia application season was relatively narrow in 2014. This is expected to support robust demand for nitrogen products in the spring
of 2015. |
| • |
Global nitrogen demand increased by approximately 1.5 percent in 2014 and is projected to increase by 1.5 to 2 percent in 2015. |
| • |
Some of the relatively high-cost nitrogen producers in Europe are expected to benefit from reduced crude oil prices if their natural gas prices are tied to crude oil prices. In recent years, the importance of these
producers to the nitrogen market has diminished as the proportion of European nitrogen producers purchasing formula-based natural gas has declined, as has the importance to the global export market. |
POTASH MARKET OUTLOOK
| • |
Global potash shipments set a new record of 61.5 million tonnes in 2014 as a result of very robust demand throughout 2014. |
| • |
Global potash shipments are projected to range between 58 and 60 million tonnes in 2015, with demand expected to be seasonally strong and logistical capacity tight in the first half of the calendar year.
|
| • |
The global potash supply and demand balance is projected to remain relatively tight in 2015, in part due to the flooding of a major Russian mine in late 2014 and also due to capacity constraints in Canada resulting from
the ramp-up of brownfield expansions. |
| • |
India’s potash demand is expected to continue to grow at a robust pace in 2015, and demand may be further supported by a potential change in government policy to achieve more balanced fertilization.
|
PHOSPHATE MARKET OUTLOOK
| • |
Global phosphate demand grew by approximately 3 percent in 2014 and is projected to grow by between 1 and 2 percent in 2015, despite lower global crop prices. |
| • |
Chinese phosphate exports set a record in 2014 reaching 7.2 million tonnes versus 4.5 million in 2013 as a result of strong global demand, particularly from Brazil. |
| • |
North American productive capacity of phosphate declined in 2014, driven by the closure of a major plant in Florida and the bankruptcy and closure of another plant on the U.S. Gulf Coast. |
| • |
There was further consolidation in the North American phosphate market in 2014 when the largest North American phosphate producer acquired the third largest North American producer. |
| • |
India is the largest importer of DAP globally. Indian DAP imports are expected to increase by 38 percent, reaching 4.5 million tonnes in 2014/15, and are anticipated to continue to increase in 2015/16.
|
| • |
Brazilian DAP/MAP imports reached a record 3.8 million tonnes in 2014, up 12 percent from the previous record set in 2013. Import demand benefitted from reduced domestic phosphate production in 2014. Brazilian
demand is projected to decline slightly in 2015 due to reduced crop area but still remain at historically high levels. |
46 AGRIUM 2014 ANNUAL REPORT
AGRIUM 2014 ANNUAL
REPORT 47
ADDITIONAL FINANCIAL INFORMATION
KEY BUSINESS METRICS
Our financial results
are sensitive to a number of factors that affect our operations and resulting net earnings. The following table sets out the impact of changes in some key variables on our earnings based on activity levels for the year ended December 31, 2014.
SENSITIVITIES ON 2014 SALES OR MARGINS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Retail and Wholesale sensitivity impact to EBIT, net earnings and net earnings per diluted share |
|
| (millions of U.S. dollars, except as noted) |
|
Change in factor |
|
|
EBIT impact |
|
|
Net earnings
impact (f) |
|
|
Net earnings
per diluted
share impact (f) |
|
| Retail (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Crop nutrients |
|
|
1.00 |
% |
|
|
52 |
|
|
|
38 |
|
|
|
0.26 |
|
| Crop protection products |
|
|
1.00 |
% |
|
|
46 |
|
|
|
34 |
|
|
|
0.23 |
|
| Seed |
|
|
1.00 |
% |
|
|
15 |
|
|
|
11 |
|
|
|
0.08 |
|
| Merchandise |
|
|
1.00 |
% |
|
|
9 |
|
|
|
7 |
|
|
|
0.05 |
|
| Wholesale (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nitrogen (c)(d) |
|
$ |
10.00 |
|
|
|
33 |
|
|
|
24 |
|
|
|
0.17 |
|
| Potash (c)(e) |
|
$ |
10.00 |
|
|
|
11 |
|
|
|
8 |
|
|
|
0.06 |
|
| Phosphate (c) |
|
$ |
10.00 |
|
|
|
13 |
|
|
|
9 |
|
|
|
0.07 |
|
| Product purchased for resale (a) |
|
|
1.00 |
% |
|
|
9 |
|
|
|
7 |
|
|
|
0.05 |
|
| Exchange rate from CAD to USD |
|
$ |
0.01 |
|
|
|
4 |
|
|
|
3 |
|
|
|
0.02 |
|
| (a) |
Change in factor is gross profit as a percentage of sales. |
| (b) |
Wholesale’s sensitivity to a $0.50/MMBtu change in natural gas prices is $41-million in EBIT and $30-million in net earnings. The sensitivity assumes no change to the price spread between U.S. and Alberta natural
gas and excludes the impact of natural gas derivatives and industrial ammonia sales, which are on a gas index-plus margin basis. |
| (c) |
Change in factor is margin per metric tonne of North American Wholesale produced sales. |
| (d) |
Excludes the impact of natural gas sensitivity described in footnote (b) above. |
| (e) |
Excludes the impact of potash production tax and resource surcharge. |
| (f) |
Based on a tax rate of 27 percent and 144 million weighted average outstanding shares. |
MARGINS
RETAIL
Retail product margins are normally more stable than Wholesale margins as Retail tends to be more of a cost-plus margin business than Wholesale. However, several factors
can influence Retail margins. For example, nutrient margins are impacted by price volatility between the time we purchase the product and the time we sell the product to the grower, as well as price volatility driven by the relative timing of our
competitors’ nutrient purchases relative to our purchases. Fluctuations in commodity prices affect the types of crops planted, resulting in different crop input needs and, more significantly, affecting the timing of growers’ decisions on
the application levels and rates of our products. Lower crop commodity prices relative to the price of the inputs may result in growers delaying purchase and application of crop inputs that would otherwise optimize crop yields. Weather conditions
can create significant fluctuations in the timing of Retail’s sales and the related margins based on the ability to plant or harvest and the associated application of inputs. Finally, crop protection and seed margins are influenced by changes
in the value of chemicals and newer seed varieties from our suppliers as well as shortages or oversupply of different products.
48 AGRIUM 2014 ANNUAL REPORT
WHOLESALE
Nitrogen cost
of product sold is affected by changes in North American natural gas prices, and nitrogen prices are impacted by changes in global nitrogen supply and demand. The combination of these market fluctuations impacts nitrogen production margins.
Fluctuations in the cost of raw material inputs such as phosphate rock, sulfur and ammonia affect our phosphate margins. Foreign trade policies, the existence and activities of marketing agencies, and buying strategy affect global supply and demand,
which also influences potash pricing and margins. Wholesale’s purchase for resale margins are impacted by price volatility of a crop nutrient between the time we purchase the product and the time we sell the product to the customer.
FOREIGN EXCHANGE
The international
currency of the agribusiness industry is the U.S. dollar. Accordingly, we use the U.S. dollar as our reporting currency. We conduct business primarily in U.S. and Canadian dollars. We also have some exposure to the Argentine peso, Australian dollar
and euro. Fluctuations in these currencies can also impact our financial results.
SELECTED RETAIL AND CONSOLIDATED FINANCIAL
MEASURES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Performance ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| (in percentages) |
|
Retail –
North
America |
|
|
Retail |
|
|
Consolidated
Agrium |
|
|
Retail –
North
America |
|
|
Retail |
|
|
Consolidated
Agrium |
|
| Average non-cash working capital to sales (a) |
|
|
N/A |
|
|
|
17 |
|
|
|
14 |
|
|
|
N/A |
|
|
|
20 |
|
|
|
17 |
|
| Operating coverage ratio |
|
|
N/A |
|
|
|
72 |
|
|
|
67 |
|
|
|
N/A |
|
|
|
71 |
|
|
|
57 |
|
| Cash operating coverage ratio |
|
|
N/A |
|
|
|
61 |
|
|
|
55 |
|
|
|
N/A |
|
|
|
62 |
|
|
|
47 |
|
| EBITDA to sales |
|
|
9 |
|
|
|
9 |
|
|
|
11 |
|
|
|
12 |
|
|
|
8 |
|
|
|
13 |
|
| Return on capital employed (b) |
|
|
10 |
|
|
|
10 |
|
|
|
7 |
|
|
|
14 |
|
|
|
9 |
|
|
|
11 |
|
| Return on operating capital employed
(b) |
|
|
20 |
|
|
|
18 |
|
|
|
10 |
|
|
|
28 |
|
|
|
17 |
|
|
|
15 |
|
(a) Retail – North America average non-cash working capital to sales not disclosed on a geographic basis.
(b) Tax rate of 27 percent (2013 – 27 percent).
AGRIUM 2014 ANNUAL
REPORT 49
CONSOLIDATED PERFORMANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selected annual information |
|
|
|
|
|
|
|
|
|
| (millions of U.S. dollars, except per share amounts) |
|
2014 |
|
|
2013 |
|
|
2012 |
|
| Sales |
|
|
16,042 |
|
|
|
15,727 |
|
|
|
16,024 |
|
| Cost of product sold |
|
|
12,490 |
|
|
|
11,954 |
|
|
|
11,716 |
|
| Gross profit |
|
|
3,552 |
|
|
|
3,773 |
|
|
|
4,308 |
|
| Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| Selling |
|
|
2,048 |
|
|
|
1,876 |
|
|
|
1,697 |
|
| General and administrative |
|
|
349 |
|
|
|
329 |
|
|
|
428 |
|
| Earnings from associates and joint ventures |
|
|
(23 |
) |
|
|
(68 |
) |
|
|
(91 |
) |
| Purchase gain |
|
|
— |
|
|
|
(257 |
) |
|
|
— |
|
| Goodwill impairment |
|
|
— |
|
|
|
220 |
|
|
|
— |
|
| Other expenses |
|
|
18 |
|
|
|
43 |
|
|
|
58 |
|
| Earnings before finance costs and income taxes |
|
|
1,160 |
|
|
|
1,630 |
|
|
|
2,216 |
|
| Finance costs related to long-term debt |
|
|
62 |
|
|
|
90 |
|
|
|
89 |
|
| Other finance costs |
|
|
70 |
|
|
|
66 |
|
|
|
41 |
|
| Earnings before income taxes |
|
|
1,028 |
|
|
|
1,474 |
|
|
|
2,086 |
|
| Income taxes |
|
|
230 |
|
|
|
394 |
|
|
|
570 |
|
| Net earnings from continuing operations |
|
|
798 |
|
|
|
1,080 |
|
|
|
1,516 |
|
| Net loss from discontinued operations |
|
|
(78 |
) |
|
|
(17 |
) |
|
|
(18 |
) |
| Net earnings |
|
|
720 |
|
|
|
1,063 |
|
|
|
1,498 |
|
| Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
| Equity holders of Agrium |
|
|
714 |
|
|
|
1,062 |
|
|
|
1,494 |
|
| Non-controlling interest |
|
|
6 |
|
|
|
1 |
|
|
|
4 |
|
| Net earnings |
|
|
720 |
|
|
|
1,063 |
|
|
|
1,498 |
|
| Earnings per share attributable to equity holders of Agrium |
|
|
|
|
|
|
|
|
|
|
|
|
| Basic earnings per share from continuing operations |
|
|
5.51 |
|
|
|
7.31 |
|
|
|
9.67 |
|
| Basic loss per share from discontinued operations |
|
|
(0.54 |
) |
|
|
(0.11 |
) |
|
|
(0.11 |
) |
| Basic earnings per share |
|
|
4.97 |
|
|
|
7.20 |
|
|
|
9.56 |
|
| Diluted earnings per share from continuing operations |
|
|
5.51 |
|
|
|
7.31 |
|
|
|
9.67 |
|
| Diluted loss per share from discontinued operations |
|
|
(0.54 |
) |
|
|
(0.11 |
) |
|
|
(0.12 |
) |
| Diluted earnings per share |
|
|
4.97 |
|
|
|
7.20 |
|
|
|
9.55 |
|
| Total assets |
|
|
17,108 |
|
|
|
15,977 |
|
|
|
15,805 |
|
| Non-current financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term debt |
|
|
3,559 |
|
|
|
3,066 |
|
|
|
2,069 |
|
| Other financial liabilities |
|
|
17 |
|
|
|
24 |
|
|
|
36 |
|
| Derivative financial liabilities |
|
|
22 |
|
|
|
— |
|
|
|
— |
|
| Total non-current financial liabilities |
|
|
3,598 |
|
|
|
3,090 |
|
|
|
2,105 |
|
| Dividends declared |
|
|
435 |
|
|
|
367 |
|
|
|
154 |
|
| Dividends declared per share |
|
|
3.03 |
|
|
|
2.50 |
|
|
|
1.00 |
|
50 AGRIUM 2014 ANNUAL REPORT
SALES
Viterra’s results contributed significantly to the 2 percent increase in Agrium’s consolidated sales of $16.0-billion in 2014 compared to $15.7-billion in 2013.
Viterra contributed $1.7-billion in sales in 2014. The increase was partially offset by lower Wholesale sales due to lower realized selling prices on all product lines and lower sales volumes from an extended outage to complete the tie-in at our
Vanscoy potash facility and outage at our Redwater nitrogen facility. Overall, Wholesale sales decreased by 14 percent.
From 2012 to 2013, consolidated sales
decreased 2 percent to $15.7-billion due to lower Wholesale sales attributed to weaker market pricing across all commodities. Overall, Wholesale sales decreased by 9 percent. However, this was partially offset by a Retail sales increase of 4 percent
resulting from favorable weather conditions, which increased sales of fungicides, growth regulators, and herbicides. The acquisition of Viterra also contributed $276-million in additional sales in 2013.
GROSS PROFIT
Retail’s gross profit
increased by $277-million in 2014 due to inclusion of Viterra’s gross profit of $268-million, higher seed sales volume, and an increase in crop nutrients sales.
Wholesale’s gross profit decreased by $487-million in 2014 as a result of lower realized selling prices for all product lines, higher nitrogen input costs from
higher average natural gas prices, and higher fixed costs recorded directly to cost of product sold coupled with lower potash and nitrogen volumes sold due to an extended outage to complete the tie-in at our Vanscoy potash facility and outages at
our Redwater and Fort Saskatchewan nitrogen facilities.
Gross profit for the year ended December 31, 2013 was $3.8-billion – a $535-million decrease from
2012. The decrease was primarily due to Wholesale’s gross profit decrease of $608-million as a result of lower realized sales prices for nitrogen and phosphate due to weaker market conditions, higher nitrogen input costs from higher natural gas
prices, and lower potash margins stemming from uncertainty in the potash market after the break-up of BPC. These were partially offset by a Retail gross profit increase of $137-million as a result of increased crop protection and seed sales and the
impact of a full year of earnings from acquisitions made in the second half of 2012.
SELLING EXPENSES
Virtually all of our selling expenses were in our Retail business unit. Retail’s selling expense remained relatively consistent with prior year. On a total basis
there was a nominal increase of selling expenses as a percentage of sales.
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
|
|
|
|
|
|
| General and administrative expenses breakdown |
|
|
|
|
|
|
| (millions of U.S. dollars) |
|
2014 |
|
|
2013 |
|
| Share-based payments (recoveries) |
|
|
50 |
|
|
|
(7 |
) |
| Depreciation and amortization |
|
|
30 |
|
|
|
45 |
|
| Cash general and administrative |
|
|
269 |
|
|
|
291 |
|
| |
|
|
349 |
|
|
|
329 |
|
General and administrative expenses, excluding share-based payments expenses, decreased by $37-million due to reductions in depreciation,
payroll and outside services expenses during the year. Share-based payments expenses increased by $57-million resulting from an improvement in our share performance relative to our peers and an increase in our share price in 2014 compared to share
price declines in 2013.
AGRIUM 2014 ANNUAL
REPORT 51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
| (millions of U.S. dollars) |
|
Retail |
|
|
Wholesale |
|
|
Other |
|
|
Total |
|
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of product sold |
|
|
6 |
|
|
|
223 |
|
|
|
— |
|
|
|
229 |
|
| Selling |
|
|
291 |
|
|
|
— |
|
|
|
— |
|
|
|
291 |
|
| General and administrative |
|
|
8 |
|
|
|
7 |
|
|
|
15 |
|
|
|
30 |
|
| |
|
|
305 |
|
|
|
230 |
|
|
|
15 |
|
|
|
550 |
|
| 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of product sold |
|
|
5 |
|
|
|
200 |
|
|
|
— |
|
|
|
205 |
|
| Selling |
|
|
222 |
|
|
|
— |
|
|
|
— |
|
|
|
222 |
|
| General and administrative |
|
|
11 |
|
|
|
17 |
|
|
|
17 |
|
|
|
45 |
|
| |
|
|
238 |
|
|
|
217 |
|
|
|
17 |
|
|
|
472 |
|
Depreciation and amortization included in selling expenses was $291-million in 2014 compared to $222-million in 2013. The full amount of
the increase is attributed to the Retail business unit, as Retail had a greater depreciable base as a result of recent acquisitions including Viterra. Wholesale depreciation and amortization included in general and administrative decreased by
$10-million, reflecting accelerated depreciation in 2013 at our Kapuskasing mine coinciding with its closure.
EARNINGS FROM
ASSOCIATES AND JOINT VENTURES
Earnings from associates and joint ventures were $23-million and $68-million in 2014 and 2013, respectively. Our earnings
from associates and joint ventures decreased this year due to scheduled and unscheduled plant outages at the Profertil facility leading to higher costs and reduced sales. The MOPCO nitrogen facility faced increased gas supply interruptions during
the year, resulting in reduced production and tonnes available for sale and increased costs per tonne.
PURCHASE GAIN
In 2013, we recorded a purchase gain of $257-million, representing the difference between the fair value of the acquired Viterra net assets and the related purchase
price.
GOODWILL IMPAIRMENT
No
goodwill impairment was recorded in 2014. In 2013, a $220-million goodwill impairment was recorded in our Retail – Australia business as a result of delayed synergy realization and reduced expectations for sales, gross margins and long-term
growth.
OTHER EXPENSES
|
|
|
|
|
|
|
|
|
| Other expenses breakdown |
|
|
|
|
|
|
| (millions of U.S. dollars) |
|
2014 |
|
|
2013 |
|
| Net foreign exchange and derivatives (not designated as hedges) loss |
|
|
15 |
|
|
|
27 |
|
| Interest income |
|
|
(83 |
) |
|
|
(76 |
) |
| Environmental remediation and asset retirement obligations |
|
|
24 |
|
|
|
7 |
|
| Bad debt expense |
|
|
19 |
|
|
|
9 |
|
| Potash profit and capital tax |
|
|
10 |
|
|
|
21 |
|
| Other |
|
|
33 |
|
|
|
55 |
|
| |
|
|
18 |
|
|
|
43 |
|
The decrease in net foreign exchange and derivatives (not designated as hedges) loss in 2014 compared to 2013 was primarily driven by
gains from the derivative contracts to mitigate U.S. dollar denominated commercial paper, foreign cash positions and other balance sheet exposures, and fluctuations in the natural gas prices.
Environmental remediation and asset retirement obligations increased by $17-million due to additional provisions made for our Conda plant and mine sites in 2014.
Other expenses decreased by $22-million from 2013 to 2014 as a result of higher non-recurring expenses incurred in 2013 including proxy defense costs of $17-million and
acquisition costs of $13-million related to Viterra.
52 AGRIUM 2014 ANNUAL REPORT
FINANCE COSTS
Finance costs in 2014 decreased by $24-million compared to 2013. The decrease was due to higher interest capitalized of $111-million for the construction of our Vanscoy
potash and Borger nitrogen facilities compared to $61-million in 2013. We expect our capitalized interest to be lower in 2015 with the completion of the Vanscoy project in 2014.
INCOME TAXES
Our overall effective tax
rate was 22 percent in 2014 compared to 27 percent for 2013. Excluding the recognition of one-time previously unrecognized tax assets of $36-million, the effective tax rate for 2014 would have been 26 percent.
Changes in statutory income tax rates, the mix of earnings, tax allowances and realization of unrecognized tax assets among the jurisdictions in which we operate can
impact our overall effective tax rate. Further details of the year-over-year variances in these rates for the years ended December 31, 2014 and 2013, are provided in note 6 of the Notes to the Consolidated Financial Statements.
NET EARNINGS FROM CONTINUING OPERATIONS
Overall, the net earnings from our continuing operations in 2014 decreased by $282-million due to lower realized selling prices across our product lines and lower sales
volumes due to an extended outage to complete the tie-in at our Vanscoy potash facility and outages at our Redwater and Fort Saskatchewan nitrogen facilities.
In
2013, the earnings from our continuing operations decreased by $436-million compared to 2012. Although our total general and administrative and other expenses decreased by $114-million, our gross margin was affected by the weaker market conditions
and higher natural gas prices that affected our total net earnings for the year.
NET LOSS FROM DISCONTINUED OPERATIONS
In 2013, Agrium’s Board of Directors approved the transition of the Turf and Ornamental business to be held for sale. During 2014, Agrium completed
the sale of the Turf and Ornamental business for $94-million. We reduced the value of assets held for sale to fair value less costs of disposal. Refer to note 3 of the Notes to the Consolidated Financial Statements for further details.
ASSETS
See the discussion in the section
“Financial Condition” on page 56 for detailed analysis of 2013 to 2014.
Total assets increased by 1 percent from 2012 to 2013. Agrium consolidated the
assets of the acquired Viterra operations in 2013 net of the settlement of the advance made to Glencore International plc (“Glencore”) in the fourth quarter of 2012.
NON-CURRENT FINANCIAL LIABILITIES
See the
discussion in the section “Financial Condition” on page 57 and “Liquidity and Capital Resources” under cash (used in) provided by financing activities on page 59 for detailed analysis of 2013 to 2014.
In 2013, we had issuances of $500-million of 3.5 percent debentures due June 2023 and $500-million of 4.9 percent debentures due June 2043, increasing the total
non-current financial liabilities balance compared to 2012.
DIVIDENDS DECLARED
From 2012 to 2014, a series of dividend increases were approved by the Board of Directors, as follows:
Dividend breakdown
|
|
|
|
|
|
|
|
|
|
|
|
|
| Effective date |
|
Dividends declared per
share |
|
|
Frequency |
|
|
Dividends declared per
share on an annualized basis |
|
| June 7, 2012 |
|
$ |
0.50 |
|
|
|
Semi-annually |
|
|
$ |
1.00 |
|
| December 14, 2012 |
|
$ |
0.50 |
|
|
|
Quarterly |
|
|
$ |
2.00 |
|
| September 23, 2013 |
|
$ |
0.75 |
|
|
|
Quarterly |
|
|
$ |
3.00 |
|
| November 3, 2014 |
|
$ |
0.78 |
|
|
|
Quarterly |
|
|
$ |
3.12 |
|
We declared dividends on our common shares of $435-million in 2014 and $367-million in 2013. Common share dividends paid were $430-million
in 2014 and $334-million in 2013.
AGRIUM 2014 ANNUAL
REPORT 53
QUARTERLY RESULTS OF OPERATIONS
The agricultural products business is seasonal in nature. Consequently, comparisons made on a year-over-year basis are more appropriate than quarter-over-quarter
comparisons. Crop input sales are primarily concentrated in the spring and fall crop input application seasons. Crop nutrient inventories are normally accumulated leading up to each application season. Our cash collections generally occur after the
application season is complete.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selected quarterly information |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| (millions of U.S. dollars, except per share amounts) |
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
| Sales |
|
|
2,705 |
|
|
|
2,920 |
|
|
|
7,338 |
|
|
|
3,079 |
|
|
|
2,867 |
|
|
|
2,796 |
|
|
|
6,908 |
|
|
|
3,156 |
|
| Cost of product sold |
|
|
1,973 |
|
|
|
2,255 |
|
|
|
5,739 |
|
|
|
2,523 |
|
|
|
2,127 |
|
|
|
2,167 |
|
|
|
5,209 |
|
|
|
2,451 |
|
| Gross profit |
|
|
732 |
|
|
|
665 |
|
|
|
1,599 |
|
|
|
556 |
|
|
|
740 |
|
|
|
629 |
|
|
|
1,699 |
|
|
|
705 |
|
| Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Selling |
|
|
515 |
|
|
|
480 |
|
|
|
609 |
|
|
|
444 |
|
|
|
511 |
|
|
|
423 |
|
|
|
546 |
|
|
|
396 |
|
| General and administrative |
|
|
103 |
|
|
|
80 |
|
|
|
66 |
|
|
|
100 |
|
|
|
116 |
|
|
|
57 |
|
|
|
62 |
|
|
|
94 |
|
| Earnings from associates and joint ventures |
|
|
(2 |
) |
|
|
(7 |
) |
|
|
(13 |
) |
|
|
(1 |
) |
|
|
(29 |
) |
|
|
(11 |
) |
|
|
(15 |
) |
|
|
(13 |
) |
| Purchase gain |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(257 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
220 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Other expenses (income) |
|
|
9 |
|
|
|
7 |
|
|
|
42 |
|
|
|
(40 |
) |
|
|
(4 |
) |
|
|
16 |
|
|
|
42 |
|
|
|
(11 |
) |
| Earnings before finance costs and income taxes |
|
|
107 |
|
|
|
105 |
|
|
|
895 |
|
|
|
53 |
|
|
|
183 |
|
|
|
144 |
|
|
|
1,064 |
|
|
|
239 |
|
| Total finance costs |
|
|
40 |
|
|
|
29 |
|
|
|
27 |
|
|
|
36 |
|
|
|
39 |
|
|
|
35 |
|
|
|
42 |
|
|
|
40 |
|
| Income taxes |
|
|
(3 |
) |
|
|
(15 |
) |
|
|
243 |
|
|
|
5 |
|
|
|
34 |
|
|
|
29 |
|
|
|
278 |
|
|
|
53 |
|
| Net earnings from continuing operations |
|
|
70 |
|
|
|
91 |
|
|
|
625 |
|
|
|
12 |
|
|
|
110 |
|
|
|
80 |
|
|
|
744 |
|
|
|
146 |
|
| Net (loss) earnings from discontinued operations |
|
|
(19 |
) |
|
|
(41 |
) |
|
|
(9 |
) |
|
|
(9 |
) |
|
|
(11 |
) |
|
|
(4 |
) |
|
|
3 |
|
|
|
(5 |
) |
| Net earnings |
|
|
51 |
|
|
|
50 |
|
|
|
616 |
|
|
|
3 |
|
|
|
99 |
|
|
|
76 |
|
|
|
747 |
|
|
|
141 |
|
| Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity holders of Agrium |
|
|
47 |
|
|
|
50 |
|
|
|
615 |
|
|
|
2 |
|
|
|
96 |
|
|
|
76 |
|
|
|
749 |
|
|
|
141 |
|
| Non-controlling interest |
|
|
4 |
|
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
|
|
3 |
|
|
|
— |
|
|
|
(2 |
) |
|
|
— |
|
| Earnings per share from continuing operations attributable to equity holders of Agrium: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and diluted |
|
|
0.46 |
|
|
|
0.63 |
|
|
|
4.34 |
|
|
|
0.08 |
|
|
|
0.74 |
|
|
|
0.54 |
|
|
|
5.00 |
|
|
|
0.98 |
|
| Earnings per share attributable to equity holders of Agrium: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and diluted |
|
|
0.33 |
|
|
|
0.35 |
|
|
|
4.28 |
|
|
|
0.02 |
|
|
|
0.66 |
|
|
|
0.52 |
|
|
|
5.02 |
|
|
|
0.94 |
|
| EBITDA |
|
|
245 |
|
|
|
248 |
|
|
|
1,037 |
|
|
|
180 |
|
|
|
314 |
|
|
|
250 |
|
|
|
1,191 |
|
|
|
347 |
|
| Adjusted EBITDA |
|
|
253 |
|
|
|
261 |
|
|
|
1,048 |
|
|
|
186 |
|
|
|
338 |
|
|
|
263 |
|
|
|
1,199 |
|
|
|
356 |
|
| Dividends declared |
|
|
112 |
|
|
|
107 |
|
|
|
108 |
|
|
|
108 |
|
|
|
108 |
|
|
|
110 |
|
|
|
74 |
|
|
|
75 |
|
| Dividends declared per share |
|
|
0.78 |
|
|
|
0.75 |
|
|
|
0.75 |
|
|
|
0.75 |
|
|
|
0.75 |
|
|
|
0.75 |
|
|
|
0.50 |
|
|
|
0.50 |
|
54 AGRIUM 2014 ANNUAL REPORT
Significant items affecting the comparability of quarterly results include the following:
2014
| • |
|
We had record sales for a second quarter coming from strong results of the acquired Viterra Agri-products operations and improvement in our international operations; and |
| • |
|
Our share-based payments expenses or recoveries in 2014 fluctuated based on changes in our share price and our performance relative to our peers. Our share-based payments expenses in the first, third and fourth quarters
were $31-million, $10-million and $25-million respectively compared to a recovery of $16-million in the second quarter. |
2013
| • |
|
We had higher sales for the second quarter coming from a more normal seasonal crop input demand compared to the second quarter of 2012, when the early spring season shifted sales typically earned in the second quarter
to the first quarter of 2012; |
| • |
|
During the fourth quarter, the Turf and Ornamental and Direct Solutions businesses of the AAT business unit were reported within discontinued operations; |
| • |
|
Also included in the fourth quarter was a purchase gain of $257-million related to the Viterra acquisition (see page 52 for further information); |
| • |
|
Additionally, goodwill impairment of $220-million occurred in the fourth quarter in relation to delayed synergy realized and reduced expectations for sales, gross margins and long-term growth in Retail – Australia
(see page 52 for further information); and |
| • |
|
Our share-based payments expenses for the first and fourth quarters were $16-million and $28-million respectively compared to recoveries of $30-million and $21-million respectively in the second and third quarters. Our
share-based payments expenses or recoveries fluctuated based on changes in our share price and our performance relative to our peers. |
AGRIUM 2014 ANNUAL
REPORT 55
FINANCIAL CONDITION
The following are changes to the financial condition of our consolidated balance sheet for the year ended December 31, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Detailed balance sheet analysis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (millions of U.S. dollars, except as noted) |
|
December 31,
2014 |
|
|
December 31,
2013 |
|
|
$ Change |
|
|
% Change |
|
|
Explanation of the change in balance |
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
|
848 |
|
|
|
801 |
|
|
|
47 |
|
|
|
6 |
% |
|
See discussion in the section “Liquidity and Capital Resources”. |
| Accounts receivable |
|
|
2,075 |
|
|
|
2,105 |
|
|
|
(30 |
) |
|
|
(1 |
%) |
|
— |
| Income taxes receivable |
|
|
138 |
|
|
|
78 |
|
|
|
60 |
|
|
|
77 |
% |
|
Increase was due to expected refunds in Canada and the U.S. as a result of tax installments paid in excess of taxes payable. |
| Inventories |
|
|
3,505 |
|
|
|
3,413 |
|
|
|
92 |
|
|
|
3 |
% |
|
Increase in inventories was due to lower sales of crop nutrients and crop protection related to an early start of winter across most of North America. |
| Prepaid expenses and deposits |
|
|
710 |
|
|
|
805 |
|
|
|
(95 |
) |
|
|
(12 |
%) |
|
Pre-purchased seed inventory in North America decreased due to a preference to take receipt of inventory in 2014 versus prepaying prior to receipt in 2013. |
| Other current assets |
|
|
122 |
|
|
|
104 |
|
|
|
18 |
|
|
|
17 |
% |
|
— |
| Assets held for sale |
|
|
— |
|
|
|
202 |
|
|
|
(202 |
) |
|
|
(100 |
%) |
|
The sale of the Turf and Ornamental business was completed in July 2014. |
| Property, plant and equipment |
|
|
6,272 |
|
|
|
4,960 |
|
|
|
1,312 |
|
|
|
26 |
% |
|
Wholesale additions increased by approximately $1.3-billion due to spending related to the Vanscoy potash expansion project and approximately $350-million due to the Borger nitrogen
expansion project. These increases were partially offset by foreign exchange translation. |
| Intangibles |
|
|
695 |
|
|
|
738 |
|
|
|
(43 |
) |
|
|
(6 |
%) |
|
— |
| Goodwill |
|
|
2,014 |
|
|
|
1,958 |
|
|
|
56 |
|
|
|
3 |
% |
|
Increase in goodwill was due to the growth of our Retail business unit from its acquisitions and tuck-ins. |
| Investments in associates and joint ventures |
|
|
576 |
|
|
|
639 |
|
|
|
(63 |
) |
|
|
(10 |
%) |
|
Decrease was due to a change in ownership over Agricen, previously treated as an associate in 2013 and now as a subsidiary in 2014, coupled with dividend declarations of our
associates. |
| Other assets |
|
|
78 |
|
|
|
99 |
|
|
|
(21 |
) |
|
|
(21 |
%) |
|
Decrease was due to our disposition of other non-financial assets during the year. |
| Deferred income tax assets |
|
|
75 |
|
|
|
75 |
|
|
|
— |
|
|
|
— |
|
|
— |
| Total assets |
|
|
17,108 |
|
|
|
15,977 |
|
|
|
1,131 |
|
|
|
7 |
% |
|
|
56 AGRIUM 2014 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Detailed balance sheet analysis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (millions of U.S. dollars, except as noted) |
|
December 31,
2014 |
|
|
December 31,
2013 |
|
|
$ Change |
|
|
% Change |
|
|
Explanation of the change in balance |
| Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Short-term debt |
|
|
1,527 |
|
|
|
764 |
|
|
|
763 |
|
|
|
100 |
% |
|
The increase in short-term borrowings was due to an increase in our working capital and capital expenditure requirements. |
| Accounts payable |
|
|
4,197 |
|
|
|
3,985 |
|
|
|
212 |
|
|
|
5 |
% |
|
Customer prepayments increased by $85-million and trade payables increased by $52-million due to a growth of our Retail business from tuck-ins and acquisitions. Accrued liabilities
increased by $83-million due to additional accruals relating to our Borger nitrogen expansion project. |
| Income taxes payable |
|
|
5 |
|
|
|
2 |
|
|
|
3 |
|
|
|
150 |
% |
|
— |
| Liabilities held for sale |
|
|
— |
|
|
|
44 |
|
|
|
(44 |
) |
|
|
(100 |
%) |
|
The sale of the Turf and Ornamental business was completed in July 2014. |
| Long-term debt |
|
|
3,570 |
|
|
|
3,124 |
|
|
|
446 |
|
|
|
14 |
% |
|
Long-term debt increased due to the $500-million debentures that were issued in the fourth quarter of 2014 to reduce short-term debt and for general corporate purposes. |
| Post-employment benefits |
|
|
151 |
|
|
|
135 |
|
|
|
16 |
|
|
|
12 |
% |
|
— |
| Other provisions |
|
|
480 |
|
|
|
538 |
|
|
|
(58 |
) |
|
|
(11 |
%) |
|
Decrease is primarily due to updated cash flow projections in our phosphate asset retirement obligations. |
| Other liabilities |
|
|
69 |
|
|
|
59 |
|
|
|
10 |
|
|
|
17 |
% |
|
— |
| Deferred income tax liabilities |
|
|
422 |
|
|
|
530 |
|
|
|
(108 |
) |
|
|
(20 |
%) |
|
Decrease is due to a recognition of previously unrecognized tax assets, temporary differences in respect to depreciation and amortization, and the foreign exchange translation of deferred
taxes. |
| Total liabilities |
|
|
10,421 |
|
|
|
9,181 |
|
|
|
1,240 |
|
|
|
14 |
% |
|
|
| Shareholders’ equity |
|
|
6,687 |
|
|
|
6,796 |
|
|
|
(109 |
) |
|
|
(2 |
%) |
|
|
WORKING CAPITAL
Our working capital from continuing operations, defined as current assets excluding current assets held for sale less current liabilities excluding current liabilities
held for sale, at December 31, 2014 was $1.5-billion – a decrease of $840-million over December 31, 2013. See the discussion of current assets in the section “Financial Condition” on page 56 for more information on the
drivers of this change in working capital from continuing operations.
|
|
|
|
|
|
|
|
|
| Working capital breakdown |
|
|
|
|
|
|
| (millions of U.S. dollars) |
|
2014 |
|
|
2013 |
|
| Current assets excluding current assets held for sale |
|
|
7,398 |
|
|
|
7,306 |
|
| Current liabilities excluding current liabilities held for sale |
|
|
5,853 |
|
|
|
4,921 |
|
| Working capital from continuing operations |
|
|
1,545 |
|
|
|
2,385 |
|
SHAREHOLDERS’ EQUITY
Shareholders’ equity was $6.7-billion at December 31, 2014 – a decrease of $109-million compared to December 31, 2013. This was driven by a net
increase in retained earnings of $249-million at December 31, 2014, compared to December 31, 2013, which represents the 2014 net earnings attributable to equity holders of Agrium partially offset by dividends declared of $435-million.
Shareholders’ equity was also reduced by a $341-million foreign currency translation loss in accumulated other comprehensive loss due to the decline in the exchange rates of the Canadian and Australian dollars relative to the U.S. dollar.
AGRIUM 2014 ANNUAL
REPORT 57
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital resources needs can be met through a variety of sources, including cash on hand, cash provided by operations and short-term borrowings from the
issuance of commercial paper, and borrowings from our credit facilities as well as long-term debt and equity capacity from the capital markets. Depending on the nature, timing and extent of any potential acquisitions or greenfield and brownfield
development opportunities, we may consider expanding existing sources of financing or accessing other sources of financing.
Sources and uses of cash
|
|
|
|
|
|
|
|
|
| (millions of U.S. dollars) |
|
2014 |
|
|
2013 |
|
| Cash provided by operating activities |
|
|
1,312 |
|
|
|
1,767 |
|
| Cash used in investing activities |
|
|
(2,068 |
) |
|
|
(681 |
) |
| Cash provided by (used in) financing activities |
|
|
856 |
|
|
|
(867 |
) |
| Effect of exchange rate changes on cash and cash equivalents |
|
|
(35 |
) |
|
|
(24 |
) |
| Increase in cash and cash equivalents from continuing operations |
|
|
65 |
|
|
|
195 |
|
| Cash and cash equivalents used in discontinued operations |
|
|
(18 |
) |
|
|
(52 |
) |
CASH PROVIDED BY OPERATING ACTIVITIES
Cash provided by operating activities comprises net earnings from continuing operations adjusted for items not affecting cash, interest received, interest paid, income
taxes paid, dividends from associates and joint ventures and net changes in non-cash working capital.
Net earnings from continuing operations adjusted for items not
affecting cash was a source of cash of $1.7-billion in 2014 and $1.9-billion in 2013. Material non-cash items include depreciation and amortization, finance costs and income taxes. Income taxes decreased by approximately $164-million from
$394-million in 2013 to $230-million in 2014 consistent with lower earnings and the recognition of previously unrecognized tax assets. In 2013, there were significant non-cash transactions including goodwill impairment of $220-million offset by the
purchase gain of $257-million with no comparable transactions for 2014.
Our non-cash working capital levels are affected by numerous factors including demand for
our products and services, together with pre-sales of product and inventory build leading up to the spring and fall crop input application seasons; selling prices of our products and services; raw material input and other costs; and foreign exchange
rates.
Cash flows from operating activities decreased primarily due to the variation in net changes in non-cash working capital comprised of a use of cash of
$95-million in 2014 compared to cash inflows of $536-million in 2013. This change resulted from a larger increase in accounts payable in 2013 driven by increased purchases resulting from growth in the business from our tuck-in strategy. 2014 payable
balances stayed consistent with prior year. Accounts receivable saw greater collections in 2013 reflecting higher sales. In 2014, there was a larger increase in inventory related to higher inventory balances at year end because of early winter
resulting in lower than anticipated sales.
For further discussion of working capital balance sheet account changes from December 31, 2013, to December 31,
2014, see the section “Financial Condition” on page 56.
CASH USED IN INVESTING ACTIVITIES
Investing activities used $2.1-billion of cash in 2014 – an increase of $1.4-billion compared to 2013. This is primarily the result of $1.3-billion of cash received
in 2013 from Glencore on the 2012 advance for the Viterra acquisition coupled with greater capital expenditures in 2014 on the Vanscoy potash and Borger nitrogen facilities.
BUSINESS ACQUISITIONS
In 2014 and 2013, we completed various
acquisitions of smaller, independent retail operations for total cash consideration of $179-million and $64-million respectively.
CAPITAL EXPENDITURES
Capital expenditures breakdown
|
|
|
|
|
|
|
|
|
| (millions of U.S. dollars) |
|
2014 |
|
|
2013 |
|
| Sustaining capital |
|
|
566 |
|
|
|
591 |
|
| Investing capital |
|
|
1,455 |
|
|
|
1,164 |
|
| Total |
|
|
2,021 |
|
|
|
1,755 |
|
58 AGRIUM 2014 ANNUAL REPORT
CAPITAL EXPENDITURES BY BUSINESS UNIT
Capital expenditures by business unit
|
|
|
|
|
|
|
|
|
|
|
|
|
| (millions of U.S. dollars) |
|
2014 |
|
|
2013** |
|
|
2012 |
|
| Retail |
|
|
199 |
|
|
|
198 |
|
|
|
186 |
|
| Wholesale |
|
|
1,808 |
|
|
|
1,538 |
|
|
|
991 |
|
| Other * |
|
|
14 |
|
|
|
19 |
|
|
|
48 |
|
| Total |
|
|
2,021 |
|
|
|
1,755 |
|
|
|
1,225 |
|
| * |
2012 include AAT capital expenditures. Starting December 2013, the agri-business of AAT was transitioned to Wholesale and the remaining businesses were reported in discontinued operations. |
| ** |
2013 balances were restated to reflect the transition of agri-business of AAT to Wholesale. |
Sustaining capital includes
the cost of replacements and betterments of our facilities. Retail’s sustaining capital expenditures in 2014 were $158-million (2013 – $166-million).
Investing capital typically includes a significant expansion of existing operations or new acquisitions. Our investing capital expenditures increased from 2013 to 2014
due to expenditures related to the Vanscoy potash and Borger nitrogen facility expansion projects.
CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES
Financing activities provided $856-million of cash in 2014 – a change of $1.7-billion compared to 2013, when financing
activities used $867-million of cash. This is primarily the result of short-term debt issued in 2014 versus repaid in 2013 coupled with cash paid in 2013 related to shares repurchased under the normal course issuer bid that expired in 2014.
SHORT-TERM DEBT
Cash provided by
short-term debt in 2014 was $845-million compared to cash used in the repayment of short-term debt of $511-million in 2013. The 2014 cash provided by short-term debt comprised $614-million from our commercial paper facility and $231-million from our
credit facilities. In 2013, we repaid the short-term debt related to the multi-jurisdictional facility drawn upon for the 2012 advance of funds to Glencore.
LONG-TERM DEBT
On November 13, 2014, we issued $500-million of
5.25 percent debentures due January 15, 2045 to be used for short-term debt repayments and for general corporate purposes.
On May 28, 2013, we issued
$500-million of 3.5 percent debentures due June 1, 2023, and $500-million of 4.9 percent debentures due June 1, 2043.
The debentures were issued under our
2014 and 2012 base shelf prospectuses, respectively. The 2014 base shelf prospectus permits issuance in Canada and the U.S. of common shares, debt and other securities up to $2.5-billion, less the offering price of securities issued between the 2014
filing date of the prospectus and May 2016. Issuance of further securities under the base shelf prospectus requires filing a prospectus supplement and is subject to the availability of funding in capital markets. The 2014 base shelf prospectus has a
remaining capacity of up to an additional $1.5-billion.
In 2013, we repaid a $460-million floating rate bank loan.
DIVIDENDS
See the discussion in the section “Consolidated
Performance” on page 53 for information about our dividends.
NORMAL COURSE ISSUER BID
In January 2015, the Toronto Stock Exchange (TSX) accepted our Notice of Intention to make a Normal Course Issuer Bid (the “Bid”). We proposed to purchase up to
7,185,866 common shares, being 5 percent of our 143,717,326 issued and outstanding shares as of January 19, 2015. Share repurchases are authorized from January 26, 2015 to
AGRIUM 2014 ANNUAL
REPORT 59
January 25, 2016 or earlier until such time the Bid is completed or terminated. All shares purchased under the Bid will be cancelled. Security holders of Agrium may obtain a copy of the
Notice of Intention without charge by contacting the Corporate Secretary of Agrium at 13131 Lake Fraser Drive S.E., Calgary, AB T2J 7E8 or by phone at (403) 225-7000.
We did not purchase any shares in 2014. During 2013, we purchased approximately 5,770,182 shares for total consideration of approximately $498-million pursuant to the
normal course issuer bid that expired in 2014.
CASH AND CASH EQUIVALENTS USED IN DISCONTINUED OPERATIONS
Cash and cash equivalents used in discontinued operations were $18-million in 2014 and $52-million in 2013. For further discussion on discontinued operations, see the
section “Net loss from discontinued operations” under “Consolidated Performance” on page 53.
CASH POSITION
Our year end cash balance was $848-million in 2014 and $801-million in 2013. We do not hold material cash balances in currencies other than the U.S.
dollar and the Canadian dollar. We do not depend on repatriation of cash from our foreign subsidiaries to meet our liquidity and capital resources needs.
DEBT INSTRUMENTS, CAPITAL MANAGEMENT AND RATINGS
DEBT INSTRUMENTS
Short-term debt consists
mainly of U.S. dollar-denominated commercial paper (“CP”) issued in Canada and the U.S. as well as various bank lines of credit for our operations in Europe, South America and Australia. We utilize a $2.5-billion multi-jurisdictional
facility of which $2.45-billion is allocated to North America and $50-million is available to Australia. At December 31, 2014, we had $250-million drawn on our North American tranche at a rate of 1.61 percent. Australian tranche draws were less
than $1-million. We also had $1.1-billion of CP outstanding at December 31, 2014, at a weighted average interest rate of 0.47 percent. Amounts borrowed under the CP program reduce our borrowing capacity
under the multi-jurisdictional facility. For our international operations, we had credit facilities of approximately $389-million of which $160-million was outstanding at December 31, 2014, including $109-million in Europe and $51-million in South America.
Refer to note 15 of the Notes to the Consolidated Financial Statements for further information on
our short-term debt and long-term debt.
60 AGRIUM 2014 ANNUAL REPORT
CAPITAL MANAGEMENT
Refer to note 24 of the Notes to the Consolidated Financial Statements for further information on our capital management policies.
Multi-jurisdictional facility covenants
|
|
|
|
|
|
|
|
|
| |
|
Limit |
|
|
2014 |
|
| Interest coverage ratio (a) |
|
³ |
2.5 |
|
|
|
13.0 |
|
| Debt-to-capital ratio (b) |
|
£ |
0.65 |
|
|
|
0.40 |
|
| (a) |
Calculated as the last 12 months’ EBITDA divided by interest, which includes interest on long-term debt plus other interest. |
| (b) |
Calculated as total debt divided by the sum of total debt and total equity. For purposes of this ratio, total debt is defined as the sum of short-term debt, long-term debt, guarantees and letters of credit, net of cash
and cash equivalents. |
These covenants were met as at December 31, 2014 and December 31, 2013.
DEBT RATINGS
The following information
relating to Agrium’s credit ratings is provided as it relates to our financing costs, liquidity and operations. Specifically, credit ratings affect Agrium’s ability to obtain short-term and long-term financing and the cost of such
financing. A reduction in the current rating on our debt by the rating agencies, particularly a downgrade below investment grade, or a negative change in the outlook for the Company could adversely affect Agrium’s cost of financing and our
access to sources of liquidity and capital.
Debt ratings breakdown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Rating agency |
|
Date of
affirmation |
|
|
Long-term
debt rating |
|
|
USD commercial
paper |
|
|
Ratings
outlook |
|
| Standard & Poor’s Ratings Services |
|
|
May 20, 2014 |
|
|
|
BBB |
|
|
|
A-2 |
|
|
|
Stable |
|
| Moody’s Investors Service |
|
|
May 20, 2014 |
|
|
|
Baa2 |
|
|
|
P-2 |
|
|
|
Stable |
|
Refer to our 2014 AIF in the section “Item 7 – Description of Capital Structure – 7.3 Debt Ratings” for further
information on our ratings, including ratings definitions.
FUTURE CASH REQUIREMENTS
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
At December 31,
2014, our aggregate contractual obligations for continuing operations are set out in the table below.
Contractual and other obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payment due by period |
|
| (millions of U.S. dollars) |
|
Less than one year |
|
|
One to three years |
|
|
Four to five years |
|
|
More than five years |
|
|
Total |
|
| Operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term debt – interest |
|
|
189 |
|
|
|
371 |
|
|
|
330 |
|
|
|
2,398 |
|
|
|
3,288 |
|
| Operating leases |
|
|
281 |
|
|
|
241 |
|
|
|
121 |
|
|
|
64 |
|
|
|
707 |
|
| Purchase obligations |
|
|
656 |
|
|
|
666 |
|
|
|
192 |
|
|
|
359 |
|
|
|
1,873 |
|
| Total operating obligations |
|
|
1,126 |
|
|
|
1,278 |
|
|
|
643 |
|
|
|
2,821 |
|
|
|
5,868 |
|
| Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term debt – principal repayments |
|
|
— |
|
|
|
100 |
|
|
|
512 |
|
|
|
2,965 |
|
|
|
3,577 |
|
| Asset retirement obligations (a) |
|
|
14 |
|
|
|
17 |
|
|
|
7 |
|
|
|
249 |
(c) |
|
|
287 |
|
| Environmental remediation liabilities
(b) |
|
|
59 |
|
|
|
40 |
|
|
|
25 |
|
|
|
47 |
|
|
|
171 |
|
| Total capital obligations |
|
|
73 |
|
|
|
157 |
|
|
|
544 |
|
|
|
3,261 |
|
|
|
4,035 |
|
| Total |
|
|
1,199 |
|
|
|
1,435 |
|
|
|
1,187 |
|
|
|
6,082 |
|
|
|
9,903 |
|
| (a) |
Represents the undiscounted, inflation-adjusted estimated cash outflows. |
| (b) |
Represents the undiscounted, estimated cash flows. |
| (c) |
This figure does not include estimated asset retirement obligations related to our potash operations. See the following discussion in the section “Asset retirement obligations”. |
AGRIUM 2014 ANNUAL
REPORT 61
Long-term debt
Failure to maintain certain financial ratios in respect of our credit facilities and other covenants in the various debt instruments may trigger early repayment
provisions. See the discussion in the section “Debt Instruments, Capital Management and Ratings” on page 60.
Operating
leases
Operating lease commitments consist primarily of leases for railcars and contractual commitments at distribution facilities in our Wholesale
business unit, vehicles and application equipment in our Retail business unit, and office equipment and property leases throughout our operations. The commitments represent the minimum payments under each agreement.
Purchase obligations
Purchase obligations
include minimum commitments for North American natural gas purchases, which include both floating rate and fixed rate contracts, and are calculated using the prevailing NYMEX forward prices for U.S. facilities and AECO forward prices for Canadian
facilities at December 31, 2014.
Profertil has three long-term gas contracts denominated in U.S. dollars, expiring in 2017. These contracts account for
approximately 76 percent of Profertil’s gas requirements. YPF S.A. (“YPF”), our joint venture partner in Profertil, supplies approximately 24 percent of the gas under these contracts.
We have a power co-generation agreement for our Carseland facility that expires on December 31, 2026. The maximum commitment under this agreement is to purchase 60
megawatt-hours of power per hour through 2026. The price for the power is based on a fixed charge adjusted for inflation and a variable charge based on the cost of natural gas, which is provided to the facility for power generation.
Our phosphate rock supply agreement extends to 2020. Our minimum commitment is to purchase 800,000 tonnes in 2015 and 798,000 tonnes from 2016 to 2018, with any potential
subsequent volumes to be determined in 2016. The purchase price is based on a formula that tracks finished product pricing and key published phosphate input costs. We entered into a freight contract to import phosphate rock extending to 2018, with a
total outstanding commitment of $126-million at December 31, 2014.
In addition to amounts disclosed in the preceding table, future capital expenditures include
approximately: (i) potash facility ramp up project – $300-million to $400-million and (ii) Borger, Texas nitrogen expansion project – $265-million.
Asset retirement obligations
Our mining,
extraction, processing and distribution activities result in asset retirement obligations, which are part of our normal course of operations. Such retirement obligations include closure, dismantlement, site restoration or other legal or constructive
obligations for termination and retirement of assets. Expenditures may occur before and after closure. We expect to incur expenditures for obligations over the next 40 years, with the exception of those for potash operations, which are expected to
occur after 100 years. The timing of retirement expenditures is dependent on a number of factors such as the life and nature of the asset, legal requirements and technology. The discounted, inflation-adjusted estimated cash outflows required to
settle the asset retirement obligations is $271-million at December 31, 2014.
Environmental remediation liabilities
We establish provisions for environmental expenditures that relate to existing conditions caused by past operations that do not contribute to current or
future revenue generation. We capitalize environmental expenditures that extend the life of the property, increase its capacity, or mitigate or prevent contamination from future operations. The discounted, inflation-adjusted estimated cash outflows
required to settle the environmental remediation liabilities is $169-million at December 31, 2014.
62 AGRIUM 2014 ANNUAL REPORT
FUTURE CAPITAL EXPENDITURES
SUSTAINING CAPITAL
In 2015, our sustaining capital is expected to be
approximately $500-million to $550-million for a number of large projects planned for the year. The 2015 sustaining capital program includes the following:
| • |
Reliability projects for Wholesale manufacturing facilities; |
| • |
Wholesale resource development projects; |
| • |
Risk management and risk reduction projects; |
| • |
Planned turnaround inspection and overhaul at certain Wholesale facilities; and |
| • |
Spending at our Retail operations in North and South America and Australia. |
INVESTING CAPITAL
Our investing capital program planned for 2015 is expected to be approximately $700-million to $750-million and includes the following:
| • |
Further expenditures related to the Vanscoy potash expansion project to facilitate the ramp-up of annual production capacity by one million tonnes; |
| • |
Debottlenecking of the Borger ammonia facility and brownfield urea expansion; and |
| • |
Retail investments in growth and efficiency opportunities. |
We anticipate that we will be able to finance the announced
projects through a combination of cash provided from operating activities, existing lines of credit (see the discussion in the section “Debt Instruments, Capital Management and Ratings” on page 60 for further details) and funds available
from new debt or equity securities offerings.
BUSINESS ACQUISITIONS
During 2014, the Retail business unit completed the acquisition of various businesses for total consideration of $179-million.
In October 2013, we completed the Viterra acquisition. The acquired assets form part of our Retail business unit and include over 200 farm centers in Canada as well as
distribution assets in Australia. Retail also completed acquisitions of other various businesses for a total consideration of $64-million.
Refer to note 2 of the
Notes to the Consolidated Financial Statements for further information on our business acquisitions.
OUTSTANDING SHARE DATA
The number and principal amount of our outstanding shares at February 20, 2015, were as follows:
Outstanding shares at February 20, 2015
|
|
|
|
|
|
|
|
|
| |
|
Number of shares |
|
|
Market value |
|
| Common shares |
|
|
144 million |
|
|
$ |
16-billion |
|
At February 20, 2015, the number of stock options outstanding (issuable assuming full conversion, where each option granted can be
exercised for one common share) was approximately nil.
OFF-BALANCE SHEET ARRANGEMENTS
GUARANTEES
We are contractually obligated
to reimburse Canpotex – an industry association of which we are a one-third owner – for our approximately 8 percent pro-rata share of any operating losses or other liabilities incurred. We believe that the probability of conditions arising
that would trigger this guarantee is remote. Reimbursements, if any, are made from reductions of our cash receipts from Canpotex.
AGRIUM 2014 ANNUAL
REPORT 63
FINANCIAL INSTRUMENTS
RISK MANAGEMENT
In the normal course of
business, our balance sheet, results of operations and cash flows are exposed to various risks. Annually, the Board approves a strategic plan that takes into account the opportunities and major risks of our business and mitigating factors to reduce
these risks. The Board sets upper limits on the amounts and time periods over which management may manage risk using derivative financial instruments. Our Corporate Financial Risk Committee reviews risk management policies and procedures annually
and monitors compliance with these limits and associated exposure management activity. We manage risk in accordance with our Global Exposure Management Policy. The objective of the policy is to reduce volatility in cash flows and earnings.
Our derivative financial instruments and the nature of the risks to which they are, or may be, subject are set out in the following table:
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Risks |
|
| |
|
Currency |
|
|
Commodity price |
|
|
Credit |
|
|
Liquidity |
|
| Foreign currency forward, swap and option contracts |
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
|
|
|
| Natural gas forward, swap and option contracts, nutrient swap contracts and power swap
contracts |
|
|
|
|
|
|
X |
|
|
|
X |
|
|
|
X |
|
Refer to note 21 of the Notes to the Consolidated Financial Statements for further information on our financial instruments.
ENTERPRISE RISK MANAGEMENT
WE MANAGE RISKS TO OUR ENTERPRISE
In the normal course of operations, our business activities expose us to risk. The acceptance of
certain risks is both necessary and advantageous in order to achieve our growth targets and our vision. We focus on long-term results and manage related risks and uncertainties. Our risk management structure strives to ensure sound business
decisions balance risk and reward and drive the maximum shareholder return.
RISK METHODOLOGY
Through Agrium’s structured Enterprise Risk Management (“ERM”) process, senior management, business units and corporate functions seek to identify and
manage risks facing our business. Once identified, risks and related mitigation strategies are evaluated, documented and reviewed on an “evergreen” basis, with a formal review and quarterly sign-off. Many of these risks cross business
units and corporate functions. In these cases, the aggregate risk to Agrium is considered and an overall corporate risk is monitored and assessed. The senior leadership team develops additional mitigation strategies for implementation where residual
risk is deemed unacceptably high. Residual risk represents the remaining risk after taking into account existing mitigation strategies.
The risks we identify are
assigned to six categories: strategic, financial, operational, market, environmental and political.
RISK-RANKING MATRIX
Agrium uses a risk matrix to assess the potential impact of risks based on the expected frequency and consequence of risk events:
| • |
We assess consequence based on the potential aggregate impact of a risk event on three areas: (a) company reputation; (b) our financial health; and (c) the environment and the health and safety of our
employees and external parties; and |
| • |
Frequency represents how often a consequence related to a risk is expected to occur. It is akin to probability of loss from the risk. |
64 AGRIUM 2014 ANNUAL REPORT
AGRIUM’S RISK MATRIX
RISK GOVERNANCE STRUCTURE
At Agrium, we believe that good risk management is critical to successful execution of strategy and that everyone on the Agrium team has a role to play in managing risk.
BOARD OF DIRECTORS
| • |
Governs risk management directly and through its committees; |
| • |
Responsible for understanding the material risks of the business and the related mitigation strategies and for taking reasonable steps to ensure that management has an effective risk management process in place; and
|
| • |
Individual committees of the Board oversee specific risks relevant to their areas of responsibility. For example, the Audit Committee monitors the risk management process for financial risks; the Environment, Health,
Safety and Security Committee monitors the process for managing environmental, health, safety and security (“EHS&S”) risks; and the Compensation Committee assesses risks in compensation programs. |
MANAGEMENT
| • |
Risks unique to our separate business units are managed by the presidents of those business units and their teams; and |
| • |
Functional risks are managed by the corporate functional heads and their teams. |
CHIEF RISK OFFICER
| • |
Agrium has an appointed Chief Risk Officer (“CRO”). Responsible for maintaining an effective ERM process, the CRO monitors current developments in risk management practices, drives improvements in
Agrium’s risk management philosophy, program and policies, and champions development of a “best practice” risk management culture; |
| • |
The CRO reports quarterly to the Board and senior management on all material risks, including new or increased risks resulting from changes in operations or external factors; and |
| • |
The CRO also formally reports to the Board annually on the ERM process and material risks. |
GOVERNANCE
FUNCTIONS
| • |
Agrium maintains several risk governance functions that contribute to our overall control environment, including Internal Audit, Corporate EHS&S, Legal, and the Internal Control and Disclosure Compliance team.
|
AGRIUM 2014 ANNUAL
REPORT 65
MATERIAL BUSINESS RISKS
The following is a discussion of certain material business risks facing Agrium. Further disclosure of material risks facing Agrium is provided in Agrium’s AIF for
the year ended December 31, 2014.
PRODUCT PRICE AND MARGIN
Agrium’s operating results are dependent on product prices and margins, which are in turn dependent on demand for crop inputs. Demand for crop inputs can be affected
by a number of factors, including weather conditions, outlook for crop nutrient prices and farming economics, governmental policies, access of our customers to credit and build-up of inventories in distribution channels.
The majority of our Wholesale nutrient business is a commodity business with little product differentiation. Product prices are largely affected by supply and demand
conditions, input costs and product prices. Resulting margins can therefore be volatile.
Within our Wholesale business unit, we sell manufactured product as well as
product we have purchased for resale. Both components of the business are subject to margin volatility.
Our Retail business unit experiences relatively stable
margins, which provide stability to our annual cash flows and earnings. Nonetheless, during times of significant price volatility, margins can be affected to a certain degree by the above factors.
WEATHER
Anomalies in regional weather patterns can have a significant
and unpredictable impact on the demand for our products and services. It may also impact prices. Our customers have limited windows of opportunity to complete required tasks at each stage of crop cultivation. Should adverse weather occur during
these seasonal windows, we could face the possibility of reduced revenue in those seasons without the opportunity to recover until the following season. In addition, we face the significant risk of inventory carrying costs should our customers’
activities be curtailed during their normal seasons. We must manufacture product throughout the year to meet peak season demand and to react quickly to changes in expected weather patterns that affect demand.
UNPLANNED PLANT DOWNTIME
The results of our Wholesale business are
dependent on the availability of our manufacturing facilities. Prolonged plant shutdown may result in a significant reduction in product available for sale, may affect the environment and/or the community, and may cause injury to an employee or a
member of the public.
TRANSPORTATION
Reducing the delivered cost
of product and ensuring reliability of product delivery to our customers are key success factors for our Wholesale marketing operations. Potential medium-term risks are the increased regulations and costs of transporting ammonia within North America
given the safety concerns respecting transportation of this product.
BUSINESS ACQUISITIONS AND EXPANSIONS
There is a risk that recent or future acquisitions could fail to fully deliver the expected economic benefits, or we may experience integration challenges that could
result in delays in achieving some or all of any anticipated synergies and require the allocation of additional resources to integrate the acquired businesses. Similarly, there is a risk that expansions of existing facilities or greenfield
developments undertaken may have higher capital construction costs or be delayed or that such expansions may not generate the expected return on investment.
HUMAN RESOURCES
Long-term forecasts predict a tight labor market across
many areas in which we operate due to changing demographics, including the general aging of the population. A tight labor market, including the associated risks of losing key individuals and difficulty attracting and retaining qualified personnel,
is a risk to the business.
66 AGRIUM 2014 ANNUAL REPORT
RAW MATERIALS
Natural gas
is the principal raw material used to manufacture nitrogen and is the single largest purchased raw material for our Wholesale operation. North American natural gas prices are subject to price volatility. An increase in the price of natural gas
increases our nitrogen cost of production and may negatively impact nitrogen margins for our North American nitrogen sales. This is particularly important for our nitrogen facilities in Western Canada and Borger, Texas, where we purchase gas on the
open market. Higher production costs may be partially or fully reflected in higher domestic and international product prices, but these conditions do not always prevail. In addition, the price for natural gas in North America can vary significantly
compared to the price for natural gas in Europe and Asia. Significantly lower natural gas prices in Europe and/or Asia would give our competitors in Europe and Asia a competitive advantage, which could, in turn, decrease international and domestic
product prices and reduce our margins.
The Profertil nitrogen facility faces risk concerning gas deliverability during the winter due to strains on gas distribution
and residential demand in Argentina. The Argentine government has at times reduced the amount of gas available to industrial users in favor of residential users during the peak winter demand season. Profertil may also not be able to renew its
long-term gas supply contracts at favorable rates or at all.
Mining has inherent risks. For phosphate, there are risks associated with the variability in the quality
of phosphate rock that can impact cost and production volumes. For potash mining, there is a risk of incurring water intake or flooding as well as variability in quality that can impact cost and production volumes.
COUNTERPARTY
We face the risk of loss should a counterparty be unable
to fulfill its obligations with respect to accounts receivable or other contracts, including derivative financial instruments.
CREDIT AND LIQUIDITY
Our business is dependent on access to operating credit lines to fund our ongoing operations. Should overall credit liquidity in the markets be limited, this
could impact our ability to operate under normal conditions.
FOREIGN EXCHANGE
A significant shift in the value of the Canadian dollar against the U.S. dollar could impact the earnings of our Canadian operations, which earn revenues mainly in U.S.
dollars and incur expenses mainly in Canadian dollars. The major impact would be to our Canadian potash and, to a lesser extent, phosphate operations on a per-unit cost of product basis as well as to our corporate overhead costs. Significant changes
in the Canadian dollar can also have a direct impact on our Canadian effective income tax rate.
A significant shift in the value of the Australian dollar against the
U.S. dollar could impact the reported earnings of our Australian operations, which earn revenues mainly in Australian dollars but report in U.S. dollars.
COUNTRY
We have significant operations in Canada, the U.S. and
Australia. We also operate in a number of South American and European countries, have business investments in Egypt, and are dependent on phosphate rock from Morocco. International business exposes us to a number of risks, such as uncertain economic
conditions in the countries in which we do business, abrupt changes in foreign government policies and regulations, restrictions on the right to convert and repatriate currency, political risks, and the possible interruption of raw material supply
due to transportation issues or government-imposed restrictions. We do not engage in business activities in any country that is a state sponsor of terrorism.
Construction of two new trains at the MOPCO-operated nitrogen plant in Egypt was shut down in November 2011 due to civil unrest. Construction resumed in 2014. As Agrium
holds a 26 percent interest in MOPCO, failure to complete the expansion could have an adverse effect on our profitability, financial condition and results of operations. There is also a risk to the MOPCO nitrogen facility on gas deliverability as
gas may be diverted for power generation as Egypt is seeing a growing demand for power.
Following its nationalization by the Argentine government in 2012, YPF, as
the other 50 percent owner of the Profertil nitrogen facility, may have different business and economic interests or policy objectives under government management than it did in the past, which may be inconsistent with our interests as a 50 percent
owner of that facility and which could have an adverse effect on the profitability, financial condition and results of operations of the Profertil facility. The Argentine government has imposed currency controls and regulatory measures to limit the
flow of U.S. dollars out of the country. We do not depend on repatriation of cash from our foreign subsidiaries to meet our liquidity and capital resource needs.
AGRIUM 2014 ANNUAL
REPORT 67
LEGISLATIVE RISK
We are
subject to legislation, regulation and government policies in the jurisdictions in which we operate. We cannot predict how these laws, regulations or policies or their interpretation, administration and enforcement will change over time, and it is
possible that future changes could negatively impact our operations, markets or cost structure.
ENVIRONMENT, HEALTH, SAFETY AND SECURITY
We face EHS&S risks typical of those found throughout the agriculture, mining and chemical manufacturing sectors and the international fertilizer supply chain. These
include the potential of physical injury to employees and contractors; possible environmental contamination and human exposure to chemical releases and accidents during manufacturing, mining, transportation, storage and use; and the security of our
personnel, products, intellectual property and physical assets domestically and overseas from intentional acts of destruction, crime, violence, terrorism, and ethnic and international conflicts. In addition, there are risks of natural disasters and
risks to health, including pandemic risk.
LITIGATION RISK
Agrium,
like any other business, is subject to the risk of becoming involved in disputes and litigation. Any material or costly dispute or litigation could adversely impact our consolidated financial position and results of operations. See the discussion
“Litigation” in the section “Contingent Liabilities” on page 69.
CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in our annual filings, interim filings (as these terms are defined in National Instrument 52-109, Certification of
Disclosure in Issuers’ Annual and Interim Filings) and other reports filed or submitted by us under provincial and territorial securities legislation is recorded, processed, summarized and reported within the required time periods. Our Chief
Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), after evaluating the effectiveness of our disclosure controls and procedures as of the end of the period covered by the annual filings, being December 31, 2014,
have concluded that, as of such date, our disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed by Agrium in its annual filings, interim filings or other reports filed or
submitted by it under securities legislation is (i) recorded, processed, summarized and reported within the time periods specified in the securities legislation, and (ii) accumulated and communicated to management, including the CEO and
CFO, as appropriate, to allow timely decisions regarding required disclosure.
Our disclosure controls and procedures are designed to provide reasonable assurance of
achieving their objectives and, as indicated in the preceding paragraph, the CEO and CFO believe that our disclosure controls and procedures are effective at that reasonable assurance level, although the CEO and CFO do not expect that the disclosure
controls and procedures will prevent all errors or fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in
accordance with IFRS.
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the design and
effectiveness of our internal control over financial reporting as of the end of the fiscal year covered by this report based on the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
Internal Control – Integrated Framework (1992). Based on this evaluation, the CEO and CFO concluded that as of December 31, 2014, we did maintain effective internal control over financial reporting. Commencing 2015, the
effectiveness of internal control over financial reporting will be assessed using the Internal Control-Integrated Framework 2013 issued by COSO.
On
October 1, 2013, we completed the Viterra acquisition and in 2014 we completed the integration of our Viterra control environment into the Agrium control environment to ensure controls were operating effectively as at December 31, 2014.
Other than the Viterra integration, there have been no changes to our internal controls over financial reporting during the year ended December 31, 2014 that had, or would have, a material impact over our control over financial reporting.
Management used appropriate procedures to ensure internal controls were in place during and after implementation.
68 AGRIUM 2014 ANNUAL REPORT
The effectiveness of internal control over financial reporting as of December 31, 2014, was audited by KPMG LLP, an
independent registered public accounting firm, as stated in their report, which is included in this 2014 Annual Report to Shareholders.
CONTINGENT LIABILITIES
LITIGATION AND ENVIRONMENTAL MATTERS
From time to time, we become involved in legal or administrative proceedings related to our current and acquired businesses. Such proceedings expose us to possible
losses, and we expect our involvement in such matters to continue in the normal conduct of our business. We regularly assess the need for accounting recognition and/ or disclosure of these matters. Our assessment considers the probability of adverse
judgments and the range of possible losses. We base our assessment of the probable outcome on our judgment of a number of factors including similar past experience and history, precedents, relevant financial, scientific and other evidence of each
matter, and opinions from corporate and outside counsel. Accruals are recorded when occurrence is probable and the outcome is reasonably estimable. We may not be able to make a reliable estimate of losses or the range of possible losses when claims
do not specify an amount of damages sought, when there are numerous plaintiffs, or when a case is in its early stages. We will represent our interests vigorously in all of the proceedings in which we are involved.
Legal proceedings and environmental matters are inherently complex and, as described above, we apply significant judgment in estimating probable outcomes. As a result,
the potential exists for adjustments to liabilities and material variance between actual costs and estimates.
Information on the amounts accrued for litigation,
environmental remediation and asset retirement are disclosed in note 18 of the Notes to the Consolidated Financial Statements. Our assessment of specific litigation matters at the date of issuance of this MD&A is set out below. For a discussion
of our Idaho Mining Properties and Manitoba Mining Properties, see the section “Environmental Contingencies” on page 70.
OIL-FOR-FOOD PROGRAMME
On June 27,
2008, the Iraqi government filed a civil lawsuit in the U.S. against AWB, a subsidiary we acquired in 2010, and 92 other parties, in a lawsuit alleging that the defendants participated in an illegal conspiracy to divert funds from the United Nations
Oil-for-Food Programme (“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 more than $232-million from the OFFP escrow account. AWB and a number of other defendants filed motions to dismiss the complaint in June 2010. The court dismissed the
lawsuit in 2013. In 2014, the dismissal was upheld on appeal and the court refused the plaintiff’s request to reconsider the dismissal. Plaintiffs have until March 2015, to seek leave to appeal the decision. Although we believe that the
possibility of a material financial effect from this matter is remote, an adverse decision could have a material adverse effect on Agrium’s consolidated financial position and results of operations. We have not accrued a liability for damages
for this matter.
ENVIRONMENTAL PROTECTION REQUIREMENTS
Agrium’s operations are subject to a variety of federal, provincial, state and local laws, regulations, licenses and permits, the purpose of which is to protect the
environment. These environmental protection requirements may apply during design and construction, operation or modification, at the time of plant or mine closure, and beyond.
The environmental requirements for new projects typically focus on baseline site conditions; ensuring that the design and equipment selection meet operating
requirements; the satisfaction of permitting, preconstruction studies, discharge and other operating requirements; and the use of appropriate safeguards during construction.
Licenses, permits and approvals at operating sites are obtained in accordance with laws and regulations, which may limit or regulate operating conditions, rates and
efficiency; land, water and raw material use and management; product storage, quality and transportation; waste storage and disposal; and emissions and other discharges. Additional legal requirements may apply in circumstances where site
contamination predates the current applicable regulatory framework where remediation is ongoing or where there is otherwise evidence that historic remediation activities have not been successful in protecting the environment. These additional
requirements may result in an environmental remediation liability that must be resolved.
AGRIUM 2014 ANNUAL
REPORT 69
Finally, the environmental protection requirements that may apply at the time of plant closure can be of two types:
environmental remediation that did not come due or arise until operations ceased; or asset retirement obligations stipulated by contractual or constructive obligations or other legal requirements. Asset retirement obligations typically involve the
removal of the asset, remediation of any contamination resulting from the use of that asset and reclamation of the land.
We record provisions under IFRS for
environmental remediation and asset retirement. Provision amounts are provided in note 18 to our 2014 Financial Statements, which are incorporated herein by reference. If a matter does not meet the requirements for recognition as a provision under
IFRS, it is classified as an environmental contingency.
ENVIRONMENTAL CONTINGENCIES
We are responsible for environmental remediation of certain facilities and sites. Work at these sites is in various stages of environmental management; we are assessing
and investigating some sites and remediating or monitoring others. New information, including changes in regulations or results of investigations by regulatory bodies, could lead to reassessment of our exposure related to these matters. In addition,
we may revise our estimates of our future obligations because they are dependent on a number of uncertain factors, including the method and extent of the remediation and cost-sharing arrangements with other parties involved.
In assessing whether we would accrue a provision, we undertake a provision review process at each reporting period. Our process includes a review by technical staff in
consultation with in-house legal counsel and internal accounting professionals to determine whether current information available to us supports our estimates of the financial effect of these matters and our related disclosures. Where appropriate,
in-house legal counsel consults with external counsel as to its analysis and conclusions about the facts of each case, the status of litigation, and discussions and correspondence with third parties. We also review publicly available information for
similar matters involving other companies. Our review includes previously assessed matters and an assessment as to whether any new matters require review.
Some
remediation activities at our sites are subject to the U.S. Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), the U.S. Resource Conservation and Recovery Act (“RCRA”) and similar federal, state,
provincial and local environmental laws. CERCLA provides for phases of remediation (investigation, risk assessment, remedy selection, remedial design and construction, maintenance and long-term monitoring, and closure) under regulatory oversight.
For the matters described below, at the date of issuance of our 2014 Financial Statements, we determined that we could not make a reliable estimate of the amount
and timing of any financial effect in excess of the amounts accrued. Reasons for this determination include complexity of the matters; early phases of most proceedings; lack of information on the nature and timing of future actions in the matters;
dependency on the completion and findings of investigations and assessments; and the lack of specific information as to the nature, extent, timing and cost of future remediation. Until we have greater clarity as to our liability and the extent of
our financial exposure, it is not practical to make a reliable estimate of the financial effect. As negotiations, discussions and assessments proceed, we may provide estimates. Events or factors that could alleviate our current inability to make
reliable estimates for these matters include further identification of allegations or demands; completion of remediation phases; a ruling by a court or other regulatory body having jurisdiction; or initiation of substantive settlement negotiations.
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY PHOSPHATE INDUSTRY INITIATIVE
In 2003, the United States Environmental Protection Agency (“EPA”) began investigating the phosphate industry as part of its National Enforcement Initiative
regarding the mineral processing industry. The purpose of the EPA’s National Enforcement Initiative is to ensure that waste resulting from mineral processing is managed in accordance with RCRA regulations. RCRA is the federal statute that
governs the generation, transportation, treatment, storage and disposal of hazardous wastes. The EPA is also evaluating the industry’s compliance with certain U.S. Clean Air Act (“CAA”) programs, including Maximum Achievable Control
Technology (“MACT”) and Prevention of Significant Deterioration, the U.S. Emergency Planning and Community Right to Know Act (“EPCRA”) and CERCLA.
In 2005, the EPA and the Idaho Department of Environmental Quality (“IDEQ”) commenced an investigation of the Conda facility to evaluate compliance with CAA,
CERCLA, EPCRA, RCRA and relevant state law. The EPA has notified Nu-West Industries, Inc. (“Nu-West”), a wholly-owned subsidiary of Agrium, of potential violations of CAA, CERCLA, EPCRA and RCRA, at the Conda facility.
In 2007, the EPA issued a Notice of Violation (“NOV”) to Nu-West alleging certain violations of the CAA and MACT at phosphoric acid production facilities,
primarily involving pollution control equipment as well as start-up, shut-down and malfunction procedures. Nu-West formally responded to the EPA allegations; however, the NOV remains open. The EPA has yet to identify any further CAA allegations or
demands.
70 AGRIUM 2014 ANNUAL REPORT
In 2008, the EPA issued a NOV to Nu-West identifying certain alleged violations of RCRA, focusing principally on the
government’s interpretation of the Bevill exemption, among other regulatory standards. Nu-West is cooperating with the government’s inquiry and is in active discussion to resolve the EPA’s allegations. Among other activities designed
to assist in obtaining resolution of the EPA’s claims, in 2009, Nu-West entered into a voluntary consent order with the EPA to evaluate potential impacts on the environment from the Conda facility’s operations by means of an environmental
assessment pursuant to section 3013 of RCRA. Nu-West is working cooperatively with the EPA and the IDEQ to negotiate work scopes to advance this assessment. In 2014, Nu-West continued to perform site assessment activities, and we expect that the
overall assessment will be substantially completed during 2015; however, completion will be dependent on the results of the specific assessment activities.
Nu-West,
along with other industry members also being evaluated under the same National Enforcement Initiative, is involved in ongoing discussions with the EPA, the U.S. Department of Justice (“DOJ”) and various environmental agencies to resolve
these matters. Due to the nature of the allegations, Agrium is uncertain as to how the matters will be resolved or if litigation will ensue. Resolution of the government’s CAA, CERCLA, EPCRA and RCRA allegations may be by settlement. Potential
settlement terms may include requirements to pay certain penalties, which Agrium currently believes will not be material, modify certain operating practices and undertake certain capital improvement projects, provide financial assurance for the
future closure, maintenance and monitoring costs for the phosphogypsum stack system at the Conda facility, and resolve the RCRA section 3013 voluntary consent order site investigation findings. Nu-West is continuing to negotiate the terms of
settlement with the EPA and DOJ.
In 2008, the EPA further notified Nu-West that the government had commenced investigation of phosphate industry compliance with
certain provisions of CERCLA and EPCRA. In March 2011, the EPA issued a NOV to Nu-West alleging violations of certain emissions reporting and related requirements under CERCLA and EPCRA. Nu-West is performing technical research and review in
coordination with industry members in support of developing industry reporting protocols and is in ongoing discussions with the EPA in response to these allegations.
LEGACY ENVIRONMENTAL REMEDIATION ACTIVITIES: IDAHO MINING PROPERTIES
Nu-West has performed, is performing, or in the future may perform site investigation and remediation activities at six closed phosphate mine sites and one former mineral
processing facility near Soda Springs, Idaho (“Idaho Legacy Sites”). These sites were mined and operated from as early as 1955 until as late as 1997. Selenium, a trace mineral essential for optimal human health but which can be toxic at
higher concentrations, was found to be leaching from reclaimed lands associated with historic phosphate mines owned, leased or operated by Nu-West or other parties. Nu-West, the U.S. government and other phosphate producers have been working
diligently to identify the sources of selenium contamination, to develop remedies for the closed mines and to implement best practices to ensure selenium issues do not become a concern for current and new mining operations.
In 2013, the U.S. government and Nu-West reached an agreement for four Idaho Legacy Sites. Under the agreement, the U.S. government will (a) pay 33 percent of past
and future investigation and remediation costs; and (b) contribute, independent of its 33 percent share all the funds remaining from the government’s recoveries from a bankruptcy proceeding involving Washington Group International, a past
responsible party at the closed mine sites. Remaining funds available for recovery are estimated to be approximately $2-million. Nu-West has not accrued any amounts for potential recoveries from third parties. Since reaching this settlement with the
U.S. government, Nu-West has executed subsequent agreements with federal and state environmental agencies under CERCLA, establishing the scope of preliminary work to be conducted at the four sites. Nu-West expects to complete substantial remedial
construction at one of these sites by 2016. IDEQ is overseeing remediation programs for the three other Idaho Legacy Sites under agreements with Nu-West signed in 2014 and in previous years.
For all seven of the Idaho Legacy Sites, Nu-West continued in 2014 to develop and perform the preliminary scope of work, which it expects to be complete in one to three
years. Completion of this preliminary work will enable Nu-West and the agencies to determine what, if any, further remediation work will be required.
LEGACY ENVIRONMENTAL REMEDIATION ACTIVITIES: MANITOBA MINING PROPERTIES
In 1996, Agrium acquired Viridian Inc. (“Viridian”), which is now a wholly-owned Canadian subsidiary of Agrium. Viridian has retained certain liabilities
associated with the Fox Mine Site – a closed mineral processing site near Lynn Lake, Manitoba. Viridian is currently treating water draining from the site to meet downstream provincial water quality standards. Viridian has substantially
completed the investigation phase of remediation and is currently in discussions with the Province of Manitoba regarding remedial alternatives selection. Concurrence and approval from the province
AGRIUM 2014 ANNUAL
REPORT 71
of a remedial design are expected within the next 36 months. For this matter, we have not disclosed information about the amount accrued for site remediation because disclosure of such
information would seriously prejudice our position in discussions with the Province.
CLIMATE CHANGE AND GREENHOUSE GAS EMISSIONS
Directly and indirectly, Agrium generates greenhouse gas (“GHG”) emissions through the production, distribution and use of its products. These emissions may be
subject to climate change policy and regulations being developed in North America. However, these policies are developing in a unique way within the various state, provincial and federal jurisdictions.
In Alberta, Specified Gas Emitters Regulation (“SGER”) has been enacted that applies to facilities emitting greater than 100,000 tonnes of CO2 equivalent (“CO2e”) per year. Existing facilities that exceed this threshold are required to decrease their emissions intensity by
12 percent relative to their 2003 – 2005 average baseline. If a company is unable to decrease its emissions intensity through increases in operational efficiency, it is still able to comply with the Alberta requirements by purchasing qualifying
emission offsets from other sources in Alberta or by contributing to the Climate Change and Emissions Management Fund (“the Fund”). Historically, the contribution costs to the Fund have been set at $15 per tonne of CO2e. The SGER was originally set to be revised in September 2014; however, the Government of Alberta delayed any revisions until the end of June 2015. As such, the specific requirements of the SGER
and the economic value of the contribution costs to the Fund may change in 2015.
Agrium has three facilities in Alberta with CO2e emissions in excess of 100,000 tonnes per year. Those facilities are Redwater Fertilizer Operations (total typical annual emissions of approximately 1,170,000 tonnes); Carseland Nitrogen
Operations (total typical annual emissions of approximately 550,000 tonnes); and Fort Saskatchewan Nitrogen Operations (total typical annual emissions of approximately 550,000 tonnes). Actual emissions in each case depend on operating time and
conditions, which is influenced by market demand and supply factors. The annual impact of this legislation on Agrium is expected to range from $1-million to $4-million a year going forward based on a valuation of $15 per tonne, depending on
variations in production from year to year, which will directly impact CO2e emissions. These expected annual costs are lower than they otherwise could have been, due in part to Agrium’s
implementation of various efficiency and emissions reduction projects. These projects include overall efforts to increase operational efficiency, the purchase of emission offset credits, and the operation of a cogeneration facility in partnership
with TransCanada Energy Ltd. at Carseland that captures waste heat and produces emission offset credits. Agrium and the fertilizer industry have also been involved in the development and implementation of the Nitrous Oxide Emissions Reduction
Protocol (“NERP”), which is designed to generate emission offset credits for farmers who reduce their nitrous oxide (“N2O”) emissions. N2O is a significant GHG with a global warming potential that is approximately 300 times greater than CO2. NERP was approved by Alberta
Environment in October 2010. The implementation of NERP is expected to result in more effective farm application of nitrogen fertilizer, reduced GHG emissions at the farm level and the introduction of additional low-cost offsets to the market.
Agrium will continue to take a leadership role in the fertilizer industry’s negotiations with governments on fair and equitable air emission reduction targets in an
effort to achieve a pragmatic and realistic compliance system that preserves the global competitiveness of the industry. To that end, Agrium and the Canadian fertilizer industry are currently in discussions with the Government of Canada on the
industry’s GHG reduction target to help meet Canada’s commitment pursuant to the Copenhagen Accord to reduce GHG emissions by 17 percent below 2005 levels by 2020. In an effort to reduce
CO2e emissions, Agrium has also developed strategies to improve energy efficiency in our operations, capture and store carbon, reduce the amount of N2O emissions from our nitric acid facilities and reduce emissions in agriculture.
About 60 percent of the natural
gas required to produce ammonia – the basic building block of all nitrogen fertilizer – is used to provide the necessary hydrogen for the process. Given current economically viable technologies, the CO2 emissions related to this process are fixed by the laws of chemistry and cannot be reduced. Use of the remaining natural gas may be managed through improvements in energy efficiency, which will
reduce CO2 emissions. Significant early action has been implemented by the Company to achieve these improvements, and the Fort Saskatchewan facility is currently being used as a demonstration
project for implementing an additional energy efficiency program for our nitrogen operations. Independent government-sponsored studies estimate that a further 3 to 5 percent reduction in combustion emissions intensity may be theoretically attainable
for the Canadian industry, but this will be a challenging and potentially cost prohibitive target.
72 AGRIUM 2014 ANNUAL REPORT
Where feasible, Agrium is pursuing opportunities to capture CO2 from our nitrogen operations for enhanced oil recovery (“EOR”), industrial use or underground storage. At our Borger, Texas operation, approximately 300,710 tons of CO2 were captured in 2014 for EOR.
Agrium also has installed
N2O reduction technology at two of our three operating U.S. nitric acid plants and has plans to install N2O reduction technology at our
third plant during 2015 or beyond depending on reduction technology performance currently under evaluation.
Agrium estimates that the production stage of its
operations accounts for roughly 95 percent of its overall emissions. In 2011, Agrium met its 2020 commitment to reduce North American GHG emissions intensity by 10 percent from 2005 levels. The GHG emissions intensity reduction target was met ahead
of schedule, primarily through the closure of less carbon-efficient facilities and increased production at more carbon-efficient facilities. Agrium has set a new target to reduce its GHG emissions intensity by 20 percent from 2005 levels by 2020.
In the U.S., the EPA issued GHG emissions regulations that establish a reporting program for emissions of
CO2, methane and other GHGs, as well as a permitting program for large GHG emissions sources. While the U.S. Congress has considered various legislative initiatives to reduce or tax GHG
emissions, to date it has not enacted any laws in that regard. However, if Congress undertakes comprehensive tax reform in the coming year, it is possible that such reform could include a carbon tax. The EPA has also proposed regulations that limit
GHG emissions from power plants and announced its intent to issue further regulations limiting GHG emissions with the goal of reducing GHG emissions by 17 percent from 2005 levels by 2020 and by 30 percent from 2005 levels by 2030.
CRITICAL ACCOUNTING ESTIMATES
We prepare
our financial statements in accordance with IFRS, which requires us to make judgments, assumptions and estimates in applying accounting policies. Critical estimates are those most subject to uncertainty and which have the most significant risk of
resulting in a material adjustment to the carrying amounts of assets and liabilities within the next year.
In note 26 of the Notes to the Consolidated Financial
Statements, we have described in detail the following accounting estimates, which are the most critical in helping readers understand and evaluate our reported financial results. In our Consolidated Financial Statements, we have also discussed
assumptions underlying our estimates and factors that might impact our estimates.
These critical accounting estimates require our most difficult, subjective or
complex judgments, resulting from the need to make estimates about the effects of matters that are inherently uncertain. We have set out below additional information on events, trends and uncertainties that could impact our estimates. As well, we
have described the impact on our financial statements of reasonably possible change in one assumption, while holding all other assumptions constant.
PURCHASE PRICE ALLOCATION
We completed the acquisition of the Viterra Agri-products business in 2013 while the purchase price
allocation was completed in 2014. We have completed various other acquisitions in 2014 amounting to $179-million. We will finalize purchase price allocations for these acquisitions in 2015.
Retail is focused on achieving growth targets by continuing to acquire businesses in the future.
REBATES
We collect substantially
all receivables associated with vendor rebates in the current fiscal year and therefore do not need to make subjective long-term estimates. Adjustments made to our gross profit and inventory in the following fiscal year have historically not been
material. A 10 percent change in our vendor rebates at December 31, 2014, would have affected Retail’s net earnings by $15-million in 2014.
AGRIUM 2014 ANNUAL
REPORT 73
INVENTORY VALUATION
We continuously assess whether lower prices for our products require that we write down inventories. During 2014 and 2013, we did not record any material inventory
write-downs.
A 1-percent reduction in our inventories at December 31, 2014, would have reduced consolidated net earnings by $27-million in 2014. Decreases in
global prices of our commodities held in inventory have the greatest potential to cause us to write down inventories.
IMPAIRMENT
TESTING
We did not record any goodwill impairment in 2014.
Sensitivity of the results of goodwill impairment testing to changes in assumptions is described in note 12 of the Notes to the Consolidated Financial Statements. If
actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment that could be material. If key assumptions and estimates about our operations change, including lower than assumed sales growth, higher costs or
other negative factors, we could record a material impairment to goodwill.
INCOME TAXES
Although we believe our assumptions and estimates are reasonable, tax assets are realizable and our accruals for tax liabilities are adequate for all open tax years
based on our interpretations of tax law and prior experience, actual results could differ. This may affect consolidated income tax expense and earnings in future years.
Our effective income tax rate in a given financial statement period could change materially to the extent that we prevail in matters for which we have recorded a
liability or are required to pay amounts in excess of our recorded liability.
PROVISIONS
Given the nature of these provisions, they can change significantly due to the inherent uncertainties in our estimates. Changes could have a material impact on our
future earnings.
A 10-percent change in our provision for litigation at December 31, 2014, would have affected net earnings by $3-million in 2014.
A change in the assumptions underlying our provisions could have a significant impact on our financial position and results of operations. A 1-percent change in the rate
we use to discount our provisions at December 31, 2014, would have affected consolidated net earnings by $8-million in 2014.
SHARE-BASED PAYMENTS
A 10-percent change
in our share-based payments expenses for the year ended December 31, 2014, would have affected net earnings by $4-million in 2014.
We made changes to our
share-based payments plans effective for 2015. These changes include the introduction of Restricted Stock Units as a replacement of stock options for non-officers and replacement of cash-settled stock appreciation rights for officer employees with
equity-settled stock options. The future impact of these changes includes increased dilution of earnings per share.
We have not made any material changes in the
accounting methodology of our critical accounting estimates for the past two fiscal years.
IFRS 15, Revenue from Contracts with Customers, may require that
we add or modify accounting estimates relating to revenues.
74 AGRIUM 2014 ANNUAL REPORT
ACCOUNTING STANDARDS AND POLICY CHANGES
|
|
|
|
|
|
|
|
|
| New or
amended |
|
Standard/
interpretation |
|
Description |
|
Agrium’s date and
method of adoption |
|
Impact |
| New |
|
IFRS 9 |
|
Financial Instruments
replaced previous guidance on the classification and measurement of financial assets, which will now be classified on initial recognition at either (a) amortized cost, or (b) fair value, with gains and losses on remeasurement recognized in
earnings, except for recognition in other comprehensive income on election for equity instruments not held for trading.
Financial Instruments (2013) replaces the hedge accounting requirements in IAS 39 to more closely align the accounting with risk management activities,
introduces new requirements when an entity has chosen the fair value option for its own debt, and removes the mandatory effective date for IFRS 9. |
|
Adopted January 1, 2014, retrospectively without restatement of prior year comparatives. |
|
We reclassified financial assets
that we held at January 1, 2014, retrospectively, resulting in balance sheet reclassifications without impact to earnings.
We began hedge accounting for certain natural gas contracts in 2014, as described in note 21 of the Notes to the Consolidated Financial Statements. |
| New |
|
IFRS 15 |
|
Revenue from Contracts with
Customers establishes a five-step model that will apply to revenue earned from a contract with a customer. The standard provides specific guidance on identifying separate performance obligations in the contract and allocating the transaction
price to the separate performance obligations. |
|
Agrium expects to adopt for annual
periods beginning on or after January 1, 2017. |
|
We will evaluate the impact of
IFRS 15 in 2015. |
| Amended |
|
IFRS 11 |
|
Joint Arrangements
clarifies that when an entity acquires an interest in a joint operation that meets the definition of a business, it should be accounted for under IFRS 3 Business Combinations.
|
|
Agrium will adopt January 1,
2015. |
|
There will be no material impact
on adoption. |
| Amended |
|
IAS 32 |
|
Offsetting Financial Assets and
Liabilities (a) clarifies requirements for the right to set-off for rights that are contingent, and enforceability in default, insolvency or bankruptcy of all parties to a liability and (b) clarifies provisions on net settlement.
|
|
Amendments adopted January 1,
2014. |
|
There was no material impact on
adoption. |
| New |
|
IFRIC 21 |
|
Levies establishes
guidance on accounting for levies imposed by governments. |
|
Adopted January 1, 2014,
retrospectively. |
|
There was no material impact on
adoption. |
AGRIUM 2014 ANNUAL
REPORT 75
ADDITIONAL IFRS AND NON-IFRS FINANCIAL MEASURES
In general, an additional IFRS financial measure is a measure relevant to understanding a company’s financial performance that is not a minimum financial statement
measure mandated by IFRS. A non-IFRS financial measure generally either excludes or includes amounts not excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS.
The following table outlines our additional IFRS financial measures, their definitions and how management assesses each measures. As the measures set out below are
presented in our Consolidated Financial Statements included in this Annual Report, they are classified as additional IFRS financial measures where they reflect consolidated Agrium and as non-IFRS financial measures where they do not reflect
consolidated Agrium, including references to EBITDA when presented on an operating segment basis.
|
|
|
|
|
| Additional IFRS financial measures |
|
|
|
|
| Additional IFRS
financial measures |
|
Definition |
|
Management’s assessment |
| EBIT |
|
Earnings (loss) from continuing
operations before finance costs and income taxes. |
|
EBIT provides a supplemental
measure used by management to (1) evaluate the effectiveness of our businesses; (2) evaluate our ability to service debt; and (3) determine resource allocations. We believe EBIT is useful to investors, securities analysts and management, as the
measure allows for an evaluation of segment performance exclusive of capital structure and income taxes, both of which are not a direct result of the efficiency of each business and are generally accounted for and evaluated on a consolidated
basis. |
| Consolidated ROOCE
(Consolidated return on operating capital employed) |
|
Last 12 months’ EBIT less
income taxes at a tax rate of 27 percent (2013 – 27 percent) divided by rolling four quarter average operating capital employed. Operating capital employed includes non-cash working capital, property, plant and equipment, investments in
associates and joint ventures, and other assets. |
|
Consolidated ROOCE provides a
measure of our operating performance and the efficiency of our capital allocation process over the long term. We believe this metric is useful in measuring and maximizing shareholder value in a growing company. |
| Consolidated ROCE
(Consolidated return on capital employed) |
|
Last 12 months’ EBIT less
income taxes at a tax rate of 27 percent (2013 – 27 percent) divided by rolling four quarter average capital employed. Capital employed includes operating capital employed, intangibles and goodwill. |
|
Consolidated ROCE provides a
measure of our operating performance and the efficiency of our capital allocation process over the long term. This is similar to ROOCE but this measure considers the intangibles and goodwill that reflects the purchase premium in buying a business.
We believe this metric is useful in measuring and maximizing shareholder value in a growing company. |
| Interest coverage |
|
Last 12 months’ EBITDA
divided by interest, which includes interest on long-term debt plus other interest. |
|
Management monitors this metric as
part of strategic capital management, as our revolving credit facilities require that we maintain specific interest coverage. We believe this is useful in assessing our ability to cover our net interest expense with our operating income.
|
| Net debt to
net debt plus equity |
|
Net debt includes short-term debt
and long-term debt, net of cash and cash equivalents. Equity consists of shareholders’ equity. |
|
Management monitors this metric as
part of strategic capital management. We believe this is useful to investors and other interested parties in assessing our growth capacity and future capital needs. |
| Free cash flow |
|
Cash provided by operating
activities less sustaining capital expenditures. |
|
Management monitors this metric
as part of strategic capital management. We believe this is useful in assessing our available financing after considering the funds required to maintain our current asset base.
|
76 AGRIUM 2014 ANNUAL REPORT
The following table outlines our non-IFRS financial measures, their definitions and usefulness, and how management assesses
each measure.
|
|
|
|
|
| Non-IFRS financial measures |
|
|
|
|
| Non-IFRS financial measures |
|
Definition |
|
Management’s assessment |
| EBITDA |
|
Earnings (loss) from continuing
operations before finance costs, income taxes, depreciation and amortization. |
|
Refer to EBIT. This measure is
also used by investors and securities analysts as a valuation metric and as an alternative to cash provided by operating activities. This metric excludes income tax expenses and financing and related interest charges, which can distort the
comparability of business units’ historical performance as these costs are managed at the consolidated level and cannot be allocated to all business units on a basis meaningful for comparison to other companies.
|
| Adjusted EBITDA |
|
EBITDA before finance costs,
income taxes, depreciation and amortization of joint ventures. |
|
Refer to EBIT and EBITDA. Our
joint ventures are included in statement of operations using the equity method, which does not separately disclose finance costs, income taxes, depreciation and amortization. Adjusted EBITDA is useful in evaluating our performance by presenting a
measure of EBITDA that includes the EBITDA of our joint ventures. |
| EBITDA to sales |
|
EBITDA divided by sales. |
|
Management uses this metric to
measure earnings and cash flow generated from each dollar of sales. We believe this metric is useful to evaluate operating profitability on a basis that is comparable from period to period.
|
| Debt to EBITDA |
|
Short-term plus long-term debt
divided by EBITDA. |
|
Management, investors and
securities analysts use this metric to measure the Company’s ability to manage and repay debt payments. |
| Cash operating coverage
ratio |
|
Cash operating coverage ratio
represents gross profit excluding depreciation and amortization less EBITDA, divided by gross profit excluding depreciation and amortization. |
|
Used to measure operating
performance and efficiency of our operating expenses. |
| Retail – North America,
International, Australia and Total Retail measures: return on operating capital employed, return on capital employed, average non-cash working capital to sales, operating coverage ratio, cash operating coverage ratio, EBITDA to sales, and
EBIT |
|
These measures when calculated
using information from our Retail segment are considered non-IFRS financial measures as the specific Retail components are not separately presented in our Consolidated Financial Statements or Notes to the Consolidated Financial Statements.
Operating coverage ratio represents gross profit less EBIT, divided by gross profit.
See definitions for ROOCE and ROCE in the preceding Additional IFRS Financial Measures
table. |
|
Management, investors and
securities analysts use these metrics to evaluate performance of our Retail business.
Refer to the equivalent consolidated metrics above on how management assesses each measure. |
| Comparable store sales |
|
Represents the increase or
decrease in current period Retail store sales compared to the prior period. We include a
location in the comparable store base once it is in operation or owned for over 12 months. If we close a store, we retain the sales of the closed location in the comparable store base if the closed location is in close geographical proximity to an
existing location, unless we plan to exit the market area or are unable to economically or logistically serve it. We do not make adjustments for temporary closures, expansions or renovations of stores.
|
|
Financial statement users commonly
use this metric evaluate performance in the retail and distribution industries. We believe this metric is useful in highlighting the performance of our existing stores by measuring the change in sales for such stores for a period over the comparable
period of equivalent length. |
AGRIUM 2014 ANNUAL
REPORT 77
|
|
|
|
|
| Non-IFRS financial measures |
|
Definition |
|
Management’s assessment |
| Normalized comparable store
sales |
|
Comparable store sales normalized
by using published NPK benchmark prices and adjusting current year prices to reflect pricing from the previous year based on our percent of NPK utilization by product. |
|
Refer to comparable store sales.
This metric removes fluctuations created by changes in commodity prices. |
| Capital expenditures –
sustaining |
|
Cost of replacements and
betterments to our facilities. |
|
Used to evaluate capital spending
on improving existing operations and capacity. |
| Capital expenditures –
investing |
|
Expenditures on significant
expansion of our existing operations. |
|
Used to evaluate capital spending
on business expansion and development. |
| Cost of product manufactured
(“COPM”) excluding depreciation and amortization |
|
All fixed and variable costs are
accumulated in COPM. When these costs are divided by the production tonnes for the period, the result is actual COPM per tonne, which is compared to the standard COPM per tonne – a calculation of fixed and variable costs for a standard or
typical period of production. The standard COPM per tonne is multiplied by the production tonnes for the period, and the resulting dollar amount is transferred to inventory. Any remaining costs are recorded directly to cost of product sold as
production volume or cost efficiency variances. For purposes of this disclosure, COPM excludes depreciation and amortization expense.
Fixed costs per tonne will fluctuate as production tonnage fluctuates. Fixed costs will remain constant whether or not tonnes are produced. Variable costs per
tonne remain constant as production tonnage fluctuates. Variable costs fluctuate as production tonnage fluctuates.
Direct freight is a transportation cost to move the product from an Agrium location to the point of sale. It is not a component of COPM.
|
|
Metric used by management to
evaluate performance relative to our peers on our cost of product manufactured excluding depreciation and amortization during the period.
There is no directly comparable IFRS measure for cost of product manufactured. |
| Debt-to-capital ratio |
|
Total debt divided by the sum
of total debt and total equity. For purposes of this ratio, total debt is defined as the sum of short-term debt, long-term debt, guarantees and letters of credit, net of cash and cash equivalents.
|
|
Metric used by management to
evaluate the Company’s compliance with our facility covenants. There is no directly
comparable IFRS measure for debt-to-capital ratio. |
78 AGRIUM 2014 ANNUAL REPORT
RECONCILIATIONS OF ADDITIONAL IFRS AND NON-IFRS FINANCIAL MEASURES
Adjusted EBITDA and EBITDA to EBIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (millions of U.S. dollars) |
|
Retail |
|
|
Wholesale |
|
|
Other |
|
|
Consolidated |
|
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted EBITDA |
|
|
1,119 |
|
|
|
821 |
|
|
|
(192 |
) |
|
|
1,748 |
|
| Equity accounted joint ventures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Finance costs and income taxes |
|
|
— |
|
|
|
24 |
|
|
|
— |
|
|
|
24 |
|
| Depreciation and amortization |
|
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
14 |
|
| EBITDA |
|
|
1,119 |
|
|
|
783 |
|
|
|
(192 |
) |
|
|
1,710 |
|
| Depreciation and amortization |
|
|
305 |
|
|
|
230 |
|
|
|
15 |
|
|
|
550 |
|
| EBIT |
|
|
814 |
|
|
|
553 |
|
|
|
(207 |
) |
|
|
1,160 |
|
| 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adjusted EBITDA |
|
|
986 |
|
|
|
1,316 |
|
|
|
(146 |
) |
|
|
2,156 |
|
| Equity accounted joint ventures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Finance costs and income taxes |
|
|
— |
|
|
|
40 |
|
|
|
— |
|
|
|
40 |
|
| Depreciation and amortization |
|
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
14 |
|
| EBITDA |
|
|
986 |
|
|
|
1,262 |
|
|
|
(146 |
) |
|
|
2,102 |
|
| Depreciation and amortization |
|
|
238 |
|
|
|
217 |
|
|
|
17 |
|
|
|
472 |
|
| EBIT |
|
|
748 |
|
|
|
1,045 |
|
|
|
(163 |
) |
|
|
1,630 |
|
Retail comparable store sales and Retail normalized comparable store sales
|
|
|
|
|
|
|
|
|
| |
|
Twelve months ended December 31, |
|
| (millions of U.S. dollars, except as noted) |
|
2014 |
|
|
2013 |
|
| Retail sales from the current period comparable store base |
|
|
11,487 |
|
|
|
11,234 |
|
| Prior year Retail sales |
|
|
11,913 |
|
|
|
11,479 |
|
| Comparable store sales (%) |
|
|
(3.6 |
%) |
|
|
(2.1 |
%) |
| Current year sales normalized for NPK benchmark prices |
|
|
11,635 |
|
|
|
12,000 |
|
| Normalized comparable store sales (%) |
|
|
(2.3 |
%) |
|
|
4.5 |
% |
Return on operating capital employed and return on capital employed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Rolling four quarters ended
December 31, 2014 |
|
|
Rolling four quarters ended
December 31, 2013 |
|
| (millions of U.S. dollars, except as noted) |
|
Retail –
North
America |
|
|
Retail |
|
|
Consolidated
Agrium |
|
|
Retail –
North
America |
|
|
Retail |
|
|
Consolidated
Agrium |
|
| EBIT |
|
|
723 |
|
|
|
814 |
|
|
|
1,160 |
|
|
|
940 |
|
|
|
748 |
|
|
|
1,630 |
|
| Income taxes at a rate of 27 percent (2013 – 27 percent) |
|
|
195 |
|
|
|
220 |
|
|
|
313 |
|
|
|
254 |
|
|
|
202 |
|
|
|
440 |
|
| EBIT less income taxes |
|
|
528 |
|
|
|
594 |
|
|
|
847 |
|
|
|
686 |
|
|
|
546 |
|
|
|
1,190 |
|
| Average non-cash working capital |
|
|
1,732 |
|
|
|
2,249 |
|
|
|
2,201 |
|
|
|
1,715 |
|
|
|
2,337 |
|
|
|
2,698 |
|
| Average property, plant and equipment |
|
|
903 |
|
|
|
1,013 |
|
|
|
5,819 |
|
|
|
726 |
|
|
|
852 |
|
|
|
4,244 |
|
| Average investments in associates and joint ventures |
|
|
39 |
|
|
|
83 |
|
|
|
616 |
|
|
|
33 |
|
|
|
79 |
|
|
|
631 |
|
| Average other assets |
|
|
4 |
|
|
|
11 |
|
|
|
94 |
|
|
|
5 |
|
|
|
15 |
|
|
|
104 |
|
| Average operating capital employed |
|
|
2,678 |
|
|
|
3,356 |
|
|
|
8,730 |
|
|
|
2,479 |
|
|
|
3,283 |
|
|
|
7,677 |
|
| Return on operating capital employed (ROOCE) (%) |
|
|
20 |
% |
|
|
18 |
% |
|
|
10 |
% |
|
|
28 |
% |
|
|
17 |
% |
|
|
15 |
% |
| Average operating capital employed |
|
|
2,678 |
|
|
|
3,356 |
|
|
|
8,730 |
|
|
|
2,479 |
|
|
|
3,283 |
|
|
|
7,677 |
|
| Average intangibles |
|
|
644 |
|
|
|
710 |
|
|
|
716 |
|
|
|
547 |
|
|
|
622 |
|
|
|
660 |
|
| Average goodwill |
|
|
1,810 |
|
|
|
1,957 |
|
|
|
1,984 |
|
|
|
1,791 |
|
|
|
2,125 |
|
|
|
2,206 |
|
| Average capital employed |
|
|
5,132 |
|
|
|
6,023 |
|
|
|
11,430 |
|
|
|
4,817 |
|
|
|
6,030 |
|
|
|
10,543 |
|
| Return on capital employed (ROCE) (%) |
|
|
10 |
% |
|
|
10 |
% |
|
|
7 |
% |
|
|
14 |
% |
|
|
9 |
% |
|
|
11 |
% |
AGRIUM 2014 ANNUAL
REPORT 79
2014 FOURTH QUARTER MANAGEMENT’S DISCUSSION AND ANALYSIS
CONSOLIDATED NET EARNINGS
Agrium’s
2014 fourth quarter net earnings from continuing operations were $70-million or $0.46 diluted earnings per share from continuing operations compared to net earnings from continuing operations of $110-million or $0.74 diluted earnings per share from
continuing operations for the same quarter of 2013.
Financial overview
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended December 31, |
|
| (millions of U.S. dollars, except per share amounts and where noted) |
|
2014 |
|
|
2013 |
|
|
Change |
|
|
% Change |
|
| Sales |
|
|
2,705 |
|
|
|
2,867 |
|
|
|
(162 |
) |
|
|
(6 |
) |
| Gross profit |
|
|
732 |
|
|
|
740 |
|
|
|
(8 |
) |
|
|
(1 |
) |
| Expenses |
|
|
625 |
|
|
|
557 |
|
|
|
68 |
|
|
|
12 |
|
| Earnings before finance costs and income taxes (“EBIT”) |
|
|
107 |
|
|
|
183 |
|
|
|
(76 |
) |
|
|
(42 |
) |
| Net earnings from continuing operations |
|
|
70 |
|
|
|
110 |
|
|
|
(40 |
) |
|
|
(36 |
) |
| Net loss from discontinued operations |
|
|
(19 |
) |
|
|
(11 |
) |
|
|
(8 |
) |
|
|
73 |
|
| Net earnings |
|
|
51 |
|
|
|
99 |
|
|
|
(48 |
) |
|
|
(48 |
) |
| Diluted earnings per share from continuing operations |
|
|
0.46 |
|
|
|
0.74 |
|
|
|
(0.28 |
) |
|
|
(38 |
) |
| Diluted loss per share from discontinued operations |
|
|
(0.13 |
) |
|
|
(0.08 |
) |
|
|
(0.05 |
) |
|
|
63 |
|
| Diluted earnings per share |
|
|
0.33 |
|
|
|
0.66 |
|
|
|
(0.33 |
) |
|
|
(50 |
) |
| Effective tax rate (%) |
|
|
(4 |
) |
|
|
24 |
|
|
|
N/A |
|
|
|
N/A |
|
SALES AND GROSS PROFIT
Sales and gross profit variance by business unit
|
|
|
|
|
|
|
|
|
| |
|
Quarter to date change |
|
| (millions of U.S. dollars) |
|
Sales |
|
|
Gross profit |
|
| Retail |
|
|
(45 |
) |
|
|
28 |
|
| Wholesale |
|
|
(133 |
) |
|
|
(42 |
) |
| Other |
|
|
16 |
|
|
|
6 |
|
| |
|
|
(162 |
) |
|
|
(8 |
) |
Sales
Sales decreased by $162-million for the fourth quarter of 2014 compared to the same period last year. Wholesale sales for the fourth quarter decreased as a result of
lower potash and nitrogen sales volumes compared to the fourth quarter of 2013 due to an extended outage to complete the tie-in at our Vanscoy potash facility and an outage at our Redwater nitrogen facility. This decrease was partially offset by an
increase in the realized selling price for phosphate compared to fourth quarter of 2013, consistent with benchmark pricing.
Gross
Profit
Our gross profit for the fourth quarter of 2014 was $732-million, a decrease of $8-million compared to the fourth quarter of 2013. The main drivers
of this variance consisted of:
| • |
|
Retail’s gross profit increased by $28-million to $614-million for the fourth quarter of 2014 compared to the fourth quarter of 2013 due to higher rebates from suppliers on crop protection products and increased
services and other revenues related to higher livestock export contracts; and |
| • |
|
Wholesale’s gross profit decreased by $42-million to $130-million for the fourth quarter of 2014 compared to the fourth quarter of 2013 primarily as a result of lower sales volumes due to an extended outage to
complete the tie-in at our Vanscoy potash facility and an outage at our Redwater nitrogen facility and increased potash and nitrogen cost of product sold. |
80 AGRIUM 2014 ANNUAL REPORT
EXPENSES
General and administrative
|
|
|
|
|
|
|
|
|
| |
|
Three months ended
December 31, |
|
| (millions of U.S. dollars) |
|
2014 |
|
|
2013 |
|
| Share-based payments |
|
|
25 |
|
|
|
28 |
|
| Depreciation and amortization |
|
|
7 |
|
|
|
9 |
|
| Cash general and administrative |
|
|
71 |
|
|
|
79 |
|
| |
|
|
103 |
|
|
|
116 |
|
General and administrative expenses decreased by $13-million in the fourth quarter of 2014. Cash general and administrative expenses
decreased by $8-million during the quarter primarily due to a decrease in payroll expense of $5-million. Share-based payments decreased by $3-million due to a lower share price increase during the quarter compared to the same period last year.
During the fourth quarter of 2013, we recorded a purchase gain of $257-million from the Viterra acquisition and goodwill impairment of $220-million in Retail –
Australia. No goodwill impairment or purchase gain was recorded in 2014.
Earnings from associates and joint ventures decreased by $27-million in the fourth quarter
of 2014 compared to the same period last year due to unscheduled plant outages at our Profertil facility in the fourth quarter of 2014 coupled with the fourth quarter of 2013 having a recovery of $14-million related to a reversal of a gas surcharge
provision.
OTHER EXPENSES
|
|
|
|
|
|
|
|
|
| |
|
Three months ended
December 31, |
|
| (millions of U.S. dollars) |
|
2014 |
|
|
2013 |
|
| Net foreign exchange and derivatives (not designated as hedges) loss |
|
|
31 |
|
|
|
16 |
|
| Interest income |
|
|
(22 |
) |
|
|
(25 |
) |
| Environmental remediation and asset retirement obligations |
|
|
3 |
|
|
|
2 |
|
| Bad debt recovery |
|
|
(11 |
) |
|
|
(11 |
) |
| Potash profit and capital tax |
|
|
1 |
|
|
|
6 |
|
| Other |
|
|
7 |
|
|
|
8 |
|
| |
|
|
9 |
|
|
|
(4 |
) |
Other expenses increased by $13-million during the fourth quarter of 2014 primarily due to losses on commodity derivatives not designated
as hedges due to declining natural gas prices partially offset by a $5-million decrease in potash profit and capital tax related to lower potash production tax accrual in the fourth quarter of 2014.
EFFECTIVE TAX RATE
The effective tax rate on continuing operations was
(4) percent for the fourth quarter of 2014 compared to 24 percent for the same period last year due to the recognition of a previously unrecognized tax asset. Excluding the recognition of a one-time previously unrecognized tax asset of
$7-million, the effective tax rate for the fourth quarter of 2014 would have been 6 percent.
AGRIUM 2014 ANNUAL
REPORT 81
BUSINESS SEGMENT PERFORMANCE
RETAIL
Retail reported fourth quarter sales of $2.1-billion, which is
in line with the $2.1-billion reported in the same quarter last year. Gross profit was a record $614-million in the fourth quarter of 2014, a 5 percent increase from last year’s fourth quarter of $586-million. Retail also reported a record
EBITDA of $181-million, up $15-million from the fourth quarter of last year (excluding the net effect of one-time acquisition and asset valuation adjustments for Viterra and Retail – Australia made in the fourth quarter of 2013). Retail’s
international operations supported these record results with higher margins and EBITDA compared to the same period last year. As well, our solid results were achieved in a lower global crop price environment, a late harvest this fall and an early
arrival of winter across much of the U.S. compared to last year. This resulted in a shortened application window this fall that reduced demand for nutrients and delayed grower seed commitments this quarter; however, this was offset by strong results
for crop protection products. On a full year basis, EBITDA reached a record $1.1-billion in 2014, surpassing last year’s record of $957-million (which excludes the one-time items mentioned above).
Total crop nutrient sales were $972-million this quarter, down slightly from $1.1-billion in the fourth quarter of 2013. The reduction in sales was due to a 14 percent
decline in nutrient volumes in the U.S. this quarter, relative to the fourth quarter of 2013 related to unfavorable weather during the fall nutrient application season. Gross profit for crop nutrients was $156-million this quarter, a decrease of
$22-million compared to the $178-million reported in the fourth quarter of 2013. Selling prices for crop nutrients were similar to the fourth quarter of 2013, although per tonne margins declined from $92 per tonne in the fourth quarter of 2013 to
$87 per tonne this quarter partly due to a change in the geographic mix of the nutrients sold, where a larger percentage of total product sold was outside of the higher profit margin U.S. market. Total crop nutrient margins as a percentage of sales
were 16 percent in the fourth quarter of 2014, slightly below the 17 percent reported in the same quarter last year.
Crop protection product sales were $552-million
in the fourth quarter of 2014, compared to $511-million in the same period last year. Higher sales were seen late in the fourth quarter, particularly wholesale sales to dealers. Gross profit was $260-million this quarter, compared to $205-million
reported in the fourth quarter of 2013. Crop protection margins as a percentage of sales were 47 percent this quarter compared to 40 percent in the same period of 2013. Much of the increase in margins was due to higher rebates during the quarter
from achievement of certain sales measures with several significant North American suppliers coming later in the year compared to the same period in 2013.
Seed sales
were $91-million in the fourth quarter of 2014, down slightly from the $95-million reported in the fourth quarter of last year. Gross profit was $50-million this quarter, down from $60-million reported in the same period last year. The reduction in
sales revenue and gross profit was primarily due to a decrease in planted winter wheat acres and lower supplier rebates this quarter. Seed margins as a percentage of sales were 55 percent in the fourth quarter of 2014, a reduction from the 63
percent reported in the fourth quarter of 2013.
Sales of merchandise in the fourth quarter of 2014 were $211-million, compared to $228-million in the same period
last year. Gross profit for this product line was $30-million this quarter, similar to the fourth quarter of 2013. Margins on merchandise sales this quarter were 14 percent, a 1 percent increase compared to the fourth quarter of 2013. The lower
sales and increase in overall margins as a percent of sales was primarily due to exiting the low-margin wool export business in Australia as well as the implementation of a SKU (stock keeping unit) reduction program for general merchandise in
Australia.
Services and other sales were $231-million this quarter, compared to the $216-million reported in the fourth quarter of 2013. Gross profit was
$118-million in the fourth quarter of 2014, compared to $113-million for the same period last year. The increase was due to strong livestock exports from Australia during the quarter.
Selling expenses as a percentage of sales was 25 percent in the fourth quarter of 2014 which is up marginally from the 24 percent reported in the same period last year.
Retail selling expenses were $514-million for the fourth quarter, compared to $504-million in the same period last year. This variance was due to additional businesses purchased since the fourth quarter of 2013, as well as a higher benefit accrual
for U.S. employees. On an annual basis, our operating coverage ratio declined to 72 percent this year compared to 731 percent in 2013 due to our continued focus on Retail’s Operational
Excellence targets during 2014.
| 1 |
Reference made to Retail metrics includes adjustments to remove the impact of the purchase gain and goodwill impairment |
82 AGRIUM 2014 ANNUAL REPORT
WHOLESALE
Wholesale’s 2014 fourth quarter sales were $897-million, down from the $1.0-billion reported in the same quarter last year. Gross profit was $130-million this
quarter, compared to $172-million in the fourth quarter of 2013. Wholesale Adjusted EBITDA was $150-million in the fourth quarter of 2014 compared to $237-million reported in the same period last year. The decrease in earnings was primarily due to
the planned downtime at the Vanscoy potash facility to tie-in the one million tonne potash expansion project and lower ammonia sales volumes resulting from the earliest winter season in the U.S. in over 10 years. This was partially offset by
stronger results for phosphate.
Nitrogen gross profit for the fourth quarter of 2014 was $113-million compared to $129-million in the same quarter last year.
Nitrogen sales volumes were 879,000 tonnes, a decrease from the 907,000 tonnes in the same quarter last year. The decrease was primarily due to lower ammonia sales volumes which were impacted by the unusually early onset of winter in the U.S. and
downtime at our Redwater nitrogen facility to replace the waste heat boiler within the quarter. Realized sales prices and benchmark prices for most nitrogen products were similar to last year, although urea prices were higher year over year.
Nitrogen cost of product sold was $331 per tonne this quarter, slightly above the $314 per tonne reported in the fourth quarter of 2013. Cost of product sold per tonne was impacted by extended maintenance work at the Redwater facility related to the
planned replacement of the waste heat boiler this quarter. Average nitrogen gross margins were $128 per tonne this quarter, compared to $144 per tonne in the same period last year.
Agrium’s average natural gas cost included in cost of product sold (which includes transportation and administration costs) was $3.47/MMBtu this quarter ($3.62/MMBtu
including the impact of realized losses on natural gas derivatives), compared to $3.51/MMBtu for the same period in 2013 ($3.39/MMBtu including the impact of realized gains on natural gas derivatives). Derivative gains or losses not designated as
hedges are included in other expenses and not in cost of product sold, thus are not part of the calculation of gross profit. The average U.S. benchmark (NYMEX) natural gas price for the fourth quarter of 2014 was $3.94/MMBtu, compared to $3.63/MMBtu
in the same quarter last year. The AECO (Alberta) basis differential was a $0.77/MMBtu discount to NYMEX in the fourth quarter of 2014, an increase from the $0.62/MMBtu discount in the fourth quarter of 2013.
Potash gross profit for the fourth quarter of 2014 was a loss of $50-million, compared to a profit of $39-million reported in the same quarter last year. Sales volumes
were 19,000 tonnes this quarter compared to 344,000 tonnes in the fourth quarter of 2013. The decrease in sales volumes was a result of the Vanscoy mine being out of production for the majority of the fourth quarter to complete the planned tie-in of
the one million tonne expansion project. The tie-in was completed and the mine recommenced production in late December 2014. Realized sales prices for potash in North America were $375 per tonne compared to $353 per tonne in the same period last
year as all current sales volumes were in the domestic market, which is consistent with a similar increase in benchmark pricing. Gross margin per tonne was impacted by high ongoing costs related to the tie-in activities, which were allocated over
very low sales volumes.
Phosphate gross profit was $37-million in the fourth quarter of 2014, compared to a loss of $4-million in the same quarter last year.
Phosphate sales volumes were 305,000 tonnes in the fourth quarter of 2014, a 7 percent increase from 285,000 tonnes in the same quarter last year due to strong operating rates and good regional demand. Realized phosphate sales prices were $656 per
tonne this quarter compared to $560 per tonne in the same period last year, which is consistent with a similar increase in benchmark pricing. Phosphate cost of product sold was $534 per tonne in the fourth quarter of 2014, a decrease of $42 per
tonne compared to the same period last year as a result of improved operating rates and efficiencies at the Redwater facility and lower fixed costs per tonne at both the Redwater and Conda facilities. Gross margin in the fourth quarter of 2014 was
$122 per tonne compared to a negative $16 per tonne in the same period last year.
Ammonium sulfate, Environmentally Smart Nitrogen (“ESN®”, hereinafter referred to as “ESN”) and other gross profit was $27-million this quarter compared to $14-million in the same quarter of 2013. Ammonium sulfate gross profit was
$14-million this quarter, $4-million higher than same period last year due to higher sales volumes and realized sales prices. ESN gross profit was $13-million compared to $2-million in the fourth quarter of 2013. This increase is due to higher
realized sales prices and lower production costs in the current quarter. Purchase for resale gross profit for the fourth quarter was $9-million higher than the same period last year due to higher margins in the current period.
Wholesale expenses in the fourth quarter of 2014 were $46-million compared to $13-million in the same period last year. The increase is a result of $15-million in natural
gas derivative losses in the current quarter (2013 – $3-million gain) largely due to the recent decline in North American natural gas forward curve prices as well as lower realized income from our equity investments in 2014 partly due to a
reversal of a gas surcharge provision in 2013.
AGRIUM 2014 ANNUAL
REPORT 83
OTHER
EBITDA for our
Other non-operating business unit for the fourth quarter of 2014 was a net expense of $78-million, compared to a net expense of $94-million for the fourth quarter of 2013. The decrease was primarily due to a $9-million decrease in general and
administrative expenses related to lower share-based payments and payroll expenses and $13-million non-recurring Viterra acquisition costs incurred in 2013.
RECONCILIATIONS OF FOURTH QUARTER ADDITIONAL IFRS AND NON-IFRS FINANCIAL MEASURES
ADJUSTED EBITDA AND EBITDA TO EBIT
|
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| |
|
Three months ended December 31, 2014 |
|
|
Three months ended December 31, 2013 |
|
| (millions of U.S. dollars) |
|
Retail |
|
|
Wholesale |
|
|
Other |
|
|
Consolidated |
|
|
Retail |
|
|
Wholesale |
|
|
Other |
|
|
Consolidated |
|
| Adjusted EBITDA |
|
|
181 |
|
|
|
150 |
|
|
|
(78 |
) |
|
|
253 |
|
|
|
195 |
|
|
|
237 |
|
|
|
(94 |
) |
|
|
338 |
|
| Equity accounted joint ventures: |
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|
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| Finance costs and income taxes |
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
19 |
|
|
|
— |
|
|
|
19 |
|
| Depreciation and amortization |
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
5 |
|
| EBITDA |
|
|
181 |
|
|
|
142 |
|
|
|
(78 |
) |
|
|
245 |
|
|
|
195 |
|
|
|
213 |
|
|
|
(94 |
) |
|
|
314 |
|
| Depreciation and amortization |
|
|
77 |
|
|
|
58 |
|
|
|
3 |
|
|
|
138 |
|
|
|
72 |
|
|
|
54 |
|
|
|
5 |
|
|
|
131 |
|
| EBIT |
|
|
104 |
|
|
|
84 |
|
|
|
(81 |
) |
|
|
107 |
|
|
|
123 |
|
|
|
159 |
|
|
|
(99 |
) |
|
|
183 |
|
84 AGRIUM 2014 ANNUAL REPORT
KEY ASSUMPTIONS AND RISKS IN RESPECT OF FORWARD-LOOKING STATEMENTS
All of the forward-looking statements contained in this MD&A are qualified by the cautionary statements contained herein and by stated or inherent assumptions and
apply only as of the date of this MD&A. Except as required by law, Agrium disclaims any intention or obligation to update or revise any forward-looking statements as a result of new information or future events.
The following table outlines significant forward-looking statements contained in this MD&A and provides the material assumptions used to develop such forward-looking
statements and material risk factors that could cause actual results to differ materially from the forward-looking statements. Although Agrium believes that the material assumptions outlined below are reasonable, this list is not exhaustive of the
factors that may affect any of the forward-looking statements. The reader should not place an undue reliance on these assumptions and such forward-looking statements.
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| Forward-looking statements |
|
Material assumptions |
|
Material risk factors |
| |
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| Continued growth in free cash flow and earnings including, Retail’s EBITDA to reach $1.3-billion by 2015 and achievement of certain cost savings in our Wholesale operations by
2017. |
|
• |
|
Agrium’s business conditions are within normal parameters with respect to prices, margins, product availability and supplier agreements for our major products. |
|
• |
|
Agrium’s ability to integrate acquisitions, including its ability to achieve efficiencies as planned. |
|
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|
• |
|
Agrium is able to identify suitable candidates for acquisitions and to negotiate acceptable terms. |
|
• |
|
Unexpected increase in input costs and inflation rate. |
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| |
|
• |
|
Agrium is able to implement its standards, controls, procedures and policies at the acquired businesses to realize the expected synergies. |
|
• |
|
Unexpected outages and turnarounds on the facilities. |
|
|
|
|
|
| Agrium’s $125-million of annual EBITDA improvement and $350-million one-time benefits in working capital targets. |
|
• |
|
Agrium is able to reduce operating costs and improve margins. |
|
• |
|
Unexpected increase in input costs and inflation rate. |
|
|
|
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|
• |
|
Efficiencies related to future procurement and logistics are realized. |
|
• |
|
Level and effectiveness of working capital management. |
|
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|
• |
|
Agrium is able to reduce general and administrative expenses. |
|
• |
|
Actual could differ from targeted sales proceeds. |
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| |
|
• |
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Targeted sales proceeds from divestment of certain businesses are achieved. |
|
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| Retail’s 2015 metric targets. |
|
• |
|
Retail business conditions are within normal parameters with respect to prices, margins, product availability and supplier agreements for our major products. |
|
• |
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Retail’s ability to effectively implement planned business strategy. |
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• |
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Agrium is able to identify suitable candidates for acquisitions and to negotiate acceptable terms. |
|
• |
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Changes in general economic, market, business and weather conditions, industry competition and various events that could disrupt operations. |
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| |
|
• |
|
Agrium is able to implement its standards, controls, procedures and policies at the acquired businesses to realize the expected synergies. |
|
• |
|
General operating risks associated with investment in foreign jurisdictions. |
|
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|
| Wholesale’s increase in potash and nitrogen capacity, operating rates, and production coming from the Vanscoy potash and Borger
nitrogen expansion projects and completion of Profertil debottleneck project and expectation that Vanscoy expansion will reduce cost of production across all produced tonnes from the mine by approximately $20 per tonne. |
|
• |
|
Expansion projects and related ramp-up production are completed on time and as planned. |
|
• |
|
Change in the demand for and viability of the product. |
|
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|
• |
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Unexpected outages and turnarounds on the facilities. |
|
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|
• |
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Expanded volumes are below target values. |
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| |
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| Return of 40 to 50 percent of free cash flow to Agrium’s shareholders through dividends and continued increases in dividends and other returns to
shareholders. |
|
• |
|
Agrium is able, among other matters, to achieve its performance targets, complete proposed projects on time and on budget, and maintain its investment
grade rating. |
|
• |
|
Agrium’s ability to generate free cash flows as planned. |
AGRIUM 2014 ANNUAL
REPORT 85
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| Forward-looking statements |
|
Material assumptions |
|
Material risk factors |
| Retail’s $150-million reduction in working capital by end of 2017. |
|
• |
|
There would be no unexpected delays or disruptions in the accounts receivable collection process. |
|
• |
|
Inflation, currency and interest rate fluctuations. |
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|
• |
|
Agrium is able to achieve its expected inventory levels through disciplined inventory management. |
|
• |
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Level and effectiveness of working capital management. |
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| |
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• |
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Acquired businesses will not require higher working capital levels. |
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| Construction of MOPCO’s additional urea trains, including estimated capacity increase by 2015. |
|
• |
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No significant interruptions in the construction of two new trains and construction will be completed within the budget. |
|
• |
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Further delay in the construction, completion and commissioning of the project due to civil unrest in Egypt. |
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| Completion of brownfield project at the Borger facility, including estimated completion date. |
|
• |
|
Necessary permits, utilities and project approvals are secured on time. |
|
• |
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Labor shortages and/or inefficiency causing schedule delays and/or cost increases. |
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| |
|
• |
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EPC resources and shop space are available to meet the project’s fast-track approach. |
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| Expected increase of percentage share in Canpotex total sales in 2016. |
|
• |
|
Actual production capacities of Agrium and other Canpotex producers would not differ from expected. |
|
• |
|
Agrium’s ability to meet the expected production capacities of its potash facilities. |
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| |
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|
• |
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Unexpected outages or delays on its major turnarounds. |
|
|
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|
|
| 2015 market outlook including anticipated supply and demand for nitrogen, potash, and phosphate, expected international impact and export,
anticipated capacity and price outlook. |
|
• |
|
Global demand for nitrogen, potash and phosphate will increase. |
|
• |
|
Changes in global requirements or supply for nitrogen, potash, and phosphate.
|
|
• |
|
Increase in global grain and oilseed production that will put pressure on crop prices. |
|
• |
|
Changes in government policies, legislation and regulations that could impose restrictions in exportation.
|
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|
• |
|
Changes in global crop production level, general economic, market, business and weather conditions, industry competition and various events that could
disrupt operations. |
|
|
|
|
|
| Statements relating to general economic, legal and business conditions, including those referring to capital expenditures and expansion and
growth of our business and operations including the development of new markets and products. |
|
• |
|
North American and global economic growth. |
|
• |
|
Changes in general economic, market, business and weather conditions, industry competition and various events that could disrupt operations. |
|
• |
|
Year-over-year growth in products. |
|
• |
|
Changes in government policies and legislation and regulation, or the interpretation, administration and enforcement thereof, in the jurisdictions in which we operate. |
|
|
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|
• |
|
General operating risks associated with investment in foreign jurisdictions. |
|
|
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|
• |
|
Various strategic risks including our ability to effectively implement our business strategy and our risk mitigation strategies. |
|
|
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|
|
| Statements relating to Agrium’s ability to expand existing sources of financing or to access other sources of financing and to meet
debt repayments and future obligations in the foreseeable future, including income tax payments, and capital spending. |
|
• |
|
North American and global economic growth. |
|
• |
|
Inflation, currency and interest rate fluctuations and changes in tax rates that could affect Agrium’s ability to meet obligations.
|
|
• |
|
Adequate credit ratios. |
|
• |
|
Level and effectiveness of future capital expenditures. |
|
• |
|
Investment grade credit rating. |
|
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|
• |
|
Access to capital markets. |
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|
• |
|
Adequate cash generated from operations. |
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86 AGRIUM 2014 ANNUAL REPORT
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|
|
| Forward-looking statements |
|
Material assumptions |
|
Material risk factors |
| Statements relating to capital expenditures, existing or planned acquisitions, growth and project performance. |
|
• |
|
Adequate cash is generated from operations and other sources of financing. |
|
• |
|
Integration risks that might cause anticipated synergies from our recent and future acquisitions to be less than expected. |
|
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|
• |
|
Agrium is able to utilize our available credit facilities or access capital markets for additional sources of financing. |
|
• |
|
Changes in development plans for our expansion, efficiency, debottleneck and other major projects, including the potential for capital construction costs to be higher than expected or
construction progress to be delayed due to various factors. |
|
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• |
|
The level of sustaining and investing capital may vary significantly depending on corporate priorities as the year progresses and based on changes in the rate of inflation or engineering
costs. |
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| |
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• |
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Potential inability to access or utilize our credit facilities or access capital markets. |
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| Statements relating to our ability to sustain projected potash production with existing reserves and resources, including mine life estimates. |
|
• |
|
Potash reserves are accessible and of sufficient quality to provide the required ore for long-term production. |
|
• |
|
Flooding and/or poor ground conditions limiting access to major sections of the ore body or resulting in poor ore quality. |
|
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|
| Statements relating to the supply of our phosphate rock. |
|
• |
|
Commitments agreed with our suppliers. |
|
• |
|
Interruption in the supply of phosphate rock. |
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| |
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• |
|
Changes in the terms of agreement with our suppliers. |
AGRIUM 2014 ANNUAL
REPORT 87
EXHIBIT 99.3
AGRIUM INC.
2014
AUDITED ANNUAL FINANCIAL
STATEMENTS AND NOTES
FINANCIAL STATEMENTS AND NOTES
FEBRUARY 24, 2015
TABLE OF CONTENTS
88 AGRIUM 2014 ANNUAL REPORT
FINANCIAL REPORTING RESPONSIBILITIES
The audited consolidated financial statements and all information contained in this annual report are the responsibility of management, and the audited consolidated
financial statements are approved by the Board of Directors of the Company. The consolidated financial statements have been prepared by management and are presented fairly in accordance with accounting principles generally accepted in Canada and
reflect management’s best estimates and judgments based on currently available information. The Company has established an internal audit program and accounting and reporting systems supported by internal controls designed to safeguard assets
from loss or unauthorized use and ensure the accuracy of the financial records. The financial information presented throughout this annual report is consistent with the consolidated financial statements. KPMG LLP, an independent registered public
accounting firm, has been appointed by the shareholders as external auditors of the Company. The Reports of Independent Registered Public Accounting Firm to the Shareholders and Board, which describe the scope of their examination and express their
opinion, are included in this annual report.
The Audit Committee of the Board, whose members are independent of management, meets at least five times a year with
management, the internal auditors and the external auditors to oversee the discharge of the responsibilities of the respective parties. The Audit Committee reviews the independence of the external auditors, pre-approves audit and permitted non-audit
services and reviews the consolidated financial statements and other financial disclosure documents before they are presented to the Board for approval.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
Under the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, we conducted an evaluation of the design and effectiveness of our internal control over financial reporting as of the end of the fiscal year covered by this report based on the framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (1992). Based on this evaluation, management concluded that as of December 31, 2014 the Company did maintain effective
internal control over financial reporting.
The effectiveness of internal control over financial reporting as of December 31, 2014 was audited by KPMG LLP, an
independent registered public accounting firm, as stated in their report which is included in this 2014 Annual Report to Shareholders.
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| Chuck Magro
|
|
|
|
Steve Douglas
|
|
|
| President & Chief Executive Officer |
|
|
|
Senior Vice President & |
|
|
| Calgary, Canada |
|
|
|
Chief Financial Officer |
|
|
| February 24, 2015 |
|
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|
AGRIUM 2014 ANNUAL
REPORT 89
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF AGRIUM INC.
We have audited Agrium Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control –
Integrated Framework [1992] issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Agrium Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Agrium Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework [1992] issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Agrium Inc. as at December 31, 2014 and December 31, 2013, and the related consolidated statements of operations, comprehensive income, cash flows and shareholders’ equity for
the years then ended, and our report dated February 24, 2015 expressed an unmodified (unqualified) opinion on those consolidated financial statements.
|
|
|
| Chartered Accountants |
| February 24, 2015 |
| Calgary, Canada |
90 AGRIUM 2014 ANNUAL REPORT
INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF AGRIUM INC.
We have audited the accompanying consolidated financial statements of Agrium Inc., which comprise the consolidated balance sheets as at December 31, 2014 and
December 31, 2013, the consolidated statements of operations, comprehensive income, cash flows and shareholders’ equity for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory
information.
MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether
due to fraud or error.
AUDITORS’ RESPONSIBILITY
Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally
accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts
and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial position of Agrium Inc. as at December 31, 2014 and December 31, 2013, and its consolidated financial performance and its consolidated cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
OTHER MATTER
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Agrium Inc.’s internal control over
financial reporting as of December 31, 2014, based on the criteria established in Internal Control – Integrated Framework [1992] issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report
dated February 24, 2015 expressed an unmodified (unqualified) opinion on the effectiveness of Agrium Inc.’s internal control over financial reporting.
|
|
|
| Chartered Accountants
|
| February 24, 2015 |
| Calgary, Canada |
AGRIUM 2014 ANNUAL
REPORT 91
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
| Years ended December 31, |
|
|
|
|
|
|
| (millions of U.S. dollars, except per share amounts) |
|
2014 |
|
|
2013 |
|
| Sales |
|
|
16,042 |
|
|
|
15,727 |
|
| Cost of product sold (note 4) |
|
|
12,490 |
|
|
|
11,954 |
|
| Gross profit |
|
|
3,552 |
|
|
|
3,773 |
|
| Expenses |
|
|
|
|
|
|
|
|
| Selling (note 4) |
|
|
2,048 |
|
|
|
1,876 |
|
| General and administrative (note 4) |
|
|
349 |
|
|
|
329 |
|
| Earnings from associates and joint ventures (note 13) |
|
|
(23) |
|
|
|
(68) |
|
| Purchase gain (note 2) |
|
|
— |
|
|
|
(257) |
|
| Goodwill impairment (note 12) |
|
|
— |
|
|
|
220 |
|
| Other expenses (note 4) |
|
|
18 |
|
|
|
43 |
|
| Earnings before finance costs and income taxes |
|
|
1,160 |
|
|
|
1,630 |
|
| Finance costs related to long-term debt (note 5) |
|
|
62 |
|
|
|
90 |
|
| Other finance costs (note 5) |
|
|
70 |
|
|
|
66 |
|
| Earnings before income taxes |
|
|
1,028 |
|
|
|
1,474 |
|
| Income taxes (note 6) |
|
|
230 |
|
|
|
394 |
|
| Net earnings from continuing operations |
|
|
798 |
|
|
|
1,080 |
|
| Net loss from discontinued operations (note 3) |
|
|
(78) |
|
|
|
(17) |
|
| Net earnings |
|
|
720 |
|
|
|
1,063 |
|
| Attributable to: |
|
|
|
|
|
|
|
|
| Equity holders of Agrium |
|
|
714 |
|
|
|
1,062 |
|
| Non-controlling interest |
|
|
6 |
|
|
|
1 |
|
| Net earnings |
|
|
720 |
|
|
|
1,063 |
|
|
|
|
| Earnings per share attributable to equity holders of Agrium (note 7) |
|
|
|
|
|
|
|
|
| Basic and diluted earnings per share from continuing operations |
|
|
5.51 |
|
|
|
7.31 |
|
| Basic and diluted loss per share from discontinued operations |
|
|
(0.54) |
|
|
|
(0.11) |
|
| Basic and diluted earnings per share |
|
|
4.97 |
|
|
|
7.20 |
|
See accompanying notes.
92 AGRIUM 2014 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
| Years ended December 31, |
|
|
|
|
|
|
| (millions of U.S. dollars) |
|
2014 |
|
|
2013 |
|
| Net earnings |
|
|
720 |
|
|
|
1,063 |
|
| Other comprehensive loss |
|
|
|
|
|
|
|
|
| Items that are or may be reclassified to earnings |
|
|
|
|
|
|
|
|
| Cash flow hedges |
|
|
|
|
|
|
|
|
| Effective portion of changes in fair value |
|
|
(36) |
|
|
|
— |
|
| Deferred income taxes |
|
|
9 |
|
|
|
— |
|
| Share of comprehensive loss of associates and joint ventures |
|
|
(4) |
|
|
|
(4) |
|
| Available for sale financial instruments |
|
|
|
|
|
|
|
|
| Losses |
|
|
— |
|
|
|
(8) |
|
| Foreign currency translation |
|
|
|
|
|
|
|
|
| Losses |
|
|
(341) |
|
|
|
(340) |
|
| |
|
|
(372) |
|
|
|
(352) |
|
| Items that will never be reclassified to earnings |
|
|
|
|
|
|
|
|
| Post-employment benefits |
|
|
|
|
|
|
|
|
| Actuarial (losses) gains |
|
|
(31) |
|
|
|
45 |
|
| Deferred income taxes |
|
|
9 |
|
|
|
(14) |
|
| |
|
|
(22) |
|
|
|
31 |
|
| Other comprehensive loss |
|
|
(394) |
|
|
|
(321) |
|
| Comprehensive income |
|
|
326 |
|
|
|
742 |
|
| Attributable to: |
|
|
|
|
|
|
|
|
| Equity holders of Agrium |
|
|
320 |
|
|
|
743 |
|
| Non-controlling interest |
|
|
6 |
|
|
|
(1) |
|
| Comprehensive income |
|
|
326 |
|
|
|
742 |
|
See accompanying notes.
AGRIUM 2014 ANNUAL
REPORT 93
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| (millions of U.S. dollars) |
|
2014 |
|
|
2013 |
|
| Assets |
|
|
|
|
|
|
|
|
| Current assets |
|
|
|
|
|
|
|
|
| Cash and cash equivalents (note 8) |
|
|
848 |
|
|
|
801 |
|
| Accounts receivable (note 9) |
|
|
2,075 |
|
|
|
2,105 |
|
| Income taxes receivable |
|
|
138 |
|
|
|
78 |
|
| Inventories (note 10) |
|
|
3,505 |
|
|
|
3,413 |
|
| Prepaid expenses and deposits |
|
|
710 |
|
|
|
805 |
|
| Other current assets (note 14) |
|
|
122 |
|
|
|
104 |
|
| Assets held for sale (note 3) |
|
|
— |
|
|
|
202 |
|
|
|
|
7,398 |
|
|
|
7,508 |
|
| Property, plant and equipment (note 11) |
|
|
6,272 |
|
|
|
4,960 |
|
| Intangibles (note 12) |
|
|
695 |
|
|
|
738 |
|
| Goodwill (note 12) |
|
|
2,014 |
|
|
|
1,958 |
|
| Investments in associates and joint ventures (note 13) |
|
|
576 |
|
|
|
639 |
|
| Other assets (note 14) |
|
|
78 |
|
|
|
99 |
|
| Deferred income tax assets (note 6) |
|
|
75 |
|
|
|
75 |
|
| |
|
|
17,108 |
|
|
|
15,977 |
|
| Liabilities and shareholders’ equity |
|
|
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
|
|
|
|
| Short-term debt (note 15) |
|
|
1,527 |
|
|
|
764 |
|
| Accounts payable (note 16) |
|
|
4,197 |
|
|
|
3,985 |
|
| Income taxes payable |
|
|
5 |
|
|
|
2 |
|
| Current portion of long-term debt (note 15) |
|
|
11 |
|
|
|
58 |
|
| Current portion of other provisions (note 18) |
|
|
113 |
|
|
|
112 |
|
| Liabilities held for sale (note 3) |
|
|
— |
|
|
|
44 |
|
|
|
|
5,853 |
|
|
|
4,965 |
|
| Long-term debt (note 15) |
|
|
3,559 |
|
|
|
3,066 |
|
| Post-employment benefits (note 17) |
|
|
151 |
|
|
|
135 |
|
| Other provisions (note 18) |
|
|
367 |
|
|
|
426 |
|
| Other liabilities (note 19) |
|
|
69 |
|
|
|
59 |
|
| Deferred income tax liabilities (note 6) |
|
|
422 |
|
|
|
530 |
|
| |
|
|
10,421 |
|
|
|
9,181 |
|
| Shareholders’ equity |
|
|
|
|
|
|
|
|
| Share capital |
|
|
1,821 |
|
|
|
1,820 |
|
| Retained earnings |
|
|
5,502 |
|
|
|
5,253 |
|
| Accumulated other comprehensive loss |
|
|
(643) |
|
|
|
(279) |
|
| Equity holders of Agrium |
|
|
6,680 |
|
|
|
6,794 |
|
| Non-controlling interest |
|
|
7 |
|
|
|
2 |
|
| Total equity |
|
|
6,687 |
|
|
|
6,796 |
|
| |
|
|
17,108 |
|
|
|
15,977 |
|
See accompanying notes
94 AGRIUM 2014 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
| Years ended December 31, |
|
|
|
|
|
|
| (millions of U.S. dollars) |
|
2014 |
|
|
2013 |
|
| Operating |
|
|
|
|
|
|
|
|
| Net earnings from continuing operations |
|
|
798 |
|
|
|
1,080 |
|
| Adjustments for |
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
550 |
|
|
|
472 |
|
| Earnings from associates and joint ventures |
|
|
(23) |
|
|
|
(68) |
|
| Purchase gain |
|
|
— |
|
|
|
(257) |
|
| Goodwill impairment |
|
|
— |
|
|
|
220 |
|
| Share-based payments |
|
|
50 |
|
|
|
(7) |
|
| Unrealized gain on derivative financial instruments |
|
|
(32) |
|
|
|
(15) |
|
| Unrealized foreign exchange loss |
|
|
56 |
|
|
|
— |
|
| Interest income |
|
|
(83) |
|
|
|
( 76) |
|
| Finance costs |
|
|
132 |
|
|
|
156 |
|
| Income taxes |
|
|
230 |
|
|
|
394 |
|
| Other |
|
|
20 |
|
|
|
30 |
|
| Interest received |
|
|
85 |
|
|
|
77 |
|
| Interest paid |
|
|
(105) |
|
|
|
(140) |
|
| Income taxes paid |
|
|
(320) |
|
|
|
(663) |
|
| Dividends from associates and joint ventures |
|
|
49 |
|
|
|
28 |
|
| Net changes in non-cash working capital (note 8) |
|
|
(95) |
|
|
|
536 |
|
| Cash provided by operating activities |
|
|
1,312 |
|
|
|
1,767 |
|
| Investing |
|
|
|
|
|
|
|
|
| Acquisitions, net of cash acquired |
|
|
(179) |
|
|
|
(64) |
|
| Acquisition of Viterra Inc. |
|
|
— |
|
|
|
1,260 |
|
| Proceeds from disposal of discontinued operations |
|
|
94 |
|
|
|
— |
|
| Capital expenditures |
|
|
(2,021) |
|
|
|
(1,755) |
|
| Capitalized borrowing costs |
|
|
(111) |
|
|
|
(61) |
|
| Purchase of investments |
|
|
(116) |
|
|
|
(171) |
|
| Proceeds from disposal of investments |
|
|
123 |
|
|
|
82 |
|
| Other |
|
|
(20) |
|
|
|
— |
|
| Net changes in non-cash working capital |
|
|
162 |
|
|
|
28 |
|
| Cash used in investing activities |
|
|
(2,068) |
|
|
|
(681) |
|
| Financing |
|
|
|
|
|
|
|
|
| Short-term debt |
|
|
845 |
|
|
|
(511) |
|
| Long-term debt issued |
|
|
512 |
|
|
|
1,010 |
|
| Transaction costs on long-term debt |
|
|
(8) |
|
|
|
(14) |
|
| Repayment of long-term debt |
|
|
(64) |
|
|
|
(522) |
|
| Dividends paid |
|
|
(430) |
|
|
|
(334) |
|
| Shares issued |
|
|
1 |
|
|
|
2 |
|
| Shares repurchased |
|
|
— |
|
|
|
(498) |
|
| Cash provided by (used in) financing activities |
|
|
856 |
|
|
|
(867) |
|
| Effect of exchange rate changes on cash and cash equivalents |
|
|
(35) |
|
|
|
(24) |
|
| Increase in cash and cash equivalents from continuing operations |
|
|
65 |
|
|
|
195 |
|
| Cash and cash equivalents used in discontinued operations (note 3) |
|
|
(18) |
|
|
|
(52) |
|
| Cash and cash equivalents – beginning of year |
|
|
801 |
|
|
|
658 |
|
| Cash and cash equivalents – end of year (note 8) |
|
|
848 |
|
|
|
801 |
|
See accompanying notes.
AGRIUM 2014 ANNUAL
REPORT 95
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
| (millions of U.S. dollars,
except share data) |
|
Millions of
common shares |
|
|
Share
capital |
|
|
Retained
earnings |
|
|
Cash
flow hedges |
|
|
Comprehensive
loss of associates
and joint ventures |
|
|
Available
for sale financial
instruments |
|
|
Foreign
currency
translation |
|
|
Total |
|
|
Equity
holders
of Agrium |
|
|
Non-
controlling
interest |
|
|
Total
equity |
|
| December 31, 2012 |
|
|
149 |
|
|
|
1,890 |
|
|
|
4,955 |
|
|
|
— |
|
|
|
(3) |
|
|
|
— |
|
|
|
74 |
|
|
|
71 |
|
|
|
6,916 |
|
|
|
4 |
|
|
|
6,920 |
|
| Net earnings |
|
|
— |
|
|
|
— |
|
|
|
1,062 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,062 |
|
|
|
1 |
|
|
|
1,063 |
|
| Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Post-employment benefits |
|
|
— |
|
|
|
— |
|
|
|
31 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
31 |
|
|
|
— |
|
|
|
31 |
|
| Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4) |
|
|
|
(8) |
|
|
|
(338) |
|
|
|
(350) |
|
|
|
(350) |
|
|
|
(2) |
|
|
|
(352) |
|
| Comprehensive income (loss), net of tax |
|
|
— |
|
|
|
— |
|
|
|
1,093 |
|
|
|
— |
|
|
|
(4) |
|
|
|
(8) |
|
|
|
(338) |
|
|
|
(350) |
|
|
|
743 |
|
|
|
(1) |
|
|
|
742 |
|
| Dividends |
|
|
— |
|
|
|
— |
|
|
|
(367) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(367) |
|
|
|
— |
|
|
|
(367) |
|
| Non-controlling interest transactions |
|
|
— |
|
|
|
— |
|
|
|
(2) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2) |
|
|
|
(1) |
|
|
|
(3) |
|
| Shares repurchased |
|
|
(5) |
|
|
|
(72) |
|
|
|
(426) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(498) |
|
|
|
— |
|
|
|
(498) |
|
| Share-based payment transactions |
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
| December 31, 2013 |
|
|
144 |
|
|
|
1,820 |
|
|
|
5,253 |
|
|
|
— |
|
|
|
(7) |
|
|
|
(8) |
|
|
|
(264) |
|
|
|
(279) |
|
|
|
6,794 |
|
|
|
2 |
|
|
|
6,796 |
|
| Net earnings |
|
|
— |
|
|
|
— |
|
|
|
714 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
714 |
|
|
|
6 |
|
|
|
720 |
|
| Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Post-employment benefits |
|
|
— |
|
|
|
— |
|
|
|
(22) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22) |
|
|
|
— |
|
|
|
(22) |
|
| Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(27) |
|
|
|
(4) |
|
|
|
— |
|
|
|
(341) |
|
|
|
(372) |
|
|
|
(372) |
|
|
|
— |
|
|
|
(372) |
|
| Comprehensive income (loss), net of tax |
|
|
— |
|
|
|
— |
|
|
|
692 |
|
|
|
(27) |
|
|
|
(4) |
|
|
|
— |
|
|
|
(341) |
|
|
|
(372) |
|
|
|
320 |
|
|
|
6 |
|
|
|
326 |
|
| Dividends |
|
|
— |
|
|
|
— |
|
|
|
(435) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(435) |
|
|
|
— |
|
|
|
(435) |
|
| Non-controlling interest transactions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1) |
|
|
|
(1) |
|
| Shares repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Share-based payment transactions |
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
| Impact of adopting IFRS 9 at January 1, 2014 |
|
|
|
|
|
|
— |
|
|
|
(8) |
|
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
|
— |
|
|
|
8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| December 31, 2014 |
|
|
144 |
|
|
|
1,821 |
|
|
|
5,502 |
|
|
|
(27) |
|
|
|
(11) |
|
|
|
— |
|
|
|
(605) |
|
|
|
(643) |
|
|
|
6,680 |
|
|
|
7 |
|
|
|
6,687 |
|
See accompanying notes.
96 AGRIUM 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(millions of U.S. dollars unless otherwise stated)
1. CORPORATE INFORMATION
CORPORATE INFORMATION
Agrium Inc. (“Agrium”) is incorporated under the laws of Canada with common shares listed under the symbol “AGU” on the New York Stock Exchange (NYSE)
and the Toronto Stock Exchange (TSX). Our Corporate head office is located at 13131 Lake Fraser Drive S.E., Calgary, Canada. We conduct our operations globally from our Wholesale head office in Calgary and our Retail head office in Loveland,
Colorado, United States. In these financial statements, “we”, “us”, “our” and “Agrium” mean Agrium Inc., its subsidiaries and joint arrangements.
Agrium operates two business units:
| • |
Retail: Distributes crop nutrients, crop protection products, seed, merchandise and services directly to growers through a network of farm centers in two geographical segments: |
| |
– |
North America, including the United States and Canada; and |
| |
– |
International, including Australia and South America. |
| • |
Wholesale: Operates in North and South America and Europe producing, marketing and distributing crop nutrients and industrial products through the following businesses: |
| |
– |
Nitrogen: Manufacturing in Alberta, Texas and Argentina; |
| |
– |
Potash: Mining and processing in Saskatchewan; |
| |
– |
Phosphate: Mining and production facilities in Alberta and Idaho; |
| |
– |
Product purchased for resale: Marketing nutrient products from other suppliers in North and South America and Europe; and |
| |
– |
Ammonium sulfate, ESN® and other: Producing blended crop nutrients and ESN®, (Environmentally
Smart Nitrogen) polymer-coated nitrogen crop nutrients. |
Additional information on our operating segments is included in note 25.
Principal subsidiaries, associates and joint ventures
|
|
|
|
|
|
|
|
|
| |
|
Relationship/
Ownership (%) |
|
Location |
|
Principal activity |
|
Method of
accounting |
| Agrium, a general partnership |
|
Subsidiary, 100% |
|
Canada |
|
Manufacturer and distributor of crop nutrients |
|
Consolidation |
| Agrium Europe S.A. |
|
Subsidiary, 100% |
|
Belgium |
|
Distributor of crop nutrients |
|
Consolidation |
| Agrium U.S. Inc. |
|
Subsidiary, 100% |
|
United States |
|
Manufacturer and distributor of crop nutrients |
|
Consolidation |
| Agroservicios Pampeanos S.A. |
|
Subsidiary, 100% |
|
Argentina |
|
Crop input retailer |
|
Consolidation |
| Crop Production Services, Inc. |
|
Subsidiary, 100% |
|
United States |
|
Crop input retailer |
|
Consolidation |
| Crop Production Services (Canada) Inc. |
|
Subsidiary, 100% |
|
Canada |
|
Crop input retailer |
|
Consolidation |
| Landmark Rural Operations Ltd. |
|
Subsidiary, 100% |
|
Australia |
|
Crop input retailer |
|
Consolidation |
| Loveland Products Inc. |
|
Subsidiary, 100% |
|
United States |
|
Crop input developer and retailer |
|
Consolidation |
| Misr Fertilizers Production Company S.A.E. |
|
Associate, 26% |
|
Egypt |
|
Manufacturer and distributor of crop nutrients |
|
Equity method |
| Profertil S.A. |
|
Joint venture, 50% |
|
Argentina |
|
Manufacturer and distributor of crop nutrients |
|
Equity method |
AGRIUM 2014 ANNUAL
REPORT 97
BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE
We prepared these financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”). The Board of Directors of Agrium (“the Board”) approved these consolidated financial statements for issuance on February 24, 2015.
The presentation currency of these financial statements is U.S. dollars. We prepared the financial statements using the historical cost basis, with the exception of items
that IFRS requires us to measure at fair value. Our significant accounting policies, judgments, assumptions and estimates are described in note 26.
2. BUSINESS ACQUISITIONS
Provisional estimate of fair values of assets
acquired and liabilities assumed in individually immaterial business acquisitions by the Retail business unit
|
|
|
|
|
| Current assets |
|
|
21 |
|
| Property, plant and equipment |
|
|
43 |
|
| Intangibles (a) |
|
|
55 |
|
| Goodwill (b) |
|
|
87 |
|
| Current liabilities |
|
|
(27 |
) |
| Total consideration |
|
|
179 |
|
| (a) |
Intangibles include customer relationships of $27-million and trade names of $4-million. |
| (b) |
The full amount allocated to goodwill is deductible for income tax purposes. |
On the above acquisitions, we recognized
goodwill of $87-million arising primarily from the acquired workforce and estimated value of expected synergies between Agrium and the acquired operations. Acquisition costs of $1-million are included in other expenses. Sales for the period from the
date of acquisition to December 31, 2014 were $61-million and are included in our consolidated statement of operations. If the acquisition had occurred on January 1, 2014, we estimate that our sales for the year ended December 31,
2014 would have been $192-million. Net earnings and proforma net earnings related to these acquisitions are not material.
In 2014, we increased our interest in
Agricen LLC from 30 percent to 70 percent. Upon acquiring control of Agricen, we re-measured our previously held equity interest to fair value. The resulting gain of $9-million is included in other expenses. On this transaction we recognized
goodwill of $82-million, which is included in the table above.
2013 – VITERRA INC.
We completed the acquisition of 100 percent of certain Canadian and Australian Agri-products assets of Viterra Inc. from Glencore International plc on October 1,
2013. In 2013, we recorded a purchase gain of $257-million for the excess of the fair value of the acquired net assets over the purchase price. We finalized the purchase price allocation for the acquisition in March 2014 without change to the fair
values of assets acquired and liabilities assumed as disclosed at December 31, 2013.
3. DISCONTINUED OPERATIONS
AGRIUM ADVANCED TECHNOLOGIES (“AAT”)
Discontinued operations
consist of operations of the major businesses of our former Advanced Technologies business unit. During 2014, we completed the sale of the Turf and Ornamental business of AAT for $94-million. The remaining components of AAT ceased operations in
2014.
Discontinued operations
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Sales |
|
|
251 |
|
|
|
307 |
|
| Net loss, net of tax recovery of $28 (2013 – $6) |
|
|
(78 |
) |
|
|
(17 |
) |
| Cash used in operating activities |
|
|
(18 |
) |
|
|
(52 |
) |
Net loss on discontinued operations is net of expenses of $301-million (2013 – $267-million) and includes loss on measurement of
assets held for sale of $56-million (2013 – $63-million) and income tax recovery of $28-million (2013 – $6-million).
98 AGRIUM 2014 ANNUAL REPORT
4. EXPENSES
We present expenses in our statements of operations by function. IFRS also requires us to provide information about expenses by nature.
Expenses by nature
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Decrease (increase) in finished goods inventory |
|
|
73 |
|
|
|
(75 |
) |
| Purchased and produced raw materials and product for resale |
|
|
12,770 |
|
|
|
12,278 |
|
| Rebates |
|
|
(1,059 |
) |
|
|
(942 |
) |
| Freight and distribution |
|
|
479 |
|
|
|
449 |
|
| Short-term employee benefits (a) |
|
|
1,382 |
|
|
|
1,398 |
|
| Post-employment benefits (b) |
|
|
64 |
|
|
|
65 |
|
| Share-based payments (c) |
|
|
50 |
|
|
|
(7 |
) |
| Depreciation of property, plant and equipment |
|
|
423 |
|
|
|
373 |
|
| Amortization of intangibles |
|
|
127 |
|
|
|
95 |
|
| Other depreciation and amortization |
|
|
— |
|
|
|
4 |
|
| Operating leases |
|
|
226 |
|
|
|
225 |
|
| Other |
|
|
352 |
|
|
|
296 |
|
| |
|
|
14,887 |
|
|
|
14,159 |
|
| Classified as: |
|
|
|
|
|
|
|
|
| Cost of product sold |
|
|
12,490 |
|
|
|
11,954 |
|
| Selling |
|
|
2,048 |
|
|
|
1,876 |
|
| General and administrative |
|
|
349 |
|
|
|
329 |
|
| |
|
|
14,887 |
|
|
|
14,159 |
|
Compensation of key management personnel included in the above:
| (a) |
2014 – $17-million (2013 – $16-million). |
| (b) |
2014 – $2-million (2013 – $3-million). |
| (c) |
2014 – $15-million (2013 – $(5)-million). |
Other expenses
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Gain on commodity derivatives not designated as hedges (note 21) |
|
|
(18 |
) |
|
|
(11 |
) |
| Gain on foreign exchange derivatives not designated as hedges (note 21) |
|
|
(92 |
) |
|
|
(5 |
) |
| Foreign exchange loss |
|
|
125 |
|
|
|
43 |
|
| Interest income |
|
|
(83 |
) |
|
|
(76 |
) |
| Environmental remediation and asset retirement obligations |
|
|
24 |
|
|
|
7 |
|
| Bad debt expense |
|
|
19 |
|
|
|
9 |
|
| Potash profit and capital tax |
|
|
10 |
|
|
|
21 |
|
| Other |
|
|
33 |
|
|
|
55 |
|
| |
|
|
18 |
|
|
|
43 |
|
AGRIUM 2014 ANNUAL
REPORT 99
5. FINANCE COSTS
Finance costs related to long-term debt
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Gross finance costs related to long-term debt |
|
|
173 |
|
|
|
151 |
|
| Less: Capitalized borrowing costs |
|
|
111 |
|
|
|
61 |
|
| |
|
|
62 |
|
|
|
90 |
|
Capitalized borrowing costs primarily relate to the expansion of our Vanscoy potash and Borger nitrogen facilities, capitalized at a rate
of 5 percent (2013 – 5 percent).
Other finance costs
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Accretion of environmental remediation and asset retirement obligations |
|
|
12 |
|
|
|
11 |
|
| Other interest expense |
|
|
58 |
|
|
|
55 |
|
| |
|
|
70 |
|
|
|
66 |
|
6. INCOME TAXES
Components of income taxes
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Current tax expense |
|
|
266 |
|
|
|
511 |
|
| Previously unrecognized tax assets |
|
|
(10 |
) |
|
|
(6 |
) |
| Current income taxes |
|
|
256 |
|
|
|
505 |
|
| Origination and reversal of temporary differences |
|
|
6 |
|
|
|
(111 |
) |
| Previously unrecognized tax assets |
|
|
(32 |
) |
|
|
— |
|
| Deferred income taxes |
|
|
(26 |
) |
|
|
(111 |
) |
| |
|
|
230 |
|
|
|
394 |
|
| Reconciliation of statutory tax rate to effective tax
rate |
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Earnings before income taxes |
|
|
|
|
|
|
|
|
| Canada |
|
|
266 |
|
|
|
789 |
|
| Foreign |
|
|
762 |
|
|
|
685 |
|
|
|
|
1,028 |
|
|
|
1,474 |
|
| Statutory rate (%) |
|
|
26 |
|
|
|
26 |
|
| Income taxes at statutory rate |
|
|
264 |
|
|
|
378 |
|
| Purchase gain |
|
|
— |
|
|
|
(68 |
) |
| Goodwill impairment |
|
|
— |
|
|
|
66 |
|
| Foreign currency gains (losses) relating to Canadian operations |
|
|
1 |
|
|
|
(20 |
) |
| Differences in foreign tax rates |
|
|
25 |
|
|
|
42 |
|
| Earnings from associates and joint ventures |
|
|
(9 |
) |
|
|
(14 |
) |
| Recognition of previously unrecognized tax assets |
|
|
(42 |
) |
|
|
(6 |
) |
| Other |
|
|
(9 |
) |
|
|
16 |
|
| Income taxes |
|
|
230 |
|
|
|
394 |
|
| Current |
|
|
|
|
|
|
|
|
| Canada |
|
|
37 |
|
|
|
138 |
|
| Foreign |
|
|
219 |
|
|
|
367 |
|
| |
|
|
256 |
|
|
|
505 |
|
| Deferred |
|
|
|
|
|
|
|
|
| Canada |
|
|
19 |
|
|
|
(28 |
) |
| Foreign |
|
|
(45 |
) |
|
|
(83 |
) |
| |
|
|
(26 |
) |
|
|
(111 |
) |
| |
|
|
230 |
|
|
|
394 |
|
100 AGRIUM 2014 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Components of deferred income tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Components of deferred
income tax liabilities (assets) |
|
|
Components recognized
in earnings |
|
|
Components not recognized
in earnings |
|
| |
|
2014 |
|
|
2013 |
|
|
2014 (b) |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
| Receivables, inventories and accrued liabilities |
|
|
(115 |
) |
|
|
(138 |
) |
|
|
20 |
|
|
|
(71 |
) |
|
|
3 |
|
|
|
(8 |
) |
| Property, plant and equipment |
|
|
457 |
|
|
|
457 |
|
|
|
26 |
|
|
|
64 |
|
|
|
(26 |
) |
|
|
7 |
|
| Intangibles |
|
|
138 |
|
|
|
173 |
|
|
|
(29) |
|
|
|
(29 |
) |
|
|
(6 |
) |
|
|
35 |
|
| Asset retirement and environmental remediation provisions |
|
|
(145 |
) |
|
|
(156 |
) |
|
|
7 |
|
|
|
4 |
|
|
|
4 |
|
|
|
— |
|
| Deferred partnership income |
|
|
119 |
|
|
|
187 |
|
|
|
(56) |
|
|
|
(60 |
) |
|
|
(12 |
) |
|
|
(15 |
) |
| Loss carry-forwards (a) |
|
|
(59 |
) |
|
|
(66 |
) |
|
|
1 |
|
|
|
(11 |
) |
|
|
6 |
|
|
|
14 |
|
| Other |
|
|
(48 |
) |
|
|
(2 |
) |
|
|
(28) |
|
|
|
(8 |
) |
|
|
(18 |
) |
|
|
19 |
|
| Net deferred income tax liabilities (assets) |
|
|
347 |
|
|
|
455 |
|
|
|
(59) |
|
|
|
(111 |
) |
|
|
(49 |
) |
|
|
52 |
|
| Deferred income tax assets |
|
|
(75 |
) |
|
|
(75 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deferred income tax liabilities |
|
|
422 |
|
|
|
530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net deferred income tax liabilities |
|
|
347 |
|
|
|
455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
Unused tax losses of $57-million (2013 – $58-million) expiring through 2034 (2013 – expiring through 2033) have not been recognized in the financial statements. We have recognized unused tax losses of
$53-million (2013 – $51-million) as we expect that we will earn future taxable income in that tax jurisdiction in 2015 and following years, and the tax losses do not expire under current tax legislation. |
| (b) |
Components recognized in continuing operations and discontinued operations. |
7. EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
| Attributable to equity holders of Agrium |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Numerator |
|
|
|
|
|
|
|
|
| Net earnings from continuing operations |
|
|
792 |
|
|
|
1,079 |
|
| Net loss from discontinued operations |
|
|
(78 |
) |
|
|
(17 |
) |
| Net earnings |
|
|
714 |
|
|
|
1,062 |
|
| Denominator (millions) |
|
|
|
|
|
|
|
|
| Weighted average number of shares outstanding for basic and diluted earnings per
share |
|
|
144 |
|
|
|
148 |
|
AGRIUM 2014 ANNUAL
REPORT 101
8. CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Cash |
|
|
787 |
|
|
|
763 |
|
| Short-term investments (original maturity of three months or less) |
|
|
61 |
|
|
|
38 |
|
| |
|
|
848 |
|
|
|
801 |
|
|
|
|
| Net changes in non-cash operating working capital |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Accounts receivable |
|
|
14 |
|
|
|
166 |
|
| Inventories |
|
|
(185 |
) |
|
|
46 |
|
| Prepaid expenses and deposits |
|
|
84 |
|
|
|
(34 |
) |
| Accounts payable |
|
|
(8 |
) |
|
|
358 |
|
| |
|
|
(95 |
) |
|
|
536 |
|
|
9. ACCOUNTS RECEIVABLE |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Trade accounts |
|
|
1,849 |
|
|
|
1,948 |
|
| Allowance for doubtful accounts |
|
|
(79 |
) |
|
|
(78 |
) |
| Rebates |
|
|
188 |
|
|
|
170 |
|
| Other non-trade accounts |
|
|
58 |
|
|
|
33 |
|
| Derivative financial instruments |
|
|
33 |
|
|
|
1 |
|
| Other taxes |
|
|
26 |
|
|
|
31 |
|
| |
|
|
2,075 |
|
|
|
2,105 |
|
|
10. INVENTORIES |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Raw materials |
|
|
409 |
|
|
|
409 |
|
| Finished goods |
|
|
346 |
|
|
|
419 |
|
| Other product for resale (a) |
|
|
2,750 |
|
|
|
2,585 |
|
| |
|
|
3,505 |
|
|
|
3,413 |
|
| (a) |
Includes biological assets of $35-million (2013 – $18-million) measured at fair value less costs of disposal, a level 3 measurement. |
102 AGRIUM 2014 ANNUAL REPORT
11. PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Land |
|
|
Buildings and
improvements |
|
|
Machinery
and equipment |
|
|
Assets under
construction |
|
|
Other |
|
|
Total |
|
| Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2013 |
|
|
140 |
|
|
|
1,313 |
|
|
|
3,650 |
|
|
|
2,460 |
|
|
|
157 |
|
|
|
7,720 |
|
| Additions |
|
|
4 |
|
|
|
14 |
|
|
|
510 |
|
|
|
1,563 |
|
|
|
16 |
|
|
|
2,107 |
|
| Business acquisitions |
|
|
1 |
|
|
|
11 |
|
|
|
31 |
|
|
|
— |
|
|
|
— |
|
|
|
43 |
|
| Disposals |
|
|
(3 |
) |
|
|
(8 |
) |
|
|
(134 |
) |
|
|
— |
|
|
|
(2 |
) |
|
|
(147 |
) |
| Transfers |
|
|
— |
|
|
|
41 |
|
|
|
170 |
|
|
|
(238 |
) |
|
|
27 |
|
|
|
— |
|
| Other adjustments |
|
|
— |
|
|
|
(1 |
) |
|
|
28 |
|
|
|
(52 |
) |
|
|
— |
|
|
|
(25 |
) |
| Foreign currency translation |
|
|
(5 |
) |
|
|
(63 |
) |
|
|
(239 |
) |
|
|
(231 |
) |
|
|
(8 |
) |
|
|
(546 |
) |
| December 31, 2014 |
|
|
137 |
|
|
|
1,307 |
|
|
|
4,016 |
|
|
|
3,502 |
|
|
|
190 |
|
|
|
9,152 |
|
| Accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2013 |
|
|
— |
|
|
|
(517 |
) |
|
|
(2,186 |
) |
|
|
— |
|
|
|
(57 |
) |
|
|
(2,760 |
) |
| Depreciation |
|
|
— |
|
|
|
(81 |
) |
|
|
(326 |
) |
|
|
— |
|
|
|
(8 |
) |
|
|
(415 |
) |
| Disposals |
|
|
— |
|
|
|
4 |
|
|
|
107 |
|
|
|
— |
|
|
|
2 |
|
|
|
113 |
|
| Other adjustments |
|
|
— |
|
|
|
2 |
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
|
13 |
|
| Foreign currency translation |
|
|
— |
|
|
|
26 |
|
|
|
140 |
|
|
|
— |
|
|
|
3 |
|
|
|
169 |
|
| December 31, 2014 |
|
|
— |
|
|
|
(566 |
) |
|
|
(2,254 |
) |
|
|
— |
|
|
|
(60 |
) |
|
|
(2,880 |
) |
| Net book value |
|
|
137 |
|
|
|
741 |
|
|
|
1,762 |
|
|
|
3,502 |
|
|
|
130 |
|
|
|
6,272 |
|
|
|
|
|
|
|
|
| December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Land |
|
|
Buildings and
improvements |
|
|
Machinery
and equipment |
|
|
Assets under
construction |
|
|
Other |
|
|
Total |
|
| Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2012 |
|
|
114 |
|
|
|
1,170 |
|
|
|
3,408 |
|
|
|
1,269 |
|
|
|
148 |
|
|
|
6,109 |
|
| Additions |
|
|
4 |
|
|
|
82 |
|
|
|
207 |
|
|
|
1,558 |
|
|
|
22 |
|
|
|
1,873 |
|
| Business acquisitions |
|
|
30 |
|
|
|
100 |
|
|
|
202 |
|
|
|
8 |
|
|
|
— |
|
|
|
340 |
|
| Disposals |
|
|
(2 |
) |
|
|
(42 |
) |
|
|
(145 |
) |
|
|
— |
|
|
|
(12 |
) |
|
|
(201 |
) |
| Other adjustments (a) |
|
|
(4 |
) |
|
|
38 |
|
|
|
140 |
|
|
|
(267 |
) |
|
|
4 |
|
|
|
(89 |
) |
| Foreign currency translation |
|
|
(2 |
) |
|
|
(35 |
) |
|
|
(162 |
) |
|
|
(108 |
) |
|
|
(5 |
) |
|
|
(312 |
) |
| December 31, 2013 |
|
|
140 |
|
|
|
1,313 |
|
|
|
3,650 |
|
|
|
2,460 |
|
|
|
157 |
|
|
|
7,720 |
|
| Accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2012 |
|
|
— |
|
|
|
(484 |
) |
|
|
(2,078 |
) |
|
|
— |
|
|
|
(63 |
) |
|
|
(2,625 |
) |
| Depreciation |
|
|
— |
|
|
|
(91 |
) |
|
|
(284 |
) |
|
|
— |
|
|
|
(9 |
) |
|
|
(384 |
) |
| Disposals |
|
|
— |
|
|
|
34 |
|
|
|
63 |
|
|
|
— |
|
|
|
12 |
|
|
|
109 |
|
| Other adjustments (a) |
|
|
— |
|
|
|
8 |
|
|
|
18 |
|
|
|
— |
|
|
|
— |
|
|
|
26 |
|
| Foreign currency translation |
|
|
— |
|
|
|
16 |
|
|
|
95 |
|
|
|
— |
|
|
|
3 |
|
|
|
114 |
|
| December 31, 2013 |
|
|
— |
|
|
|
(517 |
) |
|
|
(2,186 |
) |
|
|
— |
|
|
|
(57 |
) |
|
|
(2,760 |
) |
| Net book value |
|
|
140 |
|
|
|
796 |
|
|
|
1,464 |
|
|
|
2,460 |
|
|
|
100 |
|
|
|
4,960 |
|
| (a) |
Includes assets classified as held for sale with a net book value of $26-million. |
AGRIUM 2014 ANNUAL
REPORT 103
|
|
|
|
|
|
|
|
|
| Depreciation of property, plant and equipment |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Cost of product sold |
|
|
226 |
|
|
|
198 |
|
| Selling |
|
|
175 |
|
|
|
141 |
|
| General and administrative |
|
|
22 |
|
|
|
34 |
|
| |
|
|
423 |
|
|
|
373 |
|
| Depreciation recorded in inventory |
|
|
10 |
|
|
|
19 |
|
|
|
|
| Turnaround costs included in machinery and equipment |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Cost |
|
|
|
|
|
|
|
|
| Balance, beginning of year |
|
|
180 |
|
|
|
113 |
|
| Additions |
|
|
89 |
|
|
|
83 |
|
| Retirements |
|
|
(23 |
) |
|
|
(16 |
) |
| Balance, end of year |
|
|
246 |
|
|
|
180 |
|
| Accumulated depreciation |
|
|
|
|
|
|
|
|
| Balance, beginning of year |
|
|
(61 |
) |
|
|
(42 |
) |
| Depreciation |
|
|
(55 |
) |
|
|
(35 |
) |
| Retirements |
|
|
22 |
|
|
|
16 |
|
| Balance, end of year |
|
|
(94 |
) |
|
|
(61 |
) |
| Net book value |
|
|
152 |
|
|
|
119 |
|
Turnaround costs include replacement or overhaul of equipment and items such as compressors, turbines, pumps, motors, valves,
piping and other parts; assessment of production equipment; replacement of aged catalysts; new installation or recalibration of measurement and control devices; and other costs. We capitalize turnaround costs only if they meet the capitalization
criteria of International Accounting Standard (“IAS”) 16.
12. INTANGIBLES AND
GOODWILL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Trade
names (a) |
|
|
Customer
relationships (b) |
|
|
Technology |
|
|
Other |
|
|
Total
intangibles |
|
|
Goodwill |
|
| Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2013 |
|
|
30 |
|
|
|
730 |
|
|
|
162 |
|
|
|
205 |
|
|
|
1,127 |
|
|
|
2,177 |
|
| Additions |
|
|
— |
|
|
|
— |
|
|
|
49 |
|
|
|
2 |
|
|
|
51 |
|
|
|
— |
|
| Business acquisitions |
|
|
4 |
|
|
|
27 |
|
|
|
— |
|
|
|
24 |
|
|
|
55 |
|
|
|
87 |
|
| Disposals |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
| Other adjustments |
|
|
— |
|
|
|
(3 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
(4 |
) |
|
|
(14 |
) |
| Foreign currency translation |
|
|
(2 |
) |
|
|
(15 |
) |
|
|
(13 |
) |
|
|
(3 |
) |
|
|
(33 |
) |
|
|
(36 |
) |
| December 31, 2014 |
|
|
32 |
|
|
|
739 |
|
|
|
197 |
|
|
|
227 |
|
|
|
1,195 |
|
|
|
2,214 |
|
| Accumulated amortization and impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2013 |
|
|
(3 |
) |
|
|
(241 |
) |
|
|
(48 |
) |
|
|
(97 |
) |
|
|
(389 |
) |
|
|
(219 |
) |
| Amortization |
|
|
(1 |
) |
|
|
(64 |
) |
|
|
(36 |
) |
|
|
(27 |
) |
|
|
(128 |
) |
|
|
— |
|
| Other adjustments |
|
|
— |
|
|
|
4 |
|
|
|
(1 |
) |
|
|
1 |
|
|
|
4 |
|
|
|
— |
|
| Foreign currency translation |
|
|
— |
|
|
|
4 |
|
|
|
7 |
|
|
|
2 |
|
|
|
13 |
|
|
|
19 |
|
| December 31, 2014 |
|
|
(4 |
) |
|
|
(297 |
) |
|
|
(78 |
) |
|
|
(121 |
) |
|
|
(500 |
) |
|
|
(200 |
) |
| Net book value |
|
|
28 |
|
|
|
442 |
|
|
|
119 |
|
|
|
106 |
|
|
|
695 |
|
|
|
2,014 |
|
| (a) |
Trade names with a net book value of $20-million have indefinite useful lives for accounting purposes. |
| (b) |
The remaining amortization period of customer relationships at December 31, 2014, is approximately nine years. |
104 AGRIUM 2014 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Trade
names (a) |
|
|
Customer
relationships |
|
|
Technology |
|
|
Other |
|
|
Total
intangibles |
|
|
Goodwill |
|
| Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2012 |
|
|
57 |
|
|
|
667 |
|
|
|
99 |
|
|
|
175 |
|
|
|
998 |
|
|
|
2,349 |
|
| Additions |
|
|
— |
|
|
|
— |
|
|
|
35 |
|
|
|
2 |
|
|
|
37 |
|
|
|
— |
|
| Business acquisitions |
|
|
— |
|
|
|
115 |
|
|
|
62 |
|
|
|
45 |
|
|
|
222 |
|
|
|
3 |
|
| Disposals |
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(14 |
) |
|
|
(15 |
) |
|
|
— |
|
| Other adjustments (b) |
|
|
(23 |
) |
|
|
(40 |
) |
|
|
(23 |
) |
|
|
(2 |
) |
|
|
(88 |
) |
|
|
(115 |
) |
| Foreign currency translation |
|
|
(4 |
) |
|
|
(12 |
) |
|
|
(10 |
) |
|
|
(1 |
) |
|
|
(27 |
) |
|
|
(60 |
) |
| December 31, 2013 |
|
|
30 |
|
|
|
730 |
|
|
|
162 |
|
|
|
205 |
|
|
|
1,127 |
|
|
|
2,177 |
|
| Accumulated amortization and impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2012 |
|
|
(12 |
) |
|
|
(209 |
) |
|
|
(57 |
) |
|
|
(84 |
) |
|
|
(362 |
) |
|
|
— |
|
| Amortization |
|
|
(2 |
) |
|
|
(59 |
) |
|
|
(16 |
) |
|
|
(25 |
) |
|
|
(102 |
) |
|
|
— |
|
| Impairment losses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(220 |
) |
| Disposals |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
11 |
|
|
|
12 |
|
|
|
— |
|
| Other adjustments (b) |
|
|
9 |
|
|
|
24 |
|
|
|
18 |
|
|
|
1 |
|
|
|
52 |
|
|
|
— |
|
| Foreign currency translation |
|
|
2 |
|
|
|
3 |
|
|
|
6 |
|
|
|
— |
|
|
|
11 |
|
|
|
1 |
|
| December 31, 2013 |
|
|
(3 |
) |
|
|
(241 |
) |
|
|
(48 |
) |
|
|
(97 |
) |
|
|
(389 |
) |
|
|
(219 |
) |
| Net book value |
|
|
27 |
|
|
|
489 |
|
|
|
114 |
|
|
|
108 |
|
|
|
738 |
|
|
|
1,958 |
|
| (a) |
Trade names with a net book value of $22-million have indefinite useful lives for accounting purposes. |
| (b) |
Includes assets classified as held for sale with a net book value of $91-million. |
|
|
|
|
|
|
|
|
|
| Amortization of finite-lived intangibles |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Cost of product sold |
|
|
3 |
|
|
|
3 |
|
| Selling |
|
|
116 |
|
|
|
81 |
|
| General and administrative |
|
|
8 |
|
|
|
11 |
|
| |
|
|
127 |
|
|
|
95 |
|
GOODWILL IMPAIRMENT TESTING
In
calculating the recoverable amount, we selected fair value less costs of disposal (“FVLCD”) methodology and incorporated assumptions that an independent market participant would apply. We adjust discount rates for each group of cash
generating units (“CGU”) for the risk associated with achieving our forecasts and for the currency in which we expect to generate cash flows. FVLCD is a level 3 measurement. We use our market capitalization and comparative market multiples
to corroborate discounted cash flow results.
|
|
|
|
|
|
|
|
|
| Goodwill by cash generating unit |
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Retail – North America |
|
|
1,859 |
|
|
|
1,770 |
|
| Retail – Australia |
|
|
124 |
|
|
|
136 |
|
| Other |
|
|
31 |
|
|
|
52 |
|
| |
|
|
2,014 |
|
|
|
1,958 |
|
AGRIUM 2014 ANNUAL
REPORT 105
The assumptions and other factors that have the greatest influence on our calculation of the recoverable amounts are:
| • |
Discount rate, based on a capital asset pricing model using observable market data inputs; |
| • |
Long-term growth rate, which does not exceed the long-term projected growth rates for the relevant business unit, country or market in which the CGU or groups of CGUs operate; |
| • |
Earnings before finance costs, income taxes, depreciation and amortization (“EBITDA”), which is primarily driven by: |
| |
– |
Sales growth rates, based on results over the past five years and our internal forecasts for the next five years; |
| |
– |
Crop input price benchmarks, based on internal and external market information; |
| |
– |
Profit margins, based on past experience and adjusted for expected changes; and |
| |
– |
Operating costs as a percentage of gross profit. |
| • |
The interrelationships between sales, cost of product sold and working capital; and |
| • |
Achievement of cost savings from acquisitions. |
|
|
|
|
|
| Retail – Australia assumptions used in impairment testing |
|
|
|
| Pre-tax discount rate (%) |
|
|
10.7 |
|
| Terminal growth rate per annum (%) |
|
|
2.5 |
|
| Excess of recoverable amount over carrying amount |
|
|
61 |
|
| Change that would result in carrying amount equal to recoverable amount |
|
|
|
|
| Increase in pre-tax discount rate (%) |
|
|
0.8 |
|
| Decrease in long-term growth rate (%) |
|
|
(0.6 |
) |
| Decrease in forecasted EBITDA growth over forecast period (%) |
|
|
(1.8 |
) |
Key inputs to our test of Retail – North America included a pre-tax discount rate of 11.4 percent and a terminal growth rate per
annum of 2.5 percent. We do not believe that a reasonably possible change in any assumptions used in our calculation of the recoverable amount of Retail – North America would result in a recoverable amount being equal to the carrying amount.
Our annual impairment tests of goodwill determined that impairment did not exist in 2014. In 2013, we recorded an impairment charge of $220-million for Retail –
Australia.
13. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
|
|
|
|
|
|
|
|
|
| Investments in associates and joint ventures |
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Investments in associates |
|
|
338 |
|
|
|
367 |
|
| Investments in joint ventures |
|
|
238 |
|
|
|
272 |
|
| |
|
|
576 |
|
|
|
639 |
|
ASSOCIATES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investments in associates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
December 31, |
|
| |
|
Reporting period |
|
|
Interest (%) |
|
|
Location |
|
|
2014 |
|
|
2013 |
|
| Misr Fertilizers Production Company S.A.E. (“MOPCO”), a private nitrogen producer |
|
|
September 30 |
|
|
|
26 |
|
|
|
Egypt |
|
|
|
264 |
|
|
|
289 |
|
| Agricen LLC (formerly Advanced Microbial Solutions, L.L.C.) (a) |
|
|
November 30 |
|
|
|
30 |
|
|
|
U.S. |
|
|
|
— |
|
|
|
31 |
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74 |
|
|
|
47 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338 |
|
|
|
367 |
|
| (a) |
In 2014, we acquired an additional 40 percent equity interest in Agricen LLC. As a result, we have obtained control of and consolidated the entity. |
106 AGRIUM 2014 ANNUAL REPORT
Future conditions, including conditions related to the fact that MOPCO operates in Egypt, which has been subject to
political instability and civil unrest, may restrict our ability to obtain dividends from MOPCO.
We have representation on MOPCO’s Board of Directors as well as
employees who participate in management decision-making. Accordingly, we maintain significant influence over MOPCO. We record our share of the earnings of MOPCO on a one-quarter lag because financial statements of MOPCO are not available on the date
of issuance of our financial statements. We adjust for the effects of any significant unrecorded transactions or events between the period-end date of MOPCO and our fiscal year end date.
|
|
|
|
|
|
|
|
|
| Summarized financial information of MOPCO |
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Current assets |
|
|
72 |
|
|
|
142 |
|
| Non-current assets |
|
|
1,706 |
|
|
|
1,673 |
|
| |
|
|
1,778 |
|
|
|
1,815 |
|
| Current liabilities |
|
|
214 |
|
|
|
116 |
|
| Non-current liabilities |
|
|
773 |
|
|
|
826 |
|
| |
|
|
987 |
|
|
|
942 |
|
| Net assets of MOPCO |
|
|
791 |
|
|
|
873 |
|
| Proportionate ownership interest in MOPCO |
|
|
206 |
|
|
|
227 |
|
| Unamortized purchase price adjustment |
|
|
58 |
|
|
|
62 |
|
| Carrying amount of interest in MOPCO |
|
|
264 |
|
|
|
289 |
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Sales |
|
|
155 |
|
|
|
258 |
|
| Net earnings |
|
|
10 |
|
|
|
78 |
|
| Total comprehensive income |
|
|
10 |
|
|
|
78 |
|
| Proportionate share of MOPCO income |
|
|
3 |
|
|
|
20 |
|
| Purchase price adjustment amortization |
|
|
(4 |
) |
|
|
(3 |
) |
| (Loss) earnings from MOPCO |
|
|
(1 |
) |
|
|
17 |
|
We own a one-third interest in Canpotex Limited, which exports the portion of our produced potash that Canpotex sells outside of Canada
and the United States. Canpotex is an industry association owned equally by us and two other producers of potash in Canada. We have significant influence through our ability to appoint directors to the board of Canpotex. We account for our
investment based on our economic interest of approximately 8 percent, which is our allocation of production capacity among the members of the association.
We are
contractually obligated to reimburse Canpotex for our 8 percent share of any operating losses or other liabilities incurred by Canpotex. We believe that the probability of conditions arising that would trigger this guarantee is remote.
Reimbursements, if any, are made from reductions of our cash receipts from Canpotex.
JOINT VENTURES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investments in joint ventures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Reporting period |
|
|
Interest (%) |
|
|
Location |
|
December 31, |
|
| |
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
| Profertil S.A. (“Profertil”) |
|
|
December 31 |
|
|
|
50 |
|
|
Argentina |
|
|
234 |
|
|
|
268 |
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
238 |
|
|
|
272 |
|
We have a 50 percent ownership interest in Profertil (a joint venture with YPF S.A. (“YPF”)), a corporation based in Argentina.
Profertil is a producer and wholesale distributor of nitrogen crop nutrients. A contractual agreement between Agrium and YPF establishes joint control over Profertil and provides us with 50 percent of the voting rights. The Central Bank of Argentina
has imposed restrictions on allowing U.S. dollar funds to leave Argentina in the form of dividends or loan payments. Profertil has declared dividends to us that we have loaned back to the joint venture. The loans, which are unsecured and due in
2016, total $89-million (2013 – $102-million) of which $76-million bears interest at 4.6 percent. We received $44-million of cash dividends during 2014 (2013 – $23-million).
AGRIUM 2014 ANNUAL
REPORT 107
|
|
|
|
|
|
|
|
|
| Summarized financial information of Profertil |
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Current assets (a) |
|
|
226 |
|
|
|
302 |
|
| Non-current assets |
|
|
630 |
|
|
|
545 |
|
| |
|
|
856 |
|
|
|
847 |
|
| Current liabilities (b) |
|
|
228 |
|
|
|
334 |
|
| Non-current liabilities (c) |
|
|
308 |
|
|
|
181 |
|
| |
|
|
536 |
|
|
|
515 |
|
| Net assets of Profertil |
|
|
320 |
|
|
|
332 |
|
| Proportionate share of net assets of Profertil |
|
|
160 |
|
|
|
166 |
|
| Elimination of unrealized profit |
|
|
(1 |
) |
|
|
(1 |
) |
| Loans and accrued interest (d) |
|
|
76 |
|
|
|
102 |
|
| Other |
|
|
(1 |
) |
|
|
1 |
|
| Carrying amount of interest in Profertil |
|
|
234 |
|
|
|
268 |
|
| (a) |
Includes cash and cash equivalents of $106-million (December 31, 2013 – $138-million). |
| (b) |
Includes current financial liabilities (excluding trade and other payables and provisions) of $70-million (December 31, 2013 – $108-million). |
| (c) |
Includes non-current financial liabilities (excluding trade and other payables and provisions) of $220-million (December 31, 2013 – $89-million). |
| (d) |
Dividends receivable of $13-million (2013 – nil) are included in accounts receivable. |
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Sales |
|
|
469 |
|
|
|
561 |
|
| Depreciation and amortization |
|
|
30 |
|
|
|
32 |
|
| Interest expense |
|
|
7 |
|
|
|
1 |
|
| Income taxes |
|
|
42 |
|
|
|
73 |
|
| Net earnings |
|
|
37 |
|
|
|
85 |
|
| Total comprehensive income |
|
|
37 |
|
|
|
85 |
|
| Proportionate share of Profertil income |
|
|
18 |
|
|
|
43 |
|
| Dividends received from Profertil |
|
|
44 |
|
|
|
23 |
|
Summarized financial information of associates and joint ventures represents amounts that investees have recorded in their financial
statements, adjusted for any fair value adjustments at acquisition and for differences in accounting policies.
TRANSACTIONS WITH ASSOCIATES AND JOINT
VENTURES
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| For the year ended December 31, |
|
|
|
|
|
|
|
|
| Sales to Canpotex |
|
|
180 |
|
|
|
236 |
|
| Purchases from MOPCO |
|
|
25 |
|
|
|
46 |
|
| Purchases from Profertil |
|
|
67 |
|
|
|
78 |
|
| As at December 31, |
|
|
|
|
|
|
|
|
| Amounts owed to Profertil |
|
|
4 |
|
|
|
17 |
|
108 AGRIUM 2014 ANNUAL REPORT
14. OTHER ASSETS
|
|
|
|
|
|
|
|
|
| Other current assets |
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Other financial assets |
|
|
|
|
|
|
|
|
| Marketable securities (a) |
|
|
94 |
|
|
|
104 |
|
| Other |
|
|
28 |
|
|
|
— |
|
| |
|
|
122 |
|
|
|
104 |
|
|
|
|
| Other assets |
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Other financial assets |
|
|
|
|
|
|
|
|
| Investments |
|
|
4 |
|
|
|
12 |
|
| Receivables (b) |
|
|
65 |
|
|
|
62 |
|
|
|
|
69 |
|
|
|
74 |
|
| Other non-financial assets |
|
|
9 |
|
|
|
25 |
|
| |
|
|
78 |
|
|
|
99 |
|
| (a) |
Comprised primarily of U.S. equities (16 percent), U.S. Government debt (28 percent), U.S. corporate debt (37 percent), international corporate debt (7 percent) and Canadian corporate debt (6 percent). All securities
are rated as investment grade or higher and are capable of liquidation within five trading days. |
| (b) |
Unsecured term loan receivable bearing interest at 3.4 percent per annum, repayable $11-million annually until 2020. |
15. DEBT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
December 31, |
|
| |
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
|
2013 |
|
| |
|
Maturity |
|
|
Rate (%) (a) |
|
|
Utilized |
|
|
Utilized |
|
| Short-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commercial paper (b) |
|
|
2015 |
|
|
|
0.47 |
|
|
|
1,117 |
|
|
|
503 |
|
| Credit facilities (c)(d) |
|
|
|
|
|
|
2.81 |
|
|
|
410 |
|
|
|
261 |
|
| |
|
|
|
|
|
|
|
|
|
|
1,527 |
|
|
|
764 |
|
| Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Floating rate bank loans |
|
|
2015 |
|
|
|
|
|
|
|
11 |
|
|
|
62 |
|
| Fixed rate bank loans |
|
|
2016 |
|
|
|
|
|
|
|
12 |
|
|
|
— |
|
| 7.7% debentures (e) |
|
|
2017 |
|
|
|
|
|
|
|
100 |
|
|
|
100 |
|
| 6.75% debentures (e) |
|
|
2019 |
|
|
|
|
|
|
|
500 |
|
|
|
500 |
|
| 3.15% debentures (e) |
|
|
2022 |
|
|
|
|
|
|
|
500 |
|
|
|
500 |
|
| 3.5% debentures (e) |
|
|
2023 |
|
|
|
|
|
|
|
500 |
|
|
|
500 |
|
| 7.8% debentures (e) |
|
|
2027 |
|
|
|
|
|
|
|
125 |
|
|
|
125 |
|
| 7.125% debentures (e) |
|
|
2036 |
|
|
|
|
|
|
|
300 |
|
|
|
300 |
|
| 6.125% debentures (e) |
|
|
2041 |
|
|
|
|
|
|
|
500 |
|
|
|
500 |
|
| 4.9% debentures (e) |
|
|
2043 |
|
|
|
|
|
|
|
500 |
|
|
|
500 |
|
| 5.25% debentures (e) |
|
|
2045 |
|
|
|
|
|
|
|
500 |
|
|
|
— |
|
| Other |
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
3,612 |
|
|
|
3,160 |
|
| Unamortized transaction costs |
|
|
|
|
|
|
|
|
|
|
(42 |
) |
|
|
(36 |
) |
| Current portion of long-term debt |
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
|
(58 |
) |
| |
|
|
|
|
|
|
|
|
|
|
3,559 |
|
|
|
3,066 |
|
| (a) |
Weighted average rates at December 31, 2014. |
| (b) |
Program maximum U.S. $2.5-billion. Amounts borrowed under the commercial paper program reduce our borrowing capacity under the multi-jurisdictional facility. |
| (c) |
Short-term debt is unsecured and consists of U.S. dollar-denominated debt of $274-million, euro-denominated debt of $109-million and other debt of $27-million (2013 – $52-million, $180-million and $29-million).
|
| (d) |
Total capacity available on our multi-jurisdictional revolving credit facility, which expires in 2019, is $2.5-billion. |
| (e) |
Debentures have various provisions that allow redemption prior to maturity, at our option, at specified prices. |
AGRIUM 2014 ANNUAL
REPORT 109
|
|
|
|
|
| Debt capacity available |
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
| Multi-jurisdictional facility |
|
|
2,500 |
|
| European facilities |
|
|
242 |
|
| South American facilities |
|
|
125 |
|
| Australian facilities |
|
|
22 |
|
|
|
|
2,889 |
|
| Short-term debt drawn |
|
|
(1,527 |
) |
| Letters of credit issued |
|
|
(1 |
) |
| Debt capacity available |
|
|
1,361 |
|
16. ACCOUNTS PAYABLE
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Trade |
|
|
1,470 |
|
|
|
1,418 |
|
| Customer prepayments |
|
|
1,505 |
|
|
|
1,420 |
|
| Accrued liabilities |
|
|
921 |
|
|
|
838 |
|
| Other taxes |
|
|
25 |
|
|
|
33 |
|
| Accrued interest |
|
|
53 |
|
|
|
48 |
|
| Dividends |
|
|
112 |
|
|
|
108 |
|
| Derivative financial instruments |
|
|
18 |
|
|
|
2 |
|
| Share-based payments |
|
|
93 |
|
|
|
118 |
|
| |
|
|
4,197 |
|
|
|
3,985 |
|
17. POST-EMPLOYMENT BENEFITS
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Defined benefit pension plan obligations |
|
|
73 |
|
|
|
66 |
|
| Other post-employment benefit plan obligations |
|
|
78 |
|
|
|
69 |
|
| |
|
|
151 |
|
|
|
135 |
|
Agrium’s defined benefit pension plans provide pension benefits at retirement based on years of service and final average salary
contributions. We sponsor post-employment pension and medical plans subject to broadly similar regulatory frameworks in Canada and the United States. For funded plans, we contribute to trustee-administered plans that are legally separate from
Agrium. Regulations in each country govern the administration of assets that we hold in trust for the plans. We are responsible for governance, which includes oversight of all aspects of the plans, including investment and contribution decisions.
Our pension committee assists in managing the plans, including the appointment of independent trustees, actuaries and investment professionals. Fewer than 15 percent of our employees are members of defined benefit pension plans. Entitlement to
benefits is generally conditional on the employee remaining in service for a minimum period or reaching a specified age. We engage a qualified actuary to perform calculations of our net benefit obligations using the projected unit credit method.
Post-employment benefit plans expose us to actuarial risks such as longevity risk, interest rate risk and market (investment) risk. We fund the cost of the
registered and qualified defined benefit pension plans based on minimum statutory requirements. Our contributions include the cost of any current year accrual and any amortized payments relating to past service. We have the right to increase
contributions beyond the minimum requirement. We do not fund the majority of pension obligations for executive plans. Employees cannot contribute to the defined benefit pension plans. The estimated contribution to fund our defined benefit plans for
2015 is $8-million.
110 AGRIUM 2014 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Continuity of plan assets and obligations |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Defined benefit
pension plans |
|
|
Other post-employment
benefit plans |
|
| |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
| Change in plan obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, beginning of year |
|
|
324 |
|
|
|
302 |
|
|
|
69 |
|
|
|
77 |
|
| Obligations associated with business acquisitions |
|
|
— |
|
|
|
44 |
|
|
|
— |
|
|
|
— |
|
| Foreign currency translation on Canadian obligations |
|
|
(19 |
) |
|
|
(12 |
) |
|
|
(4 |
) |
|
|
(4 |
) |
| Employee contributions |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
| Interest cost |
|
|
14 |
|
|
|
12 |
|
|
|
3 |
|
|
|
3 |
|
| Service cost |
|
|
6 |
|
|
|
8 |
|
|
|
3 |
|
|
|
3 |
|
| Actuarial (gain) loss arising from liability experience adjustments |
|
|
(2 |
) |
|
|
5 |
|
|
|
— |
|
|
|
— |
|
| Actuarial loss (gain) arising from changes in demographic assumptions |
|
|
10 |
|
|
|
7 |
|
|
|
(2 |
) |
|
|
2 |
|
| Actuarial loss (gain) arising from changes in financial assumptions |
|
|
38 |
|
|
|
(31 |
) |
|
|
11 |
|
|
|
(10 |
) |
| Benefits paid |
|
|
(17 |
) |
|
|
(11 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
| Balance, end of year |
|
|
354 |
|
|
|
324 |
|
|
|
78 |
|
|
|
69 |
|
| Arising from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Funded plans |
|
|
299 |
|
|
|
272 |
|
|
|
— |
|
|
|
— |
|
| Unfunded plans |
|
|
55 |
|
|
|
52 |
|
|
|
78 |
|
|
|
69 |
|
| |
|
|
354 |
|
|
|
324 |
|
|
|
78 |
|
|
|
69 |
|
| Change in plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair value, beginning of year |
|
|
258 |
|
|
|
195 |
|
|
|
— |
|
|
|
— |
|
| Assets associated with business acquisitions |
|
|
— |
|
|
|
43 |
|
|
|
— |
|
|
|
— |
|
| Foreign currency translation on Canadian assets |
|
|
(14 |
) |
|
|
(7 |
) |
|
|
— |
|
|
|
— |
|
| Return on plan assets – interest |
|
|
11 |
|
|
|
8 |
|
|
|
— |
|
|
|
— |
|
| Return on plan assets – excluding interest |
|
|
24 |
|
|
|
18 |
|
|
|
— |
|
|
|
— |
|
| Employer contributions |
|
|
16 |
|
|
|
13 |
|
|
|
— |
|
|
|
— |
|
| Employee contributions |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
| Benefits paid |
|
|
(14 |
) |
|
|
(12 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
| Fair value, end of year |
|
|
281 |
|
|
|
258 |
|
|
|
— |
|
|
|
— |
|
| Unfunded status and provision for post-employment benefits |
|
|
73 |
|
|
|
66 |
|
|
|
78 |
|
|
|
69 |
|
| Present value of defined benefit obligation |
|
|
432 |
|
|
|
393 |
|
|
|
|
|
|
|
|
|
| Fair value of plan assets |
|
|
281 |
|
|
|
258 |
|
|
|
|
|
|
|
|
|
| Deficit in the plans |
|
|
151 |
|
|
|
135 |
|
|
|
|
|
|
|
|
|
AGRIUM 2014 ANNUAL
REPORT 111
|
|
|
|
|
|
|
|
|
| Actuarial calculations of expense |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Defined benefit pension plans |
|
|
|
|
|
|
|
|
| Service cost for benefits earned during the year |
|
|
6 |
|
|
|
8 |
|
| Interest cost on accrued benefit obligations |
|
|
3 |
|
|
|
5 |
|
| Expected return on plan assets |
|
|
— |
|
|
|
(1 |
) |
| Net amortization and deferral |
|
|
— |
|
|
|
2 |
|
| Other |
|
|
1 |
|
|
|
— |
|
| Net expense |
|
|
10 |
|
|
|
14 |
|
| Other post-employment benefit plans |
|
|
|
|
|
|
|
|
| Service cost for benefits earned during the year |
|
|
3 |
|
|
|
3 |
|
| Interest cost on accrued benefit obligations |
|
|
3 |
|
|
|
3 |
|
| Net expense |
|
|
6 |
|
|
|
6 |
|
| Defined contribution pension plans |
|
|
57 |
|
|
|
56 |
|
| Total expense |
|
|
73 |
|
|
|
76 |
|
|
|
|
| Expense line items |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Cost of product sold |
|
|
38 |
|
|
|
39 |
|
| General and administrative |
|
|
26 |
|
|
|
26 |
|
| Other expenses |
|
|
3 |
|
|
|
6 |
|
| Other finance costs |
|
|
6 |
|
|
|
5 |
|
| |
|
|
73 |
|
|
|
76 |
|
|
|
|
| Actuarial loss (gain) recognized in other comprehensive income |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Cumulative balance, beginning of year |
|
|
42 |
|
|
|
87 |
|
| Actuarial loss (gain) recognized during the year |
|
|
31 |
|
|
|
(45 |
) |
| Cumulative balance, end of year |
|
|
73 |
|
|
|
42 |
|
ASSUMPTIONS AND SENSITIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Actuarial assumptions
(percent) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Future benefits obligation |
|
|
Future benefits expense |
|
| (expressed as weighted averages) |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
| Defined benefit pension plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Discount rate |
|
|
4 |
|
|
|
5 |
|
|
|
5 |
|
|
|
4 |
|
| Expected long-term rate of return on assets |
|
|
N/A |
|
|
|
N/A |
|
|
|
6 |
|
|
|
6 |
|
| Rate of increase in compensation levels |
|
|
3 |
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
| Other post-employment benefit plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Discount rate |
|
|
4 |
|
|
|
5 |
|
|
|
5 |
|
|
|
4 |
|
We base the rate used to discount liabilities on high-quality (minimum rating of AA) fixed income investments with cash flows that match
the currency, timing and amount of the expected cash flows of the plans. We base the expected long-term rate of return on assets on long-term expectations of inflation, along with the expected long-term real return for each asset class, weighted in
accordance with the stated investment policy for the plans. We base expectations of real returns and inflation on a combination of current market conditions, historical capital market data and future expectations. We base assumptions about life
expectancy on actuarial mortality tables published in Canada and the United States.
112 AGRIUM 2014 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
| Assumed and ultimate health care cost trend rates |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Health care cost trend rate assumed for the next fiscal year (%) |
|
|
7 |
|
|
|
7 |
|
| Ultimate health care cost trend rate (%) |
|
|
5 |
|
|
|
5 |
|
| Fiscal year the rate reaches the ultimate trend rate |
|
|
2021 |
|
|
|
2018 |
|
|
|
|
| Mortality assumptions per latest available standard mortality tables |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Average life expectancy – currently aged 65 years (2013 – 65 years) |
|
|
|
|
|
|
|
|
| Male |
|
|
22 |
|
|
|
21 |
|
| Female |
|
|
24 |
|
|
|
23 |
|
|
|
|
| Sensitivity analysis |
|
|
|
|
|
|
| |
|
Defined benefit obligation |
|
| |
|
Increase |
|
|
Decrease |
|
| Discount rate – impact of 1% movement |
|
|
(59 |
) |
|
|
72 |
|
| Health care cost trend rate – impact of 1% movement |
|
|
12 |
|
|
|
(9 |
) |
| Longevity – impact of one year increase in life expectancy |
|
|
11 |
|
|
|
N/A |
|
| Per capita claims cost – impact of 1% movement |
|
|
1 |
|
|
|
(1 |
) |
|
|
|
| Duration of benefit obligation (years) |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Active members |
|
|
18 |
|
|
|
17 |
|
| Retired members |
|
|
11 |
|
|
|
10 |
|
| Average duration of the benefit obligation |
|
|
14 |
|
|
|
13 |
|
ASSET ALLOCATION AND INVESTMENT STRATEGY
Our investment objective for our defined benefit plans is to maximize long-term return on plan assets using a mix of equities and fixed income investments while managing
an appropriate level of risk. It is our policy not to invest in commodities, precious metals, mineral rights, bullion or collectibles. We may use derivative financial instruments to create a desirable asset mix position, adjust the duration of a
fixed income portfolio, replicate the investment performance of interest rates or a recognized capital market index, manage currency exposure and reduce risk. We do not use derivative financial instruments to create exposures to securities that our
investment policy would not permit.
|
|
|
|
|
|
|
|
|
|
|
|
|
| Defined benefit plans – asset allocation |
|
|
|
|
|
|
|
|
|
| |
|
Target allocation |
|
|
Plan assets |
|
| Asset categories (percent) |
|
2015 |
|
|
2014 |
|
|
2013 |
|
| Equity securities |
|
|
54 |
|
|
|
|
|
|
|
|
|
| Canadian equity funds |
|
|
|
|
|
|
15 |
|
|
|
21 |
|
| U.S. equity funds |
|
|
|
|
|
|
24 |
|
|
|
23 |
|
| International equity funds |
|
|
|
|
|
|
13 |
|
|
|
12 |
|
| Emerging market equity funds |
|
|
|
|
|
|
3 |
|
|
|
3 |
|
| Debt securities |
|
|
44 |
|
|
|
|
|
|
|
|
|
| Canadian debt securities |
|
|
|
|
|
|
31 |
|
|
|
28 |
|
| U.S. debt securities |
|
|
|
|
|
|
12 |
|
|
|
11 |
|
| Cash and other |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
| Defined benefit plans – effective date of most recent valuation for funding purposes |
|
|
|
|
|
|
| |
|
Current effective date |
|
|
Next required date |
|
| Canadian plans |
|
|
December 31, 2011 |
|
|
|
December 31, 2014 |
|
|
|
|
December 31, 2013 |
|
|
|
December 31, 2016 |
|
| U.S. plans |
|
|
January 1, 2014 |
|
|
|
January 1, 2015 |
|
AGRIUM 2014 ANNUAL
REPORT 113
18. OTHER PROVISIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Environmental
remediation (a) |
|
|
Asset
retirement (b) |
|
|
Litigation |
|
|
Total |
|
| December 31, 2013 |
|
|
165 |
|
|
|
314 |
|
|
|
59 |
|
|
|
538 |
|
| Additional provisions or changes in estimates (note 23) |
|
|
29 |
|
|
|
(33 |
) |
|
|
16 |
|
|
|
12 |
|
| Draw-downs |
|
|
(22 |
) |
|
|
(12 |
) |
|
|
(18 |
) |
|
|
(52 |
) |
| Reversals |
|
|
— |
|
|
|
(1 |
) |
|
|
(16 |
) |
|
|
(17 |
) |
| Accretion |
|
|
3 |
|
|
|
9 |
|
|
|
— |
|
|
|
12 |
|
| Other adjustments |
|
|
(1 |
) |
|
|
5 |
|
|
|
— |
|
|
|
4 |
|
| Foreign currency translation |
|
|
(5 |
) |
|
|
(11 |
) |
|
|
(1 |
) |
|
|
(17 |
) |
| December 31, 2014 |
|
|
169 |
|
|
|
271 |
|
|
|
40 |
|
|
|
480 |
|
| Current portion |
|
|
59 |
|
|
|
14 |
|
|
|
40 |
|
|
|
113 |
|
| Non-current portion |
|
|
110 |
|
|
|
257 |
|
|
|
— |
|
|
|
367 |
|
| |
|
|
169 |
|
|
|
271 |
|
|
|
40 |
|
|
|
480 |
|
| (a) |
We estimate that we will settle our environmental remediation liabilities between 2015 and 2038. We discount obligations using rates ranging from 0.65 percent to 4.19 percent (2013 – 0.65 percent to 4.50 percent).
Provisions include $44-million for our Idaho phosphate mining and processing sites. No individual site provision is material. |
| (b) |
Mining, extraction, processing and distribution activities result in asset retirement obligations in the normal course of operations. Obligations include closure, dismantlement, site restoration or other legal or
constructive obligations for termination and retirement of assets. Expenditures may occur before and after closure. We expect to incur expenditures for the obligations over the next 40 years with the exception of those for our potash operations,
which we expect to occur after 100 years. Timing of expenditures depends on a number of factors, such as the life and nature of the asset, legal requirements and technology. We estimate obligations using discount rates ranging from 1.57 percent to
4.55 percent (2013 – 1.57 percent to 4.55 percent). Provisions include $128-million for our Idaho phosphate mining and processing sites. No other site provision is material. |
19. OTHER LIABILITIES
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Other financial liabilities |
|
|
|
|
|
|
|
|
| Derivative financial instruments |
|
|
22 |
|
|
|
— |
|
| Other |
|
|
17 |
|
|
|
24 |
|
|
|
|
39 |
|
|
|
24 |
|
| Other non-financial liabilities |
|
|
|
|
|
|
|
|
| Share-based payments |
|
|
30 |
|
|
|
35 |
|
| |
|
|
69 |
|
|
|
59 |
|
20. SHARE-BASED PAYMENTS
|
|
|
|
|
|
|
|
|
|
|
| Plan features |
|
|
|
|
|
|
|
|
|
|
| Form of payment |
|
Eligibility |
|
Granted |
|
Vesting period |
|
Term |
|
Settlement |
| Stock Options and Tandem Stock Appreciation Rights (“TSARs”) |
|
Officers and employees |
|
Annually |
|
25% per year over four years |
|
10 years |
|
Cash or shares at holder’s discretion |
|
|
|
|
|
|
| Stock Appreciation Rights (“SARs”) |
|
Certain employees outside Canada |
|
Annually |
|
25% per year over four years |
|
10 years |
|
Cash |
|
|
|
|
|
|
| Performance Share Units (“PSUs”) |
|
Executive officers and other eligible employees |
|
Annually |
|
On the third anniversary of the grant date |
|
N/A |
|
Cash |
|
|
|
|
|
|
| Director Deferred Share Units (“DSUs”) |
|
Directors |
|
At the discretion of the Board of Directors |
|
Fully vested upon grant |
|
N/A |
|
In cash on director’s departure from the Board |
114 AGRIUM 2014 ANNUAL REPORT
We grant stock-based compensation to employees and directors under our Stock Option Plan in accordance with our compensation
policies. Cash settlement of TSARs and SARs allows a holder to choose to receive the price of our shares on the NYSE on the date of exercise in excess of the exercise price of the right. Our past experience and future expectation is that
substantially all option holders will elect to exercise their options as a SAR, surrendering their options and receiving settlement in cash.
Each PSU confers a right
to receive a cash payment of the fair market value of a common share of Agrium at the vesting date. Holders of all forms of share-based payments are entitled to the value of dividends paid on common shares in the form of additional rights or units.
The Board may grant DSUs to non-executive directors, and directors may elect to receive a portion or all of their director’s fees in DSUs.
STOCK
OPTION AND STOCK APPRECIATION RIGHTS PLANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock option and SAR activity (number of units in thousands;
weighted average price in U.S. dollars) |
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| |
|
Units |
|
|
Exercise price |
|
|
Units |
|
|
Exercise price |
|
| Outstanding, beginning of year |
|
|
2,592 |
|
|
|
65.62 |
|
|
|
2,529 |
|
|
|
53.45 |
|
| Granted |
|
|
582 |
|
|
|
90.53 |
|
|
|
518 |
|
|
|
101.17 |
|
| Forfeited |
|
|
(44 |
) |
|
|
95.37 |
|
|
|
(18 |
) |
|
|
99.98 |
|
| Exercised |
|
|
(940 |
) |
|
|
41.23 |
|
|
|
(427 |
) |
|
|
34.68 |
|
| Expired |
|
|
(5 |
) |
|
|
98.96 |
|
|
|
(10 |
) |
|
|
86.72 |
|
| Outstanding, end of year (a) |
|
|
2,185 |
|
|
|
82.06 |
|
|
|
2,592 |
|
|
|
65.62 |
|
| Exercisable, end of year |
|
|
1,204 |
|
|
|
73.05 |
|
|
|
1,890 |
|
|
|
55.22 |
|
| Maximum available for future grants, end of year |
|
|
5,208 |
|
|
|
|
|
|
|
783 |
|
|
|
|
|
| Cash received from equity-settled awards |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
2 |
|
| Weighted average fair value of outstanding |
|
|
|
|
|
|
33.42 |
|
|
|
|
|
|
|
40.26 |
|
| Weighted average share price at exercise date |
|
|
|
|
|
|
96.39 |
|
|
|
|
|
|
|
99.55 |
|
| (a) |
Includes 1.694 million options with attached stock appreciation rights (2013 – 2.183 million). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock options and SARs outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (number of units in thousands; weighted average remaining contractual life in years; weighted average exercise price in
U.S. dollars) |
|
| At December 31, 2014 |
|
Options outstanding |
|
|
Options exercisable |
|
| Range of exercise prices |
|
Remaining
contractual life |
|
|
Units |
|
|
Exercise
price |
|
|
Units |
|
|
Exercise
price |
|
| Less than $68.65 |
|
|
4 |
|
|
|
482 |
|
|
|
49.13 |
|
|
|
482 |
|
|
|
49.13 |
|
| $68.66 to $88.80 |
|
|
5 |
|
|
|
474 |
|
|
|
82.75 |
|
|
|
359 |
|
|
|
80.99 |
|
| $88.81 to $90.83 |
|
|
9 |
|
|
|
564 |
|
|
|
90.53 |
|
|
|
1 |
|
|
|
89.33 |
|
| $90.84 to $97.64 |
|
|
5 |
|
|
|
190 |
|
|
|
91.14 |
|
|
|
151 |
|
|
|
91.14 |
|
| $97.65 to $103.45 |
|
|
7 |
|
|
|
475 |
|
|
|
101.17 |
|
|
|
211 |
|
|
|
101.15 |
|
| |
|
|
6 |
|
|
|
2,185 |
|
|
|
82.06 |
|
|
|
1,204 |
|
|
|
73.05 |
|
PERFORMANCE SHARE UNITS
PSUs vest based
on total shareholder return over a three-year performance cycle, compared to the average quarterly total shareholder return of a peer group of companies over the same period. We base the value of each PSU granted on the average closing price of our
common shares on the NYSE during the last five days of the three-year cycle.
|
|
|
|
|
|
|
|
|
| PSU activity (number of units in thousands) |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Outstanding, beginning of year |
|
|
629 |
|
|
|
601 |
|
| Granted |
|
|
254 |
|
|
|
237 |
|
| Forfeited |
|
|
(86 |
) |
|
|
(46 |
) |
| Exercised |
|
|
(174 |
) |
|
|
(163 |
) |
| Outstanding, end of year |
|
|
623 |
|
|
|
629 |
|
| Weighted average fair value of outstanding |
|
|
97.81 |
|
|
|
72.72 |
|
AGRIUM 2014 ANNUAL
REPORT 115
OTHER INFORMATION
|
|
|
|
|
|
|
|
|
| Compensation expense (recovery) by plan |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Stock options and TSARs |
|
|
18 |
|
|
|
(11 |
) |
| SARs |
|
|
3 |
|
|
|
(3 |
) |
| PSUs |
|
|
24 |
|
|
|
5 |
|
| DSUs |
|
|
5 |
|
|
|
2 |
|
| |
|
|
50 |
|
|
|
(7 |
) |
|
|
|
| Liabilities for cash-settled plans |
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Total fair value liability for cash-settled plans |
|
|
123 |
|
|
|
153 |
|
| Total intrinsic liability for cash-settled plans |
|
|
83 |
|
|
|
119 |
|
At December 31, 2014, unrecognized compensation expense for unvested awards was $28-million. During 2014, we settled $70-million of
awards in cash.
VALUATION MODELS
We determine the fair value of
TSARs and SARs using a Black-Scholes model and the fair value of PSUs using a Monte Carlo simulation model. We estimate expected annual volatility taking into consideration historic share price volatility.
|
|
|
|
|
|
|
|
|
| Valuation model inputs |
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Grant price (U.S. dollars) |
|
|
81.24 |
|
|
|
67.82 |
|
| Share price (U.S. dollars) |
|
|
94.72 |
|
|
|
91.48 |
|
| Expected annual volatility (%) |
|
|
33.57 |
|
|
|
35.62 |
|
| Risk-free interest rate (%) |
|
|
1.48 |
|
|
|
1.55 |
|
| Expected annual dividend yield (%) |
|
|
3.29 |
|
|
|
3.28 |
|
| Expected life (years) |
|
|
6 |
|
|
|
5 |
|
| Forfeiture rate (%) |
|
|
4.04 |
|
|
|
— |
|
116 AGRIUM 2014 ANNUAL REPORT
21. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
A) FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
In the normal course of business, our balance sheet, results of operations and cash flows are exposed to various risks. Annually, the Board approves a strategic plan that
takes into account the opportunities and major risks of our business and mitigating factors to reduce these risks. The Board sets upper limits on the time periods and transactional and balance sheet exposures that management can manage. Our
Corporate Financial Risk Committee reviews risk management policies and procedures annually, and monitors compliance with these limits and associated exposure management activity. We manage risk in accordance with our Global Exposure Management
Policy. The objective of the policy is to reduce volatility in cash flows and earnings. We hold all derivative financial instruments for risk management purposes only. Risks that we manage include:
|
|
|
|
|
| Item |
|
Affected by |
|
Risk management policies |
| Sales |
|
Product prices and foreign currency exchange rates |
|
Foreign currency forward and swap contracts |
|
|
|
| Cost of product sold – natural gas and power |
|
Prices of natural gas and power |
|
Natural gas forward, swap and option contracts; power swap contracts |
|
|
|
| Cost of product sold – product purchased for resale |
|
Prices of nutrients purchased for resale |
|
Nutrient swaps and fixed price product purchase commitments |
|
|
|
| Selling, general and administrative, and other expenses denominated in local currencies |
|
Foreign currency exchange rates |
|
Foreign currency forward and swap contracts |
|
|
|
| Capital expenditures |
|
Foreign currency exchange rates |
|
Foreign currency forward and swap contracts |
|
|
|
| Interest expense |
|
USD, EUR and AUD interest rates |
|
Maintaining a combination of fixed and floating rate debt; interest rate swaps to manage risk for up to 10 years |
|
|
|
| Financial instruments |
|
|
|
|
|
|
|
| Market risk – currency risk |
|
USD balances in Canadian, Australian, European and South American subsidiaries; foreign currencies held in U.S. dollar-denominated subsidiaries |
|
Foreign currency forward and swap contracts to manage risk for up to three years |
|
|
|
| Market risk – commodity price risk (natural gas, power and nutrient price risk) |
|
Market prices of natural gas, power and nutrients |
|
Natural gas forward, swap and option contracts; power swap contracts to manage power price risk for up to five years; nutrient swap contracts |
|
|
|
| Market risk – interest rate risk Floating: short-term debt, floating rate long-term debt, cash and cash equivalents Fixed: long-term debt |
|
Changes in market interest rates |
|
Maintaining a combination of fixed and floating rate debt; interest rate swaps to manage risk for up to 10 years; cash management policies |
|
|
|
| Credit risk |
|
Ability of customers or counterparties to financial instruments to meet obligations |
|
Credit approval and monitoring practices; counterparty policies; master netting arrangements; counterparty credit policies and limits; arrangements with financial
institutions |
|
|
|
| Liquidity risk |
|
Fluctuations in cash flows |
|
Preparing and monitoring detailed forecasts of cash flows; cash management policies; uncommitted, multiple-year credit facilities |
AGRIUM 2014 ANNUAL
REPORT 117
B) MARKET RISK – CURRENCY RISK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign exchange derivative financial instruments outstanding |
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Sell/Buy
(notional amounts in millions of U.S.
dollars) |
|
Notional |
|
|
Maturities |
|
|
Fair value
of assets
(liabilities) |
|
|
Notional |
|
|
Maturities |
|
|
Fair value
of assets (liabilities) |
|
| Not designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Forwards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| CAD/USD |
|
|
1,675 |
|
|
|
2015 |
|
|
|
31 |
|
|
|
350 |
|
|
|
2014 |
|
|
|
1 |
|
| USD/AUD |
|
|
33 |
|
|
|
2015 |
|
|
|
(3 |
) |
|
|
33 |
|
|
|
2014 |
|
|
|
(1 |
) |
| AUD/USD |
|
|
12 |
|
|
|
2015 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| USD/AUD |
|
|
26 |
|
|
|
2015 |
|
|
|
(1 |
) |
|
|
24 |
|
|
|
2014 |
|
|
|
(1 |
) |
| AUD/USD |
|
|
21 |
|
|
|
2015 |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
We determine the functional currency of our subsidiaries in reference to the primary economic environment in which the entity operates. We
are exposed to currency risk from financial instruments denominated in currencies other than the functional currency of an operation. The majority of this currency risk arises from U.S. denominated debt residing in our Canadian subsidiaries.
Translation of these financial instruments into the subsidiaries’ functional currency impacts our earnings. We manage this exposure by entering into foreign currency forward contracts. Although the derivatives have not been designated in
hedging relationships, they offset substantially all of the earnings impact from the translation of the underlying financial instruments that could occur from a reasonably possible strengthening or weakening of the U.S. dollar.
118 AGRIUM 2014 ANNUAL REPORT
C) MARKET RISK – COMMODITY PRICE RISK
Commodity price risk management and cash flow hedges
Natural gas is a significant component of our cost of product sold for nitrogen-based fertilizers. We use physical contracts and financial forward contracts to manage the
risk of market fluctuations in natural gas prices and to reduce the variability of cash flows from our planned purchases of natural gas used in our fertilizer production facilities. Our Board of Directors has established limits on risk management
activities, including the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Use of derivatives to hedge exposure to natural gas market prices risk |
|
|
|
|
|
|
|
|
|
|
|
|
| Term (gas year – 12 months ending October 31) |
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
| Maximum allowable (% of forecasted gas requirements) |
|
|
75 |
|
|
|
75 |
|
|
|
25 |
|
|
|
25 |
(a) |
| Forecasted average monthly purchases (millions MMBtu) |
|
|
— |
|
|
|
9 |
|
|
|
9 |
|
|
|
9 |
|
| Gas requirements hedged using derivatives designated as hedges (%) |
|
|
— |
|
|
|
25 |
|
|
|
25 |
|
|
|
17 |
|
| (a) |
Maximum monthly hedged volume may not exceed 90 percent of planned monthly requirements. |
In 2014, we designated natural
gas forward contracts as hedges of highly probable purchases of natural gas. The contracts settle in the months hedged, using AECO futures price indexes, which we use to determine fair value. The contracts are denominated in Canadian dollars for
purchases of gas in Canadian dollars. At the inception of each designated forward contract, we prepare formal designation and documentation of the hedging relationship and our risk management objective and strategy for undertaking the hedge. For
derivatives designated as hedges, we record the effective portion of changes in fair value to other comprehensive income. We record any ineffective portion to earnings.
The underlying risk of the forward contracts is identical to the hedged risk, and accordingly we have established a ratio of 1:1 for all natural gas hedges. Due to a
strong correlation between AECO future contract prices and our delivered cost, we did not experience any ineffectiveness on our hedges, and accordingly we have recorded the full change in the fair value of the natural gas forward contracts
designated as hedges to other comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Natural gas derivative financial instruments outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| (notional amounts in millions of MMBtu) |
|
Notional |
|
|
Maturities |
|
|
Average
contract
price (USD
per MMBtu) |
|
|
Fair value
of assets
(liabilities) |
|
|
Notional |
|
|
Maturities |
|
|
Average
contract
price (USD
per MMBtu) |
|
|
Fair value
of assets
(liabilities) |
|
| Not designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| NYMEX swaps |
|
|
1 |
|
|
|
2015 |
|
|
|
4 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| AECO swaps |
|
|
10 |
|
|
|
2015 |
|
|
|
3 |
|
|
|
(10 |
) |
|
|
8 |
|
|
|
2014 |
|
|
|
4 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
| Designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| AECO swaps |
|
|
69 |
|
|
|
2015 – 2018 |
|
|
|
3 |
|
|
|
(25 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Maturities of natural gas derivative contracts |
|
Fair value |
|
| |
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
| Not designated as hedges |
|
|
(11 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Designated as hedges |
|
|
(3 |
) |
|
|
(12 |
) |
|
|
(6 |
) |
|
|
(4 |
) |
AGRIUM 2014 ANNUAL
REPORT 119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Natural gas derivative financial instruments outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| |
|
Gross
amount |
|
|
Netting |
|
|
Carrying
amount |
|
|
Gross
amount |
|
|
Netting |
|
|
Carrying
amount |
|
| Not designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts receivable |
|
|
27 |
|
|
|
(27 |
) |
|
|
— |
|
|
|
26 |
|
|
|
(26 |
) |
|
|
— |
|
| Accounts payable |
|
|
(38 |
) |
|
|
27 |
|
|
|
(11 |
) |
|
|
(26 |
) |
|
|
26 |
|
|
|
— |
|
| |
|
|
(11 |
) |
|
|
— |
|
|
|
(11 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts receivable |
|
|
12 |
|
|
|
(12 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Other assets |
|
|
193 |
|
|
|
(193 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Accounts payable |
|
|
(15 |
) |
|
|
12 |
|
|
|
(3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Other liabilities |
|
|
(215 |
) |
|
|
193 |
|
|
|
(22 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
(25 |
) |
|
|
— |
|
|
|
(25 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
(36 |
) |
|
|
— |
|
|
|
(36 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
| Impact of change in fair value of natural gas derivative financial instruments |
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| A $10-million impact to net earnings requires movement in gas prices per MMBtu |
|
|
1.23 |
|
|
|
1.87 |
|
| A $10-million impact to other comprehensive income requires movement in gas prices per
MMBtu |
|
|
0.19 |
|
|
|
— |
|
D) MARKET RISK – INTEREST RATE RISK
|
|
|
|
|
| Impact of change in floating rate debt (basis points) |
|
December 31, |
|
| |
|
2014 |
|
| A $10-million decrease in net earnings requires an increase in interest rates |
|
|
68 |
|
| Sensitivity – Impact
of change in fair value of debentures |
|
December 31, |
|
| |
|
2014 |
|
| Interest rate increase of 1% |
|
|
(369 |
) |
| Interest rate decrease of 1% |
|
|
440 |
|
The weighted average effective interest rate on long-term debt at December 31, 2014, was 5 percent (December 31, 2013 – 5
percent).
E) CREDIT RISK
|
|
|
|
|
|
|
|
|
| Maximum exposure to credit risk |
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Cash and cash equivalents |
|
|
848 |
|
|
|
801 |
|
| Accounts receivable |
|
|
2,075 |
|
|
|
2,105 |
|
| Other current assets |
|
|
122 |
|
|
|
104 |
|
| Other non-current assets |
|
|
78 |
|
|
|
99 |
|
| |
|
|
3,123 |
|
|
|
3,109 |
|
120 AGRIUM 2014 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Trade accounts receivable – aging |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| |
|
Gross |
|
|
Allowance for
doubtful
accounts |
|
|
Gross |
|
|
Allowance for
doubtful
accounts |
|
| Not past due |
|
|
1,443 |
|
|
|
(9 |
) |
|
|
1,600 |
|
|
|
(30 |
) |
| 30 days or less |
|
|
171 |
|
|
|
(6 |
) |
|
|
169 |
|
|
|
(5 |
) |
| 31 – 60 days |
|
|
46 |
|
|
|
(4 |
) |
|
|
75 |
|
|
|
(4 |
) |
| 61 – 90 days |
|
|
20 |
|
|
|
(3 |
) |
|
|
3 |
|
|
|
(2 |
) |
| Greater than 90 days |
|
|
169 |
|
|
|
(57 |
) |
|
|
101 |
|
|
|
(37 |
) |
| |
|
|
1,849 |
|
|
|
(79 |
) |
|
|
1,948 |
|
|
|
(78 |
) |
|
|
|
|
|
|
|
|
|
| Trade accounts receivable – allowance for doubtful accounts |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Balance, beginning of year |
|
|
78 |
|
|
|
72 |
|
| Additions |
|
|
19 |
|
|
|
9 |
|
| Write-offs |
|
|
(18 |
) |
|
|
(3 |
) |
| Balance, end of year |
|
|
79 |
|
|
|
78 |
|
| Balance as a percentage of trade accounts receivable |
|
|
4 |
|
|
|
4 |
|
Trade accounts receivable – risk concentration
We determine and monitor concentrations of credit risk using our aging analysis of trade receivables. Geographic and industry diversity also mitigates credit risk. Trade
accounts receivable have significant concentrations of credit risk in the agriculture sector. Geographic diversity and crop insurance programs in Canada and the United States mitigate any concentration of risk. Our Wholesale business unit
diversifies and mitigates risk concentration by selling to industrial customers outside the agriculture sector and by the use of letters of credit and credit insurance. We are closely monitoring the economic environment in Argentina and have taken
measures to limit our exposure to that country. Our exposure to credit risk in the Eurozone is negligible. We do not expect any significant losses from trade accounts receivable other than the amounts classified as doubtful accounts, based on
historical information about default rates and our analysis of current receivables. No revenues from transactions with a single external customer amount to 10 percent or more of our revenues.
We mitigate credit risk in accounts receivable in our Retail operations in Western Canada through an agency agreement with a Canadian financial institution whereby the
financial institution provides credit to qualifying Agrium customers to assist in financing their crop input purchases. The agency agreement, which expires in 2018, results in customers having loans directly with the institution while Agrium has
only a limited recourse involvement to the extent of an indemnification of the institution for 50 percent of its future bad debts to a maximum of 5 percent of the qualified customer loans. Outstanding customer credit with the financial institution
was $524-million at December 31, 2014, which is not recognized in the consolidated balance sheet. Historical indemnification losses on this arrangement have been negligible and the average aging of the customer loans with the financial
institution is current.
Derivatives and cash and cash equivalents – risk concentration
At December 31, 2014, all counterparties to derivative financial instruments have maintained an investment grade credit rating, and there is no indication that any
counterparty will be unable to meet its obligations under derivative financial contracts or cash and cash equivalents. The carrying amount of financial assets represents the maximum credit exposure.
AGRIUM 2014 ANNUAL
REPORT 121
F) LIQUIDITY RISK
The table below summarizes the maturity profile of our financial liabilities based on contractual undiscounted payments, including estimated interest payments. The
amounts included for derivative financial instruments are subject to change as interest rates, exchange rates or commodity prices change.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Carrying
amount |
|
|
Contractual
cash flows |
|
|
Less than
one year |
|
|
One to
three years |
|
|
Four to
five years |
|
|
More than
five years |
|
| Short-term debt |
|
|
1,527 |
|
|
|
1,527 |
|
|
|
1,527 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Accounts payable |
|
|
2,556 |
|
|
|
2,556 |
|
|
|
2,556 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Current portion of long-term debt |
|
|
11 |
|
|
|
11 |
|
|
|
11 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Long-term debt |
|
|
3,559 |
|
|
|
6,854 |
|
|
|
178 |
|
|
|
471 |
|
|
|
842 |
|
|
|
5,363 |
|
| Other liabilities |
|
|
17 |
|
|
|
17 |
|
|
|
— |
|
|
|
17 |
|
|
|
— |
|
|
|
— |
|
| Foreign exchange derivative contracts |
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Natural gas derivative contracts |
|
|
36 |
|
|
|
36 |
|
|
|
14 |
|
|
|
18 |
|
|
|
4 |
|
|
|
— |
|
| |
|
|
7,710 |
|
|
|
11,005 |
|
|
|
4,290 |
|
|
|
506 |
|
|
|
846 |
|
|
|
5,363 |
|
G) NETTING ARRANGEMENTS
We enter into derivative transactions under master netting arrangements. Under these arrangements, we aggregate the amounts owed by each counterparty for all contracts
outstanding in the same currency or commodity into a single net amount receivable or payable by us or our counterparty. If a default occurs, all outstanding transactions under the arrangement are terminated and the net termination value is
receivable or payable for settlement purposes.
We record the carrying amounts of our foreign exchange derivative contracts on a gross basis; therefore the carrying
amounts do not reflect amounts subject to enforceable master netting arrangements for our foreign exchange derivative contracts. The gross amounts netted are negligible.
We record the carrying amounts of our natural gas, power and nutrient derivative contracts held under master netting arrangements on a net basis, and we reflect the
amounts subject to enforceable master netting arrangements in the carrying amount of the derivatives.
H) GAIN (LOSS) ON
DERIVATIVE FINANCIAL INSTRUMENTS INCLUDED IN EARNINGS
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
| Foreign exchange derivatives |
|
|
|
|
|
|
|
|
| Realized gain on foreign exchange derivative financial instruments |
|
|
60 |
|
|
|
6 |
|
| Unrealized gain (loss) on foreign exchange derivative financial instruments |
|
|
32 |
|
|
|
(1 |
) |
| |
|
|
92 |
|
|
|
5 |
|
| Commodity derivatives |
|
|
|
|
|
|
|
|
| Realized gain (loss) on commodity derivative financial instruments |
|
|
18 |
|
|
|
(5 |
) |
| Unrealized gain on commodity derivative financial instruments |
|
|
— |
|
|
|
16 |
|
| |
|
|
18 |
|
|
|
11 |
|
| Net gain on derivative financial instruments |
|
|
110 |
|
|
|
16 |
|
I) FAIR VALUE HIERARCHY
We determine the fair value of financial instruments classified as Level 1 using independent quoted market prices for identical instruments in active markets. We estimate
the fair value of financial instruments classified as Level 2 using quoted prices for similar instruments in active markets or prices for identical or similar instruments in markets that are not active, or using valuation techniques based on
industry-accepted third-party models, which make maximum use of market-based inputs. We classify fair value estimates that are not based on observable market data as Level 3. We consider a market active if quoted prices are readily and regularly
available and based on actual and regularly occurring market transactions. For any significant Level 3 measurements, we employ a valuation team or retain valuation experts to calculate certain measurements, and we review any third-party information
we utilize.
122 AGRIUM 2014 ANNUAL REPORT
We monitor the availability of observable market data to assess the appropriate classification of financial instruments
within the fair value hierarchy. Changes in economic conditions or market liquidity generally drive changes in the availability of observable market data. Changes in the availability of observable market data that may result in changing the
valuation technique used, are generally the cause of transfers between Level 1, Level 2 and Level 3. We have not made any transfers between Level 1 and Level 2 fair value measurements in the reporting periods ended December 31, 2014, or
December 31, 2013. We do not measure any of our financial instruments using Level 3 inputs.
Fair value measurement techniques
and inputs for financial instruments measured using Level 2 inputs
|
|
|
|
|
| Financial instrument |
|
Measurement technique |
|
Key inputs |
| Foreign exchange forward contracts, swaps and options |
|
Discounted cash flow |
|
Forward exchange rates, contract forward and interest rates, observable yield curves |
|
|
|
| Natural gas and power swaps |
|
Market comparison |
|
Current market and contractual prices, forward pricing curves, quoted forward prices, basis differentials, volatility factors and interest
rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financial instruments measured
at fair value on a recurring basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| |
|
Fair value |
|
|
Carrying
value |
|
|
Fair value |
|
|
Carrying
value |
|
| |
|
Level 1 |
|
|
Level 2 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
| Cash and cash equivalents |
|
|
— |
|
|
|
848 |
|
|
|
848 |
|
|
|
— |
|
|
|
801 |
|
|
|
801 |
|
| Accounts receivable – derivatives |
|
|
— |
|
|
|
33 |
|
|
|
33 |
|
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
| Other current financial assets – marketable securities
(a) |
|
|
24 |
|
|
|
70 |
|
|
|
94 |
|
|
|
14 |
|
|
|
90 |
|
|
|
104 |
|
| Accounts payable – derivatives |
|
|
— |
|
|
|
18 |
|
|
|
18 |
|
|
|
— |
|
|
|
2 |
|
|
|
2 |
|
| Current portion of long-term debt (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Floating rate debt – amortized cost |
|
|
— |
|
|
|
11 |
|
|
|
11 |
|
|
|
— |
|
|
|
58 |
|
|
|
58 |
|
| Long-term debt (b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Debentures – amortized cost |
|
|
— |
|
|
|
3,879 |
|
|
|
3,483 |
|
|
|
— |
|
|
|
3,124 |
|
|
|
2,989 |
|
| Fixed and floating rate debt – amortized cost |
|
|
— |
|
|
|
76 |
|
|
|
76 |
|
|
|
— |
|
|
|
77 |
|
|
|
77 |
|
| Other financial liabilities – derivatives |
|
|
— |
|
|
|
22 |
|
|
|
22 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| (a) |
Marketable securities consist of equity and fixed income securities. We determine the fair value of equity securities based on the bid price of identical instruments in active markets. We value fixed income securities
using quoted prices of instruments with similar terms and credit risk. |
| (b) |
We determine the fair value of long-term debt based on comparable debt instruments with similar maturities to our debt, adjusted where necessary to our credit spread, based on information published by financial
institutions. Carrying amount of floating rate debt approximates fair value. |
22. COMMITMENTS
OPERATING LEASES
Operating lease commitments consist primarily of
leases for railcars and contractual commitments at distribution facilities in our Wholesale business unit, vehicles and application equipment in our Retail business unit, and office equipment and property leases throughout our operations.
Commitments represent minimum payments under each agreement.
|
|
|
|
|
|
|
|
|
| Future minimum lease payments for operating leases |
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Less than one year |
|
|
281 |
|
|
|
262 |
|
| One to five years |
|
|
362 |
|
|
|
503 |
|
| More than five years |
|
|
64 |
|
|
|
97 |
|
| |
|
|
707 |
|
|
|
862 |
|
AGRIUM 2014 ANNUAL
REPORT 123
OTHER COMMITMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
| Operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term debt – interest |
|
|
189 |
|
|
|
189 |
|
|
|
182 |
|
|
|
182 |
|
|
|
148 |
|
| Cost of product sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Natural gas and other (a)(b) |
|
|
346 |
|
|
|
164 |
|
|
|
143 |
|
|
|
4 |
|
|
|
3 |
|
| Power, sulfuric acid and other (c)(d) |
|
|
217 |
|
|
|
193 |
|
|
|
150 |
|
|
|
140 |
|
|
|
41 |
|
| Purchase commitments |
|
|
93 |
|
|
|
11 |
|
|
|
5 |
|
|
|
4 |
|
|
|
— |
|
| Derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign exchange |
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Natural gas |
|
|
14 |
|
|
|
12 |
|
|
|
6 |
|
|
|
4 |
|
|
|
— |
|
| |
|
|
863 |
|
|
|
569 |
|
|
|
486 |
|
|
|
334 |
|
|
|
192 |
|
| Capital (e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term debt – principal repayments |
|
|
— |
|
|
|
— |
|
|
|
100 |
|
|
|
12 |
|
|
|
500 |
|
| Asset retirement obligations |
|
|
14 |
|
|
|
9 |
|
|
|
8 |
|
|
|
4 |
|
|
|
3 |
|
| Environmental remediation liabilities |
|
|
59 |
|
|
|
28 |
|
|
|
12 |
|
|
|
15 |
|
|
|
10 |
|
| |
|
|
73 |
|
|
|
37 |
|
|
|
120 |
|
|
|
31 |
|
|
|
513 |
|
| |
|
|
936 |
|
|
|
606 |
|
|
|
606 |
|
|
|
365 |
|
|
|
705 |
|
| (a) |
Our minimum commitments for North American natural gas purchases, which include both floating rate and fixed rate contracts, are calculated using the prevailing NYMEX forward prices for U.S. facilities and AECO forward
prices for Canadian facilities at December 31, 2014. |
| (b) |
Commitments include our proportionate share of commitments of joint ventures. Profertil has three long-term gas contracts denominated in U.S. dollars, expiring in 2017. These three contracts account for approximately 76
percent of Profertil’s gas requirements. YPF S.A., our joint venture partner in Profertil, supplies approximately 24 percent of the gas under these contracts. |
| (c) |
We have a power co-generation agreement for our Carseland facility that expires on December 31, 2026. The maximum commitment under this agreement is to purchase 60 megawatt-hours of power per hour through 2026. The
price for the power is based on a fixed charge adjusted for inflation and a variable charge based on the cost of natural gas, which is provided to the facility for power generation. |
| (d) |
Our phosphate rock supply agreement extends to 2020. Our minimum commitment is to purchase 800,000 tonnes in 2015 and 798,000 tonnes from 2016 to 2018, with subsequent volumes to be determined in 2016. The purchase
price is based on a formula that tracks finished product pricing and key published phosphate input costs. We entered into a freight contract to import phosphate rock extending to 2018, with a total commitment of $126-million at December 31,
2014. |
| (e) |
Future capital expenditures not included above are estimated at: (i) potash facility ramp-up project – $300-million to $400-million; (ii) Texas nitrogen expansion project – $265-million.
|
23. CONTINGENT LIABILITIES
From time to time, we become involved in legal or administrative proceedings related to our current and acquired businesses. Such proceedings expose us to possible
losses, and we expect our involvement in such matters to continue in the normal conduct of our business. We regularly assess the need for accounting recognition and/or disclosure of these matters. Our assessment considers the probability of adverse
judgments and the range of possible losses. We base our assessment of the probable outcome on our judgment of a number of factors including similar past experience and history, precedents, relevant financial, scientific and other evidence of each
matter, and opinions from corporate and outside counsel. We record accruals when occurrence is probable and the outcome is reasonably estimable. We may not be able to make a reliable estimate of losses or the range of possible losses when claims do
not specify an amount of damages sought, when there are numerous plaintiffs or when a case is in its early stages. We will represent our interests vigorously in all of the proceedings in which we are involved.
Legal and administrative proceedings involving possible losses are inherently complex and we apply significant judgment in estimating probable outcomes. As a result,
potential exists for adjustments to liabilities and material variance between actual costs and estimates.
Information on the amounts accrued for litigation,
environmental remediation and asset retirement are disclosed in note 18. Our assessment of specific matters at the date of issuance of these financial statements is set out on the following page.
124 AGRIUM 2014 ANNUAL REPORT
A) LITIGATION
Oil-for-Food Programme
As described in
prior years, AWB Limited, a subsidiary we acquired in 2010, is a defendant, along with 92 other parties, in a lawsuit alleging that the defendants participated in an illegal conspiracy to divert funds from the United Nations Oil-for-Food Programme
escrow account. The lawsuit seeks total damages in excess of $10-billion from the defendants, jointly and severally. The court dismissed the lawsuit in 2013. In 2014, the dismissal was upheld on appeal and the court refused the plaintiff’s
request to reconsider the dismissal. Plaintiffs have until March 2015 to seek leave to appeal the decision. Although we believe that the possibility of a material financial effect from this matter is remote, an adverse decision could have a material
adverse effect on Agrium’s consolidated financial position and results of operations. We have not accrued a liability for damages for this matter.
B) ENVIRONMENTAL CONTINGENCIES
We are
responsible for environmental remediation of certain facilities and sites. Work at these sites is in various stages of environmental management – we are assessing and investigating some sites and remediating or monitoring others. We have
established a provision for our estimated liabilities (see note 18). However, new information, including changes in regulations or results of investigations, could lead to reassessment of our exposure related to these matters. In addition, we may
revise our estimates of our future obligations because they are dependent on a number of uncertain factors including the method and extent of the remediation, as well as cost-sharing arrangements with other parties involved.
For the matters described below, at the date of issuance of these financial statements, we determined that we could not make a reliable estimate of the amount and timing
of any financial effect in excess of the amounts accrued. Reasons for this determination include complexity of the matters; early phase of most proceedings; lack of information on the nature and timing of future actions in the matters; dependency on
the completion and findings of investigations and assessments; and the lack of specific information as to the nature, extent, timing and cost of future remediation. Until we have greater clarity as to our liability and the extent of our financial
exposure, it is not practical to make a reliable estimate of the financial effect of these matters. As negotiations, discussions and assessments proceed, we may provide estimates. Events or factors that could alleviate our current inability to make
reliable estimates include further identification of allegations or demands; completion of investigations; completion of remediation phases; a ruling by a court; or initiation of substantive settlement negotiations. An adverse result on final
resolution of these matters could have a material adverse impact.
Idaho phosphate mining and processing sites
We are subject to investigations by U.S. federal and state agencies of existing and former phosphate mining and processing sites in Idaho. Nu-West Industries, Inc.
(“Nu-West”), a wholly-owned subsidiary of Agrium, has been notified of potential violations of federal and state statutes. Nu-West is working co-operatively with federal and state agencies and, depending on the site, is in the
investigation or risk assessment stage or has, for some sites, begun preliminary work under agreements with the agencies. Completion of investigations, risk assessments or preliminary work will enable Nu-West and the agencies to determine what, if
any, remediation work will be required.
Manitoba mining properties
In 1996, Agrium acquired Viridian Inc. (“Viridian”), which is now a wholly-owned Canadian subsidiary of Agrium. Viridian has retained certain liabilities
associated with the Fox Mine Site, a closed mineral processing site near Lynn Lake, Manitoba. Viridian is currently treating water draining from the site to meet provincial downstream water quality standards. Viridian has substantially completed the
investigation phase of remediation and is currently in discussions with the Province of Manitoba regarding remedial alternatives selection. Concurrence and approval from the Province of a remedial design are expected within the next 36 months. For
this matter, we have not disclosed information about the amount accrued for site remediation because disclosure of such information would seriously prejudice our position in discussions with the Province.
AGRIUM 2014 ANNUAL
REPORT 125
24. CAPITAL MANAGEMENT
POLICIES AND OBJECTIVES IN MANAGING CAPITAL
Our objectives for managing
capital are to (a) maintain a strong balance sheet and flexible capital structure to optimize the cost of capital at an acceptable level of risk; (b) support an investment grade credit rating profile; (c) improve our return on capital
employed by implementing working capital initiatives; and (d) maximize shareholder value.
We continually monitor the ratios outlined in the table below to
manage our capital.
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Net-debt to net-debt-plus-equity (%) (a) |
|
|
39 |
|
|
|
31 |
|
| Interest coverage (multiple) (b) |
|
|
13 |
|
|
|
13 |
|
| Return on operating capital employed (%) (c) |
|
|
10 |
|
|
|
15 |
|
| Return on capital employed (%) (d) |
|
|
7 |
|
|
|
11 |
|
| Average non-cash working capital to sales (%)
(e) |
|
|
14 |
|
|
|
17 |
|
| (a) |
Net-debt includes short-term debt and long-term debt, net of cash and cash equivalents. Equity consists of shareholders’ equity. For purposes of capital management, capital comprises debt and equity. We also
monitor our debt-to-capital ratio, calculated as total debt divided by the sum of total debt and total equity. For the purposes of this ratio, total debt is defined as the sum of short-term debt, long-term debt, guarantees and letters of credit, net
of cash and cash equivalents. This ratio is required to be less than or equal to 65 percent to satisfy certain debt covenants. |
| (b) |
Interest coverage is the last 12 months’ EBITDA divided by finance costs, which includes finance costs related to long-term debt plus other finance costs. |
| (c) |
Last 12 months’ earnings from continuing operations before finance costs and income taxes (“EBIT”) less income taxes at a tax rate of 27 percent (2013 – 27 percent) divided by rolling four quarter
average operating capital employed. Operating capital employed includes non-cash working capital, property, plant and equipment, investments in associates and joint ventures, and other assets. |
| (d) |
Last 12 months’ EBIT less income taxes at a tax rate of 27 percent (2013 – 27 percent) divided by rolling four quarter average capital employed. Capital employed includes operating capital employed,
intangibles and goodwill. |
| (e) |
Rolling four quarter average non-cash working capital divided by sales. |
| (f) |
Some measures included in this note are additional IFRS financial measures that do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.
|
Our strategy in managing capital is to maintain our ratio of net-debt to net-debt-plus-equity in a target range of 35 percent to 45 percent, return on
operating capital employed at a target of 12 percent and average non-cash working capital to sales of approximately 16 percent. To maintain or adjust our capital structure, we may adjust the amount of dividends paid to shareholders, return capital
to shareholders, issue new shares, or issue or redeem debt. Our authorized share capital consists of unlimited common shares without par value and unlimited preferred shares. We have targeted paying annual dividends of 40 percent to 50 percent of
free cash flow. We define free cash flow as cash provided by operating activities, less sustaining capital expenditures.
We maintain a base shelf prospectus, which
permits issuance in Canada and the United States of common shares, debt and other securities up to $2.5-billion, less the offering price of securities issued between the 2014 filing date of the prospectus and May 2016. Issuance of further securities
under the base shelf prospectus requires filing a prospectus supplement and is subject to the availability of funding in capital markets.
Our revolving credit
facilities require that we maintain specific interest coverage and debt-to-capital ratios, as well as other non-financial covenants as defined in our credit agreements. We were in compliance with all covenants at December 31, 2014.
PURCHASES OF AGRIUM SHARES
During 2013, we purchased five million
shares for total consideration of $498-million under our Normal Course Issuer Bid (“NCIB”). The NCIB expired on May 20, 2014 with no additional shares purchased for the year ended December 31, 2014.
126 AGRIUM 2014 ANNUAL REPORT
DIVIDENDS DECLARED AND PAID
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dividends |
|
| December 31, |
|
| |
|
2014 |
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
|
|
| Declared |
|
|
Paid to |
|
|
|
|
Declared |
|
|
Paid to |
|
|
|
| Effective |
|
Per share |
|
|
shareholders |
|
Total |
|
|
Effective |
|
Per share |
|
|
shareholders |
|
Total |
|
| February 21, 2014 |
|
|
0.75 |
|
|
April 17, 2014 |
|
|
108 |
|
|
February 22, 2013 |
|
|
0.50 |
|
|
April 18, 2013 |
|
|
75 |
|
| May 7, 2014 |
|
|
0.75 |
|
|
July 17, 2014 |
|
|
108 |
|
|
April 9, 2013 |
|
|
0.50 |
|
|
July 18, 2013 |
|
|
74 |
|
| August 7, 2014 |
|
|
0.75 |
|
|
October 16, 2014 |
|
|
107 |
|
|
August 8, 2013 |
|
|
0.75 |
|
|
October 17, 2013 |
|
|
110 |
|
| December 11, 2014 |
|
|
0.78 |
|
|
January 21, 2015 |
|
|
112 |
|
|
December 12, 2013 |
|
|
0.75 |
|
|
January 16, 2014 |
|
|
108 |
|
| |
|
|
3.03 |
|
|
|
|
|
435 |
|
|
|
|
|
2.50 |
|
|
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dividends payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
|
|
|
2014 |
|
|
|
|
|
|
|
|
2013 |
|
|
|
|
| |
|
Declared |
|
|
|
|
|
Declared |
|
|
|
|
| |
|
Prior
fiscal year |
|
|
Current
fiscal year |
|
|
Total |
|
|
Prior
fiscal year |
|
|
Current
fiscal year |
|
|
Total |
|
| Balance, beginning of year |
|
|
108 |
|
|
|
— |
|
|
|
108 |
|
|
|
75 |
|
|
|
— |
|
|
|
75 |
|
| Declared |
|
|
N/A |
|
|
|
435 |
|
|
|
435 |
|
|
|
N/A |
|
|
|
367 |
|
|
|
367 |
|
| Paid in cash |
|
|
(108 |
) |
|
|
(322 |
) |
|
|
(430 |
) |
|
|
(75 |
) |
|
|
(259 |
) |
|
|
(334 |
) |
| Foreign currency remeasurement |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
— |
|
| Balance, end of year |
|
|
|
|
|
|
|
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
108 |
|
25. OPERATING SEGMENTS
Our operating segments, described in note 1, are defined by the organization and reporting structure through which we operate our business. We have not aggregated any
operating segments in determining our reportable segments. Our chief operating decision maker (“CODM” – our senior leadership team, consisting of our CEO and all of our Executive Vice-Presidents and Senior Vice-Presidents) measures
performance and allocates resources based on segment earnings before finance costs, interest income and income taxes. The CODM reviews internal reports reflecting the information included in the following tables on a regular basis. The reports
reviewed by the CODM reflect operating information including sales, gross margins, and net earnings before finance costs, interest income and income taxes. On a regular basis, the CODM also reviews Retail sales by product line, but not Retail net
earnings information by product line, reflecting how Retail aggregates expenses and net earnings in its accounting records and financial reports. The CODM does not regularly review (a) financial information aggregated on any other product line
or geographic basis; (b) segment financing costs, income taxes or balance sheet information; or (c) unallocated Wholesale overhead costs. The CODM believes that this information is most relevant in evaluating the results of certain
segments relative to other entities that operate in similar industries.
The accounting policies of segments are the same as the accounting policies described in note
26. We record sales between segments at prices equivalent to those charged to third parties. We eliminate such sales on consolidation. We continually monitor changes in facts and circumstances that could cause a change in the composition of our
operating segments, as determined by the information regularly reviewed by the CODM. We report a non-operating segment, “Other”, for inter-segment eliminations and corporate functions.
AGRIUM 2014 ANNUAL
REPORT 127
|
|
|
|
|
|
|
|
|
| Segment operations |
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Sales |
|
|
|
|
|
|
|
|
| Retail |
|
|
|
|
|
|
|
|
| North America |
|
|
10,463 |
|
|
|
9,329 |
|
| International |
|
|
2,518 |
|
|
|
2,584 |
|
| Total Retail |
|
|
12,981 |
|
|
|
11,913 |
|
| Wholesale |
|
|
|
|
|
|
|
|
| Nitrogen |
|
|
1,482 |
|
|
|
1,724 |
|
| Potash |
|
|
391 |
|
|
|
564 |
|
| Phosphate |
|
|
701 |
|
|
|
654 |
|
| Product purchased for resale |
|
|
921 |
|
|
|
1,131 |
|
| Ammonium sulfate, ESN and other |
|
|
478 |
|
|
|
529 |
|
| Total Wholesale |
|
|
3,973 |
|
|
|
4,602 |
|
| Other |
|
|
(912 |
) |
|
|
(788 |
) |
| |
|
|
16,042 |
|
|
|
15,727 |
|
| Inter-segment sales |
|
|
|
|
|
|
|
|
| Retail |
|
|
14 |
|
|
|
17 |
|
| Wholesale |
|
|
898 |
|
|
|
771 |
|
| |
|
|
912 |
|
|
|
788 |
|
| Earnings before income taxes |
|
|
|
|
|
|
|
|
| Retail |
|
|
|
|
|
|
|
|
| North America |
|
|
723 |
|
|
|
940 |
|
| International |
|
|
91 |
|
|
|
(192 |
) |
| Total Retail |
|
|
814 |
|
|
|
748 |
|
| Wholesale |
|
|
|
|
|
|
|
|
| Nitrogen |
|
|
381 |
|
|
|
672 |
|
| Potash |
|
|
70 |
|
|
|
270 |
|
| Phosphate |
|
|
76 |
|
|
|
67 |
|
| Product purchased for resale |
|
|
25 |
|
|
|
9 |
|
| Ammonium sulfate, ESN and other |
|
|
103 |
|
|
|
124 |
|
|
|
|
655 |
|
|
|
1,142 |
|
| Unallocated expenses |
|
|
102 |
|
|
|
97 |
|
| Total Wholesale |
|
|
553 |
|
|
|
1,045 |
|
| Other |
|
|
(207 |
) |
|
|
(163 |
) |
| Earnings before finance costs and income taxes |
|
|
1,160 |
|
|
|
1,630 |
|
| Finance costs related to long-term debt |
|
|
62 |
|
|
|
90 |
|
| Other finance costs |
|
|
70 |
|
|
|
66 |
|
| Earnings before income taxes |
|
|
1,028 |
|
|
|
1,474 |
|
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Sales |
|
|
|
|
|
|
|
|
| Retail |
|
|
|
|
|
|
|
|
| Crop nutrients |
|
|
5,222 |
|
|
|
4,993 |
|
| Crop protection products |
|
|
4,613 |
|
|
|
4,204 |
|
| Seed |
|
|
1,481 |
|
|
|
1,258 |
|
| Merchandise |
|
|
871 |
|
|
|
612 |
|
| Services and other |
|
|
794 |
|
|
|
846 |
|
| |
|
|
12,981 |
|
|
|
11,913 |
|
128 AGRIUM 2014 ANNUAL REPORT
|
|
|
|
|
|
|
|
|
| Entity-wide disclosures |
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| Total assets |
|
|
|
|
|
|
|
|
| Retail |
|
|
|
|
|
|
|
|
| North America |
|
|
7,915 |
|
|
|
7,658 |
|
| International |
|
|
1,197 |
|
|
|
1,331 |
|
| Total Retail |
|
|
9,112 |
|
|
|
8,989 |
|
| Wholesale |
|
|
|
|
|
|
|
|
| Nitrogen |
|
|
1,916 |
|
|
|
1,391 |
|
| Potash |
|
|
3,666 |
|
|
|
2,645 |
|
| Phosphate |
|
|
734 |
|
|
|
621 |
|
| Product purchased for resale |
|
|
220 |
|
|
|
321 |
|
| Ammonium sulfate, ESN and other |
|
|
345 |
|
|
|
702 |
|
| Total Wholesale |
|
|
6,881 |
|
|
|
5,680 |
|
| Other |
|
|
1,115 |
|
|
|
1,106 |
|
| Assets held for sale |
|
|
— |
|
|
|
202 |
|
| |
|
|
17,108 |
|
|
|
15,977 |
|
| Investments in associates and joint ventures |
|
|
|
|
|
|
|
|
| Retail |
|
|
|
|
|
|
|
|
| North America |
|
|
36 |
|
|
|
34 |
|
| International |
|
|
38 |
|
|
|
44 |
|
| Total Retail |
|
|
74 |
|
|
|
78 |
|
| Wholesale |
|
|
|
|
|
|
|
|
| Nitrogen |
|
|
498 |
|
|
|
557 |
|
| Product purchased for resale |
|
|
4 |
|
|
|
4 |
|
| Total Wholesale |
|
|
502 |
|
|
|
561 |
|
| |
|
|
576 |
|
|
|
639 |
|
| Earnings (loss) from associates and joint ventures |
|
|
|
|
|
|
|
|
| Retail |
|
|
|
|
|
|
|
|
| North America |
|
|
3 |
|
|
|
3 |
|
| International |
|
|
3 |
|
|
|
6 |
|
| Total Retail |
|
|
6 |
|
|
|
9 |
|
| Wholesale |
|
|
|
|
|
|
|
|
| Nitrogen |
|
|
17 |
|
|
|
60 |
|
| Product purchased for resale |
|
|
1 |
|
|
|
1 |
|
| Ammonium sulfate, ESN and other |
|
|
— |
|
|
|
(1 |
) |
| Total Wholesale |
|
|
18 |
|
|
|
60 |
|
| Other |
|
|
(1 |
) |
|
|
(1 |
) |
| |
|
|
23 |
|
|
|
68 |
|
AGRIUM 2014 ANNUAL
REPORT 129
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| Additions to non-current assets (a) |
|
|
|
|
|
|
|
|
| Retail |
|
|
|
|
|
|
|
|
| North America |
|
|
399 |
|
|
|
745 |
|
| International |
|
|
32 |
|
|
|
51 |
|
| Total Retail |
|
|
431 |
|
|
|
796 |
|
| Wholesale |
|
|
|
|
|
|
|
|
| Nitrogen |
|
|
506 |
|
|
|
298 |
|
| Potash |
|
|
1,356 |
|
|
|
1,213 |
|
| Phosphate |
|
|
26 |
|
|
|
113 |
|
| Product purchased for resale |
|
|
— |
|
|
|
2 |
|
| Ammonium sulfate, ESN and other |
|
|
19 |
|
|
|
40 |
|
| Total Wholesale |
|
|
1,907 |
|
|
|
1,666 |
|
| Other |
|
|
5 |
|
|
|
13 |
|
| |
|
|
2,343 |
|
|
|
2,475 |
|
| (a) |
Includes property, plant and equipment, intangibles and goodwill. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Significant non-cash items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| |
|
Depreciation
and
amortization |
|
|
Share-based
payments
expense |
|
|
Depreciation
and
amortization |
|
|
Share-based
payments
recovery |
|
|
Purchase
gain |
|
|
Goodwill
impairment |
|
| Retail |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| North America |
|
|
257 |
|
|
|
— |
|
|
|
202 |
|
|
|
— |
|
|
|
(257 |
) |
|
|
— |
|
| International |
|
|
48 |
|
|
|
— |
|
|
|
36 |
|
|
|
— |
|
|
|
— |
|
|
|
220 |
|
| Total Retail |
|
|
305 |
|
|
|
— |
|
|
|
238 |
|
|
|
— |
|
|
|
(257 |
) |
|
|
220 |
|
| Wholesale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nitrogen |
|
|
86 |
|
|
|
— |
|
|
|
77 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Potash |
|
|
65 |
|
|
|
— |
|
|
|
50 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Phosphate |
|
|
52 |
|
|
|
— |
|
|
|
53 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Product purchased for resale |
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Ammonium sulfate, ESN and other |
|
|
19 |
|
|
|
— |
|
|
|
19 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
223 |
|
|
|
— |
|
|
|
200 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Unallocated expenses |
|
|
7 |
|
|
|
— |
|
|
|
17 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Total Wholesale |
|
|
230 |
|
|
|
— |
|
|
|
217 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Other |
|
|
15 |
|
|
|
50 |
|
|
|
17 |
|
|
|
(7 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
550 |
|
|
|
50 |
|
|
|
472 |
|
|
|
(7 |
) |
|
|
(257 |
) |
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Key data by geographic region |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
|
2013 |
|
| |
|
Sales (a) |
|
|
Non-current
assets
(b) |
|
|
Sales (a) |
|
|
Non-current
assets
(b) |
|
| Canada |
|
|
3,227 |
|
|
|
4,689 |
|
|
|
2,119 |
|
|
|
3,738 |
|
| United States |
|
|
9,702 |
|
|
|
4,017 |
|
|
|
10,181 |
|
|
|
3,574 |
|
| Europe |
|
|
584 |
|
|
|
34 |
|
|
|
809 |
|
|
|
40 |
|
| South America |
|
|
406 |
|
|
|
278 |
|
|
|
441 |
|
|
|
331 |
|
| Australia |
|
|
2,095 |
|
|
|
281 |
|
|
|
2,075 |
|
|
|
345 |
|
| Other |
|
|
28 |
|
|
|
267 |
|
|
|
102 |
|
|
|
292 |
|
| |
|
|
16,042 |
|
|
|
9,566 |
|
|
|
15,727 |
|
|
|
8,320 |
|
| (a) |
Sales by location of third-party customers. |
| (b) |
Excludes financial instruments and deferred tax assets. |
130 AGRIUM 2014 ANNUAL REPORT
26. ACCOUNTING POLICIES, JUDGMENTS, ASSUMPTIONS AND
ESTIMATES
IFRS requires us to describe accounting policies that we use that are relevant to an understanding of our financial statements if we
have selected the policies from alternatives allowed under IFRS. Without repeating or restating the actual text of the accounting standards, we have disclosed polices if disclosure would assist users in understanding how we reflect transactions and
other events and conditions in our financial statements.
In addition, IFRS requires us to describe a) judgments that we have made in the process of applying
our accounting and b) information about the assumptions and estimates we make in applying our accounting policies.
| A) |
ACCOUNTING POLICY CHOICES REQUIRING JUDGMENTS THAT HAVE THE MOST SIGNIFICANT EFFECT ON THE AMOUNTS RECOGNIZED IN THE FINANCIAL STATEMENTS |
|
|
|
|
|
| Financial statement area |
|
Accounting policy judgment |
|
Judgment factors |
|
|
|
| Long-lived assets
(IAS 16, IAS 36, IAS 38) |
|
For property, plant and equipment and finite-lived intangible assets, we review for indicators of
impairment at each reporting period. We perform this review at the CGU level. A CGU may be a single asset or a group of assets if we cannot identify independent cash flows from an asset. If indicators of impairment of a CGU exist, we will calculate
its recoverable amount. We perform an impairment test of goodwill and indefinite-lived
intangibles in the fourth quarter annually or earlier if indicators of impairment exist. We allocate goodwill to CGU groups based on the level at which goodwill is monitored internally by management. This level does not exceed the level of our
operating segments before aggregation. |
|
We determine CGUs based on geographic regions, economic and commercial influences, product lines,
extent of shared infrastructure and interdependence of cash flows. We grouped (a) Wholesale assets by product lines because of differing production processes and inputs for each nutrient; and (b) Retail assets by geographic regions based on
customers, products and distribution methods. We have allocated substantially all of
the carrying amount of goodwill to two groups of CGUs within the Retail business unit: Retail – North America and Retail – Australia. |
|
|
|
| Foreign currency (IAS 21) |
|
The functional currency of our operations is generally the local currency. Our presentation currency for the consolidated financial statements is the
U.S. dollar. |
|
In determining the functional currency of our operations, we primarily considered the currency that determines the pricing of transactions, rather than
focusing on the currency in which transactions are denominated. We also make judgments about whether an entity may have multiple branches with different functional currencies. |
|
|
|
| Provisions (IAS 37) |
|
We distinguish between provisions and contingent liabilities based on the probability of an outflow of resources embodying economic benefits and the
availability of information to make a sufficiently reliable estimate. We make judgments as to whether an obligation exists and whether an outflow of resources embodying economic benefits for a liability of uncertain timing or amount is probable, not
probable, or remote. These judgments determine whether we recognize or disclose an amount in the financial statements. |
|
We consider all available information relevant to each specific matter. In 2014, we continued to review our litigation, asset retirement and
environmental remediation provisions and determined that our current provisions are our best estimate of future outflows. Accordingly, we did not make any significant changes to our existing provisions. |
|
|
|
| Deferred income tax assets
(IAS 12) |
|
We recognize deferred tax assets only to the extent we consider it probable that we will recover
those assets. Our recognition of deferred tax assets affects the amount of our tax provision.
We review the carrying amount of deferred tax assets at each reporting date to assess whether it remains probable that sufficient taxable earnings will be
available to allow us to utilize all or part of the deferred tax asset. |
|
We make judgments about when deferred tax assets are likely to reverse and assumptions as to whether or not there will be sufficient taxable
earnings available to offset the tax assets when they do reverse. In determining whether to establish a valuation allowance against a deferred tax asset, we perform a continual evaluation of all positive and negative evidence. Our evaluation
includes the magnitude and duration of past losses, current profitability and whether profitability is sustainable, and our earnings forecast. |
AGRIUM 2014 ANNUAL
REPORT 131
B) ASSUMPTIONS AND ESTIMATES IN APPLYING ACCOUNTING POLICIES
In preparing financial statements, we also make assumptions and estimates. We base our assumptions and estimates on our historical experience, current trends and all
available information that we believe is relevant at the time we prepare the financial statements. However, we cannot determine future events and their effects with certainty. Accordingly, as confirming events occur, actual results could ultimately
differ from our assumptions and estimates. Such differences could be material. We have provided sensitivity analysis elsewhere in the notes to these financial statements in instances where it is relevant to understanding management’s
assumptions about the future. Sensitivity analysis presents the impact of reasonably possible changes to one assumption while holding other assumptions constant. Accordingly, such analysis provides only an approximation of the sensitivity to the
individual assumptions shown and does not reflect the full impact on our financial position and results of operations.
We consider estimates made in recording
inventory provisions, rebates, impairment of goodwill and indefinite lived intangible assets, income taxes, share-based compensation, and business combinations to be critical accounting estimates that require our most difficult, subjective, and
complex assumptions. In addition to these critical estimates, we have described other estimates and assumptions that accompany our accounting policy choices to assist users in understanding how we record transactions in the financial statements.
|
|
|
|
|
| Financial statement area |
|
Accounting policy |
|
Assumptions and estimation uncertainty |
|
|
|
| Business combinations (IFRS 3) |
|
We recognize the consideration transferred, assets acquired and liabilities assumed at their acquisition date fair values, recognizing any goodwill
acquired or a gain on a purchase, and any non-controlling interest in the acquired business. For each business combination, we elect to measure the non-controlling interest in the acquired entity either at fair value or at the proportionate share of
the acquiree’s identifiable net assets. |
|
Our purchase price allocation process involves uncertainty as we make assumptions to identify tangible and intangible assets acquired, liabilities
assumed, and their fair values. To determine fair values, we use quoted market prices or widely accepted valuation techniques. These include discounted cash flow analyses and market multiple analyses, based on assumptions about economic conditions,
interest rates, industry economic factors, business strategies, and risks specific to the acquired asset or liability. |
|
|
|
| Rebates (IAS 2) |
|
We account for rebates and prepay discounts as a reduction of the prices of the suppliers’
products. Rebates based on the amount of materials purchased reduce cost of product as we sell inventory. We offset rebates based on sales volume to cost of product sold if we have earned the rebate based on sales volume of products.
We accrue rebates that are probable and that we can reasonably estimate. We accrue rebates
that are not probable or estimable when we achieve certain milestones. We accrue rebates not covered by binding agreements or published vendor programs when we obtain conclusive documentation of right of receipt. |
|
We record accruals for some rebates by estimating the point at which we will have completed our performance under an agreement. Due to the complexity
and diversity of individual vendor agreements, we analyze and review historical trends to apply rates negotiated with our vendors to estimated and actual purchase volumes to determine accruals. Estimated amounts accrued throughout the year could be
impacted if actual purchase volumes differ from projected volumes. |
|
|
|
| Inventories (IAS 2) |
|
We measure inventories at the lower of cost and net realizable value.
Wholesale inventories consist primarily of crop nutrients, operating supplies and raw
materials, including both direct and indirect production and purchase costs, depreciation and amortization of assets employed directly in production, and freight to transport product to storage facilities. Operating supplies include catalysts used
in the production process, materials used for repairs and maintenance, and other supplies.
Retail inventories consist primarily of crop nutrients, crop protection products, seed and merchandise and include the cost of delivery to move the product to
storage facilities. |
|
Calculating the net realizable value of inventories requires estimates and assumptions about a combination of interrelated factors affecting forecasted
selling prices, including demand and supply variables. Demand variables include grain and oilseed prices, stock-to-use ratios and changes in inventories in distribution channels. Supply variables include forecasted prices of raw materials such as
natural gas, operating rates and crop nutrient inventory levels. |
132 AGRIUM 2014 ANNUAL REPORT
|
|
|
|
|
|
|
| Financial statement area |
|
Accounting policy |
|
Assumptions and estimation uncertainty |
|
|
|
| Impairment of goodwill and indefinite lived intangible assets (IAS 36) |
|
For each CGU group to which we have allocated goodwill, we carry out an impairment test by calculating
the recoverable amount. The recoverable amount is the greater of FVLCD or value in use (“VIU”).
In assessing FVLCD, we are not required to use a specific approach. For some calculations, we may use an income approach with a discounted cash flow technique.
For other calculations, we may use a market approach based on prices and other information generated by market transactions. We deduct the incremental cost of disposing the asset in determining FVLCD.
In assessing VIU, we discount the estimated future cash flows 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 or CGU. |
|
We make assumptions underlying projected cash flows used in our impairment test based on our annual five-year plan, which contains
information on sales (based on external and internal forecasts), assumed production levels and costs, product pricing, capital expenditures and allocation of corporate costs. Various factors could affect the estimated recoverable amount of a CGU,
including changes in market conditions such as crop nutrient prices, climate, planted acreage and global production capacity additions, interest rates, inflation rates, growth rates, foreign currency exchange rates, tariffs, costs and capital
expenditures. We base the long-term future growth rate that we use to estimate terminal value on past performance and management’s expectations of market development. Where necessary, we adjust the above to reflect assumptions that independent
market participants would apply under the FVLCD approach. |
|
|
|
| Property, plant and equipment (IAS 16, IAS 23, IAS 36, IAS 37) |
|
We present property, plant and equipment at cost net of accumulated depreciation and
accumulated impairment losses. We capitalize components requiring replacement at regular intervals, major inspections and overhauls, spare parts used in connection with specific equipment and standby equipment. We capitalize such costs if they meet
the asset recognition criteria of IAS 16 and the asset has an estimated useful life of greater than one year. We depreciate each component over the lesser of its estimated useful life or the remaining period until the next replacement or major
inspection or overhaul. If the construction or preparation for use of property, plant or equipment extends over a period of longer than 12 months, we capitalize borrowing costs up to the date of completion as part of the cost of acquisition or
construction. We move an asset from the construction phase to the production phase and
begin depreciation when the asset is available for use in the manner intended by management. |
|
We depreciate property, plant and equipment on a straight-line basis using the following estimated useful lives, which we reassess
annually: |
|
|
Buildings and improvements |
|
3 – 55 years |
|
|
Machinery and equipment |
|
1 – 55 years |
|
|
Other |
|
2 – 45 years |
|
|
We make assumptions
about the use of an asset based on the level of capital expenditures compared to construction cost estimates; completion of a reasonable period of testing of the asset; ability to produce product in saleable form within specifications; and ability
to sustain ongoing production. During 2014, we reassessed the useful lives of property,
plant and equipment in our Retail business unit based on observations of the rate of consumption through its existing use. Current and expected reduction in depreciation expense is 2014 – $22-million, 2015 – $73-million, 2016 –
$38-million, and 2017 – $16-million. |
|
|
|
| Intangible assets other than goodwill (IAS 38) |
|
We initially measure finite-lived intangible assets at cost and amortize them over their estimated useful lives, except for
intangible assets with indefinite useful lives. We capitalize costs for internally generated intangible assets when costs meet criteria for feasibility. We expense research or development expenditures that do not meet the capitalization
criteria. |
|
We amortize finite-lived intangible assets on a straight-line basis using the following estimated useful lives, which we reassess
annually: |
|
|
|
Trade names |
|
5 – 10 years |
|
|
|
Customer relationships |
|
5 – 10 years |
|
|
|
Technology |
|
3 – 7 years |
| |
|
|
Other |
|
5 – 20 years |
AGRIUM 2014 ANNUAL
REPORT 133
|
|
|
|
|
| Financial statement area |
|
Accounting policy |
|
Assumptions and estimation uncertainty |
|
|
|
| Revenue recognition (IAS 18) |
|
We recognize revenue when we meet the requirements of IAS 18. For the sale of goods, risks and rewards
of ownership pass to our customers based on the contractual terms of the arrangement. In most cases, the terms of the arrangement are such that risks and rewards transfer when product is:
• Picked up by the
customer;
• Delivered to the
destination specified by our customer; • Delivered to the vessel on which the product will be shipped; or
• Delivered to the
destination port. We recognize revenue for services when the service is complete.
We deduct provisions for returns, trade discounts, and rebates from revenue. We recognize interest income using the effective interest method. |
|
We make various estimates to recognize revenue, including our ability to collect consideration for a sale, the impact of estimated customer sales
returns and some customer incentive programs, whether we are acting as an agent or principal in a sale, and whether a service is complete. We make estimates based on historical and forecasted data, contractual terms and current conditions. Because
of the nature of our sales of goods and services, any single estimate would have only a negligible impact on revenue recognition. |
|
|
|
| Assets held for sale and discontinued operations (IFRS 5) |
|
We measure assets held for sale at the lower of their carrying amount and FVLCD. We have disclosed information about discontinued operations in note
3. |
|
For assets held for sale, we make estimates of the value of the asset and when we will complete the sale. We estimate FVLCD using assumptions an
independent market participant would use about the future cash flows of the asset and its eventual disposal. Assumptions include production or sales volumes, sales prices and discount rates. |
|
|
|
| Income taxes (IAS 12) |
|
In determining our provision for income taxes, we use an annual effective income tax rate based on
annual income, permanent differences between book and tax income, and substantially enacted income tax rates. We adjust our annual effective income tax rate as additional information on outcomes or events becomes available.
We recognize a tax benefit or liability for an uncertain tax position when our best
estimate is that the position is more likely than not to be sustained on examination, based on a qualitative assessment of all relevant factors. |
|
We make assumptions to estimate the exposures associated with our various filing positions. We
recognize a provision when it becomes probable that we will incur additional tax liabilities for such exposures. Changes in tax law, the level and geographic mix of earnings and the results of tax audits also affect our effective income tax
rate. Determining tax provisions requires that we make assumptions about the ultimate
outcome of a filing position, which can change over time depending on facts and circumstances. |
|
|
|
| Employee future benefits (IAS 19) |
|
We establish a liability when an employee has provided service in return for benefits that we expect to pay in the future. For defined benefit pension
plans, we recognize a defined benefit obligation, based on actuarial assumptions, net of the fair value of plan assets. |
|
We use actuarial assumptions to determine the obligations for employee future benefits at each reporting period. These assumptions include the discount
rate, expected long-term rate of return on assets, rate of increase in compensation levels, mortality rates, and health care cost trend rates. We have provided detailed information on the assumptions used in note 17. |
|
|
|
| Leases (IAS 17, IFRIC 4) |
|
An arrangement may be or contain a lease according to the substance of the arrangement. This is the case if the arrangement is dependent on the use of
an asset or conveys a right to use an asset, even if not explicitly stated. |
|
Leasing arrangements primarily relate to railcars and other rolling stock, which we have classified as operating leases. In making this determination,
we primarily considered that the lease term does not constitute a major part of the asset’s economic life, that ownership does not transfer to us at the end of the lease term, and that the present value of minimum lease payments does not
represent a significant portion of the fair value of the asset at the inception of the lease. |
134 AGRIUM 2014 ANNUAL REPORT
|
|
|
|
|
| Financial statement area |
|
Accounting policy |
|
Assumptions and estimation uncertainty |
|
|
|
| Provisions (IAS 37) |
|
Our most significant provisions relate to litigation, asset retirement and environmental remediation
provisions. We measure provisions (liabilities of uncertain timing or amount) at the
best estimate of the expenditure required to settle the liability. We take risks and uncertainties into account when measuring a provision. We discount a provision to its present value using a pre-tax, risk-free discount rate. We do not recognize
contingent liabilities (obligations that we cannot measure with sufficient reliability or obligations for which it is not probable that an outflow of resources will be required to settle the obligation). We have described policy choices applying to
provisions and contingent liabilities in notes 18 and 23. |
|
In estimating the outcome of litigation, we make assumptions including experience with similar matters,
past history, precedents, evidence and facts specific to the matter. These assumptions determine whether we require a provision or disclosure in the financial statements.
In determining provisions for asset retirement and environmental remediation, we assess factors such as the extent of contamination, the nature and timing of the
work we are obligated to perform or pay for, changes to environmental laws and regulations, and whether we will share any of the costs with third parties. |
|
|
|
| Share-based compensation (IFRS 2) |
|
We recognize share-based payment transactions when we obtain services from an employee. We expect to settle our share-based compensation plans in cash.
We measure share-based compensation at the fair value of the liability, and remeasure liabilities at the end of each reporting period and at the date of settlement. We have described our policy choices applying to our plans in note 20. |
|
In valuing share-based payment transactions and liabilities, we make assumptions about the future volatility of our share price, expected dividend
yield, future employee turnover rates, future employee stock option exercise behavior and corporate performance. Such estimates and assumptions are inherently uncertain. |
|
|
|
| Financial instruments (IFRS 9) |
|
Refer to section c) below for a full description of our accounting policy, newly adopted in 2014. |
|
Refer to note 21 for significant assumptions and estimates. |
C) IMPACT OF ADOPTION OF IFRS 9 (2013)
On adoption of IFRS 9, in accordance with its transitional provisions, we have not restated prior periods but have classified the financial assets that we held at
January 1, 2014, retrospectively based on the new classification requirements and the characteristics of each financial instrument at the transition date. Adoption of IFRS 9 resulted in balance sheet reclassifications without impact to
earnings.
Accounting policy changes adopted under IFRS 9 Financial Instruments
We classify and measure financial assets on initial recognition as described below.
|
|
|
| Characteristics of financial instrument |
|
Category on
initial recognition |
|
|
| If the objective of our business model for the instrument or group of instruments is to: |
|
Amortized cost |
|
|
| —
Hold the asset to collect the contractual cash flows; and |
|
|
|
|
| —
The contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest. |
|
|
|
|
| All financial instruments not at amortized cost |
|
Fair value |
AGRIUM 2014 ANNUAL
REPORT 135
|
|
|
|
|
|
|
| |
|
Fair value through profit or loss
(“FVTPL”) |
|
Fair value through other
comprehensive income (“FVTOCI”) |
|
Financial assets and liabilities
at amortized cost (“AC”) |
| Instrument type |
|
Debt, equity or derivative |
|
Equity |
|
Debt |
| Measurement |
|
Fair value |
|
Fair value |
|
Amortized cost (c) |
| Fair value gains |
|
Profit or loss |
|
Other comprehensive income (a)(b) |
|
— |
| and losses |
|
|
|
|
|
|
| Interest and dividends |
|
Profit or loss |
|
Profit or loss |
|
Profit or loss: effective interest rate |
| Impairment |
|
Profit or loss (assets) |
|
Other comprehensive income (b) |
|
Profit or loss (assets) |
| Foreign exchange |
|
Profit or loss |
|
Other comprehensive income (b) |
|
Profit or loss |
| Transaction costs |
|
Profit or loss |
|
Included in cost of instrument |
|
Included in cost of instrument |
| (a) |
For equity investments not held for trading, we may make an irrevocable election at initial recognition to recognize changes in fair value through other comprehensive income rather than profit or loss. We did not make
any such elections. |
| (b) |
If we elect to present unrealized and realized fair value gains and losses on equity investments in other comprehensive income, there is no subsequent recycling of fair value gains and losses to profit or loss. We would
recognize dividends from such investments in profit or loss as long as they represent a return on investment. |
| (c) |
We may make an election under certain circumstances to irrevocably designate a financial asset or financial liability as measured at fair value. We did not make any such elections. |
For financial liabilities, IFRS 9 retains most of the IAS 39 requirements. Because we have not chosen the option of designating any financial liabilities at fair value
through profit or loss and we do not have embedded derivatives, the adoption of IFRS 9 (2010) did not impact our accounting policies for financial liabilities or derivative financial instruments.
We recognize purchases and sales of financial assets on the trade date, which is the date on which we commit to purchase or sell the asset. We derecognize financial
assets when the rights to receive cash flows from the investments have expired or we have transferred them, and we have transferred substantially all risks and rewards of ownership. We recognize derivative contracts with physical delivery that meet
certain conditions on the settlement date.
Classification of financial instruments
|
|
|
|
|
| Financial instrument |
|
Category under IAS 39 |
|
Category under IFRS 9 |
| Financial assets |
|
|
|
|
| Cash and cash equivalents (a) |
|
FVTPL |
|
AC |
| Accounts receivable – trade (a) |
|
L&R |
|
AC |
| Accounts receivable – derivatives |
|
FVTPL |
|
FVTPL |
| Other financial assets – marketable securities (b) |
|
AFS |
|
FVTPL |
| Other financial assets – receivables |
|
L&R |
|
AC |
| Other financial assets – investments (c) |
|
AFS |
|
AC |
| Other financial assets – derivatives |
|
FVTPL |
|
FVTPL |
| Financial liabilities |
|
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|
|
| Short-term debt (a) |
|
AC |
|
AC |
| Accounts payable – trade (a) |
|
AC |
|
AC |
| Accounts payable – derivatives |
|
FVTPL |
|
FVTPL |
| Long-term debt |
|
AC |
|
AC |
| Other financial liabilities |
|
AC |
|
AC |
| Other financial liabilities – derivatives |
|
FVTPL |
|
FVTPL |
| (a) |
Carrying amount approximates fair value due to the short-term nature of the instruments. |
| (b) |
We reclassified marketable securities of $104-million classified as current assets available for sale at January 1, 2014, to fair value through profit or loss ($95-million) and amortized cost ($9-million) without
any fair value gain or loss on reclassification. We transferred net accumulated fair value losses of $8-million on these securities classified as available for sale at January 1, 2014, to retained earnings. |
| (c) |
We reclassified investments of $12-million classified as non-current assets available for sale at January 1, 2014, to amortized cost without any gain or loss on reclassification. |
136 AGRIUM 2014 ANNUAL REPORT
D) OTHER RECENT ACCOUNTING PRONOUNCEMENTS
The International Accounting Standards Board has issued the following accounting pronouncements, which either have been adopted, or will be adopted in the future, and
which could have a material impact.
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| New or amended |
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Standard/
interpretation |
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Description |
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Agrium’s date and method
of adoption |
|
Impact |
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| New |
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IFRS 15 |
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Revenue from Contracts with Customers establishes a five-step model that will apply to revenue earned from a contract with a customer. The standard provides specific guidance on
identifying separate performance obligations in the contract and allocating the transaction price to the separate performance obligations. |
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Agrium expects to adopt for annual periods beginning on or after January 1, 2017. |
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We are currently evaluating the impact. |
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| Amended |
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IFRS 11 |
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Joint Arrangements clarifies that when an entity acquires an interest in a joint operation that meets the definition of a business, it should be accounted for under IFRS 3 Business
Combinations. |
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Amendments adopted January 1, 2015. |
|
There will be no material impact on adoption. |
|
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| Amended |
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IAS 32 |
|
Offsetting Financial Assets and Liabilities (a) clarifies requirements for the right to set-off for rights that are contingent, and enforceability in default, insolvency or bankruptcy
of all parties to a liability and (b) clarifies provisions on net settlement. |
|
Amendments adopted January 1, 2014. |
|
There has been no material impact on adoption. |
|
|
|
|
|
| New |
|
IFRIC 21 |
|
Levies establishes guidance on accounting for levies imposed by governments. |
|
Adopted January 1, 2014, retrospectively. |
|
There has been no material impact on adoption. |
AGRIUM 2014 ANNUAL
REPORT 137
EXHIBIT 99.4
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KPMG LLP |
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Telephone (403) 691-8000 |
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205 - 5th Avenue SW |
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Fax (403) 691-8008 |
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Suite 3100, Bow Valley Square 2 |
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www.kpmg.ca |
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Calgary AB |
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T2P 4B9 |
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Consent of Independent Registered Public Accounting
Firm
The Board of Directors of Agrium Inc.
We consent
to the use of our reports, each dated February 24, 2015, with respect to the consolidated financial statements and the effectiveness of internal control over financial reporting included in this annual report on Form 40-F.
We also consent to the incorporation by reference of such reports in the Registration Statements on Form S-(File Nos. 333-11254, 333-114276, 333-132207,
333-143334, 333-149666, 333-161620 and 333-195968) and on Form F-10 (File No. 333-195266).
KPMG LLP
Chartered Accountants
March 5, 2015
Calgary, Canada
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to
KPMG LLP.
KPMG Confidential
EXHIBIT 99.5
March 5, 2015
Agrium Inc.
13131 Lake Fraser Drive S.E.
Calgary, AB T2J 7E8
Ladies and Gentlemen:
Re: Annual Report on Form 40-F
Reference is made to the Annual Report on Form 40-F (the “Annual Report”) filed by Agrium Inc. (the “Corporation”) under the
Securities Exchange Act of 1934, as amended.
I, A. Dave Mackintosh, B.Sc., P. Geo., a qualified person, am responsible for preparing or supervising the
preparation of sections 1-3, 13, 17 and 24-27 of the technical report entitled “National Instrument 43-101 Technical Report on Vanscoy Potash Operations, Vanscoy, Saskatchewan, Canada” dated effective October 31, 2014 (the
“Technical Report”).
I hereby consent to the inclusion in the Annual Report of references to and information derived from the Technical Report
and to the use of my name therein. I also consent to the incorporation by reference of such information in Registration Statements Nos. 333-11254, 333-114276, 333-132207, 333-143334, 333-149666, 333-161620 and 333-195968 on Form S-8 and Registration
Statement No. 333-195266 on Form F-10 of the Corporation.
Yours truly,
|
| /S/ A. Dave Mackintosh |
| A. Dave Mackintosh, B.Sc., P. Geo. |
EXHIBIT 99.6
March 5, 2015
Agrium Inc.
13131 Lake Fraser Drive S.E.
Calgary, AB T2J 7E8
Ladies and Gentlemen:
Re: Annual Report on Form 40-F
Reference is made to the Annual Report on Form 40-F (the “Annual Report”) filed by Agrium Inc. (the “Corporation”) under the
Securities Exchange Act of 1934, as amended.
The undersigned hereby consents to the use of its name and references to the technical report entitled
“National Instrument 43-101 Technical Report on Vanscoy Potash Operations, Vanscoy, Saskatchewan, Canada” dated effective October 31, 2014 (the “Technical Report”), and the inclusion of extracts from, or a summary of, the
Technical Report in the Annual Report. The undersigned also consents to the incorporation by reference of such information in Registration Statements Nos. 333-11254, 333-114276, 333-132207, 333-143334, 333-149666, 333-161620 and 333-195968 on Form
S-8 and Registration Statement No. 333-195266 on Form F-10 of the Corporation.
Yours truly,
ADM CONSULTING LIMITED
|
| /S/ A. Dave Mackintosh |
| A. Dave Mackintosh, B. Sc., P. Geo. |
| President |
EXHIBIT 99.7
March 5, 2015
Agrium Inc.
13131 Lake Fraser Drive S.E.
Calgary, AB T2J 7E8
Ladies and Gentlemen:
Re: Annual Report on Form 40-F
Reference is made to the Annual Report on Form 40-F (the “Annual Report”) filed by Agrium Inc. (the “Corporation”) under the
Securities Exchange Act of 1934, as amended.
I, Michael Ryan Bartsch, P. Eng., a qualified person, am responsible for preparing or supervising the
preparation of sections 1-5, 12, 16 and 19-27 of the technical report entitled “National Instrument 43-101 Technical Report on Vanscoy Potash Operations, Vanscoy, Saskatchewan, Canada” dated effective October 31, 2014 (the
“Technical Report”).
I hereby consent to the inclusion in the Annual Report of references to and information derived from the Technical Report
and to the use of my name therein. I also consent to the incorporation by reference of such information in Registration Statements Nos. . 333-11254, 333-114276, 333-132207, 333-143334, 333-149666, 333-161620 and 333-195968 on Form S-8 and
Registration Statement No. 333-195266 on Form F-10 of the Corporation.
Yours truly,
|
| /S/ Michael Ryan Bartsch |
| Michael Ryan Bartsch, P.Eng. |
EXHIBIT 99.8
March 5, 2015
Agrium Inc.
13131 Lake Fraser Drive S.E.
Calgary, AB T2J 7E8
Ladies and Gentlemen:
Re: Annual Report on Form 40-F
Reference is made to the Annual Report on Form 40-F (the “Annual Report”) filed by Agrium Inc. (the “Corporation”) under the
Securities Exchange Act of 1934, as amended.
I, Dennis William Aldo Grimm, P. Eng., a qualified person, am responsible for preparing or supervising the
preparation of sections 1-3, 13, 17 and 24-27 of the technical report entitled “National Instrument 43-101 Technical Report on Vanscoy Potash Operations, Vanscoy, Saskatchewan, Canada” dated
effective October 31, 2014 (the “Technical Report”).
I hereby consent to the inclusion in the Annual Report of references to and
information derived from the Technical Report and to the use of my name therein. I also consent to the incorporation by reference of such information in Registration Statements Nos. 333-11254,
333-114276, 333-132207, 333-143334, 333-149666, 333-161620 and 333-195968 on Form S-8 and Registration Statement No. 333-195266 on Form F-10 of the
Corporation.
|
| Yours truly, |
|
| /S/ Dennis William Aldo Grimm |
| Dennis William Aldo Grimm, P.Eng. |
Exhibit 99.9
MINE SAFETY DISCLOSURE
Agrium Inc. (the “Company”) is committed to the health and safety of its employees and in providing an incident free
workplace. The Company maintains a comprehensive health and safety program that includes extensive training for all employees and contractors, emergency response preparedness, site inspections, incident investigation, regulatory compliance
training and process auditing.
The Company’s U.S. mining operations are subject to Federal Mine Safety and Health Administration
(“MSHA”) regulation under the U.S. Federal Mine Safety and Health Act of 1977 (“FMSH Act”). MSHA inspects the Company’s U.S. mines on a regular basis and may issue various citations and orders if it believes a violation
has occurred under the FMSH Act. Whenever MSHA issues a citation or order, it also generally proposes a civil penalty, or fine, related to the alleged violation.
The following disclosures are provided pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act
and Item 16 of General Instruction B to Form 40-F, which require certain disclosures by companies required to file periodic reports under the Securities Exchange Act of 1934 that operate mines regulated under the FMSH Act. The disclosures
reflect the Company’s U.S. mining operations only, as such requirements do not apply to the Company’s mines operated outside the United States.
The information in the table below relates to the Company’s U.S. mining operations during the year ended December 31, 2014, as
reflected in the Company’s records. In some cases, the data in the Company’s internal systems may not match or reconcile with the data MSHA maintains on its public web site:
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| Mine or Operating Name and
MSHA Identification Number
(1) |
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Section
104
S&S
Citations
(#) (2) |
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Section
104(b)
Orders
(#) (3) |
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Section
104(d)
Citations
and
Orders
(#) (4) |
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Section
110(b)(2)
Violations
(#) (5) |
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Section
107(a)
Orders
(#) (6) |
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Total Dollar
Value of
MSHA
Assessments
Proposed
($) |
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Total
Number
of Mining
Related
Fatalities
(#) |
|
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Received
Notice of
Pattern of
Violations
Under
Section
104(e)
(yes/no) |
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Received
Notice of
Potential to
Have
Pattern Under
Section
104(e)
(yes/no) |
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Legal
Actions
Pending
as of Last
Day of
Year
(#) |
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Legal
Actions
Initiated
During
Year
(#) |
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Legal
Actions
Resolved
During
Year
(#) |
|
| Rasmussen Ridge Mine —1002177 |
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0 |
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0 |
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0 |
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0 |
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0 |
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0 |
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0 |
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No |
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No |
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0 |
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0 |
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0 |
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| (1) |
MSHA assigns an identification number to each mine or operation and may or may not assign separate identification numbers to related facilities. The information provided above is presented by mine identification number.
Nu-West Industries, Inc. (the “Operator”), a wholly-owned subsidiary of the Company, operates each of the mines listed above. |
| (2) |
Represents the total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard under Section 104 of
the FMSH Act for which the Operator received a citation from the MSHA. |
| (3) |
Represents the total number of orders issued under Section 104(b) of the FMSH Act, which cover violations that had previously been cited under Section 104(a) that, upon follow-up inspection by MSHA, are found
not to have been totally abated within the prescribed time period. |
| (4) |
Represents the total number of citations and orders for unwarrantable failure of the Operator to comply with mandatory health or safety standards under Section 104(d) of the FMSH Act. |
| (5) |
Represents the total number of flagrant violations under Section 110(b)(2) of the FMSH Act. |
| (6) |
Represents the total number of imminent danger orders issued under Section 107(a) of the FMSH Act. |
EXHIBIT 99.10
CERTIFICATION
REQUIRED
BY RULE 13a-14(a) OR RULE 15d-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Charles V. Magro, certify that:
| |
1. |
I have reviewed this annual report on Form 40-F of Agrium Inc.; |
| |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
| |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
issuer as of, and for, the periods presented in this report; |
| |
4. |
The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have: |
| |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
(c) |
Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
| |
(d) |
Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the issuer’s internal control over financial reporting; and |
| |
5. |
The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the
issuer’s board of directors (or persons performing the equivalent functions): |
| |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process,
summarize and report financial information; and |
| |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting. |
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| Date: March 5, 2015 |
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|
|
/S/ Charles V. Magro |
|
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Name: |
|
Charles V. Magro |
|
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Title: |
|
President & Chief Executive Officer |
EXHIBIT 99.11
CERTIFICATION
REQUIRED
BY RULE 13a-14(a) OR RULE 15d-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steve J. Douglas, certify that:
| |
1. |
I have reviewed this annual report on Form 40-F of Agrium Inc.; |
| |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
| |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
issuer as of, and for, the periods presented in this report; |
| |
4. |
The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have: |
| |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
(c) |
Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
| |
(d) |
Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the issuer’s internal control over financial reporting; and |
| |
5. |
The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the
issuer’s board of directors (or persons performing the equivalent functions): |
| |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process,
summarize and report financial information; and |
| |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting. |
|
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| Date: March 5, 2015 |
|
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|
/S/ STEVE J. DOUGLAS |
|
|
Name: |
|
Steve J. Douglas |
|
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Title: |
|
Senior Vice President & Chief Financial
Officer |
EXHIBIT 99.12
CERTIFICATION
REQUIRED
BY RULE 13a-14(b) OR RULE 15d-14(b) AND
SECTION 1350 OF CHAPTER 63 OF TITLE 18
OF THE UNITED STATES CODE
Agrium Inc. (the “Company”) is filing its annual report on Form 40-F for the fiscal year ended December 31, 2014 (the
“Report”) with the United States Securities and Exchange Commission.
I, Charles V. Magro, President & Chief Executive
Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
| |
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: March 5, 2015
|
|
|
|
| /S/ Charles V. Magro |
| Name: |
|
Charles V. Magro |
| Title: |
|
President & Chief Executive Officer |
EXHIBIT 99.13
CERTIFICATION
REQUIRED
BY RULE 13a-14(b) OR RULE 15d-14(b) AND
SECTION 1350 OF CHAPTER 63 OF TITLE 18
OF THE UNITED STATES CODE
Agrium Inc. (the “Company”) is filing its annual report on Form 40-F for the fiscal year ended December 31, 2014 (the
“Report”) with the United States Securities and Exchange Commission.
I, Steve J. Douglas, Senior Vice President &
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as enacted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
| |
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
|
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|
|
| Dated: March 5, 2015 |
|
|
|
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|
|
|
/S/ STEVE J. DOUGLAS |
|
|
Name: |
|
Steve J. Douglas |
|
|
Title: |
|
Senior Vice President & Chief Financial Officer |
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